OTTAWA, ONTARIO--(Marketwire - Nov. 14, 2012) - Calian Technologies Ltd. (TSX:CTY) today released unaudited results for the fourth quarter ended September 30, 2012. Revenues for the quarter were $58.1 million, a 5% increase from the $55.4 million reported in the same quarter of the previous year. Net earnings were $3.4 million or $0.44 per share basic and diluted, compared to $3.3 million or $0.43 per share basic and diluted in the same quarter of the previous year. For the year ending September 30, 2012, the Company reported revenues of $235.9 million and net earnings of $14.1 million or $1.84 per share basic and diluted, compared to revenues of $226.7 million and net earnings of $13.2 million or $1.71 per share basic and diluted in the prior year.
"I am pleased with the results posted in the last quarter of fiscal 2012. Consolidated year over year revenues continued to grow at single digit rates in both divisions. Manufacturing related revenues in SED were down compared to the same quarter last year however engineering projects more than offset the shortfall. The Primacy acquisition once again contributed to the revenue gains in our BTS division which otherwise experienced modest growth in its traditional service lines. I am encouraged by this growth profile, particularly given an environment where many of our customers' spending practices are under increased pressure" stated Ray Basler, President and CEO.
"Gross margins were down during the last quarter, primarily as a result of lower project margins in the SED division. A heavy weighting towards non-labour sales which traditionally carry lower margins, combined with an upward cost adjustment on a certain fixed price contract, accounted for the reduced margins in SED. Primacy's higher gross margins once again assisted the BTS division to achieve margins that were improved from those recorded in the same quarter of last year. While margins on our signed backlog are quite predictable, we expect to see continued margin pressure on new contracts as competition remains strong" continued Basler.
"During the quarter we completed the sale of our US division with the majority of proceeds to be received over the next quarter. While the loss of revenue and profitability will be minimal, the divestiture will result in better use of our available management resources by focusing on our core business. Due to the bureaucracy and regulations involved, we do not intend to perform defence related services in the United States in the foreseeable future" stated Basler.
While we are pleased with the Company's performance over the last quarter, we are still guarded in relation to our customer's spending patterns. The implementation of the federal government's cost cutting initiatives along with increased competitive pressures could dampen short term expectations; however, we are confident in our key markets for the longer term. Ultimately, revenues realized will be dependent on the extent and timing of future contract awards as well as customer utilization of existing contracting vehicles. Based on currently available information and our assessment of the marketplace, we expect revenues for fiscal 2013 to be in the range of $240 million to $260 million and net earnings in the range of $1.80 to $2.00 per share.
About Calian
Calian employs over 2,400 people with offices and projects that span Canada, U.S. and international markets. The company's capabilities include the provision of business and technology services to industry and government in the health, operations and maintenance, IT services and training domains as well as the design, manufacturing and maintenance of complex systems to the communications and defence sectors. Our goal is to be the best company to work for, buy from and invest in. The Business and Technology Services (BTS) Division is headquartered in Ottawa. This division augments customer workforces with flexible short and long-term placements of individuals and teams, provides access to critical recruiting capabilities and delivers outsourcing services for a variety of technical and professional functions. Our strength lies in understanding clients' needs, recruiting highly qualified personnel who understand and meet those needs, and then effectively managing those personnel within our customers' framework. Calian's Systems Engineering Division (SED) plans, designs and implements complex communication systems for many of the world's space agencies and leading satellite manufacturers and operators. SED also provides contract manufacturing services for both private sector and military customers in North America.
For further information, please visit our website at www.calian.com, or contact us at ir@calian.com
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 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | |||||||||
| As at September 30, 2011 and 2012 | |||||||||
| (Canadian dollars in thousands) | |||||||||
NOTES |
September 30, 2012 | September 30, 2011 | |||||||
| ASSETS | |||||||||
| CURRENT ASSETS | |||||||||
| Cash | $ | 31,998 | $ | 30,742 | |||||
| Accounts receivable | 40,928 | 35,181 | |||||||
| Work in process | 9,446 | 6,960 | |||||||
| Prepaid expenses | 5 | 1,480 | 2,751 | ||||||
| Derivative assets | 10 | 234 | 451 | ||||||
| Total current assets | 84,086 | 76,085 | |||||||
| NON-CURRENT ASSETS | |||||||||
| Equipment | 3,854 | 4,069 | |||||||
| Application software | 615 | 440 | |||||||
| Acquired intangibles | 12 | 4,352 | - | ||||||
| Goodwill | 12 | 10,781 | 9,518 | ||||||
| Deferred tax assets | - | 480 | |||||||
| Total non-current assets | 19,602 | 14,507 | |||||||
| TOTAL ASSETS | $ | 103,688 | $ | 90,592 | |||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
| CURRENT LIABILITIES | |||||||||
| Accounts payable and accrued liabilities | $ | 19,853 | $ | 18,594 | |||||
| Unearned contract revenue | 13,392 | 8,026 | |||||||
| Share repurchase obligation | 6 | 1,209 | 562 | ||||||
| Derivative liabilities | 10 | 26 | 1,054 | ||||||
| Total current liabilities | 34,480 | 28,236 | |||||||
| NON-CURRENT LIABILITIES | |||||||||
| Deferred tax liabilities | 1,212 | - | |||||||
| Total non-current liabilities | 1,212 | - | |||||||
| TOTAL LIABILITIES | 35,692 | 28,236 | |||||||
| SHAREHOLDERS' EQUITY | |||||||||
| Issued capital | 6 | 19,949 | 19,018 | ||||||
| Contributed surplus | 164 | 219 | |||||||
| Retained earnings | 47,186 | 43,345 | |||||||
| Accumulated other comprehensive income (loss) | 697 | (226 | ) | ||||||
| TOTAL SHAREHOLDERS' EQUITY | 67,996 | 62,356 | |||||||
| $ | 103,688 |
$ | 90,592 |
||||||
| CALIAN TECHNOLOGIES LTD. | ||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS | ||||||||||||||||
| For the periods ended September 30, 2012 and 2011 | ||||||||||||||||
| (Canadian dollars in thousands, except per share data) | ||||||||||||||||
| NOTES | Three months ended September 30, 2012 |
Three months ended September 30, 2011 |
Year ended September 30, 2012 | Year ended September 30, 2011 | ||||||||||||
| Revenues | $ | 58,137 | $ | 55,429 | $ | 235,928 | $ | 226,651 | ||||||||
| Cost of revenues | 47,519 | 44,611 | 191,501 | 184,356 | ||||||||||||
| Gross profit | 10,618 | 10,818 | 44,427 | 42,295 | ||||||||||||
| Selling and marketing | 1,174 | 1,071 | 4,762 | 4,524 | ||||||||||||
| General and administration | 4,218 | 4,183 | 17,725 | 16,980 | ||||||||||||
| Facilities | 913 | 885 | 3,344 | 3,345 | ||||||||||||
| Gain on sale of US subsidiary | 13 | (137 | ) | - | (137 | ) | - | |||||||||
| Earnings before interest income and income tax expense | 4,450 | 4,679 | 18,733 | 17,446 | ||||||||||||
| Interest income | 7 | 81 | 121 | 328 | 817 | |||||||||||
| Earnings before income tax expense | 4,531 | 4,800 | 19,061 | 18,263 | ||||||||||||
| Income tax expense - current | 1,202 | 1,424 | 4,810 | 4,557 | ||||||||||||
| Income tax expense - deferred | (35 | ) | 38 | 143 | 525 | |||||||||||
| Total income tax expense | 1,167 | 1,462 | 4,953 | 5,082 | ||||||||||||
| NET EARNINGS | $ | 3,364 | $ | 3,338 | $ | 14,108 | $ | 13,181 | ||||||||
| NET EARNINGS PER SHARE: | ||||||||||||||||
| Basic | 8 | $ | 0.44 | $ | 0.43 | $ | 1.84 | $ | 1.71 | |||||||
| Diluted | 8 | $ | 0.44 | $ | 0.43 | $ | 1.84 | $ | 1.71 | |||||||
| CALIAN TECHNOLOGIES LTD. | ||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||||
| For the periods ended September 30, 2012 and 2011 | ||||||||||||||||||
| (Canadian dollars in thousands) | ||||||||||||||||||
| NOTES | Three months ended September 30, 2012 |
Three months ended September 30, 2011 |
Year ended September 30, 2012 |
Year ended September 30, 2011 |
||||||||||||||
| NET EARNINGS | $ | 3,364 | $ | 3,338 | $ | 14,108 | $ | 13,181 | ||||||||||
| Other comprehensive income, net of tax | ||||||||||||||||||
| Unrealized gain (loss) on translating financial statements of an investment in a foreign operation, net of tax of nil (2011 - nil) | (26 | ) | 78 | (54 | ) | 22 | ||||||||||||
| Change in deferred gain or loss on derivatives designated as cash flow hedges, net of tax of $108 and $349 (2011 - $433 and $312) | 293 | (1,057 | ) | 945 | (759 | ) | ||||||||||||
| Other comprehensive income (loss), net of tax | 267 | (979 | ) | 891 | (737 | ) | ||||||||||||
| COMPREHENSIVE INCOME | $ | 3,631 | $ | 2,359 | $ | 14,999 | $ | 12,444 | ||||||||||
| CALIAN TECHNOLOGIES LTD. | ||||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | ||||||||||||||||||||
| For the years ended September 30, 2012 and 2011 | ||||||||||||||||||||
| (Canadian dollars in thousands, except per share data) | ||||||||||||||||||||
| Notes | Issued capital | Contri- buted surplus |
Retained earnings | Foreign currency trans- lation reserve |
Cash flow hedging reserve |
Total | ||||||||||||||
| Balance October 1, 2011 | $ | 19,018 | $ | 219 | $ | 43,345 | $ | 22 | $ | (248 | ) | $ | 62,356 | |||||||
| Comprehensive income | - | - | 14,108 | (54 | ) | 945 | 14,999 | |||||||||||||
| Gain on sale of US subsidiary | - | - | - | 32 | - | 32 | ||||||||||||||
| Dividends ($1.06 per share) | - | - | (8,137 | ) | - | - | (8,137 | ) | ||||||||||||
| Issue of shares under employee share purchase plan | 6 | 418 | - | - | - | - | 418 | |||||||||||||
| Issue of shares under stock option plan | 6 | 844 | (142 | ) | - | - | - | 702 | ||||||||||||
| Stock option plan compensation expense | 6 | - | 87 | - | - | - | 87 | |||||||||||||
| Share repurchase | 6 | (249 | ) | - | (1,565 | ) | - | - | (1,814 | ) | ||||||||||
| Share purchase agreement - reclassification | 6 | (82 | ) | - | (565 | ) | - | - | (647 | ) | ||||||||||
| Balance September 30, 2012 | $ | 19,949 | $ | 164 | $ | 47,186 | $ | - | $ | 697 | $ | 67,996 | ||||||||
| Notes | Issued capital | Contri- buted surplus |
Retained earnings | Foreign currency trans- lation reserve |
Cash flow hedging reserve |
Total | ||||||||||||||
| Balance October 1, 2010 | $ | 18,511 | $ | 171 | $ | 38,275 | $ | - | $ | 511 | $ | 57,468 | ||||||||
| Comprehensive income | - | - | 13,181 | 22 | (759 | ) | 12,444 | |||||||||||||
| Dividends ($0.97 per share) | - | - | (7,472 | ) | - | - | (7,472 | ) | ||||||||||||
| Issue of shares under employee share purchase plan | 6 | 384 | - | - | - | - | 384 | |||||||||||||
| Issue of shares under stock option plan | 6 | 218 | (21 | ) | - | - | - | 197 | ||||||||||||
| Stock option plan compensation expense | 6 | - | 69 | - | - | - | 69 | |||||||||||||
| Share repurchase | 6 | (200 | ) | - | (1,287 | ) | - | - | (1,487 | ) | ||||||||||
| Share purchase agreement - reclassification | 6 | 105 | - | 648 | - | - | 753 | |||||||||||||
| Balance September 30, 2011 | $ | 19,018 | $ | 219 | $ | 43,345 | $ | 22 | $ | (248 | ) | $ | 62,356 | |||||||
| CALIAN TECHNOLOGIES LTD. | ||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||||
| For the periods ended September 30, 2012 and 2011 | ||||||||||||||||||
| (Canadian dollars in thousands) | ||||||||||||||||||
| NOTES | Three months ended September 30, 2012 |
Three months ended September 30, 2011 |
Year ended September 30, 2012 |
Year ended September 30, 2011 |
||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||||
| Net earnings | $ | 3,364 | $ | 3,338 | $ | 14,108 | $ | 13,181 | ||||||||||
| Items not affecting cash: | ||||||||||||||||||
| Interest income | 8 | (81 | ) | (121 | ) | (328 | ) | (817 | ) | |||||||||
| Income tax expense | 1,167 | 1,462 | 4,953 | 5,082 | ||||||||||||||
| Employee stock purchase plan and option plan compensation expense | 62 | 35 | 158 | 137 | ||||||||||||||
| Amortization | 424 | 289 | 1,418 | 1,128 | ||||||||||||||
| Gain on sale of US subsidiary | (137 | ) | - | (137 | ) | - | ||||||||||||
| 4,799 | 5,003 | 20,172 | 18,711 | |||||||||||||||
| Change in non-cash working capital | ||||||||||||||||||
| Accounts receivable | (4,170 | ) | 8,841 | (6,162 | ) | (1,294 | ) | |||||||||||
| Work in process | 2,187 | (2,402 | ) | (2,612 | ) | (3,384 | ) | |||||||||||
| Prepaid expenses | 1,327 | (1,465 | ) | 2,035 | 3,578 | |||||||||||||
| Accounts payable and accrued liabilities | (85 | ) | 217 | 899 | 1,403 | |||||||||||||
| Unearned contract revenue | 2,060 | (3,080 | ) | 5,367 | (7,976 | ) | ||||||||||||
| 6,118 | 7,114 | 19,699 | 11,038 | |||||||||||||||
| Interest received | 72 | 121 | 310 | 338 | ||||||||||||||
| Income tax paid | (1,315 | ) | (1,168 | ) | (4,782 | ) | (4,685 | ) | ||||||||||
| 4,875 | 6,067 | 15,227 | 6,691 | |||||||||||||||
| CASH FLOWS USED IN FINANCING ACTIVITIES | ||||||||||||||||||
| Issuance of common shares | 6 | 110 | - | 1,052 | 519 | |||||||||||||
| Dividends | (2,155 | ) | (1,923 | ) | (8,137 | ) | (7,472 | ) | ||||||||||
| Repurchase of shares | 6 | (421 | ) | (494 | ) | (1,814 | ) | (1,487 | ) | |||||||||
| (2,466 | ) | (2,417 | ) | (8,899 | ) | (8,440 | ) | |||||||||||
| CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES | ||||||||||||||||||
| Equipment and application software expenditures | 1 | (224 | ) | (118 | ) | (1,054 | ) | (483 | ) | |||||||||
| Acquisition | 12 | - | - | (4,112 | ) | - | ||||||||||||
| Sale of US subsidiary | 13 | 148 | - | 148 | - | |||||||||||||
| Receipt of debenture | - | 2,897 | - | 3,897 | ||||||||||||||
| (76 | ) | 2,779 | (5,018 | ) | 3,414 | |||||||||||||
| FOREIGN CURRENCY ADJUSTMENT | (26 | ) | 78 | (54 | ) | 22 | ||||||||||||
| NET CASH INFLOW | 2,307 | 6,507 | 1,256 | 1,687 | ||||||||||||||
| CASH, BEGINNING OF PERIOD | 29,691 | 25,235 | 30,742 | 29,055 | ||||||||||||||
| CASH, END OF PERIOD | $ | 31,998 | $ | 30,742 | $ | 31,998 | $ | 30,742 | ||||||||||
| CALIAN TECHNOLOGIES LTD. |
| NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| For the periods ended September 30, 2012 and 2011 |
| (Canadian dollars in thousands, except per share amounts) |
| (Unaudited) |
1. BASIS OF PREPARATION
Calian Technologies Ltd. ("the Company"), incorporated under the Canada Business Corporations Act, and its wholly-owned subsidiaries provide technology services to industry and government. The address of its registered office and principal place of business is 340 Legget Drive, Ottawa, Ontario K2K 1Y6.
These interim condensed consolidated financial statements are expressed in Canadian dollar and have been prepared in accordance with International Accounting Standard (IAS) IAS34 - Interim financial reporting and IFRS 1 - First-time adoption of International Financial Reporting Standards (IFRS), as issued by the International Accounting Standard Board (IASB). These interim consolidated financial statements have been prepared in accordance with the accounting policies the Company expects to adopt in its annual consolidated financial statements for the year ending September 30, 2012 which are described in Note 2- Summary of significant accounting policies, presented in the financial statements for the period ended December 31, 2011.
The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto prepared under previous Canadian generally accepted accounting principles included in the Company's Annual Report for the year ended September 30, 2011. Note 13 - Transition to IFRS and Note 14 presented in the financial statements for the period ended December 31, 2011 explain how the transition from previous Canadian GAAP to IFRS affected the Company's reported financial position as at October 1, 2010, as well as the financial performance and cash flows for the year ended September 30, 2011.
These interim condensed consolidated financial statements for the three-month period and year ended September 30, 2012 were authorized for issuance by the Board of Directors on November 14, 2012.
2. FUTURE CHANGES IN ACCOUNTING POLICIES
IFRS 9 Financial instruments
IFRS 9 was issued in November 2009 introducing new requirements for the classification and measurement of financial assets. IFRS9 was further amended in October 2010 to include the requirements for the classification and measurement of financial liabilities and derecognition.
IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
IFRS 10 Consolidated financial statements
IFRS 10 establishes principles for the presentation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 replaces IAS 27 - Consolidated and Separate Financial Statements and is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
IFRS 12 Disclosure of interests in other entities
IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off-balance sheet vehicles. The standard requires an entity to disclose information regarding the nature and risks associated with its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. IFRS 12 will be effective for the Company's fiscal years beginning on or after January 1, 2013, with earlier application permitted. The Company has not yet assessed the impact of the adoption of this standard on its consolidated financial statements.
IFRS 13 Fair value measurement
IFRS 13 is intended to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS. The standard will be effective for the Company's fiscal years beginning on or after January 1, 2013, with earlier application permitted. The Company has not yet assessed the impact of the adoption of this standard on its consolidated financial statements.
IAS 1 Presentation of financial statements
In June 2011, the IASB amended IAS 1 - Presentation of financial statements. The principal change resulting from the amendments to IAS 1 is a requirement to group together items within other comprehensive income that may be reclassified to the statement of net earnings. The amendments also reaffirm existing requirements that items in other comprehensive income and net earnings should be presented as either a single statement or two consecutive statements. The amendment to IAS 1 will be effective for the Company's fiscal years beginning on or after January 1, 2013, with earlier application permitted. The Company does not expect any changes to its consolidated financial statement presentation from this amendment as the items within other comprehensive income that may be reclassified to the statement of comprehensive income are already grouped together.
IAS 28 Investments in associates and joint ventures
IAS 28 was re-issued by the IASB in May 2011 in order to conform to changes as a result of the issuance of IFRS 10, IFRS11, and IFRS 12. IAS 28 continues to prescribe the accounting for investments in associates, but is now the only source of guidance describing the application of the equity method. The amended IAS 28 will be applied by all entities that are investors with joint control of, or significant influence over, an investee. The amended version of IAS 28 is effective for financial years beginning on or after January 1, 2013, with earlier application permitted. The Company is evaluating the impact of the amendments to IAS 28 on its consolidated financial statements.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates:
The preparation of financial statements in conformity with IFRS requires the Company's management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could differ from those estimates.
Purchase Price allocation
As described in Note 12 of these financial statements, the Company acquired Primacy Management Inc. As a result of this acquisition, management was required to estimate the fair values of each identifiable asset and liability acquired through the acquisition. Fair value of cash, accounts receivable, accounts payable and equipment were estimated to approximate their carrying values in Primacy's records at the date of the transaction. The fair values of the intangibles were valued using the excess earnings method under the income approach.
4. SEASONALITY
The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year. 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
| September 30, 2012 | September 30, 2011 | |
| Prepaid operating expenses | $ 1,480 | $ 1,233 |
| Milestone advance to subcontractors | - | 1,518 |
| $ 1,480 | $ 2,751 |
6. ISSUED CAPITAL
Share repurchase
During the fourth quarter ending September 30, 2012 (2011), the Company acquired 20,700 (27,200) of its outstanding common shares at an average price of $20.35 ($18.18) per share for a total of $421 ($494) including related expenses, through normal course issuer bids in place during the period. During the year ending September 30, 2012 (2011), the Company acquired 98,000 (81,600) of its outstanding common shares at an average price of $18.52 ($18.23) for a total of $1,814 ($1,487) including related expenses. 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. During the quarter ending September 30, 2012 the Company granted 155,000 options to directors and officers at an average price of $20.54 per share with 49,000 options vesting immediately and 106,000 options vesting over a period of two years. The options expire on August 13, 2017. The weighted average fair value of options granted during the quarter ended September 30, 2012 was $0.99 per option. A total of 500,000 common shares are authorized for issuance under the plan, of which 500,000 (345,000) are issued at September 30, 2012 (2011). At September 30, 2012 there were 245,000 options outstanding, 118,000 of which are exercisable.
During the three-month periods ending September 30, 2012 (2011), the Company issued 10,000 (Nil) shares as a result of option exercises. During the years ending September 30, 2012 (2011), the Company issued 55,000 (15,200) shares as a result of option exercises. Cash proceeds from exercise were $702 ($197). In addition, $142 ($21) was reclassified from contributed surplus to common shares.
Employee Share Purchase Plan
During years ending September 30, 2012 (2011), the Company issued 23,674 (22,888) shares under the Company's Employee Share Purchase Plan at an average price of $14.76 ($14.06) for a total of $350 ($322).
Stock repurchase obligation
The Company has an agreement with a third party which provides for automatic repurchases of the Company's shares without the Company having the ability to influence the purchases. The financial liability is determined as the present value of the maximum redemption amount at each of the reporting periods. The reclassification adjustment is made by reducing issued capital and retained earnings with an offsetting adjustment to the share repurchase obligation account. An income adjustment will result for any shares repurchased below the maximum amount per share. The amount of income recognized in the period is insignificant.
7. INTEREST INCOME
Interest income is comprised of the following amounts:
| Three months ended September 30 | Years ended June 30 | |||
| 2012 | 2011 | 2012 | 2011 | |
| Interest earned on cash balances | $ 72 | $ 85 | $ 310 | $ 301 |
| Interest earned on investment | - | 36 | - | 36 |
| Accreted interest on contingent consideration | 9 | - | 18 | - |
| Accreted interest on host contract component of investment | - | - | - | 480 |
| Interest income | $ 81 | $ 121 | $ 328 | $ 827 |
8. NET EARNINGS PER SHARE
The diluted weighted average number of shares has been calculated as follows:
| Three months ended September 30 | Years ended June 30 | |||
| 2012 | 2011 | 2012 | 2011 | |
| Weighted average number of shares - basic | 7,658,924 | 7,688,050 | 7,655,092 | 7,697,217 |
| Addition to reflect the dilutive effect of employee stock options | 5,750 | 14,581 | 7,004 | 17,948 |
| Weighted average number of shares - diluted | 7,664,674 | 7,702,631 | 7,662,096 | 7,715,165 |
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 three and twelve-month periods ending September 30, 2012, NIL (155,000) options were excluded from the above computation.
Net earnings is the measure of profit or loss used to calculate earnings per share.
9. 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 provides business and technology services to industry and government in the health, operations and maintenance, IT services and training.
The Company evaluates performance and allocates resources based on earnings before interest income and income taxes. The accounting policies of the segments are the same as those described in Note 2 - Summary of significant accounting policies to the financial statements for the quarter ending December 31, 2011.
| Three months ended September 30, 2012 | ||||||
| Systems Engineering | Business and Technology Services | Corporate | Total | |||
| Revenues | $ 17,975 | $ 40,162 | $ - | $ 58,137 | ||
| Earnings before interest income and income tax expense | 2,278 | 2,764 | (592 | ) | 4,450 | |
| Interest income (Note 7) | 81 | |||||
| Income tax expense | (1,167 | ) | ||||
| Net earnings | $ 3,364 | |||||
| Three months ended September 30, 2011 | ||||||
| Systems Engineering | Business and Technology Services | Corporate | Total | |||
| Revenues | $ 16,810 | $ 38,619 | $ - | $ 55,429 | ||
| Earnings before interest income and income tax expense | 3,078 | 2,261 | (660 | ) | 4,679 | |
| Interest income (Note 7) | 121 | |||||
| Income tax expense | (1,462 | ) | ||||
| Net earnings | $ 3,338 | |||||
| Year ended September 30, 2012 | ||||||
| Systems Engineering | Business and Technology Services | Corporate | Total | |||
| Revenues | $ 67,515 | $ 168,413 | $ - | $ 235,928 | ||
| Earnings before other income, interest income and income tax expense | 10,880 | 10,816 | (2,963 | ) | 18,733 | |
| Interest income (Note 7) | 328 | |||||
| Income tax expense | (4,953 | ) | ||||
| Net earnings | $ 14,108 | |||||
| Total assets other than cash and goodwill | $ 23,753 | $ 36,277 | $ 879 | $ 60,909 | ||
| Goodwill | - | 10,781 | - | 10,781 | ||
| Cash | - | - | 31,998 | 31,998 | ||
| Total assets | $ 23,753 | $ 47,058 | $ 32,877 | $ 103,688 | ||
| Equipment and intangible expenditures | $ 529 | $ 525 | $ - | $ 1,054 | ||
| Acquired intangibles (Note 12) | $ - | $ 4,670 | $ - | $ 4,670 | ||
| Acquired goodwill (Note 12) | $ - | $ 1,263 | $ - | $ 1,263 | ||
| Year ended September 30, 2011 | ||||||
| Systems Engineering | Business and Technology Services | Corporate | Total | |||
| Revenues | $ 65,716 | $ 160,935 | $ - | $ 226,651 | ||
| Earnings before interest income and income tax expense | 10,257 | 9,754 | (2,565 | ) | 17,446 | |
| Interest income (Note 7) | 817 | |||||
| Income tax expense | (5,082 | ) | ||||
| Net earnings | $ 13,181 | |||||
| Total assets other than cash and goodwill | $ 16,257 | $ 33,962 | $ 113 | $ 50,332 | ||
| Goodwill | - | 9,518 | - | 9,518 | ||
| Cash | - | - | 30,742 | 30,742 | ||
| Total assets | $ 16,257 | $ 43,480 | $ 30,855 | $ 90,592 | ||
| Equipment and intangible expenditures | $ 352 | $ 131 | $ - | $ 483 | ||
10. 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 excluding its exposure arising from the Company's US subsidiary. 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, 2012, the Company had the following forward foreign exchange contracts:
Type | Notional | Currency | Maturity | Equivalent Cdn. Dollars | Fair Value September 30, 2012 |
| SELL | 1,000 | USD | September 2015 | $ 1,057 | $ 74 |
| SELL | 1,000 | USD | September 2016 | 1,057 | 74 |
| SELL | 1,000 | USD | September 2017 | 1,057 | 74 |
| BUY | 17,565 | USD | October 2012 | 17,258 | 12 |
| BUY | 1,977 | EURO | October 2012 | 2,497 | - |
| BUY | 38 | GPB | October 2012 | 60 | - |
| Derivative assets | $ 234 | ||||
| SELL | 36,790 | USD | October 2012 | $ 36,148 | $ 24 |
| SELL | 5,158 | EURO | October 2012 | 6,517 | 2 |
| Derivative liabilities | $ 26 |
A 10% strengthening (weakening) of the Canadian dollar against the following currencies at September 30, 2012 would have increased (decreased) other comprehensive income as related to the forward foreign exchange contracts by the amounts shown below.
| September 30, 2012 | ||
| USD | $ 2,185 | |
| EURO | (401 | ) |
| GBP | 6 | |
| $ 1,790 |
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. ACQUISITION
On March 1, 2012, the Company acquired all of the outstanding shares of Primacy Management Inc. (Primacy) for consideration of $5,244 of which $4,000 was paid on the date of closing, $300 was paid in April 2012 and $944 is payable contingently as described below. Primacy's principal business activity relates to the management of medical clinics. Primacy was acquired so as to expand the Company's health service offerings. The acquisition is a business combination to which IFRS3 Business Combination applies.
Consideration:
| Cash | $ 4,300 |
| Contingent consideration (i) | 944 |
| Total | $ 5,244 |
| (i) | Under the contingent consideration arrangement, the Company is required to pay the former shareholders of Primacy an additional $400 and $600 if Primacy attains specified levels earnings before interest, taxes, depreciation and amortization (EBITDA) for the years ending February 28, 2013 and 2014 respectively. Currently, Primacy is on target for achieving its first year earn-out target and with the growing number of clinics operated by Primacy, management believes that Primacy can achieve its earn-out target in the second period. Therefore, the amount of $944 represents the estimated fair value of the Company's obligation at the acquisition date. |
Acquisition-related costs amounting to $120 have been excluded from the consideration and have been recognized as an expense in the current year, within the general and administration line item in the consolidated statement of net earnings.
The following are the assets acquired and liabilities recognized at the date of the acquisition:
| Current assets: | ||
| Cash | $ 188 | |
| Trade receivables | 410 | |
| Prepaid expenses | 7 | |
| $ 605 | ||
| Non-current assets: | ||
| Equipment | $ 25 | |
| Intangibles recognized at time of acquisition | 4,670 | |
| $ 4,695 | ||
| Current liabilities: | ||
| Trade payables and accrued liabilities | $ (105 | ) |
| Deferred tax liability recognized at time of acquisition | (1,214 | ) |
| $ 1,319 | ) | |
| Net assets acquired | $ 3,981 |
Goodwill arising on acquisition:
| Total consideration | $ 5,244 | |
| Less: fair value of identifiable net assets acquired | (3,981 | ) |
| Goodwill acquired on acquisition | $ 1,263 |
Substantially all of the goodwill that arose on the acquisition of Primacy relates to the value of the taxable temporary differences attributable to the acquired intangibles. None of the goodwill arising on the acquisition is expected to be deductible for tax purposes.
Net cash outflow as at September 30, 2012 related to the acquisition of Primacy:
| Consideration paid in cash | $ 4,300 | |
| Less: cash balances acquired | (188 | ) |
| $ 4,112 |
Impact of the acquisition on the consolidated results of the company:
Included in revenues and net earnings for the year ending September 30, 2012 is $2,461 and $379 respectively, attributable to the additional business generated by Primacy.
Had this business combination been effected at October 1, 2011, the revenue and net earnings of the Company for the year ending September 30, 2012 would have been higher by $1,367 and $168 respectively. Management considers these 'pro-forma' numbers to represent an approximate measure of the performance of the combined group for the year ending September 30, 2012 and to provide a reference point for comparison in future periods.
Amortization of Intangibles:
Intangibles are made up of the following assets amortized as follows:
| Asset: | Fair value: | Life: | Amortization: |
| Customer relationship | $ 1,909 | Indefinite | No amortization |
| Contract with customer | 2,574 | 5 years | Straight-line over 5 years |
| Non-competition agreements | 187 | 5 years | Straight-line over 5 years |
The customer relationship, representing expected renewals of the acquired contract, is considered to have an indefinite life based on the fact that the contract is renewable on an annual basis indefinitely.
13. SALE OF US SUBSIDIARY
On August 31, 2012, the Company sold its US division. The restrictive nature of foreign ownership of US entities that perform services for the US military, impacted management's pursuit of growth for this division. Revenues from this division for the last nine months were $2,841 and the sale of the division is not expected to have any material impact on the results of the Company.
14. TRANSITION TO IFRS
The Company adopted IFRS on October 1, 2011 effective for its interim and annual consolidated financial statements beginning October 1, 2010. The Company's financial statements for the year ended September 30, 2012 will be the first annual consolidated financial statements that comply with IFRS. As required by IFRS 1, the Company will make an explicit and unreserved statement of compliance with IFRS in its financial statements for the fiscal year ended September 30, 2012. For all periods up to and including September 30, 2011, the Company prepared its financial statements in accordance with previous Canadian GAAP. This note explains how the transition from previous Canadian GAAP to IFRS affected the Company's reported financial position at September 30, 2011, as well as comprehensive income and cash flows for the three-month period and year ended September 30, 2011. References to Canadian GAAP in this note refer to Part V of the Canadian Institute of Chartered Accountants Handbook applicable to the Company for the reporting periods up to and including the year ended September 30, 2011. These unaudited interim condensed consolidated financial statements were prepared as described in Note 2 of the Company's financial statements issued for the period ended December 31, 2011, including the application of IFRS 1.
RECONCILIATION OF CANADIAN GAAP TO IFRS
IFRS 1 requires an entity to reconcile equity, comprehensive income and cash flows for prior periods. The Company's first time adoption of IFRS did not have an impact on comprehensive income or total operating, investing or financing cash flows. The following represents the reconciliations from Canadian GAAP to IFRS for the respective periods noted for equity:
| Reconciliation of Equity | |||
| September 30, 2011 | |||
| Shareholders' Equity as reported under Canadian GAAP | $ 62,918 | ||
| Share repurchase agreement transferred to liabilities | (a) | (562 | ) |
| Shareholders' Equity as reported under IFRS | $ 62,356 |
- Reclassification within the Statement of Financial Position:
The Company has an agreement with a third party which provides for automatic repurchases of the Company's shares without the Company having the ability to influence the purchases. The financial liability is determined as the present value of the maximum redemption amount. At September 30, 2011, a reclassification adjustment was made and issued capital and retained earnings were reduced by $78 and $484 respectively with an offsetting adjustment to the share repurchase liability account. The amount of the reclassification for future periods will change based on the value of the commitment at the measurement date. An income adjustment will result on any share repurchased below the maximum amount per share.
- Reclassification within the Statement of Net Earnings:
The Company has also made the mandatory reclassification and amortization expense is no longer presented separately but rather is classified based on the underlying functions between Cost of revenues, Selling and marketing and General and administration.
For the three-month period and year ending September 30, 2011, the depreciation amounts of $289 and $1,128 respectively were reclassified as follows:
| Three-month ending September 30, 2011 | Year ending September 30, 2011 | |
| Cost of revenues | $ 137 | $ 546 |
| Selling and marketing | 34 | 131 |
| General and administration | 118 | 451 |
| Total | $ 289 | $ 1,128 |
Management Discussion and Analysis - September 30, 2012:
(Canadian dollars in thousands, except per share data)
RESULTS OF OPERATIONS
Revenues:
For the fourth quarter of 2012, revenues were $58,137 compared to $55,429 reported for the same period in 2011 representing a 4% increase from the prior year. For the year ending September 30, 2012 revenues were $235,928 compared to $226,651 for 2011; an increase of 5%.
Systems Engineering's (SED) revenues were $17,975 in the quarter and $67,515 on a year-to-date basis representing an 7% increase for the quarter and a 3% increase for the year from the $16,810 and $65,716 recorded last year. Manufacturing related revenues were down considerably relative to the fourth quarter of last year, however, engineering related revenues more than compensated for the shortfall. 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 $40,162 in the quarter and $168,413 on a year-to-date basis representing an increase of 4% and 5% respectively from the $38,619 and $160,935 for the same period last year. We realized gains in most BTS market segments due to steady activity on contracts and the inclusion of Primacy Management revenues.
Management expects that the marketplace over the next year will continue to be very competitive. The market conditions for SED are expected to be temperate and while new opportunities are expected, the related timing of project awards is always subject to change. Current BTS backlog will provide a solid level of activity on existing contracts and new opportunities are expected to arise. Cuts in federal government spending will have an impact on future revenues in certain segments, however, the nature and extent of the spending constraints remain uncertain at this time. The timing of future contract awards and customer demand will ultimately determine revenues for the next year.
Gross margin:
Gross margin was 18.3% in the fourth quarter of 2012, compared to the 19.5% reported in the fourth quarter a year ago. On a year-to-date basis the Company reported margins of 18.8% compared to 18.7% for the same period last year. The consolidated gross margin for the fourth quarter 2012 reflects lower SED margins offset somewhat by the inclusion of Primacy to the mix. Margins on traditional service lines of the BTS division continue to experience downward pressure.
Gross margin in Systems Engineering was 20.5% this quarter compared to 26.9% in the fourth quarter of 2011 and was 24.3% for the year ending September 30, 2012 compared to 24.1% for the same period last year. SED margins for the fourth quarter were negatively affected by cost escalation on a certain fixed-price contract and the unusually high comparative in the prior year. The full impact of management's estimate of the cost increase has been reflected in the quarter. Updates to these estimates, if any, will be reflected in subsequent quarters if conditions change.
Gross margin in Business and Technology Services was 17.7% compared to the 16.3% reported in the fourth quarter of 2011. The increase in gross margin is primarily related to the addition of Primacy Management which commands higher gross margins. The traditional BTS business continued to experience pressure on margins when bidding for new work as competition remains strong. For the year ending September 30, 2012 gross margin was 16.6% compared to the 16.4% reported for the same period last 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 and aggressive negotiation of input costs in order to maximize margins. However, stiff competition is expected to keep the pressure on margins in both divisions. The volatility of the Canadian dollar is always an influencing factor for margins on new work in the SED division when denominated in foreign currencies.
Operating expenses:
Selling and marketing, general and administration and facilities totalled $6,306 or 10.8% of revenues in the fourth quarter of 2012 compared to $6,139 or 11.1% of revenues reported in the fourth quarter of 2011. On a year-to-date basis, operating expenses were $25,832 or 10.9% of revenues compared to $24,849 or 11% of revenues. Even after considering the effects of one-time costs and the costs associated with the acquisition of Primacy Management Inc., the Company was able to reduce its ratio of operating costs to revenues.
Sale of US subsidiary:
On August 31, 2012, the Company sold its US division. The restrictive nature of foreign ownership of US based entities that perform services for the US and foreign militaries, impacted management's pursuit of growth for this division and it became clear that this was not the most productive or profitable use of our valuable resources. Revenues from this division for the last nine months were $2,841 and the sale of the division is not expected to have any material impact on the results of the Company.
Interest income:
Interest income for the fourth quarter of 2012 was $81 compared to $121 in 2011 and on a year-to-date basis was $328 in 2012 compared to $817 in 2011. The decrease is attributable to the settlement of the AIM debenture in fiscal 2011 resulting in no interest accrued in 2012 compared to fiscal 2011. Interest income earned on cash balances was consistent with the prior year.
Income taxes:
The provision for income taxes on a year-to-date basis was $4,953 or 26.0% of earnings before tax compared to $5,082 in 2011 or 27.8% of earnings before tax. The decrease in the realized tax rate is the result of a continued slight decrease in prescribed federal and provincial tax rates. The effective tax rate for 2013, prior to considering the impact of non-taxable transactions, is expected to be approximately 26.5%.
Net earnings:
As a result of the foregoing, in the fourth quarter of 2012 the Company recorded net earnings of $3,364 or $0.44 per share basic and diluted, compared to $3,338 or $0.43 per share basic and diluted in the same quarter of the prior year. For the year ending September 30, 2012, the Company reported net earnings of $14,108 or $1.84 per share basic and diluted compared to $13,181 or $1.71 per share basic and diluted in the same period of the prior year.
BACKLOG
The Company's backlog at September 30, 2012 was $553 million with terms extending to fiscal 2018. This compares to $702 million reported at September 30, 2011. 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.
During 2012 the there were no contracts which were cancelled unexpectedly which resulted in a decrease in our backlog; however the Company did remove $14,000 in backlog related to the sale of its US subsidiary.
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 2013, 2014 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 $116 million. 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 2013 | Fiscal 2014 | Beyond 2014 | Estimated realizable portion of Backlog | Excess over estimated realizable portion | TOTAL |
| Contracted Backlog | $ 168 | $ 69 | $ 17 | $ 254 | $ 50 | $ 304 |
| Option Renewals | 10 | 51 | 122 | 183 | 66 | 249 |
| TOTAL | $ 178 | $ 120 | $ 139 | $ 437 | $ 116 | $ 553 |
| Business and Technology Services | $ 133 | $ 103 | $ 128 | $ 364 | $ 116 | $ 480 |
| Systems Engineering | 45 | 17 | 11 | 73 | - | 73 |
| TOTAL | $ 178 | $ 120 | $ 139 | $ 437 | $ 116 | $ 553 |
FINANCIAL CONDITION AND CASHFLOWS
Operating activities:
Cash inflows from operating activities for the year ending September 30, 2012 were $15,227 compared to $6,691 in 2011. This year's increase is mainly the result of working capital fluctuations in line with the ebbs and flows of the business and an increase of $5,367 compared to a decrease of $7,976 in 2011 in unearned revenues. The market for the Systems Engineering Division is characterized by 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, 2012, the Company's total unearned revenue amounted to $13,392. This compares to $8,026 at September 30, 2011, with the increase primarily attributable to advance milestones on certain contracts.
Financing activities:
During the year ended September 30, 2012, the Company paid quarterly dividends totalling $1.06 per share compared to 2011 when the Company paid $0.97 per share. The Company intends to continue with its quarterly dividend policy for the foreseeable future.
During the year ended September 30, 2012, the Company repurchased 98,000 common shares through its normal course issuer bid at an average price of $18.52 compared to the previous year when the Company repurchased 81,600 shares at an average price of $18.23.
Investing activities:
During the year ending September 30, 2012, the Company acquired all of the outstanding shares of Primacy Management Inc. for cash consideration of $5,244 of which $4,300 was paid during the second and third quarter of 2012.
Capital resources:
At September 30, 2012 the Company had a short-term credit facility of $25,000 with a Canadian chartered bank that bears interest at prime and is secured by assets of the Company. An amount of $612 was used to issue a letter of credit to meet customer contractual requirements. 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 FINANCIAL RESULTS
The Company did not adopt any new accounting policies this quarter.
INTERNATIONAL FINANCIAL REPORTING STANDARDS
The interim condensed consolidated financial statements included herein reflect the adoption of IFRS, with effect from October 1, 2010. Periods prior to October 1, 2010 have not been restated and were in accordance with Canadian GAAP which, as discussed in these interim condensed consolidated financial statements, was applied during the periods prior to the effective date of the Company's adoption of IFRS. The Company's financial statements subsequent to this report will be prepared in accordance with IFRS.
Note 14 to the unaudited interim condensed consolidated financial statements contains a detailed description of the Company's conversion to IFRS, including a reconciliation of key components of its financial statements previously prepared under Canadian GAAP to those under IFRS as at and for the three-month period and year ending September 30, 2011. Although the adoption of IFRS resulted in adjustments to the Company's financial statements, it did not materially impact the underlying cash flows or profitability.
SELECTED QUARTERLY FINANCIAL DATA
| Q4/12 | Q3/12 | Q2/12 | Q1/12 | Q4/11 | Q3/11 | Q2/11 | Q1/11 | |
| Revenues | $ 58,137 | $ 59,343 | $ 61,635 | $ 56,813 | $ 55,429 | $ 58,529 | $ 59,433 | $ 53,260 |
| Net earnings | $ 3,364 | $ 3,484 | $ 3,669 | $ 3,591 | $ 3,338 | $ 3,451 | $ 3,254 | $ 3,138 |
| Net earnings per share | ||||||||
| Basic | $ 0.44 | $ 0.45 | $ 0.48 | $ 0.47 | $ 0.43 | $ 0.45 | $ 0.42 | $ 0.41 |
| Diluted | $ 0.44 | $ 0.45 | $ 0.48 | $ 0.47 | $ 0.43 | $ 0.45 | $ 0.42 | $ 0.41 |
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 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 continue to 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 a stable satellite sector 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. Custom manufacturing activity levels will continue to be directly dependent upon SED's customers' requirements. 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, however, the federal government's current cost cutting initiatives could have a negative impact on demand, at least in the short term. Management believes that the types of service the division offers will continue to be attractive to government agencies in the long term and the division continues to assess how it can address new markets and increase the availability of new opportunities. The acquisition of Primacy Management has bolstered the division's performance and it is expected that Primacy will continue to meet the financial targets established as part of the acquisition.
GUIDANCE
While we are pleased with the Company's performance over the last quarter, we are still guarded in relation to our customer's spending patterns. The implementation of the federal government's cost cutting initiatives along with increased competitive pressures could dampen short term expectations; however, we are confident in our key markets for the longer term. Ultimately, revenues realized will be dependent on the extent and timing of future contract awards as well as customer utilization of existing contracting vehicles. Based on currently available information and our assessment of the marketplace, we expect revenues for fiscal 2013 to be in the range of $240 million to $260 million and net earnings in the range of $1.80 to $2.00 per share.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the most recent interim quarter ending September 30, 2012, there have been no changes in the design of the Company's internal controls over financial reporting that have materially affected, or are 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 2012, and with the Management Discussion and Analysis in the 2011 annual report, including the section on risks and opportunities.
Contact Information:
President and Chief Executive Officer
306-931-3425
Jacqueline Gauthier
Chief Financial Officer
613-599-8600