ClearStream Announces Fourth Quarter and 2020 Annual Financial Results
Business shows resiliency with annual revenues of $393 million down only 15% from 2019
Calgary, Alberta (March 4, 2021) – ClearStream Energy Services Inc. (“ClearStream” or the "Company") (TSX:
CSM) today announced its results for the three and twelve months ended December 31, 2020. All amounts are in
Canadian dollars and expressed in thousands of dollars unless otherwise noted.
“EBITDAS” and “Adjusted EBITDAS” are not standard measures under IFRS. Please refer to the Advisory
regarding Non-Standard Measures at the end of this press release for a description of these items and limitations
of their use.
“With the arrival of the second wave of the COVID-19 pandemic in the fourth quarter, activity levels returned to a
level similar to the second quarter when economic activity was constrained by the public health measures as
governments responded and caused customers to remain cautious regarding their spending plans,” said Yves
Paletta, Chief Executive Officer.
“With the recent recovery in both oil and natural gas prices that accelerated in the first two months of 2021 and
the expected global roll out of vaccinations for COVID-19 this year, we believe that activity levels will start to
recover in the second half of 2021. However, as a sector, we can expect to be in a lower growth operating model
for the conceivable future and, as such, many of our customers have moved to an operational mindset that
focuses on production optimization, reliability and environmental considerations through operational excellence.
ClearStream is very well-positioned to support such trends,” said Mr. Paletta.
“As previously announced, we were deeply saddened by the incident that occurred on December 28, 2020 at the
Suncor Fort Hills mine that resulted in the death of two valued members of our ClearStream family. We are
actively working with Occupational Health and Safety with respect to the incident investigation. ClearStream’s
strong HSE Management System and leadership’s commitment to the safety of our people is more than ever our
most important core value," added Mr. Paletta.
HIGHLIGHTS
•
•
•
•
•
•
•
Revenues for the year ended December 31, 2020 were $393.1 million, representing a decrease of
$71.2 million or 15.3% from 2019.
Adjusted EBITDAS for the year ended December 31, 2020 was $10.5 million, representing a decrease of
$15.8 million or 60% from 2019.
Selling, general and administrative expenses for the year ended December 31, 2020 were $24.0 million,
representing a decrease of $2.2 million or 8.6% from 2019.
Liquidity remained strong with total cash and available credit facilities of $71.7 million at December 31,
2020, up from $66.2 million at September 30, 2020.
New project awards and contract renewals were $46 million for the three months ended December 31,
2020 and approximately $100 million for 2021 year-to-date (as announced in the press release dated
February 24, 2021). Most of the work will be completed in 2021 with the balance scheduled for
2022-2025.
Completed a corporate reorganization at year-end 2020 to simplify the corporate legal structure with the
closing and consolidation of various legacy entities in order to reduce compliance costs going forward.
Established a multi-disciplinary team to oversee the implementation of internal and external digitization
strategies to transform ClearStream into a low cost, efficient and differentiated service provider.
Maintenance and Construction Services
Activity levels for maintenance and construction services slowed in the fourth quarter after a busy third quarter
that saw the completion of 7 turnaround projects, many of which had originally been scheduled for the first half of
2020. Revenues from maintenance and construction services in 2020 were only down 11.1% from 2019, which
Page 1
shows the resiliency of our business. We benefited from a diverse customer base in the energy sector as those
customer’s focussed on natural gas production experienced less volatility in their operations.
With the continuing recovery in world oil prices combined with on-going strength in North American natural gas
prices, bidding activity for new work accelerated towards the end of 2020 and has continued to be very active in
2021. We remain focussed on consolidating various scopes of work with existing customers by adding additional
services to enable more efficient execution and lower costs for our customers on each work site.
Wear Technology Overlay Services
In 2020, activity levels for wear technology overlay services remained well below historical levels as customers
scaled back their production output and spending on consumables in response to weak oil prices. With the
recovery in world oil prices, we are seeing customers increase their production outlook for 2021, which has
resulted in a modest increase in demand for wear technology overlay services in the first quarter of 2021.
Environmental
We are actively pursuing opportunities with our customers to secure funding under the federal and provincial
programs for the closure and reclamation of oil and gas wells, pipelines and facilities in British Columbia, Alberta
and Saskatchewan. We expect the pace at which funding under these programs is released to accelerate in
2021. In addition, we are seeing oil and gas companies increase their own expenditures for reclamation and
remediation activities.
FOURTH QUARTER AND ANNUAL 2020 FINANCIAL RESULTS
($ millions, except per share amounts)
Revenue
Maintenance and Construction Services
Wear Technology Overlay Services
Total
Gross Profit
Maintenance and Construction Services
Wear Technology Overlay Services
Total
% of revenue
Selling, general and administrative expenses
% of revenue
Adjusted EBITDAS
Maintenance and Construction Services.
Wear Technology Overlay Services
Corporate
Total
% of revenue
Income (loss) from continuing operations
Net income (loss) per share from continuing
operations (basic and diluted)
Note:
Three months ended
December 31,
Twelve months ended
December 31,
2020
2019 % Change
2020
2019 % Change
77.6
7.6
84.5
124.4
12.7
137.1
7.1
1.3
8.4
10.2
4.6
14.9
9.9 % 10.8 %
9.9
7.2 %
7.9
9.4 %
(37.6) %
(40.2) %
(38.3) %
(30.7) %
(72.4) %
(43.7) %
(0.9) %
(20.1) %
2.1 %
361.8
33.4
393.1
407.1
61.0
464.3
32.1
28.0
18.3
5.6
50.4
33.7
8.6 % 10.9 %
26.2
24.0
5.7 %
6.1 %
(11.1) %
(45.3) %
(15.3) %
(12.6) %
(69.2) %
(33.2) %
(2.3) %
(8.6) %
0.4 %
7.0
1.2
(7.7)
0.5
0.6 %
1.8
10.4
4.5
(9.6)
5.4
3.9 %
(10.4)
27.8
(32.7) %
(74.7) %
5.5
(19.8) % (22.7)
10.5
(91.1) %
2.7 %
(3.4) %
3.5
(116.8) %
31.6
17.7
(23.0)
26.3
5.7 %
(6.7)
(12.1) %
(69.1) %
(1.4) %
(60.0) %
(3.0) %
(152.1) %
0.02
(0.09)
(116.8) %
0.03
(0.06)
(152.1) %
(1)
Standard Measures at the end of this press release for a description of this measure and limitations of its use.
“Adjusted EBITDAS” is not a standard measure under IFRS. Please refer to the Advisory regarding Non-
Page 2
2020 RESULTS COMMENTARY
Revenue for the year ended December 31, 2020 was $393,121 compared to $464,252 for the same period in
2019, a decrease of 15.3%. The decrease in 2020, in comparison to 2019, was driven by overall reduced
customer spending and the postponement of a portion of scheduled maintenance and turnaround activities as a
result of macro-economic uncertainty and the economic impact of the COVID-19 pandemic.
Gross profit for the year ended December 31, 2020 was $33,686 compared to $50,396 for the same period in
2019, a decrease of 33%. Gross profit margin for the year ended December 31, 2020 was 8.6% compared to
10.9% for the same period in 2019. The decrease in 2020, in comparison to 2019, was due to a reduction in both
the total volume and the volume of higher margin work in the Wear Technology Overlay Services segment where
certain fixed costs are required to operate the facilities in addition to downward pressure on margins by customers
in response to market uncertainty. As it became clear that the COVID-19 outbreak and other market conditions
were going to have longer term impacts on our activity levels and margins across the whole business, we took
immediate steps to adjust our cost structures. During the third quarter, we closed ClearStream Wear's locations in
Nisku and Edmonton and consolidated all operations into the Sherwood Park location. By eliminating these two
facilities, we have significantly improved production flexibility and reduced the fixed costs associated with
ClearStream Wear's operations.
Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2020 were $23,986, in
comparison to $26,240 in 2019, a decrease of 8.6%. As a percentage of revenue, SG&A expenses for the year
ended December 31, 2020 were 6.1% compared to 5.7% in 2019. The increase in SG&A expenses as a
percentage of revenue was due to the decline in revenue resulting from macro-economic uncertainty and the
economic impact of the COVID-19 pandemic. Given the market uncertainty, we continued to right size our SG&A
cost structures compared to the prior year as shown by the decrease in total SG&A expenses in 2020 compared
to the same period 2019.
For the year ended December 31, 2020, Adjusted EBITDAS was $10,524 compared to $26,282 in 2019. As a
percentage of revenue, Adjusted EBITDAS was 2.7% for the year ended December 31, 2020 compared to 5.7%
for the same period in 2019. Adjusted EBITDAS as a percentage of revenue decreased due to gross profit
decreases in both the Maintenance and Construction Services segment and the Wear Technology Overlay
Services segment.
Income from government subsidies represents the Canada Emergency Wage Subsidy ("CEWS") and the Canada
Emergency Rent Subsidy ("CERS") received from the Government of Canada to assist with the payment of
employee wages and rent as a result of the impact of the COVID-19 pandemic. During the year ended
December 31, 2020, the Company qualified for both CEWS and CERS and recorded total grants of $33,521 in the
Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss).
Income from continuing operations for the year ended December 31, 2020 was $3,469 compared to a loss of
$6,652 in 2019. The income variance was driven by the government subsidies received, the recovery of the
share-based compensation and other long-term incentive plans, and the recovery of contingent consideration
liability offset by the goodwill impairment loss and decrease to gross profit for the 2020 period as well as the
bargain purchase gain in 2019.
FOURTH QUARTER RESULTS COMMENTARY
Revenues for the three months ended December 31, 2020 were $84,530 compared to $137,066 for the same
period in 2019, a decrease of 38.3% on a year-over-year basis. This decrease for the three months ended
December 31, 2020 in comparison to the same period in 2019, was driven by overall reduced customer spending
as a result of the volatility in crude oil prices due to macro-economic uncertainty and the economic impact of the
COVID-19 pandemic.
Gross profit for the three months ended December 31, 2020 was $8,372 compared to $14,868 for the same
period in 2019. Gross margins were 9.9% for the three months ended December 31, 2020 compared to 10.8% in
the same period in 2019. The decrease in gross margin in 2020 was due to a reduction in both the total volume
and the volume of higher margin work in the Wear Technology Overlay Services segment where certain fixed
costs are required to operate the facilities in addition to downward pressure on margins by customers in response
Page 3
to market uncertainty. As it became clear that the COVID-19 outbreak and other market conditions were going to
have longer term impacts on our activity levels and margins across the whole business, we took immediate steps
to adjust our cost structure as shown by the gross margin increasing to 9.9% for the three months ended
December 31, 2020 from 8.6% for the year ended December 31, 2020.
SG&A expenses for the three months ended December 31, 2020 were $7,923 compared to $9,912 for the same
period in 2019. As a percentage of revenue, SG&A expenses for the three months ended December 31, 2020
were 9.4% compared to 7.2% for the same period in 2019 due to the decline in revenue resulting from macro-
economic uncertainty and the economic impact of the COVID-19 pandemic.
ASSET-BASED LENDING FACILITY
On March 3, 2021, the Company received confirmation from the lead lender under the ABL Facility that it had
agreed to extend the maturity date of the Revolving Facility to March 23, 2022. The Company and the lead lender
under the ABL Facility are preparing an amending agreement to effect the extension of the maturity date and
certain other amendments. Due to the Company's current cash position, it was able to reduce the maximum
borrowings available under the Revolving Facility to $15 million effective March 23, 2021.
OUTLOOK
The second wave of the COVID-19 pandemic continues to impact both the local and global economy. The public
health measures to limit the spread of the virus, including business restrictions, travel restrictions, border closures,
quarantines and social distancing, will remain in place for the near-term to allow for the global distribution of
vaccines for COVID-19. As the rate of vaccinations increases, we expect that governments will start to re-open
their economies.
With the recovery in world oil prices, we expect that our customers who are involved in the energy sector will
realize higher cash flows, begin to increase their spending and address maintenance projects that have been
deferred. We expect that activity levels will recover in the second half of 2021 as customers prioritize asset
management and integrity services to increase operational reliability.
With energy transition and environmental considerations becoming increasingly important for all stakeholders in
the energy sector, our customers will focus on improving their operational processes for greater efficiencies and
reliability.
To better support our customers, ClearStream has continued to add new service offerings that encompass the full
asset lifecycle and is now offering a suite of more than 40 services. Through the extensive regional coverage
provided by our 15 operating facilities, we believe that ClearStream is well-positioned to consolidate further
multiple services required at various operating sites while generating efficiencies and cost reductions for its
customers.
ClearStream's business model continues to prove its resilience as we are working closely with our customers
every day in managing their operations.
Additional Information
Our consolidated financial statements for the year ended December 31, 2020 and the related Management's
Discussion and Analysis of the operating and financial results can be accessed on our website at
www.clearstreamenergy.ca and will be available shortly through SEDAR at www.sedar.com.
About ClearStream Energy Services Inc.
With a legacy of excellence and experience stretching back more than 50 years, ClearStream provides solutions
for the Energy and Industrial markets including: Oil & Gas, Petrochemical, Mining, Power, Agriculture, Forestry,
Infrastructure and Water Treatment. With offices strategically located across Canada and a dedicated workforce,
we provide maintenance, construction and environmental services that keep our clients moving forward. For more
information about ClearStream, please visit www.clearstreamenergy.ca or contact:
Page 4
Randy Watt
Chief Financial Officer
Yves Paletta
Chief Executive Officer
ClearStream Energy Services Inc.
ClearStream Energy Services Inc.
(587) 318-0997
rwatt@clearstreamenergy.ca
(587) 318-0997
ypaletta@clearstreamenergy.ca
Advisory regarding Forward-Looking Information
Certain information included in this press release 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. This press release contains forward-looking
statements relating to but not limited to: our business plans, strategies and objectives; the effects of the COVID-19 pandemic on global commerce and oil prices;
that customers will remain cautious regarding their spending plans; that activity levels will recover in the second half of 2021; that we will be in a lower growth
operating model for the conceivable future; that customers will focus on production optimization, reliability and environmental considerations through operational
excellence; the estimated value of contract renewals and project awards; that the implementation of internal and external digitization strategies will transform us
into a low cost, efficient and differentiated service provider; that there will be a modest increase in demand for wear technology overlay services in the first quarter
of 2021; that the pace at which funding under federal and provincial programs for the closure and reclamation of oil and gas wells, pipelines and facilities is
released will accelerate in 2021; that the consolidation of our wear technology overlay facilities has improved our production flexibility and reduced our fixed costs;
that the COVID-19 pandemic will continue to impact both the local and global economy; the duration of public health measures; that governments will start to re-
open their economies as the rate of vaccinations increases; that our customers who are involved in the energy industry will begin to increase their spending and
address maintenance projects that have been deferred as they realize higher cash flows from the recovery in world oil prices; that activity levels will recover in the
second half of 2021 as customers prioritize asset management and integrity services to increase operational reliability; that our customers will focus on improving
their operational processes; and that we are well-positioned to consolidate further multiple services while generating efficiencies and cost reductions for our
customers.
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, the success of our response to the COVID-19 global pandemic, 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 the forward-looking information, 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 press release, 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.
Advisory regarding Non-Standard Measures
The terms ‘‘EBITDAS’’ and “Adjusted EBITDAS” (collectively, the ‘‘Non-standard measures’’) are financial measures used in this press release 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 its management's discussion and analysis of the operating and financial results for the
year ended December 31, 2020.
Page 5
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, gain on remeasurement of right-of-use assets, and government subsidies. 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 its
management's discussion and analysis of the operating and financial results for the year ended December 31, 2020.
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.
Page 6
Management’s Discussion and Analysis
March 4, 2021
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" or the "Company") for the
years ended December 31, 2020 and 2019. This MD&A should be read in conjunction with ClearStream’s audited
consolidated financial statements and the notes thereto for the years ended December 31, 2020 and 2019.
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, 2021 and is current
to that date unless otherwise indicated.
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
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 "Advisory regarding Non-Standard Measures".
References to “we”, “us”, “our” or similar terms, refer to ClearStream, unless the context otherwise requires.
P A G E 7
Reportable Segments
The three segments listed 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 Universal Weld Overlays Inc. 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 as well as abandonment,
decommissioning, and reclamation services.
Wear Technology Overlay
Services
Custom fabrication services supporting pipeline and infrastructure projects,
patented wear overlay technology services specializing in overlay pipe spools,
pipe bends and plate.
Corporate
Head office management, administrative, legal and interest expenses.
Note: Certain amounts in the previous periods presented herein have been reclassified from the prior year to conform to the current period presentation. The
Environmental Services division has been included in the Maintenance and Construction Services segment; the financial results for this division were not
significant to overall financial results for this segment during the years ended December 31, 2020 and 2019.
P A G E 8
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 effects of the COVID-19 pandemic on global commerce and oil prices; that the
COVID-19 outbreak and other market conditions will have longer term impacts on our activity levels and margins; that the consolidation of our wear technology
overlay facilities has improved our production flexibility and reduced our fixed costs; the sufficiency of our liquidity and cash flow from operations to meet our short-
term contractual obligations and maintain compliance with our financial covenants through December 31, 2021; the effect of known claims and litigation on our
financial position and results of operations; that the COVID-19 pandemic will continue to impact both the local and global economy; the duration of public health
measures; that governments will start to re-open their economies as the rate of vaccinations increases; that our customers who are involved in the energy industry
will begin to increase their spending and address maintenance projects that have been deferred as they realize higher cash flows from the recovery in world oil
prices; that activity levels will recover in the second half of 2021 as customers prioritize asset management and integrity services to increase operational reliability;
that our customers will focus on improving their operational processes; and that we are well-positioned to consolidate further multiple services while generating
efficiencies and cost reductions for our customers.
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, the success of our response to the COVID-19 global pandemic, 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 the forward-looking information, 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.
Advisory regarding Non-Standard Measures
The terms ‘‘EBITDAS’’, “Adjusted EBITDAS” and "Adjusted EBITDAS from Operations" (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, gain on remeasurement of right-of-use assets, and government subsidies. 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.
Adjusted EBITDAS from Operations refers to Adjusted EBITDAS generated from the Maintenance and Construction Services and Wear Technology Overlay
Services segments, before Adjusted EBITDAS used in the corporate segment. Management believes it is a useful measure for the users, because it provides the
adjusted EBITDAS from operational segments only without taking into account corporate expenditures.
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
P A G E 9
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 10
2020 SUMMARY OF RESULTS – CONTINUING OPERATIONS ($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 recovery
(expense)
Amortization of intangible assets
Depreciation expense
Income from equity investment
Interest expense
Restructuring expense
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
Income from government subsidies
Income (loss) from continuing operations
Add:
Amortization of intangible assets
Depreciation expense
Share-based compensation and other long-term incentive plans (recovery)
expense
Interest expense
Income tax recovery - current
Income tax recovery - deferred
EBITDAS
Gain on sale of property, plant and equipment
Impairment of intangible assets and goodwill
Restructuring expense
Income from government subsidies
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
2020
2019
$
393,121 $
464,252
(359,435)
(413,856)
33,686
(23,986)
50,396
(26,240)
1,127
(1,824)
(1,162)
(1,023)
(14,937)
(13,867)
1
(19,028)
(2,641)
(5,000)
—
1,121
—
—
154
65
1,210
33,521
3,469
1,824
14,937
(1,127)
19,028
(65)
(1,210)
36,856
(154)
5,000
2,641
(33,521)
823
—
(1,121)
—
—
$
10,524 $
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
P A G E 11
Net income (loss) per share (dollars)
For the year ended December 31,
Basic & Diluted:
Continuing operations
Discontinued operations
Net income (loss) and comprehensive income (loss)
Selected Balance Sheet Accounts
As at December 31,
Total assets
ABL facility
Senior secured debentures
Other secured borrowings
Shareholders' deficit
2020 RESULTS
2020
2019
0.03 $
— $
0.03 $
(0.06)
0.02
(0.04)
2020
2019
215,607 $
40,626
105,173
17,703
(19,942) $
257,573
67,442
96,955
18,621
(23,438)
$
$
$
$
$
Revenue for the year ended December 31, 2020 was $393,121 compared to $464,252 for the same period in
2019, a decrease of 15.3%. The decrease in 2020, in comparison to 2019, was driven by overall reduced
customer spending and the postponement of a portion of scheduled maintenance and turnaround activities as a
result of macro-economic uncertainty and the economic impact of the COVID-19 pandemic.
Gross profit for the year ended December 31, 2020 was $33,686 compared to $50,396 for the same period in
2019, a decrease of 33.2%. Gross profit margin for the year ended December 31, 2020 was 8.6% compared to
10.9% for the same period in 2019. The decrease in 2020, in comparison to 2019, was due to a reduction in both
the total volume and the volume of higher margin work in the Wear Technology Overlay Services segment where
certain fixed costs are required to operate the facilities in addition to downward pressure on margins by customers
in response to market uncertainty. As it became clear that the COVID-19 outbreak and other market conditions
were going to have longer term impacts on our activity levels and margins across the whole business, we took
immediate steps to adjust our cost structures. During the third quarter, we closed ClearStream Wear's locations in
Nisku and Edmonton and consolidated all operations into the Sherwood Park location. By eliminating these two
facilities, we have significantly improved production flexibility and reduced the fixed costs associated with
ClearStream Wear's operations.
Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2020 were $23,986, in
comparison to $26,240 in 2019, a decrease of 8.6%. As a percentage of revenue, SG&A expenses for the year
ended December 31, 2020 were 6.1% compared to 5.7% in 2019. The increase in SG&A expenses as a
percentage of revenue was due to the decline in revenue resulting from macro-economic uncertainty and the
economic impact of the COVID-19 pandemic. Given the market uncertainty, we continued to right size our SG&A
cost structures compared to the prior year as shown by the decrease in total SG&A expenses in 2020 compared
to the same period 2019.
Non-cash items that impacted the 2020 results were depreciation, amortization, and the recovery of share-based
compensation and other long-term incentive plans. For the year ended December 31, 2020, depreciation and
amortization expense were $16,761 compared to $14,890 in 2019. The increase in depreciation and amortization
expense was due to the increase in asset values as a result of the acquisition of certain assets of the production
services division of AECOM Production Services Ltd. (the "AECOM PSD Business") as well as additional 2020
capital expenditures. Recovery of the share-based compensation and other long-term incentive plans for the year
ended December 31, 2020 of $1,127, in comparison to an expense of $1,162 in 2019, represents the change in
the net present value of future cash payments as no payout is expected under the Cumulative Value Creation Unit
Plan.
For the year ended December 31, 2020, interest expenses were $19,028 compared to $19,989 in 2019, a
decrease of 4.8%. The decrease was due to a reduction in amounts recognized under lease liabilities and
P A G E 12
deferred financing charges partially offset by an increase in interest on the ABL facility due to term loan advances
made in Q2 and Q3 of 2019 in comparison to the full year's term loan interest impact in 2020.
Restructuring expenses of $2,641 were recorded during the year ended December 31, 2020 compared to $8,361
in 2019. The non-recurring restructuring expenses in 2020 were related to cost reduction initiatives in response to
changing market conditions. The non-recurring restructuring expenses in 2019 were related to the acquisition of
the AECOM PSD Business as well as termination benefits.
Impairment of $5,000 was recorded for the year ended December 31, 2020 as a result of the identification of
indicators of impairment at March 31, 2020 related to the forecasted impact of the COVID-19 pandemic, which
has decreased global demand for oil and gas and resulted in a reduction in the long-term outlook for commodity
prices. Management therefore performed impairment tests as at March 31, 2020 for the Wear and UWO cash-
generating units (“CGUs”), both of which are within the Wear Technology Overlay Services segment. This testing
resulted in an impairment of the UWO CGU of $5,000 in the twelve months ended December 31, 2020. No
impairment was required for the Wear CGU.
Income from government subsidies represents the Canada Emergency Wage Subsidy ("CEWS") and the Canada
Emergency Rent Subsidy ("CERS") received from the Government of Canada to assist with the payment of
employee wages and rent as a result of the impact of the COVID-19 pandemic. During the year ended
December 31, 2020, the Company qualified for both CEWS and CERS and recorded total grants of $33,521 in the
Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss).
Income from continuing operations for the year ended December 31, 2020 was $3,469 compared to a loss of
$6,652 in 2019. The income variance was driven by the government subsidies received, the recovery of the
share-based compensation and other long-term incentive plans, and the recovery of contingent consideration
liability offset by the goodwill impairment loss and decrease to gross profit for the 2020 period as well as the
bargain purchase gain in 2019.
The gain from discontinued operations was $27 for the year ended December 31, 2020, compared to a gain of
$1,940 for the same period in 2019. The gain from discontinued operations in 2020 was due to a settlement
relating to Quantum Murray offset by associated legal fees. The gain from discontinued operations in 2019 was
due to the Company's share of an income tax reassessment won by Brompton, offset by expenses relating to the
sale of businesses prior to March 2018. The Company continues to incur expenses relating to the sale of
businesses that it owned prior to March 2018. These expenses consist largely of legal costs relating to Quantum
Murray and legal proceedings that existed prior to the sale of the business.
For the year ended December 31, 2020, Adjusted EBITDAS was $10,524 compared to $26,282 in 2019. As a
percentage of revenue, Adjusted EBITDAS was 2.7% for the year ended December 31, 2020 compared to 5.7%
for the same period in 2019. Adjusted EBITDAS as a percentage of revenue decreased due to gross profit
decreases in both the Maintenance and Construction Services segment and the Wear Technology Overlay
Services segment.
P A G E 13
SEGMENT OPERATING RESULTS
MAINTENANCE AND CONSTRUCTION SERVICES
For the year ended December 31,
Revenue
Cost of revenue
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation expense
Income from equity investments
Interest expense
Restructuring expense
Gain on sale of property, plant and equipment
Income from government subsidies
Income from continuing operations
Add:
Amortization of intangible assets
Depreciation expense
Interest expense
EBITDAS
Gain on sale of property, plant and equipment
Restructuring expense
Income from government subsidies
One-time incurred expenses
Adjusted EBITDAS
Revenues
2020
2019
$
$
361,816 $
(333,776)
28,040
(671)
(261)
(8,888)
1
(1,273)
(501)
615
29,078
46,140
261
8,888
1,273
56,562
(615)
501
(29,078)
386
27,756 $
407,119
(375,051)
32,068
(1,010)
(142)
(7,700)
509
(1,597)
(859)
316
—
21,585
142
7,700
1,597
31,024
(316)
859
—
—
31,567
Revenues for the Maintenance and Construction Services segment were $361,816 for the year ended December
31, 2020 compared to $407,119 for the same period in 2019, which reflects a decrease of 11.1%. The decrease in
2020 was due to customers continuing to reduce spending and postponing a portion of their scheduled
maintenance and turnaround activities. These postponements are a result of volatility in crude oil prices due to
macro-economic uncertainty and the economic impact of the COVID-19 pandemic.
Gross Profit
Gross profit was $28,040 for the year ended December 31, 2020 compared to $32,068 for the same period in
2019, a decrease of 12.6%. Gross profit margin was 7.7% for the year ended December 31, 2020 compared to
7.9% for the same period in 2019. The decrease in gross profit margin was due to lower than anticipated volumes
from our maintenance and turnaround business relative to indirect costs to manage this business as well as the
downward market pressure on margins by our customers.
Selling, General and Administrative Expenses
SG&A expenses for the Maintenance and Construction Services segment were $671 for the year ended
December 31, 2020, compared to $1,010 for the same period in 2019, a decrease of 33.6%. The decrease in
SG&A expenses were primarily due to the impact of our cost mitigation initiatives in response to lower volumes
from market uncertainty.
P A G E 14
WEAR TECHNOLOGY OVERLAY SERVICES
For the year ended December 31,
Revenue
Cost of revenue
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation expense
Interest and foreign exchange expense
Restructuring expense
Impairment of intangible assets and goodwill
Impairment of right-of-use assets
Recovery of contingent consideration liability
Loss on sale of property, plant and equipment
Income from government subsidies
(Loss) income from continuing operations
Add:
Amortization of intangible assets
Depreciation expense
Interest expense
EBITDAS
Loss on sale of property, plant and equipment
Impairment of intangible assets and goodwill
Restructuring expense
Income from government subsidies
One time incurred expenses
Impairment of right-of-use assets
Recovery of contingent consideration liability
Adjusted EBITDAS
Revenues
2020
2019
$
$
33,406 $
(27,760)
5,646
(544)
(1,563)
(3,410)
(374)
(41)
(5,000)
—
—
(359)
2,484
(3,161)
1,563
3,410
374
2,186
359
5,000
41
(2,484)
379
—
—
5,481 $
61,026
(42,699)
18,327
(585)
(881)
(4,003)
(590)
(1,379)
—
(1,680)
623
—
—
9,832
881
4,003
590
15,306
—
—
1,379
—
—
1,680
(623)
17,742
Revenues for this segment for the year ended December 31, 2020 were $33,406, compared to $61,026 for the
same period in 2019, a decrease of 45.3%. The decrease in 2020 was largely due to activity levels for weld
technology overlay services remaining well below historical levels as customers scaled back their production
output and decreased spending on consumables in response to weak oil prices. A further decrease in revenue for
the period is due to the loss of revenue generated by some fabrication facilities that were closed in mid-2019.
Gross Profit
Gross profit was $5,646 for the year ended December 31, 2020, compared to $18,327 for the same period in
2019, a decrease of 69.2%. Gross profit margins were 16.9% for the year ended December 31, 2020 compared to
30% for the same period in 2019. The decrease in gross profit margin was due to increased competition, a higher
proportion of lower margin work in our facilities, and the overall decline in volumes with certain fixed costs
remaining steady. As it became clear that the COVID-19 outbreak and other market conditions were going to have
longer term impacts on our activity levels and margins, we took immediate steps to adjust our cost structure and
optimize our overlay manufacturing footprint by consolidating all operations into our facility in Sherwood Park
resulting in the closure of the facilities in Edmonton and Nisku during the third quarter of 2020.
P A G E 15
Selling, General and Administrative Expenses
SG&A expenses for the Wear Technology Overlay Services segment were $544 for the year ended December 31,
2020, compared to $585 for the same period in 2019.
CORPORATE
ClearStream’s head office functions are located in Calgary, Alberta. The Corporate segment provides typical head
office functions, including strategic planning, corporate communications, taxes, legal, marketing, finance, human
resources and information technology, for the entire organization. The tables below reflect the costs of
ClearStream’s corporate function, as well as other corporate overhead expenses.
For the year ended December 31,
Selling, general and administrative expenses
Share-based compensation and other long-term incentive plans recovery
(expense)
Depreciation expense
Interest expense
Restructuring expense
Recovery of contingent consideration liability
Bargain purchase gain
Gain on remeasurement of right-of-use assets
Loss on sale of property, plant and equipment
Income tax recovery - current
Income tax recovery - deferred
Income from government subsidies
Loss from continuing operations
Add:
Depreciation expense
Share-based compensation and other long-term incentive plans (recovery)
expense
Interest expense
Income tax recovery - current
Income tax recovery - deferred
EBITDAS
Loss on sale of property, plant and equipment
Restructuring expense
Income from government subsidies
One-time incurred expenses
Recovery of contingent consideration liability
Bargain purchase gain
Gain on remeasurement of right-of-use assets
Adjusted EBITDAS
Selling, General and Administrative Expenses
2020
2019
$
(22,771) $
(24,645)
1,127
(2,639)
(17,381)
(2,099)
1,121
—
—
(102)
65
1,210
1,959
(39,510)
(1,162)
(2,164)
(17,802)
(6,124)
—
10,791
127
—
—
2,908
—
(38,071)
2,639
2,164
(1,127)
17,381
(65)
(1,210)
(21,892)
102
2,099
(1,959)
58
(1,121)
—
—
$
(22,713) $
1,162
17,802
—
(2,908)
(19,851)
—
6,124
—
1,617
—
(10,791)
(127)
(23,028)
SG&A expenses were $22,771 for the year ended December 31, 2020 compared to $24,645 for the same period
in 2019. SG&A expenses as a percentage of revenue were 5.8% for the year ended December 31, 2020
compared to 5.3% for the same period in 2019. This increase in SG&A expenses as a percentage of revenue in
2020 was due to the decline in revenue resulting from macro-economic uncertainty and the economic impact of
the COVID-19 pandemic. As it became clear that the COVID-19 outbreak and other market conditions were going
to have longer term impacts on our activity levels and margins, we took immediate steps to adjust our cost
structure as shown by the decrease in total SG&A expenses in 2020 compared to the same period in 2019.
P A G E 16
FOURTH QUARTER 2020 RESULTS
For three months ended December 31,
Revenue
Cost of revenue
Gross profit
Selling, general and administrative expenses
Share-based compensation and other long-term incentive plans recovery
(expense)
Amortization of intangible assets
Depreciation expense
(Expense) income from equity investment
Interest expense
Restructuring expense
Recovery of contingent consideration liability
Bargain purchase loss
Gain on sale of property, plant and equipment
Income tax recovery (expense) - deferred
Income from government subsidies
Income (loss) from continuing operations
Add:
Amortization of intangible assets
Depreciation expense
Share-based compensation and other long-term incentive plans (recovery)
expense
Interest expense
Income tax (recovery) expense - deferred
EBITDAS
Gain on sale of property, plant and equipment
Restructuring expense
Income from government subsidies
One-time incurred expenses
Recovery of contingent consideration liability
Bargain purchase loss
Adjusted EBITDAS
2020
2019
$
84,530
$ 137,066
(76,158)
(122,198)
8,372
(7,923)
18
(495)
(3,791)
(127)
(5,630)
(1,153)
1,121
—
112
1,210
10,040
1,754
495
3,791
(18)
5,630
(1,210)
10,442
(112)
1,153
(10,040)
155
(1,121)
—
$
477
$
14,868
(9,912)
(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
FOURTH QUARTER 2020 RESULTS COMMENTARY
Revenues for the three months ended December 31, 2020 were $84,530 compared to $137,066 for the same
period in 2019, a decrease of 38.3% on a year-over-year basis. This decrease for the three months ended
December 31, 2020 in comparison to the same period in 2019, was driven by overall reduced customer spending
as a result of the volatility in crude oil prices due to macro-economic uncertainty and the economic impact of the
COVID-19 pandemic.
Gross profit for the three months ended December 31, 2020 was $8,372 compared to $14,868 for the same
period in 2019. Gross margins were 9.9% for the three months ended December 31, 2020 compared to 10.8% in
the same period in 2019. The decrease in gross margin in 2020 was due to a reduction in both the total volume
P A G E 17
and the volume of higher margin work in the Wear Technology Overlay Services segment where certain fixed
costs are required to operate the facilities in addition to downward pressure on margins by customers in response
to market uncertainty. As it became clear that the COVID-19 outbreak and other market conditions were going to
have longer term impacts on our activity levels and margins across the whole business, we took immediate steps
to adjust our cost structure as shown by the gross margin increasing to 9.9% for the three months ended
December 31, 2020 from 8.6% for the year ended December 31, 2020.
SG&A expenses for the three months ended December 31, 2020 were $7,923 compared to $9,912 for the same
period in 2019. As a percentage of revenue, SG&A expenses for the three months ended December 31, 2020
were 9.4% compared to 7.2% for the same period in 2019 due to the decline in revenue resulting from macro-
economic uncertainty and the economic impact of the COVID-19 pandemic.
ADJUSTED EBITDAS
Three months ended
December 31,
Twelve months ended
December 31,
2020
2019
2020
2019
Maintenance and Construction Services
$
6,992 $
10,382 $
27,756 $
Wear Technology Overlay Services
Adjusted EBITDAS from operations
Corporate
Adjusted EBITDAS
DISCONTINUED OPERATIONS
For the year ended December 31,
Gain from discontinued operations
1,150
8,142
(7,665)
4,544
14,926
(9,557)
5,481
33,237
31,567
17,742
49,309
(22,713)
(23,028)
$
477 $
5,369 $
10,524 $
26,282
2020
2019
$
27 $
1,940
The gain from discontinued operations in 2020 was due to a settlement relating to Quantum Murray offset by
associated legal fees. The gain from discontinued operations in 2019 was due to the Company's share of an
income tax reassessment won by Brompton, offset by expenses relating to the sale of businesses prior to March
2018. The Company continues to incur expenses relating to the sale of businesses that it owned prior to March
2018. These expenses consist largely of legal costs relating to Quantum Murray and legal proceedings that
existed prior to the sale of the business.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31,
Cash provided by (used in) operating activities
Cash used in investing activities
Cash (used in) provided by financing activities
Consolidated cash, end of period
2020
2019
$
$
60,025 $
(948)
(35,709)
30,477 $
(20,171)
(57,974)
74,416
7,109
The Company’s liquidity and cash flow provided by operations has been driven by a release of working capital as
revenues for the year ended December 31, 2020 declined in comparison to the year ended December 31, 2019.
This was further impacted by internal billing efficiencies realized in 2020 and the receipt of the Canada
Emergency Wage Subsidy and the Canada Emergency Rent Subsidy.
The Company anticipates that its liquidity (cash on hand and available credit facilities) and cash flow from
operations will be sufficient to meet its short-term contractual obligations and to maintain compliance with its
financial covenants through December 31, 2021.
P A G E 18
Investing Activities
Cash outflows related to investment activities during the year ended December 31, 2020 consisted of the
purchase of assets and an installment payment towards the outstanding deferred consideration liability related to
the acquisition of Universal Weld Overlays Inc., offset partially by proceeds from the disposal of certain assets as
well as proceeds from equity investments.
Financing Activities
a. ABL Facility
ClearStream has an asset-based lending facility (the “ABL Facility”) comprised of (i) a revolving credit facility
providing for maximum borrowings that range from $50,000 to $65,000 depending on the period (the “Revolving
Facility”) with a syndicate of banks (the "Lenders") and (ii) a term loan facility providing for maximum borrowings
of up to $40,500 (the “Term Loan Facility”) with Canso Investment Counsel Ltd., in its capacity as portfolio
manager for and on behalf of certain accounts that it manages (“Canso”).
The ABL Facility provides for maximum borrowings under the Revolving Facility of $65,000 during the period
commencing March 1, 2020 and ending September 30, 2020, $60,000 during the period commencing October 1,
2020 and ending December 31, 2020, and $50,000 during the period commencing January 1, 2021 and ending on
the maturity date of the Revolving Facility. The Revolving Facility matures on March 23, 2021 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, 2020 was $49,054 (December 31, 2019 - $50,000). 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 Company and the other guarantors, being certain of the Company's 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, 2020, nil (December 31, 2019 - $27,825) was drawn on the Revolving Facility, and there
were $3,125 (December 31, 2019 - $2,930) of letters of credit reducing the amount available to be drawn. As at
December 31, 2020, the net unamortized amount of deferred financing costs was $113 (December 31, 2019 -
$883).
At December 31, 2020, $40,500 (December 31, 2019 - $40,500) was 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 financial covenants applicable under the ABL Facility are as follows:
•
•
The Company must maintain a fixed charge coverage ratio equal to or greater than 1.00:1.00 for each
twelve month period calculated and tested as of the last day of each fiscal quarter (commencing
March 31, 2020); and
The Company must not expend or become obligated for any capital expenditures in an aggregate amount
exceeding $6,600 during the period commencing January 1, 2020 and ending December 31, 2020, and
any fiscal year thereafter.
At December 31, 2020, ClearStream was in compliance with all financial covenants under the ABL Facility.
On March 3, 2021, the Company received confirmation from the lead lender under the ABL Facility that it had
agreed to extend the maturity date of the Revolving Facility to March 23, 2022. The Company and the lead lender
under the ABL Facility are preparing an amending agreement to effect the extension of the maturity date and
certain other amendments. Due to the Company's current cash position, it was able to reduce the maximum
borrowings available under the Revolving Facility to $15,000 effective March 23, 2021.
P A G E 19
b. 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 certain assets of the production services
division of AECOM Production Services Ltd. (the "AECOM PSD Business").
The $13,500 loan is repayable over 300 monthly payments of $45. 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. 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 real property and 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 on
annual basis.
On March 30, 2020, the Company signed an agreement with BDC to postpone effective May 1, 2020 all principal
payments on the loans for a period of six months with the postponed payments being added to the end of loan
term. As a result, the final payment on the $13,500 loan will occur on September 2, 2045 and the final payment
on the $5,500 loan will occur on September 28, 2025.
On May 13, 2020, the Company signed an agreement with BDC to postpone all interest payments on the loans for
a period of six months with the amount of the deferred interest being payable at the end of the deferral period in
twelve equal consecutive monthly installments.
At December 31, 2020, ClearStream was in compliance with all financial covenants under the loan agreements
with BDC.
c. Senior Secured Debentures
On March 23, 2016, the Company issued 8.00% senior secured debentures due March 23, 2026 (the "Senior
Secured Debentures") pursuant to a trust indenture between ClearStream, as issuer, and BNY Trust Company of
Canada, as debenture trustee, as amended and supplemented (the "Senior Secured Indenture"), on a private
placement basis to Canso. On June 2, 2020, the debenture trustee was changed to Computershare Trust
Company of Canada.
The Senior Secured Debentures bear interest at an annual rate of 8.00% payable semi‑annually in arrears on
June 30 and December 31 in each year. The maturity date of the Senior Secured Debentures is March 23, 2026.
The Senior Secured Debentures are redeemable at the option of the Company and, in certain circumstances, are
mandatorily redeemable. The Senior Secured Debentures are secured by first‑ranking liens over all of the
property of the Company and its guarantor subsidiaries, other than certain limited classes of collateral over which
the Company has granted a prior‑ranking lien in favour of the ABL Facility and the BDC Facility. The Senior
Secured Debentures provide for certain events of default and covenants of the Company, including financial and
reporting covenants and restrictive covenants limiting the ability of the Company and its subsidiaries to make
certain distributions and dispositions, incur indebtedness, grant liens and limitations with respect to acquisitions,
mergers, investments, non‑arm’s length transactions, reorganizations and hedging arrangements (subject to
certain exceptions).
In June, 2020, Canso agreed to accept the issuance of an additional 3,956 Senior Secured Debentures on
June 30, 2020 and 4,114 Senior Secured Debentures on December 31, 2020 at a principal amount of $1,000 per
Senior Secured Debenture in order to satisfy the interest that would otherwise become due and payable on such
dates (the “Payment in Kind Transactions”). The terms of the new Senior Secured Debentures issued pursuant to
the Payment in Kind Transactions were the same as the existing Senior Secured Debentures in all material
P A G E 20
respects. In connection with the Payment in Kind Transactions, the Company entered into the Fifth Supplemental
Senior Secured Indenture on June 2, 2020.
CONTRACTUAL OBLIGATIONS
The table below summarizes the Company’s contractual obligations at December 31, 2020, on an undiscounted
basis:
Total
Less than
One Year
One to Five
Years
After Five
Years
Accounts payable and accrued liabilities
$
34,614 $
34,614 $
— $
Deferred consideration
Earn-out contingent liability
ABL facility
Lease liabilities
Other secured borrowings
Senior secured debentures
Total
866
250
40,626
45,129
17,905
106,997
433
—
40,626
10,090
1,457
—
433
250
—
—
—
—
—
26,792
5,784
8,247
10,665
—
106,997
$
246,386 $
87,219 $
33,259 $
125,908
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. Based on the current environment, significant market uncertainty exists that could impact the
estimates and assumptions made by the ClearStream. Significant accounting policies and methods used in the
preparation of the consolidated financial statements, including use of estimates and judgments, are described in
note 1 of the consolidated financial statements.
CONTINGENCIES
Contingencies are provided for when they are likely to occur and can be reasonably 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)
2020
Q4
2020
Q3
2020
Q2
2020
Q1
2019
Q4
2019
Q3
2019
Q2
2019
Q1
Revenue
$84,530 $100,755 $81,037 $126,799 $137,066 $139,542 $103,690 $83,954
Gross Profit Margin
$8,372
$9,965
$6,030
$9,319
$14,864 $15,831 $11,277
$8,424
Gross Profit Margin %
Net income (loss) from
continuing operations
Net income (loss)
Net income (loss) per share
from continuing operations
Net income (loss) per share
9.9%
9.9%
7.4%
7.3%
10.8% 11.3% 10.9% 10.0%
$1,754
$9,684
$1,303
$(9,272) $(10,449)
$1,722
$9,832
$1,299
$(9,357) $(10,536)
$0.02
$0.02
$0.09
$0.09
$0.01
$0.01
$(0.08)
$(0.09)
$(0.09)
$(0.10)
$928
$619
$0.01
$0.01
$7,091
$(4,222)
$6,785
$(1,580)
$0.06
$0.06
$(0.04)
$(0.01)
P A G E 21
ClearStream’s revenues are somewhat seasonal, in particular for the Maintenance and Construction Services
segment. Typically, there are scheduled shutdown turnaround projects in the spring and fall which increase
revenues over and above the standard maintenance and operational support services. In 2020, this trend was
disrupted due to the COVID-19 pandemic causing the postponement of scheduled spring shutdown turnaround
projects.
TRANSACTIONS WITH RELATED PARTIES
As at December 31, 2020, directors, officers and key employees beneficially held an aggregate of
11,868,442 common shares or 10.79% of the issued and outstanding common shares.
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 at December 31, 2020, the Company's issued and outstanding share capital included 109,992,668 common
shares, 127,735 Series 1 preferred shares, and 40,111 Series 2 preferred shares.
(in thousands, except number of shares and per share
amounts)
Preferred
Shares
Series I
Preferred
Shares
Series II
Common Shares
Balance as at January 1, 2019
127,753
—
109,941,241
Issued
Converted to Common shares
Balance as at December 31, 2019
Balance as at December 31, 2020
—
(18)
127,735
127,735
40,111
—
40,111
40,111
—
51,427
109,992,668
109,992,668
As at December 31, 2020, the accrued and unpaid dividends on the Series I and Series II preferred shares totaled
$43,102 (2019 - $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 166,463,401 (2019 - 89,851,880) common shares would be issued, which
represents approximately 151% (2019 - 82%) of the common shares outstanding as of December 31, 2020.
OUTLOOK
The second wave of the COVID-19 pandemic continues to impact both the local and global economy. The public
health measures to limit the spread of the virus, including business restrictions, travel restrictions, border closures,
quarantines and social distancing, will remain in place for the near-term to allow for the global distribution of
vaccines for COVID-19. As the rate of vaccinations increases, we expect that governments will start to re-open
their economies.
With the recovery in world oil prices, we expect that our customers who are involved in the energy sector will
realize higher cash flows, begin to increase their spending and address maintenance projects that have been
deferred. We expect that activity levels will recover in the second half of 2021 as customers prioritize asset
management and integrity services to increase operational reliability.
With energy transition and environmental considerations becoming increasingly important for all stakeholders in
the energy sector, our customers will focus on improving their operational processes for greater efficiencies and
reliability.
To better support our customers, ClearStream has continued to add new service offerings that encompass the full
asset lifecycle and is now offering a suite of more than 40 services. Through the extensive regional coverage
provided by our 15 operating facilities, we believe that ClearStream is well-positioned to consolidate further
multiple services required at various operating sites while generating efficiencies and cost reductions for its
customers.
P A G E 22
ClearStream's business model continues to prove its resilience as we are working closely with our customers
every day in managing their operations.
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 detailed information appearing elsewhere in this MD&A. Any of the matters
highlighted in these risk factors could have a material adverse effect on ClearStream’s results of operations,
business prospects or financial condition. 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 outbreak of the COVID-19 pandemic and its impact on the global economy (including a material
reduction in the demand for petroleum products) has impacted the Company’s plans and activities by
reducing the demand for its services and its gross profit margins. There can be no assurance that the
Company will not continue to be impacted by adverse consequences that may be brought about by the
COVID-19 pandemic. See "COVID-19 Pandemic" below.
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, 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.
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
P A G E 23
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 and British Columbia because a large percentage of the Company’s revenues originate in those
provinces.
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.
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.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
P A G E 24
•
•
•
•
•
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.
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, 2020,
which is available on the SEDAR website at www.sedar.com.
COVID-19 Pandemic
The outbreak of the COVID-19 pandemic and its impact on the global economy (including a material reduction in
the demand for petroleum products) has impacted the Company’s plans and activities by reducing the demand for
its services and its gross profit margins. The Company may face disruption to operations, supply chain delays,
travel and trade restrictions and the impact on economic activity can be difficult to quantify. Such pandemics or
diseases represent a serious threat to maintaining a skilled workforce and could be a major healthcare challenge
for the Company. There can be no assurance that the Company’s personnel will not be impacted by COVID-19
and ultimately that the Company would see its workforce productivity reduced. In addition, the COVID-19
pandemic has created a dramatic slowdown in both the global and local economy. The duration of the COVID-19
pandemic and the resulting travel restrictions, social distancing, Government response actions, business closures
and business disruptions, can all have an impact on the Company’s operations and access to capital.
There can be no assurance that the Company will not continue to be impacted by adverse consequences that
may be brought about by the COVID-19 pandemic, including an extended period of low commodity prices further
reducing the demand for its services and its gross profit margins which in turn will put pressure on its financial
liquidity.
The full extent of the risks surrounding the severity and timing of the COVID-19 pandemic are continually evolving
and are not fully known at this time; therefore, there is significant risk and uncertainty which may have a material
and adverse affect on our operations. The following risks disclosed in our Annual Information Form for the year
ended December 31, 2020 may be exacerbated as a result of the COVID-19 pandemic:
•
•
•
•
•
The Company’s credit facilities may not provide sufficient liquidity;
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 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;
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;
P A G E 25
•
•
•
The Company 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;
Cyber attacks and loss of the Company’s information and computer systems as its workforce moves to
remote connections could adversely affect the Company’s business; and
The Company's business is subject to changes in general economic conditions over which it has little or
no control.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER
FINANCIAL REPORTING
Disclosure Controls and Procedures
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
the disclosure controls and procedures for the issuer, that disclosure controls and procedures have been
designed to provide reasonable assurance that material information relating to the issuer is made known to them,
that they have evaluated the effectiveness of the issuer’s disclosure controls and procedures, and that their
conclusions about effectiveness of those disclosure controls and procedures at the end of the period covered by
the relevant annual filings have been disclosed by the issuer.
ClearStream’s management, including its CEO and CFO, have evaluated the effectiveness of ClearStream’s
disclosure controls and procedures as at December 31, 2020 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, 2020 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
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,
2020 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, 2020 and have
concluded that those controls were effective. Due to the inherent limitations common to all control systems,
management acknowledges that disclosure controls and procedures and internal control over financial reporting
may not prevent or detect all misstatements. Accordingly, management’s evaluation of our disclosure controls and
procedures and internal control over financial reporting provide reasonable, not absolute, assurance that
misstatements resulting from fraud or error will be detected.
ADDITIONAL INFORMATION
Additional information relating to ClearStream is available in our Annual Information Form for the year ended
December 31, 2020.
P A G E 26
CONSOLIDATED FINANCIAL STATEMENTS OF
CLEARSTREAM ENERGY SERVICES INC.
YEARS ENDED DECEMBER 31, 2020 AND 2019
P A G E 27
Calgary, Canada
March 4, 2021
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, 2021
Randy Watt
Chief Financial Officer
P A G E 28
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, 2020 and
2019 and the consolidated statements of income (loss) and comprehensive income (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, 2020 and 2019, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with International Financial
Reporting Standards (“IFRS”).
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the Auditor's responsibilities for the audit of the consolidated
financial statements section of our report. We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of
the consolidated financial statements of the current period. These matters were addressed in the context of the
audit of the consolidated financial statements as a whole, and in forming the auditor’s opinion thereon, and we do
not provide a separate opinion on these matters. For the matter below, our description of how our audit addressed
the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated
financial statements section of our report, including in relation to these matters. Accordingly, our audit included
the performance of procedures designed to respond to our assessment of the risks of material misstatement of
the consolidated financial statements. The results of our audit procedures, including the procedures performed to
address the matter below, provide the basis for our audit opinion on the accompanying consolidated financial
statements.
P A G E 29
Key audit matter
How our audit addressed the key audit matter
As at December 31, 2020, the carrying amounts of
goodwill and indefinite life intangible assets were
$7,949 and $1,574, respectively. For the year ended
December 31, 2020, an impairment loss of $5,000 was
recorded with respect to goodwill. Refer to Note 1
Significant accounting policies of the consolidated
financial statements for a description of the Company’s
accounting policy for impairment of long-lived assets,
indefinite life intangible assets and goodwill. Refer to
the
Note 4 Goodwill and
consolidated financial statements for the Company’s
impairment disclosures. Goodwill and indefinite life
intangible assets are tested at least annually for
the carrying amount of a cash
impairment.
generating unit (“CGU”) or group of CGUs exceeds its
recoverable amount, an
is
recognized
recoverable
for
amounts of the Company’s CGUs were determined
based on their value in use which was estimated using
a discounted cash flow approach.
intangible assets of
the difference. The
impairment charge
If
To test the estimated recoverable amounts of the CGUs,
our audit procedures included, among others, assessing
the significant assumptions discussed above and the
underlying data used by the Company in its analysis:
• We involved our valuation specialists to assess the
methodology applied and the various inputs utilized in
determining the discount rate by referencing current
industry, economic, and comparable company
information, and company and cash-flow specific risk
premiums;
the
• We
historical
of
assessed
management’s cash
including
EBITDA, capital expenditures, and working capital by
comparing them to actual historical performance;
• We compared the growth rates to current industry,
flow projections,
accuracy
market and economic trends;
• We performed sensitivity analysis on significant
assumptions
the
recoverable amounts of the CGUs that would arise
from changes in those assumptions; and
the changes
to evaluate
in
the subjective nature of
the Company’s estimated
Auditing
recoverable
amounts for the Wear and UWO CGUs was complex
the various
to
due
management
inputs and assumptions. Significant
assumptions included earnings before income taxes,
interest, depreciation and amortization (“EBITDA”),
capital expenditures, growth rates, working capital and
discount rates, which are affected by expectations
about future market and economic conditions.
• We assessed
the Company’s
the adequacy of
disclosures included in the notes to the consolidated
financial statements in relation to this matter.
Other information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
•
The information, other than the consolidated financial statements and our auditor’s report thereon, in the
Annual Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information, and in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated.
We obtained Management’s Discussion & Analysis and the Annual Report prior to the date of this auditor’s report.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
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.
P A G E 30
In preparing the consolidated financial statements, management is responsible for assessing the Company's
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company's financial reporting process.
Auditor's responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Canadian generally accepted auditing standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
a.
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.
b. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control.
c. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
d. 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.
e. 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.
f. 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.
P A G E 31
From the matters communicated with those charged with governance, we determine those matters that were of
most significance in the audit of the consolidated financial statements of the current period and are therefore the
key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's report is Kim Wiggins.
Calgary, Canada
March 4, 2021
P A G E 32
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
Senior 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
2020
2019
$
30,477 $
19
2
3
4
5
6
7
8
7
8
7
7
13
15
15
$
$
$
—
89,508
6,885
1,813
128,683
72,688
13,842
394
215,607 $
34,614 $
802
170
40,626
7,604
—
1,679
85,495
28,858
16,023
105,173
—
235,549
462,054
141,933
20,679
(644,608)
(19,942)
215,607 $
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
P A G E 33
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(In thousands of Canadian dollars)
For the year ended December 31,
Notes
2020
2019
Revenue
Cost of revenue
Gross profit
Selling, general and administrative expenses
Share-based compensation and other long-term incentive plans recovery
(expense)
Amortization of intangible assets
Depreciation expense
Income from equity investment
Interest expense
Restructuring costs
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
Income from government subsidies
Income (loss) from continuing operations before taxes
Income tax recovery - current
Income tax recovery - deferred
Income (loss) from continuing operations
Gain from discontinued operations (net of income taxes)
Net income (loss) and comprehensive income (loss)
Net income (loss) per share (dollars)
Basic & diluted:
Continuing operations
Discontinued operations
Net income (loss)
The accompanying notes are an integral part of these consolidated financial statements.
10
$
393,121 $
(359,435)
33,686
464,252
(413,856)
50,396
11
17
4
3
12
16
4
3
6
9
3
14
13
(23,986)
(26,240)
1,127
(1,824)
(14,937)
1
(19,028)
(2,641)
(5,000)
—
1,121
—
—
154
33,521
2,194
65
1,210
3,469
27
(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
$
3,496 $
(4,712)
$
$
$
0.03 $
0.00 $
0.03 $
(0.06)
0.02
(0.04)
P A G E 34
Consolidated Statements of Shareholders’ Deficit
(In thousands of Canadian dollars, except number of shares)
January 1, 2020
Net income
Number of
Common
Shares
Notes
Common
Shares
Preferred
Shares
Contributed
Surplus
Deficit
Total
Shareholders'
Deficit
109,992,668 $ 462,054 $ 141,933 $
20,679 $ (648,104) $
(23,438)
—
—
—
—
3,496
3,496
At December 31, 2020
109,992,668 $ 462,054 $ 141,933 $
20,679 $ (644,608) $
(19,942)
January 1, 2019
Net loss
Share-based compensation
Issuance of preferred shares
Conversion of preferred shares to
common shares
15
15
Number of
Common
Shares
Notes
Common
Shares
Preferred
Shares
Contributed
Surplus
Deficit
Total
Shareholders'
Deficit
109,941,241 $ 462,036 $ 102,203 $
20,716 $ (643,392) $
(58,437)
—
—
—
—
—
—
—
—
39,748
51,427
18
(18)
—
(4,712)
(4,712)
(37)
—
—
—
—
—
(37)
39,748
—
At December 31, 2019
109,992,668 $ 462,054 $ 141,933 $
20,679 $ (648,104) $
(23,438)
The accompanying notes are an integral part of these consolidated financial statements.
P A G E 35
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
For the year ended December 31,
Operating activities:
Net income (loss)
Adjustments for:
Share-based compensation and other long-term incentive plans
(recovery) expense
Amortization of intangible assets
Depreciation expense
Income from equity investments
Non-cash interest expense
Impairment of goodwill and intangible assets
Impairment of right-of-use assets
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 provided by (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
Proceeds from equity investment
Payment of deferred consideration
Transaction costs
Changes in non-cash working capital
Cash flow used in 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
Proceeds from the issuance of ABL term loans
Repayment of convertible debentures
Refinancing fees
Repayment of ABL facility
Repayment of lease liabilities
Cash flow (used in) provided by financing activities
Increase (decrease) in cash
Cash, beginning of year
Cash, end of year
The accompanying notes are an integral part of these consolidated financial statements.
Notes
2020
2019
$
3,496
(4,712)
17
4
3
7
4
3
3
9
20
9
3
3
4
5
9
7
7
7
8
(1,127)
1,824
14,937
(1)
10,065
5,000
—
(1,121)
(154)
—
—
(1,210)
—
28,316
60,025 $
—
(1,918)
1,312
(335)
426
(433)
—
—
(948) $
805
(827)
—
—
—
—
(654)
(26,942)
(8,091)
(35,709) $
23,368
7,109
30,477 $
1,162
1,023
13,867
(509)
3,314
—
1,680
(623)
(316)
(127)
(10,791)
(2,908)
883
(22,114)
(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
$
$
$
$
P A G E 36
CLEARSTREAM ENERGY SERVICES INC.
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2020 and 2019
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 S.W., Calgary, Alberta.
ClearStream is a fully-integrated provider of upstream, midstream, and downstream production services, which
includes maintenance and turnarounds, facilities construction, welding and fabrication and environmental services
with locations across Western Canada.
These consolidated financial statements were authorized for issuance in accordance with a resolution of the
Board of Directors of ClearStream on March 4, 2021.
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. 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, 2020. 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.
Joint ventures
A joint venture is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed
sharing of control of an arrangement, which exists only when decisions about the relevant activities
require unanimous consent of the parties sharing control.
d. Financial instruments
(i) Financial assets
When financial assets are recognized initially, they are measured at fair value, plus, in the case of
investments not at fair value through profit or loss, directly attributable transaction costs. The
Company considers whether a contract contains an embedded derivative when the entity first
becomes a party to it. Embedded derivatives are separated from the host contract which is not
measured at fair value through profit or loss when the analysis shows that the economic
characteristics and risks of embedded derivatives are not closely related to those of the host contract.
The Company determines the classification of its financial assets at initial recognition and, where
allowed and appropriate, re-evaluates this designation at each financial year end. Financial assets
and financial liabilities are recognized on the Company’s consolidated balance sheet when the
Company becomes party to the contractual provisions of the instrument. Financial assets are
P A G E 37
derecognized when the contractual rights to the cash flows from the financial asset expire or when the
contractual rights to those assets are transferred. Financial liabilities are derecognized when the
obligation specified in the contract is discharged, cancelled or expired.
Cash and restricted cash
Cash and restricted cash are comprised of cash on deposit with financial institutions. These are
measured at amortized cost.
Accounts receivable
Accounts receivable, which are non-derivative financial assets that have fixed or determinable
payments that are not quoted in an active market, are classified as amortized cost and subsequently
measured using the effective interest rate method, net of any impairment.
Impairment provisions for trade receivables are recognized based on 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, deferred consideration and earn-out liabilities. Accounts payable are obligations
to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Other liabilities are classified as current liabilities if payment is due within one year or less.
If not, they are presented as non-current liabilities. Other liabilities are recognized initially at fair value
and subsequently measured at amortized cost using the effective interest rate method.
(iii) Fair value hierarchy
The Company uses a three level hierarchy to categorize the significance of the inputs used in
measuring the fair value of financial instruments. The three levels of the fair value hierarchy are:
Level 1 – Where financial instruments are traded in active financial markets, fair value is determined
by reference to the appropriate quoted unadjusted market price at the reporting 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 38
e.
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories includes
the costs to purchase and other costs incurred in bringing the inventories to their present location. Costs
such as storage costs and administrative overheads that do not directly contribute to bringing the
inventories to their present location and condition are specifically excluded from the cost of inventories
and are expensed in the period incurred. The cost of inventories of items that are not ordinarily
interchangeable and goods or services produced and segregated for specific projects are assigned by
using specific identification of their individual costs. The weighted average cost formula is used for
inventories other than those dealt with by the specific identification of cost formula.
f. Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation and accumulated
impairment losses.
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(g)). 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 Universal Weld Overlays Inc. ("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 39
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
Assets with definite useful lives, including property, plant and equipment and intangible assets, are
amortized over their estimated useful lives. Long-lived assets are assessed for impairment at each
balance sheet date, or whenever events or changes in circumstances occur, to assess whether there is
an indication that such assets may not be recoverable.
If indicators of impairment exist, an estimate of the recoverable amount is made. If the carrying amount of
an asset or cash generating unit (“CGU”) exceeds its recoverable amount, an impairment charge is
recognized for the amount by which the carrying amount exceeds the recoverable amount.
Goodwill and indefinite life intangible assets are not amortized and are tested for impairment annually, or
more frequently, if events or changes in circumstances indicate that the asset might be impaired. For the
purposes of impairment testing, goodwill is allocated to the CGU or group of CGUs whose acquisition
gave rise to the goodwill. Assessment of goodwill impairment is performed at the level at which goodwill is
monitored for internal management purposes, which is the 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
recognized impairment losses may no longer exist or may have decreased. If such indication exists,
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 Technology Overlay 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 40
specializing in overlay pipe spools, pipe bends and plate, and regulatory and environmental advisory
services. The majority of revenue within the Wear Technology Overlay 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 its contracts with customers, ClearStream has the right to
consideration in an amount that corresponds directly with the value to its customers of performance
completed to date, and therefore recognizes revenue over time based on the amount ClearStream has
the right to invoice.
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 41
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.
ii. 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. 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.
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).
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
P A G E 42
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
attributable to the acquisition are expensed. Identifiable assets acquired, liabilities and contingent
liabilities assumed in a business combination are measured initially at fair values at the date of
acquisition, irrespective of the extent of any non-controlling interest.
Goodwill is initially measured as the excess of the fair value of consideration paid over the fair value of
the net identifiable tangible and intangible assets acquired. If the fair value of consideration paid is less
than the fair value of the net identifiable tangible and intangible assets acquired, the difference is
recognized directly in net income as a bargain purchase gain.
p. Government Assistance
The Company recognizes government subsidies on an accrual basis when there is a reasonable
assurance that it will comply with the conditions required to qualify for the subsidy and that the collection
of the subsidy is also reasonably assured. Government subsidies are recognized on the Consolidated
Balance Sheet under accounts receivable and are recognized on the Consolidated Interim Statements of
Income (Loss) and Comprehensive Income (Loss) over the periods in which the expense that the subsidy
is intended to offset are recognized.
q. Use of estimates and judgements
In March 2020, the World Health Organization declared a global pandemic related to the novel
coronavirus known as COVID-19. Due to public health measures, the movement of people and goods has
become restricted, and economic activity has significantly contracted in most countries around the world.
In addition, there has been extreme volatility with crude oil prices due to a significant reduction in
demand, increased supply from OPEC and Russia and a potential lack of storage capacity forcing
production shut-ins. The rapid evolution of the COVID-19 pandemic combined with the drop in oil prices
has created a requirement to proactively adapt to the current market environment. These uncertainties,
which may persist beyond when it is determined how to contain the virus or treat its impact and further
impacts from crude oil price volatility, may increase the complexity of estimates and assumptions used to
prepare the consolidated financial statements, and changes to these assumptions could result in a
material adjustment to the carrying amount of assets and liabilities within the next financial year.
Examples of significant estimates and judgments made by management in the preparation of these
consolidated financial statements are outlined below.
P A G E 43
i.
Depreciation and amortization
Measurement of the net book value of property, plant and equipment and intangible assets
requires the Company to make estimates of the expected useful lives of the assets, method of
depreciation and amortization and whether impairment in value has occurred. Residual values of
the assets, estimates useful lives and depreciation and amortization methodology are reviewed
annually with prospective application of any changes, if deemed appropriate. Changes to
estimates and specifically those related to automotive and heavy equipment, which could be
significant, could be caused by a variety of factors, including changes to the physical life of the
assets or changes in the nature of the utilization of the assets. A change in any of the estimates
would result in a change in the amount of depreciation or amortization and, as a result, a charge
to net income recorded in the period in which the change occurs.
ii. Revenue recognition – percentage of completion
The nature of certain of the Company’s contracts with customers is such that revenue is earned
over time as the related good is produced. In these instances, revenue is recognized as work is
completed and this requires management to make a number of estimates and assumptions
surrounding the expected profitability of the contract, the estimated degree of completion based
on hours and costs incurred and other detailed factors. Although these factors are routinely
reviewed as part of the project management process, changes in these estimates or assumptions
could lead to changes in revenues recognized in a given period.
iii. Determination of cash generating units (“CGUs”)
Assets are grouped into CGUs that have been identified as being the smallest identifiable group
of assets that generate cash inflows that are independent of cash flows of other assets or groups
of assets. The allocation of assets into CGUs requires significant judgment and interpretations.
Factors considered in the classification include the integration between assets, the ability of
management to allocate finite resources to complete future projects or contracts, and the way in
which management monitors the operations. The recoverability of the Company’s assets is
assessed at the CGU level and therefore the determination of a CGU could have a significant
effect on impairment losses or reversals.
iv.
Income taxes
Deferred tax assets are recognized to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences and carried forward tax losses can
be utilized. Assessing the recoverability of deferred taxes requires management to make
significant estimates related to expectations of future taxable income 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. 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.
P A G E 44
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.
vi.
Impairment of non-financial assets
With respect to property, plant and equipment and definite life intangible assets, judgment is
applied by management in assessing whether there are any indicators of impairment at each
reporting date that would require a full impairment test to be performed. Impairment indicators
include, but are not limited to, a significant decline in an asset’s market value, significant adverse
changes in the technological, market, economic or legal environment in which the assets are
operated, evidence of obsolescence or physical damage of an asset, significant changes in the
planned use of an asset, or ongoing under-performance of an asset. Application of these factors
to the facts and circumstances of a particular asset requires a significant amount of judgment.
Should an impairment test be required, the determination of the magnitude of impairment involves
the use of estimates, assumptions and judgments on highly uncertain matters particularly with
respect to estimating the recoverable amount of a CGU or a group of CGUs. Such estimates,
assumption and judgments include, but are not limited to: the choice of discount rates that reflect
appropriate asset-specific risks, timing of revenue and customer turnover, inflation factors for
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 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.
2.
Inventories
Inventories comprise the following:
As at December 31,
Raw materials
Work-in-progress
Finished goods
Parts and supplies
Total
2020
2019
4,451 $
50
2,352
32
6,885 $
5,374
229
3,473
663
9,739
$
$
P A G E 45
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, 2020 is the cost of inventories of $13,174 (2019 - $34,558).
3.
Property, plant and equipment
Land
and
buildings
Computer
hardware
Furniture,
tools and
equipment
Leasehold
improvem
ents
Equipment
under
finance
lease
Right-of-
use
assets
Automotive
and heavy
equipment
Total
$
525
1,076
16,142
3,318
10,136
—
26,656 57,853
—
—
—
888
—
517
18,230
—
1,327
—
—
(264)
(58)
(5,167)
(787)
—
(10,136) 56,442
— 46,306
—
—
—
1,596
2,344
5,345
2,567
13,447 35,571
(792)
(1,306)
(8,374)
—
—
—
—
— (10,275)
— (10,275)
$ 18,491 $ 1,906 $ 12,819 $
2,531 $
— $ 49,538 $ 41,141 $ 126,426
—
—
—
—
278
—
—
—
824
—
(675)
(403)
608
—
—
403
—
—
—
6,203
2,418
208
8,121
—
2,418
(697)
(1,928)
(3,300)
—
(7,037)
7,037
—
$ 18,491 $ 2,184 $ 12,565 $
3,542 $
— $ 50,425 $ 46,458 $ 133,665
$
272 $
767 $
9,184 $
2,891 $
3,060 $
— $ 18,161 $ 34,335
—
313
(149)
14
—
—
—
(3,060)
8,120
—
5,060
235
1,729
(49)
(3,698)
—
—
109
(704)
—
—
—
—
8,709
2,772 13,867
(457)
(1,703)
(6,760)
1,666
—
1,680
$
450 $
953 $
7,215 $
2,296 $
— $ 18,038 $ 19,230 $ 48,182
703
—
—
394
—
—
2,010
(313)
(62)
206
—
—
—
—
—
8,074
(470)
(5,871)
3,550 14,937
(2,142)
(1,359)
—
5,933
$ 1,153 $ 1,347 $
8,850 $
2,502 $
— $ 19,771 $ 27,354 $ 60,977
Cost
Balance as at January 1,
2019
Adoption of IFRS 16
Additions
Acquisitions
Disposals
Revaluation
Balance as at December
31, 2019
Additions
Remeasurement
Disposals
Asset class transfer
Balance as at December
31, 2020
Accumulated Depreciation
Balance as at January 1,
2019
Adoption of IFRS 16
Depreciation
Disposals
Impairment
Balance as at December
31, 2019
Depreciation
Disposals
Asset class transfer
Balance as at December
31, 2020
Net book value
As at December 31, 2019
$ 18,041 $
953 $
5,604 $
235 $
— $ 31,500 $ 21,911 $ 78,244
As at December 31, 2020
$ 17,338 $
837 $
3,715 $
1,040 $
— $ 30,654 $ 19,104 $ 72,688
a. Collateral:
As at December 31, 2020, property, plant and equipment included $15,249 subject to a general security
agreement under
(2019 - $12,145) and $26,785 subject to a general security agreement under the other secured
borrowings (2019 - $30,022).
the Senior Secured Debentures and
the Convertible Secured Debentures
b. Disposals:
During the year ended December 31, 2020, the Company disposed of assets with a cost of $3,300 (2019
- $8,375) and accumulated depreciation of $2,142 (2019 - $6,760), for cash proceeds of $1,312 (2019 -
$1,915), and recognized a net gain on sale of $154 (2019 - $316) and impairment loss of nil (2019 - $16).
P A G E 46
c. Right-of-use assets consist of the following:
Land and
buildings
Furniture, tools
and equipment
Automotive and
heavy equipment
Total
Cost
Adoption of IFRS 16
Remeasurement
Acquisitions
Additions
Disposals
46,237
(10,275)
1,319
146
—
69
—
—
—
—
10,136
—
1,248
1,450
(792)
Balance as at December 31, 2019 $
37,427 $
69 $
12,042 $
Remeasurement
Asset class transfer
Additions
Disposals
2,418
—
3,506
(114)
—
—
—
—
—
(7,037)
2,698
(583)
Balance as at December 31, 2020 $
43,237 $
69 $
7,120 $
Accumulated Depreciation
Adoption of IFRS 16
Disposals
Depreciation
Impairment
5,060
—
6,466
1,666
Balance as at December 31, 2019 $
13,192 $
Disposals
Depreciation
Asset class transfer
(72)
5,594
—
Balance as at December 31, 2020 $
18,714 $
Net book value
As at December 31, 2019
As at December 31, 2020
$
$
24,235 $
24,523 $
—
—
31
—
31 $
—
24
—
55 $
38 $
14 $
3,060
(457)
2,212
—
4,815 $
(398)
2,456
(5,871)
1,002 $
56,442
(10,275)
2,567
1,596
(792)
49,538
2,418
(7,037)
6,204
(697)
50,425
8,120
(457)
8,709
1,666
18,038
(470)
8,074
(5,871)
19,771
7,227 $
6,118 $
31,500
30,654
During the year ended December 31, 2020 the Company exercised options to extend the terms of certain
building lease agreements representing lease modifications in accordance with IFRS 16, and therefore
the lease liability and right-of-use assets were remeasured.
Information regarding lease liabilities can be found in Note 8.
P A G E 47
4.
Goodwill and intangible assets
Goodwill
Customer
relationships
Computer
software
Brands
Intangible
Total
Cost
Balance as at January 1, 2019
$
92,029
83,552
2,647
16,142 $
102,341
Additions
8,652
4,300
374
345
5,019
Balance as at December 31, 2019 $
100,681 $
87,852 $
3,021 $
16,487 $
107,360
Additions
—
—
335
—
335
Balance as at December 31, 2020 $
100,681 $
87,852 $
3,356 $
16,487 $
107,695
Amortization and impairments
Balance as at January 1, 2019
$
(87,732)
(81,828)
(2,558)
(14,568) $
(98,954)
Amortization
—
(863)
(145)
(15)
(1,023)
Balance as at December 31, 2019 $
(87,732)
(82,691)
(2,703)
(14,583) $
(99,977)
Amortization
Impairment
—
(1,530)
(5,000)
—
(264)
—
(30)
—
(1,824)
—
Balance as at December 31, 2020 $
(92,732) $
(84,221) $
(2,967) $
(14,613) $
(101,801)
Net book value
As at December 31, 2019
As at December 31, 2020
$
$
12,949 $
7,949 $
5,161 $
3,631 $
318 $
389 $
1,904 $
1,874 $
7,383
5,894
ClearStream has five CGUs, one of which has intangible assets with an indefinite life. Goodwill is
monitored by management at the CGU level. As at December 31, 2020, the ClearStream Wear
Technologies LP ("Wear") CGU had indefinite life intangible assets of $1,574 (2019 - $1,574), the Wear
CGU had goodwill of $4,297 (2019 - $4,297), and the UWO CGU had goodwill of $3,652 (2019 - $8,652).
ClearStream identified indicators of impairment at March 31, 2020 for the Wear and UWO CGUs as a
result of the forecasted impact of the COVID-19 pandemic, which has decreased global demand for oil
and gas, resulting in a reduction in long-term commodity price outlooks. ClearStream’s customers’ capital
spending budgets have been reduced in the near-term and there is significant uncertainty as to the scale
and duration of these developments.
Management therefore performed impairment tests as at March 31, 2020 for the Wear and UWO CGUs,
both of which are within the Wear Technology Overlay Services segment. This testing resulted in the
carrying amount of the UWO CGU exceeding its recoverable amount by $5,000 and therefore the
goodwill within that CGU was impaired by $5,000 in the year ended December 31, 2020.
Based on the results of the impairment test for the Wear CGU, the recoverable amount exceeded its
carrying amount and no impairment was required to be recorded.
On December 31, 2020 ClearStream performed its annual impairment test on indefinite life intangible
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 further impairment.
Valuation technique
The recoverable amounts of ClearStream’s CGUs were calculated based on value in use, which was
determined through a discounted cash flow (“DCF”) approach for all CGUs. The DCF method involves
projecting cash flows and converting them into a present value equivalent through discounting. The
discounting process uses a rate of return that is commensurate with the risk associated with the business
or asset and the time value of money. This approach requires assumptions about earnings before taxes,
interest, depreciation and amortization (“EBITDA”), capital expenditures, growth rates, working capital and
discount rates.
P A G E 48
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
and is updated quarterly by senior management based on actual results; anticipated future cash flows are
updated to reflect any subsequent changes in expected demand for products and services.
Growth rate and terminal value
ClearStream used projected EBITDA and capital expenditures for the following year and applied a
perpetual long-term growth rate of 2%-4% thereafter for the Wear and UWO CGUs. 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.
Discount rate
ClearStream assumed post-tax discount rates of 18.5%-24.4% 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.
5.
Deferred consideration
On June 28, 2019, the Company acquired 100% of the issued and outstanding shares of UWO. The total
purchase price of $16,024 included deferred consideration of $1,114 (undiscounted - $1,300), which
represents the fair value of three equal installments of $433 due on June 28, 2020, 2021 and 2022. The
deferred consideration as at December 31, 2020 of $802 reflects the increase from acquisition date as a
results of the passage of time less the first installment payment of $433.
6.
Earn-out contingent liability
On June 28, 2019, the Company acquired 100% of the issued and outstanding shares of UWO. The total
purchase price of $16,024 included an earn-out contingent liability of $861 (undiscounted - $1,612), which
represented the fair value of the expected amount estimated by management at the acquisition date to be
paid to the sellers on June 28, 2022. The maximum undiscounted earn-out is $2,000. The earn-out
contingent liability has decreased from $1,234 (undiscounted - $2,000) at December 31, 2019 to $170
(undiscounted - $250) at December 31, 2020. The earn-out contingent liability will fluctuate depending on
the EBITDA-based performance condition over the specified period and is therefore subject to estimation
uncertainty.
7.
ABL Facility and Other Borrowings
a. ABL Facility
ClearStream has an asset-based lending facility (the “ABL Facility”) comprised of (i) a revolving credit
facility providing for maximum borrowings that range from $50,000 to $65,000 depending on the period
(the “Revolving Facility”) with a syndicate of banks (the "Lenders") and (ii) a term loan facility providing for
maximum borrowings of up to $40,500 (the “Term Loan Facility”) with Canso Investment Counsel Ltd., in
its capacity as portfolio manager for and on behalf of certain accounts that it manages (“Canso”).
The ABL Facility provides for maximum borrowings under the Revolving Facility of $65,000 during the
period commencing March 1, 2020 and ending September 30, 2020, $60,000 during the period
commencing October 1, 2020 and ending December 31, 2020, and $50,000 during the period
commencing January 1, 2021 and ending on the maturity date of the Revolving Facility. The Revolving
Facility matures on March 23, 2021 and the Term Loan Facility matures 180 days thereafter.
P A G E 49
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, 2020 was $49,054 (December 31, 2019 - $50,000). 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 Company and the other guarantors, being
certain of the Company's 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, 2020, nil (December 31, 2019 - $27,825) was drawn on the Revolving Facility, and
there were $3,125 (December 31, 2019 - $2,930) of letters of credit reducing the amount available to be
drawn. As at December 31, 2020, the net unamortized amount of deferred financing costs was $113
(December 31, 2019 - $883).
At December 31, 2020, $40,500 (December 31, 2019 - $40,500) was 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 financial covenants applicable under the ABL Facility are as follows:
•
•
The Company must maintain a fixed charge coverage ratio equal to or greater than 1.00:1.00 for
each twelve month period calculated and tested as of the last day of each fiscal quarter
(commencing March 31, 2020); and
The Company must not expend or become obligated for any capital expenditures in an aggregate
amount exceeding $6,600 during the period commencing January 1, 2020 and ending
December 31, 2020, and any fiscal year thereafter.
At December 31, 2020, ClearStream was in compliance with all financial covenants under the ABL
Facility.
On March 3, 2021, the Company received confirmation from the lead lender under the ABL Facility that it
had agreed to extend the maturity date of the Revolving Facility to March 23, 2022. The Company and the
lead lender under the ABL Facility are preparing an amending agreement to effect the extension of the
maturity date and certain other amendments. Due to the Company's current cash position, it was able to
reduce the maximum borrowings available under the Revolving Facility to $15,000 effective March 23,
2021.
b. 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 certain assets of
the production services division of AECOM Production Services Ltd. (the "AECOM PSD Business").
The $13,500 loan is repayable over 300 monthly payments of $45. 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. 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 real property and 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 on annual basis.
P A G E 50
On March 30, 2020, the Company signed an agreement with BDC to postpone effective May 1, 2020 all
principal payments on the loans for a period of six months with the postponed payments being added to
the end of loan term. As a result, the final payment on the $13,500 loan will occur on September 2, 2045
and the final payment on the $5,500 loan will occur on September 28, 2025.
On May 13, 2020, the Company signed an agreement with BDC to postpone all interest payments on the
loans for a period of six months with the amount of the deferred interest being payable at the end of the
deferral period in twelve equal consecutive monthly installments.
At December 31, 2020, ClearStream was in compliance with all financial covenants under the loan
agreements with BDC.
c.
Senior Secured Debentures
Balance as at January 1, 2019
Accretion
Balance as at December 31, 2019
Accretion
Debentures issued to settle interest
Balance as at December 31, 2020
$
$
96,746
209
96,955
149
8,069
$
105,173
On March 23, 2016, the Company issued 8.00% senior secured debentures due March 23, 2026 (the
"Senior Secured Debentures") pursuant to a trust indenture between ClearStream, as issuer, and BNY
Trust Company of Canada, as debenture trustee, as amended and supplemented (the "Senior Secured
Indenture"), on a private placement basis to Canso. On June 2, 2020, the debenture trustee was changed
to Computershare Trust Company of Canada.
The Senior Secured Debentures bear interest at an annual rate of 8.00% payable semi‑annually in
arrears on June 30 and December 31 in each year. The maturity date of the Senior Secured Debentures
is March 23, 2026. The Senior Secured Debentures are redeemable at the option of the Company and, in
certain circumstances, are mandatorily redeemable. The Senior Secured Debentures are secured by first‑
ranking liens over all of the property of the Company and its guarantor subsidiaries, other than certain
limited classes of collateral over which the Company has granted a prior‑ranking lien in favour of the ABL
Facility and the BDC Facility. The Senior Secured Debentures provide for certain events of default and
covenants of the Company, including financial and reporting covenants and restrictive covenants limiting
the ability of the Company and its subsidiaries to make certain distributions and dispositions, incur
indebtedness, grant liens and limitations with respect to acquisitions, mergers, investments, non‑arm’s
length transactions, reorganizations and hedging arrangements (subject to certain exceptions).
In June, 2020, Canso agreed to accept the issuance of an additional 3,956 Senior Secured Debentures
on June 30, 2020 and 4,114 Senior Secured Debentures on December 31, 2020 at a principal amount of
$1,000 per Senior Secured Debenture in order to satisfy the interest that would otherwise become due
and payable on such dates (the “Payment in Kind Transactions”). The terms of the new Senior Secured
Debentures issued pursuant to the Payment in Kind Transactions were the same as the existing Senior
Secured Debentures in all material respects. In connection with the Payment in Kind Transactions, the
Company entered into the Fifth Supplemental Senior Secured Indenture on June 2, 2020.
8.
Leases
a. As a lessee
The Company recognized the following amounts related to lease liabilities in the Consolidated
Statements of Income (Loss) and Comprehensive Income (Loss).
P A G E 51
For the year ended December 31,
Depreciation of right-of-use assets
Interest expense on lease liabilities
Expense relating to leases of low value assets
2020
2019
$
8,074
$
2,868
7
7,078
2,555
17
Expense relating to variable lease payments not included in the
measurement of the lease liability
$
204
$
576
Overall the variable payments constitute up to 3.8% (2019 - 5.9%) of the Company's entire lease
payments. 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, 2020 was $10,529 (December 31,
2019 - $9,828).
Maturity analysis - contractual undiscounted cash flows
As at December 31,
2021
2022
2023
2024
2025
After 2026
Total
Less: effects of discounting
Total discounted lease liabilities
Analyzed as:
Current
Non-current
b. As a lessor
$
10,090
8,458
7,410
6,262
4,661
8,247
$
45,129
(8,666)
$
36,462
$
$
7,604
28,858
The Company has entered into operating lease agreements as a lessor with respect to some of its
buildings that it is sub-leasing. Total income recognized from sub-leasing right-of-use assets for the year
ending December 31, 2020 is $1,136 (2019 - $1,168), and has been recorded within Revenue. These
leases do not include any variable payments. The undiscounted lease receivable within less than one
year as at December 31, 2020 is $183.
9.
Business combinations
During the year ended December 31, 2019, the Company entered into two business combinations to
complement existing service lines and further broaden potential market opportunities resulting in a
bargain purchase gain of $10,791. The gain represents the difference between the fair value of the
identifiable assets and liabilities acquired and the total purchase price paid for the AECOM Production
Services Division. The bargain purchase gain arose primarily due to the strategic decision of the sellers to
exit these assets due to a variety of factors.
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
P A G E 52
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;
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 53
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
$
— $
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.
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.
P A G E 54
10.
Revenue
The following are amounts for each significant category of revenue recognized during the years ended
December 31, 2020 and 2019:
For the year ended December 31,
Rendering of services
Sales of goods
Total revenue
11.
Selling, general & administrative expenses
For the year ended December 31,
Salaries & benefits
Occupancy and office costs
Professional fees
Travel & advertising
Insurance
Total
12.
Interest expense
2020
2019
$
$
345,154 $
399,455
47,967 $
64,797
393,121 $
464,252
2020
2019
$
16,962 $
17,808
2,092
2,364
876
1,692
1,990
3,316
1,738
1,388
$
23,986 $
26,240
For the year ended December 31,
2020
2019
Interest expense on senior secured debentures
$
8,069 $
Interest expense on ABL facility
Interest expense on lease liabilities
Deferred financing costs amortized
Interest expense - other
Interest expense on other secured borrowings
Accretion expense
Interest expense on convertible secured debentures
5,812
2,868
1,356
150
744
29
—
7,911
4,785
3,419
1,822
129
502
1,362
58
Total interest expense
$
19,028 $
19,989
P A G E 55
13.
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
2020
2019
2,194
$
(9,560)
24.50 %
26.74 %
537
$
(2,556)
$
$
619
381
(2,812)
$
(1,275) $
(2,226)
5,311
(3,437)
(2,908)
The statutory rate declined from 26.74% to 24.50% due to the reduction of the Alberta income tax rates
from 11% to 10% starting on January 1, 2020 and then 8% starting on on July 1, 2020.
Deferred income taxes have been recognized at December 31, 2020 and 2019 in respect of the following
temporary differences:
As at December 31,
Property, plant and equipment
Intangible assets
Senior secured debentures
Non-capital losses
Deferred tax liability
2020
2019
$
(34,105) $
(22,070)
—
—
34,105
(2,365)
(3,731)
26,956
$
—
$
(1,210)
A deferred tax asset has not been recognized in respect of the following deductible temporary differences:
As at December 31,
Intangible Assets
Senior secured debentures
Non-capital loss carryforward
Net capital loss carryforward
Lease liabilities
Other
2020
$
10,263 $
4,487
2019
—
—
48,618
107,346
80,606
36,462
4,662
70,848
36,034
6,522
Unrecognized deductible temporary differences
$
185,098 $
220,750
A deferred tax asset has been recognized in respect of $34,105 of non-capital losses and a deferred tax
asset has not been recognized in respect of $48,618 of non-capital losses. The total of $82,723 non-
capital losses begin to expire in 2035.
ClearStream has approximately $80,606 of net capital losses that have not been recognized in the
consolidated financial statements as at December 31, 2020 (2019 - $70,848). There is no expiry of capital
losses.
14.
Income from government subsidies
Income from government subsidies represents the Canada Emergency Wage Subsidy ("CEWS") and the
Canada Emergency Rent Subsidy ("CERS") received from the Government of Canada to assist with the
payment of employee wages and rent as a result of the impact of the COVID-19 pandemic. During the
year ended December 31, 2020, the Company qualified for both CEWS and CERS and recorded total
P A G E 56
grants of $33,521 in the Consolidated Interim Statements of Income (Loss) and Comprehensive Income
(Loss).
As at December 31, 2020, included in accounts receivable was $663 of accrued income from government
subsidies.
15.
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, 2020, issued and outstanding share capital included 109,992,668 common shares,
127,735 Series 1 preferred shares, and 40,111 Series 2 preferred shares.
The following table summarizes the number of preferred and common shares.
(in thousands, except number of shares and per
share amounts)
Balance as at January 1, 2019
Issued
Converted to Common shares
Balance as at December 31, 2019
Balance as at December 31, 2020
Preferred Shares
Series I
Preferred Shares
Series II
Common Shares
127,753
—
(18)
127,735
127,735
—
109,941,241
40,111
—
40,111
40,111
—
51,427
109,992,668
109,992,668
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, 2020, the accrued and unpaid dividends on the Series I and Series II preferred
shares totaled $43,102 (2019 - $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 166,463,401 (2019 - 89,851,880) common shares
would be issued, which represents approximately 151% (2019 - 82%) of the common shares outstanding
as of December 31, 2020.
In addition, Holders of the Series 1 and Series 2 Preferred Shares have the right, at their option, to
convert their Preferred Shares into Common Shares at a price of $0.35 and $0.10 per Common Share,
respectively, subject to adjustment in certain circumstances. The Series 1 and Series 2 Preferred Shares
are redeemable by the Company for cash at 110% of the purchase price for such shares, plus accrued
but unpaid dividends, once all of the outstanding Senior Secured Debentures have been repaid and are
subject to repayment in the event of certain change of control transactions.
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 (2019 - 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% (2019 - 697%) of the Common Shares
outstanding as of December 31, 2020.
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.
P A G E 57
(in thousands, except number of shares and per share amounts)
2020
2019
Net income (loss) - basic and diluted
Weighted average shares outstanding - basic and diluted
Net income (loss) per common shares - basic and diluted
$
$
3,496 $
(4,712)
109,992,668
109,944,607
0.03 $
(0.04)
The only potentially dilutive securities as at December 31, 2020 were the preferred shares and stock
options. All potentially dilutive securities were anti-dilutive for the year ended December 31, 2020.
16.
Restructuring costs
Restructuring costs of $2,641 were recorded during the year ended December 31, 2020 (2019 - $8,361).
The 2020 non-recurring restructuring costs are primarily related to the right sizing of our SG&A cost
structures to mitigate the COVID-19 pandemic impacts including severance, office, and corporate legal
structure consolidation costs. The 2019 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.
17.
Share-based compensation and other long-term incentive plans
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, 2019
Forfeited
Balance as at December 31, 2020 and 2019
Exercisable as at December 31, 2020
Number of
stock options
Weighted
average
exercise price
1,830,000
(200,000)
1,630,000
—
0.28
0.28
0.28
—
The options outstanding at December 31, 2020 have a weighted average remaining contractual life of
1.1 years (2019 – 2.1 years). For the year ended December 31, 2020, the Company recognized nil of
share-based compensation expense relating to stock options (2019 – $4).
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 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.
The carrying amount of nil (December 31, 2019 - $1,109) 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
P A G E 58
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.
c. Restricted 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, 2020 the intrinsic value of the RSUs outstanding was nil (2019 - $90).
The following table summarizes the units outstanding:
Balance as at January 1, 2019
Forfeited
Balance as at December 31, 2019
Forfeited
Balance as at December 31, 2020
Exercisable as at December 31, 2020
RSUs
3,620,000
—
3,620,000
(3,620,000)
—
—
ClearStream’s five day weighted average closing share price at December 31, 2020 was $0.025
(2019 - $0.055). RSUs had fully vested as of December 31, 2020. For the year ended December 31,
2020, a recovery of $18 (2019 - $90 expense) of share-based compensation was recognized relating to
RSUs.
18.
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, 2020 $476 (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, 2020 and 2019 are as follows:
For the year ended December 31,
Short-term employment benefits
Share-based compensation
Termination benefits
Total compensation
2020
2019
$
$
5,511 $
—
—
5,511 $
3,989
1,162
1,413
6,564
19.
Financial instruments and risk management
Financial instruments consist of cash, accounts receivable, bank indebtedness, accounts payable, ABL
Facility, senior secured debentures, other secured borrowings, deferred consideration and earn-out
liability.
P A G E 59
a. Risk management
ClearStream’s Board of Directors has overall responsibility for the establishment and oversight of
ClearStream’s risk management
to credit risk,customer
concentration risk, and liquidity risk.
framework. ClearStream has exposure
i. Credit risk
The Company has exposure to credit risk, which is the risk of financial loss to ClearStream if a customer
or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from
ClearStream’s accounts receivable. The following table outlines ClearStream’s maximum exposure to
credit risk:
As at December 31,
Cash
Restricted cash
Accounts receivable
Total
2020
2019
$
30,477 $
—
89,508
$
119,985 $
7,109
805
138,638
146,551
Cash is held at Canadian Schedule A Banks and is 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 Canadian energy companies engaged in
upstream, midstream and downstream activities, all of which have strong creditworthiness.
Of the total balance of accounts receivable at December 31, 2020, $73,704 (December 31, 2019 -
$99,305) related to trade receivables and $15,804 (December 31, 2019 - $39,333) 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,
2020, approximately $5,884 of ClearStream’s trade receivables had been outstanding longer than 90
days (December 31, 2019 - $5,856). Subsequent to December 31, 2020, $2,938 of the $5,884 over 90
days was collected. Management has fully evaluated the outstanding receivables as at December 31,
2020 and has determined that the lifetime expected credit losses of the trade receivables was immaterial
at this time.
ii. Customer concentration risk
Revenues of ClearStream are concentrated, with its top three customers representing 24.9% of
consolidated revenue (2019 – 39.1%) and 26.3% of the consolidated accounts receivable for ClearStream
(2019 – 24%). More specifically, ClearStream’s largest customer within the Maintenance & Construction
operating segment accounted for 10.3% or $40,309 of ClearStream’s consolidated revenue for the year
ended December 31, 2020 (2019 – 19.7% or $91,365).
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.
P A G E 60
The table below summarizes the contractual maturity profile of the ClearStream's financial liabilities at
December 31, 2020, on an undiscounted basis:
Total
Less than
One Year
One to Five
Years
After Five
Years
Accounts payable and accrued liabilities $
34,614 $
34,614 $
— $
Deferred consideration
Earn-out contingent liability
ABL facility
Lease liabilities
Other secured borrowings
Senior secured debentures
866
250
40,626
45,129
17,905
106,997
433
—
40,626
10,090
1,457
—
433
250
—
—
—
—
—
26,792
5,784
8,247
10,665
—
106,997
Total
$
246,386 $
87,219 $
33,259 $
125,908
ClearStream’s strategy is that long-term debt should always form part of its capital structure, assuming an
appropriate cost. As existing debt approaches maturity, ClearStream will replace it with new debt, convert
it into equity or refinance or restructure, depending on the state of the capital markets at the time.
ClearStream manages its liquidity risk by continuously monitoring forecast and actual gross profit and
cash flows from operations.
The Company anticipates that its liquidity (cash on hand and available credit facilities) and cash flow from
operations will be sufficient to meet its short-term contractual obligations and to maintain compliance with
its financial covenants through December 31, 2021.
20.
Supplemental cash flow information
a.
Changes in non-cash working capital
As at December 31,
Accounts receivables
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Provision
2020
2019
$
49,130 $
(38,388)
2,854
75
(22,858)
(885)
(3,880)
4,115
16,039
—
Total changes in non-cash balances
$
28,316 $
(22,114)
P A G E 61
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, 2019 $
32,322 $
5,326 $
97,598 $
— $
135,246
Borrowings
Deferred financing
Repayment
Adoption of IFRS 16
Extinguishment of debt, net of
deferred financing fees
Accretion
Balance as at December 31,
2019
Borrowings
Repayments
Interest settled for additional
senior secured debentures
Non-cash changes
Balance as at December 31,
2020
35,374
(254)
—
—
—
—
1,609
—
(9,831)
38,930
—
—
—
—
—
—
(858)
215
19,000
55,983
(280)
(459)
—
—
360
(534)
(10,290)
38,930
(858)
575
$
67,442 $
36,034 $
96,955 $
18,621 $
219,052
—
(26,942)
—
126
8,752
(8,091)
—
(233)
—
—
8,069
149
—
8,752
(827)
(35,860)
—
(91)
8,069
(49)
$
40,626 $
36,462 $
105,173 $
17,703 $
199,964
21.
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 five operating segments, which are aggregated into two reportable segments, as
follows:
•
•
The Maintenance and Construction Services 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 Canadian energy companies engaged in upstream, midstream and
downstream activities. The Maintenance and Construction reportable segment consists of the
Union and Non-union operating segments as well as the Environmental operating segment on the
basis of the similarities in their service offerings, customers and business environment.
The Wear Technology Overlay Services segment specializes in the supply and fabrication of
overlay pipe spools, pipe bends, wear plates and vessels for corrosion and abrasion resistant
applications across various end markets. This reportable segment consists of the Wear and UWO
CGUs on the basis of similarities in their service offerings, customers and technologies.
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 for joint ventures as equity
investments, and eliminations of inter-divisional transactions. ClearStream accounts for inter-segment
sales based on transaction price.
P A G E 62
For year ended December 31, 2020
Revenues
Cost of revenues
Gross profit
Selling, general & administrative expenses
Share-based compensation and other long-
term incentive plans recovery
Amortization of intangible assets
Depreciation expense
Income from equity investment
Interest expense
Restructuring expense
Impairment of intangible assets and goodwill
Recovery of contingent consideration liability
Gain (loss) on sale of property, plant and
equipment
Income from government subsidies
Income (loss) before taxes
Income tax recovery - current
Income tax recovery - deferred
Maintenance
and
Construction
Services
Wear
Technology
Overlay
services
Corporate Eliminations
Total
$
361,816 $
33,406 $
— $
(2,101) $ 393,121
(333,776)
(27,760)
28,040
(671)
—
(261)
—
—
5,646
(544)
(22,771)
—
1,127
(1,563)
—
(8,888)
(3,410)
(2,639)
1
(1,273)
(501)
—
—
615
29,078
46,140
—
—
—
—
(374)
(17,381)
(41)
(2,099)
(5,000)
—
—
1,121
(359)
(102)
2,484
1,959
(3,161)
(40,785)
—
—
65
1,210
2,101 (359,435)
— 33,686
—
(23,986)
—
—
1,127
(1,824)
—
(14,937)
—
1
—
(19,028)
—
—
—
(2,641)
(5,000)
1,121
—
154
— 33,521
—
—
—
2,194
65
1,210
Income (loss) from continuing operations
$
46,140 $
(3,161) $ (39,510) $
— $ 3,469
For year ended December 31, 2019
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Share-based compensation and other long-
term incentive plans expense
Amortization of intangible assets
Depreciation expense
Interest expense
Restructuring expense
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 property, plant and equipment
Maintenance
and
Construction
Services
Wear
Technology
Overlay
services
Corporate Eliminations
Total
$
407,119 $
61,026 $
— $
(3,894) $ 464,251
(375,051)
(42,699)
18,327
—
—
3,894 (413,856)
—
50,395
(585)
(24,645)
—
(26,240)
—
(1,162)
(881)
—
—
—
(1,162)
(1,023)
(7,699)
(4,003)
(2,164)
—
(13,867)
(1,597)
(590)
(17,802)
—
(19,989)
(856)
(1,379)
(6,124)
(1,680)
623
—
—
—
—
—
(8,359)
(1,680)
623
— 10,791
—
10,791
—
—
127
—
—
—
127
316
32,068
(1,010)
—
(142)
—
—
—
—
316
Income from equity investment
509
—
—
—
509
Income (loss) income before taxes
21,587
9,832
(40,980)
—
(9,560)
Income tax recovery - deferred
—
—
2,908
—
2,908
Income (loss) from continuing operations
$
21,587 $
9,832 $ (38,072) $
— $
(6,652)
P A G E 63
CORPORATE INFORMATION
BOARD OF DIRECTORS
Sean McMaster (1) (2)
Chair of the Board
Jordan Bitove (2) (3)
Director
H. Fraser Clarke (1) (2)
Director
Karl Johannson (1) (2) (3)
Director
Dean MacDonald (3)
Director
Yves Paletta
Director
Notes:
(1) Member of the Audit Committee
(2) Member of the Corporate Governance and Compensation Committee
(3) Member of the Health, Safety and Environment Committee
HEAD OFFICE
ClearStream Energy Services Inc.
Intact Place, East Tower
1650, 311 – 6th Avenue S.W.
Calgary, Alberta T2P 3H2
T: 587-318-0997
F: 587-475-2181
www.clearstreamenergy.ca
BANKERS
Bank of Montreal
Alberta Treasury Branches
AUDITORS
Ernst & Young LLP
OFFICERS
Yves Paletta
Chief Executive Officer
Randy Watt
Chief Financial Officer
Neil Wotton
Chief Operating Officer
Barry Card
Chief Commercial Officer
Murray Desrosiers
Senior Vice President and General Counsel
Deloris Hetherington
Vice President, Human Resources
Angela Martens
Vice President, Finance and Corporate
Controlling
Brad Naeth
Vice President, Wear Technology Overlay
Herb Thomas
Vice President, Operations (Flint)
Angela Thompson
Vice President, Project Services
Clint Tisnic
Vice President, Operational Finance
LEGAL COUNSEL
Blake, Cassels & Graydon LLP
McCarthy Tetrault LLP
TRANSFER AGENT
Computershare Investor Services Inc.
EXCHANGE LISTING
Toronto Stock Exchange
Symbol: CSM
P A G E 64