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CALIAN TECHNOLOGY REPORTS 2ND QUARTER RESULTS
Company "Back in the Black" following changes implemented during past year
Kanata, Ontario - May 9, 2002: Calian Technology Ltd (TSX.CTY) today released unaudited results for the second quarter of its fiscal year 2002, ended March 31, 2002. Revenues for the quarter were $33.2 million, up 4% from $31.9 million for the same quarter in the previous year, and up 10% from $30.2 million in the first quarter of this year. Earnings from continuing operations were $0.8 million, up slightly from the same quarter last year, and double the $0.4 million reported in the first quarter of this year.
Year-to-date revenues for the first half were $63.5 million, up 6% from $61.7 million in the first half of last year. Earnings from continuing operations were $1.2 million compared to $0.1 million in the first half of last year.
"This quarter was our best-ever in terms of revenue from existing businesses", said Larry O'Brien, President and CEO. "Equally important, we have returned to a solid level of profitability, thanks to our strategy of re-focusing our business on our core strengths in systems engineering and resourcing, coupled with significant improvements in our cost structure. We are delighted to be back in the black."
Net earnings per share were $0.10 for the quarter ended March 31, 2002, compared with $0.08 per share in the same quarter last year and $0.04 per share in the first quarter of this year. Year-to-date net earnings for the first half were $0.14 per share compared with $0.01 per share in the first half of last year.
"This is our third consecutive quarter of improved earnings, and our best quarterly net earnings per share in the last 6 quarters," said O'Brien. "Our transition out of the eServices business a year ago and of refocusing on our two core areas is clearly showing positive results for the company, investors and employees."
During the quarter, the Company booked $36 million in new business improving our order backlog to $119 million, of which $53 million will be earned as revenue over the course of the current year. " We are approaching the balance of the year with confidence due to our re-focused business strategy, a better cost structure, an increased order backlog, and an unparalleled team of professionals."
About Calian:
Calian Technology Ltd. (TSX:CTY) provides systems engineering and resourcing services to industry, government and major organizations in Canada, the United States and around the world. With two decades of success and over $125 million in annual revenues, Calian provides customers with ready access to an exceptional team of over 2,200 engineers, telecommunications and technology professionals, and other highly qualified staff. The Resourcing Division augments customer workforces with flexible short and long-term placements, recruitment and outsourcing of engineering and other skilled professionals. The Systems Engineering Division plans, designs and implements solutions for many of the world's space agencies and leading communications satellite manufacturers and operators.
For further information, please visit our website at www.calian.com, or contact:
Larry O'Brien
President & CEO
Telephone: (613) 599-8600 ext. 271
Jacqueline Gauthier
Chief Financial Officer
Telephone: (613) 599-8600 ext. 277
CALIAN TECHNOLOGY LTD.
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(dollars in thousands except per share data)
(Unaudited)
Three months ended Six months ended
March 31 March 31
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2002 2001 2002 2001
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Revenues $33,245 $31,898 $63,510 $61,728
Cost of revenues 27,462 25,499 52,681 50,215
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Gross profit 5,783 6,399 10,829 11,513
Selling and marketing 1,129 1,478 2,189 2,763
General and
administration 2,108 2,295 4,316 4,769
Facilities 681 721 1,379 1,406
Amortization of
capital assets 398 430 783 852
Special charge (Note
6) - - - 331
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Earnings before
interest, taxes and
amortization of
goodwill 1,467 1,475 2,162 1,392
Interest income, net 29 23 93 67
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Earnings before taxes
and amortization of
goodwill 1,496 1,498 2,255 1,459
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Income taxes - current 197 31 435 18
Income taxes - future 414 609 526 1,220
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611 640 961 1,238
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Earnings before
amortization of
goodwill 885 858 1,294 221
Amortization of
goodwill 59 60 118 119
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Earnings from
continuing operations 826 798 1,176 102
Loss from discontinued
operation (net of
income taxes) (Note 9) - (645) - (2,694)
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NET EARNINGS (LOSS) 826 153 1,176 (2,592)
Retained earnings,
beginning of period 8,147 21,746 9,797 24,491
Excess of purchase
price over stated
capital on repurchase
of shares (Note 8) (7) - (2,007) -
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Retained earnings, end
of period $8,966 $21,899 $8,966 $21,899
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Earnings per share
from continuing
operations: (Note 2)
Basic $0.10 $0.08 $0.14 $0.01
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Fully Diluted $0.10 $0.08 $0.14 $0.01
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Net earnings (loss)
per share: (Note 2)
Basic $0.10 $0.02 $0.14 $(0.26)
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Fully Diluted $0.10 $0.02 $0.14 $(0.26)
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Weighted average
number of shares:
(Note 2)
Basic 8,030,518 9,769,822 8,604,784 9,752,106
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Fully Diluted 8,137,142 9,828,795 8,661,400 9,878,269
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CALIAN TECHNOLOGY LTD.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31,
2002 September 30,
(Unaudited) 2001
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $6,571 $12,211
Accounts receivable 21,353 18,394
Unbilled accounts receivable 4.290 3,865
Prepaid expenses and other 585 704
Note receivable 100 100
Future income taxes 2,952 2,292
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35,851 37,566
GOODWILL 3,364 3,482
CAPITAL ASSETS 4,685 5,067
INVESTMENT TAX CREDITS
RECOVERABLE 1,927 2,176
FUTURE INCOME TAXES 4,720 5,906
NOTES RECEIVABLE 250 250
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$50,797 $54,447
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $15,398 $16,053
Unearned contract revenue 11,151 10,148
Current portion of long-term
debt 163 160
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26,712 26,361
LONG-TERM DEBT 263 345
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26,975 26,706
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CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY
Share capital (Note 8) 14,856 17,944
Retained earnings 8,966 9,797
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23,822 27,741
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$50,797 $54,447
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CALIAN TECHNOLOGY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
Three months ended Six months ended
March 31 March 31
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2002 2001 2002 2001
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CASH FLOWS FROM (USED IN)
OPERATING ACTIVITIES
Net earnings (loss) $826 $153 1,176 $(2,592)
Items not affecting cash:
Deferred lease
inducements (3) (3) (5) (6)
Amortization 455 793 901 1,576
Investment tax credits 82 - 249 -
Future income taxes 414 336 526 (33)
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1,774 1,279 2,847 (1,055)
Change in non-cash
working capital
Accounts receivable (2,238) (946) (2,959) 68
Unbilled accounts
receivable (1,828) 3,670 (425) 891
Prepaid expenses and
other (82) 89 119 351
Accounts payable and
accrued liabilities 560 1,920 (655) 3,875
Unearned contract revenue (379) (3,429) 1,003 (2,785)
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(2,193) 2,583 (70) 1,345
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CASH FLOWS FROM (USED IN)
FINANCING ACTIVITIES
Repayment of debt (36) (354) (74) (524)
Issuance of common shares 207 130 207 196
Repurchase of common
shares, including cost
associated with
repurchase (Note 8) (22) - (5,302) -
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149 (224) (5,169) (328)
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CASH FLOWS FROM (USED IN)
INVESTING ACTIVITIES
Acquisition of capital
assets (102) (598) (401) (892)
Proceeds on disposal of
capital assets - - - -
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(102) (598) (401) (892)
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NET CASH INFLOW (OUTFLOW) (2,146) 1,761 (5,640) 125
CASH AND CASH
EQUIVALENTS,
BEGINNING OF PERIOD 8,717 8,940 12,211 10,576
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CASH AND CASH
EQUIVALENTS,
END OF PERIOD $6,571 $10,701 $6,571 $10,701
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CALIAN TECHNOLOGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the periods ended March 31, 2002 and 2001
(dollars in thousands)
(Unaudited)
1. ACCOUNTING POLICIES
These interim consolidated financial statements have been prepared
in accordance with Canadian generally accepted accounting
principles except that these interim consolidated financial
statements do not provide full note disclosure.
These interim consolidated financial statements have been prepared
using the same accounting policies used in the preparation of the
audited annual consolidated financial statements, with the
exception of the application of the new recommendation with
respect to the calculation of earnings per share as described in
Note 2. These interim consolidated financial statements should be
read in conjunction with the audited annual consolidated financial
statements.
2. EARNINGS (LOSS) PER SHARE
During the quarter ended December 31, 2001, the Company adopted
the new recommendation of the Canadian Institute of Chartered
Accountants ("CICA") with respect to the calculation of earnings
per share. These new recommendations do not result in any changes
to the way in which basic earnings per share are calculated.
However, the new recommendations do affect the calculation of
diluted earnings per share.
Diluted earnings per share are now calculated based on the
weighted average number of common shares outstanding during the
period plus the effects of dilutive potential common shares
outstanding during the period. This method requires that the
dilutive effect of outstanding options be calculated using the
treasury stock method, as if all dilutive options had been
exercised at the later of the beginning of the reporting period or
date of issuance, and that the funds obtained thereby were used to
purchase common shares of the Company at the average trading price
of the common shares during the period.
This change, which has been applied retroactively to the results
of fiscal year 2001, did not result in any change to the diluted
earnings per share for the three and six month periods ended March
31, 2001.
The diluted weighted average number of shares has been calculated
as follows:
Three Months ended Six months ended
March 31st March 31st
2002 2001 2002 2001
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Denominator:
Weighted average number of
shares - basic 8,030,518 9,769,822 8,604,784 9,752,106
Additions to reflect the
dilutive effect of employee
stock options 106,624 58,973 56,616 126,163
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Denominator for diluted
earnings per share:
Weighted number of
shares - diluted 8,137,142 9,828,795 8,661,400 9,878,269
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In the three and six month periods ended March 31, 2002, options
to purchase 925,076 and 975,084 common shares (2001 - 893,980 and
826,791) have been excluded from the above calculations since they
would have an anti-dilutive effect.
3. ACCOUNTING ESTIMATES
For the period ended March 31, 2002 there have been no material
changes in estimates of amounts reported in prior interim periods
or of amounts related to prior fiscal years.
4. SEASONALITY
The Company's operations are not subject to significant
cyclicality. However, given the nature of its operations, the
Company's revenues may be affected by vacation or holiday
schedules.
5. 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 Resourcing.
* Systems Engineering involves planning, designing and
implementing solutions that meet a customer's specific
business and technical needs, primarily in the satellite
communications sector.
* Resourcing involves both short and long-term placements of
personnel to augment customers' workforces (Staffing) as well
as the long-term management of projects, facilities and
customer business processes (Outsourcing).
The Company evaluates performance and allocates resources based
on earnings before interest and income taxes. The company does
not segregate assets and other balance sheet accounts between
Resourcing and Corporate services. The accounting policies of the
segments are the same as those described in the significant
accounting policies note in the audited annual consolidated financial
statements.
Three months ended March 31, 2002
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Corporate
Systems and
Engineering Resourcing Other(a) Total
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Revenue $11,337 $21,908 - $33,245
Earnings (loss) before
interest and income
taxes 1,266 531 (389) 1,408
Interest income 29
Income taxes 611
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Earnings from
continuing operations
and net earnings $826
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Total assets other than
cash $11,517 $32,709 $44,226
Cash 6,571
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Total assets $50,797
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Three months ended March 31, 2001
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Corporate
Systems and
Engineering Resourcing Other(a)(b) Total
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Revenue $10,185 $21,713 - $31,898
Earnings (loss) before
interest and income
taxes 1,399 770 (754) 1,415
Interest income 23
Income taxes 640
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Earnings from
continuing operations $798
Discontinued operation (645)
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Net earnings $153
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Total assets other than
cash $12,211 $45,252 $57,463
Cash 10,701
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Total Assets $68,164
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Six months ended March 31, 2002
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Corporate
Systems and
Engineering Resourcing Other(a) Total
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Revenue $21,218 $42,292 - $63,510
Earnings (loss) before
interest and income
taxes 2,220 599 (775) 2,044
Interest income 93
Income taxes 961
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Earnings from
continuing operations
and net earnings $1,176
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Total assets other than
cash $11,517 $32,709 $44,226
Cash 6,571
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Total assets $50,797
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Six months ended March 31, 2001
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Corporate
Systems and
Engineering Resourcing Other(a)(b) Total
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Revenue $20,712 $41,016 - $61,728
Earnings (loss) before
interest and income
taxes 2,030 1,084 (1,841) 1,273
Interest income 67
Income taxes 1,238
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Earnings from
continuing operations 102
Discontinued operation (2,694)
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Net loss $(2,592)
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Total assets other than
cash $12,211 $45,252 $57,463
Cash 10,701
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Total Assets $68,164
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a) Includes Corporate Services costs not appropriate to
allocate to the operating segments
b) Total Assets include the assets of the eServices business
6. SPECIAL CHARGE
Special charges in the six months ended March 31, 2001 included
legal, settlement and other costs amounting to $331.
7. CONTINGENCIES
During its fiscal year 2000 the Company acquired PPI Canada Ltd.
(PPI). In the event it is determined that the acquired business
achieved a certain level of profitability (as defined) during the
twelve months following the acquisition, additional cash
consideration for the shares of PPI will become payable. The
maximum amount of such an additional payment is $1,600. In June
2001 the Company informed the selling shareholders of PPI that the
acquired business' profitability (as defined) was lower than the
earnings threshold specified, and that accordingly, no additional
payment for PPI shares was required to be made. In July 2001 the
selling shareholders of PPI filed a claim against the Company,
claiming the additional payment of $1,600 and further damages in
excess of $2,000. In October 2001 the Company filed a statement
of defence to this claim, and counterclaimed $2,000 from the
selling shareholders. The amount of additional consideration for
the shares, if any, is not determinable at this time.
The Company is party to several other claims aggregating
approximately $900, which are being contested. The potential
outcomes of these matters 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 Calian's financial condition.
8. SHARE REPURCHASE
In December 2001, the Company acquired 1,786,956 (or 18.3%) of its
outstanding common shares at a price of $2.80 per share, for a
total of $5,280 including related expenses, through a Substantial
Issuer Bid procedure known as a Dutch Auction. The excess of the
purchase price over the average stated capital of the shares has
been charged to retained earnings.
9. DISCONTINUED OPERATION
On May 16, 2001 the Company's Board of Directors approved a formal
plan to dispose of all of the assets of the eServices business.
The approved plan consisted of rationalizing the eServices
operations by making adjustments to the workforce and facilities
commensurate with the size of the business and selling the resized
business. The effective date of disposal was June 30, 2001.
During its third quarter of fiscal 2001, the Company recorded a
loss on disposal of the eServices business of $13,287 before tax
and $11,341 after tax, including rationalization costs and
operating losses subsequent to May 16, 2001. These amounts
(pre-tax) are as follows:
(i) Rationalization costs:
Workforce reduction $731
Legal, consulting and other 852
Provision for excess facilities 213
--------
$1,796
--------
(ii) Loss on disposal of assets:
Goodwill $7,485
Capital assets 2,755
Other assets 707
--------
$10,947
--------
(iii) Loss from operations from May 16 to --------
June 30, 2001 $544
--------
If there were to be additional consideration payable for
the shares of PPI Canada Ltd. as described in Note 7, this
would be accounted for as part of the discontinued
operation.
For the three and six month periods ended March 31, 2001,
the revenues of the eServices business were $2,384 and
$4,535 respectively. The net loss before tax was $918
($645 after tax) and $3,948 ($2,694 after tax) for the
same periods ending March 31, 2001.
The carrying value of the remaining assets and liabilities
of the discontinued operation as at March 31, 2002 are as
follows:
Trade receivables $380
Accounts payable and accrued liabilities (1,191)
-------
$(811)
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The loss per share from discontinued operation for the
three and six month periods ended March 31, 2001 was
($0.07) and ($0.28) respectively, basic and fully diluted.
Management Discussion and Analysis (MD&A) of the second fiscal
quarter:
During the third quarter of fiscal 2001, the Company disposed of
all of the assets of its eServices business to focus on Resourcing
and Systems Engineering. All revenues and expenses of the
eServices business have been classified separately in the
accompanying interim financial statements as a discontinued
operation.
Results of operations:
For the second quarter of fiscal 2002, revenues were $33.2 million
compared to $31.9 million in the second quarter of fiscal 2001,
representing an increase of 4.1%. The Resourcing
(Staffing/Outsourcing) segment reported revenues of $21.9 million
compared to $21.7 million for the prior year. Systems
Engineering's revenues were $11.3 million in the quarter, up from
$10.2 million in the second quarter of last year.
Gross profit was 17.4% in the second quarter of 2002 as compared
to 20.1% in the comparable quarter a year ago. This decrease is
explained by a change in the overall sales mix.
Selling, marketing, general and administration expenses totaled
$3.2 million or 9.7% of revenues in the second quarter of 2002.
This compares to $3.8 million or 11.8% of revenues in the second
quarter of 2001. The decrease of $0.6 million is related largely
to the Company's efforts to reduce costs by increasing operational
efficiencies and eliminating redundancies.
As a result of the foregoing, the Company recorded earnings from
continuing operations of $0.8 million or $0.10 per share basic and
fully diluted in the second quarter of fiscal 2002, compared with
net earnings of $0.8 million or $0.08 per share basic and fully
diluted in the same quarter for the prior year.
The Company had incurred a loss of $0.9 million ($0.6 million
after-tax) on its discontinued eServices operation in the second
quarter ending March 31, 2001. There was no such income or loss
in the second quarter of the current fiscal year.
The Company has recorded net earnings of $0.8 million or $0.10 per
share basic and fully diluted in the second quarter of fiscal
2002, compared with net earnings of $0.2 million or $0.02 per
share basic and fully diluted in the same quarter the previous
year.
For the fiscal year to date, revenues were $63.5 million compared
to $61.7 million for the first six months of fiscal 2001,
representing an increase of 2.9%. Growth in revenues was modest
both in the Resourcing segment, where revenues increased to $42.3
million from $41.0 million and in the Systems Engineering segment
where revenues increased to $21.3 million from $20.7 million.
Gross profit was 17.5% during the first half of 2002, a 1.2%
decline from the equivalent period last fiscal year, again as a
result of an overall change in sales mix.
Selling, marketing and general and administration, totaled $6.5
million or 10.2% of revenues in the first half of 2002. This
compares to $7.5 million or 12.2% of revenues in the first half of
2001. This decrease is due to factors explained above.
The provision for income taxes for the six month period ending
March 31, 2002 was $1.0 million, compared to $1.2 million a year
ago. Although the Company is reporting a current provision for
income taxes of $0.4 million, a significant portion of the income
taxes will be recovered through the utilization of investment tax
credits.
The Company recorded net earnings from continuing operations of
$1.2 million or $0.14 per share basic and fully diluted in the
first two quarters of fiscal 2002, as compared to net earnings
from continuing operations of $0.1 million or $0.01 per share
basic and fully diluted in the same period last year.
The Company had incurred a loss of $3.9 million ($2.7 million
after tax) on its discontinued services operation in the first
half of fiscal 2001. There was no such income or loss in the
first two quarters of the current fiscal year.
The Company has recorded net earnings of $1.2 million or $0.14 per
share basic and fully diluted in the six month period ended March
31, 2002, compared with a net loss of $2.6 million or ($0.26) per
share basic and fully diluted for the same period the previous
year.
Financial Condition and Cash Flows
Calian maintains a strong balance sheet and cash position, which
together with bank lines are sufficient to support the Company's
operations for the foreseeable future. The Company's cash
position at the end of the quarter amounted to $6.6 million,
compared with $12.2 million at September 30, 2001.
During the second quarter of 2002, cash utilized by operating
activities, including changes in working capital was $2.2 million,
as compared to a positive cash contribution of $2.6 million in the
second quarter a year ago. This variation is mainly due to an
increase in billed and unbilled accounts receivable. Net cash
outflow for the second quarter of fiscal 2002 was $2.1 million as
compared to a net cash inflow of $1.8 million for the same period
the previous year.
For the first two quarters of fiscal 2002, cash utilized by
operating activities, including changes in working capital was
$0.1 million, as compared to a positive cash contribution of $1.3
million for the same period a year prior. This decrease is due to
factors explained above.
During the first quarter of fiscal 2002, the Company repurchased
1,786,956 of its outstanding shares under a Substantial Issuer Bid
for a total cash outflow of $5.3 million.
Including the $5.3 million cash outflow resulting from the share
repurchase, the net cash outflow for the six month period ended
March 31, 2002 was $5.6 million compared to $0.1 million a year
prior.
The foregoing discussion and analysis should be read in
conjunction with the financial statements for the second quarter
of fiscal 2002 and 2001, and with the Management Discussion and
Analysis in the fiscal 2001 annual report, including the section
on risks and opportunities.
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