Calian Technologies Ltd.
TSX : CTY

Calian Technologies Ltd.

August 03, 2006 12:54 ET

Calian Reports Third Quarter Results, Litigation Settled, Dividend Increased

KANATA, ONTARIO--(CCNMatthews - Aug. 3, 2006) - (All amounts in this release are in Canadian Dollars)

Calian Technologies Ltd. (TSX:CTY) today released unaudited results for the third quarter ended June 30, 2006. Revenues for the quarter were $45.9 million, a decrease of 9% from the $50.6 million reported in the same quarter of the previous year. After considering the settlement cost of $2 million, net earnings were $0.8 million or $0.09 per share basic and diluted, compared to $2.4 million or $0.28 per share basic and diluted in the same quarter of the previous year. Prior to recording the $2 million settlement cost, net earnings would have been $2.0 million or $0.24 per share basic and diluted.

"The resolution of the litigation will allow the Company to move on and for management to concentrate its resources on pursuing the opportunities that lie ahead. In addition the Company invested $3.5 million in Med-Emerg preferred shares with the long-tem objective of participating in the evolution of the health care system" stated Ray Basler, President and CEO. The investment will be recorded during the fourth quarter of 2006.

"The results for this quarter were impacted by the wind-down of the call centre contract and the known softness in the SED division" continued Basler. "With the completion of the call centre contract now behind us, the BTS division can utilize its management time to further concentrate on growing its core business. The SED division had revenues similar to last quarter, but down relative to last year. The wind down of large longer-term contracts continued to impact SED, but with an increased backlog and a recovering satellite sector, we are optimistic heading into next year" continued Basler.

For the balance of 2006, we expect continued solid performance in the BTS division despite the wind-down of the call center contract. The SED division is starting to see signs of recovery in the satellite communications market; however, we do not anticipate any significant impact on revenues until fiscal 2007. Based on the results to date coupled with our assessment of the next quarter, management expects that consolidated revenues for 2006 will be in the range of $180 million to $185 million and net earnings per share in the range of $0.75 to $0.80.

"We are also pleased to announce that the Board of Directors approved an increase to the quarterly dividend from $0.08 to $0.09 per share effective with the next dividend payment" stated Mr. Basler.

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.

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.
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(dollars in thousands except per share data)

Three months ended Nine months ended
June 30 June 30
--------------------------------------------------------------------
2006 2005 2006 2005
--------------------------------------------------------------------
Revenues $45,946 $50,647 $141,779 $127,372
Cost of revenues 37,526 41,703 116,505 104,024
--------------------------------------------------------------------
Gross profit 8,420 8,944 25,274 23,348

Selling and marketing 1,343 1,270 3,906 4,014

General and
administration 2,964 2,802 9,524 7,561

Facilities 685 702 2,067 2,051

Amortization of
capital assets 244 293 759 841

Amortization of intangibles 78 99 234 297

Prior year investment
tax credits (Note 5) - - (409) -
--------------------------------------------------------------------

Earnings before
other expense,
interest and
income taxes 3,106 3,778 9,193 8,584

Litigation settlement
cost (Note 7) (2,000) - (2,000) -

Interest income, net 151 128 389 438
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Earnings before
income taxes 1,257 3,906 7,582 9,022
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Income taxes - current 343 1,510 2,502 3,411

Income taxes - future 142 - 272 (41)
--------------------------------------------------------------------
485 1,510 2,774 3,370
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NET EARNINGS 772 2,396 4,808 5,652

Retained earnings,
beginning of period 27,769 21,661 25,807 19,740

Share repurchase (92) - (804) -

Dividend (677) (673) (2,039) (2,008)
--------------------------------------------------------------------
Retained earnings,
end of period $27,772 $23,384 $27,772 $23,384
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Earnings per share:
(Note 4)
Basic $0.09 $0.28 $0.56 $0.67
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Diluted $0.09 $0.28 $0.56 $0.67
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Weighted average
number of shares:
(Note 4)
Basic 8,441,684 8,410,133 8,478,574 8,377,530
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Diluted 8,483,246 8,535,643 8,522,324 8,491,764
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CALIAN TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

June 30, September 30,
2006 2005
--------------------------------------------------------------------
ASSETS

CURRENT ASSETS
Cash and cash equivalents $20,083 $17,889
Accounts receivable 31,859 35,843
Note receivable 193 172
Work in process 4,267 3,609
Prepaid expenses and other 881 825
Future income taxes 1,875 2,166
--------------------------------------------------------------------
59,158 60,504
NOTE RECEIVABLE 186 186
CAPITAL ASSETS 3,560 3,551
INTANGIBLES 782 1,016
GOODWILL 9,518 9,518
--------------------------
$73,204 $74,775
--------------------------------------------------------------------
--------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities $22,921 $24,343
Unearned contract revenue 5,170 7,312
--------------------------------------------------------------------
28,091 31,655

FUTURE INCOME TAXES 24 43
--------------------------------------------------------------------
$28,115 $31,698

CONTINGENCIES (Note 7)

COMMITMENTS (Note 8)

SHAREHOLDERS' EQUITY
Share capital (Note 9) $17,317 $17,270
Retained earnings 27,772 25,807
--------------------------------------------------------------------
45,089 43,077
--------------------------------------------------------------------
$73,204 $74,775
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CALIAN TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

Three months ended Nine months ended
June 30 June 30
--------------------------------------------------------------------
2006 2005 2006 2005
--------------------------------------------------------------------
CASH FLOWS FROM (USED IN)
OPERATING ACTIVITIES

Net earnings $772 $2,396 $4,808 $5,652
Items not affecting cash:
Interest on note receivable (7) (11) (21) (31)
Employee Share Purchase
Plan compensation expense 9 8 26 24
Amortization 322 392 993 1,138
Future income taxes 142 - 272 (40)
--------------------------------------------------------------------
1,238 2,785 6,078 6,743

Change in non-cash
working capital
Accounts receivable (6,923) (13,168) 3,984 (16,561)
Work in process 71 (854) (658) (821)
Prepaid expenses and other (320) (254) (56) (12)
Accounts payable and
accrued liabilities 3,798 1,429 1,754 1,589
Unearned contract revenue 475 (2,640) (2,142) (5,218)
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(1,661) (12,702) 8,960 (14,280)
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CASH FLOWS USED IN
FINANCING ACTIVITIES
Issuance of common shares 12 3 236 560
Dividend (677) (673) (2,039) (2,008)
Repurchase of shares,
including cost
associated with
repurchase (Note 9) (112) - (993) -
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(777) (670) (2,796) (1,448)
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CASH FLOWS USED IN
INVESTING ACTIVITIES
Acquisition of capital assets (263) (276) (768) (696)
Business acquisition - - (3,202) -
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(263) (276) (3,970) (696)
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NET CASH INFLOW (OUTFLOW) (2,701) (13,648) 2,194 (16,424)
CASH AND CASH
EQUIVALENTS,
BEGINNING OF PERIOD 22,784 28,221 17,889 30,997
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CASH AND CASH
EQUIVALENTS,
END OF PERIOD $20,083 $14,573 $20,083 $14,573
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--------------------------------------------------------------------


CALIAN TECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the periods ended June 30, 2006 and 2005
(dollars in thousands)
(Unaudited)


1. ACCOUNTING POLICIES

These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles except that these interim consolidated financial statements do not provide full note disclosure.

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, 2005. These interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements.

2. ACCOUNTING ESTIMATES

For the periods ended June 30, 2006 and June 30, 2005, there has been no material changes in estimates of amounts reported in prior interim periods or of amounts related to prior fiscal years, with the exception of the additional provisions related to the litigation settlement cost referred to in Note 7.

3. 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.

4. EARNINGS PER SHARE

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



Three Months ended Nine months ended
June 30 June 30
2006 2005 2006 2005
--------------------------------------------------------------------
Weighted average number of
shares -- basic 8,441,684 8,410,133 8,478,574 8,377,530
Additions to reflect the
dilutive effect of employee
stock options 8,518 88,953 11,226 91,183
Shares to be issued for
Titan acquisition 33,044 36,557 32,524 23,051
--------------------------------------------------------------------
Weighted number of shares -
diluted 8,483,246 8,535,643 8,522,324 8,491,764
--------------------------------------------------------------------

The number of options outstanding at June 30, 2006 is 11,000.

5. PRIOR YEAR INVESTMENT TAX CREDITS

During the quarter ending March 31, 2006, the Company received an
assessment from the Canada Revenue Agency regarding its 2004
scientific research and experimental development (R&D) claim allowing
additional R&D costs to be claimed. As a result the Company recorded
$409 of investment tax credits related to its 2004 and 2005 R&D
activities which are available to be recovered from taxes already
paid. The investment tax credits have been recorded against income
taxes otherwise payable.

6. 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 June 30, 2006
--------------------------------------------------------------------
Business
and
Systems Technology
Engineering Services Corporate Total
--------------------------------------------------------------------
Revenues $9,335 $36,611 $- $45,946
Earnings before other
expense, interest and
income taxes 1,131 2,634 (659) 3,106
Litigation settlement
cost (Note 7) (2,000)
Interest income, net 151
Income taxes 485
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Net earnings $772
--------------------------------------------------------------------
--------------------------------------------------------------------

--------------------------------------------------------------------
Total assets other than
cash and goodwill $11,562 $31,486 $555 $43,603
Goodwill 9,518 9,518
Cash 20,083
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Total assets $73,204
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Three months ended June 30, 2005
---------------------------------------------------------------------
Business
and
Systems Technology
Engineering Services Corporate Total
--------------------------------------------------------------------
Revenues $11,978 $38,669 $- $50,647
Earnings before
interest and income taxes 1,663 2,601 (486) 3,778
Interest income, net 128
Income taxes 1,510
--------------------------------------------------------------------
Net earnings $2,396
--------------------------------------------------------------------
--------------------------------------------------------------------

--------------------------------------------------------------------
Total assets other than
cash and goodwill $11,876 $35,933 $722 $48,531
Goodwill 5,923 5,923
Cash 14,573
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Total assets $69,027
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Nine months ended June 30, 2006
--------------------------------------------------------------------
Business
and
Systems Technology
Engineering Services Corporate Total
--------------------------------------------------------------------
Revenues $27,232 $114,547 $- $141,779
Earnings before other
expense, interest and
income taxes 3,804 7,274 (1,885) 9,193
Litigation settlement
cost (Note 7) (2,000)
Interest income, net 389
Income taxes 2,774
--------------------------------------------------------------------
Net earnings $4,808
----------------------- --------------------------------------------


Nine months ended June 30, 2005
--------------------------------------------------------------------
Business
and
Systems Technology
Engineering Services Corporate Total
--------------------------------------------------------------------
Revenues $38,116 $89,256 $- $127,372
Earnings before
interest and income taxes 5,126 4,810 (1,352) 8,584
Interest income, net 438
Income taxes 3,370
--------------------------------------------------------------------
Net earnings $5,652
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--------------------------------------------------------------------


7. CONTINGENCIES

On July 11, 2006 the Company paid $2.0 million in return for a complete and full release and discharge of the previously disclosed $100 million claim. The release confirms that the Company does not admit and in fact denies all allegations. This payment was recorded at June 30, 2006 in accounts payable and accrued liabilities.

During the second quarter of 2006, the Company amended its agreement for the final payment of its acquisition in 2004 of Titan Consulting Group Ltd. The amended agreement resulted in the Company paying cash of $355 on February 28, 2006 with the option to pay the final $355 either in cash or through the issuance of shares on August 31, 2006. The Company's accrued liabilities include the liability associated with the final payment due August 31, 2006. Based on the share price at June 30, 2006, if the Company were to issue shares; 33,045 shares would be issuable. These shares are included in the dilutive earnings per share calculation.

8. COMMITMENTS

As part of its e-business strategy, during the year 2000, the Company entered into a 10-year lease for an office building in the Ottawa area expiring in April 2010. Upon exit of the e-business sector in 2001, the Company did not have any requirements for the space and accordingly sublet the excess space to a third party for a period of 5 years ending May 2006. During 2005, the Company entered into a new agreement with the existing sub-tenant to lease a significant portion of the space for a 5-year period extending to April 2010 at the current market price. As a result, the Company will be required to assume a portion of the costs associated with this facility. Unless the sub-lessee defaults on future payments, it is expected that the current provision of $1,838 will be sufficient to cover the Company's share of the costs. The lease payments including operating costs relating to the excess space amount to approximately $940 per year.

9. SHARE REPURCHASE

During the third quarter (and nine-month period) ending June 30, 2006, the Company acquired 10,300 (92,400) of its outstanding common shares at an average price of $11.00 ($10.73) per share for a total of $113 ($993) including related expenses, through the Normal Course Issuer Bid initiated in November 2005. The excess of the purchase price over the average stated capital of the shares has been charged to retained earnings.

10. SUBSEQUENT EVENT

On July 11, 2006 the Company invested $3.5 million in Med-Emerg International Inc. (Med-Emerg) in the form of convertible preferred shares. The preferred shares, which have a face value of $3.9 million, will be convertible into 8,750,000 common shares of Med-Emerg at the Company's option. After two years, provided certain conditions are met, Med-Emerg is also entitled to cause the preferred shares to be converted into common shares under certain circumstances where the stock trades above US$0.46 over a stipulated period of time. On a fully converted basis, this investment represents a 13% interest based on the current number of common shares outstanding. In the event the shares are not converted by July 11, 2011, the preferred shares will be redeemed, and at the option of Med-Emerg the face value will be satisfied either in cash or in Med-Emerg common shares based on the then fair market value of the common shares. The investment will be recorded at cost.

Management Discussion and Analysis -- June 30, 2006:

RESULTS OF OPERATIONS

Revenues:

For the third quarter of 2006, revenues were $45.9 million, compared to $50.6 million reported in the third quarter of 2005 representing a decrease of 9%. For the nine-month period ending June 30, 2006 revenues were $141.8 compared to $127.4 million, representing an increase of 11% from the prior year.

Systems Engineering's (SED) revenues were $9.3 million in the quarter and $27.2 million on a year-to-date basis representing a decrease of 23% and 29% respectively from the $12.0 million and $38.1 million recorded last year. Due to the project nature of its business, the SED division is susceptible to significant variation in volumes of activity from period to period. During the first nine months of 2006, SED continued the wind down on several of its larger long-term contracts. In addition, the general softness in SED's markets did not allow the division to compensate for the reduced revenues on these contracts.

Business and Technology Services (BTS) reported a 5% decrease in the quarter with revenues of $36.6 million compared to $38.7 million for the same period of last year. The decrease is related to the reduction of revenues associated with the call-center services contract partially offset by increases in other long-term outsourcing contracts. The call-center services contract was completed as planned on June 30, 2006. On a year-to-date basis, BTS reported an increase of 28% with revenues of $114.5 million compared to $89.3 million reported for the same nine-month period a year ago. The majority of the increase on a year-to-date basis is due to the inclusion of 9 months of revenues relating to the Health Services Support contract as compared with 3 months in the prior year. This was partially offset by a reduction in activity in the call-center services contract. The balance of the division continued to report modest growth.

Revenue reductions related to the normal summer slowdown will be exacerbated by the completion of the call-centre contract at the end of the third quarter. Therefore, management expects revenues for the fourth quarter of 2006 to be less than those achieved in the third quarter.

Gross margin:

Gross margin was 18.3% in the third quarter of 2006, which is higher than the 17.7% reported in the third quarter a year ago. The increase in this quarter's margin is a reflection of the changing revenue mix as a result of the wind-down of the call-center services contract. On a year-to-date basis the Company reported margins of 17.8% compared to 18.3% for the same period last year. The decrease is attributable to a change in divisional proportions with the Business and Technology Services accounting for a greater percentage of the overall revenue base.

Gross margin in Systems Engineering was 25.1% this quarter compared to 24.7% in the third quarter of 2005, For the nine-month period ending June 30, 2006, gross margin was 26.0% compared to 23.8% . The SED division is currently realizing excellent gross margins due to solid execution and retiring risk on its large contracts nearing completion combined with a higher labour content in its revenue base.

Gross margin in Business and Technology Services was 16.6% compared to the 15.5% reported in the third quarter of 2005 and 15.9% for the nine-month period compared to 16.0% for the same period last year. The increase in this quarter's margin is a reflection of the changing revenue mix as a result of the wind-down of the call-center services contract.

For the balance of 2006, management believes it can maintain similar overall margin levels.

Operating expenses:

Selling, marketing, general and administration expenses totalled $4.3 million or 9.4% of revenues in the third quarter of 2006 compared to the $4.1 million or 8.0% of revenues reported in the third quarter of 2005. The increase in this quarter's operating expenses is the result of increased corporate compliance costs and legal costs offset by a decrease in incentives. For the nine-month period ending June 30, 2006, operating expenses totalled $13.4 million in 2006 compared to $11.6 million in 2005. The increase in absolute dollars is mainly attributable to the inclusion of 9 months of operating expenses relating to the Health Services Support contract compared to 3 months in the prior year, increased corporate compliance costs and legal fees. Operating expenses are expected to decrease slightly in the fourth quarter of 2006.

Prior year investment tax credits:

As indicated in Note 5, during the second quarter of 2006 the Company recorded additional investment tax credits (ITC) of $409 with respect to 2004 and 2005. These ITC recoverable were applied against income tax otherwise payable.

Litigation:

As indicated in Note 7 to these financial statements, on July 11, 2006, the Company paid $2 million in exchange for a complete and full release and discharge of the $100 million claim. The release confirms that the Company does not admit and in fact denies all allegations. Management was confident in its position, however faced with the substantial legal costs and extensive management diversion associated with a multi-year litigation, management believes that the agreement reached is in the best interests of the Company. At June 30, 2006, a provision was recorded to reflect the imminent payment.

Income taxes

The provision for income taxes for the third quarter of 2006 was $0.5 million or 38.5% of earnings before tax compared to $1.5 million in 2005 or 38.7% of earnings before tax. On a year-to-date basis, the provision for incomes taxes was $3.4 million or 36.6% of earnings before tax compared to $3.4 million in 2005 or 37.4% of earnings before tax, in line with current effective income tax rates.

Net earnings:

As a result of the foregoing, in the third quarter of 2006 the Company recorded net earnings of $0.8 million or $0.09 per share basic and diluted, compared to $2.4 million or $0.28 per share basic and diluted in the same quarter of the prior year with the Company reporting for the nine-month period ending June 30, 2006 net earnings of $4.8 million or $0.56 per share basic and diluted compared to $5.7 million or $0.67 per share basic and diluted in the same period of the prior year.

SUBSEQUENT EVENT

As indicated in Note 10 to these financial statements, on July 11, 2006, Calian invested $3.5 million in Med-Emerg in the form of convertible preferred shares. Management believes that given the enormous pressures on governments to streamline their healthcare systems there will be increasing opportunities generated in this emerging market. Med-Emerg has a good long-standing reputation in many aspects of private delivery of healthcare services and is a premier consultant for policy makers and various healthcare organizations which puts them in an ideal position to address future requirements and for Calian to participate in that process.

BACKLOG

The backlog at June 30, 2006 is $1,026 million with terms extending to fiscal 2014. This compares to $1,098 million reported at the end of September 30, 2005. Contracted Backlog represents 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 contracts provide the customer with the ability to adjust the timing and level of effort throughout the contract life and as such the amount realized could be materially different. The following table represents management's best estimate of the consumption profile related to the Contracted Backlog and Option Renewals.



(dollars in millions) TOTAL Fiscal 2006 Fiscal 2007 Beyond
---------------------------------------------------------------

Contracted Backlog $441 $30 108 $303

Option Renewals 585 10 10 565
---------------------------------------------------------------
TOTAL $1,026 $40 $118 $868
---------------------------------------------------------------
---------------------------------------------------------------
Business and
Technology Services $987 $30 $100 $857
---------------------------------------------------------------
Systems Engineering 39 10 18 11
---------------------------------------------------------------
TOTAL $1,026 $40 $118 $ 868
---------------------------------------------------------------
---------------------------------------------------------------


FINANCIAL CONDITION AND CASHFLOWS:

Cash generated from operating activities for the nine-month period ending June 30, 2006 was $9.0 million as compared with a cash outflow of $14.3 million during the same period in 2005. As at June 30, 2005, the Company had invested in the working capital requirements for the Health Services contract which represented 3 months of outstanding accounts receivables offset partially by the accounts payable owing at June 30. This represented an investment of approximately $13 million. During the 9 month period ending June 30, 2006, the Company was able to reduce its outstanding accounts receivables to 2 months and recuperate approximately $4 million in working capital. Other working capital decreased from September 30, 2005 in line with the ebbs and flows of the business. Specifically, accounts receivable decreased as a result of receiving large milestone billings accrued near year-end. Accounts payable decreased as a result of the payment of a large supplier milestone which was recorded near year-end.

Cash outflows from operating activities for the three-month period ending June 30, 2006 were $1.6 million. With the exception of the accounts receivable balance, cash flows were in line with the normal ebbs and flows of the business. With respect to accounts receivable, the company was the beneficiary of earlier than normal payments on certain government contracts at the end of the second quarter, and accordingly the cash flows for the third quarter were negatively impacted when government payment cycles reverted back to normal timeframes.

In addition, during 2006 the Company paid $3.2 million related to the Titan acquisition with the final payment of $0.4 million due on August 31, 2006.

For the nine-month period ending June 30, 2006, the Company repurchased 92,400 shares at an average price of $10.73 per share for a total of $993 and continued to pay a quarterly dividend. During the third quarter of 2006 and 2005, the Company paid a dividend of 8 cents per share or $0.7 million.

SEASONALITY

The Company's operations have historically been 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 in the long-term. The Company operates in markets that will continue to require the services that the Company delivers. 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. Its acquisition strategy, focused on adding complementary businesses to the Company's mix, will also be a potential source of growth.

The Systems Engineering Division has been working within a depressed satellite sector for the last few years. In addition, several large satellite operators have recently been purchased using highly leveraged financial structures and industry consolidation continues. We believe this may impact capital spending, which in turn may reduce new opportunities in the near term. However, management believes that new systems adopting the latest technologies will be required in the medium term to maintain and improve service offerings. Although management is confident that systems such as MSTAR will continue to be in demand in the security and surveillance market it cannot predict the timing and extent of future orders. The continued strengthening of the Canadian dollar will impact the Systems Engineering Division's competitiveness when bidding against foreign competition on projects denominated in US dollars and EUROs.

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. Although Calian has experienced delays during the last few years, management believes that the types of service the division offers will continue to be attractive to government agencies going forward. The acquisition of Titan coupled with existing standing agreements for SAP and Peoplesoft resources, positions Calian to take advantage of the expected growth in government ERP requirements. With the call center services contract lapsing, management believes that it can effectively refocus its resources on traditional business to offset the impact on earnings.

Due to significant long term contracts in the BTS division coupled with a few large contracts nearing completion in the SED division, our backlog is heavily weighted towards BTS. While BTS enjoys a more favourable outlook, the market environment for SED is showing signs of improvement. However, given the lead times involved in the satellite sector, it may not translate into enhanced opportunities in the short term. Accordingly, the company expects the shift experienced in both revenue and profitability proportions towards the BTS division to remain. As the BTS division traditionally earns lower margins, the changed mix will continue to have a dampening effect on overall operating profit percentages.

GUIDANCE

For the balance of 2006, we expect continued solid performance in the BTS division despite the wind-down of the call center contract. The SED division is starting to see signs of recovery in the satellite communications market; however, we do not anticipate any significant impact on revenues until fiscal 2007. Based on the results to date coupled with our assessment of the next quarter and including the impact of the settlement of the litigation, management expects that consolidated revenues for 2006 will be in the range of $180 million to $185 million and net earnings per share in the range of $0.75 to $0.80.

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, 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 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 third quarter of 2006, and with the Management Discussion and Analysis in the 2005 annual report, including the section on risks and opportunities.

For further information, please visit our website at www.calian.com, or contact us at ir@calian.com

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