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Press release from Marketwire

Calian Reports Fourth Quarter Results

(All amounts in this release are in Canadian Dollars)

Wednesday, November 13, 2013

Calian Reports Fourth Quarter Results

12:48 EST Wednesday, November 13, 2013

OTTAWA, ONTARIO--(Marketwired - Nov. 13, 2013) - Calian Technologies Ltd. (TSX:CTY) today released unaudited results for the fourth quarter ended September 30, 2013. Revenues for the quarter were $57.5 million, a 1% decrease from the $58.1 million reported in the same quarter of the previous year. Net earnings were $3.0 million or $0.41 per share basic and diluted, compared to $3.4 million or $0.44 per share basic and diluted in the same quarter of the previous year. For the year ended September 30, 2013, the Company reported revenues of $232.0 million and net earnings of $13.1 million or $1.73 per share basic and diluted, compared to revenues of $235.9 million and net earnings of $14.1 million or $1.84 per share basic and diluted in the prior year.

"The fourth quarter results released today were in line with our expectations and previously issued guidance. Consolidated revenues were just slightly lower than the same quarter last year with our SED division posting strong revenue gains while our BTS division continued to cope with ongoing reductions in federal government and defence spending. SED revenues are reflective of the high level of activity on engineering related projects during the quarter which more than compensated for the lower revenues in our contract manufacturing business. Our BTS division experienced year over year revenue reductions in all areas except for our health service line which has seen solid growth over the last few quarters" stated Ray Basler, President and CEO.

"Gross margin percentages in both divisions were lower than the same quarter last year. While our divisions operate in very different markets, they both experienced stiff ongoing competition which has put downward pressure on margins throughout the year. With lower gross margin dollars being generated, we focused on operating cost savings to help mitigate the bottom line effect wherever possible. We expect that margins on new work will continue to be under pressure, at least for the near term. Accordingly, we will continue to seek ways of realizing cost and operational efficiencies wherever possible to offset this trend" continued Basler.

"With the softness in our share price during the fourth quarter, we seized the opportunity to acquire 86,000 shares under our Normal Course Issuer Bid at an average price of $18.60 per share. In addition, we will continue to look at strategically attractive acquisition opportunities as an economic use of our cash resources" stated Basler.

Given the ongoing reductions in federal government spending, we remain guarded in our expectations for the near term. Ultimately, revenues realized will be dependent on the extent and timing of future contract awards as well as customer utilization of existing contracting vehicles. Based on present backlog along with anticipated upcoming opportunities and our overall assessment of the marketplace, we expect revenues for fiscal 2014 to be in the range of $230 million to $250 million and net earnings in the range of $1.65 to $1.85 per share.

About Calian

Calian employs over 2,400 people with offices and projects that span Canada, U.S. and international markets. The company's capabilities include the provision of business and technology services to industry and government in the health, operations and maintenance, IT services and training domains as well as the design, manufacturing and maintenance of complex systems to the communications and defence sectors. Our goal is to be the best company to work for, buy from and invest in. The Business and Technology Services (BTS) Division is headquartered in Ottawa. This division augments customer workforces with flexible short and long-term placements of individuals and teams, provides access to critical recruiting capabilities and delivers outsourcing services for a variety of technical and professional functions. Our strength lies in understanding clients' needs, recruiting highly qualified personnel who understand and meet those needs, and then effectively managing those personnel within our customers' framework. Calian's Systems Engineering Division (SED) plans, designs and implements complex communication systems for many of the world's space agencies and leading satellite manufacturers and operators. SED also provides contract manufacturing services for both private sector and military customers in North America.

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

DISCLAIMER

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

CALIAN TECHNOLOGIES LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at September 30, 2013 and 2012
(Canadian dollars in thousands)
September 30, September 30,
NOTES 2013 2012
ASSETS
CURRENT ASSETS
Cash $ 29,782 $ 31,998
Accounts receivable 37,903 40,928
Work in process 9,764 9,446
Prepaid expenses 1,346 1,480
Derivative assets 8 89 234
Total current assets 78,884 84,086
NON-CURRENT ASSETS
Equipment 3,514 3,854
Application software 585 615
Acquired intangibles 3,808 4,352
Goodwill 10,781 10,781
Total non-current assets 18,688 19,602
TOTAL ASSETS $ 97,572 $ 103,688
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 24,634 $ 19,853
Unearned contract revenue 4,059 13,392
Share repurchase obligation 5 947 1,209
Derivative liabilities 8 14 26
Total current liabilities 29,654 34,480
NON-CURRENT LIABILITIES
Deferred tax liabilities 1,121 1,212
Total non-current liabilities 1,121 1,212
TOTAL LIABILITIES 30,775 35,692
SHAREHOLDERS' EQUITY
Issued capital 5 19,746 19,949
Contributed surplus 216 164
Retained earnings 47,089 47,186
Accumulated other comprehensive income (loss) (254 ) 697
TOTAL SHAREHOLDERS' EQUITY 66,797 67,996
$ 97,572 $ 103,688
CALIAN TECHNOLOGIES LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PROFIT
For the three-month periods and years ended September 30, 2013 and 2012
(Canadian dollars in thousands, except per share data)
Three months Three months
ended ended Year ended Year ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
NOTES 2013 2012 2013 2012
Revenues $ 57,502 $ 58,137 $ 232,463 $ 235,928
Cost of revenues 47,581 47,519 190,263 191,501
Gross profit 9,921 10,618 42,200 44,427
Selling and marketing 834 1,044 3,889 4,242
General and administration 4,026 4,348 17,498 18,245
Facilities 991 913 3,369 3,344
Gain on sale of US subsidiary - (137 ) - (137 )
Profit before interest income and income tax expense
4,070

4,450

17,444

18,733
Interest income 85 81 352 328
Profit before income tax expense 4,155 4,531 17,796 19,061
Income tax expense - current 939 1,202 4,499 4,810
Income tax expense - deferred 192 (35 ) 242 143
Total income tax expense 1,131 1,167 4,741 4,953
NET PROFIT FOR THE PERIOD
$

3,024

$

3,364

$

13,055

$

14,108
EARNINGS PER SHARE:
Basic 6 $ 0.41 $ 0.44 $ 1.73 $ 1.84
Diluted 6 $ 0.41 $ 0.44 $ 1.73 $ 1.84
CALIAN TECHNOLOGIES LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PROFIT
AND OTHER COMPREHENSIVE INCOME (LOSS)
For the three-month periods and years ended September 30, 2013 and 2012
(Canadian dollars in thousands)
Three months Three months
ended ended Year ended Year ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
NOTES 2013 2012 2013 2012
PROFIT FOR THE PERIOD $ 3,024 $ 3,364 $ 13,055 $ 14,108
Other comprehensive income, net of tax
Unrealized loss on translating financial statements of an investment in a foreign operation, net of tax of nil (2012 - nil) -
(26
) - (54 )
Change in deferred gain or loss on derivatives designated as cash flowhedges, net of tax of $54 and $346 (2012 - $108 and $349)


150



293



(951
)


945
Other comprehensive income (loss), net of tax
150

267

(951
)
891
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
$

3,174

$

3,631

$

12,104

$

14,999
CALIAN TECHNOLOGIES LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended September 30, 2013 and 2012
(Canadian dollars in thousands, except per share data)
Notes Issued Contributed Retained Foreign Cash Total
capital surplus earnings currency flow
translation hedging
reserve reserve
Balance October 1, 2012 $ 19,949 $ 164 $ 47,186 $ - $ 697 $ 67,996
Total comprehensive income - - 13,055 - (951 ) 12,104
Dividends ($1.12 per share) - - (8,472 ) - - (8,472 )
Issue of shares under employee share purchase plan 5
424

-

-

-

-

424
Issue of shares under stock option plan 5
99

(6
)
-

-

-

93
Stock option plan compensation expense 5
-

58

-

-

-

58
Share repurchase 5 (757 ) - (4,844 ) - - (5,601 )
Share purchase agreement - reclassification 5
31

-

164

-

-

195
Balance September 30, 2013 $ 19,746 $ 216 $ 47,089 $ - $ (254 ) $ 66,797

Notes Issued Contributed Retained Foreign Cash Total
capital surplus earnings currency flow
translation hedging
reserve reserve
Balance October 1, 2011 $ 19,018 $ 219 $ 43,345 $ 22 $ (248 ) $ 62,356
Comprehensive income - - 14,108 (54 ) 945 14,999
Gain on sale of US subsidiary - - - 32 - 32
Dividends ($1.06 per share) - - (8,137 ) - - (8,137 )
Issue of shares under employee share purchase plan 6
418

-

-

-

-

418
Issue of shares under stock option plan 6
844

(142
)
-

-

-

702
Stock option plan compensation expense 6
-

87

-

-

-

87
Share repurchase 6 (249 ) - (1,565 ) - - (1,814 )
Share purchase agreement -reclassification 6
(82
)
-

(565
)
-

-

(647
)
Balance September 30, 2012 $ 19,949 $ 164 $ 47,186 $ - $ 697 $ 67,996
CALIAN TECHNOLOGIES LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 2013 and 2012
(Canadian dollars in thousands)
Year ended Year ended
Sept. 30, Sept. 30,
NOTES 2013 2012
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit for the period $ 13,055 $ 14,108
Items not affecting cash:
Employee stock purchase plan and option plan compensation expense 131 158
Amortization 1,639 1,418
Gain on sale of US subsidiary - (137 )
14,825 15,547
Change in non-cash working capital
Accounts receivable 4,218 (6,162 )
Work in process (318 ) (2,612 )
Prepaid expenses (639 ) 2,035
Accounts payable and accrued liabilities 3,777 899
Unearned contract revenue (9,334 ) 5,367
12,529 15,074
Interest income (352 ) (328 )
Income tax expense 4,741 4,953
Interest received 380 310
Income tax paid (4,765 ) (4,782 )
12,533 15,227
CASH FLOWS FROM (USED IN) FINANCING
ACTIVITIES
Issuance of common shares 5 449 1,052
Dividends (8,472 ) (8,137 )
Repurchase of shares 5 (5,601 ) (1,814 )
(13,624 ) (8,899 )
CASH FLOWS FROM (USED IN) INVESTING
ACTIVITIES
Equipment and application software expenditures (725 ) (1,054 )
Acquisition 10 (400 ) (4,112 )
Sale of US subsidiary - 148
(1,125 ) (5,018 )
FOREIGN CURRENCY ADJUSTMENT - (54 )
NET CASH INFLOW (OUTFLOW) (2,216 ) 1,256
CASH, BEGINNING OF PERIOD 31,998 30,742
CASH, END OF PERIOD $ 29,782 $ 31,998
CALIAN TECHNOLOGIES LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three-month periods and years ended September 30, 2013 and 2012
(Canadian dollars in thousands, except per share amounts)
(Unaudited)
  1. BASIS OF PREPARATION

Calian Technologies Ltd. ("the Company"), incorporated under the Canada Business Corporations Act, and its wholly-owned subsidiaries provide technology services to industry and government. The address of its registered office and principal place of business is 340 Legget Drive, Ottawa, Ontario K2K 1Y6.

These interim condensed consolidated financial statements are expressed in Canadian dollar and have been prepared in accordance with International Accounting Standard ("IAS") 34 - Interim Financial Reporting, as issued by the International Accounting Standard Board ("IASB"). These interim consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") and in accordance with the accounting policies the Company adopted in its annual consolidated financial statements for the year ended September 30, 2012 and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report for the year ended September 30, 2012. These unaudited interim financial statements do not include all of the information required in annual financial statements.

These unaudited interim condensed consolidated financial statements for the three-month periods and years ended September 30, 2013 were authorized for issuance by the Board of Directors on November 13, 2013.

  1. FUTURE CHANGES IN ACCOUNTING POLICIES

IFRS 9 Financial instruments

IFRS 9 was issued in November 2009 introducing new requirements for the classification and measurement of financial assets. IFRS9 was further amended in October 2010 to include the requirements for the classification and measurement of financial liabilities and derecognition.

IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

IFRS 10 Consolidated financial statements

IFRS 10 establishes principles for the presentation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 replaces IAS 27 - Consolidated and Separate Financial Statements and is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The Company does not anticipate that the adoption of the new standard will have a significant impact on its consolidated financial statements.

IFRS 12 Disclosure of interests in other entities

IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off-balance sheet vehicles. The standard requires an entity to disclose information regarding the nature and risks associated with its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. IFRS 12 will be effective for the Company's fiscal years beginning on or after January 1, 2013, with earlier application permitted. The Company does not anticipate that the adoption of the new standard will have a significant impact on its consolidated financial statements.

IFRS 13 Fair value measurement

IFRS 13 is intended to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS. The standard will be effective for the Company's fiscal years beginning on or after January 1, 2013, with earlier application permitted. The Company does not anticipate that the adoption of the new standard will have a significant impact on its consolidated financial statements.

IAS 1Presentation of financial statements

In June 2011, the IASB amended IAS 1 - Presentation of financial statements. The principal change resulting from the amendments to IAS 1 is a requirement to group together items within other comprehensive income that may be reclassified to the statement of net earnings. The amendments also reaffirm existing requirements that items in other comprehensive income and net earnings should be presented as either a single statement or two consecutive statements. The amendment to IAS 1 will be effective for the Company's fiscal years beginning on or after January 1, 2013, with earlier application permitted. The Company does not expect any changes to its consolidated financial statement presentation from this amendment as the items within other comprehensive income that may be reclassified to the statement of comprehensive income are already grouped together.

IAS 1Presentation of financial statements (as part of the Annual Improvements to IFRS issued in May 2012)

In May 2012, the IASB amended IAS 1 - Presentation of financial statements. IAS1 requires an entity that changes accounting policies retrospectively or makes a retrospective restatement or reclassification to present a third statement of financial position as at the beginning of the preceding period. the amendments to IAS1 clarify that an entity is required to present a third statement of financial position only when the retrospective application, restatement or reclassification has a material effect on the information in the third statement of financial position and that related notes are not required to accompany the third statement of financial position. The amendment to IAS 1 will be effective for the Company's fiscal years beginning on or after January 1, 2013, with earlier application permitted. The Company does not expect any changes to its consolidated financial statement presentation from this amendment.

IAS 28 Investments in associates and joint ventures

IAS 28 was re-issued by the IASB in May 2011 in order to conform to changes as a result of the issuance of IFRS 10, IFRS11, and IFRS 12. IAS 28 continues to prescribe the accounting for investments in associates, but is now the only source of guidance describing the application of the equity method. The amended IAS 28 will be applied by all entities that are investors with joint control of, or significant influence over, an investee. The amended version of IAS 28 is effective for financial years beginning on or after January 1, 2013, with earlier application permitted. . The Company does not anticipate that the adoption of the new standard will have a significant impact on its consolidated financial statements.

  1. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates:

The preparation of financial statements in conformity with IFRS requires the Company's management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could differ from those estimates.

There were no significant changes in estimates or approaches to determining estimates in the periods presented.

  1. SEASONALITY

The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year. The Company's revenues and earnings have historically been subject to some quarterly seasonality due to the timing of vacation periods and statutory holidays.

  1. ISSUED CAPITAL

Share repurchase

During the three-month period and year ended September 30, 2013, the Company acquired 86,100 (282,670) of its outstanding common shares at an average price of $18.60 ($19.82) per share for a total of $1,602 ($5,601) including related expenses, through normal course issuer bids in place during the period. During the three-month period and year ended September 30, 2012, the Company acquired 20,700 (98,000) of its outstanding common shares at an average price of $20.35 ($18.52) per share for a total of $421 ($1,814) including related expenses, through normal course issuer bids in place during the period. The excess of the purchase price over the stated capital of the shares was charged to retained earnings.

Stock options

The Company has an established stock option plan, which provides that the Board of Directors may grant stock options to eligible directors and employees. Under the plan, eligible directors and employees are granted the right to purchase shares of common stock at a price established by the Board of Directors on the date the options are granted but in no circumstances below fair market value of the shares at the date of grant. The plan provides for a 10% rolling maximum number of options available for grant. As at September 30, 2013, a total of 739,683 common shares are reserved for issuance under the plan with 240,000 options currently outstanding of which 197,000 are exercisable. No options were issued during the period.

Employee Share Purchase Plan

During the year ended September 30, 2013 (2012), the Company issued 23,346 (23,674) shares under the Company's Employee Share Purchase Plan at an average price of $15.22 ($14.76) for a total of $355 ($350).

Stock repurchase obligation

The Company has an agreement with a third party which provides for automatic repurchases of the Company's shares without the Company having the ability to influence the purchases. The financial liability is determined as the present value of the maximum redemption amount at each of the reporting periods. The reclassification adjustment is made by reducing issued capital and retained earnings with an offsetting adjustment to the share repurchase obligation account. An income adjustment will result for any shares repurchased below the maximum amount per share. The amount of income recognized in the period is insignificant.

  1. EARNINGS PER SHARE

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

Three-months ended
September 30
Year ended
September 30
2013 2012 2013 2012
Weighted average number of shares - basic 7,432,383 7,658,924 7,559,437 7,655,092
Addition to reflect the dilutive effect of employee stock options - 5,750 3,532 7,004
Weighted average number of shares - diluted 7,432,383 7,664,674 7,562,969 7,662,096

Options that are anti-dilutive because the exercise price was greater than the average market price of the common shares are not included in the computation of diluted earnings per share. For the three-month periods and years ended September 30, 2013 and 2012, 155,000 were excluded from the above computation.

Profit for the period is the measure of profit or loss used to calculate earnings per share.

  1. SEGMENTED INFORMATION

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

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

  • Business and Technology Services provides business and technology services to industry and government in the health, operations and maintenance, IT services and training.

The Company evaluates performance and allocates resources based on earnings before interest income and income taxes. The accounting policies of the segments are the same as those described in Note 2 - Summary of significant accounting policies to the financial statements for the year ended September 30, 2012.


Three months ended September 30, 2013
Systems
Engineering
Business and
Technology
Services
Corporate Total
Revenues $ 19,473 $ 38,029 $ - $ 57,502
Profit before interest income and income tax expense 2,316 2,221 (467 ) 4,070
Interest income 85
Income tax expense (1,131 )
Profit for the period $ 3,024

Three months ended September 30, 2012
Systems
Engineering
Business and
Technology
Services
Corporate Total
Revenues $ 17,975 $ 40,162 $ - $ 58,137
Profit before interest income and income tax expense 2,278 2,764 (592 ) 4,450
Interest income 81
Income tax expense (1,167 )
Profit for the period $ 3,364
Year ended September 30, 2013
Systems
Engineering
Business and
Technology
Services
Corporate Total
Revenues $ 70,434 $ 162,029 $ - $ 232,463
Profit before interest income and income tax expense 10,578 9,015 (2,149 ) 17,444
Interest income 352
Income tax expense (4,741 )
Profit for the period $ 13,055
As at September 30, 2013
Total assets other than cash and goodwill $ 19,909 $ 37,001 $ 99 $ 57,009
Goodwill - 10,781 - 10,781
Cash - - 29,782 29,782
Total assets $ 19,909 $ 47,782 $ 29,881 $ 97,572
Equipment and intangible expenditures $ 412 $ 323 $ - $ 725
Year ended September 30,2012
Systems
Engineering
Business and
Technology
Services
Corporate Total
Revenues $ 67,515 $ 168,413 $ - $ 235,928
Profit before interest income and income tax expense 10,880 10,816 (2,963 ) 18,733
Interest income 328
Income tax expense (4,953 )
Profit for the period $ 14,108
As at September 30, 2012
Total assets other than cash and goodwill $ 23,753 $ 36,277 $ 879 $ 60,909
Goodwill - 10,781 - 10,781
Cash - - 31,998 31,998
Total assets $ 23,753 $ 47,058 $ 32,877 $ 103,688
Equipment and intangible expenditures $ 529 $ 525 $ - $ 1,054
Acquired intangibles $ - $ 4,670 $ - $ 4,670
Acquired goodwill $ - $ 1,263 $ - $ 1,263
  1. HEDGING

Foreign currency risk related to contracts

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

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

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

The forward foreign exchange contracts primarily require the Company to purchase or sell certain foreign currencies with or for Canadian dollars at contractual rates. At September 30, 2013, the Company had the following forward foreign exchange contracts:


Type
Notional Currency Maturity Equivalent
Cdn. Dollars
Fair Value
September 30, 2013
SELL 1,000 USD September 2015 $ 1,057 $ 27
SELL 1,000 USD September 2016 1,057 27
SELL 1,000 USD September 2017 1,057 27
SELL 21,947 USD October 2013 22,617 5
BUY 918 EURO October 2013 1,277 3
Derivative assets $ 89
BUY 12,493 USD October 2013 $ 12,875 $ 3
SELL 3,822 EURO October 2013 5,316 11
Derivative liabilities $ 14

A 10% strengthening (weakening) of the Canadian dollar against the following currencies at September 30, 2013 would have increased (decreased) other comprehensive income (loss) as related to the forward foreign exchange contracts by the amounts shown below:

September 30, 2013
USD $ 1,283
EURO (405 )
$ 878
  1. CONTINGENCIES

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

  1. ACQUISITION

Under the contingent consideration arrangement, the Company is required to pay the former shareholders of Primacy Management Inc. an additional $400 and $600 if Primacy attains specified levels earnings before interest, taxes, depreciation and amortization (EBITDA) for the years ending February 28, 2013 and 2014 respectively. During the year ended September 30, 2013, the Company paid the full $400 related to the first year earn-out. Management believes that Primacy will achieve its earn-out target in the second period.

Management Discussion and Analysis - September 30, 2013 :

(Canadian dollars in thousands, except per share data)

RESULTS OF OPERATIONS

Revenues:

For the fourth quarter of 2013, revenues were $57,502 compared to $58,137 reported for the same period in 2012 and for the year ended September 30, 2013 revenues were $232,463 compared to $235,928 for 2012, both representing a 1% decrease over the prior year.

Systems Engineering's (SED) revenues were $19,473 in the quarter and $70,434 on a year-to-date basis representing an 8% increase for the quarter and a 4% increase for the year when compared to the $17,975 and $67,515 recorded last year. Manufacturing related revenues were once again down slightly relative to the same quarter of last year due to lower levels of activity in both the defence and commercial areas. Fortunately strong revenues generated from engineering projects compensated for the shortfall. Due to the project nature of its business, the SED division is susceptible to significant variation in volumes of activity from period to period.

Business and Technology Services (BTS) revenues were $38,029 in the quarter and $162,029 on a year-to-date basis representing a decrease of 5% and 4% respectively from the $40,162 and $168,413 for the same period last year. The demand for services in all BTS market segments except Health continued to be negatively affected by the government spending cuts. Revenues for the quarter and the year from the health sector, inclusive of revenues from the acquisition of Primacy, were higher than the prior year. Current year revenues also reflect the removal of the US division.

Management expects that the marketplace for the near term will continue to be unsettled and very competitive. While the market conditions for SED are expected to be reasonable, the timing of new opportunities particularly in today's volatile business environment is always subject to delay. Current BTS backlog provides a reasonable level of revenue assurance on existing contracts and new opportunities continue to arise. However, continued cuts in federal government spending could impact future revenues in certain segments. The nature and extent of future government spending constraints remain uncertain and therefore, future revenues ultimately will be determined by customer demand on existing contracts as well as the timing of future contract awards.

Gross margin:

Gross margin was 17.3% in the fourth quarter of 2013, compared to the 18.3% reported in the fourth quarter a year ago. On a year-to-date basis the Company reported margins of 18.3% compared to 18.8% for the same period last year.

Gross margin in Systems Engineering was 19.6% this quarter compared to 20.5% in the fourth quarter of 2012 and was 22.9% for the year ended September 30, 2013 compared to 24.3% for the same period last year. SED margins were down for the quarter due to the mix of project work. The reduced margin percentage for the full year also reflects cost increases experienced on a certain program earlier in the year. In general, SED continues to experience competitive margin pressure when bidding on new work.

Gross margin in Business and Technology Services was 16.1% compared to the 17.7% reported in the fourth quarter of 2012. For the year ended September 30, 2013 gross margin was 16.1% compared to the 16.6% reported for the same period last year. The decrease in gross margin in the BTS division was due to competitive pressures on new business, particularly in the government and defence marketplace. As long as government cost cutting initiatives remain in place, competitive pressure on margins will continue.

Because of the significant difference in gross margin between each of the two divisions, the overall gross margin of the Company is dependent on the relative level of revenue generated from each division. Management will continue to focus on execution and aggressive negotiation of supplier costs in order to maximize margins. However, increased competition is expected to maintain the pressure on margins in both divisions. The volatility of the Canadian dollar is always an influencing factor for margins on new work in the SED division when denominated in foreign currencies.

Operating expenses:

Selling and marketing, general and administration and facilities totalled $24,756 or 10.6% of revenues for the year ended September 30, 2013 compared to $25,832 or 10.9% of revenues reported in the same period of 2012. Both divisions have been very diligent in reviewing discretionary spending patterns to ensure that operating expenses remain in line with revenues. 2012 operating expenses also included certain one-time corporate costs.

Sale of US subsidiary:

On August 31, 2012, the Company sold its US division. The restrictive nature of foreign ownership of US based entities that perform services for the US and foreign militaries, impacted management's pursuit of growth for this division and it became clear that this was not the most productive or profitable use of our valuable resources. Revenues from this division for the last nine months were $2,841 and the sale of the division did not to have any material impact on the results of the Company.

Interest income:

Interest income on a year-to-date basis was $352 in 2013 compared to $328 in 2012.

Income taxes:

The provision for income taxes for 2013 was $4,741 or 26.6% of earnings before tax compared to $4,953 or 26.0% in 2012 of earnings before tax. The effective tax rate for 2014, prior to considering the impact of non-taxable transactions, is expected to be approximately 26.6%.

Net earnings:

As a result of the foregoing, in the fourth quarter of 2013 the Company recorded net earnings of $3,024 or $0.41 per share basic and diluted, compared to $3,364 or $0.44 per share basic and diluted in the same quarter of the prior year. For the year ended September 30, 2013, the Company reported net earnings of $13,055 or $1.73 per share basic and diluted compared to $14,108 or $1.84 per share basic and diluted in the same period of the prior year.

BACKLOG

The Company's backlog at September 30, 2013 was $450 million with terms extended to fiscal 2018. This compares to $553 million reported at September 30, 2012. Contracted Backlog represents maximum potential revenues remaining to be earned on signed contracts, whereas Option Renewals represent customers' options to further extend existing contracts under similar terms and conditions.

Most fee for service contracts provide the customer with the ability to adjust the timing and level of effort throughout the contract life and as such the amount actually realized could be materially different from the original contract value. The following table represents management's best estimate of the backlog realization for 2014, 2015 and beyond based on management's current visibility into customers' existing requirements.

Management's estimate of the realizable portion (current utilization rates and known customer requirements) is less than the total value of signed contracts and related options by approximately $150 million. The Company's policy is to reduce the reported contractual backlog once it receives confirmation from the customer that indicates the utilization of the full contract value may not materialize.

(dollars in millions) Fiscal 2014 Fiscal 2015 Beyond 2015 Estimated realizable portion of Backlog Excess over estimated realizable portion TOTAL
Contracted Backlog $ 150 $ 47 $ 12 $ 209 $ 116 $ 325
Option Renewals 10 31 50 91 34 125
TOTAL $ 160 $ 78 $ 62 $ 300 $ 150 $ 450
Business and Technology Services $ 123 $ 73 $ 54 $ 250 $ 150 $ 400
Systems Engineering 37 5 8 50 - 50
TOTAL $ 160 $ 78 $ 62 $ 300 $ 150 $ 450

FINANCIAL CONDITION AND CASHFLOWS

Operating activities:

Cash inflows from operating activities for the year ending September 30, 2013 were $12,533 compared to $15,227 in 2012. This year's increase is mainly as the result of working capital fluctuations in line with the ebbs and flows of the business and a decrease of $9,334 compared to an increase of $5,366 in 2012 in unearned revenues. The market for the Systems Engineering Division is characterized by contracts with billings tied to milestones achieved, which often results in significant working capital requirements. Conversely, given the nature of this business, it is sometimes possible to negotiate advance payments on contracts. Such advance payments give rise to unearned revenue that will be realized as revenue over the course of the contract. As at September 30, 2013, the Company's total unearned revenue amounted to $4,059. This compares to $13,992 at September 30, 2012, with the decrease primarily attributable to work progressing on certain contracts where advance milestone payments had previously been made.

Financing activities:

During the year ended September 30, 2013, the Company paid quarterly dividends totalling $1.12 per share compared to 2012 when the Company paid $1.06 per share. The Company intends to continue with its quarterly dividend policy for the foreseeable future.

During the year ended September 30, 2013, the Company repurchased 282,670 common shares through its normal course issuer bid at an average price of $19.82 compared to the previous year when the Company repurchased 98,000 shares at an average price of $18.52.

Investing activities:

During the year ended September 30, 2012, the Company acquired all of the outstanding shares of Primacy Management Inc. for cash consideration of $5,244 of which $4,000 was paid during the year ended September 30, 2012, net of cash assumed of $188. During the year ended September 30, 2013, the Company paid $400 on account of the earn-out provisions for the first year.

Capital resources:

At September 30, 2013 the Company had a short-term credit facility of $10,000 with a Canadian chartered bank that bears interest at prime and is secured by assets of the Company. An amount of $612 was used to issue a letter of credit to meet customer contractual requirements. Management believes that Calian has sufficient cash resources to continue to finance its working capital requirements and pay a quarterly dividend.

ADOPTION OF NEW ACCOUNTING RULES AND IMPACT ON FINANCIAL RESULTS

The Company did not adopt any new accounting policies this quarter.

SELECTED QUARTERLY FINANCIAL DATA

Q4/13 Q3/13 Q2/13 Q1/13 Q4/12 Q3/12 Q2/12 Q1/12
Revenues $57,502 $58,123 $58,932 $57,906 $58,137 $59,343 $61,635 $56,813
Net earnings $ 3,024 $ 3,276 $ 3,354 $ 3,401 $ 3,364 $ 3,484 $ 3,669 $ 3,591
Net earnings per share
Basic $ 0.41 $ 0.43 $ 0.44 $ 0.45 $ 0.44 $ 0.45 $ 0.48 $ 0.47
Diluted $ 0.41 $ 0.43 $ 0.44 $ 0.45 $ 0.44 $ 0.45 $ 0.48 $ 0.47

SEASONALITY

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

OUTLOOK

Management continues to believe that 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 offers. To further assure itself of a stable source of revenues, the Company will continue to focus on increasing the percentage of its revenues derived from recurring business while pursuing new business in adjacent and non-government markets.

The Systems Engineering Division has been working within a relatively stable satellite sector and the division is expecting new opportunities to arise as systems adopting the latest technologies will be required by customers wishing to maintain and improve their service offerings. Custom manufacturing activity levels will continue to be directly dependent upon SED's customers' requirements and continuing volatility in orders is anticipated. Capital procurements by DND are expected to provide upcoming opportunities, although competition is expected to remain aggressive. Any volatility in the Canadian dollar could impact the Systems Engineering Division's competitiveness when bidding against foreign competition on projects denominated in foreign currencies.

The Business and Technology Services Division's services are adaptable to many different markets. Currently, its strength lies in providing program management and delivery services to the Department of National Defence. Management believes that in the long term, this department and many others within the federal government will continue to require more support services from private enterprises to supplement their current workforce. However, current cost cutting initiatives in the federal government have already had a negative impact on traditional BTS revenue sources and it is anticipated that the continued roll out of these initiatives could further impact demand, at least in the short term. Management believes that the types of service the division offers will continue to be attractive to government agencies in the long term and the division continues to assess how it can address new markets and seek new opportunities outside of the Federal Government. The acquisition of Primacy Management has bolstered the division's performance and it is expected that Primacy will continue to meet the financial targets established as part of the acquisition.

GUIDANCE

The fourth quarter results have materialized as expected and given the ongoing reductions in federal government spending, we remain guarded in our expectations for the near term. Ultimately, revenues realized will be dependent on the extent and timing of future contract awards as well as customer utilization of existing contracting vehicles. Based on present backlog along with anticipated upcoming opportunities and our overall assessment of the marketplace, we expect revenues for fiscal 2014 to be in the range of $230 million to $250 million and net earnings in the range of $1.65 to $1.85 per share.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the most recent interim quarter ended September 30, 2013, there have been no changes in the design of the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

FORWARD-LOOKING STATEMENT

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

The foregoing discussion and analysis should be read in conjunction with the financial statements for the fourth quarter of 2013, and with the Management Discussion and Analysis in the 2012 annual report, including the section on risks and opportunities.

Date: November 13, 2013

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
Ray Basler
President and Chief Executive Officer
306-931-3425


Jacqueline Gauthier
Chief Financial Officer
613-599-8600

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