annual report
Clearwater Seafoods Incorporated
2013 clearwater overview
Leading Global Provider of Wild-Caught Shellfish
Clearwater is North America’s largest vertically integrated harvester, processor
and distributor of premium shellfish with more than 81 million pounds sold in 2013.
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 groundfish.
Powerful Industry Fundamentals
Global demand for premium wild caught seafood among aging boomers and a
rising middle class in the Asian-Pacific region is outpacing resource supply. This in
combination with conservatively managing seafood fisheries to protect the long
term health of the industry is creating new opportunities from the rising demand for
high-quality sustainable seafood.
Clearwater’s vertical integration creates barriers to entry and
sustainable competitive advantage
Clearwater is the largest holder of shellfish quotas and licenses within Canada and
maintains the widest selection of MSC-certified species of any shellfish harvester
worldwide. These quotas are a key barrier to entry as regulatory authorities strictly
control access and rarely grant new licenses. In addition, the financial resources
required to acquire and harvest fishing quotas create barriers to entry. For
example, Clearwater’s fleet and licenses have an estimated value of more than
$500 million.
1 | Page “Loblaw is proud of our commitment
to selling only sustainably sourced seafood
and by partnering with suppliers like Clearwater
we are confident that Canada can have
a thriving, sustainable fishing industry
that sets standards for the world.”
Galen Weston, Executive Chairman,
Loblaw Companies Limited
Clearwater has a number of other competitive advantages including our innovations
and intellectual property such as state-of-the-art factory vessels and advanced onshore
processing and storage and distribution capabilities.
Clearwater maintains a global, direct sales force that is capable of interacting with and
selling directly to diverse markets worldwide. Our channel mix in food service, retail and
other food industries ensures a diverse community of customers and in addition, we have
a diverse customer mix with no single customer representing more than 7% of total sales.
Proven and Experienced Leadership Team
Clearwater continues to build upon our world class leadership with best in class
programs for quality control and food safety, operations and new product development.
In addition over the past few years Clearwater has added a number of key personnel
to complement its existing team to continue to support strong financial and operational
growth.
2 | Page highlights in 2013…
• Continued strong growth in sales and adjusted EBITDA of
10.9% to $388.7 million and 9.5% to $79.1 million, respectively
• Achieved growth of 50.6% in free cash flows to $26.1 million
• Reduced leverage to 2.7x driven by higher adjusted EBITDA
• Made improvements to capital structure to provide for future
growth and investment opportunities by:
- refinancing approximately $350.0 million in new term debt
facilities; and
- completing a $34 million equity transaction in early 2014
• Initiated an annual dividend of $0.10 per share, payable in
quarterly installments of $0.025 per share
• Announced the planned investment of approximately
$45 million in a third vessel for clam business to expand
access to supply by 60%
• Continued to win in the marketplace as new enrobed value
added format, Scallops & Sauce, was selected as one of
the Top New Products of 2013 by the editors of Seafood
International.
3 | Page “After 16 years, we continue to be amazed
by Clearwater’s commitment to food safety,
high-quality products and consistent
worldwide delivery. Their R&D efforts
and ability to innovate based on
a rapidly changing global market
are simply extraordinary.”
Richard Ng, Managing Director,
Sun Wah Marine Products, Hong Kong
4 | Page leverage
free cash flow
30
25
20
15
10
5
0
)
s
d
n
a
s
u
o
h
t
(
2011
2012
2013
2011
2012
2013
sales
free cash flow
14%
13%
12%
11%
10%
9%
8%
return on assets
2011
2012
2013
key performance indicators
3.2
3.8
3.6
3.4
3.0
2013 FINANCIAL
ACHIEVEMENTS
AND 2014 TARGETS
In 2013 Clearwater grew sales and
adjusted EBITDA1 by growth of
10.9% and 9.5%, respectively.
This included sales of $388.7
million and adjusted EBITDA
of $79.1 million in 2013 versus
2012 comparative figures of
$350.3 million and $72.2 million,
respectively.
Gross margins improved 1.8
percentage points, to 22.5% as
compared with 2012.
Free cash flows2 grew by 50.6%
to $26.1 million in 2013 versus
$17.3 million in 2012.
Growth in adjusted EBITDA and
free cash flows were due to
a strong and growing market
demand that improved sales
prices for scallops, clams and
snow crab and yielded strong
sales volumes for scallops, both
of which increased margins. This
was partially offset by higher clam,
scallops and shrimp harvest costs.
Improvements in free cash flows
were partially offset by higher
capital expenditures including
scheduled refits and vessel
conversions and higher payments
to minority interest partners, due
to timing.
3.8
3.6
3.4
3.2
3.0
2.8
2.6
2.4
2.2
2.0
450
400
350
300
250
200
150
85
80
75
70
65
60
55
leverage
2.8
2.6
2.4
2.2
2.0
450
30
400
25
350
20
300
15
250
10
200
5
)
s
d
n
a
s
u
o
h
t
(
)
s
d
n
a
s
u
o
h
t
(
2011
2012
2013
Profitability
150
0
2011
2011
2012
2012
2013
2013
sales
adjusted EBITDA
)
s
d
n
a
s
u
o
h
t
(
2011
2012
2013
)
s
d
n
a
s
u
o
h
t
(
85
80
75
70
65
60
14%
13%
55
12%
return on assets
2011
2012
2013
adjusted EBITDA
Sales
2013
2012
2011
)
s
d
n
a
s
u
o
h
t
(
Sales Growth
2013
2012
2011
Target
388,659
350,302
332,785
10.9%
5.3%
5.5%
5%
11%
10%
9%
8%
Adjusted EBITDA
2013
2012
2011
79,103
72,243
61,188
2012
Adjusted EBITDA
as a % of sales
2011
2013
2012
2011
Target
2013
20.4%
20.6%
18.4%
18% or greater
2011
2012
2013
For 2014 Clearwater has set the following targets:
• sales growth – 5% or greater,
• adjusted EBITDA margins – 18% or greater,
• free cash flows growth – 5% or greater
• leverage – 3.0x or less
• return on assets - 12% or higher
Clearwater’s strong financial performance in 2013 and
Clearwater successfully met
expectations for 2014 have the Company on track to achieve its
its annual 2013 profitability and
five year plan of $500 million in sales and $100 million in adjusted
financial performance targets.
EBITDA in five years, which is 2016.
5 | Page leverage
free cash flow
30
25
20
15
10
5
0
)
s
d
n
a
s
u
o
h
t
(
2011
2012
2013
2011
2012
2013
sales
Free Cash Flows, Leverage and Returns
300
3.8
3.6
3.4
3.2
3.0
2.8
2.6
2.4
2.2
2.0
450
400
350
300
250
200
150
85
80
75
70
65
60
55
)
s
d
n
a
s
u
o
h
t
(
)
s
d
n
a
s
u
o
h
t
(
leverage
free cash flow
30
25
20
15
10
5
0
)
s
d
n
a
s
u
o
h
t
(
2011
2012
2013
2011
2012
2013
sales
Free Cash Flows
2013
2012
2011
26,121
17,347
2,197
return on assets
2011
2012
2013
adjusted EBITDA
14%
13%
12%
11%
In 2014, we will continue to make
10%
progress against our five year
9%
plan and lay the groundwork
for the next phase of growth
8%
2013
through substantial capital
2012
2011
expenditures of approximately
$85 million. Key initiatives include
increasing available supply
2011
2012
2013
leverage
free cash flow
return on assets
2011
2012
2013
adjusted EBITDA
14%
30
13%
25
12%
20
15
11%
10%
10
5
9%
0
8%
)
s
d
n
a
s
u
o
h
t
(
2011
2012
2013
2011
2011
2012
2012
2013
2013
)
s
d
n
a
s
u
o
h
t
(
sales
2012
2.7
2.9
3.8
3.0 or lower
2013
Return on Assets
2013
2012
2011
Target
13.3%
12.1%
10.7%
12% or greater
Leverage
2013
2012
2011
Target
2011
)
s
d
n
a
s
u
o
h
t
(
2011
2012
2013
Five-year plan
adjusted EBITDA
85
through investments such as
80
the expansion of our lobster
business and the construction
75
which is expected to begin
65
operating in 2015. In addition
60
the implementation of a new
enterprise resource planning
55
2011
2012
2013
return on assets
14%
13%
12%
11%
system (“ERP”) in late 2014
10%
will support improved decision
9%
making capabilities and we will
2011
2012
2013
bay scallop fishery, commencing
operations in mid 2014.
1 Refer to definition of Adjusted EBITDA
2 Refer to definition of free cash flow
of a new clam harvesting vessel
70
replace our oldest vessel in the
8%
3.8
3.6
3.4
3.2
3.0
2.8
2.6
2.4
2.2
2.0
450
400
350
250
200
3.8
3.6
150
3.4
3.2
3.0
85
2.8
2.6
80
2.4
75
2.2
2.0
70
65
60
450
400
55
350
300
250
200
150
)
s
d
n
a
s
u
o
h
t
(
)
s
d
n
a
s
u
o
h
t
(
6 | Page growing distribution channels
and product lines
“It’s rare to find a supplier like Clearwater
who exhibits the same philosophies
and standards as Publix. Whether we’re talking
about product quality, food safety, sustainability
or customer service – Clearwater leads in all
of these areas. And it’s attributes like these
that contribute to the success
and longevity of our relationship.”
Guy Pizzuti, Seafood Category Manager,
Publix Super Markets
7 | Page Clearwater’s worldwide distribution
presence combined with local sales and
marketing teams in each market create
a competitive advantage and position
Expansion of distribution and
retail lines
In 2013 our value added products achieved
Clearwater for growth in both mature and
distribution with a number of national
emerging markets.
This worldwide distribution presence is
fundamental to Clearwater’s strategy to
target growing markets, channels and
customers.
retailers across Canada and the United
States in both branded and private label
formats. Utilizing specialized enrobing
technology, Clearwater’s innovative
Scallops and Sauce were launched in three
unique flavors. We’ve also augmented
our value added launches with new retail
During 2013 Clearwater made considerable
packaging for some of our core species
progress in advancing this strategy across
broadening the selection of Clearwater
all channels, distribution and retail lines
including new product development and
culinary achievements.
products for retail consumers.
Growth and Diversity in our
customer base
In 2013 Clearwater made major strides
in the North American retail market.
We gained distribution at several major
Canadian and US retailers and have
had success with sales being driven by
customers who desire convenience,
nutrition and high quality products.
continued on next page...
8 | Page With a rising middle class in China, we had a trend of increasing
demand for and consumption of imported seafood in 2013. During
the year, we began our expansion from a solely foodservice focus to
launching a branded range for Chinese retail. Lack of available supply
limited growth to 3% in 2013 but in the future we fully expect the
Asia-Pacific region to be a significant growth market as we increase
available supply through investments such as the expansion of our
lobster business and the construction of a new clam harvesting
vessel which is expected to begin operating in 2015.
Culinary achievements
Our industry-leading culinary team offered value to our foodservice
partners through customer visits and custom ideation sessions
throughout 2013. We also increased our presence at tradeshows
in Asia, Europe and North America helping to build company
awareness and strengthen our existing relationships with our
customers around the world and initiate new customer relationships.
“We’ve found a partner in Clearwater.
A company we share values with.
A company we can trust and rely on,
so that we’re able to provide
our customers with high quality
and sustainable seafood
for generations to come.”
Abe Ng, President,
Founder and CEO, Sushi Maki
9 | Page awards/achievements in the marketplace
Top 10 Winner 2013 • Canada’s Passion Capitalist Award
Atlantic Business Magazine • Atlantic Canada’s Top Employers 2013
Atlantic Business Magazine • 2013 Top 50 CEO Award Winner, Ian Smith
Progress Magazine • Top 101 Companies in Atlantic Canada 2013
Seafood International • Best New Products of 2013 Scallops & Sauce
10 | Page Table of Contents
Page #
Chairmen’s letter to shareholders
CEO’s letter to shareholders
Management’s Discussion and Analysis
Selected annual information
Mission, value proposition and strategies
Capability to deliver results
Explanation of 2013 earnings
Capital structure
Liquidity
Explanation of fourth quarter 2013 earnings
Outlook
Risks and uncertainties
Critical accounting policies
Related party transactions
Commitments
Seasonality
Summary of quarterly results
Definitions and reconciliations
Clearwater Seafoods Incorporated – 2013 financial statements
Quarterly and share information
Selected annual information
Corporate Information
12
14
15
16
16
19
22
36
40
46
57
58
62
66
68
69
71
73
79
135
136
137
Letter from the Chairman of Clearwater Seafoods Incorporated
To our Shareholders,
I am happy to report another outstanding year for Clearwater Seafoods Incorporated.
The Board is very pleased with the results the management team has achieved in growing the
company’s sales by 11%, and adjusted EBITDA by 10% to $79.1 million and in particular the
significant increases in free cash flows and strong shareholder returns. This has resulted in top
quartile financial performance for the third year in a row versus our seafood industry peers.
As Chairman, I am also extremely pleased with the work of your Directors over the past year and how
closely they have worked in supporting and enabling the management team to create sustainable
long-term value for our shareholders. The following examples will give you a fuller appreciation of
the some of the areas the four Committees have focused on in 2013:
• Governance – Chaired by Jim Dickson with members Larry Hood, Tom Traves and Stan Spavold.
This Committee worked actively with the Board Committee Chairs and their related mandates
creating a Finance Committee and forming separate Governance and Human Resource
Development and Compensation Committees to allow for more focused work at the Committee
level. The Committee has also been active in reviewing developments in governance practices in
Canada and as a result in 2013 Clearwater adopted a policy of individual voting of its’ directors.
• Finance - Chaired by Stan Spavold with members John Risley, Jim Dickson and Brendan
Paddick. This Committee had a busy year and was active in the review of some significant
investments including a new clam vessel, a new information system and several other
investments in plants and vessels as well as working with management on external development
policies. The Committee members also worked closely with management in making continued
improvements to the capital structure of the business – from eliminating high cost convertible
debentures, to putting in place more flexible and lower cost term debt facilities to completing an
equity offering in early 2014. These changes served to further strengthen Clearwater’s capital
structure and position it for further growth.
• Audit - Chaired by Larry Hood with members Tom Traves, Stan Spavold and Jim Dickson. The
Audit Committee spent a lot of time early in the year working with management to ensure that key
performance indicators were communicated well to investors including targets and the
performance achieved. The Committee continues to invest time in understanding and ensuring
the key risks and opportunities are communicated to investors in disclosure documents as well as
ensuring that management maintains the required controls to produce timely and accurate
information for Clearwater’s shareholders.
• Human Resources Development and Compensation - Chaired by Harold Giles with members Tom
Traves, Mickey MacDonald and Brendan Paddick. This Committee continues to invest time to
ensure the management team has well articulated talent management and development plans. In
addition, over the past year they have continued to ensure that compensation practices are
aligned with shareholder interests by linking annual and long-term incentive plans to the creation
of free cash flows.
12 | Page
It is through this team approach that Clearwater’s management group with the support and direction
from very active Board members was able to excel in creating sustainable long-term value for our
shareholders.
Finally, I am pleased that in 2013 we were able to begin expressing the Board’s confidence in the
future through the payment of a dividend to our shareholders. The Board put a lot of thought into the
dividend decision giving consideration to a number of key principles including the expected future
earnings and the amount of free cash flows that should be retained to reinvest in the business, the
assurance that all obligations can be met with respect to existing loan agreements and the desire to
provide room for the dividend to increase in the future as the business continues to grow and
expand. We will review these same factors regularly and at a minimum, annually we will review the
opportunity to adjust or increase the dividend.
Looking to 2014 and beyond, the industry fundamentals continue to be encouraging with global
demand for seafood outstripping supply and creating favorable market dynamics for vertically
integrated producers such as Clearwater.
Since John Risley and I founded the company in 1976, the company has invested in science, people
and technological innovation as well as resource ownership and management to sustain and grow
our seafood resource.
At Clearwater, we remain focused on our commitment and in our mission to build the world’s most
extraordinary, wild seafood company and we are pleased to offer our shareholders the opportunity to
participate in this exciting sector of the food industry and in Clearwater’s passionate pursuit of
excellence.
Yours truly,
Colin MacDonald
Chairman
Clearwater Seafoods Incorporated
13 | Page
Letter from the Chief Executive Officer of Clearwater Seafoods Incorporated
To our shareholders,
Wow! What a year! In 2013, Clearwater surpassed all previous records for sales revenue and adjusted
EBITDA. We posted strong results across our portfolio of sustainably harvested, wild caught seafood with six
out of seven core species showing increased revenues, margins or both. We also made significant
improvements to our capital structure and advanced several major capital projects - activities critical to
sustaining our long term growth, profitability and competitive advantage.
Our performance in 2013 marks four years of top and bottom line growth. In fact, since 2009, we’ve increased
sales revenue by over $100 million and adjusted EBITDA by over $35 million. This level of performance can
only be achieved and sustained when you have a high performing team and culture. At Clearwater, we call it
“winning in the workplace, the marketplace and in the communities in which we live”. In 2013, we did just that
and received local, national and international recognition for our efforts. This included recognition as one of
Canada’s top 10 companies for “Passion Capital” and being ranked as one of the top companies to work for in
Atlantic Canada. We even won a Seafood International “best new product award” for our new value-added
seafood line in its first full year of retail distribution.
We’re also proud of the big and little things our people do every day at sea on our vessels, in our communities
and with our customers around the world. At sea, not only do our state of the art vessels and highly trained
crew sustainably harvest some of the finest seafood in the world, they were also recently recognized for
mounting a search and rescue effort that saved the lives of three local fishermen after their vessel capsized in
heavy seas more than 75 miles from shore.
In rural communities in Nova Scotia and Newfoundland and Labrador, we have invested in our facilities and
people to create well-paying and sustainable employment. We believe we can create good jobs in Atlantic
Canada and we’ve been doing it for more than 35 years.
What many of our customers will tell you, several of whom are quoted in this annual report, is that Clearwater
is unique, that we believe in building long term partnerships and that we treat their success as our own. In fact,
many of our largest global customers have also been with us for 15 years or longer.
As we enter 2014, we are confident that we are on track to achieve our stated 5 year goals of $500 million in
sales revenue and $100 million in adjusted EBITDA by the end of 2016 or earlier. That confidence comes from
the knowledge that we are building world class capabilities and competency. Clearwater has spent the last
three years investing in our people, innovation and best in class programs and practices across the company.
In 2014, and over the course of the next three years, we will complement these investments with the roll-out of
a new ERP system, two new state of the art vessels, proprietary harvest, storage and distribution technology
and a host of innovative new culinary solutions and products for our customers. Together these investments
will enable our next phase of growth and productivity as we ramp to our 5-1-5 goal.
In 2013, we demonstrated that we can sustain and even accelerate our performance. Going forward, we
believe that we have the strategy, business plans, people, processes and financial resources to continue to
execute with excellence to produce top quartile results and long term shareholder value. We look forward to
sharing our progress throughout 2014.
Sincerely,
Ian D. Smith
Chief Executive Officer
Clearwater Seafoods Incorporated
14 | Page
MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) was prepared effective February
26, 2014.
The Audit Committee and the Board of Directors of Clearwater Seafoods Incorporated
(“Clearwater”) have reviewed and approved the contents of this MD&A, the financial
statements and the 2013 fourth quarter news release.
This MD&A should be read in conjunction with the 2013 annual financial statements and
the 2013 Annual Information Form, which are available on Sedar at www.sedar.com as
well as Clearwater’s website, www.clearwater.ca.
COMMENTARY REGARDING FORWARD-LOOKING STATEMENTS
This Report may contain forward-looking statements. Such statements involve known
and unknown risks, uncertainties, and other 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. Clearwater does 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.
15 | Page
SELECTED ANNUAL INFORMATION
(In 000’s except per share amounts)
For the year ended December 31
Sales
Gross Margin
Net earnings
Basic and diluted earnings per share
Adjusted EBITDA1
Total assets
Long-term debt
1 Refer to definition of adjusted EBITDA
2013
2012
2011
$ 388,659 $ 350,302 $ 332,785
87,368 72,525 69,565
15,298 22,704 22,955
0.12 0.29 0.32
79,103 72,243 61,188
414,582 410,789 386,405
257,325 253,791 247,100
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:
(cid:131)
(cid:131)
(cid:131)
“extraordinary” as sustainable, profitable growth in revenue, margins, adjusted
EBITDA, free cash flows 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 increased 16.8% since 2011 despite a weakened global
economy. Gross margins have increased more than 1.6 percentage points from 20.9%
in 2011 to 22.5% in 2013. Adjusted EBITDA1 has grown at a 13.7% cumulative average
growth rate over the last three years.
16 | Page
With this improved performance Clearwater has been able to improve its capital
structure, increase shareholder value and reduce leverage1 to 2.7x adjusted EBITDA at
December 31, 2013 versus 3.8x at December 31, 2011.
1-Refer to definitions
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:
(cid:131) Great tasting, nutritious, highest quality, frozen-at-sea, premium shellfish.
(cid:131) Expertise in premium shellfish science, harvesting, processing and logistics
technology ensuring quality and safety from “ocean to plate”.
(cid:131) Marine Stewardship Council (“MSC”) certification for sustainability of species
ensuring both the traceability and long term health of our wild resource.
(cid:131) Competitively advantaged global customer service with
local market
understanding and insight.
(cid:131) 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, 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.
17 | Page
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, as well as four
representative offices in China.
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 and sustainability. Clearwater is best
known in the industry for pioneering innovative harvesting technologies and
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.
4. Increase margins by improving price realization and cost management,
exercising price influence to maximize revenue and profit while managing 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. Our fishing licences and quotas are the cornerstone of Clearwater’s business.
From the beginning, Clearwater has invested in licences and quota in rights based
fisheries to guarantee access to supply, as well as to create a defensible position in
the market place. Clearwater’s licences and quotas provide not only the security of
supply, but also the scale needed to invest in leading edge science and innovative
harvesting, processing and marketing efforts.
Our strategy of investing in secure access to the resource 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 talent. Clearwater’s
investment into training and development of its employees is just one of the reasons
we were recognized again as one of the top companies in Atlantic Canada.
18 | Page
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 sea and Argentine scallops,
clams, lobster and coldwater shrimp, which are harvested in offshore fisheries that have
a limited number of participants. Clearwater harvests sea 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.
(cid:131) The sea scallop resource has been stable over the last number of years.
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.
(cid:131) The Arctic surf clam resource is stable. Clearwater has the Banquereau Bank
and the Grand Banks quotas available for harvesting. Total annual landings are
currently based upon the harvesting capacity of our two vessels.
(cid:131) The Argentine scallop resource has stabilized after a period of growth and
expansion of the fishery. Argentina, is the first scallop fishery in the world to have
earned
independent
rigorous Marine Stewardship Council
certification. Clearwater lands virtually all its scallop quota each year
(“MSC”)
the
(cid:131) Coldwater shrimp - Clearwater expects the offshore Northern shrimp TAC to
decline slightly over the next several years from historically high levels.
Clearwater holds access to quotas directly through licences and through long
term harvesting agreements that exceed its harvesting capacity and will serve to
offset any mid to long term 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
(cid:131) The offshore lobster resource is strong with a consistent offshore TAC and the
inshore resource is strong with abundant catches. Clearwater harvests virtually
all its lobster quota each year. During 2013, Clearwater purchased
approximately 80% of its total pounds from inshore lobster fishermen.
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.
19 | Page
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 $58.2 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 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:
(In 000’s)
For the years ended December 31
Vessels
Plants and other
Return on investments capital
Maintenance capital
Maintenance capital
Repairs and maintenance
2013
17,025
6,788
23,813
$
2012
11,780
4,792
16,572
$
2011
17,595
3,642
21,237
$
TOTAL
58,180
20,014
78,194
$
6,346
17,467
23,813
$
2,774
13,798
16,572
$
6,850
14,387
21,237
$
18,744
59,450
78,194
$
17,467
13,144
30,611
$
13,800
12,837
26,637
$
14,387
14,466
28,853
$
59,454
53,283
112,737
$
Depreciation/Amortization
Maintenance spending as a % of depreciation
$
24,167
126.7%
$
22,475
120.9%
$
19,503
147.9%
$
88,620
127.2%
During 2013, Clearwater invested $9.3 million to complete refits on a number of its
vessels. Capital expenditures also included interim payments of $2.7 million related to
the construction of a new clam harvesting vessel that is expected to have a total cost of
$45 million and is expected to be operating in 2015 and $5.0 million related to the
conversion of a scallop vessel to harvest bay scallops which has a total cost of $15
million and is expected to be in operation in mid 2014.
This investment in a new clam harvesting vessel will drive growth in Clearwater’s clam
business by expanding access to clam supply by approximately 60% when the
customer distribution chain is fully in place by 2017, at which time Clearwater expects to
earn incremental gross margins of approximately $8 million per year.
In 2012, Clearwater completed refits on its vessels of $11.8 million. Capital
expenditures for the year also included $2.0 million in relation to new vessel based
processing technologies.
20 | Page
In 2011, Clearwater completed a 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 addition to the annual amounts capitalized above, Clearwater historically has spent
and expensed on average about $13.5 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.
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:
(cid:131) Two are used to harvest shrimp and are on average 20 years old. These
vessels have a capacity to harvest 14,000 to 18,000 metric tons of our 22,000
metric ton quota and our entire 1,900 metric ton turbot quota in a ready for
market form. One of the vessels was built in 1985 and in 2014 we will
complete a late-life refit on it, thereby extending its useful life.
Four are used to harvest sea and bay scallops with the sea scallop vessels
being on average 16 years old and the bay scallop vessels being on average
33 years old. In 2012, Clearwater completed the conversion to automated
processing factories on its sea scallop vessels using proprietary technology
and as result of the related improvement in harvesting and processing
capabilities, had two idle sea scallop vessels. One vessel is being converted
from harvesting sea scallops to bay scallops which is expected to be in
operation in mid 2014. When this is complete one of the older bay scallop
vessels will be retired.
(cid:131) Two of Clearwater’s vessels are used to harvest clams and are on average
20 years old. Both of these vessels are harvesting at capacity. In 2013
Clearwater began the construction of a new clam harvesting vessel which will
increase access to available supply in 2015.
In 2014 Clearwater expects significant growth investments of approximately $83 million
in capital assets, of which $36 million relates to the construction of the clam vessel, $15
million relates to the late life extension of a shrimp vessel, $10 million relates to the
conversion of a vessel to harvest bay scallops, $17.3 million relates to maintenance
capital investments and $4.7 million relates to various investments to improve
operational efficiencies.
21 | Page
EXPLANATION OF 2013 ANNUAL EARNINGS
Overview
The statements reflect the earnings of Clearwater for the years ended December 31,
2013 and 2012
In 000's of Canadian dollars
Year ended December 31
Sales
Cost of goods sold
Gross margin
Administrative and selling
Finance costs
Other income
Research and development
2013
2012
$
388,659
301,291
87,368
22.5%
$
350,302
277,777
72,525
20.7%
39,005
42,747
(3,240)
1,659
80,171
32,536
24,387
(3,399)
1,759
55,283
Earnings before income taxes
Income tax recovery
Earnings
7,197
(8,101)
15,298
$
17,242
(5,462)
22,704
$
Earnings attributable to:
Non-controlling interests
Shareholders of Clearwater
$
$
8,965
6,333
15,298
$
$
7,695
15,009
22,704
22 | Page
2013 Annual Earnings
Clearwater reported strong results including sales of $388.7 million and adjusted
EBITDA1 of $79.1 million, versus 2012 comparative figures of $350.3 million and $72.2
million, respectively.
For 2013, operations improved earnings $12.6 million primarily as a result of an
improvement in gross margin of $14.8 million and lower interest expense of $4.2 million.
Gross margin as a percentage of sales improved from 20.7% in 2012 to 22.5% in 2013
due primarily to strong demand that provided higher sales prices for the majority of
species. Strengthening foreign exchange rates for the US dollar and the Euro against
the Canadian dollar impacted positively on margins. Higher catch rates for scallops
increased available supply and contributed to the increase in total gross margin dollars.
Improvements to operations were partially offset by an increase in administrative and
selling expense from higher employee compensation
Non-operational items of $19.9 million (refer to the following table), included non-cash
unrealized foreign exchange losses, refinancing and debt settlement costs, and realized
foreign exchange losses on forward contracts that hedge our future sales, partially
offset by non-cash gains on the fair value adjustment on long term debt and an increase
in deferred income tax recoveries from loss carry forwards. Including these non-
operational items the earnings declined by $7.4 million to $15.3 million for the year.
1 – Refer to definition of Adjusted EBITDA
23 | Page
In 000’s of Canadian dollars
Year ended December 31
2013
2012
Change
Earnings
$
15,298
$
22,704
$
(7,406)
Explanation of changes in earnings related to operational items:
Higher gross margin
Higher administrative and selling
Lower interest expense
Explanation of changes in earnings related to non-operational items:
Higher unrealized foreign exchange losses
Higher realized foreign exchange losses
Lower fair value adjustments on convertible debentures and embedded derivative
Higher debt settlement costs
Higher gain from from a deferred income tax asset valuation
All other
14,843
(6,469)
4,194
12,568
(14,969)
(8,970)
4,608
(3,223)
2,639
(19,915)
(59)
(7,406)
$
24 | Page
Sales by region
In 000's of Canadian dollars
Year ended December 31
Europe
United States
Canada
North America
China
Japan
Other
Asia
Other
2013
133,752
$
2012
122,884
$
Change
10,868
$
76,945
55,923
132,868
61,622
38,712
18,711
119,045
54,157
47,408
101,565
59,624
46,366
17,693
123,683
22,788
8,515
31,303
1,998
(7,654)
1,018
(4,638)
2,994
388,659
$
2,170
350,302
$
824
38,357
$
%
8.8
42.1
18.0
30.8
3.4
(16.5)
5.8
(3.7)
38.0
10.9
Europe
Europe is Clearwater’s largest scallop
market and it is an important market for
coldwater shrimp and lobster products.
European sales increased $10.9 million
to $133.8 million for 2013 primarily as a
result of strong market demand that
increased sales volumes for Argentine
scallops and shrimp.
Higher sales prices for sea scallops
contributed to the increase in sales.
Market demand for cooked and peeled
shrimp slowed during 2013 which
partially offset the increase in sales for
the region.
Finally, sales, which are primarily
transacted in the Euro1 and the UK
Pound, were positively impacted by $6.6
million, as the Euro improved 8.1%
relative to the Canadian dollar from 1.28
in 2012 to 1.38 in 2013, and the UK
pound improved 2.9% from 1.58 in 2012
to 1.63 in 2013.
25 | Page
Canada
Canada is a large market for lobster,
scallops and coldwater shrimp.
Sales within Canada increased $8.5
million, or 18.0% primarily as a result of
higher sales volumes and prices for
scallops. Higher sales prices for snow
crab contributed to the increase in sales.
The increase in sales volumes for sea
scallops were a result of higher landings
from an increase in total allowable catch
for the year.
Poor weather conditions late in 2013
reduced available supply of lobster and
changes
in product mix weighted
towards product with lower sales prices
partially offset the increase in sales.
China
China is a growing market for clams,
coldwater shrimp, lobster, turbot and
scallops. China is our largest market
segment in Asia.
Sales to customers in China increased
$2.0 million, or 3.4%, to $61.6 million as
a result of an increase in sales volumes
for shrimp and lobster. Strong demand
and sales prices
for shrimp also
contributed to the increase in sales.
is an
United States
The United States
important
market for scallops, coldwater shrimp,
lobster and clams. It is our most diverse
market, where a wide variety of products
are sold.
Sales in the United States increased
$22.8 million, or 42.1%, to $76.9 million
primarily as a result of an increase in
available supply as well as strong
demand for both Argentine and sea
scallops.
Higher sales prices for sea scallops and
an increase in sales volumes for shrimp,
lobster and snow crab contributed to the
increase in sales.
Lower sales prices
for Argentine
scallops and shrimp partially offset the
increase in sales.
Sales were also positively impacted by
$2.5 million in 2013 as a result of foreign
exchange rates as average rates for the
the
US dollar strengthened against
Canadian dollar.
foreign
the US dollar
rates
exchange
increased by 3.3% to 1.03 in 2013.
Average
for
26 | Page
for
supply
Available
shrimp declined as a
Clearwater moving supply
markets that had stronger demand.
frozen-at-sea
result of
to other
Improvements
for
lobster partially offset the decline of
other species.
in sales volumes
Average foreign exchange rates for the
Yen declined during the year by 15.8%
to 0.011 for 2013 contributing to the
decline in sales.
1 – Refer to risks and uncertainties
Weather related disruptions reduced the
available supply
for clams partially
offsetting the increase in sales.
Chinese sales are almost exclusively
transacted in US dollars. The US dollar
the Canadian
strengthened against
dollar during 2013 contributing to the
increase in sales within the region as
average foreign exchange rates for the
the
US dollar strengthened against
Canadian dollar by 3.3% to 1.03 in
2013.
Japan
Japan is an important market for clams,
lobster, coldwater shrimp and turbot.
Sales to customers in Japan declined
16.5% or $7.7 million primarily as a
result of a lack of available supply for
clams and shrimp. Lower catch rates
for
related
disruptions) resulted in a reduction in
available supply.
(from weather
clams
27 | Page
Sales by species*
In 000's of Canadian dollars
Year ended December 31
Scallops
Coldwater shrimp
Lobster
Clams
Crab
Ground fish and other
*Refer to risks and uncertainties
$
$
2013
147,637
81,592
66,452
60,780
18,271
13,927
388,659
2012
109,754
77,497
61,458
71,894
15,628
14,071
350,302
Change
37,883
4,095
4,994
(11,114)
2,643
(144)
38,357
$
%
34.5
5.3
8.1
(15.5)
16.9
(1.0)
10.9
$
$
Sales increased $38.4 million, or 10.9%, for 2013 as a result of strong sales volumes for
scallops, and snow crab. Higher total allowable catch levels increased catch rates for
scallops which increased available supply. In addition strong market demand increased
sales prices for sea scallops, shrimp, snow crab and offshore lobster also contributed to
the increase in sales.
Lower catch rates for clams and lower sales prices for Argentine scallops, partially
offset the increase in sales for 2013.
28 | Page
Cost of Goods Sold
In 000's of Canadian dollars
Year ended December 31
Harvesting and procurement
Manufacturing
Freight, customs and other transport
Depreciation
Administrative
$
$
$
2013
207,057
35,275
22,826
23,733
12,400
301,291
2012
190,731
32,542
21,254
22,251
10,999
277,777
Change
16,326
2,733
1,572
1,482
1,401
23,514
$
$
$
%
8.6
8.4
7.4
6.7
12.7
8.5
Cost of goods sold increased $23.5 million or 8.5% to $301.2 million primarily as a
result of higher sales volumes, and higher harvesting and manufacturing costs including
labour.
Harvesting and procurement include all costs incurred in the operation of the vessels
including labour, fuel, repairs and maintenance, fishing gear supplies, other costs and
fees plus procured raw material costs for lobster, shrimp, scallops and crab. Excluding
the increase in costs due to higher sales volumes from an increase in pounds landed for
scallops, higher harvesting costs per pound, resulted from poor harvesting conditions
caused by weather for clams and higher costs in Argentina due to inflation. Higher
catch rates for scallops that reduced costs per pound and lower shore prices for cooked
and peeled shrimp partially offset the increase in harvesting costs.
Fuel costs for our vessels increased $0.9 million for 2013 to $24.7 million. The increase
was a result of an increase in the litres consumed from higher total allowable catch
levels for sea scallops, partially offset by a decline in the average price per litre of fuel of
$0.02. Clearwater’s vessels used approximately 29.5 million litres of fuel in 2013 versus
27.8 million litres of fuel in 2012. Based on 2013 fuel consumption, a one-cent per litre
change in the price of fuel would impact harvesting costs by approximately $0.3 million.
Manufacturing includes labour costs related to the production of goods, plant utilities
and supplies. Labour costs increased for the year as a result of higher production levels
and scheduled increases in wages, salaries and benefits.
Transportation costs include freight, customs and duties, related to the transfer of
goods to market. The increase in costs of $1.6 million was the result of increased sales
volumes.
Depreciation from assets used in the harvesting and production of goods increased
$1.5 million to $23.7 million as a result of vessel refits and other additions that were
completed during the second half of 2012 and throughout 2013 and are now being
depreciated.
29 | Page
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.
Gross margin
Gross margin as a percentage of sales improved from 20.7% in 2012 to 22.5% in 2013
due to higher prices, favourable exchange rates and lower harvest costs per pound.
Strong demand provided higher sales prices for the majority of species and
strengthening foreign exchange rates for the US dollar and the Euro against the
Canadian dollar impacted positively on margins. Higher catch rates for scallops
increased available supply and reduced costs per pound which also contributed to the
increase in total gross margin.
A reduction in sales volumes for clams from a lack of available supply due to lower
catch rates for clams partially offset the increase in margins. In addition reductions in
sales price for Argentine scallops and higher costs for labour partially offset the
improvements in gross margin.
Gross margin was positively impacted by higher average foreign exchange rates1. Both
the US dollar and the Euro strengthened against the Canadian dollar but were partially
offset by lower rates for the Yen. The net impact on sales from all foreign exchange
volatility was an increase in sales and gross margins of $7.2 million.
Year ended December 31
2013
2012
Average
rate
Currency
% sales
realized % sales
US dollars
Euros
Japanese Yen
Danish Kroner
UK pounds
Canadian dollar and other
49.1%
21.5%
8.0%
3.5%
3.1%
14.8%
100.0%
1.033
1.383
0.011
0.182
1.627
45.4%
22.1%
12.5%
4.2%
3.3%
12.5%
100.0%
Average
rate
realized
Change
in rate
0.999
1.280
0.013
0.179
1.580
3.3%
8.1%
-15.8%
1.9%
2.9%
1 – Refer to risks and uncertainties for further information
30 | Page
Administration and selling
In 000's of Canadian dollars
Year ended December 31
Salaries and benefits
Share-based incentive compensation
Employee compensation
Consulting and professional fees
Other
Selling costs
Travel
Occupancy
Allocation to cost of goods sold
$
2013
28,708
5,861
34,569
$
2012
25,996
2,331
28,327
$
Change
2,712
3,530
6,242
5,549
4,442
2,893
2,274
1,385
(12,107)
39,005
$
5,030
4,866
1,871
2,035
1,398
(10,991)
32,536
$
519
(424)
1,022
239
(13)
(1,116)
6,469
$
%
10.4
151.4
22.0
10.3
(8.7)
54.6
11.7
(0.9)
10.2
19.9
Administration and selling increased approximately $6.5 million, or 19.9%, to $39.0
million for 2013 primarily as a result of an increase in employee compensation including
share based incentive compensation.
Salaries and benefits increased $2.7 million from 2012 primarily due to increases in
senior management and other staff and a short term incentive program that is accrued
based on Company performance.
Share-based incentive compensation increased $3.5 million from 2012 primarily due
to increases in Clearwater’s share price and to a lesser extent the issue of additional
share based incentive units during the first quarter of 2013 for executives and directors.
Consulting and professional fees include operations management, legal, audit and
accounting, insurance and other specialized consulting services. Costs vary year over
year based upon business requirements.
Other includes a variety of administrative expenses such as communication, computing,
service fees, depreciation, gains or losses and write downs of assets, all of which will
vary from year to year.
Selling costs
development and bad debt expenses.
include advertising, marketing,
trade shows, samples, product
The allocation to cost of goods sold reflects costs that are attributable to the
production of goods and are allocated on a proportionate basis based on production
volumes.
31 | Page
Finance costs
In 000’s of Canadian dollars
Year ended December 31
Interest and bank charges
Amortization of deferred financing charges and accretion
Interest
$
2013
16,317
993
17,310
$
2012
20,346
1,158
21,504
Fair value adjustment on convertible debentures and
embedded derivative
Foreign exchange and derivative contracts
Debt settlement and refinancing fees
(1,710)
17,831
9,316
42,747
$
2,898
(6,108)
6,093
24,387
$
Interest declined $4.2 million for 2013 due to lower average interest rates on
Clearwater’s debt facilities. Clearwater redeemed its 10.5% Class C convertible
debentures in the third quarter of 2012 and its 7.25% Class D convertible debentures in
the third quarter of 2013 and replaced them with new facilities that carry a lower
average annual floating interest rate that is under 5%.
The fair value adjustment on the convertible debentures represents the change in
value of the convertible debentures. The reduction in the fair value adjustment primarily
relates to the redemption of the 10.5% Class C convertible debentures that occurred in
July 2012 and the redemption of the 7.25% Class D convertible debentures that
occurred in July 2013.
32 | Page
Foreign exchange and derivative contracts
In 000’s of Canadian dollars
Year ended December 31
Realized loss (gain)
Foreign exchange contracts and interest rate swap
Working capital, long-term debt, and other
Unrealized loss (gain)
Foreign exchange on long term debt and other assets
Mark-to-market on foreign exchange contracts
Mark-to-market on interest swap
2013
2012
$
2,752
3,586
6,338
$
(3,991)
1,359
(2,632)
5,427
6,060
6
11,493
(3,013)
(663)
200
(3,476)
$
17,831
$
(6,108)
Foreign exchange and derivative (gains) losses1 changed by $23.9 million from a
gain of $6.1 million for 2012 to a loss of $17.8 million for 2013. The foreign exchange
losses of $17.8 million for 2013, include $11.5 million in non-cash unrealized foreign
exchange losses related to foreign exchange contracts and the translation of US dollar
$200.0 million denominated debt as the US dollar and Euro strengthened against the
Canadian dollar by 7.0% and 12.1%, respectively during 2013. In addition the
strengthening foreign exchange rates resulted in an increase in realized losses of $3.6
million from $1.4 million in 2012.
Realized losses on foreign exchange contracts were $2.8 million as the US dollar and
the Euro strengthened against the Canadian dollar, partially offset by a reduction in the
value of the Yen against the Canadian dollar. Unrealized losses occur because spot
rates are higher than contract rates. Higher spot rates are net positive to the business
over a longer period of time.
Foreign exchange contracts are used as part of Clearwater’s foreign exchange
management program (refer the Liquidity section for further details). The purpose of
these contracts is to give certainty to Clearwater on the exchange rates that it expects
to receive on foreign currency sales. The foreign exchange contracts effectively adjust
the cash proceeds received on sales receipts to the rates that Clearwater planned for
and contracted for as part of its annual planning cycle and its foreign exchange
management program. When spot exchange rates are above contract rates at the
date of maturity of the contracts Clearwater realizes a loss and conversely, when spot
exchange rates are lower it realizes a gain. At the same time, given that Clearwater
only hedges to 75% of its net exposures and that higher or lower spot exchange rates
are reflected in sales, any losses or gains on contracts are more than offset by the
impact on sales.
33 | Page
Debt settlement and refinancing fees represent fees incurred for the settlement or
refinancing of long term debt and will vary year to year depending on refinancing
activities. Debt settlement and refinancing fees for 2013 include a $5.1 million non-cash
charge related to financing charges incurred in 2012 that had been deferred and were
being amortized and $4.2 million in refinancing fees incurred in 2013. Clearwater does
not have any material near term maturing debt facilities and believes the current
facilities are sufficient to execute the five year plan.
1 – Refer to risks and uncertainties
Other income
In 000's of Canadian dollars
Year ended December 31
Royalties, interest, and other fees
Share of earnings of equity-accounted investee
Other fees
2013
2012
92
(2,082)
(1,250)
(3,240)
$
(1,712)
(1,054)
(633)
(3,399)
$
Royalties, interest and other fees includes income related to quota rental, commissions,
processing fees and other miscellaneous income and expense that vary based upon the
operations of the business. For 2013, royalties, interest and other fees include a non-
recurring export rebate cost from the termination of a rebate program within Argentina.
As a result of the adoption of IFRS 11 – Joint Arrangements, effective January 1, 2013
a company that has certain scallop harvesting operations that was previously
proportionately consolidated, is now accounted for using the equity method. There was
no impact to earnings or adjusted EBITDA related to the change in accounting. There
was an increase in earnings from the equity accounted investee for 2013 as a result of
an increase in total allowable catch for scallops and an increase in sales prices.
Research and Development
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. Clearwater’s business plans
expect an increase in investment in research and development.
Income taxes
Income taxes primarily relate to taxable subsidiaries in Argentina, the United States, the
United Kingdom and Canada.
34 | Page
In 2013 the deferred tax asset increased $9.9 million tax asset, the majority of which
relates to previously unrecognized non-capital losses in CSI. These deferred tax assets
are being recognized based on management’s estimate that Clearwater will earn
sufficient taxable profit to utilities these losses.
Non-controlling interest
Non-controlling interest relates to earnings from Clearwater’s investment in subsidiaries
in Argentina, Nova Scotia and Newfoundland and Labrador.
35 | Page
Capital Structure
Clearwater’s capital structure includes a combination of equity and various types of debt
facilities. 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 revolving and term debt to lower its cost of
capital.
The amount of 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
and multi-year business plans and making any required changes to its debt and equity
facilities on a proactive basis. These changes can include early repayment of debt,
issuing or repurchasing shares, issuing new debt or equity, utilizing surplus cash,
extending the term of existing debt facilities, selling assets to repay debt and if required,
limiting debt paid.
Clearwater’s capital structure is as follows as at December 31, 2013 and 2012:
36 | Page
In 000’s of Canadian dollars
As at December 31
Equity
Common shares
Retained earnings
Cumulative translation account
Non-controlling interest
Long term debt
Subordinated debt
2014 convertible debentures, redeemed in July 2013
Senior debt, non-amortizing
Revolving debt, due in 2018
Term loan, due in 2014
Term loan, due in 2091
Senior debt, amortizing
Term Loan A, due 2018
Delayed Draw term Loan A, due 2018 (net of deferred financing
charges of $0.6 million)
Term Loan B, due 2019 (including embedded derivative)
Marine mortgage, due in 2017
Other loans
Term Loan A, repaid in June 2013
Term Loan B, (including embedded derivative), repaid in June 2013
Total long term debt
Total capital
2013
2012
$
64,780
19,762
(5,470)
79,072
28,455
107,527
$
64,867
14,616
(3,866)
75,617
30,904
106,521
-
-
44,722
44,722
-
10,642
3,500
14,142
-
-
3,500
3,500
29,700
-
(608)
211,901
1,785
405
-
-
243,183
-
-
2,697
627
72,259
129,986
205,569
257,325
253,791
$
364,852
$
360,312
There are 50,948,698 shares outstanding as of December 31, 2013 (December 31,
2012 - 50,948,698).
On February 4, 2014, Clearwater completed the issuance to the public, on a bought
deal basis, of 4,029,400 common shares from the treasury of the Company. The shares
were offered at a price of $8.50 per Share, for gross proceeds to Clearwater of
approximately $34 million. The proceeds of the offering will be used to fund growth
opportunities and general working capital.
On June 26, 2013, Clearwater completed an approximately $350.0 million refinancing to
further enhance and strengthen its capital structure and liquidity and provide for
37 | Page
investment in a new vessel for clam harvesting operations. The refinancing reduces
Clearwater’s annual interest costs by 1.75 percentage points to 4.75% or approximately
$2.6 million annually.
The refinancing included the redemption and repayment of:
(cid:131) Canadian $44.4 million of 7.25% convertible debentures, as of July 29, 2013
upon payment of a redemption amount of $1,000 for each $1,000 principal
amount of Debentures plus accrued and unpaid interest thereon to but excluding
the redemption date;
(cid:131) Canadian $69.7 million in existing term debt;
(cid:131) USD $126.0 million in existing term debt; and
(cid:131)
the existing asset based revolving credit facility.
Long term debt consists of non-amortizing and amortizing senior debt.
Clearwater has several amortizing senior debt facilities including:
(cid:131) Term loan A due June 2018,
(cid:131) Term loan B due June 2019,
(cid:131) Delayed Term Loan draw due June 2018,
(cid:131) Revolving loan due June 2018, and
(cid:131) A marine mortgage that matures in June 2017.
The revolving loan allows Clearwater to borrow a maximum of CDN $75.0 million
(denominated in either Canadian or the US dollar equivalent) and it matures in June
2018. The balance was nil at both December 31, 2013 and 2012. The CDN balances
bear interest at the banker’s acceptance rate plus 3.25%. The USD balances bear
interest at the US Libor rate plus 3.25%. The loan has a provision that, subject to certain
conditions, allows Clearwater to expand the facility by a maximum of CDN $25.0 million.
The availability on this loan is reduced by the amount outstanding on the US $10 million
non-amortizing term loan and as such the availability as at December 31, 2013 was
$64.4 million.
The term loan A has principal outstanding as at December 31, 2013 of CDN $29.7
million. The loan is repayable in quarterly instalments of $0.2 million to June 2015, $0.4
million from September 2015 to June 2017, and $0.8 million from September 2017 to
March 2018 with the balance due at maturity in June 2018. It bears interest at the
applicable banker’s acceptance rate plus 3.25%. As at September 28, 2013 this
resulted in an effective rate of approximately 4.45%.
The delayed draw term loan A has a principal outstanding as at December 31, 2013 of
CDN $nil and can be drawn upon any time up to December 26, 2014. The balance is
shown net of deferred financing charges of CDN $0.6 million. The loan is repayable in
quarterly instalments of 1.25% of the principal amount drawn under the facility with
repayment to begin in the first quarter after the facility is fully drawn or closed out. The
38 | Page
facility matures in June 2018 and bears interest payable monthly at the banker’s
acceptance rate plus 3.25%. Clearwater has entered into swap arrangements whereby
CDN $12 million of this loan is subject to a fixed interest rate of 5.38% until December
31, 2015 after which it is subject to an interest rate that is the lessor of the floating rate
of interest on the loan or a maximum fixed rate of interest of 6%. Clearwater accounts
for these swap arrangements and the change in market value through profit and loss.
The principal outstanding on the term loan B as at December 31, 2013 was USD $199.0
million. The loan is repayable in quarterly instalments of USD $0.5 million with the
balance due at maturity in June 2019 and bears interest payable monthly at the US
Libor plus 3.5% with a Libor interest rate floor of 1.25%. As of December 31, 2013 this
resulted in an effective rate of 4.75%. The loan has a provision that, subject to certain
conditions allows Clearwater to expand the facility by a maximum of USD $100.0
million. The embedded derivative represents the fair market value of the Libor interest
rate floor of 1.25%. The change in fair market value of the embedded derivative is
recorded through profit or loss.
During the third quarter of 2013 Clearwater’s Argentine subsidiary borrowed USD $10.0
million to fund conversion of a vessel for use in the Argentine scallop fishery. This loan
bears interest at 6% per year with interest payable monthly and the principal is due at
maturity in 2014.
The revolver, term loan A, delayed draw and term loan B are secured by a first charge
on cash and cash equivalents, accounts receivable, inventory, marine vessels, licenses
and quotas, and Clearwater’s investments in certain subsidiaries.
Clearwater’s debt facilities have covenants that include, but are not limited to, a
leverage ratio (for which debt, net of certain cash balances, is compared to EBITDA,
excluding most significant non-cash and non-recurring items) as well as a number of
non-financial covenants. Clearwater is in compliance with all 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 significant amount of assets (harvesting licenses and quotas in particular)
are recorded at historical cost rather than at fair value. Instead, we believe that
leverage measured in relation to adjusted EBITDA is a better measure to evaluate our
capital structure and we have provided that information in the liquidity section.
39 | Page
Liquidity
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.
These include policies and strategies with respect to liquidity, leverage, foreign
exchange management free cash flows and dividends.
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:
• Liquidity - As of December 31, 2013 Clearwater had $46.8 million in cash, and a
$75 million revolving loan, of which $64.4 million was available. The cash balance,
together with available credit on the revolving loan, is used to manage seasonal
working capital demands, capital expenditures, and other commitments.
Clearwater’s operations experience a predictable seasonal pattern in which sales,
margins and adjusted EBITDA are higher in the second half of the year whereas
investments in capital expenditures and working capital are lower, resulting in higher
free cash flows and lower leverage in the second half of the year. This typically
results in lower free cash flow, higher debt balances and higher leverage in the first
half of the year. Clearwater is satisfied that it has ample liquidity to execute its
business plan.
• Leverage1 - Clearwater has a long-term leverage target of 3.0x or lower of net debt
to adjusted EBITDA. Periodically, the ratio may be higher due to planned
investments, or lower due to seasonally but over time Clearwater intends to manage
to this ratio. As of December 31, 2013 leverage decreased to 2.7x adjusted EBITDA
from 2.9x as of December 31, 2012. During the second quarter of 2013 Clearwater
successfully completed a refinancing of substantially all of its senior debt facilities.
The new capital structure provides financing for $45 million investment in a new
vessel for the Company’s clam harvesting operations. Although this financing and
the investment in a third clam vessel will result in an increase in total leverage for the
next 2 years, management remains committed to a long-term leverage goal of 3x
adjusted EBITDA or lower.
40 | Page
In 000's of Canadian dollars
As at December 31
Adjusted EBITDA1
Debt (net of deferred financing charges
of $0.6 million (December 31, 2012 - $4.4
million))
Less cash
Net debt
Leverage
December 31
2013
79,103
$
December 31
2012
72,243
$
257,325
(46,793)
210,532
253,791
(41,504)
212,287
2.7
2.9
• Foreign Exchange Management2 – Strengthening foreign exchange rates for US
dollar and the Euro against the Canadian dollar resulting in an increase in sales and
gross margins of $12.4 million for 2013. Lower average foreign exchange rates for
the Yen partially offset the improvement in foreign exchange. The net impact from
foreign exchange was an improvement of sales and gross margin of $7.2 million for
2013.
Clearwater’s response to foreign exchange risk is as follows:
(1) Diversify sales geographically, 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 contracts – Clearwater has very few long-
term sales contracts with any customers. Contracts are typically less than 6
months and are based on list prices that provide a margin for exchange rate
fluctuations.
(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 to lock
in exchange rates up to 18 months for sales currencies (the US dollar, Euro,
Yen and Sterling) thereby lowering the potential volatility in cash flows.
As of February 26th, 2014 Clearwater had forward exchange contracts to be settled in
2014 of:
(cid:131) US dollar $108.0 million at an average rate of 1.0481;
(cid:131) 2.5 billion Yen at an average rate of .011; and
(cid:131) 50.0 million Euro at an average rate of 1.37.
41 | Page
The US dollar forwards include US dollars $34.5 million of participating forwards which
provide that to the extent spot rates are higher than the contracted rates, the contract
rate will be adjusted by approximately to 50.0% of the excess.
The purpose of these contracts is to give certainty to Clearwater on the exchange rates
that it expects to receive on foreign currency sales. The foreign exchange contracts
effectively adjust the cash proceeds received on sales receipts to the rates that
Clearwater planned for and contracted for as part of this annual planning cycle and its
foreign exchange management program. When spot exchanges rates are above
contract rates at the date of maturity of the contracts Clearwater realizes a loss and
conversely, when spot exchange rates are lower it realizes a gain. At the same time,
given that Clearwater only hedges to 75% of its net exposures and that higher or lower
spot exchange rates are reflected in sales, any losses or gains on contracts are more
than offset by the impact on sales.
• Free cash flows1- Clearwater has a goal to generate strong cash flows from
operations in order to fund interest, scheduled loan payments and capital
expenditures and in turn to use this free cash flow to reduce debt, and to invest in
growth investments. Clearwater’s goal is to grow free cash flows such that it can
fund growth, reduce debt and pay a sustainable dividend to its shareholders.
1 - Refer to definitions
2 – Refer to risks and uncertainties
42 | Page
Free cash flows
Adjusted EBITDA
Less:
13 weeks ended
Year Ended
December 31,
2013
December 31,
2012
December 31,
2013
December 31,
2012
22,347
18,812
79,103
72,243
Cash interest
Cash taxes
Other income and expense items
Operating cash flow before changes in working capital
Change in working capital
Cash flows from operating activities
Uses of cash:
Purchase of property, plant, equipment, quota and other
assets
Disposal of fixed assets
Less: Designated borrowings
Scheduled payments on long-term debt
Dividends received from joint venture
Distributions to non-controlling interests
(3,657)
(270)
514
18,933
29,816
48,749
(11,182)
-
6,231
(1,366)
-
(3,707)
(4,471)
(453)
(1,531)
12,357
32,334
44,691
(4,219)
-
-
(1,629)
1,740
(2,780)
(16,317)
(1,812)
(863)
60,110
(5,448)
54,662
(23,813)
978
7,700
(3,233)
1,240
(11,414)
(20,346)
(1,693)
(12,448)
37,756
8,184
45,940
(16,572)
-
2,056
(6,327)
1,740
(9,491)
Free cash flows
Add/(less):
38,725
37,803
26,121
17,347
Other debt borrowings (repayments) of debt
Other investing activities
Other financing activities
Change in cash flows for the period
(7,505)
(386)
-
30,834
(10,597)
(459)
-
26,747
(20,759)
(717)
-
4,645
13,584
1,358
-
32,288
Cash flows generated by Clearwater’s operations along with cash on deposit and
available credit on the revolving loan are used to fund current operations, seasonal
working capital demands, capital expenditures, and other commitments.
Free cash flow for 2013 increased 51%, from $17.3 million at December 31, 2012 to
$26.1 million at December 31, 2013 as a result of strong improvements in cash flows
from operating activities before changes in working capital. Improvements were a result
of a strong and growing market demand that improved sales prices for scallops, clams
and snow crab and strong sales volumes for scallops. Margins were partially offset by
higher clam, scallops and shrimp harvest costs. Improvements in free cash flow were
partially offset by changes in working capital, higher capital expenditures (net of
designated borrowings) from scheduled refits and vessel conversions, and the timing of
payments to minority interest partners.
In addition certain large investments in longer term assets, for example vessel
conversion/acquisitions, are funded with long term capital such as amoritizing term
43 | Page
loans. As a result Clearwater does not deduct such capital expenditures in the
determination of free cash flows but rather deducts the related debt payments.
Changes in working capital
In 000's of Canadian dollars
As at December 31
Decreases in inventory
(Decreases) increases in accounts payable
Decreases (increases) in accounts receivable
(Increases) decrease in prepaids
13 weeks ended
Year Ended
December 31 December 31 December 31 December 31
2012
9,657
3,078
(2,274)
(2,277)
8,184
2012
16,228
12,155
4,373
(422)
32,334
2013
18,056
(3,550)
16,377
(1,067)
29,816
2013
2,745
(8,342)
(470)
619
(5,448)
$
$
$
$
For 2013, the net investment in working capital declined to a use of cash of $5.4 million
from an increase in cash of $8.2 million primarily as a result of a timing in payments in
accounts payable. An increase in total pounds sold for 2013 partially offset the use of
working capital for the year. Working capital as a percentage of sales declined to
14.3% from 16.3% in 2012, as Clearwater continues to manage its working capital and
investment in inventories.
Investments in capital expenditures in 2013 of $23.8 million primarily resulted from
planned vessel refits and conversions.
From free cash flows Clearwater makes a number of discretionary payments or 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 and through continuous improvements in
the integration of its fleet and sales force.
• Capital spending - Clearwater grades investments in property, plant, equipment
and licences as either return on investment (“ROI”) or maintenance capital and
tracks each project. Significant expenditures that are expected to have a return in
excess of the cost of capital are classified as ROI, and all refits and expenditures
that are expected to return less than the average cost of capital are classified as
maintenance.
On average, Clearwater expects to invest $15-20 million a year in maintaining its
fixed assets with a further $10-15 million of repairs and maintenance expensed
and included in the cost of goods sold.
44 | Page
In June 2013 the Company announced the planned investment in a third vessel
for its clam business. This investment is estimated at $45 million. A suitable hull
has been sourced and a yard is being commissioned to commence the work in
the first quarter of 2014. Management expects to complete conversion work and
enter the new vessel into service in 2015.
This investment will drive growth in Clearwater’s clam business by expanding
access to clam supply by approximately 60% when the customer distribution
chain is fully in place by 2017, at which time Clearwater expects to earn
incremental gross margins of approximately $8 million per year.
In 2014 Clearwater expects significant growth investments of approximately $83
million in capital assets, of which $36 million relates to the construction of the
clam vessel, $15 million relates to the late life extension of a shrimp vessel, $10
million relates to the conversion of a vessel to harvest bay scallops, $17.3 million
relates to maintenance capital investments and $4.7 million relates to various
investments to improve operational efficiencies.
• Dividends – On November 1, 2013 Clearwater announced the initiation of an annual
dividend of $0.10 per share, payable in quarterly installments of $0.025 per share
and on December 13, 2013 it made the first quarterly dividend payment.
Consistent with that announcement, today the Board of Directors approved a
quarterly dividend of CAD$0.025 per share payable on March 24, 2014 to
shareholders of record on March 10, 2014.
In making
consideration to a number of key principles including:
the determination of dividend
levels Clearwater’s Board gives
•
•
•
•
the expected future earnings;
the amount of free cash flows that should be retained to reinvest in the
business;
the assurance that all obligations can be met with respect to existing loan
agreements; and
the desire to provide room for the dividend to increase in the future as the
business continues to grow and expand.
The Board is satisfied with current dividend levels
These dividends are eligible dividends as defined for the purposes of the Income
Tax Act (Canada) and applicable provincial legislation and, therefore, qualify for the
favourable tax treatment applicable to such dividends.
As a result of its continued focus on increasing gross margin and managing its
investments in working capital and capital assets, Clearwater believes that it has
sufficient liquidity and financial resources to execute on its strategy and business plan.
45 | Page
EXPLANATION OF FOURTH QUARTER EARNINGS
Overview
The statements of earnings reflect the earnings of Clearwater for the 13 weeks ended
December 31, 2013 and 2012.
In 000's of Canadian dollars
13 weeks ended December 31
Sales
Cost of goods sold
Gross margin
Administrative and selling
Finance costs
Other income
Research and development
Earnings before income taxes
Income tax expense (recovery)
(Loss) earnings
(Loss) earnings attributable to:
Non-controlling interests
Shareholders of Clearwater
2013
2012
$
111,012
85,384
25,628
23.1%
$
92,945
74,406
18,539
19.9%
13,295
12,678
(1,664)
630
24,939
9,765
5,500
(1,205)
824
14,884
689
987
(298)
$
3,655
(6,863)
10,518
$
$
$
2,804
(3,102)
(298)
2,038
8,480
10,518
$
$
46 | Page
Fourth Quarter Earnings
Clearwater reported strong results for the fourth quarter of 2013 that included sales of
$111.0 million and adjusted EBITDA1 of $22.3 million versus 2012 comparative figures
of $92.9 million and $18.8 million, respectively.
In the fourth quarter of 2013, operations improved earnings $5.0 million primarily as a
result of an improvement in gross margin of $7.1 million and lower interest expense of
$1.0 million. Gross margins were 23.1%, an improvement of 3.2 percentage points from
19.9% realized in the fourth quarter of 2012 due primarily to a strong market demand
that improved sales prices for the majority of species and improvements in foreign
exchange as the US dollar and Euro strengthened against the Canadian dollar.
Margins were partially offset by higher scallop and shrimp harvest costs. An increase in
sales volumes for scallops and shrimp contributed to the increase in total gross margin
dollars for the fourth quarter of 2013.
Non-operational items of $15.9 million (refer to the following table) included unrealized
foreign exchange losses from the US dollar and Euro strengthening against the
Canadian dollar, and lower deferred income tax recoveries from loss carry forwards.
Including these non-operational items the earnings declined by $10.8 million to a loss of
$0.3 million
In 000’s of Canadian dollars
13 weeks ended December 31
2013
2012
Change
(Loss) earnings
$
(298)
$
10,518
$
(10,816)
Explanation of changes in (loss) earnings related to operational items:
Higher gross margin
Higher administrative and selling
Lower interest expense
Higher other income
Explanation of changes in (loss) earnings related to non-operational items:
Lower deferred income tax asset valuation
Higher unrealized foreign exchange losses
Higher realized foreign exchange losses
Lower fair value adjustments on convertible debentures and embedded derivative
All other
1 – Refer to the definition s
7,089
(3,530)
976
459
4,994
(7,850)
(7,724)
(1,206)
881
(15,899)
89
(10,816)
$
47 | Page
Sales by region
In 000's of Canadian dollars
13 weeks ended December 31
Europe
China
Japan
Other Asia
Asia
United States
Canada
North America
Other
2013
45,956
$
2012
35,478
$
Change
10,478
$
18,513
10,552
4,502
33,567
17,373
13,194
30,567
20,573
10,355
4,391
35,319
10,914
10,740
21,654
(2,060)
197
111
(1,752)
6,459
2,454
8,913
922
111,012
$
494
92,945
$
428
18,067
$
%
29.5
(10.0)
1.9
2.5
(5.0)
59.2
22.8
41.2
86.6
19.4
Europe
Europe is Clearwater’s largest scallop
region and it is an important market for
coldwater shrimp and lobster products.
European sales increased $10.5 million
to $46.0 million in the fourth quarter of
2013 as a result of strong sales volumes
for Argentine scallops and shrimp. The
increase in sales volumes resulted from
for
an
increase
scallops and
for
shrimp.
in overall demand
landings
timing of
Sales prices for bay scallops declined
during
fourth quarter partially
offsetting the increase in sales.
the
Foreign exchange rates1 for sales to
Europe, which are primarily transacted
in Euros and UK Pounds, increased by
$3.1 million for the region as the Euro
improved
the
Canadian dollar from 1.29 in the fourth
quarter of 2012 to 1.44 in 2013, and the
relative
12.3%
to
UK Pound improved 7.5% to 1.71 over
the same period.
Asia
China
China is a growing market for clams,
coldwater shrimp, lobster and turbot.
Sales to China declined $2.1 million, or
10.0%, to $18.5 million for the fourth
quarter primarily as a result of the timing
48 | Page
of landings for turbot as all available
supply was sold at the end of the third
quarter of 2013 versus the fourth quarter
of 2012.
Strong sales prices for sea scallops,
shrimp and clams partially offset the
decline in sales for the quarter.
Chinese sales are almost exclusively
transacted in US dollars. The US dollar
the Canadian
strengthened against
dollar improving sales. Average foreign
exchange
the US dollar
for
increased by 5.9% from 0.991 in the
fourth quarter of 2012 to 1.05 in 2013,
increasing sales by $1.0 million for the
region.
rates
Japan
Japan is an important market for clams,
lobster, coldwater shrimp and turbot.
Sales to Japan remain consistent for the
fourth quarter of 2013 versus 2012 as
lower available supply for clams from
lower catch rates and turbot from the
timing of landings, offset the increase in
sales volumes from shrimp.
impacted
In addition, sales were
negatively by
foreign
exchange as the Yen weakened against
the Canadian dollar, by 14.1% to 0.010.
reductions
in
is an
United States
The United States
important
market for scallops, coldwater shrimp,
lobster and clams. It is our most diverse
market, where a wide variety of products
are sold.
Sales in the United States increased by
$6.5 million, to $17.4 million in the fourth
quarter as a result of an increase in
sales volumes for scallops, shrimp and
lobster.
The increase in sales volumes for sea
scallops were a result of strong catch
rates
for 2013 and demand, which
resulted in an increase in sales price.
Reductions in sales price for offshore
lobster and shrimp from a change in
product mix weighted towards product
with lower sales prices partially offset
the increase in sales.
For the fourth quarter, the US dollar
the Canadian
strengthened against
dollar, impacting sales by $1.0 million.
Average foreign exchange rates for the
US dollar increased by 5.9% from 0.991
in the fourth quarter of 2012 to 1.05 in
2013.
49 | Page
Canada
Canada is a large market for lobster,
scallops and coldwater shrimp.
Sales within Canada increased $2.5
million, or 22.8% primarily as a result of
an increase in market demand that
increased sales volumes and price for
scallops for 2013.
1 – Refer to risks and uncertainties for further information
50 | Page
Sales by species*
In 000's of Canadian dollars
13 weeks ended December 31
Scallops
Coldwater shrimp
Clams
Lobster
Ground fish and other
Crab
*Refer to risks and uncertainties
$
$
2013
45,998
27,653
18,805
18,102
436
18
111,012
2012
33,955
19,460
18,949
13,542
7,039
-
92,945
Change
12,043
8,193
(144)
4,560
(6,603)
18
18,067
$
%
35.5
42.1
(0.8)
33.7
(93.8)
-
19.4
$
$
Improvements in sales were a result of increases in sales volumes for scallops, lobster
and shrimp. Higher sales prices for the majority of species also contributed to the
increase in sales. In addition foreign exchange positively impacted sales as the US
dollar and Euro strengthened against the Canadian dollar.
The increase in sales was partially offset by lower available supply volumes for turbot
from the timing of landings and lower catch rates for clams.
51 | Page
Cost of Goods Sold
In 000's of Canadian dollars
13 weeks ended December 31
Harvesting and procurement
Manufacturing
Freight, customs and other transport
Depreciation
Administrative
$
$
$
2013
60,419
8,267
5,548
7,161
3,989
85,384
2012
51,850
7,606
5,442
6,348
3,160
74,406
Change
8,569
661
106
813
829
10,978
$
$
$
%
16.5
8.7
1.9
12.8
26.2
14.8
Cost of goods sold increased $11.0 million or 14.8% to $85.4 million primarily as a
result of higher sales volumes, higher harvesting costs per pound for Argentine scallops
and shrimp, and higher labour.
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 lobster, shrimp, scallops and crab.
Excluding the impact of higher sales volumes, harvesting costs per pound for both
Argentine scallops and shrimp increased as a result of higher labour. In addition higher
shore prices for lobster increased procurement costs for the fourth quarter.
Fuel costs for our vessels declined $0.5 million from $6.6 million in the fourth quarter of
2012 to $6.1 million in the fourth quarter of 2013. The decline was primarily a result of a
reduction in litres consumed combined with a reduction in fuel cost of $0.03 per litre.
Depreciation from assets used in the harvesting and production of goods increased
$0.8 million to $7.2 million as a result of vessel refits and other additions that were
completed during the first half of 2013 and began depreciating.
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.
52 | Page
Gross margin
Gross margins as a percentage of total sales improved, 3.1 percentage points from
19.9% in the fourth quarter of 2012 to 23.1% in 2013 due primarily to a strong market
demand that improved sales prices for the majority of species and an improvement in
foreign exchange for the US and Euro against the Canadian dollar.
An increase in sales volumes for scallops and shrimp contributed to the increase in total
gross margin dollars of $7.1 million to $25.7 million for the fourth quarter of 2013.
Increases in sales volumes were a result of higher catch rates and strong demand for
scallops and timing of landings for shrimp.
Higher harvesting costs for Argentine scallops and shrimp partially offset the
improvement in gross margin. In addition higher shore prices for lobster increased
procurement costs for the fourth quarter.
Margins were positively impacted by higher average foreign exchange rates1 for the US
dollar and Euro, partially offset by lower foreign exchange rates for the Yen. The net
impact on sales from all foreign exchange volatility was an increase in sales and gross
margins of $4.9 million.
13 weeks ended December 31
2013
2012
Average
rate
Currency
% sales
realized % sales
US dollars
Euros
Japanese Yen
Danish Kroner
UK pounds
Canadian dollar and other
44.0%
25.8%
8.3%
2.8%
3.3%
15.8%
100.0%
1.050
1.443
0.010
0.192
1.710
43.0%
24.5%
9.8%
3.7%
4.8%
14.2%
100.0%
Average
rate
realized
Change
in rate
0.991
1.286
0.012
0.172
1.592
5.9%
12.3%
-14.1%
11.4%
7.5%
1 – Refer to risks and uncertainties for further information
53 | Page
Administration and selling
In 000's of Canadian dollars
13 weeks ended December 31
Salaries and benefits
Share-based incentive compensation
Employee compensation
Consulting and professional fees
Other
Selling costs
Travel
Occupancy
Allocation to cost of goods sold
$
2013
8,151
2,913
11,064
$
2012
6,382
1,517
7,899
$
Change
1,769
1,396
3,165
1,526
1,619
1,111
665
363
(3,053)
13,295
$
1,254
1,732
586
604
378
(2,688)
9,765
$
272
(113)
525
61
(15)
(365)
3,530
$
%
27.7
92.0
40.1
21.7
(6.5)
89.6
10.1
(4.0)
13.6
36.1
Administration and selling costs increased $3.5 million from $9.8 million to $13.3
million in the fourth quarter of 2013 versus the same period in 2012. This was due to
higher employee compensation costs including share based incentive compensation.
Salaries and benefits increased $1.8 million from 2012 primarily due to increases in
senior management and other staff and a short term incentive program that is accrued
based on Company performance.
Share-based incentive compensation increased $1.4 million from the fourth quarter of
2012 due primarily to increases in Clearwater’s share price and to a lesser extent the
issue of additional share based incentive units during the first quarter of 2013 for
executives and directors.
Other include a variety of administrative expenses such as communication, computing,
service fees, depreciation, gains or losses and write downs of assets, all of which will
vary from year to year.
Selling costs
development and bad debt expenses.
include advertising, marketing,
trade shows, samples, product
The allocation to cost of goods sold reflects costs that are attributable to the
production and sale of goods and are allocated based on production volumes.
54 | Page
Finance costs
In 000’s of Canadian dollars
13 weeks ended December 31
Interest and bank charges
Amortization of deferred financing charges and accretion
Interest
Fair value adjustment on embedded derivative
Foreign exchange and derivative contracts
Debt settlement and refinancing fees
$
2013
3,657
195
3,852
$
2012
4,471
357
4,828
(1,009)
9,835
-
12,678
$
(128)
905
(105)
5,500
$
Interest declined $1.0 million for the fourth quarter as Clearwater replaced other higher
cost debt facilities with new facilities that carry a lower average annual interest rate.
The fair value adjustment on the embedded derivative relates to an interest rate
floor on the term loan B facility that is recorded at fair value through profit and loss. The
gain of $1.0 million in the fourth quarter relates to a reduction in the credit spread for the
fourth quarter.
Foreign exchange and derivative contracts
In 000’s of Canadian dollars
13 weeks ended December 31
Realized loss (gain)
Foreign exchange contracts and interest rate swap
Working capital, long-term debt, and other
Unrealized loss
Foreign exchange on long term debt and other assets
Mark-to-market on foreign exchange contracts
Mark-to-market on interest swap
2013
2012
$
1,431
(2,449)
(1,018)
$
(1,416)
(808)
(2,224)
7,898
2,949
6
10,853
1,626
1,303
200
3,129
$
9,835
$
905
Foreign exchange and derivative contracts1 losses increased by $8.9 million from
$0.9 million in the fourth quarter of 2012 to $9.8 million in 2013. The foreign exchange
losses of $9.8 million in for fourth quarter of 2013, include $10.8 million in non-cash
unrealized foreign exchange losses related to foreign exchange contracts and the
translation of US dollar $200.0 million denominated debt as the US and Euro
55 | Page
strengthened against the Canadian dollar by 5.9% and 12.3% during 2013, respectively.
In June 2013, Clearwater increased the total amount of USD denominated debt from
USD $124.0 million at June 30, 2012 to USD $200 million. Should the US dollar
strengthen against the Canadian dollar, unrealized foreign exchange losses could
occur.
Realized foreign exchange losses of $1.4 million were a result of strengthening foreign
exchange rates for the US dollar and the Euro against the Canadian dollar.
1 – Refer to risks and uncertainties for further information
Other income
In 000's of Canadian dollars
13 weeks ended December 31
Royalties, interest, and other fees
Share of (earnings) loss of equity-accounted investee
Other fees
2013
2012
(226)
(528)
(910)
(1,664)
$
(749)
99
(555)
(1,205)
$
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.
As a result of the adoption of IFRS 11 – Joint Arrangements, effective January 1, 2013
a company that has certain scallop harvesting operations that was previously
proportionately consolidated, is now accounted for using the equity method. There was
no impact to earnings or adjusted EBITDA related the change in accounting.
Research and Development
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. Clearwater’s business plans call
for increased investment in research and development in 2013 and subsequent years.
Income taxes
Income taxes primarily relate to taxable subsidiaries in Argentina, the United States, the
United Kingdom and Canada.
Non-controlling interest
Non-controlling interest relates to earnings from Clearwater’s investment in subsidiaries
in Argentina, Nova Scotia and Newfoundland and Labrador.
56 | Page
OUTLOOK
Global demand for seafood is outpacing supply, creating favorable market dynamics for
vertically integrated producers such as Clearwater which have strong resource access.
Demand has been driven by growing worldwide population, shifting consumer tastes
towards healthier diets, and rising purchasing power of middle class consumers in
emerging economies.
The supply of wild seafood is limited and is expected to continue to lag behind the
growing global demand. This supply-demand imbalance has created a market place in
which purchasers of seafood are increasingly willing to pay a premium to suppliers that
can provide consistent quality and food safety, wide diversity and reliable delivery of
premium, wild, sustainably harvested seafood.
Clearwater, like other vertically integrated seafood companies, is well positioned to take
advantage of this opportunity because of its licenses, premium product quality, diversity
of species, global sales footprint, and year-round harvest and delivery capability.
In 2013 Clearwater surpassed all previous records for sales revenue and adjusted
EBITDA. We posted strong results across our portfolio of sustainably harvested, wild
caught seafood with six out of seven core species showing increased revenues,
margins or both. We also made significant improvements to our capital structure and
advanced several major capital projects - activities critical to sustaining our long term
growth, profitability and competitive advantage.
For 2014 Clearwater set the following targets:
(cid:131) sales growth – 5% or greater,
(cid:131) adjusted EBITDA margins – 18% or greater,
(cid:131) Free cash flow growth – 5% or greater
(cid:131)
return on assets - 12% or higher
57 | Page
RISKS AND UNCERTAINTIES
The performance of Clearwater’s business is susceptible to a number of risks which
affect income, liquidity and cash flow, 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 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.
In addition Clearwater has a subsidiary which operates in the offshore scallop fishery in
Argentina which exposes Clearwater to changes in the value of the Argentine Peso.
Risks associated with foreign exchange are partially mitigated by the following
strategies:
(1) Diversify sales internationally which reduces the impact of any country-
specific economic risks.
(2) Execute on pricing strategies so as to offset the impact of exchange rates.
(3) Limit the amount of long-term sales contracts – Clearwater has very few long-
term sales contracts with any customers. Contracts are typically less than 6
months and are based on list prices that provide a margin for exchange rate
fluctuations.
(4) Plan conservatively - Clearwater regularly reviews economist estimates of
future exchange rates and uses conservative estimates when preparing its’
business plans, and
(5) Foreign exchange hedging program - that focuses on using forward contracts
to enable Clearwater to lock in exchange rates up to 18 months for key sales
currencies (the US dollar, Euro, Yen and Sterling) thereby lowering the
potential volatility in cash flows through derivative contracts.
In 2013 approximately 49.1% of Clearwater’s sales were denominated in US dollars.
Based on 2013 sales, a change of 0.01 in the U.S. dollar rate converted to Canadian
dollars would result in a $1.8 million change in sales and gross profit. Approximately
21.5% of 2013 sales were denominated in Euros, based on 2013 sales, a change of
58 | Page
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, 8.0% of sales in 2013 were denominated in
Japanese Yen, based on 2013 annual sales, a change of 0.001 in the Yen rate as
converted to Canadian dollars would result in a change of $3.0 million in sales and
gross profit.
As of February 26, 2014 Clearwater had approximately 81% of its US Dollar, Euro and
Yen exposures for 2014 hedged at rates of 1.05, 1.37 and 0.011 respectively.
A foreign exchange hedging program provides short-term risk management for foreign
exchange risk. 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 variability.
Political risk
Our Argentine and other international operations are subject to economic and political
risks, which could materially and adversely affect our business.
including
fluctuations
Our Argentine and other foreign operations and investments are subject to numerous
foreign currency, exchange rates and controls,
risks,
forced divestiture,
expropriation of our assets, nationalization,
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.
renegotiation,
in
For a period of time during 2012 Clearwater was unable to repatriate dividends from
Argentina.
However, Clearwater received approvals and paid approximately $4.8 million in
dividends in December 2012 and has since paid dividends of approximately $12.0
million Canadian in 2013. There can be no assurances that Clearwater will continue to
be able to repatriate dividends from Argentina in the future.
To compensate for the potential restriction on dividend payouts Clearwater put in place
domestic loan financing in Argentina related to the purchase of a replacement vessel.
The replacement of this vessel will necessitate that some funds be used for the related
loan domestic payments, thus alleviating the need for any material dividend payments
for the short term.
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 and we do not maintain any material
59 | Page
financial assets that are surplus to our needs to operate the business outside of
Canada. 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 and who is resident in Argentina and is 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 Total
Allowable Catch (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 some of which are beyond our control and which may be
exacerbated by factors such as water temperatures, food availability, the presence of
predators, disease, disruption in the food chain, reproductive problems or other
biological issues. We are unable to fully 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.
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 stakeholders
including us and our competitors to determine acceptable catch levels. The potentially
differing interests of our competitors may result in conflicting opinions on issues around
resource management, 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 resource assessment surveys to ensure access to the best
60 | Page
available science information. Resource management plans, developed by DFO, are
developed through an open and transparent process with strong input from industry
participants. Clearwater engages in these processes to promote best in class, robust,
and sustainable management of the resource. The Marine Stewardship Council
certification of all of our core species demonstrates that the resources that Clearwater
harvests meet the leading global standard for sustainable fisheries management
practice. Clearwater further mitigates the risk associated with resource supply and
competition through the diversification across species.
Capital availability and liquidity risk
There are risks associated with capital availability and liquidity including:
1. The ability of Clearwater 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, 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 dividends 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 was 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 February 26, 2014 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 business. These include policies and goals with respect to
61 | Page
leverage, foreign exchange, lending arrangements and free cash flows. See the Capital
structure and liquidity sections for further information.
Other risks
Clearwater plans to invest approximately $4.7 million in 2014 as part of a $9 million
project related to in the implementation of a new enterprise resource planning system
(“ERP”) to support improved decision making capabilities. We recognize that the
integrity and reliability of information in all its forms are critical. Inaccurate, incomplete
or unavailable information could lead to incorrect financial reporting, and poor decision
making. The implementation of the ERP and all major information technology projects
are managed by a change management and governance process. Clearwater has an
ERP team staffed with knowledgeable internal and external resources that is
responsible for implementing the various key initiatives.
For further disclosure of additional risk factors please refer to the Annual Information
Form.
CRITICAL ACCOUNTING POLICIES
Clearwater’s critical accounting policies are those that are important to the portrayal of
Clearwater’s financial position and operations and may require management to make
judgments based on underlying estimates and 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 the operating environment changes. Clearwater has 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.
Financial Reporting Controls and Procedures
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, 2013 and have concluded that
such procedures are adequate and effective to provide reasonable assurance that
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.
62 | Page
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
in accordance with
financial reporting and preparation of
International Financial Reporting Standards (“IFRS”).
financial statements
Management evaluated the design and effectiveness of Clearwater’s internal controls
over financial reporting as at December 31, 2013. 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
(2013)”. 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, 2013, 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 September 29, 2013 to
December 31, 2013, that have materially affected, or are reasonably likely to materially
affect the Company’s internal controls over financial reporting.
Adoption of new and revised standards
The following IFRS standards have been recently issued by the IASB: IFRS 10
Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of
Interests in Other Entities and IFRS 13 Fair Value Measurement Arrangements that
have an effective date for annual periods beginning on or after January 1, 2013.
Clearwater has adopted the following new and revised standards, along with any
consequential amendments, effective January 1, 2013. These changes were made in
accordance with the applicable transitional provisions.
IFRS 10 - Consolidated Financial Statements replaces the guidance on control and
consolidation in IAS 27 Consolidated and Separate Financial Statements and SIC-12
Consolidation-Special Purpose Entities. IFRS 10 provides additional guidance on
determining control for the purposes of consolidation. Clearwater determined that the
adoption of IFRS 10 did not result in any change to the consolidation of its subsidiaries.
IFRS 11 - Joint Arrangements, replaces IAS 31 Interests in Joint Ventures, and requires
joint arrangements to be classified either as joint operations or joint ventures depending
on the contractual rights and obligations of each investor that jointly controls the
arrangement.
63 | Page
Clearwater’s adoption of IFRS 11 changed the classification of an entity from a joint
operation proportionately consolidated to a joint venture. An investment in a joint
venture is accounted for using the equity method as set out in IAS 28 Investments in
Associates and Joint Ventures.
This change in accounting as at January 1, 2012 resulted in the aggregation of
Clearwater’s proportionate share of the entity’s net assets and items of profit and loss
into single line items. The adjustments to the consolidated statements of financial
position, statements of earnings and cash flows are as follows:
As a result of the adoption of IFRS 11 – Joint Arrangements, effective January 1, 2013
a company that has certain scallop harvesting operations that was previously
proportionately consolidated, is now accounted for using the equity method. There was
no impact to earnings or adjusted EBITDA related the change in accounting.
Impact of application of IFRS 11 – joint arrangements to Consolidated Statements of
Financial Position
In thousands of Canadian dollars
ASSETS
Current assets
Non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Non-current liabilities
SHAREHOLDERS' EQUITY
Non-controlling interest
As at December
31, 2012
(Previously stated)
Elimination of
carrying values of
entity
proportionately
consolidated
Presentation of
entity using equity
method
As at December
31, 2012
(Restated)
148,758
263,392
$
412,150
64,169
241,460
75,617
30,904
106,521
(1,127)
(4,102)
(5,229)
(129)
(1,232)
-
-
-
-
3,868
147,631
263,158
3,868
$
410,789
-
-
-
-
-
64,040
240,228
75,617
30,904
106,521
$
410,789
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES
$
412,150
(1,361)
64 | Page
In thousands of Canadian dollars
ASSETS
Current assets
Non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Non-current liabilities
SHAREHOLDERS' EQUITY
Non-controlling interest
As at January 1,
2012
(Previously stated)
Elimination of
carrying values of
entity
proportionately
consolidated
Presentation of
entity using equity
method
As at January 1,
2012
(Restated)
125,823
262,069
$
387,892
86,614
207,226
61,352
32,700
94,052
(1,930)
(4,123)
(6,053)
(258)
(1,229)
-
-
-
-
4,566
123,893
262,512
4,566
$
386,405
-
-
-
-
-
86,356
205,997
61,352
32,700
94,052
$
386,405
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES
$
387,892
(1,487)
Impact of application of IFRS 11 to Consolidated Statements of Earnings
In thousands of Canadian dollars
December 31,
2012
(Previously stated)
Elimination of
entity proptionately
consolidated
Presentation of
entity using equity
method
December 31,
2012
(Restated)
Sales
Cost of goods sold
Administrative and selling
Net finance costs
Other income
Research and development
Earnings before income taxes
Income tax expense
$
350,447
276,190
74,257
32,837
24,388
(2,412)
1,759
56,572
17,685
(5,019)
(145)
1,587
(1,732)
(301)
(1)
67
-
(235)
(1,497)
(443)
-
-
-
$
350,302
277,777
72,525
-
-
(1,054)
-
(1,054)
-
-
32,536
24,387
(3,399)
1,759
55,283
17,242
(5,462)
Earnings for the period
$
22,704
$
(1,054)
$
-
$
22,704
65 | Page
For the consolidated statements of cash flows the net cash flows adjusted were $0.3
million.
Related Party Transactions
Clearwater often transacts in the normal course of business with other related parties.
The details are as follows for the year ended December 31, 2013 and 2012:
Key management personnel
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, 2013 and 2012.
Year ended December 31
Wages and salaries
Share-based compensation
Bonuses
Other benefits
$
$
2013
3,792
5,861
1,290
606
11,549
2012
3,023
2,331
1,380
371
7,105
$
$
Transactions with other related parties
Clearwater rents office space to CFFI (the controlling shareholder of Clearwater) and
provides computer network support services to CFFI. Clearwater charges CFFI
management and other fees for finance and administration services provided to CFFI by
certain Clearwater staff. CFFI previously charged 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.
Clearwater had the following transactions and balances with CFFI, for the year ended
December 31, 2013 and December 31, 2012:
66 | Page
Opening balance due from CFFI
Management and other fees charged to (from) CFFI
Rent and IT service fees charged to CFFI
Interest on intercompany account
Guarantee fee charged from CFFI
Aircraft charges from CFFI
Payments from CFFI
Advances to CFFI
Other charges to CFFI
$
$
December 31, December 31,
2012
2,111
(198)
184
103
(62)
(38)
(925)
166
255
1,596
2013
1,596
122
184
78
-
-
(466)
-
10
1,524
$
$
The amount due from CFFI is unsecured and due on demand. As such the account has
been classified as a current asset included in prepaids and other. The balance bears
interest at a rate of 5%. Fees amounting to 1% of the guarantees were charged to
Clearwater. With the debt refinancing in 2012 and 2013 CFFI no longer provides a
guarantee on the senior debt facilities for Clearwater.
In addition, Clearwater expensed approximately $0.07 million for vehicle leases in 2013
(2012 - $0.11 million) and approximately $0.11 million for other services in 2013 (2012 -
$0.17 million) by companies related to its parent. The transactions are recorded at the
exchange amount and the balance due to these companies was $0.01 million as at
December 31, 2013 (December 31, 2012 - $0.02 million).
Clearwater recorded sales, sales commissions and storage fees to a non-controlling
interest in a consolidated partnership. These sales, sales commissions, and storage
fees are at prevailing market prices and are settled on normal trade terms. Sales to the
non-controlling interest for 2013 are $1.2 million (2012 - $1.0 million). Sales
commissions in 2013 are $2.0 million (2012 - $1.9 million). Storage fees for 2013 are
$1.7 million (2012 - $2.1 million).
Clearwater recorded legal expense for services provided by a Director of the
corporation for 2013 of $0.03 million (2012 - $ nil).
At December 31, 2013 Clearwater had a balance of $8.8 million (December 31, 2012 -
$7.7 million), included in long term receivables, for interest and non interest bearing
advances and loans made to a non-controlling interest shareholder in a subsidiary (refer
to Note 8).
67 | Page
Commitments
The following are the contractual maturities of non-derivative financial liabilities,
derivative financial instruments, operating lease and other commitments at December
31, 2013. The table includes undiscounted cash flows of financial liabilities, operating
lease and other commitments, interest and principal cash flows based on the earliest
date on which Clearwater is required to pay.
December 31, 2013
Carrying
Amount
Contractual
Cash Flow
2014
2015
2016
2017
2018
>2019
Interest - long-term debt
Principal repayments - long-term debt
79,519
257,769
11,899
14,297
11,132
3,762
10,963
3,985
10,788
3,784
10,072
27,234
24,665
204,707
Total long-term debt
257,325
337,288
26,196
14,894
14,948
14,572
37,306
229,372
Trade and other payables
40,760
40,760
40,760
-
-
-
-
-
Operating leases and other
-
48,954
31,522
3,115
2,034
1,990
1,845
8,448
Derivative financial instruments - asset
(1,466)
(1,466)
(1,466)
Derivative financial instruments - liability
6,869
6,869
6,869
-
-
-
-
-
-
-
-
-
-
$
303,488
$
432,405
$
103,881
$
18,009
$
16,982
$
16,562
$
39,151
$
237,820
68 | Page
leverage
leverage
free cash flow
free cash flow
seasonality
Clearwater’s operations experience a
predictable seasonal pattern in which
sales, margins and adjusted EBITDA
are higher in the second half of the year
and investments in capital expenditures
and working capital are lower, resulting
in higher free cash flows and lower
leverage in the second half of the year.
This typically results in lower free cash
flow, higher debt balances and higher
leverage in the first half of the year.
5.0
5.0
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0
0
125
125
100
100
75
75
50
50
25
25
0
0
30
25
30
20
25
15
20
10
15
5
10
5
0
0
)
s
d
n
a
s
u
o
)
h
s
t
d
(
n
a
s
u
o
h
t
(
)
s
d
n
a
s
u
o
)
h
s
t
d
(
n
a
s
u
o
h
t
(
2012 2013
Q1
2012 2013
Q1
Profitability
2012 2013
Q3
2012 2013
Q2
2012 2013
Q2
sales
2012 2013
Q3
2012 2013
Q4
2012 2013
Q4
sales
2012 2013
Q1
2012 2013
Q2
2012 2013
Q3
2012 2013
Q4
2012 2013
Q1
adjusted EBITDA
2012 2013
Q3
2012 2013
Q2
2012 2013
Q4
adjusted EBITDA
2012 2013
Q1
2012 2013
Q2
2012 2013
Q3
2012 2013
Q4
)
s
d
n
a
s
u
o
)
h
s
t
d
(
n
a
s
u
o
h
t
(
)
s
d
n
a
s
u
o
)
h
s
t
d
(
n
a
s
u
o
h
t
(
50
50
40
40
30
30
20
20
10
10
0
0
(10)
(10)
(20)
(20)
(30)
(30)
50
50
40
40
30
30
20
20
10
10
0
0
(10)
(10)
(20)
(20)
(30)
(30)
2012 2013
Q1
2012 2013
Q2
2012 2013
Q3
2012 2013
Q4
2012 2013
2012 2013
2012 2013
2012 2013
Q2
Q3
Q4
2012 2013
2012 2013
2012 2013
2012 2013
Q2
Q3
Q4
2012 2013
2012 2013
2012 2013
2012 2013
Q2
Q3
Q4
Q1
Q1
working capital
working capital
2012 2013
2012 2013
2012 2013
2012 2013
Q2
Q3
Q4
Q1
Q1
69 | Page leverage
2012 2013
2012 2013
2012 2013
Q1
Q2
Q3
2012 2013
Q4
sales
2012 2013
2012 2013
2012 2013
Q1
Q2
Q3
2012 2013
Q4
adjusted EBITDA
125
100
)
s
d
n
a
s
u
o
h
t
(
75
50
5.0
4.0
3.0
2.0
1.0
0
25
0
30
25
20
15
10
5
0
)
s
d
n
a
s
u
o
h
t
(
5.0
4.0
3.0
2.0
1.0
0
125
100
)
s
d
n
a
s
u
o
h
t
(
75
50
50
40
30
20
10
0
(10)
)
s
d
n
a
s
u
o
h
t
(
)
s
d
n
a
s
u
o
h
t
(
25
0
30
25
20
15
10
(20)
5
(30)
0
leverage
free cash flow
)
s
d
n
a
s
u
o
h
t
(
50
40
30
20
10
0
(10)
(20)
(30)
2012 2013
2012 2013
2012 2013
2012 2013
Q1
Q2
Q3
Q4
sales
2012 2013
Q1
2012 2013
Q2
2012 2013
Q3
2012 2013
Q4
Free Cash Flows, Leverage and Working Capital
free cash flow
working capital
2012 2013
Q1
2012 2013
Q2
2012 2013
Q3
2012 2013
Q4
adjusted EBITDA
)
s
d
n
a
s
u
o
h
t
(
50
40
30
20
10
0
(10)
(20)
(30)
2012 2013
Q1
2012 2013
Q1
2012 2013
Q2
2012 2013
Q2
2012 2013
Q3
2012 2013
Q3
2012 2013
Q4
2012 2013
Q4
2012 2013
Q1
2012 2013
Q2
2012 2013
Q3
2012 2013
Q4
leverage
free cash flow
working capital
5.0
)
s
d
n
a
s
u
o
h
t
(
50
40
30
20
10
0
(10)
(20)
(30)
4.0
3.0
2.0
1.0
0
125
100
2012 2013
Q1
2012 2013
Q2
2012 2013
Q3
2012 2013
Q4
sales
2012 2013
2012 2013
2012 2013
Q1
Q2
Q3
2012 2013
Q4
2012 2013
Q1
2012 2013
Q2
2012 2013
2012 2013
2012 2013
2012 2013
Q1
Q2
Q3
Q4
adjusted EBITDA
)
s
d
n
a
s
u
o
h
t
(
)
s
d
n
a
s
u
o
h
t
(
2012 2013
Q3
75
2012 2013
Q4
50
25
0
30
25
20
15
10
5
0
)
s
d
n
a
s
u
o
h
t
(
)
s
d
n
a
s
u
o
h
t
(
50
40
30
20
10
0
(10)
(20)
(30)
50
40
30
20
10
0
(10)
(20)
(30)
2012 2013
Q1
2012 2013
Q2
2012 2013
Q3
2012 2013
Q4
working capital
2012 2013
2012 2013
2012 2013
2012 2013
Q1
Q2
Q3
Q4
2012 2013
2012 2013
2012 2013
2012 2013
Q1
Q2
Q3
Q4
70 | Page SUMMARY OF QUARTERLY RESULTS
The following table provides historical data for the twelve most recently completed
quarters.
In 000's of Canadian dollars
Fiscal 2013
Sales
Earnings (loss)
Earnings (loss) per share ("EPS")
Diluted earnings (loss) per share2
Fiscal 2012
Sales
Earnings (loss)
Earnings (loss) per share ("EPS")
Diluted earnings (loss) per share2
Fiscal 2011
Sales
Earnings (loss)
Earnings (loss) per share ("EPS")1
Diluted earnings (loss) per share2
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
68,297
(1,762)
(0.06)
(0.06)
$
95,368
(9,866)
(0.24)
(0.24)
$
113,982
27,224
0.48
0.47
111,012
(298)
(0.06)
(0.06)
$
70,878
(2,927)
(0.09)
$
84,926
(2,505)
(0.08)
$
101,553
17,618
0.30
$
92,945
10,518
0.17
(0.09)
(0.08)
0.27
0.15
$
69,235
1,832
0.01
$
78,820
(327)
(0.02)
$
97,590
5,058
0.05
$
87,140
16,390
0.28
0.01
(0.02)
0.05
0.23
1 – On October 2, 2011, Clearwater Seafoods Income Fund (“the Fund”) was reorganized into a publicly traded corporation, “Clearwater Seafoods
Incorporated”, (“Clearwater”). The 2011 comparative results have been adjusted to reflect the conversion of the Fund to the corporation to provide a
meaningful comparison. Earnings per share (“EPS”) for 2011 was calculated using these comparatives.
2 - Diluted earnings (loss) per share are anti-dilutive for all periods except September 28, 2013, September 29, 2012, December 31, 2011 and December 31,
2012.
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. The third quarter has the highest sales revenue each year.
In addition, volatility in exchange rates can have a significant impact on earnings. The
volatility is partially offset by Clearwater’s foreign exchange management program.
Earnings for the second quarter of 2013 include $3.3 million in future tax recovery, $9.2
million in debt settlement fees and writedowns on deferred financing charges related to
the June 2013 refinancing.
71 | Page
Earnings for the fourth quarter of 2012 included an $8 million future tax recovery.
Changes made effective January 1, 2011, to the management agreement that governs
Clearwater’s frozen-at-sea shrimp and turbot harvesting operations, resulted in
Clearwater fully consolidating these operations in 2011 incurring a non-cash gain of
$11.6 million in the first quarter of 2011.
The settlement of the Glitnir transaction during the fourth quarter of 2011 resulted in a
non-cash gain of $12.4 million.
72 | Page
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.
Adjusted earnings before interest, tax, depreciation and amortization (“adjusted
EBITDA”)
Adjusted earnings before interest, tax, depreciation and amortization (“adjusted
EBITDA”) is not a recognized measure under IFRS, 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, adjusted
EBITDA is a useful supplemental measure from which to determine Clearwater’s ability
to generate cash available for debt service, working capital, capital expenditures,
income taxes and dividends. In addition, as adjusted EBITDA is a measure frequently
analyzed for public companies, Clearwater has calculated adjusted EBITDA in order to
assist readers in this review. Adjusted EBITDA should not be construed as an
alternative to net earnings determined in accordance with IFRS as a measure of
liquidity, or as a measure of cash.
Adjusted EBITDA is defined as EBITDA excluding one-time non-recurring items such as
severance charges, gains or losses on property, plant and equipment, gains or losses
on quota sales, refinancing and reorganization costs. In addition recurring accounting
gains and losses on foreign exchange (other than realized gains and losses on forward
exchange contracts), and adjustments to stock based compensation, have been
excluded from the calculation of adjusted EBITDA due to the variability in these gains
and losses.
In the fourth quarter of 2012 Clearwater began to exclude amounts related to stock
based compensation from the calculation of adjusted EBITDA due to the variability in
these gains and losses in the liability related to its cash settled share-based payment
programs. It has restated all prior periods for this change.
73 | Page
Reconciliation of earnings to adjusted EBITDA for the 13 weeks ended, and the year
ended December 31, 2013 and 2012 is as follows:
Earnings
Add (deduct):
Income taxes
Taxes and depreciation for equity investment
Depreciation and amortization
Interest on long-term debt and bank charges
13 weeks ended
Year Ended
December 31
December 31
December 31
December 31
$
2013
(298)
2012
2013
2012
$
10,518
$
15,298
$
22,704
987
237
7,261
3,852
12,039
(6,916)
-
6,587
4,829
15,018
(8,101)
951
24,171
17,310
49,629
(5,019)
-
22,976
21,506
62,167
Add (deduct) other non-routine items:
Unrealized foreign exchange and derivative income
Fair market value on long term debt
Realized foreign exchange on working capital
Restructuring and refinancing costs
Stock based compensation
(Gain)/Loss on disposal of assets and quota
Gain on settlement of debt
Adjusted EBITDA
10,853
(1,009)
(2,449)
-
2,913
-
-
22,347
$
3,129
(128)
(808)
84
1,517
-
-
18,812
$
11,493
(1,710)
3,586
10,642
5,861
(398)
-
79,103
$
(3,476)
2,898
1,359
6,964
2,331
-
-
72,243
$
Adjusted EBITDA attributable to:
Non-controlling interests
Shareholders of Clearwater
$
$
$
$
3,847
18,500
22,347
3,397
15,415
18,812
14,021
65,082
79,103
12,848
59,395
72,243
$
$
$
$
Note 1: The impact to earnings and adjusted EBITDA related to an entity previously proportionately consolidated was $nil. As a
result no changes were made to the calculation of adjusted EBITDA per above.
74 | Page
Leverage
Leverage is not a recognized measure under IFRS, 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 a measure of liquidity or as a measure of
cash flows.
Leverage is calculated by dividing the current and preceding annual adjusted EBITDA
by the total debt on the balance sheet adjusted for cash reserves.
Leverage for banking purposes differs from the below calculations as agreements
require the exclusion of certain cash from the calculation and EBITDA excludes non-
controlling interests and most significant non-cash and non-recurring items. Clearwater
is in compliance with all of the non-financial and financial covenants associated with its
debt facilities.
Reconciliation of adjusted EBITDA to debt (net of deferred financing charges) for the
year ended December 31, 2013 and 2012 is as follows:
In 000's of Canadian dollars
As at December 31
Adjusted EBITDA1
Debt (net of deferred financing charges
of $0.6 million (December 31, 2012 - $4.4
million))
Less cash
Net debt
Leverage
December 31
2013
79,103
$
December 31
2012
72,243
$
257,325
(46,793)
210,532
253,791
(41,504)
212,287
2.7
2.9
75 | Page
Free cash flows
Free cash flow is not a recognized measure under IFRS, 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 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 IFRS, as a measure of liquidity, or as a measure of cash
flows.
Free cash flow is defined as cash flows from operating activities, less planned capital
expenditures (net of any borrowings of debt designated to fund such expenditures),
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 revolving loan and discretionary financing
and investing activities.
Reconciliation for the 13 weeks ended and the year ended December 31, 2013 and
2012 is as follows:
76 | Page
Free cash flows
Adjusted EBITDA
Less:
13 weeks ended
Year Ended
December 31,
2013
December 31,
2012
December 31,
2013
December 31,
2012
22,347
18,812
79,103
72,243
Cash interest
Cash taxes
Other income and expense items
Operating cash flow before changes in working capital
Change in working capital
Cash flows from operating activities
Uses of cash:
Purchase of property, plant, equipment, quota and other
assets
Disposal of fixed assets
Less: Designated borrowings
Scheduled payments on long-term debt
Dividends received from joint venture
Distributions to non-controlling interests
(3,657)
(270)
514
18,933
29,816
48,749
(11,182)
-
6,231
(1,366)
-
(3,707)
(4,471)
(453)
(1,531)
12,357
32,334
44,691
(4,219)
-
-
(1,629)
1,740
(2,780)
(16,317)
(1,812)
(863)
60,110
(5,448)
54,662
(23,813)
978
7,700
(3,233)
1,240
(11,414)
(20,346)
(1,693)
(12,448)
37,756
8,184
45,940
(16,572)
-
2,056
(6,327)
1,740
(9,491)
Free cash flows
Add/(less):
38,725
37,803
26,121
17,347
Other debt borrowings (repayments) of debt
Other investing activities
Other financing activities
Change in cash flows for the period
(7,505)
(386)
-
30,834
(10,597)
(459)
-
26,747
(20,759)
(717)
-
4,645
13,584
1,358
-
32,288
77 | Page
Return on Assets
Return on assets is not a recognized measure under IFRS, and therefore is unlikely to
be comparable to similar measures presented by other companies. Management
believes that return on assets measures the efficiency of the use of total assets to
generate income. Return on assets should not be construed as an alternative to net
earnings determined in accordance with IFRS.
Return on assets is defined as the ratio of adjusted earnings before interest and taxes
(“EBIT”) to average total assets including all working capital assets.
The calculation of adjusted earnings before interest and taxes to total assets for the
year ended December 31, 2013 and 2012 is as follows:
In (000's) of Canadian dollars
As at
Return on Assets
Adjusted earnings before interest and taxes
Total Assets
December 31, 2013
December 31, 2012
54,936
414,582
49,768
410,789
13.3%
12.1%
78 | Page
KPMG LLP
1959 Upper Water Street
Suite 1500 Purdy’s Wharf Tower 1
Halifax NS B3J 3N2
Canada
Telephone (902) 492-6000
(902) 492-1307
Fax
www.kpmg.ca
Internet
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Clearwater Seafoods Incorporated
the accompanying consolidated financial statements of Clearwater Seafoods
We have audited
Incorporated, which comprise the consolidated statements of financial position as at December 31, 2013,
December 31, 2012, and January 1, 2012 the consolidated statements of earnings, comprehensive
income, shareholders’ equity and cash flows for the years ended December 31, 2013 and December 31,
2012, 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, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on 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.
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, 2013, December
31, 2012, and January 1, 2012 and its consolidated financial performance and its consolidated cash flows
for the years ended December 31, 2013 and December 31, 2012 in accordance with International
Financial Reporting Standards.
Chartered Accountants
February 26, 2014
Halifax, Canada
KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with
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79 | Page
Clearwater Seafoods Incorporated
Management’s Statement of Responsibility for Financial Reporting
The consolidated financial statements and all related financial information contained in the 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 the annual
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.
February 26, 2014
Ian Smith
Chief Executive Officer
Robert Wight
Vice-President, Finance and Chief Financial Officer
80 | Page
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
ASSETS
Current assets
Cash
Trade and other receivables (Note 5)
Inventories (Note 6)
Prepaids and other (Note 7)
Derivative financial instruments (Note 13)
Non-current assets
Long term receivables (Note 8)
Other assets (Note 9)
Property, plant and equipment (Note 10)
Licences and fishing rights (Note 11)
Investment in equity investee (Notes 3(o) and 22)
Deferred tax assets (Note 18)
Goodwill (Note 11)
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Income tax payable (Note 18)
Current portion of long-term debt (Note 12)
Derivative financial instruments (Note 13)
Non-current liabilities
Long-term debt (Note 12)
Deferred tax liabilities (Note 18)
SHAREHOLDERS' EQUITY
Share capital (Note 14)
Retained earnings (deficit)
Cumulative translation account
Non-controlling interest
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES
Subsequent event (Note 14)
2013
December 31, December 31,
2012
(Restated)
(Note 3(o))
January 1,
2012
(Restated)
(Note 3(o))
$
46,793
43,702
46,987
6,291
1,466
145,239
$
41,504
43,168
51,793
6,981
4,185
147,631
$
9,216
41,681
61,714
10,207
1,075
123,893
10,442
296
126,451
101,467
4,701
18,943
7,043
269,343
10,647
1,245
126,580
104,568
3,868
9,207
7,043
263,158
10,293
2,066
129,225
107,725
4,566
1,594
7,043
262,512
$
414,582
$
410,789
$
386,405
$
40,760
648
14,297
6,869
62,574
$
44,564
310
15,527
3,639
64,040
$
40,838
1,655
42,766
1,097
86,356
243,028
1,453
244,481
64,780
19,762
(5,470)
79,072
28,455
107,527
238,264
1,964
240,228
64,867
14,616
(3,866)
75,617
30,904
106,521
204,334
1,663
205,997
65,309
(835)
(3,122)
61,352
32,700
94,052
$
414,582
$
410,789
$
386,405
See accompanying notes to consolidated financial statements
Approved by the Board:
John Risley
Director
Colin MacDonald
Chairman
81 | Page
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Earnings
(In thousands of Canadian dollars)
Year ended December 31
Sales
Cost of goods sold
Administrative and selling
Net finance costs (Note 15)
Other income (Note 16)
Research and development
Earnings before income taxes
2013
2012
(Restated)
(Note 3(o))
$
388,659
301,291
87,368
$
350,302
277,777
72,525
39,005
42,747
(3,240)
1,659
80,171
7,197
32,536
24,387
(3,399)
1,759
55,283
17,242
Income tax recovery (Note 18)
(8,101)
(5,462)
Earnings for the year
$
15,298
$
22,704
Earnings attributable to:
Non-controlling interest
Shareholders of Clearwater
$
$
8,965
6,333
15,298
$
$
7,695
15,009
22,704
Basic earnings per share (Note 17)
Diluted earnings per share (Note 17)
$
$
0.12
0.12
$
$
0.29
0.29
See accompanying notes to consolidated financial statements
82 | Page
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Comprehensive Income
(In thousands of Canadian dollars)
Year ended December 31
2013
2012
Earnings for the year
$
15,298
$
22,704
Other comprehensive loss -
Items that may be reclassified subsequently to earnings:
Foreign currency translation differences of foreign operations
(1,604)
(744)
Total comprehensive income
$
13,694
$
21,960
Total comprehensive income attributable to:
Non-controlling interest
Shareholders of Clearwater
$
$
8,965
4,729
13,694
7,695
14,265
21,960
$
$
See accompanying notes to consolidated financial statements
83 | Page
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Shareholders' Equity
(In thousands of Canadian dollars)
Common
Shares
Retained
earnings
(deficit)
Cumulative
Translation
Account
Non-
controlling
interest
Total
Balance at January 1, 2012
$
65,309
$
(835)
$
(3,122)
$
32,700
$
94,052
Total comprehensive income for the year
-
15,009
(744)
7,695
21,960
Transactions recorded directly in equity
Distributions to non-controlling interest
Redemption of 2013 convertible debentures (Note 14)
Total transactions with owners
-
(442)
(442)
-
442
442
-
-
-
(9,491)
-
(9,491)
(9,491)
-
(9,491)
Balance at December 31, 2012
$
64,867
$
14,616
$
(3,866)
$
30,904
$
106,521
Total comprehensive income for the year
-
6,333
(1,604)
8,965
13,694
Transactions recorded directly in equity
Distributions to non-controlling interest
Dividends declared on common shares
Redemption of 2014 convertible debentures (Note 14)
Total transactions with owners
-
-
(87)
(87)
-
(1,274)
87
(1,187)
-
-
-
-
(11,414)
-
-
(11,414)
(11,414)
(1,274)
-
(12,688)
Balance at December 31, 2013
$
64,780
$
19,762
$
(5,470)
$
28,455
$
107,527
See accompanying notes to consolidated financial statements
84 | Page
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
Year ended December 31
Operating
Earnings for the year
Adjustments for:
Depreciation and amortization
Net finance costs
Income tax recovery
Share-based compensation
Gain on disposal of property, plant, and equipment, and other
Earnings in equity investee (Note 22)
Foreign exchange and other
Change in operating working capital (Note 25)
Interest paid
Income tax paid
Financing
Repayment of long-term debt
Net proceeds from long-term debt
Repayment of revolving credit facility
Distributions to non-controlling interest
Dividends paid on common shares
Government assistance received (Note 10)
Investing
Purchase of property, plant, equipment, quota and other
Proceeds on disposal of property, plant, equipment, quota and other
Dividends received from joint venture
Purchase of other assets
Net (advances) receipts in long term receivables
INCREASE IN CASH
CASH, BEGINNING OF YEAR
Effect of foreign exchange rate changes on cash
CASH, END OF YEAR
2013
2012
(Restated)
(Note 3(o))
$
15,298
$
22,704
24,167
36,409
(8,101)
5,861
(747)
(2,082)
6,239
22,475
23,714
(5,462)
2,332
(478)
(1,054)
42
77,044
64,273
(1,297)
2,728
(20,464)
(621)
54,662
$
(17,137)
(3,924)
45,940
$
$
$
(260,320)
245,288
-
(11,414)
(1,274)
15
(27,705)
(23,813)
978
1,240
(83)
(634)
(22,312)
4,645
41,504
644
46,793
$
$
$
$
$
$
$
$
$
$
(189,256)
216,084
(17,515)
(9,491)
-
-
(178)
(16,572)
509
1,740
-
849
(13,474)
32,288
9,216
-
41,504
See accompanying notes to consolidated financial statements
85 | Page
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 and is domiciled
at 757 Bedford Highway, Bedford, Nova Scotia, Canada.
Clearwater’s sole investment is the ownership of 100% of the units of Clearwater Seafoods Limited
Partnership (“CSLP”).
The consolidated financial statements of Clearwater as at and for the years ended December 31,
2013 and 2012 comprise the company, its subsidiaries and joint venture. Clearwater’s business
includes the ownership and operation of assets and property in connection with the harvesting,
processing, distribution and marketing of seafood.
2. BASIS OF PREPARATION
(a) Statement of Compliance
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards
Board.
The financial statements were authorized for issue by Clearwater’s Board of Directors on
February 26, 2014.
(b) Basis of Measurement
The consolidated financial statements have been prepared on the historical cost basis except for
the following material items measured at fair value through profit or loss:
• Derivative financial instruments
• Financial instruments
• Liabilities for cash settled share-based compensation arrangements
The fair value measurements have been described in the notes.
(c) 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 except as otherwise noted.
86 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
(d) Critical judgments and estimates in applying accounting policies
The preparation of financial statements requires management to make estimates, judgments and
assumptions that materially affect the amounts reported in the consolidated financial statements
and accompanying notes. Management bases assumptions, estimates and judgments on
historical experience, current trends and events, and all available information that management
believes is relevant at the time it prepares the financial statements. Actual results could
ultimately differ materially from these estimates.
The following are the most important accounting policies subject to such judgment and sources
of key estimation uncertainty that Clearwater believes could have the most significant impact
on the reported results and financial position:
The information in this note is grouped by accounting policy to include:
• Key sources of estimation uncertainty
•
Judgments management made in the process of applying Clearwater’s accounting
policies
i.
Income taxes
Key sources of estimation uncertainty
Accounting for income taxes is based upon evaluation of income tax rules in all jurisdictions
where Clearwater performs activities. In determining the provision for current and deferred
income taxes, Clearwater makes assumptions about temporary and permanent differences
between accounting and taxable income, and substantively enacted income tax rates.
Changes in tax law and the level and geographical mix of earnings will impact the effective
tax rate. With respect to deferred taxes, Clearwater makes assumptions about when deferred
tax assets are likely to reverse, the extent to which it is probable that temporary differences
will reverse and whether or not there will be sufficient taxable profits available to offset the
tax assets when they do reverse. Clearwater recognizes deferred tax assets only to the extent
that it considers it probable that those assets will be recoverable.
Judgments made in relation to accounting policies applied
Clearwater makes judgments about whether to recognize the benefit of deferred tax assets.
In making this judgment Clearwater continually evaluates all positive and negative evidence.
Clearwater’s evaluation includes the magnitude and duration of any past losses, current
profitability and whether it is sustainable, and earnings forecasts.
For further discussion on deferred income taxes refer to note 18.
87 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
ii. Goodwill and intangible assets
Key sources of estimation uncertainty
Clearwater conducts impairment testing on its goodwill and intangible assets annually in the
third quarter and whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Clearwater determines the fair value of each CGU to which
goodwill and intangible assets are allocated using the value in use method, which estimates
fair value using a discounted five-year forecasted cash flow estimate with a terminal value.
The determination of the recoverable amount involves estimates and assumptions for future
sales, product margins, market conditions, allowable catch rates, and appropriate discount
rates.
Judgments made in relation to accounting policies applied
In performing its impairment testing, Clearwater makes judgments in determining its cash
generating units, and the allocation of working capital assets and liabilities and corporate
assets to the cash generating units.
For further discussion on goodwill and intangible assets, refer to note 11.
iii.
Share-based compensation
Key sources of estimation uncertainty
Clearwater determines compensation expense for share-based compensation using market-
based valuation techniques. Clearwater determines the fair value of the market-based and
performance-based non-vested share awards at the date of grant using black-scholes and
Monte Carlo simulation valuation models. Certain performance-based share awards require
Clearwater to make estimates of the likelihood of achieving company and corporate peer
group performance goals.
Clearwater makes assumptions in applying valuation techniques including estimating the
future volatility of the stock price, expected dividend yield, future employee turnover rates
and future employee shared based plan option exercise behaviors and corporate
performance. Such assumptions are inherently uncertain. Changes in these assumptions
affect the fair value estimates.
For further discussion on share-based compensation, refer to note 24.
iv. Derivative financial instruments
Key sources of estimation uncertainty
Clearwater records the fair value of certain financial liabilities using valuation models where
the fair value cannot be determined in active markets.
88 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
The inputs used in the fair value models contain inherent uncertainties, estimates and use of
judgment. Fair value is taken from observable markets where possible and estimated as
necessary. Assumptions underlying the valuations require estimation of costs and prices over
time, discount rates, inflation rates, defaults and other relevant variables such as foreign
exchange volatility.
For further discussion on derivative financial instruments, refer to note 13.
3. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies set out below have been applied consistently to all periods
presented in these consolidated financial statements.
(a) Basis of consolidation
i) Business Combinations
Clearwater measures goodwill as the excess of the fair value of the consideration
transferred, the amount of any non-controlling interest in the acquiree, less the net
recognized amount (generally fair value) of the identifiable assets acquired and liabilities
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) 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.
iii) Joint venture
A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the joint arrangement. Joint control is the
contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require unanimous consent of the parties sharing
control. The results and assets and liabilities of the joint venture are incorporated into these
consolidated financial statements using the equity method of accounting. Under the equity
method a joint venture is initially recognized in the consolidated statement of financial
position at cost and adjusted thereafter to recognize Clearwater’s share of the profit or loss
and other comprehensive income of the joint venture.
89 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
iv) 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
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 and location, and borrowing costs.
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 of the
components 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:
Asset Component
Buildings and wharves
Plant equipment
Vessels
Vessel equipment
Rate
10 to 40 years
3 to 20 years
15 to 30 years
1 to 7 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 embodied 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.
90 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Gains and losses on disposal of an item of property, plant and equipment are determined as the
difference between the proceeds from disposal and the carrying amount of property, plant and
equipment, and are recognized net within other income in profit or loss.
Depreciation methods, useful lives and residual values are reviewed at each financial year end
and adjusted prospectively if appropriate.
(d) Intangible assets
i) Goodwill
Goodwill is the residual amount that results when the purchase of a 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 impairment losses.
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 are subsequently carried at cost.
Licenses that 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 operating agreement.
(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 allowance for returns and discounts.
(f) Government assistance
Government assistance received by Clearwater relates to items of property, plant and
equipment.
91 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Government assistance is deducted from the carrying amount of the related 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:
Financial instrument
Cash
Trade and other receivables
Long term receivables
Trade and other payables
Long-term debt
Category
Fair value through profit or loss
Loans and receivables
Loans and receivables
Non-derivative financial liabilities
Non-derivative financial liabilities
Measurement Method
Fair value
Initial: Fair value
Subsequent: Amortized
cost through profit or loss
Derviative financial instruments
Derivative financial instruments
Fair value
Loans and receivables
Loans and receivables are non-derivative 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 and subordinated liabilities that are initially
measured at fair value plus attributable transaction costs, and subsequently measured at
amortized cost, with gains and losses recognized in profit or loss in the period in which they
arise.
Derivative financial instruments
Clearwater enters into a variety of derivative financial instruments to manage its exposure to
foreign exchange and interest rate risks, including foreign exchange forward contracts, interest
rate swaps, caps, and floors.
Embedded derivatives are contained in non-derivative host contracts and are treated as separate
derivatives when they meet the definition of a derivative, and their risks and characteristics are
not closely related to those of the host contracts.
Derivative financial instruments and embedded derivatives are recorded at fair value with mark
to market adjustments recorded in profit or loss.
92 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
(h) Impairment
i) Financial assets
Financial assets are assessed at each reporting date to determine whether there is objective
evidence of impairment. 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 specific customer 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 at 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. In addition, for goodwill and intangible assets that have indefinite
useful lives an annual impairment test is performed.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use
and its fair value less costs of disposal. 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 generate 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”). Goodwill and the intangible assets acquired in a business
combination are allocated to the CGU, or the group of CGUs, that are 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
amount of any goodwill allocated to the CGUs, and then to reduce the carrying amounts of
the other assets in the unit on a pro rata basis.
93 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
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 and assumptions 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 an entity’s functional currency at the
exchange rate at the date of the transactions. Monetary assets and liabilities denominated in
foreign currencies at the reporting date are retranslated to the entity’s 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 for foreign operations with a functional currency different from
Clearwater’s presentation currency, 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 average exchange rates.
Foreign currency differences are recognized in other comprehensive income in the
cumulative translation account.
When a foreign operation is disposed of, all relevant amounts in the cumulative translation
account are transferred to profit or loss as part of the profit or loss on disposal. On the partial
disposal of a subsidiary that does not result in loss of control the relevant proportion of such
cumulative translation account is reattributed to non-controlling interest and not recognized
in profit or loss.
(j) Income taxes
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.
Current tax is the expected tax payable 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
94 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
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 joint venture 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 attributable to the acquisition, or construction of its
qualifying assets, which are assets that necessarily take a substantial period of time to ready for
their intended use, 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 measured at fair value through profit or loss, impairment losses recognized
on derivative financial assets and liabilities and 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 are recorded through profit or loss.
Foreign currency gains and losses are reported on a net basis.
(m) Share-based compensation
Clearwater has share-based compensation plans, which are described below.
Share Appreciation Rights (“SARs”)
The share appreciation rights plan is a phantom share plan that provides the holder a cash
payment equal to the fair market value of Clearwater’s shares less the grant price. SARs vest
over a three year period and have no expiry.
95 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Deferred Share Units (“DSUs”)
There are two deferred share unit plans (“DSUs”) that provide the holder a cash payment equal
to the fair market value of Clearwater’s shares on the date of settlement. The retention DSU
plan awards vest once the holder reaches the age of 65 with continued employment by
Clearwater, or death. The director DSU plan allows non-employee directors to receive, in the
form of deferred share units, all or a percentage of director’s fees, which would be otherwise
payable in cash. Each director DSU vests at grant date.
Performance Share Units (“PSUs”)
The performance share unit plan (“PSUs”) provides the holder with the opportunity to receive a
cash payment based upon the relative performance of Clearwater shares to its pre-defined peer
group. Performance is based on the total return to shareholders over the defined period. Vested
units will be settled in cash at the end of the performance period.
All plans are cash settled and are recorded as liabilities at fair market value at each reporting
period with changes in fair value recorded to profit and loss. The fair value of the SAR and
DSU plans are calculated using a black-scholes valuation model and the PSU plan is calculated
using a Monte Carlo simulation model. 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.
The share-based compensation liability is included in trade and other payables in the
consolidated statement of financial position and the related compensation expense in
administrative expense in the statement of earnings.
(n) Earnings per share
Basic earnings per share is calculated by dividing earnings for the year attributable to the
shareholders of Clearwater by the weighted average number of common shares outstanding
during the year.
Diluted earnings per share is calculated by dividing earnings for the year attributable to the
shareholders of Clearwater by the weighted average number of common shares outstanding and
the voting rights attributable to the convertible debentures outstanding during the year. The
calculation of the potential dilutive common shares assumes the exercise of all convertible
debentures outstanding.
(o) Application of new and revised International Financial Reporting Standards (IFRSs)
Clearwater has adopted the following new and revised standards, along with any consequential
amendments, effective January 1, 2013. These changes were made in accordance with the
applicable transitional provisions.
96 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
IFRS 10 Consolidated Financial Statements
IFRS 10 Consolidated Financial Statements replaces the guidance on control and consolidation
in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation-Special
Purpose Entities. IFRS 10 provides additional guidance on determining control for the purposes
of consolidation.
Clearwater determined that the adoption of IFRS 10 did not result in any change to the
consolidation of its subsidiaries.
IFRS 11 Joint Arrangements
IFRS 11 Joint Arrangements, replaces IAS 31 Interests in Joint Ventures, and requires joint
arrangements to be classified either as joint operations or joint ventures depending on the
contractual rights and obligations of each investor that jointly controls the arrangement.
Clearwater’s adoption of IFRS 11 changed the classification of an entity from a joint operation
which was previously proportionately consolidated to a joint venture. An investment in a joint
venture is accounted for using the equity method as set out in IAS 28 Investments in Associates
and Joint Ventures (amended in 2011).
This change in accounting as at January 1, 2012 resulted in the aggregation of Clearwater’s
proportionate share of the entity’s net assets and items of profit and loss into single line items.
The adjustments to the consolidated statements of financial position, statements of earnings and
cash flows are as follows:
Impact of application of IFRS 11 to Consolidated Statements of Financial Position
In thousands of Canadian dollars
ASSETS
Current assets
Non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Non-current liabilities
SHAREHOLDERS' EQUITY
Non-controlling interest
As at December
31, 2012
(Previously stated)
Elimination of
carrying values of
entity
proportionately
consolidated
Presentation of
entity using equity
method
As at December
31, 2012
(Restated)
148,758
263,392
$
412,150
64,169
241,460
75,617
30,904
106,521
(1,127)
(4,102)
(5,229)
(129)
(1,232)
-
-
-
-
3,868
147,631
263,158
3,868
$
410,789
-
-
-
-
-
64,040
240,228
75,617
30,904
106,521
$
410,789
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES
$
412,150
(1,361)
97 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
In thousands of Canadian dollars
ASSETS
Current assets
Non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Non-current liabilities
SHAREHOLDERS' EQUITY
Non-controlling interest
As at January 1,
2012
(Previously stated)
Elimination of
carrying values of
entity
proportionately
consolidated
Presentation of
entity using equity
method
As at January 1,
2012
(Restated)
125,823
262,069
$
387,892
86,614
207,226
61,352
32,700
94,052
(1,930)
(4,123)
(6,053)
(258)
(1,229)
-
-
-
-
4,566
123,893
262,512
4,566
$
386,405
-
-
-
-
-
86,356
205,997
61,352
32,700
94,052
$
386,405
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES
$
387,892
(1,487)
Impact of application of IFRS 11 to Consolidated Statements of Earnings
In thousands of Canadian dollars
December 31,
2012
(Previously stated)
Elimination of
entity proptionately
consolidated
Presentation of
entity using equity
method
December 31,
2012
(Restated)
Sales
Cost of goods sold
Administrative and selling
Net finance costs
Other income
Research and development
Earnings before income taxes
Income tax expense
$
350,447
276,190
74,257
32,837
24,388
(2,412)
1,759
56,572
17,685
(5,019)
(145)
1,587
(1,732)
(301)
(1)
67
-
(235)
(1,497)
(443)
-
-
-
$
350,302
277,777
72,525
-
-
(1,054)
-
(1,054)
-
-
32,536
24,387
(3,399)
1,759
55,283
17,242
(5,462)
Earnings for the period
$
22,704
$
(1,054)
$
-
$
22,704
98 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
IFRS 12 Disclosure of Interests in Other Entities
IFRS 12 Disclosure of Interests in Other Entities provides a comprehensive disclosure standard
to address the requirements for subsidiaries, joint arrangements and associates including the
reporting entity’s involvement with other entities. It also includes the requirements for
unconsolidated structured entities (i.e. special purpose entities). Clearwater has adopted IFRS 12
effective January 1, 2013. The adoption of IFRS 12 has resulted in incremental disclosures in
Notes 21 and 22.
IFRS 13 Fair Value Measurement
IFRS 13, Fair value measurement, provides a single framework for measuring fair value. The
measurement of the fair value of an asset or liability is based on assumptions that market
participants would use when pricing the asset or liability under current market conditions,
including assumptions about risk.
Clearwater adopted IFRS 13 on January 1, 2013 on a prospective basis. The adoption of IFRS 13
did not require any adjustments to the valuation techniques used to measure fair value and did
not result in any measurement adjustments as at January 1, 2013. Clearwater added additional
disclosures on fair value measurement in note 13(i).
99 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
(p) 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.
Effective date (i) Proposed standards
2014
January 1, 2014,
applied
retrospectively
Amendments to IAS 32 –
Offsetting Financial Assets
and Financial Liabilities
Amendments to IAS 36,
Recoverable Amount
Disclosures for Non-Financial
Assets
January 1, 2014,
applied
retrospectively
2015
Pending IASB
decision
Description
Impact
The amendments to IAS 32 clarify the
requirements relating to the offset of financial
assets and financial liabilities. Specifically, the
amendments clarify the meaning of 'currently has a
legally enforceable right of set-off' and
'simultaneous realization and settlement'.
Amendments were issued that clarify disclosure
requirements for the recoverable amount of an
asset or cash-generating unit
Clearwater is reviewing the standard to determine
the potential impact, if any; however no significant
impact is anticipated.
Clearwater is reviewing the standard to determine
the potential impact, if any; however no significant
impact is anticipated.
Clearwater is reviewing the standard to determine
the potential impact, if any.
IFRS 9 – Financial Instruments Initially issued guidance on the classification and
measurement of financial assets. Additional
guidance was issued on the classification and
measurement of financial liabilities. Further,
amendments were issued which modify the
requirements for transition from IAS 39 to IFRS 9.
Further announced as part of the Limited
Amendments to IFRS 9 project, the IASB
tentatively decided to defer the mandatory effective
date pending the finalization of the impairment and
classification and measurement requirements.
(i) Effective for annual periods on or after the stated date
100 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
4. 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
2013
Salaries and benefits
Share-based compensation
Cost of goods sold
Administrative and selling
5. TRADE AND OTHER RECEIVABLES
Trade receivables
Other receivables
2012
(Restated)
(Note 3(o))
86,151
2,332
88,483
$
96,610
5,861
102,471
$
$
70,798
31,673
102,471
$
$
$
$
$
62,649
25,834
88,483
2013
December 31 December 31
2012
(Restated)
(Note 3(o))
35,453
7,715
43,168
37,187
6,515
43,702
$
$
$
$
Included in other receivables is $4.3 million (December 31, 2012 - $5.5 million) of input tax
receivables and $2.2 million (December 31, 2012 - $2.3 million) of other receivables.
101 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
6. INVENTORIES
Goods for resale
Supplies and other
2013
December 31 December 31
2012
(Restated)
(Note 3(o))
41,960
9,833
51,793
36,550
10,437
46,987
$
$
$
$
In 2013 inventory costs of $281.6 million (2012 - $255.4 million) were recognized in cost of goods
sold. Clearwater incurred $1.7 million (2012 - $0.7 million) in inventory write-downs included in
cost of goods sold. Refer to note 12 for assets pledged as security for long term debt.
7. PREPAIDS AND OTHER
Prepaids
Due from related parties (Note 20)
8. LONG TERM RECEIVABLES
2013
December 31 December 31
2012
(Restated)
(Note 3(o))
5,385
1,596
6,981
4,767
1,524
6,291
$
$
$
$
December 31 December 31
2012
Notes receivable from non-controlling interest holder in subsidiary $ 5,893 $ 4,630
2,895 3,022
Advances to non-controlling interest holder in subsidiary
1,654 2,995
Advances to fishermen
$ 10,442 $ 10,647
2013
Notes receivable and advances to non-controlling interest consists of funds that are advanced to a
shareholder in an incorporated subsidiary. The advances are non interest bearing and unsecured and
have a value of $2.9 million at December 31, 2013 (2012 - $3.0 million).
The notes bear interest at 0% - 12% (2012 – 10% - 12%) are unsecured and have no set terms of
repayment.
Advances to fishermen are payable from proceeds of the related catches. Certain of the advances
bear interest at prime plus 2% - 3% (2012- prime plus 2% - 3%), are due on demand, and are secured
by an assignment of catch, a marine mortgage on the related vessels, equipment and licenses. They
are presented as non-current as the entire balances are not expected to be repaid in the current year
102 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
and it is not Clearwater’s intention to demand payment unless the terms of the advance agreements
are not met.
9. OTHER ASSETS
Other
Income taxes receivable
$
December 31 December 31
2012
398
847
$ 1,245
2013
296
-
$ 296
$
103 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
10. PROPERTY, PLANT AND EQUIPMENT (“PPE”)
Cost
Balance at January 1, 2013
Additions
Disposals
Reclassifications and other adjustments
Effect of movements in exchange rates
Balance at December 31, 2013
Depreciation and impairment losses
Balance at January 1, 2013
Depreciation for the year
Disposals
Reclassifications and other adjustments
Effect of movements in exchange rates
Balance at December 31, 2013
Carrying amounts
At January 1, 2013
At December 31, 2013
Building and
wharves
Land
Equipment
Vessels
Construction
in progress
Total
PPE
Deferred Gov't
Assistance
Total
211 2,837 20,743 23,813
$ 2,790 $ 65,696 $ 77,303 $ 204,131 $ 5,831 $ 355,751 $ (9,667) $346,084
(15) $ 23,798
- 22
$(10,015)
- (24) (3,016) (6,940) (35) (10,015) -
$ (7,698)
- 351 2,686 (7,201) (4,254) (8,418) 720
(7) (23) (114) (1,751) (430) (2,325) -
$ (2,325)
$ 2,783 $ 66,022 $ 77,070 $ 191,076 $ 21,855 $ 358,806 $ (8,962) $349,844
$ 995 $ 49,020 $ 68,769 $ 108,008 $ - $ 226,792 $ (7,288) $219,504
(392) 22,173
11 1,592 2,143 18,819
(9,893)
- (24) (3,015) (6,854) - (9,893) -
(7,145)
- - - (7,544) - (7,544) 399
(1,246)
- (10) (105) (1,131) - (1,246) -
$ 1,006 $ 50,578 $ 67,792 $ 111,298 $ - $ 230,674 $ (7,281) $223,393
- 22,565
$ 1,795 $ 16,676 $ 8,534
$ 1,777 $ 15,444 $ 9,278
$ 96,123 $ 5,831 $ 128,959 $ (2,379) $126,580
$ 79,778 $ 21,855 $ 128,132 $ (1,681) $126,451
Building and
wharves
Land
Equipment
Vessels
Construction
in progress
Total
PPE
Deferred Gov't
Assistance
Total
Cost
Balance at January 1, 2012 (Restated) (Note 3(o)) $ 2,772 $ 63,220 $ 74,594 $ 200,709 $ 4,129 $ 345,424 $ (9,667) $335,757
16,572
Additions (Restated) (Note 3(o))
-
20 94
(7,407)
Disposals
(7,407) -
- - (439) (6,948)
1,861
Reclassifications and replacement assets
- 2,389 2,406 9,457
1,861 -
(2) (7) (32) (453) (205) (699) -
Effect of movements in exchange rates
(699)
$ 2,790 $ 65,696 $ 77,303 $ 204,131 $ 5,831 $ 355,751 $ (9,667) $346,084
Balance at December 31, 2012
774 1,366 14,318 16,572
(20)
(12,391)
Depreciation and impairment losses
Balance at January 1, 2012 (Restated) (Note 3(o)) $ 984 $ 47,482 $ 67,369 $ 97,579 $ - $ 213,414 $ (6,882) $206,532
(406) 20,623
Depreciation for the year (Restated) (Note 3(o))
11 1,541 1,846 17,631
(7,387)
Disposals
- - (439) (6,948) - (7,387) -
- (3) (7) (254) - (264) -
Effect of movements in exchange rates
(264)
$ 995 $ 49,020 $ 68,769 $ 108,008 $ - $ 226,792 $ (7,288) $219,504
Balance at December 31, 2012
- 21,029
Carrying amounts
At January 1, 2012
At December 31, 2012
$ 1,788 $ 15,738 $ 7,225
$ 1,795 $ 16,676 $ 8,534
$ 103,130 $ 4,129 $ 132,010 $ (2,785) $129,225
$ 96,123 $ 5,831 $ 128,959 $ (2,379) $126,580
Total depreciation and amortization expense related to property, plant and equipment and definite-
life intangible assets for 2013 was $24.2 million (2012 - $22.5 million). In 2013 $23.7 million (2012
- $21.8 million) of depreciation and amortization expense for assets used in the harvesting and
production of goods was classified as cost of goods sold and $0.4 million (2012 – $0.7 million) was
recorded in administrative and selling for assets used in administrative activities. Refer to note 12
for assets pledged as security for long term debt.
104 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
11. INTANGIBLE ASSETS AND GOODWILL
Indefinite life
Goodwill
licenses Fishing rights
Total
Cost
Balance at January 1, 2012 (Restated) (Note 3(o))
Disposal
Foreign currency exchange translation
$ 7,043 $ 85,380 $ 24,094
- (910) -
- (445) -
$
116,517
(910)
(445)
Balance at December 31, 2012
Foreign currency exchange translation
Balance at December 31, 2013
7,043 84,025 24,094 115,162
- (1,299) -
(1,299)
$ 7,043 $ 82,726 $ 24,094 $ 113,863
Accumulated amortization
Balance at January 1, 2012
Amortization expense
Balance at December 31, 2012
Amortization expense
Balance at December 31, 2013
Carrying amounts
As at December 31, 2012
As at December 31, 2013
$ 1,749
$ -
$ -
- - 1,802
$
1,749
1,802
- - 3,551 3,551
- - 1,802
1,802
$ 5,353 $ 5,353
$ -
$ -
$ 7,043 $ 84,025 $ 20,543 $ 111,611
$ 7,043 $ 82,726 $ 18,741 $ 108,510
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. The licenses
and goodwill are tested for impairment annually and when circumstances indicate the carrying value
may be impaired.
Indefinite life licenses and Goodwill
Annual impairment testing for each cash generating unit (“CGU”) was performed using a value in
use approach as of September 28, 2013. The recoverable amounts for all CGU’s were determined to
be higher than their carrying amounts and no impairments were recorded during 2013 or 2012. The
value in use approach was determined by discounting the projected future cash flows generated from
the continuing earnings from operations for the applicable CGU. Unless otherwise indicated in notes
i – iii (below), the assumptions used in the value in use approach for 2013 were determined in a
consistent manner to 2012.
105 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
The carrying value of the intangible assets and goodwill by CGU was as follows:
Scallops
Goodwill - $ nil (December 31, 2012 $ nil)
Indefinite life licenses - $56.5 million (December 31, 2012
$57.8 million)
All other CGU's individually without significant
carrying value
Goodwill - $7.0 million (December 31, 2012 $7.0 million)
Indefinite life licenses - $26.1 million (December 31, 2012
$26.2 million)
December 31, December 31,
2012
2013
56,599
57,849
33,170
89,769
33,219
91,068
The discounted cash flows used in determining the recoverable amounts for the Scallops and other
CGU’s were based on the following key assumptions:
i) Cash flows from operations were projected for a period of five years based on a combination
of past experience, actual operating results and Board approved 2014 forecasted earnings.
Terminal values and forecasts for future periods were extrapolated using inflation rates of
1.0% (2012: 1.0%). Gross margins for all future periods were determined using a
combination of forecasted and historical margins.
ii) Pre-tax discount rates ranging from 13% - 18% (2012: 12% - 17%) were applied in
determining the recoverable amount of the CGU’s. The discount rates were estimated based
upon weighted average cost of capital, and associated risk for the CGU.
iii) Cash flow adjustments for capital expenditures were based upon the Board approved capital
expenditure forecast, and terminal year capital expenditures were based on required refits
over the period of the fishing license.
The values assigned to the key assumptions represent management’s assessment of future trends in
the industry and are based on both internal and external sources.
The estimated recoverable amount of the cooked and peeled CGU exceeded its carrying amount by
approximately $4.6 million (2012: $4.3 million). Clearwater has identified a key assumption for
which a possible change could cause the carrying amount to exceed the recoverable amount. The
forecasted gross margin percentage would need to decrease by 3% in order for the CGU’s
recoverable amount to approximate the carrying value.
Definite life fishing rights
Amortization relates to fishing rights. Amortization is allocated to the cost of inventory and is
recognized in cost of goods sold as inventory is sold.
106 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
In 2013 there have been no additions or disposals. In 2012 Clearwater disposed of non-core
groundfish and snow crab fishing quotas with a net book value of $0.9 million for proceeds of $2.0
million resulting in a gain of $1.1 million.
Refer to note 12 for assets pledged as security for long term debt.
12. LONG-TERM DEBT
Term loans (b)
Term loan A, due June 2018
Delayed draw term loan A, due June 2018
Term loan B, due June 2019
Term loan B, embedded derivative
Term loan, due in 2014 (c)
Marine mortgage, due in 2017 (d)
Term loan, due in 2091 (e)
Other loans
December 31, December 31,
2012
2013
$ 29,700 $ -
(608) -
207,197 -
4,704 -
10,642 -
1,785 2,697
3,500 3,500
405 627
Term loan A, repaid in June 2013 (f)
Term loan B, repaid in June 2013 (f)
Term loan B, embedded derivative, extinguished in June 2013 (f)
72,259
-
- 125,781
- 4,205
2014 Convertible debentures - redeemed in July 2013 (g)
Less: current portion
44,722
-
257,325 253,791
(14,297) (15,527)
$ 243,028 $ 238,264
(a) Clearwater has a CDN $75.0 million revolving facility that matures in June 2018. The facility
can be denominated in Canadian and US dollars. As at December 31, 2013 the balances are
CDN $ nil (December 31, 2012 - $ nil) and USD of $ nil (December 31, 2012 - $ nil). The CDN
balances bear interest at the banker’s acceptance rate plus 3.25%. The USD balances bear
interest at the US Libor rate plus 3.25%. As of December 31, 2013 this results in effective rates
of 4.45% for CDN balances and 3.50% for USD balances. The facility has a provision that,
subject to certain conditions, allows Clearwater to expand the facility by a maximum of CDN
$25.0 million. The availability of this facility is reduced by the term loan outstanding in note (c),
as such the balance available as at December 31, 2013 is $64.4 million.
(b) Term loans consist of a CDN $30.0 million Term Loan A facility, a CDN $45.0 million Delayed
Draw Term Loan A facility, and a USD $200.0 million Term Loan B facility.
Term Loan A - The principal outstanding as at December 31, 2013 is CDN $29.7 million. The
loan is repayable in quarterly installments of $0.2 million to June 2015, $0.4 million from
107 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
September 2015 to June 2017, and $0.8 million from September 2017 to March 2018 with the
balance due at maturity in June 2018. Bears interest payable monthly at the banker’s acceptance
rate plus 3.25%. As at December 31, 2013 this resulted in an effective rate of 4.45%.
Delayed Draw Term Loan A - The principal outstanding as at December 31, 2013 is CDN $ nil.
The balance is shown net of deferred financing charges of CDN $0.6 million. The facility is
repayable in quarterly installments of 1.25% of the principal amount drawn under the facility
with repayment to begin in the first quarter after the final draw on the facility. The facility
matures in June 2018 and bears interest payable monthly at the banker’s acceptance rate plus
3.25%.
Term Loan B - The principal outstanding as at December 31, 2013 is USD $199.0 million. The
loan is repayable in quarterly installments of USD $0.5 million with the balance due at maturity
in June 2019 and bears interest payable monthly at the US Libor plus 3.50% with a Libor
interest rate floor of 1.25%. As of December 31, 2013 this resulted in an effective rate of 4.75%.
The facility has a provision that, subject to certain conditions allows Clearwater to expand the
facility by a maximum of USD $100.0 million. The embedded derivative represents the fair
market value of the Libor interest rate floor of 1.25%. The change in fair market value of the
embedded derivative is recorded through profit or loss.
The revolving loan, term loan A, delayed draw term loan A, and Term Loan B are secured by a
first charge on cash and cash equivalents, accounts receivable, inventory, marine vessels,
licenses and quotas, and Clearwater’s investments in certain subsidiaries.
Clearwater’s debt facilities have covenants that include, but are not limited to, a leverage ratio
(for which debt, net of certain cash balances, is compared to EBITDA, excluding non controlling
interests in EBITDA and most significant non-cash and non-recurring items) as well as a number
of non-financial covenants.
In addition to the minimum principal payments for Term Loan A and B, the loan agreement
requires between 25% and 50% of excess cash flow (defined in the loan agreement as EBITDA,
excluding non controlling interest in EBITDA and most significant non-cash and non-recurring
items less certain scheduled principal payments, certain capital expenditures and certain cash
taxes) be repaid starting for the year ended December 31, 2014 based on the previous fiscal
year’s results upon approval of the annual financial statements. Payments are allocated amongst
the term loans on a pro rata basis.
(c) Term Loan - The principal outstanding as at December 31, 2013 is USD $10.0 million. The loan
is held through a Clearwater subsidiary. The loan is non amortizing, repayable at maturity in
August 2014 and bears interest payable monthly at 6.0%. The loan is secured by a marine vessel.
Clearwater provides a guarantee on the term loan.
108 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
(d) Marine mortgage - The mortgage is payable in the principal amount of:
YEN
DKK
CDN
December 31, December 31,
2012
128,991
6,044
154
2013
99,224
3,957
-
The mortgage bears interest at UNIBOR plus 1.0% payable semi-annually. Principal payments
are required annually as follows:
YEN
DKK
CDN
2014
29,767
2,087
-
2015
29,767
1,870
-
2016
29,767
-
-
2017
9,923
-
-
The loan matures in 2017 and is secured by a first mortgage over the related vessel.
(e) Term Loan - due in 2091. In connection with this loan, Clearwater makes a royalty payment of
$0.3 million per annum in lieu of interest. This equates to an effective interest rate of
approximately 8.0%.
(f) On June 26, 2013 Clearwater completed a refinancing of its debt facilities and used the proceeds
to repay senior debt facilities that totaled CDN $69.7 million, USD $126.0 million, convertible
debentures of CDN $44.4 million and reduce the balance owing on the revolving credit facility.
(g) The 2014 Convertible debentures accrued interest at 7.25% and were convertible at a price of
$5.90 per share at the option of the holder. The debentures paid interest semi annually in arrears
on March 31 and September 30. The outstanding principal balance of $44.4 million was repaid
on July 29, 2013.
109 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
13. FINANCIAL INSTRUMENTS
Summary of derivative financial instrument position
Derivative financial assets
Forward foreign exchange contracts
Interest rate cap contract
Derivative financial liabilities
Forward foreign exchange contracts
Interest rate swap contract
December 31, December 31,
2012
2013
$ 1,297
169
$ 1,466
$ 4,185
-
$ 4,185
(6,694) (3,439)
(175) (200)
$ (6,869) $ (3,639)
(a) At December 31, 2013 Clearwater had outstanding forward contracts as follows:
Currency
Notional Amount (in 000's)
Average
Contract
Exchange
Amount
Average
months
to maturity
Fair Value
Asset
(Liability)
Yen
2,670,000
0.011
1 - 12
$
$
1,297
1,297
USD
Euro
113,000
52,000
1.046
1.372
1 - 12
1 - 12
$
$
(1,598)
(5,096)
(6,694)
Certain of the USD (2013 - $39.5 million) and Euro (2013 - $2.0 million) forward contracts
contain provisions that subject to the spot rate being greater than the contract rate adjust the
contract rate by 50% of the excess of the spot rate over the contract rate at maturity.
At December 31, 2012, Clearwater had outstanding forward contracts as follows:
Currency
Notional Amount (in 000's)
Average
Contract
Exchange
Amount
Average
months
to maturity
Fair Value
Asset
(Liability)
Yen
2,705,000
0.013
1 - 12
$
4,185
USD
Euro
82,500
56,100
0.988
1.270
$
1 - 12
(640)
1 - 12 (2,799)
$
(3,439)
110 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
(b) At December 31, 2013 Clearwater had an interest rate swap and interest rate cap contract
outstanding as follows:
Contracted
fixed interest
rate
Notional
Amount (in
000's)
Fair Value
Asset (Liability)
Term Loan A - Interest rate swap
5.38% 12,000 $ (175)
The interest rate swap expires December 2015.
Contracted
fixed interest
rate
Notional
Amount (in
000's)
Fair Value
Asset (Liability)
Term Loan A - Interest rate cap
6.25% 12,000 $ 169
The interest rate cap is effective December 2015 and expires in June 2018. Refer to note (g) for
additional detail.
(c) At December 31, 2012 Clearwater had an interest rate swap outstanding as follows:
Contracted
fixed interest
rate
Notional
Amount (in
000's)
Fair Value
Asset (Liability)
Term Loan A - Interest rate swap
6.29% 30,000 $ (200)
On June 28, 2013 Clearwater settled the swap as part of its refinancing with gain recorded in
profit or loss of $0.2 million.
111 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
(d) Foreign exchange and derivative contract gains and losses:
Year ended December 31
Realized loss (gain)
Foreign exchange contracts and interest rate swap
Working capital, long-term debt, and other
Unrealized loss (gain)
Foreign exchange on long term debt and other assets
Mark-to-market on foreign exchange contracts
Mark-to-market on interest rate swap and cap
(Note 15)
(e) Credit risk:
2013
2012
$
2,752
3,586
6,338
$
(3,991)
1,359
(2,632)
5,427
6,060
6
11,493
(3,013)
(663)
200
(3,476)
$
17,831
$
(6,108)
Credit risk refers to the risk of losses due to failure of Clearwater’s customers or other
counterparties to meet their contractual 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.
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, 2013, Clearwater’s trade accounts receivable aging based on the invoice due
date is as follows: 98.5% 0-30 days, 0.5% 31-60 days, and 1.0% over 60 days. As at December
31, 2012, Clearwater’s trade accounts receivable aging based on the invoice due date is as
follows: 99.0% 0-30 days, 0.2% 31-60 days, and 0.8% over 60 days.
The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts of
$0.4 million (2012 - $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:
112 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
December 31
Balance at January 1
Allowance recognized
Amounts recovered
Amounts written off as uncollectible
Foreign exchange revaluation
Foreign exchange translation
Balance at December 31
(f) Foreign currency exchange rate risk
2013
2012
$
459
$
838
814
(808)
(105)
7
26
393
$
381
(728)
(15)
(10)
(7)
459
$
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 currencies other than Canadian dollars, whereas
the majority of expenses 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 (i)
diversifies sales internationally which reduces the impact of any country-specific economic
risks; (ii) executes on pricing strategies so as to offset the impact of exchange rates; (iii) limits
the amount of long term sales contracts; (iv) regularly reviews economist estimates of future
exchange rates; and (v) has implemented a foreign exchange program that focuses on using
forward contracts to lock in exchange rates up to 18 months.
The carrying amounts of Clearwater’s foreign currency denominated monetary assets and
monetary liabilities (excluding derivative financial instruments) as at December 31, 2013 and
December 31, 2012 was as follows (as converted to Canadian dollars):
December 31
Cash
Trade receivables
Other receivables
Long term receivables
Trade and other payables
Long-term debt
Net balance sheet exposure
2013
2012
$ 22,993 $ 17,596
30,770
4,944
7,577
(19,421)
(132,529)
$ (165,000) $ (91,063)
30,667
3,341
8,704
(6,377)
(224,328)
The components of this net exposure by currency are as follows (in local currency ‘000’s) at
December 31, 2013:
113 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
December 31, 2013
GBP
USD
Yen
Euros
RMB
NOK
DKK
Argentine
Peso
Cash
Trade receivables
Other receivables
Long term receivables
Trade and other payables
Long-term debt
Net balance sheet exposure
177,338
12,451
495 - 35,810 180
628 10,727 15 2,247
308
560
- - 6,719
9,027
(5) 159 - 897 - - 9
11,405
- 5,482
- - - - - 17,589
(64) (3,294) (18,411)
(245) (913) - (891) 1
- (209,157) (99,224) - - - (3,957) -
35,287 11,071
938 (181,251) 78,129 11,280 496
(64)
The components of this net exposure by currency are as follows (in local currency ‘000’s) at
December 31, 2012:
December 31, 2012
GBP
USD
Yen
Euros
RMB
NOK
DKK
Argentine
Peso
Cash
Trade receivables
Other receivables
Long term receivables
Trade and other payables
Long-term debt
Net balance sheet exposure
249,273
13,138
86 11,058 48,445 157 343 - 31,958 92
24
679
8,728
(76) 159 - 2,028
8,743
- - - - - 14,798
- 4,606
(149) (3,549) (204) (1,132) - (9) (2,245) (67,960)
- (130,652) (128,991) - - - (6,044) -
343 (9) 38,667 (44,303)
540 (105,240) 168,523 9,781
- - 12,404
- - 2,594
The following table details Clearwater’s sensitivity to a 10% change in the exchange rates
against the Canadian dollar. The sensitivity analysis includes outstanding foreign currency
denominated monetary items and adjusts their translation at the period end for a 10% change in
foreign currency rates. The change below is calculated based on the net balance sheet exposure.
GBP
USD
Yen
Euros
RMB
NOK
DKK
Argentine Peso
(g) Interest rate risk
2013
165
(19,285)
79
1,658
9
(1)
696
181
2012
87
(10,470)
193
1,283
5
(0)
680
(897)
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’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. Clearwater’s debt is carried
at amortized cost with the exception of the embedded interest rate floor in Term Loan B. The
interest rate floor is a derivative instrument and is recorded at fair value through profit and loss.
Clearwater manages its interest rate risk exposure by using a mix of fixed and variable rate debt.
At December 31, 2013, excluding the interest rate swap, approximately 5.5% (2012 – 19.0%) of
114 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
the $257.3 million (2012 - $253.8 million) of Clearwater’s debt was fixed rate debt with a
weighted average interest rate of 4.8% (2012 – 6.5%).
A 1% change in interest rates for variable rate borrowings would result in $2.3 million increase
(or decrease) in interest expense.
Clearwater has two arrangements to hedge interest rate risk. The first arrangement is an interest
rate swap with a December 2015 expiration to effectively swap the variable interest rate for a
fixed rate for 40% or $12 million of the outstanding Term Loan A debt facility. This interest
rate swap effectively locks in the interest rate on $12.0 million of the Term Loan A facility at an
effective interest rate of 5.38%. The second arrangement is an interest rate cap effective
December 2015 with a June 2018 expiration to limit the variable interest rate for 40% or $12.0
million of the outstanding Term Loan A debt facility at 6.25%.
The fair value of interest rate swap and interest rate cap at the end of the reporting period is
determined by discounting the future cash flows using the yield curves at the end of the
reporting period.
(h) 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 matching the maturity profiles of financial assets and
financial liabilities.
The following are the contractual maturities of non-derivative financial liabilities, derivative
financial instruments, operating lease and other commitments. The table includes undiscounted
cash flows of financial liabilities, operating lease and other commitments, interest and principal
cash flows based on the earliest date on which Clearwater is required to pay.
December 31, 2013
Carrying
Amount
Contractual
Cash Flow
2014
2015
2016
2017
2018
>2019
Interest - long-term debt
Principal repayments - long-term debt
79,519
257,769
11,899
14,297
11,132
3,762
10,963
3,985
10,788
3,784
10,072
27,234
24,665
204,707
Total long-term debt
257,325
337,288
26,196
14,894
14,948
14,572
37,306
229,372
Trade and other payables
40,760
40,760
40,760
-
-
-
-
-
Operating leases and other
-
48,954
31,522
3,115
2,034
1,990
1,845
8,448
Derivative financial instruments - asset
(1,466)
(1,466)
(1,466)
Derivative financial instruments - liability
6,869
6,869
6,869
-
-
-
-
-
-
-
-
-
-
$
303,488
$
432,405
$
103,881
$
18,009
$
16,982
$
16,562
$
39,151
$
237,820
Included in the above commitments for operating leases and other are amounts that Clearwater is
committed directly and indirectly through its partnerships for various licenses and lease
agreements, office, machinery and vehicle leases, and vessel and equipment commitments.
These commitments require approximate minimum annual payments in each of the next five
years as shown above.
115 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Also included in commitments for operating leases and other are amounts to be paid to a
company controlled by a director of Clearwater over a period of years ending in 2016 for vehicle
and office leases, which aggregate approximately $0.2 million (2012 - $0.04 million).
Fair value of financial instruments
The following tables set out Clearwater’s classification and carrying amount, together with fair
value, for each type of non-derivative and derivative financial asset and liability:
December 31, 2013
Asset :
Cash
Trade and other receivables
Long term receivables
Forward foreign exchange contracts
Interest rate cap
Liabilities:
Trade and other payables (1)
Long-term debt
Forward foreign exchange contracts
Embedded derivative
Interest rate swap
December 31, 2012
Asset :
Cash
Trade and other receivables
Long term receivables
Forward foreign exchange contracts
Liabilities:
Trade and other payables (1)
Long-term debt
Forward foreign exchange contracts
Embedded derivative
Interest rate swap
Fair Value
Amortized cost
Total
Through profit
or loss
Derivatives
Loans and
receivables
Non-derivative
financial liabilities
Carrying
amount
Fair
value
$
$
46,793
-
-
-
-
46,793
-
$
-
-
1,297
169
1,466
$
-
$
43,702
10,442
-
-
54,144
$
-
$
-
-
-
-
$
-
$
$
46,793
43,702
10,442
1,297
169
102,403
46,793
43,702
10,442
1,297
169
102,403
$
$
-
$
-
-
-
-
$
-
-
$
-
(6,694)
(4,704)
(175)
(11,573)
$
-
$
-
-
-
-
$
-
$
$
$
(33,766)
(252,621)
-
-
-
(286,387)
(33,766)
(252,621)
(6,694)
(4,704)
(175)
(297,960)
(33,766)
(252,621)
(6,694)
(4,704)
(175)
(297,960)
$
$
$
Fair Value
Amortized cost
Total
Through profit
or loss
Derivatives
Loans and
receivables
Non-derivative
financial liabilities
Carrying
amount
Fair
value
$
$
41,504
-
-
-
41,504
-
$
-
-
4,185
4,185
$
-
$
43,168
10,647
-
53,815
$
-
$
-
-
-
$
-
$
$
41,504
43,168
10,647
4,185
99,504
41,504
43,168
10,647
4,185
99,504
$
$
-
$
(44,722)
-
-
-
(44,722)
$
-
$
-
(3,439)
(4,205)
(200)
(7,844)
$
-
$
-
-
-
-
$
-
$
$
$
(40,925)
(204,864)
-
-
-
(245,789)
(40,925)
(249,586)
(3,439)
(4,205)
(200)
(298,355)
(40,925)
(254,384)
(3,439)
(4,205)
(200)
(303,153)
$
$
$
(1) Trade and other payables excludes the liability for share based compensation of $7.0 million
at December 31 2013 (December 31, 2012 $3.6 million).
116 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
(i) 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 levels are
defined as follows:
• Level 1: Fair value measurements derived from quoted prices (unadjusted) in active
markets for identical assets or liabilities
• Level 2: Fair value measurements derived from 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: Fair value measurements derived from valuation techniques that include 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:
December 31, 2013
Recurring measurements
Financial Assets:
Cash
Forward foreign exchange contracts
Interest rate cap
Financial Liabilities:
Forward foreign exchange contracts
Embedded derivative
Interest rate swap
December 31, 2012
Recurring measurements
Financial Assets:
Cash
Forward foreign exchange contracts
Financial Liabilities:
Forward foreign exchange contracts
Convertible debentures
Embedded derivative
Interest rate swap
Level 1
Level 2
Level 3
46,793
-
-
46,793
$
-
1,297
169
1,466
$
-
-
-
$
-
(6,694)
(4,704)
(175)
(11,573)
$
-
-
-
$
-
-
-
-
$
-
Level 1
Level 2
Level 3
41,504
-
41,504
$
$
4,185
4,185
-
$
-
-
(44,722)
-
-
(44,722)
$
(3,439)
-
(4,205)
(200)
(7,844)
$
-
-
-
-
$
-
117 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Clearwater used the following techniques to value financial instruments categorized in Level 2:
• Forward foreign exchange contracts are measured using present value techniques. Future
cash flows are estimated based on forward exchange rates (from observable exchange
rates at the end of the reporting period) and contract forward rates, discounted at a rate
that reflects the credit risk of the various counterparties.
• The embedded derivative, interest rate swap and interest rate cap are measured using
present value techniques that utilize a variety of inputs that are a combination of quoted
prices and market-corroborated inputs.
The fair value estimates are not necessarily indicative of the amounts that Clearwater
will receive or pay at the settlement of the contracts.
There were no transfers between levels during the periods ended December 31, 2013 and
December 31, 2012.
Fair value of financial instruments carried at amortized cost:
Except as detailed below Clearwater considers that the carrying amounts of financial assets and
financial liabilities recognized in the consolidated financial statements materially approximate
their fair values:
The estimated fair value of Clearwater’s long term debt whose carrying value does not
approximate fair value at December 31, 2013 is $16.3 million (December 31, 2012 - $7.2
million) and the carrying value is $16.3 million (December 31, 2012 – $6.6 million). The fair
value of long term debt has been classified as level 2 in the fair value hierarchy and was
estimated based on discounted cash flows using current rates for similar financial instruments
subject to similar risks and maturities.
118 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
14. SHARE CAPITAL
Authorized:
Clearwater is authorized to issue an unlimited number of common shares.
Share capital movement:
Share capital:
Balance at January 1
Redemption of 2013 and 2014 convertible debentures
Balance at December 31
December 31, 2013
December 31, 2012
#
50,948,698
-
50,948,698
$
64,867
(87)
64,780
#
50,948,698
-
50,948,698
$
65,309
(442)
64,867
The conversion option on the 2013 and 2014 convertible debentures remained unexercised on
redemption in July 2012 and 2013 and the balance of $0.09 million (2012 - $0.4 million) was
transferred from share capital to retained earnings.
During 2013 a dividend of $0.025 cents per share (total dividend $1.3 million) was declared and
paid.
Subsequent to December 31, 2013 Clearwater issued 4,029,400 common shares at $8.50 per
common share for gross proceeds of approximately $34.2 million. On February 26, 2014,
Clearwater declared a quarterly dividend of $0.025 per share, payment to be made on March 24,
2014 to shareholders of record as of March 10, 2014.
15. FINANCE COSTS
Year ended December 31
Interest expense on financial liabilities
Amortization of deferred financing charges and accretion
2013
2012
(Restated)
(Note 3(o))
$ 16,317 $ 20,346
993 1,158
17,310
21,504
Fair value adjustment on convertible debentures and embedded derivative
Foreign exchange and derivative contracts (Note 13(d))
Debt settlement and refinancing fees
Finance costs
2,898
(1,710)
17,831 (6,108)
9,316 6,093
$ 42,747 $ 24,387
119 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
16. OTHER INCOME
Year ended December 31
Royalties, interest, and other fees
Share of earnings of equity-accounted investee
Other fees
Other income
17. EARNINGS PER SHARE
2013
2012
(Restated)
(Note 3(o))
(1,712)
92
(2,082) (1,054)
(1,250) (633)
$ (3,240) $ (3,399)
The earnings and weighted average number of shares used in the calculation of basic and diluted
earnings per share is as follows: (in thousands except per share data):
2013
2012
Basic
Earnings for the year attributable to equity holders of Clearwater
Weighted average number of shares outstanding
Earnings per share
Diluted
Earnings for the year attributable to equity holders of Clearwater
Weighted average number of shares oustanding
Earnings per share
$
6,333
50,948,698
0.12
$
$
6,333
50,948,698
0.12
$
$
15,009
50,948,698
0.29
$
$
15,009
50,948,698
0.29
$
The interest on the 2013 and 2014 convertible debentures results in anti-dilutive earnings per share
for December 31, 2013 and December 31, 2012. As a result 7,523,559 potential ordinary shares
(December 31, 2012 - 20,882,942) were not included in the calculation of the weighted average
number of ordinary shares for the purpose of diluted earnings per share.
Refer to Note 14 for details on common shares issued subsequent to December 31, 2013.
120 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
18. INCOME TAXES
(a) Reconciliation of current income tax
The effective rate on Clearwater's earnings before income taxes differs from the expected
amount that would arise using the combined Canadian federal and provincial statutory income
tax rates.
A reconciliation of the difference is as follows:
Year ended December 31
Earnings before income taxes
Combined tax rates
Income tax provision at statutory rates
Add (deduct):
Recognition of previously unrecorded deferred tax assets
Permanent differences
Income of partnership distributed directly to partners
Other
Income of foreign subsidiary not subject to tax
Actual provision
(b) Income tax expense
2013
7,197
30.5%
2,195
(9,938)
2,819
(2,811)
(357)
(9)
(8,101)
2012
(Restated)
(Note 3(o))
17,242
30.5%
5,259
(8,498)
766
(2,085)
875
(1,779)
(5,462)
The components of the income tax expense (recovery) for the year are as follows:
Year ended December 31
2013
Current
Deferred recovery
2012
(Restated)
(Note 3(o))
1,693
(7,155)
(5,462)
$
$
$
$
1,812
(9,913)
(8,101)
121 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
(c) Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Deferred tax asset:
Non-capital loss carry-forwards
Long-term debt
Reserve for unpaid share-based compensation
Foreign exchange
Inventory
Other
Deferred tax liability:
Licenses
Property, plant and equipment
Other
December 31
2013
December 31
2012
(Restated)
(Note 3(o))
$
18,537
3,150
1,785
1,648
625
294
$
8,010
-
-
-
1,193
-
(5,316)
(3,233)
-
17,490
$
(1,442)
(403)
(115)
7,243
$
Classified in the consolidated statement of financial position as:
Deferred tax asset - non-current
Deferred tax liability - non-current
(Restated)
(Note 3(o))
9,207
(1,964)
7,243
$
18,943
(1,453)
17,490
$
The net change in deferred income taxes is reflected in deferred income tax recovery of $9.9
million (2012 - $7.2 million) plus the foreign exchange effect of deferred taxes of foreign
subsidiaries totaling $0.3 million (2012 - $0.1 million), the effect of which was recorded
through foreign exchange.
Recognized deferred tax assets
Clearwater has recognized deferred tax assets of $17.5 million (December 31, 2012 - $7.2
million) relating primarily to its non capital loss carry-forward balances.
The deferred tax asset represents losses of $60.8 million (December 31, 2012 - $26.3 million).
The total losses available for recognition as at December 31, 2013 were $67.0 million
(December 31, 2012 - $67.2 million). These losses expire from 2026 – 2032.
These deferred tax assets are recognized based on Clearwater's estimate that it will earn
sufficient taxable profits to utilize these losses before they expire.
122 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Unrecognized deferred tax assets
Clearwater has the following investment tax credits and loss carryforwards for which no
deferred tax asset is recognized in the statements of financial position.
Non-capital losses
Investment tax credits
Capital losses
Unrecognized deferred tax liabilities
$
Clearwater
Seafoods Inc
6,249
5,885
12,087
Subsidiary
Corporations
6,659
$
113
380
Total
$
$
$
12,908
5,998
12,467
Expiry
2014 - 2033
2023 - 2033
No expiry
Deferred tax is not recognized on the unremitted earnings of subsidiaries and other investments
as the Company is in a position to control the reversal of the temporary difference and it is
probable that such differences will not reverse in the foreseeable future. The unrecognized
temporary difference at December 31, 2013 for the Company's subsidiaries was $72.2 million
(December 31, 2012 - $68.0 million).
123 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
19. SEGMENTED INFORMATION
Clearwater has one reportable segment which includes its’ integrated operations for harvesting,
processing and distribution of seafood products.
(a) Sales by Species
Year ended December 31
2013
(b) Sales by Geographic Region
Year ended December 31
2013
Scallops
Coldwater shrimp
Lobster
Clams
Crab
Ground fish and other
France
UK
Russia
Other
Europe
United States
Canada
North America
China
Japan
Other
Asia
Other
$
$
2012
(Restated)
(Note 3(o))
109,754
77,497
61,458
71,894
15,628
14,071
350,302
147,637
81,592
66,452
60,780
18,271
13,927
388,659
$
$
$
2012
(Restated)
(Note 3(o))
41,363
16,631
11,759
53,131
122,884
54,157
47,408
101,565
59,624
46,366
17,693
123,683
$
50,969
15,839
15,777
51,167
133,752
76,945
55,923
132,868
61,622
38,712
18,711
119,045
2,994
388,659
$
$
2,170
350,302
124 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
(c) Property, plant and equipment, licenses, fishing rights and goodwill by geographic region
2013
December 31, December 31,
2012
(Restated)
(Note 3(o))
Property, plant and equipment, licences, fishing rights and goodwill
Canada
Argentina
Other
$
212,625
22,115
221
234,961
$
225,048
12,886
257
238,191
$
$
125 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
20. RELATED PARTY TRANSACTIONS
(a) Subsidiaries, partnerships, and joint venture
Clearwater’s consolidated financial statements include the accounts of the Corporation and its
material subsidiaries, partnerships and joint venture, as follows:
Entity
Clearwater Seafoods Limited Partnership
Clearwater Ocean Prawns Venture
St. Anthony Seafoods Limited Partnership
Adams and Knickle 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
Equity method
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, 2013
and 2012.
Year ended December 31
Wages and salaries
Share-based compensation
Bonuses
Other benefits
$
$
2013
3,792
5,861
1,290
606
11,549
2012
3,023
2,332
1,380
371
7,106
$
$
(c) Transactions with other related parties
Clearwater rents office space to Clearwater Fine Foods Incorporated (“CFFI”) (the controlling
shareholder of Clearwater) and provides computer network support services to CFFI. Clearwater
charges CFFI management and other fees for finance and administration services provided to CFFI
by certain Clearwater staff. CFFI previously charged 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.
126 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Clearwater had the following transactions and balances with CFFI, for the year ended December
31, 2013 and December 31, 2012:
Opening balance due from CFFI
Management and other fees charged to (from) CFFI
Rent and IT service fees charged to CFFI
Interest on intercompany account
Guarantee fee charged from CFFI
Aircraft charges from CFFI
Payments from CFFI
Advances to CFFI
Other charges to CFFI
$
$
December 31, December 31,
2012
2,111
(198)
184
103
(62)
(38)
(925)
166
255
1,596
2013
1,596
122
184
78
-
-
(466)
-
10
1,524
$
$
The amount due from CFFI is unsecured and due on demand. As such the account has been
classified as a current asset included in prepaids and other. The balance bears interest at a rate of
5%. Fees amounting to 1% of the guarantees were charged to Clearwater. With the debt refinancing
in 2012 and 2013 CFFI no longer provides a guarantee on the senior debt facilities for Clearwater.
In addition, Clearwater expensed approximately $0.07 million for vehicle leases in 2013 (2012 -
$0.11 million) and approximately $0.11 million for other services in 2013 (2012 - $0.17 million) by
companies related to its parent. The transactions are recorded at the exchange amount and the
balance due to these companies was $0.01 million as at December 31, 2013 (December 31, 2012 -
$0.02 million)
Clearwater recorded sales, sales commissions and storage fees to a non-controlling interest in a
consolidated partnership. These sales, sales commissions, and storage fees are at prevailing market
prices and are settled on normal trade terms. Sales to the non-controlling interest for 2013 are $1.2
million (2012 - $1.0 million). Sales commissions in 2013 are $2.0 million (2012 - $1.9 million).
Storage fees for 2013 are $1.7 million (2012 - $2.1 million).
Clearwater recorded legal expense for services provided by a law firm in which a Director of the
corporation is a partner for 2013 of $0.03 million (2012 - $ nil).
At December 31, 2013 Clearwater had a balance of $8.8 million (December 31, 2012 - $7.7
million), included in long term receivables, for interest and non interest bearing advances and loans
made to a non-controlling interest shareholder in a subsidiary (refer to Note 8).
127 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
21. INTERESTS IN OTHER ENTITIES
Summarized financial information in respect of Clearwater’s subsidiary and partnership that have
non controlling interests (“NCI”) is set out below.
(a) Summarized statements of financial position
Year ended December 31
NCI Percentage
Current assets
Current liabilities
Non-current assets
Non-current liabilities
Net assets
Coldwater shrimp
2013
46.34%
2012
46.34%
$ 30,872 $ 28,275
(8,194) (8,731)
22,678 19,544
36,475 44,865
(1,072) (1,835)
35,403 43,030
58,081 62,574
Accumulated non-controlling interests
24,630 27,541
Year ended December 31
NCI Percentage
Current assets
Current liabilities
Non-current assets
Non-current liabilities
Net assets
Scallops
2013
20%
2012
20%
$ 5,629 $ 5,075
(27,112) (15,545)
(21,483) (10,470)
23,972 13,001
(186) (403)
23,786 12,598
2,303 2,128
Accumulated non-controlling interests
(78) (582)
128 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
(b) Summarized statements of earnings
Year ended December 31
Sales
Earnings
Total comprehensive income
Earnings allocated to non-controlling interest
Dividends paid to non-controlling interest
Year ended December 31
Sales
Earnings
Other comprehensive income
Total comprehensive income
Coldwater shrimp
2013
2012
$ 77,866 $ 70,186
15,047
15,047
19,998
19,998
8,438 6,471
6,488
11,349
Scallops
2013
2012
$ 30,916 $ 32,876
6,966
437
7,403
1,138
634
1,772
Earnings allocated to non-controlling interest
Dividends paid to non-controlling interest
569 1,459
3,004
66
(c) Summarized statements of cash flows
Year ended December 31
Cash flow from operating activities
Cash flow used in financing activities
Cash flow used in investing activities
Year ended December 31
Cash flow from operating activities
Cash flow from (used in) financing activities
Cash flow used in investing activities
Coldwater shrimp
2013
2012
$ 27,403 $ 25,383
(25,342) (15,524)
(13) (2,920)
Scallops
2013
2012
$ 3,534 $ 16,624
10,339 (15,018)
(13,863) (1,597)
129 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
22. JOINT VENTURE
The following table summarizes the financial information of Clearwater’s joint venture
accounted for using the equity method:
Year ended December 31
2013
2012
Carrying amount of interest in joint venture
4,701 3,868
Share of:
Earnings for the year
Dividends from joint venture
2,082 1,054
1,240 1,740
Commissions paid to joint venture
6,905 4,311
23. CAPITAL MANAGEMENT
Clearwater’s objectives when managing capital are as follows:
• Ensure liquidity
• Minimize cost of capital
• Support business functions and corporate strategy
Clearwater’s capital structure includes a combination of equity and various types of debt facilities.
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 revolving and term debt to lower its cost of capital.
The amount of 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 and multi-
year business plans and making any required changes to its debt and equity facilities on a proactive
basis. These changes can include early repayment of debt, issuing or repurchasing shares, issuing
new debt or equity, utilizing surplus cash, extending the term of existing debt facilities, selling
assets to repay debt and if required, limiting debt paid.
130 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
The capital structure is as follows:
In 000’s of Canadian dollars
As at December 31
Equity
Common shares
Retained earnings
Cumulative translation account
Non-controlling interest
Long term debt
Subordinated debt
2014 convertible debentures, redeemed in July 2013
Senior debt, non-amortizing
Revolving debt, due in 2018
Term loan, due in 2014
Term loan, due in 2091
Senior debt, amortizing
Term Loan A, due 2018
Delayed Draw term Loan A, due 2018 (net of deferred financing charges of $0.6
million)
Term Loan B, due 2019 (including embedded derivative)
Marine mortgage, due in 2017
Other loans
Term Loan A, repaid in June 2013
Term Loan B, (including embedded derivative), repaid in June 2013
Total long term debt
Total capital
2013
2012
$
64,780
19,762
(5,470)
79,072
28,455
107,527
$
64,867
14,616
(3,866)
75,617
30,904
106,521
-
-
-
10,642
3,500
14,142
29,700
(608)
211,901
1,785
405
-
-
243,183
257,325
44,722
44,722
-
-
3,500
3,500
-
-
-
2,697
627
72,259
129,986
205,569
253,791
$
364,852
$
360,312
See Note 14 for details on common shares issued subsequent to December 31, 2013.
131 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
24. SHARE-BASED COMPENSATION
Clearwater’s share-based compensation plans are detailed in Note 3(m).
The number of share-based awards outstanding and vested as of December 31, 2013 and December
31, 2012 were as follows:
Grant
price
0.80
1.00
N/A
N/A
N/A
N/A
Grant
price
0.01
0.80
1.00
N/A
N/A
N/A
SARS
PSU - Tranche 1
PSU - Tranche 2
DSU
Total
SARS
PSU - Tranche 1
DSU
Total
As at December 31, 2013
In thousands
Number
vested
83
67
Number
outstanding
83
67
Grant
Date
May 2010
May 2010
May 2012
March 2013
-
-
100
September 2012
67 June 2012 - December 2013
317
434
218
375
67
1,244
As at December 31, 2012
In thousands
Number
vested
255
167
133
Number
outstanding
255
250
200
423
375
26
1,529
-
100
26
681
Grant
Date
May 2010
May 2010
May 2010
May 2012
September 2012
June - December 2012
There is no limit to the number of awards that can be issued as awards are expected to be cash
settled.
Fair value of share based plans
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).
132 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
2013
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 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
PSU
Tranche 1
12.09
PSU
Tranche 2
11.41
$
$
SARS
7.83
DSU
8.22
2.15% 1.49% - 3.38% 1.39% - 3.82% 1.13% - 2.12%
72.47% 22.65% - 64.39% 21.62% - 58.90% 58.60% - 77.22%
5.5 - 12.3
Nil
8.22
2
Nil
11.41
1
Nil
12.09
0
Nil
8.22
$
$
$
$
$
$
2012
$
$
SARS
3.68
PSU
Tranche 1
DSU
4.00
5.22
1.59% 0.37% - 2.65% 1.32% - 1.50%
69.99% 31.5% - 67.9% 50.79% - 83.70%
4.3 - 6.8
Nil
4.00
2
Nil
5.22
0.5
Nil
4.00
$
$
$
$
The following reconciles the share based awards outstanding at the beginning and end of the year:
In thousands
Balance at January 1
Granted
Exercised
Balance at December 31
Vested at January 1
Vested
Exercised
Vested at December 31
2013
1,529
270
(555)
1,244
681
191
(555)
317
2012
705
824
-
1,529
405
276
-
681
133 | Page
CLEARWATER SEAFOODS INCORPORATED
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
The following share based awards were exercised during the year:
Grant
price
0.01
0.80
1.00
SARS
Total
As at December 31, 2013
In thousands
Number
exercised
255
167
133
555
Exercise
date
March 2013
March 2013
March 2013
Share price at
exercise date
5.00
5.00
5.00
$
$
$
The total cash payment for share based awards exercised during the year were $2.5 million
(December 31, 2012 - $ nil)
Share-based compensation expense included in the income statement for the year ended December
31, 2013 is $5.9 million (December 31, 2012 - $2.3 million).
The liability for share based compensation is $7.0 million at December 31, 2013 (December 31,
2012 - $3.6 million). The vested portion of the liability for share based compensation is $2.5
million at December 31, 2013 (December 31, 2012 – $2.5 million)
25. ADDITIONAL CASH FLOW INFORMATION
Changes in operating working capital
(excludes change in accrued interest)
Decreases in inventories
Decreases in trade and other payables
Increases in trade and other receivables
Decrease (increase) in prepaids
26. CONTINGENT LIABILITIES
December 31, December 31,
2012
(Restated)
(Note 3(o))
2013
2,745
(4,191)
(470)
619
(1,297)
$
9,657
(2,464)
(2,188)
(2,277)
2,728
$
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.
134 | Page
Quarterly and share information
Clearwater Seafoods Incorporated ($000's except per share amounts
Sales
Net earnings (loss)
Per share data
Basic net earnings (loss)
Diluted net earnings (loss)
Trading information, Clearwater Seafoods Incorporated, symbol CLR
Trading price range of shares (board lots)
High
Low
Close
Tranding volumes (000's)
Total
Average daily
Q4
Q3
2013
Q2
Q1
Q4
Q3
Q2
Q1
2012
111,012
(298)
113,982
27,224
95,368
(9,866)
68,297
(1,762)
92,945
10,518
101,553
17,618
84,926
(2,505)
70,878
(2,927)
(0.06)
(0.06)
0.48
0.47
(0.24)
(0.24)
(0.06)
(0.06)
0.17
0.15
0.30
0.27
(0.08)
(0.08)
(0.09)
(0.09)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
8.50
5.37
8.22
2,635
41
5.82
4.86
5.68
2,416
39
4.98
4.10
4.92
1,930
30
5.30
4.00
4.85
6,709
110
4.15
2.50
4.00
1,906
31
2.90
2.36
2.50
1,265
21
2.70
2.02
2.48
1,350
22
2.40
1.85
2.27
1,089
18
Shares outstanding at end of quarter
50,948,698
50,948,698
50,948,698
50,948,698
50,948,698
50,948,698
50,948,698
50,948,698
135 | Page
Selected Annual Information
Sales
Cost of goods sold
Gross margin
Administrative and selling
Net finance costs
Other income
Research and development
Gain on settlement of Glitnir transaction
Gain on change in control of joint venture
Foreign exchange income
Interest on long-term debt and bank charges
Depreciation and amortization
Reduction in foreign currency translation account
2013
(Audited)
2012
(Audited)
2011
(Audited)*
2010
(Audited)
2009
(Audited)
$
388,659
301,291
$
350,302
277,777
$
332,785
263,220
$
291,116
234,854
$
284,066
240,215
87,368
72,525
69,565
56,262
43,851
39,005
42,747
(3,240)
1,659
-
-
-
-
-
-
80,171
32,536
24,387
(3,399)
1,759
-
-
-
-
-
-
55,283
33,345
38,604
(5,893)
707
(12,445)
(11,571)
-
-
-
-
42,747
28,557
42,482
(2,477)
1,623
-
-
-
-
-
-
70,185
25,724
-
(6,567)
-
-
-
(30,642)
25,342
236
703
14,796
Earnings before income taxes
7,197
17,242
26,818
(13,923)
29,055
Income taxes (recovery) expense
(8,101)
(5,462)
3,863
3,564
1,868
Earnings before non-controlling interest
15,298
22,704
22,955
(17,487)
27,187
Non-controlling interest
8,965
7,695
6,619
1,704
1,039
Earnings attributable to shareholders
$
6,333
$
15,009
$
16,336
$
(19,191)
$
26,148
* 2011 results have been adjusted to reflect International Financial Reporting Standards ("IFRS") and the conversion to a Corporation.
136 | Page
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
Robert D. Wight
Vice-President, Finance and Chief Financial Officer
Larry Hood, Chair of Audit Committee
Director, Former Partner, KPMG
Thomas D. Traves
President Emeritus, Dalhousie University
Mickey MacDonald
President, Micco Companies
Brendan Paddick
Chief Executive Officer, Columbus International Inc.
Stan Spavold
Executive Vice President, Clearwater Fine Foods Inc.
Jim Dickson
Partner, Stewart McKelvey
Michael D. Pittman
Vice-President, Fleet
Greg Morency
Chief Commercial Officer & Executive Vice-President
David Rathbun
Vice-President, Chief Talent Officer
Christine Penney
Vice-President, Sustainability & Public Affairs
Paul Broderick
Vice-President of International Sales
David Kavanagh
Vice-President and General Counsel
John Burwash
Vice-President, Chief Information Officer
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
TRANSFER AGENT
Computershare Investor Services Inc.
137 | Page
Clearwater Seafoods Incorporated
757 Bedford Highway, Bedford, Nova Scotia, Canada, B4A 3Z7
Tel. (902) 443-0550 Fax. (902) 443-7797 www.clearwater.ca