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A LETTER TO FELLOW SHAREHOLDERS
Evertz had a very successful Fiscal 2017, delivering technological innovation, operational excellence and a fifth
consecutive revenue growth year. Evertz is a world leader in the video technology sector. Through product innovations
and state of the art project deployments, Evertz is able to help its customers navigate and benefit from technology
transitions and challenges in the market. Evertz has developed software defined IP, IT and virtualized public/private/
hybrid “Cloud” based solutions which lead the industry.
In Fiscal 2017 Evertz generated record revenues. We maintained industry leading profitability and expanded our
market while delivering significant value to shareholders. Highlights from the year include:
• Record annual revenues of $384 million;
• Earnings before taxes of $94 million;
• Annual investment in research and development increased 10% to $74 million;
• Our dedicated staff grew to 1,538;
• Year-end net cash and cash equivalents of $54 million;
• Distribution of excess cash flow through quarterly dividends totaling $0.72 per share during the year; and
• Return to shareholders of excess capital through a special dividend of $1.10 per share.
VIDEO PROLIFERATION, UltraHD, LIVE CONTENT, TV EVERYWHERE & IP VIDEO
Today our customers’ evolving needs are driven by an unsatiated global demand for high-definition television channels,
more live content and by an increasing consumer appetite for high quality video delivered anywhere, anytime across a
broad array of devices. Evertz solutions provide compelling advantages which enable our broadcast, cable, telco, IPTV,
satellite, content creator and new media customers to address this increasingly complex video landscape.
IP, IT & “CLOUD” BASED TECHNICAL TRANSITION
EXPANDS MARKET
Evertz foundation of unsurpassed video domain knowledge coupled
with our commitment to the internal development of new leading
edge technologies is a unique competitive advantage. In the past
year alone, Evertz invested $74 million in R&D and over $317 million
throughout the past five years. The annual investments fueled
development activities within our core product portfolio and funded
intensive longer term R&D initiatives, such as: high performance
low latency IP networking technologies; our IT based and virtualized
“Cloud” architectures; Playout & Content Management; DreamCatcher
Replay & Production; and Compression and Media Transport
Solutions. These initiatives are enabling our customers to efficiently
transition to IP, IT and public/private/hybrid “Cloud” based solutions.
We believe the hyper-scale EXE together with our modular Software
Defined Video Networking (SDVN) platforms; inSITE big data analytics
engine; DreamCatcher IP based replay and production suite; and the
introduction of SDVN based AV distribution solutions through evertzAV,
will significantly expand our addressable market and have a long-term
benefit to Evertz customers and our shareholders.
R&D INVESTMENTS OVER 5 YEARS
$ millions
73.7
66.9
64.3
60.2
52.9
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2017 ANNUAL REPORT
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IP, IT & “CLOUD” LEADERSHIP - DESIGNED, DELIVERED AND DEPLOYED
Evertz is at the forefront of the IP, IT and Virtualized “Cloud” technical transition for the broadcast and new media
industry with an extensive 10/25/100 Gigabit Ethernet product portfolio leveraging Evertz Software Defined Video
Networking solution with the industry’s leading orchestration and control. Evertz SDVN technology is deployed in
industry leading facilities across the world. MAGNUM, Evertz’ orchestration and control application bridges the major
components in a hybrid or all IP based facility including Evertz switch fabrics, media IP gateways, and traditional
broadcast products. Evertz is designing, delivering and deploying the most advanced and innovative IP, IT and public/
private/hybrid “Cloud” based solutions to help broadcast, new media, higher education and enterprise customers
future-proof their facilities for the transitioning and growing landscape of television and high quality video anywhere,
anytime on any device.
INDUSTRY RECOGNITION
2015-2016 Emmy® Award for Technology & Engineering
– Awarded by NATAS (“National Academy of Television
Arts and Sciences”) in January 2017 to Evertz IP Based
Production System / DreamCatcher, acknowledging
Evertz’s industry leading work in Live Production Technology
Beyond HD to Achieve Non-Interpolated Video for Instant
Replay through the use of the company’s DreamCatcher
Replay and Live Production Suite.
TV Technology - 2017 Best of Show awards to Evertz’ Remote Production and DreamCatcher
Live Editing Platforms.
Industry recognition for Evertz leadership and innovation this year included a prestigious 2017 IABM Game Changer
Award for Evertz’ new public cloud playout and non-linear delivery solution built around the Mediator-X, Overture-RT
LIVE, and Render-X systems. The solution has been developed in partnership with global media company Discovery
Communications, who is working with Evertz to migrate its broadcast playout and channel origination to Amazon
Web Services (AWS). This game changing solution enables virtualized playout in public, private, and hybrid cloud
architectures giving media companies the agility and flexibility to dynamically scale their operations.
Evertz was named a Platinum Member of Canada’s 50 Best Managed Companies, which recognizes excellence in
Canadian-owned and Canadian-managed companies. Canada’s 50 Best Managed Companies identifies Canadian
corporate success through companies focused on their core vision, creating stakeholder value and excelling in the
global economy.
FOUNDATION FOR GROWTH
As a market leader, we make the tough choices to position Evertz for where the market is going, to extend our
competitive lead, by providing our customers with clean, technologically superior solutions. As the market leader,
we are well positioned with numerous, large exciting opportunities to capitalize on this in the coming year.
Evertz is built upon the long term vision of generating value and sustainable success through continuous
investment in technology while maintaining a vigilant focus on operating discipline.
We generate significant cash from operations and maintain a pristine balance sheet. We view this financial strength
as a competitive advantage, providing flexibility and allowing us to deliver significant value to our shareholders
through the continued payment of dividends, while adhering to our strategy of investment into new technologies.
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT EVOLVING & TRANSITIONING MARKET
Our 2018 plan is to leverage and expand upon the high profile industry leading IP, IT installations and virtualized
“Cloud” solutions Evertz has successfully deployed with key customers and gain broader adoption with the
broadcast industry and within vertical markets.
Key customer deployments to build upon:
•
IP based Software Defined Video Networking platforms;
•
IT based workflow and virtualized “Cloud” services including the first-of-its-kind Public Cloud Playout;
• Media eXchange compression platform;
• DreamCatcher – IP based instant replay & live production suite; and
• evertzAV – network based, high quality audio visual solutions.
These technologies provide superior solutions enabling our customers to address and implement complex
multi-platform TV everywhere services and to efficiently transition to evolving IP & IT based solutions
including virtualized “Cloud” services.
We are excited to enter fiscal 2018 with significant momentum of Evertz IP, IT & “Cloud” based solutions Designed,
Delivered and Deployed with influential industry leaders across the world. As a leading innovator and one of the
largest pure players in our technology sector, we believe Evertz is in a position of strength to deliver, to customers
and to shareholders!
We would like to take this opportunity to thank our employees, channel partners, customers and shareholders
for their continued support and we look forward to an exciting, successful future.
Romolo Magarelli
Director, President and Chief Executive Officer
Douglas A. DeBruin
Executive Chairman
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the Year ended April 30, 2017
THE FOLLOWING MANAGEMENT’S DISCUSSION AND ANALYSIS IS A REVIEW OF RESULTS OF THE OPERATIONS AND THE
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY. IT SHOULD BE READ IN CONJUNCTION WITH THE SELECTED
CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA AND THE COMPANY’S CONSOLIDATED FINANCIAL STATEMENTS
AND THE ACCOMPANYING NOTES CONTAINED ON SEDAR. THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
ARE PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) AND ARE PRESENTED
IN CANADIAN DOLLARS. THE FISCAL YEAR OF THE COMPANY ENDS ON APRIL 30 OF EACH YEAR. CERTAIN INFORMATION
CONTAINED HEREIN IS FORWARD-LOOKING AND BASED UPON ASSUMPTIONS AND ANTICIPATED RESULTS THAT ARE SUBJECT
TO RISKS, UNCERTAINTIES AND OTHER FACTORS. SHOULD ONE OR MORE OF THESE UNCERTAINTIES MATERIALIZE OR SHOULD
THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY SIGNIFICANTLY FROM THOSE EXPECTED.
FORWARD-LOOKING STATEMENTS
The report contains forward-looking statements reflecting Evertz’s objectives, estimates and expectations.
Such forward-looking statements use words such as “may”, “will”, “expect”, “believe”, “anticipate”, “plan”, “intend”,
“project”, “continue” and other similar terminology of a forward-looking nature or negatives of those terms.
Although management of the Company believes that the expectations reflected in such forward-looking statements
are reasonable, all forward-looking statements address matters that involve known and unknown risks, uncertainties
and other factors. Accordingly, there are or will be a number of significant factors which could cause the Company’s
actual results, performance or achievements, or industry results to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking statements.
The report is based on information available to management on June 13, 2017.
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT OVERVIEW
Evertz is a leading solutions provider to the television broadcast, telecommunications and new-media industries.
Founded in 1966, Evertz is a leading supplier of software, equipment and technology solutions to content creators,
broadcasters, specialty channels and television service providers. Evertz designs, manufactures and markets
video and audio infrastructure solutions for the production, post-production and transmission of television content.
The Company’s solutions are purchased by content creators, broadcasters, specialty channels and television service
providers to support their increasingly complex multi-channel digital and high definition television (“HDTV/Ultra HD”)
and next generation high bandwidth low latency IP network environments and by telecommunications and new-media
companies. The Company’s products allow its customers to generate additional revenue while reducing costs through
the more efficient signal routing, distribution, monitoring and management of content as well as the automation
of previously manual processes.
The Company made early research and development investments to establish itself as the leading supplier to the
broadcast industry addressing the ongoing technical transition to IP and IT based production, workflow and distribution
systems helping to create more efficient and agile workflows enabling the proliferation of high quality video emerging
Ultra HD, High Dynamic range initiatives. The Company has maintained its track record of rapid innovation; is a leader
in the expanding Internet Protocol Television (“IPTV”) market and a leader in Software Defined Video Network (“SDVN”)
technology. The Company is committed to maintaining its leadership position, and as such, a significant portion of the
Company’s staff is focused on research and development to ensure that the Company’s products are at the forefront
of the industry. This commitment contributes to the Company being consistently recognized as a leading broadcast
and video networking industry innovator by its customers.
SIGNIFICANT ACCOUNTING POLICIES
Outlined below are those policies considered particularly significant:
Basis of Measurement
These financial statements have been prepared on the historical cost basis except for certain financial assets
and liabilities which are stated at fair value. Historical cost is generally based on the fair value of the
consideration given in exchange for assets.
Functional and Presentation Currency
These financial statements are presented in Canadian dollars, which is the Company’s functional currency.
All financial information presented in Canadian dollars has been rounded to the nearest thousand,
except per share amounts.
Basis of Consolidation
These financial statements incorporate the financial statements of the Company and entities controlled
by the Company (its subsidiaries). Control is achieved where the Company has power over an entity,
has exposure or rights to variable returns from its involvement with the entity and has the ability
to use its power over the entity to affect the amount of the investor’s returns.
The results of subsidiaries acquired or disposed of are included in the consolidated statements of earnings and
comprehensive earnings from the effective date of acquisition of control and up to the effective date of disposal
of control, as appropriate. Total comprehensive earnings of subsidiaries is attributed to the owners of the Company
and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
All intra-Company transactions, balances, income and expenses are eliminated in full on consolidation.
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
Business Combinations
Business combinations are accounted for using the acquisition method. The cost of the acquisition is measured
at the aggregate of the fair values, at the date of acquisition, of assets transferred, liabilities incurred or assumed,
and equity instruments issued by the Company. The acquiree’s identifiable assets and liabilities assumed are
recognized at their fair value at the acquisition date. Acquisition-related costs are recognized in earnings as incurred.
Any contingent consideration is measured at fair value on date of the acquisition and is included as part of the
consideration transferred. The fair value of the contingent consideration liability is re-measured at each reporting
date with corresponding gain/loss recognized in earnings. The excess of the consideration over the fair value
of the net identifiable assets and liabilities acquired is recorded as goodwill.
On an acquisition by acquisition basis, any non-controlling interest is measured either at the fair value of the
non-controlling interest or at the fair value of the proportionate share of the net identifiable assets acquired.
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition
of the business less accumulated impairment losses, if any.
Revenue Recognition
Revenue is measured at the fair value of consideration received or receivable, net of discounts and after
eliminating intercompany sales.
Where revenue arrangements have separately identifiable components, the consideration received or receivable
is allocated to each identifiable component and the applicable revenue recognition criteria are applied to each
of the components.
Revenue is derived from the sale of hardware and software solutions including related services, training and
commissioning. Revenue from sales of hardware and software are recognized upon shipment, provided that the
significant risks and rewards of ownership have been transferred to the customer, the Company retains neither
continuing managerial involvement to the degree usually associated with ownership nor effective control over the
goods sold, revenue can be reliably measured and its probable that the economic benefits will flow to the Company.
Service revenue is recognized as services are performed.
Certain of the Company’s contracts are long-term in nature. When the outcome of the contract can be assessed
reliably, the Company recognizes revenue on long-term contracts using the percentage of completion method, based
on costs incurred relative to the estimated total contract costs. When the outcome of the contract cannot be assessed
reliably contract costs incurred are immediately expensed and revenue is recognized only to the extent that costs are
considered likely to be recovered.
Finance Income
Interest revenue is recognized when it is probable that the economic benefits will flow to the Company and the amount
of revenue can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future
cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in the bank, net of outstanding bank overdrafts.
Inventories
Inventories consist of raw materials and supplies, work in progress and finished goods. Inventories are stated
at the lower of cost and net realizable value. Cost is determined on a weighted average basis and includes raw
materials, the cost of direct labour applied to the product and the overhead expense.
Net realizable value represents the estimated selling price for inventories less all estimated costs of completion
and costs necessary to make the sale.
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D) Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognized impairment loss.
Where the costs of certain components of an item of property, plant and equipment are significant in relation to the
total cost of the item, they are accounted for and depreciated separately. Depreciation expense is calculated based
on depreciable amounts which is the cost of an asset less residual value and is recognized in earnings on a straight-
line basis over the estimated useful life of the related asset. Borrowing costs are capitalized to the cost of qualifying
assets that take a substantial period of time to be ready for their intended use.
The estimated useful lives are as follows:
Asset
Office furniture and equipment
Research and development equipment
Machinery and equipment
Leaseholds
Building
Airplanes
Basis
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Rate
10 years
5 years
5 - 15 years
5 years
10 - 40 years
10 - 20 years
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognized in earnings.
The Company reviews the residual value, estimated useful life and the depreciation method at least annually.
Impairment of Non-Financial Assets
Goodwill is tested for impairment annually, or whenever events or changes in circumstances indicate that the carrying
amount may be more than its recoverable amount. At each reporting period, the Company reviews the carrying
amounts of its other non-financial assets to determine whether there is any indication that those assets have suffered
an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where the asset does not generate cash inflows that are largely
independent from other assets, the Company estimates the recoverable amount of the cash-generating unit (“CGU”)
to which the asset belongs. Goodwill is allocated to a group of CGU’s based on the level at which it is monitored for
internal reporting purposes.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the estimates
of future cash flows have not been adjusted.
If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount
of the asset or CGU is reduced to its recoverable amount. An impairment loss relating to a CGU to which goodwill has
been allocated, is allocated to the carrying amount of the goodwill first. An impairment loss is recognized immediately
in earnings.
An impairment loss in respect of goodwill is not reversed. Where an impairment loss subsequently reverses for other
non-financial assets, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of an impairment
loss is recognized immediately in earnings.
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT Intangible Assets
Intangible Assets
Intangible assets represent intellectual property acquired through business acquisitions and are recorded at cost less
any impairment loss and are amortized using the straight–line method over a four–year period. The estimated useful
life and amortization method are reviewed at the end of each reporting period.
Research and Development
All research and development expenditures are expensed as incurred unless a development project meets the criteria
for capitalization. Development expenditures are capitalized only if development costs can be measured reliably,
the product or process is technically and commercially feasible, future economic benefits are probable and the
Company intends to and has sufficient resources to complete development and to use or sell the asset.
No internally generated intangible assets have been recognized to date.
Research and development expenditures are recorded gross of investment tax credits and related government
grants. Investment tax credits for scientific research and experimental development are recognized in the
period the qualifying expenditures are incurred if there is reasonable assurance that they will be realized.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result
of a past event, it is probable that the Company will be required to settle that obligation and a reliable
estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present
obligation at the reporting period, taking into account the risks and uncertainties surrounding the obligation.
Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying
amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from
a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received
and the amount of the receivable can be measured reliably.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks
and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Company at their fair value or, if lower,
at the present value of the minimum lease payments, each determined at the inception of the lease.
The corresponding liability to the lessor is included in the statement of financial position as a finance
lease obligation.
Rentals payable under operating leases are charged to earnings on a straight-line basis over the term
of the relevant lease.
Foreign Currency Translation
The individual financial statements of each subsidiary entity are presented in the currency of the primary economic
environment in which the entity operates (its functional currency). For the purpose of the consolidated financial
statements, the results and financial position of each group entity are presented in Canadian dollars (“CDN”),
which is the functional currency of the parent Company and the presentation currency for the financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s
functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the
transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated
at the rates prevailing at that date. Exchange differences are recognized in earnings in the period in which they arise.
Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D) For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign
operations are expressed in Canadian dollars using exchange rates prevailing at the end of the reporting period.
Income and expense items are translated at the average exchange rates for the period. Foreign currency gains
and losses are recognized in other comprehensive earnings. The relevant amount in cumulative foreign currency
translation adjustment is reclassified into earnings upon disposition or partial disposition of a foreign operation
and attributed to non-controlling interests as appropriate.
Income Taxes
Current Tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net earnings as reported
in the statement of earnings because it excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by the statement of financial position date.
Deferred Tax
Deferred tax is the tax expected to be payable or recoverable on unused tax losses and credits, as well as differences
between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases
used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary
differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available
against which unused tax losses, credits and other deductible temporary differences can be utilized. Such assets and
liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill or from the initial
recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither
the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the
asset is realized. The measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the
carrying amount of its assets and liabilities. Deferred tax is charged or credited to earnings, except when it relates
to items charged or credited directly to other comprehensive earnings or equity, in which case the deferred tax
is also dealt with in other comprehensive earnings or equity.
Share Based Compensation
Equity settled share based payments to employees and others providing similar services are measured at the
fair value of the equity instruments at the grant date. Details regarding the determination of the fair value
of equity settled share based transactions are set out in note 13.
The fair value determined at the grant date of the equity settled share based payments is expensed on a straight-line
basis over the vesting period of the option based on the Company’s estimate of the number of equity instruments that
will eventually vest. At each reporting period, the Company revises its estimate of the number of equity instruments
expected to vest. The impact of the revision of the original estimates, if any, is recognized in earnings such that the
cumulative expense reflects the revised estimate, with a corresponding adjustment to share based payment reserve.
Cash settled share based earnings to employees or others providing similar services are measured at the fair value
of the instruments at the grant date. The fair value is recognized as an expense with a corresponding increase
in liabilities over the vesting period of the option grant. At each reporting period, the Company revises its estimate
of fair value and the number of instruments expected to vest. The impact of the revision of the original estimates,
if any, is recognized in earnings such that the cumulative expense reflects the revised estimate, with a corresponding
adjustment to liabilities.
Earnings Per Share
The Company presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is calculated
by dividing the net earnings attributable to shareholders by the weighted average number of common shares outstanding
during the period. Diluted EPS is determined by adjusting the net earnings attributable to shareholders and the weighted
average number of common shares outstanding for the effects of all potentially dilutive common shares, which is
comprised of share options granted to employees with an exercise price below the average market price.
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT Finance Costs
Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost
of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure
on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other finance costs are recognized in earnings in the period in which they are incurred.
Investment Tax Credits
The Company is entitled to investment tax credits, which are earned as a percentage of eligible research and
development expenditures incurred in each taxation year. Investment tax credits relate entirely to the Company’s
research and development expenses in the consolidated statements of earnings but are presented separately
in the consolidated statements of earnings for information purposes. Investment tax credits are recognized
and recorded within income tax receivable or as a reduction of income tax payable, when there is reasonable
assurance they will be received.
Financial Instruments
The Company’s financial assets and liabilities which are initially recorded at fair value and subsequently
measured based on their assigned classifications as follows:
Asset/Liability
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Long term debt
Category
Loans and receivables
Loans and receivables
Other liabilities
Other liabilities
Measurement
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Financial Assets
All financial assets are initially measured at fair value, plus transaction costs, except for those financial
assets classified as fair value through profit or loss, which are initially measured at fair value. Transaction costs
in respect of financial instruments that are classified as fair value through profit or loss are recognized in earnings
immediately. Transaction costs in respect of other financial instruments are included in the initial measurement
of the financial instrument.
Financial assets are classified into the following specific categories: financial assets “at fair value through profit
or loss” (“FVTPL”), “held-to-maturity” investments, “available-for-sale” (“AFS”) financial assets and “loans and
receivables”. The classification depends on the nature and purpose of the financial assets and is determined
at the time of initial recognition.
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognized
in earnings.
Impairment of Financial Assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each reporting period.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred
after the initial recognition of the financial asset, the estimated future cash flows of the investment have been
affected. For certain categories of financial assets, such as trade and other receivables, assets that are assessed
not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence
of impairment of a financial asset can include a significant or prolonged decline in the fair value of an asset,
default or delinquency by a debtor, indication that a debtor will enter bankruptcy or financial re-organization
or the disappearance of an active market for a security.
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)
For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s
carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original
effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When
a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries
of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the
allowance account are recognized in earnings.
Financial Liabilities and Equity Instruments Issued by the Company
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognized
in earnings. The net gain or loss recognized in earnings incorporates any interest paid on the financial liability and
is included in the “other income and expenses” line item in the consolidated statements of earnings.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting
all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received,
net of direct issue costs.
Other financial liabilities, including long term debt, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortized cost using the effective interest method,
with interest expense recognized on an effective yield basis.
Use of Estimates and Judgments
The preparation of financial statements in conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the year. Consequently, actual results could differ from those estimates. Those estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period
in which the estimate is revised and in any future periods affected. Significant estimates include the determination
of the allowance for doubtful accounts for trade receivables, provision for inventory obsolescence, the useful life of
property, plant and equipment for depreciation, amortization and valuation of net recoverable amount of property,
plant and equipment, determination of fair value for share based compensation, evaluating deferred income tax
assets and liabilities, the determination of fair value of financial instruments and the likelihood of recoverability,
and the determination of implied fair value of goodwill and implied fair value of assets and liabilities for purchase
price allocation purposes and goodwill impairment test purposes.
Significant items requiring the use of judgment in application of accounting policies and assumptions include the
determination of functional currencies, classification of financial instruments, classification of leases, application
of the percentage of completion method on long-term contracts, degree of componentization applied when
calculating amortization of property, plant and equipment, and identification of cash generating units for
impairment testing purposes.
Operating Segments
An operating segment is a component of the Company that engages in business activities from which it may earn
revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s
other components. The Company reviewed its operations and determined that it operates a single reportable
segment, the television broadcast equipment market. The single reportable operating segment derives its revenue
from the sale of hardware and software solutions including related services, training and commissioning.
EVERTZ REPORT_2017_PRINT.indd 11
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
CHANGES IN ACCOUNTING POLICIES
NEW AND REVISED IFRSs ISSUED BUT NOT YET EFFECTIVE
Following is a listing of amendments, revisions and new International Financial Reporting Standards issued
but not yet effective. Unless otherwise indicated, earlier application is permitted. The Company has not yet
determined the impact of the adoption of the following standards.
Income Taxes
IAS 12, Income Taxes was amended by the IASB in January, 2016 and clarifies the requirements for recognition
of deferred tax assets arising from unrealized losses. Amendments to IAS 12 are effective for annual periods
beginning on or after January 1, 2017.
Statement of Cash Flows
IAS 7, Statement of Cash Flows was amended by the IASB in January, 2016 and increases disclosure
requirements surrounding changes to financing related liabilities. Amendments to IAS 7 are effective
for annual periods beginning on or after January 1, 2017.
Financial Instruments
IFRS 9, Financial instruments (“IFRS 9”) was issued by the IASB in July 2014 and will replace IAS 39,
Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 introduces new requirements
for the financial reporting of financial assets and financial liabilities. IFRS 9 is effective for annual
periods beginning on or after January 1, 2018.
Revenue
IFRS 15, Revenue from contracts with customers (“IFRS 15”) was issued by the IASB in May 2014 and will replace
IAS 11, Construction Contracts and IAS 18, Revenue. IFRS 15 specifies how and when revenue will be recognized.
IFRS 15 is effective for annual periods beginning on or after January 1, 2018.
Leases
IFRS 16, Leases (“IFRS 16”) was issued by the IASB in January 2016 and will replace IAS 17, Leases. IFRS 16
introduces a single accounting model for lessees to bring leases on-balance sheet while lessor accounting
remains largely unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019.
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12
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)
YEAR END HIGHLIGHTS
Revenue was $384.4 million for the year ended April 30, 2017 an increase of $2.8 million, compared to $381.6 million
for the year ended April 30, 2016. Revenue increased in the United States/Canada region by 6%.
For the year ended April 30, 2017, net earnings were $69.8 million a decrease from $70.9 million for the year
ended April 30, 2016 and fully diluted earnings per share were $0.92 a decrease from $0.94 for the year
ended April 30, 2016.
Gross margin during the year ended April 30, 2017 was 56.7% as compared to 57.0% for the year ended
April 30, 2016.
Selling and administrative expenses for the year ended April 30, 2017 was $62.1 million as compared to the year
ended April 30, 2016 of $61.0 million. As a percentage of revenue, selling and administrative expenses totaled
16.2% for the year ended April 30, 2017 as opposed to 16.0% for the year ended April 30, 2016.
Research and development (“R&D”) expenses were $73.7 million for the year ended April 30, 2017 as compared
to $66.9 million for the year ended April 30, 2016.
Cash and cash equivalents were $54.3 million and working capital was $264.6 million as at April 30, 2017,
after payment of dividends of $137.5 million including a special dividend of $83.1 million as compared
to cash and cash equivalents of $123.1 million and working capital of $314.9 million as at April 30, 2016.
HIGHLIGHTS FROM THE FOURTH QUARTER
Revenue increased by $10.4 million or 11% for the three months ended April 30, 2017 when compared to the same
period ended April 30, 2016. Revenue increased in the United States/Canada region by 13%. Revenue increased
in the International region by 8%.
Fully diluted EPS was $0.27 for the three months ended April 30, 2017 as compared to $0.11 for the period
ended April 30, 2016.
Foreign exchange gain during the quarter was $4.1 million, predominately driven by the increase in value
of the US dollar against the Canadian dollar since January 31, 2017.
Selling and administrative expenses increased by $0.2 million for the three months ended April 30, 2017
when compared to the same period ended April 30, 2016. Selling and administrative expenses were
approximately 15.4% of revenue for the three months ended April 30, 2017 as compared to approximately
16.9% of revenue for the same period ended April 30, 2016.
Research and development expenses increased by $2.7 million for the three months ended April 30, 2017
when compared to the same period ended April 30, 2016. Research and development expenses represented
approximately 18.7% of revenue for the three months ended April 30, 2017 as compared to approximately
17.9% for the same period ended April 30, 2016.
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13
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT SELECTED CONSOLIDATED FINANCIAL INFORMATION
(In thousands of dollars except earnings per share and share data)
Revenue
Cost of goods sold
Gross margin
Expenses
Selling and administrative
General
Research and development
Investment tax credits
Foreign exchange gain
Earnings before undernoted
Finance income
Finance costs
Other income and expenses
Earnings before income taxes
Provision for (recovery of) income taxes
Current
Deferred
Net earnings for the year
Net earnings attributable to non-controlling interest
Net earnings attributable to shareholders
Net earnings for the year
Earnings per share
Basic
Diluted
Year Ended April 30,
2017
2016
2015
$
384,432
$
381,550
$
363,606
166,288
218,144
62,135
8,951
73,699
(9,362)
(9,887)
125,536
92,608
1,321
(242)
(141)
93,546
25,160
(1,387)
23,773
69,773
613
69,160
69,773
0.92
0.92
164,172
217,378
60,986
6,200
66,892
(10,495)
(2,638)
120,945
96,433
772
(534)
124
157,475
206,131
58,833
6,136
64,332
(10,263)
(1,411)
117,627
88,504
830
(240)
325
96,795
89,419
24,582
1,327
25,909
70,886
667
70,219
70,886
0.94
0.94
$
$
$
$
$
25,154
(2,145)
23,009
66,410
910
65,500
66,410
0.88
0.87
$
$
$
$
$
$
$
$
$
$
14
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D) CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents
Inventory
Working capital
Total assets
Shareholders' equity
As at April 30,
2017
54,274
178,208
264,586
410,568
317,830
$
$
$
$
$
2016
123,102
155,957
314,912
448,314
366,205
$
$
$
$
$
2015
100,681
154,259
294,895
426,162
353,471
$
$
$
$
$
Number of common shares outstanding:
Basic
Fully-diluted
Weighted average number of shares outstanding:
Basic
Fully-diluted
75,742,746
78,621,246
74,188,746
78,595,246
74,459,346
79,195,846
75,040,113
75,374,204
74,360,423
74,843,493
74,399,096
75,033,398
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15
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
SELECTED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenue
Cost of goods sold
Gross margin
Expenses
Selling and administrative
General
Research and development
Investment tax credits
Foreign exchange gain
Earnings before undernoted
Finance income
Finance costs
Other income and expenses
Earnings before income taxes
Provision for (recovery of) income taxes
Current
Deferred
Net earnings for the year
Net earnings attributable to non-controlling interest
Net earnings attributable to shareholders
Net earnings for the year
Earnings per share:
Basic
Diluted
2017
100.0%
43.3%
56.7%
16.2%
2.2%
19.2%
(2.4%)
(2.6%)
32.6%
24.1%
0.3%
(0.1%)
0.0%
24.3%
6.5%
(0.4%)
6.1%
18.2%
0.2%
18.0%
18.2%
2016
100.0%
43.0%
57.0%
16.0%
1.6%
17.5%
(2.7%)
(0.7%)
31.7%
25.3%
0.2%
(0.1%)
0.0%
25.4%
6.4%
0.4%
6.8%
18.6%
0.2%
18.4%
18.6%
2015
100.0%
43.3%
56.7%
16.2%
1.6%
17.7%
(2.8%)
(0.4%)
32.3%
24.4%
0.2%
(0.1%)
0.1%
24.6%
6.9%
(0.6%)
6.3%
18.3%
0.3%
18.0%
18.3%
$
$
0.92
0.92
$
$
0.94
0.94
$
$
0.88
0.87
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)
REVENUE AND EXPENSES
REVENUE
The Company generates revenue principally from the sale of software, equipment, and technology solutions to content
creators, broadcasters, specialty channels and television service providers.
The Company markets and sells its products and services through both direct and indirect sales strategies. The
Company’s direct sales efforts focus on large and complex end-user customers. These customers have long sales
cycles typically ranging from four to eight months before an order may be received by the Company for fulfillment.
The Company monitors revenue performance in two main geographic regions: (i) United States/Canada
and (ii) International.
The Company currently generates approximately 50% to 60% of its revenue in the United States/Canada.
The Company recognizes the opportunity to more aggressively target markets in other geographic regions
and intends to invest in personnel and infrastructure in those markets.
While a significant portion of the Company’s expenses are denominated in Canadian dollars, the Company
collects substantially all of its revenues in currencies other than the Canadian dollar and therefore has
significant exposure to fluctuations in foreign currencies, in particular the US dollar. Approximately 75%
to 85% of the Company’s revenues are denominated in US dollars.
REVENUE
(In thousands of Canadian dollars)
United States/Canada
International
Year Ended April 30,
2017
229,082
155,350
384,432
$
$
2016
216,009
165,541
381,550
$
$
2015
204,453
159,153
363,606
$
$
Total revenue for the year ended April 30, 2017 was $384.4 million, an increase of $2.8 million or 1% as compared
to revenue of $381.6 million for the year ended April 30, 2016.
Revenue in the United States/Canada region was $229.1 million for the year ended April 30, 2017, an increase
of $13.1 million or 6% when compared to revenue of $216.0 million for the year ended April 30, 2016.
Revenue in the International region was $155.4 million for the year ended April 30, 2017, a decrease
of $10.2 million or 6% as compared to revenue of $165.6 million for the year ended April 30, 2016.
COST OF SALES
Cost of sales consists primarily of costs of manufacturing and assembly of products. A substantial portion of these
costs is represented by components and compensation costs for the manufacture and assembly of products.
Cost of sales also includes related overhead, certain depreciation, final assembly, quality assurance, inventory
management and support costs. Cost of sales also includes the costs of providing services to clients,
primarily the cost of service-related personnel.
GROSS MARGIN
(In thousands of Canadian dollars, except for percentages)
2017
2016
2015
Gross margin
Gross margin % of sales
$
218,144
$
217,378
$
206,131
56.7%
57.0%
56.7%
Year Ended April 30,
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT Gross margin for the year ended April 30, 2017 was $218.1 million, compared to $217.4 million for the year ended
April 30, 2016. As a percentage of revenue, the gross margin was 56.7% for the year ended April 30, 2017,
as compared to 57.0% for the year ended April 30, 2016.
Gross margins vary depending on the product mix, geographic distribution and competitive pricing pressures and
currency fluctuations. For the year ended April 30, 2017 the gross margin, as a percentage of revenue, was in the
Company’s projected range. The pricing environment continues to be very competitive with substantial discounting
by our competition.
The Company expects that it will continue to experience competitive pricing pressures. The Company continually
seeks to build its products more efficiently and enhance the value of its product and service offerings in order
to reduce the risk of declining gross margin associated with the competitive environment.
Operating Expenses
The Company’s operating expenses consist of: (i) selling, administrative and general; (ii) research and development
and (iii) foreign exchange.
Selling expenses primarily relate to remuneration of sales and technical personnel. Other significant cost components
include trade show costs, advertising and promotional activities, demonstration material and sales support.
Selling and administrative expenses relate primarily to remuneration costs of related personnel, legal and
professional fees, occupancy and other corporate and overhead costs. The Company also records certain
depreciation and share based compensation charges as general expenses. For the most part, selling,
and administrative expenses are fixed in nature and do not fluctuate directly with revenue. The Company
has certain selling expenses that tend to fluctuate in regards to the timing of trade shows.
The Company invests in research and development to maintain its position in the markets it currently serves and
to enhance its product portfolio with new functionality and efficiencies. Although the Company’s research and
development expenditures do not fluctuate directly with revenues, it monitors this spending in relation to revenues
and adjusts expenditures when appropriate. Research and development expenditures consist primarily of personnel
costs and material costs. Research and development expenses are presented on a gross basis (without deduction
of research and development tax credits). Research and development tax credits associated with research and
development expenditures are shown separately under research and development tax credits.
SELLING AND ADMINISTRATIVE
Year Ended April 30,
(In thousands of Canadian dollars, except for percentages)
2017
2016
2015
Selling and administrative
Selling and administrative % of sales
$
62,135
$
60,986
$
58,833
16.2%
16.0%
16.2%
Selling and administrative expenses excludes stock based compensation, operation of non-production property,
plant and equipment, and amortization of intangibles. Selling and administrative expenses for the year ended April 30,
2017 were $62.1 million or 16.2% of revenue, as compared to selling and administrative expenses of $61.0 million
or 16.0% of revenue for the year ended April 30, 2016. The increase of $1.1 million was predominantly a result of
increased personnel costs.
Share Based Compensation
In March 2016, the Company adopted a restricted share unit (RSU) plan to attract, motivate and compensate persons
who are integral to the growth and success of the Company. During the year ended April 30, 2017, share based
compensation expense associated with the plan was $3.4 million.
RESEARCH AND DEVELOPMENT (R&D)
(In thousands of Canadian dollars, except for percentages)
2017
2016
2015
Research and development expenses
$
73,699
$
66,892
$
64,332
Research and development % of sales
19.2%
17.5%
17.7%
Year Ended April 30,
18
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D) For the year ended April 30, 2017, gross R&D expenses were $73.7 million, an increase of 10% or $6.8 million
as compared to an expense of $66.9 million for the year ended April 30, 2016.
The increase of $6.8 million was predominantly a result of planned growth of R&D personnel, a corresponding
increase in materials and additional rent and expenses associated with a new facility, partially offset
by decreased translation costs associated with UK Sterling denominated expenses.
Foreign Exchange
For the year ended April 30, 2017, the foreign exchange gain was $9.9 million, as compared to a foreign exchange
gain for the year ended April 30, 2016 of $2.6 million. The current year gain was predominantly driven by the
increase in the value of the US dollar against the Canadian dollar since April 30, 2016.
Finance Income, Finance Costs, Other Income and Expenses
For the year ended April 30, 2017, finance income, finance costs, other income and expenses netted to a gain
of $0.9 million.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
(In thousands of dollars except ratios)
Key Balance Sheet Amounts and Ratios:
Cash and cash equivalents
Working capital
Long-term assets
Long-term debt
Days sales outstanding in accounts receivable
Statement of Cash Flow Summary
Operating activities
Investing activities
Financing activities
Net (decrease) increase in cash
Year Ended April 30,
2017
54,274
264,586
62,347
733
106
$
$
$
$
2016
123,102
314,912
61,257
888
93
Year Ended April 30,
2017
64,513
(11,182)
(119,013)
(68,828)
$
$
$
$
2016
91,181
(3,854)
(59,439)
22,421
$
$
$
$
$
$
$
$
Operating Activities
For the year ended April 30, 2017, the Company generated cash from operations of $64.5 million, compared to cash
generated of 91.2 million for the year ended April 30, 2016. Excluding the effects of the changes in non-cash working
capital and current taxes, the Company generated cash from operations of $81.1 million for the year ended April 30,
2017 compared to $85.5 million for the year ended April 30, 2016.
$
Investing Activities
The Company used cash for investing activities of $11.2 million for the year ended April 30, 2017 which was
predominantly for the acquisition of capital assets.
Financing Activities
For the year ended April 30, 2017, the Company used cash from financing activities of $119.0 million, which was
principally driven by dividends paid of $137.5 million including a special dividend of $83.1 million, partially offset
by the issuance of Capital Stock pursuant to the Company’s Stock Option Plan of $18.7 million.
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19
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT WORKING CAPITAL
As at April 30, 2017, the Company had cash and cash equivalents of $54.3 million, compared to $123.1 million
at April 30, 2016.
The Company had working capital of $264.6 million as at April 30, 2017 compared to $314.9 million
as at April 30, 2016.
The Company believes that the current balance in cash and plus future cash flow from operations will
be sufficient to finance growth and related investment and financing activities in the foreseeable future.
Day sales outstanding in accounts receivable were 106 days at April 30, 2017 as compared to 93 for April 30, 2016.
SHARE CAPITAL STRUCTURE
Authorized capital stock consists of an unlimited number of common and preferred shares.
Common shares
Stock options granted and outstanding
Year Ended April 30,
2017
75,742,746
2,878,500
2016
74,188,746
4,406,500
FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash and cash equivalents, trade and other receivables,
trade and other payables and long term debt. Unless otherwise noted, it is management’s opinion that
the Company is not exposed to significant interest or credit risks arising from these financial instruments.
The Company estimates the fair value of these instruments approximates the carrying values as listed below.
Fair Values and Classification of Financial Instruments:
The following summarizes the significant methods and assumptions used in estimating the fair values
of financial instruments:
I. Quoted prices (unadjusted) in active markets for identical assets or liabilities.
II. Inputs other than quoted prices included in level I that are observable for the asset or liability, either directly
or indirectly. Cash and cash equivalents, trade and other receivables, trade and other payables, and long-term
debt fair value measurements have been measured within level II.
III. Inputs for the asset or liability that are not based on observable market data.
CONTRACTUAL OBLIGATIONS
The following table sets forth the Company’s contractual obligations as at April 30, 2017:
(In thousands)
Operating leases
Other long-term debt
Total
20,872
1,013
21,885
$
$
Payments Due by Period
Less than
1 year
2-3 Years
4-5 Years
Thereafter
$
$
5,229
280
5,509
$
$
6,472
412
6,884
$
$
3,834
321
4,155
$
$
5,337
-
5,337
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)
OFF-BALANCE SHEET FINANCING
The Company does not have any off-balance sheet arrangements.
RELATED PARTY TRANSACTIONS
In the normal course of business, we may enter into transactions with related parties. These transactions occur
under market terms consistent with the terms of transactions with unrelated arms-length third parties. The Company
continues to lease a premise from a company in which two shareholders’ each indirectly hold a 10% interest,
continues to lease a facility from a company in which two shareholders each indirectly hold a 20% interest,
continues to lease two facilities for manufacturing where two shareholders indirectly own 100% interest,
continues to lease a facility from a company in which two shareholders each indirectly own a 35% interest,
continues to lease a facility with a director who indirectly owns 100% and continues to lease a facility
owned indirectly by two shareholders.
SELECTED CONSOLIDATED QUARTERLY FINANCIAL INFORMATION
The following table sets out selected consolidated financial information for each of the eight quarters ended
April 30, 2017. In the opinion of management, this information has been prepared on the same basis as the
audited consolidated financial statements. The operating results for any quarter should not be relied upon
as any indication of results for any future period.
(In thousands)
(Unaudited)
Revenue
Cost of
goods sold
Gross margin
Operating
expenses
Earnings from
operations
Non-operating
income
Earnings
before taxes
Net earnings
2017
Quarter Ending
2016
Apr 30
Jan 31
Oct 31
July 31
Apr 30
Jan 31
2015
Oct 31
July 31
$ 106,734 $ 91,080 $ 99,592 $ 87,026 $ 96,367 $ 99,754 $ 100,560 $ 84,869
46,690
37,040
$ 60,044 $ 51,123 $ 57,111 $ 49,866 $ 55,024 $ 56,991 $ 57,534 $ 47,829
43,026
42,481
39,957
42,763
41,343
37,160
32,531
38,704
29,225
25,076
43,713
23,960
30,819
22,453
$ 27,513 $ 12,419 $ 27,886 $ 24,790 $ 11,311 $ 33,031 $ 26,715 $ 25,376
(116)
359
363
332
(4)
200
168
(2)
$ 27,397 $ 12,778 $ 28,249 $ 25,122 $ 11,307 $ 33,231 $ 26,883 $ 25,374
$ 20,547 $ 9,637 $ 20,583 $ 18,393 $ 8,097 $ 24,225 $ 19,486 $ 18,411
Net earnings
per share:
Basic
Diluted
Dividends
per share
$
$
$
0.27 $
0.27 $
0.13 $
0.13 $
0.28 $
0.27 $
0.25 $
0.25 $
0.11 $
0.11 $
0.33 $
0.32 $
0.26 $
0.26 $
0.25
0.25
0.18 $
1.28 $
0.18 $
0.18 $
0.18 $
0.18 $
0.18 $
0.18
The Companies revenue and corresponding earnings can vary from quarter to quarter depending on the delivery
requirements of our customers. Our customers can be influenced by a variety of factors including upcoming sports or
entertainment events as well as their access to capital. Net earnings represent net earnings attributable to shareholders.
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT DISCLOSURE CONTROLS AND PROCEDURES
Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company’s disclosure controls and procedures (as defined in National Instrument 52-109 of the Canadian Securities
Administrators) as of April 30, 2017.
Management has concluded that, as of April 30, 2017, the Company’s disclosure controls and procedures were
effective to provide reasonable assurance that material information relating to the Company would be made known
to them by others within the Company, particularly during the period in which this report was being prepared.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
Management is responsible for and has designed internal controls over financial reporting, or caused it to be designed
under management’s supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with IFRS. Management has concluded
that, as of April 30, 2017, the Company’s internal controls over financial reporting were effective to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes to the Company’s internal controls over financial reporting during the period ended
April 30, 2017 that have materially affected, or reasonably likely to materially affect, its internal controls over
financial reporting.
On May 15, 2013 the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) released Internal
Control-Integrated Framework: 2013, which is an update to the internal control framework previously issued in 1992.
Management is currently operating under the 1992 Framework and is transitioning to the updated Framework.
While no significant changes to the Company’s internal control system are expected to result from the transition,
any modifications to such expectation will be reported by the Company within the following MD&A.
OUTLOOK
Management expects on an annual basis that the Company’s revenues will continue to outpace industry growth.
Gross margin percentages may vary depending on the mix of products sold, the Company’s success in winning
more complete projects, utilization of manufacturing capacity and the competitiveness of the pricing environment.
R&D will continue to be a key focus as the Company invests in new product development.
RISKS AND UNCERTAINTIES
The Company risk factors are outlined in our AIF filed on SEDAR.
EVERTZ REPORT_2017_PRINT.indd 22
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22
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D) INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Evertz Technologies Limited
We have audited the accompanying consolidated financial statements of Evertz Technologies Limited, which comprise
the consolidated statements of financial position as at April 30, 2017 and April 30, 2016, and the consolidated
statements of changes in equity, consolidated statements of earnings, consolidated statements of comprehensive
earnings, and consolidated statements of cash flows for the years then ended, and a summary of significant
accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of Evertz Technologies Limited as at April 30, 2017 and April 30, 2016, and its financial performance and its cash
flows for the years then ended in accordance with International Financial Reporting Standards.
CHARTERED PROFESSIONAL ACCOUNTANTS
LICENSED PUBLIC ACCOUNTANTS
June 13, 2017
Burlington, Ontario
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23
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at April 30, 2017 and April 30, 2016
(In thousands of Canadian dollars)
April 30, 2017
April 30, 2016
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables (note 3)
Prepaid expenses
Inventories (note 4)
Income tax receivable (note 21)
Property, plant and equipment (note 5)
Goodwill (note 6)
LIABILITIES
Current liabilities
Trade and other payables
Provisions (note 7)
Deferred revenue
Current portion of long term debt (note 8)
Income tax payable (note 21)
Long term debt (note 8)
Deferred income taxes (note 21)
EQUITY
Capital stock (note 9)
Share based payment reserve
w
Accumulated other comprehensive earnings
Retained earnings
Total equity attributable to shareholders
Non-controlling interest
See accompanying notes to the consolidated financial statements.
$
$
$
$
54,274
111,664
4,075
178,208
-
348,221
44,152
18,195
410,568
50,321
3,817
28,272
280
945
83,635
733
4,427
88,795
124,695
10,091
747
182,297
183,044
317,830
3,943
321,773
410,568
$
$
$
$
123,102
97,435
6,307
155,957
4,256
387,057
42,971
18,286
448,314
49,815
3,563
18,529
238
-
72,145
888
5,545
78,578
100,483
13,835
1,567
250,320
251,887
366,205
3,531
369,736
448,314
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24
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years ended April 30
Share-
based
payment
reserve
Accumulated
other
comprehen-
sive
earnings
Retained
earnings
Capital
stock
Total
equity
attributable
to
share-
holders
Non-
control-
ling
interest
Total
Equity
$ 95,708
$ 12,418
$
3,077
$ 242,268
$ 353,471 $ 3,389 $ 356,860
$
-
-
-
-
-
-
$
-
-
-
-
-
2,604
4,371
-
1,187
(1,187)
(783)
-
-
70,219
70,219
667
70,886
(893)
(617)
-
-
(893)
100
(793)
(617)
-
(617)
$ (1,510) $ 70,219
(53,549)
-
$ 68,709 $
(53,549)
767 $
(625)
69,476
(54,174)
-
-
-
-
-
-
-
2,604
4,371
-
(8,618)
(9,401)
-
-
-
-
2,604
4,371
-
(9,401)
$ 100,483
$ 13,835
$
1,567 $ 250,320 $ 366,205 $ 3,531 $ 369,736
(In thousands
of Canadian dollars)
Balance at
April 30, 2015
Net earnings
for the year
Foreign currency
translation adjustment
Disposal of a foreign
operation
Total comprehensive
earnings for the year
Dividends declared
Share based
compensation expense
Exercise of employee
stock options
Transfer on stock
option exercise
Repurchase of common
shares
Balance at
April 30, 2016
Net earnings
for the year
Foreign currency
translation adjustment
Total comprehensive
earnings for the year
$
Dividends declared
Share based
compensation expense
Exercise of employee
stock options
Transfer on stock
option exercise
Balance at
April 30, 2017
-
-
-
-
-
$
-
-
-
-
1,767
18,701
-
5,511
(5,511)
-
69,160
69,160
613
69,773
(820)
-
(820)
149
(671)
$
(820) $ 69,160
$ 68,340 $
762 $
69,102
-
-
-
-
(137,183)
(137,183)
(350)
(137,533)
-
-
-
1,767
18,701
-
-
-
-
1,767
18,701
-
$ 124,695
$ 10,091
$
747 $ 182,297 $ 317,830 $ 3,943 $ 321,773
See accompanying notes to the consolidated financial statements.
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25
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended April 30
(In thousands of Canadian dollars, except per share amounts)
Revenue (note 10)
Cost of goods sold
Gross margin
Expenses
Selling, administrative and general (note 11)
Research and development
Investment tax credits
Foreign exchange gain
Finance income
Finance costs
Other income (expenses)
Earnings before income taxes
Provision for (recovery of) income taxes
Current (note 21)
Deferred (note 21)
Net earnings for the year
Net earnings attributable to non-controlling interest
Net earnings attributable to shareholders
Net earnings for the year
Earnings per share (note 20)
Basic
Diluted
See accompanying notes to the consolidated financial statements.
2017
$
384,432
$
166,288
218,144
71,086
73,699
(9,362)
(9,887)
125,536
92,608
1,321
(242)
(141)
93,546
25,160
(1,387)
23,773
69,773
613
69,160
69,773
0.92
0.92
$
$
$
$
$
$
$
$
$
$
2016
381,550
164,172
217,378
67,186
66,892
(10,495)
(2,638)
120,945
96,433
772
(534)
124
96,795
24,582
1,327
25,909
70,886
667
70,219
70,886
0.94
0.94
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26
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
Years ended April 30
(In thousands of Canadian dollars)
Net earnings for the year
Items reclassified to net earnings:
Disposal of a foreign operation
Items that may be reclassified to net earnings:
Foreign currency translation adjustment
Comprehensive earnings
Comprehensive earnings attributable to non-controlling interest
Comprehensive earnings attributable to shareholders
Comprehensive earnings
See accompanying notes to the consolidated financial statements.
2017
2016
$
69,773
$
70,886
-
(617)
(671)
69,102
762
68,340
69,102
$
$
$
(793)
69,476
767
68,709
69,476
$
$
$
EVERTZ REPORT_2017_PRINT.indd 27
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27
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30
(In thousands of Canadian dollars)
Operating activities
Net earnings for the year
Add: Items not involving cash
Depreciation of property, plant and equipment
(Gain) loss on disposal of property, plant and equipment
Share-based compensation (note 13)
Interest expense
Deferred income tax (recovery) expense
Current tax expenses, net of investment tax credits
Income taxes paid
Changes in non-cash working capital items (note 12)
Cash provided by operating activities
Investing activities
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Cash used in investing activities
Financing activities
Repayment of long term debt
Interest paid
Dividends paid
Dividends paid by subsidiaries to non-controlling interests
Capital stock repurchase (note 9)
Capital stock issued
Cash used in financing activities
2017
2016
$
69,773
$
70,886
10,957
(9)
1,767
32
(1,387)
81,133
15,798
(10,562)
(21,856)
64,513
(11,272)
90
(11,182)
(149)
(32)
(137,183)
(350)
-
18,701
(119,013)
10,637
30
2,604
31
1,327
85,515
14,087
(20,406)
11,985
91,181
(4,023)
169
(3,854)
(204)
(31)
(53,549)
(625)
(9,401)
4,371
(59,439)
Effect of exchange rates on cash and cash equivalents
(3,146)
(5,467)
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents beginning of year
Cash and cash equivalents end of year
See accompanying notes to the consolidated financial statements.
(68,828)
123,102
$
54,274
$
22,421
100,681
123,102
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28
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended April 30, 2017 and 2016
(In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
EVERTZ TECHNOLOGIES LIMITED (“EVERTZ” OR THE “COMPANY”) IS INCORPORATED UNDER THE CANADA BUSINESS
CORPORATIONS ACT. THE COMPANY IS INCORPORATED AND DOMICILED IN CANADA AND THE REGISTERED HEAD OFFICE IS
LOCATED AT 5292 JOHN LUCAS DRIVE, BURLINGTON, ONTARIO, CANADA. THE COMPANY IS A LEADING SUPPLIER OF SOFTWARE,
EQUIPMENT AND TECHNOLOGY SOLUTIONS TO CONTENT CREATORS, BROADCASTERS, SPECIALTY CHANNELS AND TELEVISION
SERVICE PROVIDERS. THE COMPANY DESIGNS, MANUFACTURES AND DISTRIBUTES VIDEO AND AUDIO INFRASTRUCTURE
SOLUTIONS FOR THE PRODUCTION, POST–PRODUCTION, BROADCAST AND TELECOMMUNICATIONS MARKETS.
1. STATEMENT OF COMPLIANCE
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board ("IASB").
These consolidated financial statements were authorized for issue by the Board of Directors on June 13, 2017.
2. SIGNIFICANT ACCOUNTING POLICIES
Outlined below are those policies considered particularly significant:
Basis of Measurement
These financial statements have been prepared on the historical cost basis except for certain financial assets and
liabilities which are stated at fair value. Historical cost is generally based on the fair value of the consideration given
in exchange for assets.
Functional and Presentation Currency
These financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial
information presented in Canadian dollars has been rounded to the nearest thousand, except per share amounts.
Basis of Consolidation
These financial statements incorporate the financial statements of the Company and entities controlled by the
Company (its subsidiaries). Control is achieved where the Company has power over an entity, has exposure or rights
to variable returns from its involvement with the entity and has the ability to use its power over the entity to affect the
amount of the investor’s returns.
The results of subsidiaries acquired or disposed of are included in the consolidated statements of earnings and
comprehensive earnings from the effective date of acquisition of control and up to the effective date of disposal
of control, as appropriate. Total comprehensive earnings of subsidiaries is attributed to the owners of the Company
and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
All intra-Company transactions, balances, income and expenses are eliminated in full on consolidation.
Business Combinations
Business combinations are accounted for using the acquisition method. The cost of the acquisition is measured
at the aggregate of the fair values, at the date of acquisition, of assets transferred, liabilities incurred or assumed,
and equity instruments issued by the Company. The acquiree’s identifiable assets and liabilities assumed are
recognized at their fair value at the acquisition date. Acquisition-related costs are recognized in earnings as incurred.
Any contingent consideration is measured at fair value on date of the acquisition and is included as part of the
consideration transferred. The fair value of the contingent consideration liability is re-measured at each reporting
date with corresponding gain/loss recognized in earnings. The excess of the consideration over the fair value
of the net identifiable assets and liabilities acquired is recorded as goodwill.
On an acquisition by acquisition basis, any non-controlling interest is measured either at the fair value of the
non-controlling interest or at the fair value of the proportionate share of the net identifiable assets acquired.
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition
of the business less accumulated impairment losses, if any.
EVERTZ REPORT_2017_PRINT.indd 29
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29
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Revenue is measured at the fair value of consideration received or receivable, net of discounts and after eliminating
intercompany sales.
Where revenue arrangements have separately identifiable components, the consideration received or receivable
is allocated to each identifiable component and the applicable revenue recognition criteria are applied to each
of the components.
Revenue is derived from the sale of hardware and software solutions including related services, training and
commissioning. Revenue from sales of hardware and software are recognized upon shipment, provided that the
significant risks and rewards of ownership have been transferred to the customer, the Company retains neither
continuing managerial involvement to the degree usually associated with ownership nor effective control over the
goods sold, revenue can be reliably measured and its probable that the economic benefits will flow to the Company.
Service revenue is recognized as services are performed.
Certain of the Company’s contracts are long-term in nature. When the outcome of the contract can be assessed
reliably, the Company recognizes revenue on long-term contracts using the percentage of completion method,
based on costs incurred relative to the estimated total contract costs. When the outcome of the contract cannot
be assessed reliably contract costs incurred are immediately expensed and revenue is recognized only to the
extent that costs are considered likely to be recovered.
Finance Income
Interest revenue is recognized when it is probable that the economic benefits will flow to the Company and the amount
of revenue can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in the bank, net of outstanding bank overdrafts.
Inventories
Inventories consist of raw materials and supplies, work in progress and finished goods. Inventories are stated
at the lower of cost and net realizable value. Cost is determined on a weighted average basis and includes raw
materials, the cost of direct labour applied to the product and the overhead expense.
Net realizable value represents the estimated selling price for inventories less all estimated costs of completion
and costs necessary to make the sale.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognized impairment loss.
Where the costs of certain components of an item of property, plant and equipment are significant in relation to the
total cost of the item, they are accounted for and depreciated separately. Depreciation expense is calculated based on
depreciable amounts which is the cost of an asset less residual value and is recognized in earnings on a straight-line
basis over the estimated useful life of the related asset. Borrowing costs are capitalized to the cost of qualifying assets
that take a substantial period of time to be ready for their intended use.
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The estimated useful lives are as follows:
ASSET
Office furniture and equipment
Research and development equipment
Machinery and equipment
Leaseholds
Building
Airplanes
BASIS
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
RATE
10 years
5 years
5 - 15 years
5 years
10 - 40 years
10 - 20 years
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognized in earnings.
The Company reviews the residual value, estimated useful life and the depreciation method at least annually.
Impairment of Non-Financial Assets
Goodwill is tested for impairment annually, or whenever events or changes in circumstances indicate that the carrying
amount may be more than its recoverable amount. At each reporting period, the Company reviews the carrying
amounts of its other non-financial assets to determine whether there is any indication that those assets have suffered
an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where the asset does not generate cash inflows that are largely
independent from other assets, the Company estimates the recoverable amount of the cash-generating unit (“CGU”)
to which the asset belongs. Goodwill is allocated to a group of CGU’s based on the level at which it is monitored for
internal reporting purposes.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the estimates
of future cash flows have not been adjusted.
If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount
of the asset or CGU is reduced to its recoverable amount. An impairment loss relating to a CGU to which goodwill has
been allocated, is allocated to the carrying amount of the goodwill first. An impairment loss is recognized immediately
in earnings.
An impairment loss in respect of goodwill is not reversed. Where an impairment loss subsequently reverses for other
non-financial assets, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of an impairment
loss is recognized immediately in earnings.
Intangible Assets
Intangible Assets
Intangible assets represent intellectual property acquired through business acquisitions and are recorded at cost less
any impairment loss and are amortized using the straight–line method over a four–year period. The estimated useful
life and amortization method are reviewed at the end of each reporting period.
Research and Development
All research and development expenditures are expensed as incurred unless a development project meets the criteria
for capitalization. Development expenditures are capitalized only if development costs can be measured reliably, the
product or process is technically and commercially feasible, future economic benefits are probable and the Company
intends to and has sufficient resources to complete development and to use or sell the asset. No internally generated
intangible assets have been recognized to date.
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and development expenditures are recorded gross of investment tax credits and related government grants.
Investment tax credits for scientific research and experimental development are recognized in the period the qualifying
expenditures are incurred if there is reasonable assurance that they will be realized.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past
event, it is probable that the Company will be required to settle that obligation and a reliable estimate can be made
of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation
at the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision
is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value
of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third
party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the
amount of the receivable can be measured reliably.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Company at their fair value or, if lower, at the
present value of the minimum lease payments, each determined at the inception of the lease. The corresponding
liability to the lessor is included in the statement of financial position as a finance lease obligation.
Rentals payable under operating leases are charged to earnings on a straight-line basis over the term of the
relevant lease.
Foreign Currency Translation
The individual financial statements of each subsidiary entity are presented in the currency of the primary economic
environment in which the entity operates (its functional currency). For the purpose of the consolidated financial
statements, the results and financial position of each group entity are presented in Canadian dollars (“CDN”),
which is the functional currency of the parent Company and the presentation currency for the financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s
functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the
transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated
at the rates prevailing at that date. Exchange differences are recognized in earnings in the period in which they arise.
Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign
operations are expressed in Canadian dollars using exchange rates prevailing at the end of the reporting period.
Income and expense items are translated at the average exchange rates for the period. Foreign currency gains and
losses are recognized in other comprehensive earnings. The relevant amount in cumulative foreign currency translation
adjustment is reclassified into earnings upon disposition or partial disposition of a foreign operation and attributed
to non-controlling interests as appropriate.
Income Taxes
Current Tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net earnings as reported in
the statement of earnings because it excludes items of income or expense that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated
using tax rates that have been enacted or substantively enacted by the statement of financial position date.
EVERTZ REPORT_2017_PRINT.indd 32
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32
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred Tax
Deferred tax is the tax expected to be payable or recoverable on unused tax losses and credits, as well as differences
between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases
used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary
differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available
against which unused tax losses, credits and other deductible temporary differences can be utilized. Such assets and
liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill or from the initial
recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither
the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that
it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the
asset is realized. The measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the
carrying amount of its assets and liabilities. Deferred tax is charged or credited to earnings, except when it relates
to items charged or credited directly to other comprehensive earnings or equity, in which case the deferred tax
is also dealt with in other comprehensive earnings or equity.
Share Based Compensation
Equity settled share based payments to employees and others providing similar services are measured at the fair value
of the equity instruments at the grant date. Details regarding the determination of the fair value of equity settled share
based transactions are set out in note 13.
The fair value determined at the grant date of the equity settled share based payments is expensed on a straight-line
basis over the vesting period of the option based on the Company’s estimate of the number of equity instruments that
will eventually vest. At each reporting period, the Company revises its estimate of the number of equity instruments
expected to vest. The impact of the revision of the original estimates, if any, is recognized in earnings such that the
cumulative expense reflects the revised estimate, with a corresponding adjustment to share based payment reserve.
Cash settled share based earnings to employees or others providing similar services are measured at the fair value
of the instruments at the grant date. The fair value is recognized as an expense with a corresponding increase
in liabilities over the vesting period of the option grant. At each reporting period, the Company revises its estimate
of fair value and the number of instruments expected to vest. The impact of the revision of the original estimates,
if any, is recognized in earnings such that the cumulative expense reflects the revised estimate, with a corresponding
adjustment to liabilities.
Earnings Per Share
The Company presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS
is calculated by dividing the net earnings attributable to shareholders by the weighted average number of common
shares outstanding during the period. Diluted EPS is determined by adjusting the net earnings attributable to
shareholders and the weighted average number of common shares outstanding for the effects of all potentially
dilutive common shares, which is comprised of share options granted to employees with an exercise price below
the average market price.
Finance Costs
Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost
of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying
assets is deducted from the borrowing costs eligible for capitalisation.
All other finance costs are recognized in earnings in the period in which they are incurred.
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33
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment Tax Credits
The Company is entitled to investment tax credits, which are earned as a percentage of eligible research and
development expenditures incurred in each taxation year. Investment tax credits relate entirely to the Company’s
research and development expenses in the consolidated statements of earnings but are presented separately
in the consolidated statements of earnings for information purposes. Investment tax credits are recognized
and recorded within income tax receivable or as a reduction of income tax payable, when there is reasonable
assurance they will be received.
Financial Instruments
The Company’s financial assets and liabilities which are initially recorded at fair value and subsequently measured
based on their assigned classifications as follows:
Asset/Liability
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Long term debt
Category
Loans and receivables
Loans and receivables
Other liabilities
Other liabilities
Measurement
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Financial Assets
All financial assets are initially measured at fair value, plus transaction costs, except for those financial assets
classified as fair value through profit or loss, which are initially measured at fair value. Transaction costs in respect
of financial instruments that are classified as fair value through profit or loss are recognized in earnings immediately.
Transaction costs in respect of other financial instruments are included in the initial measurement of the financial
instrument.
Financial assets are classified into the following specific categories: financial assets “at fair value through profit or loss”
(“FVTPL”), “held-to-maturity” investments, “available-for-sale” (“AFS”) financial assets and “loans and receivables”.
The classification depends on the nature and purpose of the financial assets and is determined at the time of initial
recognition.
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognized
in earnings.
Impairment of Financial Assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each reporting period.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred
after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.
For certain categories of financial assets, such as trade and other receivables, assets that are assessed not to be
impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment
of a financial asset can include a significant or prolonged decline in the fair value of an asset, default or delinquency
by a debtor, indication that a debtor will enter bankruptcy or financial re-organization or the disappearance of an active
market for a security.
For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s
carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original
effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with
the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account.
When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent
recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying
amount of the allowance account are recognized in earnings.
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34
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Liabilities and Equity Instruments Issued by the Company
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognized
in earnings. The net gain or loss recognized in earnings incorporates any interest paid on the financial liability and
is included in the “other income and expenses” line item in the consolidated statements of earnings.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all
of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct
issue costs.
Other financial liabilities, including long term debt, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortized cost using the effective interest method,
with interest expense recognized on an effective yield basis.
Use of Estimates and Judgments
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year.
Consequently, actual results could differ from those estimates. Those estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate
is revised and in any future periods affected. Significant estimates include the determination of the allowance for
doubtful accounts for trade receivables, provision for inventory obsolescence, the useful life of property, plant and
equipment for depreciation, amortization and valuation of net recoverable amount of property, plant and equipment,
determination of fair value for share based compensation, evaluating deferred income tax assets and liabilities,
the determination of fair value of financial instruments and the likelihood of recoverability, and the determination
of implied fair value of goodwill and implied fair value of assets and liabilities for purchase price allocation purposes
and goodwill impairment test purposes.
Significant items requiring the use of judgment in application of accounting policies and assumptions include the
determination of functional currencies, classification of financial instruments, classification of leases, application
of the percentage of completion method on long-term contracts, degree of componentization applied when
calculating amortization of property, plant and equipment, and identification of cash generating units for
impairment testing purposes.
Operating Segments
An operating segment is a component of the Company that engages in business activities from which it may earn
revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s
other components. The Company reviewed its operations and determined that it operates a single reportable segment,
the television broadcast equipment market. The single reportable operating segment derives its revenue from the sale
of hardware and software solutions including related services, training and commissioning.
EVERTZ REPORT_2017_PRINT.indd 35
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35
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CHANGES IN ACCOUNTING POLICIES
NEW AND REVISED IFRSs ISSUED BUT NOT YET EFFECTIVE
Following is a listing of amendments, revisions and new International Financial Reporting Standards issued but not yet
effective. Unless otherwise indicated, earlier application is permitted. The Company has not yet determined the impact
of the adoption of the following standards.
Income Taxes
IAS 12, Income Taxes was amended by the IASB in January, 2016 and clarifies the requirements for recognition
of deferred tax assets arising from unrealized losses. Amendments to IAS 12 are effective for annual periods
beginning on or after January 1, 2017.
Statement of Cash Flows
IAS 7, Statement of Cash Flows was amended by the IASB in January, 2016 and increases disclosure requirements
surrounding changes to financing related liabilities. Amendments to IAS 7 are effective for annual periods beginning
on or after January 1, 2017.
Financial Instruments
IFRS 9, Financial instruments (“IFRS 9”) was issued by the IASB in July 2014 and will replace IAS 39, Financial
Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 introduces new requirements for the financial reporting
of financial assets and financial liabilities. IFRS 9 is effective for annual periods beginning on or after January 1, 2018.
Revenue
IFRS 15, Revenue from contracts with customers (“IFRS 15”) was issued by the IASB in May 2014 and will replace
IAS 11, Construction Contracts and IAS 18 Revenue. IFRS 15 specifies how and when revenue will be recognized.
IFRS 15 is effective for annual periods beginning on or after January 1, 2018.
Leases
IFRS 16, Leases (“IFRS 16”) was issued by the IASB in January 2016 and will replace IAS 17, Leases. IFRS 16
introduces a single accounting model for lessees to bring leases on-balance sheet while lessor accounting
remains largely unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019.
3. TRADE AND OTHER RECEIVABLES
Trade receivables
Receivables on construction contracts, net of progress billings
Other receivables
4. INVENTORIES
Finished goods
Raw material and supplies
Work in progress
2017
87,347
20,944
3,373
111,664
2017
79,708
58,180
40,320
178,208
$
$
$
$
2016
83,776
12,551
1,108
97,435
2016
75,396
52,254
28,307
155,957
$
$
$
$
Cost of sales for the year ended April 30, 2017 was comprised of $158,433 of inventory (2016 - $157,219)
and $6,262 of inventory write-offs (2016 - $6,549).
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36
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
5. PROPERTY, PLANT AND EQUIPMENT
Office furniture and equipment
Research and development
equipment
Airplanes
Machinery and equipment
Leaseholds
Land
Buildings
April 30, 2017
Accumulated
Depreciation
Cost
Carrying
Amount
April 30, 2016
Accumulated
Depreciation
Cost
Carrying
Amount
$
3,685 $
2,083 $
1,602 $ 3,065 $
1,783 $ 1,282
31,831
19,727
56,482
9,316
2,388
10,376
24,168
12,665
43,395
4,961
-
2,381
7,663
7,062
29,469
19,727
20,672
10,975
8,797
8,752
13,087
51,787
39,226
12,561
4,355
2,388
7,995
6,208
2,238
9,847
4,595
1,613
-
2,238
2,119
7,728
$ 133,805 $
89,653 $
44,152 $ 122,341 $
79,370 $ 42,971
Office
furniture
and
equip-
ment
Research
and
develop-
ment
equip-
ment Airplanes
Machin-
ery
and
equip-
ment
Lease-
holds
Land
Buildings
Total
Cost
Balance as at April 30, 2015
$ 2,862 $ 29,046 $ 19,727 $ 48,970 $ 5,981 $ 2,215 $ 9,574 $ 118,375
Additions
375
475
-
2,928
232
-
13
4,023
Foreign exchange
adjustments
Disposals
Balance as at April 30, 2016
Additions
Foreign exchange
adjustments
Disposals
Balance as at April 30, 2017
Accumulated Depreciation
Balance as at April 30, 2015
Depreciation for the year
Foreign exchange
adjustments
Disposals
56
(228)
876
(933)
$ 3,065 $ 29,469 $ 19,727 $ 51,787 $ 6,208 $ 2,238 $ 9,847 $ 122,341
594
(705)
260
-
(52)
-
23
-
(5)
-
-
-
624
2,632
(4)
(159)
-
-
4,475
3,483
-
-
11,214
588
14
150
529
1,118
-
(868)
$ 3,685 $ 31,831 $ 19,727 $ 56,482 $ 9,316 $ 2,388 $ 10,376 $ 133,805
(389)
(368)
(111)
-
-
-
$ 1,707 $ 16,764 $ 9,274 $ 35,599 $ 4,088 $
- $ 1,863 $ 69,295
321
4,035
1,701
3,897
507
(18)
(227)
(127)
-
-
-
238
(508)
-
-
-
-
-
176
10,637
80
-
173
(735)
EVERTZ REPORT_2017_PRINT.indd 37
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37
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
5. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Balance as at April 30, 2016
Depreciation for the year
Foreign exchange
adjustments
Disposals
Balance as at April 30, 2017
Carrying amounts
At April 30, 2016
At April 30, 2017
6. GOODWILL
$ 1,783 $ 20,672 $ 10,975 $ 39,226 $ 4,595 $
1,690
4,349
3,691
304
755
(4)
-
(98)
(97)
-
-
123
(303)
-
(389)
$ 2,083 $ 24,168 $ 12,665 $ 43,395 $ 4,961 $
- $ 2,119 $ 79,370
10,957
-
168
94
-
115
-
-
(789)
- $ 2,381 $ 89,653
$ 1,282 $ 8,797 $ 8,752 $ 12,561 $ 1,613 $ 2,238 $ 7,728 $
42,971
$ 1,602 $ 7,663 $ 7,062 $ 13,087 $ 4,355 $ 2,388 $ 7,995 $ 44,152
The changes in carrying amounts of goodwill are as follows:
Balance as at April 30, 2015
Foreign exchange differences
Balance as at April 30, 2016
Foreign exchange differences
Balance as at April 30, 2017
Cost
18,313
(27)
18,286
(91)
18,195
$
$
$
The Company performs an impairment test annually on April 30th or whenever there is an indication of impairment.
For the purposes of testing for impairment, goodwill has been allocated to the following cash-generating units as follows:
Evertz Microsystems Ltd.
Holdtech Kft
ATCI
April 30,
2017
12,459
5,346
390
18,195
$
$
2016
12,581
5,346
359
18,286
$
$
The key assumptions used in performing the impairment tests as at April 30, 2017 are as follows:
Method of determining recoverable amount:
Discount Rate:
Perpetual growth rate:
Value in use
10.0%
1 - 4%
Recoverable Amount
Management’s past experience and future expectations of the business performance is used to make a best estimate
of the expected revenue, earnings before interest, taxes, depreciation and amortization (“ EBITDA”) and operating
cash flows for a five year period. Subsequent to the fifth year period the present value of the fifth year cash flows
is calculated in perpetuity.
Discount Rate
The discount rate applied is a pretax rate that reflects the time value of money and risk associated with the business.
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38
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
6. GOODWILL (CONTINUED)
Perpetual Growth Rate
The perpetual growth rate is management’s current assessment of the long-term growth prospect of the Company
in the jurisdictions in which it operates.
Sensitivity Analysis
Management performs a sensitivity analysis on the key assumptions. The sensitivity analysis indicates reasonable
changes to key assumptions will not result in an impairment loss.
7. PROVISIONS
Balance as at April 30, 2015
Net additions
Foreign exchange differences
Balance as at April 30, 2016
Net additions
Foreign exchange differences
Balance as at April 30, 2017
Warranty and
Returns
Lease/
Retirement
Obligations
2,111 $
118 $
950
277
117
(10)
3,338 $
225 $
128
4
126
(4)
Total
2,229
1,067
267
3,563
254
-
3,470 $
347 $
3,817
$
$
$
Warranty and Returns
The provision relates to estimated future costs associated with warranty repairs and returns on hardware solutions.
The provision is based on historical data associated with similar products. The warranty and returns are expected
to be incurred within the next twelve months.
Lease/Retirement Obligations
The provision relates to estimated restoration costs expected to be incurred upon the conclusion of Company leases.
8. LONG TERM DEBT
a) Credit Facilities
The Company has the following credit facilities available:
1. Credit facility of $15,000 and a treasury risk management facility up to $10,000 available, bearing interest
at prime, subject to certain covenants and secured by all Canadian based assets. Advances under these facilities
bear interest at prime. There were no borrowings against either of these facilities as at April 30, 2017 or 2016.
2. Credit facility available of $705 bearing interest at WIBOR plus 1.4% per annum. There were no borrowings
outstanding under this facility as at April 30, 2017 or 2016.
EVERTZ REPORT_2017_PRINT.indd 39
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39
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
8. LONG TERM DEBT (CONTINUED)
b) Long Term Debt
1. Mortgage payable denominated in Euros, secured by buildings,
bearing interest at LIBOR EUR three months fixed rate plus 1%,
payable monthly, maturing in March 2021 with an option to end
the contract prior to maturity upon payment of a penalty fee.
2. Other
Less current portion
9. CAPITAL STOCK
Authorized capital stock consists of:
Unlimited number of preferred shares
Unlimited number of common shares
Balance as at April 30, 2015
Issued on exercise of stock options
Cancelled pursuant to NCIB
Transferred on stock option exercise
Balance as at April 30, 2016
Issued on exercise of stock options
Transferred on stock option exercise
Balance as at April 30, 2017
April 30,
2017
April 30,
2016
880 $
1,043
133
1,013
280
$
733 $
83
1,126
238
888
$
$
$
Number of
Common
Shares
Amount
74,459,346
$
95,708
337,500
(608,100)
-
4,371
(783)
1,187
74,188,746
$
100,483
1,554,000
-
18,701
5,511
75,742,746
$
124,695
Normal Course Issuer Bid
In June 2015, the Company filed a Normal Course Issuer Bid (“NCIB”) with the TSX to repurchase, at the Company’s
discretion, until June 28, 2016 up to 3,722,967 outstanding common shares on the open market or as otherwise
permitted, subject to normal terms and limitations of such bids. The Company did not purchase and cancel any
shares during the year (2016 – 608,100 common shares were purchased and cancelled at a weighted average
price of $15.46).
Dividends Per Share
During the year, $1.82 in dividends per share were declared, including a special dividend of $1.10 per share
(2016 - $0.72).
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40
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
10. REVENUE
Hardware, software including related services, training
and commissioning
Long term contract revenue
11. SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling and administrative
Share-based compensation (note 13)
Depreciation of property, plant and equipment (non-production)
12. STATEMENT OF CASH FLOWS
Changes in non–cash working capital items
Trade and other receivables
Inventories
Prepaid expenses
Trade and other payables
Deferred revenue
Provisions
2017
2016
357,401 $
27,031
352,563
28,987
384,432 $
381,550
2017
2016
62,135
$
60,986
5,208
3,743
2,840
3,360
71,086
$
67,186
$
$
$
$
2017
$
(13,229)
$
(21,919)
2,357
938
9,743
254
2016
24
(901)
2,471
5,955
3,102
1,334
$
(21,856)
$
11,985
13. SHARE BASED PAYMENTS
Stock Option Plan
The Company established, in June 2006, a stock option plan to attract, retain, motivate and compensate employees,
officers and eligible directors who are integral to the growth and success of the Company. A number of shares equal
to 10% of the Company’s outstanding common shares are to be reserved for issuance under the stock option plan.
The Board of Directors administers the stock option plan and will determine the terms of any options granted.
The exercise price of an option is to be set by the Board of Directors at the time of grant but shall not be lower
than the market price as defined in the option plan at the time of grant. The term of the option cannot exceed
10 years. Stock options currently granted normally fully vest and expire by the end of the fifth year.
EVERTZ REPORT_2017_PRINT.indd 41
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41
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
13. SHARE BASED PAYMENTS (CONTINUED)
The changes in the number of outstanding share options are as follows:
Balance as at April 30, 2015
Granted
Exercised
Forfeited
Expired
Balance as at April 30, 2016
Granted
Exercised
Forfeited
Expired
Balance as at April 30, 2017
Number of
Options
4,736,500
$
395,000
(337,500)
(277,500)
(110,000)
4,406,500
$
160,000
(1,554,000)
(98,000)
(36,000)
2,878,500
$
Weighted
Average
Exercise Price
14.57
15.36
12.95
14.25
14.32
14.72
16.99
12.03
15.97
11.88
16.29
Stock options outstanding as at April 30, 2017 are:
Exercise Price
$ 13.84 - $14.14
$ 15.00 - $16.82
$ 17.03
$ 17.19 - $18.07
Totals
Weighted
Average
Exercise Price
$
$
$
$
$
13.91
15.86
17.03
17.62
16.29
Number of
Outstanding
Options
410,000
827,000
1,456,000
185,500
2,878,500
Weighted
Average
Remaining
Contractual
Life
0.3
1.8
1.4
3.0
1.9
Weighted
Average
Exercise Price
of Exercisable
Options
$
$
$
$
$
-
16.24
17.03
15.00
16.85
Number of
Options
Exercisable
-
236,000
873,600
6,000
1,115,600
Restricted Share Unit Plan
The Company established, in March 2016, a restricted share unit (“RSU”) plan to provide an incentive to participants;
including key executives of the Company, by rewarding such participants with equity-based compensation. Under the
terms of the plan, RSU’s are issued to the participant with a vesting period of three years. On the vesting date,
all RSU’s will be redeemed in cash at the fair market value at the date of vest plus any accrued dividends.
The changes in the number of outstanding RSUs are as follows:
Balance as at April 30, 2016
Granted
Forfeited
Balance as at April 30, 2017
As at April 30 2017, the average remaining contractual life for outstanding RSUs is 2.0 years.
42
Number of
RSUs
210,000
347,000
(10,500)
546,500
EVERTZ REPORT_2017_PRINT_RV2.indd 42
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
13. SHARE BASED PAYMENTS (CONTINUED)
Compensation expense
Stock Option Plan
The share based compensation expense that has been charged against earnings over the fiscal period is $1,767
(2016 - $2,604). Compensation expense on grants during the year was calculated using the Black-Scholes option
pricing model with the following weighted average assumptions:
Risk-free interest rate
Dividend yield
Expected life
Expected volatility
Weighted average grant-date fair value:
Where the exercise price equaled the market price
April 30, 2017
April 30, 2016
1.05%
4.24%
5 years
16%
1.07%
4.69%
5 years
21%
$
1.16
$
1.48
Expected volatility is based on historical share price volatility over the past 5 years of the Company. Share based
compensation expense was calculated using a weighted average forfeiture rate of 24% (2016 – 23%).
Restricted Share Unit Plan
The share based compensation expense that has been charged against earnings over the fiscal period is $3,441
(2016 - $236). Share based compensation expense was calculated using a weighted average forfeiture rate of 3%
(2016 – Nil). As at April 30, 2017, the total liability included within trade and other payables is $3,677 (2016 - $236).
14. COMMITMENTS AND CONTINGENCIES
Long Term
Debt
Operating
Leases
2018
$
280
$
5,229
$
2019
2020
2021
2022
Thereafter
Balance as at April 30, 2017
$
236
176
184
137
-
1,013
$
4,272
2,200
2,125
1,709
5,337
20,872
$
Total operating lease expense during the year was $4,099 (2016 - $3,899).
The Company has obtained documentary and standby letters of credit aggregating to a total of $8,399
(2016 - $5,779).
Total
5,509
4,508
2,376
2,309
1,846
5,337
21,885
15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company’s financial instruments consist of cash and cash equivalents, trade and other receivables, trade and
other payables and long term debt. Unless otherwise noted, it is management’s opinion that the Company is not
exposed to significant interest or credit risks arising from these financial instruments.
(a) Fair values and classification of financial instruments:
The Company estimates that the fair value of financial instruments approximates their carrying values.
The following summarizes the significant methods and assumptions used in estimating the fair values
of financial instruments:
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
I. Quoted prices (unadjusted) in active markets for identical assets or liabilities.
II. Inputs other than quoted prices included in level I that are observable for the asset or liability,
either directly or indirectly. Cash and cash equivalents, trade and other receivables, trade and other
payables, long term debt, and fair value disclosures have been determined using level II fair values.
III. Inputs for the asset or liability that are not based on observable market data.
(b) Financial risk management:
The Company, through its financial assets and liabilities, is exposed to various risks.
The following analysis provides a measurement of risks as at April 30, 2017:
Credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash
and cash equivalents, and trade and other receivables the total of which is the maximum exposure to credit
risk. The Company performs evaluations of the financial situations of its customers. Management does not
believe that there is significant credit concentration or risk.
The Company sets up an allowance for doubtful accounts based on the credit risks of the individual customer and
the customer history. Approximately 76% (2016 – 74%) of trade and other receivables are outstanding for less than
90 days as at April 30, 2017. The amounts owing over 90 days are individually evaluated and provided for where
appropriate in the allowance for doubtful accounts. The trade and other receivables are presented as follows net
of the allowance for doubtful accounts:
Trade and other receivables
Allowance for doubtful accounts
The change in the allowance for doubtful accounts was as follows:
Balance at beginning of year
Increase in allowance
Bad debt recaptured and write-offs
Impact of variation in exchange rates
Balance at end of year
April 30, 2017
April 30, 2016
$
$
120,885
(9,221)
111,664
$
$
103,226
(5,791)
97,435
April 30, 2017
April 30, 2016
$
$
5,791 $
4,833
3,392
(376)
414
705
(1)
254
9,221 $
5,791
Exchange Rate Risk
The Company transacts a significant portion of its business in U.S. dollars and is therefore exposed
to currency fluctuations.
U.S. dollar financial instruments are as follows:
Cash and cash equivalents
Trade and other receivables
Trade and other payables
April 30, 2017
April 30, 2016
$
$
12,198
$
65,662
(4,191)
73,669
$
41,068
45,654
(3,501)
83,221
Based on the financial instruments as at April 30, 2017, a 5% change in the value of the U.S. dollar would result
in a gain or loss of $3,683 in earnings before income tax.
44
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial
liabilities. The Company's primary source of liquidity is its cash reserves. The Company also maintains certain credit
facilities to support short term funding of operations and trade finance. The Company believes it has sufficient
available funds to meet current and foreseeable financial requirements. The Company expects to settle all current
financial liabilities within the next year. Maturity of long term debt is disclosed in Note 14.
16. SEGMENTED INFORMATION
The Company reviewed its operations and determined that it operates a single reportable segment, the television
broadcast equipment market. The single reportable operating segment derives its revenues from the sale
of hardware and software solutions including related services, training and commissioning.
Revenue
United States
International
Canada
United States
International
Canada
2017
210,087 $
155,350
18,995
2016
199,806
165,541
16,203
384,432 $
381,550
$
$
April 30, 2017
April 30, 2016
Property,
Plant and
Equipment
Goodwill
Property,
Plant and
Equipment
Goodwill
$
10,486
$
390
$
11,813
$
359
9,690
23,976
17,805
-
9,750
21,408
17,927
-
$
44,152
$
18,195
$
42,971
$
18,286
17. RELATED PARTY TRANSACTIONS
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company,
have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the
Company and other related parties are disclosed below.
Related Party Transactions
Two shareholders each indirectly hold a 10% interest in the Company’s leased premises in Ontario. This lease expires
in 2019 with a total of $1,605 committed over the remaining term. During the year, rent paid for the leased principal
premises amounted to $864 (2016 – $845) with no outstanding amounts due as at April 30, 2017.
The Company also leases property where two shareholders indirectly own 100% interest. This lease expires in 2021
with a total of $1,121 committed over the remaining term. During the year, rent paid was $255 (2016 – $246) and
with no outstanding amounts due as at April 30, 2017.
On December 1, 2008 the Company entered into an agreement with two shareholders who each indirectly hold a 20%
interest in the Company’s leased premises in Ontario. This lease expires in 2018 with a total of $1,323 committed over
the remaining term. During the year, rent paid for the leased principal premises amounted to $812 (2016 - $795) with
no outstanding amounts due as at April 30, 2017.
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45
EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
17. RELATED PARTY TRANSACTIONS (CONTINUED)
On May 1, 2009 the Company entered into a property lease agreement with two shareholders who each indirectly hold
a 35% interest. This lease expires in 2019 with a total of $970 committed over the remaining term. During the year,
rent paid was $462 (2016 - $462) with no outstanding amounts due as at April 30, 2017.
On December 15, 2013 the Company renewed a property lease agreement with a director who indirectly owns 100%
interest. The lease expires in 2018 with a total of $235 committed over the remaining term. During the year, rent paid
was $141 (2016 - $141) with no outstanding amounts due as at April 30, 2017.
On May 1, 2016 the Company entered into a property lease agreement with two shareholders who each hold an
indirect interest. This lease expires in 2026 with a total of $9,080 committed over the remaining term. During the
year, rent paid was $967 (2016 – Nil) with no outstanding amounts due as at April 30, 2017.
On August 1, 2016 the Company entered into a property lease agreement where two shareholders indirectly own
100% interest. This lease expires in 2026 with a total of $2,451 committed over the remaining term. During the
year, rent paid was $182 (2016 – Nil) with no outstanding amounts due as at April 30, 2017.
These transactions were in the normal course of business and recorded at an exchange value established
and agreed upon by related parties.
The remuneration of directors and other members of key management personnel for the years ended
April 30, 2017 and April 30, 2016 are as follows:
Short-term salaries and benefits
Share-based payments
The total employee benefit expense was $119,703 (2016 - $106,749).
Subsidiaries:
The Company has the following significant subsidiaries:
Company
Evertz Microsystems Ltd.
Evertz USA
Evertz UK
Holdtech Kft.
Tech Digital Manufacturing Limited
Truform Metal Fabrication Ltd.
2017
4,840
-
4,840
$
$
2016
4,549
2,008
6,557
$
$
% Ownership
100%
100%
100%
100%
100%
75%
Location
Canada
United States
United Kingdom
Hungary
Canada
Canada
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
18. NON-CONTROLLING INTERESTS
The Company has non-controlling interests of 25% with Truform Metal Fabrication Ltd., located within Canada, 10%
with Studiotech Poland located within Poland and 20% with ATCI, located within the USA. The table below summarizes
the aggregate financial information relating to subsidiaries before eliminating entries, as no such subsidiary
is individually significant.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to shareholders
Non-controlling interest
Revenue
Net earnings attributable to:
Shareholders
Non-controlling interest
$
April 30,
2017
17,844 $
9,503
3,146
585
19,673
3,943
April 30,
2016
16,114
9,667
4,292
649
17,309
3,531
April 30,
2017
April 30,
2016
$
36,861 $
40,930
2,174
613
2,971
667
19. CAPITAL DISCLOSURES
The Company’s capital is composed of total equity attributable to shareholders which totals $317,830
(2016 - $366,205) as at April 30. The Company’s objective in managing capital is to ensure sufficient
liquidity to finance increases in non-cash working capital, capital expenditures for capacity expansions,
pursuit of selective acquisitions and the payment of quarterly dividends.
The Company takes a conservative approach towards financial leverage and management of financial
risk and the Company currently satisfies their internal requirements.
The Company is not subject to any capital requirements imposed by a regulator.
20. EARNINGS PER SHARE
Weighted average common shares outstanding
Dilutive-effect of stock options
Diluted weighted average common shares outstanding
2017
2016
75,040,113
334,091
75,374,204
74,360,423
483,070
74,843,493
The weighted average number of diluted common shares excludes 185,500 options because they were anti-dilutive
during the period (2016 – 1,659,500).
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
21. INCOME TAXES
The Company’s effective income tax rate differs from the statutory combined Canadian income tax rate as follows:
2017
2016
Expected income tax expense using statutory rates (25%, 2016 - 25%)
$
23,386
$
24,199
Difference in foreign tax rates
Benefit arising from a previously unrecognized tax loss
Non-deductible stock based compensation
Items reclassified from accumulated other comprehensive income
Other
(46)
(1,020)
1,380
-
73
717
(440)
690
(154)
897
$
23,773
$
25,909
Benefit arising from a previously unrecognized tax loss has been recognized in the year as a result of new business
opportunities expected to result in taxable income in future years.
Components of deferred income taxes are summarized as follows:
Deferred income tax liabilities:
Tax loss carried forward
Research and development tax credits
Equipment tax vs accounting basis
Non-deductible reserves
April 30, 2017
April 30, 2016
$
$
(1,347)
$
1,748
5,742
(1,716)
4,427
$
(1,294)
1,936
7,130
(2,227)
5,545
As at April 30, 2017, the Company had $3,593 (2016 - $3,237) in tax losses for which no deferred tax asset has been
recognized in the statement of financial position. Of these losses, $1,677 expire in 2025 while the remaining balance
has no expiry.
The Company’s 2015 and 2016 Scientific Research and Experimental Development (“SR&ED”) tax claims are currently
under audit by the Canada Revenue Agency. Prior SR&ED audits have resulted in approval of past claims, with any
financial adjustments being insignificant. Although the outcome is uncertain, the Company is of the view that similar
results are anticipated.
22. SUBSEQUENT EVENT
On June 13, 2017 the Company declared a quarterly dividend of $0.18 with a record date of June 23, 2017
and a payment date of June 30, 2017.
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2017 and 2016 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
5-YEAR FINANCIAL HIGHLIGHTS
(all amounts in thousands, except EPS and share amounts)
Consolidated Statement of Earnings Data
Year Ended April 30,
2017
2016
2015
2014
2013
Sales
$ 384,432
$ 381,550
$ 363,606
$ 325,524
$ 316,305
Selling and administrative expenses
Research and development expenses
Earnings before income taxes
Net earnings
Fully diluted EPS
62,135
73,699
93,546
69,773
0.92
60,986
66,892
96,795
70,886
0.94
58,833
64,332
89,419
66,410
0.87
55,162
60,196
84,804
63,539
0.85
53,106
52,851
88,846
65,163
0.88
Consolidated Balance Sheet Data
Cash and instruments held for trading $
Total assets
Shareholder’s equity
Number of common shares
outstanding
Basic
Year Ended April 30,
2017
2016
2015
2014
2013
54,274
$ 123,102
$ 100,681
$ 101,956
$ 220,668
410,568
317,830
448,314
426,162
366,205
353,471
401,280
333,478
465,307
406,797
75,742,746
74,188,746
74,459,346
74,310,146
73,632,566
Fully-diluted
78,621,246
78,595,246
79,195,846
79,513,846
78,246,966
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EVERTZ TECHNOLOGIES LIMITED2017 ANNUAL REPORT CORPORATE AND SHAREHOLDER INFORMATION
DIRECTORS AND EXECUTIVE OFFICERS
Romolo Magarelli
Director, President and Chief Executive Officer
Douglas DeBruin
Executive Chairman
Christopher Colclough 1, 2
Director
Dr. Thomas Pistor 1
Director
Dr. Ian McWalter 1, 2
Director
Brian Piccioni
Director
Rakesh Patel
Chief Technology Officer,
Director
Brian Campbell
Executive Vice-President,
Business Development
Anthony Gridley
Chief Financial Officer
Eric Fankhauser
Vice-President, Advanced Product
Development
Joe Cirincione
Vice-President Sales –
US Sports and Entertainment
Robert Peter
Vice-President
International Operations
Vince Silvestri
Vice-President of Software
Systems
Kevin Hellam
Vice-President of Global Delivery
& Support
Jeff Marks
Vice-President
of Manufacturing
Dan Turow
Vice-President of File Based
Solutions
Paulo Francisco
Vice-President of Engineering
Evertz AV Division
1 Member of the Audit Committee.
2 Member of the Compensation Committee.
AUDITORS
Deloitte LLP
Chartered Accountants
1005 Skyview Drive, Suite 202
Burlington, ON Canada L7P 5B1
T: (905) 315-6770
LEGAL COUNSEL
Norton Rose Fulbright Canada LLP
Royal Bank Plaza, South Tower
200 Bay Street, Suite 3800
PO Box 84, Toronto, ON Canada M5J 2Z4
T: (416) 216-4000
EXCHANGE LISTING
The common shares of the Company are listed
on the Toronto Stock Exchange under the symbol ET
INVESTOR RELATIONS
Anthony Gridley
Chief Financial Officer
T: (905) 335-7580
email: ir@evertz.com
ANNUAL SHAREHOLDERS MEETING
10:00 a.m. Thursday, October 12, 2017
1160 Sutton Drive
Burlington, ON Canada L7L 6R6
REGISTRAR AND TRANSFER AGENT
Computershare Investor Services Inc.
100 University Ave., 8th floor, North Tower
Toronto, ON Canada M5J 2Y1
email: service@computershare.com
T: 1-800-736-1755
www.computershare.com
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