TERVITAWORKS
2019 ANNUAL REPORT
Tervita Works.
Through all conditions, with resiliency and perseverance,
Tervita Works. We work to build value for our shareholders.
We work to be a trusted long-term partner for our customers.
We work to be a place where our people can learn, develop
and grow; and we work to build positive relationships in the
communities where we operate. We know that to thrive in an
ever-changing environment, we need to keep our sights on
working hard for all our stakeholders.
This is how Tervita Works.
Contents
2019 Highlights 1
President’s Message 2
Strategy & Corporate Development 4
Our Operations 6
Safety Matters 8
People Matters 10
Community Matters 12
Management’s Discussion and Analysis 15
Financial Statements 42
Corporate Information 88
TSX: TEV
Tervita is a leading waste management and environmental solutions provider offering waste processing, treating,
recycling and disposal services to customers in the energy, mining, and industrial sectors. We serve our customers
onsite and through a network of facilities in Canada and the United States.
For 40 years, Tervita has been focused on delivering safe and efficient solutions through all phases of a project
while minimizing impact, maximizing returns™. Our dedicated and experienced employees are trusted sustainability
partners to our clients. Safety is our top priority, it influences our actions and shapes our culture. Tervita trades on
the TSX as TEV. For more information, visit tervita.com
2019 HIGHLIGHTS
REVENUE
(excluding energy marketing) of $716 million, increased 12% over 2018
ADJUSTED EBITDA
of $233 million, increased 22% and 16% per share compared to 2018, with an
Adjusted EBITDA margin of 33%1
DISCRETIONARY FREE CASH FLOW
of $90 million, a 14% increase over 20181
ACHIEVED SYNERGIES
from the Newalta transaction of $45 million, ahead of schedule
EXECUTED
$106 million in growth and expansion capital investments in 2019, primarily
focused on strong returns on invested capital and cash flow per share growth
REVENUE
(excluding energy marketing)
$ million
716
637
505
600
400
200
ADJUSTED EBITDA1
$ million
Adjusted EBITDA Margin
31%
30%
33%
233
191
156
200
100
DISCRETIONARY FREE CASH FLOW 1
$ million
90
79
70
80
60
40
20
2017
2018
2019
2017
2018
2019
2017
2018
2019
1 Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EBITDA per share and Discretionary Free Cash Flow are Non-GAAP measures. Reconciliations to
GAAP measures can be found in the “Non-GAAP Measures” section of the attached Management’s Discussion & Analysis (MD&A).
TSX | TEV 1
PRESIDENT’S MESSAGE
We emerged from 2019 as a stronger more resilient company
JOHN COOPER
President and Chief Executive Officer
2019 was our first full year as a public company, and one of
substantial achievement for Tervita. We came together as one
company achieving our synergy targets ahead of schedule, emerging
as a stronger, more resilient company. I am proud to say that we
reached or exceeded many of our goals in 2019. We generated revenue
(excluding energy marketing) of $716 million, 12% higher than last
year, and Adjusted EBITDA of $233 million, 22% ahead of 2018. We
generated $90 million of Discretionary Free Cash Flow, an increase of
14% over 2018 and a 7% increase on a per share basis. These strong
results in a challenging market are reflective of the significant portion
of our revenues derived from production-related volumes, our Industrial
Services division, continued focus on cost control, and delivery of the
Newalta acquisition synergies. Operationally, Tervita did well in both
reporting segments:
• Industrial Services operations generated strong results due to
increased volumes through our waste facilities and our continued
focus on optimization and cost management in the business
• Energy Services operations benefited from synergies from the Newalta
transaction and relatively stable volumes from the production-focused
side of this business
In terms of capital, we invested $106 million in growth and expansion
projects, primarily focused on increasing our water handling capacity
in the Montney region and enhancing our clean oil energy marketing
capabilities, the most notable being the significant long-term contract
we secured with an energy producer in the Montney to develop a
pipeline connected water disposal facility.
To illustrate our commitment to building long-term strategic partnerships
with our customers and enhancing our return on capital in 2019 we
created the new position of Executive Vice President, Strategy & Corporate
Development. This position was filled by Rob Dawson, Tervita’s former
Chief Financial Officer (CFO). With this change we welcomed Linda
Dietsche into the role of CFO. Linda brings a wealth of knowledge to our
team with decades of experience in progressively senior financial roles
including most recently as the former CFO of Newalta.
We continued our commitment to safety and in 2019 we had a Lost-
Time Injury Frequency (LTIF) of 0.00, better than our target of 0.08 and a
Serious Incident Frequency (SIF) of 0.00, better than our target of 0.15.
Our Total Recordable Injury Frequency (TRIF) was 0.76 which slightly
exceeded our target of 0.75; however, the severity of these injuries has
been decreasing and we continue to focus on improving performance.
2 TERVITA | Annual Report 2019
SUSTAINABILITY
In 2019 the attention to Environment, Social and
Governance (ESG) factors grew and became a key
focus to the investment world and our industry.
We understand that an investment in sustainability
is an investment in our future as a company and
also for our industry. For 40 years Tervita has been
in the sustainability business with our solutions
contributing directly to the sustainability objectives
of our customers and by the nature of our business,
we are guided by
responsible environmental
stewardship. We use our industry expertise and
technologies to reduce the environmental footprint
of our customers. We see ESG as a continuing
opportunity – an opportunity to better ourselves
through ESG initiatives and targets, an opportunity
to engage employees through incorporating best
practices, and an opportunity to work with customers
to assist in their ESG metrics. As a commitment to
transparency and accountability, we will be releasing
a sustainability scorecard in 2020 as well as building
our roadmap for future ESG reporting.
2020 OUTLOOK
Through 2019 the Western Canadian Sedimentary
Basin continued to be challenged by a lack of
pipeline takeaway capacity and oil and gas prices,
which in turn reduced drilling and completions
activity and impacted producers’ capital investment
levels. Tervita’s business remained robust through
this challenging year, with Adjusted EBITDA
increasing over 20% from 2018. Assuming upstream
oil and gas production similar to 2019 levels and a
reduction in drilling activity of approximately 10%
from 2019 levels, we would expect Adjusted EBITDA
growth in 2020 for the fourth consecutive year. This
growth would be driven by contributions from our
2019 predominantly contracted
in
growth capital projects (which will be transitioning
to service in 2020), continued optimization of
our Industrial Services businesses and ongoing
focus on cost control and incremental business
improvements in our Energy Services segment.
investments
We will continue to execute our strategy which has
been designed for strength in today’s environment
while paving a path for future success and growth.
We remain excited about the opportunities in front
of us to leverage our infrastructure and create
efficiencies for customers. We will continue to
exercise capital discipline, balancing discretionary
free cash flow between delivering projects within
our growth capital pipeline of opportunities, de-
levering our balance sheet, and creating value
for shareholders. We will remain judicious and
disciplined with our growth initiatives while being
responsive to opportunities.
RECENT DEVELOPMENTS
Our 2020 outlook was predicated on $55/bbl oil.
Recent developments in oil and gas markets related
to production
level decisions amongst OPEC+
members and the potential impact to demand from
COVID-19 has caused a steep decline in commodity
prices. Current commodity prices could greatly
impact our customers’ capital programs and activity
levels. We will continue to work with our customers
to meet their needs in a time of tight capital
discipline and further assist them in maximizing the
value they receive. In response to the market we are
reviewing our capital budget and we expect this will
temper our growth expectations for 2020. We are
monitoring the situation and will update the market
when we have better clarity.
CONCLUSION
We are well positioned and excited about the
opportunities to leverage our infrastructure and
create efficiencies for customers. We will do
our utmost to exceed our previous performance
standards on behalf of customers and shareholders.
This is the meaning of continuous improvement and
a key element in our strategy.
In closing, I would like to thank our employees for
their extraordinary efforts and dedication in building
the business we are today. I am extremely happy with
the progress we have made in 2019—our people are
the reason we are a leader in our industry and why we
are so successful at driving continuous improvement
on behalf of our customers and shareholders.
Thank you also to our Board for their guidance and
leadership, and our customers and stakeholders for
their continued support. I look forward to continuing
to deliver to shareholders in the year ahead.
Yours sincerely,
(Signed) John Cooper
President and Chief Executive Officer
March 18, 2020
TSX | TEV 3
STRATEGY & CORPORATE DEVELOPMENT
Working to identify innovative and strategic solutions and
opportunities for our customers in all economic environments.
“We are committed to working alongside our customers
and being a partner in finding the right solutions for
their business needs. Identifying the best opportunities
to help them succeed and looking for innovative ways
to drive results is how we do business; it is more than a
transaction, it is a partnership.”
In 2019, we created the new position of Executive Vice President,
Strategy & Corporate Development. This was a result of our
commitment to working with our customers to identify innovative
and strategic solutions and pursue opportunities that would create a
positive return on capital in all economic environments.
This position was filled by Rob Dawson, former Chief Financial
Officer with Tervita. Rob was selected for his extensive expertise and
knowledge, as well as his commitment to building long-term strategic
partnerships with our customers.
The Strategy & Corporate Development team works very closely with
our operations to assist in identifying opportunities to consolidate and
integrate our services, providing a more streamlined experience that
optimizes solutions for our customers. An example of the success of
this business model was the announcement in June 2019 of a long-
term commercial agreement with a Senior E&P Producer to develop a
pipeline-connected disposal facility. Under the agreement, we developed
a water disposal network including multiple water disposal wells and a
centralized water injection facility that have been pipeline connected to
the producer’s production facilities in the Alberta Montney.
ROB DAWSON
Executive Vice President,
Strategy & Corporate Development
4 TERVITA | Annual Report 2019
Photo Opposite:
KAKWA WATER DISPOSAL FACILITY
STRATEGY & CORPORATE DEVELOPMENT
TSX | TEV 5
OPERATIONS
Working to be the trusted long-term partner for our customers’
waste management and environmental solutions needs; helping
them minimize impacts, maximize returns.
Energy Services
Our Energy Services solutions are well positioned in every major play in the Western Canadian
Sedimentary Basin. The solutions offered through our Energy Services business include; Facilities,
Energy Marketing and Onsite Services.
FACILITIES:
Treatment, Recovery & Disposal (TRD) Facilities
We operate a network of strategically located treatment, recovery and disposal facilities that can
handle the complete spectrum of petroleum industry waste by-product – from initial drilling through to
production and reclamation. From contaminated drilling muds and completion fluids to tank-bottom
sludge, our TRD facilities treat, recover and dispose of all upstream petroleum waste in the most cost-
effective and environmentally responsible manner possible.
Engineered Landfills
With the largest number of Class II and secure landfills in Western Canada, we help our customers
reduce the long-term liability and risk associated with oilfield and industrial solid waste disposal.
Caverns & Disposal Wells
Our underground salt caverns provide an environmentally sound disposal option for oilfield liquid and
solid wastes and our network of deep disposal wells are designed to provide safe, permanent disposal
of the produced water and wastewater streams generated by oil and gas development activity.
ENERGY MARKETING:
Our Energy Marketing group markets and sells oil that is recovered or processed at our TRD facilities.
Many of our facilities are pipeline connected.
ONSITE SERVICES:
The Onsite Services team specializes in bringing custom-engineered solutions directly to our
customers’ sites to provide measurable realized value through product recovery. We also offer a
combination of solids control services and equipment rentals for oilfield drilling operations in Canada
and the U.S.
6 TERVITA | Annual Report 2019
NEW HAMPSHIRE
MASSACHUSETTE
RHODE ISLAND
CONNECTICUT
VERMONT
NEW JERSEY
DELAWARE
MARYLAND
WASHINGTON D.C.
Map does not include field offices or shops.
U.S. inset
Industrial Services
Our Industrial Services business provides comprehensive environmental solutions through the following
service lines:
ENVIRONMENTAL SERVICES
Provides comprehensive environmental solutions,
decommissioning, water treatment and related services.
including site
FACILITY
remediation, demolition,
FIELD OFFICE
PRODUCTION SERVICES LOCATIONS
In 2019, we integrated our Waste Services division with Environmental Services to create operational
efficiencies and provide a more seamless experience for our customers. Our Waste Services business
offers solutions such as waste container services for the collection and processing of hazardous and
non-hazardous materials, waste products and recycling products. It also provides cost effective services
for the management and disposal of Naturally Occurring Radioactive Materials. In addition, we provide a
full suite of field services for the management of turnarounds, and day-to-day operational requirements.
METALS RECYCLING & RAIL SERVICES
Tervita operates recycling facilities that purchase, and process ferrous and non-ferrous metals recovered
from commercial and industrial operations. All yards offer bin service for the collection of customers’
scrap metal. Tervita also provides full-service response to derailments including track clearing, asset
recovery, reclamation and remediation, car scrapping and re-railing.
TSX | TEV 7
SAFETY MATTERS
Working to build a values-driven safety culture where all our
people choose safe behaviours naturally and without hesitation,
because it is the right thing to do.
2019 SAFETY PERFORMANCE:
We are proud of the safety focus of our employees and the solid performance we achieved in 2019.
LTIF
Lost-Time Injury Frequency
SIF
Serious Incident Frequency
TRIF
Total Recordable Injury Frequency
0.09
0.04
.0.09
0.06
0.03
0.26
0.30
0.15
0.14
0.76
0.66
0.52
0.8
0.4
0
0
2017
2018
2019
2017
2018
2019
2017
2018
2019
Our Lost-Time Injury Frequency
(LTIF) was 0.00, better than our
target of 0.08. LTIF refers to
the number of people for every
100 employees whose
injury
precludes them from working for
at least one day post injury.
Our Serious Incident Frequency
(SIF) was 0.00, better than our
target of 0.15. SIF measures the
number of actual and potential
serious incidents that occur per 100
employees working over a year.
Our Total Recordable
Injury
Frequency (TRIF) was 0.76 which
was slightly higher than our target
of 0.75. Although we did not
reach our target, the severity of
these types of injuries has been
decreasing, and we continue to
focus on improving performance.
TRIF refers to the number of
people injured per 100 employees
to the extent they could not
perform their regular work duties.
8 TERVITA | Annual Report 2019
VALUES-DRIVEN SAFETY CULTURE:
We made significant progress on our transition from a systems-based
safety program to a values-driven safety culture, with a stronger
focus on the parts of our program that are behaviour based. Key
results included: improvements in using the tools available, reporting
all incidents -no matter how small- in a timely manner, and ensuring
employees are comfortable reporting so that it becomes the natural
way of doing things. These actions will ensure the sustainability of
our strong safety performance.
SAFETY REWARD PROGRAM:
Strengthens the foundation of our operations
We introduced an organization-wide safety recognition program for
all field-based employees to reinforce our values-driven safety culture
and build upon our current safety management system.
The program recognizes and rewards both teams and individuals
for actions and behaviours that demonstrate accountability and “go
above and beyond” to demonstrate commitment to protecting the
health, safety and wellbeing of our people and our customers.
“There is solid evidence that reward and recognition programs
positively influence engagement and have real benefits to safety
performance,” says Rhonda Rudnitski, Vice President of Health,
Safety, Environment & Regulatory. “Rewarding proactive safety
actions and behaviours helps to instill pride, foster caring and drives
personal accountability, while allowing people to focus on continuous
improvement and celebrating success on a day-to-day basis.”
2020 FOCUS
As we move into a new decade, our focus will be on maintaining our
health and safety program and using it as a foundation to continue
building a values-driven safety culture.
Our company’s roots
go back to the late
1970s as a one-rig
operation and this
history shapes our
culture today. It’s a
story about people
who saw challenges
as opportunities and
solved them with
innovation. It’s a
history of new ideas
and perseverance.
Today, Tervita is one
company offering
many solutions, and
this diversity is
our strength.
TSX | TEV 9
PEOPLE MATTERS
Our people are the reason we are a leader in our industry,
and, in 2019, we made significant strides on our commitment to building
a company that people want to work for and with. With the results of
our engagement survey, we initiated several key actions, including:
• Developed and implemented a Management Training Program to
provide our managers with the skills they need to be successful
• Established a Culture Advisory Committee comprised of employees
from across the organization to provide feedback on our progress
and give input into future plans
• Created new values to help employees understand what behaviors
are expected of them and what they can expect from others
As we move into 2020, we will continue to build our programs around our
culture including rolling out our new core competencies and developing
a program to assist high potential employees to develop their careers.
In addition, we will conduct another employee engagement survey and
evaluate our progress and assess our future plans.
10 TERVITA | Annual Report 2019
TSX | TEV 11
COMMUNITY MATTERS
Working to make a positive impact in the communities
where we live and operate.
Giving back to the communities where we live and work is part of our
culture. In 2019 we reviewed our community investment program and
selected the following pillars to focus on.
COMMUNITY VITALITY
Supporting the sustainability and quality of life in communities where we live and work.
United Way Campaign
Tervita’s 30-plus years of partnership with the United Way has resulted in more than $1
million towards building a better and stronger community.
Tervita employees raised more than $70,000 during the 2019 Campaign and the company
responded to this generosity in kind by matching these funds to provide United Way with
a total donation of over $140,000. The contributions stay in the communities in which
they are raised and will support the common goals of helping people overcome poverty,
setting kids up for success, and building strong communities.
INDUSTRY ADVANCEMENT/EDUCATION
Supporting the responsible advancement of the energy and industrial sectors and those
who work in them.
• Tervita was proud to be the presenting sponsor of the Calgary Chapter of the Young
Professionals in Energy (YPE) Future Leaders Dinner. The YPE is a non-profit organization
with more than 40,000 members worldwide that aims to facilitate the advancement of
young professionals in the global energy industry by providing a forum for networking
and career development through social, educational and civic service opportunities.
John Cooper, Tervita’s President and CEO, was a keynote speaker at the event and
shared his experiences gained throughout his career.
• Tervita employees had the opportunity to educate Grade 11 and 12 students at the
North Peace Secondary School in Fort St. John, BC about some of the services Tervita
offers and potential careers in the energy industry. The presentation was given to
students who were taking the H2S course to become properly trained in the hazards
associated with hydrogen sulfide.
12 TERVITA | Annual Report 2019
“Thank you Tervita for investing in the safety of
communities where your employees, stakeholders and
industry partners live and work. Your long-term support
of STARS has helped us continue to be there when time
is of the essence and the next patient is in need.”
(Wendy Beauchesne, Executive Vice President, STARS Foundation)
SAFETY
Preparing for emergencies, preventing injuries and keeping
communities secure.
Celebrating a 25-year Partnership
2019 marked 25 years of partnership between Tervita and STARS
Air Ambulance (STARS). STARS is a community-based, non-profit
organization that receives over half its funding dollars through
community donors. These donations allow STARS to provide vital
transportation and medical care to patients in Western Canada
who might not otherwise have access to these services.
Over the past 25 years, Tervita has donated more than $500,000 to
STARS, including support of STARS community events and funding
towards STARS mission operations and Vision Critical Campaign.
ENVIRONMENT
Supporting the conservation, protection and responsible use of
land and water.
Tervita held two Household Hazardous Waste Round-up events with
Indigenous communities this past year. Employees volunteered
from nearby facilities to safely collect, sort and properly dispose
of the collected waste items. Waste collected included items such
as aerosols, batteries, plastic containers, grease, propane and
other miscellaneous equipment for recycling. Over 400 kilograms
of pails of waste, 1,600 kilograms of drums of waste, one self-
standing bag of waste, and roll bins with over 10,000 kilograms of
miscellaneous electronics were collected. Additionally, students
from a local school came to visit the volunteers and First Nation
partners to learn how Tervita disposes items and the importance
of proper waste disposal.
Photo attribute:
STARS AIR AMBULANCE
TSX | TEV 13
FINANCIALS
“Our 2019 results reflect the positive impact of
our acquisition of Newalta,
including both the
contributions from the acquired network and the
successful delivery of targeted synergies ahead of
schedule. Results also demonstrated our sustained
improvement and cost
focus on continuous
management throughout our business, particularly
within our Industrial Services division.”
Contents
Management’s Discussion and Analysis 15
Financial Statements 42
Corporate Information 88
LINDA DIETSCHE
Chief Financial Officer
14 TERVITA | Annual Report 2019
MANAGEMENT’S DISCUSSION & ANALYSIS
March 8, 2020
TSX | TEV 15
ABOUT THIS MANAGEMENT'S DISCUSSION AND ANALYSIS
The following management's discussion and analysis ("MD&A") is a summary of the financial position and results of
operations of Tervita Corporation ("Tervita", the "Company", "we", "our", "us" and similar expressions) for the three and
twelve months ended December 31, 2019 and as compared to the three and twelve months ended December 31, 2018.
This MD&A was approved by Tervita’s Board of Directors on March 8, 2020 and includes information available up to that
date.
This MD&A is a review of the financial results of Tervita, prepared in accordance with International Financial Reporting
Standards ("IFRS"), which are also generally accepted accounting principles ("GAAP") for publicly accountable enterprises
in Canada. This MD&A should be read in conjunction with our audited annual Consolidated Financial Statements and
accompanying notes (the "Annual Financial Statements") for the years ended December 31, 2019 and 2018 and our
Annual Information Form ("AIF") for the year ended December 31, 2019.
On July 19, 2018 (the "Acquisition Date"), Tervita completed an acquisition of Newalta Corporation ("Newalta") through a
Plan of Arrangement (the "Arrangement"). The Financial Statements and MD&A include financial results in respect of the
former Newalta business since the Acquisition Date, unless otherwise stated.
All financial information reflected herein is expressed in millions of Canadian dollars ("$" or "C$") unless otherwise stated.
References to US$ mean United States dollars. Throughout this MD&A, "Q4" means the three months ended December 31
and "YTD" means the twelve months ended December 31.
This MD&A contains references to the following measures not in accordance with IFRS ("non-GAAP measures"): Adjusted
EBITDA, Adjusted EBITDA Margin, Divisional EBITDA, Divisional EBITDA Margin, Discretionary Free Cash Flow, Net Debt to
Adjusted EBITDA (LTM), Covenant EBITDA, and Adjusted Working Capital. Refer to the Non-GAAP Measures section for a
full discussion on management’s use of non-GAAP measures and their reconciliation to IFRS measures.
This MD&A contains forward-looking statements regarding Tervita and the industries in which we operate. Refer to the
Forward-Looking Statements section for more information.
CHANGES TO COMPARATIVE FIGURES
Certain comparative information have been reclassified to conform to the MD&A presentation adopted for the current
year. Comparative figures related to acquired entities pertain to the period after their acquisition date. In addition, in
accordance with IFRS 3 "Business Combinations", certain 2018 comparative figures pertaining to Tervita's acquisition of
Newalta have been retrospectively adjusted to reflect the finalized measurement period adjustments. The MD&A for the
three and twelve months ended December 31, 2018 included the finalized Purchase Price Allocation ("PPA") related to
Tervita's acquisition of Newalta, however, the MD&A for the three and nine months ended September 30, 2018 included
provisional amounts based on the Company's best estimate at that time. The three months ended December 31, 2018
have been adjusted to move the accounting impact of the finalized PPA from the three months ended December 31,
2018 to September 30, 2018. These adjustments did not affect reported Divisional EBITDA or Adjusted EBITDA, and are as
follows:
Three Months Ended December 31
Twelve Months Ended December 31
Revenue
Operating expenses
Direct expenses
General and administrative expenses
Depreciation and amortization
Restructuring costs
Impairment reversal (expense)
Operating profit (loss)
Finance costs
Transaction costs
Other income (expense)
Profit (loss) before tax
2019
591
(521)
(11)
(35)
—
(126)
(102)
(24)
(2)
2
(126)
2018
Reported
PPA
Adjustment
402
(337)
(15)
(32)
—
(25)
(7)
(21)
(43)
(4)
(75)
—
—
—
(1)
—
2
1
—
40
1
42
16 TERVITA | Annual Report 2019
2018
Revised
402
2019
2,323
2018
Reported
PPA
Adjustment
1,974
(337)
(2,045)
(1,734)
(15)
(33)
—
(23)
(6)
(21)
(3)
(3)
(33)
(48)
(138)
(3)
(120)
(31)
(92)
(8)
1
(130)
(50)
(96)
—
(25)
69
(69)
(69)
(4)
(73)
—
—
—
—
—
—
—
—
—
—
—
2018
Revised
1,974
(1,734)
(50)
(96)
—
(25)
69
(69)
(69)
(4)
(73)
Page | 1
ABOUT TERVITA
Tervita is one of the largest waste and environmentally focused energy service providers in Canada. We primarily serve
companies in the oil and gas industry, as well as the industrial and natural resource sectors, predominantly in Western
Canada.
Tervita provides a broad and integrated array of services and environmental management solutions for customers,
including: treatment, recovery, and disposal of solids and fluids used in, and generated by, oil and gas drilling,
completions, production and reclamation/remediation activity; waste management; oil terminalling; energy marketing;
metals recycling; equipment rental; demolition; and decommissioning. Our network of facilities as at December 31, 2019
consisted of 107 active waste processing, disposal, and industrial facilities, including: 47 treatment, recovery, and disposal
facilities ("TRDs"); seven stand-alone disposal wells; three cavern disposal facilities; seven onsite facilities; 24 engineered
landfills (which included 19 owned sites, two sites operated under contract, and three sites that we market under
contract for other landfill operators); four transfer stations; one naturally occurring radioactive material facility; nine bio-
remediation facilities; and five metals recycling facilities.
Tervita’s activities are managed through five operating segments, which are aggregated in accordance with IFRS into two
reporting segments: Energy Services and Industrial Services.
•
•
Energy Services includes three service lines: facilities, energy marketing, and onsite. These service lines collectively
provide many services to the oil and gas sector, including: treatment, recovery, and disposal of fluids; oil terminalling;
energy marketing; processing and disposal of solid materials used in, and generated by, natural resource and
industrial production; disposal of oilfield-generated waste; providing specialized onsite services using centrifugation
or other processes for heavy-oil producers involved in mining and in-situ production; and supplying and operating
drill site processing equipment, including solids control and drill cuttings management.
Industrial Services provides comprehensive environmental solutions through four operating segments: waste
services, metals recycling, rail services, and environmental services. The services provided by these operating
segments include site remediation, facility decommissioning, water treatment, sludge and slurry management, bio-
remediation and technologies, hazardous and non-hazardous waste management and disposal, emergency
response, rail services, recycling services to oil and gas and other industrial companies, and waste transportation and
classification. Recycling services include the purchase and processing of ferrous and non-ferrous metals recovered
from demolition sites and other locations.
In addition to our two reporting segments, Tervita presents intersegment eliminations, general and administrative
("G&A") expenses, and other non-operating expenses as Corporate. G&A includes expenses for executive leadership,
human resources,
legal, and
regulatory.
information technology, finance, accounting, business development, communications,
TSX | TEV 17
Page | 2
c
FINANCIAL AND OPERATING HIGHLIGHTS
FINANCIAL HIGHLIGHTS
Energy Services revenue
Facilities revenue
Onsite revenue
Energy marketing revenue
Industrial Services revenue
Intersegment eliminations
Revenue
Revenue excluding energy marketing
General and administrative expenses
Net profit (loss)
- per share ($), basic and diluted
Adjusted EBITDA (1)
- per share ($), basic and diluted
Adjusted EBITDA margin (1)
Energy Services Divisional EBITDA(1)
Industrial Services Divisional EBITDA (1)
Divisional EBITDA (1)
Capital additions
Discretionary free cash flow (1)
Adjusted Working Capital (1)
Three Months Ended December 31
Twelve Months Ended December 31
2019
2018
Increase
(Decrease) % Change
2019
2018
Increase
(Decrease) % Change
102
15
416
533
60
(2)
591
175
(11)
(123)
(1.07)
59
0.51
34 %
60
10
70
52
9
31
109
22
208
339
63
—
402
194
(15)
(33)
(0.28)
50
0.43
26 %
58
7
65
32
(2)
78
(7)
(7)
208
194
(3)
(2)
189
(19)
(4)
(90)
(0.79)
9
0.08
8 %
2
3
5
20
11
(47)
(6)%
(32)%
100 %
57 %
(5)%
(100)%
47 %
(10)%
(27)%
(273)%
(282)%
18 %
19 %
3 %
43 %
8 %
63 %
550 %
(60)%
399
76
1,607
2,082
246
(5)
2,323
716
(48)
(116)
(0.99)
233
2.00
33 %
240
39
279
139
90
31
368
43
1,337
1,748
231
(5)
1,974
637
(50)
(74)
(0.67)
191
1.73
30 %
212
28
240
83
79
78
31
33
270
334
15
—
349
79
(2)
(42)
(0.32)
42
0.27
3 %
28
11
39
56
11
8 %
77 %
20 %
19 %
6 %
— %
18 %
12 %
(4)%
(57)%
(48)%
22 %
16 %
13 %
39 %
16 %
67 %
14 %
(47)
(60)%
Shares as at December 31 (000's of shares) (2)
Shares outstanding
Weighted average shares - basic and
diluted
114,355
117,557
(3,202)
(3)%
114,355
117,557
(3,202)
115,260
117,557
(2,297)
(2)%
116,732
110,471
6,261
(3)%
6 %
(1) Refer to the section Non-GAAP Measures for definitions and reconciliation.
(2) As at March 8, 2020, the Company had 113,276,432 common shares, 2,702,649 common share purchase warrants, and 2,471,730 stock options outstanding.
Each common share purchase warrant and option outstanding is exercisable for a maximum of one common share.
INDUSTRY BENCHMARKS
Three Months Ended December 31
Twelve Months Ended December 31
Average WTI (US$/bbl)(1)
Average Edmonton Mixed Sweet (US$/bbl)(1)
Average WCS (US$/bbl)(1)
Average AECO (C$/MMbtu)(1)
Average Oil Production (Mbbl/d) (2)
Average Gas Production (MMcf/d) (2)
Meters Drilled (000's of meters drilled) (3)
Wells Drilled (4)
Foreign Exchange Rate (US$/C$) (5)
Period End
Period Average
$
$
$
$
$
$
(Decrease) % Change
(12)%
(7.84)
64.86 $
2019
2018
Increase
(Decrease) % Change
2019
2018
Increase
56.85 $
50.67 $
37.94 $
2.37 $
58.79 $
36.27 $
25.48 $
1.52 $
4,480
16,147
3,690
1,181
4,579
16,097
4,790
1,682
(1.94)
14.40
12.46
0.85
(99)
50
(1,100)
(501)
(3)% $
57.02 $
40 % $
52.05 $
49 % $
43.39 $
56 % $
1.69 $
(2)%
— %
(23)%
(30)%
4,402
15,828
14,820
4,995
53.41 $
38.53 $
1.44 $
4,762
15,852
19,420
6,939
(1.36)
4.86
0.25
(360)
(24)
(4,600)
(1,944)
0.77 $
0.76 $
0.73 $
0.76 $
0.04
—
5 % $
— % $
0.77 $
0.75 $
0.73 $
0.77 $
0.04
(0.02)
(3)%
13 %
17 %
(8)%
— %
(24)%
(28)%
5 %
(3)%
(1) Information from Bloomberg.
(2) Information from National Energy Board, Estimated Production of Canadian Crude Oil and Equivalent and Marketable Natural Gas Production in Canada.
(3) Information from JuneWarren-Nickle’s Energy Group and pertains to Canada.
(4)
(5) Information from Bank of Canada.
Information for Daily Oil Bulletin and pertains to Canada
18 TERVITA | Annual Report 2019
Page | 3
Quarterly Revenue and Adjusted EBITDA
203
194
184
166
191
175
125
33%
114
29%
134
132
31%
30%
116
32%
124
27%
35%
71
41
33
42
40
37
33
30%
32%
34%
34%
56
53
65
59
26%
50
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Q2 18
Q3 18
Q4 18
Q1 19
Q2 19
Q3 19
Q4 19
Revenue (excl. energy marketing)
Adjusted EBITDA
Adjusted EBITDA Margin
Revenue Before Intersegment Eliminations
439
416
424
420
416
324
259
274
241
161
347
208
77
50
68
48
73
64
77
59
76
67
58
41
116
109
100
96
101
102
69
21
63
22
64
20
50
20
72
21
60
15
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Q2 18
Q3 18
Q4 18
Q1 19
Q2 19
Q3 19
Q4 19
Energy marketing
Facilities
Onsite
Industrial Services
TSX | TEV 19
Page | 4
Divisional EBITDA
75
58
59
57
64
60
47
43
45
44
35
35
7
8
9
5
2
9
10
7
11
6
12
10
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Q2 18
Q3 18
Q4 18
Q1 19
Q2 19
Q3 19
Q4 19
Energy Services
Industrial Services
Net Profit (Loss)
3
—
10
—
(3)
(65)
(33)
(44)
(2)
(2)
(12)
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Q2 18
Q3 18
Q4 18
Q1 19
Q2 19
Q3 19
Q4 19
(123)
G&A (Excluding Severance) as a % of Revenue
10%
13
9%
7%
8%
8%
10
10
10
9
9%
11
7%
14
8%
15
8%
14
6%
10
6%
11
6%
11
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Q2 18
Q3 18
Q4 18
Q1 19
Q2 19
Q3 19
Q4 19
G&A excluding severance
G&A as a % of revenue (excluding energy marketing)
20 TERVITA | Annual Report 2019
Page | 5
FOURTH QUARTER RESULTS
Overview and Highlights
•
•
•
•
Q4 2019 Adjusted EBITDA increased over the same period in 2018 despite industry activity declines, reflecting our
focus on operational efficiencies, realized synergies from the acquisition of Newalta in 2018 and improved Canadian
crude oil prices.
Energy Services Divisional EBITDA Margin improved from 44% in Q4 2018 to 51% in Q4 2019 primarily due to
stronger commodity prices, a focus on cost management and realized synergies, as well as one-time 2018 repair and
maintenance costs for work completed at Newalta facilities.
Industrial Services Divisional EBITDA increased by more than 40% over prior year, primarily driven by our continued
focus on optimization and increased waste volumes into our facilities, despite reduced demand for steel and lower
metals commodity pricing.
Repurchased 1,432,018 common shares for $11 million under the Normal Course Issuer Bid ("NCIB") announced on
May 2, 2019, and amended on December 5, 2019.
Q4 Revenue Increases 47% to $591 Million
•
•
•
•
Revenue of $591 million increased by $189 million or 47% from the prior year, primarily due to the increase in
marketed oil volumes from acquired Newalta facilities and improved commodity prices.
Net Energy Services revenue of $117 million decreased $14 million from the prior year. Impacts of improved
Canadian crude oil prices were more than offset by an 8% decrease in volumes throughout the facility network and
the impact of lower drilling activity.
Energy marketing revenue increased by 100% compared to the prior year due to favorable crude oil commodity
prices combined with a 17% increase in marketed oil volumes, as we began marketing oil volumes from acquired
Newalta facilities on January 1, 2019.
Industrial Services revenue of $60 million was $3 million lower than Q4 2018 primarily driven by lower metals
commodity pricing and reduced demand for steel.
Q4 Divisional EBITDA Increases by $5 Million or 8%
•
•
•
Divisional EBITDA of $70 million increased $5 million or 8% over prior year, largely as a result of improved commodity
prices and realized synergies from the Newalta transaction.
Energy Services Divisional EBITDA of $60 million increased $2 million or 3% from Q4 2018, with synergies from the
Newalta transaction and favorable crude oil commodity pricing, more than offsetting lower activity and volumes into
our facilities.
Industrial Services Divisional EBITDA of $10 million was $3 million or 43% higher than the prior year primarily driven
by increased project margins combined with higher waste volumes at our waste services facilities, partially offset by
the impact of lower metals commodity prices.
Q4 Adjusted EBITDA Increases by $9 Million or 18%
•
•
Adjusted EBITDA of $59 million was a $9 million and 18% improvement from Q4 2018 reflecting increased Divisional
EBITDA and a $4 million reduction to G&A expense which was primarily related to synergies realized from the
acquisition of Newalta.
Adjusted EBITDA Margin was 34%, an improvement of eight percentage points compared to prior year primarily due
to synergies from the Newalta acquisition, stronger commodity prices and one-time expenses in Q4 2018 to bring
acquired facilities onto Tervita's maintenance program.
Q4 Net Loss
•
Net loss was $123 million in Q4 2019, compared to net loss of $33 million in the prior year, primarily due a $126
million impairment expense. This non-cash charge was for the write-down of specific assets within Energy Services,
approximately 64% of which related to our drilling-based operations in the United States ("US") and Canada, and the
remainder to closed or suspended facilities that no longer met our return expectations. These assets did not
contribute materially to our 2019 Adjusted EBITDA.
TSX | TEV 21
Page | 6
Q4 Capital Additions
•
•
Capital additions related to growth and expansion projects were $41 million in the quarter, and included the
ongoing development of a new water disposal infrastructure project.
Capital additions related to maintenance projects were $11 million, consistent with the prior year.
Q4 Discretionary Free Cash Flow
•
Discretionary Free Cash Flow was $9 million, an $11 million increase from the prior year due to an increase in cash
generated by our operations and proceeds from the disposal of long-lived assets.
FULL YEAR RESULTS
2019 Revenue Increases 18% to $2,323 Million
•
Revenue of $2,323 million increased by $349 million over 2018. This 18% increase is primarily attributable to an 11%
increase in production volumes through Energy Services facilities as compared to 2018.
• Marketed oil volumes in 2019 were 30% higher than 2018 primarily due to acquired facilities which drove a 20%
increase in energy marketing revenue.
•
Industrial Services revenue increased by 6% primarily due to higher volumes through waste services facilities and
increased project activity in environmental services and rail services, partially offset by lower metals commodity
pricing.
2019 Divisional EBITDA Increases by $39 Million or 16%
•
•
•
Divisional EBITDA of $279 million was a $39 million increase over 2018.
Energy Services Divisional EBITDA increased $28 million over 2018 to $240 million, driven primarily by our acquisition
of Newalta and related synergies.
Industrial Services Divisional EBITDA of $39 million was $11 million or 39% higher than 2018, primarily due to
increased volumes through our waste facilities and our continued focus on optimization and cost management in
the waste and environmental services businesses.
2019 Adjusted EBITDA Increases by $42 Million or 22%
•
•
Adjusted EBITDA of $233 million improved 22% over the prior year, reflecting increased Divisional EBITDA
contributions, the adoption of the new lease accounting standard (refer to Impact of New Accounting Standards
section) and reduced G&A expenses.
Adjusted EBITDA Margin was 33%, a three percentage point improvement over 2018.
2019 Net Loss
•
Net loss in 2019 was $116 million compared to a loss of $74 million in the prior year, as improvements in Adjusted
EBITDA and decreased transaction costs were more than offset by higher impairment expense as well as increased
depreciation and finance costs associated with the Newalta acquisition.
2019 Capital Additions
•
•
Capital additions related to growth and expansion projects were $106 million in 2019, which included the ongoing
development of a new water disposal infrastructure project, drilling of new disposal wells, construction of new
landfill cells, additional facility blending infrastructure, cavern expansions, and the purchase of new rail cars to
increase capacity for our metals recycling business.
2019 maintenance capital additions were $33 million, consistent with the prior year.
2019 Discretionary Free Cash Flow
•
Tervita generated $90 million of Discretionary Free Cash Flow in 2019, a 14% increase over the prior year.
Discretionary Free Cash Flow, combined with our focused efforts on improving adjusted working capital, funded the
$73 million of cash capital expenditures on growth and expansion projects and the $23 million repurchase of 3.2
million shares through our NCIB in 2019.
,
22 TERVITA | Annual Report 2019
Page | 7
OUTLOOK
MARKET OUTLOOK
•
•
Tervita demonstrated strength in its operating and financial results through 2019, delivering a 22% increase in
Adjusted EBITDA over the prior year despite reduced energy industry-wide activity. These results in a challenging
market are reflective of the majority of our waste volumes coming from a stable base of production-related volumes,
continued focus on cost control, and delivery of the Newalta acquisition synergies.
The Western Canadian Sedimentary Basin ("WCSB") continues to be challenged by egress as well as oil and gas prices,
which have reduced drilling and completions activity and impacted producers' capital investment levels. Assuming
WTI of approximately US$55/bbl, upstream oil and gas production similar to 2019 levels, and a reduction in drilling
activity of approximately 10% from 2019 levels, we would expect Adjusted EBITDA growth in 2020, driven by
contributions from:
◦
◦
◦
our predominantly contracted 2019 investments in growth capital projects, which were primarily focused on
increasing our water handling capacity in the Montney region and enhancing our clean oil energy
marketing capabilities;
our ongoing focus on cost control and incremental business improvements in our Energy Services segment;
and
the continued optimization of our waste and environmental services businesses in the Industrial Services
segment.
•
Recent market developments, which have introduced volatility and corresponding declines in commodity prices,
could temper these growth expectations.
CAPITAL
•
In 2020, we plan to take a measured approach to the allocation of Discretionary Free Cash Flow between the focus
areas of delivering projects within our growth capital pipeline of opportunities, de-levering our balance sheet, and
returning value to shareholders. Given our outlook for industry activity in 2020 and more recent market uncertainty,
we have taken a prudent approach and established our preliminary capital budget at approximately $85 million for
the year, including growth and expansion of $50 million, a 53% reduction from 2019 additions. We anticipate
maintenance capital to remain flat to prior year at approximately $35 million. We will continue to exercise capital
discipline while remaining responsive to opportunities and market changes and may revise our capital plans
accordingly.
NON-GAAP MEASURES
Tervita uses both IFRS measures and non-GAAP measures to assess performance. To supplement financial information
presented in accordance with IFRS, non-GAAP measures referred to in this MD&A are provided to enhance the reader’s
understanding of Tervita’s operational and financial performance. The non-GAAP measures presented in this MD&A are
not measurements of financial performance under IFRS and should not be considered as an alternative to profit (loss),
cash provided by (used in) operating activities, or other performance measures derived in accordance with IFRS. As non-
GAAP measures do not have a standardized meaning prescribed by IFRS, Tervita’s method of determining non-GAAP
measures may vary from the methods used by other companies and may not be comparable to similarly titled measures,
ratios, or credit statistics disclosed by other companies.
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
We believe Adjusted EBITDA is useful in measuring Tervita's operating performance. Adjusted EBITDA is derived from the
Consolidated Statements of Profit (Loss) ("Statements of Profit (Loss)") and is defined as net profit (loss) before tax, other
income (expense), finance costs, impairment reversal (expense), depreciation and amortization, and certain items that are
considered non-recurring in nature. For this MD&A, we have added back all severance, restructuring costs, and
transaction costs, if any.
Management believes that Adjusted EBITDA provides improved comparability of our operating results from our principal
business activities over time and is an important indicator of our ability to generate liquidity through cash flow from
operating activities. Adjusted EBITDA allows us to evaluate the results of our business activities prior to consideration of
how those activities are financed and the impacts of foreign exchange, taxation, depreciation and amortization, and
other non-cash charges that add volatility to our financial results (such as impairment expenses, share-based
TSX | TEV 23
Page | 8
compensation, and other transactions that are non-recurring in nature). Management utilizes Adjusted EBITDA to set
objectives and as a key performance indicator of our Company’s success.
The presentation of Adjusted EBITDA should not be construed as an inference that future results will be unaffected by
unusual or non-recurring items. Adjusted EBITDA should not be considered a measure of discretionary cash available for
the return of capital to debt and equity stakeholders and to invest in the business.
Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by revenue (excluding energy marketing). Adjusted
EBITDA and Adjusted EBITDA Margin for the year ended December 31, 2018 included financial results for Newalta from
the Acquisition Date.
For the three and twelve months ended December 31, Tervita's net profit (loss) was reconciled to Adjusted EBITDA as
follows:
Net profit (loss)
Add back:
Severance costs (excluding restructuring and transaction costs)
Depreciation and amortization
Restructuring costs
Impairment expense (reversal)
Finance costs
Transaction costs
Other expense (income)
Income tax expense (recovery)
Adjusted EBITDA
Adjusted EBITDA margin
Three Months Ended
December 31
Twelve Months Ended
December 31
2019
(123)
2018
(33)
2019
(116)
2018
(74)
—
35
—
126
24
2
(2)
(3)
59
—
33
—
23
21
3
3
—
50
3
138
3
120
92
8
(1)
(14)
233
1
96
—
25
69
69
4
1
191
34 %
26 %
33 %
30 %
DIVISIONAL EBITDA AND DIVISIONAL EBITDA MARGIN
We believe Divisional EBITDA is useful in measuring our reporting segments’ performance. Divisional EBITDA is defined as
Adjusted EBITDA excluding G&A expenses and the amount of severance costs not allocated to any segment. Divisional
EBITDA provides an indication of the results generated by the reporting segments’ principal business activities prior to
how those activities are financed and assets are depreciated, amortized, or impaired. We believe Divisional EBITDA
provides improved comparability of our reporting segments’ results over time and, as such, is also an important indicator
of Tervita’s ability to generate future profitability.
Divisional EBITDA is calculated including directly attributable costs (such as those related to reporting segment
leadership, business development, environmental health and safety, and sales and marketing) with no allocation of
Corporate G&A expenses, other expenses (income), or income tax expense (recovery).
Divisional EBITDA Margin is defined as Divisional EBITDA divided by the respective segment’s revenue (excluding energy
marketing).
24 TERVITA | Annual Report 2019
Page | 9
For the three and twelve months ended December 31, Divisional EBITDA was as follows:
Net profit (loss)
Add back:
Severance costs (excluding restructuring and transaction costs)
Depreciation and amortization
Restructuring costs
Impairment expense (reversal)
Finance costs
Transaction costs
Other expense (income)
Income tax expense (recovery)
Adjusted EBITDA
Add back:
General and administrative expenses
Severance costs in general and administrative expenses
Divisional EBITDA
Divisional EBITDA by reporting segment
Energy Services
Industrial Services
Divisional EBITDA
Divisional EBITDA Margin
Energy Services
Industrial Services
Three Months Ended
December 31
Twelve Months Ended
December 31
2019
(123)
2018
(33)
2019
(116)
2018
(74)
—
35
—
126
24
2
(2)
(3)
59
11
—
70
60
10
70
—
33
—
23
21
3
3
—
50
15
—
65
58
7
65
3
138
3
120
92
8
(1)
(14)
233
48
(2)
279
240
39
279
1
96
—
25
69
69
4
1
191
50
(1)
240
212
28
240
51 %
17 %
44 %
11 %
51 %
16 %
52 %
12 %
DISCRETIONARY FREE CASH FLOW
We use a calculation of Discretionary Free Cash Flow to determine how much cash generated from operating activities is
available for growth and expansion, debt reduction, or return of capital to our shareholders. Discretionary Free Cash Flow
is defined as funds from operations, less cash spent on maintenance capital and payment of principal portion of lease
liabilities, plus cash proceeds on the sale of long-lived assets and sublease payments received. Payment of principal
portion of lease liabilities and receipt of sublease payments have been included in the definition of Discretionary Free
Cash Flow as a result of the adoption of IFRS 16 "Leases" ("IFRS 16") (refer to the Impact of New Accounting Standards
section).
For the three and twelve months ended December 31, Discretionary Free Cash Flow was as follows:
Funds from (used in) operations
Less:
Cash spend on maintenance capital
Payment of principal portion of lease liabilities
Add:
Proceeds on disposition of long-lived assets
Sublease payments received
Discretionary Free Cash Flow
Three Months Ended
December 31
Twelve Months Ended
December 31
2019
20
2018
10
2019
127
2018
102
(12)
(4)
5
—
9
(11)
(1)
—
—
(2)
(29)
(17)
7
2
90
(28)
(2)
7
—
79
TSX | TEV 25
Page | 10
NET DEBT TO ADJUSTED EBITDA (LTM)
We monitor our Net Debt to Adjusted EBITDA (LTM) as a measure of Tervita’s overall indebtedness and capital structure.
We believe Net Debt to Adjusted EBITDA (LTM) is a measure of our debt capacity. Net Debt is calculated as debt, net of
unamortized premium and debt costs, and derivative liabilities associated with that debt less cash and cash equivalents.
For the purposes of this calculation, Adjusted EBITDA (LTM) is defined as Adjusted EBITDA calculated for the last twelve
months.
Tervita’s Net Debt to Adjusted EBITDA (LTM) at December 31, 2019 was as follows:
Net profit (loss)
Add back:
Severance costs (excluding restructuring and transaction costs)
Depreciation and amortization
Restructuring costs
Impairment expense (reversal)
Finance costs
Transaction costs
Other expense (income)
Income taxes expense (recovery)
Adjusted EBITDA (LTM)
Long-term debt
Derivative liabilities
Less: unrestricted cash and cash equivalents
Net debt
Net Debt to Adjusted EBITDA (LTM)
COVENANT EBITDA
LTM
December 31
2019
(116)
3
138
3
120
92
8
(1)
(14)
233
As at
December 31
2019
750
10
(22)
738
3.17
The terms of our revolving credit facility require the Company to comply with certain financial and non-financial
covenants, as defined by our lenders. Covenant EBITDA is defined as Adjusted EBITDA (LTM) excluding the Adjusted
EBITDA (LTM) of our unrestricted subsidiary and the impact of any changes in GAAP subsequent to the date of the credit
agreement (refer to the Impact of New Accounting Standards section for information regarding changes in GAAP).
Tervita’s Covenant EBITDA at December 31, 2019 was as follows:
Net profit (loss)
Add back:
Depreciation and amortization
Restructuring costs
Impairment expense (reversal)
Finance costs
Transaction costs
Other expense (income)
Income taxes expense (recovery)
Eligible adjustments:
Severance costs (excluding restrucuting and transaction costs)
Adjusted EBITDA of unrestricted subsidiaries
Impact of new accounting standards (IFRS 16)
Covenant EBITDA
26 TERVITA | Annual Report 2019
LTM
December 31
2019
(116)
138
3
120
92
8
(1)
(14)
3
(3)
(10)
220
Page | 11
ADJUSTED WORKING CAPITAL
Adjusted Working Capital is defined as trade and other receivables, inventory, and other current assets less trade and
other payables and other current liabilities. We believe Adjusted Working Capital is a useful metric as it demonstrates our
ability to most efficiently manage our resources and meet our short-term obligations, and is monitored internally for such
purposes.
Trade and other receivables
Inventory
Other current assets
Trade and other payables
Other current liabilities
Adjusted Working Capital
OPERATING RESULTS
ENERGY SERVICES
As at December 31
2019
192
12
12
2018
180
12
8
(180)
(122)
(5)
31
—
78
Facilities include our TRDs, caverns, disposal wells, and landfills, and represent activities related to the treatment,
recovery, and disposal of fluids, the processing and disposal of solid materials used in and generated by natural resource
and industrial production, and the disposal of oilfield waste.
Onsite represents specialized services provided on a customer’s site including the use of centrifugation or other
processes for heavy oil producers involved in mining and in-situ production, as well as the supply and operation of drill
site processing equipment, including equipment for solids control and drill cuttings management.
Energy marketing represents activities related to the purchase and resale of oil volumes associated with terminalling,
treatment, recovery, and disposal services. Revenue and direct expenses for energy marketing activities are recorded at
the purchased cost of oil. Revenue related to services provided by TRD facilities to prepare the energy marketing oil
volumes for entry to the pipeline, including treatment, blending, and terminalling, are reported with facilities revenue.
Energy Services Financial Highlights
Three Months Ended December 31
Twelve Months Ended December 31
Facilities revenue
Onsite revenue
Energy marketing revenue
Less: energy marketing direct expenses
Net Energy Services revenue
Facilities and onsite direct expenses
Depreciation and amortization
Impairment reversal (expense)
Operating profit (loss)
Finance costs
Transaction costs
Other income (expense)
Net profit (loss)
Divisional EBITDA (1)
Divisional EBITDA Margin (1)
2019
2018
102
15
416
(416)
117
(57)
(30)
(129)
(99)
(3)
—
1
(101)
60
51 %
109
22
208
(208)
131
(73)
(29)
3
32
(3)
—
(2)
27
58
44 %
(1) Refer to Non-GAAP Measures section for definitions and reconciliations.
Increase
(Decrease) % Change
(6)%
(7)
(32)%
100 %
(100)%
(11)%
(22)%
3 %
4,400 %
(409)%
— %
— %
(150)%
(474)%
3 %
(7)
208
(208)
(14)
(16)
1
132
(131)
—
—
(3)
(128)
2
7 %
2019
399
76
1,607
(1,607)
475
(236)
(118)
(125)
(4)
(12)
—
2
(14)
240
51 %
2018
368
43
1,337
(1,337)
411
(199)
(82)
(1)
129
(10)
(12)
1
108
212
52 %
Increase
(Decrease) % Change
8 %
31
77 %
20 %
(20)%
16 %
19 %
44 %
12,400 %
(103)%
20 %
(100)%
(100)%
(113)%
13 %
33
270
(270)
64
37
36
124
(133)
2
(12)
(1)
(122)
28
(1)%
TSX | TEV 27
Page | 12
Energy Services Quarterly Results
137
131
120
116
122
117
77
30
47
68
33
35
73
30
43
77
33
45
76
32
44
62
75
67
32
35
73
61
60
58
59
57
58
64
57
60
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Q2 18
Q3 18
Q4 18
Q1 19
Q2 19
Q3 19
Q4 19
Divisional EBITDA
Net Revenue
Direct Expenses
TRDs, Caverns and Wells Volumes by Revenue Source (thousands of m3)
170
139
155
163
103
139
128
212
163
163
147
80
1,861
1,616
1,782
1,684
1,865
1,527
2,418
2,523
2,310
2,393
2,552
2,344
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Q2 18
Q3 18
Q4 18
Q1 19
Q2 19
Q3 19
Q4 19
Production
Drilling
Production volumes are related to oil and gas production operations and include volumes for treatment, terminalling, and disposal activities
for liquid waste from emulsion and produced water.
Drilling volumes are related to oil and gas drilling activities and include volumes for processing and disposal of waste and waste water.
28 TERVITA | Annual Report 2019
Page | 13
Landfills Volumes by Revenue Source (thousands of tonnes)
359
351
111
559
500
358
256
319
220
184
49
300
309
372
174
175
349
81
84
100
95
95
370
120
393
330
265
193
432
450
328
349
77
74
89
70
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Q2 18
Q3 18
Q4 18
Q1 19
Q2 19
Q3 19
Q4 19
Production
Drilling
Remediation & other
Production volumes are related to oil and gas production operations and include volumes for disposal activities for solids waste from
emulsions.
Drilling volumes are primarily volumes for drill cuttings related to oil and gas drilling.
Remediation & other volumes are related to the processing and disposal of solid waste from spill cleanup and remediation or reclamation
activities, revenue earned on managed landfills, and other service-related activities.
3
m
'
f
o
s
0
0
0
1000
500
0
Marketed Oil Volumes Compared to Average WTI Prices
$51.86
$48.28
$48.08
$67.98
$69.43
$62.95
$55.46
$58.79
$54.85
$59.83
$56.40
$56.85
588
631
552
415
613
607
646
710
811
830
869
830
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Q2 18
Q3 18
Q4 18
Q1 19
Q2 19
Q3 19
Q4 19
Marketed oil volumes
Average WTI price
$50.00
W
T
I
(
U
S
$
/
b
b
l
)
$0.00
Q3 2018 and Q4 2018 marketed oil volumes exclude volumes marketed by a third party. Beginning January 1, 2019, these volumes were
marketed by Tervita.
TSX | TEV 29
Page | 14
Energy Services Fourth Quarter Results
Q4 Divisional EBITDA Increases by $2 Million to $60 Million
•
•
Energy Services Divisional EBITDA increased by 3% in Q4 2019 compared to the prior year despite lower industry
activity. EBITDA improvements were driven by favorable Canadian crude oil commodity pricing and benefits from the
Newalta acquisition including increased marketed oil volumes and realized synergies. This was partially offset by a
9% decrease in production-related volumes, reduced customer remediation projects and a shift to lower value waste
streams.
Divisional EBITDA Margin was 51% compared to 44% in Q4 2018 due to realized synergies from the Newalta
acquisition as well as higher one-time costs in Q4 2018 related to transitioning acquired facilities to Tervita's
maintenance program.
Q4 Net Loss of $101 Million
•
Energy Services net loss was $101 million, a $128 million decline from Q4 2018 due to impairment expenses, which
more than offset the increase in Divisional EBITDA. These non-cash impairment expenses resulted from the write-
down of specific assets within Energy Services, approximately 64% of which relate to our drilling-based operations in
the US and Canada, with the remainder primarily relating to closed or suspended facilities that no longer met cash
and return expectations. These assets did not contribute materially to our 2019 Adjusted EBITDA.
Q4 Net Revenue Decreases $14 Million to $117 Million
•
•
•
The 11% decrease in Energy Services net revenue compared to prior year was primarily due to the decline in industry
activity resulting in lower volumes into facilities and less project work for drill site processing equipment, partially
offset by increased marketed oil volumes and favorable Canadian crude oil commodity pricing. Production-related
revenue was further impacted by a change in product mix towards lower value waste streams.
Total volumes at our landfills decreased by 12% compared to the prior year, driven by decreased customer
remediation projects and reduced drilling activity.
Onsite services contributed 13% of our net Energy Services revenue for the quarter, compared to 17% in Q4 2018.
Compared to prior year,
lower drilling activity resulted in a decrease in project work for drill site processing
equipment.
Energy Services Full Year Results
2019 Divisional EBITDA Increases by $28 Million to $240 Million
•
•
2019 Divisional EBITDA increased by 13% over the prior year, reflecting contributions from our expanded network
and realized transaction synergies. Our acquisition of Newalta in Q3 2018 contributed to an 11% increase in
production-related volumes through our facilities which more than offset the 2% decrease in drilling-related
volumes.
Energy Services Divisional EBITDA Margin for 2019 was relatively flat compared to prior year.
2019 Net Loss of $14 Million
•
Energy Services 2019 net loss was $14 million, a $122 million decline from prior year. Increased Divisional EBITDA and
lower transaction costs were offset by higher depreciation and amortization related to acquired Newalta assets and
assets associated with the new lease accounting standard as well as impairment expense of $125 million recognized
in 2019.
2019 Net Revenue Increases $64 Million to $475 Million
•
•
•
The 16% or $64 million increase in Energy Services net revenue for 2019 compared to the prior year was primarily
driven by our investments in new facility infrastructure and onsite services in 2018, including the acquisition of
Newalta and other growth capital investments that provided additional waste disposal, storage, and blending
capacity.
TRD facilities volumes increased by 13% primarily driven by the Newalta acquisition. Revenue from the increased
volumes was impacted by a change in product mix resulting in lower realized prices.
Landfills volumes decreased 4% compared to prior year as the impact of the decline in drilling activity was partially
offset by the acquisition of Newalta and a 3% increase in soil volumes received from customer remediation projects.
30 TERVITA | Annual Report 2019
Page | 15
•
•
Onsite services contributed 16% of net revenue in 2019 compared to 10% in 2018.
Energy marketing revenue increased by 20% compared to the prior year, primarily due to a 30% increase in marketed
oil volumes from acquired Newalta facilities.
INDUSTRIAL SERVICES
Industrial Services is comprised of four operating segments: waste services, metals recycling, rail services, and
environmental services. Revenue from these operating segments is derived from: commodity-based sales from ferrous
and non-ferrous metals; facility-based services including hazardous and non-hazardous waste management and disposal
and waste transportation and classification; and project-based services
facility
decommissioning, water treatment, sludge and slurry management, bio-remediation and technologies, emergency
response, and rail services.
including site remediation,
Industrial Services Financial Highlights
Three Months Ended December 31
Twelve Months Ended December 31
Commodity-based sales
Facility-based services
Project-based services
Total revenue
Direct expenses
Depreciation and amortization
Restructuring costs
Impairment reversal (expense)
Operating profit (loss)
Finance costs
Other income (expense)
Net profit (loss)
Divisional EBITDA (1)
Divisional EBITDA Margin (1)
2019
2018
9
12
39
60
(50)
(3)
—
1
8
(1)
4
11
14
10
39
63
(56)
(2)
—
(22)
(17)
—
(1)
(18)
10
17 %
7
11 %
Increase
(Decrease) % Change
(36)%
(5)
20 %
— %
(5)%
(11)%
50 %
— %
(105)%
147 %
100 %
500 %
161 %
43 %
2
—
(3)
(6)
1
—
(23)
25
1
5
29
3
6 %
2019
2018
45
45
156
246
(207)
(13)
(3)
1
24
(2)
6
28
39
16 %
49
33
149
231
(203)
(9)
—
(23)
(4)
—
(2)
(6)
28
12 %
Increase
(Decrease) % Change
(8)%
(4)
36 %
5 %
6 %
2 %
44 %
100 %
(104)%
700 %
100 %
400 %
567 %
39 %
12
7
15
4
4
3
(24)
28
2
8
34
11
4 %
(1) Refer to Non-GAAP Measures section for definitions and reconciliations.
Industrial Services Fourth Quarter Results
Q4 Divisional EBITDA Contributes $10 Million With Divisional EBITDA Margin of 17%
•
•
Industrial Services Divisional EBITDA increased $3 million or 43% over prior year, primarily driven by increased project
margins combined with higher waste volumes at our waste services facilities, partially offset by the impact of lower
metals commodity prices.
Divisional EBITDA margin improved six percentage points compared to prior year.
Q4 Net Profit of $11 Million Driven by Higher Divisional EBITDA
•
Net profit of $11 million was a $29 million improvement compared to the same period in 2018, due to higher
Divisional EBITDA and goodwill impairment recorded in Q4 2018.
Q4 2019 Revenue of $60 Million a 5% Decrease Over Q4 2018
•
Fourth quarter revenue decreased $3 million or 5% compared to prior year, primarily due to lower ferrous metals
volumes and pricing combined with reduced project activity. This was partially offset by increased waste volumes
received at our facilities.
Industrial Services Full Year Results
2019 Divisional EBITDA of $39 Million With Divisional EBITDA Margin of 16%
•
Divisional EBITDA of $39 million increased $11 million or 39% over 2018. This increase was primarily driven by
increased margins for project work, higher waste volumes at our facilities, particularly in the lower mainland of British
TSX | TEV 31
Page | 16
Columbia and central Alberta, higher metal volumes, and the adoption of the new lease accounting standard (refer
to Impact of New Accounting Standards section). This was partially offset by lower metals commodity pricing.
•
Divisional EBITDA Margin improved by four percentage points in 2019 as compared to the prior year.
2019 Net Profit of $28 Million Driven by Higher Divisional EBITDA
•
2019 net profit of $28 million was a $34 million improvement compared to 2018, primarily driven by Divisional
EBITDA improvement and a goodwill impairment in 2018.
2019 Revenue of $246 Million a 6% Increase Over YTD 2018
•
Revenue increased $15 million or 6% compared to 2018. This was primarily due to an increase in waste volumes
received at our facilities and increased metals volumes, partially offset by lower metals commodity prices.
CORPORATE
Three Months Ended December 31
Twelve Months Ended December 31
Revenue - intersegment eliminations
Direct costs - intersegment eliminations
General and administrative expenses
Depreciation and amortization
Impairment reversal (expense)
Finance costs
Transaction costs
Other income (expense)
Income tax recovery (expense)
Total corporate expenses
G&A as a % of revenue (excl. energy marketing)
2019
2018
(2)
2
(11)
(2)
2
(20)
(2)
(3)
3
(33)
6 %
—
—
(15)
(2)
(4)
(18)
(3)
—
—
(42)
8 %
General and Administrative Expenses
Increase
(Decrease) % Change
100 %
2
(2)
(4)
—
(6)
2
(1)
3
(3)
(9)
(100)%
(27)%
— %
(150)%
11 %
(33)%
100 %
(100)%
(21)%
2019
2018
(5)
5
(48)
(7)
4
(78)
(8)
(7)
14
(5)
5
(50)
(5)
(1)
(59)
(57)
(3)
(1)
(130)
(176)
Increase
(Decrease) % Change
— %
—
—
(2)
2
(5)
19
(49)
4
(15)
(46)
— %
(4)%
40 %
(500)%
32 %
(86)%
133 %
(1,500)%
(26)%
(2)%
7 %
8 %
(1)%
•
•
G&A expenses for Q4 2019 decreased by $4 million compared to 2018, driven primarily by synergies from the
acquisition of Newalta and a $1 million impact from the adoption of the new lease accounting standard (refer to
Impact of New Accounting Standards section).
2019 G&A expenses decreased by $2 million over 2018 as higher employee-related costs associated with the
acquired Newalta corporate operations were more than offset by realized synergies and a $2 million decrease in
expenses related to the adoption of the new lease accounting standard (refer to Impact of New Accounting
Standards section).
Finance Costs
Three Months Ended December 31
Twelve Months Ended December 31
Interest on long-term debt
Amortization of debt issue costs
Accretion of decommissioning liabilities
Interest on obligations under leases
Sublease interest income
Finance costs
2019
(16)
(3)
(1)
(1)
1
(20)
2018
(16)
(2)
—
—
—
(18)
Increase
(Decrease) % Change
— %
—
1
1
1
1
4
50 %
100 %
100 %
100 %
22 %
2019
2018
(63)
(10)
(1)
(5)
1
(78)
(52)
(7)
—
—
—
(59)
Increase
(Decrease) % Change
21 %
11
3
1
5
1
21
43 %
100 %
100 %
100 %
36 %
•
Finance costs for the quarter and full year increased over prior year as a result of increased interest and amortization
of debt issue costs associated with the additional US$250 million senior secured notes issued in June 2018 for the
acquisition of Newalta, as well as increased interest expense recognized on lease liabilities in accordance with our
adoption of the new lease accounting standard (refer to Impact of New Accounting Standards section).
32 TERVITA | Annual Report 2019
Page | 17
Transaction Costs
•
•
Q4 2019 and Q4 2018 transaction costs included integration costs, comprised of severance, branding, site
suspension, employee compensation, onerous contracts, and information technology.
Transaction costs in 2019 included $7 million of integration costs. Transaction costs in 2018 included $13 million of
expenses incurred for the completion of the Arrangement with Newalta, $18 million of integration costs, and $26
million of non-cash impairment expense primarily related to the change in discount rate on decommissioning
obligations acquired as part of the transaction.
Other Income (Expense)
Three Months Ended December 31
Twelve Months Ended December 31
Share-based compensation
Change in provisions and onerous lease
contracts
Foreign exchange gain (loss)
Gain (loss) on sale of assets
Gain (loss) on lease modification
Other income (expense)
2019
2018
(2)
(2)
1
—
—
(3)
—
(3)
2
1
—
—
Increase
(Decrease) % Change
100 %
2
(1)
1
1
—
3
(33)%
50 %
100 %
— %
100 %
2019
2018
(9)
(3)
3
1
1
(7)
(4)
(5)
1
5
—
(3)
Increase
(Decrease) % Change
125 %
5
(2)
(2)
4
(1)
4
(40)%
(200)%
80 %
(100)%
133 %
•
Other expense for the quarter and full year increased over prior year primarily due to the issuance of additional
share-based compensation units in 2019.
Income Tax Recovery (Expense)
•
In 2019, we resolved certain tax matters relating to prior periods and recorded an income tax recovery of $14 million.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND LIQUIDITY RISK
The term liquidity refers to the ability and speed with which a company’s assets can be converted into cash. Liquidity risk
refers to the risk encountered in meeting financial obligations settled by cash or another financial asset. Our liquidity risk
may arise from general day-to-day cash requirements and in the management of our assets, liabilities, and capital
resources. We manage our cash and credit facility balances to have sufficient capital to fund ongoing operations, capital
programs, and growth initiatives. Our liquidity and operational cash requirements are managed through cash flow
forecasts, monitoring of operational expenditures compared to budget, and monitoring of financial leverage ratios. Our
liquidity needs and working capital requirements can be sourced through cash provided by operating activities, existing
credit facilities, and access to debt and capital markets.
Our debt structure as at December 31, 2019 included: (i) an undrawn $275 million revolving credit facility; and (ii) an
aggregate principal amount of US$590 million senior secured notes, which notes were issued in December 2016 in an
amount of US$360 million and in July 2018 in an amount of US$250 million, of which we repurchased US$20 million in
November 2019. The senior secured notes bear a coupon rate of 7.625%, with interest payable semi-annually on June 1
and December 1, and mature on December 1, 2021.
At December 31, 2019, Tervita had $77 million in letters of credit ("LCs") issued against our revolving credit facility. The
remaining $198 million of capacity, combined with $22 million of cash and cash equivalents, provided $220 million in
available liquidity. The credit facility has a scheduled termination date of June 1, 2021, with normal course extension
provisions under the credit agreement.
For the twelve months ended December 31, 2019, Tervita generated $128 million (December 31, 2018 - $96 million) of
cash from operations (net of working capital and including decommissioning activities) and invested approximately $102
million (December 31, 2018 - $84 million) of cash in property, plant and equipment and intangible assets. Tervita did not
require any additional liquidity to support continuing operations.
Adjusted Working Capital at December 31, 2019 was $31 million (December 31, 2018 - $78 million). The decrease in
Adjusted Working Capital was primarily due to our efforts to reduce our trade receivables through improved collections,
and an increase in trade and other payables.
TSX | TEV 33
Page | 18
At current activity levels, we have ample liquidity to meet our ongoing commitments and operational requirements of
the business.
For the twelve months ended December 31, 2019, Discretionary Free Cash Flow was $90 million, an increase of $11
million from 2018, due to higher cash flow generated from operations. Discretionary Free Cash Flow represents Tervita’s
capacity to fund its ongoing growth capital spending, reduce net debt, and repurchase common shares under the NCIB.
For the twelve months ended December 31, 2019 Discretionary Free Cash Flow was more than sufficient to fund the $73
million of growth and expansion cash capital expenditures.
Net Debt to Adjusted EBITDA (LTM) at December 31, 2019 was 3.17.
SOURCES OF CASH
Our liquidity needs can be sourced in several ways, including: funds from operations, borrowings against or increases in
our revolving credit facility, new debt instruments, return of LCs or replacement of LCs with other types of financial
security, proceeds from the sale of long-term assets, and issuance of share capital.
At December 31, 2019, Tervita had cash and cash equivalents of $22 million. After adjusting for the US$20 million of
repurchased debt, cash and cash equivalents are largely unchanged from the prior year.
Revolving Credit Facility
At December 31, 2019, $198 million was available and undrawn under our revolving credit facility for general corporate
purposes, as well as to provide LCs to third parties. The maximum amount of LCs which can be issued under the LC
program is $200 million.
Under the terms of Tervita’s revolving credit facility, we must comply with certain financial and non-financial covenants,
including: (i) Total Leverage Ratio; (ii) Secured Leverage Ratio; and (iii) Interest Coverage Ratio.
The Company was in compliance with its covenants at December 31, 2019 as follows:
Total Leverage Ratio
Secured Leverage Ratio
Interest Coverage Ratio
Total Leverage Ratio
Required
Less than 4.50
Less than 2.50
Greater than 2.00
Actual
3.49
0.26
3.35
Total Leverage Ratio is calculated as the ratio of Total Indebtedness to Covenant EBITDA. Total Indebtedness consists of
the outstanding principal value of the senior secured notes, reported in C$ and reflecting the impact of cross currency
swaps, less cash balances up to a total of $75 million.
Tervita’s Total Leverage Ratio cannot exceed 4.50 to 1.00.
Secured Leverage Ratio
Secured Leverage Ratio is defined as Secured Indebtedness to Covenant EBITDA. Secured Indebtedness consists of the
outstanding LCs (which reduce the borrowing availability under the revolving credit facility) less cash balances up to a
total of $75 million.
Tervita must maintain a Secured Leverage Ratio of less than 2.50 to 1.00.
Interest Coverage Ratio
Interest Coverage Ratio is defined as Covenant EBITDA to Interest Expense, where Interest Expense consists of interest
payments on the senior secured notes for the last twelve months and interest due on LCs and standby fees.
Tervita must maintain an Interest Coverage Ratio greater than 2.00 to 1.00.
34 TERVITA | Annual Report 2019
Page | 19
USES OF CASH
Our primary uses of cash include capital expenditures, operating and G&A expenses, payments for decommissioning
obligations, servicing and repayment of the long-term debt, and repurchasing common shares under the NCIB. Some of
these cash outflows are contractually obligated into the future.
Capital Expenditures
Capital expenditures are classified as either growth and expansion capital or maintenance capital. Growth and expansion
capital expenditures are investments to expand our existing facilities, develop our landfills and caverns, and purchase
property, plant and equipment, with the intent of expanding existing businesses or entering into new locations or
markets. Maintenance capital expenditures are incurred to retain the current performance levels of existing assets.
Change in capital accruals represent the net non-cash additions to property, plant and equipment and intangible assets
that occur as a result of the timing difference between capitalizing an asset and settling the related liability in cash.
Capital additions for the year ended December 31 was as follows:
Capital additions
Growth and expansion
Maintenance
Change in capital accruals
Capital expenditures (cash)
Growth and expansion
Maintenance
Three Months Ended December 31
Twelve Months Ended December 31
2019
2018
Increase
(Decrease) % Change
2019
2018
Increase
(Decrease) % Change
41
11
(5)
47
35
12
18
14
4
36
25
11
23
(3)
(9)
11
10
1
128 %
(21)%
(225)%
31 %
40 %
9 %
106
33
(37)
102
73
29
45
38
1
84
56
28
61
(5)
(38)
18
17
1
136 %
(13)%
(3,800)%
21 %
30 %
4 %
Management evaluates capital projects based on their internal rate of return, payback period, fit with our corporate
strategy, and risks associated with the projects, among other factors. Growth and expansion capital investment is
prioritized towards projects that provide stable cash flows and where there is a high degree of certainty of completing
projects on time, and on budget. The amount and timing of future maintenance capital is primarily dependent on the
volume of waste that is received at our facilities.
We will continue to identify, plan, and execute a growth capital portfolio. Refer to the Outlook section for a discussion of
expected capital additions for 2020.
NCIB
On May 7, 2019, we commenced a NCIB to repurchase up to 3,115,264 common shares until May 6, 2020. On December 5,
2019, the NCIB was amended to increase the total amount of common shares that can be repurchased to 5,877,855. As at
December 31, 2019, we repurchased 3,202,448 common shares for $23 million.
On May 21, 2019, we entered into an Automatic Share Purchase Plan, which permits an independent broker to repurchase
shares under the NCIB during blackout periods. As at December 31, 2019, Tervita recognized a $13 million provision as an
estimated value of shares that may be repurchased from the end of the reporting period until the release of our annual
financial information.
Repurchase of senior secured notes
In November 2019, Tervita repurchased US$20 million of the senior secured notes originally issued in July 2018 for $26
million.
TSX | TEV 35
Page | 20
SUMMARY OF COMPARATIVE RESULTS
SEASONALITY
Our quarterly results reflect how Energy Services is influenced by seasonal weather patterns. During the spring thaw and
at other times of the year, wet weather can make the ground unstable. Consequently, roads become impassable or
municipalities and provincial transportation departments enforce road bans that restrict the movement of trucks, rigs,
and other heavy equipment, reducing the activity levels and placing an increased importance on the location of the
equipment prior to the imposition of the road bans. As a result, Energy Services (excluding energy marketing) tends to
earn lower revenue and operating profit in the second fiscal quarter (refer to the Operating Results section for a
discussion on Energy Services). If the weather causes the ground to be unstable for longer than usual, operating results
may continue to be negatively impacted.
QUARTERLY REVIEW SUMMARY
Revenue (excluding energy marketing)
Energy marketing revenue
Revenue
Profit (loss) from continuing operations
- per share ($), basic and diluted
Net profit (loss)
- per share ($), basic and diluted
Q4 2019
Q3 2019
Q2 2019
Q1 2019
Q4 2018
Q3 2018
Q2 2018
Q1 2018
175
416
591
(123)
(1.07)
(123)
(1.07)
191
420
611
10
0.09
10
0.09
166
424
590
—
—
—
—
184
347
531
(3)
(0.03)
(3)
(0.03)
194
208
402
(33)
(0.28)
(33)
(0.28)
203
439
642
(44)
(0.38)
(44)
(0.38)
124
416
540
—
—
—
—
116
274
390
3
0.03
3
0.03
Q3 2019 to
Q4 2019
Q2 2019 to
Q3 2019
Q1 2019 to
Q2 2019
Q4 2018 to
Q1 2019
• Net loss increased primarily due to impairment expense related to specific assets and closed or
suspended sites.
• The increase in revenue (excluding energy marketing) was primarily due to higher project revenue
in environmental services.
• The increase in revenue was primarily from energy marketing due to an increase in Canadian crude
oil prices.
• Revenue (excluding energy marketing) decreased due to smaller-scale rail services projects.
• The decrease in revenue (excluding energy marketing) was primarily due to lower volumes through
Energy Services facilities from lower production and drilling-related market activity.
• The increase in energy marketing revenue was primarily due to higher marketed oil volumes from
acquired Newalta facilities, which were marketed by Tervita beginning Q1 2019 and by a third party
in 2018.
Q3 2018 to
Q4 2018
• The decrease in revenue was primarily attributable to the reduced activity and associated recovered
oil revenue due to the extreme widening of differentials during Q4 2018.
Q2 2018 to
Q3 2018
Q1 2018 to
Q2 2018
• Net loss increased primarily due to transaction and finance costs incurred on the Newalta
acquisition, goodwill impairment in Industrial Services, and an impairment of assets associated with
inactive sites in Energy Services.
• Revenue increased primarily due to the acquisition of Newalta operations as well as higher
Canadian crude oil prices on greater than Q2 2018 marketed oil volumes.
• Net profit decreased primarily due to transaction and finance costs incurred on the Arrangement.
The increase in these costs were largely offset by the increase in operating profit.
• Revenue increased primarily from higher energy marketing volumes and Canadian crude oil prices,
and increased project-related revenue in Industrial Services.
• Net profit decreased due to the interest expense incurred on the escrow notes.
36 TERVITA | Annual Report 2019
Page | 21
SELECT THREE YEAR COMPARATIVE INFORMATION
Revenue (excluding energy marketing)
Energy marketing revenue
Total revenue
Profit (loss) from continuing operations
- per share ($), basic and diluted
Net profit (loss)
- per share ($), basic and diluted
Adjusted EBITDA(1)
Total assets
Non-current financial liabilities
Shares at December 31 (000's of shares)
Shares outstanding
Weighted average shares outstanding - basic and diluted
Twelve Months Ended December 31
2019
716
1,607
2,323
(116)
(0.99)
(116)
(0.99)
233
1,662
851
2018
637
1,337
1,974
(74)
(0.67)
(74)
(0.67)
191
1,809
824
2017
505
985
1,490
(82)
(0.78)
(81)
(0.77)
156
1,226
476
114,355
116,732
117,557
110,471
104,626
104,626
(1) Refer to the section Non-GAAP Measures for definitions and reconciliation.
Year to Date 2018 Versus Year to Date 2017 Comparative Highlights
•
•
•
•
•
Revenue in 2018 increased compared to 2017 as a result of our strategic investment in growth and expansion
opportunities in 2017 and 2018, highlighted by the acquisition of Newalta in 2018. These investments expanded our
geographic footprint and increased our service line offerings.
Tervita recorded a net loss in 2018, largely due to incremental costs related to the acquisition of Newalta including
$69 million of transaction costs related to the acquisition. Finance costs increased by $20 million compared to 2017,
primarily due to issuance of the US$250 million senior secured notes.
In 2017, Tervita's net loss was primarily a result of non-cash expenses. Most significantly, impairment expense of $76
million primarily related to operation of our landfills, and a provision of $13 million for onerous contracts and legal.
Compared to the prior year, the 2018 net loss included the $35 million increase in Adjusted EBITDA, a $51 million
decrease in impairment expense, and a reduction in changes to onerous and legal provisions of $13 million. These
reductions were somewhat offset by transaction costs, the increased finance costs, and higher depreciation and
amortization expense on new assets of $16 million.
2018 adjusted EBITDA of $191 million was a $35 million increase compared to 2017 Adjusted EBITDA of $156 million,
primarily due to the acquisition of Newalta.
OTHER ITEMS
ACQUISITION OF NEWALTA
The Competition Act (Canada) ("the Act") permits the Commissioner of Competition to make an application to the
Competition Tribunal in respect of an acquisition transaction within a period of one year after its implementation. As of
July 19, 2019, no such application had been made to the Competition Tribunal and, pursuant to the Act, the time to make
such an application has now lapsed.
Effective January 1, 2019, we assumed the marketing of oil volumes previously marketed by a third party on behalf of
Newalta. During the first half of 2019, we also converted Newalta’s legacy accounting, payroll, and operating systems
onto Tervita’s systems, enacted further headcount reductions, suspended operations at additional sites, and achieved
further operating improvements.
As of the end of the second quarter 2019, we had achieved an annualized run rate of $45 million of Adjusted EBITDA
synergies, at the top of our targeted range and well ahead of schedule.
TSX | TEV 37
Page | 22
FINANCIAL INSTRUMENTS
As at December 31, 2019, financial instruments included cash and cash equivalents, trade and other receivables, sublease
receivables, equity investments, trade and other payables, interest payable, long-term debt, lease liabilities, derivative
assets (liabilities) and contingent considerations. Excluding long-term debt, the fair values of the financial instruments
approximated their carrying values due to the short-term maturities. The fair value of the long-term debt is influenced by
changes in the risk-free interest rates.
Tervita is exposed to foreign currency risk with respect to its senior secured notes that are denominated in US$. Tervita
manages this exposure through its cross-currency swap agreements ("cross-currency swaps") and forward-contract swap
agreements ("forward swaps"), thereby fixing the exchange rate on certain US$ debt.
Our risk management strategy for the senior secured notes is to mitigate the foreign currency risk due to movements in
the US$ to C$ exchange rates. We have cross-currency swaps for the US$360 million senior secured notes for which we
have applied hedge accounting to reduce variability in cash flows due to changes in the US$ to C$ exchange rates
("Designated Hedge"). During the twelve months ended December 31, 2019, the Designated Hedge was deemed to be
effective and a loss of $18 million was recognized in accumulated other comprehensive profit (loss).
We also entered into forward swaps to mitigate the foreign exchange risk on the repayment of principal of the US$230
million senior secured notes. All gains and losses associated with changes in the fair value of the forward swaps are
included in net profit (loss). Tervita exited the forward swaps on October 29, 2019 for proceeds of $6 million, and
recognized a $6 million realized gain. During the twelve months ended December 31, 2018, $18 million was recognized in
the Statements of Profit (Loss) associated with unrealized loss in the fair value of the forward swaps.
For further information regarding our financial and other instruments as well as how we manage the risk associated with
these instruments, refer to notes 2, 18, 19 and 22 of the Annual Financial Statements, and the Liquidity and Liquidity Risk
section of this MD&A.
OFF-BALANCE SHEET ARRANGEMENTS
As at December 31, 2019, Tervita did not have any material off-balance sheet arrangements, other than the commitments,
contingencies, and guarantees discussed in note 26 of the Annual Financial Statements. We do not believe that any of
these off-balance sheet arrangements have, or are reasonably likely to have, a current or future material effect on the
Company’s financial performance or financial condition, results of operations, liquidity, or capital expenditures.
RELATED PARTY TRANSACTIONS
Refer to note 25 of the Annual Financial Statements for disclosure regarding related party transactions.
LEGAL AND ENVIRONMENTAL MATTERS
After evaluation from Tervita’s management and Board of Directors, we have determined the claim against Secure Energy
Services has merit and, accordingly, set a court date for early 2022 and non-binding mediation has been scheduled for
late 2020.
Refer to note 26 of the Annual Financial Statements for disclosure of other legal and environmental matters.
IMPACT OF NEW ACCOUNTING STANDARDS
IFRS 16 was issued in January 2016 and is effective for annual periods beginning on or after January 1, 2019. IFRS 16
replaces International Accounting Standards ("IAS") 17 ''Leases''
International Financial Reporting
Interpretations Committee ("IFRIC") 4 "Determining Whether an Arrangement Contains a Lease", Standards Interpretation
Committee ("SIC")15 "Operating Leases-Incentives", and SIC-27 "Evaluating the Substance of Transactions Involving the
Legal Form of a Lease".
("IAS 17"),
IFRS 16 sets out the principles for the recognition, measurement, presentation, and disclosure of leases which requires
lessees to account for operating leases under a single on-balance sheet model in a manner similar to the previous
accounting for finance leases under IAS 17. At the commencement date of a lease, a lessee recognizes a liability to make
lease payments and a right-of-use asset representing the right to use the underlying asset during the lease term.
Tervita elected to adopt IFRS 16 using the modified retrospective transition approach, whereby the right-of-use asset is
measured at the value of the lease liability upon the date of initial application. The modified retrospective approach does
not require restatement of prior periods. Tervita applied certain practical expedients available under this adopted
approach and elected to apply recognition exemptions for short-term and low-value leases. As a lessee, Tervita's most
38 TERVITA | Annual Report 2019
Page | 23
significant lease contracts relate to real estate, equipment, and surface rights. Tervita does not have any material lease
agreements where Tervita acts as the lessor.
The complete impact of adopting IFRS 16 is disclosed in notes 2 and 11 of the Annual Financial Statements.
There were no changes to compliance with the financial covenants that form part of our long-term debt due on the
adoption of IFRS 16, as the covenants will continue to be calculated based on lease accounting that would apply under
IAS 17. Refer to the Covenant EBITDA in the Non-GAAP Measures section.
ACCOUNTING POLICIES
Tervita’s significant accounting policies are included in note 2 of the Annual Financial Statements, which is updated for
the impact of new accounting standards as described above.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Critical accounting estimates are those that require management to make judgments and estimates that affect the
application of accounting policies and the reported assets, liabilities, revenues, expenses, gains, losses, and disclosures of
off-balance sheet arrangements. These judgments and estimates are highly uncertain at the time the estimate is made
and are subject to change based on experience and available information. Critical accounting estimates are also those
estimates which, where a different estimate could have been used or where changes in the estimate that are reasonably
likely to occur, could have a material impact on the company’s financial condition, changes in financial condition, or
financial performance.
The most significant accounting estimates and judgments used in the preparation of our Financial Statements are
included in note 2 of the Annual Financial Statements.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
Tervita's disclosure controls and procedures ("DC&P") and internal controls over financial reporting ("ICFR") are designed
to provide reasonable assurance regarding the disclosure of information and reliability of external financial reporting and
the preparation of the financial statements in accordance with IFRS. Tervita follows the Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Chief
Executive Officer and the Chief Financial Officer (collectively, the "Certifying Officers") have evaluated the design and
effectiveness of DC&P and the operational effectiveness of our ICFR using COSO 2013. As at December 31, 2019, the
Certifying Officers have concluded that such DC&P and ICFR were effective.
Management, including the Certifying Officers, does not expect that the Company's DC&P and ICFR will prevent or detect
all misstatements or instances of fraud. Based on their inherent limitations, DC&P and ICFR may not prevent or detect
misstatements, and even those controls determined to be effective can provide only reasonable assurance with respect
to financial statement preparation and presentation and not absolute assurance that all control issues, misstatements, or
instances of fraud, if any, within the Company have been detected.
TSX | TEV 39
Page | 24
FORWARD-LOOKING STATEMENTS
forward-looking statements and
This MD&A contains
forward-looking information (collectively referred to herein
as “forward-looking statements”) within the meaning of
securities
legislation. Such forward-looking statements
include, without limitation, forecasts, estimates, expectations
and objectives for future operations that are subject to
assumptions, risks and uncertainties, many of which are
beyond the control of Tervita. Forward-looking statements
are statements that are not historical facts and are generally,
identified by the words “expects”, “plans”,
but not always,
“anticipates”,
“projects”,
“intends”,
“potential” and similar expressions, or are events or
conditions that “will”, “would”, “may”, “could” or “should” occur
or be achieved. These statements are not guarantees of
future performance and are subject to risks, uncertainties and
other key factors that could cause actual results or events to
be materially different
from those anticipated in such
forward-looking statements.
“estimates”,
“believes”,
Specific forward-looking statements contained in this MD&A
include, amongst others, statements and management’s
beliefs, expectations or intentions regarding the following:
•
Tervita's outlook for 2020,
including expectations
regarding Adjusted EBITDA growth, its approach to the
allocation of Discretionary Free Cash Flow, its ability to
continue to exercise capital discipline,
its estimated
preliminary growth and expansion budget and its
expectations that maintenance capital will remain flat as
compared to 2019;
•
•
•
improvements
• market and industry outlook with respect to commodity
prices, upstream oil and gas production levels and
drilling activity;
continued business focus on the WCSB;
that Tervita’s strategy regarding cost control, incremental
business
and optimization of our
businesses will be successful;
cash generated from operations, asset
sales and
amounts available under the credit facilities will be
adequate to permit Tervita to meet its debt service
obligations, ongoing costs of operations, working capital
needs, and capital expenditure requirements;
timing of the completion of capital projects and their
impact on driving Adjusted EBITDA growth in 2020;
liquidity, sources and uses of cash, and off-balance sheet
arrangements; and
Tervita’s business strategies and objectives.
•
•
•
Forward-looking statements relating to our business contain
uncertainties and assumptions, including the following:
•
current economic and operating conditions, including
commodity prices, interest rates, and environmental and
regulatory matters;
the ability of Tervita to obtain equipment, services,
its business
supplies and personnel
activities;
the ability of Tervita to successfully market its business in
the areas in which it operates; that Tervita's current
to carry out
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
remain
substantially
environment will
business
unchanged;
Tervita's ability to secure financing on acceptable terms,
if needed;
demand for services in Tervita's businesses can be
adversely impacted by general economic conditions and
Tervita is dependent on exploration, drilling and
production activity levels in the markets where Tervita
offers its services;
risks related to limited pipeline capacity;
the ability of management to execute its business plan;
the risks of the environmental solutions industry, such as
operational risks and market demand;
risks inherent in Tervita’s marketing operations, including
credit risk;
the uncertainty of estimates and projections relating to
revenues, costs, expenses and capital expenditures;
fluctuations in fuel, raw material costs, oil and natural
gas prices, commodity prices, foreign currency exchange
rates and interest rates;
health, safety and environmental risks;
uncertainties as to the availability and cost of financing;
general economic conditions in Canada, the United
States, and globally;
industry conditions;
the possibility that government policies or laws may
change or governmental approvals may be delayed or
withheld;
governmental regulation of the environmental solutions
industry, including environmental regulation;
unanticipated operating events;
failure to obtain third-party consents and approvals,
when required;
risks associated with existing and potential
lawsuits and regulatory actions against Tervita;
the highly competitive nature of Tervita's markets, and
competition that could adversely impact Tervita's
financial position, results of operations, cash flows or its
ability to make required payments on debt outstanding;
financial conditions are subject to increased
global
volatility;
legislative and regulatory initiatives related to hydraulic
fracturing that could result
in increased costs and
additional operating restrictions or delays as well as
adversely affect Tervita's support services;
increasing concern regarding earthquake
activity
connected to oil/gas production and waste disposal
wells could adversely affect Tervita's business;
successful implementation of Tervita's investment and
acquisition strategy;
the difficulty of identifying and executing acquisitions on
favorable terms,
integrating
businesses Tervita acquires, and its significant exposure
from unknown liabilities related to Tervita's acquisitions;
susceptibility to seasonality due to adverse weather
conditions;
including successfully
future
40 TERVITA | Annual Report 2019
Page | 25
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
implementation of controls or
risks related to transportation of petroleum products and
waste water;
risks related to any change in provincial royalty rates;
risks related to First Nations consultation and claims and
its effect on Tervita’s ability to secure locations for capital
projects and ability to operate;
risks related to changes in industry practices related to
crude oil equalization and declines in oil prices that may
affect Tervita's energy marketing business;
risk of
tariffs on
competitor-owned pipelines which impede Tervita’s
ability to physically or economically access the pipelines
that may affect its energy marketing business;
Tervita's operations being subject to numerous natural
disasters and operating hazards and the lack of
assurance that such events will be covered by insurance
or whether any such insurance coverage would be
adequate;
uncertainty around the impact of the US-Mexico-Canada
agreement on Tervita’s business;
losses in respect of Tervita's
impairment
potential
physical assets from reduced industry activity and a
sustained decline in demand for services involving such
assets;
fluctuations in supply and demand for scrap metal
prices;
Tervita's ability to attract and retain qualified workers;
dependence on Tervita's senior management, the loss of
which could materially harm its business;
obligation to comply with health and safety regulations
at Tervita's facilities and its operations, the failure of
which could result in significant liability and/or fines and
penalties;
failure by Tervita's employees to follow applicable
procedures and guidelines or on-site accidents;
deterioration in Tervita's safety record would harm its
relationships with customers, make it less likely for
customers to contract for its services and subject it to
penalties and fines, which could adversely affect Tervita's
business, operating results and financial condition;
Tervita’s obligation to comply with U.S. federal, state and
local environmental laws and results;
the inability of counterparties or customers to fulfill their
obligation to Tervita;
technology Tervita uses in its business is increasingly
subject to protection by intellectual property rights;
technology Tervita uses in its business is subject to
security threats;
Tervita’s confidential information may be exposed due to
third parties or technical malfunctions; and Tervita’s
its
ability to only provide reasonable assurance of
disclosure controls and procedures and its internal
controls over financial reporting;
Tervita’s operational dependence on certain of its joint
venture arrangements;
the impact of pending and future legal proceedings on
Tervita’s business;
the impact of environmental activism on Tervita’s
business;
•
•
•
•
•
interest between Tervita’s major
the impact of climate change and alternative energy
sources on Tervita’s business;
possible conflict of
shareholders and Tervita’s other shareholders;
possible conflict of interest of Tervita’s directors and
officers.
the possible effect of public health crises on Tervita’s
business; and
Tervita's treating, recovery and disposal facilities, cavern
disposal
facilities and engineered landfill operations
could be adversely affected by more stringent closure
and post-closure obligations and a variety of other risks.
For a more detailed discussion of risks relating to Tervita, see
our most recent AIF dated March 8, 2020. These factors
should not be construed as exhaustive. The forward-looking
statements included in this MD&A are made only as of the
date hereof and Tervita does not undertake to publicly
update
new
information, future events, or otherwise, except as required
forward-looking statements
by
contained herein are expressly qualified by this cautionary
statement.
forward-looking
laws. Any
statements
applicable
these
for
future
Tervita’s
estimates
regarding
The
financial
performance, including estimates of preliminary growth and
expansion budget of $50 million and maintenance capital of
approximately $35 million, are based on assumptions about
future events, including economic conditions and proposed
course of action, based on management’s assessment of the
relevant information currently available. See the Outlook
section. The estimates are based on the same assumptions
and risk factors set forth above and are based on Tervita’s
historical results of operations. The financial outlook or
financial outlook set forth in this MD&A was
potential
approved by management as of the date of this MD&A to
provide investors with an estimation of the outlook for Tervita
for 2020 and onwards, where applicable, and readers are
cautioned that any such financial outlook contained herein
should not be used for purposes other than those for which it
is disclosed herein. The prospective financial information set
forth in this MD&A has been prepared by management.
Tervita's management believes that the prospective financial
information has been prepared on a reasonable basis,
reflecting management’s best estimates and judgements,
and represents, to the best of management’s knowledge and
opinion, Tervita’s expected course of action in developing
and executing its business strategy and growth opportunities
relating to its business operations. However, actual results
may vary from the prospective financial information set forth
in this MD&A. See above for a discussion of the risks that
could cause actual results to vary. The prospective financial
information set forth in this MD&A should not be relied on as
necessarily indicative of future results.
For additional information relating to Tervita, including our
AIF, please see our profile on SEDAR, available at
www.sedar.com.
TSX | TEV 41
Page | 26
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
42 TERVITA | Annual Report 2019
TSX | TEV 43
44 TERVITA | Annual Report 2019
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31 (millions of dollars)
Note
2019
2018
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventory
Current portion of derivative assets
Other current assets
Property, plant and equipment
Intangible assets
Goodwill
Derivative assets
Other assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Income taxes payable
Interest payable
Current portion of decommissioning liabilities
Current portion of obligations under leases
Current portion of other provisions
Other current liabilities
Long-term debt
Obligations under leases
Decommissioning liabilities
Other provisions
Derivative liabilities
Other long-term liabilities
TOTAL LIABILITIES
EQUITY
Share capital
Contributed surplus
Share-based compensation reserve
Accumulated earnings (deficit)
Accumulated other comprehensive profit (loss)
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
See accompanying notes
Approved by the Board of Directors:
12, 22
22
13
19, 22
2, 11
2, 11, 14
15
16
19, 22
2, 11
22, 23
5
22
20
2, 11, 22
20
21
18, 22
2, 11, 22
20
20
19, 22
21
23
23
21
22
192
12
—
12
238
1,043
37
332
—
12
46
180
12
18
8
264
1,157
42
333
8
5
1,662
1,809
180
2
5
5
18
1
5
216
750
95
350
8
10
9
122
14
6
14
15
1
—
172
805
46
399
10
—
6
1,438
1,438
905
7
7
(709)
14
224
1,662
947
1
5
(593)
11
371
1,809
(Signed) Grant Billing
Director
(Signed) John Cooper
Director
Page | 1
TSX | TEV 45
CONSOLIDATED STATEMENTS OF COMPREHENSIVE PROFIT (LOSS)
For the years ended December 31 (millions of dollars, except for per share amounts)
NET PROFIT (LOSS)
Revenue
Operating expenses
Direct expenses
General and administrative expenses
Depreciation and amortization
Restructuring costs
Impairment reversal (expense)
Operating profit (loss)
Finance costs
Transaction costs
Other income (expense)
Profit (loss) before tax
Income taxes recovery (expense)
NET PROFIT (LOSS)
Items that are or may be subsequently reclassified to net profit (loss):
Foreign operations - foreign currency translation differences
Net gain (loss) on cash flow hedges
OTHER COMPREHENSIVE PROFIT (LOSS), NET OF TAX
TOTAL COMPREHENSIVE PROFIT (LOSS)
Earnings per share - basic and diluted
Weighted average shares outstanding - basic and diluted
See accompanying notes
Note
4
11, 14, 15
17
7
3
8
5
19
2019
2018
2,323
1,974
(2,045)
(1,734)
(48)
(138)
(3)
(120)
(31)
(92)
(8)
1
(130)
14
(116)
(4)
7
3
(113)
(50)
(96)
—
(25)
69
(69)
(69)
(4)
(73)
(1)
(74)
(1)
(1)
(2)
(76)
9
(0.99)
(0.67)
116,732,368
110,471,450
46 TERVITA | Annual Report 2019
Page | 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 (millions of dollars)
Note
2019
2018
OPERATING ACTIVITIES
Net profit (loss)
Adjustments for:
Finance costs
Impairment (reversal) expense
Depreciation and amortization
Income taxes (recovery) expense
Cash taxes paid
Cash interest paid
Cash settlement of decommissioning liabilities
Realized foreign exchange (gain) loss - debt and derivatives
Unrealized foreign exchange (gain) loss
Other adjustments
Funds from (used in) operations
Changes in non-cash working capital:
Trade and other receivables
Inventory
Other current assets
Trade and other payables
Changes in total non-cash working capital
Cash provided by (used in) operating activities
FINANCING ACTIVITIES
Issuance (repayment) of long-term debt
Settlement of debt-related derivatives
Debt issue costs
Contingent consideration payments
Repurchase of common shares
Payment of principal portion of lease liabilities
Sublease payments received
Cash provided by (used in) financing activities
INVESTING ACTIVITIES
Additions to property, plant and equipment
Additions to intangible assets
Acquisitions
Investment income
Proceeds from sale of property, plant and equipment
Change in non-cash working capital
Cash provided by (used in) investing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
CASH AND CASH EQUIVALENTS, END OF PERIOD
See accompanying notes
7
17
14, 15
5
11, 18
20
8
8
2, 10
3, 18, 22
3, 19
3, 18
20
23
2, 11
2, 11
14
15
3
(116)
(74)
92
120
138
(14)
1
(73)
(15)
(6)
3
(3)
127
(12)
—
2
11
1
128
(26)
6
—
(1)
(23)
(17)
2
(59)
(132)
(7)
—
3
7
37
(92)
(1)
(24)
46
22
69
25
96
1
—
(52)
(5)
8
(9)
43
102
(10)
1
1
2
(6)
96
326
(8)
(20)
—
—
(2)
—
296
(72)
(11)
(395)
1
7
(1)
(471)
1
(78)
124
46
Page | 3
TSX | TEV 47
CONSOLIDATED STATEMENTS OF EQUITY
(millions of dollars)
As at January 1, 2019
Net profit (loss)
Repurchase of common shares
Provision for repurchase of common shares
Effective portion of cash flow hedges
Reclassified to net profit (loss)
Foreign currency translation differences
Share-based compensation
As at December 31, 2019
As at January 1, 2018
Net profit (loss)
Cancellation of shares
Issuance of shares
Issuance of warrants
Effective portion of cash flow hedges
Reclassified to net profit (loss)
Foreign currency translation differences
Share-based compensation
As at December 31, 2018
See accompanying notes
Note
Share capital
Contributed
surplus
Share-based
compensation
reserve
Accumulated
earnings
(deficit)
Foreign
currency
translation
reserve
Cash flow
hedge
reserve
Accumulated
other
comprehensive
profit (loss)
Total equity
23
23
19
19
8, 21
3, 23
3, 23
3, 23
8, 21
947
—
(27)
(15)
—
—
—
—
905
837
—
(837)
947
—
—
—
—
—
947
1
—
4
2
—
—
—
—
7
—
—
—
—
1
—
—
—
—
1
5
—
—
—
—
—
—
2
7
2
—
—
—
—
—
—
—
3
5
(593)
(116)
—
—
—
—
—
—
(709)
(519)
(74)
—
—
—
—
—
—
—
(593)
5
—
—
—
—
—
(4)
—
1
6
—
—
—
—
—
1
(2)
—
5
6
—
—
—
(18)
25
—
—
13
7
—
—
—
—
39
(40)
—
—
6
11
—
—
—
(18)
25
(4)
—
14
13
—
—
—
—
39
(39)
(2)
—
11
371
(116)
(23)
(13)
(18)
25
(4)
2
224
333
(74)
(837)
947
1
39
(39)
(2)
3
371
48 TERVITA | Annual Report 2019
Page | 4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Tervita Corporation is incorporated under the laws of Canada. In these Consolidated Financial Statements (the "Financial
Statements"), "we", "us", "our", "Company", and "Tervita" mean Tervita Corporation,
its subsidiaries, and joint
arrangements. Tervita’s common shares and warrants trade on the Toronto Stock Exchange ("TSX") under the symbols
"TEV" and "TEV.WT", respectively. Tervita’s registered office and head office is located at 1600, 140 - 10 Avenue S.E.,
Calgary, Alberta, Canada, T2G 0R1.
Tervita is one of the largest waste and environmentally focused energy service providers in Canada. We primarily serve
companies in the oil and gas industry, as well as the industrial and natural resource sectors, predominantly in Western
Canada. Tervita provides a comprehensive suite of environmental solutions covering every stage of our customers'
project life cycle, from development to reclamation, helping to minimize environmental impact while maximizing
recovery of valuable resources.
2. BASIS OF PRESENTATION
These Financial Statements for the year ended December 31, 2019 have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). The
accounting policies have been consistently applied throughout all periods presented, except where noted.
These Financial Statements provide comparative information in respect of the previous year and are presented in
millions of Canadian ("C$") dollars, unless otherwise stated. They are prepared on a historical cost basis, except for certain
assets that are measured at fair value, as detailed in the accounting policies under the respective notes.
Certain prior period comparative figures have been reclassified to conform to current year's presentation. Comparative
figures related to acquired entities are from the date after Tervita obtained control ("acquisition date").
These Financial Statements were approved by the Board of Directors on March 8, 2020.
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Consolidation
These Financial Statements include the consolidated Financial Statements of Tervita, its subsidiaries,
and joint arrangements.
Consolidated entities are controlled by Tervita. Control is achieved when Tervita has the power to direct
the relevant activities of the entity, exposure or rights to variable returns from its involvement with the
entity, and the ability to use its power over the entity to affect its returns. When Tervita has less than a
majority of the voting or similar rights of an entity, we consider all relevant facts and circumstances in
assessing whether it has power over an entity, including the contractual arrangement with the other
voting holders of the entity, rights arising from other contractual arrangements, and Tervita’s voting
rights and potential voting rights.
Tervita reassesses whether it controls an entity if facts and circumstances indicate that there are
changes to one or more of the three elements of control. Assets, liabilities, revenue, and expenses of an
entity acquired or disposed of during the year are included in the Financial Statements from the date
Tervita gains control until the date Tervita ceases to control the entity.
A change in the ownership interest of an entity without loss of control is accounted for as an equity
transaction. If Tervita ceases to control an entity, it derecognizes the assets (including goodwill) and
liabilities of the entity, derecognizes the foreign currency translation differences ("CTA") recorded in the
Consolidated Statements of Equity ("Statements of Equity"),
the
consideration received, recognizes the fair value of any investment retained, recognizes any surplus or
deficit in the Consolidated Statements of Comprehensive Profit (Loss) ("Statements of Profit (Loss)"), and
reclassifies Tervita’s share of components previously recognized in Other Comprehensive Profit (Loss)
(''OCI'') to the Statements of Profit (Loss) or accumulated deficit, as appropriate, as would be required if
Tervita had directly disposed of the related assets or liabilities.
recognizes the fair value of
Tervita's material subsidiary is Tervita Environmental Services Inc., which is incorporated in the United
States ("US") and is wholly owned and controlled by Tervita. All significant intergroup balances and
Page | 5
TSX | TEV 49
transactions are eliminated on consolidation. Tervita also has a Canadian subsidiary which acts as
guarantor for its senior secured revolving credit facility (note 18).
Foreign currency The functional currency for each subsidiary is the currency of the primary economic environment
in which the entity operates. Transactions not denominated in an entity’s functional currency are
translation
translated to the functional currency using the exchange rate at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated at the functional currency rate of
exchange at the reporting date. All unrealized foreign currency re-measurement gains and losses are
recognized in other income (expense) on the Statements of Profit (Loss). Non-monetary items are not
re-measured at the reporting date and remain at the exchange rate as at the date of the transaction.
Non-monetary items measured at fair value are translated using the exchange rate at the date when the
fair value was determined.
The assets and liabilities for entities with a functional currency other than Canadian dollars are
translated to presentation currency using the exchange rate at the reporting date. Revenue and
expenses are translated at the average exchange rate for the month. Resulting translation differences
are recognized in the CTA component of OCI.
On disposal of Tervita's entire interest in a foreign subsidiary, all the exchange differences accumulated
in CTA in respect of that subsidiary are reclassified to the Statements of Profit (Loss).
Current and
non-current
classification
Tervita presents assets and liabilities in the Consolidated Statements of Financial Position
(''Statements of Financial Position'') based on current or non-current classification. An asset is deemed
to be current when it is expected to be realized or sold in the normal operating cycle, expected
to be realized within twelve months after the reporting period, held primarily for trading, or in the form
of cash and cash equivalents that are not restricted from being exchanged or used to settle a liability
within twelve months of the reporting period. All other assets are classified as non-current.
Fair values
A liability is deemed to be current when it is expected to be settled in the normal operating cycle, held
primarily for trading, due to be settled within twelve months after the reporting period, or there is no
unconditional right to defer the settlement of the liability for at least twelve months after the reporting
period. All other liabilities are classified as non-current.
Tervita utilizes fair value measurements and disclosure for several items within the Financial Statements.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value measurement is
based on the presumption that the transaction to sell the asset or transfer the liability takes place in
either the principal market or the most advantageous market for the asset or liability. The Company
uses valuation techniques that are appropriate in the circumstances and for which sufficient data is
available, maximizing the use of relevant observable inputs and minimizing the use of unobservable
inputs.
OTHER ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
The preparation of the Financial Statements requires management to make judgments and estimates that affect the
application of accounting policies and the reported amounts of assets,
income, expenses and
disclosure. Accordingly, actual results could differ significantly from those estimates. The Financial Statements have, in
our opinion, been properly prepared within reasonable limits of materiality and within the framework of Tervita’s
significant accounting policies.
liabilities, revenue,
50 TERVITA | Annual Report 2019
Page | 6
To enable increased understanding of the Financial Statements, a discussion of accounting policies, significant
judgments, and sources of estimation uncertainty is included with the applicable financial disclosures throughout these
notes to the Financial Statements:
Business acquisitions
Revenue and segment information
Income taxes
Employee benefits
Earnings per share
Note 3
Note 4
Note 5
Note 6
Note 9
Note 11 Leases
Note 12 Cash and cash equivalents
Note 13 Inventory
Note 14 Property, plant and equipment
Note 15 Intangible assets
Note 16 Goodwill
Note 17 Impairment
Note 18 Long-term debt
Note 19 Derivatives and hedging
Note 20 Provisions
Note 21 Share-based compensation
Note 22 Financial instruments and risk management
Note 25 Related party transactions
Note 26 Commitments, contingencies and guarantees
Accounting
Policy
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
None
Judgments
Yes
Yes
Yes
None
None
Yes
None
None
Yes
Yes
None
Yes
None
None
Yes
None
Yes
None
Yes
Estimates
Yes
Yes
Yes
None
None
Yes
None
None
Yes
Yes
None
Yes
None
Yes
Yes
Yes
Yes
None
None
NEW AND AMENDED STANDARDS AND INTERPRETATIONS
The following new standards, interpretations, and amendments to existing standards were issued by the IASB and were
mandatory for accounting periods beginning on or after January 1, 2019 (the ''date of initial application'').
Leases
Transition and Application
IFRS 16 ''Leases'' ("IFRS 16") was issued in January 2016 and is effective for annual periods beginning on
or after January 1, 2019. It replaces International Accounting Standard ("IAS") 17 "Leases" ("IAS 17"),
International Financial Reporting Interpretations Committee ("IFRIC") 4 "Determining Whether an
Arrangement Contains a Lease" ("IFRIC 4"), Standards Interpretation Committee ("SIC") 15 "Operating
Leases-Incentives", and SIC 27 "Evaluating the Substance of Transactions Involving the Legal Form of a
Lease".
IFRS 16 sets out the principles for the recognition, measurement, presentation, and disclosure of leases
which requires lessees to account for operating leases under a single on-balance sheet model in a
manner similar to the previous accounting for finance leases under IAS 17. At the commencement date
of a lease, a lessee recognizes a liability to make lease payments and a right-of-use asset ("ROU asset")
representing the right to use the underlying asset during the lease term.
Lessor accounting under IFRS 16 is substantially the same as IAS 17, under which lessors will continue to
classify leases as either operating or finance leases. IFRS 16 did not have an impact on the recognition,
measurement and classification of leases that were in place before the date of initial application. IFRS 16
may have an impact on identification of lease components in contracts entered into after the date of
initial application.
Tervita adopted IFRS 16 using the modified retrospective transition approach, whereby the ROU asset
was measured at the value of the lease liability on the date of initial application. The modified
retrospective approach does not require restatement of prior periods. Comparative financial results for
2018 were not restated and have been presented as previously reported under IAS 17 and related
interpretations (note 11).
Page | 7
TSX | TEV 51
Tervita applied the following practical expedients available for transition to IFRS 16 under this
approach:
•
•
•
•
•
•
Used a single discount rate for portfolios of leases with reasonably similar characteristics;
Relied on our assessment of whether leases were onerous immediately before the date of initial
application as an alternative to performing an impairment review;
Applied the recognition and measurement exemption available for low-value and short-term
leases, or leases for which the term ended within 12 months of the date of initial application;
Used hindsight in determining the lease term if the contract contained options to extend or
terminate the lease;
Excluded initial direct costs in the measurement of the ROU asset; and
Applied IFRS 16 only to contracts that were previously identified as leases under IAS 17 and IFRIC 4.
Impact to the Financial Statements
The following table shows the reconciliation of operating lease commitments as at December 31, 2018
to the lease liabilities at the date of initial application:
Total operating lease commitments - December 31, 2018
Weighted average incremental borrowing rate - January 1, 2019
Discounted operating lease commitments - January 1, 2019
Less:
Commitments related to short-term leases
Add:
Commitments related to onerous lease contracts
Commitments related to previously classified finance leases
Lease liabilities - January 1, 2019
Impact of
IFRS 16
90
8 %
60
(3)
31
13
101
The following tables summarize the impact of adoption of IFRS 16 on the Statements of Financial
Position at the date of initial application, and the Statements of Profit (Loss) and the Consolidated
Statements of Cash Flows ("Statements of Cash Flows") for the year ended December 31, 2019.
Statements of Financial Position
Description
As at
December 31
2018
IFRS 16
Adjustment
As at
January 1
2019
Assets
Property, plant and equipment
Capital leases (IAS 17)
Property, plant and equipment
ROU assets
Other assets
Total impact on assets
Sublease receivable
Liabilities
Obligations under leases
Lease liabilities
Long-term debt
Capital leases (IAS 17)
Obligations under leases
Onerous leases contracts
Total impact on liabilities
13
—
—
13
—
13
48
61
(13)
65
5
57
101
(13)
(31)
57
—
65
5
70
101
—
17
118
ROU assets were adjusted by the onerous lease contracts provision of $31 million upon transition to
IFRS 16.
Other assets pertain to the current and non-current portion of the sublease receivable.
The amount remaining in the onerous lease contracts provision on the date of initial application
pertains to non-lease components that are not considered part of the lease liability under IFRS 16.
52 TERVITA | Annual Report 2019
Page | 8
Statements of Profit (Loss)
For the year ended December 31
Leases under IFRS 16:
Depreciation and amortization
Finance costs
Other (income) expense
Decrease to net profit (loss)
Leases under IAS 17:
Direct expenses
General and administrative expenses
Increase to net profit (loss)
Decrease (increase) to net profit (loss)
Statements of Cash Flows
Description
Depreciation
Interest on obligations under leases
Gain (loss) on lease modification
Rent expense
Rent expense
2019
9
7
(1)
15
(8)
(2)
(10)
5
For the year ended December 31, 2019, payments of principal portion of lease liabilities, net of sublease
payments received, have been reclassified from operating activities to financing activities.
lncome taxes
IFRIC 23 "Uncertainty Over Income Tax Treatments" ("IFRIC 23") was issued in June 2017 and is effective
for annual periods beginning on or after January 1, 2019.
IFRIC 23 addresses the accounting for tax treatments under IAS 12 "Income Taxes" ("IAS 12") when tax
treatments involve uncertainty that affects the application of IAS 12. The interpretation specifically
addresses: whether an entity considers uncertain tax treatments separately; the assumptions an entity
makes about the tax treatment by taxation authorities; how an entity determines taxable profit (loss),
tax bases, unused tax losses, unused tax credits and tax rates; and how an entity considers changes in
facts and circumstances.
Uncertainty is reflected using the measure that provides the better prediction of the resolution of the
uncertainty: either the most likely amount or the expected value. The key test is whether it is probable
that the tax authorities will accept a company’s chosen tax treatment. A company must reassess the
judgments and estimates applied if facts and circumstances change and it is possible that a previous tax
amount recognized may change, if challenged by the tax authorities. Uncertainty about an income tax
treatment is reflected in the measurement of current and deferred tax.
We reviewed our uncertain tax positions and, based on our tax compliance, determined there were no
material changes required on adoption of IFRIC 23.
3. BUSINESS ACQUISITIONS
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Business acquisitions ("acquisitions") are accounted for using the acquisition method. The consideration
for each acquisition is measured as the aggregate fair values of the assets given, liabilities incurred or
assumed, and equity instruments issued by Tervita, in exchange for control of the acquired entity or
business at the acquisition date. Acquisition-related costs, other than those associated with the issue of
long-term debt or equity, are recognized as incurred in general and administrative expenses on the
Statements of Profit (Loss), unless otherwise noted.
When Tervita acquires a business, it assesses the financial assets acquired and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances, and pertinent conditions as at the acquisition date.
Goodwill arising from acquisitions is recognized as the excess of the aggregate consideration
transferred over the net identifiable assets acquired and liabilities assumed (note 16). Goodwill acquired
in an acquisition is, from the acquisition date, allocated to each of Tervita’s cash generating units
("CGUs") that are expected to benefit from the acquisition, irrespective of whether other assets or
liabilities of the acquired entity are assigned to the CGUs (note 17).
The measurement period is the period from the acquisition date to the date Tervita receives complete
information about the facts and circumstances that existed as of the acquisition date, but cannot
Page | 9
TSX | TEV 53
Significant
judgments
exceed one year from the acquisition date. If the initial accounting for an acquisition is incomplete by
the end of a reporting period in which the acquisition occurs, provisional amounts are reported.
Provisional amounts are adjusted retrospectively during the measurement period. Additional assets or
liabilities are also recognized during the measurement period to reflect new information obtained
about facts and circumstances that existed as of the acquisition date that, if known, would have affected
the amounts recognized as of that date.
Tervita considers an acquired group of activities or assets to constitute a business when they are
capable of being conducted and managed to provide a return, in the form of dividends, lower costs, or
other economic benefits, directly to Tervita. Management uses its judgment in assessing whether the
acquired group of activities or assets have inputs and processes that are capable of producing outputs.
If management determines that the acquired group of activities or assets acquired constitute a
business, the acquisition is accounted for as a business combination. If, in management’s judgment, the
acquired group of activities or assets does not constitute a business, the acquisition is accounted for as
a purchase of assets.
Sources of
estimation
uncertainty
The allocation of the purchase price requires management to make assumptions to identify acquired
intangible assets, property, plant and equipment, liabilities assumed, and contingent consideration.
Estimates are made about
the fair value of the acquired assets and liabilities based on quoted
market prices and widely accepted valuation techniques. Tervita uses asset and liability-specific
discount rates to determine fair value.
SUPPORTING INFORMATION
Newalta Corporation
Arrangement Overview
On July 19, 2018 (the "Newalta Acqusition Date"), Tervita and Newalta Corporation ("Newalta") completed a plan of
arrangement (the "Arrangement"), under which Tervita acquired 100% of Newalta’s issued and outstanding common
shares, and culminated in the amalgamation of Tervita and Newalta into one publicly-traded company, Tervita
Corporation.
Under the terms of the Arrangement, former shareholders of Newalta received 0.1467 of one common share of Tervita
Corporation for each Newalta common share held and 0.03066 of one common share purchase warrant, exercisable for
one Tervita common share at an exercise price of $18.75 per share with an expiration date of July 19, 2020. Prior to the
close of the Arrangement, Tervita shareholders exchanged their common and preferred shares for an equivalent amount
of new common shares of Tervita. Immediately after close of the Arrangement, Tervita Corporation had 117,557,112
common shares and 2,702,649 warrants issued and outstanding (note 23).
On June 1, 2018, Tervita closed an offering through a wholly-owned subsidiary (the "Escrow Corporation") of 7.625% US
$250 million senior secured notes due 2021 (the "escrow notes") to fund the defeasance of Newalta’s debt. On the
Newalta Acqusition Date, pursuant to the Arrangement, the Escrow Corporation was wound-up into Tervita.
Concurrently, the escrow notes were exchanged for the same principal value of additional notes (the "2018 senior
secured notes") issued by Tervita under the existing indenture governing Tervita’s outstanding 7.625% US$360 million
senior secured notes due 2021 (the "2016 senior secured notes"), following which the escrow notes were deemed
cancelled. See notes 18 and 19 for further details.
Tervita closed its acquisition of Newalta by way of a plan of arrangement on July 19, 2018. The Competition Act (Canada)
("the Act") permits the Commissioner of Competition to make an application to the Competition Tribunal in respect of an
acquisition transaction within a period of one year after its implementation. No such application has been made to the
Competition Tribunal and, pursuant to the Act, the time to make such an application has now lapsed.
54 TERVITA | Annual Report 2019
Page | 10
Purchase Price Allocation
The Arrangement was accounted for as a business combination. Tervita determined the purchase consideration for the
Arrangement to be $505 million, comprised of the following:
Common shares
Warrants
Cash and cash equivalents
Purchase consideration
Consideration
Transferred
110
1
394
505
Common shares issued represent the valuation of the exchange of 88,148,148 Newalta shares for 12,931,333 Tervita
shares based on the volume weighted average trading price of the Newalta common shares on the TSX for the five
trading days prior to the Newalta Acqusition Date ($1.24/share).
The warrants issued as part of the Arrangement were valued using the Black-Scholes valuation model.
Cash and cash equivalents included the proceeds received from the escrow notes and additional cash and cash
equivalents transferred from Tervita to Newalta to defease Newalta’s senior unsecured debentures and settle Newalta’s
senior secured debt on the Newalta Acqusition Date, as well as settle any related interest and early repayment fees.
There was no contingent consideration under the terms of the Arrangement.
The fair values of the identifiable assets and liabilities acquired were:
Assets
Cash and cash equivalents
Trade and other receivables
Inventory
Other current assets
Property, plant and equipment
Intangible assets
Other assets
Liabilities
Trade and other payables
Capital leases
Provisions
Total identifiable net assets
Goodwill
Purchase consideration
Purchase Price
Allocation
19
45
4
5
506
16
5
(52)
(13)
(62)
473
32
505
The $32 million of goodwill (note 16) recognized reflects the value of expected synergies that were identified within
Newalta and those expected to be achieved as a result of combining Tervita's and Newalta's operations, and was
allocated to CGUs as follows: $13 million to treatment, recovery, and disposal facilities ("TRDs), $10 million to energy
marketing, $8 million to waste services, and $1 million to drilling and production services ("DPS"). None of the goodwill is
expected to be deductible for tax purposes.
Acquisition-Related Costs
During the year ended December 31, 2019, Tervita incurred $7 million (December 31, 2018 - $18 million) of integration
costs which were recorded in transaction costs. These costs include severance, branding, site suspensions, employee
compensation, onerous lease contracts, and information technology.
Page | 11
TSX | TEV 55
Additional costs incurred by Tervita during the year ended December 31, 2018 to complete the Arrangement were:
•
•
•
Unamortized debt costs of $19 million for fees related to the issuance of the 2018 senior secured notes;
Finance costs of $3 million related to interest expense on the escrow notes; and
Transaction costs comprised of:
◦
◦
$13 million of legal and advisory fees incurred by Tervita for the completion of the Arrangement; and
$38 million of impairment expense as a result of the re-measurement of acquired decommissioning liabilities for
certain inactive assets from the credit-adjusted discount rate required under IFRS 3 "Business Combinations" to a
risk-free rate in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”. Any changes
to the estimate of decommissioning liabilities are added to or deducted from the carrying value of the related
asset. If the change in estimate results in an addition to the cost of the decommissioning liability that is
associated with an inactive site, or if there is indication that the new carrying value of the related asset may not
be recoverable, this addition is charged to profit and loss as an impairment expense.
Impact on Statements of Profit (Loss)
Newalta contributed $108 million of revenue and $58 million of net loss from the Newalta Acqusition Date to December
31, 2018.
If the Arrangement occurred on January 1, 2018, Tervita would have earned revenue of $2,106 million and incurred a net
loss before tax of $27 million. Newalta would have contributed $132 million of revenue and $51 million of net loss before
tax for the period prior to the Newalta Acqusition Date.
4. REVENUE AND SEGMENT INFORMATION
Our activities are carried out through five operating segments: Energy Services, waste services, metals recycling, rail
services, and environmental services. Our executive leadership is responsible for strategic decision making, resource
allocation, and assessing financial performance and, as a group, is identified as our chief operating decision maker for the
purposes of reporting segment information under IFRS. Tervita’s executive leadership is comprised of the following:
•
•
•
President and Chief Executive Officer;
Chief Financial Officer; and
Executive Vice-President, Strategy and Corporate Development.
The operating segments of waste services, metals recycling, rail services, and environmental services have been
aggregated into one reportable segment named Industrial Services.
Corporate includes shared service allocations and corporate costs not allocated to reporting segments. Costs included in
general and administrative expenses on the Statements of Profit (Loss) are considered shared services or corporate costs
and are not allocated to the reporting segments.
Energy Services
Energy Services is comprised of three service lines: energy marketing, facilities, and onsite. These service lines collectively
provide many services to the oil and gas sector including: treatment, recovering, and disposal of fluids; energy marketing;
processing and disposal of solid materials used in, and generated by, natural resource and industrial production; disposal
of oilfield-generated waste; providing specialized onsite services using centrifugation or other processes for heavy oil
producers involved in mining and in situ production; purchase and resale of oil volumes associated with treatment,
recovery, terminalling, and disposal services, including preparing the oil volumes for entry to the pipeline; and supplying
and operating drill site processing equipment, including solids control and drill cuttings management.
Industrial Services
Industrial Services provides comprehensive environmental solutions through four operating segments: waste services,
metals recycling, rail services, and environmental services. The services provided by these operating segments include:
site remediation, facility decommissioning, water treatment, sludge and slurry management, bio-remediation and
technologies, hazardous and non-hazardous waste management and disposal, emergency response, rail services,
recycling services to oil and gas and other industrial companies, and waste transportation and classification. Recycling
services include the purchase and processing of ferrous and non-ferrous metals recovered from demolition sites and
other locations.
56 TERVITA | Annual Report 2019
Page | 12
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
The accounting policies of the operating segments are the same as those described in note 2 and
other relevant notes and are measured in a manner consistent with that of the Financial Statements.
Intersegment sales are made under terms that approximate market values.
Revenue is measured at the fair value of the consideration received or receivable. Payment terms are
generally 30 days from invoice date, however, these terms may vary based on service line, customer,
and contract requirements. Customer creditworthiness is assessed prior to signing a contract and
throughout the contract period.
Revenue From the Sale of Inventory
Revenue from the sale of inventory ("commodity-based sales") is recognized on individual contractual
terms when indicators of the transfer of control exist, including but not limited to the following: the
significant risks and rewards of ownership are transferred to the buyer, Tervita has a present right to
payment for the inventory, the customer has legal title to the inventory, Tervita has transferred physical
possession of the inventory, the customer has accepted the inventory, and recoverability of
consideration is probable. These conditions are generally satisfied when the goods are provided to the
customer based on the shipping terms of the contract. Revenue earned from the sale of inventory
includes the marketing of crude oil and the sale of recycled and recovered waste products, including
scrap metal.
Service Revenue Recognized at a Point in Time
Recognition of revenue from the rendering of services performed ("facility-based services") occurs
based on individual contractual terms when indicators of the transfer of control exist, which is generally
satisfied when the services are completed in accordance with the contract specifications. Revenue
earned from the rendering of services includes the treatment, recovering, and disposal of fluids and the
processing, recovery, and disposal of solid materials used in, and generated by, natural resource and
industrial production, the disposal of oilfield waste, and hazardous and non-hazardous waste
management.
Service Revenue Recognized Over Time
Tervita recognizes revenue for services performed over time ("project-based services") using either the
input method or the output method dependent on the method that closely represents the value
provided to the customer. Under the input method, Tervita recognizes revenue by measuring the
progress on the project in terms of expenses incurred till date. Under the output method, Tervita
recognizes revenue using the right to invoice that corresponds directly to the services provided to date
in accordance with the service contract as this most closely represents the actual value provided to the
customer at the time of invoicing. When using the input method, the transaction price typically results
from fixed-fee arrangements over one performance obligation, depending on the customer contract.
When using the output method, Tervita uses the right to invoice practical expedient to recognize
revenue that reflects the value delivered to the customer. Criteria used to assess the value delivered to
the customer include, but are not limited to, the number of hours worked, volume of materials handled,
and project milestones achieved.
Service revenue is earned from a variety of sources, including the provision of environmental solutions
for waste management, environmental remediation, facility decommissioning and demolition, and rail
services.
Certain contracts include an option for a customer to purchase additional goods or services at reduced
prices. Management assesses these contracts to determine if a material right exists as a result of this
option, or if the customer would not receive such a discount or other right if not for the contract. If
material rights are deemed to exist, they are assessed as part of the performance obligations in the
contract, at contract inception, and an assessment of the probability of exercise is assessed by
management. If the optional future goods and services are deemed likely to occur, a value is assigned to
the performance obligation and the related revenue is deferred until the optional work is completed or
the option expires.
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TSX | TEV 57
Significant
judgments
Often, service contracts include mobilization costs or costs to fulfill the contract. Such costs are
recognized as a contract asset if all the following criteria are achieved: costs relate directly to the
contract and can be specifically identified, costs generate or enhance resources of Tervita that will be
used in satisfying performance obligations into the future, and the costs are expected to be recovered.
Contract assets are amortized on a straight-line basis over the life of the contract.
Revenue is assessed for certain revenue streams on a portfolio basis, as the contracts in the portfolio
have similar characteristics and performance obligations, and Tervita does not expect that the effects
of applying IFRS 15 "Revenue from contracts with customers" ("IFRS 15") to the portfolio of contracts
would differ materially from applying it to the individual contracts. Judgment is required in the
assessment of contract characteristics and performance obligations to determine if application of IFRS
15 on a portfolio basis appropriately presents the nature and timing of those contracts on an individual
basis.
Timing of the satisfaction of the performance obligations associated with revenue recognition involves
an understanding of the nature of the performance obligations and contracts. Judgment is required in
determining the methods used to recognize revenue for the transfer of inventory and rendering of
services. Transfer of inventory generally occurs when control of the inventory transfers to the buyer, and
the Company must assess whether the indicators of a transfer of control are satisfied. Rendering of
services generally occurs when Tervita has a right to invoice, and the Company must determine the
appropriate criteria to assess achievement of performance obligations and how performance
obligations are to be allocated to the contract purchase price under fixed-pricing arrangements.
Determination of the transaction price and allocation of it to each performance obligation involves an
understanding of the fair value of goods and services provided. Judgment is required in determining
the stand-alone selling prices for contracts under which the transaction price is a lump-sum fixed-fee
arrangement.
Sources of
estimation
uncertainty
Tervita records revenue for certain services based on an estimate of the completion of the performance
obligations for those services. The achievement of performance obligations and the total anticipated
activity are subject to significant estimates by management.
SUPPORTING INFORMATION
Financial Information for Reportable Segments and Reconciliation to IFRS Measures
For the year ended December 31, 2019
Energy
Services
Industrial
Services
Corporate
Eliminations
Commodity-based sales
Facility-based services
Project-based services
Revenue - external
Revenue - intersegment
Revenue - total
Operating expenses
Direct expenses
General and administrative expenses
Depreciation and amortization
Restructuring costs
Impairment reversal (expense)
Operating profit (loss)
Finance costs
Transaction costs
Other income (expense)
Profit (loss) before tax
Additions to property, plant and equipment and intangible assets
1,607
427
43
2,077
5
2,082
(1,843)
—
(118)
—
(125)
(4)
(12)
—
2
(14)
(126)
45
45
156
246
—
246
(207)
—
(13)
(3)
1
24
(2)
—
6
28
—
—
—
—
—
—
—
(48)
(7)
—
4
(51)
(78)
(8)
(7)
(144)
(12)
(1)
—
—
—
—
(5)
(5)
5
—
—
—
—
—
—
—
—
—
—
Total
1,652
472
199
2,323
—
2,323
(2,045)
(48)
(138)
(3)
(120)
(31)
(92)
(8)
1
(130)
(139)
58 TERVITA | Annual Report 2019
Page | 14
For the year ended December 31, 2018
Energy
Services
Industrial
Services
Corporate
Eliminations
Commodity-based sales
Facility-based services
Project-based services
Revenue - external
Revenue - intersegment
Revenue - total
Operating expenses
Direct expenses
General and administrative expenses
Depreciation and amortization
Impairment reversal (expense)
Operating profit (loss)
Finance costs
Transaction costs
Other income (expense)
Profit (loss) before tax
Additions to property, plant and equipment and intangible assets
Acquisitions
As at December 31, 2019
Total assets
As at December 31, 2018
Total assets
Geographic Information
For the year ended December 31
Revenue by location of services
Canada
US
Revenue - total by location of services
As at December 31
Non-current assets (excluding financial instruments)
Canada
US
Non-current assets (excluding financial instruments)
5.
INCOME TAXES
1,337
378
29
1,744
4
1,748
49
33
148
230
1
231
(1,536)
(203)
—
(82)
(1)
129
(10)
(12)
1
108
(65)
—
—
(9)
(23)
(4)
—
—
(2)
(6)
(11)
—
—
—
—
—
—
—
—
(50)
(5)
(1)
(56)
(59)
(57)
(3)
(175)
(7)
(395)
—
—
—
—
(5)
(5)
5
—
—
—
—
—
—
—
—
—
—
Energy
Services
1,398
Industrial
Services
177
Corporate
Eliminations
87
—
Energy
Services
1,542
Industrial
Services
157
Corporate
Eliminations
110
—
Total
1,386
411
177
1,974
—
1,974
(1,734)
(50)
(96)
(25)
69
(69)
(69)
(4)
(73)
(83)
(395)
Total
1,662
Total
1,809
2019
2018
2,286
37
2,323
1,953
21
1,974
2019
2018
1,397
24
1,421
1,456
77
1,533
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Tervita carries on business through entities that are taxable under the Income Tax Act (Canada) and
certain other jurisdictions, including the US. Income taxes recovery (expense) is comprised of current
and deferred taxes. Current and deferred taxes are recognized in the Statements of Profit (Loss) except
to the extent they relate to amounts recognized directly in OCI or equity. An item reported in OCI or
equity is disclosed net of any taxes associated with the item. Deferred taxes recognized in a business
acquisition are reported on the Statements of Financial Position at the time of the acquisition.
Current tax is the expected tax payable or receivable calculated on the taxable profit (loss) for the
period using tax rates enacted, or substantively enacted, at the reporting date. Current tax assets and
Page | 15
TSX | TEV 59
liabilities are offset if there is a legally enforceable right to offset and the amounts are intended to be
settled on a net basis.
Deferred tax is recognized using the liability method of accounting for temporary differences at the
reporting date. Deferred tax assets and liabilities are measured at the tax rates that are expected to
apply in the year when the asset is realized or the liability is settled based on the tax rates and tax laws
that have been enacted, or substantively enacted, at the reporting date. Temporary differences are
differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts reported for taxation purposes. Deferred tax is not recognized for:
•
•
•
Temporary differences on the initial recognition of assets and liabilities in a transaction that is not a
business combination and that affects neither accounting nor taxable profit (loss);
Temporary differences related to investments in subsidiaries and jointly controlled entities to the
extent that they will not reverse in the foreseeable future; and
Taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off tax
assets against tax liabilities and the deferred taxes relate to the same taxation authority.
Deferred tax assets are recognized on the Statements of Financial Position based on the results from
operating activities or due to the implementation of tax planning strategies which will create sufficient
taxable profit to offset the deferred tax assets. Judgment is required in determining the amount of
deferred tax assets to be recognized, based on the likely timing and the level of future taxable profits
available for their utilization in conjunction with the execution of certain tax planning opportunities,
and the likely timing of reversal. Management assesses the recognition of deferred tax assets each
reporting period.
Uncertainty exists with respect to the interpretation of complex income tax regulations. Current and
deferred income taxes include estimates of future earnings and reversals of timing differences. Actual
results may differ from assumptions made, which would necessitate future adjustments to previously
recorded income taxes recovery (expense). Tervita establishes provisions, based on reasonable
estimates, for the impact or outcome of audits by the tax authorities of the respective jurisdictions in
which Tervita operates.
Significant
judgments
Sources of
estimation
uncertainty
SUPPORTING INFORMATION
Income taxes recovery (expense)
Income taxes recovery (expense) varies from the amounts that would be computed by applying the combined domestic
statutory income tax rate to the profit (loss) before tax due to the following differences:
For the years ended December 31
Profit (loss) before tax
Domestic statutory tax rates
Statutory tax (expense) recovery
Adjustments to income taxes due to:
Settlement of prior period tax matters
(Non-recognition) recognition of operating losses and other assets
Non-deductible expenses
Total income taxes (expense) recovery
Income Tax Provision
For the years ended December 31
Total income taxes (expense) recovery
Effective income tax rate (%)
2019
(130)
26.5%
34
14
(33)
(1)
14
2019
14
11%
2018
(73)
26.9%
20
—
(11)
(10)
(1)
2018
(1)
(1%)
During the year ended December 31, 2019, the Company resolved certain tax matters relating to prior periods and
recorded an income tax recovery of $14 million.
60 TERVITA | Annual Report 2019
Page | 16
Deferred Income Taxes
In 2019 and 2018, no temporary differences related to an investment in a subsidiary were recognized as the Company
does not believe the liability will be incurred in the foreseeable future.
As at December 31, 2019, $302 million of deferred tax assets were not recognized (December 31, 2018 - $274 million).
Tervita had the following non-capital loss carry forwards as at December 31, 2019:
Year of Expiry
2026
2027
2028
Thereafter
US
—
—
1
107
108
Canada
38
29
1
809
877
As at December 31, 2019, Tervita had $261 million of deductible temporary differences for which no deferred tax asset
was recognized (December 31, 2018 - $119 million).
6.
EMPLOYEE BENEFITS
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Wages, salaries, bonuses, vacation pay, contributions to the Company’s matched savings plan, and
other short-term employee benefits are accrued on an undiscounted basis in the period in which the
associated services are rendered by employees.
Termination benefits are recognized as an expense when Tervita has demonstrably committed, without
realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the
normal retirement date, or to provide termination benefits.
In addition, termination benefits are
recognized as an expense when Tervita has made an offer of voluntary redundancy, it is probable that
the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are
payable more than 12 months after the reporting date, they are discounted to their present value.
SUPPORTING INFORMATION
Wages and employee benefits for the year ended December 31, 2019 totaled $154 million, of which $127 million was
included in direct expenses and $27 million was included in general and administrative expenses (December 31, 2018 -
$137 million, of which $112 million was included in direct expenses and $25 million was included in general and
administrative expenses).
Termination benefits for the year ended December 31, 2019 totaled $7 million, of which $1 million was included in direct
expenses, $2 million was included in general and administrative expenses, $3 million was included in restructuring costs,
and $1 million was included in transaction costs (December 31, 2018 - $8 million, of which $1 million was included in
direct expenses and $7 million was included in transaction costs).
Employee savings plan expenses for the year ended December 31, 2019 totaled $3 million (December 31, 2018 - $2
million).
7.
FINANCE COSTS
For the years ended December 31
Interest on long-term debt
Amortization of debt issue costs
Accretion of decommissioning liabilities
Interest on obligations under leases
Interest earned on sublease receivable
Finance costs
Note
2019
2018
18
18
20
11
11
66
10
9
8
(1)
92
55
7
7
—
—
69
Page | 17
TSX | TEV 61
8. OTHER INCOME (EXPENSE)
For the years ended December 31
Gain (loss) on sale of assets
Share-based compensation
Change in provisions and onerous lease contracts
Gain (loss) on lease modification
Realized foreign exchange gain (loss) - debt and derivatives
Unrealized foreign exchange gain (loss) - debt and derivatives
Unrealized foreign exchange gain (loss) - other
Other income (expense)
9.
EARNINGS PER SHARE
Note
2019
2018
21
11, 20
11
18, 19
18, 19
7
(9)
(1)
1
6
(2)
(1)
1
7
(4)
(8)
—
(8)
6
3
(4)
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Basic earnings per share ("EPS") is calculated by dividing earnings attributable to common shareholders
by the weighted average number of common shares issued and outstanding.
Diluted EPS is calculated by dividing earnings attributable to common shareholders by the weighted
average number of common shares issued and outstanding plus the weighted average number of
common shares that would be issued if all potentially dilutive common shares were converted. Tervita
uses the treasury stock method to determine the weighted average number of common shares to
calculate diluted EPS.
Tervita grants share-based compensation awards with an alternative to exchange the awards for
common shares of the company, such grants are considered as equity-settled plans for determining the
dilutive impact on basic EPS. See note 21 for information on Tervita's share-based compensation plans.
If the grants have a dilutive impact in the period, they are considered potentially dilutive and are
included in the calculation of the Company’s diluted net earnings per share.
SUPPORTING INFORMATION
Accounting for share-based compensation awards as equity-settled was determined to have no dilutive impact for the
years ended December 31, 2019 and 2018.
In addition, Tervita initiated a Normal Course Issuer Bid ("NCIB") in 2019 (note 23) that resulted in a reduction to the
number of Tervita's common shares issued and outstanding. To calculate diluted EPS as a result of the NCIB, Tervita used
the reverse treasury stock method to determine the weighted average number of common shares. The NCIB did not have
a dilutive impact on EPS for the year ended December 31, 2019.
10. SUPPLEMENTAL CASH FLOW INFORMATION
Other adjustments on the Statements of Cash Flows was comprised of:
For the years ended December 31
Loss (gain) on sale of assets
Share-based compensation
Cash settlement of onerous lease contracts
Non-cash change in onerous lease contracts and other provisions
Non-cash change in deferred revenue
Non-cash transaction costs
Other
Total other adjustments
Note
8
8
11
11, 20
3
2019
(7)
9
(4)
1
1
—
(3)
(3)
2018
(7)
4
(9)
8
(1)
47
1
43
62 TERVITA | Annual Report 2019
Page | 18
11. LEASES
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Lessee
An arrangement is classified as a lease when Tervita controls the use of an identified asset for a period
of time and has a right to obtain substantially all of the output of the asset in exchange for
consideration. On the commencement date of a lease, Tervita recognizes ROU assets at cost, which is
equal to the total of the lease liability at the commencement date, lease payments made at or before
the commencement date less any lease incentives received,
initial direct costs incurred, and an
estimate of costs to be incurred by Tervita in dismantling and removing the underlying asset, restoring
the site on which it is located, or restoring the underlying asset to the condition required by the terms
and conditions of the lease.
to initial measurement, Tervita recognizes ROU assets at cost
Subsequent
less accumulated
depreciation and impairment losses. Tervita expects to use ROU assets evenly over the term of the lease,
which are depreciated on a straight-line basis over the lease term. If ownership of any ROU asset
transfers to Tervita at the end of the lease term or the cost reflects the exercise of a purchase option,
depreciation is calculated using the estimated useful life of the ROU asset. ROU assets are also subject to
impairment (note 17).
If Tervita subleases any ROU asset, the ROU asset is de-recognized to the extent Tervita does not control
the use of the asset or the right to the output of the asset. The ROU asset is tested for impairment if the
sublease income does not exceed Tervita's costs related to the ROU asset. As an intermediate lessor,
Tervita recognizes a lease receivable for the sublease.
At the commencement date of the lease, Tervita recognizes a lease liability at the present value of the
lease payments over the expected lease term. The lease payments include fixed payments (including in-
substance fixed payments) less any lease incentives receivable, variable lease payments that depend on
an index or a rate, exercise price of a purchase option if Tervita is reasonably certain to exercise that
option, and amounts expected to be paid under residual value guarantees. Variable lease payments
that do not depend on an index or rate are recognized as an expense when the event or condition that
triggers the payment occurs.
In calculating the present value of lease payments, Tervita uses an incremental borrowing rate ("IBR") at
the rate of interest that it would have to pay to borrow over a similar term, and with a similar
security, the funds necessary to obtain an asset of a similar value to the ROU asset in a similar economic
environment.
Subsequent to initial measurement, the lease liabilities increase by interest accrued and decrease by
lease payments made.
In addition, the carrying amount of the ROU asset and lease liability is remeasured if there is a
modification, a change in the lease term, a change to the in-substance fixed payments or a change in
the assessment to purchase the underlying asset.
Leases with lease terms of 12 months or less and leases with low-value are exempt from IFRS 16
treatment. Tervita recognizes these lease expenses in direct expenses or general and administrative
expenses in the Statements of Profit (Loss) on a straight-line basis over the lease term, unless another
systematic basis represents the benefits of the ROU asset.
Tervita determines the lease term to be the non-cancellable term of the lease, together with any periods
covered by an option to extend the lease if Tervita is reasonably certain to exercise the option.
As Tervita adopted IFRS 16 using the modified retrospective transition approach, leases in 2018 were
accounted for under IAS 17 as follows:
•
Leases in which Tervita assumed substantially all the risks and rewards of ownership were classified
as finance leases. On initial recognition, the leased asset was recorded at the lower of its fair value
and the present value of the future minimum lease payments. After initial recognition, the asset
was accounted for in accordance with accounting policies applicable to the asset type (note 14).
Minimum lease payments were apportioned between finance costs and the outstanding lease
Page | 19
TSX | TEV 63
liability.
• Operating lease payments were recognized in direct expenses (for operating segments) or allocated
general and administrative expenses in the Statements of Profit (Loss) on a straight-line basis over
the lease term, unless another systematic basis was more representative of Tervita's use of the
benefits of the leased asset. The total of future minimum lease payments under non-cancellable
operating leases were disclosed under commitments in the notes to the Financial Statements.
Lessor
When substantially all the risks and rewards of ownership of an asset are transferred to a third party,
Tervita recognizes a financial asset at an amount equal to the net investment in the lease plus any initial
direct costs. After initial recognition, the financial asset is carried at amortized cost and the asset is
depreciated in a consistent manner for similar owned assets.
If substantially all the risks and rewards of ownership of the asset are not transferred to a third party,
Tervita classifies the lease as an operating lease and recognizes rental income on a straight-line basis
over the lease term, unless another systematic basis represents the pattern in which the benefit is
derived from the leased asset. Tervita recognizes operating lease income in revenue in the Statements
of Profit (Loss) if the leased asset is owned by Tervita. If the leased asset is a subleased ROU asset, Tervita
recognizes the operating lease income in other income (expense) in the Statements of Profit (Loss).
Tervita recognizes initial direct costs incurred in arranging a lease as additions to the carrying amount of
the asset, which is then amortized over the lease term on the same basis as lease income.
Lessor accounting under IFRS 16 is substantially unchanged from IAS 17, under which Tervita will
continue to classify leases as either operating or finance leases using similar principles as in IAS 17.
Onerous Lease Contracts
Where Tervita has identified that under certain contracts, the unavoidable costs of meeting the
contractual obligations exceed the expected benefits to be received, the contract is considered
onerous. When such a contract includes a lease, an onerous obligation is recognized for the non-lease
components at the present value of the unavoidable costs under the contract. Any adjustments are
recognized in other income (expense) on the Statements of Profit (Loss).
Tervita recognizes an impairment expense for the lease component that is included in the ROU asset to
the extent that Tervita cannot recover the carrying value of the ROU asset through future subleases.
A transaction or a series of transactions may not take the legal form of a lease, however, may be a lease
in-substance if the arrangement conveys a right to use an asset in return for a payment or series of
payments. Judgment is required when identifying and determining the proper accounting treatment
for lease transactions, including identifying whether Tervita has the right to control the operations of
the asset and obtain substantially all of the output from the asset, and the lease term.
Lessee
Tervita cannot readily determine the interest rate implicit in the lease, therefore, it uses its IBR to
measure lease liabilities. The IBR is the rate of interest that Tervita would have to pay to borrow over a
similar term, and with a similar security, the funds necessary to obtain an asset of a similar value and
nature to the ROU asset in a similar economic environment. The IBR is an estimation when no
observable rates are available or when they need to be adjusted to reflect the terms and conditions of
the lease. Tervita estimates the IBR using observable inputs such as terms and conditions on Tervita's
existing credit facilities and makes certain estimates to reflect the specific lease such as stand-alone
credit rating; duration of risk-free rates; nature and duration of the corporate bond yields; value and
nature of the ROU asset; underlying security; and economic environment.
Onerous Lease Contracts
The determination of an onerous lease contract often requires an estimation of the potential outcomes
of different courses of action, the likelihood of these outcomes occurring, and the appropriate discount
rate. The risk-free rates used to discount the onerous lease contracts at December 31, 2019 ranged from
1.68 to 1.70 per cent (December 31, 2018 - 1.86 to 1.96 per cent).
Significant
judgments
Sources of
estimation
uncertainty
64 TERVITA | Annual Report 2019
Page | 20
SUPPORTING INFORMATION
ROU Assets
The amount of ROU assets included in property, plant and equipment is as follows:
Note
Land
Buildings
Equipment
Other
Total
Cost
Balance, December 31, 2018
IFRS 16 adjustment
Balance, January 1, 2019
Additions
Sublease receivable
Balance, December 31, 2019
Accumulated depreciation
Balance, December 31, 2018
IFRS 16 adjustment
Balance, January 1, 2019
Provision
Impairment
Balance, December 31, 2019
Net book value
2
2
17
—
5
5
4
—
9
—
—
—
1
—
1
8
—
76
76
8
(9)
75
—
31
31
6
—
37
38
11
2
13
3
—
16
—
—
—
6
2
8
8
Sublease Receivable
The amount of sublease receivable included in other current assets and other assets is as follows:
Balance, December 31, 2018
IFRS 16 adjustment
Balance, January 1, 2019
Additions
Modifications
Interest
Payments received
Balance, December 31, 2019
Less: current portion
Long-term portion
Obligations Under Leases
2
—
2
—
—
2
—
—
—
1
—
1
1
13
83
96
15
(9)
102
—
31
31
14
2
47
55
Note
Sublease
Receivable
2
8
7
—
5
5
9
1
1
(3)
13
4
9
The amount of lease liabilities and onerous lease contracts included in obligations under leases is as follows:
Balance, December 31, 2018
IFRS 16 adjustment
Balance, January 1, 2019
Additions
Interest
Change in estimates
Payments
Foreign exchange
Balance, December 31, 2019
Less: current portion
Long-term portion
Note
Lease
Liabilities
Onerous
Lease
Contracts
Total
Obligations
Under Leases
2
7
13
88
101
15
8
—
(25)
(1)
98
15
83
48
(31)
17
—
—
2
(4)
—
15
3
12
61
57
118
15
8
2
(29)
(1)
113
18
95
Page | 21
TSX | TEV 65
Lease
Liabilities
Onerous
Lease
Contracts
Total
Obligations
Under Leases
—
13
2
—
—
(2)
13
4
9
24
18
6
6
3
(9)
48
11
37
24
31
8
6
3
(11)
61
15
46
2019
21
57
49
127
Note
3
Balance, January 1, 2018
Acquisitions
Additions
Change in discount rate
Change in estimates
Payments
Balance, December 31, 2018
Less: current portion
Long-term portion
Lease Liabilities
The maturity analysis of the undiscounted cash flows associated with Tervita's lease liabilities is as follows:
As at December 31
Less than one year
One to five years
More than five years
Total undiscounted lease liabilities
Onerous Lease Contracts
The undiscounted cash flows associated with Tervita’s onerous lease contracts at December 31, 2019 were estimated at
$19 million (December 31, 2018 - $74 million). Payments to settle the onerous lease contracts occur on an ongoing basis
and will continue over the remaining lives of the operating assets, which are up to 13 years (December 31, 2018 - 14
years).
Onerous lease contracts acquired through the Arrangement in 2018 were valued at $18 million through the purchase
price allocation using a credit-adjusted discount rate, and were subsequently re-measured using the appropriate risk-free
discount rate. This resulted in an adjustment to the onerous lease contracts liability of $3 million.
Short-Term Leases
During the year ended December 31, 2019, Tervita recognized $6 million of rent expenses related to short-term leases in
the Statements of Profit (Loss).
Tervita as a Lessor
Tervita leases certain property, plant and equipment and has classified these leases as operating leases as they do not
transfer substantially all the risks and rewards incidental to ownership of the assets.
The maturity analysis of the undiscounted lease payments to be received under these operating leases is as follows:
As at December 31
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
Total undiscounted lease payments
12. CASH AND CASH EQUIVALENTS
2019
9
13
13
13
13
61
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Cash and cash equivalents consist of cash in financial institutions, cash on deposit, and short-term
interest-bearing securities with original maturities of less than three months.
66 TERVITA | Annual Report 2019
Page | 22
13.
INVENTORY
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Inventory consists of crude oil, scrap metal, oilfield equipment, consumables, and chemicals. Inventory
is measured at the lower of cost and net realizable value. The cost of Inventory is determined
using the weighted average method. Cost of finished goods includes the cost of purchase and
conversion costs, such as direct labor and a systematic allocation of overhead expenses.
SUPPORTING INFORMATION
As at December 31
Crude oil
Scrap metal
Other
Inventory
2019
2018
5
6
1
12
1
9
2
12
In 2019, Tervita expensed $1,732 million of inventory which was included in direct expenses (December 31, 2018 - $1,356
million).
14. PROPERTY, PLANT AND EQUIPMENT
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Property, plant and equipment assets are recorded at cost less accumulated depreciation and
impairment. Cost includes the purchase price to acquire an asset or for construction in progress
("CIP"), and all costs directly attributable to bringing the asset to the location and condition necessary
for its intended use. If a legal or constructive obligation exists to decommission property, plant and
equipment, the discounted value of the obligation is included in the carrying value of the asset when
the obligation arises and is depreciated on the same basis as the related asset.
If the cost of an individual component of property, plant and equipment is significant relative to the
total cost of the asset, the individual component is depreciated separately. When the cost of replacing a
part of an item of property, plant and equipment is capitalized, the carrying amount of the replaced
item is derecognized and included in either direct expenses (for operating segments) or general and
administrative expenses on the Statements of Profit (Loss). The cost of major inspections or overhauls is
capitalized and depreciated over the period until the next major inspection or overhaul. Repair and
maintenance expenditures that do not improve or extend productive life are expensed as incurred to
either direct expenses (for operating segments) or general and administrative expenses on the
Statements of Profit (Loss).
If the construction of property, plant and equipment is of a sufficient size and duration, borrowing costs
are added to the cost of those assets until the assets are substantially ready for their intended use. The
capitalization rate is based on the weighted average cost of borrowing of all of Tervita’s outstanding
third-party debt during the reporting period.
An item of property, plant and equipment is derecognized on disposal and any resulting gain or loss is
included in gain (loss) on sale of assets on the Statements of Profit (Loss) (note 8).
For CIP, determination of costs to be capitalized is a matter of judgment. Determining when an asset
meets the criteria to be considered substantially ready for intended use is a matter of judgment,
particularly for projects where construction extends over a significant period. Judgment is also required
in determining the appropriate level of componentization and whether a cost incurred meets the
criteria of either major inspection or overhaul to be capitalized or routine repair and maintenance to be
expensed.
Significant
judgments
Page | 23
TSX | TEV 67
Determining the appropriate method of depreciation for an asset requires judgment. Property, plant
and equipment assets are depreciated to reflect the pattern in which management believes the benefits
associated with the asset will be consumed:
• Processing facilities – straight line over five to 25 years;
• Cavern and landfill facilities – units-of-production utilized in a period;
• Buildings – straight line over 25 years;
• Mobile equipment – straight line over 10 to 25 years; and
• Other (furniture, fixtures, information technology hardware) – straight line over three to 10 years.
Determining the useful life and expected residual value of an asset requires the use of estimates. When
it is determined that assigned asset lives do not reflect the expected remaining period of benefit,
prospective changes are made to their useful lives. Useful lives of property, plant and equipment are
subject to market conditions in the oil and gas, environmental remediation, and well servicing
industries. The useful life of engineered landfills is impacted by the type of waste received, compaction,
weather, and leachate factors. The useful life of disposal caverns is impacted by the type of waste
received, the ability to recover and process waste oil in the caverns, and uncertainty about total cavern
capacity available.
Sources of
estimation
uncertainty
SUPPORTING INFORMATION
Note
Land
Facilities
Buildings
Equipment
Other
CIP
Total
Cost
Balance, December 31, 2018
IFRS 16 adjustment
Balance, January 1, 2019
Additions
Disposals
Transfers to assets held for sale
Change in decommissioning cost
Reclassification
Sublease receivable
Foreign exchange
Balance, December 31, 2019
Accumulated depreciation
Balance, December 31, 2018
IFRS 16 adjustment
Balance, January 1, 2019
Provision
Disposals
Impairment
Transfers to assets held for sale
Balance, December 31, 2019
Net book value
2, 11
20
11
2, 11
17
46
5
51
4
—
—
—
—
—
—
55
1
—
1
1
—
—
—
2
53
1,621
—
1,621
71
(25)
(15)
(39)
—
—
(2)
1,611
815
—
815
82
(21)
75
(14)
937
674
210
76
286
9
(1)
—
—
—
(9)
—
285
72
31
103
21
(1)
14
—
137
148
208
2
210
23
(9)
—
—
(1)
—
—
223
99
—
99
23
(7)
25
—
140
83
35
—
35
1
—
—
—
1
—
—
37
31
—
31
3
—
—
—
34
3
56
—
56
39
—
—
(10)
—
—
—
85
1
—
1
—
—
2
—
3
82
2,176
83
2,259
147
(35)
(15)
(49)
—
(9)
(2)
2,296
1,019
31
1,050
130
(29)
116
(14)
1,253
1,043
For the year ended December 31, 2019, additions to property, plant and equipment included $15 million of ROU assets
(note 11).
68 TERVITA | Annual Report 2019
Page | 24
Note
Land
Facilities
Buildings
Equipment
Other
CIP
Total
Cost
Balance, January 1, 2018
Additions
Acquisitions
Disposals
Change in decommissioning cost
Reclassification
Foreign exchange
Balance, December 31, 2018
Accumulated depreciation
Balance, January 1, 2018
Provision
Disposals
Impairment
Foreign exchange
Balance, December 31, 2018
Net book value
15.
INTANGIBLE ASSETS
3
20
17
44
1
4
(3)
—
—
—
46
1
—
—
—
—
1
45
1,164
127
57
325
(35)
107
—
3
4
80
(1)
—
—
—
1,621
210
740
62
(28)
39
2
815
806
63
9
—
—
—
72
138
129
9
82
(12)
—
(1)
1
208
92
17
(11)
—
1
99
109
33
2
3
(3)
—
—
—
35
31
2
(2)
—
—
31
4
45
(1)
12
—
—
—
—
56
—
—
—
1
—
1
55
1,542
72
506
(54)
107
(1)
4
2,176
927
90
(41)
40
3
1,019
1,157
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Purchased intangible assets are initially recognized at cost. Internally generated intangible assets arising
from development activities involving a plan or design for new or substantially improved products and
processes are capitalized only if the development costs can be reliably measured, the product or
process is technically and commercially feasible, future economic benefits are probable, and Tervita has
the intention and sufficient resources to complete development and use or sell the assets. Capitalized
costs for internally generated intangible assets are comprised of material, labor, and overhead expenses
directly attributable to preparing the asset for its intended use.
Intangible assets acquired as part of a business combination are capitalized separately from goodwill if
the asset is separable or arises from contractual or legal rights, and the fair value can be measured
reliably on initial recognition.
Expenditures on research activities undertaken with the prospect of gaining technical knowledge are
expensed as incurred in general and administrative expenses on the Statements of Profit (Loss).
Intangible assets with finite useful
lives are measured at cost less accumulated amortization and
accumulated impairment losses. Intangible assets with indefinite useful lives are measured at cost less
accumulated impairment losses.
Significant
judgments
Determining the appropriate method of amortization for an asset requires judgment. Intangible assets
with finite lives are amortized on a straight-line basis to reflect the pattern in which management
believes the benefits associated with the asset will be consumed:
•
•
•
•
•
Customer relationships – three to five years;
Trade names – eight years;
Technology – four years;
Permits – three to 15 years; and
Other – two to 20 years.
Sources of
estimation
uncertainty
The useful life and expected residual value of an intangible asset are estimates, and are reviewed
on an annual basis. When it is determined that assigned asset lives do not reflect the expected
remaining period of benefit, prospective changes are made to their useful lives.
Page | 25
TSX | TEV 69
SUPPORTING INFORMATION
Cost
Balance, January 1, 2019
Additions
Disposals
Balance, December 31, 2019
Accumulated amortization
Balance, January 1, 2019
Provision
Impairment
Balance, December 31, 2019
Net book value
Cost
Balance, January 1, 2018
Additions
Acquisitions
Disposals
Reclassification
Balance, December 31, 2018
Accumulated amortization
Balance, January 1, 2018
Provision
Disposals
Balance, December 31, 2018
Net book value
16. GOODWILL
Note
Customer
Relationships Trade Names
Technology
Permits
Other
Total
259
—
—
259
258
1
—
259
—
38
—
—
38
38
—
—
38
—
62
—
—
62
58
2
—
60
2
30
—
—
30
2
2
3
7
23
18
7
(1)
24
9
3
—
12
12
407
7
(1)
413
365
8
3
376
37
17
Note
Customer
Relationships
Trade Names
Technology
Permits
Other
Total
3
266
—
—
(7)
—
259
265
—
(7)
258
1
47
—
—
(9)
—
38
47
—
(9)
38
—
59
3
—
—
—
62
55
3
—
58
4
14
—
16
—
—
30
1
1
—
2
28
30
8
—
(21)
1
18
28
2
(21)
9
9
416
11
16
(37)
1
407
396
6
(37)
365
42
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Goodwill represents the excess of consideration transferred in a business combination over the fair
is
value of net
initially determined based on provisional fair values, which are finalized within one year of the
acquisition date. Goodwill is measured at cost less accumulated impairment losses.
the acquisition date. Goodwill
the acquired business at
identifiable assets of
SUPPORTING INFORMATION
Balance, January 1
Additions
Impairment
Balance, December 31
Note
3
17
2019
333
—
(1)
332
2018
324
32
(23)
333
70 TERVITA | Annual Report 2019
Page | 26
17.
IMPAIRMENT
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Each reporting period, the carrying amounts of non-current assets are reviewed to determine if there
are any indications of impairment. If an indication of impairment exists, the recoverable amount of the
asset is estimated. For goodwill, indefinite-lived intangible assets, and intangible assets not yet available
for use, the recoverable amount is estimated at least annually, as well as when indicators of impairment
exist.
For goodwill
impairment testing, assets are grouped together into CGUs. A CGU is the smallest
identifiable asset or group of assets that generates cash inflows that are largely independent of the cash
inflows of other assets or groups of assets. The estimated recoverable amount of an asset or CGU is the
greater of its fair value less costs of disposal and its value-in-use. In assessing the fair value less costs of
disposal, estimated future cash flows are discounted to their present value using a pre-tax discount rate.
For impairment testing, the goodwill acquired in a business combination is allocated to CGUs or groups
of CGUs that are expected to benefit from the synergies of the business combination, and reflects the
lowest level at which goodwill is monitored by management. An impairment loss is recognized if the
carrying amount of an asset or CGU exceeds its estimated recoverable amount. Impairment losses
recognized at the CGU level are allocated first to reduce the carrying amount of any goodwill carried by
the CGU and then to the carrying amounts of other assets in the CGU, on a pro-rata basis.
An impairment loss with respect to goodwill may not be reversed. For other assets, impairment losses
may be reversed when the conditions for impairment no longer exist and there is an increase in 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 and
amortization,
if no impairment loss had been recognized. The reversal of an impairment loss is
recognized in impairment reversal (expense) on the Statements of Profit (Loss).
Assets held for sale are classified as current and are carried at the lower of carrying value and fair value
less costs of disposal, with any adjustment to the carrying value recognized in either impairment
reversal (expense) on the Statements of Profit (Loss) or, for assets held for sale which meet the
classification criteria of discontinued operations, in the results of discontinued operations.
The identification of a CGU is a matter of judgment that requires a determination of how cash inflows
are generated from an asset or group of assets and when those cash inflows are independent from
other assets or groups of assets. Tervita identifies CGUs at a regional or product line level for each
operating segment. For the purposes of goodwill impairment testing, management aggregates these
CGUs to reflect how goodwill is monitored by management within the operating segments.
The fair value of Tervita’s CGUs is estimated for purposes of the annual goodwill impairment test
using a Level 3 discounted cash flow valuation approach (note 22). Inherent in the valuation approach
are key assumptions that are subjective and represent reasonable estimates with respect to factors
affecting operations including economic, operational, and market conditions. These conditions are
sensitive to change and could affect the fair value. The fair value of Tervita and each CGU is estimated
using a discounted cash flow approach based on CGU specific weighted average costs of capital
("WACC") ranging from nine per cent to 10 per cent (2018 – 10 per cent to 11 per cent) based on
comparable companies using a cross-section of industry peers.
Cash flows for the next fiscal year are based on Tervita’s operating budget, which is approved by
management and the Board of Directors. The budget is based on past performance as well as
management’s assessment of expected market trends, growth strategy, commodity prices, inflation
rates, and economic conditions. For future years not included in the budget, assumptions are made,
including growth rates implicit in the cash flow projections for each CGU to reflect their unique market
characteristics, growth capital spending opportunities, and economic conditions. Subsequent to the
next fiscal year, the discounted cash flows assume average annual revenue and expense growth rates of
two per cent, and two per cent for terminal years. These conditions are sensitive to change and could
affect the fair value.
Significant
judgments
Sources of
estimation
uncertainty
Page | 27
TSX | TEV 71
The key assumptions in establishing fair value less costs of disposal for specific CGUs focus on revenue
estimates which are driven primarily by forecast activity levels in the oil and gas sector. Budgeted
growth rates are normally aligned with these forecast activity levels and peer group growth
expectations. Historical margins are guidelines for budgeting future earnings, with adjustments made
for anticipated one-time or non-recurring events. For CGUs that experienced significant growth in prior
periods due to acquisitions, management reviews the increased scale of operations, new markets
entered, or services offered to estimate future revenue and earnings. For energy marketing, forecast
commodity prices, the equalization density penalty applicable to crude oil densities, and heavy oil
differentials are estimated market inputs impacting the revenue and earnings forecasts. Management
considers the revenue estimates and margins reflected in the budget and strategic plan as achievable.
Fair value less costs of disposal for specific assets or groups of assets is a Level 3 valuation, which
contemplates the sale of similar assets in like markets and relies on third party offers, independent
valuations and appraisals to value the assets. The key assumptions used relate to the comparability of
similar assets used for valuation purposes, as well as the fact that historic market data is indicative of
future market prices.
SUPPORTING INFORMATION
Impairment expense by type of asset is as follows:
For the years ended December 31
Property, plant and equipment
Intangible assets
Goodwill
Impairment expense
Property, Plant and Equipment
Note
14
15
16
2019
116
3
1
120
2018
2
—
23
25
Tervita recognized $84 million of impairment on specific assets in its Energy Services segment for the year ended
December 31, 2019 as a result of uncertainty around certain drilling-based operations in the US, the suspension or
closure of inactive facilities, and the revaluation of decommissioning liabilities and associated assets.
The DPS CGU in the Energy Services segment was further tested for impairment as a result of the uncertainty in drilling
activity in Canada and the US. After writing off the carrying amount of goodwill, $37 million of impairment was allocated
to property, plant and equipment.
Tervita reversed $5 million of impairment in corporate for the year ended December 31, 2019 in relation to subleases of
ROU assets that were previously considered onerous, and the revaluation of decommissioning liabilities and associated
assets.
Intangible Assets
The 2019 impairment of $3 million related to permits for certain suspended and closed inactive facilities.
Goodwill
Goodwill impairment testing resulted in the following impairment expense:
For the years ended December 31
Waste services
DPS
Goodwill impairment
2019
—
1
1
2018
23
—
23
In 2019, $1 million of goodwill in the DPS CGU was impaired as a result of the decline in drilling activity. In 2018, an
impairment of $23 million was recognized on the goodwill allocated to the waste services CGU as a result of ongoing
challenges in a highly competitive market. Financial information about the waste services operating segment is disclosed
under Industrial Services (note 4).
72 TERVITA | Annual Report 2019
Page | 28
The estimated fair value for the CGUs tested are particularly sensitive to the following estimates:
•
•
An increase of 1% in the WACC would have increased the impairment by approximately $2 million (December 31,
2018 - $3 million); and
A decrease in the terminal growth rate by 1% would have increased the impairment by approximately $2 million
(December 31, 2018 - $4 million).
The allocation of goodwill to CGUs after impairment expense is as follows:
As at December 31
TRDs
Energy marketing
Landfills
Waste services
DPS
Total allocation to CGUs
18. LONG-TERM DEBT
2019
297
16
12
7
—
332
2018
297
16
12
7
1
333
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Costs associated with the issuance and amendment of Tervita's debt facilities ("debt costs") are
capitalized and amortized to finance costs in the Statements of Profit (Loss) over the term of the related
liability using the effective interest method.
SUPPORTING INFORMATION
The 2018 senior secured notes were issued on the Newalta Acqusition Date (note 3). In November 2019, Tervita
repurchased US$20 million of the 2018 senior secured notes.
As at December 31
2016 senior secured notes
2018 senior secured notes
Long-term debt
Premium on 2018 senior secured notes
Unamortized debt costs
Total long-term debt
Note
Principal
Issuance Maturity
2019
2018
19
US$360 Dec 2016 Dec 2021
3, 19
US$230
Jul 2018 Dec 2021
468
299
767
1
(18)
750
491
341
832
1
(28)
805
See note 22 for timing and amount of interest and debt repayment.
Debt Covenants
Tervita has a senior secured revolving credit facility ("Revolver") with a syndicate of Canadian banks, which was amended
and extended from $200 million to $275 million in December 2018 and terminates on June 1, 2021. Under the terms of
the Revolver, Tervita must comply with certain financial and non-financial covenants, as defined by its lenders, that are
calculated based on lease accounting that would have applied under IAS 17 (note 2).
One covenant ("Total Leverage Ratio") limits the amount of Tervita's total indebtedness, net of unrestricted cash and cash
equivalents of up to $75 million, relative to a defined measure of earnings ("Covenant EBITDA"). The Total Leverage Ratio
cannot exceed 4.50 to 1.00. Tervita must also maintain a secured indebtedness to Covenant EBITDA ratio ("Secured
Leverage Ratio") of less than 2.50 to 1.00, and a Covenant EBITDA to interest expense ratio ("Interest Coverage Ratio") of
greater than 2.00 to 1.00.
Page | 29
TSX | TEV 73
Covenant EBITDA was calculated as:
For the year ended December 31
Net profit (loss)
Adjustments:
Depreciation and amortization
Restructuring costs
Impairment (reversal) expense
Finance costs
Transaction costs
Other (income) expense
Income taxes expense (recovery)
Eligible adjustments:
Severance costs, excluding restructuring and transaction costs
Adjusted EBITDA of unrestricted subsidiaries
Impact of new accounting standards (IFRS 16)
Covenant EBITDA
The financial covenants for the Revolver for the year ended December 31, 2019 were:
Total Leverage Ratio
Secured Leverage Ratio
Interest Coverage Ratio
As at December 31, 2019, Tervita was in compliance with all covenants.
Outstanding Letters of Credit
Note
14, 15
17
7
3
8
5
2
2019
(116)
138
3
120
92
8
(1)
(14)
3
(3)
(10)
220
Required
Less than 4.50
Less than 2.50
Greater than 2.00
Achieved
3.49
0.26
3.35
Outstanding letters of credit of $77 million as at December 31, 2019 (December 31, 2018 – $87 million) are primarily
issued to satisfy regulatory requirements regarding Tervita's decommissioning obligations. The outstanding letters of
credit reduce the borrowing capacity under the Revolver.
Guarantees
Tervita's obligations under the Revolver are guaranteed by one of our subsidiaries. The guarantees are secured by
substantially all tangible and intangible assets owned by Tervita and the guarantor subsidiary.
Debt Costs
Balance, January 1
Costs associated with new debt
Amortization of debt issue costs
Balance, December 31
19. DERIVATIVES AND HEDGING
Note
3
7
2019
(28)
—
10
(18)
2018
(15)
(20)
7
(28)
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Initial Recognition and Subsequent Measurement of Hedging Instruments
From time to time, the Company uses derivative financial instruments, including cross-currency swaps,
to hedge its foreign currency risk related to its US$ debt. Such derivative financial instruments are
initially recognized at fair value and any directly attributable transaction costs are recognized
immediately in net profit (loss). Derivative financial instruments are subsequently re-measured at fair
value, and are carried as financial assets when the fair value is positive and as financial liabilities when
the fair value is negative.
For hedge accounting, Tervita designates its hedges as cash flow hedges as they hedge the exposure to
variability in cash flows attributable to principal and interest of its US$ debt.
74 TERVITA | Annual Report 2019
Page | 30
At the inception of a hedge relationship, the Company designates and documents the hedge
relationship to which it wishes to apply hedge accounting. The documentation includes the Company's
risk management objective and strategy for undertaking the hedge. Such hedges are expected to be
highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an
ongoing basis to determine that they will continue to meet the requirements for hedge effectiveness.
The effective portion of the gain or loss on the hedging instrument is recognized in the cash flow hedge
reserve in OCI, and any ineffective portion is recognized immediately in net profit (loss). Amounts
recognized in OCI are transferred to net profit (loss) when interest is paid on the US$ debt or the US$
debt is revalued to C$ at period end.
If the hedging instrument expires or is sold, terminated or exercised without being replaced or rolled
over (as part of the hedging strategy), or when the hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss previously recognized in OCI remains separately in equity until
the forecasted transaction occurs. If the amount held within the cash flow hedge reserve is a loss and
the entirety or a portion of it is not expected to be recovered in future periods, the unrecoverable
amount is recognized in profit (loss) at the time of discontinuation.
Sources of
estimation
uncertainty
Tervita is required to determine the fair value of the swaps at the end of each reporting period. This
requires the use of a Level 2 discounted cash flow valuation approach. All inputs are considered
observable including contractual payments under the swaps, forward foreign exchange and forward
interest rate swaps, and the credit ratings of Tervita and our counterparties. See note 22 for fair value
disclosures.
SUPPORTING INFORMATION
Cross-Currency Swap Agreements
Cross-currency swap agreements associated with the 2016 senior secured notes and 2018 senior secured notes for the
years ended December 31, 2019 and 2018 were:
Swap agreement
Designated Hedge
Swaps
Forward swaps
The fair value of cross-currency swaps were:
As at December 31
Forward swaps
Unrealized exchange gain (loss) on forward swaps
Current portion
Designated Hedge
2016 senior secured notes
Designated Hedge credit risk adjustment
Long-term portion
Total derivative assets (liabilities)
Designated Hedge
Inception Date Maturity Date
Settlement
Date
Principal
Fixed Foreign
Exchange Rate
Dec 2016
May 2018
May 2018
Dec 2021 Not applicable
Aug 2018
Dec 2019
Jul 2018
Oct 2019
476.6
321.6
320.1
0.7554
0.7775
0.7809
2019
2018
—
—
(11)
1
(10)
(10)
18
18
7
1
8
26
Tervita issued the 2016 senior secured notes (note 18) on December 13, 2016 (the "Designation Date"). On this date,
Tervita also designated five cross-currency swaps (the "Designated Hedge") as hedges of the interest and principal
repayment of these notes to hedge the changes in cash flows due to changes in the US$:C$ exchange rates. There is an
economic relationship between the Designated Hedge and the 2016 senior secured notes as the fair value of the hedging
instrument moves in the opposite direction of the change in the US$:C$ exchange rate. Tervita accounts for the
Designated Hedge as a cash flow hedge. The debt includes fixed US$ interest payments, which are payable semi-
annually, and full principal repayment on maturity on December 1, 2021. The payment dates of the Designated Hedge
match those of the 2016 senior secured notes.
In 2019, Tervita recognized a total loss in OCI of $18 million (December 31, 2018 - $39 million gain) for the effective
portion of the Designated Hedge. For the year ended December 31, 2019, $25 million of OCI was reclassified to other
Page | 31
TSX | TEV 75
income (expense) (December 31, 2018 - $40 million) to offset the unrealized foreign exchange gain (loss) on revaluation
of the debt. There was no tax impact as a result of this reclassification.
Swaps
The swaps provided a fixed US$:C$ conversion rate on cash of US$250 million, which were settled on July 19, 2018 in
conjunction with the close of the Arrangement and the exchange of the escrow notes. For the year ended December 31,
2018, a realized foreign exchange loss of $8 million associated with the settlement of the swaps was included in other
income (expense). See notes 3 and 8 for further information.
Forward Swaps
In May 2018, Tervita entered into cross-currency swaps ("forward swaps") with a maturity date of December 2, 2019. The
forward swaps mitigated the foreign currency risk associated with the variability in principal repayment of the 2018
senior secured notes, due to changes in the US$:C$ exchange rates. The forward swaps were not designated as a hedge
and were classified and measured as financial liabilities at fair value through profit or loss ("FVTPL") (note 22).
The forward swaps were settled on October 29, 2019 resulting in a $6 million realized foreign exchange gain included in
other income (expense). For the year ended December 31, 2018, an unrealized foreign exchange gain of $18 million was
included in other income (expense) due to changes in the fair value of the forward swaps.
Sources of Hedge Ineffectiveness
Credit Risk
The Company is exposed to counterparty credit risk on the Designated Hedge and internal credit risk on the 2016 senior
secured notes. Hedge ineffectiveness could arise from changes to credit risk for either Tervita or any of the counterparties
issuing the Designated Hedge. Tervita does not hedge credit risk as part of the hedging relationship, and a counterparty
re-assignment of one of the cross-currency swaps in 2019 did not result in changes to the credit risk of the Designated
Hedge.
Timing of Derivative Designation
At the Designation Date, the cash flow hedge was assessed to be effective. The non-zero element of the derivative at
initial designation will cause hedge ineffectiveness over the term of the hedge since the hypothetical derivative used to
measure hedge ineffectiveness will have a fair value of zero at the date of designation. The amount of ineffectiveness
recognized in each period depends on how future interest rates affect the cumulative fair value gains (losses) on the
actual derivative from inception of the hedge as compared to the effect they will have on the hypothetical derivative.
20. PROVISIONS
ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
Accounting
policies
Decommissioning Liabilities
Tervita determines its decommissioning liabilities associated with the retirement of property, plant and
equipment of all its facilities. Tervita recognizes a provision measured at the present value of the future
costs of its decommissioning liabilities. The value of the decommissioning liabilities are determined
through an annual review of engineering and environmental studies, industry guidelines, current
regulations, and management's best estimates.
The liabilities accrete to the periods when the obligations are expected to settle, with accretion of
decommissioning liabilities recognized as a component of finance costs on the Statements of Profit
(Loss). The liabilities are reviewed at each reporting period for revisions in the estimated timing and
amount of the future cash flows associated with the liabilities.
Contingent Consideration
liabilities
When the consideration transferred by Tervita in a business combination or asset acquisition includes
the contingent
assets or
consideration is measured at its acquisition date fair value and included as part of the consideration
transferred in a business combination or asset acquisition. Subsequent to initial measurement, the
contingent consideration is based on discounted cash flows using a discount rate applicable for an
resulting from a contingent consideration arrangement,
76 TERVITA | Annual Report 2019
Page | 32
Significant
judgments
Sources of
estimation
uncertainty
operating segment or business line. Any adjustments to fair value are recognized in other income
(expense) on the Statements of Profit (Loss).
Determining whether Tervita has a present obligation and should recognize a provision is a matter of
judgment, and requires further judgment about outcomes of future events and interpretation of laws
and regulations.
Decommissioning Liabilities
Determination of the decommissioning liabilities requires estimation of the nature, timing, and cost of
the remediation process, the timing of cash outflows, and applicable discount rates. Tervita uses a risk-
free rate for calculating decommissioning liabilities, which is assessed quarterly and updated annually
or when there is a material change in the rate. The risk-free rates used to estimate the
decommissioning liabilities at December 31, 2019 ranged from 0.33 to 0.48 per cent (December 31,
2018 – 1.86 to 2.50 per cent) and an inflation rate of nil (December 31, 2018 – two per cent), and were
specific to the timing of the cash flows and the jurisdiction of the obligations. Estimates are based upon
Tervita’s best practices and current regulatory requirements.
Contingent Consideration
The fair value of contingent consideration is estimated using future commodity prices, cavern capacity,
cash flows, and discount rates that are Level 2 inputs under the fair value hierarchy (note 22). The
discount rate used for these liabilities is 9.03 per cent (December 31, 2018 - 10.2 per cent) and is
calculated using the WACC of comparable companies from a cross-section of industry peers, which
reflects the risks inherent in the liability.
SUPPORTING INFORMATION
Note
Decommissioning
Liabilities
Contingent
Consideration
Balance, January 1, 2019
Charged to profit (loss)
Change in other estimates
Unwinding of discount
Capitalized to property, plant and equipment
7
413
—
9
9
(6)
(22)
(33)
(15)
355
5
350
11
(1)
—
—
—
—
—
(1)
9
1
8
Note
Decommissioning
Liabilities
Contingent
Consideration
Legal
3
7
3
272
44
—
7
(12)
104
3
(5)
413
14
399
9
—
2
—
—
—
—
—
11
1
10
3
—
—
—
—
—
—
(3)
—
—
—
Total
424
(1)
9
9
(6)
(22)
(33)
(16)
364
6
358
Total
284
44
2
7
(12)
104
3
(8)
424
15
409
New obligations
Disposals
Change in discount rate
Change in other estimates
Settled during the year
Balance, December 31, 2019
Less: current portion
Long-term portion
Balance, January 1, 2018
Acquisitions
Charged to profit (loss)
Change in other estimates
Unwinding of discount
Capitalized to property, plant and equipment
Disposals
Change in discount rate
Change in other estimates
Settled during the year
Balance, December 31, 2018
Less: current portion
Long-term portion
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TSX | TEV 77
Provisions were settled for $5 million of cash, an exchange of $1 million of accounts receivable, and discontinuance of a
legal claim of $2 million.
Decommissioning Liabilities
The uninflated undiscounted cash flows associated with Tervita’s liabilities at December 31, 2019 were estimated at $403
million (December 31, 2018 – $439 million). Payments to settle the decommissioning liabilities occur on an ongoing basis
and will continue over the remaining lives of the operating assets, which are up to 106 years.
Decommissioning liabilities acquired through the Arrangement in 2018 were valued at $44 million through the purchase
price allocation using a credit-adjusted discount rate, and were subsequently re-measured using the risk-free discount
rate, resulting in an adjustment to the decommissioning obligation of $99 million.
Contingent Consideration
In 2000 and 2014, Tervita acquired caverns at its Unity facility. The purchase agreements included a provision whereby
Tervita would be required to pay a fixed amount per cubic meter of by-products received for disposal in the caverns and
related disposal wells. Fixed payment rates increase annually based on the Consumer Price Index in accordance with the
contractual arrangements. The terms of this provision extend for an unlimited time, until the caverns and disposal wells
are at capacity. At December 31, 2019, the fair value of the obligations was $9 million (December 31, 2018 – $11 million).
21. SHARE-BASED COMPENSATION
ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
Accounting
policies
Tervita has five share-based compensation plans under which units are granted to members of
Tervita's Board of Directors, executive leadership, senior management, and eligible employees. The
share-based compensation plans include stock options ("options"), restricted share units ("RSUs"),
integration incentive units ("IIUs"), performance share units ("PSUs"), and deferred share units ("DSUs").
These plans are accounted for as equity-settled plans or cash-settled plans depending on the terms of
settlement.
Under an equity-settled plan, Tervita recognizes changes in the fair value of units over the vesting
period in other income (expense)
in the Statements of Profit (Loss) and share-based
compensation reserve in the Statements of Financial Position. Upon exercise, the consideration
received and the amounts previously recognized in share-based compensation reserve are recorded as
an increase to issued share capital.
(note 8)
Under a cash-settled plan, Tervita recognizes changes in the fair value of units over the vesting period in
other income (expense) (note 8) in the Statements of Profit (Loss), and other current liabilities and other
long-term liabilities in the Statements of Financial Position. Settlement of the vested units reduces the
outstanding liability.
Option Plan
Options are granted to members of Tervita's executive leadership and senior management, and are
accounted for as equity-settled.
The fair value of the options is estimated on the grant date using the Black-Scholes model. Unless
otherwise determined by Tervita's Board of Directors, the options vest annually on the anniversary of
the grant date over a period of three years, and expire five years after the grant date.
RSU Plan
RSUs are granted to eligible employees, and are accounted for as cash-settled.
The fair value of the RSUs is measured at each reporting date using Tervita's closing share price as at
that date. RSUs issued before 2019 vest in full three years after the grant date, and RSUs issued in 2019
vest annually on the anniversary of the grant date over a period of three years.
IIU Plan
IIUs were granted to Tervita's executive leadership and senior management as incentive to achieve
targeted synergies with respect to the acquisition and integration of Newalta, and are accounted for as
cash-settled.
78 TERVITA | Annual Report 2019
Page | 34
The fair value of the IIUs is measured at each reporting date using Tervita's closing share price as at that
date, adjusted for a performance multiplier that is based on estimated achievement of the performance
criteria. IIUs vest in full two years after the grant date.
DSU Plan
DSUs are granted to members of Tervita's Board of Directors, and are accounted for as cash-settled.
The fair value of the DSUs is measured at each reporting date using Tervita's closing share price as at
that date. DSUs vest quarterly over a period of one year.
The DSUs are settled when both the vesting period is completed and the board member no longer
holds a position on Tervita's Board of Directors.
PSU Plan
PSUs are granted to Tervita's executive leadership and senior management as incentive to achieve
performance criteria, and are accounted for as cash-settled.
The fair value of the PSUs is measured at each reporting date using Tervita's closing share price as at
that date, adjusted for a performance multiplier that is based on estimated achievement of the
performance criteria. PSUs vest in full three years after grant date.
Sources of
estimation
uncertainty
Determining the fair value of the units under the various plans requires the use of assumptions in
applying valuation techniques. Significant changes to one or more of these assumptions could result
in a material adjustment to the carrying value of the respective plans at the end of a reporting period.
The following key assumptions were used by Tervita in arriving at the fair values of the plans:
•
•
•
Expected annual volatility – the volatility was determined based on publicly available trading data
of comparable companies, in addition to Tervita's trading history since Tervita became a public
company in 2018. The volatility is estimated for a period commensurate with the expected life of
the option;
Expected life – the expected life is estimated based on the contractual life or estimated life;
Forfeiture rate – the actual forfeitures of the group of Tervita's executive leadership, senior
management, and eligible employees who received the units were used in estimating future
forfeiture rates;
• Market price – the market price is determined based on the closing share price as at the reporting
•
•
•
•
date, or the grant date for options;
Exercise price – the exercise price is assumed to be the market price on the grant date of the option;
Risk-free interest rate – the implied yield of zero-coupon government issues for equivalent term
remaining at the grant date;
Dividend yield – since Tervita has not historically paid dividends, the dividend yield is assumed to
be $nil at the grant date; and
Performance multiplier – the fair values of IIUs and PSUs are adjusted for a performance multiplier
that is based on the Company’s best estimate of the achievement of performance criteria.
SUPPORTING INFORMATION
Options
The inputs to determine the fair value of the options granted in the period were:
As at December 31
Weighted average market price
Expected annual volatility
Expected life
Risk-free interest rate
Expected annual forfeiture rate
Weighted average fair value
2019
$6.19
54 %
4 years
1.6 %
4 %
$2.64
2018
$9.23
40 %
5 years
2.0 %
4 %
$3.52
Page | 35
TSX | TEV 79
The changes in options outstanding were:
Outstanding, January 1
Granted
Forfeited
Outstanding, December 31
Exercisable, December 31
2019
2018
Units
2,303,728
1,030,696
(731,019)
2,603,405
Weighted
Average
Exercise Price
$9.57
$6.19
$8.72
$8.48
Units
1,034,643
1,318,242
(49,157)
2,303,728
Weighted
Average
Exercise Price
$10.00
$9.23
$9.35
$9.57
851,496
$9.69
344,881
$10.00
The ranges of exercise price and weighted average remaining lives as at December 31, 2019 were:
Exercise prices ($)
$6.00 - $6.75
$6.75 - $7.50
$7.50 - $10.00
Total
Outstanding
Weighted
Average
Remaining
Life (Years)
4.25
4.95
2.78
3.29
Units
874,886
16,577
1,711,942
2,603,405
Weighted
Average
Exercise Price
$6.20
$7.49
$9.65
$8.48
Exercisable
Weighted
Average
Exercise Price
$6.54
$—
$9.76
$9.69
Units
19,096
—
832,400
851,496
For the year ended December 31, 2019, Tervita recognized share-based compensation expense related to options of $2
million (December 31, 2018 - $3 million). As at December 31, 2019, the share-based compensation reserve under the
equity-settled plans was $7 million (December 31, 2018 - $5 million).
Cash-Settled Units
The changes in cash-settled units outstanding were:
Outstanding, January 1, 2019
Granted
Cancelled or forfeited
Outstanding, December 31, 2019
Outstanding, January 1, 2018
Granted
Cancelled or forfeited
Outstanding, December 31, 2018
RSUs
1,000,503
867,613
(147,855)
1,720,261
IIUs
251,147
—
(54,199)
196,948
PSUs
—
433,791
(82,103)
351,688
RSUs
588,362
518,045
(105,904)
1,000,503
DSUs
—
177,227
—
177,227
IIUs
—
251,147
—
251,147
For the year ended December 31, 2019, Tervita recognized share-based compensation expense related to cash-settled
plans of $7 million (December 31, 2018 - $1 million). As at December 31, 2019, the liability under the cash-settled plans
was $9 million (December 31, 2018 - $2 million).
80 TERVITA | Annual Report 2019
Page | 36
22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Accounting
policies
Financial Assets and Liabilities
Financial assets and financial liabilities ("financial instruments") are initially recognized at fair value,
which is normally equal to cost plus or minus directly attributable transaction costs, other than for
those financial instruments that are designated at FVTPL. The transaction costs are subsequently
amortized over the financial instruments’ remaining expected life using the effective interest method
and are included as part of finance costs on the Statements of Profit (Loss). Transaction costs related to
financial instruments classified as FVTPL or as designated hedges are expensed as incurred.
Subsequent to initial recognition, financial instruments are classified and measured at each reporting
date as follows:
•
Financial assets at amortized cost - Financial assets are measured at amortized cost using the
effective interest method when they are held within a business model whose objective is to collect
contractual cash flows, with such cash flows arising from payments of principal and interest on the
principal amount outstanding. Gains and losses are recognized when the asset is derecognized or
impaired. Assets that are short-term in nature have a carrying value that approximates fair value.
FVTPL - Financial instruments are classified as FVTPL when the financial instrument is either held for
trading or is initially designated as FVTPL.
Designated hedges - Derivative financial instruments that are designated as effective hedges are
recognized in OCI with an amount reclassified to net profit (loss) when the hedged item affects net
profit (loss).
Other financial liabilities - Other financial liabilities are measured at amortized cost using the
effective interest method. Liabilities that are short-term in nature have a carrying value that
approximates fair value. Tervita has determined that all assets and liabilities measured at fair value
are deemed to be recurring fair value measurements, other than assets held for sale and
discontinued operations which are non-recurring fair value measurements.
•
•
•
Derivatives and Hedging
Derivative financial
instruments are utilized by Tervita in the management of its exchange rate
exposures, and not for trading or speculative purposes. Tervita has cross-currency swaps to manage the
impact of foreign exchange rates on its foreign currency denominated debt and to manage the overall
cost of borrowing on its total debt portfolio. The cross-currency swaps require periodic exchange of
payments without the exchange of the notional principal amount on which the payments are based.
Derivative financial instruments not designated as hedges are recorded at fair value each reporting
date, with any unrealized gains or losses recognized in net profit (loss).
Derivatives designated as hedges are recorded at fair value each reporting date. The effective portion of
the gain or loss on the hedging instrument is recognized in OCI in the cash flow hedge reserve, while
any ineffective portion is recognized immediately in net profit (loss). Amounts recognized in OCI are
reclassified to net profit (loss) when interest is paid on the US$ debt or the US$ debt is revalued to C$ at
period end.
Contracts and agreements are assessed for embedded derivatives and, where necessary, Tervita
separately recognizes the embedded derivative at fair value for each reporting period.
Derecognition of Financial Instruments
Financial assets are derecognized when the contractual rights to the cash flows expire, substantially all
the risks and rewards related to ownership are transferred to a third party, or Tervita is required to
extinguish all or part of the financial asset. Financial liabilities are derecognized when the contractual
obligation expires, is discharged, or is canceled.
Gains or losses arising from settlement, repurchase, or cancellation of financial
recognized in the Statements of Profit (Loss).
instruments are
Page | 37
TSX | TEV 81
Offsetting Financial Assets and Liabilities
Financial instruments are offset with the net amount presented in the Statements of Financial Position if
Tervita holds an enforceable legal right to offset and there is an intention to settle on a net basis or to
realize an asset and settle the liability simultaneously. In all other situations, financial instruments are
presented on a gross basis.
Impairment
Tervita assesses all trade and other receivables for impairment under the simplified method, which
requires estimation of the expected credit losses ("ECLs") considering possible default events over the
lifetime of the financial instrument. ECLs are a probability-weighted estimate of credit losses based on
historical experience and future expectations are applied to the aging categories of the Company's
provision matrix. Credit losses are measured as the difference between the contractual cash flows due
to the Company and the cash flows Tervita expects to receive.
The Company measures its impairment of cash and cash equivalents at an amount equal to 12-month
ECLs, as the credit risk on these balances is presumed to be low since deposits are held with highly-
rated financial institutions.
Tervita assesses at each reporting date whether there is objective evidence that a financial asset or
group of financial assets is credit-impaired. A financial asset is credit-impaired if one or more events
have occurred since the initial recognition of the asset that has impacted the estimated future cash
flows. Evidence of a financial asset that is credit-impaired may include evidence or indications of
financial difficulty of the counterparty, failure to make scheduled payments, the probability that the
counterparty will enter bankruptcy or a similar arrangement, or general economic conditions that
correlate with increased risk of defaults.
Significant
judgments
All assets and liabilities,
including financial assets and liabilities that are carried at fair value, are
categorized as one of the following levels in the IFRS fair value hierarchy depending on the valuation
technique used:
•
•
•
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable; and
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable.
Judgment is required to determine the hierarchy category in which the financial instruments should be
included. Where the fair values of financial instruments cannot be derived from active markets, they are
determined using valuation techniques, including a discounted cash flow model. Inputs are taken from
observable markets whenever possible. However, multiple methods exist by which fair value can be
determined, which can cause values to differ.
Sources of
estimation
uncertainty
Fair value estimates are made at a point in time and may not be reflective of future fair values.
Estimated fair values are designed to approximate amounts at which the financial instruments could be
exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
Assumptions underlying the valuations may require estimates of costs and prices over time, discount
rates, inflation rates, defaults and other relevant variables.
ECLs are calculated using historical and future information regarding customer collectability.
Uncertainty exists over the estimation of ECLs, as the historical and forward-looking information
included in the calculation may not be representative of actual future cash flows.
82 TERVITA | Annual Report 2019
Page | 38
SUPPORTING INFORMATION
Fair Value of Financial Instruments
As at December 31
Cash and cash equivalents
Trade and other receivables
Sublease receivable
Equity investment
Trade and other payables
Interest payable
Long-term debt
Lease liabilities
Derivative assets (liabilities)
Derivative assets (liabilities)
Contingent consideration
Note
Classification
Level
Amortized cost
Amortized cost
Amortized cost
FVTPL
—
—
—
3
Other financial liabilities —
Other financial liabilities —
Other financial liabilities —
Other financial liabilities —
Designated hedge
FVTPL
FVTPL
2
2
2
11
18
18
11
19
19
20
Carrying Value
Estimated Fair Value
2019
22
192
13
3
(180)
(5)
(750)
(98)
(10)
—
(9)
2018
46
180
—
4
(122)
(6)
(805)
(13)
8
18
(11)
2019
22
192
13
3
(180)
(5)
(771)
(98)
(10)
—
(9)
2018
46
180
—
4
(122)
(6)
(793)
(13)
8
18
(11)
There were no transfers between levels of the fair value hierarchy in either 2019 or 2018. The fair value of debt is based
on third party observable quotes and may not reflect actual amounts payable by Tervita.
Offsetting Financial Assets and Liabilities
The Company enters into various energy marketing arrangements that are presented on a net basis on the Statements of
Financial Position as Tervita has a legally enforceable right to set-off the balances due. The following tables show the
actual effect of netting arrangements on the Company’s financial position:
As at December 31, 2019
Trade and other receivables
Trade and other payables
As at December 31, 2018
Trade and other receivables
Trade and other payables
Risk Management
Counterparty Credit Risk
Gross
Asset
227
28
Gross
Asset
29
29
Gross
Liability
Net
Presentation
(176)
(61)
51
(33)
Gross
Liability
Net
Presentation
(12)
(44)
17
(15)
Credit risk is the financial risk associated with the non-performance of contractual obligations by counterparties. Tervita’s
revenue is primarily earned in the oil and gas industry potentially resulting in a concentration of counterparty credit risk.
Tervita generally extends unsecured credit to its customers and the collection of accounts receivable may be affected by
changes in economic or other conditions which may impact Tervita’s overall credit risk. Management believes the risk is
mitigated by the size, reputation and diversified nature of the companies to which Tervita extends credit. Tervita reviews
the financial strength of some of its customers and performs a detailed analysis of outstanding trade and other
receivables on an ongoing basis. None of the customers individually make up more than 10 per cent of Tervita’s credit
exposure.
Loss Allowance
Balance, January 1
Provision for bad debts
Write-offs, net of recoveries
Balance, December 31
2019
2018
(1)
(3)
2
(2)
(1)
—
—
(1)
Page | 39
TSX | TEV 83
Aging Analysis of Trade Accounts Receivable By Invoice Date
As at December 31
91 - 120 days
Greater than 121 days
Accounts outstanding over 90 days
2019
2018
4
4
8
6
15
21
The Company deems that the credit risk of a customer has increased significantly since initial recognition if the balance
payable is outstanding for more than 90 days from the invoice date. Tervita considers a customer to be in default when
the balance payable is outstanding for more than two years from the invoice date or earlier if there are indicators that
payment from the customer is unlikely. The Company's credit terms are customer specific and range from 30 days to 60
days. Customers are grouped based on credit status and aging when being assessed for ECLs. Tervita estimates the ECLs
at each reporting date using a provision matrix that includes rates based on the number of days since the invoice date.
Qualitative factors such as past events, customer-specific conditions and expectations of future economic activity are
used to adjust rates for specific customers in the provision matrix.
Cash and cash equivalents are held at major financial institutions. Management believes the credit risk is mitigated by the
high credit rating of these financial institutions.
Tervita's maximum counterparty credit exposure as at December 31, 2019 was the total carrying value of cash and cash
equivalents and trade and other receivables.
Liquidity Risk
Liquidity risk is the risk that Tervita will encounter difficulties in meeting its financial obligations as they become due.
Tervita mitigates this risk by forecasting cash flows from operating activities and managing the borrowings under the
Revolver, as management expects to rely on these as primary sources of liquidity and to fund capital expenditures. At
December 31, 2019, there was $198 million of borrowing available under the Revolver (December 31, 2018 - $188 million)
and $22 million in cash and cash equivalents available (December 31, 2018 - $46 million).
The timing of Tervita’s cash outflows relating to financial liabilities on an undiscounted basis is:
Trade and other payables
Interest payable, net of related swap agreements
Long-term debt (excludes foreign currency revaluation and unamortized debt
costs)
Lease liabilities
Contingent consideration
Total
Foreign Exchange Risk
2020
180
60
—
21
1
262
2021-22
2023-24
Thereafter
—
60
767
33
1
861
—
—
—
24
2
26
—
—
—
49
26
75
Tervita is exposed to foreign currency risk with respect to its US$ debt.
Tervita manages this exposure through its cross-currency swaps, thereby fixing the exchange rate on a portion of its US$
debt (note 19). Absent the swap agreements, a $0.01 change in the US$ to C$ exchange rate would result in a change to
net profit (loss) of $6 million (December 31, 2018 - $6 million). In 2019, Tervita exited the forward swaps associated with
the 2018 senior secured notes (note 19) and repurchased US$20 million of the 2018 senior secured notes (note 18). The
Company has incurred an unrealized foreign exchange gain of $2 million on the 2018 senior secured notes since exiting
the forward swaps.
Changes in Liabilities Arising From Financing Activities
Balance, January 1, 2019
Cash flows
Foreign exchange movements
Fair value changes
Repayment of outstanding debt
Other
Balance, December 31, 2019
84 TERVITA | Annual Report 2019
Note
Long-Term
Debt
19
18
805
—
(39)
—
(26)
10
750
Derivative
Liabilities
(Assets)
(26)
6
(7)
37
—
—
10
Total
779
6
(46)
37
(26)
10
760
Page | 40
Balance, January 1, 2018
Cash flows
Foreign exchange movements
Fair value changes
Issuance of new debt
Other
Balance, December 31, 2018
Market Risk
Note
18
3, 18
Long-Term
Debt
437
(20)
49
—
332
7
805
Derivative
Liabilities
(Assets)
31
—
(1)
(56)
—
—
(26)
Total
468
(20)
48
(56)
332
7
779
Market risk is the risk that the fair value or cash flows of Tervita's financial instruments will fluctuate as a result of changes
in market prices, influenced by changes in foreign exchange, interest rates, and commodity prices. See note 19 for
information on changes in fair value of Tervita's cross-currency swaps for the years ended December 31, 2019 and 2018.
Commodity Price Risk
Tervita provides environmental services to customers that are primarily engaged in oil and gas exploration and
production. Oil and gas exploration and, to a lesser extent, production is driven by oil and gas commodity prices, which
in turn are impacted by resource availability and demand, costs to produce, and general economic activity. As a result,
Tervita's financial performance is indirectly linked to commodity prices.
While activity levels for oil and gas exploration are driven directly by commodity prices, demand for environmental
services is less dependent on commodity prices. This has resulted in more stable demand for Tervita's production-related
environmental services, which is a mitigating factor for the risk of declining oil and gas commodity prices.
Tervita did had not have material exposure to price risk on its financial instruments as at December 31, 2019 and 2018.
23. SHARE CAPITAL AND NCIB
Class A voting preferred shares with no par value
Class A voting common shares with no par value
Cancellation of shares under the Arrangement
Common shares with no par value
Balance, December 31, 2018
Repurchase of common shares
Shares outstanding, December 31, 2019
Provision for repurchase of common shares
Balance, net of provision, December 31, 2019
Share Capital
Note
Authorized
Issued
(number of shares)
Share Capital
(millions of C$)
Contributed Surplus
(millions of C$)
Unlimited
Unlimited
Unlimited
3
3
102,010,181
2,615,598
(104,625,779)
117,557,112
117,557,112
(3,202,448)
114,354,664
(1,732,390)
112,622,274
816
21
(837)
947
947
(27)
920
(15)
905
—
—
—
1
1
4
5
2
7
As part of the Arrangement, the class A voting common shares and class A voting preferred shares were cancelled and
exchanged for common shares with no par value in Tervita (note 3).
The common shares have one vote per share, rank equally as to any dividend and distributions, and have an equal and
ratable claim to the assets of Tervita upon liquidation.
NCIB
On May 7, 2019, Tervita commenced a NCIB to repurchase up to a maximum of 3,115,264 common shares until May 6,
2020. On December 5, 2019, Tervita announced an amendment to the NCIB to purchase up to an additional 2,762,591
common shares until May 6, 2020.
On May 21, 2019, Tervita entered into an Automatic Share Purchase Plan ("ASPP"), which permits an independent broker
to repurchase shares under the NCIB during blackout periods. Tervita recognized a provision of $13 million for the
repurchase of common shares under the ASPP in trade and other payables as at December 31, 2019 as an estimate of the
maximum number of shares that could be repurchased during the blackout period.
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TSX | TEV 85
24. CAPITAL MANAGEMENT
Tervita’s capital management objectives are to enable ongoing access to capital to successfully deliver its strategy, meet
its financial obligations, provide adequate returns and benefits for shareholders and other stakeholders, and to mitigate
risk through changing economic conditions. Tervita's capital structure is comprised of share capital, long-term debt
excluding debt costs, and cash and cash equivalents. As at December 31, 2019, Tervita had cash and cash equivalents of
$22 million (December 31, 2018 - $46 million) and access to $198 million under its Revolver (net of letters of credit of $77
million) (December 31, 2018 - $188 million).
Tervita's management and the Board of Directors review and assess Tervita's capital structure at least at each scheduled
board meeting, a minimum of four times annually, and may adjust the financial strategy based on the current outlook of
the underlying business, capital requirements to fund growth initiatives, and the state of the debt and equity capital
markets. In the process of managing its capital, Tervita may:
•
•
•
•
•
•
•
issue new equity or debt securities;
amend, revise, renew or extend the terms of existing long-term debt facilities;
draw on existing credit facilities and/or enter into new credit facilities;
repay existing debt;
buy back issued and outstanding equity shares;
replace outstanding letters of credit with bonds or other types of financial security; and
sell idle, redundant or non-core assets.
Tervita's management monitors the capital structure based on covenants required pursuant to the Revolver (note 18).
25. RELATED PARTY TRANSACTIONS
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Accounting
policies
Related parties include entities that hold 10 per cent or more of the voting power, key management
personnel, which comprise the Board of Directors, executive leadership, and certain other individuals
employed by Tervita, as well as their close family members. All related party transactions abide by
Tervita’s general terms and conditions for transactions.
SUPPORTING INFORMATION
Management Compensation
The remuneration of key management personnel included in direct expenses and general and administrative expenses
on the Statements of Profit (Loss) were:
For the years ended December 31
Salaries and short-term benefits
Termination benefits
Share-based compensation
Bonuses
Total key management compensation
Other Related Party Transactions
Note
6
6
21
2019
2
1
4
1
8
Positions held in the 2016 senior secured notes and 2018 senior secured notes by certain related parties were:
(millions of US dollars)
Balance, January 1
Additions
Balance, December 31
Note
3
2019
37
16
53
2018
1
—
2
1
4
2018
22
15
37
During 2019, related parties earned US$4 million in interest income (December 31, 2018 - US$2 million) related to their
proportionate holdings in the 2016 senior secured notes and 2018 senior secured notes. During 2018, certain related
parties also earned fees of $4 million for issuance of the escrow notes (note 3).
86 TERVITA | Annual Report 2019
Page | 42
26. COMMITMENTS, CONTINGENCIES AND GUARANTEES
ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES
Significant
judgments
Tervita is exposed to possible losses and gains related to environmental and other legal matters in
the ordinary course of business. Prediction of the outcome of such uncertain events (i.e., being virtually
certain, probable, remote or cannot be determined), determination of whether recognition in the
Financial Statements is required, and estimation of potential financial effects are matters for judgment.
Where no amounts are recognized, disclosure may be appropriate. While the amount disclosed may not
be material, the potential for large liabilities exists and, therefore, these estimates could have a material
impact on Tervita’s Financial Statements.
During the normal course of business, the Company is involved in legal proceedings, with several
unresolved claims currently outstanding. The legal process of these claims has not advanced sufficiently
to the point where it is practicable to assess the timing and financial effect of these claims, if any. The
Company does not anticipate that the financial position, results of operations or cash flows of the
Company will be materially affected by the resolution of these legal proceedings. Insurance coverage
against certain types of claims, including hazards which result in personal injury or death, damage to or
destruction of equipment and facilities, suspension of operations, environmental contamination,
is maintained at a level
damage to property of others, and directors and officers liability claims,
determined by management to be prudent.
SUPPORTING INFORMATION
Commitments
Interest on long-term debt
Pipeline transportation commitment
Capital purchase commitments
Utility purchase commitment
Investment commitment
Total commitments
Contingencies
2020
2021-22
Thereafter
60
24
1
2
1
88
60
8
—
—
—
68
—
—
—
—
—
—
On December 21, 2007, Tervita commenced an action in the Alberta Court of Queen's Bench (the "Court") seeking
alleged damages against Secure Energy Services ("Secure") and several of its personnel (former Tervita employees) in
their individual capacities. The claim alleges that, among other things, the former Tervita employees breached their
employment contracts and fiduciary duties, and engaged in other unlawful conduct by improperly taking confidential
Tervita information to enable Secure’s business in direct competition with Tervita’s business. Secure filed a defense and
counterclaim in November 2008 claiming damages for alleged conduct in contravention of the Act.
After evaluation from Tervita’s management and Board of Directors, Tervita has determined the claim against Secure has
merit and has accordingly set a Court date for early 2022 and non-binding mediation has been scheduled for late 2020.
Guarantees
As at December 31, 2019, Tervita had $96 million (December 31, 2018 – $111 million) of surety bonds outstanding to
secure work, provide for potential environmental liabilities, and for completion of work with respect to its operating
segments. These outstanding bonds do not impact the amount of credit available under the Revolver.
For guarantees associated with Tervita’s long-term debt, see note 18.
Tervita indemnifies its directors and officers who are, or were, providing guarantees on behalf of Tervita at Tervita’s
request. Historically, these costs have not been material to Tervita’s financial position, results of operations, or cash flows.
Page | 43
TSX | TEV 87
CORPORATE INFORMATION
DIRECTORS
John Cooper, President and Chief Executive Officer
Grant Billing, Chair of the Board
Michael Colodner, Human Resources Compensation Committee | Governance Committee
Allen Hagerman, Audit Committee | Human Resources Compensation Committee
Cameron Kramer, Audit Committee | Health, Safety and Environment Committee
Gordon Pridham, Audit Committee
Doug Ramsay, Health, Safety and Environment Committee | Governance Committee
Susan Riddell Rose, Governance Committee
Jay Thornton, Human Resources Compensation Committee
Kevin Walbridge, Health, Safety and Environment Committee
SENIOR OFFICERS
John Cooper, President and Chief Executive Officer
Rob Dawson, Executive Vice President, Strategy & Corporate Development
Linda Dietsche, Chief Financial Officer
AUDITORS
Ernst & Young LLP
LEGAL COUNSEL
Norton Rose Fulbright Canada LLP
TRANSFER AGENT
AND REGISTRAR
Odyssey Trust
350-300 5th Avenue SW
Calgary, AB T2P 3C4
T 587 885 0960
EXCHANGE
Toronto Stock Exchange
Symbol: TEV
INVESTOR RELATIONS
Toll-free: 1-866-233-6690
ir@tervita.com
88 TERVITA | Annual Report 2019
TSX | TEV 89
TERVITA CORPORATION
1600, 140 - 10 Ave. S.E.
Calgary, AB T2G 0R1
tervita.com