financial review 2011m.softchoice.com/files/pdf/about/2011-financial-review.pdf · 2013-01-16 ·...

2011FINANCIAL

REVIEW

Message to Shareholders 1

Management’s Discussion and Analysis 3

Management’s Responsibility for Financial Reporting 26

Independent Auditors’ Report to the Shareholders 27

Consolidated Financial Statements 28

Consolidated Statements of Financial Position 28

Consolidated Statements of Comprehensive Income 29

Consolidated Statements of Changes in Equity 30

Consolidated Statements of Cash Flows 31

Notes to Consolidated Financial Statements 32

Ten-Year Financial Summary 67

Directors and Offi cers 68

Corporate Information 69

CONTENTS

Softchoice 2011 Financial Review • 1

MESSAGETO OUR SHAREHOLDERS, CUSTOMERS,

PARTNERS AND EMPLOYEES

MESSAGE

2011 was not just a tremendous year for Softchoice – it was a

turning point. With organic investment and the acquisition of UNIS

LUMIN Inc., we cemented our future as a leading solutions and

services company. We increased our reach among small and

medium businesses with the expansion of our Telesales Division.

We invested in the governance to support our future growth with

the appointment of Bill Linton as our new chairman, and Mary

Ritchie and Carol Perry as Directors of the Softchoice Board. And, as

of the first quarter of 2012, we are set to launch Softchoice Cloud –

North America’s first truly holistic cloud brokerage platform.

In 2011, our commitment to doing more for customers drove

revenue growth of more than 13 percent. On a full-year basis,

adjusted earnings grew 34 percent to US$23.9 million. Moreover, we

finished 2011 with an exceptionally strong balance sheet, including

US$33 million in cash on hand and total debt of nil.

We have clearly benefited from the current IT investment cycle.

But delivering results like this also reflects the execution of a

consistent strategy: produce long-term, profitable growth by adding

solutions and services that cultivate deeper customer relationships.

Our core strategy hasn’t changed for a reason: it’s simple and it has

a proven winning record.

Perhaps the best way to understand our results and the

opportunities before us is to look at our strategy in the context

of three areas of focus:

• Increase revenues faster than the market growth rate

• Grow the proportion of services in our revenue mix

• Drive recurring revenues to 30 to 40 percent of our total revenue

EVERYWHERE WE LOOK, TECHNOLOGY IS BREAKING DOWN BARRIERS AND

ALLOWING PEOPLE TO LIVE, WORK, SHARE AND CREATE IN WAYS HARDLY

IMAGINABLE EVEN A DECADE AGO. RAPID ADVANCES IN MOBILITY,

NETWORKING AND SOFTWARE AND THE UBIQUITY OF CLOUD COMPUTING

ARE GIVING ORGANIZATIONS OF ALL SIZES THE TOOLS TO TURN THEIR

AMBITIONS INTO REALITY. AS A TECHNOLOGY SERVICES COMPANY,

SOFTCHOICE HAS NEVER BEEN MORE CAPABLE OF HELPING OUR CUSTOMERS

CAPITALIZE ON INNOVATION THAN WE ARE TODAY.

Increase Revenues Faster than the Market Growth Rate

Just as we have for more than a decade, in 2011 we outpaced

the growth in global IT spending by more than two to one. But we

did more than just increase our market share. We sustained strong

margins, reflecting the value we’re providing in high-growth areas of

IT and the exceptional service our people deliver each and every day.

The data center and implementing private cloud, mobility

and unified communications solutions remain areas of intense focus

for our customers. The double-digit growth we recorded in our

enterprise software, server, storage and networking business in

2011 speaks to this demand. It also highlights the special role our

local presence in markets across North America plays in capitalizing

on these opportunities. Building trust in person and identifying

requirements early in the project cycle continue to give Softchoice

a clear competitive advantage, especially when it comes to larger,

strategic IT initiatives.

Of course, doing more for customers goes beyond engineering

the latest solutions. It also means providing the supply chain

and e-commerce efficiencies that have made us one of the most

productive organizations in our industry. Whether providing fast,

reliable delivery of a single PC or supporting a major technology

refresh, our call centers and integration with distribution partners

are at the heart of delivering legendary customer service.

More than just helping retain and nurture existing customers, our

call centers have also become a powerful engine for new account

acquisition. To address the fast-growing small and medium business

segment (SMB), in 2011 we expanded our Telesales Division to

150 people. We are very pleased with the results this team has

2 • Softchoice 2011 Financial Review

network monitoring and support along with access to certified

network professionals. Less time spent maintaining network

infrastructure will give our customers more time to tackle new

projects that drive the productivity of their businesses.

The rate at which businesses are adopting the cloud continues to

accelerate. The cloud, however, is not an “all or nothing” endeavor.

Most organizations will leverage a combination of existing data

center investments along with external cloud providers. No company

is better positioned to add value on both sides of the equation

than Softchoice. In 2012, enterprise software, server, storage and

networking solutions will become the single largest segment of our

business – a testament to our standing as a leader in the data center

and in the implementation of private cloud infrastructure. With the

launch of Softchoice Cloud, we are once again staking a leadership

position at the dawn of a new era in software.

Softchoice Cloud is a unique platform that unites software-as-a-

service (SaaS) applications in a single, secure portal. More than simply

providing easy access to a wide range of top-ranked software, the

Softchoice App Portal lets customers consolidate cloud purchases in a

single invoice, track usage, simplify billing and centralize management.

That translates into better administrative control, risk management

and budgeting. With Softchoice Cloud set to launch in the first quarter

of 2012, we are very excited about the potential to offer customers

one-stop shopping for all their SaaS needs. Softchoice Cloud will also

strengthen our value to partners seeking to bring their own SaaS

applications to the thousands of customers we help every day.

The Year Ahead

Since opening our doors in 1989, we have witnessed some of the

greatest economic and technological changes in human history. In

many respects there has never been an age as exciting or promising

as the one we’re living through today. Our ability to meet a broad range

of technology requirements – from the desktop to the data center

and the cloud – has created significant differentiation for Softchoice.

Few competitors offer the breadth of solutions and the technical

competence that we do. And fewer still can match the efficiency

and flexibility of our supply chain and e-commerce capabilities.

Accomplishing as much as we have takes more than just a

winning strategy. Above all, it takes a winning team. I am constantly

inspired by our people and their willingness to seize opportunities

to advance our business and bring new offerings to the thousands

of organizations we serve. It is their passion for service and growth

that is allowing us to make a bigger difference to our customers,

our shareholders and the communities where we work and live.

Surrounded by an exceptional team, I have never been more

confident of our ability to unleash the potential of technology

to improve business and our world.

David MacDonald

President and Chief Executive Officer

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delivered. Telesales and our call centers in general have also become

the starting point for nurturing and growing our future leaders.

Through great training and well-worn career paths into field sales,

marketing and business development, we are redefining the call

center as a place of growth and opportunity.

In many respects, growing faster than the market means finding

new ways to harness our most important asset: the knowledge

and expertise of our people. In 2011, we deployed new collaboration

tools that make it easy for employees to learn from each other,

solve customer problems and capitalize on opportunities. With more

than 200,000 views of our technology-focused blogs last year alone,

leveraging our subject matter experts to create value-added content

is also increasing our brand awareness like never before.

Grow the Proportion of Services in Our Revenue Mix

Our professional services business made tremendous strides in

2011. We increased revenues by 45 percent. We added new talent

to support our strategic focus on Microsoft, the data center and

networking and unified communications. We invested in the tools

and processes, including our Project Management Office, to scale

our services business efficiently across the U.S. and Canada. And we

enhanced our services capabilities with the acquisition of UNIS LUMIN,

one of Canada’s most respected Cisco networking providers.

In 2011, more than 650 customers benefited from our award-

winning IT assessment services. We believe that no assessment on

the market today can create the precise portrait of an organization’s

server, storage or networking environment as quickly and cost-

effectively as Softchoice. Of course, this is about more than just

supporting effective IT asset management. Our capabilities are

increasing the scale and velocity of our solutions and services

business by providing the data required to create bulletproof

project plans. That translates into less risk for our customers and

faster time to market for innovative new solutions.

Drive Recurring Revenues to 30 to 40 Percent

of Our Total Revenue

While Softchoice remains the number one Microsoft provider in

Canada and the fifth largest in North America, we continue to lay the

foundation for future growth. The addition of solutions architects and

services professionals is helping us meet the demand for expertise in

the design and implementation of advanced Microsoft solutions. These

resources are also allowing Softchoice to capitalize on Microsoft’s Solution

Incentive Program (SIP), which guarantees higher margins to partners

who register opportunities early in the sales cycle. Just as we became

the number one provider of Enterprise Software Licensing more than

10 years ago, our focus has already earned Softchoice the distinction of

being the world leader in Microsoft’s SIP registration activity.

While software licensing remains our largest source of recurring

revenue, the opportunity to build on the managed services capabilities

we acquired through UNIS LUMIN is very compelling. Starting in the

first quarter of 2012, we will launch our first North America-wide

managed services offering. Through Keystone Managed Services™,

we will create even stickier relationships by providing proactive


February 29, 2012

This document has been prepared to help investors understand

the financial performance of the Company in the broader

context of the Company’s strategic direction, the risks and

opportunities as understood by management and the key

metrics that are relevant to the Company’s performance.

Management has prepared this document in conjunction with

its broader responsibilities for the accuracy and reliability of the

financial statements, as well as the development and

maintenance of appropriate information systems and internal

controls to ensure that the financial information is complete

and reliable. The Audit Committee of the Board of Directors,

consisting solely of independent directors, has reviewed this

document and all other publicly reported financial information

for integrity, usefulness, reliability and consistency.

This document and the related financial statements can also

be viewed on the Company’s website at www.softchoice.com

and at www.sedar.com. The Company’s Annual Information

Form is also available on these websites.

Unless otherwise stated, dollar amounts referred to in this

document are expressed in U.S. dollars.

Caution Regarding Forward-Looking StatementsThis Management’s Discussion and Analysis contains certain

forward-looking statements based on management’s current

expectations. Management bases its expectations on current

market conditions and forecasts published by experts, on

knowledge of observed industry trends and on internal

intentions based on developed business plans or budgets. The

words “expect,” “intend,” “anticipate” and similar expressions

generally identify forward-looking statements. These forward-

looking statements entail various risks and uncertainties that

could cause actual results to differ materially from those

reflected in these forward-looking statements. Certain of these

risks are described in the Company’s current Annual Information

Form. They include risks related to economic conditions, bad

debts, access to credit and access to capital; risks related to debt

financing; exchange rate risk; and the risk of credit card fraud.

The Company also faces risks related to the information

technology (“IT”) distribution channel such as dependence on

Microsoft, reliance on financial incentives, dependence upon

distributors, the inability to respond to changes in the IT

distribution channel, technical innovation, competition, the

risk of IT product defects and the risk of providing technology

solutions offerings. There are additional risks relating to the

management of the business, including the inability to

successfully execute strategies; customer attrition; productivity;

compliance with U.S. federal government procurement

processes; sales model risks; hiring, training and retention of

personnel; variability of quarterly operating results; information

systems; damage to Softchoice’s computer systems; and

dependence upon management. These risks are described

in full in the Company’s current Annual Information Form.

MANAGEMENT’S DISCUSSION AND ANALYSISMD+A


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Fourth Quarter HighlightsThe Company delivered strong operating results throughout

2011, and the fourth quarter was no exception. Total annual

net sales were up 13.1 percent, to $999.4 million over the same

period in the prior year. In the fourth quarter, the Company

reported net sales of $269.4 million, an increase of 6.2 percent,

with strong reported results from the Microsoft business. Other

highlights of the quarter included the following:

• On December 1, 2011, the Company successfully completed

the acquisition of UNIS LUMIN Inc., a highly-regarded

Canadian-based Cisco networking and managed services

company. The acquisition substantially broadens the

Company’s technical consulting, professional services delivery

and project management capabilities.

• Softchoice renegotiated its asset-backed loan agreement

(“ABL”) to more favorable terms and early-repaid the

Company’s term debt, which carried an interest rate

of 16.0 percent.

• The Company achieved a gross profit of $48.7 million,

representing an increase of 7.6 percent from gross profit

of $45.3 million reported in the fourth quarter of 2010.

Gross profit margin increased 20 basis points to 18.1 percent.

• Adjusted net earnings for the quarter were $6.3 million

compared to adjusted net earnings of $6.0 million for the

same period of the prior year. Adjusted net earnings per

share were $0.32 compared to $0.31 reported for the fourth

quarter of 2010.

• Cash generated from operations was $24.0 million in the

quarter, compared to cash generated from operations of

$10.5 million in the same quarter of the prior year.

• At December 31, 2011, the Company had $33.0 million of

cash on hand, and total debt of nil.

• Softchoice was named Software Asset Management, Volume

Licensing and Sales Management Partner of the Year at

Microsoft Canada’s annual Impact Awards in Toronto on

November 30, 2011.

During the year-end reporting process, management

identified certain errors in the amounts recorded for rebate

and marketing development funds in 2011. Management

determined that further review of the accounting in this area

was warranted and accordingly decided to delay the release

of the Company’s earnings for the fourth quarter and year

ended December 31, 2011 until this review could be completed.

As a result of the review, an adjustment was made to cost

of sales in the current period to correct for the errors, reducing

net earnings by US$1.1 million. Management has recorded

the entire amount of the adjustment in the current quarter

as it was determined that the impact on previously reported

periods was not material. Management has considered the

adequacy of internal controls in this area, and has introduced

remedial measures that are more fully described in the

section “Disclosure Controls and Procedures and Internal

Controls over Financial Reporting” below.

Selected Annual InformationThe following information is provided to give context to the broader comments contained elsewhere in this report.

Year ended December 31(In thousands of U.S. dollars, except per share amounts)

2011 IFRS

2010 IFRS

2009 Canadian GAAP

Net sales, as reported $ 999,400 $ 884,014 $ 754,144

Total revenue (including imputed revenue) 2,092,417 1,874,407 1,615,785

Gross profit 188,882 164,511 142,269

EBITDA 49,775 41,120 35,074

Net earnings before income taxes 34,127 30,623 31,840

Net earnings 22,120 20,065 22,263

Earnings per share

Basic $ 1.12 $ 1.01 $ 1.26

Diluted $ 1.11 $ 1.01 $ 1.26

Total assets 447,689 351,344 290,366

Term debt – 12,232 16,775

Shareholders’ equity 140,318 116,497 96,358

Dividends – – –


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2011 was a year of significant growth for Softchoice. Net sales

climbed 13.1 percent while gross profit increased by 14.8 percent.

These results reflect the growth of our Microsoft business and

enterprise software, server, storage and networking (“ESSN”)

business. The Company’s sales force, business development

and professional services teams capitalized on the momentum

that began in 2010. The addition of new pre-sales and

services resources has allowed Softchoice to help its customers

understand the value of new computing solutions and to

provide them with project management and service expertise

to support the deployment of these technologies within their

environments. Softchoice’s strategy to enhance the productivity

of the sales organization while shifting a greater proportion

of the revenue mix to higher margin engagements is gaining

traction and is reflected in strong gross profit growth for the year.

The latter part of 2011 was a busy time for Softchoice.

Key milestones included the refinancing of the Company’s

asset-backed loan agreement, the early repayment of the

term debt and the acquisition of substantially all of the assets

of UNIS LUMIN Inc. (“UNIS LUMIN acquisition”), all of which

have bolstered the Company’s balance sheet. The UNIS LUMIN

acquisition accelerates our focus on professional services,

enhancing the value we provide to our customers and

improving the overall profitability of our business through

higher margin projects.

The accompanying 2011 consolidated financial statements

represent the first set of annual consolidated financial

statements prepared in accordance with International Financial

Reporting Standards (“IFRS”). The comparative figures for 2010

have been restated to conform to IFRS in accordance with IFRS 1,

First-time Adoption of International Financial Reporting

Standards. For further information on the Company’s transition

to IFRS, refer to the section “Transition to International Financial

Reporting Standards.”

Use of Non-IFRS TermsIn our financial reporting, we refer to imputed revenue, EBITDA,

and adjusted net earnings, all of which are not recognized

measures under IFRS. These terms do not have standardized

meanings and they are therefore unlikely to be comparable

to similar measures used by other companies. Readers are

cautioned that these terms should not be construed as

alternatives to net earnings determined in accordance with IFRS.

Imputed Revenue

Microsoft imputed revenue is defined as the price paid by the

customer to Microsoft for sales of Enterprise Agreements (“EAs”)

that are transacted through Softchoice sales representatives

plus the gross amount billed to our customers for Software

Assurance agreements. Microsoft pays Softchoice an agency

fee or commission for sales of EAs, and therefore Softchoice

does not reflect the imputed revenue in the revenue line

for these transactions but records only the agency fees earned

within revenue. Microsoft imputed revenue allows for better

comparability between fiscal periods since an increase in the

product mix of EAs and Software Assurance agreements would

make it appear that Softchoice is selling fewer products,

when that would not be the case. We believe that an EA often

provides a more cost-effective solution for our customers,

particularly in the small and medium business (“SMB”) market.

Other imputed revenue includes the difference between

what we invoice our customers for non-Microsoft software and

hardware maintenance contracts and the net amount that is

reflected in our financial statements. We believe that reporting

the imputed revenue for these arrangements is helpful to

investors to put our trade accounts receivable and trade

payables balances into context. The Company records these

arrangements on a net basis, as an agent, rather than on

a gross basis, as a principal in the transaction, as the services

are provided primarily by third parties.

The table below shows total revenue, including imputed revenue, for the fourth quarter compared to the same period of the prior year.

Three months ended December 31 (In thousands of U.S. dollars) Q4 2011 Q4 2010 % Change

Net sales, as reported $ 269,378 $ 253,643 6.2%

Agency fees (10,887) (11,307) (3.7%)

Microsoft imputed revenue 196,926 190,308 3.5%

Other imputed software revenue 68,607 50,180 36.7%

Other imputed hardware revenue 18,420 15,846 16.2%

Total revenue, including imputed revenue $ 542,444 $ 498,670 8.8%


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The table below shows total revenue, including imputed revenue, for the year ended December 31, 2011 compared to the prior year.

Year ended December 31 (In thousands of U.S. dollars) 2011 2010 % Change

Net sales, as reported $ 999,400 $ 884,014 13.1%

Agency fees (49,584) (45,187) 9.7%




Total revenue, including imputed revenue $ 2,092,417 $ 1,874,407 11.6%

EBITDA

EBITDA reflects the profits of the Company after selling,

marketing and administrative expenses, adjusted for

depreciation and amortization, are deducted from gross profit.

EBITDA, as defined in our loan agreements, is used by the

Company’s bankers in establishing and measuring certain

financial covenants. In addition, valuation metrics in our industry

are based on multiples of EBITDA. We use our EBITDA results

to compare our own valuation multiples to those of our

competitors in order to evaluate how we might improve

share price performance. We believe that our shareholders

and potential investors use EBITDA in making investment

decisions about the Company and measuring our operating

results compared to others in our industry and other

potential investments.


Gross profit $ 48,741 $ 45,302 7.6%

Selling and marketing expenses (25,769) (22,897) 12.5%

Administrative expenses (12,508) (11,345) 10.3%

Depreciation of property and equipment 626 693 (9.7%)

Amortization of intangible assets 1,684 1,577 6.8%

EBITDA $ 12,774 $ 13,330 (4.2%)


Gross profit $ 188,882 $ 164,511 14.8%

Selling and marketing expenses (102,434) (91,825) 11.6%

Administrative expenses (45,680) (41,002) 11.4%

Depreciation of property and equipment 3,018 2,797 7.9%

Amortization of intangible assets 5,989 6,639 (9.8%)

EBITDA $ 49,775 $ 41,120 21.0%

In the fourth quarter, EBITDA was $12.8 million, representing

a decrease of 4.2 percent from the $13.3 million earned in

the fourth quarter of 2010. The decline in EBITDA in the fourth

quarter of 2011 was largely due to lower overall marketing

development funds reported in the fourth quarter compared

to the same period of the prior year and higher overall

non-recurring costs associated with the UNIS LUMIN acquisition.

For the year ended December 31, 2011, EBITDA increased


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21.0 percent to $49.8 million. Management believes that

the improvement shown in EBITDA for the year ended

December 31, 2011 reflects the strategic investments made

in pre-sales resources and technical architects. In addition,

the expansion of the Company’s telesales team during the

year has proven to be a very efficient model for achieving

strong growth within the SMB segment and for increasing the

Company’s share of the Microsoft licensing market. The growth

of our professional services business also bolstered gross profit

throughout 2011.

Adjusted Net Earnings

Adjusted net earnings eliminate the after-tax impact related

to transaction costs associated with the UNIS LUMIN

acquisition and any foreign exchange gain or loss on the cash,

intercompany debt and external debt denominated in a currency

other than the Company’s functional currency. Adjusted net

earnings highlight underlying business performance by adjusting

for the impact of currency changes, and transaction costs

associated with the UNIS LUMIN acquisition that would have

been capitalized under previous Canadian GAAP.

Three months ended December 31 (In thousands of U.S. dollars, except per share amounts) Q4 2011 Q4 2010 % Change

Net earnings $ 6,484 $ 7,384 (12.2%)

Adjustments, net of income tax (145) (1,338) (89.2%)

Adjusted net earnings $ 6,339 $ 6,046 4.9%

Adjusted net earnings per share $ 0.32 $ 0.31 3.2%

Year ended December 31 (In thousands of U.S. dollars, except per share amounts) 2011 2010 % Change

Net earnings $ 22,120 $ 20,065 10.2%

Adjustments, net of income tax 1,733 (2,229) (177.7%)

Adjusted net earnings $ 23,853 $ 17,836 33.7%

Adjusted net earnings per share $ 1.20 $ 0.90 33.3%

Adjusted net earnings for the fourth quarter of 2011 were

$6.3 million compared to adjusted net earnings of $6.0 million

reported for the same period of the prior year. Adjusted earnings

per share (basic and diluted) were $0.32 compared to adjusted

earnings per share of $0.31 for the same period of the prior

year, reflecting an increase of 3.2 percent.

Adjusted net earnings were $23.9 million in 2011, compared

to $17.8 million in 2010, an increase of 33.7 percent. The increase

is due to improved gross profit, which outpaced total operating

expenses incurred during the year. The Company’s reported

results from operations were up 24.6 percent over the previous

year. Adjusted net earnings per share were up 33.3 percent,

from $0.90 per share in 2010 to $1.20 per share in 2011.

Management Comments and Business Outlook*Softchoice’s performance in 2011 was exceptional. Reported

growth in net sales of 13.1 percent was 1.7 times the rate

of global IT spending growth (excluding telecom) of 7.6 percent

(according to Gartner Research, January 2012). The implication

is that the Company continued to gain market share throughout

2011. Softchoice estimates its market share at less than

2 percent of the North American market for IT sales through the

channel. Even with single-digit market share, Softchoice is

demonstrating its ability to improve efficiency. In 2011, improved

gross margins and lower selling, marketing and administrative

expenses as a percentage of revenue resulted in an EBITDA

margin improvement of 30 basis points, from 4.7 percent to

5.0 percent. This margin improvement was driven by the

* This section includes forward-looking statements. See “Caution Regarding Forward-Looking Statements.”


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productivity in our operating model and the return shown on

investments made in the Company’s pre-sales and telesales

teams. EBITDA improvement drove adjusted earnings per share

growth of 33.3 percent, or roughly 2.5 times revenue growth.

Microsoft Corporation remains a key vendor and partner.

Microsoft sales accounted for over 40 percent of our gross profit

in 2011. For Softchoice, total Microsoft revenue (including

imputed) grew just over 8 percent in 2011. That was in line with

Microsoft’s own revenue growth for the year. The Company does

not expect to increase its total Microsoft business at the same

rate in 2012, which is the first full year following Microsoft’s

enterprise fee change. We expect more of an impact in Canada

as the SMB market plays a bigger role in the United States. We

also expect more overall growth in the second half of the year.

In its IT spending outlook for 2012, Gartner Research forecasts

computing hardware to grow 5 percent, software to grow

6.3 percent, IT services to grow 3.1 percent, and overall

spending (not including telecom) to grow 4.8 percent. Gartner’s

assumptions in this forecast include a mild recession in Europe

and a continued slump in computing hardware growth due to

the industry-wide shortage of hard disk drives. Management

believes that the Company’s business model goal of growing

faster than the overall IT spending market is achievable in

2012, driven by the continued strong growth of our enterprise

software, server, storage and networking (“ESSN”) business.

We expect ESSN gross profit to be greater than our Microsoft

gross profit in 2012.

A key focus in 2012 is the Company’s expansion and growth

of our services business. Services revenue grew 44.5 percent

in 2011 but still remains less than 5 percent of total revenue.

Softchoice is in the process of spending over $10 million on

investments in three critical areas of sales coverage: Microsoft,

Professional Services and Cloud. This is in addition to the recent

services-focused UNIS LUMIN acquisition. The Company has

been building its solution and assessment services business

for a few years and the UNIS LUMIN acquisition is expected

to accelerate this strategy due to the professional services

expertise acquired.

During 2011, Softchoice helped many customers develop

their private cloud infrastructure (conversion of data center

assets like servers, storage and networking into a single

shareable resource). In 2012, the Company plans to help

customers move to the next stage by offering its own unique

public cloud service – Softchoice Cloud. In partnership with

many key vendors like Microsoft and VMware, Softchoice Cloud

started 2012 with a focus on offering software-as-a-service

(“SaaS”) but by the end of the year will also offer infrastructure-

as-a-service (“IaaS”). In this model, Softchoice will act as

an agent for our customers by helping them select, deploy,

administer, monitor and manage the right cloud applications

and/or IT resources for their needs. Softchoice Cloud will

benefit from the Company’s national-scale, local-touch model

as the Company initially targets SMB customers.

SeasonalityThe Company’s sales tend to follow a quarterly seasonality

pattern that is typical of many companies in the IT industry. In

the first quarter of the year, sales to the Canadian government

tend to be higher as March 31 marks the fiscal year end for

the federal government. A significant portion of the Company’s

revenue is derived from the sale of Microsoft products.

Historically, the Company has benefited from the sales and

marketing drive that has been generated by Microsoft sales

representatives in the second quarter of the year leading up to

Microsoft’s fiscal year end on June 30. Sales in the third quarter

of the year tend to be lower than other quarters due to the

general reduction in purchasing activity resulting from summer

holiday schedules. This slowdown is offset somewhat by the

fiscal year end of the U.S. federal government on September 30.

In the fourth quarter of the year, the Company typically

experiences higher sales as many customers complete their IT

purchases in advance of their fiscal year end of December 31.

Summary of Quarterly Operating Results

Three months ended(in thousands of U.S. dollars, except per share amounts)

Dec. 31,2011

Sept. 30, 2011

June 30,2011

March 31,2011

Dec. 31,2010

Sept. 30,2010

June 30,2010

March 31,2010

Net sales $ 269,378 $ 227,364 $ 252,946 $ 249,718 $ 253,643 $ 195,484 $ 233,326 $ 201,561

Gross profit 48,741 40,715 55,512 43,914 45,302 35,828 46,933 36,448

Results from operating

activities 10,085 5,536 17,566 7,027 10,958 2,254 13,775 5,276

Net earnings (loss) 6,484 (472) 10,948 5,160 7,384 2,094 6,199 4,388

Earnings (loss) per share $ 0.33 $ (0.02) $ 0.55 $ 0.26 $ 0.37 $ 0.11 $ 0.31 $ 0.22


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Acquisition of UNIS LUMIN Inc.On December 1, 2011, the Company acquired substantially all

of the assets of UNIS LUMIN Inc., a Canadian corporation

specializing in Cisco networking and managed services. The

acquisition is expected to enable the Company to broaden its

services offerings, technical consulting, professional services

delivery and project management capabilities. The fair value

of the assets acquired and the liabilities assumed totaled

$23.9 million. Total goodwill recognized as a result of the

acquisition was $5.2 million and is attributable to synergies with

existing businesses and other intangibles that do not qualify

for separate recognition under IFRS. The Company incurred

acquisition-related costs of $1.0 million related to professional

fees, due diligence and severance costs. These were expensed

in the period. During the fourth quarter of 2011, the acquisition

contributed incremental revenue of $7.3 million and operating

income of $0.1 million.

Detailed Review of Operating Results for the Quarter

Three-Month Period Ended December 31, 2011 Compared to the Three-Month Period Ended December 31, 2010

Three months ended December 31 Q4 2011 Q4 2010 % Change

(In thousands of U.S. dollars, except per share amounts) $

% of revenue $

% of revenue

Total revenue, including

imputed revenue $ 542,444 201.4% $ 498,670 196.6% 8.8%

Net sales 269,378 100.0% 253,643 100.0% 6.2%

Gross profit 48,741 18.1% 45,302 17.9% 7.6%

Selling, marketing and administrative 38,277 14.2% 34,242 13.5% 11.8%

Add back amortization

and depreciation 2,310 0.9% 2,270 0.9% 1.8%

EBITDA 12,774 4.7% 13,330 5.3% (4.2%)

Results from operating activities 10,085 3.7% 10,958 4.3% (8.0%)

Earnings before income taxes 9,558 3.5% 11,628 4.6% (17.8%)

Net earnings for the period $ 6,484 2.4% $ 7,384 2.9% (12.2%)

Adjusted net earnings $ 6,339 2.4% $ 6,046 2.4% 4.8%

Net income per common share

(basic and fully diluted) $ 0.33 $ 0.37

Adjusted net earnings per share $ 0.32 $ 0.31


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Product Analysis

The following table shows the relative mix of hardware, software and Microsoft sales for the three months ended December 31, 2011

and December 31, 2010, and is discussed in greater detail below.


Microsoft revenue* $ 95,458 $ 74,425 28.3%

Agency fees (10,887) (11,307) (3.7%)


Total Microsoft revenue, including imputed revenue $ 281,497 $ 253,426 11.1%

Other software revenue* 60,577 69,620 (13.0%)

Hardware revenue* 113,343 109,598 3.4%



Total revenue including imputed revenue $ 542,444 $ 498,670 8.8%

Total net sales $ 269,378 $ 253,643 6.2%

* These amounts sum to total net sales for the period.

Revenue

The Company reported consolidated net sales of $269.4 million

during the fourth quarter of 2011, compared to net sales

of $253.6 million during the same period of 2010. Virtually

all of the growth in revenue experienced in the quarter

was due to sales of Microsoft products, with revenue increasing

28.3 percent from the fourth quarter of 2010. Agency fees

earned on Microsoft EA agreements were down, decreasing

3.7 percent from 2010. The decline in agency fees can be

attributed to changes made to the Microsoft fee structure for

EAs, which took effect in the fourth quarter of 2011. Under the

new fee structure, a greater proportion of revenue is earned

on a trailing basis throughout the life of the agreement, thereby

decreasing the fee earned at the time the license is sold.

On a consolidated basis, hardware sales grew a modest

3.4 percent, while sales of non-Microsoft software products

were down 13.0 percent, the result of a larger proportion of

software support being sold during the quarter, which the

Company records on a net basis.

As a North American provider of IT hardware, software and

services, revenue is attributed to customers based on where

product is shipped or services are provided. The following

describes performance in Canada and the United States during

the quarter.

Canada

During the fourth quarter of 2011, net sales, when expressed

in Canadian dollars, were up 8.8 percent over the same quarter

in 2010. Sales of Microsoft and hardware were both higher,

increasing 65.6 percent and 17.0 percent, respectively. Sales of

non-Microsoft software were lower, down 25.2 percent in the

quarter. The decline was due to anticipated changes made by a

significant vendor in how certain licenses are sold in the channel,

resulting in lower sales of Enterprise software to certain key

accounts. Other software was also lower due to product mix, with

a higher overall proportion of Software Assurance agreements,

accounted for on a net basis, sold in the fourth quarter compared

to the fourth quarter of 2010. Hardware sales were higher

due to sales of printers and tablets, the sale of which continued

to gain momentum during the latter part of 2011.

The growth in Microsoft sales was attributable to significant

increases in sales of both Select licenses and EA agreements

transacted directly through Softchoice. Investments made in

telesales resources were a key driver of this growth. Higher

sales of Select licenses to the public sector and key Enterprise

accounts during the quarter contributed to the increase. Agency

fees earned on EAs were down slightly, the result of changes

in the fee structure introduced in the quarter by Microsoft for

new EA agreements.

United States

The Company recorded net sales of $154.2 million in the

United States, an increase of 5.2 percent compared to the prior

year quarter. Sales of non-Microsoft software grew a modest

3.3 percent, while hardware sales declined 6.6 percent

in the quarter as a result of certain networking and server

arrangements that had closed in the fourth quarter of 2010,

with no comparable sized transaction in 2011.


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Sales of Microsoft products increased by 23.2 percent, with

sales of EA Indirect, Select and Open licenses all up sharply.

A significant licensing deal with a public sector customer

contributed to the higher overall revenue reported from Microsoft

in the quarter. Customers continue to invest in tools like

SharePoint and make upgrades to Office 2010 and Windows 7.

The Company continues to benefit from the reach provided by

our telesales resources with their focus on the SMB market;

sales of Open licenses were substantially higher as a result.

Agency fees earned on Enterprise agreements transacted

through Microsoft were down slightly at less than 2 percent.

The decline experienced as a result of the new fee structure for

Enterprise Agreements was offset somewhat by the Company’s

ability to take advantage of new solutions incentive programs

(“SIPs”) offered by Microsoft this year.

Gross Profit

Gross profit increased 7.6 percent in the fourth quarter of

2011, up from $45.3 million in the fourth quarter of 2010, to

$48.7 million. Gross profit margin improved 20 basis points

to 18.1 percent. The improvement in margin was most notable

in Canada with higher reported margin coming from sales

of non-Microsoft software and hardware sales. The contribution

from the Microsoft business in Canada was down slightly, largely

due to lower overall EA agency revenue, which is recorded on

a net basis. The contribution from professional services helped

improve reported margins in both Canada and the United States.

Despite lower overall agency fees earned in the U.S. this

quarter, margins on the Microsoft business were up, the result

of a large public sector deal, a majority of which consisted of

Software Assurance, which is recorded on a net basis.

Expenses

The following table shows expenses by nature for the three months ended December 31, 2011 and December 31, 2010.

Three months ended December 31 Q4 2011 Q4 2010 % Change

(In thousands of U.S. dollars) $% of gross

profit $% of gross

profit

Personnel expenses $ 25,127 51.6% $ 24,320 53.7% 3.3%

General and administrative 10,840 22.2% 7,652 16.9% 41.7%

Depreciation of property and equipment 626 1.3% 693 1.5% (9.7%)

Amortization of intangible assets 1,684 3.5% 1,577 3.5% 6.8%

Total operating expenses $ 38,277 78.5% $ 34,242 75.6% 11.8%

For the three-month period ended December 31, 2011, total

operating expenses increased 11.8 percent, largely due to

higher general and administrative expenses, which increased

41.7 percent over the same quarter of the previous year. General

and administrative expenses were higher due to an increase in

professional fees and other transaction-related costs associated

with the UNIS LUMIN acquisition. Under IFRS, these fees do not

make up part of the purchase price and are required to be

expensed. Total fees of $1.0 million were incurred in connection

with the acquisition. General and administrative costs were

also higher due to increased facilities and sales expenses,

consistent with the overall higher headcount in the quarter

compared to 2010.

Personnel expenses were higher primarily due to greater

investments in headcount, and higher incentive compensation

associated with our short-term and long-term executive

compensation plans. Average headcount for the fourth quarter

of 2011 was 1,018, compared to an average headcount of 918 in

the fourth quarter of 2010. The increase reflects the addition of

territory sales representatives throughout 2011, and the addition

of more than 130 people joining Softchoice from UNIS LUMIN Inc.

As a percentage of gross profit, company-wide personnel

expenses were 51.6 percent, a decline from 53.7 percent in the

same quarter of 2010. This decline largely reflects the return on

investment associated with headcount additions in our pre-sales

and telesales functions and the focus on value-added services,

which provide a greater overall margin to the Company.


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Other

Depreciation of property and equipment decreased by

9.7 percent compared to the fourth quarter of 2010. Amortization

of intangible assets increased by 6.8 percent in the fourth

quarter of 2011 compared to 2010, due to the acquisition of

intangible assets in the UNIS LUMIN acquisition.

Net finance costs were $0.5 million in the fourth quarter of

2011 compared to net finance income of $0.7 million in the

same quarter of 2010. Finance costs consist of interest costs and

fees on loans, borrowings and trade payables of $0.5 million

(quarter ended December 31, 2010 – $0.7 million), and

amortization of financing costs of $0.8 million (quarter ended

December 31, 2010 – $0.4 million). Finance costs in the

fourth quarter of 2011 also included fees associated with the

refinancing of the asset-backed loan (“ABL”) totaling $0.5 million.

Finance costs also include the net foreign exchange impact

on financing activities. In the fourth quarter of 2011 there was

a net foreign exchange gain of $1.3 million (quarter ended

December 31, 2010 – net foreign exchange gain of $1.8 million),

contributing to the higher net finance costs in 2011 compared

to the same period in 2010.

The Company recorded income tax expense of $3.1 million on

pre-tax earnings of $9.6 million, resulting in an effective tax rate

of approximately 32.2 percent for the fourth quarter of 2011. This

compares to an income tax expense of $4.2 million on pre-tax

earnings of $11.6 million, resulting in an effective tax rate of

approximately 36.5 percent for the same quarter in 2010. The

increase in the effective tax rate is due to the impact of realized

and unrealized foreign exchange losses in the fourth quarter

of 2011 compared to realized and unrealized foreign exchange

gains in the same period in 2010.

The Company reported net earnings for the fourth quarter

of 2011 of $6.5 million compared to net earnings of $7.4 million

reported in the same quarter of the prior year. Net earnings per

share were $0.33 (basic and diluted), compared to net earnings

per share of $0.37 (basic and diluted) reported in the same

period of the prior year. On an adjusted basis, net earnings for

the quarter were $6.3 million compared to $6.0 million reported

in the same quarter of 2010. Adjusted net earnings per share

were $0.32 per share compared to $0.31 per share in the prior

year, representing an increase of 3.2 percent. At December 31,

2011 there were 19,837,211 common shares of the Company

issued and outstanding, compared to 19,780,039 common shares

issued and outstanding as at December 31, 2010.

Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010

Year ended December 31 2011 2010 % Change

(In thousands of U.S. dollars, except per share amounts) $

% of revenue $

% of revenue

Total revenue, including

imputed revenue $ 2,092,417 209.4% $ 1,874,407 212.0% 11.6%

Net sales 999,400 100.0% 884,014 100.0% 13.1%

Gross profit 188,882 18.9% 164,511 18.6% 14.8%

Selling, marketing and administrative 148,114 14.8% 132,827 15.0% 11.5%

Add back amortization

and depreciation 9,007 0.9% 9,436 1.1% (4.5%)

EBITDA 49,775 5.0% 41,120 4.7% 21.0%

Results from operating activities 40,214 4.0% 32,263 3.6% 24.6%

Earnings before income taxes 34,127 3.4% 30,623 3.5% 11.4%

Net earnings for the period $ 22,120 2.2% $ 20,065 2.3% 10.2%

Adjusted net earnings $ 23,853 2.4% $ 17,836 2.0% 33.7%

Net income per common share

Basic $ 1.12 $ 1.01

Fully diluted $ 1.11 $ 1.01

Adjusted net earnings per share $ 1.20 $ 0.90


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Product Analysis

The following table shows the relative mix of hardware, software and Microsoft sales for the years ended December 31, 2011 and

December 31, 2010, and is discussed in greater detail below.


Microsoft revenue* $ 341,173 $ 288,626 18.2%

Agency fees (49,584) (45,187) 9.7%


Total Microsoft revenue, including imputed revenue $ 1,166,477 $ 1,074,406 8.6%

Other software revenue* 214,739 206,609 3.9%

Hardware revenue* 443,488 388,779 14.1%



Total revenue including imputed revenue $ 2,092,417 $ 1,874,407 11.6%

Total net sales $ 999,400 $ 884,014 13.1%

* These amounts sum to total net sales for the period.

Revenue

For the year ended December 31, 2011, the Company reported

net sales of $999.4 million, an increase of 13.1 percent from net

sales of $884.0 million reported for the year ended December 31,

2010. Total revenue, including imputed revenue, increased

11.6 percent over the prior year. Revenue was higher in all

product segments in 2011, with strong growth in hardware sales

(up 14.1 percent) and Microsoft (up 18.2 percent). Agency fees

earned from Microsoft EAs grew 9.7 percent compared to the

previous year, with the most significant contribution coming

from the true-up business in both Canada and the United States.

Fees earned from our professional services business are included

in reported results for hardware sales. Professional services

revenue increased 44.5 percent in 2011. The increase reflects

successful execution of the Company’s strategy of focusing on

providing value-added services to North American customers.

Canada

In Canada, net sales were up 6.4 percent when expressed in

Canadian dollars. The Company recorded net sales in Canada of

$420.8 million for the year ended December 31, 2011, compared

to net sales of $395.4 million for the year ended December 31,

2010. Sales of hardware products were up 14.6 percent in

Canada. Sales of Microsoft licenses increased 14.4 percent.

Orders for hardware products climbed 10 percent in the year.

Sales of professional services, networking, storage and

notebooks and desktops all experienced double-digit growth

compared to the previous year. The Microsoft business in Canada

was strong during the year, particularly in the Company’s

public sector market. In addition, throughout 2011, the Company

benefited from the increased focus on the SMB market. Sales of

Open and Select licenses were significantly higher in 2011 as a

result, up 15.2 percent and 26.5 percent, respectively, over 2010.

Agency fees earned from Microsoft EAs were up 7.7 percent

during the year, with strong growth in the true-up business and

second-year scheduled billings. Sales of non-Microsoft software

were down in Canada in 2011, declining 13.1 percent from the

previous year. The decline is largely attributable to a greater

proportion of software support sold during the year, which the

Company records on a net basis. Other imputed software

revenue was higher as a result.

United States

In the United States, net sales were up 15.2 percent, with

reported net sales of $574.5 million, compared to $498.7 million

in the prior year. Sales of hardware, Microsoft licenses and other

non-Microsoft software were all higher, increasing 9.9 percent,

20.4 percent and 20.8 percent, respectively. Hardware orders

were up almost 2.5 percent, with orders for networking, servers

and notebooks and desktops contributing to the increase

in hardware revenue. The Company delivered a number of

significant networking and server solutions throughout 2011.

Our U.S. sales force was able to capitalize on an opportunity

to target key software accounts and sell notebooks, thereby

increasing revenue from the notebook and desktop category

during the year. Sales of Microsoft were strong in this division,

with sales of Open and Select licenses significantly higher

over the previous year, reflecting the increase in investments in

SMB coverage. Agency fees earned on the Microsoft EA business

were up 8.8 percent, with orders increasing 13.5 percent.


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Fees earned on the second-year renewal business and true-up

activity contributed to the higher referral revenue recognized

in 2011. Unlike in Canada, sales of non-Microsoft software were

higher in the United States, with software orders increasing

7.0 percent. In particular, sales of Enterprise software and server

virtualization offerings contributed to the growth, which is

consistent with the Company’s overall strategy of a solution-

based approach.

Gross Profit

For the year ended December 31, 2011, gross profit increased

14.8 percent to $188.9 million. Gross profit as a percentage

of net sales was 18.9 percent, compared to 18.6 percent for

the year ended December 31, 2010. The improved gross

profit margin is attributable to higher margins earned on

non-Microsoft software sales and hardware sales, particularly

in Canada. The increase in our professional services business

throughout 2011 is also reflected in the overall improvement

in gross profit. The Company has benefited from a concerted

focus on margins throughout the year.

GROSS PROFIT

10

20

30

40

50 EA fees as a % of gross profitGross profit as a % of revenueGross profit as a % of total imputed revenue

26.318.9

9.0

06 07 08 09* 10 11

* Revenue for 2006 – 2008 was calculated using our previous revenue accounting methodology for

maintenance contracts, where these arrangements were recorded on a gross basis. In the fourth

quarter of 2010 the Company changed its accounting policy for maintenance contracts, and now

records these arrangements on a net basis. The comparative 2009 revenue fi gures were restated.

Expenses

The following table provides details of expenses by nature for the years ended December 31, 2011 and December 31, 2010. Under

IFRS, the Company has chosen to aggregate expenses by function. Disclosure of selling and marketing expenses and administrative

expenses can be found in note 5 of the accompanying annual consolidated financial statements.

Year ended December 31 2011 2010 % Change

(In thousands of U.S. dollars) $% of gross

profit $% of gross

profit

Personnel expenses $ 101,811 53.9% $ 91,965 55.9% 10.7%

General and administrative 37,296 19.7% 31,426 19.1% 18.7%

Depreciation of property and equipment 3,018 1.6% 2,797 1.7% 7.9%

Amortization of intangible assets 5,989 3.2% 6,639 4.0% (9.8%)

Total operating expenses $ 148,114 78.4% $ 132,827 80.7% 11.5%

For the year ended December 31, 2011, total operating expenses

increased 11.5 percent largely due to higher personnel and

general and administrative expenses incurred during 2011,

which increased 10.7 and 18.7 percent, respectively, over the

previous year. Higher personnel expenses were incurred due

to higher headcount levels. The average headcount grew

8.3 percent, from a 2010 average of 896 to 970 in 2011. The

increase in headcount reflects the Company’s expansion of

personnel in its sales centers throughout 2011, which has

resulted in the addition of more than 60 territory sales

representatives during the year and the addition of more

than 130 people joining Softchoice from UNIS LUMIN Inc.

Personnel expenses were also higher due to increased

incentive compensation, consistent with the increase in net

sales for the year ended December 31, 2011. As a percentage

of gross profit, total personnel expenses were 53.9 percent,

compared to 55.9 percent for the year ended December 31,

2010. These efficiency gains reflect the improved gross profit in

2011 and the leverage brought about by the expansion of the

pre-sales, professional services and telesales teams to increase

productivity in the Company’s operating model.

General and administrative expenses were 18.7 percent

higher for the year ended December 31, 2011 than the prior

year. General and administrative expenses were higher due

to higher overhead expenses, consistent with the Company’s

increased headcount levels. General and administrative

expenses were also higher due to an increase in professional

fees and other transaction-related costs associated with the

acquisition of UNIS LUMIN.


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Other

Depreciation of property and equipment was 7.9 percent

higher for the year ended December 31, 2011 compared to

the prior year. The increase in depreciation expenses was due

to investments in property and equipment throughout the

year, largely for the expansion of the telesales organization.

Amortization of intangible assets decreased by 9.8 percent this

year compared to 2010. This decrease is the result of the full

amortization in 2010 of intangible assets associated with the

acquisition of the software division of Groupe 3-Soft Inc.

Net finance costs were $6.1 million during the year ended

December 31, 2011 compared to $1.6 million in the prior year.

Finance costs are comprised of interest costs and fees incurred

on trade payables of $2.5 million (December 31, 2010 –

$3.3 million), and amortization of finance costs of $1.8 million

(December 31, 2010 – $1.4 million). The increase in the

amortization of the deferred finance costs is due to the early

repayment of the term loan during the fourth quarter of 2011,

resulting in the full amortization of these deferred fees.

The Company also incurred approximately $0.5 million in fees

associated with the refinancing of the asset-backed facility,

contributing to higher overall finance costs in 2011 compared

to the previous year. Net finance costs also include the net

foreign exchange impact on financing activities. During the year

ended December 31, 2011, the Company incurred a net foreign

exchange loss of $1.3 million, contributing to higher finance

costs in 2011 compared to 2010. In 2010, the Company recorded

a foreign exchange gain on financing activities, which

contributed to higher overall finance income in 2010.

The effective tax rate was approximately 35.2 percent for

the year ended December 31, 2011, which increased from the

rate of approximately 34.5 percent reported in the same period

of the prior year. The increase in the effective tax rate was

primarily due to an overall increase in foreign statutory income

tax rates from the prior year.

Liquidity and Capital Resources Management believes that the Company is able to generate

sufficient cash through the normal course of operations to settle

its financial obligations as they fall due, to maintain its current

operations and to fund its planned growth and development

activities.* The Company also has access to a revolving credit

facility as described in the “Debt Financing” section below.

Operating Activities

Cash generated by operating activities was $38.6 million for

the year ended December 31, 2011 compared to $23.4 million

for the year ended December 31, 2010. The increase in cash

is largely attributable to higher net earnings for the period,

coupled with a lower impact resulting from the change in

non-cash operating working capital during the year. The total

change in non-cash operating working capital was an inflow

of $4.5 million in 2011, compared to an outflow of $5.1 million

in 2010, the result of lower overall days sales outstanding

(“DSO”(1)) at December 31, 2011 compared to December 31,

2010, and changes in the timing of payments to significant

vendors during the latter part of 2011.

Trade accounts receivable balances reflect DSO(1) of 39 days

as at December 31, 2011 compared to a DSO of 41 days at

December 31, 2010. The decrease in DSO is due to early collection

from a number of significant customers. The Company typically

experiences stronger collections in the month of December

leading up to our fiscal year end. The Company continues to

target DSO levels of 45 days.

Days payable outstanding (“DPO”(2)) decreased from 57 days

at December 31, 2010 to 52 days at December 31, 2011. The

Company targets DPO levels of 45 days.*

The Company’s DSO ratio is generally consistent with

the prior year and better than our target levels, indicating that

accounts receivable are being collected in a timely manner.

Management monitors DSO and DPO levels against expected

cash flow needs, as well as target levels. Management

believes that the Company will generate sufficient cash from

operating activities and has sufficient available credit to finance

working capital requirements and to meet obligations as

they become due.*

* This sentence contains forward-looking statements. See “Caution Regarding Forward-Looking Statements.”

(1) DSO is calculated based on gross billings for the year, rather than net sales.

(2) DPO is calculated based on the total amount billed to us by our vendors, rather than cost of sales.


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Debt Financing

The table below shows the level of debt available to the

Company and the amounts outstanding as at December 31,

2011. Including available cash, the net cash position at the end

of 2011 was $33.0 million. Management believes that the level

of debt available to Softchoice is sufficient to finance the

working capital requirements of the business and the growth

that we expect.*

December 31, 2011(In thousands of U.S. dollars) Available

Carrying Value

Short-term debt

ABL $ 111,052 $ –

Term debt, current – –

111,052 –

Term debt, long term – –

Total debt $ 111,052 $ –

Cash Flow

In addition to the availability of credit, at December 31, 2011

the Company had cash on hand of $33.0 million. During the

fourth quarter, the Company generated $24.0 million in cash

from operating activities. The net change in working capital

during the three months ended December 31, 2011 resulted

in an inflow of cash of $16.2 million (compared to an outflow

of $1.3 million for the same period of 2010). Disbursements

associated with trade and other payables contributed to

the outflow during the previous quarter.

Net cash used in financing activities was $10.1 million

for the fourth quarter, comprised of debt repayment, compared

to $1.5 million in the fourth quarter of 2010. The increase is

associated with the early repayment of the Company’s term

debt in November of 2011. Net cash used in investing activities

was $25.5 million in the fourth quarter of 2011 compared to

$0.8 million in the same quarter of the prior year. During the

fourth quarter of 2011, the Company spent $23.9 million on the

* This sentence includes forward-looking statements. See “Caution Regarding Forward-Looking Statements.”

UNIS LUMIN acquisition. The Company also invested $1.5 million

in property and equipment and intangible assets, consistent

with the Company’s increased headcount level and investments

in the Cloud initiative made during the quarter.

Share Capital

As of February 29, 2012, 19,837,211 common shares of the

Company were issued and outstanding. Options to acquire

an aggregate of 40,151 common shares are outstanding under

the Company’s Employee Stock Option Plan. At the end of

2006, the Board of Directors terminated the 2003 Stock Option

Plan so that options could no longer be issued under this plan.

This termination was executed without prejudice to the options

that were already outstanding under the existing plan.

As of December 31, 2011, there were 116,693 deferred

share units (“DSUs”) outstanding under the Company’s deferred

share unit plan for non-executive members of the Board of

Directors, each of which represents the right to receive one

common share when the holder ceases to be a non-executive

director of the Company.

On February 11, 2010, the Board of Directors adopted a 2010

Performance Stock Option (“PSO”) plan for the executives of the

Company, which was approved by the shareholders on May 11,

2010. On March 3, 2010, the Company granted 640,000 PSOs

with an exercise price of Cdn. $8.39. The PSO plan dictates that

a minimum share price must be achieved for any PSO level

to vest. The PSO plan has a seven-year expiry term and a

three-year vesting period, dependent on share price attainment.

Under the plan, the number of options that ultimately vest is

subject to the Company attaining various market share price

hurdles on the third anniversary of the grant date as established

by the Board of Directors for each grant.

On February 14, 2011, the Board of Directors approved a 2011

PSO grant for the executives of the Company. On June 1, 2011,

the Company granted 555,000 PSOs, convertible into common

shares, with an exercise price of $8.99. The plan dictates that

a minimum cumulative cash earnings per share (“CCEPS”) result

Contractual Obligations

The Company leases a variety of property and equipment under operating leases. The following table provides details of the

Company’s contractual obligations over the next five years:

2012 2013 2014 2015

2016 and

thereafter Total

Operating leases $ 7,702 $ 7,092 $ 5,129 $ 3,934 $ 817 $ 24,674


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has to be achieved for any PSO level to vest. The PSO plan

has a seven-year expiry term and a three-year vesting period,

dependent on CCEPS performance. Under the plan, the number

of options that ultimately vest is subject to the Company

attaining various performance targets on the third anniversary

of the grant date.

In August 2011, the TSX accepted a notice filed by the

Company of its intention to make a normal course issuer bid

(“NCIB”) for a one-year period commencing August 12, 2011.

The Company believes that its common shares are undervalued

at current market prices based on its current earnings and

future prospects and that the repurchase of common shares at

current market prices is an appropriate use of corporate funds.*

The NCIB permits the Company to purchase up to 1,229,801

of its issued and outstanding common shares, representing

6.2 percent of the 19,833,862 common shares that were issued

and outstanding as of July 31, 2011, or up to 10 percent of the

Company’s public float for the same period. The actual number

of shares purchased, and the timing of such purchases, will

be determined by the Company considering market conditions,

share prices, cash position, and other factors. Any daily

repurchase will be limited to a maximum of 4,233 common

shares, representing 25 percent of the average daily trading

volume of the common shares on the TSX for the six-month

period ended July 31, 2011.

During the year ended December 31, 2011, the Company

repurchased 4,000 shares for cancellation under the NCIB.

No additional shares have been repurchased subsequent to

December 31, 2011.

Off-Balance Sheet Arrangements

Management is not aware of any material off-balance sheet

arrangements that are reasonably likely to have a current

or future effect on the results of operations or financial condition

of the Company.

Transactions with Related Parties

As at December 31, 2011, included in trade accounts receivable

was $0.2 million due from a major shareholder, Ontario

Teachers’ Pension Plan Board (“OTPPB”), for product sales with

payment terms of net 30 days (December 31, 2010 – $0.4 million).

Total product sales to OTPPB during the years ended

December 31, 2011 and December 31, 2010 were $0.9 million

and $1.4 million, respectively.

In the course of the refinancing that occurred in the second

quarter of 2009, a portion of the long-term debt outstanding

was purchased by OTPPB. During the year ended December 31,

2011, the Company made principal repayments to OTPPB

of $2.5 million (2010 – $0.8 million), and interest payments

of $0.4 million (2010 – $0.5 million). The Company repaid

this term debt early without penalty or termination fee on

November 10, 2011.

Subsequent to December 31, 2011, OTPPB announced the

sale of 5,093,700 common shares of the Company, representing

approximately 26 percent of the outstanding common shares

of the Company. The sale reduced OTPPB’s share in the

Company to nil.

The Company sponsors a 401(k) plan which is a defined

contribution plan covering substantially all employees of

the Company working in the United States who have at least

90 days of service and are aged 21 or older. The plan is

subject to the provisions of the Employee Retirement Income

Security Act of 1974. Under the plan, the Company pays

fixed contributions totaling 50 percent of each participant’s

contributions up to 3 percent of base compensation.

The Company’s contributions are made to a separate entity and

the Company has no legal or constructive obligation to pay

further amounts. During the year, the Company paid $0.8 million

in contributions to the plan (2010 – $0.8 million).

Critical Accounting Policies and EstimatesThe Company’s significant accounting policies under IFRS

are described in Note 2 of the annual consolidated financial

statements. The preparation of financial statements in

conformity with IFRS requires management to make estimates

and assumptions that affect amounts reported in the annual

consolidated financial statements and accompanying notes.

These estimates and assumptions are affected by management’s

application of accounting policies and historical experience and

are believed by management to be reasonable under the

circumstances. Such estimates and assumptions are evaluated

from time to time and form the basis for making judgments

about the carrying values of assets and liabilities. Actual results

could differ significantly from these estimates.

The Company’s critical accounting estimates are described

below.

Gross versus Net Assessment

Determining whether the Company acts as a principal in a

transaction, and recognizes revenue based on the gross amount

billed to a customer, or as an agent, and reports the sales

transaction on a net basis, requires that management exercise

significant judgment when considering the facts and

circumstances in that evaluation. Changes to the assumptions

and judgments made by management could materially impact

the amount of net sales recognized in a particular period.



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Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts

at an amount estimated to be sufficient to provide adequate

protection against losses resulting from collecting less than

the full amount due on its accounts receivable. The Company

considers evidence of impairment for receivables at both a

specific asset and collective level. All individually significant

receivables are assessed for specific impairment. Individual

overdue accounts are reviewed, and allowances are recorded to

state trade receivables at net realizable value when it is known

that they are not collectible in full. All individually significant

receivables found not to be specifically impaired are then

collectively assessed for any impairment that has been incurred

but not yet identified. In assessing collective impairment, the

Company uses historical trends of the probability of default,

timing of recoveries, and the amount of loss incurred, adjusted

for management’s judgment as to whether current economic

and credit conditions are such that the actual losses are likely

to be greater or less than suggested by historical trends.

Sales Return Provision

At the end of each period, the Company records an estimate

for sales returns based on historical experience. This historical

estimate is recalculated throughout the year to ensure it reflects

the most relevant data available.

Sales Tax Provisions

The Company is subject to sales tax in numerous jurisdictions.

There are many transactions and calculations for which the

ultimate tax determination is uncertain during the ordinary

course of business. The Company maintains provisions for

uncertain tax positions that it believes appropriately reflect its

risk with respect to tax matters under active discussion, audit,

dispute or appeal with tax authorities, or which are otherwise

considered to involve uncertainty. These provisions are made

using the best estimate of the amount expected to be paid,

based on a qualitative assessment of all relevant factors and

historical precedence. The Company reviews the adequacy

of these provisions at the end of each reporting period.

Impairment

The Company’s non-financial assets, excluding inventories

and deferred tax assets, are reviewed for an indication of

impairment at each reporting date to determine if there are

events, or changes in circumstances, that indicate the assets

might not be recoverable. The Company is required to estimate

the recoverable amount of goodwill annually or whenever

events or changes in circumstances indicate that the fair value

of the reporting unit is less than its book value. If an indication

of impairment exists, the asset’s recoverable amount is

estimated at the same date. An impairment loss is recognized

when the carrying amount of an asset, or its cash-generating

unit, exceeds its recoverable amount. A cash-generating unit

is the smallest identifiable group of assets that generates cash

inflows that are largely independent of the cash inflows from

other assets or groups of assets. The impairment analysis

and identification of cash-generating units requires that

management make certain estimates and assumptions that,

if changed, could produce a significantly different result.

Share-Based Compensation Plans

For equity-settled share-based payment transactions, the fair

value method of accounting is used. Under this method, the

cost of the goods or services received is recorded based on the

estimated fair value at the grant date and charged to earnings

over the vesting period.

Share-based payment expense relating to cash-settled

awards, including share appreciation rights, is accrued at the fair

value of the liability. Until the liability is settled, the Company

remeasures the fair value at the end of each reporting period

and at the date of settlement, with any changes in fair value

recognized in profit or loss for the period.

The fair value method of accounting for share-based

compensation requires that management make certain

judgments and assumptions that, if changed, could produce

a significantly different result.

Multiple Element Arrangements

The Company’s revenue arrangements may contain multiple

elements. For arrangements involving multiple elements,

the Company allocates revenue to each component of the

arrangement using the relative selling price method based

on vendor-specific objective evidence or third-party evidence

of selling price, and if both are not available, estimated selling

prices are used. The allocated portion of the arrangement

which is undelivered is then deferred. In some instances, a

group of contracts or agreements with the same customer

may be so closely related that they are, in effect, part of

a single arrangement and, therefore, the Company allocates

the corresponding revenue among the various components,

as described above. Changes to the assumptions and judgments

made by management could materially impact the amount

of revenue recognized in a particular period.

Deferred Tax Assets

Income taxes are calculated using management’s best

estimates. The Company records a valuation allowance to reduce

the deferred tax asset. The valuation allowance is based on


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management’s assessment of future profitability. The amount of

deferred tax assets recorded may vary in the event of changes

to these profitability assumptions.

Financial InstrumentsThe Company’s financial instruments are comprised of cash

and restricted cash, accounts receivable, bank indebtedness and

accounts payable. The carrying values of cash, restricted cash,

bank indebtedness, accounts receivable, accounts payable and

accrued liabilities approximate their respective fair values due

to the short-term nature of these instruments.

The Company is exposed to liquidity risk, credit risk, market

risk and supplier risk, all of which could affect the Company’s

ability to achieve its strategic objectives. The following describes

these risks in greater detail.

Liquidity Risk

The Company manages liquidity risk through the management

of its capital structure and financial leverage. Please refer

to the “Liquidity and Capital Resources” section above.

Credit Risk

Financial instruments exposed to concentrations of credit

risk consist primarily of cash, accounts receivable and other

receivables. The Company minimizes the credit risk of

cash by depositing only with reputable financial institutions.

The Company’s objective with regard to credit risk in its

operating activities is to reduce its exposure to losses. As such,

the Company performs ongoing credit evaluations of its

customers’ financial condition to evaluate creditworthiness and

to assess impairment of outstanding receivables. Approximately

9 percent of the Company’s accounts receivable are greater

than 31 days past due (December 31, 2010 – 13 percent).

The Company’s allowance for doubtful accounts is $7.2 million

(December 31, 2010 – $5.3 million). Amounts not provided

for are considered fully collectible.

Market Risk

Market risk is the risk that the value of the Company’s financial

instruments will fluctuate due to changes in foreign exchange

rates and interest rates. The Company operates in both

the United States and Canada. The parent company maintains

its accounts in Canadian dollars while the accounts of the

U.S. subsidiaries are maintained in U.S. dollars. For the parent

company’s intercompany debt and external debt held in

U.S. dollars, this may occasionally give rise to a risk that its

earnings and cash flows may be affected by fluctuations in

foreign exchange rates due to the balance outstanding as of

the year end, as well as debt settlements made during the year.

For every 200 basis points that the Canadian dollar appreciates,

the translation and revaluation impact for the full year on net

earnings would be, on average, a decrease of $0.9 million (2010

– an increase of $5.2 million). For every 200 basis points that

the Canadian dollar depreciates, the translation and revaluation

impact for the full year on net earnings would be, on average,

an increase of $0.9 million (2010 – a decrease of $5.4 million).

The effect of the translation and revaluation of the intercompany

and external debt held in U.S. dollars is expected to have

minimal cash impact.*

From time to time, the Company may use derivatives to

manage this foreign exchange risk. The Company’s policy is

to use derivatives for risk management purposes only, and it

does not enter into such contracts for trading purposes. The

Company enters into derivatives only with high-credit-quality

financial institutions. The Company did not enter into any new

derivative financial instrument contracts during the year ended

December 31, 2011. In addition, there were no outstanding

derivative financial instruments as at December 31, 2011.

The Company is exposed to interest rate risk on its bank

indebtedness and loans and borrowings. On the ABL and term

debt, an increase or decrease in the prime rate of 0.25 percent

would result in an increase or decrease of approximately

$32 thousand in interest expense during the year ended

December 31, 2011. In the past, the Company has used an

interest rate swap to mitigate the risk of fluctuating interest

rates. The Company did not enter into any such arrangements

during the year ended December 31, 2011.

Supplier Risk

The Company’s top five suppliers in 2011 were Microsoft

Corporation (a software publisher), Ingram Micro Inc.

(a distributor), Techdata Corporation (a distributor), Synnex

Corporation (a distributor) and Arrow Enterprise Computing

Solutions, Inc. (a distributor). They accounted for 77 percent

(2010 – 80 percent) of the Company’s total purchases in 2011,

with the largest portions purchased from Microsoft Corporation

(29 percent), Ingram Micro Inc. (17 percent) and Techdata

Corporation (17 percent). While brand names and individual

products are important to the business, the Company believes

that competitive sources of supply are available in substantially

all of the product categories such that, with the exception of

Microsoft, the Company is not dependent on any one partner

for sourcing products.*



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Key Performance MeasuresThe Company presents four key performance measures to help

investors understand its business. The measures reflect both the

growth of the business and our productivity and are consistent

with the way that management evaluates the business.

We use gross profit measures, instead of a more typical revenue

measure, because of the number of customers selecting EA

license agreements, and the Company’s revised accounting

policy to net presentation of maintenance and support

agreements. Management believes that the increase in our

revenue mix that is recorded on a net basis would distort

the results of a revenue-based analysis.

Revenue or Growth Indicators:

• Number of Customers

Productivity Indicators:

• Gross Profit per Order

• Gross Profit per Sales Employee

• Gross Profit per Employee

Number of Customers

During the fourth quarter of 2011, the number of customers

purchasing products or services from Softchoice increased

by 1.8 percent compared to the same period of the prior year.

The increase in the number of customers, coupled with the

increase in gross profit during the fourth quarter of 2011, has

resulted in an increase in gross profit per customer of 5.7 percent.

We segment our customers based on the size of the

customers’ information technology environment. Revenue from

customers is segmented as follows:

Three months ended December 31 Q4 2011 Q4 2010

Small and Medium Business 42%* 47%*

Enterprise 37%* 40%*

Government and Education 21%* 13%*

Total 100% 100%

* Estimate

Year ended December 31 2011 2010

Small and Medium Business 46%* 43%*

Enterprise 35%* 35%*

Government and Education 19%* 22%*

Total 100% 100%

* Estimate

During the fourth quarter of 2011, the portion of sales to the

public sector grew to 21 percent from 13 percent in the fourth

quarter of 2010. Virtually all of the growth in the public sector

market during the fourth quarter can be attributed to the increase

in the Microsoft business during the quarter. The portion of

sales to SMB customers increased during the year ended

December 31, 2011, with 46 percent of sales to this customer

base, compared to 43 percent in the prior year. This increase

reflects the Company’s focus on this customer segment due

to the growth of our territory sales resources in the past year.

25

NUMBER OF CUSTOMERS (thousands)

5

10

15

20

U.S. ConsolidatedCanada

14.2

8.45.8

06 07 08 09 10 11

Gross Profit per Order

Gross profit per order increased 6.1 percent during the fourth

quarter compared to the same period of the prior year. For

the year ended December 31, 2011, gross profit per order

also increased, by 9.2 percent compared to the prior year.

The improvement in gross profit per order can be attributed

to the Company’s strategic focus on expanding the pre-sales

and professional services teams to focus on higher margin

engagements.


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Gross Profit per Employee and per Sales Employee

The tables below show the employee base of the Company for the three-month period and year ended December 31, 2011 compared

to the same periods of the prior year.

Three months ended December 31(In thousands of U.S. dollars, except headcount amounts)

Q4 2011 Q4 2010 % Change

Sales Total Sales Total Sales Total

Average headcount 488 1,018 441 918 10.7% 10.9%

Quarter-end headcount 500 1,112 441 917 13.4% 21.3%

Gross profit per person $ 99.9 $ 47.9 $ 102.7 $ 49.3 (2.7%) (2.8%)

Year ended December 31(In thousands of U.S. dollars, except headcount amounts)

2011 2010 % Change

Sales Total Sales Total Sales Total

Average headcount 486 970 435 896 11.7% 8.3%

Year-end headcount 500 1,112 441 917 13.4% 21.3%

Gross profit per person $ 388.6 $ 194.7 $ 378.2 $ 183.6 2.8% 6.1%


GROSS PROFIT PER EMPLOYEE ($ thousands)

389

195

06 07 08 09 10 11

Gross profit per employeeGross profit per sales employee

100

200

300

400

500

Recently Issued Accounting Pronouncements – International Financial Reporting Standards (“IFRS”)The policies applied in the accompanying annual consolidated

financial statements are based on IFRS issued and outstanding

as of February 28, 2012, the date the Board of Directors

approved the financial statements for issue. As of the date

of the authorization of the accompanying annual consolidated

financial statements, the International Accounting Standards

Board (“IASB”) and IFRS Interpretations Committee has issued

the following new and revised standards and interpretations,

which are not yet effective.

During the fourth quarter of 2011, the average number of

employees increased by 10.9 percent compared to the fourth

quarter of the prior year. Average sales headcount was up

10.7 percent, consistent with the Company’s focus on expanding

the telesales organization. For the full-year 2011, the average

headcount grew 8.3 percent. Fourth quarter headcount was also

higher due to the UNIS LUMIN acquisition in December 2011.

During the three months ended December 31, 2011, gross

profit per sales employee decreased by 2.7 percent, and gross

profit per employee declined 2.8 percent. This decline was

largely due to the impact of the UNIS LUMIN acquisition on

average headcount rates for the period. Management expects

this measure will improve as the expected benefits arising

from the acquisition are fully realized. For the full-year 2011,

gross profit per sales employee increased by 2.8 percent.

This improvement in gross profit per employee reflects the

stronger overall gross profit and efficiencies brought about

by the expansion of the telesales organization, and increases

in professional services revenue earned in the year, which

contributed a higher overall portion of gross profit. The Company

continues to focus on these productivity measures as we

enter 2012.*


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IFRS 7, Financial Instruments: Disclosures

The IASB amended IFRS 7, Financial Instruments: Disclosures

(“IFRS 7”) in October 2010. IFRS 7 was amended to provide

guidance relating to disclosures with respect to the transfer

of financial assets that results in derecognition, and continuing

involvement in financial assets. The amendments to this

standard are effective for annual periods beginning on or after

July 1, 2011 with earlier application permitted. Management

does not believe the changes resulting from these amendments

will have a significant impact on its financial statements.*

IFRS 9, Financial Instruments

IFRS 9 replaces IAS 39, Financial Instruments: Recognition

and Measurement, and establishes principles for the financial

reporting of financial assets and financial liabilities to permit

users to assess the amounts, timing and uncertainty of an

entity’s future cash flows. The standard retains but simplifies

the mixed measurement model and establishes two primary

measurement categories for financial assets. In October 2010,

the IASB added the requirements for classification and

measurement of financial liabilities to IFRS 9 (2010), which

supersedes the previous version. The newly integrated guidance

also includes those paragraphs of IAS 39 dealing with fair value

measurement and accounting for derivatives embedded in

a contract that contains a host that is not a financial asset, as

well as the requirements of IFRIC 9, Reassessment of Embedded

Derivatives. The derecognition requirements of IAS 39 were

also added formally to IFRS 9 with the release of IFRS 9 (2010).

IFRS 9 (2010) is effective for annual periods beginning

on or after January 1, 2013 with earlier application permitted.

The Company has not yet adopted this standard and

management is currently assessing the impact of this new

standard on its consolidated financial statements.

IFRS 10, Consolidated Financial Statements and

amended IAS 27 (2011), Separate Financial Statements

IFRS 10 requires an entity to consolidate an investee when it is

exposed, or has rights, to variable returns from its involvement

with the investee and has the ability to affect those returns

through its power over the investee. Under existing IFRS,

consolidation is required when an entity has the power to

govern the financial and operating policies of an entity so as

to obtain benefits from its activities. IFRS 10 replaces Standing

Interpretations Committee (“SIC”)-12, Consolidation – Special

Purpose Entities, and parts of IAS 27, Consolidated and Separate

Financial Statements.

IFRS 11, Joint Arrangements and amended

IAS 28 (2011), Associates and Joint Ventures

This new standard requires a venture to classify its interest

in a joint arrangement as a joint venture or joint operation.

Joint ventures will be accounted for using the equity method

of accounting, whereas for a joint operation the venture will

recognize its share of the assets, liabilities, revenue and

expenses of the joint operation. Under existing IFRS, entities

have the choice to proportionately consolidate or equity

account for interest in joint ventures. IFRS 11 supersedes IAS 31,

Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities –

Non-monetary Contributions by Venturers.

IFRS 12, Disclosure of Interests in Other Entities

IFRS 12 establishes disclosure requirements for interests in other

entities, such as joint arrangements, associates, special purpose

vehicles and off-balance sheet vehicles. The standard carries

forward existing disclosures and also introduces significant

additional disclosure requirements that address the nature of,

and risks associated with, an entity’s interest in other entities.

The above suite of consolidation standards is effective for annual

periods beginning on or after January 1, 2013. Early adoption is

permitted; however, all of the standards must be adopted at the

same time, with the exception of the disclosure requirements

in IFRS 12.

The Company has not early-adopted these standards

and amendments, and is currently assessing the impact the

application of these standards and amendments will have

on the consolidated financial statements of the Company.

IFRS 13, Fair Value Measurement

This new standard provides guidance on the measurement of

fair value, replacing fair value guidance contained in individual

IFRS. The standard provides a framework for determining fair

value and clarifies the factors to be considered in estimating fair

value in accordance with IFRS. The new standard establishes

disclosures surrounding fair value measurement that are more

extensive than current standards.

IFRS 13 is effective for the Company’s interim and annual

consolidated financial statements commencing January 1, 2013.

The Company is assessing the impact of this new standard on

its consolidated financial statements.

IAS 1, Presentation of Financial Statements

IAS 1, Presentation of Financial Statements, was amended to

align the presentation of items in other comprehensive income

with US GAAP standards. Items in other comprehensive income



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will be required to be presented in two categories: items that

might be reclassified into profit or loss and those that will not be

reclassified. The amendments to IAS 1 are effective for annual

periods beginning on or after July 1, 2012. The Company is

currently assessing the impact of this new standard on its

consolidated financial statements.

Disclosure Controls and Procedures and Internal Controls over Financial Reporting

Internal Controls over Financial Reporting

The Company’s management, under the supervision of the

Chief Executive Officer (“CEO”) and Chief Financial Officer

(“CFO”), is responsible for establishing and maintaining internal

controls over financial reporting (“ICFR”) as defined in National

Instrument 52-109 – Certification of Disclosure in Issuers’ Annual

and Interim Filings (NI 52-109).

As of December 31, 2011, management, under the direction

and participation of the CEO and CFO, conducted an evaluation of

the effectiveness of ICFR based upon the framework and criteria

established in Internal Control – Integrated Framework, issued

by the Committee of Sponsoring Organizations of the Treadway

Commission. During this process, management, including

the CEO and CFO, identified the material weakness described

below and as a result concluded that the Company’s ICFR

was ineffective as of December 31, 2011. A material weakness

in ICFR exists if there is a reasonable possibility that a material

misstatement of the annual or interim consolidated financial

statements will not be prevented or detected on a timely basis.

Through its review of the accounting for rebate and marketing

development funds, management concluded that they did not

maintain sufficient personnel with an appropriate level of

technical accounting knowledge, experience and training to

perform the analysis required within the time frame set by

the Company for filing our consolidated financial statements.

The complexities and volume of work, and inefficient

communication of relevant information between our finance

and marketing departments, placed substantial demands on

the Company’s limited accounting resources in this area, which

diminished the effectiveness of our internal controls over the

financial reporting of marketing development funds and rebates.

In light of the aforementioned material weakness,

management conducted a review of significant marketing

development fund and rebate transactions over the 12-month

period ended December 31, 2011. Management’s review

identified errors resulting in certain adjustments to the amounts

or disclosures of cost of sales and accounts receivable. These

errors were corrected prior to the release of the financial

statements. Notwithstanding the material weakness mentioned

above, management has concluded that the accompanying

annual consolidated financial statements present fairly, in all

material respects, the Company’s financial position as of

December 31, 2011.

Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide

reasonable assurance that all relevant information required to

be disclosed in reports filed or submitted under Canadian

securities legislation is recorded, processed, summarized and

reported within the time periods specified, and is compiled

and communicated to the issuer’s management, including the

CEO and CFO as appropriate, to allow timely decisions regarding

required disclosure.

Management of the Company, including the CEO and CFO,

has evaluated the effectiveness of the Company’s disclosure

controls and procedures as defined in NI 52-109. Based on that

evaluation, management of the Company, including the CEO

and CFO, has concluded that as a result of the material weakness

described above, disclosure controls and procedures were not

effective as of December 31, 2011.

Remediation

In the fourth quarter of 2011 and first quarter of 2012, prior to

the release of the annual consolidated financial statements,

several remediation actions were implemented by management

to address the control weaknesses in the area of marketing

development funds and rebates, including:

• hiring a senior finance manager possessing technical

knowledge and public company experience in the area

of marketing development funds and rebates to directly

supervise and review all transactions in this area;

• changes in the personnel responsible for processing

marketing and rebate transactions; and

• preliminary redesign and communication of revised policies,

processes and controls over marketing development funds

and rebates.

Management will continue remediation efforts to address

the material weakness described above by taking the

following actions:

• adding technically competent accounting personnel

to support the processing and accounting of marketing

development funds and rebates;

• reallocating tasks to appropriate personnel to ensure

segregation of duties, increased efficiencies and supervisory

review; and

• ongoing development and implementation of new policies,

procedures and controls over the processing and reporting of

marketing development funds and rebates, including training

of appropriate personnel.


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Transition to International Financial Reporting Standards (“IFRS”)In February 2008, Canada’s Accounting Standards Board

confirmed that Canadian GAAP, as used by publicly accountable

enterprises, will be fully converged with IFRS, as issued by the

International Accounting Standards Board (“IASB”), for interim and

annual financial statements relating to fiscal years beginning on

or after January 1, 2011. The accompanying annual consolidated

financial statements for the year ended December 31, 2011

represent the first annual consolidated financial statements

prepared in accordance with IFRS and include 2010 comparative

figures and required reconciliations. The Company’s annual 2010

consolidated financial statements were prepared in accordance

with Canadian GAAP, and accordingly, comparative 2010 figures

have been restated to conform to IFRS. Note 3 of the

accompanying annual consolidated financial statements includes

reconciliations that illustrate the impact of the transition from

Canadian GAAP to IFRS on the Company’s financial position and

financial performance for the year ended December 31, 2010.

Update on IFRS Conversion Plan

The Company’s IFRS changeover plan consisted of three

major phases:

1. Scoping and diagnostic – This phase involved identifying

the key differences between Canadian GAAP and IFRS.

These differences were then analyzed to determine

the potential effect on the Company, including changes

to existing accounting policies and information systems.

2. Design and solutions development – During this phase,

system and process changes were developed, as well as

the completion of training requirements for staff. In addition,

optional exemptions for first-time adopters of IFRS and

accounting policy choices under IFRS were evaluated.

3. Implementation and post-implementation review –

This phase included the execution of changes to information

systems and business processes, as well as the approval

and finalization of accounting policy choices.

The Company has adopted IFRS effective January 1, 2011,

and has substantially completed all phases of its IFRS changeover

plan, with certain components of the post-implementation

phase remaining. The Company will continue to perform a

post-implementation review throughout 2012, including

evaluating improvements for a sustainable operational IFRS

model, continuing to test the internal controls environment, and

tracking additional disclosures required by IFRS. Management

will continue to monitor and assess the impact of changes to

accounting standards currently under development by the IASB.

Policy Selection

The analysis of policy alternatives under IFRS, including certain

exemptions and elections available on transition in accordance

with IFRS 1, First-time Adoption of International Financial

Reporting Standards, was completed in 2010. Note 3 to the

annual consolidated financial statements describes in detail

the Company’s elections under IFRS 1.

Transitional Financial Impact

The table below outlines the adjustments to the Company’s

equity on adoption of IFRS on the transition date, January 1,

2010, and as at December 31, 2010.

(In thousands of U.S. dollars) Jan. 1, 2010 Dec. 31, 2010

Equity under Canadian GAAP $ 96,358 $ 116,543

Share-based payments (39) (61)

Deferred tax impact 10 15

Total IFRS adjustments to equity (29) (46)

Equity under IFRS $ 96,329 $ 116,497

Comprehensive Income Impact

As a result of the policy alternatives the Company has selected

and the changes that were required under IFRS, the Company

recorded an increase in profit of $171 for the three months

ended December 31, 2010 and a reduction in profit of $177

for the year ended December 31, 2010. The table below outlines

the adjustments to the Company’s comprehensive income for

the three months and year ended December 31, 2010 under IFRS:

(In thousands of U.S. dollars)

Three months ended

Dec. 31, 2010Year ended

Dec. 31, 2010

Comprehensive income

under Canadian GAAP $ 6,580 $ 19,100

Profit adjustments

Share-based payments 225 (182)

Deferred tax impact (54) 5

Total profit adjustments 171 (177)

Other comprehensive

income adjustments $ – $ –Total comprehensive

income adjustments 171 (177)

Comprehensive income

under IFRS $ 6,751 $ 18,923


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Cash Flow Impact

Consistent with the Company’s accounting policy choice under

IAS 7, Statement of Cash Flows, interest paid and income taxes

paid have moved into the body of the statement of cash

flows under operating activities, whereas previously they were

disclosed as supplementary information. There are no other

material differences between the statement of cash flows

presented under IFRS and the statement of cash flows presented

under Canadian GAAP prior to the adoption of IFRS.

Financial Statement Presentation Changes

The transition to IFRS has resulted in a number of changes

to the presentation of our financial statements, most notably

to the consolidated statement of comprehensive income.

The consolidated statement of comprehensive income presents

expenses by function, identified as marketing and selling, and

administration. Amortization of intangibles and depreciation

of property, plant and equipment is now aggregated according

to the function to which it relates. Other income and expenses

includes items that relate to the operation of the business, such

as adjustments to trade payables, sales tax refunds and gains

or losses on the sale of property and equipment. Non-operating

items include items that arise from financing and other

activities. Finance costs include interest on loans and borrowings

and amortization of financing costs. Finance income includes the

foreign exchange impact associated with financing activities and

interest income.

The above changes are reclassifications within our statement

of income so there is no net impact on our profit as a result of

these changes.

Control Activities

Changes to the Company’s internal controls over financial

reporting and disclosure controls and procedures, which

include the enhancement of existing controls and the design

and implementation of new controls, have been completed.

The changes resulting from the implementation of IFRS

were not significant.

Business Activities and Key Performance Measures

We have assessed the impact of the IFRS transition project

on our financial covenants related to our loans and borrowings.

The transition did not significantly impact our covenants

and key ratios.

We have considered the impact of the IFRS transition on

budgeting and long-range planning, and no significant

modifications were deemed necessary.

Information Technology and Systems

The Company’s transition to IFRS did not result in significant

changes to the Company’s information systems for the transition

period, nor is it expected that significant changes are required

in the post-transition period as a result of our conversion to IFRS.


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MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying consolidated financial statements of

Softchoice Corporation, including comparatives, have been

prepared by management in accordance with International

Financial Reporting Standards (“IFRS”). The Company adopted

IFRS in accordance with IFRS 1, First-time Adoption of

International Financial Reporting Standards, with a transition

date of January 1, 2010. Previously, the Company prepared

its consolidated annual financial statements in accordance

with Canadian generally accepted accounting principles.

The disclosure concerning the transition from Canadian

GAAP to IFRS has been provided in our annual consolidated

financial statements.

Financial statements are not precise since they include

certain amounts based on estimates and judgments. When

alternative methods exist, management had chosen those

it deems most appropriate in the circumstances in order to

ensure that the consolidated financial statements are presented

fairly, in all material respects, in accordance with International

Financial Reporting Standards. The financial information

presented elsewhere in the annual report is consistent with

that in the consolidated financial statements.

As of December 31, 2011, management conducted an

evaluation of the effectiveness of internal controls over financial

reporting (“ICFR”) and disclosure controls and procedures.

During this process, management identified a material weakness

related to the accounting for rebate and marketing development

funds, and as a result, concluded that the Company’s ICFR

and disclosure controls and procedures were ineffective as

of December 31, 2011. Management’s review identified errors,

David L. MacDonald


David Long

Chief Financial Officer and

Senior Vice President, Finance

resulting in certain adjustments being made prior to the release

of the financial statements. Notwithstanding the material

weakness mentioned above, management has concluded that

the accompanying annual consolidated financial statements

present fairly, in all material respects, the Company’s financial

position as of December 31, 2011. A detailed evaluation of

these internal controls over financial reporting has been provided

in our Management’s Discussion and Analysis.

The Board of Directors of the Company is responsible

for ensuring that management fulfills its responsibilities for

financial reporting and is ultimately responsible for reviewing

and approving the consolidated financial statements and

the accompanying Management’s Discussion and Analysis.

The Board carries out this responsibility principally through

its Audit Committee.

The Audit Committee is appointed by the Board, and all

of its members are non-executives directors. This committee

meets periodically with management and the external auditors

to discuss internal controls, auditing matters and financial

reporting issues and to satisfy itself that each party is properly

discharging its responsibility. It also reviews the consolidated

financial statements, management’s discussion and analysis,

auditors’ report and all other public reporting related to financial

matters, and considers the engagement or reappointment

of the external auditors. The Audit Committee reports its

findings to the Board for its consideration when approving

the consolidated financial statements for issuance to the

shareholders. KPMG LLP, the Company’s external auditors,

have full and free access to the Audit Committee.


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INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS

We have audited the accompanying consolidated financial

statements of Softchoice Corporation, which comprise

the consolidated statements of financial position as at

December 31, 2011, December 31, 2010 and January 1, 2010,

the consolidated statements of comprehensive income,

changes in equity and cash flows for the years ended

December 31, 2011 and December 31, 2010, and notes,

comprising a summary of significant accounting policies

and other explanatory information.

Management’s Responsibility for the Consolidated

Financial Statements

Management is responsible for the preparation and fair

presentation of these consolidated financial statements

in accordance with International Financial Reporting Standards,

and for such internal control as management determines

is necessary to enable the preparation of consolidated financial

statements that are free from material misstatement, whether

due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated

financial statements based on our audits. We conducted our

audits in accordance with Canadian generally accepted auditing

standards. Those standards require that we comply with

ethical requirements and plan and perform the audit to obtain

reasonable assurance about whether the consolidated financial

statements are free from material misstatement.

An audit involves performing procedures to obtain audit

evidence about the amounts and disclosures in the consolidated

financial statements. The procedures selected depend on our

judgment, including the assessment of the risks of material

misstatement of the consolidated financial statements, whether

due to fraud or error. In making those risk assessments, we

consider internal control relevant to the entity’s preparation and

fair presentation of the consolidated financial statements in

order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion

on the effectiveness of the entity’s internal control. An audit also

includes evaluating the appropriateness of accounting policies

used and the reasonableness of accounting estimates made

by management, as well as evaluating the overall presentation

of the consolidated financial statements.

We believe that the audit evidence we have obtained

in our audits is sufficient and appropriate to provide a basis

for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present

fairly, in all material respects, the consolidated financial

position of Softchoice Corporation as at December 31, 2011,

December 31, 2010 and January 1, 2010, and its consolidated

financial performance and its consolidated cash flows for

the years ended December 31, 2011 and December 31, 2010

in accordance with International Financial Reporting Standards.

Chartered Accountants, Licensed Public Accountants

February 28, 2012

Toronto, Canada


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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As at(In thousands of U.S. dollars)

December 31,

2011 December 31,

2010January 1,

2010

AssetsCurrent assetsCash $ 32,993 $ 35,752 $ 18,601Trade and other receivables (note 12) 306,434 224,168 183,674Inventory 8,407 881 766Work-in-progress 465 – –Deferred costs 2,591 7,082 385Prepaid expenses and other assets 6,158 2,881 2,036

Total current assets 357,048 270,764 205,462

Non-current assetsRestricted cash (note 11) – 500 500Long-term accounts receivable (note 12) 643 2,771 –Long-term prepaid expenses 1,821 – –Property and equipment (note 13) 6,309 5,748 6,894Goodwill (note 14) 16,441 11,383 11,063Intangible assets (note 14) 46,203 41,155 47,403Deferred tax assets (note 10) 19,224 19,023 18,500

Total non-current assets 90,641 80,580 84,360

Total assets $ 447,689 $ 351,344 $ 289,822

Liabilities and Shareholders’ EquityCurrent liabilitiesTrade and other payables (note 16) $ 290,267 $ 217,986 $ 172,039Loans and borrowings (note 15) – 3,961 3,968Deferred lease inducements 243 193 85Deferred revenue 10,627 1,899 1,465Income taxes payable 2,279 2,320 3,288

Total current liabilities 303,416 226,359 180,845

Non-current liabilitiesDeferred lease inducements 648 217 395Deferred revenue 3,307 – –Loans and borrowings (note 15) – 8,271 12,253

Total non-current liabilities 3,955 8,488 12,648

Total liabilities 307,371 234,847 193,493

Shareholders’ equityCapital stock (note 18) 26,548 26,016 25,842Contributed surplus 3,274 2,054 983Retained earnings 111,689 89,569 69,504Accumulated other comprehensive loss (1,193) (1,142) –

Total shareholders’ equity 140,318 116,497 96,329

Total liabilities and shareholders’ equity $ 447,689 $ 351,344 $ 289,822

Commitments and contingencies (note 17)Related-party transactions (note 21)Subsequent event (note 25)

The accompanying notes are an integral part of these consolidated fi nancial statements.


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Years ended December 31(In thousands of U.S. dollars, except per share amounts) 2011 2010

Net sales $ 999,400 $ 884,014 Cost of sales 810,518 719,503

Gross profit 188,882 164,511

ExpensesSelling and marketing (note 5) 102,434 91,825Administrative (note 5) 45,680 41,002Other income (note 6) (119) (763)Other expenses (note 7) 673 184

148,668 132,248

Results from operating activities 40,214 32,263

Finance costs (note 8) 6,169 4,652Finance income (note 9) (82) (3,012)

Net finance costs 6,087 1,640

Earnings before income taxes 34,127 30,623

Income tax expense (note 10) 12,007 10,558

Net earnings 22,120 20,065Other comprehensive lossForeign currency translation adjustment (51) (1,142)

Total comprehensive income $ 22,069 $ 18,923

Net earnings per common shareBasic (note 18) $ 1.12 $ 1.01Diluted (note 18) 1.11 1.01


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


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Years ended December 31(In thousands of U.S. dollars, except number of shares)

2011Number

of sharesCapital

stockContributed

surplus

Cumulative translation

accountRetained earnings

Total shareholders’

equity

Balance, January 1, 2011 19,780,039 $ 26,016 $ 2,054 $ (1,142) $ 89,569 $ 116,497

Total comprehensive income (loss)Net earnings – – – – 22,120 22,120Other comprehensive loss:

Foreign currency translation adjustment – – – (51) – (51)

Total comprehensive income (loss) – – – (51) 22,120 22,069

Transactions with shareholders recorded directly in equity

Share options exercised 8,599 108 (41) – – 67Share-based payment transactions – – 1,722 – – 1,722Repurchase of common shares (4,000) (37) – – – (37)Deferred share units

exercised (note 18) 52,573 461 (461) – – –

57,172 532 1,220 – – 1,752

Balance, December 31, 2011 19,837,211 $ 26,548 $ 3,274 $ (1,193) $ 111,689 $ 140,318

2010Number

of sharesCapital

stockContributed

surplus

Cumulative translation

accountRetained earnings

Total shareholders’

equity

Balance, January 1, 2010 19,759,189 $ 25,842 $ 983 $ – $ 69,504 $ 96,329

Total comprehensive income (loss)Net earnings – – – – 20,065 20,065Other comprehensive loss:

Foreign currency translation adjustment – – – (1,142) – (1,142)

Total comprehensive income (loss) – – – (1,142) 20,065 18,923

Transactions with shareholders recorded directly in equity

Share options exercised 20,850 174 (68) – – 106Share-based payment transactions – – 1,139 – – 1,139

20,850 174 1,071 – – 1,245

Balance, December 31, 2010 19,780,039 $ 26,016 $ 2,054 $ (1,142) $ 89,569 $ 116,497


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


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Years ended December 31(In thousands of U.S. dollars) 2011 2010

Cash provided by (used in)Operating activitiesNet earnings $ 22,120 $ 20,065Adjustments for: Depreciation of property and equipment 3,018 2,797 Share-based payment transactions 1,722 1,139 Income tax expense 12,007 10,558 Amortization of intangible assets 5,989 6,639 Unrealized foreign currency gain (loss) 648 (2,092) Amortization of deferred financing costs 1,844 1,374 Interest expense on financial liabilities 1,840 2,624 Loss on disposal of intangible assets and property and equipment 16 43

49,204 43,147Change in non-cash operating working capital (note 23) 4,477 (5,091)

53,681 38,056Interest paid (1,832) (2,573)Income taxes paid (13,259) (12,035)

Cash provided by operating activities 38,590 23,448

Financing activitiesRepayment of loans and borrowings (12,784) (4,805)Proceeds from issuance of common shares 67 106Repurchase of own shares (37) –

Cash used in financing activities (12,754) (4,699)

Investing activitiesPurchase of property and equipment (2,280) (1,426)Purchase of intangible assets (2,620) (1,060)Restricted cash 500 –Acquisition of UNIS LUMIN Inc. (note 4) (23,941) –

Cash used in investing activities (28,341) (2,486)

Increase (decrease) in cash (2,505) 16,263Cash, beginning of year 35,752 18,601Effect of exchange rate changes on cash (254) 888

Cash, end of year $ 32,993 $ 35,752


CONSOLIDATED STATEMENTS OF CASH FLOWS


Years ended December 31, 2011 and 2010

(in thousands of U.S. dollars, unless otherwise stated)

1 NATURE OF OPERATIONS

Softchoice Corporation (the “Company”) was formed on

May 15, 2002 pursuant to an amalgamation with Ukraine

Enterprise Corporation. The Company was incorporated under

the Canada Business Corporations Act. The Company is a North

American business-to-business direct marketer of information

technology (“IT”) hardware, software and services to small,

medium and large businesses and public sector institutions.

The Company’s United States operations are carried on by

a subsidiary (“Softchoice U.S.”), a corporation incorporated under

the laws of the State of New York. On December 10, 2007, the

Company incorporated a wholly-owned subsidiary, Softchoice

Holdings Corporation (“Holdco”). Holdco is incorporated under

the laws of the State of Delaware.

The consolidated financial statements of the Company

comprise the Company and its subsidiaries (together referred

to as the “Company”).

The Company’s registered office is located at 173 Dufferin

Street, Suite 200, Toronto, Ontario.

2 SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied

consistently to all periods presented in these consolidated

financial statements and in preparing the opening International

Financial Reporting Standards (“IFRS”) consolidated statements

of financial position at January 1, 2010 for the purpose of the

transition to IFRS.

(a) Statement of compliance

These consolidated financial statements, including comparatives,

have been prepared using accounting policies in compliance

with IFRS, as issued by the International Accounting Standards

Board (“IASB”). The Company adopted IFRS in accordance with

IFRS 1, First-time Adoption of International Financial Reporting

Standards, with a transition date of January 1, 2010.

Previously, the Company prepared its consolidated annual

and interim financial statements in accordance with Canadian

generally accepted accounting principles (“GAAP”). The

disclosures concerning the transition from Canadian GAAP

to IFRS are included in note 3. This note contains reconciliations

and descriptions of the effect of the transition on earnings

and comprehensive income for the year ended December 31,

2010 and the statements of financial position and equity as

at January 1, 2010 and December 31, 2010.

The policies applied in these consolidated financial

statements are based on IFRS issued and outstanding as of

February 28, 2012, the date the Board of Directors approved

the consolidated financial statements for issue.

(b) Basis of presentation

The consolidated financial statements include the accounts

of the Company. Intercompany transactions and balances

are eliminated on consolidation.

The consolidated financial statements have been prepared

primarily under the historical cost convention. The following

items are carried at fair value:

(i) Financial instruments carried at fair value through profit

or loss (“FVTPL”).

(ii) Liabilities for cash-settled share-based payment awards.

The Company’s financial year corresponds to the calendar year.

The consolidated financial statements are prepared in thousands

of U.S. dollars.

Presentation of the consolidated statements of financial

position differentiates between current and non-current assets

and liabilities. The consolidated statements of comprehensive

income are presented using the functional classification

for expenses.

TO CONSOLIDATED FINANCIAL STATEMENTSNOTES

1


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(c) Use of estimates and measurement uncertainty

The preparation of financial statements in conformity with

IFRS requires management to make estimates and assumptions

that affect the reported amounts of assets and liabilities

and the disclosure of contingent assets and liabilities at the

date of the financial statements and the reported amount

of net sales and expenses throughout the period. Actual results

could differ from those estimates. Management must also make

estimates and judgments about future results of operations

in assessing recoverability of assets and the value of liabilities.

Areas requiring the use of estimates and assumptions that

have the most significant effect on the amounts recognized in

these consolidated financial statements include the determination

of the allowance for doubtful accounts (note 20) and the

sales return provision; the impairment assessment of goodwill

and other intangible assets (note 14); the valuation allowance

for deferred tax assets (note 10); the fair value of stock-based

transactions (note 18); the determination of relative selling

price for multiple element revenue arrangements; and the

determination of amounts due to the Company under marketing

development fund and rebate programs.

(d) Basis of consolidation

The consolidated financial statements of the Company include

the accounts of all of its subsidiaries.

(i) Subsidiaries

Subsidiaries are entities controlled by the Company.

The financial statements of the subsidiaries are included

in the consolidated financial statements from the

date control commences until the date control ceases.

Intercompany transactions between subsidiaries are

eliminated upon consolidation.

(ii) Business combinations

(a) Acquisitions on or after January 1, 2010

Goodwill arising from acquisitions is recognized as an asset

and measured at fair value, being the excess of the

consideration transferred over the Company’s interest in the

net fair value of the identifiable assets, including intangible

assets, liabilities and contingent liabilities recognized. If the

Company’s interest in the net fair value of the acquiree’s

identifiable assets, liabilities and contingent liabilities

exceeds the cost of the business combination, the excess

is recognized immediately in net earnings. The interest

of non-controlling shareholders in the acquiree, if any, is

initially measured at the non-controlling shareholders’

proportion of the net fair value of the assets, liabilities and

contingent liabilities recognized. Transaction costs, other

than those associated with the issuance of debt and equity

securities that the Company incurs in connection with the

business combination, are expensed as incurred.

(b) Acquisitions prior to January 1, 2010

The Company has elected not to apply IFRS 3, Business

Combinations (“IFRS 3”) retrospectively to business

combinations prior to the date of transition, January 1, 2010.

Accordingly, goodwill arising from business combinations

prior to the transition date represents the amount

recognized under previous Canadian GAAP.

(e) Foreign currency

The functional currency of the Company is the Canadian

dollar. The Company’s presentation currency is the U.S. dollar to

allow more direct comparison to peers within North America.

In preparing the consolidated financial statements of the

Company and its subsidiaries, transactions in currencies other

than the respective functional currencies are recorded at the

exchange rates at the dates of the transactions. At the date

of each consolidated statement of financial position, monetary

assets and liabilities are translated using the period-end

foreign exchange rate. Non-monetary assets and liabilities

are translated using the historical rate on the date of the

transaction. Non-monetary assets and liabilities that are stated

at fair value are translated using the historical rate on the

date that the fair value was determined. Revenue and expense

items are translated at average rates of exchange for the

year. Foreign currency differences arising on translation are

recognized in earnings.

The assets and liabilities of Softchoice U.S. are translated

into Canadian dollars at exchange rates at the reporting date.

The income and expenses of Softchoice U.S. are translated into

Canadian dollars at average exchange rates. The assets and

liabilities of the Company are translated into U.S. dollars at

exchange rates at the reporting date. The income and expenses

of the Company are translated into U.S. dollars at average

exchange rates for the year. Translation adjustments resulting

from this process are recognized in other comprehensive

income (loss) in the cumulative translation account.

(f) Revenue recognition

The Company generates revenue from the sale of computer

hardware, software and post-contract customer support. The

Company also generates revenue from providing professional

services to end-users, such as data center configuration and

the design and development of IT systems. Sales of product in

which the Company acts as a principal are presented on a gross

basis. As a principal, the Company obtains and validates a

customer’s order, purchases the product from the supplier at a

negotiated price, arranges for shipment of the product, collects


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payment from customers, and processes returns. The Company’s

product is shipped directly to customers using third-party

carriers. Sales of product in which the Company acts as an agent

are presented on a net basis.

(i) Hardware

Revenue from the sale of hardware is recorded when

evidence of an arrangement exists, the product is shipped

(Freight on Board (“FOB”) shipping point) or received by the

customer (FOB destination), depending upon the customer’s

arrangement, and collection is reasonably assured.

(ii) Software licenses

Revenue from the sale of software licenses is recorded when

evidence of an arrangement exists, customers acquire the

right to use or copy software under license (but not prior to

the commencement of the initial license term), the price is

fixed and determinable and collection is reasonably assured.

The Company sells subscription licenses and certain

software assurance benefits (for which the Company is not

the primary obligor) that are recognized on a net basis.

For sales of licenses where revenue is recognized on a net

basis, the Company records the revenue at the time of sale.

(iii) Product maintenance

Revenue on maintenance contracts performed by third-

party vendors is recognized once the contract date is in

effect. As the Company is not the primary obligor for the

maintenance contracts performed by third parties, these

arrangements do not meet the criteria for gross revenue

presentation and, accordingly, are recorded on a net basis.

As the Company enters into contracts with third-party

service providers or vendors, the Company evaluates

whether subsequent sales of such services should be

recorded as gross revenue or net revenue. The Company

determines whether it acts as a principal in the transaction

and assumes the risks and rewards of ownership, or

if it is simply acting as an agent or broker. Revenue on

maintenance contracts performed by internal resources

is recognized on a gross basis ratably over the term of

the maintenance period.

(iv) Professional services

Revenue for professional services is recognized based on

the stage of completion of the transaction at the reporting

date. The stage of completion is assessed by reference to

the actual hours incurred and the budgeted hours needed

to complete the project, in order to measure progress on

each contract. Revenue and cost estimates are revised

periodically based on changes in circumstances. Any losses

on contracts are recognized in the period that such losses

become known. Revenue from time and materials contracts

is recognized as time is incurred by the Company.

The Company estimates the level of anticipated sales

returns based on historical experience and records a

provision for sales returns. The historical estimate is

reviewed throughout the year to ensure it reflects the most

relevant data available.

The Company’s revenue arrangements may contain

multiple elements. These elements may include one or

more of the following: hardware, software, maintenance

and/or professional services such as installation. For

arrangements involving multiple elements, the Company

allocates revenue to each component of the arrangement

using the relative selling price method based on vendor-

specific objective evidence or third-party evidence of selling

price, and if both are not available, estimated selling price

is used. The allocated portion of the arrangement which is

undelivered is then deferred. In some instances, a group

of contracts or agreements with the same customer may be

so closely related that they are, in effect, part of a single

arrangement and, therefore, the Company will allocate the

corresponding revenue among various components, as

described above.

Deferred revenue includes unearned revenue on sales

of professional services to customers where performance is

not yet complete and maintenance contracts where the

contract start date is not yet in effect.

(g) Cost of sales

Cost of sales includes product costs, direct costs associated

with delivering the services, outbound and inbound freight costs

and provision for inventory losses. These costs are reduced by

rebates and marketing development funds received from

vendors, which are recorded as earned based on the contractual

arrangement with the vendor.

(h) Marketing development funds

The Company receives funds from vendors to support the

marketing and sale of their products. When these funds

represent the reimbursement of a specific, incremental and

identifiable cost, these funds are netted against the related

costs, and excess profits, if any, are recorded as a reduction of

cost of sales. When the funds are not related to specific,

incremental and identifiable costs, the amounts received are

recorded as a reduction of cost of sales. Funds are recorded

at the later of the date that the vendor is invoiced, according

to the terms of the arrangement with the vendor, or when

the marketing effort is complete.


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(i) Inventory

Inventory is valued at the lower of cost and net realizable value.

Cost is determined using specific identification of individual

cost. Inventory comprises spare parts, hardware purchased for

resale and goods awaiting configuration for customers.

(j) Work-in-progress

Work-in-progress represents the unbilled portion of labor

and cost of purchases for services performed but not yet billed

to customers.

(k) Deferred costs

Deferred costs comprise non-transferable intangible inventories,

including software licenses, software maintenance and

hardware warranties where the start date is not yet in effect.

(l) Property and equipment

Property and equipment is recorded at cost less accumulated

depreciation and accumulated impairment loss. Cost includes

expenditures that are directly attributable to the acquisition of

an asset. When parts of an item of property and equipment

have different useful lives, they are accounted for as separate

components of property and equipment. Gains and losses on

disposal of an item of property and equipment are determined

by comparing the proceeds from disposal with the carrying

amount of the property and equipment and are recognized net

within other expenses in earnings.

The costs of replacing a part of an item of property and

equipment is recognized in the carrying amount of the item if it

is probable that the future economic benefits embodied within

the part will flow to the Company and its costs can be measured

reliably. The carrying amount of the replaced part is written off.

The costs associated with the day-to-day servicing of property

and equipment are recognized in net earnings as incurred.

Depreciation is provided on a straight-line basis over the

estimated useful life of property and equipment, as this most

closely reflects the pattern of consumption of the future economic

benefits embodied in the asset. Useful lives are as follows:

Office equipment 3 years

Computer equipment 3 years

Leasehold improvements Over the term of the related lease

Depreciation methods, useful lives and residual values are

reviewed at each financial year end and adjusted if appropriate.

(m) Intangible assets

(i) Goodwill

For measurement of goodwill on initial recognition,

see note 2(d)(ii).

In respect of acquisitions prior to January 1, 2010,

goodwill is included on the basis of its deemed cost, which

represents the amount recorded under previous Canadian

GAAP. Goodwill is measured at cost less accumulated

impairment losses.

(ii) Internally generated intangible assets

Expenditure on research is recognized in net earnings

as incurred.

Development activities involve a plan or design for the

production of new or substantially improved products and

processes. Development expenditure is 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. The costs of internally

generated intangible assets includes all directly attributed

costs necessary to create, produce and prepare the

intangible asset to be capable of operating in the manner

intended by management. Directly attributable costs

comprise salaries and other employment costs incurred,

on a time apportioned basis, on software development.

Capitalized development expenditure is measured at cost

less accumulated amortization and accumulated impairment

losses. Internally developed, internal-use software is also

included in intangible assets and is recorded at cost, which

includes material and direct labor costs.

(iii) Other identifiable intangible assets

Other identifiable intangible assets include computer

software, customer relationships, acquired technologies and

contracts acquired by the Company that have finite useful

lives. These assets are measured at cost less accumulated

amortization and accumulated impairment losses.

(iv) Subsequent expenditure

Subsequent expenditure is capitalized only when it

increases the future economic benefits embodied in the

specific asset to which it relates. All other expenditure,

including expenditure on internally generated goodwill and

brands, is recognized in net earnings as incurred.


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(v) Amortization

Amortization is recognized in net earnings on a straight-line

basis over the estimated useful lives of the intangible assets

as follows:

Computer software 3 years

Acquired technology 5 years

Customer relationships 5 – 10 years

(n) Impairment

(i) Financial assets (including receivables)

Financial assets other than those carried at fair value

through profit or loss are assessed at each reporting date

to determine whether there is objective evidence of

an impairment. A financial asset is impaired if objective

evidence indicates that a loss event has occurred after the

initial recognition of the asset, and that the loss event had

a negative effect on the estimated future cash flows of that

asset, in which the cash flows can be estimated reliably.

Objective evidence that financial assets are impaired can

include default or delinquency by a debtor, restructuring of

an amount due to the Company on terms that the Company

would not consider otherwise, indications that a debtor

or issuer will enter bankruptcy, or the disappearance of an

active market for a security.

The Company maintains an allowance for doubtful

accounts at an amount estimated to be sufficient to provide

adequate protection against losses resulting from collecting

less than the full amount due on its accounts receivable.

The Company considers evidence of impairment for

receivables at both a specific asset and collective level. All

individually significant receivables are assessed for specific

impairment. Individual overdue accounts are reviewed,

and allowances are recorded to present trade receivables

at net realizable value, when it is known that they are

not collectible in full.

In assessing collective impairment, the Company

uses historical trends of the probability of default, timing

of recoveries, and the amount of loss incurred, adjusted

for management’s judgment as to whether current

economic and credit conditions are such that the actual

losses are likely to be greater or less than suggested

by historical trends.

An impairment loss in respect of a financial asset

measured at amortized cost is calculated as the difference

between its carrying amount and the present value of

the estimated future cash flows discounted at the asset’s

original effective interest rate. Losses are recognized in net

earnings and reflected in an allowance account against

receivables. Interest on the impaired asset continues to be

recognized through the unwinding of the discount.

(ii) Non-financial assets

The Company’s non-financial assets, excluding inventories

and deferred tax assets, are reviewed for an indication of

impairment at each reporting date to determine if there are

events or changes in circumstances that indicate the assets

might not be recoverable. The Company is required to

estimate the recoverable amount of goodwill annually. If an

indication of impairment exists, the asset’s recoverable

amount is estimated at the same date. An impairment loss

is recognized when the carrying amount of an asset, or its

cash-generating unit, exceeds its recoverable amount.

A cash-generating unit is the smallest identifiable group

of assets that generates cash inflows that are largely

independent of the cash inflows from other assets or groups

of assets. Impairment losses are recognized in net earnings

for the year. Impairment losses recognized in respect

of cash-generating units are allocated first to reduce

the carrying amount of any goodwill allocated to cash-

generating units and then to reduce the carrying amount

of the other assets in the unit on a pro-rata basis.

The recoverable amount is the greater of the asset’s fair

value less costs to sell and value in use. In assessing value

in use, the estimated future cash flows from the assets’

eventual use and eventual disposition 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. A terminal value

calculation is included to represent the eventual disposition

of the assets. For an asset that does not generate largely

independent cash inflows, the recoverable amount is

determined for the cash-generating unit to which the

asset belongs.

Impairment losses, other than those related to goodwill,

are evaluated for potential reversals when events or

changes in circumstances warrant such consideration.

(o) Income taxes

Income tax expense comprises current and deferred

taxes. Current taxes and deferred taxes are recognized in

net earnings except to the extent that they relate to a business

combination, or to items recognized directly in equity or in other

comprehensive income. Current taxes are the expected tax

payable or receivable on the taxable income or loss for the year,

using tax rates substantively enacted at the reporting date, and

any adjustment to tax payable in respect of previous years.


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Deferred taxes are recognized in respect of temporary

differences between the carrying amounts of assets and

liabilities for financial reporting purposes and the amounts used

for taxation purposes. Deferred taxes are not recognized for the

following temporary differences:

(i) the initial recognition of assets or liabilities in a transaction

that is not a business combination and that affects neither

accounting nor taxable earnings;

(ii) differences relating to investments in subsidiaries and

jointly controlled entities to the extent that it is probable

that they will not reverse in the foreseeable future; and

(iii) taxable temporary differences arising on the initial

recognition of goodwill.

Deferred taxes are measured at the tax rates that are expected

to be applied to temporary differences when they reverse,

based on the laws that have been substantively enacted by the

reporting date.

Deferred tax assets and liabilities are offset if there is a

legally enforceable right to offset current tax liabilities and

assets, and they relate to income taxes levied by the same tax

authority on the same taxable entity, or on different tax entities,

but they intend to settle current tax liabilities and assets on

a net basis or their tax assets and liabilities will be realized

simultaneously.

A deferred tax asset is recognized for unused tax losses, tax

credits and deductible temporary differences, to the extent that

it is probable that future taxable profits will be available against

which they can be utilized. Deferred tax assets are reviewed

at each reporting date and are reduced to the extent that it is

no longer probable that sufficient taxable profit will be available

to allow the benefit to be realized.

(p) Net earnings per share

Basic net earnings per share are computed by dividing the

earnings for the period that are attributable to common

shareholders of the Company by the weighted average number

of common shares outstanding during the period, adjusted for

shares held by the Company. Diluted earnings per share are

computed using the treasury stock method, whereby the

weighted average number of common shares used in the basic

net earnings per share calculation is increased to include the

number of additional common shares that would have been

outstanding if the dilutive potential common shares had been

issued at the beginning of the period, adjusted for shares

held by the Company. Potential common shares represent the

common shares issuable upon the exercise of stock options.

Potential common shares are excluded from the calculation

if their effect is anti-dilutive.

(q) Employee benefits

(i) Defined contribution plan


contribution plan under which the Company pays fixed

contributions to a separate entity and has no legal or

constructive obligation to pay further amounts. Employees

may contribute subject to certain limits based on

U.S. federal tax laws. The Company contributes 50% of the

employee’s contributions up to 3% of the employee’s total

compensation. The Company’s contributions vest 50%

after two years of enrolment in the plan but before three

years, 75% after three years of enrolment in the plan but

before four years, and 100% after four years. Contributions

are recognized as an employee benefit expense in net

earnings in the periods during which services are rendered

by employees.

(ii) Termination benefits

Termination benefits are generally payable when

employment is terminated before the normal retirement

date or whenever an employee accepts voluntary

redundancy in exchange for these benefits. The Company

recognizes termination benefits when it is demonstrably

committed to either terminating the employment of current

employees according to a detailed formal plan without

realistic possibility of withdrawal or providing termination

benefits as a result of an offer made to encourage voluntary

redundancy. If benefits are payable more than 12 months

after the reporting period, then they are discounted to their

present value.

(iii) Short-term employee benefits

Liabilities for bonuses and profit-sharing are recognized

based on a formula that takes into consideration the profit

attributable to the Company’s shareholders after certain

adjustments. The Company recognizes a provision when

contractually obliged to do so or where there is a past

practice that has created a constructive obligation to make

such compensation payments, and the obligation can be

estimated reliably.

(iv) Share-based compensation plans

The Company offers stock-based compensation to key

employees and non-executive directors as described below.

The Company accounts for the performance stock option

plan, which calls for settlement by the issuance of equity

instruments, using the fair value method. Under the fair

value method, compensation cost attributed to the options

granted to employees is measured at fair value at the grant

date and amortized over the vesting period. The amount


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recognized as an expense is adjusted to reflect the number

of awards for which the related service and non-market

vesting conditions are expected to be met, such that the

amount ultimately recognized as an expense is based on

the number of awards that meet the related service and

non-market performance conditions at the vesting date.

Compensation cost is recognized so that each tranche

in an award with graded vesting is considered a separate

grant with a different vesting date and fair value. No

compensation cost is recognized for options that employees

forfeit if they fail to satisfy the service requirement for

vesting. Share-based payment expense relating to cash-

settled awards, including share appreciation rights is accrued

at the fair value of the liability. Until the liability is settled,

the Company remeasures the fair value at the end of each

reporting period and at the date of settlement, with any

changes in fair value recognized in net earnings for the year.

The Company accounts for deferred share units granted

to its non-management directors based on the fair value

of the equity instruments. When options are exercised,

the proceeds received by the Company, together with the

fair value amount in contributed surplus, are credited to

capital stock.

(r) Provisions

(i) Legal or constructive obligations

Provisions are recognized when the Company has a present

legal or constructive obligation that has arisen as a result

of a past event and it is probable that a future outflow of

resources will be required to settle the obligation, provided

that a reliable estimate can be made of the amount of

the obligation. Provisions are measured at the present value

of the expenditures expected to be required to settle the

obligation using a pre-tax rate that reflects current market

assessments of the time value of money and the risk

specific to the obligation. The increase in the provision due

to the passage of time is recognized as interest expense.

(ii) Sales returns allowance

The Company estimates the level of anticipated sales

returns based on historical experience and records

a provision for sales returns. The historical estimate is

reviewed throughout the year to ensure it reflects the

most relevant data available.

(iii) Onerous lease contracts

Onerous lease contracts include contracts in which the

unavoidable costs of meeting the obligations under the

contract exceed the economic benefits expected to be

received under the contract.

(s) Leases

Leases are classified as either operating or finance, based

on whether the risks and rewards of ownership are transferred

to the Company at the inception of the lease.

Payments made under operating leases, net of any

incentives received by the lessor, are recognized in net earnings

on a straight-line basis over the term of the lease. Operating

leases are not recognized in the Company’s statements of

financial position.

(t) Segment reporting

The Company has one reportable segment in which the assets,

operations and employees are located in Canada and the

United States. The Company is a North American provider of

IT hardware, software and services to small, medium and large

businesses and public sector institutions.

(u) Finance costs

Finance costs comprise interest expense on loans and

borrowings and amortization of deferred financing costs using

the effective interest rate method. Borrowing costs that are not

directly attributable to the acquisition, construction or production

of a qualifying asset are recognized in net earnings using the

effective interest method.

(v) Finance and other income

Finance income comprises interest income on cash balances,

customer finance income, miscellaneous other revenue, and

changes in the fair value of financial assets at fair value through

profit or loss. Interest income is recognized as it accrues in net

earnings, using the effective interest method.

(w) Financial instruments

(i) Non-derivative financial assets

The Company recognizes loans and receivables and deposits

on the date that they are originated. All other financial

assets (including assets designated at fair value through

profit or loss) are recognized initially on the trade date at

which the Company becomes a party to the contractual

provisions of the instrument. The Company derecognizes a

financial asset when the contractual rights to the cash flows

from the asset expire, or it transfers the rights to receive

the contractual cash flows on the financial asset in a

transaction in which substantially all the risks and rewards

of ownership of the financial asset are transferred. Any

interest in transferred financial assets that is created or

retained by the Company is recognized as a separate asset

or liability. Financial assets and liabilities are offset and


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the net amount presented in the statement of financial

position when the Company has a legal right to offset the

amounts and intends either to settle on a net basis or

to realize the asset and settle the liability simultaneously.

The Company has adopted the following policies for

non-derivative financial assets:

(a) Fair value through profit or loss (“FVTPL”)

A financial asset is classified as FVTPL if it is held for trading

or is designated as such upon initial recognition. Financial

assets are designated as FVTPL if they are held with the

intention of generating profits in the near term. These

instruments are accounted for at fair value with the change

in fair value recognized in earnings during the year. Cash

and restricted cash are classified as FVTPL.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets

with fixed or determinable payments that are not quoted in

an active market. Such assets are initially recognized at cost

less any transaction costs. Subsequent to initial recognition,

loans and receivables are measured at amortized cost using

the effective interest method, less any impairment losses.

Trade and other receivables and long-term accounts

receivable are classified in this category.

(ii) Non-derivative financial liabilities

The Company recognizes subordinated liabilities on

the date that they are originated. Such financial liabilities

are recognized initially at fair value plus any directly

attributable transaction costs. Subsequent to initial

recognition, these financial liabilities are measured

at amortized cost using the effective interest method.

A financial liability is derecognized when its contractual

obligation is discharged. The Company has the following

non-derivative financial liabilities: loans and borrowings,

and trade and other payables.

(iii) Embedded derivatives

Derivatives may be embedded in other financial and

non-financial instruments (the “host instrument”).

Embedded derivatives are treated as separate derivatives

when their economic characteristics and risks are not clearly

and closely related to those of the host instrument, the

terms of the embedded derivative are the same as those

of a stand-alone derivative, and the combined contract

is not held for trading or designated at fair value. These

embedded derivatives are measured at fair value with

subsequent changes recognized in the statement of

comprehensive income as an element of administrative

expenses.

The Company did not enter into any derivative

financial instrument contracts during 2011 and 2010.

In addition, there were no outstanding derivative financial

instruments as at December 31, 2011, December 31, 2010

and January 1, 2010.

(x) New standards and interpretations

yet to be adopted

At the date of authorization of these consolidated financial

statements, the IASB has issued the following new and revised

standards and amendments, which are not yet effective for the

relevant reporting periods:

(i) IFRS 7, Financial Instruments – Disclosures

(“IFRS 7”)

The IASB amended IFRS 7 in October 2010. IFRS 7 was

amended to provide guidance relating to disclosures with

respect to the transfer of financial assets that results in

derecognition, and continuing involvement in financial

assets. The amendments to this standard are effective

for annual periods beginning on or after July 1, 2011 with

earlier application permitted. The Company does not believe

the changes resulting from these amendments will have

a significant impact on its financial statements.

(ii) IFRS 9, Financial Instruments (“IFRS 9”)

IFRS 9 replaces International Accounting Standard 39,

Financial Instruments: Recognition and Measurement

(“IAS 39”), and establishes principles for the financial

reporting of financial assets and financial liabilities to permit

users to assess the amounts, timing and uncertainty of an

entity’s future cash flows. The standard retains but simplifies

the mixed measurement model and establishes two primary

measurement categories for financial assets.

IFRS 9 is effective for annual periods beginning on

or after January 1, 2013 with earlier application permitted.

The Company has not yet adopted this standard and

management is currently assessing the impact of this new

standard on its consolidated financial statements.


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(iii) Consolidation standards

(a) IFRS 10, Consolidated Financial Statements (“IFRS 10”),

and amended IAS 27 (2011), Separate Financial Statements

IFRS 10 requires an entity to consolidate an investee when

it is exposed, or has rights, to variable returns from its

involvement with the investee and has the ability to affect

those returns through its power over the investee. Under

existing IFRS, consolidation is required when an entity has

the power to govern the financial and operating policies

of an entity so as to obtain benefits from its activities.

(b) IFRS 11, Joint Arrangements (“IFRS 11”), and amended

IAS 28 (2011), Associates and Joint Ventures

This new standard requires a venture to classify its interest

in a joint arrangement as a joint venture or joint operation.

Joint ventures will be accounted for using the equity

method of accounting, whereas for a joint operation the

venture will recognize its share of the assets, liabilities,

revenue and expenses of the joint operation. Under existing

IFRS, entities have the choice to proportionately consolidate

or equity account for interest in joint ventures.

(c) IFRS 12, Disclosure of Interests in Other Entities

(“IFRS 12”)

IFRS 12 establishes disclosure requirements for interest

in other entities, such as joint arrangements, associates,

special purpose vehicles and off-balance sheet vehicles.

The standard carries forward existing disclosures and also

introduces significant additional disclosure requirements

that address the nature of, and risks associated with, an

entity’s interest in other entities.

The above suite of consolidation standards is effective

for annual periods beginning on or after January 1, 2013.

Early adoption is permitted; however, all of the standards

must be adopted at the same time, with the exception

of the disclosure requirements in IFRS 12.

The Company has not early-adopted these standards

and amendments, and is currently assessing the impact the

application of these standards and amendments will have

on the consolidated financial statements of the Company.

(iv) IFRS 13, Fair Value Measurement

This new standard provides guidance on the measurement

of fair value, replacing fair value guidance contained

in individual IFRS. The standard provides a framework

for determining fair value and clarifies the factors to be

considered in estimating fair value in accordance with

IFRS. The new standard establishes disclosures surrounding

fair value measurement that are more extensive than

current standards.

This new standard is effective for the Company’s interim

and annual consolidated financial statements commencing

January 1, 2013. The Company is assessing the impact of this

new standard on its consolidated financial statements.

(v) IAS 1, Presentation of Financial Statements

(“IAS 1”)

IAS 1 was amended to align the presentation of items

in other comprehensive income with U.S. GAAP standards.

Items in other comprehensive income will be required

to be presented in two categories: items that might be

reclassified into net earnings and those that will not

be reclassified. The amendments to IAS 1 are effective

for annual periods beginning on or after July 1, 2012.

The Company is assessing the impact of this new standard

on its consolidated financial statements.

3 EXPLANATION OF TRANSITION TO IFRS

As stated in note 2(a), these are the Company’s first annual

consolidated financial statements prepared in accordance

with IFRS.

The accounting policies set out in note 2 have been applied

in preparing the financial statements for the year ended

December 31, 2011, including the comparative information

presented in these financial statements for the year ended

December 31, 2010 and in the preparation of an opening IFRS

statement of financial position at January 1, 2010. In preparing

its opening IFRS statements of financial position, the Company

has adjusted amounts reported previously in financial

statements prepared in accordance with Canadian GAAP.

IFRS 1, First-time Adoption of International Financial Reporting

Standards, provides certain optional exemptions for first time

IFRS adopters.


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(a) IFRS optional exemptions

IFRS 1 sets out the requirements that the Company must follow

when adopting IFRS for the first time as the basis for preparing

its consolidated financial statements. At the beginning of

the year, the Company established its IFRS accounting policies

for the year ended December 31, 2011, which are applied

retrospectively to the opening consolidated statement of

financial position at the date of transition of January 1, 2010

(the “Transition Date”), except for specific exemptions available

to the Company.

(i) Business combinations

IFRS 1 provides the option to apply IFRS 3, Business

Combinations, retrospectively from the Transition Date.

The retrospective basis would require restatement of all

business combinations that occurred prior to the Transition

Date. The Company elected not to retrospectively apply

IFRS 3 to business combinations that occurred prior

to its Transition Date and such business combinations

have not been restated. The Company has elected

to apply the requirements of IFRS 3 prospectively from

the Transition Date.

(ii) Borrowing costs

IFRS 1 permits an entity to elect to use the prospective

transitional provisions in IAS 23, Borrowing Costs (“IAS 23”),

for prospective application, with an effective date being

the later of January 1, 2009 or the IFRS Transition Date. The

Company has elected to apply the transitional provisions of

IAS 23 prospectively from the Transition Date. This election

had no impact on the Company.

(iii) Fair value or revaluation as deemed cost:

Under IFRS 1, an entity may elect to measure an item of

property and equipment at the date of transition to IFRS

at: (a) its fair value, with fair value as deemed cost for

subsequent amortization; or (b) a previous GAAP revaluation

before the date of transition to IFRS as deemed cost. The

Company has elected to use the Canadian GAAP carrying

value as deemed cost on transition to IFRS.

(b) Reconciliation of Canadian GAAP to IFRS

In preparing the opening IFRS statement of financial position,

the Company has adjusted amounts reported previously in

financial statements prepared in accordance with Canadian

GAAP. An explanation of how the transition from previous

Canadian GAAP to IFRS has affected the Company’s financial

position, financial performance and cash flows is set out in the

following tables and in the notes that accompany the tables.


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Reconciliation of consolidated statement of financial position and equity as of January 1, 2010:

Notes

PreviousCanadian

GAAPIFRS

adjustmentsIFRS

reclassification IFRS

Assets

Current assets

Cash $ 18,601 $ – $ – $ 18,601

Trade and other receivables 183,674 – – 183,674

Inventory 766 – – 766

Deferred costs 385 – – 385

Prepaid expenses and other assets c 5,127 – (3,091) 2,036

Future income taxes d 2,270 – (2,270) –

Total current assets 210,823 – (5,361) 205,462

Non-current assets

Restricted cash 500 – – 500

Property and equipment 6,894 – – 6,894

Goodwill 11,063 – – 11,063

Intangible assets c 44,866 – 2,537 47,403

Deferred tax assets b, d 16,220 10 2,270 18,500

Total non-current assets 79,543 10 4,807 84,360

Total assets $ 290,366 $ 10 $ (554) $ 289,822

Liabilities and Shareholders’ Equity

Current liabilities

Trade and other payables b $ 172,000 $ 39 $ – $ 172,039

Deferred lease inducements 85 – – 85

Loans and borrowings c 4,104 – (136) 3,968

Deferred revenue 1,465 – – 1,465

Income taxes payable 3,288 – – 3,288

Total current liabilities 180,942 39 (136) 180,845

Non-current liabilities



Total non-current liabilities 13,066 – (418) 12,648

Total liabilities 194,008 39 (554) 193,493

Shareholders’ equity

Capital stock 25,842 – – 25,842

Contributed surplus 983 – – 983

Retained earnings a, b 64,263 5,241 – 69,504

Accumulated other comprehensive income a 5,270 (5,270) – –

Total shareholders’ equity 96,358 (29) – 96,329

Total liabilities and shareholders’ equity $ 290,366 $ 10 $ (554) $ 289,822


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Reconciliation of consolidated statement of financial position and equity as of December 31, 2010:

Notes

PreviousCanadian

GAAPIFRS

adjustmentsIFRS


Assets

Current assets

Cash $ 35,752 $ – $ – $ 35,752

Trade and other receivables 224,168 – – 224,168

Inventory 881 – – 881

Deferred costs 7,082 – – 7,082

Prepaid expenses and other assets c 4,706 – (1,825) 2,881

Future income taxes d 3,228 – (3,228) –

Total current assets 275,817 – (5,053) 270,764

Non-current assets

Restricted cash 500 – – 500

Long-term accounts receivable 2,771 – – 2,771

Property and equipment 5,748 – – 5,748

Goodwill 11,383 – – 11,383

Intangible assets c 39,770 – 1,385 41,155

Deferred tax assets b, d 15,780 15 3,228 19,023

Total non-current assets 75,952 15 4,613 80,580

Total assets $ 351,769 $ 15 $ (440) $ 351,344

Liabilities and Shareholders’ Equity

Current liabilities

Trade and other payables b $ 217,925 $ 61 $ – $ 217,986



Deferred revenue 1,899 – – 1,899

Income taxes payable 2,320 – – 2,320

Total current liabilities 226,441 61 (143) 226,359




Total non-current liabilities 8,785 – (297) 8,488

Total liabilities 235,226 61 (440) 234,847

Shareholders’ equity

Capital stock 26,016 – – 26,016

Contributed surplus b 1,894 160 – 2,054

Retained earnings a, b 84,505 5,064 – 89,569

Accumulated other comprehensive

income (loss) a 4,128 (5,270) – (1,142)

Total shareholders’ equity 116,543 (46) – 116,497

Total liabilities and shareholders’ equity $ 351,769 $ 15 $ (440) $ 351,344


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Reconciliation of consolidated statement of comprehensive income for the year ended December 31, 2010:

Notes

PreviousCanadian

GAAPIFRS

adjustmentsIFRS


Net sales $ 884,014 $ – $ – $ 884,014

Cost of sales g 719,435 – 68 719,503

Gross profit 164,579 – (68) 164,511

Expenses

Selling and marketing e – – 91,825 91,825

Administrative b, e – 182 40,820 41,002

Other income f – – (763) (763)

Other expenses f – – 184 184

Salaries and benefits e 91,783 – (91,783) –

Selling, general and administrative e 31,632 – (31,632) –

Depreciation of property and equipment e 2,797 – (2,797) –

Amortization of intangible assets e 6,639 – (6,639) –

132,851 182 (785) 132,248

Results from operating activities 31,728 (182) 717 32,263

Foreign currency exchange loss g (2,987) – 2,987 –

Interest expense h 2,545 – (2,545) –

Other expense h 1,365 – (1,365) –

Finance costs h – – 4,652 4,652

Finance income i – – (3,012) (3,012)

Net finance costs 923 – 717 1,640

Earnings before income taxes 30,805 (182) – 30,623

Income taxes (recovery)

Current 11,040 – – 11,040

Future b (477) (5) – (482)

Income tax expense 10,563 (5) – 10,558

Net earnings 20,242 (177) – 20,065

Other comprehensive loss

Foreign currency translation adjustment (1,142) – – (1,142)

Total comprehensive income $ 19,100 $ (177) $ – $ 18,923


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(c) Notes to reconciliations

The following narrative explains the significant differences

between Canadian GAAP and the IFRS policies adopted on

transition by the Company:

(i) IFRS adjustments

(a) Foreign currency translation adjustment

Opening currency translation adjustment (“CTA”) balance:

Retrospective application of IFRS would require the

Company to determine cumulative translation differences

in accordance with IAS 21, The Effects of Changes in Foreign

Exchange Rates, from the date a subsidiary was acquired.

IFRS 1 permits cumulative translation gains and losses

to be reset to zero at the Transition Date. The Company has

chosen to apply this exemption and has eliminated the

cumulative translation difference and adjusted retained

earnings by the same amount at the Transition Date,

January 1, 2010. The CTA balance of $5,270 as at the Transition

Date was recognized as an adjustment to retained earnings.

(b) Share-based payments

The Company applied IFRS 2, Share-based Payments, to

awards that were unvested as of January 1, 2010. The effect

of prospective application required that the Company

account for outstanding cash-settled share-based payment

arrangements, specifically the 2009 bridge long-term

incentive plan (“LTIP”) and the share appreciation rights

(“SARs”), by using the fair value to adjust for the related

liability. Under previous Canadian GAAP, the liability was

recorded by reference to the intrinsic value.

In addition to the impact of the fair value method of

accounting on share-based payments, under IFRS, where

the grant date occurs after the service period begins,

an entity should estimate the grant date fair value of

the equity instrument for purposes of recognizing the

services received during the period between the service

commencement date and the grant date.

In accordance with previous Canadian GAAP, the

recognition of compensation expense did not occur prior

to the grant date. Therefore, the Company adjusted

compensation expense related to the performance share

options (“PSO”) Plan to reflect an earlier service

commencement date under IFRS. Deferred tax assets

include an adjustment related to the change in treatment

of the share-based payments.

(ii) Presentation reclassifications

(c) Deferred transaction costs

On transition to IFRS, deferred transaction costs are

presented as non-current intangible assets since it is

probable that the future economic benefits that are

attributable to the asset will flow to the entity. The

Company has also netted a portion of its deferred charges

against the carrying value of its loans and borrowings.

These assets were recorded previously in prepaid expenses

and other assets under Canadian GAAP. The related

amortization is recorded in finance costs.

(d) Deferred tax classification

Under IFRS, all deferred tax balances are classified as

non-current, regardless of the classification of the

underlying assets or liabilities, or the expected reversal

date of the temporary difference.

(e) Expenses by function

Previous Canadian GAAP permitted the presentation of

comprehensive income using classification based on a

mixture of both nature and function. Under IFRS, the hybrid

presentation is prohibited. The Company has chosen

to aggregate expenses by function as it is believed to

provide more relevant and reliable information for users.

Accordingly, depreciation and amortization is no longer

presented as a separate line item on the consolidated

statements of comprehensive income but is included in

selling and marketing and administrative expenses.

(f) Other operating income and expenses

Under IFRS, other operating income and expenses include

items which are related to the operation of the business,

such as the extinguishment of a liability, sales tax refunds or

penalties and gains or losses on the sale of operating assets.

(g) Foreign exchange gain (loss)

Under IFRS, foreign exchange gains and losses arising from

investing and financing activities, such as exchange gains

and losses on foreign currency borrowings, which are

incidental to the Company’s principal activities, are included

in finance income or costs. Previously, foreign exchange

gains and losses were disclosed separately under

Canadian GAAP.


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(h) Finance costs

As a result of our transition to IFRS, finance costs are

disclosed separately. These costs include interest expense

on financial liabilities, accretion of deferred transaction costs,

and net foreign exchange losses on financing activities.

(i) Finance income

Under IFRS, finance income includes net foreign exchange

gains on financing activities and interest income on loans

and receivables.

(d) Material adjustments to the consolidated

statements of cash flows

Consistent with the Company’s accounting policy choice

under IAS 7, Statement of Cash Flows, interest paid and income

taxes paid have moved into the body of the statements

of cash flows, whereas they were previously disclosed as

supplementary information. There are no other material

differences between the statements of cash flows presented

under IFRS and the statements of cash flows presented under

previous Canadian GAAP.

4 BUSINESS ACQUISITION

On December 1, 2011, the Company acquired substantially

all of the assets of UNIS LUMIN Inc., a Canadian corporation

specializing in Cisco networking and managed services.

The acquisition enables the Company to broaden its services

offerings, technical consulting, professional services delivery

and project management capabilities.

The Company is still finalizing the fair value of the assumed

net tangible assets and liabilities acquired as part of the

acquisition. This is expected to be completed by June 1, 2012.

The preliminary estimated fair values of the assets acquired and

liabilities assumed are as follows:

Assets acquired

Accounts receivable (net of allowance

for doubtful accounts of $47) $ 13,023

Inventory 1,987

Work-in-progress 551

Prepaid expenses 5,343

Property and equipment 637

Computer software 9

Acquired technologies 1,479

Customer relationships 8,600

Goodwill 5,182

36,811

Liabilities assumed

Accounts payable and accrued liabilities 2,446

Deferred revenue 9,391

Deferred tax liability 1,033

12,870

Total purchase price consideration $ 23,941

As set forth in the purchase agreement, $833 of total cash

consideration paid is currently being held by an escrow

agent for indemnification purposes pursuant to the purchase

agreement. Subject to certain conditions being met, this

consideration will be released to the former equity holders of

UNIS LUMIN Inc. at the end of the six-month period following

the closing date of the acquisition. Total purchase price

consideration in Canadian currency was $24,427, of which

Cdn. $850 was held in escrow. The Company incurred

acquisition-related costs of $983 relating to professional fees,

severance costs and due diligence costs. These have been

included in administrative expenses in the consolidated

statements of comprehensive income.

The goodwill recognized as a result of the acquisition is

attributable to synergies with existing businesses and other

intangibles that do not qualify for separate recognition. The total

amount of goodwill expected to be deductible for tax purposes

is $4,215.

The acquisition was accounted for using the acquisition

method in accordance with IFRS 3, with the results of

operations consolidated with those of the Company effective

December 1, 2011, and it has contributed incremental revenue

of $7,297 and operating income of $76 for the one month

ended December 31, 2011. If the acquisition had occurred

on January 1, 2011, management estimates that consolidated

net sales would have been $1,066,365 and consolidated net

earnings for the year would have been $22,035, as compared

to the amounts reported in the statement of comprehensive

income for the year.


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5 OPERATING EXPENSES

The Company presents functional consolidated statements of comprehensive income in which expenses are aggregated according to

the function to which they relate. The Company has identified the major functions as selling and marketing and administrative activities.

2011 2010

Selling andmarketing

expenseAdministrative

expense Total

Selling andmarketing

expenseAdministrative

expense Total

Personnel expenses $ 73,341 $ 28,470 $ 101,811 $ 64,628 $ 27,337 $ 91,965

General and administrative 21,193 16,103 37,296 18,988 12,438 31,426

Depreciation of property

and equipment 2,112 906 3,018 1,868 929 2,797

Amortization of intangible assets 5,788 201 5,989 6,341 298 6,639

$ 102,434 $ 45,680 $ 148,114 $ 91,825 $ 41,002 $ 132,827

Personnel expenses comprise the following:

2011 2010

Wages and salaries $ 85,651 $ 77,742

Canada Pension Plan and Employment Insurance remittances 2,354 1,937

U.S. Social Security 2,636 2,546

Employee benefits 8,692 6,554

Contributions to defined contribution plan 806 760

Equity-settled share-based payment transactions 1,722 1,139

Cash-settled share-based payment transactions (50) 1,287

$ 101,811 $ 91,965

6 OTHER INCOME

During the years ended December 31, 2011 and 2010, the

Company recorded sales tax refunds associated with the

overpayment of state sales tax in the amount of $119 and $70,

respectively. During the year ended December 31, 2010, the

Company reversed an amount of $693 related to a liability

owing to one vendor. The Company assessed that the legal

obligation had been extinguished and the Company was

no longer liable for this amount.

7 OTHER EXPENSE

During the years ended December 31, 2011 and 2010, the

Company incurred a loss on the disposal of property and

equipment in the amount of $16 and $43, respectively. During

the years ended December 31, 2011 and 2010, the Company

recorded tax expenses associated with state and local sales tax

in the amount of $657 and $141, respectively.


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8 FINANCE COSTS

The components of finance costs include interest expense and other financing costs as follows:

2011 2010

Interest expense on financial liabilities measured at amortized cost

Asset-backed loan (“ABL”) $ 110 $ 75

Term debt 1,730 2,549

ABL line of credit standby fees 615 574

Amortization of deferred financing costs 1,844 1,374

Interest expense on other trade payables 4 80

Net foreign exchange loss on financing activities 1,332 –

Financing transaction costs 534 –

$ 6,169 $ 4,652

9 FINANCE INCOME

The components of finance income include:

2011 2010

Net foreign exchange gain on financing activities $ – $ 2,843

Interest income on loans and receivables 82 169

$ 82 $ 3,012

10 INCOME TAX EXPENSE AND DEFERRED INCOME TAXES

(a) The components of current and deferred tax expense for 2011 and 2010 were as follows:

2011 2010

Current income tax expense

Current year $ 13,254 $ 11,040

Deferred tax recovery

Origination and reversal of temporary differences (1,247) (482)

$ 12,007 $ 10,558


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(b) Reconciliation of effective tax rate

2011 2010

Net earnings $ 22,120 $ 20,065

Income tax expense 12,007 10,558

Earnings before income taxes $ 34,127 $ 30,623

Income tax using the Company’s domestic tax rate 28.07% $ 9,579 30.53% $ 9,349

Effect of tax rates in foreign jurisdictions 5.11% 1,744 4.11% 1,259

Permanent differences 2.00% 684 (0.16%) (50)

35.18% $ 12,007 34.48% $ 10,558

(c) Unrecognized deferred tax liability

At December 31, 2011 and 2010, a deferred tax liability of $3,458 and $2,945 for temporary differences of $69,157 and $58,909,

respectively, related to undistributed earnings from an investment in a subsidiary, was not recognized because the Company controls

whether the liability will be incurred and it is satisfied that it will not be incurred in the foreseeable future.

(d) Movement in deferred tax assets

2011

Property and

equipment GoodwillIntangible

assetsDeferred

costs

Other net temporary differences

Unrealized foreign

exchange Total

Balance, January 1, 2011 $ 808 $ 13,606 $ 2,300 $ 416 $ 2,831 $ (938) $ 19,023

Foreign exchange adjustments (40) 10 (48) 16 (57) 78 (41)

Credit (charge) to

income tax expense (84) (1,031) 380 171 1,451 388 1,275

Charge to goodwill

on acquisition – – (655) – (378) – (1,033)

Balance, December 31, 2011 $ 684 $ 12,585 $ 1,977 $ 603 $ 3,847 $ (472) $ 19,224

2010

Property and

equipment GoodwillIntangible

assetsDeferred

costs

Other net temporary differences

Unrealized foreign

exchange Total

Balance, January 1, 2010 $ 873 $ 14,779 $ 1,696 $ 338 $ 1,942 $ (1,128) $ 18,500

Foreign exchange adjustments 12 15 19 21 24 (50) 41

Credit (charge) to

income tax expense (77) (1,188) 585 57 865 240 482

Balance, December 31, 2010 $ 808 $ 13,606 $ 2,300 $ 416 $ 2,831 $ (938) $ 19,023


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11 CASH AND RESTRICTED CASH

Cash consists of cash on hand and cash balances with major financial institutions. Bank overdrafts are included in bank indebtedness.

During the year ended December 31, 2011, a non-competition contract with a competitor expired and $500 of funds held in escrow

were released.

12 TRADE AND OTHER RECEIVABLES

Trade and other receivables comprise the following:

December 31, 2011

December 31, 2010

January 1, 2010

Trade receivables $ 275,483 $ 203,779 $ 167,409

Trade receivables due from related parties (note 21) 227 410 205

Other receivables(1) 30,724 19,979 16,060

$ 306,434 $ 224,168 $ 183,674

Long-term trade accounts receivable $ 643 $ 2,771 $ –

(1) Other receivables include vendor rebates, marketing co-op and commission receivables.

13 PROPERTY AND EQUIPMENT

2011Leasehold

improvementsOffice

equipmentComputer

equipment Total

Cost or deemed cost

Balance, January 1, 2011 $ 5,623 $ 7,117 $ 7,173 $ 19,913

Acquisitions through business combinations 204 306 127 637

Additions 775 798 1,376 2,949

Disposals (4) (70) – (74)

Effect of movements in exchange rates (105) (113) (163) (381)

Balance, December 31, 2011 $ 6,493 $ 8,038 $ 8,513 $ 23,044

Depreciation and impairment losses

Balance, January 1, 2011 $ 2,407 $ 6,573 $ 5,185 $ 14,165

Depreciation for the year 1,206 572 1,240 3,018

Disposals (4) (70) – (74)

Effect of movements in exchange rates (156) (101) (117) (374)


Carrying amounts

Balance, January 1, 2011 $ 3,216 $ 544 $ 1,988 $ 5,748

Balance, December 31, 2011 3,040 1,064 2,205 6,309


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2010Leasehold

improvementsOffice

equipmentComputer

equipment Total

Cost or deemed cost

Balance, January 1, 2010 $ 5,277 $ 8,068 $ 5,931 $ 19,276

Additions 129 189 1,108 1,426

Disposals – (1,378) (122) (1,500)

Effect of movements in exchange rates 217 238 256 711


Depreciation and impairment losses

Balance, January 1, 2010 $ 1,669 $ 6,967 $ 3,746 $ 12,382

Depreciation for the year 679 724 1,394 2,797

Disposals – (1,335) (122) (1,457)

Effect of movements in exchange rates 59 217 167 443


Carrying amounts

Balance, January 1, 2010 $ 3,608 $ 1,101 $ 2,185 $ 6,894

Balance, December 31, 2010 3,216 544 1,988 5,748


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14 GOODWILL AND INTANGIBLE ASSETS

2011 GoodwillCustomer contracts

Acquired technologies

Computer software

Deferred transaction

costsTotal

intangibles

Cost

Balance, January 1, 2011 $ 11,383 $ 62,284 $ – $ 9,280 $ 3,861 $ 75,425

Acquisitions through business

combinations 5,182 8,600 1,479 9 – 10,088

Additions – – – 2,620 – 2,620

Disposals – – – (16) – (16)

Effect of movements in exchange rates (124) (415) 5 (248) (82) (740)

Balance, December 31, 2011 $ 16,441 $ 70,469 $ 1,484 $ 11,645 $ 3,779 $ 87,377

Amortization and impairment losses

Balance, January 1, 2011 $ – $ 24,425 $ – $ 7,369 $ 2,476 $ 34,270

Amortization for the year – 5,610 25 354 1,392 7,381

Effect of movements in exchange rates – (292) – (96) (89) (477)

Balance, December 31, 2011 $ – $ 29,743 $ 25 $ 7,627 $ 3,779 $ 41,174

Carrying amounts

Balance, January 1, 2011 $ 11,383 $ 37,859 $ – $ 1,911 $ 1,385 $ 41,155

Balance, December 31, 2011 16,441 40,726 1,459 4,018 – 46,203

2010 GoodwillCustomer contracts

Acquired technologies

Computer software

Deferred transaction

costsTotal

intangibles

Cost

Balance, January 1, 2010 $ 11,063 $ 61,284 $ 2,273 $ 7,832 $ 3,686 $ 75,075

Additions – – – 1,060 – 1,060

Disposals – – – (54) – (54)

Effect of movements in exchange rates 320 1,000 40 442 175 1,657

Balance, December 31, 2010 $ 11,383 $ 62,284 $ 2,313 $ 9,280 $ 3,861 $ 77,738

Amortization and impairment losses

Balance, January 1, 2010 $ – $ 18,200 $ 2,248 $ 6,075 $ 1,149 $ 27,672

Amortization for the period – 5,661 25 953 1,189 7,828

Disposals – – – (54) – (54)

Effect of movements in exchange rates – 564 40 395 138 1,137

Balance, December 31, 2010 $ – $ 24,425 $ 2,313 $ 7,369 $ 2,476 $ 36,583

Carrying amounts

Balance, January 1, 2010 $ 11,063 $ 43,084 $ 25 $ 1,757 $ 2,537 $ 47,403

Balance, December 31, 2010 11,383 37,859 – 1,911 1,385 41,155


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(a) Impairment testing for cash-generating units (“CGUs”) containing goodwill

The aggregate carrying amounts of goodwill allocated to each unit are as follows:

December 31, 2011

December 31, 2010

January 1, 2010

Canada $ 11,506 $ 6,448 $ 6,128

United States 4,935 4,935 4,935

Balance, end of year $ 16,441 $ 11,383 $ 11,063

(b) Impairment test of goodwill

The Company has identified two CGUs, Canada and United

States, which are defined by operating segments based on

geographical location which represent the lowest level within

the Company at which goodwill is monitored for internal

management purposes, which is not higher than the Company’s

operating segments. During the year ended December 31,

2011, the Company acquired the net assets of UNIS LUMIN Inc.

(note 4), which resulted in the addition of goodwill in the

amount of $5,182. This goodwill is recorded in Canada.

The Company performs its annual test for goodwill

impairment in the fourth quarter of each calendar year

in accordance with its policy described in note 2(n)(ii).

The recoverable amount of a CGU is based upon value in use

calculations. The recoverable amount of all units exceeded

their carrying values, and as a result, no goodwill impairment

was recorded.

The valuation techniques, significant assumptions and

sensitivities applied in the goodwill impairment test are

described below:

(i) Valuation techniques

The Company did not make any changes to the valuation

methodology used to assess goodwill impairment since

the last annual impairment test.

Value in use was determined by discounting future

cash flows generated from the continuing use of the CGUs.

The discounting process uses a rate of return that is

commensurate with the risk associated with the business or

asset and the time value of money. This approach requires

assumptions about revenue growth rates, operating

margins, tax rates and discount rates.

(ii) Significant assumptions

(a) Growth

The assumptions used were based on the Company’s

internal forecasts. Cash flows were projected for a period

of three years based on past experience, actual operating

results, and the three-year business plan. Cash flows for

future periods beyond three years are extrapolated using

a long-term annual growth rate of 2%, which is consistent

with the long-term growth rate of the industry. In arriving

at its forecasts, the Company considered past experience,

economic trends, cyclicality of the Microsoft business

as well as industry and market trends. The projections also

take into account the expected impact from the current

and historical acquisitions, competitive landscape and the

maturity of the markets in which each business operates.

In determining growth expectations for future years,

the business contemplated the impacts of the current

year’s acquisition of UNIS LUMIN Inc., as well as the cyclical

nature of the Microsoft renewal business coupled with

its historical past performance and impacts of historical

customer attrition. These expectations were tempered

by customer retention initiatives the Company has in place

that would impact historical performance. In addition, the

Company used reports from third-party analysts Gartner Inc.

and IDC, as well as comparisons to its industry peers to

assess expectations of the technology business for future

periods. These expectations were adjusted for current

growth forecasts to assess growth in future periods.

(b) Discount rate

The Company assumed a discount rate in order to calculate

the present value of its projected cash flows. The discount

rate represented a weighted average cost of capital

(“WACC”) for comparable companies operating in similar

industries. The WACC is an estimate of the overall required

rate of return on an investment for both debt and equity

owners and serves as the basis for developing an

appropriate discount rate. Determination of the WACC

requires separate analysis of the cost of equity and debt,

and considers a risk premium based on an assessment

of risks related to the projected cash flows of each CGU.


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(c) Tax rate

The tax rates applied to the projections reflected

intercompany transfer pricing agreements currently in

effect. The projected effective tax rates, which range from

28% to 39%, are below the current statutory tax rates in

(a) Term and debt repayment schedule

Terms and conditions of outstanding loans were as follows:

ABL

Currency U.S. dollar

Nominal interest rate Prime plus 0.5% to 1.0% or

LIBOR plus 1.5% to 2.0%,

depending on the level of

availability

Year of maturity 2016

Face value Carrying value

Term debt

December 31, 2011 $ – $ –

December 31, 2010 20,513 12,232

January 1, 2010 20,513 16,221

As at December 31, 2011, December 31, 2010 and January 1, 2010,

no amounts were drawn on the ABL. The total amount available

to be drawn on the ABL as at December 31, 2011 was $111,052.

As at December 31, 2011 and 2010, the Company had used

$2,097 and $2,447, respectively, of its available credit as security

for letters of credit issued to various institutions.

(b) Credit facilities

(i) ABL

Effective November 4, 2011, the Company’s existing

ABL agreement, originally dated February 2, 2009, was

renegotiated. The revised ABL can be drawn to the lesser

of Cdn. $115 million and 85 percent of eligible accounts

receivable and is subject to certain financial covenants.

The ABL contains an optional facility in the amount of

Cdn. $50 million that can be exercised by the Company

subject to support of the lender group. The ABL incurs

interest at a range of rates, depending on the level

of availability at either prime plus 0.5% to 1.0% or LIBOR

plus 1.5% to 2.0%. Interest rates on the ABL increase

as availability declines. The ABL has a term of five years

and is secured by a continuing security interest in and

lien upon all assets.

The ABL has a fixed-charge coverage ratio as a condition

of continued borrowing. This debt covenant was met as of

December 31, 2011 and December 31, 2010.

(ii) Term debt

On November 4, 2011, the Company secured the option

to early-repay the term debt with HSBC Capital (Canada).

Settlement occurred on November 10, 2011 on mutually

agreeable terms. The term debt was subordinated to the

ABL and was initially in the amount of U.S. $20.5 million.

This debt had a five-year term and quarterly payments

each CGU. Tax assumptions are sensitive to changes in tax

laws as well as assumptions about the jurisdictions in which

profits are earned. It is possible that actual tax rates could

differ from those assumed.

15 LOANS AND BORROWINGS

This note provides information about the contractual terms of the Company’s interest-bearing loans and borrowings, which are

measured at amortized cost. For more information about the Company’s exposure to interest rate, foreign currency and liquidity risks,

see note 20.

December 31, 2011

December 31, 2010

January 1, 2010

Current liabilities

Current portion of loans and borrowings $ – $ 3,961 $ 3,968


Loans and borrowings – 8,271 12,253


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of U.S. $1.0 million. Interest on this loan was determined

based on certain financial ratios; the interest rate was 16%

per annum throughout 2011. The term debt was provided

by HSBC (Canada) Inc., with 20% participation by the Ontario

Teachers’ Pension Plan, a related party.

A fixed-charge coverage ratio was required by the term

debt loan, as well as two additional covenants including

a maximum debt leverage covenant and an asset coverage

covenant. These various debt covenants were met as of

December 31, 2010.

16 TRADE AND OTHER PAYABLES

The Company’s trade and other payables comprise the following:

December 31, 2011

December 31, 2010

January 1, 2010

Trade payables $ 199,836 $ 145,112 $ 96,309

Other payables 13,959 9,004 4,812

Sales tax payable 6,256 3,401 5,768

Accrued liabilities 70,216 60,469 65,150

$ 290,267 $ 217,986 $ 172,039

The Company’s exposure to currency and liquidity risk relating to trade and other payables is disclosed in note 20.

17 COMMITMENTS AND CONTINGENCIES

The Company is subject to a variety of claims that arise from

time to time in the ordinary course of business. Management

is not aware of any matters that may have a material adverse

effect on the financial position of the Company or its results

of operations. No amount has been provided in these financial

statements in respect of these claims. Loss, if any, sustained

upon their ultimate resolution will be accounted for

prospectively in the period of settlement in earnings.

Leases as lessee

The Company leases a number of property and equipment

under operating leases. Operating lease payments are expensed

on a straight-line basis over the term of the relevant lease

agreements. Lease inducements received upon entry into an

operating lease are recognized on a straight-line basis over the

lease term. Operating lease payments for the years ended

December 31, 2011 and 2010 were $7,126 and $7,605, respectively.

The Company is obligated to make future annual lease payments

under operating leases for office equipment and premises.

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

December 31, 2011

December 31, 2010

January 1, 2010

Less than 1 year $ 7,702 $ 6,989 $ 7,149

Between 1 and 5 years 16,972 22,918 27,169

More than 5 years – – 814

$ 24,674 $ 29,907 $ 35,132

As at December 31, 2011, the total future minimum sublease payments expected to be received under non-cancellable subleases

was $370 (2010 – $568).


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18 CAPITAL STOCK

(a) Authorized

Unlimited common shares, no par value.

(b) Deferred share unit plan

The Company has a deferred share unit (“DSU”) plan for

non-executive members of the Board of Directors. Each DSU

represents the right to receive one common share of the

Company when the holder ceases to be a non-executive director

of the Company. The expense related to the DSUs granted for

the year ended December 31, 2011 and 2010 was $245 and

$224, respectively.

A summary of the number of DSUs outstanding is as follows:

2011 2010

Outstanding,

beginning of year 139,202 111,733

Granted 30,064 27,469

Exercised (52,573) –

Outstanding and exercisable,

end of year 116,693 139,202

(c) Share appreciation rights plan

In March 2010, the Company approved the SARs plan for eligible

officers and key employees of the Company. On March 31,

2010, the Company granted 144,000 SAR units at a grant price

of Cdn. $9.90. These cash-based awards are subject to the

Company’s common shares attaining a threshold price of

Cdn. $12.50 following the three-year vesting period in order for

any award to be made. The Company accounts for SAR awards

as a liability and compensation cost is recorded based on the

fair value of the award. The fair value of the SAR units was

estimated on the grant date based on the binomial method

using the following assumptions: expected volatility of 50% and

risk-free interest rate for the expected term of the options of

1.75%. The weighted average grant date fair value was $1.86.

The estimated fair value of the SAR units is expensed on a

straight-line basis over the vesting period. Until the liability is

settled, the Company remeasures the fair value of the liability

at the end of each reporting period, with any changes in fair

value recognized in net earnings for the year. The remeasured

fair value as at December 31, 2011 was $0.25 per SAR. The

intrinsic value as at December 31, 2011 was $0.36 per SAR.

During the year ended December 31, 2011, the adjustment

to fair value resulted in a reversal of the expense of $50, and

a charge to expense of $65 in 2010. As at December 31, 2011,

the accrued SAR balance is $18 (2010 – $65).

A summary of the number of SARs outstanding is as follows:

2011 2010

Number of SAR units

Weighted average

exercise priceNumber of

SAR units

Weighted average

exercise price

Outstanding, beginning of year 144,000 $ 9.90 – $ –

Granted – – 144,000 9.90

Forfeited (20,000) 9.90 – –

Outstanding, end of year 124,000 9.90 144,000 9.90

Exercisable, end of year – $ – – $ –

(d) Performance stock option plan

On February 11, 2010, the Board of Directors adopted a

performance stock option (“PSO”) plan (the “PSO Plan”) for the

executives of the Company. The PSO Plan was approved by the

shareholders on May 11, 2010. Under the PSO Plan, the number

of PSOs that ultimately vest is subject to the Company attaining

various market share price hurdles on the third anniversary

of the grant date, as established by the Board of Directors for

each grant. The PSO units vest on the third anniversary of the

grant date and are exercisable during a period of seven years

from such grant. On March 3, 2010, the Company granted

640,000 PSOs, convertible into common shares, with an exercise

price of $8.39. The fair value of the PSO units was estimated

on the date of grant using the Monte Carlo Simulation model,

yielding a weighted average grant date fair value of $5.36.

The significant assumptions used in determining the fair value

include: expected volatility – 65%, and risk-free interest rate

for the expected term of the options – 3.14%. The related

expenses for the year ended December 31, 2011 and 2010

were $786 and $915, respectively.


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On February 14, 2011, the Board of Directors approved

a 2011 PSO grant for the executives of the Company. Under the

2011 PSO Plan, a minimum cumulative cash earnings per share

(“CCEPS”) result has to be achieved for any PSO level to vest.

The PSO Plan has a seven-year expiry term and a three-year

vesting period, dependent on CCEPS performance. Under the

plan, the number of options that ultimately vest is subject to the

Company attaining a minimum CCEPS on the third anniversary

of the grant date. On June 1, 2011, the Company granted

555,000 PSOs, convertible into common shares, with an exercise

price of $8.99.

The Company estimated the grant date fair value using

the Black-Scholes option pricing model and management’s

assumptions regarding various factors which require the use

of accounting judgment and financial estimates. The significant

assumptions used in determining the fair value include:

expected volatility – 83%, risk-free interest rate for the expected

term of the options – 2.58% and expected life of the options –

3 years. The Black-Scholes option pricing model yielded a grant

date fair value of $4.26. The related expense for the year ended

December 31, 2011 was $691.

2011 2010

Number of options

Weighted average


options

Weighted average

exercise price

Outstanding, beginning of year 640,000 $ 8.39 640,000 $ 8.39

Granted 555,000 8.99 – –

Forfeited (55,000) 8.39 – –

Outstanding, end of year 1,140,000 8.68 640,000 8.39

Exercisable, end of year – $ – – $ –

(e) Employee stock option plan

In November 2006, the Board of Directors cancelled the

employee stock option plan under which 1,706,000 common

shares were reserved for issuance to employees. The options’

vesting period was determined by the Board of Directors at the

time of grant with expiry dates ranging from six to eight years

after the grant date. Under the plan, the exercise price could not

be less than 100% of the market price of the common shares

at the grant date. All options currently outstanding have vested.

For the purposes of calculating the stock option expense,

the fair value of each option granted was estimated using the

Black-Scholes option pricing model.

The following table summarizes the status of the employee stock option plan (dollar amounts are in Canadian currency):

2011 2010

Number of options

Weighted average


options

Weighted average

exercise price

Outstanding, beginning of year 48,750 $ 8.00 69,684 $ 7.21

Expired – – (84) 5.20

Exercised (8,599) 8.00 (20,850) 5.37

Outstanding, end of year 40,151 8.00 48,750 8.00

Exercisable, end of year 40,151 $ 8.00 48,750 $ 8.00

Options

Held by employees – $ – – $ –

Held by officers 40,151 8.00 48,750 8.00

The remaining options outstanding have a weighted average remaining contractual life of 1.12 years.


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(f) Normal course issuer bid

In August 2011, The Toronto Stock Exchange (the “TSX”)

accepted a notice filed by the Company of its intention to make

a normal course issuer bid (“NCIB”) for a one-year period

commencing August 12, 2011. The NCIB permits the Company to

purchase up to 1,229,801 of its issued and outstanding common

shares, representing 6.2% of the 19,833,862 common shares

that were issued and outstanding as of July 31, 2011, or up

to 10% of the Company’s public float for the same period.

The actual number of shares purchased, and the timing of

such purchase, will be determined by the Company considering

market conditions, share price, cash position, and other

factors. Any daily repurchase will be limited to a maximum

of 4,233 common shares, representing 25% of the average

daily trading volume of the common shares on the TSX for the

six-month period ended July 31, 2011. During the year ended

December 31, 2011, the Company repurchased 4,000 shares

for cancellation under the NCIB.

(g) Net earnings per common share

(i) Weighted average number of shares

2011 2010

Issued, beginning of year 19,780,039 19,759,189

Effect of stock options exercised 43,221 18,900

Weighted average number of shares – basic 19,823,260 19,778,089

Dilutive effect of assumed exercise of stock options 50,313 44,763

Weighted average number of shares – diluted 19,873,573 19,822,852

Net earnings $ 22,120 $ 20,065

Net earnings per share

Basic $ 1.12 $ 1.01

Diluted 1.11 1.01

(ii) Diluted earnings

Diluted earnings per share is determined by adjusting the

net earnings attributable to common shareholders, and the

weighted average number of common shares outstanding,

for the effects of all dilutive potential common shares,

which comprise DSUs and share options granted to

executives and employees. The market value of the dilutive

options is determined using the average closing price of

the shares during the year. It was determined that there

was no effect of anti-dilutive options during the year.


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19 FAIR VALUE OF FINANCIAL INSTRUMENTS

2011 2010

Carrying value Fair value Carrying value Fair value

Assets carried at fair value

Cash $ 32,993 $ 32,993 $ 35,752 $ 35,752

Restricted cash – – 500 500

Total $ 32,993 $ 32,993 $ 36,252 $ 36,252

Assets carried at amortized cost

Trade and other receivables $ 306,434 $ 306,434 $ 224,168 $ 224,168

Long-term accounts receivable 643 643 2,771 2,771

Total $ 307,077 $ 307,077 $ 226,939 $ 226,939

Liabilities carried at amortized cost

Trade and other payables $ 290,267 $ 290,267 $ 217,986 $ 217,986

Loans and borrowings – – 12,232 12,232

Total $ 290,267 $ 290,267 $ 230,218 $ 230,218

Determination of fair values

The carrying values of trade and other receivables and trade

and other payables approximate their respective fair values

due to the short-term nature of these financial instruments.

The fair values of long-term accounts receivable and loans and

borrowings are determined for disclosure purposes using the

techniques described below:

(a) Financial assets at FVTPL

A financial asset is classified as FVTPL if it is held for trading

or is designated as such upon initial recognition. Financial assets

are designated as FVTPL if they are held with the intention

of generating profits in the near term. These instruments are

accounted for at fair value with the change in fair value

recognized in earnings during the period. Cash and restricted

cash are classified as FVTPL. The fair value is determined

using Level 1 (quoted prices in active markets for identical

assets or liabilities).

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with

fixed or determinable payments that are not quoted in an active

market. Such assets are initially recognized at cost less any

transaction costs. Subsequent to initial recognition, loans and

receivables are measured at amortized cost using the effective

interest method, less any impairment losses. Trade and other

receivables and long-term accounts receivable are classified

in this category. The carrying values of current trade and other

receivables approximate their respective fair values due

to the short-term nature of these financial instruments.

The fair value of long-term receivables is estimated as the

present value of future cash flows, discounted at the market

rate of interest at the reporting date. This fair value is

determined for disclosure purposes only.

(c) Non-derivative financial liabilities

The Company recognizes subordinated liabilities on the date

that they are originated. Such financial liabilities are recognized

initially at fair value plus any directly attributable transaction

costs. Subsequent to initial recognition, these financial liabilities

are measured at amortized cost using the effective interest

method. A financial liability is derecognized when its contractual

obligation is discharged. The Company has the following

non-derivative financial liabilities: loans and borrowings, and

trade and other payables.

The carrying values of trade and other payables approximate

their respective fair values due to the short-term nature

of these financial instruments. The fair value of loans and

borrowings, which is determined for disclosure purposes only,

is calculated based on the present value of future principal

cash flows, discounted at the market rate of interest at the

reporting date.

The Company did not enter into any derivative financial

instrument contracts during 2011 and 2010. In addition, there

were no outstanding derivative financial instruments as at

December 31, 2011 and December 31, 2010.


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20 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

The Company has exposure to the following risks from its use

of financial instruments:

• liquidity risk

• credit risk

• market risk

• supplier risk

• operational risk

This note presents information about the Company’s exposure

to each of the above risks, the Company’s objectives, policies and

processes for measuring and managing risk and the Company’s

management of capital.

(a) Risk management framework

The Board of Directors has overall responsibility for and

oversight of the Company’s risk management practices.

The Company does not follow a specific risk model, but rather

includes risk management analysis in all levels of strategic and

operational planning. The Company’s management, specifically

the Senior Leadership Team, is responsible for developing

and monitoring the Company’s risk strategy. The Company’s

management reports regularly to the Board of Directors

on its activities.

The Company’s management identifies and analyzes

the risks faced by the Company. Risk management strategy

and risk limits are reviewed regularly to reflect changes in

market conditions and the Company’s activities. The Company’s

management aims to develop and implement a risk strategy

that is consistent with the Company’s corporate objectives.

The Company is subject to certain banking covenants

required by the Company’s loans and borrowings. The ABL has

a fixed-charge coverage ratio as a condition of continued

borrowing. This debt covenant was met as of December 31,

2011 and December 31, 2010 (note 15).

The Company’s Audit Committee is assisted in its oversight

role by the Internal Compliance group. The Internal Compliance

group, under the supervision of the Audit Committee and

management, performs reviews and testing of internal controls

over financial reporting, disclosure controls and procedures,

entity level controls, and information technology general

controls. The results are regularly reported to the Audit

Committee and management.

(b) Liquidity risk

Liquidity risk is the risk that the Company will not be 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 and financial leverage.

The Company’s approach to managing liquidity is to ensure, as

far as possible, that it will have sufficient liquidity to meet its

liabilities when due, under both normal and stressed conditions,

without incurring unacceptable losses or risking damage to the

Company’s reputation. The ability to do this is contingent on the

Company maintaining sufficient cash in excess of anticipated

needs, by collecting its accounts receivable in a timely manner,

and having available funds to draw upon from the credit facilities.


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The following are the contractual maturities of financial liabilities:

December 31, 2011Carrying amount

Contractual cash flows On demand

Less than 1 year 1 to 2 years > 2 years

Trade and other payables(1) $ 283,045 $ 283,045 $ 42,658 $ 240,387 $ – $ –

December 31, 2010Carrying amount




Loans and borrowings 12,232 12,672 – 4,104 4,104 4,464

$ 226,610 $ 227,050 $ 45,368 $ 173,114 $ 4,104 $ 4,464

January 1, 2010Carrying amount




Loans and borrowings 16,221 16,775 – 4,104 4,104 8,567

$ 182,283 $ 182,837 $ 29,697 $ 140,469 $ 4,104 $ 8,567

(1) Trade and other payables exclude sales tax payable and other non-contractual liabilities.

(c) Credit risk

Credit risk is the risk that a counterparty to a contract fails to

meet its obligation to the Company in accordance with contract

terms. The Company’s financial instruments that are exposed

to concentrations of credit risk consist primarily of cash, accounts

receivable and other receivables. The carrying amount of the

Company’s financial assets represents the Company’s maximum

credit exposure. The Company minimizes the credit risk of

cash by depositing only with reputable financial institutions.

The Company’s objective with regard to credit risk in its

operating activities is to reduce its exposure to losses. As such,

the Company performs ongoing credit evaluations of its

customers’ financial condition to evaluate creditworthiness and

to assess impairment of outstanding receivables. The Company

is not aware of any concentration risk with respect to any

particular customer.

As at December 31, 2011 and 2010, of the Company’s

accounts receivable, approximately 9% are greater than 31 days

past due (2010 – 13%). The Company’s allowance for doubtful

accounts is $7,160 (2010 – $5,269). This allowance comprises

individually significant exposures deemed at risk and an overall

provision established based on historical trends.


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As at the following dates, the aging of gross trade and other receivables that were past due, but not impaired, were as follows:

December 31, 2011

December 31, 2010

January 1, 2010

1 to 30 days past due $ 27,618 $ 26,429 $ 16,692

31 to 60 days past due 5,926 6,470 11,025

61 to 90 days past due 5,012 5,525 4,395

Greater than 91 days 16,955 17,396 10,578

Total $ 55,511 $ 55,820 $ 42,690

The following is a reconciliation of the movement in the allowance for doubtful accounts for the years ended:

December 31, 2011

December 31, 2010

January 1, 2010

Balance, beginning of year $ 5,269 $ 3,967 $ 2,759

Impairment loss recognized 2,300 1,858 2,244

Acquired through business combination 49 – –

Write-off of accounts receivable (412) (643) (1,213)

Foreign exchange loss (gain) (46) 87 177

Balance, end of year $ 7,160 $ 5,269 $ 3,967

(d) Market risk

Market risk is the risk that the value of the Company’s financial

instruments will fluctuate due to changes in market risk factors.

The market risk factors which affect the Company are foreign

exchange rates and interest rates.

(i) Foreign exchange risk

The Company is exposed to financial risk related to the

fluctuation of foreign exchange rates. The Company operates

in both the United States and Canada, and the parent

company maintains its accounts in Canadian dollars while

the accounts of the U.S. subsidiaries are maintained in

U.S. dollars. For the parent company’s intercompany debt

and external debt held in U.S. dollars, this gives rise to

a risk that its earnings and cash flows may be impacted by

fluctuations in foreign exchange conversion rates on the

balance outstanding as of the period end, as well as debt

settlements made during the period.

Sensitivity analysis EquityNet

earnings

Year ended December 31, 2011

Canadian dollar

(200 basis points strengthening) $ 851 $ (885)

Canadian dollar

(200 basis points weakening) (832) 886

Year ended December 31, 2010

Canadian dollar

(200 basis points strengthening) $ (4,141) $ 5,201

Canadian dollar

(200 basis points weakening) 4,307 (5,369)


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(ii) Interest rate risk

Interest rate risk is the risk that the fair value or future cash

flows of a financial instrument will fluctuate because of

changes in market interest rates. The Company is exposed

to interest rate risk on its bank indebtedness and loans

and borrowings. On the ABL and term debt, an incremental

increase or decrease in the prime rate of 0.25% would

result in an increase or decrease in interest expense of

$32 and $43 for the years ended December 31, 2011 and

2010, respectively. The Company did not enter into any

derivative financial instrument contracts during the year

ended December 31, 2011 or 2010. In addition, there

were no outstanding derivative financial instruments as

at December 31, 2011 and 2010 or January 1, 2010. On

November 10, 2011, the Company early-repaid the term

debt with HSBC Capital (Canada) (note 15).

(e) Supplier risk

Purchases from Microsoft Corporation (a software publisher),

Ingram Micro Inc. (a distributor), and Techdata Corporation

(a distributor) accounted for approximately 29%, 17% and 17%,

respectively, of the Company’s aggregate purchases for 2011

(2010 – 29%, 21%, 18% respectively). No other partner

accounted for more than 10% of the Company’s purchases in

2011. The Company’s top five suppliers as a group for 2011 were

Microsoft Corporation, Ingram Micro Inc., Techdata Corporation,

Synnex Corporation (a distributor) and Arrow Enterprise

Computing Solutions, Inc. (a distributor), and they accounted

for 77% (2010 – 80%) of the Company’s total purchases in 2011.

Although brand names and individual products are important

to the business, the Company believes that competitive sources

of supply are available in substantially all of the product

categories such that, with the exception of Microsoft

Corporation, the Company is not dependent on any single

partner for sourcing products.

(f) Operational risk

Operational risk is the risk of direct or indirect loss arising from a

wide variety of causes associated with the Company’s processes,

personnel, technology and infrastructure, and from external

factors other than credit, market and liquidity risks. Operational

risks arise from all of the Company’s operations.

The primary responsibility for the development and

implementation of controls to address operational risk

is assigned to senior management within each business unit.

This responsibility is supported by the development of overall

Company standards for the management of operational risk

in the following areas:

(i) Adequate segregation of duties and access restrictions;

(ii) Timely review and approval of transactions;

(iii) Documentation of controls and procedures;

(iv) Compliance with regulatory and legal requirements;

(v) Assessment of operational risks and adequacy of controls

and procedures to address the risks identified;

(vi) Development and implementation of remediation activities;

(vii) Training and professional development; and

(viii) Ethical and business standards.

Monitoring of internal controls over financial reporting is

supported by reviews undertaken by the Internal Compliance

group. The results are discussed with management and

summaries are submitted to the Audit Committee.


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(g) Capital management

The Company’s objective in managing capital is to ensure

a sufficient liquidity position exists to:

(i) increase shareholder value through organic growth and

selective acquisitions;

(ii) allow the Company to respond to changes in economic

and/or marketplace conditions; and

(iii) finance general and administrative expenses, working

capital and overall capital expenditures.

Management defines capital as the Company’s shareholders’

equity, comprising primarily issued capital, contributed surplus

and earnings less net debt. Net debt consists of interest-bearing

debt less cash. When possible, the Company tries to optimize

its liquidity needs by using non-dilutive sources. The Company’s

capital management objectives are unchanged from the

previous fiscal year.

The Company currently funds its requirements from its

internally generated cash flows and the use of credit facilities.

The Company has a term loan and ABL facilities with major

financial institutions (note 15). The Company was in compliance

with all debt covenants as of December 31, 2011 and 2010.

21 RELATED-PARTY TRANSACTIONS AND BALANCES

(a) Ontario Teachers’ Pension Plan Board (“OTPPB”)

As at December 31, 2011 and 2010, included in trade accounts

receivable was $227 and $410, respectively, due from OTPPB,

a major shareholder, for product sales with payment terms

of net 30 days. Total product sales to OTPPB during the years

ended December 31, 2011 and 2010 were $931 and $1,403,

respectively. Subsequent to year end, OTPPB announced the sale

of all of the common shares it held in the Company (note 25).

In the course of the refinancing that occurred in the first

quarter of 2009, a portion of the long-term debt outstanding

was purchased by OTPPB. On November 10, 2011, the Company

early-repaid the term debt with HSBC Capital (Canada) (note 15).

During the years ended December 31, 2011 and 2010, OTPPB

received principal repayments of $2,534 and $821, respectively,

and interest repayments of $356 and $487, respectively.

These related-party transactions were made on the same

terms as those that prevail in arm’s-length transactions.

(b) 401(k) plan


contribution plan covering substantially all employees of the

Company, working in the United States, who have 90 days

of service and are aged 21 or older. The plan is subject to the

provisions of the Employee Retirement Income Security Act

of 1974 (“ERISA”). Under the plan, the Company pays fixed

contributions totaling 50% of each participant’s contributions up

to 3% of base compensation. The Company’s contributions are

made to a separate entity and the Company has no legal or

constructive obligation to pay further amounts. During the year,

the Company paid $806 (2010 – $760) in contributions to the plan.

(c) Compensation of key management personnel

The remuneration of directors and other members identified

as key management personnel during the years ended

December 31, 2011 and 2010 were as follows:

2011 2010

Salaries $ 2,598 $ 2,481

Short-term employee benefits 2,303 2,481

Other long-term benefits 1,723 1,039

Termination benefits 430 –

Share-based payments(1) 1,722 2,371

$ 8,776 $ 8,372

(1) Share-based payments include cash-settled and equity-settled awards as described

in note 18.

Key management personnel are comprised of the Company’s

directors and executive officers.


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22 OPERATING SEGMENTS

The Company has one reportable segment in which the assets,

operations and employees are located in Canada and the United

States. Net sales are attributed to customers based on where

the products are shipped or where the services are provided.

(a) Geographic information

Geographic segments of net sales are as follows:

2011 2010

Canada(1) $ 424,889 $ 385,250

United States 574,511 498,764

$ 999,400 $ 884,014

(1) Net sales for the years ended December 31, 2011 and 2010 were Cdn. $420,751 and

$395,430, respectively.

Geographic segments of property and equipment are located

as follows:

December 31, 2011

December 31, 2010

January 1, 2010

Canada $ 5,272 $ 4,521 $ 5,170

United States 1,037 1,227 1,724

$ 6,309 $ 5,748 $ 6,894

Geographic segments of goodwill are as follows:

December 31, 2011

December 31, 2010

January 1, 2010

Canada $ 11,506 $ 6,448 $ 6,128

United States 4,935 4,935 4,935

$ 16,441 $ 11,383 $ 11,063

Geographic segments of intangible assets are as follows:

December 31, 2011

December 31, 2010

January 1, 2010

Canada $ 20,997 $ 11,651 $ 13,599

United States 25,206 29,504 33,804

$ 46,203 $ 41,155 $ 47,403

(b) Economic dependence

Approximately 34% and 33% of the Company’s net sales

for the years ended December 31, 2011 and 2010, respectively,

relate to products produced by one software publisher,

Microsoft Corporation.

23 CHANGE IN NON-CASH OPERATING WORKING CAPITAL

2011 2010

Trade and other receivables $ (72,319) $ (36,266)

Inventory (5,557) 36

Work-in-progress 90 –

Deferred costs 4,507 (6,678)

Prepaid expenses and

other assets 209 (716)

Long-term accounts receivable 2,128 (2,771)

Trade and other payables 72,902 41,013

Deferred revenue 2,709 383

Deferred lease inducements (192) (92)

$ 4,477 $ (5,091)


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24 SEASONALITY

The Company’s sales tend to follow a quarterly seasonality

pattern that is typical of many companies in the IT industry.

In the first quarter of the year, sales to the Canadian government

tend to be higher as March 31 marks the fiscal year end for

the federal government. A significant portion of the Company’s

revenue is derived from the sale of Microsoft products.

Historically, the Company has benefited from the sales and

marketing drive that has been generated by Microsoft sales

representatives in the second quarter of the year leading up to

Microsoft’s fiscal year end on June 30. Sales in the third quarter

of the year tend to be lower than other quarters due to the

general reduction in purchasing activity resulting from summer

holiday schedules. This slowdown is offset somewhat by the

fiscal year end of the U.S. federal government on September 30.

In the fourth quarter of the year, the Company typically

experiences higher sales as many customers complete their IT

purchases in advance of their fiscal year end of December 31.

25 SUBSEQUENT EVENT

On January 13, 2012, the Company’s major shareholder, OTPPB,

announced the sale of 5,093,700 common shares of the

Company, representing approximately 26% of the outstanding

common shares of the Company. The sale, arranged through

a bought deal with several institutions, has reduced OTPPB’s

share ownership in the Company to nil.


(In thousands of U.S. dollars, Dec. 31

except per share amounts) Dec. 31 Dec. 31 2009 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31Unaudited 2011 2010 – Restated (1) 2008(2) 2007(2) 2006(2) 2005(2) 2004(2) 2003(2) 2002(2)

Net sales 999,400 884,014 754,144 1,244,295 777,082 703,237 639,482 477,935 390,793 420,006

Gross profit as a percentage of revenue 18.9% 18.6% 18.9% 13.8% 16.1% 14.0% 12.7% 13.3% 12.0% 12.6%

Gross profit per customer 13.3 11.4 9.3 8.6 7.8 6.6 5.4 4.5 3.8 4.4

Net earnings 22,120 20,065 22,263 (14,388) 21,997 15,930 13,108 9,731 3,118 9,554

Basic earnings per share $ 1.12 $ 1.01 $ 1.26 $ (0.82) $ 1.27 $ 0.93 $ 0.76 $ 0.57 $ 0.18 $ 0.56

Total assets 447,689 351,344 290,366 355,761 319,826 187,254 173,485 103,523 114,797 103,581

Cash flow from operations 38,590 23,448 33,131 30,880 35,064 11,470 4,021 10,232 3,654 11,367

Number of offices 37 36 44 45 41 34 32 32 33 32

Number of employees 1,112 917 874 897 795 624 604 463 436 456

Notes:

(1) In the fourth quarter of 2010, the Company changed its accounting policy for maintenance contracts and now records these arrangements on a net basis. The comparative fi gures for 2009

were restated.

(2) Net sales for 2002 – 2008 were calculated using the Company’s previous revenue accounting methodology for maintenance contracts, where these arrangements were recorded on

a gross basis.

TEN-YEAR FINANCIAL SUMMARY


David L. MacDonald


William W. Linton

Chairman of the Board

David Long



Nick Foster

Senior Vice President,

Business Development

Paul Khawaja

Senior Vice President, Services

Steve Leslie

Senior Vice President, Sales

Keith R. Coogan

Former CEO of Pomeroy IT Solutions Inc.

and former CEO of Software Spectrum, Inc.

Gilles Lamoureux

Former Senior Advisor to Ernst & Young

Corporate Finance Inc. and a

former founding Partner of Orenda

Corporate Finance Ltd.

William W. Linton

Executive Vice President of Finance and

CFO of Rogers Communications Inc. and

the former President and CEO of Call-Net

Enterprises Inc.

Officers and Vice Presidents

Directors

DIRECTORS AND OFFICERS

Robert W. Luba

President and founder of Luba Financial

Inc. and the former President and CEO of

Royal Bank Investment Management Inc.

David L. MacDonald

President and CEO of Softchoice and

former Chairman of the Information

Technology Association of Canada (ITAC).

Carol S. Perry

Founder of MaxxCap Corporate Finance and

the former Vice President and Director of

RBC Capital Markets, Richardson Greenshields

and CIBC World Markets.

Allan J. Reesor

Former Chief Information Officer

of General Foods (Kraft),

Canada Packers (Maple Leaf Foods),

TNT Canada and the Ontario

Teachers’ Pension Plan.

Mary Ritchie

President and CEO of Richford Holdings

Inc., an Edmonton-based accounting

and investment advisory service firm.

William P. Robinson

President and a Director of Manvest Inc.,

a Calgary-based private-equity

investment company.

Kevin Wright

Senior Vice President and

Chief Information Officer

Paul Asseff

Vice President, Business Development

Dale Bristow


Steve Cundill

Vice President, Sales, U.S. East

Josh Greene

Vice President, Sales, U.S. West

Paul MacDonald

Vice President,

Professional Services, Canada

Linda Millage

Vice President, Finance

and Corporate Controller

Devan Moodley

Vice President, Corporate Finance

Maria Odoardi

Vice President, People

Sandy Potter


Nicole Wengle

Vice President, Sales, Canada


Head Office

Softchoice Corporation

173 Dufferin Street, Suite 200

Toronto, Ontario M6K 3H7

Telephone: 416.588.9002

Fax: 416.588.9022

www.softchoice.com

Sales: 1.800.268.7638

Corporate and

Shareholder Information

David Long



[email protected]

Annual Meeting of Shareholders

Tuesday, May 15, 2012

10:00 a.m. Eastern Time

Westin Harbour Castle Hotel

1 Harbour Square

Toronto, Ontario

Registrar and Transfer Agent

Computershare Investor Services Inc.

Head Office

100 University Avenue, 8th Floor

Toronto, Ontario M5J 2Y1

Telephone: 800.564.6253

Fax: 888.453.0330

www.computershare.com

Exchange Listing

The Toronto Stock Exchange

TSX: SO

Solicitors

Borden Ladner Gervais LLP

Pillsbury Winthrop Shaw Pittman LLP

Auditors

KPMG LLP

Chartered Accountants

Bankers

Bank of America, N.A.

BMO Bank of Montreal

CORPORATE INFORMATION

Softchoice Corporation

173 Dufferin Street, Suite 200

Toronto, Ontario

M6K 3H7

Telephone: 416.588.9002

Fax: 416.588.9022

Sales: 1.800.268.7638

www.softchoice.com

Softchoice is committed to working in an environmentally

responsible manner and to doing our part to help create

sustainable communities. The paper used in this report is

Forest Stewardship Council® certified.

financial review 2011m.softchoice.com/files/pdf/about/2011-financial-review.pdf · 2013-01-16 ·...

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