AGILE
FOCUSED
OPTIMIZED
UNIFIED
ANNUAL
REPORT
2015
TABLE OF CONTENTS
1 About DATA Group Ltd.
2 Letter to shareholders
4 Management’s discussion and analysis of financial
condition and Results of operations
32
Financial reporting responsibility of management
33 Independent auditor’s report
34 Consolidated statements of financial position
35
Consolidated statements of (loss) income
36 Consolidated statements of comprehensive (loss) income
37 Consolidated statements of changes in equity
38 Consolidated statements of cash flows
39 Notes to consolidated financial statements
80 Corporate information
ABOUT
DATA GROUP
LTD.
At DATA Group, we are experts at planning and
driving business communications. We help market-
ers and agencies unify and execute communications
campaigns across multiple channels, and we help
operations teams streamline and automate docu-
ment and communications management processes.
Our core capabilities include direct marketing, print
services, labels and asset tracking, event tickets
and gift cards, logistics and fulfilment, content
and workflow management, data management
and analytics, and regulatory communications. We
serve clients in key vertical markets such as financial
services, healthcare, lottery and gaming, retail, not-
for-profit, and energy. We are strategically located
across Canada to support clients on a national basis,
and serve the U.S. market through our facilities in
Chicago, Illinois.
1
DATA GROUP | ANNUAL REPORT 2015 LETTER TO SHAREHOLDERS
DEAR SHAREHOLDER,
In the fourth quarter of 2015, we continued
to see a positive impact in our financial
results from the substantial headcount and
plant rationalizations we implemented in the
second and third quarters of 2015.
The impact of lower direct and indirect
labour costs, improved utilization rates
at our key plants, and marginally higher
levels of revenue compared to the fourth
quarter of last year, contributed positively
to gross margins which improved to 24.4%
from 23.3% in the prior comparable period.
In addition, our Adjusted EBITDA margin
of 10.3% for the quarter benefited from
headcount reductions and other savings
initiatives we implemented across our
selling, general and administrative functions
throughout the year, compared to an
Adjusted EBITDA margin of 7.7% in the prior
period. We expect to see the continued
benefits from our operational initiatives
in 2016.
Our total headcount now stands at
1,430, a net reduction of 210 employees
since December 31, 2014. We continue to
experience significantly higher capacity
utilization rates across our six key “centres
of excellence”. While we will continue to
carefully manage our operations, we are
In December 2015, we redeemed $33.5
million aggregate principal amount (or
approximately 75%) of our $44.7 million
outstanding 6.00% Convertible Unsecured
Subordinated Debentures (the “6.00%
Convertible Debentures”). We elected to
satisfy our redemption obligation by issuing
975,262,140 common shares to holders of
6.00% Convertible Debentures redeemed,
in lieu of cash, together with a cash payment
equal to accrued and unpaid interest on the
6.00% Convertible Debentures redeemed.
This redemption provided a number of
important benefits to the Company,
including: eliminating a significant obstacle
to refinancing our senior credit facility
indebtedness; reducing the Company’s
outstanding total debt by approximately
37.5%; the reduction of annual cash interest
expense by $2.0 million; additional financial
flexibility; and increased customer, supplier
and investor confidence in the Company’s
long term viability.
In December 2015, we completed the
upgrade of our entire digital print production
fleet, having entered into an exclusive
agreement with Xerox for the supply,
installation and maintenance of digital
printing equipment and workflow software.
We now use Xerox digital presses for all our
turning our efforts to stabilizing our revenue,
digital cut-sheet printing.
including a renewed focus on core vertical
In March 2016, we announced that we
markets where we have a strong competitive
had refinanced our former senior credit
advantage and where we see opportunities
facilities by establishing a revolving credit
for improved product margin together with
facility (the “Bank Credit Facility”) with a
growth opportunities.
We recorded restructuring expenses of $1.5
million for the quarter ended December 31,
2015, and a total of $13.6 million for the year
ended December 31, 2015 compared to an
aggregate of $2.8 million in the prior year.
Canadian chartered bank (the “Bank”) and an
amortizing term loan facility (the “IAM Credit
Facility”) with the Integrated Private Debt
division of Integrated Asset Management
Corp. (“IAM”) pursuant to separate credit
agreements, each dated March 10, 2016.
Approximately $43.3 million of the total
2
DATA GROUP | ANNUAL REPORT 2015 principal amount available under the new
Sincerely,
credit facilities has been used to fully repay
outstanding indebtedness under our former
senior credit facilities, which would have
matured in August 2016. The Bank Credit
(Signed) Michael G. Sifton
President and Chief Executive Officer
DATA Group Ltd.
March 2016
Facility has a maximum available principal
amount of $25.0 million with a three year
term. The IAM Credit Facility has a maximum
available principal amount of $28.0 million
with a seven year term.
To support our efforts to stabilize and grow
revenue, we have been developing a renewed
strategic plan, customer value story and
marketplace identity. In March 2016, we
announced a complete corporate rebranding,
including a new operating name. Effective
immediately, the Company will operate as
“DATA Communications Management” and
feature a new logo, website, and “go to
market” strategy. We spent much of 2015
right-sizing our business and priming it for
renewal. I’m excited that we’re now moving
into the growth phase of our plan and this
rebranding is just the beginning of our
journey.
In connection with our new operating
name, we also announced plans to change
our legal name to “DATA Communications
Management Corp.” The legal name change is
subject to the approval of our shareholders,
and we will be seeking shareholders’
approval at our upcoming annual and special
shareholders meeting.
For a full description of our financial results
for the fourth quarter of 2015 and full year
financial results for 2015, please refer to our
audited consolidated financial statements
for the year ended December 31, 2015
and related management’s discussion and
analysis, copies of which are available at
www.sedar.com.
3
DATA GROUP | ANNUAL REPORT 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis (“MD&A”) comments on the consolidated operations, performance
and financial condition of DATA Group Ltd. (“DATA Group”) for the years ended December 31, 2015 and 2014.
This MD&A should be read in conjunction with the audited consolidated financial statements and accompanying
notes of DATA Group for the years ended December 31, 2015 and 2014.
All financial information in this MD&A is presented in Canadian dollars and in accordance with generally
accepted accounting principles (“GAAP”) measured under International Financial Reporting Standards (“IFRS”),
as issued by the International Accounting Standards Board (“IASB”) for publicly accountable entities, unless
specified otherwise.
The date of this MD&A is March 11, 2016. Additional information relating to DATA Group, including its most
recently filed audited consolidated financial statements, Annual Information Form and Management Information
Circular, is available on SEDAR at www.sedar.com.
FORWARD-LOOKING STATEMENTS
Certain statements in this MD&A constitute “forward-looking” statements that involve known and unknown
risks, uncertainties and other factors which may cause the actual results, performance, objectives or
achievements of DATA Group, or industry results, to be materially different from any future results, performance,
objectives or achievements expressed or implied by such forward-looking statements. When used in this MD&A,
words such as “may”, “would”, “could”, “will”, “expect”, “anticipate”, “estimate”, “believe”, “intend”, “plan”, and
other similar expressions are intended to identify forward-looking statements. These statements reflect DATA
Group’s current views regarding future events and operating performance, are based on information currently
available to DATA Group, and speak only as of the date of this MD&A. These forward-looking statements involve
a number of risks, uncertainties and assumptions and should not be read as guarantees of future performance
or results, and will not necessarily be accurate indications of whether or not such performance or results will
be achieved. Many factors could cause the actual results, performance, objectives or achievements of DATA
Group to be materially different from any future results, performance, objectives or achievements that may be
expressed or implied by such forward-looking statements. The principal factors, assumptions and risks that
DATA Group made or took into account in the preparation of these forward-looking statements include the
limited growth in the traditional printing industry and the potential for further declines in sales of DATA Group’s
printed business documents relative to historical sales levels for those products; the risk that changes in the mix
of products and services sold by DATA Group which are related to reduced demand for its printed products will
continue to adversely affect DATA Group’s financial results; the risk that DATA Group may not be successful in
reducing the size of its legacy print business, reducing costs, reducing its long-term debt, repaying or refinancing
its outstanding 6.00% convertible unsecured subordinated debentures, and growing its digital communications
business; the risk that DATA Group may not be successful in managing its organic growth; DATA Group’s ability
to invest in, develop and successfully market new digital and other products and services; competition from
competitors supplying similar products and services, some of whom have greater economic resources than DATA
Group and are well-established suppliers; DATA Group’s ability to grow its sales or even maintain historical levels
of its sales of printed business documents; the impact of economic conditions on DATA Group’s businesses;
risks associated with acquisitions by DATA Group; increases in the costs of paper and other raw materials used
by DATA Group; and DATA Group’s ability to maintain relationships with its customers. Additional factors are
discussed elsewhere in this MD&A and under the headings “Risk Factors” and “Risks and Uncertainties” in DATA
Group’s publicly available disclosure documents, as filed by DATA Group on SEDAR (www.sedar.com). Should
one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking
statements prove incorrect, actual results may vary materially from those described in this MD&A as intended,
planned, anticipated, believed, estimated or expected. Unless required by applicable securities law, DATA Group
does not intend and does not assume any obligation to update these forward-looking statements.
4
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS NON-GAAP MEASURES
This MD&A includes certain non-GAAP measures as supplementary information. Except as otherwise noted,
when used in this MD&A, EBITDA means earnings before interest and finance costs, taxes, depreciation and
amortization and Adjusted net income (loss) means net income (loss) adjusted for the impact of certain non-
cash items and certain items of note on an after-tax basis. Adjusted EBITDA for the year ended December 31,
2015 means EBITDA adjusted for restructuring expenses, a gain on redemption of convertible debentures and a
goodwill impairment charge. Adjusted EBITDA for the year ended December 31, 2014 means EBITDA adjusted
for restructuring expenses and gains on the cancellation of convertible debentures purchased by DATA Group in
the market. Adjusted EBITDA for the year ended December 31, 2013 means EBITDA adjusted for restructuring
charges and goodwill impairment charges. Adjusted net income (loss) for the year ended December 31, 2015
means net income (loss) adjusted for restructuring expenses, gain on the redemption of convertible debentures,
a goodwill impairment charge and the tax effects of those items. Adjusted net income (loss) for the year ended
December 31, 2014 means net income (loss) adjusted for restructuring expenses, gains on the cancellation of
convertible debentures purchased by DATA Group in the market and the tax effects of those items. Adjusted net
income (loss) for the year ended December 31, 2013 means net income (loss) adjusted for restructuring expenses,
goodwill impairment charges and the tax effects of those items. Adjusted net income (loss) per share, basic is
calculated by dividing Adjusted net income (loss) for the period by the weighted average number of shares (basic
and diluted) outstanding during the period. DATA Group believes that, in addition to net income (loss), Adjusted
net income (loss), Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA are useful supplemental
measures in evaluating the performance of DATA Group and its predecessors. Adjusted net income (loss),
Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA are not earnings measures recognized by
IFRS and do not have any standardized meanings prescribed by IFRS. Therefore, Adjusted net income (loss),
Adjusted net income (loss) per share, EBITDA and Adjusted EBITDA are unlikely to be comparable to similar
measures presented by other issuers.
Investors are cautioned that Adjusted net income (loss), Adjusted net income (loss) per share, EBITDA and
Adjusted EBITDA should not be construed as alternatives to net income (loss) determined in accordance with
IFRS as an indicator of DATA Group’s performance. For a reconciliation of net income (loss) to EBITDA and a
reconciliation of net income (loss) to Adjusted EBITDA, see Table 3 below. For a reconciliation of net income (loss)
to Adjusted net income (loss) and a presentation of Adjusted net income (loss) per share, see Table 4 below.
BUSINESS OF DATA GROUP
OVERVIEW
DATA Group plans and executes business communications. DATA Group helps marketers and agencies unify
and execute communications campaigns across multiple channels, and it helps operations teams streamline
and automate document and communications processes. DATA Group derives its revenues from the following
core capabilities: direct marketing, print services, labels and asset tracking, event tickets and gift cards,
logistics and fulfilment, content and workflow management, data management and analytics, and regulatory
communications. DATA Group is strategically located across Canada to support clients on a national basis, and
serves the U.S. market through its facilities in Chicago, Illinois. DATA Group generally negotiates sales contracts
and service level agreements with its clients and generally does not use standardized contracts. Customer
agreements and terms typically include provisions consistent with industry practice, allowing DATA Group to
pass along increases in the cost of paper and other raw materials used to manufacture products.
Certain elements of DATA Group’s gift card and direct mail businesses as well as the buying patterns of certain
major customers of DATA Group have historically generated higher revenues and profit in the fourth quarter
5
than the other three quarters, which results in seasonal fluctuations in sales of those products.
DATA Group has recently rebranded its visual identity as part of its ongoing strategic transformation designed
to generate long-term enterprise value and increase appreciation for shareholders. See “Outlook” below.
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS REVENUE RECOGNITION POLICY
DATA Group recognizes revenue from the sale of products upon shipment to the customer when costs and
revenues can be reliably measured, collection is probable, the transfer of title occurs and the risk of loss passes
to the buyer. When the customer requests a bill and hold arrangement, revenue is recognized when the goods
are ultimately shipped to the customer. Since the majority of DATA Group’s products are customized, product
returns are not significant. DATA Group may provide pre-production services to its customers; however, these
services do not have standalone value and there is no objective and reliable evidence of fair value. Therefore,
these pre-production services and the final custom made printed product are considered to be one unit of
accounting. DATA Group recognizes warehousing and marketing service fees when the services are provided, the
amount of revenue can be measured reliably, it is probable that economic benefits associated with these services
will flow to DATA Group and the costs associated with these services can be reliably measured. DATA Group
occasionally provides warehousing services that are negotiated as a separate charge based on market rates,
even if included in the overall selling price of its products. Warehousing services represent a separate unit of
accounting because they can be sold separately, have value to the customer on a stand-alone basis, and there is
objective and reliable evidence of the fair value of these services. If warehousing service fees are included in one
overall selling price of DATA Group’s custom print products, the consideration is allocated to each component
based on relative selling prices.
COST OF REVENUES AND EXPENSES
DATA Group’s cost of revenues consists of raw materials, manufacturing salaries and benefits, occupancy, lease of
equipment and depreciation. DATA Group has incurred restructuring expenses in each of the last three fiscal years,
which primarily consisted of severance costs associated with headcount reductions and costs related to facilities
closures. DATA Group’s raw material costs consist primarily of paper, carbon and ink. Manufacturing salaries
and benefits costs consist of employee salaries and health benefits at DATA Group’s printing and warehousing
facilities. Occupancy costs consist primarily of lease payments at DATA Group’s facilities, utilities, insurance and
building maintenance. DATA Group’s expenses consist of selling, depreciation and amortization, and general and
administration expenses. Selling expenses consist primarily of employee salaries, health benefits and commissions,
and include related costs for travel, corporate communications, trade shows, and marketing programs. Depreciation
and amortization represent the allocation to income of the cost of property, plant and equipment, and intangible
assets over their estimated useful lives. General and administration expenses consist primarily of employee salaries,
health benefits, and other personnel related expenses for executive, financial and administrative personnel, as well
as facility, telecommunications, pension plan expenses and professional service fees.
6
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS GENERAL INFORMATION AND RESULTS OF OPERATIONS
TABLE 1 The following table sets out selected historical consolidated financial information for the periods noted.
For the years ended December 31, 2015, 2014 and 2013
(in thousands of Canadian dollars,
except share and per share amounts, unaudited)
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Restructuring expenses
Impairment of goodwill
Gain on redemption of convertible debentures
Gain on cancellation of convertible debentures
Amortization of intangible assets
January 1 to
January 1 to
December 31, December 31, December 31,
2013
January 1 to
2014
2015
$ 304,575 $
313,175 $
316,961
233,505
238,563
236,879
71,070
74,612
80,082
54,714
13,560
26,000
(12,766)
—
1,949
57,074
2,804
—
—
(103)
1,916
59,826
7,034
44,000
—
—
8,370
83,457
61,691
119,230
Income (loss) before finance costs and income taxes
(12,387)
12,921
(39,148)
Finance costs
Interest expense
Interest income
Amortization of transaction costs
5,599
(11)
468
6,056
6,124
(21)
591
6,694
6,657
(15)
568
7,210
Income (loss) before income taxes
(18,443)
6,227
(46,358)
Income tax expense (recovery)
Current
Deferred
1,191
(462)
729
69
1,679
1,748
2,916
(3,432)
(516)
Net income (loss) for the year
$
(19,172) $
4,479 $
(45,842)
Net income (loss) attributable to common shareholders
Basic and diluted earnings (loss) per share
$
$
(19,172) $
(0.40) $
4,479 $
(45,831)
0.19 $
(1.95)
Weighted average number of common shares outstanding
47,538,152
23,490,592
23,490,592
As at December 31, 2015, 2014 and 2013
(in thousands of Canadian dollars, unaudited)
Current assets
Current liabilities
Total assets
Total non-current liabilities
Shareholders’ equity
As at
As at
December 31, December 31, December 31,
2013
As at
2014
2015
$
$
80,125 $
90,298
134,067
24,750
19,019 $
83,619 $
78,717
46,176
164,977
100,388
42,545
166,597
105,977
18,413 $
18,075
7
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS
TABLE 2 The following table sets out selected historical consolidated financial information for the periods noted.
For the years ended December 31, 2015, 2014 and 2013
(in thousands of Canadian dollars,
except percentage amounts, unaudited)
Revenues
Gross profit
January 1 to
January 1 to
December 31, December 31, December 31,
2013
January 1 to
2014
2015
$ 304,575 $
313,175 $
316,961
$
71,070 $
74,612 $
80,082
Gross profit, as a percentage of revenues
23.3%
23.8%
25.3%
Selling, general and administrative expenses
$
54,714 $
57,074 $
59,826
As a percentage of revenues
18.0%
18.2%
18.9%
Adjusted EBITDA (see Table 3)
$
21,110 $
22,478 $
25,586
Adjusted EBITDA, as a percentage of revenues
6.9%
7.2%
8.1%
Net income (loss) for the year
$
(19,172) $
4,479 $
(45,842)
Adjusted net income (loss) (see Table 4)
$
5,764 $
6,487 $
3,346
Adjusted net income (loss), as a percentage of revenues
1.9%
2.1%
1.1%
TABLE 3 The following table provides reconciliations of net income (loss) to EBITDA and of net income (loss) to
Adjusted EBITDA for the periods noted. See “Non-GAAP Measures”.
EBITDA and Adjusted EBITDA reconciliation
For the years ended December 31, 2015, 2014 and 2013
(in thousands of Canadian dollars, unaudited)
January 1 to
January 1 to
December 31, December 31, December 31,
2013
January 1 to
2014
2015
Net income (loss) for the year
$
(19,172) $
4,479 $
(45,842)
Interest expense
Interest income
Amortization of transaction costs
Current income tax expense
Deferred income tax expense (recovery)
Depreciation of property, plant and equipment
Amortization of intangible assets
EBITDA
Restructuring expenses
Impairment of goodwill
8
Gain on redemption of convertible debentures
Gain on cancellation of convertible debentures
Adjusted EBITDA
5,599
(11)
468
1,191
(462)
4,754
1,949
6,124
(21)
591
69
1,679
4,940
1,916
6,657
(15)
568
2,916
(3,432)
5,330
8,370
$
(5,684) $
13,560
26,000
(12,766)
—
19,777 $
(25,448)
2,804
—
—
(103)
7,034
44,000
—
—
$
21,110 $
22,478 $
25,586
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS
TABLE 4 The following table provides reconciliations of net income (loss) to Adjusted net income (loss) and a
presentation of Adjusted net income (loss) per share for the periods noted. See “Non-GAAP Measures”.
Adjusted net income (loss) reconciliation
For the years ended December 31, 2015, 2014 and 2013
(in thousands of Canadian dollars,
except share and per share amounts, unaudited)
January 1 to
January 1 to
December 31, December 31, December 31,
2013
January 1 to
2014
2015
Net income (loss) for the year
$
(19,172) $
4,479 $
(45,842)
Restructuring expenses
Impairment of goodwill
Gain on redemption of convertible debentures
Gain on cancellation of convertible debentures
Tax effect of the above adjustments
13,560
26,000
(12,766)
—
(1,858)
2,804
—
—
(103)
(693)
7,034
44,000
—
—
(1,846)
Adjusted net income (loss)
$
5,764 $
6,487 $
3,346
Adjusted net income (loss) per share, basic and diluted
$
0.12 $
0.28 $
0.14
Pro forma Adjusted net income (loss) per share, basic and diluted (1)
$
0.0058 $
0.0065 $ 0.0034
Weighted average number of common shares outstanding
47,538,152
23,490,592
23,490,592
Number of common shares outstanding
998,752,732
23,490,592
23,490,592
Note:
(1) On December 23, 2015, DATA Group issued 975,262,140 shares in connection with the redemption of approximately 75% of its 6.00%
Convertible Unsecured Subordinated Debentures (the “6.00% Convertible Debentures”). Pro forma Adjusted net income (loss) per share, a
non-GAAP measure, assumes Adjusted net income (loss) per share was calculated on the basis of the total number of shares outstanding at
December 31, 2015, rather than the weighted average number of shares outstanding at the period end, given the significant dilution that
occurred with eight days left in the fiscal year.
RESULTS OF OPERATIONS
The president and chief executive officer (“CEO”) of DATA Group is the chief operating decision-maker (“CODM”).
Management has determined that there is one operating segment based on the information reviewed by the
CODM for the purposes of allocating resources and assessing performance. As a result of the organizational
and operational changes implemented by DATA Group in 2015, DATA Group’s operations are increasingly
integrated and interdependent and less focused on serving separate distribution channels and, therefore, DATA
Group’s former Multiple Pakfold operating segment has been included in one consolidated operating segment
commencing in the quarter ended December 31, 2015.
REVENUES
For the year ended December 31, 2015, DATA Group recorded revenues of $304.6 million, a decrease of
$8.6 million or 2.7% compared with the same period in 2014. The decrease in revenues for the year ended
December 31, 2015 was primarily due to a reduction in orders from existing customers for print-related
products and services, price concessions associated with maintaining existing customer contracts in response to
aggressive pricing by DATA Group’s competitors supplying similar products and services, reduced demand for
printed products generally, non-recurring projects, timing of customer orders and a change in product mix.
9
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS
COST OF REVENUES AND GROSS PROFIT
For the year ended December 31, 2015, cost of revenues decreased to $233.5 million from $238.6 million for the
same period in 2014. Gross profit for the year ended December 31, 2015 was $71.1 million, which represented a
decrease of $3.5 million or 4.7% from $74.6 million for the same period in 2014. Gross profit as a percentage of
revenues decreased to 23.3% for the year ended December 31, 2015 compared to 23.8% for the same period in
2014. The decrease in gross profit as a percentage of revenues for the year ended December 31, 2015 was due to
a decrease in revenues, the impact of competitive pricing and changes in product mix, which were partially offset
by cost reductions realized from prior cost savings initiatives. These cost savings included headcount reductions
which helped reduce direct and indirect labour costs, and the renegotiation of agreements for a number of raw
material input costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (“SG&A”) expenses, excluding amortization of intangible assets, for the year
ended December 31, 2015 decreased $2.4 million or 4.1% to $54.7 million compared to $57.1 million for the same
period of 2014. As a percentage of revenues, these costs were 18.0% and 18.2% of revenues for the years ended
December 31, 2015 and 2014, respectively. The decrease in SG&A expenses for the year ended December 31,
2015 was primarily attributable to cost savings initiatives implemented in 2015 including headcount reductions
across sales, general and administration functions and was partially offset by the write off of leasehold
improvements at closed facilities.
RESTRUCTURING EXPENSES
For the year ended December 31, 2015, DATA Group announced and completed a significant number of strategic
actions to improve its financial performance, resulting in total restructuring expenses of $13.6 million comprised
of (i) $11.2 million of restructuring expenses due to changes in senior management, headcount reductions
across DATA Group’s operations and the closure of certain manufacturing and warehouse locations, and a (ii)
charge to onerous contracts of $2.3 million for lease exit charges for a closed warehouse in Brampton, Ontario
and closed facilities in Calgary, Alberta and Vancouver, British Columbia, respectively. These actions included
the implementation of a net workforce reduction plan of more than 200, the refocusing of its operations into
“centres of excellence” at six key plants, and the continued shift of its product offering and mix to achieve higher
average gross margins, while establishing a disciplined product management culture. While the most significant
actions in fiscal 2015 were largely announced in August, 2015, they were substantially completed by the end of
September 2015.
The headcount reductions implemented resulted in a reduction in total compensation expenses by more than
$10.0 million on an annualized basis, and were effected across the entire organization with benefits commencing
in the third quarter and particularly in the fourth quarter of 2015. Following these initiatives, lower direct
and indirect labour costs, together with improved utilization rates at our key plants contributed positively to
improved gross margins, despite lower levels of revenue compared to the prior fiscal year. In addition, Adjusted
EBITDA margins benefited from headcount reduction and other savings initiatives DATA Group implemented
across its senior executive, sales, and general and administrative functions.
For comparison, in the year ended December 31, 2014, DATA Group incurred restructuring expenses of
$2.8 million related to headcount reductions, management changes, consulting fees and the closure of one
manufacturing location that did not result in a charge related to an onerous contract.
10
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS IMPAIRMENT OF GOODWILL
During the second quarter of 2015, impairment indicators, including changes in the revenue trends and profit
forecasts and the failure to meet certain financial covenants under its credit facilities, indicated that DATA
Group’s assets may be impaired. As a result of this new information, DATA Group performed an impairment
analysis at June 30, 2015 by comparing the fair value of each cash generating unit (“CGU”) to the CGU’s carrying
value. As a result of that review, DATA Group concluded that the fair value of its DATA CGU was less than its
carrying value. Accordingly, DATA Group recorded an impairment of goodwill of $26.0 million related to the DATA
CGU during the three month period ended June 30, 2015.
During the fourth quarter of 2015, DATA Group performed its annual review of impairment of goodwill by
comparing the fair value of each CGU to the CGU’s carrying value. DATA Group determined the fair value of each
CGU by discounting expected future cash flows in accordance with recognized valuation methods. The process
of determining those fair values required DATA Group to make a number of estimates and assumptions such
as projected future revenues, costs of revenues, operating margins, market conditions well into the future, and
discount rates. As a result of that review, DATA Group concluded that no further goodwill impairment charges
were required.
GAIN ON REDEMPTION OF CONVERTIBLE DEBENTURES
During the year ended December 31, 2015, DATA Group redeemed $33.5 million aggregate principal amount
of its $44.7 million outstanding 6.00% Convertible Debentures on December 23, 2015 (the “Redemption
Date”). DATA Group elected to satisfy its obligation by issuing and delivering to holders of 6.00% Convertible
Debentures redeemed common shares of DATA Group (the “Common Shares”) in lieu of cash. On redemption,
holders of the 6.00% Convertible Debentures received: (i) a number of Common Shares equal to the principal
amount of 6.00% Convertible Debentures redeemed on the Redemption Date divided by 95% of the volume-
weighted average trading price of the Common Shares on the Toronto Stock Exchange for the 20 consecutive
trading days ended on December 16, 2015, and (ii) a cash payment equal to accrued and unpaid interest on
the 6.00% Convertible Debentures redeemed up to but excluding the Redemption Date, less any applicable
withholding taxes. On the Redemption Date, DATA Group issued 975,262,140 Common Shares, which, based on
the formula described above, was calculated using a volume-weighted average trading price of $0.03619 per
share. Under IFRS, the Common Shares issued were determined to have a fair value on the Redemption Date of
$0.02 per share. Common Shares having a fair value of $19.5 million for purposes of IFRS were issued to satisfy
the redemption price of the 6.00% Convertible Debentures redeemed on the Redemption Date, which had a
carrying value of $32.7 million on that date. This resulted in a gain on redemption of convertible debentures of
$13.2 million for purposes of IFRS. Transaction costs of $0.4 million were incurred to execute the redemption and
have been netted against the gain on redemption of convertible debentures.
GAIN ON CANCELLATION OF CONVERTIBLE DEBENTURES
During the year ended December 31, 2014, DATA Group commenced a normal course issuer bid (“NCIB”) to
purchase a portion of the outstanding 6.00% Convertible Debentures and recorded a gain of $0.1 million related
to the cancellation of debentures purchased under the NCIB.
ADJUSTED EBITDA
For the year ended December 31, 2015, Adjusted EBITDA was $21.1 million, or 6.9% of revenues. Adjusted
EBITDA for the year ended December 31, 2015 decreased $1.4 million or 6.1% from the same period in the prior
year and the Adjusted EBITDA margin for the period, as a percentage of revenues, decreased from 7.2% of
revenues in 2014 to 6.9% of revenues in 2015. The decrease in Adjusted EBITDA for the year ended
December 31, 2015 was attributable to a decline in revenues, which was primarily a result of lower production
volumes, pricing concessions and changes in product mix, and was largely offset by cost savings initiatives
announced and commenced in the second quarter, and substantially completed in the third quarter of 2015.
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DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS INTEREST EXPENSE
Interest expense, including interest on debt outstanding under DATA Group’s former credit facilities, on its
outstanding 6.00% Convertible Debentures, on certain unfavourable lease obligations related to closed facilities
and on DATA Group’s employee benefit plans, was $5.6 million for the year ended December 31, 2015 compared
to $6.1 million for the same period in 2014. Interest expense for the year ended December 31, 2015 was lower
than the same period in the prior year primarily as a result of a reduction in debt outstanding under DATA
Group’s former credit facilities.
INCOME TAXES
DATA Group reported a loss before income taxes of $18.4 million, a current income tax expense of $1.2 million
and a deferred income tax recovery of $0.5 million for the year ended December 31, 2015 compared to income
before income taxes of $6.2 million, a current income tax expense of $0.1 million and a deferred income tax
expense of $1.7 million for the year ended December 31, 2014. The current income tax expense was due to the
taxes payable on DATA Group’s estimated taxable income for the years ended December 31, 2015 and 2014.
The deferred income tax expense and deferred income tax recovery were due to changes in estimates of future
reversals of temporary differences and new temporary differences that arose during the years ended
December 31, 2015 and 2014, respectively.
NET INCOME (LOSS)
Net loss for the year ended December 31, 2015 was $19.2 million compared to net income of $4.5 million for
the year ended December 31, 2014. The decrease in comparable profitability for the year ended December 31,
2015 was substantially due to lower gross profit as a result of lower revenues, higher restructuring expenses, a
goodwill impairment charge, and a larger current income tax expense during the year ended December 31, 2015.
The decrease in comparable profitability was partially offset by cost savings realized as a result of the significant
restructuring initiatives in 2015 that led to a decline in SG&A expenses, a gain on redemption of convertible
debentures, lower interest expense and a deferred tax recovery during the year ended December 31, 2015.
ADJUSTED NET INCOME
Adjusted net income for the year ended December 31, 2015 was $5.8 million compared to Adjusted net
income $6.5 million for the same periods in 2014. The decrease in comparable profitability for the year ended
December 31, 2015 was attributable to lower gross profit as a result of declines in revenues primarily attributable
to lower production volumes, pricing concessions and changes in product mix, and was partially offset by lower
direct and indirect labour costs and SG&A expenses attributable to cost savings realized as a result of the
restructuring initiatives in 2015.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
In March 2016, DATA Group refinanced its credit facilities by establishing a revolving credit facility (the “Bank
Credit Facility”) with a Canadian chartered bank (the “Bank”) and an amortizing term loan facility (the “IAM
Credit Facility”) with the Integrated Private Debt division of Integrated Asset Management Corp. (“IAM”)
pursuant to separate credit agreements, each dated March 10, 2016, between DATA Group and the Bank (the
“Bank Credit Agreement”) and IAM (the “IAM Credit Agreement”), respectively. Approximately $43.3 million of
the total available principal amount available to DATA Group under the IAM Credit Agreement and the Bank
Credit Agreement has been used to fully repay DATA Group’s outstanding indebtedness under its former
credit facilities, which would have matured in August 2016. As at March 11, 2016, DATA Group had outstanding
borrowings of $15.9 million and letters of credit granted of $2.2 million under the Bank Credit Facility, and
outstanding borrowings of $28.0 million under the IAM Credit Facility.
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DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS The Bank Credit Facility has a maximum available principal amount of $25.0 million. A portion of the Bank Credit
Facility consists of a non-revolving term credit facility (the “Bank Term Facility”) in a maximum principal amount
of $5.0 million as well as a committed treasury facility pursuant to which the Bank may, in its sole discretion,
agree to enter into non-speculative hedging arrangements, subject to certain restrictions. Advances under the
Bank Credit Facility may not, at any time, exceed the lesser of $25.0 million and a fixed percentage of DATA
Group’s aggregate accounts receivable and inventory (less certain amounts). The Bank Term Facility is a sub
facility of the Bank Credit Facility and is available by way of a single advance and it ` s availability is not based on
DATA Group’s accounts receivable or inventories. The proceeds of the Bank Term Facility must be used by DATA
Group to repay indebtedness owing by it under the senior credit facilities previously maintained by DATA Group
with a syndicate of Canadian chartered banks. Advances under the Bank Credit Facility are subject to floating
interest rates based upon the Canadian prime rate plus an applicable margin of 75 basis points. The Bank Term
Facility matures on the earlier of March 10, 2018 and the date on which the Bank Credit Facility is terminated
pursuant to the Bank Credit Agreement and repayments of amounts owing under the Bank Term Facility will not
reduce the total available principal amount under the Bank Credit Facility. The Bank Credit Facility matures on
the earlier of March 10, 2019 and the date on which the Bank Credit Facility is terminated pursuant to the Bank
Credit Agreement.
The IAM Credit Facility matures on March 10, 2023 and has a maximum available principal amount of
$28.0 million. Indebtedness outstanding under the IAM Credit Facility bears interest at a fixed rate equal to
6.95% per annum. Under the terms of the IAM Credit Agreement, DATA Group is required to make mandatory
blended equal monthly repayments of principal and interest such that, on maturity, advances under the IAM
Credit Facility and applicable interest on those advances will have been fully repaid. Repayments cannot be
reborrowed. DATA Group may, upon prior written notice to IAM, prepay the IAM Credit Facility in whole, but not
in part, at any time provided that DATA Group pays IAM a prepayment premium equal to the greater of three
months’ interest on the amount prepaid and the difference between (i) the present value of the principal and
interest payments that would have been made had the prepayment not been made, discounted at the rate
determined by IAM based on the yield on Government of Canada debt obligations having terms approximately
equal to the term from the date of prepayment to the original maturity date of the IAM Credit Facility; and (ii) the
face value of the principal amount being prepaid at the date of prepayment.
Both the Bank Credit Agreement and the IAM Credit Agreement contain customary representations and
warranties, as well as restrictive covenants which limit the discretion of the Board of Directors and management
with respect to certain business matters including the declaration or payment of dividends on the common
shares of DATA Group without the consent of the Bank or IAM, as applicable. Under the terms of the IAM
Credit Agreement, DATA Group has agreed that it will not, without the prior written consent of IAM, change
(or permit any change) in its Chief Executive Officer, President or Chief Financial Officer, provided that, if he or
she voluntarily resigns as an officer of DATA Group, or if any such person has either died or is disabled and can
therefore no longer carry on his or her duties of such office, DATA Group will have 60 days to replace such officer,
such replacement officer to be satisfactory to IAM, acting reasonably. The Bank Credit Facility limits spending on
capital expenditures by DATA Group to an aggregate amount not to exceed $5.5 million during any fiscal year,
and the IAM Credit Agreement limits the incurrence of capital expenditures to no more than $5.0 million in any
fiscal year.
Under the terms of the IAM Credit Agreement, DATA Group must ensure that the aggregate of the principal
amount outstanding under the IAM Credit Facility and the principal amount outstanding under the Bank Credit
Facility, calculated on a consolidated basis in accordance with generally accepted accounting principles (“Senior
Funded Debt”), does not exceed $50.0 million; and DATA Group must maintain (i) a ratio of Senior Funded
Debt to EBITDA (as defined below) for its four most recently completed fiscal quarters of not greater than the
following levels: from the date of the advance up to March 31, 2017 – 3.25 to 1; from April 1, 2017 up to March 31,
2018 – 3.00 to 1; and on and after April 1, 2018 – 2.75 to 1; (ii) a debt service coverage ratio of not less than 1.50
to 1; and (iii) a working capital current ratio of not less than 1.25:1. For purposes of the Bank Credit Agreement
and the IAM Credit Agreement, “EBITDA” means net income or net loss for the relevant period, calculated on
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DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS a consolidated basis in accordance with generally accepted accounting principles, plus amounts deducted, or
minus amounts added, in calculating net income or net loss in respect of: the aggregate expense incurred for
interest on debt and other costs of obtaining credit; income taxes, whether or not deferred; depreciation and
amortization; non-cash expenses resulting from employee or management compensation, including the grant
of stock options or restricted options to employees; any gain or loss attributable to the sale, conversion or other
disposition of property out of the ordinary course of business; interest or dividend income; foreign exchange
gain or loss; gains resulting from the write up of property and losses resulting from the write down of property
(except allowances for doubtful accounts receivable and non-cash reserves for obsolete inventory); any gain
or loss on the repurchase or redemption of any securities (including in connection with the early retirement or
defeasance of any debt); goodwill and other intangible asset write-downs; and any other extraordinary, non
recurring or unusual items as agreed to by the lender.
Under the terms of the Bank Credit Agreement, DATA Group must maintain a fixed charge coverage ratio of not
less than 1.1:1.0 at all times, calculated on a consolidated basis, in respect of any particular period, as EBITDA for
such period less cash taxes, cash distributions (including dividends paid) and non-financed capital expenditures
paid in such period, divided by the total amount required by DATA Group to service its outstanding debt for
such period.
A failure by DATA Group to comply with its obligations under the Bank Credit Agreement or the IAM Credit
Agreement, together with certain other events, including a change of control of DATA Group, could result in an
event of default which, if not cured or waived, could permit acceleration of the indebtedness outstanding under
each of those agreements.
For purposes of the Bank Credit Agreement, a change of control means (i) any event or circumstance whereby
any person, or group of persons acting jointly or in concert, acquire voting control or direction over 25% or more
of the votes attaching to the equity interests of DATA Group (on a fully diluted basis after giving effect to the
conversion or exchange of securities convertible into, exchangeable for, or otherwise carrying the right to acquire
equity interests); or (ii) DATA Group fails to beneficially and legally own and control 100% of the equity interests
of its subsidiary, DATA Group (US) Corp.
For purposes of the IAM Credit Agreement, a change of control will be deemed to have occurred if (i) any person
or persons acting together at any time own or control, directly or indirectly, at least 20% of the outstanding
equity interests in DATA Group (calculated on a fully diluted basis after taking into account any conversion
rights assuming such conversion has actually occurred); or (ii) DATA Group does not, or ceases to, own and
control, directly or indirectly, 100% of the voting shares of each any entity that has guaranteed DATA Group’s
obligations under the IAM Credit Agreement (which includes DATA Group (US) Corp.) or does not, or ceases to,
have the right, directly or indirectly, to appoint a majority of the board of directors of any such guarantor. For
purposes of the IAM Credit Agreement, an event of default will also be deemed to have occurred on the first day
on which a majority of the members of the board of directors of DATA Group are not Continuing Directors where
“Continuing Directors” means, as of any date of determination, any member of the board of directors of DATA
Group who: (i) was a member of DATA Group’s board of directors on March 10, 2016; (ii) was a replacement of a
director who has either (A) died, or (B) ceased to be qualified as a director under the Business Corporations Act
(Ontario); or (iii) was nominated for election, or appointed, to DATA Group’s board of directors with the approval
of a majority of the Continuing Directors who were members of DATA Group’s board of directors at the time of
such nomination or election.
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Each of the Bank Credit Facility and the IAM Credit Facility is secured by conventional security charging all the
property and assets of DATA Group and its affiliates. The payment of the principal of, and interest on, DATA
Group’s outstanding 6.00% Convertible Debentures is subordinated in right of payment to the prior payment in
full of DATA Group’s indebtedness under the Bank Credit Agreement and the IAM Credit Agreement.
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS As at December 31, 2015, 6.00% Convertible Debentures in an aggregate principal amount of $11.2 million were
outstanding. The 6.00% Convertible Debentures mature on June 30, 2017, bear interest at a rate of 6.00% per
annum payable semi-annually and are convertible into Common Shares at the option of the holder at any time
prior to June 30, 2017 (or, if called for redemption prior to that date, on the business day immediately preceding
the dated specified by DATA Group for redemption of the 6.00% Convertible Debentures) at a conversion price
of $12.20 per share, being a conversion rate of approximately 81.967 shares per $1,000 principal amount of
6.00% Convertible Debentures, subject to adjustment in certain events. The 6.00% Convertible Debentures may
be redeemed by DATA Group in whole or in part, from time to time, at the option of DATA Group at a price equal
to the principal amount thereof plus accrued and unpaid interest. DATA Group may, at its option and without
the consent of holders of 6.00% Convertible Debentures, on not more than 60 days’ and not less than 40
days’ prior notice, subject to applicable regulatory approval and provided no Event of Default (as defined in the
amended and restated trust indenture dated as of January 1, 2012 (the “Trust Indenture”) between DATA Group
and Computershare Trust Company of Canada (the “Debenture Trustee”), which governs the 6.00% Convertible
Debentures) has occurred and is continuing, elect to satisfy its obligation to pay the redemption price of the
6.00% Convertible Debentures which are to be redeemed or the principal amount of the 6.00% Convertible
Debentures which are due on maturity, as the case may be, by issuing freely tradable Common Shares to the
holders of the 6.00% Convertible Debentures. Any accrued and unpaid interest on those debentures will be paid
in cash. The number of Common Shares to be issued will be determined by dividing the aggregate redemption
price of the outstanding 6.00% Convertible Debentures which are to be redeemed or the principal amount of
the outstanding 6.00% Convertible Debentures which have matured, as the case may be, by 95% of the Current
Market Price (being the volume-weighted average trading price of the Common Shares on the Toronto Stock
Exchange (“TSX”) for 20 consecutive trading days ending on the fifth trading day preceding the redemption
date) on the date fixed for redemption or the maturity date, as the case may be. The terms of the 6.00%
Convertible Debentures are described in greater detail in DATA Group’s Annual Information Form for the year
ended December 31, 2014, which is available on SEDAR at www.sedar.com.
Market conditions and DATA Group’s financial condition and capital structure could affect the availability and
terms of any replacement credit facilities or other funding sought by DATA Group from time to time or upon the
maturity of the Bank Credit Facility, IAM Credit Facility, the 6.00% Convertible Debentures or other indebtedness
of DATA Group.
As at December 31, 2015, DATA Group had cash and cash equivalents of $0.9 million compared to cash and
cash equivalents of $0.8 million at December 31, 2014. The cash equivalents consisted mainly of short-term
investments, such as money market deposits. DATA Group has deposited the cash equivalents with Canadian
Schedule 1 banks, from which DATA Group believes the risk of loss to be remote.
As at December 31, 2015, DATA Group maintained credit facilities (the “Former Credit Facilities”) with a
syndicate of Canadian chartered banks pursuant to a Third Amended and Restated Credit Agreement dated
December 19, 2014. The Former Credit Facilities, which had a maximum available principal amount of $55.0 million,
(comprised of a $10.0 million revolving facility, a $5.0 million swing line facility, and a $40.0 million amortizing
term loan) were to have matured on August 31, 2016 without the option for renewal or extension. During the
year ended December 31, 2015, DATA Group used $4.0 million in cash to repay a portion of the indebtedness
outstanding under the Former Credit Facilities outstanding. As discussed above, DATA Group repaid all
indebtedness outstanding under the Former Credit Facilities as of March 10, 2016 and those credit facilities have
been terminated.
In assessing DATA Group’s liquidity requirements, DATA Group takes into account its level of cash and cash
equivalents, together with currently projected cash to be provided by operating activities, cash available
from its unused credit facilities, cash from investing activities such as sales of redundant assets, access to the
capital markets and anticipated reductions in operating costs projected to result from existing and planned
restructuring activities, as well as its ongoing cash needs for its existing operations, including expenditures
related to its growth strategy, payments associated with various restructuring and productivity improvement
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DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS initiatives, contributions to its pension plans, payment of income tax liabilities and cash required to finance
currently planned expenditures. Cash flows from operations have been, and could continue to be, negatively
impacted by decreased demand for DATA Group’s products and services and pricing pressures from its existing
and new customers, which could result from factors such as reduced demand for traditional business forms
and other print-related products, adverse economic conditions and competition from competitors supplying
similar products and services, increases in DATA Group’s operating costs (including interest expense on its
outstanding indebtedness and restructuring expenses) and increased costs associated with the manufacturing
and distribution of products or the provision of services. DATA Group’s ability to conduct its operations could be
negatively impacted in the future should these or other adverse conditions affect its primary sources of liquidity.
PENSION FUNDING OBLIGATIONS
DATA Group maintains a defined benefit and defined contribution pension plan (the “DATA Group Pension Plan”)
for some of its employees. Effective January 1, 2008, no further service credits will accrue under the defined
benefit provision of the DATA Group Pension Plan. However, DATA Group is required under applicable pension
legislation to make monthly, annual and/or one-time cash contributions to the DATA Group Pension Plan to fund
current or future funding deficiencies which may emerge in the defined benefit provision of the DATA Group
Pension Plan. Applicable pension legislation requires that the funded status of the defined benefit provision of
the DATA Group Pension Plan be determined periodically on both a going concern basis (i.e., essentially assuming
indefinite plan continuation) and a solvency basis (i.e., essentially assuming immediate plan termination).
The funded status of DATA Group’s pension plan is impacted by actuarial assumptions, the plan’s investment
performance, changes in economic conditions and debt and equity markets, changes in long-term interest rates,
estimates of the price of annuities, and other elements of pension plan experience such as demographic changes
and administrative expenses, among others. Where an actuarial valuation reveals a solvency deficit, current
pension regulations require it to be funded by equal payments over a maximum period of five years from the
date of valuation. Actuarial valuations are required on the DATA Group Pension Plan every three years, beginning
January 1, 2014. Based on these valuations, the annual cash contributions to this plan will be determined and will
depend on the plan’s investment performance and changes in long-term interest rates, estimates of the price
of annuities, and other elements of pension plan experience such as demographic changes and administration
expenses, among others.
During the year ended December 31, 2014, DATA Group engaged actuaries to complete an updated actuarial
valuation of the DATA Group Pension Plan, which confirmed that, as at January 1, 2014, the DATA Group Pension
Plan had a reduced solvency deficit from January 1, 2013. Based upon the January 1, 2014 actuarial valuation
report, DATA Group’s annual cash contributions for the next two years to the defined benefit provision of the
DATA Group Pension Plan will be unchanged at $1.3 million. During the year ended December 31, 2015, DATA
Group made all the required payments related to its funding requirement for the defined benefit provision of
the DATA Group Pension Plan for 2015, which assumes no change in Canadian economic conditions from those
in effect as at January 1, 2014. DATA Group’s projected funding obligations for the defined benefit provision of
this plan are set out below in the “Contractual obligations – Summary” table under the heading “Contractual
obligations”. DATA Group’s funding obligation for the defined benefit provision of the DATA Group Pension Plan
for 2016 is $1.3 million.
DATA Group makes contributions to the Québec Graphics Communications Supplemental Retirement and
Disability Fund of Canada (the “SRDF”) based on a percentage of the wages of its unionized employees covered
by the respective collective bargaining agreements, all of whom are employed at DATA Group facilities located
in the Province of Québec. The SRDF is a negotiated contribution defined benefit, multi-employer pension plan
which provides retirement benefits to unionized employees in the printing industry. The SRDF is jointly-trusteed
by representatives of the employers of SRDF members and the unions which represent SRDF members in
collective bargaining. Based upon the terms of those applicable collective bargaining agreements, DATA Group’s
estimated annual funding obligation for the SRDF for 2016 is $0.5 million. The most recent funding actuarial
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DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS report (as at December 31, 2013) in respect of the Québec members of the plan disclosed a solvency deficiency
and a gap between the minimum total contributions required under applicable Québec pension legislation and
total employer contributions determined pursuant to collective agreements.
Under Québec pension legislation applicable prior to December 31, 2014, DATA Group would have been required
to fund any outstanding solvency deficiency in respect of its employees, pensioners and vested deferred
members if DATA Group had withdrawn from the plan or if the plan had been terminated. On February 18, 2015,
Bill 34 (An Act to amend the Supplemental Pension Plans Act with respect to the funding and restructuring of
certain multi-employer pension plans) was tabled in the Québec legislature. Bill 34, which was adopted on
April 2, 2015 with effect from December 31, 2014, amends and clarifies the Québec pension legislation for the
SRDF to, among other things:
• limit required employer contributions only to those amounts specified in the applicable collective agreements
negotiated with the relevant unions;
• eliminate the employer’s obligation to fund solvency deficiencies;
• allow for the reduction of accrued benefits; and
• remove the responsibility of participating employers to fund their share of the solvency deficit upon
withdrawal from the plan or termination of the plan, except in certain circumstances when withdrawal from the
plan or termination of the plan occurs within five years of Bill 34 being adopted.
In addition, it appears that another consequence of Bill 34 will be to require the administrator of the SRDF to
propose and seek consensus on a “Recovery Plan”. However, it is unclear as to what form any such plan will take
and any related implications for DATA Group cannot be determined at this time.
DATA Group has accounted for this plan on a defined contribution basis.
Certain former senior executives of a predecessor corporation participated in a Supplementary Executive
Retirement Plan (“SERP”), which provides for pension benefits payable as a single life annuity with a five year
guarantee. The SERP is unfunded. DATA Group’s annual funding obligation under the SERP is approximately
$0.6 million.
CASH FLOW FROM OPERATIONS
Changes in working capital generated $3.5 million in cash flow during the year ended December 31, 2015. The
trade receivables balance increased by $0.8 million as a result of higher revenues during the fourth quarter of
2015. Inventory levels decreased by $3.1 million as a result of the timing of shipments of products to customers
and DATA Group’s efforts to reduce the amount of customer inventory on hand. Prepaid expenses and other
current assets decreased by $1.5 million due to a reduction in prepayments for insurance expense and rent
expense. The trade payables balance increased by $0.4 million as a result of the timing of payments to suppliers
for purchases. Deferred revenues decreased by $0.6 million due to the timing of shipments during the fourth
quarter of 2015.
INVESTING ACTIVITIES
DATA Group takes a disciplined approach to monitoring its investments, whereby material capital expenditures
are subjected to rigorous analysis and ongoing measurement and comparison against budgets to ensure a return
on the investment. DATA Group’s maintenance capital expenditures consist of replacement of existing capital
assets to sustain cash flows, and typically include furniture, fixtures, computer equipment, printing equipment,
and leasehold improvements. DATA Group’s growth capital expenditures consist of purchases of capital assets
to generate new cash flows, and typically include the purchase of new furniture, fixtures, computer equipment
and printing equipment to support new business and organic business growth. In addition to maintenance
and growth capital expenditures, DATA Group incurs recurring repair and maintenance expenses that are
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DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS expensed as they are incurred and are not included in capital expenditures. Capital expenditures for the year
ended December 31, 2015 were $4.3 million. These capital expenditures, which were financed by cash flow from
operations, were related primarily to maintenance capital expenditures and the consolidation of three existing
manufacturing facilities into one new manufacturing facility in Calgary, Alberta. The capital expenditures related
to the new manufacturing facility in Calgary, Alberta totaled approximately $3.8 million of which approximately
$3.2 million was paid during the year ended December 31, 2015 and the balance was paid in 2014.
FINANCING ACTIVITIES
During the year ended December 31, 2015, DATA Group repaid $4.0 million of the principal amount outstanding
under the Former Credit Facilities.
NORMAL COURSE ISSUER BID
In May 2015, DATA Group renewed its NCIB for another 12 months. Under the NCIB, DATA Group may purchase
up to a maximum of $4.4 million aggregate principal amount of its outstanding 6.00% Convertible Debentures,
representing 10% of the “public float” of the 6.00% Convertible Debentures outstanding and daily purchases are
limited to $14,250 principal amount of 6.00% Convertible Debentures, other than block purchase exemptions.
As at the date of this report, none of the 6.00% Convertible Debentures have been purchased under the renewed
NCIB. Under the previous NCIB, which expired in May 2015, DATA Group purchased $0.3 million aggregate
principal amount of the 6.00% Convertible Debentures.
OUTSTANDING SHARE DATA
At March 11, 2016 and December 31, 2015, there were 998,752,732 Common Shares outstanding. On December 23,
2015, DATA Group redeemed $33.5 million aggregate principal amount of its $44.7 million outstanding 6.00%
Convertible Debentures and satisfied the redemption price by issuing 975,262,140 Common Shares. At
December 31, 2014 there were 23,490,592 Common Shares outstanding. At March 11, 2016 and December 31,
2015, $11.2 million aggregate principal amount of 6.00% Convertible Debentures were outstanding. At
December 31, 2014, $44.7 million aggregate principal amount of 6.00% Convertible Debentures were outstanding.
The 6.00% Convertible Debentures are convertible into Common Shares at the option of the holder at any time
prior to June 30, 2017. See “Liquidity and capital resources – Liquidity” above for a description of the 6.00%
Convertible Debentures. The Board of Directors has approved the award of options to purchase up to 1,174,500
Common Shares to the president and chief executive officer of DATA Group. The options were granted on
April 16, 2015, have an exercise period of seven years from the grant date once vested, and have an exercise price
of $0.75 per share, representing the fair value of the Common Shares on date of grant.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
DATA Group’s financial instruments consisted of cash and cash equivalents, trade receivables, trade payables,
loans payable and long-term debt, the amounts of which are included in DATA Group’s consolidated statements
of financial position as at December 31, 2015 and December 31, 2014, respectively. DATA Group did not enter into
financial instruments for trading or speculative purposes.
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FAIR VALUE
The carrying value of cash and cash equivalents, trade receivables, loan payable and trade payables
approximate their fair value due to the immediate or short-term maturity of these financial instruments. The
fair value of DATA Group’s Former Credit Facilities, as at December 31, 2015, approximated its carrying value
as a floating interest rate was applicable on advances under those credit facilities. The 6.00% Convertible
Debentures are listed for trading on the TSX and the debt portion of those debentures is recorded at its
amortized cost. Based on the quoted market price, the 6.00% Convertible Debentures had a fair value of
$7.0 million at December 31, 2015 compared to a book value of $10.9 million for the debt portion and of
$0.1 million for the conversion options recorded at its historical value.
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS CREDIT RISK
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet
its contractual obligations. Financial instruments that potentially subjected DATA Group to credit risk consisted
of cash and cash equivalents and trade receivables. The carrying amount of assets included on the statement of
consolidated position of DATA Group represents the maximum credit exposure.
DATA Group grants credit to customers in the normal course of business. DATA Group typically does not
require collateral or other security from customers; however, credit evaluations are performed prior to the initial
granting of credit terms when warranted and periodically thereafter. Normal credit terms for amounts due from
customers call for payment within 0 to 90 days.
DATA Group has trade receivables from clients engaged in various industries including financial institutions,
insurance companies, healthcare, lottery and gaming, retailing, not-for-profit, energy and governmental
agencies that are not concentrated in any specific geographic area. DATA Group does not believe that any single
industry or geographic region represents significant credit risk. Credit risk concentration with respect to trade
receivables is mitigated by DATA Group’s large client base.
Based on historical experience, DATA Group records a reserve for estimated uncollectible amounts.
Management assesses the adequacy of this reserve quarterly, taking into account historical experience, current
collection trends, the age of receivables and, when warranted and available, the financial condition of specific
counterparties. Management focuses on trade receivables outstanding for more than 90 days in assessing DATA
Group’s credit risk and records a reserve, when required, to recognize that risk. When collection efforts have been
reasonably exhausted, specific balances are written off. As at December 31, 2015, $1.2 million or 3.2%, of trade
receivables were more than 90 days old, a decrease from $2.0 million or 5.3%, of trade receivables that were
more than 90 days old at December 31, 2014.
The credit risk associated with derivative financial instruments arises from the possibility that the counterparties
may default on their obligations. In order to minimize this risk, DATA Group enters into derivative transactions
only with highly rated Canadian financial institutions. At December 31, 2015 and 2014, no such transactions
were outstanding.
LIQUIDITY RISK
Liquidity risk is the risk that DATA Group may encounter difficulties in meeting obligations associated with
financial liabilities as they become due. DATA Group believes that the currently projected cash flow from
operations, cash on hand and anticipated lower operating costs resulting from existing and planned restructuring
initiatives will be sufficient to fund DATA Group’s currently projected operating requirements, including
expenditures related to its growth strategy, payments associated with provisions as a result of on-going
productivity improvement initiatives, payment of income tax liabilities, contributions to DATA Group’s pension
plans, maintenance capital expenditures and interest and scheduled repayments of borrowings under DATA
Group’s credit facilities.
MARKET RISK
INTEREST RATE RISK
Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the
financial instrument will fluctuate due to changes in market interest rates. Interest rate risk arises from interest
bearing financial assets and liabilities. Non-derivative interest bearing assets are primarily short term liquid
assets. DATA Group’s interest rate risk arises from long-term debt issuances at fixed and floating interest rates.
19
CURRENCY RISK
Currency risk is the risk that future cash flows arising from a financial instrument will fluctuate because of
changes in foreign exchange rates. In the normal course of business, DATA Group does not have significant
foreign exchange transactions and, accordingly, the amounts and currency risk are not expected to have adverse
material impact on the operations of DATA Group.
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS Note 16 to the audited consolidated financial statements of DATA Group for the year ended December 31, 2015
contains additional information on DATA Group’s financial instruments.
CONTRACTUAL OBLIGATIONS
DATA Group believes that DATA Group will have sufficient resources from its operating cash flow, existing cash
resources and borrowing under available credit facilities to meet its contractual obligations as they become
due. Contractual obligations have been defined as contractual commitments in existence but not paid for as at
December 31, 2015. Short-term commitments such as month-to-month office leases, which are easily cancelled,
are excluded from this definition. Operating leases include payments to landlords for the rental of facilities and
payments to vendors for the rental of equipment.
CONTRACTUAL OBLIGATIONS – SUMMARY
As at December 31, 2015
(in thousands of Canadian dollars, unaudited)
Total
2016
2017
2018
2019
2020 thereafter
2021 and
Pension funding
contributions (1)
Loan payable (2)
Long-term debt (3)
Convertible debentures (4)
Operating leases
$ 8,520 $ 1,878 $ 1,866 $ 1,859 $ 1,851 $
533 $
533
$
369
228
$ 44,608
44,608
$ 12,181
671
$ 30,199
11,046
141
—
11,510
7,083
—
—
—
—
—
—
—
—
—
—
—
—
4,011
3,167
2,682
2,210
Total
$ 95,877 $ 58,431 $ 20,600 $ 5,870 $ 5,018 $ 3,215 $
2,743
Notes:
(1) DATA Group is required under applicable pension legislation to make monthly, annual and/or one-time cash contributions to the DATA Group
Pension Plan to fund current or future funding deficiencies which may emerge in the defined benefit provision of the DATA Group Pension
Plan. See “Liquidity and capital resources – Pension funding obligations” above. The table above includes amounts payable under the SERP.
DATA Group’s obligations under the SERP consist of benefits payable as a single life annuity with a five year guarantee. The duration of these
payments is dependent on the length of each participant’s life and, in certain cases, that of their designated beneficiary, and their age in any
given year.
(2) DATA Group entered into a loan agreement for licensed software.
(3) Represents amounts payable under the Former Credit Facilities. As at December 31, 2015, outstanding borrowings under the Former Credit
Facilities totalled $43.3 million and bore interest at an average floating rate of 4.86% per annum. The estimated interest amount in respect of
2016 has been calculated based upon total borrowings outstanding during the periods and the average annual floating interest rate in effect
at December 31, 2015. The outstanding borrowings under the Former Credit Facilities were fully re-paid on March 11, 2016 with advances made
under the Bank Credit Facility and the IAM Credit Facility. As of March 11, 2016, DATA Group had outstanding borrowings of $15.9 million and
letters of credit granted of $2.2 million under the Bank Credit Facility, and outstanding borrowings of $28.0 million under the IAM Credit Facility.
The maximum principal amount of borrowings available to DATA Group under the revolving portion of the Bank Credit Facility at any time is
limited to a fixed percentage of DATA Group’s aggregate accounts receivable and inventory (less certain amounts) at that time and, in any event,
may not exceed $25.0 million less any amounts outstanding under the Bank Term Credit Facility and certain other deductions. Accordingly,
DATA Group’s ability to borrow the maximum available amount under the revolving portion of the Bank Credit Facility is subject to DATA Group
maintaining a sufficient borrowing base and may therefore fluctuate from period to period. If the Bank Credit Facility and the IAM Credit Facility
had been in effect as of December 31, 2015, and assuming no borrowings under either of those credit facilities until March 10, 2016, the amounts
in respect of “Long-term debt” would have been as follows: 2016 - $6.2 million; 2017 - $8.1 million; 2018 - $6.2 million; 2019 - $20.8 million; 2020
- $5.1 million; and 2021 and thereafter - $11.4 million. These amounts assume that DATA Group has borrowed $10.25 million under the revolving
portion of the Bank Credit Facility and $5.0 million under the Bank Term Credit Facility and that such amounts remain outstanding throughout
the relevant period. Estimated interest amounts in respect of years after 2015 have been calculated based upon estimated total borrowings
outstanding under the Bank Credit Facility and the IAM Credit Facility, respectively, during the applicable periods and, in the case of borrowings
under the Bank Credit Facility, the average annual floating interest rate in effect at March 11, 2016.
(4) 6.00% Convertible Debenture, which mature on June 30, 2017 and are convertible at 81.967 shares per $1,000 principal amount of debenture.
Annual interest is based on the aggregate amount 6.00% Convertible Debentures outstanding at December 31, 2015 of $0.7 million. Included in
the 2017 amount is interest of $0.3 million.
20
OFF-BALANCE SHEET ARRANGEMENTS
DATA Group’s off-balance sheet arrangements are operating leases. DATA Group leases real estate, printing
equipment, trucks and office equipment in connection with its sales and manufacturing activities under non-
cancellable lease agreements, which expire at various dates.
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS
TRANSACTIONS WITH RELATED PARTIES
During the year ended December 31, 2015, there were regular intercompany activities between DATA Group
and its subsidiary during the normal course of business. These transactions and balances are eliminated in the
consolidated financial statements of DATA Group. Related parties are defined as individuals who can influence
the direction or management of DATA Group or any of its subsidiaries and therefore the directors and officers of
DATA Group’s subsidiaries are considered related parties. Neither DATA Group nor its subsidiary entered into any
transactions with related parties as defined above during the year ended December 31, 2015.
OPERATING RESULTS FOR THE FOURTH QUARTER OF 2015 AND 2014
(in thousands of Canadian dollars, except share and per share amounts, unaudited)
October 1 to
December 31, 2015
October 1 to
December 31, 2014
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Restructuring expenses
Gain on redemption of convertible debentures
Gain on cancellation of convertible debentures
Amortization of intangible assets
Income before finance costs and income taxes
Finance costs
Interest expense
Interest income
Amortization of transaction costs
Income before income taxes
Income tax expense (recovery)
Current
Deferred
$
81,010
61,237
19,773
12,578
1,545
(12,766)
—
504
17,912
1,370
(1)
163
1,532
16,380
941
2,034
2,975
$
80,371
61,627
18,744
13,715
769
—
(43)
479
3,824
1,486
(6)
175
1,655
2,169
36
553
589
Net income for the period
$
13,405
$
1,580
Net income attributable to common shareholders
$
13,405
Adjusted EBITDA (1)
Adjusted net income (loss) (2)
Adjusted net income (loss) per share, basic and diluted
$
$
$
8,377
3,437
0.03
$
$
$
$
1,580
6,215
2,120
0.09
Pro forma Adjusted net income (loss) per share, basic and diluted (3)
$
0.0034
$
0.0021
Weighted average number of common shares outstanding
Number of common shares outstanding
118,896,671
998,752,732
23,490,592
23,490,592
Notes:
(1) The following table provides a reconciliation of net income (loss) to Adjusted EBITDA for the periods noted. See “Non-GAAP Measures”. Adjusted
EBITDA for the (i) fourth quarter of 2015 means EBITDA adjusted for restructuring expenses and gain on redemption of convertible debentures;
and (ii) fourth quarter of 2014 means EBITDA adjusted for restructuring expenses and gains on the cancellation of convertible debentures.
21
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, unaudited)
Net income for the period
Interest expense
Interest income
Amortization of transaction costs
Current income tax expense
Deferred income tax expense
Depreciation of property, plant and equipment
Amortization of intangible assets
EBITDA
Restructuring expenses
Gain on redemption of convertible debentures
Gain on cancellation of convertible debentures
Adjusted EBITDA
October 1 to
October 1 to
December 31, 2015
December 31, 2014
$
13,405
$
1,580
1,370
(1)
163
941
2,034
1,182
504
1,486
(6)
175
36
553
1,186
479
$
19,598
$
5,489
1,545
(12,766)
—
769
—
(43)
$
8,377
$
6,215
(2) The following table provides a reconciliation of net income (loss) to Adjusted net income (loss) for the periods noted. See “Non-GAAP Measures”.
Adjusted net income for the (i) fourth quarter of 2015 means net income adjusted for restructuring expenses, gain on redemption of convertible
debentures and the tax effect of those expenses; and (ii) fourth quarter of 2014 means net income adjusted for restructuring expenses, gains on
the cancellation of convertible debentures and the tax effects of those items.
(in thousands of Canadian dollars, unaudited)
Net income for the period
Restructuring expenses
Gain on redemption of convertible debentures
Gain on cancellation of convertible debentures
Tax effect of above adjustments
October 1 to
October 1 to
December 31, 2015
December 31, 2014
$
13,405
$
1,580
1,545
(12,766)
—
1,253
769
—
(43)
(186)
Adjusted net income (loss)
$
3,437
$
2,120
(3) On December 23, 2015, DATA Group issued 975,262,140 shares in connection with the redemption of approximately 75% of its 6.00%
Convertible Debentures. Pro forma Adjusted net income (loss) per share, a non-GAAP measure, assumes Adjusted net income (loss) per share
was calculated on the basis of the total number of shares outstanding at December 31, 2015, rather than the weighted average number of shares
outstanding at the period end, given the significant dilution that occurred with eight days left in the fiscal year.
REVENUES
For the quarter ended December 31, 2015, DATA Group recorded revenues of $81.0 million, an increase of
$0.6 million or 0.8% compared with the same period in 2014. The increase in revenues was due to revenue gains
from enterprise customers and strong year end demand for label products. The increase was partially offset by
declines in revenues from existing customers due to pricing concessions and changes in product mix.
COST OF REVENUES AND GROSS PROFIT
For the quarter ended December 31, 2015, cost of revenues decreased to $61.2 million from $61.6 million for the
same period in 2014. Gross profit for the quarter ended December 31, 2015 was $19.8 million, which represented
an increase of $1.0 million or 5.5% from $18.7 million for the same period in 2014. Gross profit as a percentage of
revenues increased to 24.4% for the quarter ended December 31, 2015 compared to 23.3% for the same period
in 2014. The increase in gross profit was primarily due to cost reductions in direct and indirect labour costs from
the closure of our Granby, Québec warehouse and cost savings associated with the closure of our Brampton,
Ontario warehouse.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND RESTRUCTURING EXPENSES
22
SG&A expenses, excluding amortization of intangible assets, for the quarter ended December 31, 2015
decreased $1.1 million or 8.3% to $12.6 million compared to $13.7 million in the same period in 2014. As a
percentage of revenues, these costs were 15.5% of revenues for the quarter ended December 31, 2015 compared
to 17.1% of revenues for the same period in 2014. The decrease in SG&A expenses was attributable to the
benefits realized from headcount reductions and other cost savings initiatives in SG&A implemented in 2015.
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS
For the quarter ended December 31, 2015, DATA Group incurred restructuring expenses of $1.5 million primarily
related to a lease exit charge related to the closure of its Vancouver, British Columbia manufacturing location
as part of its 2015 restructuring initiatives as well as additional headcount reductions completed in the fourth
quarter of 2015. For the quarter ended December 31, 2014, DATA Group incurred restructuring expenses of
$0.8 million related to headcount reductions, management changes, consulting fees and the closure of one
manufacturing location as part of its 2014 restructuring initiatives.
GAIN ON REDEMPTION OF CONVERTIBLE DEBENTURES
On December 23, 2015, DATA Group redeemed $33.5 million aggregate principal amount of its $44.7 million
outstanding 6.00% Convertible Debentures and recorded a gain on redemption of convertible debentures of
$13.2 million. Transaction costs of $0.4 million were incurred to execute the redemption and have been netted
against the gain on redemption of convertible debentures.
ADJUSTED EBITDA
For the quarter ended December 31, 2015, Adjusted EBITDA was $8.4 million, or 10.3% of revenues. Adjusted
EBITDA for the quarter ended December 31, 2015 increased $2.2 million or 34.8% from the same period in the
prior year and the Adjusted EBITDA margin for the quarter, as a percentage of revenues, increased from 7.7% of
revenues in 2014 to 10.3% of revenues in 2015. The increase in Adjusted EBITDA was due to cost savings realized
as a result of prior restructuring initiatives.
INTEREST EXPENSE
Interest expense on long-term debt outstanding under DATA Group’s former credit facilities, the 6.00%
Convertible Debentures, certain unfavourable lease obligations related to closed facilities and DATA Group’s
employee benefit plans was $1.4 million for the quarter ended December 31, 2015 compared to $1.5 million for
the same period in 2014. Interest expense for the quarter ended December 31, 2015 was lower than the same
period in the prior year primarily as a result of a reduction in debt outstanding under DATA Group’s former
credit facilities.
INCOME TAXES
DATA Group reported income before income taxes of $16.4 million, a current income tax expense of $0.9 million
and a deferred income tax expense of $2.0 million for the quarter ended December 31, 2015 compared to income
before income taxes of $2.2 million and a deferred income tax expense of $0.6 million for the quarter ended
December 31, 2014. The current tax expense was primarily related to the income tax payable on DATA Group’s
estimated taxable income for the quarter ended December 31, 2014. The deferred income tax expense and
deferred income tax recovery were mainly due to changes in the estimate of the timing of future reversals of
temporary differences and new temporary differences that arose during the quarters ended December 31, 2015
and 2014.
NET INCOME (LOSS)
Net income for the quarter ended December 31, 2015 was $13.4 million compared to net income of
$1.6 million for the quarter ended December 31, 2014. The increase in comparable profitability for the quarter
ended December 31, 2015 was substantially due to a gain for purposes of IFRS on redemption of convertible
debentures, cost savings realized as a result of prior restructuring initiatives that led to a decline in SG&A
expenses and cost of revenues, a reduction in amortization of intangible assets and current income tax expense
during the quarter ended December 31, 2015. The increase in comparable profitability was partially offset
by higher restructuring expenses and by larger current and deferred tax expense during the quarter ended
December 31, 2015.
23
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS ADJUSTED NET INCOME
Adjusted net income for the quarter ended December 31, 2015 was $3.4 million compared to Adjusted net
income of $2.1 million for the same period in 2014. The increase in comparable profitability for the quarter ended
December 31, 2015 was substantially due to marginally higher revenues, lower SG&A expenses as the result of
cost savings realized as a result of period prior restructuring initiatives and positive changes in product mix.
EIGHT QUARTER RESULTS OF OPERATIONS – SUMMARY
(in thousands of Canadian dollars, except per share amounts, unaudited)
2015
2014
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Revenues
$ 81,010 $ 74,116 $ 73,447 $ 76,002 $ 80,371 $ 78,128 $ 76,773 $ 77,903
Net income (loss)
attributable to
shareholders
13,405
(1,763)
(29,683)
(1,131)
1,580
1,849
254
796
Basic earnings (loss)
per share
0.11
(0.08)
(1.26)
(0.05)
0.07
0.08
0.01
0.03
Diluted earnings (loss)
per share
0.11
(0.08)
(1.26)
(0.05)
0.07
0.08
0.01
0.03
The variations in DATA Group’s quarterly revenues and net income (loss) over the eight quarters ended
December 31, 2015 can be attributed to several principal factors: revenue declines in DATA Group’s traditional
print business due to production volume declines largely related to technological change, price concessions and
competitive activity, restructuring expenses related to DATA Group’s ongoing productivity improvement and
cost reduction initiatives, gain on redemption of convertible debentures and a goodwill impairment charge.
DATA Group’s net income for the fourth quarter of 2015 included restructuring expenses of $1.5 million related
to its cost reduction initiatives and a gain on redemption of convertible debenture of $12.8 million. DATA Group’s
net income for the fourth quarter of 2014, DATA Group recorded restructuring expenses of $0.8 million related
to its cost reduction initiatives.
DATA Group’s net loss for the third quarter of 2015 included restructuring expenses of $5.8 million related to its
cost reduction initiatives. DATA Group’s net income for the third quarter of 2014 included restructuring expenses
of $0.3 million related to its cost reduction initiatives.
DATA Group’s net loss for the second quarter of 2015 included restructuring expenses of $4.2 million related
to its cost reduction initiatives and an impairment of goodwill of $26.0 million related to its DATA CGU. DATA
Group’s net income for the second quarter of 2014 included restructuring expenses of $0.9 million related to its
cost reduction initiatives.
DATA Group’s net loss for the first quarter of 2015 included restructuring expense of $2.1 million related to its
cost reduction initiatives. DATA Group’s net income for the first quarter of 2014 included restructuring expenses
of $0.9 million related to its costs reduction initiatives.
CRITICAL ACCOUNTING ESTIMATES
24
A summary of significant accounting policies is included under notes 2 and 3 of the Notes to the audited
consolidated financial statements of DATA Group for the year ended December 31, 2015. Critical accounting
estimates require management to make certain judgments and estimates, some of which may be uncertain.
Changes in these accounting estimates may have an impact on the financial results of DATA Group. Details of the
critical accounting estimates are discussed below.
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Based on historical experience, DATA Group records a reserve for estimated uncollectible amounts. Management
assesses the adequacy of this reserve quarterly, taking into account historical experience, current collection
trends, the age of receivables and, when warranted and available, the financial condition of specific counterparties.
Management focuses on trade receivables outstanding for more than 90 days in assessing DATA Group’s credit
risk and records a reserve, when required, to recognize that risk. When collection efforts have been reasonably
exhausted, specific balances are written off.
INVENTORY RESERVES
DATA Group maintains a reserve for slow-moving or obsolete inventory, which is reviewed periodically based
upon usage and inventory age to determine its adequacy in order to carry inventory at the lower of cost and net
realizable value. Physical inventories are taken throughout each year.
GOODWILL
Goodwill represents the excess of the aggregate of consideration transferred in a business combination and the
non-controlling interest in the acquired business over the net fair value of net identifiable assets and liabilities
acquired. Goodwill is allocated to the CGU or group of CGUs to which it relates. A CGU is an identifiable group of
assets that are largely independent of the cash flows from other assets or group of assets, which is not higher
than an operating segment.
Goodwill is evaluated for impairment annually, or more frequently if events or circumstances indicate there may
be impairment. Impairment is determined for goodwill by assessing if the carrying value of a CGU, including the
allocated goodwill, exceeds its recoverable amount determined as the greater of the estimated fair value less
costs to sell or the value in use. The estimated fair value less costs to sell is determined by discounting expected
future cash flows in accordance with recognized valuation methods. The process of determining those fair values
requires DATA Group to make a number of estimates and assumptions, such as projected future revenues, cost
of revenues, operating margins, market conditions well into the future, and discount rates. These assumptions
are based on management’s best estimates and require judgment. As a result, there is inherent uncertainty
and actual results may differ from the estimates (see “Measurement uncertainty” below). Impairment losses
recognized in respect of a CGU are first allocated to the carrying value of goodwill and any excess is allocated to
the carrying amount of assets in the CGU. Any goodwill impairment is charged to income in the period in which
the impairment is identified. Impairment losses on goodwill are not subsequently reversed.
INTANGIBLE ASSETS
DATA Group has recognized intangible assets that are comprised of customer relationships, trademarks, trade
names and technology. These intangible assets have finite lives. These intangibles are amortized over their
estimated useful lives of three to twelve years. Management’s judgment is required to determine the useful life
of the intangible assets and, where it is believed to be required, an impairment provision is provided when events
or changes in circumstances indicate that the carrying value may not be recoverable. The useful life of between
three and twelve years is determined by reviewing the length of customer relationships and other factors.
PENSION PLANS
DATA Group accounts for its defined benefit pension plans in accordance with IFRS, which requires assumptions
concerning future events. Such actuarial assumptions include projected salary increases, discount rates,
retirement age, mortality rates and withdrawal rates, among others. DATA Group manages its pension plans by
meeting with an actuarial consultant and the fund managers on a regular basis and reviewing periodic reports
25
outlining changes in the plan liabilities and the return on pension assets relative to the market. Assumptions are
reviewed on an ongoing basis and adjustments are made whenever management believes that conditions have
materially changed. Management’s estimates are outlined in the table below. Changes in assumptions may have
a material impact on the amount of pension expense recognized in any period.
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS Under the defined contribution provision of the DATA Group Pension Plan, DATA Group’s annual pension expense
is based on amounts contributed in respect of eligible employees when they are due.
During the year ended December 31, 2015, DATA Group contributed $1.3 million to the defined benefit provision
of the DATA Group Pension Plan, $1.7 million to the defined contribution provision of the DATA Group Pension
Plan, $0.6 million to the SERP and $0.6 million to the SRDF. DATA Group expects that, in 2016, contributions to
the defined benefit provision of the DATA Group Pension Plan will be approximately $1.3 million, contributions
to the defined contribution provision of the DATA Group Pension Plan will be approximately $1.6 million,
contributions to the SERP will be approximately $0.6 million and contributions to the SRDF will be approximately
$0.5 million.
DATA Group increased the discount rate that was used to calculate its defined benefit obligations as at
December 31, 2015 to better reflect current Canadian economic conditions and long-term interest rates. The
salary increase assumptions remained unchanged at December 31, 2015. The following table summarizes the
rates used in fiscal 2015 and 2014 to calculate DATA Group’s defined benefit obligations.
Significant actuarial assumptions adopted in measuring DATA Group’s defined benefit plan obligations
DATA Group Pension Plan
Discount rate
Rate of compensation increase
SERP
Discount rate
December 31, 2015
December 31, 2014
4.10%
3.00%
4.00%
3.00%
3.90%
3.80%
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics
and experience in Canada. These assumptions translate into an average life expectancy in years for a pensioner
retiring at age 65:
December 31, 2015
December 31, 2014
Retiring at the end of the reporting period:
Male
Female
Retiring in 25 years after the end of the reporting period:
Male
Female
21.5
24.0
22.9
25.2
21.4
23.9
22.8
25.1
In 2015, the discount rate applied to the defined benefit obligation for the DATA Group Pension Plan and the
SERP was increased to 4.10% and 3.90%, respectively, from 4.00% and 3.80%, respectively, reflecting long-term
interest rates at December 31, 2015. The primary impact of these changes was actuarial gains of $0.9 million for
the DATA Group Pension Plan and of $0.1 million for the SERP, which were recognized in comprehensive income
(loss) for the year ended December 31, 2015.
The sensitivity of the defined benefit obligations to changes in assumptions at December 31, 2015 and at December 31,
2014 are set out below. The effects on each plan of a change in an assumption are weighted proportionately to
the total plan obligations to determine the total impact for each assumption presented.
26
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS
(in thousands of Canadian dollars, except percentages, unaudited)
Discount rate
Salary growth rate
Life expectancy
(in thousands of Canadian dollars, except percentages, unaudited)
Discount rate
Salary growth rate
Life expectancy
December 31, 2015
Impact on defined benefit obligations
Change in
assumption
Increase in
assumption
Decrease in
assumption
0.25% $
(2,364) $
2,505
0.25%
693
(711)
Increase by 1 year
in assumption
Decrease by 1 year
in assumption
$
1,668
$
(1,708)
December 31, 2014
Impact on defined benefit obligations
Change in
assumption
Increase in
assumption
Decrease in
assumption
0.25% $
(2,485) $
0.25%
682
2,632
(700)
Increase by 1 year
in assumption
Decrease by 1 year
in assumption
$
1,667
$
(1,706)
Through its defined benefit plans, DATA Group is exposed to a number of risks, the most significant of which are
detailed below:
ASSET VOLATILITY
For a defined benefit pension plan, fluctuations in the value of plan assets are assessed in the context of
fluctuations in the plan liabilities. The plan liabilities are calculated using a discount rate set with reference to
high quality corporate bond yields. As discount rates change, the value of the plan liabilities will fluctuate, if the
growth of plan liabilities exceeds that of plan assets a deficit will result. The defined benefit provision of the
DATA Group Pension Plan currently holds a small proportion of equities, 14% of total assets, which are expected
to outperform corporate bonds in the long-term while providing volatility and risk in the short-term. The defined
benefit provision of the DATA Group Pension Plan’s investment time horizon and financial position are key inputs
in deciding on the proportion of equities held.
The defined benefit provision of the DATA Group Pension Plan is closed to new membership, which means
the investment time horizon is shrinking as the plan matures. Beginning in 2012 and as the plan matured, the
defined benefit provision of the DATA Group Pension Plan’s level of investment risk was reduced by lowering the
proportion of equities and increasing the proportion of bonds, which are a better match to the plan liabilities.
This shift from equities to better matching bonds commenced in 2012 and was expected to conclude in 2026.
This period was selected based on analysis of projected pension benefit cash flows. Through the derisking
schedule, the defined benefit provision of the DATA Group Pension Plan lowered its interest rate risk, inflation
risk and equity risk. In 2011, the defined benefit provision of the DATA Group Pension Plan had 60% equities
and 40% bonds. In 2026, the defined benefit provision of the DATA Group Pension Plan was expected to have
15% equities and 85% bonds. This derisking strategy is reviewed annually to consider the current environment
27
and may be revised at any point in time. In 2014, the derisking strategy was reviewed against the investment
time horizon and the financial position of the defined benefit provision of the DATA Group Pension Plan. With
a significant improvement in the financial position, the defined benefit provision of DATA Group Pension Plan
asset mix was moved to 15% equities and 85% bonds, with the bond portfolio being adopted with liability cash
flow matching characteristics.
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS
CHANGES IN BOND YIELDS
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an
increase in the value of the plan’s bond holdings.
SALARY RISK
The present value of the pension benefit obligations is calculated by reference to the future salaries of plan
participants, so salary increases of the plan participants greater than assumed will increase plan liabilities.
LIFE EXPECTANCY
The majority of the plans’ obligations provide benefits for the life of the member, so increases in life expectancy
will result in an increase in the plans’ liabilities.
Each sensitivity analysis disclosed in this report is based on changing one assumption while holding all other
assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be
correlated. When calculating the sensitivity of the defined benefit obligation to variations in significant actuarial
assumptions, the same method (present value of the defined benefit obligation calculated with the projected
unit credit method at the end of the reporting period) has been applied as for calculating the liability recognized
in the statement of financial position.
INCOME TAXES
Management uses its judgment to estimate current and deferred income tax expenses and recoveries. This
involves determining taxable income, temporary differences between tax and accounting carrying values and
income tax loss carry-forwards.
Current income taxes is the expected tax payable or receivable on the taxable income or loss for the year, using
tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect
of previous years that are expected to be paid.
Deferred income tax is recognized in respect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred income
tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a
transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and
temporary differences relating to investments in subsidiaries and jointly controlled entities to the extent that it
is probable that they will not reverse in the foreseeable future. In addition, deferred income tax is not recognized
for taxable temporary differences arising on the initial recognition of goodwill. Deferred income tax is measured
on a non-discounted basis at the tax rates that are expected to be applied to temporary differences when they
reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred
income tax assets and liabilities are presented as non-current.
A deferred income tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against which they can
be utilized. Deferred income tax assets are reviewed at each reporting date and are reduced to the extent that
it is no longer probable that the related tax benefit will be realized in the foreseeable future. Deferred income
tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets,
and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax
entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities
will be realized simultaneously.
In the ordinary course of business, DATA Group enters into transactions where the ultimate tax determination
may be uncertain. These uncertainties require DATA Group to make estimates of its ultimate tax liabilities and,
accordingly, the provision for income taxes. While DATA Group believes these estimates are reasonable and
appropriate, additional liabilities may result when uncertain tax positions are resolved or settled at amounts that
28
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS differ from those estimates. DATA Group, its subsidiary and predecessors may also be reassessed for taxes from
time to time. Such reassessments, together with the associated interest and penalties and possible application
of unused tax losses, could materially and adversely affect DATA Group.
VALUATION OF ASSETS AND LIABLITES ACQUIRED AND CONSIDERATION TRANSFERRED
The purchase price of an acquired business is allocated to the underlying tangible and intangible assets acquired
and liabilities assumed based upon their respective fair market values, with the excess recorded as goodwill.
Such fair market value assessments require judgment and estimates. Adjustments to fair value assessments are
recorded to goodwill over the measurement period, not exceeding one year from the date of acquisition.
USE OF ESTIMATES AND MEASUREMENT UNCERTAINTY
The preparation of consolidated financial statements requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and the disclosure of the contingent assets and liabilities
at the date of the consolidated financial statements and revenues and expenses for the period reported.
Management must also make estimates and judgments about future results of operations, related specific
elements of the business and operations in assessing recoverability of assets and recorded value of liabilities.
Significant areas of measurement uncertainty are summarized below. For each item, actual results could differ
from estimates and judgements made by management.
IMPAIRMENT OF GOODWILL, INTANGIBLE AND NON-CURRENT ASSETS
Goodwill, intangible and non-current assets are tested for impairment if there is an indicator of impairment,
and in the case of goodwill, annually at the end of each fiscal year. The determination of the impairment of
goodwill, intangible and non-current assets are impacted by estimates of the fair value of CGUs, assumptions of
future cash flows, and achieving forecasted business results. These assumptions can be impacted by economic
conditions and also require considerable judgment by management. Declines in business results or declines in
the fair value of DATA Group’s reporting segments could result in impairments in future periods. Changing the
assumptions selected by management, in particular the discount rate and growth assumptions used in the cash
flow projections, could significantly affect DATA Group’s impairment evaluation and hence results.
RESERVE FOR OBSOLETE INVENTORY
The measurement of inventory including the determination of its net realizable value involves the use of
estimates. Judgement also exists in determining whether to recognize a provision for obsolete inventory.
Management takes into account the most reliable evidence available at the time the estimates are made. The
quantity, age and condition of inventory are measured and evaluated regularly during the year.
INCOME TAXES
In assessing the probability of realizing income tax assets, management makes estimates related to expectations
of future taxable income, applicable tax opportunities, expected timing of reversals of existing temporary
differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax
authorities. In making its assessments, management gives additional weight to positive and negative evidence
that can be objectively verified.
PENSION OBLIGATIONS
Management estimates the pension obligations annually with the assistance of independent actuaries; however,
the actual outcome may vary due to estimation uncertainties. The estimates of its pension obligations are based
on rates of inflation and mortality that management considers to be reasonable. It also takes into account
DATA Group’s specific anticipation of future salary increases, retirement ages of employees and other actuarial
factors. Discount factors are determined close to each fiscal year end by reference to high quality corporate
bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity
approximating to the terms of the related pension liability. Estimation uncertainties exist, which may vary
significantly in future appraisals of DATA Group’s defined benefit obligations.
29
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS NEW ACCOUNTING POLICIES
(a) New and amended standards adopted
DATA Group has not adopted any new accounting policies since the year ended December 31, 2014.
(b) New standards, amendments and interpretations issued but not effective for the financial year beginning
January 1, 2015 and not early adopted.
IFRS 9 Financial Instruments was issued in July 2014. IFRS 9 sets out the requirements for recognizing
and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items.
IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. The new standard establishes a
single classification and measurement approach for financial assets that reflects the business model in which
they are managed and their cash flow characteristics. It also provides guidance on an entity’s own credit risk
relating to financial liabilities and has modified the hedge accounting model to better link the economics of risk
management with its accounting treatment. Additional disclosures will also be required under the new standard.
IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. DATA
Group is currently assessing the impact of the new standard on its consolidated financial statements.
IFRS 15 Revenue from Contracts with Customers was issued in May 2014 to establish principles to record
revenues from contracts for the sale of goods or services, unless the contracts are in the scope of IAS 17 Leases
or other IFRSs. Under IFRS 15, revenue is recognized at an amount that reflects the expected consideration
receivable in exchange for transferring goods or services to a customer, applying the following five steps:
1.
Identify the contract with a customer
2.
Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognize revenue when (or as) the entity satisfies a performance obligation
The new standard also provides guidance relating to contract costs and for the measurement and
recognition of gains and losses on the sale of certain non-financial assets such as property and equipment.
Additional disclosures will also be required under the new standard. In September 2015, the IASB deferred the
effective date of the standard to annual reporting periods beginning on or after January 1, 2018 with earlier
application permitted. DATA Group is currently assessing the impact of the new standard on its consolidated
financial statements.
IFRS 16 Leases was issued in January 2016. IFRS 16 requires lessees to recognize assets and liabilities for most
leases. Application of the standard is mandatory for annual reporting periods beginning on or after January 1,
2019, with early application permitted. Data Group is currently assessing the impact of the new standard on its
consolidated financial statements.
There are no other IFRS or International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations
that are not yet effective that would be expected to have a material impact on DATA Group.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER
FINANCIAL REPORTING
30
With the supervision and participation of DATA Group’s senior management team, the Chief Executive Officer
and the Chief Financial Officer of DATA Group have evaluated the effectiveness of disclosure controls and
procedures (as defined in Multilateral Instrument 52-109) of DATA Group as of December 31, 2015. Based on that
evaluation, those officers have concluded that, as of December 31, 2015, such disclosure controls and procedures
were sufficiently effective to provide reasonable assurance that (i) material information relating to DATA Group
was made known to management and (ii) information required to be disclosed by DATA Group in its annual
filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed,
summarized and reported within the time periods specified in the securities legislation.
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS With the supervision and participation of DATA Group’s senior management team, the Chief Executive Officer
and the Chief Financial Officer of DATA Group have evaluated the effectiveness of the internal controls over
financial reporting (as defined in Multilateral Instrument 52-109) of DATA Group as of December 31, 2015.
In making this evaluation, the criteria set forth in 2013 by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control – Integrated Framework was used to design the internal controls over
financial reporting. Based on that evaluation, those officers have concluded that, as of December 31, 2015, such
internal controls over financial reporting were sufficiently effective to provide reasonable assurance regarding
the reliability of DATA Group’s financial reporting and the preparation of consolidated financial statements for
external purposes in accordance with IFRS.
DATA Group’s management has determined that there were no changes in the internal controls over financial
reporting of DATA Group during the year ended December 31, 2015 reporting period that have materially
affected, or are reasonably likely to materially affect, the internal controls over financial reporting of DATA Group.
OUTLOOK
In the fourth quarter of 2015, DATA Group continued to see a positive impact in its financial results from the
substantial headcount and plant rationalizations it implemented in the second and third quarters of 2015. The
impact of lower direct and indirect labour costs, improved utilization rates at its key plants, and marginally
higher levels of revenue compared to the fourth quarter of last year, contributed positively to gross margins
which improved to 24.4% from 23.3% in the prior comparable period. In addition, DATA Group’s Adjusted
EBITDA margin of 10.3% for the fourth quarter of 2015 benefited from headcount reductions and other savings
initiatives DATA Group implemented across its selling, general and administrative functions throughout the
year compared to an Adjusted EBITDA margin of 7.7% in the prior period. DATA Group expects to see continued
benefits from its operational initiatives in 2016.
DATA Group’s total headcount now stands at 1,430, a net reduction of 210 employees since December 31, 2014.
DATA Group continues to experience significantly higher capacity utilization rates across its six key “centres
of excellence”. While DATA Group will continue to carefully manage its operations, it is turning its efforts to
stabilizing its revenue, including a renewed focus on core vertical markets where it has a strong competitive
advantage and where it sees opportunities for improved product margin together with growth opportunities.
DATA Group recorded restructuring expenses of $1.5 million for the quarter ended December 31, 2015, and
a total of $13.6 million for the year ended December 31, 2015 compared to an aggregate of $2.8 million in the
prior year.
To support DATA Group’s efforts to stabilize and grow revenue, it has been developing a renewed strategic plan,
customer value story and marketplace identity. In March 2016, DATA Group announced a complete corporate
rebranding, including a new operating name. Effective immediately, the Company will operate as “DATA
Communications Management” and feature a new logo, website, web domain (www.datacm.com) and “go to
market” strategy.
RISKS AND UNCERTAINTIES
An investment in DATA Group’s securities involves risks. In addition to the other information contained in this
report, investors should carefully consider the risks described in DATA Group’s most recent Annual Information
Form and other continuous disclosure filings with Canadian securities regulator filings before investing in
securities of DATA Group. The risks described in this report, the Annual Information Form and those other filings
are not the only ones facing DATA Group. Additional risks not currently known to DATA Group, or that DATA
Group currently believes are immaterial, may also impair the business, results of operations, financial condition
and liquidity of DATA Group.
31
DATA GROUP | ANNUAL REPORT 2015MANAGEMENT’S DISCUSSION AND ANALYSIS FINANCIAL REPORTING RESPONSIBILITY OF MANAGEMENT
The accompanying consolidated financial statements of DATA Group Ltd (the “DATA Group”) have been prepared
by management and approved by the Board of Directors of the DATA Group. Management of DATA Group is
responsible for the preparation and presentation of the consolidated financial statements and all the financial
information contained within this Annual Report within reasonable limits of materiality. The consolidated
financial statements have been prepared in accordance with International Financial Reporting Standards.
In the preparation of the consolidated financial statements, estimates are sometimes necessary because a
precise determination of certain assets and liabilities is dependent on future events. Management believes such
estimates have been based on available information and careful judgments and have been properly reflected
in the accompanying consolidated financial statements. The financial information throughout the text of this
Annual Report is consistent with that in the consolidated financial statements.
To assist management in discharging these responsibilities, DATA Group maintains a system of internal controls
which are designed to provide reasonable assurance that DATA Group’s consolidated assets are safeguarded,
that transactions are executed in accordance with management’s authorization and that the financial records
form a reliable base for the preparation of accurate and timely financial information.
Management recognizes its responsibilities for conducting DATA Group’s affairs in compliance with established
financial standards and applicable laws, and for the maintenance of proper standards of conduct in its activities.
PricewaterhouseCoopers LLP, Chartered Accountants, are appointed by the shareholders and have audited the
consolidated financial statements of DATA Group Ltd. in accordance with Canadian generally accepted auditing
standards. Their report outlines the nature of their audit and expresses their opinion on the consolidated
financial statements of DATA Group Ltd.
The Board of Directors has appointed an Audit Committee composed of three directors who are not members
of management of DATA Group. The Audit Committee meets periodically with management and the auditors to
discuss internal controls over the financial reporting process, auditing matters and financial reporting issues. It
is responsible for reviewing DATA Group’s annual and interim consolidated financial statements and the report
of the auditors. The Audit Committee reports the results of such reviews to the Board of Directors and makes
recommendations with respect to the appointment of DATA Group’s auditors. In addition, the Board of Directors
may refer to the Audit Committee other matters and questions relating to the financial position of DATA Group
Ltd. and its subsidiaries.
The Board of Directors are responsible for ensuring that management fulfills its responsibilities for financial
reporting, and are responsible for approving the consolidated financial statements of DATA Group.
(Signed) Michael G. Sifton
President and Chief Executive Officer
DATA Group Ltd.
(Signed) James E. Lorimer
Chief Financial Officer
DATA Group Ltd.
March 11, 2016
Brampton, Ontario
32
DATA GROUP | ANNUAL REPORT 2015
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF DATA GROUP LTD.
We have audited the accompanying consolidated financial statements of DATA Group Ltd. and its subsidiary,
which comprise the consolidated statements of financial position as at December 31, 2015 and December 31,
2014 and the consolidated statements of (loss) income, comprehensive (loss) income, changes in equity and
cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting
policies and other explanatory information.
MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis
for our audit opinion.
OPINION
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of DATA Group Ltd. and its subsidiary as at December 31, 2015 and December 31, 2014 and their financial
performance and their cash flows for the years then ended in accordance with International Financial Reporting
Standards.
(Signed) PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
March 11, 2016
Toronto, Ontario
33
DATA GROUP | ANNUAL REPORT 2015
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of Canadian dollars, unaudited)
December 31, 2015
December 31, 2014
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade receivables (note 4)
Inventories (note 5)
Prepaid expenses and other current assets
NON-CURRENT ASSETS
Deferred income tax assets (note 12)
Property, plant and equipment (note 6)
Pension asset (note 14)
Intangible assets (note 7)
Goodwill (note 8)
$
871
38,051
37,053
4,150
80,125
2,070
14,422
770
5,614
31,066
$
812
37,175
40,045
5,587
83,619
1,508
15,523
—
7,261
57,066
$
134,067
$
164,977
LIABILITIES
CURRENT LIABILITIES
Current portion of Credit facilities (note 10)
$
Trade payables
Provisions (note 9)
Income taxes payable
Deferred revenue
NON-CURRENT LIABILITIES
Provisions (note 9)
Credit facilities (note 10)
Convertible debentures (note 11)
Deferred income tax liabilities (note 12)
Other non-current liabilities (note 13)
Pension obligations (note 14)
Other post-employment benefit plans (note 15)
EQUITY
SHAREHOLDERS’ EQUITY
Shares (note 17)
Conversion options (note 11)
Contributed surplus
Accumulated other comprehensive income
Deficit
34
43,095
29,766
5,723
903
10,811
90,298
1,483
—
10,912
76
1,362
8,354
2,563
$
3,500
29,061
2,042
154
11,419
46,176
1,361
43,382
43,222
50
548
8,949
2,876
$
115,048
$
146,564
$ 234,782
128
385
306
(216,582)
$
19,019
$
134,067
$
215,336
513
—
92
(197,528)
$
18,413
$
164,977
The accompanying notes are an integral part of these consolidated financial statements.
Approved by Board of Directors
(Signed) Michael Blair Director
(Signed) Michael G. Sifton Director
DATA GROUP | ANNUAL REPORT 2015
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(in thousands of Canadian dollars, except per share amounts, unaudited)
REVENUES
For the year ended
December 31, 2015
For the year ended
December 31, 2014
$ 304,575
$
313,175
COST OF REVENUES
233,505
238,563
GROSS PROFIT
71,070
74,612
EXPENSES (INCOME)
Selling, commissions and expenses
General and administration expenses
excluding amortization of intangible assets
Restructuring expenses (note 9)
Impairment of goodwill (note 8)
Gain on redemption of convertible debentures (note 11)
Gain on cancellation of convertible debentures
Amortization of intangible assets
33,194
21,520
13,560
26,000
(12,766)
—
1,949
83,457
(LOSS) INCOME BEFORE FINANCE COSTS AND INCOME TAXES
(12,387)
FINANCE COSTS
Interest expense
Interest income
Amortization of transaction costs
(LOSS) INCOME BEFORE INCOME TAXES
INCOME TAX EXPENSE (RECOVERY)
Current
Deferred
5,599
(11)
468
6,056
(18,443)
1,191
(462)
729
35,162
21,912
2,804
—
—
(103)
1,916
61,691
12,921
6,124
(21)
591
6,694
6,227
69
1,679
1,748
NET (LOSS) INCOME FOR THE YEAR
$
(19,172)
$
4,479
BASIC (LOSS) EARNINGS PER SHARE (note 18)
DILUTED (LOSS) EARNINGS PER SHARE (note 18)
$
$
(0.40)
(0.40)
$
$
0.19
0.19
The accompanying notes are an integral part of these consolidated financial statements.
35
DATA GROUP | ANNUAL REPORT 2015
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands of Canadian dollars, unaudited)
For the year ended
December 31, 2015
For the year ended
December 31, 2014
NET (LOSS) INCOME FOR THE YEAR
$
(19,172)
$
4,479
OTHER COMPREHENSIVE INCOME (LOSS):
ITEMS THAT MAY BE RECLASSIFIED SUBSEQUENTLY TO NET
(LOSS) INCOME
Foreign currency translation
ITEMS THAT WILL NOT BE RECLASSIFIED TO NET (LOSS) INCOME
Re-measurements of post-employment benefit obligations
Taxes related to post-employment adjustment above
214
214
159
(41)
118
62
62
(5,650)
1,450
(4,200)
OTHER COMPREHENSIVE INCOME (LOSS) FOR THE YEAR,
NET OF TAX
$
332
$
(4,138)
COMPREHENSIVE (LOSS) INCOME FOR THE YEAR
$
(18,840)
$
341
The accompanying notes are an integral part of these consolidated financial statements.
36
DATA GROUP | ANNUAL REPORT 2015
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands of Canadian dollars,
unaudited)
Shares
Conversion
options
Balance as at
Accumulated
other
Contributed comprehensive
income
surplus
Deficit
Total
equity
December 31, 2013
$ 215,336 $
516 $
— $
30 $
(197,807) $
18,075
Net income for the year
Other comprehensive income
(loss) for the year
Total comprehensive income
(loss) for the year
Cancellation of
convertible debentures
Balance as at
—
—
—
—
—
—
—
(3)
—
—
—
—
—
62
62
4,479
4,479
(4,200)
(4,138)
279
341
—
—
(3)
December 31, 2014
$ 215,336 $
513 $
— $
92 $
(197,528) $
18,413
BALANCE AS AT
DECEMBER 31, 2014
Net loss for the year
Other comprehensive
income for the year
Total comprehensive
income (loss) for the year
$ 215,336 $
513 $
— $
92 $
(197,528) $
18,413
—
—
—
—
—
—
—
—
—
—
(19,172)
(19,172)
214
118
332
214
(19,054)
(18,840)
Shares issued on the
redemption of convertible
debentures (note 17)
19,446
(385)
385
—
—
19,446
BALANCE AS AT
DECEMBER 31, 2015
$ 234,782 $
128 $
385 $
306 $
(216,582) $
19,019
The accompanying notes are an integral part of these consolidated financial statements.
37
DATA GROUP | ANNUAL REPORT 2015
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, unaudited)
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net (loss) income for the year
Adjustments to net (loss) income
Depreciation of property, plant and equipment
Amortization of intangible assets
Pension expense
Loss (gain) on disposal of property, plant and equipment
Impairment of goodwill (note 8)
Gain on redemption of convertible debentures (note 11)
Gain on cancellation of convertible debentures
Provisions (note 9)
Amortization of transaction costs
Accretion of convertible debentures
Other non-current liabilities
Other post-employment benefit plans, net
Tax credits recognized
Income tax expense
Changes in working capital (note 19)
Contributions made to pension plans
Provisions paid (note 9)
Income taxes (paid) received
INVESTING ACTIVITIES
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds on disposal of property, plant and equipment
FINANCING ACTIVITIES
Repayment of Credit Facilities (note 10)
Repurchase of convertible debentures
Proceeds from loan payable (note 13)
Repayment of loan payable
Finance and transaction costs
Finance lease payments
For the year ended
December 31, 2015
For the year ended
December 31, 2014
$
(19,172)
$
4,479
4,754
1,949
609
56
26,000
(12,766)
—
13,560
468
212
692
(250)
(181)
729
16,660
3,521
(1,878)
(9,757)
(380)
8,166
(4,300)
(302)
654
(3,948)
(4,000)
—
342
(32)
(565)
(37)
(4,292)
(74)
812
133
871
4,940
1,916
530
(149)
—
—
(103)
2,804
591
295
(270)
134
(378)
1,748
16,537
(445)
(2,538)
(4,138)
637
10,053
(3,207)
—
182
(3,025)
(6,250)
(187)
—
—
(263)
(27)
(6,727)
301
478
33
812
$
$
38
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
DURING THE YEAR
CASH AND CASH EQUIVALENTS – BEGINNING OF YEAR
$
EFFECTS OF FOREIGN EXCHANGE ON CASH BALANCES
CASH AND CASH EQUIVALENTS – END OF YEAR
$
The accompanying notes are an integral part of these consolidated financial statements.
DATA GROUP | ANNUAL REPORT 2015
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 GENERAL INFORMATION
DATA Group Ltd. ("DATA Group") plans and executes business communications. DATA Group helps marketers and
agencies unify and execute communications campaigns across multiple channels, and it helps operations teams
streamline and automate document and communications processes. DATA Group derives its revenues from the
following core capabilities: direct marketing, print services, labels and asset tracking, event tickets and gift cards,
logistics and fulfilment, content and workflow management, data management and analytics, and regulatory
communications. DATA Group is strategically located across Canada to support clients on a national basis, and
serves the U.S. market through its facilities in Chicago, Illinois.
Certain elements of DATA Group’s gift card and direct mail businesses as well as the buying patterns of certain
major customers of DATA Group have historically generated higher revenues and profit in the fourth quarter
than the other three quarters, which results in seasonal fluctuations in sales of those products.
The common shares of DATA Group are listed on the Toronto Stock Exchange (“TSX”) under the symbol “DGI”.
DATA Group's outstanding 6.00% Convertible Unsecured Subordinated Debentures (the “6.00% Convertible
Debentures”) are listed on the TSX under the symbol “DGI.DB.A”. The address of the registered office of DATA
Group is 9195 Torbram Road, Brampton, Ontario.
2 BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
DATA Group prepares its consolidated financial statements in accordance with International Financial Reporting
Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements were approved by the Board of Directors of DATA Group Ltd., on
March 11, 2016.
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF MEASUREMENT
The consolidated financial statements have been prepared under the historical cost convention, except for the
revaluation of certain financial assets and financial liabilities to fair value, including derivative instruments.
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, regardless of whether that price is directly observable or
estimated using another valuation technique. In estimating the fair value of an asset or liability, DATA Group takes
into account the characteristics of the asset or liability if market participants would take those characteristics
into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or
disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-
based payment transactions that are within the scope of IFRS 2 Share based-payments, International Accounting
Standards (“IAS”) 17 Leases, and measurements that have some similarities to fair value but are not fair value, such
as net realizable value in IAS 2 Inventories or value in use in IAS 36 Impairment of assets.
In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based
on the degree to which the inputs to the fair value measurements are observable and the significance of the
inputs to the fair value measurements in its entirety, which are described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity
can access at the measurement date;
• Level 2 inputs are inputs, other than quoted prices included within Level 1; that are observable for the asset
or liability; either directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
39
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of DATA Group and its subsidiaries. All intercompany
transactions, balances and unrealized gains and losses from intercompany transactions are eliminated upon
consolidation.
(a) Subsidiaries
Subsidiaries are all entities (including structured entities) over which DATA Group has control. Control exists when
DATA Group is exposed to, or has the rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date
which control is obtained. They are deconsolidated from the date that control ceases.
DATA Group uses the acquisition method of accounting to account for business combinations. The consideration
transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred
and the equity interests issued by DATA Group or one of its subsidiaries. The consideration transferred includes
the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related
costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair values at the acquisition date. DATA Group recognizes a
non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-
controlling interest’s proportionate share of the recognized amounts of acquiree’s identifiable net assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable
net assets acquired is recorded as goodwill. If the total consideration transferred, non-controlling interest(s)
recognized and previously held interest measured is less than the fair value of the net assets of the subsidiary
acquired in the case of a bargain purchase, the difference is recorded directly in the statement of income (loss).
(a) Changes in ownership interests in subsidiaries without change of control
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity
transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value
of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is
recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
(b) Disposal of subsidiaries
When DATA Group ceases to have control; any retained interest in the entity is re-measured to its fair value at
the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair value is the
initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate,
joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income
(loss) in respect of that entity are accounted for as if DATA Group had directly disposed of the related assets
or liabilities. This may mean that amounts previously recognized in other comprehensive income (loss) are
reclassified to the statement of income (loss).
FOREIGN CURRENCY TRANSLATION
Items included in the financial statements of each entity within DATA Group are measured using the currency of
the primary economic environment in which the entity operates (the “functional currency”). These consolidated
financial statements are presented in Canadian dollars, which is DATA Group’s functional currency. The functional
currency of DATA Group’s United States operations is U.S. dollars. All financial information presented in Canadian
dollars has been rounded to the nearest thousand.
40
Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at rates of
exchange in effect at the statement of financial position date. Revenues and expenses denominated in foreign
currencies are translated into Canadian dollars at rates prevailing on the transaction dates. Gains and losses
resulting from translation of monetary assets and liabilities denominated in currencies other than Canadian
dollars are included in the determination of income for the year.
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts) The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on
acquisitions, are translated to Canadian dollars at exchange rates at the reporting date. The income and
expenses of foreign operations are translated to Canadian dollars at average exchange rate during the period.
Foreign currency differences are recognized in other comprehensive income (loss) in the foreign currency
translation reserve account.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, deposits held with banks, bank overdraft and highly liquid
short-term interest bearing securities with maturities of three months or less at the date of purchase.
FINANCIAL INSTRUMENTS
Financial assets and liabilities are recognized when DATA Group becomes a party to the contractual provisions
of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have
expired or have been transferred and DATA Group has transferred substantially all risks and rewards of ownership.
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when
there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net
basis, or realize the asset and settle the liability simultaneously.
At initial recognition, DATA Group classifies its financial instruments in the following categories depending on the
purpose for which the instruments were acquired:
(i)
Financial assets and liabilities at fair value through profit or loss: A financial asset or liability is classified in
this category if acquired principally for the purpose of selling or repurchasing in the short-term. Derivatives
are also included in this category unless they are designated as hedges.
Financial instruments in this category, which include the restricted share units (RSU's), are recognized initially
and subsequently at fair value. Transaction costs are expensed in the statement of income (loss) and are
included in finance costs. Gains and losses arising from changes in fair value are presented in the statement
of income (loss) within other gains and losses in the period in which they arise. Financial assets and liabilities
at fair value through profit or loss are classified as current except for the portion expected to be realized or
paid beyond twelve months of the statement of financial position date, which is classified as non-current.
(ii)
Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. DATA Group’s loans and receivables are comprised of
trade receivables and cash and cash equivalents, and are included in current assets due to their short-
term nature. Loans and receivables are initially recognized at the amount expected to be received less, if
applicable, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables
are measured at amortized cost using the effective interest method less a provision for impairment.
(iii)
Other Financial liabilities which are measured at amortized cost: Financial liabilities measured at amortized
cost include trade payables, loans payable, credit facilities and convertible debentures. Trade payables are
initially recognized at the amount required to be paid less, if applicable, a discount to reduce the payables
to fair value. Subsequently, trade payables are measured at amortized cost using the effective interest
method. The credit facilities and the non-derivative component of convertible debentures are recognized
initially at fair value, net of any transaction costs incurred, and subsequently at amortized cost using
the effective interest method. DATA Group’s convertible debentures contained a host contract and an
embedded derivative. The host contract (the debt portion of the convertible debenture) is measured as the
residual of the proceeds after deducting the fair value of the embedded derivative, net of any transaction
costs incurred, and subsequently at amortized cost using the effective interest method. Financial liabilities
41
are classified as current liabilities if payment is due within twelve months. Otherwise, they are presented as
non-current liabilities.
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
(iv)
Derivative financial instruments: DATA Group may also use derivatives in the form of interest rate swaps
to manage risks related to its variable rate debt. All derivatives have been classified as held for trading, are
included on the statement of financial position within other assets or other liabilities, and are classified as
current or non-current based on the contractual terms specific to the instrument. Gains and losses on re-
measurement of interest rate swaps that do not meet the hedge criteria and of the written put options are
included in finance costs. At December 31, 2015 and 2014, DATA Group had not entered into any interest
rate swap agreements.
IMPAIRMENT OF FINANCIAL ASSETS
At each reporting date, DATA Group assesses whether there is objective evidence that a financial asset or group
of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are
incurred only if there is objective evidence of impairment as a result of one or more events that occurred after
the initial recognition of the asset (a loss event) and that loss event has an impact on the estimated future cash
flows of the financial asset or group of financial assets that can be reliably estimated.
The amount of the loss is measured as the difference between the asset’s carrying amount and the present
value of the estimated future cash flows discounted at the financial asset’s original effective interest
rate. The asset’s carrying amount is reduced and the amount of the loss is recognized in the statement of
comprehensive income (loss).
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized, the reversal of the previously recognized
impairment is recognized in the statement of comprehensive income (loss). DATA Group recognizes an
impairment loss, as follows:
Financial assets carried at amortized cost: The loss is the difference between the amortized cost of the loan or
receivable and the present value of the estimated future cash flows, discounted using the instrument’s original
effective interest rate. The carrying amount of the asset is reduced by this amount through the use of an
allowance account.
INVENTORIES
Raw materials inventories are stated at the lower of cost and net realizable value. Printed finished goods and
work-in-progress are recorded at the lower of cost and net realizable value. Cost of finished goods, work-
in-process and raw materials are determined using the first-in, first-out method. Inventory manufactured
includes the cost of materials, labour and production overheads (based on normal operating capacity) including
applicable depreciation on property, plant and equipment. Net realizable value is the estimated selling price less
cost to complete and applicable selling expenses.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost less accumulated depreciation and accumulated
impairments. Costs include expenditures that are directly attributable to the acquisition of the asset.
Subsequent costs are included in the asset’s carrying value or recognized as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to DATA Group and
the cost can be measured reliably. The carrying value of a replaced asset is derecognized when replaced.
Maintenance and repairs are expensed as incurred. Depreciation is computed using the methods and rates based
on the estimated useful lives of the property, plant and equipment as outlined below:
Basis
Rate
Leasehold improvements
straight-line
Shorter of life or
Office furniture and equipment
Presses and printing equipment
Computer hardware and software
straight-line
straight-line
straight-line
lease term
5 years
1 to 10 years
1 to 5 years
42
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
DATA Group allocates the amount initially recognized in respect of an item of property, plant and equipment to
its significant parts and depreciates separately each such part. Residual values, the method of amortization and
useful lives of the assets are reviewed annually and adjusted if appropriate.
Gains and losses on disposals of property, plant and equipment are determined by comparing the proceeds with
the carrying amount of the asset and are included in general and administration expenses in the statement of
income (loss).
INTANGIBLE ASSETS
Intangible assets that are acquired are measured at cost at the acquisition date. These assets include customer
relationships, existing software and technology, trademarks and trade names. Management’s judgment is
required to determine the useful lives of intangible assets including reviewing the length of customer relationships
and other factors. These finite life assets are amortized over their estimated useful lives as outlined below.
Customer relationships
Software and technology
Trademarks and trade names
GOODWILL
Basis
straight-line
straight-line
straight-line
Rate
3 to 12 years
7 years
9 years
Goodwill represents the excess of the aggregate of consideration transferred in a business combination and the
non-controlling interest in the acquired business over the net fair value of net identifiable assets and liabilities
acquired. Adjustments to fair value assessments are recorded to goodwill over the measurement period, not
exceeding one year from the date of acquisition. Goodwill is allocated to the cash generating unit (“CGU”) or a
group of CGUs to which it relates. A CGU is an identifiable group of assets that are largely independent of the
cash flows from other assets or group of assets, which is not higher than an operating segment.
Goodwill is evaluated for impairment annually or more frequently if events or circumstances indicate there may
be impairment. Impairment is determined for goodwill by assessing if the carrying value of a cash generating
unit, including the allocated goodwill, exceeds its recoverable amount determined as the greater of the
estimated fair value less costs to sell or the value in use. Impairment losses recognized in respect of a CGU are
first allocated to the carrying value of goodwill and any excess is allocated to the carrying amount of assets
in the CGU. Any goodwill impairment is charged to income in the period in which the impairment is identified.
Impairment losses on goodwill are not subsequently reversed.
IMPAIRMENT OF NON-FINANCIAL ASSETS
Property, plant and equipment and intangible assets are tested for impairment when events or changes
in circumstances indicate that the carrying amount may not be recoverable. For the purpose of measuring
recoverable amounts, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (CGUs). The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use (being
the present value of the expected future cash flows of the relevant asset or CGU). The projections of future cash
flows take into account the relevant operating plans and management’s best estimate of the most probable set
of conditions anticipated to prevail including a number of estimates and assumptions such as projected future
revenues, cost of revenues, operating margins, market conditions well into the future, and discount rates.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable
amount. Impairment losses are recorded as impairment provisions within accumulated depreciation for
depreciable assets. DATA Group evaluates impairment losses, other than goodwill impairment, for potential
reversals when events or circumstances warrant such consideration. Where an impairment loss subsequently
reverses the carrying amount of the asset or CGU is increased to the lesser of the revised estimate of
recoverable amount and the carrying amount that would have been recorded had no impairment loss been
recognized previously.
43
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
SHARE-BASED COMPENSATION
DATA Group has share-based compensation plans as part of DATA Group’s long-term incentive plan, as
described in note 17. All transactions involving share-based payments are recognized as an expense in the
statement of income (loss) over the vesting period.
Equity-settled share-based payment transactions, such as stock option awards, are measured at the grant date
at the fair value of employee services received in exchange for the grant of options or share awards and, for
non-employee transactions, at the fair value of the goods or services received at the date on which the entity
recognizes the goods or services. The total amount of the expense recognized in the statement of income (loss) is
determined by reference to the fair value of the share awards or options granted, which factors in the number of
options expected to vest. Equity-settled share-based payment transactions are not remeasured once the grant
date fair value has been determined.
Cash-settled share-based payment transactions are measured at the fair value of the liability. The liability is
remeasured at each reporting date and at the date of settlement, with changes in fair value recognized in the
statement of income (loss).
EMPLOYEE BENEFITS
DATA Group maintains a defined benefit and defined contribution pension plan (the “DATA Group Pension
Plan”) for some of its employees. Pension benefits are primarily based on years of service, compensation and
accrued contributions with investment earnings. DATA Group's funding policy is to fund the annual amount
required to meet or exceed the minimum statutory requirements. Annual actuarial valuations are required on the
DATA Group Pension Plan until the solvency deficiency is reduced to a level under which the applicable pension
regulations allow the valuations to be completed every three years. At January 1, 2014, the solvency deficiency
had reduced to a level such that actuarial valuations are to be completed every three years.
DATA Group also contributes to the Graphics Communications Supplemental Retirement and Disability Fund
of Canada (“SRDF”) for certain employees at its Drummondville and Granby plants in Québec. The SRDF is a
negotiated contribution defined benefit, multi-employer pension plan which provides retirement benefits to
unionized employees in the printing industry jointly-trusteed by representatives of the employers of SRDF
members and the unions which represent SRDF members in collective bargaining.
Certain former senior executives of a predecessor corporation participated in a Supplementary Executive Retirement
Plan (“SERP”), which provides for pension benefits payable as a single life annuity with a five year guarantee.
(a) Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions
into a separate entity and has no legal or constructive obligation to pay further amounts. Pension benefits
for defined contribution formula are based on the accrued contributions with investment earnings. Under the
defined contribution provision of the DATA Group Pension Plan, DATA Group’s annual pension expense is based
on the amounts contributed in respect of eligible employees when they are due.
(b) Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Pension
benefits for the defined benefit formula are generally calculated based on the number of years of service and
the maximum average eligible earnings of each employee during any period of five consecutive years. DATA
Group accrues its obligations for the defined benefit provision of the DATA Group Pension Plan and the SERP
and related costs, net of plan assets, where applicable. The cost of pensions earned by employees covered by
these plans are actuarially determined using the projected unit credit method taking into account management’s
best estimate of salary escalation, retirement ages and longevity of employees, where applicable. When the
calculation results in a benefit to DATA Group, the recognized asset is limited to the present value of economic
benefits available in the form of any future refunds from the plan or reductions in future contributions to the
plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding
requirements that apply to any plan in DATA Group. An economic benefit is available to DATA Group if it is
realizable during the life of the plan, or on settlement of the plan liabilities.
44
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts) Improvements to the pension plans are recognized as past service costs in the period of the plan amendment.
Current service costs are expensed in the period that the benefits are accrued. Administration costs incurred by
the DATA Group Pension Plan are recognized as period costs. Curtailments and settlements are accounted for
as period costs. Current service costs, administration costs and past services costs are recognized in general and
administration expenses in the statement of income (loss). Net interest is calculated by applying the discount
rate at the beginning of the period to the net benefit liability or asset and is recognized in finance expense
(income) in the statement of income (loss).
The discount rate used to determine the accrued benefit obligation is determined by reference to yields on high
quality corporate bonds and that have terms to maturity approximating the terms of the related pension liability.
Actuarial gains and losses arise from the difference between actual rate of return on plan assets and the discount
rate for that period, from changes in actuarial assumptions used to determine the accrued benefit obligation
and from changes to accrued benefit obligation resulting from actual experience differing from long-term
assumptions used to determine the accrued benefit obligation. Re-measurements, comprising actuarial gains
and losses, the effect of the changes to the asset ceiling (if applicable) and the actual return on plan assets
(excluding interest), is reflected immediately in the statement of financial position with a charge or credit
recognized in other comprehensive income (loss) in the period in which they occur. Re-measurements recognized
in other comprehensive income (loss) are reflected immediately in retained earnings (deficit) and will not be
reclassified to net income (loss).
The retirement benefit obligation recognized in the statement of financial position represents the actual deficit
or surplus in the DATA Group’s defined benefit plans. When the payment in the future of minimum funding
requirements related to past service would result in a net defined benefit surplus or an increase in a surplus, the
minimum funding requirements are recognized as a liability to the extent that the surplus would not be fully
available as a refund or a reduction in future contributions to the plans.
A liability for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the offer
of the termination benefit and when the entity recognizes any related restructuring costs. Termination benefits
that require future services are required to be recognized over the periods the future services are provided.
The SERP is unfunded.
The SRDF is a negotiated contribution defined benefit multi-employer plan, however, the trustees of this plan
are not able to provide sufficient information for DATA Group to account for this plan as a defined benefit plan.
DATA Group has accounted for this plan on a defined contribution basis as DATA Group does not believe there is
sufficient information to recognize participation on a defined benefit basis. See note 20.
(c) Other long-term employee benefit plans
Certain employees of DATA Group are provided with post-employment benefits, including health care and life
insurance benefits on retirement to certain former employees, their beneficiaries and covered dependents. DATA
Group’s net obligation in respect of its non-pension post-employment benefit plans is the amount of future
benefit that employees have earned in return for their service in the current and prior periods; that benefit is
discounted to determine its present value. The calculation is performed using the projected unit credit method.
Any actuarial gains and losses related to non-pension post-employment benefit plans are recognized in other
comprehensive income (loss) in the period in which they arise and will not be reclassified to net income (loss).
DATA Group also provides other long-term employee benefit plans including pension, health care and dental
care benefits for employees on long-term disability. DATA Group’s net obligation in respect of its other long-
term employee benefit plans is the actuarial present value of all future projected benefits determined as at the
valuation date. Any actuarial gains and losses related to other long-term post-employment benefit plans are
recognized in the statement of income (loss) in the period in which they arise. The discount rate is the yield at the
reporting date on yields on high quality corporate bonds that have maturity dates approximating the terms of
DATA Group’s obligations. These non-pension post-employment and other long-term employee benefit plans
are funded on a pay-as-you-go basis.
45
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts) PROVISIONS
A provision is recognized if, as a result of a past event, DATA Group has a present legal or constructive obligation
for which the amount can be estimated reliably, and it is more likely than not that an outflow of economic
benefits will be required to settle the obligation. Provisions are measured at management’s best estimate of the
expenditure required to settle the obligation and discounted to its present value if material. The unwinding of
the discount is recognized as a finance cost.
(i)
Restructuring: A provision for restructuring is recognized when DATA Group has approved a detailed and
formal restructuring plan, and the restructuring either has commenced or has been announced publicly.
Future operating losses are not provided for.
(ii )
Onerous contracts: DATA Group performs evaluations to identify onerous contracts and, where applicable,
records provisions against such contracts.
INCOME TAXES
Income tax expense comprises current and deferred tax. Current income tax and deferred income tax are
recognized in profit or loss except to the extent that it relates to a business combination, or items recognized
directly in equity or in other comprehensive income (loss), in which case the current and/or deferred tax is also
recognized directly in equity or other comprehensive income (loss).
Current income taxes is the expected tax payable or receivable on the taxable income or loss for the year,
using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable
in respect of previous years that are expected to be paid. Deferred income tax is recognized in respect of
temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. Deferred income tax is not recognized for the following temporary
differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable profit or loss, and temporary differences relating to investments
in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the
foreseeable future. In addition, deferred income tax is not recognized for taxable temporary differences arising
on the initial recognition of goodwill. Deferred income tax is measured on a non-discounted basis at the tax rates
that are expected to be applied to temporary differences when they reverse, based on the laws that have been
enacted or substantively enacted by the reporting date.
A deferred income tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against which they can be
utilized. Deferred income tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realized in the foreseeable future.
Deferred income tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity,
or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax
assets and liabilities will be realized simultaneously.
Deferred income tax assets and liabilities are presented as non-current.
LEASES
46
Leases are classified as financing or operating depending on the terms and conditions of the contracts. Lease
agreements where DATA Group assumes substantially all the risks and rewards of ownership are classified as
finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its
fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset
is accounted for in accordance with the accounting policy applicable to that asset class. Obligations recorded
under finance leases are reduced by lease payments net of imputed interest. Other lease agreements are
operating leases and the leased assets are not recognized in DATA Group’s statement of financial position.
Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of
the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts) the lease. The unamortized portion of lease incentives and the difference between the straight-line rent expense
and the payments, as stipulated under the lease agreement, are included in other non-current liabilities.
SHARE CAPITAL
Common shares are classified as equity instruments. Incremental costs directly attributable to the issue of
common shares are recognized as a deduction from equity, net of any tax effects.
REVENUE RECOGNITION
Revenue from the sale of product is recognized upon shipment to the customer when costs and revenues can
be reliably measured, collection is probable, the transfer of title occurs, and risk of loss passes to the buyer.
When the customer requests a bill and hold arrangement, revenue is recognized when the goods are ultimately
shipped to the customer. When customer payments exceed the revenue recognized, the excess is recorded
as deferred revenue. Pre-production services have no standalone value and no reliable evidence of fair value
and are therefore included with the final printed products as one unit of accounting. The majority of products
are customized and product returns are not significant. Warehousing service and marketing service fees are
recognized as the services are provided, when the amount of revenue can be measured reliably, it is probable
that economic benefits associated with these services with flow to DATA Group and the costs associated with
these services can be reliably measured. If warehousing service fees are included in one overall selling price of a
custom print product, the consideration is allocated to each component based on relative selling prices.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of
shares outstanding during the period. Diluted earnings (loss) per share is calculated by adjusting net income
(loss) and weighted average number of shares outstanding during the period for the effects of dilutive potential
shares, which includes the options granted and interest related to DATA Group’s convertible debentures.
USE OF ESTIMATES AND MEASUREMENT UNCERTAINTY
The preparation of consolidated financial statements requires management to make critical judgments,
estimates and assumptions that affect the reported amount of certain assets and liabilities and the disclosure
of the contingent assets and liabilities at the date of the consolidated financial statements and revenues and
expenses for the period reported. Management must also make estimates and judgments about future results
of operations, related specific elements of the business and operations in assessing recoverability of assets and
recorded value of liabilities. Significant areas of measurement uncertainty are summarized below. For each item,
actual results could differ from estimates and judgements made by management.
IMPAIRMENT OF GOODWILL, INTANGIBLE AND NON-CURRENT ASSETS
Goodwill, intangible and non-current assets are tested for impairment if there is an indicator of impairment,
and in the case of goodwill, annually at the end of each fiscal year. The determination of the impairment of
goodwill, intangible and non-current assets are impacted by estimates of the fair value of CGUs, assumptions of
future cash flows, and achieving forecasted business results. These assumptions can be impacted by economic
conditions and also require considerable judgment by management. Declines in business results or declines in
the fair value of DATA Group’s reporting segments could result in impairments in future periods. Changing the
assumptions selected by management, in particular the discount rate and growth assumptions used in the cash
flow projections, could significantly affect DATA Group’s impairment evaluation and hence results.
RESERVE FOR OBSOLETE INVENTORY
The measurement of inventory including the determination of its net realizable value involves the use of
estimates. Judgement also exists in determining whether to recognize a provision for obsolete inventory.
47
Management takes into account the most reliable evidence available at the time the estimates are made. The
quantity, age and condition of inventory are measured and evaluated regularly during the year.
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts) INCOME TAXES
In assessing the probability of realizing income tax assets, management makes estimates related to expectations
of future taxable income, applicable tax opportunities, expected timing of reversals of existing temporary
differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax
authorities. In making its assessments, management gives additional weight to positive and negative evidence
that can be objectively verified.
PENSION OBLIGATIONS
Management estimates the pension obligations annually with the assistance of independent actuaries; however,
the actual outcome may vary due to estimation uncertainties. The estimates of its pension obligations are based
on rates of inflation and mortality that management considers to be reasonable. It also takes into account
DATA Group's specific anticipation of future salary increases, retirement ages of employees and other actuarial
factors. Discount factors are determined close to each fiscal year end by reference to high quality corporate
bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity
approximating to the terms of the related pension liability. Estimation uncertainties exist, which may vary
significantly in future appraisals of DATA Group's defined benefit obligations.
3 CHANGE IN ACCOUNTING POLICIES
(a) New and amended standards adopted
DATA Group has not adopted any new accounting policies since the year ended December 31, 2014.
(b)
New standards, amendments and interpretations issued but not effective for the financial year beginning
January 1, 2015 and not early adopted.
IFRS 9 Financial Instruments was issued in July 2014. IFRS 9 sets out the requirements for recognizing and
measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. IFRS 9
replaces IAS 39 Financial Instruments: Recognition and Measurement. The new standard establishes a single
classification and measurement approach for financial assets that reflects the business model in which they
are managed and their cash flow characteristics. It also provides guidance on an entity’s own credit risk
relating to financial liabilities and has modified the hedge accounting model to better link the economics of risk
management with its accounting treatment. Additional disclosures will also be required under the new standard.
IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. DATA
Group is currently assessing the impact of the new standard on its consolidated financial statements.
IFRS 15 Revenue from Contracts with Customers was issued in May 2014 to establish principles to record
revenues from contracts for the sale of goods or services, unless the contracts are in the scope of IAS 17 Leases
or other IFRSs. Under IFRS 15, revenue is recognized at an amount that reflects the expected consideration
receivable in exchange for transferring goods or services to a customer, applying the following five steps:
1.
Identify the contract with a customer
2.
Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognize revenue when (or as) the entity satisfies a performance obligation
48
The new standard also provides guidance relating to contract costs and for the measurement and recognition of
gains and losses on the sale of certain non-financial assets such as property and equipment. Additional disclosures
will also be required under the new standard. In September 2015, the IASB deferred the effective date of the
standard to annual reporting periods beginning on or after January 1, 2018 with earlier application permitted.
DATA Group is currently assessing the impact of the new standard on its consolidated financial statements.
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
IFRS 16 Leases was issued in January 2016. IFRS 16 requires lessees to recognize assets and liabilities for most
leases. Application of the standard is mandatory for annual reporting periods beginning on or after January 1,
2019, with early application permitted. Data Group is currently assessing the impact of the new standard on its
consolidated financial statements.
There are no other IFRS or International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations
that are not yet effective that would be expected to have a material impact on DATA Group.
4 TRADE RECEIVABLES
Trade receivables
Provision for doubtful accounts
December 31, 2015
December 31, 2014
$
38,577
$
37,835
(526)
(660)
$
38,051
$
37,175
Trade receivables are non-interest bearing with settlement terms from 0 to 90 days.
5 INVENTORIES
Raw materials
Work-in-progress
Finished goods
December 31, 2015
December 31, 2014
$
5,923
2,850
28,280
$
5,842
3,369
30,834
$
37,053
$
40,045
Raw materials and finished goods inventory amounts are net of obsolescence reserves of $657 (2014 – $1,323).
The cost of inventories recognized as an expense within cost of revenues in 2015 was $220,656 (2014 – $229,035).
49
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
6 PROPERTY, PLANT AND EQUIPMENT
Year ended December 31, 2015
Leasehold
improvements
Office
furniture and
equipment
Presses and
printing
equipment
Computer
hardware
and
software
Construction
in progress
Total
Opening net book value
$
4,258 $
385 $
9,781 $
483 $
616 $
15,523
Additions
Effect of movement in
exchange rates
Disposals
Depreciation for the year
3,570
140
946
260
(616)
4,300
15
(128)
(1,466)
5
(1)
(161)
25
(580)
(2,878)
18
(1)
(249)
—
—
—
63
(710)
(4,754)
Closing net book value
$
6,249 $
368 $
7,294 $
511 $
— $
14,422
At December 31, 2015
Cost
$
15,374 $
1,892 $
45,979 $
5,554 $
— $
68,799
Accumulated depreciation
(9,125)
(1,524)
(38,685)
(5,043)
—
(54,377)
Net book value
$
6,249 $
368 $
7,294 $
511 $
— $
14,422
Year ended December 31, 2014
Opening net book value
$
5,137 $
530 $
11,039 $
560 $
— $
Additions
Effect of movement in
exchange rates
Disposals
384
9
(27)
7
2
—
1,931
269
616
6
(6)
6
—
Depreciation for the year
(1,245)
(154)
(3,189)
(352)
17,266
3,207
23
(33)
(4,940)
—
—
—
Closing net book value
$
4,258 $
385 $
9,781 $
483 $
616 $
15,523
At December 31, 2014
Cost
$
13,205 $
1,805 $
47,520 $
5,509 $
616 $
68,655
Accumulated depreciation
(8,947)
(1,420)
(37,739)
(5,026)
—
(53,132)
Net book value
$
4,258 $
385 $
9,781 $
483 $
616 $
15,523
During the year ended December 31, 2014, DATA Group incurred costs related to the modifications to a leased
building for its new manufacturing facility in Calgary, Alberta. These costs of $616 were included in construction
in progress and were not depreciated during the construction period.
50
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
7 INTANGIBLE ASSETS
Year ended December 31, 2015
Opening net book value
Additions
Amortization for the year
Closing net book value
At December 31, 2015
Cost
Accumulated amortization
Net book value
Year ended December 31, 2014
Opening net book value
Additions
Amortization for the year
Closing net book value
At December 31, 2014
Cost
Accumulated amortization
Net book value
Customer
relationships
Software
and
technology
Trademarks
and
trade names
$
7,091 $
170 $
— $
—
(1,831)
302
(118)
—
—
Total
7,261
302
(1,949)
$
5,260 $
354 $
— $
5,614
$
75,623 $
10,724 $
7,700 $
94,047
(70,363)
(10,370)
(7,700)
(88,433)
$
5,260 $
354 $
— $
5,614
$
8,922 $
255 $
— $
9,177
—
(1,831)
—
(85)
—
—
—
(1,916)
$
7,091 $
170 $
— $
7,261
$
75,623 $
10,422 $
7,700 $
93,745
(68,532)
(10,252)
(7,700)
(86,484)
$
7,091 $
170 $
— $
7,261
The remaining useful lives of the customer relationships are between 2 and 3 years.
8 GOODWILL
Opening balance
Impairment of goodwill
Ending balance
Cost
Accumulated impairment losses
Net carrying value
December 31, 2015
December 31, 2014
$
57,066
$
57,066
(26,000)
—
$
31,066
$
57,066
December 31, 2015
December 31, 2014
$
160,725
(129,659)
$
160,725
(103,659)
$
31,066
$
57,066
During the fourth quarter of 2015, DATA Group performed its annual review for impairment of goodwill by
comparing the fair value of each of its CGU’s to the CGUs carrying value. As a result of that review, DATA Group
recorded no goodwill impairment charges. The estimated recoverable amount of DATA CGU exceeded its carrying
value by approximately $18,400 and its recoverable amount would equal its carrying value if the discount rate was
increased by 4.25% to 19.75%.
51
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
During the second quarter of 2015, impairment indicators, including changes in the revenue trends and profit
forecasts and the failure to meet certain financial covenants under its credit facilities, indicated that DATA
Group's assets may be impaired. As a result of this new information, DATA Group performed an impairment
analysis by comparing the fair value of each CGU to the CGU's carrying value. As a result of that review, DATA
Group concluded that the fair value of its DATA CGU was less than its carrying value. Accordingly, DATA Group
recorded an impairment of goodwill of $26,000 related to the DATA CGU during the second quarter of 2015.
DATA Group did not make any changes to the valuation methodology used to assess goodwill impairment since
its last annual impairment test. The recoverable amounts of all CGUs have been determined based on the fair
value less cost to sell. DATA Group uses the income approach to estimate the recoverable value of each CGU. The
income approach is predicated on the value of the future cash flows that a business will generate going forward.
The discounted cash flow method was used which involves projecting cash flows and converting them into a
present value through discounting. The discounting uses a rate of return that is commensurate with the risk
associated with the business and the time value of money. This approach requires assumptions about revenue
growth rates, operating margins, tax rates and discount rates.
Revenue growth rates and operating margins were based on DATA Group’s internal approved financial budgets
or forecasts. DATA Group projected revenue, operating margins and cash flows for a period of five years, and
applied a perpetual long-term growth rate thereafter. Based on the most recent forecasts, DATA Group is
expecting negative growth of 1.0% (2014 – negative growth of 1.0%) over the next two years (2014 – five years)
and a perpetual long-term growth rate of 0% (2014 – 0%) based on forecast GDP growth, inflation rates,
the industry’s expected growth rates and management experience. In arriving at its forecasts, DATA Group
considered past experience, economic trends as well as industry and market trends. The projections also took
into account the expected impact of restructuring initiatives approved.
DATA Group assumed a discount rate to calculate the present value of the projected cash flows, representing a
pre-tax discount rate using a weighted average cost of capital (“WACC”) for DATA Group adjusted for tax, and
is an estimate of the total overall required rate of return on an investment for both debt and equity owners.
Determination of the WACC requires separate analysis of cost of equity and debt, and considers a risk premium
based on the assessment of risks related to the projected cash flows of DATA Group. DATA Group used discount
rates of 15.5% to 19.9% (2014 – 15.5% to 19.9%) reflecting management’s judgment that sales channels and size
of its CGU’s would affect the volatility of each CGU’s cash flows.
DATA Group projects cash flows net of income taxes using substantively enacted tax rates effective during the
forecast periods. DATA Group used a tax rate of 26.5% (2014 – 26.5%). Tax assumptions are sensitive to changes
in tax laws as well as assumptions about the jurisdictions in which profits are earned. It is possible that actual tax
rates could differ from those assumed.
During the fourth quarter of 2014, DATA Group performed its annual review for impairment of goodwill by
comparing the fair value of each of its CGU’s to the CGUs carrying value. As a result of that review, DATA Group
recorded no goodwill impairment charges. The estimated recoverable amount of DATA CGU exceeded its
carrying value by approximately $1,200 and its recoverable amount would equal its carrying value if the discount
rate was increased by 0.2% to 15.7%.
52
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
9 PROVISIONS
Balance – Beginning of year
Additional charge during the year
Utilized during the year
Balance – End of year
Less: Current portion of provisions
As at December 31, 2015
Balance – Beginning of year
Additional charge during the year
Utilized during the year
Balance – End of year
Restructuring
Onerous
contracts
Total
$
1,300 $
2,103 $
3,403
11,231
(7,917)
2,329
(1,840)
13,560
(9,757)
$
4,614 $
2,592 $
7,206
(3,981)
(1,742)
(5,723)
$
633 $
850 $
1,483
Restructuring
Onerous
contracts
$
1,600 $
3,137 $
2,804
(3,104)
—
(1,034)
Total
4,737
2,804
(4,138)
$
1,300 $
2,103 $
3,403
Less: Current portion of provisions
(1,069)
(973)
(2,042)
As at December 31, 2014
$
231 $
1,130 $
1,361
RESTRUCTURING
During the year ended December 31, 2015, DATA Group continued its restructuring and ongoing productivity
improvement initiatives to reduce its cost of operations. During the year ended December 31, 2015, these
initiatives resulted in $11,231 of additional restructuring expenses in the consolidated statement of loss and
comprehensive loss due to changes in senior management, headcount reductions across DATA Group's operations
and the closure of certain manufacturing and warehouse locations. During the year ended December 31, 2014,
these initiatives resulted in $2,804 of restructuring expenses due to headcount reductions in the consolidated
statement of income and comprehensive income.
For the year ended December 31, 2015, cash payments of $7,917 (2014 – $3,103) were made to former employees
for severances and for other restructuring costs. The remaining severance and restructuring accruals of $4,614 at
December 31, 2015 are expected to be paid in 2016 and 2017.
ONEROUS CONTRACTS
During the year ended December 31, 2015, DATA Group closed a Brampton, Ontario warehouse and a Calgary,
Alberta facility. Lease exit charges of $719 and $669, representing the liabilities, at present value, for the
remaining lease costs under each lease agreement and building maintenance costs at each location, were
recorded and will be paid over the remaining term of the leases, each expiring in 2016.
During the year ended December 31, 2015, DATA Group also closed a Vancouver, British Columbia facility. A
lease exit charge of $941, representing the liability, at present value, for remaining lease costs under the lease
agreement and building maintenance costs, was recorded and will be paid over the remaining term of the lease,
expiring in 2018.
53
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
10 CREDIT FACILITIES
Term loan
December 31, 2015
December 31, 2014
- 4.55% bankers' acceptances, maturing January 30, 2015
$
—
$
39,750
- 4.86% bankers' acceptances, maturing January 16, 2016
Revolving facility
- 4.55% bankers' acceptances, maturing January 30, 2015
- 4.86% bankers' acceptances, maturing January 16, 2016
- Floating rate debt
Credit facilities
Unamortized transaction costs
35,750
—
7,500
—
43,250
(155)
—
5,000
—
2,500
47,250
(368)
Less: Current portion of Credit facilities
(43,095)
(3,500)
Credit facilities
$
—
$
43,382
$
43,095
$
46,882
DATA Group maintains credit facilities (the "Credit Facilities") with a syndicate of Canadian chartered banks
(the "Lenders") pursuant to a Third Amended and Restated Credit Agreement (the "Credit Agreement") dated
December 19, 2014. The Credit Facilities mature on August 31, 2016 and have a maximum available principal
amount of $55,000, comprised of a $10,000 revolving facility, a $5,000 swing line facility, and a $40,000
amortizing term loan. The $40,000 amortizing term loan was permanently reduced by $250 on December 31,
2014, by $1,000 on March 31, 2015, by $1,000 on June 30, 2015, by $1,000 on September 30, 2015 and by
$1,000 on December 31, 2015. Under the terms of the Credit Agreement, DATA Group is required to make
mandatory repayments of outstanding advances under the term loan as follows: $1,500 on the last day of March
and June of 2016, respectively. The Lenders' commitment under the term loan will be permanently reduced by
each of these repayments such that on maturity the maximum available principal amount of the term loan will
be $32,750. DATA Group made principal repayments under the term loan of $1,000 during each of the three
month periods ended December 31, 2015, September 30, 2015, June 30, 2015 and March 31, 2015, respectively.
A portion of the credit facilities are subject to bankers’ acceptance fees over the applicable banker’s acceptance
rates. Maturing bankers’ acceptances are typically rolled into new bankers’ acceptances. The floating rate debt
is an advance that is subject to interest at the Canadian prime rate plus an applicable margin. At December 31,
2015, all of DATA Group’s indebtedness outstanding under the Credit Facilities was subject to a floating interest
rate of 4.86% (2014 – 4.59%) per annum.
Advances under the Credit Facilities are secured by conventional security charging all the property and assets of
DATA Group and its subsidiary. A failure by DATA Group to comply with its obligations under the Credit Agreement,
together with certain other events, including a change of control of DATA Group, could result in an event of default
which, if not cured or waived, could permit acceleration of the indebtedness outstanding under the Credit Facilities
and entitle the Lenders to exercise their remedies under their security over DATA Group's assets.
The Credit Agreement contains financial covenants and restrictions, including the requirement to meet certain
financial ratios and financial condition tests. Those covenants require DATA Group to maintain, at all times, a
quarterly maximum ratio (the "Debt to EBITDA Ratio") of total debt to adjusted earnings before interest, income
taxes, depreciation and amortization (“Credit Agreement EBITDA”). The maximum Debt to EBITDA Ratio allowed
for a 12-month trailing period was 2.50 at December 31, 2014 and March 31, 2015, respectively. The maximum
Debt to EBITDA Ratio allowed for a 12-month trailing period ended June 30, 2015 declined to 2.25. The Credit
Agreement also requires DATA Group to maintain, at all times, a quarterly minimum ratio of Credit Agreement
EBITDA to fixed charges (the "Fixed Charge Ratio"). The minimum Fixed Charge Ratio allowed for a 12-month
trailing period was 1.25. DATA Group did not maintain the required Debt to EBITDA Ratio or the Fixed Charge
ratio as at June 30, 2015. As a result, DATA Group was not in compliance with either of these financial covenants
and the outstanding borrowings under the Credit Facilities as at June 30, 2015 were classified as current.
However, during the quarter ended September 30, 2015, DATA Group entered into a Waiver and Amendment
54
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Agreement to Third Amended and Restated Credit Agreement with the Lenders with respect to a waiver for
non-compliance with those financial covenants as at June 30, 2015 and amendments to the terms of the Credit
Agreement as they relate to the Debt to EBITDA Ratio and the Fixed Charge Ratio. After giving effect to those
amendments, the maximum Debt to EBITDA Ratio for the 12 month trailing period ended September 30 2015
was 2.75, declined to 2.50 at December 31, 2015, and declines to 2.25 at March 31, 2016, and to 2.0 after
March 31, 2016. As at December 31, 2015, the Debt to EBITDA Ratio was calculated at 2.06 (2014 – 2.10). The
minimum Fixed Charge Ratio required to be maintained by DATA Group for the 12 month trailing period ended
September 30, 2015 has been amended to 1.10 and rose to 1.25 as at December 31, 2015. As at December 31,
2015, the Fixed Charge Ratio was calculated at 1.78 (2014 – 1.61).
As the Credit Facilities are due to mature in less than 12 months, the outstanding borrowings under the Credit
Facilities have been classified as current at December 31, 2015. See note 26.
The Credit Agreement contains restrictive covenants which limit the discretion of management with respect to
certain business matters and the declaration or payment of dividends on DATA Group's common shares without
the prior consent of the Lenders.
11 CONVERTIBLE DEBENTURES
6.00% convertible debentures, maturing June 30, 2017,
interest payable in June and December, convertible at
December 31, 2015
December 31, 2014
81.967 shares per $1,000 of debenture
$
11,044
$
43,966
Unamortized transaction costs
(132)
(744)
$
10,912
$
43,222
The 6.00% Convertible Debentures with an aggregate principal amount of $11,175 (2014 – $44,705) bear
interest at a rate of 6.00% per annum payable semi-annually, in arrears, on June 30 and December 31. The
6.00% Convertible Debentures mature on June 30, 2017 and are convertible into common shares of DATA
Group (“Shares”) at the option of the holder prior to maturity or redemption at a conversion price of $12.20 per
Share, subject to adjustment in certain events described in greater detail in DATA Group’s Annual Information
Form for the year ended December 31, 2014. The 6.00% Convertible Debentures could not be redeemed before
June 30, 2013.
On or after June 30, 2013 and prior to June 30, 2015, the 6.00% Convertible Debentures could have been
redeemed by DATA Group in whole or in part, from time to time, at the option of DATA Group at a price equal
to the principal amount thereof plus accrued and unpaid interest, provided that the current market price of
the Shares (being the volume-weighted average trading price of the Shares on the TSX for the 20 consecutive
trading days ending on the fifth trading day preceding the applicable date) is at least 125% of the conversion
price of the 6.00% Convertible Debentures. On or after June 30, 2015, the 6.00% Convertible Debentures may
be redeemed by DATA Group in whole or in part, from time to time, at the option of DATA Group at a price equal
to the principal amount thereof plus accrued and unpaid interest.
On redemption or at maturity, DATA Group may, at its option, subject to regulatory approval and certain other
conditions, elect to satisfy its obligation to pay the applicable redemption price for the principal amount of
the 6.00% Convertible Debentures by issuing and delivering that number of Shares obtained by dividing
the aggregate redemption price of the debentures to be redeemed, or the principal amount of outstanding
debentures which have matured, by 95% of the current market price of the Shares on the date fixed for
redemption or the maturity date.
DATA Group capitalized transaction costs of $2,266 related to this issuance and amortization of these costs is
recognized over the term of the 6.00% Convertible Debentures.
55
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
REDEMPTION OF 6.00% CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES
FOR SHARES
DATA Group redeemed $33,530 aggregate principal amount of its $44,705 outstanding 6.00% Convertible
Debentures on December 23, 2015 (the “Redemption Date”). DATA Group elected to satisfy its obligation by
issuing and delivering to holders of 6.00% Convertible Debentures redeemed common shares of DATA Group
(the “Common Shares”) in lieu of cash. On redemption, holders of the 6.00% Convertible Debentures received:
(i) a number of Common Shares equal to the principal amount of 6.00% Convertible Debentures redeemed on
the Redemption Date divided by 95% of the volume-weighted average trading price of the Common Shares
on the Toronto Stock Exchange for the 20 consecutive trading days ended on December 16, 2015, and (ii) a
cash payment equal to accrued and unpaid interest on the 6.00% Convertible Debentures redeemed up to but
excluding the Redemption Date, less any applicable withholding taxes. The redemption of the 6.00% Convertible
Debentures was completed in accordance with the terms of the amended and restated trust indenture dated as
of January 1, 2012 (the “Trust Indenture”) between DATA Group and Computershare Trust Company of Canada
(the “Debenture Trustee”), which governs the 6.00% Convertible Debentures, and did not require the consent of
6.00% Convertible Debenture holders.
On the Redemption Date, DATA Group issued 975,262,140 Common Shares, see (note 17), which, based on the
formula described above, was calculated using a volume-weighted average trading price of $0.03619 per share.
Under IFRS, the Common Shares issued were determined to have a fair value on the Redemption Date of $0.02
per share. Common Shares having a fair value of $19,505 were issued to satisfy the redemption price of the
6.00% Convertible Debentures redeemed on the Redemption Date, which had a carrying value of $32,735 on
that date. This resulted in a gain on redemption of convertible debentures of $13,230 under IFRS. A total of $523
of transaction costs were incurred to execute the redemption. Of the total costs, $59 were directly attributable
to the issuance of the Common Shares and have been netted against the increase in shares. The remaining
costs of $464 were directly attributable to the redemption of the 6.00% Convertible Debentures and have
been expensed and netted against the gain on redemption of convertible debentures within the consolidated
statement of (loss) income. DATA Group also made a cash payment of $970 representing the accrued and unpaid
interest on the 6.00% Convertible Debentures redeemed up to but excluding the Redemption Date, less any
applicable withholding taxes.
The redemption resulted in a reduction of $385 of conversion options being written off to contributed surplus.
NORMAL COURSE ISSUER BID
In May 2015, DATA Group renewed its normal course issuer bid (“NCIB”) for another 12 months. Under the
NCIB, DATA Group may purchase up to a maximum of $4,365 aggregate principal amount of its outstanding
6.00% Convertible Debentures, representing 10% of the “public float” of the 6.00% Convertible Debentures
outstanding and daily purchases are limited to $14 principal amount of 6.00% Convertible Debentures, other
than block purchase exemptions. At December 31, 2015, $ Nil of the 6.00% Convertible Debentures have been
purchased under the renewed NCIB. Under the previous NCIB, which expired in May 2015, $295 aggregate
principal amount of the 6.00% Convertible Debentures were purchased.
56
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
12 DEFERRED AND CURRENT INCOME TAXES
Significant components of DATA Group’s deferred tax assets and liabilities as of December 31, 2015 and 2014 are
as follows:
December 31, 2015
Assets
Liabilities
Net
Pension obligations and other post-employment benefit plans
$
2,649 $
— $
2,649
Unfavourable lease obligation
Lease escalation
Deferred finance fees
Deductible reserves
Tax credit carry-forwards
Convertible debentures
Property, plant and equipment greater than tax values
Intangible assets greater than tax values
Tax related to tax credit carry-forwards
Other
216
200
130
1,166
125
—
—
—
—
—
—
—
—
—
—
(34)
(1,083)
(1,321)
(33)
(21)
216
200
130
1,166
125
(34)
(1,083)
(1,321)
(33)
(21)
Total deferred tax assets (liabilities)
$
4,486 $
(2,492) $
1,994
December 31, 2014
Assets
Liabilities
Net
Pension obligations and other post-employment benefit plans
$
3,035
— $
3,035
Unfavourable lease obligation
Lease escalation
Benefit of income tax loss and other carry-forwards
Deductible reserves
Convertible debentures
Property, plant and equipment greater than tax values
Intangible assets greater than tax values
Deferred finance fees
Other
68
152
914
657
—
—
—
—
—
—
—
—
—
(190)
(1,279)
(1,712)
(155)
(32)
68
152
914
657
(190)
(1,279)
(1,712)
(155)
(32)
Total deferred tax assets (liabilities)
$
4,826 $
(3,368) $
1,458
Reflected in the consolidated statement of financial position as follows:
December 31, 2015
December 31, 2014
Deferred tax assets
Deferred tax liabilities
$
2,070
$
1,508
(76)
(50)
Net deferred tax assets (liabilities)
$
1,994
$
1,458
57
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Balance at
January 1,
2015
Other
Recognized Recognized in
Balance at
in statement comprehensive December 31,
2015
of income
income
Pension obligations and other
post-employment benefit plans
$
3,035 $
— $
(345) $
(41) $
2,649
Unfavourable lease obligation
Lease escalation
Benefit of income tax loss
and other carry-forwards
Deferred finance fees
Deductible reserves
Tax credit carry-forwards
68
152
914
—
657
—
—
—
—
—
—
125
148
48
(914)
130
509
—
—
—
—
—
—
—
216
200
—
130
1,166
125
$
4,826 $
125 $
(424) $
(41) $
4,486
Convertible debentures
$
(190) $
— $
156 $
— $
(34)
Property, plant and equipment
greater than tax values
Intangible assets greater than tax values
Deferred finance fees
Tax related to tax credit carry-forwards
Other
(1,279)
(1,712)
(155)
—
(32)
—
—
—
—
(10)
196
391
155
(33)
21
—
—
—
—
—
(1,083)
(1,321)
—
(33)
(21)
$
(3,368) $
(10) $
886 $
— $
(2,492)
Total deferred tax assets (liabilities)
$
1,458 $
115 $
462 $
(41) $
1,994
Balance at
January 1,
2015
Recognized Recognized in
Balance at
in statement comprehensive December 31,
2014
of income
income
Pension obligations and other
post-employment benefit plans
$
2,114 $
(529) $
1,450 $
3,035
Unfavourable lease obligation
Lease escalation
Benefit of income tax loss and other carry-forwards
Deductible reserves
104
189
2,354
1,084
(36)
(37)
(1,440)
(427)
—
—
—
—
68
152
914
657
$
5,845 $
(2,469) $
1,450 $
4,826
Convertible debentures
$
(276) $
86 $
— $
(190)
Property, plant and equipment greater
than tax values
Intangible assets greater than tax values
Deferred finance fees
Other
(1,465)
(2,255)
(125)
(37)
186
543
(30)
5
—
—
—
—
(1,279)
(1,712)
(155)
(32)
$
(4,158) $
790 $
— $
(3,368)
Total deferred tax assets (liabilities)
$
1,687 $
(1,679) $
1,450 $
1,458
58
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the
related tax benefit through future taxable profits is probable. As at December 31, 2015, DATA Group has non-
capital loss carry-forwards of $nil (2014 – $3,692).
In the ordinary course of business, DATA Group and its subsidiary and predecessors have entered into
transactions where the ultimate tax determination may be uncertain. These uncertainties require management
to make estimates of the ultimate tax liabilities and, accordingly, the provision for income taxes. Since there are
inherent uncertainties, additional tax liabilities may result if tax matters are ultimately resolved or settled at
amounts different from those estimates.
The major components of income tax expense (recovery) for the years ended December 31, 2015 and 2014 are
set out below:
For the year ended
December 31, 2015
For the year ended
December 31, 2014
Current income tax expense:
Current tax on profits for the year
Total current income tax expense
$
1,191
1,191
$
Deferred income tax expense (recovery):
Origination and reversal of temporary differences described above
Total deferred income tax (recovery) expense
(462)
(462)
69
69
1,679
1,679
Total income tax expense for the year
$
729
$
1,748
Taxes on items recognized in comprehensive income (loss) for the years ended December 31, 2015 and 2014 are
set out below:
For the year ended
December 31, 2015
For the year ended
December 31, 2014
Deferred income tax expense (recovery) on recognition of
actuarial gains (losses) related to defined benefit plans
Total deferred income tax expense (recovery) in
comprehensive income (loss)
$
$
41
41
$
(1,450)
$
(1,450)
59
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
FACTORS AFFECTING TAX EXPENSE (RECOVERY) FOR THE YEAR
The 2015 statutory rate of Canadian corporate income tax is 25.89% (2014 – 25.67%). The following are
reconciliations of income taxes calculated at the Canadian corporate rate to the tax expense (recovery) for the
years ended December 31, 2015 and 2014.
For the year ended
December 31, 2015
For the year ended
December 31, 2014
Income (loss) before tax multiplied by the statutory rate
of Canadian corporate tax of 25.89% (2014 – 25.67%)
$
(4,775)
$
1,598
Increase (reduction) in rate resulting from:
Difference between Canadian rates and rates applicable
to subsidiary in another country
Impairment of goodwill
Gain on redemption of convertible debentures
Non-deductible expenses and other items
Total income tax expense (recovery) for the year
$
171
6,731
(1,310)
(88)
729
37
—
—
113
$
1,748
The calculation of current tax is based on a combined federal and provincial statutory income tax rate of 25.89%
(2014 – 25.67%). The tax rate for the current year is 0.22% higher than 2014 due to the effect of changes in
statutory tax rates and the allocation of taxable income between provinces. Deferred tax assets and liabilities
are measured at tax rates that are expected to apply to the period when the asset is realized or the liability is
settled. Deferred tax assets and liabilities have been measured using an expected average combined statutory
income tax rate of 25.63% (2014 – 25.99%) based on the tax rates in years when the temporary differences are
expected to reverse.
13 OTHER NON-CURRENT LIABILITIES
Deferred lease inducement
Lease escalation liabilities
Finance lease liabilities
Loan payable
Less: Current portion of other non-current liabilities
December 31, 2015
December 31, 2014
$
828
768
18
342
$
1,956
(594)
$
1,362
$
$
$
245
614
58
—
917
(369)
548
The current portion of other non-current liabilities is included in trade payables.
During the year ended December 31, 2006, DATA Group entered into a lease agreement for its Edmonton,
Alberta facility and that included lease inducements which were deferred and are recognized over the life of the
lease, expiring in 2016. During the year ended December 31, 2015, DATA Group entered into a lease agreement
for its Calgary, Alberta facility and that included lease inducements which were deferred and are recognized over
the life of the lease, expiring in 2022.
60
DATA Group’s operations are conducted in leased properties. DATA Group’s leases generally provide for minimum
rent and may also include escalation clauses, guarantees and certain other restrictions, and generally require it
to pay a portion of the real estate taxes and other property operating expense. Payments made under operating
leases are recognized in profit or loss on a straight-line basis over the term of the lease, expiring in 2016 to 2022.
During the year ended December 31, 2015, DATA Group entered into a loan payable agreement for licensed
software in the amount of $342. The loan has an interest rate of 2.90% and repayments of $19 per month will be
made over 20 months ending in August 2017.
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
14 PENSION OBLIGATIONS, ASSET AND EXPENSES
Reflected in the consolidated statement of financial position as follows:
December 31, 2015
December 31, 2014
Pension asset
Pension obligations
Pension obligations, net
$
(770)
8,354
$
—
8,949
$
7,584
$
8,949
Effective January 1, 2008, no further service credits will accrue under the defined benefit provision of the
DATA Group Pension Plan. Annual actuarial valuations are required on the DATA Group Pension Plan until the
solvency deficiency is reduced to a level under which the applicable pension regulations allow the valuations
to be completed every three years. At January 1, 2014, the solvency deficiency had reduced to a level such
that actuarial valuations are to be completed every three years. Based on those valuations, the annual cash
contributions in respect of the defined benefit provision of the DATA Group Pension Plan were to be determined
annually and depended on the plan’s investment performance and changes in long-term interest rates,
estimates of the price of annuities, and other elements of pension plan experience such as demographic changes
and administration expenses, among others. Under applicable pension regulations, the plan’s solvency deficiency
can be funded over a maximum period of five years.
During the year ended December 31, 2014, DATA Group engaged actuaries to complete an updated actuarial
valuation of the DATA Group Pension Plan, which confirmed that, as at January 1, 2014, the DATA Group Pension
Plan had a reduced solvency deficit from January 1, 2013. Based upon the January 1, 2014 actuarial valuation
report, DATA Group’s annual cash contributions for the next two years to the defined benefit provision of the
DATA Group Pension Plan will be unchanged at $1,311. During the year ended December 31, 2015, DATA Group
made all the required payments related to its funding requirements for the defined benefit provision of the DATA
Group Pension Plan for 2015, which assumes no change in Canadian economic conditions from those in effect as
at January 1, 2014.
The following is a summary of DATA Group’s net pension obligations:
Present value of funded obligations
Less: Fair value of plan assets
Deficit (surplus) of funded plans
Present value of unfunded obligations
December 31, 2015
December 31, 2014
$
59,929
(60,699)
(770)
8,354
$
61,455
(61,129)
326
8,623
Pension obligations, net
$
7,584
$
8,949
61
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
CHANGE IN THE PRESENT VALUE OF DEFINED BENEFIT PLAN OBLIGATIONS
Funded
Unfunded
December 31,
2015
Balance – Beginning of year
$
61,455 $
8,623 $
70,078
Interest expense
Benefits paid
Re-measurements:
- Gain from change in financial assumptions
- Experience (gains) losses
Balance – End of year
2,416
(3,023)
(900)
(19)
317
(567)
(85)
66
2,733
(3,590)
(985)
47
$
59,929 $
8,354 $
68,283
Funded
Unfunded
December 31,
2014
Balance – Beginning of year
$
51,836 $
8,102 $
59,938
Interest expense
Benefits paid
Re-measurements:
- Loss from change in demographic assumptions
- Loss from change in financial assumptions
- Experience losses (gains)
Balance – End of year
2,547
(2,347)
277
8,308
834
370
(579)
54
749
(73)
2,917
(2,926)
331
9,057
761
$
61,455 $
8,623 $
70,078
- Return on plan assets, excluding amounts included in interest income
(842)
Balance – End of year
$
60,699 $
— $
60,699
CHANGE IN THE FAIR VALUE OF PLAN ASSETS
Balance – Beginning of year
Interest income
Employer contributions
Benefits paid
Administrative expenses paid from plan assets
Re-measurements:
Balance – Beginning of year
Interest income
Employer contributions
Benefits paid
Administrative expenses paid from plan assets
Re-measurements:
Funded
Unfunded
December 31,
2015
$
61,129 $
— $
61,129
2,424
1,311
(3,023)
(300)
2,687
1,959
(2,347)
(300)
—
567
(567)
—
—
2,424
1,878
(3,590)
(300)
(842)
—
579
(579)
—
—
2,687
2,538
(2,926)
(300)
4,610
Funded
Unfunded
December 31,
2014
$
54,520 $
— $
54,520
62
- Return on plan assets, excluding amounts included in interest income
4,610
Balance – End of year
$
61,129 $
— $
61,129
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
DATA GROUP PENSION PLAN ASSET COMPOSITION
Domestic equities
Foreign equities
Equity instruments
For the year ended
December 31, 2015
For the year ended
December 31, 2014
Percentage of
plan assets
Quoted
Percentage of
plan assets
Quoted
$
3,687
5,164
$
3,772
4,992
$
8,851
14% $
8,764
14%
Short and mid-term bonds
Long bonds
Commercial mortgages
$
10,241
$
7,403
37,570
3,677
40,861
3,811
Debt instruments
$
51,488
85% $
52,075
85%
Cash and cash equivalents
$
360
1% $
290
1%
Total
$
60,699
100% $
61,129
100%
ELEMENTS OF DEFINED BENEFIT EXPENSE RECOGNIZED IN THE STATEMENT OF INCOME (LOSS)
December 31,
2015
Unfunded
Funded
Administration expenses
$
300 $
— $
300
Interest expense
Interest income
Total net interest expense
2,416
(2,424)
(8)
317
—
317
2,733
(2,424)
309
Defined benefit expense recognized
$
292 $
317 $
609
Administration expenses
$
300 $
— $
300
Funded
Unfunded
December 31,
2014
Interest expense
Interest income
Total net interest expense
2,547
(2,687)
(140)
370
—
370
2,917
(2,687)
230
Defined benefit expense recognized
$
160 $
370 $
530
63
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
AMOUNTS RECOGNIZED IN THE STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Funded
Unfunded
December 31,
2015
Re-measurements:
- Gain from change in financial assumptions
$
(900) $
(85) $
(985)
- Experience (gains) losses
- Return on plan assets, excluding amounts included in interest income
(19)
842
(77)
66
—
(19)
47
842
(96)
Deferred income tax effect
20
5
25
Defined benefit recovery recognized
$
(57) $
(14) $
(71)
Funded
Unfunded
December 31,
2014
Re-measurements:
- Loss from change in demographic assumptions
$
277 $
54 $
- Loss from change in financial assumptions
- Experience losses (gains)
- Return on plan assets, excluding amounts included in interest income
8,308
834
(4,610)
4,809
749
(73)
—
730
331
9,057
761
(4,610)
5,539
Deferred income tax effect
(1,235)
(187)
(1,422)
Defined benefit expense recognized
$
3,574 $
543 $
4,117
DATA Group manages its pension plans by meeting with an actuarial consultant and the fund managers on a
regular basis and reviews periodic reports outlining changes in the plan liabilities and the return on pension
assets relative to the market. Assumptions are reviewed on an ongoing basis and adjustments are made
whenever management believes that conditions have materially changed.
SIGNIFICANT ACTUARIAL ASSUMPTIONS ADOPTED IN MEASURING DATA GROUP’S DEFINED
BENEFIT OBLIGATIONS
December 31, 2015
December 31, 2014
DATA GROUP PENSION PLAN
Discount rate
Rate of compensation increase
SERP
Discount rate
64
4.10%
3.00%
4.00%
3.00%
3.90%
3.80%
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
DATA Group increased the discount rate that was used to calculate its defined benefit obligations as at
December 31, 2015 to better reflect current Canadian economic conditions and long-term interest rates. The
salary increase assumption remained unchanged at December 31, 2015.
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics
and experience in Canada. These assumptions translate into an average life expectancy in years for a pensioner
retiring at age 65:
Retiring at the end of the reporting period:
Male
Female
Retiring in 25 years after the end of the reporting period:
Male
Female
December 31, 2015
December 31, 2014
21.5
24.0
22.9
25.2
21.4
23.9
22.8
25.1
Through its defined benefit plans, DATA Group is exposed to a number of risks, the most significant of which are
detailed below:
ASSET VOLATILITY
For a defined benefit pension plan, fluctuations in the value of plan assets are assessed in the context of
fluctuations in the plan liabilities. The plan liabilities are calculated using a discount rate set with reference to
high quality corporate bond yields. As discount rates change, the value of the plan liabilities will fluctuate, if the
growth of plan liabilities exceeds that of plan assets a deficit will result. The defined benefit provision of the
DATA Group Pension Plan currently holds a small proportion of equities, 14% of total assets, which are expected
to outperform corporate bonds in the long-term while providing volatility and risk in the short-term. The defined
benefit provision of the DATA Group Pension Plan’s investment time horizon and financial position are key inputs
in deciding on the proportion of equities held.
The defined benefit provision of the DATA Group Pension Plan is closed to new membership, which means
the investment time horizon is shrinking as the plan matures. Beginning in 2012 and as the plan matured, the
defined benefit provision of the DATA Group Pension Plan’s level of investment risk was reduced by lowering the
proportion of equities and increasing the proportion of bonds which are a better match to the plan liabilities.
This shift from equities to better matching bonds commenced in 2012 and was expected to conclude in 2026.
This period was selected based on analysis of projected pension benefit cash flows. Through the derisking
schedule, the defined benefit provision of the DATA Group Pension Plan lowered its interest rate risk, inflation
risk and equity risk. In 2011, the defined benefit provision of the DATA Group Pension Plan had 60% equities
and 40% bonds. In 2026, the defined benefit provision of the DATA Group Pension Plan was expected to have
15% equities and 85% bonds. This derisking strategy is reviewed annually to consider the current environment
and may be revised at any point in time. In 2014, the derisking strategy was reviewed against the investment
time horizon and the financial position of the defined benefit provision of the DATA Group Pension Plan. With a
significant improvement in the financial position, the defined benefit provision of the DATA Group Pension Plan
asset mix was moved to 15% equities and 85% bonds, with the bond portfolio being adopted with liability cash
flow matching characteristics.
65
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
CHANGES IN BOND YIELDS
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an
increase in the value of the plan’s bond holdings.
SALARY RISK
The present value of the pension benefit obligations is calculated by reference to the future salaries of plan
participants, so salary increases of the plan participants greater than assumed will increase plan liabilities.
LIFE EXPECTANCY
The majority of the plans’ obligations provide benefits for the life of the member, so increases in life expectancy
will result in an increase in the plans’ liabilities.
The sensitivity of the defined benefit obligations to changes in assumptions at December 31, 2015 and at
December 31, 2014 are set out below. The effects on each plan of a change in an assumption are weighted
proportionately to the total plan obligations to determine the total impact for each assumption presented.
Change in assumption
Increase in assumption
Decrease in assumption
Discount rate
Salary growth rate
0.25%
0.25%
$
(2,364)
$
2,505
693
(711)
December 31, 2015
Impact on defined benefit obligations
Life expectancy
Increase by 1 year
in assumption
Decrease by 1 year
in assumption
$
1,668
$
(1,708)
December 31, 2014
Impact on defined benefit obligations
Change in assumption
Increase in assumption
Decrease in assumption
Discount rate
Salary growth rate
0.25%
0.25%
$
(2,485)
$
682
2,632
(700)
Life expectancy
Increase by 1 year
in assumption
Decrease by 1 year
in assumption
$
1,667
$
(1,706)
Each sensitivity analysis disclosed in this note is based on changing one assumption while holding all other
assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be
correlated. When calculating the sensitivity of the defined benefit obligation to variations in significant actuarial
assumptions, the same method (present value of the defined benefit obligation calculated with the projected
unit credit method at the end of the reporting period) has been applied as for calculating the liability recognized
in the statement of financial position.
66
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
The weighted average duration of the defined benefit obligations is 14.3 years (2014 – 15.3 years).
Expected maturity analysis of undiscounted pension benefits:
At December 31, 2015
At December 31, 2014
Less than
a year
Between 1
to 2 years
Between 2
to 5 years
Between 5
5 to 10 years
$
$
2,782 $
5,839 $
6,433 $
18,096
2,652 $
5,644 $
6,066 $
17,485
The annual pension expense for the defined contribution provision of the DATA Group Pension Plan is based on
the amounts contributed in respect of eligible employees. The annual pension expense for the SRDF, which is
accounted for as a defined contribution plan, is based on amounts contributed based on a percentage of wages
of unionized employees who are covered by the respective collective bargaining agreements, all of whom are
employed at DATA Group facilities located in the Province of Québec.
DATA Group’s pension expense related to DATA Group’s defined contribution plans are as follows:
Defined contribution plan
Defined benefit multi-employer plan
For the year ended
December 31, 2015
For the year ended
December 31, 2014
$
$
1,720
640
$
$
1,842
664
DATA Group expects that, in 2016, contributions to the defined benefit provision of the DATA Group Pension
Plan will be approximately $1,311, contributions to the defined contribution provision of the DATA Group Pension
Plan will be approximately $1,610, contributions to the SERP will be approximately $567 and contributions to the
SRDF will be approximately $546.
15 OTHER POST-EMPLOYMENT BENEFIT PLANS
Costs related to non-pension post-employment and other long-term employee benefit plans are actuarially
determined using the projected unit credit method, the actuarial present value of all future projected benefits
determined as at the valuation date and management’s best assumptions.
The following summarizes the change in the obligations related to DATA Group’s non-pension post-employment
and other long-term employee benefit plans:
December 31, 2015
December 31, 2014
Balance – Beginning of year
$
2,876
$
2,631
Current service cost
Interest expense
Benefits paid
Re-measurements:
- Gain from change in demographic assumptions
- (Gain) loss from change in financial assumptions
- Experience (gains) losses
Balance – End of year
284
120
(260)
(150)
(20)
(287)
242
136
(277)
(172)
218
98
$
2,563
$
2,876
67
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
ELEMENTS OF OTHER POST EMPLOYMENT BENEFIT EXPENSE RECOGNIZED IN THE STATEMENT
OF INCOME (LOSS)
Current service cost
Interest expense
Re-measurements:
- Experience (gains) losses
Benefit expense recognized
December 31, 2015
December 31, 2014
$
$
284
120
(394)
$
10
$
242
136
33
411
AMOUNTS RECOGNIZED IN THE STATEMENT OF COMPREHENSIVE INCOME (LOSS)
December 31, 2015
December 31, 2014
Re-measurements:
- Loss from change in demographic assumptions
$
- Loss (gain) from change in financial assumptions
- Experience gains
Deferred income tax effect
—
(12)
(51)
(63)
16
$
10
127
(26)
111
(28)
Benefit expense (recovery) recognized
$
(47)
$
83
SIGNIFICANT ACTUARIAL ASSUMPTIONS ADOPTED IN MEASURING DATA GROUP’S OTHER
POST-EMPLOYMENT BENEFIT OBLIGATIONS
DATA GROUP OTHER LONG-TERM EMPLOYEE OBLIGATIONS
December 31, 2015
December 31, 2014
Discount rate
Health care cost trend rate – Initial
Health care cost trend rate declines by 2028 (2014 – 2028)
4.10%
6.10%
4.50%
4.00%
6.12%
4.50%
DATA GROUP NON-PENSION POST-EMPLOYMENT OBLIGATION
December 31, 2015
December 31, 2014
Discount rate
Health care cost trend rate – Initial
Health care cost trend rate declines by 2028 (2014 – 2028)
4.10%
6.58%
4.50%
4.00%
6.74%
4.50%
68
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
SENSITIVITY ANALYSIS ON OTHER POST-EMPLOYMENT BENEFIT OBLIGATIONS
The effects on each plan of a change in an assumption are weighted proportionately to the total plan obligations
to determine the total impact for each assumption presented.
At December 31, 2015
Change in assumption
Increase in assumption
Decrease in assumption
Discount rate
Health care cost trend rates
0.25%
1.00%
$
(48)
182
$
50
(163)
Impact on other post-employment benefit obligations
Life expectancy
Increase by 1 year
in assumption
Decrease by 1 year
in assumption
$
84
$
(80)
At December 31, 2014
Change in assumption
Increase in assumption
Decrease in assumption
Discount rate
Health care cost trend rates
0.25%
1.00%
$
(54)
208
$
56
(186)
Impact on other post-employment benefit obligations
Life expectancy
Increase by 1 year
in assumption
Decrease by 1 year
in assumption
$
81
$
(78)
Expected maturity analysis of undiscounted other post-employment benefits:
At December 31, 2015
At December 31, 2014
Less than
a year
Between 1
to 2 years
Between 2
to 5 years
Between 5
5 to 10 years
$
$
264 $
483 $
443 $
312 $
559 $
477 $
980
942
DATA Group expects that, in 2016, contributions to its other post-employments benefit plans will be
approximately $264.
16 FINANCIAL INSTRUMENTS
DATA Group’s financial instruments consist of cash and cash equivalents, trade receivables, trade payables, loans
payable, credit facilities, and convertible debentures, as indicated in DATA Group’s statements of consolidated
financial position as at December 31, 2015 and 2014. DATA Group does not enter into financial instruments for
trading or speculative purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents, trade receivables, loan payable and trade payables approximates
their carrying value because of the short-term maturity of these instruments.
The fair value of DATA Group's Credit Facilities are equivalent to their carrying value since their interest rates are
comparable to market rates. The 6.00% Convertible Debentures are listed for trading on the TSX, and the debt
portion is recorded at amortized cost. Based on the quoted market price, the 6.00% Convertible Debentures
had a fair value of $7,000 at December 31, 2015 compared to a book value of $10,912 for the debt portion and of
$128 for the conversion options recorded at its historical value.
69
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES
The carrying values and the fair values of DATA Group’s financial instruments are classified into the categories
listed below as at December 31, 2015 and as at December 31, 2014. All financial assets and financial liabilities
listed are categorized as level 1 inputs in the fair value hierarchy. There were no transfers between levels 1, 2 or 3
during the year.
December 31, 2015
Loans and receivables (1)
Financial liabilities at amortized cost (2)
December 31, 2014
Loans and receivables (1)
Financial liabilities at amortized cost (2)
Notes:
Carrying Value
Fair Value
$
39,264
$
39,264
82,400
Carrying Value
$
37,987
118,325
78,356
Fair Value
$
37,987
102,300
(1)
Includes cash and cash equivalents and trade receivables.
(2)
Includes trade payables (excluding financial liabilities related to commodity taxes that are not contractual and that arise as a result of
statutory requirements imposed by governments and therefore do not meet the definition of financial assets or financial liabilities),
loan payable, credit facilities and convertible debentures.
There are no financial instruments recorded at fair value in the consolidated statement of financial position as at
December 31, 2015 and 2014.
RISKS ARISING FROM FINANCIAL INSTRUMENTS
DATA Group is exposed to various risks as it relates to financial instruments. These risks and the processes for
managing the risk are set out below.
CREDIT RISK
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet
its contractual obligations. Financial instruments that potentially subjected DATA Group to credit risk consisted
of cash and cash equivalents and trade receivables. The carrying amount of assets included on the statement of
consolidated position represents the maximum credit exposure.
The cash equivalents consisted mainly of short-term investments, such as money market deposits. DATA Group
has deposited the cash equivalents with Canadian Schedule 1 banks, from which management believes the risk
of loss to be remote.
DATA Group grants credit to customers in the normal course of business. DATA Group typically does not
require collateral or other security from customers; however, credit evaluations are performed prior to the initial
granting of credit terms when warranted and periodically thereafter. Normal credit terms for amounts due from
customers call for payment within 0 to 90 days.
DATA Group has trade receivables from clients engaged in various industries including financial institutions,
insurance companies, healthcare, lottery and gaming, retailing, not-for-profit, energy and governmental
agencies that are not concentrated in any specific geographic area. DATA Group does not believe that any single
industry or geographic region represents significant credit risk. Credit risk concentration with respect to trade
receivables is mitigated by DATA Group’s large client base.
70
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Based on historical experience, DATA Group records a reserve for estimated uncollectible amounts.
Management assesses the adequacy of this reserve quarterly, taking into account historical experience, current
collection trends, the age of receivables and, when warranted and available, the financial condition of specific
counterparties. Management focuses on trade receivables outstanding for more than 90 days in assessing DATA
Group’s credit risk and records a reserve, when required, to recognize that risk. When collection efforts have
been reasonably exhausted, specific balances are written off. As at December 31, 2015, $1,217 or 3.2%, of trade
receivables were more than 90 days old, a decrease from $2,006 or 5.3%, of trade receivables that were more
than 90 days old at December 31, 2014. The movement in DATA Group’s allowance for doubtful accounts for
2015 and 2014 are as follows:
Balance – Beginning of period
Provisions and revisions
Balance – End of period
For the year ended
December 31, 2015
For the year ended
December 31, 2014
$
$
660
(134)
526
$
$
637
23
660
The credit risk associated with derivative financial instruments arises from the possibility that the counterparties
may default on their obligations. In order to minimize this risk, DATA Group enters into derivative transactions
only with highly rated Canadian financial institutions. At December 31, 2015 and 2014, no such transactions
were outstanding.
71
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
LIQUIDITY RISK
Liquidity risk is the risk that DATA Group may encounter difficulties in meeting obligations associated with
financial liabilities as they become due. As at December 31, 2015, DATA Group had access to $7,500 of additional
available credit under its revolving and swing line facilities, less letters of credit granted of $2,157 under its Credit
Facilities. See note 26.
The contractual undiscounted cash flows of DATA Group’s significant financial liabilities are as follows:
December 31, 2015
Trade payables
Loan payable
Long-term debt (1)
Convertible debentures (2)
Total
December 31, 2014
Trade payables
Long-term debt (1)
Convertible debentures (2)
Total
Notes:
Less than
a year
1 to 3 years
4 years and
greater
Total
$
29,766 $
— $
— $
29,766
228
44,608
141
—
671
11,510
—
—
—
369
44,608
12,181
$
75,273 $
11,651 $
— $
86,924
Less than
a year
1 to 3 years
4 years and
greater
Total
$
29,061 $
— $
— $
29,061
6,100
2,682
44,533
48,728
—
—
50,633
51,410
$
37,843 $
93,261 $
— $
131,104
(1)
Credit Facilities, expiring on August 31, 2016. As at December 31, 2015, the outstanding balance totalled $43,250 and bore interest
at an average floating rate of 4.86% per annum. The outstanding balance will be reduced by principal repayments of $1,500 on
March 31 and June 30 of 2016. The amounts at December 31, 2015 include estimated interest totalling $1,358 for 2016. As at
December 31, 2014, the outstanding balance totalled $47,250 and bore interest at an average floating rate of 4.59% per annum.
The outstanding balance was reduced by principal repayments of $1,000 at the end of each quarter of 2015 and will be reduced by
principal repayments of $1,500 on March 31 and June 30 of 2016. The amounts at December 31, 2014 include estimated interest
totalling $2,100 for 2015, and $1,283 for 2016. The estimated interest has been calculated based on the total borrowings outstanding
during the periods and the average annual floating interest rate in effect as at December 31, 2015 and 2014, respectively.
(2)
6.00% Convertible Debentures, maturing on June 30, 2017, convertible at 81.967 shares per $1,000 of debenture. The aggregate
principal amount totalled $11,175 as at December 31, 2015 and totalled $44,705 as at December 31, 2014, respectively. The amounts
at December 31, 2015 include interest totalling $671 for 2016 and $335 for 2017. The amounts at December 31, 2014 include interest
totalling $2,682 for 2015 to 2016 and $1,341 for 2017.
DATA Group also has significant contractual obligations in the form of operating leases (note 20), as well as
contingent obligations in the form of letters of credit. DATA Group believes that the currently projected cash
flow from operations, cash on hand and anticipated lower operating costs resulting from existing and planned
restructuring initiatives will be sufficient to fund its currently projected operating requirements, including
expenditures related to its growth strategy, payments associated with provisions as a result of on-going
productivity improvement initiatives, payment of income tax liabilities, contributions to its pension plans,
maintenance capital expenditures and interest and scheduled repayments of borrowings under its credit facilities.
72
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
MARKET RISK
INTEREST RATE RISK
Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the
financial instrument will fluctuate due to changes in market interest rates. Interest rate risk arises from interest
bearing financial assets and liabilities. Non-derivative interest bearing assets are primarily short term liquid
assets. DATA Group’s interest rate risk arises from long-term debt issuances at fixed and floating interest rates.
At December 31, 2015, $43,250 of the DATA Group’s indebtedness outstanding was subject to floating interest
rates of 4.86% per annum; a 1% increase/decrease in interest rates would have resulted in an increase/decrease
in net income (loss) and comprehensive income (loss) by $456 for the year ended December 31, 2015 (2014 –
$500), respectively. DATA Group’s remaining outstanding 6.00% Convertible Debentures are subject to a fixed
interest rate of 6.00% per annum.
CURRENCY RISK
Currency risk is the risk that the fair value of future cash flows arising from a financial instrument will fluctuate
because of changes in foreign currency exchange rates. In the normal course of business, DATA Group does not
have significant foreign exchange transactions and, accordingly, the amounts and currency risk are not expected
to have adverse material impact on the operations of DATA Group. Management considers the currency risk to
be low and does not hedge its currency risk and therefore sensitivity analysis is not presented.
17 SHARES
DATA Group is authorized to issue an unlimited number of common shares. The common shares have a stated
capital of one dollar. Each common share is entitled to one vote at any meeting of shareholders. Each holder
of the common shares will be entitled to receive dividends if, as and when declared by the Board of Directors.
In the event of the liquidation, dissolution, winding up of DATA Group or other distribution of assets of DATA
Group among its shareholders for the purpose of winding up its affairs, the holders of the common shares will,
subject to the rights of the holders of any other class of shares of DATA Group entitled to receive assets of DATA
Group upon such a distribution in priority to or concurrently with the holders of the common shares, be entitled
to participate in the distribution. Such distribution will be made in equal amounts per share on all the common
shares at the time outstanding without preference or distinction.
On December 23, 2015, DATA Group redeemed $33,530 aggregate principal amount of its $44,705 outstanding
6.00% Convertible Debentures and satisfied this obligation by issuing 975,262,140 common shares of DATA
Group. The share issuance was recorded based on the trading price on the day of the transaction of $0.02 per
share. Transaction costs related to the issuance of $59 were deducted when recording the shares. See note 11 for
further details.
The following summarizes the change in shares:
Balance – January 1, 2015
Shares issued
Balance – December 31, 2015
Number of
Common shares
23,490,592
975,262,140
998,752,732
Amount
$ 215,336
19,446
$ 234,782
Balance – January 1, 2014 and December 31, 2014
23,490,592
$
215,336
73
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
SHARE-BASED COMPENSATION
DATA Group has adopted a Long-Term Incentive Plan ("LTIP") to: recruit and retain highly qualified directors,
officers, employees and consultants (the "Participants"); provide Participants with an incentive for productivity
and an opportunity to share in the growth and the value of DATA Group; and, align the interests of Participants
with those of the shareholders of DATA Group. Awards to Participants are primarily based on the financial results
of DATA Group and services provided. The aggregate maximum number of common shares available for issuance
from DATA Group's treasury under the LTIP is 99,875,273 common shares or 10% of the issued common shares
outstanding. The shares to be awarded will be authorized and unissued shares.
DATA Group's share-based compensation plan consists of five types of awards: restricted share unit ("RSUs"),
options, deferred share unit ("DSUs"), restricted shares or stock appreciation right ("SARs") awards. No DSUs,
restricted shares or SARs have been granted to date.
(a) Restricted share unit ("RSU")
Under the RSU portion of the LTIP, selected employees are granted RSUs where each RSU represents the right
to receive a distribution from the company in an amount equal to the fair value of one DATA Group common
share. RSUs generally vest within three years and primarily settle in cash upon vesting.
A liability for RSUs is measured at fair value on the grant date and is subsequently adjusted for changes in fair
value. The liability is recognized on a graded vesting basis over the vesting period, with a corresponding charge
to compensation expense, as a component of general and administration expenses. Compensation expenses
for RSUs incorporate an estimate for expected forfeiture rates based on which the fair value is adjusted.
During the year a total of 318,217 RSUs were granted to senior executives at DATA Group. During the year
55,096 RSUs were forfeited and 26,844 RSUs were paid in cash such that outstanding RSUs at December 31,
2015 are 236,277. Of the total outstanding RSUs at December 31, 2015, 11,485 have vested and are payable.
Compensation expense amounted to $12 during the year ended December 31, 2015.
(b) Option ("Option")
The Board of Directors has approved the award of options to purchase up to 1,174,500 common shares to
the president and chief executive officer of DATA Group. The options were granted on April 16, 2015, have an
exercise period of seven years from the grant date once vested, and have an exercise price of $0.75 per share,
representing the fair value of the common shares on the date of grant. The vesting of the award is based on
meeting certain performance targets for Actual EPS and Actual Return on Capital Employed ("ROCE") for the
fiscal 2016, 2017 and 2018 fiscal periods. As the targets have not been set, the value of the award, as determined
using a Black-Scholes model and current market inputs, is revalued at each reporting date. At December 31,
2015, $Nil compensation expense has been recognized and no options have vested.
18 EARNINGS (LOSS) PER SHARE
BASIC (LOSS) EARNINGS PER SHARE
Net (loss) income for the period attributable
to common shareholders
For the year ended
December 31, 2015
For the year ended
December 31, 2014
$
(19,172)
$
4,479
Weighted average number of shares
47,538,152
23,490,592
Basic (loss) earnings per share
$
(0.40)
$
0.19
DILUTED (LOSS) EARNINGS PER SHARE
Net (loss) income for the year attributable to common shareholders
$
(19,172)
$
4,479
Weighted average number of shares
47,538,152
23,490,592
Diluted (loss) earnings per share
$
(0.40)
$
0.19
74
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
6.00% Convertible Debentures in the aggregate principal amount of $11,175 (2014 – $44,705) and the related
interest expense were excluded from the computation of diluted earnings per share as their effect would have been
antidilutive. Options granted were excluded from the computation of diluted earnings per share because their
exercise price was higher than the market price of Common Shares.
19 CHANGES IN WORKING CAPITAL
Trade receivables
Inventories
Prepaid expenses and other current assets
Trade payables
Deferred revenue
For the year ended
December 31, 2015
For the year ended
December 31, 2014
$
(805)
3,101
1,462
396
(633)
$
(585)
(2,414)
(1,645)
2,916
1,283
$
3,521
$
(445)
20 COMMITMENTS AND CONTINGENCIES
DATA Group leases real estate, printing equipment, trucks and office equipment in connection with its sales
and manufacturing activities under non-cancellable lease agreements, which expire at various dates. Future
commitments under non-cancellable operating leases are as follows:
2016
2017
2018
2019
2020
2021 and thereafter
December 31, 2015
$
11,046
7,083
4,011
3,167
2,682
2,210
$
30,199
DATA Group and its subsidiary are subject to various claims, potential claims and lawsuits. While the outcome of
these matters is not determinable, DATA Group’s management does not believe that the ultimate resolution of
such matters will have a material adverse impact on DATA Group’s financial position.
DATA Group makes contributions to the Québec Graphics Communications Supplemental Retirement and
Disability Fund of Canada (the "SRDF") based on a percentage of the wages of its unionized employees covered
by the respective collective bargaining agreements, all of whom are employed at DATA Group facilities located
in the Province of Québec. The SRDF is a negotiated contribution defined benefit, multi-employer pension
plan which provides retirement benefits to unionized employees in the printing industry. The SRDF is jointly-
trusteed by representatives of the employers of SRDF members and the unions which represent SRDF members
in collective bargaining. Based upon the terms of those applicable collective agreements, DATA Group’s
estimated annual funding obligation for the SRDF for 2016 is $546. The most recent funding actuarial report
(as at December 31, 2013) in respect of the Québec members of the plan disclosed a solvency deficiency and a
gap between the minimum total contributions required under applicable Québec pension legislation and total
employer contributions determined pursuant to collective agreements.
75
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Under Québec pension legislation applicable prior to December 31, 2014, DATA Group would have been required
to fund any outstanding solvency deficiency in respect of its employees, pensioners and vested deferred
members if DATA Group had withdrawn from the plan or if the plan had been terminated. On February 18, 2015,
Bill 34 (An Act to amend the Supplemental Pension Plans Act with respect to the funding and restructuring of
certain multi-employer pension plans) was tabled in the Québec legislature. Bill 34, which was adopted on
April 2, 2015 with effect from December 31, 2014, amends and clarifies the Québec pension legislation for the
SRDF to, among other things:
• limit required employer contributions only to those amounts specified in the applicable collective
agreements negotiated with the relevant unions;
• eliminate the employer's obligation to fund solvency deficiencies;
• allow for the reduction of accrued benefits; and
• remove the responsibility of participating employers to fund their share of the solvency deficit upon
withdrawal from the plan or termination of the plan, except in certain circumstances when withdrawal from
the plan or termination of the plan occurs within five years of Bill 34 being adopted.
In addition, it appears that another consequence of Bill 34 will be to require the administrator of the SRDF to
propose and seek consensus on a “Recovery Plan”. However, it is unclear as to what form any such plan will take
and any related implications for DATA Group cannot be determined at this time.
21 CAPITAL STRUCTURE
The DATA Group’s objectives when managing its capital structure are:
• To seek to ensure sufficient liquidity to safe guard DATA Group’s ability to continue as a going concern.
• To maintain a strong capital base so as to maintain shareholders’, creditors’, customers', suppliers' and
market confidence.
• To provide a return to shareholders.
DATA Group’s capital structure consists of various types of long-term debt and shareholder’s equity. DATA
Group’s primary uses of capital are to finance increases in working capital, payments towards other long-term
obligations, capital expenditures and acquisitions.
DATA Group’s Credit Facilities are subject to a number of covenants and restrictions including the requirement to
meet certain financial ratios and financial condition tests (see note 10). Management also uses Debt to EBITDA
Ratio as a key indicator in managing DATA Group’s capital.
With respect to its equity, the current level of capital is considered adequate in the context of current operations
and the present strategic plan of DATA Group. The equity component of capital increases primarily based upon
the income of the business less any dividends paid. Management anticipates that any major acquisition or
significant growth initiatives would be financed in part with additional equity.
DATA Group’s capital structure is as follows:
Credit facilities
Convertible debentures
Total long-term debt
Total equity
76
December 31, 2015
December 31, 2014
$
43,095
$
46,882
10,912
$
54,007
$
19,019
43,222
$
90,104
$
18,413
DATA Group is not subject to any externally imposed capital requirements other than certain restrictions under
the terms of its credit facilities, which relates mainly to permitted investments, acquisitions, lease agreements,
dividends and subordinated debt.
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
23 EXPENSES BY NATURE
Raw materials and other purchases
Wages and benefits
Pension and other post-employment expenses
Occupancy costs
Restructuring expenses
Depreciation, amortization and impairments
Other expenses
For the year ended
December 31, 2015
For the year ended
December 31, 2014
$
153,336
101,938
2,550
16,761
13,560
32,703
(3,886)
$
152,547
110,514
3,081
17,380
2,804
6,856
7,072
Total cost of revenues and operating expenses
$ 316,962
$ 300,254
24 SEGMENTED INFORMATION
The president and chief executive officer ("CEO") of DATA Group is the chief operating decision-maker ("CODM").
Management has determined that there is one operating segment based on the information reviewed by the
CODM for the purposes of allocating resources and assessing performance. As a result of the organizational
and operational changes implemented by DATA Group in 2015, DATA Group's operations are increasingly
integrated and interdependent and less focused on serving separate distribution channels and, therefore, DATA
Group's former Multiple Pakfold operating segment has been included in one consolidated operating segment
commencing in the quarter ended December 31, 2015. Management evaluates the performance of the reporting
segment based on income before interest, finance costs and income taxes. Corporate expenses, certain non-
recurring expenses, interest expense, finance costs and income taxes are not taken into account in the evaluation
of the performance of the reporting segment. All significant external sales are to customers located in Canada.
DATA Group established operations in Niles, Illinois during the fourth quarter of 2012 in order to service the U.S.
operations of a large customer and is seeking to grow its U.S. sales, however at December 31, 2015, U.S. sales
were not significant to disclose separately.
Warehousing revenues were approximately 7% of total consolidated revenues for the year ended December 31,
2015 and were approximately 7% of total consolidated revenues for the year ended December 31, 2014.
25 RELATED PARTY TRANSACTIONS
DATA Group does not have transactions in the ordinary course of business with entities whose management,
directors or trustees are also directors of DATA Group.
COMPENSATION OF KEY MANAGEMENT
Key management personnel are deemed to be the CEO, chief financial officer and other members of the senior
executive team. Compensation awarded to key management personnel included:
For the year ended
December 31, 2015
For the year ended
December 31, 2014
Salaries and other short-term employee benefits
$
Termination and retirement benefits
Post-employment benefits
2,405
1,135
29
$
1,950
—
32
Total
$
3,569
$
1,982
The CEO was granted 201,827 RSUs and was granted options to purchase up to 1,174,500 common shares
during the year (see note 17).
During the year ended December 31, 2015, DATA Group’s general and administration expenses include a charge
of $322 (2014 – $356) for the duties performed by DATA Group’s Board of Directors.
77
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts)
26 SUBSEQUENT EVENTS
SENIOR CREDIT FACILITIES
In March 2016, DATA Group established a revolving credit facility (the “Bank Credit Facility”) with a Canadian
chartered bank (the “Bank”) and an amortizing term loan facility (the “IAM Credit Facility”) with the Integrated
Private Debt division of Integrated Asset Management Corp. ("IAM") pursuant to separate credit agreements,
each dated March 10, 2016, between DATA Group and the Bank (the “Bank Credit Agreement”) and IAM (the
“IAM Credit Agreement”), respectively. Approximately $43,250 of the total available principal amount available
to DATA Group under the IAM Credit Agreement and the Bank Credit Agreement has been used to fully repay
DATA Group’s outstanding indebtedness under its former senior credit facilities. As at March 11, 2016, DATA
Group had outstanding borrowings of $15,931 and letters of credit granted of $2,159 under the Bank Credit
Facility, and outstanding borrowings of $28,000 under the IAM Credit Facility.
The Bank Credit Facility has a maximum available principal amount of $25,000. A portion of the Bank Credit
Facility consists of a non-revolving term credit facility (the “Bank Term Facility”) in a maximum principal amount
of $5,000 as well as a committed treasury facility pursuant to which the Bank may, in its sole discretion, agree
to enter into non-speculative hedging arrangements, subject to certain restrictions. Advances under the Bank
Credit Facility may not, at any time, exceed the lesser of $25,000 and a fixed percentage of DATA Group’s
aggregate accounts receivable and inventory (less certain amounts). The Bank Term Facility is a sub facility of
the Bank Credit Facility and is available by way of a single advance and it ` s availability is not based on DATA
Group’s accounts receivable or inventories. The proceeds of the Bank Term Facility must be used by DATA Group
to repay indebtedness owing by it under the senior credit facilities previously maintained by DATA Group with a
syndicate of Canadian chartered banks. Advances under the Bank Credit Facility are subject to floating interest
rates based upon the Canadian prime rate plus an applicable margin of 75 basis points. The Bank Term Facility
matures on the earlier of March 10, 2018 and the date on which the Bank Credit Facility is terminated pursuant to
the Bank Credit Agreement and no repayments on the Bank Term Facility will reduce the total available principal
amount under the Bank Credit Facility. The Bank Credit Facility matures on the earlier of March 10, 2019 and the
date on which the Bank Credit Facility is terminated pursuant to the Bank Credit Agreement.
The IAM Credit Facility matures on March 10, 2023 and has a maximum available principal amount of $28,000.
Indebtedness outstanding under the IAM Credit Facility bears interest at a fixed rate equal to 6.95% per annum.
Under the terms of the IAM Credit Agreement, DATA Group is required to make mandatory blended equal
monthly repayments of principal and interest such that, on maturity, advances under the IAM Credit Facility and
applicable interest on those advances will have been fully repaid. Repayments cannot be reborrowed. Under
the terms of the IAM Credit Agreement, DATA Group must ensure that the aggregate of the principal amount
outstanding under the IAM Credit Facility and the principal amount outstanding under the Bank Credit Facility
does not exceed $50,000.
Both the Bank Credit Agreement and the IAM Credit Agreement contain customary representations and
warranties, as well as restrictive covenants which limit the discretion of the Board of Directors and management
with respect to certain business matters including the declaration or payment of dividends on the common
shares of DATA Group without the consent of the Bank or IAM, as applicable. The Bank Credit Facility limits
spending on capital expenditures by DATA Group to an aggregate amount not to exceed $5,500 during any
fiscal year, and the IAM Credit Agreement limits the incurrence of capital expenditures to no more than $5,000
in any fiscal year.
Under the terms of the IAM Credit Agreement, DATA Group must ensure that the aggregate of the principal
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amount outstanding under the IAM Credit Facility and the principal amount outstanding under the Bank Credit
Facility, calculated on a consolidated basis in accordance with generally accepted accounting principles (“Senior
Funded Debt”), does not exceed $50,000; and DATA Group must maintain (i) a ratio of Senior Funded Debt to
EBITDA for its four most recently completed fiscal quarters of not greater than the following levels: from the
date of the advance up to March 31, 2017 – 3.25 to 1; from April 1, 2017 up to March 31, 2018 – 3.00 to 1; and on
and after April 1, 2018 – 2.75 to 1; (ii) a debt service coverage ratio of not less than 1.50 to 1; and (iii) a working
capital current ratio of not less than 1.25:1.
DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts) Under the terms of the Bank Credit Agreement, DATA Group must maintain a fixed charge coverage ratio of not
less than 1.1:1.0 at all times, calculated on a consolidated basis, in respect of any particular period.
Each of the Bank Credit Facility and the IAM Credit Facility is secured by conventional security charging all the
property and assets of DATA Group and its affiliates. The payment of the principal of, and interest on, DATA
Group’s outstanding 6.00% Convertible Debentures is subordinated in right of payment to the prior payment in
full of DATA Group’s indebtedness under the Bank Credit Agreement and the IAM Credit Agreement.
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DATA GROUP | ANNUAL REPORT 2015NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2015 and 2014(in thousands of Canadian dollars, except percentages, shares and per share amounts) CORPORATE INFORMATION
EXECUTIVE
TEAM
CORPORATE
INFORMATION
Michael G. Sifton
President & Chief Executive
Auditors
PricewaterhouseCoopers LLP
Officer
James E. Lorimer
Chief Financial Officer
Transfer Agent
Computershare Investor
Services Inc.
Steve Wittal
Senior Vice-President, Sales
Corporate Counsel
McCarthy Tétrault LLP
Alan Roberts
Senior Vice-President, Operations
Corporate Office
9195 Torbram Road
Judy Holcomb-Williams
Vice-President, Human Resources
Jeff Gladwish
Vice-President, Marketing
Karl Spangler
Chief Technology Officer
Brampton, Ontario L6S 6H2
Telephone: 905-791-3151
Facsimile: 905-791-1713
Website
www.datacm.com
Toronto Stock Exchange
Symbols
DGI and DGI.DB.A
DIRECTORS
AND OFFICERS
Michael Blair 3
Chairman, Director
J.R. Kingsley Ward 2
Vice-Chairman, Director
William Albino 1, 2
Director
Rod Phillips 1,3
Director
Harinder S. Takhar 1, 3
Director
Michael G. Sifton
Director & Officer
President & Chief Executive
Officer
James E. Lorimer
Officer
Chief Financial Officer & Corporate
Secretary
1 Member, Audit Committee
(Chairperson is
Harinder S. Takhar)
2 Member, Corporate Governance
Committee
(Chairperson is
William Albino)
3 Member, Human Resources and
Compensation Committee
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(Chairperson is
Rod Phillips)
DATA GROUP | ANNUAL REPORT 2015 OUR VALUES
AT DATA COMMUNICATIONS MANAGEMENT WE…
…ARE UNITED AS ONE TEAM
We are a unified team bonded by our common purpose and driven by our
commitment to openness, collaboration and a desire to win
…AIM FOR GREATNESS
We are obsessed with providing an exceptional customer experience
grounded in quality, reliability and accountability
…INNOVATE AND LEAD
We are externally focused, using data and market trends to boldly serve our
clients as trusted advisors and problem solvers
…ARE COMMITTED TO EVERY MEMBER OF OUR TEAM
We inspire and encourage our employees to do great things while continually
learning and celebrating success, within a diverse environment built on
support and belonging
…ARE MINDFUL OF OUR GREATER COMMUNITY AND THE ENVIRONMENT
We share a responsibility for the communities where we live and work and
embrace the best environmental, ethical and governance practices
DATA Group Ltd., 9195 Torbram Road, Brampton, ON L6S 6H2
WWW.DATACM.COM