Clearwater Seafoods Incorporated
2011 Annual Report
Table of Contents
Chairman of Clearwater’s letter to shareholders
Chief Executive Office of Clearwater’s letter to shareholders
Management’s Discussion and Analysis
Overview of Clearwater
Performance of Clearwater Seafoods Incorporated
(including key performance indicators)
Selected annual information
Mission, value proposition and strategies
Capability to deliver results
Explanation of annual 2011 results
Capital structure and liquidity management
Explanation of fourth quarter 2011 results
Outlook
Risks and uncertainties
Other information
Transactions with related parties
Critical accounting policies
Consolidation of an entity previously proportionately consolidated
Conversion from trust to corporate structure and IFRS
Summary of quarterly results
Definitions and reconciliations
Clearwater Seafoods Incorporated – financial reports, statements
Quarterly and unit information
Selected Annual Information
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2
4
5
6
6
10
14
25
36
45
47
51
53
53
56
57
62
116
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Letter from the Chairman of Clearwater Seafoods Incorporated
To our valued Shareholders,
I am delighted to report that 2011 was another outstanding year for Clearwater Seafoods. Over the
past 12 months, Clearwater’s operations, spanning more than three continents, reached new heights
of success in sales growth, profitability and shareholder returns.
In 2011, Clearwater’s financial performance placed it in the top quartile of the seafood industry and
was achieved despite tough global economic conditions. At the heart of this success are the people of
Clearwater, driving our company forward with character, competence and teamwork. They deserve
our praise and commendation.
Seafood industry and global economic fundamentals of supply and demand point towards the
sustainable, profitable growth of vertically integrated wild capture fisheries. This is the industry
segment where companies like Clearwater that have the capability to harvest, process, market, sell
and distribute their own catch –globally, will continue to see the greatest benefits.
That is why remain we remain confident in our commitment and ability to build shareholder value and
in our mission to build the world’s most extraordinary, wild seafood company, dedicated to
sustainable seafood excellence.
Yours truly,
Colin MacDonald
Chairman
Clearwater Seafoods Inc.
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Letter from the Chief Executive Officer of Clearwater Seafoods Incorporated
To our valued shareholders,
2011 was another year of extraordinary business performance and transformation for Clearwater. We
achieved, year over year, financial results in the top quartile of the seafood industry and set clear
targets for the next five years as well as for the creation of sustainable, long term shareholder value
including:
Maintaining sales growth of 5% or greater,
An EBITDA ratio to sales of 15% or greater,
A return on assets of 12% or greater and
Leverage (total debt to EBITDA) of 3 times or less
In 2011, we made equally strong progress on our transformation plans. Historically, a solid performer
in the harvesting, primary processing and global distribution areas, Clearwater has muscle-built our
talent and processes in marketing, selling, key account management as well as new product
innovation with a focus on the value added processing of our own catch.
Our transformation plan, while still in its early stages, has already directly impacted and accelerated
our growth trajectory. While these changes make Clearwater more competitive and profitable, the
pillars of our success remain firmly rooted in strong business, seafood industry and global economic
fundamentals which have positioned vertically integrated, wild capture fishing companies like
Clearwater for sustainable competitive advantage and profitable growth. These fundamentals include;
- The rising global demand for wild and constrained supply of sustainability harvested seafood,
- A value proposition with a singular focus –to deliver sustainable seafood excellence to a worldwide
customer base,
- A clear set of business strategies and activities designed to build and reinforce our value
proposition,
- A commitment to creating long term shareholder value through improved earnings, free cash flows,
capital structure, as well as disciplined foreign exchange and capital investment management, and
- A commitment to our people and to building world class leadership, management practices and sale
and marketing excellence.
We look forward to a successful 2012 and to reporting on the progress of transformation plan in the
months ahead.
Sincerely,
Ian D. Smith
Chief Executive Officer
Clearwater Seafoods Inc.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) was prepared effective
March 13, 2012.
The Audit Committee and the Board of Directors of Clearwater Seafoods
Incorporated (“Clearwater”) have reviewed and approved the contents of this
MD&A, the 2011 annual financial statements and the 2011 annual news release.
This MD&A should be read in conjunction with the 2011 annual financial
statements and the 2011 Annual Information Form, which are available on Sedar
at www.sedar.com as well as Clearwater’s website, www.clearwater.ca.
Clearwater has established and maintains disclosure controls and procedures
over financial reporting, as defined under the rules adopted by the Canadian
Securities Regulators in instrument 52-109. The Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”) have evaluated the design and effectiveness
of Clearwater’s disclosure controls and procedures as of December 31, 2011 and
have concluded that such procedures are adequate and effective to provide
reasonable assurance that the material information relating to Clearwater and its
consolidated subsidiaries would be made known to them by others within those
entities to allow for accurate and complete disclosures in annual filings.
The Management of Clearwater, with the participation of the CEO and the CFO
(collectively “Management”), is responsible for establishing and maintaining
adequate internal controls over financial reporting. Clearwater’s internal controls
over financial reporting are designed to provide reasonable assurance regarding
the reliability of financial reporting and preparation of financial statements in
accordance with International Financial Reporting Standards (“IFRS”).
Management evaluated the design and effectiveness of Clearwater’s internal
controls over financial reporting as at December 31, 2011. In making this
assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in its report “Internal
Control – Integrated Framework (1992)”. This evaluation included reviewing
controls in key risk areas, assessing the design of these controls, testing these
controls to determine their effectiveness, reviewing the results and then
developing an overall conclusion. Based on management’s evaluation, the CEO
and the CFO have concluded that, as at December 31, 2011, Clearwater’s
internal controls over financial reporting are effective in providing reasonable
assurance regarding the reliability of financial reporting and the preparation of
financial statements in accordance with IFRS.
There have been no significant changes in Clearwater’s internal controls over
financial reporting or other factors that occurred during the period from October
2, 2011 to December 31, 2011 or subsequent to the date of management’s
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evaluation, that have materially affected, or are reasonably likely to materially
affect the Company’s internal controls over financial reporting.
COMMENTARY REGARDING FORWARD-LOOKING STATEMENTS
risks, uncertainties, and other
This Report may contain forward-looking statements. Such statements involve
known and unknown
factors outside
management’s control including, but not limited to, total allowable catch levels,
selling prices, weather, exchange rates, fuel and other input costs that could
cause actual results to differ materially from those expressed in the forward-
looking statements. The Fund and Clearwater do not undertake any obligation to
publicly revise these forward-looking statements to reflect subsequent events or
circumstances other than as required under applicable securities laws.
OVERVIEW OF CLEARWATER
Clearwater is recognized for its consistent quality, wide diversity, and reliable
delivery of premium wild eco-labeled seafood, including scallops, lobster, clams,
coldwater shrimp, crab and ground fish. Our key competitive advantages include
our ownership of significant quotas in key species, our innovations in harvesting
and processing
integration, which allows
Clearwater to manage marketing, sales and distribution in-house. Since the
founding of the business in 1976, Clearwater has invested in science, people,
technology, resource ownership and resource management to preserve and
grow its seafood resource. This commitment has allowed Clearwater to be a
leader in the global seafood market.
technologies, and our vertical
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PERFORMANCE OF CLEARWATER SEAFOODS INCORPORATED
(including key performance indicators)
Profitability
EBITDA*
(as a % of sales)
2011 Actual 2010 Actual
Target
18.1%
16.1%
15.0%
Sales growth
5.5%
2.5%
5.0%
Financial Performance
Leverage**
3.85
4.43
3.00
Returns
Return on assets**
10.3%
9.7%
12.0%
Clearwater has had continued growth in EBITDA as a
percentage of sales for the last 3 years. This positive
momentum is expected to continue into 2012.
Strong annual sales came as a result of improved sales
prices for all major species
The ratio to total debt to EBITDA improved from 4.43 at
December 31, 2010 to 3.85, a continuning trend of
significant improvement from 2008. The target of 3 times
EBITDA is expected to be accomplished by December 31,
2014.
Return on assets has improved from 9.7% at December
31, 2010 to 10.3%, a continuning trend of significant
improvement from 2008. The target of 12.0% is expected
to be accomplished over the next several years.
Note: Refer to definitions
* 2010 based on 100% consolidation of an entity previously reported proportionately consolidated
** Target to be accom plished over several years
For the year 2011, Clearwater reported EBITDA of $60.3 million on sales of
$332.8 million versus 2010 comparative figures of $50.71 million and $315.51
million representing EBITDA growth of 18.9% and sales growth of 5.5%.
The growth in annual 2011 EBITDA came as a result of improved sales prices
and a shift to higher margin species, partially offset by lower sales volumes,
higher harvesting costs per pound and a strong Canadian dollar. Clearwater
experienced lower volumes in 2011 due mostly to the timing of offshore
coldwater shrimp landings.
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SELECTED ANNUAL INFORMATION
(In 000’s except per share amounts)
Sales
Net earnings (loss)
Basic earnings per share
Diluted earnings per share
EBITDA
Total assets *
Long-term debt *
2010
2011
Note 1
2009
$ 332,785 $ 315,540 $ 284,066
(15,278) 26,148
22,955
(0.34) 0.51
0.45
(0.34) 0.51
0.43
60,284
50,695 39,317
386,817
247,100
322,152 338,090
203,433 214,117
Note 1: Results for 2009 do not reflect (i) the conversion to IFRS, (ii) the conversion to a trust; (iii) the consolidation of an entity previously
proportionately consolided
* Total assets and long term debt for 2010 do not reflect the consolidation of an entity previously proportionately consolidated
CLEARWATER’S MISSION, VALUE PROPOSITION AND STRATEGIES
Mission
Clearwater’s mission is to build the world’s most extraordinary, wild seafood
company, dedicated to sustainable seafood excellence.
We define:
“extraordinary” as sustainable, profitable growth in revenue, margins,
EBITDA and the creation of long term shareholder value;
“wild seafood” as premium wild shellfish. Including our core species –
(scallops, lobster, clams and coldwater shrimp); and
“sustainable seafood excellence” as delivering best in class, quality,
food safety, traceability and certified sustainability.
We believe that the fulfillment of this mission will result in extraordinary value
creation for shareholders, customers, employees and for the communities in
which we work and live.
Over the last three years, Clearwater has made significant progress in all aspects
of its mission. Revenues have consistently increased and are accelerating
despite strong foreign exchange headwinds. Gross margins have increased more
than 5.5 percentage points from 15.4% in 2009 to 20.9% in 2011. EBITDA has
grown at a 24% cumulative average growth rate over three years.
With this improved performance Clearwater has been able to reinvest in its core
operations, strengthening its competitiveness while still reducing leverage below
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4 times EBITDA to 3.85 at December 31, 2011 versus 5.22 at December 31,
2009.
Value Proposition
At Clearwater, we have a passion for wild seafood and strive to deliver a highly
differentiated and competitively advantaged value proposition to a global
customer base. Key elements of Clearwater’s unique value proposition are:
• Great tasting, nutritious, highest quality, frozen-at-sea, premium shellfish.
• Expertise in premium shellfish science, harvesting, processing and
logistics technology ensuring quality and safety from “ocean to plate”.
• Marine Stewardship Council (“MSC”) certification for sustainability of
species ensuring both the traceability and long term health of our wild
resource.
• Competitively advantaged global customer service with local market
understanding and insight
• Scale in license and quota ownership guaranteeing exclusive and stable
supply to even the largest global retail and food service customers.
Strategies
Clearwater’s six core strategies are designed to strengthen a competitive and
differentiated value proposition. They are:
1. Expand access
to supply of core species
through procurement,
acquisitions, partnerships, joint ventures, and yield-improving harvesting and
processing technology. At Clearwater, we strive to sell everything we catch at
a premium. But, being a sustainable harvester in a world of rapidly growing
global demand and limited supply of wild seafood means that we must act
responsibly and with agility and creativity to increase supply.
2. Target profitable and growing markets, channels and customers on the
basis of size, profitability, demand for sustainable seafood and Clearwater’s
ability to win.
The increase in global demand for premium shellfish and per capita
consumption can be explained by general population growth, the shift to
healthier eating choices among aging boomers and by rising incomes and
purchasing power of middle class consumers in emerging economies –
especially in Asia.
Clearwater’s worldwide distribution presence combined with local sales and
marketing teams creates a competitive advantage and positions Clearwater
for growth in both mature and emerging markets. Clearwater has sales offices
in all major geographies including the United States, Canada, Europe, Japan
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as well as four representative offices in China where revenues have
increased at a 20% compound annual growth rate for the last two years.
3. Innovate and position products
to deliver superior customer
satisfaction and value. The value of Clearwater’s premium seafood is
primarily differentiated on the dimensions of taste, nutrition, quality, safety,
sustainability. Clearwater is best known in the industry for pioneering
innovative harvesting technologies and primary processing practices that
enhance this positioning.
Going forward, Clearwater will continue to lever these strengths and its
vertical integration to win in existing segments while capturing a growing
share of the seafood value chain through the introduction of value-added new
products in core species. Some of these new products, like Bacon-wrapped,
MSC-certified, Wild Canadian Sea Scallops (produced in Clearwater’s own
Lockeport, Nova Scotia processing operation) were successfully introduced in
the fall of 2011 and others are being readied for launch later in 2012 and
beyond.
4. Increase margins by improving price realization and cost management,
exercising price influence to maximize revenue and profit while managing
overall supply. In addition Clearwater will continue to invest in R&D,
introducing state-of-the-art harvesting, processing, storage and delivery
systems that minimize per pound cost, reduce waste, increase yield and
improve quality and reliability of supply.
5. Pursue and preserve the long term sustainability of resources on Land
and Sea. Quota ownership is the cornerstone of Clearwater’s business.
From the beginning, Clearwater has invested in quota ownership to guarantee
access to supply, as well as to create a defensible position in the market
place. Clearwater’s scale of resource ownership provides not only the security
of supply, but also the scale needed to invest in leading edge science and
innovative harvesting, processing and marketing efforts.
Its strategy of resource ownership depends on ensuring sustainable
harvesting through responsible resource management. Clearwater works in
partnership with the Department of Fisheries and Oceans (“DFO”) to lead
research and development of sustainable harvesting practices, ensuring long
term health of the resource and value for the licenses and total allowable
catch (“TAC”).
6. Build organizational capability, capacity and engagement. To ensure the
fulfillment of its mission, value proposition and strategies, Clearwater must
continue to attract, develop, recognize, reward and retain the best global
its
talent. Clearwater’s
training and development of
investment
into
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employees is just one of the reasons we were recognized again as one of the
top 101 companies in Atlantic Canada.
Management’s commitment to creating shareholder value
There are seven key initiatives that management is pursuing to continue to
create value for the shareholders. They include:
1. Growing EBITDA sustainably - Clearwater has demonstrated its ability
to consistently grow EBITDA in a sustainable manner over the past three
years increasing EBITDA from $34.0 million in fiscal year 2008 to $60.3
million in 2011. Management expects that our earnings momentum will
continue through 2012.
2. Focusing on generating strong free cash flows - Clearwater’s
management is focused on generating free cash flows. They plan to
accomplish this through generating strong cash earnings, working capital
management, selling non-core assets and carefully planning and
managing Clearwater’s capital expenditure program.
3. Improving leverage and committing to leverage targets - Clearwater
has reduced its leverage as a multiple of EBITDA below 4 over the past
three years from 6.71 as of December 31, 2008 to 3.85 at December 31,
2011 and has committed to further reductions to achieve a target of 3.0 by
December 31, 2014 by increasing earnings and using its free cash flow to
reduce debt. Management believes that lower leverage will position the
business positively with debt rating agencies and lenders and ultimately
allow Clearwater to lower its cost of debt.
4. Improving the capital structure - In the fourth quarter 2011 management
completed the conversion of the public entity from a trust to a corporate
structure, making the structure more efficient and transparent for both
investors and lenders. In addition, in early January 2012 Clearwater
settled ongoing disputes with Glitnir for $14.5 million, removing uncertainty
by bringing closure to potentially lengthy legal proceeding and resulting in
a gain of $12.4 million.
5. Focused management of foreign exchange - Over the past year
Clearwater has implemented a focused and targeted foreign exchange
hedging program to reduce the impact of volatility in exchange rates on
earnings. This, combined with stronger processes for price management
has reduced the impact of exchange rate volatility on the business.
6. Building world class leadership, management, sales and marketing
capabilities - Over the past year the Clearwater has appointed two new
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positions, Chief Commercial Officer and Chief Talent Officer and the
company has begun to implement best in class programs for key account
management and new product development. Mr. Greg Morency, the Chief
Commercial Officer, who has held senior leadership positions at Heinz,
Unilever, International Paper and Tate & Lyle, is responsible for sales and
marketing. Mr. David Rathbun, the Chief Talent Officer, is responsible for
human resource strategy. Mr. Rathbun has held senior positions at xwave,
BellAliant and Maritime Life. Mr. Morency and Mr. Rathbun bring best in
class practices to sales, marketing and human resource management.
7. Communicating the underlying asset values - Clearwater has an
industry-leading portfolio of quotas that provide strong security of
underlying value to lenders and investors. The fair market value for these
quotas is much greater than the carrying value recorded in the financial
statements. Furthermore, the company has and continues to make
focused investments to maintain the value and improve the efficiency of its
vessels and plant assets, both of which serve to support strong asset
values. During 2011 Clearwater invested approximately $21.2 million in
its plant and vessel upgrade program. In 2012 Clearwater plans to invest
a further $20.3 million.
CAPABILITY TO DELIVER RESULTS
Clearwater's revenues and earnings are dependent primarily on its ability to
harvest and purchase shellfish. This in turn is dependent to a large extent on the
annual total allowable catch (“TAC”) for each species. The annual TAC is related
to the health of the stock of the particular species.
The primary shellfish stocks that Clearwater harvests are scallops (Canadian and
Argentine), clams, lobster and coldwater shrimp, which are harvested in offshore
fisheries that have a limited number of participants. Clearwater harvests
Canadian and Argentine scallops and clams with its own vessels. Clearwater
obtains its lobster and coldwater shrimp through harvesting with its own vessels
and through purchases from independent fishermen.
The sea scallop resource has been stable over the last number of years.
Clearwater believes that this is a very well managed fishery. Clearwater
lands virtually all its’ sea scallop quota each year and harvests quotas for
other industry participants under harvesting contracts to improve the
utilization of its fleet.
The Arctic surf clam resource is stable. In addition, Clearwater can land
and market the by-catch (i.e., Greenland cockles and northern propeller
clams) that has been harvested by the clam fleet. Clearwater lands
virtually all its Banquereau Bank surf clam quota and it is starting to
harvest its clam quota on the Grand Banks.
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The Argentine scallop resource is stable due in part to rotational fishing
efforts used to manage the resource, which ensure the scallops have
adequate time to regenerate. In Argentina, Clearwater is the first scallop
fishery in the world to have earned the rigorous Marine Stewardship
Council (“MSC”) independent certification. Clearwater lands virtually all its
scallop quota each year as well as quotas held by the government and
allocated to industry participants annually.
Coldwater shrimp - Clearwater expects the Northern shrimp TAC to
decline over the next several years. However, the access that the
offshore has to this quota, which is where Clearwater harvests, is not
expected to decline significantly as the impact of these reductions are
expected to be absorbed by the inshore sector. Clearwater holds access
to quotas through direct ownership and harvesting agreements that
exceed its harvesting capacity and will serve to offset declines in the TAC
for northern shrimp. Clearwater does procure shrimp from the inshore for
its cooked and peeled business and supplements this with raw material
from its offshore vessels. Clearwater holds northern shrimp quota directly
and it also holds the rights to harvest northern shrimp quotas of other
companies through long-term royalty agreements. Clearwater harvests
about 80% of its northern shrimp quotas (including its own quotas and
quotas under license) annually.
The lobster resource is strong with a consistent offshore TAC and a
strong inshore resource. Clearwater harvests virtually all its turbot and
lobster quotas each year
Clearwater maintains the largest, most modern, fleet of factory freezer vessels in
Canada together with vessels that are used to harvest Clearwater's offshore
lobster and complete research and development.
The condition and operating capability of these vessels is paramount for
Clearwater to successfully operate in its fisheries. In the past three years
Clearwater has invested approximately $17.6 million on its fleet.
Clearwater typically replaces vessels as a result of its focus on innovation and
the adoption of new and leading edge technology. These additional investments
typically provide greater efficiencies, lower costs and, in some cases, create new
product forms.
The following schedule sets out Clearwater’s historic capital expenditures and
harvesting license investments for the past three years and clearly shows that
Clearwater is both investing sufficiently to maintain its existing fleet and plants
and is also investing for growth:
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Vessels
Plants and other
2011
17,595
3,643
21,238
$
2010
6,931
2,488
9,419
$
2009
3,204
1,296
4,500
$
TOTAL
27,730
7,427
35,157
$
Return on Investments
Maintenance capital
6,850
14,388
21,238
$
1,194
8,225
9,419
$
1,200
3,300
4,500
$
9,244
25,913
35,157
$
Maintenance capital
Repairs and maintenance
14,388
14,466
28,854
$
8,225
13,500
21,725
$
3,300
13,400
16,700
$
25,913
41,366
67,279
$
Depreciation/Amortization
Maintenance spending as a % of
depreciation
$
19,200
$
14,301
$
15,870
$
49,371
150.3%
151.9%
105.2%
136.3%
The table above includes $19.0 million of depreciation expense included in cost
of goods sold for 2011 (2010 - $14.7 million).
During 2011, Clearwater completed a substantial refit program, of $11.4 million,
on the scallop, clam, shrimp and lobster factory vessels. Capital expenditures for
the year also included $2.1 million in relation to new vessel based processing
technologies and $4.1 million on the purchase of the remaining 40% share in a
scallop vessel.
In 2010 capital expenditures were minimal as the majority of Clearwater’s
significant projects were largely completed in 2008 and restrictions on capital
expenditures from senior lending agreements reduced funds available for capital
expenditures. Capital expenditures for 2010 primarily related to $5.9 million in
vessel refits, $1.2 million in new vessel based processing technologies, and $1.0
million on processing plant additions in Argentina.
During 2009, Clearwater completed a conversion of a vessel for its lobster
operations. The total cost of the vessel including conversion was approximately
$7.4 million of which $1.2 million occurred in 2009. In addition Clearwater
completed a refit of a shrimp vessel, through its 54% owned joint venture,
incurring costs in 2009 of $1.6 million.
In addition to the annual amounts capitalized above, Clearwater historically has
spent and expensed on average about $13.8 million a year on the maintenance
of its fleet and processing plants. This reflects Clearwater’s commitment to
ensuring that the assets are kept in top condition, enabling it to harvest and
process its allowable catch efficiently and providing sufficient capacity.
The table above indicates how much Clearwater has spent on an annual basis
over the past three years on maintenance capital expenditures, as well as repairs
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and maintenance and annual depreciation and amortization expense. Clearwater
is committed to ensuring that the assets are kept in top condition.
Clearwater’s largest fleet investments are in its ten factory vessels. These
vessels are used in the harvesting of Canadian scallops, Argentine scallops,
shrimp and clams.
Of the ten factory vessels:
Two are used to harvest shrimp and are on average 18 years old.
These vessels have a capacity to harvest 14,000 to 18,000 metric tons
of our 22,000 metric ton quota and all of our 1,900 metric ton turbot
quota in a ready for market form. One of the vessels was built in 1985
and will be due for replacement or extensive refit within the next 5
years.
Four are used to harvest Canadian sea scallops and are on average
11 years old. Three of these vessels are being equipped with
technology developed by
automated processing
Clearwater which will improve harvesting and processing capabilities.
As a result the fourth vessel in the fleet is in the process of being
removed.
factories using
Two of Clearwater’s vessels are used to harvest Argentine scallops
and are on average 31 years old. One vessel is expected to be
replaced over the next three years and the second has about ten years
of useful life available.
Two of Clearwater’s vessels are used to harvest clams and are on
average 18 years old. One of the vessels was built in 1985 and will be
due for replacement within the next five to seven years.
Clearwater will fund future investments in vessels with a combination of cash
flow, debt and equity, similar to what has been done in the past with other large
capital projects.
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EXPLANATION OF ANNUAL 2011 EARNINGS
into a publicly
On October 2, 2012 Clearwater Seafoods Income Fund (“the Fund”) was
reorganized
“Clearwater Seafoods
Incorporated”, (“Clearwater”). The 2010 results have been adjusted to reflect the
conversion of the Fund to the corporation for the annual reporting periods to
provide a meaningful comparison. [Refer to “Conversion from a Trust to a
Corporation” for further information”].
traded corporation,
In addition the 2010 comparatives have been adjusted for the consolidation of an
entity previously proportionately consolidated in order to provide a meaningful
comparison to the 2011 results. Refer to “consolidation of entity proportionately
consolidated” within the critical accounting policy changes for the calculated
change in the 2010 comparatives.
Overview
The statements of earnings reflect the earnings (loss) of Clearwater for the years
ended December 31, 2011 and December 31, 2010.
In 000's of Canadian dollars
Year ended December 31
Sales
Cost of goods sold
Gross margin
Administrative and selling
Finance costs
Gain on settlement of Glitnir transaction
Gain on change in control of joint venture
Other income
Research and development
2011
2010
$
332,785
263,220
69,565
20.9%
$
315,540
256,722
58,818
18.6%
33,345
38,604
(12,445)
(11,571)
(5,893)
707
42,747
28,757
43,023
-
-
(2,871)
1,623
70,532
Earnings (loss) before income taxes
Income taxes
Earnings (loss)
26,818
3,863
22,955
$
(11,714)
3,564
(15,278)
$
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Earnings (loss)
Earnings increased by $38.2 million compared to 2010, due primarily to sales
revenue growth of 5.5%, higher prices and lower costs that resulted in improved
gross margin of $10.7 million. In addition net earnings improved in 2011 as a
result of two non-cash gains of $11.6 million from the acquisition of an entity
previously proportionally consolidated and $12.4 million on the Glitnir settlement
transaction (refer to financing costs for further information on the settlement).
In 000's of Canadian dollars
Year ended December 31
2011
2010
Change
Net earnings (loss)
$
22,955
$
(15,278)
$
38,233
Explanation of changes in earnings:
Gain on change in control of joint venture
Gain on settlement of Glitnir liabilities
Higher gross margin
Lower mark to market on long term debt
Higher foreign exchange
Higher other income
Higher administration and selling
Higher fees on settlement of debt
Higher interest expense
All other
11,571
12,445
10,747
7,703
(3,526)
3,022
(4,588)
1,404
(1,163)
618
38,233
$
Clearwater reported strong annual results for 2011 with EBITDA growth of 18.9%
and sales growth of 5.5%. Annual EBITDA represented $60.3 million on sales of
$332.8 million versus 2010 EDITDA of $50.7 million on sales of $315.5 million.
In addition, Clearwater also reported a reduction of leverage below 4 times, to
3.85 at December 31, 2011 from 4.43 at December 31, 2010.
The 2011 results have continued a positive trend in Clearwater’s earnings.
Clearwater reported earnings growth, strong sales and year over year growth in
EBITDA, despite a reduction in volumes as planned refits lowered the volume of
pounds landed during 2011.
Sales volumes in almost all product lines were lower than the prior year as a
result of planned refits, normal variations within a stable range of the total
allowable catch levels and planned lower levels of procured product.
Management is encouraged by the annual results for 2011 and the increasing
global consumer and customer demand for our premium, wild, sustainably
harvested seafood. Market demand for our products continues to be strong
across all major segments and we have every expectation that our earnings
momentum will continue through fiscal 2012.
15
Annual sales by region
in 000's of Canadian dollars
Year ended December 31
Europe
United States
Canada
Asia
Japan
China
Other Asia
Other
$
2011
126,696
55,457
44,332
$
2010
123,259
60,107
41,720
Change
$ 3,437
(4,650)
2,612
42,649
46,069
15,034
2,548
332,785
$
37,114
37,105
14,583
1,652
315,540
$
5,535
8,964
451
896
$ 17,245
%
2.8
(7.7)
6.3
14.9
24.2
3.1
54.2
5.5
Clearwater reported sales of $332.8 million for 2011, an increase of $17.2 million,
or 5.5% from 2010. Improvements in sales were a result of price increases in all
of our product lines. This was partially offset by lower volumes for clams,
scallops, coldwater shrimp and crab. Clearwater experienced lower volumes in
2011 due primarily to planned refit work done on its’ fleet which reduced time
available to harvest normal variations of TAC levels and lower levels of procured
raw materials.
Europe
Europe is Clearwater’s largest scallop region and it is an important market for
coldwater shrimp products. It has been a growth area for several years
notwithstanding the current challenging economic environment in Europe.
European sales increased $3.4 million, or 2.8% to $126.7 million for 2011 as
strong market conditions increased sales prices for the majority of species
including Canadian and Argentine scallops, lobster, and coldwater shrimp. The
increase in sales price was partially offset by lower available supply volumes for
both Canadian and Argentine scallops.
Foreign exchange rates within Europe improved slightly for the year, partially
offsetting lower volumes. The Euro strengthened by 0.9% relative to the
Canadian dollar from 1.362 in 2010 to 1.375 in 2011, while the UK Pound
declined 0.7% from 1.590 to 1.578 over the same period.
United States
The United States is an important market for scallops, coldwater shrimp and
clams. It is our most diverse market, where a wide variety of products are sold.
Sales in the United States declined $4.7 million, or 7.7% to $55.5 million for
2011. Lower available supply volumes for the majority of species including
Canadian scallops, Argentine scallops, snow crab, lobster and coldwater shrimp.
In addition, stronger market conditions in other regions contributed to reduced
sales for the period.
16
For the year, the Canadian dollar strengthened against the US dollar contributing
to the decline in sales. Average foreign exchange rates for the US dollar
declined by 3.8% to 0.992 in 2011 from 1.032 in 2010. Price increases for the
majority of species including Canadian and Argentine scallops, coldwater shrimp
and lobster, more than offset the decline in sales from foreign exchange.
Canada
Canada is a large market for lobster, scallops and coldwater shrimp.
Sales within Canada increased $2.6 million, or 6.3%, for 2011 primarily as a
result of higher sales prices, particularly for scallops and lobster.
Increased sales prices were partially offset by lower volumes of Canadian
scallops and lobster. These species declined as a result of lower available supply
of scallops and a planned reduction in lobster procurement.
Japan
Japan is our largest clam market and it is also an important market for lobster
coldwater shrimp and turbot.
Sales to Japan increased $5.5 million, or 14.9%, for 2011, primarily as a result of
improved selling prices for turbot, lobster and coldwater shrimp. In addition
changes in clam sales mix was weighted towards product with higher margins.
Lower sales volumes for coldwater shrimp, and turbot partially offset the increase
in sales prices. A planned refit for one frozen-at-sea shrimp vessel and higher
competing demand from China for Turbot, contributed to the decline in available
supply volumes.
Average foreign exchange rates for the Yen remained consistent at 0.012 for
2011 and 2010.
China
China is a growing market for clams, coldwater shrimp, lobster and turbot
Sales to China increased $9.0 million, or 24.2% to $46.1 million for 2011
primarily as a result of an increase in market demand for clams, turbot, lobster
and Canadian scallops that improved selling prices and volumes. A planned refit
for one frozen-at-sea shrimp vessel contributed to lowered available supply
volumes for coldwater shrimp during the year.
Chinese sales are transacted in US dollars. The Canadian dollar strengthened
against the US dollar for 2011, partially offsetting the increase in sales price.
Average foreign exchange rates for the US dollar declined by 3.8% to 0.992 in
2011 from 1.032 in 2010.
17
Annual sales by species
In 000's of Canadian dollars
Year ended December 31
Scallops
Lobster
Clams
Coldwater shrimp
Crab
Ground fish and other
$
$
$
2011
115,843
64,073
61,705
61,946
13,831
15,387
332,785
2010
112,499
61,261
60,122
54,528
13,425
13,705
315,540
Change
3,344
2,812
1,583
7,418
406
1,682
17,245
%
3.0
4.6
2.6
13.6
3.0
12.3
5.5
$
$
$
Improvements in sales were a result of price increases in all of our product lines.
The increase in sales was partially offset by lower supply volumes in several
species including scallops, coldwater shrimp, and clams. A planned refit for
coldwater shrimp, and differences in volume mix for clams contributed to lower
available supply.
Cost of Goods Sold
Year ended December 31
in 000's of Canadian dollars
Harvesting and procurement
Freight, customs and other transport
Depreciation
Manufacturing
Administrative
Other
2011
181,162
21,179
18,983
31,057
10,829
10
263,220
2010
179,343
21,388
16,587
28,259
11,155
(11)
256,722
Change
1,819
(210)
2,396
2,798
(326)
21
6,498
%
1.0
(1.0)
14.4
9.9
(2.9)
(190.9)
2.5
Cost of goods sold increased $6.5 million or 2.5% to $263.2 million in 2011,
primarily due to higher manufacturing costs and depreciation.
Harvesting and procurement include all costs incurred in the operation of the
vessels including labour, fuel, repairs and maintenance, fishing gear supplies,
and other costs and fees plus procured raw material costs for species such as
inshore lobster, shrimp and crab. Harvesting costs increased during 2011 as a
result of higher fuel costs and inflation particularly in Argentina. Procurement
costs were higher during 2011 as shore prices for lobster and snow crab
increased.
Fuel costs increased from $19.5 million in 2010 to $23.6 million in 2011. This
increase was a result of an increase of the average price per litre of fuel of $0.17,
partially offset by a decline in volumes consumed. Clearwater’s vessels used
approximately 30.2 million litres of fuel in 2011. Based on 2011 fuel
consumption, a one-cent per litre change in the price of fuel would impact
harvesting costs by approximately $0.3 million.
18
Depreciation expense from assets used in the harvesting and production of
goods increased $2.4 million to $19.0 million as a result of vessel refits that were
completed during the year.
Manufacturing includes labour costs related to the production and selling of
goods, plant utilities and supplies. Labour costs increased as a result of rising
wages, salaries and benefits.
Administrative overheads include salaries and benefits, professional and
consulting fees and management fees attributable to the harvesting and
production of goods. Refer to Administrative and selling for further information.
19
Gross margin
Gross margin improved $10.7 million, or 18.3% to $69.6 million. Gross margin
was positively impacted by increases in sales prices for all species and an
improved sales mix for clams, offsetting the increase in cost of goods sold.
Sales volumes in almost all product lines were lower than the prior year as a
result of planned refits, normal variations within a stable range of the total
allowable catch levels and planned lower levels of procured product.
Margins were negatively impacted by lower average foreign exchange rates for
US dollars that resulted in a reduction in sales and gross margin of $5.7 million.
Strengthening foreign exchange rates for the Euro and Japanese Yen partially
offset the exchange impact from US dollars. The net negative impact from
foreign exchange was a reduction of sales and gross margin of $2.3 million for
2011.
Year ended December 31
2011
2010
Average
rate
Currency
% sales
realized % sales
US dollars
Euros
Japanese Yen
UK pounds
Canadian dollars and other
43.1%
24.7%
12.7%
4.3%
15.2%
100.0%
0.992
1.375
0.012
1.578
40.7%
27.9%
10.8%
4.3%
16.3%
100.0%
Average
rate
realized
Change
in rate
1.032
1.362
0.012
1.590
-3.8%
0.9%
0.0%
-0.7%
20
Administration and selling
In 000's of Canadian dollars
Year ended December 31
Employee compensation
Consulting and professional fees
Other
Selling costs
Travel
Occupancy
Donations
Allocation to cost of goods sold
$
$
$
2011
29,427
4,316
3,466
2,602
1,981
1,317
1,019
(10,783)
33,345
2010
25,320
4,268
2,767
1,760
1,481
1,366
638
(8,843)
28,757
Change
4,107
48
699
842
500
(49)
381
(1,940)
4,588
%
16.2
1.1
25.3
47.8
33.8
(3.6)
59.7
21.9
16.0
$
$
$
Administration and selling costs increased $4.6 million or 16.0% for 2011
primarily as a result of an increase in salaries, incentive compensation and
employee benefits. In addition severance costs also increased during the year.
Consulting and professional fees include administrative fees including audit,
IFRS conversion costs and certification fees, insurance and other specialized
consulting services. Costs will vary year over year based upon business
requirements.
Other costs
include miscellaneous selling and administrative expenses,
depreciation, gains/losses and write downs of assets, which will vary from year to
year. The increase of $0.7 million to $3.5 million was primarily driven by a
change of $1.0 million in gains/loss and write down of assets. In 2011 it consisted
of a realized gain of $0.5 million on the disposal of property, plant, equipment
which was offset by write downs of property, plant and equipment of $0.6 million
on a plant closure. In 2010 a gain of $1.9 million was realized related to the
disposal of quota which was partially offset by a write down of $1.0 million related
to ISK funds on deposit.
Selling costs include advertising, marketing, trade shows, samples, product
development and bad debt expenses. The increase in costs to $2.6 million from
$1.8 million primarily relates to an increase in bad debt expense.
Occupancy include administrative costs incurred for rent, utilities and property
taxes and has remained consistent year over year.
The allocation to cost of goods sold reflects costs that are attributable to the
production and sale of goods and are allocated on a proportionate basis based
on production volumes. The increase in this allocation in 2011 is directly
attributable to the increase in selling and administrative costs.
21
Finance costs
In 000’s of Canadian dollars
Year ended December 31
Interest and bank charges
Amortization of deferred financing charges
Interest on current and long term debt
Foreign exchange and derivative contracts
Fair value adjustment on convertible debentures
Debt settlement and refinancing fees
$
2011
20,899
3,112
24,011
6,983
5,717
1,893
38,604
$
$
2010
18,443
4,405
22,848
3,457
13,420
3,297
43,023
$
Interest on current and long-term debt increased $1.2 million for 2011 to $24.0
million due to an increase in interest rates from 7.0% to 10.5% for the refinancing
of the 2013 convertible debentures. The 2011 interest expense includes
approximately $3.1 million of amortization of deferred financing charges
compared to $4.4 million for 2010. Included in this amount in 2011 is the
amortization of the outstanding charges related to the pay out of the ISK
denominated bonds.
Foreign exchange and derivative contracts
In 000’s of Canadian dollars
Year ended December 31
Realized loss (gain)
Foreign exchange contracts
Mark-to-market on interest and currency swaps
Working capital
Unrealized (gain) loss
Foreign exchange on long term debt
Mark-to-market on foreign exchange contracts
Mark-to-market on interest and currency swaps
2011
2010
$
2,578
1,048
2,712
6,338
$
$
(218)
-
2,786
2,568
932
(287)
-
645
833
1,475
(1,419)
889
$
6,983
$
3,457
Clearwater has a targeted foreign exchange program. This program focuses on
using forward contracts (up to $175 million in nominal value of forwards, which
equates to approximately 80% of Clearwater’s annual net foreign exchange
exposure). This program enables Clearwater to lock in exchange rates up to 12
months for key sales currencies (the US dollar, Euro, Yen and Sterling).
Clearwater has set up facilities that will provide it with the ability to hedge $125 -
$150 million or up to 85% of target coverage. Clearwater’s use of this facility is
governed by the credit available on its operating lines. As to the extent there is a
22
mark-to-market liability associated with forward exchange contracts, it reduces
Clearwater’s ability to borrow under its asset backed lending facility. Clearwater
plans to expand the use of its program in 2012, subject to credit availability.
Clearwater does not account for its derivative contracts as accounting hedges,
and therefore records the mark-to-market value of the contracts each reporting
period and includes the related non-cash adjustment in income or expense.
Proceeds generated from the derivative contracts are included in realized foreign
exchange income in the period in which the contract is settled.
Foreign exchange and derivative loss increased $3.5 million to $7.0 million for
2011 due primarily to realized losses of $2.6 million on the foreign exchange
contracts and unrealized losses of $1.0 million as a result of marking the cross-
currency interest rates swaps that were in dispute with Glitnir during 2011 to
market (refer to Glitnir settlement transaction).
The fair value adjustment on the convertible debentures represents the
change in value from the convertible debentures to market for 2011 and 2010.
For 2011, debt settlement and refinancing fees include a gain of $1.8 million
related to the settlement of the ISK denominated bonds, $2.8 million in fees
resulting from the refinancing of the senior first lien loan debt facilities, and $1.0
million in refinancing and restructuring fees. In 2010, $3.3 million represents
costs incurred for refinancing and restructuring.
Gain on settlement of Glitnir transaction
On February 28, 2012 Clearwater reported that it has reached an agreement with
Glitnir Banki Hf (“Glitnir”) regarding disputed derivative contracts, interest rate
swaps and damage claims (refer to details on the “Glitnir settlement transaction”
for further information).
The agreement reached with Glitnir provides for the settlement and release of all
outstanding claims against Clearwater Seafoods Partnership (“CSLP”), the Fund
and its successor Clearwater, and Glitnir in exchange for an immediate cash
payment by Clearwater of Canadian $14.5 million.
As a result of this settlement, Clearwater recognized a gain of approximately
Canadian $12.4 million in the fourth quarter of 2011, the difference between the
$14.5 million settlement and the book value of the liabilities recorded for the
exchange contracts and cross currency and interest rate swaps.
23
Gain on change in control of joint venture
As a result of changes made effective January 1, 2011 to the partnership
agreement that governs Clearwater’s frozen-at-sea shrimp and turbot harvesting
operations, Clearwater began to fully consolidate these operations in 2011 and
resulted in a one-time non-cash gain of $11.6 million. For further information
refer to “consolidation of entity proportionately consolidated”.
Other income
In 000's of Canadian dollars
Year ended December 31
Insurance claims
Royalties and fees
Other
$
$
2011
(1,729)
(1,747)
(2,417)
(5,893)
2010
-
$
(1,644)
(1,227)
(2,871)
$
Other income increased $3.0 million to $5.9 million for 2011 primarily as a result
of a gain from insurance claims of $1.7 million that was realized during the third
quarter of 2011. The insurance claims related primarily to the repair of a building
damaged by a fire that occurred at one of the plants. The damages to the plant
have been repaired and the plant has resumed operations. The gain is the
difference between the net book value of the damaged building and the
insurance proceeds, which reflected replacement value as well as some lost
profits claims.
Royalties and fees and other includes income related to quota rental,
commissions, processing fees and other miscellaneous income and expense that
varies based upon the operations of the business.
Research and development relates to new technology and research into ocean
habitats and fishing grounds. Research and development can vary year to year
depending on the scope, timing and volume of research completed.
Income taxes were higher in 2011 due to higher taxable earnings in the
Argentine subsidiary.
24
CAPITAL STRUCTURE AND LIQUIDITY MANAGEMENT
Capital Structure
Clearwater’s capital structure includes a combination of equity and various
classes of long-term debt. Clearwater’s objective when managing its capital
structure is to obtain the lowest cost of capital available, while maintaining
flexibility and reducing exchange risk by borrowing when appropriate in
currencies other than the Canadian dollar.
Clearwater uses leverage, in particular senior revolving and term debt, and
subordinated debt to lower its cost of capital.
The amount of senior debt available to Clearwater is a function of earnings that
can be impacted by known and unknown risks, uncertainties, and other factors
outside Clearwater’s control including, but not limited to, total allowable catch
levels, selling prices, weather, exchange rates, fuel and other input costs.
Clearwater maintains flexibility in its capital structure by regularly reviewing
forecasts of future results and making any required changes to its debt and
equity facilities on a timely basis. These changes can include early repayment of
debt, repurchasing shares, issuing new debt or equity, extending the term of
existing debt, selling assets to repay debt and if required, limiting debt paid.
Clearwater’s capital structure is as follows as at December 31, 2011 and
December 31, 2010:
25
In 000’s of Canadian dollars
As at December 31
2011
2010
Equity
Trust units
Common shares
Accumulated deficit
Contributed surplus
Cumulative translation account
Non-controlling interest
Long term debt
Subordinated debt
2013 convertible debentures
2014 convertible debentures
Non-amortizing debt
Bond payable, due in 2010 and 2013
Term debt, repaid in 2011
Term loan, due in 2091
Second lien loan, due 2016
Amortizing debt
First lien loan, due 2015
Revolving debt, matures in 2015
Term debt, repaid in 2011
Marine mortgage, matures in 2017
Glitnir liability
Other loans
Total long term debt
Total capital structure
$ - $ 162,517
65,309
-
(835) (115,551)
1,816
-
(1,436)
(3,122)
4,018
32,700
51,364
94,052
43,573
41,632
85,205
43,740
37,841
81,581
-
-
3,500
43,822
47,322
36,937
16,404
3,500
-
56,841
77,250
17,513
-
-
27,254
33,864
4,470 3,135
14,500 -
758
840
65,011
114,573
247,100
203,433
$ 341,152 $ 254,797
Equity consists of common shares, accumulated deficit, cumulated transaction
account and non-controlling interest. During 2011 Clearwater repurchased and
cancelled 179,752 shares and $5,000 face value of the 2013 convertible
debentures were converted by a holder at a conversion price of $3.25/share
resulting in 1,538 new shares being issued. As a result, there are 50,948,698
shares outstanding as of December 31, 2011 (December 31, 2010 –
51,126,912).
Long term debt consists of subordinated debt, amortizing and non-amortizing
debt. The non-amortizing debt consists of two series of convertible debentures:
26
The 2013 Convertible debentures accrue interest at 10.5%, mature on
December 31, 2013 and are convertible at a price of $3.25 per share.
These debentures are recorded at estimated
fair value and are
redeemable by Clearwater at face value plus accrued interest. Clearwater
repurchased and cancelled $1.6 million of these debentures in 2011
reducing the principal amount outstanding to $43.4 million as of December
31, 2011.
The 2014 Convertible debentures accrue interest at 7.25%, mature in
March 2014 and are convertible at a price of $5.90 per share. They are
redeemable by Clearwater at face value plus accrued interest on or after
March 31, 2012. Clearwater may redeem the debentures before March
31, 2012 if the market price of the shares is not less than 125% of the
conversion price of $5.90. These debentures are recorded at estimated
fair value. The principal amount outstanding as of December 31, 2011 was
$44.4 million.
To retract either series of debentures, in whole or in part, Clearwater must
issue a notice of the redemption not more than 60 days and not less than
30 days prior to the date of redemption. Any debenture holder that wishes
to convert the Debentures held, rather than to have them redeemed, must
complete and deliver a Notice of Conversion prior to the redemption date.
The convertible debentures are unsecured and subordinated. The
debentures pay interest semi-annually in arrears on June 30 and
December 31 for the 2013 debentures and March 31 and September 30 for
the 2014 debentures. Subject to regulatory approval, Clearwater may
satisfy its obligation to repay the principal amount of the debentures on
redemption or at maturity, in whole or in part, by delivering that number of
shares equal to the amount due divided by 95% of the market price of the
trust units at that time, plus accrued interest in cash.
Clearwater also has several non-amortizing loan facilities including a US $45.0
million second lien term loan ($43.8 million net of deferred financing), due
February in 2016 and $3.5 million term loan due in 2091. The US $45.0 million
loan bears interest payable monthly at an annual rate of 12.0%. The loan is
secured by a third charge (after term and revolving debt facilities) on accounts
receivable, cash and cash equivalents subject to certain limitations, inventory,
marine vessels, licenses and quotas as well as Clearwater’s investments in
certain subsidiaries.
At December 31, 2011 long term debt was increased by $14.5 million related to
the Glitnir settlement. Of the $14.5 million, $9.5 million was funded from an
increase in the second term loan facility and $5.0 million from funds on deposit on
February 28, 2012.
27
Clearwater maintains several amortizing debt facilities including an amortizing
term loan due in 2015, a revolving loan due in 2015, and a marine mortgage that
matures in 2017. During the third quarter of 2011 the amortizing term loan was
increased by $10.0 million dollars to fund certain capital expenditures.
The amortizing term loan has a principal balance of $77.3 million as of December
31, 2011, is repayable in quarterly instalments of $2.0 million with the balance of
$53.3 million due at maturity in February 2015. It bears interest payable monthly
at an annual rate of bank prime plus 3.75%. As of December 31, 2011 this
resulted in a rate of 6.75%. The loan is secured by a second charge on accounts
receivable, cash and cash equivalents subject to certain limitations, and
inventory as well as a first charge on marine vessels, licenses and quotas as well
as Clearwater’s investments in certain subsidiaries.
The revolving loan facility is due 2015, provides for up to $50.0 million of
revolving debt facilities based on 85% of eligible receivables and approximately
70% of eligible inventories. It bears interest on Canadian balances at a
Canadian short-term index margin plus 2.5%. For US dollar balances the
interest rate is a US index margin plus 3.0%. As of December 31, 2011 this
resulted in rates of 5.5% for CDN balances and 6.25% for USD balances. The
loan is secured by a first charge on accounts receivable, cash and cash
equivalents subject to certain limitations, and inventory as well as a second
charge on marine vessels, licenses and quotas as well as Clearwater’s
investments in certain subsidiaries.
Clearwater’s debt facilities have covenants that include, but are not limited to,
leverage ratios (for which senior and unsubordinated debt is compared to
EBITDA, excluding most significant non-cash and non-recurring items) and fixed
charge ratios that limit the amount of dividends, capital expenditures, and loan
repayments to amounts approved by lenders. Clearwater is in compliance with
all of the non-financial and financial covenants associated with its debt facilities.
Some public entities provide information on debt to equity ratios. We do not
believe that this ratio would provide useful information about Clearwater and its
capital structure because a large portion of historical earnings have been paid
out in distributions and a significant amount of assets are recorded at historical
cost since the IPO in 2002 rather than at fair value. Instead, we believe that
leverage measured in relation to EBITDA is a better measure to evaluate our
capital structure and we have provided that information in the liquidity section.
Normal Course Issuer Bid Activity in 2011 (“NCIB”) and Conversions
Under a normal course issuer bid ("NCIB") announced on August 12, 2011,
Clearwater repurchased and cancelled 179,752 shares for $0.5 million.
28
Clearwater also repurchased $1.6 million of the 2013 Debentures under the
NCIB.
In December 2011 $5,000 face value of the 2013 convertible debentures were
converted by a holder at a conversion price of $3.25/share resulting in 1,538 new
shares being issued.
Conversion from a Trust to a Corporation
Effective October 2, 2011 the Fund was reorganized from an income trust
structure into a public corporation named “Clearwater Seafoods Incorporated”.
Units of the Fund were exchanged for shares of Clearwater on a 1 to 1 basis.
The business of the Fund has been carried on by Clearwater and the underlying
seafood business operated by CSLP remains unchanged.
Under the reorganization, unitholders of the Fund received one common share of
Clearwater, for each trust unit of the Fund held. As a result, Clearwater had
outstanding at the time of conversion 50,947,160 Common Shares issued and
outstanding, representing one Common Share for each of the 27,565,943 Fund
Units and the 23,381,217 Special Trust Units of the Fund that were outstanding
immediately prior to the Arrangement.
7914091 Canada Inc., a newly formed holding company owned by Clearwater
Fine Foods Incorporated (“CFFI”) and a major shareholder, was used to
consolidate their shareholdings in the Fund such that upon conversion of the
Fund units into shares it owns 29,636,076 or 58% of the issued and outstanding
Common Shares of Clearwater.
The Common Shares and the Debentures commenced trading on the Toronto
Stock Exchange ("TSX") on October 3. 2011; the common shares trade under
the stock symbol "CLR". The 7.25% Debentures and 10.5% Debentures trade
under the stock symbols "CLR.DB.A" and "CLR.DB.B", respectively.
Liquidity Management
Over the past several years Clearwater has formalized a number of its treasury
management policies and goals so as to promote strong liquidity and continued
access to capital to fund its growth plan.
These include policies and strategies with respect to leverage, foreign exchange,
lending arrangements and free cash flows.
29
Management continuously evaluates its capital structure in light of these policies
and strategies and a summary of the results of its most recent evaluation is as
follows:
As of December 31, 2011 Clearwater had $9.7 million in cash, and a
revolving loan with an outstanding balance of $17.5 million (excluding
deferred financing charges). The cash balance, together with available
credit on the revolving loan, is used to manage seasonal working capital
demands, capital expenditures, and other commitments. Due to the
seasonality in Clearwater’s business, sales and gross profit are typically
higher in the second half of the calendar year than in the first half of the
year.
Leverage - As part of its continuing review of leverage levels Clearwater
benchmarked itself versus a number of seafood and food companies and
determined that it should target to reduce its leverage to 3.0 or less within
2 years. In 2011, total debt increased from $203.4 million at December 31,
2010 to $247.1 million at December 31, 2011 as it made substantial
investments which contributed to its increased earnings (refer to free cash
flow section for detail of changes). As a result, it has realized higher
annual EBITDA levels which in turn have resulted in a decrease in
leverage ratios below 4 times to 3.85 at December 31, 2011 from 4.43 at
December 31, 2010. Clearwater is pleased with the progress it has made
in reducing leverage over the past several years and management
expects to achieve the leverage target on schedule through a combination
of increased earnings and reductions in debt levels.
In 000's of Canadian dollars
Year ended December 31
EBITDA 1
Net debt
Net debt leverage
Senior debt (per below)
Senior debt leverage
Debt per balance sheet
Less cash
Net debt
Less subordinated debt
Senior debt
First lien loan
Second lien loan
Revolver
Amortizing Term Debt
Non - Amortizing Term Debt
2011
2010
$
60,284
$
44,767
232,375
3.85
140,528
2.33
247,100
(14,725)
232,375
106,572
140,528
198,162
4.43
77,522
1.73
203,433
(5,271)
198,162
125,911
77,522
77,250
45,765
17,513
-
-
140,528
$
-
-
27,254
33,864
16,404
77,522
$
30
Foreign Exchange - In 2011 the continued strengthening of the Canadian
dollar had an impact on annual results, albeit a reduced effect as
compared to the strengthening of the Canada dollar over the past 5 years.
In 2011 the impact of the stronger Canadian dollar served to reduce sales
and margins by $2.3 million in comparison to 2010. In spite of this, the
company has been successful in increasing sales revenue by 5.5% to
$332.8 million and gross margins to $69.6 million (20.9% of sales) versus
$58.8 million (18.6% of sales) in 2010.
Clearwater’s response to foreign exchange risk is as follows:
(1) Diversify sales internationally which reduces the impact of any
country-specific economic risks on its business.
(2) Execute on pricing strategies so as to offset the impact of exchange
rates
(3) Limit the amount of long-term sales contacts – Clearwater has few
customers with long-term sales contracts. The limited number of sales
contracts are all limited to short time period, typically less than 6
months and are based on list prices that provide a margin for
exchange rate fluctuations, and
(4) Use conservative exchange estimates in business plans – Clearwater
regularly reviews economist estimates of future exchange rates and
uses conservative estimates when preparing its’ business plans.
(5) Foreign exchange hedging program - Clearwater has a targeted
foreign exchange program. This program focuses on using forward
contracts (up to $175 million in nominal value of forwards, which
equates to approximately 75% of Clearwater’s annual net foreign
exchange exposure). The program enables Clearwater to lock in
exchange rates up to 12 months for key sales currencies (the US
dollar, Euro, Yen and Sterling) thereby lowering the potential volatility
in cash flows from derivative contracts.
Clearwater has set up facilities that will provide it with the ability to
hedge $125 - $150 million or up to 85% of target coverage.
Clearwater’s use of this facility is governed by the credit available on
its operating lines. As to the extent there is a mark-to-market liability
associated with forward exchange contracts, it reduces Clearwater’s
ability to borrow under its asset backed lending facility. Clearwater
plans to expand the use of its program in 2012, subject to credit
availability.
31
Free cash flows - Clearwater’s short-term goal is to generate cash flows
from operations to fund interest, scheduled loan payments, capital
expenditures and to use this free cash flow to reduce debt and invest in
growth investments. Over the next 3-5 years Clearwater’s goal is to grow
free cash flows such that it can reduce debt as opportunities present
themselves and eventually pay a dividend to its shareholders.
Free cash flows
EBITDA
Less:
Cash interest
Cash taxes
Other non-EBITDA items
Change in working capital
Cash flows from operating activities
Uses of cash:
Purchase of property, plant, equipment, quota and other assets
Less: Designated borrowing to fund purchases
Scheduled payments on long-term debt
Distributions to non-controlling interests
Free cash flows
Add/(less):
Other debt borrowings (repayments) of debt
Other investing activities
Other financing activities
Change in cash flows for the year per statement of cash flows
Refer to definitions for free cash flows
13 weeks ended
Year ended
December 31,
2011
December 31,
2010
December 31,
2011
December 31,
2010
15,470
15,547
60,284
50,695
(5,318)
(171)
(4,046)
14,357
20,292
(2,104)
-
(14)
(2,317)
15,857
(14,272)
(1,279)
(201)
105
(5,889)
(1,150)
(2,344)
3,145
9,309
(4,984)
-
(1,340)
(1,287)
1,698
(3,036)
1,007
166
(165)
(21,091)
(4,662)
(8,424)
(6,668)
19,439
(21,237)
16,000
(4,468)
(7,537)
2,197
8,567
(3,086)
(3,224)
4,454
(18,319)
(3,866)
(14,156)
1,597
15,951
(9,418)
-
(6,266)
(1,613)
(1,346)
(4,272)
5,115
(3,058)
(3,561)
Cash flows generated by Clearwater’s operations along with cash on deposit and
available credit on the revolving asset-backed loan are used to fund current
operations, seasonal working capital demands, capital expenditures, and other
commitments. Due to the seasonality in Clearwater's business, sales and gross
margins are typically higher in the second half of the calendar year than in the
first half of the year.
Cash flows from operating activities increased in 2011 by $3.5 million to $19.4
million due primarily to a $9.6 million increase in EBITDA and a $8.4 million
reduction in non-EBITDA related expenses offset partially by a increase in the
investment in working capital of $6.7 million.
After deducting fixed charges from cash flow from operating activities, the
resulting free cash flows improved by $3.5 million in 2011 from a negative $1.3
million in 2010 to $2.2 million in 2011. The major changes included a $4.2 million
reduction in investment in property, plant, equipment and other assets (as a
portion of the 2011 investments were funded with long-term debt). In addition,
scheduled payments on long-term debt were $1.8 million lower in 2011. This
improvements were partially offset by an increase in distributions to non-
32
interests of $5.9 million due mainly
the consolidation of
controlling
Clearwater’s frozen-at-sea shrimp and turbot harvesting operations beginning
January 1, 2011 (see section of MD&A entitled “Consolidation of entity previously
proportionally consolidated”).
to
free cash
From
flows Clearwater makes a number of discretionary
payments/creates additional cash flows including repayments and draws on its
revolving debt facility and discretionary financing and investing activities (such as
payments under normal course issuer bids, sales of non-core assets, etc).
Clearwater is focused on managing its free cash flows through:
Managing working capital - Clearwater manages its investment in trade
receivables through a combination of tight collection terms and when
appropriate, discounting. Clearwater limits its investment in inventories
through tight review of any slow moving items, regular review at the
executive level and through continuous improvements in the integration of
its fleet and sales force;
As of December 31, 2011 Clearwater had $9.7 million in cash, and a
revolving loan with an outstanding balance of $17.5 million (excluding
deferred financing charges). The cash balance, together with available
credit on the revolving loan, is used to manage working capital
requirements.
The increase in working capital in 2011 was primarily a result of higher
inventories partially offset by a higher trade accounts payable. Increases
in inventories were a result of a normal and substantial seasonal
investment in lobster inventories as well as due to the timing of landings.
Capital spending - Clearwater plans and manages its annual capital
expenditure programs. Clearwater grades investments in property, plant,
equipment and licences as either return on investment (“ROI”) or
maintenance capital and tracks each on a project-by-project basis.
Significant expenditures that are expected to have an average return in
excess of average cost of capital are classified as ROI, and expenditures
that have less than the average cost of capital are classified as
maintenance as are all refits.
On average, it expects to invest $10-15 million a year in maintaining its
fixed assets with a further $14.4 million of repairs and maintenance
expensed and included in the cost of goods sold. Over the past year
Clearwater invested $21.2 million in fixed assets with approximately $14.4
million related to maintenance activities (such as refits of vessels and
repairs to plants) and $4.1 million to purchase a 40% interest in a
Canadian scallop vessel
to 100%) and
approximately $2.7 million to improve efficiencies in its plants and vessels.
its ownership
(bringing
33
In 2012 it expects to invest approximately $20.3 million, of which $15.5
million relates to maintenance and $4.8 million to investments to improve
efficiencies.
In addition, Clearwater has and will continue to review and liquidate
underperforming and non-core assets. In 2011 Clearwater realized
proceeds of $0.7 million from the sale of non-core quotas. This
substantially completes the program of selling non-core quotas that
management had undertaken in the last several years.
As a result of its continued focus on increasing gross margin and managing its
investments in working capital and capital assets, Clearwater has continued to
improve its liquidity position and it believes that it has sufficient financial
resources to execute on its strategy and business plan.
GLITNIR SETTLEMENT TRANSACTION
On October 7, 2008 the Icelandic Financial Services Authority (“FME”) took
control of Glitnir and subsequently placed it into receivership. Prior to Glitnir’s
receivership CSLP had derivative contracts with Glitnir including foreign
exchange contracts and cross currency and interest rate swaps.
During the course of refinancing debt facilities in June 2009, CSLP and Glitnir
reached an agreement whereby all outstanding foreign exchange contracts were
closed and the potential liability under these contracts was capped at $14.0
million plus interest. As of the fourth quarter of 2011, CSLP had included in
current
interest,
associated with these contracts. CSLP also had a number of interest rate and
cross currency swap contracts with Glitnir to hedge the changes in the Icelandic
Consumer Price Index (“CPI”) and the ISK currency. As of the fourth quarter of
2011, CSLP had included in current liabilities an estimated $10.9 million
associated with these contracts.
liabilities an estimated $16.5 million,
including accrued
On February 28, 2012 Clearwater reported that it has reached an agreement with
Glitnir Banki Hf (“Glitnir”) (“Glitnir settlement transaction”). The agreement
reached with Glitnir provides for the settlement and release of all outstanding
claims amoung CSLP, the Fund and its successor Clearwater Seafoods
Incorporated, and Glitnir in exchange for an immediate cash payment by
Clearwater of Canadian $14.5 million.
Clearwater will fund the payment using Canadian $5.0 million funded from
deposits that Clearwater had maintained for such purpose and had included in
other long-term assets and a $9.5 addition to Clearwater’s existing second lien
term loan facility.
34
As a result of this settlement, Clearwater recognized a gain of approximately
Canadian $12.4 million in the fourth quarter of 2011, being the difference
between the $14.5 million settlement and liabilities recorded for the exchange
contracts and cross currency and interest rate swaps.
This settlement removes uncertainty by bringing closure to a potentially lengthy
legal proceeding. In addition, it allows Clearwater to reduce the volitaility from
our balance sheet and when combined with the recent conversion from a trust to
a corporation, provides the company with a clear and transparent capital
structure.
35 EXPLANATION OF FOURTH QUARTER 2011 EARNINGS
into a publicly
On October 2, 2012 Clearwater Seafoods Income Fund (“the Fund”) was
reorganized
“Clearwater Seafoods
Incorporated”, (“Clearwater”). The 2010 results have been adjusted to reflect the
conversion of the Fund to the corporation for the fourth quarter to provide a
meaningful comparison. [Refer to “Conversion from a Trust to a Corporation” for
further information”].
traded corporation,
In addition the 2010 comparatives have been adjusted for the consolidation of an
entity previously proportionately consolidated in order to provide a meaningful
comparison to the 2011 results. Refer to “consolidation of entity proportionately
consolidated” within the critical accounting policy changes for the calculated
change in the 2010 comparatives.
Overview
The statements of earnings reflect the earnings (loss) of Clearwater for the 13
weeks ended December 31, 2011 and December 31, 2010.
In 000's of Canadian dollars
13 weeks ended December 31
Sales
Cost of goods sold
Gross margin
Administrative and selling
Gain on settlement of Glitnir transaction
Finance costs
Other income
Research and development
2011
2010
$
87,140
67,308
19,832
22.8%
$
83,801
65,878
17,923
21.4%
10,377
(12,445)
4,168
(687)
510
1,923
7,729
-
12,803
(157)
128
20,503
Earnings before income taxes
Income taxes
Earnings (loss)
17,909
1,515
16,394
$
(2,580)
2,388
(4,968)
$
36
Earnings (loss)
In the fourth quarter of 2011 Clearwater reported earnings of $16.4 million, an
improvement of $21.4 million from the same period in 2010. The increase in
earnings for the period is primarily a result of a non-cash gain of $12.4 million on
the Glitnir settlement transaction (refer to financing costs for further information)
and increased gross margins. Details of the changes in earnings are as follows:
In 000’s of Canadian dollars
13 weeks ended December 31
2011
2010
Change
Net earnings
$
16,394
$
(4,968)
$
21,362
Explanation of changes in earnings:
Gain on settlement of Glitnir liabilities
Lower mark to market on long term debt
Higher administration and selling
Higher gross margin
Higher foreign exchange income
All other
12,445
7,177
(2,648)
1,909
1,407
1,072
21,362
$
In the fourth quarter of 2011 strong selling prices and improved foreign exchange
rates for the US dollar and the Japanese Yen, more than offset lower sales
volumes, and higher costs per pound that resulted in improved gross margin.
Clearwater experienced lower volumes in the quarter due primarily to the timing
of landings and deliveries to market as well as vessel repair and maintenance
schedules.
Clearwater reported 2011 fourth quarter EBITDA of $15.5 million on sales of
$87.1 million versus 2010 EBITDA of $15.5 million and sales of $83.8 million
representing consistent EBITDA and sales growth of $3.3 million. Price
increases in the majority of species, particularly clams, scallops, and coldwater
shrimp, offset lower sales volumes for most species and accounted for the
majority of the sales growth.
37
Fourth quarter sales by region
in 000's of Canadian dollars
Quarter ended December 31
Europe
United States
Canada
Asia
Japan
China
Other Asia
Other
$
2011
33,852
13,909
10,271
$
2010
38,557
13,083
9,547
9,553
13,576
5,480
499
87,140
$
7,244
10,723
4,167
480
83,801
$
Change
$ (4,705)
826
724
2,309
2,853
1,313
19
$ 3,339
%
(12.2)
6.3
7.6
31.9
26.6
31.5
4.0
4.0
Europe
Europe is Clearwater’s largest scallop market and it is an important market for
coldwater shrimp products. It has been a growth area for several years
notwithstanding the current challenging economic environment in Europe.
European sales declined $4.7 million, or 12.2%, to $33.9 million for 2011 as a
result of lower available supply volumes for Canadian scallops and lower sales
volumes of Argentine scallops, from the timing of landings and deliveries to
market, partially offset by increased sales prices for the majority of species
including Canadian and Argentine scallops, and frozen-at-sea shrimp..
Overall foreign exchange rates remained consistent for the fourth quarter. The
Euro remained at 1.37 for the fourth quarter of 2011 and 2010, while the
Canadian dollar strengthened against UK Pound 1.8% from 1.602 to 1.572 over
the same period.
United States
The United States is an important market for scallops, coldwater shrimp and
clams. It is our most diverse market, where a wide variety of products are sold.
Sales within the United States increased $0.8 million to $13.9 million for the
fourth quarter of 2011 primarily as a result of an increase in sales prices for
Canadian and Argentine scallops.
The US dollar strengthened against the Canadian dollar during the fourth quarter
of 2011, contributing to the increase in sales prices. Average foreign exchange
rates for the US dollar increased by 1.1% in 2011.
Japan
Japan is our largest clam market and it is also an important market for lobster
and turbot.
38
Sales to Japan increased 31.9% to $9.6 million in 2011, primarily as a result of
improved selling prices for lobster and coldwater shrimp. In addition changes in
sales mix weighted towards product with higher margins for clams resulted in
increased sales, despite the lower volumes.
China
China is an important market for coldwater shrimp, clams, lobster and turbot. It
continues to be a growth market.
Sales to China increased $2.9 million, or 26.6%, to $13.6 million for 2011
primarily as a result of an increase in market demand for coldwater shrimp which
improved selling prices and volumes. Strong selling prices for lobster and
Canadian scallops also increased sales during the quarter.
Chinese sales are transacted in US dollars. The US dollar strengthened against
the Canadian dollar for the fourth quarter of 2011 partially contributing to the
increase in sales price. Average foreign exchange rates for the US dollar
increased by 1.1% in 2011.
Other Asia
Sales within the other Asia region includes sales Korea, Taiwan, Singapore and
other Asian countries. Other Asian countries are an important market for clams,
shrimp and turbot. Sales within other Asia increased 31.5% to $5.5 million due
primarily to an increase in sales prices for clams and shrimp.
Fourth quarter sales by species
in 000's of Canadian dollars
Quarter ended December 31
Scallops
Clams
Lobster
Coldwater shrimp
Crab
Ground fish and other
$
$
2011
28,400
16,514
15,116
24,346
2,382
382
87,140
2010
33,971
15,113
15,853
16,705
914
1,245
83,801
Change
(5,571)
1,401
(737)
7,641
1,468
(863)
$ 3,339
%
(16.4)
9.3
(4.6)
45.7
160.6
(69.3)
4.0
$
$
Sales
Improvements in sales were a result of price increases in all of our product lines.
39
Cost of goods sold
13 weeks ended December 31,
in 000's of Canadian dollars
Harvesting and procurement
Administrative
Freight, customs and other transport
Manufacturing
Depreciation
Other
2011
47,571
3,616
5,468
7,623
3,023
7
67,308
2010
46,782
2,900
5,276
6,600
4,317
2
65,878
Change
789
716
192
1,023
(1,294)
5
1,430
%
1.7
24.7
3.6
15.5
(30.0)
250.0
2.2
Cost of goods sold increased $1.4 million, or 2.2%, to $67.3 million for the
fourth quarter of 2011, primarily due to higher harvesting costs, freight and other
transportation costs and manufacturing costs.
Harvesting and procurement include all costs incurred in the operation of the
vessels including labour, fuel, repairs and maintenance, fishing gear supplies,
and other costs and fees plus procured raw material costs for species such as
inshore lobster, shrimp and crab. Harvesting costs increased as a result of higher
fuel costs and inflation particularly in Argentina. Procurement costs were higher
as shore prices for lobster and snow crab increased.
Fuel costs increased from $4.7 million in 2010 to $6.8 million in 2011. This was a
result of an average increase of the price per litre of fuel of $0.21, and an
increase in volumes consumed from the timing of landings.
Administrative overheads include salaries and benefits, professional and
consulting fees and management fees attributable to the harvesting and
production of goods. Refer to Administrative and selling for further information.
Freight, customs and other transport costs increased 3.6% primarily as a
result of an increase in freight, as fuel costs increased globally.
Depreciation expense from assets used in the harvesting and production of
goods declined $1.3 million to $3.0 million as a result of vessel refits that were
fully amortized by the end of the fourth quarter.
Manufacturing includes labour costs related to the production and selling of
goods, plant utilities and supplies. Labour costs increased as a result of rising
wages, salaries and benefits.
Gross margin
Gross margin improved $1.9 million, or 10.7% to $19.8 million. Gross margin was
positively impacted by increases in sales prices for all species and an improved
sales mix for clams, offsetting the increase in cost of goods sold.
40
Margins were positively impacted by higher average foreign exchange rates for
US dollars and Japanese Yen that resulted in an improvement in sales and gross
margin of $1.3 million. Lower foreign exchange rates for the Euro and the UK
pound partially offset the exchange impact from US dollars and Japanese Yen.
The net positive impact from foreign exchange was an increase of sales and
gross margin of $1.2 million, for the fourth quarter of 2011.
Quarter ended December 31
2011
2010
Average
rate
Currency
% sales
realized % sales
US dollars
Euros
Japanese Yen
UK pounds
Canadian dollar and other
47.8%
20.1%
12.7%
5.8%
13.6%
100.0%
1.024
1.369
0.013
1.572
36.8%
36.0%
8.8%
3.9%
14.5%
100.0%
Average
rate
realized
Change
in rate
1.013
1.375
0.012
1.602
1.1%
-0.5%
8.5%
-1.8%
Administration and selling
In 000's of Canadian dollars
13 weeks ended December 31
Employee compensation
Consulting and professional fees
Other
Selling costs
Travel
Occupancy
Donations
Allocation to cost of goods sold
$
$
$
2011
8,684
1,221
884
1,263
606
315
344
(2,940)
10,377
2010
6,703
1,114
809
418
389
354
139
(2,197)
7,729
Change
1,981
107
75
845
217
(39)
205
(743)
2,648
%
29.6
9.6
9.3
202.2
55.8
(11.0)
147.5
33.8
34.26
$
$
$
Administration and selling costs increased $2.6 million or 34.3% for 2011
primarily as a result of an increase in salaries and employee benefits. In addition
severance costs for salaried employees increased during the quarter.
Selling costs include advertising, marketing, trade shows, samples, product
development and bad debt expenses. The increase in costs of $0.8 million to
$1.3 million primarily relates to an increase in bad debt expense in 2011.
The allocation to cost of goods sold reflects costs that are attributable to the
production and sale of goods and are allocated on a proportionate basis to
production volume. The increase in this allocation in 2011 is directly attributable
to the increase in selling and administrative costs.
41
Gain on settlement of Glitnir transaction
On February 28, 2012 Clearwater reported that it has reached an agreement with
Glitnir Banki Hf (“Glitnir”) regarding disputed derivative contracts, interest rate
swaps and damage claims (refer to details on the “Glitnir settlement transaction”
for further information).
The agreement reached with Glitnir provides for the settlement and release of all
outstanding claims against Clearwater Seafoods Partnership (“CSLP”), the Fund
and its successor Clearwater, and Glitnir in exchange for an immediate cash
payment by Clearwater of Canadian $14.5 million.
As a result of this settlement, Clearwater recognized a gain of approximately
Canadian $12.4 million in the fourth quarter of 2011, the difference between the
$14.5 million settlement and the liabilities recorded at the end of 2011 for the
exchange contracts and cross currency and interest rate swaps.
Finance costs
In 000’s of Canadian dollars
13 weeks ended December 31
Interest and bank charges
Amortization of deferred financing charges
Interest on current and long term debt
Fair value adjustment on convertible debentures
Foreign exchange and derivative contracts
Debt refinancing fees
$
2011
5,257
416
5,673
27
(1,484)
(48)
4,168
$
$
2010
4,681
1,110
5,791
7,204
(77)
(115)
12,803
$
Interest on long-term debt remained consistent during the period as a decline
in deferred financing charges offset the increase in cash interest expense. The
main reason for the increase in interest rates was an increase in interest rates
from 7.0% to 10.5% on a series of convertible debentures agreed to as part of an
extension agreement. In the fourth quarter of 2011 interest expense includes
approximately $0.4 million of amortization of deferred financing charges
compared to $1.1 million for 2010. Deferred charges in 2010 included
approximately $0.8 million of non-cash amortization related to the ISK bond
payable and the term loans, which were refinanced during the first quarter of
2011.
The fair value mark-to-market adjustment on the convertible debentures varies
period to period depending on the estimated fair value of the debentures. In
2010 the value of the debentures increased by $7.2 million as they recovered
from all time low trading values in 2008/2009. In 2011 the fair value continued to
improve but the rate of improvement slowed as they neared their face and
redemption value.
42
Foreign exchange and derivative contracts
In 000’s of Canadian dollars
13 weeks ended December 31
Realized loss (income)
Foreign exchange contracts
Working capital
Unrealized (gain) loss
Foreign exchange on long term debt
Mark-to-market on foreign exchange contracts
Mark-to-market on interest and currency swaps
2011
2010
$
809
2,164
2,973
$
(218)
1,771
1,553
(920)
(3,537)
-
(4,457)
(2,031)
101
300
(1,630)
$
(1,484)
$
(77)
Clearwater has a targeted foreign exchange program. This program focuses on
using forward contracts (up to $175 million in nominal value of forwards, which
equates to approximately 80% of Clearwater’s annual net foreign exchange
exposure). This program enables Clearwater to lock in exchange rates up to 12
months for key sales currencies (the US dollar, Euro, Yen and Sterling).
Clearwater has set up facilities that will provide it with the ability to hedge $125 -
$150 million or up to 85% of target coverage. Clearwater’s use of this facility is
governed by the credit available on its operating lines. As to the extent there is a
mark-to-market liability associated with forward exchange contracts, it reduces
Clearwater’s ability to borrow under its asset backed lending facility. Clearwater
plans to expand the use of the program in 2012, subject to credit availability.
Clearwater does not account for its derivative contracts as accounting hedges,
and therefore records the mark-to-market value of the contracts each reporting
period and includes the related non-cash adjustment in income or expense.
Proceeds generated from the derivative contracts are included in realized foreign
exchange income in the period in which the contract is settled.
Foreign exchange gains increased $1.4 million for the fourth quarter of 2011
due primarily to unrealized gains on mark-to-market adjustments on foreign
exchange derivative contracts, primarily Euro contracts in place above spot rates.
Realized losses increased $1.4 million to $3.0 million in 2011 primarily as a result
of a loss of $0.8 million in 2011 versus a gain of $0.2 million in 2010 in realized
foreign exchange contracts that settled during the fourth quarter. In addition
losses on working capital translation increased $0.4 million during the same
period.
Unrealized gains increased $2.8 million to $4.5 million in 2011 primarily from a
gain of $3.5 million in 2011 versus a loss of $0.1 million in 2010 for unsettled
foreign exchange contracts. In addition, the translation of Clearwater’s US dollar
long-term debt resulted in a gain of $1.0 million during the quarter. In 2010
43
losses related to the mark-to-market on the interest and currency swaps relate to
cross-currency interest rates swaps that were in dispute with Glitnir. Please refer
to the section “Glitnir Settlement Transaction” for further details.
Research and development relates to new technology and research into ocean
habitats and fishing grounds. Research and development can vary year to year
depending on the scope, timing and volume of research completed.
44
OUTLOOK
Management is pleased by the fourth quarter and annual results for 2011 as well
as the increasing global consumer and customer demand for our premium, wild,
sustainably harvested seafood. We will continue to execute against our overall
business strategy as well as key cost-saving and productivity initiatives.
Furthermore, market demand for our products continues to be strong across all
major segments and we believe that our earnings momentum will continue
through 2012.
Management’s commitment to creating shareholder value
There are seven key initiatives that management is pursuing to continue to
create value for the shareholders. They include:
1. Growing EBITDA sustainably - Clearwater has demonstrated its ability
to consistently grow EBITDA in a sustainable manner over the past three
years increasing EBITDA from $34.0 million in fiscal year 2008 to $60.3
million in 2011. Management believes that our earnings momentum will
continue through 2012.
2. Focusing on generating free cash flows - Clearwater’s management is
focused on generating free cash flows. They plan to accomplish this
through generating strong cash earnings, maintaining the working capital
management, selling non-core assets and carefully planning and
managing Clearwater’s capital expenditure program.
3. Improving leverage and committing to leverage targets - Clearwater
has reduced its leverage as a multiple of EBITDA below 4 over the past
three years from 6.71 as of December 31, 2008 to 3.85 at December 31,
2011 and has committed to further reductions to achieve a target of 3.0 by
December 31, 2014 by increasing earnings and using its free cash flow to
reduce debt. Management believes that lower leverage will position the
business positively with debt rating agencies and lenders and ultimately
allow Clearwater to lower its cost of debt.
4. Improving the capital structure - In the fourth quarter 2011 management
completed the conversion of the public entity from a trust to a corporate
structure, making the structure more efficient and transparent for both
investors and lenders. In addition, in early January 2012 Clearwater
settled ongoing disputes with Glitnir for $14.5 million, removing uncertainty
by bringing closure to potentially lengthy legal proceeding and resulting in
a gain of $12.4 million.
45
5. Focused management of foreign exchange - Over the past year
Clearwater has implemented a focused and targeted foreign exchange
hedging program to reduce the impact of volatility in exchange rates on
earnings. This combined with stronger processes for price management
has reduced the impact of exchange rate volatility on the business.
6. Building world class leadership, management, sales and marketing
capabilities - Over the past year Clearwater has appointed two new
positions, Chief Commercial Officer and Chief Talent Officer and the
company has begun to implement best in class programs for key account
management and new product development. Mr. Greg Morency, the Chief
Commercial Officer, who has held senior leadership positions at Heinz,
Unilever, International Paper and Tate & Lyle, is responsible for sales and
marketing. Mr. David Rathbun, the Chief Talent Officer, is responsible for
human resource strategy. Mr. Rathbun has held senior positions at
Xwave, BellAliant and Maritime Life. Mr. Morency and Mr. Rathbun bring
best
to sales, marketing and human resource
management.
in class practices
7. Communicating the underlying asset values - Clearwater has an
industry-leading portfolio of quotas that provide strong security of
underlying value to lenders and investors. The fair market value for these
quotas is much greater than the carrying values recorded in the financial
statements. Furthermore, the company has and continues to make
focused investments to maintain the value and improve the efficiency of its
vessels and plant assets, both of which serve to support strong asset
values. During 2011 Clearwater invested approximately $21.2 million in
its plant and vessel upgrade program. In 2012 Clearwater plans to invest
a further $20.3 million.
In 2011 management developed financial targets for these initiatives including:
Annual sales growth of 5% or greater
Annual EBITDA as a percentage of sales of 15% or greater
Return on assets of 12% or greater
Leverage (debt to EBITDA) of 3 times by December 31, 2014
The sales and EBITDA ratios are annual goals whereas the return on assets and
leverage ratios will be accomplished over time. Management will provide
quarterly updates on progress towards these goals throughout 2012.
Management believes that it has the correct strategies and focus to enable
improved results and provide sustainable competitive advantage and long-term
growth. These strategies include:
1.
2.
Expanding access to supply;
Targeting profitable and growing markets, channels and customers;
46
3.
4.
5.
6.
Innovating and positioning our products to deliver superior customer
satisfaction and value;
Increasing margins by
management;
Preserving the long-term sustainability of our resources; and
Improving our organizational capability and capacity, talent, diversity
and engagement
realization and cost
improving price
Management also believes that it has the people, processes and financial
resources to execute this strategy to create value for its shareholders.
RISKS AND UNCERTAINTIES
Clearwater’s income and cash flow are generated from and fluctuate with, the
performance of its business, which is susceptible to a number of risks, including
risks related to resource supply, food processing and product liability, suppliers,
customers, competition and foreign exchange exposure and lawsuits in the
normal course of business. For further disclosure of additional risk factors please
refer to the Annual Information Form.
Foreign exchange risk
Our financial results are subject to volatility as a result of foreign exchange rate
fluctuations.
The majority of Clearwater’s sales are outside to locations outside Canada and
are transacted in currencies other than the Canadian dollar whereas the majority
of our expenses are in Canadian dollars. As a result, fluctuations in the foreign
exchange rates of these currencies can have a material impact on our financial
condition and operating results.
Risks associated with foreign exchange are partially mitigated by:
(1) Diversify sales internationally which reduces the impact of any
country-specific economic risks on its business.
(2) Execute on pricing strategies so as to offset the impact of exchange
rates
(3) Limit the amount of long-term sales contacts – Clearwater has few
customers with long-term sales contracts. The limited number of sales
contracts are all limited to short time period, typically less than 6
months and are based on list prices that provide a margin for
exchange rate fluctuations, and
47
(4) Use conservative exchange estimates in business plans – Clearwater
regularly reviews economist estimates of future exchange rates and
uses conservative estimates when preparing its’ business plans
(5) Foreign exchange hedging program - Clearwater has a targeted
foreign exchange program. This program focuses on using forward
contracts (up to $175 million in nominal value of forwards, which
equates to approximately 75% of Clearwater’s annual net foreign
exchange exposure). The program enables Clearwater to lock in
exchange rates up to 12 months for key sales currencies (the US
dollar, Euro, Yen and Sterling) thereby lowering the potential volatility
in cash flows from derivative contracts.
Clearwater has set up facilities that will provide it with the ability to
hedge $125 - $150 million or up to 85% of target coverage.
Clearwater’s use of this facility is governed by the credit available on
its operating lines. As to the extent there is a mark-to-market liability
associated with forward exchange contracts, it reduces Clearwater’s
ability to borrow under its asset backed lending facility. Clearwater
plans to expand the use of its program in 2012, subject to credit
availability.
In 2011 approximately 43.1% of Clearwater’s sales were denominated in US
dollars. Based on 2011 sales, a change of 0.01 in the U.S. dollar rate converted
to Canadian dollars would result in a $1.4 million change in sales and gross
profit. Approximately 24.7% of 2011 sales were denominated in Euros, based
on 2011 sales, a change of 0.01 in the Euro rate as converted to Canadian
dollars would result in a $0.6 million change in sales and gross profit. Also,
12.7% of sales in 2011 were denominated in Japanese Yen, based on 2011
annual sales, a change of 0.0001 in the Yen rate as converted to Canadian
dollars would result in a change of $0.3 million in sales and gross profit.
A foreign exchange hedging program provides short-term risk management for
foreign exchange risk. Further strengthening of the Canadian dollar relative to
the currencies of our sales markets will result in lower sales prices and receipts
when converted into Canadian dollars and will have an adverse impact on our
profitability to the extent we are not able to adjust prices and costs to offset this
risk.
Political risk
Our Argentine and other international operations are subject to economic and
political risks, which could materially and adversely affect our business.
Our Argentine and other foreign operations and investments are subject to
numerous risks, including fluctuations in foreign currency, exchange rates and
controls, expropriation of our assets, nationalization, renegotiation, forced
48
divestiture, modification or nullification of our contracts and changes in Argentine
or other foreign laws or other regulatory policies of foreign governments and
having to submit to the jurisdiction of a foreign court or arbitration panel or having
to enforce the judgment of a foreign court or arbitration panel against a sovereign
nation within its own territory. For example, the Government of Argentina
devalued the Argentine Peso in early 2002 and forced the conversion of all
foreign currency bank deposits and many other foreign currency denominated
contracts into Argentine Pesos. The Argentine Government also imposed
temporary restrictions on the ability of companies to transfer and retain cash
outside of Argentina. Our operations in Argentina and elsewhere may be
negatively affected by both foreign exchange and expropriation losses as well as
the increased cost and risks of doing business in developing markets.
We mitigate this risk through maintaining a policy of repatriating our share of the
earnings from Argentina through dividends which are declared as needed. We do
not carry financial assets in Pesos to mitigate exchange risk. In addition we have
structured our operations in Argentina with an Argentine partner who owns 20%
of the Argentine business is resident in Argentina actively managing the
business.
No assurance can be given that our operations will not be adversely impacted as
a result of existing or future legislation.
Resource supply risk
A material change in the population and biomass of scallop, lobster, clam, or
coldwater shrimp stocks in the fisheries in which we operate would materially and
adversely affect our business.
Clearwater's business is dependent on our allocated quotas of the annual TAC
for the species of seafood we harvest. The annual TAC is generally related to
the health of the stock of the particular species as measured by a scientific
survey of the resource. The population and biomass of shellfish stocks are
subject to natural fluctuations which are beyond our control and which may be
exacerbated by factors such as water temperatures, feed in the water, the
presence of predators, disease, disruption in the food chain, reproductive
problems or other biological issues. We are unable to predict the timing and
extent of fluctuations in the population and biomass of the shellfish stocks we
harvest and process, and we therefore may not be able to engage in effective
measures to alleviate the adverse effects of these fluctuations. In addition, the
population models utilized by scientists evaluating the fisheries in which we
operate are constantly evolving. Certain changes in the population models could
negatively impact future biomass estimates. Any material reduction in the
population and biomass or TAC of the stocks from which we source seafood
would materially and adversely affect our business. Any material increase in the
population and biomass or TAC could dramatically reduce the market price of
any of our products.
49
The governments of Canada and Argentina set the annual TAC for each species
by reviewing scientific studies of the resource and then consulting with key
industry stakeholders including us and our competitors to determine agreed
acceptable catch levels. The potentially differing interests of our competitors
may result in conflicting opinions on how to manage the resource, including the
establishment of TACs and other management measures potentially limiting our
ability to grow, to fully capitalize on our investments in harvesting capacity, or to
achieve targeted yields from the resource, which may adversely affect our
financial condition and results of operations.
Resource supply risk is managed through adherence with government policies
and regulations related to fishing in Canada and Argentina and Clearwater’s
investment in science and technology, which enables Clearwater to understand
the species that it harvests. Clearwater has invested in projects with the scientific
community, such as ocean floor mapping and the development of rotational
fishing plans. The guidelines, developed by DFO, are very often a cooperative
effort between industry participants and DFO. Clearwater further mitigates the
risk associated with resource supply and competition through the diversification
across species.
Capital availability and liquidity risk
There are associated with capital availability and liquidity including:
1. The ability of Clearwater (and its affiliates) to obtain sufficient financing for
working capital, capital expenditures or acquisitions in the future or to
repay loans as they become due;
2. Certain borrowings are at variable rates of interest, which exposes
Clearwater to the risk of increased interest rates; and
3. Clearwater may be more vulnerable to economic downturns and be limited
in its ability to withstand competitive pressures if it has high leverage, debt
coverage and limited liquidity.
Clearwater’s ability to make scheduled payments of principal and interest on, or
to refinance, its indebtedness will depend on its future operating performance
and cash flow, which are subject to prevailing economic conditions, prevailing
interest rate levels, and financial, competitive, business and other factors, many
of which are beyond its control.
Clearwater’s credit facilities contain restrictive covenants of a customary nature,
including covenants that limit the discretion of management with respect to
certain business matters. These covenants place restrictions on, among other
things, the ability of Clearwater to incur additional indebtedness, to pay
50
distributions or make certain payments and to sell or otherwise dispose of assets.
In addition, they contain a number of financial covenants that require Clearwater
to meet certain financial ratios and financial condition tests. A failure to comply
with the covenants could result in an event of default, which, if not cured or
waived, could permit acceleration of the relevant indebtedness. If indebtedness
under the credit facilities were to be accelerated, there can be no assurance that
the assets of Clearwater would be sufficient to repay in full that indebtedness.
There can also be no assurance that the credit facilities would be able to be
refinanced. As of December 31, 2011 Clearwater is not in violation of the
restrictive covenants.
Clearwater mitigates capital availability and liquidity risk through a number of its
treasury management policies and goals which promote strong liquidity and
continued access to capital to fund its growth plan. These include policies and
goals with respect to leverage, foreign exchange, lending arrangements and free
cash flows. See the Capital structure and liquidity management section for
further information.
Other risks
For further disclosure of additional risk factors please refer to the Annual
Information Form.
RELATED PARTY TRANSACTIONS
Clearwater rents office space to CFFI and provides computer network support
services to CFFI. CFFI charges management fees to Clearwater for legal,
finance and administration services provided to Clearwater by certain CFFI staff.
These fees apportion the salaries of the individuals providing the services based
on estimated time spent. CFFI charges Clearwater for its use of CFFI aircraft at
market rates per hour of use. CFFI provides guarantees and undertakings to
certain of Clearwater’s lenders.
Clearwater had the following transaction and balances with CFFI, the controlling
hareholder of Clearwater, for the year ended December 31, 2011 and December
31, 2010:
51
Year ended December 31
Management fees charged to Clearwater
Rent and IT service fees charged to CFFI
Aircraft charges to Clearwater
Advances to CFFI
Other charges to CFFI
Purchase of JV partner note receivable from CFFI
Net charged to CFFI
2011
(342)
184
(41)
953
74
(495)
333
2010
(318)
182
(182)
471
199
-
352
Balances due from CFFI
2,107
1,774
The amount due from CFFI is unsecured and has no set terms of repayment.
CFFI has undertaken to pay the balance of the account in 2012 and the account
has been classified as a current asset. No interest was charged for the periods to
December 31, 2011. The account will bear interest from January 1, 2012 at a
rate of 5%. No guarantee fees were charged by CFFI to Clearwater for periods to
December 31, 2011, Fees amounting to 1% of the guarantees will be charged to
Clearwater from January 1, 2012.
In addition Clearwater was charged approximately $0.1 million for vehicle leases
in 2011 (2010 - $0.1 million) and approximately $0.1 million for other services in
2011 (2010 - $0.1 million) by a company related to its parent.
At December 31, 2011 Clearwater had a long-term receivable of $8.3 million
(December 31, 2010 - $2.3 million), included in other receivables, for advances
on dividends and loans made to a non-controlling interest shareholder in a
subsidiary.
CRITICAL ACCOUNTING POLICIES
to make
Clearwater’s critical accounting policies are those that are important to the
portrayal of Clearwater’s financial position and operations and may require
judgments based on underlying estimates and
management
assumptions about future events and their effects. These estimates can include
but are not limited to estimates regarding inventory valuation, accounts
receivable valuation allowances, estimates of expected useful lives of vessels
and plant facilities, and estimates of future cash flows for impairment tests.
Underlying estimates and assumptions are based on historical experience and
other factors that are believed by management to be reasonable under the
circumstances. These estimates and assumptions are subject to change as new
events occur, as more experience is acquired, as additional information is
obtained, and as
Clearwater has
the operating environment changes.
considered recent market conditions including changes to its cost of capital in
making these estimates. Refer to the notes to the annual financial statements for
a complete listing of critical accounting policies and estimates used in the
preparation of the consolidated financial statements.
52
Clearwater reviewed all new accounting standards issued by the CICA in order to
determine the impact of the new standards and has addressed them in the
section entitled “International Financial Reporting Standards” that follows.
Consolidation of entity previously proportionately consolidated
As a result of changes made effective January 1, 2011 to the partnership
agreement that governs Clearwater’s frozen-at-sea shrimp and turbot harvesting
operations, Clearwater began to fully consolidate these operations in 2011.
Previously it included its proportionate 54% share of these operations in its
results. To provide for greater ease of comparison, Clearwater has updated the
2010 comparative figures in the MD&A to full consolidation, which included
increasing sales, cost of goods sold, selling, general and administration, interest
expense and interest expense as follows:
In 000's of Canadian dollars
Revenue
Cost of sales
Gross margin
Administration and selling
Other income
Finance costs
Research and development
Earnings (loss) before income
taxes
Income taxes
2010
MDA*
$77,823
60,440
17,383
7,727
(151)
12,647
128
20,351
(2,968)
2,388
December 31, 2010
13 weeks ended
December 31, 2010
Year ended
Adjustment for
acquisition of
control
Proforma
2010
Note 28 of
the 2011
AFS
Adjustment for
acquisition of
control
Proforma
2010
$5,978
5,438
540
$83,801
65,878
17,923
$
291,116
234,854
56,262
$24,424
21,868
2,556
$315,540
256,722
58,818
2
(6)
156
-
152
7,729
(157)
12,803
128
20,503
28,557
(2,477)
42,482
1,623
70,185
200
(394)
541
-
347
28,757
(2,871)
43,023
1,623
70,532
388
(2,580)
(13,923)
2,209
(11,714)
-
2,388
3,564
-
3,564
Earnings (loss)
* Note: The 2010 results has been adjusted to reflect the coversion from a trust to a corporation. Refer to Note 28 of the financials for further information
($17,487)
($4,968)
($5,356)
$388
$2,209
($15,278)
Conversion from Trust to Corporate Structure and International Financial
Reporting Standards
Conversion from Trust to Corporate Structure
Effective October 2, 2011 the Fund was reorganized from an income trust
structure into a public corporation named “Clearwater Seafoods Incorporated”.
Units of the Fund were exchanged for shares of Clearwater on a 1 to 1 basis.
The business of the Fund has been carried on by Clearwater and the underlying
seafood business operated by CSLP remains unchanged.
Under the reorganization, unitholders of the Fund received one common share of
Clearwater, for each trust unit of the Fund held. As a result, Clearwater has
53
50,947,160 Common Shares issued and outstanding, representing one Common
Share for each of the 27,565,943 Fund Units and the 23,381,217 Special Trust
Units of the Fund that were outstanding immediately prior to the Arrangement.
7914091 Canada Inc., a newly formed holding company owned by Clearwater
Fine Foods Incorporated (“CFFI”) and a major shareholder consolidated their
shareholders in the Fund such that upon conversion of the Fund units into shares
it owns 29,636,076 or 58% of the issued and outstanding Common Shares of
Clearwater.
As a result of the this trust conversion Clearwater controls CSLP with a 100%
ownership and Holdco controls Clearwater with a 58% ownership.
As the original owners of the Fund and CSLP have the same proportionate
interest in the same underlying assets and liabilities, albeit through a different
legal structure, the Conversion has been accounted for as a combination of
entities under common control. Accordingly, Clearwater is considered to be
carrying on the business of the Fund and therefore the carrying amounts of the
Fund become the carrying amounts of Clearwater at the date of the Conversion
and all comparative amounts and results prior to the Conversion are those of the
Fund. Also, as at the date of the Conversion, Clearwater begins consolidating
the carrying amounts of CSLP.
As Clearwater and CSLP were subject to common control for all periods included
in these consolidated financial statements, the comparative and financial
information prior to the Conversion are presented on a combined basis.
reported consolidated statements of
The tables in Note 28 to the 2011 annual financial statements reconcile the
previously
financial position and
consolidated income statement of Clearwater (successor company to the Fund)
and CSLP prepared under Canadian generally accepted accounting standards to
the consolidated statements of financial position presented as at January 1, 2010
and December 31, 2010 and the consolidated income statement presented in the
consolidated financial statements for the year-ended December 31, 2010.
Financial Reporting Standards (“IFRS”)
Effective January 1, 2011 International Financial Reporting Standards (“IFRS”)
replaced Canadian GAAP for publicly accountable enterprises. Accordingly,
Clearwater began reporting under IFRS in the first quarter of 2011 and has
provided comparative figures for 2010 using IFRS.
IFRS 1, which governs the first-time adoption of IFRS, generally requires
accounting policies to be applied retrospectively to determine the opening
balance sheet on our transition date of January 1, 2010, and allows certain
54
exemptions on the transition to IFRS. The elections we have chosen to apply and
that are considered significant to the company include decisions to:
not restate previous business combinations and the accounting thereof;
apply the requirements of IAS 23, Borrowing Costs to capitalize borrowing
costs on qualifying assets effective January 1, 2010;
reset the cumulative translation difference reserve for all foreign
operations to zero at the date of transition to IFRS; and
not retrospectively apply the requirements of IAS 32, Financial
Instruments - Presentation to compound financial instruments settled
before January 1, 2010.
Readers Clearwater’s financial statements should be aware that:
There was no impact on Clearwater’s EBITDA from the adoption of IFRS.
There was no impact on Clearwater’s cash flows from operations and total
cash flows from the adoption of IFRS.
The adoption of IFRS did not impact any of Clearwater’s key lending ratios
All adjustments required to adopt IFRS were non-cash.
Further details on the adoption of IFRS are included in note 28 of Clearwater’s
annual 2011 financial statements.
Adoption of new and revised standards
The following IFRS standards have been recently issued by the IASB: IFRS 9
Financial Instruments, IFRS 13 Fair Value Measurement Arrangements, IFRS 10
Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12
Disclosure of Interests in Other Entities. Clearwater is assessing the impact of
these new standards, but does not expect them to have a significant effect on the
condensed consolidated interim financial statements.
55
SUMMARY OF QUARTERLY RESULTS
The following financial table provides historical data for the twelve most recently
completed quarters.
In 000's of Canadian dollars
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal 2011
Sales
Earnings(loss)
Fiscal 2010
Sales
Earnings (loss)
Fiscal 2009 (Note 1)
Sales
Earnings (loss)
$ 69,235 $ 78,820 $ 97,590 $ 87,140
16,394
(332) 5,065
1,827
$ 69,262 $ 70,844 $ 91,633 $ 83,801
(4,968)
(9,583) (4,990) 4,260
$
71,013
16,600
$
70,176
11,290
$
74,483
684
$
68,394
(2,426)
Note 1: Results for 2010 and 2009 have not been adjusted to reflect (i) the full consolidation of an entity previously
proportionately consolidated and (ii) restated for IFRS or (iii) the conversion to a corporation.
Foreign exchange rates can have a significant impact on the volatility of earnings
in the quarterly results, which include large cash and non-cash gains or losses
related to foreign exchange derivatives.
For a more detailed analysis of each quarter’s results, please refer to our
quarterly reports and our annual reports.
In general, sales increased with each successive quarter with the largest
increase in the third quarter of each year. This is best illustrated by looking at the
2010 quarterly results and 2009 was an exception to that trend as exceptional
high exchange rates in the first half of the year and softer market conditions in
the second half of the year disrupted that trend. This seasonality is more
pronounced in 2010 than it has been in 2008 or 2009.
In addition, volatility in exchange rates can have a significant impact on earnings.
The volatility in earnings for the last eleven quarters is largely driven by
exchange rates and the realized and unrealized gains and losses that resulted on
Clearwater’s derivative and currency and interest rate swaps. Net earnings of
$16.6 million and $11.3 million for the first and second quarter of 2009 primarily
related to significant unrealized and realized gains and losses from mark-to-
market on exchange derivatives and interest and currency swap contracts. All
previous foreign exchange contracts were settled during the first half of 2009 and
the business had no new contracts until late in the third quarter of 2010 and as a
result there has been less exchange rate volatility during the period.
56
As a result of changes made effective January 1, 2011 to the management
agreement that governs Clearwater’s frozen-at-sea shrimp and turbot harvesting
operations, Clearwater began to fully consolidate these operations in 2011
incurring a non-cash gain of $11.6 million in the first quarter of 2011.
DEFINITIONS AND RECONCILIATIONS
Gross margin
Gross margin consists of sales less harvesting, distribution, direct manufacturing
costs, manufacturing overhead, certain administration expenses and depreciation
related to manufacturing operations.
Earnings before interest, tax, depreciation and amortization
Foreign exchange losses and gains other than realized gains and losses on
forward exchange contracts have been excluded from the calculation of EBITDA
due to the variability in these gains and losses. In addition one-time non-
recurring items such as severance charges, provisions on property, plant and
equipment, gain on quota sales, and reorganization costs are excluded from the
calculation of EBITDA.
Earnings before interest, tax, depreciation and amortization is not a recognized
measure under Canadian GAAP, and therefore is unlikely to be comparable to
similar measures presented by other companies. Management believes that in
addition to net earnings and cash provided by operating activities, EBITDA is a
useful supplemental measure from which to determine the Fund’s ability to
generate cash available for debt service, working capital, capital expenditures,
income taxes and distributions. In addition, as EBITDA is a measure frequently
analyzed for public companies, Clearwater has calculated EBITDA in order to
assist readers in this review. EBITDA should not be construed as an alternative
to net earnings determined in accordance with GAAP as an indicator of
performance, as a measure of liquidity, or as a measure of cash flows and
management does not use this measure as a performance measure of earnings.
Reconciliation for the fourth quarter, year to date 2011 and rolling twelve months
ending December 31, 2011 and December 31, 2010:
57
Net earnings (loss)
Add (deduct):
Income taxes
Reduction in foreign currency translation
Depreciation and amortization
Interest on long-term debt and bank charges
Add (deduct) other non-routine items:
Foreign exchange and derivative income unrealized
Fair market value on convertible debentures
Realized foreign exchange on working capital
Restructing and refinancing costs
Provision for underutilized plant and other assets
Gain on sale of quota
Gain on settlement of debt
Loss on disposal of investment
Gain on change in ownership of joint venture
Gain on insurance claim
Stock appreciation rights
EBITDA
13 weeks ended
Year to Date
December
31, 2011
16,394
$
December
31, 2010
1,638
$
December
31, 2011
22,955
$
December
31, 2010
(5,785)
$
1,515
-
5,350
5,674
28,933
(4,458)
1,206
2,164
70
-
-
(12,445)
-
-
-
-
15,470
$
1,390
852
3,510
6,110
13,500
(1,584)
-
1,588
(102)
-
-
-
-
-
404
13,806
$
3,864
-
19,503
26,840
73,162
3,378
1,066
13,827
23,965
36,451
1,525
7,061
2,713
3,736
-
(672)
(14,242)
267
(11,571)
(1,695)
-
60,284
$
926
-
2,284
4,856
1,056
(1,210)
-
-
-
-
404
44,767
$
Note 1: All comparative periods have not been changed to reflect IFRS
adjustments as the impact of IFRS is non-cash and therefore would not impact
the calculation of EBITDA.
Note 2: All comparative periods have not been change to reflect the consolidation
of the entity previously recorded using proportionate consolidation. As a result it
was noted that EBITDA for the fourth quarter of 2010 and year to date 2010
would have been $50.7 million and $15.5 million, respectively if the entity had
been consolidated.
Note 3: Minority interest on total EBITDA has not been reflected in the above
table. The minority interest in EBITDA for the fourth quarter would have been
$3.8 million and $0.4 million for 2011 and 2010, respectively. Minority interest in
EBITDA for year to date period would have been $13.5 million for 2011 and $2.9
million for 2010.
58
Leverage
Leverage is not a recognized measure under Canadian GAAP, and therefore is
unlikely to be comparable to similar measures presented by other companies.
Management believes leverage to be a useful term when discussing liquidity and
does monitor and manage leverage. In addition, as leverage is a measure
frequently analyzed for public companies, Clearwater has calculated the amount
in order to assist readers in this review. Leverage should not be construed as an
indicator of performance, as a measure of liquidity or as a measure of cash flows,
and management does not use this measure as a performance measure of
earnings.
Leverage is calculated by dividing the current and preceding annual EBITDA by
the total debt on the balance sheet adjusted for cash reserves and subordinated
debt (convertible debentures and ISK bonds).
Leverage for banking purposes differs from the above calculations. Clearwater is
in compliance with all of the non-financial and financial covenants associated
with its debt facilities.
In 000's of Canadian dollars
Year ended December 31
EBITDA 1
Net debt
Net debt leverage
Senior debt (per below)
Senior debt leverage
Debt per balance sheet
Less cash
Net debt
Less subordinated debt
Senior debt
First lien loan
Second lien loan
Revolver
Amortizing Term Debt
Non - Amortizing Term Debt
2011
2010
$
60,284
$
44,767
232,375
3.85
140,528
2.33
247,100
(14,725)
232,375
106,572
140,528
198,162
4.43
77,522
1.73
203,433
(5,271)
198,162
125,911
77,522
77,250
45,765
17,513
-
-
140,528
$
-
-
27,254
33,864
16,404
77,522
$
59
Free cash flows
Prior to the third quarter of 2011 Clearwater reported normalized cash flows. In
the third quarter of 2011 management determined that free cash flows would be
a more inclusive measure and has prepared information on that basis with
comparative information.
Free cash flow is not a recognized measure under Canadian GAAP, and
therefore is unlikely to be comparable to similar measures presented by other
companies. Management believes that in addition to net earnings and cash
provided by operating activities, free cash flow is a useful supplemental measure
from which to determine the Clearwater’s ability to generate cash available for
debt service, working capital, capital expenditures and distributions. Free cash
flow should not be construed as an alternative to net earnings determined in
accordance with GAAP, as an indicator of performance, as a measure of liquidity,
or as a measure of cash flows and management does not use this measure as a
performance measure of earnings.
Free cash flow is defined as cash flows from operating activities), less planned
capital expenditures (net of any borrowings of debt designated to fund
purchases), scheduled payments on long term debt and distributions to non-
controlling interests. Items excluded from the free cash flow include discretionary
items such as debt refinancing and repayments, changes in the revolver, and
discretionary financing and investing activities.
Reconciliation of periods ended December 31, 2011 and December 31, 2010:
60
Free cash flows
EBITDA
Less:
Cash interest
Cash taxes
Other non-EBITDA items
Change in working capital
Cash flows from operating activities
Uses of cash:
Purchase of property, plant, equipment, quota and other assets
Less: Designated borrowing to fund purchases
Scheduled payments on long-term debt
Distributions to non-controlling interests
Free cash flows
Add/(less):
Other debt borrowings (repayments) of debt
Other investing activities
Other financing activities
Change in cash flows for the year per statement of cash flows
13 weeks ended
Year ended
December 31,
2011
December 31,
2010
December 31,
2011
December 31,
2010
15,470
15,547
60,284
50,695
(5,318)
(171)
(4,046)
14,357
20,292
(2,104)
-
(14)
(2,317)
15,857
(14,272)
(1,279)
(201)
105
(5,889)
(1,150)
(2,344)
3,145
9,309
(4,984)
-
(1,340)
(1,287)
1,698
(3,036)
1,007
166
(165)
(21,091)
(4,662)
(8,424)
(6,668)
19,439
(21,237)
16,000
(4,468)
(7,537)
2,197
8,567
(3,086)
(3,224)
4,454
(18,319)
(3,866)
(14,156)
1,597
15,951
(9,418)
-
(6,266)
(1,613)
(1,346)
(4,272)
5,115
(3,058)
(3,561)
61
KPMG LLP
Chartered Accountants
Suite 1500 Purdy’s Wharf Tower I
1959 Upper Water Street
Halifax NS B3J 3N2
Canada
Telephone (902) 492-6000
(902) 492-1307
Telefax
www.kpmg.ca
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Clearwater Seafoods Incorporated
We have audited the accompanying consolidated financial statements of Clearwater Seafoods
Incorporated, which comprise the consolidated statements of financial position as at December
31, 2011, December 31, 2010 and January 1, 2010, the consolidated statements of earnings,
comprehensive income (loss), equity and cash flows for the years ended December 31, 2011 and
December 31, 2010, and notes, comprising a summary of significant accounting policies and
other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with International Financial Reporting Standards as issued by
the International Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on
our audits. We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we comply with ethical requirements and plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on our
judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, we
consider internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to
provide a basis for our audit opinion.
© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in Canada.
62
Page 2
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Clearwater Seafoods Incorporated as at December 31, 2011,
December 31, 2010 and January 1, 2010, and its consolidated financial performance and its
consolidated cash flows for the years ended December 31, 2011 and December 31, 2010 in
accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
Chartered Accountants
Halifax, Canada
March 13, 2012
63
Clearwater Seafoods Incorporated
Management’s Statement of Responsibility for Financial Reporting
The consolidated financial statements and all related financial information contained in this annual report,
including Management’s Discussion and Analysis, are the responsibility of the Management of Clearwater
Seafoods Incorporated. They have been prepared in accordance with generally accepted accounting
principles, using management's best estimates and judgments, where appropriate.
Management is responsible for the reliability and integrity of the consolidated financial statements, the
notes to the consolidated financial statements, and other financial information contained in this report. In
the preparation of these statements, estimates are sometimes necessary because a precise determination of
certain assets and liabilities is dependent on future events. Management believes such estimates have been
based on careful judgments and have been properly reflected in the accompanying consolidated financial
statements.
Management is also responsible for maintaining a system of internal control designed to provide
reasonable assurance that assets are safeguarded and that accounting systems provide timely, accurate and
reliable financial information.
The Board of Directors of Clearwater Seafoods Incorporated is responsible for ensuring that management
fulfills its responsibilities for financial reporting and internal control. The Board is assisted in exercising its
responsibilities through the Audit Committee of the Board, which is composed of non-management
directors. The Committee meets periodically with management and the auditors to satisfy itself that
management's responsibilities are properly discharged, to review the consolidated financial statements and
to recommend approval of the consolidated financial statements to the Board.
KPMG LLP, the independent auditors appointed by the Board, have audited Clearwater Seafoods
Incorporated’s consolidated financial statements in accordance with generally accepted auditing standards
and their report follows. The independent auditors have full and unrestricted access to the Audit committee
to discuss their audit and their related findings as to the integrity of the financial reporting process.
March 13, 2012
Ian Smith
Chief Executive Officer
Robert Wight
Vice-President, Finance and Chief Financial Officer
64
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
As at
ASSETS
Current assets
Cash
Trade and other receivables (Note 6)
Inventories (Note 7)
Prepaids and other (Note 8)
Non-current assets
Other receivables (Note 9)
Other assets (Note 10)
Property, plant and equipment (Note 11)
Licences and fishing rights (Note 12)
Goodwill (Note 12)
LIABILITIES
Current liabilities
Trade and other payables
Income tax payable
Current portion of long-term debt (Note 14)
Derivative financial instruments (Note 15(a))
Non-current liabilities
Other liabilities (Note 13)
Long-term debt (Note 14)
Deferred tax liabilities (Note 20)
EQUITY
Trust units (Note 16)
Share capital (Note 16)
Accumulated deficit
Contributed surplus
Cumulative translation account
Non-controlling interest
December 31 December 31
2010
(Note 27)
2011
January 1
2010
(Note 27)
$
9,725
43,830
61,755
9,438
124,748
$
5,271
39,209
47,517
4,446
96,443
$
8,832
29,489
56,051
4,148
98,520
10,293
3,660
129,373
111,700
7,043
262,069
4,890
4,897
113,750
95,129
7,043
225,709
6,251
7,319
119,893
96,515
7,043
237,021
$
386,817
$
322,152
$
335,541
$
40,767
1,984
42,766
22
85,539
$
33,327
2,435
32,924
9,845
78,531
$
31,604
468
89,233
11,242
132,547
-
204,334
2,892
207,226
-
65,309
(835)
-
(3,122)
61,352
32,700
94,052
18,620
170,509
3,128
192,257
162,517
-
(115,551)
1,816
(1,436)
47,346
4,018
51,364
17,685
109,708
3,700
131,093
162,517
-
(96,360)
1,816
-
67,973
3,928
71,901
TOTAL EQUITY AND LIABILITIES
$
386,817
$
322,152
$
335,541
See accompanying notes to consolidated financial statements
Subsequent event (Note 13)
Approved by the Board:
John Risley
Director
Colin MacDonald
Chairman
65
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statement of Earnings
(In thousands of Canadian dollars)
Year ended December 31
Sales
Cost of goods sold
Administrative and selling
Research and development
Gain on settlement of Glitnir transaction (note 13)
Gain on change in control of joint venture (note 4)
Other income (note 17)
Finance costs (note 18)
2011
2010
(Note 27)
$
332,785
263,220
69,565
$
291,116
234,854
56,262
33,345
707
28,557
1,623
(12,445) -
(11,571) -
(2,477)
42,482
70,185
(5,893)
38,604
42,747
Earnings (loss) before income taxes
26,818
(13,923)
Income taxes (note 20)
3,863
3,564
Earnings (loss) for the year
$
22,955
$
(17,487)
Earnings (loss) attributable to:
Non-controlling interest
Shareholders of Clearwater
$
$
6,619
16,336
22,955
1,704
(19,191)
(17,487)
$
$
Basic earnings (loss) per share (note 19)
Diluted earnings (loss) per share (note 19)
$
$
0.45
0.43
$
$
(0.34)
(0.34)
See accompanying notes to consolidated financial statements
66
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Comprehensive Income (Loss)
(In thousands of Canadian dollars)
Year ended December 31
2011
2010
(Note 27)
Earnings (loss) for the year
$
22,955
$
(17,487)
Other comprehensive income - foreign currency translation differences for foreign
operations
(1,686)
(1,436)
Total Comprehensive income (loss)
$
21,269
$
(18,923)
Total comprehensive income (loss) attributable to:
Non-controlling interest
Shareholders of Clearwater
$
$
6,619
14,650
21,269
1,704
(20,627)
(18,923)
$
$
See accompanying notes to consolidated financial statements
67
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Equity
(In thousands of Canadian dollars)
Common
Shares
Accumulated
Deficit
Contributed
Surplus
Trust units
Cumulative
Translation
Account
Non-
controlling
interest
Total
Equity
Balance at January 1, 2010
$
162,517
$
-
$
(96,360)
$
1,816
$
-
$
3,928
$
71,901
Total comprehensive income for the year
Transactions recorded directly in equity -
distributions to non-controlling interest
(19,191)
(1,436)
1,704
(1,614)
(18,923)
(1,614)
Balance at December 31, 2010
$
162,517
$
-
$
(115,551)
$
1,816
$
(1,436)
$
4,018
-
51,364
$
Balance at January 1, 2011
$
162,517
$
-
$
(115,551)
$
1,816
$
(1,436)
$
4,018
$
51,364
Total comprehensive income for the year
Transactions recorded directly in equity
Distributions to non-controlling interest
Purchase and cancellation of shares
Change in control on acquisition of joint venture
Total transactions with unitholders
-
-
(571)
-
(571)
-
-
-
-
-
16,336
-
(73)
(73)
-
-
-
-
-
Trust conversion, Oct 2, 2011 (note 16)
(161,946)
65,309
98,453
(1,816)
(1,686)
6,619
21,269
-
-
-
-
-
(7,537)
-
29,600
22,063
(7,537)
(571)
29,527
21,419
-
-
Balance at December 31 , 2011
$
-
$
65,309
$
(835)
$
-
$
(3,122)
$
32,700
$
94,052
See accompanying notes to consolidated financial statements
68
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
Year ended December 31
NET INFLOW (OUTFLOW) OF CASH RELATED TO THE
FOLLOWING ACTIVITIES:
Operating
Earnings (loss) for the year
Items not involving cash:
Depreciation and amortization
Gain on acquisition of joint venture
Finance costs
Gain on settlement of Glitnir Transaction
Gain on debt reduction
Impairment of property, plant and equipment and other assets
Gain on disposal of property, plant and equipment and quota
Other
Change in non-cash operating working capital
Interest expense
Income tax expense
Interest paid
Income tax paid
Financing
Repayment of long-term debt and swap contracts
Proceeds from long-term debt
Purchase and cancellation of shares
Increase in restricted cash
Cash received on change in control of joint venture (Note 4)
Other
Distributions to non-controlling interest
Investing
Purchase of property, plant, equipment, licenses and other
Proceeds on disposal of property, plant, equipment, quota and other
Increase in long term receivables
Acquisition of other long-term assets
INCREASE (DECREASE) IN CASH
CASH, BEGINNING OF YEAR
CASH, END OF YEAR
2011
2010
(Note 27)
$ 22,955 $ (17,487)
20,603 14,321
(11,571) -
10,618 18,734
(12,445) -
(1,797) -
819 950
(485) (1,868)
- 6
28,697 14,656
(147) 6,019
20,899 18,367
3,863 3,564
(28,603) (24,896)
(5,270) (1,759)
$ 19,439 $ 15,951
$ (102,065) $ (58,347)
122,164 44,809
(508) -
(5,000)
2,646 -
(362) (57)
(7,537) (1,614)
$ 9,338 $ (15,209)
$ (21,237) $ (9,418)
841 3,247
(3,859) 292
(68) 1,576
$ (24,323) $ (4,303)
$ 4,454 $ (3,561)
5,271 8,832
$ 9,725 $ 5,271
See accompanying notes to consolidated financial statements
69
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
1. DESCRIPTION OF THE BUSINESS
Clearwater Seafoods Incorporated (“Clearwater) was incorporated on July 7, 2011 under the
provisions of the Canada Business Corporations Act to facilitate the reorganization of Clearwater
Seafoods Income Fund (the “Fund") from an income trust to a corporate structure (the
“Conversion”).
Clearwater’s sole investment is the ownership of 100% of the units of Clearwater Seafoods Limited
Partnership (“CSLP”).
Clearwater is domiciled at 757 Bedford Highway, Bedford, Nova Scotia, Canada. The consolidated
financial statements of Clearwater as at and for the year ended December 31, 2011, comprise the
company, its subsidiaries and jointly control entities. Clearwater’s business, includes the ownership,
operation and lease of assets and property in connection with the harvesting, processing, distribution
and marketing of seafood.
2. BASIS OF PREPARATION
(a) Conversion to a Corporation
Effective October 2, 2011 the Fund was reorganized from an income trust structure into a public
corporation named “Clearwater Seafoods Incorporated”.
The business of the Fund has been carried on by Clearwater and the underlying seafood business
operated by CSLP remains unchanged.
Under the reorganization, unitholders of the Fund received one common share of Clearwater, for
each trust unit of the Fund held. As a result, as of October 2, 2011, Clearwater had 50,947,160
common shares issued and outstanding, representing one common share for each of the
27,565,943 Fund Units and the 23,381,217 Special Trust Units of the Fund that were outstanding
immediately prior to the reorganization.
7914091 Canada Inc., a newly formed holding company owned by Clearwater Fine Foods
Incorporated (“CFFI”) and a major shareholder (related to the Chairman of Clearwater)
consolidated their shareholdings in the Fund such that upon conversion of the Fund units into
common shares, it owned 29,636,076 or 58% of the issued and outstanding common shares of
Clearwater.
As a result of the Conversion, Clearwater controls CSLP with a 100% ownership and Clearwater
began consolidating CSLP.
As the original owners of the Fund and CSLP have the same proportionate interest in the same
underlying assets and liabilities, albeit through a different legal structure, the Conversion has
been accounted for as a combination of entities under common control using the book values of
the assets and liabilities as recorded in CSLP.
Therefore, the carrying amounts recorded in the financial statements are those of CSLP rather
than those of the Fund.
70
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
As Clearwater and CSLP were subject to common control for all periods included in the
consolidated financial statements, the comparative financial information as at January 1, 2010,
December 31, 2010 and for the year ended December 31, 2011 are represented on a consolidated
basis. Consequently, any references to trust units, unitholders, and per unit amounts relate to
periods prior to the conversion October 2, 2011 and any references to common shares,
shareholders, and per share amounts relate to periods subsequent to October 2, 2011.
The tables in Note 27 reconcile the previously reported consolidated statements of financial
position and consolidated income statement of the Fund and CSLP prepared under Canadian
generally accepted accounting standards to the consolidated statements of financial position
presented in these comparative consolidated financial statements, as at January 1, 2010 and
December 31, 2010 and the comparative consolidated income statement for the year ended
December 31, 2010 prepared in accordance with IFRS.
(b) Statement of Compliance
The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards
Board. These are Clearwater’s first annual consolidated financial statements prepared in
accordance with IFRSs and IFRS 1 First-time Adoption of International Financial Reporting
Standards has been applied.
An explanation of how the transition to IFRSs has affected Clearwater’s consolidated statement
of financial position, statement of income, statement of comprehensive income, statement of
change in shareholders’ equity and statement of cash flows is provided in note 27 – Explanation
of transition to IFRS and conversion from trust to corporate structure.
The financial statements were authorized for issue by the Board of Directors on March 13, 2012.
(c) Basis of Measurement
The consolidated financial statements have been prepared on the historical cost basis except for
the following material items in the statement of financial position:
Derivative financial instruments are measured at fair value
Financial instruments at fair value through profit or loss are measured at fair value
Liabilities for cash-settled share-based payment arrangements are measured at fair
value
Where applicable these differences have been described in the notes.
(d) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is Clearwater’s
functional currency. All financial information presented in Canadian dollars has been rounded
to the nearest thousand.
71
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
(e) Use of judgments and estimates
The preparation of the consolidated financial statements in conformity with IFRSs requires
management to make estimates, judgments and assumptions that materially affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual results may
differ from these estimates.
Estimates are based on management’s best knowledge of the current events and actions that
Clearwater may undertake in the future. These estimates include but are not limited to
estimates regarding inventory valuation, accounts receivable valuation allowances, income
taxes, estimated useful lives of quotas, licenses, property, plant and equipment, and estimates of
future cash flows for impairment tests.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimates are revised and in any
future periods affected.
Information about critical judgments in applying accounting policies that have the most
significant effect on the amounts recognized in the consolidated financial statements is included
in the following notes:
Note 4 – Acquisition of subsidiary and non-controlling interests
Note 7 – Inventories
Note 11 – Property, plant and equipment
Note 12 – Intangible assets and Goodwill
Note 20 – Income taxes
Note 16 – Equity
Information about assumptions and estimation uncertainties that have a significant risk of
resulting in a material adjustment in the next financial year are included in the following notes:
Note 13 - Other liabilities
Note 26 - Contingent liabilities
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements and in preparing the opening IFRS statement of financial position at
January 1, 2010 for the purposes of the transition to IFRSs, unless otherwise indicated.
(a) Basis of consolidation
i) Business Combinations
Clearwater measures goodwill as the fair value of the consideration transferred including
the recognized amount of any non-controlling interest in the acquiree, less the net
recognized amount (generally fair value) of the identifiable assets acquired and liabilities
72
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
assumed, all measured as of the acquisition date. When the excess is negative, a bargain
purchase gain is recognized immediately in profit or loss.
Clearwater elects on a transaction-by-transaction basis whether to measure non-controlling
interest at its fair value, or at its proportionate share of the recognized amount of the
identifiable net assets, at the acquisition date.
Transaction costs, other than those associated with the issue of debt or equity securities,
that Clearwater incurs in connection with a business combination are expensed as incurred.
ii) Acquisitions of non-controlling interests
Acquisitions of non-controlling interests are accounted for as transactions with equity
holders in their capacity as equity holders; therefore no goodwill is recognized as a result of
such transactions.
iii) Subsidiaries
Subsidiaries are entities controlled by Clearwater. The financial statements of subsidiaries
are included in the consolidated financial statements from the date that control commences
until the date that control ceases.
iv) Jointly controlled entities
Joint ventures are those entities over whose activities Clearwater has joint control,
established by contractual agreement. The consolidated financial statements include
Clearwater’s proportionate share of the entities assets, liabilities, revenue and expenses
from the date that control commences until the date that control ceases.
v) Transactions eliminated on consolidation
Intercompany balances and transactions, and any unrealized income and expenses arising
from intercompany transactions, are eliminated in preparing the consolidated financial
statements. Unrealized losses are eliminated in the same way as unrealized gains, but only
to the extent that there is no evidence of impairment.
(b) Inventories
Inventories consist primarily of finished goods and are stated at the lower of cost and net
realizable value. Cost includes the cost of materials plus direct labour applied to the product
and the applicable share of manufacturing overheads, administration and depreciation,
determined on a first-in, first-out basis. Net realizable value is estimated selling price in the
ordinary course of business, less estimated costs of completion and selling expenses.
(c) Property, plant and equipment
Property, plant and equipment is measured at cost, less government assistance received,
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
73
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
includes the cost of materials and direct labour, any other costs directly attributable to bringing
the assets to a working condition for their intended use, which they are located, and borrowing
costs for which the commencement date for capitalization is on or after January 1, 2010.
Additions are depreciated commencing in the month that they are available for use. Vessel
refits are capitalized when incurred and amortized over the period between scheduled refits.
Construction in progress assets are capitalized during the construction period and depreciation
commences when the asset is available for use.
Depreciation is provided on a straight line basis to depreciate the cost of each component of an
item of property, plant and equipment over their estimated useful lives. 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. Estimated useful lives are the
following:
Ass et Com ponen t
Ve ssel
Ve ssel eq uipm en t
Building an d w harves
Pla nt equi pm ent
R ate
15 to 30 years
1 to 7 ye ars
20 to 30 years
3 to 17 years
The cost of replacing a part of an item of property, plant and equipment is recognized in the
carrying amount of the item if it is probable that the future economic benefits embodies within
the part will flow to Clearwater, and its cost can be measured reliably. The carrying amount of
the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and
equipment are recognized in profit or loss as incurred.
Gains and losses on disposal of an item of property, plant and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property, plant and
equipment, and are recognized net within other income in earnings or loss.
Depreciation methods, useful lives and residual values are reviewed at each financial year end
and adjusted if appropriate.
(d) Intangible assets
i) Goodwill
Goodwill is the residual amount that results when the purchase of an acquired business
exceeds the sum of the amounts allocated to the net assets acquired, based on their fair
values. Goodwill is allocated to Clearwater’s cash generating units that are expected to
benefit from the acquisition synergies.
Goodwill is measured at cost less accumulated amortization and impairment losses.
74
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
ii) Licenses and fishing rights
Licenses represent intangible assets acquired directly or in a business combination that
meet the specified criteria for recognition, apart from goodwill, and are recorded at their
fair value at the date of acquisition and subsequently carried at cost.
Licenses have indefinite lives, are not amortized and are tested for impairment annually, or
more frequently if events or changes in circumstances indicate that the asset may be
impaired.
Fishing rights arise from contractual rights to fish quotas, have definite lives and are
amortized over the term of the related contract.
(e) Revenue recognition
Clearwater sells seafood in a fresh or frozen state to customers. These sales are evidenced by
purchase orders/invoices, which set out the terms of the sale, including pricing and shipping
terms. Revenue is recognized when persuasive evidence exists that the significant risks and
rewards of ownership have been transferred to the customer, recovery of the consideration is
probable, the associated costs and possible return of the goods can be estimated reliably, there
is no continuing managerial involvement with the goods, and the amount of revenue can be
measured reliably. Revenue is measured at the fair value of the consideration received or
receivable, net of returns and discounts.
(f) Government assistance
Government assistance received by Clearwater relates to items of property, plant and
equipment.
Government assistance is recognized using the net presentation policy whereby the assistance
is deducted from the carrying amount of the relating asset and amortized over the same
estimated useful life of the particular asset to which it relates.
Clearwater does not have any government assistance that could potentially be required to be
repaid, nor are there any forgivable loans.
(g) Financial instruments
Clearwater has the following non-derivative and derivative financial assets and liabilities that
are classified into the following categories:
75
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Financial instrument
Cash
Trade and other receivables
Other receivables
Other assets
Trade and other payables
Long-term debt
Convertible debentures
Forward exchange contracts
Loans and receivables
Category
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Non-derivative financial liabilities
Non-derivative financial liabilities
Measurement Method
Initial: Fair value
Subsequent: Amortized
cost through profit or loss
Derivative financial instruments
Derivative financial instruments
Fair value through profit
or loss
Loans and receivables are financial assets with fixed or determinable payments that are not
quoted in an active market. Loans and receivables are initially recognized at their fair values
plus any attributable transaction costs, and are subsequently measured at amortized cost using
the effective interest rate method, with gains and losses recognized in profit or loss in the
period in which they arise.
Non-derivative liabilities
Non-derivative liabilities are debt securities issued and subordinated liabilities that are initially
measured at fair value plus attributable transactions costs, and subsequently measured at
amortized cost, with gains and losses recognized in profit or loss in the period in which they
arise.
Compound and derivative financial instruments
Clearwater holds compound financial instruments in the form of convertible debentures and
derivative financial instruments in the form of forward exchange contracts that are used to
hedge its foreign currency exposure.
Prior to the Conversion to a corporate structure, as described in note 2(a), the convertible
debentures were convertible into Trust Units. As the Trust Units were redeemable at the option
of the holder and were, therefore, considered puttable instruments in accordance with IAS 32,
Financial Instruments: Presentation, the convertible debentures were considered a liability
containing liability-classified embedded derivatives. The Fund elected to record the full
outstanding amount of each convertible debenture at its fair value with the changes being
recorded in the consolidated statements of earnings and comprehensive income.
At the time of the Conversion, the convertible debentures were amended to provide the
conversion of the debentures into common shares of Clearwater rather than Trust Units. This
was not determined to be a substantial modification of the instrument. Following the
Conversion, the convertible debentures are determined to be a compound financial instrument
with the conversion option recorded in equity. The debt component of the convertible
debenture continues to be recorded at fair value through profit or loss following the Conversion
as the original instrument was accounted for in its entirety at fair value with the changes being
recorded in the consolidated statements of earnings and comprehensive income.
76
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
The forward exchange contracts are derivative financial instruments and are recorded on the
balance sheet at fair value with all changes in fair value recorded through profit or loss.
(h) Impairment
i) Financial assets
Financial assets are assessed at each reporting date to determine whether there is objective
evidence that it is impaired. A financial asset is impaired if objective evidence indicates that
a loss event has occurred after the initial recognition of the asset, and that the loss event had
a negative effect on the estimated future cash flows of that asset that can be estimated
reliably. Objective evidence that financial assets are impaired can include default or
delinquency by a debtor, restructuring of an amount due to Clearwater on terms that
Clearwater would not consider otherwise or indications that a debtor will enter bankruptcy.
Clearwater considers evidence of impairment for receivables on a customer specific basis.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as
the difference between its carrying amount and the present value of the estimated future cash
flows discounted at the asset’s original effective interest rate. Losses are recognized in profit
or loss and reflected in an allowance account against receivables. When a subsequent event
causes the amount of impairment loss to decrease, the decrease in impairment loss is
reversed through profit or loss.
ii) Non-financial assets
Clearwater reviews non-financial assets each reporting date to determine whether there is
any indication of impairment. If any such indication exists, then the asset’s recoverable
amount is estimated. For goodwill and intangible assets that have indefinite useful lives, the
recoverable amount is estimated each year at the same time.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use
and its fair value less costs to sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
For the purpose of impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash inflows from continuing use
that are largely independent of the cash inflows of other assets or groups of assets (the
“cash-generating unit, or CGU”). For the purposes of goodwill and intangible asset
impairment testing, goodwill and the intangible assets acquired in a business combination is
allocated to the CGU, or the group of CGUs, that is expected to benefit from the synergies
of the combination. This allocation is subject to an operating segment ceiling test and
reflects the lowest level at which that asset is monitored for internal reporting purposes.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its
estimated recoverable amount. Impairment losses are recognized in profit or loss.
Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying
77
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
amount of any goodwill allocated to the CGUs, and then to reduce the carrying amounts of
the other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets,
impairment losses recognized in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed if
there has been a change in the estimates used to determine the recoverable amount. An
impairment loss is reversed only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined, net of depreciation or
amortization, if no impairment loss had been recognized.
(i) Translation of foreign currency
i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies at
exchange rates at the dates of the transactions. Monetary assets and liabilities denominated
in foreign currencies at the reporting date are retranslated to the functional currency at the
exchange rate at that date.
Non-monetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction.
ii) Foreign operations
The assets and liabilities of foreign operations, including goodwill, other intangible assets
and fair value adjustments arising on acquisition, are translated to Canadian dollars at
exchange rates at the reporting date. The income and expenses of foreign operations are
translated to Canadian dollars at exchange rates at the dates of the transactions.
Foreign currency differences are recognized in other comprehensive income in the
cumulative translation account.
When a foreign operation is disposed of, the relevant amount in the cumulative amount of
foreign currency translation differences is transferred to profit or loss as part of the profit or
loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the
relevant proportion of such cumulative amount is reattributed to non-controlling interest. In
any other partial disposal of a foreign operation, the relevant proportion is reclassified to
profit or loss.
(j) Income taxes
Prior to the conversion (as described in Note 2(a)) the portion of Clearwater’s income earned
through a partnership was not subject to tax. As a corporation, all Clearwater’s income is
subject to tax.
Income tax expense is comprised of current and deferred income tax. Current tax and deferred
income tax are recognized in profit or loss except to the extent that it relates to a business
combination, or items recognized directly in equity or in other comprehensive income.
78
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Current tax is the expected tax payable or receivable on the taxable income or loss for the
period, using tax rates enacted or substantively enacted at the reporting date, and any
adjustments to tax payable in respect of previous years. Taxable earnings differs from earnings
as reported in the consolidated income statement because of items of income or expense that
are taxable or deductible in years other than the current reporting period or items that are never
taxable or deductible.
Deferred tax is recognized in respect of 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: 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 temporary
differences when they reverse, based on the laws that have been enacted or substantively
enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities and assets, and they relate to income taxes
levied by the same tax authority on the same taxable entity, or on different tax entities, but they
intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities
will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, and deductible temporary differences,
to the extent that it is probable that future taxable profits will be available against which they
can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realized.
(k) Borrowing costs
Clearwater capitalizes borrowing costs directly attributable to the acquisition, or construction of
its qualifying assets as they are being constructed. Other borrowing costs are recognized as an
expense of the period in which they are incurred.
(l) Finance costs
Finance costs comprise interest expense on borrowings, changes in the fair value of financial
assets and liabilities at fair value through profit or loss, impairment losses recognized on
financial assets and liabilities, gains and losses on financial instruments that are recognized in
profit or loss. Borrowing costs determined to be period costs, or the amortization of such costs
through profit or loss.
Foreign currency gains and losses are reported on a net basis.
(m) Stock-based compensation
Clearwater operates a phantom stock plan that provides for the granting of share appreciation
rights (“SARs”) and other cash-based awards to certain employees. The expense associated
with this plan is determined based on the fair value of the liability at the end of the reporting
period until the award is settled. The liability is included in trade and other payables in the
consolidated statement of financial position. The expense is recognized over the vesting
79
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
period, which is the period over which all of the specified vesting conditions are satisfied. As
the awards under this plan have graded vesting, the fair value of each tranche is recognized in
administration expense over its respective vesting period. At the end of each reporting period,
Clearwater re-assesses its estimates of the number of awards that are expected to vest and
recognizes the impact of the revisions in the income statement.
(n) Earnings per share
Basic earnings per share is calculated by dividing earnings (loss) for the year attributable to the
shareholders of Clearwater by the weighted average number of common shares (units)
outstanding during the period, accounting for any changes to the number of common shares
(units) outstanding during the year.
Diluted earnings per share (units) is calculated by dividing earnings (loss) for the year
attributable to the shareholders of Clearwater by the weighted average number of common
shares (units) outstanding and the voting rights attributable to the outstanding convertible
debentures during the year. The calculation of the potential dilutive common shares (units)
assumes the exercise of all convertible debentures outstanding.
(o) New accounting standards and interpretations
The IASB and International Financial Reporting Interpretations Committee (IFRIC) have
issued the following standards that have not been applied in preparing these consolidated
financial statements as their effective dates fall within annual periods beginning subsequent to
the current reporting period.
Proposed standards
Description
Previous standard
Effective date (i)
IFRS 10 - Consolidated
Financial Statements
IFRS 11 – Joint Arrangements
IFRS 12 – Disclosure of
Interests in Other Entities
IFRS 13 – Fair Value
Measurement
IFRS 9 – Financial Instruments
Builds on the existing principles of control and
elaborates on the definition of control when
determining whether an entity should be
consolidated or not.
Focuses on the rights and obligations of an
arrangement rather than its legal form and
requires a single method to account for interests
in jointly controlled entities.
A new standard detailing disclosure requirements
for all forms of interests in other entities,
including joint arrangements, associates, special
purpose entities and other off-statement of
financial position vehicles.
Sets out a single framework for measuring fair
value and disclosure requirements surrounding
the inputs and assumptions used in determining
fair value.
Initially issued in November 2009 to address the
classification and measurement of financial
assets. Additional guidance issued in October
2010 on the classification and measurement of
financial liabilities.
(i) Effective for annual periods on or after the stated date
IAS 27 – Consolidated
and Separate Financial
Statements
January 1, 2013
IAS 31 – Interests in
Joint Ventures
January 1, 2013
Various - no direct
replacement
January 1, 2013
Various - no direct
replacement
January 1, 2013
IAS 39 – Financial
Instruments: Recognition
and Measurement
January 1, 2015
80
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Management continues to evaluate the potential qualitative and quantitative impact of these
new standards on Clearwater’s financial statement measurements and disclosures.
Management does not anticipate early adopting these standards at this time.
4. ACQUISITION OF SUBSIDAIRY AND NON-CONTROLLING INTERESTS
Business combination
Effective January 1, 2011 Clearwater obtained control of a joint venture, Clearwater Ocean Prawns
Venture, that operates its frozen-at-sea shrimp and turbot harvesting operations in which it has a
53.66% interest. Clearwater obtained control as a result of changes in the partnership agreement that
provide Clearwater the power to govern the financial and operating policies of the entity.
As a result, Clearwater has accounted for this transaction as an acquisition by contract alone and
effective January 1, 2011 began to fully consolidate the results. Previously, this was a jointly
controlled entity and Clearwater included its proportionate 53.66% share of these operations in its
results.
For the year ending December 31, 2011 consolidating this business increased revenue by $28. 1
million and net earnings by $4.9 million.
Identifiable assets acquired and liabilities assumed
(in thousands of dollars)
Cash
Receivables
Inventories
Prepaids
Property, plant and equipment
Fishing rights
Trade payables
Long-term debt
Non-controlling interest in net assets
Total identifiable assets
$
5,710
6,749
4,966
1,466
31,512
24,094
(4,356)
(5,843)
(29,600)
34,698
$
The receivables comprise gross contractual amounts of $6.7 million and no amounts were
determined to be uncollectible subsequent to the acquisition date.
Consideration and gain on acquisition
No cash consideration was transferred as part of this transaction.
The carrying value of Clearwater’s previous net investment in this operation was $22.9 million.
The difference between the carrying value of Clearwater’s net investment and the fair value of the
net assets assumed, being $11.6 million, is recorded as a gain on change in ownership of joint
venture.
81
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Assets acquired and liabilities assumed were recorded at estimated fair values at the date of
acquisition and the non-controlling interest has been measured at its proportionate share of the fair
value of the net assets acquired.
Fair value for the fishing rights was measured through a value in use approach by determining
discounted future cash flows generated from the earnings from operations of the related fishing
rights. The cash flows from operations were based on a combination of past experience for royalty
fees and discount rates of 7.25% representing the weighted average cost of capital. Fair values for
all other assets were based upon carrying values.
5. EMPLOYEE COMPENSATION
Employee compensation is classified in the consolidated statement of earnings based on the related
nature of the service performed. The following table reconciles Clearwater's compensation expense
items to where the amounts are presented on the consolidated statement of earnings:
Year ended December 31
Salaries and benefits
Cash-settled share-based payment transactions
Cost of goods sold
Administrative and selling
6. TRADE AND OTHER RECEIVABLES
Trade account receivables
Due from related parties (note 22)
Other receivables
7. INVENTORIES
Goods for resale
Supplies and other
2011
93,701
903
94,604
69,902
24,702
94,604
$
$
$
$
$
$
$
$
2010
81,410
404
81,814
60,082
21,733
81,814
$
December 31 December 31
2010
31,888
1,781
5,540
39,209
2011
32,480
2,111
9,239
43,830
$
$
$
$
January 1
2010
23,374
1,507
4,608
29,489
$
$
December 31 December 31
2010
40,216
7,301
47,517
2011
53,189
8,566
61,755
$
$
$
January 1
2010
47,770
8,281
56,051
$
$
In 2011, inventory costs of $243.1 million (2010 - $210.2 million) were recognized in cost of sales.
Clearwater incurred $1.7 million (2010 - $0.6 million) in inventory write-downs, which is included
in cost of goods sold.
82
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
8. PREPAIDS AND OTHER
Restricted funds on deposit (note 13)
Prepaids
$
December 31
2011
5,000
4,438
9,438
$
December 31
2010
$
-
4,446
4,446
$
January 1
2010
$
-
4,148
4,148
$
Restricted funds relate to $5.0 million held on deposit for the settlement with Glitnir Banki Hf
(“Glitnir”) (“Glitnir settlement transaction”). Refer to Note 13 for further information on the
agreement.
9. OTHER RECEIVABLES
Notes receivable from non-controlling interest
holder in subsidiary
Advances to non-controlling interest holder in
subsidiary
Advances to fishermen
De ce mbe r 31 De ce mbe r 31
2010
2011
January 1
2010
$ 3,514
$ -
$ -
4,802
2,343 2,947
1,977
$ 10,293
2,547 3,304
$ 4,890 $ 6,251
Notes receivable and advances to non-controlling interest consists of funds that are advanced to a
shareholder in an incorporated subsidiary. The advances are unsecured and have a value of $4.8
million at December 31, 2011 (2010 - $2.3 million).
The notes bear interest at 12%, and are secured by the shares held by the non-controlling interest in
the subsidiary. The notes had a value of $3.5 million at December 31, 2011 (2010 - nil) and have no
set terms of repayment.
Advances to fishermen consist of amounts advanced to various fishermen and are payable from
proceeds of the related catches. The advances bear interest at prime plus 3% (2010- 3%), are due on
demand, and are secured by an assignment of catch, a marine mortgage on the vessels, related
equipment and licenses. They are presented as non-current as the entire balances are not expected to
be repaid in the current year and it is not Clearwater’s intention to demand payment unless the terms
of the advance agreements are not met.
10. OTHER ASSETS
Restricted funds on deposit
Deferred tax assets
Deferred transaction costs on revolving debt
Other
December 31 December 31
2010
2011
$ 93
1,594
1,448
525
$ 3,660
January 1
2010
$ 1,917 $ 3,762
662 643
1,456 2,454
862 460
$ 4,897 $ 7,319
83
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Deferred transaction costs relate to a revolving loan facility and are being amortized over the term
of the related facility which matures in 2015.
11. PROPERTY, PLANT AND EQUIPMENT (“PPE”)
Land
Building and
wharves
Equipment
Vessels
Construction
in progress
Total
PPE
Deferred Gov't
Assistance
Total
Cost
Balance at January 1, 2011
Additions
Disposals
Change in control of a subsidary
Other adjustments
Effect of movements in exchange rates
Balance at December 31, 2011
Depreciation and impairment losses
Balance at January 1, 2011
Depreciation for the year
Disposals
Change in control of a subsidary
Other adjustments
Effect of movements in exchange rates
Balance at December 31, 2011
Carrying amounts
At January 1, 2011
At December 31, 2011
Cost
Balance at January 1, 2010
Additions
Disposals
Other adjustments
Effect of movements in exchange rates
Balance at December 31, 2010
Depreciation and impairment losses
Balance at January 1, 2010
Depreciation for the year
Disposals
Other adjustments
Effect of movements in exchange rates
Balance at December 31, 2010
Carrying amounts
At January 1, 2010
At December 31, 2010
$
$ 314,457 $ (9,667) $ 304,790
$ 74,261 $ 170,277
$ 2,870 $ 64,481
21,237 - 21,237
- 334
1,385 17,675
(6,488) - (6,488)
- (847) (439) (5,202)
23,747 - 23,747
- - 305 23,443
(62) (254) (229) 473
(71) - (71)
(5) (16) (45) (1,149) (282) (1,497) - (1,497)
$ 75,238 $ 205,517 $ 4,129 $ 351,385 $ (9,667) $ 341,718
$ 2,803 $ 63,698
2,568
1,843
-
-
-
$ 66,383 $ 83,336 $ - $ 197,513 $ (6,473) $ 191,040
$ 976 $ 46,818
11 1,558
1,785 15,803 - 19,157 (409) 18,748
- (621) (405) (5,202) - (6,228) - (6,228)
- - 184 8,961 - 9,144 - 9,144
- 148
26 277 - 452 - 452
- (6) (17) (788) - (811) - (811)
$ 67,956 $ 102,387 $ - $ 219,227 $ (6,882) $ 212,345
$ 987 $ 47,897
1,894 17,663
1,816 15,801
7,878 86,941 2,568 116,944 (3,194) 113,750
7,282 103,130 4,129 132,158 (2,785) 129,373
Land
Building and
wharves
Equipment
Vessels
Construction
in progress
Total
PPE
Deferred Gov't
Assistance
Total
$ 74,407 $ 167,065 $ 1,067 $ 310,351 $ (9,567) $ 300,784
$ 2,936 $ 64,876
- 224
1,166 6,356 1,673 9,419 (100) 9,319
(57) (425) (1,182) (1,003) - (2,667) - (2,667)
- (159) (77) (865) (20) (1,121) - (1,121)
(9) (35) (53) (1,276) (152) (1,525) - (1,525)
$ 74,261 $ 170,277 $ 2,568 $ 314,457 $ (9,667) $ 304,790
$ 2,870 $ 64,481
$ 65,668 $ 74,823 $ - $ 186,836 $ (5,945) $ 180,891
$ 967 $ 45,378
9 1,608
1,995 11,370 - 14,982 (528) 14,454
- (48) (1,182) (1,003) - (2,233) - (2,233)
- (114) (82) (1,055) - (1,251) - (1,251)
- (6) (16) (799) - (821) - (821)
$ 66,383 $ 83,336 $ - $ 197,513 $ (6,473) $ 191,040
$ 976 $ 46,818
1,969 19,498
1,894 17,663
8,739 92,242 1,067 123,515 (3,622) 119,893
7,878 86,941 2,568 116,944 (3,194) 113,750
Total depreciation expense of property, plant and equipment for 2011 was $19.2 million (2010 -
$14.8 million). In 2011 $19.0 million (2010 - $13.6 million) of depreciation expense for assts used
in the harvesting and production of goods was classified as cost of goods sold and $0.5 million
(2010 – $1.2 million) in administrative and selling for assets used in administrative activities.
Refer to note 14 for assets pledged as security for long term debt.
84
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
12. INTANGIBLE ASSETS AND GOODWILL
Goodwill
Indefinite life
Licenses
Definite Life
Licenses and
fishing rights
Total
Cost
Balance at January 1, 2010
Disposals
Effect of foreign currency exchange differences
Amortization of deferred gain on fishing rights
$ 15,537 $ 111,100 $ 6,132
- (1,000) -
- (1,104) -
- - 1,153
$
132,769
(1,000)
(1,104)
1,153
Balance at December 31, 2010
Change in ownership on change in control (note 4)
Effect of foreign currency exchange differences
Balance at December 31, 2011
15,537 108,996 7,285 131,818
16,809
- - 16,809
- (948) -
(948)
$ 15,537 $ 108,048 $ 24,094 $ 147,679
Accumulated amortization
Balance at January 1, 2010
Amortization expense
Balance at December 31, 2010
Amortization expense
Disposal
Balance at December 31, 2011
Carrying amounts
At January 1, 2010
At December 31, 2010
At December 31, 2011
$ 8,494 $ 18,693 $ 2,024
- - 435
$
29,211
435
8,494 18,693 2,459 29,646
- - 1,802
1,802
- - (2,512)
(2,512)
$ 8,494 $ 18,693 $ 1,749 $ 28,936
$ 7,043 $ 92,407 $ 4,108 $ 103,558
7,043 90,303 4,826 102,172
7,043 89,355 22,345 118,743
Clearwater maintains fishing licenses and rights to ensure continued access to the underlying
resource. Except for fishing rights, licenses have an indefinite life as they have nominal annual
renewal fees, which are expensed as incurred, and the underlying species are healthy.
Indefinite life licenses and Goodwill
For the purpose of annual impairment testing, goodwill and the indefinite life licenses are allocated
to species to which they relate which represents the lowest group of assets at which goodwill and
intangible assets are monitored for internal management purposes (i.e. CGU’s).
Annual impairment testing for the CGU is performed using a value in use approach. The carrying
amounts for all CGU’s was determined to be higher than its recoverable amount and no impairments
were recorded during 2011 (2010 – nil). The value in use approach was determined by discounting
the future cash flows generated from the continuing earnings from operations for the applicable
CGU. Unless otherwise indicated, the assumptions used in the value in use approach for 2011 were
determined similarly to 2010.
The carrying value of the intangible assets and goodwill by CGU was as follows:
Year ended December 31
Scallops
All other CGU's individually without significant carrying value
2011
62,219
56,524
118,743
2010
63,096
39,076
102,172
85
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
The discounted cash flows used in the value in use approach for the Scallops CGU were based on the
following key assumptions:
i) Cash flows from operations was projected for a period of five years based on a combination
of past experience, actual operating results and 2012 forecasted earnings. Terminal values
and the three additional future periods were extrapolated using inflation rates of 1.0% on
total sales. Annual margins for all future periods were determined using forecasted rates for
2012.
ii) Pre-tax discount rates ranging from 16.2% - 17.4% (January 1, 2010: 14.7% - 16.4%) were
applied in determining the recoverable amount of the CGU. The discount rates were
estimated based upon past experience, weighted average cost of capital, and associated risk
for the CGU.
iii) Free cash flow adjustments such as capital expenditures were based upon 2012 sustaining
capital expenditures, and an estimated vessel refit schedule based upon the useful life of the
related vessels.
The values assigned to the key assumptions represent management’s assessment of future trends in
the industry and the global market and are based on both internal and external sources.
Definite life fishing rights and licenses
Amortization of licenses primarily relates to the definite life license agreements and fishing rights.
This amortization is allocated to the cost of inventory and is recognized in cost of goods sold as
inventory is sold.
In 2011, Clearwater did not dispose of any fishing quotas. In 2010, Clearwater disposed of non-core
groundfish fishing quotas with a net book value of $1.0 million for proceeds of $2.2 million resulting
in a gain of $1.2 million. There were no additions to licenses during 2011 or 2010.
86
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
13. OTHER LIABILITIES
Glitnir note
Accrued interest
Due to joint venture
2011
December 31 December 31
2010
January 1
2010
$ - $ 13,970 $ 13,970
- 1,610 514
- 15,580 14,484
- 3,040 3,201
$ - $ 18,620 $ 17,685
On October 7, 2008 the Icelandic Financial Services Authority (“FME”) took control of Glitnir
Banki Hf (“Glitnir”), a company that previously operated as a financial institution in Iceland, and
subsequently placed it into receivership. Prior to Glitnir’s receivership, CSLP had derivative
contracts with Glitnir including foreign exchange contracts and cross currency and interest rate
swaps.
During the course of refinancing debt facilities in June 2009, CSLP and Glitnir reached an
agreement whereby all outstanding foreign exchange contracts were closed and the potential
liability under these contracts was capped at $14.0 million plus interest (December 31, 2010 - $15.6
million; January 1, 2010: $14.5 million) and CSLP commenced litigation with Glitnir in relation to
damages from Glitnir’s failure to honour a term sheet for a proposed privatization in October 2008,
the foreign exchange contracts and the cross currency and interest rate swaps.
On February 27, 2012 an agreement was reached with Glitnir which provides for the settlement and
release of all outstanding claims against CSLP, the Fund and its successor, Clearwater Seafoods
Incorporated, and Glitnir in exchange for an immediate cash payment by Clearwater of $14.5
million.
Clearwater has funded the payment on February 27, 2012 using $5.0 million in restricted cash that
Clearwater had maintained for such purpose (and had included in prepaids and other) and $9.5
million made available through an amendment to Clearwater’s existing second lien term loan facility
(refer to note 14). As a result of this settlement, Clearwater recorded a gain of approximately $12.4
million.
The due to joint venture amount related to Clearwater’s frozen-at-sea and turbot harvesting
operations and was eliminated upon consolidation as at January 1, 2011 upon the acquisition of
control of these operations (see note 4).
87
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
14. LONG-TERM DEBT
Revolving loan, due in 2015 (a)
Term loans (b)
Senior first lien loan, due 2015
Senior second lien loan, due 2016
Facility A - repaid in February 2011
Facility B - repaid in February 2011
December 31
2011
January 1
2010
$ 17,513 $ 27,254 $ 29,327
December 31
2010
77,250 - -
43,822 - -
- 33,864 37,935
- 16,404 16,051
2013 Convertible Debentures (c)
43,573 43,740 36,049
2014 Convertible Debentures (c)
41,632 37,841 32,626
Bond payable - repaid in February 2011
- 36,937 38,864
Marine mortgage, due in 2017 (d)
4,470 3,135 4,004
Term loan, due in 2091 (e)
3,500 3,500 3,500
Glitnir payable (f)
Other loans
Less: current portion
14,500 - -
840 758 585
247,100 203,433 198,941
(42,766) (32,924) (89,233)
$ 204,334 $ 170,509 $ 109,708
(a) The revolving loan is based on 85% of eligible receivables and approximately 70% of eligible
inventory to a maximum of $50.0 million, denominated in both CDN of $2,870 at December
31, 2011 ($3,472 CDN at December 31, 2010) and USD of $14,398 at December 31, 2011
($24,658 USD at December 31, 2010) and maturing in February 2015. Bearing interest on
CDN balances at a Canadian short-term index margin plus 2.5%. For USD balances the
interest rate is a US index margin plus 3%. As of December 31, 2011 this results in rates of
5.50% for CDN balances and 6.25% for USD balances. The loan is secured by a first charge
on accounts receivable, cash and cash equivalents subject to certain limitations, and inventory
as well as a second charge on marine vessels, licenses and quotas as well as Clearwater’s
investments in certain subsidiaries. The full amount of this loan has been included in the
current portion of long-term debt as it is drawn using short-term instruments that mature from
1-3 months.
(b) Term loans consist of a CDN $77.3 million senior first lien loan facility and a USD $45.0
million senior second lien loan facility.
Senior first lien loan - CDN $77.3 million, repayable in quarterly installments of $2.0 million
with the balance of $52.3 million due at maturity in February 2015. Bearing interest payable
monthly at an annual rate of bank prime plus 3.75%. As of December 31, 2011 this resulted in
a rate of 6.75%. The loan is secured by a second charge on accounts receivable, cash and cash
equivalents subject to certain limitations, and inventory as well as a first charge on marine
vessels, licenses and quotas as well as Clearwater’s investments in certain subsidiaries.
88
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Senior second lien loan - USD $45.0 million, non-amortizing with a maturity of February 2016
bearing interest payable monthly at an annual rate of 12%. As of December 31, 2011 this
resulted in an effective interest rate of 13.35%. The loan is secured by a third charge (after
term and revolving debt facilities) on accounts receivable, cash and cash equivalents subject to
certain limitations, inventory, marine vessels, licenses and quotas as well as Clearwater’s
investments in certain subsidiaries. The balance is shown net of deferred financing charges of
USD $1.9 million. The principal outstanding on December 31, 2011 is CDN $43.8 million.
(c) Clearwater has two series of convertible debentures:
The 2013 Convertible debentures accrue interest at 10.5%, mature on December 31, 2013 and
are convertible at a price of $3.25 per share at the option of the holder. These debentures are
recorded at estimated fair value as outlined in note 3(g) and are redeemable by Clearwater at
face value plus accrued interest. Clearwater repurchased and cancelled $1.7 million of these
debentures in 2011 reducing the principal amount outstanding to $43.4 million as of December
31, 2011.
The 2014 Convertible debentures accrue interest at 7.25%, mature in March 2014 and are
convertible at a price of $5.90 per share at the option of the holder. They are redeemable by
Clearwater at face value plus accrued interest on or after March 31, 2012. Clearwater may
redeem the debentures before March 31, 2012 if the market price of the shares is not less than
125% of the conversion price of $5.90. These debentures are recorded at estimated fair value
as outlined in note 3(g). The principal amount outstanding as of December 31, 2011 was $44.4
million.
To retract either series of debentures, in whole or in part, Clearwater must issue a notice of the
redemption not more than 60 days and not less than 30 days prior to the date of redemption.
Any debenture holder that wishes to convert the Debentures held, rather than to have them
redeemed, must complete and deliver a Notice of Conversion prior to the redemption date.
The convertible debentures are unsecured and subordinated. The debentures pay interest semi-
annually in arrears on June 30 and December 31 for the 2013 debentures and March 31 and
September 30 for the 2014 debentures. Subject to regulatory approval, Clearwater may satisfy
its obligation to repay the principal amount of the debentures on redemption or at maturity, in
whole or in part, by delivering that number of shares equal to the amount due divided by 95%
of the market price of the trust units at that time, plus accrued interest in cash.
(d) Marine mortgage - Due to an acquisition of control in the first quarter of 2011 Clearwater has
included 100% of the mortgage in long-term debt. Prior to the first quarter of 2011 Clearwater
included its 53.66 % of proportionate share. The mortgage is payable in the principal amount
of CDN $929 (December 31, 2010 - $ 1,705), DKK 8,131,232 (December 31, 2010 -
DKK 10,218,338) and YEN 158,758,062 (December 31, 2010 - 188,525,199) bearing interest
at UNIBOR plus 1% payable semi-annually. Principal payments are required annually with
CDN $775,601, DKK 2,087,106 and YEN 29,767,137 due in 2012, CDN $153,870 due in
2013, DKK 2,087,106 and YEN 29,767,137 due in 2013-2014, DKK 1,869,914 due in 2015,
YEN 29,767,137 due in 2015-2016 and YEN 9,922,377 due in 2017. The loan matures in 2017
and is secured by a first mortgage over the related vessel and covenants over certain fishing
licenses.
89
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
(e) Term loan, payable in 2091. In connection with this loan, Clearwater makes a royalty payment
of $275,000 per annum in lieu of interest. This equates to an effective interest rate of
approximately 8%. This loan is measured at amortized cost.
(f) Glitnir payable. On February 27, 2012 Clearwater reached an agreement with Glitnir. The
settlement transaction provides for the settlement and release of all outstanding claims amounts
with CSLP, the Fund and its successor Clearwater Seafoods Incorporated, and Glitnir in
exchange for an immediate cash payment by Clearwater of CDN $14.5 million.
Clearwater will fund the payment using CDN $5.0 million funded from deposits that
Clearwater had maintained for such purpose and had included in prepaids and other and a $9.5
million addition to Clearwater’s existing second lien term loan facility.
15. FINANCIAL INSTRUMENTS
(a) At December 31, 2011 Clearwater had outstanding forward contracts as follows:
Currency
Notional Amount (in 000's) Maturity
Fair Value
(Asset)
Liability
Yen
Euro
1,095,000
15,200
2012 $ (1,097)
2012 1,075
$ (22)
At December 31, 2010, Clearwater had outstanding forward contracts as follows:
Currency
Notional Amount (in 000's) Maturity
Fair Value
(Asset)
Liability
Yen
Euro
410,000
7,500
2011 $ (24)
2011 3
$ (21)
At January 1, 2010, Clearwater did not have any outstanding forward contracts.
Summary of liability position for derivative contracts (refer to Note 13 - other long term
liabilities for settlement of Glitnir transaction):
Con trac ts with Glitnir Ba nki hf
Forward Co ntrac ts
Lia bility p osition
Decem ber 31
2011
Dec embe r 31
20 10
Jan uary 1
2010
$ - $ 9,8 24
21
22
$ 9,8 45
$ 22
11,242
-
11,242
(b) Foreign exchange and derivative contract gains and losses:
90
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Year ended December 31
Realized loss (gain)
Foreign exchange contracts
Mark-to-market on interest and currency
swaps
Working capital
Unrealized (gain) loss
on
Foreign exchange on long term debt
Mark-to-market
contracts
Mark-to-market on interest and currency
swaps
exchange
foreign
2011
2010
$ 2,578 $ (218)
1,048 -
2,712 2,283
6,338 2,065
932 870
(287) 1,475
- (1,419)
645 926
$
6,983
$
2,991
(c) Credit risk:
Credit risk refers to the risk of losses due to failure of Clearwater’s customers or other
counterparties to meet their payment obligations. Clearwater is exposed to credit risk in the
event of non-performance by counter parties to its derivative financial instruments but does not
anticipate non-performance of any of the counter parties as Clearwater only deals with highly
rated financial institutions other than as disclosed within note 13.
Clearwater has significant accounts receivable from customers operating in Canada, United
States, Europe and Asia. Significant portions of Clearwater’s customers from a sales dollar
perspective have been transacting with Clearwater in excess of five years and bad debt losses
have been minimal. Clearwater has a policy of utilizing a combination of credit reporting
agencies, credit insurance, letters of credit and secured forms of payment to mitigate customer
specific credit risk and country specific credit risk. As a result, Clearwater does not have any
significant concentration of credit risk.
As at December 31, 2011, Clearwater’s trade accounts receivable aging based on the invoice due
date is as follows: 97.7% 0-30 days, 0.6% 31-60 days, and 1.7% over 60 days. As at December
31, 2010, Clearwater’s trade accounts receivable aging based on the invoice date is as follows:
98.1% 0-30 days, 0.4% 31-60 days, and 1.5% over 60 days.
The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts of
$0.8 million (2010 - $0.5 million). Clearwater reviews accounts past due on a regular basis and
provides an allowance on a specific account basis. Accounts are only written off completely
when it becomes virtually certain that collection will not occur. Changes in the allowance for
doubtful accounts are summarized in the table below:
91
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
December 31
Opening Balance
Additional allowance
Allowance released
Bad debts written off
Revaluation
Translation
Closing Balance
2011
2010
$
521
$
715
510
(133)
(79)
(9)
28
838
$
98
(122)
(103)
(7)
(60)
521
$
(d) Foreign currency exchange rate risk
Foreign exchange risk refers to the risk that the value of financial instruments or cash flows
associated with the instruments will fluctuate due to changes in foreign exchange rates.
Approximately 80% of Clearwater's sales are in United States dollars and other currencies,
whereas the majority of expenses and any cash distributions are in Canadian dollars. As a result,
fluctuations in foreign exchange rates may have a material impact on Clearwater's financial
results.
Risks associated with foreign exchange are partially mitigated by the fact that Clearwater
operates internationally which reduces the impact of any country-specific economic risks on its
business.
Excluding derivative financial instruments, at December 31, 2011 and December 31, 2010
Clearwater’s balance sheet exposure to foreign currency was as follows (as converted to
Canadian dollars):
December 31
Cash
Accounts receivable
Other accounts receivable
Property, plant and equipment
Accounts receivable long-term
Accounts payable and accrued liabilities
Long-term debt
Net balance sheet exposure
2011
2010
9,780 3,736
28,831 27,564
3,984 4,132
6,465 7,232
7,841 4,191
(11,617) (10,484)
(56,898) (63,625)
(11,614) (27,254)
The components of this net exposure by currency are as follows (in local currency ‘000’s) at
December 31, 2011:
December 31, 2011
GBP
USD
Yen
Euros
RMB
ISK
DKK
Argentine
Peso
Cash
Accounts receivable
Other accounts receivable
Property, plant and equipment
Accounts receivable long-term
Accounts payable and accrued liabilities
Long-term debt
Net balance sheet exposure
168 5,973 233 168 458
1,236 13,171 206,566 7,604 312
(150) 159 - 2,330 -
-
2 117 - -
-
- 3,390 - -
(168) (1,717) (362) (748) -
- (52,465) (158,758) -
-
1,088 (31,372) 47,679 9,354 770
-
-
-
-
-
-
-
-
17,630 48
3,479 20
(52) 4,569
- 29,525
- 20,453
(3,267) (37,383)
(8,131) -
9,659 17,232
92
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
The components of this net exposure by currency are as follows (in local currency ‘000’s) at
December 31, 2010:
December 31, 2010
GBP
USD
Yen
Euros
RMB
ISK
DKK
Argentine
Peso
Cash
Accounts receivable
Other accounts receivable
Property, plant and equipment
Accounts receivable long-term
Accounts payable and accrued liabilities
Long-term debt
Net balance sheet exposure
14,684 3
111 771 401 73 462
4,022 25
849 10,234 122,152 10,340 -
4,705
-
1,740 -
11 651 -
29,157
1 -
6 155 -
-
24 - 256,571 -
- - -
7,983
(709) - (144,089) (607) (27,341)
(165) (1,304) -
- (4,260,302) (5,483) -
- (24,600) (101,162) -
(4,147,820) 12,616 14,532
812 (14,093) 21,391 11,469 462
-
-
-
-
The above items are included in the balance sheet at their carrying values which are materially
equal to fair values other than for long-term debt. The valuation of long-term debt was
conducted using both a discounted cash flow approach and a review of current market values for
the convertible debentures. At December 31, 2011 the estimated fair value of Clearwater’s
foreign currency denominated debt was $65.2 million (2010 - $64.6 million) and the carrying
value was $64.9 million (2010 - $65.2 million).
A 10% increase in the exchange rates relative to the Canadian dollar (i.e. increase is when GBP
moves from 1.58 to 1.74) would result in the following increase (decrease) to net earnings and
net equity:
GBP
USD
Yen
Euros
RMB
ISK
DKK
Argentine Peso
2011
172
(3,191)
63
1,293
12
-
171
370
2010
126
(1,402)
26
1,528
8
(3,609)
225
352
(e) Interest rate risk
Interest rate risk refers to the risk that the value of a financial instrument or cash flow associated
with the instrument fluctuate due to changes in market interest rates. Clearwater manages its
interest rate risk exposure by using a mix of fixed and variable rate debt. Clearwater’s interest
rate risk arises from long term borrowings issued at fixed rates that create fair value interest rate
risk and variable rate borrowings that create cash flow interest rate risk. At December 31, 2011,
approximately 58.9% of the $247.1 million of Clearwater’s debt was fixed rate debt with a
weighted average interest rate of 9.5%. Changes in market interest rates cause the fair value of
long term debt with fixed interest rates to fluctuate but do not affect net earnings, as
Clearwater’s debt is carried at amortized cost and the carrying value does not change as interest
rates change.
A 1% change in interest rates for variable rate borrowings would result in $0.9 million increase
(or decrease) in cash flow interest rate risk.
93
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
(f) Liquidity risk
Liquidity risk is the risk that Clearwater will encounter difficulty in meeting obligations
associated with financial liabilities. Clearwater manages liquidity risk by monitoring forecasted
and actual cash flows, minimizing reliance on any single source of credit, maintaining sufficient
undrawn committed credit facilities and managing the maturity profiles of financial assets and
financial liabilities to minimize financing risk.
The following are the contractual maturities of financial liabilities, including estimated interest
payments at December 31, 2011:
Carrying
Amount
Contractual
Cash Flow
2012
2013
2014
2015
>2016
Long-Term debt
247,100
267,528
36,746
62,045
50,918
67,731
50,088
Trade and Other Payables
40,767
40,767
40,767
-
-
Operating Leases
Financial Instruments
-
22
5,233
2,289
1,218
1,041
22
22
-
-
-
439
-
-
246
-
$
287,889
$
313,550
$
79,824
$
63,263
$
51,959
$
68,170
$
50,334
Included in the above commitments for operating leases are amounts that Clearwater is
committed directly and indirectly through its proportionate share of its joint venture, for various
licenses and lease agreements, office, machinery and vehicle leases. These commitments require
approximate minimum annual payments in each of the next five years as shown above.
Also included in commitments for operating leases are amounts to be paid to a company
controlled by a relative of an officer of Clearwater over a period of years ending in 2015 for
vehicle leases, which aggregate approximately $0.2 million (2010 - $0.2 million).
(g) Fair Value Hierarchy
Assets and liabilities carried at fair value must be classified using a three-level hierarchy that
reflects the significance of the inputs used in making the fair value measurements. The different
levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2: inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from
prices).
Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The table below sets out fair value measurements of financial instruments using the fair value
hierarchy:
94
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
December 31, 2011
Financial Liabilities:
Derivative financial instruments
Convertible debentures
December 31, 2010
Financial Liabilities:
Financial Instruments
Convertible debentures
January 1, 2010
Financial Liabilities:
Financial Instruments
Convertible debentures
Level 1
Level 2
Level 3
$
-
85,205
22
$
-
-
$
-
Level 1
Level 2
Level 3
$
-
81,581
21
$
-
$ 9,824
-
Level 1
Level 2
Level 3
$
-
68,675
$
-
-
$ 11,242
-
There were no transfers between levels during the year ended December 31, 2011, December 31,
2010 or January 1, 2010. The change in the fair value measurement on the financial instruments
of $9.8 million was is included in the mark-to-market of the interest rate and cross currency
swaps until the settlement of the Glitnir transaction was recorded in the fourth quarter of 2011;
refer to Note 15(b).
16. EQUITY
Authorized:
Clearwater is authorized to issue an unlimited number of common shares.
Issued and outstanding:
December 31, 2011
Number of Shares
$
January 1 and December 31, 2010
Number of Shares
$
Common Shares
Trust Units
Special Trust Units
50,948,698 65,309
-
-
-
-
50,948,698 65,309
- -
27,745,695 162,517
23,381,217 -
51,126,912 162,517
Conversion to a Corporation:
On October 2, 2011, as part of the Conversion, CFFI indirectly exchanged 1,275,205 trust units of
the Fund, 23,381,217 Class B limited partnership units of CSLP (Class B LP units) and the
associated special trust units, and 51 common shares of ManPar Inc. (GP common shares) for
24,656,422 common shares of Clearwater. The remaining unitholders of the Fund exchanged their
26,290,738 units of the Fund for common shares of Clearwater.
The $65,309 assigned to the common shares of Clearwater represents the legal stated capital of the
issued common shares on the date of the Conversion plus $529 related to the option to convert
embedded
the convertible debentures
("debentures") attributed to the option to convert was derived by taking the traded values of the
related debentures and deducting the fair value of the liability portion of the debenture. The fair
the convertible debentures. The portion of
in
95
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
value of the liability portion of the debentures was estimated by using a discounted cash flow
approach, estimates of risk free rates of 1.01% to 1.05% and a credit spread of 9.19%. The credit
spread estimate was determined using the convertible bond valuation model, a stock price of $2.35,
a volatility factor of 40% and a dividend yield of nil. The value of the common share was
determined by reference to the closing price of $2.35 per unit of the Class A units of the Fund.
December 31, 2011
Share capital:
Balance beginning of period
Shares issued pursuant to the arrangement
Conversion option embedded in convertible debentures
Issuance of shares on redemption of convertible
debentures
Balance , end of period
#
-
50,947,160
-
1,538
50,948,698
$
-
64,780
529
-
65,309
December 31, 2010
#
$
-
-
-
-
-
-
-
-
Trust units and special trust units:
Balance beginning of period
Purchase of units for cancellation
Trust units cancelled on conversion
Balance , end of period
December 31, 2011
#
51,126,912
(179,752)
(50,947,160)
-
$
162,517
(571)
(161,946)
-
December 31, 2010
#
51,126,912
$
162,517
-
-
-
-
51,126,912
162,517
The difference of $97.2 million between the carrying value of the Fund units at October 1, 2011 of
$161.9 million and the assigned value of the common shares of $64.8 million has been recorded in
accumulated deficit on the date of the Conversion.
17. OTHER INCOME
Year ended December 31
2011
2010
Insurance claims
Royalties and fees
Other fees
Other income
18. FINANCE COSTS
Year ended December 31
Interest expense on financial liabilities measured at amortized cost
Amortization of deferred financing charges
Fair value adjustment on convertible debentures
Foreign exchange and derivative contracts
Debt settlement and refinancing fees
Finance costs
(1,729) -
(1,247) (1,256)
(2,917) (1,221)
$ (5,893) $ (2,477)
2011
2010
20,899 18,367
3,112 4,405
24,011 22,772
5,717 13,421
6,983 2,991
1,893 3,298
38,604 42,482
96
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
19. EARNINGS (LOSS) PER SHARE (UNIT)
The computations for earnings per share (unit) are as follows (in thousands except per share (unit)
data):
2011
2010
Basic
Earnings (loss) attributable to the Shareholders of Clearwater
Weighted average number of shares (units) outstanding
Earnings (loss) per share (unit)
Diluted
Earnings (loss) attributable to the Shareholders of Clearwater
Weighted average number of shares (units) oustanding
Earnings (loss) per share (unit)
$
22,955
51,064,503
0.45
$
$
30,860
72,265,245
0.43
$
$
(17,487)
51,126,912
(0.34)
$
$
(17,487)
51,126,912
(0.34)
$
The weighted average number of shares (units) for the purpose of diluted earnings per share (unit)
reconciles to the weighted average number of shares (units) used in the calculation of basic earnings
per share (unit) as follows:
W eighted average number of shares (units) used
in the calculation of basic earnings per share (unit)
Convertible debentures
2011
2010
51,064,503
51,126,912
21,200,742
-
W eighted average number of shares (units) used in the calculation of
diluted earnings per share (unit)
72,265,245
51,126,912
Earnings (loss) attributable to the Shareholders of Clearwater
Interest on convertible debentures
Diluted earnings (loss) attributable to the Shareholders of Clearwater
22,955
7,905
30,860
(17,487)
-
(17,487)
Diluted earnings (loss) per share for December 31, 2010 is anti-dilutive.
20. INCOME TAXES
The 2011 disclosures for income taxes are reflective of Clearwater after the conversion as
described in Note 2(a). The 2010 disclosures are reflective of Clearwater Seafoods Limited
Partnership as it existed prior to the conversion. Therefore, the 2010 disclosures do not include
certain items or reflect certain items that would otherwise exist if Clearwater Seafoods Limited
Partnership was a taxable entity.
(a) Reconciliation of current income tax
The effective rate on Clearwater's earnings before income tax differs from the expected amount
that would arise using the combined Canadian federal and provincial statutory income tax rates.
The overall effective rate for 2011 is reflective of the decrease in the federal tax rate in 2011 as
compared to 2010. A reconciliation of the difference is as follows:
97
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Year ended December 31
Earnings before income tax
Combined tax rates
Income tax provision at statutory rates
Add (deduct):
Income of Partnership distributed directly to partners
Non-deductible expenses:
(Recognition) benefit of previously unrecorded deferred tax assets
Income of foreign subsidiary not subject to tax
Other
Actual provision
2011
26,818
32%
8,582
(1,642)
3,332
(4,174)
(3,302)
1,067
3,863
%
32%
-6%
12%
-16%
-12%
4%
14.4%
2010
(13,923)
34%
(4,734)
6,773
-
1,543
(1,979)
1,961
3,564
%
34.0%
-49%
0%
-11%
14%
-14%
-25.6%
(b) Income tax expense
The components of the income tax expense for the year are as follows:
December 31
2011
December 31
2010
Current
Deferred (recovery)
(c) Deferred tax liability
$
$
4,833
(970)
3,863
3,866
(302)
3,564
$
$
Significant temporary differences in Clearwater’s subsidiaries and interests in joint ventures that
would give rise to future income taxes are noted below:
Deferred income tax asset:
Loss carry-forwards and future deductible
expenses of foreign subsidiaries, included in
other long-term assets
Deferred income tax liabilities:
Licenses
Property, plant and equipment
Other
December 31
2011
December 31
2010
January 1
2010
$
1,594
$
662
$
643
2,763
8
121
2,892
$
2,958
170
-
3,128
$
3,205
471
24
3,700
$
The change in deferred income tax liabilities net of deferred income tax assets from 2010 to
2011 is reflected in the deferred income tax recovery in 2011 of $1.0 million plus the foreign
exchange effect of deferred taxes of foreign subsidiaries totaling $198, the effect of which was
recorded through foreign exchange. The change from January 1, 2010 to December 31, 2010 is
reflected in the deferred tax recovery in 2010 of $0.3 million plus the foreign exchange effect
of deferred taxes of foreign subsidiaries of $0.3 million.
98
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Clearwater has the following temporary differences and unused tax losses for which no
deferred income taxes have been recognized in the Consolidated Statement of Financial
Position:
Deductible temporary differences
Property, plant and equipment
Licences
Financing fees
Donations
Foreign exchange
Non Capital Loss Carryforwards
Taxable Temporary differences:
Property, plant and equipment
Financing fees
Refit Accrual
Inventory
Other
Net Deductible Temporary differences
(d) Losses and ITC’s
December 31
2011
December 31
2010
$
5,637
5,380
3,436
505
22
73,234
88,214
-
$
14,136
-
-
21
15,756
29,913
-
-
(6,377)
(2,516)
-
(8,893)
79,321
$
(2,379)
(1,872)
(2,419)
(4,934)
(92)
(11,696)
18,217
$
Clearwater, along with its subsidiary corporations have non-capital losses and investment tax credits
available. A breakdown of these losses and investments tax credits are as follows:
Non-capital losses
Investment tax credits
Clearwater
Seafoods Inc.
$
65,150
2,889
Subsidiary
Corporations
$
8,084
1,809
Total
$
73,234
4,698
The non-capital losses in Clearwater will expire from 2026 to 2031. The non-capital losses in the
subsidiary corporations will expire from 2013 to 2031.
The investment tax credits will expire from 2023 to 2031.
(e) Temporary differences associated with investments in subsidiaries
The aggregate temporary difference associated with investments in subsidiaries for which no
deferred tax liabilities have been recorded is $60.7 million. It is not expected that the aggregate
temporary difference will reverse in the foreseeable future.
21. SEGMENTED INFORMATION
Clearwater has one reportable segment which includes its’ integrated operations for harvesting,
processing and distribution of seafood products.
(a) Sales by Species
99
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Year ended December 31
Scallops
Lobster
Clams
Coldwater shrimp
Crab
Ground fish and other
(b) Sales by Geographic Region
Year ended December 31
United States
Europe
France
UK
Other
Asia
Japan
China
Other
Canada
Other
2011
$ 115,843
64,073
61,705
61,946
13,831
15,387
$ 332,785
2010
$ 112,499
61,261
60,122
35,553
8,024
13,657
$ 291,116
2011
$ 55,457
2010
$ 59,277
47,958
17,751
60,987
52,816
16,127
42,373
42,649
46,069
15,034
44,332
2,548
$ 332,785
31,188
22,212
23,754
41,717
1,652
$ 291,116
(c) Non-current Assets by Geographic Region
December 31 December 31
2010
2011
January 1
2010
Property, plant and equipment, licences, fishing rights and goodwill
Canada
Argentina
Other
$ 234,805
13,190
121
$ 248,116
$ 200,966
14,790
166
$ 215,922
$
209,075
14,148
228
$ 223,451
22. RELATED PARTY TRANSACTIONS
(a) Subsidiaries, partnership and joint ventures
Clearwater’s consolidated financial statements include the accounts of the Corporation and its
subsidiaries, partnerships and joint ventures, as follows:
100
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Entity
Clearwater Seafoods Limited Partnership
Clearwater Ocean Prawns Venture
St. Anthony Seafoods Limited Partnership
Adams and Kinckle Limited
Clearwater Seafoods Holdings Incorporated
Clearwater Fine Foods Europe Limited
Clearwater Fine Foods USA Incorporated
Glaciar Pesquera S.A.
(b) Key management personnel
Accounts
Consolidated
Consolidated
Consolidated
Proportionately consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Clearwater has defined key management personnel as senior executive officers, as well as the
Board of Directors, as they have the collective authority and responsibility for planning, directing
and controlling the activities of the Corporation. The following table outlines the total
compensation expense for key management personnel for the years ended December 31, 2011
and 2010.
Year ended December 31
Wages and Salaries
Bonuses
Other Benefits
(c) Transactions with other related parties
$
$
2011
2,311
869
1,040
4,220
2010
1,843
121
469
2,433
$
$
Clearwater rents office space to CFFI and provides computer network support services to CFFI.
CFFI charges management fees to Clearwater for legal, finance and administration services
provided to Clearwater by certain CFFI staff. These fees apportion the salaries of the individuals
providing the services based on estimated time spent. CFFI charges Clearwater for its use of CFFI
aircraft at market rates per hour of use. CFFI provides guarantees and undertakings to certain of
Clearwater’s lenders.
Clearwater had the following transaction and balances with CFFI, the controlling shareholder of
Clearwater, for the year ended December 31, 2011 and December 31, 2010:
Management fees charged to Clearwater
Rent and IT service fees charged to CFFI
Aircraft charges to Clearwater
Advances to CFFI
Other charges to CFFI
Purchase of JV partner note receivable from CFFI
Net charged to CFFI
Balances due from CFFI
December 31
2011
(342)
184
(41)
953
74
(495)
333
December 31
2010
(318)
182
(182)
471
199
-
352
2,111
1,781
101
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
The amount due from CFFI is unsecured and has no set terms of repayment. CFFI has undertaken
to pay the balance of the account in 2012 and the account has been classified as a current asset. No
interest was charged for the periods to December 31, 2011. The account will bear interest from
January 1, 2012 at a rate of 5%. No guarantee fees were charged by CFFI to Clearwater for periods
to December 31, 2011, Fees amounting to 1% of the guarantees will be charged to Clearwater from
January 1, 2012.
In addition Clearwater expensed approximately $0.1 million for vehicle leases in 2011 (2010 - $0.1
million) and approximately $0.1 million for other services in 2011 (2010 - $0.2 million) by a
company related to its parent. The transactions are recorded at the exchange amount and the
balance due to this company was $13 thousand in 2011 ($17 thousand- 2010)
At December 31, 2011 Clearwater had a long-term receivable of $8.3 million (December 31, 2010 -
$2.3 million), included in other receivables, for advances on dividends and loans made to a non-
controlling interest shareholder in a subsidiary (refer to Note 9).
23. JOINT VENTURES
The financial statements include Clearwater’s proportionate share of the assets, liabilities, sales and
expenses of joint ventures, the material elements of which are as follows:
(a) Changes to Joint Venture Partnership Agreement
Effective January 1, 2011 Clearwater obtained control of a joint venture that operates its frozen-
at-sea shrimp and turbot harvesting operations in which it has a 53.66% interest. Clearwater
obtained control as a result of changes to the partnership agreement that provide Clearwater the
power to govern the financial and operating policies of the entity.
Clearwater has accounted for this transaction as an acquisition by contract alone and effective
January 1, 2011 began to fully consolidate the results. Previously, this was a jointly controlled
entity and Clearwater included its proportionate share of these operations in its results. Refer to
acquisition of subsidiary – Note 4 for further information.
As result of the change in control the assets and liabilities resulting from the investment in the
venture were eliminated upon consolidation. This elimination included the due to joint venture
partner that resulted from the capital contribution and the deferred gain that resulted from the
transfer of the fishing rights by Clearwater.
Y ear ended D ecember 31
D ue to Joint V enture
D eferred Gain
2 0 11
2010
$ -
-
$ -
$ 3,040
8,903
$ 11,943
The total deferred gain at December 31, 2010 was $19.2 million and the accumulated
amortization was $10.3 million.
(b) Proportionate share of assets, liabilities, sales, expenses and earnings before taxes as at
December 31:
102
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Effective January 1, 2011, Clearwater began to fully consolidate the results of a jointly
controlled entity that Clearwater previously included its proportionate share of these operations
in its results. Refer to acquisition of subsidiary – Note 4 for further information.
Year ended December 31
Current assets
Property, plant, equipment and other long-term assets
Current liabilities
Long-term liabilities
Sales
Expenses
Earnings before taxes
2011
2010
$ 2,073 $ 11,768
2,533 32,224
3,456
367
2,520
203
144
28,374
(1,887) 24,868
2,031 3,594
(c) Balances, transactions and guarantees with joint venture partners as at December 31:
The following is a summary of the transactions included in the financial statements as at
December 31:
Year ended December 31
Commissions charged to joint ventures
Interest charged to joint ventures
2011
2010
$ 2,777
$ 2
$ 2,802
$ 89
As at December 31, 2011 Clearwater was contingently liable for the obligations of the joint
venture partners in the amount of nil (December 31, 2010 - $3.1 million), however, the joint
venture partners’ share of the assets is available for the purpose of satisfying such obligations.
The book value of these assets is nil (December 31, 2010 - $7.0 million)
The following is a summary of the cash flows from operating, financing and investing for the
year ended December 31:
Effective January 1, 2011, Clearwater began to fully consolidate the results of a jointly
controlled entity that Clearwater previously included its proportionate share of these operations
in its results. Refer to acquisition of subsidiary – Note 4 for further information.
Year ended December 31
Cash flow (used in) from operating activities
Cash flow (used in) from financing activities
Cash flow (used in) from investing activities
2011
2010
$ 1,333
$ 6,578
(1,000) (8,042)
(29) (26)
$ 304
$ (1,490)
103
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
24. CAPITAL DISCLOSURES
Clearwater’s objectives when managing capital are as follows:
To maintain financial flexibility to preserve access to capital markets and meet its financial
obligations
To have sufficient capital to maintain its capital program
To meet requirements of lending facilities
Clearwater’s capital structure includes a combination of equity and various classes of long-term
debt. Clearwater’s objective when managing its capital structure is to obtain the lowest cost of
capital available, while maintaining flexibility and reducing exchange risk and refinancing risk as
appropriate.
Clearwater uses leverage, in particular senior revolving and term debt, to lower its cost of capital.
The amount of senior debt available to Clearwater is a function of earnings that can be impacted by
known and unknown risks, uncertainties, and other factors outside Clearwater’s control including,
but not limited to, total allowable catch levels, selling prices, weather, exchange rates, fuel and
other input costs. Clearwater maintains flexibility in its capital structure by regularly reviewing
forecasts of future results and making any required changes on a timely basis. These changes can
include early repayment of debt, repurchasing units, issuing new debt or equity, extending the term
of existing debt, selling assets to repay debt and if required, limiting distributions paid.
The capital structure is as follows:
104
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Year ended December 31
2011
2010
Equity
Trust units
Common shares
Accumulated deficit
Contributed surplus
Cumulative translation account
Non-controlling interest
Long term debt
Subordinated debt
2013 Convertible debentures
2014 convertible debentures
Non-amortizing debt
Bond payable, due in 2010 and 2013
Term debt, repaid in 2011
Term loan, due in 2091
Second lien loan, due 2016
Amortizing debt
First lien loan, due 2015
Revolving debt, matures in 2015
Term debt, repaid in 2011
Marine mortgage, matures in 2017
Other loans
$ - $ 162,517
65,309 -
(835) (115,551)
- 1,816
(3,122) (1,436)
32,700 4,018
51,364
94,052
43,573 43,740
41,632 37,841
81,581
85,205
-
- 36,937
16,404
3,500 3,500
43,822 -
47,322 56,841
17,513
-
77,250 -
27,254
33,864
4,470 3,135
840 758
100,073 65,011
232,600 203,433
$ 326,652 $ 254,797
25. SHARE-BASED COMPENSATION
Clearwater operates a phantom stock plan that provides for the granting of share (units)
appreciation rights (“SARs”) and other cash-based awards to certain employees. SARs provide the
holder with the opportunity to receive a cash payment equal to the fair market value of Clearwater
Seafood Incorporated’s shares (units) less the grant price. SARs vest over a three year period and
have no expiry. Compensation expense is recognized based on the fair value of the awards that are
expected to vest and remain outstanding at the end of the reporting period.
Clearwater issued its first awards in May 2010.
The movement in the number of awards outstanding and their related weighted average exercise
prices are as follows:
105
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
In thousands
Outstanding at January 1
Granted
Outstanding at December 31
Exercisable at January 1
Granted
Excersisable at December 31
2011
705
0
705
255
150
405
2010
0
705
705
0
255
255
Share-based compensation expense included in the income statement for the year ended December
31, 2011 was $0.9 million (December 31, 2010 - $0.4 million).
The Company recorded a liability for cash-settled share incentive awards of $1.3 million at
December 31, 2011 (December 31, 2010 - $0.4 million).
The following table summarizes additional information relating to the awards outstanding at
December 31, 2011:
Exercise price
0.01
0.80
1.00
As at December 31, 2011
In thousands
Number
outstanding
255
250
200
705
Number
exercisable
255
83
67
405
The fair value of the SARs are expensed over the service period. The fair value of each SAR is
estimated on the date of grant using the Black-Sholes option pricing model. Upon the exercise of
SARs, the rights will be settled in cash.
The fair value of the employee share appreciation rights is measured using the Black-Scholes
formula. Measurement inputs include share price on measurement date, exercise price of the
instrument, expected volatility (based on weighted average historic volatility adjusted for changes
expected due to publicly available information), weighted average expected life of the instruments
(based on historical experience and general option holder behaviour), expected dividends, and the
risk-free interest rate (based on government bonds). Service and non-market performance
conditions attached to the transactions are not taken into account in determining fair value.
The fair value of SARs granted during the years ended December 31, 2011 and 2010, and
the assumption used in their determination are as follows:
106
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Weighted average fair value per option
Weighted average risk-free interest rate
Weighted average expected volatility
Expected life of options (years)
Weighted average dividend yield
Weighted average share price
Weighted average exercise price
26. CONTINGENT LIABILITIES
$
$
2011
2.116
1.73%
64.98%
8.5
Nil
2.39
0.57
2010
0.839
3.12%
60.00%
9.5
Nil
1.02
0.57
$
$
$
$
From time to time, Clearwater is subject to claims and lawsuits arising in the ordinary course of
operations. In the opinion of management, the ultimate resolution of such pending legal
proceedings will not have a material effect on Clearwater’s consolidated financial position. Refer
to Note 13 for further information related to Glitnir.
27. EXPLANATION OF TRANSITION TO IFRS AND CONVERSION FROM TRUST TO
CORPORATE STRUCTURE
As stated in Note 1, these are Clearwater Seafood Incorporated’s first consolidated financial
statements.
The tables in this note reconcile the previously reported consolidated statements of financial
position and consolidated income statement of the Fund and CSLP prepared under Canadian
generally accepted accounting standards (“GAAP”) to the comparative consolidated statements of
financial position as at January 1, 2010 and December 31, 2010 and the comparative consolidated
income statement for the year ended December 31, 2010, presented in accordance with IFRS.
a) Conversion from Trust to Corporate Structure
The main changes to to the represented comparative consolidated financial statements prepared in
accordance with Canadian GAAP as at January 1, 2010 and December 31, 2010 and the year ended
December 31, 2010 are as follows (cross referenced in the following tables):
1. As a result of the external unitholders and CFFI’s contributing, directly or indirectly, all their
ownership of the Fund and CSLP to Clearwater on October 2, 2011, 100% of the assets and
liabilities of CSLP are consolidated with Clearwater.
Previously, the external unitholders of the Fund held 54.27% of the fully diluted ownership of
CSLP while CFFI held 45.73% and maintained the right to elect the majority of the members to
the Clearwater board. As such. the Fund accounted for its investment in CSLP on an equity
basis. With Clearwater owning 100% of the CSLP units the financial position of CSLP is
represented as if it were accounted for on a consolidated basis and the previous equity
accounting by the Fund in the CSLP is eliminated.
As of January 1, 2010 and December 31, 2010 this results in the elimination of intercompany
receivables and payables, the Fund’s investment in CSLP, the Class E & D Units classified as
debt in the CSLP (which virtually mirror the convertible debentures in the Fund) and the Fund’s
resulting unitholder’s equity.
107
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Clearwater consolidates the operating results of the CSLP for the year ended December 31, 2010
and the previous equity accounting for the Fund’s equity earnings from their investment in the
CSLP of $4,063 is eliminated.
The amounts recorded by the Fund for the convertible debentures were higher than amounts
recorded by CSLP for Class D and E units as the Fund did not net deferred financing costs
against the carrying value of the convertible debentures.
CFFI controlled CSLP both before and after the initial public offering in 2002 and therefore the
acquisition of the seafood business by the Fund was accounted for using the book values of the
assets and liabilities as recorded by CFFI.
Therefore, the the carrying amounts recorded in the financial statements are those of CSLP
rather than those of the Fund.
a) Transition to IFRS
As stated in note 2(a), these are Clearwater’s first consolidated financial statements prepared in
accordance with IFRSs.
The accounting policies set out in note 3 have been applied in preparing the consolidated financial
statements for the year ended December 31, 2011, the comparative information presented in these
financial statements for December 31, 2010 and in the preparation of opening IFRS statement of
financial position as at January 1, 2010 (Clearwater’s date of transition).
In preparing its opening IFRS statement of financial position, Clearwater has adjusted amounts
reported in the represented consolidated financial statements prepared in accordance with previous
Canadian GAAP. An explanation of how the transition from previous Canadian GAAP to IFRSs has
affected Clearwater’s financial position, financial performance and cash flows is set out in the
following tables and notes that accompany the tables.
IFRS 1 First-time adoption of International Financial Reporting Standards (“IFRS 1”), which
governs the first-time adoption of IFRS, generally requires accounting policies to be applied
retrospectively to determine the opening balance sheet on our transition date of January 1, 2010, and
allows certain exemptions on the transition to IFRS. The elections we have chosen to apply and that
are considered significant to Clearwater include decisions to:
not restate previous business combinations and the accounting thereof;
apply the requirements of IAS 23, Borrowing Costs to capitalize borrowing costs on
qualifying assets effective January 1, 2010; and
reset the cumulative translation account for all foreign operations to zero at the date of
transition to IFRS.
The main changes to Clearwater’s financial statements (cross referenced in the following tables)
were as follows:
Statement of Financial Position
2. Other assets increased $1.6 million as a result of a reclassification of deferred charges of $2.5
million as of January 1, 2010 (December 31, 2010 - $1.5 million), on the revolving loan that was
recorded against long term debt under Canadian GAAP, and an increase in deferred income
taxes of $0.6 million was recorded. A reclassification of $1.5 million was recorded as of
108
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
January 1, 2010 and December 31, 2010 from other assets to property, plant and equipment for
assets held for sale.
3. The carrying value of certain property, plant and equipment as of January 1, 2010 increased by
$4.4 million (December 31, 2010 - $3.9 million) upon transition to IFRS due to more detailed
asset componentization than under Canadian GAAP. In addition a reclassification of $1.5
million from was recorded as of January 1, 2010 and December 31, 2010 from other assets to
property, plant and equipment.
4. Under Canadian GAAP, a deferred gain on fishing rights was classified as other long term
liabilities. Under IFRS, the deferred gain is not recognized, reducing total fishing rights by
$10.1 million as of January 1, 2010 (December 31, 2010 - $8.9 million).
5. Long-term debt – There were three adjustments made to long-term debt:
a. Clearwater’s revolving loan is presented as a component of current liabilities under
IFRS rather than as a long term liability. This resulted in a reclassification of $29.3
million as of January 1, 2010 (December 31, 2010 - $27.3 million).
b. The conversion option on the convertible debentures is an embedded derivative that is
liability classified under IFRS because the conversion option relates to puttable units.
The carrying value of $2.2 million as at January 1, 2010 (December 31, 2010 - $4.2
million) was reclassified to long term debt.
c. The convertible debentures contain embedded derivatives and, Clearwater elected to
account for the entire instrument at fair value through profit or loss. As of January 1,
2010 long-term debt was decreased by an additional $21.8 million (December 31, 2010 -
$8.6 million) due to the revaluation of the convertible debentures to fair market value.
Fair value is calculated using quoted market prices at the end of each reporting period.
The fair value adjustment is recorded as part of finance costs in the statement of income
(loss).
The aggregate impact of these adjustments as of January 1, 2010 was a reduction in
long-term debt of $17.1 million reflected as an increase in current portion of long-term
debt of $28.8 and a reduction in the long-term portion of long-term debt of $45.9 million
(December 31 2010 - a reduction in long-term debt of $3.6 million reflected as an
increase in current portion of long-term debt of $27.3 and a reduction in the long-term
portion of long-term debt of $30.9 million
6. Deferred income taxes – As of January 1, 2010 deferred tax liabilities were decreased by $0.4
million (December, 31, 2010 - $0.4 million).
7. Non-controlling Interest – Non-controlling interest is presented as a component of equity under
IFRS rather than as a liability. This resulted in a reclassification of $3.9 million of minority
interest to non-controlling interest as of January 1, 2010 ($4.0 million as at December 31, 2010).
Included in these amounts are increases to non-controlling interest of $0.3 million as at January
1, 2010 (December 31, 2010 - $0.3 million) relating to the non-controlling share in adjustments
relating to property, plant and equipment.
8. Shareholders equity was impacted by the following items:
109
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
a. Contributed surplus was reduced as at January 1, 2010 by $nil (December 31, 2010 -
$0.8 million) for gains recognized on debenture buybacks.
b. Units were reduced by $2.2 million as at January 1, 2010 (December 31, 2010 - $3.4
million) for the equity component of the convertible debentures reclassified to long-term
debt and gains recognized on debenture buybacks.
c. Cumulative translation account –Reduction of the Cumulative Foreign Currency
Translation Account – IFRS 1 allows entities to reduce this account to nil upon the date
of transition, i.e. January 1, 2010. This resulted in a reduction of $4.4 million of this
account as of January 1, 2010 (December 31, 2010 - $3.0 million).
d. The accumulated deficit was reduced by $22.6 million as at January 1, 2010 (December
31, 2010 - $10.9 million) as a result of previously noted items including the revaluation
of the convertible debentures to fair market value, a reduction in accumulated
amortization as a result of the componentization of property, plant and equipment and
changes to future tax liabilities.
Statement of Income or (Loss)
9. Depreciation and amortization charges – As a result of refining the degree to which we
componentized our vessels and plants we have recorded higher depreciation and amortization
charges $0.4 million for the year ended December 31, 2010.
10. Mark-to-Market on the long-term debt. As a result of the revaluation of the convertible
debentures to fair market value a mark-to-market adjustment of $12.2 million was recorded for
the year ended December 31, 2010.
11. Amortization of The Cumulative Foreign Currency Translation Account – This account
accumulates the exchange difference that results from converting foreign subsidiaries at average
current rates of exchange and converting all assets and liabilities at period end rates. IFRS 1
allows entities to reduce this account to nil upon the date of transition, i.e. January 1, 2010 and
Clearwater took this election. Under Canadian GAAP, a gain or loss equivalent to the
proportionate amount of exchange gains and losses accumulated in the account was recognized
in net income when there was a reduction in Clearwater’s net investment in its subsidiary.
Under IFRS this account is only recognized in net income if there is considered to be a
permanent reduction in the investment. As a result of this difference, a previously recognized
loss of $1.1 million was reversed for the year ended December 31, 2010.
12. Deferred income taxes – deferred taxes decrease by $0.2 million for the year ended December
31, 2010 due to the tax impact of the other IFRS adjustments.
13. Presentation of non-controlling interest – non-controlling interest of $1.7 million for the year
ended December 31, 2010 are presented as an allocation of net earnings rather than as a recovery
under IFRS.
The net impact of the above changes was a $11.7 million increase in the net loss for the year
ended December 31, 2010.
110
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Statement of cash flows
There were no material changes to the statement of cash flows. The net earnings figure changed
due to non-cash changes in depreciation, the amortization of the cumulative foreign currency
translation account and minority interest but cash flow from operations did not change.
111
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
b) Statement of Financial Position as at January 1, 2010
As at January 1, 2010
Eliminate
Equity
Accounting
Clearwater
Seafoods
Incorporated
Clearwater
Seafoods
Incorporated
Note
reference
Fund
CSLP
in the Fund (Canadian GAAP)
Note
reference
IFRS
Adjustments
(IFRS)
1
807
807
1
59,281
59,281
$
8,832
29,489
-
56,051
4,148
98,520
6,251
5,740
113,965
-
106,571
7,043
239,570
(807)
(807)
(59,281)
(59,281)
$
8,832
29,489
-
56,051
4,148
98,520
6,251
5,740
113,965
-
106,571
7,043
239,570
2,3
2,3
4
$
8,832
29,489
-
56,051
4,148
98,520
6,251
7,319
119,893
-
96,515
7,043
237,021
-
1,579
5,928
(10,056)
(2,549)
$
60,088
$
338,090
$
(60,088)
$
338,090
$
(2,549)
$
335,541
1
1
1
1
1
1
$
781
44,851
45,632
43,402
43,402
$
(807)
(44,338)
(45,145)
(41,967)
(41,967)
$
31,630
468
59,906
11,242
103,246
154,211
4,143
27,741
186,095
3,623
8,945
283,839
(321,730)
(28,946)
1,816
164,770
(4,391)
(117,069)
45,126
(8,945)
(283,839)
319,808
27,024
(28,946)
45,126
27,024
$
31,604
468
60,419
11,242
103,733
155,646
4,143
27,741
187,530
3,623
1,816
164,770
(4,391)
(118,991)
43,204
-
43,204
5
5
6
4
7
8
8
8
7
$
31,604
468
89,233
11,242
132,547
109,708
3,700
17,685
131,093
-
1,816
162,517
-
(96,360)
67,973
3,928
71,901
28,814
28,814
(45,938)
(443)
(10,056)
(56,437)
(3,623)
(2,253)
4,391
22,631
24,769
3,928
28,697
$
60,088
$
338,090
$
(60,088)
$
338,090
$
(2,549)
$
335,541
ASSETS
Current assets
Cash
Trade receivables
Intercompany Receivables
Inventories
Prepaids
Non-current assets
Other receivables
Other assets
Property, plant and equipment
Investment in subsidiary
Licenses and fishing rights
Goodwill
LIABILITIES
Current liabilities
Trade and other payables
Income taxes payable
Current portion long-term debt
Derivative liability
Non-current liabilities
Long-term debt
Deferred tax liabilities
Other liabilities
Non-controlling interest
SHAREHOLDERS EQUITY
Contributed Surplus
Units
Cumulative Translation Account
Accumulated deficit
Non-controlling interest
TOTAL LIABILITIES and
SHAREHOLDER'S EQUITY
112
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
c) Statement of Financial Position as at December 31, 2010
As at December 31, 2010
Note
Reference
Fund
CSLP
Eliminate
Equity
Accounting
in the Fund
Clearwater
Seafoods
Incorporated
(Canadian GAAP)
Note
Reference
IFRS
Adjustments
Clearwater
Seafoods
Incorporated
(IFRS)
ASSETS
Current assets
Cash
Trade receivables
Intercompany Receivables
Inventories
Prepaids
Non-current assets
Other receivables
Other assets
Property, plant and equipment
Investment in subsidiary
Licenses and fishing rights
Goodwill
LIABILITIES
Current liabilities
Trade and other payables
Income taxes payable
Current portion long-term debt
Derivative financial instruments
Non-current liabilities
Long-term debt
Deferred tax liabilities
Other liabilities
Non-controlling interest
SHAREHOLDERS EQUITY
Contributed Surplus
Units
Cumulative Translation Account
Accumulated deficit
Non-controlling interest
TOTAL LIABILITIES and
SHAREHOLDER'S EQUITY
1
1
$
5,271
39,209
-
47,517
4,446
96,443
4,890
4,500
108,316
-
104,032
7,043
228,781
854
854
55,200
55,200
$
5,271
39,209
-
47,517
4,446
96,443
4,890
4,500
108,316
-
104,032
7,043
228,781
2,3
2,3
4
(854)
(854)
(55,200)
(55,200)
$
5,271
39,209
-
47,517
4,446
96,443
4,890
4,897
113,750
-
95,129
7,043
225,709
-
397
5,434
(8,903)
(3,072)
$
56,054
$
325,224
$
(56,054)
$
325,224
$
(3,072)
$
322,152
1
$
792
1
1
1
1
1
1
792
86,640
86,640
9,738
285,011
(326,127)
(31,378)
$
33,507
2,435
5,671
9,845
51,458
199,727
3,571
27,523
230,821
3,713
2,609
165,942
(4,761)
(124,558)
39,232
$
(855)
(855)
(85,002)
(85,002)
(9,738)
(285,011)
328
324,223
29,802
(31,378)
39,232
29,802
$
33,444
2,435
5,671
9,845
51,395
201,365
3,571
27,523
232,459
3,713
2,609
165,942
(4,433)
(126,462)
37,656
-
37,656
5
5
6
4
7
8
8
8
8
7
$
(117)
27,253
27,136
(30,856)
(443)
(8,903)
(40,202)
(3,713)
(793)
(3,425)
2,997
10,911
9,690
4,018
13,708
$
33,327
2,435
32,924
9,845
78,531
170,509
3,128
18,620
192,257
-
1,816
162,517
(1,436)
(115,551)
47,346
4,018
51,364
$
56,054
$
325,224
$
(56,054)
$
325,223
$
(3,071)
$
322,152
113
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
d) Statement of Shareholder’s Equity at at January 1 and December 31, 2010
Reference
December 31
2010
January 1
2010
Balance, Previous Canadian GAAP
Contributed surplus
Units
Cumulative translation account
Accumulated deficit
IFRS Adjustments
Reduction in contributed surplus for debenture buybacks
Conversion option on Class D & E Units
Reduction in cumulative translation account
Reduction in accumulated deficit
8 (a)
8 (b)
8 (c)
8 (d)
Balance, IFRS
Contributed surplus
Units
Cumulative translation account
Accumulated deficit
$2,609
165,942
(4,433)
(126,462)
37,656
(793)
(3,425)
2,997
10,911
9,690
1,816
162,517
(1,436)
(115,551)
$1,816
164,770
(4,391)
(118,991)
43,204
-
(2,253)
4,391
22,634
24,772
1,816
162,517
-
(96,360)
$
47,346
$
67,973
114
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
e) Statement of Income or Loss for the year ended December 31, 2010
For the year ended December 31, 2010
Note
Reference
Fund
CSLP
Eliminate
Equity
Accounting
by the Fund
Clearwater
Seafoods
Incorporated
(Canadian GAAP)
Note
Reference
CSLP
IFRS
Adjustments
Clearwater
Seafoods
Incorporated
(IFRS)
Revenue
Equity Earnings
Cost of Sales
Gross Profit
Administration Expense
Other (Income) Expense
R&D expense (income)
Net Finance Costs
Reduction in foreign currency translation account
1
1
-
$
(4,063)
(4,063)
334
334
$
291,116
234,854
56,262
28,200
(2,477)
1,623
30,256
1,066
58,668
4,063
4,063
(352)
(352)
Profit (Loss) before income taxes
(4,397)
(2,406)
4,415
$
291,116
-
234,854
56,262
9
10
11
28,200
(2,477)
1,623
30,238
1,066
58,650
(2,388)
$
-
$
291,116
0
357
12,244
(1,066)
11,535
234,854
56,262
28,557
(2,477)
1,623
42,482
0
70,185
(11,535)
(13,923)
Income tax expense
Profit (Loss)
0
3,378
3,378
12
186
3,564
$
(4,397)
$
(5,784)
$
4,415
$
(5,766)
$
(11,721)
$
(17,487)
Profit (loss) attributable to non-controlling interest
Profit (loss) attributable to shareholders
(4,397)
1,704
(7,488)
4,415
1,704
(7,470)
(11,721)
1,704
(19,191)
Profit (loss)
Other Comprehensive Income: foreign currency
translation account
$
(4,397)
$
(5,784)
$
4,415
$
(5,766)
$
(11,857)
$
(17,487)
779
(1,436)
(779)
(1,436)
0
(1,436)
Total Other Comprehensive Income (Loss)
$
(3,618)
$
(7,220)
$
3,636
$
(7,202)
$
(11,857)
$
(18,923)
Attributable to non-controlling interest
Attributable to shareholders
$
(3,618)
1,704
(8,924)
$
$
3,636
$
1,704
(8,906)
(11,857)
1,704
(20,627)
115
Quarterly and unit information
Clearwater Seafoods Incorporated ($000's except per unit amounts)
Sales
Net earnings (loss) *
87,140
16,394
97,590
5,065
78,820
(332)
69,235
1,827
77,824
(5,356)
85,417
3,298
65,215
(5,281)
62,660
(10,148)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2011
2010
Trading information, Clearwater Seafoods Incorporated, symbol CLR
Trading price range of shares/units (board lots)
High
Low
Close
Tranding volumes (000's)
Total
Average daily
Shares/units outstanding at end of quarter
Shares/units **
Special
Total
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2.85
2.10
2.39
831
13
3.32
1.31
2.35
3,907
63
1.73
1.35
1.47
1.58
0.99
1.52
1,544
26
2,669
44
1.28
0.76
1.02
1,767
30
0.98
0.80
0.82
394
7
1.13
0.80
0.87
751
13
1.03
0.80
0.84
695
12
50,948,694
-
50,948,694
27,565,943
23,381,217
50,947,160
27,745,695 27,745,695
23,381,217 23,381,217
51,126,912 51,126,912
27,745,695
23,381,217
51,126,912
27,745,695
23,381,217
51,126,912
27,745,695
23,381,217
51,126,912
27,745,695
23,381,217
51,126,912
* Results for 2010 have been adjusted to reflect international reporting standards ("IFRS") and the conversion to a Corporation. Refer to note 27 of the financial statements for further
information.
** As of October 2, 2011 Clearwater Seafoods Income Fund converted from a trust to a Corporation, Clearwater Seafoods Incorporated. Refer to note 2 in the financial statements for
further information.
116
Selected Annual Information
2011
(Audited)*
2010
(Audited)*
2009
(Audited)
2008
(Audited)
2007
(Audited)
Sales
Cost of goods sold
Gross margin
Administrative and selling
Research and development
Gain on settlement of Glitnir transaction
Gain on change in control of joint venture
Other income
Finance costs
Foreign exchange loss (income)
Interest on long-term debt and bank charges
Depreciation and amortization
Reduction in foreign currency translation account
$
332,785
263,220
$
291,116
234,854
$
284,066
240,215
$
301,204
261,443
$
302,681
232,584
69,565
56,262
43,851
39,761
70,097
33,345
707
(12,445)
(11,571)
(5,893)
38,604
-
-
-
-
42,747
28,557
1,623
25,724
-
25,926
-
37,818
-
(2,477)
42,482
-
-
-
-
70,185
(6,567)
-
(30,642)
25,342
236
703
14,796
8,858
-
80,210
19,113
586
-
134,693
(8,333)
-
(18,633)
16,745
14,406
2,644
44,647
Earnings (loss) before income taxes
26,818
(13,923)
29,055
(94,932)
25,450
Income taxes
3,863
3,564
1,868
4,595
365
Earnings (loss) before non-controlling interest
22,955
(17,487)
27,187
(99,527)
25,085
Non-controlling interest
6,619
1,704
1,039
2,878
4,134
Earnings (loss) attributable to shareholders
$
16,336
$
(19,191)
$
26,148
$
(102,405)
$
20,951
* 2011 and 2010 results have been adjusted to reflect International Financial Reporting Standards ("IFRS") and the conversion to a Corporation. Refer to note 27
for further information
117
CORPORATE INFORMATION
DIRECTORS OF CLEARWATER SEAFOODS INCORPORATED
EXECUTIVE OF CLEARWATER SEAFODS INCORPORATED
Colin E. MacDonald, Chairman of the Board
Ian Smith
Chief Executive Officer
John C. Risley
President, Clearwater Fine Foods Inc.
Eric R. Roe
Vice-President, Chief Operating Officer
Harold Giles, Chair of Corporate Governance and
Compensation Committee
Independent Consultant
Larry Hood, Chair of Audit Committee
Director, Former Partner, KPMG
Thomas D. Traves
President and Vice-Chancellor, Dalhousie University
Mickey MacDonald
President, Micco Companies
Robert D. Wight
Vice-President, Finance and Chief Financial Officer
Michael D. Pittman
Vice-President, Fleet
Greg Morency
Chief Commercial Officer & Executive Vice-President
David Rathbun
Vice-President, Chief Talent Officer
Brendan Paddick
Chief Executive Officer, Columbus Communications Inc.
Christine Penney
Vice-President, Sustainability & Public Affairs
Stan Spavold
Executive Vice President, Clearwater Fine Foods Inc.
INVESTOR RELATIONS
Tyrone D. Cotie, CA
Treasurer
(902) 457-8181
tcotie@clearwater.ca
AUDITORS
KPMG LLP
Halifax, Nova Scotia
SHARES LISTED
Toronto Stock Exchange
SHARE Symbol CLR
Convertible Debenture symbols: CLR.DB.B and CLR.DB.A
TRANSFER AGENT
Computershare Investor Services Inc.
118
Clearwater Seafoods Incorporated
757 Bedford Highway, Bedford, Nova Scotia, Canada, B4A 3Z7
Tel. (902) 443-0550 Fax. (902) 443-7797 www.clearwater.ca