EVERTZ REPORT_Inside Front_Back Cover_2019_PRINT.pdf 1 2019-09-04 6:35 PM
A LETTER TO FELLOW SHAREHOLDERS
Evertz had a Record High Fiscal 2019, delivering technological innovation, operational excellence and a seventh
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 continue to lead the industry.
In Fiscal 2019 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 $444 million;
• Earnings before taxes of $105 million;
• Annual investment in research and development increased 6% to $86 million;
• Year-end cash and marketable securities of $109 million; and
• Distribution of excess cash flow through quarterly dividends totaling $0.72 per share during the year.
VIDEO PROLIFERATION, 4K/UltraHD, LIVE CONTENT, ANYWHERE & ANYTIME
Today our customers’ evolving needs are driven by the global demand for more live content, channels and services and
by the emergence of UltraHD with High Dynamic Range and enhanced audio to create an immersive experience and
by increasing consumer appetite for high quality video delivered anywhere, anytime across a broad array of devices.
Evertz expertise in delivering end to end solutions, from production, content creation, distribution, through to delivery,
provides compelling advantages which enable our global media, broadcast, cable, telco, OTT, IPTV, satellite, content
creator, government agencies and enterprise customers to address this increasingly complex video landscape.
IP, IT, SOFTWARE NETWORKING & MULTI-CLOUD 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 $86 million in R&D and over $371 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; Magnum Orchestration System;
DreamCatcher IP based replay and production suite; and the extension
of SDVN based, IP based, and dedicated 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
85.8
80.8
64.3
66.9
73.7
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2019 ANNUAL REPORT
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EVERTZ TECHNOLOGIES LIMITED
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 and its industry’s leading orchestration and control software. 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. Media companies across the globe leverage the Evertz Mediator and Overture platforms in public/
private/hybrid “Cloud” environments to streamline their operations and content supply chains in addition to generating
industry leading linear and non-linear video streaming solutions. Evertz is designing, delivering and deploying the most
advanced and innovative IP, IT and Virtualized “Cloud” based solutions to help broadcast, new media, higher education
and enterprise customer’s future-proof their facilities for the transitioning and growing landscape of television and high
quality video anywhere, anytime on any device.
INDUSTRY RECOGNITION
TV Technology - 2019 NAB Future’s Best of Show awarded to
evEDGE Virtualized Processing Services.
TV Technology - 2019 NAB Future’s Best of Show awarded
to Evertz MediaFlow solutions, available in on-premises, cloud and
hybrid infrastructures, enabling a single, integrated IP workflow for
all incoming transport streams.
FOUNDATION FOR GROWTH
As the market leader, we make future oriented decisions to position Evertz 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 LIMITED2019 ANNUAL REPORT
EVOLVING & TRANSITIONING MARKET
Our 2020 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 successes to build upon:
•
IP based Software Defined Video Networking platforms;
•
IT based workflow and virtualized “Cloud” services Ultra HD and HDR, delivering an immersive viewing experience
from production to playout;
• Media flow on premier Cloud solutions;
• 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
solutions and to efficiently transition to evolving IP & IT based solutions including virtualized “Cloud” services.
We are excited to enter fiscal 2020 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 LIMITED2019 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the Year ended April 30, 2019
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 20, 2019.
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EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
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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
efficient signal routing, distribution, monitoring and management of content as well as the automation and
orchestration of more streamlined and agile workflow processes on premise and in the “Cloud”.
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.
2019 ANNUAL REPORT
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EVERTZ TECHNOLOGIES LIMITED
2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED
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 using a five-step recognition model which includes; 1) identifying the contract(s) with the
customer; 2) identifying the separate performance obligations in the contract; 3) determining the transaction
price; 4) allocating the transaction price to separate performance obligations; and 5) recognizing revenue
when (or as) each performance obligation is satisfied.
Step 1: Identifying the contract
Before recognizing revenue, the Company reviews customer contracts to ensure each party’s rights and payment
terms are identified, there is commercial substance, and that it is probable that the Company will collect the
consideration in exchange for the goods or services as stated in the contract.
Step 2: Identifying performance obligations
The Company regularly sells hardware and software solutions including related services, training and commissioning
on a stand along basis. A customer contract typically lists items separately with distinct item descriptions, quantities,
and prices. If a contract contains a bundle of items priced together at a single price, the Company analyzes the
contract to identify distinct performance obligations within the bundle.
Step 3: Determining the transaction price
Transaction prices are typically the prices stated on the purchase orders or contracts, net of discounts. The Company
reviews customer contracts for any variable considerations, existence of significant financing components and
payables to customers, and adjusts transaction prices accordingly.
Step 4: Allocating the transaction price to performance obligations
If a customer contract includes multiple performance obligations, the transaction price is allocated to each
performance obligation based on its relative stand-alone selling price. If a stand-alone selling price is not directly
observable, the Company estimates the stand-alone selling price of individual elements, based on prices at which
the deliverable is regularly sold on a stand-alone basis after considering specific discounts where appropriate.
Step 5: Recognizing revenue upon satisfaction of performance obligations
The timing of revenue recognition is based on when a customer obtains control of the asset. Control of an asset
refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.
Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from,
an asset. The Company reviews customer contracts and the nature of the performance obligations to determine
if a performance obligation is satisfied over time or at a point in time, and recognizes revenue accordingly.
Revenue from sales of hardware 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.
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2019 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED
Revenue from software solutions are recognized either over a period of time or at a point in time depending
on the contractual terms of the contract identified and the specific performance obligations identified therein.
For performance obligations satisfied over time, the Company measures the progress using either an input
or output method, depending on which yields the most reliable estimate.
Revenue from services is recognized as services are performed and warranty revenue is recognized ratably
over the warranty period.
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 over time, 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. Revenue recognized in excess of billings are recorded as contract assets.
During the year, the Company had revenue from two large US broadcasters that represented 10% or more of total
revenue at 12% (2018 – 7%) and 12% (2018 – 4%) respectively.
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.
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
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Rate
10 years
5 years
5 - 15 years
5 years
10 - 40 years
10 - 20 years
2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED
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 five–year period. The estimated useful
life and amortization method are reviewed at the end of each reporting period. Prior to the current year, intangible
assets were amortized over a four-year period. Amortization period was determined as more reflective of the period
of expected benefits.
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.
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2019 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED
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.
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.
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2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED
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.
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.
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.
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2019 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED
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
Marketable securities
Trade and other receivables
Trade and other payables, excluding RSUs
RSUs
Long term debt
Classification
Amortized cost
Fair value through profit or loss
Amortized cost
Amortized cost
Fair value through profit or loss
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”), “fair value through other comprehensive income (“FVOCI”)” and “amortized cost”. 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 the time of initial
recognition and 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.
A trade receivable is considered impaired if it is probable that a customer will not pay all amounts due. When a trade
receivable is considered impaired, it is recorded in the allowance account. Subsequent recoveries of amounts are
credited against the allowance account. Changes in the carrying amount of the allowance account are recognized
in earnings. When there is no reasonable expectation of recovery, the trade receivable balance is written off against
the allowance account.
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2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED
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 expected
credit losses which are based on the amount and timing of cash flows expected to be received, provision for inventory
obsolescence which is recorded to adjust to the net realizable value of inventory and based on current market
prices and past experiences, the useful life of property, plant and equipment and intangibles for depreciation which
are based on past experiences, expected use and industry trends, amortization and valuation of net recoverable
amount of property, plant and equipment and intangibles, 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 assessment 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, determination
if revenues should be recognized at a point in time or over time, 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.
12
2019 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED
CHANGES IN ACCOUNTING POLICIES
Financial Instruments
IFRS 9, Financial instruments (“IFRS 9”) was issued by the IASB in July 2014 and replaced IAS 39, Financial
Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 includes a logical model for classification and
measurement of financial assets; a single, forward looking “expected credit loss” impairment model and
a substantially reformed approach to hedge accounting to better link the economics of risk management
with its accounting treatment. The Company adopted IFRS 9 on May 1, 2018.
Revenue
IFRS 15, Revenue from contracts with customers (“IFRS 15”) was issued by the IASB in May 2014 to replace IAS 11,
Construction Contracts and IAS 18, Revenue and other interpretive guidance associated with revenue recognition.
IFRS 15 provides a single, principles-based five-step model to be applied to all contracts with customers to determine
how and when to recognize revenue. The Company has adopted IFRS 15 with an initial adoption date of May 1, 2018.
The Company utilized the modified retrospective approach to adopt the new standard and therefore, the comparative
information has not been restated and continues to be reported under IAS 18 and IAS 11.
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 final impact of the adoption of the following standards.
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. The total amount
of future lease commitments as at April 30, 2019 is $39,197. The Company has not yet determined the final impact
of the adoption of the standards.
Uncertainty over Income Tax Positions
IFRIC 23 clarifies how to recognize and measure current and deferred income tax assets and liabilities when there
is uncertainty over income tax treatments. The Company has not yet determined the final impact of the adoption
of the standards.
13
2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED
YEAR END HIGHLIGHTS
Revenue was $443.6 million for the year ended April 30, 2019 an increase of $40.8 million, compared to
$402.8 million for the year ended April 30, 2018. Revenue increased in the United States/Canada by 18%.
For the year ended April 30, 2019, net earnings were $78.5 million, an increase from $53.5 million for the
year ended April 30, 2018 and fully diluted earnings per share were $1.02 an increase from $0.70 for the
year ended April 30, 2018.
Gross margin during the year ended April 30, 2019 was 57.1% as compared to 55.3% for the year ended
April 30, 2018.
Foreign exchange gain during the year was $3.4 million, predominantly driven by the increase in value of the
US dollar against the Canadian dollar since April 30, 2018.
Selling and administrative expenses for the year ended April 30, 2019 was $67.8 million as compared to the year
ended April 30, 2018 of $65.5 million. As a percentage of revenue, selling and administrative expenses totaled
15.3% for the year ended April 30, 2019 as opposed to 16.3% for the year ended April 30, 2018.
Research and development (“R&D”) expenses were $85.8 million for the year ended April 30, 2019 as compared
to $80.8 million for the year ended April 30, 2018.
Cash and cash equivalents were $104.6 million and working capital was $282.5 million as at April 30, 2019,
compared to cash and cash equivalents of $94.2 million and working capital of $264.5 million as at April 30, 2018.
Completed the acquisition of Quintech Electronics and Communications Inc. (“Quintech”), a world class provider
of RF solutions and products, headquarters in Indiana, Pennsylvania, USA, for $7.7 million.
HIGHLIGHTS FROM THE FOURTH QUARTER
Revenue for the quarter was $107.2 million when compared to $93.0 million for the same period ended
April 30, 2018. Revenue increased in the United States/Canada region by 22% and increased in the
International region by 7%.
Fully diluted EPS was $0.24 for the three months ended April 30, 2019 as compared to $0.11 for the period
ended April 30, 2018.
Foreign exchange gain during the quarter was $1.9 million, predominately driven by the increase in value
of the US dollar against the Canadian dollar since January 31, 2019.
Selling and administrative expenses increased by $0.1 million for the three months ended April 30, 2019
when compared to the same period ended April 30, 2018. Selling and administrative expenses were
approximately 16.7% of revenue for the three months ended April 30, 2019 as compared to approximately
19.2% of revenue for the same period ended April 30, 2018.
Research and development expenses increased by $0.8 million for the three months ended April 30, 2019
when compared to the same period ended April 30, 2018. Research and development expenses represented
approximately 20.4% of revenue for the three months ended April 30, 2019 as compared to approximately
22.6% for the same period ended April 30, 2018.
14
2019 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED
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
Share based compensation
Foreign exchange (gain) loss
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
384,432
166,288
218,144
62,135
3,743
73,699
(9,362)
5,208
(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
Year Ended April 30,
2019
2018
$
443,556
$
402,832
$
190,198
253,358
67,821
3,410
85,823
(8,158)
4,501
(3,404)
149,993
103,365
1,394
(752)
1,080
105,087
26,499
84
26,583
78,504
629
77,875
78,504
1.02
1.02
$
$
$
$
$
179,931
222,901
65,531
3,336
80,804
(6,743)
4,562
4,727
152,217
70,684
781
(455)
1,956
72,966
24,076
(4,656)
19,420
53,546
460
53,086
53,546
0.70
0.70
$
$
$
$
$
$
$
$
$
$
15
2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED SELECTED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents
Inventory
Working capital
Total assets
Shareholders' equity
As at April 30,
2019
104,583
171,271
282,521
466,597
353,123
$
$
$
$
$
2018
94,184
168,070
264,514
421,115
329,227
$
$
$
$
$
2017
54,274
178,208
264,586
410,568
317,830
$
$
$
$
$
Number of common shares outstanding:
Basic
Fully-diluted
Weighted average number of shares outstanding:
Basic
Fully-diluted
76,545,246
77,958,746
76,481,746
78,722,746
75,742,746
78,621,246
76,510,417
76,529,799
76,211,007
76,347,750
75,040,113
75,374,204
16
2019 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED 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
Share based compensation
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
2019
100.0%
42.9%
57.1%
15.3%
0.8%
19.3%
(1.8%)
0.8%
(0.8%)
33.8%
23.3%
0.3%
(0.2%)
0.3%
23.7%
6.0%
0.0%
6.0%
17.7%
0.1%
17.6%
17.7%
2018
100.0%
44.7%
55.3%
16.3%
0.8%
20.1%
(1.7%)
1.1%
1.2%
37.8%
17.5%
0.2%
(0.1%)
0.5%
18.1%
6.0%
(1.2%)
4.8%
13.3%
0.1%
13.2%
13.3%
2017
100.0%
43.3%
56.7%
16.2%
0.9%
19.2%
(2.4%)
1.3%
(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%
$
$
1.02
1.02
$
$
0.70
0.70
$
$
0.92
0.92
17
2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED
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 60% to 70% 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 70%
to 80% of the Company’s revenues are denominated in US dollars.
REVENUE
(In thousands of Canadian dollars)
United States/Canada
International
2019
297,803
145,753
443,556
$
$
Year Ended April 30,
2018
$
$
252,770
150,062
402,832
$
$
2017
229,082
155,350
384,432
Total revenue for the year ended April 30, 2019 was $443.6 million, an increase of $40.8 million or 10%
as compared to revenue of $402.8 million for the year ended April 30, 2018.
Revenue in the United States/Canada region was $297.8 million for the year ended April 30, 2019, an increase
of $45.0 million or 18% when compared to revenue of $252.8 million for the year ended April 30, 2018.
Revenue in the International region was $145.8 million for the year ended April 30, 2019, a decrease
of $4.3 million or 3% as compared to revenue of $150.1 million for the year ended April 30, 2018.
18
2019 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED
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 as well
as inventory obsolescence and write-offs. 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)
2019
2018
2017
Gross margin
Gross margin % of sales
$
253,358
$
222,901
$
218,144
57.1%
55.3%
56.7%
Year Ended April 30,
Gross margin for the year ended April 30, 2019 was $253.4 million, compared to $222.9 million for the year
ended April 30, 2018. As a percentage of revenue, the gross margin was 57.1% for the year ended April 30, 2019,
as compared to 55.3% for the year ended April 30, 2018.
Gross margins vary depending on the product mix, geographic distribution and competitive pricing pressures and
currency fluctuations. For the year ended April 30, 2019 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 amortization
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.
19
2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED
SELLING AND ADMINISTRATIVE
(In thousands of Canadian dollars, except for percentages)
2019
2018
2017
Selling and administrative
Selling and administrative % of sales
$
67,821
$
65,531
$
62,135
15.3%
16.3%
16.2%
Year Ended April 30,
Selling and administrative expenses excludes stock based compensation, depreciation and amortization of
intangibles. Selling and administrative expenses for the year ended April 30, 2019 were $67.8 million or 15.3%
of revenue, as compared to selling and administrative expenses of $65.5 million or 16.3% of revenue for the year
ended April 30, 2018. The majority of the increase of $2.3 million was a result of the inclusion of $1.4 million
in selling and administration costs associated with Quintech Electronics and Communications Inc. (“Quintech”).
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, 2019,
share based compensation expense associated with the plan was $4.0 million as compared to $3.9 million
for the year ended April 30, 2018.
RESEARCH AND DEVELOPMENT (R&D)
(In thousands of Canadian dollars, except for percentages)
2019
2018
2017
Research and development expenses
$
85,823
$
80,804
$
73,699
Research and development % of sales
19.3%
20.1%
19.2%
Year Ended April 30,
For the year ended April 30, 2019, gross R&D expenses were $85.8 million, an increase of 6% or $5.0 million
as compared to an expense of $80.8 million for the year ended April 30, 2018. The increase of $5.0 million was
predominantly a result of increased salary expenses and the inclusion of $1.0 million in research and development
costs associated with Quintech.
Investment Tax Credits
For the year ended April 30, 2019, investment tax credits were $8.2 million compared to $6.7 million for the year
ended April 30, 2018. The increase is driven by the increase in applicable research and development costs.
Foreign Exchange
For the year ended April 30, 2019, the foreign exchange gain was $3.4 million, as compared to a foreign exchange
loss for the year ended April 30, 2018 of $4.7 million.
Finance Income, Finance Costs, Other Income and Expenses
For the year ended April 30, 2019, finance income, finance costs, other income and expenses netted to a gain
of $1.7 million.
20
2019 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED
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 increase in cash
Year Ended April 30,
2019
104,583
282,521
69,603
239
67
$
$
$
$
2018
94,184
264,514
66,083
515
58
Year Ended April 30,
2019
88,470
(23,511)
(54,831)
10,399
$
$
$
$
2018
98,378
(13,308)
(44,545)
39,910
$
$
$
$
$
$
$
$
Operating Activities
For the year ended April 30, 2019, the Company generated cash from operations of $88.5 million, compared to
$98.4 million for the year ended April 30, 2018. Excluding the effects of the changes in non-cash working capital
and current taxes, the Company generated cash from operations of $89.1 million for the year ended April 30, 2019
compared to $57.6 million for the year ended April 30, 2018.
Investing Activities
The Company used cash for investing activities of $23.5 million for the year ended April 30, 2019 which was
principally driven by the business acquisitions for $9.2 million and capital assets of $11.6 million.
Financing Activities
For the year ended April 30, 2019, the Company used cash from financing activities of $54.8 million, which was
principally driven by dividends paid of $55.1 million.
WORKING CAPITAL
As at April 30, 2019, the Company had cash and cash equivalents of $104.6 million, compared to $94.2 million
at April 30, 2018.
The Company had working capital of $282.5 million as at April 30, 2019 compared to $264.5 million as at
April 30, 2018.
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 67 days at April 30, 2019 as compared to 58 for April 30, 2018.
Upon the adoption of IFRS 15, contract assets have been segregated from trade and other receivables within the
financial statements. For comparative purposes, day sales outstanding in accounts receivable have been
recalculated for April 30, 2018 using the same methodology.
21
2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED
SHARE CAPITAL STRUCTURE
Authorized capital stock consists of an unlimited number of common and preferred shares.
Common shares
Stock options granted and outstanding
FINANCIAL INSTRUMENTS
Year Ended April 30,
2019
76,545,246
1,413,500
2018
76,481,746
2,241,000
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, 2019:
(In thousands)
Operating leases
Other long-term debt
Total
39,197
533
39,730
$
$
Payments Due by Period
Less than
1 year
2-3 Years
4-5 Years
Thereafter
$
$
5,427
294
5,721
$
$
10,153
239
10,392
$
$
8,365
-
8,365
$
$
15,252
-
15,252
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 16% 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 where two shareholders each indirectly
own 46.6%.
22
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)
SELECTED CONSOLIDATED QUARTERLY FINANCIAL INFORMATION
The following table sets out selected consolidated financial information for each of the eight quarters ended
April 30, 2019. 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)
2019
Quarter Ending
2018
2017
Apr 30
Jan 31
Oct 31
July 31
Apr 30
Jan 31
Oct 31
July 31
44,311
53,245
48,122
44,520
$ 107,245 $ 120,942 $ 112,280 $ 103,089 $ 92,988 $ 99,574 $ 101,261 $ 109,009
Revenue
Cost of
goods sold
Gross margin $ 62,725 $ 67,697 $ 64,158 $ 58,778 $ 49,009 $ 55,979 $ 56,752 $
Operating
expenses
Earnings from
operations
Non-operating
income
Earnings
before taxes $ 24,718 $ 29,392 $ 27,620 $ 23,357 $ 11,692 $ 19,204 $ 23,816 $ 18,254
8,190 $ 14,532 $ 17,286 $ 13,078
Net earnings
$ 24,520 $ 28,168 $ 27,388 $ 23,289 $ 11,603 $ 17,035 $ 23,874 $ 18,172
$ 18,562 $ 21,694 $ 20,346 $ 17,273 $
47,848
61,161
38,205
44,509
39,529
35,489
36,770
32,878
37,406
43,979
38,944
43,595
42,989
1,224
2,169
198
(58)
232
68
89
82
Net earnings
per share:
Basic
Diluted
Dividends
per share
$
$
$
0.24 $
0.24 $
0.28 $
0.28 $
0.27 $
0.27 $
0.23 $
0.23 $
0.11 $
0.19 $
0.11 $
0.19 $
0.23 $
0.23 $
0.17
0.17
0.18 $
0.18 $
0.18 $
0.18 $
0.18 $
0.18 $
0.18 $
0.18
The Company’s 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.
23
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)
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, 2019.
Management has concluded that, as of April 30, 2019, 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, 2019, 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, 2019 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.
24
2019 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Evertz Technologies Limited
OPINION
We have audited the consolidated financial statements of Evertz Technologies Limited (“Evertz” or the “Company”),
which comprise the consolidated statement of financial position as at April 30, 2019, and the consolidated
statements of earnings, comprehensive earnings, changes in equity and cash flows for the year then ended,
and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the consolidated financial position of the Company as at April 30, 2019, and its consolidated financial
performance and its consolidated cash flows for the year then ended in accordance with International
Financial Reporting Standards (IFRSs).
BASIS FOR OPINION
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial
Statements section of our report. We are independent of the Company in accordance with the ethical requirements
that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our opinion.
OTHER INFORMATION
Management is responsible for the other information. The other information comprises:
• The information, other than the consolidated financial statements and our auditor’s report thereon,
included in the Management Discussion and Analysis, and
• The information included in the Annual Report.
Our opinion on the consolidated financial statements does not cover the other information and we do not and
will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated.
We obtained the Management Discussion and Analysis prior to the date of this auditor’s report. If, based on the
work we have performed on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the
work we will perform on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact to those charged with governance.
25
2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE
FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of the consolidated financial statements
in accordance with IFRSs, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless management either intends to liquidate the Company or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions
that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that
a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures
in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Company to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the group audit. We remain solely responsible
for our audit opinion.
26
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Brion Hendry.
OTHER MATTER
The consolidated financial statement of Evertz Technologies Limited for the year ended April 30, 2018 were
audited by another auditor who expressed an unmodified opinion on those statements on June 19, 2018.
BDO CANADA LLP
CHARTERED PROFESSIONAL ACCOUNTANTS
LICENSED PUBLIC ACCOUNTANTS
Markham, Ontario
June 20, 2019
27
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at April 30, 2019 and April 30, 2018
(In thousands of Canadian dollars) April 30, 2019 April 30, 2018
ASSETS
Current assets
Cash and cash equivalents
Marketable securities (note 16)
Trade and other receivables (note 3)
Contract assets (note 24)
Prepaid expenses
Inventories (note 4)
Income tax receivable (note 22)
Property, plant and equipment (note 5)
Goodwill (note 6)
Intangibles (note 7)
Deferred income taxes (note 22)
LIABILITIES
Current liabilities
Trade and other payables
Provisions (note 8)
Deferred revenue
Current portion of long term debt (note 9)
Income tax payable (note 22)
Long term debt (note 9)
EQUITY
Capital stock (note 10)
Share based payment reserve
Accumulated other comprehensive earnings
Retained earnings
Total equity attributable to shareholders
Non-controlling interest (note 19)
See accompanying notes to the consolidated financial statements.
28
$
104,583
$
94,184
4,023
81,498
22,348
9,045
171,271
708
393,476
48,887
20,716
1,952
1,566
-
64,241
21,830
5,506
168,070
-
353,831
47,915
18,168
-
1,201
$
466,597
$
421,115
$
$
63,647
4,171
42,843
294
-
110,955
239
111,194
139,865
8,245
1,729
203,284
205,013
353,123
2,280
355,403
466,597
$
56,377
3,981
28,502
383
74
89,317
515
89,832
138,675
7,885
2,149
180,518
182,667
329,227
2,056
331,283
$
421,115
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years ended April 30
Share-
based
payment
reserve
Capital
stock
Accumu-
lated
other
compre-
hensive
earnings
Total
equity
attributable to
share-
holders
Non-
control-
ling
interest
Retained
earnings
Total
Equity
$ 124,695 $ 10,091 $
747 $ 182,297 $ 317,830 $ 3,943 $ 321,773
$
-
-
- $
-
-
-
-
705
11,069
-
2,911
(2,911)
-
-
-
53,086
53,086
460
53,546
1,402
-
1,402
(89)
1,313
- $ 1,402 $ 53,086 $
-
(54,932)
-
54,488 $ 371 $
(54,932)
(500)
54,859
(55,432)
-
-
-
-
67
67
(1,758)
(1,691)
-
-
-
705
11,069
-
-
-
-
705
11,069
-
$ 138,675
$ 7,885 $ 2,149 $ 180,518 $ 329,227 $ 2,056 $ 331,283
-
-
-
-
-
77,875
77,875
629
78,504
(420)
-
(420)
(30)
(450)
$
- $
- $
(420) $ 77,875 $
77,455 $ 599 $
78,054
-
-
-
1,021
-
-
529
-
169
(169)
-
(55,088)
(55,088)
(375)
(55,463)
-
-
-
-
(21)
(21)
-
-
-
529
1,021
-
-
-
-
-
(21)
529
1,021
-
$ 139,865
$ 8,245 $ 1,729 $ 203,284 $ 353,123 $ 2,280 $ 355,403
(In thousands
of Canadian dollars)
Balance at
April 30, 2017
Net earnings
for the year
Foreign currency
translation adjustment
Total comprehensive
earnings for the year
Dividends declared
Acquisition of
non-controlling interest
Share based
compensation expense
Exercise of employee
stock options
Transfer on stock
option exercise
Balance at
April 30, 2018
Net earnings
for the year
Foreign currency
translation adjustment
Total comprehensive
earnings for the year
Dividends declared
Impact of change
in accounting policy
(note 24)
Share based
compensation expense
(note 14)
Exercise of employee
stock options
Transfer on stock
option exercise
Balance at
April 30, 2019
See accompanying notes to the consolidated financial statements.
29
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended April 30
(In thousands of Canadian dollars, except per share amounts)
Revenue (note 11 and 17)
Cost of goods sold
Gross margin
Expenses
Selling, administrative and general (note 12)
Research and development
Investment tax credits
Foreign exchange (gain) loss
Finance income
Finance costs
Other income (expenses)
Earnings before income taxes
Provision for (recovery of) income taxes
Current (note 22)
Deferred (note 22)
Net earnings for the year
Net earnings attributable to non-controlling interest (note 19)
Net earnings attributable to shareholders
Net earnings for the year
Earnings per share (note 21)
Basic
Diluted
See accompanying notes to the consolidated financial statements.
2019
$
443,556
$
190,198
253,358
75,732
85,823
(8,158)
(3,404)
149,993
103,365
1,394
(752)
1,080
105,087
26,499
84
26,583
78,504
629
77,875
78,504
1.02
1.02
$
$
$
$
$
$
$
$
$
$
2018
402,832
179,931
222,901
73,429
80,804
(6,743)
4,727
152,217
70,684
781
(455)
1,956
72,966
24,076
(4,656)
19,420
53,546
$460
53,086
53,546
0.70
0.70
30
2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
Years ended April 30
(In thousands of Canadian dollars)
Net earnings for the year
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.
2019
2018
78,504
$
53,546
(450)
78,054
599
77,455
78,054
$
$
$
1,313
54,859
371
54,488
54,859
$
$
$
$
31
2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30
2019
2018
$
78,504
$
53,546
10,942
217
(85)
(1,164)
(23)
529
49
84
89,053
18,341
(18,535)
(389)
88,470
(11,648)
181
(9,208)
(17,708)
14,872
-
(23,511)
(340)
(49)
(55,088)
(375)
1,021
(54,831)
271
10,399
94,184
$
104,583
$
10,505
-
(2,492)
-
-
705
27
(4,656)
57,635
17,331
(18,364)
41,776
98,378
(18,166)
6,549
-
-
-
(1,691)
(13,308)
(155)
(27)
(54,932)
(500)
11,069
(44,545)
(615)
39,910
54,274
94,184
(In thousands of Canadian dollars)
Operating activities
Net earnings for the year
Add: Items not involving cash
Depreciation of property, plant and equipment (note 5)
Amortization of intangible (note 7)
Gain on disposal of property, plant and equipment
Realized gain on marketable securities
Unrealized gain on marketable securities
Share-based compensation (note 14)
Interest expense
Deferred income tax expense (recovery)
Current tax expenses, net of investment tax credits
Income taxes paid
Changes in non-cash working capital items (note 13)
Cash provided by operating activities
Investing activities
Acquisition of property, plant and equipment (note 5)
Proceeds from disposal of property, plant and equipment
Business acquisitions
Acquisition of marketable securities
Proceeds from sales of marketable securities
Acquisition of non-controlling interest
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 issued (note 10)
Cash used in financing activities
Effect of exchange rates on cash and cash equivalents
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.
32
2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended April 30, 2019 and 2018
(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 20, 2019.
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.
33
2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2019 and 2018 (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 using a five-step recognition model which includes; 1) identifying the contract(s) with the
customer; 2) identifying the separate performance obligations in the contract; 3) determining the transaction
price; 4) allocating the transaction price to separate performance obligations; and 5) recognizing revenue when
(or as) each performance obligation is satisfied.
Step 1: Identifying the contract
Before recognizing revenue, the Company reviews customer contracts to ensure each party’s rights and payment
terms are identified, there is commercial substance, and that it is probable that the Company will collect the
consideration in exchange for the goods or services as stated in the contract.
Step 2: Identifying performance obligations
The Company regularly sells hardware and software solutions including related services, training and commissioning
on a stand along basis. A customer contract typically lists items separately with distinct item descriptions, quantities,
and prices. If a contract contains a bundle of items priced together at a single price, the Company analyzes the
contract to identify distinct performance obligations within the bundle.
Step 3: Determining the transaction price
Transaction prices are typically the prices stated on the purchase orders or contracts, net of discounts.
The Company reviews customer contracts for any variable considerations, existence of significant
financing components and payables to customers, and adjusts transaction prices accordingly.
Step 4: Allocating the transaction price to performance obligations
If a customer contract includes multiple performance obligations, the transaction price is allocated to each
performance obligation based on its relative stand-alone selling price. If a stand-alone selling price is not directly
observable, the Company estimates the stand-alone selling price of individual elements, based on prices at which
the deliverable is regularly sold on a stand-alone basis after considering specific discounts where appropriate.
Step 5: Recognizing revenue upon satisfaction of performance obligations
The timing of revenue recognition is based on when a customer obtains control of the asset. Control of an asset
refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.
Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from,
an asset. The Company reviews customer contracts and the nature of the performance obligations to determine
if a performance obligation is satisfied over time or at a point in time, and recognizes revenue accordingly.
Revenue from sales of hardware 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.
Revenue from software solutions are recognized either over a period of time or at a point in time depending
on the contractual terms of the contract identified and the specific performance obligations identified therein.
For performance obligations satisfied over time, the Company measures the progress using either an input
or output method, depending on which yields the most reliable estimate.
Revenue from services is recognized as services are performed and warranty revenue is recognized ratably
over the warranty period.
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 over time, 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. Revenue recognized in excess of billings are recorded as contract assets.
During the year, the Company had revenue from two large US broadcasters that represented 10% or more of total
revenue at 12% (2018 – 7%) and 12% (2018 – 4%) respectively.
34
2019 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
35
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2019 and 2018 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 five–year period. The estimated
useful life and amortization method are reviewed at the end of each reporting period. Prior to the current year,
intangible assets were amortized over a four-year period. Amortization period was determined as more reflective
of the period of expected benefits.
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.
36
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 14.
37
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2019 and 2018 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
Marketable securities
Trade and other receivables
Trade and other payables, excluding RSUs
RSUs
Long term debt
Classification
Amortized cost
Fair value through profit or loss
Amortized cost
Amortized cost
Fair value through profit or loss
Amortized cost
38
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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”), “fair value through other comprehensive income (“FVOCI”)” and “amortized cost”.
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 the time of initial
recognition and 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. A
trade receivable is considered impaired if it is probable that a customer will not pay all amounts due. When a trade
receivable is considered impaired, it is recorded in the allowance account. Subsequent recoveries of amounts are
credited against the allowance account. Changes in the carrying amount of the allowance account are recognized
in earnings. When there is no reasonable expectation of recovery, the trade receivable balance is written off against
the allowance account.
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.
39
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2019 and 2018 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 expected
credit losses which are based on the amount and timing of cash flows expected to be received, provision for inventory
obsolescence which is recorded to adjust to the net realizable value of inventory and based on current market prices
and past experiences, the useful life of property, plant and equipment and intangibles for depreciation which are
based on past experiences, expected use and industry trends, amortization and valuation of net recoverable amount
of property, plant and equipment and intangibles, 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 assessment 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, determination if
revenues should be recognized at a point in time or over time, 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.
CHANGES IN ACCOUNTING POLICIES
Financial Instruments
IFRS 9, Financial instruments (“IFRS 9”) was issued by the IASB in July 2014 and replaced IAS 39, Financial
Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 includes a logical model for classification and
measurement of financial assets; a single, forward looking “expected credit loss” impairment model and a
substantially reformed approach to hedge accounting to better link the economics of risk management with its
accounting treatment. The Company adopted IFRS 9 on May 1, 2018. See Note 24 for further details.
Revenue
IFRS 15, Revenue from contracts with customers (“IFRS 15”) was issued by the IASB in May 2014 to replace IAS 11,
Construction Contracts and IAS 18, Revenue and other interpretive guidance associated with revenue recognition.
IFRS 15 provides a single, principles-based five-step model to be applied to all contracts with customers to determine
how and when to recognize revenue. The Company has adopted IFRS 15 with an initial adoption date of May 1, 2018.
The Company utilized the modified retrospective approach to adopt the new standard and therefore, the comparative
information has not been restated and continues to be reported under IAS 18 and IAS 11. See note 24 for further details.
40
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
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
final impact of the adoption of the following standards.
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. The total amount
of future lease commitments as at April 30, 2019 is $39,197. The Company has not yet determined the final impact
of the adoption of the following standards.
Uncertainty over Income Tax Positions
IFRIC 23 clarifies how to recognize and measure current and deferred income tax assets and liabilities when there
is uncertainty over income tax treatments. The Company has not yet determined the final impact of the adoption
of the following standards
3. TRADE AND OTHER RECEIVABLES
Trade receivables
Other receivables
4. INVENTORIES
Finished goods
Raw material and supplies
Work in progress
2019
79,262
2,236
81,498
2019
64,917
64,524
41,830
171,271
$
$
$
$
2018
62,423
1,818
64,241
2018
79,290
55,486
33,294
168,070
$
$
$
$
Cost of sales for the year ended April 30, 2019 was comprised of $182,409 of inventory (2018 - $167,398)
and $2,832 of inventory write-offs (2018 - $10,155).
41
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2019 and 2018 (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, 2019
Accumulated
Depreciation
Cost
Carrying
Amount
April 30, 2018
Accumulated
Depreciation
Cost
Carrying
Amount
$
4,252 $
2,586 $
1,666 $ 3,881 $
2,262 $ 1,619
34,549
11,348
64,858
8,770
2,379
11,488
22,029
7,992
48,266
5,078
-
12,520
3,356
36,756
10,806
23,529
7,514
13,227
3,292
16,592
61,880
46,654
15,226
3,692
2,379
8,620
2,430
4,486
4,134
-
2,430
2,806
8,682
10,603
2,616
7,987
$
137,644 $
88,757 $
48,887 $ 134,976 $
87,061 $ 47,915
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, 2017
$ 3,685 $ 31,831 $ 19,727 $ 56,482 $ 9,316 $ 2,388 $ 10,376 $ 133,805
Additions
360
8,906
1,109
7,357
434
-
-
18,166
Foreign exchange
adjustments
Disposals
Balance as at April 30, 2018
Additions
Business acquisitions
Foreign exchange
adjustments
Disposals
Balance as at April 30, 2019
Accumulated Depreciation
Balance as at April 30, 2017
Depreciation for the year
Foreign exchange
adjustments
Disposals
(18)
(146)
128
(17,123)
$ 3,881 $ 36,756 $ 10,806 $ 61,880 $ 8,620 $ 2,430 $ 10,603 $ 134,976
-
(10,030)
(102)
(1,857)
(12)
(1,118)
(9)
(3,972)
227
-
42
-
302
93
21
(7)
(55)
3,112
542
6,402
141
-
-
578
(23)
-
9
-
-
1,149
11,648
-
692
(51)
(264)
(391)
(17)
(9,281)
$ 4,252 $ 34,549 $ 11,348 $ 64,858 $ 8,770 $ 2,379 $ 11,488 $ 137,644
(5,285)
(3,979)
-
-
-
-
$ 2,083 $ 24,168 $ 12,665 $ 43,395 $ 4,961 $
- $ 2,381 $ 89,653
338
3,338
951
5,058
650
(13)
(146)
(5)
(3,972)
-
(6,102)
(71)
(1,728)
(7)
(1,118)
-
-
-
170
10,505
65
-
(31)
(13,066)
Balance as at April 30, 2018
$ 2,262 $ 23,529 $ 7,514 $ 46,654 $ 4,486 $
- $ 2,616 $ 87,061
42
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
5. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Depreciation for the year
Foreign exchange
adjustments
Disposals
Balance as at April 30, 2019
Carrying amounts
At April 30, 2018
At April 30, 2019
6. GOODWILL
354
3,813
478
5,525
592
-
180
10,942
(13)
(17)
(28)
(5,285)
-
-
(29)
(3,884)
-
-
$ 2,586 $ 22,029 $ 7,992 $ 48,266 $ 5,078 $
-
10
(60)
(9,186)
-
-
- $ 2,806 $ 88,757
$ 1,619 $ 13,227 $ 3,292 $ 15,226 $ 4,134 $ 2,430 $ 7,987 $ 47,915
$ 1,666 $ 12,520 $ 3,356 $ 16,592 $ 3,692 $ 2,379 $ 8,682 $ 48,887
The changes in carrying amounts of goodwill are as follows:
Balance as at April 30, 2017
Foreign exchange differences
Balance as at April 30, 2018
Business acquisitions (note 23)
Foreign exchange differences
Balance as at April 30, 2019
Cost
18,195
(27)
18,168
2,535
13
20,716
$
$
$
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:
April 30,
2019
2018
Evertz Microsystems Ltd. (note 23)
$
14,008
$
12,455
Holdtech Kft
Quintech (note 23)
ATCI
5,346
978
384
20,716
$
5,346
-
367
18,168
$
The key assumptions used in performing the impairment tests as at April 30, 2019 are as follows:
Method of determining recoverable amount:
Discount Rate:
Perpetual growth rate:
Value in use
7.5% - 12.5%
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, 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.
The discount rate applied varies depending on the jurisdictions in which the entity operates.
43
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2019 and 2018 (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. INTANGIBLES
Balance as at April 30, 2018
Business acquisitions (note 23)
Amortization
Foreign exchange differences
Balance as at April 30, 2019
8. PROVISIONS
Balance as at April 30, 2017
Net additions
Foreign exchange differences
Balance as at April 30, 2018
Net additions
Foreign exchange differences
Balance as at April 30, 2019
$
$
Warranty and
Returns
Lease/
Retirement
Obligations
3,470 $
347 $
215
(141)
87
3
Cost
-
2,124
(217)
45
1,952
Total
3,817
302
(138)
3,544 $
437 $
3,981
(35)
120
107
(2)
72
118
3,629 $
542 $
4,171
$
$
$
Warranty and Returns
The provision relates to estimated future costs associated with standard 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.
44
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
9. 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, 2019 or 2018.
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, 2019 or 2018.
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
10. CAPITAL STOCK
Authorized capital stock consists of:
Unlimited number of preferred shares
Unlimited number of common shares
Balance as at April 30, 2017
Issued on exercise of stock options
Transferred on stock option exercise
Balance as at April 30, 2018
Issued on exercise of stock options
Transferred on stock option exercise
Balance as at April 30, 2019
Dividends Per Share
During the year, $0.72 in dividends per share was declared (2018 - $0.72).
April 30,
2019
April 30,
2018
454 $
698
79
533
294
$
239 $
199
898
383
515
$
$
$
Number of
Common
Shares
Amount
75,742,746
$
124,695
739,000
-
11,069
2,911
76,481,746
$
138,675
63,500
-
1,021
169
76,545,246
$
139,865
45
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2019 and 2018 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
11. REVENUE
Hardware, software including related services,
training and commissioning
Long term contract revenue
12. SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
Selling and administrative
Depreciation - selling and administrative
General:
Share-based compensation (note 14)
Amortization of intangibles
13. STATEMENT OF CASH FLOWS
Changes in non–cash working capital items
Trade and other receivables
Contract assets
Inventories
Prepaid expenses
Trade and other payables
Deferred revenue
Provisions
2019
2018
$
$
420,348
23,208
443,556
$
$
371,124
31,708
402,832
2019
2018
$
67,821
$
65,531
3,193
3,336
4,501
217
4,562
-
$
75,732
$
73,429
2019
$
(10,924)
$
(518)
(459)
(3,433)
5,438
9,317
190
2018
23,525
2,869
10,488
(1,491)
5,991
230
164
$
(389)
$
41,776
14. 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.
46
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)
14. SHARE BASED PAYMENTS (CONTINUED)
The changes in the number of outstanding share options are as follows.
Balance as at April 30, 2017
Granted
Exercised
Forfeited
Balance as at April 30, 2018
Granted
Exercised
Forfeited
Expired
Balance as at April 30, 2019
Stock options outstanding as at April 30, 2019 are:
Number of
Options
2,878,500
$
157,500
(739,000)
(56,000)
2,241,000
$
647,500
(63,500)
(123,000)
(1,288,500)
1,413,500
$
Weighted
Average
Exercise Price
16.29
17.37
14.98
16.87
16.78
15.79
16.08
16.79
17.03
16.13
Weighted
Average
Exercise Price
$
$
$
$
$
15.36
15.69
16.52
17.54
16.13
Number of
Outstanding
Options
383,000
505,500
225,000
300,000
1,413,500
Weighted
Average
Remaining
Contractual
Life
1.2
4.5
3.7
2.4
3.0
Number of
Options
Exercisable
225,000
-
-
94,000
319,000
Weighted
Average
Exercise Price
of Exercisable
Options
$
$
$
$
$
15.36
-
-
17.73
16.06
Exercise Price
$ 15.20 - $ 15.37
$ 15.61 - $ 15.80
$ 16.08 - $ 16.87
$ 17.19 - $ 18.63
Totals
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, 2017
Granted
Forfeited
Balance as at April 30, 2018
Granted
Exercised
Forfeited
Balance as at April 30, 2019
Number of
RSUs
546,500
160,000
(16,500)
690,000
351,500
(210,000)
(19,000)
812,500
As at April 30, 2019, the average remaining contractual life for outstanding RSUs is 1.54 years (2018 –1.37 years).
47
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2019 and 2018 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
14. 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 $529
(2018 - $705). 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
April 30, 2019
April 30, 2018
2.05%
4.56%
5 years
15%
1.08
1.84%
4.15%
5 years
16%
$ 1.40
$
Expected volatility is based on historical share price volatility over the past five years of the Company. Share based
compensation expense was calculated using a weighted average forfeiture rate of 17% (2018 – 21%).
Restricted Share Unit Plan
The share based compensation expense that has been charged against earnings over the fiscal period
is $3,971 (2018 - $3,858). Share based compensation expense was calculated using a weighted average
forfeiture rate of 10% (2018 - 5%). As at April 30, 2019, the total liability included within trade and other
payables is $7,401 (2018 - $7,535).
15. COMMITMENTS AND CONTINGENCIES
In the normal course of operations, the Company is party to a number of lawsuits, claims and contingencies.
Accruals are made in instances where it is probable that liabilities have been incurred and where such liabilities
can be reasonably estimated. Although it is possible that liabilities may be incurred in instances for which
no accruals have been made, the Company believes the possibility of outflow of cash is remote and thus
no additional provisions have been recognized.
The Company is committed to payments under long term debt agreements and certain operating leases with
minimum annual lease payments as follows:
2019
2020
2021
2022
2023
Thereafter
Balance as at April 30, 2019
Long Term
Debt
Operating
Leases
$
$
294
191
48
-
-
-
533
$
5,427
$
5,308
4,845
4,295
4,070
15,252
39,197
$
$
Total
5,721
5,499
4,893
4,295
4,070
15,252
39,730
Total operating lease expense during the year was $5,579 (2018 - $5,299).
The Company has obtained documentary and standby letters of credit aggregating to a total
of $12,597 (2018 - $9,026).
48
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
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.
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.
(a) 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, 2019:
Credit risk
Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument
fails to meet its contractual obligations. 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 and uses
various controls and processes, such as credit checks and billings in advance to investigate credit risk.
Management does not believe that there is significant credit concentration or risk not already provided for.
The Company sets up an allowance for doubtful accounts based on the credit risks of the individual customer and the
aging of receivables. Amounts owing over 90 days are individually evaluated and provided for where appropriate in
the allowance for doubtful accounts. When considering the need for provisions in relation to balances past due, the
Company considers forward looking information such as region specific economic factors including industry outlook,
employment, politics, and other market indicators. The Company also takes into consideration customer specific
payment history. 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, 2019
April 30, 2018
$
$
85,514 $
(4,016)
81,498 $
69,848
(5,607)
64,241
April 30, 2019
April 30, 2018
$
$
5,607 $
1,955
(3,787)
241
4,016 $
9,221
180
(3,461)
(333)
5,607
49
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2019 and 2018 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
The aging of trade and other receivables, net of the allowance for doubtful accounts was:
Less than 30 days past billing date
30-60 days past billing date
61-90 days past billing date
Greater than 90 days past billing date
April 30, 2019
April 30, 2018
$
$
42,092
$
14,549
6,935
17,922
81,498
$
33,109
18,160
2,368
10,604
64,241
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, 2019
April 30, 2018
$
$
42,051
$
58,294
(4,979)
95,366
$
11,625
49,948
(5,561)
56,012
Based on the financial instruments as at April 30, 2019, a 5% change in the value of the U.S. dollar would result
in a gain or loss of $4,768 in earnings before income tax.
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 9.
17. 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
2019
280,183
$
145,753
17,620
2018
233,459
150,062
19,311
443,556
$
402,832
$
$
50
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
17. SEGMENTED INFORMATION (CONTINUED)
April 30, 2019
April 30, 2018
Property,
Plant and
Equipment
Goodwill
Intangible
Assets
Property,
Plant and
Equipment
Goodwill
Intangible
Assets
United States
$
5,713
$
1,361
$
1,952
$
5,297
$
367
$
International
Canada
11,590
31,584
17,772
1,583
-
-
10,250
32,368
17,801
-
$
48,887
$
20,716
$
1,952
$
47,915
$ 18,168
$
-
-
-
-
18. 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 16% interest in the Company’s leased premises in Ontario. This lease
was renewed on May 23, 2018 and expires in 2029 with a total of $10,635 committed over the remaining term.
During the year, rent paid for the leased principal premises amounted to $908 (2018 – $867) with no outstanding
amounts due as at April 30, 2019.
The Company also leases property where two shareholders indirectly own 100% interest. This lease expires in 2021
with a total of $616 committed over the remaining term. During the year, rent paid for the leased principal premises
amounted to $264 (2018 – $264) with no outstanding amounts due as at April 30, 2019.
On December 1, 2008 the Company entered into a property lease agreement where two shareholders
each indirectly hold a 20% interest in the Company’s leased premises in Ontario. This lease was renewed
on May 23, 2018 and expires in 2028 with a total of $8,576 committed over the remaining term. During the
year, rent paid for the leased principal premises amounted to $838 (2018 – $836) with no outstanding
amounts due as at April 30, 2019.
On May 1, 2009 the Company entered into a property lease agreement where two shareholders each indirectly
hold a 35% interest. This lease was renewed on May 23, 2018 and expires in 2029 with a total of $5,435
committed over the remaining term. During the year, rent paid for the leased principal premises amounted
to $485 (2018 – $485) with no outstanding amounts due as at April 30, 2019.
On December 15, 2013 the Company renewed a property lease agreement where a director indirectly owns
100% interest. The lease was renewed in May 2018 and expires in 2023 with a total of $559 committed over the
remaining term. During the year, rent paid for the leased principal premises amounted to $145 (2018 – $141) with
no outstanding amounts due as at April 30, 2019.
On May 1, 2016 the Company entered into a property lease agreement where two shareholders each hold a 46.6%
interest. This lease expires in 2026 with a total of $7,131 committed over the remaining term. During the year, rent
paid for the leased principal premises amounted to $982 (2018 – $967) with no outstanding amounts due as at
April 30, 2019.
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 $1,957 committed over the remaining term. During the
year, rent paid for the leased principal premises amounted to $251 (2018 – $243) with no outstanding amounts
due as at April 30, 2019.
These transactions were in the normal course of business and recorded at an exchange value established
and agreed upon by related parties.
51
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2019 and 2018 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
18. RELATED PARTY TRANSACTIONS (CONTINUED)
The remuneration of directors and other members of key management personnel for the years ended
April 30, 2019 and April 30, 2018 are as follows:
Short-term salaries and benefits
Share-based payments
The total employee benefit expense was $136,657 (2018 - $130,324).
Subsidiaries:
The Company has the following significant subsidiaries:
Company
Evertz Microsystems Ltd.
Evertz USA
Evertz UK
Holdtech Kft.
Quintech Electronics & Communications Inc.
Tech Digital Manufacturing Limited
Truform Metal Fabrication Ltd.
2019
4,676
-
4,676
$
$
2018
4,860
1,388
6,248
$
$
% Ownership
100%
100%
100%
100%
100%
100%
75%
Location
Canada
United States
United Kingdom
Hungary
United States
Canada
Canada
19. NON-CONTROLLING INTERESTS
The Company has non-controlling interests of 25% of Truform Metal Fabrication Ltd., located in Canada
and 10% with Studiotech Poland Sp. z.o.o., located in Poland.
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,
2019
11,355
5,385
2,376
76
12,008
2,280
April 30,
2019
$
April 30,
2018
7,825
4,991
1,170
143
9,447
2,056
April 30,
2018
$
41,824
$
28,248
2,893
629
1,625
460
52
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
20. CAPITAL DISCLOSURES
The Company’s capital is composed of total equity attributable to shareholders which totals $353,123
(2018 - $329,227) as at April 30, 2019. 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.
21. EARNINGS PER SHARE
Weighted average common shares outstanding
Dilutive-effect of stock options
Diluted weighted average common shares outstanding
2019
2018
76,510,417
76,211,007
19,382
136,743
76,529,799
76,347,750
The weighted average number of diluted common shares excludes 435,000 options because they were anti-dilutive
during the period (2018 – 47,500).
22. INCOME TAXES
The Company’s effective income tax rate differs from the statutory combined Canadian income tax rate as follows:
Expected income tax expense using statutory rates (25%, 2018 - 25%)
$
26,114
$
18,242
2019
2018
Difference in foreign tax rates
Benefit arising from a previously unrecognized tax loss
Non-deductible stock based compensation
Change in estimates relating to prior periods
Other
455
-
164
(280)
130
65
(17)
226
811
93
$
26,583
$
19,420
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 (assets) liabilities:
Tax loss carried forward
Research and development tax credits
Equipment tax vs accounting basis
Non-deductible reserves
April 30, 2019
April 30, 2018
$
$
(33)
2,229
800
(4,562)
(1,566)
(88)
869
1,499
(3,481)
(1,201)
As at April 30, 2019, the Company had $3,283 (2018 - $3,478) in tax losses for which no deferred tax asset has
been recognized in the statement of financial position. Of these losses, $2,301 expire in 2025 while the remaining
balance has no expiry.
53
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2019 and 2018 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
23. BUSINESS ACQUISITIONS
On November 1, 2018, the Company acquired 100% equity of Quintech Electronics and Communications, Inc.
(“Quintech”), a privately held company headquartered in Indiana, Pennsylvania, USA, with world class RF solutions
and products deployed in over 120 countries. The fair value of total consideration transferred upon acquisition
includes cash considerations of $6,635, net of $23 in cash acquired and contingent consideration valued at $1,016.
The contingent consideration also includes potential management fees based on future earnings before interest,
taxes, depreciation and amortization (“EBITDA”) of Quintech from November 1, 2018 through to December 31, 2020,
potentially resulting in additional expenses of zero through to an undiscounted maximum of $3,286. The acquisition
was accounted for under the acquisition method and its operating results have been included in these financial
statements since the date of acquisition. Since the date of acquisition, a total of $5,595 in revenue and $309 in
earnings were included within the consolidated statement of earnings. During fiscal 2019 the Company recognized
$186 of transaction costs in selling, administrative and general expenses relating to the transaction.
The preliminary allocation of the purchase price is based on management’s estimate of the fair value of assets
acquired and liabilities assumed. The allocation of the purchase price was as follows, and is subject to adjustment
as additional information is evaluated by the Company:
Trade and other receivables
Inventories
Income tax receivable
Trade and other payables
Deferred revenue
Property, plant and equipment
Prepaid expenses
Deferred tax liability
Intangible assets
Goodwill (not tax deductible)
$
$
1,734
3,045
3
(1,297)
(11)
685
161
255
2,124
952
7,651
The Goodwill of $952 arising from the acquisition consists largely of the expansion of the Company’s product lines
and potential customer base. Fair value of trade and other receivables is equivalent to gross receivables as no
amount within receivables has been deemed uncollectable.
On February 13, 2019 the Company acquired 100% equity of a privately owned company headquartered in Ontario,
Canada. The fair value of total consideration transferred upon acquisition included cash consideration of $1,557,
net of $58 in cash acquired.
The preliminary allocation of the purchase price is based on management’s estimate of the fair value of assets
acquired and liabilities assumed. The allocation of the purchase price was as follows, and is subject to adjustment
as additional information is evaluated by the Company:
Trade and other receivables
Trade and other payables
Property, plant and equipment
Goodwill (not tax deductible)
$
$
78
(111)
7
1,583
1,557
54
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
24. EXPLANATION OF ADOPTION OF IFRS 15, REVENUE FROM CONTRACTS
WITH CUSTOMERS AND IFRS 9, FINANCIAL INSTRUMENTS
Revenue
TIFRS 15, Revenue from contracts with customers (“IFRS 15”) was issued by the IASB in May 2014 to replace IAS 11,
Construction Contracts and IAS 18, Revenue and other interpretive guidance associated with revenue recognition.
IFRS 15 provides a single, principles-based five-step model to be applied to all contracts with customers to determine
how and when to recognize revenue. The five-step recognition model used to apply the standard includes; 1) identify
the contract(s) with the customer; 2) identify the separate performance obligations in the contract; 3) determine the
transaction price; 4) allocate the transaction price to separate performance obligations; and 5) recognize revenue
when (or as) each performance obligation is satisfied. The Company has adopted IFRS 15, effective May 1, 2018,
using the modified retrospective approach. Under this approach, the Company has recognized the cumulative
effect of initially applying IFRS 15 as an adjustment to the opening balance of retained earnings as at May 1, 2018.
Therefore, the comparative information has not been restated and continues to be reported under IAS 18 and IAS 11.
The details of the primary changes on adoption of IFRS 15 are set out below.
A Software license arrangements:
Under the Company’s previous revenue recognition policies, license revenue from term-based licenses was
generally deferred and amortized on a ratable basis over the license term. Under IFRS 15, the Company has
deemed certain licenses to be generally distinct from other performance obligations. Revenue allocated to the
distinct license is recognized at the time that both the right-to-use the software has commenced for the term
and the software has been made available to the customer. As a result of the change, the Company recognized
a $95 decrease in deferred revenue and a corresponding increase to retained earnings within shareholders
equity effective May 1, 2018.
B. Contract assets and costs to obtain a contract:
Under IFRS 15, certain incremental contract acquisition costs, such as sales commissions paid to employees
or third parties, are to be recognized as an asset and amortized into operating expenses over time. The expense
is recognized on a systematic basis that is consistent with the Company’s transfer of the related goods
or services to the customers. Under the Company’s previous accounting policies, such costs were expensed
as incurred. As a result of the change, the Company recognized a $262 increase in contract assets and
a corresponding increase to trade and other payables, effective May 1, 2018.
For comparative purposes, as at April 30, 2018 contract assets of $21,830 previously classified in trade
and other receivables have been reclassified to contract assets.
The application of IFRS 15 has no impact on the Company’s cash flows from operations or the methods and
underlying economics through which it transacts with its customers.
Financial Instruments
IFRS 9, Financial instruments (“IFRS 9”) was issued by the IASB in July 2014 to replace IAS 39, Financial Instruments:
Recognition and Measurement (“IAS 39”). Under IFRS 9, the loss allowance for trade receivables must be calculated
using the expected lifetime credit loss and recorded at the time of initial recognition. A portion of the Company’s trade
receivables required an incremental loss allowance in order to comply with the requirements of IFRS 9. As a result,
the Company recognized a $116 decrease in accounts receivable and a corresponding decrease to retained earnings
within shareholders equity effective May 1, 2018. In addition, the expected loss allowance using the lifetime credit
loss approach is applied to contract assets under IFRS 15. The new impairment model under IFRS 9 did not have
a significant impact on the year ended April 30, 2019.
55
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
Years ended April 30, 2019 and 2018 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information)
24. EXPLANATION OF ADOPTION OF IFRS 15, REVENUE FROM CONTRACTS
WITH CUSTOMERS AND IFRS 9, FINANCIAL INSTRUMENTS (CONT'D)
Below is a summary showing the original measurement categories under IAS 39 and the new measurement
categories under IFRS 9 for each class of financial instruments as at May 1, 2018. The new carrying amounts
under IFRS 9 are the same as the original carrying amounts under IAS 39, except as described above.
Financial Assets/Liabilities
Cash and cash equivalents
Marketable securities
Trade and other receivables
Trade and other payables, exluding RSUs
RSUs
Long-term debt
IAS 39
IFRS 9
Loans and receivables
Available for sale
Loans and receivables
Other financial liabilities
Fair value through profit or loss
Other financial liabilities
Amortized cost
Fair value through profit or loss
Amortized cost
Amortized cost
Fair value through profit or loss
Amortized cost
Impact to Retained Earnings
The table below provides a reconciliation of retained earnings as at May 1, 2018 from amounts previously reported
in 2018 due to the above changes in IFRS 9 and IFRS 15. The below changes did not have a significant impact on tax
assets or liabilities.
Impact to opening retained earnings, upon adoption of IFRS 9 and IFRS 15
May 1, 2018
Timing of revenue recognition (IFRS 15)
Expected credit loss impairment model (IFRS 9)
Total opening impact to retained earnings, upon adoption of IFRS 9 and IFRS 15
$
$
95
(116)
(21)
25. SUBSEQUENT EVENT
On June 20, 2019 the Company declared a quarterly dividend of $0.18 with a record date of June 28, 2019
and a payment date of July 5, 2019.
56
EVERTZ TECHNOLOGIES LIMITED2019 ANNUAL REPORT
5-YEAR FINANCIAL HIGHLIGHTS
(all amounts in thousands, except EPS and share amounts)
Consolidated Statement of Earnings Data
Year Ended April 30,
2019
2018
2017
2016
2015
Sales
$ 443,556
$ 402,832
$ 384,432
$ 381,550
$ 363,606
Selling and administrative expenses
Research and development expenses
Earnings before income taxes
Net earnings
Fully diluted EPS
67,821
85,823
105,087
78,504
1.02
65,531
80,804
72,966
53,546
0.70
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
Consolidated Balance Sheet Data
Year Ended April 30,
2019
2018
2017
2016
2015
Cash and marketable securities
$ 108,606
$
94,184
$
54,274
$ 123,102
$ 100,681
Total assets
Shareholder’s equity
Number of common shares
outstanding
Basic
466,597
353,123
421,115
329,227
410,568
448,314
317,830
366,205
426,162
353,471
76,545,246
76,481,746
75,742,746
74,188,746
74,459,346
Fully-diluted
77,958,746
78,722,746
78,621,246
78,595,246
79,195,846
57
EVERTZ TECHNOLOGIES LIMITED2019 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,
Product Development
Vince Silvestri
Vice-President of Software
Systems
Kevin Hellam
Vice-President of Global Delivery
& Support
Robert Peter
Vice-President,
International Operations
Jeff Marks
Vice-President
of Manufacturing
Dan Turow
Vice-President of File Based
Solutions
Paulo Francisco
Vice-President of Engineering
Evertz AV Division
Marsha Garner
Vice-President, Inside Sales
and Administration
Orest Holyk
Vice-President of Sales USA
1 Member of the Audit Committee.
2 Member of the Compensation Committee.
AUDITORS
BDO Canada LLP
3115 Harvester Road
Suite 400
Burlington, ON, Canada L7N 3N8
T: (905) 639-9500
LEGAL COUNSEL
WeirFoulds LLP
66 Wellington Street West, Suite 4100
P.O. Box 35, TD Bank Tower
Toronto, ON, Canada M5K 1B7
T: (416) 365-1110
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. Wednesday, October 9, 2019
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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2019 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED EVERTZ REPORT_Inside Front_Back Cover_2019_PRINT.pdf 1 2019-09-04 6:35 PM