EXFO Inc. — Interim / Quarterly Report 2020

Jan 7, 2020

EXFO Inc.

Condensed Unaudited Interim Consolidated Balance Sheets

(in thousands of US dollars)

Assets Current assets Cash Short-term investments Accounts receivable Trade Other Income taxes and tax credits recoverable Inventories Prepaid expenses Other assets Tax credits recoverable Property, plant and equipment Lease right-of-use assets(note 2) Intangible assets Goodwill Deferred income tax assets Other assets Liabilities Current liabilities Bank loan Accounts payable and accrued liabilities Provisions Income taxes payable Deferred revenue Other liabilities Current portion of lease liabilities (note 5) Current portion of long-term debt (note 6) Provisions Deferred revenue Lease liabilities(note 5) Long-term debt(note 6) Deferred income tax liabilities Other liabilities Shareholders’ equity Share capital (note 7) Contributed surplus Retained earnings Accumulated other comprehensive loss	As at November 30, 2019 $ 15,045 2,491 51,429 3,404 3,692 41,513 5,663 3,364 126,601 45,285 39,719 10,498 20,495 39,076 4,819 979 $ 287,472 $ 13,322 47,482 942 311 20,120 1,602 2,962 2,335 89,076 2,615 9,021 7,158 2,718 3,166 269 114,023 93,355 18,816 112,110 (50,832) 173,449 $ 287,472	As at August 31, 2019
		$ 16,518 2,918 51,517 3,396 3,159 38,017 6,510 3,083
		125,118 46,704 39,364 – 21,654 38,648 4,821 1,293
		$ 277,602
		$ 5,000 50,790 1,065 704 24,422 1,606 – 2,449
		86,036 2,737 9,056 – 3,293 3,598 318
		105,038
		92,706 19,196 112,173 (51,511)
		172,564
		$ 277,602

The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Earnings

(in thousands of US dollars, except share and per share data)

Sales Cost of sales (1) Selling and administrative Net research and development Depreciation of property, plant and equipment Depreciation of lease right-of-use assets (note 2) Amortization of intangible assets Interest and other expense Foreign exchange (gain) loss Earnings (loss) before income taxes Income taxes(note 9) Net loss for the period Basic and diluted net loss per share Basic weighted average number of shares outstanding (000’s) Diluted weighted average number of shares outstanding (000’s)(note 10)	Three months ended November 30,	Three months ended November 30,
	2019 $ 73,551 30,241 24,504 11,749 1,443 851 1,632 399 126 2,606 2,669 $ (63) $ (0.00) 55,439 55,439	2018
		$ 69,201
		28,897 26,375 15,224 1,429 – 2,940 377 (215)
		(5,826) 1,641
		$ (7,467)
		$ (0.14) 55,184 55,184

(1) The cost of sales is exclusive of depreciation and amortization, shown separately.

The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Comprehensive Income (Loss)

(in thousands of US dollars)

Net loss for the period Other comprehensive income (loss), net of income taxes Items that may be reclassified subsequently to net loss Foreign currency translation adjustment Unrealized gains/losses on forward exchange contracts Reclassification of realized gains/losses on forward exchange contracts in net loss Deferred income tax effect of gains/losses on forward exchange contracts Other comprehensive income (loss) Comprehensive income (loss) for the period	Three months ended November 30,	Three months ended November 30,
	2019 $ (63) 561 (35) 183 (30) 679 $ 616	2018
		$ (7,467) (3,356) (687) 91 209
		(3,743)
		$ (11,210)

The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Changes in Shareholders’ Equity

(in thousands of US dollars)

Balance as at September 1, 2018 Adoption of IFRS 9 Adjusted balance as at September 1, 2018 Reclassification of stock-based compensation costs (note 7) Stock-based compensation costs Net loss for the period Other comprehensive loss Foreign currency translation adjustment Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $209 Total comprehensive loss for the period Balance as at November 30, 2018		Three months ended November 30, 2018	Three months ended November 30, 2018	Three months ended November 30, 2018
	Share capital $ 91,937 – 91,937 643 – – – – $ 92,580	Contributed surplus $ 18,428 – 18,428 (643) 460 – – – $ 18,245	Retained earnings $ 114,906 (253) 114,653 – – (7,467) – – $ 107,186	Accumulated other comprehensive loss $ (47,350) – (47,350) – – – (3,356) (387) $ (51,093)	Total shareholders’ equity
					$ 177,921 (253)
					177,668 – 460 (7,467) (3,356) (387)
					(11,210)
					$ 166,918

Balance as at September 1, 2019 Reclassification of stock-based compensation costs (note 7) Redemption of share capital (note 7) Stock-based compensation costs Net loss for the period Other comprehensive income Foreign currency translation adjustment Changes in unrealized gains/losses on forward exchange contracts, net of deferred income taxes of $30 Total comprehensive income for the period Balance as at November 30, 2019		Three months ended November 30, 2019	Three months ended November 30, 2019	Three months ended November 30, 2019
	Share capital $ 92,706 861 (212) – – – – $ 93,355	Contributed surplus $ 19,196 (861) (13) 494 – – – $ 18,816	Retained earnings $ 112,173 – – – (63) – – $ 112,110	Accumulated other comprehensive loss $ (51,511) – – – – 561 118 $ (50,832)	Total shareholders’ equity
					$ 172,564 – (225) 494 (63) 561 118
					616
					$ 173,449

The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.

EXFO Inc.

Condensed Unaudited Interim Consolidated Statements of Cash Flows

(in thousands of US dollars)

Cash flows from operating activities Net loss for the period Add (deduct) items not affecting cash Stock-based compensation costs Depreciation and amortization Write-off of capital assets Deferred revenue Deferred income taxes Changes in foreign exchange gain/loss Changes in non-cash operating items Accounts receivable Income taxes and tax credits Inventories Prepaid expenses Other assets Accounts payable, accrued liabilities and provisions Other liabilities Cash flows from investing activities Additions to short-term investments Disposal of short-term investments Purchases of capital assets Cash flows from financing activities Bank loan Repayment of lease liabilities (note 5) Repayment of long-term debt Redemption of share capital Effect of foreign exchange rate changes on cash Change in cash Cash – Beginning of the period Cash – End of the period Supplementary information Income taxes cash outflow	Three months ended November 30,	Three months ended November 30,
	2019 $ (63) 487 3,926 216 (4,372) (442) (21) (269) 72 516 (3,493) 378 35 (3,693) (16) (6,470) (147) 563 (2,040) (1,624) 8,354 (844) (676) (225) 6,609 12 (1,473) 16,518 $ 15,045 $ 741	2018
		$ (7,467) 418 4,369 – 3,922 (29) (529)
		684 (4,052) (998) (1,361) 183 (12) 3,132 (51)
		(2,475)
		– 342 (2,882)
		(2,540)
		11,257 – (717) –
		10,540
		(196)
		5,329 12,758
		$ 18,087
		$ 871

As at November 30, 2018 and 2019, unpaid purchases of capital assets amounted to $754 and $1,140 respectively.

The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.

EXFO Inc. Notes to Condensed Unaudited Interim Consolidated Financial Statements

(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)

1 Nature of Activities and Incorporation

EXFO Inc. and its subsidiaries (together “EXFO” or the “company”) develops smart test, monitoring and analytics solutions for fixed and mobile network operators, web-scale companies, and equipment manufacturers in the global communications industry.

EXFO is a company incorporated under the Canada Business Corporations Act and is domiciled in Canada. The address of its headquarters is 400 Godin Avenue, Quebec City, Quebec, Canada, G1M 2K2.

These condensed unaudited interim consolidated financial statements were authorized for issue by the Board of Directors on January 7, 2020.

2 Basis of Presentation

These condensed unaudited interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB) applicable to the preparation of interim financial statements, including IAS 34, “ Interim Financial Reporting ”, and using the same accounting policies and methods used in the preparation of the company’s most recent annual consolidated financial statements, except as described below. Consequently, these condensed unaudited interim consolidated financial statements should be read in conjunction with the company’s most recent annual consolidated financial statements, which have been prepared in accordance with IFRS as issued by the IASB.

Recently Issued IFRS Pronouncements

Leases

IFRS 16, “ Leases ”, was issued in January 2016. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e., the customer (lessee) and the supplier (lessor). IFRS 16 supersedes IAS 17, “ Leases ”, and related interpretations. Under IFRS 16, lessees recognize a right-of-use (ROU) asset and a lease liability measured at the present value of lease payments for virtually all their leases. Short-term leases with a term of 12 months or less are not required to be recognized. This new standard is effective for annual periods beginning on or after January 1, 2019.

The company adopted this new standard on September 1, 2019, using the modified retrospective method, which did not require adjustments to comparative periods. The company applied IFRS 16 at the adoption date and recognized ROU assets and lease liabilities in the period of adoption. The new standard provides several optional practical expedients in transition. Upon implementation of the new standard, the company elected the practical expedients to combine lease and non-lease components, and to not recognize ROU assets and lease liabilities for short-term leases. Also, contracts that were not identified as leases under previous standards were not reassessed for whether there is a lease. The company identified appropriate changes to its accounting policies, information technology systems, business processes, and related internal controls to support recognition and disclosure requirements under IFRS 16.

The adoption of IFRS 16 on September 1, 2019 resulted in the recognition of ROU assets of $11,321,000, lease liabilities of $10,843,000, and the elimination of prepaid rents of $478,000 in the consolidated balance sheet as of that date. In addition, lease payments, previously reported in cash flow from operating activities are now reported in cash flow from financing activities in the consolidated statements of cash flows. However, the adoption of this standard had no significant impact on net loss.

EXFO Inc.

Notes to Condensed Unaudited Interim Consolidated Financial Statements

(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)

Upon the adoption of IFRS 16, the lease expense, previously recorded under cost of sales, selling and administrative expenses and net research and development expenses line items is recorded as depreciation expenses for the ROU asset and as interest expenses on the lease liability in the consolidated statements of earnings.

Finally, the adoption of IFRS 16 had no significant impact on liquidity and debt-covenants compliance under existing debt agreements.

Uncertainty over Income Tax Treatments

IFRIC 23, “ Uncertainty over Income Tax Treatments ”, was issued in June 2017. IFRIC 23 provides guidance on how to value uncertain income tax positions based on the probability of whether the relevant tax authorities will accept the company's tax treatments. A company is to assume that a taxation authority with the right to examine any amounts reported to it will examine those amounts and will have full knowledge of all relevant information when doing so. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019. The company adopted this interpretation on September 1, 2019 and its adoption had no significant impact on its consolidated financial statements.

New Accounting Policy upon Adoption of Recently Issued IFRS

Leases

The company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date, and are subsequently adjusted for interest and lease payments. When the rate implicit in the lease is not readily determinable, the company uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. The lease term is the non-cancelable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that an option will be exercised. ROU assets are recognized at commencement based on the amount of the initial measurement of the lease liability. ROU assets also include any lease payments made prior to lease commencement and exclude lease incentives. ROU assets are depreciated on a straight-line basis over the lease term.

The company’s lease terms may include options to extend or terminate the lease where it is reasonably certain that the company will exercise those options. The company considers several economic factors when making this determination including, but not limited to, the significance of leasehold improvements incurred in the office space, the difficulty in replacing the asset, underlying contractual obligations, or specific characteristics unique to a lease.

3 Restructuring Charges

In August 2018, the company implemented a restructuring plan to accelerate the integration of its acquired monitoring and analytics technologies from EXFO Solutions and simplify its cost structure and optimize resources as the company converges toward fewer sites and reduces its workforce.

The following table summarizes changes in restructuring charges payable during the three months ended November 30, 2019:

Balance – Beginning of the period Payments Balance – End of the period	$ 1,133 (90)
	$ 1,043

EXFO Inc. Notes to Condensed Unaudited Interim Consolidated Financial Statements

(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)

4 Financial Instruments

Fair Value of Financial Instruments

The company classifies its derivative and non-derivative financial assets and liabilities measured at fair value using the fair value hierarchy as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities

• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset and liability, either directly or indirectly

Level 3: Unobservable inputs for the asset or liability

The company’s short-term investments and forward exchange contracts are measured at fair value at each balance sheet date. The company’s short-term investments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. The company’s forward exchange contracts are classified within Level 2 of the fair value hierarchy because they are valued using observable prices and forward exchange rates at the consolidated balance sheet dates.

The fair value of forward exchange contracts represents the amount at which they could be settled based on estimated current market rates.

The fair value of derivative and non-derivative financial assets and liabilities measured at fair value by level of fair value hierarchy is as follows:

Financial assets Short-term investments Forward exchange contracts Financial liabilities Forward exchange contracts	As at November 30, 2019 Level 1 Level 2 $ 2,491 $ – $ – $ 62 $ – $ 855	As at August 31, 2019	As at August 31, 2019
	Level 1 $ 2,491 $ – $ –	Level 1 $ 2,918 $ – $ –	Level 2
			$ – $ 79 $ 1,057

Derivative Financial Instruments

The functional currency of the company is the Canadian dollar. The company is exposed to currency risk as a result of its export sales of products manufactured in Canada, China, France and Finland, the majority of which are denominated in US dollars and euros. This risk is partially hedged by forward exchange contracts and certain cost of sales and operating expenses (US dollars and euros). In addition, the company is exposed to currency risk as a result of its research and development activities in India (Indian rupees). This risk is partially hedged by forward exchange contracts. The company’s forward exchange contracts, which are designated as cash flow hedging instruments, qualify for hedge accounting.

As at November 30, 2019, the company held contracts to sell US dollars for Canadian dollars and Indian rupees at various forward rates, which are summarized below:

EXFO Inc. Notes to Condensed Unaudited Interim Consolidated Financial Statements

(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)

US dollars – Canadian dollars

Expiry dates December 2019 to August 2020 September 2020 to August 2021 September 2021 to August 2022 September 2022 to October 2022 Total US dollars – Indian rupees Expiry dates December 2019 to August 2020	Contractual amounts $ 26,800 22,800 7,100 1,000 $ 57,700 Contractual amount $ 2,400	Weighted average contractual forward rates
		1.3038 1.3130 1.3229 1.3309
		1.3102
		Weighted average contractual forward rate
		71.88

The carrying amount of forward exchange contracts is equal to their fair value, which is based on the amount at which they could be settled based on estimated current market rates. The fair value of forward exchange contracts amounted to net losses of $978,000 as at August 31, 2019, and $793,000 as at November 30, 2019.

As at November 30, 2019, forward exchange contracts in the amount of $62,000 are presented as current assets in other accounts receivable, forward exchange contracts in the amount of $709,000 are presented as short-term liabilities in other accounts payable and accrued liabilities, and forward exchange contracts in the amount of $146,000 are presented as longterm assets in other long-term assets in the consolidated balance sheet. Forward exchange contracts of $131,000 included in accounts payable and accrued liabilities, for which related hedged sales are recognized, are recorded in the consolidated statement of earnings; otherwise, other forward exchange contracts are not yet recorded in the consolidated statement of earnings and are recorded in other comprehensive income.

Based on its portfolio of forward exchange contracts as at November 30, 2019, the company estimates that the portion of the net unrealized losses on these contracts as of that date, which will be realized and reclassified from accumulated other comprehensive income to net earnings (sales) over the next 12 months, amounts to $516,000.

During the three months ended November 30, 2019, the company recognized within its sales foreign exchange losses on forward exchange contracts of $145,000 compared to foreign exchange gains $21,000 for the three months ended November 30, 2018.

5 Leases

The company has operating leases for certain of its premises under various non-cancelable lease agreements. The company’s operating leases have remaining lease terms ranging from 1 year to 8 years. The company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Minimal rentals payable under operating leases are as follows as at November 30, 2019:

No later than 1 year Later than 1 year and no later than 5 years Later than 5 years Total lease liabilities as at November 30, 2019	$ 2,962 6,499 659
	$ 10,120

EXFO Inc.

Notes to Condensed Unaudited Interim Consolidated Financial Statements

(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)

The difference between operating lease commitments disclosed applying IAS 17 as at August 31, 2019, discounted using the incremental borrowing rate of 2% at the date of the initial application of IFRS 16 as at September 1, 2019 and the lease liabilities recognized in the consolidated balance sheet as of that date is as follows:

Discounted operating lease commitments under IAS 17 as at August 31, 2019 Discounted impact of renewal options that are reasonably certain to be exercised Lease liabilities as at September 1, 2019	$ 8,915 1,928
	$ 10,843

Depreciation of lease ROU assets for the three months ended November 30, 2019 amounted to $851,000 (note 8).

6 Long-term Debt

Long-term Debt
Unsecured, non-interest-bearing loans, denominated in euros, repayable in quarterly instalments, maturing in March 2024 and March 2025 Unsecured loans, denominated in euros, repayable in monthly, quarterly or bi-annual instalments, bearing interest at annual rates of nil to 5.0%, maturing at different dates between March 2020 and September 2023 Loans, secured by the universality of the assets of a subsidiary, denominated in euros, repayable in monthly instalments, bearing interest at annual rates of 0.7% to 1.5%, maturing at different dates between April 2020 and August 2022 Loans, secured by the universality of the assets of a subsidiary, denominated in euros, repayable in monthly or quarterly instalments, bearing interest at annual rates of 1.1% to 2.9%, maturing at different dates between March 2020 and July 2022 Current portion of long-term debt	As at November 30, 2019 $ 845 2,721 394 1,093 5,053 2,335 $ 2,718	As at August 31, 2019
		$ 866 3,111 459 1,306
		5,742 2,449
		$ 3,293

Principal repayments of long-term debt over the forthcoming years are as follows:

No later than 1 year Later than 1 year and no later than 5 years Later than 5 years	As at November 30, 2019
	$ 2,335 2,668 50
	$ 5,053

EXFO Inc. Notes to Condensed Unaudited Interim Consolidated Financial Statements

(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)

7 Share Capital

The following tables summarize changes in share capital for the three months ended November 30, 2018 and 2019.

Balance as at September 1, 2018 Redemption of restricted share units Reclassification of stock-based compensation costs to share capital upon exercise of stock awards Balance as at November 30, 2018 Balance as at September 1, 2019 Redemption of restricted share units Redemption of share capital Reclassification of stock-based compensation costs to share capital upon exercise of stock awards Balance as at November 30, 2019	Three months ended November 30, 2018	Three months ended November 30, 2018
	Multiple voting shares Number Amount		Total amount
	Number
			$ 91,937 − 643
			$92,580
	Multiple voting shares Number Amount 31,643,000 $ 1 − − − − − − 31,643,000 $ 1	Subordinate voting shares Number Amount 23,703,675 $ 92,705 255,822 − (54,528) (212) − 861 23,904,969 $93,354	Total amount
	Number 31,643,000 − − − 31,643,000	Number 23,703,675 255,822 (54,528) − 23,904,969
			$ 92,706 − (212) 861
			$93,355

8 Statements of Earnings

Sales are as follows:

Test and measurement Service assurance, systems and services Foreign exchange gains (losses) on forward exchange contracts Total sales for the period	Three months ended November 30,	Three months ended November 30,
	2019 $ 55,947 17,749 (145) $ 73,551	2018
		$ 49,764 19,416 21
		$ 69,201

EXFO Inc.

Notes to Condensed Unaudited Interim Consolidated Financial Statements

(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)

Net research and development expenses comprise the following:

Gross research and development expenses Research and development tax credits Net research and development expenses for the period Inventory write-down is as follows: Inventory write-down for the period	Three months ended November 30,	Three months ended November 30,
	2019 2018 $ 13,832 $ 17,225 (2,083) (2,001) $ 11,749 $ 15,224 Three months ended November 30,	2018
		$ 17,225 (2,001)
		$ 15,224
	2019 $ 534	2018
		$ 1,045

Depreciation and amortization expenses by functional area are as follows:

Cost of sales Depreciation of property, plant and equipment Depreciation of lease ROU assets Amortization of intangible assets Selling and administrative expenses Depreciation of property, plant and equipment Depreciation of lease ROU assets Amortization of intangible assets Net research and development expenses Depreciation of property, plant and equipment Depreciation of lease ROU assets Amortization of intangible assets Depreciation of property, plant and equipment Depreciation of lease ROU assets Amortization of intangible assets	Three months ended November 30,	Three months ended November 30,
	2019 $ 455 288 1,318 2,061 295 362 152 809 693 201 162 1,056 $ 3,926 $ 1,443 851 1,632 $ 3,926	2018
		$ 524 − 2,523
		3,047 264 − 232
		496 641 − 185
		826
		$ 4,369
		$ 1,429 − 2,940
		$ 4,369

EXFO Inc.

Notes to Condensed Unaudited Interim Consolidated Financial Statements

(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)

Employee compensation comprises the following:

Salaries and benefits Restructuring charges Stock-based compensation costs Total employee compensation for the period	Three months ended November 30,	Three months ended November 30,
	2019 $ 34,307 − 487 $ 35,794	2018
		$ 35,741 2,226 418
		$ 38,385

Stock-based compensation costs by functional area are as follows:

Cost of sales Selling and administrative expenses Net research and development expenses Total stock-based compensation for the period	Three months ended November 30,	Three months ended November 30,
	2019 $ 40 380 67 $ 487	2018
		$ 36 284 98
		$ 418

Restructuring charges by functional area are as follows:

Cost of sales Selling and administrative expenses Net research and development expenses Income taxes Total restructuring charges for the period	Three months ended November 30,	Three months ended November 30,
	2019 $ − − − − $ −	2018
		$ 287 397 2,057 3
		$ 2,744

EXFO Inc. Notes to Condensed Unaudited Interim Consolidated Financial Statements

(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)

9 Income Taxes

For the three months ended November 30, 2018 and 2019, the reconciliation of the income tax provision (recovery) calculated using the combined Canadian federal and provincial statutory income tax rate with the income tax provision in the consolidated financial statements is as follows:

Income tax provision (recovery) at combined Canadian federal and provincial statutory tax rate (27%) Increase (decrease) due to: Foreign income taxed at different rates Non-deductible loss Non-deductible expenses Foreign exchange effect of translation of foreign subsidiaries Utilization of previously unrecognized deferred income tax assets Unrecognized deferred income tax assets on temporary deductible differences and unused tax losses Other Income tax provision for the period The income tax provision consists of the following:	Three months ended November 30,	Three months ended November 30,
	2019 $ 704 178 14 178 (115) (16) 1,442 284 $ 2,669	2018
		$ (1,573) 234 100 226 (160) (84) 2,553 345
		$ 1,641

Current Deferred	Three months ended November 30,	Three months ended November 30,
	2019 $ 3,111 (442) $ 2,669	2018
		$ 1,670 (29)
		$ 1,641

EXFO Inc.

Notes to Condensed Unaudited Interim Consolidated Financial Statements

(tabular amounts in thousands of US dollars, except share and per share data and as otherwise noted)

10 Earnings per Share

The following table summarizes the reconciliation of the basic weighted average number of shares outstanding to the diluted weighted average number of shares outstanding:

Basic weighted average number of shares outstanding (000’s) Plus dilutive effect of (000’s): Restricted share units Deferred share units Diluted weighted average number of shares outstanding (000’s) Stock awards excluded from the calculation of the diluted weighted average number of shares outstanding because their exercise price was greater than the average market price of the common shares, or their inclusion would be antidilutive (000’s)	Three months ended November 30,	Three months ended November 30,
	2019 55,439 − − 55,439 1,385	2018
		55,184 − −
		55,184
		1,721

For the three months ended November 30, 2018 and 2019, the diluted amount per share was the same amount as the basic amount per share since the dilutive effect of restricted share units and deferred share units was not included in the calculation; otherwise, the effect would have been antidilutive. Accordingly, the diluted amount per share for these periods was calculated using the basic weighted average number of shares outstanding.