2017 ANNUAL REPORT
1
MANAGEMENT’S DISCUSSION AND ANALYSIS 2
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 TABLE OF
CONTENTS
02
06
44
45
46
47
47
48
49
50
LETTER TO SHAREHOLDERS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL REPORTING RESPONSIBILITY OF MANAGEMENT
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
CONSOLIDATED STATEMENTS OF CASH FLOW
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
119
CORPORATE INFORMATION
1
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) DATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017
LETTER TO
SHAREHOLDERS
Dear Fellow Shareholders,
DCM completed 2017 with a strong fourth quarter. Revenues were $76.1 million, up 11.6% compared to
a year ago; and Adjusted EBITDA was $5.6 million, up 154.5% versus a year ago. For the fiscal year ended
December 31, 2017, total revenues were $289.5 million, up 4.0% versus a year ago, and Adjusted EBITDA
was $16.1 million, compared to $14.4 million a year ago.
This improvement in your business was driven by several initiatives:
SALES PERFORMANCE
We benefited from market share wins including a large North American financial institution. We achieved
gains in “share of wallet”, essentially providing more services and products to long standing clients.
MARGIN DISCIPLINE AND COST CONTROLS
We undertook a number of initiatives to reduce our product price discounting with a focus to improve gross
margins through “cost plus” discipline.
ACQUISITIONS
The Thistle and Eclipse acquisitions completed in February 2017 contributed strong results in the year
and helped improve overall gross margins for the company. BOLDER Graphics, acquired in November 2017,
chipped in for our last month of the year. BOLDER Graphics provides DCM with highly complementary
large format platform capabilities in Western Canada and we expect a strong performance from the
business in 2018.
OPERATIONAL EFFICIENCIES
We focused on five key areas:
•
•
Announced and executed the move of Multiple Pakfold from its separate Mississauga, Ontario facility
into our Brampton, Ontario location. Estimated annual savings in excess of $0.8 million are expected
from this move.
Announced and completed the move of our Granby, Québec warehousing operations into our
Drummondville, Québec facility. Annual associated savings are estimated at $0.7 million.
2
LETTER TO SHAREHOLDERS
• Announced and completed the move of BOLDER Graphics into our Calgary, Alberta location. Annual
total savings are estimated at $0.8 million.
•
•
Executed strategic selling, general and administrative cost reductions. The elimination of
approximately 30 personnel will result in annualized estimated savings of approximately $3.5 million.
Continued to progress with the implementation of our new ERP project. This is positioned for
completion before the end of 2018.
As a result of all of the above, we recently shared our outlook for fiscal 2018 with the market which
incorporates the above initiatives together with positive revenue trends. The “Outlook” discussion in the
enclosed management’s discussion and analysis of financial conditions and results of operations further
describes our outlook and assumptions. We are quite encouraged by the momentum we have in the business.
LEADERSHIP TRANSITION
Reflecting on how the DCM team has successfully navigated its transformation over the last three years,
as evidenced by the strong fourth quarter in 2017 and the positive outlook for 2018, I want to announce
that I am stepping aside from the CEO role, effective June 2018 at the shareholders’ annual general meeting.
I will however remain a director, subject to shareholder support, and continue as a significant and very
supportive shareholder.
I originally joined DCM with the intent to reposition the business for lasting success, and I am confident
that the changes we have made to strengthen our team at all levels, and the course we have established,
are now in place to do just that.
Gregory J. Cochrane will add CEO to his current title of President. I have thoroughly enjoyed working
with and learning from Greg since he joined us in November 2016. During this time Greg has made
many important and transformative moves to propel DCM forward. His leadership, energy and keen
“customer first” focus is what DCM needs as it continues to move from its strong historical role of being an
operations-focused communications provider to becoming more of a marketing communications-focused
provider and thought leader.
LETTER TO SHAREHOLDERS
3
DATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017
As we approach this succession, I want to share my extreme gratitude to the whole DCM team. The company
is made up of a highly talented, diverse, and extremely loyal team of individuals, all of whom have made
my job enjoyable and successful.
The caliber of the DCM team is a direct result of the leadership provided by many employees over the
history of DCM. I consider it a once in a lifetime privilege to have spent three years working with you. In
particular, I’d like to recognize my key confidants Alan Roberts, our Senior Vice-President of Operations,
James Lorimer, our Chief Financial Officer, and Judy Holcomb-Williams, our Vice-President of People
Experience and who has recently taken on the role of Senior Vice-President, Chief Cultural Officer. You folks
have made my DCM journey a thrill and one I’m immensely proud of.
Lastly, I’d like to thank our board of directors made up of seasoned, sound veterans, led by our Chairman
J.R. Kingsley Ward. Your support has been an essential ingredient for our success.
This will be the last DCM shareholder letter I write by myself for I will share this privilege with Greg for our
first quarter of 2018 report. As such, I want to take this opportunity to thank you, our shareholders, for your
tremendous support and patience as we have wrestled to transition and transform your company into
a modern communications corporation with an appropriate capital structure.
The journey is not over yet, but I truly now believe we know our destination and we have new sails with
the wind at our backs.
For a full description of our financial results for the fourth quarter and full year financial results for 2017,
please refer to our audited consolidated financial statements for the year ended December 31, 2017 and
related management’s discussion and analysis, copies of which are available at www.sedar.com.
Kindest regards,
(Signed) “Michael G. Sifton”
Michael G. Sifton
Chief Executive Officer
DATA Communications Management Corp.
March 2018
4
LETTER TO SHAREHOLDERS
MANAGEMENT
REPORTS
MANAGEMENT
REPORTS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and
On July 4, 2016, DCM consolidated its issued and
analysis (“MD&A”) is intended to assist readers
outstanding common shares (“Common Shares”)
in understanding the business environment,
on the basis of one post-consolidation Common
strategies, performance and risk factors of
Share for each 100 pre-consolidation Common
DATA Communications Management Corp.
Shares (the “Share Consolidation”). All references
(TSX: DCM.TO) and its subsidiaries (referred
in this MD&A to Common Shares, restricted
to herein as “DCM” or the “Company”) for
share units and stock options reflect the Share
the years ended December 31, 2017 and 2016.
Consolidation, unless specified otherwise.
This MD&A should be read in conjunction with
the audited consolidated financial statements
and accompanying notes of DCM for the years
ended December 31, 2017 and 2016. Additional
information about the Company, including its
most recently filed audited consolidated financial
statements, Annual Information Form and
Management Information Circular may also be
obtained on SEDAR (www.sedar.com). Unless
otherwise indicated, all amounts are expressed
in Canadian dollars.
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 DCM,
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
The Company’s Board of Directors, on the
MD&A, words such as “may”, “would”, “could”,
recommendation of its Audit Committee, approved
“will”, “expect”, “anticipate”, “estimate”,
the contents of this MD&A. This MD&A reflects
“believe”, “intend”, “plan”, and other similar
information as of March 8, 2018.
expressions are intended to identify
BASIS OF PRESENTATION
The consolidated financial statements are
prepared in accordance with International
Financial Reporting Standards (“IFRS”),
as issued by the International Accounting
Standards Board (“IASB”).
forward-looking statements. These statements
reflect DCM’s current views regarding future
events and operating performance, are based
on information currently available to DCM, 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
6
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 or results, and will not necessarily be accurate
Should one or more of these risks or uncertainties
indications of whether or not such performance
materialize, or should assumptions underlying the
or results will be achieved. Many factors could
forward-looking statements prove incorrect, actual
cause the actual results, performance, objectives
results may vary materially from those described
or achievements of DCM to be materially different
in this MD&A as intended, planned, anticipated,
from any future results, performance, objectives
believed, estimated or expected. Unless required by
or achievements that may be expressed or implied
applicable securities law, DCM does not intend
by such forward-looking statements. The principal
and does not assume any obligation to update these
factors, assumptions and risks that DCM made
forward-looking statements.
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
DCM’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 DCM will adversely affect DCM’s financial
results; the risk that DCM may not be successful
in reducing the size of its legacy print business,
realizing the benefits expected from restructuring
and business reorganization initiatives, reducing
costs, reducing and repaying its long-term
debt, and growing its digital and marketing
communications businesses; the risk that DCM
may not be successful in managing its organic
growth; DCM’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
DCM and are well-established suppliers; DCM’s
ability to grow its sales or even maintain historical
levels of its sales of printed business documents;
the impact of economic conditions on DCM’s
businesses; risks associated with acquisitions by
DCM; the failure to realize the expected benefits
from acquisitions and risks associated with the
integration of acquired businesses; increases in
the costs of paper and other raw materials used by
DCM; and DCM’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
DCM’s publicly available disclosure documents,
as filed by DCM on SEDAR (www.sedar.com).
NON-IFRS MEASURES
This MD&A includes certain non-IFRS 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 means EBITDA adjusted for restructuring
expenses, one-time business reorganization costs,
goodwill impairment charges, gain on redemption
of convertible debentures, gain on cancellation
of convertible debentures, and acquisition costs.
Adjusted net income (loss) means net income
(loss) adjusted for restructuring expenses, one-
time business reorganization costs, goodwill
impairment charges, gain on redemption of
convertible debentures, gain on cancellation of
convertible debentures, acquisition costs and the
tax effects of those items. Adjusted net income
(loss) per share (basic and diluted) is calculated by
dividing Adjusted net income (loss) for the period
by the weighted average number of Common
Shares (basic and diluted) outstanding during
the period. In addition to net income (loss), DCM
uses non-IFRS measures including Adjusted net
income (loss), Adjusted net income (loss) per share,
EBITDA and Adjusted EBITDA to provide investors
with supplemental measures of DCM’s operating
performance and thus highlight trends in its core
business that may not otherwise be apparent
when relying solely on IFRS financial measures.
DCM also believes that securities analysts,
7
MANAGEMENT’S DISCUSSION AND ANALYSIS investors, rating agencies and other interested
is strategically located across Canada, including
parties frequently use non-IFRS measures in the
seven centres of excellence to support clients on
evaluation of issuers. DCM’s management also uses
a national basis, and serves the U.S. market
non-IFRS measures in order to facilitate operating
through its facilities in Chicago, Illinois.
performance comparisons from period to period,
prepare annual operating budgets and assess
its ability to meet future debt service, capital
expenditure and working capital requirements.
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 DCM’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 DCM
OVERVIEW
DCM derives its revenues from the following core
capabilities: direct marketing, commercial 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. The
Company serves clients in key vertical markets
such as financial services, retail, healthcare,
lottery and gaming, not-for-profit, and energy.
Customer agreements and terms typically include
provisions consistent with industry practice, which
allow DCM to pass along increases in the cost
of paper and other raw materials used to
manufacture products.
DCM’s revenue is subject to the seasonal
advertising and mailing patterns of certain
customers. Typically, higher revenues and profit
are generated in the fourth quarter relative to the
other three quarters, however this can vary from
time to time by changes in customers’ purchasing
decisions throughout the year. As a result, DCM’s
revenue and financial performance for any single
quarter may not be indicative of revenue and
financial performance which may be expected
for the full year.
DCM has approximately 1,411 employees in
DCM is a leading provider of business
Canada and the United States, and had revenues of
communication solutions, bringing value and
$289.5 million in 2017. Website: www.datacm.com
collaboration to marketing and operations
teams in companies across North America.
DCM helps marketers and agencies unify and
execute communications campaigns across
multiple channels, and it helps operations
teams streamline and automate document and
communications management processes. DCM
8
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017
RECENT DEVELOPMENTS
$1.6 million in cash, $0.8 million through the
POST-INTEGRATION
OF ACQUISITIONS COMPLETED
As previously reported, DCM completed the
acquisition of Eclipse Colour and Imaging Corp.
(“Eclipse”) and Thistle Printing Limited (“Thistle”)
in the first quarter of 2017 and completed the
acquisition of BGI Holdings Inc. and 1416395
Alberta Limited, collectively “BOLDER Graphics”
on November 10, 2017, (the “BOLDER Closing
Date”). DCM reported revenues and net income
(loss) for the year ended December 31, 2017 from
Eclipse of $21.8 million and $2.1 million, from
Thistle of $15.1 million and $0.8 million, and
BOLDER Graphics of $1.0 million and $(0.1) million,
all since their respective dates of acquisition.
During the first quarter of 2018, DCM relocated
BOLDER Graphics’ staff and operations into
DCM’s 165,000 square foot Calgary, Alberta
facility, which produces a wide array of sheet-
fed lithography, digital and wide format print
services, variable print-on-demand solutions and
provides warehousing, fulfillment and distribution
services. The combination of these two operations
are expected to provide immediate annualized
total cost savings synergies of approximately
issuance of 704,424 Common Shares, and
$1.1 million in the form of subordinated,
unsecured, 6.0% interest bearing vendor take-back
promissory notes, which are payable in twenty
equal monthly blended payments of principal and
interest commencing on February 28, 2018 and
ending on September 30, 2019, and the assumption
of approximately $0.9 million in outstanding
long-term indebtedness. The post-closing
adjustments to the purchase of $88 thousand have
been finalized and were paid in February 2018 to
the vendor and therefore have been included in
trade payables and accrued liabilities in DCM’s
consolidated statement of financial position
as at December 31, 2017.
Note 4 to the audited consolidated financial
statements of DCM for the year ended
December 31, 2017 contains additional information
used to determine the fair value of the Common
Shares and fair value of the vendor take-back
promissory note issued on BOLDER Closing Date.
On the BOLDER Closing Date, DCM also advanced
$1.3 million to settle BOLDER Graphics’ bank
indebtedness and amounts payable to the former
owners of the company.
$0.8 million. This acquisition strengthens DCM’s
Total cash advanced on the BOLDER Graphics
large and wide format printing capabilities in
acquisition of $2.9 million, which was used to
western Canada and complements its significantly
finance the up-front cash component of the
expanded large and wide format capabilities
acquisition and settle the above noted debt.
obtained through the acquisition of Eclipse in
$2.0 million was financed with the proceeds
eastern Canada earlier this year.
from the IAM V Credit Facility (as defined in the
BOLDER Graphics was acquired for a total purchase
price of approximately $3.4 million, before giving
effect to post-closing adjustments for changes
in working capital and bank indebtedness, based
on the final statement of financial position as of
the BOLDER Closing Date. The purchase price was
satisfied as follows on the BOLDER Closing Date:
“Liquidity and Capital Resources” below) and
$0.9 million was financed with a draw under
DCM’s bank credit facility (see “Liquidity and
Capital Resources” below for further details related
to DCM’s bank credit facilities).
9
MANAGEMENT’S DISCUSSION AND ANALYSIS
The valuation report for the BOLDER Graphics
REVENUE RECOGNITION POLICY
acquisition is still in progress, and therefore, the
purchase price allocation remains preliminary.
As such, there may be adjustments to the purchase
accounting and those adjustments could be
material. The post-closing adjustment for the
Eclipse acquisition was completed during the
second quarter of 2017 and did not change the
purchase price significantly from the estimated
amount previously used for the purchase
accounting. The post-closing adjustment for the
Thistle acquisition was completed during the
third quarter of 2017 and resulted in a small
increase in the purchase price previously used
for the purchase accounting.
OPERATIONAL INITIATIVES
On January 25, 2018, DCM announced the
DCM 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 DCM’s
products are customized, product returns are not
significant. DCM 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 their fair value.
Therefore, these pre-production services and the
final custom made printed product are considered
to be one unit of accounting. DCM recognizes
warehousing, administration and marketing
integration of the Company’s Multiple Pakfold
service fees when the services are provided, the
operations into its Brampton, Ontario facility and
amount of revenue can be measured reliably, it is
the relocation of its Granby, Québec warehousing
probable that economic benefits associated with
operations into its Drummondville, Québec facility
these services will flow to DCM and the costs
were completed as planned with little business
disruption. These facility moves, together with
the labour force reductions DCM announced in
October 2017 of approximately 30 individuals
across the Company’s indirect labour, selling,
associated with these services can be reliably
measured. DCM 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
general and administrative functions, and ongoing
services represent a separate unit of accounting
efforts to drive efficiencies throughout the
because they can be sold separately, have value to
Company, are expected to result in annualized
the customer on a stand-alone basis, and there is
total savings of approximately $5.0 million.
objective and reliable evidence of the fair value of
DCM expects to realize the full quarter effect of
these services. If warehousing, administration and
many of these improvements commencing in the
marketing service fees are included in one overall
first quarter of 2018.
selling price of DCM’s custom print products, the
consideration is allocated to each component based
on relative selling prices.
10
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 SELECTED CONSOLIDATED
FINANCIAL INFORMATION
The following tables set out summary consolidated
financial information and supplemental
information for the periods indicated. The
summary annual financial information for each
of Fiscal 2017, Fiscal 2016 and Fiscal 2015 has been
derived from consolidated financial statements,
prepared in accordance with IFRS. The unaudited
financial information presented has been
prepared on a basis consistent with our audited
consolidated financial statements. In the opinion
of management, such unaudited financial data
reflects all adjustments, consisting of normal and
non-recurring adjustments, necessary for a fair
presentation of the results for those periods.
COST OF REVENUES AND EXPENSES
DCM’s cost of revenues consists of raw materials,
manufacturing salaries and benefits, occupancy,
lease of equipment and depreciation. DCM’s
raw material costs consist primarily of paper,
carbon and ink. Manufacturing salaries and
benefits costs consist of employee salaries and
health benefits at DCM’s printing and warehousing
facilities. Occupancy costs consist primarily
of lease payments at DCM’s facilities, utilities,
insurance and building maintenance. DCM’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.
DCM has incurred restructuring expenses in
each of the last four fiscal years, which primarily
consisted of severance costs associated with
headcount reductions and costs related to
facilities closures.
11
MANAGEMENT’S DISCUSSION AND ANALYSIS
TABLE 1
The following table sets out selected historical consolidated financial information for the periods noted.
For the years ended December 31, 2017, 2016 and 2015
(in thousands of Canadian dollars, except share
and per share amounts, unaudited)
January 1 to
December 31
2017
January 1 to
December 31
2016
January 1 to
December 31
2015
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Restructuring expenses
Impairment of goodwill
Gain on redemption of convertible debentures
Acquisition costs
$
289,529
$
278,363
$
220,138
215,295
69,391
61,371
9,457
—
—
1,368
72,196
63,068
55,934
4,200
31,066
—
68
91,268
304,575
233,505
71,070
56,663
13,560
26,000
(12,766)
—
83,457
(Loss) before finance costs and income taxes
(2,805)
(28,200)
(12,387)
Finance costs (income)
Interest expense
Interest income
Amortization of transaction costs
4,415
(6)
701
5,110
3,414
(8)
578
3,984
5,599
(11)
468
6,056
(Loss) before income taxes
(7,915)
(32,184)
(18,443)
Income tax (recovery) expense
Current
Deferred
Net loss for the year
Basic (loss) earnings per share
Diluted (loss) earnings per share
Weighted average number of common shares
outstanding, basic
Weighted average number of common shares
outstanding, diluted
As at December 31, 2017, 2016 and 2015
(in thousands of Canadian dollars, unaudited)
Current assets
Current liabilities
Total assets
Total non-current liabilities
Shareholders’ deficit
12
725
(2,435)
(1,710)
(6,205)
(0.38)
(0.38)
$
$
$
1,572
(1,649)
(77)
(32,107)
(2.89)
(2.89)
$
$
$
1,191
(462)
729
(19,172)
(40.33)
(40.33)
16,330,837
11,125,518
475,382
16,330,837
11,125,518
475,382
As at
December 31
2017
As at
December 31
2016
As at
December 31
2015
82,804
$
68,620
$
68,648
131,859
68,610
58,473
90,910
42,372
83,619
46,176
164,977
100,388
(5,399)
$
(9,935)
$
18,413
$
$
$
$
$
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 TABLE 2
The following table sets out selected historical consolidated financial information for the periods noted.
See “Non-IFRS Measures”.
For the years ended December 31, 2017, 2016 and 2015
(in thousands of Canadian dollars, except percentage
amounts, unaudited)
January 1 to
December 31
2017
January 1 to
December 31
2016
January 1 to
December 31
2015
Revenues
Gross profit
Gross profit, as a percentage of revenues
Selling, general and administrative expenses
As a percentage of revenues
Adjusted EBITDA (see Table 3)
As a percentage of revenues
Net loss for the year
Adjusted net (loss) income (see Table 4)
As a percentage of revenues
TABLE 3
$
$
$
$
$
$
289,529
69,391
24.0%
61,371
21.2%
16,104
5.6%
(6,205)
2,472
0.9%
$
$
$
$
$
$
278,363
63,068
22.7%
55,934
20.1%
14,381
5.2%
(32,107)
2,944
1.1%
$
$
$
$
$
$
304,575
71,070
23.3%
56,663
18.6%
21,110
6.9%
(19,172)
5,764
1.9%
The following table provides reconciliations of net (loss) income to EBITDA and of net (loss) income to
Adjusted EBITDA for the periods noted. See “Non-IFRS Measures”.
EBITDA AND ADJUSTED EBITDA RECONCILIATION
For the years ended December 31, 2017, 2016 and 2015
(in thousands of Canadian dollars, unaudited)
January 1 to
December 31
2017
January 1 to
December 31
2016
January 1 to
December 31
2015
Net (loss) income for the year
$
(6,205)
$
(32,107)
$
(19,172)
Interest expense
Interest income
Amortization of transaction costs
Current income tax expense
Deferred income tax recovery
Depreciation of property, plant and equipment
Amortization of intangible assets
EBITDA
Restructuring expenses
One-time business reorganization costs
Impairment of goodwill
Gain on redemption of convertible debentures
Acquisition costs
Adjusted EBITDA
4,415
(6)
701
725
(2,435)
4,143
3,509
3,414
(8)
578
1,572
(1,649)
4,052
2,092
5,599
(11)
468
1,191
(462)
4,754
1,949
$
4,847
$
(22,056)
$
(5,684)
9,457
432
—
—
1,368
4,200
1,103
31,066
—
68
13,560
—
26,000
(12,766)
—
$
16,104
$
14,381
$
21,110
13
MANAGEMENT’S DISCUSSION AND ANALYSIS TABLE 4
The following table provides reconciliations of net (loss) income to Adjusted net (loss) income and a
presentation of Adjusted net (loss) income per share for the periods noted. See “Non-IFRS Measures”
ADJUSTED NET (LOSS) INCOME RECONCILIATION
For the years ended December 31, 2017, 2016 and 2015
(in thousands of Canadian dollars, except share
and per share amounts, unaudited)
January 1 to
December 31
2017
January 1 to
December 31
2016
January 1 to
December 31
2015
Net (loss) income for the year
$
(6,205)
$
(32,107)
$
(19,172)
Restructuring expenses
One-time business reorganization costs
Impairment of goodwill
Gain on redemption of convertible debentures
Acquisition costs
Tax effect of the above adjustments
Adjusted net (loss) income
Adjusted net (loss) income per share, basic
Adjusted net (loss) income per share, diluted
Weighted average number of common shares
outstanding, basic
Weighted average number of common shares
outstanding, diluted
9,457
432
—
—
1,368
(2,580)
2,472
0.15
0.15
$
$
$
4,200
1,103
31,066
—
68
(1,386)
2,944
0.26
0.26
$
$
$
13,560
—
26,000
(12,766)
—
(1,858)
5,764
12.12
12.12
$
$
$
16,330,837
11,125,518
475,382
16,445,831
11,125,518
475,382
Number of common shares outstanding, basic
20,039,159
11,975,053
9,987,528
Number of common shares outstanding, diluted
20,154,153
12,545,015
9,987,528
RESULTS OF OPERATIONS
REVENUES
For the year ended December 31, 2017, DCM
recorded revenues of $289.5 million, an increase
of $11.2 million or 4.0% compared with the same
period in 2016. The increase in revenues for the
of orders related to the forms and labels business,
from which DCM benefited last year, resulting in
the overall increase in revenues compared to 2016.
COST OF REVENUES AND GROSS PROFIT
year ended December 31, 2017 was primarily due
For the year ended December 31, 2017, cost
to the additions of revenues from the acquisitions
of revenues increased to $220.1 million from
of Eclipse, Thistle and BOLDER Graphics and
$215.3 million for the same period in 2016. Gross
new customer wins in DCM’s core business. This
profit for the year ended December 31, 2017 was
increase in revenue was partially offset by lower
$69.4 million, which represented an increase of
volumes and pricing pressures from certain
$6.3 million or 10.0% from $63.1 million for the
customers that reduced their overall spend,
same period in 2016. Gross profit as a percentage
particularly in the financial services sector, and
of revenues increased to 24.0% for the year
was also due to non-recurring work and timing
ended December 31, 2017 compared to 22.7% for
14
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 the same period in 2016. The increase in gross
2016. $6.8 million of restructuring costs were
profit as a percentage of revenues for the year
related to headcount reductions in DCM’s
ended December 31, 2017 was due to higher gross
indirect labour force, in order to streamline
margins attributed to Eclipse, Thistle and BOLDER
the order-to-production process, in addition to
Graphics, refinement of our pricing discipline,
headcount reductions in the sales, general and
cost reductions realized from prior cost savings
administrative functions, facility closure costs,
initiatives implemented in 2016 and additional
and costs to move equipment and inventory from
process improvement savings implemented in
the closed facilities. These restructuring costs were
January 2017. The increase in gross profit as a
offset by a recovery of $0.3 million related
percentage of revenues was partially offset by
to a sub-lease of a closed facility in Richmond Hill,
changes in product mix, and compressed margins
Ontario and DCM also incurred lease exit charges
on recently negotiated large contracts with certain
associated with the closures of its facilities in
existing customers.
Regina, Saskatchewan, in Mississauga, Ontario,
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
and $2.4 million, respectively. For the year
ended December 31, 2016, DCM incurred
and in Granby, Québec of $0.3 million, $0.3 million
Selling, general and administrative (“SG&A”)
expenses for the year ended December 31, 2017
restructuring expenses related to headcount
reductions of $4.2 million.
increased $5.4 million or 9.7% to $61.4 million
DCM will continue to evaluate its operating costs
compared to $55.9 million for the same period
for further efficiencies as part of its commitment
of 2016. As a percentage of revenues, these costs
to making its business more agile, focused,
were 21.2% and 20.1% of revenues for the years
optimized and unified.
ended December 31, 2017 and 2016, respectively.
The increase in SG&A expenses for the year ended
IMPAIRMENT OF GOODWILL
December 31, 2017 was primarily attributable to
the acquisitions of Eclipse, Thistle and BOLDER
Graphics. This was partially offset by cost
savings initiatives that were implemented in
2017, primarily related to headcount reductions
made during the year, in addition to increased
professional fees to complete the various
acquisitions and related financing arrangements.
RESTRUCTURING EXPENSES
Cost reductions and enhancement of operating
efficiencies have been an area of focus for DCM
over the past four years in order to improve
margins and better align costs with the declining
revenues experienced by the Company, a trend that
has been faced by the traditional printing industry
for several years now.
For the year ended December 31, 2017, DCM
incurred restructuring expenses of $9.5 million
compared to $4.2 million in the same period in
During the fourth quarter of 2017, DCM performed
its annual review of impairment of goodwill by
comparing the fair value of each cash generating
unit (“CGU”) to the CGU’s carrying value. The CGUs
were defined as follows: DCM North America,
Eclipse, Thistle and BOLDER Graphics.
Given the purchase price accounting for BOLDER
Graphics is still being finalized, the goodwill
recognized on acquisition was not tested for
impairment as of December 31, 2017. Furthermore,
DCM recorded a non-cash impairment of goodwill
for $31,066 related to the DCM North America CGU
during the fourth quarter of 2016, therefore, there
was no further goodwill remaining for this
CGU in 2017.
The recoverable amounts of all CGU’s were
determined based on their respective fair value
less cost to sell. DCM used the income approach to
estimate the recoverable value of each CGU which
15
MANAGEMENT’S DISCUSSION AND ANALYSIS is predicated on the value of the future cash flows
INTEREST EXPENSE
that a business will generate going forward and
converting them into a present value through
discounting. 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.
Interest expense, including interest on debt
outstanding under DCM’s credit facilities, on
outstanding 6.00% Convertible Unsecured
Subordinated Debentures (the “6.00% Convertible
Debentures”), on certain unfavourable lease
obligations related to closed facilities, and on
DCM’s employee benefit plans and including
interest accretion expense related to certain debt
Revenue growth rates and operating margins
obligations recorded at fair value, was $4.4 million
were based on the 2018 budget approved by the
for the year ended December 31, 2017 compared to
Board and projected over a five-year period. For
$3.4 million for the same period in 2016. Interest
the Eclipse and Thistle CGUs, a conservative
expense for the year ended December 31, 2017
growth rate of 1% was applied to revenue for 2019
was higher than the same period in the prior
to 2021, in consideration of the current economic
year primarily due to the increase in the debt
conditions and the specific trends of the printing
outstanding under DCM’s credit facilities in order
industry, and a perpetual long-term growth rate
to fund a portion of the upfront cash components
of 0% was used thereafter to derive the recoverable
of the purchase prices, settle certain debt assumed
amount of these CGUs. Furthermore, a discount
and pay for related acquisition costs associated
rate of 15.0% (2016 – N/A) was used for the Eclipse
with the Eclipse, Thistle and BOLDER Graphics
and Thistle CGUs. As a result of this review, DCM
acquisitions and was favourably impacted by the
concluded that the fair value of its CGUs were
repayment of DCM’s 6.00% Convertible Debentures
greater than their carrying values and no goodwill
in June 2017.
impairment charges were required.
ADJUSTED EBITDA
INCOME TAXES
DATA reported a loss before income taxes of
For the year ended December 31, 2017, Adjusted
$7.9 million and a net income tax recovery of
EBITDA was $16.1 million, or 5.6% of revenues,
$1.7 million for the year ended December 31, 2017
after adjusting EBITDA for the $9.5 million in
compared to a loss before income taxes of
restructuring charges, $1.4 million related to
$32.2 million and a net income tax recovery of
non-recurring business acquisition costs and
$0.1 million for the year ended December 31, 2016.
$0.4 million of one-time business reorganization
The current income tax expense was due to the
costs. Adjusted EBITDA for the year ended
taxes payable on DCM’s estimated taxable income
December 31, 2017 increased $1.7 million or 12.0%
for the years ended December 31, 2017 and 2016,
from the same period in the prior year which was
respectively. In addition, the current tax expense
5.2% of revenues in 2016. The increase in Adjusted
for the year ended December 31, 2016 included
EBITDA for the year ended December 31, 2017 was
a recovery of taxes paid in a prior period offset
attributable to higher gross profit as a result of
by a reclassification from deferred taxes related
revenues contributed by the Eclipse, Thistle and
to an adjustment of a tax filing in a prior year.
BOLDER Graphics acquisitions, improved pricing
The deferred income tax recoveries primarily
initiatives implemented part-way through the
related to changes in estimates of future reversals
year, and cost savings from the restructuring
of temporary differences and new temporary
efforts carried out in the second half of 2017. This
differences that arose during the years ended
was partially offset by higher SG&A expenses.
December 31, 2017 and 2016, respectively. The
16
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 deferred income tax recovery for the year ended
credit agreements, between DCM and the Bank
December 31, 2016 included a reclassification to
(as amended, the “Bank Credit Agreement”)
current income taxes related to an adjustment of
and IAM (as amended, the “IAM IV Credit
a tax filing in a prior year.
Agreement”), respectively. Upon closing of the
NET LOSS
Net loss for the year ended December 31, 2017
was $6.2 million compared to a net loss of
$32.1 million for the same period in 2016. The
increase in comparable profitability for the year
ended December 31, 2017 was primarily due to
the inclusion of the post-acquisition financial
results of Eclipse, Thistle and BOLDER Graphics,
in addition to a refined discipline in our pricing
strategy. This increase was partially offset by
higher SG&A expenses and interest expense,
a larger restructuring charge and business
acquisition costs during the year ended
December 31, 2017. During the year ended
December 31, 2016, the net loss included a non-cash
impairment of goodwill totaling $31.1 million
which did not recur in 2017.
ADJUSTED NET INCOME
Adjusted net income for the year ended
December 31, 2017 was $2.5 million compared
to Adjusted net income of $2.9 million for the
same period in 2016. The decrease in comparable
profitability for the year ended December 31, 2017,
despite higher revenues and gross margin, was
primarily due to higher SG&A expenses and, to
a lesser extent, higher interest expense in 2017.
LIQUIDITY AND CAPITAL
RESOURCES
LIQUIDITY
DCM has established a revolving credit facility
(the “Bank Credit Facility”) with a Canadian
chartered bank (the “Bank”) and an amortizing
term loan facility (the “IAM IV Credit Facility”)
with IAM IV, a loan managed by Integrated Asset
Management Corp. (“IAM”), pursuant to separate
Thistle acquisition, DCM became a co-borrower
under an existing credit agreement (the “IAM III
Credit Agreement”) between Thistle and Integrated
Private Debt Fund III LP (“IAM III”), another loan
managed by IAM, pursuant to which IAM III has
advanced to Thistle a term loan facility (the
“IAM III Credit Facility”). On November 10, 2017,
DCM established a $5.0 million secured, non-
revolving senior credit facility (the “IAM V Credit
Facility”) with Integrated Private Debt Fund
V LP (“IAM V”), a loan managed by IAM (the
“IAM V Credit Agreement” and, together with the
IAM III Credit Agreement and the IAM IV Credit
Agreement, the “IAM Credit Agreements”) to fund
the acquisition of BOLDER Graphics and to repay a
portion of DCM’s outstanding principal under the
Bank Credit Facility. The IAM III Credit Facility and
the IAM V Credit Facility are subject to the same
covenant conditions stipulated under the IAM IV
Credit Agreement and are reported on
a consolidated basis.
On June 28, 2017, DCM established a subordinated
debt facility with Bridging Finance Inc. for
$3.5 million (“Bridging Credit Facility”). Advances
under the Bridging Credit Facility are repayable
on demand and bear interest at a rate equal to
the prime rate of interest charged by DCM’s Bank
lender from time to time plus 10.3% per annum,
calculated and payable monthly. The Bridging
Credit Facility has a term of one year and can
be repaid at any time without any prepayment
fee upon sixty days prior written notice to
Bridging, subject to the prior written consent of
DCM’s other senior lenders. The Bridging Credit
Facility is subordinated in right of payment to
the prior payment in full of DCM’s indebtedness
under the Bank Credit Agreement and the IAM
Credit Agreements and is secured by certain
specified equipment together with certain other
conventional security. The Bridging Credit Facility
17
MANAGEMENT’S DISCUSSION AND ANALYSIS limits spending on capital expenditures by DCM
Under the terms of the IAM Credit Agreements,
to an aggregate amount not to exceed $5.5 million
the maximum aggregate principal amount which
during any fiscal year. Transaction costs of
may be outstanding at any time under the IAM III
$0.1 million were capitalized and the unamortized
Credit Facility, amended IAM IV Credit Facility,
transaction costs as at December 31, 2017 were
the IAM V Credit Facility and the amended Bank
$0.1 million. These costs are being amortized over
Credit Facility, calculated on a consolidated basis
the term of the Bridging Credit Facility.
in accordance with IFRS (“Senior Funded Debt”), is
As at December 31, 2017, DCM had outstanding
borrowings of $21.7 million and letters of credit
$72.0 million (after giving effect to the provisions
of the inter-creditor agreement described below).
granted of $1.4 million under the Bank Credit
The principal amount of the IAM III Credit Facility
Facility, outstanding borrowings of $4.8 million
amortizes in blended equal monthly repayments
under the IAM III Credit Facility, outstanding
of principal and interest over an nine year term
borrowings of $22.2 million under the IAM
ending in October 15, 2022. The principal amount
IV Credit Facility, borrowings of $4.9 million
of the amended IAM IV Credit Facility amortizes
under the IAM V Credit Facility, and outstanding
in blended equal monthly repayments of principal
borrowings of $3.5 million under the Bridging
and interest over a seven year term ending in
Credit Facility. Under the Bank Credit Facility,
March 10, 2023. The principal amount of the
DCM had access to $6.6 million of available credit
IAM V Credit Facility amortizes in blended equal
at December 31, 2017.
monthly repayments of principal and interest over
Under the terms of the Bank Credit Agreement, the
maximum principal amount available under the
Bank Credit Facility is $35.0 million and matures
on March 31, 2020. Advances under the amended
Bank Credit Facility are subject to floating interest
rates based upon the Canadian prime rate plus an
applicable margin of 0.75%. DCM has capitalized
transaction costs of $1.1 million related to the
amended Bank Credit Facility, including
a sixty six month term ending in May 15, 2023. As
at December 31, 2017, all of DCM’s indebtedness
outstanding under the IAM III Credit Facility was
subject to a fixed interest rate equal to 6.10% per
annum and all of DCM’s indebtedness outstanding
under the amended IAM IV Credit Facility and
under the IAM V Credit Facility were subject
to a fixed interest rate equal to 6.95% per
annum, respectively.
$0.4 million of additional costs incurred as
As at December 31, 2017, the unamortized
a result of amendments made to the agreement,
transaction costs related to the IAM III Credit
and expensed unamortized transaction costs of
Facility were $30.0 thousand. DCM has capitalized
$0.2 million related to the portion of the Bank
transaction costs of $0.8 million related to the
Credit Facility paid during the year ended
amended IAM IV Credit Facility, including
December 31, 2017. The unamortized balance of
$0.2 million of additional costs incurred as a result
the transaction costs are being amortized over
of the amendments to this agreement during the
the remaining term of the amended Bank Credit
year ended December 31, 2017. The unamortized
Facility. As at December 31, 2017, the unamortized
balance of the transaction costs is being amortized
transaction costs related to this facility were
over the remaining term of this facility. As at
$0.5 million. As at December 31, 2017, all of DCM’s
December 31, 2017, the unamortized transaction
indebtedness outstanding under the amended Bank
costs related to the amended IAM IV Credit
Credit Facility was subject to a floating interest
Facility were $0.6 million. DCM has capitalized
rate of 3.95% per annum.
transaction costs of $0.2 million related to the
IAM V Credit Facility and the unamortized balance
18
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 of the transaction costs is being amortized over the
Funded Debt to EBITDA of not greater than
term of this facility. As at December 31, 2017, the
the following levels: from October 1, 2017 to
unamortized transaction costs related to the
December 31, 2017 - 3.50 to 1; from January 1, 2018
IAM V Credit Facility were $0.2 million.
up to March 31, 2018 - 3.25 to 1; and on and after
Each of the amended Bank Credit Agreement, the
IAM III Credit Agreement, the amended IAM IV
Credit Agreement, the IAM V Credit Agreement
and the Bridging Credit Agreement contain
customary representations and warranties, as well
as restrictive covenants which limit the discretion
of the Board and management with respect to
certain business matters including the declaration
April 1, 2018 - 3.00 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 1.1:1. The pro
forma financial results from DCM’s acquisitions
completed during the year are included on a
trailing twelve month basis effective as of the
closing date of the acquisitions for the purposes
of DCM’s covenant calculations.
or payment of dividends on the Common Shares
As at December 31, 2017, the ratio of Senior Funded
without the consent of the Bank, IAM III, IAM IV,
Debt to EBITDA was 3.05, the debt service coverage
IAM V and Bridging, as applicable.
ratio was 2.00 and the working capital current
Under the terms of the amended Bank Credit
Agreement, DCM is required to maintain a fixed
charge coverage ratio as follows: i) for the
ratio was 1.21. As at December 31, 2017, DCM was in
compliance with these covenants and it expects to
be compliant with these covenants going forward.
period commencing July 1, 2017 and ending
A failure by DCM to comply with its obligations
December 31, 2017, the ratio would not be less
under any of the amended Bank Credit Agreement,
than 0.9 to 1.0; ii) for the period commencing
the IAM Credit Agreements or the Bridging Credit
January 1, 2018 and ending March 31, 2018, the
Agreement, together with certain other events,
ratio would not be less than 1.0 to 1.0, and for
including a change of control of DCM and a
the periods ending after March 31, 2018, the
change in DCM’s chief executive officer, president
ratio would not be less than 1.1 to 1.0 at all times,
or chief financial officer (unless a replacement
calculated on a consolidated basis, in respect of
officer acceptable to IAM III, IAM IV and IAM V,
any particular trailing 12 month period, as EBITDA
acting reasonably, is appointed within 60 days of
for such period less cash taxes, cash distributions
the effective date of such officer’s resignation),
(including dividends paid) and non-financed
could result in an event of default which, if not
capital expenditures paid in such period, divided
cured or waived, could permit acceleration of
by the total amount required by DCM to service its
the indebtedness outstanding under each of
outstanding debt for such period. The pro forma
those agreements. DCM anticipates it will be
financial results for DCM’s acquisitions completed
in compliance with the covenants in its credit
during the year are included on a trailing twelve
facilities for the next twelve months; however
month basis effective as of the closing date of
there can be no assurance that DCM will be
the acquisitions for the purposes of DCM’s
successful in achieving the results targeted in
covenant calculations. As at December 31, 2017,
its 2018 operating plan or in complying with its
the fixed charge coverage ratio was 1.30. As at
covenants over the next twelve months.
December 31, 2017, DCM was in compliance with
this covenant and it expects to be compliant with
this covenant going forward.
DCM’s obligations under the amended Bank Credit
Facility, the IAM III Credit Facility, the amended
IAM IV Credit Facility and the IAM V Credit Facility
Under the terms of the IAM Credit Agreements,
are secured by conventional security charging
DCM is required to maintain (i) a ratio of Senior
all of the property and assets of DCM and its
19
MANAGEMENT’S DISCUSSION AND ANALYSIS affiliates. On February 22, 2017, DCM entered into
In assessing DCM’s liquidity requirements, DCM
an amended inter-creditor agreement between
takes into account its level of cash and cash
the Bank, IAM III, IAM IV, and the parties to the
equivalents, together with currently projected
vendor take-back promissory notes (the “VTB
cash to be provided by operating activities,
Noteholders”) issued in connection with the
cash available from its unused credit facilities,
acquisitions of Eclipse and Thistle, respectively,
cash from investing activities such as sales of
which, among other things, establishes the
redundant assets, access to the capital markets
rights and priorities of the respective liens of the
and anticipated reductions in operating costs
Bank, IAM III, IAM IV and the VTB Noteholders
projected to result from existing restructuring
on the present and after-acquired property of
activities, as well as its ongoing cash needs for
DCM, Eclipse and Thistle. On June 28, 2017, the
its existing operations, will be sufficient to fund
inter-creditor agreement was amended to include
its currently projected operating requirements
Bridging and to separately address the priority of
including expenditures related to its growth
its liens on certain specified equipment as a result
strategy, payments associated with various
of the Bridging Credit Facility. On November 10,
restructuring and productivity improvement
2017, the inter-creditor agreement was further
initiatives, contributions to its pension plans,
amended in connection with the BOLDER Graphics
payment of income tax liabilities and cash required
acquisition to include IAM V as a party to the
to finance currently planned expenditures, and
agreement and to establish the rights and priorities
debt repayment obligations. Cash flows from
of the respective liens of the Bank, IAM III, IAM IV,
operations have been, and could continue to be,
IAM V and the VTB Noteholders on the present and
negatively impacted by decreased demand for
after-acquired property of BOLDER Graphics.
DCM’s products and services and pricing pressures
Market conditions and DCM’s financial condition
and capital structure could affect the availability
and terms of any replacement credit facilities or
other funding sought by DCM from time to time
or upon the maturity of the amended Bank
Credit Facility, the IAM III Credit Facility, the
amended IAM IV Credit Facility, the IAM V Credit
Facility, the Bridging Credit Facility or other
indebtedness of DCM.
As at December 31, 2017, DCM had a bank overdraft
of $2.9 million compared to cash and cash
equivalents of $1.5 million at December 31, 2016.
Under the terms of the amended IAM IV Credit
Agreement and IAM V Credit Agreement, DCM
is required to deposit and hold cash in a blocked
account to be used for repayments of principal
and interest of indebtedness outstanding under
the amended IAM IV Credit Facility and IAM V
Credit Facility. As at December 31, 2017, there was
a balance of $0.5 million in the blocked account,
which is recognized as restricted cash in DCM’s
consolidated statements of financial position.
20
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 DCM’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. DCM’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
DCM maintains a defined benefit and
defined contribution pension plan (the “DATA
Communications Management 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
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 Communications Management Pension Plan.
Based upon the January 1, 2017 actuarial report,
However, DCM is required under applicable
DCM’s annual minimum funding obligation
pension legislation to make monthly, annual
for the defined benefit provision of the DATA
and/or one-time cash contributions to the DATA
Communications Management Pension Plan for
Communications Management Pension Plan to
2017 decreased from $1.3 million to $0.6 million.
fund current or future funding deficiencies which
As of December 31, 2017, DCM has exceeded
may emerge in the defined benefit provision of the
its minimum required funding requirements
DATA Communications Management Pension Plan.
for the defined benefit provision of the DATA
Applicable pension legislation requires that the
Communications Management Pension Plan for
funded status of the defined benefit provision of
2017 by $0.2 million. This excess funding will
the DATA Communications Management Pension
be applied to DCM’s future minimum funding
Plan be determined periodically on both a going
requirements for the defined benefit provision
concern basis (i.e., essentially assuming indefinite
of the DATA Communications Management
plan continuation) and a solvency basis (i.e.,
Pension Plan.
essentially assuming immediate plan termination).
In May 2017 the Ontario Ministry of Finance
The funded status of DCM’s pension plan is
announced major reforms to the funding
impacted by actuarial assumptions, the plan’s
framework for defined benefit pension plans.
investment performance, changes in economic
The proposed new framework is based on an
conditions and debt and equity markets, changes
enhanced going-concern approach, whereby
in long-term interest rates, estimates of the
solvency funding requirements would be
price of annuities, and other elements of pension
eliminated except for plans that are less than
plan experience such as demographic changes
85% funded. The regulations supporting the
and administrative expenses, among others.
transitional measures which assist plan sponsors
Where an actuarial valuation reveals a solvency
prior to the full reforms being implemented were
deficit, current pension regulations require it to
enacted into legislation in June 2017. The new
be funded by equal payments over a maximum
regulation allows plan administrators whose
period of five years from the date of valuation.
next filed valuation report is dated on or after
Actuarial valuations are required on the DATA
December 31, 2016 and before December 31, 2017
Communications Management Pension Plan every
to elect to defer the start of new solvency special
three years, beginning January 1, 2014. Based on
payments by up to 24 months instead of the
these valuations, the annual cash contributions to
usual 12 months.
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.
DCM has elected to defer the start of new solvency
special payments by 24 months and intends
on completing an updated actuarial valuation
of the DATA Communications Management
Pension Plan as at January 1, 2018. DCM expects
that its future minimum funding requirements
During the year ended December 31, 2017, DCM
for the defined benefit provision of the DATA
engaged actuaries to complete an updated
Communications Management Pension Plan for
actuarial valuation of the DATA Communications
2018 will be approximately $0.4 million, after
Management Pension Plan, which confirmed that,
adjusting for the excess funding from 2017, and
as at January 1, 2017, the DATA Communications
for 2019 will be approximately $1.4 million. The
Management Pension Plan had a solvency deficit.
January 1, 2018 actuarial valuation report for the
21
MANAGEMENT’S DISCUSSION AND ANALYSIS DATA Communications Management Pension
Certain former senior executives of a predecessor
Plan will not be completed until partway through
corporation participated in a Supplementary
2018 and the funding reforms have not been
Executive Retirement Plan (“SERP”), which
finalized, therefore, the effect on DCM’s minimum
provides for pension benefits payable as a single
funding requirements for 2018 and forward is not
life annuity with a five year guarantee. The SERP is
determinable at this time. DCM’s final funding
unfunded. DCM’s annual funding obligation under
obligations for the defined benefit provision of the
the SERP is approximately $0.6 million.
DATA Communications Management Pension Plan
for 2018 and future years will be determined based
CASH FLOW FROM OPERATIONS
on the actuarial valuation as at January 1, 2018,
which will be completed within the first nine
months of 2018. Accordingly, DCM continues to
make contributions based on the January 1, 2017
valuation. DCM’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”.
During the year ended December 31, 2017, cash
flows generated by operating activities were
$3.9 million compared to cash flows generated
by operating activities of $10.1 million during
the same period in 2016. $13.0 million of current
year cash flows resulted from operations, after
adjusting for non-cash items, compared with
$12.1 million in 2016. Current period cash flows
from operations were positively impacted by the
DCM makes contributions to the Québec Graphics
acquisitions of Eclipse, Thistle and BOLDER Graphics,
Communications Supplemental Retirement and
however this was offset by a $5.4 million increase
Disability Fund of Canada (the “SRDF”) based on
in SG&A expense over the prior year comparative
a percentage of the wages of its unionized
period, in addition to lower revenues from DCM’s
employees covered by the respective collective
core business. Changes in working capital during the
bargaining agreements, all of whom are employed
year ended December 31, 2017 used $0.5 million in
at DCM facilities located in the Province of
cash compared with $7.6 million of cash generated
Québec. In addition, DCM makes contributions
in the prior year primarily due to increases in
to a number of multi-employer, defined benefit
accounts receivable which was partially offset by
employee pension and non-pension benefit
increases in accounts payable due to the timing of
plans which are administered by Unifor Local
payments to suppliers for purchases and deferred
591G for the hourly employees of Thistle (“Unifor
revenues, respectively. In addition, $7.0 million
Pension & Benefit Plans”). The SRDF and Unifor
of cash was used to make payments primarily
Pension & Benefit Plans provide post-employment
related to severances and lease termination costs,
benefits to unionized employees in the printing
compared with $7.4 million of payments in 2016.
industry jointly-trusteed by representatives of the
Contributions made to the Company’s pension
employers and the unions. DCM’s obligation to
plans were $1.4 million, which decreased from
the SRDF and Unifor Pension & Benefit Plans are
$1.9 million in the prior year.
limited to the amounts agreed to in the respective
collective bargaining agreements of each plan.
INVESTING ACTIVITIES
Based upon the terms of those applicable collective
bargaining agreements, DCM’s estimated annual
funding obligation for the SRDF and for the Unifor
Pension & Benefit Plans for 2018 are $0.5 million
and $0.1 million, respectively. DCM has accounted
for these plans on a defined contribution basis.
During the year ended December 31, 2017,
$11.9 million in cash flows were used for investing
activities compared with $2.9 million during
the same period in 2016. In 2017, $2.4 million of
cash was used to invest in label equipment with
digital capabilities, digital press equipment, the
22
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 relocation of certain sales offices, certain leasehold
On November 10, 2017, a total of 704,424 Common
improvements as a result of the Multiple Pakfold
Shares were issued to the vendors as partial
and Granby facility moves and additional office
consideration for the purchase of the shares of
equipment. In 2017, $3.4 million of cash was used
BOLDER Graphics. Each of those vendors have
related primarily related to investments in DCM’s
entered into a lock-up agreement with DCM
ERP project. In 2017, $6.8 million of cash was used
pursuant to which they have agreed not to sell
to acquire the businesses of Eclipse, Thistle and
the Common Shares issued to them pursuant
BOLDER Graphics.
to the BOLDER Graphics transaction until
FINANCING ACTIVITIES
November 10, 2018.
On June 28, 2017, DCM completed a Private
During the year ended December 31, 2017, cash flow
Placement and issued 2,690,604 Units, with each
generated by financing activities was $3.7 million
Unit consisting of one Common Share and one-half
compared to cash flow used for financing activities
of a Warrant at a price per Unit of $1.40 for gross
of $6.5 million during the same period in 2016.
proceeds of $3.8 million. Among this, 550,650 Units
DCM used net cash received from the issuance
were issued to directors and officers of DCM for
of common shares and warrants of $8.1 million
total proceeds of $0.8 million. Each full Warrant
and cash from advances under its various credit
entitles the holder to acquire one Common Share
facilities, totaling $27.4 million to repay a total
(a “Warrant Share”) at an exercise price of $1.75
of $2.4 million to settle the outstanding balance
for a period of two years from the closing of the
on certain equipment leases that were assumed
Private Placement. The exercise price is subject to
upon the acquisition of Eclipse, to repay
adjustment for certain capital events, as described
$14.7 million in outstanding principal amounts
in the warrant certificate, to preserve the relative
under its senior term loan facilities, to settle
rights of the existing shareholders of Common
certain debt assumed upon the acquisition of
Shares and the Warrant holders. In addition, if the
Eclipse, Thistle and BOLDER Graphics, and to
volume- weighted average price of the Common
repay the 6.00% Convertible Debentures with
Shares on the TSX equals or exceeds $2.75 for
an outstanding principal amount totaling
20 consecutive trading days, DCM has the right
$11.2 million on June 30, 2017. DCM also paid a
(the “Acceleration Right”) to accelerate the expiry
total of $1.4 million related to the promissory note
date of the Warrants to a date that is 30 days
issued in connection with the acquisition of Thistle
from the date on which DCM notifies the Warrant
and other loans payable in connection with the
holders of its intent to exercise the Acceleration
acquisitions of Thistle and BOLDER Graphics of
Right. DCM did not exercise any of its Acceleration
$1.1 million. Lastly, DCM incurred $0.9 million of
Rights during 2017. The Common Shares, Warrants
transaction costs related to the amendments to its
and Warrant Shares are subject to a statutory
senior credit facilities and costs to establish DCM’s
hold period expiring four months and one day
additional credit facility during the year ended
after the closing of the Private Placement.
December 31, 2017.
OUTSTANDING SHARE DATA
DCM issued a total of 2,690,604 Common Shares
pursuant to the Private Placement (before
giving effect to the exercise of any Warrants)
and 1,345,300 Warrants pursuant to the Private
At March 8, 2018, December 31, 2017 and
Placement. The value of the Warrants and Common
December 31, 2016, there were 20,039,159,
Shares issued were determined based on an
20,039,159 and 11,975,053 Common Shares
allocation of the gross proceeds of $3.8 million
outstanding, respectively.
by the relative fair values of each component on
23
MANAGEMENT’S DISCUSSION AND ANALYSIS closing of the Private Placement. The fair value of
(“Right”) for each Common Share held as of
the Warrants issued was estimated to be
the Record Date. Every two Rights entitled the
$0.3 million using the Black-Scholes option-pricing
Eligible Holder to subscribe for one Common
model, assuming a risk-free interest of 1.04%,
Share upon payment of the subscription price
a weighted average life of two years, a dividend
of $1.40 per share. The Rights were transferable
yield of nil and an expected volatility of 40%.
and were represented by rights certificates. Total
This was adjusted using a discount rate of 5% for
transaction costs were $0.3 million which were
the statutory hold period. The fair value of the
classified net of the Common Shares issued under
Common Shares issued was $3.4 million, based on
the Rights Offering. The value of the Common
the closing market price of the shares on closing
Shares were increased by a deferred income tax
of the Private Placement. This was adjusted using
asset of $0.1 million.
a discount rate of 5% for the statutory hold period.
The proceeds allocated to the Common Shares
was $3.4 million and the proceeds allocated to the
Warrants was $0.3 million, net of transaction costs
totaling $0.1 million. All of these transaction costs
were allocated to the Common Shares. The value of
the Common Shares were increased by a deferred
income tax asset of $23.0 thousand.
On July 13, 2017, DCM completed a second closing
of the Private Placement to a director of DCM for
71,500 Units, raising additional gross proceeds
of $100.0 thousand. The value of the 71,500
Common Shares and 35,750 Warrants issued
were $72.0 thousand and $7.0 thousand,
respectively, based on an allocation of the gross
proceeds of $100.0 thousand by the relative fair
values of each component of the second closing
of the Private Placement, net of transaction costs
totaling $21.0 thousand. All of these transaction
costs were allocated to the Common Shares. The
value of the Common Shares were increased by
a deferred income tax asset of $6.0 thousand.
On June 23, 2017, DCM completed a Rights Offering
which was conducted by way of a rights offering
circular (“Circular”). Under the offering, DCM
issued 3,312,368 Common Shares at a price of
$1.40 per share for gross proceeds of $4.6 million.
Among this, 1,090,727 Common Shares were issued
to directors, officers and related parties of DCM
for total gross proceeds of $1.5 million. Under
the terms of the Rights Offering, each eligible
shareholder (“Eligible Holder”) on record as of
May 31, 2017 (the “Record Date”) received one right
24
On May 5, 2017, 6,502 Common Shares were issued
in connection with the net settlement of 19,505
stock options at an exercise price of $1.50 per
Common Share and the net amount was recorded
in contributed surplus in DCM’s consolidated
statement of changes in equity (deficit).
On February 22, 2017, a total of 1,278,708
Common Shares were issued to the vendors as
partial consideration for the purchase of the
assets of Eclipse and the purchase of the shares
of Thistle. Each of those vendors have entered into
a lock-up agreement with DCM, pursuant to which
they have agreed not to sell the Common Shares
issued to them pursuant to those sale transactions
until February 22, 2018.
On July 4, 2016, DCM completed the Share
Consolidation and consolidated its issued and
outstanding Common Shares on the basis of
one post-consolidation Common Share for each
100 pre-consolidation Common Shares.
On May 31, 2016, DCM completed a portion of a
non-brokered private placement and issued a total
of 1,678,567 Common Shares at a price of $1.40 per
Common Share, of which 357,150 were purchased
by the CEO of DCM. On July 4, 2016, following
receipt of disinterested shareholder approval
at the annual and special meeting of DCM’s
shareholders held on June 30, 2016, DCM completed
the remaining portion of the private placement
and issued an additional 308,958 Common Shares
to a minority interest shareholder (the “Minority
Shareholder”) at a price of $1.40 per Common
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 Share pursuant to the exercise of anti-dilution
rights held by the Minority Shareholder. The total
number of Common Shares issued as a result of the
FINANCIAL INSTRUMENTS AND
RISK MANAGEMENT
private placement was 1,987,525 or approximately
DCM’s financial instruments consist of cash and
19.9% of the current number of outstanding
cash equivalents, restricted cash, trade receivables,
Common Shares on May 27, 2016.
At March 8, 2018 and December 31, 2017, there
were options outstanding to purchase up to 791,957
Common Shares and options outstanding to
purchase up to 804,961 Common Shares, respectively.
During the year ended December 31, 2016, the
Board approved awards of options to purchase
up to 987,011 Common Shares to the executive
bank overdraft, trade payables and accrued
liabilities, loan payable, bonuses payable, credit
facilities, promissory notes, restricted share units
and convertible debentures, as indicated in DCM’s
statements of consolidated financial position
as at December 31, 2017 and December 31, 2016,
respectively. DCM does not enter into financial
instruments for trading or speculative purposes.
management team of DCM pursuant to the terms
FAIR VALUE
of DCM’s existing long-term incentive plan. Once
vested, the options are exercisable for a period of
DCM’s non-derivative financial instruments
seven years from the grant date at an exercise price
are comprised of cash and cash equivalents,
of $1.50 per share, representing the fair value of
the Common Shares on the date of grant. A total
of 499,377 options were awarded to DCM’s CEO
and vested on June 23, 2016 and a total of 487,634
options were awarded to the other members of
DCM’s executive management team and vest at
a rate of 1/24th per month beginning
on June 23, 2016. During the year ended
December 31, 2016, options to purchase 39,011
Common Shares were forfeited. During the year
trade receivables, restricted cash, bank overdraft,
trade payables and accrued liabilities, loan
payable, bonuses payable, credit facilities,
promissory notes restricted share units and
convertible debentures. Non-derivative financial
instruments are recognized initially at fair
value plus, for instruments not at fair value
through profit or loss, any directly attributable
transaction costs. Subsequent to initial recognition
non-derivative financial instruments are measured
ended December 31, 2017, options to purchase
as described below.
123,534 Common Shares were forfeited and 19,505
options were exercised. Subsequent to the year
ended December 31, 2017, options to purchase
13,004 Common Shares were forfeited.
During 2015, the Board approved the award of
Non-derivative financial instruments at fair value
through the profit and loss include restricted share
units which are recorded as a liability at fair value
on the grant date and are subsequently adjusted
for changes in the price of DCM’s common shares
options to purchase up to 11,745 Common Shares
through the consolidated statements of operations.
to the CEO of DCM pursuant to the terms of DCM’s
existing long-term incentive plan which were
granted on April 16, 2015 with an exercise price of
$75 per share. During the year ended December 31,
2017, all of these options were forfeited.
The fair value for other non-derivative financial
instruments such as cash and cash equivalents,
trade receivables, bank overdraft, trade payables
and accrued liabilities, and loan payable
approximates their carrying value because of the
At March 8, 2018 and December 31, 2017, there were
short-term maturity of these instruments. The fair
Warrants outstanding to purchase up to 1,381,050
value of restricted cash approximates its carrying
Common Shares outstanding, respectively.
value because it is a deposit held with a Canadian
chartered bank. Credit facilities, bonuses payable
25
MANAGEMENT’S DISCUSSION AND ANALYSIS and promissory notes are initially recognized as
agencies that are not concentrated in any specific
the amount required to be paid less a discount
geographic area. DCM does not believe that any
to derive its fair value and are then measured
single industry or geographic region represents
at amortized costs using the effective interest
significant credit risk. Credit risk concentration
method, less any impairment losses. DCM’s
with respect to trade receivables is mitigated by
convertible debentures contained a host contract
DCM’s large client base.
and an embedded derivative. The host contract
(the debt portion of the convertible debenture)
was 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.
CREDIT RISK
Based on historical experience, DCM 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
Credit risk is the risk of an unexpected loss
DCM’s credit risk and records a reserve, when
if a customer or counterparty to a financial
required, to recognize that risk. When collection
instrument fails to meet its contractual
efforts have been reasonably exhausted, specific
obligations. Financial instruments that potentially
balances are written off. As at December 31, 2017,
subjected DCM to credit risk consisted of cash
7.0% (or $2.9 million), of trade receivables were
and cash equivalents and trade receivables.
more than 90 days old, an increase from 3.7%
The carrying amount of assets included in the
(or $1.1 million), of trade receivables that were
consolidated statements of financial position
more than 90 days old at December 31, 2016.
represents the maximum credit exposure.
The cash equivalents consisted mainly of
LIQUIDITY RISK
short-term investments, such as money market
Liquidity risk is the risk that DCM may encounter
deposits. DCM has deposited the cash equivalents
difficulties in meeting obligations associated
with Canadian Schedule 1 banks, from which
with financial liabilities as they become due. DCM
management believes the risk of loss to be remote.
believes that the currently projected cash flow
DCM grants credit to customers in the normal
course of business. DCM 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.
DCM has trade receivables from clients engaged in
various industries including financial institutions,
insurance, healthcare, lottery and gaming,
retailing, not-for-profit, energy and governmental
from operations, cash on hand and anticipated
lower operating costs resulting from existing
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
and scheduled repayments of promissory notes.
See “Contractual obligations” section below which
26
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 contains additional information on the contractual
course of business, DCM does not have significant
undiscounted cash flows of DCM’s significant
foreign exchange transactions and, accordingly,
financial liabilities and the future commitments
the amounts and currency risk are not expected
of the Company.
As at December 31, 2017, DCM had access to
$8.0 million of additional available credit less
letters of credit granted of $1.4 million under the
to have adverse material impact on the operations
of DCM. Management considers the currency risk
to be low and does not hedge its currency risk and
therefore sensitivity analysis is not presented.
Bank Credit Facility.
Note 17 to the audited consolidated financial
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.
DCM’s interest rate risk arises from credit
facilities issuances at floating interest rates.
As at December 31, 2017, $25.2 million of
DCM’s indebtedness outstanding was subject to
floating interest rates of 3.95% per annum and
of 13.50% per annum, $32.0 million of DCM’s
indebtedness outstanding was subject to a fixed
interest rate of 6.1% per annum and of 6.95%
statements of DCM for the year ended
December 31, 2017 contains additional information
on DCM’s financial instruments.
CONTRACTUAL OBLIGATIONS
DCM believes that it 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, 2017. 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.
per annum. Interest bearing promissory notes
DCM believes that its existing cash resources
related to the acquisition of BOLDER Graphics
and projected cash flows from operations will be
totaling $1.2 million was subject to a fixed rate
sufficient to fund its currently projected operating
of 6.0% per annum.
CURRENCY RISK
requirements and that it will continue to remain
compliant with its covenants and other obligations
under its credit facilities.
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
27
MANAGEMENT’S DISCUSSION AND ANALYSIS TABLE 6
The following table sets out DCM’s significant contractual obligations and commitments
as of December 31, 2017.
(in thousands of Canadian dollars, unaudited)
Total
2018
2019
2020
2021
2022
2023 and
thereafter
Pension funding
contributions (1)
Bonuses payable (2)
Long-term debt (3)
Promissory notes (4)
Operating leases
Total
$
$
$
$
$
$
10,627
$
1,176
$
1,876
$
1,889
$
1,900
$
1,893
$
1,893
1,133
400
65,462
11,911
7,639
4,561
400
8,176
3,078
333
—
—
29,206
7,317
7,123
—
—
—
—
1,729
—
71,338
12,078
10,747
9,544
8,124
6,596
24,249
156,199
$
30,126
$
24,277
$
40,972
$
17,341
$
15,612
$
27,871
(1) DCM is required under applicable pension legislation to make monthly, annual and/or one-time cash contributions to the DATA
Communications Management Pension Plan to fund current or future funding deficiencies which may emerge in the defined benefit
provision of the DATA Communications Management Pension Plan. See “Liquidity and capital resources – Pension funding obligations”
above. The table above includes amounts payable under the SERP. DCM’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) Bonuses payable to former employees of Thistle assumed in connection with DCM’s acquisition of Thistle on February 22, 2017.
Monthly principal payments of $33 ending October 31 2020.
(3) Long-term debt at December 31, 2017 subject to floating interest rates consisting of the Bank Credit Facility, expiring on March 31, 2020 and
the Bridging Credit Facility expiring on June 28, 2018. As at December 31, 2017, the outstanding balances totaled $25,247 and bore interest
at an average floating rate of 3.95% per annum and of 13.50% per annum. The amounts at December 31, 2017 include estimated interest
totaling $1,095 for 2018, $859 for 2019 and $143 for 2020. The estimated interest was calculated based on the total borrowings outstanding
during the period and the average annual floating interest rate in effect as at December 31, 2016. Long-term debt at December 31, 2017
subject to fixed interest rates consisting of the IAM III Credit Facility, expiring on October 15, 2022, the IAM IV Credit Facility, expiring on
March 10, 2023 and the IAM V Credit Facility expiring on May 15, 2023. As at December 31, 2017, the outstanding balances totaled $31,992
and bore interest at a fixed rate of 6.1% per annum, of 6.95% per annum and of 6.95% per annum, respectively. Monthly blended principal
and interest payments of $96, of $422 and of $91, respectively.
(4) Promissory notes related to the acquisitions completed during the year. Non interest bearing promissory notes related to the acquisition
of Eclipse totaling $4,566 and payable in two installments of $2,283 due on February 28, 2018 and February 28, 2019, respectively, and
related to the acquisition of Thistle totaling $1,913 and payable in monthly installments of $137 ending February 28, 2019. Interest bearing
promissory notes related to the acquisition of BOLDER totaling $1,160 and bore interest at a fixed rate of 6.0% per annum. Monthly blended
principal and interest payments of $58, beginning February 28, 2018 and ending September 30, 2019.
28
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017
RIGHTS OFFERING AND PRIVATE PLACEMENT
OF COMMON SHARES
During the year ended December 31, 2017, directors,
officers and related parties of DCM participated
in a rights offering and a private placement of
common shares (see “Outstanding share data”
above), purchasing 1,712,877 common shares (or
28.2% of the 6,074,472 common shares issued as a
result of the rights offering and private placement)
for consideration of $2.3 million.
OFFICE LEASE
On December 21, 2016, DCM entered into
a new agreement to lease approximately
2,000 square feet of office space in Toronto,
Ontario from a company that the Chair of the
Board and the President are Directors of. Under
the lease agreement, the lease commences
March 1, 2017, runs month-to-month and can be
terminated by either party with reasonable notice.
The monthly expense is $7 thousand per month.
These transactions are provided in the normal
course of operations and were measured at the
exchange amount, which represents the amount
of consideration established and agreed to by
the related parties.
OFF-BALANCE SHEET
ARRANGEMENTS
DCM’s off-balance sheet arrangements are
operating leases. DCM leases real estate, printing
equipment and office equipment in connection
with its sales and manufacturing activities under
non-cancellable lease agreements, which expire
at various dates.
TRANSACTIONS
WITH RELATED PARTIES
During the year ended December 31, 2017, there
were regular intercompany activities between
DCM and its subsidiary during the normal course
of business. These transactions and balances are
eliminated in the consolidated financial statements
of DCM. Related parties are defined as individuals
who can influence the direction or management
of DCM or any of its subsidiaries and therefore the
directors and officers of DCM’s subsidiaries are
considered related parties.
CORPORATE INSURANCE POLICIES
Effective June 23, 2015, DCM appointed an
insurance company as its broker of record for its
corporate insurance policies and subsequently
entered into new general corporate insurance
policies, including the renewal of its directors and
officers liability insurance later in the year. The
insurance company continues as DCM’s broker
of record and earns fees based on a percentage
of the insurance expense paid by DCM. During
the fiscal year, DCM recorded an insurance expense
of $0.3 million (2016 – $0.5 million) related to
these policies. As at December 31, 2017, prepaid
expenses and other current assets included prepaid
insurance to the insurance company of $0.3 million
(2016 – $0.3 million). The insurance company is
a related party whereby the Chair of the Board
and the President of DCM each are Directors and
indirectly have a minority interest in the insurance
company, through companies controlled by them.
29
MANAGEMENT’S DISCUSSION AND ANALYSIS OPERATING RESULTS FOR THE FORTH QUARTER OF 2017 AND 2016
TABLE 7
The following table sets out selected consolidated quarterly financial information for the periods noted.
(in thousands of Canadian dollars, except share
and per share amounts, unaudited)
October 1 to
December 31
2017
October 1 to
December 31
2016
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses
Restructuring expenses
Impairment of goodwill
Acquisition costs
$
76,125
$
57,771
18,354
15,263
4,453
—
381
68,191
54,950
13,241
13,394
1,721
31,066
68
Loss before finance costs and income taxes
(1,743)
(33,008)
Finance costs (income)
Interest expense
Interest income
Amortization of transaction costs
Loss before income taxes
Income tax (recovery) expense
Current
Deferred
Net loss for the period
Net (loss) income attributable to common shareholders
Adjusted EBITDA (see Table 8)
Adjusted net income (see Table 9)
Adjusted net income per share, basic and diluted
1,149
(6)
324
1,467
(3,210)
221
(972)
(751)
(2,459)
(2,459)
5,643
1,533
0.08
$
$
$
$
$
839
—
111
950
(33,958)
194
(1,037)
(843)
(33,115)
(33,115)
2,217
25
0.00
$
$
$
$
$
Weighted average number of common shares outstanding,
basic and diluted
19,732,888
11,975,053
Number of common shares outstanding, basic
20,039,159
11,975,053
Number of common shares outstanding, diluted
20,039,159
12,464,343
30
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 TABLE 8
The following table provides a reconciliation of net (loss) income to Adjusted EBITDA for the periods noted.
See “Non-IFRS Measures”.
(in thousands of Canadian dollars, unaudited)
October 1 to
December 31
2017
October 1 to
December 31
2016
Net loss for the period
$
(2,459)
$
(33,115)
Interest expense
Interest income
Amortization of transaction costs
Current income tax expense
Deferred income tax (recovery)
Depreciation of property, plant and equipment
Amortization of intangible assets
EBITDA
Restructuring expenses
One-time business reorganization costs
Impairment of goodwill
Acquisition costs
Adjusted EBITDA
1,149
(6)
324
221
(972)
1,116
1,004
839
—
111
194
(1,037)
815
560
$
$
377
$
(31,633)
4,453
432
—
381
5,643
$
1,721
995
31,066
68
2,217
TABLE 9
The following table provides a reconciliation of net (loss) income to Adjusted net income for the periods
noted. See “Non-IFRS Measures”.
(in thousands of Canadian dollars, unaudited)
Net loss for the period
Restructuring expenses
One-time business reorganization costs
Impairment of goodwill
Acquisition costs
Tax effect of above adjustments
Adjusted net income
October 1 to
December 31
2017
October 1 to
December 31
2016
$
(2,459)
$
(33,115)
4,453
432
—
381
(1,274)
$
1,533
$
1,721
995
31,066
68
(710)
25
31
MANAGEMENT’S DISCUSSION AND ANALYSIS REVENUES
For the quarter ended December 31, 2017, DCM
recorded revenues of $76.1 million, an increase
of $7.9 million or 11.6% compared with the same
period in 2016. The increase in revenues for the
quarter ended December 31, 2017 was primarily
due to the inclusion of the financial results for
Eclipse, Thistle and BOLDER and new customer
wins. The increase in revenue was partially offset
by lower revenues in DCM’s core business due
to (i) lower volumes and pricing pressures from
certain customers that reduced their overall spend,
particularly in the financial services sector, and
(ii) non-recurring work and the timing of orders
related to forms for certain government agencies
and labels for a major retailer, respectively.
expenses for the quarter ended December 31, 2017
was primarily attributable to the acquisitions of
Eclipse, Thistle and BOLDER Graphics.
RESTRUCTURING EXPENSES
For the quarter ended December 31, 2017, DCM
incurred restructuring expenses of $4.5 million
compared to $1.7 million in the same period in
2016. $1.7 million of restructuring costs were
related to facility closure costs, costs to move
equipment and inventory from the closed
facilities, and headcount reductions across all
areas of DCM’s operations including sales,
general and administrative functions. DCM
also incurred lease exit charges associated with
the closures of its facilities in Mississauga,
Ontario, and in Granby, Québec of $0.3 million
COST OF REVENUES AND GROSS PROFIT
and $2.4 million,respectively. For the quarter ended
December 31, 2016, DCM incurred restructuring
For the quarter ended December 31, 2017, cost
expenses of $1.7 million primarily to related
of revenues increased to $57.8 million from
headcount reductions associated with the closure
$55.0 million for the same period in 2016. Gross
of its large Edmonton, Alberta manufacturing
profit for the quarter ended December 31, 2017
facility, in addition to headcount reductions across
was $18.4 million, which represented an increase
other functions of the business.
of $5.1 million or 38.6% from $13.2 million for the
same period in 2016. Gross profit as a percentage
IMPAIRMENT OF GOODWILL
of revenues increased to 24.1% for the quarter
ended December 31, 2017 compared to 19.4% for
the same period in 2016. The increase in gross
profit as a percentage of revenues for the quarter
ended December 31, 2017 was due to higher gross
margins attributed to Eclipse, Thistle and BOLDER
During the fourth quarter of 2017, DCM performed
its annual review for impairment of goodwill
by comparing the fair value of its CGUs to their
respective carrying values. As a result of this
review, no impairment charges were recorded.
Graphics and cost reductions realized from prior cost
During the fourth quarter of 2016, DCM performed
savings initiatives implemented early on in the year.
its annual review for impairment of goodwill,
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
SG&A expenses for the quarter ended
which resulted in DCM recognizing a non-cash
impairment of goodwill charge of $31.1 million
related to the DCM North America CGU. There was
no further goodwill remaining for this CGU in 2017.
December 31, 2017 increased $1.9 million or 14.0% to
$15.3 million compared to $13.4 million in the same
ADJUSTED EBITDA
period in 2016. As a percentage of revenues, these
For the quarter ended December 31, 2017, Adjusted
costs were 20.0% of revenues for the quarter ended
EBITDA was $5.6 million, or 7.4% of revenues,
December 31, 2017 compared to 19.6% of revenues
after adjusting EBITDA for the $4.5 million in
for the same period in 2016. The increase in SG&A
restructuring charges, adding back $0.4 million
32
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 related to business acquisition costs and
the income tax payable on DCM’s estimated
$0.4 million of one-time business reorganization
taxable income for the quarters ended
costs. Adjusted EBITDA for the quarter ended
December 31, 2017 and 2016. The deferred income
December 31, 2017 increased $3.4 million or
tax recovery primarily related to changes in
154.5% from the same period in the prior year
estimates of the timing of future reversals of
and Adjusted EBITDA margin for the quarter, as
temporary differences and new temporary
a percentage of revenues, increased from 3.3% of
differences that arose during the quarters ended
revenues in 2016 to 7.4% of revenues in 2017. The
December 31, 2017 and 2016, respectively.
increase in Adjusted EBITDA for the quarter ended
December 31, 2017 was due to higher gross profit as
NET LOSS
a result of the additional revenues at higher gross
margins contributed by the acquisitions of Eclipse,
Thistle and BOLDER Graphics. This was partially
offset by higher SG&A expenses.
INTEREST EXPENSE
Interest expense, including interest on debt
outstanding under DCM’s credit facilities, the 6.00%
Convertible Debentures, on certain unfavourable
lease obligations related to closed facilities, and
on DCM’s employee benefit plans and including
interest accretion expense related to certain debt
obligations recorded at fair value, was $1.1 million
for the quarter ended December 31, 2017 compared
to $0.8 million for the same period in 2016. Interest
expense for the quarter ended December 31, 2017
was higher than the same period in the prior year
primarily due to the increase in debt outstanding
Net loss for the quarter ended December 31, 2017 was
$2.5 million compared to net loss of $33.1 million for
the quarter ended December 31, 2016. The increase
in comparable profitability for the quarter ended
December 31, 2017 was primarily due to higher
gross profit contributed by the additional revenue
at higher gross margins from the acquisitions of
Eclipse, Thistle and BOLDER Graphics. This was
partially offset by higher SG&A expenses and
interest expense, a larger restructuring
charge incurred during the quarter ended
December 31, 2017. The net loss for the quarter
ended December 31, 2016 included a non-cash
impairment of goodwill totaling $31.1 million
which did not recur in 2017.
ADJUSTED NET INCOME
under DCM’s credit facilities in order to fund a
Adjusted net income for the quarter ended
portion of the upfront cash components of the
December 31, 2017 was $1.5 million compared
purchase price, settle certain debt assumed and
to Adjusted net income of $25.0 thousand for
pay for related acquisition costs associated with
the same period in 2016. The increase in
comparable profitability for the quarter ended
December 31, 2017 was attributable primarily
due to higher SG&A expenses and higher interest
expense in 2017.
the BOLDER acquisition.
INCOME TAXES
DCM reported a loss before income taxes of
$3.2 million, a current income tax expense of
$0.2 million and a deferred income tax recovery of
$1.0 million for the quarter ended December 31, 2017
compared to a loss before income taxes of
$34.0 million, a current income tax expense of
$0.2 million and a deferred income tax recovery of
$1.0 million for the quarter ended December 31, 2016.
The current tax expense was primarily related to
33
MANAGEMENT’S DISCUSSION AND ANALYSIS SUMMARY OF EIGHT QUARTER RESULTS
TABLE 5
The following table summarizes quarterly financial information for the past eight quarters.
(in thousands of Canadian dollars, except per share amounts, unaudited)
2017
2016
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Revenues
$
76,125
$
70,212
$
73,066
$
70,126
$
68,191
$
65,842
$
69,716
$
74,614
Net income (loss)
attributable to
shareholders
Basic earnings
(loss) per share
Diluted earnings
(loss) per share
(2,459)
(1,068)
(581)
(2,097)
(33,115)
(1,865)
991
1,882
(0.12)
(0.06)
(0.04)
(0.17)
(2.77)
(0.16)
(0.12)
(0.06)
(0.04)
(0.17)
(2.77)
(0.16)
0.09
0.09
0.19
0.19
The variations in DCM’s quarterly revenues
$1.7 million and $1.0 million in one-time business
and net income (loss) over the eight quarters ended
reorganization costs related to its cost reduction
December 31, 2017 can be attributed to several
initiatives, and a non-cash impairment of goodwill
principal factors: the acquisitions of Eclipse, Thistle
of $31.1 million related to its DCM North America CGU.
and BOLDER Graphics, revenue declines in DCM’s
traditional print business due to production volume
declines largely related to technological change,
price concessions and competitive activity, seasonal
variations in customer spending, restructuring
expenses and business reorganization costs related
to DCM’s ongoing productivity improvement and
cost reduction initiatives, profitability improvements
resulting from cost savings initiatives which lowered
direct and indirect labour costs and improved
utilization rates at DCM’s key plants, lower interest
expense during 2016 as a result of the partial
redemption of its outstanding 6.00% Convertible
Debentures in 2015, non-cash goodwill impairment
DCM’s net loss for the third quarter of 2017 included
operating results of Eclipse and Thistle and
restructuring expenses of $1.4 million related to its
cost reduction initiatives. There were $1.8 million of
restructuring expenses in the third quarter of 2016.
DCM’s net loss for the second quarter of 2017
included operating results of Eclipse and Thistle
and restructuring expenses of $1.7 million related
to its cost reduction initiatives. DCM’s net income
for the second quarter of 2016 included $0.4 million
of restructuring expense related to its cost
reduction initiatives.
charges and business acquisition costs.
DCM’s net loss for the first quarter of 2017
DCM’s net loss for the fourth quarter of 2017
included operating results of Eclipse, Thistle
and BOLDER Graphics, restructuring expenses
of $4.5 million, $0.4 million of one-time business
reorganization costs related to its cost reduction
initiatives and business acquisition costs of
$0.4 million. DCM’s net loss for the fourth quarter
of 2016 included restructuring expenses of
34
included operating results of Eclipse and Thistle
post-acquisition (after February 22, 2017),
restructuring expenses of $1.9 million related
to its cost reduction initiatives and business
acquisition costs of $1.0 million. DCM incurred
$0.3 million of restructuring expenses in the
first quarter of 2016.
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 ACCOUNTING POLICIES
CHANGES IN ACCOUNTING POLICIES
FUTURE ACCOUNTING STANDARDS
NOT YET ADOPTED
DCM has not yet determined the impact of
The accounting policies used in the preparation of
adopting the changes in accounting standards
the consolidated financial statements are outlined
listed below. The assessment of the impact on
in notes 2 and 3 of the Notes to the condensed
our consolidated financial statements of these
interim consolidated financial statements of DCM
new standards or the amendments to these
for the year ended December 31, 2017. DCM adopt
standards is ongoing.
the following new accounting policies:
(i)
IFRS 9 Financial Instruments was issued in
(i)
On January 19, 2016 the IASB issued Recognition
July 2014. IFRS 9 sets out the requirements for
of Deferred Tax Assets for Unrealized Losses
recognizing and measuring financial assets,
(Amendments to IAS 12). The amendments
financial liabilities and some contracts to buy
apply retrospectively for annual periods
and sell non-financial items. IFRS 9 replaces
beginning on or after January 1, 2017. Earlier
IAS 39 Financial Instruments: Recognition and
application is permitted. The amendments
Measurement. The new standard establishes
clarify that the existence of a deductible
temporary difference depends solely on a
a single classification and measurement
approach for financial assets that reflects the
comparison of the carrying amount of an asset
business model in which they are managed
and its tax base at the end of the reporting
and their cash flow characteristics. It also
period, and is not affected by possible
provides guidance on an entity’s own credit
future changes in the carrying amount or
risk relating to financial liabilities and has
expected manner of recovery of the asset. The
modified the hedge accounting model to
amendments also clarify the methodology
better link the economics of risk management
to determine the future taxable profits used
with its accounting treatment. It further
for assessing the utilization of deductible
introduces a single, forward looking ‘expected
temporary differences. There was no impact
loss’ impairment model for financial assets.
on DCM’s consolidated financial statements as
Additional disclosures will also be required
a result of the amendments.
(ii)
On January 7, 2016 the IASB issued Disclosure
Initiative (Amendments to IAS 7 Statement
of Cash Flows). The amendments apply
prospectively for annual periods beginning
on or after January 1, 2017. Earlier application
under the new standard. IFRS 9 is effective
for annual periods beginning on or after
January 1, 2018, with early adoption permitted.
The new standard is not expected to have
a significant impact on the consolidated
financial statements of DCM.
is permitted. The amendments require
(ii)
Amendments to IFRS 7 Financial Instruments:
disclosures that enable users of financial
Disclosure were issued in September 2014. This
statements to evaluate changes in liabilities
standard was amended to provide guidance on
arising from financing activities, including
additional disclosures on transition from IAS 39
both changes arising from cash flow and
to IFRS 9. The amendments are effective on
non-cash changes. The adoption of the
adoption of IFRS 9. DCM does not expect this
amendment resulted in additional disclosure
amendment to have a significant impact on its
in DCM’s consolidated financial statements.
consolidated financial statements.
35
MANAGEMENT’S DISCUSSION AND ANALYSIS (iii) IFRS 15 Revenue from Contracts with Customers
the five-step model in IFRS 15 to determine the
was issued in May 2014. This new standard
impact on the timing and measurement on its
outlines a single comprehensive model
revenue recognition. Based on management’s
for companies to use when accounting
preliminary assessment, the adoption of
for revenue arising from contracts with
IFRS 15 may have an impact on the timing of
customers. It supersedes the IASB’s current
recognition of revenues to an earlier stage for
revenue recognition standards, including
certain manufactured products, in addition to
IAS 18 Revenues and related and related
earlier recognition of related production and
interpretations. The core principle of IFRS 15
commission costs. There will also be enhanced
is that revenue is recognized at an amount
disclosures in the consolidated financial
that reflects the consideration to which the
statements of DCM. Management is in the
company expects to be entitled in exchange
process of finalizing its analysis.
for those goods or services, applying the
following five steps:
1.
Identify the contract with a customer
2.
Identify the performance obligations
in the contract
(iv) An amendment to IFRS 2 Share-based Payment
was issued in June 2016 to clarify the accounting
for certain types of share-based payment
transactions. The amendments provide
requirements on accounting for the effects
3. Determine the transaction price
of vesting and non-vesting conditions of
4.
Allocate the transaction price to the
performance obligations in the contract
5.
Recognize revenue when (or as) the entity
satisfies a performance obligation
cash-settled share-based payments,
withholding tax obligations for share-based
payments with a net settlement feature,
and when a modification to the terms of a
share-based payment changes the classification
This new standard also provides guidance
of the transaction from cash-settled to
relating to the accounting for contract costs as
equity-settled. The amendments are effective
well as for the measurement and recognition of
for the year beginning on or after January 1, 2018.
gains and losses arising from the sale of certain
DCM does not expect this amendment to have
non-financial assets. Additional disclosures
a significant impact on its consolidated
will also be required under the new standard,
financial statements.
which is effective for annual reporting periods
beginning on or after January 1, 2018 with
earlier adoption permitted. For comparative
amounts, companies have the option of
using either a full retrospective approach or
a modified retrospective approach as set out
in the new standard. DCM intends to use the
modified retrospective approach. The IASB
published final clarifications to IFRS 15 in April
2016, which do not change the underlying
principles of the standard yet clarify how the
principles should be applied.
DCM has undertaken a comprehensive review
of its significant contracts in accordance with
(v)
IFRS 16 Leases was issued in January 2016.
It supersedes the IASB’s current lease standard,
IAS 17 Leases, which required lessees and
lessors to classify their leases as either finance
leases or operating leases and to account for
those two types of leases differently. It did
not require lessees to recognize assets and
liabilities arising from operating leases, but
it did require lessees to recognize assets and
liabilities arising from finance leases.
IFRS 16 sets out the principles for the
recognition, measurement, presentation and
disclosure of leases. It introduces a single
lessee accounting model and requires a lessee
36
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017
to recognize assets and liabilities for all leases
related asset or liability is recognized in the
with a term of more than twelve months and
financial statements. This interpretation is
for which the underlying asset is not of low
applicable for annual periods beginning on or
value. A lessee is required to recognize a
after January 1, 2018, and can be applied either
right-of-use asset representing its right to use
prospectively or retrospectively, at the option
the underlying leased asset and a lease liability
of the entity. IFRIC 22 is not expected to have
representing its obligation to make lease
a significant impact on the consolidated
payments. The right-of-use asset is initially
financial statements of DCM.
measured at cost and subsequently depreciated.
The lease liability is initially measured at
the present value of the lease payments and
subsequently adjusted for interest and lease
payments. This accounting is subject to certain
exceptions and other adjustments.
(vii) In June 2017, the IASB issued IFRIC 23
Uncertainty over Income Tax Treatments.
The interpretation clarifies the accounting for
current and deferred tax liabilities and assets
in circumstances in which there is uncertainty
over income tax treatments. The interpretation
IFRS 16 contains disclosure requirements for
requires an entity to consider whether it is
lessees and lessors. This new standard will
probable that a taxation authority will accept
come into effect for annual periods beginning
an uncertain tax treatment. If the entity
on or after January 1, 2019. Earlier application
considers it to be not probable that a taxation
is permitted for companies that apply IFRS 15
authority will accept an uncertain tax provision
Revenue from Contracts with Customers at or
the interpretation requires the entity to use the
before the date of initial application of IFRS 16.
most likely amount or the expected value. The
Based on management’s preliminary
assessment, DCM has identified lease contracts,
primarily for building and equipment rentals,
for which recognition will change under IFRS 16.
The recognition of the leased assets and their
related liabilities will increase income from
operations, with a corresponding combined
amendments are to be applied retrospectively
and are effective for annual periods beginning
on or after January 1, 2019, with earlier
application permitted. The adoption of
this amendment is not expected to have a
significant impact on the DCM’s consolidated
financial statements.
increase in depreciation and amortization and
There are no other IFRS or International Financial
financial charges as at the date of application
Reporting Interpretations Committee (‘IFRIC’)
of IFRS 16. Management intends to adopt
interpretations that are not yet effective that would
IFRS 16 for the annual period beginning
be expected to have a material impact on DCM.
on January 1, 2019.
(vi) IFRIC 22 Foreign Currency Transactions and
Advance Consideration, is an interpretation
CRITICAL ACCOUNTING
ESTIMATES
paper issued by the IASB in December 2016.
The preparation of the financial statements requires
This interpretation paper clarifies that
the foreign exchange rate applicable to
management to make judgments, estimates and
assumptions that are not readily apparent from
transactions involving advance consideration
other sources about the carrying amounts of
paid or received is the rate at the date that
assets and liabilities, and reporting of income
the advance consideration is paid or received
and expenses. The estimates and associated
and a non-monetary asset or liability is
assumptions are based on historical experience
recorded, and not the later date at which the
and other factors that are considered to be
37
MANAGEMENT’S DISCUSSION AND ANALYSIS
relevant. Actual results may differ materially from
determine the purchase price allocation. Estimates
these estimates. The estimates and underlying
are made as to the valuations of property, plant,
assumptions are reviewed on an ongoing basis.
and equipment, intangible assets, assumed
Revisions to accounting estimates are recognized
during the period in which the estimate is revised if
the revision affects only that period or in the period
of the revision and future periods if the revision
financial liabilities, among other items. These
estimates have been discussed further below.
Property, Plant and Equipment
affects both current and future periods.
The fair value of property, plant and equipment
USE OF ESTIMATES
AND MEASUREMENT UNCERTAINTY
BUSINESS COMBINATIONS
Business combinations are accounted for using the
acquisition method. The consideration transferred
is the total fair value of the assets acquired, equity
instruments issued, liabilities incurred or assumed
by DCM, and contingent considerations, on the
acquisition date.
If the agreement includes a contingent
consideration, it is measured at fair value as of the
acquisition date and added to the consideration
transferred, and a liability for the same amount
is recognized. Any subsequent change to the fair
value of the contingent consideration will be
recognized in the statement of operations.
recognised as a result of a business combination
is the estimated amount for which a property
could be exchanged on the date of acquisition
between a willing buyer and a willing seller in an
arm’s length transaction after proper marketing
wherein the parties had each acted knowledgeably.
The fair value of equipment, computer hardware,
furniture, fixtures and fittings is based on the
market approach and cost approaches using quoted
market prices for similar items when available and
depreciated replacement cost when appropriate.
Intangible Assets
The fair value of trade names acquired in a business
combination is based on the incremental discounted
estimated cash flows enjoyed post acquisition, or
expenditures avoided, as a result of owning the
intangible assets. The fair value of customer lists
If the initial recognition of the business combination
acquired in a business combination is determined
is incomplete when the financial statements are
using the multi-period excess earnings method,
issued for the period during which the acquisition
whereby the subject asset is valued after deducting
occurred, DCM records a provisional amount for
a fair return on all other assets that are part of
the items for which measurement is incomplete.
creating the related cash flows. The fair value of
Adjustments to the original recognition of the
business combination will be recorded as an
adjustment to the assets acquired and liabilities
assumed during the measurement period, and
the adjustments must be applied retroactively.
other intangible assets were based on the depreciated
replacement cost approach which reflects the
cost to a market participant to construct assets of
comparable utility and age, adjusted for obsolescence.
The measurement period is the period from the
Inventories
acquisition date to the date on which DCM has
received complete information on the facts and
circumstances that existed as of the acquisition date.
FAIR VALUE OF ASSETS AND LIABILITIES
ACQUIRED IN BUSINESS COMBINATIONS
The fair value of inventories acquired in a business
combination is determined based on the estimated
selling price in the ordinary course of business
less the estimated costs of completion and sale,
and a reasonable profit margin based on the effort
The value of acquired assets and liabilities on the
required to complete and sell the inventories.
acquisition date require the use of estimates to
38
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 Financial Liabilities
UNCERTAIN TAX POSITIONS
Fair value is calculated based on the present
value of future principal and interest cash flows,
discounted at the market rate of interest at the
reporting date.
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.
DCM maintains provisions for uncertain tax
positions using the best estimate of the amount
expected to be paid based on a qualitative
assessment of all relevant factors. DCM reviews
the adequacy of these provisions at the end of
the reporting period. It is possible that at some
future date, liabilities in excess of the DCM’s
provisions could result from audits by, or litigation
with, relevant taxing authorities. Where the final
outcome of these tax-related matters is different
from the amounts that were initially recorded,
such differences will affect the tax provisions in
the period in which such determination is made.
PENSION OBLIGATIONS
These assumptions can be impacted by economic
Management estimates the pension obligations
conditions and also require considerable judgment
annually using a number of assumptions and
by management. Declines in business results
with the assistance of independent actuaries;
or declines in the fair value of DCM’s reporting
however, the actual outcome may vary due to
segments could result in impairments in future
estimation uncertainties. The estimates of its
periods. Changing the assumptions selected by
pension obligations are based on rates of inflation
management, in particular the discount rate
and mortality that management considers to
and growth assumptions used in the cash flow
be reasonable. It also takes into account DCM’s
projections, could significantly affect ithe result
specific anticipation of future salary increases,
of DCM’s impairment analysis.
retirement ages of employees and other actuarial
INCOME TAXES
In assessing the probability of realizing
deferred income tax assets, management has
made estimates related to expectations of
future taxable income, applicable tax planning
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. Deferred tax assets also reflect the
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 actuarial valuations and the carrying
amount of DCM’s defined benefit obligations.
PROVISIONS
benefit of unused tax losses that can be carried
Provisions are liabilities of uncertain timing or
forward to reduce income taxes in future years.
amount. Provisions are recognized when DCM
In making its assessments, management gives
has a present legal or constructive obligation
additional weight to positive and negative
arising from past events, when it is probable
evidence that can be objectively verified.
that an outflow of funds will be required to
39
MANAGEMENT’S DISCUSSION AND ANALYSIS settle the obligation, and a reliable estimate can
onerous contracts. Provisions are reviewed at each
be made of the amount of the obligation. The
reporting date and any changes to estimates are
amount recognized as a provision is DCM’s best
reflected in the statement of operations.
estimate of the present obligation at the end of the
reporting period. When the effect of discounting
is significant, the amount of the provision is
determined by discounting the expected cash
flows at a pre-tax rate that reflects current
market assessments of the time value of money
and the risks specific to the liability. DCM’s main
provisions are related to restructuring costs and
AGGREGATION OF OPERATING SEGMENTS
Management applies judgment in aggregating
operating segments in to a reportable segment.
Aggregation occurs when the operating segments
have similar economic characteristics and have
similar products, production processes, types of
customers, and distribution methods.
MANAGEMENT’S REPORT ON INTERNAL CONTROLS
OVER FINANCIAL REPORTING
DISCLOSURE CONTROLS
AND PROCEDURES
With the supervision and participation of DCM’s
senior management team, the Chief Executive
have evaluated the effectiveness of the internal
controls over financial reporting (as defined
in Multilateral Instrument 52-109) of DCM
as of December 31, 2017.
Officer and the Chief Financial Officer of DCM
In making this evaluation, the criteria set
have evaluated the effectiveness of disclosure
forth in 2013 by the Committee of Sponsoring
controls and procedures (as defined in
Organizations of the Treadway Commission in
Multilateral Instrument 52-109) of DCM as of
Internal Control – Integrated Framework was
December 31, 2017. Based on that evaluation,
used to design the internal controls over
those officers have concluded that, as of
financial reporting. Based on that evaluation,
December 31, 2017, such disclosure controls and
those officers have concluded that, as of
procedures were sufficiently effective to provide
December 31, 2017, such internal controls
reasonable assurance that (i) material information
over financial reporting were sufficiently
relating to DCM was made known to management
effective to provide reasonable assurance
and (ii) information required to be disclosed by
regarding the reliability of DCM’s financial
DCM in its annual filings, interim filings or other
reporting and the preparation of consolidated
reports filed or submitted by it under securities
financial statements for external purposes in
legislation is recorded, processed, summarized
accordance with IFRS.
and reported within the time periods specified
in the securities legislation.
INTERNAL CONTROLS OVER
FINANCIAL REPORTING
DCM’s management has determined that there
were no changes in the internal controls over
financial reporting of DCM during the year
ended December 31, 2017 reporting period that
have materially affected, or are reasonably likely
With the supervision and participation of DCM’s
to materially affect, the internal controls over
senior management team, the Chief Executive
financial reporting of DCM.
Officer and the Chief Financial Officer of DCM
40
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 OUTLOOK
2017 was a pivotal year in DCM’s pursuit to
transform the business and create greater value
for its shareholders. This was initiated with
Lastly, DCM has been working hard to revitalize its
internal operating systems with the development
of a new ERP system which is expected to go-live
in the latter part of 2018. It is expected that the
ERP system will further improve DCM’s processes
changes in the company’s senior leadership team
and bring additional cost savings.
with the introduction of Gregory J. Cochrane as
President late in 2016. With his leadership, DCM
established a new and refreshed growth strategy
which included refining the company’s pricing
model, realigning its sales force to specialize
in vertical markets, highlighting the online
and offline capabilities DCM has to offer to its
DCM finished 2017 with a strong fourth quarter as
it began to realize the benefits of the initiatives
effected during 2017. Management is confident
that DCM will continue to experience the benefits
of these initiatives in the forth-coming year. The
Company is confirming its previously announced
customers, and the successful completion of three
guidance for 2018:
business acquisitions (Eclipse, Thistle and BOLDER
Graphics) during the year, which have each
REVENUES
expanded the package of solutions DCM furnishes
to its long-standing and newly acquired customers.
In the fall of 2017, DCM achieved a milestone win
with the addition of a leading North American
financial institution to its roster of customers.
DCM anticipates total revenues of between
$295.0 million and $310.0 million, representing
growth of approximately 2% to 7% compared
to revenues of approximately $289.5 million
in fiscal 2017.
On the operational side of the business, DCM made
further progress restructuring to achieve greater
ADJUSTED EBITDA
operational efficiencies and cost savings through
Adjusted EBITDA for fiscal 2018 is estimated to
improved processes, further plant consolidations
be between $22.0 million and $25.0 million,
and additional headcount reductions.
compared to Adjusted EBITDA in fiscal 2017
From a financing perspective, DCM was able to
further deleverage its balance sheet by raising
additional equity (approximately $8.1 million)
of approximately $16.1 million.
CAPITAL EXPENDITURES
to partially facilitate the payout of the 6.0%
For fiscal 2018, DCM expects to spend
convertible debentures ($11.5 million of principal
approximately $2.5 million on capital expenditures,
and interest) which matured in June of 2017.
in line with approximately $2.4 million recorded
In addition to this, a total of approximately
in fiscal 2017. In addition to capital expenditures,
$12.5 million in debt commitments were repaid
DCM incurred approximately $3.4 million in
during the year. DCM expects to pay down
intangible asset purchases in 2017, substantially
approximately $13.0 million of its fixed payment
all of which related to the company’s ERP
debt in 2018, including required principal
project investment. DCM expects to incur
payments on its senior debt, subordinated debt
approximately $1.5 million in intangible asset
and promissory note payments related to its
purchases in 2018 and most of those capitalizable
acquisitions. Management is committed to
costs relating to the project will be incurred
deleveraging its capital structure with
through the first half of 2018.
a long-term target net debt to Adjusted EBITDA
range of between 1 and 2 times.
41
MANAGEMENT’S DISCUSSION AND ANALYSIS As part of establishing the above guidance, DCM
DCM cautions that the assumptions used to
made the following assumptions:
prepare the guidance provided above, although
• New customer wins and sales initiatives focused
on capturing greater wallet share from DCM’s
existing customer base, including increasingly
capitalizing on its technology-enabled
value-added services provided to customers, will
offset continued expected declines in Company’s
core business communications market;
• DCM will benefit from the full-year results of
the acquisitions of Eclipse, Thistle and BOLDER
currently reasonable, may prove to be incorrect
or inaccurate. Accordingly, actual results may differ
materially from expectations as set forth above.
The guidance provided above should be
read in conjunction with, as is qualified by, the
section Forward-looking Statements beginning
on page 1 of the March 8, 2018 MD&A.
RISKS AND UNCERTAINTIES
Graphics and continue to experience growth
An investment in DCM’s securities involves risks.
rates in each of those businesses consistent
In addition to the other information contained in
with the past year;
• The three acquisitions DCM completed in
2017 will continue to generate incremental
cross-selling opportunities and cost synergies
across the entire business of the Company;
• DCM will be able to translate its sales pipeline
into new customer acquisitions;
• Improved year over year margins will be
achieved through the strategic initiatives
this report, investors should carefully consider
the risks described in DCM’s most recent Annual
Information Form and other continuous disclosure
filings made by DCM with Canadian securities
regulatory authorities before investing in securities
of DCM. The risks described in this report, the
Annual Information Form and those other filings
are not the only ones facing DCM. Additional
risks not currently known to DCM, or that DCM
currently believes are immaterial, may also impair
the business, results of operations, financial
implemented in the fourth quarter of fiscal 2017,
condition and liquidity of DCM.
including from the consolidation of facilities,
headcount reductions and continuing efforts by
management to drive improved profitability and
also from the relocation of BOLDER Graphics
into DCM’s Calgary facility which was completed
in February 2018;
• The Company continues to explore additional
strategic acquisition opportunities, and,
while there can be no certainty that any
such opportunities will be completed, such
acquisitions could impact the outlook provided;
• Economic conditions in North America will
not deteriorate; and
• The above guidance is based on the accounting
policies applied in the consolidated financial
statements of DCM for 2017 and IFRS in effect
for the year ending December 31, 2017.
42
MANAGEMENT’S DISCUSSION AND ANALYSISDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017
FINANCIAL
STATEMENTS
43
FINANCIAL REPORTING RESPONSIBILITY
OF MANAGEMENT
The accompanying consolidated financial statements of DATA Communications Management Corp. (“DCM”)
have been prepared by management and approved by the Board of Directors of DCM. Management of DCM
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 judgements 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, DCM maintains a system of internal controls
which are designed to provide reasonable assurance that DCM’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 DCM’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 DCM 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 DCM.
The Board of Directors has appointed an Audit Committee composed of three directors who are not
members of management of DCM. 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 DCM’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 DCM’s auditors. In addition, the
Board of Directors may refer to the Audit Committee other matters and questions relating to the financial
position of DCM.
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 DCM.
(Signed) “Michael G. Sifton”
(Signed) “James E. Lorimer”
Michael G. Sifton
Chief Executive Officer
James E. Lorimer
Chief Financial Officer
DATA Communications Management Corp.
DATA Communications Management Corp.
Brampton, Ontario. March 8, 2018
44
March 8, 2018
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF DATA COMMUNICATIONS MANAGEMENT CORP.
We have audited the accompanying consolidated financial statements of DATA Communications
Management Corp, and its subsidiaries, which comprise the consolidated statements of financial position as
at December 31, 2017 and December 31, 2016 and the consolidated statements of operations, comprehensive
loss, changes in equity (deficit) 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 audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on 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 Communications Management Corp. and its subsidiaries as at December 31, 2017 and
December 31, 2016 and their financial performance and their cash flows for the years then ended in
accordance with International Financial Reporting Standards.
(Signed) “Pricewaterhourse Coopers LLP”
Chartered Professional Accountants,
Licensed Public Accountants
45
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of Canadian dollars)
December 31, 2017
December 31, 2016
$
—
$
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade receivables (note 5)
Inventories (note 6)
Prepaid expenses and other current assets
NON-CURRENT ASSETS
Deferred income tax assets (note 13)
Restricted cash (note 11)
Property, plant and equipment (notes 4 and 7)
Pension assets (note 15)
Intangible assets (notes 4 and 8)
Goodwill (notes 4 and 9)
LIABILITIES
CURRENT LIABILITIES
Bank overdraft
Trade payables and accrued liabilities
Current portion of credit facilities (note 11)
Convertible debentures (note 12)
Current portion of promissory notes (note 4)
Provisions (note 10)
Income taxes payable
Deferred revenue
NON-CURRENT LIABILITIES
Provisions (note 10)
Credit facilities (note 11)
Promissory notes (note 4)
Deferred income tax liabilities (note 13)
Other non-current liabilities (note 14)
Pension obligations (note 15)
Other post-employment benefit plans (note 16)
EQUITY
SHAREHOLDERS’ DEFICIT
Shares (note 18)
Warrants (note 18)
Conversion options
Contributed surplus (note 18)
Accumulated other comprehensive income
Deficit
Approved by Board of Directors:
(Signed) “J.R. Kingsley Ward”
(Signed) “Michael G. Sifton”
J.R. Kingsley Ward
Director
Michael G. Sifton
Director
46
41,193
36,519
5,092
82,804
6,108
515
18,831
760
14,473
8,368
131,859
$
2,868
$
34,306
8,725
—
4,374
3,950
3,188
11,237
68,648
2,702
47,207
2,829
1,295
3,413
8,133
3,031
1,544
29,157
33,252
4,667
68,620
3,839
425
12,483
1,589
3,954
—
90,910
—
27,304
5,886
11,082
—
3,305
2,231
8,665
58,473
675
29,156
—
—
1,691
8,340
2,510
137,258
$
100,845
248,996
$
237,432
287
—
1,368
183
—
128
1,164
258
(256,233)
(248,917)
(5,399)
131,859
$
$
(9,935)
90,910
The accompanying notes are an integral part of these
consolidated financial statements.
$
$
$
$
$
$
FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of Canadian dollars, except per share amounts)
For the year ended
December 31, 2017
For the year ended
December 31, 2016
REVENUES
COST OF REVENUES
GROSS PROFIT
EXPENSES
Selling, commissions and expenses
General and administration expenses
Restructuring expenses (note 10)
Impairment of goodwill (note 9)
Acquisition costs (note 4)
LOSS BEFORE FINANCE COSTS AND INCOME TAXES
FINANCE COSTS (INCOME)
Interest expense
Interest income
Amortization of transaction costs
LOSS BEFORE INCOME TAXES
INCOME TAX (RECOVERY) EXPENSE
Current (note 13)
Deferred (note 13)
NET LOSS FOR THE YEAR
BASIC LOSS PER SHARE (note 19)
DILUTED LOSS PER SHARE (note 19)
$
$
$
$
$
289,529
220,138
69,391
33,992
27,379
9,457
—
1,368
72,196
(2,805)
4,415
(6)
701
5,110
(7,915)
725
(2,435)
(1,710)
(6,205)
(0.38)
(0.38)
$
$
$
278,363
215,295
63,068
31,376
24,558
4,200
31,066
68
91,268
(28,200)
3,414
(8)
578
3,984
(32,184)
1,572
(1,649)
(77)
(32,107)
(2.89)
(2.89)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands of Canadian dollars)
NET LOSS FOR THE YEAR
OTHER COMPREHENSIVE LOSS:
ITEMS THAT MAY BE RECLASSIFIED SUBSEQUENTLY TO NET LOSS
Foreign currency translation
ITEMS THAT WILL NOT BE RECLASSIFIED TO NET LOSS
Re-measurements of post-employment benefit obligations
Taxes related to post-employment adjustment above (note 13)
OTHER COMPREHENSIVE LOSS FOR THE YEAR, NET OF TAX
COMPREHENSIVE LOSS FOR THE YEAR
$
$
For the year ended
December 31, 2017
For the year ended
December 31, 2016
$
(6,205)
$
(32,107)
(75)
(75)
(1,501)
390
(1,111)
(1,186)
(7,391)
$
$
(48)
(48)
(309)
81
(228)
(276)
(32,383)
The accompanying notes are an integral part of these
consolidated financial statements
47
FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
(in thousands of Canadian dollars)
Shares
Warrants
Conversion
options
Contributed
surplus
Accumulated
other
comprehensive
income
Deficit
Total equity
(deficit)
$
234,782
$
— $
128
$
385
$
306
$
(216,582)
$
19,019
—
—
—
2,650
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
779
—
(32,107)
(32,107)
(48)
(228)
(276)
(48)
(32,335)
(32,383)
—
—
—
—
2,650
779
$
237,432
$
— $
128
$
1,164
$
258
$
(248,917)
$
(9,935)
$
237,432
$
— $
128
$
1,164
$
258
$
(248,917)
$
(9,935)
—
—
—
—
11,564
—
—
—
—
—
287
—
—
—
—
—
—
—
—
(6,205)
(6,205)
(75)
(1,111)
(1,186)
(75)
(7,316)
(7,391)
(128)
128
—
—
(15)
91
—
—
—
—
—
—
—
11,836
91
$
248,996
$
287
$
— $
1,368
$
183
$
(256,233)
$
(5,399)
The accompanying notes are an integral part of these
consolidated financial statements.
BALANCE AS AT
DECEMBER 31, 2015
Net loss for the year
Other comprehensive
loss for the year
Total comprehensive
loss for the year
Issuance of common
shares (note 18)
Share-based
compensation expense
BALANCE AS AT
DECEMBER 31, 2016
BALANCE AS AT
DECEMBER 31, 2016
Net loss for the year
Other comprehensive
income (loss) for
the year
Total comprehensive
loss for the year
Cancellation of
convertible debentures
(note 12)
Issuance of common
shares and warrants,
net (note 18)
Share-based
compensation expense
BALANCE AS AT
DECEMBER 31, 2017
48
FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars)
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the year
Adjustments to net loss
Depreciation of property, plant and equipment (note 7)
Amortization of intangible assets (note 8)
Share-based compensation expense
Pension expense (note 15)
Loss on disposal of property, plant and equipment
Impairment of goodwill (note 9)
Write-off of intangible assets
Provisions (note 10)
Amortization of transaction costs
Accretion of convertible debentures and non-current liabilities
Other non-current liabilities
Other post-employment benefit plans, net
Tax credits recognized
Income taxes recovery
Changes in working capital (note 20)
Contributions made to pension plans (note 15)
Provisions paid (note 10)
Income taxes paid
INVESTING ACTIVITIES
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds on disposal of property, plant and equipment
Cash consideration for acquisition of businesses (note 4)
FINANCING ACTIVITIES
Increase in restricted cash
Issuance of common shares and warrants, net (note 18)
Proceeds from credit facilities (note 11)
Repayment of credit facilities (note 11)
Repayment of convertible debentures (note 12)
Repayment of loans payable
Repayment of promissory notes (note 4)
Finance and transaction costs (note 11)
Finance lease payments
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS DURING THE YEAR
CASH AND CASH EQUIVALENTS – BEGINNING OF YEAR
EFFECTS OF FOREIGN EXCHANGE ON CASH BALANCES
(BANK OVERDRAFT) CASH
AND CASH EQUIVALENTS – END OF YEAR
$
$
For the year ended
December 31, 2017
For the year ended
December 31, 2016
$
(6,205)
$
(32,107)
4,143
3,509
91
526
312
—
57
9,457
701
692
1,043
531
(125)
(1,710)
13,022
(537)
(1,415)
(6,995)
(168)
3,907
(2,398)
(3,375)
638
(6,796)
(11,931)
(90)
8,125
27,393
(14,709)
(11,175)
(1,091)
(1,421)
(925)
(2,430)
3,677
(4,347)
1,544
$
(65)
4,052
2,092
779
589
358
31,066
—
4,200
578
85
469
94
(124)
(77)
12,054
7,619
(1,878)
(7,426)
(223)
10,146
(2,653)
(432)
167
—
(2,918)
(425)
2,650
49,532
(56,737)
—
(191)
—
(1,341)
(18)
(6,530)
698
871
(25)
(2,868)
$
1,544
The accompanying notes are an integral part of these
consolidated financial statements.
49
FINANCIAL STATEMENTS NOTES
TO CONSOLIDATED
FINANCIAL STATEMENTS
1. GENERAL INFORMATION
DATA Communications Management Corp.
(“DCM”) is a leading provider of business
communication solutions, bringing value
and collaboration to marketing and operation
teams in companies across North America.
DCM helps marketers and agencies unify and
execute communications campaigns across
multiple channels, and it helps operations
teams streamline and automate document
and communications management processes.
DCM derives its revenues from the following
core capabilities: direct marketing, commercial
print services, labels and automated identification
solutions, event tickets and gift cards, logistics
and fulfilment, content and workflow
management, data management and analytics,
and regulatory communications. DCM is
strategically located across Canada to support
clients on a national basis, and serves
the U.S. market through its facilities
in Chicago, Illinois.
DCM’s revenue is subject to the seasonal
advertising and mailing patterns of certain
customers. Typically, higher revenues and
profit are generated in the fourth quarter relative
The common shares of DCM are listed on
the Toronto Stock Exchange (“TSX”) under
the symbol “DCM”. DCM’s outstanding
6.00% Convertible Unsecured Subordinated
Debentures (the “6.00% Convertible Debentures”)
were listed on the TSX under the symbol
“DCM.DB”. The address of the registered
office of DCM is 9195 Torbram Road,
Brampton, Ontario.
2. BASIS OF PRESENTATION
AND SIGNIFICANT
ACCOUNTING POLICIES
BASIS OF PRESENTATION
DCM 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 (“Board”)
of DATA Communications Management Corp.,
on March 8, 2018.
SIGNIFICANT ACCOUNTING POLICIES
to the other three quarters, however this can
BASIS OF MEASUREMENT
vary from time to time by changes in customers’
purchasing decisions throughout the year. As a
result, DCM’s revenue and financial performance
for any single quarter may not be indicative of
revenue and financial performance which may
be expected for the full year.
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.
50
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017
Fair value is the price that would be received to sell
intercompany transactions, balances and
an asset or paid to transfer a liability in an orderly
unrealized gains and losses from intercompany
transaction between market participants at the
transactions are eliminated upon consolidation.
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, DCM 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,
(a) Subsidiaries
Subsidiaries are all entities (including structured
entities) over which DCM has control. Control
exists when DCM 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.
International Accounting Standards (“IAS”) 17 Leases,
(b) Changes in ownership interests in subsidiaries
and measurements that have some similarities to
without change of control
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.
Transactions with non-controlling interests
that do not result in loss of control are accounted
for as equity transactions – that is, as transactions
In addition, for financial reporting purposes,
with the owners in their capacity as owners.
fair value measurements are categorized into
The difference between fair value of any
Level 1, 2 or 3 based on the degree to which
consideration paid and the relevant share
the inputs to the fair value measurements are
acquired of the carrying value of net assets of
observable and the significance of the inputs to
the subsidiary is recorded in equity. Gains or
the fair value measurements in its entirety, which
losses on disposals to non-controlling interests
are described as follows:
are also recorded in equity.
Level 1 inputs are quoted prices (unadjusted)
(c) Disposal of subsidiaries
in active markets for identical assets or
liabilities that the entity can access at the
measurement date;
When DCM 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
Level 2 inputs are inputs, other than quoted
change in carrying amount recognized in profit or
prices included within Level 1; that are
loss. The fair value is the initial carrying amount
observable for the asset or liability; either
for the purposes of subsequently accounting for
directly or indirectly; and
the retained interest as an associate, joint venture
•
•
•
Level 3 inputs are unobservable inputs for
the asset or liability.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include
the accounts of DCM and its subsidiaries. All
or financial asset. In addition, any amounts
previously recognized in other comprehensive
loss in respect of that entity are accounted for as if
DCM 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 operations.
51
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) BUSINESS COMBINATIONS
In the case of a business combination of less than
Business combinations are accounted for using the
acquisition method, and their operating results are
included in the consolidated financial statements
as of the acquisition date. The consideration
transferred is the total fair value of the assets
acquired, equity instruments issued, liabilities
incurred or assumed by DCM and contingent
100%, a non-controlling interest is measured,
either at fair value or at the non-controlling
interest’s share of the net identifiable assets of the
acquiree. The basis of measurement is determined
on a transaction-by-transaction basis.
FOREIGN CURRENCY TRANSLATION
considerations, on the acquisition date, in
Items included in the financial statements of
exchange for control of the acquired entity. The
each entity within DCM are measured using the
excess of the consideration transferred over the
currency of the primary economic environment
fair value of the identifiable assets acquired and
in which the entity operates (the “functional
liabilities assumed is recognized as goodwill. The
currency”). These consolidated financial
transaction costs attributable to the acquisition are
statements are presented in Canadian dollars,
recognized in the statement of operations when
which is DCM’s functional currency. The functional
they are incurred.
If the agreement includes a contingent
currency of DCM’s United States operations is
U.S. dollars. All financial information presented
in Canadian dollars has been rounded to the
consideration, it is measured at fair value as of the
nearest thousand.
acquisition date and added to the consideration
transferred, and a liability for the same amount
Monetary assets and liabilities denominated in
is recognized. Any subsequent change to the fair
foreign currencies are translated into Canadian
value of the contingent consideration will be
dollars at rates of exchange in effect at the
recognized in the statement of operations.
statement of financial position date. Revenues and
If the initial recognition of the business
combination is incomplete when the financial
statements are issued for the period during
which the acquisition occurred, DCM records
a provisional amount for the items for which
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
measurement is incomplete. Adjustments to the
for the year.
original recognition of the business combination
will be recorded as an adjustment to the assets
The assets and liabilities of foreign operations,
acquired and liabilities assumed during the
including goodwill and fair value adjustments
measurement period, and the adjustments must be
arising on acquisitions, are translated to Canadian
applied retroactively. The measurement period is
dollars at exchange rates at the reporting date.
the period from the acquisition date to the date on
The income and expenses of foreign operations
which DCM has received complete information on
are translated to Canadian dollars at average
the facts and circumstances that existed as of the
exchange rate during the period. Foreign
currency differences are recognized in other
comprehensive loss in the foreign currency
translation reserve account.
acquisition date.
If a business combination is achieved in stages,
DCM reassesses the share it held previously in the
acquiree at fair value at the acquisition date and
includes the gain or loss resulting, if any, to the
statement of operations.
52
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017
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
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.
at the date of purchase.
(ii)
Loans and receivables: Loans and receivables
FINANCIAL INSTRUMENTS
Financial assets and liabilities are recognized
when DCM 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 DCM 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.
are non-derivative financial assets with fixed
or determinable payments that are not quoted
in an active market. Loans and receivables are
initially recognized at 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) Financial liabilities which are measured at
amortized cost: Financial liabilities measured
at amortized cost are initially recognized
at the amount required to be paid less, if
applicable, a discount to reduce the payables
to fair value. Subsequently, these financial
At initial recognition, DCM classifies its
liabilities are measured at amortized
financial instruments in the following categories
cost using the effective interest method.
depending on the purpose for which the
Financial liabilities are classified as current
instruments were acquired:
(i)
Financial assets and liabilities at fair value
through profit or loss (“FVTPL”): A financial
liabilities if payment is due within twelve
months. Otherwise, they are presented as
non-current liabilities.
asset or liability is classified in this category if
(iv) Derivative financial instruments: DCM may also
acquired principally for the purpose of selling
use derivatives in the form of interest rate
or repurchasing in the short-term. Derivatives
swaps to manage risks related to its variable
are also included in this category unless they
rate debt. All derivatives have been classified
are designated as hedges.
Financial instruments in this category are
recognized initially and subsequently at fair
value. Transaction costs are expensed in the
statement of operations and are included
in finance costs. Gains and losses arising
from changes in fair value are presented in
the statement of operations within other
gains and losses in the period in which they
arise. Financial assets and liabilities at fair
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, 2017 and 2016,
DCM had not entered into any interest rate
swap agreements.
53
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts)
IMPAIRMENT OF FINANCIAL ASSETS
INVENTORIES
A financial asset is assessed at the end of each
Raw materials inventories are stated at the
reporting period to determine whether it is
lower of cost and net realizable value. Printed
impaired, based on objective evidence indicating
finished goods and work-in-progress are
that one or more events have had a negative effect
recorded at the lower of cost and net realizable
on the estimated future cash flows of that asset.
value. Raw materials are recorded on a weighted
Objective evidence used by the company to assess
average cost basis. Cost of finished goods and
impairment of financial assets includes quoted
work-in-process are determined using the
market prices for similar financial assets and
first-in, first-out method. Inventory manufactured
historical collection rates for loans and receivables.
includes the cost of materials, labour and
An impairment loss with respect to a financial
asset measured at amortized cost is calculated as
the difference between its carrying amount and
the net present value of the estimated future cash
flows discounted at the original effective interest
rate. The asset’s carrying amount is reduced
and the amount of the loss is recognized in the
statement of comprehensive loss.
Significant financial assets are tested for
impairment on an individual basis. The remaining
financial assets are assessed collectively in groups
that share similar credit risk characteristics.
An impairment loss is reversed if the reversal can
be related objectively to an event occurring after
the impairment loss was recognized. The reversal
of the previously recognized impairment is
recognized in the statement of comprehensive loss.
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 DCM 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 lease term
Office furniture and equipment
Presses and printing equipment
Computer hardware and software
Vehicles
straight-line
straight-line
straight-line
straight-line
5 years
3 to 10 years
1 to 5 years
3 years
54
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 DCM 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
depreciation 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 operations.
INTANGIBLE ASSETS
Intangible assets that are acquired are
•
•
•
•
•
•
it is technically feasible to complete the
software so that it will be available for use
management intends to complete the software
and use or sell it
there is an ability to use or sell the software
it can be demonstrated how the software will
generate probable future economic benefits
adequate technical, financial and other
resources to complete the development and to
use or sell the software are available, and
the expenditure attributable to the software
during its development can be reliably measured.
measured at cost and are carried at cost less
Directly attributable costs that are capitalized as
accumulated amortization. These assets include
part of the software include employee costs and
customer relationships, existing software
an appropriate portion of relevant overheads.
and technology, trademarks, trade names
Capitalized development costs are recorded as
and non-compete agreements.
intangible assets and amortized from the point at
Research costs and costs associated with
which the asset is ready for use.
maintaining software programs are recognized
Management’s judgment is required to determine
as an expense as incurred. Development costs that
the useful lives of intangible assets including
are directly attributable to the design and testing
reviewing the length of customer relationships and
of identifiable and unique software products
other factors. These finite life assets are amortized
controlled by DCM are recognized as intangible
over their estimated useful lives as outlined below.
assets when the following criteria are met:
Customer relationships
Software and technology
Computer software development costs
Trademarks, trade names and non-compete agreements
Basis
Rate
straight-line
straight-line
straight-line
straight-line
3 to 12 years
1 to 7 years
5 years
2 to 9 years
Residual values, the method of amortization and useful lives of the assets are reviewed annually
and adjusted if appropriate.
55
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) 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.
Adjustments to fair value assessments are
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.
recorded to goodwill over the measurement
An impairment loss is recognized for the amount
period, not exceeding one year from the date
by which the asset’s carrying amount exceeds
of acquisition. Goodwill is allocated to the cash
its recoverable amount. Impairment losses
generating unit (“CGU”) or a group of CGUs to
are recorded as impairment provisions within
which it relates. A CGU is an identifiable group of
accumulated depreciation for depreciable assets.
assets that are largely independent of the cash
DCM evaluates impairment losses, other than
flows from other assets or group of assets, which
goodwill impairment, for potential reversals
is not higher than an operating segment.
when events or circumstances warrant such
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
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.
SHARE-BASED COMPENSATION
are first allocated to the carrying value of goodwill
DCM has share-based compensation plans
and any excess is allocated to the carrying amount
as part of DCM’s long-term incentive plan,
of assets in the CGU. Any goodwill impairment
as described in note 18. All transactions
is charged to income in the period in which the
involving share-based payments are recognized
impairment is identified. Impairment losses on
as an expense in the statement of operations
goodwill are not subsequently reversed.
over the vesting period.
IMPAIRMENT OF NON-FINANCIAL ASSETS
Equity-settled share-based payment transactions,
such as stock option awards, are measured at the
Property, plant and equipment and intangible
grant date at the fair value of employee services
assets are tested for impairment when events
received in exchange for the grant of options or
or changes in circumstances indicate that the
share awards and, for non-employee transactions,
carrying amount may not be recoverable. For the
at the fair value of the goods or services received
purpose of measuring recoverable amounts, assets
at the date on which the entity recognizes the
are grouped at the lowest levels for which there
goods or services. The total amount of the
are separately identifiable cash flows (CGUs). The
expense recognized in the statement of
recoverable amount is the higher of an asset’s fair
operations is determined by reference to the fair
value less costs to sell and value in use (being the
value of the share awards or options granted,
present value of the expected future cash flows
which factors in the number of options expected
of the relevant asset or CGU). The projections of
to vest. Equity-settled share-based payment
56
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 transactions are not remeasured once the grant
DCM’s obligation to the SRDF and Unifor Pension
date fair value has been determined.
& Benefit Plans are limited to the amounts
Cash-settled share-based payment transactions
are measured at the fair value of the liability. The
agreed to in the respective collective bargaining
agreements of each plan.
liability is remeasured at each reporting date and
Certain former senior executives of a predecessor
at the date of settlement, with changes in fair value
corporation participated in a Supplementary
recognized in the statement of operations.
Executive Retirement Plan (“SERP”), which
EMPLOYEE BENEFITS
provides for pension benefits payable as a single
life annuity with a five year guarantee.
DCM maintains a defined benefit and defined
(a) Defined contribution plan
contribution pension plan (the “DATA
Communications Management Pension Plan”)
for some of its employees. Pension benefits are
primarily based on years of service, compensation
and accrued contributions with investment
earnings. DCM’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
Communications Management Pension Plan until
the solvency deficiency is reduced to a level under
which the applicable pension regulations allow
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. DCM’s annual pension
expense is based on the amounts contributed in
respect of eligible employees when they are due.
(b) Defined benefit plans
the valuations to be completed every three years.
A defined benefit plan is a post-employment
At January 1, 2014, the solvency deficiency had
benefit plan other than a defined contribution plan.
reduced to a level such that actuarial valuations
Pension benefits for the defined benefit formula
are to be completed every three years.
are generally calculated based on the number of
DCM also contributes to the Graphics
Communications Supplemental Retirement
and Disability Fund of Canada (“SRDF”) for
certain employees at its Drummondville and
Granby plants. During the fourth quarter of 2017,
the Granby employees were relocated to the
Drummondville plant in Québec. In addition,
DCM sponsors a number of multi-employer,
defined benefit employee pension and
non-pension benefit plans which are
administered by Unifor Local 591G for the
hourly employees of Thistle Printing Limited
(“Unifor Pension & Benefit Plans”). The SRDF
and Unifor Pension & Benefit Plans provide
post-employment benefits to unionized employees
in the printing industry jointly-trusteed by
representatives of the employers and the unions.
years of service and the maximum average eligible
earnings of each employee during any period of
five consecutive years. DCM accrues its obligations
for the defined benefit provision 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 DCM, 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
57
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) DCM. An economic benefit is available to DCM if
benefit plans. When the payment in the future
it is realizable during the life of the plan, or on
of minimum funding requirements related to
settlement of the plan liabilities.
past service would result in a net defined benefit
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.
Current service costs, administration costs and
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.
past services costs are recognized as period costs
A liability for a termination benefits is recognized
in general and administration expenses in the
at the earlier of when the entity can no longer
statement of operations. Net interest is calculated
withdraw the offer of the termination benefit
by applying the discount rate at the beginning of
and when the entity recognizes any related
the period to the net benefit liability or asset and
restructuring costs. Termination benefits
is recognized in finance expense (income) in the
that require future services are required to
statement of operations.
be recognized over the periods the future
The discount rate used to determine the accrued
benefit obligation is determined by reference to
The SERP is unfunded.
services are provided.
yields on high quality corporate bonds and that
have terms to maturity approximating the terms
of the related pension liability.
The SRDF and the Unifor Pension & Benefit Plans
are negotiated contribution, defined benefit
multi-employer plans, however, the trustees of these
Actuarial gains and losses arise from the difference
plans are not able to provide sufficient information
between actual rate of return on plan assets and
for DCM to account for these plans as a defined
the discount rate for that period, from changes
benefit plan. DCM has accounted for these plans
in actuarial assumptions used to determine the
on a defined contribution basis as DCM does not
accrued benefit obligation and from changes to
believe there is sufficient information to recognize
accrued benefit obligation resulting from actual
participation on a defined benefit basis. See note 21
experience differing from long-term assumptions
for additional information related to the SRDF.
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 loss in the period in which they
occur. Re-measurements recognized in other
comprehensive loss are reflected immediately
in retained earnings (deficit) and will not be
reclassified to statement of operations.
The retirement benefit obligation recognized in
the statement of financial position represents
the actual deficit or surplus in the DCM’s defined
(c) Other post-employment and long-term employee
benefit plans
DCM provides non-pension post-employment
benefits, including health care and life insurance
benefits on retirement to certain former
employees, their beneficiaries and covered
dependents (“DCM OPEB Plans”). DCM’s net
obligation in respect of its DCM OPEB 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
58
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 are recognized in other comprehensive loss in
(iii) Off-market leases: DCM performs evaluations
the period in which they arise and will not be
to identify off-market lease arrangements
reclassified to statement of operations.
and, where applicable, records provisions
DCM also provides other long-term employee
benefit plans including pension, health care
and dental care benefits for certain employees
on long-term disability (“DCM OPEB LTD Plan”).
DCM’s net obligation in respect of its DCM OPEB LTD
Plan is the actuarial present value of all future
projected benefits determined as at the valuation
against such lease agreements.
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
date. Any actuarial gains and losses related to other
combination, or items recognized directly in equity
long-term employee benefit plans are recognized
or in other comprehensive loss, in which case the
in the statement of operations in the period in
which they arise.
current and/or deferred tax is also recognized
directly in equity or other comprehensive loss.
The discount rate is the yield at the reporting date
Current income taxes is the expected tax payable
on yields on high quality corporate bonds that have
or receivable on the taxable income or loss for
maturity dates approximating the terms of DCM’s
obligations. The non-pension post-employment
the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment
benefit plan and other long-term employee benefit
to tax payable in respect of previous years that
plan are funded on a pay-as-you-go basis.
are expected to be paid. Management periodically
PROVISIONS
A provision is recognized if, as a result of a past
event, DCM 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 DCM 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.
evaluates positions taken in tax returns with
respect to situations in which applicable tax
regulation is subject to interpretation. DCM
establishes provisions where appropriate on the
basis of amounts expected to be paid to the tax
authorities. 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
(ii) Onerous contracts: DCM performs evaluations
arising on the initial recognition of goodwill.
to identify onerous contracts and, where
Deferred income tax is measured on a
applicable, records provisions against
non-discounted basis at the tax rates that are
such contracts.
expected to be applied to temporary differences
59
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) when they reverse, based on the laws that have
Lease incentives received are recognized as an
been enacted or substantively enacted by the
integral part of the total lease expense, over 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.
term of 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 AND WARRANTS
Common shares and warrants are classified as
equity instruments. Incremental costs directly
attributable to the issue of common shares and
warrants are recognized as a deduction from
Deferred income tax assets and liabilities are
equity, net of any tax effects.
offset if there is a legally enforceable right to offset
current tax liabilities and assets, and they relate to
REVENUE RECOGNITION
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.
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
Deferred income tax assets and liabilities are
requests a bill and hold arrangement, revenue is
presented as non-current.
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
their 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,
administration 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 will flow to DCM and the costs
associated with these services can be reliably
measured. If warehousing, administration and
marketing 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.
LEASES
Leases are classified as financing or operating
depending on the terms and conditions of
the contracts. Lease agreements where DCM
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 DCM’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.
60
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 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 any options granted.
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
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 ithe result
of DCM’s impairment analysis.
FAIR VALUE OF ASSETS AND LIABILITIES
ACQUIRED IN BUSINESS COMBINATIONS
The value of acquired assets and liabilities on the
acquisition date require the use of estimates to
determine the purchase price allocation. Estimates
are made as to the valuations of property, plant,
and equipment, intangible assets, assumed
financial liabilities, among other items. These
estimates have been discussed further below.
Property, Plant and Equipment
financial statements and revenues and expenses
The fair value of property, plant and equipment
for the period reported. Management must also
recognised as a result of a business combination is
make estimates and judgments about future results
the estimated amount for which a property could
of operations, related specific elements of the
be exchanged on the date of acquisition between a
business and operations in assessing recoverability
willing buyer and a willing seller in an arm’s length
of assets and recorded value of liabilities.
transaction after proper marketing wherein the
Significant areas of measurement uncertainty
parties had each acted knowledgeably. The fair value
are summarized below. For each item, actual
of equipment, computer hardware, furniture, fixtures
results could differ from estimates and judgments
and fittings is based on the market approach and cost
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
approaches using quoted market prices for similar
items when available and depreciated replacement
cost when appropriate.
Intangible Assets
The fair value of trade names acquired in a
impairment, and in the case of goodwill, annually
business combination is based on the incremental
at the end of each fiscal year. The determination
discounted estimated cash flows enjoyed post
of the impairment of goodwill, intangible and
non-current assets are impacted by estimates of
acquisition, or expenditures avoided, as a result
of owning the intangible assets. The fair value of
the fair value of CGUs, assumptions of future cash
customer lists acquired in a business combination
flows, and achieving forecasted business results.
These assumptions can be impacted by economic
is determined using the multi-period excess
earnings method, whereby the subject asset is
conditions and also require considerable judgment
valued after deducting a fair return on all other
by management. Declines in business results
or declines in the fair value of DCM’s reporting
assets that are part of creating the related cash
flows. The fair value of other intangible assets
were based on the depreciated replacement cost
61
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) approach which reflects the cost to a market
with, relevant taxing authorities. Where the final
participant to construct assets of comparable
outcome of these tax-related matters is different
utility and age, adjusted for obsolescence.
from the amounts that were initially recorded,
Inventories
such differences will affect the tax provisions in
the period in which such determination is made.
The fair value of inventories acquired in a business
combination is determined based on the estimated
PENSION OBLIGATIONS
selling price in the ordinary course of business
Management estimates the pension obligations
less the estimated costs of completion and sale,
annually using a number of assumptions and
and a reasonable profit margin based on the effort
with the assistance of independent actuaries;
required to complete and sell the inventories.
however, the actual outcome may vary due to
Financial Liabilities
Fair value is calculated based on the present
value of future principal and interest cash flows,
discounted at the market rate of interest at the
reporting date.
INCOME TAXES
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 DCM’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
In assessing the probability of realizing deferred
currency in which the benefits will be paid and
income tax assets, management has made
that have terms to maturity approximating to the
estimates related to expectations of future taxable
terms of the related pension liability. Estimation
income, applicable tax planning opportunities,
uncertainties exist, which may vary significantly
expected timing of reversals of existing temporary
in future actuarial valuations and the carrying
differences and the likelihood that tax positions
amount of DCM’s defined benefit obligations.
taken will be sustained upon examination by
applicable tax authorities. Deferred tax assets also
PROVISIONS
reflect the benefit of unused tax losses that can be
carried forward to reduce income taxes in future
years. In making its assessments, management
gives additional weight to positive and negative
evidence that can be objectively verified.
UNCERTAIN TAX POSITIONS
DCM maintains provisions for uncertain tax
Provisions are liabilities of uncertain timing or
amount. Provisions are recognized when DCM
has a present legal or constructive obligation
arising from past events, when it is probable
that an outflow of funds will be required to
settle the obligation, and a reliable estimate can
be made of the amount of the obligation. The
amount recognized as a provision is DCM’s best
positions using the best estimate of the amount
estimate of the present obligation at the end of the
expected to be paid based on a qualitative
assessment of all relevant factors. DCM reviews
the adequacy of these provisions at the end of
the reporting period. It is possible that at some
future date, liabilities in excess of the DCM’s
reporting period. When the effect of discounting
is significant, the amount of the provision is
determined by discounting the expected cash
flows at a pre-tax rate that reflects current
market assessments of the time value of money
provisions could result from audits by, or litigation
and the risks specific to the liability. DCM’s main
62
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 provisions are related to restructuring costs and
statements to evaluate changes in liabilities
onerous contracts. Provisions are reviewed at each
arising from financing activities, including
reporting date and any changes to estimates are
both changes arising from cash flow and
reflected in the statement of operations.
non-cash changes. The adoption of the
AGGREGATION OF OPERATING SEGMENTS
Management applies judgment in aggregating
operating segments in to a reportable segment.
Aggregation occurs when the operating segments
have similar economic characteristics and have
similar products, production processes, types of
customers, and distribution methods.
3. CHANGE IN ACCOUNTING
POLICIES
(a) New and amended standards adopted
(i)
On January 19, 2016 the IASB issued
Recognition of Deferred Tax Assets for Unrealized
Losses (Amendments to IAS 12). The amendments
apply retrospectively for annual periods
beginning on or after January 1, 2017. Earlier
application is permitted. The amendments
clarify that the existence of a deductible
temporary difference depends solely on a
comparison of the carrying amount of an asset
and its tax base at the end of the reporting
period, and is not affected by possible
future changes in the carrying amount or
expected manner of recovery of the asset. The
amendments also clarify the methodology
to determine the future taxable profits used
for assessing the utilization of deductible
temporary differences. There was no impact
amendment resulted in additional disclosure
in DCM’s consolidated financial statements.
See (note 11).
(b) Future accounting standards not yet adopted
(i)
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. It further
introduces a single, forward looking ‘expected
loss’ impairment model for financial assets.
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.
The new standard is not expected to have
a significant impact on the consolidated
financial statements of DCM.
on DCM’s consolidated financial statements
(ii)
Amendments to IFRS 7 Financial Instruments:
as a result of the amendments.
(ii)
On January 7, 2016 the IASB issued Disclosure
Initiative (Amendments to IAS 7 Statement
of Cash Flows). The amendments apply
prospectively for annual periods beginning
on or after January 1, 2017. Earlier application
is permitted. The amendments require
disclosures that enable users of financial
Disclosure were issued in September 2014. This
standard was amended to provide guidance on
additional disclosures on transition from IAS
39 to IFRS 9. The amendments are effective on
adoption of IFRS 9. DCM does not expect this
amendment to have a significant impact on its
consolidated financial statements.
63
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts)
(iii) IFRS 15 Revenue from Contracts with Customers
DCM has undertaken a comprehensive review
was issued in May 2014. This new standard
of its significant contracts in accordance with
outlines a single comprehensive model
the five-step model in IFRS 15 to determine
for companies to use when accounting
the impact on the timing and measurement
for revenue arising from contracts with
on its revenue recognition. Based on
customers. It supersedes the IASB’s current
management’s preliminary assessment,
revenue recognition standards, including
the adoption of IFRS 15 may have an impact
IAS 18 Revenues and related and related
on the timing of recognition of revenues to
interpretations. The core principle of IFRS 15
an earlier stage for certain manufactured
is that revenue is recognized at an amount
products, in addition to earlier recognition
that reflects the consideration to which the
of related production and commission costs.
company expects to be entitled in exchange
There will also be enhanced disclosures in the
for those goods or services, applying the
consolidated financial statements of DCM.
following five steps:
Management is in the process of finalizing
1. Identify the contract with a customer
2. Identify the performance obligations
in the contract
3. Determine the transaction price
its analysis.
(iv) An amendment to IFRS 2 Share-based Payment
was issued in June 2016 to clarify the
accounting for certain types of share-based
payment transactions. The amendments
4. Allocate the transaction price to the
provide requirements on accounting for the
performance obligations in the contract
effects of vesting and non-vesting conditions
5. Recognize revenue when (or as) the entity
satisfies a performance obligation
of cash-settled share-based payments,
withholding tax obligations for share-based
payments with a net settlement feature,
This new standard also provides guidance
and when a modification to the terms
relating to the accounting for contract
of a share-based payment changes the
costs as well as for the measurement and
classification of the transaction from
recognition of gains and losses arising from
cash-settled to equity-settled. The
the sale of certain non-financial assets.
amendments are effective for the year
Additional disclosures will also be required
beginning on or after January 1, 2018.
under the new standard, which is effective
DCM does not expect this amendment to
for annual reporting periods beginning on
have a significant impact on its consolidated
or after January 1, 2018 with earlier adoption
financial statements.
permitted. For comparative amounts,
companies have the option of using either
a full retrospective approach or a modified
retrospective approach as set out in the new
standard. DCM intends to use the modified
retrospective approach. The IASB published
final clarifications to IFRS 15 in April 2016,
which do not change the underlying principles
of the standard yet clarify how the principles
should be applied.
(v)
IFRS 16 Leases was issued in January 2016. It
supersedes the IASB’s current lease standard,
IAS 17 Leases, which required lessees and
lessors to classify their leases as either finance
leases or operating leases and to account for
those two types of leases differently. It did
not require lessees to recognize assets and
liabilities arising from operating leases, but
it did require lessees to recognize assets and
liabilities arising from finance leases.
64
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017
IFRS 16 sets out the principles for the
the foreign exchange rate applicable to
recognition, measurement, presentation and
transactions involving advance consideration
disclosure of leases. It introduces a single
paid or received is the rate at the date that
lessee accounting model and requires a lessee
the advance consideration is paid or received
to recognize assets and liabilities for all
and a non-monetary asset or liability is
leases with a term of more than twelve
recorded, and not the later date at which the
months and for which the underlying asset
related asset or liability is recognized in the
is not of low value. A lessee is required to
financial statements. This interpretation is
recognize a right-of-use asset representing
applicable for annual periods beginning on or
its right to use the underlying leased asset
after January 1, 2018, and can be applied either
and a lease liability representing its obligation
prospectively or retrospectively, at the option
to make lease payments. The right-of-use asset
of the entity. IFRIC 22 is not expected to have
is initially measured at cost and subsequently
a significant impact on the consolidated
depreciated. The lease liability is initially
financial statements of DCM.
measured at the present value of the lease
payments and subsequently adjusted
for interest and lease payments. This
accounting is subject to certain exceptions
and other adjustments.
(vii) In June 2017, the IASB issued IFRIC 23
Uncertainty over Income Tax Treatments.
The interpretation clarifies the accounting
for current and deferred tax liabilities and
assets in circumstances in which there is
IFRS 16 contains disclosure requirements for
uncertainty over income tax treatments. The
lessees and lessors. This new standard will
interpretation requires an entity to consider
come into effect for annual periods beginning
whether it is probable that a taxation authority
on or after January 1, 2019. Earlier application
will accept an uncertain tax treatment. If the
is permitted for companies that apply IFRS 15
entity considers it to be not probable that a
Revenue from Contracts with Customers at or
taxation authority will accept an uncertain
before the date of initial application of IFRS 16.
tax provision the interpretation requires
Based on management’s preliminary
assessment, DCM has identified lease
contracts, primarily for building and
equipment rentals, for which recognition
will change under IFRS 16. The recognition of
the leased assets and their related liabilities
will increase income from operations,
with a corresponding combined increase in
depreciation and amortization and financial
the entity to use the most likely amount or
the expected value. The amendments are
to be applied retrospectively and are effective
for annual periods beginning on or after
January 1, 2019, with earlier application
permitted. The adoption of this amendment
is not expected to have a significant
impact on the DCM’s consolidated
financial statements.
charges as at the date of application of IFRS 16.
There are no other IFRS or International
Management intends to adopt IFRS 16 for the
Financial Reporting Interpretations Committee
annual period beginning on January 1, 2019.
(‘IFRIC’) interpretations that are not yet
(vi) IFRIC 22 Foreign Currency Transactions and
Advance Consideration, is an interpretation
paper issued by the IASB in December 2016.
This interpretation paper clarifies that
effective that would be expected to have a
material impact on DCM.
65
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts)
4. BUSINESS ACQUISITIONS
ECLIPSE COLOUR AND
IMAGING CORP.
On February 22, 2017 (the “Closing Date”),
DCM acquired substantially all of the assets of
Eclipse Colour and Imaging Corp. (“Eclipse”),
a Canadian large-format and point-of-purchase
printing and packaging company, with
approximately 100 employees operating in an
80,000 square foot facility located in Burlington,
Ontario. The acquisition of Eclipse has added
significantly expanded wide format, large format,
and grand format printing capabilities to DCM’s
portfolio of products and services, with Eclipse
having a product mix focused on in-store print,
outdoor, transit, display, packaging, kitting and
The fair value of the Common Shares attributed
to the acquisition consideration was estimated
based on the market price of the Common Shares
on the Closing Date of $2.63 per Common Share,
discounted by 15% for the effect of the contractual
restrictions on selling those Common Shares for
a twelve month period from the Closing Date. The
fair value of the vendor take-back promissory
note was determined by present valuing the future
cash flows using a discount rate of 10% which
represents management’s best estimate based on
financial instruments with a similar term and risk
profile in the market.
On the Closing Date, DCM also advanced $3,220
to settle Eclipse’s bank indebtedness, equipment
leases and amounts payable to the former owners
pre-acquisition, in addition to paying $311 for
fulfilment capabilities.
related transaction costs.
DCM acquired the assets of Eclipse for a purchase
price of $8,914 before giving effect to post-closing
adjustments for changes in working capital and
bank indebtedness, net of cash, based on the final
statement of financial position as of the Closing
Date. The purchase price was satisfied as follows
Total cash advanced on the Closing Date was
$7,065, which was used to finance the up-front
cash component of the acquisition, settle the above
noted debt and pay for related transaction costs,
and was funded with the increased availability
under DCM’s existing bank credit facilities (see
on the Closing Date: $3,534 in cash, $1,418 through
note 11 for further details related to DCM’s
the issuance of 634,263 common shares of DCM
bank credit facilities).
(“Common Shares”), and $3,962 through the
issuance of a secured, non-interest bearing vendor
take-back promissory note, which is payable in
two equal instalments on each of the first and
second anniversaries of the Closing Date. During
the three months ended June 30, 2017, the total
post-closing adjustments to the purchase price
were finalized and paid in cash to the vendor in
the amount of $550.
66
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 The consideration paid and the allocation of the consideration to the fair values of the assets acquired and
liabilities assumed in the acquisition as of the Closing Date were as follows:
Recognized amounts of identifiable assets acquired and liabilities assumed
Amount
Cash and cash equivalents
Trade receivables
Inventories
Prepaid expenses and other assets
Property, plant and equipment
Intangible assets
Trade payables and accrued liabilities
Deferred revenue
Unfavorable lease obligation
Credit facilities
Capital lease obligations
Other non-current liabilities
Total identifiable net assets
Goodwill
Total
Purchase price consideration
Cash
Common shares
Promissory notes
Total
$
$
$
$
632
4,641
972
145
5,245
3,700
(3,352)
(45)
(210)
(668)
(2,421)
(11)
8,628
836
9,464
Amount
4,084
1,418
3,962
9,464
The fair value of trade receivables was $4,641. The
cross selling opportunities, in addition to the
gross contractual amount of trade receivables due
company’s skilled workforce. The goodwill is
was $4,656 of which $15 was deemed uncollectible.
tax deductible.
The identifiable intangible assets acquired for
Total acquisition-related costs incurred
$3,700 primarily relate to customer relationships
were $562 of which $537 and $25 was charged
which will be amortized over an expected useful
to the consolidated statement of operations
life of seven years.
for the year ended December 31, 2017 and
Goodwill of $836 arising from the acquisition is
December 31, 2016, respectively.
mainly attributable to expected future growth in
The revenues and net income contributed by
sales from existing and new customers through
Eclipse and included in the consolidated statement
67
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) of operations for the period between the Closing
Closing Date: $1,104 in cash, $1,440 through the
Date and December 31, 2017 were $21,843 and
issuance of 644,445 Common Shares, and $2,783
$2,100, respectively. If the acquisition had occurred
through the issuance of a secured, non-interest
on January 1, 2017, the estimated revenues and net
bearing vendor take-back promissory note,
income contributed by Eclipse to DCM’s operating
which is payable in 24 equal monthly payments
results for the year ended December 31, 2017 would
from the Closing Date. During the three months
have been approximately $25,401 and $2,381,
ended September 30, 2017, the total post-closing
respectively, adjusting net income for additional
adjustments were finalized and the purchase price
depreciation and amortization that would have
was decreased by $181 and has been reflected as
been charged assuming the fair value adjustments
a reduction in the principal amount of the vendor
to property, plant and equipment and intangible
take-back promissory note.
assets had applied from January 1, 2017.
THISTLE PRINTING LIMITED
On February 22, 2017, DCM acquired 100%
of the outstanding common shares of Thistle
Printing Limited (“Thistle”), a full service
commercial printing company with approximately
65 employees operating in a 42,000 square foot
facility located in Toronto, Ontario, from Capri
Media Group Inc. (“Capri”). Capri is a related
party of DCM by virtue of the fact that companies
controlled by the President of DCM and the Chair
of the Board of DCM, respectively, control Capri.
The acquisition of Thistle provides DCM with a
The fair value of the Common Shares attributed
to the acquisition consideration was estimated
based on the market price of the Common Shares
on the Closing Date of $2.63 per Common Share,
discounted by 15% for the effect of the contractual
restrictions on selling those Common Shares for
a twelve month period from the Closing Date. The
fair value of the vendor take-back promissory
note was determined by present valuing the future
cash flows using a discount rate of 10% which
represents management’s best estimate based on
financial instruments with a similar term and risk
profile in the market.
full service commercial print facility in Eastern
On the Closing Date, DCM also advanced $1,942
Canada and enables DCM to expand its margins
to settle Thistle’s bank indebtedness and amounts
by insourcing commercial printing capabilities
payable to the former owners of Thistle.
Total cash advanced on the Closing Date was
$3,046, which was used to finance the up-front
cash component of the acquisition and settle
the above noted debt, and was funded with the
increased availability under DCM’s existing
bank credit facilities.
which it has historically outsourced to local tier
two suppliers. This acquisition adds expertise in
commercial printing, design, prepress and bindery
services to DCM’s portfolio, and complements
DCM’s current capabilities in direct mail,
fulfilment and data management.
DCM acquired the shares of Thistle for a purchase
price of $5,327 which included the estimated
post-closing adjustments for changes in working
capital of $412, based on the final statement of
financial position as of the Closing Date. The
purchase price was satisfied as follows on the
68
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 The consideration paid and the allocation of the consideration to the fair values of the assets acquired and
liabilities assumed in the acquisition as of the Closing Date were as follows:
Recognized amounts of identifiable assets acquired
and liabilities assumed
Preliminary
Adjusted
Change
Cash and cash equivalents
$
37
$
42
$
Trade receivables
Inventories
Prepaid expenses and other assets
Property, plant and equipment
Intangible assets
Trade payables and accrued liabilities
Income taxes payable
Deferred revenue
Deferred income tax liabilities
Credit facilities
Capital lease obligations
Other non-current liabilities
Total identifiable net liabilities
Goodwill
Total
Purchase price consideration
Cash
Common shares
Promissory note
Total
$
$
$
2,569
885
890
1,743
5,871
(2,460)
(647)
(459)
(1,464)
(7,130)
(60)
(933)
(1,158)
6,485
2,506
1,791
868
1,743
5,899
(2,311)
(686)
(1,261)
(1,572)
(7,097)
(34)
(933)
(1,045)
6,603
5,327
$
5,558
$
5
(63)
906
(22)
—
28
149
(39)
(802)
(108)
33
26
—
113
118
231
Preliminary
Adjusted
Change
$
1,104
1,440
2,783
$
1,104
1,440
3,014
5,327
$
5,558
$
—
—
231
231
The fair value of trade receivables was $2,506.
cross selling opportunities, in addition to the
The gross contractual amount of trade receivables
company’s skilled workforce. The goodwill is
due was $2,531 of which $25 was deemed to
not tax deductible.
be uncollectible.
The identifiable intangible assets acquired of
$496 of which $453 and $43 was charged to
$5,899 primarily relate to customer relationships
the consolidated statement of operations
which will be amortized over an expected useful
for the year ended December 31, 2017 and
life of seven years.
December 31, 2016, respectively.
Total acquisition-related costs incurred were
Goodwill of $6,603 arising from the acquisition is
The revenues and net income contributed by
mainly attributable to expected future growth in
Thistle and included in the consolidated statement
sales from existing and new customers through
of operations for the period between the Closing
69
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) Date and December 31, 2017 were $15,112 and $761,
September 30, 2019. The post-closing adjustment
respectively. If the acquisition had occurred on
to the purchase purchase of $88 was finalized
January 1, 2017, the estimated revenues and net
subsequent to year-end and will be settled in
income contributed by Thistle to DCM’s operating
cash. Accordingly, this amount has been included
results for the year ended December 31, 2017 would
in trade payables and accrued liabilities in the
have been approximately $17,423 and $1,074,
consolidated statement of financial position
respectively, adjusting net income for additional
as at December 31, 2017.
depreciation and amortization that would have
been charged assuming the fair value adjustments
to property, plant and equipment and intangible
assets had applied from January 1, 2017.
BOLDER GRAPHICS
On November 10, 2017, (the “BOLDER Closing
Date”) DCM acquired 100% of the outstanding
common shares of BGI Holdings Inc. and 1416395
Alberta Limited (collectively “BOLDER Graphics”),
a privately-held company that specializes in
large-format digital printing, point of sale
The fair value of the Common Shares attributed
to the acquisition consideration was estimated
based on the market price of the Common Shares
on the BOLDER Closing Date of $1.26 per Common
Share, discounted by 15% for the effect of the
contractual restrictions on selling those Common
Shares for a twelve month period from the BOLDER
Closing Date. A fair value adjustment to the value
of the vendor take-back promissory note was not
necessary as the interest rate of 6.0% represents
management’s best estimate based on financial
instruments with a similar term and risk profile
signage, corporate packaging, outdoor signage
and vehicle graphics. It also specializes in loose-
in the market.
leaf bindery, stationery and other commercial
On the BOLDER Closing Date, DCM also advanced
print capabilities. The company has approximately
$1,339 to settle BOLDER Graphics’ bank
40 employees operating in a 59,000 square foot
indebtedness and amounts payable to the former
facility located in Calgary, Alberta. This acquisition
owners of the company.
strengthens DCM’s large and wide format printing
capabilities in western Canada and complements
its significantly expanded large format capabilities
obtained through the acquisition of Eclipse in
eastern Canada earlier this year.
Total cash advanced on the BOLDER Graphics
Closing Date was $2,947, which was used to finance
the up-front cash component of the acquisition
and settle the above noted debt. $2,000 of this
was financed with the proceeds received from
BOLDER Graphics was acquired for a total purchase
the IAM V Credit Facility (as defined in note 11)
price of approximately $3,448 before giving
and $947 was financed using DCM’s Bank Credit
effect to post-closing adjustments for changes
Facility (as defined in note 11).
in working capital and bank indebtedness, based
on the final statement of financial position as
of the BOLDER Closing Date. The purchase price
was satisfied as follows on the BOLDER Closing
Date: $1,608 in cash, $754 through the issuance of
704,424 Common Shares, and $1,086 in the form
of subordinated, unsecured, 6.0% interest bearing
vendor take-back promissory notes, which are
payable in twenty equal monthly blended
payments of principal and interest commencing
on February 28, 2018 and ending on
70
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 The consideration paid and the allocation of the consideration to the fair values of the assets acquired and
liabilities assumed in the acquisition as of the BOLDER Closing Date were as follows:
Recognized amounts of identifiable assets acquired and liabilities assumed
Amount
Cash and cash equivalents
Trade receivables
Inventories
Prepaid expenses and other assets
Property, plant and equipment
Intangible assets
Trade payables and accrued liabilities
Income taxes payable
Deferred revenue
Deferred income tax liabilities
Credit facilities
Other non-current liabilities
Total identifiable net assets
Goodwill
Total
Purchase price consideration
Cash
Common shares
Promissory notes
Total
$
$
$
$
198
927
830
206
2,065
1,111
(748)
(8)
(185)
(488)
(909)
(392)
2,607
929
3,536
Amount
1,696
754
1,086
3,536
The fair value and gross contractual amount of
Goodwill of $929 arising from the acquisition is
trade receivables was $927 of which $Nil was
mainly attributable to expected future growth in
deemed to be uncollectible.
sales from existing and new customers through
The identifiable intangible assets acquired of
$1,111 primarily relate to customer relationships
which will be amortized over an expected useful
cross selling opportunities, in addition to the
company’s skilled workforce. The goodwill is not
tax deductible.
life of six years, a non-compete agreement which
Total acquisition-related costs incurred were $378
will be amortized over an expected useful life of
was charged to the consolidated statement of
two years, and computer software which will be
operations for the year ended December 31, 2017.
amortized over an expected useful life of one year.
71
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) The revenues and net loss contributed by BOLDER
The valuation report for BOLDER Graphics
Graphics and included in the consolidated
acquisition is still in progress and therefore
statement of operations for the period between the
the purchase price allocation is preliminary.
BOLDER Closing Date and December 31, 2017 were
As such, there may be adjustments to the
$998 and $112, respectively. If the acquisition had
purchase accounting and those adjustments
occurred on January 1, 2017, the estimated revenues
could be material.
and net loss contributed by BOLDER Graphics
to DCM’s operating results for the year ended
December 31, 2017 would have been approximately
$6,868 and $814, respectively, adjusting net loss
for additional depreciation and amortization that
would have been charged assuming the fair value
adjustments to property, plant and equipment and
intangible assets had applied from January 1, 2017.
The changes in promissory notes from the
respective Closing dates of each acquisition to
December 31, 2017 and their presentation in the
consolidated statement of financial position
as at December 31, 2017 are as follows:
Balance - February 22, 2017 (Preliminary)
Post-closing adjustment
Balance - February 22, 2017 (Final)
Addition on November 10, 2017
Unwinding of discount
and interest expense
Payment
Balance - End of year
Less: Current portion of promissory notes
As at December 31, 2017
$
$
$
$
Eclipse
acquisition
Thistle
acquisition
BOLDER
Graphics
acquisition
3,962
$
2,783
$
—
231
3,962
$
3,014
$
—
—
—
$
$
—
347
—
—
1,086
206
(1,421)
9
—
Total
6,745
231
6,976
1,086
562
(1,421)
4,309
$
1,799
$
1,095
$
7,203
(2,253)
(1,529)
(592)
(4,374)
2,056
$
270
$
503
$
2,829
Subsequent to the year end, DCM made a payment of $2,283 related to the Eclipse acquisition promissory
note that was due on February 22, 2018.
72
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017
5. TRADE RECEIVABLES
Trade receivables
Provision for doubtful accounts
6. INVENTORIES
Raw materials
Work-in-progress
Finished goods
December 31
2017
December 31
2016
41,399
(206)
41,193
$
$
29,597
(440)
29,157
December 31
2017
December 31
2016
6,235
$
4,164
26,120
36,519
$
3,774
2,940
26,538
33,252
$
$
$
$
Raw materials and finished goods inventory amounts are net of obsolescence reserves of $586 (2016 – $360).
The cost of inventories recognized as an expense within cost of revenues for the year ended December 31, 2017
was $211,867 (2016 – $202,539).
73
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) 7. PROPERTY, PLANT AND EQUIPMENT
The following tables present changes in property, plant and equipment for the years ended
December 31, 2017 and 2016:
Office
Presses and
Computer
Leasehold
furniture and
printing
hardware and
Construction
improvements
equipment
equipment
software
Vehicles
in progress
Total
Year ended December 31, 2017
Opening net book value
$
5,228
$
293
$
6,176
$
299
$
— $
487
$
12,483
Additions
Acquisitions during
the year (note 4)
Effect of movement
in exchange rates
Disposals
Depreciation for
the year
224
229
1
(66)
239
222
—
(22)
1,367
8,212
(9)
(856)
284
311
(2)
(6)
—
79
—
—
(1,095)
(159)
(2,528)
(353)
(8)
284
2,398
—
—
—
—
9,053
(10)
(950)
(4,143)
Closing net book value
$
4,521
$
573
$
12,362
$
533
$
71
$
771
$
18,831
At December 31, 2017
Cost
Accumulated
depreciation
$
11,076
$
1,687
$
44,949
$
3,938
$
79
$
771
$
62,500
(6,555)
(1,114)
(32,587)
(3,405)
(8)
—
(43,669)
Net book value
$
4,521
$
573
$
12,362
$
533
$
71
$
771
$
18,831
Year ended December 31, 2016
Opening net book value
$
6,249
$
368
$
7,294
$
511
$
— $
—
$
14,422
Additions
621
107
1,366
Effect of movement
in exchange rates
Disposals
Depreciation for
the year
(2)
(126)
—
(41)
(6)
(301)
(1,514)
(141)
(2,177)
(220)
72
(7)
(57)
—
—
—
—
487
2,653
—
—
—
(15)
(525)
(4,052)
Closing net book value
$
5,228
$
293
$
6,176
$
299
$
— $
487
$
12,483
At December 31, 2016
Cost
Accumulated
depreciation
$
12,869
$
1,951
$
44,810
$
5,233
$
— $
487
$
65,350
(7,641)
(1,658)
(38,634)
(4,934)
—
—
(52,867)
Net book value
$
5,228
$
293
$
6,176
$
299
$
— $
487
$
12,483
74
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 8. INTANGIBLE ASSETS
The following tables present changes in intangible assets for the years ended December 31, 2017 and 2016:
Customer
Software and
non-compete
Construction in
relationships
technology
agreements
progress
Total
Trademarks,
trade names and
Year ended December 31, 2017
Opening net book value
$
3,391
$
439
$
Additions
Acquisitions during
the year (note 4)
Write off during the year
Amortization for the year
Closing net book value
At December 31, 2017
Cost
Accumulated amortization
Net book value
Year ended December 31, 2016
Opening net book value
Additions
Amortization for the year
Closing net book value
At December 31, 2016
Cost
Accumulated amortization
Net book value
$
$
$
$
$
$
$
—
9,730
—
(3,122)
160
533
(57)
(316)
— $
—
124
$
3,215
447
—
(71)
—
—
—
3,954
3,375
10,710
(57)
(3,509)
9,999
$
759
$
376
$
3,339
$
14,473
85,353
$
11,668
$
8,147
$
3,339
$
108,507
(75,354)
(10,909)
(7,771)
—
(94,034)
9,999
$
759
$
376
$
3,339
$
14,473
5,260
$
354
$
— $
— $
—
(1,869)
308
(223)
—
—
124
—
5,614
432
(2,092)
3,391
$
439
$
— $
124
$
3,954
75,623
$
11,032
$
7,700
$
124
$
94,479
(72,232)
(10,593)
(7,700)
—
(90,525)
3,391
$
439
$
— $
124
$
3,954
The remaining useful lives of the customer relationships are between 1 and 6 years. During the year ended
December 31, 2017, DCM incurred costs mainly related to the development and implementation of new
Enterprise Resource Planning (“ERP”) software. These costs of $3,215 were included in construction in
progress and were not amortized during the year.
75
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) 9. GOODWILL
Opening balance
Acquisition of Eclipse
Acquisition of Thistle
Acquisition of BOLDER Graphics
Impairment of goodwill
Ending balance
Cost
Accumulated impairment losses
Net carrying value
$
$
$
$
December 31
2017
December 31
2016
$
31,066
—
836
6,603
929
—
8,368
$
—
—
—
(31,066)
—
December 31
2017
December 31
2016
169,093
(160,725)
8,368
$
$
160,725
(160,725)
—
DCM performed its annual impairment analysis of
less cost to sell. DCM uses the income approach to
goodwill at the CGU level. The CGUs were defined
estimate the recoverable value of each CGU. The
as follows: DCM North America, Eclipse, Thistle
income approach is predicated on the value of the
and BOLDER Graphics. The classification of CGUs is
future cash flows that a business will generate
consistent with the operating segments identified
going forward. The discounted cash flow method
in note 24.
During the fourth quarter of 2016, DCM recorded
a non-cash impairment of goodwill for $31,066
related to the DCM North America CGU. There was
no further goodwill remaining for this CGU in 2017.
In addition, given the purchase price accounting
for BOLDER Graphics is still being finalized, the
goodwill recognized on acquisition was not tested
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.
for impairment as of December 31, 2017.
Revenue growth rates and operating margins were
During the fourth quarter of 2017, DCM performed
its annual review for impairment of goodwill by
comparing the fair value of each of its CGUs to its
respective carrying values. DCM did not make any
significant changes to the valuation methodology
used to assess for impairment since its last annual
impairment test. The recoverable amounts of all
CGUs have been determined based on the fair value
based on the 2018 budget approved by the Board
and projected over a five-year period. For the
Eclipse and Thistle CGUs, a conservative growth
rate of 1% (2016 – N/A) was applied to revenue
for 2019 to 2021, in consideration of the current
economic conditions and the specific trends of
the printing industry, and a perpetual long-term
growth rate of 0% (2016 – N/A) was used thereafter
to derive the recoverable amount of these CGUs.
76
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 Furthermore, DCM derived a pre-tax discount
forecast periods. DCM used a tax rate of 26.25%
rate to calculate the present value of the projected
(2016 – 26.25%). Tax assumptions are sensitive to
cash flows using a weighted average cost of capital
changes in tax laws as well as assumptions about
(“WACC”) for both the Eclipse and Thistle CGUs,
the jurisdictions in which profits are earned. It
adjusted for tax. This represents an estimate of
is possible that actual tax rates could differ from
the total overall required rate of return on an
those assumed.
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 these
CGUs. A discount rate of 15.0% (2016 – N/A) was
used for the Eclipse and Thistle CGUs reflecting
management’s judgment that sales channels and
the size of its CGU’s would affect the volatility of
each CGU’s cash flows.
DCM projects cash flows net of income taxes using
substantively enacted tax rates effective during the
As a result of this annual test, it was concluded
that there was no impairment of goodwill for
the Eclipse and Thistle CGUs. The estimated
recoverable amount of the Eclipse and Thistle
CGUs exceeded their carrying values by
approximately $19,300 and $5,570, respectively.
The recoverable amount of the Eclipse and Thistle
CGUs would equal their carrying values if the
discount rate was increased by 30.5% to 45.5%
and 8% to 23%, respectively.
10. PROVISIONS
2017
Restructuring
Onerous
contracts
Balance – Beginning of year
Additional charge during the year
Charge related to an acquisition
Utilized during the year
Balance – End of period
Less: Current portion of provisions
As at December 31, 2017
2016
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, 2016
$
$
$
$
$
$
2,773
$
1,207
$
6,778
—
(6,083)
3,468
(2,856)
612
$
$
2,679
—
(898)
2,988
(1,078)
1,910
$
$
Restructuring
Onerous
contracts
4,614
$
2,592
$
3,771
(5,612)
2,773
(2,571)
202
$
$
429
(1,814)
1,207
(734)
473
$
$
Other
—
—
210
(14)
196
(16)
180
Other
—
—
—
—
—
—
$
$
$
$
$
$
Total
3,980
9,457
210
(6,995)
6,652
(3,950)
2,702
Total
7,206
4,200
(7,426)
3,980
(3,305)
675
77
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) RESTRUCTURING
During the year ended December 31, 2017,
DCM continued its restructuring and ongoing
productivity improvement initiatives to reduce
its cost of operations. During the year ended
December 31, 2017, these initiatives resulted in
$6,778 of additional restructuring expenses in
the consolidated statement of operations due to
headcount reductions across DCM’s operations
and the closure of certain manufacturing and
During the year ended December 31, 2017, DCM
closed a Regina, Saskatchewan facility. A lease
exit charge of $269, representing the liability, at
present value, for remaining lease costs under the
lease agreement and building maintenance costs,
was recorded and would have been paid over the
remaining term of the lease, expiring in 2018. In
November 2017, DCM entered into an agreement
with the landlord of this property to terminate this
lease. DCM made a payment of $110 to the landlord
and recorded a recovery of $184 related to this
warehouse locations in the consolidated statement
of operations and comprehensive loss. During the
lease exit charge.
year ended December 31, 2016, these initiatives
During the year ended December 31, 2016, DCM
resulted in $3,771 of restructuring expenses in
closed a Richmond Hill, Ontario facility. A lease
the consolidated statement of operations due to
exit charge of $429, representing the liability,
headcount reductions across DCM’s operations
at present value, for remaining lease costs under
and the closure of certain manufacturing and
the lease agreement and building maintenance
warehouse locations in the consolidated statement
costs, was recorded and will be paid over the
of operations and comprehensive income (loss).
remaining term of the lease, expiring in 2019.
For the year ended December 31, 2017, cash payments
of $6,083 (2016 – $5,612) were made to former
employees for severance and other restructuring
costs. The remaining severance and restructuring
During the year ended December 31, 2017, DCM
entered into a sub-lease for this facility for the
remainder of the term of the lease agreement
and recorded a recovery of $300.
accruals of $3,468 at December 31, 2017 are expected
OTHER
to be substantially paid throughout 2018 and 2019.
In connection with the acquisition of Eclipse, on
February 22, 2017, DCM assumed the lease for its
Burlington, Ontario facility with rent payments
that exceeded the fair market value and as a result
an unfavourable lease obligation for $210 was
recorded based on discounting the rent payments
in excess of the fair market value lease rates using
a discount rate of 7%. The unfavourable lease
obligation is being amortized as a reduction of
rent expense in the consolidated statement of
operations over the lease term, expiring in 2026.
ONEROUS CONTRACTS
During the year ended December 31, 2017, DCM
closed a Mississauga, Ontario facility. A lease
exit charge of $317, representing the liability for
remaining lease costs under the lease agreement
and building maintenance costs was recorded and
is expected to be paid in March of 2018.
During the year ended December 31, 2017, DCM
closed a Granby, Québec facility. A lease exit charge
of $2,393 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 2021.
78
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 11. CREDIT FACILITIES
December 31
2017
December 31
2016
Term loans
} floating rate debt, maturing May 31, 2018
$
—
$
} floating rate debt, maturing June 28, 2018
} 6.10% term debt, maturing October 15, 2022
} 6.95% term debt, maturing March 10, 2023
} 6.95% term debt, maturing May 15, 2023
Revolving facilities
} floating rate debt, maturing March 31, 2020
Credit facilities
Unamortized transaction costs
Less: Current portion of Credit facilities
Credit facilities
3,500
4,834
22,220
4,938
21,747
57,239
(1,307)
55,932
(8,725)
47,207
$
$
$
$
2,920
—
—
25,611
—
7,514
36,045
(1,003)
35,042
(5,886)
29,156
In March 2016, DCM established a revolving
to adjust the calculation of the working capital
credit facility (the “Bank Credit Facility”) with
ratio (“First Amended IAM IV Credit Agreement”).
a Canadian chartered bank (the “Bank”) and
In connection with the acquisitions of Eclipse
an amortizing term loan facility (the “IAM IV
and Thistle, on January 31, 2017 DCM amended its
Credit Facility”) with Integrated Private Debt Fund
IAM IV Credit Agreement (the “Second Amended
IV LP (“IAM IV”) a loan managed by Integrated Asset
IAM IV Credit Agreement”). On August 4, 2017, the
Management Corp. (“IAM”) pursuant to separate
IAM IV Credit Agreement was amended to adjust
credit agreements, each dated March 10, 2016,
the working capital current ratio (the “Third
between DCM and the Bank (the “Bank Credit
Amended IAM IV Credit Agreement”) and on
Agreement”) and IAM (as amended, the “IAM IV
September 29, 2017, the IAM IV Credit Agreement
Credit Agreement”), respectively. Approximately
was further amended to adjust the calculation
$43,250 of the total principal amount available to
and ratio applicable to the Senior Funded Debt to
DCM under the IAM IV Credit Agreement and the
EBITDA covenant (as defined below) and amend the
Bank Credit Agreement was used to fully repay
calculation of the debt service coverage ratio (the
indebtedness owing by it under the senior credit
“Fourth Amended IAM IV Credit Agreement”).
facilities previously maintained by DCM with
a syndicate of Canadian chartered banks.
In connection with the acquisitions of Eclipse and
Thistle, on January 31, 2017 DCM amended its Bank
During the quarter ended June 30, 2016, DCM
Credit Agreement (the “First Amended Bank Credit
amended the terms of the IAM IV Credit Agreement
Agreement”). On May 30, 2017, the Bank Credit
79
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) Agreement was amended to adjust the fixed charge
increased to $7,000, an increase from $5,000
coverage ratio (the “Second Amended Bank Credit
under the original sub facility. The maturity
Agreement”) and on June 28, 2017, the Bank Credit
on the Bank Term Facility originally was the
Agreement was amended in connection with the
earlier of March 10, 2018 and the date on which
establishment of a new credit facility (the “Bridging
the Bank Credit Facility is terminated pursuant
Credit Agreement”) with Bridging Finance Inc.
to the Bank Credit Agreement, with monthly
(“Bridging”), as described in further detail below
principal repayments of $208. Pursuant to the
(the “Third Amended Bank Credit Agreement”). On
First Amended Bank Credit Agreement, beginning
September 29, 2017 and October 20, 2017, the Bank
March 31, 2017 through until March 31, 2020, the
Credit Agreement was further amended to adjust
Bank Term Facility would be amortized in equal
the fixed charge coverage ratio (the “Fourth
monthly payments of $194, however pursuant to
Amended Bank Credit Agreement” and “Fifth
the Third Amended Bank Credit Agreement, the
Amended Bank Credit Agreement”, respectively). On
amortization period was subsequently adjusted
November 10, 2017, the Bank Credit Agreement was
to equal monthly instalments of $400 being paid
further amended for matters related to the acquisition
beginning July 31, 2017 until May 31, 2018. On
of BOLDER Graphics including the additional
June 28, 2017, DCM repaid $2,000 of the
financing arrangements related to that acquisition
outstanding borrowings under the Bank Term
(the “Sixth Amended Bank Credit Agreement”).
Facility. On November 10, 2017, DCM repaid
Pursuant to the First Amended Bank Credit
Agreement, the maximum principal amount
available under the Bank Credit Facility increased
from up to $25,000 to up to $35,000. The increased
the total remaining outstanding borrowings of
$2,622 under the Bank Term Facility and expensed
unamortized transaction costs of $179 related
to the Bank Term Facility.
availability was used in part, together with the
Principal payments made on the Bank Term
additional availability under the amended Bank
Facility did not reduce the total available principal
Term Facility (as described below), to finance
amount under the Bank Credit Facility. Advances
the up-front cash components and settle certain
under the amended Bank Credit Facility may not,
debt assumed related to the Eclipse and Thistle
at any time, exceed the lesser of $35,000 and a
acquisitions, pay for related acquisition costs and
fixed percentage of DCM’s aggregate accounts
also provide DCM with additional flexibility to
receivable and inventory (less certain amounts).
continue to pursue its strategic growth objectives.
The Bank Term Facility was a sub facility of the
The term on the Bank Credit Facility originally
amended Bank Credit Facility and was available by
had a maturity on the earlier of March 10, 2019
way of a single advance and its availability was not
and the date on which the facility is terminated
based on DCM’s accounts receivable or inventories.
pursuant to the Bank Credit Agreement. This was
Advances under the amended Bank Credit Facility
extended by one year, to March 31, 2020 per the
are subject to floating interest rates based upon the
First Amended Bank Credit Agreement. A portion of
Canadian prime rate plus an applicable margin of
the Bank Credit Facility consists of a non-revolving
0.75%. Pursuant to the Third Amended Bank Credit
term credit facility (the “Bank Term Facility”) as
Agreement, the interest on the Bank Term Facility
well as a committed treasury facility pursuant to
was amended to a rate based upon the Canadian
which the Bank may, in its sole discretion, agree to
prime rate plus an applicable margin of 2.25%.
enter into non-speculative hedging arrangements,
DCM has capitalized transaction costs of $1,068
subject to certain restrictions. As per the First
related to the Bank Credit Facility, including $443
Amendment Agreement, the principal amount
of new costs incurred as a result of the Second,
available under the Bank Term Facility was
Third, Fourth and Sixth Amended Bank Credit
80
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 Agreements, respectively, during the year ended
Credit Agreement, the “IAM Credit Agreements”).
December 31, 2017. The unamortized balance of
The IAM V Credit Facility may be drawn by way
the transaction costs are being amortized over
of a single advance, bears interest at a fixed
the remaining term of the amended Bank Credit
rate of 6.95% per annum, calculated and
Facility. As at December 31, 2017, the unamortized
payable monthly, and shall be repaid in sixty six
transaction costs related to the amended Bank
equal monthly payments of $91 beginning on
Credit Facility was $490. As at December 31, 2017
December 15, 2017 and through to May 15, 2023,
there were outstanding borrowings of $21,747
consistent with the maturity of the IAM IV Credit
under the revolving facilities portion of the
Facility. The IAM V Credit Facility can be repaid
amended Bank Credit Facility and letters of credit
in full at any time prior to maturity upon thirty
granted of $1,426. As at December 31, 2017, all
days prior written notice to IAM and is subject
of DCM’s indebtedness outstanding under the
to an early repayment fee equal to the difference
amended Bank Credit Facility was subject to a
between i) the present value of the remaining
floating interest rate of 3.95% per annum. DCM
payments from the prepayment date discounted
had access to $6,555 of available credit under the
at a rate based on yields earned on Government of
amended Bank Credit Facility at December 31, 2017.
Canada Bonds with a comparable term; and
Integrated Private Debt Fund III LP (“IAM III”),
another loan managed by IAM, was a senior
secured lender to Thistle. An existing term loan in
an original principal amount of $8,000 was being
amortized in equal monthly payments of $96 over
a nine year term ending on October 15, 2022, with
a fixed interest rate of 6.1% per annum (“IAM III
Credit Facility”). In connection with the Thistle
acquisition, on February 22, 2017, an amendment
was made to the IAM III Credit Facility whereby
DCM became a co-borrower with Thistle, pursuant
to which the covenants were amended to match
those of DCM under its IAM IV Credit Facility and
reported on a consolidated basis. There were no other
changes to the terms of the IAM III Credit Facility.
As at February 22, 2017 and December 31, 2017,
Thistle had outstanding borrowings of $5,533
and $4,834 under the IAM III Credit Facility,
respectively. As at December 31, 2017, the
unamortized transaction costs related to the
IAM III Credit Facility were $30.
On November 10, 2017, DCM established a $5,000
secured, non-revolving senior credit facility (the
“IAM V Credit Facility”) with Integrated Private
Debt Fund V LP (“IAM V”), a loan managed by
IAM (the “IAM V Credit Agreement” and, together
with the IAM III Credit Agreement and the IAM IV
ii) the face value of the remaining payments on the
prepayment date. Under the terms of the
IAM V Credit Agreement, DCM is required to
deposit and hold cash of $90 in a blocked account
to be used for repayments of principal and interest
of indebtedness outstanding under the IAM V
Credit Facility. In addition, the IAM V Credit
Facility is subject to the same covenant conditions
stipulated under the amended IAM IV Credit
Agreement and will be reported on a consolidated
basis. The consolidated covenant conditions
also include the pro forma financial results of
BOLDER Graphics on a trailing twelve month
basis effective as of the BOLDER Closing Date. The
IAM V Credit Facility was used to fund a portion
of the up-front cash component of the BOLDER
Graphics acquisition of $2,000 on the closing of the
BOLDER Graphics acquisition, repay the remaining
outstanding balance of the Bank Term Facility of
$2,622 and the balance was used for general working
capital purposes. DCM has capitalized transaction
costs of $162 related to the IAM V Credit Facility
and these transaction costs are being amortized
over the term the IAM V Credit Facility. As at
December 31, 2017, the unamortized transaction
costs and outstanding borrowings related to this
facility were $155 and $4,938, respectively.
81
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) Pursuant to the Second Amended IAM IV Credit
unamortized transaction costs and outstanding
Agreement, the maximum aggregate principal
borrowings related to this facility were $560 and
amount which may be outstanding under the IAM
$22,220, respectively.
IV Credit Facility, the IAM III Credit Facility and
the amended Bank Credit Facility, calculated on
a consolidated basis in accordance with generally
accepted accounting principles (“Senior Funded
Debt”), can not exceed $72,000 (after giving effect
to the provisions of the inter-creditor agreement
described below). This was an increase from
$50,000 under the original term loan facility dated
March 10, 2016. The aggregate principal amount
outstanding under the IAM V Credit Facility is
included as part of Senior Funded Debt for the
purposes of the covenant calculation. The IAM
IV Credit Facility matures on March 10, 2023 and
has a maximum available principal amount of
$28,000. Indebtedness outstanding under the IAM
IV Credit Facility bears interest at a fixed rate equal
to 6.95% per annum. Under the terms of the Second
Amended IAM IV Credit Agreement, which remain
unchanged per the original term loan facility dated
March 10, 2016, DCM is required to make mandatory
blended equal monthly repayments of principal and
interest for $422 such that, on maturity, advances
under the IAM IV Credit Facility and applicable
interest on those advances will have been fully
repaid. In addition, under the terms of the IAM
IV Credit Agreement, DCM is required to deposit
and hold cash in a blocked account of $425 to be
used for repayments of principal and interest of
indebtedness outstanding under the IAM IV Credit
Facility. This requirement did not change as a result
of the Second Amended IAM IV Credit Agreement.
As at December 31, 2017, there was a balance of
$515 in the blocked account related to the IAM IV
Credit Facility and IAM V Credit Facility which is
recognized as restricted cash on the consolidated
statement of financial position. Furthermore, DCM
has capitalized transaction costs of $838, including
$173 of additional costs incurred during the year
ended December 31, 2017 as a result of the Third
and Fourth Amended IAM IV Credit Agreements
which is being amortized over the term of the
IAM IV Credit Facility. As at December 31, 2017, the
82
Each of the amended Bank Credit Agreement and
the amended IAM Credit Agreements contain
customary representations and warranties, as well
as restrictive covenants which limit the discretion
of the Board and management with respect to
certain business matters including the declaration
or payment of dividends on the common shares of
DCM without the consent of the Bank, IAM III, IAM
IV and IAM V, as applicable. Under the terms of
the IAM Credit Agreements, DCM has agreed that
it will not, without the prior written consent of
IAM III, IAM IV and IAM V, 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 DCM, 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, DCM will have 60 days to replace such
officer, such replacement officer to be satisfactory
to IAM III, IAM IV and IAM V, acting reasonably.
The amended Bank Credit Facility limits spending
on capital expenditures by DCM to an aggregate
amount not to exceed $5,500 during any fiscal
year, and the IAM Credit Agreements limits the
incurrence of capital expenditures to no more than
$5,000 in any fiscal year.
Under the terms of the original IAM IV Credit
Agreement, and before giving effect to the
amendments described below, DCM was required
to maintain (i) a ratio of Senior Funded Debt to
EBITDA (as defined below) 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. Pursuant to the First Amended IAM IV Credit
Agreement, during the quarter ended June 30, 2016,
the terms of the IAM IV Credit Agreement were
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 amended to exclude the aggregate principal amount
the four most recently completed fiscal quarters
of the 6.00% Convertible Debentures from current
effective the quarter ended September 30, 2017;
liabilities for the purposes of calculating the
ii) include the Bridging Credit Facility as defined
working capital ratio for the period from
below, as part of Senior Funded Debt effective
June 29, 2016 to June 30, 2017. Furthermore, as
the quarter ended September 30, 2017; iii) include
a result of the Second Amended IAM IV Credit
projected interest payments on the Bridging
Agreement on January 31, 2017, the pro forma
Credit Facility over the next four quarters for the
financial results for Eclipse and Thistle were
purposes of calculating the debt service coverage
included on a trailing twelve and eighteen month
ratio; and iv) revise the Senior Funded Debt to
basis, as applicable, effective as of the Closing Date
EBITDA ratio such that DCM must maintain
for the purposes of DCM’s covenant calculations.
the following levels: from July 1, 2017 up to
Pursuant to the Third Amended IAM IV Agreement,
September 30, 2017 – 4.00 to 1; October 1, 2017 up to
the working capital current ratio was changed
December 31, 2017 – 3.50 to 1; from January 1, 2018
to 1.1 to 1 effective June 30, 2017.
up to March 31, 2018 – 3.25 to 1; and on and after
On March 9, 2017, IAM consented, effective the
quarter ending March 31, 2017, to modify the
April 1, 2018 – 3.00 to 1. As at December 31, 2017,
DCM was in compliance with these covenants.
calculation of the debt service coverage ratio
For purposes of the Bank Credit Agreement
under the provisions of the amended IAM IV Credit
and the IAM Credit Agreements, “EBITDA”
Agreement to include EBITDA for the six most
means net income or net loss for the relevant
recently completed fiscal quarters (previously four
period, calculated on a consolidated basis in
most recently completed quarters) less income
accordance with generally accepted accounting
taxes actually paid in cash and the amount of
principles, plus amounts deducted, or minus
capital expenditures actually incurred or paid
amounts added, in calculating net income or
during such period up to the amount permitted
net loss in respect of: the aggregate expense
under this agreement, divided by the aggregate
incurred for interest on debt and other costs of
of i) scheduled principal plus interest payments
obtaining credit; income taxes, whether or not
on the IAM IV Credit Facility and IAM III Credit
deferred; depreciation and amortization; non-cash
Facility (as described above) and ii) projected
expenses resulting from employee or management
interest payments on the amended Bank Credit
compensation, including the grant of stock options
Facility for the next six quarters (previously the
or restricted options to employees; any gain or
four most recently completed quarters). In addition,
loss attributable to the sale, conversion or other
on May 11, 2017, DCM received consent from
disposition of property out of the ordinary course
IAM, effective the quarter ending June 30, 2017,
of business; interest or dividend income; foreign
to modify the calculation of the Senior Funded
exchange gain or loss; gains resulting from the
Debt to EBITDA ratio under the provisions of the
write up of property and losses resulting from
amended IAM IV Credit Agreement and the IAM
the write down of property (except allowances
III Credit Agreement to include EBITDA for the six
for doubtful accounts receivable and non-cash
most recently completed fiscal quarters multiplied
reserves for obsolete inventory); any gain or loss
by 2/3 (previously the four most recently completed
on the repurchase or redemption of any securities
quarters). Pursuant to the Fourth Amended IAM
(including in connection with the early retirement
IV Credit Agreement on September 29, 2017, the
or defeasance of any debt); goodwill and other
calculation of the debt service coverage ratio and
intangible asset write-downs; and any other
the Senior Funded Debt to EBITDA ratio were
extraordinary, non recurring or unusual items
amended to i) restore the inclusion of EBITDA to
as agreed to by the lender.
83
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) Under the terms of the Bank Credit Agreement,
Credit Facility are repayable on demand and bear
and before giving effect to the amendments
interest at a rate equal to the prime rate of interest
described below, DCM was required to maintain
charged by DCM’s Bank lender from time to time
a fixed charge coverage ratio of not less than
plus 10.3% per annum, calculated and payable
1.1 to 1.0 at all times, calculated on a consolidated
monthly. The Bridging Credit Facility has a term of
basis, in respect of any particular trailing twelve
one year and can be repaid at any time without any
month period, as EBITDA for such period less cash
repayment fee upon sixty days prior written notice
taxes, cash distributions (including dividends paid)
to Bridging, subject to the prior written consent
and non-financed capital expenditures paid in
of DCM’s other senior lenders. The Bridging Credit
such period, divided by the total amount required
Facility is subordinated in right of payment to
by DCM to service its outstanding debt for such
the prior payment in full of DCM’s indebtedness
period. As a result of the First Amended Bank
under the amended Bank Credit Agreement and the
Credit Agreement on January 31, 2017, the
amended IAM Credit Agreements and is secured by
pro forma financial results for Eclipse and Thistle
certain specified equipment together with certain
were included on a trailing twelve month basis
other conventional security. The Bridging Credit
effective as of the Closing Date for the purposes
Facility limits spending on capital expenditures by
of DCM’s covenant calculations. Pursuant to the
DCM to an aggregate amount not to exceed $5,500
Second, Fourth and Fifth Amended Bank Credit
during any fiscal year. Transaction costs of $146
Agreements on May 30, 2017, September 29, 2017,
were capitalized and the unamortized transaction
and October 20, 2017, respectively, the fixed charge
costs as at December 31, 2017 were $72. These
coverage ratio was amended such that i) for the
costs are being amortized over the term of the
period commencing April 30, 2017 and ending
Bridging Credit Facility.
June 30, 2017, the ratio would not be less than 1.0 to
1.0; ii) for the period commencing July 1, 2017 and
ending December 31, 2017, the ratio would not be less
than 0.9 to 1.0; and iii) for the period commencing
January 1, 2018 and ending March 31, 2018, the ratio
would not be less than 1.0 to 1.0, on a consolidated
basis, in respect of any particular trailing twelve
month period. Pursuant to the Sixth Amended
Bank Credit Agreement, the pro forma financial
results for BOLDER Graphics on a trailing twelve
month basis and the monthly blended payments
of principal and interest for the IPD V Credit
Facility were included effective as of the BOLDER
Closing Date for the purposes of DCM’s covenant
calculations. As at December 31, 2017, DCM was in
compliance with this covenant.
A failure by DCM to comply with its obligations
under the amended Bank Credit Agreement, the
amended IAM Credit Agreements or the Bridging
Credit Agreement, together with certain other
events, including a change of control of DCM and
a change in DCM’s chief executive officer, president
or chief financial officer (unless a replacement
officer acceptable to IAM, acting reasonably, is
appointed within 60 days of the effective date
of such officer’s resignation), 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.
DCM anticipates it will be in compliance with the
covenants in its credit facilities for the next twelve
months; however there can be no assurance that
On June 28, 2017, DCM established a non-revolving
DCM will be successful in achieving the results
credit facility with Bridging for $3,500 (the
targeted in its 2018 operating plan or in complying
“Bridging Credit Facility”) in conjunction with
with its covenants over the next twelve months.
the net proceeds of certain equity issuances to
enable the Company to repay the convertible
debentures (note 12). Advances under the Bridging
DCM’s obligations under the amended Bank Credit
Facility, the IAM V Credit facility, the amended
84
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 IAM IV Credit Facility and the IAM III Credit
Inter-creditor Agreement was further amended
Facility are secured by conventional security
to include Bridging and to separately address the
charging all of the property and assets of DCM
priority of its liens on certain specified equipment
and its affiliates (the “Inter-creditor Agreement”).
as a result of the Bridging Credit Facility. On
On February 22, 2017, DCM entered into an
November 10, 2017, the inter-creditor agreement
amended Inter-creditor Agreement between the
was further amended in connection with the
Bank, IAM III, IAM IV, and the parties to the
BOLDER Graphics acquisition to include IAM V
vendor take-back promissory notes (the “VTB
as a party to the agreement and to establish the
Noteholders”) issued in connection with the
rights and priorities of the respective liens of
acquisitions of Eclipse and Thistle, respectively,
the Bank, IAM III, IAM IV, IAM V and the VTB
which, among other things, establishes the
Noteholders on the present and after-acquired
rights and priorities of the respective liens of the
property of BOLDER Graphics.
Bank, IAM III, IAM IV and the VTB Noteholders
on the present and after-acquired property of
DCM, Eclipse and Thistle. On June 28, 2017, the
The movement in credit facilities during the year
are as follows:
Balance - Beginning of year, net of transaction costs
Changes from financing cash flows
Proceeds from credit facilities
Repayment of credit facilities
Finance costs
Total change from financing cash flows
Non-cash movements
Acquisitions (note 4)
Amortization of transaction costs
Balance - End of year
December 31
2017
35,042
27,393
(14,709)
(925)
46,801
8,476
655
55,932
$
$
$
$
$
85
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) The scheduled principal repayments on the long-term debt are as follows:
2018
2019
2020
2021
2022
2023 and thereafter
$
December 31
2017
8,797
5,671
27,815
6,494
6,757
1,705
$
57,239
12. CONVERTIBLE DEBENTURES
December 31
2017
December 31
2016
6.00% Convertible Debentures, maturing June 30, 2017,
interest payable in June and December, convertible at
0.841 common shares per $1,000 of debenture
Unamortized transaction costs
Less: Current portion of Convertible debentures
Convertible debentures
$
$
$
—
—
—
—
—
$
$
$
11,129
(47)
11,082
11,082
—
Upon maturity on June 30, 2017, DCM settled
on June 30 and December 31. The 6.00% Convertible
the 6.00% Convertible Debentures with a cash
Debentures were convertible into common shares
payment of $11,175 plus interest of $335 which
of DCM (“Common Shares”) at the option of
was financed with the net proceeds received from
the holder prior to maturity or redemption at a
the Rights Offering (as described in further detail
conversion price of $1,220 per common share
in Note 18 – Shares and warrants), the Private
(prior to the Rights Offering, as defined in Note
Placement (as described in further detail in
18 – Shares and warrants). As described in greater
Note 18 – Shares and warrants) and the Bridging
detail in DCM’s Annual Information Form for the
Credit Facility (as described in further detail in
year ended December 31, 2016 the conversion price
Note 11 – Credit facilities).
was subject to adjustment with the occurrence of
The 6.00% Convertible Debentures with
an aggregate principal amount of $11,175
(2016 – $11,175) bore interest at a rate of 6.00% per
annum payable semi-annually, in arrears,
certain events, of which the issuance of Rights
(as defined in Note 18 – Shares and warrants) to
shareholders to acquire Common Shares at less
than 95% of the then current market price, defined
86
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 as the volume-weighted average trading price
of Common Shares obtained by dividing the
per Common Share for the 20 consecutive trading
aggregate redemption price of the debentures
days ending five days prior to the event (the
to be redeemed, or the principal amount of
“Current Market Price”), was included. Upon
outstanding debentures which have matured, by
closing of the Rights Offering, the conversion
95% of the Current Market Price of the Common
price was adjusted to $1,189 per common share.
Shares on the date fixed for redemption or the
The holders forwent the conversion option into
maturity date. DCM forewent the redemption
Common Shares of DCM.
option into Common Shares.
On redemption or at maturity, DCM had, at its
DCM capitalized transaction costs of $2,266 related
option, and subject to regulatory approval and
to this issuance and the amortization of these costs
certain other conditions, the ability to satisfy its
which was recognized over the term of the 6.00%
obligation to pay the applicable redemption price
Convertible Debentures. As at December 31, 2017,
for the principal amount of the 6.00% Convertible
$nil (2016 – $47) of these transaction costs
Debentures by issuing and delivering that number
remain unamortized.
87
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) 13. INCOME TAXES
Significant components of DCM’s deferred income tax assets and liabilities as of December 31, 2017 and 2016
are as follows:
December 31, 2017
Assets
Liabilities
Net
Pension obligations and other post-employment
benefit plans
$
2,712
$
Unfavourable lease obligation
Lease escalation
Benefit of income tax loss and other carry-forwards
Deferred finance fees
Deductible reserves
Tax credit carry-forwards
Property, plant and equipment
Intangible assets
Promissory notes
Other
Total deferred income tax assets (liabilities)
December 31, 2016
Pension obligations and other post-employment
benefit plans
Unfavourable lease obligation
Lease escalation
Benefit of income tax loss and other carry-forwards
$
$
Deferred finance fees
Deductible reserves
Tax credit carry-forwards
Convertible debentures
Property, plant and equipment
Intangible assets
Other
282
492
2,108
299
1,581
348
—
—
—
—
$
—
—
—
—
—
—
—
(1,349)
(1,552)
(97)
(11)
2,712
282
492
2,108
299
1,581
348
(1,349)
(1,552)
(97)
(11)
7,822
$
(3,009)
$
4,813
Assets
Liabilities
Net
2,414
$
207
344
1,619
149
607
238
—
—
—
—
$
—
—
—
—
—
—
—
(12)
(840)
(867)
(20)
2,414
207
344
1,619
149
607
238
(12)
(840)
(867)
(20)
Total deferred income tax assets (liabilities)
$
5,578
$
(1,739)
$
3,839
As at December 31, 2017, DCM recorded net deferred
tax liabilities as DCM does not have a legally
income tax assets of $6,108 (2016 – $3,839) and
enforceable right to offset these amounts and the
net deferred income tax liabilities of $1,295
deferred income tax assets and deferred income
(2016 – $Nil) in its consolidated statements of
tax liabilities are not related to income taxes levied
financial position. The deferred income tax assets
by the same taxation authority.
have not been offset against the deferred income
88
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 Changes in deferred income tax assets and liabilities during the years ended December 31, 2017 and 2016
are as follows:
Balance at
in business
in statement
comprehensive
Balance at
January 1, 2017
Other
combinations
operations
loss
December 31, 2017
Acquired
Recognized
Recognized in
$
2,414
$
— $
— $
(92)
$
390
$
2,712
207
344
1,619
149
607
238
—
—
—
99
—
110
—
—
8
—
397
—
75
148
481
51
577
—
—
—
—
—
—
—
282
492
2,108
299
1,581
348
5,578
$
209
$
405
$
1,240
$
390
$
7,822
(12)
$
— $
— $
12
$
— $
—
(840)
(867)
—
(20)
—
—
—
—
(587)
(1,794)
(84)
—
78
1,109
(13)
9
—
—
—
—
(1,349)
(1,552)
(97)
(11)
(1,739)
$
— $
(2,465)
$
1,195
$
— $
(3,009)
3,839
$
209
$
(2,060)
$
2,435
$
390
$
4,813
$
$
$
$
Pension obligations and
other post-employment
benefit plans
Unfavourable
lease obligation
Lease escalation
Benefit of income
tax loss and other
carry-forwards
Deferred finance fees
Deductible reserves
Tax credit
carry-forwards
Convertible debentures
Property, plant and
equipment
Intangible assets
Promissory notes
Other
Deferred income tax
assets (liabilities), net
89
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) Balance at
January 1, 2016
Recognized
Recognized in
in statement
comprehensive
Balance at
Other
operations
loss
December 31, 2016
Pension obligations and other
post-employment benefit plans
$
2,649
$
— $
(316)
$
81
$
2,414
Unfavourable
lease obligation
Lease escalation
Benefit of income
tax loss and other
carry-forwards
Deferred finance fees
Deductible reserves
Tax credit
carry-forwards
Convertible debentures
Property, plant and equipment
Intangible assets
Benefit of other
carry-forwards
Other
Deferred income tax assets
(liabilities), net
$
$
$
$
216
200
—
130
1,166
125
4,486
$
(34)
$
(1,083)
(1,321)
(33)
(21)
(2,492)
$
—
—
—
—
—
113
113
—
—
—
—
2
2
(9)
144
1,619
19
(559)
—
898
22
243
454
33
(1)
$
$
$
$
$
751
$
—
—
—
—
—
—
81
—
—
—
—
—
—
207
344
1,619
149
607
238
5,578
(12)
(840)
(867)
—
(20)
$
$
$
(1,739)
1,994
$
115
$
1,649
$
81
$
3,839
The realization of the deferred income
In the ordinary course of business, DCM and its
tax assets is dependent on the generation of
subsidiary and predecessors have entered into
future taxable income during the years in which
transactions where the ultimate tax determination
those temporary differences become deductible.
may be uncertain. These uncertainties require
Based on management’s projections of future
management to make estimates of the ultimate
taxable income and tax planning strategies,
tax liabilities and, accordingly, the provision
management expects to realize these net deferred
for income taxes. Since there are inherent
income tax assets in advance of expiry. As at
uncertainties, additional tax liabilities may result
December 31, 2017, DCM has non-capital tax loss
if tax matters are ultimately resolved or settled at
carry-forwards of $8,404 (2016 – $6,434). The
amounts different from those estimates.
non-capital tax loss carry-forwards expire in
varying amounts from 2033 to 2037.
90
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 The major components of income tax (recovery) expense for the years ended December 31, 2017 and 2016
are set out below:
Current income tax expense:
Current tax on profits for the year
Recovery of taxes for prior periods
Adjustment to current income tax on filing
Total current income tax expense
Deferred income tax recovery:
Origination and reversal of temporary differences described above
Adjustment to deferred income tax on filing
Total deferred income tax recovery
Total income tax recovery for the year
For the year ended
December 31
2017
For the year ended
December 31
2016
$
$
$
$
$
725
$
—
—
725
(2,435)
—
(2,435)
(1,710)
$
$
$
$
397
(195)
1,370
1,572
(279)
(1,370)
(1,649)
(77)
For the year ended December 31, 2017, deferred
The following are reconciliations of income tax
income tax recovery on the recognition of actuarial
(recovery) expense calculated at the statutory rate
gains (losses) related to DCM’s defined benefit
of Canadian corporate income taxes below for the
plans of $390 (2016 – $81) were recognized in the
years ended December 31, 2017 and 2016.
statements of comprehensive loss.
For the year ended
December 31
2017
For the year ended
December 31
2016
Loss before income taxes
$
(7,915)
$
(32,184)
Expected income tax recovery calculated at statutory income tax rate (1)
(2,065)
(8,413)
Adjustment to income taxes resulting from:
Difference between Canadian rates and rates applicable
to subsidiary in another country or rates applicable to wholly
owned Canadian subsidiaries
Impairment of goodwill
Non-deductible expenses and other items
116
—
239
Total income tax recovery for the year
$
(1,710)
$
124
8,122
90
(77)
(1)
The calculation of the current income tax is based on a combined federal and provincial
statutory income tax rate of 26.09% (2016 – 26.14%).
The current tax rate for the current year is 0.05%
is realized or the liability is settled. Deferred income
lower than 2016 due to the effect of changes in
tax assets and liabilities have been measured using
statutory tax rates and the allocation of taxable
an expected average combined statutory income
income between provinces. Deferred income tax
tax rate of 26.21% (2016 – 25.28%) based on the tax
assets and liabilities are measured at tax rates that
rates in years when the temporary differences are
are expected to apply to the period when the asset
expected to reverse.
91
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) 14. OTHER NON-CURRENT LIABILITIES
Deferred lease inducement
Lease escalation liabilities
Bonuses payable
Loan payable
Less: Current portion of other non-current liabilities
December 31
2017
December 31
2016
$
$
$
1,082
$
1,888
983
—
3,953
(540)
3,413
$
$
793
1,321
—
151
2,265
(574)
1,691
The current portion of other non-current liabilities
and generally require it to pay a portion of the
is included in trade payables and accrued liabilities.
real estate taxes and other property operating
In connection with the acquisition on
February 22, 2017 of Thistle, DCM assumed
certain liabilities related to bonuses payable to
former employees of the company which will be
expense. Payments made under operating leases
are recognized in the consolidated statements of
operations on a straight-line basis over the term of
the lease, expiring in 2018 to 2028.
paid in equal monthly payments until the end of
During the year ended December 31, 2015,
October 2020. The liability was recorded at fair
DCM entered into a loan payable agreement for
value based on discounting using a discount rate
licensed software in the amount of $368. The loan
of 10%. The fair value of the future payments of
had an interest rate of 2.90% and repayments of
$33 per month as of the closing date was $1,226
$19 per month were made over 20 months ending
of which $293 was classified as current liabilities
in August 2017. As at December 31, 2017, there was
in trade payables and accrued liabilities.
no remaining amount outstanding.
DCM’s operations are conducted in leased
properties. DCM’s leases generally provide for
minimum rent and may also include escalation
clauses, guarantees and certain other restrictions,
92
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 15. PENSION OBLIGATIONS, ASSETS AND EXPENSES
Effective January 1, 2008, no further service credits
funding will be applied to DCM’s future
will accrue under the defined benefit provision of
minimum funding requirements for the defined
the DATA Communications Management Pension
benefit provision of the DATA Communications
Plan. Annual actuarial valuations are required
Management Pension Plan.
on the defined benefit provision of the DATA
Communications Management 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 Communications Management Pension
Plan are dependent 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, 2017,
DCM engaged actuaries to complete an updated
actuarial valuation of the defined benefit provision
of the DATA Communications Management
Pension Plan, which confirmed that, as at
January 1, 2017, the defined benefit provision of
the DATA Communications Management Pension
Plan had a solvency deficit. Based upon the
January 1, 2017 actuarial report, DCM’s annual
minimum funding obligation for the defined
benefit provision of the DATA Communications
Management Pension Plan for 2017 decreased
from $1,311 to $647. As of December 31, 2017,
DCM has exceeded its minimum required funding
requirements for the defined benefit provision
of the DATA Communications Management
Pension Plan for 2017 by $227. This excess
In May 2017 the Ontario Ministry of Finance
announced major reforms to the funding
framework for defined benefit pension plans.
The proposed new framework is based on an
enhanced going-concern approach, whereby
solvency funding requirements would be eliminated
except for plans that are less than 85% funded. The
regulations supporting the transitional measures
which assist plan sponsors prior to the full reforms
being implemented were enacted into legislation
in June 2017. The new regulation allows plan
administrators whose next filed valuation report
is dated on or after December 31, 2016 and before
December 31, 2017 to elect to defer the start of new
solvency special payments by up to 24 months
instead of the usual 12 months.
DCM has elected to defer the start of new solvency
special payments by 24 months and intends
on completing an updated actuarial valuation
of the defined benefit provision of the DATA
Communications Management Pension Plan as
at January 1, 2018. DCM expects that its future
minimum funding requirements for the defined
benefit provision of the DATA Communications
Management Pension Plan for 2018 will be
approximately $420, after adjusting for the
excess funding from 2017, and for 2019 will be
approximately $1,353. The January 1, 2018 actuarial
valuation report for the defined benefit provision of
the DATA Communications Management Pension
Plan will not be completed until partway through
2018 and the funding reforms have not been
finalized, therefore, the effect on DCM’s minimum
funding requirements for 2018 and forward is not
determinable at this time.
93
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) The following is a summary of DCM’s net pension obligations for the defined benefit provision
of the DATA Communications Management Pension Plan and SERP:
Present value of funded obligations
Less: Fair value of plan assets
Surplus of funded plans
Present value of unfunded obligations
Pension obligations, net
December 31
2017
December 31
2016
$
$
62,638
$
(63,398)
(760)
8,133
7,373
$
60,559
(62,148)
(1,589)
8,340
6,751
CHANGE IN THE PRESENT VALUE OF DEFINED BENEFIT PLAN OBLIGATIONS
The following is a summary of the change in DCM’s net pension obligations for the defined benefit provision
of the DATA Communications Management Pension Plan and SERP:
Funded
Unfunded
December 31
2017
Balance – Beginning of year
$
60,559
$
8,340
$
Interest expense
Benefits paid
Re-measurements:
– Loss from change in demographic assumptions
– Loss from change in financial assumptions
– Experience (gains) losses
Balance – End of year
Balance – Beginning of year
Interest expense
Benefits paid
Re-measurements:
– Gain from change in financial assumptions
– Experience (gains) losses
2,293
(3,661)
265
3,376
(194)
297
(541)
—
237
(200)
68,899
2,590
(4,202)
265
3,613
(394)
$
$
62,638
$
8,133
$
70,771
Funded
Unfunded
December 31
2016
59,929
$
8,354
$
2,412
(3,531)
1,776
(27)
315
(567)
162
76
68,283
2,727
(4,098)
1,938
49
Balance – End of year
$
60,559
$
8,340
$
68,899
94
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 CHANGE IN THE FAIR VALUE OF PLAN ASSETS
The following is a summary of the change in the fair value of the plan assets for the defined benefit
provision of the DATA Communications Management Pension Plan and SERP:
Funded
Unfunded
December 31
2017
Balance – Beginning of year
$
62,148
$
Interest income
Employer contributions
Benefits paid
Administrative expenses paid from plan assets
Re-measurements:
– Return on plan assets, excluding amounts
included in interest income
Balance – End of year
Balance – Beginning of year
Interest income
Employer contributions
Refund of over contribution
Benefits paid
Administrative expenses paid from plan assets
Re-measurements:
– Return on plan assets, excluding amounts
included in interest income
$
$
2,364
874
(3,661)
(300)
1,973
63,398
$
60,699
$
2,463
1,311
—
(3,531)
(325)
1,531
Balance – End of year
$
62,148
$
Funded
Unfunded
$
62,148
2,364
1,415
(4,202)
(300)
1,973
$
63,398
December 31
2016
$
60,699
—
—
541
(541)
—
—
—
—
—
567
—
(567)
—
—
—
$
2,463
1,878
—
(4,098)
(325)
1,531
62,148
95
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) DATA COMMUNICATIONS MANAGEMENT PENSION PLAN ASSET COMPOSITION
The following is a summary of the composition in plan assets of the defined benefit provision of the DATA
Communications Management Pension Plan:
For the year ended
December 31, 2017
For the year ended
December 31, 2016
Quoted
Percentage of
plan assets
Domestic equities
Foreign equities
Equity instruments
Short and mid-term bonds
Long-term bonds
Commercial mortgages
Debt instruments
Cash and cash equivalents
Total
$
$
$
$
$
$
4,413
5,185
9,598
7,438
42,937
3,196
53,571
229
63,398
Percentage of
plan assets
$
Quoted
4,660
5,591
15% $
10,251
16%
$
9,652
38,208
3,443
84% $
51,303
1% $
594
100% $
62,148
83%
1%
100%
ELEMENTS OF DEFINED BENEFIT EXPENSE RECOGNIZED
IN THE STATEMENTS OF OPERATIONS
The following is a summary of the expense recognized for the defined benefit provision of the DATA
Communications Management Pension Plan and SERP:
Funded
Unfunded
December 31
2017
300
$
—
$
300
2,293
(2,364)
(71)
297
—
297
229
$
297
$
2,590
(2,364)
226
526
Funded
Unfunded
December 31
2016
325
$
—
$
2,412
(2,463)
(51)
315
—
315
274
$
315
$
325
2,727
(2,463)
264
589
$
$
$
$
Administration expenses
Interest expense
Interest income
Total net interest expense
Defined benefit expense recognized
Administration expenses
Interest expense
Interest income
Total net interest expense
Defined benefit expense recognized
96
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 AMOUNTS RECOGNIZED IN THE STATEMENTS OF COMPREHENSIVE LOSS
The following is a summary of the amounts recognized in the statement of comprehensive loss for the
defined benefit provision of the DATA Communications Management Pension Plan and SERP:
Funded
Unfunded
December 31
2017
Re-measurements:
– Loss from change in demographic assumptions
$
265
$
—
$
– Loss from change in financial assumptions
– Experience (gains) losses
– Return on plan assets, excluding amounts
included in interest income
Deferred income tax effect
Defined benefit expense recognized
Re-measurements:
– Gain from change in financial assumptions
– Experience (gains) losses
– Return on plan assets, excluding amounts
included in interest income
Deferred income tax effect
Defined benefit recovery recognized
$
$
$
3,376
(194)
(1,973)
1,474
(385)
237
(200)
—
37
(10)
1,089
$
27
$
265
3,613
(394)
(1,973)
1,511
(395)
1,116
Funded
Unfunded
December 31
2016
1,776
$
(27)
(1,531)
218
(57)
$
162
76
—
238
(62)
161
$
176
$
1,938
49
(1,531)
456
(119)
337
DCM manages its pension plans by meeting with
pension assets relative to the market. Assumptions
an actuarial consultant and the fund managers on a
are reviewed on an ongoing basis and adjustments
regular basis and reviews periodic reports outlining
are made whenever management believes that
changes in the plan liabilities and the return on
conditions have materially changed.
97
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) SIGNIFICANT ACTUARIAL ASSUMPTIONS ADOPTED IN MEASURING
DCM’S DEFINED BENEFIT OBLIGATIONS
DATA Communications Management Pension Plan
Discount rate
Rate of compensation increase
SERP
Discount rate
December 31
2017
December 31
2016
3.50%
3.00%
3.90%
3.00%
3.40%
3.70%
DCM decreased the discount rate that was used
Assumptions regarding future mortality are set
to calculate its defined benefit obligations as at
based on actuarial advice in accordance with
December 31, 2017 to better reflect current Canadian
published statistics and experience in Canada. These
economic conditions and long-term interest
assumptions translate into an average life expectancy
rates. The salary increase assumption remained
in years for a pensioner retiring at age 65:
unchanged at December 31, 2017.
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
2017
December 31
2016
21.7
24.1
23.0
25.3
21.6
24.1
22.3
25.3
Through its defined benefit plans, DCM is exposed to
provision of the DATA Communications Management
a number of risks, the most significant of which are
Pension Plan currently holds a small proportion of
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
equities, 15% 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 Communications
Management 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
Communications Management Pension Plan is closed
to new membership, which means the investment
time horizon is shrinking as the plan matures. In
98
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 2014, the derisking strategy was reviewed against
salaries of plan participants, so salary increases
the investment time horizon and the financial
of the plan participants greater than assumed will
position of the defined benefit provision of the
increase plan liabilities.
DATA Communications Management Pension Plan.
With a significant improvement in the financial
LIFE EXPECTANCY
position, the defined benefit provision of the DATA
Communications Management Pension Plan asset mix
was moved to 15% equities and 85% bonds, with the
bond portfolio being adopted with liability cash flow
matching characteristics. There were no significant
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.
changes in the investment strategy during 2017.
The sensitivity of the defined benefit pension
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
obligations for the DATA Communications
Management Pension Plan and SERP to changes
in assumptions at December 31, 2017 and at
December 31, 2016 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.
Impact on defined benefit obligations
December 31, 2017
Change in
assumption
Increase in
assumption
Decrease in
assumption
Discount rate
Salary growth rate
0.25%
$
0.25%
(2,343)
$
486
2,470
(572)
Life expectancy
$
1,834
$
(1,869)
Increase by 1 year
in assumption
Decrease by 1 year
in assumption
Impact on defined benefit obligations
December 31, 2016
Change in
assumption
Increase in
assumption
Decrease in
assumption
0.25%
0.25%
$
$
(2,410)
$
754
2,545
(775)
Increase by 1 year
Decrease by 1 year
in assumption
in assumption
1,816
$
(1,857)
Discount rate
Salary growth rate
Life expectancy
99
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) Each sensitivity analysis disclosed in this note is
obligations calculated with the projected unit
based on changing one assumption while holding
credit method at the end of the reporting period)
all other assumptions constant. In practice, this
has been applied as for calculating the liability
is unlikely to occur and changes in some of the
recognized in the statements of financial position.
assumptions may be correlated. When calculating
the sensitivity of the defined benefit obligations to
variations in significant actuarial assumptions, the
same method (present value of the defined benefit
The weighted average duration of the defined benefit
obligations is 13.6 years (2016 – 14.4 years).
Expected maturity analysis of undiscounted pension benefits:
Less than
Between
Between
Between
a year
1 to 2 years
2 to 5 years
5 to 10 years
At December 31, 2017
At December 31, 2016
$
$
3,118
2,893
$
$
6,566
6,106
$
$
6,847
6,762
$
$
18,650
18,684
The annual pension expense for the
plan, is based on amounts contributed based
defined contribution provision of the DATA
on a percentage of wages of unionized employees
Communications Management Pension Plan is
who are covered by the respective collective
based on the amounts contributed in respect of
bargaining agreements, all of whom are employed
eligible employees. The annual pension expense
at DCM facilities located in the Province
for the SRDF and Unifor Pension & Benefit Plans,
of Québec and Ontario.
which are accounted for as a defined contribution
DCM’s pension expense related to DCM’s defined contribution plans are as follows:
Defined contribution plan
Defined benefit multi-employer plans
$
$
1,349
670
$
$
1,493
570
For the year ended
December 31
2017
For the year ended
December 31
2016
DCM expects that, in 2018, contributions to
be approximately $1,306, contributions to the SERP
the defined benefit provision of the DATA
will be approximately $529, contributions to the
Communications Management Pension Plan
SRDF will be approximately $535 and contributions
will be approximately $647, contributions to
to the Unifor Pension & Benefit Plans will be
the defined contribution provision of the DATA
approximately $121.
Communications Management Pension Plan will
100
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017
16. OTHER POST-EMPLOYMENT BENEFIT PLANS
Costs related to the DCM OPEB Plans and the
The following summarizes the change in the
DCM OPEB LTD Plan, are actuarially determined
obligations related to the DCM OPEB Plans and
using the projected unit credit method, the
DCM OPEB LTD Plan:
actuarial present value of all future projected
benefits determined as at the valuation date and
management’s best assumptions.
December 31
2017
December 31
2016
Balance – Beginning of year
Current service cost
Interest expense
Benefits paid
Re-measurements:
– Loss (gain) from change in demographic assumptions
– Loss from change in financial assumptions
– Experience gains
Balance – End of year
$
$
2,510
$
250
103
(220)
299
89
—
3,031
$
2,563
289
99
(203)
(250)
58
(46)
2,510
ELEMENTS OF OTHER POST EMPLOYMENT BENEFIT EXPENSE RECOGNIZED
IN THE STATEMENTS OF OPERATIONS
The following summarizes the elements of the benefit expense related to the DCM OPEB Plans
and DCM OPEB LTD Plan:
Current service cost
Interest expense
Re-measurements:
– Experience gains
Benefit expense recognized
December 31
2017
December 31
2016
$
$
$
250
103
398
751
$
289
99
(91)
297
101
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) AMOUNTS RECOGNIZED IN THE STATEMENTS OF COMPREHENSIVE LOSS
The following summarizes the amounts recognized in the statement of comprehensive loss related to the
DCM OPEB Plans and DCM OPEB LTD Plan:
Re-measurements:
– Gain from change in demographic assumptions
– Loss from change in financial assumptions
– Experience (gains) losses
Deferred income tax effect
Benefit recovery recognized
December 31
2017
December 31
2016
$
$
$
—
36
(46)
(10)
5
(5)
$
(207)
40
20
(147)
38
(109)
SIGNIFICANT ACTUARIAL ASSUMPTIONS ADOPTED IN MEASURING DCM’S OTHER
POST-EMPLOYMENT BENEFIT OBLIGATIONS
DCM OPEB Plans
Discount rate
Health care cost trend rate – Initial
Health care cost trend rate declines by 2028 (2016 – 2028)
DCM OPEB LTD Plan
Discount rate
Health care cost trend rate – Initial
Health care cost trend rate declines by 2028 (2016 – 2028)
December 31
2017
December 31
2016
3.50%
6.48%
4.50%
3.90%
6.61%
4.50%
December 31
2017
December 31
2016
3.50%
5.86%
4.50%
3.90%
6.00%
4.50%
102
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 SENSITIVITY ANALYSIS ON OTHER POST-EMPLOYMENT BENEFIT OBLIGATIONS
The effects on the DCM OPEB Plans and DCM OPEB LTD 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, 2017
Discount rate
Health care cost trend rates
Impact on other post-employment benefit obligations
Change in
assumption
Increase in
assumption
Decrease in
assumption
0.25%
$
1.00%
(56)
$
208
58
(184)
Increase by 1 year
in assumption
Decrease by 1 year
in assumption
Life expectancy
$
70
$
(67)
At December 31, 2016
Discount rate
Health care cost trend rates
Life expectancy
Impact on other post-employment benefit obligations
Change in
assumption
Increase in
assumption
Decrease in
assumption
0.25%
1.00%
$
$
$
(46)
165
49
(145)
Increase by 1 year
Decrease by 1 year
in assumption
in assumption
62
$
(61)
Expected maturity analysis of undiscounted other post-employment benefits:
Less than
Between
Between
Between
a year
1 to 2 years
2 to 5 years
5 to 10 years
At December 31, 2017
At December 31, 2016
$
$
307
267
$
$
555
450
$
$
517
427
$
$
994
887
DCM expects that, in 2018, contributions to its DCM OPEB Plans and DCM OPEB LTD Plan will be
approximately $307.
103
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) 17. FINANCIAL INSTRUMENTS
DCM’s financial instruments consist of cash and
The fair value for other non-derivative financial
cash equivalents, restricted cash, trade receivables,
instruments such as cash and cash equivalents,
bank overdraft, trade payables and accrued
trade receivables, bank overdraft, trade payables
liabilities, loan payable, bonuses payable, credit
and accrued liabilities, and loan payable
facilities, promissory notes, restricted share units
approximates their carrying value because of the
and convertible debentures, as indicated in DCM’s
short-term maturity of these instruments. The fair
statements of consolidated financial position
value of restricted cash approximates its carrying
as at December 31, 2017 and 2016. DCM does not
value because it is a deposit held with a Canadian
enter into financial instruments for trading or
chartered bank. Credit facilities, bonuses payable
speculative purposes.
and promissory notes are initially recognized as
FAIR VALUE OF FINANCIAL INSTRUMENTS
to derive its fair value and are then measured
the amount required to be paid less a discount
DCM’s non-derivative financial instruments
are comprised of cash and cash equivalents,
trade receivables, restricted cash, bank overdraft,
trade payables and accrued liabilities, loan payable,
bonuses payable, credit facilities, promissory
notes restricted share units and convertible
debentures. Non-derivative financial instruments
are recognized initially at fair value plus, for
instruments not at fair value through profit
or loss, any directly attributable transaction
costs. Subsequent to initial recognition non-
derivative financial instruments are measured
as described below.
at amortized costs using the effective interest
method, less any impairment losses. DCM’s
convertible debentures contained a host contract
and an embedded derivative. The host contract
(the debt portion of the convertible debenture)
was 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.
CATEGORIES OF FINANCIAL ASSETS
AND LIABILITIES
The carrying values and the fair values of DCM’s
Non-derivative financial instruments at fair value
financial instruments are classified into the
through the profit and loss include restricted share
categories listed below as at December 31, 2017
units which are recorded as a liability at fair value
and as at December 31, 2016.
on the grant date and are subsequently adjusted
for changes in the price of DCM’s common shares
through the consolidated statements of operations.
104
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 December 31, 2017
Loans and receivables (1)
Financial liabilities at amortized cost (2)
Financial liabilities FVTPL (3)
December 31, 2016
Loans and receivables (1)
Financial liabilities at amortized cost (2)
Financial liabilities FVTPL (3)
$
$
Carrying Value
Fair Value
41,708
$
99,504
90
41,708
99,504
90
Carrying Value
Fair Value
31,126
$
71,427
17
31,126
70,914
17
(1)
Includes cash and cash equivalents, restricted cash and trade receivables.
(2)
Includes bank overdraft, trade payables and accrued liabilities (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, bonuses payable, credit facilities, promissory notes and convertible debentures.
(3) Includes restricted share units.
Bonuses payable, credit facilities, promissory
The cash equivalents consisted mainly of
notes, convertible debentures and restricted share
short-term investments, such as money
units are categorized as level 2 inputs in the fair
market deposits. DCM has deposited the cash
value hierarchy given their valuations include
equivalents with Canadian Schedule 1 banks,
inputs other than quoted prices for which all
from which management believes the risk of
significant inputs are observable, either directly or
loss to be remote.
indirectly. There were no transfers between levels
1, 2 or 3 during the year.
RISKS ARISING FROM FINANCIAL
INSTRUMENTS
DCM grants credit to customers in the normal
course of business. DCM typically does not require
collateral or other security from customers;
however, credit evaluations are performed prior
to the initial granting of credit terms when
DCM is exposed to various risks as it relates
warranted and periodically thereafter. Normal
to financial instruments. These risks and the
credit terms for amounts due from customers
processes for managing the risk are set out below.
call for payment within 0 to 90 days.
CREDIT RISK
DCM has trade receivables from clients
engaged in various industries including
Credit risk is the risk of an unexpected loss if
financial institutions, insurance, healthcare,
a customer or counterparty to a financial
lottery and gaming, retailing, not-for-profit,
instrument fails to meet its contractual obligations.
energy and governmental agencies that are not
Financial instruments that potentially subjected
concentrated in any specific geographic area.
DCM to credit risk consisted of cash and cash
DCM does not believe that any single industry
equivalents and trade receivables. The carrying
or geographic region represents significant
amount of assets included in the consolidated
credit risk. Credit risk concentration with
statements of financial position represents the
respect to trade receivables is mitigated by
maximum credit exposure.
DCM’s large client base.
105
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) Based on historical experience, DCM records
required, to recognize that risk. When collection
a reserve for estimated uncollectible amounts.
efforts have been reasonably exhausted, specific
Management assesses the adequacy of this
balances are written off. As at December 31, 2017,
reserve quarterly, taking into account historical
7.0% (or $2,911), of trade receivables were more
experience, current collection trends, the age of
than 90 days old, an increase from 3.7% (or $1,102),
receivables and, when warranted and available,
of trade receivables that were more than 90 days
the financial condition of specific counterparties.
old at December 31, 2016. The movement in DCM’s
Management focuses on trade receivables
allowance for doubtful accounts for 2017 and 2016
outstanding for more than 90 days in assessing
are as follows:
DCM’s credit risk and records a reserve, when
For the year ended
December 31
2017
For the year ended
December 31
2016
$
$
440
(234)
206
$
$
526
(86)
440
Balance – Beginning of period
Provisions and revisions
Balance – End of period
LIQUIDITY RISK
Liquidity risk is the risk that DCM may encounter
of additional available credit less letters of credit
difficulties in meeting obligations associated
granted of $1,426 under the Bank Credit Facility.
with financial liabilities as they become due. As at
December 31, 2017, DCM had access to $7,981
The contractual undiscounted cash flows of DCM’s
significant financial liabilities are as follows:
December 31, 2017
Bank overdraft
Trade payables
and accrued liabilities
Bonuses payable (1)
Credit facilities (2)
Promissory notes (3)
Less than
a year
1 to 3
years
4 years and
greater
Total
$
2,868
$
—
$
—
$
2,868
34,306
400
11,911
4,561
—
733
44,699
3,078
—
—
8,852
—
34,306
1,133
65,462
7,639
Total
$
54,046
$
48,510
$
8,852
$
111,408
Less than
a year
1 to 3
years
4 years and
greater
27,304
$
151
7,866
11,510
$
—
—
23,407
—
$
—
—
11,952
—
Total
27,304
151
43,225
11,510
46,831
$
23,407
$
11,952
$
82,190
$
$
December 31, 2016
Trade payables
and accrued liabilities
Loan payable
Credit facilities (2)
Convertible debentures (4)
Total
106
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017
(1)
Bonuses payable to former employees of Thistle assumed in connection with DCM’s acquisition of Thistle on February 22, 2017.
Monthly principal payments of $33 ending October 31 2020.
(2)
Credit facilities at December 31, 2017 subject to floating interest rates consisting of the Bank Credit Facility, expiring on March 31, 2020 and
the Bridging Credit Facility expiring on June 28, 2018. As at December 31, 2017, the outstanding balances totaled $25,247 and bore interest
at an average floating rate of 3.95% per annum and of 13.50% per annum. The amounts at December 31, 2017 include estimated interest
totaling $1,095 for 2018, $859 for 2019 and $143 for 2020. The estimated interest was calculated based on the total borrowings outstanding
during the period and the average annual floating interest rate in effect as at December 31, 2016. Credit facilities at December 31, 2017
subject to fixed interest rates consisting of the IAM III Credit Facility, expiring on October 15, 2022, the IAM IV Credit Facility, expiring on
March 10, 2023 and the IAM V Credit Facility expiring on May 15, 2023. As at December 31, 2017, the outstanding balances totaled $31,992
and bore interest at a fixed rate of 6.1% per annum, of 6.95% per annum and of 6.95% per annum, respectively. Monthly blended principal
and interest payments of $96, of $422 and of $91, respectively. Credit facilities at December 31, 2016 subject to floating interest rates
consisting of the Bank Credit Facility, expiring on March 10, 2019. As at December 31, 2016, the outstanding balance totaled $10,434 and
bore interest at an average floating rate of 3.45% per annum. The outstanding balance will be reduced by monthly principal repayments
of $208 ending February 1, 2018, a principal payment of $8 on May 31, 2018 and principal repayment of $7,514 on March 10, 2019. The
amounts at December 31, 2016 include estimated interest totaling $320 for 2017, $261 for 2018 and $44 for 2019. The estimated interest
was calculated based on the total borrowings outstanding during the period and the average annual floating interest rate in effect as at
December 31, 2016. Credit facilities at December 31, 2016 subject to fixed interest rates consisting of the IAM IV Credit Facility, expiring on
March 10, 2023. As at December 31, 2016, the outstanding balance totaled $25,611 and bore interest at a fixed rate of 6.95% per annum.
Monthly blended principal and interest payments of $422.
(3)
Promissory notes related to the acquisitions completed during the year. Non interest bearing promissory notes related to the acquisition
of Eclipse totaling $4,566 and payable in two installments of $2,283 due on February 28, 2018 and February 28, 2019, respectively, and
related to the acquisition of Thistle totaling $1,913 and payable in monthly installments of $137 ending February 28, 2019. Interest bearing
promissory notes related to the acquisition of BOLDER Graphics totaling $1,160 and bore interest at a fixed rate of 6.0% per annum.
Monthly blended principal and interest payments of $58, beginning February 28, 2018 and ending September 30, 2019.
(4)
6.00% Convertible Debentures, matured on June 30, 2017, convertible at 0.8196 common shares per $1,000 of debenture. The aggregate
principal amount totaled $11,175 as at December 31, 2016. The amounts at December 31, 2016 include interest totaling $335 for 2017.
DCM also has significant contractual obligations
provisions as a result of on-going productivity
in the form of operating leases (note 21), as well
improvement initiatives, payment of income tax
as contingent obligations in the form of letters of
liabilities, contributions to its pension plans,
credit. DCM believes that the currently projected
maintenance capital expenditures, and interest
cash flow from operations, cash on hand and
and scheduled repayments of borrowings under
anticipated lower operating costs resulting
its credit facilities and scheduled repayments of
from existing restructuring initiatives will be
promissory notes.
sufficient to fund its currently projected operating
requirements, including expenditures related to
its growth strategy, payments associated with
107
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(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.
DCM’s interest rate risk arises from credit facilities
issuances at floating interest rates.
At December 31, 2017, $25,247 of DCM’s
indebtedness outstanding was subject to floating
interest rates of 3.95% per annum and 13.50% per
annum; a 1% increase/decrease in interest rates
would have resulted in an increase/decrease in
profit or loss and comprehensive loss by $217 for
the year ended December 31, 2017 (2016 – $171),
respectively. At December 31, 2017, $31,992 of
DCM’s indebtedness outstanding was subject to a
fixed interest rate of 6.1% per annum and of 6.95%
per annum. Interest bearing promissory notes
related to the acquisition of BOLDER Graphics
totaling $1.2 million was subject to a fixed rate
of 6.0% per annum.
CURRENCY RISK
18. SHARES AND WARRANTS
DCM 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. In the event of the liquidation, dissolution,
winding up of DCM or other distribution of assets
of DCM 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 DCM entitled to
receive assets of DCM 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 July 4, 2016, DCM consolidated its issued
and outstanding common shares on the basis
of one post-consolidation common share for
each 100 pre-consolidation common shares
(the “Share Consolidation”). As a result, the total
number of DCM’s issued and outstanding common
shares were consolidated to 11,975,053 on that date.
No fractional common shares were issued, and
Currency risk is the risk that the fair value
any fractional share entitlements resulting
of future cash flows arising from a financial
from the Share Consolidation were rounded
instrument will fluctuate because of changes in
up to the nearest whole number of common
foreign currency exchange rates. In the normal
shares. All references to common shares,
course of business, DCM does not have significant
restricted share units and stock options in these
foreign exchange transactions and, accordingly,
consolidated financial statements reflect the Share
the amounts and currency risk are not expected
Consolidation, unless specified otherwise.
to have adverse material impact on the operations
of DCM. Management considers the currency risk
to be low and does not hedge its currency risk and
therefore sensitivity analysis is not presented.
108
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 The following summarizes the change in number of issued and outstanding common shares during
the periods below:
Balance – January 1, 2017
Shares issued - February 22, 2017 (note 4)
Shares issued - May 5, 2017
Shares issued - June 23, 2017
Shares issued - June 28, 2017
Shares issued - July 13, 2017
Shares issued - November 10, 2017 (note 4)
Number of
Common shares
11,975,053
$
1,278,708
6,502
3,312,368
2,690,604
71,500
704,424
Amount
237,432
2,850
15
4,452
3,421
78
748
Balance – December 31, 2017
20,039,159
$
248,996
Balance – January 1, 2016
Shares issued - May 31, 2016
Shares issued - July 4, 2016
Balance – December 31, 2016
Number of
Common shares
9,987,528
$
1,678,567
308,958
11,975,053
$
Amount
234,782
2,280
370
237,432
In connection with the acquisition of Thistle and
gross proceeds were used to finance, in part, the
Eclipse on February 22, 2017, DCM issued a total
settlement of the 6.00% Convertible Debentures
of 1,278,708 Common Shares to the vendors of the
which matured on June 30, 2017. Under the terms
companies as partial consideration for the fair
of the Rights Offering, each eligible shareholder
value of the net assets acquired on the Closing
(“Eligible Holder”) on record as of May 31, 2017
Date for $2,858, net of $11 in issuance costs and
(the “Record Date”) received one right (“Right”)
increased by a deferred income tax asset of $3.
for each Common Share held as of the Record Date.
On May 5, 2017, 6,502 Common Shares were
issued in connection with the net settlement of
19,505 stock options at an exercise price of $1.50
per Common Share. The net amount of $15 was
recorded in contributed surplus in the consolidated
statement of changes in equity (deficit).
On June 23, 2017, DCM completed a rights offering
(“Rights Offering”) which was conducted by way
of a rights offering circular (“Circular”). Under the
offering, DCM issued 3,312,368 Common Shares
at a price of $1.40 per share for gross proceeds of
$4,637. Among this, 1,090,727 Common Shares were
issued to directors, officers and related parties
of DCM for total gross proceeds of $1,527. The
Every two Rights entitled the Eligible Holder to
subscribe for one Common Share upon payment
of the subscription price of $1.40 per share. The
Rights were transferable and were represented by
rights certificates. Total transaction costs were
$250 which were classified net of the Common
Shares issued under the Rights Offering. The
value of the Common Shares were increased by
a deferred income tax asset of $65.
On June 28, 2017, DCM completed a non-brokered
private placement offering (“First Private
Placement”). Pursuant to the First Private
Placement, DCM issued 2,690,604 units (“Units”),
with each Unit consisting of one Common Share
109
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) and one-half of a Common Share purchase warrant
the statutory hold period. The fair value of the
(each whole Common Share purchase warrant,
Common Shares issued was $3,655, based on the
a “Warrant”) at a price per Unit of $1.40 for gross
closing market price of the shares on closing of the
proceeds of $3,766. Among this, 550,650 Units
First Private Placement. This was adjusted using a
were issued to directors and officers of DCM
discount rate of 5% for the statutory hold period.
for total proceeds of $771. Each full Warrant
The proceeds allocated to the Common Shares was
entitles the holder to acquire one Common Share
$3,398 and the proceeds allocated to the Warrants
(a “Warrant Share”) at an exercise price of $1.75
was $280, net of transaction costs totaling $88.
for a period of two years from the closing of the
All of these transaction costs were allocated to the
First Private Placement. The exercise price is
Common Shares. The gross proceeds of $3,766 were
subject to adjustment for certain capital events,
also used to finance, in part, the settlement of the
as described in the warrant certificate, to preserve
6.00% Convertible Debentures which matured on
the relative rights of the existing shareholders
June 30, 2017. The value of the Common Shares were
of Common Shares and the Warrant holders. In
increased by a deferred income tax asset of $23.
addition, if the volume-weighted average price
of the Common Shares on the TSX equals or
exceeds $2.75 for 20 consecutive trading days,
DCM has the right (the “Acceleration Right”)
to accelerate the expiry date of the Warrants to
a date that is 30 days from the date on which
DCM notifies the Warrant holders of its intent
to exercise the Acceleration Right. DCM did not
exercise any of its Acceleration Rights during 2017.
The Common Shares, Warrants and Warrant Shares
are subject to a statutory hold period expiring
four months and one day after the closing of
the First Private Placement. DCM issued a total
of 2,690,604 additional Common Shares (before
giving effect to the exercise of any Warrants) and
1,345,300 Warrants pursuant to the First Private
Placement all of which were also outstanding as of
December 31, 2017. The value of the Warrants and
Common Shares issued were determined based
on an allocation of the gross proceeds of $3,766
by the relative fair values of each component on
closing of the First Private Placement. The fair
value of the Warrants issued was estimated to
be $294 using the Black-Scholes option-pricing
model, assuming a risk-free interest of 1.04%,
a weighted average life of two years, a dividend
yield of nil and an expected volatility of 40%.
This was adjusted using a discount rate of 5% for
On July 13, 2017, DCM completed a second closing of
the private placement (“Second Private Placement”),
consistent with the terms and conditions of the First
Private Placement, to a director of DCM for 71,500
Units, raising additional gross proceeds of $100.
71,500 Common Shares and 35,750 Warrants were
issued as a result of the Second Private Placement.
As of December 31, 2017, 35,750 Warrants pursuant
to the Second Private Placement were outstanding.
The value of the Warrants and Common Shares
issued were determined based on an allocation
of the gross proceeds of $100 by the relative
fair values of each component on closing of the
Second Private Placement. The fair value of the
Warrants issued was estimated to be $6 using the
Black-Scholes option-pricing model, assuming
a risk-free interest of 1.22%, a weighted average
life of two years, a dividend yield of nil and an
expected volatility of 40%. The fair value of the
Common Shares issued was $91 based on the closing
market price of the shares on closing of the Second
Private Placement. The fair value of the Common
Shares and Warrants were each adjusted using a
discount rate of 5% for the statutory hold period.
The proceeds allocated to the Common Shares was
$72 and the proceeds allocated to the Warrants was
$7, net of transaction costs totaling $21. All of these
110
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 transaction costs were allocated to the Common
DCM’s share-based compensation plan consists of
Shares. The gross proceeds of $100 were used to
five types of awards: restricted share unit (“RSUs”),
finance the general working capital requirements
options, deferred share unit (“DSUs”), restricted
of DCM. The value of the Common Shares were
shares or stock appreciation right (“SARs”) awards.
increased by a deferred income tax asset of $6.
No DSUs, restricted shares or SARs have been
In connection with the acquisition of BOLDER
granted to date.
Graphics on November 10, 2017, DCM issued a
(a) Restricted share unit (“RSU”)
total of 704,424 Common Shares to the vendors as
partial consideration for the fair value of the net
assets acquired on the BOLDER Closing Date for
$754, net of $8 in issuance costs and increased by
deferred income tax asset of $2.
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 DCM common share. RSUs generally vest
SHARE-BASED COMPENSATION
within three years and primarily settle in cash
DCM has adopted a Long-Term Incentive Plan
upon vesting.
(“LTIP”) to: recruit and retain highly qualified
A liability for RSUs is measured at fair value on
directors, officers, employees and consultants
the grant date and is subsequently adjusted for
(the “Participants”); provide Participants with an
changes in fair value. The liability is recognized
incentive for productivity and an opportunity to
on a graded vesting basis over the vesting period,
share in the growth and the value of DCM; and,
with a corresponding charge to compensation
align the interests of Participants with those of
expense, as a component of costs of revenues,
the shareholders of DCM. Awards to Participants
selling, commissions and expenses, and general
are primarily based on the financial results
and administration expenses. Compensation
of DCM and services provided. The aggregate
expenses for RSUs incorporate an estimate for
maximum number of common shares available for
expected forfeiture rates based on which the fair
issuance from DCM’s treasury under the LTIP is
value is adjusted.
2,003,916 common shares or 10% of the issued and
outstanding common shares of DCM. The shares to
be awarded will be authorized and unissued shares.
Balance - beginning of period/year
Units granted
Units forfeited
Units paid
Balance - end of period/year
December 31
2017
Number of RSUs
December 31
2016
Number of RSUs
29,538
150,192
(1,514)
(347)
177,869
2,366
452,371
(425,199)
—
29,538
111
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) During the year ended December 31, 2017, the chief
During the year ended December 31, 2017,
executive officer (“CEO”) of DCM and President of
compensation expense of $73 (2016 – $17) was
DCM were granted 104,548 RSUs (2016 – 145,566
recognized in the consolidated statement of
RSUs were issued to the CEO) and a total of 45,644
operations related to RSUs granted.
RSUs (2016 – 304,722 RSUs) were awarded to other
key members of DCM’s management. During the
year ended December 31, 2017, 1,514 RSUs were
forfeited by the CEO.
Of the total outstanding RSUs at December 31, 2017,
$nil (2016 – $234) have vested and are payable.
The carrying amount of the liability relating to the
RSUs at December 31, 2017 was $90 (2016 – $17).
(b) Option (“Option”)
A summary of Option activities for the year
ended December 31, 2017 and the year ended
December 31, 2016 is as follows:
2017
2016
Number of
Options
Weighted
average Exercise
Price
Number of
Options
Weighted
average Exercise
Price
Options outstanding - beginning
of period/year
959,745
$
Granted
Forfeited
Exercised
Options outstanding - end of
period/year
Exercisable
—
(135,279)
(19,505)
804,961
744,006
$
$
The outstanding options had an exercise price range as follows:
2.41
—
7.88
1.50
1.50
11,745
$
75.00
987,011
(39,011)
—
959,745
1.50
1.50
—
2.41
1.50
$
$
1.50
641,603
$75.00
$1.50
Options outstanding
December 31, 2017
Number of Options
December 31, 2016
Number of Options
—
804,961
804,961
11,745
948,000
959,745
During the year ended December 31, 2017, a total of
During the year ended December 31, 2017,
135,279 options awarded were forfeited, including
compensation expense of $91 (2016 – $779) was
11,745 options awarded to the CEO and 19,505
recognized in the consolidated statement of
options awarded were exercised.
operations related to options granted.
112
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 19. LOSS PER SHARE
BASIC LOSS PER SHARE
Net loss for the year attributable to common shareholders
Weighted average number of shares
Basic loss per share
DILUTED LOSS PER SHARE
Net loss for the year attributable to common shareholders
Weighted average number of shares
Diluted loss per share
$
$
$
$
For the year ended
December 31, 2017
For the year ended
December 31, 2016
(6,205)
16,330,837
(0.38)
(6,205)
16,330,837
(0.38)
$
$
$
$
(32,107)
11,125,518
(2.89)
(32,107)
11,125,518
(2.89)
DCM’s 6.00% Convertible Debentures were settled
diluted earnings per share as they were
on June 30, 2017 and therefore were excluded from
out-of-the-money as of December 31, 2017.
the computation of diluted earnings per share.
Options to purchase up to 804,961 common shares
and warrants to purchase up to 1,381,050 common
shares were excluded from the computation of
The prior year loss per share calculations have
been retroactively adjusted to reflect the Share
Consolidation. See note 18.
20. CHANGES IN WORKING CAPITAL
Trade receivables
Inventories
Prepaid expenses and other current assets
Trade and accrued liabilities
Deferred revenue
For the year ended
December 31, 2017
For the year ended
December 31, 2016
$
$
(3,983)
$
290
508
1,560
1,088
(537)
$
8,879
3,782
(520)
(2,378)
(2,144)
7,619
113
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) 21. COMMITMENTS AND CONTINGENCIES
DCM 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:
2018
2019
2020
2021
2022
2023 and thereafter
December 31
2017
12,078
10,747
9,544
8,124
6,596
24,249
71,338
$
$
DCM and its subsidiaries are subject to
minimum total contributions required under
various claims, potential claims and lawsuits. While
applicable Québec pension legislation and total
the outcome of these matters is not determinable,
employer contributions determined pursuant
DCM’s management does not believe that the
to collective agreements.
ultimate resolution of such matters will have a
material adverse impact on DCM’s financial position.
Under Québec pension legislation applicable
prior to December 31, 2014, DCM would have
DCM makes contributions to the Québec Graphics
been required to fund any outstanding solvency
Communications Supplemental Retirement and
deficiency in respect of its employees, pensioners
Disability Fund of Canada (the “SRDF”) based on
and vested deferred members if DCM had
a percentage of the wages of its unionized
withdrawn from the plan or if the plan had been
employees covered by the respective collective
terminated. On February 18, 2015, Bill 34 (An Act to
bargaining agreements, all of whom are employed
amend the Supplemental Pension Plans Act with
at DCM facilities located in the Province of
respect to the funding and restructuring of certain
Québec. The SRDF is a negotiated contribution
multi-employer pension plans) was tabled in the
defined benefit, multi-employer pension plan
Québec legislature. Bill 34, which was adopted
which provides retirement benefits to unionized
on April 2, 2015 with effect from December 31,
employees in the printing industry. The SRDF
2014, amends and clarifies the Québec pension
is jointly-trusteed by representatives of the
legislation for the SRDF to, among other things:
employers of SRDF members and the unions
which represent SRDF members in collective
bargaining. Based upon the terms of those
applicable collective agreements, DCM’s estimated
annual funding obligation for the SRDF for 2018
is $579. The most recent funding actuarial report
(as at December 31, 2013) in respect of the
Québec members of the plan disclosed
• 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;
a solvency deficiency and a gap between the
• allow for the reduction of accrued benefits; and
114
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 • remove the responsibility of participating
• To maintain a strong capital base so as to
employers to fund their share of the solvency
maintain shareholders’, creditors’, customers’,
deficit upon withdrawal from the plan or
suppliers’ and market confidence; and
termination of the plan, except in certain
circumstances when withdrawal from the plan
or termination of the plan occurs within five
• To deploy capital to provide an appropriate
investment return to its shareholders
years of Bill 34 being adopted.
DCM’s capital structure consists of
In addition, another consequence of Bill 34 will
be to require the administrator of the SRDF to
propose and seek consensus on a “Recovery Plan”.
On October 31, 2016, DCM received a letter from
the Board of Trustees administering the SRDF and
was advised that a form of Recovery Plan was filed
long-term debt (including the current portion)
and shareholders’ equity. DCM’s primary uses of
capital are to finance increases in working capital,
make payments towards its long-term obligations,
and fund investments in capital expenditures and
business acquisitions.
with the Quebec pension regulatory authorities in
DCM manages its capital structure and makes
August 2016 and that plan members will be sent a
adjustments to it in light of changes in economic
personalised statement indicating the effect that
conditions and the risk characteristics of the
the proposed plan will have on their respective
underlying assets. In order to maintain or
pension entitlements. DCM understands that the
adjust the capital structure, in line with its present
Recovery Plan was approved in December 2016 and
strategic plan, the company may issue new shares.
has been advised that employers’ obligations to
Management anticipates that any major acquisition
fund any solvency deficiency have been eliminated
or significant growth initiatives would be financed
in accordance with Bill 34. All participating
in part with additional equity and debt.
employers will be receiving a copy of the decisions
in the near future. During the year ended
December 31, 2017, DCM did not receive any
updated information on the SRDF.
22. CAPITAL STRUCTURE
DCM is not subject to any externally imposed
capital requirements other than the covenants
and restrictions under the terms of its Credit
Facilities including the requirement to meet
certain financial ratios and financial conditions
pertaining to permitted investments, acquisitions,
lease agreements, dividends and subordinated
DCM’s objectives when managing its capital
debt (see note 11).
structure are:
DCM’s capital structure is as follows:
• To seek to ensure sufficient liquidity to safeguard
DCM’s ability to continue as a going concern;
Credit facilities
Convertible debentures
Total long-term debt
Total equity (deficit)
December 31
2017
December 31
2016
55,932
—
55,932
(5,399)
$
$
$
35,042
11,082
46,124
(9,935)
$
$
$
115
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) 23. EXPENSES BY NATURE
Raw materials and other purchases
$
141,327
$
140,691
For the year ended
December 31, 2017
For the year ended
December 31, 2016
Wages and benefits
Pension and other post-employment expenses
Occupancy costs
Restructuring expenses
Depreciation, amortization and impairments
Other expenses
101,108
3,011
17,008
9,457
7,709
12,714
94,297
2,587
16,273
4,200
37,210
11,305
Total cost of revenues and operating expenses
$
292,334
$
306,563
24. SEGMENTED INFORMATION
DCM considers itself to have one reportable
delivery of various marketing and business
segment for purposes of segment reporting which
communications solutions. This includes:
consists of four operating segments that are
printing of labels, forms, stationary, lottery
aggregated based on the aggregation criteria In
and point-of-sale rolls, event tickets, direct mail,
IFRS 8. Given many of DCM’s customers operate
marketing collateral, loyalty cards,
and run marketing campaigns on a national scale,
large-format signage and banners, bindery
DCM utilizes its print capabilities, logistics and
and kitting services, in addition to digital
fulfilment services, and digital communications
communications and data analytics services.
solutions from its combined operating segments
DCM North America also provides logistics and
to service its customers. These operating segments
fulfillment solutions including warehousing,
have been aggregated as one reportable segment
distribution and inventory management services.
as they have similar economic characteristics, they
offer a portfolio of similar products and services,
they have alike customers, and their production
processes and distribution methods are similar.
Eclipse represents a separate operating segment
that provides significantly expanded wide format,
large format and grand format printing capabilities
to DCM’s portfolio of products and services in
The chief executive officer of DCM is the chief
eastern Canada. This includes: in-store print,
operating decision maker (“CODM”). The CODM
outdoor signage, transit graphics, packaging,
reviews and assesses the company’s performance
kitting and fulfilment capabilities.
and makes decisions about resources to be
allocated for each operating segment which have
been described below:
BOLDER Graphics strengthens DCM’s large and
wide format printing capabilities in western Canada
and complements its significantly expanded large
The core DCM business has a number of operating
format capabilities obtained through the acquisition
facilities across Canada and one in the U.S.
of Eclipse in eastern Canada. BOLDER Graphics
(collectively the “DCM North America” operating
specializes in large-format digital printing,
segment) which focus on the production and
point-of-sale signage, corporate packaging,
116
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 outdoor signage and vehicle graphics, in addition
the insurance expense paid by DCM. During the
to loose-leaf bindery, stationery and other
fiscal year, DCM recorded an insurance expense
commercial print capabilities.
of $306 (2016 – $480) related to these policies. As
at December 31, 2017, prepaid expenses and other
current assets included prepaid insurance to the
insurance company of $260 (2016 – $259). The
insurance company is a related party whereby
the Chair of the Board and the President of DCM
each are Directors and indirectly have a minority
interest in the insurance company, through
companies controlled by them.
During the year ended December 31, 2017, directors,
officers and related parties of DCM participated
in a rights offering and a private placement of
common shares (see note 18), purchasing 1,712,877
common shares (or 28.2% of the 6,074,472 common
shares issued as a result of the rights offering and
private placement) for consideration of $2,298.
On December 21, 2016, DCM entered into a new
agreement to lease approximately 2,000 square
feet of office space in Toronto, Ontario from
a company that the Chair of the Board and
the President are Directors of. Under the lease
agreement, the lease commences March 1, 2017,
runs month-to-month and can be terminated by
either party with reasonable notice. The monthly
expense is $7 per month.
These transactions are provided in the normal
course of operations and are measured at the
exchange amount, which represents the amount
of consideration established and agreed to by
the related parties.
Thistle is a full service commercial printing
company in eastern Canada which adds expertise
in commercial printing, design, pre-press
and bindery services to DCM’s portfolio, and
complements DCM’s current capabilities in direct
mail, fulfilment and data management.
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. DCM 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, 2017, U.S. sales were not
significant to disclose separately.
Warehousing revenues were approximately
6% of total consolidated revenues for the year
ended December 31, 2017 and were approximately
6% of total consolidated revenues for the year
ended December 31, 2016.
25. RELATED PARTY
TRANSACTIONS
Effective June 23, 2015, DCM appointed an
insurance company as its broker of record for its
corporate insurance policies and subsequently
entered into new general corporate insurance
policies, including the renewal of its directors and
officers liability insurance later in the year. The
insurance company continues as DCM’s broker
of record and earns fees based on a percentage of
117
NOTES TO FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(in thousands of Canadian dollars, except percentages, shares and per share amounts) COMPENSATION OF KEY MANAGEMENT
Key management personnel are deemed to be the CEO, president, chief financial officer and other members
of the senior executive team. Compensation awarded to key management personnel included:
For the year ended
December 31, 2017
For the year ended
December 31, 2016
Salaries and other short-term employee benefits
Post-employment benefits
Share-based compensation expense
Total
$
$
2,743
$
16
157
2,916
$
2,599
20
779
3,398
During the year ended December 31, 2017, key
During the year ended December 31, 2017, DCM’s
management personnel were granted 132,744 RSUs
general and administration expenses include a
(2016 – 277,379 RSUs), and 1,514 RSUs
charge of $157 (2016 – $779) for these share-based
(2016 – 250,207 RSUs) were forfeited. Key
compensation awards.
management personnel were also granted
options to purchase up to Nil Common Shares
(2016 – 791,957 Common Shares) and options
to purchase up to 11,745 Common Shares
(2016 – Nil Common Shares) were forfeited during
the year ended December 31, 2017 (see note 18).
During the year ended December 31, 2017, DCM’s
general and administration expenses include
a charge of $287 (2016 – $372) for the duties
performed by DCM’s Board.
118
NOTES TO FINANCIAL STATEMENTSDATA COMMUNICATIONS MANAGEMENT CORP. | ANNUAL REPORT 2017 CORPORATE INFORMATION
DIRECTORS
AND OFFICERS
J.R. Kingsley Ward 3
Chairman, Director
EXECUTIVE
TEAM
CORPORATE
INFORMATION
Michael G. Sifton
Auditors
Chief Executive Officer
PricewaterhouseCoopers LLP
William Albino 1,2,3
Gregory J. Cochrane
Transfer Agent
Director
President
Computershare Investor
Services Inc.
James J. Murray O.Ont., SIOR 1,2
James E. Lorimer
Director
Chief Financial Officer
Corporate Counsel
Derek J. Watchorn 1,2,3
Alan Roberts
Director
Michael G. Sifton
Director & Officer
Senior Vice-President,
Operations
Michael Coté
Chief Executive Offier
Senior Vice-President,
Chief Commercial Officer
James E. Lorimer
Officer
Judy Holcomb-Williams
Chief Financial Officer & Corporate
Senior Vice-President,
Secretary
Chief Culture Officer
1 Member, Audit Comittee
(Chairperson is William Albino)
2 Member, Corporate Governance Committee
(Chairperson is Derek J. Watchorn)
3 Member, Human Resources & Compensation Committee
(Chairperson is J.R. Kingsley Ward)
McCarthy Tétrault LLP
Corporate Office
9195 Torbram Road
Brampton, Ontario L6S 6H2
Telephone: 905-791-3151
Facsimile: 905-791-1713
Website
datacm.com
Toronto Stock
Exchange Symbol
DCM
119
DATA COMMUNICATIONS MANAGEMENT CORP.
9195 TORBRAM ROAD,
BRAMPTON, ON L6S 6H2
DATACM.COM