Delivering On Our Promise
Clearwater SeafoodS InCorporated 2015 annual report
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About
Clearwater
Clearwater Seafoods is one of North America’s largest vertically integrated seafood companies with
over 1,900 employees in offices, plants and vessels around the world. The Bedford, Nova Scotia-based
company operates from “ocean to plate,” owning its own fishing quotas, vessels and processing facilities,
while also providing delivery to customers worldwide. It’s recognized globally for its superior quality,
food safety and diversity of premium wild-caught seafood, including scallops, lobster, clams, coldwater
shrimp and crab. With the acquisition of Macduff Shellfish in late 2015, Clearwater has expanded its
product offering to include langoustines (Norway lobster) and whelk.
Since its founding in 1976, Clearwater has invested in its resource ownership and management to sustain
and grow its wild seafood resource. This commitment has established Clearwater as a global leader in
sustainable seafood excellence.
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About
Clearwater
Clearwater
Overview
Leading Global Provider of Wild-Caught Shellfish
Clearwater is one of North America’s largest vertically integrated harvester, processor and
distributor of premium shellfish. Clearwater is recognized for its consistent quality, wide diversity,
and reliable delivery of premium, wild, eco-labelled seafood, including scallops, lobster, clams,
coldwater shrimp, crab, langoustines, whelk and groundfish with approximately 79 million pounds
sold in 2015.
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 and 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 Marine Stewardship Council (“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.
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, 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 we have 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.
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Clearwater Seafoods Incorporated 2015 Annual Report
1
Highlights in 2015
Record Sales and Adjusted EBITDA
Acquisition
Record annual sales and adjusted
Successfully completed the acquisition
EBITDA of $505 million and $110 million
of Macduff Shellfish Group Limited
representing annual growth rates of
(“Macduff”) for a purchase price of
14% and 26%, respectively.
£102 million (CAD $206 million), the largest
single acquisition in Clearwater’s history.
Growth in
sales
14%
Growth in
adjusted EBITDA
26%
$206
million
Strong Financial Position
Growth for Investors
Improved free cash flow by 27% to
Increased the annual dividend by 25%
$39 million in 2015 driven by strong
to $0.20 per share, payable in quarterly
improvements in adjusted EBITDA.
instalments of $0.05 per share.
$39
million
25%
increase
2
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Capital
Expansion
and
Innovation
In 2015, Clearwater
welcomed 3 new
vessels, the Belle Carnell,
Capesante and Fundy
Leader into its vessel fleet.
The addition of the
Belle Carnell represented
the single-largest
vessel investment
in company history.
The company has
invested approximately
$171 million in its fleet
and plants over the past
three years.
Acquisition
of Macduff
The acquisition of Macduff
expands our access to
supply by more than
15 million pounds or
approximately 20% in a
global seafood market
where demand for wild,
sustainably harvested,
safe and traceable
premium shellfish is far
greater than supply.
Recognition
Clearwater received
Food in Canada’s 2015
Leadership Award in
Stewardship recognizing
its commitment
to sustainability
and the long-term
preservation of oceans.
Growing
Globally: China
In 2015, China
became Clearwater’s
largest grossing
international market with
$95 million in sales,
as the company
capitalized on the
growing demand
for premium seafood
from an expanding
middle class and
significant affluent
consumer segment.
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Clearwater Seafoods Incorporated 2015 Annual Report
3
Financial Highlights
“In 2015 Clearwater marked its six consecutive year of growth,
reporting record annual sales and adjusted EBITDA and
surpassing its five year financial performance goal of
$500 million in sales and $100 million in adjusted EBITDA one
year ahead of our original timetable!” – Ian Smith, Chief Executive Officer
Strong global
demand across all
markets and species
will continue to be
a key driver for our
business in 2016.
In 2015 Clearwater reported annual sales of $504.9 million and adjusted
EBITDA1 of $109.7 million versus 2014 comparative figures of $444.7 million
and $87.4 million, reflecting growth in sales and adjusted EBITDA of 14%
and 26%, respectively. Excluding the acquisition of Macduff, growth in sales
and adjusted EBITDA was 8% and 21%, respectively.
Gross margin (excluding amortization of the fair value adjustment to inventory
and fixed assets from acquisition of Macduff) as a percentage of sales
improved from 23.1% in 2014 to 26.6% in 2015, due to strong demand,
higher prices for the majority of species and favorable exchange rates as a
strengthening US dollar against the Canadian dollar had a $33.6 million net
positive impact on sales and gross margin. The improvement in gross margin
was partially offset by higher harvesting and procurement costs per pound.
In July 2015, Clearwater completed its state-of-the-art clam vessel, the
Belle Carnell, increasing harvesting capacity for the fourth quarter of 2015,
partially offsetting the decline in sales volumes for clams during the year.
On October 30, 2015 Clearwater successfully completed the acquisition of
Macduff Shellfish Group Limited (“Macduff”), one of Europe’s leading wild
shellfish companies, for CAD $206 million (£101 million). Macduff expands
our access to supply by more than 15 million pounds and further diversifies
our access in wild shellfish.
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Clearwater Seafoods Incorporated 2015 Annual Report
1 Refer to discussion on non-IFRS measures, definitions and reconciliations in 2015 Management’s
Discussion and Analysis.
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SALES
(in millions)
ADJUSTED EBITDA1
(in millions)
FREE CASH FLOWS1
(in millions)
LEVERAGE1,2
RETURN ON ASSETS1
505
445
389
110
87
79
72
61
350
333
39
31
26
17
4
4.4
13.4%
13.7%
12.5%
12.1%
10.8%
3.8
3.3
3.3
2.9
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
LEVERAGE1,2
SALES
(in millions)
RETURN ON ASSETS1
ADJUSTED EBITDA1
(in millions)
FREE CASH FLOWS1
(in millions)
4.4
13.4%
13.7%
12.5%
12.1%
10.8%
3.8
3.3
3.3
2.9
120
100
80
60
2011
40
20
2012
2013
2014
2015
40
35
30
25
20
2011
2012
2013
2014
2015
Clearwater reported
record annual sales
and adjusted
eBItda for 2015,
marking its sixth
consecutive year of
reported growth.
'2011
'2012
1 Refer to discussion on non-IFRS measures, definitions and reconciliations in 2015 Management’s Discussion and Analysis.
'2015
'2011
'2014
'2013
'2014
'2013
'2015
'2012
0
15
2 Leverage prior to 2013 excludes adjustments for non-controlling interest.
'2010 316
'2011 333
'2012 350
'2013 389
'2014 445
2015 505
'2010 51
'2011 61
'2012 72
'2013 79
'2014 87
2015 110
10
5
0
'2011
'2012
'2013
'2014
'2015
'2010 -2416
'2011 4
'2012 17
'2013 26
'2014 31
2015 39
5
4
3
2
1
0
15
12
9
6
3
0
'2011
'2012
'2013
'2014
'2015
'2011
'2012
'2013
'2014
'2015
'2010 3.9
'2011 3.8
'2012 2.9
'2013 3.3
'2014 3.3
2015 4.4
'2010 11.4
'2011 10.8
'2012 12.1
'2013 13.4
'2014 13.7
2015 12.5
39
31
26
17
4
2011
2012
2013
2014
2015
FREE CASH FLOWS1
(in millions)
500
450
400
350
300
250
5
4
3
40
35
30
25
20
15
10
5
0
Clearwater_AR2015_Front_FINAL.indd 5
2
1
0
15
12
9
6
3
0
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5
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'2011
'2012
'2013
'2014
'2015
'2011
'2012
'2013
'2014
'2015
'2011
'2012
'2013
'2014
'2015
'2010 -2416
'2011 4
'2012 17
'2013 26
'2014 31
2015 39
'2010 3.9
'2011 3.8
'2012 2.9
'2013 3.3
'2014 3.3
2015 4.4
'2010 11.4
'2011 10.8
'2012 12.1
'2013 13.4
'2014 13.7
2015 12.5
Financial Highlights
looking forward,
we expect to see
significant volume
growth in 2016
associated with
the acquisition
of Macduff, the
expansion of
our clam fleet
and expanded
procurement of
core species.
The 2015 annual results include two months of activity for Macduff which
equates to CAD $27 million in sales and CAD $4.5 million in adjusted EBITDA.
Macduff provides access to diversified complementary species including
King and Queen scallops, langoustine, brown crab and whelk, the majority of
which is sold within the European market.
Macduff operations experience a similar predictable seasonal pattern
as Clearwater in which sales, margins and adjusted EBITDA are higher in
the second half of the year whereas investments in working capital are
lower, resulting in higher free cash flows and lower leverage in the second half
of the year.
Clearwater’s growth in sales, margins and adjusted EBITDA was driven by
strong market demand that provided higher sales prices for the majority of
species as well as strengthening foreign exchange rates for the US dollar
against the Canadian dollar. The record sales and adjusted EBITDA were
achieved despite lower sales volumes. The increase in sales prices in home
currencies had a $46.2 million positive impact on sales and gross margin in
2015 while higher foreign exchange rates had a $33.6 million positive impact
in 2015. The positive impact from foreign exchange on gross margin was
partially offset by lower sales volumes, higher harvesting costs for scallops
and higher procurement costs for scallops, lobster and shrimp.
Higher non-operational losses of $48.8 million were primarily a result of an
increase in non-cash unrealized foreign exchange losses from the translation
6
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Clearwater Seafoods Incorporated 2015 Annual Report
Clearwater Seafoods Incorporated 2015 Annual Report
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of the US dollar denominated debt as the US dollar strengthened against
the Canadian dollar. In addition, included in expenses are $5.4 million of
acquisition related costs, including $2.1 million of amortization on fair value
adjustments for inventory and depreciation resulting from IFRS requirements
on purchase price accounting for the acquisition of Macduff.
Free cash flow improved by $8.2 million to $39.1 million in 2015 due to
higher adjusted EBITDA partially offset by additional investment in working
capital from higher levels of inventory at the end of 2015.
As of December 31, 2015 leverage had increased to 4.4x from 3.3x as of
December 31, 2014 primarily due to the investment in Macduff Shellfish,
higher capital expenditures as well as the impact of a higher US dollar
exchange rate on USD denominated debt as the US dollar strengthened
against the Canadian dollar in 2015. This is a significant improvement from
approximately 5.3x leverage at the closing of the acquisition of Macduff on
October 30, 2015 and we remain on target to further reduce leverage below
4.0x by year-end 2016.
Return on assets declined to 12.5% in 2015 as a result of the timing of the
investment in Macduff. The full investment is included in the assets whereas
earnings only include the two months of earnings from the acquisition date
of October 30, 2015 to December 31, 2015.
the growth in
sales, margins
and adjusted
eBItda was
driven by strong
market demand
that provided
higher sales prices
for the majority
of species.
Clearwater Seafoods Incorporated 2015 Annual Report
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Letter from the Chairman of Clearwater Seafoods Incorporated
Looking forward, global demand for seafood will continue
to outpace supply, creating favorable market dynamics for
vertically integrated producers such as Clearwater which have
strong resource access.
significantly improve utilization of our existing licenses
and quota in this Marine Stewardship Council (MSC)
certified sustainable fishery.
On October 30th we successfully completed
our acquisition of Macduff Shellfish Group Limited
(“Macduff”), one of Europe’s leading wild shellfish
companies. This investment strengthens Clearwater’s
leading global market position
in complementary
premium wild seafood with an immediate expansion
of supply of high quality shellfish including scallops,
langoustine, whelk and crab. Macduff will provide
Clearwater with access to an annual incremental 15
million pounds of premium, wild-caught, safe, traceable
and complementary shellfish species.
To our Shareholders,
I am happy to report yet another outstanding year for
Clearwater Seafoods.
In 2015 our CEO, Ian Smith and his team, in spite of
significant challenges once more managed to produce
impressive results.
The list of accomplishments for the year includes the
successful launch of a new clam vessel, the Belle Carnell;
the completion of a significant acquisition – MacDuff;
the closing of a successful equity raise; the re-fitting and
launch of a new vessel in our Argentine fishery – the
Capesante; and most impressively – completing our five
year strategic plan one year early.
It was also a year in which we welcomed new people
into the fold and we wished others a very happy and
healthy and well deserved retirement after 20 to 30
years in the company.
In June we strengthened our balance sheet with the
successful closing of a share offering and private
placement for gross proceeds of approximately
$61 million.
In late July we launched our new state-of-the-art factory
clam vessel, the Belle Carnell (named in honour of
my mother). At CAD $65 million, it is the single-
largest vessel investment in Clearwater’s history
and will harvest Arctic Surf Clams, Cockle
Clams and Propeller Clams year-round on
the Grand Banks. The vessel has very
successfully joined Clearwater’s fleet
in the fourth quarter of 2015 and will
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Finally, I am happy to report that the company has
achieved its five year goal of $500 million in revenue and
$100 million in adjusted EBITDA one year early.
These achievements were made possible because of
our extremely hardworking and dedicated employees,
the unwavering support of our customers and suppliers,
our strong and open relationship with our lenders and
investors, the total commitment of our management
Clearwater, as a vertically integrated seafood company,
team and the experienced oversight of the Board.
is well positioned to take advantage of this opportunity
The past year has also seen us have the good fortune
of welcoming a number of new people to the company
while wishing long servicing members of our team
happy and healthy retirements. On behalf of the
company, the board, investors, John and I, I extend our
most humble thanks for all these women and men have
because of our licenses, our total commitment to
producing premium quality products, our diversity of
species, our global sales footprint, and our year-round
harvest and delivery capability. These assets combined
with an extremely dedicated workforce make for a
combination that will spell success well into the future.
given Clearwater in their many years of service.
In closing, we remain focused on our commitment and
In 2016 Clearwater will celebrate its 40th anniversary
and I invite you all to join us in a year of celebration as
we reflect upon this truly amazing company that was
started in 1976 in a little shop off the Bedford Highway
outside Halifax, Nova Scotia by two 28 year-old boys
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.
who became men with the help of so many past and
Yours truly,
present employees.
Looking forward, global demand for seafood will
continue to outpace supply, creating favorable market
dynamics for vertically integrated producers such as
Clearwater which have strong resource access.
C o l I n M a C d o n a l d
Chairman
Clearwater Seafoods Incorporated
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Clearwater Seafoods Incorporated 2015 Annual Report
9
Letter from the Chief Executive Officer of Clearwater Seafoods Incorporated
Clearwater’s remarkable
achievements in 2015 allowed us
to reach our five-year sales revenue
and adjusted EBITDA goals one
year ahead of our original plan!
To our shareholders,
2015 was a remarkable year. It began with the cruelest
Atlantic Canadian winter in more than 50 years.
Facing record low inventories and poor weather-
related harvest results we struggled through the first
four months to eke out even modest gains versus the
prior year.
Sometime in mid-May, skies cleared and seas calmed.
We gathered our sea legs beneath us and began a
steady climb towards our ambitious goals. Bolstered by
both new and well re-fitted vessels with expert crews,
our harvest rates surged. Our resilient and determined
global supply chain and global markets teams as well
as joint venture partners all executed with excellence.
Our phenomenally loyal customers who had stood by
us as we struggled to fill previous orders responded
like never before. Our strong third and fourth
quarter financial performance resulted in another
tremendous year for Clearwater, marking the
sixth consecutive year of record setting growth.
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In fact, Clearwater’s remarkable achievements in
of attractive growth opportunities, our success will
2015 allowed us to reach our five-year sales revenue
continue to depend on our ability to execute with
and adjusted EBITDA goals one year ahead of our
excellence against our six core strategies.
original plan!
I remain humbled by the privilege to lead this great
Incredibly, the story of 2015 doesn’t end there. On
company and energized by the opportunity to continue
October 30th, we acquired Macduff Shellfish Group.
our mission to build the world’s most extraordinary wild
Macduff will expand our access to supply by more than
seafood company dedicated to sustainable seafood
15 million pounds in a global seafood market where
excellence.
demand for wild, sustainably harvested, safe and
traceable premium shellfish is far greater than supply.
Sincerely,
Our similar histories, values, work ethic and passion for
wild seafood will make our two extraordinary companies
immeasurably better together – tomorrow and for years
to come.
This level of performance can only be achieved by a
talented and engaged global workforce at sea and on
land, employing well-communicated and compelling
strategies and plans. It also takes incredible customers
all over the world who share our commitment to quality
and sustainability and whose loyalty and support have
been instrumental in our success. We can never thank
or appreciate them enough.
In 2016, Clearwater will celebrate its 40th anniversary.
We will also kick off our next five year plan. The 2016–
2020 plan is bold and ambitious. With no shortage
I a n d . S M I t h
Chief Executive Officer
Clearwater Seafoods Incorporated
WHy InVEST In CLEARWATER
• North America’s largest vertically integrated harvester,
processor and distributor of premium, wild, eco-
labelled shellfish with more than 79 million pounds
sold in 2015.
• Global demand for premium wild-caught seafood
among aging boomers and a rising middle class in
the Asia-Pacific region is outpacing resource supply.
This in combination with conservatively managing wild
seafood fisheries to protect the long-term health of the
industry is creating new opportunities and demand for
high-quality sustainable seafood.
• Largest holder of shellfish quotas and licenses within
Canada and maintains the widest selection of MSC-
certified species of any shellfish harvester worldwide.
• Diverse channel and customer mix in foodservice,
retail and other food industries with no single customer
representing more than 7% of total sales.
• Six consecutive years of sales and adjusted EBITDA
growth.
Clearwater Seafoods Incorporated 2015 Annual Report
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Strategies in Action
Expanding Access to Supply
Macduff Shellfish Group Acquisition
Clearwater Seafoods announced the acquisition of Macduff Shellfish Group
Limited, bringing together two of the world’s leading and fastest growing
vertically integrated wild shellfish harvesters.
In 2015, Macduff’s 400 employees harvested, processed, packaged, sold and
globally distributed wild-caught scallops, langoustines, brown crab and whelk.
The company has 14 scallop fishing vessels with production plants in Mintlaw and Stornoway, Scotland.
The business was founded by the Beaton family, buying and selling live shellfish direct from the fishermen for freight
to Europe. The factory in Mintlaw was bought in 1996, as the company diversified from chilled into frozen shellfish, the
mainstay of its current operation.
Macduff has a talented local management team, excellent resource assets and a strong presence throughout Europe,
the world’s largest and most valuable seafood market. Clearwater will provide Macduff with world class vessel
management, sustainable harvesting practices, innovative processing technologies, along with expertise in global
sales, marketing and distribution. Macduff has been a valued Clearwater customer for over three years.
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Belle Carnell
Clearwater’s newest vessel, the Belle Carnell, began sailing the seas in 2015. As the most technologically advanced
shellfish harvester in the world, this larger and more efficient vessel will modernize the company’s clam operation with
state-of-the-art navigational and sonar technology.
Modernizing
Our Fleet
Clearwater added the Capesante to its Argentine scallop fleet, replacing and retiring one of two existing vessels.
Now fully operational, the Capesante’s industry-leading innovative harvesting and processing technology supports
Clearwater’s commitment to delivering high-quality, wild-caught seafood around the world.
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Clearwater Seafoods Incorporated 2015 Annual Report 13
Strategies in Action
Target Profitable & Growing Markets,
Channels & Customers
Value-added Expansion
Growing Globally: Brazil
Channels & Consumers
Clearwater’s value-added frozen
Clearwater celebrated its first shipment
As consumer shopping trends
lobster meat and scallop products were
of live lobster to the up-and-coming
evolve around the world, Clearwater
introduced to foodservice operators,
Brazilian market. For the first time in
is developing a long-term global
food processors and retailers in
Brazil’s history, Canadian live lobsters
ecommerce strategy through the
Europe, the Middle East and Africa
were made available to foodservice
evaluation of potential platforms and
(EMEA), during the world’s largest
operators daily, giving consumers the
partners in each region to leverage
seafood show, Seafood Expo Global
opportunity to experience Clearwater’s
the growing sales channel.
(SEG) in Brussels, Belgium.
Premium Hardshell FreshTM Lobster.
“ the combination of Clearwater’s cutting edge technology, food safety procedures, biology support and
Chinese sales team ensures the consistent delivery of premium live lobster to the Chinese market.
providing our customers with Clearwater product gives them confidence knowing they are receiving
high-quality, fully-meated products.” Zhihua Lu “Lucky,” President, Kaifeng Ocean Sky Industry Company Ltd.
Pursue & Preserve the Long-Term
Sustainability of Resources on Land and Sea
Commitment to
Sustainable Harvest
and to MSC
In 2015, the Marine Stewardship
Council (MSC) announced the
certification of the Nova Scotia and New Brunswick
inshore lobster fishery. This certification, in combination
with the previously certified Eastern Canadian offshore
lobster fishery, will soon complete the full MSC-
certification of Clearwater’s lobster supply and add to
our global leadership in sustainable seafood offerings.
Sustainability Achievements
ESRI Canada presented Clearwater with an Award of Excellence
for promoting sustainability using their geographic information
system (GIS) technology. Clearwater uses ESRI’s ArcGIS platform
to study shellfish population resources, as well as manage
harvesting operations. This system is pivotal in supporting
Clearwater’s operations and contributes to significant cost savings
and decreased
impact on ocean
ecosystems.
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Innovate and Position Products to Deliver
Superior Customer Satisfaction and Value
“ Clearwater Seafoods is one of the only suppliers globally that sustainably harvests, processes and ensures the
proper quality management of sashimi-grade shellfish. developing the sashimi-grade shellfish business is a
core growth strategy of nichirei’s and the partnership we’ve built with Clearwater has allowed us to provide
our end-user accounts with year-round quality product for their menus.”
Hidenori Kunita, Team Leader Marine Products Procurement Group, Nichirei Fresh Inc.
Raw Lobster
The demand for Clearwater’s frozen raw lobster meat products continued
throughout 2015, including a successful launch in European retail. Through
a specialized high pressure extraction process, raw lobster meat is released
from its shell and frozen in both shell-on and shell-off formats. Ideal
for quick and easy preparation, this gives consumers and chefs the
versatility to prepare a premium product in a variety of applications,
without the hassle of cooking and shelling live lobster.
Cockle Clams
In 2015, Clearwater identified a strong interest within the Asian
marketplace for cockle clams. In 2016, the company will leverage its
new, state-of-the-art vessel, the Belle Carnell, to regularly harvest the
species in an effort to increase supply of the high-in-demand clam.
Value-added
As an innovation leader, Clearwater recognized an increase in consumer
demand for convenience-based meal solutions. With this growing trend,
Clearwater continued recognizing consumers’ needs by offering
at-home seafood solutions in easy-to-use formats, including
Bacon Wrapped Sea Scallops and
Scallops & Sauce.
Propeller Clams
Following the successful launch of propeller
clams through established relationships with
several processing partners, Clearwater
continued to see growth in the Japanese
Kaiten sushi market for this species.
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Strategies in Action
Build Organizational Capability, Capacity
& Engagement
ensuring the health of our fisheries and sourcing sustainable seafood are two core values austral
fisheries shares with Clearwater Seafoods. not only does Clearwater provide us with high-quality
products, the level of service we continue to receive is a great indication of a future relationship for
many more years to come.” Theo Kailis, Executive Director, Austral Fisheries
S E A F O O D S O L U T I O N S
PREMIUM SUSTAINABLE SEAFOOD CHOICES
Procurement:
In 2016, Clearwater
will continue to expand
procurement of its
species.
Diversified Products:
The acquisition of Macduff adds
four complementary species to
Clearwater’s product offerings,
including King and Queen
scallops, langoustine, brown
& velvet crab and whelk.
Clearwater
Head Office
Bedford, NS, Canada
Clearwater
Sales Offices
Shanghai, China
Beijing, China
Guangzhou, China
Tokyo, Japan
Windsor, United Kingdom
Leesburg, VA, USA
Toronto, ON, Canada
Clearwater Land-based Operations
40th Anniversary:
Fleet Operations – Lunenburg, NS
Clearwater will celebrate its
Grand Bank Seafoods – Grand Bank, NL
40th anniversary in August
2016, marking a major
milestone for the company.
Highland Fisheries – Glace Bay, NS
Louisville – Louisville, Kentucky
Pierce Fisheries – Lockeport, NS
St. Anthony Seafood – St. Anthony, NL
Ushuaia, Argentina
Macduff Shellfish – Mintlaw, Scotland
Clearwater Harvesting Operations
Argentina • East coast of Canada • United Kingdom
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Clearwater Seafoods Incorporated 2015 Annual Report
Fleet Innovation:
New to Clearwater’s
Argentine Scallop fleet, the
Capesante is capable of
harvesting, cleaning, grading
and freezing product within
minutes of harvest.
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Customer Relations:
In 2015, Clearwater
continued to work
closely with global
customers to understand
their needs and develop
customized solutions.
Culinary
Achievements:
Clearwater’s industry-
leading culinary team
conducted customer
visits and custom ideation
sessions throughout
2015 with its global
foodservice partners.
Character and Competence
Awards
Character Award – Hiroki Nakamoto,
Regional Account Manager – Asia
For the past 10 years
Hiroki has been instrumental
in the development of
key relationships and
partnerships with several
customers. He continues
to inspire the trust of all
stakeholders by taking responsibility, acting with
integrity and leading with courage throughout all
facets of his role.
Competence Award – Stephanie McGovern,
Director, Food Service, United States
Over the past 27 years,
Stephanie has contributed
highly to building a learning,
diverse and CAN-DO
culture, characterized by
excellence in thought,
execution and agility. She
has grown with the company and her competence
continues to shine in all that she achieves.
Species Expansion:
Clearwater’s new, state-of-the-art
clam vessel, the Belle Carnell,
will increase clam supply and
exports for this wildly popular
product throughout the sushi-
hungry Asian marketplace.
In 2015 Clearwater sold 79 million pounds of
premium, wild, eco-labelled seafood, including
scallops, langoustines, lobster, clams, coldwater shrimp,
crab, whelk and groundfish to over 30 different countries.
Teamwork Award –
The Project KEEL Team
Project KEEL is Clearwater’s ERP implementation
initiative. This project is the single most important
initiative the company has ever undertaken to
strengthen its systems and processes in order to
support future growth and profitability. The Project
KEEL team, comprising members from across the
organization, have dedicated the last several years
to this important program, working together
to achieve extraordinary things for Clearwater.
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Strategies in Action
Increase Margins by Improving
Price Realization and Cost Management
Quality Control Development
Several initiatives were applied in 2015 leading to a significant
Improvements in Productivity
and Efficiencies
decrease in live lobster mortality, including the implementation
Clearwater is known for investment in sustainability, research,
of a tracking system to identify key mortality influences,
technology and innovative solutions that affect every aspect
utilizing a new live lobster quality test for incoming product
of the seafood industry from ocean-to-plate. Its Automatic
assessment, maintaining controlled production rates and
Shucking Technology equipment delivers consistently
modifying plant refrigeration systems. In 2016, Clearwater will
high quality scallops and offers remarkable increases
continue focusing on post-harvest lobster handling practices
in productivity.
and further refinements to inventory management.
Investing in Science
Operational Efficiencies
Clearwater continues to be one of a few harvesters
Throughout 2015 Clearwater continued preparing for the
committed to maintaining a survey vessel for scientific
launch of SAP, Clearwater’s company-wide ERP system
purposes. In early 2015, the company renewed this
which was launched in early 2016. The core of SAP’s solution
commitment with the conversion of a newly purchased vessel,
includes a number of functional modules with transactions that
the Fundy Leader, featuring an innovative survey platform.
support a variety of key business processes within Clearwater.
“ over the past 10 years, Young’s Seafood limited has developed a strong partnership with Clearwater Seafoods. as our
supplier of sustainably-sourced, premium lobster, scallops and cold water prawns, Clearwater has significantly contributed
to the integral role we play within the uK retail market. we are excited to continue delivering these
high-quality products to our retail partners and look forward to strategically growing our relationship
with Clearwater well into the future.” Stuart Caborn, Group Purchasing Director, Young’s Seafood Limited
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Management’s Discussion and Analysis
Table of contents
management’s discussion and analysis
Clearwater overview
Selected annual information
Clearwater’s mission, value proposition and strategies
Capability to deliver results
Key performance indicators
Explanation of 2015 results
Capital structure
Liquidity
Commitments
Explanation of fourth quarter 2015 results
Outlook
Risks and uncertainties
Critical accounting policies
Related party transactions
Summary of quarterly results
Non-IFRS measures, definitions and reconciliations
Clearwater Seafoods incorporated – 2015 financial statements
Selected annual information
Quarterly and share information
Corporate information
20
21
21
23
25
27
36
40
44
45
53
55
57
59
60
61
66
111
112
inside back cover
This Management’s Discussion and Analysis (“MD&A”) was prepared effective March 22, 2016.
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 2015 fourth quarter news release. All figures within the
MD&A are in thousands of Canadian dollars unless otherwise stated.
This MD&A should be read in conjunction with the 2015 annual financial statements and the 2015 Annual Information Form,
which are available on SEDAR at www.sedar.com as well as Clearwater’s website, www.clearwater.ca.
C o m m e n ta ry re g a r d i n g F o r w a r d - L o o k i n g S tat e m e n tS
This report may contain “forward-looking information” as defined in applicable Canadian securities legislation. All statements
other than statements of historical fact, including, without limitation, statements regarding future plans and objectives of
Clearwater, constitute forward-looking information that involve various known and unknown risks, uncertainties, and other
factors outside management’s control.
Forward-looking information is based on a number of factors and assumptions which have been used to develop such information
but which may prove to be incorrect including, but not limited to, total allowable catch levels, selling prices, weather, exchange
rates, fuel and other input costs.
There can be no assurance that such information will prove to be accurate and actual results and future events could differ
materially from those anticipated in such forward-looking information.
In addition, this report contains forward-looking information relating to Clearwater’s acquisition of Macduff Shellfish Group
Limited (“Macduff”), financing of the acquisition, enhancement of Clearwater’s scale of operations and accelerated growth, as
well as expectations regarding sales, adjusted EBITDA, adjusted earnings and leverage. This forward-looking information is
based on a number of factors and assumptions which have been used to develop such information but which may prove to be
incorrect including, but not limited to, Clearwater’s ability to successfully integrate or grow the business of Macduff as planned,
total allowable catch levels, selling prices, weather, exchange rates, fuel and other input costs. There can be no assurance that
such information will prove to be accurate and actual results and future events could differ materially from those anticipated
in such forward-looking information. Risk factors that could cause actual results to differ materially from those indicated by
Clearwater Seafoods Incorporated 2015 Annual Report 19
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Management’s Discussion and Analysis
forward-looking information contained in this report include risks and uncertainties related to: (i) diversion of management time
and attention on the acquisition, (ii) any disruption from the acquisition affecting relationships with customers, employees or
suppliers, (iii) the timing and extent of changes in interest rates, prices and demand, and (iv) economic conditions and related
uncertainties.
For additional information with respect to risk factors applicable to Clearwater, reference should be made to Clearwater’s
continuous disclosure materials filed from time to time with securities regulators, including, but not limited to, Clearwater’s
Annual Information Form.
The forward-looking information contained in this report is made as of the date of this release and Clearwater does not undertake
to update publicly or revise the forward-looking information contained in this report, whether as a result of new information,
future events or otherwise, except as required by applicable securities laws.
No regulatory authority has approved or disapproved the adequacy or accuracy of this report.
n o n-iFrS m e aS Ur eS
This MD&A makes reference to several non-IFRS measures which are used to supplement the analysis of Clearwater’s results.
These measures are provided to enhance the reader’s understanding of our current financial performance. They are included to
provide investors and management with an alternative method for assessing our operating results in a manner that is focused
on the performance of our ongoing operations and to provide a consistent basis for comparison between periods. These non-
IFRS measures are not recognized measures under IFRS, and therefore they are unlikely to be comparable to similar measures
presented by other companies.
Management believes that in addition to sales, net earnings and cash provided by operating activities, these non-IFRS measures
are useful terms from which to determine Clearwater’s ability to generate cash for investment in working capital, capital
expenditures, debt service, income tax and dividends.
These non-IFRS measures include gross margin, adjusted EBITDA, free cash flows, leverage, adjusted earnings and return on
assets. Refer to non-IFRS measures, definitions and reconciliations for further information.
C Le a r w at e r oVe r Vi e w
Leading global provider of wild-caught shellfish
Clearwater is North America’s largest vertically integrated harvester, processor and distributor of premium shellfish. 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 with approximately 79 million pounds sold in 2015.
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.
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, 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 we
have no single customer representing more than 7% of total sales.
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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.
SeLeCt e d a n nUaL i nFo r m at i o n
(In 000’s except per share amounts)
For the year ended December 31
Sales
Gross margin
Net earnings (loss)
Basic and diluted earnings (loss) per share
$
2015
504,945
134,300
(20,671)
(0.65)
$
2014
444,742
102,834
9,797
(0.05)
$
2013
388,659
87,368
15,298
0.12
Adjusted EBITDA1
109,734
87,368
79,103
Adjusted earnings attributable to shareholders1
Adjusted earnings per share1
Total assets
Long term debt
43,457
0.76
753,195
480,769
22,571
0.41
464,397
273,041
15,692
0.31
410,796
257,325
C Le a r w at e r’ S m iS Si o n, V aL Ue Pr oPoSi t i o n a n d St r at e g i eS
Mission
Clearwater’s mission is to build the world’s most extraordinary, wild seafood company, dedicated to sustainable seafood
excellence.
We define:
• “extraordinary” as sustainable, profitable growth in revenue, margins, 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, langoustines 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.
In 2015, Clearwater reported record annual sales and adjusted EBITDA, marking its sixth consecutive year of reported growth,
resulting in not only achieving but surpassing its five year financial performance goal of $500 million in sales, and $100 million
in adjusted EBITDA, one year ahead of the original plan.
Over the last three years, Clearwater has made significant progress in all aspects of its mission. Revenues have increased
$116.3 million, or 30% since 2013. Adjusted EBITDA1 has grown at a 17.8% compound average annual growth rate over the
last three years. The increase over the last three years, in both sales and adjusted EBITDA resulted from strong sales prices in
home currencies for the majority of species, positive impact from higher average foreign exchange rates and the acquisition of
Macduff on October 30, 2015.
1 Refer to discussion on non-IFRS measures, definitions and reconciliations.
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Management’s Discussion and Analysis
Leverage1 has increased to 4.4x adjusted EBITDA at December 31, 2015 versus 3.3x at December 31, 2013 primarily due to the
investment in Macduff Shellfish, higher capital expenditures (net of designated borrowings) as well as the impact of a higher US
dollar exchange rate on USD denominated debt as the US dollar strengthened against the Canadian dollar in 2015. This is a
significant improvement over the approximate 5.3x leverage at the closing of the Macduff acquisition on October 30, 2015 and
we remain on target to further reduce leverage below 4.0x by year end 2016.
Value proposition
At Clearwater, we have a passion for wild seafood and strive to deliver a highly differentiated and competitively advantaged
value proposition to a global customer base. Key elements of Clearwater’s unique value proposition are:
• Great tasting, nutritious, highest quality, frozen-at-sea, premium shellfish.
• Expertise in premium shellfish science, harvesting, processing and logistics technology to ensure quality and safety from
“ocean to plate”.
• Marine Stewardship Council (“MSC”) certification for sustainability of species to ensure both the traceability and long term
health of our wild resource.
• Competitively advantaged global customer service with local market understanding and insight.
• Scale in license and quota ownership guaranteeing exclusive and stable supply to service 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. expanding access to supply – We will continue to actively invest in access to supply of core species and other complementary,
high demand, premium, wild and sustainably harvested seafood through improved utilization and productivity of core licenses
as well as acquisitions, partnerships, joint ventures and commercial agreements.
The investment in Macduff provides Clearwater with access to an incremental 15 million pounds of premium, wild-caught, safe,
traceable and complementary shellfish species including King and Queen scallops, langoustines, brown crab and whelk.
In late July 2015 Clearwater launched its new state-of-the-art factory clam vessel, the Belle Carnell. At CAD $65 million, it is
the largest vessel investment in Clearwater’s history and will harvest Arctic Surf Clams, Cockle Clams and Propeller Clams
year-round on the Grand Banks. The vessel joined Clearwater’s fleet in the fourth quarter of 2015 and significantly improves
utilization of existing licenses and quota in this Marine Stewardship Council (MSC) certified sustainable fishery. We expect the
Belle Carnell could contribute up to a 50% increase in total clam volume of all species in 2016 versus prior year.
2. target profitable and growing markets, channels and customers – Clearwater benefits from strong and growing global
demand for sustainably harvested, safe, traceable and premium wild seafood. In 2016, we will continue to segment and target
markets, consumers, channels and customers on the basis of size, profitability, demand for eco-label seafood and ability to
win. Our focus is to win in key channels and with customers that are winning with consumers.
In addition to increasing supply, Macduff provides Clearwater enhanced access to key distribution channels including food
service and grocery retail in multiple markets including the UK, France, Italy, Spain and Portugal.
3. innovate and position products to deliver superior customer satisfaction and value – We continue to work with customers
on new products and formats as we innovate and position our premium seafood to deliver superior satisfaction and value that’s
relevantly differentiated on the dimensions of taste, quality, safety, sustainability, wellness, convenience and fair labour practices.
The acquisition of Macduff also expands the product range Clearwater can make available to its large and growing customer
base – especially in Asia and the Americas. Macduff’s four major species – King and Queen Scallops as well as Whelk and
Brown Crab will benefit from expanded market and customer service/access as well as the sales and marketing strength of
the Clearwater brand and organization.
1 Refer to discussion on non-IFRS measures, definitions and reconciliations.
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Clearwater’s new product development (“NPD”) efforts have resulted in the significant growth, geographic and channel
distribution expansion of our higher pressure-processed frozen raw lobster including major air and cruise line as well major
retailers in the EU and Asia.
Northern Propeller clam, a species with historically limited market appeal has been transformed through NPD into a significant
source of incremental revenue and profit in both the Japanese and North American Sushi markets.
4. increase margins by improving price realization and cost management – In 2015 we began to implement our “ocean
to shelf” global supply chain. We will continue this work in 2016 capturing cost savings through the greater efficiency and
improved productivity of our global operations. This includes leveraging the scarcity of seafood supply versus increasing
global demand to continuously improve price realization, revenue and margins. It also includes investing in innovative state-
of-the-art technology, systems and processes that maximize value, minimize cost, reduce waste, increase yield and improve
quality, reliability and safety of our products and people.
The Macduff investment expands Clearwater’s North Atlantic harvesting operations and provides integrated UK-based
primary and secondary processing capabilities and expertise with land-based processing facilities in Scotland. Investments
in automated shucking continue to generate significant cost savings and productivity gains in our Canadian Sea Scallop
business. Our patented next generation live lobster storage and distribution system promises to improve quality, reduce
waste and significantly lower the operating costs in our lobster business. Early tests have already yielded a significant reduction
in mortality in storage and distribution – the single largest industry cost driver.
5. Pursue and preserve the long term sustainability of resources on land and sea – As a leading global supplier of wild-
harvested seafood – sustainability remains at the core of our business and our mission. Investing in the long term health
and the responsible harvesting of the oceans and the bounty is every harvester’s responsibility and the only proven way to
ensure access to a reliable, stable, renewable and long term supply of seafood. Sustainability is not just good business, like
innovation it’s in our DNA. That’s why Clearwater has been recognized by the Marine Stewardship Council (“MSC”) as a leader
in sustainable harvesting for wild fisheries and how Clearwater can offer the widest selection of sustainably-certified species
of any seafood harvester worldwide. In October 2015 Clearwater received an award from ESRI Canada, for our commitment
to sustainable business practices through the use of our geographic information system (“GIS”), which allows us to reduce our
impact on the ocean floor and more efficiently conduct our harvest operations.
Clearwater will continue to invest in science and sustainable harvesting technology and practices to add value to all fisheries
in which we participate in Canada, Argentina and the United Kingdom.
6. Build organizational capability, capacity and engagement – A high level of performance can only be achieved by a talented
and engaged global workforce at sea and on land, employing well communicated strategies and plans with measurable
objectives. It also requires an enduring commitment to invest in our people.
Macduff is one of the largest vertically integrated shellfish harvesters in the UK and creates a new growth platform for Clearwater
to complement our robust organic growth plans. Management is already evaluating multiple opportunities to fuel additional
growth which will provide opportunities to invest in, develop and engage our entire workforce in Canada and abroad.
CaP aBiLi t y t o d eLiVe r r eS U L tS
Clearwater’s revenues and earnings are dependent primarily on its ability to harvest, purchase, and market shellfish. Supply
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 as determined by the relevant government fishery management organizations. All
stocks are managed sustainably providing assurance of the long term availability of the resource, however annual fluctuations
in supply of a natural resource are normal. Short term impacts of such fluctuations can normally be offset within Clearwater’s
species portfolio and/or by making adjustments within each business unit.
The primary shellfish stocks that Clearwater harvests are Canadian sea, Argentine and UK scallops, clams, lobster and coldwater
shrimp, which are harvested in offshore fisheries that have a limited number of participants. Clearwater harvests 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. Clearwater obtains its supply of crab, whelk, and nephrops (langoustines)
entirely through purchases from independent fishermen.
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Clearwater Seafoods Incorporated 2015 Annual Report 23
Management’s Discussion and Analysis
• The sea scallop resource typically fluctuates within a stable range. Clearwater anticipates TACs within the normal range in
upcoming years. Clearwater lands virtually all its sea scallop quota each year and may from time to time harvest quotas for
other industry participants or purchase raw material supply from other industry participants.
• The arctic surf clam resource is stable. Clearwater has quota allocations on both Banquereau Bank and the Grand Banks.
Total annual landings are based upon the harvesting capacity of our three vessels.
• The argentine scallop volumes in 2016 are expected to be in line with recent years. Argentina is the first scallop fishery in
the world to have earned the rigorous Marine Stewardship Council (MSC) independent certification.
• Coldwater shrimp – The Northern shrimp TAC has declined from historic highs over the last five years and is expected to
continue to decline at a similar rate over the next five years. Clearwater holds access to quotas directly through licences and
through long term harvesting agreements. Clearwater procures shrimp from the inshore market for its cooked and peeled
business and supplements this with raw material from its offshore vessels.
• The offshore lobster resource is healthy with a consistent offshore TAC and the inshore resource continues to support abundant
catches. Clearwater harvests virtually all its lobster quota each year. During 2015, Clearwater purchased approximately 80%
of its lobster from inshore lobster fishermen.
• The UK scallop landings are stable, with total 2015 landings coming down slightly from the recent high levels. The fishery is
managed under a combination of effort days, gear regulation and minimum landing size which vary by area.
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 to complete research and development. The Company now operates a fleet of 13
scallop trawlers in the UK.
Excluding the fleet acquired through the acquisition of Macduff, Clearwater spent the following on capital expenditures and
repairs and maintenance over the last three years:
(In 000’s)
For the years ended December 31
Vessels
Plants and other
Return on investments capital
Maintenance capital
Maintenance capital
Repairs and maintenance
Depreciation/Amortization
Maintenance spending as a % of depreciation
$
$
$
$
$
$
$
2015
49,748
13,642
$
2014
72,700
10,609
$
2013
17,025
6,788
Total
$
139,473
31,039
63,390
$
83,309
$
23,813
$
170,512
50,370
13,019
$
60,417
22,892
$
6,346
17,469
$
117,133
53,380
63,389
$
83,309
$
23,815
$
170,513
13,019
19,714
$
22,892
14,149
$
17,469
13,144
$
53,380
47,007
32,733
$
37,041
$
30,613
$
100,387
29,732
110.1%
$
23,753
155.9%
$
24,167
126.7%
$
77,652
129.3%
In 2015 Clearwater invested $63.4 million in capital expenditures. Of these amounts, $26 million relating to the construction of
the new clam vessel, $7 million for the purchase and conversion of a research vessel, $18 million related to maintenance capital
investments and $12 million to improve operational efficiencies in our plants and information systems.
This investment in the new clam harvesting vessel will drive growth in Clearwater’s clam business by expanding access to clam
supply by approximately 50%.
In 2014 Clearwater had a record investment in capital expenditures of $83.3 million. Capital expenditures included $36.4 million
related to the construction of the clam harvesting vessel.
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In 2014 Clearwater invested $16.7 million to complete the conversion of an Argentine scallop vessel which began harvesting
early in the first quarter of 2015. Additional investments in 2014 included $7.3 million for an enterprise resource planning system
(“ERP”) which was completed in early 2016, $18.2 million on refits including $12.5 million for a life extending refit of a shrimp
vessel and $4.7 million on other planned maintenance.
In 2013, Clearwater completed refits on its vessels of approximately $9.3 million. Additional vessel conversion costs included
$2.7 million on a new clam vessel and $5.0 million related to a scallop vessel.
In addition to the annual amounts capitalized above, Clearwater historically has spent and expensed on average about
$15.7 million a year over the past three years 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 nine factory vessels located within Canada and Argentina. These vessels are
used in the harvesting of Canadian scallops, Argentine scallops, shrimp and clams.
Of the nine factory vessels:
• Two are used to harvest shrimp and are on average 22 years old. These vessels have a capacity to harvest 14,000 to 18,000
metric tons of our 20,000 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 Clearwater invested $12.5 million in a late-life refit, thereby extending its useful life.
• Four are used to harvest sea and bay scallops with the sea scallop vessels being on average 18 years old and the bay
scallop vessels being on average 20 years old. In 2014, one of the idle vessels was converted from harvesting sea scallops
to harvesting bay scallops and began operations in early 2015.
• Three of Clearwater’s vessels are used to harvest clams and are on average 18 years old. These vessels are harvesting at
capacity. In 2015, Clearwater completed construction of a new clam harvesting vessel which was operational in the third
quarter of 2015 with product reaching the market in the fourth quarter of 2015.
With the acquisition of Macduff, Clearwater’s fleet now includes 13 mid-shore scallop harvesting vessels within the UK with
average useful lives between 5–15 years.
In 2016 Clearwater expects to invest approximately $30 million in capital expenditures with the largest portion relating to vessel
maintenance and refits.
k e y Pe rFo r m a nCe i n d iCat o rS
(In 000’s of Canadian dollars)
As at December 31
Profitability
Adjusted EBITDA
Adjusted EBITDA (as a % of sales)
Sales
Sales growth
Free Cash Flows and Leverage targets
Free cash flows
Leverage
returns
Return on assets
2015
2014
2013
$
$
$
109,734
21.7%
504,945
13.5%
39,089
4.4
$
$
$
87,368
19.6%
444,742
14.4%
30,856
3.3
$
$
$
79,103
20.4%
388,659
10.9%
26,121
3.3
12.5%
13.7%
13.4%
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Clearwater Seafoods Incorporated 2015 Annual Report 25
Management’s Discussion and Analysis
2015 Financial Achievements
Clearwater reported record annual sales and adjusted EBITDA for 2015, marking its sixth consecutive year of reported growth,
resulting in not only achieving but surpassing its five year financial performance goal of $500 million in sales, and $100 million
in adjusted EBITDA, one year ahead of the original plan.
In 2015 Clearwater reported record sales of $504.9 million and adjusted EBITDA1 of $109.7 million versus 2014 comparative
figures of $444.7 million and $87.4 million.
Sales increased by $60.2 million, or 13.5%, in 2015 as a result of strong sales prices in home currencies for the majority of
species which increased sales by $46.2 million, a $33.6 million positive impact from higher average foreign exchange rates and
$27 million due to the acquisition of Macduff on October 30, 2015 offset partially by lower volumes.
In July 2015, Clearwater completed its state-of-the-art clam vessel, the Belle Carnell, increasing harvesting capacity for the
fourth quarter of 2015, partially offsetting the decline in sales volumes for clams during the year.
On October 30, 2015 Clearwater successfully completed the acquisition of 100% of the shares of Macduff Shellfish Group
Limited (“Macduff”) for CAD $206 million (£101 million), one of Europe’s leading wild shellfish companies. Macduff expands our
access to supply by more than 15 million pounds and further diversifies our access in wild shellfish.
Free cash flow1 improved by $8.2 million to $39.1 million in 2015 due to higher adjusted EBITDA partially offset by a reduction
in working capital from higher levels of inventory at the end of 2015, higher costs per pound and an increase in inventory from
the acquisition of Macduff.
As of December 31, 2015 leverage increased to 4.4x from 3.3x as of December 31, 2014 primarily due to the investment
in Macduff Shellfish, higher capital expenditures (net of designated borrowings) as well as the impact of a higher US dollar
exchange rate on USD denominated debt as the US dollar strengthened against the Canadian dollar in 2015. This is a significant
improvement from approximately 5.3x leverage at the closing of the acquisition of Macduff on October 30, 2015 and we remain
on target to further reduce leverage below 4.0x by year end 2016.
Return on assets declined to 12.5% in 2015 as a result of the timing of the investment in Macduff. The full investment is
included in the assets whereas earnings only include the two months of earnings from the acquisition date of October 30, 2015
to December 31, 2015.
We are pleased with our results for 2015 and particularly satisfied to exceed our five-year strategic plan goals of $500 million
in revenue and $100 million in adjusted EBITDA one year ahead of our original timetable.
Strong global demand across all markets and species will continue to be a key driver for our business in 2016.
Looking forward, we expect to see significant volume growth in 2016 associated with the acquisition of Macduff, the expansion
of our clam fleet and expanded procurement of core species.
1 Refer to discussion on non-IFRS measures, definitions and reconciliations.
26
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eX P La n at i o n oF 2 0 1 5 a n nUaL e a r n i n gS
Overview
The following statements reflect the results of Clearwater for the years ended December 31, 2015 and 2014:
(In 000’s of Canadian dollars)
Year ended December 31
Sales
Cost of goods sold
Gross margin
Amortization of fair value adjustment to inventory and fixed assets
from acquisition of Macduff1
Reported gross margin per the annual financial statements
Administrative and selling
Finance costs
Foreign exchange loss on forward contracts
Other expense (income)
Research and development
Earnings (loss) before income taxes
Income tax expense
(Loss) earnings
Earnings (loss) attributable to:
Non-controlling interest
Shareholders of Clearwater
2015 annual earnings
$
2015
504,945
370,645
134,300
26.6%
$
2014
444,742
341,908
102,834
23.1%
2,112
—
132,188
102,834
51,363
68,204
26,480
444
1,981
148,472
(16,284)
4,387
48,252
35,240
6,636
(5,031)
1,991
87,088
15,746
5,949
$
(20,671)
$
9,797
$
16,937
(37,608)
$
12,702
(2,905)
$
(20,671)
$
9,797
Clearwater reported record annual sales and adjusted EBITDA for 2015, marking its sixth consecutive year of reported growth,
resulting in not only achieving but surpassing its five year financial performance goal of $500 million in sales, and $100 million
in adjusted EBITDA, one year ahead of the original plan.
Clearwater reported record sales for 2015 of $504.9 million and adjusted EBITDA2 of $109.7 million, versus 2014 comparative
figures of $444.7 million and $87.4 million, respectively.
Sales increased by $60.2 million, or 13.5%, in 2015 as a result of strong sales prices in home currencies for the majority of
species which increased sales by $46.2 million, a $33.6 million positive impact from higher average foreign exchange rates and
$27 million due to the acquisition of Macduff on October 30, 2015 offset partially by lower volumes.
Harvest costs and sales volumes were negatively impacted by challenging weather conditions both at sea and on land during the
first half of 2015. The impact of these weather conditions was to delay harvesting operations and scheduled vessel maintenance
for our clam fleets. In addition, expected reductions in the total allowable catch for the year for sea scallops reduced available
supply. Finally lower catch rates as well as harvesting delays with a new Argentine vessel contributed to the decline in Argentine
scallop sales volumes.
In July 2015, Clearwater completed its state-of-the-art clam vessel, the Belle Carnell, increasing harvesting capacity for the
fourth quarter of 2015, partially offsetting the decline in sales volumes for clams during the year.
1 The amortization of fair value adjustments related to inventory and depreciation result from IFRS requirements for purchase price accounting on the
acquisition of Macduff. As a result, the $2.1 million has been excluded from all analysis of cost of goods sold and gross margin.
2 Refer to discussion on non-IFRS measures, definitions and reconciliations.
Clearwater Seafoods Incorporated 2015 Annual Report 27
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Management’s Discussion and Analysis
On October 30, 2015 Clearwater successfully completed the acquisition of 100% of the shares of Macduff Shellfish Group
Limited (“Macduff”) for CAD $206 million (£101 million), one of Europe’s leading wild shellfish companies. Macduff expands our
access to supply by more than 15 million pounds and further diversifies our access in wild shellfish.
The 2015 annual results include two months of activity for Macduff which equates to CAD $27 million in sales and CAD $4.5 million
in adjusted EBITDA, from access to diversified complementary species including King and Queen scallops, langoustine, brown
crab and whelk, the majority of which is sold within the European market.
Macduff operations experience a similar predictable seasonal pattern as Clearwater in which sales, margins and adjusted
EBITDA are higher in the second half of the year whereas investments in working capital are lower, resulting in higher free cash
flows and lower leverage in the second half of the year.
Excluding the acquisition of Macduff and the related amortization of the fair value adjustments to inventory and depreciation,
the growth in sales, margins and adjusted EBITDA was driven by strong market demand that provided higher sales prices
for the majority of species as well as strengthening foreign exchange rates for the US dollar against the Canadian dollar. The
record sales and adjusted EBITDA were achieved despite lower sales volumes. These higher foreign exchange rates had a
$33.6 million positive impact on sales and gross margin in 2015. The positive impact from foreign exchange on gross margin
was partially offset by lower sales volumes, higher harvesting costs for scallops and higher procurement costs for scallops,
lobster, and shrimp.
Free cash flow1 improved by $8.2 million to $39.1 million in 2015 due to higher adjusted EBITDA partially offset by additional
investment in working capital from higher levels of inventory at the end of 2015, higher costs per pound and an increase in
inventory from the acquisition of Macduff.
Higher non-operational losses of $48.8 million (refer to the following table) were primarily a result of an increase in non-cash
unrealized foreign exchange losses from the translation of the US dollar denominated debt as the US dollar strengthened
against the Canadian dollar. In addition acquisition related costs, including $2.1 million of amortization on fair value adjustments
for inventory and depreciation resulting from IFRS requirements on purchase price accounting for the acquisition of Macduff,
increased non-operational losses for 2015.
2015
2014
Change
$
(20,671)
$
9,797
$
(30,468)
(In 000’s of Canadian dollars)
Year ended December 31
Earnings (loss)
Changes due to operational items:
Higher gross margin
Higher administrative and selling
Higher interest expense
Higher realized foreign exchange losses
Changes due to non-operational items:
Higher debt arrangement costs
Higher unrealized foreign exchange losses on debt and working capital
Lower deferred income tax expense
Amortization of fair value adjustments for inventory and depreciation
Acquisition related costs
Fair value adjustments on convertible debentures and embedded derivative
All other
1 Refer to discussion on non-IFRS measures, definitions and reconciliations.
28
Clearwater Seafoods Incorporated 2015 Annual Report
31,466
(3,111)
(4,620)
(3,904)
19,831
(408)
(44,765)
873
(2,112)
(3,240)
889
(48,763)
(1,536)
$
(30,468)
Clearwater_AR2015_Financials_FINAL.indd 28
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Sales by region
(In 000’s of Canadian dollars)
Year ended December 31
Europe
China
Japan
Other Asia
Asia
United States
Canada
North America
Other
europe
2015
2014
Change
%
$
183,881
$
149,616
$
34,265
95,140
66,401
18,113
73,308
57,496
15,494
179,654
146,298
80,668
58,696
84,943
61,668
139,364
146,611
21,832
8,905
2,619
33,356
(4,275)
(2,972)
(7,247)
2,046
2,217
(171)
$
504,945
$
444,742
$
60,203
22.90
29.78
15.49
16.90
22.80
(5.03)
(4.82)
(4.94)
(7.71)
13.54
Europe is Clearwater’s largest scallop market and it is an important market for coldwater shrimp, langoustines, crab and lobster
products. With the acquisition of Macduff Shellfish Group Limited (“Macduff”) on October 30, 2015, Europe is now our most
diverse market, where a wide variety of products are sold.
European sales increased $34.3 million to $183.9 million for 2015 as compared to 2014, primarily as a result of the acquisition
of Macduff.
The acquisition provided an additional CAD $27 million in sales, from access to species including King and Queen scallops,
langoustine, brown crab and whelk, the majority of which is sold within the European market.
In addition higher sales volumes for lobster and strong market demand that improved sales prices for scallops and shrimp also
contributed to the increase in sales.
Lower available supply for Argentine scallops and shrimp reduced sales volumes, as supply was sold to higher yielding markets
partially offsetting the increase in sales in Europe.
Sales, which were primarily transacted in the Euro1, GBP, the US dollar and DKK, were positively impacted by $0.5 million due
to higher foreign exchange rates. The Euro declined 1.5% relative to the Canadian dollar from 1.460 in 2014 to 1.438 in 2015
and the UK pound improved 9.8% relative to the Canadian dollar from 1.815 in 2014 to 1.993 in 2015.
China
China is an important market for clams, coldwater shrimp, lobster, turbot and scallops.
Sales to customers in China increased $21.8 million, or 29.8%, to $95.1 million due to higher foreign exchange rates and strong
market demand that increased sales prices for clams, sea scallops and shrimp.
Chinese sales are almost exclusively transacted in US dollars. The US dollar strengthened against the Canadian dollar in 2015
positively impacting sales by $12.1 million as average foreign exchange rates1 for the US dollar strengthened against the
Canadian dollar by 17.5% to 1.296 in 2015.
Changes in product mix for clams and lobster that were weighted towards products with higher sales prices also contributed
to the increase in sales.
Sales were partially offset by a reduction in sales volumes from lower available supply for clams as product was sold in higher
yielding markets.
1 Refer to discussion on risks and uncertainties.
Clearwater Seafoods Incorporated 2015 Annual Report 29
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Management’s Discussion and Analysis
Japan
Japan is an important market for clams, lobster, coldwater shrimp and turbot.
Sales to customers in Japan increased $8.9 million, or 15.5%, to $66.4 million in 2015 primarily as a result of strong demand
for shrimp and turbot that increased sales volumes and prices.
Higher sales prices for clams and changes in sales mix for lobster that were weighted towards products with higher sales prices
also contributed to the increase in sales.
Reductions in available supply for clams and changes in sales mix weighted towards products with lower sales prices for clams
partially offset the increase in sales. The completion of the state-of-the-art clam vessel, the Belle Carnell in July 2015, increased
harvesting capacity for the fourth quarter, partially offsetting the reduction in available supply.
other asia
The other Asia region includes Korea, Taiwan, Singapore and other Asian countries. These Asian countries are an important
market for clams, shrimp and turbot.
Sales in this region increased $2.6 million to $18.1 million for 2015 in comparison to the same period in 2014 primarily as a result
of strong market demand that increased sales prices for scallops and clams and higher average foreign exchange rates as the
US dollar strengthened against the Canadian dollar.
Sales were positively impacted by $0.9 million in 2015 due to higher average foreign exchange1 rates for the US dollar. Average
foreign exchange rates for the US dollar increased by 17.5% to 1.296 in 2015.
United States
The United States is an important market for scallops, coldwater shrimp, lobster and clams.
Sales in the United States decreased $4.3 million, or 5.0% to $80.7 million primarily as a result of a reduction in available supply
for scallops.
The reduction in available supply for sea scallops was primarily a result of expected reductions in available total allowable catch
for the year.
Lower catch rates for Argentine scallops in 2015 and changes in sales regions for sea scallops to higher yielding markets
contributed to the reduction in available supply.
The decline in sales volumes for scallops was partially offset by an improvement in foreign exchange rates and strong demand
that increased sales prices for clams and scallops.
Sales were positively impacted by $12.0 million in 2015 due to stronger foreign exchange rates as average rates for the US dollar
strengthened against the Canadian dollar. Average foreign exchange rates for the US dollar increased by 17.5% to 1.296 in 2015.
Canada
Canada is a large market for lobster, scallops and coldwater shrimp.
Sales in Canada decreased $3.0 million, or 4.8% primarily as a result of a reduction in sales volumes for sea scallops and lobster.
Sales volumes for sea scallops declined in 2015 due to lower available supply and changes in sales mix as product was sold
in higher yielding markets.
Strong sales prices for sea scallops, clams and snow crab partially offset the decline in sales.
1 Refer to discussion on risks and uncertainties.
30
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Sales by species1
(In 000’s of Canadian dollars)
Year ended December 31
Scallops
Coldwater shrimp
Lobster
Clams
Crab
Ground fish and other shellfish
Langoustine
$
2015
165,544
109,963
92,589
84,350
26,141
18,485
7,873
$
2014
163,705
93,742
78,186
72,774
20,985
15,350
0
$
Change
1,839
16,221
14,403
11,576
5,156
3,135
7,873
$
504,945
$
444,742
$
60,203
%
1.1
17.3
18.4
15.9
24.6
20.4
100.0
13.5
Sales increased $60.2 million, or 13.5%, for 2015 versus the same period of 2014 as a result of strong sales prices in home
currencies for the majority of species which increased sales by $46.2 million, a $33.6 million positive impact from higher average
foreign exchange rates and $27 million due to the acquisition of Macduff on October 30, 2015 offset partially by lower volumes.
The acquisition provided an additional CAD $27 million in sales for the year ended December 31, 2015, from access to diversified
complementary species including King and Queen scallops, langoustine, brown crab and whelk, the majority of which is sold
within the European market.
The increase in sales was partially offset by a reduction in available supply for both sea and Argentine scallops. The reduction
in available supply for sea scallops was primarily a result of expected reductions in the total allowable catch for the year. Finally
lower catch rates as well as harvesting delays with a new Argentine vessel contributed to the decline in Argentine scallop sales
volumes.
Cost of goods sold
(In 000’s of Canadian dollars)
Year ended December 31
Harvesting and procurement
Manufacturing
Depreciation
Transportation
Administration
$
2015
264,859
44,046
28,872
20,767
12,101
$
2014
245,724
36,690
24,139
22,720
12,635
$
Change
19,135
7,356
4,733
(1,953)
(534)
$
370,645
$
341,908
$
28,737
%
7.8
20.0
19.6
(8.6)
(4.2)
8.4
Cost of goods sold increased $28.7 million or 8.4% to $370.6 million primarily as a result of the acquisition of Macduff and an
increase in harvesting and procurement costs for lobster, shrimp and scallops.
Excluding the increase in cost of goods sold as a result of the acquisition of Macduff, cost of goods sold declined $1.5 million
during 2015 in comparison to the same period in 2014, primarily as a result of lower sales volumes for scallops. The decline in
sales volumes was a result of a reduction in available supply for both sea and Argentine scallops. The reduction in available supply
for sea scallops was primarily a result of expected reductions in the total allowable catch for the year. Finally lower catch rates as
well as harvesting delays with a new Argentine vessel contributed to the decline in Argentine scallop sales volumes.
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.
Higher harvesting costs per pound for 2015 were as a result of a reduction of available supply that lowered catch rates for scallops.
In addition higher procurement costs for sea scallops, lobster and shrimp increased costs per pound.
1 Refer to discussion on risks and uncertainties.
Clearwater Seafoods Incorporated 2015 Annual Report 31
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Management’s Discussion and Analysis
Fuel costs for our vessels declined $5.4 million in 2015 to $19.6 million as a result of a reduction in litres consumed by the
scallop vessels and lower costs/litre. Scheduled refits reduced our fishing effort for scallops and poor weather conditions delayed
harvesting and refit work for most species increasing costs per pound in the first quarter of 2015. In addition harvesting delays
for the new Argentine scallop vessel contributed to the reduction in litres consumed. Finally the average price per litre of fuel
declined by $0.14 per litre to an average of $0.74/litre for 2015 in comparison to the same period of 2014. Clearwater’s vessels
used approximately 26.6 million litres of fuel in 2015 (excluding the consumption from the vessels acquired in the Macduff
acquisition). Based on 2015 fuel consumption, a one-cent per litre change in the price of fuel would impact harvesting costs
by approximately $0.3 million.
Clearwater uses Marine Diesel in its harvesting operations, the price of which does not correlate closely to publicly available
measures such as the price of a barrel of oil. This is due to a number of factors including but not limited to the nature of the
fuel used, the geographic locations in which Clearwater purchases fuel and the currency in which Clearwater purchases fuel.
manufacturing includes labour costs related to the production and selling of goods, plant utilities and supplies. Labour costs
increased as a result of rising wages, salaries and benefits and increased production of certain species.
depreciation from assets used in the harvesting and production of goods increased in 2015 as a result of vessel refits and
investments in plants and vessels that were completed in the last half of 2014 and 2015.
transportation costs include freight, customs and duties related to the transfer of goods to market. Transportation costs
decreased $2.0 million as a direct result of the decline in sales volumes in 2015.
administrative overheads include salaries and benefits, professional and consulting fees and management fees attributable to
the harvesting and production of goods. Refer to the administrative and selling section for further information.
Gross margin
Gross margin as a percentage of sales improved from 23.1% in 2014 to 26.6% for 2015.
Excluding the results from the acquisition of Macduff, the growth in margins was driven by strong market demand that provided
higher sales prices for the majority of species as well as strengthening foreign exchange rates for the US dollar against the
Canadian dollar. These higher foreign exchange rates had a $33.6 million positive impact on sales and gross margin in 2015.
The positive impact from foreign exchange on gross margin was partially offset by higher harvesting costs for scallops, higher
procurement costs for scallops, lobster, and shrimp and a reduction in available supply for scallops.
Year ended December 31
Currency
US dollars
Euros
Japanese Yen
Danish Kroner
UK pounds
Canadian dollar and other
2015
average
rate realized
1.296
1.438
0.011
0.192
1.993
% sales
43.2%
22.7%
10.0%
6.4%
5.6%
12.1%
100.0%
% sales
46.5%
20.5%
9.8%
3.7%
4.4%
15.1%
100.0%
2014
Average
rate realized
1.103
1.460
0.010
0.196
1.815
Change
in rate
17.5%
(1.5%)
10.0%
(2.0%)
9.8%
0.0%
0.0%
32
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Administrative 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
Reorganizational costs
Selling costs
Travel
Occupancy
Allocation to cost of goods sold
$
$
2015
34,941
5,270
40,211
7,600
4,815
3,150
2,949
2,940
1,569
(11,871)
$
2014
30,141
8,948
39,089
6,790
3,825
3,818
3,105
2,384
1,416
(12,175)
Change
4,800
(3,678)
1,122
810
990
(668)
(156)
556
153
304
$
51,363
$
48,252
$
3,111
%
15.9
(41.1)
2.9
11.9
25.9
(17.5)
(5.0)
23.3
10.8
(2.5)
6.4
administrative and selling increased $3.1 million, or 6.4%, to $51.4 million for 2015 primarily as a result of the inclusion of
two months of administrative salaries and general administrative costs for Macduff and increases in salaries and benefits and
professional fees, partially offset by a decline in share based incentive compensation.
Excluding the impact on administrative and selling from the acquisition of Macduff, salaries and benefits increased primarily
as a result of new hires in senior management and other staff as well as higher compensation and benefit costs.
Share based incentive compensation is primarily driven by changes in Clearwater’s share price, performance against
Clearwater’s peer group and the number of outstanding share based grants outstanding.
Share based compensation expense decreased $3.7 million primarily as a result of a decrease in the number of share based
grants outstanding in 2015 versus 2014 as the service period for one of the tranches was completed and cash settled for
approximately $9.0 million in the first quarter of 2015.
Consulting and professional fees include operations, management, legal, audit and accounting, insurance and other specialized
consulting services. Costs increased $0.8 million in 2015 as a result of higher consulting fees from changes to Clearwater’s
network infrastructure and costs related to our Enterprise Resource Planning system (“ERP”) conversion.
other includes a variety of administrative expenses such as communication, other service fees and depreciation, all of which
will vary from year to year.
reorganizational costs for 2015 included a provision for severance related to certain executives for long term employees
affected by reorganization at our head office along with retirements for members of the executive management. The largest
portion of the expenditures in 2014 relates primarily to a write down on goodwill associated to non-core species.
Selling costs include advertising, marketing, trade shows, samples, product development and bad debt expenses.
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.
Finance costs
(In 000’s of Canadian dollars)
Year ended December 31
Interest and bank charges
Amortization of deferred financing charges and accretion
Interest
Fair value adjustment on embedded derivative
Foreign exchange on debt and working capital
Debt refinancing fees
$
$
2015
19,002
1,334
20,336
(2,118)
49,478
508
2014
14,938
778
15,716
(1,229)
20,653
100
$
68,204
$
35,240
Clearwater Seafoods Incorporated 2015 Annual Report 33
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Management’s Discussion and Analysis
interest and bank charges increased $4.6 million for 2015 as compared to 2014 due to higher exchange rates on the US
dollar denominated debt, which in turn increased interest expense when converted into Canadian dollars. Clearwater had
approximately USD $197 million US dollar denominated debt outstanding as at December 31, 2015.
Loan facilities were higher in 2015 as on October 30, 2015 Clearwater financed the cash portion of the Macduff acquisition
from existing loan facilities including:
• CAD $75 million increase in its Term Loan B facility
• CAD $25 million increase in its Revolving Loan Facility
• CAD $51 million borrowing on its existing Revolving Loan Facility and cash on hand
These additional borrowings increased interest expense in the fourth quarter of 2015.
The fair value adjustment on the embedded derivatives on Term Loan B relates to a Libor floor provision in the loan agreement
and the earnings impact represents the change in the estimated fair values.
Foreign exchange on financing and working capital
(In 000’s of Canadian dollars)
Year ended December 31
Realized (gain) loss
Working capital and other
Unrealized loss
Foreign exchange on long term debt and working capital
2015
2014
$
(1,690)
$
1,172
51,168
19,481
$
49,478
$
20,653
Foreign exchange losses1 on financing and working capital increased by $28.8 million to $49.5 million in 2015. The increase
was a result of higher unrealized foreign exchange losses on the translation of the $197 million US dollar denominated debt as
foreign exchange rates for the US dollar strengthened 20% against the Canadian dollar compared to 2014.
The realized foreign exchange gain from working capital in 2015 is primarily a result of higher foreign exchange rates realized
on net US dollar working capital assets as the US dollar strengthened against the Canadian dollar in 2015.
Losses on forward contracts, interest rate and cross-currency swaps, caps and floors
(In 000’s of Canadian dollars)
Year ended December 31
Realized loss
Forward foreign exchange contracts
Unrealized loss (gain)
Forward foreign exchange contracts
Interest rate and cross-currency swaps, caps and floors
2015
2014
$
15,595
$
8,829
11,168
(283)
10,885
(4,782)
2,589
(2,193)
$
26,480
$
6,636
Losses1 on forward contracts, interest rate and cross-currency swaps, caps and floors increased $19.8 million to
$26.5 million in 2015 due to higher realized and unrealized foreign exchange losses.
The increase in realized losses on forward contracts of $6.8 million in 2015 to $15.6 million was primarily a result of US dollar
contracts for which the contracted rates were lower than the spot rate for 2015 as the US dollar strengthened by approximately
20% versus the Canadian dollar in 2015.
The increase in unrealized losses on forward contracts of $16.0 million in 2015 relates primarily to US dollar, Euro and Yen
forward contracts for which the spot rate is greater than the contracted rate, as these foreign exchange rates strengthened
against the Canadian dollar during 2015.
1 Refer to discussion on risks and uncertainties.
34
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The increase in unrealized gains on interest rate and cross-currency swaps, caps and floors was a result of an unrealized gain
on the cross-currency swap that Clearwater entered into in the third quarter of 2015, whereby USD $75 million was swapped
into CAD at a fixed rate of 1.32 and a maturity date of June 26, 2018. The gain was offset by unrealized losses on the interest
rate swaps from changes in relative future interest rates.
Clearwater’s foreign exchange hedging program is designed to enable Clearwater to reduce uncertainty regarding exchange
rates on sales receipts by locking in up to 75% of annual net foreign exchange exposure. Clearwater does this by entering into
a series of foreign exchange contracts that mature throughout the fiscal year and that provide for a fixed exchange rate on a
portion of sales receipts. In a rising exchange rate environment such as the one we are currently in where spot rates are higher
than contract rates, Clearwater realizes higher exchange rates on sales but it is required to remit the excess of the spot rate
received on sales receipts over the contract rate to the counterparty on the portion of sales that it has hedged.
Currently Clearwater does not apply hedge accounting and as a result unrealized gains and losses were recorded in earnings
for differences between the contracted rate and the spot rate.
Should the current environment of a stronger US dollar versus the Canadian dollar persist1 it would have a positive impact
on sales but the hedging program would offset a portion of those gains and reduce the positive impact on adjusted EBITDA.
However, looking forward, Clearwater will realize the benefit of such higher rates as hedging contracts that it is entering now
are at rates closer to current spot rates.
Other expense (income)
(In 000’s of Canadian dollars)
Year ended December 31
Share of earnings of equity-accounted investee
Royalties, interest and other fees
Acquisition related costs
Other fees
$
$
2015
(2,591)
(664)
3,240
459
2014
(2,987)
(844)
—
(1,200)
$
444
$
(5,031)
Acquisition related costs relate to due diligence and other project costs incurred for the investment in Macduff.
Other fees increased from other income of $1.2 million to a loss of $0.5 million. Other expenses for 2015 included one-time
payments for a contract initiation and the transfer of technology rights partially offset by Scientific Research and Experimental
Development (“SR&ED”) claims recovered during the year.
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.
Deferred tax assets have been recognized based on management’s estimate that it is more likely than not that Clearwater will
earn sufficient taxable profit to utilize these losses.
Earnings attributable to non-controlling interest
Non-controlling interest relates to minority share of earnings from Clearwater’s majority investments in subsidiaries in Argentina,
Nova Scotia and Newfoundland and Labrador.
The increase in earnings attributable to non-controlling interest of $4.2 million for 2015 relates primarily to strong market demand
that increased sales prices for shrimp as well as higher average foreign exchange rates.
1 Refer to discussion on risks and uncertainties.
Clearwater Seafoods Incorporated 2015 Annual Report 35
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Management’s Discussion and Analysis
It is important to note that a large portion of the earnings attributable to non-controlling interest relates to Clearwater’s interest
in a partnership and as such taxes are included in earnings attributable to shareholders, whereas the earnings attributable to
non-controlling interest are not tax effected.
For those readers that would like to understand the breakdown of adjusted EBITDA attributable to non-controlling interest and
shareholders please refer to the reconciliation of adjusted EBITDA within the non-IFRS measures, definitions and reconciliations
section of the MD&A.
Earnings (loss) attributable to shareholders
Earnings (loss) attributable to shareholders of Clearwater increased $34.7 million to a loss of $37.6 million in 2015 primarily as
a result of an increase in non-cash adjustments for unrealized foreign exchange loss for the US dollar denominated debt as the
US dollar strengthened against the Canadian dollar.
Adjusted earnings attributable to shareholders
To assist readers in estimating our earnings we have included a calculation of adjusted earnings. Management believes that in
addition to earnings and cash provided by operating activities, adjusted earnings is a useful supplemental measure from which
to determine Clearwater’s earnings from operations and ability to generate cash available for debt service, working capital,
capital expenditures, income taxes and dividends.
For those readers that would like to understand the calculation of adjusted earnings please refer to the reconciliation of adjusted
earnings within the non-IFRS measures, definitions and reconciliations section of the MD&A.
Adjusted earnings attributable to Clearwater’s shareholders increased $20.9 million to $43.5 million primarily as a result of
improvements in gross margin of $31.5 million excluding the impact of the amortization of the fair value adjustments required
by IFRS for purchase price accounting.
Excluding the results from the acquisition of Macduff the growth in margins was driven by strong market demand that provided
higher sales prices for the majority of species as well as strengthening foreign exchange rates for the US dollar against the
Canadian dollar. The improvements in gross margin were partially offset by lower sales volumes for scallops as a result of lower
available total allowable catch.
The improvements in adjusted earnings were partially offset by an increase in realized foreign exchange losses on working
capital and foreign exchange contracts.
As a result, adjusted earnings per share increased from $0.41 per share in 2014 to $0.76 per share in the same period of 2015.
C aPi taL St rU CtUr e
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 maintain adequate liquidity while obtaining the lowest cost of capital available, maintaining
flexibility and managing both exchange and interest rate risk by borrowing when appropriate in currencies other than the
Canadian dollar and fixing a portion of the interest rates on its debt.
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 adjusted EBITDA less net earnings attributable to minority interest.
Adjusted EBITDA 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,
and selling surplus assets to repay debt.
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Clearwater’s capital structure was as follows as at December 31, 2015 and 2014:
(In 000’s of Canadian dollars)
As at December 31
equity
Common shares
Contributed surplus
Retained earnings
Cumulative translation account
Non-controlling interest
Long term debt
Senior debt, non-amortizing
Revolving debt, due in 2018
Term loan, due in 2016
Term loan, due in 2091
Senior debt, amortizing
Term Loan A, due 2018 (net of deferred financing charges of $0.1 million)
Delayed Draw term Loan A, due 2018 (net of deferred financing charges of $0.6 million)
Term Loan B, due 2019 (including embedded derivative,
net of deferred financing charges of $1.6 million)
Marine mortgage, due in 2017
Multi-currency revolving facility
Other loans
Deferred Obligation
Earnout
Total long term debt
Total capital
$
2015
2014
157,161
547
(36,333)
(1,625)
119,750
29,325
149,075
16,400
13,953
3,500
33,853
26,889
28,673
335,024
457
—
277
391,320
43,035
12,561
$
97,267
—
11,084
(5,326)
103,025
24,962
127,987
—
11,595
3,500
15,095
28,950
(608)
228,211
1,030
21
342
257,946
—
—
480,769
273,041
$
629,844
$
401,028
There are 59,958,998 shares outstanding as of December 31, 2015 (December 31, 2014 – 54,978,098).
On June 30, 2015, Clearwater issued 3,755,900 shares on a bought deal basis at $12.25 per Share yielding gross proceeds
of approximately $46 million. Concurrently, Clearwater completed a non-brokered private placement with certain existing
shareholders for 1,225,000 shares at $12.25 per share for gross proceeds of approximately $15 million. The total gross proceeds
from the offering were approximately $61 million and the proceeds net of expenses were $58.6 million.
This followed a share issuance completed in February 2014 in which Clearwater completed the issuance of 4,029,400 common
shares at a price of $8.50 per share, for gross proceeds of approximately $34 million.
Long term debt consists of a revolving loan, non-amortizing and amortizing senior debt, a Deferred Obligation and Earnout:
• The revolving loan allows Clearwater to borrow a maximum of CAD $100 million (denominated in either Canadian or the US
dollar equivalent) and it matures in June 2018. The balance was $16.4 million at December 31, 2015 (December 31, 2014 –
$nil). The CAD 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 availability on this loan is reduced by the amount outstanding on a US $10 million non-amortizing
term loan and as such the availability as at December 31, 2015 was $69.6 million (December 31, 2014 – $63.4 million).
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Clearwater Seafoods Incorporated 2015 Annual Report 37
Management’s Discussion and Analysis
• Non-amortizing debt consists of a US $10 million loan due in June 2016 and a CAD $3.5 million loan due in 2091.
During the third quarter of 2013 Clearwater’s Argentine subsidiary borrowed USD $10.0 million, as an annual renewable loan
to fund conversion of a vessel, for use in the Argentine scallop fishery. The loan has been renewed twice, bears interest at
8% per year with interest payable monthly and the principal is due at maturity in June 2016.
• Amortizing debt consists of a term loan A, a delayed draw term loan A and a term loan B.
The term loan A has principal outstanding as at December 31, 2015 of CAD $27.0 million (December 31, 2014 – CAD $29.0 million).
The loan is repayable in quarterly instalments of $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 December 31, 2015 this resulted in an effective rate of approximately 4.09%.
The delayed draw term loan A has principal outstanding as at December 31, 2015 of CAD $29.3 million (December 31,
2014 – $ nil). The balance is shown net of deferred financing charges of CAD $0.6 million. The loan is repayable in quarterly
instalments of 1.25% of the principal amount drawn under the facility. The facility matures in June 2018 and bears interest
payable monthly at the banker’s acceptance rate plus 3.25%.
The term loan B has principal outstanding as at December 31, 2015 of USD $189.7 million (December 31, 2014 – USD $196.8 million)
and CAD $75 million. The USD loan is repayable in quarterly instalments of USD $0.5 million with the balance due at maturity
in June 2019 and it bears interest payable monthly at US Libor plus 3.5% with a Libor interest rate floor of 1.25%. As of
October 3, 2015 this resulted in an effective rate of 4.75%. The Libor interest rate floor of 1.25% is accounted for separately
as embedded derivative and is recorded at the estimated fair market value. The change in fair market value of the embedded
derivative is recorded through profit or loss. The CAD loan is repayable in quarterly instalments of CAD $0.2 million with the
balance due at maturity in June 2019 and it bears interest payable monthly at 4.32%. The loan has a provision that, subject
to certain conditions, allows Clearwater to expand the facility by a maximum of USD or CAD $25 million.
• The Deferred Obligation and Earnout (refer to Acquisition of Macduff below) is as follows:
The Deferred Obligation relates to 33.75% of the shares of Macduff Shellfish Group Limited (see Note 4) acquired by
Clearwater (the “Earn Out Shares”). The amount of the deferred obligation is £26.2 million and the estimated fair value is
£20.9 million (CAD $43.0 million).
In each year, the former holders of the Earn Out Shares can elect to be paid up to 20% of the Deferred Obligation. Clearwater
has the right to exercise the payout of 20% of the Deferred Obligation annually commencing two years after the date of
closing. The percentage of the Deferred Obligation remaining unpaid will impact the fair value of the future performance
component of the additional consideration, the Earnout. The fair value of the Deferred Obligation is estimated as of the
acquisition date based on discounting the projected future cash out flows. Refer to Note 13(l) for further information on the
process in which to determine fair value.
The Earnout liability is unsecured additional consideration to be paid dependent upon the future financial performance of
Macduff and the percentage of Deferred Obligation remaining unpaid at the time of payment (refer to Deferred Obligation
above). The estimated fair value of the Earnout is £6.1 million (CAD $12.6 million) based on forecast earnings and probability
assessments. The actual Earnout payments are expected to be paid over the next five years. Refer to Note 4 for further
information.
The amount of the total Earnout is calculated as follows:
The greater of:
(i) £3.8 million; OR
(ii) up to 33.75% (dependent upon the percentage of Deferred obligation remaining unpaid each year) of the increase in equity
value of the business over five years calculated as 7.5x adjusted EBITDA less the outstanding debt of Macduff; and
(iii) 10% of adjusted EBITDA above £10 million (dependent upon the percentage of Deferred obligation remaining unpaid each
year)
The Earnout liability is recorded at fair value on the balance sheet at each reporting period until paid in cash, with changes
in the estimated fair value being recorded as a component of other expense on the statement of operations.
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Clearwater has entered into interest rate swap and cross-currency swap arrangements whereby:
• CAD $12 million of Term Loan A is effectively subject to an interest rate that is the lesser of the floating rate of interest on the
loan or a maximum fixed rate of interest of 6.25%.
• CAD $12 million of Term Loan A is fixed at 5.85% to June 2018.
• USD $50 million of the Term Loan B is fixed at 6.15% to June 2019.
• USD $50 million of the Term Loan B is capped to June 30, 2016 at an interest rate of 4.75% and then the rate is fixed at
6.49% to June 2019.
• USD $75 million of the Term Loan B debt has been swapped into Canadian dollars at an effective exchange rate of 1.32 until
June 26, 2018.
Taking into account the above interest rate swaps and excluding deferred compensation and the related earn out, Clearwater
has effectively fixed the interest rate on 43% of its debt.
Taking into account the above cross-currency swaps, Clearwater has reduced the percentage of its debt denominated in USD
from 55% to 39%.
Clearwater includes the change in market value for all interest rate swap and foreign exchange swap arrangements in the profit
and loss during the period.
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 are subject to certain financial and 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.
acquisition and financing of macduff Shellfish group Limited
On October 30, 2015 Clearwater completed its acquisition of Macduff Shellfish Group Limited (“Macduff”), one of Europe’s
leading wild shellfish companies, for a purchase price of £102 million (CAD $206 million).
Macduff was acquired for cash consideration and an unsecured deferred consideration obligation of £27 million (the “Deferred
Obligation”) with a contingent consideration (“Earnout”) component that will be a minimum of £3.8 million. Refer above to long
term debt for description of Deferred Obligation and Earnout.
Clearwater financed the cash portion of the acquisition from existing loan facilities including:
• CAD $75 million increase in its Term Loan B facility
• CAD $25 million increase in its Revolving Loan Facility
• CAD $51 million borrowing on its existing Revolving Loan Facility and cash on hand
As a result of this acquisition, leverage increased to approximately 5.3x at closing but has since decreased in line with
management’s expectations to 4.4x as at December 31, 2015. Management is focused on continuing to reduce leverage and
expects it to be below 4.0x by December 31, 2016 when Clearwater and MacDuff see the full realization of recent investments
and organic growth. As a result, management expects to operate above its leverage target of 3.0x with the intention of returning
to this goal over the course of one to two years.
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Clearwater Seafoods Incorporated 2015 Annual Report 39
Management’s Discussion and Analysis
L iQ Ui d i t y
Clearwater has a number of treasury management policies and goals 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:
• Liquidity – As of December 31, 2015 Clearwater had $51.1 million in cash, and a $100 million revolving loan, of which
$69.6 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 seasonality but over time Clearwater intends to manage
to this ratio. As of December 31, 2015 leverage increased to 4.4x from 3.3x as of December 31, 2014 primarily due to the
investment in Macduff Shellfish, higher capital expenditures (net of designated borrowings) as well as the impact of a higher
US dollar exchange rate on USD denominated debt as the US dollar strengthened against the Canadian dollar in 2015.
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 cash flows.
Clearwater’s leverage measure is based on Clearwater’s share of adjusted EBITDA, debt and cash balances. It also takes into
account trailing earnings for business acquisitions and the value of swaps that have the impact of converting USD loans into
Canadian dollar loans.
(In 000’s of Canadian dollars)
As at December 31
Adjusted EBITDA2
Debt (net of deferred financing charges
of $2.3 million (December 31, 2014 – $0.6 million))3
Less cash4
Net debt
Leverage
2015
2014
2013
$
101,310
$
70,650
$
65,082
475,685
(32,938)
272,554
(40,712)
256,498
(38,510)
$
442,747
$
231,842
$
217,988
4.4
3.3
3.3
1 Refer to discussion on non-IFRS measures, definitions and reconciliations.
2 Adjusted EBITDA includes estimated annual adjusted EBITDA earnings of $18.6 million for Macduff Shellfish Group Limited.
3 Debt at December 31, 2015 has been adjusted to include the USD $75 million cross-currency swap at contracted rates of 1.3235 that was entered
into in the third quarter 2015. This resulted in a reduction of net debt of $4.8 million at December 31, 2015.
4 Cash was reduced by the share attributable to non-controlling shareholders of $18.2 million in 2015 and $6.9 million in 2014.
40
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• Foreign exchange management1 –
Clearwater’s plan to mitigate 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.
(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 from changes in exchange rates.
As of March 22, 2016 Clearwater had forward exchange contracts to be settled in 2016 of:
• US dollar $65.2 million at an average rate of 1.28;
• 3.36 billion Yen at an average rate of .011; and
• 43.4 million Euro at an average rate of 1.45.
The 2016 US dollar forwards include US dollars $13.2 million of participating forwards which provide that to the extent spot rates
are higher than the contracted rates of approximately 1.25 for 2016 forwards, the contract rate will be adjusted by approximately
25.0% of the excess for the 2016 forwards.
The purpose of these contracts is to give certainty to Clearwater on the exchange rates it receives on a portion of our foreign
currency sales1. 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 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.
Free cash flows1 – Clearwater has a goal to generate strong cash flows from operations in order to fund scheduled loan
payments and capital expenditures and in turn to use this free cash flow to invest in growth investments. Clearwater’s goal is
to grow free cash flows such that it can fund growth, maintain leverage of around 3x adjusted EBITDA and pay a sustainable
dividend to its shareholders.
1 Refer to discussion on non-IFRS measures, definitions and reconciliations.
Clearwater Seafoods Incorporated 2015 Annual Report 41
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Management’s Discussion and Analysis
13 weeks ended
December 31
Year ended
December 31
adjusted eBitda1
Less:
Cash interest
Cash taxes
Other income and expense items
2015
2014
2015
2014
2013
$
39,000
$
25,861
$
109,732
$
87,368
$
79,103
(5,471)
29
(219)
(4,288)
(375)
(789)
(19,006)
(2,604)
(882)
(14,938)
(2,585)
(5,295)
(16,317)
(1,812)
(863)
operating cash flow before changes
in working capital
33,339
20,409
87,240
64,550
60,111
Changes in working capital
from operating activities
33,482
Cash flows from operating activities
66,821
other sources (uses) of cash:
Purchase of property, plant, equipment,
quota and other assets
Proceeds on disposal of fixed assets
Designated borrowingsA
Scheduled payments on long term debt
Dividends received from joint venture
Distribution to non-controlling interests
Non-routine project costs
Other financing costs
Payments on long term incentive plans
(4,292)
4,517
230
(1,669)
—
(2,781)
888
676
—
27,571
47,980
(18,746)
68,494
3,476
68,026
(5,448)
54,663
(12,802)
—
11,017
(6,205)
—
(2,780)
—
—
—
(63,390)
4,584
35,097
(5,461)
—
(11,817)
1,953
676
8,953
(83,309)
5
63,431
(8,360)
1,490
(10,427)
—
—
—
(23,813)
978
7,700
(3,233)
1,240
(11,414)
—
—
—
Free cash flow1
$
64,390
$
37,210
$
39,089
$
30,856
$
26,121
Add/(less):
Other debt borrowings (repayments)
of debt, use of cashB
Issuance of equity
Other investing activitiesC
Other financing activities
Payments on long term incentive plans
Non-routine project costs
Other financing costs
90,261
—
(144,033)
(2,999)
—
(888)
(676)
(11,054)
—
(482)
(1,649)
—
—
—
78,099
58,628
(148,930)
(9,795)
(8,953)
(1,952)
(676)
(60,398)
32,487
1,805
(4,397)
—
—
—
(20,759)
—
(717)
—
—
—
—
Change in cash flows for the period
$
6,055
$
24,025
$
5,510
$
353
$
4,645
A Designated borrowings relate to capital projects for which there is long term financing and therefore they will not be financed with operating cash flows.
For the periods covered in this table that includes a conversion of a vessel for Argentina, the addition of a third clam vessel and a late life refit on a
shrimp vessel. For the purpose of free cash flow calculations the amount invested (up to the total amount of the related financing) during the period
on these projects is backed out of the calculation of free cash flows irrespective of the timing of the related borrowing.
B Other debt borrowings (repayments) of debt, use of cash for 2015 includes $35.1 million of cash invested in designated capital projects.
C Other investing activities include $151.1 million for the acquisition of Macduff, less cash acquired in the acquisition of $9.1 million.
1
Refer to discussion on non-IFRS measures, definitions and reconciliations.
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Cash flow 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 flow1 improved by $8.2 million to $39.1 million in 2015 due to higher adjusted EBITDA, partially offset by additional
investment in working capital from higher levels of inventory at the end of 2015, higher costs per pound and an increase in
inventory from the acquisition of Macduff.
In addition higher capital expenditures (net of designated borrowings) from scheduled refits partially offset the increase in free
cash flow.
Certain large investments in longer term assets, for example vessel conversion/acquisitions, are funded with long term capital
such as amortizing term loans. As a result Clearwater adds back the funding on those capital expenditures in the determination
of free cash flows and deducts the related debt payments.
Changes in working capital
(In 000’s of Canadian dollars)
Decrease (increase) in inventory
(Decrease) increase in accounts payable
Decrease (increase) in accounts receivable
(Increase) decrease in prepaids
13 weeks ended
December 31
Year ended
December 31
$
$
2015
16,680
3,291
17,562
(4,051)
2014
13,016
(5,414)
21,933
(1,964)
$
2015
(7,297)
5,023
(13,564)
(2,908)
$
2014
6,237
2,557
(4,605)
(713)
$
33,482
$
27,571
$
(18,746)
$
3,476
Working capital cash flow for 2015 declined $22.2 million from proceeds of $3.5 million for 2014 to a use of cash of
($18.7) million for 2015. The decline was primarily a result of higher levels of inventory at the end of 2015, higher costs per
pound from harvesting activities and an increase in inventory from the acquisition of Macduff. In addition timing of payments of
accounts payable contributed to the reduction in working capital.
Investments in capital expenditures for 2015 of $63.4 million resulted primarily from the construction of the clam vessel, and
scheduled refits.
In 2014 Clearwater had a record investment in capital expenditures of $83.3 million. Capital expenditures included $36.4 million
related to the construction of the new clam harvesting vessel that had a total cost of approximately $65 million and started
operating late in 2015.
In 2014 Clearwater invested $16.7 million to complete the conversion of an Argentine scallop vessel which began harvesting
early in the first quarter of 2015. Additional investments in 2014 included $7.3 million for an enterprise resource planning system
(“ERP”) which was completed in 2016, $18.2 million on refits including $12.5 million for a life extending refit for a shrimp vessel
and $4.7 million on other planned maintenance.
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 supply and
production plans versus sales forecasts, and through continuous improvements in the integration of its fleet and sales plans.
• 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 million–$25 million a year in maintaining its fixed assets with a further
$10 million–$15 million of repairs and maintenance expensed and included in the cost of goods sold.
1 Refer to discussion on non-IFRS measures, definitions and reconciliations.
Clearwater Seafoods Incorporated 2015 Annual Report 43
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Management’s Discussion and Analysis
In late July 2015 Clearwater successfully launched its new state-of-the-art factory clam vessel, the Belle Carnell. At a cost of
CAD $65 million, this vessel is the single-largest vessel investment in Clearwater’s history and will harvest Arctic Surf Clams,
Cockle Clams and Propeller Clams year-round. The vessel completed fishing trials and initial trips in the third quarter of 2015
and has joined Clearwater’s fleet in the fourth quarter. Management forecasts the vessel to increase annual clam sales by
up to 50% (as compared to 2014 annual sales).
In 2015 Clearwater invested $63.4 million in capital expenditures, excluding the investment in Macduff. Of these amounts,
$26 million related to to the construction of the new clam vessel, $7 million for the purchase and conversion of a research
vessel, $18 million related to maintenance capital investments and $12 million to improve operational efficiencies in our plants
and information systems.
In 2016 Clearwater expects to invest approximately $30 million in capital expenditures with the largest portion relating to
vessel maintenance and refits.
dividends – On March 22, 2016 the Board of Directors approved and declared a quarterly dividend of CAD $0.05 per share,
payable on April 15, 2016 to shareholders of record as of March 31, 2016.
In making the determination of dividend levels Clearwater’s Board gives consideration to a number of key principles including:
• 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 for the dividend to increase in the future as the business continues to grow and expand.
The Board reviews dividends quarterly with a view to revisiting the appropriate dividend amount annually.
The Board will continue to review the policy on a regular basis to ensure the dividend level remains consistent with Clearwater’s
long term dividend policy.
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 favorable tax treatment applicable to such dividends.
C o m m i t m e n tS
In the normal course of business, Clearwater is obligated to make future payments, including contractual obligations for non-
derivative and derivative financial instruments, operating leases 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, 2015
Interest – long term debt
Principal repayments –
long term debt
Total long term debt
Trade and other payables
Operating leases and other
Derivative financial instruments
– asset
Derivative financial instruments
– liability
Carrying
amount
Total
contractual
cash flow
2016
2017
2018
2019
2020
>2021
$ 81,183 $ 18,845 $ 17,940 $ 16,560 $
7,763 $
275 $ 19,800
503,405
65,685
19,061
63,507
339,265
9,875
6,012
480,769
82,870
—
584,588
82,870
25,822
84,530
82,870
7,677
37,001
—
6,059
80,067
—
3,467
347,028
—
2,795
10,150
—
2,750
25,812
—
3,074
(3,788)
(3,788)
(3,788)
18,622
18,622
18,622
—
—
—
—
—
—
—
—
—
—
$ 578,473
$ 708,114 $ 189,911 $ 43,060 $ 83,534 $ 349,823 $ 12,900 $ 28,886
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.
44
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Also included in commitments for operating leases and other, are (i) amounts to be paid to a company controlled by a director of
Clearwater over a period of years ending in 2018 for vehicle and office leases, which aggregate approximately $0.05 million (2014
– $0.1 million); and (ii) amounts to be paid to a company related to a member of its management team who is a former shareholder
of Macduff for $1.9 million. These amounts relate to the lease of a production plant and will be paid over a period over 6 years.
eX P La n at i o n oF FoUr tH Q Ua r t e r 2 0 1 5 r eS U L
tS
Overview
The following statements reflect the results of Clearwater for the 13 weeks ended December 31, 2015 and 2014:
Amortization of fair value adjustment to inventory and fixed assets from acquisition of Macduff1
(In 000’s of Canadian dollars)
13 weeks ended December 31
Sales
Cost of goods sold
Gross margin
Administrative and selling
Finance costs
Foreign exchange loss on forward contracts
Other expense (income)
Research and development
Earnings before income taxes
Income tax expense
(Loss) earnings
(Loss) earnings attributable to:
Non-controlling interest
Shareholders of Clearwater
Fourth quarter 2015 results
2015
2014
$
165,503
120,292
$
119,498
89,647
45,211
27.3%
2,112
43,099
16,852
25,102
2,403
(147)
822
45,032
(1,933)
1,860
29,851
25.0%
—
29,851
13,004
12,800
3,523
(1,622)
615
28,320
1,531
1,401
130
$
(3,793)
$
$
$
3,267
(7,060)
$
4,117
(3,987)
(3,793)
$
130
Clearwater reported record sales of $165.5 million and adjusted EBITDA2 of $39.0 million for the fourth quarter of 2015 versus
2014 comparative figures of $119.5 million and $25.9 million, reflecting growth of 38.5% in sales and 50.8% in adjusted EBITDA.
Sales increased by $46.0 million or 38.5%, in the fourth quarter 2015 as a result of strong sales prices in home currencies for the
majority of species which increased sales by $12.1 million, a $14.7 million positive impact from higher average foreign exchange
rates and $27 million due to the acquisition of Macduff on October 30, 2015 offset partially by lower volumes.
On October 30, 2015 Clearwater successfully completed the acquisition of 100% of the shares of Macduff Shellfish Group
Limited (“Macduff”) for CAD $206 million (£101 million), one of Europe’s leading wild shellfish companies. Macduff expands our
access to supply by more than 15 million pounds and further diversifies our access in wild shellfish.
The acquisition provided an additional CAD $27 million in sales and $4.5 million in adjusted EBITDA in the fourth quarter of 2015,
from access to diversified complementary species including King and Queen scallops, langoustine, brown crab and whelk, the
majority of which is sold within the European market.
1 The amortization of fair value adjustments related to inventory and depreciation result from IFRS requirements for purchase price accounting on the
acquisition of Macduff. As a result, the $2.1 million has been excluded from all analysis of cost of goods sold and gross margin.
2 Refer to discussion on non-IFRS measures, definitions and reconciliations.
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Management’s Discussion and Analysis
Macduff operations experience a similar predictable seasonal pattern as Clearwater in which sales, margins and adjusted
EBITDA are higher in the second half of the year whereas investments in working capital are lower, resulting in higher free cash
flows and lower leverage in the second half of the year.
Excluding the acquisition of Macduff and the related amortization of the fair value adjustments to inventory and depreciation,
the growth in sales, margins and adjusted EBITDA was driven by strong market demand that provided higher sales prices for
the majority of species as well as strengthening foreign exchange rates for the US dollar against the Canadian dollar. These
higher foreign exchange rates had a $14.7 million positive impact on sales and gross margin in the fourth quarter of 2015. The
positive impact from foreign exchange on gross margin was partially offset by higher harvesting costs for clams from changes
in product mix and higher procurement costs for lobster and cooked and peeled shrimp.
In the fourth quarter of 2015 adjusted earnings attributable to shareholders increased $9.4 million to $19.0 million primarily as
a result of improvements in gross margin of $15.4 million. The improvements in adjusted earnings were partially offset by an
increase in realized foreign exchange losses on working capital and foreign exchange contracts.
Free cash flow1 increased for the fourth quarter of 2015 to $64.4 million versus $37.2 million for the same period of 2014, due
primarily to improvements in adjusted EBITDA, lower capital expenditures in the fourth quarter of 2015 and improvements in
working capital from lower inventory and accounts receivable balances.
Higher non-operational losses of $9.0 million (refer to the following table), were primarily a result of an increase in non-cash
unrealized foreign exchange losses from the translation of the US dollar denominated debt as the US dollar strengthened
against the Canadian dollar. In addition acquisition related costs, including $2.1 million of amortization on fair value adjustments
for inventory and depreciation resulting from IFRS requirements on purchase price accounting for the acquisition of Macduff,
increased non-operational losses for 2015.
2015
2014
Change
$
(3,793)
$
130
$
(3,923)
(In 000’s of Canadian dollars)
13 weeks ended December 31
(Loss) earnings
Higher gross margin
Higher administrative and selling
Higher interest expense
Higher realized foreign exchange losses
Explanation of changes in earnings related to non-operational items:
Higher unrealized foreign exchange losses on debt and working capital
Higher debt refinancing fees
Higher deferred income tax expense
Amortization of fair value adjustments for inventory and depreciation
Acquisition related costs
Fair value adjustments on convertible debentures and embedded derivative
All other
15,360
(3,848)
(1,517)
(6,483)
3,512
(5,084)
(408)
(1,570)
(2,112)
(2,185)
2,310
(9,049)
1,614
$
(3,923)
1 Refer to discussion on non-IFRS measures, definitions and reconciliations.
46
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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
europe
2015
2014
Change
$
75,241
$
45,217
$
30,024
32,413
17,208
5,852
55,473
21,265
12,799
34,064
21,202
15,712
5,100
42,014
19,247
12,595
31,842
725
425
11,211
1,496
752
13,459
2,018
204
2,222
300
$
165,503
$
119,498
$
46,005
%
66.4
52.9
9.5
14.7
32.0
10.5
1.6
7.0
70.6
38.5
Europe is Clearwater’s largest scallop market and it is an important market for coldwater shrimp, langoustines, crab and lobster
products. With the acquisition of Macduff Shellfish Group Limited (“Macduff”) on October 30, 2015, Europe is now our most
diverse market, where a wide variety of products are sold.
European sales increased $30.0 million to $75.2 million for the fourth quarter of 2015 as compared to the same period in 2014,
primarily as a result of the acquisition of Macduff.
The acquisition provided an additional CAD $27 million in sales, from access to diversified complementary species including
King and Queen scallops, langoustine, brown crab and whelk, the majority of which is sold within the European market.
In addition strong demand that increased sales prices for scallops and higher foreign exchange rates contributed to the increase
in sales.
Lower sales volumes for scallops and shrimp as a result of a reduction in available supply partially offset the increase in sales.
The reduction in available supply for sea scallops was primarily a result of expected reductions in available total allowable catch
for the year for sea scallops.
Sales were positively impacted by $3.7 million in the fourth quarter of 2015 as a result of foreign exchange rates as average
rates for the Euro strengthened against the Canadian dollar. Average foreign exchange rates for the Euro increased by 3.9%
to 1.475 in the fourth quarter of 2015.
China
China is an important market for clams, coldwater shrimp, lobster, turbot and scallops.
Sales in China increased $11.2 million to $32.4 million in 2015 primarily as a result of a $5.1 million positive impact in foreign
exchange rates as the US dollar strengthened against the Canadian dollar.
Higher sales volumes for shrimp, from the timing of landings, and higher sales prices for clams, shrimp and scallops contributed
to the increase in sales.
Japan
Japan is an important market for clams, lobster, coldwater shrimp and turbot.
Sales to customers in Japan increased $1.5 million to $17.2 million primarily as a result of an increase in sales volumes for
frozen-at-sea shrimp.
The increase in sales was partially offset by a reduction in sales volumes for cooked and peeled shrimp and lobster.
Average foreign exchange rates for the Yen for the fourth quarter of 2015 were 0.011 improving sales by $1.6 million.
Clearwater Seafoods Incorporated 2015 Annual Report 47
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Management’s Discussion and Analysis
United States
The United States is an important market for scallops, coldwater shrimp, lobster and clams.
Sales in the United States increased $2.0 million, or 10.5%, to $21.3 million in the fourth quarter of 2015 primarily as a result of
an increase in sales volumes for Argentine scallops and higher foreign exchange rates as the US dollar strengthened against
the Canadian dollar.
Increases in sales prices for clams and scallops contributed to the increase in sales.
Reductions in available supply for scallops partially offset the increase in sales.
The reduction in available supply for sea scallops was primarily a result of expected reductions in available total allowable catch
for the year for sea scallops.
Sales were positively impacted by $3.3 million in the fourth quarter of 2015 as a result of foreign exchange rates as average
rates for the US dollar strengthened against the Canadian dollar. Average foreign exchange rates for the US dollar increased by
18.6% to 1.350 in the fourth quarter of 2015.
Sales by species1
(In 000’s of Canadian dollars)
13 weeks ended December 31
Scallops
Coldwater shrimp
Clams
Lobster
Langoustine
Crab
Ground fish and other shellfish
$
2015
59,787
37,299
32,288
21,863
7,873
4,798
1,595
$
2014
41,285
31,448
26,156
20,169
—
—
440
$
Change
18,502
5,851
6,132
1,694
7,873
4,798
1,155
$
165,503
$
119,498
$
46,005
%
44.8
18.6
23.4
8.4
100.0
100.0
262.5
38.5
Sales increased $46.0 million, or 38.5%, for the fourth quarter of 2015 primarily as a result of strong sales prices in home
currencies for the majority of species which increased sales by $12.1 million, a $14.7 million positive impact from higher average
foreign exchange rates and $27 million due to the acquisition of Macduff on October 30, 2015.
The acquisition of Macduff and the inclusion of two months of their operations provided an additional CAD $27 million in total
sales in the fourth quarter of 2015, from access to diversified complementary species including King and Queen scallops,
langoustine, brown crab and whelk, the majority of which is sold within the European market.
The increase in sales was partially offset by lower available supply of sea scallops as a result of expected reductions in the total
allowable catch for the year for sea scallops.
Cost of goods sold
(In 000’s of Canadian dollars)
13 weeks ended December 31
Harvesting and procurement
Manufacturing
Depreciation
Transportation
Administration
$
2015
87,882
14,548
8,668
5,751
3,443
$
2014
64,822
9,118
6,483
5,598
3,626
$
Change
23,060
5,430
2,185
153
(183)
$
120,292
$
89,647
$
30,645
%
35.6
59.6
33.7
2.7
(5.0)
34.2
1 Refer to discussion on risks and uncertainties.
48
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Cost of goods sold increased $30.6 million or 34.2% to $120.3 million primarily as a result of the acquisition of Macduff and
an increase in procurement costs for lobster and cooked and peeled shrimp.
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.
Higher shore prices per pound for lobster and cooked and peeled shrimp increased procurement costs for the fourth quarter of
2015. Higher harvesting costs for clams were a result of changes in sales mix for products with higher costs per pound.
Fuel costs for our vessels declined $1.1 million in the fourth quarter of 2015 to $5.6 million as a result of timing of landings for
shrimp and lower total allowable catch for sea scallops and lower costs per litre of fuel. The average price for fuel declined $0.18
per litre to an average of $0.69 per litre. Clearwater’s vessels used approximately 26.6 million litres of fuel in 2015 (excluding
the consumption from the vessels acquired in the Macduff acquisition). Based on 2015 fuel consumption, a one-cent per litre
change in the price of fuel would impact harvesting costs by approximately $0.3 million.
Please note that Clearwater uses Marine Diesel in its harvesting operations, the price of which does not correlate closely to
publicly available measures such as the price of a barrel of oil. This is due to a number of factors including but not limited to
the nature of the fuel used, the geographic locations in which Clearwater purchases fuel and the currency in which Clearwater
purchases fuel.
manufacturing includes labour costs related to the production and selling of goods, plant utilities and supplies. Labour costs
increased as a result of rising wages, salaries and benefits and increased production of certain species.
depreciation from assets used in the harvesting and production of goods increased in 2015 as a result of vessel refits and
investments in plants and vessels that were completed in the last half of 2014 and 2015.
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 section for further information.
Gross margin
Gross margin as a percentage of sales improved from 25.0% in the fourth quarter of 2014 to 27.3% for the same period of
2015. Excluding the results from the acquisition of Macduff, the growth in margins was driven by strong market demand that
provided higher sales prices for the majority of species as well as strengthening foreign exchange rates for the US dollar against
the Canadian dollar.
The net impact on sales from all foreign exchange volatility was an increase in sales and gross margins of $14.7 million.
13 weeks ended December 31
Currency
US dollars
Euros
Japanese Yen
UK pounds
Danish Kroner
Canadian dollar and other
2015
average
rate realized
1.350
1.475
0.011
2.030
0.196
% sales
37.4%
30.2%
8.8%
7.3%
6.1%
10.2%
100.0%
% sales
39.1%
22.0%
9.9%
5.3%
4.5%
19.2%
100.0%
2014
Average
rate realized
1.138
1.419
0.010
1.799
0.191
Change
in rate
18.6%
3.9%
10.0%
12.8%
2.6%
Clearwater_AR2015_Financials_FINAL.indd 49
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Clearwater Seafoods Incorporated 2015 Annual Report 49
Management’s Discussion and Analysis
Administrative 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
Reorganization costs
Travel
Selling costs
Occupancy
Allocation to cost of goods sold
$
$
$
2015
10,645
3,004
13,649
1,530
1,158
1,143
1,031
954
472
(3,085)
2014
8,026
2,928
10,954
2,089
1,041
133
719
764
409
(3,105)
Change
2,619
76
2,695
(559)
117
1,010
312
190
63
20
$
16,852
$
13,004
$
3,848
%
32.6
2.6
24.6
(26.8)
11.2
759.4
43.4
24.9
15.4
(0.6)
29.6
administrative and selling increased $3.8 million primarily as a result of the inclusion of two months of administrative salaries
and general administrative costs for Macduff in 2015 as well as increases in salaries and benefits and professional fees.
Excluding the impact on administrative and selling from the acquisition of Macduff, salaries and benefits increased primarily
as a result of new hires in senior management and other staff as well as higher compensation and benefit costs.
Share based incentive compensation is primarily driven by changes in Clearwater’s share price, performance against
Clearwater’s peer group and the number of share based grants outstanding.
Consulting and professional fees include operations, management, legal, audit and accounting, insurance and other specialized
consulting services. Costs declined $0.5 million in 2015 as a result of timing of consulting fees in 2014 from changes to
Clearwater’s network infrastructure and costs related to our Enterprise Resource Planning system (“ERP”) conversion.
other includes a variety of administrative expenses such as communication, service fees, depreciation, gains or losses, all of
which will vary from year to year.
reorganizational costs for 2015 included a provision for severance related to certain executives for long term employees
affected by reorganization at our head office along with retirements for members of the executive management.
Selling costs include advertising, marketing, trade shows, samples, product development and bad debt expenses.
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.
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 on debt and working capital
Debt refinancing fees
$
$
2015
5,467
541
6,008
(2,761)
21,447
408
2014
4,288
203
4,491
(451)
8,760
—
$
25,102
$
12,800
50
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interest increased $1.5 million for the fourth quarter of 2015 as compared to the same period in 2014 due to higher exchange
rates1 on the US dollar denominated debt, which in turn increased interest expense when converted into Canadian dollars.
Clearwater has approximately USD $197 million US dollar denominated debt outstanding as at December 31, 2015.
Loan facilities were higher in 2015 as on October 30, 2015 Clearwater financed the cash portion of the Macduff acquisition
from existing loan facilities including:
• CAD $75 million increase in its Term Loan B facility
• CAD $25 million increase in its Revolving Loan Facility
• CAD $51 million borrowing on its existing Revolving Loan Facility and cash on hand
These additional borrowings increased interest expense in the fourth quarter of 2015.
The fair value adjustment on the embedded derivatives on Term Loan B relates to a Libor floor provision in the loan agreement
and the earnings impact represents the change in the estimated fair values.
Foreign exchange1 on long term debt and working capital
(In 000’s of Canadian dollars)
13 weeks ended December 31
Realized loss (gain)
Working capital and other
Unrealized loss
Foreign exchange on long term debt and working capital
2015
2014
$
3,900
$
(134)
17,547
$
21,447
$
8,894
8,760
Foreign exchange losses1 on long term debt and working capital increased by $12.7 million from a loss of $8.8 million in the
fourth quarter of 2014 to a loss of $21.4 million for the same period in 2015. The increase was primarily a result of non-cash
unrealized losses on the translation of the $197 million US dollar denominated debt as the US dollar strengthened against the
Canadian dollar during 2015.
In addition, realized foreign exchange losses increased $3.8 million on working capital as a result of a devaluation on working
capital assets as the Argentinean peso devalued approximately 24% from the third quarter of 2015.
Losses1 on forward contracts, interest rate and cross-currency swaps, caps and floor
(In 000’s of Canadian dollars)
13 weeks ended December 31
Realized loss
Forward foreign exchange contracts
Unrealized loss (gain)
Forward foreign exchange contracts
Interest rate and cross-currency swaps, caps and floors
2015
2014
$
4,343
$
1,894
3,107
(5,047)
(1,940)
$
2,403
$
280
1,349
1,629
3,523
Losses on forward contracts1, interest rate and cross-currency swaps, caps and floor declined $1.1 million to $2.4 million
primarily as a result of an increase in gains on the USD $75 million cross-currency swap that was entered into in the third quarter
of 2015 as the US dollar foreign exchange rates strengthened against the Canadian dollar.
The unrealized gain on the cross-currency swap was partially offset by an unrealized loss on interest rate swaps and caps. The
unrealized loss was primarily a result of non-cash mark to market losses from the USD $100 million and Canadian $24 million
interest rate swaps/caps that were entered into in the first and third quarter of 2014. These non-cash adjustments relate to
changes in relative expected future interest rates.
1 Refer to discussion on risks and uncertainties.
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Management’s Discussion and Analysis
The increase in realized and unrealized losses on forward contracts relates primarily to US dollar, Euro and Yen forward contracts
for which the spot rate was greater than the contracted rate.
Clearwater’s hedging program is designed to enable Clearwater to remove uncertainty regarding exchange rates on sales
receipts by locking in up to 75% of annual net foreign exchange exposure. Clearwater does this by entering into a series of
foreign exchange contracts that mature throughout the fiscal year and that provide for a fixed exchange rate on a portion of sales
receipts. In a rising exchange rate environment such as the one we are currently in where spot rates are higher than contract
rates, Clearwater realizes higher exchange rates on sales but it is required to remit the excess of the spot rate received on sales
receipts over the contract rate to the counterparty on the portion of sales that it has hedged.
Should the current environment of a stronger US dollar and Euro versus the Canadian dollar persist it would have a positive
impact on 2015 sales but the hedging program would offset a portion of those gains and reduce the positive impact on adjusted
EBITDA. However, looking forward to 2015, Clearwater would realize the benefit of such higher rates as hedging contracts that
it is entering now are at rates closer to current spot rates.
Other expense (income)
(In 000’s of Canadian dollars)
13 weeks ended December 31
Share of earnings of equity-accounted investee
Royalties, interest and other fees
Acquisition related costs
Other fees
$
$
2015
(623)
(129)
2,185
(1,580)
2014
(615)
(166)
—
(841)
$
(147)
$
(1,622)
Other income declined $1.5 million from income of $1.6 million as a result of costs related to the acquisition of Macduff. The
decrease was partially offset by Scientific Research and Experimental Development (“SR&ED”) tax claims from previous years
that were received in 2015.
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.
Deferred tax assets are being recognized based on management’s estimate that it is more likely than not that Clearwater will
earn sufficient taxable profit to utilize these losses.
Earnings attributable to non-controlling interest
Non-controlling interest relates to minority share of earnings from Clearwater’s majority investments in subsidiaries in Argentina,
Nova Scotia and Newfoundland and Labrador.
The decline in earnings attributable to non-controlling interest of $0.9 million for the fourth quarter of 2015 relates primarily to
a reduction in sales volumes for cooked and peeled shrimp.
It is important to note that the earnings attributable to non-controlling interest relates to Clearwater’s interest in a partnership
and as such taxes are included in earnings attributable to shareholders, whereas the earnings attributable to non-controlling
interest are not tax effected.
For those investors that would like to understand the breakdown of adjusted EBITDA attributable to non-controlling interest and
shareholders please refer to the reconciliation of adjusted EBITDA within the non-IFRS measures, definitions and reconciliations
section of the MD&A.
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Earnings attributable to shareholders
Earnings attributable to shareholders of Clearwater declined $3.1 million to a loss of $7.1 million for the fourth quarter of 2015
primarily as a result of an increase in non-cash losses from the translation of the US dollar denominated debt as the US dollar
strengthened against the Canadian dollar, offset by the increase in gross margin.
Adjusted earnings attributable to shareholders
To assist readers in estimating our earnings we have included a calculation of adjusted earnings. Management believes that in
addition to earnings and cash provided by operating activities, adjusted earnings is a useful supplemental measure from which
to determine Clearwater’s earnings from operations and ability to generate cash available for debt service, working capital,
capital expenditures, income taxes and dividends.
For those readers that would like to understand the calculation of adjusted earnings please refer to the reconciliation of adjusted
earnings within the non-IFRS measures, definitions and reconciliations section of the MD&A.
In the fourth quarter of 2015 adjusted earnings attributable to shareholders increased $9.4 million to $19.0 million primarily as
a result of improvements in gross margin of $15.4 million.
Excluding the results from the acquisition of Macduff, the growth in margins was driven by strong market demand that provided
higher sales prices for the majority of species as well as strengthening foreign exchange rates for the US dollar against the
Canadian dollar. The improvements in gross margin were partially offset by lower sales volumes for scallops from lower available
total allowable catch.
The improvements in adjusted earnings were partially offset by an increase in realized foreign exchange losses on working
capital and foreign exchange contracts.
As a result, adjusted earnings per share increased from $0.17 per share in the fourth quarter of 2014 to $0.32 per share in the
same period of 2015.
oUtLo o k
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 marketplace 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.
As a vertically integrated seafood company, Clearwater 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.
We are pleased with our results for 2015 and particularly satisfied to exceed our five-year strategic plan goals of $500 million
in revenue and $100 million in adjusted EBITDA one year ahead of our original timetable.
Strong global demand across all markets and species will continue to be a key driver for our business in 2016.
Looking forward, we expect to see significant volume growth in 2016 associated with the acquisition of Macduff, the expansion
of our clam fleet and expanded procurement of core species.
Our six core strategies are:
expanding access to supply – We will continue to actively invest in access to supply of core species and other complementary,
high demand, premium, wild and sustainably harvested seafood through improved utilization and productivity of core licenses
as well as acquisitions, partnerships, joint ventures and commercial agreements.
The investment in Macduff provides Clearwater with access to an incremental 15 million pounds of premium, wild-caught, safe,
traceable and complementary shellfish species include King and Queen scallops, langoustines, brown crab and whelk.
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Clearwater Seafoods Incorporated 2015 Annual Report 53
Management’s Discussion and Analysis
In late July 2015 Clearwater launched its new state-of-the-art factory clam vessel, the Belle Carnell. At CAD $65 million, it is the
single-largest vessel investment in Clearwater’s history and will harvest Arctic Surf Clams, Cockle Clams and Propeller Clams
year-round on the Grand Banks. The vessel joined Clearwater’s fleet in the fourth quarter of 2015 and significantly improves
utilization of existing licenses and quota in this Marine Stewardship Council (MSC) certified sustainable fishery. We expect the
Belle Carnell could contribute up to a 50% increase in total clam volume of all species in 2016 versus prior year.
target profitable and growing markets, channels and customers – Clearwater benefits from strong and growing global
demand for sustainably harvested, safe, traceable and premium wild seafood. In 2016, we will continue to segment and target
markets, consumers, channels and customers on the basis of size, profitability, demand for eco-label seafood and ability to
win. Our focus is to win in key channels and with customers that are winning with consumers.
In addition to increasing supply, Macduff provides Clearwater enhanced access to key distribution channels including food
service and grocery retail in multiple markets including the UK, France, Italy, Spain and Portugal.
innovate and position products to deliver superior customer satisfaction and value – We continue to work with customers
on new products and formats as we innovate and position our premium seafood to deliver superior satisfaction and value that’s
relevantly differentiated on the dimensions of taste, quality, safety, sustainability, wellness, convenience and fair labour practices.
The acquisition of Macduff also expands the product range Clearwater can make available to its large and growing core
customer base – especially in Asia and the Americas. Macduff’s four major species – King and Queen Scallops as well as Whelk
and Brown Crab – will benefit from expanded market and customer service/access as well as the sales and marketing strength
of the Clearwater brand and organization.
Clearwater’s new product development (“NPD”) efforts have resulted in the significant growth, geographic and channel
distribution expansion of our higher pressure-processed frozen raw lobster including major air and cruise line as well major
retailers in the EU and Asia.
Northern Propeller Clam, a species with historically limited market appeal has been transformed through NPD into a significant
source of incremental revenue and profit in both the Japanese and North American Sushi markets.
increase margins by improving price realization and cost management – In 2015 we began to implement our “ocean to shelf”
global supply chain. We will continue this work in 2016 capturing cost savings through the greater efficiency and improved
productivity of our global operations. This includes leveraging the scarcity of seafood supply versus increasing global demand to
continuously improve price realization, revenue and margins. It also includes investing in innovative state-of-the-art technology,
systems and processes that maximize value, minimize cost, reduce waste, increase yield and improve quality, reliability and
safety of our products and people.
The Macduff investment expands Clearwater’s North Atlantic harvesting operations and provides integrated UK-based primary
and secondary processing capabilities and expertise with land-based processing facilities in Scotland. Investments in automated
shucking continue to generate significant cost savings and productivity gains in our Canadian Sea Scallop business. Our
patented next generation live lobster storage and distribution system promises to improve quality, reduce waste and significantly
lower the operating costs in our lobster business. Early tests have already yielded a significant reduction in mortality in storage
and distribution – the single largest industry cost driver.
Pursue and preserve the long term sustainability of resources on land and sea – As a leading global supplier of wild-
harvested seafood – sustainability remains at the core of our business and our mission. Investing in the long term health and
the responsible harvesting of the oceans and the bounty is every harvester’s responsibility and the only proven way to ensure
access to a reliable, stable, renewable and long term supply of seafood. Sustainability is not just good business, like innovation
it’s in our DNA. That’s why Clearwater has been recognized by the Marine Stewardship Council (“MSC”) as a leader in sustainable
harvesting for wild fisheries and how Clearwater can offer the widest selection of sustainably-certified species of any seafood
harvester worldwide. In October 2015 Clearwater received an award from ESRI Canada, for our commitment to sustainable
business practices through the use of our geographic information system (“GIS”), which allows us to reduce our impact on the
ocean floor and more efficiently conduct our harvest operations.
Clearwater will continue to invest in science and sustainable harvesting technology and practices to add value to all fisheries
in which we participate in Canada, Argentina and the United Kingdom.
Build organizational capability, capacity and engagement – A high level of performance can only be achieved by a talented and
engaged global workforce at sea and on land, employing well communicated strategies and plans with measurable objectives.
It also requires an enduring commitment to invest in our people.
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Macduff is one of the largest vertically integrated shellfish harvesters in the UK and creates a new growth platform for Clearwater
to complement our robust organic growth plans. Management is already evaluating multiple opportunities to fuel additional
growth which will provide opportunities to invest in, develop and engage our entire workforce in Canada and abroad.
Looking forward, we will no longer disclose future targets for sales growth, free cash flow growth, and return on assets as we
believe the track record we have achieved on these measures over the past four years provides a reasonable base for users of
our financial reports to form educated estimates of possible future performance.
r iSkS a n d UnCe r ta i n t i eS
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, which is available on SEDAR at www.sedar.com as well as Clearwater’s website at
www.clearwater.ca.
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 and a subsidiary in the United Kingdom which exposes Clearwater to changes in the value of the Pound Sterling.
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 2015 approximately 43.2% of Clearwater’s sales were denominated in US dollars.
Based on 2015 sales and excluding the impact of its hedging program,
• a change of 0.01 in the U.S. dollar rate converted to Canadian dollars would result in a $1.7 million change in sales and gross
profit.
• a change of 0.01 in the Euro rate as converted to Canadian dollars would result in a $0.8 million change in sales and gross
profit.
• a change of 0.001 in the Yen rate as converted to Canadian dollars would result in a change of $4.7 million in sales and gross
profit.
As of March 22, 2016 Clearwater had forward exchange contracts to be settled in 2016 of:
• US dollar $65.2 million at an average rate of 1.28;
• 3.36 billion Yen at an average rate of .011; and
• 43.4 million Euro at an average rate of 1.45.
The 2016 US dollar forwards include US dollars $13.2 million of participating forwards which provide that to the extent spot rates
are higher than the contracted rates of approximately 1.25 for 2016 forwards, the contract rate will be adjusted by approximately
25.0% of the excess for the 2016 forwards.
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Clearwater Seafoods Incorporated 2015 Annual Report 55
Management’s Discussion and Analysis
The purpose of these contracts is to give certainty to Clearwater on the exchange rates that it expects to receive on a portion of
our 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 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.
Political risk
Our Argentine and other international operations are subject to economic and political risks, which could materially and adversely
affect our business.
Our Argentine and other foreign operations and investments are subject to numerous risks, including fluctuations in foreign
currency, exchange rates and controls, expropriation of our assets, nationalization, renegotiation, forced divestiture, modification
or nullification of our contracts and changes in Argentine, United Kingdom 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.
In certain previous years, Clearwater has been unable to repatriate dividends from Argentina.
Clearwater did not request for dividends to be paid in 2014 or 2015 as it completed the process of converting a vessel for
use in its Argentine operations late in 2014. 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, the United Kingdom 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 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.
Contingent liability
In addition, from time to time Clearwater is subject to claims and lawsuits arising in the ordinary course of operations.
Resource supply risk
A material change in the population and biomass of scallop, lobster, clam, langoustine, crab 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.
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The source of all Clearwater’s supply of products comes from fisheries in Canada, the United Kingdom and Argentina. The
governments of Canada, the UK and EU 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 positions 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 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.
Other risks
Clearwater is investing 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.
Cr i t iCaL aC CoUn t i n g PoLiCi eS
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,
2015 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.
The Management of Clearwater, with the participation of the CEO and the CFO (collectively “Management”), is responsible for
establishing and maintaining adequate internal controls over financial reporting. Clearwater’s internal controls over financial
reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial
statements in accordance with International Financial Reporting Standards (“IFRS”).
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Clearwater Seafoods Incorporated 2015 Annual Report 57
Management’s Discussion and Analysis
Management evaluated the design and effectiveness of Clearwater’s internal controls over financial reporting as at December
31, 2015. 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, 2015, 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.
On October 30, 2015, Clearwater acquired 100% of the outstanding shares of Macduff Shellfish Group Limited (“Macduff”).
As a result, the CEO and the CFO have determined to limit the scope of design of disclosure controls and procedures and
internal control over financial reporting to exclude controls, policies and procedures of Macduff. Sales for the two-month
period included in the MD&A and the financial statements is CAD $27.0 million and earnings of $3.8 million.
The scope limitation is in accordance with section 3.3(1)(b) of NI 52-109, which allows for an issuer to limit the design of
disclosure controls and procedures and internal control over financial reporting for a business that the issuer acquired not
more than 365 days before the last day of the period covered by this MD&A.
With the exception of the acquisition of Macduff, there have been no significant changes in Clearwater’s internal controls
over financial reporting or other factors that occurred during the period from October 4, 2015 to December 31, 2015, 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 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.
Business combination accounting for interests in a joint operation (Amendments to IFRS 11)
The amendments require business combination accounting to be applied to acquisitions of interests in a joint operation that
constitute a business. The Company intends to adopt the amendments to IFRS 11 in its financial statements for the annual
period beginning on January 1, 2016. The extent of the impact of adoption of the amendments has not yet been determined.
IFRS 15 – Revenue from Contracts with Customers
The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue:
at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether,
how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may
affect the amount and/or timing of revenue recognized. The Company intends to adopt IFRS 15 in its financial statements
for the annual period beginning on January 1, 2018. The extent of the impact of adoption of the standard has not yet been
determined.
IFRS 9 Financial Instruments
IFRS 9 (2014) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2014),
financial assets are classified and measured based on the business model in which they are held and the characteristics of
their contractual cash flows. The standard introduces additional changes relating to financial liabilities. It also amends the
impairment model by introducing a new ‘expected credit loss’ model for calculating impairment. IFRS 9 (2014) also includes
a new general hedge accounting standard which aligns hedge accounting more closely with risk management. This new
standard does not fundamentally change the types of hedging relationships or the requirement to measure and recognize
ineffectiveness, however it will provide more hedging strategies that are used for risk management to qualify for hedge
accounting and introduce more judgment to assess the effectiveness of a hedging relationship.
Special transitional requirements have been set for the application of the new general hedging model.
The Company intends to adopt IFRS 9 (2014) in its financial statements for the annual period beginning on January 1, 2018.
The extent of the impact of adoption of the standard has not yet been determined.
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Transfer of assets between an investor and its associate or joint venture
The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28 (2011)
in dealing with the sale or contribution of assets between an investor and its associate or joint venture. Specifically, under the
existing consolidation standard the parent recognises the full gain on the loss of control, whereas under the existing guidance
on associates and JVs the parent recognises the gain only to the extent of unrelated investors’ interests in the associate or JV.
The main consequence of the amendments is that a full gain/loss is recognised when the assets transferred meet the definition
of a ‘business’ under IFRS 3 Business Combinations. A partial gain/loss is recognised when the assets transferred do not meet
the definition of a business, even if these assets are housed in a subsidiary.
The Company intends to adopt these amendments in its financial statements for the annual period beginning on January 1,
2016. The extent of the impact of adoption of the amendments has not yet been determined.
Annual Improvements to IFRS (2012–2014) cycle
On September 25, 2014 the IASB issued narrow-scope amendments to a total of four standards as part of its annual improvements
process. The Company intends to adopt these amendments in its financial statements for the annual period beginning on
January 1, 2016. The extent of the impact of adoption of the amendments has not yet been determined.
Disclosure Initiative
On December 18, 2014 the IASB issued amendments to IAS 1 Presentation of Financial Statements as part of its major initiative
to improve presentation and disclosure in financial reports. These amendments will not require any significant change to current
practice, but should facilitate improved financial statement disclosures. The Company intends to adopt these amendments
in its financial statements for the annual period beginning on January 1, 2016. The extent of the impact of adoption of the
amendments has not yet been determined.
IFRS 16 Leases
On January 13, 2016 the IASB issued IFRS 16 Leases. This standard introduces a single lessee accounting model and requires
a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of
low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease
liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting
requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting
model have been impacted, including the definition of a lease. Transitional provisions have been provided. The Company intends
to adopt IFRS 16 in its financial statements for the annual period beginning on January 1, 2019. The extent of the impact of
adoption of the standard has not yet been determined.
reLat e d P a r t y t r a nSaCt i o nS
Clearwater often transacts in the normal course of business with other related parties. The details are as follows for the year
ended December 31, 2015 and 2014:
Clearwater rents office space to Clearwater Fine Foods Incorporated (“CFFI”) (the controlling shareholder of Clearwater) and
provides computer network support services to CFFI. The net amount due to CFFI in respect of these transactions was $0.05
million (December 31, 2014 – net amount due from CFFI of $0.03 million), is unsecured and due on demand. As such the account
has been classified as a current. The balance bears interest at a rate of 5%.
In September 2015, Clearwater entered into an agreement to sell an idle vessel to a joint venture which is accounted for under the
equity method in Clearwater’s consolidated financial statements. The estimated sales price of CAD $11.8 million is the estimated
book value at the time of the sale. This amount includes estimated costs for a refit on the vessel, which is to be completed by
the Company prior to the sale to the joint venture. The sale is expected to close in the first quarter of 2016.
For the year ended December 31, 2015, Clearwater expensed approximately $0.2 million for goods and services from companies
related to its parent (December 31, 2014 – $0.2 million). The transactions are recorded at the exchange amount and the balance
due to these companies was $0.01 million as at December 31, 2015 (December 31, 2014 – $ nil million).
For the year ended December 31, 2015, Clearwater expensed approximately $0.07 million in factory and equipment rentals from
companies related to a member of its management team (December 31, 2014 – $ nil). Clearwater incurred $0.1 million in legal
fees paid to a law firm in which a Director of Clearwater is a partner (December 31, 2014 – $0.02 million).
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Clearwater Seafoods Incorporated 2015 Annual Report 59
Management’s Discussion and Analysis
At December 31, 2015 Clearwater had a balance of $1.3 million (December 31, 2014 – $1.0 million), included in long term
receivables, for interest bearing loans made to a non-controlling interest shareholder in a subsidiary.
Clearwater recorded sales commissions, management and administration fees, storage fees and sales to a non-controlling
interest holder in a consolidated partnership. These sales commissions, management and administration fees, storage fees and
sales are at negotiated prices and are settled on normal trade terms:
Year ended
Sales commissions
Management and administration
Storage fees
Sales
december 31,
2015
December 31,
2014
$
$
3,957
1,403
1,424
80
2,379
1,425
1,390
6,694
S Um m a ry oF Q Ua r t e rL y r eS U L tS
The following table provides historical data for the nine most recently completed quarters.
(In 000’s of Canadian dollars)
Fiscal 2015
Sales
Earnings (loss)
Earnings (loss) per share (“EPS”)
Diluted earnings (loss) per share1
Fiscal 2014
Sales
Earnings (loss)
Earnings (loss) per share (“EPS”)
Diluted earnings (loss) per share1
Fiscal 2013
Sales
Earnings (loss)
Earnings (loss) per share (“EPS”)
Diluted earnings (loss) per share1
First
quarter
Second
quarter
Third
quarter
Fourth
quarter
$
$
$
75,362
(28,336)
(0.57)
(0.57)
77,771
(12,144)
(0.27)
(0.27)
68,297
(1,762)
(0.06)
(0.06)
$
$
$
116,748
9,739
0.10
0.10
113,403
18,850
0.30
0.30
95,368
(9,866)
(0.24)
(0.24)
$
$
$
147,332
1,717
(0.08)
(0.09)
134,069
2,959
(0.02)
(0.02)
113,982
27,224
0.48
0.47
$
$
$
165,503
(3,793)
(0.07)
(0.07)
119,498
130
(0.07)
(0.07)
111,012
(298)
(0.06)
(0.06)
1 Diluted earnings (loss) per share are anti-dilutive the fourth quarter of 2015 and for all periods prior to 2014 except for September 28, 2013, September 29,
2012, and December 31, 2012. In the third quarter of 2013, the outstanding convertible debentures were redeemed.
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 highest revenues in the third quarter and fourth quarter of each
year which is consistent with Clearwater’s seasonality.
Unrealized foreign exchange losses were $28.9 million, $21.4 million and $12.8 million in the first, third, and fourth quarters of
2015, respectively, for a total increase of $59.9 million for 2015. The increase in unrealized foreign exchange losses was primarily
a result of the translation of the USD denominated debt, as the US dollar strengthened against the Canadian dollar in 2015.
Earnings for the second quarter of 2013 include $3.3 million in future tax recovery and $9.2 million in debt settlement fees and
write-downs of deferred financing charges related to the June 2013 refinancing.
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n o n-iFrS m e aS Ur eS , d eFi n i t i o nS a n d r eCo nCiLi at i o nS
Gross margin
Gross margin consists of sales less cost of goods sold which includes 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 flows.
Adjusted EBITDA is defined as EBITDA excluding 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) have been excluded from the
calculation of adjusted EBITDA. Unrealized gains and losses on forward exchange contracts relate to economic hedging on
future operational transactions and by adjusting for them, the results more closely reflect the economic effect of the hedging
relationships in the period to which they relate. In addition adjustments to stock-based compensation have been excluded from
adjusted EBITDA as they do not relate to the general operations of the business.
Reconciliation of earnings to adjusted EBITDA for the 13 weeks ended and the years ended December 31, 2015 and 2014 is
as follows:
Earnings (loss)
Add (deduct):
Income taxes
Taxes and depreciation for
equity investment
Depreciation and amortization
Interest on long term debt
and bank charges
13 weeks ended
December 31
Year ended
December 31
2015
2014
2015
2014
2013
$
(3,793)
$
130
$
(20,671)
$
9,797
$
15,298
1,860
285
8,835
6,008
1,401
280
6,563
4,491
4,387
5,949
(8,101)
1,154
29,414
1,265
24,544
951
24,171
20,336
15,716
17,310
Earnings before interest,
taxes, depreciation and amortization $
13,195
$
12,865
$
34,620
$
57,271
$
49,629
Add (deduct) other items:
Unrealized foreign exchange and
derivative loss (income)
Fair market value on long term debt
Realized foreign exchange loss (gain)
on working capital
Restructuring and refinancing costs
Stock-based compensation
Loss (gain) on disposal of assets and quota
Loss on insurance claim
15,607
(2,761)
3,900
6,055
3,004
—
—
10,523
(451)
(134)
130
2,928
—
—
62,053
(2,118)
(1,690)
11,299
5,270
—
300
17,288
(1,229)
1,172
1,981
8,948
1,937
—
11,493
(1,710)
3,586
10,642
5,861
(398)
—
adjusted eBitda
$
39,000
$
25,861
$
109,734
$
87,368
$
79,103
Adjusted EBITDA attributed to:
Non-controlling interests
Shareholders of Clearwater
$
$
5,576
33,424
$
4,763
21,098
$
22,829
86,905
$
16,718
70,650
$
14,021
65,082
39,000
$
25,861
$
109,734
$
87,368
$
79,103
Clearwater Seafoods Incorporated 2015 Annual Report 61
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Management’s Discussion and Analysis
Adjusted earnings attributable to shareholders
To assist readers in estimating our earnings we have included a calculation of adjusted earnings. Management believes that in
addition to earnings and cash provided by operating activities, adjusted earnings is a useful supplemental measure from which to
determine Clearwater’s earnings from operations and ability to generate cash available for debt service, working capital, capital
expenditures, income taxes and dividends.
Reconciliation of earnings to adjusted earnings for the 13 weeks ended, the years ended December 31, 2015 and 2014 is as
follows:
reconciliation of earnings to adjusted earnings
Earnings (loss)
Deferred tax assets booked related to prior years
Restructuring and refinancing costs
Acquisition related costs
Fair value impact of purchase price allocation
Stock-based compensation
Insurance claim
Unrealized foreign exchange
Devaluation of peso on working capital
Fair value on long term debt
13 weeks ended
December 31
Year ended
December 31
2015
2014
2015
2014
$
$
(3,793)
—
1,551
2,338
2,166
3,004
—
15,607
5,344
(2,761)
27,249
$
130
—
130
—
—
2,928
—
10,523
—
(451)
13,130
$
(20,671)
—
5,821
3,403
2,166
5,270
300
62,053
5,344
(2,118)
82,239
9,797
(2,575)
1,981
—
—
8,948
—
17,288
—
(1,229)
24,413
adjusted earnings
$
23,456
$
13,260
$
61,568
$
34,210
Adjusted earnings attributable to:
Non-controlling interests
Shareholders
$
$
4,486
18,970
$
3,646
9,614
23,456
$
13,260
$
$
18,111
43,457
$
11,639
22,571
61,568
$
34,210
Adjusted earnings per share:
Weighted average of shares outstanding
Earnings per share for shareholders
59,959
0.32
54,978
0.17
57,489
0.76
54,787
0.41
reconciliation of adjusted earnings to adjusted eBitda
Adjusted earnings
$
23,456
$
13,260
$
61,568
$
34,210
Add (subtract)
Cash and deferred taxes
Depreciation and amortization
Interest on long term debt and bank charges
Taxes and depreciation on equity investment
Realized foreign exchange on working capital
Other reorganizational costs
Gain on disposal of assets
1,860
8,835
6,008
285
(1,444)
—
—
1,401
6,563
4,491
280
(134)
—
—
15,544
12,601
4,387
29,414
20,336
1,154
(7,034)
(91)
—
48,166
8,524
24,544
15,716
1,265
1,172
—
1,937
53,158
adjusted eBitda1
$
39,000
$
25,861
$
109,734
$
87,368
1 Refer to discussion on non-IFRS measures, definitions and reconciliations.
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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 calculations are calculated by dividing the current and preceding annual adjusted EBITDA (excluding non-controlling
interest) by the total debt (excluding non-controlling interest) on the balance sheet adjusted for cash reserves (excluding non-
controlling interest).
Reconciliation of adjusted EBITDA to debt (net of deferred financing charges) for the years ended December 31, 2015 and 2014
is as follows:
(In 000’s of Canadian dollars)
As at December 31
Adjusted EBITDA1
Debt (net of deferred financing charges
of $2.3 million (December 31, 2014 – $0.6 million))2
Less cash3
Net debt
Leverage
2015
2014
2013
$
101,310
$
70,650
$
65,082
475,685
(32,938)
272,554
(40,712)
256,498
(38,510)
$
442,747
$
231,842
$
217,988
4.4
3.3
3.3
1 Adjusted EBITDA includes estimated annual adjusted EBITDA earnings of $18.6 million for Macduff Shellfish Group Limited.
2 Debt at December 31, 2015 has been adjusted to include the USD $75 million cross-currency swap at contracted rates of 1.3235 that was entered
into in the third quarter 2015. This resulted in a reduction of net debt of $4.8 million at December 31, 2015.
3 Cash was reduced by the share attributable to non-controlling shareholders of $18.2 million in 2015 and $6.9 million in 2014.
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.
Clearwater_AR2015_Financials_FINAL.indd 63
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Clearwater Seafoods Incorporated 2015 Annual Report 63
Management’s Discussion and Analysis
Reconciliation for the 13 weeks and year ended December 31, 2015 and 2014 is as follows:
13 weeks ended
December 31
Year ended
December 31
adjusted eBitda1
Less:
Cash interest
Cash taxes
Other income and expense items
2015
2014
2015
2014
2013
$
39,000
$
25,861
$
109,732
$
87,368
$
79,103
(5,471)
29
(219)
(4,288)
(375)
(789)
(19,006)
(2,604)
(882)
(14,938)
(2,585)
(5,295)
(16,317)
(1,812)
(863)
operating cash flow before changes
in working capital
33,339
20,409
87,240
64,550
60,111
Changes in working capital from
operating activities
33,482
Cash flows from operating activities
66,821
other sources (uses) of cash:
Purchase of property, plant, equipment,
quota and other assets
Proceeds on disposal of fixed assets
Designated borrowingsA
Scheduled payments on long term debt
Dividends received from joint venture
Distribution to non-controlling interests
Non-routine project costs
Other financing costs
Payments on long term incentive plans
(4,292)
4,517
230
(1,669)
—
(2,781)
888
676
—
27,571
47,980
(18,746)
68,494
3,476
68,026
(12,802)
—
11,017
(6,205)
—
(2,780)
—
—
—
(63,390)
4,584
35,097
(5,461)
—
(11,817)
1,953
676
8,953
(83,309)
5
63,431
(8,360)
1,490
(10,427)
—
—
—
(5,448)
54,663
(23,813)
978
7,700
(3,233)
1,240
(11,414)
—
—
—
Free cash flow1
$
64,390
$
37,210
$
39,089
$
30,856
$
26,121
Add/(less):
Other debt borrowings (repayments)
of debt, use of cashB
Issuance of equity
Other investing activitiesC
Other financing activities
Payments on long term incentive plans
Non-routine project costs
Other financing costs
90,261
—
(144,033)
(2,999)
—
(888)
(676)
(11,054)
—
(482)
(1,649)
—
—
—
78,099
58,628
(148,930)
(9,795)
(8,953)
(1,952)
(676)
(60,398)
32,487
1,805
(4,397)
—
—
—
(20,759)
—
(717)
—
—
—
—
Change in cash flows for the period
$
6,055
$
24,025
$
5,510
$
353
$
4,645
A Designated borrowings relate to capital projects for which there is long term financing and therefore they will not be financed with operating cash flows.
For the periods covered in this table that includes a conversion of a vessel for Argentina, the addition of a third clam vessel and a late life refit on a
shrimp vessel. For the purpose of free cash flow calculations the amount invested (up to the total amount of the related financing) during the period
on these projects is backed out of the calculation of free cash flows irrespective of the timing of the related borrowing.
B Other debt borrowings (repayments) of debt, use of cash for 2015 includes $35.1 million of cash invested in designated capital projects.
C Other investing activities include $151.1 million for the acquisition of Macduff, less cash acquired in the acquisition of $9.1 million.
1 Refer to discussion on non-IFRS measures, definitions and reconciliations.
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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 rolling twelve months ended December 31,
2015 and December 31, 2014 is as follows:
(In 000’s of Canadian dollars)
As at December 31
Adjusted EBITDA1
Depreciation and amortization
Adjusted earnings before interest and taxes
Total assetsA
$
2015
124,140
29,809
94,331
$
2014
87,368
23,753
63,615
$
2013
79,103
24,167
54,936
$
753,195
$
464,397
$
410,796
12.5%
13.7%
13.4%
A Return on assets declined to 12.5% in 2015 as a result of the timing of the investment in Macduff. The investment is included in the assets whereas
earnings only include the two months of earnings from the acquisition date of October 30, 2015 to December 31, 2015.
1 Refer to discussion on non-IFRS measures, definitions and reconciliations.
Clearwater Seafoods Incorporated 2015 Annual Report 65
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KPMG LLP
Suite 1500 Purdy’s Wharf Tower 1
1959 Upper Water Street
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
We have audited the accompanying consolidated financial statements of Clearwater Seafoods
Incorporated, which comprise the consolidated statements of financial position as at
December 31, 2015 and December 31, 2014, the consolidated statements of operations, other
comprehensive income, shareholders’ equity and cash flows for the years then ended, 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, 2015
and December 31, 2014, and its consolidated financial performance and its consolidated cash
flows for the years then ended in accordance with International Financial Reporting Standards.
Chartered Accountants
March 22, 2016
Halifax, Canada
66
Clearwater Seafoods Incorporated 2015 Annual Report
KPMG
LLP
is
a
Canadian
limited
liability
partnership
and
a
member
firm
of
the
KPMG
network
of
independent
member
firms
affiliated
with
KPMG
International
Cooperative
(“KPMG
International”),
a
Swiss
entity.
KPMG
Canada
provides
services
to
KPMG
LLP.
Clearwater_AR2015_Financials_FINAL.indd 66
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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.
March 22, 2016
ia n S m i tH
roBe r t wi gHt
Chief Executive Officer
Vice-President, Finance and Chief Financial Officer
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Clearwater Seafoods Incorporated 2015 Annual Report 67
Clearwater Seafoods Incorporated
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
As at December 31
a S Se tS
Current assets
Cash
Trade and other receivables (Note 6)
Inventories (Note 7)
Prepaids and other (Note 8)
Derivative financial instruments (Note 13)
Non-current assets
Long term receivables (Note 9)
Other assets
Property, plant and equipment (Note 10)
Intangible assets (Note 11)
Investment in equity investee (Note 21)
Deferred tax assets (Note 17(c))
Goodwill (Note 11)
t o taL aS Se tS
Li aBiLi t i eS
Current liabilities
Trade and other payables
Income tax payable (Note 17)
Current portion of long term debt (Note 12)
Derivative financial instruments (Note 13)
Non-current liabilities
Long term debt (Note 12)
Other long term liabilities
Deferred tax liabilities (Note 17(c))
S Ha r eHoLd e rS ’ eQ Ui t y
Share capital (Note 14)
Contributed surplus
Retained earnings (deficit)
Cumulative translation account
Non-controlling interest (Note 20)
2015
2014
$
51,106
81,734
65,022
9,587
3,788
$
47,598
49,812
40,056
5,508
5,312
211,237
148,286
10,076
1,164
251,197
201,846
9,311
14,184
54,180
541,958
3,872
288
186,017
98,742
6,198
15,356
5,638
316,111
$
753,195
$
464,397
$
$
82,870
454
65,685
18,622
167,631
415,084
2,088
19,317
436,489
157,161
547
(36,333)
(1,625)
119,750
29,325
149,075
$
$
52,308
1,367
22,847
8,691
85,213
250,194
—
1,003
251,197
97,267
—
11,084
(5,326)
103,025
24,962
127,987
t o taL S Ha r eHoLd e rS ’ eQ Ui t y a n d Li aBiLi t i eS
`
$
753,195
$
464,397
See the accompanying notes to the consolidated financial statements.
Approved by the Board:
J oHn riS Le y
Director
C oLi n maC do n aLd
Chairman
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Clearwater Seafoods Incorporated 2015 Annual Report
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Clearwater Seafoods Incorporated
Consolidated Statements of Operations
(In thousands of Canadian dollars)
Year ended December 31
Sales
Cost of goods sold
Administrative and selling costs
Net finance costs (Note 13 (d))
Losses on forward contracts (Note 13 (f))
Other expense (income) (Note 15)
Research and development
Earnings (loss) before income taxes
Income tax expense (Note 17)
Earnings (loss) for the year
Earnings (loss) attributable to:
Non-controlling interest
Shareholders of Clearwater
Basic and diluted loss per share (Note 16)
See the accompanying notes to the consolidated financial statements.
$
2015
504,945
372,757
132,188
51,363
68,204
26,480
444
1,981
148,472
(16,284)
4,387
2014
$
444,742
341,908
102,834
48,252
35,240
6,636
(5,031)
1,991
87,088
15,746
5,949
9,797
$
(20,671)
$
$
$
$
16,937
(37,608)
(20,671)
(0.65)
$
$
$
12,702
(2,905)
9,797
(0.05)
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Clearwater Seafoods Incorporated 2015 Annual Report 69
Clearwater Seafoods Incorporated
Consolidated Statements of Other Comprehensive Income
(In thousands of Canadian dollars)
Year ended December 31
Earnings (loss)
Other comprehensive income (loss) –
Items that may be reclassified subsequently to income (loss):
Foreign currency translation differences of foreign operations
Total comprehensive income (loss)
Total comprehensive income (loss) attributable to:
Non-controlling interest
Shareholders of Clearwater
See the accompanying notes to the consolidated financial statements.
2015
2014
$
(20,671)
$
9,797
3,848
(1,188)
$
(16,823)
$
8,609
$
17,084
(33,907)
$
11,370
(2,761)
$
(16,823)
$
8,609
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Clearwater Seafoods Incorporated
Consolidated Statements of Shareholders’ Equity
(In thousands of Canadian dollars)
Common
shares
Contributed
surplus
retained
earnings
(deficit)
Cumulative
translation
account
non-
controlling
interest
total
Balance at January 1, 2014
$ 64,780
$
—
$ 19,762
$
(5,470)
$ 24,669
$ 103,741
total comprehensive income
(loss) for the year
—
—
(2,905)
144
11,370
8,609
transactions recorded directly
in equity
Issuance of common shares
Distributions to
non-controlling interest
Dividends declared on
common shares (Note 14)
32,487
—
—
—
—
—
Total transactions with owners
32,487
—
—
—
(5,773)
(5,773)
—
—
—
—
—
32,487
(11,077)
(11,077)
—
(5,773)
(11,077)
15,637
Balance at December 31, 2014 $ 97,267
$
—
$ 11,084
$
(5,326)
$ 24,962
$ 127,987
total comprehensive (loss) income
for the year
—
transactions recorded directly
in equity
Issuance of common shares
Share based compensation
(Note 23)
Distributions to non-controlling
interest
Dividend equivalent units on
equity-settled share based
compensation (Note 23)
Dividends declared on common
shares (Note 14)
59,894
—
—
—
—
Total transactions with owners
59,894
—
(37,608)
3,701
17,084
(16,823)
—
547
—
—
—
547
—
—
—
(14)
(9,795)
(9,809)
—
—
—
—
—
—
—
—
59,894
547
(12,721)
(12,721)
—
—
(12,721)
(14)
(9,795)
37,911
Balance at
december 31, 2015
$ 157,161
$
547
$
(36,333)
$
(1,625)
$
29,325
$ 149,075
See the accompanying notes to the consolidated financial statements.
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Clearwater Seafoods Incorporated 2015 Annual Report 71
Clearwater Seafoods Incorporated
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
Year ended December 31
Operating
Earnings (loss) for the year
Adjustments for:
Depreciation and amortization
Net finance costs and unrealized derivative gains and losses
Income tax expense
Share based compensation
Impairment of property, plant and equipment and goodwill (Note 10 & 11)
(Gain) loss on disposal of property, plant, and equipment
Earnings in equity investee (Note 21)
Foreign exchange and other
Change in non-cash operating working capital (Note 25)
Interest paid
Income tax paid
Financing
Repayment of long term debt
Net proceeds from long term debt (Note 12)
Net proceeds from common share issue (Note 14)
Net repayments of revolving credit facility
Distributions paid to non-controlling interest
Advances to non-controlling interests
Dividends paid on common shares
Investing
Purchase of property, plant and equipment, and other
Proceeds on disposal of property, plant and equipment
Dividends received from equity investee
Acquisition of subsidiary net of cash acquired (Note 4)
Purchase of other assets
Net receipts of long term receivables
Effect of foreign exchange rate changes on cash
inCre aSe in CaSH
CaS H, Beginning oF Period
CaS H, end oF Period
See the accompanying notes to the consolidated financial statements.
2015
2014
$
(20,671)
$
9,797
29,732
78,457
4,229
5,270
—
(144)
(2,591)
15,352
109,634
(21,646)
(16,101)
(3,393)
23,753
31,744
5,949
8,948
1,934
76
(2,987)
2,250
81,464
3,604
(15,067)
(1,975)
$
68,494
$
68,026
(12,692)
104,027
58,628
16,400
(11,817)
(1,824)
(9,795)
(14,848)
11,207
32,487
(31)
(10,427)
(1,104)
(5,773)
$
142,927
$
11,511
(63,390)
4,584
—
(142,404)
(1,335)
(3,366)
$
$
$
(205,911)
$
(2,002)
3,508
47,598
(83,309)
5
1,490
—
(65)
2,695
(79,184)
452
805
46,793
$
51,106
$
47,598
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Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
1 . d eS Cr iPt i o n oF tHe B U Si n eS S
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 partnership units of Clearwater Seafoods Limited Partnership
(“CSLP”), which holds the underlying investments in subsidiaries and joint ventures.
The consolidated financial statements of Clearwater as at and for the years ended December 31, 2015 and 2014 comprise
the company, its subsidiaries and a joint venture (see Note 19). Clearwater’s business includes the ownership and operation
of assets and property in connection with the harvesting, processing, distribution and marketing of seafood.
2 . B aSiS oF Pr eP a r at i o n
(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 March 22, 2016.
(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
• Embedded derivative liability within long term debt
• Earnout liability entered into as part of a business combination
• 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 the functional currency of Clearwater
and its Canadian subsidiaries. Clearwater’s subsidiary in the United Kingdom has a functional currency of Pounds Sterling
and the Argentine operations have an Argentine Peso functional currency. All tabular financial information presented in
Canadian dollars has been rounded to the nearest thousand except as otherwise noted.
(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
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Clearwater Seafoods Incorporated 2015 Annual Report 73
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
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 17.
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 cash-generating unit 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 these 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 behaviours
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 23.
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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.
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.
v) earnout
Key sources of estimation uncertainty
Clearwater determines the fair value measurement of the Earnout based on significant inputs not observable in the market.
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
forecasted earnings and probability assessments.
3 . Si g n iFiCa n t aC CoUn t i n g PoLiCi eS
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.
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Clearwater Seafoods Incorporated 2015 Annual Report 75
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are 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 the estimated selling price in the ordinary course of
business, less the 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 its estimated useful life. 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 and equipment
Vessels
Vessels equipment
rate
10 to 40 years
3 to 20 years
5 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.
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 administrative and
selling 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.
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ii) Licenses, brand names 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.
Brand names represent intangible assets acquired 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. Brand
names are not amortized.
Fishing rights arise from contractual rights to fish quotas; they 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 or 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.
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
Category
measurement method
Cash
Fair value through profit or loss
Fair value
Trade and other receivables
Long term receivables
Trade and other payables
Long term debt
Loans and receivables
Loans and receivables
Non-derivative financial
Non-derivative financial
Initial: Fair Value
Subsequent: Amortized cost
through profit or loss
Earnout liability
Derivative financial instruments
Derivative financial instruments
Derivative financial instruments
Fair value
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 are subsequently measured at amortized cost, with gains and losses recognized in profit or loss in the
period in which they arise.
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Clearwater Seafoods Incorporated 2015 Annual Report 77
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
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.
The Earnout liability is unsecured additional consideration to be paid dependent upon the future financial performance of Macduff
and the percentage of Deferred Obligation remaining unpaid at the time of payment. Refer to Note 12 for further information.
Derivative financial instruments and embedded derivatives are recorded at fair value with mark-to-market adjustments recorded
in profit or loss.
(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 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.
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.
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(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 of 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 into Canadian dollars
at exchange rates at the reporting date. Foreign currency differences resulting from this translation are recognized in other
comprehensive income in the cumulative translation account. The income and expenses of foreign operations are translated to
Canadian dollars at average exchange rates.
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 they relate 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 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 it 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 in 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, gains and losses recognized on derivative financial assets and liabilities, gains and losses on
financial instruments that are recognized in profit or loss, foreign exchange gains and losses, and refinancing and settlement
fees. 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.
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Clearwater Seafoods Incorporated 2015 Annual Report 79
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
(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.
deferred share units (“dSU”)
There are two deferred share unit plans 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 the
grant date.
Performance share units (“PSU”)
On May 12, 2015, Clearwater amended the terms of its performance share unit (“PSU”) plan. Under the plan, holders of PSU
units receive settlement amounts measured 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.
Under the original terms of the PSU plan, vested units were to be settled in cash at the end of the performance period. Under
the amended terms of the PSU plan, vested units are to be settled in cash or shares or by a combination thereof. Prior grants
will continue to be cash-settled, and all future grants under the PSU plan, including the awards granted in the second quarter
of 2015, will be settled by the issuance of shares.
Cash-settled PSU awards are recorded as liabilities at fair market value at each reporting period with changes in fair value
recorded to profit and loss. Equity-settled PSU awards are measured at fair market value on the grant date of the awards. The
fair value of the PSU’s are 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. Clearwater
estimates the expected forfeiture rate for each plan and adjusts for actual forfeitures in the period.
The share based compensation liability related to cash-settled PSU’s is included in trade and other payables in the consolidated
statement of financial position. Compensation expense related to the equity-settled PSU’s is recorded as contributed surplus in
equity. The related compensation expense for both cash-settled and equity-settled PSU’s is recorded in administrative expense
in the statement of earnings over the vesting period.
(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, adjusted
for the change in the fair market value of the cash-settled PSU’s, by the weighted average number of common shares outstanding
and the voting rights attributable to the PSU’s outstanding during the year. The calculation of the potential dilutive common
shares assumes all outstanding PSU’s are contingently issuable shares.
(o) Application of new and revised International Financial Reporting Standards (IFRS)
Clearwater has adopted the following new and revised standards, along with any consequential amendments, effective January 1,
2015. These changes were made in accordance with the applicable transitional provisions.
Annual Improvements to IFRS (2010–2012) and (2011–2013) cycles
On December 12, 2013 the IASB issued narrow-scope amendments to a total of nine standards as part of its annual improvements
process. The IASB uses the annual improvements process to make non-urgent but necessary amendments to IFRS. These
improvements had no impact on Clearwater.
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(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.
Business combination accounting for interests in a joint operation (Amendments to IFRS 11)
The amendments require business combination accounting to be applied to acquisitions of interests in a joint operation that
constitute a business. The Company intends to adopt the amendments to IFRS 11 in its financial statements for the annual
period beginning on January 1, 2016. The extent of the impact of adoption of the amendments has not yet been determined.
IFRS 15 – Revenue from Contracts with Customers
The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at
a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how
much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the
amount and/or timing of revenue recognized. The Company intends to adopt IFRS 15 in its financial statements for the annual
period beginning on January 1, 2018. The extent of the impact of adoption of the standard has not yet been determined.
IFRS 9 Financial Instruments
IFRS 9 (2014) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2014),
financial assets are classified and measured based on the business model in which they are held and the characteristics of their
contractual cash flows. The standard introduces additional changes relating to financial liabilities. It also amends the impairment
model by introducing a new ‘expected credit loss’ model for calculating impairment. IFRS 9 (2014) also includes a new general
hedge accounting standard which aligns hedge accounting more closely with risk management. This new standard does not
fundamentally change the types of hedging relationships or the requirement to measure and recognize ineffectiveness, however
it will provide more hedging strategies that are used for risk management to qualify for hedge accounting and introduce more
judgment to assess the effectiveness of a hedging relationship.
Special transitional requirements have been set for the application of the new general hedging model.
The Company intends to adopt IFRS 9 (2014) in its financial statements for the annual period beginning on January 1, 2018.
The extent of the impact of adoption of the standard has not yet been determined.
Transfer of assets between an investor and its associate or joint venture (amendments to IFRS 10)
The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28 (2011),
in dealing with the sale or contribution of assets between an investor and its associate or joint venture. Specifically, under the
existing consolidation standard the parent recognises the full gain on the loss of control, whereas under the existing guidance
on associates and JVs the parent recognises the gain only to the extent of unrelated investors’ interests in the associate or JV.
The main consequence of the amendments is that a full gain/loss is recognised when the assets transferred meet the definition
of a ‘business’ under IFRS 3 Business Combinations. A partial gain/loss is recognised when the assets transferred do not meet
the definition of a business, even if these assets are housed in a subsidiary.
The Company intends to adopt these amendments in its financial statements for the annual period beginning on January 1,
2016. The extent of the impact of adoption of the amendments has not yet been determined.
Annual Improvements to IFRS (2012–2014) cycle
On September 25, 2014 the IASB issued narrow-scope amendments to a total of four standards as part of its annual improvements
process. The Company intends to adopt these amendments in its financial statements for the annual period beginning on
January 1, 2016. The extent of the impact of adoption of the amendments has not yet been determined.
Disclosure Initiative
On December 18, 2014 the IASB issued amendments to IAS 1 Presentation of Financial Statements as part of its major initiative
to improve presentation and disclosure in financial reports. These amendments will not require any significant change to current
practice, but should facilitate improved financial statement disclosures. The Company intends to adopt these amendments
in its financial statements for the annual period beginning on January 1, 2016. The extent of the impact of adoption of the
amendments has not yet been determined.
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Clearwater Seafoods Incorporated 2015 Annual Report 81
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
IFRS 16 Leases
On January 13, 2016 the IASB issued IFRS 16 Leases. This standard introduces a single lessee accounting model and requires
a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of
low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease
liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting
requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting
model have been impacted, including the definition of a lease. Transitional provisions have been provided. The Company intends
to adopt IFRS 16 in its financial statements for the annual period beginning on January 1, 2019. The extent of the impact of
adoption of the standard has not yet been determined.
4 . B U Si n eS S Co mBi n at i o nS
On October 30, 2015 Clearwater acquired 100% of all outstanding shares of Macduff Shellfish Group Limited (“Macduff”), a
wild shellfish company based in Scotland, pursuant to the terms and conditions set forth in a share purchase agreement dated
October 9, 2015. Macduff expands Clearwater’s access to shellfish supply and diversifies Clearwater’s access in wild shellfish
complementary species including King and Queen scallops, langoustine, brown crab and whelk, the majority of which is sold
within the European market. The transaction will allow Clearwater to integrate its vessel management and sustainable harvesting
practices, innovative processing technologies along with its global sales, marketing and distribution into Macduff, a company
that holds resource assets, 13 mid-shore scallop trawlers, and a strong presence in the European Union.
The total fair value of the consideration paid or payable by Clearwater in connection with the Acquisition as of the closing was
£81 million plus the repayment of Macduff outstanding debt facilities of £19 million (CAD $39.0 million) and management fees
of £1.6 million (CAD $3.2 million) for a total of £102 million (CAD $206 million).
The fair value of the consideration of approximately £81 million is comprised of:
• cash paid on closing to shareholders of £54 million (CAD $109.2 million);
• an unsecured £26.2 million deferred consideration obligation (“Deferred Obligation”) with a fair value of £20.9 million
(CAD $42.3 million); and
• unsecured additional consideration to be paid in the future dependent upon the future financial performance of Macduff
(“Earnout”) with an acquisition date estimated fair value of £6.1 million (CAD $12.4 million).
The Company has incurred acquisition-related costs of $3.2 million for legal fees, due diligence, and other related costs. These
costs have been recorded in other expenses.
Clearwater financed the cash portion of the acquisition from existing loan facilities and cash on hand including (refer to Note 12):
• CAD $75 million increase in its Term Loan B facility
• CAD $25 million increase in its Revolving Loan Facility
• CAD $51 million borrowing on its existing Revolving Loan Facility
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The following table summarizes the purchase price for the Macduff acquisition as of October 30, 2015:
Cash paid to settle outstanding shareholder loans
Cash paid to settle preferred shares and dividends
Cash paid to acquire common shares
Repayment of loans:
Repayment of Macduff bank loans and revolver
Payment of Management fees
Deferred Obligation:
Fair value of unsecured Deferred obligation (Refer to Note 12)
Fair value of unsecured Earnout (Refer to Note 12)
Total purchase price consideration
deferred obligation
Estimated preliminary
fair value in Sterling (£)
Estimated preliminary
fair value in CAD ($)
£
28,228
20,144
5,542
£
53,914
19,275
1,599
$
57,181
40,806
11,226
$
109,214
39,045
3,239
£
20,874
$
42,284
20,900
6,100
27,000
101,788
£
£
42,337
12,357
54,694
206,192
$
$
The Deferred Obligation applies to 33.75% of the shares acquired by Clearwater (the “Earn Out Shares”). The amount of
£26.2 million will be paid over the next five to six years, depending on whether the holders of the Earn Out Shares elect to be
paid in the first year (after which Clearwater has the right to exercise the payout). The fair value the Deferred Obligation was
determined to be £20.9 million (CAD $42.3 million) as of the acquisition date based on the expected cash flow timing discounted
at a rate of 7.75%. Refer to Note 12 for further information on the fair value of the deferred obligation at December 31, 2015.
the earnout
The Earnout is unsecured additional consideration to be paid dependent upon the future financial performance of Macduff
and the percentage of Deferred Obligation remaining unpaid at the time of payment (refer to Deferred Obligation above). The
acquisition date estimated fair value of the Earnout is £6.1 million (CAD $12.4 million) based on forecast earnings and probability
assessments. The actual Earnout payments are expected to be paid over the next five years. Refer to Note 12 for further
information on the fair value of the earnout at December 31, 2015.
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Clearwater Seafoods Incorporated 2015 Annual Report 83
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
The initial estimates of the fair value of the identifiable assets and liabilities of the acquisition as at the date of the acquisition
were as follows:
Provisional fair value
recognized on acquisition CAD ($)
assets
Cash
Accounts receivable
Inventories
Other assets
Branding
Property, plant and equipment
Licenses and fishing rights
Liabilities
Trade and other payables
Capital leases
Deferred tax liabilities
Goodwill arising on acquisition
Total purchase price consideration
$
9,119
18,220
21,314
5,342
12,474
33,994
89,805
$
190,268
(13,237)
(1,337)
(19,173)
(33,747)
$
156,521
49,670
$
206,191
The net assets recognized in the December 31, 2015 financial statements are based on provisional estimates of fair value. The
Company has engaged an independent valuations advisor to value the acquired assets. The final valuation is not complete due
to the timing of the acquisition and the inherent complexity associated with the valuations and thus has not been received as at
the date these financial statements were approved for issue. In addition, the Company has not finalized its measurement of the
deferred taxes with respect to the acquired net assets. As a result, the financial information disclosed is based on management’s
best estimates and is disclosed on a provisional basis.
Pending the finalization of the valuation reports noted above and their impact on accounting for taxes, which are incomplete at
this time, the Company is only able to provide provisional fair value for licenses and brands acquired as part of the acquisition
based on preliminary information we have gathered during the due diligence phase of completing the acquisition and is subject
to revisions in future periods resulting from the finalization of the purchase price accounting. The goodwill recognized is not
expected to be deductible for income tax purposes.
In the two month period from the date of the acquisition, Macduff has contributed $27 million in sales. If the acquisition
had occurred on January 1, 2015, management estimates that the consolidated revenue of the Company would have been
$589.7 million, and consolidated loss for the year would have been approximately $16.3 million on a pro forma basis.
In determining these amounts, management has assumed that the fair value adjustments, determined provisionally, that arose
on the acquisition date would have been the same if the acquisition had occurred on January 1, 2015. This pro forma
consolidated information is not intended to be indicative of the results that would actually have occurred, or the results expected
in future periods.
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5 . e mP Lo y e e Co mPe nSat i o n
Employee compensation is classified in the consolidated statement of earnings based on the related nature of the service
performed. The following table reconciles Clearwater’s compensation expense items to where the amounts are presented on
the consolidated statement of earnings:
Year ended December 31
Salaries and benefits
Share based compensation
Cost of goods sold
Administrative and selling
6 . t r a d e a n d o tHe r r eCe iV
aB LeS
As at December 31
Trade receivables
Other receivables
2015
2014
$
121,730
5,269
$
101,628
8,948
$
126,999
$
110,576
$
90,505
36,494
$
74,428
36,148
$
126,999
$
110,576
$
2015
72,234
9,500
$
2014
42,142
7,670
$
81,734
$
49,812
Included in other receivables is $4.7 million (December 31, 2014 – $5.0 million) of input tax credits receivable and $4.8 million
(December 31, 2014 – $2.7 million) of other receivables.
7 .
i nVe n t o r i eS
As at December 31
Goods for resale
Supplies and other
2015
52,594
12,428
$
2014
30,010
10,046
65,022
$
40,056
$
$
In 2015 inventory costs of $341.6 million (2014 – $323.7 million) were recognized in cost of goods sold. Clearwater incurred
$3.7 million (2014 – $3.2 million) in inventory write-downs included in cost of goods sold. Refer to Note 12 for assets pledged
as security for long term debt.
8 . Pr eP a i dS a n d o tHe r
As at December 31
Prepaids
Due from related parties (Note 19)
9 . Lo n g-t e r m r eCe iV aB LeS
As at December 31
Notes receivable from non-controlling interest holder in subsidiary
Advances to fishermen
2015
9,571
16
9,587
2015
1,343
8,733
10,076
$
$
$
$
$
$
$
$
2014
5,479
29
5,508
2014
1,012
2,860
3,872
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Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
Notes receivable from non-controlling interest consists of funds that are advanced to a shareholder in an incorporated subsidiary.
The notes bear interest at rates ranging from 0%–12% (2014 – 0%–12%), and they are unsecured and have no set terms of
repayment.
Certain advances to fishermen are made for a fixed term, secured by an assignment of catch and are non-interest bearing
unless there is no supply for 6 weeks, at which time the loans become repayable in installments and are interest bearing. Other
advances to fishermen bear interest at prime plus 2%–3% (2014 – prime plus 5%–7.5%) are due on demand, and are secured
by an assignment of catch, a marine mortgage on the related vessels, equipment and licenses. Advances to fishermen are
presented as non-current as the entire balances are not expected to be repaid in the current year and it is not Clearwater’s
intention to demand payment unless the terms of the advance agreements are not met. Certain advances to fishermen are
denominated in Pounds Sterling (see Note 13 (h)).
1 0 . Pr oPe r t y , P La n t a n d eQ UiPm e n t
Building and
wharves
Land
equipment
Vessels and
vessel
equipment
Construction
in progress
total PPe
deferred
gov’t
assistance
total
$ 2,795
Cost
Balance at
January 1, 2015
Acquisitions through
business combinations —
—
Additions
Disposals
—
Reclassifications and
other adjustments
Effect of movements
in exchange rates
33
(5)
$ 62,706
$ 74,790
$ 225,481
$ 51,142
$ 416,914
$ (8,962)
$ 407,952
3,559
111
(8)
4,898
569
(616)
25,433
3,786
(18,995)
—
60,220
—
33,890
64,686
(19,619)
1,239
(5,235)
98,892
(89,748)
5,181
(372)
261
(6,580)
(2)
(6,698)
—
—
—
—
—
33,890
64,686
(19,619)
5,181
(6,698)
Balance at
December 31, 2015
depreciation
Balance at
January 1, 2015
Depreciation for the year
Disposals
Reclassifications and
other adjustments
Effect of movements
in exchange rates
Balance at
December 31, 2015
$ 2,823 $ 67,235
$ 74,667
$ 328,017
$ 21,612
$ 494,354
$ (8,962)
$ 485,392
$
974
15
—
$ 45,969
1,906
(8)
$ 65,177
1,931
(590)
$ 117,483
24,319
(13,698)
$
—
—
—
4
(6,954)
7,073
176
(1,529)
—
—
—
—
—
$ 229,603
28,171
(14,296)
$ (7,668)
(385)
—
$ 221,935
27,786
(14,296)
119
(1,349)
—
—
119
(1,349)
$
989 $ 47,871
$ 59,740
$ 133,648
$
—
$ 242,248
$ (8,053)
$ 234,195
Carrying amounts
At January 1, 2015
$ 16,737
At December 31, 2015 $ 1,834 $ 19,364
$ 1,821
$ 9,613
$ 14,927
$ 107,998
$ 194,369
$ 51,142
$ 21,612
$ 187,311
$ 252,106
$ (1,294)
(909)
$
$ 186,017
$ 251,197
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Building and
wharves
Land
Equipment
Vessels and
vessel
equipment
Construction
in progress
Total PPE
Deferred
gov’t
assistance
Total
Cost
Balance at
January 1, 2014
Additions
Disposals
Reclassifications and
replacement assets
Impairments
Effect of movements
in exchange rates
Balance at
December 31, 2014
$ 2,783
60
(43)
$ 66,022
24
(5,869)
$ 77,070
167
(1,476)
$ 191,076
678
(11,787)
$ 21,855
82,381
—
$ 358,806
83,310
(19,175)
$ (8,962)
—
—
$ 349,844
83,310
(19,175)
—
—
(5)
2,532
—
(945)
—
47,960
(590)
(53,020)
—
(3,473)
(590)
(3)
(26)
(1,856)
(74)
(1,964)
—
—
—
(3,473)
(590)
(1,964)
$ 2,795
$ 62,706
$ 74,790
$ 225,481
$ 51,142
$ 416,914
$ (8,962)
$ 407,952
$ 1,006
11
(43)
depreciation and impairment losses
Balance at
January 1, 2014
Depreciation for the year
Disposals
Reclassifications and
other adjustments
Impairments
Effect of movements
in exchange rates
—
—
—
$ 50,578
1,766
(5,869)
$ 67,792
1,852
(1,476)
$ 111,298
18,668
(11,708)
$
(502)
—
(2,971)
—
—
(61)
(4)
(20)
(714)
—
—
—
—
—
—
$ 230,674
22,297
(19,096)
$ (7,281)
(387)
—
$ 223,393
21,910
(19,096)
(3,473)
(61)
(738)
—
—
—
(3,473)
(61)
(738)
Balance at
December 31, 2014
Carrying amounts
At January 1, 2014
At December 31, 2014
$
974
$ 45,969
$ 65,177
$ 117,483
$
—
$ 229,603
$ (7,668)
$ 221,935
$ 1,777
$ 1,821
$ 15,444
$ 16,737
$ 9,278
$ 9,613
$ 79,778
$ 107,998
$ 21,855
$ 51,142
$ 128,132
$ 187,311
$ (1,681)
$ (1,294)
$ 126,451
$ 186,017
Total depreciation and amortization expense related to property, plant and equipment and definite-life intangible assets for
2015 was $29.7 million (2014 – $23.8 million). In 2015, $29.2 million (2014 – $23.3 million) of depreciation and amortization
expense for assets used in the harvesting and production of goods was classified as cost of goods sold and $0.5 million (2014
– $0.4 million) was recorded in administrative and selling costs for assets used in administrative activities. Refer to Note 12 for
assets pledged as security for long term debt.
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Clearwater Seafoods Incorporated 2015 Annual Report 87
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
1 1 . i n ta n g iB Le aS Se tS a n d g o o d w iL L
Intangible assets
Goodwill
Brand names
Indefinite
life licenses
Fishing rights
Total
Goodwill
and intangible
asset total
Cost
Balance at
January 1, 2014
Impairment of non-core
species
Foreign currency exchange
translation
Balance at December 31, 2014
Acquisition through business
combination
Additions
Foreign currency
exchange translation
$ 7,043
$
(1,405)
—
5,638
47,857
—
12,474
—
—
—
—
—
$ 82,726
$ 24,094
$ 106,820
$ 113,863
—
(922)
81,804
89,790
—
—
—
—
(1,405)
(922)
(922)
24,094
105,898
111,536
—
2,644
102,264
2,644
150,121
2,644
Balance at
December 31, 2015
$ 54,180
$ 12,680
$ 172,179
$
26,078
$ 210,937
$ 265,117
685
206
585
(660)
131
816
accumulated amortization
Balance at January 1, 2014
Amortization expense
$
Balance at December 31, 2014
Amortization expense
Foreign currency exchange
translation
—
—
—
—
—
$
$
—
—
—
—
—
$
—
$
—
$
Balance at
December 31, 2015
Carrying amounts
As at December 31, 2014
As at December 31, 2015
—
—
—
—
—
—
$
5,353
1,803
7,156
1,975
$
5,353
1,803
7,156
1,975
$
5,353
1,803
7,156
1,975
(40)
(40)
(40)
$
9,091
$
9,091
$
9,091
$ 5,638
$ 54,180
$
—
$ 12,680
$ 81,804
$ 172,179
$ 16,938
16,987
$
$ 98,742
$ 201,846
$ 104,380
$ 256,026
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
stocks of the species are healthy. The licenses and goodwill are tested for impairment annually and when circumstances indicate
the carrying value may be impaired.
As at December 31
2015
2014
Scallops
Goodwill – $ nil (December 31, 2014 $ nil) Indefinite life licenses –
$57.6 million (December 31, 2014 $55.7 million)
all other CgU’s individually without significant carrying value
Goodwill – $54.2 million (December 31, 2014 $5.6 million) Indefinite life licenses –
$114.6 million (December 31, 2014 $26.1 million) Brand names – $12.7 million
(December 31, 2014 – $ nil)
$ 57,623
$
55,719
181,416
31,723
$ 239,039
$
87,442
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Indefinite life licenses and goodwill
Annual impairment testing for indefinite life licenses and goodwill was performed using a value in use approach as of October 3, 2015.
The recoverable amounts for all CGU’s were determined to be higher than their carrying amounts and therefore no impairments
were recorded during 2015.
During the year ended December 31, 2014, Clearwater recorded a $1.4 million impairment loss to goodwill associated with
a processing facility within the cooked & peeled shrimp CGU (a non-core species) and the Canadian reportable segment,
which was the result of estimated other than temporary reductions in margins for the cooked and peeled shrimp business.
The recoverable amount of the cooked & peeled shrimp CGU was $12.7 million and was determined through the value in use
approach with a pre-tax discount rate of 13.2%. Impairment losses are recognized within administrative and selling in the
consolidated statements of operations.
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, the assumptions used in the value
in use approach for 2015 were determined similarly to those used in 2014.
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 forecasted earnings. Terminal values and forecasts for future periods were extrapolated using inflation
rates of 1% (2014: 1%). For some CGU’s, this inflation rate is well below the actual current inflation for the country. Gross
margins for all future periods were estimated using a combination of forecasted and consideration of historical margins.
ii) Pre-tax discount rates ranging from 13%–18% (2014: 13%–18%) 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 management’s sustaining capital expenditure forecast, and
terminal year capital expenditures were based on estimates of required refits over the period of the fishing license.
The key assumptions represent management’s assessment of future trends in the industry and are based on both internal and
external sources.
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. In 2015, Clearwater acquired fishing rights for CAD $2.6 million. These fishing rights relate to the Scallop
CGU, are valid for 15 years and are amortized over that period. In 2015, there have been no disposals.
Goodwill, indefinite life licenses and brand names resulting from the acquisition of Macduff
At December 31, 2015, the initial accounting for the Macduff business combination was based on a preliminary allocation of the
purchase price. Clearwater will perform a goodwill impairment test on the carrying value of goodwill and indefinite life intangible
assets resulting from the acquisition of Macduff during the third quarter of 2016, once the allocation of the purchase price is
complete and the amount of goodwill and indefinite life intangible assets resulting from the business combination are finalized.
At December 31, 2015, there were no indications that any of the assets acquired in the Macduff business combination were
impaired.
Refer to Note 12 for assets pledged as security for long term debt.
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Clearwater Seafoods Incorporated 2015 Annual Report 89
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
1 2 . Lo n g-t e r m d eBt
As at December 31
Term loans (a)
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
Revolving facility (a)
Deferred obligation (b)
Earnout liability (b)
Term loan, due June 2016 (c)
Multi-currency revolving facility (d)
Marine mortgage, due in 2017
Term loan, due in 2091 (e)
Other loans
Less: current portion
2015
2014
$
26,889
28,673
332,671
2,353
$
28,950
(608)
224,366
3,845
16,400
43,035
12,561
13,953
—
457
3,500
277
—
—
—
11,595
21
1,030
3,500
342
480,769
(65,685)
273,041
(22,847)
$
415,084
$
250,194
(a) Term loans consist of a CAD $30.0 million Term Loan A facility, a CAD $30.0 million Delayed Draw Term Loan A facility,
and a Term Loan B facility of USD $200.0 million and CAD $75.0 million.
Term Loan A – The principal outstanding as at December 31, 2015 was CAD $27.0 million (December 31, 2014 –
$29.0 million). The balance is shown net of deferred financing charges of CAD $0.1 million (December 31, 2014 – nil million). The
loan is repayable in quarterly installments of $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 December 31, 2015 this resulted in an effective rate of 4.09%.
Delayed Draw Term Loan A – The principal outstanding as at December 31, 2015 was $29.3 million. The balance is shown
net of deferred financing charges of CAD $0.6 million (December 31, 2014 – $0.6 million). The facility is repayable in quarterly
installments of $0.4 million. The facility matures in June 2018 and bears interest payable monthly at the banker’s acceptance
rate plus 3.25%. As at December 31, 2015 this resulted in an effective rate of 4.09%.
Term Loan B – The principal outstanding as at December 31, 2015 was USD $189.7 million (December 31, 2014 –
$196.8 million) and CAD $74.8 million (December 31, 2014 $ nil). The loan is repayable in quarterly installments of
USD $0.5 million and CAD $0.2 million, with the balance due at maturity in June 2019. The USD balance bears interest payable
monthly at the US Libor plus 3.50% with a LIBOR interest rate floor of 1.25%, and the CAD balance bears interest at the banker’s
acceptance rate plus 3.50%. As of December 31, 2015 this resulted in an effective rate of 4.75% on the USD balance and 4.34%
on the CAD balance. 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 as a component of net finance costs.
In addition, Clearwater has a CAD $100.0 million revolving facility that matures in June 2018. The facility can be denominated in
Canadian and US dollars. As at December 31, 2015 the balances in Canadian dollars were $16.4 million (December 31, 2014 –
$ nil) and in US dollars, $ nil (December 31, 2014 – $ nil). The Canadian dollar balances bear interest at the banker’s acceptance
rate plus 3.25%. The US dollar balances bear interest at the US Libor rate plus 3.25%. As of December 31, 2015 this results in
effective rates of 4.09% for Canadian dollar balances and 3.86% for US dollar balances.
The revolver, term loan A, delayed draw and term loan B are secured by a first charge on cash and cash equivalents, accounts
receivable, inventories, marine vessels, licenses and quotas, and Clearwater’s investments in certain subsidiaries.
Clearwater’s debt facilities are subject to certain financial and non-financial covenants. Clearwater is in compliance with all
covenants associated with its debt facilities.
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In addition to the minimum principal payments for Term Loans A and B, the loan agreement requires that between 0% and
50% of excess cash flow (defined in the loan agreement as EBITDA, excluding non-controlling interest in EBITDA and the most
significant non-cash and non-recurring items less certain scheduled principal payments, certain capital expenditures and certain
cash taxes) be used to repay the principal 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.
Refer to Note 13(b) for detail on interest rate caps and swaps that hedge interest rate risk on the term loans.
(b) Deferred obligation – The deferred obligation relates to deferred payments for 33.75% of the shares of Macduff Shellfish Group
Limited (see Note 4) acquired by Clearwater (the “Earn Out Shares”). The amount of the deferred obligation is £26.2 million and
does not bear interest. The estimated fair value, measured using discounted cash flows, is £20.9 million (CAD $43.0 million).
In each year, the former holders of the Earn Out Shares can elect to be paid up to 20% of the Deferred Obligation. Clearwater
has the right to exercise the payout of 20% of the Deferred Obligation annually commencing two years after the date of closing.
The percentage of the Deferred Obligation remaining unpaid will impact the fair value of the future performance component of the
additional consideration, the Earnout. The fair value of the Deferred Obligation was estimated as of the acquisition date based on
discounting the projected future cash flows. Refer to Note 13(l) for further information on the process and inputs used to determine
fair value. The Deferred Obligation is being accreted to the principal amount over the estimated term using the effective interest
method with an effective average interest rate of 7.8%.
Earnout liability – The Earnout liability is unsecured additional consideration to be paid dependent upon the future financial
performance of Macduff and the percentage of Deferred Obligation remaining unpaid at the time of payment (refer to Deferred
Obligation above). The estimated fair value of the Earnout liability at December 31, 2015 is £6.1 million (CAD $12.6 million) based
on forecast earnings and probability assessments. The actual Earnout payments are expected to be paid over the next five years.
Refer to Note 4 for further information.
The amount of the total Earnout is calculated as follows:
The greater of:
£3.8 million; OR
i)
ii) up to 33.75% (dependent upon the percentage of Deferred obligation remaining unpaid each year) of the increase in equity
value of the business over five years calculated as 7.5x adjusted EBITDA of Macduff less the outstanding debt of Macduff; and
iii) 10% of adjusted EBITDA of Macduff above £10 million (dependent upon the percentage of Deferred obligation remaining unpaid
each year)
Refer to Note 13(l) for further information on the process in which to determine fair value of the Earnout liability. The Earnout liability
is recorded at fair value on the balance sheet at each reporting period until paid in cash, with changes in the estimated fair value
being recorded as a component of other expense on the statement of operations.
(c) Term Loan – The principal outstanding as at December 31, 2015 was USD $10.0 million (December 31, 2014 – $10.0 million).
The loan is held through a Clearwater subsidiary. The loan is non amortizing, repayable at maturity in June 2016 and bears
interest payable monthly at 8.0%. Clearwater provides a guarantee on the term loan.
(d) On April 29, 2014, Clearwater entered into a multi-currency revolving facility agreement that allows Clearwater to borrow a
maximum of DKK 53.0 million, which can be denominated in either DKK or Canadian and US dollar equivalents. The principal
availability reduces by the equivalent of DKK 10.6 million per year on June 30, 2016 and each anniversary thereafter until the
loan is fully repaid. As at December 31, 2015 the balance of the revolving facility is DKK nil million and a Canadian equivalent
$ nil million (December 31, 2014 DKK 0.1 million and a Canadian equivalent of $0.02 million). The facility bears interest in the
same currency as the currency in which the principal balance is denominated. The interest is payable on the last day of each
fiscal quarter at the N-bor rate applicable to the currency of the facility plus 1.875%. The N-bor rate is a variable interest rate
as designated by the lender.
(e) Term Loan – due in 2091. In connection with this term 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%.
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Clearwater Seafoods Incorporated 2015 Annual Report 91
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
1 3 . Fi n a nCi aL i nSt rUm e n tS
The Company periodically enters into derivatives as part of an active economic hedging program to manage financial risks. The
Company has elected not to use hedge accounting for these instruments and consequently changes in fair value are recorded
in earnings as they occur:
Summary of derivative financial instrument positions:
As at December 31
derivative financial assets
Forward foreign exchange contracts
Interest rate caps, floors and cross-currency swap contracts
derivative financial liabilities
Forward foreign exchange contracts
Interest rate swap contracts
2015
2014
$
$
$
—
3,788
3,788
(12,437)
(6,185)
$
$
$
4,678
634
5,312
(5,469)
(3,222)
$
(18,622)
$
(8,691)
(a) Clearwater has forward contracts maturing each month until December 2016. At December 31, 2015 Clearwater had
outstanding forward contracts as follows:
Currency
Sell:
Euro
USD
Yen
Foreign currency
notional amount
(in 000’s)
Average
contract
exchange rate
Weighted
average
months
to maturity
Fair value
asset (liability)
43,400
65,200
3,356,000
1.446
1.279
0.011
$
8
7
8
(3,153)
(6,466)
(2,818)
$
(12,437)
At December 31, 2014, Clearwater had outstanding forward contracts as follows:
Currency
Sell:
Euro
Yen
Sell:
USD
Foreign currency
notional amount
(in 000’s)
Average
contract
exchange rate
Weighted
average
months
to maturity
Fair value
asset (liability)
48,500
3,155,000
1.463
0.010
103,600
1.100
8
8
8
$
$
$
$
2,892
1,786
4,678
(5,469)
(5,469)
Certain USD forward contracts contain provisions that, subject to the spot rate being greater than the contract rate, the
contract rate is adjusted by 50% or 25% (December 31, 2014 – 50%) of the excess of the spot rate over the contract rate
at maturity. The notional amount of the forward contracts subject to the contract rate being adjusted by 25% in US dollars
at December 31, 2015 was $13.2 million (December 31, 2014 – $ nil). The notional amount of the forward contracts subject
to the contract rate being adjusted by 50% in US dollars at December 31, 2015 was $ nil million (December 31, 2014 –
$35.6 million).
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(b) During the year ended December 31, 2015, Clearwater entered into an interest rate floor contract and a cross-currency
swap contract in order to mitigate the risk of currency fluctuations relating to its USD debt obligations.
At December 31, 2015 Clearwater had cross-currency swap contracts and interest rate cap, floor and swap contracts outstanding
as follows:
Effective
date
Expiry
date
Contracted
interest rate
Currency
Notional
amount
(in 000’s)
Fair value
asset
Term Loan A – Interest rate cap
Term Loan B – Interest rate cap
December 2015
September 2014
June 2018
June 2016
6.25%
4.75%
CAD
USD
12,000 $
50,000
—
710
Term Loan B – Interest rate floor
October 2015
June 2018
LIBOR +
1.25%
CAD Banker’s
Acceptance +
USD
75,000
750
Term Loan B – Cross-currency swap October 2015
June 2018
4.41%
CAD
99,263
2,328
Effective
date
Expiry
date
Contracted
interest rate
Currency
$
3,788
Notional
amount
(in 000’s)
Fair value
(liability)
Term Loan A – Interest rate swap
Term Loan B – Interest rate swap
Term Loan B – Interest rate swap
December 2015
December 2015
June 2016
June 2018
June 2019
June 2019
5.85%
6.15%
6.49%
CAD
USD
USD
12,000 $
50,000
50,000
(495)
(2,702)
(2,988)
$
(6,185)
(c) At December 31, 2014 Clearwater had interest rate cap and swap contracts outstanding as follows:
Effective
date
Expiry
date
Contracted
capped
interest rate
Currency
Notional
amount
(in 000’s)
Fair value
asset
Term Loan A – Interest rate cap
Term Loan A – Interest rate cap
Term Loan B – Interest rate cap
Term Loan B – Interest rate cap
December 2015
June 2018
March 2014 December 2015
March 2014 December 2015
June 2016
September 2014
6.25%
4.50%
4.75%
4.75%
CAD
CAD
USD
USD
12,000 $
12,000
50,000
50,000
6
18
16
594
$
634
Effective
date
Expiry
date
Contracted
fixed
interest rate
Notional
amount
(in 000’s)
Fair value
(liability)
Currency
Term Loan A – Interest rate swap
Term Loan A – Interest rate swap
Term Loan B – Interest rate swap
Term Loan B – Interest rate swap
December 2013 December 2015
June 2018
December 2015
June 2019
December 2015
June 2019
June 2016
5.38%
5.85%
6.15%
6.49%
CAD
CAD
USD
USD
12,000 $
12,000
50,000
50,000
(95)
(253)
(1,231)
(1,643)
$
(3,222)
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Clearwater Seafoods Incorporated 2015 Annual Report 93
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
(d) Net finance costs
Year ended December 31
Interest expense on financial liabilities
Amortization of deferred financing charges and accretion
Fair value adjustment on embedded derivative
Foreign exchange loss on debt and working capital (Note 13 (e))
Debt refinancing fees
(e) Foreign exchange on long term debt and working capital per Note 13 (d)
Year ended December 31
Realized (gain) loss
Working capital and other
Unrealized loss
Foreign exchange on long term debt and working capital
(f) Losses on contract derivatives
Year ended December 31
Realized loss
Forward foreign exchange contracts
Unrealized loss (gain)
Forward foreign exchange contracts
Interest rate and cross-currency swaps, caps and floors
$
$
2015
19,002
1,334
20,336
(2,118)
49,478
508
2014
14,938
778
15,716
(1,229)
20,653
100
$
68,204
$
35,240
2015
2014
$
(1,690)
$
1,172
51,168
19,481
$
49,478
$
20,653
2015
2014
$
15,595
$
8,829
11,168
(283)
10,885
(4,782)
2,589
(2,193)
$
26,480
$
6,636
(g) Credit risk
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 counterparties to its derivative financial
instruments but does not anticipate non-performance of any of the counterparties 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, 2015, Clearwater’s trade accounts receivable aging based on the invoice due date was as follows: 83.2%
0–30 days, 8.6% 31–60 days, and 8.2% over 60 days. As at December 31, 2014, Clearwater’s trade accounts receivable aging
based on the invoice due date was as follows: 98.9% 0–30 days, 0.1% 31–60 days, and 1% over 60 days. The change in
Clearwater’s trade accounts receivable aging from the year ended December 31, 2014 is a result of trade accounts receivable
acquired in the business combination discussed in Note 4.
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The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts of $0.6 million (2014 –
$0.3 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:
As at December 31
Balance at January 1
Acquisition through business combination
Allowance recognized
Amounts recovered
Amounts written off as uncollectible
Foreign exchange
Balance at December 31
(h) Foreign currency exchange rate risk
2015
$
278
$
406
—
(44)
(103)
18
$
555
$
2014
393
—
549
(487)
(117)
(60)
278
Foreign currency exchange rate 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 88% 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
for up to 18 months.
In the third quarter of 2015, Clearwater entered into a cross-currency swap whereby USD $75 million of Term Loan B was swapped
into Canadian dollars at a fixed rate of 1.32. This arrangement has a maturity date of June 26, 2018.
The carrying amounts of Clearwater’s foreign currency denominated monetary assets and monetary liabilities (excluding derivative
financial instruments) as at December 31, 2015 and December 31, 2014 were as follows (as converted to Canadian dollars):
As at December 31
Cash
Trade receivables
Other receivables
Long term receivables
Trade and other payables
Long term debt
Other long term liabilities
$
2015
48,272
65,348
4,288
9,235
(24,132)
(330,937)
(1,422)
$
2014
13,031
34,685
3,481
5,356
(6,759)
(241,440)
—
Net exposure to consolidated statements of financial position
$
(229,348)
$
(191,646)
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Clearwater Seafoods Incorporated 2015 Annual Report 95
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
The components of this net exposure by currency are as follows (in foreign currency 000’s) at December 31, 2015:
December 31, 2015
gBP
USd
yen
euros
Cash
Trade receivables
Other receivables
Long term receivables
Trade and other payables
Long term debt
Other long term liabilities
3,605
5,301
520
1,289
(6,807)
(27,000)
(690)
5,077
10,593
413
2,851
(3,628)
(197,937)
—
13
508,598
—
—
(219)
(39,690)
—
1,540
20,321
704
—
(703)
—
—
rmB
756
—
—
—
1,048
—
—
argentine
Peso
dkk
154,038
14,636
(14)
—
(2,713)
—
—
113
398
14,787
24,510
(34,416)
—
—
Net exposure to consolidated
statements of financial position
(23,782)
(182,631)
468,702
21,862
1,804
165,947
5,392
The components of this net exposure by currency are as follows (in foreign currency 000’s) at December 31, 2014:
December 31, 2014
GBP
USD
Yen
Euros
Cash
Trade receivables
Other receivables
Long term receivables
Trade and other payables
Long term debt
Net exposure to consolidated
statements of financial position
101
1,463
22
—
(227)
—
8,553
12,243
159
2,151
(534)
(207,252)
32
333,748
—
—
—
(69,457)
313
9,284
897
—
(1,227)
—
RMB
681
—
—
—
608
—
DKK
12,068
7,737
3
—
(2,352)
(1,989)
Argentine
Peso
103
178
14,685
21,102
(27,030)
—
1,359
(184,680)
264,323
9,267
1,289
15,467
9,038
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 exchange rates. The change below is calculated based on the net exposure to the
consolidated statements of financial position.
GBP
USD
Yen
Euros
RMB
DKK
Argentine Peso
(i)
Interest rate risk
2015
(4,897)
(25,356)
539
3,312
39
3,370
58
2014
245
(21,415)
257
1,309
24
293
123
Interest rate risk refers to the risk that the value of a financial instrument or cash flow associated with the instrument will 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 from 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 or loss.
Clearwater manages its interest rate risk exposure by using a mix of fixed and variable rate debt. At December 31, 2015,
excluding the interest rate swap, approximately 3.6% (2014 – 5.5%) of Clearwater’s debt of $480.8 million (2014 – $273.0 million)
was fixed rate debt with a weighted average interest rate of 4.0% (2014 – 4.8%). A 1% change in interest rates for variable rate
borrowings would result in a $5.5 million increase (or decrease) in interest expense.
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Clearwater enters into interest rate swap, cap and floor arrangements to hedge interest rate risk on its variable rate debt. As at
December 31, 2015, Clearwater has entered into interest rate swap arrangements on its CAD $30 million Term Loan A facility
and its USD $200 million Term loan B facility whereby:
• CAD $12 million of Term Loan A is effectively subject to an interest rate that is the lesser of the floating rate of interest on the
loan or a maximum fixed rate of interest of 6.25% to June 2018.
• CAD $12 million of Term Loan A is subject to a fixed interest rate of 5.85% to June 2018.
• USD $50 million of Term Loan B is subject to a fixed interest rate of 6.15% to June 2019.
• USD $50 million of Term Loan B is capped to June 30, 2016 at an interest rate of 4.75% and then the rate is fixed at 6.49%
to June 2019.
The fair value of interest rate swaps and interest rate caps 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. For the year ended December 31, 2015, this resulted
in a $2.1 million unrealized loss (2014 – $2.6 million unrealized loss). Clearwater accounts for these swap arrangements and the
change in market value through profit and loss.
(j) 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
leases and other commitments. The table includes undiscounted cash flows of financial liabilities, operating leases and other
commitments, interest and principal cash flows based on the earliest date on which Clearwater is required to pay.
December 31, 2015
Interest – long term debt $
Principal repayments –
long term debt
Carrying
amount
total
contractual
cash flow
2016
2017
2018
2019
2020
>2021
$
81,183 $
18,845 $ 17,940 $ 16,560 $
7,763 $
275 $ 19,800
503,405
65,685
19,061
63,507 339,265
9,875
6,012
Total long term debt
480,769
584,588
84,530
37,001
80,067 347,028
10,150
25,812
Trade and other payables
Operating leases and other
Derivative financial instruments
– asset
Derivative financial instruments
– liability
82,870
—
82,870
25,822
82,870
7,677
—
6,059
—
3,467
—
2,795
—
2,750
—
3,074
(3,788)
(3,788)
(3,788)
18,622
18,622
18,622
—
—
—
—
—
—
—
—
—
—
$
578,473 $
708,114 $
189,911 $ 43,060 $ 83,534 $ 349,823 $ 12,900 $ 28,886
Included in the above commitments for operating leases and other are amounts that Clearwater is committed to 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.
Also included in commitments for operating leases and other are (i) amounts to be paid to a company controlled by a director
of Clearwater over a period of years ending in 2018 for vehicle and office leases, which aggregate approximately $0.05 million
(2014 – $0.1 million); and (ii) amounts to be paid to a company related to a member of its management team who is a former
shareholder of Macduff of $1.9 million (December 31, 2014 – $ nil). These amounts relate to the lease of a production plant and
will be paid over a period of 6 years.
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Clearwater Seafoods Incorporated 2015 Annual Report 97
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
(k) Fair value of financial instruments
For cash, trade and other receivables, and trade and other payables, the carrying value approximates their fair value due to the
short-term maturity of these instruments. The fair value of the long term receivables is not materially different from their carrying
value.
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, 2015
assets:
Cash
Trade and other receivables
Long term receivables
Interest rate caps, floors and cross-currency swap
Liabilities:
Trade and other payables1
Long term debt
Forward foreign exchange contracts
Embedded derivative
Interest rate swaps
Earnout liability
December 31, 2014
assets:
Cash
Trade and other receivables
Long term receivables
Forward foreign exchange contracts
Interest rate cap
Fair value
Amortized cost
total
Through
profit or loss
Derivatives
Loans and
receivables
financial
liabilities
Carrying
amount
Fair
value
Non-derivative
$
51,106 $
—
—
—
— $
—
—
3,788
— $
81,734
10,076
—
— $ 51,106 $ 51,106
81,734
—
10,076
—
3,788
—
81,734
10,076
3,788
$
51,106 $
3,788 $ 91,810 $
— $ 146,704 $ 146,704
$
— $
—
—
—
—
(12,561)
— $
—
(12,437)
(2,353)
(6,185)
—
— $
—
—
—
—
—
(71,464) $
(71,464) $
(465,855)
—
—
—
—
(465,855)
(12,437)
(2,353)
(6,185)
(12,561)
(71,464)
(466,614)
(12,437)
(2,353)
(6,185)
(12,561)
$
(12,561) $
(20,975) $
— $ (537,319) $ (570,855) $ (571,614)
Fair value
Amortized cost
total
Through
profit or loss
Derivatives
Loans and
receivables
financial
liabilities
Carrying
amount
Fair
value
Non-derivative
$ 47,598 $
—
—
—
—
— $
—
—
4,678
634
— $
49,812
3,872
—
—
— $ 47,598 $ 47,598
—
49,812
—
3,872
—
4,678
—
634
49,812
3,872
4,678
634
$ 47,598 $
5,312 $ 53,684 $
— $ 106,594 $ 106,594
Liabilities:
Trade and other payables1
Long term debt
Forward foreign exchange contracts
Embedded derivative
Interest rate swaps
$
— $
—
—
—
—
— $
—
(5,469)
(3,845)
(3,222)
— $ (36,366) $ (36,366) $ (36,366)
— (269,196) (269,196) (269,058)
—
(5,469)
—
(3,845)
—
(3,222)
(5,469)
(3,845)
(3,222)
—
—
—
$
— $ (12,536) $
— $ (305,562) $ (318,098) $ (317,960)
1 Trade and other payables excludes the liability for share based compensation of $11.4 million at December 31, 2015 (December 31, 2014 – $15.9 million).
98
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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 for which carrying value did not approximate fair value at December 31,
2015 was $18.9 million (December 31, 2014 – $16.3 million) and the carrying value was $18.2 million (December 31, 2014 –
$16.5 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.
The fair value of the Deferred Obligation is estimated based on discounting the projected future cash outflows. Key assumptions
that were used included discount rates ranging from 6.6% to 8.8% to represent changes in sensitivity for the payout periods,
and an estimated fixed annual payment over the next five years. The estimated fair value of the Deferred Obligation ranged
from £20 million to £22 million.
(l) 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 carried at fair value through profit and loss using the
fair value hierarchy:
December 31, 2015
recurring measurements
Financial assets:
Cash
Interest rate caps, floors and cross-currency swaps
Financial Liabilities:
Forward foreign exchange contracts
Embedded derivative
Interest rate swaps
Earnout liability
Level 1
Level 2
Level 3
$
51,106
—
$
51,106
$
$
—
—
—
—
—
$
$
$
—
3,788
3,788
(12,437)
(2,353)
(6,185)
—
$
$
$
—
—
—
—
—
—
(12,561)
$
(20,975)
$
(12,561)
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Clearwater Seafoods Incorporated 2015 Annual Report 99
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
December 31, 2014
recurring measurements
Financial assets:
Cash
Forward foreign exchange contracts
Interest rate caps
Financial Liabilities:
Forward foreign exchange contracts
Embedded derivative
Interest rate swaps
Level 1
Level 2
Level 3
$
47,598
—
—
$
$
—
4,678
634
$
47,598
$
5,312
$
$
$
—
—
—
—
$
$
(5,469)
(3,845)
(3,222)
$
(12,536)
$
—
—
—
—
—
—
—
—
There were no transfers between levels during the years ended December 31, 2015 and December 31, 2014.
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 Clearwater and the various counterparties and the risk-free yield curves
of the respective currencies.
• The embedded derivative, interest rate swaps and caps are measured using present value techniques that utilize a variety
of inputs that are a combination of quoted prices and market-corroborated inputs.
The earnout relating to the Macduff acquisition is a financial liability categorized in Level 3 as the fair value measurement of this
financial liability is based on significant inputs not observable in the market.
To determine the fair value of the Earnout three primary sources of risk are assessed: (i) the risk associated with the underlying
performance of Macduff’s EBITDA (“Earnings before interest, taxes, depreciation and amortization”), (ii) the risk associated with
the functional form of the Earnout payments; and (iii) the credit risk associated with the future Earnout payments. The fair value
of the Earnout payments is estimated based on a Monte Carlo simulation under a risk-neutral framework. The preliminary fair
value of the Earnout is estimated based on discounted expected future EBITDA cash flows for Macduff for the next five years
using a Geometric Brownian Motion model. The following inputs and assumptions were used in calculating the fair value of the
Earnout including:
• Payments dates: The Earnout will be payable for the periods ending December 31, 2016 through December 31, 2020, based
on the expected pattern of the Deferred Obligation and the expected outstanding amount of Deferred Obligation at the end
of each year.
• Forecasted EBITDA: Management’s five year forecast
• Risk-free rate: 1.5%
• Risk-adjusted discount rates: 8%–10.5%
• Asset volatility: The estimated asset volatility of Macduff is based on the Merton option pricing model. In the context of
calculating the asset volatility, the following inputs to derive the asset volatility were used:
• Debt value: £19 million
• Enterprise Value: £100 million
• Equity value: £81 million
• Equity volatility: 39%
A risk-adjusted payout is calculated at each time period and discounted at the risk-free rate to the valuation date. This process
is simulated 100,000 times and the expected value of the Earnout is retrieved. Based on the range of risk-adjusted discount
rates (per above) the range in fair values determined was between £5.6 million and £6.3 million.
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The change in the fair value of the Earnout from October 30, 2015 (the acquisition date) to December 31, 2015 was not significant.
The fair value estimates are not necessarily indicative of the amounts that Clearwater will receive or pay at the settlement of
the contracts.
1 4 . S Ha r e CaPi taL
Authorized
Clearwater is authorized to issue an unlimited number of common shares.
Share capital movement:
Share capital:
Balance at January 1
Issuance of common shares
Balance at December 31
december 31, 2015
December 31, 2014
#
$
#
$
54,978,098
4,980,900
97,267
59,894
50,948,698
4,029,400
59,958,998
157,161
54,978,098
64,780
32,487
97,267
On June 30, 2015 Clearwater completed the issuance of 4,980,900 common shares at $12.25 per common share for gross
proceeds of $61 million. Transaction costs associated with the equity issue were $2.4 million and have been deducted from the
recorded amount for the common shares. In addition, Clearwater recorded $1.2 million in deferred tax assets relating to equity
issuance costs. These deferred tax assets were added to the net proceeds from the issuance.
Total common shares outstanding as at December 31, 2015 were 59,958,998 common shares.
On February 4, 2014 Clearwater completed the issuance of 4,029,400 common shares at $8.50 per common share for gross
proceeds of $34.2 million. Transaction costs associated with the equity issue were $1.8 million and were deducted from the
recorded amount for the common shares.
During the year ended 2015, dividends of $9.8 million were declared and paid as follows:
Payment date
March 24, 2015
May 28, 2015
September 2, 2015
December 15, 2015
# of shares
outstanding
54,978,098
54,978,098
59,958,998
59,958,998
During the year ended 2014, dividends of $5.8 million were declared and paid as follows:
Payment date
March 24, 2014
May 28, 2014
September 2, 2014
December 15, 2014
# of shares
outstanding
54,978,098
54,978,098
54,978,098
54,978,098
Dividends
per share
0.040
0.040
0.040
0.050
Dividends
per share
0.025
0.025
0.025
0.030
$
$
$
$
$
$
$
$
On March 22, 2016, Clearwater declared a quarterly dividend of $0.05 per share, payment to be made on April 15, 2016 to
shareholders of record on March 31, 2016.
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Clearwater Seafoods Incorporated 2015 Annual Report 101
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
1 5 . o tHe r eX Pe nSe (i nCo m e)
Year ended December 31
Royalties, interest, and other fees
Share of earnings of equity-accounted investee
Acquisition related costs
Other fees
Other expense (income)
1 6 . e a r n i n gS Pe r S Ha r e
$
$
2015
(664)
(2,591)
3,240
459
2014
(844)
(2,987)
—
(1,200)
$
444
$
(5,031)
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):
Basic and diluted
Loss for the period attributed to shareholders
Weighted average number of shares outstanding
Earnings (loss) per share
2015
2014
(37,608)
$
57,489,017
(0.65)
$
$
(2,905)
54,786,510
(0.05)
$
The revaluation adjustment on the cash-settled share based payments is anti-dilutive to loss per share for the year ended
December 31, 2015. As a result, for the period ended December 31, 2015, 473,288 potential issuable shares were not included
in the calculation of the weighted average number of common shares for the purpose of diluted earnings per share.
1 7 . i nCo m e taXeS
(a) Reconciliation of income tax expense
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 (loss) before income taxes
Combined tax rates
Income tax provision at statutory rates
Add (deduct):
Income of partnerships taxed in the hands of partners
Permanent differences
Benefit of capital loss not recognized
Recognition of previously unrecorded deferred tax assets
(Income) loss of foreign subsidiary not subject to tax
Other
Actual provision
(b) Income tax expense
The components of the income tax expense (recovery) for the year are as follows:
Year ended December 31
Current
Deferred recovery
102
Clearwater Seafoods Incorporated 2015 Annual Report
$
$
$
2015
(16,284)
30.5%
$
2014
15,745
30.5%
(4,967)
$
4,802
$
(5,605)
6,255
6,021
(3,864)
5,890
657
(3,064)
3,047
2,807
(1,257)
(386)
$
4,387
$
5,949
2015
1,896
2,491
4,387
$
$
2014
2,585
3,364
5,949
$
$
Clearwater_AR2015_Financials_FINAL.indd 102
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(c) Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Deferred tax asset:
Non-capital loss carry-forwards
Unrealized foreign exchange
Long term debt
Share issuance costs
Reserve for unpaid share based compensation
Licenses
Property, plant and equipment
Other
Classified in the consolidated statement of financial position as:
Deferred tax asset – non-current
Deferred tax liability – non-current
december 31,
2015
December 31,
2014
$
$
17,327
4,524
1,272
905
2,969
(21,376)
(9,198)
(1,556)
13,898
1,031
2,460
—
4,356
(3,199)
(4,152)
(41)
$
(5,133)
$
14,353
14,184
(19,317)
15,356
(1,003)
$
(5,133)
$
14,353
The net change in deferred income taxes is reflected in deferred income tax expense of $2.5 million (2014 – $3.1 million), the
foreign exchange effect of deferred taxes of foreign subsidiaries totaling $0.1 million (2014 – $0.2 million), the effect of which
was recorded through foreign exchange, the effect of financing costs capitalized against equity of $1.2 million, and the following
deferred tax liabilities acquired on acquisition, being $17.3 million for licenses and intangibles, $0.5 million related to inventory and
$0.3 million of fixed assets.
The deferred tax asset recorded for non-capital loss carry-forwards is recognized based on Clearwater’s estimate that it is more
likely than not that it will earn sufficient taxable profits to utilize these losses before they expire.
Unrecognized deferred tax assets
Clearwater has the following deductible temporary differences, unused tax losses and unused tax credits for which no deferred
tax asset is recognized in the statements of financial position.
Non-capital losses
Investment tax credits
Capital losses
Long term debt
Fixed asset
Clearwater
Seafoods Inc.
Subsidiary
corporations
Total
Expiry
$
—
$
8,263
$
8,263
2015–2035
12,316
10,345
590
380
63,228
293
12,906
2023–2035
10,725
No expiry
63,228
293
N/A
N/A
Unrecognized deferred tax liabilities
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, 2015 for the Company’s subsidiaries was
$47.4 million (December 31, 2014 – $87.3 million).
Clearwater_AR2015_Financials_FINAL.indd 103
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Clearwater Seafoods Incorporated 2015 Annual Report 103
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
1 8 . Se g m e n t e d i nFo r m at i o n
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
Scallops
Coldwater shrimp
Lobster
Clams
Crab
Ground fish and other shellfish
Langoustine
(b) Sales by geographic region of the customer
Year ended December 31
France
Scandinavia
UK
Other
Europe
China
Japan
Other
Asia
United States
Canada
North America
Other
(c) Non-current assets by geographic region
As at December 31
Property, plant and equipment, licenses, fishing rights and goodwill
Canada
Argentina
Scotland
Other
$
2015
165,544
109,963
92,589
84,350
26,141
18,485
7,873
$
2014
163,705
93,742
78,186
72,774
20,985
15,350
—
$
504,945
$
444,742
$
2015
85,974
35,931
24,615
37,361
$
2014
54,418
30,442
19,639
45,117
183,881
149,616
95,140
66,401
18,113
73,308
57,496
15,494
179,654
146,298
80,668
58,696
84,943
61,668
139,364
146,611
2,046
2,217
$
504,945
$
444,742
2015
2014
$
291,644
27,751
187,620
208
$
255,398
34,807
—
192
$
507,223
$
290,397
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1 9 . r eLat e d P a r t y t r a nSaCt i o nS
(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
ownership %
Clearwater Seafoods Limited Partnership
Macduff Shellfish Group Limited
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
100%
100%
53.66%
75%
50%
100%
100%
100%
80%
accounts
Consolidated
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, 2015 and 2014.
Year ended December 31
Wages and salaries
Share based compensation
Bonuses
Other benefits
$
$
2015
3,651
4,764
1,473
717
2014
3,408
8,740
1,539
1,829
$
10,605
$
15,516
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. The net amount due to CFFI in respect of these transactions was
$0.05 million (December 31, 2014 – net amount due from CFFI of $0.03 million), is unsecured and due on demand. As such the
account has been classified as current. The balance bears interest at a rate of 5%.
In September 2015, Clearwater entered into an agreement to sell an idle vessel to a joint venture which is accounted for under the
equity method in Clearwater’s consolidated financial statements. The estimated sales price of CAD $11.8 million is the estimated
book value at the time of the sale. This amount includes estimated costs for a refit on the vessel, which is to be completed by
the Company prior to the sale to the joint venture. The sale is expected to close in the first quarter of 2016.
For the year ended December 31, 2015, Clearwater expensed approximately $0.2 million for goods and services from companies
related to its parent (December 31, 2014 – $0.2 million). The transactions are recorded at the exchange amount and the balance
due to these companies was $0.01 million as at December 31, 2015 (December 31, 2014 – $ nil million).
For the year ended December 31, 2015, Clearwater expensed approximately $0.07 million in factory and equipment rentals from
companies related to a member of its management team (December 31, 2014 $ nil). Clearwater incurred $0.1 million in legal
fees paid to a law firm in which a Director of Clearwater is a partner (December 31, 2014 – $0.02 million).
At December 31, 2015 Clearwater had a balance of $1.3 million (December 31, 2014 – $1.0 million), included in long term
receivables, for interest bearing loans made to a non-controlling interest shareholder in a subsidiary.
Clearwater recorded sales commissions, management and administration fees, storage fees and sales to a non-controlling
interest holder in a consolidated partnership. These sales commissions, management and administration fees, storage fees and
sales are at negotiated prices and are settled on normal trade terms:
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Clearwater Seafoods Incorporated 2015 Annual Report 105
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
Sales commissions
Management and administration
Storage fees
Sales
2 0 . n o n- Co n t r oL Li n g i n t e r eSt
december 31,
2015
December 31,
2014
$
$
3,957
1,403
1,424
80
2,379
1,425
1,390
6,694
Summarized financial information in respect of Clearwater’s subsidiaries 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
2015
2014
46.34%
46.34%
53,408
(15,364)
38,044
33,139
(114)
33,025
71,069
$
28,881
(10,684)
18,197
39,312
(386)
38,926
57,123
Accumulated non-controlling interests
$
33,660
$
25,737
Year ended December 31
nCi Percentage
Current assets
Current liabilities
Non-current assets
Net assets
$
2015
20.0%
7,371
(38,803)
(31,432)
27,084
27,084
(4,348)
Scallops
$
2014
20.0%
5,428
(28,753)
(23,325)
33,345
33,345
10,020
Accumulated non-controlling interests
$
(1,922)
$
1,019
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(b) Summarized statements of earnings
Year ended December 31
Sales
Net earnings
Total comprehensive income
earnings allocated to non-controlling interest
dividends paid to non-controlling interest
Year ended December 31
Sales
Net earnings
Other comprehensive income
Total comprehensive income
earnings allocated to non-controlling interest
(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
Net increase (decrease) in cash
Year ended December 31
Cash flow from operating activities
Cash flow from (used in) financing activities
Cash flow used in investing activities
Net (decrease) in cash
2 1 . i nVeSt m e n t i n eQ Ui t y i nVeSt e e
Coldwater shrimp
2015
2014
$
111,051
39,446
$
89,792
21,558
21,558
11,533
10,427
2014
38,407
5,272
505
5,777
1,097
39,446
19,740
11,817
2015
31,642
(15,814)
(1,445)
(17,259)
(2,941)
Scallops
$
Coldwater shrimp
2015
54,194
(26,095)
(4,000)
$
2014
32,387
(23,331)
(12,482)
$
24,099
$
(3,426)
Scallops
$
2014
8,626
—
(8,641)
2015
5,092
—
(5,094)
(2)
$
(15)
$
$
$
$
The following table summarizes the financial information of Clearwater’s joint venture accounted for using the equity method:
Year ended December 31
Carrying amount of interest in joint venture
Share of:
Earnings for the year
Dividends from joint venture
Commissions paid to joint venture
2015
2014
$
9,311
$
6,198
2,591
—
8,598
2,987
1,490
9,424
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Clearwater Seafoods Incorporated 2015 Annual Report 107
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
2 2 . CaPi taL m a n a g e m e n t
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.
2 3 . S Ha r e- BaSe d Co mPe nSat i o n
Clearwater’s share based compensation plans are disclosed in Note 3 (m). An aggregate amount of 2,500,000 Common Shares
of Clearwater are issuable under the PSU Plan which was approved by the shareholders with the most recent management
information circular dated May 12, 2015.
The number of share based awards outstanding and vested as of December 31, 2015 and 2014 were as follows:
As at December 31, 2015 (In thousands)
SARs
PSU – Tranche 2
PSU – Tranche 3
PSU – Tranche 4
DSU
total
As at December 31, 2014 (In thousands)
SARs
PSU – Tranche 1
PSU – Tranche 2
PSU – Tranche 3
DSU
Total
$
$
grant
price
0.80
1.00
N/A
N/A
N/A
N/A
Grant
price
0.80
1.00
N/A
N/A
N/A
N/A
number
outstanding
number
vested
83
67
204
190
105
448
1,097
83
67
204
—
—
268
622
Number
outstanding
Number
vested
83
67
424
219
208
398
1,399
83
67
424
—
—
220
794
grant date
May 2010
May 2010
March 2013
March 2014
April 2015
June 2012–December 2015
Grant date
May 2010
May 2010
May 2012
March 2013
March 2014
June 2012–December 2014
108
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The following reconciles the share based awards outstanding for the year ended December 31, 2015:
(In thousands of share units)
PSU –
tranche 1
PSU –
tranche 2
PSU –
tranche 3
PSU –
tranche 4
dSU
Sars
total
Outstanding at January 1, 2015
Granted
Granted from dividends
Forfeited
Exercised
424
—
—
—
(424)
Outstanding at December 31, 2015 —
Vested at January 1, 2015
Vested
Exercised
Vested at December 31, 2015
424
—
(424)
—
219
3
—
(18)
—
204
—
204
—
204
208
3
—
(21)
—
190
—
—
—
—
—
112
1
(8)
—
105
—
—
—
—
398
6
44
—
—
448
220
47
—
267
150
—
—
—
—
150
150
—
—
150
1,399
124
45
(47)
(424)
1,097
794
251
(424)
621
The following reconciles the number of share based awards outstanding for the year ended December 31, 2014:
(In thousands of share units)
Outstanding at January 1, 2014
Granted
Granted from dividends
Forfeited
Outstanding at December 31, 2014
Vested at January 1, 2014
Vested
Vested at December 31, 2014
PSU –
Tranche 1
PSU –
Tranche 2
PSU –
Tranche 3
DSU
SARs
Total
424
37
5
(42)
424
—
424
424
214
18
3
(16)
219
—
—
—
—
206
2
—
208
—
—
—
443
51
5
(101)
398
167
53
220
150
—
—
—
150
150
—
150
1,231
312
15
(159)
1,399
317
477
794
For the year ended December 31, 2015, there were 424 PSU awards exercised (2014 – nil). These awards were cash settled
for total cash payments of $8.9 million.
The total cash payment for share based awards exercised during the year ended December 31, 2014 was $ nil.
When cash dividends are paid to shareholders of Clearwater, dividend equivalent PSUs and DSUs are granted to the Participants
which are equal to the greatest number of whole share units having a market value, as of the payment date of the dividend,
equal to the product of the cash dividend paid per share multiplied by the number of PSU and DSU share units outstanding.
The additional PSUs and DSUs granted are subject to the same terms and conditions as the corresponding PSU or DSU Grant.
Fair value of share based awards
The SARs issued and outstanding are fully vested and are expected to be cash settled on the exercise date; therefore, vested
awards are recorded as liabilities at the intrinsic value of the SARs.
The PSU Tranche 2 is fully vested as of December 31, 2015 and are recorded as a liability of $3.7 million. This is expected to
be cash settled in the first quarter of 2016.
Measurement inputs for the remaining plans include the fair value of the Clearwater’s shares, 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 remaining 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), as follows:
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Clearwater Seafoods Incorporated 2015 Annual Report 109
Clearwater Seafoods Incorporated
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
Number of awards
PSU
tranche 3
Weighted average fair value per award
Weighted average risk-free interest rate
Weighted average expected volatility
Expected life of awards (years)
$
14.94
0.06%–1.85%
15.88%–35.50%
1
Number of awards
PSU
Tranche 2
2015
PSU
tranche 41
$
18.19
0.10%–3.46%
20.38%–74.54%
2
2014
PSU
Tranche 3
Weighted average fair value per award
Weighted average risk-free interest rate
Weighted average expected volatility
Expected life of awards (years)
$
17.11
1.19%–3.69%
17.81%–44.88%
1
$
17.47
0.75%–3.69%
17.8%–44.88 %
2
dSU
$
11.99
0.479%–0.64%
33.78%–38.12%
2.5–4.25
DSU
$
11.86
1.01%–1.35%
52.33%–52.89%
4.5–5.25
Share based compensation expense included in the income statement for the year ended December 31, 2015 is $5.3 million
(December 31, 2014 – $8.9 million).
The liability for share based compensation is $11.4 million at December 31, 2015 (December 31, 2014 – $15.9 million).
The vested portion of the liability for share based compensation is $8.5 million at December 31, 2015 (December 31, 2014 –
$11.8 million).
2 4 . Co n t i n g e n t Li aBiLi t i eS
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.
2 5 . a d d i t i o n aL CaS H F Lo w i nFo r m at i o n
Changes in non-cash operating working capital (excludes change in accrued interest)
(Increase) decrease in inventory
Increase in accounts payable
(Increase) in accounts receivable
(Increase) in prepaids
december 31,
2015
December 31,
2014
$
$
(7,297)
2,123
(13,564)
(2,908)
6,237
2,685
(4,605)
(713)
$
(21,646)
$
3,604
1 PSU Tranche 4 is accounted for as equity-settled PSU awards.
110
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Clearwater Seafoods Incorporated 2015 Annual Report
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Selected Annual Information
2015
2014
2013
2012
2011
Sales
Costs of goods sold
Gross margin
$
504,945
370,645
$
444,742
341,908
$
388,659
301,291
$
350,302
277,777
$
332,785
263,220
134,300
102,834
87,368
72,525
69,565
Amortization of fair value adjustment
to inventory and fixed assets from
acquisition of Macduff1
Reported gross margin per the
annual financial statements
2,112
132,188
102,834
87,368
72,525
69,565
Administrative and selling
Net finance costs
(Gains) losses on forward contracts
Other income
Research and development
Gain on settlement of Glitnir transaction
Gain on change of control of joint venture
51,363
68,204
26,480
444
1,981
—
—
48,252
37,829
4,047
(5,031)
1,991
—
—
Earnings before income taxes
(16,284)
15,746
Income taxes expense (recovery)
4,387
Earnings before non-controlling interest
(20,671)
5,949
9,797
39,005
33,935
8,812
(3,240)
1,659
—
—
7,197
(8,101)
32,536
29,041
(4,654)
(3,399)
1,759
—
—
33,345
36,313
2,291
(5,893)
707
(12,445)
(11,571)
17,242
26,818
(5,462)
3,863
15,298
22,704
22,955
Non-controlling interest
Earnings attributable to shareholders
Adjusted EBITDA2
16,937
(37,608)
109,734
$
$
$
$
12,702
8,965
7,695
6,619
(2,905)
$
6,333
$
15,009
$
16,336
87,368
$
79,103
$
72,243
$
61,188
1 The amortization of fair value adjustments related to inventory and depreciation result from IFRS requirements for purchase price accounting on the
acquisition of Macduff. As a result, the $2.1 million has been excluded from all analysis of cost of goods sold and gross margin.
2 Refer to discussion on non-IFRS measures, definitions and reconciliations in 2015 Management’s Discussion and Analysis
Clearwater Seafoods Incorporated 2015 Annual Report 111
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Clearwater Seafoods Incorporated
Quarterly and share information
($000’s except per share amounts)
Sales
Earnings attributable to:
Non-controlling interests
Shareholders of Clearwater
Q4
Q3
Q2
Q1
Q4
Q3
Q2
2015
2014
Q1
165,503
147,332
116,748
75,362
119,498
134,069
113,403
77,771
3,267
(7,060)
6,485
(4,768)
4,123
5,616
3,062
(31,398)
4,117
(3,987)
4,076
(1,117)
2,181
16,669
2,328
(14,472)
(3,793)
1,717
9,739
(28,336)
130
2,959
18,850
(12,144)
Per share data
Basic net (loss) earnings
Diluted net (loss) earnings
(0.12)
(0.12)
(0.08)
(0.09)
Adjusted earnings1
0.32
0.31
0.10
0.10
.08
(0.57)
(0.57)
.02
(0.07)
(0.07)
(0.02)
(0.02)
.17
.18
0.30
0.30
.03
(0.27)
(0.27)
.02
Clearwater Seafoods Incorporated
Trading information
symbol CLR Toronto Stock Exchange
Q4
Q3
Q2
Q1
Q4
Q3
Q2
2015
2014
Q1
Trading price range of shares
(board lots)
High
Low
Close
13.43
9.91
11.99
13.13
9.22
9.99
14.42
11.66
12.25
15.24
10.93
13.75
12.23
9.30
11.86
10.80
7.75
10.56
8.70
6.90
8.69
9.21
7.27
7.55
Trading volumes (000’s)
Total
Average daily
Shares outstanding
at end of quarter
3,062
49
3,030
51
3,100
50
3,690
58
5,907
91
3,793
67
2,974
47
3,370
55
59,958,998 59,958,998 59,958,998 54,978,098 54,978,098 54,978,098 54,978,098 54,978,098
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Corporate Information
Head office of Clearwater Seafoods Incorporated
757 Bedford Highway
Bedford, Nova Scotia B4A 3Z7
902-443-0550
Directors of Clearwater Seafoods Incorporated
Executive of Clearwater Seafoods Incorporated
Colin e. macdonald
Chairman of the Board
John C. risley
President, Clearwater Fine Foods Inc.
Harold giles
Chair of Human Resource Development and
Compensation (“HRDCC”) Committee
Independent Consultant
Larry Hood
Chair of Audit Committee
Director, Former Partner, KPMG
Jane Craighead
Senior Vice President, Scotiabank
mickey macdonald
President, Micco Companies
Brendan Paddick
Chief Executive Officer, Columbus International Inc.
Stan Spavold
Chair of Finance Committee
Executive Vice President, Clearwater Fine Foods Inc.
Jim dickson
Chair of Governance Committee
Partner, Stewart McKelvey
ian Smith
Chief Executive Officer
robert d. wight
Vice-President, Finance and Chief Financial Officer
ronald van der giesen
President, Global Supply Chain
greg morency
President and Chief Commercial Officer
dieter gautschi
Vice-President, Chief Talent Officer
Christine Penney
Vice-President, Sustainability & Public Affairs
david kavanagh
Vice-President and General Counsel
kirk rothenberger
Vice-President, Chief Information Officer
Investor relations
tyrone d. Cotie, CPa, 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.
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www.clearwater.ca
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