2021 Annual Report
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DATA Communications Management Corp.
Letter to shareholders
Dear Fellow Shareholders,
We are very pleased with the progress we made in 2021. Since I joined DCM on March 8, 2021, we’ve implemented
a clear strategy to move from a “print first” company to a “digital first” company with a well-defined five-year strategic
plan to drive our execution.
As we’ve communicated to shareholders over the past several months, we have been focused on building both a
better and bigger business. I’d like to take this opportunity to review some of the initiatives we took in 2021 to make a
better business.
We continued to drive productivity improvements. Our total employee count at the end of 2021 was 922, down 14.5%
from the prior year, and down 34.7% since 2017. Revenue per employee of $255,200 this year grew by 6.1%
compared to $240,600 last year, and is up 24.4% since 2017.
We streamlined the leadership team to deliver accelerated decision-making. Six senior positions were eliminated in
total this year along with two full layers of management, and we increased spans of responsibility across the
company.
The consolidation of our Mississauga and Edmonton facilities, along with other operating expense savings are
expected to deliver $3.5 million in annualized savings. Further, accelerating the move to a hybrid work environment
with reduced offices, combined with our leadership optimization and other headcount reductions, we are expecting to
deliver an annualized $11.4 million in overhead savings.
We continued to pay down debt. Our total debt stood at $37.1 million at the end of 2021 down 23% from 2020, and is
down more than 50% since a recent high at the end of 2019. The refinancing of our subordinated debt facility is
expected to reduce interest expenses by approximately $1.5 million in 2022 alone.
We were also busy on many other key initiatives, which, while not directly measurable, should further contribute to
our building a better business. Some of these areas of focus include: associate engagement, client engagement, the
introduction of an environmental, social and governance strategy, further development of our internal analytics and
reporting, and, of course we are leaning heavily into digital acceleration initiatives which I’ll review shortly.
But first, I’d like to review our activities related to building a bigger business.
2021 was very much a story of two halves. While revenue in the first half of 2021 was down 16.8% compared to
2020, the second half of 2021 was flat vs. the prior year, evidence that our business has stabilized. We believe we
are well positioned for recovery as consumer movements continue to accelerate.
We posted two quarters of sequential revenue improvement to end 2021, with Q3 revenue of $56.9 million up 3.1%
compared to Q2 of $55.2 million, and Q4 revenue of $60.9 million up 7.0% compared to Q3. We believe we are well
positioned for a third successive quarter of growth as we enter 2022, the first quarter of the year is typically the
strongest for us.
Our core print and technology business was up 10.3% in the second half of 2021, compared to the prior year, if we
exclude COVID-related resales and other product re-sales from our total revenue. Our production facilities are
performing well, a leading indicator for a bigger business in 2022.
Another key indicator of our business health is our gross profit. In the second half of 2021, gross profit was up 10.2%
compared to the prior year. This positive trend mirrored the sequential revenue growth we experienced in 2021, with
gross profit of $17.2 million in Q3 up 8.9% compared to $15.8 million in Q2, and gross profit of $17.7 million in Q4 up
2.9% compared to Q3. Despite lower levels of revenue in 2021 compared to 2020, our overall gross margin improved
to 29.5% for the year, from 28.1%.
We saw similar positive trends in Adjusted EBITDA. While our Adjusted EBITDA of $16.7 million in the second half of
2021 was essentially flat with the first half of the year, if we deduct government subsidies, Adjusted EBITDA was up
almost 33% in the second half of 2021 at $16.3 million, compared to $12.3 million in 2020, further demonstrating the
improved health of our business. While we reported Adjusted EBITDA of $33.1 million in 2021 ($41.5 million in 2020),
if we adjust for the full year $4.6 million of wage subsidy grants received in 2021 ($10.7 million in 2020), Adjusted
EBITDA was comparable at $28.6 million in 2021 compared to $30.8 million in 2020, but represented 12.2% of
revenue compared to 11.9%.
EBITDA and Adjusted EBITDA are not earnings measures recognized by International Financial Reporting Standards
(IFRS), do not have any standardized meanings prescribed by IFRS and might not be comparable to similar financial
measures disclosed by other issuers. 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 description of the
composition of EBITDA and Adjusted EBITDA, why we believe such measures are useful to investors and how we
use those measures in our business, together with a quantitative reconciliation of net income (loss) to EBITDA and
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Adjusted EBITDA, respectively, see the information under the heading “Non-IFRS Measures” and Table 3 of DCM’s
management’s discussion and analysis (MD&A) dated March 21, 2022 for the year ended December 31, 2021, which
information is incorporated by reference in this letter.
While government subsidies related to COVID-19 certainly helped our financial position in 2020 and the first half of
2021, we think this analysis bodes well for our business outlook, and the operational efficiencies we’ve implemented
should provide positive leverage to higher revenue levels.
We had numerous new business wins in the year, across a wide variety of vertical markets including financial,
healthcare, regulated industries, retail, manufacturing, lottery, as well as hospitality as that sector started to re-open.
Our “digital first” strategy continues to gain momentum. Our sales pipeline exceeds $10 million for digital asset
management and related technology-services opportunities and spans more than 50 clients. Our 40 years of workflow
management and related digital asset management expertise is really resonating with our clients.
We believe we are very well positioned for growth, given our clarity of strategy, our positioning in the marketplace, the
strength of our team, and importantly the positive results we delivered in the second half of 2021, and specifically the
fourth quarter. In my 36 years in business, I’ve always found that momentum builds momentum. We are very excited
about the future of DCM.
For a full description of our financial results for fiscal 2021, please refer to our audited consolidated financial
statements for year ended December 31, 2021 and related management’s discussion and analysis (“MD&A”), copies
of which are available at www.sedar.com. Certain statements in this letter 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. See “Forward-
Looking Statements in our MD&A.
Yours truly,
(Signed) "Richard Kellam"
Richard C. Kellam
President & CEO
DATA Communications Management Corp.
March 2022
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DATA Communications Management Corp.
Management’s discussion and analysis of financial condition and results of operations
The following management’s discussion and analysis (“MD&A”) is intended to assist readers in understanding the
business environment, strategies, performance and risk factors of DATA Communications Management Corp. (TSX:
DCM) and its subsidiaries (referred to herein as “DCM” or the “Company”) for the years ended December 31, 2021
and 2020. 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, 2021 and 2020. 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 in the MD&A are expressed in Canadian dollars.
The Company's Board of Directors, on the recommendation of its Audit Committee, approved the contents of this
MD&A on March 28, 2022 This MD&A reflects information as of March 28, 2022.
Basis of presentation
DCM prepares its consolidated financial statements in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board (“IFRS"). The accounting policies applied in these
consolidated financial statements are based on IFRS effective for the year ending December 31, 2021, as issued and
outstanding as of March 28, 2022 the date the Board of Directors ("Board") approved these financial statements.
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 MD&A, words such as “may”, “would”,
“could”, “will”, “expect”, “anticipate”, “estimate”, “believe”, “intend”, “plan”, and other similar expressions are intended
to identify forward-looking statements. These statements reflect 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 or results, and will not necessarily be accurate indications of whether or
not such performance or results will be achieved. Many factors could cause the actual results, performance,
objectives or achievements of DCM to be materially different from any future results, performance, objectives or
achievements that may be expressed or implied by such forward-looking statements. The principal factors,
assumptions and risks that DCM made or took into account in the preparation of these forward-looking statements
include: risks relating to the continuing impact of the COVID-19 pandemic, the impact of which could be material on
DCM’s business, liquidity and results of operations; increases in the costs of freight, paper, ink, and other raw
material inputs used by DCM in the conduct of its business; supply chain disruptions which may limit the availability of
raw materials and impact our production and revenues; the Company's ability to continue as a going concern is
dependent upon management’s ability to meet forecast revenue and profitability targets for at least the next twelve
months in order to comply with its financial covenants on its credit facilities or to obtain financial covenant waivers
from its lenders if necessary; risks relating to DCM’s ability to access sufficient capital to fund its liquidity and
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business plans, including, without limitation, under its existing revolving credit facility, on favourable terms or at all; the
risk that DCM will not be successful in negotiating amendments to the terms of its existing credit facilities including,
without limitation, the financial covenants of DCM under these facilities; 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 and/or investments in joint ventures by DCM; the
failure to realize the expected benefits from the acquisitions it has made and risks associated with the integration and
growth of such businesses; DCM’s ability to maintain and grow relationships with its customers and suppliers;
litigation risks; and risks related to a disruption of operations from adverse labour relations, higher labour costs, or
both.
Additional factors are discussed elsewhere in this MD&A under the headings "Liquidity and capital resources" and
“Risks and Uncertainties” and in DCM’s publicly available disclosure documents, as filed by DCM on SEDAR
(www.sedar.com). Should one or more of these risks or uncertainties materialize, or should assumptions underlying
the forward-looking statements prove incorrect, actual results may vary materially from those described in this MD&A
as intended, planned, anticipated, believed, estimated or expected. Unless required by applicable securities law,
DCM does not intend and does not assume any obligation to update these forward-looking statements.
Non-IFRS measures
This MD&A includes certain non-IFRS measures and ratios 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 EBITDA means EBITDA adjusted for restructuring expenses, and one-time business
reorganization costs. Adjusted net income (loss) means net income (loss) adjusted for restructuring expenses, one-
time business reorganization 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 of DCM (basic and diluted) outstanding during the period. Adjusted EBITDA as a percentage of
revenues means revenues divided by Adjusted EBITDA and Adjusted net income (loss) as a percentage of revenues
means revenues divided by adjusted net income (loss), in each case for the same period. In addition to net income
(loss), DCM uses non-IFRS measures and ratios, including Adjusted net income (loss), Adjusted net income (loss)
per share, Adjusted net income (loss) as a percentage of revenues, EBITDA, Adjusted EBITDA and Adjusted EBITDA
as a percentage of revenues 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, investors, rating agencies and other interested parties
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DATA Communications Management Corp.
frequently use non-IFRS measures in the evaluation of issuers. DCM’s management also uses non-IFRS measures
in order to facilitate operating 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 is a leading provider of marketing and workflow solutions that solve the complex branding, communications,
logistics and regulatory challenges of some of North America’s biggest brands. Powered by purpose-built technology
like our DCMFlex™ workflow management platform and our ASMBL digital asset management solution, we help
clients bring their brands to life and create more meaningful connections with customers. We serve market leaders in
key verticals such as financial services, retail, healthcare, energy, and the public sector, supporting them with
marketing scale, speed, efficiency and insight that drives their competitiveness and improves their performance.
Our customer agreements and terms typically include provisions consistent with industry practice, which generally
allow DCM to pass along most increases in the cost of paper and other raw materials used to manufacture products.
DCM’s revenue is subject to mailing patterns of certain customers. Typically, higher revenues and profit are generated
in the first 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 925 employees in Canada and the United States and had revenues of $235.3 million in
2021. Website: www.datacm.com.
RECENT DEVELOPMENTS
CREDIT FACILITY AMENDMENTS
On November 8, 2021, DCM entered into an amended and restated credit facility (the “Amended Bank Facility”) with
the Bank. The Amended Bank Facility includes a revolving credit facility of up to $15.0 million, a term loan of $10
million and an “accordion” feature which can provide of up to $10.0 million of additional capacity under the revolving
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facility. The term loan will amortize in equal monthly payments over 30 months. The maturity date of the Amended
Bank Facility has been extended from January 31, 2023 to November 8, 2024. The revolving facility is available to
finance the working capital needs of the Company. Advances under the Amended Bank Facility are subject to floating
interest rates based upon the Canadian prime rate plus an applicable margin of 0.50% and 3.50% for the revolving
and term components, respectively.
On December 17, 2021, DCM also entered into an agreement with FPD VI, by its general partner, FPD, pursuant to
which FPD provided an $11.0 million term facility, with a term of 60 months from closing. The FPD VI term loan will
amortize in equal monthly principal payments over 84 months, with the remaining 24 payments at maturity due in a
bullet payment. A fixed interest rate of 5.95% per annum is payable on the FPD VI term loan. Concurrently with the
entering into of the FPD VI term loan, the terms of the loans with FPD III, FPD IV and FPD V, were amended such
that the terms of the agreements are the same, other than in respect of interest rates, maturity dates and
amortization.
Collectively, the proceeds from the new term loans provided by the Bank and FPD, and the drawings on the revolving
facility, were used to repay the $21.5 million Crown Facility.
COVID-19 GLOBAL PANDEMIC
Management of DCM continues to closely monitor and respond to developments related to COVID-19, including the
current and potential impact on global and local economies in the jurisdictions where DCM operates. While
safeguarding the well-being of individuals is the Company’s principal concern, it remains focused on continuity plans
and preparedness measures at each of its locations. Several measures designed to mitigate the financial impact on
our business were implemented throughout 2020 and the first half of 2021, including temporary layoffs, shift
reductions, reductions in nonessential spending and deferral of other expenses and payments where practical. These
measures have been discontinued, however the Company continues to evaluate and assess further actions that may
be required.
DCM has recently been experiencing more pronounced supply chain disruptions due to COVID-19. As the North
American economy is recovering, increased demand in the face of previous capacity reductions by suppliers and
labour shortages, is resulting in price increases, supply shortages and shipping delays. Pricing increases from key
suppliers have been experienced on most of the Company’s input costs, including paper, ink, other raw materials and
freight. DCM has not experienced any material credit collection delinquencies related to COVID-19, although certain
customers have stretched their payment terms.
DCM has not experienced any material disruptions in its supply chain due to COVID-19. Nor has DCM experienced
any material credit collection delinquencies related to COVID-19, although certain customers have stretched their
payment terms.
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GOVERNMENT GRANTS
In 2021, DCM qualified for approximately $3.9 million of subsidies under the Canada Emergency Wage Subsidy
("CEWS") and $0.7 million under the Canada Emergency Rent Subsidy ("CERS"). DCM does not currently expect to
qualify for any additional CEWS or CERS subsidies, but continues to assess whether it may meet the eligibility criteria
for future periods, as well as other subsidies that may be available due to a prolonged impact of COVID-19 on its
business.
REVENUE RECOGNITION POLICY
DCM recognizes revenue when control of the products or services it provides to its customers has been transferred.
The following is a description of principal activities from which DCM generates its revenue, along with the
corresponding revenue recognition accounting policies.
PRODUCT SALES
DCM manufactures customized products based on specifications pre-approved by its customers. At its customers’
request, DCM will also purchase product from third-party vendors and resell that to its customers. DCM recognizes
revenue upon the completion of production or when product is purchased from a third-party vendor and inducted into
its warehouses. Given manufactured products are customized or purchased specifically at the customer’s request,
product returns are insignificant.
In some instances, DCM's customers obtain the product directly from DCM following completion of production. In
other instances, DCM’s contracts involve the provision of warehousing and shipment services, in addition to
manufacturing or purchasing of third-party products. Based on DCM’s contractual arrangements with its customers,
DCM has identified three key distinct performance obligations: product sales, warehousing services and shipment
services. DCM stores customized or purchased product at the request of the customer; the product is identifiable as
the customer’s product; the product is ready for transfer to the customer upon the customer’s request; and DCM
cannot re-direct the product nor use the product to fulfill another customer’s product order under the contract. DCM
recognizes product revenues when control has transferred over the product upon product manufacture by DCM or
upon receipt of third-party product into DCM's warehouses. For bundled pricing arrangements, DCM allocates the
transaction price to each performance obligation based on their relative stand alone selling prices. Management
applied significant judgment in determining the stand-alone selling prices in allocating revenue between the various
performance obligations.
WAREHOUSING SERVICES
DCM provides custodial services to store customer product in its warehouse over a specified agreed upon period of
time. Warehousing services represent a distinct performance obligation and accordingly, revenues are recognized
over the period that warehousing services are provided to the customer.
FREIGHT SERVICES
DCM provides services to ship customer product from its warehouse to a location specified by the customer. This
represents a distinct performance obligation and revenue is recognized when performance of the shipping service
has occurred.
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MARKETING SERVICES
DCM generates revenue from providing marketing solutions to its customers which include business and brand
strategy, consumer insights, strategic marketing and design services. Typically, these services are contracted with
fixed-fees and are provided over a period of time equal to one year or less. Revenue is measured based on the
consideration DCM expects to be entitled to in exchange for providing services. Most of DCM’s marketing contracts
include a single performance obligation because the promise to transfer the individual services are not separately
identifiable from other promises in the contract and therefore are not distinct. DCM transfers control of the services it
provides to its customers over time and therefore recognizes revenue progressively as the services are performed
based on the percentage of completion method. Under this method, the stage of completion is measured using costs
incurred to date as a percentage of total estimated costs for each contract and the percentage of completion is
applied to the total estimated revenue.
COST OF REVENUES AND OTHER EXPENSES
DCM’s cost of revenues primarily consists of raw materials, manufacturing salaries and benefits, occupancy costs,
depreciation of owned equipment, and depreciation of the right-of-use asset ("ROU Asset") for property leases and
equipment leases. DCM’s raw material costs consist primarily of paper, carbon and ink. Manufacturing salaries and
benefits costs primarily consist of employee salaries and health benefits at DCM’s printing and warehousing facilities.
Occupancy costs consist primarily of depreciation of the ROU Asset for property leases, and costs related to 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, the
ROU Asset, 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 depreciation of the ROU Asset for property leases, telecommunications, pension
plan expenses and professional service fees.
DCM has incurred restructuring expenses, which primarily related to the departure of senior executive team members
(in connection with a reorganization initiative to achieve a broader, more horizontal organizational structure with fewer
layers of organization) and other severance costs associated with headcount reductions and costs related to the
closure of certain facilities.
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 2021, Fiscal 2020 and Fiscal 2019 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.
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TABLE 1
The following table sets out selected historical consolidated financial information for the periods noted.
For the years ended December 31, 2021, 2020 and 2019
(in thousands of Canadian dollars, except share and per share
amounts, unaudited)
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses (1)
Restructuring expenses
Income before finance costs, other income, and income taxes
Finance costs
Interest expense, net
Debt modification losses and prepayment fees
Amortization of transaction costs
Other Income
Other Income
Government grant income
Income before income taxes
Income tax expense
Current
Deferred (1)
Net income for the year
Basic earnings per share
Diluted earnings per share
Weighted average number of common shares outstanding,
basic
Weighted average number of common shares outstanding,
diluted
As at December 31, 2021, 2020 and 2019
(in thousands of Canadian dollars, unaudited)
January 1 to
December 31,
2021
January 1 to
December 31,
2020
January 1 to
December 31,
2019
$
235,331 $
165,796
69,535
(Restated)
259,314 $
186,372 $
72,942
(Restated)
282,876
213,611
69,265
55,957
9,691
65,648
3,887
5,839
473
941
7,253
1,452
4,558
2,644
56,481
2,821
59,302
13,640
6,076
703
553
7,332
—
10,708
69,508
7,489
76,997
(7,732)
8,916
3,858
465
13,239
—
—
17,016
(20,971)
2,238
(1,159)
1,079
1,565 $
0.04 $
0.03 $
(491)
4,208
3,717
13,299 $
0.31 $
0.31 $
(105)
(5,071)
(5,176)
(15,795)
(0.73)
(0.73)
$
$
$
43,993,494
43,146,866
21,757,467
46,136,507
43,316,630
21,757,467
As at
December 31,
2021
As at
December 31,
2020
(Restated)
As at
December 31,
2019
(Restated)
101,642
73,554
75,903 $
60,949 $
157,776 $
93,013 $
206,434
141,859
8,041 $
3,814 $
(8,979)
Current assets
Current liabilities
Total assets
Total non-current liabilities
Shareholders’ equity (deficiency)
$
$
$
$
$
68,041 $
62,845
140,084
69,198
(1) Selling, general and administrative expenses ("SG&A") and deferred income tax expense include the impact of the IFRS
Interpretations Committee’s agenda decision regarding configuration or customization costs in a cloud computing arrangement.
Prior periods have been retrospectively restated to derecognize previously capitalized costs in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors. Refer to note 3 of the consolidated financial statements for
the year ended December 31, 2021 for further details on the impact of the amended accounting standard.
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TABLE 2
The following table sets out selected historical consolidated financial information for the periods noted.
See the “Non-IFRS Measures” section above for more details and Tables 3 and 4 below for
reconciliations of net income (loss) to Adjusted EBITDA and net income (loss) to Adjusted net income.
For the years ended December 31, 2021, 2020 and 2019
(in thousands of Canadian dollars, except percentage
amounts, unaudited)
Revenues
Gross profit
January 1 to
December 31,
2021
January 1 to
December 31,
2020
January 1 to
December 31,
2019
$
235,331
$
259,314
$
282,876
(Restated)
(Restated)
$
69,535
$
72,942
$
69,265
Gross profit, as a percentage of revenues
29.5 %
28.1 %
24.5 %
Selling, general and administrative expenses (1)
$
55,957
$
56,481
$
69,508
As a percentage of revenues
23.8 %
21.8 %
24.6 %
Adjusted EBITDA (see Table 3)
As a percentage of revenues
Net income (loss) for the year
Adjusted net income (loss) (see Table 4)
As a percentage of revenues
$
33,286
$
41,476
$
16,222
14.1 %
16.0 %
5.7 %
$
$
1,565
7,684
3.3 %
$
$
13,299
$
(15,795)
15,766
$
(9,229)
6.1 %
(3.3) %
(1) SG&A and deferred income tax expense include the impact of the IFRS Interpretations Committee’s agenda decision regarding
configuration or customization costs in a cloud computing arrangement. Prior periods have been retrospectively restated to
derecognize previously capitalized costs in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors. Refer to note 3 of the consolidated financial statements for the year ended December 31, 2021 for further details on the
impact of the amended accounting standard.
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TABLE 3
The following table provides reconciliations of net income (loss) to EBITDA and of net income to
Adjusted EBITDA for the periods noted. See “Non-IFRS Measures” section above for more details.
EBITDA and Adjusted EBITDA reconciliation
For the years ended December 31, 2021, 2020 and 2019
(in thousands of Canadian dollars, unaudited)
January 1 to
December 31,
2021
January 1 to
December 31,
2020
January 1 to
December 31,
2019
(Restated)
(Restated)
Net income (loss) for the year (1)
$
1,565 $
13,299 $
(15,795)
Interest expense, net
Debt modification losses and prepayment fees
Amortization of transaction costs
Current income tax expense (recovery)
Deferred income tax (recovery) expense (1)
Depreciation of property, plant and equipment
Amortization of intangible assets (1)
Depreciation of the ROU Asset
EBITDA
Restructuring expenses
One-time business reorganization costs (2)
Other income
5,839
473
941
2,238
(1,159)
3,133
3,589
8,428
6,076
703
553
(491)
4,208
3,541
1,876
8,399
$
25,047 $
38,164 $
9,691
—
(1,452)
2,821
491
—
8,916
3,858
465
(105)
(5,071)
3,959
2,546
8,940
7,713
7,489
1,020
—
Adjusted EBITDA
$
33,286 $
41,476 $
16,222
(1) SG&A and deferred income tax expense include the impact of the IFRS Interpretations Committee’s agenda decision regarding
configuration or customization costs in a cloud computing arrangement. Prior periods have been retrospectively restated to
derecognize previously capitalized costs in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors. Refer to note 3 of the consolidated financial statements for the year ended December 31, 2021 for further details on the
impact of the amended accounting standard.
(2) One-time business reorganization costs include non-recurring headcount reduction expenses for employees that did not qualify
as restructuring costs.
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DATA Communications Management Corp.
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TABLE 4
The following table provides reconciliations of net income to Adjusted net income and a presentation of
Adjusted net income per share for the periods noted. See “Non-IFRS Measures” section above for
more details.
Adjusted net income reconciliation
For the years ended December 31, 2021, 2020 and 2019
(in thousands of Canadian dollars, except share and per
share amounts, unaudited)
January 1 to
December 31,
2021
January 1 to
December 31,
2020
January 1 to
December 31,
2019
Net income for the year (1)
$
1,565 $
13,299 $
(15,795)
(Restated)
(Restated)
Restructuring expenses
One-time business reorganization costs (2)
Other income
Tax effect of the above adjustments
Adjusted net income for the year
Adjusted net income per share, basic
Adjusted net income per share, diluted
Weighted average number of common shares
outstanding, basic
Weighted average number of common shares
outstanding, diluted
Number of common shares outstanding, basic
Number of common shares outstanding, diluted
9,691
—
(1,452)
(2,120)
7,684 $
2,821
491
—
(845)
15,766 $
0.17 $
0.17 $
0.37 $
0.36 $
7,489
1,020
—
(1,943)
(9,229)
(0.43)
(0.43)
$
$
$
43,993,494
43,146,866
21,582,483
46,136,507
43,316,630
21,582,483
44,062,831
46,205,844
43,867,030
44,036,795
43,047,030
43,047,030
(1) SG&A and deferred income tax expense include the impact of the IFRS Interpretations Committee’s agenda decision regarding
configuration or customization costs in a cloud computing arrangement. Prior periods have been retrospectively restated to
derecognize previously capitalized costs in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors. Refer to note 3 of the consolidated financial statements for the year ended December 31, 2021 for further details on the
impact of the amended accounting standard.
(2) One-time business reorganization costs include non-recurring headcount reduction expenses for employees that did not qualify
as restructuring costs.
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DATA Communications Management Corp.
Results of operations
REVENUES
For the year ended December 31, 2021, DCM recorded revenues of $235.3 million, a decrease of $24.0 million or
9.2% compared with the same period in 2020. The decrease was primarily attributable to lower demand resulting
from the impact of the COVID-19 pandemic in the first half of 2021, compared to the first half of 2020, particularly in
the financial services, retail and government sectors. Despite the shortfall in revenue in the full fiscal year, the second
half of 2021 was only off by 0.3% as compared to the second half of 2020 with production and technology revenue
actually growing by 10.2%. Revenue in the first half of 2020 of $141.4 million was largely unaffected by COVID-19. In
the second half of 2020, revenues were $118.0 million, with comparable revenue levels experienced in both the first
half of 2021 at $117.5 million and in the second half of 2021 at $117.8 million. Positive quarterly sequential revenue
trends in the third and fourth quarters, including growth in production and technology revenue in these periods,
compensating for lower re-sales revenue (with much of that decline being attributable to one-time jobs in 2020 arising
in relation to COVID-19) position the business well for recovery as consumer movements in the economy continue to
accelerate.
COST OF REVENUES AND GROSS PROFIT
For the year ended December 31, 2021, DCM recorded cost of revenues of $165.8 million, a decrease of $20.6
million or 11.0% from $186.4 million for the same period in 2020.
However, gross profit for the year ended December 31, 2021 was $69.5 million, a decrease of only $3.4 million or
4.7% from $72.9 million for the same period in 2020. Gross profit as a percentage of revenues increased to 29.5% for
the year ended December 31, 2021, compared to 28.1% for the same period in 2020. Gross profit as a percentage of
revenues for the year ended December 31, 2021 was positively impacted, particularly in the second half of 2021,
despite the relative COVID-19 related revenue shortfall (which would result in weaker absorption of fixed overhead
costs, primarily salaries and wages) and supply chain challenges such as raw material price increases and availability
constraints. Gross margin was positively impacted by (i) realizing the full benefits from the cost saving initiatives
implemented throughout 2020 and 2021, resulting in a reduction in salaries and wages (ii) other temporary and
permanent lay-offs, reduction in casual labour and other cost saving measures in reaction to the impact of COVID-19
on the business, (iii) improved management of purchasing inventory and other direct costs, and (iv) continued
discipline to improve pricing with customers, including improvement in freight pricing to achieve positive margins. The
consolidation of our Brampton and Mississauga facilities at the end of 2021 is expected to generate further cost
efficiencies in 2022 onwards, and the full year benefits from the consolidation of the Calgary and Edmonton facilities
in June 2021 are also expected to be realized in 2022.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2021 were $56.0 million, or
23.8% of total revenues, a decrease of $0.5 million or 0.9%, from $56.5 million, or 21.8% of total revenues, for the
same period in 2020.
SG&A expenses for the year ended December 31, 2021 benefited from a reduction in selling, commissions and
expenses by $1.5 million which was offset by an increase in general and administrative expenses by $1.0 million.
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General and administrative expenses included a non-cash mark-to-market accrual for outstanding restricted share
units ("RSUs") and deferred shared units ("DSUs") to reflect an increase in the price of DCM's common shares. For
the year ended December 31, 2021, the total compensation expense for DSUs and RSUs was $3.5 million as
compared to $1.9 million in 2020, an increase of $1.6 million from the same period in 2020. DCM's common share
price increased during 2021 by 103.2% from a closing price of $0.63 on December 31, 2020 to $1.28 on
December 31, 2021 resulting in the majority of the year over year increase in the mark-to-market expense.
Furthermore, DCM incurred a one-time $1.5 million charge for the write-down of intangible assets due to a change in
strategy in the fourth quarter of 2021, which was classified as amortization expense. Excluding these mark-to-market
adjustments and one-time charge, total SG&A would have declined by $3.6 million. The decrease in SG&A for the
year ended December 31, 2021 was primarily attributable to realizing the full benefits from the cost saving initiatives
implemented throughout 2020 and 2021, resulting in a reduction in salaries and wages, including the departure of
senior executive team members, temporary lay-offs, and a reduction in casual labour in response to the impact of
COVID-19 on the Company's business. Specifically, general and administrative expenses were higher in the prior
year due to enterprise resource planning ("ERP") project related expenses that were no longer eligible for
capitalization, and professional fees surrounding the implementation of the ERP system and consulting expenses for
other one-time projects that are no longer required in the current year.
RESTRUCTURING EXPENSES
Cost reductions and enhancement of operating efficiencies have been an area of focus for DCM in order to improve
margins and better align costs with the declining revenues experienced by the Company in its traditional business, a
trend being faced by the traditional printing industry for several years now.
For the year ended December 31, 2021, DCM incurred restructuring expenses of $9.7 million compared to $2.8
million in the same period in 2020. Restructuring costs for the year ended December 31, 2021 related primarily to the
departure of senior executive team members (reorganization initiative to a broader, more horizontal organizational
structure with fewer layers of organization), and included other headcount reductions to direct and indirect labour from
various facilities across DCM as cost savings initiatives to improve gross margin and SG&A including the permanent
termination of a number of employees who had been on temporary lay-off due to COVID-19. Restructuring costs also
included the consolidation costs of the Brampton and Mississauga facilities at the end of 2021, and consolidation of
other smaller SG&A sites throughout the year for which the benefits are expected to be realized in 2022 onwards.
Restructuring costs for the year ended December 31, 2020 related to headcount reductions due to combining billing
and credit/collections into one team for greater synergies across the cash management process and other various
headcount reductions to indirect labour as cost savings initiatives to improve gross margin.
DCM will continue to evaluate its operating costs for further efficiencies as part of its commitment to improving its
gross margins and lowering its selling, general and administration expenses.
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DATA Communications Management Corp.
OTHER INCOME
Other income includes government grant income received from the CEWS (see note 26 of the consolidated financial
statements). DCM has qualified for approximately $4.6 million under the CEWS in 2021. Other income also includes a
one-time gain of $1.5 million in the first quarter of 2021, of which $1.2 million relates to the termination of an option
agreement with an arms' length third party and a former subsidiary, and $0.3 million relates to settlement of an
outstanding litigation.
ADJUSTED EBITDA
For the year ended December 31, 2021, Adjusted EBITDA was $33.3 million or 14.1% of revenues, after adjusting
EBITDA for the $9.7 million in restructuring charges, compared to $41.5 million or 16.0% of revenues for the same
period in 2020. Excluding the CEWS and CERS grant income and the non-cash mark-to-market accruals during the
year of $3.5 million for 2021 and $1.9 million for 2020 (see SG&A discussion), Adjusted EBITDA increased by $1.4
million from prior year. For a reconciliation of net income (loss) to EBITDA and of net income (loss) to Adjusted
EBITDA for the periods noted, see Table 3 above.
The increase in Adjusted EBITDA for the year ended December 31, 2021, excluding the adjustments stated above,
over the prior year comparable period was due to improvement in SG&A related to cost saving initiatives implemented
throughout 2020 and 2021 and other one-time ERP project related expenses no longer applicable in the current year.
This was mitigated by the reduction in revenues due to lower demands resulting from the impact of COVID-19
thereby reducing overall gross margins and net income.
FINANCE COSTS
Finance costs include interest on debt outstanding under DCM’s credit facilities, interest accretion expense related to
certain debt obligations discounts / premiums, interest on pension obligations, debt modification losses, amortization
of debt transaction costs and interest expense on lease liabilities under IFRS 16. For the year ended December 31,
2021, DCM incurred $7.3 million of finance costs compared to $7.3 million for the same period in 2020. Interest
expense for the year ended December 31, 2021 remained consistent with prior year, however there was accretion
income recorded in the fourth quarter of 2020 (due to accelerated repayment of the Company's revolving credit
facility). Total accretion income recorded during the year ended December 31, 2021 was $0.8 million, compared to
$2.9 million in the same period in 2020. Excluding the accretion income, interest expense declined by $2.1 million in
the current year. Interest expense decreased due to a reduction in levels drawn under the Bank Credit Facility
throughout 2021, and a reduction in the FPD Credit Facilities through scheduled repayments over the course of the
year, thereby reducing the interest expense on all facilities. Furthermore, the Crown Facility was refinanced through
funded provided by the Bank and FPD at lower interest rates in the fourth quarter of 2021, however the full effects of
this will be realized in 2022. DCM also repaid the balances owing on the Bolder VTB during the first quarter of 2021
and the Perennial VTB during the second quarter of 2021, resulting in lowered interest expense. Interest expense on
leases liabilities was also lower than the prior year as DCM modified certain leases to reduce the lease terms and
terminate extension options for cost saving initiatives, reducing the lease obligation and associated interest expense.
This decline was offset by an increase in one-time expenses to derecognize the Crown Facility, and prepayment fees
for early termination.
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DATA Communications Management Corp.
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INCOME TAXES
DCM reported income before income taxes of $2.6 million and a net income tax expense of $1.1 million for the year
ended December 31, 2021 compared to income before income taxes of $17.0 million and net income tax expense of
$3.7 million for the same period in 2020. The deferred income tax recovery for the year ended December 31, 2021
was adjusted for any changes in estimates of future reversals of temporary differences.
NET INCOME
Net income for the year ended December 31, 2021 was $1.6 million compared to a net income of $13.3 million for the
same period in 2020.
The decrease in comparable profitability for the year ended December 31, 2021 was primarily due to a reduction in
revenue due to lower demand resulting from the impact of COVID-19, resulting in lower gross margin percentage due
to weaker absorption of fixed overhead costs (receipt of $4.6 million of CEWS and CERS, improvement in
operational efficiencies in SG&A and receipt of other income of $1.5 million of income, mitigated the impact on its
financial performance), a one-time $1.5 million charge for the write-down of intangible assets due to change in
strategy in the fourth quarter of 2021, an increase in restructuring costs incurred for the departure of certain members
of the senior management team, and other headcount reductions to direct and indirect labour from various facilities
across DCM, and restructuring costs for the consolidation of the Brampton and Mississauga facilities at the end of
2021.
ADJUSTED NET INCOME
Adjusted net income for the year ended December 31, 2021 was $7.7 million compared to Adjusted net income of
$15.8 million for the same period in 2020. For a reconciliation of net income (loss) to Adjusted net income for the
periods noted, see Table 4 above.
The decrease in comparable profitability for the year ended December 31, 2021 was primarily due to a reduction in
revenue due to lower demand resulting from the impact of COVID-19, resulting in lower gross margin percentage due
to weaker absorption of fixed overhead costs (which was partially offset by the receipt of $4.6 million of CEWS and
CERS, and improvement in operational efficiencies in SG&A), and a one-time $1.5 million charge for the write-down
of intangible assets due to change in strategy in the fourth quarter of 2021.
Liquidity and capital resources
CREDIT AGREEMENTS
BANK FACILITIES
DCM has established a revolving credit facility (as amended, the “Bank Credit Facility”) pursuant to an agreement
("the Bank Credit Agreement") with a Canadian chartered bank (the “Bank”). Under the terms of the Bank Credit
Agreement, the maximum principal amount available under the Bank Credit Facility is $15.0 million (see Amendments
to Credit Facilities) and the Bank Credit Facility matures on November 8, 2024. Advances under the Bank Credit
Facility may not, at any time, exceed the lesser of $15.0 million and a fixed percentage of DCM’s aggregate accounts
receivable and inventory (less certain amounts). Advances under the amended Bank Credit Facility are subject to
floating interest rates based upon the Canadian prime rate plus an applicable margin of 0.5%. On November 8, 2021,
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DATA Communications Management Corp.
DCM established a term loan ("Bank Term Loan") with the Bank for $10.0 million to in part refinance the Crown
Facility. The Bank Term Loan matures on May 8, 2024 and is subject to a floating interest rate based upon the
Canadian prime rate plus an applicable margin of 3.50%. The amended facility also includes an “accordion” feature
which can provide of up to $10.0 million of additional capacity under the revolving facility. As at December 31, 2021,
DCM had access to $11.5 million of available credit under the Bank Credit Facility. The cash and cash equivalents
balance of $0.9 million shown on the consolidated statement of financial position as at December 31, 2021 represents
outstanding deposits which when cashed would reduce the borrowing under the Bank Credit Facility.
FPD FACILITIES
DCM has four amortizing term loan facilities (the "FPD Credit Facilities" and, collectively with the Bank Credit Facility,
the "Credit Facilities") with Fiera Private Debt Fund III L.P., Fiera Private Debt Fund IV L.P., Fiera Private Debt V L.P.,
and Fiera Private Debt VI L.P. (newly acquired loan in 2021 - see amendments to credit facilities), all of which are
funds managed by Fiera Private Debt Fund GP Inc. ("FPD").
CROWN FACILITY
DCM had a non-revolving term loan facility with Crown Capital Partner Funding, LP, a fund managed by Crown
Capital LP Partner Funding Inc. The total advances under this facility were $19.0 million. Interest of $2.5 million (2020
- $1.9 million) had been deferred and capitalized to the outstanding principal obligation, increasing the total advances
to $21.8 million (2020 - $20.9 million) prior to the refinancing of this debt. These advances were repayable on maturity
on May 7, 2023 and bore interest at 12% per annum, payable quarterly. DCM's obligations under the Crown Facility
were subordinated to its other senior credit facilities and secured by a conventional security on all of the assets of
DCM and its subsidiaries.
A total of 1,510,000 warrants were issued to Crown in connection with these loans which entitle Crown to acquire one
DCM common share per warrant at an exercise price of $0.26. The warrants expire on May 7, 2023.
The Crown Facility was prepayable in full at any time, subject to prepayment fees of: (a) 2% on the principal loan
outstanding if the prepayment option was exercised prior to May 2022 or (b) 1% on the principal loan outstanding if
the prepayment option was exercised thereafter.
During the fourth quarter of 2021, the Crown Facility was prepaid and refinanced through amended and new credit
facilities from the Bank and FPD (see amendments to credit facilities). A prepayment fees of $0.4 million was incurred
which is included within finance costs. The carrying value of the Crown Facility was nil as of December 31, 2021.
AMENDMENTS TO CREDIT FACILITIES
On January 22, 2021, DCM entered into a ninth amendment to its Bank Credit Facility. The applicable margin payable
on DCM's borrowings under the Bank Credit Facility was reduced from 1.35% to 0.60% for an interest rate of 3.05%
taking into account then current floating reference rates and the applicable margin payable by DCM. The Minimum
Cash Flow Requirement covenant (as defined in the Sixth Amending Agreement) was also terminated.
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DATA Communications Management Corp.
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On November 8, 2021, DCM entered into an amended and restated credit facility (the “Amended Bank Facility”) with
the Bank. The Amended Bank Facility includes a revolving credit facility of up to $15.0 million, a term loan of $10.0
million and an “accordion” feature which can provide of up to $10.0 million of additional capacity under the revolving
facility. The term loan will amortize in equal monthly payments over 30 months. The maturity date of the Amended
Bank Facility has been extended from January 31, 2023 to November 8, 2024. The revolving facility is available to
finance the working capital needs of the Company. Advances under the Amended Bank Facility are subject to floating
interest rates based upon the Canadian prime rate plus an applicable margin of 0.50% and 3.50% for the revolving
and term components, respectively. In connection with this amendment, DCM recognized a loss on modification of
$0.3 million, which is included in finance costs in the consolidated statement of operations. For the year-ended
December 31, 2021, DCM capitalized transaction costs of $210.
On December 17, 2021, DCM also entered into an agreement with FPD VI, by its general partner, FPD, pursuant to
which FPD provided an $11.0 million term facility, with a term of 60 months from closing. The FPD VI term loan will
amortize in equal monthly principal payments over 84 months, with the remaining 24 payments at maturity due in a
bullet payment. A fixed interest rate of 5.95% per annum is payable on the FPD VI term loan. For the year-ended
December 31, 2021, DCM capitalized transaction costs of $0.3 million.
Collectively, the proceeds from the new term loans provided by the Bank and FPD, and the drawings on the revolving
facility, were used to repay the $21.5 million Crown Facility.
COVENANT REQUIREMENTS
Each of the Bank Credit Agreement and the FPD 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, FPD III, FPD IV, FPD V and FPD VI as applicable. The Company’s current financial covenant
requirements include a working capital current ratio, total funded debt to EBITDA ratio and a fixed charge coverage
ratio test as well as limits on our annual capital expenditures and total funded debt levels. As of December 31, 2021,
DCM was in compliance with the amended covenants.
INTER-CREDITOR AGREEMENT
DCM's obligations under its Credit Facilities are secured by conventional security charging all of the property and
assets of DCM and its subsidiaries. DCM entered into an amended inter-creditor agreement between the Bank, FPD
III, FPD IV, FPD V, and FPD VI, respectively, which, among other things, establishes the rights and priorities of the
respective liens of the Bank, FPD III, FPD IV, FPD V and FPD VI on the present and after acquired property of DCM
and its subsidiaries.
CASH FLOW FROM OPERATIONS
During the year ended December 31, 2021, cash flows generated by operating activities were $26.9 million compared
to cash flows generated by operating activities of $47.6 million during the same period in 2020. Current period cash
flow from operations, before adjusting for changes in working capital, generated a total of $19.8 million compared with
$31.7 million for the same period last year. Current period cash flows from operations before adjusting for changes in
working capital were lower than the previous period primarily due to a decrease in revenues from lower demand
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DATA Communications Management Corp.
resulting from the impact of the COVID-19 pandemic during the year ended December 31, 2021, thereby reducing net
income and cash inflow. Payments for severances related to DCM's restructuring initiatives and income tax payments
were higher by $0.9 million and $4.0 million, respectively, compared to the same period in 2020.
Changes in working capital during the year ended December 31, 2021 generated $7.1 million in cash compared with
$15.9 million of cash generated in the prior year. This is predominately due to a higher level of collections, with an
offsetting higher level of vendor payments in the prior year as DCM was emerging from the ERP system issues from
2019. During the year ended December 31, 2021, DCM is operating business as usual and resuming normal
collection and repayment terms resulting in a relatively lower level of trade receivable inflow and trade and accrued
liabilities outflow when compared to the same period in 2020. DCM continued to see a high level of collections within
accounts receivable with $15.3 million of inflow, thereby reducing accounts receivable even further.
INVESTING ACTIVITIES
For the year ended December 31, 2021, $3.2 million in cash flows were used for investing activities compared with
$0.8 million during the same period in 2020. The low level of capital expenditures for property, plant and equipment is
consistent with DCM's initiative to reduce expenses during the continuing COVID-19 pandemic, however increased
capital investment in the fourth quarter of 2021 related to the consolidation of the Company’s Mississauga and
Brampton facilities. DCM incurred expenditures for intangible assets for development of a new digital development
project during the second and third quarter of 2021. However, due to a change in its strategy, a one-time charge was
recorded to write-down this intangible asset in the fourth quarter of 2021, recorded in amortization expense.
FINANCING ACTIVITIES
For the year ended December 31, 2021, cash flow used in financing activities was $23.4 million compared with $45.1
million used during the same period in 2020.
DCM made principal repayments under its credit facilities totaling $30.7 million in the year ended December 31, 2021
compared to $32.9 million during the comparative period. The principal repayments made in 2020 were funded
through advances under the Bank Credit Facility ($29.0 million) and normal course repayments on the FPD Credit
Facilities ($3.9 million). In the current year, DCM continued to make draw-downs under its Bank Credit Facility totaling
$2.7 million, continued normal course of repayments on the FPD Credit Facilities for $6.2 million, and commenced
repayment for the new term loan with the Bank for $0.3 million effective December 2021. In the fourth quarter of
2021, the Crown Facility was refinanced through borrowings from FPD and the Bank with a total repayment of $21.8
million to Crown, and an amount of $21.0 million of proceeds received from FPD and the Bank.
$2.2 million of promissory notes were repaid during the year ended December 31, 2021 (including final payments for
the related party promissory notes, Perennial vendor-take back ("Perennial VTB") and Bolder vendor take-back
("Bolder VTB")) compared to $0.5 million repaid on the Perennial VTB in 2020. Lease payments were consistent with
the prior year.
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DATA Communications Management Corp.
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PENSION FUNDING OBLIGATIONS
DCM maintains a defined benefit and defined contribution pension plan (the “DATA Communications Management
Pension Plan”) for some of its employees.
During the year ended December 31, 2020, 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, 2020, the solvency position of the defined benefit provision of the DATA Communications Management
Pension Plan had improved since the previous valuation. Based upon the January 1, 2020 actuarial report, DCM's
annual minimum funding obligation for the defined benefit provision of the DATA Communications Management
Pension Plan for 2021 is $0.6 million and 2022 is $0.4 million.
DCM makes contributions to the Québec Graphic Communication Pension Plan (the “GCPP”), based on a
percentage of the wages of its unionized employees covered by the respective collective bargaining agreements, all
of whom are employed at DCM facilities located in the Province of Québec.
The GCPP is a negotiated contribution defined benefit multi-employer pension plan which provides retirement
benefits to unionized employees in the printing industry. The GCPP is administered by a joint Board of Trustees
composed of representatives of participating employers and of the unions representing plan members in collective
bargaining. Based upon the terms of those applicable collective agreements, DCM’s estimated annual negotiated
contribution to the GCPP for 2022 is $0.5 million.
The GCPP’s most recent funding actuarial report (as at December 31, 2019) disclosed a going concern surplus of
112% and that negotiated contributions are in excess of the current service cost of the plan. On a solvency basis (or
wind up basis) the valuation shows a deficit and a solvency ratio of 79%. No actuarial valuation was required for the
GCPP for the year ended December 31, 2020.
Bill 34 was adopted by Québec in April 2015 to clarify Québec pension legislation for negotiated contribution defined
benefit multi-employer pension plans to, among other things:
•
•
•
limit required employer contributions only to those amounts specified in the applicable collective agreements
negotiated with the relevant unions;
eliminate the employer's obligation to fund deficiencies;
require the Board of Trustees to develop and implement a recovery plan when the negotiated contributions
are not sufficient to fund the plan, including the reduction of accrued benefits of all members.
Outstanding share data
At March 28, 2022 and December 31, 2021, there were 44,062,831 common shares of DCM (“Common Shares”)
outstanding. At December 31, 2020, there were 43,867,030 Common Shares outstanding.
At March 28, 2022 and December 31, 2021, there were options outstanding to purchase up to 3,950,886 Common
Shares. At December 31, 2020, there were options outstanding to purchase up to 1,587,486 Common Shares.
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DATA Communications Management Corp.
During the year ended December 31, 2021, options to purchase up to 2,500,000 common shares were awarded to
DCM's new President and CEO. Once vested, the options are exercisable for a period of seven years from the grant
date at an exercise price of $0.69 per share, representing the fair value of the Common Shares on the date of grant.
Of the total options granted, 1,000,000 options vested immediately. The remaining 1,500,000 options vest at a rate of
1/3 each year beginning on March 7, 2022.
During the year ended December 31, 2021, options to purchase up to 125,000 common shares were awarded to the
Chief Financial Officer ("CFO"). Once vested, the options are exercisable for a period of seven years from the grant
date at an exercise price of $0.85 per share, representing the fair value of the Common Shares on the date of grant.
All 125,000 options vest at a rate of 1/3 each year beginning on May 14, 2022.
At March 28, 2022 and at December 31, 2021, there were warrants outstanding to purchase up to 1,863,607
Common Shares. At December 31, 2020, there were warrants outstanding to purchase up to 1,920,092 Common
Shares.
On February 3, 2021, DCM issued 67,866 warrants in connection with the Related Party Promissory Notes. Each
warrant entitles the holder to acquire one Common Share at an exercise price of $0.32 for a period of 2.25 years,
commencing on February 3, 2021.
Financial instruments and Risk management
DCM’s financial instruments consist of cash, restricted cash, trade receivables, bank overdraft, trade payables and
accrued liabilities, credit facilities, promissory notes and lease liabilities, as indicated in DCM’s statements of
consolidated financial position as at December 31, 2021 and December 31, 2020, respectively. All of DCM's financial
instruments are non-derivative in nature. DCM does not enter into financial instruments for trading or speculative
purposes.
FAIR VALUE
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.
The fair value for other non-derivative financial instruments such as cash, trade receivables, bank overdraft, trade
payables and accrued liabilities approximates their carrying value because of the short-term maturity of these
instruments. The fair value of restricted cash approximates its carrying value because it is a deposit held with a
Canadian chartered bank. Credit facilities, promissory notes and lease liabilities are initially recognized at the
discounted present value of the amounts required to be paid to derive its fair value and are then measured at
amortized costs using the effective interest method, less any impairment losses.
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CREDIT RISK
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its
contractual obligations. Financial instruments that potentially subjected DCM to credit risk consisted of cash,
restricted cash and trade receivables. The carrying amount of assets included in the consolidated statements of
financial position represents the maximum credit exposure.
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 60 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 agencies that are not concentrated
in any specific geographic area. DCM does not believe that any single industry or geographic region represents
significant credit risk. Credit risk concentration with respect to trade receivables is mitigated by DCM’s large client
base.
To measure the ECLs, trade receivables, including unbilled receivables, have been grouped based on similar credit
risk characteristics, past due status and other relevant factors. The expected default rates are calculated based on
management’s estimate as well as historical credit losses. The historical loss rates are adjusted to reflect current and
forward-looking information on economic factors affecting the ability of the customers to settle the trade receivable.
On that basis, the loss allowance as at December 31, 2021 was determined using default rates under the provision
matrix for an amount of $1.3 million (2020 – $0.7 million), of which $0.8 million (2020 – $0.3 million) relates to unbilled
receivables.
The following default rates are used to calculate the ECLs on billed receivables as at December 31, 2021 and
Total
Current
period
Over 30
days
Over 60
days
Over 90
days
$35,643
$533
0.32%
$19,351
$61
0.57%
$10,429
$59
0.65%
$2,863
$19
13.14%
$3,000
$394
Total
Current
period
Over 30
days
Over 60
days
Over 90
days
$46,747
$352
0.17%
$22,933
$39
0.33%
$10,607
$35
0.35%
$5,763
$20
3.47%
$7,444
$258
December 31, 2020, respectively:
December 31, 2021 (in thousands of
Canadian dollars, except percentage
amounts)
Default rates
Billed receivables balance
Billed receivables ECL
December 31, 2020 (in thousands of
Canadian dollars, except percentage
amounts)
Default rates
Billed receivables balance
Billed receivables ECL
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DATA Communications Management Corp.
The following default rates are used to calculate the ECLs on unbilled receivables as at December 31, 2021 and
December 31, 2020, respectively:
December 31, 2021 (in thousands of Canadian
dollars, except percentage amounts)
Unbilled receivables
Unbilled receivables balance
Unbilled receivables ECL
Total
17,207
$750
Less than
30 days
Over 30
days
Over 60
days
Over 90
days
0.22%
5,111
$11
0.47%
2,245
$11
1.07%
2,138
$23
9.14%
7,713
$705
December 31, 2020 (in thousands of Canadian
dollars, except percentage amounts)
Total
Current
period
Over 30
days
Over 60
days
Over 90
days
Default rates
Unbilled receivables balance
Unbilled receivables ECL
$19,195
$300
0.18%
$6,556
$12
0.40%
$2,125
$9
0.80%
$1,018
$8
2.85%
$9,496
$271
At the end of each reporting period, management re-assesses the default rates. Default rates are applied to the billed
and unbilled receivable balances to calculate the credit default reserve. 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. When collection efforts have been
reasonably exhausted, specific balances are written off. As at December 31, 2021 the Company has $3.0 million
(8%) of its billed receivables that are over 90 days old (2020 - $7.4 million or 16%).
LIQUIDITY RISK
In assessing DCM’s liquidity requirements, DCM takes into account its level of cash, together with currently projected
cash to be provided by operating activities, cash available from its unused credit facilities, cash from investing
activities such as sales of redundant assets, access to the capital markets and anticipated reductions in operating
costs projected to result from existing restructuring activities, as well as its ongoing cash needs for its existing
operations.
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, and the FPD Credit Facilities, as amended, or other indebtedness of DCM.
The continued ability to comply with financial covenants on the Company's credit facilities for at least the next twelve
months is contingent on management’s ability to meet budgeted revenue, profitability and working capital targets. The
estimate of future cash flows in the Company’s 2022 budget include a number of key assumptions to support the
financial covenant calculations, specifically related to forecast revenues and gross margins (which in turn impact
earnings before interest, income taxes, depreciation and amortization (EBITDA)). The estimates of forecasted
compliance with financial covenants (particularly for the fixed charge coverage ratio) are sensitive to those
assumptions including the ongoing impact of the COVID-19 pandemic and other inflationary pressures, the effects
and duration of which are difficult to project with respect to the Company’s business and financial results. For
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DATA Communications Management Corp.
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example a shortfall in our budgeted EBITDA of 6% for February through to November 2022 could result in the breach
of our fixed charge coverage ratio covenant. The estimate of future cash flows in the Company’s forecasts took into
consideration the uncertainty of the continued impact of the COVID-19 pandemic coupled with other inflationary
pressures on both the wider macro-economic environment and the ongoing demand for the Company’s services.
Management are satisfied that the Company’s forecasts and projections, taking account of reasonably possible
changes in results and other uncertainties will not result in any breach of the financial covenants on its credit facilities.
Management continues to assess the expected effects of the COVID-19 pandemic and other inflationary pressures
on DCM’s future business, financial condition, operating results, cash flows and working capital levels. Because the
extent and duration of the impact of the COVID-19 pandemic and other inflationary pressures are uncertain, the
continuing effects of these events could materially affect DCM's ability to comply with the fixed charge coverage ratio
financial covenant in its credit facility agreements. If over the course of the next year, market conditions do not
improve or deteriorate further, DCM may need to take additional short-term cost control actions and/or undertake
further restructuring programs to ensure the Company remains in compliance with the financial covenants in its Credit
Facility agreements or seek covenant waivers from its lenders. The Company has concluded that it will remain in
compliance with the covenants of its Credit Facility agreements and as a result, will have adequate access to liquidity
to satisfy its obligations within one year after the date the financial statements are issued.
There can be no assurances that DCM will be successful in meeting its financial covenants for at least the next twelve
months or that future waivers will be provided by the lenders if the covenants are not met.
Liquidity risk is the risk that DCM may encounter difficulties in meeting obligations associated with financial liabilities
as they become due. DCM believes that the currently projected cash flow 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 or investment in new 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 contains additional information on the contractual undiscounted cash flows of DCM’s significant
financial liabilities and the future commitments of the Company.
As at December 31, 2021, DCM had access to $11.5 million of available credit under the Bank Credit Facility.
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. DCM’s interest rate risk arises from credit facilities issuances at floating interest rates.
At December 31, 2021, $3.0 million of DCM’s indebtedness outstanding was subject to floating interest rates of
2.95% per annum and $9.7 million of DCM's indebtedness outstanding was subject to floating interest rates of 5.95%.
At December 31, 2021, $1.7 million of DCM’s indebtedness outstanding was subject to a fixed interest rate of 6.1%
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DATA Communications Management Corp.
per annum, $11.6 million was subject to a fixed rate of interest of 6.95% per annum, $11.0 million was subject to a
fixed rate of 5.95% per annum and $9.7 million was subject to a fixed rate of 5.95% per annum.
CURRENCY RISK
Currency risk is the risk that the fair value of future cash flows arising from a financial instrument will fluctuate
because of changes in foreign currency exchange rates. In the normal course of business, DCM does not have
significant foreign exchange transactions and, accordingly, the amounts and currency risk are not expected to have
adverse material impact on the operations of DCM. Management considers the currency risk to be low and does not
hedge its currency risk and therefore sensitivity analysis is not presented.
Note 22 to the audited consolidated financial statements of DCM for the year ended December 31, 2021 contains
additional information on DCM’s financial instruments.
Contractual obligations
DCM believes 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, 2021. Short-term
commitments such as month-to-month office leases, which are easily cancelled, are excluded from this definition.
DCM believes that its existing cash resources and projected cash flows from operations will be sufficient to fund its
currently projected operating requirements and that it will continue to remain compliant with its covenants and other
obligations under its credit facilities.
TABLE 5
The following table sets out DCM's significant contractual obligations and commitments as of
December 31, 2021.
(in thousands of Canadian dollars, unaudited)
Pension funding contributions (1)
Lease liabilities
Long-term debt (2)
Total
Total
Less than
a year
1 to 3 years
4 years and
greater
3,186 $
$
$ 58,289
$ 41,108
$ 102,583 $
1,055 $
8,298
13,685
23,038 $
1,068 $
18,086
22,467
41,621 $
1,063
31,905
4,956
37,924
(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) Credit facilities as at December 31, 2021 subject to floating interest rates consisting of the Bank Credit Facility,
expiring on November 8, 2024, and the Bank Term Loan, expiring on May 8, 2024. As at December 31, 2021,
the outstanding balances totaled $3.0 million and $9.7 million, respectively, and bore interest at a floating rate of
2.95% and 5.95%, respectively, per annum. The amounts at December 31, 2021 include estimated interest
totaling $0.6 million for 2022, $0.3 million for 2023, and $0.1 million for 2024. The estimated interest was
calculated based on the total borrowings outstanding at the end of the year and the annual floating interest rate
in effect as at December 31, 2021. Credit facilities at December 31, 2021 subject to fixed interest rates
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DATA Communications Management Corp.
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consisting of the FPD III Credit Facility, expiring on October 15, 2022, the FPD IV Credit Facility, expiring on
March 10, 2023, the FPD V Credit Facility expiring on May 15, 2023 and the FPD VI Facility expiring on
December 15, 2026. As at December 31, 2021, the outstanding balances totaled $11.6 million and bore interest
at a fixed rate of 6.1% per annum, of 6.95% per annum, of 6.95% per annum, and of 5.95% per annum,
respectively. Monthly blended principal and interest payments of $0.1 million, of $0.4 million and of $0.1 million,
respectively, and $0.1 million of principal payments for FPD VI.
Transactions with related parties
During the year ended December 31, 2021, there were regular intercompany activities between DCM and its
subsidiaries 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.
On January 4, 2021, DCM entered into an agreement with PBI, an arms’ length third party and former subsidiary of
DCM, pursuant to which DCM agreed to terminate an option to purchase an equity interest in PBI acquired by DCM in
connection with the prior disposition of PBI. DCM received total gross proceeds of $1.2 million as consideration for
terminating the option.
These transactions are measured at the exchange amount, which represents the amount of consideration established
and agreed to by the related parties.
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DATA Communications Management Corp.
Operating results for the fourth quarter of 2021 and 2020
TABLE 6
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,
2021
Revenues
Cost of revenues
Gross profit
Selling, general and administrative expenses (1)
Restructuring expenses
Income before finance costs, other income and income taxes
Finance costs
Interest expense, net
Debt modification losses
Amortization of transaction costs
Other Income
Government grant income
(Loss) income before income taxes
Income tax (recovery) expense
Current
Deferred (1)
Net (loss) income for the period
Adjusted EBITDA (see Table 7)
Adjusted net (loss) income (see Table 8)
Adjusted net income per share, basic and diluted
$
$
$
$
$
60,871 $
43,158
17,713
15,431
2,282
17,713
—
1,124
473
503
2,100
55
(2,045)
183
(371)
(188)
(1,857) $
7,270 $
(200) $
0.00 $
October 1 to
December 31,
2020
(Restated)
60,589
45,581
15,008
12,375
748
13,123
1,885
260
78
146
484
1,780
3,181
(754)
561
(193)
3,374
7,387
3,946
0.08
Weighted average number of common shares outstanding, basic
44,062,831
43,442,668
Weighted average number of common shares outstanding, diluted
46,439,445
44,258,933
Number of common shares outstanding, basic
Number of common shares outstanding, diluted
44,062,831
43,867,030
46,439,445
44,683,295
(1) SG&A and deferred income tax expense include the impact of the IFRS Interpretations Committee’s agenda decision regarding
configuration or customization costs in a cloud computing arrangement. Prior periods have been retrospectively restated to
derecognize previously capitalized costs in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors. Refer to note 3 of the consolidated financial statements for the year ended December 31, 2021 for further details on the
impact of the amended accounting standard.
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DATA Communications Management Corp.
. . M D & A . .
TABLE 7
The following table provides reconciliations of net income to EBITDA and of net income to Adjusted
EBITDA for the periods noted. See “Non-IFRS Measures” section above for more details.
EBITDA and Adjusted EBITDA reconciliation
(in thousands of Canadian dollars, unaudited)
Net (loss) income for the period (1)
Interest expense, net
Debt modification losses and prepayment fees
Amortization of transaction costs
Current income tax expense (recovery)
Deferred income tax (recovery) expense (1)
Depreciation of property, plant and equipment
Amortization of intangible assets (1)
Depreciation of the ROU Asset
EBITDA
Restructuring expenses
One-time business reorganization costs (2)
Adjusted EBITDA
October 1 to
December 31,
2021
October 1 to
December 31,
2020
(Restated)
$
(1,857) $
3,374
1,124
473
503
183
(371)
731
2,282
1,920
4,988 $
2,282
—
7,270 $
260
78
146
(754)
561
762
522
1,674
6,623
748
16
7,387
$
$
(1) SG&A and deferred income tax expense include the impact of the IFRS Interpretations Committee’s agenda decision regarding
configuration or customization costs in a cloud computing arrangement. Prior periods have been retrospectively restated to
derecognize previously capitalized costs in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors. Refer to note 3 of the consolidated financial statements for the year ended December 31, 2021 for further details on the
impact of the amended accounting standard.
(2) One-time business reorganization costs include non-recurring headcount reduction expenses for employees that did not qualify
as restructuring costs.
TABLE 8
The following table provides reconciliations of net (loss) income to Adjusted net (loss) income. See
“Non-IFRS Measures” section above for more details.
Adjusted net (loss) income reconciliation
(in thousands of Canadian dollars, unaudited)
Net (loss) income for the period (1)
Restructuring expenses
One-time business reorganization costs (1)
Tax effect of above adjustments
Adjusted net (loss) income
October 1 to
December 31,
2021
October 1 to
December 31,
2020
(Restated)
$
(1,857) $
3,374
2,282
—
(625)
(200) $
748
16
(192)
3,946
$
(1) SG&A and deferred income tax expense include the impact of the IFRS Interpretations Committee’s agenda decision regarding
configuration or customization costs in a cloud computing arrangement. Prior periods have been retrospectively restated to
derecognize previously capitalized costs in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors. Refer to note 3 of the consolidated financial statements for the year ended December 31, 2021 for further details on the
impact of the amended accounting standard.
(2) One-time business reorganization costs include non-recurring headcount reduction expenses for employees that did not qualify
as restructuring costs.
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DATA Communications Management Corp.
REVENUES
For the quarter ended December 31, 2021, DCM recorded revenues of $60.9 million, an increase of $0.3 million or
0.5% compared with the same period in 2020. For the quarter ended December 31, 2021, revenue was in line with
the prior period, which represents a positive sign that the business is firming up as we emerge from the COVID-19
pandemic and start to experience some tailwinds in recovery with openings across the country.
COST OF REVENUES AND GROSS PROFIT
For the quarter ended December 31, 2021, DCM recorded cost of revenues of $43.2 million, a decrease of $2.4
million or 5.3% from $45.6 million for the same period in 2020.
Gross profit for the quarter ended December 31, 2021 was $17.7 million, an increase of $2.7 million or 18.0% from
$15.0 million for the same period in 2020. Gross profit as a percentage of revenues for the quarter ended December
31, 2021 was 29.1%, an increase from the prior year in 2020 of 24.8%. Gross profit as a percentage of revenues for
the quarter ended December 31, 2021 was positively impacted by (i) improved relative business mix, (ii) realizing the
full benefits from the cost saving initiatives implemented throughout 2020 and 2021, resulting in a reduction in
salaries and wages, including the departure of senior executive team members, (iii) other temporary lay-offs,
reduction in casual labour and other cost saving measures in reaction to the impact of COVID-19 on the business, (iv)
improved management of purchasing inventory and other direct costs, and (iv) continued discipline to improve pricing
with customers, including improvement in freight pricing to achieve positive margins. The consolidation of the
Brampton and Mississauga facility at the end of 2021 is expected to realize further cost efficiencies in 2022 onwards,
and the full year benefits from the consolidation of the Calgary and Edmonton facilities in June 2021 are also
expected to be realized in 2022.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the quarter ended December 31, 2021 were $15.4 million or 25.4% of total revenues, an increase
of $3.1 million or 25%, from $12.4 million, or 20.4% of total revenues, in the same period in 2020. The increase in
SG&A expenses for the quarter ended December 31, 2021 was due to an increase in general and administrative
expenses of $1.9 million and an increase in selling, commissions and expenses by $1.2 million. General and
administrative expenses included a non-cash mark-to-market accrual for RSUs and DSUs to reflect the increase in
share price. For the quarter ended December 31, 2021, the total compensation expense for DSUs and RSUs was
$1.4 million as compared to $1.1 million in 2020, an increase of $0.3 million from the same period in 2020. DCM’s
share price increased during the fourth quarter by 28.0%, from a closing price of $1.00 on September 30, 2021 to
$1.28 on December 31, 2021. Furthermore, there was a one-time $1.5 million charge for the write-down of intangible
assets due to a change in strategy in the fourth quarter of 2021, which was classified as amortization expense.
Excluding this mark-to-market adjustment and one-time charge, total SG&A would have only increased by $1.3
million, with an increase in selling, commissions and expenses by $1.2 million and general and administrative
expense by only $0.1 million. The increase in selling, commissions and expenses was primarily attributable to higher
sales commission costs commensurate with the increase in revenues and other discretionary compensation expense.
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DATA Communications Management Corp.
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RESTRUCTURING EXPENSES
For the quarter ended December 31, 2021, DCM incurred a net restructuring expense of $2.3 million compared to
restructuring recovery of $0.7 million in the same period in 2020. For the quarter ended December 31, 2021, DCM
incurred a restructuring expense of $2.3 million primarily related to the consolidation of the Brampton and
Mississauga facilities at the end of 2021, and other various headcount reductions to indirect labour as cost savings
initiatives to improve gross margin.
ADJUSTED EBITDA
For the quarter ended December 31, 2021, Adjusted EBITDA was $7.3 million, or 11.9% of revenues, after adjusting
EBITDA for the $2.3 million in restructuring expense, compared with an Adjusted EBITDA of $7.4 million or 12.2% of
revenues for the same period in 2020. Excluding the CEWS and CERS grant income and the non-cash mark-to-
market accruals during the year of $1.4 million for the fourth quarter of 2021 and $1.1 million for the fourth quarter of
2020 (see SG&A discussion), Adjusted EBITDA increased by $1.8 million from prior year. For a reconciliation of net
income (loss) to EBITDA and of net income (loss) to Adjusted EBITDA for the periods noted, see Table 7 above.
The decrease in Adjusted EBITDA, for the quarter ended December 31, 2021 was primarily attributable to the lower
CEWS and CERS grant income and higher SG&A.
FINANCE COSTS
Finance costs include interest on debt outstanding under DCM’s credit facilities, interest accretion expense related to
certain debt obligations discounts / premiums, interest on pension obligations, debt modification losses, amortization
of debt transaction costs and interest expense on lease liabilities under IFRS 16. For the quarter ended December
31, 2021, finance costs were $2.1 million compared to $0.5 million for the same period in 2020. Interest expense for
the quarter ended December 31, 2021 shows an increase, however this is as a result of accretion income recorded in
the fourth quarter of 2020 (due to accelerated repayment of the revolver). Total accretion income recorded year
ended December 31, 2021 was $0.3 million, compared to $1.7 million in the same period in 2020. Excluding the
accretion income, interest expense was only higher by $0.2 million. Interest expense decreased due to a reduction in
levels drawn under the Bank Credit Facility throughout 2021, and a reduction in the FPD Credit Facilities through
scheduled repayments over the course of the year, thereby reducing the interest expense on all facilities.
Furthermore, the Crown Facility was refinanced through the Bank and FPD at lower interest rates, however the full
effects of this are expected to be realized in 2022. DCM also repaid the balances owing on the Bolder VTB during the
first quarter of 2021 and the Perennial VTB during the second quarter of 2021, resulting in lowered interest expense.
This decline was offset by an increase in one-time expenses to derecognize the Crown Facility, and prepayment fees
for early termination.
INCOME TAXES
DCM reported an income before income taxes of $2.0 million and a net income tax recovery of $0.2 million for the
quarter ended December 31, 2021 compared to an income before income taxes of $3.2 million and a net income tax
recovery of $0.2 million for the quarter ended December 31, 2020.
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DATA Communications Management Corp.
NET (LOSS) INCOME
Net loss for the quarter ended December 31, 2021 was $1.9 million compared to net income of $3.4 million for the
quarter ended December 31, 2020. For a reconciliation of net (loss) income to Adjusted net (loss) income for the
periods noted, see Table 8 above.
Despite the improvement in gross margin, there was a decrease in comparable profitability for the quarter ended
December 31, 2021 due to the receipt of modest CEWS grant income in 2021 compared to the prior year of $1.8
million, and higher level of expenses including restructuring costs, finance costs and the one-time charge of $1.5
million for the write-down of an intangible asset as discussed above.
ADJUSTED NET (LOSS) INCOME
Adjusted net loss for the quarter ended December 31, 2021 was $0.2 million compared to adjusted net income of
$3.9 million for the same period in 2020. Despite the improvement in gross margin, the adjusted net income for the
quarter ended December 31, 2021 declined due to the receipt of modest CEWS grant income in 2021 compared to
the prior year of $1.8 million and higher level of expenses including finance costs and the one-time charge of $1.5
million for the write-down of an intangible asset as discussed above.
Summary of eight quarter results
TABLE 9
The following table summarizes quarterly financial information for the past eight quarters.
(in thousands of Canadian dollars, except per share amounts, unaudited)
2021
Q4
Q3
Q2
Q1
Q4
2020
Q3
Q2
Q1
(Restated)
(Restated)
(Restated)
(Restated)
(Restated)
(Restated)
(Restated)
$ 60,871 $ 56,892 $ 55,207 $ 62,361 $ 60,589 $ 57,374 $ 63,936 $ 77,415
(1,857)
1,023
637
1,762
3,374
2,583
4,682
2,660
(0.04)
0.02
0.01
0.04
0.08
0.06
0.11
0.06
(0.04)
0.02
0.01
0.04
0.08
0.06
0.11
0.06
Revenues
Net income (loss)
attributable to
shareholders
Basic earnings (loss)
per share
Diluted earnings (loss)
per share
The variations in DCM’s quarterly revenues and net income (loss) over the eight quarters ended December 31, 2021
can be attributed to several principal factors: the impact of COVID-19 which commenced in the second quarter of
2020, increases in the costs of freight, paper, ink, and other raw material inputs used by DCM in the conduct of its
business; supply chain disruptions which impacted operations; 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, refinement of DCM's pricing discipline, the impact of paper and other raw
materials price increases and compressed margins on contracts with certain existing customers, debt modification
losses, and restructuring expenses and business reorganization costs related to DCM’s ongoing productivity
improvement and cost reduction initiatives. All figures above have been restated to include the impact of the IFRS
Interpretations Committee’s agenda decision regarding configuration or customization costs in a cloud computing
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DATA Communications Management Corp.
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arrangement. Refer to note 3 of the consolidated financial statements for the year ended December 31, 2021 for
further details on the impact of the amended accounting standard.
DCM’s net income for the fourth quarter of 2021 included improved margins due to cost saving initiatives, increases in
the costs of freight, paper, ink, and other raw material inputs used by DCM in the conduct of its business; supply
chain disruptions which impacted operations, receipt of CEWS of $0.1 million, and restructuring expenses of $2.3
million. DCM’s net income for the fourth quarter of 2020 included reduction in revenues due to COVID-19, improved
margins due to COVID-19 related cost saving initiatives and restructuring initiatives from the third and fourth quarter
of 2019, receipt of CEWS of $1.8 million, and restructuring expenses of $0.7 million.
DCM’s net income for the third quarter of 2021 included reduction in revenues and margins due to COVID-19, receipt
of CERS of $0.2 million, and restructuring expenses of $3.1 million. DCM’s net income for the third quarter of 2020
included reduction in revenues due to COVID-19, improved margins due to COVID-19 related cost saving initiatives
and restructuring initiatives from the third and fourth quarter of 2019, receipt of CEWS of $2.8 million, restructuring
expenses of $1.1 million, and $0.1 million of one-time business reorganization costs that did not qualify as a
restructuring expense.
DCM’s net income for the second quarter of 2021 included reduction in revenues and margins due to COVID-19, one
time fair market value adjustment of RSUs and DSUs of approximately $2.0 million included in cost of sales and
SG&A, receipt of CEWS and CERS of $2.4 million, and restructuring expenses of $0.9 million. DCM’s net income for
the second quarter of 2020 included reduction in revenues due to COVID-19, improved margins due to COVID-19
related cost saving initiatives and restructuring initiatives from the third and fourth quarter of 2019, receipt of CEWS
and CERS of $4.5 million, restructuring expenses of $0.3 million, and $0.3 million of one-time business reorganization
costs that did not qualify as a restructuring expense.
DCM’s net income for the first quarter of 2021 included reduction in revenues due to COVID-19, improved margins
due to cost saving initiatives implemented throughout 2020 and the first quarter of 2021, receipt of CEWS and CERS
of $1.9 million, restructuring expenses of $3.4 million, and $1.5 million of other income. DCM’s net income for the first
quarter of 2020 included improved margins due to restructuring initiatives from the third and fourth quarter of 2019,
and restructuring expenses of $0.7 million related to its cost reduction initiatives.
Accounting policies
CHANGES IN ACCOUNTING POLICIES
The accounting policies used in the preparation of the consolidated financial statements are outlined in notes 2 and 3
of the Notes to the consolidated financial statements of DCM for the year ended December 31, 2021.
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DATA Communications Management Corp.
NEW AND AMENDED STANDARDS ADOPTED
CONFIGURATION OR CUSTOMIZATION COSTS IN A CLOUD COMPUTING ARRANGEMENT (IAS 38)
In April 2021 the IFRS Interpretations Committee published an agenda decision clarifying how configuration and
customization costs incurred in implementing a cloud computing arrangement should be accounted for. In that
agenda decision certain configuration and customization activities undertaken in implementing such arrangements
may give rise to a separate asset in limited circumstances where the company controls the intellectual property of the
underlying software code (e.g. the development of bridging modules to existing on-premise systems or bespoke
additional software capability). In all other instances, configuration and customization costs are to be expensed as
incurred as an operating expense.
Where a change in accounting policy is required, comparative financial information is to be retrospectively restated to
derecognize previously capitalized costs in accordance with IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors.
The company previously capitalized $12,037 of costs as an intangible asset relating to the 2019 implementation of its
cloud-based ERP system which was being amortized over its estimated useful life of 5 years. Management
determined that none of these costs would qualify to be capitalized and amortized in accordance with the IFRS
Interpretations Committee’s agenda decision and would be required to be expensed in the period the costs were
incurred. The adoption of the interpretation was implemented retrospectively. The following table summarizes the
impact on DCM’s consolidated statement of financial position:
(in thousands of Canadian dollars)
Intangible assets
Deferred tax asset
Deficit
December 31, 2019
prior to the adoption
Impact
December 31, 2019
after the adoption
$
18,167 $
6,648
(260,493)
(10,621) $
2,683
(7,938)
7,546
9,331
(268,431)
(in thousands of Canadian dollars)
Intangible assets
Deferred tax asset
Deficit
December 31, 2020
prior to the adoption
Impact
December 31, 2020
after the adoption
$
14,459 $
3,163
(249,697)
(8,218) $
2,073
(6,145)
6,241
5,236
(255,842)
The following table summarizes the impact on DCM’s consolidated statement of operations for the year ended
December 31, 2020:
(in thousands of Canadian dollars)
General and administration expense
Deferred tax expense
Year ended
December 31, 2020
prior to the adoption
Impact
Year ended
December 31, 2020
after the adoption
$
32,460 $
3,598
(2,405) $
607
30,055
4,205
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The following table summarizes the impact on DCM’s consolidated statement of cash flows for the year ended
December 31, 2020:
(in thousands of Canadian dollars)
Net income for the year
Amortization of intangible assets
Income tax expense
Year ended
December 31, 2020
prior to the adoption
Impact
Year ended
December 31, 2020
after the adoption
$
11,506 $
4,279
3,107
1,793 $
(2,403)
610
13,299
1,876
3,717
IFRS 16 COVID-19-RELATED RENT CONCESSIONS
In May 2020, the IASB issued an amendment to IFRS 16 to provide lessees with an exemption from assessing
whether a COVID-19-related rent concession is a lease modification. This amendment to IFRS 16 was adopted
effective January 1, 2021 and did not have an impact on the consolidated financial statements.
IBOR REFORM
In recent years, global regulators have prioritized the reform and replacement of benchmark interest rates such as
LIBOR and other interbank offered rates (IBORs). As a result, public authorities and other market participants are
selecting new benchmark interest rates in key currencies with the objective that such rates will be based on liquid
underlying market transactions. With this reform, the IASB have provided amendments to IFRS 9 - Financial
Instruments, IFRS 7 - Financial Instruments: Disclosures and IAS 39 - Financial Instruments: Recognition and
Measurement. The amendments were adopted effective January 1, 2021 and applied retrospectively and the
adoption did not have an impact on the consolidated financial statements.
FUTURE ACCOUNTING STANDARDS NOT YET ADOPTED
IAS 1 PRESENTATION OF FINANCIAL STATEMENTS: CLASSIFICATION OF LIABILITIES AS CURRENT OR
NON-CURRENT
In January 2020, the IASB issued Classification of Liabilities as Current or Non-current (Amendments to IAS 1). The
amendments aim to promote consistency in applying the requirements by helping companies determine whether debt
and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be
settled within one year) or non-current. The amendments include clarifying the classification requirements for debt a
company might settle by converting it into equity. The amendments are effective for annual reporting periods
beginning on or after January 1, 2022, with earlier application permitted. DCM is currently evaluating the impact of
this amendment.
IFRS 3 REFERENCE TO CONCEPTUAL FRAMEWORK
In May 2020, the IASB issued an amendment to IFRS 3 to (i) clarify references to the 2018 Conceptual Framework in
order to determine what constitutes an asset or liability in a business combination, (ii) add an exception for certain
liabilities and contingent liabilities to refer to IAS 37 or IFRIC 21 and (iii) clarify that an acquirer should not recognize
contingent assets at the acquisition date. The mandatory effective date would be annual periods beginning on or after
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DATA Communications Management Corp.
January 1, 2022, with early adoption permitted. The amended standard is not expected to have a significant impact
on the consolidated financial statements.
IAS 37 ONEROUS CONTRACTS: COST OF FULFILLING A CONTRACT
In May 2020, the IASB issued an amendment to IAS 37 to clarify which costs to include in estimating the cost of
fulfilling a contract for the purpose of assessing whether that contract is onerous. The mandatory effective date would
be annual periods beginning on or after January 1, 2022, with early adoption permitted. The amended standard is not
expected to have a significant impact on the consolidated financial statements.
IFRS 9 FINANCIAL INSTRUMENTS: FEES IN THE '10 PER-CENT' TEST FOR DERECOGNITION OF FINANCIAL
LIABILITIES
In May 2020, the IASB issued Annual Improvements to IFRS Standards 2018 - 2020. This amendment clarifies which
fees an entity includes when it applies the ‘10 per cent’ test of IFRS 9 in assessing whether to derecognize a financial
liability. An entity includes only fees paid or received between the entity and the lender, including fees paid or received
by either the entity or the lender on the other’s behalf. The mandatory effective date would be for annual periods
beginning on or after January 1, 2022 with early application permitted. The amended standard is not expected to
have a significant impact on the consolidated financial statements.
There are no other IFRS or International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations that
are not yet effective that would be expected to have a significant impact on DCM.
Critical accounting estimates and judgments
The preparation of the financial statements requires management to make judgments, estimates and assumptions
that are not readily apparent from other sources about the carrying amounts of assets and liabilities, and reporting of
income and expenses. The estimates and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ materially from these estimates. The estimates
and underlying assumptions are reviewed on an ongoing basis. 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 affects both current and future periods.
IMPAIRMENT OF GOODWILL
Goodwill is tested for impairment annually at the end of each fiscal year or more frequently if events or changes in
circumstances indicate there may be impairment. The determination of the impairment of goodwill is impacted by the
determination of the CGUs, estimates of the recoverable value of those CGUs, assumptions of future cash flows, and
achieving forecasted business results.
In Q1 2021, the Company changed the structure of its internal organization and senior leadership team under the
leadership of the new CEO as DCM continues to evolve into an integrated marketing and business solutions provider
to it's customers. As a consequence, in management’s judgment DCM now has a single goodwill CGU, being the
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Company as a whole, reflecting the manner in which the operating results are being reviewed by the CODM to make
decisions about resources to be allocated and to assess the Company's performance.
The recoverable amount of this CGU was determined based on its estimated fair value less cost of disposal using a
discounted cash flow method. Management applied considerable judgment in estimating the recoverable amounts of
its CGU, which included the use of key assumptions relating to revenue growth rates, gross margins and discount
rates. Changing the assumptions selected by management, in particular the projected revenue growth rates, gross
margins, and discount rate assumptions used in the cash flow projections, could significantly affect the result of
DCM's impairment analysis.
GOING CONCERN
The assessment of events or conditions that may cast significant doubt on the Company’s ability to continue as a
going concern involves considerable judgment as there continues to be significant uncertainty as to the duration and
impact that the current COVID-19 pandemic and other inflationary pressures could have on the Company's financial
performance, and accordingly its ability to achieve its forecasted business results and meet its future financial
covenants over the next twelve months.
REVENUE RECOGNITION
a) Allocating the transaction price to separate performance obligations on bundled contracts
Certain of the Company’s contracts with customers include the provision of warehousing, shipment, marketing
and other services, in addition to manufacturing or purchase of third-party products. For bundled pricing
arrangements, the Company allocates the transaction price to each performance obligation based on their
relative stand-alone selling prices. This requires significant judgment and assumptions in determining the stand-
alone selling prices in allocating revenue between the various performance obligations based on non-bundled
pricing arrangements and comparable market data, where applicable.
b) Measurement of revenues and trade receivables
When determining the amount of revenue to record from contracts with customers, IFRS 15 requires the
Company to reduce the transaction price for any price concessions expected to be provided to customers, as
revenue can only be recognized to the extent that it is highly probable that a significant reversal in the amount of
revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
In addition in accordance with IFRS 9, DCM applies the simplified approach to determine lifetime expected credit
losses ("ECLs") on its billed trade receivables by using a provision matrix based on historical credit loss experiences.
The historical results are used to calculate the run rates of default which are then applied over the expected life of the
billed trade receivables, adjusted for forward looking information of economic and other factors (such as potential
impacts from the COVID-19 pandemic) affecting the ability of customers to settle the billed trade receivables.
Changes in estimates are reflected in the period in which the circumstances that gave rise to the change became
known.
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DATA Communications Management Corp.
Considerable judgment by management is required to determine (a) the revenue and gross billed receivables to be
recognized where price concessions may need to be given to encourage customers to settle older amounts promptly
as a result of billing issues under IFRS 15 (as revenue can only be recognized to the extent that it is highly probable
that a significant reversal in the amount of revenue will not occur when the uncertainty associated with the variable
consideration is subsequently resolved), and (b) ECL provisions required under IFRS 9 to reflect impairments of its
trace receivables as a result of customers inability to settle the billed receivables. In 2021 the Company recorded a
provision of $0.6 million (2020 - $0.6 million) within the billed receivable balance (and against revenue) for potential
price concessions that may need to be given to encourage customers to settle older amounts promptly as a result of
billing issues, separately from the $1.3 million (2020 - $0.7 million) provision for lifetime expected credit losses.
Management’s report on internal controls over financial reporting
DISCLOSURE CONTROLS AND PROCEDURES
DCM maintains a set of disclosure controls and procedures (as defined in Multilateral Instrument 52-109) designed to
provide reasonable assurance that information required to be disclosed in its public filings or otherwise under
securities legislation is recorded, processed, summarized and reported on a timely basis and that such controls and
procedures are designed to ensure that information required to be so disclosed is accumulated and communicated to
its management, including its certifying officers, as appropriate to allow timely decisions regarding required
disclosure. With the supervision and participation of DCM’s senior management team, the Chief Executive Officer of
DCM and the Chief Financial Officer ("CFO") of DCM have evaluated the effectiveness of disclosure controls and
procedures of DCM as of December 31, 2021. Based on that evaluation, those officers have concluded that, as of
December 31, 2021, such disclosure controls and procedures were effective to provide reasonable assurance that (i)
material information relating to DCM was made known to management and (ii) information required to be disclosed by
DCM in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded,
processed, summarized and reported within the time periods specified in the securities legislation.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING
Multilateral Instrument 52-109 requires the CEO and CFO to certify they are responsible for establishing and
maintaining internal control over financial reporting (“ICFR”) for the Company and that ICFR has been designed and
is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements in accordance with IFRS. The CEO and CFO are also responsible for disclosing any changes to
the Company’s internal controls during the most recent period that have materially affected, or are reasonably likely to
materially affect, its internal controls over financial reporting. DCM’s internal control over financial reporting is a
process designed by, or under the supervision of, the CEO and CFO, or persons performing similar functions, and
effected by DCM's Board of Directors, management and other personnel. DCM’s internal control over financial
reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the Company; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations
of management and directors; and provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial
statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
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misstatements. Furthermore, projections of any evaluation of effectiveness for future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. A material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of
DCM's annual or interim financial statements will not be prevented or detected on a timely basis.
Based on management’s assessment, DCM's CEO and CFO have certified that, based on their knowledge, the
Company's internal controls over financial reporting are effective and the financial statements fairly present in all
material respects the financial condition, results of operations and cash flows of the Company as of, and for, the year
ended December 31, 2021.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
As at December 31, 2021, there were no changes in the Company’s internal control over financial reporting that
occurred during the twelve months ended December 31, 2021 that have materially affected, or are reasonably likely
to materially affect, DCM's internal control over financial reporting.
Outlook
"We are very pleased with the progress we made in 2021. Since I joined DCM on March 8, 2021, we’ve implemented
a clear strategy to move from a “print first” company to a “digital first” company with a well-defined five-year strategic
plan to drive our execution," says Richard Kellam, CEO and President of DCM.
We posted two quarters of sequential revenue improvement to end 2021, with Q3 revenue of $56.9 million up 3.1%
compared to Q2 of $55.2 million, and Q4 revenue of $60.9 million up 7.0% compared to Q3. This sets us up nicely
for a third successive quarter of growth - as we enter 2022, the first quarter of the year is typically the strongest for us.
Our “digital first” strategy continues to gain momentum. Our sales pipeline exceeds $10 million for digital asset
management and related technology-services opportunities and spans more than 50 clients. Our 40 years of workflow
management and related DAM expertise is really resonating with our clients.
"We believe we are very well positioned for growth, given our clarity of strategy, our positioning in the marketplace,
the strength of our team, and importantly the positive results we delivered in the second half of 2021, and specifically
the fourth quarter. In my 36 years in business, I’ve always found that momentum builds momentum. We are very
excited about the future of DCM."
Risks and uncertainties
An investment in DCM’s securities involves risks. In addition to the other information contained in 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 condition and liquidity of DCM.
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DATA Communications Management Corp.
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 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) "Richard Kellam"
(Signed) "James E. Lorimer"
Richard Kellam
James E. Lorimer
President and Chief Executive Officer
Chief Financial Officer
DATA Communications Management Corp.
DATA Communications Management Corp.
March 28, 2022
Brampton, Ontario
37
Independent auditor’s report
To the Shareholders of Data Communications Management Corp.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Data Communications Management Corp. and its subsidiaries (together, the
Company) as at December 31, 2021 and 2020 and January 1, 2020, and its financial performance and its
cash flows for the years ended December 31, 2021 and 2020 in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at December 31, 2021 and 2020 and January 1,
2020;
the consolidated statements of operations for the years ended December 31, 2021 and 2020;
the consolidated statements of comprehensive income for the years ended December 31, 2021 and
2020;
the consolidated statements of changes in shareholders’ equity (deficiency) for the years ended
December 31, 2021 and 2020;
the consolidated statements of cash flows for the years ended December 31, 2021 and 2020; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
PricewaterhouseCoopers LLP
PwC Centre, 354 Davis Road, Suite 600, Oakville, Ontario, Canada L6J 0C5
T: +1 905 815 6300, F: +1 905 815 6499
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2021. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Fixed charge coverage ratio covenant
compliance and related liquidity risk
Our approach to addressing the matter included the
following procedures, among others:
Refer to note 1 – General information and basis
of preparation, note 12 – Credit facilities and
note 22 – Financial instruments (liquidity risk) to
the consolidated financial statements.
Evaluated the reasonableness of
management’s assessment of the Company’s
compliance with the fixed charge coverage
ratio covenant and the related liquidity risk:
As at December 31, 2021, the Company’s credit
facilities amounted to $37.0 million which contain
financial covenant requirements including a fixed
charge coverage ratio covenant. As disclosed by
management, cash flows from operations have
been, and could continue to be, negatively
impacted by decreased demand for the Company’s
products and services and pricing pressures from
its existing and new customers. Management
continues to assess the expected effects of the
COVID-19 pandemic and other inflationary
pressures on the Company’s future business,
financial condition, operating results, cash flows
and working capital levels. Because the extent and
duration of the impact of the COVID-19 pandemic
and other inflationary pressures are uncertain, the
continuing effect of these events could materially
affect the Company’s ability to comply with the
fixed charge coverage ratio covenant in its credit
facility agreements. If, over the course of the next
year, market conditions do not improve or
deteriorate further, management may need to take
additional short-term cost control actions and/or
undertake further restructuring programs to ensure
the Company remains in compliance with the fixed
charge coverage ratio covenant in its credit facility
agreements or seek covenant waivers from its
lenders. Management concluded that the
Tested how management developed the
cash flow forecast and forecasted fixed
charge coverage ratio covenant
compliance for the period to March 2023.
o Tested the underlying data used by
management in developing the cash
flow forecast.
o Evaluated the reasonableness of key
assumptions used by management in
the cash flow forecast related to
forecasted revenues and gross
margins by:
-
-
Agreeing assumptions related to
forecasted revenue and gross
margins in the cash flow forecast
to management’s strategic plans
and financial budget approved by
the Board of Directors and
considering current and past
performance of the Company in
light of the COVID-19 pandemic
and other inflationary pressures.
Performing independent sensitivity
analysis to assess the possible
impact of changes to key
assumptions underlying the cash
flow forecast, such as a further
Key audit matter
How our audit addressed the key audit matter
-
-
reduction in revenues and gross
margins and management’s ability
to take mitigating actions if
required.
Assessing the forecasted fixed
charge coverage ratio covenant
compliance in accordance with the
credit facility agreements.
Considering whether the
assumptions related to forecasted
revenue and gross margins in the
cash flow forecast were consistent
with evidence obtained in other
areas of the audit.
Assessed management’s financial
covenant and liquidity risk disclosures in
the consolidated financial statements.
Company will remain in compliance with the fixed
charge coverage ratio covenant in its credit facility
agreements and as a result, will have adequate
access to liquidity to satisfy its obligations within
one year after the date the financial statements are
issued.
The Company’s cash flow forecast for the period to
March 2023, to support the assessment of
compliance with the fixed charge coverage ratio
covenant and the related liquidity risk, includes
considerable judgment applied by management
and key assumptions related to forecasted
revenues and gross margins (which in turn impact
earnings before interest, income taxes,
depreciation and amortization (EBITDA)). The
estimate of forecasted compliance with the fixed
charge coverage ratio covenant is sensitive to
these assumptions including the ongoing impact of
the COVID-19 pandemic and other inflationary
pressures, the effects and duration of which are
difficult to project with respect to the Company’s
business and financial results.
We considered this a key audit matter due to the
considerable judgment applied by management
when evaluating the uncertainty related to the
effects of the COVID-19 pandemic and other
inflationary pressures on the Company’s future
business, financial condition, operating results,
cash flows, working capital levels and forecasted
fixed charge coverage ratio covenant compliance.
This led to a high degree of auditor judgment,
subjectivity and effort in performing procedures
and evaluating management’s assessment of the
Company’s compliance with the fixed charge
coverage ratio covenant and the related liquidity
risk for the period to March 2023.
Key audit matter
How our audit addressed the key audit matter
Goodwill impairment assessment
Refer to note 2 – Significant accounting policies
and note 9 – Goodwill to the consolidated financial
statements.
The Company’s goodwill carrying value was $17.0
million as at December 31, 2021. In prior years the
Company’s goodwill was allocated to four cash
generating units (CGUs), DCM, DCM Burlington,
Thistle and Perennial. In Q1 2021, the Company
changed the structure of its internal organization
and senior leadership team under the leadership of
the new CEO as the Company continues to evolve
into an integrated marketing and business
solutions provider to its customers. Consequently,
the Company has a single goodwill CGU, being the
Company as a whole, which is the level at which
goodwill is monitored for internal management
purposes.
Management performs a goodwill impairment
assessment annually at the end of each fiscal year
or more frequently if events or changes in
circumstances indicate that the carrying value of
goodwill may be impaired. Impairment is
determined by assessing if the carrying value of
the Company exceeds its recoverable amount. The
recoverable amount of the Company was
determined based on its estimated fair value less
cost of disposal using a discounted cash flow
method. Management applied considerable
judgment in estimating the recoverable amount of
the Company, which included the use of key
assumptions relating to revenue growth rates,
gross margins and the discount rate. Management
concluded that there was no impairment of the
Company’s goodwill carrying value as at
December 31, 2021.
We considered this a key audit matter due to the
magnitude of the matter and the considerable
judgment by management in estimating the
recoverable amount of the Company. This led to a
Our approach to addressing the matter included the
following procedures, among others:
Tested how management estimated the
recoverable amount of the Company:
Evaluated the appropriateness of
management’s determination of the
goodwill CGU by considering the
Company’s changes in the structure of its
internal organization and management
reporting.
Evaluated the appropriateness of
management’s discounted cash flow
model.
Tested the underlying data used in the
discounted cash flow model.
Evaluated the reasonableness of key
assumptions used by management related
to revenue growth rates and gross margins
by considering (i) the current and past
performance of the Company; (ii) the
consistency with external industry data;
and (iii) whether these assumptions were
consistent with evidence obtained in other
areas of the audit.
Professionals with specialized skill and
knowledge were used to assist in the
evaluation of the appropriateness of
management’s discounted cash flow model
and the reasonableness of the discount
rate assumption.
Assessed the disclosures in the consolidated
financial statements, including management’s
sensitivity disclosures on key assumptions
related to revenue growth rates, gross margins
and the discount rate.
Key audit matter
How our audit addressed the key audit matter
high degree of auditor judgment, subjectivity and
effort in performing procedures and evaluating
management’s key assumptions. The audit effort
involved the use of professionals with specialized
skill and knowledge.
Revenue recognition – multiple performance
obligations
Our approach to addressing the matter included the
following procedures, among others:
Refer to note 2 – Significant accounting policies
and note 24 – Segmented information to the
consolidated financial statements.
The Company recognized total consolidated
revenues of $235.3 million for the year ended
December 31, 2021. Of this amount, $218.1 million
(92.6%) related to product sales, $7.7 million
(3.3%) related to warehousing services, $7.5
million (3.2%) related to freight services and $2.0
million (0.9%) related to marketing and other
services.
Certain of the Company’s contracts with customers
include the provision of warehousing, freight,
marketing and other services, in addition to
manufacturing or purchase from third parties of
customized products based on specifications pre-
approved by its customers. For bundled pricing
arrangements, management allocates the
transaction price to each performance obligation
based on their relative stand-alone selling prices.
Management applied significant judgment and
assumptions in determining the stand-alone selling
prices in allocating revenue between the various
performance obligations based on non-bundled
pricing arrangements and comparable market
data, where applicable.
We considered this a key audit matter due to the
significant judgment by management in
determining the stand-alone selling prices in
allocating revenue between the various
performance obligations. This led to a high degree
Evaluated the appropriateness of the
accounting policies on revenue recognition.
Tested management's identification of
performance obligations by examining
customer contracts on a sample basis.
Tested how management determined the
stand-alone selling prices in allocating revenue
between the various performance obligations
on a sample basis:
Obtained the analysis prepared by
management to determine the stand-alone
selling price of each performance
obligation and evaluated the
appropriateness of the methods used.
Analyzed monthly revenues by
performance obligation compared to the
prior year.
Tested the underlying data used by
management by examining customer
contracts, customer orders, invoices, cash
receipts and accounting records.
Evaluated the reasonableness of
management’s assumptions related to
estimated stand-alone selling prices by
comparing the estimated stand-alone
selling price analysis to non-bundled
pricing arrangements and comparable
market data, where applicable.
Key audit matter
How our audit addressed the key audit matter
of auditor judgment and effort in performing
procedures and evaluating audit evidence.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis and the information, other than the consolidated financial statements and our
auditor’s report thereon, included in the annual report.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Simon Kent.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Oakville, Ontario
March 28, 2022
FINANCIAL STATEMENTS
DATA Communications Management Corp.
Consolidated statements of financial position
December 31, 2021 December 31, 2020
(Restated - Note 3)
January 1, 2020
(Restated - Note 3)
$
901 $
578 $
(in thousands of Canadian dollars)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade receivables (note 4)
Inventories (note 5)
Prepaid expenses and other current assets
Income taxes receivable
NON-CURRENT ASSETS
Other non-current assets
Deferred income tax assets (note 14)
Restricted cash
Property, plant and equipment (note 6)
Right-of-use assets (note 7)
Pension assets (note 15)
Intangible assets (note 8)
Goodwill (note 9)
LIABILITIES
CURRENT LIABILITIES
Bank overdraft (note 12)
Trade payables and accrued liabilities
Current portion of credit facilities (notes 1 and 12)
Current portion of promissory notes (note 13)
Current portion of lease liabilities (note 11)
Provisions (note 10)
Income taxes payable (note 14)
Deferred revenue
NON-CURRENT LIABILITIES
Provisions (note 10)
Credit facilities (notes 1 and 12)
Promissory notes (note 13)
Lease liabilities (note 11)
Deferred income tax liabilities (note 14)
Pension obligations (note 15)
Other post-employment benefit plans (note 16)
EQUITY
SHAREHOLDERS’ EQUITY (DEFICIENCY)
Shares (note 17)
Warrants (note 17)
Contributed surplus
Translation reserve
Deficit
Commitments and Contingencies (note 20)
Approved by Board of Directors
$
$
$
$
$
$
51,567
12,133
2,580
860
68,041
625
5,465
515
8,416
33,476
2,531
4,042
16,973
65,290
8,514
1,521
—
75,903
581
5,236
515
9,783
42,341
203
6,241
16,973
140,084 $
157,776 $
— $
— $
37,589
11,743
—
6,123
3,280
841
3,269
62,845
1,196
24,556
—
32,976
—
7,499
2,971
132,043 $
256,478 $
881
2,791
173
(252,282)
8,041 $
140,084 $
39,999
6,172
1,154
8,032
1,186
1,608
2,798
60,949
90
39,567
975
40,321
282
8,271
3,507
153,962 $
256,260 $
850
2,354
192
(255,842)
3,814 $
157,776 $
—
86,451
12,580
2,611
—
101,642
828
9,331
515
13,062
56,381
156
7,546
16,973
206,434
1,093
51,743
3,887
492
8,252
3,886
2,068
2,133
73,554
192
74,760
2,095
53,514
402
7,958
2,938
215,413
256,045
853
2,300
254
(268,431)
(8,979)
206,434
(Signed) "J.R. Kingsley Ward"
Director
(Signed) "Richard Kellam" Director
46
DATA Communications Management Corp.
FINANCIAL STATEMENTS
Consolidated statements of operations
(in thousands of Canadian dollars, except per share amounts)
REVENUES (note 24)
COST OF REVENUES
GROSS PROFIT
EXPENSES
Selling, commissions and expenses
General and administration expenses
Restructuring expenses (note 10)
For the year ended
December 31, 2021
For the year ended
December 31, 2020
(Restated - Note 3)
$
235,331 $
259,314
165,796
69,535
24,888
31,069
9,691
65,648
186,372
72,942
26,424
30,057
2,821
59,302
INCOME BEFORE FINANCE COSTS, OTHER INCOME, AND
INCOME TAXES
3,887
13,640
FINANCE COSTS
Interest expense on long term debt and pensions, net
Interest expense on lease liabilities (note 11)
Debt modification losses and prepayment fees (notes 12 and 13)
Amortization of transaction costs (note 12)
OTHER INCOME
Other income (note 27)
Government grant income (note 26)
INCOME BEFORE INCOME TAXES
INCOME TAX (RECOVERY) EXPENSE
Current (note 14)
Deferred (note 14)
NET INCOME FOR THE YEAR
BASIC EARNINGS PER SHARE (note 18)
DILUTED EARNINGS PER SHARE (note 18)
3,318
2,521
473
941
7,253
1,452
4,558
2,644
2,238
(1,159)
1,079
2,819
3,257
703
553
7,332
—
10,708
17,016
(491)
4,208
3,717
$
$
$
1,565 $
13,299
0.04 $
0.03 $
0.31
0.31
47
FINANCIAL STATEMENTS
DATA Communications Management Corp.
Consolidated statements of comprehensive income
(in thousands of Canadian dollars)
For the year ended
December 31, 2021
For the year ended
December 31, 2020
(Restated - Note 3)
NET INCOME FOR THE YEAR
$
1,565 $
13,299
OTHER COMPREHENSIVE (LOSS) INCOME:
ITEMS THAT MAY BE RECLASSIFIED SUBSEQUENTLY TO
NET INCOME
Foreign currency translation
ITEMS THAT WILL NOT BE RECLASSIFIED TO NET INCOME
Re-measurements of pension and other post-employment benefit
obligations
Taxes related to pension and other post-employment benefit
adjustment above
(19)
(19)
2,643
(648)
1,995
(62)
(62)
(949)
239
(710)
OTHER COMPREHENSIVE INCOME (LOSS) FOR THE YEAR,
NET OF TAX
COMPREHENSIVE INCOME FOR THE YEAR
$
$
1,976 $
(772)
3,541 $
12,527
48
DATA Communications Management Corp.
FINANCIAL STATEMENTS
Consolidated statements of changes in shareholders' equity (deficiency)
(in thousands of Canadian
dollars)
Shares
Warrants
Contributed
surplus
Translation
reserve
Deficit
(Restated - Note 3)
Total
shareholders'
equity
(deficiency)
Balance as at December 31,
2019
Adjusted for IFRIC Agenda
Decision (note 3)
Adjusted balance as at
December 31, 2019
Net income for the year as
restated (note 3)
Other comprehensive loss for
the year
Total comprehensive income
for the year
Issuance of common shares,
net (note 17)
Exercise of warrants (note 10)
Share-based compensation
expense (note 17)
Issuance of warrants, net
(note 10)
Balance as at December 31,
2020
BALANCE AS AT
DECEMBER 31, 2020
Net income for the year
Other comprehensive income
for the year
Total comprehensive income
for the year
Issuance of common shares
(note 17)
Exercise of warrants (note 17)
Share-based compensation
expense (note 17)
Issuance of warrants, net
(note 17)
BALANCE AS AT
DECEMBER 31, 2021
$
256,045 $
853 $
2,300 $
254 $
(260,493) $
(1,041)
—
—
—
—
(7,938)
(7,938)
$
256,045 $
853 $
2,300 $
254 $
(268,431) $
(8,979)
—
—
—
80
135
—
—
—
—
—
—
—
—
(42)
—
39
—
—
—
—
54
—
(62)
(62)
—
—
—
—
13,299
13,299
(710)
(772)
12,589
12,527
—
—
—
—
80
93
54
39
$
256,260 $
850 $
2,354 $
192 $
(255,842) $
3,814
$
256,260 $
850 $
2,354 $
192 $
(255,842) $
3,814
—
—
—
40
178
—
—
—
—
—
—
(9)
—
40
—
—
—
—
(51)
488
—
—
(19)
(19)
—
—
—
—
1,565
1,565
1,995
1,976
3,560
3,541
—
—
—
—
40
118
488
40
$
256,478 $
881 $
2,791 $
173 $
(252,282) $
8,041
49
FINANCIAL STATEMENTS
DATA Communications Management Corp.
Consolidated statements of cash flows
(in thousands of Canadian dollars)
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income for the year
Items not affecting cash
For the year ended
December 31, 2021
For the year ended
December 31, 2020
(Restated - Note 3)
$
1,565 $
13,299
Depreciation of property, plant and equipment (note 6)
Amortization of intangible assets (note 8)
Depreciation of right-of-use-assets (note 7)
Interest expense on lease liabilities (note 11)
Share-based compensation expense
Shares issued as payment for services
Pension expense (note 15)
Loss on disposal of property, plant & equipment
(Gain) on disposal of leases
Provisions (note 10)
Amortization of transaction costs and debt modification losses
(note 12)
Accretion of non-current liabilities and capitalized interest expense
Other post-employment benefit plan expense (gain) (note 16)
Income tax expense (note 14)
Changes in working capital (note 19)
Contributions made to pension plans
Contributions made to other post-employment benefit plans (note 16)
Provisions paid (note 10)
Income taxes paid (note 14)
INVESTING ACTIVITIES
Purchase of property, plant and equipment (note 6)
Purchase of intangible assets (note 8)
Proceeds on disposal of property, plant and equipment
FINANCING ACTIVITIES
Issuance of common shares and warrants, net (note 17)
Proceeds from credit facilities (note 12)
Repayment of credit facilities (note 12)
Exercise of warrants
Repayment of other liabilities
Repayment of promissory notes (note 13)
Transaction costs (note 12)
Lease payments (note 11)
3,133
3,589
8,428
2,521
488
40
480
66
(196)
9,691
1,201
(441)
(118)
1,079
31,526
7,135
(970)
(390)
(6,491)
(3,865)
26,945
(1,832)
(1,390)
—
(3,222)
—
21,000
(30,696)
118
—
(2,144)
(489)
(11,202)
(23,413)
CHANGE IN CASH DURING THE YEAR
CASH AND CASH EQUIVALENTS (BANK OVERDRAFT) –
BEGINNING OF YEAR
EFFECTS OF FOREIGN EXCHANGE ON CASH BALANCES
CASH AND CASH EQUIVALENTS – END OF YEAR
$
$
310
578 $
13
901 $
3,541
1,876
8,399
3,257
54
—
487
—
—
2,821
1,256
(972)
852
3,717
38,587
15,944
(1,116)
(338)
(5,623)
181
47,635
(268)
(571)
4
(835)
173
—
(32,865)
—
(333)
(533)
(227)
(11,336)
(45,121)
1,679
(1,093)
(8)
578
50
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
1 General information and basis of preparation
DATA Communications Management Corp ("DCM" or the "Company") is a leading provider of marketing and workflow
solutions that solve the complex branding, communications, logistics and regulatory challenges of some of North
America’s biggest brands. Powered by purpose-built technology like our DCMFlex™ workflow management platform
and our ASMBL digital asset management solution, we help clients bring their brands to life and create more
meaningful connections with customers. We serve market leaders in key verticals such as financial services, retail,
healthcare, energy, and the public sector, supporting them with marketing scale, speed, efficiency and insight that
drives their competitiveness and improves their performance.
DCM’s revenue is subject to mailing patterns of certain customers. Typically, higher revenues and profit are generated
in the first 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.
These financial statements have been prepared using International Financial Reporting Standards as issued by the
International Accounting Standards Board ("IFRS") applicable to a going concern, which contemplates the realization
of assets and settlement of liabilities in the normal course of business as they become due.
The Company's ability to continue as a going concern is dependent upon management’s ability to meet forecast
revenue and profitability targets for at least the next twelve months in order to comply with its financial covenants on
its credit facilities or to obtain financial covenant waivers from its lenders if necessary. The estimate of future cash
flows in the Company’s forecasts took into consideration the uncertainty of the continued impact of the COVID-19
pandemic, coupled with other inflationary pressures on both the wider macro-economic environment and the ongoing
demand for the Company’s services. Management are satisfied that the Company’s forecasts and projections, taking
account of reasonably possible changes in results and other uncertainties will not result in any breach of the financial
covenants on its credit facilities. For this reason, the Company continues to adopt the going concern basis in
preparing the financial statements. The Company’s cash flow forecasts for the period to March 31, 2023, to support
the assessment of financial covenant compliance and the related liquidity risk, includes considerable judgment
applied by management in the determination of key assumptions related to forecast revenues and gross margins
(which in turn impact earnings before interest, income taxes, depreciation and amortization (EBITDA)). The estimates
of forecasted compliance with financial covenants are sensitive to those assumptions (see notes 12 and 22) including
the ongoing impact of the COVID-19 pandemic, and other inflationary pressures, the effects and duration of which are
difficult to project with respect to the Company’s business and financial results (see COVID-19 section below).
COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of a strain of novel coronavirus disease,
(“COVID-19”), a global pandemic. Governments in affected areas in which the Company operates have imposed a
number of measures designed to contain the outbreak, including business closures, travel restrictions, quarantines
and cancellations of gatherings and events. The impacts on the global economy have been far-reaching, however,
due to the speed with which the situation developed and the uncertainty of its magnitude, outcome and duration it is
not possible to quantify the impact this pandemic may have on the financial results and condition of DCM in future
periods.
Despite DCM’s business continuing to operate as an essential services provider to a number of industries, including
the healthcare, financial services and supply chain sectors, the Company has experienced a reduction in demand
from certain clients and sectors due to the pandemic, particularly in its retail related businesses and from smaller and
more transactional clients. During 2020 and 2021, the Company was able to offset partially the impact of the
pandemic through sales of one-time COVID projects. While the Company is anticipating sales to begin to recover in
2022 as the economy recovers from the effects of the pandemic, it is not currently possible to accurately quantify the
long-term impact of the pandemic on the Company’s operations or financial results. These possible impacts can be
caused by both the pandemic itself as well as by the extensive public restrictions to continue limiting the spread of the
51
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
virus and may differ in various business areas and DCM’s operating locations and timing of the loosening of various
restrictions on businesses and the general public.
During the year ended December 31, 2021, the Company continued to pursue new business opportunities and
renewed several key customer contracts. DCM has begun to experience delays in certain raw materials in its supply
chain due to the post COVID-19 return of consumer movements. It has also experienced pricing increases in many of
its raw materials including freight input costs as the global supply chain has increasingly been impacted. DCM has not
experienced any material credit collection delinquencies related to COVID-19.
The Canada Emergency Wage Subsidy ("the CEWS") and the Canada Emergency Rent Subsidy (the "CERS")
contributed $4,558 (2020 - $10,708) of income for the year ended December 31, 2021. DCM does not expect any
material subsidies going forward.
The common shares of DCM are listed on the Toronto Stock Exchange (“TSX”) under the symbol “DCM”. The
address of the registered office of DCM is 9195 Torbram Road, Brampton, Ontario. These consolidated financial
statements were approved by the Board of Directors ("Board") of DCM, on March 28, 2022.
2 Significant accounting policies
The significant accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements except for the accounting policy changes as described in note 3.
BASIS OF MEASUREMENT
The consolidated financial statements have been prepared under the historical cost convention, except for the
revaluation of certain financial assets and financial liabilities to fair value, including derivative instruments.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of whether that price is directly observable or
estimated using another valuation technique. In estimating the fair value of an asset or liability, 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, IFRS 16 Leases, and measurements that
have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 Inventories or value in
use in IAS 36 Impairment of assets.
In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on
the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the
fair value measurements in its entirety, which are described as follows:
•
•
•
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1; that are observable for the asset or
liability; either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.
52
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of DCM and its subsidiaries. All intercompany
transactions, balances and unrealized gains and losses from intercompany transactions are eliminated upon
consolidation.
i.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 unconsolidated from the date that control ceases. DCM has two wholly owned subsidiaries, Perennial Inc.
("Perennial") (in Canada) and Data Communications Management (US) Corp. ("DCM USA") (in USA). On January 1,
2022 subsequent to year-end, Perennial amalgamated into DCM.
ii.Changes in ownership interests in subsidiaries without change of control
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions
– that is, as transactions with the owners in their capacity as owners. The difference between fair value of any
consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in
equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
iii.Disposal of subsidiaries
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 change in carrying amount recognized in profit or loss. The fair value is the initial carrying
amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or
financial asset. In addition, any amounts previously recognized in other comprehensive 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.
BUSINESS COMBINATIONS
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 considerations, on
the acquisition date, in exchange for control of the acquired entity. The excess of the consideration transferred over
the fair value of the identifiable assets acquired and liabilities assumed is recognized as goodwill. The transaction
costs attributable to the acquisition are recognized in the statement of operations when they are incurred.
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.
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 measurement
is incomplete. 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. The measurement period is the period from the acquisition date to the date on which DCM has received
complete information on the facts and circumstances that existed as of the 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.
53
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
In the case of a business combination of less than 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
Items included in the financial statements of each entity within DCM are measured using the currency of the primary
economic environment in which the entity operates (the “functional currency”). These consolidated financial
statements are presented in Canadian dollars, which is DCM’s functional currency. The functional currency of DCM’s
United States operations is U.S. dollars. All financial information presented in Canadian dollars has been rounded to
the nearest thousand.
Monetary assets and liabilities denominated in foreign currencies are translated into each entity's functional currency
at rates of exchange in effect at the statement of financial position date. Revenues and expenses denominated in
foreign currencies are translated into each entity's functional currency at rates prevailing on the transaction dates.
Gains and losses resulting from translation of monetary assets and liabilities denominated in currencies other than
each entity's functional currency are included in the determination of income for the year.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisitions,
are translated to Canadian dollars at exchange rates at the reporting date. The income and expenses of foreign
operations are translated to Canadian dollars at average exchange rate during the period. Foreign currency
differences are recognized in other comprehensive income (loss) in the foreign currency translation reserve account.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, deposits held with banks and bank overdraft and highly liquid
short-term interest bearing securities with maturities of three months or less at the date of purchase.
INVENTORIES
Raw materials inventories, base stock finished goods and work-in-progress are recorded at the lower of cost and net
realizable value. Raw materials are recorded on a weighted average cost basis. Cost of finished goods and work-in-
process are determined using the first-in, first-out method. Inventory manufactured includes the cost of materials,
labour and production overheads (based on normal operating capacity) including applicable depreciation on property,
plant and equipment. Net realizable value is the estimated selling price less cost to complete and applicable selling
expenses.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost less accumulated depreciation and 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. Property, plant
and equipment are depreciated from the point at which the asset is ready for use. Depreciation is computed using the
methods and rates based on the estimated useful lives of the property, plant and equipment as outlined below:
54
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Leasehold improvements
Office furniture and equipment
Presses and printing equipment
Computer hardware
Vehicles
Basis
straight-line
straight-line
straight-line
straight-line
straight-line
Rate
Shorter of life or
lease term
5 years
3 to 10 years
2 to 5 years
3 years
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
Separately acquired intangible assets are initially measured at cost. Customer relationships, trade names, trademarks
and non-compete agreements acquired in a business combination are recognized at fair value at the acquisition date
which is their deemed cost. Where these assets have a finite life, they are subsequently carried at cost less
accumulated amortization and impairment losses.
Research costs are recognized as an expense as incurred. Development costs that are directly attributable to the
design and testing of identifiable and unique software products controlled by DCM are recognized as intangible
assets when the following criteria are met:
•
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.
Certain configuration and customization activities undertaken in implementing such arrangements may give rise to a
separate asset in limited circumstances where DCM controls the intellectual property of the underlying software code
(e.g. the development of bridging modules to existing on-premise systems or bespoke additional software capability).
In all other instances, configuration and customization costs are expensed as incurred. Directly attributable costs that
are capitalized as part of the software include employee costs and an appropriate portion of relevant overheads.
Capitalized development costs are recorded as intangible assets and amortized from the point at which the asset is
ready for use.
Management’s judgment is required to determine the useful lives of intangible assets including reviewing the length of
customer relationships and other factors. These finite life assets are amortized over their estimated useful lives as
outlined below.
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DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Customer relationships and customer backlog
Software and technology
Computer software development costs
Basis
straight-line
straight-line
straight-line
Trademarks, trade names and non-compete agreements
straight-line
Rate
1.5 to 12 years
1 to 7 years
1 to 5 years
2 to 10 years
Residual values, the method of amortization and useful lives of the assets are reviewed annually and adjusted if
appropriate
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 fair value of net identifiable assets and liabilities acquired.
Adjustments to fair value assessments are recorded to goodwill over the measurement period, not exceeding one
year from the date of acquisition. Goodwill is allocated to the cash generating unit (“CGU”) or a group of CGUs to
which it relates. A CGU is an identifiable group of assets that are largely independent of the cash flows from other
assets or group of assets, which is not higher than an operating segment.
Goodwill is evaluated for impairment annually or more frequently if events or circumstances indicate there may be
impairment. Impairment is determined for goodwill by assessing if the carrying value of a cash generating unit,
including the allocated goodwill, exceeds its recoverable amount determined as the greater of the estimated fair value
less costs to sell or the value in use. Impairment losses recognized in respect of a CGU are first allocated to the
carrying value of goodwill and any excess is allocated to the carrying amount of assets in the CGU. Any goodwill
impairment is charged to income in the period in which the impairment is identified. Impairment losses on goodwill
are not subsequently reversed.
IMPAIRMENT OF NON-FINANCIAL ASSETS
Property, plant and equipment and definite life intangible assets are tested for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. For the purpose of measuring recoverable
amounts, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGUs). The
recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use (being the present
value of the expected future cash flows of the relevant asset or CGU). The projections of future cash flows take into
account the relevant operating plans and management’s best estimate of the most probable set of conditions
anticipated to prevail including a number of estimates and assumptions such as projected revenue growth rates,
gross margin and discount rates.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable
amount. Impairment losses are recorded as impairment provisions within accumulated depreciation for depreciable
assets. DCM evaluates impairment losses, other than goodwill impairment, for potential reversals when events or
circumstances warrant such consideration. Where an impairment loss subsequently reverses the carrying amount of
the asset or CGU is increased to the lesser of the revised estimate of recoverable amount and the carrying amount
that would have been recorded had no impairment loss been recognized previously.
SHARE-BASED COMPENSATION
DCM has share-based compensation plans as part of DCM’s long-term incentive plan, as described in note 17. All
transactions involving share-based payments are recognized as an expense in the statement of operations over the
vesting period.
Equity-settled share-based payment transactions, such as stock option awards, are measured at the grant date at the
fair value of employee services received in exchange for the grant of options or share awards and, for non-employee
transactions, at the fair value of the goods or services received at the date on which the entity recognizes the goods
56
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
or services. The total amount of the expense recognized in the statement of operations is determined by reference to
the fair value of the share awards or options granted, which factors in the number of options expected to vest. Equity-
settled share-based payment transactions are not remeasured once the grant date fair value has been determined.
Cash-settled share-based payment transactions are measured at the fair value of the liability. The liability is
remeasured at each reporting date and at the date of settlement, with changes in fair value recognized in the
statement of operations.
EMPLOYEE BENEFITS
DCM maintains a defined benefit and defined 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. Actuarial valuations are required to be completed every three
years.
DCM also contributes to the Québec Graphic Communication Pension Plan (the “GCPP”) for certain employees at its
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 ("Unifor Pension & Benefit Plans"). The GCPP 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. DCM's obligation to the GCPP and Unifor Pension & Benefit Plans are limited to the amounts agreed to in the
respective collective bargaining agreements of each plan.
Certain former senior executives of a predecessor corporation participated in a Supplementary Executive Retirement
Plan (“SERP”), which provides for pension benefits payable as a single life annuity with a five year guarantee.
(a)
Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a
separate entity and has no legal or constructive obligation to pay further amounts. Pension benefits for defined
contribution formula are based on the accrued contributions with investment earnings. DCM’s annual pension
expense is based on the amounts contributed in respect of eligible employees when they are due.
(b)
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Pension benefits for
the defined benefit formula are generally calculated based on the number of years of service and the maximum
average eligible earnings of each employee during any period of five consecutive years. 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 DCM. An economic benefit is available to DCM if it is realizable during the life
of the plan, or on settlement of the plan liabilities.
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 past services costs are recognized as period costs in general and administration expenses in the statement
of operations. Net interest is calculated by applying the discount rate at the beginning of the period to the net benefit
liability or asset and is recognized in finance costs (income) in the statement of operations.
57
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
The discount rate used to determine the accrued benefit obligation is determined by reference to yields on high
quality corporate bonds and that have terms to maturity approximating the terms of the related pension liability.
Actuarial gains and losses arise from the difference between actual rate of return on plan assets and the discount rate
for that period, from changes in actuarial assumptions used to determine the accrued benefit obligation and from
changes to accrued benefit obligation resulting from actual experience differing from long-term assumptions used to
determine the accrued benefit obligation. Re-measurements, comprising actuarial gains and losses, the effect of the
changes to the asset ceiling (if applicable) and the actual return on plan assets (excluding interest), is reflected
immediately in the statement of financial position with a charge or credit recognized in other comprehensive income
(loss) in the period in which they occur. Re-measurements recognized in other comprehensive income (loss) are
reflected immediately in retained earnings (deficit) and will not be reclassified to the 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 benefit plans. When the payment in the future of minimum funding requirements related
to past service would result in a net defined benefit surplus or an increase in a surplus, the minimum funding
requirements are recognized as a liability to the extent that the surplus would not be fully available as a refund or a
reduction in future contributions to the plans.
A liability for termination benefits is recognized at the earlier of when the entity can no longer withdraw the offer of the
termination benefit and when the entity recognizes any related restructuring costs. Termination benefits that require
future services are required to be recognized over the periods the future services are provided.
The SERP is unfunded.
The GCPP and the Unifor Pension & Benefit Plans are negotiated contribution, defined benefit multi-employer plans,
however, the trustees of these plans are not able to provide sufficient information for DCM to account for these plans
as a defined benefit plan. DCM has accounted for these plans on a defined contribution basis as DCM does not
believe there is sufficient information to recognize participation on a defined benefit basis.
(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 are recognized in other comprehensive loss in the period in which they arise and will not be
reclassified to statement of operations.
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 date. Any
actuarial gains and losses related to other long-term employee benefit plans are recognized in the statement of
operations in the period in which they arise.
The discount rate is the yield at the reporting date on yields on high quality corporate bonds that have maturity dates
approximating the terms of DCM’s obligations. The DCM OPEB Plans and DCM OPEB LTD Plan are funded on a
pay-as-you-go basis.
PROVISIONS
Provisions are liabilities of uncertain timing or amount. 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
58
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
management’s best estimate of the expenditure required to settle the obligation. 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. Provisions are
reviewed at each reporting date and any changes to estimates are reflected in the statement of operations. 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.
(ii) Onerous contracts: DCM performs evaluations to identify onerous contracts and, where applicable, records
provisions against such contracts.
INCOME TAXES
Income tax expense comprises current and deferred tax. Current income tax and deferred income tax are recognized
in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or
in other comprehensive income (loss), in which case the current and/or deferred tax is also recognized directly in
equity or other comprehensive income (loss).
Current income taxes is the expected tax payable or receivable on the taxable income or loss for the year, using tax
rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years that are expected to be paid. Management periodically 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 arising on the initial
recognition of goodwill. Deferred income tax is measured on a non-discounted basis at the tax rates that are
expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or
substantively enacted by the reporting date.
A deferred income tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to
the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred
income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realized in the foreseeable future.
Deferred income tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities
and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on
different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and
liabilities will be realized simultaneously.
Deferred income tax assets and liabilities are presented as non-current.
LEASES
DCM leases various offices, warehouses and machinery and office equipment. Rental contracts are typically made for
fixed periods of 1 to 13 years but may have extension options. Lease terms are negotiated on an individual basis and
contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but
leased assets may not be used as security for borrowing purposes. DCM has options to purchase certain
manufacturing equipment for a nominal amount or the then fair market value, to extend the term, or return the
59
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
equipment at the end of the lease term. The obligations are secured by the lessors’ title to the leased asset for such
leases. DCM also enters into sub-leases as an intermediate lessor.
The accounting policies for leases are as follows:
AS A LESSEE
DCM assesses, at the inception of a contract, whether a contract is, or contains, a lease. A lease is a contract in
which the right to control the use of an identified asset is granted for an agreed upon period of time in exchange for
consideration. DCM assesses whether a contract conveys the right to control the use of an identified asset when
there is both the right to direct the use of the asset and obtain substantially all the economic benefits from that use.
At the commencement of a lease contract:
(i) a lease liability is initially measured at the present value of the non-cancellable lease payments over the lease
term and discounted at DCM's incremental borrowing rate which represents the rate DCM would pay to borrow
funds to obtain the underlying asset over a similar term and with similar security. Lease payments include fixed
payments and such variable payments that depend on an index or a rate; less any lease incentives receivable. In
determining the lease term, management considers all facts and circumstances that create an economic
incentive to exercise an extension option or not exercise a termination option. Extension options (or periods after
termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not
terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs
which affects this assessment and that is within the control of the lessee.
(ii) a right-of-use asset ("ROU Asset") is initially measured at cost, which comprises the initial lease liability, lease
payments made at or before the lease commencement date, initial direct costs and restoration obligations less
lease incentives.
The ROU Asset is depreciated in subsequent periods over the shorter of the asset's useful life and the lease term on
a straight-line basis. The lease term includes periods covered by an option to extend if DCM is reasonably certain to
exercise that option. The ROU Asset is assessed for impairment in accordance with the requirements of IAS 36
Impairment of Assets.
The lease liability is measured in subsequent periods at amortized cost using the effective interest method. The lease
liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, if
there is a change in DCM’s estimate of the amount expected to be payable under a residual value guarantee, or if
DCM changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease
liability is remeasured, a corresponding adjustment is made to the carrying amount of the ROU Asset, with any
difference recorded in the consolidated statement of operations.
On a lease by lease basis, DCM also exercises the option available for contracts comprising lease components as
well as non-lease components, not to separate these components. Payments to the lessor for variable costs
associated with the lease, including variable payments to the lessor related to non-lease components, are not
included in the measurement of the lease liability, and are expensed as incurred in the consolidated statement of
operations.
Extension and termination options exist for DCM’s property leases. DCM re-measures the lease liability, when there is
a change in the assessment of the inclusion of the extension option in the lease term, resulting from a change in facts
and circumstances.
Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as
an expense in the condensed interim consolidated statement of operations. Short-term leases are leases with a lease
term of twelve months or less. Low value assets comprise IT equipment and small items of office furniture.
60
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
AS AN INTERMEDIATE LESSOR
For sub-leases where DCM is an intermediate lessor, the interest in the head lease and sub-lease are accounted for
separately. DCM assesses the lease classification of a sub-lease as either an operating lease or a finance lease with
reference to the ROU Asset arising from the head lease.
GOVERNMENT GRANTS
Grants from the government are recognized at their fair value when there is reasonable assurance that the grant will
be received and DCM will comply with all attached conditions. The Company has elected to present government
grants related to income as "other income" in the consolidated statement of operations. DCM has applied this policy
to the CEWS and CERS (note 26).
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 equity, net of any tax effects.
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.
REVENUE RECOGNITION
DCM recognizes revenue when control of the goods or services has been transferred. Revenue is measured at the
amount of consideration to which DCM expects to be entitled to, net of incentives given to its customers including
volume-based incentives and cash discounts.
The following is a description of the principal activities from which DCM generates its revenue, along with the
corresponding revenue recognition accounting policies applied:
(a) Product sales - DCM manufactures customized products based on specifications pre-approved by its customers.
At its customers' request, DCM will also purchase product from third-party vendors and resell that to its
customers. For products that DCM purchases and resells to its customers, DCM is typically a principal in these
arrangements as it is responsible for making key decisions over the purchasing of product and has the economic
risks and rewards that are customary with control. Accordingly, third party product revenue is typically presented
on a gross basis in revenue with the corresponding product purchase cost and associated costs recognized in
costs of revenue. DCM recognizes revenue when control over the product transfers to the customer, which is
effectively transferred upon the completion of production or when resale product is purchased and inducted into
DCM's warehouses due to the custom nature of the product, as it does not have an alternative use to DCM, such
that DCM is entitled to payment once the quantity of product pursuant to an individual purchase order is
produced or purchased from a third-party vendor and inducted into its warehouses. Given manufactured
products are customized or purchased specifically at the customer’s request, product returns are insignificant.
In some instances, DCM's customers obtain the product directly from DCM following the completion of
production. In other instances, DCM’s contracts involve the provision of warehousing and shipment services, in
addition to manufacturing or purchasing of third-party products. Based on DCM's contractual arrangements with
its customers related to product, DCM has identified three key distinct performance obligations: product sales,
warehousing services and shipment services. Certain of DCM's contracts with customers include the provision of
warehousing, freight, marketing and other services, in addition to manufacturing or purchase from third-parties of
customized products based on specifications pre-approved by its customers. For bundled pricing arrangements,
DCM allocates the transaction price to each performance obligation based on their relative stand alone selling
61
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
prices. Management applied significant judgment and assumptions in determining the stand-alone selling prices
in allocating revenue between the various performance obligations based on non-bundled pricing arrangements
and comparable market data, where applicable. DCM stores customized or purchased product at the request of
the customer; the product is identifiable as the customer’s product; the product is ready for transfer to the
customer upon the customer’s request; and DCM cannot re-direct the product nor use the product to fulfill
another customer’s product order under the contract. DCM recognizes product revenues when control has
transferred over the product upon product manufacture by DCM or upon receipt of third-party product into DCM's
warehouses. Based on the contractual terms with its customers, DCM either issues an invoice when product that
is manufactured by DCM or purchased from third-party vendors is inducted into DCM's warehouse, or
alternatively the invoice is issued for some customers when product is dispatched from, its warehouses. In
instances where DCM issues an invoice on dispatch of product from its warehouses, rather than at the date of
transfer of control, DCM is still entitled to payment for the purchased or manufactured product. Accordingly,
revenue is recognized for the product manufactured by DCM or third-party stock product and a corresponding
balance for “unbilled receivables” are recognized within trade receivables in the consolidated statement of
financial position. Unbilled receivables are transferred to accounts receivables when the invoices are issued to
the customers. Deferred revenue represents amounts that have been invoiced to the customer but not yet
recognized as revenue, including advance payments and billings in excess of revenue. Deferred revenue is
recognized as revenue when DCM completes production of product or upon receipt of third-party product into its
warehouses.
(b) Warehousing services - DCM provides custodial services to store customer product in its warehouse over a
specified agreed upon period. For non-bundled pricing arrangements, warehousing revenues are recognized
over the period that warehousing services are provided to the customer based on the balance of customer
product remaining in the warehouse at the time an invoice is issued. For bundled pricing arrangements, DCM
allocates a portion of the initial transaction price for warehousing services and recognizes revenue on a straight-
line basis over the period of the warehousing as it best represents the pattern of performance. Amounts are
typically invoiced as warehousing services are performed in accordance with agreed upon contractual terms at
periodic intervals. When DCM receives advance payments or issues billings in excess of revenue, these are
recognized as deferred revenue in the statement of financial position. Deferred revenue is recognized as revenue
when or as DCM provides custodial services over the agreed upon warehouse term.
(c) Freight services - DCM has identified it has a distinct performance obligation for shipment of product for certain
contracts where it has an obligation to arrange shipment services where control of the product has been
transferred to the customer prior to shipment. DCM frequently contracts with third parties to deliver product.
DCM is typically a principal for such shipment services as it is responsible for making key decisions over the
shipment arrangements and has the economic risks and rewards associated with such control. As a principal
DCM recognizes shipment revenues when performance of the shipping service has occurred as products are
shipped.
(d) Marketing services - DCM generates revenue from providing marketing solutions to its customers which include
business and brand strategy, consumer insights, strategic marketing and design services. Typically, these
services are contracted with fixed-fees and are provided over a period of time equal to one year or less.
Revenue is measured based on the consideration DCM expects to be entitled to in exchange for providing
services. DCM’s marketing contracts include a single performance obligation because the promise to transfer
the individual services are not separately identifiable from other promises in the contract and therefore are not
distinct. DCM transfers control of the services it provides to its customers over time and therefore recognizes
revenue progressively as the services are performed. Revenue from customer contracts are recognized based
on the percentage of completion method. Under this method, the stage of completion is measured using costs
incurred to date as a percentage of total estimated costs for each contract and the percentage of completion is
applied to the total estimated revenue. Progress on jobs is regularly reviewed by management and estimated
costs to complete are revised based on the information available at the end of each reporting period. Contract
costs estimates are based on various assumptions that can result in a change to contract profitability from one
62
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
financial reporting period to another, including labor productivity and availability, the complexity of the work to be
performed and the performance of subcontractors.
While providing services, DCM incurs certain direct costs for subcontractors and other expenses that are
recoverable directly from its customers. The recoverable amounts of these direct costs are included in DCM’s
gross revenue as it obtains control of these services before they are provided to the customer and therefore, acts
as a principal in these arrangements.
The timing of revenue recognition, billings, and cash collections results in trade receivables, unbilled receivables,
and deferred revenue in the consolidated statements of financial position. Amounts are typically invoiced as work
progresses in accordance with agreed-upon contractual terms, either at periodic intervals or when contractual
milestones are achieved. Receivables represent amounts currently due from customers and unbilled receivables
represents work that has not yet been invoiced to the customer however DCM has a right to payment for the
services provided ahead of agreed upon contractual milestones. Unbilled receivables are transferred to
receivables when billings are issued to the customer. Accordingly, unbilled receivables are recognized and
included within trade receivables in the consolidated statement of financial position. Deferred revenue represents
amounts that have been invoiced to the customer but not yet recognized as revenue, including advance
payments and billings in excess of revenue. Deferred revenue is recognized as revenue when or as DCM
performs under the contract.
(e) Other services - This includes other ancillary services such as fees related to administrative functions that DCM
provides to its customers and financing charges associated with customers where DCM stores customer product
in the warehouse over a period of time and invoices the customer when the product is dispatched from DCM's
warehouse. Revenue for other ancillary services are recognized upon completion of the performance obligations
to its customers. Financing income is recognized as DCM provides custodial services to its customers over the
agreed upon warehouse term.
(f) License fees - This includes revenue under license arrangements from the sale of proprietary software licenses
and software-related services including onboarding and implementation, support and maintenance, and hosting
services (collectively, software related services). The license provides a right-to-use DCM's software and
revenues are recognized at a point in time when the license was granted to the customer. Software related
services income is recognized as DCM provides these services to its customers over the term of the contract.
VARIABLE CONSIDERATION
Some contracts with customers provide volume-based incentives specific to product sales. In addition price
concessions (adjustments to the amount charged to a customer made outside of the initial contact terms) are
sometimes provided to customers if there are billing disputes or customers have experienced some level of
dissatisfaction in order to encourage customers to pay for previous purchases and continue making future purchases.
Such incentive offerings and price concessions give rise to variable consideration and are required to be estimated at
contract inception by using either the expected value or the most likely amount, depending on which method better
predicts the amount of consideration to which the customer will be entitled. The estimates are based on various
assumptions including past experience with customers and other relevant factors. DCM uses the most likely amount
when determining the expected amount of volume-based incentives and price concessions it will give to its customers
and records these as a reduction to revenue in the consolidated statement of operations. DCM reduces the
transaction price for any price concessions expected to be provided to customers, as revenue can only be recognized
to the extent that it is highly probable that a significant reversal in the amount of revenue will not occur when the
uncertainty associated with the variable consideration is subsequently resolved.
CONTRACT COSTS
Contract costs represent incremental costs incurred, such as sales commissions for sales made to certain customers.
Contract costs are deferred and included within prepaid expenses and other assets for contracts expected to be
delivered after more than one year and then amortized over their estimated useful lives. Contract costs are carried at
63
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
cost less accumulated amortization. For the years ended December 31, 2021 and 2020, DCM did not have any
significant balances or transactions.
FINANCIAL INSTRUMENTS
CLASSIFICATION AND MEASUREMENT
Financial assets are classified and measured based on these categories: amortized cost, fair value through other
comprehensive income ("FVTOCI"), and fair value through profit and loss (“FVTPL”).
Financial liabilities are classified and measured based on two categories: amortized cost or FVTPL. Derivatives
embedded in contracts where the host is a financial asset in the scope of the standard are not separated, but the
hybrid financial instrument as a whole is assessed for classification.
Financial assets and liabilities at FVTPL: A financial asset or liability is classified in this category if acquired principally
for the purpose of selling or repurchasing in the short-term. Derivatives are also included in this category unless they
are designated as hedges. Financial instruments in this category 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 FVTPL 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.
Financial assets and liabilities at amortized cost: Financial assets and liabilities at amortized cost are initially
recognized at fair value, except for trade receivables that do not contain a significant financing component which are
measured at the transaction price, plus or minus transaction costs, respectively, and subsequently carried at
amortized cost less any impairment.
Financial assets through other comprehensive income: Financial assets carried at FVOCI are measured at fair value.
Interest, dividends and impairment gains and losses are recognized in the consolidated statement of operations on
the same basis as for amortized cost assets. Changes in fair value are recognized initially in other comprehensive
income. When the assets are derecognized or reclassified the cumulative changes in fair value are reclassified to the
consolidated statement of operations (except where they relate to investments in equity instruments). The Company
has no financial instruments measured at fair value through other comprehensive loss.
DCM determines the classification of financial assets and liabilities at initial recognition. The classification of DCM's
financial assets and liabilities is disclosed in note 22.
IMPAIRMENT OF FINANCIAL ASSETS
DCM applies the 'expected credit loss' ("ECL") model to assess the impairment of its financial assets at each balance
sheet date. The ECL model requires considerable judgment, including consideration of how changes in economic
factors affect ECLs, which are determined on a probability-weighted basis. IFRS 9 outlines a three-stage approach to
recognizing ECLs which is intended to reflect the increase in credit risks of a financial instrument based on 1) 12-
month expected credit losses or 2) lifetime expected credit losses. DCM measures loss allowance at an amount equal
to lifetime ECLs.
DCM applies the simplified approach to determine ECLs on trade receivables by using a provision matrix based on
historical credit loss experiences. The historical results were used to calculate the run rates of default which were
then applied over the expected life of the trade receivables, adjusted for forward looking information of economic and
other factors (such as potential impacts from the COVID -19 pandemic) affecting the ability of customers to settle the
billed trade receivables. Trade receivables are written off when there is no reasonable expectation of recovering the
asset or a portion, thereof.
64
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Impairment losses are recorded in general and administration expenses in the consolidated statements of operations.
Where there is a change that will cause a significant reduction in the loss, the impairment loss previously recognized
is reversed through the consolidated statements of operations.
DERECOGNITION
Financial Assets: The Company derecognizes financial assets only when the contractual rights to cash flows from the
financial assets expire, or when it transfers the financial assets and substantially all of the associated risks and
rewards of ownership to another entity. Gains and losses on derecognition are generally recognized in the
consolidated statements of operations.
Financial liabilities: The Company derecognizes financial liabilities only when its obligations under the financial
liabilities are discharged, cancelled or expired. Generally, the difference between the carrying amount of the financial
liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities
assumed, is recognized in the consolidated statements of operations.
USE OF ESTIMATES, MEASUREMENT UNCERTAINTY AND JUDGMENTS
The preparation of consolidated financial statements requires management to make critical judgments, estimates and
assumptions that affect the reported amount of certain assets and liabilities and the disclosure of the contingent
assets and liabilities at the date of the consolidated financial statements and revenues and expenses for the period
reported. Management must also make estimates and judgments about future results of operations, related specific
elements of the business and operations in assessing recoverability of assets and recorded value of liabilities.
Significant areas of estimates, measurement uncertainty and judgments are summarized below. For each item,
actual results could differ from estimates and judgments made by management.
IMPAIRMENT OF GOODWILL
Goodwill is tested for impairment annually at the end of each fiscal year or more frequently if events or changes in
circumstances indicate there may be impairment. The determination of the impairment of goodwill is impacted by the
determination of the CGUs, estimates of the recoverable value of those CGUs, assumptions of future cash flows, and
achieving forecasted business results.
In Q1 2021, the Company changed the structure of its internal organization and senior leadership team under the
leadership of the new CEO as DCM continues to evolve into an integrated marketing and business solutions provider
to it's customers. As a consequence, in management’s judgment DCM now has a single goodwill CGU, being the
Company as a whole, reflecting the manner in which the operating results are being reviewed by the CODM to make
decisions about resources to be allocated and to assess the Company's performance.
The recoverable amount of this CGU was determined based on its estimated fair value less cost of disposal using a
discounted cash flow method. Management applied considerable judgment in estimating the recoverable amounts of
its CGU, which included the use of key assumptions relating to revenue growth rates, gross margins and discount
rates. Changing the assumptions selected by management, in particular the projected revenue growth rates, gross
margins, and discount rate assumptions used in the cash flow projections, could significantly affect the result of
DCM's impairment analysis.
GOING CONCERN
The assessment of events or conditions that may cast significant doubt on the Company’s ability to continue as a
going concern involves considerable judgment as there continues to be significant uncertainty as to the duration and
impact that the current COVID-19 pandemic and other inflationary pressures could have on the Company's financial
performance, and accordingly its ability to achieve its forecasted business results and meet its future financial
covenants over the next twelve months.
65
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
REVENUE RECOGNITION
a) Allocating the transaction price to separate performance obligations on bundled contracts
Certain of the Company’s contracts with customers include the provision of warehousing, shipment, marketing
and other services, in addition to manufacturing or purchase of third-party products. For bundled pricing
arrangements, the Company allocates the transaction price to each performance obligation based on their
relative stand-alone selling prices. This requires significant judgment and assumptions in determining the stand-
alone selling prices in allocating revenue between the various performance obligations based on non-bundled
pricing arrangements and comparable market data, where applicable.
b) Measurement of revenues and trade receivables
When determining the amount of revenue to record from contracts with customers, IFRS 15 requires the
Company to reduce the transaction price for any price concessions expected to be provided to customers, as
revenue can only be recognized to the extent that it is highly probable that a significant reversal in the amount of
revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
In addition in accordance with IFRS 9, DCM applies the simplified approach to determine lifetime expected credit
losses ("ECLs") on its billed trade receivables by using a provision matrix based on historical credit loss
experiences. The historical results are used to calculate the run rates of default which are then applied over the
expected life of the billed trade receivables, adjusted for forward looking information of economic and other
factors (such as potential impacts from the COVID-19 pandemic) affecting the ability of customers to settle the
billed trade receivables.
Changes in estimates are reflected in the period in which the circumstances that gave rise to the change became
known.
Considerable judgment by management is required to determine (a) the revenue and gross billed receivables to be
recognized where price concessions may need to be given to encourage customers to settle older amounts promptly
as a result of billing issues under IFRS 15 (as revenue can only be recognized to the extent that it is highly probable
that a significant reversal in the amount of revenue will not occur when the uncertainty associated with the variable
consideration is subsequently resolved), and (b) ECL provisions required under IFRS 9 to reflect impairments of its
trace receivables as a result of customers inability to settle the billed receivables. In 2021 the Company recorded a
provision of $618 (2020 - $567) within the billed receivable balance (and against revenue) for potential price
concessions that may need to be given to encourage customers to settle older amounts promptly as a result of billing
issues, separately from the $1,283 (2020 - $652) provision for lifetime expected credit losses (see note 23).
3 Change in accounting policies
New and amended standards adopted
CONFIGURATION OR CUSTOMIZATION COSTS IN A CLOUD COMPUTING ARRANGEMENT (IAS 38)
In April 2021 the IFRS Interpretations Committee published an agenda decision clarifying how configuration and
customization costs incurred in implementing a cloud computing arrangement should be accounted for. In that
agenda decision certain configuration and customization activities undertaken in implementing such arrangements
may give rise to a separate asset in limited circumstances where the company controls the intellectual property of the
underlying software code (e.g. the development of bridging modules to existing on-premise systems or bespoke
additional software capability). In all other instances, configuration and customization costs are to be expensed as
incurred as an operating expense.
66
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Where a change in accounting policy is required, comparative financial information is to be retrospectively restated to
derecognize previously capitalized costs in accordance with IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors.
The company previously capitalized $12,037 of costs as an intangible asset relating to the 2019 implementation of its
cloud-based ERP system which was being amortized over its estimated useful life of 5 years. Management
determined that none of these costs would qualify to be capitalized and amortized in accordance with the IFRS
Interpretations Committee’s agenda decision and would be required to be expensed in the period the costs were
incurred. The adoption of the interpretation was implemented retrospectively. The following table summarizes the
impact on DCM’s consolidated statement of financial position:
Intangible assets
Deferred tax asset
Deficit
Intangible assets
Deferred tax asset
Deficit
December 31, 2019
prior to the adoption
Impact
January 1, 2020 after
the adoption
$
18,167 $
6,648
(260,493)
(10,621) $
2,683
(7,938)
7,546
9,331
(268,431)
December 31, 2020
prior to the adoption
Impact
December 31, 2020
after the adoption
$
14,459 $
3,163
(249,697)
(8,218) $
2,073
(6,145)
6,241
5,236
(255,842)
The following table summarizes the impact on DCM’s consolidated statement of operations for the year ended
December 31, 2020:
General and administration expense
Deferred tax expense
$
32,460 $
3,598
(2,403) $
610
30,057
4,208
Year ended
December 31, 2020
prior to the adoption
Impact
Year ended
December 31, 2020
after the adoption
The following table summarizes the impact on DCM’s consolidated statement of cash flows for the year ended
December 31, 2020:
Year ended
December 31, 2020
prior to the adoption
Impact
Year ended
December 31, 2020
after the adoption
Net income for the year
Amortization of intangible assets
Income tax expense
$
11,506 $
4,279
3,107
1,793 $
(2,403)
610
13,299
1,876
3,717
67
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
IFRS 16 COVID-19-RELATED RENT CONCESSIONS
In May 2020, the IASB issued an amendment to IFRS 16 to provide lessees with an exemption from assessing
whether a COVID-19-related rent concession is a lease modification. This amendment to IFRS 16 was adopted
effective January 1, 2021 and did not have an impact on the consolidated financial statements.
IBOR REFORM
In recent years, global regulators have prioritized the reform and replacement of benchmark interest rates such as
LIBOR and other interbank offered rates (IBORs). As a result, public authorities and other market participants are
selecting new benchmark interest rates in key currencies with the objective that such rates will be based on liquid
underlying market transactions. With this reform, the IASB have provided amendments to IFRS 9 - Financial
Instruments, IFRS 7 - Financial Instruments: Disclosures and IAS 39 - Financial Instruments: Recognition and
Measurement. The amendments were adopted effective January 1, 2021 and applied retrospectively and the
adoption did not have an impact on the consolidated financial statements.
(b) Future accounting standards not yet adopted
IAS 1 PRESENTATION OF FINANCIAL STATEMENTS: CLASSIFICATION OF LIABILITIES AS CURRENT OR
NON-CURRENT
In January 2020, the IASB issued Classification of Liabilities as Current or Non-current (Amendments to IAS 1). The
amendments aim to promote consistency in applying the requirements by helping companies determine whether debt
and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be
settled within one year) or non-current. The amendments include clarifying the classification requirements for debt a
company might settle by converting it into equity. The amendments are effective for annual reporting periods
beginning on or after January 1, 2022, with earlier application permitted. DCM is currently evaluating the impact of
this amendment.
IFRS 3 REFERENCE TO CONCEPTUAL FRAMEWORK
In May 2020, the IASB issued an amendment to IFRS 3 to (i) clarify references to the 2018 Conceptual Framework in
order to determine what constitutes an asset or liability in a business combination, (ii) add an exception for certain
liabilities and contingent liabilities to refer to IAS 37 or IFRIC 21 and (iii) clarify that an acquirer should not recognize
contingent assets at the acquisition date. The mandatory effective date would be annual periods beginning on or after
January 1, 2022, with early adoption permitted. The amended standard is not expected to have a significant impact
on the consolidated financial statements.
IAS 37 ONEROUS CONTRACTS: COST OF FULFILLING A CONTRACT
In May 2020, the IASB issued an amendment to IAS 37 to clarify which costs to include in estimating the cost of
fulfilling a contract for the purpose of assessing whether that contract is onerous. The mandatory effective date would
be annual periods beginning on or after January 1, 2022, with early adoption permitted. The amended standard is not
expected to have a significant impact on the consolidated financial statements.
IFRS 9 FINANCIAL INSTRUMENTS: FEES IN THE '10 PER-CENT' TEST FOR DERECOGNITION OF FINANCIAL
LIABILITIES
In May 2020, the IASB issued Annual Improvements to IFRS Standards 2018 - 2020. This amendment clarifies which
fees an entity includes when it applies the ‘10 per cent’ test of IFRS 9 in assessing whether to derecognize a financial
liability. An entity includes only fees paid or received between the entity and the lender, including fees paid or received
by either the entity or the lender on the other’s behalf. The mandatory effective date would be for annual periods
68
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
beginning on or after January 1, 2022 with early application permitted. The amended standard is not expected to
have a significant impact on the consolidated financial statements.
There are no other IFRS or International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations that
are not yet effective that would be expected to have a significant impact on DCM.
4 Trade receivables
Trade receivables
Provision for expected credit losses (note 22)
December 31,
2021
December 31,
2020
$
$
52,850 $
(1,283)
51,567 $
65,942
(652)
65,290
As at December 31, 2021, trade receivables include unbilled receivables of $16,457 (2020 – $18,895), net of an
expected credit loss allowance of $750 (2020 – $300).
5 Inventories
Raw materials
Work-in-progress
Finished goods
December 31,
2021
December 31,
2020
$
$
6,519 $
2,662
2,952
12,133 $
4,061
1,393
3,060
8,514
Raw materials inventory amount is net of obsolescence reserves of $277 (2020 – $154). Finished goods consist of
base stock items.
69
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
6 Property, plant and equipment
The following tables present changes in property, plant and equipment for the years ended December 31, 2021 and
2020:
Year ended December 31, 2021
Opening net book value
Additions
Effect of movement in exchange
rates
Disposals
Depreciation for the year
Closing net book value
At December 31, 2021
Cost
Accumulated depreciation
Net book value
$
$
$
$
Leasehold
improvements
Office
furniture
and
equipment
Presses
and
printing
equipment
Computer
hardware Vehicles
Total
9,783
1,832
—
(66)
(3,133)
2,380 $
1,264
181 $
29
6,609 $
335
613 $
188
2
(32)
—
(9)
(2)
(21)
—
(4)
(1,019)
(107)
(1,792)
(215)
—
16
—
—
—
2,595 $
94 $
5,129 $
582 $
16 $
8,416
13,064 $
(10,469)
1,566 $ 43,179 $
(1,472)
(38,050)
2,948 $
(2,366)
2,595 $
94 $
5,129 $
582 $
90 $
(74)
16 $
60,847
(52,431)
8,416
Leasehold
improvements
Office
furniture
and
equipment
Presses
and
printing
equipment
Computer
hardware Vehicles
Total
Year ended December 31, 2020
Opening net book value
Additions, net of transfers from CIP
Effect of movement in exchange rates
Disposals
Depreciation for the year
Closing net book value
At December 31, 2020
Cost
Accumulated depreciation
Net book value
$
$
$
$
3,437 $
—
(1)
—
288 $
20
—
—
8,489 $
207
(1)
831 $
41
17 13,062
268
—
—
(2)
—
(4)
—
(4)
(1,056)
(127)
(2,086)
(255)
(17)
(3,541)
2,380 $
181 $
6,609 $
613 $
— $ 9,783
12,051 $
(9,671)
1,659 $ 43,795 $
(1,478)
(37,186)
3,079 $
(2,466)
74 $ 60,658
(74) (50,875)
2,380 $
181 $
6,609 $
613 $
— $ 9,783
70
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
7 Right-of-use asset
The following tables present changes in the right-of-use assets for for the years ended December 31, 2021 and 2020:
Year ended December 31, 2021
Opening net book value
Additions
Modifications
Disposal
Depreciation for the year
Effect of movement in exchange
rates
Closing net book value
At December 31, 2021
Cost
Accumulated depreciation
Net book value
Year ended December 31, 2020
Opening net book value
Additions
Modifications
Depreciation for the year
Effect of movement in exchange
rates
Closing net book value
At December 31, 2020
Cost
Accumulated depreciation
Net book value
$
$
$
$
$
$
$
$
Property
Office
Equipment
Production
Equipment
33,698 $
574
(1,442)
(334)
(4,176)
(12)
28,308 $
682 $
96
270
—
(907)
—
141 $
Total
42,341
670
(759)
(334)
7,961 $
—
413
—
(3,345)
(8,428)
(2)
5,027 $
(14)
33,476
40,753 $
(12,445)
28,308 $
2,807 $
(2,666)
141 $
15,647 $
(10,620)
5,027 $
59,207
(25,731)
33,476
Property
Office
Equipment
Production
Equipment
43,419 $
642
(6,665)
(3,668)
(30)
33,698 $
1,610 $
—
47
(964)
(11)
682 $
11,352 $
204 $
167 $
(3,767) $
5
7,961 $
Total
56,381
846
(6,451)
(8,399)
(36)
42,341
41,970 $
(8,272)
33,698 $
2,441 $
(1,759)
682 $
15,238 $
(7,277)
7,961 $
59,649
(17,308)
42,341
During the year ended December 31, 2021, DCM modified certain leases by entering into renewal and/or amending
agreements to extend or reduce a lease term and/or increase/reduce the lease payments, including the termination of
two facilities that were consolidated into one new facility. During the year ended December 31, 2021, DCM reduced
the assumed duration of various leased facilities to exclude extension options as management determined that it was
no longer considered reasonably certain that they would be exercised.
During the year ended December 31, 2020, DCM modified certain leases by entering into renewal and/or amending
agreements to extend or reduce a lease term and/or increase/reduce the lease payments. This includes formalizing a
property lease agreement that was previously month-to-month, and reducing the term of its' Mississauga facility to
exclude extension options as it was announced subsequent to year-end that the facility will consolidate with the
Brampton facility by the end of 2021.
71
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
8 Intangible assets
The following tables present changes in intangible assets for the years ended December 31, 2021 and 2020:
Year ended December 31, 2021
Opening net book value
Additions
Amortization for the year
Closing net book value
At December 31, 2021
Cost
Accumulated amortization
Net book value
Year ended December 31, 2020
Opening net book value
Additions
Amortization for the year
Closing net book value
At December 31, 2020
Cost
Accumulated amortization
Net book value
Customer
relationships
Software and
technology
Trademarks,
trade names
and non-
compete
agreements
5,449 $
—
(1,577)
3,872 $
657 $
1,390
(1,934)
113 $
135 $
—
(78)
57 $
Total
6,241
1,390
(3,589)
4,042
87,733 $
11,881 $
8,697 $
108,311
(83,861)
(11,768)
(8,640)
(104,269)
3,872 $
113 $
57 $
4,042
Customer
relationships
Software and
technology
(Restated - Note 3)
Trademarks,
trade names and
non-compete
agreements
7,061 $
—
(1,612)
5,449 $
143 $
571
(57)
657 $
341 $
—
(206)
135 $
Total
7,545
571
(1,875)
6,241
87,733 $
13,717 $
8,697 $
110,147
(82,284)
(13,060)
(8,562)
(103,906)
5,449 $
657 $
135 $
6,241
$
$
$
$
$
$
$
$
The remaining useful lives of the customer relationships are between 1 and 5 years.
During the year ended December 31, 2021, the costs of $1,390 (2020 - $571) DCM incurred mainly related to a new
development project. During the fourth quarter of 2021, DCM changed its' strategy for this project and the remaining
unamortized amount of $1,508 was written-off and recorded within amortization expense.
72
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
9 Goodwill
DCM
DCM Burlington
Thistle
Perennial
December 31,
2021
December 31,
2020
$
$
16,973 $
—
—
—
16,973 $
864
836
6,603
8,670
16,973
DCM performs an annual impairment analysis of goodwill at the end of each fiscal year, or more frequently if events
or changes in circumstances indicate that the cash generating units ("CGU") to which goodwill has been allocated
may be impaired.
In prior years the Company's goodwill was allocated to four cash generating units - DCM and its previously acquired
businesses, DCM Burlington, Thistle and Perennial. In Q1 2021, the Company changed the structure of its internal
organization and senior leadership team under the leadership of the new CEO as DCM continues to evolve into an
integrated marketing and business solutions provider to its customers. As a consequence, DCM now has a single
operating segment, being the Company as a whole, which is the level at which goodwill is now monitored for internal
management purposes reflecting the way DCM is now managing its operations.
DCM performed its review for impairment of goodwill by comparing the fair value of the Company's CGU to its
respective carrying value. DCM did not make any changes to the valuation methodology used to assess for
impairment since its last annual impairment test. The recoverable amount of its CGU has been determined based on
the fair value less cost of disposal. DCM uses the income approach to estimate the recoverable value of its CGU
considering estimated cash flows from the perspective of an independent market participant, which would be
classified within Level 3 of the fair value hierarchy. The income approach is predicated on the value of the future cash
flows that a business will generate going forward. The discounted cash flow method was used which involves
projecting cash flows and converting them into a present value through discounting. The discounting uses a rate of
return that is commensurate with the risk associated with the business and the time value of money. This approach
required key assumptions about projected revenue growth rates, gross margins and discount rates.
Revenue growth rates and gross margins were based on the 2022 budget internally approved and presented to the
Board and further projected over a five-year forecast period. The average annual cumulative revenue growth rates for
the 2022 forecast period was 3.6% (2020: 0.4% for DCM CGU, 7.1% for DCM Burlington CGU, 12.0% for Thistle
CGU and 30.60% for Perennial CGU). A revenue growth rate of between 3.6% to 6.7% (2020 – 0% for DCM CGU,
1% for DCM Burlington CGU and Thistle CGU and (4.3)% to 7.4% for Perennial CGU) was applied to revenue over
the forecast period in consideration of the current economic conditions that existed as at December 31, 2021 and the
specific trends of the business services and marketing solutions industries. A perpetual long-term growth rate of 0%
(2020 – 0%) was used thereafter to derive the recoverable amount of the CGU. The forecasted gross margins over
the five-year forecast period were 31.0% to 35.1% (2020: 30.3% for DCM CGU, 26.8% DCM Burlington CGU, 34.1%
Thistle CGU and 54.0% for Perennial CGU).
Furthermore, DCM derived an after-tax discount rate to calculate the present value of the projected cash flows using
a weighted average cost of capital (“WACC”). This represents an estimate of the total overall required rate of return
on an investment for both debt and equity owners. Determination of the WACC requires separate analysis of cost of
equity and debt, and considers a risk premium based on the assessment of risks related to the projected cash flows.
A discount rate of 15.0% was used (2020 – 14.88%). The change in discount rates reflect management’s judgment as
to the specific risks relating to the CGU and industry in which it operates.
73
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
As a result of these tests, it was concluded that there was no impairment of goodwill during the year. The estimated
recoverable amount exceeded its carrying value by $160,907 (2020 - DCM $84,603; DCM Burlington $13,709; Thistle
$13,524; Perennial $3,527).
The recoverable amount would equal its carrying value if the key assumptions were changed to the following (in each
case with all other assumptions remaining unchanged).
December 31,
2021
December 31,
2020
50.1 %
n/a
n/a
n/a
(5.3) %
n/a
n/a
n/a
23.0 %
n/a
n/a
n/a
55.1 %
48.1 %
37.1 %
20.5 %
(9.6) %
(10.8) %
(7.5) %
2.0 %
23.4 %
15.8 %
21.0 %
47.0 %
CGU
Discount rate
DCM
DCM Burlington
Thistle
Perennial
Revenue growth rate over 5 year forecast period and in perpetuity
DCM
DCM Burlington
Thistle
Perennial
Gross Margin
DCM
DCM Burlington
Thistle
Perennial
74
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
10 Provisions
Balance – December 31, 2020
Additional charge during the year
Utilized during the year
Balance - December 31, 2021
Less: Current portion of provisions
As at December 31, 2021
Balance – December 31, 2019
Additional charge during the year
Utilized during the year
Balance – December 31, 2020
Less: Current portion of provisions
As at December 31, 2020
Termination
provisions Plant Closure
1,276 $
8,631
(5,981)
3,926 $
(2,730)
1,196 $
— $
1,060
(510)
550 $
(550)
— $
Termination
provisions
Plant Closure
4,078 $
2,821
(5,623)
1,276 $
(1,186)
90 $
— $
—
—
— $
—
— $
$
$
$
$
$
$
Total
1,276
9,691
(6,491)
4,476
(3,280)
1,196
Total
4,078
2,821
(5,623)
1,276
(1,186)
90
TERMINATION PROVISIONS
During the year ended December 31, 2021 and 2020, DCM continued its restructuring and ongoing productivity
improvement initiatives to reduce its cost of operations.
During the year ended December 31, 2021, these initiatives resulted in $8,631 of additional restructuring expenses
due to headcount reduction across DCM's operations including senior executive management and $1,060 due to the
closure of certain manufacturing and office locations in the consolidated statement of operations. During the year
ended December 31, 2020, these initiatives resulted in $2,821 of additional restructuring expenses due to headcount
reduction across DCM's operations.
For the year ended December 31, 2021, cash payments of $6,491 (2020 - $5,623) were made to former employees
for severances, to a landlord for closure of a manufacturing location and for other restructuring costs. The remaining
severance and restructuring accruals of $3,926 at December 31, 2021 are expected to be paid in 2022 and 2023.
11 Lease liabilities
(i) LEASE LIABILITIES
DCM currently leases office space, office equipment and production equipment. A lease liability has been recognized
equal to the present value of remaining lease payments discounted at the interest rate implicit in the lease, or if that
rate cannot be readily determined, DCM’s weighted average incremental borrowing rate.
75
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
$
$
$
Balance - January 1, 2021
Additions
Modifications
Disposals
Payments during the year
Interest charge for the year
Effects of movement in FX rates
Balance - December 31, 2021
Balance - January 1, 2020
Additions
Modifications
Payments during the year
Interest charge for the year
Effects of movement in FX rates
Balance - December 31, 2020
Property
39,033 $
574
(572)
(396)
(6,345)
2,065
Office
Equipment
1,018 $
96
28
—
(1,054)
28
34,359 $
116 $
Production
Equipment
8,302 $
(288)
—
Total
48,353
670
(832)
(396)
(3,803)
(11,202)
428
(15)
4,624 $
2,521
(15)
39,099
Property
48,317 $
642
(6,374)
(6,150)
2,603
(5)
Office
Equipment
Production
Equipment
1,903 $
—
47
(1,013)
81
—
1,018 $
11,546 $
204
167
(4,173)
573
(15)
8,302 $
Total
61,766
846
(6,160)
(11,336)
3,257
(20)
48,353
$
39,033 $
The contractual undiscounted cash flows of DCM’s lease liabilities are as follows:
Contractual
Cash Flows
Extension
Options
Not later than one year
Later than one and not later than five years
Later than five years
Total undiscounted lease liabilities
$
$
Discounted using the incremental borrowing rate
Lease liabilities
Current
Non-current
8,299 $
22,127
690
Total December
31, 2021
8,299
24,114
25,876
— $
1,987
25,186
31,116 $
27,173 $
$
$
$
58,289
(19,190)
39,099
6,123
32,976
(ii) AMOUNTS RECOGNIZED IN THE STATEMENT OF OPERATIONS
Variable lease payments not included in the measurement of
lease liabilities
Income from sub-leasing right-of-use assets
Expenses relating to short-term leases and leases of low value
assets
$
$
$
5,744 $
(124) $
808 $
5,178
(212)
1,170
For the year ended
December 31, 2021
For the year ended
December 31, 2020
All extension options that are reasonably certain to be exercised have been included in the measurement of the lease
obligation. The Company reassesses the likelihood of extension option to be exercised when there was a significant
event or change in circumstances. During the year ended December 31, 2021, extension options that are not
reflected in the measurement of the lease liability total $1,063 (2020 - $5,715).
76
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
12 Credit facilities
Term loans
- 6.10% term debt, maturing October 15, 2022 (FPD III
Credit Facility)
- 6.95% term debt, maturing March 10, 2023 (FPD IV
Credit Facility)
- 6.95% term debt, maturing May 15, 2023 (FPD V Credit
Facility)
- 5.95 % term debt, maturing December 15, 2026 (FPD VI
Credit facility)
-12.00% term debt, maturing May 7, 2023 (Crown
Facility)
- floating rate debt, maturing May 8, 2024 (Bank Term
Loan)
Revolving facilities
- floating rate debt, maturing November 8, 2024 (Bank
Credit Facility)
Credit facilities
Unamortized debt premiums and discount
Unamortized transaction costs
Less: Current portion of Credit facilities
Credit facilities
CREDIT AGREEMENTS
$
$
$
December 31,
2021
December 31,
2020
$
1,743 $
9,432
2,200
11,000
—
9,690
2,969
37,034 $
140
(875)
36,299 $
(11,743) -
6
24,556 $
2,760
13,678
3,109
—
20,911
—
5,687
46,145
921
(1,327)
45,739
(6,172)
39,567
BANK FACILITIES
DCM has established a revolving credit facility (as amended, the “Bank Credit Facility”) pursuant to an agreement
("the Bank Credit Agreement") with a Canadian chartered bank (the “Bank”). Under the terms of the Bank Credit
Agreement, the maximum principal amount available under the Bank Credit Facility is $15,000 (see Amendments to
Credit Facilities) and the Bank Credit Facility matures on November 8, 2024. Advances under the Bank Credit Facility
may not, at any time, exceed the lesser of $15,000 and a fixed percentage of DCM’s aggregate accounts receivable
and inventory (less certain amounts). Advances under the amended Bank Credit Facility are subject to floating
interest rates based upon the Canadian prime rate plus an applicable margin of 0.5%. On November 8, 2021, DCM
established a term loan ("Bank Term Loan") with the Bank for $10,000 to in part refinance the Crown Facility. The
Bank Term Loan matures on May 8, 2024 and is subject to a floating interest rate based upon the Canadian prime
rate plus an applicable margin of 3.50%. The amended facility also includes an “accordion” feature which can provide
of up to $10,000 of additional capacity under the revolving facility. As at December 31, 2021, DCM had access to
$11,463 of available credit under the Bank Credit Facility. The cash and cash equivalents balance of $901 shown on
the consolidated statement of financial position as at December 31, 2021 represents outstanding deposits which
when cashed would reduce the borrowing under the Bank Credit Facility.
FPD FACILITIES
DCM has four amortizing term loan facilities (the "FPD Credit Facilities" and, collectively with the Bank Credit Facility,
the "Credit Facilities") with Fiera Private Debt Fund III L.P., Fiera Private Debt Fund IV L.P., Fiera Private Debt V L.P.,
and Fiera Private Debt VI L.P. (newly acquired loan in 2021 - see amendments to credit facilities), all of which are
funds managed by Fiera Private Debt Fund GP Inc. ("FPD").
77
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
CROWN FACILITY
DCM had a non-revolving term loan facility with Crown Capital Partner Funding, LP, a fund managed by Crown
Capital LP Partner Funding Inc. The total advances under this facility were $19,000. Interest of $2,496 (2020 -
$1,911) had been deferred and capitalized to the outstanding principal obligation, increasing the total advances to
$21,800 (2020 - $20,911) prior to the refinancing of this debt. These advances were repayable on maturity on May 7,
2023 and bore interest at 12% per annum, payable quarterly. DCM's obligations under the Crown Facility were
subordinated to its other senior credit facilities and secured by a conventional security on all of the assets of DCM
and its subsidiaries.
A total of 1,510,000 warrants were issued to Crown in connection with these loans which entitle Crown to acquire one
DCM common share per warrant at an exercise price of $0.26. The warrants expire on May 7, 2023.
The Crown Facility was prepayable in full at any time, subject to prepayment fees of: (a) 2% on the principal loan
outstanding if the prepayment option was exercised prior to May 2022 or (b) 1% on the principal loan outstanding if
the prepayment option was exercised thereafter.
During the fourth quarter of 2021, the Crown Facility was prepaid and refinanced through amended and new credit
facilities from the Bank and FPD (see amendments to credit facilities). A prepayment fee of $429 was incurred which
is included within finance costs. The carrying value of the Crown Facility was nil as of December 31, 2021.
AMENDMENTS TO CREDIT FACILITIES
On January 22, 2021, DCM entered into a ninth amendment to its Bank Credit Facility. The applicable margin payable
on DCM's borrowings under the Bank Credit Facility was reduced from 1.35% to 0.60% for an interest rate of 3.05%
taking into account then current floating reference rates and the applicable margin payable by DCM. The Minimum
Cash Flow Requirement covenant (as defined in the Sixth Amending Agreement) was also terminated.
On November 8, 2021, DCM entered into an amended and restated credit facility (the “Amended Bank Facility”) with
the Bank. The Amended Bank Facility includes a revolving credit facility of up to $15,000, a term loan of $10,000 and
an “accordion” feature which can provide of up to $10,000 of additional capacity under the revolving facility. The term
loan will amortize in equal monthly payments over 30 months. The maturity date of the Amended Bank Facility has
been extended from January 31, 2023 to November 8, 2024. The revolving facility is available to finance the working
capital needs of the Company. Advances under the Amended Bank Facility are subject to floating interest rates based
upon the Canadian prime rate plus an applicable margin of 0.50% and 3.50% for the revolving and term components,
respectively. In connection with this amendment, DCM recognized a loss on modification of $260, which is included in
finance costs in the consolidated statement of operations. For the year-ended December 31, 2021, DCM capitalized
transaction costs of $210.
On December 17, 2021, DCM also entered into an agreement with FPD VI, by its general partner, FPD, pursuant to
which FPD provided an $11,000 term facility, with a term of 60 months from closing. The FPD VI term loan will
amortize in equal monthly principal payments over 84 months, with the remaining 24 payments at maturity due in a
bullet payment. A fixed interest rate of 5.95% per annum is payable on the FPD VI term loan. For the year-ended
December 31, 2021, DCM capitalized transaction costs of $279. Concurrently with the entering into of the FPD VI
term loan, the terms of the loans with FPD III, FPD IV and FPD V, were amended such that the terms of the
agreements are the same, other than in respect of interest rates, maturity dates and amortization.
Collectively, the proceeds from the new term loans provided by the Bank and FPD, and the drawings on the revolving
facility, were used to repay the $21,496 Crown Facility.
COVENANT REQUIREMENTS
Each of the Bank Credit Agreement and the FPD 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
78
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
consent of the Bank, FPD III, FPD IV, FPD V and FPD VI as applicable. The Company’s current financial covenant
requirements include a working capital current ratio, total funded debt to EBITDA ratio and a fixed charge coverage
ratio test as well as limits on our annual capital expenditures and total funded debt levels. As of December 31, 2021,
DCM was in compliance with the amended covenants.
The continued ability to comply with financial covenants on the Company's credit facilities for at least the next twelve
months is contingent on management’s ability to meet budgeted revenue, profitability and working capital targets. The
estimate of future cash flows in the Company’s 2022 budget include a number of key assumptions to support the
financial covenant calculations, specifically related to forecast revenues and gross margins (which in turn impact
earnings before interest, income taxes, depreciation and amortization (EBITDA)). The estimates of forecasted
compliance with financial covenants (particularly for the fixed charge coverage ratio) are sensitive to those
assumptions including the ongoing impact of the COVID-19 pandemic and other inflationary pressures, the effects
and duration of which are difficult to project with respect to the Company’s business and financial results. For
example a shortfall in our budgeted EBITDA of 6% for February through to November 2022 could result in the breach
of our fixed charge coverage ratio covenant (see also note 22).
For purposes of the Bank Credit Agreement, the FPD Credit Agreements, “EBITDA” means net income or net loss for
the relevant period, calculated on a consolidated basis, plus amounts deducted, or minus amounts added, in
calculating net income or net loss in respect of: the aggregate expense incurred for interest on debt and other costs of
obtaining credit; income taxes, whether or not deferred; depreciation and amortization; non-cash expenses resulting
from employee or management compensation, including the grant of stock options or restricted options to employees;
any gain or loss attributable to the sale, conversion or other disposition of property out of the ordinary course of
business; interest or dividend income; foreign exchange gain or loss; gains resulting from the write-up of property and
losses resulting from the write‑down of property (except allowances for doubtful accounts receivable and non-cash
reserves for obsolete inventory); any gain or loss on the repurchase or redemption of any securities (including in
connection with the early retirement or defeasance of any debt); goodwill and other intangible asset write-downs;
lease payments to convert on a pre IFRS 16 basis; and any other extraordinary, nonrecurring or unusual items such
as restructuring costs as agreed to by the lender. The pro forma financial results from any acquisitions completed by
DCM during a given 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.
A failure by DCM to comply with its obligations under the Bank Credit Agreement or, the FPD 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 FPD, 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 or that it
shall be able to receive waivers from its lenders to the extent required; however there can be no assurance that DCM
will be successful in achieving the results targeted in its operating plans or in complying with its covenants, or
obtaining waivers from its lenders over the next twelve months (see note 1 and note 22).
In addition, under the terms of the FPD IV Credit Agreement and the FPD V Credit Agreement, DCM is required to
deposit and hold cash in a blocked account of $425 and of $90 to be used for repayments of principal and interest of
indebtedness outstanding under the FPD IV Credit Facility and indebtedness outstanding under the FPD V Credit
Facility, respectively. As at December 31, 2021, there was a balance of $515 (December 31, 2020 - $515) in the
blocked account related to the FPD IV Credit Facility and FPD V Credit Facility which is recognized as restricted cash
on the consolidated statement of financial position. These requirements have been eliminated effective January 2022.
INTER-CREDITOR AGREEMENT
DCM's obligations under its Credit Facilities are secured by conventional security charging all of the property and
assets of DCM and its subsidiaries. DCM entered into an amended inter-creditor agreement between the Bank, FPD
III, FPD IV, FPD V, and FPD VI, respectively, which, among other things, establishes the rights and priorities of the
79
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
respective liens of the Bank, FPD III, FPD IV, FPD V and FPD VI on the present and after acquired property of DCM
and its subsidiaries.
The movement in credit facilities during the years ended December 31, 2021 and 2020 are as follows:
Balance - Beginning of year, net of transaction costs and debt
premiums and discounts
$
45,739 $
78,647
December 31,
2021
December 31,
2020
Changes from financing cash flows
Proceeds from credit facilities
Repayment of credit facilities
Transaction costs
Total change from financing cash flows
Non-cash movements
Amortization of transaction costs
Debt modification losses
Capitalized interest on Crown advances
Accretion of premium and discount
21,000
(30,696)
(489)
35,554
941
260
585
(1,041)
—
(32,865)
(227)
45,555
553
634
1,911
(2,914)
Balance - End of year, net of transaction costs and debt
premiums and discounts
$
36,299 $
45,739
The scheduled principal repayments on the long-term debt are as follows:
December 31,
2021
11,743
12,693
6,311
1,571
4,716
37,034
$
$
2022
2023
2024
2025
2026
80
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
13 Promissory notes
The movement in the promissory note balances during the years ended December 31, 2021 and 2020 are as follows:
2021
Balance – Beginning of year
Unwinding of discount
Payments during the year
Balance – End of year
Less: Current portion of promissory notes
As at December 31, 2021
2020
Balance - Beginning of year
Unwinding of discount
Loss (gain) on modification
Payments during the year
Balance - End of year
Less: Current portion of promissory notes
As at December 31, 2020
BOLDER
Graphics
acquisition
Perennial
acquisition
Related Party
Promissory
Notes
$
174 $
(174)
— $
$
— $
$
$
980 $
(10)
(970)
— $
— $
— $
BOLDER
Graphics
acquisition
Perennial
acquisition
Related Party
Promissory
Notes
$
175 $
2
—
1,447 $
6
57
(3)
(530)
174 $
980 $
$
$
975 $
25
Total
2,129
15
(1,000)
(2,144)
— $
— $
— $
—
—
—
965 $
10
—
—
975 $
Total
2,587
18
57
(533)
2,129
(174)
(980)
—
(1,154)
— $
— $
975 $
975
On June 18, 2020, DCM entered into an amendment for the Perennial acquisition VTB ("Perennial amendment"). The
original terms required payments of $1,000 on May 8, 2020 and $500 on May 8, 2021. As of September 30, 2020,
DCM made payments of $530 of the total $1,000 owing on May 8, 2020. The remaining payment of $470 was
deferred, for a total of $970 due on May 8, 2021. The Perennial amendment also added an interest rate of 10% per
annum commencing May 8, 2020. In connection with this amendment, an additional 215,450 warrants were issued
(note 17). Each warrant entitles the holder to acquire one DCM common share at an exercise price of $0.185 for a
period of 2 years, commencing on June 18, 2020. The Perennial amendment resulted in a loss on modification of the
loan of $69 which was apportioned $57 to the debt instrument and $12 to the warrant option based on their relative
fair values (note 17). The loss on modification of the loan of $69 is included in finance costs in the consolidated
statement of operations.
In 2019, DCM issued promissory notes (“Related Party Promissory Notes”) to members of key management of DCM,
in the aggregate principal amount of $1,000. The Related Party Promissory Notes bear interest at the rate of 12% per
annum (amended from 10% per annum to 12% per annum in November 2020), payable quarterly on the first
business day of each fiscal quarter beginning September 3, 2019, with principal repayable on or before the May 7,
2023 maturity date. In June 2021, the Related Party Promissory Notes balance of $1,000 was repaid early.
The Related Party Promissory Notes were subordinated to DCM's obligations under the Bank Credit Facility and the
FPD Credit Facilities on the same basis as the VTB Noteholders as provided for in the amended and restated inter-
creditor agreement dated May 7, 2018.
In addition, a total of 78,571 warrants were issued in connection with the issuance of the Related Party Promissory
Notes. Each warrant entitles the holder to acquire one DCM common share at an exercise price of $1.08 prior to
March 31, 2023.
81
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
14 Income taxes
Significant components of DCM’s deferred income tax assets and liabilities as of December 31, 2021 and 2020 are as
follows:
December 31, 2021
Assets
Liabilities
Net
Pension obligations and other post-employment benefit plans
$
1,957 $
— $
1,957
Property, plant and equipment, ROU assets and lease liabilities
Benefit of income tax loss and other carry-forwards
Deferred finance fees and debt premiums
Deductible reserves
Intangible assets
Other
646
579
139
1,394
561
189
—
—
—
—
—
—
646
579
139
1,394
561
189
Total deferred income tax assets (liabilities)
$
5,465 $
— $
5,465
Set-off of deferred income tax assets (liabilities) pursuant to set off
provisions
Net deferred income tax assets (liabilities)
December 31, 2020
—
$
5,465 $
—
— $
—
5,465
Assets
Liabilities
Net
Pension obligations and other post-employment benefit plans
$
2,920 $
— $
2,920
Property, plant and equipment, ROU assets and lease liabilities
Benefit of income tax loss and other carry-forwards
Deferred finance fees and debt premiums
Deductible reserves
Promissory notes
Intangible assets
Other
364
64
360
595
2
—
—
—
—
—
1,032
—
(316)
(67)
364
64
360
595
2
716
(67)
Total deferred income tax assets (liabilities)
$
5,337 $
(383) $
4,954
Set-off of deferred income tax assets (liabilities) pursuant to set off
provisions
(101)
101 $
—
Net deferred income tax assets (liabilities)
$
5,236 $
(282) $
4,954
As at December 31, 2021, DCM recorded net deferred income tax assets of $5,465 (2020 – $5,236) and net deferred
income tax liabilities of nil (2020 – $282) in its consolidated statements of financial position. The deferred income tax
assets are only offset against deferred income tax liabilities where DCM has a legally enforceable right to offset these
amounts and the deferred income tax assets and deferred income tax liabilities are related to income taxes levied by
the same taxation authority.
82
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Changes in deferred income tax assets and liabilities during the years ended December 31, 2021 and 2020 are as
follows:
Balance at
January 1,
2021 as restated
Recognized
in statement
operations
Recognized in
comprehensive
income
Balance at
December 31,
2021
Other
Pension obligations and other
post-employment benefit plans $
Property, plant and equipment,
ROU assets and lease
liabilities
Benefit of income tax loss and
other carry-forwards
Deferred finance fees and debt
premiums
Deductible reserves
Intangible assets
Promissory notes
Other
Deferred income tax assets
(liabilities), net
$
2,920 $
— $
(315) $
(648) $
1,957
364
64
360
595
716
2
(67)
—
—
—
—
—
—
—
282
515
(221)
799
(155)
(2)
256
—
—
—
—
—
—
—
646
579
139
1,394
561
—
189
4,954 $
— $
1,159 $
(648) $
5,465
Balance at
January 1,
2020 as
previously
reported
Adjusted for
IFRIC
Agenda
Decision
(note 3)
Recognized
in statement
operations
Recognized in
comprehensive
income
Balance at
December
31, 2020
Other
2,713 $
— $
— $
(32) $
239 $
2,920
124
—
—
240
2,393
1,064
507
(513)
(15)
(27)
—
—
—
2,683
—
—
—
(2,329)
—
—
—
—
(6)
(704)
88
(1,454)
17
(34)
—
—
—
—
—
—
—
364
64
360
595
716
2
(67)
$
6,246 $
2,683 $
(6) $
(4,208) $
239 $
4,954
Pension obligations and other
post-employment benefit plans $
Property, plant and equipment,
ROU assets and lease
liabilities
Benefit of income tax loss and
other carry-forwards
Deferred finance fees and debt
premiums
Deductible reserves
Intangible assets
Promissory notes
Other
Deferred income tax assets
(liabilities), net
The realization of the deferred income tax assets is dependent on the generation of future taxable income during the
years in which those temporary differences become deductible. Based on management's projections of future taxable
income and tax planning strategies, management expects to realize these net deferred income tax assets in advance
of expiry. As at December 31, 2021, DCM has non-capital tax loss carry-forwards of $3,928 (2020 – $901), of which
$1,742 relates to deferred tax asset not recognized. The non-capital tax loss carry-forwards expire in varying
amounts from 2039 to 2040 (2020 – 2037 to 2039).
In the ordinary course of business, DCM and its subsidiaries and predecessors have entered into transactions where
the ultimate tax determination may be uncertain. These uncertainties require management to make estimates of the
ultimate tax liabilities and, accordingly, the provision for income taxes. Since there are inherent uncertainties,
83
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
additional tax liabilities may result if tax matters are ultimately resolved or settled at amounts different from those
estimates. As at December 31, 2021, DCM has provided for $1,407 (2020 - $1,407) included in income taxes
payable related to past transactions where the ultimate tax determination is unclear.
The major components of income tax expense (recovery) for the years ended December 31, 2021 and 2020 are set
out below:
Current income tax expense:
Current tax on profits for the year
Adjustment for current tax of prior periods
Total current income tax expense (recovery)
Total deferred income tax (recovery) expense
Total income tax (recovery) expense for the year
For the year ended
December 31, 2021
For the year ended
December 31, 2020 as
restated
$
$
$
2,238 $
—
2,238 $
(1,159)
1,079 $
369
(860)
(491)
4,208
3,717
For the year ended December 31, 2021, deferred income tax expense (recovery) on the recognition of actuarial gains
(losses) related to DCM's defined benefit plans of $648 (2020 – $239) were recognized in the statements of
comprehensive income.
The following are reconciliations of income tax expense (recovery) calculated at the statutory rate of Canadian
corporate income taxes to the income tax expense (recovery) for the years ended December 31, 2021 and 2020.
For the year ended
December 31, 2021
For the year ended
December 31, 2020 as
restated
Income before income taxes
$
2,644 $
Expected income tax expense calculated at statutory income
tax rate (1)
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
Unrecognized tax losses and temporary differences
Adjustment for current tax of prior periods and other
Non-deductible expenses and other items
Total income tax expense for the year
$
651
73
333
(89)
111
1,079 $
17,016
4,325
(3)
—
(860)
255
3,717
(1) The calculation of the current income tax is based on a combined federal and provincial statutory income tax rate
of 24.64% (2020 – 25.42%).
The combined federal and provincial statutory income tax rate for the current year is 0.78% lower than 2020 due to
the effect of changes in statutory tax rates and the allocation of taxable income between provinces. Deferred income
tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realized
or the liability is settled. Deferred income tax assets and liabilities have been measured using an expected average
combined statutory income tax rate of 24.64% (2020 – 25.49%) based on the tax rates in years when the temporary
differences are expected to reverse.
84
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
15 Pension obligations, assets and expenses
Effective January 1, 2008, no further services credits will accrue under the defined benefit provision of the DATA
Communications Management Pension Plan. Actuarial valuations are typically performed at least 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, 2020, 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, 2020, the solvency position of the defined benefit provision of the DATA Communications Management
Pension Plan had improved since the previous valuation. Based upon the January 1, 2020 actuarial report, DCM's
annual minimum funding obligation for the defined benefit provision of the DATA Communications Management
Pension Plan for 2020 is $551 and 2021 is $423.
The following is a summary of DCM’s net pension obligations for the defined benefit provision of the funded DATA
Communications Management Pension Plan and unfunded SERP:
Present value of funded obligations
Less: Fair value of plan assets
Surplus of funded plan
Present value of unfunded obligations
Pension obligations, net
December 31,
2021
December 31,
2020
61,137 $
(63,668)
(2,531)
7,499
4,968 $
67,530
(67,733)
(203)
8,271
8,068
$
$
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
funded DATA Communications Management Pension Plan and unfunded SERP:
Balance – Beginning of year
Interest expense
Benefits paid
Re-measurements:
‑ Gain from change in financial assumptions
‑ Experience (gains) losses
Funded
Unfunded
$
67,530 $
8,271 $
1,655
(3,206)
(4,834)
(8)
184
(547)
(494)
85
Balance – End of year
$
61,137 $
7,499 $
December 31,
2021
75,801
1,839
(3,753)
(5,328)
77
68,636
85
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Balance – Beginning of year
Interest expense
Benefits paid
Re-measurements:
‑ Loss from change in financial assumptions
‑ Experience (gains) losses
Funded
Unfunded
$
64,999 $
7,958 $
1,935
(3,290)
5,072
(1,186)
232
(521)
528
74
Balance – End of year
$
67,530 $
8,271 $
December 31,
2020
72,957
2,167
(3,811)
5,600
(1,112)
75,801
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
funded DATA Communications Management Pension Plan and unfunded SERP:
Balance – Beginning of year
Interest income
Employer contributions
Benefits paid
Administrative expenses paid from plan assets
Re-measurements:
‑ Loss on plan assets, excluding amounts included in
interest income
Balance – End of year
Funded
Unfunded
$
67,733 $
— $
1,659
423
(3,211)
(300)
547
(547)
—
December 31,
2021
67,733
1,659
970
(3,758)
(300)
(2,636)
$
63,668 $
—
— $
(2,636)
63,668
Funded
Unfunded
December 31,
2020
Balance – Beginning of year
$
65,155 $
1,980
595
(3,290)
(300)
— $
—
521
(521)
—
65,155
1,980
1,116
(3,811)
(300)
3,593
$
67,733 $
—
— $
3,593
67,733
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
86
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(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 funded DATA
Communications Management Pension Plan:
For the year ended
December 31, 2021
For the year ended
December 31, 2020
Quoted
Percentage of
plan assets
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
$
$
$
$
$
$
484
12,254
12,738
6,625
37,622
6,331
50,578
352
63,668
$
20 % $
$
436
9,947
10,383
15,158
41,799
0
79 % $
56,957
1 % $
393
100 % $
67,733
15 %
84 %
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 funded DATA
Communications Management Pension Plan and unfunded SERP:
Administration expenses
$
300 $
— $
300
Funded
Unfunded
December 31,
2021
Interest expense
Interest income
Total net interest expenses (income)
Defined benefit expense recognized
Administration expenses
Interest expense
Interest income
Total net interest expense
1,655
(1,659)
(4)
184
—
184
296 $
184 $
1,839
(1,659)
180
480
Funded
Unfunded
December 31,
2020
300 $
— $
300
$
$
1,935
(1,980)
(45)
232
—
232
Defined benefit expense recognized
$
255 $
232 $
2,167
(1,980)
187
487
87
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
AMOUNTS RECOGNIZED IN THE STATEMENT OF COMPREHENSIVE INCOME
The following is a summary of the amounts recognized in the statement of comprehensive income (loss) for the
defined benefit provision of the funded DATA Communications Management Pension Plan and unfunded SERP:
Re-measurements:
‑ Gain from change in financial assumptions
‑ Experience (gains) losses
‑ Loss on plan assets, excluding amounts included in
interest income
Deferred income tax effect
Funded
Unfunded
December 31,
2021
$
(4,834) $
(8)
2,636
(2,206)
544
(494) $
85
—
(409)
101
(5,328)
77
2,636
(2,615)
645
Defined benefit recovery recognized
$
(1,662) $
(308) $
(1,970)
Funded
Unfunded
December 31,
2020
Re-measurements:
‑ Loss from change in financial assumptions
‑ Experience (gains) losses
‑ Return on plan assets, excluding amounts included in
interest income
$
5,072 $
(1,186)
(3,593)
293
528 $
74
—
602
Deferred income tax effect
(73)
(152)
Defined benefit expense recognized
$
220 $
450 $
5,600
(1,112)
(3,593)
895
(225)
670
DCM manages its pension plans by meeting with an actuarial consultant and the fund managers on a regular basis
and reviews periodic reports outlining changes in the plan liabilities and the return on pension assets relative to the
market. Assumptions are reviewed on an ongoing basis and adjustments are made whenever management believes
that conditions have materially changed.
SIGNIFICANT ACTUARIAL ASSUMPTIONS ADOPTED IN MEASURING DCM’S DEFINED BENEFIT
OBLIGATIONS
DATA Communications Management Pension Plan
Discount rate
Rate of compensation increase
SERP
Discount rate
December 31,
2021
December 31,
2020
3.10 %
3.00 %
2.50 %
3.00 %
3.00 %
2.30 %
DCM increased the discount rate that was used to calculate its defined benefit obligations as at December 31, 2021
to reflect current Canadian economic conditions and long-term interest rates. The salary increase assumption
remained unchanged at December 31, 2021.
88
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and
experience in Canada. These assumptions translate into an average life expectancy in years for a pensioner retiring
at age 65:
Retiring at the end of the reporting period:
Male
Female
Retiring in 25 years after the end of the reporting period:
Male
Female
December 31,
2021
December 31,
2020
21.9
24.3
23.2
25.5
21.9
24.2
23.1
25.4
Through its defined benefit plans, DCM is exposed to a number of risks, the most significant of which are detailed
below:
ASSET VOLATILITY
For a defined benefit pension plan, fluctuations in the value of plan assets are assessed in the context of fluctuations
in the plan liabilities. The plan liabilities are calculated using a discount rate set with reference to high quality
corporate bond yields. As discount rates change, the value of the plan liabilities will fluctuate, if the growth of plan
liabilities exceeds that of plan assets a deficit will result. The defined benefit provision of the DATA Communications
Management Pension Plan currently holds a small proportion of equities, approximately 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 2014, the derisking strategy was
reviewed against the investment time horizon and the financial position of the defined benefit provision of the DATA
Communications Management Pension Plan. With a significant improvement in the financial position, the defined
benefit provision of the DATA Communications Management Pension Plan asset mix was 15% equities and 85%
bonds. Given the new funding rules for Ontario registered pension plans, the investment strategy shifted from a
solvency focus to an ongoing focus. This lead to a bond portfolio structure change in 2018 that moved from cash flow
matching to duration matching using pooled funds. The equity and bond target allocations and the equity portfolio
structure did not change relative to the previous year.
CHANGES IN BOND YIELDS
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in
the value of the plan’s bond holdings.
SALARY RISK
The present value of the pension benefit obligations is calculated by reference to the future salaries of plan
participants, so salary increases of the plan participants greater than assumed will increase plan liabilities.
LIFE EXPECTANCY
The majority of the plans’ obligations provide benefits for the life of the member, so increases in life expectancy will
result in an increase in the plans’ liabilities.
89
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
The sensitivity of the defined benefit pension obligations for the DATA Communications Management Pension Plan
and SERP to changes in assumptions at December 31, 2021 and at December 31, 2020 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.
December 31, 2021
Impact on defined benefit obligations
Change in assumption
Increase in assumption Decrease in assumption
Discount rate
Salary growth rate
0.25%
0.25%
Life expectancy
$
$
(2,013) $
356
2,114
(326)
Increase by 1 year in
assumption
Decrease by 1 year in
assumption
2,097 $
(2,120)
December 31, 2020
Impact on defined benefit obligations
Change in assumption
Increase in assumption
Decrease in assumption
Discount rate
Salary growth rate
0.25%
0.25%
Life expectancy
$
$
(2,386) $
399
2,512
(362)
Increase by 1 year in
assumption
Decrease by 1 year in
assumption
2,313 $
(2,346)
Each sensitivity analysis disclosed in this note is based on changing one assumption while holding all other
assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be
correlated. When calculating the sensitivity of the defined benefit obligations to variations in significant actuarial
assumptions, the same method (present value of the defined benefit obligations calculated with the projected unit
credit method at the end of the reporting period) has been applied as for calculating the liability recognized in the
statements of financial position.
The weighted average duration of the defined benefit obligations is 12.02 years (2020 – 12.92 years).
Expected maturity analysis of undiscounted pension benefits:
Less than
a year
Between 1 to 2
years
Between 3 to 5
years
Between 5 to 10
years
At December 31, 2021
At December 31, 2020
$
$
3,481 $
3,432 $
7,164 $
7,019 $
7,475 $
7,309 $
19,884
19,637
The annual pension expense for the defined contribution provision of the DATA Communications Management
Pension Plan is based on the amounts contributed in respect of eligible employees. The annual pension expense for
the GCCP and Unifor Pension & Benefit Plans, which are accounted for as a defined contribution plan, is based on
amounts contributed based on a percentage of wages of unionized employees who are covered by the respective
collective bargaining agreements, all of whom are employed at DCM facilities located in the Province of Québec and
Ontario.
90
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
DCM’s pension expense related to DCM’s defined contribution plans are as follows:
Defined contribution plan
Defined benefit multi-employer plans
For the year ended
December 31, 2021
$
$
954 $
419 $
For the year ended
December 31, 2020
1,008
471
DCM expects that, in 2022, contributions to the defined benefit provision of the DATA Communications Management
Pension Plan will be approximately $423, contributions to the defined contribution provision of the DATA
Communications Management Pension Plan will be approximately $950, contributions to the SERP will be
approximately $546 , contributions to the GCPP will be approximately $418 and contributions to the Unifor Pension &
Benefit Plans will be approximately $76.
16 Other post-employment benefit plans
Costs related to the DCM OPEB Plans and the DCM OPEB LTD Plan, are actuarially determined using the projected
unit credit method, the actuarial present value of all future projected benefits determined as at the valuation date and
management’s best assumptions.
The following summarizes the change in the obligations related to the DCM OPEB Plans and DCM OPEB LTD Plan:
December 31,
2021
December 31,
2020
Balance – Beginning of year
$
3,507 $
Current service cost
Interest expense
Benefits paid
Re-measurements:
‑ Gain from change in demographic assumptions
‑ Loss from change in financial assumptions
‑ Experience gains
Balance – End of year
236
89
(390)
(342)
(126)
(3)
$
2,971 $
2,938
244
94
(338)
—
149
420
3,507
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:
December 31,
2021
December 31,
2020
Current service cost
Interest expense
Re-measurements:
‑ Gain from change in demographic assumptions
‑ Loss from change in financial assumptions
‑ Experience gains
Benefit (recovery) expense recognized
$
$
236 $
89
(342)
(85)
(11)
(113) $
244
94
—
103
411
852
91
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
AMOUNTS RECOGNIZED IN THE COMPREHENSIVE INCOME
The following summarizes the amounts recognized in the statement of comprehensive income (loss) related to the
DCM OPEB Plans:
Re-measurements:
‑ Gain from change in demographic assumptions
‑ (Gain) loss from change in financial assumptions
‑ Experience losses
Deferred income tax effect
Benefit (recovery) expense recognized
$
$
December 31,
2021
December 31,
2020
— $
(36)
8
(28)
3
(25) $
—
46
9
55
(14)
41
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 2040 (2020 – 2040)
DCM OPEB LTD Plan
Discount rate
Health care cost trend rate – Initial
Health care cost trend rate declines by 2040 (2020 – 2040)
December 31,
2021
December 31,
2020
3.10 %
5.88 %
4.00 %
2.50 %
5.94 %
4.00 %
December 31,
2021
December 31,
2020
3.10 %
5.40 %
4.00 %
2.50 %
5.47 %
4.00 %
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, 2021
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%
$
(50) $
769
52
(166)
Increase by 1 year in
assumption
Decrease by 1 year in
assumption
$
67 $
(63)
92
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
At December 31, 2020
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%
$
(64) $
233
65
(209)
Increase by 1 year in
assumption
Decrease by 1 year in
assumption
$
70 $
(67)
Expected maturity analysis of undiscounted other post-employment benefits:
Less than
a year
Between 1 to
2 years
Between 3 to
5 years
Between 5 to
10 years
At December 31, 2021
At December 31, 2020
$
$
361 $
381 $
631 $
705 $
501 $
569 $
934
1,019
DCM expects that, in 2022, contributions to its DCM OPEB Plans and DCM OPEB LTD Plan will be approximately
$361.
17 Shares and warrants
SHARES
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 be entitled to receive assets of DCM upon such a
distribution. Such distribution will be made in equal amounts per share on all the common shares at the time
outstanding without preference or distinction.
The following summarizes the change in number of issued and outstanding common shares during the periods below:
Balance – January 1, 2021
Shares issued - January 18, 2021
Shares issued - February 18, 2021
Exercise of warrants - June 20, 2021
Exercise of warrants - July 5, 2021
Balance – December 31, 2021
Balance – January 1, 2020
Shares issued under LTIP plan
Exercise of warrants
Balance – December 31, 2020
Number of
Common shares
43,867,030 $
35,725
35,725
15,351
109,000
44,062,831 $
Number of
Common shares
43,047,030 $
320,000
500,000
Amount
256,260
20
20
21
157
256,478
Amount
256,045
80
135
43,867,030 $
256,260
Shares were issued in 2021 in exchange for services provided to DCM by a third party during the year.
93
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
WARRANTS
A summary of warrant activities for the year ended December 31, 2021 and the year ended December 31, 2020 is as
follows:
Warrants outstanding - beginning of
year
Granted
Anti-dilution adjustment
Exercised
Warrants outstanding - end of year
2021
2020
Number of
Warrants
Weighted
average
Exercise Price
Number of
Warrants
Weighted
average Exercise
Price
1,920,092 $
67,866
0.33
0.32
1,688,571 $
715,450
16,071
(124,351)
1,863,607 $
(0.95)
(500,000)
0.28
1,920,092 $
0.35
0.19
0.99
(0.19)
0.33
The outstanding warrants had an exercise price range as follows:
$0.32
$0.99
$0.26
$0.185
Warrants outstanding
December 31, 2021
December 31, 2020
Number of Warrants
Number of Warrants
61,079
77,078
1,510,000
215,450
1,863,607
—
194,642
1,510,000
215,450
1,920,092
On February 3, 2021, DCM issued 67,866 warrants in connection with the Related Party Promissory Notes. Each
warrant entitles the holder to acquire one Common Share at an exercise price of $0.32 for a period of 2.25 years,
commencing on February 3, 2021. The fair value of the warrants issued was estimated to be $40 using the Black-
Scholes option-pricing model, assuming a risk-free interest of 0.58%, a weighted average life of 2.25 years, a
dividend yield of nil and an expected volatility of 40.00% based on comparable companies and adjusted using a
discount rate of 5% for the statutory hold period.
On June 18, 2020, DCM entered into an amendment under the Perennial acquisition VTB and issued 215,450
warrants in connection with the amendment. Each warrant entitles the holder to acquire one Common Share at an
exercise price of $0.185 for a period of 2 years, commencing on June 18, 2020. The fair value of the warrants issued
was estimated to be $12 using the Black-Scholes option-pricing model, assuming a risk-free interest of 0.30%, a
weighted average life of 2 years, a dividend yield of nil and an expected volatility of 56.95% based on comparable
companies and adjusted using a discount rate of 5% for the statutory hold period.
On June 18, 2020, DCM issued 500,000 warrants in connection with an amendment under the Bank Credit Facility on
February 21, 2020. Each warrant entitled the holder to acquire one Common Share at an exercise price of $0.185 for
a period of 2 years, commencing on June 18, 2020. The fair value of the warrants issued was estimated to be $27
using the Black-Scholes option-pricing model, assuming a risk-free interest of 0.30%, a weighted average life of 2
years, a dividend yield of nil and an expected volatility of 56.95% based on comparable companies and adjusted
using a discount rate of 5% for the statutory hold period. During the fourth quarter of 2020, the 500,000 warrants were
exercised for total proceeds of $93.
On May 12, 2020, the Board approved the anti-dilution adjustments that affect certain DCM warrants outstanding at
December 31, 2019, pursuant to the anti-dilution provisions of DCM's LTIP, in connection with the Rights Offering
94
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
completed by the Company on December 31, 2019. The warrant exercise prices were adjusted by a factor of 1:0.917
and the number of warrants were adjusted by a factor of 1:1.09. 178,571 warrants outstanding with an exercise price
of $1.08, were adjusted to 194,642 warrants outstanding with an exercise price of $0.99.
SHARE-BASED COMPENSATION
DCM has adopted a Long-Term Incentive Plan ("LTIP") to: recruit and retain highly qualified directors, officers,
employees and consultants (the "Participants"); provide Participants with an incentive for productivity and an
opportunity to share in the growth and the value of DCM; and, align the interests of Participants with those of the
shareholders of DCM. Awards to Participants are primarily based on the financial results of DCM and services
provided. The aggregate maximum number of common shares available for issuance from DCM's treasury under the
LTIP is 4,406,283 common shares or 10% of the issued and outstanding common shares of DCM. The shares to be
awarded will be authorized and unissued shares.
DCM's share-based compensation plan consists of five types of awards: restricted share unit ("RSUs"), options,
deferred share unit ("DSUs"), restricted shares or stock appreciation right ("SARs") awards. No restricted shares or
SARs have been granted to date.
On May 12, 2020, the Board approved the anti-dilution adjustments pursuant to the provisions of DCM's LTIP that
affect DCM's share-based compensation grants outstanding at December 31, 2019, in connection with the Rights
Offering completed by the Company on December 31, 2019. The option exercise prices were adjusted by a factor of
1:0.917 and the number of options, RSUs and DSUs were adjusted by a factor of 1:1.09.
Restricted share unit ("RSU")
(a)
Under the RSU portion of the LTIP, selected employees are granted RSUs where each RSU represents the right to
receive a distribution from DCM in an amount equal to the fair value of one DCM common share. RSUs granted are
performance and non-performance based. The performance component is based on Company specific financial
targets approved by the Board and the non-performance component is based on continued employment. RSUs
generally vest over three years, require continued employment with DCM for the duration of the vesting period and
settle in cash upon final vesting.
A liability for RSUs is measured at fair value on the grant date and is subsequently adjusted for changes in fair value.
The liability is recognized on a graded vesting basis over the vesting period, with a corresponding charge to
compensation expense, as a component of costs of revenues, selling, commissions and expenses, and general and
administration expenses. The RSUs payable are included in trade payables and accrued liabilities. Compensation
expenses for RSUs incorporate an estimate for expected forfeiture rates based on which the fair value is adjusted.
Balance - beginning of year
Units granted
Units forfeited
Units paid out
Balance - end of year
December 31,
2021
December 31,
2020
Number of RSUs
Number of RSUs
2,662,561
1,480,637
(740,701)
(1,001,782)
2,400,715
707,950
7,054,214
(4,941,372)
(158,231)
2,662,561
During the year ended December 31, 2021, the Chief Executive Officer ("CEO") and President of DCM was granted
302,529 RSUs (2020 – 2,799,707 RSUs) and a total of 1,178,108 RSUs (2020 – 4,254,507 RSUs) were awarded to
other members of DCM's management.
95
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Of the total outstanding RSUs at December 31, 2021, nil (December 31, 2020 – nil) have vested and are payable.
The carrying amount of the liability relating to the RSUs at December 31, 2021 was $1,962 (December 31, 2020 –
$769).
During the year ended December 31, 2021, compensation expense of $1,614 (2020 – $608) was recognized in the
consolidated statement of operations related to vesting of RSUs granted, and fair value adjustments. RSUs and
DSUs are categorized as level 2 inputs in the fair value hierarchy given their valuations include inputs other than
quoted prices for which all significant inputs are observable, either directly or indirectly. There were no transfers
between levels 1, 2 or 3 during the period.
Options ("Options")
(b)
A summary of Options activities for the year ended December 31, 2021 and the year ended December 31, 2020 is as
follows:
2021
2020
Number of
Options
Weighted
average
Exercise Price
Number of
Options
Weighted
average Exercise
Price
Options outstanding - beginning of year
1,587,486 $
Granted
Forfeited
Anti-dilution adjustment
Options outstanding - end of year
2,625,000
(261,600)
—
3,950,886 $
1.33
0.70
(1.29)
—
0.91
1,456,409 $
—
—
131,077
1,587,486 $
Exercisable
2,322,253 $
1.06
1,522,087 $
The outstanding Options had an exercise price range as follows:
1.45
—
—
1.33
1.33
1.33
$0.69
$0.85
$1.38
$1.29
Options outstanding
December 31, 2021
December 31, 2020
Number of Options
Number of Options
2,500,000
125,000
671,886
654,000
3,950,886
—
—
671,886
915,600
1,587,486
The Black-Scholes option-pricing model inputs used to compute compensation expense for the options granted under
the fair value-based method are as follows:
Expected life (years)
Expected volatility
Dividend yield
Risk free rate of return
Weighted average fair value of options granted
Forfeiture rate
March 8, 2021
May 14, 2021
7.0
40 %
0 %
1.25 %
0.30
10 %
$
7.0
40 %
0 %
1.23 %
0.36
10 %
$
96
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
During the year ended December 31, 2021, options to purchase up to 2,500,000 common shares were awarded to
DCM's new President and CEO. Once vested, the options are exercisable for a period of seven years from the grant
date at an exercise price of $0.69 per share, representing the fair value of the Common Shares on the date of grant.
Of the total options granted, 1,000,000 options vested immediately. The remaining 1,500,000 options vest at a rate of
1/3 each year beginning on March 7, 2022.
During the year ended December 31, 2021, options to purchase up to 125,000 common shares were awarded to the
Chief Financial Officer ("CFO"). Once vested, the options are exercisable for a period of seven years from the grant
date at an exercise price of $0.85 per share, representing the fair value of the Common Shares on the date of grant.
All 125,000 options vest at a rate of 1/3 each year beginning on May 14, 2022.
During the year ended December 31, 2020, 1,456,409 options were affected by those anti-dilution adjustments and
were adjusted to 1,587,486 options.
During the year ended December 31, 2021, a total of 261,600 (2020 – nil) options awarded were forfeited.
During the year ended December 31, 2021, compensation expense of $488 (2020 – $54) was recognized in the
consolidated statement of operations related to options granted.
(c) Deferred share unit ("DSU")
Each director is required to receive at least half of his or her annual retainer in DSUs and had the option to elect to
receive all or part of his or her other compensation in DSUs.
Each DSU represents the right to receive a distribution from DCM in an amount equal to the fair value of one DCM
common share on the date of the termination of service of the respective director. The number of DSUs payable to
each director is determined by multiplying the total Director Fees payable by the percent elected to be paid in DSUs
and dividing the product by the Fair Value of one DCM common share on the grant date. A liability for DSUs is
measured at fair value on the grant date and is subsequently adjusted for changes in fair value. The DSUs payable is
included in trade payables and accrued liabilities.
During the year ended December 31, 2021, 303,017 DSUs (2020 – 1,715,722 DSUs) were granted and 183,510
DSUs were paid out (2020 – nil). The carrying amount of the liability relating to the 2,075,121 DSUs outstanding at
December 31, 2021 was $2,656 (December 31, 2020 – $1,232 and 1,955,571 DSUs outstanding).
During the year ended December 31, 2021, an expense of $1,839 (2020 – $1,260) was recognized in the
consolidated statement of operations related to DSUs granted of $447 (2020 - $451), and fair value adjustments of
$1,392 (2020 - $809).
97
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
18 Earnings per share
BASIC (LOSS) EARNINGS PER SHARE
Net income for the period attributable to common
shareholders
Weighted average number of shares
Basic earnings per share
DILUTED (LOSS) EARNINGS PER SHARE
Net income for the period attributable to common
shareholders
Weighted average number of shares
Diluted earnings per share
$
$
$
$
For the year ended
December 31, 2021
For the year ended
December 31, 2020
(Restated - Note 3)
1,565 $
43,993,494
0.04 $
13,299
43,146,866
0.31
1,565 $
46,136,507
0.03 $
13,299
43,316,630
0.31
For the year ended December 31, 2021, options to purchase up to 1,325,886 common shares, where the average
market price of the common shares was less than the exercise price were excluded from the computation of diluted
earnings per share as their effect would have been anti-dilutive. Warrants to purchase up to nil common shares were
excluded from the computation of diluted earnings per share as they were out-of-the-money as of December 31,
2021.
During the year ended December 31, 2020, options to purchase up to 1,587,486 common shares, where the average
market price of the common shares was less than the exercise price, were excluded in the computation of diluted
earnings per share as their effect would have been anti-dilutive. Warrants to purchase up to 194,642 common shares
were excluded from the computation of diluted earnings per share as they were out-of-the-money as of December 31,
2020.
19 Changes in working capital
Trade receivables
Inventories
Prepaid expenses and other current and non-current assets
Trade and accrued liabilities
Deferred revenue
20 Commitments and Contingencies
For the year ended
December 31, 2021
For the year ended
December 31, 2020
$
$
13,723 $
(3,619)
(1,030)
(2,410)
471
7,135 $
21,011
4,066
1,627
(11,425)
665
15,944
DCM and its subsidiaries are subject to various claims, potential claims and lawsuits. While the outcome of these
matters is not determinable, DCM’s management does not believe that the ultimate resolution of such matters will
have a material adverse impact on DCM’s financial position.
Directors and officers are indemnified by the Company for various items including, but not limited to, costs to settle
lawsuits or actions due to their association with the Company, subject to certain restrictions. DCM has purchased
98
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
directors’ and officers’ liability insurance to mitigate the costs of any potential future lawsuits or actions. The term of
the indemnification covers the period during which the indemnified party served as a director or officer of the
Company.
In the normal course of business, DCM has entered into agreements that include indemnities in favour of third parties,
such as purchase and sale agreements, confidentiality agreements, engagement letters with advisors and
consultants, leasing contracts and license agreements. These indemnification arrangements may sometimes require
such third parties to compensate counterparties for losses as a result of breaches in representations, covenants and
warranties provided by the Company or as a result of litigation or other third party claims or statutory sanctions that
may be suffered by the counterparties as a consequence of the relevant transaction. In some instances, the terms of
these indemnities are not explicitly defined. No accruals have been required to be made as at December 31, 2021
with respect to these agreements.
Executive employment agreements allow for additional payments of approximately $1,785 if the individuals are
terminated without cause, and approximately $1,785 in the event of a change in control.
DCM makes contributions to the Québec Graphic Communication Pension Plan (the “GCPP”), based on a
percentage of the wages of its unionized employees covered by the respective collective bargaining agreements, all
of whom are employed at DCM facilities located in the Province of Québec.
The GCPP is a negotiated contribution defined benefit multi-employer pension plan which provides retirement
benefits to unionized employees in the printing industry. The GCPP is administered by a joint Board of Trustees
composed of representatives of participating employers and of the unions representing plan members in collective
bargaining. Based upon the terms of those applicable collective agreements, DCM’s estimated annual negotiated
contribution to the GCPP for 2022 is $468.
The GCPP’s most recent funding actuarial report (as at December 31, 2019) disclosed a going concern surplus of
112% and that negotiated contributions are in excess of the current service cost of the plan. On a solvency basis (or
wind up basis) the valuation shows a deficit and a solvency ratio of 79%. No actuarial valuation was required for the
GCPP for the year ended December 31, 2020.
Bill 34 was adopted by Québec in April 2015 to clarify Québec pension legislation for negotiated contribution defined
benefit multi-employer pension plans to, among other things:
•
•
•
limit required employer contributions only to those amounts specified in the applicable collective agreements
negotiated with the relevant unions;
eliminate the employer's obligation to fund deficiencies; and
require the Board of Trustees to develop and implement a recovery plan when the negotiated contributions
are not sufficient to fund the plan, including the reduction of accrued benefits of all members.
21 Capital structure
DCM’s objectives when managing its capital structure are:
▪ To seek to ensure sufficient liquidity to safeguard DCM’s ability to continue as a going concern;
▪ To maintain a strong capital base so as to maintain shareholders’, creditors’, customers', suppliers' and market
confidence; and
▪ To deploy capital to provide an appropriate investment return to its shareholders
99
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
DCM’s capital structure consists of 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.
DCM manages its capital structure and makes adjustments to it in light of changes in economic conditions and the
risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, in line with its present
strategic plan, DCM may issue new shares. Management anticipates that any major acquisition or significant growth
initiatives would be financed in part with additional equity and debt.
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 debt and to hold
$515 of cash in a blocked account to be used for repayments of principal and interest of indebtedness outstanding
under the FPD IV and FPD V credit facilities. These requirements have been eliminated effective January 2022 (see
note 12).
DCM’s capital structure is as follows:
Credit facilities (note 12)
Promissory notes (note 13)
Lease liabilities (note 11)
Total long-term debt
Total equity (deficit)
22 Financial instruments
December 31,
2021
December 31,
2020
$
$
$
36,299 $
—
39,099
75,398 $
8,041 $
45,739
2,129
48,353
96,221
11,752
DCM’s financial instruments consist of cash, restricted cash, trade receivables, bank overdraft, trade payables and
accrued liabilities, credit facilities, promissory notes and lease liabilities, as indicated in DCM’s statements of
consolidated financial position as at December 31, 2021 and 2020. DCM does not enter into financial instruments for
trading or speculative purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
DCM's non-derivative financial instruments are comprised of cash, trade receivables, restricted cash, bank overdraft,
trade payables and accrued liabilities, credit facilities, promissory notes, and lease liabilities. 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.
Non-derivative financial instruments at fair value through the profit and loss include restricted share units and director
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 through the consolidated statements of operations.
The fair value for other non-derivative financial instruments such as cash, trade receivables, bank overdraft, trade
payables and accrued liabilities approximates their carrying value because of the short-term maturity of these
instruments. The fair value of restricted cash approximates its carrying value because it is a deposit held with a
Canadian chartered bank. Credit facilities, promissory notes and lease liabilities are initially recognized at the
discounted present value of the amounts required to be paid to derive its fair value and are then measured at
amortized costs using the effective interest method, less any impairment losses.
100
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES
The carrying values and the fair values of DCM’s financial instruments are classified into the categories listed below
in accordance with IFRS 9.
December 31, 2021
Financial assets at amortized cost (1)
Financial liabilities at amortized cost (2)
Financial liabilities FVTPL (3)
December 31, 2020
Financial assets at amortized cost (1)
Financial liabilities at amortized cost (2)
Financial liabilities FVTPL(3)
Carrying Value
Fair Value
$52,983
107,219
4,618
Carrying Value
$66,383
133,159
2,001
$52,983
108,094
4,618
Fair Value
$66,383
134,486
2,001
(1)
(2)
(3)
Includes cash and cash equivalents, restricted cash and trade receivables.
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), credit facilities, lease liabilities and
promissory notes.
Includes RSUs and DSUs.
Credit facilities, promissory notes, lease liabilities, RSUs and DSUs are categorized as level 2 inputs in the fair value
hierarchy given their valuations include inputs other than quoted prices for which all significant inputs are observable,
either directly or indirectly. There were no transfers between levels 1, 2 or 3 during the year.
RISKS ARISING FROM FINANCIAL INSTRUMENTS
DCM is exposed to various risks as it relates to financial instruments. These risks and the processes for managing
the risk are set out below.
CREDIT RISK
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its
contractual obligations. Financial instruments that potentially subjected DCM to credit risk consisted of cash,
restricted cash and trade receivables. The carrying amount of assets included in the consolidated statements of
financial position represents the maximum credit exposure.
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 60 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 agencies that are not concentrated
in any specific geographic area. DCM does not believe that any single industry or geographic region represents
significant credit risk. Credit risk concentration with respect to trade receivables is mitigated by DCM’s large client
base.
To measure the ECLs, trade receivables, including unbilled receivables, have been grouped based on similar credit
risk characteristics, past due status and other relevant factors. The expected default rates are calculated based on
101
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
management’s estimate as well as historical credit losses. The historical loss rates are adjusted to reflect current and
forward-looking information on economic factors affecting the ability of the customers to settle the trade receivable.
On that basis, the loss allowance as at December 31, 2021 was determined using default rates under the provision
matrix for an amount of $1,283 (2020 – $652), of which $750 (2020 – $300) relates to unbilled receivables.
The following default rates are used to calculate the ECLs on billed receivables as at December 31, 2021 and
December 31, 2020, respectively:
December 31, 2021
Default rates
Billed receivables balance
Billed receivables ECL
December 31, 2020
Default rates
Billed receivables balance
Billed receivables ECL
Total
Less than 30
days
Over 30
days
Over 60
days
$35,643
$533
0.32%
$19,351
$61
0.57%
$10,429
$59
0.65%
$2,863
$19
Over 90
days
13.14%
$3,000
$394
Total
Less than 30
days
Over 30 days Over 60 days Over 90 days
$46,747
$352
0.17%
$22,933
$39
0.33%
$10,607
$35
0.35%
$5,763
$20
3.47%
$7,444
$258
The following default rates are used to calculate the ECLs on unbilled receivables as at December 31, 2021 and
December 31, 2020, respectively:
December 31, 2021
Default rates
Unbilled receivables balance
Unbilled receivables ECL
December 31, 2020
Unbilled receivables
Unbilled receivables balance
Unbilled receivables ECL
Total
Less than 30
days
Over 30
days
Over 60
days
Over 90
days
$17,207
$750
0.22%
$5,111
$11
0.47%
$2,245
$11
1.07%
$2,138
$23
9.14%
$7,713
$705
Total
Less than 30
days
Over 30 days Over 60 days Over 90 days
$19,195
$300
0.18%
$6,556
$12
0.40%
$2,125
$9
0.80%
$1,018
$8
2.85%
$9,496
$271
At the end of each reporting period, management re-assesses the default rates. Default rates are applied to the billed
and unbilled receivable balances to calculate the credit default reserve. 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. When collection efforts have been
reasonably exhausted, specific balances are written off. As at December 31, 2021 the Company has $3,000 (8%) of
its billed receivables that are over 90 days old (2020 - $7,444 or 16%).
Considerable judgment by management is required to determine both (a) the revenue and billed receivables to be
recognized where price concessions may need to be given to encourage customers to settle older amounts promptly
as a result of billing issues under IFRS 15 (as revenue can only be recognized to the extent that it is highly probable
that a significant reversal in the amount of revenue will not occur when the uncertainty associated with the variable
consideration is subsequently resolved), and (b) ECL provisions required under IFRS 9 to reflect impairments of its
trace receivables as a result of customers inability to settle the billed receivables. In 2021, the Company recorded a
provision of $618 (2020 - $567) within the billed receivable balance (and against revenue) for potential price
102
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
concessions that may need to be given to encourage customers to settle older amounts promptly as a result of billing
issues, separately from the expected credit losses in the tables above.
The movement in DCM’s expected credit loss provision for 2021 and 2020 are as follows:
Balance – Beginning of year
Receivables written off (net of credit reversals) as
uncollectible during the year
Estimated price concession provisions reclassified to gross
carrying amount
Increase in loan loss allowance
Balance – End of year
LIQUIDITY RISK
For the year ended
December 31, 2021
For the year ended
December 31, 2020
652 $
1,807
255
(51)
427
1,283 $
(658)
(567)
70
652
$
$
Liquidity risk is the risk that DCM may encounter difficulties in meeting obligations associated with financial liabilities
as they become due.
The contractual undiscounted cash flows of DCM’s significant financial liabilities are as follows:
December 31, 2021
Less than
a year
1 to 3 years
4 years and
greater
Trade payables and accrued liabilities
$
37,589 $
— $
— $
Lease liabilities
Credit facilities (1)
Total
December 31, 2020
Lease liabilities
Credit facilities (1)
Promissory notes
Total
8,298
13,685
18,086
22,467
31,905
4,956
$
59,572 $
40,553 $
36,861 $
136,986
Less than
a year
1 to 3 years
4 years and
greater
11,044
9,444
1,321
20,492
43,347
1,162
36,036
—
—
$
61,808 $
65,001 $
36,036 $
162,845
Total
37,589
58,289
41,108
Total
39,999
67,572
52,791
2,483
Trade payables and accrued liabilities
$
39,999 $
— $
— $
(1) Credit facilities as at December 31, 2021 subject to floating interest rates consisting of the Bank Credit Facility,
expiring on November 8, 2024, and the Bank Term Loan, expiring on May 8, 2024. As at December 31, 2021,
the outstanding balances totaled $2,969 and $9,690, respectively, and bore interest at a floating rate of 2.95%
and 5.95%, respectively, per annum. The amounts at December 31, 2021 include estimated interest totaling
$579 for 2022, $346 for 2023, and $125 for 2024. The estimated interest was calculated based on the total
borrowings outstanding at the end of the year and the annual floating interest rate in effect as at December 31,
2021. Credit facilities at December 31, 2021 subject to fixed interest rates consisting of the FPD III Credit
Facility, expiring on October 15, 2022, the FPD IV Credit Facility, expiring on March 10, 2023, the FPD V Credit
Facility expiring on May 15, 2023 and the FPD VI Facility expiring on December 15, 2026. As at December 31,
2021, the outstanding balances totaled $11,632 and bore interest at a fixed rate of 6.1% per annum, of 6.95%
per annum, of 6.95% per annum, and of 5.95% per annum, respectively. Monthly blended principal and interest
payments of $96, of $422 and of $91, respectively, and $131 of principal payments for FPD VI.
103
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
Credit facilities at December 31, 2020 subject to floating interest rates consisting of the Bank Credit Facility,
expiring on January 31, 2023. As at December 31, 2020, the outstanding balance totaled $5,687 and bore
interest at an average floating rate of 3.80% per annum. The amounts at December 31, 2020 include estimated
interest totaling $312 for 2021 and $216 for 2022, and $54 for 2023. The estimated interest was calculated
based on the total borrowings outstanding at the end of the year and the average annual floating interest rate in
effect as at December 31, 2020. Credit facilities at December 31, 2020 subject to fixed interest rates consisting
of the FPD III Credit Facility expiring on October 15, 2022, FPD IV Credit Facility, expiring on March 10, 2023,
the FPD V Credit Facility expiring on May 15, 2023 and the Crown Facility expiring on May 7, 2023. As at
December 31, 2020, the outstanding balance totaled $40,458 and bore interest at a fixed rate of 6.1% per
annum, of 6.95% per annum, of 6.95% per annum and of 12.0% per annum, respectively. Monthly blended
principal and interest payments of $96, of $422 and of $91, respectively. Annual interest payment, including
payment in kind, on the Crown Facility totals $2,537 for 2021, $2,617 for 2022, and $931 for 2023.
DCM also has contingent obligations in the form of letters of credit. DCM believes that the currently projected cash
flow 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 or investment in new capital
expenditures, and interest and scheduled repayments of borrowings under its credit facilities and scheduled
repayments of promissory notes.
Cash flows from operations have been, and could continue to be, negatively impacted by decreased demand for
DCM’s products and services and pricing pressures from its existing and new customers. Management continue to
assess the expected effects of the COVID-19 pandemic and other inflationary pressures, on DCM’s future business,
financial condition, operating results, cash flows and working capital levels. Because the extent and duration of the
impact of the COVID-19 pandemic and other inflationary pressures are uncertain, the continuing effect of these
events could materially affect DCM's ability to comply with the fixed charge coverage ratio financial covenant in its
Credit Facility agreements. If, over the course of the next year, market conditions do not improve or deteriorate
further, DCM may need to take additional short-term cost control actions and/or undertake further restructuring
programs to ensure the Company remains in compliance with the financial covenants in its Credit Facility agreements
or seek covenant waivers from its lenders. The Company has concluded that it will remain in compliance with the
covenants of its Credit Facility agreements and as a result, will have adequate access to liquidity to satisfy its
obligations within one year after the date the financial statements are issued.
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. DCM’s interest rate risk arises from credit facilities issuances at floating interest rates.
At December 31, 2021, $2,969 of DCM’s indebtedness outstanding was subject to floating interest rates of 2.95% per
annum and $9,690 of DCM's indebtedness outstanding was subject to floating interest rates of 5.95%; a 1% increase/
decrease in interest rates would have resulted in an increase/decrease in profit or loss and comprehensive loss by
$127 for the year ended December 31, 2021 (2020 – $57), respectively. At December 31, 2021, $1,743 of DCM’s
indebtedness outstanding was subject to a fixed interest rate of 6.1% per annum, $11,632 was subject to a fixed rate
of interest of 6.95% per annum and $11,000 was subject to a fixed interest rate of 5.95% per annum.
CURRENCY RISK
Currency risk is the risk that the fair value of future cash flows arising from a financial instrument will fluctuate
because of changes in foreign currency exchange rates. In the normal course of business, DCM does not have
significant foreign exchange transactions and, accordingly, the amounts and currency risk are not expected to have
adverse material impact on the operations of DCM. Management considers the currency risk to be low and does not
hedge its currency risk and therefore sensitivity analysis is not presented.
104
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
23 Expenses by nature
For the year ended
December 31, 2021
For the year ended
December 31, 2020
(Restated - Note 3)
Raw materials and other purchases
$
97,411 $
Wages and benefits
Occupancy costs
Restructuring expenses
Depreciation and amortization
Other expenses
88,382
9,103
9,691
14,975
11,882
Total cost of revenues and operating expenses
$
231,444 $
24 Segmented information
116,058
87,805
9,264
2,821
13,818
15,908
245,674
The CEO of DCM is the chief operating decision maker ("CODM"). The CODM reviews and assesses DCM’s
performance and makes decisions about resources to be allocated for each operating segment.
Previously the Company had separate operating segments for DCM and its previously acquired businesses, DCM
Burlington, Thistle and Perennial. The print businesses (DCM, DCM Burlington and Thistle) were aggregated into one
reportable segment as they had similar economic characteristics as they offer a portfolio of similar products and
services, alike customers, and similar production processes and distribution methods. Perennial, a design firm
focused on creating and delivering design strategies for major retail brands was considered a separate operating
segment but was not disclosed separately as it did not meet the quantitative thresholds stipulated by IFRS 8 and
accordingly, in 2021, the decision was made to amalgamate Perennial into DCM, which was made effective January
1, 2022.
In Q1 2021, the Company changed the structure of its internal organization and senior leadership team under the
leadership of the new CEO as DCM continues to evolve into an integrated marketing and business solutions provider
to it's customers. As a consequence, DCM now has a single operating segment, being the Company as a whole,
reflecting the manner in which the operating results are being reviewed by the CODM to make decisions about
resources to be allocated and to assess the Company's performance.
Management evaluates the performance of the reportable segments 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 and Chicago,
Illinois 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, 2021, U.S. sales were not significant to disclose separately.
105
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
DCM has disclosed revenue on a disaggregated basis based on the nature of the major products and services it
provides to its customers as follows:
Product sales
Warehousing services
Freight services
Marketing and other services
For the year ended
December 31, 2021
For the year ended
December 31, 2020
218,063 $
239,595
7,732
7,507
2,029
7,835
8,478
3,406
235,331 $
259,314
$
$
The prior year amounts in the table above have been amended to conform to the current years presentation. Due to a
classification in the revenue categories, revenues for product sales, warehousing services, freight services and
marketing and other services for the year ended December 31, 2020 previously reported as $236,011, $7,718, $8,351
and $7,234 were revised accordingly.
25 Related party transactions
On March 15, 2018, DCM entered into a 5 year loan agreement with a key member of management for a total of $107
to finance the purchase of Common Shares. Interest will accrue at a rate of 3% per annum on the unpaid balance.
The loan is unsecured and repayable upon maturity. As at December 31, 2021, the balance owing of $107 (2020 –
$111) was included within other non-current assets in the statement of financial position.
COMPENSATION OF KEY MANAGEMENT
Key management personnel are deemed to be Directors on DCM's Board, the CEO, the President, the Chief
Financial Officer and other members of the senior executive team. Compensation awarded to key management
personnel, excluding compensation awarded to Directors which are described below, included:
Salaries and other short-term employee benefits
Termination and retirement benefits
Post-employment benefits
Share-based compensation expense
Total
For the year ended
December 31, 2021
For the year ended
December 31, 2020
$
$
3,958 $
3,114
56
1,729
8,857 $
3,129
—
23
445
3,597
In January 2020, DCM disposed of its' wholly owned subsidiary Perennial Brands Inc. (“PBI”), a non-core developer
of branded products, to a former employee and entered into an option agreement to purchase an equity interest in
PBI on or before December 31, 2021. In January 2021, the option agreement was terminated (note 27).
During the year ended December 31, 2021, key management personnel (excluding compensation awarded to
Directors) were granted 844,996 RSUs (2020 – 5,988,890 RSUs), and 531,466 RSUs (2020 – 4,149,264 RSUs) were
forfeited. Key management personnel (excluding compensation awarded to Directors) were also granted options to
purchase up to 2,625,000 Common Shares (2020 – 64,533 Common Shares). During the year ended December 31,
2021, DCM’s general and administration expenses include an expense of $1,729 (2020 – $445) for these share-
based compensation awards.
During the year ended December 31, 2021, DCM’s general and administration expenses include a charge of $1,839
(2020 – $1,260) for the duties performed by DCM’s Board, of which $1,392 (2020 – $809) relates to a fair value
adjustment (note 17). Directors were also granted options to purchase up to nil Common Shares (2020 – 66,544
Common Shares) during the year ended December 31, 2021 (see note 17). During the year ended December 31,
106
DATA Communications Management Corp.
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
(in thousands of Canadian dollars, except percentages, shares and per share amounts)
2021, DCM’s general and administration expenses include a charge of $2 (2020 – $28) for these share-based
compensation awards.
These transactions are measured at the exchange amount, which represents the amount of consideration established
and agreed to by the related parties.
26 Government Grant Income
On April 11, 2020, the Canadian government launched the CEWS, an emergency economic relief program to lessen
the financial fallout on Canadian businesses from the effects of COVID-19.
The CEWS program is designed to help businesses struggling with the economic effects of the coronavirus retain
and/or rehire their employees. The subsidy is intended to make it easier for eligible employers to avoid laying off or
terminating employees, as well as to bring back staff that were laid-off due to COVID-19 by significantly lessening the
organization’s payroll costs.
The CEWS commenced March 15, 2020 and through to October 23, 2021. The CEWS is a program that subsidizes a
portion of eligible remuneration paid by an eligible employer that qualifies, to each eligible employee. DCM also
applied for the CERS during 2021.
DCM qualified for government grant income of approximately $4,558 (2020 - $10,708).
27 Other income
On January 4, 2021, DCM entered into an agreement with PBI, an arms’ length third party and former subsidiary of
DCM, pursuant to which DCM agreed to terminate an option to purchase an equity interest in PBI acquired by DCM in
connection with the prior disposition of PBI. DCM received total gross proceeds of $1,152 as consideration for
terminating the option.
In February 2021, DCM settled an outstanding litigation and received for total proceeds of $300.
107
Corporate Information
Directors and Officers
DCM Leadership Team
Corporate Information
Auditors
PricewaterhouseCoopers LLP
Transfer Agent
Computershare Investor
Services Inc.
Corporate Counsel
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
J.R. Kingsley Ward 3
Chairman, Director
Gregory J. Cochrane 3
Vice Chairman, Director
Merri L. Jones 1, 3
Director
James J. Murray O.Ont., SIOR 2
Director
Richard Kellam
President & Chief
Executive Officer
James E. Lorimer
Chief Financial Officer
Shelly Anwyll
Senior Vice President,
North America, Retail &
Emerging Markets
Michael G. Sifton 1, 2
Director
Derek J. Watchorn 1, 2
Director
Richard Kellam
Director & Officer
James E. Lorimer
Officer
Chief Financial Officer &
Corporate Secretary
1
2
3
Member, Audit Committee
(Chairperson is Michael G. Sifton)
Member, Corporate
Governance Committee
(Chairperson is Derek J.Watchorn)
Member, Human Resources &
Compensation Committee
(Chairperson is J.R. Kingsley Ward)
Patrick Aussant
Vice President, IT Operations
Christine Custodio
Vice President, Operations
Geneviève Gravel
Vice President,
People Experience
Barbara Franovic-Wilkins
Vice President, Marketing
Asem Moqbel
Vice President, Procurement
Karen Redfern
Vice President,
Customer Technology Solutions
Jason Sharpe
Vice President,
Commercial Acceleration
Sharad Verma
Senior Vice President, Strategy
DATA Communications Management Corp. | 9195 Torbram Road | Brampton, Ontario L6S 6H2