Letter from the Chairman of Clearwater Seafoods Incorporated
We are all very proud of Clearwater’s success over the past 41 years.
We are disappointed by the outcome of the Department of Fisheries decision to expropriate 25% of the total
allowable catch (“TAC”) for Arctic surf clams. This means middle class jobs will be lost and valuable full
time jobs will be converted to temporary seasonal work in the Canadian fishery. This decision undermines
the good faith capital investment decisions of the private sector as the Minister has destabilized the
investment climate in the Canadian fisheries and the Canadian natural resource sector. Despite this failure
of public policy we remain committed to Clearwater’s core mission to build the world’s most
extraordinary wild seafood company, dedicated to sustainable seafood excellence.
Our entrepreneurial zeal for growth, diversity and continuous improvements that energized us to develop
new markets and pioneer new fisheries continues to hold true today. It is why we have been successful for
the last 41 years and while we will continue to be successful into the future.
Even more importantly, we are reminded daily that our greatest resource is our people. Although we harvest
the richest bounty of the oceans off Atlantic Canada, Argentina and the UK, these valued seafood resources
pale in comparison to the quality of our people. The success of Clearwater relates directly to its extremely
dedicated workforce that has faced every new challenge with courage and determination and has allowed
us to turn those challenges into opportunities and to grow our company into a world leader in the global
seafood industry.
Whether our people are at sea, in plants, offices or helping customers, their commitment to providing the
finest quality seafood never waivers. Dedication to responsible and sustainable harvesting, innovation
quality control processing and timely delivery are behind everything we do.
Colin MacDonald
2 | P a g e
Letter from the Chief Executive Officer of Clearwater Seafoods Incorporated
Clearwater 2017 - “Remarkable seafood, Responsible Choice”
For more than a decade, Clearwater has been recognized by the Marine Stewardship Council as a world
leader in sustainable harvesting for wild fisheries offering the widest selection of certified sustainable
seafood in more than forty countries. When you invest in Clearwater, you are subscribing to one of the
world’s most innovative, global and sustainable seafood companies. During 2017, as we faced significant
challenges in Total Allowable Catch (“TAC”) in Frozen-at-Sea (“FAS”) shrimp, near term margin declines
in Arctic Surf Clam as well as FX volatility across multiple currencies, we stayed true to our mission and
our future.
While science-based TAC reductions had a negative impact on annual results, investing in the long-term
health and the responsible harvesting of a renewable resource remains one of our primary responsibilities
as an industry leader and is never the wrong choice. It is also the only proven way to ensure access to a
reliable, stable, renewable and long-term supply of seafood and remains a core strategy at Clearwater.
While Arctic Surf Clam pricing incentives offered in Asia and the Americas in the latter half of 2016 have
led to near term margin declines, we have successfully expanded global sales volumes by more than 70%
and revenues by 30% over the last two years. In late 2017, the Chinese Ecommerce giant Alibaba honoured
Clearwater and the Arctic Surf Clam as one of 58 Foods (from all food categories and from all countries)
that have had an influence on Chinese consumers' tables. Clearwater also won Alibaba’s "Best Partner"
award for strategic cooperation. Clearwater was the only Canadian company to receive these honours from
this global market leader.
The Minister of Fisheries and Oceans decision to expropriate 25% of the Arctic Surf Clam TAC was a
disappointment. As a result, Clearwater will make necessary adjustments to our business to maintain
shareholder value and protect the hundreds of remaining middle-class jobs related to this fishery in local
coastal communities of Atlantic Canada. This failure of public policy will not deter Clearwater’s resolve
and fierce determination to continue to work with the Mi’kmaq, Qikiqtaaluk and other Indigenous partners
in Atlantic Canada and the North to build a better model for economic cooperation and development in
Canadian fisheries as well as long-term shareholder value.
For 2018, modest TAC reductions in clam and the announcement of a new entrant, potential TAC reductions
in scallops, competitive market pressure associated with an anticipated significant increase in US scallop
supply and foreign exchange headwinds are expected to offset progress in volume, pricing and margin on
other core species. Significantly lower capital expenditures and further inventory reductions to historic
levels, are expected to increase free cash flow which will result in lower debt and leverage. Combined with
the seasonality of our business, we expect leverage to be higher during the first nine months of 2018 before
improving by the end of the year.
Our core fisheries are managed for long-term sustainability, we have taken timely and carefully considered
measures in response to these near-term challenges including adjustments to harvest plans, pricing and
distribution strategies, cost and working capital reductions and a major organization restructuring
completed in December 2017. We expect these measures will generate strong cash flows from operations,
3 | P a g e
reduce debt and leverage, yield a higher return on assets and generate positive returns to shareholder value.
Details include:
1) Capital Spending and Working Capital Reductions. With the successful completion of our five-year
fleet renewal program in 2017, capital spending will decline by $60 to 70 million in 2018. In fact, with
one of the youngest and best-maintained offshore fleets in Canada, we expect to be able to maintain
these modest new capital spending limits for years to come. Inventory is expected to continue to
decrease with further reductions of $10-20 million by the end of the year.
2) Organization Restructuring and Improved Cost Management. In the Third Quarter of 2017, we
initiated a company-wide restructuring targeting annualized savings of a minimum of $10 million,
incurring one-time charges of up to $8.0 million (with $6.7 million being recorded in the fourth quarter
of 2017). While these changes to our organizational structure are significant, they will make us leaner,
more agile and reflect our greater ability to leverage state-of-the-art technology and smarter systems to
drive margin improvement through increased price realization and improved cost management.
In 2018, Clearwater will continue to navigate the combined forces of technological change, globalization
and Mother Nature. Meanwhile, industry fundamentals of limited supply of wild capture seafood, growing
population, demand and purchasing power of middle class consumers- especially in Asia, will remain in
our favor strengthening our value proposition and creating long- term value for our customers, employees,
communities and shareholders.
If you are already a customer or an investor, thank you for your continued support! If not, we encourage
you to join us in our uniquely Canadian Mission to build the world’s most extraordinary wild seafood
company dedicated to sustainable seafood excellence!
Ian D. Smith
4 | P a g e
Table of Contents
Management discussion and analysis
Non-IFRS measures
Clearwater overview
Mission, value proposition and strategies
Capability to deliver results
Explanation of 2017 results
Capital structure
Liquidity
Commitments
Outlook
Risks and uncertainties
Critical accounting policies
Related party transactions
Summary of quarterly results
Non-IFRS measures, definitions and reconciliations
Clearwater Seafoods Incorporated - 2017 financial statements
Quarterly and share information
Selected annual information
Corporate information
Page#
6
8
9
12
15
29
32
38
39
40
45
48
49
50
59
117
118
119
5 | P a g e
MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) was prepared effective March 6, 2018.
The Audit Committee and the Board of Directors of Clearwater Seafoods Incorporated (“Clearwater”, or
“the Company”) have reviewed and approved the contents of this MD&A, the consolidated Financial
Statements and the 2017 fourth quarter news release.
This MD&A should be read in conjunction with the 2017 annual consolidated Financial Statements and the
2017 Annual Information Form, which are available on Sedar at www.sedar.com as well as Clearwater’s
website, www.clearwater.ca.
COMMENTARY REGARDING FORWARD-LOOKING STATEMENTS
This report contains “forward-looking information” as defined under applicable Canadian securities
legislation. Forward-looking information typically, but not always, contains statements with words such
as “anticipate”, “does not anticipate”, “believe”, “estimate”, “forecast”, “intend”, “expect”, “does not
expect”, “may”, “will”, “should”, “plan”, or other similar terms that are predictive in nature. All statements
other than statements of historical fact, including, without limitation, statements regarding future
strategies, 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.
For additional information with respect to risk factors applicable to Clearwater, reference should be made
to those factors discussed under the heading “Risks and Uncertainties” in this management discussion and
analysis and 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.
NON-IFRS MEASURES
This MD&A makes reference to several non-IFRS measures 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 may not to be comparable to similar measures
presented by other companies.
6 | P a g e
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, adjusted earnings, free cash flows,
leverage, and return on assets.
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 EBITDA is defined as EBITDA excluding extraordinary, non-operating, non-recurring or non-
routine items that are unusual and are deemed not to be a part of normal operations of the business. Items
that are excluded from adjusted EBITDA include restructuring and reorganization expenses, gains and
losses on investment activities, costs associated with acquisitions to the extent not capitalized, financing
and refinancing costs, net gains on insurance claims and stock based compensation. 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.
Adjusted Earnings
Adjusted Earnings is defined as earnings excluding items such as refinancing and reorganization costs,
acquisition related costs and recurring accounting gains and losses on foreign exchange (other than realized
gains and losses on forward exchange contracts). 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 Earnings as
they do not relate to the general operations of the business.
Free Cash Flow
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 items such as
debt refinancing and repayments changes in the revolving loan and financing and investing activities.
Leverage
Leverage is defined as the ratio of adjusted EBITDA attributed to Shareholders of Clearwater to the total
debt (excluding non-controlling interest) on the balance sheet adjusted for cash reserves (excluding non-
controlling interest).
Return on assets
Return on assets is defined as the ratio of adjusted earnings before interest and taxes (“EBIT”) to average
total quarterly assets including all working capital assets.
Refer to non-IFRS measures reconciliations for further information.
7 | P a g e
CLEARWATER OVERVIEW
Leading Global Provider of Wild-Caught Shellfish
Clearwater is North America’s largest vertically integrated harvester, processor and distributor of premium
shellfish. With harvesting operations in Canada, Argentina and the UK, 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 94 million pounds sold
in 2017.
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 Marine Stewardship Council (“MSC”)-certified species of any shellfish harvester worldwide.
Regulatory authorities strictly control access to quota and rarely grant new licenses.
Clearwater continues to create competitive advantage through investment in research and development,
technology and intellectual property that has resulted in state-of-the-art factory vessels with harvesting and
processing technologies that enable high productivity and frozen-at-sea products that deliver superior taste
and quality.
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 8% of total annual
sales.
The vertical integration of Clearwater’s quotas and licences, sustainable fishing practices, at-sea processing
of shellfish, onshore processing and distribution network and global sales forces combine to make
Clearwater the industry leader in shellfish.
Proven and Experienced Leadership Team
Clearwater continues to build upon its world class capabilities in quality control and food safety, operations,
new product development and leadership through the addition of key resources to complement its existing
team. Through its deep industry knowledge and talent, our team will continue to deliver on our operational
and financial growth opportunities.
8 | P a g e
CLEARWATER’S MISSION, VALUE PROPOSITION AND STRATEGIES
Mission
Clearwater’s mission is to build the world’s most extraordinary, wild seafood company, dedicated to
sustainable seafood excellence.
We define:
“extraordinary” as sustainable, 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, coldwater
shrimp, clams and langoustines); 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.
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 – Expanding 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.
9 | P a g e
• Completed fleet modernization program
In December 2017, Clearwater launched its new $70 million state-of-the-art factory clam vessel, the
Anne Risley, replacing an existing 31 year-old clam vessel. It is expected to deliver significant
productivity and efficiency improvements to the clam fleet. This investment follows the launch of
the $65 million Belle Carnell in July 2015, which now completes Clearwater’s fleet modernization
program, creating one of the most modern and technologically advanced fishing fleets in the world.
• Largest Holder of Shellfish Licenses and Quotas in Canada
Operating from ocean-to-plate, Clearwater is the largest holder of shellfish licenses and quotas in
Canada, including Arctic Surf Clam, Offshore Lobster, Canadian Sea Scallops and Coldwater
Shrimp, in addition to Argentine Scallops in Argentina. Licensing, quotas and strategic
procurement provide Clearwater with a consistent and renewable supply of premium, wild-caught,
sustainably-harvested seafood for distribution around the globe.
• Macduff Shellfish Group
Macduff is now fully integrated. Together, both companies will continue to grow as one of the
world’s leading vertically-integrated harvesters, processors and distributors of premium, wild
shellfish. Closely complementing Clearwater’s product offerings, Macduff provides access to an
additional 7,000 metric tons of premium, wild-caught, safe and traceable shellfish, including King
and Queen Scallops, Langoustine, Brown Crab and Whelk. In addition to being a leading harvester,
Macduff is one of the largest processors of wild shellfish in the UK with tremendous opportunity
for future growth.
2. Target profitable & growing markets, channels & customers – Clearwater targets growing 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.
• Expanding channels and partnerships in key markets
In Asia, Clearwater grew sales through market expansion of traditional channels and forging new
strategic channels, including signing an agreement with Alibaba in China to expand the range of
products available for sale through ecommerce platforms.
In North America, Clearwater continues to make inroads for Macduff species, expanding the product
offering into well established markets.
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.
•
Increasing product variety and preventing imitation
Clearwater continues to offer new products and formats to consumers and foodservice customers,
including bacon-wrapped sea scallops in Europe, pre-cooked and triple-scored rock crab claws and
hand peeled and deveined Norway lobster tails in North America. In addition, new anti-counterfeit
packaging for arctic surf clams has been introduced into the Chinese market, along with new clam
formats for the Kaiten sushi markets in Japan.
10 | P a g e
4.
Increase margins by improving price realization and cost management – Leverage the scarcity of
seafood supply and increasing global demand, in addition to continuing to invest in, innovate and adopt
state-of-the-art technology, systems and processes.
• Position organization for price realization and cost management
In the fourth quarter of 2017, Clearwater initiated a company-wide restructuring that will result in
net 2018 year-over-year savings in excess of $6 million and annualized savings of $10 million,
incurring one-time charges of $6.7 million in the fourth quarter of 2017. While these changes to
the organizational structure are significant, they will make Clearwater leaner, more agile and reflect
a greater ability to leverage state-of-the-art technology and smarter systems to drive margin
improvement through increased price realization and improved cost management.
• Leveraging Intellectual Property and Technology
Clearwater continues to leverage and further evolve its proprietary technology to reduce costs,
reduce carbon footprint and maximize the taste and quality of our products.
o Ocean floor mapping is utilized on our fleet in combination with fishery specific
innovative gear and geographic positioning technology enabling us to continually increase
the productivity of our fleet.
o Patented automatic shucking technology and solutions deliver superior products to
customers by enabling fresh frozen-at-sea products that are frozen within an hour of catch
that deliver a superior taste and quality product.
o Our state-of-the-art IP protected Clam dredging technology was further refined and
implemented on our newest fleet addition, the Anne Risley providing lower costs,
improved productivity while reducing the Company’s carbon footprint.
5. Pursue and preserve the long-term sustainability of resources on land on 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.
• Commitment to sustainability
Clearwater, in collaboration with other industry participants, continues to invest in research to
improve the understanding of resource dynamics and harvest strategies that support long term
sustainability.
6. Build organizational capability, capacity & engagement – We attract, train and retain the best talent
to build business system and process excellence company-wide.
•
In 2017, Clearwater continued to invest in talent and programs to build world-class capabilities
throughout its organization.
11 | P a g e
CAPABILITY TO DELIVER RESULTS
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,
lobsters, coldwater shrimp and clams, 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 most of its supply of crab, whelk, and langoustines through purchases from
independent fishermen.
The Canadian sea scallop resource typically fluctuates within a stable range. Clearwater
anticipates TACs within the normal range in upcoming years. The 2018 interim TAC is down year-
over-year. Interim TAC is typically set conservatively with full year TAC being announced usually
in July. 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.
Argentine scallop volumes are normally stable. The regulator has announced a small reduction in
TAC for 2018. Clearwater is working with the regulatory to expand investments in science.
Argentina is the first scallop fishery in the world to have earned the rigorous Marine Stewardship
Council independent certification.
UK King Scallop landings are stable. The fishery is managed under a combination of effort days,
gear regulation and maximum landing size which vary by area.
The offshore Canadian lobster resource is healthy with a consistent offshore TAC. Clearwater
harvests all of its lobster quota each year. During 2017, Clearwater purchased approximately 85%
of its lobster from inshore lobster fishermen. The quality of lobster has seen a decline in this fishery
as harvesters move further offshore, resulting in higher mortality.
Coldwater shrimp - The Northern shrimp TAC has declined from historic highs over the last five
years and is expected to continue to decline over the near term as the cod species, a natural predator
of shrimp, return to this fishery. Clearwater holds access to quotas directly through licences and
through long term harvesting agreements. Clearwater procures shrimp from the inshore fishery
for its cooked and peeled business and supplements this with raw material from its offshore vessels.
The Arctic surf clam resource is stable. Clearwater has quota allocations on both Banquereau Bank
and the Grand Banks in Canada. Effective 2018, the Department of Fisheries and Oceans
announced a decline in TAC for Banqereau Bank, and the creation of a new surf clam license
representing 25% of TAC for both banks. The Company has made significant investments in new
factory-at-sea vessels as well as proprietary investments in harvesting technologies and will make
adjustments to the business to maintain shareholder value, reduce overcapacity and protect the
value of jobs in coastal communities.
12 | P a g e
For the species it harvests, Clearwater maintains the largest, most modern fleet of factory freezer vessels in
Canada, as well as vessels used to harvest Clearwater's offshore lobster and to complete research and
development. The Company also maintains a fleet of 13 scallop trawlers in the UK.
Clearwater classifies capital expenditures as either return on investment (“ROI”) or maintenance capital.
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 investment capital
Maintenance capital
Maintenance capital
Repairs and maintenance expense
Depreciation/Amortization
Maintenance spending as a % of depreciation
$
$
$
$
$
$
$
2017
59,655
25,776
85,431
63,846
21,585
85,431
21,585
21,971
43,556
45,428
95.9%
$
$
$
$
$
$
$
2016
44,343
11,989
56,332
31,913
24,419
56,332
24,419
24,135
48,554
38,634
125.7%
$
$
$
$
$
$
$
2015
49,748
13,642
63,390
50,370
13,019
63,389
13,019
19,714
32,733
29,732
110.1%
$
$
$
$
$
$
$
Total
153,746
51,407
205,153
146,129
59,023
205,152
59,023
65,820
124,843
113,794
109.7%
In 2017 Clearwater invested a record $85.4 million in capital expenditures: $39.2 million of investment
capital related to the Anne Risley, a replacement clam vessel, completing Clearwater’s fleet modernization
program; $21.6 million of maintenance capital largely related to vessel refits and $19.5 million to improve
operational efficiencies in Clearwater’s land-based operations.
In 2016 Clearwater invested $56.3 million in capital expenditures of which $25.9 million of investment
capital related to a replacement clam harvesting vessel and $24.2 million of maintenance capital related to
vessel refits and $6.2 million to improve operational efficiencies in our plants and information systems.
In 2015 Clearwater invested $63.4 million in capital expenditures. Of these amounts, $25.9 million related
to the construction of the Belle Carnell, a new clam vessel, which had a total cost of approximately $65
million and was fully operational in late 2015, $7.1 million for the purchase and conversion of a research
vessel, $18.7 million related to maintenance capital investments and $11.7 million to improve operational
efficiencies in our plants and information systems.
In addition to the annual amounts capitalized above, Clearwater historically has spent and expensed on
average about $21.9 million a year over the past three years on the maintenance of its fleet and processing
plants. Following the completion of the fleet revitalization repairs and maintenance are expected to be
lower. These investment reflect 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:
13 | P a g e
Two are used to harvest shrimp and are on average 24 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 Argentine scallops with the sea scallop vessels being on
average 19 years old and the Argentine scallop vessels being on average 22 years old. In 2014,
an idle vessel was converted from harvesting sea scallops to harvesting Argentine scallops and
began operations in early 2015.
Three of Clearwater’s vessels are used to harvest clams and are on average 12 years old. In
2017, Clearwater completed the construction of a new clam harvesting vessel, the Anne Risley,
which replaced an existing vessel in the fourth quarter of 2017. These vessels have the capacity
to harvest the entire clam quota.
With the acquisition of Macduff, Clearwater’s fleet includes 13 mid-shore scallop harvesting vessels within
the UK with average useful lives between 5-16 years.
In 2018 Clearwater expects to see a reduction in capital spend, following the completion of a four-year fleet
modernization program. Clearwater expects to invest approximately $18 million in capital projects relating
to maintenance and vessel refits.
14 | P a g e
EXPLANATION OF 2017 FINANCIAL RESULTS
Overview
Clearwater uses Key Performance Indicators and Financial Measures to assess progress against our six
strategic priorities. Refer to discussion on non-IFRS measures in the non-IFRS measures, definitions and
reconciliations section of this interim MD&A.
Selected Annual Information and Key Performance Indicators
In 000's of Canadian dollars
As at December 31
Profitability
Sales
Sales growth
Gross margin1
Gross margin1 (as a % of sales)
Adjusted EBITDA1
Adjusted EBITDA attributable to shareholders1
Adjusted EBITDA attributable to shareholders (as a % of sales)1
Adjusted earning per share 1
Net earnings (loss)
Basic and diliuted earnings (loss) per share
Dividends paid on common shares
$
$
$
$
2017
2016
2015
621,031
1.5%
$
611,551
21.1%
$
504,945
15.7%
110,068
$
144,621
$
132,188
17.7%
23.6%
26.2%
108,596
89,156
14.4%
0.14
28,239
0.25
0.20
$
$
120,937
98,446
16.1%
0.38
59,596
0.71
0.20
43,928
23,766
$
$
109,734
86,905
17.2%
0.76
(20,671)
(0.65)
0.17
$
(37,608)
43,457
Earnings attributable to shareholders
Adjusted Earnings attributable to shareholders1
$
15,759
$
8,690
Cash Flows and Leverage
Cash from operations
Free cash flows1
Leverage1
Returns
Return on assets1
Total assets
Long-term debt
$
58,141
$
63,040
$
(8,429)
5.0
1,502
4.2
68,494
39,089
4.4
$
8.1%
770,880
473,173
$
11.0%
729,735
436,414
$
13.8%
753,195
480,769
1 – Refer to discussion on non-IFRS measures, definitions and reconciliations
15 | P a g e
2017 Financial Results
Clearwater reported sales and adjusted EBITDA1 of $621.0 million and $108.6 million versus 2016
comparative results of $611.6 million and $120.9 million. The three-year compound annual growth rate
for sales and adjusted EBITDA attributable to shareholders of Clearwater was 8% and 1%, respectively.
2017 sales growth was tempered by a 16% decline in coldwater FAS shrimp sales as a reduction in TAC
lowered available supply, and slower market conditions for langoustines. Top line growth in 2017 was
achieved through higher sales volumes for clams and both Argentine and sea scallops. Pricing and
promotional incentives expanded distribution and were successful in growing clam volumes by 56%,
resulting in an increase in clam sales of 25% for the year. These incentives were introduced in the third
quarter of 2016 and continued into 2017.
Gross margin declined to 17.7%, as a percentage of sales, from 23.6% in 2016 as strong overall sales
volumes were offset by the reduction of shrimp volumes and an overall product mix and size shift towards
lower margin products. Price and promotional incentives on clam, while significantly increasing sales
volume and distribution, contributed to lower margins. For the year, average foreign exchange rates were
lower as the Canadian dollar strengthened against the US dollar, GBP and the Yen negatively impacting
sales and gross margin by $12.0 million for all currencies. The unfavourable foreign exchange was partially
offset through Clearwater’s targeted foreign exchange risk management program with $3.1 million of
realized gains on contract derivatives recognized below gross margin, within adjusted EBITDA.
Earnings for 2017 declined $31.4 million as lower gross margin, the one-time cost of an organization
restructuring in the fourth quarter and higher net finance costs were partially offset by unrealized foreign
exchange gains, higher earnings from the equity-accounted investee and reduction of the earnout liability.
For 2017 total cash generated from operations was $58.1 million, $4.9 million lower than 2016, including
a decrease in inventory of $12.6 million, partially offset by a $22 million increase in accounts receivable.
Net cash flow from the change in working capital improved $19.6 million in 2017 as compared to 2016.
Free cash flows1 declined $9.9 million to a cash use of $8.4 million in 2017 primarily due to higher capital
expenditures and lower adjusted EBITDA, partially offset by working capital improvements. Annual
capital expenditures represent the successful completion of our five year fleet renewal program.
Leverage for the year ending December 31, 2017 increased to 5.0x adjusted EBITDA excluding non-
controlling interest (“net adjusted EBITDA”) from 4.2x on December 31, 2016 as a result of lower net
adjusted EBITDA from a reduction in gross margin and higher debt balances.
For 2018, modest TAC reductions in clam and the announcement of a new entrant, potential TAC reductions
in scallops, competitive market pressure associated with an anticipated significant increase in US scallop
supply and foreign exchange headwinds are expected to offset progress in volume, pricing and margin on
other core species. Combined with the seasonality of our business, we expect leverage to be higher during
the first nine months of 2018 before improving by the end of the year. Significantly lower capital
expenditures and further inventory reductions to historic levels, are expected to increase free cash flow
which will result in lower debt and leverage.
Return on assets1 (“ROA”) declined from 11.0% in 2016 to 8.1% in 2017 primarily due to higher assets,
nearing the end of Clearwater’s five-year fleet modernization program, and lower adjusted EBIT from
reductions in gross margin.
16 | P a g e
On February 21, 2018 the DFO announced that Five Nations Clam Company is the recipient of a licence to
harvest 25% of the total allowable catch (“TAC”) for Arctic surf clams to be effective January 1, 2018.
Clearwater had agreed to be the operational partner with thirteen Mi'kmaq bands from Nova Scotia in their
proposal for the licence which was not successful. Clearwater was a pioneer in the development of the
clam fishery, which began in 1986. Clearwater purchased its licences and quota with the consent of the
Department of Fisheries and Oceans Canada (“DFO”) and has invested hundreds of millions of dollars to
develop this fishery and the market, including $156 million in the last three years. In this decision to
expropriate investment value and undermine the good faith capital investment decisions of the private
sector, the Minister has destabilized the investment climate in the Canadian fisheries and the Canadian
natural resource sector. In 2018, we will be making necessary adjustments to our clam business to protect
the hundreds of remaining jobs in the fishery and long-term shareholder value while we continue to pursue
our legal options.
The Company expects continued headwinds in 2018 associated with TAC reductions and the announcement
of a new entrant in clam. Since our core fisheries are managed for long-term sustainability, we have taken
timely and carefully considered measures in response to these near-term challenges including adjustments
to harvest plans, pricing and distribution strategies, cost and working capital reductions and a major
organization restructuring completed in December 2017. We expect these measures will generate strong
cash flows from operations, reduce debt and leverage, yield a higher return on assets and positive returns
to shareholder value. Details include:
1) Capital Spending and Working Capital Reductions. With the successful completion of our five-year
fleet renewal program in 2017, capital spending will decline by $60 to 70 million in 2018. In fact, with
one of the youngest and best-maintained offshore fleets in Canada, we expect to be able to maintain
these modest new capital spending limits for several years to come. Inventory is expected to continue
to decrease with further reductions of $10 to 20 million by the end of the year.
2) Organization Restructuring and Improved Cost Management. In the fourth quarter of 2017, we
initiated a company-wide restructuring targeting annualized savings in excess of $10 million, incurring
one-time charges of $6.7 million in the fourth quarter of 2017. While these changes to our
organizational structure are significant, they will make us leaner, more agile and reflect our greater
ability to leverage state-of-the-art technology and smarter systems to drive margin improvement
through increased price realization and improved cost management.
While reductions in TAC negatively impacts our current results, investing in the long-term health and the
responsible harvesting of the oceans is our responsibility as an industry leader. It is the only proven way
to ensure access to a reliable, stable, renewable and long-term supply of seafood and is a core strategy of
Clearwater. It’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.
17 | P a g e
EXPLANATION OF CHANGES IN EARNINGS
Overview
The following statements reflect the results of Clearwater for the 13 weeks and years ended December 31,
2017 and 2016:
13 weeks ended
Year ended
In 000's of Canadian dollars
December 31
2017
December 31
2016
Change
December 31
2017
December 31
2016
Sales
Cost of goods sold1
Gross margin
$
174,766 $
145,315
29,451
16.9%
165,690 $
136,737
28,953
17.5%
9,076 $
8,578
498
621,031 $
510,963
110,068
17.7%
611,551 $
466,930
144,621
23.6%
Operating expenses
Administrative and selling
Restructuring costs
Net finance costs
(Gains) losses on contract derivatives
Foreign exchange (gains) losses on
long term debt and working capital
Other (income) expense
Research and development
Earnings (loss) before income taxes
Income tax expense
Earnings (loss)
Earnings (loss) attributable to:
Non-controlling interest
Shareholders of Clearwater
$
$
$
Change
9,480
44,033
(34,553)
(1,955)
5,870
8,332
3,234
(6,968)
(2,367)
(554)
5,592
14,061
6,677
8,330
2,275
1,231
(1,540)
507
31,541
8,981
833
4,602
(8,372)
4,449
(855)
643
10,281
5,080
5,844
3,728
10,647
(3,218)
(685)
(136)
21,260
55,551
6,856
35,280
(4,045)
(14,263)
(7,576)
2,368
74,171
57,506
986
26,948
(7,279)
(7,295)
(5,209)
2,922
68,579
(2,090)
4,461
(6,551) $
18,672
6,261
12,411 $
(20,762)
(1,800)
(18,962) $
35,897
7,658
28,239 $
76,042
16,446
59,596 $
(40,145)
(8,788)
(31,357)
4,405 $
(10,956)
(6,551) $
3,800 $
8,611
12,411 $
605 $
(19,567)
(18,962) $
12,480 $
15,759
28,239 $
15,668 $
43,928
59,596 $
(3,188)
(28,169)
(31,357)
18 | P a g e
Sales by region
In 000's of Canadian dollars
Europe
$
13 weeks ended
Year ended
December 31
December 31
2017
74,696 $
2016
75,830 $
Change
(1,134)
$
December 31
2017
243,640 $
December 31
2016
246,909 $
Change
(3,269)
33,840
22,775
4,223
60,838
23,395
15,712
39,107
28,812
15,079
5,895
49,786
23,661
16,381
40,042
5,028
7,696
(1,672)
11,052
(266)
(669)
(935)
102,315
79,631
34,170
216,116
86,813
73,888
160,701
96,518
76,230
34,141
206,889
85,385
72,275
157,660
124
174,765 $
32
165,690 $
92
9,075
$
574
621,031 $
93
611,551 $
$
5,797
3,401
29
9,227
1,428
1,613
3,041
481
9,480
China
Japan
Other Asia
Asia
United States
Canada
North America
Other
Sales by species1
13 weeks ended
Year ended
In 000's of Canadian dollars
Scallops
$
Lobster
Clams
Coldwater shrimp
Crab
Langoustine
Whelks
Ground fish and other
shellfish
$
December 31 December 31
2017
53,857 $
24,720
34,955
29,963
13,378
14,330
2,197
2016
47,644 $
29,022
30,846
29,126
11,154
13,441
3,361
Change
6,213
(4,302)
4,109
837
2,224
889
(1,164)
$
December 31
2017
200,286 $
101,883
109,170
77,964
45,468
43,099
24,267
December 31
2016
188,421 $
108,402
91,918
93,250
38,243
47,572
22,204
Change
11,865
(6,519)
17,252
(15,286)
7,225
(4,473)
2,063
1,365
174,765 $
1,096
165,690 $
269
9,075
$
18,894
621,031 $
21,541
611,551 $
(2,647)
9,480
Clearwater reported annual sales of $621.0 million versus 2016 comparative results of $611.6 million and
sales of $174.8 million for the fourth quarter of 2017 versus 2016 comparative results of $165.7 million,
representing growth rates of 1.5% and 5.5%, respectively.
2017 sales growth was tempered by a 16% decline in coldwater FAS shrimp sales as a reduction in TAC
lowered available supply, and slower market conditions for langoustines. Top line growth in 2017 was
achieved through higher sales volumes for clams and both Argentine and sea scallops. Pricing and
promotional incentives expanded distribution and were successful in growing clam volumes by 56%,
resulting in an increase in clam sales of 25% for the year. These incentives were introduced in the third
quarter of 2016 and continued into 2017.
19 | P a g e
For the year, average foreign exchange rates were lower as the Canadian dollar strengthened against the US
dollar, GBP and the Yen negatively impacting sales and gross margin by $12.0 million for all currencies.
The unfavourable foreign exchange was partially offset through Clearwater’s targeted foreign exchange
risk management program with $3.1 million of realized gains on contract derivatives recognized below
gross margin, within adjusted EBITDA.
Sales prices in home currency for clams and turbot were down as compared to the prior year. Clam sales
volumes increased 38% with pricing incentives that began late in the third quarter of 2016 and continued
for all of 2017. These programs have been effective in expanding our channel, customer and geographic
distribution bases for clams. Turbot pricing was down due to a higher available supply from the inshore
fishery.
Coldwater shrimp
• Lower available supply of coldwater shrimp from a reduction in Total Allowable Catch (“TAC”),
resulted in lower sales for 2017 as compared to the same period in 2016.
• Selling prices were higher than 2016 despite lower foreign exchange rates as a more valuable catch
was harvested from northern fishing areas and the cooked and peeled market recovered due to
overall lower industry volumes.
Clams
• Sales volumes increased 48% and 38% in the fourth quarter and for the year 2017. Harvesting and
catch rates continue to be strong. Pricing and promotional incentives implemented late in the third
quarter of 2016 continued throughout 2017 and have resulted in higher sales volumes. Inventory
volumes dropped by 26% versus 2016 as higher sales volumes and the transition out of the fishery
of the Ocean Concord to make way for the Anne Risley reduced inventory volumes.
• Sales prices for 2017 were negatively impacted by the clam price incentives and changes in sales
mix weighted towards product with lower market prices.
Argentine Scallops
• Sales volumes increased for both the fourth quarter and the year as compared to the same periods
in 2016 as a result of increased landings and production.
• Market demand continues to remain strong resulting in strong home currency prices within Europe,
offset by sales mix weighted towards products with lower sales prices.
Sea Scallops
• Higher sales volumes resulted from strong catch rates and larger sizes during the year-to-date
period. Market demand is stable and available supply has been allocated to higher yielding markets.
• For the fourth quarter, home currency sales prices were lower than prior year as prices come off of
historical highs. Lower average foreign exchange rates, as the Canadian dollar strengthened against
the US dollar, also contributed to a decline in sales.
Europe
Europe is Clearwater’s largest scallop market and it is an important market for coldwater shrimp,
langoustines, crab and lobster products.
1 – Refer to discussion on risks and uncertainties
20 | P a g e
Sales for the fourth quarter and the year declined $1.1 million and $3.3 million, to $75.0 million and $243.6
million, respectively as compared to the same period of 2016. The decline for both periods was a result of
lower available supply, for FAS shrimp and slower market conditions that reduced sales prices for king
scallops. In addition, lower average foreign exchange rates as the Canadian dollar strengthened against the
GBP, resulting in a net negative impact of $1.0 million for the year. For the fourth quarter of 2017 the
Canadian dollar weakened against the Euro and GBP partially offsetting the decline in sales for a net
positive impact of $2.5 million.
In addition, higher scallop sales volumes partially offset the annual sales decline and improved market
conditions for langoustines in the fourth quarter further offset the fourth quarter sales decline.
China
China is a key market for clams, coldwater shrimp, lobster and turbot.
Sales for the fourth quarter and year ended December 31, 2017 increased $5.0 million and $5.8 million,
respectively. Higher annual sales were primarily a result of a 38% increase in sales volumes for clams and
higher available sea scallop supply, partially offset by clam pricing and promotional incentives and lower
sales prices for turbot.
Higher sales for the fourth quarter of 2017 was primarily a result of timing of landings for shrimp.
Sales in China are almost exclusively transacted in US dollars. Both periods were negatively impacted by
lower average foreign exchange rates as the Canadian dollar strengthened against the US dollar. For 2017
average foreign exchange rates declined 2.2% to a net negative impact to sales of $2.2 million, and $1.6
million for the fourth quarter of 2017.
Japan
Clams, lobster, coldwater shrimp and turbot are the main species sold in Japan.
Sales for the year and the fourth quarter of 2017 increased $3.4 million and $7.7 million respectively as
compared to the same period of 2016 primarily as a result of higher sales volumes for clams. Lower
available supply for coldwater shrimp and lower clam prices due to the continued use of pricing incentives
partially offset the increase in sales for the year.
Sales in Japan are typically transacted in Yen. Both periods were negatively impacted by lower average
foreign exchange rates as the Canadian dollar strengthened against the Yen. For the fourth quarter 2017
average foreign exchange rates declined 6.5% to a net negative impact to sales of $1.4 million. For 2017
average foreign exchange rates declined 6.8% to a net negative impact to sales of $4.6 million.
Other Asia
The Other Asia region includes Korea, Taiwan, Singapore and other Asian countries. Whelk, clams and
lobster are key products for these markets.
Sales declined for the fourth quarter 2017 by $1.7 million as compared to the same periods for 2016
primarily as a result of timing of available supply of whelk.
United States
Scallops, coldwater shrimp, lobster and clams are the primary species sold in the United States.
1 – Refer to discussion on risks and uncertainties
21 | P a g e
Sales for 2017 increased $1.4 million to $86.8 million primarily as a result of higher sales volumes for
clams and higher available supply for Argentine scallops. Sales prices for clams were lower due to pricing
incentives and changes in sales mix were weighted towards products with lower selling prices. The increase
in sales was partially offset by lower available supply for sea scallops as available inventory was sent to
higher yielding markets.
Sales for both 2017 and the fourth quarter were negatively impacted by lower average foreign exchange
rates as the Canadian dollar strengthened against the US dollar. For the fourth quarter 2017 average foreign
exchange rates declined 4.7% to a net negative impact to sales of $1.1 million. For 2017 average foreign
exchange rates declined 2.0% to a net negative impact to sales of $1.6 million.
Canada
Canada is a large market for lobster, scallops, snow crab, clams and coldwater shrimp.
Sales for 2017 increased $1.6 million to $73.9 million primarily as a result of higher sales volumes for
clams and snow crab. Sales prices for 2017 were negatively impacted by changes in sales mix weighted
towards product with lower market prices.
Cost of Goods Sold
Cost of goods sold includes harvesting and procurement costs, manufacturing costs, depreciation,
transportation and administration. Cost of goods sold increased for the year by $44.0 million and for the
fourth quarter by $8.6 million primarily as a result of higher sales volumes, increased depreciation resulting
from a higher asset base and lower TAC in several key species. Higher procurement costs for lobster, crab,
whelk and langoustines also contributed to the increase in costs of goods sold.
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, crab, langoustines and whelks.
Gross margin
Gross margin for the year declined $34.6 million as compared to the same period for 2016 to $110.0 million.
For the fourth quarter gross margin improved to $29.8 million as sales volumes increased for clams, sea
scallops, Argentine scallops and crab.. Gross margin as a percentage of sales for the year and the fourth
quarter of 2017 was 17.7% and 16.9%, respectively, versus 23.6% and 17.5% for the 2016 comparative
periods.
Gross margin declined in 2017 primarily due to lower volumes of coldwater shrimp, a species that
traditionally has had higher gross margins. The drop in volumes was due to lower TAC and catch rates. In
the third quarter of 2016, pricing incentives were introduced to increase market penetration and expansion
for clams. These remain in place and have been successful creating new distribution channels and markets
that resulted in higher sales volumes but at lower margins and lower inventory. Weakness in langoustine
demand persisted longer than expected. A stronger Canadian dollar also contributed to the decline. The
Canadian dollar strengthened against the US dollar, GBP, Yen, negatively impacting sales and margins by
$12.0 million for the year.
1 – Refer to discussion on risks and uncertainties
22 | P a g e
13 weeks ended
December
31
2016
Average
rate
December 31
2017
Average
rate
December 31
2017
Average
rate
Currency
% sales
realized 1 % sales
realized1 % sales
realized1 % sales
US dollars
Euros
Canadian dollar and other
UK pounds
Japanese Yen
Danish Kroner
40.5%
27.9%
10.1%
8.2%
11.0%
2.3%
100.0%
1.273
1.498
1.692
0.011
0.201
36.6%
26.2%
16.9%
11.3%
7.5%
1.5%
100.0%
1.336
1.428
1.662
0.012
0.194
40.0%
26.3%
11.5%
9.9%
10.1%
2.2%
100.0%
1.292
1.470
1.672
0.012
0.197
37.4%
27.0%
12.9%
10.0%
9.6%
3.1%
100.0%
Year ended
December
31
2016
Average
rate
realized1
1.319
1.459
1.760
0.012
0.199
Operating expenses
In 000's of Canadian dollars
Salaries and benefits
Share-based incentive
compensation
Employee compensation
Consulting and professional
fees
Other
Selling costs
Travel
Occupancy
Allocation to cost of goods
sold
Administrative and selling
Restructuring costs
Operating expenses
13 weeks ended
Year ended
December 31 December 31
2016
6,677 $
2017
10,064 $
$
116
10,180
(2,303)
4,374
3,397
1,895
806
777
381
4,594
1,262
929
1,074
423
December 31 December 31
2016
39,346 $
2017
40,197 $
$
409
40,606
2,902
42,248
14,238
6,625
2,816
3,089
1,548
13,135
6,907
2,857
3,906
1,947
Change
3,387
2,419
5,806
(1,197)
633
(123)
(297)
(42)
Change
851
(2,493)
(1,642)
1,103
(282)
(41)
(817)
(399)
(3,375)
14,061 $
6,677
20,738 $
$
$
(3,675)
8,981 $
300
5,080
833
9,814 $
5,844
10,924
$
$
(13,371)
55,551 $
(13,494)
57,506 $
123
(1,955)
6,856
62,407 $
986
58,492 $
5,870
3,915
Salaries and benefits increased $0.9 million and $3.4 million for the year and fourth quarter of 2017,
respectively as compared to the same periods in 2016 due to the timing of variable compensation expense.
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.
1 – Refer to discussion on risks and uncertainties
23 | P a g e
Consulting and professional fees include operations management, legal, audit and accounting, insurance,
information technology support and other specialized consulting services. Consulting and professional fees
increased year-to-date 2017 as a result of specialized fees in support of the enterprise resource planning
system (“ERP”) and international advisory services.
Other includes a variety of administrative expenses such as communication, computing, service fees,
depreciation, storage, gains or losses and write-downs of assets, all of which vary from year-to-year.
Selling costs include advertising, marketing, trade shows, samples, product development and bad debt
expenses.
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.
Restructuring costs in the fourth quarter of 2017 consisted of severance costs associated with the targeted
restructuring of the Company’s employee base and changes to Clearwater’s distribution infrastructure.
Net Finance costs
In 000's of Canadian dollars
December 31 December 31
2016
2017
December 31 December 31
2016
2017
Change
13 weeks ended
Year ended
Change
Interest and bank charges
$
7,426 $
6,778 $
648
$
28,205 $
24,776 $
3,429
Amortization of deferred financing
charges and accretion
Interest rate swaps and caps 1
Accretion on deferred consideration
Fair value adjustment on embedded
derivative
Debt settlement2 and refinancing fees
405
7,831
-
486
478
7,256
(1,665)
821
(73)
575
1,665
(335)
1,555
29,760
(4,347)
2,166
2,113
26,889
(2,027)
3,562
(558)
2,871
(2,320)
(1,396)
-
(1,710)
1,710
(703)
(1,350)
647
13
499
(100)
(2,654)
113
3,153
8,404
5,520
(126)
59
8,530
5,461
$
8,330 $
4,602 $
3,728
$
35,280 $
26,948 $
8,332
(1) Interest rate swaps and caps represents unrealized (gains) losses as a result of the change in fair value during the period.
Realized amounts are reflected in interest expense and bank charges and debt settlement and refinancing fees.
(2) Debt settlement includes loss on settlement of existing interest rate swaps and cross currency swaps and cap, forward foreign
exchange contracts, remaining unamortized deferred financing costs and accretion.
Interest and bank charges increased $2.9 million for 2017 as compared to the same periods in 2016
primarily as a result of higher average debt balances at the end of 2017. Debt balances increased primarily
to fund the construction of the Anne Risley, the clam replacement vessel.
Variances in amortization of deferred financing charges and accretion resulted from the refinancing of
the term loan facilities in the second quarter of 2017.
24 | P a g e
The interest rate swaps and caps related to non-cash mark-to-market gains and losses on USD $100
million and CAD $24 million swaps and caps that were entered into in 2015. The change in the mark-to-
market represented changes in relative expected future interest rates and foreign exchange impacts as the
Canadian dollar strengthened against the US dollar in 2016. As part of the refinancing which occurred
early in the second quarter of 2017, these instruments were settled and derecognized.
The accretion on deferred consideration arises from the deferred consideration obligation associated with
the acquisition of Macduff as the notes are non-interest bearing. The reduction in accretion for 2017 relates
to timing of non-cash adjustments in the first quarter of 2016, as well as changes in foreign spot rates as the
Canadian dollar strengthened against the GBP in 2017.
The fair value adjustment on the embedded derivative 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. In May
2017 the Term Loan B loan agreement was refinanced including the Libor floor provision, and related
embedded derivative was extinguished at that time.
(Gains) losses1 on contract derivatives
In 000's of Canadian dollars
Realized (gain) loss
Forward foreign exchange
contracts
Unrealized (gain) loss
Forward foreign exchange
contracts
13 weeks ended
Year ended
December 31 December 31
2016
2017
Change
December 31 December 31
2016
2017
Change
$
2,461 $
238
2,223
$
(3,065) $
7,345
(10,410)
(186)
2,275 $
(8,610)
(8,372)
8,424
10,647
$
(980)
(4,045) $
(14,624)
(7,279)
13,644
3,234
$
Clearwater is primarily an export company with more than 85% of our sales taking place outside Canada
and in foreign currencies. As part of our risk management strategy we enter into short-term forward
contracts to give us certainty regarding exchange rates and cash flows for a period of time. We recognize
and include in our earnings any realized gains and losses on these instruments as they mature and are
settled.
We also recognize and include in earnings unrealized non-cash gains and losses on these instruments by
assuming the settlement of these instruments, prior to their maturity, at each period end. To reflect this
accounting, Clearwater estimates the fair value of the financial derivative instruments and convert them to
Canadian dollars at each balance sheet date. The unrealized non-cash gains or losses are excluded when
calculating Adjusted EBITDA, Adjusted Earnings Attributable to Shareholders of Clearwater and Free
Cash Flows.
Realized gains on settled forward contract derivatives increased $10.4 million for 2017 versus the same
comparative period in 2016. The increase is primarily due to average contracted rates for USD and Yen
being higher than the spot rate on the date of settlement in 2017. These gains partially offset the negative
foreign exchange impacts on sales.
The decrease in unrealized gains of $13.7 million for the year and $8.4 million for the fourth quarter of
2017 as compared to the same period in 2016 is dependent on average contracted rates as compared to the
forward rates based on maturity.
1 – Refer to discussion on risks and uncertainties
25 | P a g e
Foreign exchange 1 (gains) losses on long term debt and working capital
In 000's of Canadian dollars
Realized (gain) loss
Long-term debt and working
Unrealized (gain) loss
Foreign exchange on long-term
debt and working capital
Forward exchange contracts, cross
currency swaps and cap related to
long-term debt
13 weeks ended
Year ended
December 31 December 31
2016
2017
Change
December 31 December 31
2016
2017
Change
$
(565) $
776 $
(1,341)
$
3,547 $
7,803 $
(4,256)
3,400
5,881
(2,481)
(23,693)
(18,045)
(5,648)
(1,604)
1,796
1,231 $
(2,208)
3,673
4,449 $
604
(1,877)
(3,218)
$
5,883
(17,810)
(14,263) $
2,947
(15,098)
(7,295) $
2,936
(2,712)
(6,968)
$
Realized foreign exchange losses on long-term debt and working capital for 2017 decreased $4.3 million
compared to 2016 primarily as a result of the devaluation of the Peso against the Canadian and US dollar
that occurred in 2016 that impacted working capital accounts and the translation of intercompany balances
due related to wholly owned subsidiaries classified as foreign operations for accounting purposes.
Unrealized foreign exchange gains on long-term debt and working capital for 2017 and the fourth quarter
of 2017 increased $2.7 million and $1.9 million, respectively. The increase in unrealized gains is primarily
due to the translation of the USD Notes (USD $250.0 million) which replaced the existing USD term debt
in Q2 2017 as the Canadian dollar strengthen against the USD in 2017.
In Q2 2017, the cross currency swaps and cap were unwound as part of the refinancing of long-term debt.
In the second and third quarter of 2017, Clearwater entered into forward foreign exchange contracts to
hedge approximately 80% of the notional amount of the USD Notes.
Other (income) expense
In 000's of Canadian dollars
Share of earnings of equity-
accounted investee
Export rebate income
Fair value adjustment on earn-out
liability
Other (income) fees
Royalties, interest income and other
fees
Acquisition related costs
13 weeks ended
Year ended
December 31 December 31
2016
2017
December 31 December 31
2016
2017
Change
Change
754
(179)
(2,103)
(354)
(43)
385 $
(1,540) $
$
$
(872)
(69)
150
(602)
(749)
1,287
(855)
1,626
(110)
(2,253)
248
(2,656)
(1,190)
(2,769)
(994)
706
(902)
(685)
$
$
(431)
464 $
(7,576) $
(1,185)
(2,146)
(1,110)
(1,950)
(1,379)
2,561
(5,209)
(1,471)
956
(1,659)
956
948
(2,097)
(2,367)
Share of earnings in equity-accounted investee increased in 2017 primarily as a result of timing of landings
and higher catch rates in comparison with the same periods in 2016. The reduction in share of earnings in
equity investee in the fourth quarter of 2017 resulted from timing of landings and available supply.
1 – Refer to discussion on risks and uncertainties
26 | P a g e
The export rebate income relates to incentives accrued by our Argentine subsidiary for exports from certain
economic zones in Argentina. Late in 2016, the Argentina government announced a change to the export
rebate program that will result in a reduction to the incentive program. Management expects to receive all
accrued balances in due course.
The fair value adjustment on earn-out liability relates to the Macduff acquisition. The earn-out liability is
an unsecured additional consideration to be paid dependent on the future financial performance of Macduff
and is recognized using fair value, with adjustments included in the statement of earnings (loss).
Royalties, interest income and other fees includes income related to quota rental, commissions, processing
fees and other miscellaneous income and expense that vary based upon the operations of the business.
Acquisition related costs for 2017 were associated with various explored opportunities and 2016 related to
the acquisition and integration of Macduff Shellfish.
Research and Development
Research and development relates to new harvesting, processing and storage technology and research into
ocean habitats and fishing grounds. Research and development can vary year to year depending on the
scope, timing and volume of research completed.
Income taxes
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.
The decrease in income tax expense for the year and for the fourth quarter of 2017 of $8.8 million and $1.8
million, respectively as compared to the same period for 2016 is primarily due to a decrease in taxable
income.
Earnings attributable to non-controlling interest
Non-controlling interest relates to minority share of earnings from Clearwater’s majority investments in a
shrimp/turbot joint venture and subsidiaries in Argentina and Newfoundland and Labrador.
The decrease in earnings attributable to non-controlling interest of $3.2 million for 2017 relates primarily
to lower availability of shrimp from TAC and a vessel refit, partially offset by strong catch rates for
Argentine scallops.
It is important to note that the earnings attributable to non-controlling interest relates to the portion of
Clearwater’s partnerships owned by other parties. Income taxes are included in earnings attributable to
shareholders for Clearwater’s share of partnership earnings, whereas the earnings attributable to non-
controlling interest are not tax affected.
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.
27 | P a g e
Earnings attributable to shareholders
Earnings attributable to shareholders decreased $28.2 million and $19.6 million in 2017 and in the fourth
quarter of 2017, respectively. For the year earnings attributable to shareholders declined due to lower
margins for clams, shrimp and Argentine scallops, and higher reorganizational costs, partially offset by
higher unrealized foreign exchange gains on long term debt and lower incentive base programs.
In the fourth quarter of 2017, the decline in earnings was primarily a result of higher reorganizational costs
from the announced restructuring on November 9, 2017.
Adjusted Earnings attributable to shareholders
To assist readers in understanding 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.
Adjusted earnings attributable to shareholders1 for 2017 and the fourth quarter of 2017 decreased $18.9
million and $2.6 million, respectively as lower margins and higher depreciation rates were partially offset
by increased income from a joint venture which is accounted for under the equity method.
For those readers that would like to understand the calculation of adjusted earnings and adjusted earnings
attributable to shareholders, please refer to the reconciliation of adjusted earnings within the non-IFRS
measures, definitions and reconciliations section of the MD&A.
CAPITAL STRUCTURE
Clearwater’s capital structure includes a combination of equity and various types of debt facilities.
Clearwater’s goal is to have a cost effective capital structure that supports its growth plans, while
maintaining flexibility, reducing interest rate risk and reducing exchange risk by borrowing in currencies
other than the Canadian dollar when appropriate.
Clearwater uses leverage, in particular USD senior unsecured notes, revolving and term debt to lower its
cost of capital.
The amount of debt available to Clearwater under its lending facilities is a function of Net Adjusted
EBITDA1 attributable to shareholders. 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, utilizing
surplus cash, extending the term of existing debt facilities and, selling surplus assets to repay debt.
28 | P a g e
Clearwater’s capital structure was as follows as at December 31, 2017 and December 31, 2016:
In 000's of Canadian dollars
As at
Equity
Share capital
Contributed surplus
Deficit
Accumulated other comprehensive income
Non-controlling interest
Long-term debt
Senior debt, non-amortizing
USD senior unsecured notes, due 20251
Revolving debt, due in 20222
Revolving debt, due in 20183
Term loan, due in 2018
Term loan, due in 2091
Senior debt, amortizing
Term Loan B, due 20224
Term Loan A, due 20185
Term Loan B, due 20196
Other loans
Deferred Obligation7
Earnout liability7
Total long term debt
Total capital
$
December 31
2017
December 31
2016
$
210,860
3,021
(8,722)
(39,730)
165,429
17,109
182,538
306,684
87,682
-
12,215
3,500
410,081
34,466
-
-
167
34,633
23,181
5,278
473,173
210,860
1,419
(4,793)
(38,931)
168,555
19,930
188,485
-
-
23,400
13,459
3,500
40,359
-
50,218
307,210
222
357,650
29,298
9,107
436,414
$
655,711
$
624,899
1 USD senior unsecured notes is net of unamortized deferred financing charges of $7.4 million with a US dollar coupon rate of 6.875%. This
resulted in an effective rate of approximately 7.194%.
2 The revolving loan availability, subject to financial covenants, allows Clearwater to borrow a maximum of approximately CDN $56 million and
is net of unamortized deferred financing charges of $2.3 million. As of December 31, 2017, this resulted in an effective rate of approximately
3.97%. The availability on this loan is reduced by the amount outstanding on a USD $10 million non-amortizing term loan.
3 The revolving loan allowed Clearwater to borrow a maximum of CDN $100 million and bears interest at the banker's acceptance rate plus
3.25%. The availability on this loan was reduced by the amount outstanding on a USD $10 million non-amortizing term loan.
4 Term Loan B is net of unamortized deferred financing charges of $0.3 million. As of December 31, 2017, this resulted in an effective rate of
approximately 3.74%.
5 Term Loan A is net of unamortized deferred financing charges at December 31, 2016 of $0.4 million and bears interest at the applicable
banker's acceptance rate plus 3.25%.
6 Term Loan B is a USD loan, shown net of unamortized deferred financing charges at December 31, 2016 of $1.1 million and bears interest at
US LIBOR plus 3.5% with a LIBOR floor of 1.25%.
7 The Deferred Obligation and Earnout Liability relate to the acquisition of Macduff in 2015.
Equity
29 | P a g e
There are 63,934,698 shares outstanding as of December 31, 2017 (December 31, 2016 - 63,934,698).
On June 21, 2016, Clearwater issued 2,895,700 shares for $13.90 per share yielding gross proceeds of
approximately $40.3 million. Concurrently, Clearwater completed a non-brokered private placement with
certain existing shareholders for 1,080,000 shares at $13.90 per share for approximate gross proceeds of
$15.0 million. The total approximate gross proceeds from the offering were $55.3 million and the
approximate proceeds net of expenses were $53.1 million. Transactions costs were net of deferred taxes of
$0.7 million.
Long-term debt
On April 26, 2017, Clearwater completed an offering of USD $250 million senior unsecured notes, due
2025 with a US dollar coupon rate of 6.875% (“the Notes”). In 2017, Clearwater entered into forward
foreign exchange contracts to hedge approximately 80% of the notional value of the Notes at an average
rate of 1.2844 and approximately 80% of the coupon payments at an average rate of 1.2867.
Concurrently, Clearwater entered into new senior secured credit facilities in an aggregate principal amount
of CDN $335 million, consisting of a CDN $300 million revolving credit facility and a CDN $35 million
amortizing secured term loan, each maturing in 2022 (the “Senior Secured Credit Facilities”). The Senior
Secured Credit Facilities bear interest ranging from LIBOR plus 1.50% to 2.25% for the revolving credit
facility and LIBOR plus 2.50% to 3.25% for the secured term loan. The range is determined quarterly based
on a ratio of Senior Secured indebtedness to EBITDA, with EBITDA calculated on a trailing twelve month
basis.
Clearwater used the net proceeds from the sale of the Notes, together with the new borrowings under the
Senior Secured Credit Facilities, to refinance existing senior secured credit facilities (Term Loan A, Term
Loan B and revolving credit facility) and used the remainder for general corporate purposes.
Included in Clearwater’s long-term debt is the Deferred Obligation and Earnout Liability related to the
acquisition of Macduff in 2015. The terms of these liabilities are as follows:
The Deferred Obligation relates to 33.75% of the shares of Macduff Shellfish Group Limited acquired by
Clearwater (the "Earn Out Shares"). The original amount was £26.2 million (CDN $44.2 million) and the
principal amount of the deferred obligation at December 31, 2017 was £15.7 million, recorded at a
discounted amount of £13.7 million (CDN $23.2 million) (December 31, 2016 - £21.0 million, CDN $29.3
million) based on estimated timing of payment and is being accreted to the principal amount over the
estimated term using the effective interest method with an effective average interest rate of 7.44%.
In each year, the 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.
In both 2016 and 2017, the holders of the Earn Out Shares elected to be paid 20% of the outstanding deferred
obligation. As a result a payment of £5.2 million (2017 - CDN - $8.9 million; 2016 – CDN $8.7 million)
was made in November of each year.
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
30 | P a g e
payment (refer to Deferred Obligation above). The estimated fair value of the Earnout at December 31,
2017 was £3.1 million (CDN - $5.3 million) (December 31, 2016 - £5.5 million, CDN - $9.1 million) based
on forecast earnings and probability assessments. The actual Earnout payments are to be paid over the
remaining four years.
The amount of the total Earnout is calculated as follows:
The greater of:
i.
ii.
iii.
£3.8 million; OR
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
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 (income) expense on
the consolidated statement of earnings (loss).
The first payment was made in the second quarter of 2017 for £0.8M (CDN - $1.3 million).
Excluding deferred consideration and the related Earnout, Clearwater has effectively fixed the interest rate
on 71 percent of its debt as at December 31, 2017.
Clearwater has applied hedge accounting to the forward foreign exchange contracts related to the coupon
payments and a portion of the unrealized gain (loss) on the contracts will be included in Net Finance Costs
on an accrual basis in the period. The change in fair value related to the forward foreign exchange contract
on the notional will be recognized in Foreign exchange gain (loss) on long-term debt and working capital
and is expected to offset a portion of the foreign exchange translation on long-term debt.
The revolver 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.
LIQUIDITY
Clearwater has a number of treasury management policies and objectives 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:
31 | P a g e
Liquidity
As of December 31, 2017 Clearwater had $35.5 million in cash, and a $300.0 million revolving loan, with
approximately $56 million available to draw down. 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.
Leverage1
Leverage for the year ending December 31, 2017 increased to 5.0x adjusted EBITDA excluding non-
controlling interest (“net adjusted EBITDA”) from 4.2x on December 31, 2016 as a result of lower net
adjusted EBITDA from a reduction in gross margin. Gross margin declined due to lower available supply
of coldwater shrimp, lower clam margins and less favorable foreign exchange rates. Pricing incentives on
clams that reduced sales prices were partially offset by higher sales volumes. Lower available supply from
reductions in TAC for FAS shrimp and changes in fishing areas resulted in lower catch rates and differences
in sales mix. As well, higher debt balances from the completion of the final year of our major capital
expenditure program increased leverage. In the third quarter of 2017, the Company announced an
organizational restructuring, which is anticipated to generate in excess of $6 million in year-over-year cost
savings and $10 million annualized. Pro forma leverage of 4.8x for 2017 has been calculated using a
conservative estimate of reorganizational cost savings that aligns to lender calculations.
For 2018, modest TAC reductions in clam and the announcement of a new entrant, potential TAC reductions
in scallops, competitive market pressure associated with an anticipated significant increase in US scallop
supply and foreign exchange headwinds are expected to offset progress in volume, pricing and margin on
other core species. Combined with the seasonality of our business, we expect leverage to be higher during
the first nine months of 2018 before improving by the end of the year. Significantly lower capital
expenditures and further inventory reductions to historic levels, are expected to increase free cash flow
which will result in lower debt and 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 manages its 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 the ratio of Clearwater’s share of adjusted EBITDA to its
outstanding debt, net of cash balances.
32 | P a g e
In 000's of Canadian dollars
As at December 31
Net Adjusted EBITDA2,3 (excluding non-controlling interest)
Re-organizational savings
Total Net adjusted EBITDA
Debt5,4 (excluding non-controlling interest)
Less cash (excluding non-controlling interest)
Net debt
Pro forma1
2017
89,156 $
4,000
93,156
Actual
2017
Actual
2016
Actual
2015
89,156 $
98,446 $
101,310
89,156
98,446
101,310
478,747
(31,976)
446,771 $
478,747
(31,976)
446,771 $
436,834
(25,110)
411,724 $
475,685
(32,938)
411,724
$
$
Leverage
4.8
5.0
4.2
4.2
1 - In the fourth quarter of 2017, the Company initiated an organizational restructuring, which is anticipated to generate in excess of $6 million in year-
over-year cost savings and $10 million annualized. Pro forma re-organizational savings has been provided as a conservative fiscal estimate that aligns to
lender calculations.
2 – Refer to discussion on non-IFRS measures, definitions and reconciliations
3 - Adjusted EBITDA for 2015 includes an adjustment of $11.9 million to include the earnings of Macduff which was acquired on October 3, 2015.
4 - Debt as at December 31, 2017 has been adjusted to include USD $200 million forward foreign exchange contract at an average contracted rate of
1.2844. (December 31, 2016 - USD $75 million cross-currency swap at contracted rates of 1.3235).
5 - Debt is net of unamortized deferred financing charges of $10.3 million (December 31, 2016 - $2.0 million; December 31, 2015 0 $2.3 million).
Foreign Exchange Management1
Clearwater has a targeted foreign exchange program. This program focuses on using forward contracts to
lock in exchange rates up to 15 months for sales currencies (the US dollar, Euro, Yen and GBP), foreign
denominated capital spend and foreign denominated debt thereby lowering the potential volatility in cash
flows from changes in exchange rates.
As of December 31, 2017 Clearwater had forward exchange contracts outstanding:
Currrency
USD to CDN
Yen to CDN
Euro to CDN
Euro to GBP
USD to GBP
CDN to USD
Forecasted transaction
Sales
Sales
Sales
Sales
Sales
Debt
Notional (millions)
90.0
2,081.0
26.1
17.4
4.8
261.9
Average rate
1.2991
0.0117
1.5026
0.8850
0.7658
1.2842
The purpose of these contracts is to give certainty to Clearwater on the exchange rates it receives on a
portion of its foreign currency sales, capital expenditures and long-term debt1. The foreign exchange
contracts effectively adjust the cash proceeds received on sales receipts and cash paid with respect to capital
expenditures and interest and notional amounts for long-term debt, 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 up to 75% of its estimated net exposures and that higher or lower spot
exchange rates are reflected in sales, any losses or gains on contracts are more than offset by the impact on
sales.
33 | P a g e
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 reduce debt or invest in growth
investments. Clearwater’s goal is to grow free cash flows such that it can fund growth, target leverage of
approximately 3.0x Adjusted EBITDA over the long-term and pay a sustainable dividend to its
shareholders.
1 – Refer to discussion on risks and uncertainties
34 | P a g e
Adjusted EBITDA1
Less:
Interest and bank charges
Current income tax expense
Other income and expense items
Operating cash flow before changes in working capital
$
Changes in working capitalA
Cash flows from operating activities
Sources (uses) of cash:
Purchase of property, plant, equipment, quota and other
assets
Disposal of fixed assets
Less: Designated borrowingsB
Scheduled payments on long-term debtC
Payments on long-term incentive plans
Distribution to non-controlling interests
Dividends received from joint venture
Other financing activities
Non-routine costs
Free cash flows1
Add/(less):
Other debt borrowings (repayments) of debt, use of cashC
Issuance of equity
Payments on long-term incentive plans
Other investing activitiesD
Other financing activities
Change in cash flows for the period
13 weeks ended
December 31
2016
2017
Year Ended
December 31
2015
2016
2017
28,490 $
29,460 $
108,596 $
120,937 $
109,732
(7,426)
(657)
(12,458)
7,949
34,714
42,663
(6,778)
(2,349)
(4,899)
15,434
64,053
79,487
(28,204)
(12,376)
(12,932)
55,084
(24,776)
(7,078)
(9,496)
79,587
(19,006)
(1,896)
(1,590)
87,240
3,057
58,141
(16,547)
63,040
(18,746)
68,494
(25,350)
2,400
14,513
(8,901)
177
(6,642)
-
-
3,392
22,252 $
(13,158)
-
5,703
(10,259)
-
(5,097)
-
-
684
57,360 $
(24,574)
-
(177)
259
(5,159)
(7,399) $
(42,003)
(25)
-
(2,203)
(6,696)
6,433 $
(85,431)
2,408
39,206
(11,948)
1,618
(19,154)
3,340
-
3,392
(8,428) $
27,792
-
(1,618)
(5,832)
(15,914)
(4,000) $
(56,332)
1,131
25,883
(15,215)
5,670
(24,560)
-
-
1,885
1,502 $
(63,390)
4,584
35,097
(5,461)
8,953
(11,817)
-
676
1,953
39,089
(37,566)
53,024
(5,670)
78,099
58,628
(8,953)
(2,513)
(20,369)
(11,592) $
(148,930)
(14,425)
3,508
$
$
(1) Refer to discussion on non-IFRS measures, definitions and reconciliations.
A – Changes in working capital have been restated to align with the change in presentation of cash interest and cash income taxes paid in the
consolidated statement of cash flows. This change had no impact on cash from operations.
B – 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 2017 and 2016, the periods covered in this table includes the replacement of the Ocean Concord clam vessel. For 2015, the period covered
in this table includes a conversion of a vessel for Argentina, the addition of a third clam vessel, a late life refit on a shrimp vessel and the conversion
of a new research 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.
C – Scheduled payments on long-term debt has been updated to include the Deferred Consideration payment made in Q4 2017 of $8.9 million (Q4
2016 of $8.7 million) and the Earnout payment in Q2 2017 of $1.3 million.
D - Other investing activities for 2015 includes $151.1 million for the acquisition of Macduff, less cash acquired in the acquisition of $9.1 million.
1 – Refer to discussion on risks and uncertainties
35 | P a g e
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 operations, seasonal working capital demands,
capital expenditures, and other commitments.
The fourth quarter of 2017 generated cash from operations of $42.7 million driven by working capital
improvements of $34.7 million of which $48.1 million was related to inventory, with the timing of accounts
receivable and payables partially offsetting the improvements. For 2017 total cash generated from
operations was $58.1 million of which $22.0 million was related to inventory and timing of payables.
Free cash flows1 declined to a use of cash of $9.9 million in 2017 primarily as a result of higher capital
expenditures with working capital improvements of $19.6 million partially offsetting the decline in free
cash. Annual capital expenditures represent the successful completion our five year fleet renewal program
in 2017. Capital spending is expected to decline by $60 to 70 million in 2018.
Certain large investments in longer term assets such as, vessel conversion and/or 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
(Decrease) increase in income tax payable
13 weeks ended
December 31
2016
33,179 $
13,154
20,722
(2,309)
(693)
64,053 $
2017
48,116 $
(2,487)
(11,177)
1,838
(1,575)
34,715 $
Year ended
December 31
2016
(22,030)
(7,785)
3,775
4,953
4,540
(16,547)
2017
12,615 $
9,369
(22,043)
188
2,928
3,057 $
$
$
Clearwater is focused on managing its free cash flows through:
• Managing working capital - Clearwater manages trade receivables through a combination of tight
collection terms and when appropriate, discounting. 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 and country specific credit risk. As a result, Clearwater does not
have any significant concentration of credit risk. Clearwater manages 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. From time-to-time, Clearwater enters
into transactions to sell selected accounts receivables to a commercial partner without recourse.
Sale of receivables during the period represent less than 5 percent of consolidated sales.
36 | P a g e
• Capital spending - Clearwater evaluates 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 approximately $20-25 million a year in maintaining its
fixed assets with repairs and maintenance expense declining with the completion of the fleet
modernization program.
In 2018 Clearwater expects to invest approximately $18 million in capital expenditures for land
based operations, vessel maintenance and refits.
Dividends
On March 6, 2018 the Board of Directors approved and declared a dividend of $0.05 per share payable on
April 2, 2018 to shareholders of record as of March 15, 2018.
On February 15, 2018 the Board approved a Dividend Reinvestment Plan (DRIP) effective February 23,
2018 to provide shareholders of Clearwater who are resident in Canada with the option to have the cash
dividends declared on the common shares of Clearwater reinvested automatically back into additional
shares, without the payment of brokerage commissions or service charges. The DRIP program will be
effective for the fourth quarter dividend payment. It is the intention of certain insiders and major
shareholders to participate in the DRIP which management believes shows their commitment and belief in
the long term value and strategies of the company by supporting cash reinvestment into the business.
Enrollment for the April dividend commenced on February 23rd and will end on March 8th
In making the determination of dividend levels Clearwater's Board gives consideration to several key
principles including:
• expected future earnings;
•
•
•
free cash flows that should be retained to reinvest in the business;
the assurance that all obligations can be met with respect to existing loan agreements; and
the desire to increase the dividend in the future as the business continues to grow and
expand.
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.
Commitments
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.
37 | P a g e
December 31, 2017
Carrying
Amount
Total
Contractual
Cash Flow
2018
2019
2020
2021
2022
>2023
Interest - long-term debt
$
- $
198,248 $
26,502 $
26,251 $
26,238 $
26,225 $
23,321 $
69,711
Principal repayments - long-term debt
-
473,173
21,025
9,761
9,761
1,695
120,748
310,183
Total long-term debt
473,173
671,421
47,527
36,012
35,999
27,920
144,069
379,894
Trade and other payables
80,411
80,411
80,411
-
-
-
-
Operating leases and other
-
14,670
5,625
4,011
3,281
820
555
Derivative financial instruments - asset
5,938
5,938
5,797
88
47
6
-
Derivative financial instruments - liabilities
9,120
9,120
1,978
485
436
395
5,826
-
379
-
-
$
568,642 $
781,560 $ 141,338 $
40,596 $
39,763 $
29,141 $ 150,450 $ 380,273
Included in the above commitments for “operating leases and other” are amounts to which 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.
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 2020 for vehicle and office leases,
which aggregate approximately $0.07 million (2016 - $0.04 million).
38 | P a g e
OUTLOOK
For 2018, modest TAC reductions in clam and the announcement of a new entrant, potential TAC reductions
in scallops, competitive market pressure associated with an anticipated significant increase in US scallop
supply and foreign exchange headwinds are expected to offset progress in volume, pricing and margin on
other core species. Significantly lower capital expenditures and further inventory reductions to historic
levels, are expected to increase free cash flow which will result in lower debt and leverage. Combined with
the seasonality of our business, we expect leverage to be higher during the first nine months of 2018 before
improving by the end of the year.
Our core fisheries are managed for long-term sustainability, we have taken timely and carefully considered
measures in response to these near-term challenges including adjustments to harvest plans, pricing and
distribution strategies, cost and working capital reductions and a major organization restructuring
completed in December 2017. We expect these measures will generate strong cash flows from operations,
reduce debt and leverage, yield a higher return on assets and positive returns to shareholder value. Details
include:
1) Capital Spending and Working Capital Reductions. With the successful completion of our five-year
fleet renewal program in 2017, capital spending will decline by $60 to 70 million in 2018. In fact, with
one of the youngest and best-maintained offshore fleets in Canada, we expect to be able to maintain
these modest new capital spending limits for several years to come. Inventory is expected to continue
to decrease with further reductions of $10 to 20 million by the end of the year.
2) Organization Restructuring and Improved Cost Management. In the fourth quarter of 2017, we
initiated a company-wide restructuring targeting annualized savings in excess of $10 million, incurring
one-time charges of $6.7 million in the fourth quarter of 2017. While these changes to our
organizational structure are significant, they will make us leaner, more agile and reflect our greater
ability to leverage state-of-the-art technology and smarter systems to drive margin improvement
through increased price realization and improved cost management.
In 2018, Clearwater will continue to navigate the combined forces of technological change, globalization
and Mother Nature. Meanwhile, industry fundamentals of limited supply of wild capture seafood, and
growing population, demand and purchasing power of middle class consumers, especially in Asia, will
remain in our favor strengthening our value proposition and creating long-term value for our customers,
employees, communities and shareholders.
Global demand for seafood 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.
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.
39 | P a g e
RISKS AND UNCERTAINTIES
The performance of Clearwater’s business is susceptible to a number of risks which affect income, liquidity
and cash flow, including risks related to resource supply, food processing and product liability, suppliers,
customers, competition and foreign exchange exposure and lawsuits in the normal course of business. For
further disclosure of additional risk factors please refer to the Annual Information Form, which is available
on Sedar at www.sedar.com as well as Clearwater’s website at www.clearwater.ca.
Foreign exchange risk
Clearwater’s 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 its expenses are in Canadian dollars. As a result,
fluctuations in the foreign exchange rates of these currencies can have a material impact on the 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. In 2015 and 2016 our Argentine
operation was subject to foreign currency volatility related to the Argentine Peso. Clearwater continues to
monitor these fluctuations and any risk that the exchange rate volatility could cause Clearwater to report its
Argentine operations using IAS 29 – Financial Reporting in Hyperinflationary Economies.
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 managing its business, and
(5) Foreign exchange hedging program – a portfolio of forward contracts enable Clearwater to lock
in exchange rates for up to 15 months for key sales currencies (the US dollar, Euro, Yen and
Sterling) thereby lowering the potential volatility in cash flows through derivative contracts.
In 2017 approximately 40% of Clearwater’s sales were denominated in US dollars.
Based on 2017 sales and excluding the impact of its hedging program,
•
•
•
a change of 0.01 in the US dollar rate converted to Canadian dollars would result in a $1.9 million
change in sales and gross profit.
a change of 0.01 in the Sterling rate converted to Canadian dollars would result in a $0.4 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 $1.1 million
change in sales and gross profit.
40 | P a g e
•
a change of 0.001 in the Yen rate as converted to Canadian dollars would result in a change of $5.4
million in sales and gross profit.
Political risk
Our operations and investments are subject to economic and political risks, which could materially and
adversely affect our business.
These risks include fluctuations in foreign exchange rates, expropriation of our assets, nationalization,
renegotiation, forced divestiture, modification or nullification of our contracts and changes in foreign laws
or other regulatory policies of foreign or domestic 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. Specific risks by country are described below.
Canada
Clearwater was a pioneer in the development of the clam fishery, which began in 1986. Clearwater
purchased its licences and quota with the consent of the Department of Fisheries and Oceans Canada
(“DFO”) and has invested hundreds of millions of dollars to develop the fishery and the market, including
$156 million in the last three years.
On September 6, 2017, the DFO announced the introduction of a fourth Arctic Surf Clam licence
representing 25% of the existing TAC to be awarded to an Indigenous group effective 2018. With the
announcement of the recipient of the new licence on February 21, 2018, the Minister has effectively
expropriated value. Clearwater will be pursuing legal options to address this failure in public policy and
abuse of power by the Minister. This announcement, in combination with the suspension of the shrimp
LIFO arrangement in 2016, represent departures from historical Canadian policy.
No assurance can be given that our operations will not be adversely impacted as a result of existing or future
policy changes.
Argentina
Our operations in Argentina 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 15% of the
Argentine business and who 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.
41 | P a g e
United Kingdom
On June 23, 2016, the United Kingdom (“UK”) voted to leave the European Union (“EU”). On March 29,
2017, the Prime Minister of the United Kingdom filed notice of intention to leave the EU triggering the
process to negotiate the terms of the withdrawal and the country’s future relationship with the EU. Under
the Lisbon Treaty, the negotiations of the terms of departure are required to be concluded within two years
from giving notice. Initial negotiations on the transition period have commenced however full discussions
related to future trade arrangements have not yet begun. Any impacts to Clearwater are not yet known
although the dialogue from both Brussels and the UK is that both sides are keen to establish a mechanism
for free trade.
As a business, we are taking a fully participative, active and advisory role in all preparatory government
working groups for Shellfisheries and processing, looking at trade, fisheries access and immigration/labor
related matters. The Company expects to be able to assess, manage and plan for any impacts to the business
through our involvement in the negotiations and their outputs.
United States
NAFTA is a comprehensive trade agreement that sets the rules of trade and investment between Canada,
the United States, and Mexico. Since the agreement entered into force on January 1, 1994, NAFTA has
systematically eliminated most tariff and non-tariff barriers to free trade and investment between the three
NAFTA countries. The current President of the United States has expressed his intent to change the
existing NAFTA and in July 2017 the United States released their objectives. Since July 2017, there have
been six rounds of discussion among the members however, as a result of the uncertainty of the outcome
from these discussions, the impact to Canada and Clearwater is indeterminable. Approximately 14.0% of
total sales for 2017 and 14.0% for 2016 were in the United States.
Management continues to review, assess and monitor for any changes to NAFTA that could significantly
impact Clearwater.
On December 22, 2017, new tax laws were enacted in the United States. The new laws include a permanent
reduction in corporate income tax rate from 35% to 21%, repeal of the corporate alternative minimum tax,
modifications to the rules for expensing capital investment, limitation of the deduction for interest expense,
and a multitude of other changes to the corporate tax rules. These changes are effective January 1, 2018.
These changes are not expected to have a material impact to Clearwater.
Europe
In February 2017, the European Union (“EU”) approved a deal which will drop barriers between the EU
and Canada (the “Comprehensive Economic and Trade Agreement” or “CETA”). Canada and the EU
agreed on September 21, 2017 as the date for provisional application of CETA however the deal is still
required to be ratified by the 28 members of the EU and Canada.
Europe is one of the world’s top consumption markets for seafood. In 2012, the EU imported in excess of
CAD $25 billion of seafood worldwide with exports of only CAD $5.7 billion. Europe is a major export
market for Clearwater products, representing approximately 40% of total sales or $243 million in 2017.
With CETA, Clearwater and its European customers will continue to see a financial benefit through tariff
reduction. Clearwater also anticipates the reduction in tariffs to lead to accelerated growth in the European
market.
China and Japan
On January 30, 2017, the Government of the United States officially withdrew from the Trans-Pacific
Partnership Agreement (“TPP”). As much of the TPP was negotiated around specific U.S. conditions, the
status of the TPP is unknown and therefore, the impact to Canada and Clearwater is indeterminable.
42 | P a g e
In the absence of TPP, the Governments of Canada, China and Japan have expressed interest in exploring
bilateral free trade agreements. Ratified bilateral free trade agreements would be expected to have positive
benefits to Clearwater’s sales and margins through reductions of tariffs and duties.
Resource supply risk
A material change in the population and biomass of scallop, lobster, clam, langoustine, crab, whelk or
coldwater shrimp stocks in the fisheries in which we operate would materially and adversely affect our
business.
Clearwater's business is dependent on our allocated quotas of the annual Total Allowable Catch (TAC) for
the species of seafood we harvest. The annual TAC is generally related to the health of the stock of the
particular species as measured by a scientific survey of the resource. The population and biomass of
shellfish stocks are subject to natural fluctuations some of which are beyond our control and which may be
exacerbated by factors such as water temperatures, food availability, the presence of predators, disease,
disruption in the food chain, reproductive problems or other biological issues. We are unable to fully predict
the timing and extent of fluctuations in the population and biomass of the shellfish stocks we harvest and
process, and we therefore may not be able to engage in effective measures to alleviate the adverse effects
of these fluctuations. In addition, the population models utilized by scientists evaluating the fisheries in
which we operate are constantly evolving. Certain changes in the population models could negatively
impact future biomass estimates. Any material reduction in the population and biomass or TAC of the
stocks from which we source seafood would materially and adversely affect our business. Any material
increase in the population and biomass or TAC could dramatically reduce the market price of any of our
products.
The 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 and/or define
fishing regulations for each species by reviewing scientific studies of the resource and then consulting with
key stakeholders including Clearwater and its 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.
43 | P a g e
The northern shrimp resource is declining from record high levels and on July 15, 2016, the Government
of Canada announced a decrease in the TAC for the Northern coldwater shrimp fishery area (SFA) 6. On
March 30, 2017, the Government of Canada announced a further decrease in TAC for the same area. The
decline in the TAC reverses the tremendous growth in the resource and is a reversal that has been expected
by scientists and industry participants. Clearwater will continue to pursue adjustments to the business, as
required, to find additional quotas, efficiencies and market value to offset the volume declines. The
diversity in Clearwater’s species portfolio also helps to mitigate the impact of shrimp declines in the
business.
Contingent Liabilities
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.
Other risks
For further disclosure of additional risk factors please refer to the Annual Information Form.
44 | P a g e
CRITICAL ACCOUNTING POLICIES
Clearwater’s critical accounting policies are those that are important to the portrayal of Clearwater’s
financial position and operations and may require management to make judgments based on underlying
estimates and assumptions about future events and their effects. These estimates can include but are not
limited to estimates regarding inventory valuation, accounts receivable valuation allowances, estimates of
expected useful lives of vessels and plant facilities, and estimates of future cash flows for impairment tests.
Underlying estimates and assumptions are based on historical experience and other factors that are believed
by management to be reasonable under the circumstances. These estimates and assumptions are subject to
change as new events occur, as more experience is acquired, as additional information is obtained, and as
the operating environment changes. Clearwater has considered recent market conditions including changes
to its cost of capital in making these estimates. Refer to the notes to the annual financial statements for a
complete listing of critical accounting policies and estimates used in the preparation of the consolidated
financial statements.
Disclosure Controls and Internal Controls Over Financial Reporting
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, 2017 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”).
Management evaluated the design and effectiveness of Clearwater’s internal controls over financial
reporting as at December 31, 2017. 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 of December 31, 2017,
Clearwater’s internal controls over financial reporting were effective in providing reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements in accordance
with IFRS.
Adoption of new and revised standards
The IASB has 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.
45 | P a g e
Effective January 1, 2018
IFRS 15 – Revenue from Contracts with Customers
The standard contains a single model that applies to contracts with customers and two approaches to
recognizing 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 will adopt IFRS 15 for the annual period beginning on January 1, 2018. The Company has
elected to apply the modified retrospective method on transition which means that comparative periods will
not be restated, instead the cumulative impact will be recognized in opening retained earnings on transition,
January 1, 2018. Based on Clearwater’s analysis of its existing contracts and arrangements, Clearwater is
not expected to be materially impacted by the new standard.
Under the new standard, the Company is required to disclose information related to the disaggregation of
revenues, performance obligations, significant judgements, contract balances and costs to obtain contracts.
The additional disclosures are not expected to have a significant impact to Clearwater’s information
gathering processes or systems.
IFRS 9 – Financial Instruments
IFRS 9 introduces new requirements for the classification and measurement of financial assets. Under IFRS
9, 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 and amends the impairment model by introducing a new ‘expected credit loss’ model
for calculating impairment. IFRS 9 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 permit 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 is required to adopt IFRS 9 in its financial statements for the annual period beginning on
January 1, 2018. Based on Clearwater’s analysis of its existing financial instruments, Clearwater is not
materially impacted by the new standard. Changes related to general hedge accounting will not have a
significant impact to Clearwater.
IFRIC 22 - Foreign Currency Transactions and Advance Consideration
On December 6, 2016, the IASB issued IFRIC 22, Foreign Currency Transactions and Advance
Consideration which clarifies the date of the transaction, for the purpose of determining the exchange rate
to use on initial recognition of the related asset, expense or income, is the date on which an entity has
received or paid advance consideration.
The Company will adopt IFRIC 22 in its financial statements for the annual period beginning on January
1, 2018. This standard is not expected to have a material impact to Clearwater.
46 | P a g e
IFRS 2 Share-Based Payment
In June 2016, the IASB issued amendments to IFRS 2 Share-Based Payment. The amendments provide
clarification on how to account for certain types of share-based payment transactions.
The Company will adopt the amendments to IFRS 2 in its consolidated financial statements for the annual
period beginning January 1, 2018. The amendments do not have a material impact to Clearwater based on
existing share-based payment transactions.
Effective January 1, 2019
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 is required to adopt IFRS 16 in its financial statements for the annual period beginning on
January 1, 2019. Clearwater expects to see an impact as a result of the new lease standard on its key
performance measures, including earnings before interest, tax, depreciation and amortization. The extent of
the impact of adoption of the standard has not yet been determined and quantified. Clearwater expects to
have completed its analysis by the third quarter of 2018.
No Effective Date
IFRS 10 - Transfer of assets between an investor and its associate or joint venture (amendment)
On September 11, 2014, the IASB issued Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture (Amendments to IFRS 10 and IAS 28). The amendments were to be applied
prospectively for annual periods beginning on or after January 1, 2016, however, on December 17, 2015
the IASB decided to defer the effective date for these amendments indefinitely. The amendments address
an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, 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 recognizes the full gain on the loss of control, whereas under
the existing guidance on associates and joint ventures the parent recognizes the gain only to the extent of
unrelated investors’ interests in the associate or joint venture. 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 recognized when the assets transferred do not meet the
definition of a business, even if these assets are housed in a subsidiary. The Company will evaluate the
impact if and when the IASB resolves the inconsistencies and determines an effective date.
47 | P a g e
Related Party Transactions
Clearwater often transacts in the normal course of business with other related parties. The details are as
follows for the year ended December 31, 2017 and 2016:
Clearwater rents office space to and provides computer support network services to CFFI Ventures Inc.
(“CVI”), a related party. The net amount due from CVI in respect of these transactions was $0.04 million
(December 31, 2016 – net amount due from CVI of $0.04 million), is unsecured and due on demand.
In June 2016, Clearwater sold an idle vessel to the joint venture, the sales price of CDN $13.5 million
dollars was the book value at the time of the sale plus refit costs.
For the year ended December 31, 2017, Clearwater recorded net revenue of approximately $0.06 million
for providing computer support network services to and receiving goods and services from companies
related to CVI (December 31, 2016 - $0.1 million). The transactions are recorded at the exchange amount
and the balance due from these companies was $0.07 million as at December 31, 2017 (December 31, 2016
- $0.05 million due to).
In the second quarter of 2017, interest bearing loans of $1.3 million (December 31, 2016 - $1.4 million)
made to a non-controlling interest shareholder in a subsidiary were repaid and $0.1 million was forgiven.
48 | P a g e
SUMMARY OF QUARTERLY RESULTS
The following table provides historical data for the wwelve most recently completed quarters.
In 000's of Canadian dollars
Fiscal 2017
Sales
Earnings (loss) attributable to shareholders
Earnings per share ("EPS")
Diluted earnings per share1
Weighted average shares outstanding
Fiscal 2016
Sales
Earnings (loss) attributable to shareholders
Earnings (loss) per share ("EPS")
Diluted earnings (loss) per share
Weighted average shares outstanding
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
128,367 $
2,172
0.03
154,302 $
9,489
0.15
0.03
63,934,698
0.15
63,934,698
163,597 $
15,054
0.24
0.24
63,934,698
174,765
(10,956)
(0.17)
(0.17)
63,934,698
$
116,225 $
14,507
0.24
0.24
59,958,998
140,180 $
9,962
0.16
0.16
60,439,577
189,457 $
10,847
0.17
0.17
63,934,698
165,690
8,611
0.14
0.14
63,934,698
Fiscal 2015
Sales
Earnings (loss) attributable to shareholders
Earnings (loss) per share ("EPS")
Diluted earnings (loss) per share
Weighted average shares outstanding
1 Diluted earnings (loss) per share are anti-dilutive for the first nine months of 2016 and fourth quarter of 2015.
75,362 $
(31,398)
(0.57)
(0.57)
54,978,098
116,748 $
5,616
0.10
0.10
55,197,039
147,332 $
(4,768)
(0.08)
(0.09)
59,958,998
$
165,503
(7,060)
(0.07)
(0.07)
59,958,998
For a more detailed analysis of each quarter’s results, please refer to our quarterly reports and our annual
reports.
Due to seasonality, sales generally increase with each successive quarter with the highest revenues in the
second half of each year.
Volatility in exchange rates can have a significant impact on earnings. The volatility is partially offset by
Clearwater’s foreign exchange management program.
Net loss in the first and fourth quarter of 2015 includes unrealized foreign exchange losses on the translation
of the US dollar denominated debt.
49 | P a g e
NON- IFRS MEASURES, DEFINITIONS AND RECONCILIATIONS
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 extraordinary, non-operating, non-recurring or non-
routine items that are unusual and are deemed not to be a part of normal operations of the business. Items
that are excluded from adjusted EBITDA include restructuring and reorganization expenses, gains and
losses on investment activities, costs associated with acquisitions to the extent not capitalized, financing
and refinancing costs, net gains on insurance claims and stock based compensation. 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.
Reconciliation of net earnings (loss) to adjusted EBITDA for the 13 weeks ended December 31, 2017 and
December 31, 2016 and year ended December 31, 2017, December 31, 2016 and December 31, 2015 is as
follows:
50 | P a g e
Earnings (loss)
Add (deduct):
Income taxes
Taxes and depreciation for equity investment
Depreciation and amortization
Interest, bank charges, amortization of deferred
financing costs
Earnings before interest, taxes, depreciation and
amortization
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, refinancing costs and acquisition
related costs
Stock based compensation (recovery) expense
Loss on insurance claim
Adjusted EBITDA
Adjusted EBITDA attributed to:
Non-controlling interests
Shareholders of Clearwater
13 weeks ended
December 31
2017
(6,551) $
December 31
2016
12,411 $
December 31
2017
28,239 $
$
Year Ended
December 31
2016
59,596 $
December 31
2015
(20,671)
4,461
(57)
15,850
7,831
6,261
530
9,781
7,256
7,659
2,112
45,252
16,446
960
33,501
4,387
1,154
29,413
29,759
26,889
20,338
$
21,534 $
36,239 $
113,021 $
137,392 $
34,621
1,609
(1,617)
(6,603)
(888)
(23,136)
(1,307)
(31,753)
2,211
(564)
778
3,547
7,412
2,237
16,062
116
-
(2,303)
-
409
-
7,805
2,380
2,902
-
28,490 $
29,460 $
108,596 $
120,937 $
5,538 $
22,952
28,490 $
4,382 $
25,078
29,460 $
19,440 $
89,156
108,596 $
22,491
98,446
120,937 $
62,052
(2,118)
(1,690)
11,299
5,270
300
109,734
22,829
86,905
109,734
$
$
$
51 | P a g e
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 net earnings to adjusted earnings for the 13 weeks ended December 31, 2017 and
December 31, 2016 and year ended December 31, 2017, December 31, 2016 and December 31, 2015 is as
follows:
52 | P a g e
13 weeks ended
Year ended
December 31 December 31 December 31 December 31 December 31
2015
2017
2017
2016
2016
Reconciliation of net earnings to adjusted earnings
Earnings (loss)
$
Restructuring and refinancing costs
Acquisition related costs
Fair value impact of purchase price allocation
Stock based compensation (recovery) expense
Insurance claim
Unrealized foreign exchange and derivative
(gain) loss
Devaluation of peso on working capital
Fair value on long-term debt
(6,551) $
7,411
-
-
116
-
1,609
-
(1,617)
7,519
12,411 $
951
-
-
(2,303)
-
(6,603)
-
(888)
(8,843)
28,239 $
16,059
-
-
409
-
(23,136)
-
(1,307)
(7,975)
59,596 $
(182)
1,159
-
2,902
-
(31,753)
5,199
2,211
(20,464)
(20,671)
5,821
3,403
2,166
5,270
300
62,053
5,344
(2,118)
82,239
Adjusted earnings
$
968 $
3,568 $
20,264 $
39,132 $
61,568
Adjusted earnings attributable to:
Non-controlling interests
Shareholders
Adjusted earnings per share:
2,554
(1,585)
969 $
2,773
795
3,568 $
11,574
8,690
20,264 $
15,366
23,766
39,132 $
18,111
43,457
61,568
$
Weighted average of shares outstanding
Adjusted earnings per share for shareholders
63,935
(0.02)
63,935
0.01
63,935
0.14
61,434
0.38
61,947
0.70
Reconciliation of adjusted earnings to adjusted EBITDA
Adjusted earnings
$
968 $
3,568 $
20,264 $
39,132 $
61,568
Add (subtract)
Income tax expense
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
4,461
15,850
7,831
(57)
(563)
-
27,522
6,261
9,781
7,256
530
780
1,286
25,894
7,659
45,252
29,759
2,112
3,550
-
88,332
16,446
33,501
26,889
960
2,608
1,403
81,807
4,387
29,414
20,336
1,154
(7,034)
(91)
48,166
Adjusted EBITDA1
$
28,490 $
29,462 $
108,596 $
120,939 $
109,734
1 – Refer to discussion on non-IFRS measures, definitions and reconciliations
53 | P a g e
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 for banking purposes differs from the below calculations as agreements require the exclusion of
certain cash from the calculation and EBITDA excludes non-controlling interests and most significant non-
cash and non-recurring items. Clearwater is in compliance with all of the non-financial and financial
covenants associated with its debt facilities.
Reconciliation of adjusted EBITDA (excluding non-controlling interest) to debt (net of unamortized
deferred financing charges) for the year ended December 31, 2017, December 31, 2016 and December 31,
2015 is as follows:
In 000's of Canadian dollars
As at December 31
Net Adjusted EBITDA2,3 (excluding non-controlling interest)
Re-organizational savings
Total Net adjusted EBITDA
Debt5,4 (excluding non-controlling interest)
Less cash (excluding non-controlling interest)
Net debt
Pro forma1
2017
89,156 $
4,000
93,156
Actual
2017
Actual
2016
Actual
2015
89,156 $
98,446 $
101,310
89,156
98,446
101,310
478,747
(31,976)
446,771 $
478,747
(31,976)
446,771 $
436,834
(25,110)
411,724 $
475,685
(32,938)
411,724
$
$
Leverage
4.8
5.0
4.2
4.2
1 - In the fourth quarter of 2017, the Company initiated an organizational restructuring, which is anticipated to generate in excess of $6 million in year-
over-year cost savings and $10 million annualized. Pro forma re-organizational savings has been provided as a conservative fiscal estimate that aligns to
lender calculations.
2 – Refer to discussion on non-IFRS measures, definitions and reconciliations
3 - Adjusted EBITDA for 2015 includes an adjustment of $11.9 million to include the earnings of Macduff which was acquired on October 3, 2015.
4 - Debt as at December 31, 2017 has been adjusted to include USD $200 million forward foreign exchange contract at an average contracted rate of
1.2844. (December 31, 2016 - USD $75 million cross-currency swap at contracted rates of 1.3235).
5 - Debt is net of unamortized deferred financing charges of $10.3 million (December 31, 2016 - $2.0 million; December 31, 2015 0 $2.3 million).
54 | P a g e
Free cash flows
Free cash flow is not a recognized measure under IFRS, and therefore is unlikely to be comparable to
similar measures presented by other companies. Management believes that in addition to net earnings and
cash provided by operating activities, free cash flow is a useful supplemental measure from which to
determine Clearwater’s ability to generate cash available for debt service, working capital, capital
expenditures and distributions. Free cash flow should not be construed as an alternative to net earnings
determined in accordance with IFRS, as a measure of liquidity, or as a measure of cash flows.
Free cash flow is defined as cash flows from operating activities, less planned capital expenditures (net of
any borrowings of debt designated to fund such expenditures), scheduled payments on long term debt and
distributions to non-controlling interests. Items excluded from the free cash flow include discretionary
items such as debt refinancing and repayments changes in the revolving loan and discretionary financing
and investing activities.
Reconciliation for the 13 weeks ended December 31, 2017 and December 31, 2016, and year ended
December 31, 2017, December 31, 2016 and December 31, 2015 is as follows:
55 | P a g e
Adjusted EBITDA1
Less:
Interest and bank charges
Current income tax expense
Other income and expense items
Operating cash flow before changes in working capital
$
Changes in working capitalA
Cash flows from operating activities
Sources (uses) of cash:
Purchase of property, plant, equipment, quota and other
assets
Disposal of fixed assets
Less: Designated borrowingsB
Scheduled payments on long-term debtC
Payments on long-term incentive plans
Distribution to non-controlling interests
Dividends received from joint venture
Other financing activities
Non-routine costs
Free cash flows1
Add/(less):
Other debt borrowings (repayments) of debt, use of cashC
Issuance of equity
Payments on long-term incentive plans
Other investing activitiesD
Other financing activities
Change in cash flows for the period
13 weeks ended
December 31
2016
2017
Year Ended
December 31
2015
2016
2017
28,490 $
29,460 $
108,596 $
120,937 $
109,732
(7,426)
(657)
(12,458)
7,949
34,714
42,663
(6,778)
(2,349)
(4,899)
15,434
64,053
79,487
(28,204)
(12,376)
(12,932)
55,084
(24,776)
(7,078)
(9,496)
79,587
(19,006)
(1,896)
(1,590)
87,240
3,057
58,141
(16,547)
63,040
(18,746)
68,494
(25,350)
2,400
14,513
(8,901)
177
(6,642)
-
-
3,392
22,252 $
(13,158)
-
5,703
(10,259)
-
(5,097)
-
-
684
57,360 $
(24,574)
-
(177)
259
(5,159)
(7,399) $
(42,003)
(25)
-
(2,203)
(6,696)
6,433 $
(85,431)
2,408
39,206
(11,948)
1,618
(19,154)
3,340
-
3,392
(8,428) $
27,792
-
(1,618)
(5,832)
(15,914)
(4,000) $
(56,332)
1,131
25,883
(15,215)
5,670
(24,560)
-
-
1,885
1,502 $
(63,390)
4,584
35,097
(5,461)
8,953
(11,817)
-
676
1,953
39,089
(37,566)
53,024
(5,670)
(2,513)
(20,369)
(11,592) $
78,099
58,628
(8,953)
(148,930)
(14,425)
3,508
$
$
(1) Refer to discussion on non-IFRS measures, definitions and reconciliations.
A – Changes in working capital have been restated to align with the change in presentation of cash interest and cash income taxes paid in the
consolidated statement of cash flows. This change had no impact on cash from operations.
B – 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 2017 and 2016, the periods covered in this table includes the replacement of the Ocean Concord clam vessel. For
2015, the period covered in this table includes a conversion of a vessel for Argentina, the addition of a third clam vessel, a late life refit on a
shrimp vessel and the conversion of a new research 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.
C – Scheduled payments on long-term debt has been updated to include the Deferred Consideration payment made in Q4 2017 of $8.9 million
(Q4 2016 of $8.7 million) and the Earnout payment in Q2 2017 of $1.3 million.
D - Other investing activities for 2015 includes $151.1 million for the acquisition of Macduff, less cash acquired in the acquisition of $9.1
million.
56 | P a g e
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 rolling 12 month adjusted earnings before interest and taxes
(“EBIT”) to average total quarterly 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, 2017 and December 31, 2016 and December 31, 2015 is as follows:
In (000's) of Canadian dollars
Adjusted EBITDA1
Depreciation and amortization
Adjusted earnings before interest and taxes
December 31
2017
December 31
2016
December 31
2015
$
108,596
$
120,937
$
109,734
45,428
63,168
38,634
82,303
29,732
80,002
Average quarterly total assets
$
775,783
$
746,774
$
581,253
(1) Refer to discussion on non-IFRS measures, definitions and reconciliations.
8.1%
11.0%
13.8%
57 | P a g e
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. The statements 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.
March 6, 2018
Ian Smith
Chief Executive Officer
Teresa Fortney
Vice-President, Finance and Chief Financial Officer
58 | P a g e
KPMG LLP
Suite 1500 Purdy’s Wharf Tower I
1959 Upper Water Street
Halifax NS B3J 3N2
Canada
Telephone (902) 492-6000
Telefax (902) 492-1307
www.kpmg.ca
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Clearwater Seafoods Incorporated
We have audited the accompanying consolidated financial statements of Clearwater Seafoods
Incorporated, which comprise the consolidated statements of financial position as at December 31, 2017
and December 31, 2016, the consolidated statements of earnings (loss), comprehensive income, changes
in 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 judgement, 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 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, 2017 and December 31, 2016,
and its consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
March 6, 2018
Halifax, Canada
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 SEAFOODS INCORPORATED
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
As at December 31
2017
2016
ASSETS
Current assets
Cash
Trade and other receivables (Note 4)
Inventories (Note 5)
Prepaids and other (Note 6)
Derivative financial instruments (Note 7)
Non-current assets
Long-term receivables (Note 8)
Derivative financial instruments (Note 7)
Other assets
Property, plant and equipment (Note 9)
Investment in equity investee (Note 11)
Deferred tax assets (Note 12(c))
Intangible assets (Note 10)
Goodwill (Note 10)
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Income taxes payable (Note 12)
Current portion of long-term debt (Note 13)
Derivative financial instruments (Note 7)
Non-current liabilities
Long-term debt (Note 13)
Derivative financial instruments (Note 7)
Other long-term liabilities
Deferred tax liabilities (Note 12(c))
SHAREHOLDERS' EQUITY
Share capital (Note 14)
Contributed surplus
Retained earnings (deficit)
Accumulated comprehensive loss ("ACL")
Non-controlling interest (Note 15)
$
$
$
$
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
Subsequent events (Note 27)
$
$
$
35,514
103,096
79,124
4,781
5,797
228,312
5,077
141
102
272,071
9,817
11,349
193,815
50,196
542,568
770,880
80,411
7,182
21,025
1,978
110,596
452,148
7,142
616
17,840
477,746
210,860
3,021
(8,722)
(39,730)
165,429
17,109
182,538
770,880
$
$
39,514
82,108
91,831
5,414
4,637
223,504
8,132
184
81
233,807
10,496
6,429
197,321
49,781
506,231
729,735
75,953
4,303
67,005
1,356
148,617
369,409
4,284
887
18,053
392,633
210,860
1,419
(4,793)
(38,931)
168,555
19,930
188,485
729,735
See the accompanying notes to the consolidated financial statements
Approved by the Board:
John Risley
Director
Colin MacDonald
Chairman
60 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Earnings (Loss)
(In thousands of Canadian dollars)
Year ended December 31
Sales
Cost of goods sold
Operating expenses (Note 16)
Administrative and selling costs
Restructuring costs
Net finance costs (Note 13 (f))
Foreign exchange (gains) losses on long-term debt and working capital (Note 7 (d))
(Gains) losses on contract derivatives (Note 7 (e))
Other (income) expense (Note 17)
Research and development
Earnings (loss) before income taxes
Income tax expense (Note 12)
Earnings (loss) for the year
Earnings (loss) attributable to:
Non-controlling interest (Note 15)
Shareholders of Clearwater
2017
2016
$
621,031
510,963
110,068
$
611,551
466,930
144,621
55,551
6,856
35,280
(14,263)
(4,045)
(7,576)
2,368
74,171
57,506
986
26,948
(7,295)
(7,279)
(5,209)
2,922
68,579
35,897
76,042
7,658
16,446
$
28,239
$
59,596
$
$
12,480 $
15,759
28,239
$
15,668
43,928
59,596
Basic earnings (loss) per share (Note 19)
Diluted earnings (loss) per share (Note 19)
$
$
See the accompanying notes to the consolidated financial statements
0.25 $
0.25 $
0.71
0.71
61 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Comprehensive Income
(In thousands of Canadian dollars)
Year ended December 31
Earnings (loss) for the year
Comprehensive income (loss) -
Items that may be reclassified subsequently to income (loss):
Foreign currency translation differences of foreign operations
Cash flow hedges - effective portion of change in fair value, net of tax
Cash flow hedges - reclassified to earnings, net of tax
2017
2016
$
28,239 $
59,596
255
(1,238)
49
(934)
(37,154)
-
-
(37,154)
Comprehensive income (loss) for the year
$
27,305 $
22,442
Comprehensive income (loss) attributable to:
Non-controlling interest (Note 15)
Shareholders of Clearwater
$
$
12,077 $
15,228
27,305 $
15,820
6,622
22,442
See the accompanying notes to the consolidated financial statements
62 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Changes in Equity
Accumulated Comprehensive
Loss
Common Contributed
Cash
flow
Cumulative
Retained
Non-
translation
earnings
controlling
(In thousands of Canadian dollars)
Balance at January 1, 2016
shares
surplus
hedge
adjustment
(deficit)
interest
Total
$
157,161 $
547
$
- $
(1,625) $
(36,333) $
29,325 $
149,075
Comprehensive (loss) income for the year
-
Transactions recorded directly in equity
Issuance of common shares (Note 14)
53,699
Share-based compensation (Note 20)
Distributions to non-controlling interest
Dividends declared on common shares (Note 14)
Total transactions with owners
-
-
-
53,699
-
-
872
-
-
872
(37,306)
43,928
15,820
22,442
-
-
-
-
-
-
-
-
(12,388)
(12,388)
-
-
(25,215)
(25,215)
53,699
872
(25,215)
(12,388)
16,968
Balance at December 31, 2016
$
210,860 $
1,419 $
$
(38,931) $
(4,793) $
19,930 $
188,485
Comprehensive income (loss) for the year
Transactions recorded directly in equity
Share-based compensation (Note 20)
Distributions to non-controlling interest
Dividends declared on common shares (Note 14)
Acquisition of non-controlling interest (Note 15)
Total transactions with owners
-
-
-
-
-
-
(1,189)
658
15,759
12,077
27,305
1,602
-
-
1,602
-
-
-
-
(268)
(268)
-
-
(12,787)
(6,901)
(19,688)
-
(15,343)
-
445
1,602
(15,343)
(12,787)
(6,724)
(14,898)
(33,252)
Balance at December 31, 2017
$
210,860 $
3,021 $
(1,189) $
(38,541) $
(8,722) $
17,109 $
182,538
See the accompanying notes to the consolidated financial statements
63 | P a g e
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
Accretion on long-term debt(Note 13 (e))
Amortization of deferred financing costs(Note 13 (e))
Net unrealized foreign exchange (gains) losses on financial assets and liabilities
Loss on debt refinancing
Fair value adjustments to financial instruments
Deferred tax expense (recovery)(Note 12)
Share-based compensation
(Gain) loss on disposal of property, plant, and equipment and other assets
(Earnings) loss in equity investee (Note 11)
Foreign exchange and other
Cash from operating activities before changes in working capital
Change in operating working capital (Note 25)
Cash from (used in) operating activities
Financing
Repayment of long-term debt(Note 13)
Net proceeds from long-term debt
Net proceeds from common share issuance(Note 14)
Net proceeds from revolving credit facility
Settlement of derivative contracts on refinancing
Distributions paid to non-controlling interest
Repayments from (advances to) minority partners
Dividends paid on common shares(Note 9)
Cash from (used in) financing activities
Investing
Purchase of property, plant and equipment, and other
Proceeds on disposal of property, plant and equipment
Dividends received from equity investee(Note 11)
Acquisition of non-controlling interest(Note 15)
Purchase of other assets
Net advances in long-term receivables
Cash from (used in) investing activities
Effect of foreign exchange rate changes on cash
(DECREASE) INCREASE IN CASH
CASH, BEGINNING OF PERIOD
CASH, END OF PERIOD
Supplemental disclosure of operating cash flows
Cash interest paid
Cash income taxes paid
See the accompanying notes to the consolidated financial statements
2017
2016
$
28,239 $
59,596
45,428
2,166
1,555
(14,156)
3,787
(694)
(4,717)
232
(216)
(2,656)
(3,884)
55,084
3,057
58,141 $
(425,949)
364,916
-
116,082
(4,209)
(19,154)
3,766
(12,787)
22,665 $
(85,431)
2,407
3,340
(6,724)
(44)
936
(85,516) $
710 $
(4,000)
39,514
35,514 $
38,634
3,556
2,113
(30,881)
-
(1,481)
9,367
2,902
2
(1,185)
(3,036)
79,587
(16,547)
63,040
(33,899)
-
53,024
7,000
-
(24,560)
(1,843)
(12,388)
(12,666)
(56,332)
8,624
-
-
(7,692)
(473)
(55,873)
(6,093)
(11,592)
51,106
39,514
(25,518)
(9,447)
(26,434)
(2,538)
64 | P a g e
$
$
$
$
$
1. DESCRIPTION OF THE BUSINESS
Clearwater Seafoods Incorporated (“Clearwater” or the “Company”) 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 a joint venture.
The consolidated financial statements of Clearwater as at and for the years ended December 31, 2017 and
2016 comprise the Company, its subsidiaries and a joint venture (see Note 22). Clearwater’s business
includes the ownership and operation of assets and property in connection with the harvesting, processing,
distribution and marketing of seafood.
2. BASIS OF PREPARATION
(a) Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board.
The financial statements were authorized for issue by Clearwater’s Board of Directors on March 6, 2018.
(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 a functional currency of Argentine Peso.
All tabular financial information presented in Canadian dollars has been rounded to the nearest thousand
except per share amounts, and as otherwise noted.
65 | P a g e
(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 may differ materially from these estimates.
The following are the accounting policies that are subject to judgments and estimates 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
(where applicable)
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 operates. In determining the provision for current and deferred income taxes, Clearwater makes
assumptions about temporary and permanent differences between accounting and taxable income. 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 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 12.
ii. Goodwill and intangible assets
Key sources of estimation uncertainty
Clearwater conducts impairment testing on its goodwill and intangible assets annually and whenever events
or changes in circumstances indicate that the carrying value may not be recoverable. To better align with
Clearwater’s internal budgeting cycle, the date as of which annual testing is performed was changed from
the third quarter to the fourth quarter, beginning in 2017.
66 | P a g e
Clearwater determines the fair value of each cash-generating unit (“CGU”) to which goodwill and
intangible assets are allocated using the value in use method, which estimates fair value using a discounted
five-year forecasted cash flow estimate with a terminal value. The determination of the recoverable amount
involves estimates and assumptions of 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 CGUs, and the
allocation of working capital assets and liabilities and corporate assets to these CGUs.
For further discussion on goodwill and intangible assets, refer to Note 10.
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 corporate performance.
For further discussion on share-based compensation, refer to Note 20.
iv. Derivative financial instruments
Key sources of estimation uncertainty
Clearwater records the fair value of certain financial assets and liabilities using valuation techniques where
the fair value cannot be observed 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 discount rates, inflation rates, defaults and other relevant variables such
as foreign exchange volatility.
For further discussion on derivative financial instruments, refer to Note 7.
v.
Earnout liability
Key sources of estimation uncertainty
Clearwater determines the fair value measurement of the Earnout liability based on significant inputs not
observable in the market.
67 | P a g e
The inputs used in the fair value model contain inherent uncertainties, estimates and use of judgment. Inputs
are taken from observable markets where possible and estimated as necessary. Assumptions include
forecasted earnings and probability assessments.
For further discussion on the fair value measurement of the Earnout liability, refer to Note 7(l).
3. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies set out below have been applied consistently to all periods presented in
these consolidated financial statements.
(a) Basis of consolidation
i) Business Combinations and Goodwill
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 consolidated earnings (loss).
Goodwill is subsequently measured at cost less accumulated impairment losses. Goodwill is not amortized
and is tested for impairment annually in the fourth quarter and as required if events occur that indicate that
its carrying amount may not be recoverable. Goodwill is tested for impairment at the cash generating unit
(“CGU”) group level by comparing the carrying amount to its recoverable amount, consistent with the
methodology outlined in Note 3 (h).
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.
Any contingent consideration payable is measured at fair value at the acquisition date. Subsequent changes
in the fair value of the contingent consideration are recognized in consolidated earnings (loss).
When the initial accounting for a business combination has not been finalized by the end of the reporting
period in which the combination occurs, the Company reports provisional amounts for the items for which
the accounting has not been finalized. These provisional amounts are adjusted during the measurement
period, which does not exceed one year from the acquisition date, or additional assets or liabilities are
recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition
date that, if known, would have affected the amounts recognized at that 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 and included in other (income)
expense in the consolidated statement of earnings (loss).
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.
68 | P a g e
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 net earnings (loss) and comprehensive
income (loss) of the joint venture.
iv) Transactions eliminated on consolidation
Intercompany balances and 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 raw materials and 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 recognized 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). Estimated useful lives are the following:
Asset Component
Buildings and wharves
Plant and equipment
Vessels
Vessels equipment
Rate
10 to 50 years
5 to 15 years
15 to 25 years
1 to 10 years
69 | P a g e
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 net earnings (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 the item, and are recognized net within
administrative and selling costs in profit or loss.
Depreciation methods, useful lives and residual values are reviewed at each financial year end and changes
to estimates are adjusted prospectively.
(d) Intangible Assets
Intangible assets include licenses, brand names, fishing rights and computer software. Definite life
intangible assets are measured at cost less accumulated amortization and any net accumulated impairment
losses. Amortization is recognized in the consolidated statements of earnings (loss) on a straight-line basis
over their estimated useful lives as follows:
Intangible Asset
Fishing rights
Computer software
Rate
10 to 15 years
3 to 8 years
i)
Licenses, brand names and fishing rights
Licenses and brand names 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 values at the
date of acquisition and are subsequently carried at cost.
Indefinite life intangible assets, including licenses and brand names, are not amortized and are tested for
impairment annually in the fourth quarter or more frequently if events or changes in circumstances indicate
that the asset may be impaired.
Fishing rights arise from contractual rights to fish quotas; they have definite lives and are amortized over
the term of the related operating agreement.
ii) Computer software
Computer software represents intangible assets developed during the enterprise resource planning (“ERP”)
system conversion including all costs directly attributable to bringing the asset to the location and condition
necessary for its intended use. The computer software has a definite life and is amortized over the estimated
useful life.
70 | P a g e
(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 or research
and development expenses.
Government assistance related to property, plant and equipment is deducted from the carrying amount of
the related asset and amortized over the same estimated useful life of the asset to which it relates.
Government assistance related to expenses are presented in Other (income) expense.
Clearwater does not have any government assistance that is required to be repaid, nor any forgivable loans.
(g) Financial instruments
Clearwater has the following non-derivative and derivative financial assets and liabilities that are classified
into the following categories:
Financial instrument
Cash
Trade and other receivables
Long-term receivables
Trade and other payables
Category
Fair value through profit or loss
Loans and receivables
Loans and receivables
Non-derivative financial liabilities
Long-term debt
Non-derivative financial liabilities
Measurement Method
Fair value
Initial: Fair Value
Subsequent: Amortized
cost through profit or
loss
Earnout liability
Derivative financial instruments
Derivative financial instruments Derivative financial instruments
Fair value
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. Loans and receivables are initially recognized at their fair values, plus any
attributable transaction costs, and are subsequently measured at amortized cost using the effective interest
rate method, with gains and losses recognized in profit or loss in the period in which they arise.
71 | P a g e
From time-to-time, Clearwater enters into transactions to sell selected accounts receivables to a commercial
partner without recourse. The amount of receivables sold is recorded as a sale of financial asset and balances
are removed from the consolidated statement of financial position at the time of sale. The difference
between the carrying amount and the proceeds on sale of receivables is recorded in net finance costs in the
consolidated statement of earnings (loss). Sale of receivables during the year represent less than 5 percent
of consolidated sales.
Non-derivative financial liabilities
Non-derivative financial 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 net earnings (loss) in the period in which they arise.
Derivative financial instruments
Clearwater enters into a variety of derivative financial instruments to manage its exposure to foreign
exchange and interest rate risks, including foreign exchange forward contracts, interest rate swaps, caps,
and floors.
Embedded derivatives are contained in non-derivative host contracts and are treated as separate derivatives
when they meet the definition of a derivative, and their risks and characteristics are not closely related to
those of the host contracts.
The Earnout liability is unsecured additional consideration to be paid dependent upon the future financial
performance of Macduff Shellfish Company Limited (“MacDuff”), a subsidiary of Clearwater and the
percentage of Deferred Obligation remaining unpaid at the time of payment. Refer to Note 13 for further
information.
Derivative financial instruments and embedded derivatives are recorded at fair value with changes in fair
value recorded in consolidated earnings (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.
72 | P a g e
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 CGU is the greater of its value in use (“VIU”) 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 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.
(i) Translation of foreign currency
i) Foreign currency transactions
Transactions in foreign currencies are translated into the respective functional currency of the Company
and its’ subsidiaries at the exchange rate at the date of the transactions. Monetary assets and liabilities
denominated in foreign currencies are retranslated to the Company’s functional currency at the exchange
rate as at the reporting 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.
73 | P a g e
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 comprehensive income in the cumulative
translation adjustment 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 adjustment
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
adjustment 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 statement of earnings (loss)
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 temporary 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 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.
74 | P a g e
(l) Finance costs
Finance costs comprise interest expense on borrowings, gains and losses on financial instruments that are
recognized in profit or loss, accretion on deferred consideration and refinancing and settlement fees.
Borrowing costs determined to be period costs, or the amortization of such costs are recorded through profit
or loss.
(m) Share-based compensation
Clearwater has three share-based compensation plans including share appreciation rights, deferred share
units and performance share units (“PSU”). Refer to Note 20 for a description of the plans.
On May 12, 2015, Clearwater amended the terms of the PSU plan. 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 as determined
by the company. Grants settled in 2017 have been cash-settled, and all future grants under the PSU plan
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 was recorded in trade and other
payables in the consolidated statement of financial position. The cumulative 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 and selling costs in the
consolidated statement of earnings (loss) over the vesting period.
(n) Earnings (loss) per share
Basic earnings (loss) per share is calculated by dividing earnings (loss) for the year attributable to the
shareholders of Clearwater by the weighted average number of common shares outstanding during the year.
Diluted earnings (loss) per share is calculated by dividing earnings (loss) 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, 2017. These changes were made in accordance with the applicable
transitional provisions.
75 | P a g e
Disclosure Initiative (Amendments to IAS 7)
On January 7, 2016 the International Accounting Standards Board (“IASB”) issued Disclosure Initiative
(Amendments to IAS 7). The amendments require disclosures that enable users of financial statements to
evaluate changes in liabilities arising from financing activities, including both changes arising from cash
flow and non-cash changes. One way to meet this new disclosure requirement is to provide a reconciliation
between the opening and closing balances for liabilities from financing activities.
The Company adopted the amendments to IAS 7 in its financial statements for the annual period beginning
on January 1, 2017. To meet the disclosure requirement, the company provided a reconciliation of the
opening and closing balances of liabilities arising from financing activities in Note 25.
Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12)
The amendments clarify that the existence of a deductible temporary difference depends solely on a
comparison of the carrying amount of an asset and its tax base at the end of the reporting period, and is not
affected by possible future changes in the carrying amount or expected manner of recovery of the asset.
The amendments also clarify the methodology to determine the future taxable profits used for assessing the
utilization of deductible temporary differences.
The Company adopted the amendments to IAS 12 in its financial statements for the annual period beginning
on January 1, 2017. These amendments had no impact to Clearwater.
(p) New accounting standards not yet adopted
The IASB has issued the following standards that have not been applied in preparing these consolidated
financial statements as their effective dates fall within annual periods beginning subsequent to the current
reporting period.
Effective January 1, 2018
IFRS 15 – Revenue from Contracts with Customers
The standard contains a single model that applies to contracts with customers and two approaches to
recognizing 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 will adopt IFRS 15 for the annual period beginning on January 1, 2018. The Company has
elected to apply the modified retrospective method on transition which means that comparative periods will
not be restated, instead the cumulative impact will be recognized in opening retained earnings on transition,
January 1, 2018. Based on Clearwater’s analysis of its existing contracts and arrangements, Clearwater is
not expected to be materially impacted by the new standard.
Under the new standard, the Company is required to disclose information related to the disaggregation of
revenues, performance obligations, significant judgements, contract balances and costs to obtain contracts.
The additional disclosures are not expected to have a significant impact to Clearwater’s information
gathering processes or systems.
76 | P a g e
IFRS 9 – Financial Instruments
IFRS 9 introduces new requirements for the classification and measurement of financial assets. Under IFRS
9, 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 and amends the impairment model by introducing a new ‘expected credit loss’ model
for calculating impairment. IFRS 9 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 permit 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 is required to adopt IFRS 9 in its financial statements for the annual period beginning on
January 1, 2018. Based on Clearwater’s analysis of its existing financial instruments, Clearwater is not
materially impacted by the new standard. Changes related to general hedge accounting will not have a
significant impact to Clearwater.
IFRIC 22 - Foreign Currency Transactions and Advance Consideration
On December 6, 2016, the IASB issued IFRIC 22, Foreign Currency Transactions and Advance
Consideration which clarifies the date of the transaction, for the purpose of determining the exchange rate
to use on initial recognition of the related asset, expense or income, is the date on which an entity has
received or paid advance consideration.
The Company will adopt IFRIC 22 in its financial statements for the annual period beginning on January
1, 2018. This standard is not expected to have a material impact to Clearwater.
IFRS 2 Share-Based Payment
In June 2016, the IASB issued amendments to IFRS 2 Share-Based Payment. The amendments provide
clarification on how to account for certain types of share-based payment transactions.
The Company will adopt the amendments to IFRS 2 in its consolidated financial statements for the annual
period beginning January 1, 2018. The amendments do not have a material impact to Clearwater based on
existing share-based payment transactions.
Effective January 1, 2019
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.
77 | P a g e
The Company is required to adopt IFRS 16 in its financial statements for the annual period beginning on
January 1, 2019. Clearwater expects to see an impact as a result of the new lease standard on its key
performance measures, including earnings before interest, tax, depreciation and amortization. The extent of
the impact of adoption of the standard has not yet been determined and quantified. Clearwater expects to
have completed its analysis by the third quarter of 2018.
No Effective Date
IFRS 10 - Transfer of assets between an investor and its associate or joint venture (amendment)
On September 11, 2014, the IASB issued Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture (Amendments to IFRS 10 and IAS 28). The amendments were to be applied
prospectively for annual periods beginning on or after January 1, 2016, however, on December 17, 2015
the IASB decided to defer the effective date for these amendments indefinitely. The amendments address
an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, 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 recognizes the full gain on the loss of control, whereas under
the existing guidance on associates and joint ventures the parent recognizes the gain only to the extent of
unrelated investors’ interests in the associate or joint venture. 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 recognized when the assets transferred do not meet the
definition of a business, even if these assets are housed in a subsidiary. The Company will evaluate the
impact if and when the IASB resolves the inconsistencies and determines an effective date.
4. TRADE AND OTHER RECEIVABLES
As at December 31
Trade receivables
Other receivables
$
$
2017
86,636
16,460
103,096
$
$
2016
66,874
15,234
82,108
Included in other receivables is $9.2 million (December 31, 2016 - $6.4 million) of input tax credits
receivable and $7.3 million (December 31, 2016 - $8.8 million) of other receivables.
5. INVENTORIES
As at December 31
Seafood inventory
Supplies and other
$
$
2017
68,696
10,428
79,124
$
$
2016
81,796
10,035
91,831
In 2017 inventory costs of $467.7 million (2016 - $440.4 million) were recognized in cost of goods sold.
Clearwater incurred $1.8 million (2016 - $2.9 million) in inventory write-downs which was recognized in
cost of goods sold. For inventories pledged as security for long term debt, refer to Note 13.
78 | P a g e
6. PREPAIDS AND OTHER
As at December 31
Prepaids
Due from related parties (Note 22)
7. FINANCIAL INSTRUMENTS
$
$
2017
4,781
-
4,781
$
$
2016
5,268
146
5,414
The Company periodically uses derivative instruments as part of an active risk management program. The
Company designated certain forward foreign exchange contracts related to USD denominated interest
payments as hedging instruments in a qualifying hedging relationship (cash flow hedge). Changes in the
fair value of derivatives in a qualifying hedging relationship are recognized in comprehensive income. The
Company has elected not to use hedge accounting on the remaining derivative instruments and
consequently, changes in their fair value are recorded in the consolidated statement of earnings (loss).
Summary of fair value of derivative financial instrument positions:
As at
Derivative financial assets
Forward foreign exchange contracts
Interest rate caps, floors and swap contracts
Derivative financial liabilities
Forward foreign exchange contracts
Interest rate and cross-currency swap contracts
December 31
December 31
2017
2016
$
$
$
5,938
-
5,938
$
$
(9,120)
-
(9,120)
$
4,637
184
4,821
(1,356)
(4,284)
(5,640)
79 | P a g e
(a) Forward Foreign Exchange Contracts
Clearwater has forward contracts maturing each month until December 2018 and forward contracts related
to the USD Notes maturing April 2022 (Note 13). At December 31, 2017 Clearwater had outstanding
forward contracts as follows:
Currency
Foreign currency
notional amount (in 000's)
exchange
rate
months
to maturity
Fair value
asset (liability)
Contracts in a current asset position
Derivatives designated as hedging instruments
USD
6,875
1.237
7 $
122
Average Weighted
average
contract
Derivatives not designated as hedging instruments
Euro
USD
Yen
Euro - GBP
USD - GBP
4,700
62,600
1,461,000
9,500
5,220
1.560
1.323
0.012
0.904
0.766
Contracts in a non-current asset position
Derivatives designated as hedging instruments
USD
Total contracts in an asset position
Contracts in a current liability position
Derivatives designated as hedging instruments
USD
17,188
1.243
12
6
6
8
5
$
28 $
$
84
4,178
1,012
134
267
5,797
141
141
5,938
6,875
1.336
7 $
(541)
Derivatives not designated as hedging instruments
Euro
USD
Yen
Euro - GBP
27,700
27,400
715,000
9,400
1.497
1.245
0.011
0.866
6
9
9
4
$
(750)
(270)
(21)
(395)
(1,978)
Contracts in a non-current liability position
Derivatives designated as hedging instruments
USD
30,938
1.305
38 $
(1,504)
Derivatives not designated as hedging instruments
USD
200,000
1.284
52
Total contracts in a liability position
$
(5,639)
(7,142)
(9,120)
80 | P a g e
At December 31, 2016, Clearwater had outstanding forward contracts as follows:
Currency
Foreign currency
notional amount (in 000's)
Average
contract
exchange
rate
Weighted
average
months
to maturity
Fair value
asset (liability)
Contracts in an asset position
Derivatives not designated as hedging instruments
Euro
USD
Yen
35,995
30,800
2,863,100
1.472
1.322
0.012
Contracts in a liability position
Derivatives not designated as hedging instruments
USD
41,050
1.309
6 $
3
6
$
3
$
$
1,677
574
2,386
4,637
(1,356)
(1,356)
(b) Cash Flow Hedges
Clearwater entered into USD forward foreign exchange contracts to hedge a portion of its USD interest
payments, payable semi-annually in May and November each year.
The following table summarizes the pre-tax amounts recognized in the Consolidated Statement of
Comprehensive Income, the amounts reclassified from Accumulated Comprehensive Income (loss) within
equity and the amount recorded in the Consolidated Statement of Earnings (Loss):
Gain (loss) recognized in ACI
ACI to Net Finance Costs
Gain (loss) reclassified from
Ineffectiveness recognized in
Net Finance Costs
Year ended
Year ended
Derivatives in cash flow
hedging relationship
Forward foreign exchange
contacts (1)
(1) Income tax recovery recorded in ACL was $0.5 million and $0.02 million reclassified from ACI to Net Earnings (Loss).
December 31 December 31
2017
December 31 December 31
2017
December 31
2017
(1,781) $
2016
2016
(71) $
- $
$
$
$
-
-
Year ended
December 31
2016
-
(c) Interest Rate Swaps, Caps and Floors
On April 26, 2017, Clearwater refinanced its long-term debt and simultaneously settled the outstanding
interest rate caps and swap contracts and cross currency swaps.
At December 31, 2017 Clearwater had no interest rate caps and swap contracts or cross-currency swap
contracts outstanding. The Term Loan B interest rate floor noted below has nil value as of December 31,
2017.
At December 31, 2016 Clearwater had interest rate cap and floors and swap contracts and cross-currency
swap contracts outstanding as follows:
81 | P a g e
Effective
Expiry
Contracted
fixed
Notional Fair value
asset
amount
date
Term Loan A - Interest rate swap
December 2015
Term Loan B - Interest rate swap
Term Loan B - Interest rate swap
Term Loan B - Cross-currency swap
December 2015
June 2016
October 2015
date
June 2018
interest rate Currency
CDN
5.85%
(in 000's)
12,000
$
6.15%
June 2019
June 2019
6.49%
June 2018 CDN Banker's
Acceptance +
4.41%
USD
USD
CDN
50,000
50,000
99,263
(liability)
(274)
(1,785)
(2,225)
-
Term Loan A - Interest rate cap
Term Loan B - Interest rate floor
December 2015
October 2015
June 2018
June 2018
$
(4,284)
6.25%
LIBOR +
1.25%
CDN
USD
12,000
75,000 $
-
184
$
184
(d) Foreign exchange (gains) losses on long-term debt and working capital
Year ended December 31
Realized (gain) loss
Working capital and other
Unrealized (gain) loss
Long term debt and working capital
Foreign exchange contracts, cross currency swaps and caps related to
long-term debt
Total unrealized (gain) loss
(e) (Gains) losses on contract derivatives
Year ended December 31
Realized (gain) loss
Forward foreign exchange contracts
Unrealized (gain) loss
Forward foreign exchange contracts
(f) Credit risk:
2017
2016
$
3,547 $
7,803
(23,693)
(18,045)
5,883
(17,810)
2,947
(15,098)
$
(14,263) $
(7,295)
2017
2016
$
$
(3,065) $
7,345
(980)
(4,045) $
(14,624)
(7,279)
Credit risk refers to the risk of losses due to failure of Clearwater’s customers or other counterparties to
meet their contractual obligations. Clearwater is exposed to credit risk in the event of non-performance by
counter parties to its derivative financial instruments but does not anticipate non-performance of any of the
counter parties as Clearwater only deals with highly rated financial institutions.
Clearwater has significant accounts receivable from customers operating in Canada, the United States,
Europe and Asia. Significant portions of Clearwater’s customers from a sales dollar perspective have been
82 | P a g e
transacting with Clearwater in excess of five years and bad debt losses have been minimal. Clearwater has
a policy of using 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. No single
customer of Clearwater represents more than 8% of total sales. As a result Clearwater does not have any
significant concentration of credit risk.
Clearwater’s trade accounts receivable aging based on the invoice due date was as follows:
As at December 31
0-30 days
31-60 days
over 60 days
2017
92.8%
5.7%
1.5%
100.0%
2016
93.6%
5.3%
1.1%
100.0%
The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts of $ 0.1
million (2016 - $0.4 million). Clearwater reviews accounts past due on a regular basis and provides an
allowance on a specific account basis. Accounts are 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
Allowance recognized
Amounts recovered
Amounts written off as uncollectible
Foreign exchange
Balance at December 31
(g) Foreign currency exchange rate risk
2017
424
263
(12)
(247)
(281)
147
$
$
2016
555
311
-
(394)
(48)
424
$
$
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%
(2016 - 87%) 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. In addition Clearwater has subsidiaries that operate in Argentina
and the United Kingdom which exposes the Company to changes in the value of the Argentine Peso and
Pound Sterling.
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 15
months.
On April 26, 2017, Clearwater completed an offering of USD $250 million senior unsecured notes, due
2025 with a US dollar coupon rate of 6.875% (“the Notes”). In 2017, Clearwater entered into forward
foreign exchange contracts to hedge approximately 80% of the notional value of the Notes at an average
rate of 1.2844 and approximately 80% of the coupon payments at an average rate of 1.2837.
83 | P a g e
The carrying amounts of Clearwater’s foreign currency denominated monetary assets and monetary
liabilities (excluding derivative financial instruments) as at December 31, 2017 and December 31, 2016
were as follows (presented in 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
Net exposure to consolidated statements of financial position
2017
2016
$
$
$
9,685
78,075
9,618
3,672
(31,506)
(347,026)
(616)
(278,098) $
35,578
50,238
8,462
9,705
(19,570)
(289,184)
(887)
(205,658)
The components of this net exposure by currency are as follows (in foreign currency ‘000’s) at December
31, 2017:
December 31, 2017
GBP
USD
Yen
Euros
RMB
DKK
Peso
Argentine
Cash
Trade receivables
Other receivables
Long term receivables
Trade and other payables
Long-term debt
Other long-term liabilities
285
475
2,032
1,400
2,517
13,949
414
1,551
24,583
20,610
567,467
29,313
1,333
660
2,547
-
-
-
-
-
-
212
154
7,950
(3,432)
21,873
-
19,958
(11,023)
(1,745)
(14,702)
(2,588)
2,290
(2,595) (100,333)
(16,835)
(253,879)
(365)
-
-
-
40
-
-
-
-
-
-
-
Net exposure to consolidated
statements of financial position
(24,031)
(231,164) 567,374
29,726
3,841
26,506
(58,136)
The components of this net exposure by currency are as follows (in foreign currency ‘000’s) at December
31, 2016:
December 31, 2016
GBP
USD
Yen
Euros
RMB
NOK
Argentine
Peso
DKK
Cash
Trade receivables
Other receivables
Long term receivables
Trade and other payables
Long-term debt
Other long term liabilities
Net exposure to consolidated
statements of financial position
1,165
5,769
554
1,307
(4,939)
3,618
8,688
2,054
3,705
(2,986)
(23,151)
(534)
(186,564)
-
56
87,874
-
-
(6,187)
-
-
1,668
19,639
1,001
(604)
-
1
-
-
-
138,856
819
(19)
1,590
1,151
39,944
-
(408)
-
1,792
-
(37)
-
(2,541)
30,204
(77,603)
-
-
-
-
-
-
-
-
-
-
(19,829)
(171,485)
81,743
21,900
1,189
(37) 137,115
(4,714)
84 | P a g e
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 in the consolidated statements of financial
position.
(In '000 of Canadian dollars)
GBP
USD
Yen
Euros
RMB
NOK
DKK
Argentine Peso
(h) Interest rate risk
2017
(4,059)
(28,968)
630
4,459
74
-
534
(381)
2016
(3,289)
(23,049)
94
3,096
23
(1)
2,608
(40)
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 until its refinancing on April 26, 2017. The
interest rate floor was a derivative instrument and recorded at fair value through profit or loss until the
settlement of the Term Loan B.
Clearwater manages its interest rate risk exposure by using a mix of fixed and variable rate debt. In 2017,
Clearwater replaced its long-term debt with fixed rate USD Notes and variable rate Revolving Credit facility
and Term Loan B facility (Note 13). As at December 31, 2017, approximately 68% (2016 – 3.9%) of
Clearwater’s debt of $473.2 million (2016 - $436.4 million) was fixed rate debt with a weighted average
interest rate of 5.8% (2016 – 4.0%). A 1% change in interest rates for variable rate borrowings, including
the impact of interest rate swaps derivative instruments, would result in a $1.2 million increase (or decrease)
in interest expense.
As at December 31, 2016, Clearwater had entered into interest rate swap arrangements to economically
hedge interest rates on its CDN $30 million Term Loan A facility and its USD $200 million Term Loan B
facility whereby:
• CDN $12 million of Term Loan A was effectively subject to an interest rate that was the lesser of
the floating rate of interest on the loan or a maximum fixed rate of interest of 6.25% to June 2018.
• CDN $12 million of Term Loan A was subject to a fixed interest rate of 5.85% to June 2018.
• USD $50 million of Term Loan B was subject to a fixed interest rate of 6.15% to June 2019.
• USD $50 million of Term Loan B was capped to June 30, 2018 at an interest rate of 4.75% and
then the rate was fixed at 6.49% to June 2019.
Clearwater accounted for these swap arrangements at fair value and recorded the change in fair value
through the consolidated statement of earnings (loss). The fair value of interest rate swaps and interest rate
caps at the end of the reporting period was determined by discounting the future cash flows using the yield
curves at the end of the reporting period. For the year ended December 31, 2016, this resulted in a $2.0
85 | P a g e
million unrealized gain. These economic hedges were unwound in April 2017 when Clearwater completed
its refinancing.
(i) 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.
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 as of December 31, 2017.
Clearwater’s financing needs follow a seasonal pattern with working capital and debt increasing in the
second and third quarter of the year as inventories are built up over the primary fishing seasons with sales
typically increasing in the third and fourth quarters of the year, reducing leverage over those
periods. Management has structured its financing facilities reflecting this pattern and works with its lenders
to set financial covenants which consider seasonal liquidity requirements.
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, 2017
Carrying
Amount
Total
Contractual
Cash Flow
2018
2019
2020
2021
2022
>2023
Interest - long-term debt
$
- $
198,248 $
26,502
$
26,251 $
26,238 $
26,225 $
23,321 $
69,711
Principal repayments - long-term debt
-
473,173
21,025
9,761
9,761
1,695
120,748
310,183
Total long-term debt
473,173
671,421
47,527
36,012
35,999
27,920
144,069
379,894
Trade and other payables
80,411
80,411
80,411
-
-
-
-
Operating leases and other
-
14,670
Derivative financial instruments - asset
5,938
5,938
5,625
5,797
Derivative financial instruments - liabilities
9,120
9,120
1,978
4,011
3,281
820
555
88
485
47
6
-
436
395
5,826
-
379
-
-
$
568,642 $
781,560 $ 141,338
$
40,596 $
39,763 $
29,141 $ 150,450 $ 380,273
Included in the above commitments for “operating leases and other” are amounts to which 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.
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 2020 for vehicle and office leases,
which aggregate approximately $0.07 million (2016 - $0.04 million).
86 | P a g e
(j) Fair value of financial instruments
The following tables set out Clearwater’s classification and carrying amount, together with fair value, for
each type of non-derivative and derivative financial asset and liability:
December 31, 2017
Assets:
Cash
Trade and other receivables
Long-term receivables
Forward foreign exchange contracts
Liabilities:
Trade and other payables
Long-term debt1
Forward foreign exchange contracts
$
$
$
$
Fair Value
Amortized cost
Total
Through
profit or loss
Derivatives
Loans and
Non-derivative
receivables financial liabilities
Carrying
amount
Fair
value
35,514
-
-
-
35,514
$
$
-
-
-
5,938
5,938
$
$
-
103,096
5,077
-
108,173
(4,703) $
(5,278)
-
(9,981) $
$
-
-
(9,120)
(9,120) $
-
-
-
-
$
$
$
$
-
-
-
-
-
$
$
35,514
103,096
5,077
5,938
149,625
$
$
35,514
103,096
5,077
5,938
149,625
(75,708) $
(467,895)
-
(543,603) $
(80,411) $
(473,173)
(9,120)
(562,704) $
(80,411)
(491,079)
(9,120)
(580,610)
1 Earnout liability is recorded at fair value through profit or loss.
December 31, 2016
Assets:
Cash
Trade and other receivables
Long-term receivables
Forward foreign exchange contracts
Interest rate cap, floors and cross-
currency swap
Liabilities:
Trade and other payables
Long-term debt1
Forward foreign exchange contracts
Embedded derivative
Interest rate swaps
$
$
$
$
Fair Value
Amortized cost
Total
Through
profit or loss
Derivatives
Non-derivative
Loans and
receivables financial liabilities
Carrying
amount
Fair
value
$
39,514
-
-
-
$
-
-
-
4,637
-
82,108
8,132
-
-
39,514
$
184
4,821
$
-
90,240
(7,588) $
(9,107)
-
-
-
(16,695) $
$
-
-
(1,356)
(703)
(4,284)
(6,343) $
-
-
-
-
-
-
$
$
$
$
-
-
-
-
-
-
$
$
39,514
82,108
8,132
4,637
39,514
82,108
8,132
4,637
184
134,575
$
184
134,575
$
(68,365) $
(426,604)
-
-
-
(494,969) $
(75,953) $
(435,711)
(1,356)
(703)
(4,284)
(518,007) $
(75,953)
(436,082)
(1,356)
(703)
(4,284)
(518,378)
1 Earnout liability is recorded at fair value through profit or loss.
Fair value of financial instruments carried at amortized cost:
Except as detailed above, Clearwater considers that the carrying amounts of financial assets and financial
liabilities recognized in the consolidated financial statements approximate their fair values. For cash, trade
and other receivables, and trade and other payables, the carrying value approximates their fair values due
to the short-term maturity of these instruments. The fair values of the long term receivables are not
materially different from their carrying values.
87 | P a g e
The estimated fair value of Clearwater’s long-term debt for which carrying value did not approximate fair
value at December 31, 2017 was $363.5 million (December 31, 2016 - $46.8 million) and the carrying value
was $345.7 million (December 31, 2016 – $46.5 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.
(k) 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, 2017
Recurring measurements
Financial Assets:
Cash
Forward foreign exchange contracts
Financial Liabilities:
Forward foreign exchange contracts
Earnout liability
Level 1
Level 2
Level 3
$
$
$
$
35,514 $
-
35,514 $
- $
5,938
5,938 $
-
-
-
- $
-
- $
9,120 $
-
9,120 $
-
(5,278)
(5,278)
88 | P a g e
December 31, 2016
Recurring measurements
Financial Assets:
Cash
Forward foreign exchange contracts
Interest rate caps, floors and cross-currency swaps
Financial Liabilities:
Forward foreign exchange contracts
Embedded derivative in Term Loan B (Note 13 (a))
Interest rate swaps
Earnout liability
Level 1
Level 2
Level 3
$
39,514 $
- $
-
4,637
184
$
39,514 $
4,821 $
$
$
- $
-
-
-
(1,356) $
(703)
(4,284)
-
- $
(6,343) $
-
-
-
-
-
-
(9,107)
(9,107)
There were no transfers between levels during the periods ended December 31, 2017 and December 31,
2016.
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 was fair valued using a Bloomberg valuation model for interest rate
floors.
•
Interest rate swaps, caps and floors and cross-currency swaps were measured using present value
techniques that used a variety of inputs, being quoted prices and market-corroborated inputs.
The Earnout liability relating to the Macduff acquisition is a financial liability categorized as 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 liability 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 fair value of the
Earnout is estimated based on discounted expected future EBITDA cash flows for Macduff for the four
year period ending December 31, 2020. The following inputs and assumptions were used in calculating the
fair value of the Earnout liability including:
• Payments dates: The Earnout will be payable for the periods ending December 31, 2017 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 forecast for the remaining period;
• Risk-free rate: 1.8%
89 | P a g e
• Risk adjusted discount rate: 7.5%
• Asset volatility: The estimated asset volatility of Macduff is based on its observable historical
EBITDA volatility. In the context of calculating the asset volatility, the following inputs to derive
the asset volatility were used:
o Debt value: 1.8x EBITDA
o Enterprise Value: 7.5x EBITDA
o EBITDA volatility: 21%
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 method stated above, the fair value of the Earnout was determined to be £3.1 million (CDN $5.2
million).
The change in the fair value of the Earnout for the year ended December 31, 2017 was a decrease of £1.6
million (CDN $2.7 million) (2016 - decrease of £0.6 million (CDN $1.1 million)).
The fair value estimates are not necessarily indicative of the amounts that Clearwater will receive or pay at
the settlement of the contracts.
8. LONG-TERM RECEIVABLES
As at December 31
Advances to fishermen
Notes receivable from non-controlling interest holder in subsidiary
Other
$
$
2017
5,077
- $
-
5,077 $
2016
6,481
1,368
283
8,132
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% (2016
- prime plus 2% - 3%) are due on demand, and are secured by an assignment of catch, a marine mortgage
on the related vessels, equipment and licenses. 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 7 (h)).
Notes receivable from non-controlling interest consisted of funds that were advanced to a shareholder in an
incorporated subsidiary. The notes were interest bearing at rates ranging from 0% - 12% and were
unsecured and had no set terms of repayment. In the second quarter of 2017, the interest bearing loans were
repaid and $0.1 million was forgiven.
90 | P a g e
9. PROPERTY, PLANT AND EQUIPMENT
Land
Building and
wharves
Equipment
Vessels and
vessel
equipment
Construction in
progress
Total PPE
Deferred
Gov't
Assistance
Total
Cost
Balance at January 1, 2017
Additions
Disposals
Reclassifications and other adjustments
Effect of movements in exchange rates
$
2,819 $
-
-
62
(4)
67,102 $
47
(11)
2,293
(219)
73,024 $ 325,083 $
254
(15)
14,407
208
6,428
(26,952)
12,923
(5,033)
36,043 $ 504,071 $
78,702
-
(28,998)
128
85,431
(26,978)
687
(4,920)
(8,962) $ 495,109
85,431
(26,978)
(473)
(4,920)
-
-
(1,160)
-
Balance at December 31, 2017
$
2,877 $
69,212 $
87,878 $ 312,449 $
85,875 $ 558,291 $
(10,122) $ 548,169
Accumulated depreciation
Balance at January 1, 2017
Depreciation for the year
Disposals
Reclassifications and other adjustments
Effect of movements in exchange rates
$
1,005 $
30
-
-
-
49,695 $
2,532
(11)
-
7
60,320 $ 158,515 $
5,082
(15)
(7)
163
33,037
(24,760)
630
(1,520)
7 $ 269,542 $
-
-
(7)
-
40,681
(24,786)
616
(1,350)
(8,240) $ 261,302
40,304
(24,786)
616
(1,338)
(377)
-
-
12
Balance at December 31, 2017
$
1,035 $
52,223 $
65,543 $ 165,902 $
- $ 284,703 $
(8,605) $ 276,098
Carrying amounts
At January 1, 2017
At December 31, 2017
$
$
1,814 $
1,842 $
17,407 $
16,989 $
12,704 $ 166,568 $
22,335 $ 146,547 $
36,036 $ 234,529 $
85,875 $ 273,588 $
(722) $ 233,807
(1,517) $ 272,071
Cost
Balance at January 1, 2016
Additions
Disposals
Reclassification and other adjustments
Effect of movements in exchange rates
Balance at December 31, 2016
Accumulated depreciation
Balance at January 1, 2016
Depreciation for the year
Disposals
Reclassifications and other adjustments
Effect of movements in exchange rates
Balance at December 31, 2016
Carrying amounts
At January 1, 2016
At December 31, 2016
$
$
$
$
$
$
Land
Building and
wharves
Equipment
Vessels and
vessel
equipment
Construction in
progress
Total PPE
Deferred
Gov't
Assistance
Total
2,823 $
-
-
-
(4)
2,819 $
67,235 $
567
(32)
1,003
(1,671)
67,102 $
74,667 $ 328,017 $
939
(436)
948
(3,094)
73,024 $ 325,083 $
23,035
(1,547)
(11,677)
(12,745)
21,612 $ 494,354 $
38,531
-
(23,986)
(114)
63,072
(2,015)
(33,712)
(17,628)
36,043 $ 504,071 $
(8,962) $ 485,392
63,072
(2,015)
(33,712)
(17,628)
(8,962) $ 495,109
-
-
-
-
989 $
16
-
-
-
1,005 $
47,871 $
2,466
-
(14)
(628)
49,695 $
59,740 $ 133,648 $
3,020
(332)
5
(2,113)
60,320 $ 158,515 $
29,013
(1,547)
325
(2,924)
- $ 242,248 $
-
-
7
-
7 $ 269,542 $
34,515
(1,879)
323
(5,665)
(8,053) $ 234,195
34,328
(1,879)
323
(5,665)
(8,240) $ 261,302
(187)
-
-
-
1,834 $
1,814 $
19,364 $
17,407 $
14,927 $ 194,369 $
12,704 $ 166,568 $
21,612 $ 252,106 $
36,036 $ 234,529 $
(909) $ 251,197
(722) $ 233,807
91 | P a g e
Total depreciation and amortization expense related to property, plant and equipment and definite-life
intangible assets for 2017 was $45.4 million (2016 - $38.6 million). In 2017, $42.3 million (2016 - $31.9
million) of depreciation and amortization expense for assets used in the harvesting and production of goods
was classified as cost of goods sold and $3.0 million (2016 – $1.6 million) was recorded in administrative
and selling costs for assets used in administrative activities. For property, plant and equipment pledged as
security for long-term debt, refer to Note 13.
10. INTANGIBLE ASSETS AND GOODWILL
Intangible assets
Goodwill
Brand
names
Computer
software
Indefinite
life licenses
Fishing
rights
Goodwill and
intangible
asset total
Total
Cost
Balance at January 1, 2016
Acquisition through business combination
$
54,180 $
2,129
12,680 $
-
- $
-
172,179 $
26,078 $
210,937 $
-
-
-
Additions
Foreign currency exchange translation
Balance at December 31, 2016
-
(6,528)
49,781
-
(2,464)
10,216
21,078
-
21,078
-
(18,453)
153,726
-
(414)
25,664
21,078
(21,331)
210,684
265,117
2,129
21,078
(27,859)
260,465
Additions
Foreign currency exchange translation
Balance at December 31, 2017
Accumulated amortization
Balance at January 1, 2016
Amortization
Foreign currency exchange translation
Balance at December 31, 2016
Amortization
Foreign currency exchange translation
Balance at December 31, 2017
Carrying amounts
As at December 31, 2016
As at December 31, 2017
$
$
$
$
$
-
415
50,196 $
-
186
10,402 $
996
-
-
727
22,074 $
154,453 $
-
(356)
25,308 $
996
557
212,237 $
996
972
262,433
- $
-
-
-
-
-
- $
- $
-
-
-
-
-
- $
- $
2,392
-
2,392
3,224
-
5,616 $
- $
-
-
-
-
-
- $
9,091 $
1,914
(34)
10,971
1,900
(65)
12,806
9,091 $
4,306
(34)
13,363
5,124
(65)
18,422 $
9,091
4,306
(34)
13,363
5,124
(65)
18,422
49,781 $
50,196 $
10,216 $
10,402 $
18,686 $
16,458 $
153,726 $
154,453 $
14,693
12,502
197,321 $
193,815 $
247,102
244,011
Clearwater maintains fishing licenses and rights to ensure continued access to the underlying resource.
Fishing 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.
92 | P a g e
Indefinite life licenses, brand names and goodwill
Annual impairment testing for each CGU was performed using a VIU approach as of December 31, 2017.
The recoverable amount is the higher of the VIU and fair value less cost of disposal. The VIU for all CGU’s
were determined to be higher than their carrying amounts and therefore no impairments were recorded
during 2017.
The value in use was determined by discounting the projected future cash flows generated from operations
for the applicable CGU. Unless otherwise indicated in notes i – iii, the assumptions used in the Goodwill
and indefinite life Intangible assets value in use for 2017 were determined similarly to those used in 2016.
The carrying value of Clearwater’s significant CGU’s are as follows:
As at
Scallops
Indefinite life licenses
MacDuff
Goodwill
Indefinite life licenses
Brand names
All other CGU's individually without significant carrying value
Goodwill
Indefinite life licenses
September 30
2017
December 31
2016
$
54,456 $
55,458
44,558
74,886
10,402
5,638
25,111
$
215,051 $
44,143
73,544
10,216
5,638
24,724
213,723
The discounted cash flows used in determining the recoverable amounts 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 2% - 2.5% (2016: 2% -
2.5%).
ii) Pre-tax discount rates ranging from 9% - 13% (2016: 9% - 13%) 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 a management approved
capital expenditure forecast, and terminal year capital expenditures were based on required
refits over the period of the fishing license.
The following assumptions were used for each individual CGU:
93 | P a g e
Argentine scallops
Clams
Turbot
CDN scallops
FAS shrimp
Lobster
MacDuff
Other
Inflation
Pre-tax discount rates
2017
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.5%
2.0%
2016
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.5%
2.0%
2017
13.0%
9.5%
9.5%
9.5%
9.5%
10.0%
11.0%
9.0%
2016
13.0%
9.5%
9.5%
9.5%
9.5%
10.0%
11.0%
9.0%
The values assigned to the key assumptions represent management’s assessment of future trends in the
industry and are based on both internal and external sources.
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 2017 and 2016, there have been no additions or disposals.
Refer to Note 13 for assets pledged as security for long term debt.
Computer software
Clearwater implemented a new enterprise resource planning system (“ERP”) in 2016 and began amortizing
on a straight line basis over 3 - 8 years, beginning in the second quarter of 2016.
11. INVESTMENT IN EQUITY INVESTEE
The following table summarizes the financial information of Adams and Knickle Limited, a joint venture
in which Clearwater owns 50% and is accounted for using the equity method:
Year ended December 31
2017
2016
Carrying amount of interest in joint venture
$
9,817
$
10,496
Share of:
Earnings for the year
Dividends from joint venture
2,656
3,340
1,185
-
94 | P a g e
12. INCOME 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 the partners
Permanent differences
Benefit of non-capital loss not recognized
Recognition of previously unrecognized deferred tax assets
Effect of rate differences
Income of foreign subsidiary not subject to tax
Other
Actual provision
(b) Income tax expense
$
$
$
$
2017
35,897
30.5%
10,949
$
$
(2,458) $
(2,565)
5,451
(2,970)
639
(50)
(1,338)
7,658
$
2016
76,042
30.5%
23,193
(4,022)
(1,265)
-
(1,425)
(1,581)
2,304
(758)
16,446
The components of the income tax expense (recovery) for the year are as follows:
Year ended December 31
Current income tax expense
Deferred tax expense (recovery)
$
$
2017
12,375
(4,717)
7,658
$
$
2016
7,079
9,367
16,446
95 | P a g e
(c) Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Deferred tax assets:
Non-capital loss carry-forwards
Unrealized foreign exchange
Share issuance costs
Reserve for unpaid share-based compensation
Capital Losses
Other
Deferred tax liabilities:
Licenses and intangibles
Property, plant and equipment
Long-term debt
Other
Classified in the consolidated statement of financial position as:
Deferred tax asset
Deferred tax liability
December 31
2017
December 31
2016
$
18,198
1,472
805
1,094
3,590
656
(22,932)
(5,227)
(4,147)
-
(6,491) $
17,144
250
1,192
2,001
-
-
(18,200)
(13,004)
(586)
(421)
(11,624)
11,349
(17,840)
(6,491) $
6,429
(18,053)
(11,624)
$
$
$
The net change in deferred income taxes is reflected in deferred income tax recovery of $4.7 million (2016
- expense of $9.4 million), plus $0.5 million (2016 – nil) of deferred tax recovery recorded through other
comprehensive loss (Note 7 (b)), less the foreign exchange effect of deferred taxes of foreign subsidiaries
totaling $0.1 million (2016 - $4.3 million), the effect of which was recorded through foreign exchange.
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 than 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 consolidated statements of financial position.
96 | P a g e
Non-capital losses
Investment tax credits
Capital losses
Accounts receivable
Unrecognized deferred tax liabilities
Clearwater
Seafoods Inc.
Subsidiary
Corporations
$
$
17,872
13,095
44,550
-
$
7,960
590
380
15,798
Total
Expiry
25,832 2026 - 2037
13,685 2023 - 2037
44,930 No expiry
15,798
N/A
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, 2017 for the Company's subsidiaries was $84.2 million (December 31, 2016 - $49.8 million).
13. LONG-TERM DEBT
$
$
2016
2017
As at December 31
Senior debt (a):
-
USD senior unsecured notes, due May 2025 (USD $250,000)
-
Term loan B, due May 2022
-
Revolving credit facility, due May 2022
50,218
Term loan A, due June 2018
306,507
Term loan B, due June 2019
703
Term loan B, embedded derivative
23,400
Revolving credit facility
29,298
Deferred obligation (b)
9,107
Earnout liability (b)
13,459
Term loan, due June 2018 (c)
3,500
Term loan, due in 2091 (d)
222
Other loans
436,414
Total Debt
(67,005)
Less: current portion 1
369,409
Total Long-term Debt
1 Current portion of long-term debt includes scheduled payments related to the Senior debt; Deferred Obligation payments, less accretion during
306,684
34,466
87,682
-
-
-
-
23,181
5,278
12,215
3,500
167
473,173
(21,025)
452,148
$
$
the period and minimum payment related to the Earnout Liability.
(a)
Senior debt
In April 2017, Clearwater refinanced its senior debt facilities. The Company issued USD $250 million of
6.875% Senior Notes due May 2025 (the “Notes Offering”). Concurrent with the Notes Offering,
Clearwater entered into new senior secured credit facilities in an aggregate availability of CDN $335
million, consisting of a CDN $300 million revolving credit facility and a CDN $35 million amortizing
secured term loan (“Term Loan B”), each maturing in 2022 (the “Senior Secured Credit Facilities”).
Clearwater used the net proceeds from the sale of the Notes, together with the new borrowings under the
Senior Secured Credit Facilities, to refinance existing senior secured credit facilities (Term Loan A was
due June 2018, Term Loan B was due June 2019 and revolving credit facility) and for general corporate
purposes.
97 | P a g e
The refinancing was accounted for as a settlement of the prior facilities and consequently $4.2 million of
unamortized deferred financing costs and refinancing costs were recorded with Net Finance Costs (refer to
Note 13 (e)). Financing costs related to the USD Notes and Senior Secured Credit Facilities of $12.0 million
have been deferred and amortized into interest using the effective interest method over the term of the debt.
As at December 31, 2017, Senior debt consists of USD senior unsecured notes (the “Notes”), a Term Loan
B facility and revolving debt facility. As of December 31, 2016, senior debt consisted of a Term Loan A
facility, Term Loan B facility and a revolving credit facility.
Senior Notes, due 2025 – The USD $250.0 million (CDN $314.1 million) Senior Notes have a coupon rate
of 6.875%, with coupon payments payable in semi-annual installments of USD $8.6 million (CDN $10.8
million) in May and November each year. The balance is shown net of unamortized deferred financing
charges of USD $5.9 million (CDN $7.4 million) which resulted in an effective interest rate of 7.194%.
Refer to Note7 for details on forward foreign exchange contracts used to economically hedge a portion of
the foreign exchange risk related to the notional and coupon payments for the Senior Notes.
Term Loan B facility, due 2022 – The Term Loan B consists of an initial term loan of CDN $35.0 million.
The principal outstanding as at December 31, 2017 was CDN $34.7 million. The loan is repayable in annual
installments of $0.35 million, with the balance due at maturity in May 2022. The facility bears interest
ranging from LIBOR plus 2.50% to 3.25%. The range is determined quarterly based on a ratio of Senior
Secured indebtedness to EBITDA, with EBITDA calculated on a trailing twelve month basis. The balance
is shown net of deferred financing charges of CDN $0.3 million resulting in an effective interest rate of
3.74%.
Revolving credit facility, due 2022 – The CDN $300 million revolving credit facility can be drawn in
CDN, USD, EUR, YEN or GBP. As at December 31, 2017 the balances were drawn in CDN and bear
interest ranging from LIBOR plus 1.50% to 2.25%. The range is determined quarterly based on a ratio of
Senior Secured indebtedness to EBITDA, with EBITDA calculated on a trailing twelve month basis. The
balance is shown net of deferred financing charges of CDN $2.3 million, resulting in effective rates of
3.97% for CDN balances. The availability of this facility, subject to financial covenants, is further reduced
by the term loan outstanding in note (c), as such the availability as at December 31, 2017 was approximately
CDN $56 million. The facility has standby fees ranging from 0.25% to 0.30% based upon the Senior
Secured Indebtedness to EBITDA ratio as of the last day of the immediately preceding fiscal quarter.
The Revolving Credit Facility and Term Loan B, due 2022, are secured by a first charge on cash, trade and
other receivables, inventories, marine vessels, licenses and quotas, and Clearwater’s investments in certain
subsidiaries.
In addition to the minimum principal payments for Term Loan 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 less principal debt repayments (excluding revolver payments), less interest expense,
less capital expenditures funded through operating cash flows, less certain tax expenses), be used to repay
the principal based on the previous fiscal year’s results upon approval of the annual consolidated financial
statements. During the period ended December 31, 2017, Clearwater repaid nil in principal relating to this
requirement.
98 | P a g e
Term Loan A facility (repaid April 2017) – The Term Loan A consisted of an initial term loan of CDN
$30.0 million and a delayed draw facility of CDN $30.0 million. The principal outstanding on the initial
term as at December 31, 2016 was CDN $24.2 million. The balance is shown net of deferred financing
charges of CDN $0.1 million. The loan was interest bearing at the applicable banker’s acceptance rate plus
3.25%. As at December 31, 2016 this resulted in an effective rate of 4.14%.
The principal outstanding on the Term Loan A delayed draw facility as at December 31, 2016 was CDN
$26.4 million. The balance is shown net of deferred financing charges of CDN $0.3 million. Interest was
payable monthly at the banker’s acceptance rate plus 3.25%. As at December 31, 2016 this resulted in an
effective rate of 4.14%.
Term Loan B facility (repaid April 2017) - The principal outstanding as at December 31, 2016 was USD
$178.5 million and CDN $70.4 million. Interest on the USD balance was payable monthly at the US LIBOR
plus 3.50% with a LIBOR interest rate floor of 1.25%, and the CDN balance at the banker’s acceptance rate
plus 3.50%. As of December 31, 2016 this resulted in an effective rate of 4.75% on the USD balance and
4.39% on the CDN balance. The embedded derivative represented the fair market value of the LIBOR
interest rate floor of 1.25%. The change in fair market value of the embedded derivative was recorded
through profit or loss as a component of Net finance costs.
In 2016, a payment similar to those under the new Term Loan B discussed above were required under the
Term Loan A and B loan agreements. In 2016, Clearwater paid $18.6 million in principal on Term Loan A
and B and payments were allocated amongst the term loans on a pro rata basis.
Revolving credit facility (repaid April 2017) - Clearwater had a CDN $100.0 million revolving facility.
The availability of this facility was reduced by the term loan outstanding in note (c). The facility could be
drawn in CDN and/or USD. As at December 31, 2016 the balance was CDN $23.4 million. The CDN
balance was interest bearing at the banker’s acceptance rate plus 3.25%. As of December 31, 2016 this
resulted in an effective rate of 4.14%. The facility had standby fees of 0.375%.
(b) Deferred Obligation and Earnout Liability
In connection with the 2015 acquisition of MacDuff, there are two components of the purchase price that
are to be paid in future periods as discussed below:
(i)
Deferred Obligation - The Deferred Obligation relates to deferred payments for 33.75% of the
shares of Macduff acquired by Clearwater (the "Earn Out Shares") in 2015. Excluding the fair value
adjustment on acquisition, the principal balance outstanding as at December 31, 2017 is £15.8 million (CDN
$26.5 million) (December 31, 2016 - £21.0 million (CDN $34.8 million)) and does not bear interest. The
Deferred Obligation is recorded at the discounted amount based on estimated timing of payment and is
being accreted to the principal amount over the estimated term using the effective interest method with an
effective average interest rate of 7.44%. The following is a reconciliation of the Deferred Obligation:
99 | P a g e
Balance - December 31, 2015
Accretion - 2016
Principal repayment
Effect of movement in foreign exchange
Balance - December 31, 2016
Accretion - 2017
Principal repayment
Effect of movement in foreign exchange
Balance - December 31, 2017
£
£
£
GBP
20.9
2.0
(5.2)
-
17.7
1.3
(5.2)
-
13.8
$
$
$
CDN
42.9
3.6
(8.7)
(8.5)
29.3
2.2
(8.8)
0.5
23.2
On October 30th of each year, the holders of the Earn Out Shares can elect to be paid up to 20% of the
original Deferred Obligation amount. 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.
On October 30, 2017 and 2016, the holders of the Earn Out Shares elected to be paid 20% of the outstanding
Deferred Obligation. As a result, a payment of £5.2 million (CDN - $8.8 million) was made in November
2017 and £5.2 million (CDN - $8.7 million) in November 2016.
(ii) Earnout liability - The Earnout liability is unsecured additional consideration to be paid dependent
upon the 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, 2017 is £3.1 million (CDN - $5.3 million) (December 31, 2016 - £5.5 million, CDN - $9.1
million) based on forecast earnings and probability assessments. The actual Earnout payments are expected
to be paid over a five year period ending 2021.
The first payment was made in the second quarter of 2017 for £0.8M (CDN - $1.3 million).
The amount of the total Earnout liability 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)
Deferred Obligation remaining unpaid each year)
10% of adjusted EBITDA of Macduff above £10 million (dependent upon the percentage of
Refer to Note 7(l) for further information on the process by which Clearwater determines the fair value of
the Earnout liability. The Earnout liability is recorded at fair value on the consolidated statement of financial
position at each reporting period until paid, with changes in the estimated fair value being recorded as a
component of other expense on the Consolidated Statement of Earnings (Loss). The change in fair value
for the period ended December 31, 2017 was a decrease of £1.6 million (CDN $2.7 million) (December 31,
2016 - £0.6 million (CDN $1.1 million)).
100 | P a g e
Term Loan
(c)
The principal outstanding as at December 31, 2017 was USD $10.0 million (CDN $12.2 million)
(December 31, 2016 - USD $10.0 million; CDN $13.5 million). The loan is held through a Clearwater
subsidiary. The loan is non-amortizing, repayable at maturity in June 2018 and bears interest payable
monthly at 3.9% per annum.
Term Loan, due in 2091
(d)
In connection with this term loan, Clearwater makes a royalty payment of CDN $0.3 million per annum in
lieu of interest. This equates to an effective interest rate of approximately 8.0% per annum.
(e) Net finance costs
Year ended December 31
2017
2016
Interest expense on financial liabilities
$
28,205
$
Amortization of deferred financing charges and accretion
Fair value adjustment on embedded derivative (Note 13 (a))
Accretion on deferred consideration (Note 13 (b))
Interest rate swap and caps (1)
Debt settlement (2) & refinancing fees
1,555
29,760
(703)
2,166
(4,347)
8,404
$
35,280
$
24,776
2,113
26,889
(1,350)
3,562
(2,027)
(126)
26,948
(1) Interest rate swaps and caps represents unrealized (gains) losses as a result of the change in fair value during
the year. Realized gains and losses are reflected in interest expense and bank charges and debt settlement and
refinancing fees.
(2) Debt settlement includes loss on settlement of existing interest rate swaps and cross currency swaps and cap,
forward foreign exchange contracts, remaining unamortized deferred financing costs and accretion.
14. SHARE CAPITAL
Authorized:
Clearwater is authorized to issue an unlimited number of common shares.
Share capital movement:
As at December 31
Share capital:
Balance at January 1
Issuance of common shares
Balance at December 31
#
63,934,698
-
63,934,698
2017
$
210,860
-
210,860
#
59,958,998
3,975,700
63,934,698
2016
$
157,161
53,699
210,860
On June 21, 2016 Clearwater completed the issuance of 3,975,700 common shares at $13.90 per common
share for gross proceeds of $55.3 million. Transaction costs associated with the equity issue were $2.2
million and have been deducted, net of deferred taxes of $0.6 million from the recorded amount for the
common shares.
101 | P a g e
Common shares outstanding as at December 31, 2017 totaled 63,934,698.
During the year ended 2017, dividends of $12.8 million were declared and paid as follows:
Payment Date
April 3, 2017
June 2, 2017
September 1, 2017
December 1, 2017
# of Shares Outstanding
63,934,698
63,934,698
63,934,698
63,934,698
Dividends per Share
$
$
$
$
0.050
0.050
0.050
0.050
During the year ended 2016, dividends of $12.4 million were declared and paid as follows:
Payment Date
April 15, 2016
June 10, 2016
September 1, 2016
December 2, 2016
# of Shares Outstanding
59,958,998
59,958,998
63,934,698
63,934,698
Dividends per Share
$
$
$
$
0.050
0.050
0.050
0.050
Subsequent to the end of the year, on March 6, 2018 the Board of Directors declared a quarterly dividend
of $0.05 per share payable on April 2, 2018 to shareholders of record as of March 15, 2018 for a total of
$3,196,735.
15. NON-CONTROLLING INTEREST
On May 29, 2017, Clearwater acquired an additional 5% interest in its Argentina subsidiary for USD $5.0
million (CDN $6.7 million), increasing Clearwater's ownership from 80% to 85%. The carrying value of
the subsidiary's net assets in the consolidated financial statements on the date of acquisition was a deficit
of $8.9 million, including the cumulative translation adjustment account. The acquisition resulted in a
reduction to retained earnings attributable to shareholders of Clearwater of $7.2 million.
Carrying amount of net deficit
Non-controlling interest acquired (deficit)
Consideration paid to non-controlling interest
Decrease in retained earnings attributable to shareholders of Clearwater
$
$
(8,895)
(445)
6,725
7,170
Summarized financial information in respect of Clearwater’s subsidiaries that have non-controlling
interests (“NCI”) is set out below.
102 | P a g e
(a) Summarized statements of financial position
As at December 31
NCI Percentage
Current assets
Current liabilities
Non-current assets
Net assets
Coldwater shrimp
2017
2016
46.34%
46.34%
$
$
21,763
(11,359)
10,404
17,192
27,596
38,772
(14,018)
24,754
22,838
47,592
Accumulated non-controlling interests
$
17,473
$
24,941
As at December 31
NCI Percentage
Current assets
Current liabilities
Non-current assets
Non-current liabilities
Net assets
Argentine Scallops
2017
15.0%
$
$
10,961
(25,404)
(14,443)
18,203
(391)
17,812
2016
20.0%
9,505
(34,030)
(24,525)
23,914
(1,154)
22,760
3,369
(1,765)
Accumulated non-controlling interests
$
(1,801) $
(1,485)
103 | P a g e
(b) Summarized statements of earnings
Year ended December 31
Sales
Earnings and comprehensive income for the year
Total comprehensive income
Earnings allocated to non-controlling interest
Dividends paid to non-controlling interest
Year ended December 31
Sales
Earnings for the year
Other comprehensive income
Total comprehensive income
Earnings allocated to non-controlling interest
Dividends paid 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 used in financing activities
Cash flow used in investing activities
Net increase (decrease) in cash
$
$
$
$
Coldwater shrimp
2017
2016
74,199 $
19,004
19,004
10,605
18,073
100,161
29,524
29,524
15,842
24,560
Argentine Scallops
2017
2016
$
60,850
18,231
(2,119)
16,112
2,632
1,962
41,637
1,282
1,300
2,582
437
-
Coldwater shrimp
2017
2016
$
19,957
(39,000)
(4,142)
(23,185)
45,677
(53,500)
-
(7,823)
Argentine Scallops
2017
2016
$
13,522
(10,977)
(2,666)
(121)
6,500
-
(6,377)
123
104 | P a g e
16. OPERATING EXPENSES
Year ended December 31
Salaries and benefits
Share-based incentive compensation
Employee compensation
Consulting and professional fees
Other
Selling costs
Travel
Occupancy
Total administrative and selling costs before allocation
Allocation to cost of goods sold
Total administrative and selling costs
Restructuring costs
Operating expenses
$
$
2017
40,197
409
40,606
14,238
6,625
2,816
3,089
1,548
28,316
(13,371)
55,551
6,856
62,407
$
$
2016
39,346
2,902
42,248
13,135
6,907
2,857
3,906
1,947
28,752
(13,494)
57,506
986
58,492
In the fourth quarter of 2017, Clearwater recognized $6.7 million in restructuring expenses. These expenses
consisted of severance costs associated with the targeted restructuring of the Company’s employee base
and changes to Clearwater’s distribution infrastructure.
17. OTHER (INCOME) EXPENSE
Year ended December 31
Acquisition related costs
Share of earnings of equity-accounted investee
Royalties, interest income and other fees
Other (income) fees
Fair value adjustment on earn-out liability
Export rebates
Other (income) expense
$
2017
464
(2,656)
(431)
(994)
(2,769)
(1,190)
(7,576) $
2016
2,561
(1,185)
(1,379)
(1,950)
(1,110)
(2,146)
(5,209)
$
$
105 | P a g e
18. EMPLOYEE COMPENSATION
Employee compensation is classified in the consolidated statement of earnings (loss) based on the related
function. The following table reconciles Clearwater's compensation expense items to the functions where
the amounts are presented on the consolidated statement of earnings (loss):
Year ended December 31
Salaries and benefits
Share-based compensation
Cost of goods sold
Administrative and selling costs
2017
151,410 $
409
151,819 $
2016
155,533
2,902
158,435
114,570 $
37,249
151,819 $
119,669
38,766
158,435
$
$
$
$
19. EARNINGS (LOSS) PER SHARE
The earnings and weighted average number of shares used in the calculation of basic and diluted earnings
(loss) per share is as follows (in thousands except number of shares and per share data):
Earnings (loss) attributable to shareholders - basic
Adjustment for stock-based compensation plan shares
Earnings (loss) attributable to shareholders - diluted
Weighted average number of shares outstanding - basic
Adjustment for stock-based compensation plan shares
Weighted average number of shares outstanding - diluted
Earnings per share
Basic
Diluted
2017
15,759 $
-
15,759 $
2016
43,928
203
44,131
63,934,698
60,344
63,995,042
62,050,325
143,218
62,193,543
0.25 $
0.25 $
0.71
0.71
$
$
$
$
Diluted earnings (loss) for the period is calculated based on earnings attributable to the shareholders of
Clearwater after the adjustment for any potentially dilutive cash-settled share-based payments. There was
no revaluation adjustment related to cash-settled share-based payments for the year ended December 31,
2017. The revaluation adjustment on cash-settled share-based payments for the year ended December 31,
2016 resulted in a dilutive impact on earnings (loss) per share.
Diluted weighted average number of shares outstanding are adjusted for the dilutive effect of share-based
compensation.
106 | P a g e
20. SHARE-BASED COMPENSATION
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 30, 2017.
Clearwater has the following share-based compensation plans:
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 or equity-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 PSU plan. Under the plan, holders of PSUs 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 as determined by the company. Prior grants will continue to be cash-
settled, and all future grants under the PSU plan will be settled by the issuance of shares.
The number of share-based awards outstanding and vested as of December 31, 2017 and 2016 were as
follows:
As at December 31, 2017 (in thousands)
SARs
PSU - Tranche 4
PSU - Tranche 5
PSU - Tranche 6
DSU
Total
$
Grant
price
0.80
1.00
N/A
N/A
N/A
N/A
Number
outstanding
83
67
61
85
110
465
871
Number
vested
83
67
61
-
-
465
676
Grant
Date
May 2010
May 2010
April 2015
April 2016
May 2017
June 2012 - December 2017
107 | P a g e
As at December 31, 2016 (in thousands)
SARS
PSU - Tranche 3
PSU - Tranche 4
PSU - Tranche 5
DSU
Total
$
Grant
price
0.80
1.00
N/A
N/A
N/A
N/A
Number
outstanding
83
67
141
79
124
390
884
Number
vested
83
67
141
-
-
313
604
Grant
Date
May 2010
May 2010
March 2014
April 2015
April 2016
June 2012 - December 2016
The following reconciles the share based awards outstanding for the year ended December 31, 2017:
(In thousands of share units)
Outstanding at January 1, 2017
Granted
Granted from dividends
Exercised
Outstanding at December 31, 2017
PSU -
Tranche 3
141
-
-
(141)
-
PSU -
Tranche 4
79
-
2
(20)
61
PSU -
Tranche 5
124
-
2
(41)
85
PSU -
Tranche 6 DSU
-
157
2
(49)
110
390
69
6
-
465
Vested at January 1, 2017
Vested
Exercised
Vested at December 31, 2017
141
-
(141)
-
-
81
(20)
61
-
41
(41)
-
-
49
(49)
-
313
152
-
465
SARS
Total
150
-
-
-
150
150
-
-
150
884
226
12
(251)
871
604
323
(251)
676
The following reconciles the number of share based awards outstanding for the year ended December 31,
2016:
(In thousands of share units)
Outstanding at January 1, 2016
Granted
Granted from dividends
Forfeited
Exercised
Outstanding at December 31, 2016
PSU -
Tranche 2
204
-
-
-
(204)
-
PSU -
Tranche 3
190
-
2
(51)
-
141
PSU -
Tranche 4
105
-
1
(27)
-
79
PSU -
Tranche 5 DSU
-
127
1
(4)
-
124
448
44
6
-
(108)
390
Vested at January 1 2016
Vested
Exercised
Vested at December 31, 2016
204
-
(204)
-
-
141
-
141
-
-
-
-
-
-
-
-
269
152
(108)
313
SARS
Total
150
-
-
-
-
150
150
-
-
150
1,097
171
10
(82)
(312)
884
623
293
(312)
604
108 | P a g e
The following units were settled in the year ended December 31, 2017:
As at December 31, 2017
PSU - Tranche 3
PSU - Tranche 4
PSU - Tranche 5
PSU - Tranche 6
Total
Grant
price
N/A
N/A
N/A
N/A
Number exercised
In thousands
141
20
41
49
251
Exercise
date
April 2017
November 2017
November 2017
November 2017
Share price at
exercise date
$10.37
$7.14
$7.14
$7.14
These awards were cash settled during 2017 FOR $1.7 million, after taking into consideration the
performance factor as described in Note 3 (m).
The following units were settled in the year ended December 31, 2016:
As at December 31,2016
PSU - Tranche 2
Total
Grant
price
N/A
Number exercised
In thousands
204
204
Exercise
date
April 2016
Share price at exercise
date
$12.79
These awards were cash settled during 2016 for $4.2 million, after taking into consideration the
performance factor as described in Note 3 (m).
The PSU Tranche 4 awards are fully vested as of December 31, 2017 and the total expense recorded over
the vesting period was $1.3 million recognized within contributed surplus. These awards will be equity
settled in the first quarter of 2018.
PSU Tranches 5 and 6 are expected to be equity settled.
The retention DSUs awards have fully vested as of December 31, 2017.
Dividend equivalents
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 PSUs and DSUs 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.
Retention DSU awards have fully vested. Awards may be redeemed up to one year following retirement
and therefore recorded at the share price at the end of the reporting period. Awards for which redemption
notices have been received but are still outstanding as of December 31, 2017, are recorded at the share price
at the time of the election.
109 | P a g e
Measurement inputs for the remaining plans include the fair value of 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:
Weighted average fair value per award
Weighted average risk-free interest rate
Weighted average expected volatility
Expected life of awards (years)
Weighted average fair value per award
Weighted average risk-free interest rate
Weighted average expected volatility
Expected life of awards (years)
PSU
PSU
$
Tranche 5
17.78 $
1.01% - 2.28%
Tranche 6
11.85 $
1.11% - 2.31%
18.66% - 43.43%
1
16.60% - 33.83%
2
PSU
Tranche 4
PSU
Tranche 5
$
18.19 $
17.78 $
0.10% - 3.46%
20.38% - 74.54%
1
1.01% - 2.28%
18.66% - 43.43%
2
2017
DSU
9.05
N/A
N/A
1
2016
DSU
11.65
0.479% - 0.64%
33.78% - 38.12%
1 - 3.25
Share-based compensation expense included in the Consolidated Statements of Earnings (Loss) for the year
ended December 31, 2017 is $0.4 million (December 31, 2016 - $2.9 million).
The liability for share-based compensation is $4.7 million at December 31, 2017 (December 31, 2016 -
$7.6 million). The vested portion of the liability for share based compensation is $4.7 million at December
31, 2017 (December 31, 2016 - $6.9 million).
21. SEGMENT INFORMATION
Clearwater has one reportable segment which includes its integrated operations for harvesting, processing
and distribution of seafood products.
(a) Sales by Species
Year ended December 31
Scallops
Clams
Lobster
Coldwater shrimp
Crab
Langoustine
Whelk
Ground fish and other shellfish
2017
200,286
109,170
101,883
77,964
45,468
43,099
24,267
18,894
621,031
$
$
2016
188,421
91,918
108,402
93,250
38,243
47,572
22,204
21,541
611,551
$
$
110 | P a g e
(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
Property, plant and equipment, licenses, fishing rights and goodwill
Canada
Argentina
Scotland
Other
$
$
2017
108,650
28,606
14,921
91,463
243,640
102,315
79,631
34,170
216,116
86,813
73,888
160,701
574
621,031
$
$
2016
102,806
32,529
17,632
93,942
246,909
96,518
76,230
34,141
206,889
85,385
72,275
157,660
93
611,551
December 31
2017
December 31
2016
$
$
327,432 $
18,984
169,362
304
516,082 $
298,517
24,055
158,077
260
480,909
111 | P a g e
22. RELATED PARTY TRANSACTIONS
(a) Subsidiaries, partnerships, and joint venture
Clearwater’s consolidated financial statements include the accounts of the Corporation and its material
subsidiaries and a joint venture, as follows:
Entity
Adams and Knickle Limited
Clearwater Fine Foods (Europe) Limited
Clearwater Fine Foods (USA) Incorporated
Clearwater Ocean Prawns Venture
Clearwater Seafoods Holdings Incorporated
Clearwater Seafoods Limited Partnership
Glaciar Pesquera S.A.
Macduff Shellfish Group Limited
St. Anthony Seafoods Limited Partnership
(b) Key management personnel
Ownership %
50%
100%
100%
53.66%
100%
100%
85%
100%
75%
Accounts
Equity method
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Clearwater has defined key management personnel as senior executive officers, as well as the Board of
Directors, as they have the collective authority and responsibility for planning, directing and controlling the
activities of the Corporation. The following table outlines the total compensation expense for key
management personnel for the years ended December 31, 2017 and 2016.
Year ended December 31
Wages and salaries
Share-based compensation
Severance
Other benefits
$
$
2017
3,623
(108)
1,624
364
5,503
$
$
2016
3,998
2,702
292
1,150
8,142
c) Transactions with other related parties
Clearwater rents office space to and provides computer support network services to CFFI Ventures Inc.
(“CVI”), a related party. The net amount due from CVI in respect of these transactions was $0.04 million
(December 31, 2016 – net amount due from CVI of $0.04 million), is unsecured and due on demand.
In June 2016, Clearwater sold an idle vessel to the joint venture, the sales price of CDN $13.5 million
dollars was the book value at the time of the sale plus refit costs.
For the year ended December 31, 2017, Clearwater recorded net revenue of approximately $0.06 million
for providing computer support network services to and receiving goods and services from companies
related to CVI (December 31, 2016 - $0.1 million). The transactions are recorded at the exchange amount
and the balance due from these companies was $0.07 million as at December 31, 2017 (December 31, 2016
- $0.05 million due to).
In the second quarter of 2017, interest bearing loans of $1.3 million (December 31, 2016 - $1.4 million)
made to a non-controlling interest shareholder in a subsidiary were repaid and $0.1 million was forgiven.
112 | P a g e
23. CAPITAL MANAGEMENT
Clearwater’s objectives when managing capital are as follows:
• Ensure liquidity
• Minimize cost of capital
• Support business functions and corporate strategy
Clearwater’s capital structure includes a combination of equity and various types of debt facilities.
Clearwater’s goal is to have a cost effective capital structure that supports its growth plans, while
maintaining flexibility, reducing interest rate risk and reducing exchange risk by borrowing in currencies
other than the Canadian dollar when appropriate
Clearwater uses leverage, in particular USD senior unsecured notes, revolving and term debt to lower its
cost of capital.
The amount of debt available to Clearwater under its lending facilities is a function of Net Adjusted
EBITDA attributable to shareholders, as defined in the credit agreement. Net Adjusted EBITDA attributable
to shareholders 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, utilizing
surplus cash, extending the term of existing debt facilities and, selling surplus assets to repay debt.
Clearwater’s capital structure was as follows as at December 31, 2017 and December 31, 2016:
113 | P a g e
In 000's of Canadian dollars
As at
Equity
Share capital
Contributed surplus
Deficit
Accumulated other comprehensive income
Non-controlling interest
Long-term debt
Senior debt, non-amortizing
USD senior unsecured notes, due 20251
Revolving debt, due in 20222
Revolving debt, due in 20183
Term loan, due in 2018
Term loan, due in 2091
Senior debt, amortizing
Term Loan B, due 20224
Term Loan A, due 20185
Term Loan B, due 20196
Other loans
Deferred Obligation7
Earnout liability7
Total long term debt
Total capital
$
December 31
2017
December 31
2016
$
210,860
3,021
(8,722)
(39,730)
165,429
17,109
182,538
306,684
87,682
-
12,215
3,500
410,081
34,466
-
-
167
34,633
23,181
5,278
473,173
210,860
1,419
(4,793)
(38,931)
168,555
19,930
188,485
-
-
23,400
13,459
3,500
40,359
-
50,218
307,210
222
357,650
29,298
9,107
436,414
$
655,711
$
624,899
1 USD senior unsecured notes is net of unamortized deferred financing charges of $7.4 million with a US dollar coupon rate of 6.875%. This
resulted in an effective rate of approximately 7.194%.
2 The revolving loan availability, subject to financial covenants, allows Clearwater to borrow a maximum of approximately CDN $56 million and
is net of unamortized deferred financing charges of $2.3 million. As of December 31, 2017, this resulted in an effective rate of approximately
3.97%. The availability on this loan is reduced by the amount outstanding on a USD $10 million non-amortizing term loan.
3 The revolving loan allowed Clearwater to borrow a maximum of CDN $100 million and bears interest at the banker's acceptance rate plus
3.25%. The availability on this loan was reduced by the amount outstanding on a USD $10 million non-amortizing term loan.
4 Term Loan B is net of unamortized deferred financing charges of $0.3 million. As of December 31, 2017, this resulted in an effective rate of
approximately 3.74%.
5 Term Loan A is net of unamortized deferred financing charges at December 31, 2016 of $0.4 million and bears interest at the applicable
banker's acceptance rate plus 3.25%.
6 Term Loan B is a USD loan, shown net of unamortized deferred financing charges at December 31, 2016 of $1.1 million and bears interest at
US LIBOR plus 3.5% with a LIBOR floor of 1.25%.
7 The Deferred Obligation and Earnout Liability relate to the acquisition of Macduff in 2015.
The Company’s share capital is discussed in Note 14 and long-term debt, including the Deferred Obligation
and Earnout liability in Note 13.
114 | P a g e
24. CONTINGENT LIABILITIES
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.
25. ADDITIONAL CASH FLOW INFORMATION
Changes in non-cash operating working capital
(excludes change in accrued interest)
(Increase) decrease in inventory
Increase (decrease) in accounts payable
(Increase) in accounts receivable
Decrease (increase) in prepaids
Increase (decrease) in income tax payable
Changes in liabilities arising from financing activities
Current and long-term debt - beginning of period
Scheduled repayments of long-term debt
Repayment of long-term credit facilities
Repayment of revolving credit facility
Net proceeds from long-term debt, net of financing costs
Net proceeds from long-term credit facilities, net of financing costs
Net proceeds from revolving credit facility, net of financing costs
Realized foreign exchange on settlement of long-term debt
Non-cash changes in long-term debt:
Accretion of Term Loan B and Deferred Obligation
Fair market value adjustment on embedded derivative
Fair market value adjustment on earnout liability
Amortization of deferred financing costs
Write-off unamortized deferred financing costs
Foreign exchange gain on long-term debt
Current and long-term debt - end of period
26. COMPARATIVE INFORMATION
2017
2016
$
$
$
$
12,615
9,369
(22,043)
188
2,928
3,057
$
$
2017
436,414 $
(11,953)
(361,519)
(52,400)
330,015
34,901
116,082
4,172
(1,352)
(694)
(2,736)
7,384
1,477
(26,616)
473,173
$
(22,030)
(7,785)
3,775
4,953
4,540
(16,547)
2016
480,769
(33,903)
-
-
-
-
7,000
-
2,877
274
(1,105)
722
-
(20,221)
436,414
These consolidated financial statements contain certain reclassifications of prior year amounts to be
consistent with the current period presentation. Significant reclassifications are discussed below.
In the Consolidation Statements of Financial Position, prior year derivative financial instruments have been
reclassified as current and non-current assets and liabilities. This is a change in presentation only and has
no impact on earnings (loss) for the year.
In the Consolidated Statement of Cash Flows, cash interest paid and cash income tax paid are now disclosed
separately as supplemental information. This change in presentation has no impact on cash from operating
activities.
115 | P a g e
27. SUBSEQUENT EVENTS
Department of Fisheries decision on Arctic surf clam
On February 21, 2018, the Department of Fisheries and Oceans Canada announced that Five Nations Clam
Company is the recipient of a licence to harvest 25% of the total allowable catch ("TAC") for Arctic surf
clams to be effective January 1, 2018.
Clearwater previously held three licences covering 100% of the TAC for Arctic surf clams. While the loss
of direct access to 25% of the TAC for this species is expected to impact Clearwater’s operations and
financial performance, the extent of that impact is not ascertainable at this time. The Company will continue
to explore strategies to mitigate any negative impacts of this decision.
Dividend Reinvestment Plan (“DRIP”)
On February 15, 2018, Clearwater announced that it approved a DRIP effective February 23, 2018. At the
election of Clearwater, shares may be either newly issued from treasury or purchased on the open market.
Clearwater may from time to time, in its sole discretion, offer a discount of up to 5% of the average market
price for shares purchased from treasury. Clearwater will provide a discount of 3% from the average market
price for shares purchased under the plan until further notice. Clearwater has applied to the TSX to
conditionally reserve for issuance an additional 3,000,000 shares to accommodate the purchase of shares.
The DRIP program will be effective for the fourth quarter dividend payment.
116 | P a g e
Quarterly and share information
Clearwater Seafoods Incorporated ($000's except per share amounts)
Sales
Earnings attributable to:
Non-controlling interests
Shareholders of Clearwater
Per share data
Basic net earnings (loss)
Diluted net earnings (loss)
Adjusted earnings (loss)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2017
2016
174,765
163,597
154,302
128,367
165,690
189,457
140,180
116,225
4,405
(10,176)
(5,771)
4,526
15,054
19,580
2,503
9,489
11,992
(0.17)
(0.17)
(0.02)
0.24
0.24
0.13
0.15
0.15
0.00
1,046
2,172
3,218
0.03
0.03
0.03
3,800
8,610
12,410
7,012
10,848
17,860
3,551
9,963
13,514
1,305
14,507
15,812
0.13
0.13
0.01
0.17
0.17
0.31
0.16
0.16
0.02
0.24
0.24
0.04
Trading information, Clearwater Seafoods Incorporated, symbol CLR
Trading price range of shares (board lots)
High
Low
Close
Trading volumes (000's)
Total
Average daily
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
9.43
6.90
7.33
6,759
109
12.03
8.93
8.99
4,738
80
11.95
10.15
11.42
5,554
88
11.80
9.85
10.48
7,837
124
14.55
10.69
11.65
5,688
92
14.85
13.50
14.33
2,747
44
14.85
12.05
13.98
3,995
63
13.63
9.95
12.68
3,051
49
Shares outstanding at end of quarter
63,934,698 63,934,698 63,934,698 63,934,698
63,934,698 63,934,698 59,958,998 59,958,998
117 | P a g e
Selected Annual Information
Sales
Costs of goods sold
Gross margin
Operating expenses
Administrative and selling
Restructuring
Net finance costs
Foreign exchange (gains) losses on long-
term debt and working capital
(Gains) losses on forward contracts
Other income
Research and development
Gain on change of control of joint venture
2017
(Audited)
2016
(Audited)
2015
(Audited)
2014
(Audited)
2013
(Audited)
$ 621,031 $ 611,551 $ 504,945 $ 444,742 $ 388,659
301,291
372,757
466,930
341,908
510,963
110,068
144,621
132,188
102,834
87,368
55,551
6,856
35,617
57,506
986
26,948
48,213
3,150
444
46,369
1,883
(5,031)
38,931
74
(3,240)
(14,262)
(7,295)
(4,382)
(7,576)
2,368
-
(7,279)
(5,209)
2,922
-
1,981
-
-
148,472
1,991
-
-
87,088
1,659
-
-
80,171
Earnings before income taxes
35,897
76,042
(70,072)
(29,466)
(30,227)
Income taxes expense (recovery)
7,658
59,596
(20,671)
9,797
15,298
Earnings before non-controlling interest
28,238
59,596
(20,671)
9,797
15,298
Non-controlling interest
12,480
15,668
16,937
12,702
8,965
Earnings attributable to shareholders
$
15,759 $
43,928 $
(37,608) $
(2,905) $
6,333
118 | P a g e
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 SEAFODS INCORPORATED
Colin E. MacDonald, Chairman of the Board
Ian Smith
Chief Executive Officer
John C. Risley
President, CFFI Ventures Inc.
Harold Giles
Independent Consultant
Larry Hood, Chair of Audit Committee
Former Audit Partner, KPMG
Jane Craighead, Chair of HRDCC
Senior Vice President, Scotiabank
Mickey MacDonald
President, Micco Companies
Teresa Fortney
Vice-President, Finance and Chief Financial Officer
Christine Penney
Vice-President, Sustainability & Public Affairs
Dieter Gautschi
Vice-President, Human Resources
Roy Cunningham
Vice-President, Land Based Operations
Tony Jabbour
Vice-President, Fleet Operations
Brendan Paddick
Chief Executive Officer, Columbus Capital Corporation
Darren Bowen
Vice President, Global Supply Chain
Stan Spavold, Chair of Finance Committee
Executive Vice President, CFFI Ventures Inc.
INVESTOR RELATIONS
Jim Dickson, Chair of Corporate Governance Committee
Former Counsel, Stewart McKelvey
Investor relations
(902) 443-0550
Investorinquiries@clearwater.ca
AUDITORS
KPMG LLP
Halifax, Nova Scotia
SHARES LISTED
Toronto Stock Exchange
SHARE Symbol: CLR
TRANSFER AGENT
Computershare Investor Services Inc.
119 | P a g e
Clearwater Seafoods Incorporated
757 Bedford Highway, Bedford, Nova Scotia, Canada, B4A 3Z7
Tel. (902) 443-0550 Fax. (902) 443-7797 www.clearwater.ca
120 | P a g e