MESSAGE TO SHAREHOLDERS
2019 was a defining year for ClearStream with a significant step change in our overall size and growth trajectory.
As outlined in our strategic roadmap established in 2018, ClearStream completed the acquisition of (i) certain
assets of the production services division of AECOM Production Services Ltd. (the "AECOM PSD Business") and
(ii) all of the shares of Universal Weld Overlays Inc. ("UWO") at the end of June 2019. These acquisitions support
our vision to be recognized as the most trusted provider of industrial and asset integrity services to improve our
customers’
The acquisitions are
complementary to our existing business with limited or no overlap in terms of clients, geographies and service
lines, and offer significant cross-selling opportunities. ClearStream can now provide a full service offering to
address our customers' maintenance and asset integrity requirements. We are proud to offer and serve our
clients with a suite of 38 services that encompass the full asset lifecycle.
facilities and operations in a safe, efficient and cost effective manner.
Overall demand for our services in conjunction with market share gains obtained throughout 2019,
led
ClearStream to achieving a 72% improvement of revenue compared to the low revenue level in 2016 following the
oil and gas downturn. In 2019, revenues totalled $464.3 million, representing an increase of $85.9 million or 23%
over 2018, and Adjusted EBITDAS totalled $26.3 million, representing an increase of $18.6 million or 240% over
2018 (which did not include any impact from the adoption of IFRS 16 (Leases)). In the fourth quarter of 2019,
ClearStream announced contract renewals and project awards representing over $250 million of new backlog.
This is the 4th year in a row with a 100% contract renewal rate.
The competitive landscape over the last 12 months remained high as market conditions continued to be uncertain
due to the current geo-political macro environment, take away capacity concerns as well as the political and
in Western Canada. With continued consolidation of oil and gas exploration and
regulatory environment
production companies and extensive regional coverage provided by its 13 district offices, ClearStream is well-
positioned to effectively compete against both larger competitors that focus on industrial and infrastructure capital
expenditures and smaller regional players that lack the depth of service offerings in multiple geographies.
Through our strong health, safety and environment ("HSE") management system, ClearStream demonstrated its
commitment to maintain a safe and respectful work environment for our employees and clients. Thanks to active
participation by all our employees, front line supervision and leadership teams, ClearStream ended the year with a
Total Recordable Injury Frequency of 0.42. This has been achieved in spite of an increase in working hours from
2018, and by aligning the employees who joined us through the acquisitions with our HSE standards and
expectations.
In 2019, we also announced various organizational changes, transfers, and promotions within our business to
better support the entire organization and allow our employees to experience personal development and mobility.
In addition, we have also accelerated our focus on internal business process improvements and automation in
order to improve employee/customer experience, gain operational efficiency, reduce costs, accelerate cash
conversion, and prepare for future growth.
We saw the immediate benefits of the acquisitions of the AECOM PSD Business and UWO in our third and fourth
quarter 2019 results. The acquisitions, in combination with organic growth in our core business, should allow
ClearStream to operate with increased profitability and cash flow generation going forward.
Overall, ClearStream is well-positioned to deliver value and growth, with improving results, significant cross-
selling opportunities, strong customer relationships, recurring and stable revenues tied to our customers'
operational expenditures, and an experienced Senior Leadership Team.
Thank you for your continued support.
Yves Paletta
Chief Executive Officer
P A G E 1
Management’s Discussion and Analysis
March 4, 2020
The following is management’s discussion and analysis (“MD&A”) of the consolidated results of operations,
balance sheets and cash flows of ClearStream Energy Services Inc. ("ClearStream") for the years ended
December 31, 2019 and 2018. This MD&A should be read in conjunction with ClearStream’s audited consolidated
financial statements for the years ended December 31, 2019 and 2018.
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 4, 2020 and is current
to that date unless otherwise indicated.
The annual consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
This MD&A makes reference to certain measures that are not defined in IFRS and contains forward-looking
information. These measures do not have any standard meaning prescribed by IFRS and are therefore unlikely to
be comparable to similar measures presented by other issuers. See "Advisory regarding Forward-Looking
Information" and "Non-Standard Measures" on page 4.
References to “we”, “us”, “our” or similar terms, refer to ClearStream, unless the context otherwise requires.
P A G E 2
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 mainly located in Canada with some activity in the United
States through UWO. 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, turnaround and construction services to the
conventional oil and gas, oilsands, and other industries.
Wear, Fabrication, and
Environmental services
Custom fabrication services supporting pipeline and infrastructure projects,
patented wear overlay technology services specializing in overlay pipe spools,
pipe bends and plate, and regulatory and environmental advisory services.
Corporate
ClearStream head office management, administrative, legal and interest expense
costs.
Note: The Environmental Services division has been included in the Wear, Fabrication, and Environmental Services segment; the financial results for this division
were not significant to overall financial results for this segment during the years ending December 31, 2019 and 2018.
P A G E 3
Advisory regarding Forward-Looking Information
Certain information included in this MD&A may constitute “forward-looking information” within the meaning of Canadian 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. Specifically, this MD&A contains forward-
looking information relating to: our business plans, strategies and objectives; the funding of our short-term contractual obligations with cash flow from operations;
that the acquisition of the AECOM PSD Business and UWO will complement existing service lines and further broaden potential market opportunities; our estimate
of the earn-out contingent liability payable to the sellers of UWO; the extension and amendment of the ABL Facility; the effect of known claims and litigation on our
financial position and results of operations; our assessment of overall market conditions; that the acquisitions of the AECOM PSD Business and UWO will drive
year-over-year growth in revenues, profitability and cash flow; the demand for maintenance and turnaround services; and expectations for our maintenance and
turnaround, wear technology overlay and environmental services divisions in 2020.
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, but not limited to, risks related to the integration of acquired businesses, conditions of capital
markets, economic conditions, commodity prices, dependence on key personnel, interest rates, regulatory change, ability to meet working capital requirements and
capital expenditure needs, factors relating to the weather and availability of labour. These factors should not be considered exhaustive. Risks and uncertainties
about ClearStream’s business are more fully discussed in ClearStream’s disclosure materials, including its annual information form and management’s discussion
and analysis of the operating and financial results, filed with the securities regulatory authorities in Canada and available at www.sedar.com. In formulating
forward-looking information herein, management has assumed that business and economic conditions affecting ClearStream will continue substantially in the
ordinary course, including, without limitation, with respect to general levels of economic activity, regulations, taxes and interest rates. Although the forward-looking
information is based on what management of ClearStream consider to be reasonable assumptions based on information currently available to it, there can be no
assurance that actual events or results will be consistent with this forward-looking information, and management’s assumptions may prove to be incorrect.
This forward-looking information is made as of the date of this 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. Forward-looking information is provided for the
purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not
be appropriate for other purposes.
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),
share-based compensation and other long-term incentive plans. EBITDAS is used by management and the directors of ClearStream 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 the gain on sale of assets held for sale, impairment of goodwill and intangible assets, restructuring costs, gain on
sale of property plant and equipment, recovery of contingent consideration liability, other loss, one time incurred expenses, impairment of right-of-use assets,
bargain purchase gain and gain on remeasurement of right-of-use assets. 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 on ClearStream’s website at
www.clearstreamenergy.ca.
P A G E 4
2019 RESULTS – CONTINUING OPERATIONS
Summary Results ($000’s)
For the year ended December 31,
Revenue
Cost of revenue
Gross profit
Selling, general and administrative expenses
Share-based compensation and other long-term incentive plans (expense) recovery
Amortization of intangible assets
Depreciation expense
Income from equity investment
Interest expense
Gain on sale of assets held for sale
Restructuring costs
Impairment of intangible assets and goodwill
Impairment of right-of-use assets
Recovery of contingent consideration liability
Bargain purchase gain
Gain on remeasurement of right-of-use assets
Gain on sale of property, plant and equipment
Income tax recovery - current
Income tax recovery - deferred
Other loss
Loss from continuing operations
Add:
Amortization of intangible assets
Depreciation expense
Share-based compensation and other long-term incentive plans expense (recovery)
Interest expense
Income tax recovery - deferred
EBITDAS
Gain on sale of assets held for sale
Gain on sale of property, plant and equipment
Impairment of intangible assets and goodwill
Restructuring costs
Other loss
One-time incurred expenses
Impairment of right-of-use assets
Recovery of contingent consideration liability
Bargain purchase gain
Gain on remeasurement of right-of-use assets
Adjusted EBITDAS
Net (loss) income per share (dollars)
Basic & Diluted:
Continuing operations
Discontinued operations
Net loss and comprehensive loss
Selected Balance Sheet Accounts
As at December 31,
Total assets
ABL facility
Senior secured debentures
Convertible secured debentures
Other secured borrowings
Shareholders' deficit
$
2019
2018
464,252 $
(412,678)
51,574
378,332
(351,235)
27,097
(27,418)
(1,162)
(1,023)
(13,867)
509
(19,989)
—
(8,361)
—
(1,680)
623
10,791
127
316
—
2,908
—
(6,652)
1,023
13,867
1,162
19,989
(2,908)
26,481 $
—
(316)
—
8,361
—
1,617
1,680
(623)
(10,791)
(127)
26,282 $
(0.06) $
0.02 $
(0.04) $
(21,359)
97
(1,371)
(4,948)
163
(12,537)
757
(165)
(17,733)
—
—
—
—
328
—
459
(860)
(30,072)
1,371
4,948
(97)
12,537
(459)
(11,772)
(757)
(328)
17,733
165
860
1,813
—
—
—
—
7,714
(0.27)
(0.01)
(0.29)
2019
2018
257,573 $
67,442
96,955
—
18,621
(23,438) $
110,956
32,332
96,746
852
—
(58,437)
P A G E 5
$
$
$
$
$
$
$
2019 RESULTS
Revenues for the year ended December 31, 2019 were $464,252 compared to $378,332 in 2018, an increase of
22.7% from 2018. This increase in 2019, in comparison to 2018, is largely driven by the acquisition on June 28,
2019 of (i) certain assets of the production services division of AECOM Production Services Ltd. (the "AECOM
PSD Business") and (ii) all of the issued and outstanding shares of Universal Weld Overlays Inc. ("UWO"). In
addition, the 2019 revenue increase over 2018 is being driven by strong organic growth in the pre-existing
Maintenance and Construction Services segment.
Gross profit for the year ended December 31, 2019 was $51,574 compared to $27,097 in 2018. Gross profit
margins were 11.1% in 2019 compared to 7.2% in 2018. The increase in gross profit margin in 2019, in
comparison to 2018, is related to the acquisition of the AECOM PSD Business and UWO, the organic growth
realized in the Maintenance and Construction Services segment and overall better absorption of indirect costs, as
well as the adoption of IFRS 16 (Leases), which impacted the reclassification of lease expenses compared to
2018.
Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2019 were $27,418, in
comparison to $21,359 for the same period in 2018. As a percentage of revenue, SG&A costs were 5.9% in 2019
compared to 5.6% in 2018. SG&A expenses as a percentage of revenue were impacted by the additional
corporate support necessary to properly manage the newly acquired AECOM PSD Business and UWO as well as
a significant decrease in the ClearWater division's large plant turnaround revenue in 2019 as compared to 2018.
Also impacting SG&A expenses was the adoption of IFRS 16 (Leases), and costs incurred in the Company's
growth initiatives and other expenses to support business process improvements designed to increase
operational effectiveness and lower operating costs going forward.
Non-cash items that impacted the 2019 results were depreciation and amortization. For the year ended December
31, 2019, depreciation and amortization expense was $14,890 compared to $6,319 for the same period in 2018.
An increase in depreciation and amortization expense was largely due to the implementation of IFRS 16 and the
increase in asset values as a result of the acquisition of the AECOM PSD Business.
For the year ended December 31, 2019, interest expenses were $19,989 compared to $12,537 in 2018. Interest
expense increased by $7,452, of which $2,555 related to the impact of IFRS 16 and the remainder related to an
increase in the amount outstanding under the term loan facilities due to advances made in the fourth quarter of
2018 and the second and thrid quarters of 2019.
Restructuring costs of $8,361 were recorded during the year ended December 31, 2019, in comparison to $165 in
2018. These non-recurring restructuring costs are related to the acquisitions of the AECOM PSD Business and
UWO, which closed on June 28, 2019, as well as additional severance and growth initiatives.
Loss from continuing operations for the year ended December 31, 2019 was $6,652, in comparison to loss of
$30,072 in 2018. Nothwithstanding the significant improvement in gross profit, the income variance is also largely
driven by the bargain purchase gain and deferred income tax recovery recognized through the acquisition of the
AECOM PSD Business, which closed on June 28, 2019, as well as the impairment of intangible assets and
goodwill recorded in 2018.
The gain from discontinued operations was $1,940 for the year ended December 31, 2019, compared to a loss of
$1,495 for the same period in 2018. The gain in 2019 includes the Company's share of an income tax
reassessment won by Brompton resulting in a recovery of $3,250, offset by expenses that the Company continues
to incur relating to the sale of businesses that it owned 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, 2019, Adjusted EBITDAS was $26,282 compared to $7,714 for the same
period in 2018. As a percentage of revenue, Adjusted EBITDAS was 5.7% in 2019 compared to 2.0% in 2018.
Adjusted EBITDA as a percentage of revenue increased due largely to the impact of increased activity from the
acquisitions of
the AECOM PSD Business and UWO combined with organic growth in the pre-existing
Maintenance and Construction Services segment.
P A G E 6
SEGMENT OPERATING RESULTS
MAINTENANCE AND CONSTRUCTION SERVICES
For the year ended December 31,
2019
2018
Revenue
Cost of revenue
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation expense
Income from equity investments
Interest expense
Restructuring costs
Impairment of intangible assets and goodwill
Gain on sale of property, plant and equipment
Income (loss) from continuing operations
Add:
Amortization of intangible assets
Depreciation expense
Interest expense
EBITDAS
Gain on sale of property, plant and equipment
Impairment of intangible assets and goodwill
Restructuring costs
One-time incurred expenses
Adjusted EBITDAS
REVENUES
$
403,348 $
(371,634)
31,714
(1,349)
(142)
(7,700)
509
(1,597)
(859)
—
316
20,892
142
7,700
1,597
30,331
(316)
—
859
—
318,873
(303,074)
15,799
(1,093)
(1,030)
(3,216)
163
(334)
—
(17,733)
318
(7,126)
1,030
3,216
334
(2,546)
(318)
17,733
—
801
$
30,874 $
15,670
Revenues for the Maintenance and Construction Services segment were $403,348 for the year ended December
31, 2019 compared to $318,873 for the same period in 2018, which reflects an increase of 26.5%. This increase
was due to the acquisition of the AECOM PSD Business on June 28, 2019 as well as organic growth in the pre-
existing Maintenance and Construction Services segment.
GROSS PROFIT
Gross profit was $31,714 for the year ended December 31, 2019, compared to $15,799 for the same period in
2018. Gross profit margins were 7.9% in 2019 compared to 5.0% in 2018. The gross profit increase was due to
organic growth, increased activity from the acquisition of the AECOM PSD Business, better absorption of indirect
costs and the adoption of IFRS 16 on January 1, 2019, which decreased direct rent expense and increased gross
profit by $4,212.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Maintenance and Construction segment were $1,349 for the year ended December 31,
2019 compared to $1,093 for the same period in 2018. SG&A expenses increased partially due to additional costs
to support the revenue increase and the acquisition of the AECOM PSD Business.
P A G E 7
WEAR, FABRICATION AND ENVIRONMENTAL SERVICES
For the year ended December 31,
2019
2018
Revenue
Cost of revenue
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation expense
Interest expense
Gain on sale of assets held for sale
Restructuring costs
Impairment of right-of-use asset
Recovery of contingent consideration liability
Loss on sale of property, plant and equipment
Income tax recovery - deferred
Other loss
Income from continuing operations
Add:
Amortization of intangible assets
Depreciation expense
Interest expense
Income tax recovery - deferred
EBITDAS
Gain on sale of assets held for sale
Loss on sale of property, plant and equipment
Restructuring costs
Other loss
Impairment of right-of-use asset
Recovery of contingent consideration liability
Adjusted EBITDAS
REVENUES
$
64,797 $
(44,938)
19,859
(1,424)
(881)
(4,003)
(590)
—
(1,379)
(1,680)
623
—
—
—
10,525
881
4,003
590
—
15,999
—
—
1,379
—
1,680
(623)
61,335
(50,037)
11,298
(1,137)
(341)
(1,388)
(54)
1,032
—
—
—
(2)
459
(860)
9,007
341
1,388
54
(459)
10,331
(1,032)
2
—
860
—
—
$
18,435 $
10,161
Revenues for this segment for the year ended December 31, 2019 were $64,797, compared to $61,335 for the
same period in 2018. The increase in revenue for the period was partially due to an overall increase in Wear
Technology demand, including the additional capacity from the acquisitions of AFX Materials and Fabrication Ltd.
("AFX") in the third quarter of 2018 and UWO in the second quarter of 2019. This increase offset the decrease in
revenues in the Fabrication business following the closure of some unprofitable facilities in 2019.
GROSS PROFIT
Gross profit was $19,859 for the year ended December 31, 2019, compared to $11,298 for the same period in
2018. The gross profit increase was due to the closure of some unprofitable fabrication facilities, the UWO
acquisition, and operational efficiencies in our Wear business. A further increase was due to the adoption of
IFRS 16 on January 1, 2019, which decreased direct rent expense and increased gross profit by $2,862 for the
year ended December 31, 2019.
P A G E 8
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Wear, Fabrication, and Environmental segment were $1,424 for the year ended
December 31, 2019 compared to $1,137 for the same period in 2018. SG&A expenses increased due to the
acquisitions of AFX in the third quarter of 2018 and UWO in the second quarter of 2019, and additional resources
required to support the increased activity in the Wear, Fabrication and Environmental segment.
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, marketing, finance, human
resources and information technology for
the costs of
ClearStream’s corporate function, as well as other corporate overhead expenses.
the entire organization. The tables below reflect
For the year ended December 31,
2019
2018
Selling, general and administrative expenses
$
(24,645) $
Share-based compensation and other long-term incentive plans
Depreciation expense
Interest expense
Loss on sale of assets held for sale
Restructuring costs
Bargain purchase gain
Gain on remeasurement of right-of-use assets
Gain on sale of property, plant and equipment
Income tax recovery - deferred
Loss from continuing operations
Add:
Depreciation expense
Share-based compensation and other long-term incentive plans
Interest expense
Income tax recovery - deferred
EBITDAS
Loss on sale of assets held for sale
Gain on sale of property, plant and equipment
Restructuring costs
One-time incurred expenses
Bargain purchase gain
Gain on remeasurement of right-of-use assets
Adjusted EBITDAS
(1,162)
(2,164)
(17,802)
—
(6,124)
10,791
127
—
2,908
(38,071)
2,164
1,162
17,802
(2,908)
(19,851)
—
—
6,124
1,617
(10,791)
(127)
(23,028) $
$
(19,129)
97
(344)
(12,149)
(275)
(165)
—
—
12
—
(31,953)
344
(97)
12,149
—
(19,557)
275
(12)
165
967
—
—
(18,162)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses were $24,645 for the year ended December 31, 2019 compared to $19,129 for the same period
in 2018. The increase for the year ended December 31, 2019 was partially due to additional resources required to
support the increased activity from organic growth recognized in the period as well as the preparation for the
acquisitions of the AECOM PSD Business and UWO. Also impacting SG&A expenses were transition costs,
including professional fees incurred in the Company's growth initiatives and other expenses to support business
process improvements designed to increase operational effectiveness and lower operating costs going forward.
P A G E 9
FOURTH QUARTER 2019 RESULTS
For three months ended December 31,
2019
2018
Revenue
Cost of revenue
Gross profit
$
137,066 $
(121,908)
15,158
77,840
(71,671)
6,169
Selling, general and administrative expenses
Share-based compensation and other long-term incentive plans
(expense) recovery
Amortization of intangible assets
Depreciation expense
Income from equity investment
Interest expense
Restructuring costs
Impairment of intangible assets and goodwill
Recovery of contingent consideration liability
Bargain purchase gain
Gain on sale of property, plant and equipment
Income tax recovery - deferred
Other loss
Loss from continuing operations
Add:
Amortization of intangible assets
Depreciation expense
Share-based compensation and other long-term incentive plans
expense (recovery)
Interest expense
Income tax recovery - deferred
EBITDAS
Gain on sale of property, plant and equipment
Impairment of intangible assets and goodwill
Restructuring costs
Other loss
One-time incurred expenses
Recovery of contingent consideration liability
Bargain purchase gain
Adjusted EBITDAS
$
(10,202)
(1,098)
(313)
(3,974)
413
(6,060)
(2,829)
—
623
(1,481)
69
(755)
—
(10,449)
313
3,974
1,098
6,060
755
1,751
(69)
—
2,829
—
—
(623)
1,481
5,369 $
(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
P A G E 10
FOURTH QUARTER RESULTS COMMENTARY
Revenues for the three months ended December 31, 2019 were $137,066 compared to $77,840 for the same
period in 2018, an increase of 76.1% on a year-over-year basis. This increase for the three months ended
December 31, 2019 in comparison to the same period in 2018, is largely driven by the acquisitions of the AECOM
PSD Business and UWO on June 28, 2019. In addition, the increase in 2019 revenue over 2018 is being driven
by strong organic growth in the pre-existing Maintenance and Construction Services segment.
Gross profit for the three months ended December 31, 2019 was $15,158 compared to $6,169 for the same
period in 2018. Gross margins were 11.1% for the three months ended December 31, 2019 compared to 7.9% in
the fourth quarter of 2018. The increase in gross margins in the three months ended December 31, 2019 was due
to the acquisitions of the AECOM PSD Business and UWO, the organic growth realized in the Maintenance and
Construction Services segment, as well as the adoption of IFRS 16, which impacted the reclassification of lease
expenses compared to 2018.
SG&A expenses for the three months ended December 31, 2019 were $10,202 compared to $6,561 for the same
period in 2018. SG&A expenses, as a percentage of revenue, were 7.4% compared to 8.4% for the same period
in 2018 due to significantly higher revenue in the three months ended December 31, 2019 as well as IFRS 16
impacts in 2019, which impacted the reclassification of lease expenses compared to 2018.
Adjusted EBITDAS
Maintenance and Construction Services
Wear, Fabrication and Environmental Services
Adjusted EBITDAS from operations
Corporate
Adjusted EBITDAS
Discontinued Operations
Three months ended December 31,
Loss from discontinued operations
Three months ended
December 31,
Twelve months ended
December 31,
2019
2018
2019
2018
10,168
4,758
14,926
(9,557)
5,369
4,287
1,767
6,054
(4,885)
1,169
30,874
18,435
49,309
(23,028)
26,282
15,715
10,161
25,876
(18,162)
7,714
2019
2018
$
(87) $
(610)
The loss from discontinued operations is due to costs relating to the calculation of the Quantum Murray earn-out
and legal proceedings that existed prior to the business.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31,
Cash used in by operating activities
Cash (used in) provided by investing activities
Cash provided by financing activities
Consolidated cash as of December 31,
OPERATING ACTIVITIES
2019
2018
(20,171)
(57,974)
74,416
7,109
(12,151)
1,691
16,649
10,838
Cash used in continuing operations represents EBITDAS less impairment, restructuring, plus changes in non-
cash working capital. The cash provided by or used in discontinued operations includes the settlement of some of
the legacy claims in 2019 and other expenses paid in 2019 relating to businesses that were sold prior to March
2018.
ClearStream expects to meet its short-term contractual obligations through cash flow from operations, which
includes collection of accounts receivable, and available credit facilities.
P A G E 11
INVESTING ACTIVITIES
Cash used in investing activities related to the acquisitions of the AECOM PSD Business and UWO completed in
the second quarter of 2019, which are expected to complement existing service lines and further broaden
potential market opportunities.
AECOM PSD Business - Asset Purchase
On June 28, 2019, the Company acquired the AECOM PSD Business, a leading provider of mechanical, electrical
and instrumentation services to upstream, midstream and downstream operators in Canada. The acquired assets
include equipment and properties located throughout Alberta, as well as rights to the Flint brand in Canada.
The total purchase price was $40,546 cash, net of a post-closing working capital adjustment.
UWO - Share Purchase
On June 28, 2019, the Company acquired 100% of the issued and outstanding shares of UWO, a privately held
specialty weld overlay fabricator that provides customers with protection of pre-fabricated components across the
oil and gas, pulp and paper, petrochemical, power, pipeline, mining, subsea, aerospace and pressure vessel
fabrication sectors. The transaction is expected to complement existing service lines in addition to expanding the
Company’s offerings to customers.
The total purchase price for UWO of $16,024 consisted of four components, including:
•
•
•
•
Cash of $11,997;
Deferred consideration of $1,114 (undiscounted - $1,300), which represents the fair value of three equal
instalments of $433 due on June 28, 2020, 2021 and 2022;
Working capital adjustment of $2,052, which is not included in deferred consideration;
Earn-out contingent liability of $861 (undiscounted - $1,612), which represents the fair value of the
expected payout to the sellers on June 28, 2022, based on management’s best estimate of performance
against agreed targets for average three-year EBITDA (as defined in the purchase and sale agreement).
The maximum undiscounted earn-out is $2,000.
During the twelve months ending December 31, 2019, the Company recognized $373 and $44 in accretion
expense related to the earn-out contingent liability and deferred consideration, respectively, recorded under
interest expense on the Consolidated Statement of Loss, as well as $2,798 in transaction costs on both
transactions recorded under restructuring expense on the Consolidated Statement of Loss.
Cost of Acquisition
Cash
Deferred consideration
Working capital adjustment
Earn-out contingent liability
Total
AECOM PSD
UWO
42,036 $
11,997 $
—
(1,490)
—
1,114
2,052
861
Total
54,033
1,114
562
861
40,546 $
16,024 $
56,570
$
$
P A G E 12
Identifiable Assets Acquired & Liabilities Assumed
Cash
Accounts receivable
Inventories
Accounts payable and accrued liabilities
Deferred revenue
Deferred tax liability
Property, plant and equipment
Goodwill and intangible assets
Lease liabilities
Bargain purchase gain
Total
Bargain purchase gain
AECOM PSD
$
— $
UWO
275 $
36,191
—
(13,592)
(428)
(2,822)
34,021
—
(2,033)
(10,791)
4,343
125
(1,692)
—
(1,295)
1,550
13,252
(534)
—
$
40,546 $
16,024 $
Total
275
40,534
125
(15,284)
(428)
(4,117)
35,571
13,252
(2,567)
(10,791)
56,570
The bargain purchase gain of $10,791 from the acquisition of
the AECOM PSD Business represents the
difference between the fair value of the identifiable assets and liabilities acquired and the total purchase price paid
for the AECOM PSD Business. The bargain purchase gain has arisen primarily due to the strategic decision of the
sellers to exit these assets due to a variety of factors.
Goodwill
The goodwill of $8,652 recognized as part of the UWO acquisition is mainly attributed to expected future revenue
growth, future market development and synergies expected from the integration of UWO into the operations of the
Company.
FINANCING ACTIVITIES
a. ABL Facility
The Company established an asset-based lending facility (the “ABL Facility”) pursuant to the terms of the Third
Amended and Restated Credit Agreement, which is comprised of a revolving credit facility providing for maximum
borrowings of up to $50,000 (the “Revolving Facility”) and a term loan facility providing for maximum borrowings of
up to $40,500 (the “Term Loan Facility”) received from Canso Investment Counsel Ltd, in its capacity as portfolio
manager for and on behalf of certain accounts that it manages (“Canso”).
The Revolving Facility matures on March 23, 2020 and the Term Loan Facility matures 180 days thereafter.
The amount available under the Revolving Facility will vary from time to time based on the borrowing base
determined with reference to the accounts receivable of the Company. The Revolving Facility borrowing base as
at December 31, 2019 is $50,000 (December 31, 2018 - $29,690). 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 interest rate on the Revolving Facility is prime plus 2.5%, increasing to prime plus 4.0% if the
Revolving Facility is more than 50% drawn.
As at December 31, 2019, $27,825 (December 31, 2018 - $22,961) was drawn on the Revolving Facility, and
there were $2,930 (December 31, 2018 - $2,250) of letters of credit further reducing the amount available to be
drawn. As at December 31, 2019, the net unamortized amount of deferred financing costs was $883 (December
31, 2018 - $629).
At December 31, 2019, $40,500 (December 31, 2018 - $10,000) is outstanding under the Term Loan Facility. The
Term Loan Facility is required to be used for specific purposes 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 2.0%.
P A G E 13
The amended financial covenants applicable under the ABL Facility are as follows:
•
•
ClearStream must maintain a quarterly minimum cumulative EBITDA commencing on December 31, 2019
and each quarter thereafter of not less than $13,404
ClearStream must not expend or become obligated for any capital expenditures in an aggregate amount
exceeding $5,800 during the period commencing January 1, 2019 and ending February 29, 2020, and
any fiscal year thereafter
At December 31, 2019, ClearStream was in compliance with all financial covenants under the ABL Facility.
On March 3, 2020, the Company received confirmation from the lenders under the ABL Facility that they have
agreed to extend the maturity date of the facility to March 23, 2021. The Company and the lenders under the ABL
Facility are preparing an amending agreement to effect the extension of the maturity date and certain other
amendments, including replacing the monthly minimum EBITDA covenant with a quarterly fixed charge coverage
ratio covenant. The amendments will not reduce the maximum borrowings available under the Revolving Facility.
b. Convertible Secured Debentures
On June 28, 2019, the Company used $1,275 drawn under the Term Loan Facility to extinguish the outstanding
principal of the convertible secured debentures of $1,216 and all accrued interest.
c. Other Secured Borrowings
On June 26, 2019, the Company received $19,000 from two secured loans with the Business Development Bank
of Canada (“BDC”) as a partial source of funds for the acquisition of the AECOM PSD Business.
The $13,500 loan is repayable over 300 monthly payments of $45 from April 1, 2020 to March 1, 2045. The
interest rate on the loan is the BDC Floating Base Rate less 1.0%. Interest accrues and is payable monthly. The
Company allocated $195 in deferred financing costs to this loan that will be amortized over the life of the loan.
The $5,500 loan is repayable over 72 monthly payments of $76 from July 28, 2019 to June 28, 2025. The interest
rate on the loan is the BDC Floating Base Rate less 0.5%. Interest accrues and is payable monthly. The Company
allocated $85 in deferred financing costs to this loan that will be amortized over the life of the loan.
The loans are secured by a first security interest on the equipment acquired through the acquisition of the AECOM
PSD Business and a security interest in all other present and future property, subject to the priorities granted to
existing lenders under the ABL Facility, senior secured debentures and other existing commitments.
The loans require the Company to maintain a Fixed Charge Coverage Ratio equal to or greater than 1.10:1.00 for
each financial year commencing with the year ended December 31, 2019.
At December 31, 2019, ClearStream was in compliance with all financial covenants under the BDC agreement.
Summary of Contractual Obligations
ClearStream’s contractual obligations for the years 2020 to 2024 and thereafter are as follows:
Lease liabilities
2020
9,735
2021
7,760
2022
6,281
2023
5,339
2024
3,767
Thereafter
12,005
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,
the Annual Financial
Statements.
including use of estimates and judgments, are described in note 1 of
P A G E 14
Recently Adopted Accounting Pronouncements
IFRS 16 Leases
On January 1, 2019, the Company adopted IFRS 16 Leases. IFRS 16 provides a single accounting model for
lessees that requires the recognition of assets and liabilities on the balance sheet for contracts that are, or
contain, a lease. The accounting treatment for lessors remains substantially unchanged.
On transition, the Company elected to apply the modified retrospective approach. The Company has elected to
use hindsight in determining the term of contracts that contain an option to extend or terminate a lease. The
Company has elected to rely on its assessment of whether leases are onerous by applying IAS 37 Provisions,
Contingent Liabilities and Contingent Assets immediately before the date of initial application as an alternative to
performing an impairment review. The Company has elected to exclude initial direct costs from the measurement
of the right-of-use asset at the date of initial application.
On an ongoing basis, the Company has elected to not recognize right-of-use assets and lease liabilities for
contracts that have a lease term of 12 months or less and leases of low value assets. The payments associated
with these leases are recognized as an expense on a straight-line basis over the lease term. The Company has
applied a single discount rate to a portfolio of leases with reasonably similar characteristics.
Lease liabilities have been measured using the present value of the remaining lease payments discounted at the
Company’s weighted average incremental borrowing rate of 8.12%. Right-of-use assets have initially been
recognized at an amount equal to the lease liability.
The following table summarizes the difference between operating lease commitments disclosed applying IAS 17 -
Leases at the previous annual reporting period and lease liabilities recognized in the consolidated Balance Sheet
on transition.
Operating lease commitments at December 31, 2018
Effect of discounting
Discounted Operating lease liabilities at January 1, 2019
Exemption for short term leases
Exemption for low value leases
Additional leases identified through reassessment of leases under IFRS 16
Adjustments as a result of a different treatment of extension and termination options
Lease liabilities recognized at January 1, 2019
Consisting of:
Current lease liabilities
Non current lease liabilities
Operating lease commitments
The right-of-use assets recognized on transition consist of:
Land
Building
Equipment
Total
$
$
$
$
$
$
46,978
(12,416)
34,562
(418)
(54)
874
11,342
46,306
6,823
39,483
46,306
8,230
32,946
69
41,245
P A G E 15
At December 31, 2017, a property rental contract related to the Transportation cash generating unit was deemed
onerous and therefore a provision of $5,778 was recorded. The remaining provision of $5,060 was reversed on
transition and recognized as an impairment of right-of-use land assets at January 1, 2019.
CONTINGENCIES
Contingencies are provided for when they are likely to occur and can be reasonable estimated. ClearStream is
subject to claims and litigation proceedings arising in the normal course of operations. The known claims and
litigation proceedings are not expected to materially affect the Company's financial position or reported results of
operations.
Summary of Quarterly Results
($000s except unit amounts)
Revenue
Gross Margin
Gross Margin %
Net (loss) income from
continuing operations
Net (loss) income
Net (loss) income per
share from continuing
operations
Net (loss) income per
share
2019
Q4
2019
Q3
2019
Q2
2019
Q1
2018
Q4
2018
Q3
2018
Q2
2018
Q1
$137,066 $139,542 $103,690 $ 83,954 $ 77,840 $ 85,996 $129,702 $84,794
$ 15,158 $ 16,127 $ 11,571 $ 8,718 $ 6,169 $ 7,400 $ 6,709 $ 6,819
11.1 % 11.6 % 11.2 % 10.4 %
7.9 %
8.6 %
5.2 % 8.0 %
$ (10,449) $
928 $ 7,091 $ (4,222) $ (3,153) $ (20,834) $ (3,097) $ (2,988)
$ (10,536) $
619 $ 6,785 $ (1,580) $ (2,543) $ (20,694) $ (3,210) $ (3,175)
$
$
(0.09) $
0.01 $
0.06 $
(0.04) $
(0.03) $
(0.19) $
(0.03) $ (0.03)
(0.10) $
0.01 $
0.06 $
(0.01) $
(0.02) $
(0.19) $
(0.03) $ (0.03)
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 at December 31, 2019, directors, officers and key employees beneficially hold an aggregate of 11,873,654
common shares or 10.81%. Two leases for property, with quarterly rents of $78 and $100 are with a landlord in
which certain directors of ClearStream hold an indirect minority interest.
On June 27, 2019, $1,373 was recognized in selling, general & administrative expenses in connection with the
termination benefits, representing the fair value of expected payments to a Director in connection with the past
service as an executive officer. Under the agreement, the Director will receive quarterly payments from June 30,
2019 to December 31, 2021. At December 31, 2019, $916 was included in accounts payable and accrued
liabilities.
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.
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, 2019, our issued and outstanding share capital
127,735 Series 1 preferred shares, and 40,111 Series 2 preferred shares.
included 109,992,668 common shares,
P A G E 16
Preferred shares
As at January 1, 2018
Issued
Balance as at December 31, 2018
Issued
Converted to common shares
Balance as at December 31, 2019
Series 1
Series 2
—
127,753
127,753
—
(18)
127,735
—
—
—
40,111
—
40,111
On June 27, 2019, ClearStream issued 40,111 Series 2 preferred shares to Canso, in its capacity as portfolio
manager for and on behalf of certain accounts that it manages, in exchange for $32,200 in cash (which was used
to partially finance the acquisitions during the period) and settlement of interest obligations of $7,911 on the senior
secured debentures due June 30, 2019 and December 31, 2019. The Company allocated $363 in deferred
financing costs to this transaction. Holders of the preferred shares have the right, at their option, to convert their
preferred shares into common shares at a price of $0.10 per common share, subject to adjustments in certain
circumstances. The Series 2 preferred shares are redeemable by the Company for cash at 100% of the purchase
price for such shares, plus accrued and unpaid dividends, once all of the senior secured debentures have been
repaid, as well as in the event of certain change of control transactions.
In the fourth quarter of 2019, 51,427 common shares were issued upon the conversion of 18 Series 1 preferred
shares.
As the terms of the preferred shares do not create an unavoidable obligation to pay cash, the preferred shares are
accounted for within shareholders’ deficit, net of transaction costs.
As part of the refinancing transaction in 2018, ClearStream issued 127,565 Series 1 Preferred Shares to Canso.
Subsequent to the refinancing transaction, an additional 188 Series 1 Preferred Shares were issued in exchange
for convertible debentures. The Series 1 Preferred Shares are convertible into Common Shares at a price of
$0.35 per Common Share.
Based upon the conversion rights of the Series 1 and Series 2 Preferred Shares, there could be significant dilution
to the current holders of Common Shares. Up to approximately 766,067,000 additional Common Shares would be
issuable upon conversion of
the Preferred Shares into Common Shares, representing
the face amount of
approximately 697% of the Common Shares outstanding as of December 31, 2019.
In addition, the Series 1 and Series 2 Preferred Shares have 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 and unpaid dividends are convertible in certain circumstances at the option of the
holder into additional Series 1 and Series 2 Preferred Shares.
As at December 31, 2019, the accrued and unpaid dividends on the Series 1 and Series 2 Preferred Shares
totaled $26,300. Assuming that the holders of the Preferred Shares exercise the right to convert such accrued
and unpaid dividends into additional Preferred Shares and then convert such Preferred Shares into Common
Shares, approximately 89,851,880 Common Shares would be issued, which represents approximately 82% of the
Common Shares outstanding as of December 31, 2019.
OUTLOOK
Overall market conditions continue to be uncertain in light of continuing weakness in commodity prices, lack of
infrastructure build up to bring product
the Coronavirus. Therefore,
upstream, midstream and downstream companies are likely to maintain spending discipline for capital projects
and focus instead on operational efficiencies and asset integrity. The cash flows generated by such companies
will be further impacted by reductions in commodity prices due to the impact of the Coronavirus on global
economic growth.
to markets and the recent outbreak of
P A G E 17
In 2020, ClearStream will benefit from the full year impact of the acquisitions of the AECOM PSD Business and
UWO, which were completed on June 28, 2019. These acquisitions are expected to drive year-over-year growth
in revenues, profitability and cash flow. However, the next few quarters will likely be challenging as we navigate
the current market environment.
Over the next few years, we expect that demand for maintenance and turnaround services will increase as many
customers have deferred and may continue to defer maintenance and turnaround spending which is required to
improve asset reliability and uptime. Furthermore, as digital transformation is shaping the industry, we are
adopting more digital solutions to gain efficiencies in our service delivery, but also to provide our customers with
innovative and reliable solutions for their maintenance and asset integrity requirements. With additional overlay
manufacturing and fabrication capacity acquired in late 2018, a doubling of our wire manufacturing capacity
established in late 2019, a strong focus on productivity improvement and lead times throughout the year, and the
addition of corrosion resistant applications through UWO in mid-2019, our Wear Technology Overlay division is
well positioned to offer significant value to our clients from a full life cycle cost perspective. We also continue to
see growth opportunities in our Environmental Division as abandonment and reclamation remain an important
issue for regulatory authorities and oil and gas companies.
RISK FACTORS
An investment in the common 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 matters
highlighted in these risk factors could have a material adverse effect on ClearStream’s results of operations,
business prospects or financial condition. The risks described below and referenced elsewhere in this MD&A are
not exhaustive. The Company operates in a very competitive and ever-changing environment. New risk factors
emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess
the impact of all such risk factors on the Company’s business.
the detailed information appearing elsewhere in this MD&A. Any of
•
•
•
•
•
•
•
•
•
Failure to comply with the covenants in the agreements governing the Company’s debt could adversely
affect the Company’s financial condition.
The Company’s credit facilities may not provide sufficient liquidity and a failure to renew the credit
facilities could adversely affect the Company’s financial condition.
The Company’s access to capital or borrowing to maintain operations and/or finance future development
and acquisitions may become restricted.
The Company’s growth potential is restricted by the use of the majority of its cash flow to service debt.
Common Shares issuable on conversion of Series 1 or Series 2 preferred shares, substantially all of
which are held by Canso Investment Counsel Ltd., in its capacity as portfolio manager for and on behalf
of certain accounts that it manages ("Canso"), could result in the holders of the Common Shares being
substantially diluted and Canso being in a position to unilaterally elect the directors of the Company
should it so choose.
The Company’s business depends on the oil and natural gas industry and particularly on the level of
exploration, development and production for North American oil and natural gas, which is volatile.
The Company relies on certain key personnel whose absence or loss could disrupt its operations and
have a material adverse effect on its business.
The Company’s financial performance depends on its performance under agreements with its customers
and its ability to renew customer contracts and attract new business.
The Company is subject to risk of default by counterparties to its contracts, and its counterparties may
deem the Company to be a default risk.
P A G E 18
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Failure to maintain the Company’s safety standards and record could lead to a decline in the demand for
its services.
Difficulty in retaining, replacing or adding personnel could adversely affect the Company’s business. A
portion of the Company’s employees are unionized, and accordingly the Company is subject to the
detrimental effects of a strike or other labour action, in addition to competitive cost factors.
The Company is subject to a number of federal, provincial and regional health, safety and environmental
laws and regulations that may require it to make substantial expenditures or cause it to incur substantial
liabilities. Changes in legislation and regulations that affect the Company’s customers, or failure of
customers to comply with such regulations, could adversely affect demand for the Company’s services
and the Company’s financial performance.
The Company’s industry is intensely competitive. The Company’s reputation relative to its competition
significantly affects the Company’s long-term success and financial performance.
The Company has direct and indirect exposure to credit market volatility resulting from negative investor
sentiment about the development and regulation of energy production.
The Company is directly and indirectly subject to the influence of public perception on the regulatory
regime governing resource development.
The Company is susceptible to seasonal volatility in its operating and financial results due to adverse
weather conditions.
The Company’s reliance on equipment and parts suppliers exposes it to risks including timing of delivery
and quality of parts and equipment.
The Company is subject to a number of additional business risks, which could adversely affect its ability
to complete projects and service contracts on time and on budget.
The direct and indirect restrictions and costs of various environmental laws and regulations, existing and
proposed, may adversely affect the Company’s business, operations and financial results.
The Company may participate in large contracts with a small number of customers, thus increasing the
risk of economic dependence and concentration of credit. The Company’s customer base is concentrated
and loss of a significant customer could cause the Company’s revenue to decline substantially.
The Company’s performance is sensitive to impacts of localized factors and trends that are specific to
Alberta because a large percentage of the Company’s revenues originate in Alberta.
Since a significant portion of the Company’s work is in the oil sands sector, the Company’s performance is
sensitive to factors affecting the oil sands sector including temporary or permanent shutdown of projects
due to downturns in oil and gas prices, natural disasters, mechanical breakdowns, technology failures or
pressure from environmental activism.
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.
The Company’s current technology may become obsolete or experience a decrease in demand. To the
extent that ClearStream does not keep up with changes in technology, demand for its services may be
hindered.
The Company’s operations are subject to hazards inherent in the oilfield services industry, which risks
may not be covered to the full extent by the Company’s insurance policies.
The Company is and may become subject to legal proceedings, which could have a material adverse
effect on its business, financial condition and results of operations.
P A G E 19
•
•
•
•
•
•
•
•
•
•
Conservation measures and technological advances could reduce demand for oil and natural gas,
resulting in reduced demand for the Company’s services.
Business acquisitions involve numerous risks and the failure to realize anticipated benefits of acquisitions
and dispositions could negatively affect the Company’s results of operations.
Public announcement of strategic transactions could be delayed.
Improper access to confidential information could adversely affect the Company’s business.
Cyber attacks and loss of the Company’s information and computer systems could adversely affect the
Company’s business.
Income tax laws, regulations or administrative practices relating to the Company and its shareholders
may in the future be changed or interpreted in a manner that adversely affects the Company or its
shareholders.
The Company's business is subject to changes in general economic conditions over which ClearStream
has little or no control.
The trading activity and price of the Common Shares could be unpredictable and volatile.
The Company may issue additional Common Shares or securities exchangeable for or convertible into
Common Shares in the future, which could result in the dilution of the interests of the holders of Common
Shares.
The Company has no plans to pay dividends.
For additional information regarding the risks that the Company is exposed to, see the disclosure provided under
the heading “Risk Factors” in the Company’s Annual Information Form for the year ended December 31, 2019,
which is available on the SEDAR website at www.sedar.com.
DISCLOSURE CONTROLS & PROCEDURES AND INTERNAL CONTROL OVER
FINANCIAL REPORTING
National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings” (“NI 52-109”),
issued by the CSA requires CEOs and CFOs to certify that they are responsible for establishing and maintaining
that disclosure controls and procedures have been
the disclosure controls and procedures for the issuer,
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, 2019 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, 2019 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.
Internal controls over financial reporting
NI 52-109 also requires CEOs and CFOs to certify that they are responsible for establishing and maintaining
internal controls over financial reporting for the issuer, that those internal controls have been designed and are
effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements in accordance with IFRS, and that the issuer has disclosed any changes in its internal
P A G E 20
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,
2019 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, 2019 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
December 31, 2019.
information relating to ClearStream is available in our Annual Information Form for the year ended
P A G E 21
CONSOLIDATED FINANCIAL STATEMENTS OF
CLEARSTREAM ENERGY SERVICES INC.
YEARS ENDED DECEMBER 31, 2019 AND 2018
P A G E 22
Calgary, Canada
March 4, 2020
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
auditor's 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 auditor's report.
Yves Paletta
Chief Executive Officer
Calgary, Canada
March 4, 2020
Randy Watt
Chief Financial Officer
P A G E 23
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, 2019 and 2018
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, 2019 and 2018, 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
the audit
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that
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
information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated.
the other
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.
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.
P A G E 24
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
if,
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
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
for the purpose of expressing an opinion on the
are appropriate in the circumstances, but not
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.
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 Kim Wiggins.
Calgary, Canada
March 4, 2020
P A G E 25
Consolidated Balance Sheets
(In thousands of Canadian dollars)
As at December 31,
Assets
Cash
Restricted cash
Accounts receivable
Inventories
Prepaid expenses
Total current assets
Property, plant and equipment
Goodwill and intangible assets
Long-term investments
Total assets
Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities
Deferred consideration
Earn-out contingent liability
ABL facility
Current portion of lease liabilities
Current portion of provision
Current portion of other secured borrowings
Total current liabilities
Lease liabilities
Other secured borrowings
Provision
Senior secured debentures
Convertible secured debentures
Deferred tax liability
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.
Signed on behalf of the Board of Directors,
Fraser Clarke, Director
Sean McMaster, Director
Notes
2019
2018
17
3
4
5
2
2
6
8
7
6
8
6
7
6
12
13
$
$
$
7,109 $
805
138,638
9,739
1,888
158,178
78,244
20,332
819
257,573 $
57,472
1,158
1,234
67,442
7,756
885
1,322
137,269
28,278
17,299
—
96,955
—
1,210
281,011
462,054
141,933
20,679
(648,104)
(23,438)
257,573 $
10,838
980
59,715
5,734
2,046
79,313
23,520
7,685
438
110,956
28,438
—
638
32,332
1,777
1,072
—
64,257
3,549
—
3,989
96,746
852
—
169,393
462,036
102,203
20,716
(643,392)
(58,437)
110,956
P A G E 26
Consolidated Statements of Loss and Comprehensive Loss
(In thousands of Canadian dollars)
For the year ended December 31,
Notes
2019
2018
Revenue
Cost of revenue
Gross profit
9
$
464,252 $
Selling, general and administrative expenses
Share-based compensation and other long-term incentive
plans
Amortization of intangible assets
Depreciation expense
Income from equity investment
Interest expense
Gain on sale of assets held for sale
Restructuring costs
Other loss
Impairment of goodwill and intangible assets
Impairment of right-of-use assets
Recovery of contingent consideration liability
Bargain purchase gain
Gain on remeasurement of right-of-use assets
Gain on sale of property, plant and equipment
Loss from continuing operations before taxes
Income tax recovery - deferred
Loss from continuing operations
10
15
5
4
11
14
5
4
2
4
4
12
Gain (loss) from discontinued operations (net of income taxes)
20
Net loss and comprehensive loss
Net (loss) income per share (dollars)
Basic & diluted:
Continuing operations
Discontinued operations
Net loss
The accompanying notes are an integral part of these consolidated financial statements.
$
$
$
$
(412,678)
51,574
(27,418)
(1,162)
(1,023)
(13,867)
509
(19,989)
—
(8,361)
—
—
(1,680)
623
10,791
127
316
(9,560)
2,908
(6,652)
1,940
(4,712) $
(0.06) $
0.02 $
(0.04) $
378,332
(351,235)
27,097
(21,359)
97
(1,371)
(4,948)
163
(12,537)
757
(165)
(860)
(17,733)
—
—
—
—
328
(30,531)
459
(30,072)
(1,495)
(31,567)
(0.27)
(0.01)
(0.29)
P A G E 27
Consolidated Statements of Shareholders’ Deficit
(In thousands of Canadian dollars, except number of shares)
January 1, 2019
Net loss
Issuance of preferred shares
Conversion of preferred shared to
common shares
Share-based compensation
13
13
15
Notes
Number of
shares
Common
Shares
Preferred
Shares
Contributed
Surplus
Deficit
Total
Shareholders'
Deficit
109,941,241 $ 462,036 $ 102,203 $
20,716 $ (643,392) $
(58,437)
—
—
51,427
—
—
—
18
—
—
39,748
(18)
—
—
—
—
(37)
(4,712)
—
—
—
(4,712)
39,748
—
(37)
At December 31, 2019
109,992,668 $ 462,054 $ 141,933 $
20,679 $ (648,104) $
(23,438)
January 1, 2018
Net loss
Share-based compensation
Issuance of preferred shares
Equity component of convertible
debentures
Gain on debt extinguishment
Impact of transition of IFRS 15
Notes
Number of
shares
Common
Shares
Preferred
Shares
Contributed
Surplus
Deficit
Total
Shareholders'
Deficit
109,941,241 $ 469,030 $
— $
2,958 $ (610,876) $
(138,888)
15
13
—
—
—
—
—
—
—
—
—
—
— 102,203
(6,994)
—
—
—
—
—
— (31,567)
(31,567)
51
—
6,994
10,713
—
—
—
—
—
(949)
51
102,203
—
10,713
(949)
At December 31, 2018
109,941,241 $ 462,036 $ 102,203 $
20,716 $ (643,392) $
(58,437)
The accompanying notes are an integral part of these consolidated financial statements.
P A G E 28
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
For the year ended December 31,
Operating activities:
Net loss
Adjustments for:
Share-based compensation and other long-term incentive plans
Amortization of intangible assets
Depreciation expense
Income from equity investments
Accretion expense
Other loss
Impairment of goodwill and intangible assets
Impairment of right-of-use assets
Onerous lease payments
Amortization of deferred financing costs
Gain on sale of assets held for sale
Recovery of contingent consideration liability
Gain on sale of property, plant and equipment
Gain on remeasurement of right-of-use assets
Bargain purchase gain
Deferred income tax recovery
Change in provision
Changes in non-cash working capital
Cash flow used in operating activities
Investing activities:
Acquisitions, net of cash acquired
Purchase of property, plant and equipment
Net proceeds on disposal of property, plant and equipment
Purchase of intangible assets
Dividend proceeds from equity investment
Proceeds on the disposition of businesses
Transaction costs
Changes in non-cash working capital
Cash flow (used in) provided by investing activities
Financing activities:
Decrease in restricted cash
Repayment of other secured borrowings
Proceeds from the issuance of preferred shares
Proceeds from the issuance of other secured borrowings
Increase in ABL Term Loan Facility
Repayment of senior secured debentures
Repayment of convertible debentures
Refinancing fees
Transaction costs
Increase in ABL Revolving Facility
Repayment of lease liabilities
Changes in non-cash working capital
Cash flow provided by financing activities
(Decrease) in cash
Cash, beginning of year
Cash, end of year
Supplemental cash flow information:
Interest paid
Supplemental disclosure of non-cash financing and investing activities:
Acquisition of property, plant and equipment through leases
The accompanying notes are an integral part of these consolidated financial statements.
Notes
2019
2018
$
(4,712)
(31,567)
15
5
4
11
4
11
4
4
2
3
18
2
4
4
5
2
13
6
6
6
6
6
6
8
$
$
$
$
$
$
1,162
1,023
13,867
(509)
1,362
—
—
1,680
—
1,822
—
(623)
(316)
(127)
(10,791)
(2,908)
883
(21,984)
(20,171) $
(54,320)
(3,749)
1,915
(374)
—
—
(2,798)
1,352
(57,974) $
175
(459)
32,200
19,000
30,500
—
(1,216)
(820)
—
4,864
(9,828)
—
74,416 $
(3,729)
10,838
7,109 $
51
1,371
4,948
(163)
299
860
17,733
—
(1,577)
719
(757)
(328)
—
—
—
—
(3,740)
(12,151)
(2,450)
(937)
575
—
300
4,625
(1,060)
638
1,691
—
—
19,000
—
—
(2,340)
—
(3,441)
(682)
5,461
(2,442)
1,093
16,649
6,189
4,649
10,838
5,287 $
11,602
1,552 $
1,726
P A G E 29
CLEARSTREAM ENERGY SERVICES INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2019 and 2018
Reporting Entity
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 4, 2020.
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(q). Certain amounts have
been reclassified from the prior year to conform to the current period presentation.
b. Principles of Consolidation
These consolidated financial statements comprise the financial statements of
the Company and its
subsidiaries as at December 31, 2019. 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
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.
joint arrangement whereby the parties that have joint control of
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
the economic
characteristics and risks of embedded derivatives are not closely related to those of the host contract.
loss when the analysis shows that
fair value through profit or
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
liabilities are recognized on the Company’s consolidated balance sheet when the
and financial
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
P A G E 30
contractual rights to those assets are transferred. Financial
obligation specified in the contract is discharged, cancelled or expired.
liabilities are derecognized when the
Cash and restricted cash
Cash and restricted cash are comprised of cash on deposit with financial
measured at amortized cost.
institutions. These are
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
receivable. For accounts receivable, 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, other
secured borrowings 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
fair value and
subsequently measured at amortized cost using the effective interest rate method.
liabilities are recognized initially at
liabilities. Other
(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 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.
P A G E 31
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
items that are not ordinarily
and are expensed in the period incurred. The cost of
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.
inventories of
f. Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation and accumulated
impairment losses.
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.
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
Furniture, tools and equipment
Computer hardware
Automotive & heavy equipment
Buildings
Basis
Declining balance
Declining balance
Declining balance
Declining balance
Leasehold improvements
Straight-line
Rate
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 with an exception
of the UWO brand name. UWO brand name was assessed as having definite useful live and is being
amortized according to the method and rate provided in the table below.
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.
P A G E 32
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
UWO brand name
Basis
Straight line
Declining balance
Straight line
Rate / Term
2 – 10 years
30% - 100%
10 years
h.
Impairment of long-lived assets, indefinite life intangible assets and goodwill
lives, including property, plant and equipment and intangible assets, are
Assets with definite useful
amortized over their estimated useful
lives. Long-lived assets are assessed for impairment at each
balance sheet date, or whenever events or changes in circumstances occur, to assess whether there is
an indication that such assets may not be recoverable.
If indicators of impairment exist, an estimate of the recoverable amount is made.
If the carrying amount of
an asset or cash generating unit (“CGU”) exceeds its recoverable amount, an impairment charge is
recognized for the amount by which the carrying amount exceeds the recoverable amount.
Goodwill and indefinite life intangible assets are not amortized and are tested for impairment annually, or
more frequently, if events or changes in circumstances indicate that the asset might be impaired. For the
purposes of impairment testing, goodwill is allocated to the CGU or group of CGUs whose acquisition
gave rise to the goodwill. Assessment of goodwill impairment is performed at the level at which goodwill is
monitored for internal management purposes, which is the CGU 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
If such indication exists,
recognized impairment losses may no longer exist or may have decreased.
ClearStream estimates the assets' or CGUs' 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 custom fabrication
services supporting pipeline and infrastructure projects, patented wear overlay technology services
P A G E 33
specializing in overlay pipe spools, pipe bends and plate, and regulatory and environmental advisory
services. The majority of revenue within the Wear, Fabrication, and Environmental services segment
relates to contracts with customers to construct goods to client specifications for an agreed-upon price.
i.
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
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.
its contracts with customers, ClearStream has the right
ii.
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.
j.
Income taxes
Income tax expense or recovery comprises current and deferred taxes. Current tax is the expected tax
payable or recoverable on the taxable income for the year and is recognized in the period to which it
relates. Amounts included in current tax reflect the income tax expense or recovery relating to the
taxable income of ClearStream and its subsidiaries.
Deferred tax is recognized using the balance sheet method, providing for temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial
recognition of assets or liabilities in a transaction that is not a business combination and that affects
neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly
controlled entities to the extent that it is probable that they will not reverse in the foreseeable future.
In
addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition
of goodwill. Deferred tax is measured at the tax rates that are expected to be 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.
P A G E 34
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
i.
Leases as a Lessee
The Company assesses whether a contract is or contains a lease at inception. The Company recognizes
a right-of-use asset and corresponding lease liability with respect to all lease contracts in which it is a
lessee, except for leases with a term of twelve months or less or leases of low value assets.
A right-of-use asset and lease liability is recognized on the lease commencement date. The right-of-use
asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any
lease payments made on or before the commencement date, less any lease incentives received. Right-of-
use assets are subsequently depreciated using the straight line method from the commencement date to
the end of the lease term, including periods covered by an option to extend the lease if the Company is
reasonably certain to exercise that option.
Lease liabilities are initially measured at the present value of the lease payments that are not paid at the
lease commencement date. The associated lease payments are discounted using the rate implicit in the
lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate. Lease
liabilities are subsequently measured at amortized cost using the effective interest rate method. The lease
liability is re-measured when there is a change in future lease payments arising from a change in an index
or rate, if there is change in the Company’s estimate of the amount expected to be payable under a
residual value guarantee, or if
the Company changes its assessment of whether it will exercise a
purchase, extension or termination option.
Leases as a Lessor
The Company enters into sub-lease agreements as a lessor with respect to some of its buildings. When
the Company is an intermediate lessor, it accounts for the head lease and the sublease as two separate
contracts. The sub-lease is classified as a finance or operating lease by reference to the right-of-use
asset arising from the head lease. Leases for which the Company is a lessor are classified as a finance or
operating lease. Whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as
operating leases. Rental income from operating leases is recognized on a straight line basis over the term
of the lease. Amounts due from lessees under finance leases are recognized as receivables of the
Company’s net investment in the leases. Finance lease income is allocated to reflect a constant periodic
gain over the life of the leases.
l. Share-based compensation and other long-term incentive plans
Employees, directors and consultants of the Company may receive remuneration in the form of share-
based payment transactions and other long-term incentive plans 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 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).
P A G E 35
Cash-settled RSUs and CVCUs 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 and CVCUs 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 and CVCUs, 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. 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
liabilities and contingent
attributable to the acquisition are expensed.
the date of
liabilities assumed in a business combination are measured initially at
acquisition, irrespective of the extent of any non-controlling interest.
Identifiable assets acquired,
fair values at
Goodwill is initially measured as the excess of the fair value of consideration paid over the fair value of
If the fair value of consideration paid is less
the net identifiable tangible and intangible assets acquired.
than the fair value of
the difference is
recognized directly in net income as a bargain purchase gain.
the net identifiable tangible and intangible assets acquired,
p. 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
if deemed appropriate. Changes to
annually with prospective application of any changes,
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
P A G E 36
would result in a change in the amount of depreciation or amortization and, as a result, a charge
to net income recorded in the period in which the change occurs.
ii.
Revenue recognition – percentage of completion
The nature of certain of the Company’s contracts with customers is such that revenue is earned
over time as the related good is produced. In these instances, revenue is recognized as work is
completed and this requires management to make a number of estimates and assumptions
surrounding the expected profitability of the contract, the estimated degree of completion based
on hours and costs incurred and other detailed factors. Although these factors are routinely
reviewed as part of the project management process, changes in these estimates or assumptions
could lead to changes in revenues recognized in a given period.
iii.
Determination of cash generating units (“CGUs”)
Assets are grouped into CGUs that have been identified as being the smallest identifiable group
of assets that generate cash inflows that are independent of cash flows of other assets or groups
of assets. The allocation of assets into CGUs requires significant judgment and interpretations.
Factors considered in the classification include the integration between assets, the ability of
management to allocate finite resources to complete future projects or contracts, and the way in
which management monitors the operations. The recoverability of
the Company’s assets is
assessed at the CGU level and therefore the determination of a CGU could have a significant
effect on impairment losses or reversals.
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
to make
be utilized. Assessing the recoverability of deferred taxes requires management
significant estimates related to expectations of future taxable income. Estimates of future taxable
income are based on forecasted earnings before depreciation and amortization, interest expense,
income tax expense (recovery), share-based compensation and other long-term incentive plans
(“EBITDAS”) and the application of existing tax laws. The carrying amount of deferred tax assets
is reviewed each reporting date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.
Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to
the extent that it has become probable that future taxable profits will allow the deferred tax asset
to be recovered.
Deferred income taxes contain uncertainties because of the assumptions made about when
deferred tax assets are likely to reverse, and a judgment as to whether or not there will be
sufficient taxable profits available to offset the tax assets when they do reverse. This requires
assumptions regarding future profitability and is therefore inherently uncertain.
v.
Provisions and contingencies
By their nature, contingencies will only be resolved when one or more future events occur or fail
to occur. The assessment of contingencies inherently involves the exercise of significant
judgment and estimates of the outcome of future events. Judgment and estimates are necessary
to determine the likelihood that a pending litigation or other claim will succeed or a liability will
arise and to quantify the possible range of the final settlement.
vi.
Impairment of non-financial assets
With respect to property, plant and equipment and definite life intangible assets, judgment is
applied by management in assessing whether there are any indicators of impairment at each
reporting date that would require a full impairment test to be performed.
Impairment indicators
include, but are not limited to, a significant decline in an asset’s market value, significant adverse
changes in the technological, market, economic or legal environment in which the assets are
P A G E 37
operated, evidence of obsolescence or physical damage of an asset, significant changes in the
planned use of an asset, or ongoing under-performance of an asset. Application of these factors
to the facts and circumstances of a particular asset requires a significant amount of judgment.
Should an impairment test be required, the determination of the magnitude of impairment involves
the use of estimates, assumptions and judgments on highly uncertain matters particularly with
respect to estimating the recoverable amount of a CGU or a group of CGUs. Such estimates,
assumption and judgments include, but are not limited to: the choice of discount rates that reflect
appropriate asset-specific risks, timing of revenue and customer turnover, inflation factors for
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.
ix.
Discount rate for the measurement of lease liabilities
Lease liability is measured at the present value of the lease payments that are not paid at the
commencement date. The lease payments are discounted using the implicit interest rate in the
lease. If the rate cannot be readily determined, the lessee’s incremental borrowing rate is used.
The Company estimates the incremental borrowing rate based on the economic environment, the
nature and quality of the asset, the Company’s credit rating and other factors.
q. Recently Adopted Accounting Pronouncements
IFRS 16 Leases
On January 1, 2019, the Company adopted IFRS 16 Leases. IFRS 16 provides a single accounting model
for lessees that requires the recognition of assets and liabilities on the balance sheet for contracts that
are, or contain, a lease. The accounting treatment for lessors remains substantially unchanged.
On transition, the Company elected to apply the modified retrospective approach. The Company has
elected to use hindsight in determining the term of contracts that contain an option to extend or terminate
a lease. The Company has elected to rely on its assessment of whether leases are onerous by applying
IAS 37 Provisions, Contingent Liabilities and Contingent Assets immediately before the date of initial
application as an alternative to performing an impairment review. The Company has elected to exclude
initial direct costs from the measurement of the right-of-use asset at the date of initial application.
On an ongoing basis, the Company has elected to not recognize right-of-use assets and lease liabilities
for contracts that have a lease term of 12 months or less and leases of low value assets. The payments
associated with these leases are recognized as an expense on a straight-line basis over the lease term.
The Company has applied a single discount rate to a portfolio of
leases with reasonably similar
characteristics.
Lease liabilities have been measured using the present value of
the remaining lease payments
discounted at the Company’s weighted average incremental borrowing rate of 8.12%. Right-of-use assets
have initially been recognized at an amount equal to the lease liability.
P A G E 38
The following table summarizes the difference between operating lease commitments disclosed applying
the previous annual reporting period and lease liabilities recognized in the
IAS 17 - Leases at
consolidated Balance Sheet on transition.
Operating lease commitments at December 31, 2018
Effect of discounting
Discounted Operating lease liabilities at January 1, 2019
Exemption for short term leases
Exemption for low value leases
Additional leases identified through reassessment of leases under IFRS 16
Adjustments as a result of a different treatment of extension and termination options
Lease liabilities recognized at January 1, 2019
Consisting of:
Current lease liabilities
Non current lease liabilities
Operating lease commitments
The right-of-use assets recognized on transition consist of:
Land
Building
Equipment
Total
$
$
$
$
$
$
46,978
(12,416)
34,562
(418)
(54)
874
11,342
46,306
6,823
39,483
46,306
8,230
32,946
69
41,245
At December 31, 2017, a property rental contract related to the Transportation cash generating unit was
deemed onerous and therefore a provision of $5,778 was recorded. The remaining provision of $5,060
was reversed on transition and recognized as an impairment of right-of-use land assets at January 1,
2019.
2.
Business Combinations
During the year ended December 31, 2019, the Company entered into two business combinations
expected to complement existing service lines and further broaden potential market opportunities.
AECOM Production Services Division - Asset Purchase
On June 28, 2019, the Company acquired certain assets of the production services division of AECOM
Production Services Ltd. (the "AECOM PSD Business"), a leading provider of mechanical, electrical and
instrumentation services to upstream, midstream and downstream operators across Canada. The
acquired assets include equipment and properties located throughout Alberta, as well as rights to the Flint
brand in Canada.
The total purchase price was $40,546 cash, net of a post-closing working capital adjustment.
Universal Weld Overlay Inc. ("UWO") - Share Purchase
On June 28, 2019, the Company acquired 100% of the issued and outstanding shares of UWO, a
privately held specialty weld overlay fabricator that provides customers with protection of pre-fabricated
components across the oil and gas, pulp and paper, petrochemical, power, pipeline, mining, subsea,
aerospace and pressure vessel fabrication sectors. The transaction is expected to complement existing
service lines in addition to expanding the Company’s offerings to customers.
The total purchase price for UWO of $16,024 consisted of four components, including:
•
Cash of $11,997;
P A G E 39
•
•
•
Deferred consideration of $1,114 (undiscounted - $1,300), which represents the fair value of three
equal instalments of $433 due on June 28, 2020, 2021 and 2022;
Working capital adjustment of $2,052, which is not included in deferred consideration;
Earn-out contingent liability of $861 (undiscounted - $1,612), which represents the fair value of
the expected payout to the sellers on June 28, 2022, based on management’s best estimate of
performance against agreed targets for average three-year EBITDA (as defined in the purchase
and sale agreement). The maximum undiscounted earn-out is $2,000.
the Company recognized $373 and $44 in
During the twelve months ending December 31, 2019,
accretion expense related to the earn-out contingent liability and deferred consideration, respectively,
recorded under interest expense on the Consolidated Statement of Loss, as well as $2,798 in transaction
costs on both transactions recorded under restructuring expense on the Consolidated Statement of Loss.
Cost of Acquisition
Cash
Deferred consideration
Working capital adjustment
Earn-out contingent liability
Total
Identifiable Assets Acquired & Liabilities Assumed
Cash
Accounts receivable
Inventories
Accounts payable and accrued liabilities
Deferred revenue
Deferred tax liability
Property, plant and equipment
Goodwill and intangible assets
Lease liabilities
Bargain purchase gain
Total
Bargain purchase gain
AECOM PSD
UWO
42,036 $
11,997 $
—
(1,490)
—
1,114
2,052
861
Total
54,033
1,114
562
861
40,546 $
16,024 $
56,570
$
$
AECOM PSD
$
— $
36,191
—
(13,592)
(428)
(2,822)
34,021
—
(2,033)
(10,791)
UWO
275 $
4,343
125
Total
275
40,534
125
(1,692)
(15,284)
—
(1,295)
1,550
13,252
(534)
(428)
(4,117)
35,571
13,252
(2,567)
—
(10,791)
$
40,546 $
16,024 $
56,570
The bargain purchase gain of $10,791 from the acquisition of the AECOM PSD Business represents the
difference between the fair value of the identifiable assets and liabilities acquired and the total purchase
price paid for the AECOM PSD Business. The bargain purchase gain has arisen primarily due to the
strategic decision of the sellers to exit these assets due to a variety of factors.
Goodwill
The goodwill of $8,652 recognized as part of the UWO acquisition is mainly attributed to expected future
revenue growth, future market development and synergies expected from the integration of UWO into the
operations of the Company.
P A G E 40
Impact on Operations
During the twelve months ending December 31, 2019, the AECOM PSD Business contributed $79,225 in
revenues and $6,796 in earnings before interest, tax, depreciation, and amortization in the results of the
Company. If the acquisition had taken place on January 1, 2019, management estimates that the AECOM
PSD Business would have contributed $131,868 to twelve month pro forma revenue and $11,200 to
twelve month pro forma earnings before interest, tax, depreciation, and amortization. The pro forma
information is not necessarily indicative of the results of operations that would have resulted had the
acquisition been effective on the date indicated, or of future results.
During the twelve months ending December 31, 2019, UWO contributed $4,678 in revenues and $1,662
in earnings before interest, tax, depreciation, and amortization in the results of the Company. If the
acquisition had taken place on January 1, 2019, management estimates that the UWO operations would
have contributed $12,018 to twelve month pro forma revenue and $4,494 to twelve month pro forma
earnings before interest, tax, depreciation, and amortization. The pro forma information is not necessarily
indicative of the results of operations that would have resulted had the acquisition been effective on the
date indicated, or of future results.
3.
Inventories
Inventories comprise the following:
As at December 31,
Raw materials
Work-in-progress
Finished goods
Parts and supplies
Total
2019
2018
$
$
5,374 $
229
3,473
663
9,739 $
3,324
202
1,281
927
5,734
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, 2019 is the cost of inventories of $34,558 (2018 - $15,373).
P A G E 41
4.
Property, plant and equipment
Land and
buildings
Computer
hardware
Furniture,
tools and
equipment
Leasehold
improvements
Equipment
under
finance
lease
Right-of-
use
assets
Automotive
and heavy
equipment
Total
$
1,539 $
1,578 $
17,380 $
8,613 $
20,330 $
— $
20,403 $ 69,843
—
—
166
—
3,329
(295)
180
—
4,126
(24)
—
—
255
8,056
(888)
(1,207)
$
1,539 $
1,744 $
20,414 $
8,793 $
24,432 $
— $
19,770 $ 76,692
—
—
18,230
(264)
—
—
888
—
(58)
—
—
517
1,327
(5,167)
—
—
—
—
(787)
—
(24,432)
70,738
— 46,306
—
—
—
1,596
2,567
2,344
5,345
13,447
35,571
(792)
(1,306)
(8,375)
— (10,275)
— (10,275)
$ 19,505 $
2,574 $
17,091 $
8,006 $
— $ 63,834 $
34,255 $145,264
$
562 $
1,128 $
9,827 $
8,385 $
10,725 $
— $
18,559 $ 49,186
23
—
120
—
1,435
(204)
119
—
2,070
(16)
—
—
1,182
4,949
(743)
(963)
$
585 $
1,248 $
11,058 $
8,504 $
12,779 $
— $
18,998 $ 53,172
—
313
(149)
14
—
235
(49)
—
—
1,729
(3,698)
—
—
109
(704)
—
(12,779)
17,839
—
5,060
—
—
—
8,709
(457)
1,666
2,772
13,868
(1,703)
(6,760)
—
1,680
$
763 $
1,434 $
9,089 $
7,909 $
— $ 27,757 $
20,067 $ 67,020
Cost
Balance as at January 1,
2018
Additions
Disposal
Balance as at December
31, 2018
Adoption of IFRS 16 (Note 1)
Additions
Acquisitions (Note 2)
Disposals
Revaluation
Balance as at December
31, 2019
Accumulated Depreciation
Balance as at January 1,
2018
Depreciation
Disposal
Balance as at December
31, 2018
Adoption of IFRS 16
Depreciation
Disposals
Impairment
Balance as at December
31, 2019
Net book value
As at December 31, 2018
$
954 $
496 $
9,356 $
289 $
11,653 $
— $
772 $ 23,520
As at December 31, 2019
$ 18,742 $
1,140 $
8,002 $
97 $
— $ 36,077 $
14,188 $ 78,244
a. Collateral:
As at December 31, 2019, property, plant and equipment included $12,145 subject to a general security
the Senior Secured Debentures and the Convertible Secured Debentures
agreement under
(2018 - $11,867) and $30,022 subject
to a general security agreement under the other secured
borrowings (2018 - nil).
b. Disposals:
During the year ended December 31, 2019, the Company disposed of assets with a cost of $8,375
(2018 - $1,207) and accumulated depreciation of $6,760 (2018 - $963), for cash proceeds of $1,915
(2018 - $575), and recognized a net gain on sale of $316 (2018 - net gain $328) and impairment loss of
$16 (2018 - 0).
P A G E 42
c. Right-of-use assets consist of the following:
Cost
Adoption of IFRS 16
$
Remeasurement
Acquisitions
Additions
Disposals
Balance as at
December 31, 2019
$
Accumulated
Depreciation
Adoption of IFRS 16
$
Disposals
Depreciation expense
Impairment
Balance as at
December 31, 2019
Net book value
As at December 31,
2019
$
$
Land and buildings
Furniture, tools and
equipment
Automotive and heavy
equipment
Total
46,237 $
(10,275)
1,319
146
—
69 $
24,432 $
—
—
—
—
—
1,248
1,450
(792)
70,738
(10,275)
2,567
1,596
(792)
37,427 $
69 $
26,338 $
63,834
5,060 $
—
6,466
1,666
13,192 $
— $
—
31
—
31 $
12,779 $
(457)
2,212
—
14,534 $
17,839
(457)
8,709
1,666
27,757
24,235 $
38 $
11,804 $
36,077
The Company has entered into sub-lease agreements as a sub-lessor for some of their buildings in the
land and buildings asset class. Further information can be found in Note 8.
Information on the corresponding lease liabilities can be found in Note 8.
Reassessment of renewal option and impairment
During the year ended December 31, 2019 the Company reassessed plans to renew its property leases
and determined that it would no longer execute the renewal option on several leases due to changes in its
strategic operating plans. As a result, the associated right-of-use buildings and lease liabilities were
reduced by $10,275 on remeasurement.
During the year ended December 31, 2019, the Company recognized an impairment charge of $1,666
representing the carrying value of right-of-use buildings previously used in operations that were wound up
during 2019 prior to the expiry of associated property leases. The recoverable value was determined to
be $nil based on the value-in-use at the closure dates. The right-of-use buildings impaired are included in
the Wear, Fabrication and Environmental segment.
P A G E 43
5.
Goodwill and intangible assets
Goodwill
Customer
relationships
Computer
software
Brands
Intangible
Total
Cost
Balance as at January 1, 2018
Disposals
Balance as at December 31, 2018
Additions
Balance as at December 31, 2019
$
$
$
92,029 $
83,552 $
2,720 $ 16,142 $ 102,414
—
—
(73)
—
(73)
92,029 $
83,552 $
2,647 $ 16,142 $ 102,341
8,652
4,300
374
345
5,019
100,681 $
87,852 $
3,021 $ 16,487 $ 107,360
Amortization and impairments
Balance as at January 1, 2018
$
(69,999) $
(80,531) $
(2,580) $ (14,568) $ (97,679)
Amortization
Disposals
Impairment
Balance as at December 31, 2018
Amortization
Balance as at December 31, 2019
Net book value
As at December 31, 2018
As at December 31, 2019
$
$
$
$
—
(1,298)
—
(17,733)
—
—
(74)
96
—
—
—
—
(1,371)
96
0
(87,732) $
(81,829) $
(2,558) $ (14,568) $ (98,954)
—
(862)
(146)
(15)
(1,023)
(87,732) $
(82,691) $
(2,704) $ (14,583) $ (99,977)
4,297 $
12,949 $
1,723 $
5,161 $
89 $
1,574 $
3,387
317 $
1,904 $
7,383
ClearStream has six CGUs, one of which has intangible assets with an indefinite life. Goodwill
is
monitored by management at the CGU level. As at December 31, 2019, the Wear CGU had indefinite life
intangible assets of $1,574 (2018 - $1,574), The Wear CGU had goodwill of $4,297 (2018 - $4,297), and
the UWO CGU had goodwill of $8,567. Goodwill increased as a result of the UWO share acquisition in the
second quarter of 2019.
impairment test on indefinite life intangible
On December 31, 2019 ClearStream performed its annual
assets and goodwill for both the Wear and UWO CGUs. Based on the results of this test, the Company
concluded that the recoverable amount of each CGU approximated or exceeded its carrying amount, and
therefore there was no impairment.
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, which resulted in an impairment loss of $17,733 in the Maintenance & Construction
operating segment to reduce the carrying amount to its recoverable amount of $42,898.
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
P A G E 44
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
long-term growth rate of 2% thereafter for the Wear CGU. The UWO CGU used projected
perpetual
EBITDA for the first three years and a perpetual
long-term growth rate of 2% thereafter, and used
projected capital expenditures for the following year with a terminal growth rate of 0.5% 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 16.5%-21.3% 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 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 amounts of the Wear CGU and the UWO CGU (based on fair value less costs of
disposal) exceeded its carrying amounts by approximately $26,097 and $549, respectively, at December
31, 2019. If the discount rate applied to the Wear CGU increased by 15%, the excess of recoverable
amount over carrying value would be reduced to nil. If the discount rate applied to the UWO CGU
increased by 1 basis point, the excess of recoverable amount over carrying value would be reduced to nil.
6.
Refinancing transactions
a. ABL Facility
The Company established an asset-based lending facility (the “ABL Facility”) pursuant to the terms of the
Third Amended and Restated Credit Agreement, which is comprised of a revolving credit facility providing
for maximum borrowings of up to $50,000 (the “Revolving Facility”) and a term loan facility providing for
maximum borrowings of up to $40,500 (the “Term Loan Facility”) received from Canso Investment
Counsel Ltd, in its capacity as portfolio manager for and on behalf of certain accounts that it manages
(“Canso”).
The Revolving Facility matures on March 23, 2020 and the Term Loan Facility matures 180 days
thereafter.
The amount available under the Revolving Facility will vary from time to time based on the borrowing
base determined with reference to the accounts receivable of the Company. The Revolving Facility
borrowing base as at December 31, 2019 is $50,000 (December 31, 2018 - $29,690). 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 interest rate on the Revolving Facility is
prime plus 2.5%, increasing to prime plus 4.0% if the Revolving Facility is more than 50% drawn.
P A G E 45
As at December 31, 2019, $27,825 (December 31, 2018 - $22,961) was drawn on the Revolving Facility,
and there were $2,930 (December 31, 2018 - $2,250) of letters of credit further reducing the amount
available to be drawn. As at December 31, 2019, the net unamortized amount of deferred financing costs
was $883 (December 31, 2018 - $629).
At December 31, 2019, $40,500 (December 31, 2018 - $10,000) is outstanding under the Term Loan
Facility. The Term Loan Facility is required to be used for specific purposes 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 2.0%.
The amended financial covenants applicable under the ABL Facility are as follows:
•
•
ClearStream must maintain a quarterly minimum cumulative EBITDA commencing on December
31, 2019 and each quarter thereafter of not less than $13,404
ClearStream must not expend or become obligated for any capital expenditures in an aggregate
amount exceeding $5,800 during the period commencing January 1, 2019 and ending February
29, 2020, and any fiscal year thereafter
At December 31, 2019, ClearStream was in compliance with all financial covenants under the ABL
Facility.
On March 3, 2020, the Company received confirmation from the lenders under the ABL Facility that they
have agreed to extend the maturity date of the facility to March 23, 2021. The Company and the lenders
under the ABL Facility are preparing an amending agreement to effect the extension of the maturity date
including replacing the monthly minimum EBITDA covenant with a
and certain other amendments,
quarterly fixed charge coverage ratio covenant. The amendments will not
reduce the maximum
borrowings available under the Revolving Facility.
b. Senior Secured Debentures
Balance as at January 1, 2018
Accretion
Extinguishment of debt, net of deferred financing costs
Debt repayment, net of deferred financing fees
Balance as at December 31, 2018
Accretion
Balance as at December 31, 2019
c. Convertible Secured Debentures
$
$
$
171,988
248
(73,205)
(2,285)
96,746
209
96,955
On June 28, 2019, the Company used $1,275 drawn under the Term Loan Facility to extinguish the
outstanding principal of the convertible secured debentures of $1,216 and all accrued interest.
Liability component of convertible secured debentures
As at January 1, 2018
Accretion
Settled for cash and preferred shares
Extinguishment of debt, net of deferred financing fees
As at December 31, 2018
Accretion
Extinguishment of debt, net of deferred financing fees
As at December 31, 2019
$
$
$
24,999
51
(130)
(24,068)
852
6
(858)
—
P A G E 46
d. Other Secured Borrowings
On June 26, 2019,
the Company received $19,000 from two secured loans with the Business
Development Bank of Canada (“BDC”) as a partial source of funds for the acquisition of the AECOM PSD
Business.
The $13,500 loan is repayable over 300 monthly payments of $45 from April 1, 2020 to March 1, 2045.
The interest rate on the loan is the BDC Floating Base Rate less 1.0%. Interest accrues and is payable
monthly. The Company allocated $195 in deferred financing costs to this loan that will be amortized over
the life of the loan.
The $5,500 loan is repayable over 72 monthly payments of $76 from July 28, 2019 to June 28, 2025. The
interest rate on the loan is the BDC Floating Base Rate less 0.5%. Interest accrues and is payable
monthly. The Company allocated $85 in deferred financing costs to this loan that will be amortized over
the life of the loan.
The loans are secured by a first security interest on the equipment acquired through the acquisition of the
AECOM PSD Business and a security interest in all other present and future property, subject to the
priorities granted to existing lenders under the ABL Facility, senior secured debentures and other existing
commitments.
The loans require the Company to maintain a Fixed Charge Coverage Ratio equal to or greater than
1.10:1.00 for each financial year commencing with the year ended December 31, 2019.
At December 31, 2019, ClearStream was in compliance with all financial covenants under the BDC
agreement.
Balance as at January 1, 2019
Borrowings
Deferred financing
Repayments
Accretion
Balance as at December 31, 2019
Less: current portion
Non-current portion as at December 31, 2019
7.
Provision
$
$
—
19,000
(280)
(459)
360
18,621
(1,322)
17,299
During the year-ended December 31, 2019, $1,970 was recognized in restructuring provision in
connection with the closure of two business locations as part of formal plans to reorganize the Company
following the AECOM and UWO acquisitions. The estimated costs recognized mainly consist of salaries
and termination benefits of personnel in connection with ongoing closure activities that are expected to be
incurred over the subsequent 12 months. As at December 31, 2019, $885 of the restructuring provision
balance remained.
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. This was reclassified in 2019 with the
adoption of IFRS 16.
8.
Leases
a. As a lessee
The Company recognized the following amounts related to lease liabilities in the Consolidated Statements
of Loss and Comprehensive Loss.
P A G E 47
For the year ended December 31,
Depreciation of lease liabilities
Expense relating to short-term leases
Expense relating to leases of low value assets
Expense relating to variable lease payments not included in the measurement
of the lease liability
2019
7,078
1,318
17
576
$
$
Overall the variable payments constitute up to 5.9% of the Company's entire lease payments. The
Company expects this ratio to remain constant in future years. Variable payments are primarily based on
management fees related to the use of the rented property.
The total cash outflow for leases for the year ended December 31, 2019 amount to $9,828 (December 31,
2018 - $7,384).
Maturity analysis - contractual undiscounted cash flows
As at December 31,
2020
2021
2022
2023
2024
After 2025
Total
Less: effects of discounting
Total discounted lease liabilities
Analyzed as:
Current
Non-current
$
$
9,735
7,760
6,281
5,339
3,767
12,005
44,887
(8,773)
36,114
7,756
28,278
On August 29, 2019, the Company entered into a 42-month lease to rent a building, which had not
commenced by the year-end and as a result, a lease liability and right-of-use asset has not been
recognized at December 31, 2019. The aggregate future cash outflows to which the Company is exposed
in respect of this contract is a deposit of $254, due January 1, 2020 and fixed payments of $53 per month,
for the next 42 months.
There are no extension or termination options on the lease.
b. Leases (as a lessor)
The Company has entered into operating lease agreements as a lessor with respect to some of its
buildings that they are sub-leasing. Total income recognized from sub-leasing right-of-use assets for the
year ending December 31, 2019 is $1,168, and has been recorded within Revenue. These leases do not
include any variable payments.
Maturity analysis - undiscounted lease receivable
As at December 31,
Less than one year
One to five years
More than five years
Total
$
$
877
877
—
1,754
P A G E 48
9.
Revenue
The following are amounts for each significant category of revenue recognized during the years ended
December 31, 2019 and 2018:
For the year ended December 31,
Rendering of services
Sales of goods
Total revenue
10.
Selling, general & administrative expenses
For the year ended December 31,
Salaries & benefits
Occupancy and office costs
Professional fees
Travel
Repairs & maintenance
Insurance
Other
Total
11.
Interest expense
2019
2018
$
$
399,454 $
64,797
464,251 $
309,240
69,092
378,332
2019
2018
$
17,200 $
10,818
3,180
3,341
1,738
349
1,483
127
2,880
4,096
1,733
269
1,391
172
$
27,418 $
21,359
For the year ended December 31,
2019
2018
Interest expense on senior secured debentures
$
7,911 $
Interest expense on convertible secured debentures
Interest expense on ABL facility
Interest expense on lease liabilities
Interest expense - other
Deferred financing costs amortized
Interest expense on other secured borrowings
Accretion expense
Total
58
4,785
3,419
129
1,822
502
1,362
7,911
504
2,764
339
2
718
—
299
$
19,989 $
12,537
P A G E 49
12.
Income taxes
The reconciliation of statutory income tax rates to ClearStream’s effective tax rate is as follows:
For the year ended December 31,
Loss from continuing operations before tax
Tax rate
Income tax recovery at statutory rates
Permanent differences
Change in rates on temporary differences
Deferred tax asset not recognized
Income tax (recovery) expense
As at December 31,
Fixed assets
Intangible assets
Debentures
Net operating losses
Deferred tax (liability)
2019
(9,560) $
26.74 %
(2,556) $
2018
(30,531)
27.00 %
(8,243)
(2,226)
5,311
(3,437)
(2,908) $
2019
(131) $
(1,079)
—
—
(1,210) $
4,875
142
2,767
(459)
2018
—
(455)
(1,078)
1,533
—
$
$
$
$
$
The statutory rate declined from 27% to 26.74% due to the reduction of the Alberta income tax rate on
July 1, 2019.
The benefit of the following temporary differences not recognized:
As at December 31,
Fixed assets
Intangible Assets
Senior secured debentures
Net operating losses
Obligation under finance leases
Other
2019
(22,070) $
(2,365)
(3,731)
134,302
36,034
6,522
Unrecognized deductible temporary differences
$
148,692 $
Net operating losses of $134,302 will begin to expire in 2035.
2018
22,509
—
—
125,980
—
15,219
163,708
losses that have not been recognized in the
ClearStream has approximately $141,969 of capital
consolidated financial statements as at December 31, 2019 (2018 - $137,391). There is no expiry of
capital losses.
13.
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, 2019, our issued and outstanding share capital
shares, 127,735 Series 1 preferred shares, and 40,111 Series 2 preferred shares.
included 109,992,668 common
P A G E 50
Preferred shares
As at January 1, 2018
Issued
Balance as at December 31, 2018
Issued
Converted to common shares
Balance as at December 31, 2019
Series 1
Series 2
—
127,753
127,753
—
(18)
127,735
—
—
—
40,111
—
40,111
On June 27, 2019, ClearStream issued 40,111 Series 2 preferred shares to Canso, in its capacity as
portfolio manager for and on behalf of certain accounts that it manages, in exchange for $32,200 in cash
(which was used to partially finance the acquisitions during the period) and settlement of
interest
obligations of $7,911 on the senior secured debentures due June 30, 2019 and December 31, 2019. The
Company allocated $363 in deferred financing costs to this transaction. Holders of the preferred shares
have the right, at their option, to convert their preferred shares into common shares at a price of $0.10 per
common share, subject to adjustments in certain circumstances. The Series 2 preferred shares are
redeemable by the Company for cash at 100% of the purchase price for such shares, plus accrued and
unpaid dividends, once all of the senior secured debentures have been repaid, as well as in the event of
certain change of control transactions.
In the fourth quarter of 2019, 51,427 common shares were issued upon the conversion of 18 Series 1
preferred shares.
As the terms of the preferred shares do not create an unavoidable obligation to pay cash, the preferred
shares are accounted for within shareholders’ deficit, net of transaction costs.
As part of the refinancing transaction in 2018, ClearStream issued 127,565 Series 1 Preferred Shares to
Canso. Subsequent to the refinancing transaction, an additional 188 Series 1 Preferred Shares were
issued in exchange for convertible debentures. The Series 1 Preferred Shares are convertible into
Common Shares at a price of $0.35 per Common Share.
there could be
Based upon the conversion rights of
significant dilution to the current holders of Common Shares. Up to approximately 766,067,000 additional
Common Shares would be issuable upon conversion of the face amount of the Preferred Shares into
Common Shares, representing approximately 697% of the Common Shares outstanding as of December
31, 2019.
the Series 1 and Series 2 Preferred Shares,
In addition, the Series 1 and Series 2 Preferred Shares have 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 and unpaid dividends are convertible in certain
circumstances at the option of the holder into additional Series 1 and Series 2 Preferred Shares.
As at December 31, 2019, the accrued and unpaid dividends on the Series 1 and Series 2 Preferred
Shares totaled $26,300. Assuming that the holders of the Preferred Shares exercise the right to convert
such accrued and unpaid dividends into additional Preferred Shares and then convert such Preferred
Shares into Common Shares, approximately 89,851,880 Common Shares would be issued, which
represents approximately 82% of the Common Shares outstanding as of December 31, 2019.
The only potentially dilutive securities as at December 31, 2019 were the preferred shares, 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.
P A G E 51
(in thousands, except per share amount)
Net income - basic and diluted
Weighted average shares outstanding - basic and diluted
Net income per common shares - basic and diluted
2019
2018
$
$
(4,712) $
(31,567)
109,944,607
109,941,241
(0.04) $
(0.29)
14.
Restructuring costs
Restructuring costs of $8,361 were recorded during the year ended December 31, 2019, in comparison to
(2018 - $165). These non-recurring restructuring costs are primarily related to the acquisitions of the
AECOM PSD Business and UWO, which closed on June 28, 2019, as well as the closure of two business
locations, severance and growth initiatives.
15.
Share-based compensation and other long-term incentive plans
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 and the Cumulative Value Creation Unit
("CVCU") on June 19, 2019. 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.
a. Stock Options
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, 2018
Forfeited
Balance as at December 31, 2018
Forfeited
Balance as at December 31, 2019
Exercisable as at December 31, 2019
Number of stock
options
Weighted average
exercise price
3,160,000
(1,330,000)
1,830,000
(200,000)
1,630,000
—
0.28
0.28
0.28
0.28
0.28
—
The options outstanding at December 31, 2019 have a weighted average remaining contractual life of 2.1
years (2018 – 3.1 years). For the year ended December 31, 2019, the Company recognized $4 of share-
based compensation expense relating to stock options (2018 – $143).
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.
b. Cumulative Value Creation Unit
The Board of Directors approved the Cumulative Value Creation Unit (“CVCU”) Plan on June 19, 2019.
CVCUs provide eligible participants with a cash settlement based on the calculation of cumulative value
creation, which represents the increase in the value of the Company's equity over a specified period.
CVCUs cliff vest based on service requirements three years after the start of the performance period.
Each CVCU has a value of $1,000. The number of CVCUs that will vest depends on an EBITDA-based
performance condition and is therefore subject to estimation uncertainty.
CVCUs are settled in cash and payable within one month following approval of the Company’s annual
financial statements for the final fiscal year in the performance period.
P A G E 52
The following table summarizes the change in outstanding units during the year:
Balance as at December 31,
Opening balance
Performance Period - 2018-2020
Performance Period - 2019-2021
Total units outstanding
2019
2018
—
12,710
1,853
14,563
—
—
—
—
There were no forfeitures during the year. The carrying amount of $1,109 (2018 - $nil) is recorded as
Accounts Payable and Accrued Liabilities, and represents the net present value of future cash payments
expected to be earned under the program based on management’s best estimate of EBITDA over the
performance period, adjusted for the portion of the performance period that has been completed.
The fair value of the CVCUs approximates their intrinsic value as the awards have no exercise price.
The following table summarizes the carrying amount:
Balance as at December 31,
Carrying amount of liabilities for CVCUs:
Current portion
Long-term portion
Total carrying amount
Total intrinsic value of liability for vested benefits
2019
2018
$
$
— $
1,109
1,109
1,109 $
—
—
—
—
For the year ending December 31, 2019, an expense of $1,109 (2018 - $nil) was recognized related to
outstanding CVCUs.
c. 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, 2019 the intrinsic value of the RSUs outstanding was $90 (2018 - $31).
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 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, 2018
Forfeited
Balance as at December 31, 2018
Forfeited
Balance as at December 31, 2019
Exercisable as at December 31, 2019
RSUs
PSUs
4,350,000
1,740,000
(730,000)
(1,390,000)
3,620,000
—
3,620,000
2,200,000
350,000
(350,000)
—
—
ClearStream’s five day weighted average closing share price at December 31, 2019 was $0.055
(2018 - $0.01). Both RSUs and PSUs had fully vested as of December 31, 2019. For the year ended
P A G E 53
December 31, 2019, an expense of $90 of share-based compensation was recognized relating to RSUs
(2018 – recovery of $148) and a recovery of $44 of share-based compensation was recognized relating to
PSUs (2018 – $92).
16.
Related party disclosures
a. Termination benefits
On June 27, 2019, $1,373 was recognized in selling, general & administrative expenses in connection
with the termination benefits, representing the fair value of expected payments to a Director in connection
with the past service as an executive officer. Under the agreement, the Director will receive quarterly
payments from June 30, 2019 to December 31, 2021. At December 31, 2019, $916 was included in
accounts payable and accrued liabilities.
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, 2019 and 2018 are as follows:
For the year ended December 31,
Short-term employment benefits
Share-based compensation
Termination benefits
Total compensation
c. Other related party transactions
2019
2018
3,989 $
3,852
1,162
1,413
(97)
—
6,564 $
3,755
$
$
Two operating leases for property, with annual rents of $132 and $400 are with a landlord in which certain
executives of ClearStream hold an indirect minority interest (2018 - $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.
17.
Financial instruments and risk management
Financial
instruments consist of cash, restricted cash, accounts receivable, accounts payable, ABL
Facility, senior secured debentures, other secured borrowings, deferred consideration and earn-out
liability.
a. Fair values of financial liabilities
The fair value of the Company's interest-bearing financial liabilities approximate their respective carrying
amounts.
b. Risk management
ClearStream’s Board of Directors has overall responsibility for the establishment and oversight of
ClearStream’s risk management
risk, customer
concentration risk, liquidity risk, interest rate risk and foreign exchange risk.
framework. ClearStream has exposure to credit
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:
P A G E 54
As at December 31,
Cash
Restricted cash
Accounts receivable
Total
2019
2018
$
$
7,109 $
805
138,638
146,551 $
10,838
980
59,715
71,533
Cash is 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, 2019, $99,305 (2018 - $45,741) related to
trade receivables and $39,333 (2018 - $13,974) 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,
2019, approximately $5,856 of ClearStream’s trade receivables had been outstanding longer than 90
days (2018 - $1,809). Subsequent to December 31, 2019, $2,752 of the $5,856 over 90 days was
collected. Management has fully evaluated the outstanding receivables as at December 31, 2019 and has
determined that the lifetime expected credit losses of the trade receivables was immaterial.
ii.
Customer concentration risk
Revenues of ClearStream are concentrated, with its top three customers representing 39.1% of
consolidated revenue (2018 – 54%) and 24.0% of the consolidated accounts receivable for ClearStream
(2018 – 40%). More specifically, ClearStream’s largest customer within the Maintenance & Construction
operating segment accounted for 19.7% or $91,365 of ClearStream’s consolidated revenue for the year
ended December 31, 2019 (2018 – 31% or $119,005).
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,
which are due March 2026, and other secured borrowings, which are due June 2025 and March 2045.
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.
On March 3, 2020, the Company received confirmation from the lenders under the ABL Facility that they
have agreed to extend the maturity date of the facility to March 23, 2021. The Company and the lenders
under the ABL Facility are preparing an amending agreement to effect the extension of the maturity date
including replacing the monthly minimum EBITDA covenant with a
and certain other amendments,
quarterly fixed charge coverage ratio covenant. The amendments will not
reduce the maximum
borrowings available under the Revolving Facility.
P A G E 55
18.
Supplemental cash flow information
a.
Changes in non-cash working capital
Accounts receivables
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Total changes in non-cash balances
2019
2018
$
$
(38,388) $
(3,880)
4,115
16,169
(21,984) $
4,731
(1,430)
943
(7,984)
(3,740)
b.
Changes in liabilities arising from financing activities
ABL facility
Lease
liabilities
Senior and
convertible
secured
debentures
Other
secured
borrowings
Total
liabilities
from
financing
activities
Balance as at January 1, 2018
Borrowings
Repayment
Cash and preferred share conversion
Extinguishment of debt, net of deferred
financing fees
Non-cash changes
Accretion
Balance as at December 31, 2018
Borrowings
Deferred financing
Repayments
Adoption of IFRS 16
Extinguishment of debt, net of deferred
financing fees
Accretion
27,500
4,822
—
—
—
—
—
32,322
35,374
(254)
—
—
—
—
3,611
4,106
(2,442)
—
—
51
—
5,326
1,609
—
(9,831)
38,930
196,987
— 228,098
—
—
(2,415)
—
—
—
8,928
(2,442)
(2,415)
(97,273)
— (97,273)
—
299
—
—
51
299
97,598
— 135,246
—
—
—
—
19,000
55,983
(280)
(459)
(534)
(10,290)
— 38,930
—
—
(858)
215
—
360
(858)
575
Balance as at December 31, 2019
$
67,442 $
36,034 $
96,955 $
18,621 $ 219,052
19.
Segment information
The Company has organized the business around differences in products and services provided to
customers. All or substantially all of ClearStream’s operations, assets and employees are located in
Canada.
ClearStream has six operating segments, which are aggregated into two reportable segments, as follows:
•
The Maintenance and Construction reportable segment
is a fully integrated provider of
maintenance and construction services to the energy industry. This segment 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
Maintenance and Construction reportable segment consists of the union and non-union operating
segments on the basis of the similarities in their service offerings, customers, methods and
business environment.
P A G E 56
•
The Wear Technology, Fabrication and Environmental reportable segment specializes in the
supply and fabrication of overlay pipe spools, pipe bends, wear plate, welding services, custom
fabrication, pipe management and storage services focused on servicing our clients across
various end markets such as Oil & Gas, Power, Government, Mining and Forestry. This reportable
segment consists of the Wear, UWO, Fabrication segments on the basis of similarities in their
service offerings, customers and methods, as well as the Environmental operating segment on
the basis of similarities in their customers, geographies and business environment.
In addition to the reportable operating segments, 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
joint ventures as equity
investments, and eliminations of interdivisional transactions. ClearStream accounts for intersegment sales
based on transaction price.
for
Year ended December 31, 2019
Revenues
Cost of revenues
Gross profit
Selling, general & administrative
Share-based compensation and other long-
term incentive plans
Amortization of intangible assets
Depreciation expense
Income from equity investment
Interest expense
Restructuring costs
Impairment of right-of-use assets
Recovery of contingent consideration liability
Bargain purchase gain
Gain on remeasurement of right-of-use
assets
Gain on sale of property, plant and equipment
Income (loss) before taxes
Income tax recovery - deferred
Maintenance
and
Construction
Services
Wear,
Fabrication,
and
Environmental
services
Corporate Eliminations
Total
$
403,348 $
64,797 $
— $
(3,894) $ 464,252
(371,634)
31,714
(1,349)
(44,938)
19,859
—
—
(1,424)
(24,645)
3,894
(412,678)
—
51,574
— (27,418)
—
(142)
(7,700)
509
(1,597)
(859)
—
—
—
—
316
20,892
—
—
(1,162)
(881)
—
(4,003)
(2,164)
—
—
(590)
(17,802)
(1,379)
(1,680)
623
—
—
—
(6,124)
—
—
10,791
127
—
10,525
(40,979)
—
2,908
—
—
(1,162)
(1,023)
— (13,867)
—
509
— (19,989)
—
—
—
—
—
—
—
—
(8,361)
(1,680)
623
10,791
127
316
(9,560)
2,908
Income (loss) from continuing operations
$
20,892 $
10,525 $ (38,071) $
— $ (6,652)
P A G E 57
Year ended December 31, 2018
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Share-based compensation and other long-
term incentive plans
Amortization of intangible assets
Depreciation
Income from equity investment
Interest expense
Gain on sale of assets held for sale
Restructuring costs
Gain (loss) on sale property, plant and
equipment
Other loss
(Loss) income before taxes
Income tax recovery - deferred
Maintenance
and
Construction
Services
Wear,
Fabrication &
Transportation Corporate Eliminations
Total
$
318,873 $
61,335 $
— $
(1,876) $ 378,332
(303,074)
15,799
(1,093)
(50,037)
11,298
—
—
(1,137)
(19,129)
1,876
(351,235)
—
27,097
— (21,359)
—
(1,030)
(3,216)
163
(334)
—
—
318
—
—
(341)
97
—
(1,388)
(344)
—
—
—
—
—
—
97
(1,371)
(4,948)
163
(54)
(12,149)
— (12,537)
1,032
—
—
(2)
(860)
(275)
(165)
—
12
—
(7,126)
8,548
(31,953)
—
459
—
—
—
757
(165)
— (17,733)
—
—
328
(860)
— (30,531)
—
459
Impairment of goodwill and intangible assets
(17,733)
(Loss) income from continuing operations
$
(7,126) $
9,007 $ (31,953) $
— $ (30,072)
20.
Discontinued operations
The gain from discontinued operations is due to the Company's share of an income tax reassessment
resulting in a recovery of $3,250, offset by the expenses that the Company continues to incur relating to
the sale of businesses that it owned prior to March 2016. These expenses consist largely of legal,
insurance, and consulting costs relating to the calculation of the Quantum Murray earn-out and legal
proceedings that existed prior to the sale of the business.
For the year ended December 31, 2018 the loss from discontinued operations was $1,495 due to SG&A
expenses that the Company continues to incur relating to sale of business prior to March 2016. These
expenses consist 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.
21.
Subsequent events
ABL renewal
On March 3, 2020, the Company received confirmation from the lenders under the ABL Facility that they
have agreed to extend the maturity date of the facility to March 23, 2021. The Company and the lenders
under the ABL Facility are preparing an amending agreement to effect the extension of the maturity date
including replacing the monthly minimum EBITDA covenant with a
and certain other amendments,
reduce the maximum
quarterly fixed charge coverage ratio covenant. The amendments will not
borrowings available under the Revolving Facility.
P A G E 58
P A G E 59