The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from Marketwire

Computer Modelling Group Announces Year End Results

Thursday, May 26, 2011

Computer Modelling Group Announces Year End Results08:00 EDT Thursday, May 26, 2011CALGARY, ALBERTA--(Marketwire - May 26, 2011) - Computer Modelling Group Ltd. ("CMG," the "Company," "we" or "our") (TSX:CMG) is pleased to report our financial results for the fiscal year ended March 31, 2011.MANAGEMENT'S DISCUSSION AND ANALYSISThis Management's Discussion and Analysis ("MD&A") for Computer Modelling Group Ltd. ("CMG," the "Company," "we" or "our"), presented as at May 25, 2011, should be read in conjunction with the audited consolidated financial statements and related notes of the Company for the years ended March 31, 2011 and 2010. Readers should also read the "Non-GAAP Financial Measures" and "Forward-Looking Information" advisories at the end of this MD&A. Additional information relating to CMG, including our Annual Information Form, can be found at www.sedar.com. The financial data contained herein have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") and, unless otherwise indicated, all amounts in this report are expressed in Canadian dollars.HIGHLIGHTSDuring the fiscal year ended March 31, 2011, as compared to the prior year, CMG:- Increased annuity/maintenance revenue by 11%- Increased total revenue by 14%- Increased earnings for the year by 19%- Invested $9.3 million in product research and development- Realized earnings per share of $0.95, representing a 16% increaseANNUAL PERFORMANCE($ thousands, unless otherwise March 31, March 31, March 31, stated) 2011 2010 2009----------------------------------------------------------------------------Annuity/maintenance licenses 32,709 29,507 25,947Perpetual licenses 11,045 10,443 12,459----------------------------------------------------------------------------Software licenses 43,754 39,950 38,406Consulting and contract research 8,073 5,353 5,536----------------------------------------------------------------------------Total Revenue 51,827 45,303 43,942Gross profit 40,434 35,590 34,785Gross profit (%) 78 79 79Earnings for the year 17,166 14,463 16,616Cash dividends declared and paid 16,971 16,557 10,926Total assets 58,689 49,906 48,044Total shares outstanding 18,213 17,830 17,260Trading price per share at March 31 25.96 17.25 9.25Market capitalization at March 31 472,820 307,568 159,651----------------------------------------------------------------------------Per share amounts - ($/share)Earnings per share - basic 0.95 0.82 0.97Earnings per share - diluted 0.93 0.80 0.95Cash dividends declared and paid 0.94 0.94 0.64--------------------------------------------------------------------------------------------------------------------------------------------------------QUARTERLY PERFORMANCE($ thousands, unless otherwise Fiscal 2010(1) Fiscal 2011(2)----------------------------------------------------------------------------Annuity/maintenance licenses 7,208 7,240 7,406 7,653 8,325 7,855 7,999 8,531Perpetual licenses 1,976 582 2,903 4,982 1,824 2,975 2,335 3,911----------------------------------------------------------------------------Software licenses 9,184 7,822 10,309 12,635 10,149 10,830 10,333 12,442Consulting and contract research 1,050 1,262 1,383 1,657 1,905 2,502 1,730 1,936----------------------------------------------------------------------------Total revenue 10,234 9,084 11,692 14,292 12,054 13,332 12,063 14,378Gross profit 7,882 6,785 9,337 11,586 9,396 10,266 9,303 11,469Gross profit % 77 75 80 81 78 77 77 80Earnings before income and other taxes 3,991 3,437 5,708 7,710 6,178 6,565 5,278 7,413Income and other taxes 1,302 1,023 1,708 2,350 1,949 1,999 1,715 2,605Earnings for the quarter 2,689 2,414 4,000 5,360 4,230 4,565 3,563 4,808Cash dividends declared and paid 6,975 3,179 3,194 3,209 6,274 3,430 3,623 3,643----------------------------------------------------------------------------Per share amounts - ($/share)Earnings per share - basic 0.16 0.14 0.23 0.30 0.24 0.25 0.20 0.26Earnings per share - diluted 0.15 0.13 0.22 0.30 0.23 0.25 0.19 0.26Cash dividends declared and paid 0.40 0.18 0.18 0.18 0.35 0.19 0.20 0.20--------------------------------------------------------------------------------------------------------------------------------------------------------(1) Q1, Q2, Q3 and Q4 of fiscal 2010 include $0.4 million, $0.4 million, $0.3 million and $0.4 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.(2) Q1, Q2, Q3 and Q4 of fiscal 2011 include $1.1 million, $0.2 million, $0.3 million and $0.1 million, respectively, in revenue that pertains to usage of CMG's products in prior quarters.REVENUEFor the three months ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Software licenses 12,442 12,635 (193) -2%Consulting and contract research 1,936 1,657 279 17%----------------------------------------------------------------------------Total revenue 14,378 14,292 86 1%--------------------------------------------------------------------------------------------------------------------------------------------------------Software license revenue - % of total revenue 87% 88%Consulting and contract research - % of total revenue 13% 12%----------------------------------------------------------------------------For the year ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Software licenses 43,754 39,950 3,804 10%Consulting and contract research 8,073 5,353 2,720 51%----------------------------------------------------------------------------Total revenue 51,827 45,303 6,524 14%--------------------------------------------------------------------------------------------------------------------------------------------------------Software license revenue - % of total revenue 84% 88%Consulting and contract research - % of total revenue 16% 12%----------------------------------------------------------------------------CMG's revenue is comprised of software license sales, which provide the majority of the Company's revenue, and consulting and contract research fees. The 1% increase in total revenue in the three months ended March 31, 2011 compared to the same period of previous fiscal year is attributable solely to the increase in consulting and contract research revenue which has been offset by the slight decrease in revenue derived from software licenses as a result of the decrease in fourth quarter perpetual license sales. The 14% increase in total revenue in the year ended March 31, 2011, compared to the year ended March 31, 2010, is primarily due to the growth in both annuity/maintenance license revenue and perpetual license revenue (see further discussion below). We have also experienced an increase in consulting and training activities in the current fiscal year which further contributed to our year-to-date revenue growth.Software License RevenueSoftware license revenue is made up of annuity/maintenance license fees charged for the use of the Company's software products which is generally for a term of one year or less and perpetual software license sales, whereby the customer purchases the-then-current version of the software and has the right to use that version in perpetuity. Annuity/maintenance license fees have historically had a high renewal rate and, accordingly, provide a reliable revenue stream while perpetual license sales are more variable and unpredictable in nature as the purchase decision and its timing fluctuate with the customers' needs and budgets. CMG has found that the majority of its customers who have acquired perpetual software licenses subsequently purchase maintenance licenses to ensure they have access to current versions of CMG's software.For the three months ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Annuity/maintenance licenses 8,531 7,653 878 11%Perpetual licenses 3,911 4,982 (1,071) -21%----------------------------------------------------------------------------Total software license revenue 12,442 12,635 (193) -2%--------------------------------------------------------------------------------------------------------------------------------------------------------Annuity/maintenance as a % of total software license revenue 69% 61%Perpetual as a % of total software license revenue 31% 39%----------------------------------------------------------------------------For the year ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Annuity/maintenance licenses 32,709 29,507 3,202 11%Perpetual licenses 11,045 10,443 602 6%----------------------------------------------------------------------------Total software license revenue 43,754 39,950 3,804 10%--------------------------------------------------------------------------------------------------------------------------------------------------------Annuity/maintenance as a % of total software license revenue 75% 74%Perpetual as a % of total software license revenue 25% 26%----------------------------------------------------------------------------Total software license revenue for the three months ended March 31, 2011 is comparable to total software license revenue generated during the same period of last year with only a slight decrease of 2%. The increase in our more stable and predictable annuity/maintenance license revenue stream during the fourth quarter has been offset by the decrease in the less predictable perpetual license sale revenue. The 10% growth in total software license revenue in the year ended March 31, 2011 compared to the same period of previous fiscal year is attributable mainly to the increase in annuity/maintenance license revenue related to increased sales to new and existing customers as well as the increase in perpetual sales. As discussed below, the increases in both current quarter and year-do-date revenue amounts were partially offset by the decreases in all software license revenue streams as a result of the strengthening of the Canadian dollar relative to the US dollar.The following table summarizes the US dollar denominated revenue and the weighted average exchange rate at which it was converted to Canadian dollars:For the three months ended March 31, 2011 2010 $ change % change ($ thousands)----------------------------------------------------------------------------US dollar annuity/maintenance license sales US$ 5,368 US$ 4,828 540 11%Weighted average conversion rate 1.01 1.08----------------------------------------------------------------------------Canadian dollar equivalent CDN$ 5,433 CDN$ 5,197 236 5%--------------------------------------------------------------------------------------------------------------------------------------------------------US dollar perpetual license sales US$ 3,502 US$ 1,135 2,367 209%Weighted average conversion rate 0.98 1.06----------------------------------------------------------------------------Canadian dollar equivalent CDN$ 3,432 CDN$ 1,202 2,230 186%--------------------------------------------------------------------------------------------------------------------------------------------------------For the year ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------US dollar annuity/maintenance license sales US$ 21,275 US$ 17,683 3,592 20%Weighted average conversion rate 1.04 1.15----------------------------------------------------------------------------Canadian dollar equivalent CDN$ 22,116 CDN$ 20,291 1,825 9%--------------------------------------------------------------------------------------------------------------------------------------------------------US dollar perpetual license sales US$ 8,120 US$ 6,048 2,072 34%Weighted average conversion rate 1.01 1.10----------------------------------------------------------------------------Canadian dollar equivalent CDN$ 8,216 CDN$ 6,663 1,553 23%--------------------------------------------------------------------------------------------------------------------------------------------------------CMG's annuity/maintenance license revenue increased by 11% during both the three months and year ended March 31, 2011, compared to the same periods of last year. This increase was driven by greater take up of annuity licenses by our existing customers along with some new customers and the increased maintenance revenue tied to our strong perpetual sales in fiscal years 2010 and 2011. It is noteworthy that our annuity/maintenance license revenue, representing a recurring revenue stream, is experiencing steady growth quarter over quarter as evidenced by the 8% increases in each of Q2 and Q3 and 11% increase in Q4 of the current fiscal year despite the negative effects of the foreign exchange as discussed below.The increase in annuity/maintenance revenue as measured in Canadian dollars has been negatively affected by the strengthening of the Canadian dollar relative to the US dollar. The table above illustrates revenue generated in US dollars and the rates at which it was converted into Canadian dollars to show the movement in US dollar denominated revenue without the impact of the foreign exchange. Had the exchange rate between the US and Canadian dollars remained constant between the three months and year ended March 31, 2011 and 2010, our fourth quarter and year-to-date annuity/maintenance revenue would have increased by 16% and 19% respectively.Software license revenue under perpetual sales decreased by 21% for the three months ended March 31, 2011 compared to the same period of previous fiscal year whereas the perpetual license sale revenue for the year ended March 31, 2011 increased by 6% compared to the previous fiscal year. Software licensing under perpetual sales is a significant part of CMG's business, but may fluctuate significantly between periods due to the uncertainty associated with the timing and the location where sales are generated. In the previous fiscal year, the majority of perpetual sales were generated during the last two quarters of the fiscal year, whereas in the current fiscal year, perpetual sales were spread out more evenly between the first two and last two quarters of the year. For this reason, we can observe the fluctuations in the quarterly perpetual revenue amounts and, in particular, the decrease during the fourth quarter of the current fiscal year. However, in total, perpetual sales in the current fiscal year exceeded the levels of perpetual sales made in the prior fiscal year.We can observe from the table above that the increase in perpetual sales in US dollars was partially offset by the negative effect of foreign exchange resulting from the strengthening Canadian dollar in the current fiscal year. Had the exchange rate between the US and Canadian dollars remained constant between the three months and year ended March 31, 2011 and 2010, our fourth quarter perpetual license revenue would have decreased by 16% and our year-to-date perpetual license revenue would have increased by 13%.Segmented RevenueFor the three months ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Annuity/Maintenance Revenue Canada 3,608 2,537 1,071 42% United States 1,857 1,674 183 11% Other 3,066 3,442 (376) -11%---------------------------------------------------------------------------- 8,531 7,653 878 11%--------------------------------------------------------------------------------------------------------------------------------------------------------Perpetual Revenue Canada 480 3,780 (3,300) -87% United States 879 590 289 49% Other 2,552 612 1,940 317%---------------------------------------------------------------------------- 3,911 4,982 (1,071) -21%--------------------------------------------------------------------------------------------------------------------------------------------------------Total Software Revenue Canada 4,088 6,317 (2,229) -35% United States 2,736 2,264 472 21% Other 5,618 4,054 1,564 39%---------------------------------------------------------------------------- 12,442 12,635 (193) -2%--------------------------------------------------------------------------------------------------------------------------------------------------------For the year ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Annuity/Maintenance Revenue Canada 11,620 9,718 1,902 20% United States 7,041 6,488 553 9% Other 14,048 13,302 746 6%---------------------------------------------------------------------------- 32,709 29,507 3,202 11%--------------------------------------------------------------------------------------------------------------------------------------------------------Perpetual Revenue Canada 2,829 4,420 (1,591) -36% United States 2,141 1,072 1,069 100% Other 6,075 4,952 1,123 23%---------------------------------------------------------------------------- 11,045 10,443 602 6%--------------------------------------------------------------------------------------------------------------------------------------------------------Total Software Revenue Canada 14,449 14,138 311 2% United States 9,182 7,560 1,622 21% Other 20,123 18,253 1,870 10%---------------------------------------------------------------------------- 43,754 39,950 3,804 10%--------------------------------------------------------------------------------------------------------------------------------------------------------On a geographic basis, total software license sales during fiscal 2011 experienced growth across all market segments as outlined above, with 2%, 21% and 10% increases experienced in Canada, US and other markets, respectively.Software revenue growth in the Canadian market was driven by the annuity/maintenance software license sales which was offset by the decrease in perpetual license revenue generated during the year. This is indicative of the unpredictable nature of the timing and location of perpetual license sales; however, strong perpetual license sales generated in the past fiscal year have enabled the Canadian market to achieve increased revenue levels during the current fiscal year from the maintenance contracts tied to those perpetual licenses, therefore, contributing to the increase in our recurring revenue base.The US and other markets experienced growth in both the annuity/maintenance and perpetual revenue streams during the current fiscal year with most of the growth being driven by the perpetual license sales. The increases in US-dollar generated revenue from the US and other markets have been negatively affected by the strengthening Canadian dollar compared to the US dollar in the current fiscal year.Overall, our recurring annuity/maintenance revenue base continues to be strong and growing across all regions.As footnoted in the Quarterly Performance table, in the normal course of business CMG may complete the negotiation of certain annuity/maintenance contracts and/or fulfill revenue recognition requirements within a current quarter that includes usage of CMG's products in prior quarters. This situation particularly affects contracts negotiated with countries that face increased economic and political risks leading to revenue recognition criteria being satisfied only at the time of the receipt of cash. The dollar magnitude of such contracts may be significant to the quarterly comparatives of our annuity/maintenance revenue stream and, to provide a normalized comparison, we specifically identify the revenue component where revenue recognition is satisfied in the current period for products provided in previous quarters.Deferred Revenue 2011 2010 2009 $ change % change($ thousands)----------------------------------------------------------------------------Deferred revenue at:June 30 12,496 10,919 1,577 14%September 30 12,658 10,192 2,466 24%December 31 11,892 9,468 2,424 26%March 31 16,755 13,843 - 2,912 21%--------------------------------------------------------------------------------------------------------------------------------------------------------CMG's deferred revenue consists primarily of amounts for pre-sold licenses. Our annuity/maintenance revenue is deferred and recognized on a straight-line basis over the life of the related license period, which is generally one year or less. Amounts are deferred for licenses that have been provided and revenue recognition reflects the passage of time.The increase in deferred revenue year over year as at March 31, December 31, September 30, and June 30 is reflective of the growth in annuity/maintenance license sales. The variation within the year is due to the timing of renewals of annuity and maintenance contracts that are skewed to the beginning of the calendar year which explains the increase in the deferred revenue balance at fiscal year-end. Deferred revenue at March 31, 2011 increased compared to the prior fiscal year due to both renewal of the existing and signing of the new annuity and maintenance contracts in the quarter.Consulting and Contract Research RevenueCMG recorded consulting and contract research revenue of $1.9 million and $8.1 million for the three months and year ended March 31, 2011, respectively, up $0.3 million and $2.7 million from the amounts recorded for the same periods of last fiscal year. This growth reflects the increase in project activities by our clients and the associated consulting and training activities in the current quarter following the economic downturn experienced in the corresponding periods of the prior year. In addition, CMG has been engaged in a few large projects in the current fiscal year further contributing to the increase in consulting revenue.CMG performs consulting and contract research activities on an ongoing basis but such activities are not considered to be a core part of our business and are primarily undertaken to increase our knowledge base and hence expand the technological abilities of our simulators in a funded manner, combined with servicing our customers' needs. In addition, these activities are undertaken to market the capabilities of our suite of software products with the ultimate objective to increase software license sales. Our experience is that consulting activities are variable in nature as both the timing and dollar magnitude of work are dependent on activities and budgets within client companies.At March 31, 2011, approximately $0.1 million (2010 - $0.1 million) is included in deferred revenue relating to consulting and contract research activities.EXPENSESFor the three months ended March 31, 2011 2010 $ change % change ($ thousands)----------------------------------------------------------------------------Cost of sales 2,909 2,706 203 8%General and administrative expenses 1,395 1,440 (45) -3%Product research and development (net of SR&ED) 2,265 2,005 260 13%----------------------------------------------------------------------------Total expenses excluding depreciation and income and other taxes 6,569 6,151 418 7%--------------------------------------------------------------------------------------------------------------------------------------------------------Direct employee costs(i) 5,484 5,075 409 8%Other corporate costs 1,085 1,076 9 1%---------------------------------------------------------------------------- 6,569 6,151 418 7%--------------------------------------------------------------------------------------------------------------------------------------------------------For the year ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Cost of sales 11,393 9,713 1,680 17%General and administrative expenses 4,868 4,676 192 4%Product research and development (net of SR&ED) 8,861 8,134 727 9%----------------------------------------------------------------------------Total expenses excluding depreciation and income and other taxes 25,122 22,523 2,599 12%--------------------------------------------------------------------------------------------------------------------------------------------------------Direct employee costs(i) 20,329 18,202 2,127 12%Other corporate costs 4,793 4,321 472 11%---------------------------------------------------------------------------- 25,122 22,523 2,599 12%--------------------------------------------------------------------------------------------------------------------------------------------------------(i) Includes salaries, bonuses, stock-based compensation, benefits and commissions.CMG's total expenses, excluding depreciation and income and other taxes, increased by 7% and 12% during the three months and year ended March 31, 2011, respectively, as a result of the increases in both direct employee and other corporate costs.Direct Employee CostsAs a technology company, CMG's largest area of expenditure is for its people. Approximately 81% of the total expenses excluding depreciation and income and other taxes in the year ended March 31, 2011 related to staff costs, which compares to 81% recorded in the comparative period of last year. Staffing levels for the current fiscal year grew throughout the Company to support our continued growth. At March 31, 2011, CMG's staff complement was 136 employees, up from 127 employees as at March 31, 2010. Direct employee costs increased during fiscal 2011 due to staff additions, increased levels of compensation and related benefits.Other Corporate CostsOther corporate costs held consistent between the fourth quarter of fiscal 2011 and 2010 whereas the year-to-date amount increased by $0.5 million for year ended March 31, 2011, compared to the same period of previous fiscal year. The year-to-date amount increased due to higher infrastructure costs related to new leases for expanded office space which were partially offset by the decrease in the use of third party consulting and professional services. In addition, other corporate costs for the year ended March 31, 2011 include the expenses associated with CMG's biennial technical symposium.Research and DevelopmentFor the three months ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Product research and development (gross) 2,575 2,399 176 7%SR&ED credits (310) (394) 84 -21%----------------------------------------------------------------------------Product research and development (net) 2,265 2,005 260 13%Depreciation 132 117 15 13%----------------------------------------------------------------------------Total product research and development 2,397 2,122 275 13%--------------------------------------------------------------------------------------------------------------------------------------------------------Total product research and development as a % of total revenue 17% 15%----------------------------------------------------------------------------For the year ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Product research and development (gross) 9,940 9,385 555 6%SR&ED credits (1,078) (1,250) 172 -14%----------------------------------------------------------------------------Product research and development (net) 8,861 8,134 727 9%Depreciation 477 432 45 10%----------------------------------------------------------------------------Total product research and development 9,338 8,566 772 9%--------------------------------------------------------------------------------------------------------------------------------------------------------Total product research and development as a % of total revenue 18% 19%----------------------------------------------------------------------------CMG maintains its belief that its strategy of growing long-term value for shareholders can only be achieved through continued investment in research and development. CMG works closely with its customers to provide solutions to complex problems related to proven and new advanced recovery processes.The above product research and development includes CMG's proportionate share of joint research and development costs on the DRMS system development of $0.7 million and $2.7 million for the three months and year ended March 31, 2011, respectively (2010 - $0.7 million and $2.4 million). See discussion under "Commitments, Off Balance Sheet Items and Transactions with Related Parties."The increases of 7% and 6% in our gross spending on product research and development for the three months and year ended March 31, 2011, respectively, demonstrate our continued commitment to advancement of our technology. Total product research and development costs, net of research and experimental development ("SR&ED") credits and inclusive of depreciation, increased by 13% and 9% during the three months and year ended March 31, 2011, respectively, due to increased employee-related costs which were partially offset by the reduction of third party consulting costs associated with certain research initiatives. The increase in office lease costs further contributed to the overall increase in product research and development costs. At the same time, we had a slight reduction in SR&ED credits mainly due to claiming fewer hours that qualify for the SR&ED program.Depreciation and AmortizationFor the three months ended March 31, 2011 2010 $ change % change ($ thousands)----------------------------------------------------------------------------Property and equipment - general 154 181 (27) -15%Property and equipment - research and development 132 117 15 13%----------------------------------------------------------------------------Total depreciation and amortization 286 298 (12) -4%--------------------------------------------------------------------------------------------------------------------------------------------------------For the year ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Property and equipment - general 561 455 106 23%Property and equipment - research and development 477 432 45 10%----------------------------------------------------------------------------Total depreciation and amortization 1,038 887 151 17%--------------------------------------------------------------------------------------------------------------------------------------------------------The year-to-date increase in depreciation and amortization reflects theincrease in our asset base, mainly related to increased office space andcomputing resources.Interest Income and Foreign ExchangeFor the three months ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Interest and other income 111 39 72 185%--------------------------------------------------------------------------------------------------------------------------------------------------------Foreign exchange gain (loss) (220) (173) (47) 27%----------------------------------------------------------------------------For the year ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Interest and other income 290 141 149 106%--------------------------------------------------------------------------------------------------------------------------------------------------------Foreign exchange gain (loss) (523) (1,188) 665 -56%----------------------------------------------------------------------------Interest income increased in the three months and year ended March 31, 2011 compared to the same periods of the prior fiscal year, due to slight improvement in interest rates and investing larger cash balances.CMG is impacted by the movement of the US dollar against the Canadian dollar as approximately 68% (2010 - 66%) of CMG's revenue for the year ended March 31, 2011 is denominated in US dollars, whereas only approximately 25% (2010 - 21%) of CMG's total costs are denominated in US dollars.----------------------------------------------------------------------------CDN$ to US$ At March 31 Yearly average----------------------------------------------------------------------------2009 0.7935 0.89662010 0.9846 0.92202011 1.0290 0.9813--------------------------------------------------------------------------------------------------------------------------------------------------------The strengthening Canadian dollar versus US dollar average exchange rate in fiscal 2011 has negatively impacted our current period sales as well as the valuation of our US dollar net working capital position at the end of the current quarter. CMG recorded a foreign exchange loss of $0.2 million for the three months ended March 31, 2011 which is comparable to $0.2 million loss recorded in the same period of last year. The foreign exchange gain recorded in Q1 of fiscal 2011 minimized some of the impact of the year-to-date foreign exchange loss recorded in the current fiscal year which amounted to $0.5 million compared to $1.2 million loss recorded in the same period of last year.Overall, we have observed lower volatility in the foreign exchange rate between the US and Canadian dollars in the current fiscal year compared to the previous fiscal year, minimizing the negative effect on our foreign exchange loss recorded in the current year compared to last year.Income and Other TaxesCMG's effective tax rate for the year ended March 31, 2011 is reflected as 32.5% (2010 - 30.6%), whereas the prevailing Canadian statutory tax rate is now 27.63%. This is primarily due to a combination of the non-tax deductibility of stock-based compensation expense and the benefit of foreign withholding taxes being realized only as a tax deduction as opposed to a tax credit.The benefit recorded in CMG's books on the SR&ED investment tax credit program impacts future income taxes. The investment tax credit earned in the current fiscal year is utilized by CMG to reduce income taxes otherwise payable for the current fiscal year and the federal portion of this benefit bears an inherent tax liability as the amount of the credit is included in the subsequent year's taxable income for both federal and provincial purposes. The inherent tax liability on these investment tax credits is reflected in the year the credit is earned as a current future income tax liability and then, in the following fiscal year, is transferred to income taxes payable.GROSS PROFIT AND EARNINGSFor the three months ended March 31, 2011 2010 $ change % change($ thousands, except per share amounts)----------------------------------------------------------------------------Total revenue 14,378 14,292 86 1%Cost of sales (2,909) (2,706) (203) 8%----------------------------------------------------------------------------Gross profit 11,469 11,586 (117) -1%Gross profit as a % of total revenue 80% 81%--------------------------------------------------------------------------------------------------------------------------------------------------------Earnings for the period 4,808 5,360 (552) -10%Earnings for the period as a % of total revenue 33% 38%--------------------------------------------------------------------------------------------------------------------------------------------------------Earnings per share ($/share) 0.26 0.30 (0.04) -13%----------------------------------------------------------------------------For the year ended March 31, 2011 2010 $ change % change($ thousands, except per share amounts)----------------------------------------------------------------------------Total revenue 51,827 45,303 6,524 14%Cost of sales (11,393) (9,713) (1,680) 17%----------------------------------------------------------------------------Gross profit 40,434 35,590 4,844 14%Gross profit as a % of total revenue 78% 79%--------------------------------------------------------------------------------------------------------------------------------------------------------Earnings for the period 17,166 14,463 2,703 19%Earnings for the period as a % of total revenue 33% 32%--------------------------------------------------------------------------------------------------------------------------------------------------------Earnings per share ($/share) 0.95 0.82 0.13 16%--------------------------------------------------------------------------------------------------------------------------------------------------------CMG continues to demonstrate its ability to sustain its gross profit margin. The gross profit as a percentage of total revenue for the three months and year ended March 31, 2011 was at 80% and 78%, respectively, which is comparable to 81% and 79% recorded in the same periods of prior fiscal year.Earnings for the period as a percentage of revenue decreased to 33% for the three months ended March 31, 2011 from 38% recorded in the same period of previous fiscal year as a result of slight increases in expenditures associated with marketing, product research and development, and income and other taxes.Year-to-date earnings as a percentage of revenue increased to 33% for the year ended March 31, 2011 compared to 32% recorded in the comparative period of previous fiscal year. The increase is a result of higher revenue, improvement in the recorded year-to-date foreign exchange impact and effective management of corporate costs.LIQUIDITY AND CAPITAL RESOURCESFor the three months ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Cash, beginning of period 38,012 28,864 9,148 32%Cash flow from (used in) Operating activities 7,051 3,596 3,455 96% Financing activities (3,055) (2,505) (550) 22% Investing activities (255) (1,129) 874 -77%----------------------------------------------------------------------------Cash, end of period 41,753 28,826 12,927 45%--------------------------------------------------------------------------------------------------------------------------------------------------------For the year ended March 31, 2011 2010 $ change % change($ thousands)----------------------------------------------------------------------------Cash, beginning of period 28,826 34,701 (5,875) -17%Cash flow from (used in) Operating activities 27,517 9,204 18,313 199% Financing activities (13,400) (12,903) (497) 4% Investing activities (1,190) (2,176) 986 -45%----------------------------------------------------------------------------Cash, end of period 41,753 28,826 12,927 45%--------------------------------------------------------------------------------------------------------------------------------------------------------Operating ActivitiesThe increase of $3.5 million in cash from operating activities during the current quarter is mainly a result of the collection of accounts receivable and the increase in deferred revenue.The increase of $18.3 million for the year ended March 31, 2011 in cash from operating activities is a result of higher year-to-date net earnings, lower accounts receivable balance reflective of the collection of the sales, elimination of prepaid income taxes carried on the books at fiscal 2010 year end and the increase in deferred revenue balance. These increases have been offset by lower accounts payable.Financing ActivitiesDuring the year ended March 31, 2011, CMG employees and directors exercised options to purchase 388,344 Common Shares, which resulted in cash proceeds of $3.7 million.In the year ended March 31, 2011, CMG paid $17.0 million in dividends, representing four quarterly dividends of $0.18, $0.19, $0.20 and $0.20 per share and a special dividend of $0.17 per share. On May 25, 2011, CMG announced the payment of a quarterly dividend of $0.21 per share and a special dividend of $0.20 per share on CMG's Common Shares. The dividend will be paid on June 15, 2011 to shareholders of record at the close of business on June 9, 2011.On March 22, 2010, the Company announced a Normal Course Issuer Bid ("NCIB") commencing on March 23, 2010 to purchase for cancellation up to 1,314,686 of its Common Shares. This NCIB ended on March 22, 2011 and a total of 5,000 shares were purchased at market price for a total cost of $125,650.Investing ActivitiesCMG's current needs for capital asset investment relate to computer equipment and office infrastructure costs, all of which will be funded internally. During the year ended March 31, 2011, CMG expended $1.2 million on property and equipment additions and currently has a capital budget of $2.4 million for fiscal 2012.Liquidity and Capital ResourcesAt March 31, 2011, CMG has $41.8 million in cash, no debt and has access to just over $0.8 million under a line of credit with its principal banker.During the year ended March 31, 2011, 6,567,707 shares of CMG's public float were traded on the Toronto Stock Exchange. As at March 31, 2011, CMG's market capitalization based upon its March 31, 2011 closing price of $25.96 was $472.8 million.COMMITMENTS, OFF BALANCE SHEET ITEMS AND TRANSACTIONS WITH RELATED PARTIESIn May, 2006, CMG announced that it had committed approximately $10.6 million to the five-year DRMS research and development project with its industry partners Shell and Petrobras, of which $9.9 million has been incurred from inception to March 31, 2011. While the original funding commitment will be fulfilled in the first quarter of fiscal 2012, CMG and its partners are committed to continue funding the project beyond this time period. CMG's share of the project costs is estimated to be $3.0 million per year.In conjunction with entering into this project, the Foundation agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover 50% of the Company's estimated share of project costs over the initial five years of the project. During the year ended March 31, 2011, CMG has reflected $1.3 million (2010 - $1.2 million) in research grants from the Foundation in revenue with respect to this project. From commencement of the project to March 31, 2011, these research grants totalled $4.9 million. It is anticipated that the full $5.2 million of funding from the Foundation will be completed by the end of May, 2011.CMG plans to fund its share of the project costs associated with the development of the newest generation reservoir simulation software system from internal cash and funding from the Foundation until the first quarter of fiscal 2012 and from internal cash flows beyond this time period.CMG has very little in the way of other ongoing material contractual obligations other than for pre-sold licenses which are reflected as deferred revenue on its balance sheet, and contractual obligations for office leases which are estimated as follows: 2012 - $1.5 million; 2013 and 2014 - $1.4 million per year; and 2015 - $1.0 million.NON-GAAP FINANCIAL MEASURESThis MD&A contains the term "total expenses excluding depreciation and income and other taxes" which is not a measure defined by GAAP, does not have standardized meaning prescribed by GAAP and should not be considered an alternative to expenses as determined in accordance with GAAP. Total expenses excluding depreciation and income and other taxes as computed by CMG may differ from similar measures as reported by other issuers. This non-GAAP measure is presented in this MD&A because management considers it to be important in highlighting the quantitative impact of cost management as it relates to corporate and people-related costs. The items constituting the total expenses excluding depreciation and income and other taxes are clearly outlined in the table under the "Expenses" heading.OUTLOOKCMG continues to be committed to focusing its resources on the development and enhancement of simulation tools relevant to the challenges facing its diverse customer base. For over a year now, oil prices have held at a level that has allowed our customers to move forward on projects involving various types of unconventional reserves and advanced recovery processes. Conversely, natural gas prices have not fared as well and petroleum producers continue to be faced with uncertainty related to the world wide economic recovery, political unrest in several petroleum producing countries and environmental issues that have threatened to increase the costs of exploration and production.CMG's joint project to develop the newest generation of dynamic reservoir modelling systems ("DRMS Project") continued to make progress in fiscal 2011. We have tested the first "demonstrator" version of the product on a significant offshore asset jointly owned by our partners and can report that, while not yet of commercial quality, the main components of the system are in place and functioning. CMG and its partners remain committed to funding the ongoing development and to the future success of the project.The Company remains confident that the value that CMG technology provides to its customers is greater than ever and accordingly we continue to be optimistic that our software license revenue will remain solid. With our strong working capital position, we are well positioned to continue to invest in all aspects of our business to continue to grow and diversify our revenue base and to ultimately return value to our shareholders in the form of regular quarterly dividend payments and growth in share value.Kenneth M. DedelukPresident and Chief Executive OfficerMay 25, 2011COMPUTER MODELLING GROUP LTD.CONSOLIDATED BALANCE SHEETS March 31, 2011 March 31, 2010----------------------------------------------------------------------------AssetsCurrent assets: Cash $ 41,752,956 $ 28,826,173 Accounts receivable 13,317,556 16,071,989 Prepaid expenses 1,064,518 1,141,793 Prepaid income taxes - 1,432,673---------------------------------------------------------------------------- 56,135,030 47,472,628Property and equipment (note 3) 2,553,644 2,400,737Future income taxes (note 5) - 32,645---------------------------------------------------------------------------- $ 58,688,674 $ 49,906,010--------------------------------------------------------------------------------------------------------------------------------------------------------Liabilities and Shareholders' EquityCurrent liabilities: Accounts payable and accrued liabilities $ 4,543,243 $ 5,397,358 Income taxes payable 1,236,889 - Deferred revenue 16,755,228 13,843,201 Future income taxes (note 5) 181,132 222,083---------------------------------------------------------------------------- 22,716,492 19,462,642Future income taxes (note 5) 202,405 ----------------------------------------------------------------------------- 22,918,897 19,462,642Shareholders' equity: Share capital (note 6) 24,800,719 20,390,396 Contributed surplus (note 6) 2,655,491 1,815,948 Retained earnings 8,313,567 8,237,024---------------------------------------------------------------------------- 35,769,777 30,443,368---------------------------------------------------------------------------- $ 58,688,674 $ 49,906,010--------------------------------------------------------------------------------------------------------------------------------------------------------Commitments (note 9)See accompanying notes to consolidated financial statements.COMPUTER MODELLING GROUP LTD.CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGSYears ended March 31, 2011 2010----------------------------------------------------------------------------RevenueSoftware licenses $ 43,753,812 $ 39,950,173Consulting and contract research 8,073,240 5,352,521---------------------------------------------------------------------------- 51,827,052 45,302,694----------------------------------------------------------------------------Cost of SalesMarketing expenses 8,821,223 7,593,759Direct consulting expenses 2,341,762 2,051,378Third-party contract costs 230,245 67,406---------------------------------------------------------------------------- 11,393,230 9,712,543----------------------------------------------------------------------------Gross Profit 40,433,822 35,590,151General and administrative expenses 4,867,768 4,675,548Depreciation and amortization 560,557 455,166Product research and development costs (note 4) 9,337,819 8,566,280Foreign exchange loss 523,337 1,188,015Interest and other income (290,015) (141,054)----------------------------------------------------------------------------Earnings before income and other taxes 25,434,356 20,846,196Income and other taxes (note 5) 8,268,231 6,383,076----------------------------------------------------------------------------Earnings for the Year 17,166,125 14,463,120Retained earnings, beginning of year 8,237,024 10,330,873Dividends paid (16,970,692) (16,556,969)Common shares buy-back (note 6(c)) (118,890) -----------------------------------------------------------------------------Retained earnings, end of year $ 8,313,567 $ 8,237,024--------------------------------------------------------------------------------------------------------------------------------------------------------Earnings Per ShareBasic (note 6(e)) $ 0.95 $ 0.82Diluted (note 6(e)) $ 0.93 $ 0.80--------------------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to consolidated financial statements.COMPUTER MODELLING GROUP LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSYears ended March 31, 2011 2010----------------------------------------------------------------------------Cash provided by (used for)OperatingEarnings for the year $ 17,166,125 $ 14,463,120Items not involving cash: Depreciation and amortization 1,037,134 887,003 Future income taxes (note 5) 194,099 44,506 Stock-based compensation 1,560,364 1,223,275---------------------------------------------------------------------------- 19,957,722 16,617,904Changes in non-cash working capital: Accounts receivable 2,754,433 (4,719,541) Accounts payable and accrued liabilities (854,115) 445,787 Income taxes payable/prepaid 2,669,562 (4,871,406) Prepaid expenses 77,275 (315,901) Deferred revenue 2,912,027 2,046,859---------------------------------------------------------------------------- 27,516,904 9,203,702----------------------------------------------------------------------------FinancingIssue of common shares 3,696,262 3,653,785Dividends paid (16,970,692) (16,556,969)Common shares buy-back (note 6 (c)) (125,650) ----------------------------------------------------------------------------- (13,400,080) (12,903,184)----------------------------------------------------------------------------InvestingProperty and equipment additions (1,190,041) (2,175,637)----------------------------------------------------------------------------Increase (decrease) in cash 12,926,783 (5,875,119)Cash, beginning of year 28,826,173 34,701,292----------------------------------------------------------------------------Cash, end of year $ 41,752,956 $ 28,826,173--------------------------------------------------------------------------------------------------------------------------------------------------------Supplemental disclosure of cash flow information (note 11)See accompanying notes to consolidated financial statements.COMPUTER MODELLING GROUP LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears ended March 31, 2011 and 2010.Computer Modelling Group Ltd. (the "Company") is a computer software technology and consulting firm engaged in the development and licensing of reservoir simulation software.1. SIGNIFICANT ACCOUNTING POLICIES:(a) Basis of Consolidation:These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and include the accounts of the Company and its subsidiaries, all 100% owned. All intercompany transactions have been eliminated.(b) Revenue Recognition:Revenue consists primarily of software license fees and consulting and contract research fees.Software license revenue is comprised of annuity/maintenance license fees charged for the use of the Company's software products which is generally for a term of one year or less, and perpetual software licensing fees, whereby the customer purchases the-then-current version of the software and has the right to use that version in perpetuity. Software license revenue is recognized when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed or determinable, and collection of the resulting receivable is probable. In cases where collectability is not deemed probable, revenue is recognized upon receipt of cash, assuming all other criteria have been met.Annuity/maintenance revenue is deferred and recognized on a straight-line basis over the life of the related license period, which is generally one year or less. License fees for perpetual licenses are recognized fully in revenue when all recognition conditions are satisfied.Consulting and contract research revenues are recorded on a percentage-of-completion basis whereby revenues and costs are recorded based on work completed as determined by hours incurred and/or facility usage as per terms of the agreements.The Company's deferred revenue consists of amounts for pre-sold annuity and/or maintenance licenses. These amounts are deferred and recognized on a straight-line basis over the life of the related license period, which is generally one year or less. Amounts are deferred for licenses that have been provided and revenue recognition reflects the passage of time.(c) Property and Equipment:Property and equipment are recorded at cost less accumulated depreciation.Depreciation is provided using the following annual rates and methods that are expected to amortize the cost of the property and equipment over their estimated useful lives:Computer equipment 33 1/3% straight-lineFurniture and equipment 20% straight-lineLeasehold improvements Straight-line over the lease term(d) Product Research and Development Costs:All costs of product research and development are expensed to operations as incurred as the impact of both technological changes and competition require the Company to continually enhance its products on an annual basis. Product research and development costs are recorded net of the related investment tax credits.(e) Joint Research and Development Costs:The Company participates in a joint project engaged in product research and development and accordingly records its proportionate share of costs incurred as product research and development costs.(f) Foreign Currency:The Company's subsidiaries are considered to be integrated operations. Accordingly, monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange prevailing at the balance sheet date while other consolidated balance sheet items are translated at historic rates.Revenues and expenses are translated at the rate of exchange in effect on the transaction dates. Realized and unrealized foreign exchange gains and losses are included in operations in the period in which they occur.(g) Income Taxes:The Company provides for income taxes using the asset and liability method. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year and future income taxes are recognized for temporary differences between the tax and accounting bases of assets and liabilities and for the benefit of losses available to be carried forward for tax purposes that are more likely than not to be realized. Future income tax assets and liabilities are measured using the substantively enacted tax rates expected to apply in the years in which temporary differences are expected to be recovered or settled. Any change to the net future income tax assets and liabilities is included in operations in the period it occurs.(h) Investment Tax Credits:The Company receives federal and provincial investment tax credits in Canada on qualified scientific research and experimental development expenditures. Investment tax credits are recorded as a deduction against related expenses or capital items provided that reasonable assurance over collection of the tax credits exists.(i) Earnings Per Share:Basic earnings per share is computed by dividing earnings by the weighted average number of Common and Non-Voting Shares outstanding for the period. Diluted per share amounts reflect the potential dilution that could occur if securities or other contracts to issue Common Shares were exercised or converted to Common Shares. The treasury stock method is used to determine the dilutive effect of stock options. This method assumes that proceeds received from the exercise of in-the-money stock options are used to repurchase Common Shares at the average market price during the period.(j) Stock-based Compensation Plan:The Company has a stock-based compensation plan that is described in note 6(d). The fair value of stock options is expensed over the vesting period along with a credit to contributed surplus. When the stock options are exercised for stock, the recorded amount is transferred from contributed surplus to common share capital.(k) Financial Instruments:Financial assets and financial liabilities "held-for-trading" are measured at fair value with changes in those fair values recognized in net earnings. Financial assets "available-for-sale" are measured at fair value, with changes in those fair values recognized in other comprehensive income. Financial assets "held-to-maturity," "loans and receivables" and "other financial liabilities" are initially recorded at fair value and subsequently measured at amortized cost.(l) Use of Estimates and Assumptions:The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, costs and expenses for the period. Actual results may differ from such estimates and the differences could be material.2. CHANGES IN ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS:Recent accounting pronouncements:In January 2006, the CICA Accounting Standards Board ("AcSB") adopted a strategic plan for the direction of accounting standards in Canada. As part of that plan, the AcSB confirmed in February 2008 that International Financial Reporting Standards ("IFRS") will replace Canadian GAAP for fiscal years beginning on or after January 1, 2011 for profit-oriented Canadian publicly accountable enterprises. The Company will be reporting its results in accordance with IFRS for the fiscal year ending March 31, 2012 with comparatives for fiscal year ended March 31, 2011.3. PROPERTY AND EQUIPMENT: Accumulated NetMarch 31, 2011 Cost Depreciation Book Value----------------------------------------------------------------------------Computer equipment $ 4,100,964 $ 2,815,760 $ 1,285,204Furniture and equipment 1,429,470 770,444 659,026Leasehold improvements 1,813,529 1,204,115 609,414---------------------------------------------------------------------------- $ 7,343,963 $ 4,790,319 $ 2,553,644-------------------------------------------------------------------------------------------------------------------------------------------------------- Accumulated Net March 31, 2010 Cost Depreciation Book Value----------------------------------------------------------------------------Computer equipment $ 3,386,237 $ 2,273,787 $ 1,112,450Furniture and equipment 1,255,942 620,186 635,756Leasehold improvements 1,699,407 1,046,876 652,531---------------------------------------------------------------------------- $ 6,341,586 $ 3,940,849 $ 2,400,737--------------------------------------------------------------------------------------------------------------------------------------------------------4. PRODUCT RESEARCH AND DEVELOPMENT COSTS:Years ended March 31, 2011 2010----------------------------------------------------------------------------Product research and development costs $ 9,939,545 $ 9,384,757Depreciation 476,576 431,837Scientific research and experimental development investment tax credits (1,078,302) (1,250,314)---------------------------------------------------------------------------- $ 9,337,819 $ 8,566,280--------------------------------------------------------------------------------------------------------------------------------------------------------5. INCOME AND OTHER TAXES:The provision for income and other taxes reported differs from the amount computed by applying the combined Canadian Federal and Provincial statutory rate to the earnings before income and other taxes. The reasons for this difference and the related tax effects are as follows:Years ended March 31, 2011 2010----------------------------------------------------------------------------Statutory tax rate 27.63% 28.75%----------------------------------------------------------------------------Expected income tax $ 7,027,513 $ 5,993,281Non-deductible costs 458,339 372,279Change in valuation allowance (86,658) (108,740)Withholding taxes 754,062 123,712Other 114,975 2,544---------------------------------------------------------------------------- $ 8,268,231 $ 6,383,076----------------------------------------------------------------------------Represented by:Current income taxes $ 7,021,468 $ 6,152,758Future income taxes 194,099 44,506Foreign withholding and other taxes 1,052,664 185,812---------------------------------------------------------------------------- $ 8,268,231 $ 6,383,076--------------------------------------------------------------------------------------------------------------------------------------------------------The components of the Company's net future income tax liability are asfollows:Years ended March 31, 2011 2010----------------------------------------------------------------------------Net tax liability on investment tax credits $ (181,132) $ (222,083)Property and equipment (202,405) 32,645Benefit of operating losses in a foreign subsidiary - 86,658---------------------------------------------------------------------------- (383,537) (102,780)Valuation allowance - (86,658)----------------------------------------------------------------------------Future income tax liability, net $ (383,537) $ (189,438)----------------------------------------------------------------------------Represented by:Future income tax liability, current $ (181,132) $ (222,083)Future income tax (liability) asset, long-term (202,405) 32,645----------------------------------------------------------------------------Future income tax liability, net $ (383,537) $ (189,438)--------------------------------------------------------------------------------------------------------------------------------------------------------6. SHARE CAPITAL:(a) Authorized:An unlimited number of Common Shares, an unlimited number of Non-Voting Shares, and an unlimited number of Preferred Shares, issuable in series.(b) Issued: Common Shares Non-Voting Shares ------------------------------------------------- Contributed Number Consideration Number Consideration Surplus----------------------------------------------------------------------------Balance, March 31, 2009 14,363,572 $ 15,897,624 2,895,946 $ 186,175 $1,245,485Issued for cash on exercise of stock options 570,525 3,653,785Converted into common shares 624,517 40,149 (624,517) (40,149)Stock-based compensation: Current period expense 1,223,275 Stock options exercised 652,812 (652,812)----------------------------------------------------------------------------Balance, March 31, 2010 15,558,614 $ 20,244,370 2,271,429 $ 146,026 $1,815,948Issued for cash on exercise of stock options 388,344 3,696,262Common shares buy-back (5,000) (6,760)Converted into common shares 2,271,429 146,026 (2,271,429) (146,026)Stock-based compensation: Current period expense 1,560,364 Stock options exercised 720,821 (720,821)----------------------------------------------------------------------------Balance, March 31, 2011 18,213,387 $ 24,800,719 - $ - $2,655,491--------------------------------------------------------------------------------------------------------------------------------------------------------The Non-Voting Shares were convertible into an equivalent number of Common Shares at any time at the option of the holder.Subsequent to March 31, 2011, 28,450 stock options were exercised for cash proceeds of $330,265.On May 18, 2006, the Board of Directors adopted a shareholder rights plan (the "Original Rights Plan"), whereby the Company issued one right in respect of each share outstanding at the close of business on May 18, 2006 and for each additional share issued by the Company thereafter. The issuance of the rights was not dilutive and will not affect reported earnings per share until the rights separate from the underlying shares and become exercisable or until the exercise of the rights. The Original Rights Plan was approved by the Company's shareholders on July 13, 2006.On May 21, 2009, the Board of Directors reviewed the Original Rights Plan and determined that it was in the best interest of the Company to continue to have a shareholder rights plan in place. The Company, therefore, adopted a new shareholder rights plan (the "Rights Plan") which is identical in all respects to the Original Rights Plan, with the exception of certain minor amendments which have been made to provide for renewal or approval of the Rights Plan every three years (rather than only one three-year period as was set out in the Original Rights Plan) and to update references to statutory provisions now out of date. The Rights Plan was approved by the Company's shareholders on July 9, 2009.(c) Common Shares Buy-back:On February 27, 2009, the Company announced a Normal Course Issuer Bid ("NCIB") commencing March 3, 2009 to purchase for cancellation up to 1,114,791 of its Common Shares. No shares were purchased pursuant to this NCIB which expired on March 2, 2010.On March 22, 2010, the Company announced a NCIB commencing on March 23, 2010 to purchase for cancellation up to 1,314,686 of its Common Shares. This NCIB ended on March 22, 2011 and a total of 5,000 shares were purchased at market price for a total cost of $125,650.(d) Stock-based Compensation Plan:The Company adopted a rolling stock option plan as of July 13, 2005, which was reaffirmed by the Company's shareholders on July 10, 2008, which allows it to grant options to acquire Common Shares of up to 10% of the combined outstanding Common and Non-Voting Shares at the date of grant. Based upon this calculation, at March 31, 2011, the Company could grant up to 1,821,338 stock options. Pursuant to the stock option plan, the maximum term of an option granted cannot exceed five years from the date of grant. These outstanding stock options vest as to 50% after the first year anniversary, from date of grant, and then vest as to 25% of the total options granted after each of the second and third year anniversary dates.The following table outlines changes in options:Years ended March 31, 2011 2010---------------------------------------------------------------------------- Weighted Weighted Average Average Options Exercise Options Exercise Granted Price Granted Price----------------------------------------------------------------------------Outstanding at beginning of year 1,286,049 $ 11.79 1,367,424 $ 8.10Granted 546,800 18.14 511,900 15.60Exercised (388,344) 9.52 (570,525) 6.40Forfeited/cancelled (32,050) 14.15 (22,750) 10.74----------------------------------------------------------------------------Outstanding at end of year 1,412,455 $ 14.82 1,286,049 $ 11.79----------------------------------------------------------------------------Options exercisable at end of year 484,555 $ 11.82 368,649 $ 8.49--------------------------------------------------------------------------------------------------------------------------------------------------------The range of exercise prices of options outstanding and exercisable at March31, 2011 is as follows: Outstanding Exercisable---------------------------------------------------------------------------- Weighted Average Weighted Weighted Remaining Average Average Contractual Exercise Number ExerciseExercise Price Number of Life Price of Price ($/option) Options (Years) ($/option) Options ($/option)----------------------------------------------------------------------------3.68 - 5.62 16,500 0.4 3.68 16,500 3.685.63 - 6.90 2,000 2.6 6.90 - -6.91 - 7.40 83,200 1.4 7.39 83,200 7.397.41 - 11.26 344,750 2.4 10.99 204,500 10.9411.27 - 15.60 423,205 3.4 15.60 180,355 15.6015.61 - 18.14 542,800 4.4 18.14 - ----------------------------------------------------------------------------- 1,412,455 3.4 14.82 484,555 11.82--------------------------------------------------------------------------------------------------------------------------------------------------------The fair value of stock options granted was estimated using theBlack-Scholes option pricing model under the following assumptions:Years ended March 31, 2011 2010 2009----------------------------------------------------------------------------Weighted-average fair value ($/option) 3.12 to 3.55 2.82 to 3.16 0.98 to 2.01Risk-free interest rate (%) 1.37 to 2.17 1.31 to 2.61 1.50 to 3.10Estimated hold period prior to exercise (years) 2 to 5 2 to 5 2 to 5Volatility in the price of common shares (%) 35 to 39 37 to 43 31 to 49Dividend yield per common share (%) 5.12 5.95 to 6.07 5.37 to 9.93--------------------------------------------------------------------------------------------------------------------------------------------------------The Company recognized total stock-based compensation expense for the year ended March 31, 2011 of $1,560,364 (2010 - $1,223,275).(e) Earnings Per Share:The following table summarizes the earnings and weighted average number of Common and Non-Voting Shares used in calculating basic and diluted earnings per share:Years ended March 31, 2011 2010---------------------------------------------------------------------------- Weighted Weighted Average Earnings Average Earnings Shares Per Shares Per Earnings Outstanding Share Earnings Outstanding Share----------------------------------------------------------------------------Basic $17,166,125 18,033,034 $ 0.95 $14,463,120 17,585,990 $ 0.82Dilutive effect of stock options 400,985 430,384----------------------------------------------------------------------------Diluted $17,166,125 18,434,019 $ 0.93 $14,463,120 18,016,374 $ 0.80--------------------------------------------------------------------------------------------------------------------------------------------------------During the year ended March 31, 2011, 28,604 (2010 - 90,317) options were excluded from the computation of the weighted-average number of diluted shares outstanding because their effect was not dilutive.7. CAPITAL MANAGEMENT:The Company's objectives in managing capital are to ensure sufficient liquidity to pursue its strategy of organic growth combined with strategic acquisitions and to maximize the return to its shareholders. The capital structure of the Company consists of cash, credit facilities and shareholders' equity. The Company does not have any externally imposed capital requirements and does not presently utilize any quantitative measures to monitor its capital.The Company's policy is to pay quarterly dividends based on the Company's overall financial performance and cash flow generation. In addition, since May 2005, the Company has declared a special dividend after review of the completion of the immediately prior fiscal year results. Decisions on dividend payments are made on a quarterly basis by the Board of Directors. There can be no assurance as to the amount or payment of such dividends in the future.Since November 2002, the Company embarked on a series of normal course issuer bids to buy back its shares. The latest normal course issuer bid was effective from March 23, 2010 to March 22, 2011. Reference is made to note 6(c).The Company makes adjustments to its capital structure in light of general economic conditions and the Company's working capital requirements. In order to maintain or adjust its capital structure, the Company, upon approval from its Board of Directors, may pay dividends, buy back shares or undertake other activities as deemed appropriate under the specific circumstances. The Board of Directors reviews and approves any material transactions not in the ordinary course of business.There were no changes in the Company's approach to capital management during the year.8. FINANCIAL INSTRUMENTS:(i) Classification of financial instruments Classification Measurement----------------------------------------------------------------------------Cash Held for trading Fair valueAccounts receivable Loans and receivables Amortized costAccounts payable and accrued liabilities Other financial liabilities Amortized cost----------------------------------------------------------------------------(ii) Fair values of financial instrumentsThe carrying values of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these instruments.Overview:The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth. The main objectives of the Company's risk management process are to ensure that risks are properly identified and that the capital base is adequate in relation to those risks. The principal financial risks to which the Company is exposed are described below:(a) Credit Risk:Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligation and arises principally from the Company's cash and accounts receivable. The amounts reported in the balance sheet for accounts receivable are net of allowances for bad debts, estimated by the Company's management based on prior experience and their assessment of the current economic environment.The Company's accounts receivable consist primarily of balances from customers operating in the oil and gas industry, both domestically and internationally, as the Company sells its products and services in over 50 countries worldwide. Some of these countries have greater economic and political risk than experienced in North America and as a result there may be greater risk associated with sales in those jurisdictions. The Company manages this risk by invoicing for the full license term in advance for the majority of software license sales and by invoicing as frequently as the contract allows for consulting and contract research services on a percentage-of-completion basis. In cases where collectability is not deemed probable, revenue is recognized upon receipt of cash, assuming all other criteria have been met. Historically, the Company has not experienced any significant losses related to individual customers or groups of customers in any particular geographic area; therefore, no allowance for doubtful accounts has been established at March 31, 2011.As at March 31, 2011, the Company has a concentration of credit risk with 11 domestic and international customers who represent 68% of accounts receivable. In addition, $1,245,000 of accounts receivable are over 90 days. The Company assesses the creditworthiness of its customers on an ongoing basis and it regularly monitors the amount and age of balances outstanding. Accordingly, the Company views the credit risks on these amounts as normal for the industry.The Company minimizes the credit risk of cash by depositing only with a reputable financial institution in highly liquid interest-bearing cash accounts.The maximum credit exposure is represented by the carrying amount of cash and accounts receivable.(b) Market Risk:Market risk is the risk that changes in market prices of the Company's foreign exchange rates and interest rates will affect the Company's income or the value of its financial instruments.The Company operates internationally and primarily prices its products in either the Canadian or US dollar. This gives rise to exposure to market risks from changes in the foreign exchange rates between the Canadian and US dollar. Approximately 68% of the Company's revenues for the year ended March 31, 2011 were denominated in US dollars and at March 31, 2011, the Company had approximately $9.1 million of its working capital denominated in US dollars. The Company currently does not use derivative instruments to hedge its exposure to those risks but as approximately 25% of the Company's total costs are also denominated in US dollars they provide a partial economic hedge against the fluctuation in this currency exchange. In addition, the Company manages levels of foreign currency held by converting excess US dollars into Canadian dollars at spot rates.The Canadian operations are exposed to currency risk on US denominated financial assets and liabilities with fluctuations in the rate recognized as foreign exchange gains or losses in the Consolidated Statements of Earnings. It is estimated that a one cent change in the US dollar would result in a net change of approximately $68,000 on net earnings for the year ended March 31, 2011. A weaker US dollar with respect to the Canadian dollar will result in a negative impact while the reverse would result from a stronger US dollar.The Company has significant cash balances and no interest-bearing debt. The Company's current policy is to invest excess cash in interest-bearing deposits and/or guaranteed investment certificates issued by its principal banker. The Company is exposed to interest cash flow risk from changes in interest rates on its cash balances. Based on the March 31, 2011 cash balance, each 1% change in the interest rate on the Company's cash balance would change net earnings by approximately $302,000.(c) Liquidity Risk:Liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due or can do so only at excessive cost. The Company manages liquidity risk through the management of its capital structure as outlined in note 7. The Company's growth is financed through a combination of the cash flows from operations and its cash balances on hand. Given the Company's available liquid resources as compared to the timing of the payments of its liabilities, management assesses the Company's liquidity risk to be low. The Company monitors its expenditures by preparing annual budgets which are updated periodically. At March 31, 2011, the Company has significant cash balances in excess of its obligations and over $800,000 of the line of credit (note 10) available for its use.9. COMMITMENTS:(a) Research Commitments:The DRMS research and development project, a collaborative effort with our partners Shell International Exploration and Production BV ("Shell") and Petroleo Brasileiro S.A. ("Petrobras") to jointly develop the newest generation of reservoir simulation software, which commenced in 2006 and was originally estimated to take five years to complete, is now anticipated to continue beyond the initial five-year time frame; however, the Company and its partners are committed to continue funding the project with the Company's share of the project costs estimated at $3.0 million per year.In conjunction with entering into this project, CMG Reservoir Simulation Foundation (the "Foundation") agreed, subject to certain termination rights, to provide up to a maximum of $5.2 million in research grant funding to cover 50% of the Company's estimated share of costs over the initial five years of the project. For the year ended March 31, 2011, the Company has reflected $1,329,778 (2010 - $1,217,794) in research grants from the Foundation in revenue with respect to this project. As at March 31, 2011 these research grants have totalled $4,949,369. It is anticipated that the full $5.2 million of funding from the Foundation will be completed by the end of May, 2011.(b) Lease Commitments:The Company has operating lease commitments relating to its office premises with the minimum annual lease rental payments as follows: ($)----------------------------------------------------------------------------2012 1,501,0002013 1,447,0002014 1,448,0002015 1,039,000--------------------------------------------------------------------------------------------------------------------------------------------------------10. LINE OF CREDIT:The Company has arranged for a $1.0 million line of credit with its principal banker, which can be drawn down by way of a demand operating credit facility and/or letters of credit. As at March 31, 2011, US $165,000 (2010 - $165,000) had been drawn on this line of credit for performance bonds.11. SUPPLEMENTAL CASH FLOW INFORMATION:Years ended March 31, 2011 2010----------------------------------------------------------------------------Interest received $ 258,920 $ 125,073Income taxes paid $ 5,397,041 $ 9,827,141--------------------------------------------------------------------------------------------------------------------------------------------------------12. SEGMENTED INFORMATION:Operating Segments Contract Software Research andYear ended March 31, 2011 Licenses Consulting Corporate Total----------------------------------------------------------------------------Revenue $43,753,812 $4,674,487 $ 3,398,753 $51,827,052----------------------------------------------------------------------------Gross profit 35,397,446 1,637,623 3,398,753 40,433,822----------------------------------------------------------------------------General and administrative expenses 4,867,768 4,867,768Depreciation and amortization 138,723 171,470 250,364 560,557Product research and development costs 9,337,819 9,337,819Interest and other income and foreign exchange 233,322 233,322Income and other taxes 1,018,169 23,786 7,226,276 8,268,231----------------------------------------------------------------------------Earnings (loss) for the year $34,240,554 $1,442,367 $(18,516,796) $17,166,125--------------------------------------------------------------------------------------------------------------------------------------------------------Total assets $12,024,036 $1,221,616 $ 45,443,022 $58,688,674--------------------------------------------------------------------------------------------------------------------------------------------------------Capital expenditures $ 204,191 $ 168,769 $ 817,081 $ 1,190,041-------------------------------------------------------------------------------------------------------------------------------------------------------- Contract Software Research andYear ended March 31, 2010 Licenses Consulting Corporate Total----------------------------------------------------------------------------Revenue $39,950,173 $2,493,780 $ 2,858,741 $45,302,694----------------------------------------------------------------------------Gross profit 32,634,288 98,251 2,857,612 35,590,151----------------------------------------------------------------------------General and administrative expenses 4,675,548 4,675,548Depreciation and amortization 120,726 119,565 214,875 455,166Product research and development costs 8,566,280 8,566,280Interest and other income and foreign exchange 1,046,961 1,046,961Income and other taxes 170,308 3,638 6,209,130 6,383,076----------------------------------------------------------------------------Earnings (loss) for the year $32,343,254 $ (24,952) $(17,855,182) $14,463,120--------------------------------------------------------------------------------------------------------------------------------------------------------Total assets $14,007,011 $1,974,981 $ 33,924,018 $49,906,010--------------------------------------------------------------------------------------------------------------------------------------------------------Capital expenditures $ 160,693 $ 299,346 $ 1,715,598 $ 2,175,637--------------------------------------------------------------------------------------------------------------------------------------------------------Geographic SegmentsYears ended March 31, 2011 2010---------------------------------------------------------------------------- Property and Property and Revenue Equipment Revenue Equipment----------------------------------------------------------------------------Canada $ 18,066,341 $ 2,294,497 $16,912,025 $ 2,185,385United States 9,517,667 102,934 7,810,316 140,584Other Foreign 24,243,044 156,213 20,580,353 74,768---------------------------------------------------------------------------- $ 51,827,052 $ 2,553,644 $45,302,694 $ 2,400,737--------------------------------------------------------------------------------------------------------------------------------------------------------In the year ended March 31, 2011, the Company derived 9.1% (2010 - 12.0%) of its revenue from one customer.13. SUBSEQUENT EVENT:On May 25, 2011, the Company's Board of Directors approved a two-for-one stock split of the Company's issued and outstanding Common Shares. Shareholders of record at the close of business on June 22, 2011 will receive one additional Common Share for every Common Share owned. The Company's Common Shares are expected to commence trading on the Toronto Stock Exchange on a post-split basis on June 20, 2011. All share data contained in these consolidated financial statements and notes are presented on a pre-split basis.CORPORATE INFORMATIONComputer Modelling Group Ltd. is a computer software technology and consulting company serving the oil and gas industry. CMG, recognized by oil and gas companies worldwide as a leading developer of reservoir modelling software, has sales and technical support services based in Calgary, Houston, London, Caracas and Dubai. CMG is the leading supplier of advanced processes reservoir modelling software in the world with a blue chip client base of international oil companies and technology centers in over 50 countries. The Company's shares are listed on the Toronto Stock Exchange under the trading symbol "CMG."FORWARD-LOOKING STATEMENTSThe reader should be aware that historical results are not necessarily indicative of future performance. Certain statements in this press release may constitute forward-looking statements, which can generally be identified as such because of the context of the statements including words such as the Company believes, anticipates, expects, plans, estimates or words of a similar nature. The forward-looking statements are based on current expectations and are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results.FOR FURTHER INFORMATION PLEASE CONTACT: Kenneth M. DedelukComputer Modelling Group Ltd.President & CEO(403) 531-1300ken.dedeluk@cmgl.caORJohn KalmanComputer Modelling Group Ltd.Vice President, Finance & CFO(403) 531-1300john.kalman@cmgl.cawww.cmgl.ca