Information Services Corporation - Annual Report 2020

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Consolidated Financial Statements

March 16, 2021 Year Ended December 31, 2020

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MANAGEMENT’S RESPONSIBILITY ............................................................................................................................................................. 3 INDEPENDENT AUDITOR’S REPORT ........................................................................................................................................................... 4 Consolidated Statements of Financial Position.......................................................................................................................................... 8 Consolidated Statements of Comprehensive Income................................................................................................................................ 9 Consolidated Statements of Changes in Equity ....................................................................................................................................... 10 Consolidated Statements of Cash Flows .................................................................................................................................................. 11 Notes to the Consolidated Financial Statements ..................................................................................................................................... 12 1 Nature of the Business ...................................................................................................................................................................... 12 2 Basis of Presentation ......................................................................................................................................................................... 12 3 Summary of Significant Accounting Policies ...................................................................................................................................... 14 4 Cash ................................................................................................................................................................................................... 26 5 Short-Term Investments .................................................................................................................................................................... 27 6 Trade and Other Receivables ............................................................................................................................................................ 27 7 Contract Assets .................................................................................................................................................................................. 27 8 Seasonality ........................................................................................................................................................................................ 28 9 Property, Plant and Equipment ......................................................................................................................................................... 28 10 Right-of-use Assets ............................................................................................................................................................................ 29 11 Intangible Assets ............................................................................................................................................................................... 30 12 Goodwill ............................................................................................................................................................................................ 30 13 Accounts Payable and Accrued Liabilities ......................................................................................................................................... 32 14 Contract Liabilities ............................................................................................................................................................................. 32 15 Lease Obligations .............................................................................................................................................................................. 33 16 Tax Provision ..................................................................................................................................................................................... 33 17 Share-Based Compensation Plans ..................................................................................................................................................... 35 18 Debt ................................................................................................................................................................................................... 38 19 Provisions .......................................................................................................................................................................................... 39 20 Liabilities Arising from Financing Activities ....................................................................................................................................... 40 21 Earnings Per Share ............................................................................................................................................................................ 41 22 Equity and Capital Management ....................................................................................................................................................... 41 23 Financial Instruments and Related Risk Management ...................................................................................................................... 42 24 Revenue ............................................................................................................................................................................................ 44 25 Related Party Transactions................................................................................................................................................................ 45 26 Compensation of Key Management Personnel ................................................................................................................................. 45 27 Segment Information ........................................................................................................................................................................ 46 28 Acquisitions ....................................................................................................................................................................................... 48 29 Net Change in Non-Cash Working Capital ......................................................................................................................................... 50 30 Government Grants .......................................................................................................................................................................... 50 31 Commitments and Contingencies ..................................................................................................................................................... 51 32 Pension Expense ................................................................................................................................................................................ 52 33 Subsequent Events ............................................................................................................................................................................ 52

MANAGEMENT’S RESPONSIBILITY

Management’s Report on Consolidated Financial Statements

The accompanying consolidated financial statements of Information Services Corporation were prepared by management, which is responsible for the integrity and fairness of the information presented, including the many amounts that must, of necessity, be based on estimates and judgments. These consolidated financial statements were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Financial information appearing throughout our management’s discussion and analysis is consistent with these consolidated financial statements.

In discharging our responsibility for the integrity and fairness of the consolidated financial statements and for the accounting systems from which they are derived, we maintain the necessary system of internal controls designed to ensure that transactions are authorized, assets are safeguarded and proper records are maintained. These controls include quality standards in hiring employees, policies and procedure manuals, a corporate code of conduct, and accountability for performance within appropriate and well-defined areas of responsibility.

The Board of Directors oversees management’s responsibilities for financial reporting through an Audit Committee, which is composed entirely of directors who are neither officers nor employees of Information Services Corporation. This Committee reviews our consolidated financial statements and recommends them to the Board of Directors for approval. Other key responsibilities of the Audit Committee include reviewing our existing internal control procedures and planned revisions to those procedures, and advising the directors on auditing matters and financial reporting issues.

Deloitte LLP, who was appointed by the shareholders of Information Services Corporation upon the recommendation of the Audit Committee and the Board of Directors’ approval, has performed an independent audit of the consolidated financial statements and that report follows. The auditor has full and unrestricted access to the Audit Committee to discuss the audit and related findings.

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Jeff Stusek President and Chief Executive Officer

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Shawn B. Peters, CPA, CA, ICD.D Executive Vice-President and Chief Financial Officer

March 16, 2021

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Deloitte LLP 2103 11th Avenue Mezzanine Level Bank of Montreal Building Regina SK S4P 3Z8 Canada

Tel: 306-565-5200 Fax: 306-757-4753 www.deloitte.ca

INDEPENDENT AUDITOR’S REPORT

To the Shareholders and the Board of Directors of

Information Services Corporation:

Opinion

We have audited the consolidated financial statements of Information Services Corporation (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2020 and December 31, 2019 and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2020 and 2019, and its financial performance and its cash flow for the years then ended in accordance with International Financial Reporting Standards (“IFRS”).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Goodwill— Refer to Notes 3 and 12 to the financial statements

Key Audit Matter Description

The Company’s annual assessment for goodwill impairment involves the comparison of the recoverable amount of each cash generating unit (“CGU”) to its carrying value. The Company determines the recoverable amount of its CGUs based on a value in use (“VIU”) analysis under the income approach. The Company used the discounted cash flow method to determine the recoverable amount of the Services CGU, which required management to make significant estimates and assumptions related to future revenue forecast, related party costs, direct employee costs, corporate cost allocations, perpetual growth rates and discount rates. The estimates and assumptions are highly sensitive to changes in customer demand and changes in the assumptions could have a significant impact on the recoverable amount, the amount of any goodwill impairment charge, or both. The recoverable amount of the Services CGU exceeded its carrying value as of the measurement date and no impairment was recognized.

While there are several estimates and assumptions that are required to determine the recoverable amount of the Services CGU, the estimates and assumptions with the highest degree of subjectivity are future revenue forecast, perpetual growth rate and the selection of the discount rate. Auditing these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the involvement of fair value specialists.

How the Key Audit Matter Was Addressed in the Audit

Our audit procedures related to the future revenue forecast, perpetual growth rate and the selection of the discount rate used to determine the recoverable amount for the Services CGU included the following, among others:

Evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts.
Evaluated the reasonableness of management’s future revenue forecast by comparing to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in Company press releases, analyst and industry reports.
With the assistance of fair value specialists:
Evaluated the selection of the perpetual growth rate by comparing management’s selected perpetual growth rate to forecast inflationary and economic growth applicable to Canada.
Evaluated the selection of the discount rate by testing the source information underlying the determination of the discount rates and developing a range of independent discount rate and comparing to the discount rate selected by management.

Acquisition- Customer Relationship Intangible Asset - Refer to Notes 3 and 28 to the financial statements

Key Audit Matter Description

The Company acquired Paragon Inc. (“Paragon”) and recognized the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values, as at the date of acquisition, including a customer relationship intangible asset. Management estimated the fair value of the customer relationships using the multi-period excess earnings method. In determining the fair value of customer relationships, management made estimates and assumptions to forecast future cash flows applicable to the existing customer relationships, customer attrition rates, and the discount rate. Changes in these assumptions could have a significant impact on the fair value of the customer relationships.

While there are several estimates and assumptions that are required to determine the fair value of Paragon’s customer relationships, the estimates and assumptions with the highest degree of subjectivity are future revenue forecasts and the selection of the attrition rates. Auditing these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the involvement of fair value specialists.

How the Key Audit Matter Was Addressed in the Audit

Our audit procedures related to the future revenue forecasts and the selection of the attrition rate used to determine the fair value of Paragon’s customer relationships included the following, among others:

Evaluated the reasonableness of the future revenue forecasts and attrition rates by comparing to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in Company press releases, analyst and industry reports.
With the assistance of fair value specialists;
Evaluated the appropriateness of the attrition rates by considering historical customer sales data, benchmarking of comparable transactions and companies, and qualitative considerations with respect to future customer expectations.

Other Information

Management is responsible for the other information. The other information comprises:

Management’s Discussion and Analysis
The information, other than the financial statements and our auditor’s report thereon, in the Annual Report.

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information

identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.

The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Brian Ralofsky.

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Chartered Professional Accountants Regina, Saskatchewan March 16, 2021

Information Services Corporation

Consolidated Statements of Financial Position

As At
		December 31,		December 31,
(thousands of CAD dollars)	Note		2020		2019
Assets
Current assets
Cash	4	$	33,946	$	23,731
Short-term investments	5		52		475
Trade and other receivables	6		17,031		12,648
Contract assets	7		1,053		1,623
Income tax recoverable			476		1,736
Prepaid expenses and deposits			2,825		2,120
Total current assets			55,383		42,333
Non-current assets
Property, plant and equipment	9		2,160		2,998
Right-of-use assets	10		7,580		9,668
Intangible assets	11		71,218		41,196
Goodwill	12		77,455		45,529
Deferred tax asset	16		28,504		29,855
Total non-current assets			186,917		129,246
Total assets		$	242,300	$	171,579
Liabilities
Current liabilities
Accounts payable and accrued liabilities	13	$	21,944	$	18,096
Contract liabilities	14		2,024		1,436
Lease obligations – current portion	15		1,996		1,845
Income tax payable	16		1,179		810
Long-term debt – current portion	18		-		2,000
Provisions	19		146		468
Total current liabilities			27,289		24,655
Non-current liabilities
Lease obligations	15		6,856		8,967
Deferred tax liability	16		7,695		7,543
Long-term debt	18		76,316		16,000
Other liabilities	17		2,096		173
Total non-current liabilities			92,963		32,683
Shareholders’ equity
Share capital	22		19,955		19,955
Equity settled employee benefit reserve	17		2,376		2,153
Accumulated other comprehensive income			706		5
Retained earnings			99,011		92,128
Total shareholders’ equity			122,048		114,241
Total liabilities and shareholders’ equity		$	242,300	$	171,579
See Note 31 for Commitments and Contingencies
See accompanying Notes

APPROVED BY THE BOARD OF DIRECTORS ON MARCH 16, 2021:

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Joel Teal Tony Guglielmin Director Director

Information Services Corporation

Consolidated Statements of Comprehensive Income

			Year	Ended December 31,	Ended December 31,
(thousands of CAD dollars)	Note		2020		2019
Revenue	24	$	136,723	$	132,968
Expenses
Wages and salaries	30		40,165		41,689
Cost of goods sold			31,271		31,171
Depreciation and amortization	9, 10, 11		12,865		11,400
Information technology services			7,896		8,796
Occupancy costs			3,004		3,485
Professional and consulting services			6,784		4,281
Financial services			2,654		2,138
Other			1,337		2,382
Total expenses			105,976		105,342
Net income before items noted below			30,747		27,626
Finance income (expense)
Interest income	4		172		283
Interest expense			(2,217)		(1,529)
Net finance(expense)			(2,045)		(1,246)
Income before tax			28,702		26,380
Income tax expense	16		(7,819)		(6,980)
Net income		$	20,883	$	19,400
Other comprehensive income (loss)
Items that may be subsequently reclassified to net income
Unrealized gain (loss) on translation of financial
statements of foreign operations			732		(538)
Change in fair value of marketable securities, net of
tax			(31)		29
Other comprehensive income(loss)			701		(509)
Total comprehensive income		$	21,584	$	18,891
Earnings per share($ per share)
Total, basic	21	$	1.19	$	1.11
Total, diluted	21	$	1.18	$	1.11
See accompanying Notes

Information Services Corporation

Consolidated Statements of Changes in Equity

							Accumulated
							Other
			Retained		Share	Comprehensive			Equity
(thousands of CAD dollars)	Note		Earnings		Capital		Income		Reserve		Total
Balance at January 1, 2019		$	86,728	$	19,955	$	514	$	1,687	$	108,884
Net income			19,400		-		-		-		19,400
Other comprehensive (loss)			-		-		(509)		-		(509)
Stock option expense	17		-		-		-		466		466
Dividend declared			(14,000)		-		-		-		(14,000)
Balance at December 31, 2019		$	92,128	$	19,955	$	5	$	2,153	$	114,241
Balance at January 1, 2020		$	92,128	$	19,955	$	5	$	2,153	$	114,241
Net income			20,883		-		-		-		20,883
Other comprehensive income			-		-		701		-		701
Stock option expense	17		-		-		-		223		223
Dividend declared			(14,000)		-		-		-		(14,000)
Balance at December 31, 2020		$	99,011	$	19,955	$	706	$	2,376	$	122,048

See accompanying Notes

Information Services Corporation

Consolidated Statements of Cash Flows

			Year Ended	December 31,	December 31,
(thousands of CAD dollars)	Note		2020		2019
Operating
Net income		$	20,883	$	19,400
Add: Charges not affecting cash
Depreciation	9, 10		2,888		3,690
Amortization	11		9,977		7,710
Foreign exchange loss (gain)			325		(59)
Deferred tax expense recognized in net income			1,504		1,484
Service concession arrangements	24		(249)		(1,114)
Right-of-use asset modifications loss			73		-
Loss on disposal of property, plant and equipment			9		2
Net finance expense			2,045		1,246
Stock option expense	17		223		466
Net change in non-cash workingcapital	29		3,521		(9,195)
Net cash flowprovided by operating activities			41,199		23,630
Investing
Interest received			172		283
Cash received on disposal of property, plant and equipment			2		3
Short-term investments			395		-
Additions to property, plant and equipment			(63)		(654)
Additions to intangible assets			(1,380)		(2,175)
Acquisition through business combination	28		(70,161)		(6,768)
Net cash flow used in investing activities			(71,035)		(9,311)
Financing
Interest paid			(1,365)		(833)
Interest paid on lease obligations	15		(425)		(486)
Principal repayments on lease obligations	15		(1,920)		(1,767)
Repayment of long-term debt	18		(68,000)		(2,000)
Proceeds of long-term debt	18		126,316		-
Payment of fees on debt extinguishment	18		(362)		-
Repayment of operating loan	18		(9,816)		-
Proceeds of operating loan	18		9,816		-
Dividendpaid			(14,000)		(14,000)
Net cash flowprovided by (used in) financing activities			40,244		(19,086)
Effects of exchange rate changes on cash held in foreign currencies			(193)		(153)
Increase (decrease) in cash			10,215		(4,920)
Cash, beginningofyear			23,731		28,651
Cash, end of year		$	33,946	$	23,731

See accompanying Notes

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Notes to the Consolidated Financial Statements

1 Nature of the Business

Information Services Corporation is the parent company of its subsidiary group (collectively, the “Company”, or “ISC”) and is a Canadian corporation with its Class A Limited Voting Shares (“Class A Shares”) listed on the Toronto Stock Exchange (“TSX”) under the symbol ISV. The head and registered office of the Company is 300 - 10 Research Drive, Regina, Saskatchewan, S4S 7J7. The Company is a provider of registry and information management services for public data and records. In addition to our head office in Regina, the Company has regional service centres across Saskatchewan and has operations in Toronto, ON, Etobicoke, ON, Montreal, QC, Vernon, BC, and Dublin, Ireland. ISC has three reportable segments: Registry Operations, Services and Technology Solutions. A functional summary of these segments is as follows:

Registry Operations delivers registry services on behalf of governments and private sector organizations. Currently, through this segment, ISC provides registry and information services on behalf of the Province of Saskatchewan under a 20-year Master Service Agreement (“MSA”), in effect until 2033.
Services delivers products and services that utilize public records and data to provide value to customers in the financial and legal sectors.
Technology Solutions provides the development, delivery and support of registry (and related) technology solutions.

The balance of our corporate activities and shared services functions are reported as Corporate and other.

As at December 31, 2020, ISC’s principal revenue generating segments were Registry Operations and Services.

2 Basis of Presentation

Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IAS Board”).

The Company’s Board of Directors (the “Board”) authorized the consolidated financial statements for the year ended December 31, 2020, for issue on March 16, 2021.

Basis of measurement

The consolidated financial statements have been prepared on a going concern basis using the historical cost basis except for financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2 – Share-based Payment and measurements that have some similarities to fair value but are not fair value, such as net realizable value in International Accounting Standards (“IAS”) 2 — Inventories or value in use in IAS 36 — Impairment of Assets .

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.

Functional and presentation currency

These consolidated financial statements are presented in Canadian dollars (“CAD”), which is the functional currency of the parent company.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of Information Services Corporation and its wholly owned significant operating subsidiaries: ISC Saskatchewan Inc. (“ISC Sask”), ISC Enterprises Inc. (“ISC Ent”), ESC Corporate Services Ltd. (“ESC”) and Enterprise Registry Solutions Limited (“ERS”). All intragroup assets and liabilities, equity, income, expenses and cash flows are eliminated in full on consolidation.

Use of estimates and judgments

The preparation of these consolidated financial statements, in conformity with IFRS, requires management to make estimates and underlying assumptions and judgments that affect the accounting policies and reported amounts of assets, liabilities, revenue and expenses.

Estimates and underlying assumptions are reviewed on an ongoing basis. Actual results may differ from these estimates. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Critical accounting estimates and judgments are those that have a significant risk of causing material adjustment. Management believes that the following are the significant accounting estimates and judgments used in the preparation of the consolidated financial statements.

Significant items subject to estimates and underlying assumptions include:

the carrying value, impairment and estimated useful lives of property, plant and equipment (Note 9);
the carrying value, impairment and estimated useful lives of intangible assets (Note 11) and goodwill (Note 12);
the allocation of the purchase price for the Paragon Inc. (“Paragon”) acquisition (Note 28);
the recoverability of deferred tax assets (Note 16); and
the amount and timing of revenue from contracts from customers recognized over time with milestones (Note 24).

The relevant accounting policies in Note 3 contain further details on the use of these estimates and assumptions.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Changes in accounting policies

The Company has adopted the following new and revised standards, along with any consequential amendments, effective January 1, 2020, or on such date as they became applicable. These changes were made in accordance with the applicable transitional provisions.

Standard	Description	Description
Amendments to	The amendments to IFRS 3 result in a change to the definition of a business which:
IFRS 3 –Definition of a Business		clarifies that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability
		to create outputs;
		narrows the definitions of a business and of outputs by focusing on goods and services provided
		to customers and by removing the reference to an ability to reduce costs;
		adds guidance and illustrative examples to help entities assess whether a substantive process has
		been acquired;
		removes the assessment of whether market participants are capable of replacing any missing
		inputs or processes and continuing to produce outputs; and
		adds an optional concentration test that permits a simplified assessment of whether an acquired
		set of activities and assets is not a business.

This change impacts the analysis of business combinations. The Company has adopted this amendment to IFRS 3 from January 1, 2020 and has applied this to the acquisitions completed during 2020 (see Note 28).

Amendments to IAS The amendments in Definition of Material (Amendments to IAS 1 and IAS 8) clarify the definition of 1 and IAS 8 – “material” and align the definition used in the Conceptual Framework and the standards. Definition of The change in the definition may impact the quantity and level of detail of disclosures in the Company’s Material financial statements. The amendment is prospective, and the Company has not been affected upon transition.

3 Summary of Significant Accounting Policies

Property, plant and equipment

Property, plant and equipment are recorded at cost less accumulated depreciation and any provisions for impairment. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-developed assets includes materials, services, direct labour and directly attributable overhead. Interest costs associated with major capital and development projects are capitalized during the development period. Depreciation of assets under development will commence once they are operational and available for use.

The costs of maintenance, repairs, renewals or replacements that do not extend the productive life of an asset are charged to operations when incurred. The costs of replacements and improvements which extend the productive life are capitalized.

The cost of replacing part of an item of property, plant 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 cost can be measured reliably. The carrying amount of the replaced part is derecognized.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Depreciation is recorded on property, plant and equipment on the straight-line basis, which is the cost of the asset less its residual value over the estimated productive life of each asset. The useful life of each asset is as follows:

Leasehold improvements Shorter of lease term or period of usefulness Office furniture 2-10 Years Office equipment 2-10 years Hardware 3-4 years

The estimated useful life and depreciation methods are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Gains or losses arising from the disposition or retirement of an item of property, plant and equipment are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statements of comprehensive income.

Intangible assets

Intangible assets consist of acquired and internally developed internal-use software and business solutions. It also includes externally acquired customer contracts, customer and partner relationships, brand, non-competes, other intangible assets, and assets under development.

Intangible assets acquired

Internal-use software and business solutions acquired are carried at cost less accumulated amortization and any accumulated impairment losses. Internal-use software, business solutions, customer and partner relationships, brand, non-competes, and other intangible assets acquired through business combinations are initially recorded at their fair values based on the present value of expected future cash flows, which involves estimates about the future cash flows and discount rates.

Internally generated intangible assets

Research expenditures are expensed while expenditures for internal-use software developed internally, and business solutions developed internally and marketed externally are capitalized only when they meet the recognition criteria for internally generated intangible assets as provided under IFRS. An internally generated intangible asset arising from development is recognized if, and only if, all of the following have been demonstrated:

the technical feasibility of completing the intangible asset so that it will be available for use or sale;
the intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
the ability to reliably measure the expenditure attributable to the intangible asset during its development.

The amount initially recognized for an internally generated intangible asset is the sum of the expenditures incurred from the date when the intangible asset first meets the recognition criteria. If no internally generated intangible asset can be recognized, development expenditures are charged to operations in the period in which they are incurred. Subsequent to initial recognition, an internally generated intangible asset is reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as an intangible asset acquired separately.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Amortization of intangible assets

Amortization is recorded on intangible assets using the straight-line method over the corresponding estimated useful life of the applicable assets. The estimated useful life and amortization methods are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Gains or losses arising from the derecognition of an intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statements of comprehensive income.

Internal-use software 3-15 years Business solutions 3-7 years Contracts Term of contract Customer and partner relationships 5-15 years Brand, non-competes and other 1-15 years Assets under development N/A (not ready for use)

Impairment of tangible and intangible assets

At each statement of financial position date, ISC reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, ISC estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGUs; otherwise, they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified. Intangible assets not yet available for use are tested for impairment annually in December and whenever there is an indication that the asset may be impaired.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognized immediately in comprehensive income.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or CGU) in prior years. A reversal of an impairment loss is recognized immediately in comprehensive income.

Goodwill

Goodwill arising on the acquisition of a business represents the excess of the purchase price over the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired business recognized at the date of acquisition. Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Impairment of goodwill

For the purpose of impairment testing, goodwill is allocated to the CGUs expected to benefit from the synergies of the combination. CGUs are tested for impairment annually or more frequently if events indicate that the units may be impaired. The Company’s reporting segments that correspond to the CGUs for impairment testing are disclosed in Note 12.

When the recoverable amount of the CGU is less than the carrying amount of the CGU, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the CGU on a pro-rata basis. An impairment loss recognized for goodwill is not reversed in a subsequent year. The Company performs its annual review of goodwill in December each year.

Business acquisition

Business acquisitions are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated at the date of acquisition as the sum of the fair values of the assets transferred by the Company and the liabilities incurred by the Company to the former owners of the acquiree in exchange for the control of the acquiree. Acquisition costs are recognized in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair values, except the deferred tax assets and liabilities, which are recognized and measured in accordance with IAS 12 — Income Taxes .

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree, if applicable, over the net of the identifiable assets acquired and the liabilities assumed at the date of acquisition.

When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the “measurement period” (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in fair value of the contingent consideration that do not qualify as a measurement period adjustment depends on how the contingent consideration is classified. Contingent consideration classified as equity is not measured at subsequent reporting dates, and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IFRS 9 — Financial Instruments , or IAS 37 — Provisions, Contingent Liabilities and Contingent Assets , as appropriate, with the corresponding gain or loss recognized in net earnings or loss.

Leases

The Company assesses whether a contract is or contains a lease at inception of the contract. The Company recognizes a right-of-use asset and a corresponding lease obligation for all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of twelve months or less) and leases of low-value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Company recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

The lease obligation is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or, if that rate cannot be readily determined, the Company uses its incremental borrowing rate as the discount rate.

Lease payments included in the measurement of the lease obligation are comprised of the following:

fixed payments, including in-substance fixed payments;
variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
amounts expected to be payable under a residual value guarantee;
the exercise price under a purchase option that the Company is reasonably certain to exercise and lease payments in an optional renewal period if the Company is reasonably certain not to terminate early; and
payments of penalties for terminating the lease if the lease term reflects the exercise of an option to terminate the lease.

The lease obligation is presented in the consolidated statements of financial position with current and long-term classifications.

The lease obligation is subsequently measured by increasing the carrying amount to reflect the interest on the lease obligation (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The Company remeasures the lease obligation (and makes a corresponding adjustment to the related right-of-use asset) whenever:

The lease term has changed, or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease obligation is remeasured by discounting the revised lease payments using a revised discount rate.
The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease obligation is remeasured by discounting the revised lease payment using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
A lease contract is modified, and the lease modification is not accounted for as a separate lease, in which case the lease obligation is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

Right-of-use assets comprise the initial measurement of the corresponding lease obligation, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

Whenever the Company incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognized and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.

Right-of-use assets are depreciated over the shorter period of the lease term and the useful life of the right-of-use asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

The right-of-use assets are presented as a separate line in the consolidated statements of financial position.

The Company applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the “Property, Plant and Equipment” policy.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Variable rents that do not depend on an index or rate are not included in the measurement of the lease obligation and the right-ofuse asset. The related payments are recognized as an expense in the period in which the event or condition that triggers those payments occurs and are included in the line “occupancy costs” in the consolidated statements of comprehensive income.

As a practical expedient, IFRS 16 Leases permits a lessee not to separate non-lease components and, instead, account for any lease and associated non-lease components as a single arrangement. The Company has not used this practical expedient. For contracts that contain a lease component and one or more additional lease or non-lease components, the Company allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate standalone price of the non-lease components at amortized cost using the effective interest method.

Revenue

The Company recognizes revenue at either a point in time or over time as determined by an analysis of the terms and performance conditions of each individual customer contract on a contract-by-contract basis. The individual contract terms determine whether, when, and the amount of the revenue recognized.

The Company considers and assesses enforceability, collectability, contract combinations and modifications as part of the revenue recognition process.

The revenue recognition policies associated with each of the Company’s revenue streams are as follows:

Registry Operations revenue

Our Registry Operations segment delivers registry services to governments and private sector organizations. Our revenue is generated by providing registry and information services to end-users on behalf of the Province of Saskatchewan under the MSA. The majority of revenue is generated by earning fees from end-use customers through registrations, searches, maintenance transactions and valueadded services.

The majority of the associated transaction fees are based on a flat price per transaction or a percentage of the transaction value (ad valorem), stand-alone selling price for each distinct service which is recognized at a point in time. There is a smaller amount of fees generated under the MSA related to programs and other registries whereby the Company earns an annual operating fee or hosting and management fees versus revenue per transaction. Revenue from annual operating fees and hosting and management contracts is recognized over time on a monthly basis.

A smaller portion of revenue in the Saskatchewan Land Registry is value-added services and relates to our Geomatics business. Geomatics revenue is contract dependent, based on the distinct goods or service promised to the customer, and is either recognized at a point in time or over time for support and maintenance contracts.

Services revenue

Our Services segment delivers solutions uniting public records data, customer authentication, corporate services, collateral management and asset recovery to support registration, due diligence and lending practices of clients across Canada.

Effective July 1, 2020, we have recategorized our revenue to classify revenue in three categories, namely Corporate Solutions, Regulatory Solutions, and Recovery Solutions following the acquisition of the assets of Paragon Inc., which closed on July 31, 2020.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Corporate Solutions captures revenue from nationwide search, business name registration and corporate filing services sold to legal professionals or the general public directly or indirectly through our government relationships. It also captures revenue from our corporate supplies business. Revenue for Corporate Solutions is recognized at a point in time when services are rendered, or goods are delivered.

Regulatory Solutions captures revenue from our Know-Your-Customer, collateral management and general due diligence service offerings. We use our proprietary platform to assist clients with intuitive business rules and advanced automation to deliver regulatory services to support their credit/banking and legal processes. Revenue for Financial Support Services is recognized at a point in time when services are rendered.

Recovery Solutions offers a fully managed service across Canada and the US, which aids in facilitating and co-ordinating asset recovery on behalf of our clients. Asset recovery involves the identification, retrieval, and disposal of movable assets such as automobiles, boats, aircraft, and other forms of portable physical assets used as collateral security for primarily consumer-focused credit transactions. Recovery Solutions revenue in our services segment includes management fees and commissions earned by the provision of asset recovery services. Revenue is earned over time throughout the management of each asset recovery file and is not recognized until any variable component can be determined with sufficient certainty such that a significant reversal in the amount recognized will not occur.

Much of our Services revenue involves interacting with government registries to access public records to provide services to our customers. For this access, our Services segment usually pays a fee to the government. Where we provide simple searches to our customers, government fees are not included in our revenue (record government fees on a net basis) as they are passed through to our customers. Where our services include a number of collateral management services, government fees are a key input to these services and are recorded in revenue (record government fees on a gross basis) as well as cost of goods sold.

Technology Solutions revenue

Our Technology Solutions segment provides the development, delivery and support of registry (and related) technology solutions. We generate revenue through the following:

Sale of software licences related to the technology platform;
Provision of technology solution definition and implementation services; and
Provision of monthly hosting, support and maintenance services.

Licencing revenue is determined by assessing each individual contract to determine whether the licence obligation is distinct from the other performance obligations within the contract. The Company may have various types of licence obligations depending on the contract:

If the licence obligation is distinct, the Company determines if the licence should be recognized at a point in time (“right to use”) or over time (“right to access”) throughout the licence period.
For contracts that provide the customer with a right to use the Company’s intellectual property (“IP”) at a point in time, licence revenue is recognized once the technology is available for use and the control over the right to use the IP is transferred to the customer.
For contracts that provide the customer with a right to access the Company’s IP over time, licence revenue is recognized over the licence period.
For those contracts where the licence obligation is determined not to be distinct from other performance obligations, the licence revenue is allocated to the associated performance obligations and recognized upon achievement of the milestones applicable to those obligations.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

The Company is currently allocating the majority of its licence revenue along with the associated performance obligations and recognizing it upon achievement of the milestones applicable to those obligations.

Solution definition and implementation services revenue is recognized either at a point in time or over time using the output method, based on an assessment of the contract’s stand-alone selling price allocated to the performance milestones within the contract.

Hosting, support and maintenance revenue is recognized according to the delivery of the performance obligations in the contract and the stand-alone selling price allocated to the obligations. These services may be provided through either fixed price, deliverable-based contracts or fee-for-service contracts. Hosting contracts generally result in linear monthly revenue recognition over the term of the contract. Service revenue from fixed-price contracts to provide services is recognized by reference to the stage of completion as defined in the contract when the outcome of the contract can be estimated reliably. Service revenue from time and material contracts is recognized at the contractual rates as labour hours are delivered, and direct expenses are incurred.

Amounts received from customers in advance of the satisfaction of our performance obligations are recorded as “contract liabilities” on our consolidated statements of financial position. Amounts in “contract liabilities” are recognized into revenue as we render services or achieve performance milestones. Costs the Company incurs related to the fulfilment of a contract, but prior to reaching a performance milestone are recorded as a “contract asset” on the consolidated statements of financial position. Once the milestone is achieved, these costs are recorded in the consolidated statements of comprehensive income.

Service concession arrangements

Service concession arrangements are contracts between the Company and government entities and can involve the design, build, finance, operation, and maintenance of public infrastructure in which the government entity controls:

the services provided by the Company under the concession arrangement; and
a significant residual interest in the infrastructure.

The Company recognizes an intangible asset arising from a service concession arrangement when it has a right to charge for the usage of the concession infrastructure. The intangible asset is measured at fair value upon initial recognition and is then amortized over its expected useful life. Amortization commences when the infrastructure is available for use. Revenue related to construction or upgrade services under a concession arrangement is recognized based on the stage of completion of the work performed.

Government grants

Government grants are recognized when there is reasonable assurance that the Company will comply with the conditions on which they are based and that the grants will be received. These grants are recognized as a reduction to the associated expenses in the consolidated statements of comprehensive income on a systematic basis over the periods in which the Company recognizes as expenses the related costs for which the assistance is intended to compensate. Government grants that become receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs are recognized in the consolidated statements of comprehensive income in the period the grant becomes receivable. Any grants that have been received but not yet eligible for recognition in the consolidated statements of comprehensive income are reflected as contract liabilities in the consolidated statements of financial position.

Employee benefits

The Company provides pension plans for all eligible employees.

Saskatchewan employees make contributions to the Public Employees Pension Plan, a defined contribution plan. The Company’s obligations are limited to making regular payments to the plan for current services. These contributions are expensed.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

ESC and ERS employees have an option to make contributions to a defined contribution plan. The Company’s obligations are limited to matching employee contributions up to a maximum of 5.0 per cent of salary. These contributions are expensed.

Financial instruments

Financial assets

The Company’s financial assets are classified as either financial assets at fair value through profit or loss (“FVTPL”), fair value through other comprehensive income (“FVTOCI”) or amortized cost. The Company determines the classification of financial assets at initial recognition.

(i) Financial Assets at FVTPL

Financial assets carried at FVTPL are initially recorded at fair value and transaction costs are expensed in profit or loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets held at FVPTL are included in profit or loss in the period in which they arise. The Company does not have any assets classified as FVTPL.

(ii) Financial Assets at FVTOCI – Equity investments

Financial assets carried at FVTOCI are initially recorded at fair value plus transaction costs with all subsequent changes in fair value recognized in other comprehensive income (loss). For investments in equity instruments that are not held for trading, the Company can make an irrevocable election (on an instrument-by-instrument basis) at initial recognition to classify them as FVTOCI. On the disposal of the investment, the cumulative change in fair value remains in other comprehensive income (loss) and is not recycled to profit or loss.

(iii) Financial Assets at amortized cost (“AC”)

Financial assets are classified at amortized cost if the objective of the business model is to hold the financial asset for the collection of contractual cash flows, and the assets’ contractual cash flows are comprised solely of payments of principal and interest. The Company’s cash, short-term investments (GICs) and trade and other receivables are recorded at amortized cost as they meet the required criteria.

Financial liabilities

The Company’s financial liabilities are initially recorded at fair value, net of transaction costs, and are subsequently measured at amortized cost, using the effective interest method, with interest expense recognized on an effective yield basis.

The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expenses over the corresponding period. The effective interest rate is the rate that exactly discounts estimated future cash payments over the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

The Company’s financial liabilities include accounts payable and accrued liabilities excluding share-based accrued liabilities and longterm debt which are classified at amortized cost.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Below is a summary showing the classification and measurement bases of our financial instruments.

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Financial Instrument IFRS 9
Classification Measurement
Assets
Cash AC AC
Short-term investments (GICs) AC AC
Short-term investments – marketable securities FVTOCI FVTOCI
Trade and other receivables AC AC
Liabilities
Accounts payable and accrued liabilities excluding AC Amortized cost using effective interest rate method
share-based accrued liabilities
Long-term debt AC Amortized cost using effective interest rate method
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Impairment

The Company recognizes lifetime expected credit losses (“ECL”) for trade and other receivables. The expected credit losses on these financial assets are estimated based on the Company’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. The Company’s credit losses are historically low as most customers with credit are governments, banking institutions, and legal firms with strong credit.

For all other financial instruments, the Company recognizes lifetime ECL when there has been a significant increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.

Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within twelve months after the reporting date.

Borrowing costs

Borrowing costs directly attributable to the purchase, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Share-based compensation plans

The Company has established share-based compensation plans to provide directors and management of the Company with the opportunity to participate in the long-term success of ISC and promote a greater alignment of interests between its directors, management and shareholders.

A long-term incentive plan utilizing performance share units (“PSUs”) and share appreciation rights (“SARs”) was approved by the Board on May 15, 2019, which is described in Note 17.

PSUs are cash-settled share-based units that are contingent on the Company achieving specified performance criteria. A performance factor adjustment is made if there is an over-achievement (or under-achievement) of specified performance criteria, resulting in additional (or fewer) PSUs being converted. The Company has recognized an obligation at an estimated amount based on the arithmetic average of the closing prices per share on the TSX on the five days immediately preceding the grant date, which is recorded in other long-term liabilities. Compensation expense is recognized in proportion to the number of PSUs vested. At the end of each reporting period, the estimates are reassessed based on the fair value of the PSUs as of the reporting period. Any change in estimate is recognized as a liability and an expense at the end of the reporting period.

SARs are also cash-settled share-based units. The Black-Scholes methodology is used to value each SAR grant when awarded. The inputs used in this valuation are described below. At the end of each reporting period, the market value of the Company’s Class A Shares at the reporting date in excess of the SAR value multiplied by the number of SARs vested is recognized as an obligation in other long-term liabilities, and the offsetting amount is recorded in compensation expense.

The Company also has a deferred share unit (“DSU”) plan and a stock option plan, each of which is described in Note 17.

The Company has recognized an obligation at an estimated amount based on the fair value of the DSUs as of the grant date using the market value of the Company’s Class A Shares on the TSX. At the end of each reporting period, the estimates are reassessed based on the fair value of the DSUs at the end of the reporting period. Compensation expense is recognized in proportion to the number of DSUs vested. The DSUs can be settled in cash or shares purchased from the open market by a broker. As a result, at the end of each reporting period, the estimates are reassessed based on the fair value of the DSUs with any change in estimate recognized in the obligation and expense.

The Company has recognized an obligation at an estimated amount based on the fair value of the stock options as of the grant date using the Black-Scholes option-pricing model. The share-based compensation expense is recognized in proportion to the number of stock options vested. This expense for the reporting period also represents the total carrying amount of the equity settled employee benefit reserve arising from these stock options. It is anticipated that no new stock options will be awarded in the near term. The existing stock options will remain outstanding until exercised, expired or terminated.

The Company has used the following variables as inputs in the Black-Scholes methodology for the valuation of the SARs and the stock options. The inputs are subject to review as applicable.

Option term: the maximum duration before expiry
Risk-free rate: estimated based on 10-year Canada bond rate
Dividend yield: based on ISC’s 3-year average annual yield rate
Equity volatility: based on ISC’s 3-year standard deviation of Total Shareholder Return

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Foreign currency

The individual financial statements of each subsidiary entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each subsidiary entity are presented in Canadian dollars, which is the functional currency of the parent company and the presentation currency for the financial statements.

In preparing the individual subsidiaries' financial statements, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at that date. Exchange differences are recognized in earnings in the period in which they arise. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not translated.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign operations are expressed in Canadian dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period. Foreign currency gains and losses are recognized in other comprehensive income. The relevant amount in the cumulative foreign currency translation adjustment is reclassified into earnings upon disposition or partial disposition of a foreign operation and attributed to non-controlling interests as appropriate.

Recent accounting pronouncements

The IAS Board and International Financial Reporting Interpretations Committee (“IFRIC”) issued the following new standards and amendments to standards and interpretations, which become effective for future periods.

Proposed Standard	Description	Effective Date
Amendments to IAS	The amendments to IAS 1 affect only the presentation of liabilities as current or non-	January 1, 2023
1 –Classification of	current in the statement of financial position and not the amount or timing of recognition
Liabilities as	of any asset, liability, income or expenses, or the information disclosed about those items.
Current or Non- current	The amendments clarify that the classification of liabilities as current or non-current is based on rights that are in existence at the end of the reporting period, specify that
	classification is unaffected by expectations about whether an entity will exercise its right
	to defer settlement of a liability, explain that rights are in existence if covenants are
	complied with at the end of the reporting period, and introduce a definition of
	‘settlement’ to make clear that settlement refers to the transfer to the counterparty of
	cash, equity instruments, other assets or services.
	The amendments are applied retrospectively for annual periods beginning on or after
	January 1, 2023, with early application permitted. This amendment is currently being
	assessed by the Company to determine the impact.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Amendments to IAS	The amendments specify that the ‘cost of fulfilling’ a contract comprises the ‘costs that	January 1, 2022
37 –Onerous	relate directly to the contract’. Costs that relate directly to a contract consist of both the
Contracts – Cost of	incremental costs of fulfilling that contract (examples would be direct labour or materials)
Fulfilling a Contract	and an allocation of other costs that relate directly to fulfilling contracts (an example
	would be the allocation of the depreciation charge for an item of property, plant and
	equipment used in fulfilling the contract).
	The amendments apply to contracts for which the entity has not yet fulfilled all its
	obligations at the beginning of the annual reporting period in which the entity first applies
	the amendments. Comparatives are not restated. Instead, the entity shall recognize the
	cumulative effect of initially applying the amendments as an adjustment to the opening
	balance of retained earnings or other component of equity, as appropriate, at the date of
	initial application.
	The amendments are effective for annual periods beginning on or after January 1, 2022,
	with early application permitted. This amendment is currently being assessed by the
	Company to determine the impact.
Amendments to	The amendments update IFRS 3 so that it refers to the 2018 Conceptual Framework	January 1, 2022
IFRS 3 –Reference	instead of the 1989 Framework. They also add to IFRS 3 a requirement that, for obligations
to the Conceptual	within the scope of IAS 37, an acquirer applies IAS 37 to determine whether at the
Framework	acquisition date a present obligation exists as a result of past events. For a levy that would
	be within the scope of IFRIC 21_Levies_, the acquirer applies IFRIC 21 to determine whether
	the obligating event that gives rise to a liability to pay the levy has occurred by the
	acquisition date.
	Finally, the amendments add an explicit statement that an acquirer does not recognize
	contingent assets acquired in a business combination.
	The amendments are effective for business combinations for which the date of acquisition
	is on or after the beginning of the first annual period beginning on or after January 1,
	2022. Early application is permitted if an entity also applies all other updated references
	(published together with the updated Conceptual Framework) at the same time or earlier.

This change will impact the analysis of business combinations. The amendment is prospective, and the Company does not expect to be affected upon transition.

4 Cash

Cash is amounts held on deposit, including all highly liquid investments readily convertible to a known amount of cash with an original maturity of three months or less and subject to an insignificant risk of changes in value to be cash equivalents. Interest income earned on cash amounts in 2020 is $172 thousand (2019 – $283 thousand).

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

5 Short-Term Investments

The components of short-term investments are as follows:

The components of short-term investments are as follows:
(thousands of CAD dollars)	December 31, 2020		December 31,2019
Guaranteed investment certificates (GICs)	$	-	$	400
Marketable securities at fair value		52		75
Total short-term investments	$	52	$	475

Marketable securities consist of an investment in less than 5.0 per cent of the issued and outstanding shares of a company listed on the Australian Stock Exchange, which was acquired as part of the ERS acquisition in 2017.

6 Trade and Other Receivables

The components of trade and other receivables are as follows:

The components of trade and other receivables are as follows:
(thousands of CAD dollars)	December	31, 2020	December	31,2019
Trade receivables	$	14,247	$	12,320
Consideration due from vendor1		1,919		-
Government grants receivable2		525		-
GST/HST/VAT receivables		284		134
Other		56		194
Total trade and other receivables	$	17,031	$	12,648

1 See Note 28 – included in this amount is $0.2 million of transition related costs.

2 See Note 30.

7 Contract Assets

The components of contract assets are as follows:

(thousands of CAD dollars)	December	31, 2020	December	31,2019
Unbilled revenue	$	349	$	1,420
Contract fulfilment costs		704		203
Total contract assets	$	1,053	$	1,623

Unbilled revenue represents uninvoiced amounts due from customers under Technology Solutions contracts that arise when the Company meets performance-related milestones. At the point the Company invoices the amounts, they are reclassified into trade receivables.

Contract fulfilment costs are costs the Company incurs related to the fulfilment of Technology Solutions contracts before reaching a performance milestone. Once the performance milestone is achieved, these costs, along with the associated revenue, will be recognized in the consolidated statements of comprehensive income.

The Company does not have any contract acquisition costs at the end of the reporting period and did not recognize any amortization of contract acquisition costs during the year (2019 – nil).

There were no impairment losses recognized on any contract asset during the year (2019 – nil).

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

8 Seasonality

Our Registry Operations segment experiences moderate seasonality, primarily because Saskatchewan Land Titles revenue fluctuates in line with real estate transaction activity in Saskatchewan. Typically, our second and third quarters generate higher revenue during the fiscal year when real estate activity is traditionally highest. In our Services segment, our corporate and regulatory solutions revenue is reasonably diversified and has little seasonality; instead, it fluctuates in line with the general economic drivers. In particular, our collateral management services experiences seasonality aligned to vehicle and equipment financing cycles, which are generally more robust in the second and fourth quarters. Our recovery solutions revenue also does not have specific seasonality but is countercyclical to our other business, in that it can perform better in poor economic conditions. Our Technology Solutions segment does not experience seasonality but can fluctuate due to the timing of project-related revenue. The balance of our corporate activities and shared services functions, reported under Corporate and other, do not experience seasonality. Expenses are generally consistent from quarter to quarter but can fluctuate due to the timing of project-related or acquisition activities.

9 Property, Plant and Equipment

(thousands of CAD dollars) Leasehold Improvements	Office Furniture Office Equipment	Hardware Assets Under Development	Total
Cost Balance at December 31, 2018 $ 10,370 Acquired assets - Additions - Disposals (43) Transfers - Foreign exchange adjustments (3)	$ 3,282 $ 197 11 - 12 - (67) (3) 24 - (3) -	$ 2,825 $ - 12 - 38 604 (382) - 580 (604) (15) -	$ 16,674 23 654 (495) - (21)
Balance at December 31,2019 $ 10,324	$ 3,259 $ 194	$ 3,058 $ -	$ 16,835
Acquired assets1 - Additions - Disposals (430) Transfers - Foreign exchange adjustments 2	- - - 6 (26) (23) - - 3 -	3 - 13 44 (15) - 30 (30) 15 -	3 63 (494) - 20
Balance at December 31, 2020 $ 9,896	$ 3,236 $ 177	$ 3,104 $ 14	$ 16,427
Accumulated depreciation Balance at December 31, 2018 $ 7,548 Depreciation 589 Impairment2 368 Disposals (43) Foreign exchange adjustments -	$ 2,886 $ 150 174 22 - - (63) (3) (1) -	$ 2,295 $ - 301 - - - (380) - (6) -	$ 12,879 1,086 368 (489) (7)
Balance at December 31,2019 $ 8,462	$ 2,996 $ 169	$ 2,210 $ -	$ 13,837
Depreciation 458 Disposals (430) Foreign exchange adjustments 1	76 17 (26) (23) - -	363 - (15) - 9 -	914 (494) 10
Balance at December 31, 2020 $ 8,491	$ 3,046 $ 163	$ 2,567 $ -	$ 14,267
Carrying value At December 31, 2019 $ 1,862 At December 31, 2020 $ 1,405	$ 263 $ 25 $ 190 $ 14	$ 848 $ - $ 537 $ 14	$ 2,998 $ 2,160

1 Acquired assets – see Note 28.

2 Impairment – see Note 19.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

10 Right-of-use Assets

10 Right-of-use Assets
		Property and
(thousands of CAD dollars)		Equipment1
Cost
Balance at January 1, 2019	$	17,708
Additions and modifications		401
Disposals		(527)
Foreign exchange adjustments		(78)
Balance at December 31, 2019	$	17,504
Additions and modifications		229
Disposals		(811)
Foreign exchange adjustments		71
Balance at December 31, 2020	$	16,993
Accumulated depreciation
Balance at January 1, 2019	$	6,150
Depreciation		2,063
Impairment2		173
Disposals		(527)
Foreign exchange adjustments		(23)
Balance at December 31, 2019	$	7,836
Depreciation		1,974
Disposals		(436)
Foreign exchange adjustments		39
Balance at December 31, 2020	$	9,413
Carrying value
At December 31, 2019	$	9,668
At December 31, 2020	$	7,580

1 The Company’s right-of-use assets consist primarily of property leases associated with the lease of office space.

2 Impairment – see Note 19.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

11 Intangible Assets

11 Intangible Assets
(thousands of CAD dollars) Internal Use Software– Acquired	Internal Use Software– Internally Developed Business Solutions– Acquired	Business Solutions– Internally Developed Brand, Non- Competes, Other	Contracts, Customer & Partner Relation- ships Assets Under Develop- ment	Total
Cost Balance at December 31, 2018 $ 25,835 Acquired assets 4,051 Additions 413 Disposals (984) Transfers 102 Foreign exchange adjustments -				$ 140,495 5,228 3,289 (1,268) - (411)
	$ 77,137 $ 2,190 - - - - (257) - - - - (152)	$ 4,243 $ 2,279 - 176 - - (27) - 1,307 - (108) (43)	$ 27,339 $ 1,472 1,001 - - 2,876 - - - (1,409) (54) (54)
Balance at December 31,2019 $ 29,417	$76,880 $ 2,038	$5,415 $ 2,412	$28,286 $ 2,885	$147,333
Acquired assets1 260 Additions - Disposals (2,726) Transfers - Foreign exchange adjustments -	- - - - (116) - 3,143 - - 136	- 260 30 - - (320) 388 - 176 39	37,600 - - 1,599 (560) - - (3,531) 49 2	38,120 1,629 (3,722) - 402
Balance at December 31, 2020 $ 26,951	$ 79,907 $ 2,174	$ 6,009 $ 2,391	$ 65,375 $ 955	$ 183,762
Accumulated depreciation Balance at December 31, 2018 $ 14,216 Amortization 3,371 Disposals (984) Foreign exchange adjustments -	$ 76,508 $ 624 318 309 (257) - - (49)	$ 2,074 $ 1,194 688 286 (27) - (10) (24)	$ 5,175 $ - 2,738 - - - (13) -	$ 99,791 7,710 (1,268) (96)
Balance at December 31,2019 $ 16,603	$76,569 $ 884	$2,725 $ 1,456	$7,900 $ -	$106,137
Amortization 3,476 Disposals (2,716) Foreign exchange adjustments -	625 318 (116) - - 65	761 332 - (320) 29 31	4,465 - (560) - 17 -	9,977 (3,712) 142
Balance at December 31, 2020 $ 17,363	$ 77,078 $ 1,267	$ 3,515 $ 1,499	$ 11,822 $ -	$ 112,544
Carrying value At December 31, 2019 $ 12,814 At December 31, 2020 $ 9,588	$ 311 $ 1,154 $ 2,829 $ 907	$ 2,690 $ 956 $ 2,494 $ 892	$ 20,386 $ 2,885 $ 53,553 $ 955	$ 41,196 $ 71,218

1 Acquired assets – see Note 28.

12 Goodwill

The components of goodwill are as follows:

(thousands of CAD dollars)	December	31, 2020	December 31,2019
Balance, beginning of the year	$	45,529	$ 44,310
Additions1		31,657	1,517
Foreign exchange adjustment		269	(298)
Balance, end ofyear	$	77,455	$45,529

1 Acquisitions – see Note 28.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

For the purposes of the annual impairment testing, goodwill is allocated to the following CGUs which are the groups of units expected to benefit from the synergies of the business combinations:

(thousands of CAD dollars)	December 31, 2020	December 31,2019
Registry Operations	$ 1,200	$ 1,200
Services	67,372	35,715
TechnologySolutions	8,883	8,614
Balance, end ofyear	$ 77,455	$45,529

The Company performs a goodwill impairment test annually on December 31 and whenever there is an indication of impairment. No impairment of goodwill was identified as a result of the Company’s most recent annual impairment test.

In 2020, the Company used the traditional cash flow approach for determining value in use for the Registry Operations segment, while value in use for each of the Services and Technology Solutions segments was determined using the expected cash flow approach. The Company uses the discounted cash flow method to determine the recoverable amount, which required management to make estimates and assumptions related to revenue forecasts, related party costs, direct employee costs, corporate cost allocations, perpetual growth rates and discount rates. The estimates and assumptions are highly sensitive to changes in customer demand, and changes in the assumptions could significantly impact the recoverable amount, the amount of any goodwill impairment charge, or both. In all cases, the operating and investing cash flows of the segments utilized the Company’s most recent multi-year plan, with assumptions based on experience and future expectations for business performance.

Registry Operations

Key assumptions for this segment include the performance of the Saskatchewan economy, revenue growth, related party costs, corporate cost allocations required to support infrastructure and future technological investment in, and related to, this infrastructure. In 2020, annual impairment testing for this segment utilized a pre-tax discount rate of 12.3 per cent (2019 – 12.9 per cent) and a perpetual growth rate of 2.0 per cent (2019 – 2.0 per cent). Given the large and strong cash flow in Registry Operations relative to the size of goodwill, the risk of impairment is remote, and, as a result, the traditional cash flow approach was used for this segment.

Services

Key assumptions for this segment include the performance of the Canadian economy, revenue growth, including attracting new customers and adding incremental value to existing customers, related party costs, corporate cost allocations required to support infrastructure, and future technological investment in, and related to, this infrastructure. The estimates and assumptions with the highest degree of subjectivity are revenue forecasts, perpetual growth rates and discount rates. Performance during the multi-year planning period is consistent with past performance, which experienced growth in operating cash flow in excess of the perpetual growth rate of 2.75 per cent (2019 – 2.0 per cent) used in the annual test. In 2020, annual impairment testing for this segment utilized a pre-tax discount rate of 18.2 per cent (2019 – 15.2 per cent).

Technology Solutions

Key assumptions for this segment, which has operations both in Ireland and Canada, include revenue growth, including the ability to attract new customers, actual contract delivery performance compared to the level of performance anticipated when the contract was negotiated, the level of support required by related party customers, direct employee costs, and corporate cost allocations required to support infrastructure as well as future technological investment in, and related to, intellectual property. The estimates and assumptions with the highest degree of subjectivity are revenue forecasts, perpetual growth rates and discount rates. Performance during the multi-year planning period is consistent with past performance, which experienced growth in operating cash

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

flow in excess of the perpetual growth rate of 2.0 per cent (2019 – 2.0 per cent) used in the annual test. In 2020, annual impairment testing for this segment utilized a pre-tax discount rate of 15.2 per cent (2019 – 15.8 per cent) in its Canadian-based operations and 13.3 per cent (2019 – 14.3 per cent) in its Ireland-based operations.

13 Accounts Payable and Accrued Liabilities

The components of accounts payable and accrued liabilities are as follows:

(thousands of CAD dollars)	December	31, 2020	December	31,2019
Trade payables	$	3,338	$	733
Accrued liabilities		8,939		8,870
Customer deposits		3,664		3,536
Dividend payable		3,500		3,500
Share-based accrued liabilities		2,503		1,457
Total accountspayable and accrued liabilities	$	21,944	$	18,096

14 Contract Liabilities

The components of contract liabilities are as follows:

The components of contract liabilities are as follows:
(thousands of CAD dollars)	December	31, 2020	December	31,2019
Amounts received in advance of Registry Operations transaction, maintenance and support
contracts (i)	$	326	$	331
Amounts received in advance of TechnologySolutions support and deliverycontracts(ii)		1,698		1,105
Total contract liabilities	$	2,024	$	1,436

(i) Revenue that relates to Registry Operations transactions is recognized at a point in time. Revenue that relates to Registry Operations maintenance and support contracts is recognized over time. A contract liability is recognized for payments received from end-use customers in advance of services being provided and is recognized into revenue either at the point in time the service is rendered or over the service period.
(ii) Revenue and other income related to Technology Solutions contracts, including government assistance, is recognized over time as the performance obligations in the contract are achieved. These obligations may be based on a time period or on performance-based milestones identified in the contract. A contract liability is recognized for payments received from customers in advance and is recognized into revenue either over the service period or when performance milestones are achieved.

Revenue recognized in 2020 that was included in the contract liability balance at December 31, 2019:

Revenue recognized in 2020 that was included in the contract liability balance at December	31, 2019:
		Year	Ended	December 31,
(thousands of CAD dollars)		2020		2019
Registry Operations transaction, maintenance and support contracts	$	331	$	322
TechnologySolutions support and deliverycontracts		924		1,942
Total revenue recognized that was included in the balance at the beginning of theperiod	$	1,255	$	2,264

The Company has elected to apply the practical expedient as per IFRS 15 B16 and does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

15 Lease Obligations

15 Lease Obligations
		Year Ended December 31,
(thousands of CAD dollars)		2020		2019
Balance, beginning of year	$	10,812	$	12,235
Additions		106		24
Interest expense		425		486
Effect of modification to lease terms		(178)		375
Lease payments1		(2,345)		(2,253)
Foreign exchange adjustments		32		(55)
Balance, end ofyear	$	8,852	$	10,812

1 Lease payments net of interest expense represents the principal portion of lease payments reflected on the consolidated statements of cash flows.

The Company’s lease obligations consist primarily of property leases associated with the lease of office space. Expenses for short-term leases and leases of low-dollar value items are not material. All extension options have been included in the measurement of lease obligations.

The following table presents the contractual undiscounted cash flows for lease obligations:

		Year	Ended December 31,	Ended December 31,
(thousands of CAD dollars)		2020		2019
Year 1	$	2,342	$	2,276
Year 2		1,798		2,374
Year 3		1,663		1,845
Year 4		1,659		1,715
Year 5		462		1,710
Thereafter		2,289		2,693
Balance, end of year	$	10,213	$	12,613
Unearned interest		(1,361)		(1,801)
Balance, end ofyear	$	8,852	$	10,812

Reflected as:
Lease obligations – current portion		1,996		1,845
Lease obligations		6,856		8,967
Balance, end ofyear	$	8,852	$	10,812

16 Tax Provision

The Company is subject to federal and provincial income taxes at an estimated combined statutory rate of 27.0 per cent (2019 — 27.0 per cent).

per cent).
		Year	Ended December 31,
(thousands of CAD dollars)		2020		2019
Current tax expense	$	6,315	$	5,496
Deferred tax expense		1,504		1,484
Income tax expense	$	7,819	$	6,980

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Income tax expense varies from the amounts that would be computed by applying the statutory income tax rate to earnings before taxes for the following reasons:

taxes for the following reasons:
		Year	Ended	December 31,
(thousands of CAD dollars)		2020		2019
Net income before tax	$	28,702	$	26,380
Combined statutoryincome tax rate		27.00%		27.00%
Expected income tax expense		7,750		7,122
Increase (decrease) in income tax resulting from:
Non-taxable items		-		(20)
Non-deductible expenses		67		279
Foreign income tax differential		(278)		105
Adjustment to prior years’ deferred tax liabilities		269		(382)
Other		11		(124)
Income tax expense	$	7,819	$	6,980

Income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:

						Foreign		Net Balance
		Net Balance		Recognized in		Exchange	December 31,			Deferred Tax			Deferred Tax
(thousands of CAD dollars)	January 1, 2020			Profit or Loss		Movement		2020		Asset			Liability
Property, plant and equipment	$	154	$	(66)	$	-	$	88	$	38	$		50
Right-of-use assets		(2,531)		535		(4)		(2,000)		(1,900)			(100)
Intangible assets		21,214		(1,215)		(14)		19,985		26,838			(6,853)
Goodwill		-		(916)		-		(916)		-			(916)
Non-capital losses		200		(214)		14		-		-			-
Lease obligations		2,835		(499)		5		2,341		2,230			111
Other		440		871		-		1,311		1,298			13
Net deferred tax assets (liabilities)	$	22,312	$	(1,504)	$	1	$	20,809	$	28,504		$	(7,695)

						Foreign		Net Balance
		Net Balance		Recognized in		Exchange		December 31,		Deferred Tax		Deferred Tax
(thousands of CAD dollars)	January1,2019			Profit or Loss		Movement		2019		Asset		Liability
Property, plant and equipment	$	186	$	(32)	$	-	$	154	$	97	$	57
Right-of-use assets		(2,998)		462		5		(2,531)		(2,312)		(219)
Intangible assets		23,255		(2,058)		17		21,214		28,825		(7,611)
Non-capital losses		-		200		-		200		200		-
Lease obligations		3,176		(336)		(5)		2,835		2,605		230
Other		160		280		-		440		440		-
Net deferred tax assets (liabilities)	$	23,779	$	(1,484)	$	17	$	22,312	$	29,855	$	(7,543)

The increase in tax bases of certain of the Company's assets upon the change in tax status related to the Company’s Initial Public Offering created a deferred income tax asset. Upon acquisition of AVS Systems Inc. in 2017, the value of the acquired assets was greater on an accounting basis than on a tax basis, resulting in a deferred income tax liability.

In assessing the recovery of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. The recognition and measurement of the current and deferred income tax assets and liabilities involves dealing with uncertainties in the application of complex tax regulations and in the assessment of the recoverability of the

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

deferred income tax assets. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences are deductible.

Actual income taxes could vary from these estimates as a result of future events, including changes in income tax laws or the outcome of tax reviews by tax authorities and related appeals. To the extent the outcome is different from the amounts initially recorded, such differences, which could be significant, will impact the tax provision in the period in which the outcome is determined.

No deferred tax has been recognized in respect of temporary differences associated with investments in the Company’s subsidiaries where the Company can control the timing and reversal of the temporary differences, and it is probable that such differences will not reverse in the foreseeable future.

During 2020, ERS fully utilized its $1.6 million of tax losses, for which a deferred tax asset of $0.2 million had been recognized in 2019 against taxable income, thus eliminating the deferred income tax asset related thereto.

17 Share-Based Compensation Plans

The Company has established share-based compensation plans to provide directors and management of the Company with the opportunity to participate in the long-term success of ISC and to promote a greater alignment of interests between its directors, management and shareholders.

Performance share units

Introduced in 2019, PSUs are granted with the objective of recognizing and rewarding management for performance and retention.

A PSU is a notional unit equivalent to a Class A Share granted by the Company to the participant entitling such participant to receive the PSU payment value, which is conditional on attaining specific PSU performance criteria.

PSU awards vest at the end of the specified vesting period if the performance conditions determined by the Board in the grant agreement are met. PSUs earn dividend equivalent units in the form of additional PSUs at the same rate as dividends on Class A Shares. The cash redemption value of the PSUs is equivalent to the market value of the Class A Shares when redemption takes place multiplied by a multiplier based on the grant agreement and the performance against the performance conditions as specified. The maximum PSU payout multiplier is 150.0 per cent.

On the settlement date, the Company delivers to each participant a cash payment equal to the redemption value of the PSU. A summary of the status of the PSU plan and the changes within the period ended December 31, 2020, are as follows:

	Units	Weighted Average Award Price	Weighted Average Award Price
Balance at December 31, 2018	-	$	-
PSUs granted November 18, 2019	32,585.00		16.11
PSUs credited as a result of cash dividendspaid	415.32		15.69
Balance at December 31,2019	33,000.32	$	16.10
PSUs granted March 26, 2020	38,701.00	$	13.71
PSUs credited as a result of cash dividendspaid	3,545.90		16.51
Balance at December 31, 2020	75,247.22	$	14.89

The Company has recognized an obligation at an estimated amount based on the arithmetic average of the closing prices per share on the TSX on the five days immediately preceding the grant date. Compensation expense is recognized in proportion to the number of PSUs vested. At the end of each reporting period, the estimates are reassessed based on the fair value of the PSUs as of the reporting period. Any change in estimate is recognized as a liability and an expense at the end of the reporting period.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

The share-based compensation expense related to the PSUs for the year ended December 31, 2020, totalled $690 thousand (2019 — $173 thousand). The total carrying amount of the liability arising from the PSUs as of December 31, 2020, totalled $863 thousand (December 31, 2019 — $173 thousand). The liability amount is included within other non-current liabilities on the consolidated statements of financial position.

Share appreciation rights

Introduced in 2019, SARs are granted with the objective of recognizing and rewarding management for creating sustainable, longterm shareholder value, as well as retention. A SAR is a right granted by the Company to a participant to receive a cash payment equal to any appreciation in the Class A Shares in excess of the SAR price at the grant date during a specified period.

SAR awards vest and become exercisable at a rate of 25.0 per cent on each anniversary of the grant date beginning with the first anniversary, unless an alternate vesting schedule is specified by the Board at the time of the award.

The participant is able to exercise the SARs as they vest. The cash redemption value of the SARs is equivalent to the excess of the market value of the Class A Shares at the exercise date over the SAR price in the grant agreement.

On the settlement date, the Company delivers to each participant a cash payment equal to the redemption value of the SARs.

A summary of the status of the SAR plan and the changes within the year ended December 31, 2020, are as follows:

	Units	Weighted Average	Award Price
Balance at December 31, 2018	-	$	-
SARsgranted November 18,2019	243,116.00		16.11
Balance at December 31, 2019	243,116.00	$	16.11
SARsgranted March 31,2020	291,386.00		13.71
Balance at December 31, 2020	534,502.00	$	14.80

The share-based compensation expense related to the SARs for the year ended December 31, 2020, totalled $1.2 million (2019 — nil). The total carrying amount of the liability arising from SARs as of December 31, 2020, was $1.2 million (December 31, 2019 – nil). The liability amount is included within other non-current liabilities on the consolidated statements of financial position.

Deferred share units

The Company has established a DSU plan to provide directors of ISC with the opportunity to participate in the long-term success of ISC and to promote a greater alignment of interests between its directors and shareholders. The Board may award DSUs at its discretion, from time to time, in accordance with the plan and upon such other terms and conditions as the Board may prescribe. DSU awards vest immediately unless an alternate vesting schedule is specified by the Board at the time of the award.

DSUs earn dividend equivalent units in the form of additional DSUs at the same rate as dividends on Class A Shares. The participant is not allowed to redeem the DSUs until termination of employment/directorship or death. The cash value of the DSUs is equivalent to the market value of the Class A Shares when redemption takes place.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

On each applicable redemption date, the Company delivers to each participant a cash payment equal to the redemption value of the DSUs, or an equivalent number of Class A Shares purchased on the TSX. A summary of the status of the DSU plan and the changes within the years ended December 31, 2020, and 2019 are as follows:

	Units	Weighted Average Award Price	Weighted Average Award Price
Balance at December 31, 2018	72,114.15	$	17.44
DSUs granted November 14, 2019	22,351.00		15.97
DSUs credited as a result of cash dividendspaid	3,848.00		16.07
Balance at December 31,2019	98,313.15	$	17.05
DSUs granted June 30, 2020	23,800.00		15.00
DSUs credited as a result of cash dividendspaid	5,554.00		16.66
Balance at December 31, 2020	127,667.15	$	16.65

The Company has recognized an obligation based on the fair value of the DSUs as of the grant date. Compensation expense is recognized in proportion to the amount of DSUs vested. At the end of each reporting period, the obligation is reassessed based on the fair value of the DSUs as of the reporting period. Any change in estimate is recognized as a liability and an expense at the end of the reporting period.

Share-based compensation expense related to the DSUs for the year ended December 31, 2020, totalled $1.0 million (2019 — $371 thousand). The total carrying amount of the liability arising from the DSUs as of December 31, 2020, totalled $2.5 million (December 31, 2019 — $1.5 million). The liability amount is included within accounts payable and accrued liabilities on the consolidated statements of financial position.

The fair value of the DSUs at December 31, 2020, has been calculated using the market value of the Company’s Class A Shares on the TSX.

Stock options

The Company established a stock option plan approved by shareholders in 2014 and subsequently amended and restated at various points. The exercise price of options issued under the stock option plan is determined by the Board at the time of the grant, but shall not be less than the closing price for the Class A Shares on the TSX on the trading day immediately preceding the date of the grant.

Unless the Board determines otherwise, options granted will vest and become exercisable in equal tranches over the four years following the date of the grant. Once vested, options may be exercised at any time within eight years of the date of the grant, after which they expire and terminate.

A summary of the status of the stock option plan and the changes within the years ended December 31, 2020, and 2019 are as follows:

	Options	Average Exercise Price
Balance at December 31, 2018	1,548,247	$ 17.27
Stock optionsgranted duringtheyear	-	-
Balance at December 31,2019	1,548,247	$17.27
Stock optionsgranted duringtheyear	-	-
Balance at December 31, 2020	1,548,247	$ 17.27

At the end of the period, the outstanding share options had a weighted average exercise price of $17.27 (December 31, 2019 — $17.27). The number of options exercisable at the end of the period was 1,233,095 (December 31, 2019 — 961,217) and had a weighted average exercise price of $17.05 (December 31, 2019 — $16.78) based on a range of exercise prices from $15.04 to $18.85 (December 31, 2019 — $15.04 to $18.85).

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Compensation expense is recognized in proportion to the number of stock options vested. Share-based compensation expense related to the stock options for the year ended December 31, 2020, totalled $223 thousand (2019 — $466 thousand). The total carrying amount of the equity settled employee benefit reserve arising from these stock options as of December 31, 2020, totalled $2.3 million (December 31, 2019 — $2.1 million).

18 Debt

On August 5, 2020, the Company entered into a new credit agreement in connection with its secured credit facility (the "Credit Facility"). The aggregate amount available under the new Credit Facility is $150.0 million, up from the previous facility of $80.0 million. The new Credit Facility was used to refinance amounts under the previous facilities, with the balance available to the Company for future growth opportunities, capital expenditures, and for general corporate purposes. The new agreement, which added an additional Canadian chartered bank as a lender, was an extinguishment of debt for accounting purposes. The Company recognized costs of $362,491 related to the extinguishment of the previous credit facilities.

Maturing on August 5, 2022, the Credit Facility bears interest at a base rate of prime, bankers’ acceptance, or letter of credit fee plus a margin varying between 0.75 per cent and 3.25 per cent per annum depending on the type of advance and the performance on certain covenants.

The Company is also required to pay a commitment fee quarterly in arrears on the unutilized portion of the Credit Facility, at a rate between 0.35 per cent and 0.65 per cent per annum depending on the performance on certain covenants.

Prior to maturity, there are no mandatory repayments on the Credit Facility, except for repayments associated with asset sales with proceeds exceeding $5.0 million. However, the Company may make voluntary prepayments provided they are in minimum aggregate amounts of $1.0 million.

Term debt is as follows:

Term debt is as follows:
(thousands of CAD dollars)	December	31, 2020	December	31,2019
Current
Operating loan	$	-	$	-
Revolving term facility		-		-
Non-revolvingterm facility		-		2,000
Total current		-		2,000
Non-current
Operating loan		-		-
Revolving term facility		76,316		-
Non-revolvingterm facility		-		16,000
Total non-current	$	76,316	$	16,000
Total debt	$	76,316	$	18,000

At December 31, 2020, non-cash drawings, consisting of letters of credit and similar, were approximately $0.2 million (2019 — $0.2 million). The total unused and available portion of the Credit Facility at December 31, 2020 was $73.5 million (2019 – $59.8 million).

The Credit Facility contains financial covenants which require the Company to maintain a ratio of Consolidated Net Funded Debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) of less than 4:1 and an EBITDA to interest expense ratio of greater than 3:1.

The Credit Facility also contains other positive covenants, negative covenants, events of default, representations and warranties customary for credit facilities of this nature. The Company was in compliance with all covenants throughout the period.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

The indebtedness under the Credit Facility is secured by a first ranking security interest over substantially all of the Company’s assets (subject to the Government of Saskatchewan's security under a debenture), including security interests, pledges and guarantees granted by certain of its subsidiaries.

The amount of borrowing costs capitalized during 2020 and 2019 was nil.

19 Provisions

The following table presents the movement in provisions during the year:

	Restructuring	Restructuring		Other
(thousands of CAD dollars)		Provision		Provisions		Total
Balance, December 31, 2018	$	-	$	-	$	-
Additions		643		160		803
Utilizations and settlements		(321)		(14)		(335)
Balance,December 31,2019	$	322	$	146	$	468
Additions		-		-		-
Utilizations and settlements		(264)		(58)		(322)
Balance, December 31, 2020	$	58	$	88	$	146

In 2019, the Company decided to close three of its regional service centres in Saskatchewan in addition to other services. The restructuring provision primarily consists of severance, site decommissioning and contract termination costs. The other provisions relate to costs expected to be incurred under site contracts due to the closure decision. Management expects to settle the provisions within the next twelve months.

In 2019, the Company also recorded impairments of leasehold improvements and right-of-use assets related to these regional service centres that aggregate to $541 thousand.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

20 Liabilities Arising from Financing Activities

The tables below provide the reconciliation of movements of liabilities to cash flows arising from financing activities.

			Year	ended	December 31,
(thousands of CAD dollars)			2020		2019
Financing activities
Interest paid	(a)	$	(1,365)	$	(833)
Interest paid on right-of-use assets	(b)		(425)		(486)
Principal repayments on lease obligations	(b)		(1,920)		(1,767)
Repayment of long-term debt	(c)		(68,000)		(2,000)
Proceeds of long-term debt	(c)		126,316		-
Payment of fees on debt extinguishment	(d)		(362)		-
Repayment of operating loan	(e)1		(9,816)		-
Proceeds of operating loan	(e)1		9,816		-
Dividendspaid	(f)		(14,000)		(14,000)
Net cash flowprovided by (used in) financing activities		$	40,244	$	(19,086)

1 The operating loan was drawn and paid off in the year, so no balance exists as at December 31, 2020 and 2019.

	As at December 31,	As at December 31,								As at December 31,	As at December 31,
		2019		Cash Flows			Non-cash	Changes			2020
							Dividends
							Declared		Other
Interest payable	$	203	$	(1,365)	(a)	$	-	$	1,385	$	223
Lease obligation including current portion and interest paid		10,812		(2,345)	(b)		-		385		8,852
Long-term debt including current portion		18,000		58,316	(c)		-		-		76,316
Payment of fees on debt extinguishment		-		(362)	(d)		-		362		-
Dividendspayable		3,500		(14,000)	(f)		14,000		-		3,500
	$	32,515	$	40,244		$	14,000	$	2,132	$	88,891

	As at January 1,	As at January 1,								As at December 31,	As at December 31,
		2019		Cash Flows			Non-cash	Changes			2019
							Dividends
							Declared		Other
Interest payable	$	-	$	(833)	(a)	$	-	$	1,036	$	203
Lease obligation including current portion and interest paid		12,235		(2,253)	(b)		-		830		10,812
Long-term debt including current portion		20,000		(2,000)	(c)		-		-		18,000
Dividendspayable		3,500		(14,000)	(f)		14,000		-		3,500
	$	35,735	$	(19,086)		$	14,000	$	1,866	$	32,515

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

21 Earnings Per Share

The calculation of earnings per share is based on net income after tax and the weighted average number of shares outstanding during the period. Details of the earnings per share are set out below:

the period. Details of the earnings per share are set out below:
		Year	Ended	December 31,
(thousands of CAD dollars,except number of shares and earningsper share)		2020		2019
Net income	$	20,883	$	19,400
Weighted average number of shares, basic		17,500,000		17,500,000
Potential dilutive shares resultingfrom stock options		156,857		26,963
Weighted average number of shares,diluted		17,656,857		17,526,963
Earnings per share($ per share)
Total, basic	$	1.19	$	1.11
Total, diluted	$	1.18	$	1.11

22 Equity and Capital Management

The Company’s authorized share capital consists of an unlimited number of Class A Shares, one Class B Golden Share (the “Golden Share”) and an unlimited number of Preferred Shares, issuable in series. The Company currently has 17,500,000 Class A Shares issued and outstanding, one Golden Share issued and outstanding, and no Preferred Shares issued or outstanding. Class A Shares are entitled to one vote per share. The Golden Share, held by Crown Investments Corporation of Saskatchewan on behalf of the Government of Saskatchewan, has certain voting rights and obligations including regarding the location of the head office and the sale of certain of the assets of the Company. The Golden Share has no pre-emptive, redemption, purchase or conversion rights and is not eligible to receive dividends declared by the Company. The Preferred Shares can be issuable at any time and may include voting rights.

(thousands of CAD dollars,except number of shares)	Class A Number of Shares Share Capital	Class B
		Number of Shares Share Capital
Balance at January 1, 2019 No movement	17,500,000 $ 19,955 - -	1 $ - - -
Balance at December 31,2019	17,500,000 $ 19,955	1 $
Balance at January 1, 2020 No movement	17,500,000 $ 19,955 - -	1 $ - - -
Balance at December 31, 2020	17,500,000 $ 19,955	1 $ -

Capital management

The Company’s objective in managing capital is to ensure that adequate resources are available to fund organic growth and to enable it to undertake future growth opportunities while continuing as a going concern. The Company’s capital is composed of debt and shareholders’ equity.

Operating cash flows are used to provide sustainable cash dividends to shareholders and fund capital expenditures in support of organic growth. In addition, operating cash flows, supplemented throughout the year with the operating facility if necessary, are used to fund working capital requirements.

Equity and the available but undrawn portion of the term facility will assist in financing future growth opportunities.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

The Company’s capital at December 31, 2020, consists of long-term debt, share capital, employee benefit reserve, accumulated other comprehensive income and retained earnings (comprising total shareholders’ equity).

other comprehensive income and retained earnings (comprising	total shareholders’ equity).
(thousands of CAD dollars)	December	31, 2020	December	31,2019
Long-term debt	$	76,316	$	18,000
Share capital		19,955		19,955
Accumulated other comprehensive income		706		5
Equity settled employee benefit reserve		2,376		2,153
Retained earnings		99,011		92,128
Capitalization	$	198,364	$	132,241

23 Financial Instruments and Related Risk Management

The Company does not currently use any form of derivative financial instruments to manage its exposure to credit risk, interest rate risk, market risk or foreign currency exchange risk.

Credit risk

Credit risk is the risk that one party to a transaction will fail to discharge an obligation and cause the other party to incur a financial loss. The Company extends credit to its customers in the normal course of business and is exposed to credit risk in the event of nonperformance by customers but does not anticipate such non-performance would be material. The Company monitors the credit risk and credit rating of customers on a regular basis. The Company has significant concentration of credit risk among government sectors. Its customers are predominantly provincial, federal and municipal government ministries and agencies, and its private sector customers are diverse.

The majority of cash is held with Canadian chartered banks, and the Company believes the risk of loss to be minimal. The maximum exposure to credit risk at December 31, 2020, is $51.0 million (December 31, 2019 — $36.9 million), equal to the carrying value of the Company’s financial assets, which are itemized in the table below. Quarterly reviews of the aged receivables are completed. The Company expects to fully collect the carrying value on all outstanding receivables. Therefore, the risk to the Company is low.

The following table sets out details of cash and ageing of receivables:

(thousands of CAD dollars)	December	31, 2020	December	31, 2019
Cash	$	33,946	$	23,731
Short-term investments		52		475
Trade and other receivables:
- current		9,808		8,743
- up to three months past due date		5,868		3,203
-greater than three monthspast due date		1,355		702
Total credit risk	$	51,029	$	36,854

Interest rate risk

Interest rate risk arises from the effect of changes in prevailing interest rates on the Company’s financial instruments.

The Company is subject to interest rate risks on its debt (Note 18). This debt bears interest at rates that float, which can vary with changes in prime borrowing rates. The Company manages interest rate risk by monitoring its balance sheet, cash flows and the effect of market changes in interest rates. The Company has the option of using short-term bankers’ acceptance notes to lock in rates at any time.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

The following table presents a sensitivity analysis to changes in market interest rates and their potential impact on the Company for the periods ended December 31, 2020, and 2019. As the sensitivity is hypothetical, it should be used with caution. The Company is not exposed to significant interest rate risk.

not exposed to significant interest rate risk.
(thousands of CAD dollars)	December 31, 2020 + 100 bps - 100 bps *	December 31, 2019
		+ 100 bps - 100 bps
Increase(decrease)in interest expense	$ 423 $(423)	$ 188 $(188)
Decrease(increase)in net income before tax	$ 423 $(423)	$ 188 $(188)
Decrease(increase)in total comprehensive income	$ 309 $(309)	$ 138 $(138)

bps = basis point spread

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s cash resources are managed based on financial forecasts and anticipated cash flows.

The following summarizes the contractual maturities for the Company’s financial liabilities at December 31, 2020:

	Carrying	Contractual			7-12	12+
(thousands of CAD dollars)	Amount	Cash Flows	0-6	Months	Months	Months
Long-term debt	$ 76,316	$ 80,985	$	1,452	$ 1,476	$ 78,057
Lease obligations	8,852	10,213		1,175	1,167	7,871
Accountspayable and accrued liabilities	21,944	21,944		21,944	-	-
Total liabilities	$ 107,112	$ 113,142	$	24,571	$ 2,643	$ 85,928

Contractual cash flows for long-term debt and lease obligations includes principal and interest.

Market risk

The carrying amount and fair value of the financial assets and financial liabilities are as follows:

(thousands of CAD dollars) Classification Level	December 31, 2020 Carrying Amount Fair Value	December 31,2019
		CarryingAmount Fair Value
Financial assets Cash AC L2 Short-term investments GICs AC L2 Marketable securities FVTOCI L1 Trade and other receivables AC L2 Financial liabilities Accounts payable and accrued liabilities excluding share-based accrued liabilities AC L2 Long-term debt AC L2	$ 33,946 $ 33,946 - - 52 52 17,031 17,031 19,441 19,441 76,316 76,316	$ 23,731 $ 23,731 400 400 75 75 12,648 12,648 16,639 16,639 18,000 18,000

Fair value of financial instruments

The carrying values of cash, short-term investments, trade and other receivables, accounts payable and accrued liabilities excluding share-based accrued liabilities approximate fair value due to their immediate or relatively short-term maturity. With long-term debt, ISC has amended and restated its borrowings under the Credit Facility, which is managed with prime loans, short-term bankers’ acceptance, letters of credit or letters of guarantee. These borrowings will bear interest at a base rate of prime plus applicable margin varying between 0.45 per cent and 1.00 per cent per annum. The Company is not exposed to significant interest rate risk because interest-bearing financial instruments are at a low level relative to total assets and equity.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Foreign currency exchange risk

The Company operates internationally and is exposed to fluctuations in various currencies, with the Euro being the most material. Movements in foreign currencies against the Canadian dollar may impact revenue, the value of assets and liabilities and affect the Company’s profit and loss.

Based on the balance of foreign net monetary assets and net assets carried on the consolidated statements of financial position, the impact of an increase (decrease) of 10.0 per cent in the Euro relative to the Canadian dollar as at December 31, 2020, on net monetary assets was a decrease (increase) of $631 thousand (December 31, 2019 — $386 thousand) and on net assets was an increase (decrease) of $1.4 million (December 31, 2019 — $1.2 million). The Company’s exposure to other currencies is not significant at the end of the period.

24 Revenue

The Company derives its revenue from the transfer of goods or services at either a point in time or over time. This is consistent with the revenue from third parties’ information disclosed for each reportable segment under IFRS 8 — Operating Segments (see Note 27). The following table presents our revenue disaggregated by revenue type. Sales and usage tax are excluded from revenue.

Segment revenue		Year Ended December 31,	Year Ended December 31,	Year Ended December 31,
(thousands of CAD dollars)		2020		2019
Registry Operations
Land Registry (Land Titles Registry, Land Surveys, and Geomatics)	$	48,694	$	48,901
Personal Property Registry		10,055		10,154
Corporate Registry		10,537		10,230
Other		249		1,114
Services		56,398		51,131
Technology Solutions		10,782		11,416
Corporate and other		8		22
Total revenue	$	136,723	$	132,968

The following table presents our revenue disaggregated by the timing of revenue recognition:

Timing of revenue recognition		Year Ended December 31,	Year Ended December 31,	Year Ended December 31,
(thousands of CAD dollars)		2020		2019
At a point in time
Registry Operations revenue
Land Registry (Land Titles Registry, Land Surveys, and Geomatics)	$	46,743	$	46,972
Personal Property Registry		10,055		10,154
Corporate Registry		9,664		9,373
Services revenue		52,641		51,131
Corporate and other		8		22
	$	119,111	$	117,652
Over time
Registry Operations revenue
Land Registry (Land Titles Registry, Land Surveys, and Geomatics)		1,951		1,929
Corporate Registry		873		857
Other		249		1,114
Services revenue		3,757		-
TechnologySolutions revenue		10,782		11,416
	$	17,612	$	15,316
Total revenue	$	136,723	$	132,968

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

In the “over time” category, the Land Registry and Corporate Registry contracts primarily result in linear revenue recognition over the life of the contract. Likewise, the hosting, support and maintenance portion of contracts related to Technology Solutions revenue primarily results in linear revenue recognition over the life of the contract. Conversely, revenue recognition associated with the licence and solution definition and implementation portion of contracts depends on milestone achievement. In 2020, the portion of Technology Solutions contract revenue recognized that was dependent on milestone achievement versus total revenue recognized was 69.0 per cent (2019 – 76.0 per cent). At December 31, 2020, the Company has contracts where the milestone is either in progress or is expected to be satisfied in the near term. For the unsatisfied portion of milestone-based contracts, the Company expects that 100.0 per cent (2019 – 73.0 per cent) of the total will be recognized in the next fiscal year, with the remaining 0.0 per cent (2019 – 27.0 per cent) recognized in the following fiscal year.

Service concession arrangement

The Company entered into a change order pursuant to its MSA with the Government of Saskatchewan to continue the development of its registry systems. Under the MSA, the Company owns the IP during the term of the MSA.

As at December 31, 2020, the development associated with the change order is 100.0 per cent complete (2019 – 85.0 per cent) and an incremental $0.2 million increase to both intangible assets and other revenue has been recorded in 2020 in Registry Operations related to the project. The intangible asset was put into use in the third quarter of 2020; as a result, amortization commenced in the third quarter.

25 Related Party Transactions

Included in these consolidated financial statements are transactions with various Saskatchewan Crown corporations, ministries, agencies, boards and commissions related to the Company by virtue of common control by the Government of Saskatchewan and non-Crown corporations and enterprises subject to joint control and significant influence by the Government of Saskatchewan (collectively referred to as “related parties”). The Company has elected to take the exemption under IAS 24 — Related Party Disclosures which allows government-related entities to limit the extent of disclosures about related party transactions with government or other government-related entities.

Routine operating transactions with related parties are settled at agreed-upon exchange amounts under normal trade terms. In addition, the Company pays provincial sales tax to the Saskatchewan Ministry of Finance on all its taxable purchases. Taxes paid are recorded as part of the cost of those purchases. Other amounts and transactions due to and from related parties and the terms of settlement are described separately in these consolidated financial statements and the notes thereto.

26 Compensation of Key Management Personnel

Key management personnel include the directors, President and Chief Executive Officer, Chief Financial Officer, Executive VicePresidents, Vice-Presidents and President, ESC. The compensation of the key management team during the period was as follows:

		Year Ended December 31,	Year Ended December 31,	Year Ended December 31,
(thousands of CAD dollars)		2020		2019
Wages, salaries and short-term benefits	$	3,953	$	3,832
Share-based compensation		3,191		1,009
Defined contributionpensionplans		209		202
Total compensation	$	7,353	$	5,043

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

The compensation of directors and the President and Chief Executive Officer is determined by the Board upon recommendation of its Compensation Committee having regard to the performance of individuals and market trends. The values in the table above represents amounts included in expenses during the year. Portions not paid in cash have been accrued as liabilities on the statement of financial position.

27 Segment Information

Operating segments are identified as components of a company where separate discrete financial information is available for evaluation by the chief operating decision maker regarding allocation of resources and assessment of performance. The Company uses EBITDA and earnings before interest and taxes (“EBIT”) as key measures of profit to assess each segment's performance and make decisions about the allocation of resources. EBITDA is calculated as income before depreciation and amortization, net finance expense, and income tax expense. EBIT is calculated as income after depreciation and amortization expense but before gain or loss on disposition of property, plant and equipment, net finance expense, and income tax expense.

ISC has three reportable segments – Registry Operations, Services, and Technology Solutions, summarized as follows:

Registry Operations delivers registry services on behalf of governments and private sector organizations.
Services delivers products and services that utilize public records and data to provide value to customers in the financial and legal sectors.
Technology Solutions provides the development, delivery and support of registry (and related) technology solutions.

Corporate and other includes our corporate activities and shared services functions. The Registry Operations and Services segments operate substantially in Canada. The Technology Solutions segment operates both in Canada and Ireland.

Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. We account for transactions between reportable segments in the same way we account for transactions with external parties; however, we eliminate them on consolidation.

On January 1, 2020, a new methodology was adopted for allocating corporate costs to the operating segments. Management believes this revised methodology more closely reflects the level of shared services provided to the operating segments in the current year. Certain related party revenues are also impacted by this change. The impact of the change to results in the current period is estimated in the table that follows. The effect of the change on future periods is impracticable to estimate.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Revenue and EBIT

Revenue and EBIT
For the year ended December 31, 2020
		Registry				Technology		Corporate	Inter-Segment		Consolidated
(thousands of CAD dollars)		Operations		Services		Solutions		and other		Eliminations		Total
Revenue from third parties	$	69,535	$	56,398	$	10,782	$	8	$		$	136,723
Plus: inter-segment revenue		33		4		9,769		140		(9,946)		-
Total revenue	$	69,568	$	56,402	$	20,551	$	148	$	(9,946)	$	136,723
Expenses excluding depreciation and
amortization		(34,955)		(44,327)		(16,116)		(7,659)		9,946		(93,111)
EBITDA1		34,613		12,075		4,435		(7,511)		-		43,612
Depreciation and amortization		(2,482)		(7,203)		(1,833)		(1,347)		-		(12,865)
EBIT1	$	32,131	$	4,872	$	2,602	$	(8,858)	$	-	$	30,747
Net finance (expense)												(2,045)
Income tax expense												(7,819)
Net income											$	20,883

Additions to non-current assets, including
acquisitions	$	249	$	70,130	$	828	$	265	$	-	$	71,472
1Had the methodology change noted above not been made, EBITDA and			EBIT are estimated		as:
EBITDA	$	36,180	$	10,001	$	4,509	$	(7,078)	$	-	$	43,612
EBIT	$	33,698	$	2,798	$	2,676	$	(8,425)	$	-	$	30,747

For the year ended December 31, 2019
		Registry				Technology	Corporate and			Inter-Segment	Consolidated
(thousands of CAD dollars)		Operations		Services		Solutions		other		Eliminations		Total
Revenue from third parties	$	70,399	$	51,131	$	11,416	$	22	$		$	132,968
Plus: inter-segment revenue		-		99		12,830		32		(12,961)		-
Total revenue	$	70,399	$	51,230	$	24,246	$	54	$	(12,961)	$	132,968
Expenses excluding depreciation and
amortization		(36,309)		(44,119)		(21,965)		(4,510)		12,961		(93,942)
EBITDA		34,090		7,111		2,281		(4,456)		-		39,026
Depreciation and amortization		(2,039)		(5,326)		(1,729)		(1,765)		-		(10,859)
Impairment		(541)		-		-		-		-		(541)
EBIT	$	31,510	$	1,785	$	552	$	(6,221)	$	-	$	27,626
Net finance (expense)												(1,246)
Income tax expense												(6,980)
Net income											$	19,400

Additions to non-current assets, including
acquisitions	$	1,460	$	7,398	$	651	$	1,203	$	-	$	10,712

Inter-segment revenues are charged among segments at arm’s-length rates, based on rates charged to third parties. Total consolidated revenue is attributed to customers within Ireland and Canada. For the year ended December 31, 2020, revenue within Ireland was $10.3 million (2019 — $9.7 million), and the remainder was in Canada. No single customer represented more than 10.0 per cent of the total consolidated revenue.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Assets and liabilities

Assets and liabilities
As at December 31, 2020		Registry			Technology		Corporate	Inter-Segment		Consolidated
(thousands of CAD dollars)		Operations		Services	Solutions		and other		Eliminations		Total
Assets
Total assets, excluding intangibles,
goodwill and cash	$	25,758	$	13,952 $	5,505	$	14,466	$	-	$	59,681
Intangibles		1,288		63,203	4,332		2,395		-		71,218
Goodwill		1,200		67,372	8,883		-		-		77,455
Cash		-		-	-		33,946		-		33,946
Total Assets	$	28,246	$	144,527$	18,720	$	50,807	$	-	$	242,300
Liabilities	$	10,092	$	13,270$	4,844	$	92,046	$	-	$	120,252
As at December 31, 2019		Registry			Technology		Corporate		Inter-Segment	Consolidated
(thousands of CAD dollars)		Operations		Services	Solutions		and other		Eliminations		Total
Assets
Total assets, excluding intangibles,
goodwill and cash	$	26,384	$	10,951 $	6,467	$	17,321	$	-	$	61,123
Intangibles		3,803		31,647	4,525		1,221		-		41,196
Goodwill		1,200		35,715	8,614		-		-		45,529
Cash		-		-	-		23,731		-		23,731
Total Assets	$	31,387	$	78,313$	19,606	$	42,273	$	-	$	171,579
Liabilities	$	8,848	$	11,013$	4,171	$	33,306	$	-	$	57,338

Non-current assets are held in Canada and Ireland. At December 31, 2020, non-current assets held in Ireland were $8.9 million (December 31, 2019 — $8.8 million), while the remainder were held in Canada.

28 Acquisitions

2020 acquisition

On July 31, 2020, the Company’s Services segment, through its wholly owned subsidiary, ESC, acquired substantially all of the assets used in the business of Paragon Inc. for $70.0 million, subject to customary purchase price adjustments, by way of an asset purchase agreement. The operations are located in Etobicoke, ON, and it is a technology-enabled business whose primary focus is the facilitation and co-ordination of asset recovery on behalf of many of Canada’s major banks. The addition of Paragon’s assets is expected to strengthen our current service offering and means that we will be able to offer our clients a complete solution in the credit life cycle, from origination to recovery.

A table outlining the net cash flow related to the acquisition is provided below.

Net cash outflow related to acquisition

Net cash outflow related to acquisition
(thousands of CAD dollars)		Total
Consideration paid in cash	$	10,345
Working capital adjustment		(1,719)
Consideration from operating loan		9,816
Consideration from long-term debt		50,000
Subtotal	$	68,442
Add (deduct) items not yet paid in cash:
Workingcapital notyet cash settled at December 31,20201		1,719
Total net cash outflow related to the acquisition	$	70,161

1 See Note 6.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

The table below presents the final allocation of the net purchase price for accounting purposes for the Paragon acquisition and subsequent adjustments to finalize the purchase allocation within the measurement period.

(thousands of CAD dollars)		Preliminary	Adjustments	Adjustments		Final
Assets
Trade and other receivables	$	233	$	166	$	399
Prepaid expenses and deposits		63		85		148
Property, plant and equipment		3		-		3
Intangible assets		38,120		-		38,120
	$	38,419	$	251	$	38,670
Liabilities
Accountspayable and accrued liabilities		1,887		(2)		1,885
Net assets acquired	$	36,532	$	253	$	36,785
Goodwill arising on acquisition
Total consideration allocated		68,189		253		68,442
Net assets acquired		36,532		253		36,785
Total goodwill arising on acquisition	$	31,657	$	-	$	31,657

Goodwill arising on the acquisition relates to an increased market presence and competency, related market growth, and the opportunities to strengthen and complement offerings with greater breadth and depth to both existing and acquired clients. All of the goodwill recognized is expected to be deductible for income tax purposes.

The intangible assets above consist of existing customer relationships of $37.6 million, technology of $0.3 million and brand of $0.2 million.

Trade and other receivables acquired in this transaction with a fair value of $0.4 million are estimated to be fully collectible.

Professional fees associated with the cost of the acquisition expensed during the year were $2.0 million and have been recorded in professional and consulting services expense on the consolidated statements of comprehensive income.

The revenue and net loss of the acquiree since the acquisition date included in the consolidated statements of comprehensive income for 2020 were $3.8 million and $0.1 million, respectively.

The consolidated revenue and comprehensive income for the Company and the acquiree combined for 2020, as though the acquisition date for the business combination occurred during the year had been as of January 1, 2020, would have been $143.7 million, and $18.3 million, respectively.

2019 acquisition

On February 15, 2019, the Company, through its wholly owned subsidiary, ESC, acquired substantially all of the assets of Securefact Transaction Services, Inc. (“Securefact”), for $6.8 million by way of an asset purchase agreement.

Management has determined that the assets and processes acquired through the acquisition comprised a business and therefore has accounted for the transaction as a business combination using acquisition accounting as per IFRS 3 – Business Combinations .

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Net cash outflow related to acquisition

Net cash outflow related to acquisition
(thousands of CAD dollars)		Total
Consideration paid in cash	$	6,768
Working capital adjustment		-
Consideration from operating loan		-
Consideration from long-term debt		-
Subtotal	$	6,768
Add (deduct) items not yet paid in cash:
Workingcapital notyet cash settled at December 31,2020		-
Total net cash outflow related to the acquisition	$	6,768

The table below presents the final allocation of the net purchase price for accounting purposes which is unchanged from the preliminary allocation.

(thousands of CAD dollars)		Final
Assets
Property, plant and equipment	$	23
Intangible assets		5,228
Net assets acquired	$	5,251
Goodwill arising on acquisition
Total consideration allocated		6,768
Net assets acquired		5,251
Total goodwill arising on acquisition	$	1,517

29 Net Change in Non-Cash Working Capital

The net change during the period comprised the following:

		Year	Ended December 31,	Ended December 31,
(thousands of CAD dollars)		2020		2019
Trade and other receivables	$	(2,162)	$	(3,657)
Prepaid expenses		(556)		(32)
Contract assets		663		(321)
Accounts payable and accrued liabilities		1,834		867
Contract liabilities		512		(1,039)
Contingent consideration		-		(2,171)
Provisions and other liabilities		1,601		641
Income taxes		1,629		(3,483)
Net change in non-cash working capital	$	3,521	$	(9,195)

Income taxes paid, net of refunds received, for the year ended December 31, 2020, totalled $4.7 million (2019 — $9.0 million).

30 Government Grants

In 2020, a government grant of $0.1 million (2019 – nil) was received by the Company to finance a project designed to provide simplified and unified access to business registry data on business ownership and control structures system to aid certain users in the fight against financial and economic crime. To be eligible for this funding, at the end of the project, the Company is required to submit a final technical report and a final financial report detailing the eligible costs for reimbursement. Of the amount initially received, $0.1 million (2019 – nil) was recognized as a reduction to wages and salaries expense in the year. The remaining contract liabilities will be transferred against project costs to be incurred in 2021.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

In April 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) to help employers keep and/or retain Canadian-based employees on payrolls in response to challenges posed by the COVID-19 pandemic. For the year ended December 31, 2020, the Company recognized approximately $0.5 million as a wage subsidy under this program (2019 – nil) and recorded it as a reduction to wages and salary expense.

31 Commitments and Contingencies

As of December 31, 2020, the Company has commitments over the next five years as follows:

	IT and Other Service	IT and Other Service			Non-Lease	Component of
(thousands of CAD dollars)		Agreements1	Master Service	Agreement		Office Leases		Total
2021	$	3,225	$	500	$	1,177	$	4,902
2022		2,989		500		973		4,462
2023		2,800		500		937		4,237
2024		-		500		956		1,456
2025		-		500		200		700
Thereafter		-		4,000		1,007		5,007
Total commitments	$	9,014	$	6,500	$	5,250	$	20,764

1 Includes minimum lease commitments for low-value assets not recognized under IFRS 16.

Information technology and other service agreements

The Company has a service agreement related to Information Technology (“IT”) with Information Systems Management Canada Corporation, including lease commitments for computer equipment where the Company has taken the exemption for low-value assets. Other service agreements relate to service contracts associated with corporate and shared services infrastructure.

Master Service Agreement

Pursuant to the MSA with the Government of Saskatchewan dated May 30, 2013, the Company was appointed, on an exclusive basis, to manage and operate the Saskatchewan Land Titles Registry, Saskatchewan Land Surveys Directory, Saskatchewan Personal Property Registry and Saskatchewan Corporate Registry on behalf of the Government of Saskatchewan for a 20-year term expiring on May 30, 2033. The MSA was amended, effective December 1, 2015, appointing ISC to continue to manage and operate the Common Business Identifier Program and the Business Registration Saskatchewan Program for the same term as the MSA. The MSA requires the Company to pay to the Government of Saskatchewan the sum of $0.5 million annually, in a single instalment payable on or before March 1, in each calendar year of the term commencing with an initial payment which was due on March 1, 2014.

Non-lease component of office leases

The Company leases all of its office space and certain office equipment. The office spaces have lease terms of between two and ten years, with various options to extend. The office equipment leases relate to photocopiers and have lease terms of three years. The Company does not have an option to purchase the leased assets at the expiry of the lease period.

The Company separates the lease and non-lease components of office space, accounting for the lease payment commitments in Note 15.

ISC® Notes to the Consolidated Financial Statements

For the year ended December 31, 2020

Contingencies

Management’s estimate of liability for claims and legal actions that may be made by customers pursuant to the assurance provision and the MSA is based upon claims submitted. As at December 31, 2020, the liability was nil (December 31, 2019 — nil).

At times, in the normal course of operations, the Company will enter into an indemnity agreement with a surety company to provide a surety bond required under a contract with a customer. As at December 31, 2020, the aggregate amount outstanding of the surety bond total was nil (December 31, 2019 — nil).

32 Pension Expense

The total pension costs under the Company’s defined contribution plans for the year were $1.8 million (2019 — $1.8 million).

33 Subsequent Events

On March 16, 2021, the Board declared a quarterly cash dividend of $0.20 per Class A Share, payable on or before April 15, 2021, to shareholders of record as of March 31, 2021.

AI assistant

Information Services Corporation — Annual Report 2020

47141_rns_2021-03-16_d9260f8d-1228-48de-a4aa-fdfa18f7c4d4.pdf

Consolidated Financial Statements

Table of Contents

MANAGEMENT’S RESPONSIBILITY

Management’s Report on Consolidated Financial Statements

INDEPENDENT AUDITOR’S REPORT

Opinion

Basis for Opinion

Key Audit Matters

Goodwill— Refer to Notes 3 and 12 to the financial statements

Key Audit Matter Description

How the Key Audit Matter Was Addressed in the Audit

Acquisition- Customer Relationship Intangible Asset - Refer to Notes 3 and 28 to the financial statements

Key Audit Matter Description

How the Key Audit Matter Was Addressed in the Audit

Other Information

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Auditor’s Responsibilities for the Audit of the Financial Statements

Consolidated Statements of Financial Position

APPROVED BY THE BOARD OF DIRECTORS ON MARCH 16, 2021:

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Equity

Consolidated Statements of Cash Flows

ISC® Notes to the Consolidated Financial Statements

Notes to the Consolidated Financial Statements

1 Nature of the Business

2 Basis of Presentation

Statement of compliance

Basis of measurement

ISC® Notes to the Consolidated Financial Statements

Functional and presentation currency

Basis of consolidation

Use of estimates and judgments

ISC® Notes to the Consolidated Financial Statements

Changes in accounting policies

3 Summary of Significant Accounting Policies

Property, plant and equipment

ISC® Notes to the Consolidated Financial Statements

Intangible assets

Intangible assets acquired

Internally generated intangible assets

ISC® Notes to the Consolidated Financial Statements

Amortization of intangible assets

Impairment of tangible and intangible assets

Goodwill

ISC® Notes to the Consolidated Financial Statements

Impairment of goodwill

Business acquisition

Leases

ISC® Notes to the Consolidated Financial Statements

ISC® Notes to the Consolidated Financial Statements

Revenue

Registry Operations revenue

Services revenue

ISC® Notes to the Consolidated Financial Statements

Technology Solutions revenue

ISC® Notes to the Consolidated Financial Statements

Service concession arrangements

Government grants

Employee benefits

ISC® Notes to the Consolidated Financial Statements

Financial instruments

Financial assets

(i) Financial Assets at FVTPL

(ii) Financial Assets at FVTOCI – Equity investments

(iii) Financial Assets at amortized cost (“AC”)

Financial liabilities

ISC® Notes to the Consolidated Financial Statements

Impairment

Borrowing costs

Provisions

ISC® Notes to the Consolidated Financial Statements

Share-based compensation plans

ISC® Notes to the Consolidated Financial Statements

Foreign currency

Recent accounting pronouncements

ISC® Notes to the Consolidated Financial Statements

4 Cash

Information Services Corporation Annual Report 2020