Annual Report 2018
ANNUAL
REPORT
2018
Helping Customers
Bringing Resources to Our World
ClearStream Energy Services Inc.
1
Annual Report 2018
Annual Report 2018
DEAR SHAREHOLDERS
2018 was a year of transition as we set the stage for the future of our Company. Progress was made in completing
the largest number of turnarounds in the history of our organization, protecting market share through major
contract renewals, and increasing our customer base with new contract wins. These achievements were
accomplished despite a continued challenging environment with increased volatility for Oil & Gas prices impacting
our client’s cash flows. Maintenance and turnaround demand increased modestly in 2018 relative to 2017. Overall
demand for our services in conjunction with market share gains obtained throughout 2018, led ClearStream to
achieving a 40% improvement of revenue compared to the low revenue level of 2016. On January 2, 2019
ClearStream announced four significant contract renewals and new work with major Upstream, Midstream and
Downstream Oil & Gas companies in Canada representing a 100% contract renewal rate for the third year in a row.
We continue to have strong long‐standing relationships with our tier‐one customer base. As evidenced by our
contract renewal rate, ClearStream is now well recognized as a trusted provider of industrial and asset integrity
services to improve our customers’ facilities and operations in a safe, efficient and cost effective manner.
However, the maintenance business remained very competitive during 2018, with continued downward pressure
on pricing for our core services. This was further compounded by the unfavorable sales mix between union/non‐
union businesses impacting negatively our operating margins. We were able to persevere in this difficult operating
environment by providing the required services on time and with the highest quality of standards thanks to our
engaged and experienced workforce, while improving further yet again our safety performance in 2018 compared
to prior years.
2018 was also a year of shifting our focus to strategic growth initiatives in our differentiated offerings and higher
margin service lines, which include Wear Technology and Environmental Services. With the recent acquisition of
AFX Materials and Fabrication Ltd., the manufacturing capacity of ClearStream’s existing Wear technology business
is expected to increase by 30%. In addition, the Company embarked into an important program of business process
improvements to increase operational effectiveness and lower operating costs in order to remain ahead of the
competition and maximize margins in this market environment. Asset utilization, manufacturing efficiencies,
process standardization and automation as well as centralization across the organization are some of the key
initiatives in focus that will be fully realised in 2019 and onwards.
On January 16, 2018, ClearStream completed a refinancing transaction that has significantly improved our balance
sheet stability. As part of this transaction, $108.6 million of long‐term debt was exchanged for a newly created
series of Preferred Shares. In addition, the Company issued $19 million of Preferred Shares in exchange for cash
proceeds to fund existing and future interest obligations. We also continue to have strong financial support from
our key stakeholders as evidenced by the $10 million term loan obtained on November 2, 2018.
There were significant changes in our Executive Leadership Team with the appointments of a Chief Executive
Officer, Chief Financial Officer, Chief Commercial Officer and General Counsel throughout 2018. With the new
Executive Leadership Team focused on creating value for its shareholders, the support from our financial partners
and our track record of strong operational execution through a broad range of service offerings, we are confident
that ClearStream will continue to expand its scope of services and geographical footprint with more value‐added
solutions and technologies, thus positioning ClearStream for improved profitability in 2019.
Thank you for your continued support.
Yves Paletta
Chief Executive Officer
ClearStream Energy Services Inc.
2
Annual Report 2018
Annual Report 2018
Forward‐looking information
This MD&A contains certain forward‐looking information. Certain information included in this MD&A 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 ClearStream. 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 of the Company, 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 considers 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 MD&A, 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 MD&A 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 ‘‘EBITDAS’’ and “Adjusted EBITDAS” (collectively the ‘‘Non‐standard measures’’) are financial measures used in this MD&A that are not standard
measures under IFRS. ClearStream’s method of calculating Non‐standard measures may differ from the methods used by other issuers. Therefore, ClearStream’s
Non‐standard measures, as presented may not be comparable to similar measures presented by other issuers.
EBITDAS refers to net earnings determined in accordance with IFRS, before depreciation and amortization, interest expense, income tax expense (recovery) and
stock based compensation. EBITDAS 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 EBITDAS 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, EBITDAS 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 EBITDAS in this MD&A.
Adjusted EBITDAS refers to EBITDAS excluding loss from long‐term investments, the gain on sale of assets, impairment of goodwill and intangible assets,
restructuring costs, one‐time non‐recurring costs identified by management, and gain (loss) on sale of property, plant and equipment. ClearStream has used
Adjusted EBITDAS as the basis for the analysis of its past operating financial performance. Adjusted EBITDAS 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 EBITDAS 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 EBITDAS in this MD&A.
Investors are cautioned that the Non‐standard 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‐standard measures should only be used with reference
to ClearStream’s Interim Financial Statements and Annual Financial Statements available on SEDAR at www.sedar.com or www.clearstreamenergy.ca.
ClearStream Energy Services Inc.
3
Annual Report 2018
Annual Report 2018
Management’s Discussion and Analysis
March 21, 2019
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, 2018, and 2017. This MD&A
should be read in conjunction with ClearStream’s audited consolidated financial statements for the years ended
December 31, 2018 and 2017.
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 21, 2019 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 2018
Annual Report 2018
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 entirely in Canada. ClearStream utilizes EBITDAS and
Adjusted EBITDAS as performance measures for its segmented results. These measures are considered to be non‐
standard measures under IFRS.
Segment
Business Description
Maintenance and
Construction Services
Operational, maintenance,
conventional oil and gas, oilsands, and other industries.
turnaround and construction services
to
the
Wear, Fabrication and
transportation
Custom fabrication services supporting pipeline and infrastructure projects,
patented wear overlay technology services specializing in overlay pipe spools, pipe
bends and plate.
Corporate
ClearStream head office management, administrative, legal and interest expense
costs.
Note: The Environmental Services division has been included in the Wear, Fabrication and Transportation Services segment; the financial results for this division
were not significant to overall financial results for this segment during the periods ending December 31, 2018.
ClearStream Energy Services Inc.
5
Annual Report 2018
2018 RESULTS – CONTINUING OPERATIONS
Summary Results ($000’s)
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Stock based compensation recovery (expense)
Amortization of intangible assets
Depreciation expense
Income from equity investment
Interest expense
Gain (loss) on sale of assets
Restructuring costs
Impairment of goodwill and intangible assets
Gain on sale of property, plant and equipment
Income tax expense - current
Other loss
Net loss from continuing operations
Add:
Amortization
Depreciation
Stock based compensation
Interest expense
Income tax expense - current
EBITDAS
Gain (loss) on sale of assets
Gain on sale of property, plant and equipment
Impairment of goodwill and intangible assets
Restructuring costs
Other loss
One-time incurred expenses
Adjusted EBITDAS
Loss per share
Basic & Diluted:
Continuing operations
Net loss
Selected Balance Sheet Accounts
As at December 31,
Total assets
ABL facility
Senior secured debentures
Convertible secured debentures
Shareholders' deficit
Annual Report 2018
2018
$
378,332
(351,235)
27,097
2017
$
357,147
(326,728)
30,419
(21,359)
97
(1,371)
(4,948)
163
(12,537)
757
(165)
(17,733)
328
459
(860)
(30,072)
(18,866)
(710)
(3,445)
(5,264)
246
(21,474)
(570)
(1,414)
(7,685)
2,083
(2)
(5,778)
(32,460)
$
$
1,371
4,948
(97)
12,537
(459)
(11,772)
(757)
(328)
17,733
165
860
1,813
7,714
3,445
5,264
710
21,474
2
(1,565)
570
(2,083)
7,685
1,414
5,778
-
11,799
$
$
2018
2017
$
$
(0.28)
(0.29)
$
$
(0.30)
0.33
2018
$
111,585
32,961
96,746
852
(58,437)
2017
$
132,643
27,500
171,988
24,999
(138,888)
ClearStream Energy Services Inc.
6
Annual Report 2018
Annual Report 2018
2018 RESULTS COMMENTARY
Revenues for the year ended December 31, 2018 were $378,332 compared to $357,147 in 2017, an increase of 6%
from 2017. The increase in 2018, in comparison to 2017, relates to increased turnaround demand and higher
revenue in the Fort McMurray region. This increase was partially offset by the reduction in transportation revenue
as this division was divested in Q1 2018.
Gross profit for the year ended December 31, 2018 was $27,097 compared to $30,419 in 2017. Gross profit
margins were 7.2% compared to 8.5% in 2017. The decline in gross profit margin in 2018, in comparison to 2017,
was largely due to reduced pricing which was necessary for customer retention. In addition, a larger proportion of
revenue was earned in 2018 compared to 2017 in our ClearWater turnaround business, which is lower margin
work due to the higher cost of labour associated with this type of service offering.
Selling, general and administrative (“SG&A”) costs for the year ended December 31, 2018 were $21,359, in
comparison to $18,866 in 2017. SG&A costs were up by $2,493 in 2018 relative to 2017 due largely to increased
transition costs including but not limited to professional fees incurred in the refinancing as well as in second half of
2018 related to growth initiatives. In addition, SG&A includes one‐time expenses related to the acquisition of AFX,
and other expenses to support business process improvements designed to increase operational effectiveness and
lower operating costs going forward. As a percentage of revenue, SG&A costs slightly increased to 5.6% in 2018
compared to 5.3% in 2017. Included in 2018 SG&A costs are $729 in one‐time expenses.
Non‐cash items that impacted the 2018 results were depreciation and amortization and write‐down of goodwill.
Depreciation and amortization was $6,319 for the year ended December 31, 2018 compared to $8,709 for 2017.
The decrease in depreciation and amortization expense were due to reduction in depreciable assets as result of
the sale of Transportation division in the first quarter of 2018. In addition, ClearStream has lowered capital
spending programs in response to the challenging market conditions, which has contributed to reduced
depreciable asset base in 2018 relative to 2017.
For the year ended December 31, 2018, interest costs, excluding accretion expense, were $12,537 compared with
$21,474 in 2017. Interest expense decreased due to the significant decline in debenture debt from the refinancing
transaction that was completed in January of 2018. Non‐cash accretion expense was $299 for 2018 compared to
$856 for 2017. 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.
Restructuring costs of $165 were recorded during 2018, in comparison to $1,414 in 2017. These non‐recurring
restructuring costs are comprised of severance and location closure costs. Restructuring costs in 2018 also includes
costs associated with the refinancing transaction that closed in early 2018.
The loss from continuing operations was $30,072 in 2018, in comparison to $32,460 in 2017. The losses in 2018
include a $17,733 impairment write‐down for goodwill relating to the Maintenance and Construction segment
recorded in the third quarter of 2018.
The loss from discontinued operations was $1,495 and due to expenses that the Company continues to incur
relating to the sale of the business prior to March 2018. These expenses consist largely of legal, insurance, and
consulting costs relating to the Quantum Murray earn‐out and legal proceedings that existed prior to the sale of
the business. For the year ended December 31, 2017 a loss of $5,778 was recognized to provide for an onerous
contract relating to the sale of the transportation division.
For the year ended December 31, 2018, adjusted EBITDAS was $7,431 compared to $11,799 in 2017. Adjusted
EBITDAS for the year ended December 31, 2018, declined compared to 2017 due to lower gross margins in 2018
and increase in the SG&A.
ClearStream Energy Services Inc.
7
Annual Report 2018
Annual Report 2018
Purchase of AFX
During the third quarter of 2018, ClearStream completed the acquisition of AFX for total consideration of up to
$3.088. AFX is a specialized manufacturer of wear resistant chromium carbide overlay and structural steel
fabrication with operations in Alberta. The acquisition is expected to increase the manufacturing capacity of
ClearStream’s existing Wear Technology business by 30%.
Refinancing Transaction
On January 16, 2018, ClearStream announced the completion of a refinancing transaction whereby Canso
Investment Counsel Ltd. (“Canso”), one of the Company’s major shareholders, exchanged a certain amount of
ClearStream’s debt for a newly created series of Preferred Shares and subscribed for additional Preferred Shares
on a private placement basis.
The terms of the new Preferred Shares provide for a 10% fixed cumulative preferential dividend. The Board of
Directors of the Company does not intend to declare or pay any cash dividends until such a time the Company’s
balance sheet and liquidity position supports such a payment. Any accrued but unpaid dividends are convertible in
certain circumstances at the option of the holder into additional Preferred Shares. Holders of the Preferred Shares
will have the right, at their option, to convert their Preferred Shares into Common Shares at a price of $0.35 per
Common Share, subject to adjustment in certain circumstances. The Preferred Shares are redeemable by the
Company in cash at 110% of the purchase price for such shares, plus accrued but unpaid dividends once all of the
outstanding Senior Secured Debentures have been repaid and are subject to repayment in the event of certain
change of control transactions.
As part of the refinancing transaction, Canso exchanged $75,000 of Senior Secured Debentures due 2026 for
75,000 preferred shares, and $33,565 of Convertible Secured Debentures for 33,565 Preferred Shares.
Additionally, ClearStream issued 19,000 Preferred Shares to Canso for proceeds of $19,000 on a private placement
basis. The proceeds of the private placement were used to fund the interest obligations related to the Senior
Secured Debentures and Convertible Secured Debentures. As part of the refinancing transaction, ClearStream’s
ABL facility was amended and restated.
On November 2, 2018 – the Company entered into a second amended and restated asset‐based lending credit
agreement dated November 2, 2018 (the “New Credit Agreement”). The New Credit Agreement amends and
replaces the prior asset‐based lending credit agreement entered into with the ABL Agent and other lenders dated
January 16, 2018. The New Credit Agreement adds a new term credit facility (the “Term Facility”) pursuant to
which certain Term Lenders will provide a non‐revolving term credit facility to the Company in the principal
amount of $10,000,000. The proceeds of the Term Facility were used to reduce the outstanding amount of the
revolving facility under the New Credit. The Term Facility matures on the earlier of (i) 180 days following the
maturity date of the revolving facility under the New Credit Agreement; (ii) September 30, 2020; and (iii) the date
on which the Term Facility is terminated earlier pursuant to the terms of the New Credit Agreement.
The other covenants, terms and conditions under the New Credit Agreement remain substantially unchanged from
the prior credit agreement.
ClearStream Energy Services Inc.
8
Annual Report 2018
Annual Report 2018
Sale of Transportation Assets
During the first quarter of 2018, ClearStream successfully completed the sale of its transportation assets for total
consideration of $3,400. The completion of the sale marks the closure of the Transportation division in order to
focus attention on ClearStream’s core business. A gain of $1,032 was recognized on the sale.
SEGMENT OPERATING RESULTS
MAINTENANCE AND CONSTRUCTION SERVICES
Revenues
C ost of revenues
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation expense
Impairment of goodwill and intangible assets
Income from equity investments
Interest expense
Gain on sale of property, plant and equipment
Income tax expense
(Loss) Income from continuing operations
Add:
Amortization of intangible assets
Depreciation expense
Interest expense
EBITDAS
Impairment of goodwill and intangible assets
Gain on sale of property, plant and equipment
One-time incurred expenses
Adjusted EBITDAS
REVENUES
2018
318,873
(303,074)
15,799
(1,093)
(1,030)
(3,216)
(17,733)
163
(334)
318
-
(7,126)
1,030
3,216
334
(2,546)
17,733
(318)
801
2017
286,433
(267,711)
18,722
(1,977)
(1,984)
(2,522)
(7,108)
246
(270)
1,968
-
7,075
1,984
2,522
270
11,851
7,108
(1,968)
-
15,670
16,991
Revenues for the Maintenance and Construction Services segment were $318,873 for the year ended December
31, 2018 compared to $286,433 in the prior year, which reflects an increase of 11%. Year‐over‐year demand
growth for maintenance, workforce management and turnaround services drove a large portion of the revenue
increase. Large plant turnarounds in Saskatchewan and Newfoundland were completed during the second quarter
of 2018, which were incremental compared to 2017. Also demand for these services recovered in 2018 compared
to 2017 due to slight improvements in commodity prices combined with maintenance requirements that could no
longer be deferred.
GROSS PROFIT
Gross profit was $15,799 for the year ended December 31, 2018, compared to $18,722 in the prior year in the
prior year. Gross profit margins for those same periods were 5.0% compared to 6.5% in 2017. Gross margins
declined due to lower pricing and an unfavorable change in sales mix. Maintenance and construction services
continue to be over‐supplied relative to demand and, as a result, pricing levels declined compared to 2017. In
addition, in the second and third quarter of 2018, we earned a larger proportion of revenue from work using union
based employees, which is lower margin work due to the higher cost of labour associated with this type of work.
ClearStream Energy Services Inc.
9
Annual Report 2018
Annual Report 2018
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Maintenance and Construction segment were $1,093 for the year ended December 31,
2018 compared to $1,977 in 2017, SG&A expenses decreased year over year basis mainly due to reductions in
headcount and discretionary spending which started late of 2017 and early of 2018.
Write‐down of Goodwill
ClearStream performed impairment tests as at December 31, 2018 as a result of the adverse economic impact that
low commodity prices have had on ClearStream’s financial results and the industries that it operates in. The
adverse economic impacts include lower pricing and demand for goods and services provided to customers. As a
result of the testing performed, a goodwill impairment loss of $17,733 was recorded in the third quarter of 2018
for the Maintenance and Construction segment. The goodwill impairment write‐down is non‐cash in nature and
does not affect the Company’s liquidity, cash flows from operating activities, or debt covenants and does not have
an impact on the future operations of the Company.
Adjusted EBITDAS was $15,670 for the year ended December 31, 2018, compared to $16,991 in 2017. Adjusted
EBITDAS for the year ended December 31, 2018, declined compared to 2017 due to lower gross margins in 2018.
WEAR, FABRICATION & TRANSPORTATION
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation expense
Interest expense
(Loss) Gain on sale of property, plant and equipment
Impairment of goodwill and intangible assets
Other loss
Income tax expense
Gain on sale of assets
Income from continuing operations
Add:
Amortization of intangible assets
Depreciation expense
Interest expense
Income tax expense
EBITDAS
Other loss
Impairment of goodwill and intangible assets
(Loss) Gain on sale of property, plant and equipment
Gain on sale of assets
Adjusted EBITDAS
2018
61,335
(50,037)
11,298
(1,137)
(341)
(1,388)
(54)
(2)
-
(860)
459
1,032
9,007
341
1,388
54
(459)
10,331
860
-
2
(1,032)
10,161
2017
72,824
(61,127)
11,697
(778)
(1,461)
(2,340)
(177)
115
(577)
(5,778)
-
-
701
1,461
2,340
177
0
4,679
5,778
577
(115)
-
10,919
ClearStream sold all transportation assets on January 1, 2018. Total proceeds received on the sale were $3,400 and
a gain of $1,032 was recognized on the sale. The following table shows the year‐over‐year results with the
transportation division excluded to facilitate a more relevant comparative analysis:
ClearStream Energy Services Inc.
10
Annual Report 2018
Financial Results Excluding Transportation
Revenues
C ost of revenues
Gross Profit
Selling, general and administrative expenses
Adjusted EBITDAS
REVENUES
Annual Report 2018
2018
2017
61,335
(50,037)
11,298
(1,137)
10,161
60,177
(48,585)
11,592
(449)
11,143
Excluding the Transportation division, revenues for this segment for the year ended December 31, 2018 were
$61,335, compared to $60,177 in 2017. The slight increase in revenue was largely due to an increase in Wear
Technology demand. AFX acquisition completed in third quarter of 2018 added additional 30% capacity which
significantly contributed to such increase in revenue, this increase was offset by decrease in fabrication division
due to lower demand in 2018.
GROSS PROFIT
Gross profit was $11,298 for the year ended December 31, 2018, compared to 11,697 in 2017. On a year‐over‐year
basis, gross margins were relatively consistent compared to the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Excluding the Transportation division, SG&A expenses for the Fabrication and Wear Technology segment for the
year ended December 31, 2018 increased compared to the prior periods due to an increase in people costs.
The other loss of $860 for the year ended December 31, 2018 compared to $5,778 in 2017, relates to losses on a
contract that was deemed to be onerous under IFRS after the sale of the transportation assets. The gain on sale of
assets relates to the sale of the Transportation business that closed in early 2018.
CORPORATE
ClearStream’s head office functions are located in Calgary, Alberta. The Corporate division provides typical head
office functions including strategic planning, corporate communications, taxes, legal, and marketing, finance,
human resources and information technology for the entire organization. The tables below reflect the costs of
ClearStream’s corporate function, as well as other corporate overhead expenses.
ClearStream Energy Services Inc.
11
Annual Report 2018
Selling, general administrative expenses
Stock based compensation recovery (expense)
Depreciation expense
Interest expense
Loss from assets
Restructuring costs
Gain on sale of property, plant and equipment
Income tax expense
Loss from continuing operations
Add:
Depreciation expense
Stock based compensation recovery (expense)
Interest expense
Income tax expense
EBITDAS
Loss from assets
Restructuring costs
Gain on sale of property, plant and equipment
One-time incurred expenses
Adjusted EBITDAS
Annual Report 2018
2018
(19,129)
97
(344)
(12,149)
(275)
(165)
12
-
(31,953)
344
(97)
12,149
-
(19,557)
275
165
(12)
967
(18,162)
2017
(16,111)
(710)
(402)
(21,027)
(570)
(1,414)
-
(2)
(40,236)
402
710
21,027
2
(18,095)
570
1,414
-
-
(16,111)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses were $19,129 for the year ended December 31, 2018 compared to $16,111 in the prior year. SG&A
costs increased on a year‐over‐year basis due to higher legal, consulting and people costs, incurred with the
refinancing transaction as well as initiatives to support business process improvements designed to increase
operational effectiveness and lower operating costs going forward. Included in SG&A costs are $729 in one‐time
expenses, which include costs related to the acquisition of AFX and other growth initiatives. As a percentage of
consolidated revenue, Corporate SG&A costs is 5.5% in 2018 compared to 5.3% in 2017 were relatively consistent
compared to the prior year.
ClearStream Energy Services Inc.
12
Annual Report 2018
FOURTH QUARTER 2018 RESULTS
Quarter ended December 31,
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Stock based compensation recovery (expense)
Amortization of intangible assets
Depreciation
Income from equity investment
Interest expense
Loss on sale of assets
Restructuring costs
Impairment of goodwill and intangible assets
Gain (Loss) on sale of property, plant and equipment
Income tax expense - current
Other loss
Net loss from continuing operations
Add:
Amortization
Depreciation
Stock based compensation
Interest expense
Income tax expense - current
EBITDAS
Loss on sale of assets
Gain (Loss) on sale of property, plant and equipment
Impairment of goodwill and intangible assets
Restructuring costs
Other loss
One-Time incurred expenses
Adjusted EBITDAS
FOURTH QUARTER RESULTS COMMENTARY
Annual Report 2018
2018
77,840
(71,671)
6,169
(6,561)
240
941
(1,433)
31
(3,036)
-
(38)
(265)
52
628
(331)
(3,603)
(941)
1,433
(240)
3,036
(628)
(943)
-
(52)
265
38
331
1,530
1,169
2017
81,972
(75,801)
6,171
(5,014)
(131)
(857)
(1,337)
86
(5,786)
(283)
(587)
(7,685)
(6)
-
(5,778)
(21,207)
857
1,337
131
5,786
-
(13,096)
283
6
7,685
587
5,778
-
1,243
Revenues for the three months ended December 31, 2018 were $77,840 compared to $81,972 in 2017, a decrease
of 5.0% on year‐over‐year basis. This decrease is due to witnessed declining in Fabrication division’s revenue due
to lower customer demand for this union service.
Gross profit for the three months ended December 31, 2018 was $6,169 compared to $6,171 in 2017. Gross
margins were 7.9% for the three months ended December 31, 2018 compared to 7.5% in the fourth quarter of
2017. The increase in gross margins in the three months ended December 31, 2018 was due to realized efficiencies
in all services lines.
SG&A for the three months ended December 31, 2018 was $6,561 compared to $5,014 in 2017; this increase is
mainly due to one‐time expenses, legal and consulting fees, incurred in the three months ended December 31,
2018 of $447 to support the AFX acquisition as well as a number of transformation and improvement initiatives.
Restructuring costs decreased significantly on a quarter‐over‐quarter basis as a majority of the ClearStream
restructuring initiatives were implemented in last quarter of 2017 and first two quarters of 2018.
ClearStream Energy Services Inc.
13
Annual Report 2018
Annual Report 2018
The decrease in interest expense relates to the costs of servicing the ABL facility in 2018, this decrease is primarily
related to partial conversion of the senior debenture in first quarter of 2018.
Adjusted EBITDAS
Quarter ended December 31,
Q4 2018
Q4 2017
2018 vs. 2017
Maintenance and C onstruction
Wear, Fabrication & Transportation
Adjusted EBITDAS from operations
C orporate
Adjusted EBITDAS
Discontinued Operations
Quarter ended December 31,
Loss from discontinued operations
4,243
1,767
6,010
(4,885)
$1,125
3,651
1,311
4,962
(3,725)
$1,237
592
456
1,048
(1,160)
(112)
2018
(610)
2017
(3,445)
The loss of $610 was recorded during the fourth quarter of 2018, as discontinued operations is due to expenses
that the Company continues to incur relating to sale of business prior to March 2016. These expenses consist
largely of legal, insurance, and consulting costs relating to the Quantum Murray earn‐out and legal proceedings
that existed prior to the sale of the business.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in by operating activities
Total cash (used in) provided by investing activities
Total cash provided by financing activities
Consolidated cash as at December 31,
Cash used in continuing operations before interest
Interest expense
Decrease in cash due to changes in working capital
Cash used in discontinued operations
Cash used in by operating activities
OPERATING ACTIVITIES
2018
2017
$
(12,151)
1,691
16,649
10,838
$
(27,724)
569
20,301
4,649
2018
2017
$
$
5,621
(12,537)
(3,740)
(1,495)
(12,151)
11,611
(21,474)
(12,076)
(5,785)
(27,724)
$
$
Cash used in continuing operations represents the net loss incurred during 2018 adjusted for interest and non‐cash
items, including depreciation, amortization and asset impairments. Total working capital is relatively consistent on
a year‐over‐year basis. The cash used in discontinued operations includes the settlement of the some of the legacy
claims in 2018 and other expenses paid in 2018 relating to businesses that were sold prior to March 2018.
INVESTING ACTIVITIES
Cash inflows related to investment activities consist of proceeds of $3,400 from the sale of transportation assets
and $1,225 in proceeds from the early settlement of an earn‐out receivable. These proceeds were offset partially
by transaction costs of $1,060 paid on the transportation asset sale as well as $2,450 in cash paid for the
acquisition of AFX.
ClearStream Energy Services Inc.
14
Annual Report 2018
Annual Report 2018
The Company repaid $2,340 of the senior secured debentures with a portion of the proceeds on sale of
transportation assets. The remaining cash from the sale was used to fund transaction costs and costs associated
with closing down the transportation division.
Due to challenging market conditions, capital spending was kept to a minimum and non‐essential operating assets
were sold during 2018. As a result, cash proceeds on disposal net of asset purchases totaled $360.
Financing Activities in 2018
See a description of the refinancing transaction completed during the year under “Significant First Quarter 2018
Transactions.” In addition, the Company received $8,000 of cash that must be used to fund interest obligations
during 2018, which has been classified as restricted cash on the consolidated balance sheet. During the year
ended December 31, 2018, interest of $7,911 was paid out of restricted cash. The Company also incurred
approximately $3,441 in transaction costs associated with the refinancing transaction. On November 2, 2018 the
company received $10 million term loan from one of our major stakeholders.
The balance on the ABL facility increased by $5,461 to $32,961 during the year ended December 31, 2018, which
was used to partially fund the increase in working capital as well as the acquisition of AFX. At December 31, 2018,
the ABL borrowing base is $29,690 leaving $4,481 of availability on the facility.
The financial covenants applicable under the ABL Facility are as follows:
ClearStream must maintain a Fixed Charge Coverage Ratio of not less than 1.0:1.0 for each cumulative period
beginning on May 1, 2017 and ending on the last day of each month until March 31, 2018;
ClearStream must maintain a Fixed Charge Coverage Ratio of 1.0:1.0 for each twelve month period ending on
and after April 30, 2018; and
ClearStream must not expand or become obligated for any capital expenditures in an aggregate amount
exceeding $6,500 during any fiscal year.
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) plus finance lease payments (excluding
any interest paid using proceeds from the preferred share issuance in January 2018);
At December 31, 2018, ClearStream’s fixed charge coverage ratio was 1.00:1.00 for the cumulative period
beginning on January 1, 2018 and ending on December 31, 2018. ClearStream was in compliance with all financial
covenants under the ABL Facility as at December 31, 2018.
At each reporting date, management makes an assessment as to whether ClearStream will continue to meet the
going concern assumption over the next twelve months. Making this assessment requires significant judgment
with respect to forecasted EBITDA and Debt Servicing Costs. Based on management’s current forecast,
ClearStream is expected to remain in compliance with the covenants under the ABL Facility over the next twelve
months. However, there continues to be a risk that the Company will not meet forecasted expectations and
therefore breach financial covenants within the next twelve months.
On March 21, 2019 the company received confirmation from its lenders that the ABL facility had been approved
for renewal until March 2020 at terms substantially the same as the existing facility.
ClearStream Energy Services Inc.
15
Annual Report 2018
Annual Report 2018
Capital Leases
As part of its normal operations, ClearStream enters into finance leases as a way to finance capital initiatives,
primarily for its vehicles and equipment. During 2018, ClearStream repaid $2,442 (2017 – 3,699) of finance lease
obligations.
Summary of Contractual Obligations
ClearStream’s contractual obligations for the years 2019 to 2023 and thereafter are as follows:
Accounts payable and accrued liabilities
ABL Facility
Senior secured debentures
Convertible secured debentures
Finance Lease Obligations
Operating leases
Total Contractual Obligations
2020
2022
2021
2023
- - - -
- - - -
-
2019
Thereafter
28,417
-
32,961
-
- - 96,746
-
- - - - - 852
-
1,906 1,583 1,697 589 156
15,007
4,966 4,749
5,229
10,159
$
112,605
4,905
$
$
6,926
$
73,442
6,868
$
8,451
-
$
5,555
ClearStream expects to meet its short‐term contractual obligations through cash flow from operations, which
includes collection of accounts receivable. In 2018, ClearStream completed a refinancing transaction that included
an amendment and restatement of the ABL facility agreement. The refinancing transaction remedied the default
under the debt agreements. As a result, the ABL facility, senior secured debentures and convertibles secured
debentures are no longer due in 2018 and both debentures mature in 2026. On March 21, 2019 the company
received confirmation from its lenders that the ABL facility had been approved for renewal until March 2020 at
terms substantially the same as the existing facility.
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, including use of estimates and judgements, are described in note 1 of the annual financial statements.
Recently Adopted Accounting Pronouncements
IFRS 9 Financial Instruments
On January 1, 2018, ClearStream adopted IFRS 9 Financial Instruments (“IFRS 9”). IFRS 9 includes a new
classification and measurement approach for financial assets and a forward‐looking ‘expected credit loss’ model.
IFRS 9 was applied retrospectively in accordance with transition requirements with no impact to opening retained
earnings or comparative periods. The classification and measurement of financial instruments under IFRS 9 did not
have a material impact on ClearStream’s consolidated financial statements.
IFRS 15 Revenue from Contracts with Customers
On January 1, 2018, ClearStream adopted IFRS 15 Revenue from Contracts with Customers (“IFRS 15”). IFRS 15
establishes a comprehensive framework for determining whether, how much, and when revenue from contracts
with customers is recognized.
ClearStream Energy Services Inc.
16
Annual Report 2018
Annual Report 2018
The Company has adopted IFRS 15 using the modified retrospective approach. Accordingly, the cumulative effect
of initially applying IFRS 15 was recognized on January 1, 2018 as an adjustment to deficit. There were no
adjustments recorded to deficit related to the timing or amounts of revenue recognized; however, ClearStream
recorded an adjustment upon adoption of IFRS 15 of approximately $949 as a decrease to earn‐out assets and an
increase to deficit. Comparative information has not been restated and is reported under the previous revenue
standard, IAS 18 Revenue.
New standards and interpretations not yet adopted
In January 2016, the IASB issued IFRS 16 Leases (“IFRS 16”) which replaces IAS 17 Leases and related
interpretations. IFRS 16 provides a single accounting model for lessees that requires the recognition of assets and
liabilities for all leases, unless the lease term is twelve months or less, or the value of the underlying asset is low.
The accounting treatment for lessors remains substantially unchanged, with the requirement to classify leases as
either finance or operating being retained.
The Company will adopt the standard for the annual period beginning on January 1, 2019 and has selected the
modified retrospective transition approach. The Company will apply the optional exemption for short‐term leases.
The Company has completed its preliminary assessment and expects adoption of the standard to have a material
impact on the following components of the consolidated financial statements of the Company:
Consolidated Balance Sheets: IFRS 16 requires the recognition of lease liabilities and right‐of‐use (ROU) assets for
all leases except for those that qualify optional exemptions for short‐term leases. The Company will recognize the
lease liability at the present value of the remaining lease payments discounted using the Company’s incremental
borrowing rate upon adoption of the new standard. Upon transition, the Company will measure the ROU assets
equal to the lease liability, adjusted by the amount of any prepaid payments or onerous contracts recognized in
the December 31, 2018 consolidated financial statements.
Consolidated Statements of Loss and Comprehensive Loss: Adoption of IFRS 16 will result in an increase to
Depreciation and Amortization expense due to the recognition of ROU assets, an increase to interest expense from
the unwinding of the discounted value of the lease liabilities and a decrease to selling, general and administrative
expense, and cost of sales. The Company does not expect the standard to have a material impact on consolidated
net earnings.
Consolidated Statements of Cash Flows: Due to the change in the presentation of former operating lease expenses,
cash flow from operating activities will increase as a result of the decrease in cost of sales and selling, general and
administrative expense, partially offset by an increase in interest expense included in operating activities for the
company. Cash flow from financing activities will decrease due to the addition of principal payments for former
operating leases. The overall impact to cash flow for the company will be unchanged.
CONTINGENCIES
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.
ClearStream Energy Services Inc.
17
Annual Report 2018
Annual Report 2018
Summary of Quarterly Results
($000s except unit amounts)
Revenues
Gross M argin
Gross M argin %
Net loss from
continuing operations
Net loss
Loss per share
from continuing operations
Loss per share
2018
Q4
77,840
$6,169
7.9%
(3,153)
(2,543)
(0.03)
(0.02)
2018
Q3
$85,996
$7,400
8.6%
(20,834)
(20,694)
(0.19)
(0.19)
2018
Q2
$129,702
$6,709
5.2%
$
2018
Q1
84,794
6,819
8.0%
$
2017
Q4
81,972
6,171
7.5%
$
2017
Q3
85,927
6,635
7.7%
$
2017
Q2
111,559
11,073
9.9%
$
2017
Q1
77,689
6,540
8.4%
(3,097)
(3,210)
(0.03)
(0.03)
(2,988)
(3,175)
(0.03)
(0.03)
(21,207)
(22,345)
(0.19)
(0.20)
(6,120)
(6,170)
(0.06)
(0.06)
(1,510)
(3,397)
(0.01)
(0.03)
(3,623)
(3,993)
(0.03)
(0.04)
ClearStream’s revenues are somewhat seasonal, in particular for the Maintenance and Construction segment.
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.
TRANSACTIONS WITH RELATED PARTIES
As of December 31, 2018, directors, officers and key employees beneficially hold an aggregate of 11,873,654
common shares or 10.81% on a fully diluted basis. 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 (2017 ‐
$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. For the year ended
SUBSEQUENT EVENTS
Brompton Corp
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”) relating to Brompton’s tax returns for the 2010 to
2014 taxation years. The Company previously held approximately 40% of the outstanding equity of Brompton
(which it sold in September 2011).
Brompton requested the Company pay its share of the reassessment amount and through a court decision in
February 2017, the Company was required to pay Brompton $4,969, which included taxes, interest, legal fees and
costs for appeal. At December 31, 2017, the Company had fully paid Brompton’s claim and recorded the cost
through discontinued operations.
Brompton appealed the notice of reassessment and in October 2018, Brompton received an offer from CRA to
settle its appeal.
In February 2019, the Company received a refund of $3,250, which represents 69% of the total payment previously
made by Clearstream, and will have a positive impact on the Company’s liquidity at the end of Q1 2019.
ABL renewal
On March 21, 2019, the company received confirmation from its lenders that the ABL facility has been approved
for renewal until March 2020 at terms substantially the same as the existing facility.
ClearStream Energy Services Inc.
18
Annual Report 2018
Annual Report 2018
SHARE CAPITAL
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 December 31, 2018,
there were 109,941,241 common shares issued and outstanding and nil preferred shares issued and outstanding.
In 2018 and as part of the 2018 refinancing transaction, ClearStream issued 127,565 of newly created Series 1
Preferred Shares. Subsequent to the refinancing transaction an additional 188 preferred shares issued as result of
converted debentures. The total outstanding preferred shares as at December 31, 2018 were 127,753.
OUTLOOK
Overall market conditions have started to witness some recovery with the rise in commodity prices. Our customers
are expected to increase maintenance and capital spending in 2019 relative to 2018 as a result of healthier
commodity prices and increased focus on operational reliability, but are likely to maintain spending discipline in
light of commodity pricing volatility. As a result, stronger demand for our services is expected in 2019, particularly
for the non‐union maintenance and wear service lines. Market conditions are expected to remain difficult for our
service lines that rely on major capital projects, including fabrication and construction. Notwithstanding, the
sanctioning of the LNG Canada project as well as the increase of mid‐stream infrastructure spending, necessary to
improve market access for Canadian Oil & Gas products, are expected to impact favorably our market
environment.
Improving market conditions and maintenance demand, combined with several meaningful contract wins, more
favorable sales mix between union and non‐union activities as well as internal business process improvements, are
expected to result in an increase in 2019 profitability compared to 2018. However, our industry remains very
competitive and we do not expect pricing to improve in 2019 relative to 2018. As a result, cost control will
continue to be an area of focus for ClearStream in 2019.
Financial results for the first quarter of 2019 are expected to be similar to the first quarter of 2018. Pricing levels
are relatively consistent on a year‐over‐year basis and meaningful revenue increases from higher demand and new
contract awards are not expected to occur until the second quarter of 2019.
ClearStream will continue to focus on the core aspects of our business including safety, cost control, and
operational execution in 2019. We remain confident that improving market conditions and new contracts,
combined with a focus on strong execution, will lead to stronger financial results in 2019.
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.
Risks Relating to the Company
REFINANCING TRANSACTIONS MAY NOT IMPROVE THE COMPANY’S FINANCIAL CONDITION
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
ClearStream Energy Services Inc.
19
Annual Report 2018
Annual Report 2018
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.
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 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 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 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.
CHANGE OF CONTROL
In 2018, the Company issued 127,565 of Series 1 Preferred Shares. The terms of the Series 1 Preferred Shares
provide for a 10% fixed cumulative preferential cash dividend payable when the Company shall have sufficient
monies to be able to do so, including under the provisions of applicable law and contracts affecting the Company.
The Board of Directors of the Company does not intend to declare or pay any cash dividends until such time as the
Company’s balance sheet and liquidity position supports the payment. Any accrued but unpaid dividends are
convertible in certain circumstances at the option of the holder into additional Series 1 Preferred Shares. Holders
of the Series 1 Preferred Shares will have the right, at their option, to convert their Series 1 Preferred Shares into
Common Shares at a price of $0.35 per Common Share, subject to adjustment in certain circumstances. Assuming
that the holders of the Series 1 Preferred Shares exercise the right to convert all accrued dividends into Series 1
Preferred Shares at the end of every year, and no right of redemption or retraction is exercised under the Series 1
Preferred Shares, up to approximately 963,400,000 Common Shares would be issuable upon conversion of the face
amount of Series 1 Preferred Shares after ten years, which represents approximately 877% of the issued and
outstanding Common Shares as of December 31, 2018. Potentially almost all of these Common Shares could,
subject to applicable securities laws, be issued to accounts managed by Canso. Canso, to the extent permitted
under securities legislation, or any transferee of Canso’s holdings, would then be in a position to unilaterally elect a
majority of the directors of the Company should it choose to do so.
VOLATILITY OF INDUSTRY CONDITIONS
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
ClearStream Energy Services Inc.
20
Annual Report 2018
Annual Report 2018
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 outside of ClearStream’s control.
DEPENDENCE ON KEY PERSONNEL
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.
GENERAL ECONOMIC FACTORS
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.
CUSTOMER CONTRACTS
ClearStream’s operations 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
ClearStream Energy Services Inc.
21
Annual Report 2018
Annual Report 2018
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.
CUSTOMER CONCENTRATION
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 54% of ClearStream’s revenues for 2018.
LABOUR
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 22% 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 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.
REGULATION
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.
COMPETITION
The industries 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.
SEASONALITY
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
ClearStream Energy Services Inc.
22
Annual Report 2018
Annual Report 2018
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.
SOURCES, PRICING AND AVAILABILITY OF EQUIPMENT AND EQUIPMENT PARTS
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.
PROJECT RISK
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 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.
ENVIRONMENTAL REGULATION AND INITIATIVES
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, including 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.
UNEXPECTED ADJUSTMENTS AND CANCELLATIONS IN BACKLOG
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.
ClearStream Energy Services Inc.
23
Annual Report 2018
Annual Report 2018
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.
PRICE AND AVAILABILITY OF ALTERNATIVE FUELS
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.
AVAILABILITY OF FUTURE FINANCING
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.
POTENTIAL FUTURE DEVELOPMENTS
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 impact 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 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 impact on the price
of the Company’s securities.
CYBER SECURITY RISK
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.
Risks Relating to the Company’s Corporate Structure
POTENTIAL SALES OF ADDITIONAL SHARES
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.
ClearStream Energy Services Inc.
24
Annual Report 2018
Annual Report 2018
INCOME TAX MATTERS
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 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
UNPREDICTABILITY AND VOLATILITY OF COMMON SHARE PRICE
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.
RESTRICTIONS ON POTENTIAL GROWTH
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
PRIOR RANKING INDEBTEDNESS AND INSOLVENCY LAWS
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 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
ClearStream Energy Services Inc.
25
Annual Report 2018
Annual Report 2018
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.
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 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 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.
PAYMENT OF INTEREST
The Company’s ability to pay principal and interest on the Senior Secured Debentures and/or Convertible Secured
Debentures when due will depend, in part, on the ability of the recent refinancing transaction 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 recent refinancing transactions, the Company may not be
able to pay principal and interest on the Senior Secured Debentures and/or Convertible Secured Debentures.
COVENANT OBLIGATIONS
The Senior Secured Debentures, Convertible Secured Debentures and ABL Facility impose negative and positive
covenants on the Company and specified events of default. A failure to comply with the Company’s obligations
under the Senior Secured Debentures, Convertible Secured Debentures, 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.
DILUTION
Pursuant to the Refinancing Transaction completed on January 16, 2018, the Company issued 127,753 Series 1
Preferred Shares, with almost all of the Series 1 Preferred Shares issued to accounts managed by Canso as
portfolio manager. The Series 1 Preferred Shares are convertible to Common Shares at a price of $0.35 per
Common Share. Accordingly, based upon this conversion right, there could be significant dilution to the current
ClearStream Energy Services Inc.
26
Annual Report 2018
Annual Report 2018
holders of Common Shares. Up to approximately 371,430,000 additional Common Shares would be issuable upon
conversion of the face amount of Preferred Shares into Common Shares, representing approximately 338% of the
issued and outstanding Common Shares as of December 31, 2018. In addition, the Series 1 Preferred Shares have
10% fixed cumulative preferential cash dividend payable when the Company shall have sufficient monies to be able
to do so, including under the provisions of applicable law and contracts affecting the Company. The board of
directors of the Company does not intend to declare or pay any cash dividends until such time as the Company’s
balance sheet and liquidity position supports the payment. Any accrued but unpaid dividends are convertible in
certain circumstances at the option of the holder into additional Series 1 Preferred Shares. Assuming that the
holders of the Series 1 Preferred Shares exercise the right to convert all accrued dividends into additional Series 1
Preferred Shares at the end of every year, up to approximately 963,400,000 Common Shares would be issuable
upon conversion after ten years, which represents approximately 877% of the issued and outstanding Common
Shares as of December 31, 2018.
INVESTMENT ELIGIBILITY
There can be no assurance that 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.
MARKET VALUE FLUCTUATION
Prevailing interest rates will affect the market value of the Senior Secured Debentures and Convertible Secured
Debentures, as they carry a fixed interest rate. Assuming all other factors remain unchanged, the market value of
the Senior Secured Debentures and Convertible Secured 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.
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, 2018 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, 2018 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.
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
ClearStream Energy Services Inc.
27
Annual Report 2018
Annual Report 2018
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, 2018 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, 2018 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.
ADDITIONAL INFORMATION Additional information relating to ClearStream including ClearStream’s AIF is on
SEDAR at www.sedar.com or on our website www.ClearStreamenergy.ca
ClearStream Energy Services Inc.
28
Annual Report 2018
Annual Report 2018
CONSOLIDATED FINANCIAL STATEMENTS OF
CLEARSTREAM ENERGY SERVICES INC.
YEARS ENDED DECEMBER 31, 2018 AND 2017
ClearStream Energy Services Inc.
29
Annual Report 2018
Calgary, Canada
March 21, 2019
Annual Report 2018
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
internal controls over financial reporting 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.
Yves Paletta
Chief Executive Officer
Calgary, Canada
March 21, 2019
Randy Watt
Chief Financial Officer
ClearStream Energy Services Inc.
30
Annual Report 2018
Annual Report 2018
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of ClearStream Energy Services Inc.
Opinion
We have audited the consolidated financial statements of ClearStream Energy Services Inc. and its subsidiaries
(collectively the “Company”), which comprise the consolidated balance sheets as at December 31, 2018 and 2017
and the consolidated statements of loss and comprehensive loss, consolidated statements of shareholders’ deficit
and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Company as at December 31, 2018 and 2017, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with International Financial
Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
Management’s Discussion and Analysis
The information, other than the consolidated financial statements and our auditor’s report thereon, in the
Annual Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information, and in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated.
We obtained Management’s Discussion & Analysis and the Annual Report prior to the date of this auditor’s report.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
ClearStream Energy Services Inc.
31
Annual Report 2018
Annual Report 2018
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the Company's ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Company or to cease operations,
or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Company's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to
the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor's report. However, future events or conditions may cause the Company to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Company to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the Company audit. We remain solely
responsible for our audit opinion.
ClearStream Energy Services Inc.
32
Annual Report 2018
Annual Report 2018
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor's report is Robert Jubenvill.
Calgary, Canada
March 21, 2019
ClearStream Energy Services Inc.
33
Annual Report 2018
Annual Report 2018
Notes
2018
2017
2
21
3
4
5
6
7
4
8
22
11
5
8a
8b
8c
9
9
11
8b
8c
17
10
$
10,838
980
59,715
5,734
2,046
-
-
79,313
$
4,649
980
66,177
4,304
2,989
1,277
2,506
82,882
23,520
20,657
7,685
-
438
629
111,585
$
26,765
1,173
575
591
132,643
$
$
28,417
21
638
1,777
-
32,961
-
-
1,072
64,886
$
36,276
146
-
1,462
1,197
27,500
171,988
24,999
1,196
264,764
3,989
3,549
96,746
852
170,022
$
4,582
2,185
-
-
271,531
$
462,036
102,203
20,716
(643,392)
(58,437)
469,030
-
2,958
(610,876)
(138,888)
$
111,585
$
132,643
Consolidated Balance Sheets
(In thousands of Canadian dollars, except per share amounts)
As at December 31,
Assests
Cash
Restricted cash
Accounts receivable
Inventories
Prepaid expenses and other
Earn-out assets
Assets held for sale
Total current assets
Property, plant and equipment
Goodwill and intangible assets
Earn-out assets
Long-term investments
Deferred financing costs
Total assets
Liabilities and S hareholders’ Equity
Accounts payable and accrued liabilities
Deferred revenue
Contingent consideration liability
Current portion of obligations under finance leases
Current liabilities of assets held for sale
ABL facility
Senior secured debentures
Convertible secured debentures
Current portion of provision
Total current liabilities
Provision
Obligations under finance leases
Senior secured debentures
Convertible secured debentures
Total liabilities
Common shares
Preferred shares
Contributed surplus
Deficit
Total shareholders' deficit
Total liabilities and shareholders' deficit
The accompanying notes are an integral part of these consolidated financial statements.
Commitments (Note 12)
Signed on behalf of the Board of Directors,
Fraser Clarke, Director
Sean McMaster, Director
ClearStream Energy Services Inc.
34
Annual Report 2018
Annual Report 2018
Consolidated Statements of Loss and Comprehensive Loss
(In thousands of Canadian dollars, except per share amounts)
For year ended December 31,
Notes
2018
2017
Revenue
Cost of revenue
Gross profit
Selling, general and administrative expenses
Share based compensation
Amortization of intangible assets
Depreciation expense
Income from equity investment
Interest expense
Gain (loss) on sale of assets
Restructuring costs
Impairment of intangible assets and goodwill
Other loss
Gain on sale of property, plant and equipment
Loss from continuing operations before taxes
Deferred income tax recovery
Loss from continuing operations
Loss from discontinued operations (net of income taxes)
Net loss and comprehensive loss
Loss per share (dollars)
Basic & diluted:
Continuing operations
Discontinued operations
Net loss
The accompanying notes are an integral part of these consolidated financial statements.
13
14
19
7
6
15
4,5
18
7
9
6
16
25
17
$
378,332
(351,235)
27,097
$
357,147
(326,728)
30,419
(21,359)
97
(1,371)
(4,948)
163
(12,537)
757
(165)
(17,733)
(860)
328
(30,531)
459
(30,072)
(1,495)
(31,567)
$
(18,866)
(710)
(3,445)
(5,264)
246
(21,474)
(570)
(1,414)
(7,685)
(5,778)
2,083
(32,458)
(2)
(32,460)
(3,445)
(35,905)
$
$
$
$
(0.28)
(0.01)
(0.29)
$
$
$
(0.30)
(0.03)
(0.33)
ClearStream Energy Services Inc.
35
Annual Report 2018
Consolidated Statements of Shareholders’ Deficit
(In thousands of Canadian dollars, except number of shares)
Notes
Number of
shares
Common
Shares
At January 1, 2018
Net loss
Stock based compensation
Issuance of preferred shares
Equity component of convertible debentures
Gain on debt extinguishment
Impact of transition to IFRS 15
At December 31, 2018
At January 1, 2017
Net loss and comprehensive loss
Stock based compensation
At December 31, 2017
19
10
8c
8c
1
Notes
19
109,941
-
-
-
-
-
-
109,941
Number of
shares
109,941
-
-
109,941
469,030
-
-
-
(6,994)
-
-
462,036
Common
Shares
469,030
-
-
469,030
$
$
Preferred
Shares
-
$
-
-
102,203
-
-
-
102,203
$
Preferred
Shares
$
-
-
-
$
-
Annual Report 2018
Contributed
Surplus
Deficit
Total
Shareholders'
Deficit
(138,888)
(31,567)
51
102,203
-
10,713
(949)
(58,437)
2,958
-
51
-
6,994
10,713
-
20,716
(610,876)
(31,567)
-
-
-
-
(949)
(643,392)
Deficit
(574,971)
(35,905)
-
(610,876)
$
Contributed
Surplus
2,427
-
531
2,958
$
Total
Shareholders'
Deficit
(103,514)
(35,905)
531
(138,888)
$
$
$
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
ClearStream Energy Services Inc.
36
Annual Report 2018
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
For the year ended December 31,
Operating activities:
Net loss
Loss from discontinued operations (net of income tax)
Adjustments for:
Stock based compensation
Amortization of intangible assets
Depreciation
Income from equity investments
Accretion expense
Other loss
Impairment of goodwill and intangible assets
Onerous lease payments
Amortization of deferred financing costs
(Gain) loss on sale of assets held for sale
Gain on sale of property, plant and equipment
Changes in non-cash working capital
Cash used in discontinued operations
Cash flow used in operating activities
Investing activities:
Purchase of property, plant and equipment
Net proceeds on disposal of property, plant and equipment
Purchase of intangible assets
Dividend proceeds from equity investment
Acquisitions
Proceeds on the disposition of businesses
Transaction costs
Changes in non-cash working capital
Cash flow provided by investing activities
Financing activities:
Proceeds from the issuance of preferred shares
Repayment of senior secured debentures
Refinancing fees
Transactions costs
Repayment of ABL facility
Repayment of obligations under finance leases
Changes in non-cash working capital
Cash flow provided by financing activities
Increase in cash
Cash, beginning of year
Cash, end of year
S upplemental cash flow information:
Interest paid
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.
Annual Report 2018
Notes
2018
2017
$
(31,567)
1,495
$
(35,905)
3,445
19
7
6
8b,8c
9
9
8a
4,5
6
23
6
22
5
5
22
10
8b
8b
8
11
23
51
1,371
4,948
(163)
299
860
17,733
(1,577)
719
(757)
(328)
(3,740)
(1,495)
(12,151)
$
531
3,445
5,264
(246)
949
-
7,685
5,778
704
570
(2,083)
(12,076)
(5,785)
(27,724)
$
(937)
575
-
300
(2,450)
4,625
(1,060)
638
1,691
$
19,000
(2,340)
(3,441)
(682)
5,461
(2,442)
1,093
16,649
$
(2,681)
3,063
(63)
250
-
-
-
$
569
-
-
-
-
24,000
(3,699)
-
20,301
$
6,189
4,649
(6,854)
11,503
$
10,838
$
4,649
$
11,602
$
11,021
$
4,126
$
1,708
ClearStream Energy Services Inc.
37
Annual Report 2018
Annual Report 2018
CLEARSTREAM ENERGY SERVICES INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2018 and 2017
ClearStream Energy Services Inc. (“ClearStream” or the “Company”) is a corporation formed pursuant
to the Business Corporations Act (Ontario). The head office is located at 311‐6th Avenue, Calgary,
Alberta. ClearStream is a fully‐integrated provider of midstream production services, which includes
maintenance and turnarounds, facilities construction, welding and fabrication and environmental
services with locations across Western Canada.
These annual consolidated financial statements were authorized for issuance in accordance with a
resolution of the Board of Directors of ClearStream on March 21, 2019.
1.
Significant accounting policies
a. Basis of Presentation
These consolidated financial statements are prepared on a historical cost basis in accordance
with International Financial Reporting Standards (“IFRS”). The accounting policies that follow
have been consistently applied to all years presented, other than as described in Note 1(r).
b. Principles of Consolidation
These consolidated financial statements comprise the financial statements of the Company and
its subsidiaries as at December 31, 2018. The Company conducts business through numerous
subsidiaries, all of which are wholly‐owned and 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.
c. 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.
d.
Financial instruments
(i) Financial assets
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
ClearStream Energy Services Inc.
38
Annual Report 2018
Annual Report 2018
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 amortized cost.
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 amortized cost and
subsequently measured using the effective interest rate method, net of any impairment.
Impairment provisions for trade receivables are recognised based on the simplified approach
within IFRS 9 using the lifetime expected credit losses. During this process the probability of
the non‐payment of the trade receivables is assessed. This probability is then multiplied by the
amount of the expected loss arising from default to determine the lifetime expected credit loss
for the accounts receivables. For accounts receivables, which are reported net, such provisions
are recorded in a separate provision account with the loss being recognized in the
consolidated statement of net loss. On confirmation that the trade receivable will not be
collectable, the gross carrying value of the asset is written off against the associated provision.
(ii) 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.
(iii) 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
ClearStream Energy Services Inc.
39
Annual Report 2018
Annual Report 2018
date. Active markets 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.
e.
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.
f. 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 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.
ClearStream Energy Services Inc.
40
Annual Report 2018
Annual Report 2018
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 class
Equipment under finance lease
Furniture, tools and equipment
Computer hardware
Automotive & heavy equipment
Buildings
Leasehold improvements
Basis
Declining balance
Declining balance
Declining balance
Declining balance
Declining balance
Straight-line
Rate
15% - 30%
10% - 50%
20% - 30%
15% - 30%
5% - 10%
The shorter of expected useful life or
term of lease
g.
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(h)). 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:
Asset class
Customer relationships
Computer software
Basis
Straight-line
Declining balance
Rate / Term
2 – 10 years
30% - 100%
h.
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
ClearStream Energy Services Inc.
41
Annual Report 2018
Annual Report 2018
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 FVLCD 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 FVLCD.
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 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.
i. Revenue recognition
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. The majority of the revenue within the
Maintenance and Construction segment relates to contracts with customers to perform services
based on cost plus an agreed‐upon margin.
Wear and Fabrication services revenue includes the sale of goods with respect to general and
modular fabrication; custom fabrication services supporting pipeline and infrastructure projects;
and patented wear overlay technology services that specialize in overlay pipe spools, pipe bends
and plate. The majority of revenue within the Wear and Fabrication segment relates to
contracts with customers to construct goods to client specifications for an agreed‐upon price.
ClearStream Energy Services Inc.
42
Annual Report 2018
Annual Report 2018
Revenue from the sale of services
Performance obligations arising from contracts with customers require ClearStream to provide
labour hours and rental of equipment as requested. Each individual contract may contain
multiple performance obligations and at contract inception, consideration is variable as the total
number of hours required is not fixed. However, under the terms of its contracts with
customers, ClearStream has the right to consideration in an amount that corresponds directly
with the value to its customers of performance completed to date, and therefore recognizes
revenue over time based on the amount ClearStream has the right to invoice.
Revenue from the sale of goods
At the inception of each contract with a customer, ClearStream identifies the distinct
performance obligations based on promises to transfer distinct goods to the customer. A
contract’s transaction price is allocated to each distinct performance obligation and recognized
as revenue when, or as, the performance obligation is satisfied. ClearStream’s performance
obligations are generally satisfied over time as work progresses because of continuous transfer
of control to the customer. For contracts with multiple performance obligations, the contract’s
transaction price is allocated to each performance obligation using the Company’s best estimate
of the standalone selling price of each distinct good in the contract.
Transfer of control is measured utilizing an input method to measure progress for contracts
based on an analysis of costs incurred to date compared to total estimated costs. These costs,
once incurred, are considered a measure of progress and are expensed in the period in which
they are incurred. Total estimated project costs and resulting contract income are affected by
changes in the expected cost of materials and labor, productivity, scheduling and other factors.
Additionally, external factors such as customer requirements and other factors outside of
ClearStream’s control may affect the progress and estimated cost of a project’s completion and,
therefore, the timing and amount of revenue and income recognition. Changes in total
estimated contract cost and losses, if any, are recognized in the period they are determined.
Earn‐out assets
Earn‐out assets arise as a result of contingent consideration received in an asset sale and are, by
their nature, variable consideration arising from contracts with customers. ClearStream uses
either the “expected value” or “most likely method” to measure variable consideration related
to earn‐out assets depending on the contractual terms of the contingent consideration. Variable
consideration is only recognized to the extent that it is highly probable that a significant reversal
in the amount of cumulative revenue recognized will not occur when the uncertainty associated
with the variable consideration is subsequently resolved (i.e. the variable consideration
constraint).
j.
Income taxes
ClearStream Energy Services Inc.
43
Annual Report 2018
Annual Report 2018
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 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.
k. 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.
l. Share based compensation
ClearStream has a stock option plan, a Restricted Share Unit (“RSU”) plan and a Performance
Share Unit (“PSU”) plan, described in note 19.
Employees, directors and consultants of the Company may receive remuneration in the form of
share‐based payment transactions for services rendered. Equity‐settled awards are recorded in
the consolidated statement of loss for awards granted, with a corresponding amount reflected
in contributed surplus. The fair value of equity‐settled awards is estimated, at the date of grant,
using the Black‐Scholes pricing model, and amortized over the expected vesting period using the
graded vesting method. Market vesting conditions are factored into the fair value of share‐
based payments on the date of grant and no subsequent adjustments are made to reflect the
ClearStream Energy Services Inc.
44
Annual Report 2018
Annual Report 2018
occurrence or non‐occurrence of those conditions. Performance vesting conditions are adjusted
at each reporting date to reflect the actual number of awards expected to vest.
Share‐based awards that can be settled in either cash or equity at the sole discretion of
ClearStream are classified as equity‐settled if management and the Board of Directors do not
intend to settle the awards in cash (and there is no history of settling those awards in cash).
Cash‐settled RSUs are recorded at their fair value at each reporting date through the
consolidated statement of loss, with a corresponding amount reflected as a liability. The fair
value of RSUs approximates the intrinsic value as the awards have no exercise price. Share‐
based payment expense (recovery) is recognized over the vesting period of the RSUs, using the
graded vesting method.
m. 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.
n. 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 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.
o. 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.
ClearStream Energy Services Inc.
45
Annual Report 2018
Annual Report 2018
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.
p. 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.
q. 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
ClearStream Energy Services Inc.
46
Annual Report 2018
Annual Report 2018
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.
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
ClearStream Energy Services Inc.
47
Annual Report 2018
Annual Report 2018
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,
in which the assets are operated, evidence of
economic or
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.
legal environment
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 projected costs and the level of
capital expenditures required in future periods to maintain operations.
VII.
Carrying amount of accounts receivable
Initially recorded at fair value, and are subsequently carried at amortized cost using the
effective interest rate method, less provision for impairment. Impairment provisions for
trade receivables are recognized based on the simplified approach within IFRS 9 using the
lifetime expected credit losses.
VIII.
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.
r. Recently Adopted Accounting Pronouncements
a.
IFRS 9 Financial Instruments
On January 1, 2018, ClearStream adopted IFRS 9 Financial Instruments (“IFRS 9”). IFRS 9
includes a new classification and measurement approach for financial assets and a forward‐
looking ‘expected credit loss’ model. IFRS 9 was applied retrospectively in accordance with
transition requirements with no impact to opening retained earnings or comparative
periods. The classification and measurement of financial instruments under IFRS 9 did not
have a material impact on ClearStream’s consolidated financial statements.
ClearStream Energy Services Inc.
48
Annual Report 2018
Annual Report 2018
b.
IFRS 15 Revenue from Contracts with Customers
On January 1, 2018, ClearStream adopted IFRS 15 Revenue from Contracts with Customers
(“IFRS 15”). IFRS 15 establishes a comprehensive framework for determining whether, how
much, and when revenue from contracts with customers is recognized.
The Company has adopted IFRS 15 using the modified retrospective approach. Accordingly,
the cumulative effect of initially applying IFRS 15 was recognized on January 1, 2018 as an
adjustment to deficit. There were no adjustments recorded to deficit related to the timing
or amounts of revenue recognized; however, ClearStream recorded an adjustment upon
adoption of IFRS 15 of approximately $949 as a decrease to earn‐out assets and an increase
to deficit. Comparative information has not been restated and is reported under the
previous revenue standard, IAS 18 Revenue.
s. New standards and interpretations not yet adopted
In January 2016, the IASB issued IFRS 16 Leases (“IFRS 16”) which replaces IAS 17 Leases and
related interpretations. IFRS 16 provides a single accounting model for lessees that requires the
recognition of assets and liabilities for all leases, unless the lease term is twelve months or less,
or the value of the underlying asset is low. The accounting treatment for lessors remains
substantially unchanged, with the requirement to classify leases as either finance or operating
being retained.
The Company will adopt the standard for the annual period beginning on January 1, 2019 and
has selected the modified retrospective transition approach. The Company will apply the
optional exemption for short‐term leases.
The Company has completed its preliminary assessment and expects adoption of the standard
to have a material impact on the following components of the consolidated financial statements
of the Company:
Consolidated Balance Sheets: IFRS 16 requires the recognition of lease liabilities and right‐of‐use
(ROU) assets for all leases except for those that qualify optional exemptions for short‐term
leases. The Company will recognize the lease liability at the present value of the remaining lease
payments discounted using the Company’s incremental borrowing rate upon adoption of the
new standard. Upon transition, the Company will measure the ROU assets equal to the lease
liability, adjusted by the amount of any prepaid payments or onerous contracts recognized in
the December 31, 2018 consolidated financial statements.
Consolidated Statements of Loss and Comprehensive Loss: Adoption of IFRS 16 will result in an
increase to Depreciation and Amortization expense due to the recognition of ROU assets, an
increase to interest expense from the unwinding of the discounted value of the lease liabilities
and a decrease to selling, general and administrative expense, and cost of sales.
ClearStream Energy Services Inc.
49
Annual Report 2018
Annual Report 2018
Consolidated Statements of Cash Flows: Due to the change in the presentation of former
operating lease expenses, cash flow from operating activities will increase as a result of the
decrease in cost of sales and selling, general and administrative expense, partially offset by an
increase in interest expense included in operating activities for the company. Cash flow from
financing activities will decrease due to the addition of principal payments for former operating
leases. The overall impact to cash flow for the Company will be unchanged.
2. Restricted cash
Restricted cash of $980 at December 31, 2018 (2017 ‐ $980) is backing letters of credit and cash
in trust held on behalf of insurance providers.
3.
Inventories
Inventories comprise the following:
As at December 31,
Raw materials
Work-in-progress
Finished goods
Parts and supplies
Total
2018
2017
$
$
3,324
202
1,281
927
5,734
1,979
298
1,192
835
4,304
$
$
Work in progress includes amounts for work performed in excess of amounts billed for contracts
accounted for using the percentage of completion method. Included in cost of revenues for the
year ended December 31, 2018 is the cost of inventories of $15,373 (2017 ‐ $15,053).
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, ClearStream was entitled to an
earn‐out of $1,500 if a customer of Gusgo exercised its option to renew an existing contract at
December 31, 2018. During the second quarter of 2018, the Company negotiated an early
settlement of the earn‐out for $1,225. As a result, a loss on sale of assets held for sale of $275
was recorded in the statement of loss for the year ended December 31, 2018.
b) Quantum Murray and Titan earn‐out
As a result of the sale of the majority of the net assets of Quantum Murray and Titan in March
2016, ClearStream is entitled to an earn‐out of up to approximately $6,200 if certain pre‐
determined free cash flow targets are achieved for the years ended March 31, 2019, 2018 and
2017. For the years ended March 31, 2018 and 2017 the free cash flow targets were not met
and no earn‐out was received. As a result, the earn‐out amount for the first and second years
can instead be earned in the year ending March 31, 2019 if the free cash flow in 2019 exceeds
that year’s target combined with the targets for the year ended March 31, 2018 and 2017.
ClearStream Energy Services Inc.
50
Annual Report 2018
Annual Report 2018
The variable consideration available to ClearStream as a result of the Quantum Murray and Titan
earn‐out was measured at December 31, 2018 using the “expected value method”, which was
determined to be $nil (December 31, 2017 ‐ $1,173) as a result of the application of the variable
consideration constraint.
5. Assets held for sale
On March 14, 2018, the Company sold the assets and ongoing business operations of the
Transportation Cash Generating Unit (“CGU”) for cash consideration of $3,400, excluding
transaction costs of $1,060, and recognized a gain on disposal in the amount of $1,032 within
the Statement of Loss. The non‐current assets and liabilities of the Transportation CGU were
classified as held for sale as at December 31, 2017. The results of the Transportation CGU are
not presented within discontinued operations based on management’s determination that the
CGU did not represent a major component of ClearStream’s operations.
6. Property, plant and equipment
Equipment
under finance
lease
Land and
buildings
Computer
hardware
Furniture,
tools and
equipment
Leasehold
improvements
Automotive and
heavy
equipment
Total
Cost
Balance at January 1, 2017
$
27,107
Additions
Disposal
Reclassed as held for sale
1,726
(397)
(8,106)
Balance as December 31, 2017
$
20,330
Additions
Disposal
4,126
(24)
2,622
-
(1,083)
-
1,539
-
-
1,432
15,413
225
-
(79)
2,108
(5)
(136)
1,578
17,380
166
-
3,329
(295)
8,680
55
-
(122)
8,613
180
-
26,664
292
(1,442)
(5,111)
20,403
255
(888)
81,918
4,406
(2,927)
(13,554)
69,843
8,056
(1,207)
Balance as December 31, 2018
$
24,432
$
1,539
$
1,744
$
20,414
$
8,793
$
19,770
$
76,691
Accumulated Depreciation
Balance at January 1, 2017
Depreciation for the year
Disposal
Reclassed as held for sale
Balance as December 31, 2017
$
(10,725)
Depreciation for the year
Disposal
(2,070)
16
(15,777)
(1,151)
(1,119)
(1,691)
328
6,415
(44)
633
-
(562)
(23)
-
(88)
-
79
(1,128)
(120)
-
(8,504)
(1,432)
1
108
(9,828)
(1,435)
204
(8,280)
(191)
-
86
(8,385)
(119)
-
(22,342)
(1,817)
985
4,615
(18,559)
(1,182)
743
(57,173)
(5,263)
1,947
11,303
(49,186)
(4,948)
963
Balance as December 31, 2018
$
(12,779)
$
(585)
$
(1,248)
$
(11,060)
$
(8,504)
$
(18,998)
$
(53,172)
$
$
9,605
11,653
$
$
977
954
$
$
450
496
$
$
7,552
9,354
$
$
228
290
$
$
1,844
772
$
$
20,657
23,520
Net book value
At December 31, 2017
At December 31, 2018
a) Collateral:
ClearStream Energy Services Inc.
51
Annual Report 2018
Annual Report 2018
As at December 31, 2018, property, plant and equipment included $11,867 subject to a
general security agreement under the Senior Secured Debentures and the Convertible
Secured Debentures (December 31, 2017 ‐ $11,070).
b) Disposals:
During the year ended December 31, 2018, the Company disposed of assets with a cost of
$1,207 (2017 ‐ $2,927) and accumulated depreciation of $963 (2017 ‐ $1,946), for cash
proceeds of $575 (2017 ‐ $3,063), and recognized a net gain on sale of $328 (2017 – net gain
$2,083).
7. Goodwill and intangible assets
Goodwill
Customer
relationships
Computer
software
Brands
Intangible Total
Cost
Balance at January 1, 2017
Additions
$
92,029
-
83,552
- 63 -
2,657 16,142 102,351
63
At December 31, 2017
$
92,029
$
83,552
$
2,720
$
16,142
$
102,414
Disposals
-
- (73) -
(73)
Balance at December 31, 2018
$ 92,029 $ 83,552
$ 2,648 $ 16,142 $ 102,342
Amortization and impairments
Balance at January 1, 2017
Amortization for the year
Impairment
Reclassed as asset for sale
At December 31, 2017
Amortization for the year
Disposals
Impairment
Balance at December 31, 2018
Net book value
At December 31, 2017
At December 31, 2018
(69,743) (70,752) (2,407) (13,390) (86,549)
-
(3,445)
-
(1,178) (7,685)
(256)
(3,272) (173) -
(6,507) -
$ (69,999) (80,531) (2,580) (14,568) (97,679)
(1,371)
-
96
-
-
(17,733) - -
$
(98,954)
(2,558)
$
(1,298) (74) -
- 96 -
-
$
(14,568)
(87,732)
(81,829)
$
$
$ 22,030 $ 3,021
1,723
$
$
4,297
$ 140 $ 1,574 $ 4,735
3,387
1,574
$
$
$
90
ClearStream has five CGUs, one of which has intangible assets with an indefinite life. Goodwill is
monitored by management at the operating segment level. As at December 31, 2018, the Wear
CGU had indefinite life intangible assets of $1,574 (2017 ‐ $1,574) and the Wear & Fabrication
group of CGUs had goodwill of $4,297 (2017 ‐ $4,297). The Maintenance & Construction
operating segment had goodwill of nil at December 31, 2018 (2017 ‐ $17,733).
ClearStream identified indicators of impairment at September 30, 2018 as a result of actual
results for the nine months ended September 30, 2018 being materially below budget.
Management therefore performed impairment tests as at September 30, 2018 at the CGU level
as well as at the operating segment level. This testing identified goodwill impairment in the
Maintenance & Construction segment of approximately $17,733 to reduce the carrying amount
of the segment to its recoverable amount of $42,898.
ClearStream Energy Services Inc.
52
Annual Report 2018
Annual Report 2018
ClearStream also performed impairment tests at December 31, 2018 (its annual testing date) for
its Wear CGU (containing indefinite life intangible assets) and its Wear and Fabrication group of
CGUs containing goodwill, which did not result in any additional impairment.
ClearStream’s annual impairment testing at December 31, 2017 resulted in an impairment loss
of $7,108 within the Oilsands CGU and $577 within the Fabrication CGU. The recoverable
amounts at December 31, 2017 were $10,663 and $6,672 for the Oilsands and Fabrication CGUs,
respectively.
The valuation techniques, significant assumptions and sensitivities applied in the 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, which is considered to be a level three estimate. The fair
value less costs of disposal was determined through a discounted cash flow (“DCF”) approach
for all CGUs.
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 the budget is developed. The annual budget is developed
during the fourth quarter of the previous year. 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
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.
Discount rate
ClearStream assumed post‐tax discount rates of 11.0%‐13.0% in order to calculate the present
value of projected future cash flows. The discount rates represent a weighted average cost of
capital (“WACC”) for comparable companies operating in similar industries based on publicly
available information for each CGU. The WACC is an estimate of the overall required rate of
ClearStream Energy Services Inc.
53
Annual Report 2018
Annual Report 2018
return on an investment for both debt and equity owners and serves as the basis for developing
an appropriate discount rate, adjusted for risks specific to each CGU.
The recoverable amount of the Wear and Fabrication group of CGUs (based on fair value less
costs of disposal) exceeded its carrying amount by approximately $3,292 at December 31, 2018.
If the discount rate were increased by 10 basis points, the excess of recoverable amount over
carrying value would be reduced to nil.
Allocation of impairment
The DCF method resulted in impairment losses in 2017 for the Oilsands and Fabrication CGUs. In
order to determine the allocation of the impairment loss, ClearStream assessed the fair value less
costs of disposal of the property, plant and equipment within the two CGUs by estimating the
proceeds the Company could obtain if selling the assets at auction or through an arms length
transaction. Based on this methodology, the fair value less costs of disposal exceeded the carrying
amounts for property, plant and equipment for both CGUs. Therefore, all of the impairment
losses were allocated to intangible assets and those intangible assets were written‐off entirely
during the year ended December 31, 2017 in the Oilsands and Fabrication CGUs (including $1,178
of indefinite life intangible assets within the Oilsands CGU).
8.
ABL facility and debentures
a) ABL Facility
The ABL Facility is comprised of a revolving facility providing for maximum borrowings of up to
$50,000 (the “Revolving Facility”) and a term loan facility of $10,000 (the “Term Loan Facility”).
The Revolving Facility matures on March 23, 2019 and the Term Loan Facility matures on
September 19, 2019. (See note 26).
The amount available to be drawn under the Revolving Facility will vary from time to time,
based upon a borrowing base determined with reference to the accounts receivable of the
Company. The Revolving Facility borrowing base as at December 31, 2018 is $29,690
(December 31, 2017 ‐ $34,629). 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 and
inventories 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 transactions of this nature. The interest rate on the Revolving
Facility is prime plus 2.5%, increasing to prime plus 4% if the Revolving Facility is more than
50% drawn.
The amount of the Term Loan Facility was required to be used to reduce amounts outstanding
under the Revolving Facility. The term loan was fully drawn at December 31, 2018 and cannot
be redrawn once repaid. The interest rate on the Term Loan Facility is equal to the interest
rate on the Revolving Facility plus 200 basis points.
ClearStream Energy Services Inc.
54
Annual Report 2018
Annual Report 2018
As at December 31, 2018, $22,961 (December 31, 2017 ‐ $27,500) was drawn on the Revolving
Facility, and there were $2,250 of letters of credit further reducing the amount available to be
drawn. Accordingly $4,479 was available on the Revolving Facility (December 31, 2017 ‐
$3,459). Including the $10,000 outstanding on the Term Loan Facility (December 31, 2017 ‐
$nil), the total amounts drawn on the ABL Facility was $32,961 at December 31, 2018
(December 31, 2017 ‐ $27,500). The Company incurred $1,727 in deferred financing fees
associated with the ABL Facility in 2016 and an additional $743 in fees in 2018. These costs are
being amortized over the term of the facility. As at December 31, 2018, the net unamortized
amount of deferred financing costs was $629 (December 31, 2017 ‐ $591). The financial
covenants applicable under the ABL Facility are as follows:
ClearStream must maintain a Fixed Charge Coverage Ratio of 1.0:1.0 for each twelve
month period ending on and after April 30, 2018; and
ClearStream must not expand or become obligated for any capital expenditures in an
aggregate amount exceeding $6,500 during any fiscal year.
The Fixed Charge Coverage Ratio is defined as follows:
Earnings before interest, taxes, depreciation and amortization excluding non‐cash gains
or losses and non‐recurring items at the discretion of the lenders (“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) plus finance lease payments (excluding any interest paid using proceeds
from the preferred share issuance in January 2018 (refer to Note 10)
At December 31, 2018, ClearStream’s fixed charge coverage ratio was 1.01:1.00. ClearStream
was in compliance with all financial covenants under the ABL Facility as at December 31, 2018.
As at December 31, 2017, ClearStream was not in compliance with all financial covenants under
the ABL Facility and therefore the amount drawn on the ABL Facility was reclassified as current.
The cross‐default provisions in the agreement results in an event of default under the ABL
Facility being considered an event of default under both the senior secured and convertible
secured debenture agreements; therefore, all debt was required to be classified as current at
December 31, 2017.
b) Senior Secured Debentures
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 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. The maturity date of the Senior Secured
ClearStream Energy Services Inc.
55
Annual Report 2018
Annual Report 2018
Debentures is March 23, 2026. The Senior Secured Debentures are redeemable at the option
of the Company and, in certain circumstances, are mandatorily redeemable. The Senior
Secured Debentures 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 secures the
Company’s obligations under the ABL Facility. The Senior Secured Debentures provide for
certain events of default and covenants of the Company which are customary for transactions
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 in 2016. These costs are recorded net of the principal balance of the senior secured
debentures and will be accreted over the term of Senior Secured Debentures.
On January 16, 2018, as part of a refinancing transaction, the Company exchanged $75,000 of
the Senior Secured Debentures due 2026 for 75,000 Preferred Shares (refer to Note 10). This
was accounted for as an extinguishment of a portion of the senior secured debentures,
whereby the difference between the carrying amount of those exchanged debentures and the
fair value of the preferred shares issued was recognized within contributed surplus due to the
conclusion that the holders of the senior secured debentures were acting within their capacity
as shareholders for purposes of the transaction. Transaction costs incurred on the restructuring
(including the extinguishment of the convertible secured debentures as described in Note 8(c))
of approximately $3,441 were also recorded within contributed surplus, consistent with the
treatment of the gain of approximately $10,713.
During the year ended December 31, 2018, the Company repaid $2,340 of Senior Secured
Debentures with a portion of the consideration received from the sale of the assets of the
Transportation CGU (Note 5).
Balance at December 31, 2017
Accretion
Extinguishment of debt, net of deferred financing costs
Debt repayment, net of deferred financing fees
Balance as of December 31, 2018
$
171,988
248
(73,205)
(2,285)
96,746
$
c) Convertible Secured Debentures
On March 23, 2016, the Company issued an aggregate of $25,000 principal amount of
convertible secured debentures to Canso and an additional $10,000 principal amount of
ClearStream Energy Services Inc.
56
Annual Report 2018
Annual Report 2018
convertible debentures pursuant to a rights offering, a portion of which were also issued to
Canso.
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. 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 maturity date of the Convertible Secured Debentures is March 23,
2026. 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 convertible into
common shares of the Company at an initial conversion price of $0.35 per common share
(subject to adjustment in certain circumstances). The Convertible Secured Debentures 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. 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 transactions of this nature substantially similar to the events of default
and covenants provided in respect of the Senior Secured Debentures.
The Company incurred $3,708 in deferred financing fees associated with the Convertible
Secured Debentures in 2016. These costs are recorded net of the principal balance of the
Convertible Secured Debentures and will be accreted over the term of Convertible Secured
Debentures.
On January 16, 2018, as part of a refinancing transaction, the Company exchanged convertible
secured debentures with a principal amount of $33,565 (of which $25,743 was applied to the
liability component) for 33,565 Preferred Shares (refer to Note 10). This was accounted for as
an extinguishment of a portion of the convertible secured debentures, whereby the difference
between the carrying amount of those exchanged debentures and the fair value of the
preferred shares issued was recognized within contributed surplus due to the conclusion that
the holders of the senior secured debentures were acting within their capacity as shareholders
for purposes of the transaction. Transaction costs on the restructuring (including the
extinguishment of the senior secured debentures as described in Note 8(b)) incurred of
approximately $3,441 were also recorded within contributed surplus, consistent with the
treatment of the gain of approximately $10,713. During the year ended December 31, 2018
additional $130 of convertible debentures were converted to cash and preferred shares.
ClearStream Energy Services Inc.
57
Annual Report 2018
Liability component of convertible secured debentures
As at January 1, 2017
Accretion
As at December 31, 2017
Accretion
Settled for cash and preferred shares
Extinguishment of debt, net of deferred financing fees
As at December 31, 2018
Annual Report 2018
$
24,397
602
$
24,999
51
(130)
(24,068)
852
$
9.
Provision
At December 31, 2017, a property rental contract related to the Transportation CGU was
deemed to be onerous and therefore a provision of $5,778 was recorded. The following table
outlines the changes to the provision recorded during the year ended December 31, 2018:
Opening balance, at December 31, 2017
Changes in estimated future cash flows
Cash payments
Accretion
Balance at December 31, 2018
$
$
5,778
163
(1,577)
697
5,061
At December 31, 2018, $1,072 of the provision was classified as current (December 31, 2017 ‐
$1,196).
10. Preferred shares
On January 16, 2018, ClearStream issued 108,565 preferred shares to Canso in exchange for the
extinguishment of $75,000 principal amount senior secured debentures and $33,565 principal
amount convertible secured debentures (refer to Notes 8(b) and (c)). An additional 19,000
preferred shares were issued on the same date to Canso in exchange for cash consideration of
$19,000. The cash proceeds were used to fund the interest obligations related to the senior
secured debentures and convertible secured debentures at December 31, 2017 of $8,799. The
remaining cash proceeds was used to fund transaction costs and $8,000 of interest on the
remaining outstanding debentures during the year ended December 31, 2018.
The preferred shares provide for a 10% fixed cumulative preferential dividend that is only
required to be paid in cash upon sole determination by ClearStream’s Board of Directors. Any
accrued but unpaid dividends are convertible in certain circumstances at the option of the
holder into additional preferred shares equal to $1,000 per preferred share. Holders of the
preferred shares have the right, at their option, to convert their preferred shares into common
shares at a price of $0.35 per common share, subject to adjustment in certain circumstances.
The preferred shares are redeemable by the Company in cash at 110% of the purchase price for
such shares, plus accrued but unpaid dividends once all of the outstanding senior secured
debentures have been repaid and are subject to repayment in the event of certain change of
ClearStream Energy Services Inc.
58
Annual Report 2018
Annual Report 2018
control transactions. As a result of the dividends being payable in cash only at the sole
discretion of ClearStream’s Board of Directors and the fact that any accrued but unpaid
dividends are convertible into additional preferred shares at a fixed rate of $1,000 per
preferred share, the preferred shares are accounted for within shareholders’ equity.
Upon issuance, the preferred shares were measured at fair value of $800 per preferred share,
which was estimated using a discounted cash flow methodology based on key assumptions
including: length of time the preferred shares are expected to be outstanding before
conversion, redemption and/or an alternative restructuring event; and the discount rate
applied. Subsequent to the refinancing transaction an additional 188 preferred shares issued as
result of converted debentures. The total outstanding preferred shares as at December 31,
2018 were 127,753.
11. Obligations under finance leases
Finance lease obligations relate to vehicles and heavy equipment. ClearStream’s future
minimum payments are as follows:
As at December 31,
2019
2020
2021
2022
2023
Total minimum lease payments
Less amount representing interest (at rates ranging from 1% to 16%)
Present value of net minimum finance lease payments
Less current portion of obligations under finance leases
Long-term portion of obligation under finance leases
2018
1,906
1,583
1,697
589
156
5,931
605
5,326
1,777
3,549
$
Interest of $605 for the year ended December 31, 2018 (2017 ‐ $396) relating to finance lease
obligations has been included in interest expense.
12. Commitments
ClearStream is committed to payments under operating leases for equipment, office premises
and land through 2029 in total of approximately $46,978. 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:
As at December 31,
2019
2020
2021
2022
2023
Thereafter
Total commitments under operating leases
Last year of commitment
2018
$
10,159
6,868
5,229
4,966
4,749
15,007
46,978
$
2029
ClearStream Energy Services Inc.
59
Annual Report 2018
Annual Report 2018
13. Revenue
The following are amounts for each significant category of revenue recognized during the years
ended December 31, 2018 and 2017:
For the year ended December 31,
Rendering of services
Sales of goods
Total revenue
2018
2017
309,240
69,092
378,332
283,453
73,694
357,147
As at December 31, 2018, there was $5,345 (2017 ‐ $9,542) of accounts receivable recognized
in excess of progress billings in accordance with revenue recorded following the percentage of
completion method.
14.
Selling, general & administrative expenses
For the year ended December 31,
2018
2017
Salaries & benefits
Occupancy costs
Professional Fees
Travel
Repairs & maintenance
Insurance
Other
15.
Interest expense
$
$
10,818
2,227
4,749
1,733
269
1,391
172
21,359
$
8,784
1,758
1,996
1,506
674
1,194
2,954
18,866
$
For the year ended December 31,
Note
2018
2017
Interest expense on senior secured debentures
Interest expense on convertible secured debentures
Interest expense on ABL facility
Interest expense on finance leases
Interest expense - other
Deferred financing costs amortized
Accretion expense related to debentures
8b
8c
8a
11
8a
8b and 8c
$
7,911
504
2,764
339
2
719
299
$
14,098
3,500
1,631
396
196
704
949
$
12,537
$
21,474
ClearStream Energy Services Inc.
60
Annual Report 2018
16.
Income taxes
The reconciliation of statutory income tax rates to ClearStream’s effective tax rate is as follows:
Annual Report 2018
For the year ended December 31,
Loss from continuing operations before tax
Tax rate
Income tax recovery at statutory rates
Permanent differences
Change in tax rates on temporary differences
Deferred tax asset not recognized
Income tax (recovery) expense
2018
(30,531)
$
27.00%
(8,243)
$
2017
(32,458)
$
$
26.91%
(8,734)
4,875
142
1,341
3
2,767
(459)
$
$
7,392
2
The benefit of the following temporary differences not recognized:
December 31
Fixed assets
Intangible assets
Debentures
Net operating losses
Other
Total temporary differences not benefitted
2018
2017
$
(1,687)
22,599
$
(2,704)
21,000
(3,941)
125,979
(4,240)
140,473
15,079
158,029
$
3,027
157,556
$
Net operating losses of $125,979 will begin to expire in 2035.
ClearStream has approximately $137,391 of capital losses that have not been recognized in the
consolidated financial statements as at December 31, 2018 (2017 ‐ $135,121). There is no
expiry of capital losses.
The provision for income taxes is based on judgments in applying income tax law and estimates
on the timing and likelihood of reversal of temporary differences between the accounting and
tax bases of assets and liabilities. The provision for income taxes is based on ClearStream’s
interpretation of the tax legislation and regulations which is also subject to change.
ClearStream recognizes a tax provision when a payment to tax authorities is considered more
likely than not.
17.
Share capital and loss per share
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 December 31, 2018, there were 109,941,241 common
shares issued and outstanding. In 2018 and as part of the 2018 refinancing transaction,
ClearStream issued 127,565 of newly created Series 1 Preferred Shares. Subsequent to the
ClearStream Energy Services Inc.
61
Annual Report 2018
Annual Report 2018
refinancing transaction an additional 188 preferred shares issued as result of converted
debentures. The total outstanding preferred shares as at December 31, 2018 were 127,753.
Pursuant to the Refinancing Transaction completed on January 16, 2018, the Company issued
127,753 Series 1 Preferred Shares, with almost all of the Series 1 Preferred Shares issued to
accounts managed by Canso as portfolio manager. The Series 1 Preferred Shares are
convertible to Common Shares at a price of $0.35 per Common Share. Accordingly, based upon
this conversion right, there could be significant dilution to the current holders of Common
Shares. Up to approximately 371,430,000 additional Common Shares would be issuable upon
conversion of the face amount of Preferred Shares into Common Shares, representing
approximately 338% of the issued and outstanding Common Shares as of December 31, 2018.
In addition, the Series 1 Preferred Shares have 10% fixed cumulative preferential cash dividend
payable when the Company shall have sufficient monies to be able to do so, including under
the provisions of applicable law and contracts affecting the Company. The board of directors of
the Company does not intend to declare or pay any cash dividends until such time as the
Company’s balance sheet and liquidity position supports the payment. Any accrued but unpaid
dividends are convertible in certain circumstances at the option of the holder into additional
Series 1 Preferred Shares. Assuming that the holders of the Series 1 Preferred Shares exercise
the right to convert all accrued dividends into additional Series 1 Preferred Shares at the end of
every year, up to approximately 963,400,000 Common Shares would be issuable upon
conversion after ten years, which represents approximately 877% of the issued and
outstanding Common Shares as of December 31, 2018.
The only potentially dilutive securities as at December 31, 2018 were the preferred shares,
convertible secured debentures, stock options, and performance share units. As a result of the
net losses incurred in all periods presented, all potentially dilutive securities were anti‐dilutive.
18. Restructuring costs
During the year ended December 31, 2018, the Company incurred restructuring costs of $165
(2017 ‐ $1,414). These are costs that were required in response to the potential impact of a
prolonged period of reduced oil prices. A majority of these costs are related to severance as a
result of headcount reductions and location closures.
19.
Share Based Compensation
In addition to the Incentive Option Plan (“IOP”) previously approved by the shareholders of
ClearStream on November 30, 2009, the Board of Directors approved the Performance Share
Unit (“PSU”) and Restricted Share Unit (“RSU”) Plan on January 31, 2017. The aggregate
number of shares that may be acquired upon exercise of all share based compensation granted
pursuant to the IOP and PSU/RSU plans shall not exceed 10% of the aggregate number of
common shares outstanding.
Stock Options
ClearStream Energy Services Inc.
62
Annual Report 2018
Annual Report 2018
The Company’s IOP allows for the issuance of stock options to employees, consultants and
directors of the Company. The options vest based on service requirements over either two‐
year or three‐year periods; the options expire five years from the date of grant. The summary
of stock option activity is presented below:
Balance as at January 1, 2017
Granted
Forfeited
Balance as at December 31, 2017
Forfeited
Balance as at December 31, 2018
Exercisable as at December 31, 2018
Number of stock
options
Weighted average
exercise price
-
6,560,000
(3,400,000)
3,160,000
(1,330,000)
1,830,000
-
-
0.28
0.28
0.28
0.28
0.28
-
The options outstanding at December 31, 2018 have a weighted average remaining contractual
life of 3.1 years (December 31, 2017 – 4.08 years). For the year ended December 31, 2018, the
Company recognized $143 of share based compensation expense relating to stock options
(2017 – expense of $395). The fair value of the stock options granted during the year ended
December 31, 2017 was estimated on the date of grant using the Black‐Scholes pricing model
with the following assumptions:
Risk free interest rate
Expected life (months)
Estimated volatility of underlying common share (%)
Expected dividend yield
Exercise price
Share price
0.5%
48
100%
0.00%
0.28
0.28
Volatility of ClearStream’s common shares was estimated using the Company’s actual historical
volatility as well as the volatility of peer group companies with similar corporate structure,
operations and size.
Restricted Share Units and Performance Share Units
RSUs vest based on service requirements over either two‐year or three‐year periods and are
settled in cash by multiplying the numbers of units with the Company’s share price based on
the volume weighted‐average trading price for the five trading days preceding the vesting date
of the award. The fair value of the RSUs is based on the market value of the Company’s
common shares at the reporting date. As at December 31, 2018 the intrinsic value of the RSUs
outstanding was $31 (December 31, 2017 ‐ $392).
PSUs vest based on service requirements over either two‐year or three‐year periods. The
number of PSUs that will vest on the applicable vesting dates is dependent upon both an
EBITDA‐based performance condition and a market condition based on the Company’s share
price. PSUs can be settled in cash or equity on the vesting date, at the discretion of the Board
of Directors, by multiplying the number of units with the Company’s share price based on the
ClearStream Energy Services Inc.
63
Annual Report 2018
Annual Report 2018
volume weighted‐average trading price for the five trading days preceding the vesting date of
the award.
The following table summarizes the units outstanding:
Balance as at January 1, 2017
Granted
Forfeited in 2017
Balance as at December 31, 2017
Forfeited
Balance as at December 31, 2018
Exercisable as at December 31, 2018
RSUs
-
5,510,000
(1,160,000)
4,350,000
(730,000)
3,620,000
-
PSUs
-
4,070,000
(2,330,000)
1,740,000
(1,390,000)
350,000
-
ClearStream’s five day weighted average closing share price at December 31, 2018 was $0.01
(December 31, 2017 ‐ $0.09). The weighted average remaining contractual life of the
outstanding RSUs as at December 31, 2018 was 0.7 years (December 31, 2017 – 1.4 years). The
weighted average remaining contractual life of the outstanding PSUs as at December 31, 2018,
was 0.5 years (December 31, 2017 – 1.4 years). For the year ended December 31, 2018, a
recovery of $148 of share based compensation was recognized relating to RSUs (2017 –
expense of $180) and a recovery of $92 of share based compensation was recognized relating
to PSUs (2017 – expense of $136).
20. Related party disclosures
a) Other related party transactions
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 (2017 ‐ $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.
The
remuneration for these key management personnel during the years ended December 31, 2018
and 2017 are as follows:
For the year ended December 31,
Short-term employment benefits
Share based compensation
Termination benefits
Total compensation
2018
$
2017
$
3,852
(97)
-
3,755
2,238
438
180
2,856
$
$
21.
Financial instruments and risk management
Financial instruments consist of cash, restricted cash, accounts receivable, accounts payable, ABL
Facility, Senior Secured Debentures and Convertible Secured Debentures.
ClearStream Energy Services Inc.
64
Annual Report 2018
Annual Report 2018
a) Fair values of financial assets and liabilities
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.
b) Risk management
ClearStream’s Board of Directors has overall responsibility for the establishment and oversight
of ClearStream’s risk management framework. ClearStream has exposure to credit risk,
customer concentration risk, liquidity risk, and interest rate risk.
i) Credit risk
The Company has exposure to credit risk, which 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:
As at December 31,
Cash
Restricted cash
Accounts receivable
Earn-out assets
Total
2018
$
10,838
980
59,715
-
$
71,533
2017
$
4,649
980
66,177
2,450
74,256
$
Cash and restricted cash are held at Canadian Schedule A Banks and are therefore 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, 2018, $45,741 (December 31,
2017 ‐ $49,344) related to trade receivables and $13,974 (December 31, 2017 ‐ $16,833)
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, 2018, approximately $1,809 of ClearStream’s trade receivables had been
outstanding longer than 90 days (December 31, 2017 ‐ $2,272). Subsequent to December 31,
2018, $1,302 of the $1,809 over 90 days was collected. Management has fully evaluated the
outstanding receivables as at December 31, 2018 and has determined that the lifetime
expected credit losses of the trade receivables was immaterial.
ClearStream Energy Services Inc.
65
Annual Report 2018
Annual Report 2018
ii) Customer concentration risk
Revenues of ClearStream are concentrated, with its top three customers representing 54% of
consolidated revenue (2017 – 54%) and 40% of the consolidated accounts receivable for
ClearStream (2017 – 49%). More specifically, ClearStream’s largest customer within the
Maintenance & Construction operating segment accounted for 31% or $119,005 of
ClearStream’s consolidated revenue for the year ended December 31, 2018 (2017 – 33% or
$117,498).
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 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.
The Company has been working with its lenders with respect to obtaining an extension of its
ABL Facility (which has a maturity date of March 23, 2019). Based on confirmation received
from its lenders, the Company currently expects to extend the ABL Facility to March 22, 2020
on similar terms as its existing arrangement.
22. Acquisition of AFX
On September 24, 2018, ClearStream completed the acquisition, and thereby obtained
control, of AFX Materials and Fabrication Ltd. (“AFX”) through the purchase of 100% of its
share capital. AFX is a specialized manufacturer of wear resistant chromium carbide overlay
and structural steel fabrication with operations in Alberta. The acquisition is expected to
increase the manufacturing capacity of ClearStream’s existing Wear Technology business by
30%. Total consideration transferred was approximately $3,088, comprised of $2,450 of cash
and up to $638 in contingent consideration if AFX achieves a certain pre‐determined cash flow
target within one year of the transaction closing. Management has estimated the fair value of
ClearStream Energy Services Inc.
66
Annual Report 2018
Annual Report 2018
the contingent consideration based on acquisition‐date forecasts which indicate the target is
likely to be achieved.
The acquisition was accounted for following the acquisition method as at the closing date of
September 24, 2018. Determinations of fair value often require management to make
assumptions and estimates about future events. Changes in any of the assumptions or
estimates used in determining the fair values of acquired assets and liabilities could impact
the carrying amounts assigned accordingly. ClearStream continues to work with AFX to finalize
certain working capital amount and has provisionally allocated the consideration transferred,
subject to changes in estimates, as follows:
Cash
Accounts receivable
Other current assets
Property, plant and equipment
Accounts payable and accrued liabilities
Deferred income tax liability
Total identifiable net assets
$ 32
621
16
2,995
($117)
($459)
$ 3,088
Given that the operations of AFX, upon the date of acquisition, were combined with those of
ClearStream’s existing Wear Technologies business, it is impracticable to determine the
revenue included in the consolidated financial statements in respect of AFX from September
24, 2018 to December 31, 2018 (or as though the business combination had closed on January
1, 2018). Similarly, it is impracticable to determine any measure of profit or loss in respect of
AFX for the same periods.
23.
Supplemental cash flow information
a. Changes in non‐cash working capital
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Deferred revenue
Total changes in non-cash balances
2018
2017
$ 6,462 $ (19,249)
(1,304)
(1,430)
943
(929)
9,427
(7,859)
(125)
(21)
$ (2,009) $ (12,076)
ClearStream Energy Services Inc.
67
Annual Report 2018
b. Changes in liabilities arising from financing activities
Annual Report 2018
Balance as at January 1, 2017
Borrowings
Repayments
Non-cash changes
Balance as at December 31, 2017
Borrowings
Repayments
Cash and preferred share conversion
Extinguishment of debt, net of deferred financing fees
Non-cash changes
Accretion
Balance as at December 31, 2018
24.
Segmented information
ABL
facility
3,500
24,000
Obligations
under finance
leases
6,817
1,726
- (3,699)
- (1,197)
3,647
4,106
(2,442)
27,500
5,461
Senior and
convertible
secured
debentures
196,039
-
-
948
196,987
-
-
Total liabilities
from financing
activities
206,356
25,726
(3,699)
(249)
228,134
9,567
(2,442)
(2,415)
(97,273)
51
299
- (2,415)
- (97,273)
-
-
- 51
-
-
$ 32,961
- 299
$ 5,362
$ 97,598 $ 135,921
ClearStream has three reportable 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.
The Maintenance and Construction division, which includes the union and non‐union CGUs 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 oilsands markets.
The Wear and Fabrication division, which includes the Wear, Fabrication and Environmental
CGUs specializes in the supply and fabrication of overlay pipe spools, pipe bends, wear plate,
welding services, custom fabrication, pipe management and storage services. Environmental
Services group provides regulatory and environmental advisory services focused on servicing
our clients across various end markets such as Oil & Gas, Power, Government, Mining and
Forestry.
The Corporate division is a standard head office function which deals with strategic planning,
corporate communications, taxes, legal, marketing, finance, financing (including interest
expense), human resources and information technology for the entire organization.
The Eliminations column includes adjustments required to account for joint ventures as equity
investments, and eliminations of interdivisional transactions. ClearStream accounts for
intersegment sales based on transaction price.
ClearStream Energy Services Inc.
68
Annual Report 2018
Annual Report 2018
Maintenance and
Year Ended December 31, 2018
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Stock based compensation recovery
Amortization of intangible assets
Depreciation
Income from equity investment
Interest expense
Gain on sale of assets
Restructuring costs
Impairment of goodwill and intangible assets
Gain (loss) on sale of property, plant and equipment
Other loss
Income (loss) before taxes
Deferred income tax recovery
Income (loss) from continuing operations
Construction Services Wear, Fabrication Corporate
-
$
-
-
318,873
(303,074)
15,799
61,335
(50,037)
11,298
$
(1,093)
-
(1,030)
(3,216)
163
(334)
-
-
(17,733)
318
-
(7,126)
-
(7,126)
(1,137)
-
(341)
(1,388)
-
(54)
1,032
-
-
(2)
(860)
8,548
459
9,007
(19,129)
97
-
(344)
-
(12,149)
(275)
(165)
-
12
-
(31,953)
-
(31,953)
Eliminations
(1,876)
$
1,876
-
$
Total
378,332
(351,235)
27,097
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(21,359)
97
(1,371)
(4,948)
163
(12,537)
757
(165)
(17,733)
328
(860)
(30,531)
459
(30,072)
Year Ended December 31, 2017
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Stock based compensation recovery
Amortization of intangible assets
Depreciation
Income from equity investment
Interest expense
Gain on sale of assets
Restructuring costs
Impairment of goodwill and intangible assets
Gain (loss) on sale of property, plant and equipment
Other loss
Income (loss) before taxes
Income tax recovery (expense) - current
Income (loss) from continuing operations
Maintenance and
Construction Services
$
286,433
(267,711)
18,722
Wear, Fabrication
& Transportation
$
72,824
(61,127)
11,697
Corporate
-
-
-
Eliminations
$
(2,110)
2,110
-
$
Total
357,147
(326,728)
30,419
(1,977)
-
(1,984)
(2,522)
246
(270)
-
-
(7,108)
1,968
-
7,075
-
7,075
(778)
-
(1,461)
(2,340)
0
(177)
-
-
(577)
115
(5,778)
701
-
701
(16,111)
(710)
-
(402)
-
(21,027)
(570)
(1,414)
-
-
-
(40,234)
(2)
(40,236)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(18,866)
(710)
(3,445)
(5,264)
246
(21,474)
(570)
(1,414)
(7,685)
2,083
(5,778)
(32,458)
(2)
(32,460)
25. Discontinued operations
The loss from discontinued operations was $1,495 and due to SG&A expenses that the
Company continues to incur relating to sale of business prior to March 2016. These expenses
consist largely of legal, insurance, and consulting costs relating to the Quantum Murray earn‐
out and legal proceedings that existed prior to the sale of the business.
26.
Subsequent events
a. Brompton Corp
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”) relating
ClearStream Energy Services Inc.
69
Annual Report 2018
Annual Report 2018
to Brompton’s tax returns for the 2010 to 2014 taxation years. The Company previously held
approximately 40% of the outstanding equity of Brompton (which it sold in September 2011).
Brompton requested the Company pay its share of the reassessment amount and through a
court decision in February 2017, the Company was required to pay Brompton $4,969, which
included taxes, interest, legal fees and costs for appeal. At December 31, 2017, the Company
had fully paid Brompton’s claim and recorded the cost through discontinued operations.
Brompton appealed the notice of reassessment and in October 2018, Brompton received an
offer from CRA to settle its appeal.
In February 2019, the Company received a refund of $3,250, which represents 69% of the
total payment previously made by ClearStream.
b. ABL renewal
On March 21, 2019, the company received confirmation from its lenders that the ABL facility
has been approved for renewal until March 2020 at terms substantially the same as the
existing facility.
ClearStream Energy Services Inc.
70
Annual Report 2018
Annual Report 2018
ClearStream Energy Services Inc. (“ClearStream” or the “Company”) is a corporation formed pursuant to the
Business Corporations Act (Ontario). The head office is located at 311‐6th Avenue, Calgary, Alberta. ClearStream is
a fully‐integrated provider of midstream production services, which includes maintenance and turnarounds,
facilities construction, welding and fabrication and environmental services with locations across Western Canada.
The condensed interim consolidated financial statements were authorized for issuance in accordance with a
resolution of the Board of Directors of ClearStream on November 6, 2018.
The Maintenance and Construction services segment’s revenues and profits are impacted by seasonality. Peak
business activity for this segment is typically highest during the second and third quarters when spring and fall
facility shutdowns take place.
CLEARSTREAM ENERGY SERVICES INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2017 and 2016
ClearStream Energy Services Inc.
71
Annual Report 2018