2018 ANNUAL REPORT
Letter from the Chairman of Clearwater Seafoods Incorporated
Clearwater’s success is and has always been due to our single greatest resource – our people. It is our
people’s character, competence, teamwork and resilience in the face of adversity that has allowed us to
turn challenges into opportunities and to grow our company into a proud leader in the global seafood
industry.
I have always been a proud member of the Clearwater team and never more so than in 2018 with our
peoples’ ability to leverage Clearwater’s broad species portfolio in response to a challenging operating
environment and their dedication throughout a company-wide reorganization. Our people rose to the
challenge and once more will allow the company to grow and prosper.
In our four decades, Clearwater has introduced numerous innovative processing and sustainable
harvesting practices and technologies in our ongoing efforts to add value to the seafood we harvest and
to be responsible stewards of the ocean. We were the first to employ Vessel Monitoring Systems and
Geographic Information Systems to derive insights from our harvest data enabling us to improve
efficiency of our operations while mitigating the footprint we leave on the natural environment.
We have been pioneers in opening and cultivating markets for Canadian seafood globally, now selling to
over 50 countries and we continue to create new markets for our products.
Our commitment to the responsible and sustainable management of our seafood resources has been
recognized globally by our customers generating greater demand for our products. We continue our
commitment to independent third-party certification through the world leading Marine Stewardship Council
certification.
Clearwater is an innovative and entrepreneurial company and I am sincerely proud of the ingenuity,
entrepreneurial spirit and unshakeable work ethic of our 2,000 employees globally.
Colin MacDonald
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Letter from the Chief Executive Officer of Clearwater Seafoods Incorporated
Clearwater 2018 - “Remarkable seafood, Responsible Choice”
We began the year in the shadow of challenging 2017 results, a recently completed company-wide
reorganization and the announcement of a new entrant in the Arctic surf clam fishery. Despite these
challenges, we accomplished what we set out to do – generate significantly more cash, reduce debt and
deleverage.
With the reversal of the Arctic surf clam decision in early August, we were able to convert our restored
harvest access into record sales revenue for clam at lower costs and better margins than in the prior year.
In frozen-at-sea shrimp, margins rebounded with improved harvesting conditions and stable pricing. While
scallop prices fell globally in response to expanding supply conditions (especially from the United States),
higher Canadian total allowable catch, price premiums for our frozen-at-sea quality and improved
productivity and cost savings helped deliver another solid year. Sales and margins for our United
Kingdom whelk, crab and langoustine products benefited from expanded distribution to Clearwater
customers in Asia and North America.
Investments in research and development and innovation yielded process and quality improvements as
well as significant cost savings across our fleet and land-based operations. Organizationally, our late
2017 restructuring and advancements in sales and operations planning, procurement, financial analysis
and reporting processes improved customer service, forecast accuracy and overall profitability.
In 2019, we expect balanced and profitable growth across multiple species and regions. Growth will be
led by Asia-Pacific where a growing middle class with rising incomes continues to propel seafood
consumption to new heights. We will retain full quota access to the Arctic surf clam fishery. This is good
news for our company, our customers and for our 2,000 employees from 276 communities in Atlantic
Canada and around the world.
Clearwater will also take the opportunity to advance our working relationships with our Indigenous
partners. We know we can be a leader for our industry and demonstrate that reconciliation can unite and
strengthen communities, build trust, secure existing jobs, create new ones and provide greater prosperity
for all.
We want to thank you, our valued shareholders, for your continued support. When you invest in
Clearwater, you are subscribing to one of the most innovative, global and sustainable seafood companies
in the world.
Ian D. Smith
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Table of Contents
Management discussion and analysis
Page#
Non-IFRS measures
Clearwater overview
Mission, value proposition and strategies
Capability to deliver results
Explanation of 2018 results
Capital structure and liquidity
Outlook
Risks and uncertainties
Critical accounting policies
Related party transactions
Summary of quarterly results
Non-IFRS measures, definitions and reconciliations
Clearwater Seafoods Incorporated - 2018 financial statements
Selected annual information
Quarterly and share information
Corporate information
5
6
7
9
12
23
31
32
35
36
37
38
44
102
101
103
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MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) was prepared effective March 7, 2019.
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, the 2018 fourth quarter news release and 2018 Annual Information Form (“AIF”).
This MD&A should be read in conjunction with the 2018 annual consolidated Financial Statements
prepared in accordance with International Financial Reporting Standards (“IFRS”) and the 2018 AIF,
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, including but not limited to, statements regarding future plans and objectives of Clearwater.
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.
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 due to various known and unknown risks,
uncertainties, and other factors outside of managements’ control. Examples may include, but are not
limited to, total allowable catch levels, resource supply, 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. 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 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 be comparable to similar measures
presented by other companies.
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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 adjusted EBITDA, adjusted earnings, free cash flows, leverage, and
return on assets.
Refer to non-IFRS measures reconciliations for further information.
CLEARWATER OVERVIEW
Clearwater is North America’s largest vertically integrated harvester, processor and distributor of premium
shellfish. Clearwater is a leading global provider of wild-caught 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, langoustine, whelk, crab and groundfish with approximately 93 million pounds sold in 2018.
Global demand for premium wild-caught seafood among aging boomers and a rising middle class in the
Asian-Pacific region is outpacing resource supply creating powerful industry fundamentals. 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 as
the largest holder of shellfish quotas and licences 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 licences.
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 capabilities 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 7% 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 networks, and global sales force combine to
make Clearwater the industry leader in shellfish.
Clearwater’s proven and experienced leadership team continues to build upon its world class
capabilities in quality control and food safety, operations, new product development and leadership.
Through its deep industry knowledge and talent, our team will continue to deliver on our operational and
financial growth opportunities.
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CLEARWATER’S MISSION, VALUE PROPOSITION AND STRATEGIES
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, clam, lobster,
coldwater shrimp, crab 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 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 certification for sustainability of species to ensure both the
traceability and long-term health of our wild resources.
Competitively advantaged global customer service with local market understanding and insight.
Scale in licence 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 our 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 licences as well as acquisitions, partnerships, joint ventures and
commercial agreements.
• Largest Holder of shellfish licences and quotas in Canada
Operating from ocean-to-plate, Clearwater holds shellfish licences and quotas in Canada,
including Arctic surf clam, offshore lobster, Canadian sea scallops and coldwater shrimp, as well
as 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.
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• Macduff Shellfish Group
The acquisition of Macduff in 2015 extended our access to premium, wild-caught, safe and
traceable shellfish, including King 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 United
Kingdom with tremendous opportunity for future growth.
2. Target profitable & growing markets, channels & customers – Clearwater targets growing markets,
consumers, channels and customers based on 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
Sales to Asia-Pacific reached 41 percent or $65.0 million in
the fourth quarter of 2018. Clearwater achieved this growth
through market expansion of traditional channels and
forging new strategic channels,
including ecommerce
platforms. Clearwater continues to focus on distribution
expansion for clam and all Macduff products.
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 is differentiated on the dimensions of taste, quality, safety,
sustainability, wellness, convenience and fair labour practices.
•
Increasing product variety and preventing imitation
Clearwater continues to innovate products and formats in response to
evolving consumer trends and foodservice customers, including
utilizing existing processing partnerships to expand our clam sushi
offerings and entering the live crab business.
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
Clearwater continues to leverage our state-of-the-art technology and smarter systems to drive
margin improvements through cost management. Our fleet and land-based operations
continuously improve processes across our diversified species to respond to fluctuations in
capacity. In the fourth quarter of 2017, Clearwater completed a company-wide restructuring
resulting in year-over-year savings.
• Leveraging Intellectual Property (“IP”) and Technology
Clearwater continues to leverage and further evolve its proprietary technology to reduce costs,
reduce our 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 tasting and
quality products to customers by enabling fresh frozen-at-sea products that are frozen
within an hour of the catch.
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 and
improved productivity while reducing the Company’s carbon footprint.
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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 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 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.
Clearwater undertakes key research initiatives to support long-term sustainability of our fisheries
including innovative ocean bottom mapping research and analysis which Clearwater conducts in
partnership with the Nova Scotia Community College. Our ocean bottom data is exclusive
intellectual property that contributes directly to our increasing harvesting efficiency while reducing
impact on the ocean habitat and improving sustainability.
On an annual basis, Clearwater, in collaboration with other industry participants, continues to
undertake video monitoring research in the Canadian sea scallop fishery adding to our
understanding of resource dynamics and informing management for the development of 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.
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 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. See Risk and Uncertainties –
Resource Supply Risk and Political Risk for further information regarding Clearwater TAC.
The primary shellfish stocks that Clearwater harvests are Canadian sea, Argentine and UK scallops,
clam, lobsters and coldwater shrimp, which are harvested in offshore fisheries that have a limited number
of participants. Clearwater harvests scallops and clams with its own vessels. Clearwater obtains its
lobster and coldwater shrimp through harvesting with its own vessels and through purchases from
independent fishermen. Clearwater obtains 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. 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 announced a small reduction in
TAC in 2018. Argentina was the first scallop fishery in the world to have earned the rigorous
MSC independent certification.
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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 Arctic surf clam resource is stable. Clearwater has quota allocations on both Banquereau
Bank and the Grand Banks in Canada.
The offshore Canadian lobster resource is healthy with a consistent offshore TAC. Clearwater
harvests all its lobster quota each year. During 2018, Clearwater purchased approximately 80
percent of its lobster from inshore lobster fishermen. The quality of lobster has seen a decline in
this fishery resulting in higher raw material costs.
Coldwater shrimp - The Northern shrimp TAC has declined from historic highs over the last five
years and is expected to continue to decline as the environment undergoes a regime shift back
towards one dominated by groundfish (cod, perch and turbot) rather than shellfish (crab and
shrimp). Clearwater holds access to quotas directly through licences and through long-term
harvesting agreements. Clearwater procures shrimp from the inshore fresh fishery for its cooked
and peeled business and supplements this with frozen raw material from offshore vessels.
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 12 scallop trawlers and one crab vessel in the UK.
Clearwater classifies capital expenditures as either return on investment (“ROI”) or maintenance capital.
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. Repairs and maintenance costs are expensed as incurred.
Clearwater invested 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
$
$
$
$
$
$
$
2018
13,659
5,465
19,124
518
18,606
19,124
18,606
18,281
36,887
44,869
82.2%
$
$
$
$
$
$
$
2017
59,655
25,776
85,431
63,846
21,586
85,432
21,586
21,971
43,557
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%
$
$
$
$
$
$
$
Total
117,657
43,230
160,887
96,277
64,611
160,888
64,611
64,387
128,998
128,931
100.1%
In 2018, Clearwater invested $19.1 million in capital expenditures following the completion of its fleet
modernization program in 2017. The majority of capital expenditures related to vessel refits.
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.
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In 2016, Clearwater invested $56.3 million in capital expenditures of which $25.9 million of investment
capital related to the Anne Risley 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 addition to the annual amounts capitalized above, over the past three years Clearwater has incurred an
average of $21.5 million per annum on repairs and maintenance of its fleet and processing plants. This
reflects Clearwater’s commitment to maximizing asset performance, enabling the harvest of allowable
catch and efficient processing of harvested and procured species.
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:
• Four are used to harvest sea and Argentine scallops with the sea scallop vessels being on
average 21 years old and the Argentine scallop vessels being on average 23 years old.
• Two are used to harvest shrimp and are on average 25 years old. These vessels have the
capacity to harvest our shrimp and turbot quota. 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.
• Three of Clearwater’s vessels are used to harvest clams and are on average 13 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.
Clearwater’s fleet also includes 12 mid-shore scallop harvesting vessels and one crab vessel operating
within the UK and an offshore lobster vessel within Canada.
In 2019, Clearwater expects to invest between $25-$30 million in capital projects relating to vessel refits
and land-based supply chain infrastructure.
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EXPLANATION OF FINANCIAL RESULTS
Clearwater uses Key Performance Indicators (“KPIs”) and Financial Measures to assess progress against
our six core strategies.
Key Performance Indicators and Financial Measures
In 000's of Canadian dollars
As at December 31
Profitability
Sales
Sales growth
Gross margin
Gross margin (as a % of sales)
Adjusted EBITDA1,2
Adjusted EBITDA1,2 (as a % of sales)
Adjusted EBITDA attributable to shareholders1,2
Adjusted EBITDA attributable to shareholders1,2 (as a % of
sales)
Earnings (loss) attributable to shareholders
Basic earnings (loss) per share
Diluted earnings (loss) per share
Dividends paid on common shares
Adjusted earnings attributable to shareholders1
Adjusted earnings attributable to shareholders1 per share
Cash flows and leverage
Cash from (used in) operating activities
Cash from (used in) financing activities
Cash from (used in) investing activities
Free cash flows1
Leverage1,3
$
$
$
$
$
2018
2017
2016
592,246
(4.6%)
106,837
18.0%
$
$
621,031
1.5%
110,068
17.7%
$
$
611,551
21.1%
144,621
23.6%
104,391
108,596
120,937
17.6%
17.5%
19.8%
88,175
$
89,156
$
98,446
14.9%
14.4%
16.1%
$
$
(16,204)
(0.25)
(0.25)
0.20
15,831
0.25
76,487
(60,617)
(16,701)
45,206
4.7
$
$
15,759
0.25
0.25
0.20
8,690
0.14
58,141
22,665
(85,516)
(8,428)
5.0
43,928
0.71
0.71
0.20
23,766
0.38
63,040
(12,666)
(55,873)
1,502
4.2
Returns
Return on assets1,4
Total assets
1 Refer to discussion on non-IFRS measures, definitions and reconciliations.
$
7.4%
727,423
$
8.1%
770,880
$
11.0%
729,735
2 Adjusted earnings before interest, tax, depreciation and amortization.
3 Leverage is calculated as adjusted EBITDA attributable to shareholders to net debt and differs from the calculation of leverage for covenant
purposes.
4 Return on assets is calculated as adjusted earnings before interest and taxes to total average quarterly assets.
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2018 Key Highlights
The following are key highlights and developments based on Clearwater’s KPIs and Financial Measures
for 2018.
Profitability
In 2018, gross margin and adjusted EBITDA1 increased as a percentage of sales while sales declined
slightly as compared to the prior year.
•
Improvements in gross margin and adjusted EBITDA as a percentage of sales reflects cost
efficiencies, higher sales mix of stronger margin species and favourable net foreign exchange.
• Cost efficiencies include the organizational restructuring completed in the fourth quarter of 2017
and benefits from our operational continuous cost improvement initiatives.
• Sales to Asia reached 40% as compared to 35% in the prior year following the expansion of
distribution channels.
• Average foreign exchange rates positively impacted sales by $11.7 million versus 2017.
• Gross margin was also impacted by strong sales mix for clam and strong prices for FAS shrimp
offset by lower available supply and competitive conditions for scallops. Certain procured species
improved despite lower volumes as procurement activities targeted higher margin transactions.
• Earnings attributable to shareholders decreased $32.0 million primarily due to unrealized foreign
exchange losses on debt.
• Adjusted earnings attributable to shareholders increased $7.1 million compared to 2017 due to
realized foreign exchange on working capital partially offset by higher depreciation expense in
2018.
Cash flows and leverage
Record cash from operations of $76.5 million was generated in the year, an increase of $18.3 million
compared to the prior year. Free cash flow increased $53.6 million over the prior year.
• Leverage improved to 4.7x from reduced debt balances resulting from strong cash generated
from operations and a reduction in capital expenditures following the completion of the fleet
renewal program in 2017. This was partially offset by higher USD foreign exchange rates on
USD denominated debt balances, net of forward foreign exchange contracts on 80% of the
notional value of the USD Notes.
• Cash from operations was positively impacted by favorable foreign exchange on working capital
•
and a reduction in cash taxes.
Improvements in working capital of $6.6 million also contributed to cash generation in the year,
including a reduction of inventory balances by $8.0 million compared to 2017.
Returns
Return on assets1 declined from 8.1% to 7.4% in 2018 as a reduction in the average asset base was
offset by lower earnings before interest and taxes.
Developments
Effective 2018, the DFO announced the creation of a new surf clam licence representing 25 percent of
TAC and awarded the licence to a new entrant in the first quarter of 2018 subject to certain conditions.
In the third quarter of 2018, the DFO announced their decision to cancel the process to issue the fourth
licence and confirmed that the remaining 25 percent of the clam quota would be issued to Clearwater for
2018 and 2019. See Risk and Uncertainties – Political Risk for further information.
1 – Refer to discussion on non-IFRS measures, definitions and reconciliations
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EXPLANATION OF CHANGES IN EARNINGS
The following consolidated statements of earnings (loss) reflects the results of Clearwater for the 13
weeks and years ended December 31, 2018 and 2017. For supplemental non-IFRS measures, refer to
discussion on non-IFRS measures in the non-IFRS measures, definitions and reconciliations section of
this MD&A. Detailed discussion on the components of consolidated earnings (loss) follows:
13 weeks ended
Year ended
In 000's of Canadian dollars
December 31 December 31
2017
2018
Change
December 31 December 31
2017
2018
Change
Sales
Cost of goods sold
$
159,807 $
133,340
174,766 $ (14,959) $
145,315
(11,975)
592,246 $
485,409
621,031 $ (28,785)
(25,554)
510,963
Gross margin
Gross margin as a % of sales
26,467
16.6%
29,451
16.9%
(2,984)
(0.3%)
106,837
18.0%
110,068
17.7%
(3,231)
0.3%
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 (recovery)
Earnings (loss)
Earnings (loss) attributable to:
Non-controlling interest
Shareholders of Clearwater
Adjusted EBITDA attributed to:
Non-controlling interest
Shareholders of Clearwater
Adjusted EBITDA1
$
$
$
$
$
12,675
-
7,847
14,061
6,677
8,330
1,386
6,677
483
53,509
482
31,966
55,551
6,856
35,280
2,042
6,374
3,314
15,008
2,275
(12,733)
15,798
(4,045)
(19,843)
1,681
102
331
37,644
1,231
(1,540)
507
31,541
(450)
(1,642)
176
(6,103)
9,061
(3,737)
1,724
108,803
(14,263)
(7,576)
2,368
74,171
(23,324)
(3,839)
644
(34,632)
(11,177)
(621)
(10,556) $
(2,090)
4,461
(6,551) $
(9,087)
5,082
(4,005) $
(1,966)
1,740
(3,706) $
35,897
7,658
(37,863)
5,918
28,239 $ (31,945)
1,784 $
(12,340)
(10,556) $
4,405 $
(10,956)
(6,551) $
(2,621) $
(1,384)
(4,005) $
12,498 $
(16,204)
(3,706) $
12,480 $
18
(31,963)
15,759
28,239 $ (31,945)
2,368 $
21,722
24,090 $
5,538 $
22,952
28,490 $
(3,170) $
(1,230)
(4,400) $
16,216 $
88,175
104,391 $
19,440 $
89,156
108,596 $
(3,224)
(981)
(4,205)
1 – Refer to discussion on non-IFRS measures, definitions and reconciliations
14 | P a g e
Sales by species
In 000's of Canadian
dollars
Scallops
Clams
Lobster
Coldwater shrimp
Crab
Langoustine
Whelk
Ground fish and other
shellfish
Sales by region
13 weeks ended
Year ended
December 31 December 31
$
2018
43,410 $
37,349
22,208
14,039
23,665
14,061
1,737
2017
53,857 $
34,955
24,720
29,963
13,377
14,330
2,197
Change
(10,447)
2,394
(2,512)
(15,924)
10,288
(269)
(460)
$
December 31 December 31
2017
200,286 $
109,170
101,883
77,964
45,468
43,099
24,267
2018
171,373 $
120,235
88,387
70,951
51,656
42,026
24,291
Change
(28,913)
11,065
(13,496)
(7,013)
6,188
(1,073)
24
3,338
159,807 $
1,367
174,766 $
1,971
(14,959)
$
23,327
592,246 $
18,894
621,031 $
4,433
(28,785)
$
13 weeks ended
Year ended
December 31 December 31
In 000's of Canadian
dollars
Europe
$
2018
63,747 $
2017
74,696 $
Change
(10,949)
December 31 December 31
2017
243,640 $
2018
205,653 $
$
China
Japan
Other Asia
Asia
Canada
United States
North America
Other
44,223
16,265
4,494
64,982
11,825
19,251
31,076
2
$
159,807 $
33,840
22,775
4,223
60,838
15,712
23,395
39,107
10,383
(6,510)
271
4,144
(3,887)
(4,144)
(8,031)
125
174,766 $
(123)
(14,959)
130,402
73,325
33,014
236,741
63,892
85,871
149,763
89
$
592,246 $
102,315
79,631
34,170
216,116
73,888
86,813
160,701
574
621,031 $
(485)
(28,785)
Clearwater reported sales for the fourth quarter of 2018 of $159.8 million versus 2017 comparative results
of $174.8 million. Annual sales were $592.2 million versus 2017 comparative of $621.0 million.
For the year and fourth quarter of 2018, strong sales mix for clams, increased demand for crab and
improved harvesting conditions and catch rates for FAS shrimp were offset by lower available supply and
competitive conditions for scallops and lower sales of procured species that typically have lower margins.
Fourth quarter sales were also lower due to the timing of FAS shrimp landings that were partially offset by
higher turbot sales.
Clam sales reached a record high following targeted efforts to increase customer and channel penetration
and geographic distribution, including expansion in Asia-Pacific, further reducing inventory from peak
levels.
In other species, purchase and production plans were adjusted to achieve a more profitable product mix.
This reduced sales while improving investments in working capital and maintaining overall adjusted
profitability.
1 – Refer to discussion on non-IFRS measures, definitions and reconciliations
15 | P a g e
Change
(37,987)
28,087
(6,306)
(1,156)
20,625
(9,996)
(942)
(10,938)
Average foreign exchange rates realized on sales for the fourth quarter and full year of 2018 had a net
positive impact to sales of $3.8 million and $11.7 million, respectively, as compared to the same period of
the prior year. The impact of foreign exchange is partially offset through Clearwater’s foreign exchange
risk management program with net realized gains and losses on contract derivatives recognized below
gross margin, within adjusted EBITDA.
Scallops
• Competitive conditions associated mainly with US scallop landings and lower available supply
resulted in lower sales volumes and prices for scallops in 2018.
• Sales were impacted by lower sales prices and volumes in the fourth quarter and a shift in
regional sales.
Clams
• Sales for the fourth quarter and full year 2018 increased following targeted efforts to increase
volumes through customer and channel penetration and geographic distribution, including
expansion in China.
• Sales mix was favourable in 2018 compared to the prior year.
• Sales volumes have been supported by favourable harvesting conditions and available supply in
inventory.
Lobster
• Lobster sales volumes declined in the fourth quarter and year to date 2018 due to difficult harvest
conditions in the first quarter of 2018 that led to reduced supply availability and high raw material
costs. This resulted in higher selling prices with lower volumes. This reduced sales while
improving investments in working capital and maintaining profitability.
• Strong pricing in home currencies partially offset lower sales volumes.
Coldwater shrimp
• Coldwater shrimp sales decreased in the fourth quarter due to timing of landings of FAS shrimp.
• Sales in 2018 decreased due to the lack of inshore shrimp supply offset by improved harvesting
conditions for FAS shrimp as compared to the same period in 2017.
• Selling prices in home currencies remain strong with improved demand in Asia and Europe.
Crab
• Sales increased in the fourth quarter as procurement was expanded in the UK, increasing the
available supply.
• The crab harvest season in Canada was delayed in 2018 due to poor weather conditions
resulting in lower availability of supply. Overall Canadian harvest volumes were down resulting in
lower sales volumes and higher prices.
Europe
Clearwater’s largest scallop market and a key market for coldwater shrimp, langoustines, crab and lobster
products.
Sales for the fourth quarter and full year 2018 declined $10.9 million and $38.0 million to $63.7 million
and $205.7 million, respectively, as compared to the same periods of 2017.
The decline in sales for both periods was a result of lower available supply of scallops and a shift to
markets where demand was stronger. Overall, scallop prices were lower due to increased market supply.
Langoustine volumes were lower due to lack of available supply. The decline in sales was partially offset
by favourable foreign exchange rates.
The Euro, GBP and DKK continued to strengthen in the fourth quarter and full year of 2018 as compared
to the prior year, resulting in a net positive impact of $0.4 million and $7.1 million respectively.
1 – Refer to discussion on risks and uncertainties
16 | P a g e
China
Key market for clams, coldwater shrimp, lobster and turbot.
Sales for the fourth quarter and full year 2018 increased $10.4 million and $28.1 million to $44.2 million
and $130.4 million, respectively, compared to the same period of 2017 as a result of higher clam sales
with favourable product mix weighted towards higher sales prices, increased crab sales including the
launch of live crab and higher FAS shrimp sales that were supported by strong sales prices.
Sales in China are almost exclusively transacted in US dollars. The fourth quarter and full year sales were
positivity impacted by average foreign exchange rates as compared to the same periods of the prior year
by $1.7 million and $1.3 million respectively.
Japan
Primary species are clams, lobster, coldwater shrimp and turbot.
Sales for the fourth quarter and full year 2018 decreased $6.5 million and $6.3 million to $16.3 million and
$73.3 million, respectively, as compared to the same period in 2017. The decrease was primarily the
result of unfavorable sales mix for FAS shrimp and lower available supply of lobster. Decrease in sales for
full year 2018 was offset increased turbot volumes.
Sales in Japan are typically transacted in Yen. The Yen continued to strengthen in the fourth quarter and
year-to-date as compared to the prior year resulting in a net positive impact of $0.6 million and $1.2
million respectively.
Other Asia
Region includes Korea, Taiwan, Singapore and other Asian countries. Whelk, clams, sea scallops and
lobster are key products for these markets.
Sales increased in the fourth quarter by $0.3 million primarily as a result of higher clam sales and
decreased in 2018 by $1.2 million as compared to prior period primarily as a result of lower available
supply of whelk.
United States
Primary species are scallops, lobster and clams.
Sales for the fourth quarter decreased $4.1 million to $19.3 million as compared to the same period in
2017 as a result of lower available supply and competitive price pressures for scallops. Sales for the year
decreased $0.9 million to $85.9 million as compared to the prior year following lower available supply of
lobster. Higher sales volumes for langoustines partially offset the decline in sales in both periods.
Sales for the fourth quarter were positively impacted by $0.8 million and fully year by $0.6 million by
favourable average foreign exchange as compared to the prior year.
Canada
Large market for lobster, scallops, snow crab, clams and coldwater shrimp.
Sales for the fourth quarter 2018 declined $3.9 million as compared to the prior year due to lower scallop
sales offset by timing of snow crab sales. Sales for the year declined $10.0 million to $63.9 million
primarily the result of a lower availability of supply of scallops and lower sales volumes for snow crab.
1 – Refer to discussion on risks and uncertainties
17 | P a g e
Average Foreign Exchange Rates Realized on Sales
For the fourth quarter of 2018, favourable foreign exchange rates for the USD, YEN and Euro, as
compared to the same period of 2017, positively impacted sales by $3.8 million. In 2018, favourable
average foreign exchange rates for the Euro and USD positively impacted sales by $11.7 million as
compared to 2017.
The impact of foreign exchange on sales was partially offset through Clearwater’s foreign exchange risk
management program with net realized gains and losses on contract derivatives recognized below gross
margin, within adjusted EBITDA.
December 31
2018
Average
rate
realized 1
% sales
13 weeks ended
December 31
2017
Average
rate
realized1
% sales
44.2%
30.7%
8.3%
7.3%
7.8%
1.7%
100.0%
1.326
1.508
1.698
0.012
0.203
40.5%
27.9%
10.1%
8.2%
11.0%
2.3%
100.0%
1.273
1.498
1.692
0.011
0.201
Currency
US dollars
Euros
Canadian dollar and other
UK pounds
Japanese yen
Danish kroner
1 Refer to discussion on risks and uncertainties.
Cost of Goods Sold
December 31
2018
Average
rate
realized1 % sales
Year ended
December 31
2017
Average
rate
realized1
% sales
44.8%
24.9%
9.1%
8.8%
8.6%
3.8%
100.0%
1.303
1.525
1.732
0.012
0.207
40.0%
26.3%
11.5%
9.9%
10.1%
2.2%
100.0%
1.292
1.470
1.672
0.012
0.197
Cost of goods sold includes harvesting and procurement costs, manufacturing costs, depreciation,
transportation and administration. Cost of goods sold decreased in the fourth quarter and year by $12.0
million and $25.6 million as compared to the same periods of 2017. The decrease is primarily due to
sales mix weighted towards species with lower variable costs, reduced overheads following cost savings
programs and lower sales volumes.
Harvesting and procurement include all costs incurred in the operation of the vessels including labour,
fuel, repairs and maintenance, fishing gear, supplies, other costs and fees plus procured raw material
costs for lobster, shrimp, scallops, crab, langoustine and whelk.
Gross margin
Gross margin as a percentage of sales decreased in the fourth quarter of 2018 to 16.6% compared to
16.9% in the prior year and increased to 18.0% for the year as compared to 17.7% in the prior year.
Gross margin for the fourth quarter decreased $3.0 million to $26.5 million as compared to 2017 due to
timing of landings of FAS shrimp offset by favourable clam sales mix.
In 2018, gross margin decreased $3.2 million to $106.8 million as compared to 2017 due to competitive
conditions and lower available supply for scallops, a harvested species that typically has higher gross
margins offset by higher clam sales and strong landings for FAS shrimp. Gross margin also improved for
certain procured species despite lower volumes as sales and purchases were targeted to profitable
transactions.
In the fourth quarter and full year, average foreign exchange rates realized on sales had a net positive
impact to gross margin of $3.8 million and $11.7 million, respectively.
18 | P a g e
Operating expenses
In 000's of Canadian dollars
Salaries and benefits
13 weeks ended
Year ended
December 31 December 31
2017
10,064 $
2018
10,493 $
$
Change
429 $
December 31 December 31
2017
40,197 $
2018
41,308 $
Change
1,111
Share-based compensation
Employee compensation
495
10,988
116
10,180
379
808
1,289
42,597
409
40,606
880
1,991
Consulting and professional
fees
Other1
Allocation to cost of goods
sold2
Administrative and selling
3,189
2,029
3,397
3,859
(208)
(1,830)
12,827
11,524
14,238
14,078
(3,531)
12,675 $
(3,375)
14,061 $
(156)
(1,386) $
(13,439)
53,509 $
(13,371)
55,551 $
$
Restructuring costs
Operating expenses
1 Other includes, but is not limited to, selling costs, travel and occupancy, depreciation and donations.
2 Allocated to cost of goods sold reflects costs that are attributable to the production of goods and are included in the cost of
inventory.
(6,677)
(8,063) $
6,677
20,738 $
482
53,991 $
6,856
62,407 $
12,675 $
-
$
(1,411)
(2,554)
(68)
(2,042)
(6,374)
(8,416)
Operating expenses decreased $8.1 million and $8.4 million for the fourth quarter and year ended
December 31, 2018 primarily due to the targeted restructuring of the Company’s employee base and
distribution infrastructure in the fourth quarter of 2017 and cost saving initiatives in 2018. These
decreases were partially offset by higher share-based compensation and incentive-based employee
costs.
Net Finance costs
In 000's of Canadian dollars
Interest and bank charges
Amortization of deferred
financing charges
13 weeks ended
Year ended
December 31 December 31
2017
7,426 $
2018
7,061 $
$
Change
(365)
December 31 December 31
2017
28,205 $
2018
28,551 $
$
435
7,496
405
7,831
30
(335)
1,695
30,246
1,555
29,760
Change
346
140
486
Accretion on deferred
consideration
Debt settlement and refinancing
costs1
351
-
351
486
(135)
1,720
2,166
(446)
13
499
(13)
(148)
-
1,720
3,354
5,520
(3,354)
(3,800)
$
7,847 $
8,330 $
(483)
$
31,966 $
35,280 $
(3,314)
1 Debt settlement and refinancing costs reflects the net loss on settlement of existing interest rate swaps and cross currency swaps and
caps, forward foreign exchange contracts, remaining unamortized deferred financing costs and accretion offset by unrealized gains on
interest rate swaps and caps.
Net finance costs decreased $0.5 million and $3.3 million in the fourth quarter and year ended December
31, 2018 largely due to the debt settlement and refinancing costs in the second quarter of 2017.
Interest and bank charges decreased in the fourth quarter compared to the same period in 2017 due to
lower average revolving debt balance partially offset by the USD strengthening relative to the CDN dollar
impacting interest on the USD senior unsecured notes.
19 | P a g e
(Gains) losses 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
2017
2018
Change
December 31 December 31
2017
2018
Change
$
1,565 $
2,461 $
(896)
$
1,321 $
(3,065)$
4,386
13,443
15,008 $
$
(186)
2,275 $
13,629
12,733
$
14,477
15,798 $
(980)
(4,045)$
15,457
19,843
Clearwater is primarily an export company with more than 85% of our sales taking place outside Canada
in foreign currencies. As part of our risk management strategy we enter into short-term forward contracts
to provide greater certainty regarding exchange rates and cash flows for a period of time. We recognize
any realized gains and losses on these instruments as they mature and are settled.
Clearwater also recognizes unrealized non-cash gains and losses on these instruments resulting from the
change in fair value. Clearwater estimates the fair value of the financial derivative instruments based on
forward prices and converts them to Canadian dollars at each balance sheet date. The unrealized non-
cash gains or losses are excluded when calculating adjusted EBITDA and adjusted earnings attributable
to shareholders of Clearwater.
Realized losses on settled forward contract derivatives decreased $0.9 million and increased $4.4 million
in the fourth quarter and full year 2018 versus the same comparative periods in 2017. The unrealized loss
is due to average contracted rates for most currency pairs being unfavourable compared to the spot rate
on the date of settlement in 2018.
The increase in unrealized loss of $13.6 million and $15.5 million in the fourth quarter and full year 2018
as compared to the same period in 2017 is dependent on average contracted rates as compared to the
forward rates based on maturity. The unrealized loss in the fourth quarter and full year 2018 is primarily
due to average contracted rates for USD, YEN and Euro being unfavourable compared to current
projected forward rates at maturity.
Foreign exchange (gains) losses on long-term debt and working capital
In 000's of Canadian dollars
Realized (gain) loss
Long-term debt and working
capital
Unrealized (gain) loss
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
2017
2018
Change
December 31 December 31
2017
2018
Change
$
(660) $
(565) $
(95)
$
(5,514) $
3,547 $
(9,061)
15,381
3,400
11,981
30,798
(23,693)
54,491
(13,040)
2,341
1,681 $
$
(1,604)
1,796
1,231 $
(11,436)
545
450
(16,223)
14,575
$
9,061 $
5,883
(17,810)
(14,263) $
(22,106)
32,385
23,324
1 – Refer to discussion on risks and uncertainties
20 | P a g e
Realized foreign exchange gains on long-term debt and working capital increased $9.1 million to a gain of
$5.5 million for the year in 2018 as compared to the same period of 2017 as average foreign exchange
rates on working capital settlement were favourable.
Unrealized foreign exchange losses on long-term debt and working capital for the fourth quarter was
$15.4 million and $30.8 million year to date 2018. The unrealized losses are primarily due to long-term
debt denominated in USD which are translated into Canadian dollars as at the period-end spot rates.
Partially offsetting unrealized losses on long-term debt and working capital, were unrealized gains related
to forward foreign exchange contracts to hedge approximately 80% of the notional amount of the USD
senior unsecured notes. The unrealized loss in year to date 2017 included the $75 million cross currency
swap.
Other (income) expense
In 000's of Canadian dollars
December 31 December 31
2017
2018
Change
December 31 December 31
2017
2018
Change
13 weeks ended
Year ended
Share of earnings of equity-
accounted investee
Fair value adjustment on earn-out
liability1
Other (income) fees
Royalties, interest income and
other income
Acquisition related costs
Export rebate income
$
(178) $
754 $
932
$
(2,923) $
(2,656)$
267
91
494
(2,103)
(354)
(2,194)
(848)
(623)
170
(2,769)
(994)
(2,146)
(1,164)
314
(43)
80
385
(1,190)
(179)
(3,839)
(1,540)
1 Relates to the Macduff acquisition in 2015. The earn-out liability is an unsecured additional consideration to be paid dependent on the
future financial performance of Macduff and is recognized at fair value, with changes in fair value recognized in the statement of earnings
(loss).
(431)
464
(1,190)
(7,576)$
(408)
103
-
102 $
365
282
(179)
(1,642)
(745)
384
-
(3,737) $
$
$
Other income decreased by $1.6 million and $3.8 million in the fourth quarter and year ended December
31, 2018 primarily due to fair value adjustments on the earn-out liability and changes to export rebate
regulations in Argentina.
Export rebate income related to incentives accrued by our Argentine subsidiary for exports from certain
economic zones in Argentina. Effective January 1, 2018, the Argentina government announced a change
to the export rebate program in response to changes made by the World Customs Organization.
Clearwater and other exporters are working with the Argentine government to determine rebate
qualifications under the new regulations.
1 – Refer to discussion on risks and uncertainties
21 | P a g e
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 in the fourth quarter and full year 2018 of $5.1 million and $5.9
million respectively, as compared to the same period for 2017 was primarily due to changes in income in
foreign tax jurisdictions.
Earnings (loss) 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 $2.6 million in the fourth quarter of
2018 relates primarily to lower available supply and competitive sales conditions for scallops. On an
annual basis, the decrease was offset by strong landings for FAS shrimp.
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.
Earnings (loss) attributable to shareholders
Earnings attributable to shareholders decreased $1.4 million and $32.0 million in the fourth quarter and
full year 2018 as compared to the same periods of 2017. The decline was primarily a result of higher
unrealized foreign exchange losses on long-term debt and working capital.
Adjusted Earnings attributable to shareholders
To assist readers in understanding our earnings we have included a calculation of adjusted earnings with
Non-IFRS Measures, Definitions and Reconciliations. 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 increased in the fourth quarter of 2018 as compared to
2017 primarily due to lower depreciation expense and increased in 2018 by $7.1 million due to realized
foreign exchange on working capital partially offset by higher depreciation expense in 2018.
Refer to the section entitled “Non-IFRS measures, definitions and reconciliations” for the definition of
adjusted earnings and a reconciliation of adjusted earnings to net earnings.
22 | P a g e
CAPITAL STRUCTURE AND LIQUIDITY
Clearwater’s overall approach is to have a cost-effective capital structure that supports growth, while
maintaining flexibility, reducing interest rate risk and reducing foreign exchange risk by borrowing in
currencies other than the Canadian dollar, when appropriate.
Clearwater maintains flexibility in its capital structure by regularly reviewing forecasts and multi-year
business plans and modifying 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 or amending existing debt facilities and, selling surplus assets to repay debt.
The following are key elements of our capital strategy:
• Maintain sufficient liquidity to enable continued access to capital to finance operations, including
investments in innovation and technology and to fund growth;
• Target a long-term leverage ratio of 3.0x;
• Limit potential foreign exchange volatility in cash flows; and
• Generate strong cash flows from operations to fund scheduled loan payments, capital
expenditures and distributions to non-controlling interest and to provide for sufficient free cash
flow to fund growth-investments and pay a sustainable dividend to its shareholders.
Management continuously evaluates its capital structure in light of these policies and strategies.
Capital Structure
Clearwater’s capital structure includes a combination of equity and various types of debt facilities.
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 certain lending facilities is a function of 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.
23 | P a g e
Clearwater’s capital structure was as follows as at December 31, 2018 and December 31, 2017:
In 000's of Canadian dollars
As at December 31
Equity
Share capital
Contributed surplus
Deficit
Accumulated other comprehensive income (loss)
$
2018
2017
215,506 $
4,218
(38,848)
(36,053)
144,823
18,397
163,220
333,955
58,019
13,637
3,500
409,111
34,177
112
34,289
16,504
3,513
463,417
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
Non-controlling interest
Long-term debt
Senior debt, non-amortizing
USD senior unsecured notes, due 20251
Revolving debt, due in 20222
Term loan, due in 2019
Term loan, due in 2091
Senior debt, amortizing
Term Loan B, due 20223
Other loans
Deferred obligation4
Earnout liability4
Total long-term debt
Total capital
$
626,637 $
655,711
1. USD senior unsecured notes is net of unamortized deferred financing charges of $7 million with a US dollar coupon rate of
6.875%. This resulted in an effective interest rate of approximately 7.2%.
2. The revolving debt is net of unamortized deferred financing charges of $2 million resulting in an effective interest rate of
approximately 4.53%. As of December 31, 2018, subject to financial covenants, Clearwater may borrow up to an additional CDN
$90.3 million on the undrawn facility. The availability on this loan is reduced by the amount outstanding on a USD $10 million non-
amortizing term loan.
3. Term Loan B is net of unamortized deferred financing charges of $0.2 million. As of December 31, 2018, this resulted in an
effective interest rate of approximately 4.46%.
4. The Deferred Obligation and Earnout Liability relate to the acquisition of Macduff in 2015.
Equity
In 2018, Clearwater issued 21,185 common shares under its share-based compensation plans and
886,110 common shares under the dividend reinvestment plan (“DRIP”) See Dividends within the section
titled Review of Cashflows for information regarding the DRIP initiated in 2018.
Clearwater reserved 2.5 million common shares (December 31, 2018 - 2.5 million remaining) for issuance
under the share-based compensation plans and 3.0 million (December 31, 2018 - 2.1 million remaining)
under the DRIP.
There are 64,841,993 shares outstanding as of December 31, 2018 (December 31, 2017 - 63,934,698).
24 | P a g e
Long-term debt
As at December 31, 2018 long-term debt includes:
• USD $250 million senior unsecured notes, due 2025 with a US dollar coupon rate of 6.875% (“the
USD Notes”). Forward foreign exchange contracts are in place to hedge approximately 80% of
the notional value of the USD Notes at an average rate of 1.2844 and approximately 80% of the
coupon payments at an average rate of 1.2830 through to 2022. Clearwater has applied hedge
accounting to these forward foreign exchange contracts that hedge coupon payments;
• Senior secured credit facilities consisting of a CDN $200 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 banker’s
acceptance rate (“BA rate”) plus 1.50% to 2.25% for the revolving credit facility and BA rate 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. The revolver and Term Loan B are secured by a first charge on cash and cash
equivalents, accounts receivable,
licences and quotas, and
Clearwater’s investments in certain subsidiaries; and
inventory, marine vessels,
• Other term loans: The term loan maturing in 2019 is for USD $10 million, for a term of 1-year and
the borrower is a subsidiary in Argentina; this loan is supported by a secured letter of credit. The
term loan maturing in 2091 has recourse limited to the asset financed.
Also included in Clearwater’s long-term debt is deferred consideration related to the acquisition of
Macduff in 2015 comprised of a deferred obligation and an earnout liability.
• The Deferred Obligation consists of deferred payments for 33.75% of the shares of Macduff
acquired by Clearwater (the "Earn Out Shares") in 2015. The principal balance outstanding as at
December 31, 2018 was £10.5 million (CDN $18.3 million) (December 31, 2017 - £15.7 million
(CDN $26.5 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%. 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. Beginning in 2017,
Clearwater had the right to exercise the payout of 20% of the Deferred Obligation annually.
• The holders of the Earn Out Shares elected to be paid 20% of the Deferred Obligation in both
2018 and 2017 resulting in payments of £5.2 million (CDN - $8.9 million) and £5.2 million (CDN -
$8.8 million) in November 2018 and November 2017, respectively.
• 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. The estimated fair value of the Earnout liability at December 31, 2018 was
£2.0 million (CDN - $3.5 million) (December 31, 2017 - £3.1 million, CDN - $5.3 million). The
Earnout liability is recorded at fair value on the consolidated statement of financial position. See
the consolidated financial statements for terms and valuation of the Earnout liability.
Excluding deferred consideration and the related earnout liability, Clearwater has effectively fixed the
interest rate on 76% percent of its debt as at December 31, 2018.
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.
25 | P a g e
Liquidity
Capital Requirements
Clearwater’s business experiences a predictable seasonal pattern in which sales, margins and adjusted
EBITDA are lower in the first half of the year and higher in the second half, while investments in capital
expenditures and working capital are typically higher in the first half of the year and lower in the second
half. This typically results in lower cash flows, higher debt balances and higher leverage in the first half of
the year and higher cash flows, lower debt balances and lower leverage in the second half.
We schedule ongoing capital expenditure programs to maintain the operating capacity of our assets at
existing levels, which we refer to as maintenance capital, which are typically funded by operating cash
flows.
Sources of Liquidity
Our primary sources of liquidity to fund current operations, seasonal operations, seasonal working capital
demands, capital expenditures, and other commitments consists of:
• Cash flow from operating activities;
• Cash on deposit; and
• $200 million revolving loan.
As of December 31, 2018, Clearwater had $35.9 million in cash, and $90.3 million available to draw down
on its revolving facility.
In 000's of Canadian dollars
As at December 31
Cash
Availability on revolving credit facility
Sources of liquidity
Leverage1
$
2018
35,887 $
90,254
126,141
2017
35,514 $
55,806
91,320
2016
39,514
63,159
102,673
Leverage as at December 31, 2018 was 4.7x as compared to 5.0x as at December 31, 2017. Strong
generation of cash from operations and a reduction in capital expenditures following the completion of the
fleet renewal program in 2017, enabled at $28.3 million reduction in net debt which more than offset the
decrease in adjusted EBITDA attributable to shareholders.
In 000's of Canadian dollars
As at December 31
Adjusted EBITDA1 attributable to shareholders
Net Debt2,3,4 (excluding non-controlling interest)
Leverage
1 Refer to discussion on non-IFRS measures, definitions and reconciliations
2018
2017
2016
$
88,175 $
89,156 $
98,446
418,455
4.7
446,771
5.0
411,724
4.2
2 Debt as at December 31 and December 31, 2017 has been adjusted to include USD $200 million forward foreign exchange
contracts at an average contracted rate of 1.2844. (December 31, 2016 - USD $75 million cross-currency swap at contracted rates
of 1.3235).
3 Debt is net of unamortized deferred financing charges of $9.2 million (December 31, 2017 - $10.0 million; December 31, 2016 -
$2.0 million).
4 Net debt is adjusted for cash attributable to shareholders.
Clearwater’s leverage measure is based on the ratio of adjusted EBITDA attributable to shareholders to
its outstanding debt, net of cash balances. Clearwater’s longer-term goal is a leverage ratio of 3.0x.
26 | P a g e
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 as a measure frequently analyzed for public companies, Clearwater has
calculated the amount to assist readers in this review. Leverage should not be construed as a measure
of cash flows.
Foreign Exchange Management
Clearwater has a foreign exchange risk management program which limits cash flow volatility arising from
foreign currency cash flows. Clearwater currently uses forward contracts to lock-in foreign exchange rates
up to 18 months for anticipated sales and long-term debt related hedges extend through to 2022. A
reduction in volatility from currency exposures improves earnings predictability.
As of December 31, 2018, Clearwater had forward exchange contracts outstanding:
Currency
USD to CDN
Yen to CDN
Euro to CDN
Euro to GBP
CDN to USD
Forecasted transaction
Sales
Sales
Sales
Sales
Debt
Notional (millions)
121.7
3,324.7
38.6
32.4
248.1
Average rate
1.2975
0.0120
1.5637
0.9007
1.2841
Refer to the section entitled Risks and Uncertainties for a comprehensive discussion of Clearwater’s
foreign exchange exposure and strategy to manage foreign exchange risk.
27 | P a g e
REVIEW OF CASHFLOWS
Clearwater endeavors to generate strong cash flows from operations to fund scheduled loan payments,
capital expenditures and distributions to non-controlling interests and to provide sufficient free cash flow
to fund growth investments and pay a sustainable dividend to its shareholders.
The following table summarizes information about Clearwater’s cash flows:
In 000's of Canadian dollars
13 weeks ended
December 31
2017
2018
2018
Year Ended
December 31
2016
2017
Cash from (used in) operating activities
Cash from (used in) financing activities
Cash from (used in) investing activities
Free cash flow1,2
$
45,836 $
(32,705)
(4,360)
42,664 $
(27,734)
(22,691)
76,487 $
(60,617)
(16,701)
58,141 $
22,665
(85,516)
63,040
(12,666)
(55,873)
$
32,651 $
22,252 $
45,206 $
(8,428)$
1,502
Supplemental cash flow information
$
3,057 $
Changes in working capital3
Decrease (increase) in inventory
(Decrease) increase in accounts payable
Decrease (increase) in accounts receivable
Decrease (increase) in prepaids
(Decrease) increase in income tax payable
Purchase of property, plant and equipment
Cash dividends paid on common shares4
1 Refer to discussion on non-IFRS measures, definitions and reconciliations.
2 Free cash flow is defined as cash flows from operating activities, less planned capital expenditures (net of debt designated to fund
such expenditures), scheduled payments on long-term debt and distributions to non-controlling interests. Discretionary items such
as debt refinancing and repayments, changes in the revolving loan and discretionary financing and investing activities are excluded
from free cash flow.
3 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.
31,139 $
35,206
(8,948)
7,067
(2,179)
(7)
(2,638)
(1,849)$
12,615
9,369
(22,043)
188
2,928
(85,431)
(12,787)$
34,715 $
48,116
(2,487)
(11,177)
1,838
(1,575)
(25,350)
9,699 $
8,021
(8,252)
18,574
(3,108)
(5,536)
(19,124)
(16,547)
(22,030)
(7,785)
3,775
4,953
4,540
(56,332)
(12,388)
(8,299)$
(3,197)$
$
4 Net of the dividend reinvestment plan.
Cash flow from Operating Activities
For 2018, cash generated from operations of $76.5 million was a record for the Company increasing
$18.3 million from the prior year driven by a lower investment in working capital, including net foreign
exchange gains on working capital, and lower income tax expense, partially offset by one-time
restructuring costs paid in 2018. The fourth quarter of 2018 generated strong cash from operations of
$45.8 million driven by operating performance and reduction in working capital investment of $31.1 million
in the quarter. Working capital improvements resulted from timing of sales, improved collection periods
compared to prior year and lower inventory levels, due to less procurement of species with lower margins
and reductions in clam inventory from peak levels.
Cash flow from Financing Activities
For 2018, cash was used in financing activities to repay $30.2 million of the revolving credit facility, fund
distributions to non-controlling interests and dividends paid on common shares. In 2017 financing was
raised to support capital expenditure programs.
28 | P a g e
Cash Flow from Investing Activities
Cash used in investing activities decreased in 2018 with declines in capital expenditures following the
completion of the fleet renewal program in 2017.
Free Cash Flow1
Free cash flows of $45.2 million for the year and $32.7 million in the fourth quarter of 2018 increased
$53.6 million and $10.4 million respectively, compared to the same periods in 2017 primarily due to
significant reductions in capital expenditures following the fleet renewal program completed in 2017 and
strong cash from operations.
Certain large investments in longer term assets such as vessel conversion and acquisitions are funded
with long-term capital including amortizing term loans. As a result, Clearwater adds the funding on those
capital expenditures in the determination of free cash flows and deducts the related debt borrowings.
Changes in working capital
Clearwater is manages working capital within cash from operations and free cash flow. 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 detailed 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 represented less than 5
percent of consolidated sales.
Purchase of Property Plant and Equipment
Clearwater manages capital spending within cash from investing activities and free cash flow. Clearwater
evaluates investments in property, plant, equipment and licences as either return on investment or
maintenance capital and tracks each project accordingly. 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 capital. In 2019, Clearwater expects to invest between $25-$30
million in capital projects relating to vessel refits and land-based supply chain infrastructure.
Dividends
On March 7, 2019 the Board of Directors approved and declared a dividend of $0.05 per share payable
on April 1, 2019 to shareholders of record as of March 18, 2019.
On February 15, 2018 the Board approved a 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 was effective for the payment of the
fourth quarter 2017 dividend paid on April 2, 2018 and expects to continue until further notice.
29 | P a g e
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 Clearwater’s dividend policy on a regular basis to ensure the dividend
level remains consistent with the 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 leases and
other commitments, interest and principal cash flows based on the earliest date on which Clearwater is
required to pay.
December 31, 2018
Interest - long-term debt
Principal repayments - long-term
debt
Carrying
Amount
Total
Contractual
Cash Flow
$
- $
182,056 $
2020
2019
27,951 $ 27,561 $
2022
2021
27,545 $ 24,989 $
2023
23,719 $
>2024
50,291
463,417
463,417
23,269
10,080
1,467
91,146
-
337,455
Total long-term debt
463,417
645,473
51,220
37,641
29,012 116,135
23,719
387,746
Trade and other payables
Operating leases and other
Capital and maintenance projects
Derivative financial instruments -
liabilities
70,507
-
-
70,507
10,501
262
70,507
4,882
262
-
2,874
-
-
1,258
-
-
687
-
-
270
-
10,463
10,463
9,966
497
-
-
-
-
530
-
-
$ 544,387 $
737,206 $ 136,837 $ 41,012 $
30,270 $ 116,822 $
23,989 $ 388,276
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 licences 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 $0.04 million (2017 - $0.07 million).
30 | P a g e
OUTLOOK
In 2019, we expect balanced growth across multiple species and regions led by Asia-Pacific and driven
by increased volume and significant new product introductions including new products in clam, sea
cucumber and whelk as well as a full year offering of live crab. Continued innovation throughout our
global supply chain on land and sea will reduce cost and increase the productivity of our asset base while
continuing to enable product diversification in response to changing consumer trends.
Clearwater will continue de-leveraging activities in 2019, prioritizing cash generation, cost savings, margin
improvement, further inventory reductions and lower capital expenditures. The resulting cash generation
will be used to reduce debt and leverage throughout 2019.
Clearwater’s access to the full clam total allowable catch (“TAC”) for 2019 and a FAS shrimp harvest
unrestricted by vessel refits will be met with the continuing competitive conditions for scallop associated
with higher worldwide supply.
In 2017, with full access to the clam quota and three harvesting vessels, Clearwater harvested 100% of
the TAC and reported clam sales of $109.2 million.
Clearwater’s core fisheries are managed for long-term sustainability. We have taken and will continue to
pursue timely and carefully considered measures in response to near-term challenges including;
adjustments to harvest plans, pricing and distribution strategies, and cost and working capital reductions.
These measures will generate strong cash flows from operations, reduce debt and leverage, yield a
higher return on assets and generate positive returns to shareholder value.
Global demand for seafood is being 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 with its proprietary licences, premium
product quality, diversity of species, global sales footprint and year-round harvest and delivery capability.
31 | 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 subsidiaries which operate in the offshore
scallop fishery in Argentina and in the UK which exposes Clearwater to changes in the value of the
Argentine Peso and GBP.
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 enables Clearwater to
lock in exchange rates for up to 18 months for key sales currencies (the US dollar, Euro, Yen
and GBP) thereby lowering the potential volatility in cash flows through derivative contracts.
In 2018 approximately 44.8% of Clearwater’s sales and 75% of long-term debt were denominated in US
dollars.
Based on 2018 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 $2.0 million
change in sales;
• a change of 0.01 in the GBP rate converted to Canadian dollars would result in a $0.3 million
change in sales;
• a change of 0.01 in the Euro rate as converted to Canadian dollars would result in a $1.0 million
change in sales; and
• a change of 0.0005 in the Yen rate as converted to Canadian dollars would result in a $2.2 million
change in sales.
32 | P a g e
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 DFO and has invested hundreds of millions of
dollars to develop the fishery and the market, including $156 million from 2015 through 2017.
On September 6, 2017, the DFO announced the introduction of a fourth Arctic Surf Clam licence
representing 25 percent of the existing TAC to be awarded to a new entrant effective 2018. The
announcement of the introduction of a fourth Arctic Surf Clam licence represented a departure from
historical Canadian policy. On August 10, 2018, the DFO canceled the process to issue the fourth licence
and confirmed that the remaining 25 percent of the clam quota would be issued to Clearwater for 2018
and 2019.
The DFO also signalled their intent to initiate a new process in the spring of 2019 whereby an
independent third party would be employed to assess and evaluate expressions of interest with the
objective of identifying a new Indigenous licence holder. Clearwater intends to participate in the new
process in partnership with Indigenous communities.
Argentina
Our operations in Argentina may be negatively affected by foreign exchange and restrictions on the
repatriation of dividends as well as the increased cost and risks of doing business in developing markets.
There are currently no restrictions on our ability to pay dividends.
We mitigate these risks through maintaining a policy of repatriating our share of 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. In addition, we have structured our operations in Argentina with
an Argentine partner who owns 14% and is active in managing the business.
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 UK 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. Full discussions related to the future economic partnership agreements began in July 2018.
The UK Parliament has yet to accept the Withdrawal Agreement between the EU and the UK
Government. Ongoing negotiations are likely to result in a transition period which will provide stability and
status quo during an implementation period concluding on December 31, 2020.
Any impacts to Clearwater are not yet known although the UK Government white paper proposes a
mechanism for free and frictionless trade of goods between the UK and EU, as well as outlining
government plans for establishing free trade agreements with the rest of the world.
33 | P a g e
The UK is clear that access to waters should be decided at annual fisheries negotiations and not linked to
trade arrangements. Sustainability, industry leadership and cost recovery form the basis of the fisheries
white paper, which indicates that the UK acknowledges the reciprocal access to waters is important for
both the UK and EU.
for shellfisheries and processing;
As a business, we are taking a fully participative, active and advisory role in all preparatory government
working groups
fisheries access and
immigration/labour related matters. Furthermore, the removal of EU fisheries legislation provides an
opportunity to redesign fisheries management systems in the UK over the longer term. The Company is
engaging with the UK and devolved governments to engage in policy discussion for future management
measures for shellfish fisheries focusing on conservation science, sustainability, quality, health and safety
and fair labour practices. 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.
looking at
trade,
United States
NAFTA was a comprehensive trade agreement that set the rules of trade and investment between
Canada, the United States, and Mexico. The agreement entered into force on January 1, 1994 and
systematically eliminated most tariff and non-tariff barriers to free trade and investment between the three
NAFTA countries.
On September 30, 2018, NAFTA was replaced with a new tentative agreement named the United States-
Mexico-Canada Agreement (“USMCA”) which must be ratified by the member countries before coming
into effect. Clearwater is not expected to be impacted by the changes under the USMCA. Approximately
14.5% of total sales for 2018 were in the United States.
Management will continue to review, assess and monitor for any changes to USMCA that could
significantly impact Clearwater until the agreement is ratified.
Asia Pacific
On March 8, 2018 the Comprehensive and Progressive Agreement for Trans-Pacific Partnership
(“CPTPP”) was signed. The CPTPP has created an eleven country trading block including Canada, and
representing 495 million people, with a combined gross domestic product of $13.5 trillion or 13.5% of
global GDP.
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 the state of the targeted shellfish stocks, with limitations on catch
levels determined by annual TAC, effort restrictions and other technical measures. The annual TACs are
generally related to the health of the stock of the particular species as measured by a scientific survey of
the resources.
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. Supply and quality of supply can also be influenced by man-made factors such as
oil spills and pollution. 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
34 | P a g e
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, Argentina and the UK 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 MSC certification of all 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.
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.
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.
35 | P a g e
Disclosure Controls and Internal Controls Over Financial Reporting
The Management of Clearwater, with the participation of the Chief Executive Officer (“CEO”) and the
Chief Financial Officer (“CFO”) (collectively “Management”), is responsible for establishing and
maintaining disclosure controls and procedures (“DC&P”) and internal controls over financial reporting
(“ICFR”), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’
Annual and Interim Filings.
Based on management’s evaluation, the CEO and the CFO have concluded that DC&P and ICFR were
effective as of December 31, 2018.
There have been no changes to controls during the quarter ended December 31, 2018 that have
materially affected, or are reasonably likely to materially affect, Clearwater’s ICFR.
Adoption of new and revised standards
The IASB has issued the following standard that has not been applied in preparing these consolidated
financial statements as its effective date falls within annual periods beginning subsequent to the current
reporting period.
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 will adopt IFRS 16 beginning on January 1, 2019 and has elected to apply the modified
retrospective approach on transition. Clearwater currently leases office space, machinery, wharves,
equipment and vehicles. Clearwater will not see a material impact on net income as a result of the new
lease standard and interest and depreciation will largely offset the amounts previously reported as
operating expense. The standard will have an impact on its key performance measures, including
earnings before interest, tax, depreciation and amortization, leverage and return on assets.
Related Party Transactions
Clearwater transacts in the normal course of business with related parties. The details are as follows for
the year ended December 31, 2018 and 2017:
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 nil (December
31, 2017 – $0.04 million). Any amounts outstanding are unsecured and due on demand.
For the year ended December 31, 2018, Clearwater recorded net expense of approximately $0.2 million
for providing computer support network services to and receiving goods and services from companies
related to CVI (December 31, 2017 - net revenue of $0.06 million). The transactions are recorded at the
exchange amount and the balance due from these companies was $0.1 million as at December 31, 2018
(December 31, 2017 - $0.07 million due to).
36 | P a g e
SUMMARY OF QUARTERLY RESULTS
The following table provides historical data for the ten most recently completed quarters.
In 000's of Canadian dollars
$
Fiscal 2018
Sales
Adjusted EBITDA
Adjusted EBITDA attributable to shareholders1
Earnings (loss) attributable to shareholders
Earnings (loss) per share
Diluted earnings (loss) per share2
Weighted average shares outstanding3
Fiscal 2017
Sales
Adjusted EBITDA
Adjusted EBITDA attributable to shareholders1
Earnings (loss) attributable to shareholders
Earnings (loss) per share
Diluted earnings (loss) per share
Weighted average shares outstanding
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
120,072 $
19,114
14,933
(13,758)
(0.22)
(0.22)
63,935,153
148,142 $
30,501
26,147
(923)
(0.01)
(0.01)
64,154,263
164,225 $
30,686
25,373
10,818
0.17
0.17
64,417,905
159,807
24,090
21,722
(12,340)
(0.19)
(0.19)
64,676,360
128,367 $
19,767
15,798
2,172
0.03
0.03
63,934,698
154,302 $
27,542
23,550
9,489
0.15
0.15
63,934,698
163,597 $
32,797
26,961
15,054
0.24
0.24
63,934,698
174,766
28,490
22,846
(10,956)
(0.17)
(0.17)
63,934,698
$
Fiscal 2016
Sales
Adjusted EBITDA
Adjusted EBITDA attributable to shareholders1
Earnings (loss) attributable to shareholders
Earnings (loss) per share
Diluted earnings (loss) per share
Weighted average shares outstanding
1 Refer to discussion on non-IFRS measures, definitions and reconciliations
3 In 2018, Clearwater implemented a Dividend Reinvestment Plan and issued shares under the share-based compensation plans.
189,457 $
45,158
36,795
10,847
0.17
0.17
63,934,698
140,180 $
27,454
21,811
9,962
0.16
0.16
60,439,577
116,225 $
18,864
14,761
14,507
0.24
0.24
59,958,998
165,690
29,461
25,079
8,611
0.14
0.14
63,934,698
For a more detailed analysis of each quarter’s results, please refer to our quarterly reports and 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.
37 | P a g e
NON- IFRS MEASURES, DEFINITIONS AND RECONCILIATIONS
Adjusted earnings before interest, tax, depreciation and amortization (“adjusted EBITDA”)
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 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 share-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.
38 | P a g e
Reconciliation of net earnings (loss) to adjusted EBITDA for the 13 weeks and year ended December 31,
2018, December 31, 2017 and December 31, 2016.
Earnings (loss)
Add (deduct):
Income taxes
$
Taxes and depreciation for equity investment
Depreciation and amortization
Interest on long-term debt and bank charges
Earnings before interest, taxes, depreciation and
amortization
$
Add (deduct) other items:
Unrealized foreign exchange and derivative loss
(gain)
Fair market value on long-term debt
Realized foreign exchange loss (gain) on
working capital
Restructuring and refinancing costs
13 weeks ended
December 31 December 31 December 31
2018
(3,706) $
2018
(10,556) $
2017
(6,551) $
Year Ended
December 31
2017
28,239 $
December 31
2016
59,596
(621)
(874)
12,479
7,496
4,461
(57)
15,850
7,831
1,740
476
48,843
30,246
7,659
2,112
45,252
29,759
16,446
960
33,501
26,889
7,924 $
21,534 $
77,599 $
113,021 $
137,392
15,786
442
(660)
103
1,609
(1,617)
(564)
7,412
29,052
1,097
(5,512)
866
(23,136)
(1,307)
3,547
16,062
(31,753)
2,211
7,805
2,380
Share-based compensation (recovery) expense
Adjusted EBITDA
$
495
24,090 $
116
28,490 $
1,289
104,391 $
409
108,596 $
2,902
120,937
Adjusted EBITDA attributed to:
Non-controlling interests
Shareholders of Clearwater
$
$
2,368 $
21,722
24,090 $
5,538 $
22,952
28,490 $
16,216 $
88,175
104,391 $
19,440
89,156
108,596 $
22,491
98,446
120,937
39 | 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 and year ended December 31, 2018,
December 31, 2017 and December 2016 is as follows:
13 weeks ended
Year ended
December 31 December 31 December 31 December 31 December 31
2016
2017
2018
2017
2018
Reconciliation of net earnings to adjusted earnings
Earnings (loss)
$
(10,556) $
Restructuring and refinancing costs
Acquisition related costs
Share-based compensation cost (recovery)
Unrealized foreign exchange and derivative
(gain) loss
Devaluation of Peso on working capital
Fair value on long-term debt
103
-
495
15,786
-
442
16,826
(6,551) $
7,412
-
116
1,609
-
(1,617)
7,520
(3,706) $
866
-
1,288
29,052
-
1,097
32,303
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)
Adjusted earnings
$
6,270 $
969 $
28,597 $
20,264 $
39,132
Adjusted earnings attributable to:
Non-controlling interests
Shareholders
Adjusted earnings per share:
1,480
4,790
6,270 $
2,554
(1,585)
969 $
12,766
15,831
28,597 $
11,574
8,690
20,264 $
15,366
23,766
39,132
$
Weighted average of shares outstanding
Adjusted earnings per share for shareholders
64,676
0.07
63,935
(0.02)
64,299
0.25
63,935
0.14
62,051
0.38
Reconciliation of adjusted earnings to adjusted EBITDA
Adjusted earnings
$
6,270 $
969 $
28,597 $
20,264 $
39,132
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
(621)
12,479
7,496
(874)
(660)
-
17,820
4,461
15,850
7,831
(57)
(564)
-
27,521
1,740
48,843
30,246
476
(5,511)
-
75,794
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
Adjusted EBITDA1
$
24,090 $
28,490 $
104,391 $
108,596 $
120,939
40 | 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 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.
The calculation of adjusted EBITDA attributable to shareholders to debt (net of unamortized deferred
financing charges) for the year ended December 31, 2018, December 31, 2017 and December 31, 2016
is as follows:
In 000's of Canadian dollars
As at December 31
Adjusted EBITDA1 attributable to shareholders
Debt2,3 (excluding non-controlling interest)
Less cash (excluding non-controlling interest)
Net debt
2018
2017
88,175
$
89,156
$
447,551
(29,096)
418,455
$
478,747
(31,976)
446,771
$
2016
98,446
436,834
(25,110)
411,724
$
$
Leverage
1. Refer to discussion on non-IFRS measures, definitions and reconciliations
4.7
5.0
4.2
2. Debt as at December 31, 2018 and 2017 has been adjusted to include USD $200 million forward foreign exchange contracts at
an average contracted rate of 1.2844. (December 31, 2016 - USD $75 million cross-currency swap at contracted rates of 1.3235).
3. Debt is net of unamortized deferred financing charges of $9.2 million (December 31, 2017 - $10.0 million; December 31, 2016 -
$2.0 million).
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.
41 | P a g e
Reconciliation for the 13 weeks and year ended December 31, 2018, December 31, 2017 and December
31, 2016 is as follows:
Adjusted EBITDA1
Less:
Interest and bank charges
Current income tax expense
Other income and expense items
13 weeks ended
December 31
2017
2018
2018
2017
Year Ended
December 31
2016
$
24,090 $
28,490 $
104,391 $
108,596 $
120,937
(7,061)
(1,260)
(1,071)
(7,426)
(657)
(12,458)
(28,551)
(6,318)
(2,734)
(28,204)
(12,376)
(12,932)
(24,776)
(7,078)
(9,496)
Operating cash flow before changes in working capital
14,698
7,949
66,788
55,084
79,587
Changes in working capital2
Cash flows from operating activities
31,138
45,836
34,714
42,663
9,699
76,487
3,057
58,141
(16,547)
63,040
Sources (uses) of cash:
Purchase of property, plant, equipment, quota and other
assets
Disposal of fixed assets
Less: Designated borrowings3
Scheduled payments on long-term debt4
Payments on long-term incentive plans
Distribution to non-controlling interests
Dividends received from joint venture
Non-routine project costs
Free cash flows1
Reconciliation of change in cash flows for the period
Add/(less):
Other debt borrowings (repayments) of debt, use of cash3
Issuance of equity
Payments on long-term incentive plans
Other investing activities
Other financing activities
Change in cash flows for the period
(2,638)
-
-
(8,992)
-
(1,853)
-
298
(25,350)
2,400
14,513
(8,901)
177
(6,642)
-
3,392
(19,124)
-
1,106
(10,650)
1,084
(11,353)
3,228
4,428
(85,431)
2,408
39,206
(11,948)
1,618
(19,154)
3,340
3,392
(56,332)
1,131
25,883
(15,215)
5,670
(24,560)
-
1,885
$
32,651 $
22,252 $
45,206 $
(8,428)$
1,502
(20,000)
1,381
-
(1,724)
(2,383)
9,925 $
(24,574)
-
(177)
259
(5,159)
(7,399)$
(31,356)
4,548
(1,084)
(805)
(16,136)
27,792
-
(1,618)
(5,832)
(15,914)
373 $
(4,000)$
(37,566)
53,024
(5,670)
(2,513)
(20,369)
(11,592)
$
1. Refer to discussion on non-IFRS measures, definitions and reconciliations.
2. 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.
3. Designated borrowings relate to capital projects for which there is long-term financing and therefore they will not be financed with operating
cash flows. For the 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 regardless of the timing of the related borrowing.
4. Scheduled payments on long-term debt for 2017 have been updated to include the Deferred Consideration payment made in the fourth
quarter 2017 of $8.9 million (fourth quarter 2016 of $8.7 million) and the Earnout payment in the second quarter 2017 of $1.3 million.
42 | 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 years ended
December 31, 2018, December 31, 2017 and December 31, 2016 is as follows:
In (000's) of Canadian dollars
Adjusted EBITDA1
Depreciation and amortization
Adjusted earnings before interest and taxes
Average quarterly total assets
December 31
2018
December 31
2017
December 31
2016
$
$
104,391
$
108,596
$
120,937
48,843
55,548
45,428
63,168
38,634
82,303
752,007
$
775,783
$
746,896
7.4%
8.1%
11.0%
(1) Refer to discussion on non-IFRS measures, definitions and reconciliations.
43 | 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 (“the Board”) 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 Audit 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 7, 2019
Ian Smith
Chief Executive Officer
Teresa Fortney
Vice-President, Finance and Chief Financial Officer
44 | P a g e
KPMG LLP
Purdy's Wharf Tower One
1959 Upper Water Street, Suite 1500
Halifax Nova Scotia B3J 3N2
Canada
Telephone (902) 492-6000
Fax (902) 429-1307
INDEPENDENT AUDITORS’ REPORT
To Shareholders of Clearwater Seafoods Incorporated
Opinion
We have audited the consolidated financial statements of Clearwater Seafoods Incorporated (the
“Company”), which comprise:
the consolidated statements of financial position as at December 31, 2018 and December 31, 2017
the consolidated statements of earnings (loss) and comprehensive income for the years then ended
•
•
•
•
• and notes to the consolidated financial statements, including a summary of significant accounting
the consolidated statements of changes in equity for the years then ended
the consolidated statements of cash flows for the years then ended
policies
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated financial position of the Company as at December 31, 2018 and December 31, 2017, and its
consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the “Auditors’ Responsibilities for the
Audit of the Financial Statements” section of our auditors’ report.
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in Canada and we have fulfilled our other responsibilities in accordance
with these requirements.
45 | P a g e
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Other Information
Management is responsible for the other information. Other information comprises:
•
•
the information included in Management’s Discussion and Analysis filed with the relevant Canadian
Securities Commissions.
the information, other than the financial statements and the auditors’ report thereon, included in a
document likely to be entitled “Annual Report”.
Our opinion on the financial statements does not cover the other information and we do not and will not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit, and remain alert for indications that the
other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the relevant
Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have
performed on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact in the auditors’ report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditors’ report thereon, included in a
document likely to be entitled “Annual Report” is expected to be made available to us after the date of this
auditors’ report. If, based on the work we will perform on this other information, we conclude that there is
a material misstatement of this other information, we are required to report that fact to those charged with
governance.
Responsibilities of Management and Those Charged with Governance for the Financial
Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with IFRS, and for such internal control as management determines is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to liquidate the Company or to
cease operations, or has no realistic alternative but to do so.
46 | P a g e
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that
includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company's ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditors’
report to the related disclosures in the financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditors’ report. However, future events or conditions may cause the Company to cease to continue
as a going concern.
47 | P a g e
• Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in
a manner that achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
• Provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group Entity to express an opinion on the financial statements. We are
responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is Douglas W. Reid.
Halifax, Canada
March 7, 2019
48 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
As at December 31
ASSETS
Current assets
Cash
Trade and other receivables (Note 5)
Inventories (Note 6)
Prepaids and other
Derivative financial instruments (Note 7(a))
Non-current assets
Long-term receivables (Note 8)
Derivative financial instruments (Note 7(a))
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(a))
Non-current liabilities
Long-term debt (Note 13)
Derivative financial instruments (Note 7(a))
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 16)
2018
2017
$
$
35,887
85,244
70,115
7,357
1,222
199,825
4,970
12,671
147
246,117
9,382
14,266
191,422
48,623
527,598
$
727,423
$
$
$
$
$
70,507
1,661
23,269
9,966
105,403
440,148
497
323
17,832
458,800
215,506
4,218
(38,848)
(36,053)
144,823
18,397
163,220
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
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
727,423
$
See the accompanying notes to the consolidated financial statements
Approved by the Board:
John Risley
Director
Colin MacDonald
Chairman
49 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Earnings (Loss)
(In thousands of Canadian dollars)
Year ended December 31
Sales (Note 15)
Cost of goods sold
Gross margin
Operating expenses (Note 17)
Administrative and selling costs
Restructuring costs
Net finance costs (Note 13 (e))
Foreign exchange (gains) losses on long-term debt and working capital (Note 7 (c))
(Gains) losses on contract derivatives (Note 7 (d))
Other (income) expense (Note 18)
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 16)
Shareholders of Clearwater
2018
2017
$
$
592,246
485,409
106,837
621,031
510,963
110,068
53,509
482
31,966
9,061
15,798
(3,737)
1,724
108,803
55,551
6,856
35,280
(14,263)
(4,045)
(7,576)
2,368
74,171
(1,966)
35,897
1,740
7,658
$
(3,706) $
28,239
$
$
12,498 $
(16,204)
(3,706) $
12,480
15,759
28,239
Basic earnings (loss) per share (Note 20)
Diluted earnings (loss) per share (Note 20)
$
$
See the accompanying notes to the consolidated financial statements
(0.25) $
(0.25) $
0.25
0.25
50 | 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
Comprehensive income (loss) for the year
Comprehensive income (loss) attributable to:
Non-controlling interest (Note 16)
Shareholders of Clearwater
2018
2017
$
(3,706) $
28,239
312
3,377
(169)
3,520
255
(1,238)
49
(934)
(186) $
27,305
12,250
(12,436)
$
12,077
15,228
(186) $
27,305
$
$
$
See the accompanying notes to the consolidated financial statements
51 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Consolidated Statements of Changes in Equity
Accumulated
Comprehensive Loss
Cash
Cumulative
Retained
Non-
(In thousands of Canadian dollars)
shares
surplus
hedge
adjustment
(deficit)
interest
Total
Balance at January 1, 2017
$
210,860 $
1,419 $
- $
(38,931) $
(4,793) $
19,930 $ 188,485
Common Contributed
flow
translation
earnings
controlling
Comprehensive (loss) income for the year
Transactions recorded directly in equity
Share-based compensation (Note 21)
Distributions to non-controlling interest
Dividends declared on common shares (Note 14)
Acquisition of non-controlling interest (Note 16)
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
Comprehensive income (loss) for the year
Transactions recorded directly in equity
Share-based compensation (Note 21)
Distributions to non-controlling interest
Dividends declared on common shares (Note 14)
Common shares issued under DRIP
Acquisition of non-controlling interest (Note 16)
Total transactions with owners
-
98
-
-
4,548
-
4,646
-
3,208
560
(16,204)
12,250
(186)
1,197
-
-
-
-
1,197
-
-
-
-
-
-
-
-
-
-
(91)
(91)
-
-
(12,847)
-
(1,075)
(13,922)
-
(10,816)
-
-
(146)
1,295
(10,816)
(12,847)
4,548
(1,312)
(10,962)
(19,132)
Balance at December 31, 2018
$
215,506 $
4,218 $
2,019 $
(38,072) $
(38,848) $
18,397 $ 163,220
See the accompanying notes to the consolidated financial statements
52 | 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 from equity investee (Note 11)
Foreign exchange and other
Cash from operating activities before changes in working capital
Change in non-cash operating working capital (Note 26)
Cash from (used in) operating activities
Financing
Repayment of long-term debt (Note 13)
Proceeds from long-term debt
Net (repayment of) 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, net of dividends reinvested
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 16)
Proceeds from sale (purchase) of other assets
Payments received (net advances) on long-term receivables
Cash from (used in) investing activities
Effect of foreign exchange rate changes on cash
Increase (decrease) 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
2018
2017
$
(3,706) $
28,239
44,869
1,720
1,695
30,558
-
-
(4,578)
1,283
(254)
(2,923)
(1,876)
66,788
9,699
76,487 $
(10,652)
-
(30,248)
-
(11,353)
(65)
(8,299)
(60,617) $
(19,124)
-
3,228
(1,312)
181
326
(16,701) $
1,204 $
373
35,514
35,887 $
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
(28,817)
(11,853)
(25,518)
(9,447)
53 | P a g e
$
$
$
$
$
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
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, 2018
and 2017 comprise the Company, its subsidiaries and a joint venture (see Note 23). 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”).
The financial statements were authorized for issue by Clearwater’s Board of Directors on March 7, 2019.
(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
• Earnout liability entered into as part of a business combination
• Liabilities for cash settled share-based compensation arrangements
• Embedded derivative liability within long-term debt extinguished in 2017
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 the
US dollar. All tabular financial information presented in Canadian dollars has been rounded to the
nearest thousands, except per share amounts or as otherwise noted.
Change in functional currency
On July 1, 2018, Clearwater changed the functional currency of a subsidiary from the Argentinean Peso
to the US dollar to reflect that the US dollar has become the predominate currency. Key factors
considered in this assessment include the currency in which sales are denominated, the underlying
currency in which operating costs are determined and the Company’s intra-group funding arrangements.
The Company has accounted for the change prospectively in accordance with IAS 21 The Effects of
Changes in Foreign Exchange Rates.
54 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
(d) Critical judgments and estimates in applying accounting policies
The preparation of financial statements requires management to make estimates, judgments and
assumptions that materially affect the amounts reported in the consolidated financial statements and
accompanying notes. Management bases assumptions, estimates and
judgments on historical
experience, current trends and events, and all available information that management believes is relevant
at the time it prepares the consolidated 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 in the fourth
quarter and whenever events or changes in circumstances indicate that the carrying value may not be
recoverable.
Clearwater determines the fair value of each cash-generating unit (“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.
55 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
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 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 or internal performance metrics.
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 21.
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.
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).
56 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
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 in business combinations 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 CGU
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.
57 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
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 earnings (loss) 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.
Depreciation on property, plant and equipment commences in the month the assets 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
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
consolidated earnings (loss) as incurred.
58 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
Gains and losses on disposal of an item of property, plant and equipment are determined as the
difference between the proceeds from disposal and the carrying amount of the item, and are recognized
net within administrative and selling costs in the consolidated statement of earnings (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 licences, brand names, patents, 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)
Licences, brand names, patents and fishing rights
Licences 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 licences, brand names and patents, 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
its estimated useful life.
(e) Revenue from contracts with customers
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 control of the product transfers to the customer.
Control transfers to the customer at the point of delivery, which is dependent on the shipping term.
Revenue from the sale of seafood products is recognized based on the price specified in the contract,
less any customer discounts. No element of financing is recognized as sales are generally made with
normal credit terms ranging from 14 days from delivery to 60 days from the date of invoice.
When customers pay before product is shipped, revenue is not recognized until control transfers to the
customer.
59 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
Clearwater has elected to apply the practical expedient related to contract costs therefore contract costs
with an amortization period of less than one year have been expensed as incurred.
Clearwater may also provide services after control of the product has transferred to the customer,
including, freight, storage, customs clearing and cleaning. These services represent separate
performance obligations for which revenue is recognized over the time that the service is performed for
freight, storage and cleaning and at a point in time for customs clearing, being when the goods have
cleared customs. The transaction price is allocated to these services based on an expected cost-plus
margin approach.
(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
Classification
Clearwater classifies its financial assets and financial liabilities into three categories being subsequently
measured at 1) fair value through profit or loss (“FVTPL”); 2) amortized cost; or 3) fair value through other
comprehensive income (“FVTOCI”). The classification for financial assets depends on the Company’s
business model, management of the financial asset and the contractual terms of the cash flows.
Financial assets are classified as amortized cost only if both the following criteria are met:
(1) the financial asset is held within a business model with the objective of collecting the contractual
cash flows; and
(2) the contractual terms give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal outstanding.
Derivatives are classified as FVTPL unless they are designated as hedges. Clearwater has not
designated any financial liabilities to be recognized as FVTPL.
Clearwater’s financial assets and liabilities have been classified as follows:
Financial instrument
Cash
Trade and other receivables
Long-term receivables
Trade and other payables
Long-term debt
Earnout liability
Derivative financial instruments
Derivative financial instruments
(hedge accounting)
Classification
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Measurement
Fair value
Initial: Fair Value
Subsequent: Amortized
cost
FVTPL
FVTPL
FV - hedging instrument
Fair value
Fair value
Fair value
60 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
Measurement
(1) Financial assets and liabilities at amortized cost or FVTPL
On initial recognition, a financial asset or financial liability carried at amortized cost is measured at its fair
value plus transaction costs that are directly attributable to the acquisition of the financial asset or liability.
Transaction costs of financial assets and liabilities carried at FVTPL are recognized in the Consolidated
Statement of Earnings (Loss).
(2) Derivative instruments
Derivatives are initially recognized at fair value and subsequently re-measured to their fair value either
through profit or loss or other comprehensive income depending on whether the derivative has been
designated as a hedging instrument.
When a derivative is designated as a cash flow hedging instrument, the effective portion of the changes in
fair value of the derivative is recognized in the Consolidated Statement of Comprehensive Income (Loss)
and accumulated within equity. The amount recorded in equity is reclassified to the Consolidated
Statement of Earnings (Loss) in the same period during which the hedged item is recognized in the
Consolidated Statement of Earnings (Loss).
The ineffective portion of the change in fair value of the derivative is recognized as Net finance costs in
the Consolidated Statement of Earnings (Loss).
If the forecasted transaction is no longer expected to occur, the hedge no longer meets the criteria for
hedge accounting, the hedging instrument expires or is sold, terminated or expired, or Clearwater elects
to discontinue hedge accounting for the derivative, then hedge accounting is discontinued prospectively.
If the forecasted transaction is no longer expected to occur, then the amount accumulated in equity is
reclassified to the Consolidated Statement of Earnings (Loss). If hedge accounting is discontinued but
the forecasted transaction is still expected to occur, the amount accumulated in equity will be reclassified
to the Consolidated Statement of Earnings (Loss) at the same time as the original hedged item.
Derecognition
From time-to-time, Clearwater enters into transactions to sell selected accounts receivables to a
commercial partner without recourse. The amount of receivables sold are removed from the Consolidated
Statement of Financial Position at the time of the sale. The difference between the carrying amount and
the proceeds on sale of the 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.
(h) Impairment
i) Financial assets
The Company assesses expected credit losses on financial assets carried at amortized cost on a forward-
looking basis.
For trade receivables, Clearwater applies the simplified approach which requires lifetime expected credit
losses to be recognized from initial recognition of the receivables.
61 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
Clearwater considers the probability of default on a specific account basis, which involves assessing
whether there was a significant increase in credit risk. Indicators include actual or expected changes in
the debtor’s ability to pay based on information that is available each reporting period; monitoring past
due accounts and other external factors. Refer to Note 7(e) for discussion on credit risk and the provision
for impairment losses related to trade receivables.
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 earnings (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.
(h) 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.
62 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
ii) Foreign operations
The assets and liabilities of foreign operations with a functional currency different from Clearwater’s
presentation currency, including goodwill, 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 earnings (loss) as part of the gain 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.
(i)
Income taxes
Income tax expense is comprised of current and deferred income tax. Current tax and deferred income
tax are recognized in earnings (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.
(j) 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.
63 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
(k) Finance costs
Finance costs comprises interest expense on borrowings, gains and losses on financial instruments
related to long-term debt or interest recognized in earnings (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 earnings (loss).
(l)
Share-based compensation
Clearwater has three share-based compensation plans including share appreciation rights (“SARs”),
deferred share units (“DSUs”) and performance share units (“PSUs”). Refer to Note 21 for a description
of the plans.
In accordance with the PSU plan document, vested units may be settled in cash or common shares or by
a combination thereof as determined by the Company. Grants settled under the PSU plan up to 2017
were cash-settled and all future grants under the PSU plan will be settled by the issuance of common
shares. In 2018, PSUs were settled in common shares.
Cash-settled PSU awards were recorded as liabilities at fair market value at each reporting period with
changes in fair value recorded to earnings (loss). Equity-settled PSU awards are measured at fair market
value on the grant date of the awards. The fair value of PSU’s are calculated using a Monte Carlo
simulation model or the share price on the grant date where the performance factor is a non-market
condition. 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.
(m) 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.
64 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
4. CHANGES IN ACCOUNTING POLICIES
Clearwater has adopted the following new and revised standards, along with any consequential
amendments, effective January 1, 2018. These changes were made in accordance with the applicable
transitional provisions.
IFRS 15 – Revenue from Contracts with Customers
IFRS 15 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.
The Company adopted IFRS 15 in its financial statements 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 have not been restated. On transition, cumulative impacts related to adoption
are required to be recognized in opening retained earnings; however, no adjustments were required for
Clearwater.
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. Refer to accounting policies and Note 9 in the Consolidated Financial Statements for these
disclosures.
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.
The Company adopted IFRS 9 in its financial statements for the annual period beginning on January 1,
2018. The adoption of this standard had no financial impact to Clearwater. Refer to accounting policies
and Note 7 in the Consolidated Financial Statements.
New accounting standards not yet adopted
The IASB has issued the following standard that has not been applied in preparing these consolidated
financial statements as its effective date falls within annual periods beginning subsequent to the current
reporting period.
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.
65 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
The Company will adopt IFRS 16 beginning on January 1, 2019 and has elected to apply the modified
retrospective approach on transition. Clearwater currently leases office space, machinery, wharves,
equipment and vehicles. Clearwater will not see a material impact on net income as a result of the new
lease standard and interest and depreciation will largely offset the amounts previously reported as
operating expense. The standard will have an impact on its key performance measures, including
earnings before interest, tax, depreciation and amortization, leverage and return on assets.
5. TRADE AND OTHER RECEIVABLES
As at December 31
Trade receivables
Other receivables
$
$
2018
68,952
16,292
85,244
$
$
2017
86,636
16,460
103,096
Included in other receivables is $9.3 million (December 31, 2017 - $9.2 million) of value added tax and
commodity tax receivables and $7.0 million (December 31, 2017 - $7.3 million) of other receivables.
6. INVENTORIES
As at December 31
Seafood inventory
Supplies and other
$
$
2018
60,414
9,701
70,115
$
$
2017
68,696
10,428
79,124
In 2018 inventory costs of $450.1 million (2017 - $467.7 million) were recognized in cost of goods sold.
Clearwater incurred $1.2 million (2017 - $1.8 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.
7. FINANCIAL INSTRUMENTS
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 hedging accounting, qualifying hedging relationship (cash
flow hedge). Changes in the fair value of derivatives in a qualifying hedging relationship are recognized in
comprehensive income until the hedged risk affects 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 December 31
2018
2017
Derivative financial assets
Contracts in a current asset position
Contracts in a non-current asset position
Derivative financial liabilities
Contracts in a current liability position
Contracts in a non-current liability position
$
$
1,222
12,671
13,893
$
$
(9,966)
(497)
$
(10,463)
$
5,797
141
5,938
(1,978)
(7,142)
(9,120)
66 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
(a) Forward Foreign Exchange Contracts
Clearwater has forward contracts maturing each month until June 2020 and forward contracts related to
the USD Notes maturing May 2022 (Note 13). At December 31, 2018 Clearwater had outstanding forward
contracts as follows:
Average Weighted
average
contract
Currency
Foreign currency
notional amount (in 000's)
exchange
months
rate to maturity
Fair value
asset (liability)
Contracts in a current asset position
Derivatives designated as hedging instruments
USD
13,750
1.284
7
$
1,003
Derivatives not designated as hedging instruments
Euro
Euro - GBP
8,950
13,540
1.594
0.911
5
8
$
126
93
1,222
Contracts in a non-current asset position
Derivatives designated as hedging instruments
USD
Derivatives not designated as hedging instruments
USD
Euro - GBP
Total contracts in an asset position
34,375
1.283
28
$
2,075
200,000
2,120
1.284
0.918
40
15
Contracts in a current liability position
Derivatives not designated as hedging instruments
Euro
USD
Yen
Euro - GBP
24,060
121,723
2,928,300
14,890
1.550
1.298
0.0120
0.889
Contracts in a non-current liability position
Derivatives not designated as hedging instruments
Euro
Yen
Euro - GBP
5,620
396,400
1,870
1.574
0.0121
0.900
Total contracts in a liability position
$
6
6
6
5
$
15
14
15
$
10,584
12
12,671
13,893
(770)
(7,204)
(1,631)
(361)
(9,966)
(207)
(242)
(48)
(497)
(10,463)
67 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
At December 31, 2017, Clearwater had outstanding forward contracts as follows:
Average Weighted
average
contract
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
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
0.0120
0.904
0.766
12
6
6
8
5
$
Contracts in a non-current asset position
Derivatives designated as hedging instruments
USD
17,188
1.243
28
$
Total contracts in an asset position
$
84
4,178
1,012
134
267
5,797
141
141
5,938
Contracts in a current liability position
Derivatives designated as hedging instruments
USD
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
0.0113
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
Derivatives not designated as hedging instruments
30,938
1.305
38
$
(1,504)
USD
200,000
1.284
52
Total contracts in a liability position
(5,639)
(7,142)
(9,120)
$
68 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
(b) Derivatives designated as Hedging Instruments
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 amounts recognized in the Consolidated Statements of Comprehensive
Income (Loss), the amounts reclassified from Accumulated Comprehensive Income (Loss) (“ACL”) within
equity and the amount recorded in the Consolidated Statements of Earnings (Loss):
Gain (loss) recognized in
ACL
Year ended
December
(Gain) loss reclassified from
ACL to Net Finance Costs
Year ended
December
December 31
2018
31 December 31
2018
2017
Ineffectiveness recognized in
Net Finance Costs
Year ended
December
31
2017
31 December 31
2018
2017
4,859
(1,482)
3,377
(1,781)
543
(1,238)
(243)
74
(169)
71
(22)
49
-
-
-
-
-
-
Derivatives in cash flow
hedging relationship
Forward foreign exchange
contracts
Income tax recovery (expense)
Net gain (loss)
$
(c) Foreign exchange (gains) losses on long-term debt and working capital
Year ended December 31
Realized (gain) loss
Long-term debt and working capital
$
2018
(5,514) $
2017
3,547
Unrealized (gain) loss
Long term debt and working capital
Forward foreign exchange contracts, cross currency swaps and cap on
long-term debt
Total unrealized (gain) loss
(d) Losses (gains) on contract derivatives
Year ended December 31
Realized (gain) loss
Forward foreign exchange contracts
Unrealized (gain) loss
Forward foreign exchange contracts
30,798
(23,693)
(16,223)
14,575
9,061
$
5,883
(17,810)
(14,263)
$
2018
2017
1,321 $
(3,065)
14,477
15,798 $
(980)
(4,045)
$
$
69 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
(e) Credit risk
Credit risk refers to the risk of losses due to failure of Clearwater’s customers or other counterparties to
meet their contractual obligations. Clearwater is exposed to credit risk in the event of non-performance by
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 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 represented more than 7% of total sales for the year ended
December 31, 2018. 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
2018
93.8%
4.6%
1.6%
100.0%
2017
92.8%
5.7%
1.5%
100.0%
The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts of $0.3
million (2017 - $0.1 million).
Clearwater considers the probability of default on a specific account basis, which involves assessing
whether there was a significant increase in credit risk. Indicators include actual or expected changes in
the debtor’s ability to pay based on information that is available each reporting period; monitoring past
due accounts and other external factors. Changes in the allowance for doubtful accounts are summarized
in the table below:
As at
Balance at January 1
Allowance recognized
Amounts recovered
Amounts written off as uncollectible
Foreign exchange
Balance at December 31
(f) Foreign currency exchange rate risk
December 31
2018
December 31
2017
$
$
$
147
120
(10)
-
8
265
$
424
263
(12)
(247)
(281)
147
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
91% (2017 - 88%) of Clearwater's sales are in currencies other than Canadian dollars, whereas the
majority of expenses are in Canadian dollars. As a result, fluctuations in foreign exchange rates may
have a material impact on Clearwater's financial condition and operating results. In addition, Clearwater
has subsidiaries that operate in the offshore scallop fishery in Argentina and Scotland which exposes
Clearwater to changes in the value of the Argentine Peso and GBP.
70 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
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 enables Clearwater to
lock in exchange rates for up to 18 months for key sales currencies (the US dollar, Euro, Yen
and GBP) thereby lowering the potential volatility in cash flows through derivative contracts.
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 1.2830 through to
2022.
The carrying amounts of Clearwater’s foreign currency denominated monetary assets and monetary
liabilities (excluding derivative financial instruments) as at December 31, 2018 and December 31, 2017
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 foreign currency monetary items
2018
2017
$
$
$
28,392
58,583
16,442
3,151
(24,982)
(367,593)
(308)
(286,315) $
9,685
78,075
9,618
3,672
(31,506)
(347,026)
(616)
(278,098)
The components of this net exposure by currency are as follows (in foreign currency ‘000’s) at December
31, 2018:
Argentine
December 31, 2018
GBP
USD
Yen
Euros
RMB
DKK
Peso
Cash
Trade receivables
Other receivables
Long term receivables
Trade and other payables
Long-term debt
Other long-term liabilities
8,018
3,442
1,169
425
1,508
41,805
2,302
10,555 446,079
21,003
1,861
1,400
1,070
(40)
-
-
6,501
-
-
-
-
267
316
7,500
2,516
28,190
-
21,266
(7,680)
(6,525)
(13,531)
(582)
6,272
(719)
(75,455)
(11,470) (254,965)
(177)
-
-
-
40
-
-
-
-
-
-
-
Net exposure to foreign currency
monetary items
(5,746) (246,463) 433,717
27,387
7,780
51,102
(25,416)
71 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
The components of this net exposure by currency are as follows (in foreign currency ‘000’s) at December
31, 2017:
Argentine
December 31, 2017
GBP
USD
Yen
Euros
RMB
DKK
Peso
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
-
-
-
-
-
-
7,950
(3,432)
21,873
-
19,958
212
154
(11,023)
(1,745)
(14,702)
(2,588)
2,290
(2,595) (100,333)
(16,835) (253,879)
(365)
-
-
-
40
-
-
-
-
-
-
-
Net exposure to foreign currency
monetary items
(24,031) (231,164) 567,374
29,726
3,841
26,506
(58,136)
The following table details Clearwater’s sensitivity to a 10% change in the exchange rates against the
Canadian dollar. The sensitivity analysis includes outstanding foreign currency denominated monetary
items and adjusts their translation at the period end for a 10% change in foreign currency exchange rates.
The change below is calculated based on the net exposure to foreign currency monetary items.
(In '000 of Canadian dollars)
GBP
USD
Yen
Euros
RMB
DKK
Argentine Peso
(g) Interest rate risk
2018
(1,000)
(33,610)
540
4,282
154
1,070
(92)
2017
(4,059)
(28,968)
630
4,459
74
534
(381)
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 which create fair value interest rate risk. Clearwater’s variable
rate borrowings create cash flow interest rate risk.
Clearwater’s long-term debt is carried at amortized cost. In 2017, prior to the refinancing on April 26,
2017, the embedded interest rate floor in Term Loan B was recorded at fair value through earnings (loss).
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 a variable rate Revolving
Credit facility and Term Loan B facility (Note 13). As at December 31, 2018, approximately 76% (2017 –
68%) of Clearwater’s debt of $463.4 million (2017 - $473.2 million) was fixed rate debt with a weighted
average interest rate of 6.3% (2017 – 5.8%). A 1% change in interest rates for variable rate borrowings
would result in a $0.9 million increase (or decrease) in interest expense.
72 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
(h) Liquidity risk
Liquidity risk is the risk that Clearwater will encounter difficulty in meeting obligations associated with
financial liabilities. Clearwater manages liquidity risk by monitoring forecasted and actual cash flows,
minimizing reliance on any single source of credit, maintaining sufficient undrawn committed credit
facilities and matching the maturity profiles of financial assets and financial liabilities.
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, 2018.
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, 2018
Interest - long-term debt
Principal repayments - long-term
debt
Carrying
Amount
Total
Contractual
Cash Flow
$
- $
182,056 $
2020
2019
27,951 $ 27,561 $
2022
2021
27,545 $ 24,989 $
2023
23,719 $
>2024
50,291
463,417
463,417
23,269
10,080
1,467
91,146
-
337,455
Total long-term debt
463,417
645,473
51,220
37,641
29,012 116,135
23,719
387,746
Trade and other payables
Operating leases and other
Capital and maintenance projects
Derivative financial instruments -
liabilities
70,507
-
-
70,507
10,501
262
70,507
4,882
262
-
2,874
-
-
1,258
-
-
687
-
-
270
-
10,463
10,463
9,966
497
-
-
-
-
530
-
-
$ 544,387 $
737,206 $ 136,837 $ 41,012 $
30,270 $ 116,822 $
23,989 $ 388,276
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 licences 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 $0.04 million (2017 - $0.07 million).
73 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
(i) 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, 2018
Assets:
Cash
Trade and other receivables
Long-term receivables
Forward foreign exchange contracts
Liabilities:
Trade and other payables1
Long-term debt2
Forward foreign exchange contracts
$
$
$
$
35,887 $
-
-
10,815
46,702 $
- $
(3,513)
(10,463)
(13,976) $
FVTPL
FV Hedging Amortized cost
Total
Carrying
amount
- $
-
-
3,078
3,078 $
- $
85,244
4,970
-
90,214 $
35,887 $
85,244
4,970
13,893
139,994 $
Fair
value
35,887
85,244
4,970
13,893
139,994
- $
-
-
- $
(70,507) $
(459,904)
-
(530,411) $
(70,507) $
(463,417)
(10,463)
(544,387) $
(70,507)
(450,098)
(10,463)
(531,068)
1 Trade and other payables includes share-based compensation of $3.5 million which is not recorded at amortized cost. Refer to
Note 21.
2 Earnout liability is recorded at fair value through profit or loss.
December 31, 2017
Assets:
Cash
Trade and other receivables
Long-term receivables
Forward foreign exchange contracts
Liabilities:
Trade and other payables1
Long-term debt2
Forward foreign exchange contracts
$
$
$
$
FVTPL
FV Hedging Amortized cost
35,514 $
-
-
5,675
41,189 $
- $
-
-
263
263 $
- $
103,096
5,077
-
108,173 $
Total
Carrying
amount
35,514 $
103,096
5,077
5,938
149,625 $
Fair
value
35,514
103,096
5,077
5,938
149,625
- $
(5,278)
(7,075)
(12,354) $
- $
-
(2,045)
(2,045) $
(80,411) $
(467,895)
-
(548,306) $
(80,411) $
(473,173)
(9,120)
(562,704) $
(80,411)
(491,079)
(9,120)
(580,610)
1 Trade and other payables includes share-based compensation of $4.7 million which is not recorded at amortized cost. Refer to
Note 21.
2 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 the carrying amounts of financial assets and financial
liabilities recognized in the consolidated financial statements to 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.
The estimated fair value of Clearwater’s long-term debt for which carrying value did not approximate fair
value at December 31, 2018 was $354.3 million (December 31, 2017 - $363.5 million) and the carrying
value was $367.7 million (December 31, 2017 – $345.7 million). The fair value of long-term debt has been
classified as Level 2 in the fair value hierarchy (described below) and was estimated based on discounted
cash flows using current rates for similar financial instruments subject to similar risks and maturities.
74 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
(j) Fair value hierarchy
Assets and liabilities carried at fair value are 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 and fair value hedging instruments using the fair value hierarchy:
December 31, 2018
Recurring measurements
Financial Assets:
Cash
Forward foreign exchange contracts
Financial Liabilities:
Forward foreign exchange contracts
Earnout liability
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
$
$
$
$
$
$
35,887 $
- $
-
13,893
35,887 $
13,893 $
-
-
- $
10,463
-
10,463 $
-
-
-
-
3,513
3,513
Level 1
Level 2
Level 3
35,514 $
- $
5,938
35,514 $
5,938 $
-
-
-
-
9,120
-
- $
9,120 $
-
5,278
5,278
There were no transfers between levels during the periods ended December 31, 2018 and December 31,
2017.
75 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
Clearwater used the following techniques to value financial instruments categorized in Level 2:
• Forward foreign exchange contracts are measured using present value techniques. Future cash
flows are estimated based on forward exchange rates (from observable exchange rates at the
end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit
risk of Clearwater and the various counterparties.
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 Earnings before interest, taxes, depreciation and
amortization (“EBITDA”); (ii) the risk associated with the functional form of the Earnout liability payments;
and (iii) the credit risk associated with the future Earnout liability payments. The fair value of the Earnout
liability payments is estimated based on a Monte Carlo simulation under a risk-neutral framework. The fair
value of the Earnout liability is estimated based on discounted expected future EBITDA cash flows for
Macduff for the remaining period ending December 31, 2020. The following inputs and assumptions were
used in calculating the fair value of the Earnout liability including:
• Payment dates: The Earnout liability is be payable for the periods ending December 31, 2018
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 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: 26%
A risk adjusted payout is calculated at each time period and discounted at the risk-adjusted rate to the
valuation date. This process is simulated 100,000 times and the expected value of the Earnout liability is
retrieved. Based on the method stated above, the fair value of the Earnout liability was determined to be
£2.0 million (CDN $3.5 million) as at December 31, 2018.
The change in the fair value of the Earnout liability for the Year ended December 31, 2018 was a
decrease of £0.4 million (CDN $0.6 million) (2017 - decrease of £1.6 million (CDN $2.7 million)).
The fair value estimates are not necessarily indicative of the amounts that Clearwater will receive or pay
at the settlement of the contracts.
76 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
8. LONG-TERM RECEIVABLES
As at December 31
Advances to fishermen
Other
$
$
2018
4,930
40
4,970 $
2017
5,077
-
5,077
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 1% - 3%
(2017 - 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 licences.
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)). There is no material expected loss provision on long-term receivables.
9. PROPERTY, PLANT AND EQUIPMENT
Land and land
improvements
Building and
wharves
Equipment
Vessels and
vessel
equipment
Construction
in progress Total PPE
Deferred
Gov't
Assistance
Total
Cost
Balance at January 1, 2018
Additions
Disposals
Reclassifications and other
adjustments
Effect of movements in exchange
rates
Balance at December 31, 2018
Accumulated depreciation
Balance at January 1, 2018
Depreciation for the year
Disposals
Reclassifications and other
adjustments
Effect of movements in exchange
rates
Balance at December 31, 2018
Carrying amounts
At January 1, 2018
At December 31, 2018
$
$
$
$
$
$
2,877 $
-
-
69,212 $ 87,878 $ 312,449 $
12
(899)
-
(4,381)
-
(369)
85,875 $ 558,291 $ (10,122) $ 548,169
19,124
19,112
(5,649)
-
19,124
(5,649)
-
-
-
3,035
14,112
78,912
(96,190)
(131)
-
(131)
(3)
2,874 $
(132)
588
71,746 $ 101,691 $ 382,300 $
(4,680)
75
(4,152)
8,872 $ 567,483 $ (10,122) $ 557,361
(4,152)
-
1,035 $
19
-
52,223 $ 65,543 $ 165,902 $
6,850
2,552
(720)
(369)
32,099
(3,954)
- $ 284,703 $
-
-
41,520
(5,043)
(8,605) $ 276,098
41,216
(5,043)
(304)
-
-
(43)
45
-
-
2
-
2
-
1,054 $
47
347
54,410 $ 72,065 $ 192,595 $
(1,452)
(1,058)
-
- $ 320,124 $
29
(1,029)
(8,880) $ 311,244
1,842 $
1,820 $
16,989 $ 22,335 $ 146,547 $
17,336 $ 29,626 $ 189,705 $
85,875 $ 273,588 $
8,872 $ 247,359 $
(1,517) $ 272,071
(1,242) $ 246,117
77 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
Land and land
improvements
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
Reclassification and other
adjustments
Effect of movements in exchange
rates
Balance at December 31, 2017
Accumulated depreciation
Balance at January 1, 2017
Depreciation for the year
Disposals
Reclassifications and other
adjustments
Effect of movements in exchange
rates
Balance at December 31, 2017
Carrying amounts
At January 1, 2017
At December 31, 2017
$
$
$
$
$
$
2,819 $
-
-
67,102 $
47
(11)
73,024 $ 325,083 $
254
(15)
6,428
(26,952)
36,043 $ 504,071 $
78,702
-
85,431
(26,978)
(8,962) $ 495,109
85,431
(26,978)
-
-
62
2,293
14,407
12,923
(28,998)
687
(1,160)
(473)
(4)
2,877 $
(219)
69,212 $
208
(5,033)
87,878 $ 312,449 $
128
(4,920)
85,875 $ 558,291 $ (10,122) $ 548,169
(4,920)
-
1,005 $
30
-
49,695 $
2,532
(11)
60,320 $ 158,515 $
5,082
(15)
33,037
(24,760)
7 $ 269,542 $
40,681
-
(24,786)
-
(8,240) $ 261,302
40,304
(24,786)
(377)
-
-
-
1,035 $
-
7
(7)
630
(7)
616
-
616
163
(1,520)
52,223 $
65,543 $ 165,902 $
(1,350)
-
- $ 284,703 $
12
(1,338)
(8,605) $ 276,098
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
Total depreciation and amortization expense related to property, plant and equipment and definite-life
intangible assets for 2018 was $44.9 million (2017 - $45.4 million). In 2018, $46.4 million (2017 - $42.3
million) of depreciation and amortization expense for assets used in the harvesting and production of
goods was included in the cost of inventory and cost of goods sold and $2.5 million (2017 – $3.0 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.
78 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
10. INTANGIBLE ASSETS AND GOODWILL
Intangible assets
Goodwill
Brand
names
Computer
software
Indefinite life
assets
Fishing
rights
Total
Goodwill and
intangible
asset total
Cost
Balance at January 1, 2017
Additions
Foreign currency exchange translation
Balance at December 31, 2017
Additions
Disposal
Foreign currency exchange translation
Balance at December 31, 2018
Accumulated amortization
Balance at January 1, 2017
Amortization
Foreign currency exchange translation
Balance at December 31, 2017
Amortization
Disposal
Foreign currency exchange translation
Balance at December 31, 2018
Carrying amounts
As at December 31, 2017
As at December 31, 2018
$
$
$
$
$
$
49,781 $
10,216 $
-
415
50,196
-
186
10,402
21,078 $
996
-
22,074
153,726 $
25,664 $
-
727
154,453
-
(356)
25,308
210,684 $
996
557
212,237
-
-
(1,573)
48,623 $
-
-
315
10,717 $
-
(197)
-
21,877 $
119
(596)
1,777
155,753 $
-
-
(340)
24,968 $
119
(793)
1,752
213,315 $
- $
-
-
-
-
-
-
- $
- $
-
-
-
-
-
-
- $
2,392 $
3,224
-
5,616
3,137
(107)
-
8,646 $
- $
-
-
-
-
-
-
- $
10,971 $
1,900
(65)
12,806
516
-
(75)
13,247
13,363 $
5,124
(65)
18,422
3,653
(107)
(75)
21,893 $
260,465
996
972
262,433
119
(793)
179
261,938
13,363
5,124
(65)
18,422
3,653
(107)
(75)
21,893
50,196 $
48,623 $
10,402 $
10,717 $
16,458 $
13,231 $
154,453 $
155,753 $
12,502
11,721
193,815 $
191,422 $
244,011
240,045
Clearwater maintains fishing licences and rights to ensure continued access to the underlying resource.
Fishing licences 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 licences and goodwill are tested for
impairment annually and when circumstances indicate the carrying value may be impaired.
Indefinite life licences, brand names, patents and goodwill
Annual impairment testing for each CGU was performed using a VIU approach as of December 31, 2018.
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 2018.
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 2018 were determined similarly to those used
in 2017.
79 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
The carrying value of Clearwater’s significant CGU’s are as follows:
As at December 31
Scallops
Indefinite life assets
MacDuff
Goodwill
Indefinite life assets
Brand names
Brand names
Goodwill
Indefinite life assets
December 31
2018
December 31
2017
$
53,541 $
54,456
42,985
76,652
10,717
5,638
25,560
215,093 $
44,558
74,886
10,402
5,638
25,111
215,051
$
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% (2017: 2% -
2.5%).
ii) Pre-tax discount rates ranging from 9% - 13% (2017: 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 licence.
The following assumptions were used for each individual CGU:
Argentine scallops
Clams
Turbot
CDN scallops
FAS shrimp
Lobster
MacDuff
Other
Terminal growth rate
Pre-tax discount rates
2018
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.5%
2.0%
2017
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.5%
2.0%
2018
13.0%
9.5%
9.5%
9.5%
9.5%
10.0%
11.0%
9.0%
2017
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.
Refer to Note 13 for assets pledged as security for long-term debt.
80 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
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
2018
2017
Carrying amount of interest in joint venture
$
9,382 $
9,817
Share of:
Earnings for the year
Dividends from joint venture
12. INCOME TAXES
(a) Reconciliation of income tax expense
2,923
3,228
2,656
3,340
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
Benefit of 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
$
$
$
$
2018
(1,966) $
30.5%
(600) $
(3,618) $
4,452
-
4,099
(2,636)
(22)
1,153
(1,088)
1,740
$
2017
35,897
30.5%
10,949
(2,458)
(2,565)
5,451
-
(2,970)
639
(50)
(1,338)
7,658
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)
(c) Deferred tax assets and liabilities
$
$
2018
6,318
(4,578)
1,740
$
$
2017
12,375
(4,717)
7,658
81 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
Deferred tax assets and liabilities are attributable to the following:
Year ended December 31
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:
Licences and intangibles
Unrealized foreign exchange
Property, plant and equipment
Long-term debt
Classified in the consolidated statement of financial position as:
Deferred tax asset
Deferred tax liability
2018
2017
$
$
$
20,770
-
418
798
-
2,371
(22,422)
(1,215)
(3,235)
(1,051)
(3,566) $
14,266
(17,832)
$
(3,566) $
18,198
1,472
805
1,094
3,590
656
(22,932)
-
(5,227)
(4,147)
(6,491)
11,349
(17,840)
(6,491)
The net change in deferred income taxes is reflected in deferred income tax recovery of $4.6 million
(2017 - $4.7 million), plus $1.4 million (2017 – recovery $0.5 million) of deferred tax expense recorded
through other comprehensive loss (Note 7 (b)), less the foreign exchange effect of deferred taxes of
foreign subsidiaries totaling $0.3 million (2017 – $0.1 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.
Clearwater
Seafoods Inc.
-
20,244
68,089
-
Non-capital losses
Investment tax credits
Capital losses
Accounts receivable
Subsidiary
Corporations
6,665
930
380
13,750
6,665 2026 - 2037
21,174 2023 - 2038
68,469
13,750
No expiry
N/A
Expiry
Total
$
$
$
Unrecognized deferred tax liabilities
Deferred tax is not recognized on the unremitted earnings of subsidiaries and other investments as the
Company is in a position to control the reversal of the temporary difference and it is probable that such
differences will not reverse in the foreseeable future. The unrecognized temporary difference at
December 31, 2018 for the Company's subsidiaries was $95.3 million (December 31, 2017 - $84.2
million).
82 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
13. LONG-TERM DEBT
As at December 31
Senior debt (a):
2018
2017
USD senior unsecured notes, due May 2025 (USD $250,000)
$
333,955
$
306,684
Term loan B, due May 2022
Revolving credit facility, due May 2022
Deferred obligation (b)
Earnout liability (b)
Term loan, due June 2019 (c)
Term loan, due in 2091 (d)
Other loans
Total debt
Less: current portion 1
34,177
58,019
16,504
3,513
13,637
3,500
112
463,417
(23,269)
34,466
87,682
23,181
5,278
12,215
3,500
167
473,173
(21,025)
Total long-term debt
1 Current portion of long-term debt includes scheduled payments related to the Senior debt, Deferred Obligation
$
440,148
$
452,148
payments, less accretion during 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 “Senior Notes”). Concurrent with issuing the Senior Notes,
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 Senior 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 that were due in June 2018 and June 2019 and senior revolving credit facility) and for
general corporate purposes.
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 within Net Finance Costs
(refer to Note 13 (e)). Financing costs related to the Senior Notes and Senior Secured Credit Facilities of
$12.0 million had been deferred and amortized into interest using the effective interest method over the
term of the debt.
On March 29, 2018, Clearwater amended the terms of the secured credit facility agreement to temporarily
increase the secured indebtedness to EBITDA covenant requirement for the duration of 2018 and
obtained a reduction in the availability on the revolving credit facility from $300 million to $200 million.
The transaction costs of $0.2 million were added to deferred financing costs and will be amortized over
the remaining term of the credit facility using the effective interest rate.
As at December 31, 2018, Senior debt consists of Senior Notes, a Term Loan B facility and revolving
credit facility.
Senior Notes, due 2025 – The USD $250.0 million (CDN $340.9 million) Senior Notes have a coupon
rate of 6.875%, with coupon payments payable in semi-annual installments of USD $8.6 million (CDN
$11.7 million) in May and November each year. The balance is shown net of unamortized deferred
financing charges of USD $5.1 million (CDN $7.0 million) which resulted in an effective interest rate of
7.20%.
Refer to Note 7 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.
83 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
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, 2018 was CDN $34.4 million. The loan is repayable in
quarterly installments totalling $0.35 million per year, with the balance due at maturity in May 2022. The
facility bears interest ranging from banker’s acceptance rate (“BA rate”) 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 $0.2 million resulting in an effective interest rate of 4.46%.
Revolving credit facility, due 2022 – The CDN $200 million revolving credit facility can be drawn in
CDN, USD, EUR, YEN or GBP. As at December 31, 2018 the balances were drawn in CDN and bear
interest at the BA rate 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 $2.0 million, resulting in effective rates of 4.53% 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, 2018 was approximately
CDN $90.3 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, licences 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. No principal repayment was required under this condition in 2017 or
2018.
(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, 2018 is £10.5 million (CDN $18.3 million) (December
31, 2017 - £15.7 million (CDN $26.5 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%.
84 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
The following is a reconciliation of the Deferred Obligation:
Balance - at acquisition
Accretion
Principal repayments
Effect of movement in foreign exchange
Balance - December 31, 2017
Accretion - Year ended December 31, 2018
Principal repayment
Effect of movement in foreign exchange
Balance - December 31, 2018
$
GBP
20,925
3,262
(10,462)
-
13,725
$
991
(5,231)
-
9,485
$
£
£
£
CDN
42,388
5,722
(17,539)
(7,390)
23,181
1,720
(8,903)
506
16,504
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. Beginning in 2017, Clearwater had the right to exercise the payout
of 20% of the Deferred Obligation annually. The percentage of the Deferred Obligation remaining unpaid
will impact the fair value of the future performance component of the additional consideration, the Earnout
liability.
On October 30, 2018 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 (CDN - $8.9 million) was made in
November 2018 and £5.2 million (CDN - $8.8 million) in November 2017.
(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, 2018 is £2.0 million (CDN - $3.5 million) (December 31, 2017 - £3.1 million, CDN - $5.3
million) based on forecast earnings and probability assessments. The actual Earnout payments will be
paid over a five-year period ending 2021.
The amount of the total Earnout liability is calculated as follows:
The greater of:
(i)
(ii)
£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 of Macduff less the outstanding debt of Macduff; and
10% of adjusted EBITDA of Macduff above £10 million (dependent upon the percentage of
Deferred Obligation remaining unpaid each year).
(iii)
85 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
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).
Balance - at acquisition
Fair value adjustment
Payment
Effect of movement in foreign exchange
Balance - December 31, 2017
Fair value adjustment
Payment
Effect of movement in foreign exchange
Balance - December 31, 2018
GBP
6,100
(2,238)
(737)
$
3,125
$
(350)
(756)
-
2,019
$
CDN
12,357
(3,841)
(1,333)
(1,905)
5,278
(623)
(1,354)
212
3,513
£
£
£
Term Loan, due 2019
(c)
The principal outstanding as at December 31, 2018 was USD $10.0 million (CDN $13.6 million)
(December 31, 2017 - USD$10.0 million; CDN $12.2 million). The loan is held through a Clearwater
subsidiary. The loan was renewed in June 2018, is non-amortizing, repayable at maturity in June 2019
and bears interest payable monthly at 5.5% per annum.
Term Loan, due 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
Interest expense on financial liabilities
Amortization of deferred financing charges and accretion
Accretion on deferred consideration (Note 13 (b))
Fair value adjustment on embedded derivative (Note 13 (a))
Interest rate swaps and caps (1)
Debt settlement (2) & refinancing fees
$
2018
28,551
1,695
30,246
1,720
-
-
-
1,720
31,966
$
2017
28,205
1,555
29,760
2,166
(703)
(4,347)
8,404
5,520
35,280
$
$
(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.
86 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
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
Shares issued under share-based compensation plans
Shares issued under dividend reinvestment plan
Balance at December 31
#
63,934,698
21,185
886,110
64,841,993
2018
$
210,860
98
4,548
215,506
#
63,934,698
-
-
63,934,698
2017
$
210,860
-
-
210,860
On February 15, 2018, Clearwater approved a Dividend Reinvestment Plan (“DRIP”) effective February
23, 2018 to provide shareholders with the option to have the cash dividends declared on the common
shares of Clearwater reinvested automatically back into additional shares. 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
DRIP until further notice.
Clearwater has 2.5 million common shares (December 31, 2018 – 2.5 million remaining) reserved for
issuance under the share-based compensation plans and 3.0 million (December 31, 2018 – 2.1 million
remaining) under the DRIP.
During the year ended 2018, dividends of $12.8 million were declared and paid as follows:
Payment Date
April 2, 2018
June 1, 2018
September 4, 2018
December 3, 2018
# of Shares Outstanding
63,955,169
64,060,448
64,345,020
64,600,116
Dividends per Share
$
$
$
$
0.05
0.05
0.05
0.05
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
$
$
$
$
0.05
0.05
0.05
0.05
Dividends per Share
Subsequent to the end of the year, on March 7, 2019 the Board of Directors declared a quarterly dividend
of $0.05 per share payable on April 1, 2019 to shareholders of record as of March 18, 2019 for a total of
$3,242,100.
87 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
15. REVENUE
Clearwater recognized the following revenue from customers:
Year ended December 31
Revenue from contracts with customers
2018
592,246
$
2017
621,031
$
Disaggregation of revenue from contracts with customers
Clearwater’s revenue from contracts with customers is primarily generated through the sale of seafood
product in a fresh or frozen state to customers. Clearwater recognizes revenue on the sale of seafood
product at a point-in-time. Clearwater may provide additional services after control of seafood product
has transferred to the customer, including freight, storage, customs clearing and cleaning. These
services are recognized over time except from customs clearing which is recognized at a point-in-time.
These services are each considered separate performance obligations.
The timing of revenue recognition related to seafood product is dependent on shipping terms, in which
Clearwater uses International Commercial terms (“Incoterms”) as agreed upon with each customer.
These internationally recognized shipping terms specify when control of the goods have transferred to the
customer and therefore when revenue should be recognized.
Refer to Note 22 for revenue disaggregated by species and region.
Refer to Note 5 for trade receivables from contracts with customers.
16. NON-CONTROLLING INTEREST
On October 26, 2018, Clearwater acquired an additional 1% interest in its Argentina subsidiary for USD
$1 million (CDN $1.3 million) increasing Clearwater’s ownership from 85% to 86%. On May 29, 2017,
Clearwater acquired an additional 5% interest 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 liabilities in the consolidated financial statements on the date of
acquisition was $12.3 million (2017 - $8.9 million), including the cumulative translation adjustment
account. The acquisition resulted in a reduction to retained earnings attributable to shareholders of
Clearwater of $1.4 million (2017 - $7.2 million).
Year ended December 31
2018
2017
Carrying amount of net deficit
$
(12,259) $
(8,895)
Non-controlling interest acquired (deficit)
Consideration paid to non-controlling interest
(119)
1,312
(445)
6,725
Decrease in retained earnings attributable to shareholders of Clearwater
$
1,431
$
7,170
88 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
Summarized financial information in respect of Clearwater’s subsidiaries that have non-controlling
interests (“NCI”) is set out below.
(a) Summarized statements of financial position
As at December 31
NCI Percentage
Current assets
Current liabilities
Non-current assets
Net assets
Coldwater shrimp
2018
2017
46.34%
46.34%
$
$
25,258
(10,499)
14,759
21,763
(11,359)
10,404
14,613
17,192
29,372
27,596
Accumulated non-controlling interests
$
18,784
$
17,473
As at December 31
NCI Percentage
Current assets
Current liabilities
Non-current assets
Non-current liabilities
Net assets
Argentine Scallops
2018
14.0%
$
$
15,255
(17,625)
(2,370)
10,112
(88)
10,024
2017
15.0%
10,961
(25,404)
(14,443)
18,203
(391)
17,812
7,654
3,369
Accumulated non-controlling interests
$
(2,118) $
(1,801)
89 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
(b) Summarized statements of earnings
Year ended December 31
Sales
Earnings and comprehensive income for the year
$
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
2018
2017
82,434 $
26,281
12,665
11,353
74,199
19,004
10,605
18,073
Argentine Scallops
2018
2017
$
38,534
5,506
(1,222)
4,284
77
-
60,850
18,231
(2,119)
16,112
2,632
1,962
Coldwater shrimp
2018
2017
$
35,032
(24,500)
(4,825)
5,707
Argentine Scallops
$
2018
8
-
(12)
(4)
19,957
(39,000)
(4,142)
(23,185)
2017
13,522
(10,977)
(2,666)
(121)
$
$
$
90 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
17. OPERATING EXPENSES
Year ended December 31
Salaries and benefits
Share-based incentive compensation
Employee compensation
Consulting and professional fees
Other
Selling costs
Travel
Occupancy
Donations
Total administrative and selling costs before allocation
Allocation to cost of goods sold
Total administrative and selling costs
$
2018
41,308
1,289
42,597
$
12,827
3,559
2,319
2,770
1,578
1,298
24,351
(13,439)
53,509
Restructuring costs
Operating expenses
482
53,991
$
$
2017
40,197
409
40,606
14,238
4,977
2,816
3,089
1,548
1,648
28,316
(13,371)
55,551
6,856
62,407
Restructuring costs consisted of severance costs associated with the targeted restructuring of the
Company’s employee base and changes to Clearwater’s distribution infrastructure initiated in the fourth
quarter of 2017.
18. 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
19. EMPLOYEE COMPENSATION
$
2018
384
(2,923)
(745)
170
(623)
-
(3,737) $
2017
464
(2,656)
(431)
(994)
(2,769)
(1,190)
(7,576)
$
$
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
2018
146,105
1,289
147,394
113,570
33,824
147,394
$
$
$
$
2017
151,410
409
151,819
120,511
31,308
151,819
$
$
$
$
91 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
20. 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 and diluted
Weighted average number of shares outstanding - basic
Adjustment for stock-based compensation plan shares
Weighted average number of shares outstanding - diluted
Earnings (loss) per share
Basic
Diluted
2018
(16,204) $
2017
15,759
64,298,784
-
64,298,784
63,934,698
60,344
63,995,042
(0.25) $
(0.25) $
0.25
0.25
$
$
$
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, 2018.
Diluted weighted average number of shares outstanding are adjusted for the dilutive effect of share-based
compensation. For the year ended December 31, 2018, 123,833 (2017 – nil) potentially dilutive shares
were excluded from the calculation of diluted (loss) earnings per share as they were anti-dilutive.
21. SHARE-BASED COMPENSATION
Clearwater’s share-based compensation plans are disclosed in Note 3 (l). An aggregate amount of 2.5
million Common Shares of Clearwater are issuable under the deferred share unit and performance share
unit plans.
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 common 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.
92 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
Performance share units (“PSU”)
Performance share units are issued to both employees and directors. Prior to 2018, holders of PSUs
received settlement amounts measured based upon the relative performance of Clearwater shares to its
pre-defined peer group. Performance was based on the total return to shareholders over the defined
period. Beginning in 2018, the performance measure is based on Clearwater’s performance relative to
specific internal targets.
Vested units will be settled in cash or shares or by a combination thereof as determined by the Company.
All outstanding grants under the PSU plan will be settled by the issuance of common shares.
The number of share-based awards outstanding and vested as of December 31, 2018 and 2017 were as
follows:
As at December 31, 2018 (in
thousands)
SARs
PSU - Tranche 5
PSU - Tranche 6
PSU - Tranche 7
DSU
Total
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
Grant
price
0.80
1.00
N/A
N/A
N/A
N/A
Number
outstanding
83
67
79
103
409
403
1,144
Number
outstanding
83
67
61
85
110
465
871
Number
vested
83
67
79
-
-
403
632
Number
vested
83
67
61
-
-
465
676
Grant
Date
May 2010
May 2010
April 2016
May 2017
May 2018
June 2012 - December 2018
Grant
Date
May 2010
May 2010
April 2015
April 2016
May 2017
June 2012 - December 2017
The following reconciles the share-based awards outstanding for the year ended December 31, 2018:
(In thousands of share units)
Outstanding at January 1, 2018
Granted
Granted from dividends
Exercised
Outstanding at December 31, 2018
PSU -
Tranche 4
61
-
-
(61)
-
PSU -
Tranche 5
85
-
3
(9)
79
PSU -
Tranche 6
110
-
4
(11)
103
PSU -
Tranche 7 DSU
-
407
11
(9)
409
465
111
12
(185)
403
Vested at January 1, 2018
Vested
Exercised
Vested at December 31, 2018
61
-
(61)
-
-
88
(9)
79
-
11
(11)
-
-
9
(9)
-
465
123
(185)
403
SARS
Total
150
-
-
-
150
150
-
-
150
871
518
30
(275)
1,144
676
231
(275)
632
93 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
The following reconciles the number of 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 units were settled in the year ended December 31, 2018:
As at December 31, 2018
PSU - Tranche 4
PSU - Tranche 5
PSU - Tranche 6
PSU - Tranche 7
Total
Grant
price
N/A
N/A
N/A
N/A
Number exercised
In thousands
61
9
11
9
90
Exercise
date
March 2018
June 2018
June 2018
June 2018
Share price at
exercise date
$4.63
$5.04
$5.04
$5.04
These awards were equity settled during 2018. Refer to Note 14 for the number of shares issued after
taking into consideration the performance factor as described in Note 3 (l).
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 PSU Tranche 5 awards are fully vested as of December 31, 2018 and the total expense recorded
over the vesting period was $1.7 million recognized within contributed surplus. These awards will be
equity settled in the first quarter of 2019.
The retention DSUs awards are fully vested as of December 31, 2018 and will be settled in cash in the
first quarter of 2019.
94 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
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, 2018, are recorded at the share
price at the time of the election.
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)
$
PSU
Tranche 6
11.85 $
1.11% - 2.31%
16.60% - 33.83%
3
PSU
Tranche 7
4.95 $
N/A
N/A
N/A
Weighted average fair value per award
Weighted average risk-free interest rate
Weighted average expected volatility
Expected life of awards (years)
PSU
Tranche 5
PSU
Tranche 6
$
17.78 $
11.85 $
1.01% - 2.28%
18.66% - 43.43%
3
1.11% - 2.31%
16.60% - 33.83%
3
2018
DSU
5.89
N/A
N/A
N/A
2017
DSU
9.05
N/A
N/A
N/A
Share-based compensation expense included in the Consolidated Statements of Earnings (Loss) for the
year ended December 31, 2018 is $1.3 million (December 31, 2017 - $0.4 million).
The liability for share-based compensation is $3.5 million at December 31, 2018 (December 31, 2017 -
$4.7 million). The vested portion of the liability for share-based compensation is $3.5 million at December
31, 2018 (December 31, 2017 - $4.7 million).
95 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
22. SEGMENT INFORMATION
Clearwater has one reportable segment which includes its integrated operations for harvesting,
processing, marketing and the distribution of seafood products.
(a) Sales by Species
Year ended December 31
Scallops
Clams
Lobster
Coldwater shrimp
Crab
Langoustine
Whelk
Groundfish and other shellfish
(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
$
$
$
$
$
$
2018
171,373
120,235
88,387
70,951
51,656
42,026
24,291
23,327
592,246
2018
94,422
27,381
25,059
58,791
205,653
130,402
73,325
33,014
236,741
85,871
63,892
149,763
89
592,246
$
$
2017
200,286
109,170
101,883
77,964
45,468
43,099
24,267
18,894
621,031
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
(c) Non-current Assets by Geographic Region
As at December 31
2018
2017
Property, plant and equipment, licences, fishing rights and goodwill
Canada
Argentina
Scotland
Other
$
$
306,565 $
10,844
168,653
100
486,162 $
327,432
18,984
169,362
304
516,082
96 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
23. 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%
86%
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, 2018 and 2017.
Year ended December 31
Wages and salaries
Share-based compensation
Severance
Other benefits
$
$
2018
2,835
966
-
198
3,999
$
$
2017
3,623
(108)
1,624
364
5,503
(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 nil (December
31, 2017 – $0.04 million). Any amounts outstanding are unsecured and due on demand.
For the year ended December 31, 2018, Clearwater recorded net expense of approximately $0.2 million
for providing computer support network services to and receiving goods and services from companies
related to CVI (December 31, 2017 - net revenue of $0.06 million). The transactions are recorded at the
exchange amount and the balance due from these companies was $0.1 million as at December 31, 2018
(December 31, 2017 - $0.07 million due to).
97 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
24. 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.
98 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
Clearwater’s capital structure was as follows as at December 31, 2018 and December 31, 2017:
In 000's of Canadian dollars
As at December 31
Equity
Share capital
Contributed surplus
Deficit
Accumulated other comprehensive income (loss)
$
2018
2017
215,506 $
4,218
(38,848)
(36,053)
144,823
18,397
163,220
333,955
58,019
13,637
3,500
409,111
34,177
112
34,289
16,504
3,513
463,417
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
Non-controlling interest
Long-term debt
Senior debt, non-amortizing
USD senior unsecured notes, due 20251
Revolving debt, due in 20222
Term loan, due in 2019
Term loan, due in 2091
Senior debt, amortizing
Term Loan B, due 20223
Other loans
Deferred obligation4
Earnout liability4
Total long-term debt
Total capital
$
626,637 $
655,711
1. USD senior unsecured notes is net of unamortized deferred financing charges of $7 million with a US dollar coupon rate of
6.875%. This resulted in an effective interest rate of approximately 7.2%.
2. The revolving debt is net of unamortized deferred financing charges of $2 million resulting in an effective interest rate of
approximately 4.53%. As of December 31, 2018, subject to financial covenants, Clearwater may borrow up to an additional CDN
$90.3 million on the undrawn facility. The availability on this loan is reduced by the amount outstanding on a USD $10 million non-
amortizing term loan.
3. Term Loan B is net of unamortized deferred financing charges of $0.2 million. As of December 31, 2018, this resulted in an
effective interest rate of approximately 4.46%.
4. 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.
25. 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.
99 | P a g e
CLEARWATER SEAFOODS INCORPORATED
Notes to the Consolidated Financial Statements
(Tabular amounts are in thousands of Canadian dollars)
26. ADDITIONAL CASH FLOW INFORMATION
Changes in non-cash operating working capital
(excludes change in accrued interest)
Decrease (increase) in inventory
(Decrease) increase in accounts payable
Decrease (increase) in accounts receivable
Decrease (increase) in prepaids
(Decrease) increase 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
2018
2017
8,021
(8,252)
18,574
(3,108)
(5,536)
9,699
$
$
2018
473,173 $
(10,652)
-
-
-
-
(30,248)
-
-
1,720
-
(623)
1,695
-
28,352
463,417
$
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
(26,618)
473,173
$
$
$
$
100 | 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
2018
2017
159,807
164,225
148,142
120,072
174,765
163,597
154,302
128,367
1,784
(12,340)
(10,557)
4,440
10,818
15,258
(0.19)
(0.19)
0.07
0.17
0.17
0.06
2,715
(924)
1,792
(0.01)
(0.01)
0.11
3,559
(13,758)
(10,199)
4,405
(10,957)
(6,552)
4,526
15,055
19,581
2,503
9,489
11,992
(0.22)
(0.22)
0.01
(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
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
6.40
5.06
5.75
6.24
4.82
5.80
5.61
4.40
5.06
5.04
3.94
4.58
2,715
44
4,948
80
5,581
87
10,207
170
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
Shares outstanding at end of quarter
64,841,993
64,600,116
64,345,020
63,955,169
63,934,698
63,934,698
63,934,698
63,934,698
101 | 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
2018
(Audited)
2017
(Audited)
2016
(Audited)
2015
(Audited)
2014
(Audited)
$
592,246 $
485,409
621,031 $
510,963
611,551 $
466,930
504,945 $
372,757
444,742
341,908
106,837
110,068
144,621
132,188
102,834
47,135
6,856
31,967
61,421
986
35,617
9,062
(14,262)
15,798
(3,739)
1,724
-
(4,382)
(7,576)
2,368
-
55,342
3,150
(5,209)
2,922
-
-
68,579
49,480
1,883
444
1,981
-
-
148,472
48,178
74
(5,031)
1,991
-
-
87,088
Earnings before income taxes
(1,966)
35,897
19,837
(70,072)
(29,466)
Income taxes expense (recovery)
1,740
28,238
59,596
(20,671)
9,797
Earnings before non-controlling interest
(3,706)
28,238
59,596
(20,671)
9,797
Non-controlling interest
12,498
12,480
15,668
16,937
12,702
Earnings attributable to shareholders
$
(16,204) $
15,759 $
43,928 $
(37,608) $
(2,905)
102 | P a g e
CORPORATE INFORMATION
HEAD OFFICE OF CLEARWATER SEAFOODS
INCORPORATED
757 Bedford Highway
Bedford, Nova Scotia B4A 3Z7
902-443-0550
DIRECTORS
Colin E. MacDonald, Chairman of the Board
John C. Risley
Chairman and CEO, CFFI Ventures Inc.
Larry Hood, Chair of Audit Committee
Former Audit Partner, KPMG
Jane Craighead, Chair of Human Resources
Development and Compensation Committee
Senior Vice President, Scotiabank
Mickey MacDonald
President, Micco Companies
Brendan Paddick
Chief Executive Officer, Columbus Capital Corporation
Stan Spavold, Chair of Finance Committee
President, CFFI Ventures Inc.
Jim Dickson, Chair of Corporate Governance Committee
Former Counsel, Stewart McKelvey
Vicki McKibbon
President of Transportation, Armour Transportation
Systems, Inc
Karl Smith
Former Chief Financial Officer and Executive Vice President,
Fortis Inc.
EXECUTIVES
Ian Smith
Chief Executive Officer
Teresa Fortney
Vice-President, Finance and Chief Financial Officer
Christine Penney
Vice-President, Sustainability & Public Affairs
Dieter Gautschi
Vice-President, Global Human Resources
Roy Cunningham
Vice-President, Chief Operating Officer, Macduff
Tony Jabbour
Vice-President, Fleet Operations
Darren Bowen
Vice President, Global Supply Chain
INVESTOR RELATIONS
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.
103 | 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