Calian Technologies Ltd.
TSX : CTY

Calian Technologies Ltd.

November 12, 2009 09:37 ET

Calian Reports Fourth Quarter Results

Strong Performance to End a Record Year (All amounts in this release are in Canadian Dollars)

OTTAWA, ONTARIO--(Marketwire - Nov. 12, 2009) - Calian Technologies Ltd. (TSX:CTY) today released unaudited results for the fourth quarter ended September 30, 2009. Revenues for the quarter were $54.4 million, an increase of 11% from the $48.9 million reported in the same quarter of the previous year. Net earnings were $3.5 million or $0.45 per share basic and $0.44 per share diluted, compared to $2.7 million or $0.33 per share basic and diluted in the same quarter of the previous year. For the year 2009, the Company reported revenues of $227.2 million and net earnings of $16.5 million or $2.12 per share basic and $2.11 per share diluted, compared to revenues of $193.2 million and net earnings of $10.5 million or $1.27 per share basic and diluted in the prior year.

"A strong fourth quarter was a fitting end to a sensational year. Consolidated revenues were up 11% from the same quarter last year, with both divisions showing increases. Our BTS division posted a 14% increase in revenues as contracts signed with DND in past quarters continued to ramp up and activity on recently renewed contracts increased due to the elevated funding levels. Our Short-term staffing segment also showed signs of improvement, although the commercial sector remains sluggish. Our SED division achieved a 4% increase in revenues over the fourth quarter of last year, but as expected, revenues declined from the previous quarter as large satellite engineering projects reached completion. Custom manufacturing activities remained relatively strong during the quarter and were a major contributor to SED's revenues" stated Ray Basler, President and CEO.

"Despite ongoing pressures, the consolidated margins remained strong at 20.3% versus 19.7% in the same quarter last year. The current appreciation of the Canadian dollar will certainly put additional pressures on the SED margins as new work is undertaken. With increased revenues and margins coupled with tight control of operating costs, we achieved unprecedented earnings of $2.12 per share, an increase of 67% over the $1.27 achieved last year. In recognition of this exceptional year, we have declared a special dividend of $1.00 per share in addition to our quarterly dividend of $0.17 per share. Overall, our shareholders have achieved a 62% return on their investment over the last year. We are pleased that we have been able to reward you for your loyalty, particularly during these difficult economic times" continued Basler.

Fiscal 2009 was truly an exceptional year for the Company. While we believe that market potential remains strong, we do not expect to continue the unprecedented level of performance achieved in 2009 and therefore management expects to return to more traditional levels of revenues and earnings for 2010. While revenues ultimately realized will be dependent on the extent and timing of future contract awards, at this early stage in the year we expect revenues for 2010 to be in the range of $205 million to $225 million and net earnings per share in the range of $1.45 to $1.75 per share.

About Calian

Calian sells technology services to industry and government in Canada and around the world. Calian provides customers with ready access to an exceptional team of engineers, telecommunications and technology professionals, health care professionals and other highly qualified staff. The Business and Technology Services Division augments customer workforces with flexible short and long-term placements, recruitment and outsourcing of engineering, health care professionals and other skilled professionals. The Systems Engineering Division plans, designs and implements solutions for many of the world's space agencies and leading communications satellite manufacturers and operators, as well as providing contract manufacturing services for customers in North America.

DISCLAIMER

Certain information included in this press release is forward-looking and is subject to important risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Such statements are generally accompanied by words such as "intend", "anticipate", "believe", "estimate", "expect" or similar statements. Factors which could cause results or events to differ from current expectations include, among other things: the impact of price competition; scarce number of qualified professionals; the impact of rapid technological and market change; loss of business or credit risk with major customers; technical risks on fixed price projects; general industry and market conditions and growth rates; international growth and global economic conditions, and including currency exchange rate fluctuations; and the impact of consolidations in the business services industry. For additional information with respect to certain of these and other factors, please see the Company's most recent annual report and other reports filed by Calian with the Ontario Securities Commission. Calian disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. No assurance can be given that actual results, performance or achievement expressed in, or implied by, forward-looking statements within this disclosure will occur, or if they do, that any benefits may be derived from them.



CALIAN TECHNOLOGIES LTD.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Canadian dollars in thousands, except per share data)

Three months ended Year ended
September 30 September 30
2009 2008 2009 2008
--------------------------------------------------------------------------
Revenues $54,365 $48,904 $227,230 $193,165
Cost of revenues 43,323 39,261 178,018 155,326
--------------------------------------------------------------------------
Gross profit 11,042 9,643 49,212 37,839
Selling and marketing 1,281 1,046 4,957 4,854
General and administration 3,541 3,310 15,714 13,209
Facilities 907 751 3,230 3,118
Stock option compensation
(Note 8) 16 22 104 119
Amortization 415 352 1,246 1,374
Prior year investment tax
credits (Note 10) - - (311) -
--------------------------------------------------------------------------
Earnings before other income
and expense, interest income
and income tax expense 4,882 4,162 24,272 15,165
Unrealized gain (loss) on
fair value of conversion
options of long-term
investment (Note 6) 12 (159) (220) (338)
Loss on share exchange (Note 6) - - (125) -
Interest income (Note 7) 177 300 715 1,266
--------------------------------------------------------------------------
Earnings before income
tax expense 5,071 4,303 24,642 16,093
--------------------------------------------------------------------------
Income tax expense - current 1,682 1,659 8,055 5,534
Income tax expense (recovery)
- future (60) (71) 135 50
--------------------------------------------------------------------------
1,622 1,588 8,190 5,584
--------------------------------------------------------------------------
NET EARNINGS $3,449 $2,715 $16,452 $10,509
Retained earnings, beginning
of period 40,625 34,439 35,148 31,852
Excess of purchase price over
stated capital on repurchase
of shares (Note 8) (73) (784) (3,938) (2,760)
Dividends (1,309) (1,222) (4,970) (4,453)
--------------------------------------------------------------------------
Retained earnings, end
of period $42,692 $35,148 $42,692 $35,148
--------------------------------------------------------------------------
Net earnings per share:
(Note 9)
Basic $0.45 $0.33 $2.12 $1.27
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Diluted $0.44 $0.33 $2.11 $1.27
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Weighted average number
of shares: (Note 9)
Basic 7,704,881 8,137,968 7,764,119 8,247,798
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Diluted 7,756,153 8,137,968 7,814,984 8,247,798
--------------------------------------------------------------------------
--------------------------------------------------------------------------



CALIAN TECHNOLOGIES LTD.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Canadian dollars in thousands)

September 30, September 30,
2009 2008
----------------------------------------------------------
ASSETS

CURRENT ASSETS
Cash $43,662 $27,327
Accounts receivable 32,816 33,304
Work in process 2,766 4,761
Prepaid expenses (Note 5) 5,656 701
Future income taxes 1,472 2,060
Derivative assets (Note 13) 679 521
----------------------------------------------------------
87,051 68,674
LONG-TERM INVESTMENT (Note 6) 3,037 3,165
EQUIPMENT 4,300 4,093
INTANGIBLES 420 481
GOODWILL 9,518 9,518
----------------------------------------------------------
$104,326 $85,931
----------------------------------------------------------
----------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued
liabilities $22,644 $20,430
Unearned contract revenue 20,792 12,290
Derivative liabilities (Note 13) 377 1,606
----------------------------------------------------------
43,813 34,326
----------------------------------------------------------

CONTINGENCIES (Note 11)

SHAREHOLDERS' EQUITY

Share capital (Note 8) 17,719 16,975
Contributed surplus (Note 8) 285 429
Retained earnings 42,692 35,148
Accumulated other comprehensive loss (183) (947)
----------------------------------------------------------
60,513 51,605
----------------------------------------------------------
$104,326 $85,931
----------------------------------------------------------
----------------------------------------------------------



CALIAN TECHNOLOGIES LTD.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Canadian dollars in thousands)

Three months ended Year ended
September 30 September 30
2009 2008 2009 2008
--------------------------------------------------------------------------
Net earnings $3,449 $2,715 $16,452 $10,509
Unrealized gain (loss) on
translating financial
statements of self-sustaining
foreign operation, net of
tax of nil (2008 - nil) (112) 83 84 128
Unrealized gain (loss) on
fair value of host contract
component of long-term
investment, net of tax of
nil (2008 - nil) 44 27 (257) (46)
Change in deferred gain (loss)
on derivatives designated as
cash flow hedges, net of tax
of $707 and $450 year to
date (2008 - $15 and $1,012
year to date) 1,471 (691) 937 (2,000)
--------------------------------------------------------------------------
Other comprehensive
income (loss) 1,403 (581) 764 (1,918)
--------------------------------------------------------------------------
Comprehensive income $4,852 $2,134 $17,216 $8,591
--------------------------------------------------------------------------
--------------------------------------------------------------------------



CALIAN TECHNOLOGIES LTD.
UNAUDITED CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS
(Canadian dollars in thousands)

September 30, September 30,
2009 2008
----------------------------------------------------------
Unrealized cumulative loss
on translating financial
statements of self-sustaining
foreign operation $(310) $(394)
Unrealized cumulative gain on
fair value of host contract
component of long-term investment 128 385
Deferred loss on derivatives
designated as cash flow hedges (1) (938)
----------------------------------------------------------
Accumulated other comprehensive
loss, end of period (183) (947)
----------------------------------------------------------
Retained earnings, end of period 42,692 35,148
----------------------------------------------------------
Accumulated other comprehensive
loss and retained earnings, end
of period $42,509 $34,201
----------------------------------------------------------
----------------------------------------------------------



CALIAN TECHNOLOGIES LTD.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian dollars in thousands)

Three months ended Year ended
September 30 September 30
2009 2008 2009 2008
--------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net earnings $3,449 $2,715 $16,452 $10,509
Items not affecting cash:
Interest accreted on host
contract component of
long-term investment (Note 7) (135) (80) (474) (388)
Employee stock purchase plan
compensation expense 16 12 50 42
Stock option compensation
(Note 7) 16 22 104 119
Write-off of Nortel receivable - - 757 -
Amortization 415 352 1,246 1,374
Future income tax expense (60) (71) 135 50
Unrealized (gain) loss on fair
value of conversion options
of long-term investment
(Note 6) (12) 159 220 338
Loss on share exchange (Note 6) - - 125 -
--------------------------------------------------------------------------
3,689 3,109 18,615 12,044

Change in non-cash working
capital
Accounts receivable 4,816 4,185 (758) (62)
Work in process (339) (227) 1,996 (1,017)
Prepaid expenses (Note 5) (4,765) 573 (4,954) (200)
Accounts payable and accrued
liabilities - (629) 2,932 1,196
Unearned contract revenue 12,223 187 8,224 6,737
--------------------------------------------------------------------------
15,624 7,198 26,055 18,698
--------------------------------------------------------------------------

CASH FLOWS USED IN FINANCING
ACTIVITIES
Issuance of common shares 859 - 1,491 220
Dividends (1,309) (1,222) (4,970) (4,453)
Repurchase of shares (85) (949) (4,933) (3,314)
--------------------------------------------------------------------------
(535) (2,171) (8,412) (7,547)
--------------------------------------------------------------------------

CASH FLOWS USED IN INVESTING
ACTIVITIES
Equipment expenditures (171) (1,453) (1,392) (2,029)
--------------------------------------------------------------------------
(171) (1,453) (1,392) (2,029)
--------------------------------------------------------------------------

FOREIGN CURRENCY ADJUSTMENT (112) 83 84 128
--------------------------------------------------------------------------
NET CASH INFLOW 14,806 3,657 16,335 9,250
CASH, BEGINNING OF PERIOD 28,856 23,670 27,327 18,077
--------------------------------------------------------------------------
CASH, END OF PERIOD $43,662 $27,327 $43,662 $27,327
--------------------------------------------------------------------------
--------------------------------------------------------------------------


CALIAN TECHNOLOGIES LTD.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the periods ended September 30, 2009 and 2008

(Canadian dollars in thousands, except per share amounts)

(Unaudited)

1. ACCOUNTING POLICIES

These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. They do not include all of the information and notes required by generally accepted accounting principles for annual financial statements.

These interim consolidated financial statements have been prepared using the same accounting policies used in the preparation of the audited annual consolidated financial statements for the year ended September 30, 2008 with the exception of the application of the accounting policy described in Note 2. These interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements.

2. ADOPTION OF NEW ACCOUNTING POLICY

Effective October 1, 2008 the Company adopted Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets and Section 3450, Research and development costs. This section establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and for intangible assets. As a result, computer software was reclassified from equipment to intangible assets retrospectively.

3. ACCOUNTING ESTIMATES

For the periods ended September 30, 2009 and September 30, 2008, there has been no material change in estimates of amounts reported in prior interim periods or of amounts related to prior fiscal years.

4. SEASONALITY

The Company's revenues and earnings have historically been subject to some quarterly seasonality due to the timing of vacation periods and statutory holidays.

5. PREPAID EXPENSES



---------------------------------------------------
Year ended
September 30
2009 2008
---------------------------------------------------
Prepaid operating expenses $635 $701
Milestone advance to subcontractor 5,021 -
---------------------------------------------------
$5,656 $701
---------------------------------------------------


6. LONG-TERM INVESTMENT

On July 11, 2006, the Company invested $3,623 in Med-Emerg International Inc. (Med-Emerg) in the form of convertible preferred shares which included $116 of acquisition costs. On January 20, 2009, Med-Emerg announced that it successfully merged with AIM Health Group Inc. (AIM) in an all-stock transaction. At that time, Calian surrendered its preferred shares in Med-Emerg in exchange for a secured convertible debenture of AIM with a face value of $3,897. The share exchange resulted in a loss on exchange of $125.

The non-interest bearing debenture is convertible into 6,831,372 common shares of AIM at the Company's option. AIM is also entitled to cause the debenture to be converted into common shares when in any given 6-month period, trading volumes of AIM common shares exceed 1,089,642 shares and the weighted average share price is at least $0.57. Conversion is limited to 50% of the debenture in any 6-month period. On a fully converted basis, this investment represents a 6% interest based on the current number of common shares outstanding. The debenture is subordinated to secured creditors of record on January 20, 2009 and any bank indebtedness. The debenture is due to be redeemed in two instalments; $1,000 payable in cash on January 1, 2011 and the remaining $2,897 payable on July 11, 2011 in cash or AIM common shares at the option of AIM based on the then fair market value of the common shares.



Fair value of long-term investment:
--------------------------------------------------------------------------
Med-Emerg long-term investment, at cost $3,623
Med-Emerg cumulative unrealized gain on conversion options (1,878)
Med-Emerg cumulative interest accretion on host contract 897
Med-Emerg cumulative unrealized gain on fair value of host
contract component -
--------------------------------------------------------------------------
Med-Emerg fair value of investment on January 20, 2009,
prior to exchange $2,642
Loss on share exchange (125)
--------------------------------------------------------------------------
AIM Long-term investment, at cost $2,517
AIM cumulative unrealized gain on conversion options 35
AIM cumulative interest accretion on host contract 357
AIM cumulative unrealized gain on fair value of host
contract component 128
--------------------------------------------------------------------------
Fair value of investment at September 30, 2009 $3,037
--------------------------------------------------------------------------
--------------------------------------------------------------------------


The Company's long-term investment is considered a hybrid instrument as it includes rights of conversion to common shares. The conversion options are considered to be embedded derivatives to be separated and valued independent of the underlying host contract. The conversion options are measured at fair value with changes in fair value recorded in net income. The fair value of the conversion options applies the following data and assumptions to the Black-Scholes option pricing model:



AIM 30 day weighted average share price $0.09
Risk free interest rate 1.26%
Actual stock price volatility 99.1%
Expected life of options 1.75 years


Under the Black-Scholes model, a one cent increase (decrease) in AIM share price would result in a $15 increase (decrease) in the fair value of the conversion options. A 10% increase (decrease) in the volatility of AIM stock price would result in an $18 increase (decrease) in the fair value of the conversion option. AIM shares are traded on the TSX Venture Exchange and currently trade in limited volume.

Fair value of the host contract component is determined using interest rates in effect at each reporting period. A 1% increase (decrease) to the interest rate would result in a $45 decrease (increase) in the fair value of the host contract component. The interest rate used at September 30, 2009 is 16.4% and represents an approximation of the borrowing rate available for companies with risk profiles similar to AIM based on BBB credit rating.

7. INTEREST INCOME

Interest income is comprised of the following amounts:



--------------------------------------------------------------------------
Three months ended Year ended
September 30 September 30
2009 2008 2009 2008
--------------------------------------------------------------------------
Interest earned on
cash balances $42 $220 $241 $878
Accreted interest on host
contract component of
long-term investment 135 80 474 388
--------------------------------------------------------------------------
Interest income $177 $300 $715 $1,266
--------------------------------------------------------------------------


8. SHARE CAPITAL

Share repurchase

During the fourth quarter (and year) ending September 30, 2009, the Company acquired 5,100 (472,400) of its outstanding common shares at an average price of $16.58 ($10.44) per share for a total of $85 ($4,933) including related expenses, through normal course issuer bids in place during the period. During the quarter ending (and year ending) September 30, 2008 the Company acquired 78,600 (264,500) of its outstanding common shares at an average price of $12.08 ($12.53) per share for a total of $949 ($3,314) including related expenses, through normal course issuer bids in place during the period. The excess of the purchase price over the stated capital of the shares was charged to retained earnings.

Stock options

The Company has an established stock option plan, which provides that the Board of Directors may grant stock options to eligible directors and employees. Under the plan, eligible directors and employees are granted the right to purchase shares of common stock at a price established by the Board of Directors on the date the options are granted but in no circumstances below fair market value of the shares at the date of grant. A total of 500,000 common shares are authorized for issuance under the plan, of which 250,000 are issued at September 30, 2009.

During the year ending September 30, 2009 the Company granted 85,000 options to directors and officers at a price of $9.05 per share with 24,200 options vesting immediately and 60,800 options vesting over a period of two years. The options expire on November 18, 2013. The fair value of options granted during the year ended September 30, 2009 was $0.96 per option. At September 30, 2009 there were 155,438 options outstanding of which 112,638 are exercisable at an average price of $12.04.

During the quarter ending (and year) ending September 30, 2009, under the fair value based method, stock-option compensation expense of $16 and $104 was recorded compared to $22 and $119 recorded in the quarter ended and year ended September 30, 2008. The offsetting credit was applied to contributed surplus. For shares exercised during 2009, an amount of $247 was transferred from contributed surplus to share capital.

The compensation costs related to the issuance of options during the year ending September 30, 2009 were calculated using the Black-Scholes option pricing model using the following assumptions:



Risk free interest rate 2.3%
Expected dividend yield 7.2%
Stock price volatility 26.7%
Expected life of options 3.47 years


9. NET EARNINGS PER SHARE

The diluted weighted average number of shares has been calculated as follows:



--------------------------------------------------------------------------
Three months ended Year ended
September 30 September 30
2009 2008 2009 2008
--------------------------------------------------------------------------
Weighted average number of
shares - basic 7,704,881 8,137,968 7,764,119 8,247,798
Addition to reflect the
dilutive effect of
employee stock options 51,272 - 50,865 -
--------------------------------------------------------------------------
Weighted average number
of shares - diluted 7,756,153 8,137,968 7,814,984 8,247,798
--------------------------------------------------------------------------


Options that are anti-dilutive because the exercise price was greater than the average market price of the common shares are not included in the computation of diluted earnings per share. For the periods ending September 30, 2009, no options were considered anti-dilutive. For the periods ending September 30, 2008, 165,000 options were excluded from the above computation of diluted weighted average number of shares.

10. PRIOR YEAR INVESTMENT TAX CREDITS

During the second quarter of 2009, the Company received an assessment from the Canada Revenue Agency regarding the Company's re-filing of its 2006 scientific research and experimental development (R&D) claim allowing additional R&D costs to be claimed. As a result the Company received a refund of $311 of investment tax credits related to its 2006 R&D activities.

11. CONTINGENCIES

In the normal course of business, the Company is party to employee related claims. The potential outcomes related to existing matters faced by the Company are not determinable at this time. The Company intends to defend these actions, and management believes that the resolution of these matters will not have a material adverse effect on the Company's financial condition.

12. SEGMENTED INFORMATION

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, regarding how to allocate resources and assess performance. The Company's chief operating decision maker is the Chief Executive Officer. The Company operates in two reportable segments described below, defined by their primary type of service offering, namely Systems Engineering and Business and Technology Services.

- Systems Engineering involves planning, designing and implementing solutions that meet a customer's specific business and technical needs, primarily in the satellite communications sector.

- Business and Technology Services involves both short and long-term placements of personnel to augment customers' workforces (Staffing) as well as the long-term management of projects, facilities and customer business processes (Outsourcing).

The Company evaluates performance and allocates resources based on earnings before interest and income taxes. The accounting policies of the segments are the same as those described in the significant accounting policies note in the audited annual consolidated financial statements.



Three months ended September 30, 2009
--------------------------------------------------------------------------
Business and
Systems Technology
Engineering Services Corporate Total
--------------------------------------------------------------------------
Revenues $15,789 $38,576 $- $54,365
Earnings before other
income, interest income
and income tax expense 3,051 2,417 (586) 4,882
Unrealized gain on fair
value of conversion
options of long-term
investment (Note 6) 12
Interest income (Note 7) 177
Income tax expense 1,622
--------------------------------------------------------------------------
Net earnings $3,449
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Three months ended September 30, 2008
--------------------------------------------------------------------------
Business and
Systems Technology
Engineering Services Corporate Total
--------------------------------------------------------------------------
Revenues $15,182 $33,722 $- $48,904
Earnings before other
expense, interest income
and income tax expense 2,471 2,345 (654) 4,162
Unrealized loss on fair
value of conversion
options of long-term
investment (Note 6) (159)
Interest income (Note 7) 300
Income tax expense 1,588
--------------------------------------------------------------------------
Net earnings $2,715
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Year ended September 30, 2009
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Business and
Systems Technology
Engineering Services Corporate Total
--------------------------------------------------------------------------
Revenues $75,527 $151,703 $- $227,230
Earnings before other
expense, interest income
and income tax expense 17,134 10,002 (2,864) 24,272
Unrealized loss on fair
value of conversion options
of long-term investment
(Note 6) 220
Loss on share exchange (Note 6) 125
Interest income (Note 7) 715
Income tax expense 8,190
--------------------------------------------------------------------------
Net earnings $16,452
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Year ended September 30, 2009
--------------------------------------------------------------------------
Business and
Systems Technology
Engineering Services Corporate Total
--------------------------------------------------------------------------
Total assets other than
cash and goodwill $17,436 $33,625 $85 $51,146
Goodwill - 9,518 - 9,518
Cash - - 43,662 43,662
--------------------------------------------------------------------------
Total assets $17,436 $43,143 $43,747 $104,326
--------------------------------------------------------------------------
Equipment and intangible
expenditures $755 $637 $- $1,392
--------------------------------------------------------------------------


Year ended September 30, 2008
--------------------------------------------------------------------------
Business and
Systems Technology
Engineering Services Corporate Total
--------------------------------------------------------------------------
Revenues $59,702 $133,463 $- $193,165
Earnings before other
expense, interest income
and income tax expense 9,035 8,595 (2,465) 15,165
Unrealized loss on fair
value of conversion
options of long-term
investment (Note 6) 338
Interest income (Note 7) 1,266
Income tax expense 5,584
--------------------------------------------------------------------------
Net earnings $10,509
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Total assets other than
cash and goodwill $16,813 $32,196 $77 $49,086
Goodwill - 9,518 - 9,518
Cash - - 27,327 27,327
--------------------------------------------------------------------------
Total assets $16,813 $41,714 $27,404 $85,931
--------------------------------------------------------------------------
Equipment and intangible
expenditures $ 682 $1,347 $- $2,029
--------------------------------------------------------------------------
--------------------------------------------------------------------------


13. HEDGING

Foreign currency risk related to contracts

The Company is exposed to foreign currency fluctuations on its cash balance, accounts receivable, accounts payable and future cash flows related to contracts denominated in a foreign currency. Future cash flows will be realized over the life of the contracts. The Company utilizes derivative financial instruments, principally in the form of forward exchange contracts, in the management of its foreign currency exposures. The Company's objective is to manage and control exposures and secure the Company's profitability on existing contracts and therefore, the Company's policy is to hedge 100% of its foreign currency exposure. The Company does not utilize derivative financial instruments for trading or speculative purposes. The Company applies hedge accounting when appropriate documentation and effectiveness criteria are met.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives to specific firm contractually related commitments on projects.

The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Hedge ineffectiveness has historically been insignificant.

The forward foreign exchange contracts primarily require the Company to purchase or sell certain foreign currencies with or for Canadian dollars at contractual rates. At September 30, 2009, the Company had the following forward foreign exchange contracts:



--------------------------------------------------------------------------
Equivalent Fair Value
Type Cdn. September
Notional Currency Maturity Dollars 30, 2009
--------------------------------------------------------------------------
SELL 25,040 USD October 2009 $27,114 $303
SELL 16,480 EURO October 2009 26,197 376
--------------------------------------------------------------------------
Derivative assets $679
--------------------------------------------------------------------------
--------------------------------------------------------------------------
BUY 4,211 USD October 2009 $4,560 $51
BUY 14,196 EURO October 2009 22,566 324
BUY 120 GPB October 2009 208 2
--------------------------------------------------------------------------
Derivative
liabilities $377
--------------------------------------------------------------------------
--------------------------------------------------------------------------


A 10% strengthening (weakening) of the Canadian dollar against the following currency at September 30, 2009 would have increased (decreased) other comprehensive income as related to the forward foreign exchange contracts by the amounts shown below.



--------------------------------------------------------------------------
September 30,
2009
--------------------------------------------------------------------------
USD $1,799
EURO 300
GBP (20)
--------------------------------------------------------------------------
$2,079
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Management Discussion and Analysis - September 30, 2009:

(Canadian dollars in thousands, except per share data)

RESULTS OF OPERATIONS

Revenues:

For the fourth quarter 2009, revenues were $54,365 compared to $48,904 reported for the same period in 2008 representing an 11% increase over the prior year. For the year ending September 30, 2009 revenues were $227,230 compared to $193,165 for 2008 representing an 18% increase.

Systems Engineering's (SED) revenues were $15,789 in the quarter and $75,527 on a year-to-date basis representing an increase of 4% and 27% from the $15,182 and $59,702 recorded last year. Although the fourth quarter returned to more traditional levels of activity, SED revenues improved year over year as a result of continued strength in the satellite industry combined with elevated demand for its manufacturing services. Due to the project nature of its business, the SED division is susceptible to significant variation in volumes of activity from period to period.

Business and Technology Services (BTS) revenues were $38,576 in the quarter and $151,703 on a year-to-date basis representing an increase of 14% from the $33,722 and $133,463 for the same period last year. BTS achieved above average revenue growth this year as a result of significant organic growth on recently renewed long-term contracts plus the addition of several new smaller contracts.

Management expects that the marketplace in 2010 will continue to be very competitive. The market conditions for SED are expected to be positive and should present new opportunities in 2010. However, with the completion or near-completion of several large contracts in the satellite engineering group and limited visibility in the custom manufacturing area, overall revenues are expected to abate somewhat until new programs are captured. With a solid level of activity on existing contracts heading into 2010 and new opportunities available in the marketplace, BTS revenue levels are expected to improve over the prior year. However, the timing of future contract awards will ultimately determine BTS revenues for the next 12 months.

While the Company begins the year with $151 million of backlog to be earned in 2010, the above noted variables will have an impact in revenues ultimately realized.

Gross margin:

Gross margin was 20.3% in the fourth quarter of 2009, compared to the 19.7% reported in the fourth quarter a year ago. On a year-to-date basis the Company reported margins of 21.7% compared to 19.6% for the same period last year. The consolidated gross margin for 2009 was positively impacted by the increase in realized margins at the SED division.

Gross margin in Systems Engineering was 30.0% this quarter compared to 25.0% in the fourth quarter of 2008 and was 30.8% for the year ending September 30, 2009 compared to 24.2% for the same period last year. The above average gross margin at SED is due to a combination of several positive factors. With increased activity in all components of its business, SED was able to achieve exceptional utilization resulting in economies of scale. In addition, excellent project execution and retirement of risk on certain projects provided for additional margin.

Gross margin in Business and Technology Services was 16.4% compared to the 17.3% reported in the fourth quarter of 2008 and 17.1% for the year compared to 17.5% for the same period last year. Gross margin for the quarter has decreased compared to last year due to increased competitiveness during these difficult economic times and increased costs on a contract ending in March 2010. Otherwise, BTS gross margin is in line with the prior year.

Because of the significant difference in gross margin between each of the two divisions, the overall gross margin of the Company is dependent on the relative level of revenue generated from each division. Management will continue to focus on execution in order to maximize margins. However, the highly competitive environment faced by SED and BTS coupled with the continued volatility of the Canadian dollar could impact margins. In addition, management does not expect margins realized by SED in 2009 to be sustained in 2010 and believes that margins in the near term will return to historical levels.

Operating expenses:

Selling and marketing, general and administration and facilities totalled $5,729 or 10.5% of revenues in the fourth quarter of 2009 compared to $5,107 or 10.4% of revenues reported in the fourth quarter of 2008. For the year ending September 30, 2009 operating expenses totalled $23,901 compared to $21,181 in 2008 and includes an allowance for doubtful accounts of $757 set up against the Nortel accounts receivable. As a result of the Company's continuous cost control activities, expenditure increases were kept at a level commensurate with the support requirements of our operations. Looking ahead, management believes that the Company has the capacity for an increased level of business without significantly affecting operating costs.

Prior Year Investment Tax Credits

During this second quarter of 2009 the Company recorded additional investment tax credits of $311 with respect to its re-filing of its fiscal year 2006 R&D claims.

Interest income:

Interest income for the fourth quarter of 2009 was $177 compared to $300 in 2008. For the year ending September 30, 2009, interest income was $715 compared to $1,266 in 2008. Interest income is comprised of interest earned on the Company's cash balances and accrued interest related to the investment in AIM. Interest income earned on cash balances decreased significantly in 2009 mainly as a result of a significant decrease in interest rates during the year.

Unrealized gain (loss) on fair value of conversion options of long-term investment:

The Company recorded a gain of $12 for the quarter and a loss of $220 on a year-to-date basis compared to a loss of $159 for the quarter and $338 for 2008 relating to the fair value of conversion options of long-term investment. The reported unrealized gain or loss is a reflection of the movement in quoted market prices of AIM Health Group Inc. (AIM) shares.

Loss on share exchange:

On January 20, 2009, Med-Emerg announced that it successfully merged with AIM in an all-stock transaction. At that time, Calian surrendered its preferred shares in Med-Emerg in exchange for a secured convertible debenture of AIM with a face value of $3,897. The share exchange resulted in a loss on exchange of $125.

Income taxes:

For the year the provision for income taxes was $8,190 or 33.2% of earnings before tax compared to $5,584 in 2008 or 34.7% of earnings before tax resulting from a continued decrease in prescribed federal and provincial tax rates. The effective tax rate for 2010, prior to considering the impact of non-taxable transactions, is expected to be approximately 32.5% .

Net earnings:

As a result of the foregoing, in the fourth quarter of 2009 the Company recorded net earnings of $3,449 or $0.45 per share basic and $0.44 diluted, compared to $2,715 or $0.33 per share basic and diluted in the same quarter of the prior year. For the year ending September 30, 2009 the Company reported net earnings of $16,452 or $2.12 per share basic and $2.11 diluted compared to $10,509 or $1.27 per share basic and diluted in the same period of the prior year.

BACKLOG

The Company's backlog at September 30, 2009 was $873 million with terms extending to fiscal 2018. This compares to $940 million reported at the end of September 2008. Contracted Backlog represents maximum potential revenues remaining to be earned on signed contracts, whereas Option Renewals represent customers' options to further extend existing contracts under similar terms and conditions.

Most fee for service contracts provide the customer with the ability to adjust the timing and level of effort throughout the contract life and as such the amount actually realized could be materially different from the original contract value. The following table represents management's best estimate of the backlog realization for 2010, 2011 and beyond based on management's current visibility into customers' existing requirements.

Management's estimate of the realizable portion (current utilization rates and known customer requirements) is less than the total value of signed contracts and related options by approximately $197 million. The majority of this amount relates to the health services support contract. In September 2009, the Company reduced its backlog by $182 million based on DND exercising the first two options years of the contract without a corresponding increase in funding. The funding is still available to DND, however, this was considered an indication that this portion of the contracted backlog would not materialize. The Company's policy is to reduce the reported contractual backlog once it receives confirmation from the customer that indicates the utilization of the full contract value may not materialize.




--------------------------------------------------------------------------
(dollars in
millions) Fiscal Fiscal Beyond Estimated Excess over TOTAL
2010 2011 2011 realizable estimated
portion of realizable
Backlog portion
--------------------------------------------------------------------------
Contracted
Backlog $140 $97 $98 $335 $86 $421
Option Renewals 11 17 313 341 111 452
--------------------------------------------------------------------------
TOTAL
$151 $114 $411 $676 $197 $873
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Business and
$121 $102 $394 $617 $197 $814
Technology
Services
Systems
Engineering 30 12 17 59 - 59
--------------------------------------------------------------------------
TOTAL
$151 $114 $411 $676 $197 $873
--------------------------------------------------------------------------
--------------------------------------------------------------------------


FINANCIAL CONDITION AND CASHFLOWS:

Operating activities

Cash inflows from operating activities for the year ending September 30, 2009 were $26,055 compared to cash inflows of $18,698 in 2008 and increase of $7,357 achieved due to increased profitability, positive changes in working capital and a significant increase in advance customer payments. Working capital elements changed in line with the ebbs and flows of the business. The market for the Systems Engineering Division is characterized by long-term contracts with billings tied to milestones achieved, which often results in significant working capital requirements. Conversely, given the nature of this business, it is sometimes possible to negotiate advance payments on contracts. Such advance payments give rise to unearned revenue that will be realized as revenue over the course of the contract. As at September 30, 2009, the Company's total unearned revenue amounted to $20,792. This compares to $12,290 one year earlier, with the increase primarily attributable to a significant advance payment from ESA related to the Authorization To Proceed on the third deep space antenna.

Financing activities:

During the year ending September 30, 2009, the Company paid a dividend of $0.64 per share compared to 2008 when the Company paid $0.54 per share. The Company intends to continue with its quarterly dividend policy for the foreseeable future.

During the year ending September 30, 2009, the Company repurchased 472,400 common shares through its normal course issuer bid at an average price of $10.44 compared to the previous year when the Company repurchased 264,500 shares at an average price of $12.53.

Capital resources

At September 30, 2009 the Company had a short-term credit facility of $10,000 with a Canadian chartered bank that bears interest at prime and is secured by assets of the Company against which no amounts were drawn. Management believes that Calian has sufficient cash resources to continue to finance its working capital requirements and pay a quarterly dividend.

ADOPTION OF NEW ACCOUNTING RULES AND IMPACT ON 2009 FINANCIAL RESULTS

Effective October 1, 2008, the Company adopted Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets and Section 3450, Research and development costs. This Section establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and for intangible assets. As a result, computer software was reclassified from equipment to intangible assets retrospectively.

SELECTED QUARTERLY FINANCIAL DATA



----------------------------------------------------------
Q4/09 Q3/09 Q2/09 Q1/09
----------------------------------------------------------
Revenues $54,365 $57,845 $59,922 $55,098
Net earnings $3,449 $4,483 $5,201 $3,319
----------------------------------------------------------
Net earnings per share
Basic $ 0.45 $0.58 $0.67 $0.42
Diluted $ 0.44 $0.58 $0.67 $0.42
----------------------------------------------------------

----------------------------------------------------------
Q4/08 Q3/08 Q2/08 Q1/08
----------------------------------------------------------
Revenues $48,904 $50,964 $47,413 $45,884
Net earnings $2,715 $3,330 $2,284 $2,180
----------------------------------------------------------
Net earnings per share
Basic $0.33 $ 0.40 $0.28 $0.26
Diluted $0.33 $0.40 $0.28 $0.26
----------------------------------------------------------


SEASONALITY

The Company's operations are subject to some quarterly seasonality due to the timing of vacation periods and statutory holidays. Typically the Company's first and last quarter will be negatively impacted as a result of the Christmas season and summer vacation period. During these periods, the Company can only invoice for work performed and is also required to pay for statutory holidays. This results in reduced levels of revenues and in a drop in gross margins. This seasonality may not be apparent in the overall results of the Company depending on the impact of the realized sales mix of its various projects.

OUTLOOK

Management believes the Company is well positioned for long-term sustained growth. The Company operates in markets that will continue to require the services that the Company offers. To further assure itself of a stable source of revenues, the Company will focus on increasing the percentage of its revenues derived from recurring business while pursuing new business in adjacent markets. The Systems Engineering Division has been working within an improved satellite sector for the last two years and the division is expecting new opportunities to arise as systems adopting the latest technologies will be required by customers to maintain and improve their service offerings. Management is also confident that systems such as MSTAR will continue to be in demand in the security and surveillance market although it cannot predict the timing and extent of future orders. The continued volatility of the Canadian dollar could impact the Systems Engineering Division's competitiveness when bidding against foreign competition on projects denominated in foreign currencies.

The Business and Technology Services Division's services are adaptable to many different markets. Currently, its strength lies in providing program management and delivery services to the Department of National Defence. Management believes that this department and many others within the federal government will continue to require more support services from private enterprises to supplement their current workforce. Management believes that the types of service the division offers will continue to be attractive to government agencies going forward.

While not immune to the current economic uncertainty, management believes that the company's strong backlog and customer base coupled with the diversification of its two divisions will provide reduced susceptibility relative to other entities.

GUIDANCE

Fiscal 2009 was truly an exceptional year for the Company. While we believe that market potential remains strong, we do not expect to continue the unprecedented level of performance achieved in 2009 and therefore management expects to return to more traditional levels of revenues and earnings for 2010. While revenues ultimately realized will be dependent on the extent and timing of future contract awards, at this early stage in the year we expect revenues for 2010 to be in the range of $205 million to $225 million and net earnings per share in the range of $1.45 to $1.75 per share.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

The Canadian Accounting Standards Board has recently confirmed that Canadian publicly accountable enterprises will be required to report under International Financial Reporting Standards (IFRS) as replacement guidance for the Canadian generally accepted accounting principles (Canadian GAAP). IFRS uses a conceptual framework similar to current Canadian GAAP, but there are significant differences in recognition, measurement and disclosures. In addition, it is expected that IFRS at the transition date will differ from current IFRS. The Company expects to issue its first financial statement in accordance with IFRS effective with its three-month period ending December 31, 2011.

In order to prepare for the conversion to IFRS, the Company has developed an IFRS changeover plan. This plan addresses key elements of the Company's conversion to IFRS including:

- Accounting policy changes and financial reporting requirements;

- Education and training requirements;

- Impacts on business activities and on Information technology and data systems;

- Internal control over financial reporting

We have also established a formal governance structure for the conversion to IFRS. The initiative is lead by the Chief Financial Officer who reports regularly to the Chief Executive Officer. The Chief Financial Officer also reports quarterly to the Audit Committee of the Board of Directors on the status of the project and the implications of the changeover to IFRS.

During 2009, we completed the high-level diagnostic gap and impact analysis between Canadian GAAP and IFRS applicable to the Company. The key activities consisted of:

- Identification of significant technical accounting and disclosure differences;

- Identification of key IFRS accounting policy alternatives;

- Identification of major operational and systems impacts.

During 2010, we expect to complete our detailed analysis of relevant differences between current IFRS and Canadian GAAP and complete all the required changes to our systems, processes and internal controls for purposes of dual-reporting in fiscal 2011. The key activities planned for 2010 consist of:

- Detailed evaluation of accounting and disclosure options, including the review of estimated impacts on the Company's financial position and results of operations, key performance indicators and business activities;

- Selection of IFRS-compliant accounting policies, including IFRS 1 policy choices;

- Identification of adjustments required on transition date;

- Identification of dual-reporting solution to maintain parallel records during 2010;

- Detailed assessment of implications to systems, processes, documentation and internal controls;

- Implementation of required changes to systems, processes, documentation and internal controls.

During 2010 and 2011 we will complete the necessary work required to quantify the impact of the changeover to IFRS on the Company's financial position and result of operations at date of transition and affecting the comparative year 2011 and the first reporting year 2012. We will continue to monitor changes to IFRS and assess the impact that these new standards will have on the Company's financial results and on the Company's changeover plan. These changes may have an impact on the Company's consolidated financial statements; however it is too early in the Company's changeover process to provide quantification of those effects. Based on the Company's work to date, we believe that the areas with potential impact will be around hedge accounting documentation and overall disclosure requirements.

MANAGEMENT'S CONCLUSION ON THE EFFECTIVENESS OF DISCLOSURE CONTROLS

The Chief Executive Officer and the Chief Financial Officer of the Company, after evaluating the effectiveness of the Company's disclosure controls and procedures as of September 30, 2009, have concluded that the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would have been known to them.

MANAGEMENT'S CONCLUSION ON THE EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING

The Chief Executive Officer and the Chief Financial Officer of the Company, after evaluating the effectiveness of the Company's internal control over financial reporting as of September 30, 2009, have concluded that the Company's internal controls over financial reporting provide reasonable assurance regarding reliability of financial reporting for external purposes in accordance with Canadian GAAP.

During the most recent interim quarter ending September 30, 2009, there have been no changes in the design of the Company's internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

FORWARD-LOOKING STATEMENT

Certain information included in this management discussion and analysis is forward-looking and is subject to important risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Such statements are generally accompanied by words such as "intend", "anticipate", "believe", "estimate", "expect" or similar statements. Factors which could cause results or events to differ from current expectations include, among other things: the impact of price competition; scarce number of qualified professionals; the impact of rapid technological and market change; loss of business or credit risk with major customers; technical risks on fixed price projects; general industry and market conditions and growth rates; international growth and global economic conditions, currency exchange rate fluctuations; and the impact of consolidations in the business services industry. For additional information with respect to certain of these and other factors, please see the Company's most recent annual report and other reports filed by the Company with the Ontario Securities Commission. Calian disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. No assurance can be given that actual results, performance or achievement expressed in, or implied by, forward-looking statements within this disclosure will occur, or if they do, that any benefits may be derived from them.

The foregoing discussion and analysis should be read in conjunction with the financial statements for the fourth quarter of 2009, and with the Management Discussion and Analysis in the 2008 annual report, including the section on risks and opportunities.

Contact Information

  • Calian Technologies Ltd.
    Ray Basler
    President and Chief Executive Officer
    306-931-3425
    or
    Calian Technologies Ltd.
    Jacqueline Gauthier
    Chief Financial Officer
    613-599-8600
    www.calian.com
    ir@calian.com