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Computer Modelling Group Announces Year End Results – Part 11

(ii) Fair values of financial instruments

The carrying values of cash, trade and other receivables, trade payables and accrued liabilities approximate their fair values due to the short-term nature of these instruments.


The Company is exposed to risks of varying degrees of significance and likelihood, which could affect its ability to achieve its strategic objectives for growth. The main objectives of the Company's risk management process are to ensure that risks are properly identified and that the capital base is adequate in relation to those risks. The principal financial risks to which the Company is exposed are described below:

(a) Credit Risk:

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligation and arises principally from the Company's trade and other receivables. The amounts reported in the statements of financial position for trade receivables are net of allowances for bad debts, estimated by the Company's management based on prior experience and their assessment of the current economic environment.

The Company's trade receivables consist primarily of balances from customers operating in the oil and gas industry, both domestically and internationally, as the Company sells its products and services in approximately 60 countries worldwide. Some of these countries have greater economic and political risk than experienced in North America, and as a result there may be greater risk associated with sales in those jurisdictions. The Company manages this risk by invoicing for the full license term in advance for the majority of software license sales and by invoicing as frequently as the contract allows for consulting and contract research services. In cases where collectability is not deemed probable, revenue is recognized upon receipt of cash, providing all other criteria have been met. Historically, the Company has not experienced any significant losses related to individual customers or groups of customers in any particular geographic area; therefore, no allowance for doubtful accounts has been established at March 31, 2017 and 2016.

As at March 31, 2017, the Company has a concentration of credit risk with 15 domestic and international customers who represent 82% of trade receivables (2016 - 12 customers; 79%).

The carrying amount of trade and other receivables represents the maximum credit exposure. The maximum exposure to credit risk at March 31, 2017 was $25.3 million (2016 - $21.1 million). The aging of trade and other receivables at the reporting date was:


(thousands of $) March 31, 2017 March 31, 2016 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Current 7,626 6,067 31-60 days 13,394 11,038 61-90 days 2,516 1,830 Over 90 days 1,769 2,158 ---------------------------------------------------------------------------- Balance, end of year 25,305 21,093 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------


The Company assesses the creditworthiness of its customers on an ongoing basis and it regularly monitors the amount and age of balances outstanding. Payment terms with customers are 30 days from invoice date; however, industry practice can extend these terms. Accordingly, the Company views the credit risks on these amounts as normal for the industry.

The Company minimizes the credit risk of cash by depositing only with a reputable financial institution in highly liquid interest-bearing cash accounts.

(b) Market Risk:

Market risk is the risk that changes in market prices of the foreign exchange rates and interest rates will affect the Company's income or the value of its financial instruments.

(i) Foreign Exchange Risk

The Company operates internationally and primarily prices its products in either the Canadian or US dollar. This gives rise to exposure to market risks from changes in the foreign exchange rates between the Canadian and US dollar. Approximately 78% (2016 - 76%) of the Company's revenues for the year ended March 31, 2017 were denominated in US dollars, and at March 31, 2017, approximately US $20.8 million (2016 - US $15.0 million) of the Company's working capital was denominated in US dollars. The Company currently does not use derivative instruments to hedge its exposure to those risks, but as approximately 26% (2016 - 28%) of the Company's total costs are also denominated in US dollars, they provide a partial economic hedge against the fluctuation in this currency exchange. In addition, the Company manages levels of foreign currency held by converting excess US dollars into Canadian dollars at spot rates.

The Company's operations are exposed to currency risk on US-dollar denominated financial assets and liabilities with fluctuations in the rate recognized as foreign exchange gains or losses in the consolidated statement of operations and comprehensive income. It is estimated that a one cent change in the US dollar would result in a net change of approximately $152,000 to equity and net income for the year ended March 31, 2017. A weaker US dollar with respect to the Canadian dollar will result in a negative impact, while the reverse would result from a stronger US dollar.

(ii) Interest Rate Risk

The Company has significant cash balances and no interest-bearing debt. The Company's policy is to invest excess cash in interest-bearing deposits and/or guaranteed investment certificates issued by a reputable financial institution. The Company is exposed to interest cash flow risk from changes in interest rates on its cash balances. Based on the March 31, 2017 cash balance, each 1% change in the interest rate on the Company's cash balance would change equity and net income for the year ended March 31, 2017 by approximately $462,000.

(c) Liquidity Risk:

Liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due or can do so only at excessive cost. The Company manages liquidity risk through the management of its capital structure as outlined in note 12. The Company's growth is financed through a combination of the cash flows from operations and its cash balances on hand. Given the Company's available liquid resources as compared to the timing of the payments of its liabilities, management assesses the Company's liquidity risk to be low. The Company monitors its expenditures by preparing annual budgets that are periodically updated. At March 31, 2017, the Company has significant cash balances in excess of its obligations and approximately $0.8 million of the line of credit (note 15) available for its use.

14. Commitments:

(a) Research Commitments:

Until January 1, 2017, the Company was the operator of a joint project, a collaborative effort with its partners Shell International Exploration and Production B.V. and Petroleo Brasileiro S.A. ("Petrobras"), to jointly develop CoFlow, the newest generation of reservoir and production system simulation software (note 18).

Effective January 1, 2017, Petrobras' financial participation in the joint development project has ended. Under the new five-year agreement between CMG and Shell Global Solutions International B.V. ("Shell"), CMG is responsible for the research and development costs of CoFlow, while Shell will provide a fixed fee contribution for the continuing development of the software . The Company's revenue and costs associated with CoFlow are estimated to be $4.0 million and $8.3 million, respectively, for fiscal 2018.

(b) Lease Commitments:

The Company has operating lease commitments relating to its office premises with the minimum annual lease payments as follows:


Years ended March 31, 2017 2016 (thousands of $) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Less than one year 4,333 2,482 Between one and five years 19,335 17,566 More than five years 82,304 81,969 ---------------------------------------------------------------------------- 105,972 102,017 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------


The Company leases a number of properties under operating leases. During the year ended March 31, 2017, $2.8 million (2016 - $2.7 million) was recognized as an expense in the statement of operations and comprehensive income in respect of operating leases related to office premises.

The Company entered into a twenty year operating lease commitment relating to its new Calgary headquarters commencing in calendar 2017. The minimum annual lease payments have been reflected in the above schedule. The Company invested $15.3 million in infrastructure for the new headquarters over the last three fiscal years, of which $13.9 million was incurred in the year ended March 31, 2017 ($10.1 million of that was paid in cash and the remaining $3.8 million is included in trade payables and accrued liabilities as at March 31, 2017). The total budget for infrastructure is $16.0 million, and the remainder of the budget is expected to be spent in the first quarter of fiscal 2018.

15. Line Of Credit:

The Company has arranged for a $1.0 million line of credit with its principal banker, which can be drawn down by way of a demand operating credit facility or may be used to support letters of credit. As at March 31, 2017, US $215,000 (2016 - US $215,000) had been reserved on this line of credit for letters of credit supporting performance bonds.

16. Segmented Information:

The Company is organized into one operating segment represented by the development and licensing of reservoir simulation software. The Company provides professional services, consisting of support, training, consulting and contract research activities, to promote the use and development of its software; however, these activities are not evaluated as a separate business segment.

Revenues and property and equipment of the Company arise in the following geographic regions:


(thousands of $) Revenue Property and equipment ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Years ended March 31, As at March 31, 2017 2016 2017 2016 ---------------------------------------------------------------------------- Canada 21,459 26,121 16,463 2,694 United States 16,928 19,103 192 248 South America 13,065 9,837 173 245 Eastern Hemisphere(1) 23,645 25,737 45 58 ---------------------------------------------------------------------------- 75,097 80,798 16,873 3,245 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Includes Europe, Africa, Asia and Australia.


No customer represented 10% or more of total revenue in the years ended March 31, 2017 and 2016.

17. Subsidiaries:

CMG is the beneficial owner of the entire issued share capital and controls all the votes of its subsidiaries. The principal activities of all the subsidiaries are the sale and support for the use of CMG's software licenses. Transactions between subsidiaries are eliminated on consolidation.

The following is the list of CMG's subsidiaries:


Subsidiary Country of Incorporation ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Computer Modelling Group Inc. United States CMG Middle East FZ LLC Dubai, United Arab Emirates CMG (Europe) Limited United Kingdom ---------------------------------------------------------------------------- ----------------------------------------------------------------------------


18. Joint Operation:

Until January 1, 2017, the Company was the operator of a joint project, a collaborative effort with its partners Shell International Exploration and Production B.V. and Petrobras, to jointly develop CoFlow, the newest generation of reservoir and production system simulation software. Accordingly, until January 1, 2017, the Company recorded its proportionate share of costs incurred on the project (37.04%) as research and development costs within the consolidated statement of operations and comprehensive income.

Effective January 1, 2017, Petrobras' financial participation in the joint development project ended. Under the new five-year agreement between CMG and Shell, CMG is responsible for the research and development costs of CoFlow, while Shell will provide a fixed fee contribution. The new agreement with Shell does not meet the definition of a joint arrangement, and as of January 1, 2017, the Company discontinued the use of proportionate consolidation to account for CoFlow.

During the first nine months of the current fiscal year, under the proportionate consolidation method, CMG recorded $4.1 million (year ended March 31, 2016 - $5.9 million) of CoFlow costs in its consolidated statement of operations and comprehensive income.

Additionally, under the previous arrangement the Company was entitled to charge its partners for various services provided as operator, which were recorded in revenue as professional services and amounted to $2.1 million for the first nine months of the current fiscal year (year ended March 31, 2016 - $2.8 million).

For the three months ended March 31, 2017, subsequent to discontinuing proportionate consolidation, CoFlow revenue of $1.1 million was recorded to professional services revenue and CoFlow costs of $1.9 million were recorded to research and development expenses.

19. Related Parties:

(a) Intercompany Transactions:

The Company has three wholly owned subsidiaries (note 17) that have intercompany transactions under the normal course of operations and are eliminated upon consolidation.

(b) Key Management Personnel Compensation:

The key management personnel of the Company are the members of the Company's executive management team and Board of Directors and control approximately 4.7% of the outstanding shares of CMG at March 31, 2017.

In addition to their salaries and director fees, as applicable, directors and executive officers also participate in the Company's stock option plan or SAR plan (note 11(d)), which are available to almost all employees of the Company.

Key management personnel compensation comprised the following:


Years ended March 31, 2017 2016 (thousands of $) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Salaries, bonus and employee benefits 4,136 4,215 Stock-based compensation 644 829 ---------------------------------------------------------------------------- 4,780 5,044 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------


20. Subsequent Event:

On May 18, 2017, the Board of Directors declared a quarterly cash dividend of $0.10 per share on its Common Shares, payable on June 15, 2017, to all shareholders of record at the close of business on June 7, 2017.

- END RELEASE - 19/05/2017

For further information:
Computer Modelling Group Ltd.
Kenneth M. Dedeluk
President & CEO
(403) 531-1300
Computer Modelling Group Ltd.
Sandra Balic
Vice President, Finance & CFO
(403) 531-1300


INDUSTRY: Computers and Software - Software, Energy and Utilities -
RELEASE ID: 20170519CC0003

Press Release from Marketwired 1-866-736-3779

All press releases are written by the client and have NO affiliation with the news copy written by The Canadian Press. Any questions that arise due to the content or information provided in the press release should be directed to the company/organization issuing the release, not to The Canadian Press.

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