Exhibit 99.2

MANAGEMENT’S DISCUSSION AND ANALYSIS

For the three months ended March 31, 2018

This management’s discussion and analysis (“MD&A”), dated May 9, 2018, should be read in conjunction with the cautionary statement regarding forward-looking statements below and Maxar Technologies Ltd.’s (“Maxar” or the “Company”) condensed consolidated interim financial statements and accompanying notes for the three months ended March 31, 2018, as well as the Company’s annual MD&A and consolidated financial statements for the year ended December 31, 2017. Unless otherwise indicated, the results reported herein have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and all dollar amounts are expressed in United States (“U.S.”) dollars, unless otherwise noted as Canadian dollars (“C$”). An additional advisory with respect to the use of non-IFRS financial measures is set out in section “Non-IFRS Financial Measures” of this MD&A. All quarterly financial information disclosed in this MD&A is based on unaudited figures.

Unless otherwise indicated, the Company’s significant accounting policies and estimates, contractual obligations, commitments, contingencies, and business risks and uncertainties, as described in its MD&A and consolidated financial statements for the year ended December 31, 2017, are substantially unchanged.

In this report, Maxar and the Company refer to Maxar Technologies Ltd. and its subsidiaries.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This MD&A contains certain “forward-looking statements” or “forward-looking information” under applicable securities laws. Forward-looking terms such as “may,” “will,” “could,” “should,” “would,” “plan,” “potential,” “intend,” “anticipate,” “project,” “target,” “believe,” “estimate” or “expect” and other words, terms and phrases of similar nature are often intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements in this MD&A are statements which are not historical fact and involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. Such forward-looking statements may include, but are not limited to, statements regarding: future growth opportunities, expected earnings, expected capital expenditures, future financing requirements and estimated future dividends; the expected benefits from the Company’s acquisition of DigitalGlobe, Inc.; the impact of the Company’s acquisition of DigitalGlobe, Inc. on the Company’s earnings, credit rating, estimated enterprise value and growth rate; the expectation that the Company and its subsidiaries will remain compliant with debt covenants and other contractual obligations; the expected timeline for the Company to fully implement its plan to domicile the ultimate parent of DigitalGlobe, Inc. in the U.S. by the end of 2019 and the expected benefits therefrom; additional acquisition and integration related costs in future periods; the implementation of the security control agreement; business and financial outlook; the scope and anticipated revenues of customer contracts; the scope and expected benefits of the restructuring and enterprise improvement initiatives; the capabilities of the satellites built by the Company; the sources of liquidity the Company expects to use to meet its anticipated cash requirements; and the outcome of legal proceedings involving the Company.

Forward-looking statements in this MD&A are based on certain key expectations and assumptions made by the Company. Although management of the Company believes that the expectations and assumptions on which such forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. The material assumptions upon which such forward-looking statements are based include, among others, assumptions with respect to: market, industry and general economic conditions; the operations of the businesses of the Company continuing on a basis consistent with prior years or current expectations; growth in demand for the products and services of the Company’s businesses; the ability of the Company to access financing from time to time on favorable terms; the continuation of executive and operating management or the non-disruptive replacement of them on competitive terms; currency exchange and interest rates being reasonably stable at current rates; the realization of expected benefits and synergies from the Company’s acquisition of DigitalGlobe, Inc.; compliance with the U.S. regulatory requirements and the requirements of the National Industrial Security Program Operating Manual related to the implementation of the security control agreement and the facility clearance for the offices of certain subsidiaries of the Company; the Company’s continuing ability to effectively service customers and there being no adverse changes to customer priorities and funding levels; the Company’s continuing ability to implement the enterprise improvement initiatives; the Company’s continuing ability to meet technical specifications and complete the contracts with minimal cost overrun; the Company building its satellites to reliable design specifications; the accuracy of the Company’s current plans and forecasts; and the accuracy of management’s current assessment of the outcome of legal proceedings involving the Company. The Company makes no representation that reasonable business people in possession of the same information would reach the same conclusions.

 

Additionally, forward-looking statements are subject to a number of risks and uncertainties that could cause actual results and expectations to differ materially from the anticipated results or expectations expressed in this MD&A. The Company cautions readers that should certain risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary significantly from those expected. The risks that could cause actual results to differ materially from current expectations include, but are not limited to: the loss or termination in scope of any one of the Company’s primary contracts; the Company’s ability to generate a sustainable order rate for its satellite manufacturing operations in a market where the number of satellite construction contracts awarded varies annually; changes in government policies, priorities, regulations, use of commercial data providers to meet U.S. government imagery needs, government agency mandates, funding levels through agency budget reductions, the imposition of budgetary constraints or a decline in government support or deferment of funding for programs in which the Company or its customers participate; changes in U.S. government policy regarding use of commercial-data providers, or material delay or cancellation of certain U.S. government programs; the Company’s ability to effectively execute its U.S. government access plan and realize anticipated benefits of contract awards from the U.S. government and failure by the Company to comply with U.S. regulations could result in penalties or suspension and failure by the Company to maintain the relevant clearances and approvals could limit its ability to operate in the U.S. market; certain U.S. subsidiaries of the Company are subject to the requirements of the National Industrial Security Program Operating Manual for their facility security clearance, which is a prerequisite for their ability to obtain and perform on classified contracts for the U.S. government; risks inherent with performance on fixed price contracts, particularly the ability to contain cost overruns and schedule delays; foreign and domestic resellers fail to market or sell the Company’s products and services successfully; inability of the Company’s limited vendors to provide key products and services; quality issues, failure of systems to meet performance requirements, potential for product liability, or the occurrence of defects in products or systems could result in lost revenue and harm to the Company’s reputation; occurrence of delays in obtaining regulatory approvals, satellite damage or destruction during launch, launch failures, or incorrect orbital placement; failure of the Company’s satellites to operate as intended; natural disasters or other disruptions affecting the Company's operations and resulting in an interruption or failure of the Company’s infrastructure; failure of the Company or inability to protect and maintain the Earth-imagery content stored in its ImageLibrary; loss of, or damage to, a satellite before the end of its expected operational life and the failure to obtain data or alternate sources of data for the Company’s products; reliance on information technology systems and threats of disruption from security breaches and cyber-attacks; limited insurance coverage, pricing and availability; failure to anticipate changes in technology, technical standards and offerings or comply with the requisite standards, or failure to maintain technological advances and offer new products to retain customers and market position; potential infringement of the intellectual property rights of others and inadequate protection of the Company’s intellectual property rights; significant competition with competitors that are larger or have greater resources, and where foreign currency fluctuations may increase competition from the Company’s non-United States competitors; changes in regulations, telecommunication standards and laws in the countries in which the Company conducts business; export restrictions or the inability to obtain export approvals; failure to obtain necessary regulatory approvals and licenses, including those required by the United States government; a competitive advantage for competitors not subject to the same level of export control or economic sanctions laws and regulations faced by the Company; exposure to fines and/or legal penalties under U.S. and Canadian securities regulations; exposure to fines and/or legal sanctions under anti-corruption laws; the Company’s ability to attract and retain qualified personnel; the Company’s ability to receive satellite imagery, including from third parties for resale and performance issues on the Company’s on-orbit satellites; the Company’s failure to raise adequate capital to finance its business strategies, including funding any future satellite; uncertainty in financing arrangements and failure to obtain required financing on acceptable terms, or credit agreements may contain restrictive covenants which may be limiting; failure to identify, acquire, obtain the required regulatory approvals, or profitably manage additional businesses or successfully integrate any acquired businesses, products or technologies into the Company without substantial expenses, delays or other operational, regulatory, or financial problems; the Company’s ability to obtain certain satellite construction contracts depends, in part, on its ability to provide the customer with partial financing of working capital and any financing provided by the Company may not be repaid or the Company may be called upon to make payments; certain customers are highly leveraged and may not fulfil their contractual payment obligations, including vendor financing; the risk that the Company will not be able to access export credit financing to facilitate the sale of the Company’s communication satellites and other products to non-Canadian and non-United States customers; exposure to foreign currency fluctuations; and failure to comply with environmental regulations.

There may be additional risks and uncertainties applicable to the Company related to its acquisition of DigitalGlobe, Inc., including that: the Company may not realize all of the expected benefits of the acquisition or the benefits may not occur within the time periods anticipated; the Company incurred substantial transaction fees and costs in connection with the acquisition; significant demands will be placed on the managerial, operational and financial personnel and systems of the Company to support the expansion of operations as a result of the acquisition; the Company may not have discovered undisclosed liabilities in the course of the due diligence review of DigitalGlobe; and the Company is a target of appraisal proceedings which could result in substantial costs.

For additional information with respect to certain of these risks or factors, reference should be made to the section entitled “Business Risks and Uncertainties” of the Company’s annual Management’s Discussion and Analysis and the notes to the consolidated financial statements of the Company for the year ended December 31, 2017, as well as to the Company’s continuous disclosure materials filed from time to time with Canadian securities regulatory authorities, which are available online under the Company’s SEDAR profile at www.sedar.com, under the Company’s EDGAR profile at www.sec.gov or on the Company’s website at www.maxar.com.

The foregoing lists are not intended to be exhaustive and there may be other key risks that are not listed above that are not presently known to the Company or that the Company currently deems immaterial. Should one or more of these or other risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may vary in material respects from those expressed or implied by the forward-looking statements contained in this MD&A. As a result of the foregoing, readers should not place undue reliance on the forward-looking statements contained in this MD&A.

The forward-looking statements contained in this MD&A are expressly qualified in their entirety by the foregoing cautionary statements. All such forward-looking statements are based upon data available as of the date of this MD&A or other specified date and speak only as of such date. The Company disclaims any intention or obligation to update or revise any forward-looking statements in this MD&A as a result of new information, future events or otherwise, other than as may be required under applicable securities law.

COMPANY PROFILE

Maxar Technologies Ltd. (the “Company” or “Maxar”), is a corporation continued under the laws of the province of British Columbia, Canada with common shares listed on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”), each under the symbol: MAXR. On October 5, 2017, the Company’s name was changed from MacDonald, Dettwiler and Associates Ltd. to Maxar Technologies Ltd. The Company’s registered office is located at Suite 1700, 666 Burrard Street, Vancouver, British Columbia, Canada.

Maxar is an industry leading vertically-integrated space and geospatial intelligence company with a full range of space technology solutions for commercial and government customers including satellite building and operations, ground infrastructure, space robotics, earth imagery, geospatial data and analytics.

Acquisition of DigitalGlobe

On October 5, 2017, the Company completed the acquisition of DigitalGlobe (“DigitalGlobe Transaction”) and renamed the combined company Maxar Technologies Ltd. The transaction created a global leader in earth imaging and geospatial solutions by combining DigitalGlobe’s over 15-year lead in technology and image library development, as well as its high-resolution optical imaging capabilities, with our existing position as a world leader in commercial communications satellites.

Maxar is uniquely positioned to grow in the U.S., Canadian and global earth observation and geospatial services markets through our end-to-end space systems, earth imagery and geospatial solutions. After the DigitalGlobe Transaction, we have more scale and credibility with U.S. government agencies and international government customers. The DigitalGlobe Transaction also added more predictable geospatial data and services revenue while diversifying our product and service offering. With a larger set of customers and end markets, we are better able to increase share in existing markets and grow in adjacent markets.

 

Our vision is to be the world’s leader in the new space economy. We aim to achieve this by integrating innovative technologies, unique capabilities and end-to-end offerings across our businesses to help our customers address their most complex mission-critical challenges with confidence.

 

As a result of the DigitalGlobe Transaction, we expect to achieve $60 million to $120 million in run-rate EBITDA synergies by the end of 2019.  Cost synergies include elimination of duplicate public company costs, procurement savings, enterprise support services, operational benefits of increased scale and scale efficiencies from satellite vertical integration. In addition, we are pursuing new business opportunities including optical and radar imagery data cross-selling, remote sensing satellite manufacturing opportunities, end-to-end international system sales and large geospatial services contracts opportunities.

 

Following the close of the DigitalGlobe Transaction, our strategy is designed to drive consistent, significant annual revenue and profit growth by affordably solving our customers’ critical space and geospatial mission needs through:

 

Security Control Agreement and Facility Clearance

On January 26, 2017, the Company, together with its U.S. based subsidiary, Maxar Technologies Holdings, Inc. (“Maxar Holdings”), and the U.S. Department of Defense entered into a Security Control Agreement (“SCA”) and began operating under the agreement. The SCA allows the Company’s subsidiaries to hold facility clearances necessary to pursue and execute classified U.S. government space and defense contracts. In February 2017, the Company received facility security clearance for the offices of Maxar Holdings and the proxy board at MDA Information Systems LLC was dissolved.  On February 2, 2018, the Defense Security Service granted facility clearance for the Company’s satellite manufacturing facility in Palo Alto, California.

The Company will continue to execute its U.S. Access Plan strategy to increase its ability to compete for U.S. government contracts (the “U.S. Access Plan”). This will include further reorganization of all or part of the combined Company’s corporate and operating structure to ensure that the ultimate parent of Maxar Holdings and DigitalGlobe is incorporated in the U.S. by the end of 2019, subject to customary approvals. During the first quarter of 2018, the Company relocated its corporate headquarters to Westminster, Colorado, utilizing DigitalGlobe’s pre-existing office space.

Executive Management Changes

In February 2018, the Company announced that William McCombe stepped down as Chief Financial Officer of Maxar. Anil Wirasekara, who previously served as Chief Financial Officer from 1994 to October 2017, assumed the duties of Interim Chief Financial Officer of Maxar pending the search for Mr. McCombe’s replacement.

In January 2018, the Company appointed Mike Greenley as Group President of MDA, a Maxar company with internationally recognized leadership in space robotics, satellite antennas and subsystems, surveillance and intelligence solutions, and defense and maritime systems.  Mr. Greenley’s responsibilities include surveillance and intelligence, robotic and other space systems markets that the Company serves from Canada.  Mr. Greenley succeeds Don Osborne who retired from the Company effective October 31, 2017.

Reporting Segments

Subsequent to the closing of the DigitalGlobe Transaction, in the fourth quarter of 2017, the Company changed its financial reporting segments to better align with its product and service offerings. The changes to the reporting segments provide investors with increased transparency and allow for easier comparisons with the Company’s industry peer group. The Company reports revenue and adjusted EBITDA based on three reportable segments: Space Systems, Imagery and Services.

Space Systems

In the Space Systems segment, Maxar is a leading supplier of space-based and ground-based infrastructure and information solutions. The Company’s products include communication and imaging satellites, satellite payloads and antenna subsystems, space-based and airborne surveillance solutions, robotic systems and associated ground infrastructure and support services. The Company’s offerings serve multiple markets, primarily for communications and surveillance and intelligence applications. In the communications market, the Company’s solutions provide cost-efficient global delivery of a broad range of services, including television and radio distribution, broadband internet, and mobile communications. In the surveillance and intelligence market, the Company offers end-to-end solutions to monitor changes and activities around the globe to support the operational needs of government agencies, both military and civilian, and commercial customers. The Company also supplies spacecraft and subsystems to the U.S. government, Canadian government and other customers for scientific research and development missions, as well as robotic systems for the space and terrestrial markets. Maxar’s principal customers in the Space Systems segment are government agencies worldwide as well as satellite operators and satellite manufacturers.

Imagery

In the Imagery segment, Maxar is a leading supplier of high resolution earth imagery and radar data sourced from the Company’s own advanced satellite constellation and third-party providers. The Company’s imagery solutions provide customers with accurate and mission-critical information about our changing planet, and support a wide variety of uses, including mission planning, mapping and analysis, environmental monitoring, disaster management, crop management, oil and gas exploration and infrastructure management. Maxar’s principal customers in the Imagery segment are U.S., Canadian and other international government agencies (primarily defense and intelligence agencies), as well as a wide variety of commercial customers in multiple markets.

The Imagery segment includes the financial results of the DigitalGlobe imagery business as well as Maxar’s legacy radar imagery business.

Services

In the Services segment, Maxar provides geospatial products and services that combine imagery, analytic expertise and innovative technology to deliver integrated intelligence solutions to customers. The Company provides analytic solutions that accurately document change and enable geospatial modeling and analysis that predict where events will occur to help customers protect lives and make resource allocation decisions. Maxar’s primary customer in the Services segment is the U.S. government, but it also supports intelligence requirements for other international governments, global development organizations and commercial customers.

The Services segment includes the financial results of DigitalGlobe’s services business as well as Maxar’s legacy geospatial services business under its subsidiary MDA Information Systems, LLC.

NON-IFRS FINANCIAL MEASURES

In addition to results reported in accordance with IFRS, the Company uses certain non-IFRS financial measures as supplemental indicators of its financial and operating performance. These non-IFRS financial measures include adjusted earnings, adjusted earnings per share and adjusted EBITDA. The Company believes these supplementary financial measures reflect the Company’s ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in its business.

The Company defines adjusted earnings as net earnings excluding the impact of specified items affecting comparability, including, where applicable, special income and expense items, amortization of acquisition related intangible assets, share-based compensation, and other gains or losses. The use of the term “special income and expense items” is defined by the Company as those that do not impact operating decisions taken by the Company’s management and is based upon the way the Company’s management evaluates the performance of the Company’s business for use in the Company’s internal management reports. These items include: acquisition and integration related expense, interest expense on dissenting shareholder liability, restructuring and enterprise improvement costs, loss from sale of subsidiary, equity in loss from joint ventures and foreign exchange differences. Foreign exchange differences consist of (i) timing differences on certain project-related foreign exchange forward contracts not subject to hedge accounting, (ii) gains and losses on translation of intercompany balances and (iii) unrealized foreign exchange gains and losses on translation of long-term foreign currency denominated financial assets and liabilities. The Company believes that the exclusion of each of these items reduces volatility and provides a more meaningful period-to-period comparison of the Company’s ongoing performance. Income tax expense on adjusted earnings is computed using the estimated effective annual income tax rate, adjusted for specific items affecting comparability. Adjusted earnings per share is calculated using diluted weighted average shares outstanding and does not represent actual earnings per share attributable to shareholders. The Company believes that the disclosure of adjusted earnings and adjusted earnings per share allows investors to evaluate the financial performance of the Company’s ongoing business using the same evaluation measures that its management uses, and is therefore a useful indicator of the Company’s performance.

The Company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, and adjusted for certain items affecting comparability as specified in the calculation of adjusted earnings. Adjusted EBITDA is presented on a basis consistent with the Company’s internal management reports. The Company discloses adjusted EBITDA to capture the profitability of its business before the impact of items not considered in management’s evaluation of operating unit performance. The Company also discloses segment adjusted EBITDA as a measure of each reporting segment’s profitability and contribution to adjusted EBITDA. Segment adjusted EBITDA is reported prior to the deduction of corporate expenses.

Adjusted earnings, adjusted earnings per share and adjusted EBITDA do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. The Company cautions readers to consider these non-IFRS financial measures in addition to, and not as an alternative for, measures calculated in accordance with IFRS.

OVERVIEW

The following table provides selected financial information for the Company.

 

 

 

Overall performance

First quarter consolidated revenues increased to $557.7 million from $373.5 million year-over-year, and adjusted EBITDA increased to $187.4 million from $63.1 million. These increases are primarily due to the inclusion of the financial results from DigitalGlobe’s business which was acquired as part of the DigitalGlobe Transaction, partially offset by continued challenging conditions in the geostationary communication satellite market. Adjusted earnings were $83.2 million ($1.47 per share) for the first quarter of 2018 compared to $33.7 million ($0.92 per share) for the first quarter of 2017. The increase in adjusted earnings is primarily due to the DigitalGlobe Transaction. Refer to sections “Consolidated Results” and “Results by Segment” of this MD&A for further discussion on overall performance.

Net earnings under IFRS for the first quarter of 2018 were $31.0 million compared to $4.3 million for the same period of last year. The increase is primarily due to the inclusion of the financial results from DigitalGlobe’s business which was acquired as part of the DigitalGlobe Transaction. For that reason, year-over-year financial results are not directly comparable.

CONSOLIDATED RESULTS

The following table provides selected financial information for the periods indicated, including a reconciliation of adjusted EBITDA and adjusted earnings to net earnings.

 

 

*     Not meaningful

 

Consolidated revenues

Consolidated revenues for the first quarter of 2018 were $557.7 million compared to $373.5 million for the same period of 2017.  Revenue increased $184.2 million or 49.3% primarily due to the inclusion of DigitalGlobe’s imagery and services businesses as a result of the DigitalGlobe Transaction. This was partially offset by lower revenues from geostationary communications satellite construction activity compared to the first quarter of 2017.  Excluding the effects of intersegment eliminations, the Space Systems segment contributed revenues of $293.4 million (2017 - $341.5 million), the Imagery segment contributed revenues of $211.4 million (2017 - $7.7 million), and the Services segment contributed revenues of $70.0 million (2017 - $25.4 million).

Refer to section “Results by Segment” of this MD&A for further discussion of the Company’s revenues by segment.

Adjusted EBITDA

Adjusted EBITDA is a measure utilized by management to evaluate the performance of the Company’s operating segments. For the first quarter of 2018,  adjusted EBITDA was $187.4 million and adjusted EBITDA as a percentage of consolidated revenues (“adjusted EBITDA margin percentage”) was 33.6%. This is compared to adjusted EBITDA of $63.1 million and adjusted EBITDA margin percentage of 16.9% for the first quarter of 2017.  These increases are primarily due to the DigitalGlobe Transaction, and predominately relate to the inclusion of DigitalGlobe’s imagery business which contributed $133.5 million of adjusted EBITDA and adjusted EBITDA margin of approximately 66%, increasing the Company’s overall adjusted EBITDA margin percentage in Q1 2018.

Adjusted EBITDA margin percentage will fluctuate from period to period with changes in the revenue mix, including proportion of construction and services contracts, volume of subcontract activity, life cycle of large dollar value contracts and timing of recognition of investment tax credits. In addition, the Company revises cost and revenue estimates on contracts in the ordinary course of business. When applying the percentage of completion method of revenue recognition, the inception to date impact of changes in estimates, including the recognition or reversal of a contract loss provision, is recognized in the period the changes are determined by management and may impact margin percentages.

Refer to section “Results by Segment” of this MD&A for discussion of adjusted EBITDA by segment.

Net finance expense

The following table shows the components of net finance expense for the periods indicated.

 

 

1Excludes interest expense from dissenting shareholder liability of $2.1 million and nil, for the three months ended March 31, 2018 and 2017, respectively.

Net finance expense increased $32.8 million due to an additional $2.4 billion of long-term debt outstanding at March 31, 2018 compared to March 31, 2017 primarily due to the DigitalGlobe Transaction, as well as non-cash accretion of interest on advance payments received from customers.

Depreciation and amortization

The following table shows depreciation and amortization expense for the periods indicated.

 

 

Depreciation and amortization expense increased from $11.0 million in the first quarter of 2017 to $47.2 million in the first quarter of 2018. The increase of $36.2 million is primarily due to higher property, plant and equipment and intangible assets balances at March 31, 2018 compared to March 31, 2017 attributable to the DigitalGlobe Transaction.

Income tax expense on adjusted earnings

Income tax expense on adjusted earnings for the three months ended March 31, 2018 was $13.6 million, representing an effective income tax rate of 14.0% compared to $7.8 million or an effective income tax rate of 18.8%  for the same period of 2017. To compute income tax expense on adjusted earnings and the effective annual income tax rate, the substantively enacted income tax rate is applied to net earnings before income tax, adjusted for non-deductible amounts, specific items affecting comparability such as share-based compensation and amortization of acquisition related intangible assets, the recognition of deferred tax assets, and other non-recurring or unusual items.  The reduction in the effective income tax rate for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 is due to a change in the mix of income from between jurisdictions.

Adjusted earnings

Adjusted earnings, or net earnings excluding the impact of specified items affecting comparability, were $83.2 million ($1.47 per share) for the first quarter of 2018 compared to $33.7 million ($0.92 per share) for the same period of 2017.  The increase in adjusted earnings per share of $0.55 reflects higher adjusted EBITDA from the acquisition of DigitalGlobe’s imagery and services businesses as part of the DigitalGlobe Transaction, partially offset by higher amortization, depreciation, and interest expense.

Net earnings

The comparison of financial results under IFRS between periods is impacted by the inclusion and variability of specified items that may not be indicative of the financial performance of the Company’s ongoing business. After including the specified items affecting comparability, net earnings for the first quarter of 2018 were $31.0 million compared to $4.3 million for the same period of 2017. Certain of these specified items affecting comparability are discussed below.

Share-based compensation

During the first quarter of 2018, the Company had a share-based compensation recovery of $1.3 million compared to an expense of $4.8 million for the same period of 2017. Share-based compensation is an important aspect of compensation for management and key employees. The accounting expense is based on fair value, which is estimated using complex option pricing models incorporating factors such as the expected life of options and market volatility. Additionally, the fair value of the Company’s cash-settled awards is recognized as a liability in the consolidated balance sheet and is re-measured and charged to earnings at each reporting date until the award is settled. This can lead to fluctuations in the associated cash-settled share-based compensation (recovery) expense when the Company experiences significant stock price volatility, as was the case in the first quarter of 2018. These accounting fair value adjustments are not necessarily reflective of actual cash outlays by the Company in any particular period.

Amortization of acquisition related intangible assets

Amortization expense on acquisition related intangible assets for the first quarter of 2018 was $65.2 million compared to $8.0 million for the same period of 2017. The increase compared to 2017 was primarily due to amortization of finite life intangible assets acquired in the DigitalGlobe Transaction.

The acquisition related intangible assets, consisting of customer relationships, backlog, technology, software, and other intellectual property, are generally non-recurring expenditures as the Company does not need to replace these assets at the end of their lives to continue to operate its business. Ongoing maintenance and support costs are expensed as incurred and any internally developed technology and software that are capitalized post-acquisition are amortized in the normal course of business. All other research and development costs are expensed as incurred.

Acquisition and integration related expense

During the three months ended March 31, 2018, the Company incurred expenses of $4.7 million for integration related costs in connection with the DigitalGlobe Transaction compared to $8.0 million of acquisition related costs for the same period of 2017. The expenditures in 2018 related to retention, creation of cross functional support services, legal fees and other costs. The retention costs were incurred to incentivize certain DigitalGlobe employees to remain with the Company for a specified period of time. The Company expects to incur additional integration related costs in future periods in order to execute its integration plan and to realize the revenue and cost synergies expected to be achieved.

Interest expense on dissenting shareholder liability

The merger consideration paid out on the closing of the DigitalGlobe Transaction excluded amounts due to dissenting shareholders of all of the DigitalGlobe preferred shares and some of the DigitalGlobe common shares. As a result, the Company recognized a liability representing the estimated obligation to the dissenting shareholders. The dissenting preferred shareholders are entitled to receive an interest rate equal to the Federal Reserve discount rate plus 5% compounded quarterly. During the three months ended March 31, 2018, the Company recognized interest expense of $2.1 million related to this. There was no expense for the three months ended March 31, 2017, as the DigitalGlobe Transaction had not been completed.   

Restructuring and enterprise improvement costs

During the three months ended March 31, 2018, the Company incurred employee severance of $0.4 million. The severance costs were incurred upon termination of employment of employees who became redundant after the DigitalGlobe Transaction. The Company expects to achieve operating cost savings in future periods as a result of these actions in accordance with its integration plans.

During the three months ended March 31, 2017, the company incurred restructuring costs of $10.7 million in relation to a project to reduce the headcount at its Palo Alto manufacturing facility and to explore new efficiency initiatives to further reduce operating costs.

Income tax expense adjustment

Income tax expense adjustment for the three months ended March 31, 2018 was a recovery of $20.2 million compared to a recovery of $2.0 million for the same period in 2017. The income tax expense adjustment is computed by applying the effective annual income tax rate to items identified in the calculation of adjusted earnings. The increase in the income tax expense adjustment for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 is due to deductions in prior years for which the criteria for recognition has been met in the current year and a change in the timing and recognition of deferred tax assets.

Financial position

The Company had total assets of $6.7 billion at each of the periods ended March 31, 2018 and December 31, 2017. During the quarter, there was an increase in contract assets due to timing variability associated with revenues earned on construction contracts in excess of progress billings. This increase was offset by a decrease in intangible assets primarily related to the amortization of intangible assets, and a decrease in trade and other receivables due to the timing of customer payments.

The Company had total liabilities of $4.6 billion at each of the periods ended March 31, 2018 and December 31, 2017.  During the quarter, the Company experienced a decrease in contract liabilities due to revenue recognized in excess of billings, a decrease in employee benefits primarily due to the payment of incentive compensation during the first quarter of 2018, and a decrease in trade and other payables primarily due to the timing of vendor payments. These decreases were offset by an increase in long-term debt to fund the Company’s short-term working capital needs.

ORDER BACKLOG

Order backlog, representing the estimated dollar value of firm funded contracts for which work has not been performed, was $3.3 billion as at March 31, 2018 (December 31, 2017 - $3.3 billion).  Order backlog does not include unexercised contract options and potential orders under indefinite delivery/indefinite quantity contracts, except for the EnhancedView Service Level Agreement (“SLA”) noted below.

Order backlog includes contractual commitments for the remaining term of the EnhancedView SLA entered into with the National Geospatial-Intelligence Agency (“NGA”) in 2010. The EnhancedView SLA is structured as a ten-year term, inclusive of nine annual renewal options that may be exercised by the NGA. Although the NGA may terminate the contract at any time and is not obligated to exercise any of the remaining renewal options, the Company includes the full remaining term in backlog. While such funding contains an inherent level of uncertainty, the Company believes it is the NGA’s intention to exercise the remaining options, subject only to annual congressional appropriation of funding and the federal budget process.

Refer to section “Results by Segment” of this MD&A for further discussion of bookings activity by segment.

RESULTS BY SEGMENT

The Company analyzes financial performance by segment, which combine related activities within the Company.

 

Space Systems

The following table provides selected financial information for the Space Systems segment.

 

 

Total revenues from the Space Systems segment were $293.4 million in the first quarter of 2018 compared to $341.5 million in the same period of 2017.  The decrease of $48.1 million or 14.1% primarily related to a lower level of geostationary communications satellite construction activity in the first quarter of 2018 compared to the first quarter of 2017, partially offset by higher revenue from contracts with the U.S. government.

Although the total dollar value of geostationary communication satellite awards to the Company has remained relatively stable since 2015, there has been a step down in total number and dollar value of awards compared to historical averages prior to 2015. Revenues have decreased year-over-year as programs awarded prior to 2015 have been completed and have been replaced by this lower level of award value since 2015. Many satellite operators in the communications industry have continued to defer new satellite construction awards to evaluate geostationary and other competing satellite system architectures and other market factors. The Company believes that geostationary communications markets are at or near the bottom of this current decline. The Company is confident in its ability to adapt to changes in customer demand and maintain its leading market share position in the face of evolving technology trends.

Changes in revenues from year to year are influenced by the size, timing and number of satellite contracts awarded in the current and preceding years and the length of the construction period for satellite contracts awarded. Revenues on satellite contracts are recognized on a percentage of completion method over the construction period, which typically range between 20 to 36 months and up to 48 months in special situations. EBITDA margins can vary from quarter to quarter due to the mix of our revenues and changes in our estimated costs to complete as our risks are retired and as our estimated costs to complete are increased or decreased based on contract performance.

Adjusted EBITDA margin percentage from the Space Systems segment for the three months ended March 31, 2018 was 18.6% compared to 18.2% for the same period in the prior year. The increase was primarily due to $20.1 million of investment tax credits recognized during the three months ended March 31, 2018, compared to $3.4 million for the same period of 2017. The increase relates primarily to timing differences in the recognition of previously earned, but unrecognized investment tax credits on the basis that there is now reasonable assurance the benefit of the credits will be sustained. This increase was offset by a  recovery of liquidated damages which occurred in the first quarter of 2017 and a contract loss provision in the first quarter of 2018.

Notable bookings in the Space Systems segment announced in the first quarter of 2018 included:

 

 

 

 

Imagery

The following table provides selected financial information for the Imagery segment.

 

 

Total revenues from the Imagery segment were $211.4 million in the first quarter of 2018 compared to $7.7 million in the same period of 2017.  The increase of $203.7 million is primarily due to the inclusion of the financial results from DigitalGlobe’s imagery business, acquired as part of the DigitalGlobe Transaction, which contributed $201.9 million of revenue and $133.5 million of adjusted EBITDA in the first quarter of 2018.

Adjusted EBITDA margin percentage from the Imagery segment for the three months ended March 31, 2018 was 65.3% compared to 39.0% for the same period of 2017.  The increase in margin percentage primarily reflects the blend of margins from DigitalGlobe’s imagery business, acquired as part of the DigitalGlobe Transaction.

Property, plant and equipment capital expenditures for the Imagery segment related primarily to the Legion satellite imaging constellation for the three months ended March 31, 2018. Capital expenditures of intangible assets for the three months ended March 31, 2018 related to the development or purchase of software.

Notable bookings in the Imagery segment in the first quarter of 2018 included:

 

Services

The following table provides selected financial information for the Services segment.

 

Total revenues from the Services segment were $70.0 million in the first quarter of 2018 compared to $25.4 million in the same period of 2017.  The increase of $44.6 million is primarily due to the inclusion of the financial results from DigitalGlobe’s services business, acquired as part of the DigitalGlobe Transaction, which contributed $42.9 million of revenue and $3.8 million of adjusted EBITDA in the first quarter of 2018.

Adjusted EBITDA margin percentage from the Services segment for the three months ended March 31, 2018 was 10.1% compared to 15.7% for the same period of 2017.  The decrease in margin primarily reflects the blend of margins from DigitalGlobe’s services business, acquired as part of the DigitalGlobe Transaction.

Notable bookings in the Services segment in the first quarter of 2018 included:

Corporate expense

Corporate expense includes items such as corporate office costs, regulatory costs, executive and director compensation, and fees for audit, legal and consulting services. Corporate costs are not allocated to operating segments. Corporate expense for the first quarter of 2018 was $10.4 million compared to $6.1 million for the same period of 2017. This increase is attributable to additional headcount as a result of the DigitalGlobe Transaction, the expansion and ramp-up of corporate functions to support the increased scale of the Company and several one-time non-recurring expenses which were recorded in the first quarter of 2018. Corporate expenses as a percentage of total revenue remained relatively constant period over period.

 

QUARTERLY INFORMATION

The following table summarizes selected financial information (unaudited) for the eight most recently completed quarters.

 

 

 

2     Excludes amortization of acquisition related intangible assets.

3     Excludes income tax expense adjustment related to adjusted earnings.

Revenues and adjusted EBITDA may vary from quarter to quarter due to a number of factors. They include: the DigitalGlobe Transaction; the size and number of construction contracts in progress; changes in the revenue mix of service and construction contracts and the contract life cycle of large construction contracts; recognition of investment tax credits; fluctuations in foreign exchange rates; volume of subcontract activity; and the impact of revisions of total cost and revenue estimates on construction contracts, including the recognition or reversal of contract loss provisions.

The volatility in the Company’s net earnings over the last eight quarters was due to many factors such as the variability in share-based compensation and foreign exchange gains and losses, as well as the costs related to restructuring, enterprise improvement initiatives, acquisitions and settlement of executive compensation.

While the Company reports quarterly, its results should be viewed from a long-term perspective. For this reason and the reasons cited above, the Company cautions readers that quarter to quarter comparisons of the Company’s financial results may not necessarily be meaningful and should not be relied upon as an indication of future performance.

LIQUIDITY

The Company’s principal sources of liquidity are cash provided by operations, collection or securitization of orbital receivables and access to credit facilities and equity capital resources, including public common share offerings. The Company’s primary short-term cash requirement is to fund working capital, including supplier payments on long-term construction contracts and fixed overhead costs. Working capital requirements can vary significantly from period to period. The Company’s medium-term cash requirements are to service and repay debt and to invest in facilities, equipment, technologies, and research and development for growth initiatives. Cash is also used to pay dividends and finance other long-term strategic business initiatives.

The Company believes that its principal sources of liquidity will be sufficient to enable the Company to meet its anticipated operating, capital expenditure, growth, investment, debt service, dividend, and other financial requirements in both the short-term and long-term.

Summary of statement of cash flows

The following table provides selected cash flow information.

 

 

Operating activities

In the first quarter of 2018, the Company generated $59.3 million in cash from operating activities after changes in non-cash working capital items compared to the use of $20.1 million in cash for the same period of 2017.  The increase in operating cash flow in the current year compared to 2017 was primarily due to the inclusion of DigitalGlobe’s operating results, partially offset by the timing of customer payments on trade and other receivables, as well as less favorable timing of receipt of customer payments compared to revenue recognized.

Cash flows from operating activities can vary significantly from period to period as a result of the Company’s working capital requirements, given its portfolio of large construction programs and the timing of milestone receipts and payments with customers and suppliers in the ordinary course of business. Investment in working capital is also necessary to build the Company’s business and manage lead times in construction activities. The Company expects working capital account balances to continue to vary from period to period. The Company efficiently funds its working capital requirements with the Revolving Credit Facility (as defined below).

Investing activities

The Company used $65.8 million for investing activities in the first quarter of 2018 compared to $24.9 million for the same period of 2017. The major investing activities were purchases of and additions to property, plant and equipment of $43.6 million (three months ended March 31, 2017 - $7.9 million) and investments in technologies and software of $33.9 million (three months ended March 31, 2017 - $17.8 million). Included within additions to property, plant and equipment in the three months ended March 31, 2018 are capital expenditures related to the build of the Company’s Legion satellite imaging constellation.

Financing activities

The Company received $9.5 million in cash from financing activities in the first quarter of 2018 compared to $39.0 million for the same period of 2017. During the first three months of 2018, financing activities included net proceeds from the Syndicated Credit Facility (as defined below) and other long-term debt of $84.8 million compared to $170.7 million for the same period of last year. The Company used proceeds of $110.2 million from its revolving loan facility to repay its 2017 Term Notes in full upon maturity on February 22, 2017 and a portion of its 2024 Term Notes. Other major financing activities during the three months ended March 31, 2018 were interest payments on long-term debt of $54.3 million (three months ended March 31, 2017 - $7.2 million) and dividend payments of $16.2 million (three months ended March 31, 2017 - $10.1 million).

Credit facilities

The following table summarizes the Company’s long-term debt.

 

 

Credit facilities

The Company has in place a $3.75 billion senior secured syndicated credit facility (the “Syndicated Credit Facility”). The Syndicated Credit Facility is comprised of: (i) a four-year senior secured first lien revolving credit facility in an aggregate principal amount of $1.15 billion and a four-year senior secured first lien operating facility in an aggregate principal amount of $100.0 million (collectively, the “Revolving Credit Facility”), (ii) a senior secured first lien term A facility (“Term Loan A”) in an aggregate principal amount of $500 million consisting of a $250 million tranche with a three-year maturity and a $250 million tranche with a four-year maturity, and (iii) a seven-year senior secured first lien term B facility (“Term Loan B”) in an aggregate principal amount of $2.0 billion.

Loans under the Revolving Credit Facility are available in U.S. dollars and, at the option of the Company, in Canadian dollars. Term Loan A and Term Loan B are repayable in U.S. dollars. Borrowings under the Revolving Credit Facility and Term Loan A bear interest at a rate equal to U.S. Libor (for U.S. dollar borrowings) and CDOR or Canadian Bankers’ Acceptances (for Canadian dollar borrowings), plus a margin of 1.2%-3.0% per annum, based on the Company’s total leverage ratio. Term Loan B bears interest at U.S. Libor plus 2.75% per annum. On April 5, 2018, the Company entered into interest rate swaps at a notional value of $1 billion maturing in April 2021 or April 2022. As of April 5, 2018, the Company has hedged approximately 33% of its floating rate exposure on its outstanding debt at an average base rate of 2.56% (excluding the margin specified in the Syndicated Credit Facility).

The Revolving Credit Facility and Term Loan A are payable at maturity. Term Loan B will amortize in equal quarterly installments in 28 aggregate annual amounts equal to 1% of the original principal amount of the loan, with the final balance payable at maturity. The Revolving Credit Facility, Term Loan A, and Term Loan B may be repaid by the Company, in whole or in part, together with accrued interest, without premium or penalty, with the exception of a 1% soft call prepayment premium on Term Loan B, applicable during the first six months of the loan.

The Syndicated Credit Facility is guaranteed by the Company and certain designated subsidiaries of the Company. The security for the Syndicated Credit Facility, subject to customary exceptions, will include substantially all the tangible and intangible assets of the Company and its subsidiary guarantors. The Company is required to make mandatory prepayments of the outstanding principal and accrued interest upon the occurrence of certain events and to the extent of a specified percentage of annual excess cash flow that is not reinvested or used for other specified purposes. The Syndicated Credit Facility is subject to customary affirmative and negative covenants, default provisions, representations and warranties and other terms and conditions.

The Revolving Credit Facility includes an aggregate $200 million sub limit under which letters of credit can be issued. As at March 31, 2018, the Company had in place a total of $125.0 million (December 31, 2017 - $125.0 million) in letter of credit agreements with major banks.

The Company has significant unused borrowing capacity under its Syndicated Credit Facility and ready access to capital markets on an as-required basis to finance growth initiatives.

Debt covenants

As at March 31, 2018, the Company was in compliance with all covenants under its various credit facilities and long-term debt agreement.

Securitization liability

The Company has in place a revolving securitization facility agreement with an international financial institution. Under the terms of the agreement, the Company may offer to sell up to $400 million of eligible orbital receivables from time to time with terms of seven years or less discounted to face value using prevailing market rates. There were no drawdowns executed in the three months ended March 31, 2018 and 2017.

The orbital receivables that were securitized remain on the Company’s balance sheet as the Company continues to service the orbital receivables and has retained substantially all of the risks and rewards of ownership. The net proceeds received have been recognized as a securitization liability that has been subsequently measured at amortized cost using the effective interest rate method. The securitized orbital receivables and the securitization liability are being drawn down as payments are received from the customers and passed on to the international financial institution. The Company continues to recognize orbital interest revenue on the orbital receivables that are subject to the securitization transactions and recognizes interest expense to accrete the securitization liability to the value at maturity.

Contingencies

In July 2017, a DigitalGlobe shareholder filed a lawsuit in the U.S. District Court for the District of Colorado, naming DigitalGlobe, Maxar, and the individual directors of DigitalGlobe at the time of the DigitalGlobe Transaction as defendants. On February 12, 2018, the plaintiff filed a voluntary motion to dismiss.

Additional lawsuits arising out of or relating to the Merger Agreement or the DigitalGlobe Transaction may be filed in the future.

In October 2017, Foros Advisors LLC (“Foros”) filed a lawsuit in the U.S. District Court for the Southern District of New York, naming DigitalGlobe as the defendant. In December 2017, Foros filed an amended complaint in the lawsuit. The amended complaint alleges that DigitalGlobe breached a contract with Foros by not offering Foros the opportunity to serve as advisor to DigitalGlobe in connection with Maxar’s acquisition of DigitalGlobe. The lawsuit seeks damages in an amount not less than $18 million for this breach, plus pre-judgment interest. On January 8, 2018, DigitalGlobe filed a motion to dismiss the amended complaint. Briefings on the motion to dismiss were completed in February 2018, however the court has not yet ruled on the motion. While it is too early to predict the outcome of litigation or a reasonable range of potential losses, Maxar believes this lawsuit is without merit.

In November 2017, certain purported former holders of DigitalGlobe Series A Convertible Preferred Stock and certain purported former holders of shares of DigitalGlobe common stock filed petitions for appraisal of the value of their purported holdings of DigitalGlobe common and preferred stock as of the date of Maxar’s acquisition of DigitalGlobe. DigitalGlobe is named as the respondent in the lawsuits, and filed answers to the lawsuits in December 2017. It is too early to predict the outcome of this litigation or a reasonable range of potential losses.

The Company is a party to various other legal proceedings and claims that arise in the ordinary course of business as either a plaintiff or defendant. The Company analyzes all legal proceedings and the allegations therein. The outcome of any of these other proceedings, either individually or in the aggregate, is not expected to have a material adverse effect on the Company’s financial position, results of operations or liquidity.

Off-balance sheet arrangements

At March 31, 2018, the Company had foreign exchange forward purchase contracts of $158.8 million, foreign exchange forward sales contracts of $315.2 million, operating leases for our premises and financial guarantee contracts to export credit agencies in the form of indemnities or letters of credit. Such arrangements are not expected to have a material effect on the Company’s liquidity or capital resources, financial position or results of operations.

 

SIGNIFICANT ACCOUNTING POLICIES AND THE USE OF ESTIMATES

IFRS 15 - Revenue from Contracts with Customers

In May 2014, the International Accounting Standards Board (“IASB”) issued International Financial Reporting Standard 15 - Revenue from Contracts with Customers, which supersedes IAS 18 - Revenue, IAS 11 - Construction Contracts and other interpretive guidance associated with revenue recognition. IFRS 15 provides a single, principles-based five-step model to be applied to all contracts with customers to determine how and when an entity should recognize revenue. The standard also provides guidance on whether revenue should be recognized at a point in time or over time as well as requirements for more informative, relevant disclosures.

The Company adopted IFRS 15 on January 1, 2018 and its adoption did not have a material impact on the Company’s condensed consolidated interim financial statements and related disclosures, except for the classification of certain liabilities as described below. The Company has applied IFRS 15 in accordance with the full retrospective transitional approach, and used the practical expedients for completed contracts in IFRS 15.C5(a) and (b), and for modified contracts in accordance with IFRS 15.C5(c).

IFRS 15 did not have a significant impact on the Company’s accounting policies. Approximately half of the Company’s revenue related to construction contracts which will continue to be recognized over time under the cost-to-cost method under the new standard. The Company identified that certain of its construction contracts had two performance obligations under IFRS 15 versus one component under IAS 11 and IAS 18. However, this change did not materially impact revenue recognition for the periods presented and is not expected to materially impact the amount or timing of revenue recognized in the future. The remainder of the Company’s revenue is related to services contracts in its Imagery and Services segments. Revenue in the Imagery segment is recognized based on satellite capacity made available to the customer in a particular period, when imagery is delivered to the customer, or ratably over the subscription period. Under IAS 18, the Company was accounting for certain of its performance obligations on a straight-line basis. However, under IFRS 15, the Company will recognize revenue for these performance obligations as imagery is delivered. This change has not and is not expected to materially impact the amount or timing of revenues. The Services segment primarily enters into contracts that compensate the Company at a firm fixed price or on a time and materials basis. Revenue is typically recognized for these contracts over time based on the stage of services completed to date as a percentage of total services to be performed, or on the basis of time plus reimbursable costs incurred during the period. The Company did not identify any changes to its accounting policies for contracts in its Services segment as a result of applying IFRS 15.

 

IFRS 15 uses the term ‘contract asset’ and ‘contract liability’ to describe what the Company previously referred to as ‘construction contract assets’, ‘construction contract liabilities’ and ‘deferred revenue’. While the standard does not prohibit an entity from using alternative descriptions in the statement of financial position, the Company has adopted the terminology used in IFRS 15 to describe such balances. As at December 31, 2017, deferred revenue of $206.6 million and $134.3 million as at December 31, 2017 was previously classified in ‘current non-financial liabilities’ and ‘non-current non-financial liabilities’, respectively. Those amounts have been reclassified to current and non-current contract liabilities, respectively.

IFRS 9 - Financial Instruments

In July 2014, the IASB issued IFRS 9 - Financial Instruments, which replaces the earlier versions of IFRS 9 (2009, 2010, and 2013) and completes the IASB’s project to replace IAS 39 - Financial Instruments: Recognition and Measurement. IFRS 9 includes a logical model for classification and measurement of financial assets; a single, forward-looking ‘expected credit loss’ impairment model and a substantially reformed approach to hedge accounting to better link the economics of risk management with its accounting treatment.

The Company adopted IFRS 9 on January 1, 2018. The adoption of IFRS 9 did not have a material impact on the Company’s condensed consolidated interim financial statements and related disclosures. With respect to classification and measurement, the Company has applied the exemption not to restate comparative information for prior periods. The determination of the business model within which a financial asset is held has been made on the basis of facts and circumstances that existed at the date of initial application. The following table and the accompanying notes below explain the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of financial assets as at January 1, 2018. The new carrying amounts under IFRS 9 are the same as the original carrying amounts under IAS 39.

 

 

The Company has elected to defer application of the new general hedging model under IFRS 9 on all of its hedges and continue to apply the hedge accounting requirements of IAS 39 in their entirety until the standard resulting from the IASB's project on macro hedge accounting is effective.

NEW ACCOUNTING STANDARDS

In January 2017, the IASB issued IFRS 16 - Leases, which supersedes IAS 17 - Leases. IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases. The standard establishes a single model for lessees to bring leases on-balance sheet while lessor accounting remains largely unchanged and retains the finance and operating lease distinctions. IFRS 16 is effective for annual periods beginning on or after January 1, 2019. The Company is currently evaluating the impact of IFRS 16 on its financial statements.

RELATED PARTY TRANSACTIONS

For the three months ended March 31, 2018, the Company had no transactions with related parties as defined in IAS 24 - Related Party Disclosures, except those pertaining to transactions with key management personnel in the ordinary course of their employment or directorship arrangements.

FINANCIAL INSTRUMENTS

The Company considers the management of financial risks to be an important part of its overall corporate risk management policy. Foreign exchange forward contracts are used to hedge the Company’s exposure to currency risk on sales, purchases, cash, net investments and loans denominated in a currency other than the functional currency of the Company’s domestic and foreign operations. From time to time, the Company enters into interest rate swaps to mitigate interest rate risk. The Company uses derivative financial instruments to manage existing exposures, irrespective of whether the Company formally documents such relationships as hedges in accordance with hedge accounting requirements.

As at March 31, 2018, the Company had foreign exchange forward purchase contracts for $158.8 million (December 31, 2017 - $248.7 million) and foreign exchange forward sales contracts for $315.2 million (December 31, 2017 - $431.4 million).