Table of Contents
1 Message from the Chairman
3 Message from the President and CEO
4 Report on Operations - Systems Engineering
5 Report on Operations - Business and
Technology Services
6 Business of the Company
8 Management’s Discussion and Analysis of
Financial Condition and Results of Operations
28 Management’s Statement of Responsibility
29 Independent Auditors’ Report
30 Consolidated Statements of Financial Position
31 Consolidated Statements of Net Profit
32 Consolidated Statements of Comprehensive Income
33 Consolidated Statements of Changes in Equity
34 Consolidated Statements of Cash Flows
35 Notes to the Consolidated Financial Statements
Message from the Chairman
Kenneth Loeb - Chairman
Overall, I am very proud of the
Company’s accomplishments
over the past year and as a
board, we believe that
management has the ability
and resources necessary to
capitalize on future
opportunities for the benefit
of our shareholders.
Kenneth Loeb
Chairman
2014 was another successful year for Calian.While the financial results
reflect the intense competition in the current government marketplace,
our management team has not wavered from the basic business funda-
mentals that have created the customer loyalty that we enjoy today.
Through prudent management and the taking of controlled risks we were
able to once again provide a respectable return on capital employed and
maintain our dividends at an attractive yield level. While we operate within
a challenged business environment, we are committed to the evolution of
our business. Be it through corporate acquisitions to round out our service
lines, or through the bolstering of our management bench strength in the
health sector, we are prepared to invest for the long term benefit of our
shareholders.
As time passes, management teams and boards evolve and the recent
announcement of Ray Basler’s retirement is yet another milestone in
Calian’s corporate journey. Ray has led the company through some very
challenging times and the board is extremely grateful for his unwavering
commitment to the betterment of Calian. I am also pleased that he has
indicated his willingness to remain on the board post-retirement. On that
note, Major General (Ret’d) William Hewson who has steadfastly served
the board since 2003 has decided not to stand for another term. While
I accept these changes with mixed feelings, I have full confidence in the
succession planning and nomination processes we have in place to
ensure that the company moves forward in an orderly manner. The board
unanimously believes in Kevin’s abilities as incoming CEO to deliver on
Calian’s long-term growth strategies and I look forward to working with
him in this regard.
Overall, I am very proud of the Company’s accomplishments over the
past year and as a board, we believe that management has the ability and
resources necessary to capitalize on future opportunities for the benefit
of our shareholders.
Calian Technologies Ltd.
2014 Annual Report
1
(millions of dollars, except per share data)
Revenues
Net Earnings
Earnings Per Share
Backlog
236
232
227
216
14.1
13.6
13.2
13.1
211
1.84
924
1.75
1.71
1.73
10.6
1.44
702
533
523
450
10
11
12
13
14
10
11
12
13
14
10
11
12
13
14
10
11
12
13
14
Comparison of Cumulative Total Return
$200
$150
$100
$50
CTY
S&P/TSX Composite Index
2009
2010
2011
2012
2013
2014
2
2014 Annual Report
Calian Technologies Ltd.
Message from the President and CEO
Fiscal 2014 turned out to be a very challenging year
from a revenue perspective as governments contin-
ued their cost cutting initiatives and we experienced
reduced demand in many of our markets. This
impacted not only government and defence based
revenues, but also our commercial revenues as enter-
prises adjusted their infrastructure and resource
requirements downward. Fortunately, the diversity of
our business once again helped to temper this nega-
tive impact as certain service lines achieved year
over year growth. In addition, recent acquisitions
helped to mitigate the revenue shortfalls, albeit only
for a portion of the fiscal year.
Even though the level of customer requirements was
down from the prior year, we did not waiver in our cor-
porate passion for quality and customer satisfaction. We
used this slowdown to pursue and acquire business in
new geographies and market segments. Expanding our
customer base and evolving our service and product
offerings will continue to be the foundation for achiev-
ing our long-term business objectives of controlled
profitable growth and positive cash flows.
Worthy of note, we were successful in rebuilding our
backlog with significant new signings and renewals late
in the fiscal year, which provides us with added
revenue confidence for the future. The divisional
reports contained in this document elaborate on the
specifics of these achievements.
On a consolidated basis we achieved revenues of $211
million, a drop of 9% from the prior fiscal year. With
reduced customer spending comes intense competi-
tion for available work, ultimately manifesting in the
form of reduced gross margins. While tight control of
discretionary operating expenses helped to partially
offset the margin pressure we ended the year with
earnings of $1.44 per share. We maintained our quar-
Ray Basler - President and CEO
terly dividend at $0.28 per share representing a very
attractive yield throughout the year. While the dividend
represents a larger payout ratio than past years, it is still
well within the level of cash generated from operations.
Being mindful of the cash requirements associated with
the acquisitions consummated this year, we compen-
sated with a reduced level of share repurchases
compared to the prior year.
Overall, while results have tapered somewhat from the
prior year, I am still proud of our accomplishments over
the last year, particularly our ability to adapt to an ever-
changing business environment, in the interests of
achieving long-term growth.
On a personal note, I have recently announced my
upcoming retirement effective March 31, 2015. After
almost three decades with the company and a full ten
years as CEO, I feel entirely comfortable transferring the
helm to the next generation of leadership. I look
forward to working with Kevin and the management
team during the interim period and to assuming an
advisory role thereafter. While we have experienced
some difficult markets in recent years we have always
provided a respectable return on capital employed.
I believe our management team is fully capable of
addressing the challenges that lay ahead while at the
same time capitalizing on available opportunities.
Armed with a solid backlog, excellent prospects and a
strong balance sheet, I believe the company is well posi-
tioned for sustainable growth in the long term.
Ray Basler
President and CEO
Calian Technologies Ltd.
2014 Annual Report
3
Report on Operations - Systems Engineering (SED)
“
Looking to next year, we see an increasing and healthy backlog
which bodes well for reaching our growth targets.
”
Although we had operational accomplishments on
several fronts, we also faced many challenges that are
exhibited in the financial results for 2014. Our com-
munications systems group had an excellent year
with the successful completion of a number of major
RF ground system projects. However, the challenges
of winning new business in the first part of the year,
largely in the aerospace and defence sector, had a sig-
nificant impact on our revenues. This resulted in
divisional contribution of $9.5 million on revenues
of $55.4 million. Despite lower revenues, we have
upheld our commitment to quality and maintained
customer loyalty.
In our contract manufacturing group, government delays
and cancellations of defence programs led to intense
competition for the little remaining manufacturing work.
While we managed to sign new work on the Tactical
Armoured Patrol Vehicle program, it was not at the levels
we anticipated due to competitive pressures. In addition,
the DND cancellation of the Close Combat Vehicle
program dealt a further blow to our expected revenue
stream. These factors combined with the downturn in
Blackberry requirements left our manufacturing labour
force underutilized, necessitating a right-sizing of the
manufacturing workforce. Fortunately, long term cus-
tomers like General Dynamics Land Systems (GDLS) and
KDS provided a steady stream of new orders. Late in the
fiscal year, we received a new order for Power Control
Modules from GDLS which contributed significantly to
our backlog. In addition, we have invested in new surface
mount manufacturing capabilities to replace aging circuit
card manufacturing infrastructure. This will help us to
increase our quality and production capacity for the
future and will also allow us to bid on new requirements
that demand the latest in manufacturing technologies.
Our systems engineering group executed well on the
Inmarsat I5 RF systems, the Canadian Centre for
Mapping and Earth Observation RF systems and
Sirius/XM upgrades. These programs contributed sub-
stantially to both revenue and profitability. Although
later than expected, we signed a new major RF
systems program late in the second quarter which
contributed substantially to our backlog. We have been
very successful in capturing new RF systems work in
2014 which bodes well for future year’s revenues. Our
satellite operations and hosting business with the
Canadian Space Agency, Ciel and Lightsquared
continued at a steady pace, providing a much needed
and predictable source of revenues.
Our product group had an excellent year of sales led
by our Decimator spectrum analyser and Gemini
modulator products. We have also signed exciting new
work for the development of bonded modulators and
receivers which are critical components in delivering
4K TV solutions over satellite. Furthermore, we con-
tinue to deliver highly specialized products to Rohde
& Schwarz for resale under their brand. While product
margins are generally higher, risks associated with
early-stage development and testing of new products
can have a dampening effect on overall margins.
Looking to next year, we see an increasing and healthy
backlog which bodes well for reaching our growth
targets. Despite the competitive pressures on our busi-
ness, our team’s commitment to quality and
excellence in customer support remains high. With an
increased backlog of work and exciting new opportu-
nities ahead, we look forward to the challenge of
profitably executing this work for the benefit of
our shareholders.
Patrick Thera
VP and General Manager, Systems Engineering
4
2014 Annual Report
Calian Technologies Ltd.
Report on Operations - Business and Technology Services (BTS)
“
”
We have an excellent team, robust business strategies and a strong
backlog of business; key building blocks for achieving success and
providing long-term value to our shareholders.
The Business and Technology services division con-
tinued to deal with tough market conditions which
were primarily driven by reduced federal govern-
ment spending. Our main customer, DND, was
significantly impacted and we coped with DND
budget reductions which included the early cancel-
lation of our National Maintenance Contract as well
as a significant reduction in demand under our exist-
ing training contracts. Although we had numerous
smaller contract wins throughout the year, they were
not sufficient to offset the effects of DND cost
cutting efforts. Overall, we achieved $155.8M in
revenue and a divisional contribution of $6.8M rep-
resenting a reduction from the prior year.
Despite the challenging market conditions, we
seized the opportunity to complete three acquisi-
tions this fiscal year – Med-Team, AMTEK and DWP.
These acquisitions not only diversify our customer
base but also provide proven delivery experience, an
important ingredient in the evolution of our service
lines. Financially, we inherited a substantial backlog
which will provide for increased revenues, margin
and cash flows going forward.
Our Health Service line achieved year over year
growth as a result of the increased demand on the
Health Services Support Contract (HSSC) as well as
the continued rollout of the Primacy medical clinic
program. Our HSSC contract was extended to
September 2016 with an additional 6 month option
to March 2017 adding over $117M in realizable
backlog. This extension reaffirms DND's trust in our
ability to support the healthcare demands of the
Canadian military. The Med-Team acquisition adds a
strong healthcare team that have over twenty five
years of experience in the managed medical clinic
business, a key ingredient as we diversify our health
service line offerings to include primary patient care.
Our Training and Ancillary Service line was signifi-
cantly impacted by DND’s reductions which resulted
in decreased demand for training services across our
entire DND contract portfolio. On a positive note,
we were successful in winning the renewal of the
CFSATE contract and we continue to diversify our
training customer base with beachhead contracts in
the nuclear industry, educational institutions and also
an exciting contract win to deliver training services
on an international stage. The aquisition of Amtek
provide new service offerings in line with our
diversification strategy.
The IT Professional Services (ITPS) line was also
impacted by federal government reductions, but we
achieved positive growth in our private sector and
Toronto region markets. We continue to strengthen
our relationships within the Information and
Communication Technologies sector and are opti-
mistic about the growth prospects in this market
segment. Also, the acquisition of DWP Solutions pro-
vides new and enhanced capabilities in cyber and
security services and we look to capitalize on this
high-demand market segment.
Overall, while we are disappointed in our fiscal year
results, we still maintain a very strong business generat-
ing significant profits and positive cash flows. We
continue to enjoy very high customer satisfaction levels
across all of our service lines and we firmly believe that
our passion for delivery excellence will be the founda-
tion for meeting our long-term growth objectives.
A recent organizational change that provides for
renewed focus and manpower on each of our service
lines will help the division to navigate the current
challenging market conditions, successfully integrate
our recent acquisitions and balance the needs of the
short term while positioning for long term growth.
We have an excellent team, robust business strategies
and a strong backlog of business; key building blocks
for achieving success and
providing long-term value to
our shareholders.
Kevin Ford
VP and General Manager,
Business & Technology Services
Calian Technologies Ltd.
2014 Annual Report
5
Business of the Company
We operate through two divisions that complement
each other and that share the vision and key tenet
upon which Calian has emerged as a business and
technology services leader — effective and prudent
management with a focus on controlled profitable
growth in carefully selected markets.
The diversity of our service offerings is at the heart of
our success. By serving a number of customers in
wide ranging and geographically varied markets, we
benefit from a diversity that helps us weather the
downturns experienced in any one market while at
the same time positioning ourselves to take advan-
tage of unique opportunities as they arise. This
diversity is most evident when comparing the busi-
ness of our two divisions.
Systems Engineering designs and manufactures
complex systems. Our focus is on two distinct
markets. Our primary market is satellite communica-
tions sector where we serve satellite manufacturers,
operators and service providers around the world.
We also provide satellite operations services to gov-
ernment and commercial clients in the same market
sector. Our other market is in the defence/security
and high-end telecommunications industry where
we provide low to medium volume manufacturing
services to major players. In both markets, we are a
small niche player serving a handful of multi-national
organizations working on large worldwide projects.
More than 60% of our annual revenues are derived
from exports.
Custom Manufacturing
Systems Engineering
Our customers require sophisticated, custom-built
infrastructure to meet their unique requirements.
Our straightforward approach is to fulfill these
requirements by integrating advanced commercial
equipment provided from reliable suppliers, our own
commercial products, and where necessary, custom-
built components. Our customers rely on our
technical and management skills to deliver what we
promised, on schedule and at the agreed price. We
have a full-service approach helping our customers
from design through to long-term operations and
support. Our customers reward our success in
meeting their expectations with repeat business. Our
core competencies make us stand out from our com-
petitors — strong project management, systems
engineering know-how, expertise in high-throughput
embedded logic and software development capabili-
ties. We maintain a core set of reusable designs,
components and products to increase our competi-
tive edge. These strengths have allowed us to
establish long-term relationships with many of the
industry’s leaders.
We apply these same core competencies to the man-
ufacturing services we provide to military prime
contractors and equipment suppliers. The value
added by our technical expertise and our focus on
high-reliability, low-volume production of complex
systems differentiate our services from those of our
competitors.
Business and Technology Services provides
Training, IT and Healthcare delivery solutions as well
as national workforce management capability via
strategic long-term outsourcing services, recruiting
and placement services, and per-diem staffing
services. The division provides ready access to an
exceptional team of professionals in IT Professional
Services, Healthcare, Engineering and Training
domains. The division currently caters mainly to the
Canadian federal government, with a large presence
in the Department of National Defence, and also has
a well-established private sector customer base that
is expanding across targeted sectors. Our health care
service line also includes the administration on
behalf of Loblaw of over 140 medical clinics across
Canada as well as the provision of health care
services directly to customers through our own
managed clinic as well as our recently acquired
Med-Team clinic.
6
2014 Annual Report
Calian Technologies Ltd.
derived from international sources and contracts are
often denominated in foreign currencies. While the
risks are high, the margins are commensurate.
Contracts in Business and Technology Services are
typically on a per-diem basis and can range from short-
term assignments to multi-year operations and/or
maintenance contracts. The cost structure of the divi-
sion is variable as direct labour costs are scalable to
match contract requirements. The vast majority of rev-
enues are derived from Canadian sources. With a
reduced risk profile, margins are correspondingly
lower. With the inclusion of health clinics in the BTS
portfolio, revenue is also generated via direct billing to
provincial health care organizations.
Systems Engineering’s billings are based on achieving
well defined project milestones. These can be in advance
of, or subsequent to the recognition of revenues.
Milestone profiles vary depending on factors such as the
customer, competition and pricing. Accordingly, cash
flows and working capital requirements can vary signif-
icantly from project to project and over the life of any
one project. In Business and Technology Services, cash
flows are very predictable as most contracts call for
monthly billings of work performed.
From the perspective of renewing business, Systems
Engineering is awarded one project contract at a time,
usually as a result of winning an open international com-
petition. Constant marketing efforts are directed
towards identifying and securing bid opportunities and
a significant overhead effort is required to develop
detailed proposals for new projects. The situation is
similar for the short-term staffing component of the
Business and Technology Services division, which
requires ongoing marketing and sales efforts to maintain
the backlog. However, the longer-term training, health-
care and workforce management component of this
division enjoys the benefit of multi-year contracts that
often contain provisions for extensions, offering long-
term visibility of future revenues.
Overall, the diversity in markets, customers and busi-
ness models provides Calian with an enviable
balance in its consolidated business.
Health Services
Training
Information Technology Professional Services
The services we offer allow our customers to focus
their vital internal resources on key priorities. The
value we add lies in the breadth of services we offer
and our ability to source sufficient and appropriate
resources on a timely basis to meet our customers’
requirements. This is due to our exceptional program
delivery capability, recruiting capabilities, effective
management of our employees in the field and com-
petitive rates.
A comparison of the business models and operating
approaches of the two divisions further illustrates
the diversity between them.
Contracts in Systems Engineering are technically
complex and are typically on a fixed-price basis with
demanding requirements to meet delivery schedules.
The division operates essentially under a fixed-cost
structure, requiring the careful management of
labour utilization. The majority of revenues are
Calian Technologies Ltd.
2014 Annual Report
7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations
The following Management Discussion and Analysis is dated December 4, 2014 and should be read in conjunction with the
audited consolidated financial statements and notes included in this annual report. The Company’s accounting policies are
in accordance with IFRS. As in the consolidated financial statements, all dollar amounts in this Management Discussion and
Analysis are expressed in thousands of Canadian dollars unless otherwise noted.
This MD&A is the responsibility of management and has been reviewed and approved by the Board of Directors of the
Company. This MD&A has been prepared in accordance with the requirements of the Canadian Securities Administrators. The
Board of Directors is responsible for ensuring that management fulfills it’s responsibilities for financial reporting and is ulti-
mately responsible for reviewing and approving the MD&A. The Board of Directors carries out this responsibility principally
through its Audit Committee.
IFRS and non-GAAP measures:
This MD&A contains both IFRS and non-GAAP measures. Non-GAAP measures are defined and reconciled to the most com-
parable IFRS measure.
Forward Looking Statements
The Company cautions that the forward-looking statements in the following Management Discussion and Analysis are based on
certain assumptions made by the Company that may prove to be inaccurate. Forward-looking statements include those identi-
fied by the expressions “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend” and similar expressions to the extent that they
relate to the Company or its management. These forward-looking statements are not historical facts, but reflect the Company’s
current expectations and assumptions regarding future results or events. Assumptions made include customer demand for the
Company’s services, the Company’s ability to maintain and enhance customer relationships, as well as the Company’s ability to
bring to market it services. Furthermore, the Company cautions that the forward-looking statements in the following
Management Discussion and Analysis are based on current expectations as at December 4, 2014 that are subject to change and
to risks and uncertainties including those set out in this document under the heading “Risk Factors”. Actual results may differ
due to facts such as customer demand, customer relationships, new service offerings, delivery schedules, revenue mix, compe-
tition, pricing pressure, foreign currency fluctuations and uncertainty in the markets in which the Company conducts business.
Additional information identifying risks and uncertainties is contained in the Company’s filings with the various provincial secu-
rities regulators. Readers should not place undue reliance in the Company’s forward-looking statements.
Business Overview and Strategic Direction
Calian sells business and services to industry and government. For many years, industry and government have searched for
and adopted new operating models and new technologies in an effort to improve the efficiency of their operations.
Management expects that they will continue to do so, and in recognizing this trend, the Company has built a unique com-
bination of specialized skills and available capable resources in order to address the resulting market opportunities.
With these capable resources at the ready, Calian can quickly assemble and deploy teams of professionals with the requisite
skills to promptly assist customers to implement their diverse operating and technology needs, whether it is the design and
integration of a complex satellite ground system, low-volume high-quality contract manufacturing or the provision of spe-
cialized personnel in the areas of IT, training and ancillary and healthcare services.
Calian’s larger mainstream competitors often cannot duplicate the timeliness and reliability of Calian’s services. Furthermore,
efficient and flexible operating processes, combined with a strong financial condition allow Calian to profitably address
lower margin business without compromising quality or performance, and this further distinguishes the Company from its
competitors. Due to the Company’s successful delivery and execution of projects, Calian experiences repeat business and a
high percentage of contract renewals.
8
2014 Annual Report
Calian Technologies Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Calian’s long-term direction is to expand its current service offerings with industry and government in specialized niche
areas outside the mainstream market, avoiding competition with larger competitors. Calian will concentrate on those oppor-
tunities that entail agility and flexibility in both resources and capabilities to address customer requirements, be it in our
traditional markets or new ones with similar needs.
Calian’s growth plans include building upon and expanding its current capabilities and addressing a wider range of cus-
tomers with a broader range of services without compromising its commitment to quality and delivery. Calian plans to
continue augmenting its service offerings and capitalizing on its reputation for delivery, building on its satisfied base of blue-
chip customers. In addition, the Company plans to seek partnership opportunities or acquire specialized companies that
have also had success in profitably addressing niche markets with a minimum amount of capital employed and whose oper-
ating philosophies align with those of Calian. With substantial revenues, an efficient back office, and the realization of
economies of scale, the Company’s objective is to enhance the returns to its shareholders and build an enterprise that excels
in its selected markets.
For existing operations, the key is controlled profitable growth. Management expects that growth will not only extract
economies of scale and provide additional returns, but will also provide an environment for its people to grow and advance
within the Company. Calian’s strengths in delivering specialized services in niche markets have so far permitted the Company
to excel in a difficult business environment where many mainstream competitors have faltered. With this backdrop of con-
tinuing to play to our strengths, there are no plans to materially alter the business of the Company.
Calian currently operates in two reportable segments, defined by their primary type of service offerings:
Systems Engineering involves planning, designing and implementing solutions that meet a customer’s specific business and
technical needs, primarily in the satellite communications sector. The Systems Engineering Division, also known as SED, has
its principal office in Saskatoon, Saskatchewan.
Business and Technology Services is a leading program delivery partner for public and private sector customers in a variety
of industries, whereby we provide workforce augmentation as well as the long-term management of projects, facilities and
customer business processes in the areas of IT professional services, training and ancillary and healthcare services. The
Business and Technology Services division (BTS) has its principal office in Ottawa, Ontario.
As both of our divisions operate in very specific niche areas within large markets, there exists very little third party data to
compare to the Company’s performance. Although referring to the general market trends provides some insight into the
health of those markets and some clarity on the opportunities within those markets, it is not always indicative of the health,
demand, funding of the individual customers of the Company. In order to compensate for this limited insight and to provide
an indication of revenue potential, this annual report provides a detailed rollout of the Company’s backlog by division
showing both contracted backlog and option renewals by fiscal year.
In addition, since referencing pricing or volumes of production are not applicable to our business to allow a proper under-
standing of the level of revenue generated during the year or expected in the future, the following discussions that refer to
the types of contracts performed by each of the two divisions will provide some insight into the level of customer specific
demand for our services.
Systems Engineering Division
For over 49 years, SED’s core strength has been communications systems engineering. SED builds equipment, systems, and
products to maximize utilization, efficiency and throughput of communications networks. Its primary market is the satellite indus-
try, but it also applies its capabilities and expertise to broader adjacent markets with needs for similar systems and services.
Calian Technologies Ltd.
2014 Annual Report
9
Management’s Discussion and Analysis of Financial Condition and Results of Operations
SED generally acts as a systems integrator and works with its customers on a project basis to develop custom systems tai-
lored to their specific operational requirements. From one project to the next, SED endeavors to reuse system architecture,
core software modules, and custom hardware designs to reduce development time, cost and technical risks. Some of these
core modules have evolved into products which SED sells either stand alone or as a part of the systems they deliver. SED’s
manufacturing capability, initially created to support its communication systems engineering group, now accounts for a sub-
stantial portion of divisional revenues and provides an on-going base of business that helps offset the ebb and flow of core
project work.
SED’s strengths are renowned around the world with exports typically accounting for more than 60% of annual sales.
Customers often request deployment of our systems to other locations. We now have systems operating on six continents
and we are well versed in the logistics associated with international installations.
SED designs and manufactures equipment for the satellite ground-based infrastructure market and systems must be
upgraded or replaced on a regular basis. The introduction of Ultra-HDTV, the growing deployment of high throughput satel-
lites and the move to higher frequency bands are also presenting opportunities for additional capacity and enhancements.
There are growing demands to monitor the earth’s environment, resources and security as well as to watch world events
unfold in real time through earth observation satellites. Also, additional demands are being driven by mobile broadcast, mili-
tary use of commercial satellites and the ongoing need to replace the existing capacity of satellites approaching end-of-life.
Overall, the business environment for the SED division is stable and sustainable. Inmarsat and Hughes are deploying next
generation satellite constellations creating growth opportunites for integrators such as SED. Reduced credit availability con-
tinues to hamper the ability of start-ups and certain existing players to get the funding or refinancing needed to drive their
initiatives forward. Competition remains fierce as competing companies look to fill their available capacity.
While the satellite communications sector has been the core of SED’s business, the contract manufacturing group continues
to provide a solid base of revenues and ongoing level of work for SED which in turn provides the manufacturing group with
respectable levels of utilization. We focus on opportunities requiring low volume and high reliability manufacturing; qualities
that are well suited to defence applications. These attributes also provide effective differentiation from offshore competitors.
Reduction in government spending has had the effect of increased competition among Canadian manufacturing companies.
As such, manufacturing related revenues have reduced from past levels. However, long term customers such as GD Land
Systems Canada and KIDDE help sustain this group with ongoing work.
In 2014 the SED division performed well signing $85 million in new contracts and ending the year with a backlog of $80
million of which $43 million is expected to be earned during fiscal 2015.
Fiscal 2014 had its share of challenges and accomplishments for SED. Manufacturing orders from Textron, GD and KIDDE
provided SED with the majority of its manufacturing revenues for the year. The flexibility of our manufacturing organization
allowed us to transition from more labor intensive manufacturing work to more automated processes. Through process
automation, solid margins were obtained regardless of the unevenness in work flow in this sector.
SED's satellite earth station business continued to be a significant contributor to revenue. The largest project in this area
during Fiscal 2014 was ground station work for the Canadian Center for Mapping and Earth Observation (CCMEO). Work this
year covered the deployment of new antenna systems in Prince Albert, Gatineau and Inuvik. The Inmarsat I5 RF systems, a
three year program which includes six 13m antenna systems installed at diverse locations around the globe also provided a
substantial source of revenues as we completed the RF systems in North America and New Zealand. In addition work has
begun on a series of RF Systems for Hughes as they expand their network. Our systems group remained busy with upgrades
for Sirius/XM as well as systems developed for the Inmarsat network including aeronautical systems, capacity planning
systems and new Low Data Rate Gateways for Honeywell Global Tracking Solutions.
10 2014 Annual Report
Calian Technologies Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ancillary product sales including SED’s Decimator Spectrum Analyzer, Gemini modulator and cable applications continued
to grow and provide significant margins. Custom products such as high throughput modulators and receivers for ultra high
definition applications also contributed to our revenues.
Our CSA Satellite Operations team was right sized after the loss of the Radarsat I satellite. Increased automation of certain
operational aspects allowed us to continue to provide the CSA with excellent support within a reduced budget. We contin-
ue to provide satellite operations for Radarsat II, Scisat and Neosat. Also, we continue to be the primary operations centre
for the Ciel II satellite and are hosting the LightSquared communications gateway equipment. Other reductions in the CSA’s
operations budget and the ongoing bankruptcy protection of LightSquared may result in reduced revenue from this part of
the business in the coming years. We continue to look for opportunities to replenish and expand our satellite operations busi-
ness.
The markets in which SED operates are currently stable and we expect new opportunities to arise during the years ahead.
In addition our manufacturing group is expected to continue at current levels. That being said, we do expect some volatility
over the short term as customers assess their upcoming budgets and adjust to changing market conditions. In the commu-
nication business sector, SED expects to work closely with Inmarsat and Hughes as both entities continue to evolve and
expand their service offerings. In the Digital Audio Broadcast market, we anticipate additional business with Sirius/XM Radio
as they seek to gain commonality in their systems post-merger and also strive to enhance and expand their product offer-
ings. In the test systems area, we will continue to pursue opportunities within our traditional test systems market for
Communications Monitoring Systems and In-Orbit Test Systems as well as exploiting our Resource Management software. We
expect that new enhancements to our family of ancillary satellite products will generate increased sales and margins in the
years ahead.
As worldwide competitors continue to vie for market share, margins are expected to remain under competitive pressure.
Continued volatility of the Canadian dollar relative to other major currencies will also affect our competitive position on
international pursuits.
Business and Technology Services Division
BTS is a leading program delivery partner for public and private sector customers. We meet and anticipate our customers’
unique needs in the areas of IT professional services, training and ancillary, engineering and health care services.
We have a workforce of approximately 2,000 individuals across Canada, in both full and part-time capacities. Currently our
primary market is the Canadian federal government with an emphasis on the Department of National Defence (DND), but
we also provide services to large multi-national companies as well as to other departments within the federal government.
In addition, we continue to operate two medical clinics that provide medical services directly to the general public under
provincial health care plans.
With over 32 years of experience, BTS provides custom solutions that help organizations manage complex workforce chal-
lenges by assuming responsibility for functional tasks, executing sophisticated engineering programs, or by providing
workforce augmentation with flexible and skilled teams. The division’s success comes from its focus on delivering a quality
service through careful attention to both customer and contractor needs. The end result is customers having access to
Calian’s extensive expertise and pool of specialized talent so they are free to focus on their core business. BTS is a continu-
ous improvement organization and is accredited to Level 4 under the Progressive Excellence Program of Excellence Canada.
Over the past several years, we have continued to build and enhance our reputation as a very competent, high quality, but
reasonably priced supplier. This strategy has allowed us to maintain our competitiveness and effectively develop a capability
that few of our competitors can match. Unfortunately the reduction in government and defence spending over the last year
has created additional competition in our selected areas requiring the division to take a more aggressive response in terms
of pricing.
Calian Technologies Ltd.
2014 Annual Report
11
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The major market for our BTS division continues to be DND. DND is one of the departments that is under severe pressure
as part of the federal government’s quest to reduce spending. While DND capital programs were most affected, we have also
experienced some reductions in the utilization of certain training contracts. Fortunately DND’s focus on providing quality
health care has resulted in high demand on our health services contract. Overall the BTS division is well positioned to con-
tinue to service the government in the areas of health, training and IT services and has strategies in place to ensure that we
are well positioned when the current cost cutting initiatives have subsided.
The overriding trends affecting our business are expected to be influenced by four factors: the rate of economic
recovery in our markets; the transition from public sector stimulus spending to one of public sector deficit reduction
and expenditure control; the continuing competitive landscape; and finally the pace of technology evolution and poten-
tial impact to our business.
Demographics continue to work in our favour. Due to retirements, large corporations along with various federal government
departments and the military continue to lose large numbers of employees with in-depth knowledge of their internal work-
ings. In many cases the remaining employees are not yet able to assume additional responsibilities. This has created a
necessity for these entities to re-acquire this lost knowledge. The BTS division has placed a special emphasis on attracting
retirees who possess extensive corporate knowledge and expertise, and accordingly has been successful in assisting cus-
tomers in bridging the knowledge gap while they train and mentor replacement staff. We continue to see the long term
attractiveness for this solution and will continue to take advantage of this trend to provide “ready-made” support services to
our customers.
In order to cope with the backlog of procurement, federal government departments are implementing new processes and
tools. In the Information Technology and Management (IT/IM) arena, the trend to larger, more complex ERP systems
continues. New installations continue to provide opportunities; however system upgrades, enhancements and migrations are
assuming an ever increasing share of the IT/IM budgets and hence provide good business opportunities. This is particularly
the case in many larger organizations where legacy system databases are being mandated to interface with these ERP systems.
Government wide, there is a greater focus on developing and supporting wider web access coupled with the associated secu-
rity concerns of protecting the users and their data. Accordingly, we continue to focus on related business development
activities and the investment of internal resources to accommodate these new approaches.
While government spending is under tight controls and has become unpredictable due to the implementation of previously
announced budget reductions, profitable business does exist for companies who have the financial strength to accommodate
these down periods and the discipline to adjust costs to declines in revenue. BTS’s strong back office capabilities, centered
on an SAP based management information system along with its emphasis on continuous improvement and business
development ensures that it is able to identify and win new business opportunities and accommodate that new business in
a scalable fashion.
All in all, despite the current competitive landscape, we continue to believe that the long-term business environment for the
services of the BTS division remains favorable.
BTS results for 2014 were affected by a very difficult business environment. The Federal government continued to imple-
ment spending constraints and DND, our main customer, was one of the departments most affected. Early in the fiscal year,
DND cancelled our national maintenance contract and we continued to see a reduced demand on our training contracts.
With few new initiatives and cutting of costs on existing contracts, the BTS division realized a drop in revenues this year.
However, we continued to evolve our service offerings with enhanced capabilities in many areas. Also, we have been suc-
cessful in the broadening of our customer base with many new beachheads across service lines. The division continues to
be very successful in managing existing contracts and has maintained high quality and client satisfaction levels. This will put
us in good stead when these markets rebound.
12 2014 Annual Report
Calian Technologies Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Health Service Support Contract was spared from the spending constraints realizing a 10% growth this year. In addition,
the Division was also awarded an 18 month extension to the original contract period thereby securing revenues through to
September 2016 with an additional 6 month option that could extend the contract period to March 2017. The acquisition of
Primacy during 2012 was a key step in expanding our health service offerings allowing us to acquire not only a national civil-
ian clinic presence but also a world-class customer with Loblaw. Primacy continued to grow this year currently operating
140 clinics across Canada. In addition, through Primacy, Calian has opened a managed clinic in Ottawa. The acquisition of
Med-Team during the year is a continuation of our health strategy and aligns to our strategic goals related to the establish-
ment of a national civilian healthcare footprint to augment our military offerings. This has allowed us to strengthen our
national medical practitioner network and expand our health service offerings to our clients.
The IT Professional Services (ITPS) line was significantly affected this year, as short-term requirements were the hardest hit
by the Federal government cost-cutting initiatives. This created ongoing market pressures that continue to commoditize and
depress on-demand staffing rates resulting in a reduction in realized margins. To offset this trend, the Division is pursuing
other markets. As our client base is demanding more specialists in the area of cyber and security, the Division sought and
closed the acquisition of DWP Solutions Inc. late in the year. The experience and background of DWP will help the Division
expand its capability in this high demand market area.
Our training and ancillary contracts continue to represent a solid base of revenues. Although pressures to reduce costs are
felt by our customers, the nature of these services are at the core of our customers operations and as such have been less
impacted from the severe cuts experienced in certain other areas. The DLSE (Directorate of Synthetic Land Environments)
contract was negatively affected this fiscal year as training budgets and the pace of training were significantly reduced.
Revenues on other programs within this service line were somewhat depressed as other contracts were moderately affect-
ed by government cost cutting initiatives. To further expand our engineering support capabilities, during the year we
acquired Amtek Engineering Services Ltd. Amtek specializes in providing the full-spectrum of engineering and technical
services supporting the Department of National Defence (DND) and other government departments. During the year, the
Division also secured a contract renewal for CFSATE with DND for an additional contract value of $18 million over a two
year period.
Significant investments were made in past years to increase our sales and business development capability within the health,
telecommunications and aerospace and defence sectors. At the same time, we continue to streamline our sales efforts to
ensure that we are as efficient and cost effective as possible. The overall goal is the expansion of our knowledge and pres-
ence within selected sectors as part of the Division's overall diversification strategy.
In summary, fiscal year 2014 was a year of challenges and required ongoing adjustments to an ever-changing federal govern-
ment landscape. Although the division faced a difficult environment, it was able to adapt and leverage its diversity to
continue delivering solid results, albeit at a reduced level from the prior year.
Acquisitions:
Despite the tough market environment, the Division has continued to invest to expand its service offerings and diversify. The
Division completed three acquisitions during 2014:
On December 31, 2013 the Company acquired Med-Team Clinic Inc. Med-Team is a medical practice management business
located in Ottawa, providing facility management, medical support staff and administration services to doctors working from
their clinic. Med-Team was established in 1984 and has an excellent reputation for providing quality healthcare services. Med-
Team brings medical expertise and represents a continuation of the strategy of evolving the Company's Health Service line
and enhancing the Calian brand in the healthcare marketplace by leveraging their expertise and best practices into Calian's
national medical clinic program.
Calian Technologies Ltd.
2014 Annual Report
13
Management’s Discussion and Analysis of Financial Condition and Results of Operations
On April 30, 2014 the Company acquired Amtek Engineering Services Ltd. AMTEK professional engineers and technologists
apply expertise in disciplines essential for system development, operation and maintenance. AMTEK's capabilities provide
full life-cycle support for soldier systems, major defence projects, electrical and electronic systems, computer systems, naval
architecture and aerospace systems. Amtek brings a strong management team and a history of profitability and it represents
a critical step towards the goal of evolving the Company’s Training and Ancillary Service line enhancing the Calian brand in
the defence and federal government marketplace and expanding the Company's customer base in the defence and govern-
ment area.
On June 30, 2014 the Company acquired DWP Solutions Inc. DWP Solutions Inc. provides information technology and secu-
rity consulting services to both private and public sector clients in Ottawa, Montreal, and Toronto. DWP has an extensive list
of services that include project management, business process reengineering, business continuity planning, disaster recovery
planning, pandemic planning, privacy impact assessments, threat risk assessments, vulnerability assessments, physical securi-
ty, forensic investigations, certification and accreditation, IT and application controls and compliance (SOX), identity
management and developing IT security programs. As a profitable organization with a great reputation, DWP allows Calian
to expand its IT services into the cyber and security marketplace.
The BTS division enters the new year with a strong backlog of work and a reasonable expectation of future prospects. In
the coming year, we are expecting a mix of stability and potential volatility on our existing contracts. The division will also
be reorganized to focus on the Health, IT and Training and Engineering service lines while continuing to strengthen our
common back office processes and supporting systems. A new VP of Health services has been hired and current VP level
executives will run the IT, Training and Engineering service lines. We have also reinvigorated the marketing function for the
division and have planned initiatives for a new website, a focus on proactive social media engagement and targeted market-
ing campaigns in support of the three service lines.
Revenue growth from new opportunities will be largely dependent on the issuance of the initial proposal request and the
ultimate timing of the related contract award. A significant portion of BTS's contracts are not subject to renewal during the
upcoming year. This provides for a stable and secure base of business for fiscal 2015 and allows delivery personnel to focus
on increased contract performance, organic contract growth and support of new business development initiatives.
In the long term, BTS will continue to focus in areas where it has been successful in the past and will build on newly acquired
expertise to branch into additional adjacent markets.
Backlog
The Company’s backlog at September 30, 2014 was $523 million with terms extending to fiscal 2018. This compares to $450
million reported at September 30, 2013. Contracted Backlog represents maximum potential revenues remaining to be earned
on signed contracts, whereas Option Renewals represent customers’ options to further extend existing contracts under
similar terms and conditions.
During 2014 the following contracts were the major contributors to the Company’s backlog. These contracts are further
described in the business overview section of this Management Discussion and Analysis.
• $117 million to extend the DND Health Services Contract to September 30, 2016
• $35 million contract with a major US satellite service provider for RF gateways across North America
• $18 million to renew the DND CFSATE contract to July 2016.
• $12 million contract win for Power Control Modules for the Armoured Brigade program for GDLS
In addition, approximately $40 million of backlog was added as a result of the Amtek and DWP acquisitions. There were no
contracts which were cancelled unexpectedly that would have resulted in a significant decrease in our backlog.
14 2014 Annual Report
Calian Technologies Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 fol-
lowing table represents management’s best estimate of the backlog realization for 2015, 2016 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 $145 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 con-
tract value may not materialize.
Backlog
(dollars in millions)
Contracted Backlog
Option Renewals
TOTAL
Fiscal
2015
Fiscal
2016
Beyond
2016
$ 179
$ 114
11
20
$ 190
$ 134
Business and Technology Services
$ 147
$ 115
Systems Engineering
TOTAL
43
19
$ 190
$ 134
Selected Annual Information
(dollars in millions, except per share data)
Revenues
EBITDA(1)
Net profit
Adjusted net profit(1)
Net profit per share, basic and diluted
Adjusted net profit per share, basic and diluted(1)
Total assets
Dividends per share
Estimated
realizable
portion of
Backlog
Excess over
estimated
realizable
portion
$ 311
$
133
67
$ 378
$ 298
80
$
$
12
145
145
-
TOTAL
$ 444
79
$ 523
$ 443
80
$ 378
$
145
$ 523
2013
232.5
19.1
13.1
13.1
1.73
1.73
97.6
1.12
$
$
$
$
$
$
$
$
2012
235.9
20.0
14.1
14.1
1.84
1.84
103.7
1.06
$
$
$
$
$
$
$
$
$
$
$
$
18
36
54
36
18
54
2014
$ 211.3
$
$
$
$
$
16.2
10.6
10.7
1.44
1.45
$ 100.9
$
1.12
Calian Technologies Ltd.
2014 Annual Report
15
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2014 Results of Operations
Profit before interest and income taxes were $14,116 in 2014 compared with $17,444 in 2013 and net profit were $10,581
for the year compared with $13,055 in the previous year. The Company completed the year with $25,200 of cash compared
to $29,782 at the end of 2013.
Revenues
SED revenues
BTS revenues
Consolidated revenues
2014
$ 55,413
$ 155,844
$ 211,257
2013
% change
$ 70,434
$ 162,029
$ 232,463
(21%)
(4%)
(9%)
The general business environment in 2014 reflects continued contraction in government spending in both of our divisions.
Program delays and activity rescheduling within DND and other government departments have resulted in reduced take-up
on existing contract vehicles and postponed revenue realization on new ones. The Company began the year with $160
million of its backlog to be earned in 2014. This base of work combined with the win of several contracts during 2014
resulted in a respectable revenue stream for the year.
SED saw several large engineering projects near their completion phase in 2014, which resulted in a lower mix of materials
and subcontract costs. Accordingly, while engineering utilization remained very high, actual revenues generated from engi-
neering projects were down from the same period last year. Manufacturing related revenues were lower than the prior year,
although SED did recognize a respectable uptake during the latter part of the year. Although still representing a small per-
centage of revenues, ancillary product sales increases are encouraging. Due to the project nature of its business, the SED
division is susceptible to significant variation in volumes of activity from period to period. While the division has experienced
overall revenue retraction this year, management is encouraged by the increase in backlog.
The demand for services in most of the BTS market segments during all of fiscal 2014 was affected by the government spend-
ing cuts. Compared to the prior year, we were most affected in our operations and maintenance group as DND wound down
our existing vehicle maintenance contract at the beginning of this fiscal year and decided not to re-compete the work
requirement. Our training contracts also felt the impact of budget constraints and our short term staffing group experienced
revenue declines due to overall reduced demand as well as significant competitive pressures for available work. Our health
group provided comparatively positive results with some revenue gains in fiscal 2014. The revenue in the BTS division was
also positively impacted by the recent acquisition of Amtek Engineering Services and DWP Solutions.
The Company derives a significant portion of its revenues from the Government of Canada. During 2014 (2013), 68% (66%)
of revenues were related to contracts with various departments and agencies of the Government of Canada with approxi-
mately 52% (52%) directly with DND. Both of the Company’s divisions conduct business with the Government of Canada.
However the increase in percentage of revenues derived from the government is mainly from work completed by SED in
2014 for the Canada Center for Remote Sensing contract described earlier.
Management expects that the marketplace for the near term will continue to be unsettled and very competitive. SED is
expected to face a challenging environment in the manufacturing area at least for the near term. Also, the timing of new engi-
neering opportunities is always subject to delay. Our 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 have a
prolonged effect on near term revenues. 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.
16 2014 Annual Report
Calian Technologies Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cost of revenues and Gross profit
SED gross profit
As a percentage of SED revenues
BTS gross profit
As a percentage of BTS revenues
Consolidated gross profit
As a percentage of consolidated revenues
2014
$ 15,390
27.8%
$ 23,720
15.2%
$ 39,110
18.5%
2013
$ 16,661
23.7%
$ 26,067
16.1%
$ 42,728
18.4%
% change
(8%)
(9%)
(8%)
The Company’s cost of revenues includes all direct costs incurred in the provision of its products and services. These costs
include all expenses associated with direct full-time staff, contract staff and subcontractors. They also include other direct
costs including the landed cost of hardware and software sold as components of a solution, travel and living expenses
necessary in the delivery of the services, and warranty costs where applicable.
The consolidated gross margin for 2014 reflects the successful execution of projects tempered by general downward margin
pressure being experienced in both divisions.
At SED, the successful execution on projects nearing completion provided excellent margins this current year compared to
the prior year when SED experienced cost increases on a specific program. Also, the higher concentration of labour
provided higher margins than the prior year which had a significant component of materials and subcontracts that typically
attract lower margins.
The traditional BTS business which is concentrated with the federal government continued to experience margin pressure.
Strong competition on new work will likely negate any significant near-term improvement. In addition, the acquired Amtek and
DWP businesses are characterized by lower gross margins but with correspondingly reduced costs of business development
and delivery. Accordingly, the inclusion of such revenues has had a dilutive effect on reported margin percentages.
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
operational execution and diligent negotiation of supplier costs in order to maximize margins. However, increased competi-
tion 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.
Selling and marketing
Selling and marketing
As a percentage of consolidated revenues
2014
$ 3,379
1.6%
2013
$
3,626
1.6%
% change
(7%)
Selling and marketing expenses as a percentage of revenues remain stable. Costs for 2015 may increase slightly over the 2014
level as the Company continues to invest in its diversification, evolution and the broadening of our target markets.
General and administration
General and administration
As a percentage of consolidated revenues
2014
$ 16,141
7.6%
2013
$ 16,650
7.2%
% change
(3%)
General and administration costs as a percentage of revenues increased over the prior year. Through continued cost con-
tainment efforts, management was able to reduce its costs compared to fiscal 2013, even with the inclusion of the operating
expenses of its recently acquired businesses. However, with the decrease in revenues, total costs as a percentage of revenues
increased slightly. Management will continue to challenge discretionary spending; however, prudent investments may be
required to support the evolution of the Company’s service lines.
Calian Technologies Ltd.
2014 Annual Report
17
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Facilites
Facilities
2014
$ 3,374
2013
% change
$
3,369
-%
Facility expenses, which include costs associated with office space, have been relatively stable over the past several years.
Overall facility costs are not expected to increase significantly in 2015.
Earnings before interest income, income tax expense, depreciation and amortization (EBITDA)(1)
EBITDA(1) for fiscal 2014 was $16,216 compared to EBITDA of $19,083 in the previous year.
(1) See reconciliation regarding non-GAAP measures below
Depreciation and amortization
Depreciation
Amortization
2014
$ 1,077
$
924
2013
1,095
544
$
$
% change
(2)%
70 %
Depreciation expense is relatively stable over the years and reflects a stable level of annual capital expenditures. Depreciation
expense is expected to remain stable for 2015.
As a result of the completion of three business acquisitions during fiscal 2014, amortization of intangibles increased to $924
compared to $544 in fiscal 2013. When taking into consideration a full year amortization on the acquisitions completed in
fiscal 2014, amortization of intangible assets is estimated at $1,457 for fiscal 2015.
Deemed compensation related to acquisition and Bargain purchase gain
These unusual items result from a portion of the purchase price related to the Amtek and DWP acquisitions being deemed
as deferred compensation payable to certain shareholders under IFRS and therefore are excluded from the total considera-
tion of the purchase. The amounts totaling $2,139 will be expensed in the Company's consolidated statement of net profit
on a straight-line basis over two years, being the retention period required under the agreements. In addition, as a result of
excluding a significant portion of the purchase price in the Amtek acquisition, the identifiable tangible and intangible assets
on acquisition were higher than the consideration allocated which resulted in a bargain purchase gain. For the year ended
September 30, 2014 $429 was expensed as deemed compensation and $330 was recognized as bargain purchase gain. For
fiscal 2015, the amount of deemed compensation is expected to be $1,070.
Interest income
Interest income for 2014 is comprised mainly of interest earned on the Company’s cash balances and remained stable over
the prior year.
Income tax expense
The Company reports its results on a fully taxed basis. The provision for income taxes for 2014 was $3,806 or 26.5% of earn-
ings before income taxes compared to $4,741 or 26.6% of earnings before income taxes in 2013. The effective tax rate for
2015, prior to considering the impact of non-taxable transactions, is expected to be approximately 26.5%.
Net profit
The Company reported net profit of $10,581 or $1.44 per share basic and diluted for 2014 compared to $13,055 or $1.73
per share basic and diluted in 2013. The Company reported adjusted net profit (1) of $10,680 or $1.45 per share basic and
diluted for 2014 compared to $13,055 or $1.73 per share basic and diluted in 2013.
(1) See reconciliation regarding non-GAAP measures below
18 2014 Annual Report
Calian Technologies Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Reconciliation of non-GAAP measures to most comparable IFRS measures:
Management believes that providing certain non-GAAP performance measures, in addition to IFRS measures, provides users
of the Company's financial reports with enhanced understanding of the Company's results and related trends and increases
transparency and clarity into the core results of the business.
EBITDA, adjusted net profit and adjusted earnings per share exclude items that do not reflect, in our opinion, the Company's
core performance and helps users of our MD&A to better analyze our results, enabling comparability of our results from one
period to another. In addition, as a result of significant increases in amortization as a result of recent acquisitions, the
Company believes it is appropriate to explain its result prior to these acquisition charges.
These non-GAAP measures are mainly derived from the consolidated financial statements, but do not have a standardized
meaning prescribed by IFRS; therefore, others using these terms may calculate them differently. The exclusion of certain items
from non-GAAP performance measures does not imply that these are necessarily non-recurring. From time to time, we may
exclude additional items if we believe doing so would result in a more transparent and comparable disclosure. Other entities
may define the above measures differently than we do. In those cases, it may be difficult to use similarly named non-GAAP
measures of other entities to compare performance of those entities to the Company's performance.
Reconciliation of Adjusted Net Profit
NET PROFIT
Deemed compensation related to acquisition
Bargain purchase gain
Adjusted net profit
Reconciliation of EBITDA
Profit before interest and income tax expense
Deemed compensation related to acquisition
Bargain purchase gain
Depreciation
Amortization
EBITDA
2014
$
10,581
479
(330)
2013
$
13,055
-
-
$
10,680
$
13,055
2014
$
14,116
479
(330)
1,077
924
2013
$
17,444
-
-
1,095
544
$
16,266
$
19,083
Calian Technologies Ltd.
2014 Annual Report
19
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Selected Quarterly Financial Data
(dollars in millions, except per share data)
Revenues
EBITDA(1)
Net profit
Adjusted net profit(1)
Net profit per share
Basic
Diluted
Q4/14 Q3/14 Q2/14 Q1/14 Q4/13 Q3/13 Q2/13
Q1/13
$ 54.4
$ 53.8
$ 51.2
$ 51.8
$ 57.5
$ 58.1
$ 58.9
$ 57.9
$ 4.5
$ 4.1
$ 3.5
$ 4.1
$ 4.5
$ 4.8
$ 4.9
$ 4.9
$ 2.6
$ 2.9
$ 2.9
$ 2.7
$ 2.4
$ 2.4
$ 2.8
$ 2.8
$ 3.0
$ 3.0
$ 3.3
$ 3.3
$ 3.4
$ 3.4
$ 3.4
$ 3.4
$ 0.35
$ 0.35
$ 0.39
$ 0.39
$ 0.32
$ 0.32
$ 0.38
$ 0.38
$ 0.41
$ 0.41
$ 0.43
$ 0.43
$ 0.44
$ 0.44
$ 0.45
$ 0.45
Adjusted net profit per share(1)
Basic
Diluted
$ 0.38
$ 0.38
$ 0.37
$ 0.37
$ 0.32
$ 0.32
$ 0.38
$ 0.38
$ 0.41
$ 0.41
$ 0.43
$ 0.43
$ 0.44
$ 0.44
$ 0.45
$ 0.45
(1) See reconciliation regarding non-GAAP measures above
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 a drop in gross margins. This seasonality may not be
apparent in the overall results of the Company depending on the impact of the realized sales mix of its various projects.
The full text of the Company’s fourth quarter management discussion and analysis can be found on SEDAR at
www.SEDAR.com.
Liquidity and Capital Resources
Calian’s net cash position was $25,200 at September 30, 2014, compared to $29,782 at September 30, 2013.
Cash flows from operating activities before changes in working capital
Changes in working capital
Cash flows from operating activities
Cash flows used in financing activities
Cash flows used in investing activities
Increase (decrease) in cash
2014
16,402
(4,964)
11,438
(9,151)
(6,869)
(4,582)
$
$
2013
19,214
(6,681)
12,533
(13,624)
(1,125)
(2,216)
$
$
Operating activities
Cash inflows from operating activities for the year ending September 30, 2014 were $11,438 compared to $12,533 in 2013.
This year’s decrease is mainly as the result of lower cash earnings offset by working capital fluctuations in line with the ebbs
and flows of the business and an increase of $1,083 in unearned revenues compared to a decrease of $9,334 in 2013. 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 possi-
ble 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, 2014, the Company’s total unearned revenue amounted to
$5,141. This compares to $4,059 at September 30, 2013, with the increase primarily attributable to advance billings for work
to be performed in a future period.
20 2014 Annual Report
Calian Technologies Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financing activities
Dividend
As a result of continuing earnings and a strong cash position, the Company maintained its dividend in 2014. The Company
paid quarterly dividends totaling $8,263 or $1.12 cents per share compared to 2013 when the Company paid $8,472 in
dividends or $1.12 cents per share. The Company intends to continue with its quarterly dividend policy for the
foreseeable future.
Shares
During 2014 the Company repurchased 64,500 common shares at an average price of $19.79 and during 2013 the Company
repurchased 282,670 common shares at an average price of $19.82 through its normal course issuer bids.
At September 30, 2014 there were 415,000 options outstanding at an average price of $19.80 expiring at various dates
between February 13, 2016 and September 3, 2019.
At September 30, 2014 there were 7,353,908 common shares outstanding and as of the date of this Management Discussion
and Analysis, there were 7,353,908 common shares outstanding.
Investing activities
Equipment expenditures
Calian acquired $1,123 in equipment, furniture and fixtures during 2014, compared to $725 during 2013. For 2015, expen-
ditures are expected to increase somewhat as certain manufacturing related equipment at the SED division are being
upgraded. Capital expenditures are not expected to exceed $2,000. At September 30, 2014 there were no significant com-
mitments to expend capital assets.
Acquisitions
During the year ended September 30, 2014 (2013), the Company paid $5,681 ($400) for various acquisitions as described in
the interim financial statements.
Capital resources
At September 30, 2014 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 drawn to issue a letter of credit to meet
customer contractual requirements.
Management believes that the company has sufficient cash resources to continue to finance its working capital requirements
and pay a quarterly dividend.
Contractual obligations
Payments due:
Operating leases
Purchase obligations
Total contractual obligations
Total
$ 5,470
28,730
$ 34,200
<1 year
$ 2,391
8,238
$ 10,629
1-3 years
$ 1,652
20,492
$ 22,144
4-5 years
886
$
-
886
$
>5 years
541
$
-
541
$
Purchase obligations include agreements to purchase goods and services that are enforceable and legally binding. They do
not include agreements that are cancellable without penalty.
Calian Technologies Ltd.
2014 Annual Report
21
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements at September 30, 2014.
Operating leases
The Company leases various premises and office equipment through operating leases.
Related party transactions
There were no transactions with related parties during 2014 and 2013.
Critical Accounting Estimates
The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions
that affect the Company’s financial condition and results of operations. On an on-going basis, management reviews its esti-
mates and assumptions, including those related to revenue recognition on fixed-price projects, provisions and contingencies,
estimated timing of reversals of income tax temporary differences, allowance for doubtful accounts, valuation of investment
and impairment of goodwill. Management bases its estimates and assumptions on historical experience and on various other
factors that it believes to be reasonable under the circumstances; actual results could differ from those estimates.
Revenue recognition
The Business and Technology Services Division’s revenue is derived primarily from per-diem contracts where revenue is rec-
ognized when the services are provided. However, a significant portion of the Systems Engineering Division’s revenue is
derived from fixed-price contracts. Revenue from these fixed-price projects is recognized using the percentage of comple-
tion method using management’s best estimate of the costs and related risks associated with completing the projects. The
greatest risk on fixed-price contracts is the possibility of cost overruns. Management’s approach to revenue recognition is
tightly linked to detailed project management processes and controls. The information provided by the project management
system combined with a knowledgeable assessment of technical complexities and risks are used in estimating the percent-
age completion.
Contingencies
From time to time the Company is involved in claims in the normal course of business. Management assesses such claims
and where considered likely to result in a material exposure and, where the amount of the claim is quantifiable, provisions
for loss are made based on management’s assessment of the likely outcome. The Company does not provide for claims that
are considered unlikely to result in a significant loss, claims for which the outcome is not determinable or claims where the
amount of the loss cannot be reasonably estimated. Any settlements or awards under such claims are provided for when rea-
sonably determinable.
Income taxes
The Company records future income tax assets and liabilities related to deductible temporary differences. The Company
assesses the value of these assets and liabilities based on their probability of being realized given management assessments
of future taxable income.
Allowance for doubtful accounts
The Company has extensive commercial history upon which to base its provision for doubtful accounts. Due to the nature
of the industry in which the Company operates, the Company does not create a general provision for bad debts but rather
determines bad debts on a specific account basis. Due to the blue-chip list of customers, the Company’s allowance for doubt-
ful accounts at September 30, 2014 and 2013 was minimal.
22 2014 Annual Report
Calian Technologies Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Goodwill
Goodwill is tested for impairment annually or more frequently when events occur or circumstances arise that could indicate
a reduction in its fair value. Testing for impairment is accomplished by determining whether the fair value of the cash
generating unit exceeds the net carrying value as of the assessment date. If the fair value is greater than the carrying amount,
no impairment is necessary. The determination of fair value is based on management’s estimate of future results of operations
of the reporting unit using reasonable assumptions relating to growth levels when considering the current and forecasted
business environment and each cash-generating unit’s discount rate. For purpose of determining fair value, management con-
sidered a growth level range of 0% to 3% and a discount rate range of 13% to 16% for its BTS division.
Adoption of New Accounting Rules and Impact on Financial Results
The Company did not adopt any new accounting policies this year.
Impact of Accounting Pronouncements Not Yet Implemented
There were no new accounting pronouncements issued in 2014 which would affect the Company's results of operations or
financial conditions.
Management’s Conclusion on the Effectiveness of Disclosure Controls
The Chief Executive Officer and the Chief Financial Officer of the Company, after evaluating the effectiveness of the
Company's disclosure controls and procedures as of September 30, 2014, have concluded that the Company's disclosure con-
trols and procedures were adequate and effective to ensure that material information relating to the Company and its
consolidated subsidiaries would have been known to them and that information required to be disclosed by the Company
is recorded, processed, summarized and reported within the time periods specified in the securities legislation.
Management’s Conclusion on the Effectiveness of Internal Control over Financial Reporting
The Chief Executive Officer and the Chief Financial Officer of the Company, after evaluating the effectiveness of the
Company’s internal control over financial reporting as of September 30, 2014, have concluded that the Company’s internal
controls over financial reporting provide reasonable assurance regarding the reliability of financial reporting for external pur-
poses in accordance with IFRS.
During the most recent interim quarter ending September 30, 2014, there have been no changes in the design of the
Company's internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect,
the Company's internal controls over financial reporting.
Calian Technologies Ltd.
2014 Annual Report
23
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Risk Factors
The Company is subject to a number of risks and uncertainties that could significantly affect the Company’s financial condition
and future results of operations. Risk management is an integral part of how the Company plans and monitors the business
strategies and results and we have embedded risk management activities in the operational responsibilities of management and
made them an integral part of our overall governance, organizational and accountability structure. The Systems Engineering and
Business and Technology Services divisions face some or all of the following risks and uncertainties:
Competition for contracts within key markets
The markets for the Company’s services are intensely competitive, rapidly evolving and subject to technological changes. The
principal competitive factors in the Company’s markets are quality, performance, price, timeliness, customer support and rep-
utation. The Company has a disciplined approach to management of all aspects of its business. The Company is a proponent
of quality management; SED is registered under ISO 9001-2008 standards and BTS is accredited at Level 4 of the Progressive
Excellence Program by Excellence Canada. This approach to management was developed to help the Company ensure that
its employees deliver services consistently according to the Company’s high standards and based on strong values underly-
ing its client-focused culture.
Concentration of Revenues
The Company has certain ongoing contracts that account for a significant portion of revenues. Should these contracts not be
renewed at expiry or should a competitor win the renewal, the Company’s future revenue stream and overall profitability
could be significantly reduced. While there is no indication that such contracts will be left to expire, there is a risk that a com-
petitor could win the work at the next renewal point. Our strong historical performance and keen focus on customer
requirements puts us in good stead, but winning the renewal is not assured.
The availability of qualified professionals
Competition from other firms has a two-fold impact on the Company. The Company must not only vie for qualified
employees for its own operations but must have ready access to a large pool of qualified professionals to satisfy contractual
arrangements with customers. The Company mitigates these factors through a number of means. The Company’s perform-
ance-driven remuneration policies and its favorable working environment are conducive to attracting ambitious, qualified
professionals. As a supplier of professional employees through outsourcing contracts, the Company regularly establishes rela-
tionships with a significant number of professionals in key markets. While SED revenues are usually predominately export,
its labour costs are largely influenced by domestic and regional economic factors. Accordingly, labour costs could become
significantly higher than those of foreign competitors, thereby eroding our competitive position.
Performance on fixed-price contracts
A large percentage of SED’s contracts are based on a fixed price for the provision of a specified service or system against an
agreed delivery schedule. These fixed-price contracts at times involve the completion of large-scale system engineering proj-
ects. There is a risk in all fixed-price contracts that the Company will be unable to deliver the system within the time
specified and at the expected cost. The Company employs sophisticated design and testing processes and practices, which
include a wide range of stringent factory and on-site acceptance tests with criteria and requirements jointly developed with
the customer. However, non-performance could result in a customer being in a position to terminate the contract for default,
or to demand repayments or penalties. Program management methodologies have been implemented to adequately manage
each project and any customer change, and to identify and mitigate potential technical risks and related cost overruns. In
addition, the Company employs procedures to ensure accurate estimating of costs and performs regular detailed reviews of
progress on each project.
24 2014 Annual Report
Calian Technologies Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Non-performance of a key supplier or contractor
The Company’s business is often dependent on performance by third parties and subcontractors for completion of contracts
for which the Company is the prime contractor. Subcontractors for large systems are selected in concurrence with the cus-
tomer’s requirements, and if not directed by the customer, are selected through a competitive bid or negotiated process. Most
major development subcontracts are established as fixed-price contracts. The Company believes that these subcontractors
have an economic incentive to perform such subcontracts for the Company. However, no company can protect itself against
all material breaches, particularly those related to financial insolvency of the subcontractors or to cost overruns by subcon-
tractors. Risks include a significant price increase in those few subcontracts that are not fixed-price, delay in performance,
failure of any major subcontractor to perform or the inability of the Company to obtain replacement subcontractors at a rea-
sonable price. The performance of key subcontracts is closely monitored as part of the Company’s project management
process to promptly identify potential issues and develop remedial actions.
Rapidly changing technologies and customer demands
The markets in which the Company operates are characterized by changing technology and evolving industry standards. The
Company keeps pace with developments in the industries it serves and actively monitors the evolution of these markets, thus
ensuring that it can meet the evolving needs of its clients. The Company achieves this by continually recruiting profession-
als in high demand positions and providing regular training to ensure employee skills remain current. The Company’s ability
to anticipate changes in technology, technical standards and service offerings will be a significant factor in the Company’s
ability to compete or expand into new markets.
Customer’s ability to retain their market share
The Company performs manufacturing services for a number of customers, whereby we build their products to meet their
market demands. While these relationships are long-standing, the Company is susceptible to overall shifts in market demand
for such products as well as our customers’ share of such markets. While the Company has regular discussions with cus-
tomers regarding upcoming requirements, an erosion of a customer’s market share for a particular product could have a
direct impact on the Company’s revenues and profitability.
Government contracts
During 2014, approximately 68% of the Company’s total revenues were derived from contracts with the Canadian govern-
ment and its agencies. The government may change its policies, priorities or funding levels through agency or program budget
reductions or impose budgetary constraints. Furthermore, contracts with governments, including the Canadian government,
may be terminated or suspended by the government at any time, with or without cause, and may be subject to certain audits
or other claims. Although in the past the Company has rarely experienced cancellations of previously awarded significant
contracts by the Canadian government, there can be no assurance that any contract with the government will not be termi-
nated or suspended in the future.
Backlog
As the Company grows, it monitors the concentration of its business in its various segments and with particular customers.
In management’s opinion, the fact that the Company operates in two segments that provide some diversification of its cus-
tomer base mitigates the potential impact on earnings and cash flow of problems related to an individual sector or customer.
Credit risk concentration with respect to accounts receivable
As the Company grows, it monitors the concentration of its business in its various segments and with particular customers.
In management’s opinion, the fact that the Company operates in two segments that provide some diversification of its cus-
tomer base mitigates the potential impact on earnings and cash flow of problems related to an individual sector or customer.
Calian Technologies Ltd.
2014 Annual Report
25
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insufficient or inappropriate mix of work for fixed labour resources
Virtually all employees of SED are full time staff and represent a broad spectrum of unique skill sets. Accordingly, SED strives
to secure sufficient labour sales that adequately match the skill sets. SED’s business development practices are designed to
dynamically adjust pursuits of contracts to address the sufficiency and mix of available resources. In the event the Company
cannot secure the required workforce, it may not be in a position to bid on or secure certain contracts.
Operational risk
Operational risk is managed through the establishment of effective infrastructure and controls. Key elements of the infra-
structure are qualified, well-trained personnel, clear authorization levels and reliable technology. Controls established by
documented policies and procedures include the regular examination of internal controls by internal employees as well as
our auditors, segregation of duties, and financial management and reporting. In addition, the Company maintains insurance
coverage and contingency plans for systems failures or catastrophic events.
Foreign currency risk
The Company operates internationally with approximately 16% of its business derived from non-Canadian sources. A sub-
stantial portion of this international business is denominated in major foreign currencies and therefore the Company’s results
from operations are affected by exchange rate fluctuations of these currencies relative to the Canadian dollar. The Company
uses financial instruments, principally in the form of forward exchange contracts, in its management of foreign currency
exposures. At September 30, 2014 the Company had various forward exchange contracts, which are explained in Note 19 to
the Company’s consolidated financial statements for the year ended September 30, 2014. The strengthening of the Canadian
dollar relative to other foreign currencies may negatively impact the Company’s competitiveness and increase pressure on
margins for new work.
Sufficiency of insurance
The Company carries various forms of insurance to protect itself from a variety of insurable risks. However, such coverage
may not be sufficient in extreme circumstances and accordingly there exists a risk to the Company. While the Company
cannot reasonably insure itself for all events, it regularly reviews the availability, scope and amounts of coverage with its pro-
fessional advisors and implements an approach balancing both cost and risk.
Medical malpractice
As a result of the Company executing the health services support contract for the Department of National Defence and the
operation of 3 clinics, the Company is subject to risks associated with the medical profession. In order to mitigate such risks
to the degree possible, the Company has obtained medical malpractice and professional liability insurance. In addition, it is
a condition of employment for doctors, dentists and other medical professionals to maintain appropriate credentials, be in
good standing with their medical associations and obtain medical malpractice insurance from their respective association.
Political and trade barriers
Revenues on certain projects are derived from customers in foreign jurisdictions and are subject to trade and political bar-
riers relating to the protection of national interests. These barriers could have an adverse effect on our ability to win repeat
business and attract new customers. In addition there is a risk that economic sanctions imposed by Canada against aggres-
sive countries could limit pursuits of new business with those countries.
26 2014 Annual Report
Calian Technologies Ltd.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Consolidation of customer base
Certain markets and industries can experience both restructuring and consolidation from time to time. As the newly formed
entities focus on optimizing cash flows and gaining economies of scale, opportunities may be diminished or work currently
performed by the Company could be repatriated, resulting in a loss of revenue or the creation of a very competitive envi-
ronment with commensurate pressure on margins.
Long-term 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 recent strengthening of the company's
backlog provides an added degree of confidence for the realization of future revenues.
The Systems Engineering Division has been working within a sustainable 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 cus-
tomers' requirements. Continuing volatility in orders is anticipated as both government and commercial customers continue
to re-examine their traditional spending patterns. Recent delays, deferrals and cancellations of DND capital procurements are
creating intense competition for available work. Changes in the relative value of the Canadian dollar will impact the Systems
Engineering Division's competitiveness 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 con-
tinued 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 con-
tinues to assess how it can address new markets and seek new opportunities outside of the Federal Government. Recent
acquisitions have bolstered the division's performance and it is expected that overall, the acquired companies will continue
to meet and exceed the financial targets established as part of the acquisitions. In support of its strategy to diversify our cus-
tomer base and evolve our service line capabilities, the division will continue to look for future acquisition opportunities
while at the same time enhancing its ongoing investment in business development and marketing initiatives.
Additional Information
Additional information about the Company such as the Company’s 2014 Annual Information Form and Management Circular
can be found on SEDAR at www.SEDAR.com
Dated: December 4, 2014
Calian Technologies Ltd.
2014 Annual Report
27
Management’s Statement of Responsibility
The accompanying consolidated financial statements of Calian Technologies Ltd. and its subsidiaries and all information in
the annual report are the responsibility of management and have been approved by the Board of Directors.
The financial statements include some amounts that are based on management’s best estimates that have been made using
careful judgment.
The financial statements have been prepared by management in accordance with accounting principles generally accepted
in Canada. Financial and operating data elsewhere in the annual report are consistent with the information contained in the
financial statements.
In fulfilling its responsibilities, management of Calian has developed and continues to maintain systems of internal account-
ing controls including written policies and procedures and segregation of duties and responsibilities.
Although no cost-effective system of internal controls will prevent or detect all errors and irregularities, these systems are
designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, transactions are
properly recorded and the financial records are reliable for preparing the financial statements.
The Board of Directors carries out its responsibility for the financial statements in this report through its Audit Committee.
The Audit Committee meets periodically with management to discuss the results of audit examinations with respect to the
adequacy of internal controls and to review and discuss the financial statements and financial reporting matters. The Audit
Committee also meets periodically with the external auditors to review and discuss the financial statements and financial
reporting matters.
The financial statements have been audited by Deloitte LLP, Chartered Professional Accountants, who have full access to the
Audit Committee with and without the presence of management.
Ray Basler
President and CEO
Ottawa, Ontario
November 12, 2014
Jacqueline Gauthier
Chief Financial Officer
28 2014 Annual Report
Calian Technologies Ltd.
Independent Auditor’s Report
To the Shareholders of Calian Technologies Ltd.
We have audited the accompanying consolidated financial statements of Calian Technologies Ltd., which comprise the con-
solidated statements of financial position as at September 30, 2014 and September 30, 2013, and the consolidated statements
of net profit, consolidated statements of comprehensive income, consolidated statements of changes in equity and consoli-
dated statements of cash flows for the years then ended, and a summary of significant accounting policies and other
explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accor-
dance with International Financial Reporting Standards, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether
due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated finan-
cial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assess-
ments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appro-
priateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Calian
Technologies Ltd. as at September 30, 2014 and September 30, 2013, and its financial performance and its cash flows for the
years then ended in accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
November 12, 2014
Ottawa, Ontario
Calian Technologies Ltd.
2014 Annual Report
29
Calian Technologies Ltd.
Consolidated Statements of Financial Position
As at September 30, 2014 and 2013
(Canadian dollars in thousands)
NOTES
September 30,
2014
September 30,
2013
ASSETS
CURRENT ASSETS
Cash
Accounts receivable
Work in process
Prepaid expenses
Derivative assets
Total current assets
NON-CURRENT ASSETS
Equipment
Application software
Acquired intangible assets
Goodwill
Total non-current assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Unearned contract revenue
Share repurchase obligation
Derivative liabilities
Total current liabilities
NON-CURRENT LIABILITIES
Deferred tax liabilities
Total non-current liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Issued capital
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
TOTAL SHAREHOLDERS’ EQUITY
15
19
6
7
8
9
15
10
19
14
10
10
$
25,200
39,249
12,590
1,700
191
78,930
3,615
518
5,750
12,037
21,920
$
29,782
37,903
9,764
1,442
89
78,980
3,418
585
3,808
10,781
18,592
$
100,850
$
97,572
$
24,013
5,141
-
473
29,627
1,672
1,672
31,299
20,161
336
49,128
(74)
69,551
$
24,634
4,059
947
14
29,654
1,121
1,121
30,775
19,746
216
47,089
(254)
66,797
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
100,850
$
97,572
The accompanying notes are an integral part of the consolidated financial statements.
Approved by the Board
on November 12, 2014:
30 2014 Annual Report
Calian Technologies Ltd.
Kenneth Loeb
Chairman
Richard Vickers
Director
Calian Technologies Ltd.
Consolidated Statements of Net Profit
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share data)
Revenues
Cost of revenues
Gross profit
Selling and marketing
General and administration
Facilities
Depreciation of equipment and application software
Amortization of acquired intangible assets
Deemed compensation related to acquisitions
Bargain purchase gain
Profit before interest income and income tax expense
Interest income
Profit before income tax expense
Income tax expense – current
Income tax expense – deferred
Total income tax expense
NET PROFIT
Net profit per share:
Basic
Diluted
NOTES
$
2014
211,257
172,147
$
39,110
3,379
16,141
3,374
1,077
924
429
(330)
14,116
271
14,387
4,085
(279)
3,806
20
20
13
14
14
2013
232,463
189,735
42,728
3,626
16,650
3,369
1,095
544
-
-
17,444
352
17,796
4,499
242
4,741
$
10,581
$
13,055
12
12
$
$
1.44
1.44
$
$
1.73
1.73
Calian Technologies Ltd.
2014 Annual Report
31
Calian Technologies Ltd.
Consolidated Statements of Comprehensive Income
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands)
NET PROFIT
Other comprehensive income, net of tax
Items that will be reclassified subsequently to net profit:
Change in deferred gain (loss) on derivatives designated as cash
flow hedges, net of tax of $65 (2012 - $346)
Other comprehensive income (loss), net of tax
COMPREHENSIVE INCOME
NOTES
2014
2013
$
10,581
$ 13,055
180
180
(951)
(951)
$
10,761
$ 12,104
32 2014 Annual Report
Calian Technologies Ltd.
Calian Technologies Ltd.
Consolidated Statements of Changes in Equity
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share data)
Balance October 1, 2013
Comprehensive income
Dividend paid ($1.12 per share)
Issue of shares under employee
share purchase plan
Share-based compensation expense
Share repurchase
Share repurchase obligation change
Balance September 30, 2014
Balance October 1, 2012
Comprehensive income
Dividend paid ($1.12 per share)
Issue of shares under employee
share purchase plan
Issue of shares under stock
option plan
Share-based compensation expense
Share repurchase
Share repurchase obligation change
Balance September 30, 2013
Notes
Issued Contributed
surplus
capital
Retained
earnings
Cash flow
hedging
reserve
Total
$ 19,746
$ 216
$ 47,089
$
(254) $ 66,797
-
-
465
-
(174)
124
-
-
-
120
-
-
10,581
(8,263)
-
-
(1,102)
823
180
-
-
-
-
-
-
10,761
(8,263)
465
120
(1,276)
947
$ 20,161
$ 336
$ 49,128
$
(74) $ 69,551
10,11
11
10
10
Notes
Issued Contributed
surplus
capital
Retained
earnings
Cash flow
hedging
reserve
Total
$ 19,949
$ 164
$ 47,186
$
697
$ 67,996
-
-
424
99
-
(757)
31
-
-
-
(6)
58
-
-
13,055
(8,472)
-
-
-
(4,844)
164
(951)
12,104
-
-
-
-
-
-
(8,472)
424
93
58
(5,601)
195
$ 19,746
$ 216
$ 47,089
$ (254) $ 66,797
10,11
10,11
11
10
10
Calian Technologies Ltd.
2014 Annual Report
33
Calian Technologies Ltd.
Consolidated Statements of Cash Flows
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands)
NOTES
2014
2013
$
10,581
$ 13,055
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit
Items not affecting cash:
Interest income
Income tax expense
Employee stock purchase plan and share-based compensation expense
Depreciation and amortization expense
Deemed compensation related to acquisitions
Bargain purchase gain
13
14
Change in non-cash working capital
Accounts receivable
Work in process
Prepaid expenses
Accounts payable and accrued liabilities
Unearned contract revenue
Interest received
Income tax paid
CASH FLOWS USED IN FINANCING ACTIVITIES
Issuance of common shares
Dividends
Repurchase of shares
CASH FLOWS USED IN INVESTING ACTIVITIES
Equipment and application software expenditures
Acquisitions
10,11
10
6,7
20
NET CASH OUTFLOW
CASH, BEGINNING OF PERIOD
CASH, END OF PERIOD
(271)
3,806
188
2,001
429
(330)
16,404
3,252
(2,826)
570
(3,496)
1,083
14,987
287
(3,836)
11,438
388
(8,263)
(1,276)
(9,151)
(1,188)
(5,681)
(6,869)
(4,582)
29,782
(352)
4,741
131
1,639
-
-
19,214
4,218
(318)
(639)
3,777
(9,334)
16,918
380
(4,765)
12,533
449
(8,472)
(5,601)
(13,624)
(725)
(400)
(1,125)
(2,216)
31,998
$
25,200
$ 29,782
34 2014 Annual Report
Calian Technologies Ltd.
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
1. Basis of preparation
Calian Technologies Ltd. ("the Company") is incorporated under the Canada Business Corporations Act. The address of its registered office
and principal place of business is 340 Legget Drive, Ottawa, Ontario K2K 1Y6. The Company's capabilities include the provision of busi-
ness and technology services to industry and government in the health, IT services and training domains as well as the design,
manufacturing and maintenance of complex systems to the communications and defence sectors.
Statement of compliance
These consolidated financial statements are expressed in Canadian dollars and have been prepared in accordance with International
Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standard Board ("IASB") and in place for September 30,
2014. These consolidated financial statements were prepared using the accounting policies as described in Note 2 – Summary of signifi-
cant accounting policies.
Comparative amounts of depreciation and amortization expense as well as prepaid expenses and equipment have been reclassified in the
Consolidated Statement of Net Profit and Consolidated Statement of Financial Position, respective for the year ended September 30, 2013,
to conform to the current period presentation.
These consolidated financial statements for the year ended September 30, 2014 were authorized for issuance by the Board of Directors
on November 12, 2014.
2. Summary of significant accounting policies
The accounting policies below have been applied consistently to all periods presented in these consolidated financial statements unless
otherwise stated.
Basis of consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Calian Ltd. located in
Ottawa, Ontario, Primacy Management Inc. located in Burlington, Ontario, Med-Team Clinic Inc., located in Ottawa, Ontario, Amtek
Engineering Services Ltd, located in Ottawa, Ontario and DWP Solutions Inc., located in Ottawa, Ontario. The results of the subsidiaries
acquired in 2014 are included from the date of acquisition and onward. All transactions and balances between these companies have been
eliminated on consolidation.
Basis of presentation
The consolidated financial statements are presented at historical cost unless otherwise noted. Historical cost is generally based on the fair
value of the consideration given in exchange for the asset or liability.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue from a contract to provide services is recog-
nized by reference to the stage of completion of the contract. The stage of completion of the contract is determined as follows:
Fixed price contracts
Where the outcome of fixed-price construction contracts can be estimated reliably, revenue is recognized by reference to the completed
activity of the contract as at each reporting period, measured based on the proportion of the costs incurred for work performed to date
relative to the estimated total contract costs including warranty costs where applicable, except where this would not be representative
of the stage of completion. As some contracts extend over more than one year, any revision in cost and profit estimates made during the
course of the work is reflected in the accounting period in which the facts indicating a need for the revision become known. Variations
in contract work, claims and incentive payments if any, are included to the extent that the amount can be measured reliably and its receipt
is considered probable.
Where the outcome of fixed-price construction contracts cannot be estimated reliably, contract revenue is recognized to the extent of
contract costs incurred that it is probable will be recoverable. Contract costs are recognized as expenses in the period they are incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.
Where contract costs incurred to date plus recognized profits less recognized losses exceed progress billings, the surplus is shown as
work in process. For contracts where progress billings exceed contract costs incurred to date plus recognized profits less recognized
losses, the surplus is shown as unearned contract revenue. Amounts received before the related work is performed are included in the
consolidated statement of financial position, as a liability, as unearned contract revenue. Amounts billed for work performed but not yet
paid by the customer are included in the consolidated statement of financial position under accounts receivable.
Calian Technologies Ltd.
2014 Annual Report
35
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
2. Summary of significant accounting policies (continued)
Time and material contracts
Revenue derived from time and material contracts is recognized at the contractual rates as labour hours are delivered and direct expenses
are incurred. Variations in revenue incentive payments if any are included to the extent that the amount can be measured reliably and its
receipt is considered probable.
Share-based compensation
The Company has a stock option plan for executives and other key employees. The Company measures and recognizes compensation
expense based on the grant date fair-value of the stock options issued using the Black-Scholes pricing model. The offsetting credit is record-
ed in contributed surplus. Compensation expense is recorded on a straight-line basis over the vesting period, based on the Company’s
estimate of stock options that will ultimately vest. At each reporting period, the Company revises its estimate of the stock options expected
to vest. The impact on the change in estimate, if any, is recognized over the remaining vesting period. Consideration paid by employees on
the exercise of options and related amounts of contributed surplus are recorded as issued capital when the shares are issued.
The Company has an employee stock purchase plan available to all employees of the Company. The plan provides for a discount to the fair
market value at the date the shares are issued. Compensation expense representing the discount is recorded as general and administration
expenses with an offsetting amount to issued capital.
Operating leases
Leases entered into are classified as either finance or operating leases. Leases that transfer substantially all of the risks and rewards of own-
ership of property to the Company are accounted for as finance leases. For leases which are classified as operating leases, lease payments
are recognized as an expense on a straight-line basis over the lease term. In the event that lease incentives are received to enter into
operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental
expense on a straight-line basis. The Company does not have any finance leases.
Income taxes
Income tax expense comprises current and deferred tax. Income tax expense is recognized in net profit, except when it relates to items that
are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other
comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting for the business combination.
Current tax
The tax currently payable is based on taxable income for the period using tax rates enacted or substantively enacted as at each reporting
period and any adjustments to tax payable related to previous years. Taxable profit differs from profit as reported in the consolidated state-
ment of net profit because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items
that are never taxable or deductible.
Deferred tax
Deferred tax is recognized using the balance sheet method, providing for differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the corresponding tax bases used for taxation purposes calculated using the tax rates in effect when
the differences are expected to reverse.
Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are generally recognized for all
deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible tem-
porary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the
initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit
nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the
Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized
to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences
and they are expected to reverse in the foreseeable future.
36 2014 Annual Report
Calian Technologies Ltd.
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
2. Summary of significant accounting policies (continued)
The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is no longer probable
that sufficient taxable income will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are
measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates
that have been enacted or substantively enacted at each reporting period. The measurement of deferred tax liabilities and assets reflects
the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the
carrying amount of its assets and liabilities.
Equipment
Equipment, comprising leasehold improvements, furniture and computer equipment is stated at cost less accumulated depreciation and
impairment losses, if any. The carrying value is net of related government assistance and investment tax credits. Depreciation is recognized
in net profit on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line
basis over the term of the leases. The estimated useful lives are as follows:
• Leasehold improvements:
• Furniture:
• Computer equipment:
over the term of each lease
10 years
5 years
The estimated useful lives, residual values and depreciation methods are reviewed annually, with the effect of any changes in estimate
accounted for on a prospective basis.
Application software
Application software is measured at cost less accumulated depreciation and is amortized on a straight-line basis over its estimated useful
life not exceeding five years. The amortization method and estimate of useful life is reviewed annually.
Acquired intangible assets
Acquired intangible assets are measured at cost less accumulated amortization. Amortization is recognized in net profit on a straight-line
basis over the estimated useful lives of the underlying assets. The estimated useful lives are as follows:
•Customer relationship Primacy:
•Other customer relationships:
•Contracts with customers:
•Non-competition agreements:
indefinite
3 to 5 years
3 to 5 years
7 years
The customer relationship from the Primacy acquisition, representing expected renewals of the acquired contract, is considered to have an
indefinite life based on the fact that the contract is renewable on an annual basis indefinitely. The amortization method and estimate of useful
life for all other intangible assets is reviewed annually.
Impairment of equipment and application software
At each reporting period, management reviews the carrying amounts of its equipment, application software and intangible assets to deter-
mine whether there is any indication that those assets have suffered an impairment loss. Intangible assets with an indefinite life are also
tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. If any
such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.
Where it is not possible to estimate the recoverable amount of an individual asset, management estimates the recoverable amount of the
cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets
are also allocated to individual cash-generating units. The Company performs its annual review of intangible assets with an indefinite life
on September 30th each year.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and
the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the
asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.
Calian Technologies Ltd.
2014 Annual Report
37
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
2. Summary of significant accounting policies (continued)
Impairment of goodwill
Goodwill arising on the acquisition of a business represents the excess of the purchase price over the net fair value of identifiable assets, lia-
bilities and contingent liabilities of the acquired businesses recognized at the date of the acquisition. Goodwill is initially recognized as an
asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill
is allocated to the cash-generating units expected to benefit from the synergies of the combination. Cash-generating units or groups of cash
generating units to which goodwill has been allocated are tested for impairment annually or more frequently if events or changes in cir-
cumstances indicate that the unit might be impaired. For purposes of impairment testing of goodwill, cash-generating units or groups of cash
generating units correspond to the Company’s reporting segments as disclosed in Note 18.
When the recoverable amount of the cash-generating unit is less than the carrying amount of the cash-generating unit, the impairment loss
is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the cash-generating unit
on a pro-rata basis. An impairment loss recognized for goodwill is not reversed in a subsequent period. The Company performs its annual
review of goodwill on September 30th each year.
Business acquisition
Acquisition of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is
measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, and
liabilities incurred by the Company to the former owners of the acquiree in exchange for control of the acquiree. Acquisition-related costs
are generally recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that deferred tax
assets or liabilities are recognised and measured in accordance with IAS 12 Income Taxes.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree,
and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the
identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets
acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree
and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as
a bargain purchase gain.
When the consideration transferred by the Company in a business combination includes a payment subject to the retention of the princi-
pal shareholders, the amount is deemed to represent deferred compensation payable to such shareholders and therefore is excluded from
the total consideration to the purchase and is expensed on a straight-line basis over the retention period in the Company's consolidated
statement of net profit as deemed compensation related to acquisitions.
When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent con-
sideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration
transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjust-
ments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that
arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about
facts and circumstances that existed at the acquisition date.
Foreign currency translation
Transactions in currencies other than the Company’s functional currency (foreign currencies) are recorded at the rates of exchange pre-
vailing at the dates of the transactions. Income and expense items are translated at the average exchange rates for the period, unless exchange
rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. At each report-
ing period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at each reporting period. Non-monetary
items which are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognized in net
profit in the period in which they arise except for exchange differences on transactions entered into in order to hedge certain foreign cur-
rencies (see note below for hedging policy).
The functional currency of the parent company and its subsidiaries is the Canadian dollar.
38 2014 Annual Report
Calian Technologies Ltd.
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
2. Summary of significant accounting policies (continued)
Financial instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition
or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are
added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immedi-
ately in profit or loss.
Financial assets
The classification of financial assets depends on the nature and purpose of the financial assets and is determined at the time of initial recog-
nition. The Company’s financial assets are classified as follows:
Cash
Accounts receivable
Derivative assets
Fair value through profit or loss
Loans and receivables
Fair value through profit or loss
Financial assets at fair value through profit or loss (FVTPL)
Financial assets are classified as at FVTPL if they are held for trading or are designated as such upon initial recognition. Financial assets at
FVTPL are measured at fair value. Derivative assets are classified as FVTPL. Changes in fair value of financial assets other than derivatives
are recognized in net profit and changes in fair values of derivatives are recognized in Other Comprehensive Income (“OCI”).
Loans and receivables
Accounts receivable are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective
interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term
receivables when the recognition of interest would be immaterial.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each reporting period. Financial assets are impaired
where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset,
the estimated future cash flows of financial assets have been impacted. Objective evidence of impairment could include significant finan-
cial difficulty of the issuer or counterparty, default or delinquency in interest or principal payments or it becoming probable that the
borrower will enter bankruptcy or financial re-organization.
Accounts receivable are assessed for impairment individually. Objective evidence of impairment could include the Company’s past expe-
rience of collecting payments and an increase in the number of delayed payments past the average credit period.
For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
Impairment losses, if any, are recognized in net profit. The carrying amount of the financial asset is reduced by the impairment loss
directly for all financial assets with the exception of accounts receivable, where the carrying amount is reduced through the use of an
allowance account. When a accounts receivable is considered uncollectible, it is written off against the allowance account. Subsequent
recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance
account are recognized in net profit, if any. If in a subsequent period, the amount of the impairment loss decreases and the decrease can
be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed
through net profit to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what
the amortized cost would have been had the impairment not been recognized.
Financial liabilities
Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities. The Company’s accounts payable and
accrued liabilities and share purchase obligations are classified as other financial liabilities. Accounts payable and accrued liabilities are ini-
tially measured at fair value and are subsequently measured at amortized cost using the effective interest method, with interest expense
recognized on an effective yield basis. Derivative liabilities are classified as FVTPL. The share purchase obligation is based on the fair value
of the Company's shares at the end of each period.
Calian Technologies Ltd.
2014 Annual Report
39
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
2. Summary of significant accounting policies (continued)
Effective interest method
The effective interest method is a method of calculating the amortized cost of a financial asset (or financial liability) and of allocating inter-
est expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (cash
disbursements), including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other pre-
miums or discounts, through the expected life of the financial asset or financial liability, or, where appropriate, a shorter period.
Fair value hierarchy
The Company’s fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value
hierarchy are:
Level 1 values are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or
liabilities.
Level 2 values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly
for substantially the full term of the asset or liability.
Level 3 values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair
value measurement.
When the inputs used to measure fair value fall within more than one level of the hierarchy, the level within which the fair value measure-
ment is categorized is based on the Company’s assessment of the lowest level input that is the most significant to the fair value measurement.
Derivative financial instruments and risk management
The Company enters into derivative financial instruments, mainly foreign exchange forward contracts to manage its foreign exchange rate
risk. The Company’s policy does not allow management to enter into derivative financial instruments for trading or speculative purposes.
Foreign exchange forward contracts are entered into to manage the foreign exchange rate risk on foreign denominated financial assets and
liabilities and foreign denominated forecasted transactions.
Derivatives are initially recognized at fair value at the date a derivative contract is entered into with transaction costs recognized in profit
and loss. Derivatives are subsequently re-measured to their fair value at each reporting period. The resulting gain or loss is recognized in net
profit immediately unless the derivative is designated and effective as a hedging instrument, in which event the effective portion of changes
in the fair value of the derivative is recorded in other comprehensive income and is recognized in net profit when the hedged item affects
net profit. The Company expenses transaction costs related to its foreign exchange contracts. Fair value of the forward exchange contracts
reflects the cash flows due to or from the Company if settlement had taken place at the end of the period. A derivative is presented as a non-
current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be
realized or settled within 12 months.
Hedge accounting
Management designates its foreign exchange forward contracts as either hedges of the fair value of recognized assets or liabilities (fair value
hedges) or hedges of highly probable forecast transactions and firm commitments (cash flow hedges).
At the inception of the hedge relationship, the Company documents the relationship between the hedging instruments and the hedged
items, as well as its risk management objective and strategy for undertaking various hedge transactions. Furthermore, both at the hedge’s
inception and on an ongoing basis, the Company also assesses whether the derivatives that are used in hedging transactions are highly effec-
tive in offsetting changes in fair values or cash flows of hedged items.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in net profit immediately, together
with any changes in the fair value of the hedged item that are attributable to the hedged risk. The change in the fair value of the hedging
instrument and the change in the hedged item attributable to the hedged risk are recognized in the line of the income statement relating to
the hedged item.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in other
comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion
is recognized immediately in net profit, and is included in other gains and losses, if any. Amounts deferred in other comprehensive income
are recycled in net profit in the periods when the hedged item is recognized in net profit, in the same line of the statement of net profit as
the recognized hedged item.
40 2014 Annual Report
Calian Technologies Ltd.
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
2. Summary of significant accounting policies (continued)
Hedge accounting is discontinued when management revokes the hedging relationship; the hedging instrument is terminated or no longer
qualifies for hedge accounting. For fair value hedges, the adjustment to the carrying amount of the hedged item arising from the hedged risk
is amortized to net profit from that date. For cash flow hedges, any cumulative gain or loss deferred in other comprehensive income at that
time remains in other comprehensive income and is recognized when the forecast transaction is ultimately recognized in net profit. When
a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in other comprehensive income is rec-
ognized immediately in net profit.
Note 19 sets out details of the fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve in
equity are also detailed in the statement of changes in equity.
3. Changes in accounting policies
Financial statement presentation
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 items within OCI that may be reclassified to the statement of income. The amendments also reaffirmed existing require-
ments that items in OCI and net income should be presented as either a single statement or two consecutive statements. The amended IAS 1 was
adopted effective January 1, 2013. The presentation of the Company's consolidated financial statement was not impacted by these amendments.
Fair value measurement
In May 2011, the IASB released IFRS 13, Fair value measurement. IFRS 13 improves consistency and reduces complexity by providing a
precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS when another
IFRS requires or permits the item to be measured at fair value. IFRS 13 was adopted effective October 1, 2013. The adoption of this standard
had no significant impact on the Company's consolidated financial statements.
4. Future changes in accounting policies
IFRS 15 Revenue from Contracts with Customers
In April 2014, the IASB released IFRS 15 – Revenue from Contracts with Customers. The Standard replaces IAS11 Construction Contracts and
IAS18 Revenue, providing a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.
IFRS 15 is effective for annual periods beginning on or after January 1, 2017. The Company has not yet assessed the impact of the adoption
of this standard on its consolidated financial statements.
IFRS 9 Financial instruments
IFRS 9 was issued by the IASB in November 2009 and October 2010, was amended in 2013 and finalized in July 2014 and will replace IAS
39, Financial Instruments: Recognition and Measurement (“IAS 39”).
IFRS 9 uses a single approach to determine whether a financial instrument is measured at fair value through profit or loss, fair value through
other comprehensive income or amortized cost, 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 those financial instru-
ments. 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, 2018. The Company has not yet assessed the impact of the adoption of this
standard on its consolidated financial statements.
5. Critical accounting judgments and key sources of estimation uncertainty
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.
Calian Technologies Ltd.
2014 Annual Report
41
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
5. Critical accounting judgments and key sources of estimation uncertainty (continued)
Purchase Price allocation
As described in Note 20 of these financial statements, the Company acquired several companies during the year. As a result of these acqui-
sitions, management was required to estimate the fair values of each identifiable asset and liability acquired through the acquisitions. Fair
value of cash, accounts receivable, accounts payable and equipment were estimated to approximate their carrying values at the date of the
transaction. The fair values of the intangible assets were valued using the excess earnings method under the income approach.
Contingent consideration
As described in Note 20 of these financial statements, the Company acquired several companies during the year. As a result of these acqui-
sitions, management was required to estimate the fair value of the contingent consideration by assessing the likelihood of each business
meeting the earn-out targets required for the contingent consideration to be paid.
Percentage completion on revenue
A significant portion of the Systems Engineering Division’s revenue is derived from fixed-price contracts which can extend over more than
one reporting period. Revenue from these fixed-price projects is recognized using the percentage of completion method using manage-
ment’s best estimate of the costs and related risks associated with completing the projects. The greatest risk on fixed-price contracts is the
possibility of cost overruns. Management’s approach to revenue recognition is tightly linked to detailed project management processes and
controls. The information provided by the project management system combined with a knowledgeable assessment of technical com-
plexities and risks are used in estimating the percentage complete.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has
been allocated. The value in use calculation requires management to estimate the future cash flows expected to arise from the
cash-generating unit and a suitable discount rate in order to calculate present value.
Income taxes
The Company records deferred income tax assets and liabilities related to deductible or taxable temporary differences. The Company
assesses the value of these assets and liabilities based on the likelihood of the realization as well as the timing of reversal given manage-
ment assessments of future taxable income.
Contingent liabilities
From time to time the Company is involved in claims in the normal course of business. Management assesses such claims and where con-
sidered probable to result in a material exposure and, where the amount of the claim can be measured reliably, provisions for loss are made
based on management’s assessment of the likely outcome.
Allowance for doubtful accounts receivable
The Company has extensive commercial history upon which to base its provision for doubtful accounts receivable. Due to the nature of
the industry in which the Company operates, the Company does not create a general provision for bad debts but rather determines bad
debts on a specific account basis.
For the years ended September 30, 2014, September 30, 2013, no material changes in estimates have been made.
Judgments:
Financial instruments
The Company's accounting policy with regards to financial instruments is described in Note 2. In applying this policy, judgments are made
in applying the criteria set out in IAS 39 – Financial instruments: recognition and measurement, to record financial instruments at fair value
through profit or loss, and the assessments of the classification of financial instruments and effectiveness of hedging relationships.
Accounting policy for equipment and intangible assets
Management makes judgments in determining the most appropriate methodology for amortizing long-lived assets over their useful lives.
The method chosen is intended to mirror, to the best extent possible, the consumption of the asset.
Deferred income taxes
The Company's accounting policy with regards to income taxes is described in Note 2. In applying this policy, judgments are made in deter-
mining the probability of whether deductions or tax credits can be utilized and related timing of such items.
42 2014 Annual Report
Calian Technologies Ltd.
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
5. Critical accounting judgments and key sources of estimation uncertainty (continued)
Judgments (continued):
Percentage complete methodology
The Company uses judgment in determining the most appropriate basis on which to determine percentage of completion. Options
available to the Company include the proportion that contract costs incurred for work performed to date bear to the estimated total con-
tract costs, surveys of work performed and completion of a physical proportion of the contract work. While the Company considers the
costs to complete, the stage of completion is assessed based upon the assessment of the proportion of the contract completed. Judgments
are also made in determining what costs are project costs for determining the percentage complete.
6. Equipment
Leasehold improvements
Equipment and furniture
7. Application software
September 30, 2014
September 30, 2013
Cost
Accumulated
Amortization
$ 1,510
11,251
$ 12,761
$
926
8,220
$ 9,146
Carrying
Value
$
584
3,031
$ 3,615
Cost Accumulated
Amortization
Carrying
Value
$ 1,510
$
778
$
732
10,554
7,868
2,686
$ 12,064
$ 8,646
$ 3,418
September 30, 2014
September 30, 2013
Cost
Accumulated
Amortization
Carrying
Value
Cost Accumulated
Amortization
Carrying
Value
Application software
$ 2,655
$ 2,137
$
518
$ 2,510
$ 1,925
$
585
8. Acquired intangible assets
Acquired intangible assets are allocated to the Business and Technology Services Division segment.
September 30, 2014
Cost
Accumulated
Amortization
Carrying
Value
September 30, 2013
Cost Accumulated
Amortization
Customer relationship related to Primacy
$ 1,909
$
-
$ 1,909
$ 1,909
$
Other customer relationships
Contract with customers
Non-competition agreements
Trademarks
3,815
1,485
249
78
1,400
292
78
16
2,415
1,193
171
62
-
2,574
187
-
-
-
815
47
-
Carrying
Value
$ 1,909
-
1,759
140
-
$ 7,536
$ 1,786
$ 5,750
$ 4,670
$
862
$ 3,808
9. Goodwill
September 30, 2014
Cost
Impairment
Business and Technology Services
$ 12,037
$ 12,037
$
$
-
-
Calian Technologies Ltd.
Carrying
amount
$12,037
$12,037
September 30, 2013
Cost
Impairment
$ 10,781
$ 10,781
$
$
-
-
Carrying
amount
$ 10,781
$ 10,781
2014 Annual Report
43
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
9. Goodwill (continued)
Annual test for impairment
Goodwill recorded is allocated in its entirety to the Business and Technology Services division. At September 30, 2014 and 2013, manage-
ment assessed the recoverable amount of goodwill and concluded that a goodwill impairment charge was not required. The recoverable
amount of the cash-generating units or groups of cash generating units was assessed by reference to value in use.
For the years ended September 30, 2014 and 2013, the following key assumptions were used in arriving at value in use for the Business
and Technology Services segment. Outlooks for the next three years were used as the basis for the future cash flow estimates and the future
estimated growth rates were validated by comparing to average growth levels for the previous 5 years.
Business and Technology Services
13% to 16%
0 to 3%
Discount factors
Growth rates
10. Issued capital and reserves
Issued capital
Authorized: Unlimited number of common shares, no par value
Unlimited number of preferred shares issuable in series, no par value
Issued:
Common shares as follows:
Balance, beginning of year
Shares issued under stock option plan
Shares issued under employee stock purchase plan
Shares repurchased for cash
Balance, end of year
Share purchase obligation
Issued capital
Share repurchase
September 30, 2014
September 30, 2013
Shares
7,396,333
-
22,075
(64,500)
7,353,908
-
7,353,908
Amount
$ 19,746
-
465
(174)
$ 20,037
124
$ 20,161
Shares
7,650,657
5,000
23,346
(282,670)
7,396,333
-
Amount
$ 19,949
99
424
(757)
$ 19,715
31
7,396,333
$ 19,746
During 2014 (2013), the Company acquired 64,500 (282,670) of its outstanding common shares at an average price of $19.79 ($19.82) per
share for a total of $1,276 ($5,601) including related expenses, through normal course issuer bids in place during the periods. The excess
of the purchase price over the stated capital of the shares has been charged to retained earnings.
Subsequent to the date of the statement of financial position, on November 12, 2014, the date of issuance of these consolidated financial
statements, the Company declared a dividend of $0.28 per common share payable on December 11, 2014.
Share 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 redemp-
tion amount at the end of 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 repur-
chased below the maximum amount per share. The amount of income recognized in each reporting period is insignificant.
Contributed surplus
Contributed surplus comprises the value of share-based compensation expense related to options granted that have not been exercised or
have expired unexercised.
44 2014 Annual Report
Calian Technologies Ltd.
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
11. Share-based compensation
Stock Options
The Company has an established stock option plan, which provides that the Board of Directors may grant stock options to eligible direc-
tors 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, 2014 (2013), a
total of 735,390 (739,633) common shares are reserved for issuance under the plan with 415,000 (240,000) options currently outstand-
ing of which 290,600 (197,000) are exercisable. During the period ended September 30, 2014 (2013), 175,000 (NIL) options were issued.
No consideration is payable on the grant of an option.
Option series:
Number
Grant date
Expiry date
price
Exercise
Fair value at
grantdate
(1) Issued February 14, 2011
(2) Issued August 13, 2012
(3) Issued September 3, 2014
95,000
155,000
175,000
February 14, 2011
February 13, 2016
August 13, 2012
August 12, 2017
September 3, 2014
September 3, 2019
$ 18.65
$ 20.54
$ 19.70
$
$
$
1.27
0.99
1.18
For the option issuance dated February 14, 2011, 28,000 options vested immediately with the remaining vesting through to February 14, 2013.
For the option issuance dated August 13, 2012, 49,000 options vested immediately with the remaining vesting through to August 13, 2014. For
the option issuance dated September 3, 2014, 50,600 options vested immediately with the remaining vesting through to September 3, 2016.
The weighted average fair value of options granted during the year ended September 30, 2014 was $1.18 per option calculated using the Black-
Scholes option pricing model. Where relevant, the expected life of the options was based on historical data for similar issuance and adjusted
based on management’s best estimate for the effects of non-transferability, exercises restrictions and behavioural considerations. Expected
volatility is based on historical price volatility over the past 5 years. To allow for the effects of early exercise, it was assumed that options would
be exercised on average 4.0 years after vesting. The following assumptions were used to determine the fair value of the options granted in 2014:
Grant date share price
Exercise price
Expected price volatility
Expected option life
Expected dividend yield
Risk-free interest rate
Forfeiture rate
$ 19.70
$ 19.70
17.4%
4.0 yrs
5.7%
1.4%
0%
Outstanding, beginning of year
Exercised
Expired
Granted
Outstanding, end of year
September 30, 2014
September 30, 2013
Options
240,000
-
-
175,000
415,000
Weighted Avg.
Exercise Price
$
$
$
$
$
19.87
-
-
19.70
19.80
Options
245,000
(5,000)
-
-
240,000
Weighted Avg.
Exercise Price
$
$
$
$
$
19.85
18.65
-
-
19.87
At September 30, 2014 (2013) there were 415,000 (240,000) options outstanding with a weighted average remaining contractual life of
3.4 years of which 290,600 were exercisable at a weighted average price of $19.84.
Calian Technologies Ltd.
2014 Annual Report
45
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
11. Share-based compensation (continued)
Employee stock purchase plan
The Company has an Employee Stock Purchase Plan ("ESPP") under which most full-time employees may register once a year to participate
in one of two offering periods. Eligible employees may purchase common shares by payroll deduction throughout the year at a price of 80%
of the fair market value at the beginning of the initial offering period or may purchase common shares at a price of 90% of the fair market
value at the beginning of the interim offering period. Such shares are issued from treasury once a year at the end of the offering periods.
A total of 500,000 common shares have been authorized for issuance under the plan. During 2014 (2013), the Company issued 22,075
(23,346) shares under the ESPP at an average price of $17.54 ($15.22) for a total of $388 ($355) and employees subscribed to approxi-
mately 21,000 common shares, which will be issued during fiscal 2015 at an average price of $18.03. Since inception and including the
issuance of shares in 2014, 389,533 shares have been issued under the plan. During 2014 (2013), the Company recorded compensation
expense of $68 ($73) relating to its ESPP.
12. Net profit per share
The diluted weighted average number of shares has been calculated as follows:
Weighted average number of common shares – basic
Additions to reflect the dilutive effect of employee stock options
Weighted average number of common shares – diluted
2014
7,367,517
-
7,367,517
2013
7,559,437
3,532
7,562,969
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 net profit per share. For 2014 and 2013, 155,000 options were excluded from the above compu-
tation of diluted weighted average number of common shares because they were anti-dilutive.
Net profit is the measure of profit or loss used to calculate profit per share.
13. Interest income
Interest income is comprised of the following amounts:
Interest earned on cash balances
Accreted interest on contingent consideration
Interest income
2014
255
16
271
$
$
2013
324
28
352
$
$
14. Income taxes
The following table reconciles the difference between the income taxes that would result solely by applying statutory tax rates to pre-tax
income and the reported income tax expenses:
Earnings before income taxes
Tax provision at the combined basic Canadian federal
and provincial income tax rate of 26.7% (2013: 26.6%)
Increase (decrease) resulting from:
Effect of expenses that are not deductible in determining taxable profits
Impact of rate reductions on valuation of deferred income tax assets
Other
Income tax expense
The effective income tax rate in the year was 26.7% compared to 26.6% in the prior year.
2014
$ 14,387
3,834
75
34
(137)
3,806
$
2013
$
17,796
4,734
64
33
(90)
4,741
$
46 2014 Annual Report
Calian Technologies Ltd.
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
14. Income taxes (continued)
The movements of deferred tax assets and liabilities are shown below:
Deferred tax assets (liabilities)
Equipment
and Software
application
Acquired
intangible
assets
Cash flow
hedging
reserve
Deferred tax liability at September 30, 2013
$
(240)
$
(1,009)
Acquired intangibles
Credited (debited) to statement of net profit
Credited (debited) to other comprehensive income
-
62
-
(760)
245
-
Deferred tax liability at September 30, 2014
$
(178)
$
(1,524)
$
$
22
-
-
(70)
(48)
Other
Total
$
106
$
(1,121)
-
(28)
-
78
$
(760)
279
(70)
$
(1,672)
Deferred tax assets (liabilities)
Equipment
and Software
application
Acquired
intangible
assets
Cash flow
hedging
reserve
Other
Total
Deferred tax liability at September 30, 2012
$
(225)
$
(1,153)
Credited (debited) to income statement
Credited (debited) to other comprehensive income
(15)
-
144
-
Deferred tax liability at September 30, 2013
$
(240)
$
(1,009)
$
$
(310)
$
476
$
(1,212)
-
332
22
(370)
-
(241)
332
$
106
$
(1,121)
15. Construction contracts
Construction contract revenues recorded during the period ended September 30, 2014 is $55,413 (2013: $70,434) all of which is from the
Systems Engineering division.
Contracts in progress at the balance sheet date:
Construction costs incurred plus recognized profits
less recognized losses to date
Less: progress billings
Recognized and included in the financial statements as amounts due:
From customers under construction contracts
To customers under construction contracts
2014
149,087
(142,352)
6,735
2014
11,605
(4,870)
6,735
$
$
$
$
2013
$ 154,326
(149,261)
5,065
$
2013
9,124
(4,059)
5,065
$
$
At September 30, 2014 (2013), advances received from customers for contract work amounted to $5,141 ($4,059).
As at September 30, 2014 (2013), the Company had $2,266 ($1,397) in holdbacks receivable. Holdbacks are amounts of progress billings
that are not paid until the satisfaction of conditions specified in the contract for the payment of such amounts or until defects have been
rectified. The entire amount for 2014 and 2013 is considered to be a short-term receivable.
Calian Technologies Ltd.
2014 Annual Report
47
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
16. Commitments
The Company has non-cancellable lease agreements for office space and equipment with terms extending to the year 2024. The aggregate
minimum rental payments under these arrangements are as follows:
2015
2016
2017
2018
2019
thereafter
Total
$
$
2,391
881
771
745
141
541
5,470
17. Contingencies
In the normal course of business, the Company is party to business and employee related claims. The potential outcomes related to exist-
ing 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.
18. Segmented information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for eval-
uation by the chief operating decision maker, regarding how to allocate resources and assess performance. The Company’s chief operating
decision maker is the Chief Executive Officer. The Company operates in two reportable segments described below, defined by their
primary type of service offering, namely Systems Engineering and Business and Technology Services.
• Systems Engineering involves planning, designing and implementing solutions that meet a customer’s specific business and technical
needs, primarily in the satellite communications sector.
• Business and Technology Services involves short and long-term placements of personnel to augment customers’ workforces as well as
the long-term management of projects, facilities and customer business processes. This segment includes the new acquisitions: Med-
Team, Amtek and DWP as explained in Note 20.
The Company evaluates performance and allocates resources based on profit before interest and income taxes. The accounting policies
of the segments are the same as those described in Note 2. Revenues reported below represents revenue generated from external cus-
tomers. There were no significant inter-segment sales in the year.
For the year ended September 30, 2014
Revenue
Profit before interest income and income tax expense
Interest income (Note 13)
Income tax expense (Note 14)
Net profit
Total assets other than cash and goodwill
Goodwill
Cash
Total assets
Equipment and application software expenditures
Acquired intangible assets (Note 20)
Acquired goodwill (Note 20)
Systems
Engineering
Business and
Technology
Services
Corporate
Total
$
55,413
9,451
$ 155,844
6,833
$
-
(2,168)
$
$
$
$
$
23,048
-
-
23,048
978
-
-
$
$
$
$
$
40,463
12,037
-
52,500
210
2,865
1,256
$
$
$
$
$
102
-
25,200
25,302
-
-
-
$ 211,257
14,116
271
(3,806)
$
$
10,581
63,613
12,037
25,200
$ 100,850
$
$
$
1,188
2,865
1,256
48 2014 Annual Report
Calian Technologies Ltd.
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
18. Segmented information (continued)
For the year ended September 30, 2013
Revenue
Profit before interest income and income tax
Interest income (Note 13)
Income tax expense (Note 14)
Net profit
Systems
Engineering
Business and
Technology
Services
Corporate
Total
$
70,434
10,578
$ 162,029
9,015
$
-
(2,149)
$ 232,463
17,444
352
(4,741)
$
13,055
57,009
10,781
29,782
Total assets other than cash and goodwill
Goodwill
Cash
$
19,909
-
-
$
37,001
10,781
-
$
99
-
29,782
Total assets
$
19,909
$
47,782
$
29,881
$
97,572
Equipment and application software expenditures
$
402
$
323
$
-
$
725
The Company operates in Canada but provides services to customers in various countries. Revenues from external customers are attrib-
uted as follows:
2014
2013
Canada
United States
Europe
84%
12%
4%
82%
11%
6%
Revenues are attributed to foreign countries based on the location of the customer. No assets are held outside of Canada. Revenues from
various departments and agencies of the Canadian federal government for the year ended September 30, 2014 and 2013 represented 68%
(66%) of the Company’s total revenues. Both operating segments conduct business with this major customer.
19. Financial instruments and risk management
Capital Risk Management
The Company’s objective is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain
future development of the business and provide the ability to continue as a going concern. Management defines capital as the Company’s
shareholders’ equity excluding accumulated other comprehensive income relating to cash flow hedges. The Company does not have any
debt and therefore net profit generated from operations are available for reinvestment in the Company or distribution to the Company’s
shareholders. The Board of Directors does not establish quantitative return on capital criteria for management; but rather promotes year
over year sustainable profitable growth. The Board of Directors also reviews on a quarterly basis the level of dividends paid to the
Company’s shareholders and monitors the share repurchase program activities. The Company does not have a defined share repurchase
plan and buy and sell decisions are made on a specific transaction basis and depend on market prices and regulatory restrictions. There
were no changes in the Company’s approach to capital management during the period. Neither the Company nor any of its subsidiaries is
subject to externally imposed capital requirements.
Calian Technologies Ltd.
2014 Annual Report
49
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
19. Financial instruments and risk management (continued)
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Company’s income or
the value of its holding of financial instruments.
Foreign currency risk related to contracts
The Company is exposed to foreign currency fluctuations on its cash balance, accounts receivable, accounts payable and future cash flows
related to contracts denominated in a foreign currency. Future cash flows will be realized over the life of the contracts. The Company uti-
lizes 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 instru-
ments 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 man-
agement 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, 2014, the Company had the following forward foreign exchange contracts:
Type
Notional
Currency
Maturity
BUY
SELL
BUY
Derivative assets
SELL
SELL
SELL
SELL
SELL
Derivative liabilities
36,434
2,322
78
54,764
1,000
1,000
1,000
51
USD
EURO
October 2014
October 2014
GBP
October 2014
Equivalent
Cdn. Dollars
$
40,806
3,285
142
USD
October 2014
$
61,336
USD September 2015
USD September 2016
USD September 2017
GBP
October 2014
1,120
1,120
1,120
93
Fair Value
September 30,
2014
$
$
$
189
1
1
191
286
62
62
62
1
$
473
50 2014 Annual Report
Calian Technologies Ltd.
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
19. Financial instruments and risk management (continued)
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
SELL
BUY
BUY
BUY
Derivative assets
SELL
SELL
Derivative liabilities
1,000
1,000
1,000
21,947
918
12,493
3,822
USD September 2015
$
USD September 2016
USD September 2017
USD
EURO
October 2013
October 2013
1,057
1,057
1,057
22,617
1,277
USD
EURO
October 2013
October 2013
$
12,875
5,316
$
$
$
$
27
27
27
5
3
89
3
11
14
A 10% strengthening of the Canadian dollar against the following currency at September 30, 2014 would have increased (decreased) other
comprehensive income by the amounts shown below.
September 30,
2014
USD
EURO
GDP
$
2,172
299
(4)
$
2,467
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Company’s accounts receivable and its foreign exchange contracts.
The Company’s exposure to credit risk with its customers is influenced mainly by the individual characteristics of each customer. The
Company’s customers are for the most part, federal and provincial government departments and large private companies. A significant
portion of the Company’s accounts receivable is from long-time customers. At September 30, 2014 (2013), 68% (66%) of its accounts receiv-
able were due from the Government of Canada. Over the last five years the Company has not suffered any significant credit related losses.
The Company limits its exposure to credit risks from counter-parties to derivative financial instruments by dealing only with major
Canadian financial institutions. Management does not expect any counter-parties to fail to meet their obligations.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting
date was:
Cash
Accounts receivable
Derivative assets
September 30, 2014
September 30, 2013
$
25,200
$
29,782
39,249
191
37,903
89
$
64,640
$
67,774
Calian Technologies Ltd.
2014 Annual Report
51
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
19. Financial instruments and risk management (continued)
The aging of accounts receivable at the reporting date was:
Current
Past due (61-120 days)
Past due (> 120 days)
September 30, 2014
September 30, 2013
$
38,431
$
36,048
741
77
1,831
24
$
39,249
$
37,903
Based on historic default rates, the Company believes that there are minimal requirements for an allowance for doubtful accounts.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to
managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet liabilities when due. At September
30, 2014 the Company has a cash balance of $25,200 and has an unsecured credit facility, subject to annual renewal. The credit facility
permits the Company to borrow funds up to an aggregate of $10,000. As at September 30, 2014 an amount of $612 was drawn to issue a
letter of credit to meet customer contractual requirements. All of the Company’s financial liabilities have contractual maturities of less than
30 days.
Fair Value
The fair value of accounts receivable, accounts payable and accrued liabilities approximates their carrying values due to their short-term
maturity. Fair value of the forward exchange contracts reflects the cash flows due to or from the Company if settlement had taken place
on September 30, 2014 and represent the difference between the hedge rate and the exchange rate at the end of the reporting period.
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped
into Levels 1 to 3 of the fair value hierarchy based on the degree to which the fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
Cash
Derivative financial assets
Derivative financial liabilities
Total
Cash
Derivative financial assets
Derivative financial liabilities
Total
$
2014
Level 1
25,200
-
-
$
25,200
$
2013
Level 1
29,782
-
-
$
29,782
2014
Level 2
-
191
(473)
(282)
2013
Level 2
-
89
(14)
75
$
$
$
$
There were no transfers between Level 1 and Level 2 during the years ended September 30, 2014 and 2013.
52 2014 Annual Report
Calian Technologies Ltd.
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
20. Acquisitions
Primacy Management Inc. (“Primacy”)
On February 28, 2012, the Company acquired all of the outstanding shares of Primacy. Under the contingent consideration arrangement,
the Company is required to pay the former shareholders of Primacy an additional $400 and $600 if Primacy attains specified levels of profit
before interest, taxes, depreciation and amortization (EBITDA) for the years ending February 28, 2013 and 2014 respectively. During the
period ended March 31, 2014 (2013), the Company paid $600 ($400) respectively related to the first and second year earn-out.
Med-Team Clinic Inc. (“Med-Team”)
On December 31, 2013, the Company acquired all of the outstanding shares of Med-Team for consideration of $930 of which $661 was
paid on the date of closing. A discounted amount of $269 is payable contingently. Under the contingent consideration arrangement, the
Company is required to pay the former shareholders of Med-Team $300 if Med-Team attains specified levels of EBITDA for the years ended
December 31, 2015 and 2016. The amount of $269 represents the estimated fair value of the Company's obligation at the acquisition date.
Med-Team's principal business activity relates to the management of medical clinics. Med-Team was acquired so as to expand the
Company's health service offerings. The acquisition is a business combination to which IFRS3 Business Combinations applies. Acquisition-
related costs amounting to $37 have been excluded from the consideration and have been recognized as an expense in the current year
ended September 30, 2014, within the general and administration line item in the consolidated statement of net profit.
Amtek Engineering Services Ltd. (“Amtek”)
Effective April 30, 2014, the Company acquired all of the outstanding shares of Amtek for a purchase price of up to $5,890. Of this amount
$3,490 was paid on the date of closing, $600 was placed in escrow and $1,800 is payable contingently.
Under the contingent payment arrangement, the Company is required to pay the former shareholders of Amtek an additional $900 and
$900 if Amtek attains specified levels of earnings before interest, taxes, depreciation and amortization (EBITDA) for the years ended April
30, 2015 and 2016 respectively. With the current levels of contracts signed by Amtek and its ability to maintain its market share, manage-
ment believes that Amtek can achieve its earn-out target in both years. Amtek's principal business activity relates to the provision of
engineering services mainly within the Federal Government. Amtek was acquired so as to expand the Company's training and support
service offerings.
A portion of the amount placed in escrow and a portion of the contingent payment totaling $1,914 are subject to the retention of the prin-
cipal shareholders for a period of two years. These amounts are deemed to represent deferred compensation payable to such shareholders
and therefore are excluded from the total consideration of the purchase and will be expensed in the Company's consolidated statement
of net profit as deemed compensation related to acquisitions on a straight-line basis over the retention period.
Acquisition-related costs amounting to $65 have been excluded from the consideration and have been recognized as an expense in the
current year ended September 30, 2014, within the general and administration line item in the consolidated statement of net profit.
DWP Solutions Inc. (DWP)
Effective June 30, 2014, the Company acquired all of the outstanding shares of DWP for a purchase price of up to $1,757. Of this amount
$859 was paid during the current year ended September 30, 2014, $225 was placed in escrow and $675 is payable contingently.
Under the contingent consideration arrangement, the Company is required to pay the former shareholders of DWP an additional $300 and
$375 if DWP attains specified levels of earnings before interest, taxes, depreciation and amortization (EBITDA) for the years ended June 30,
2015 and 2016 respectively. With the current levels of contracts signed by DWP and the ability to grow in its selected market segment,
management believes that DWP can achieve its earn-out target in both years. Therefore, the amount of $675 represents the estimated fair
value of the Company's obligation at the acquisition date. DWP's principal business activity relates to the provision of IT cyber security
professionals mainly within the Federal Government. DWP was acquired so as to expand the Company's IT service offerings.
The amount placed in escrow totaling $225 is subject to the retention of the principal shareholders for a period of two years. This amount
is deemed to represent deferred compensation payable to such shareholders and therefore is excluded from the total consideration to the
purchase and will be expensed in the Company's consolidated statement of net profit as deemed compensation related to acquisitions on
a straight-line basis over the retention period.
Acquisition-related costs amounting to $50 have been excluded from the consideration and have been recognized as an expense in the
current year ended September 30, 2014, within the general and administration line item in the consolidated statement of net profit.
Calian Technologies Ltd.
2014 Annual Report
53
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
20. Acquisitions (continued)
These acquisitions are business combination to which IFRS 3 Business Combination applies.
Consideration:
Cash
Prepaid
Contingent consideration
Contingent payments
Total purchase price
Less: deemed compensation
Consideration to allocate
Med-Team
Amtek
$
661
$
3,490
269
-
930
-
930
$
$
600
486
1,314
5,890
1,914
3,976
$
$
DWP
859
225
675
-
1,759
225
1,534
$
$
$
The following are the assets acquired and liabilities recognized at the date of the acquisitions:
Current assets:
Cash
Accounts receivable
Prepaid expenses
Non-current assets:
Equipment
Intangibles assets
Current liabilities:
Accounts payable and accrued liabilities
Deferred tax liability
Net assets acquired
Goodwill arising on acquisition:
Total consideration allocated
Net assets acquired
Bargain purchase gain
Med-Team
Amtek
DWP
$
$
$
$
$
$
$
$
$
56
171
-
227
4
381
385
(125)
(100)
(225)
387
930
(387)
-
543
$
818
3,274
4
$
4,096
$
$
$
$
$
14
1,720
1,734
(1,068)
(456)
(1,524)
4,306
$
3,976
(4,306)
(330)
$
-
$
$
$
$
$
$
$
$
$
(120)
1,345
-
1,225
-
765
765
(965)
(204)
(1,169)
821
1,534
(821)
-
713
54 2014 Annual Report
Calian Technologies Ltd.
Calian Technologies Ltd.
Notes to the Consolidated Financial Statements
For the years ended September 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
20. Acquisitions (continued)
Substantially all of the goodwill that arose on acquisitions relates to the value of the taxable temporary differences attributable to the
acquired intangible assets. None of the goodwill arising on the acquisition is expected to be deductible for tax purposes. The bargain pur-
chase gain on the Amtek acquisition relates to the fact that a significant portion of the purchase price was deemed to be compensation as
described above. As a result, the identifiable tangible and intangible assets on acquisition were higher than the consideration allocated
which resulted in a bargain purchase gain.
Net cash outflow during the current year related to the acquisitions:
Consideration paid in cash
Less: cash balances acquired or overdraft assumed
Primacy
Med-Team
$
$
600
-
600
$
$
661
(56)
605
Amtek
4,090
(818)
3,272
$
$
DWP
1,084
120
1,204
$
$
Impact of the acquisition on the consolidated result of the Company:
Had this business combination been effected at October 1, 2013, the revenue and net earnings of the Company for the year ended
September 30, 2014 would have been higher by $13,578 and $750 respectively. Management considers these 'pro-forma' numbers to
represent an approximate measure of the performance of the combined group for the year ending September 30, 2014 and provide a ref-
erence point for comparison in future periods.
21. Pension Plan
The Company sponsors a defined contribution pension plan for certain of its employees. Required contributions have been fully funded
to September 30, 2014. For the year 2014 (2013), an amount of $772 ($755) was expensed related to this pension plan.
22. Related Party Transactions
Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation
and are not disclosed in this note. Other than transactions related to the compensation of key management personnel as described below,
there have been no other transactions between the Company and other related parties.
Compensation of key management personnel:
The compensation for directors and other members of key management during the year was as follows. The compensation of directors
and key executives is determined by the compensation committee having regards to the performance of individuals and market trends.
The key executives are the Chief Executive Officer, the Chief Financial Officer, the Vice-President, Business and Technology Services
Division and the Vice-President, Systems Engineering Division.
Short-term benefits
Share-based payments
September 30, 2014
September 30, 2013
$
$
2,173
184
2,357
$
$
2,228
39
2,267
Calian Technologies Ltd.
2014 Annual Report
55
Common Share Information
The Company’s common shares are listed for trading
on the Toronto Stock Exchange under the symbol CTY.
Dividend Policy
The Company intends to continue to declare a quar-
terly dividend in line with its overall financial
performance and cash flow generation. Decisions on
dividend payments are made on a quarterly basis by
the Board of Directors. There can be no assurance as
to the amount of such dividends in the future.
Annual Meeting of Shareholders
The Annual General Meeting of the Shareholders of
Calian will be held on February 6, 2015 at 2:00 p.m. at
the Brookstreet Hotel, Ottawa, Ontario, Canada. All
shareholders are invited to attend. The telephone
number of the Brookstreet Hotel is 613.271.1800.
Corporate Information
Corporate & Business
and Technology Services
340 Legget Drive, Suite 101,
Ottawa, Ontario, Canada K2K 1Y6
Phone: 613.599.8600
Fax: 613.599.8650
Web: www.calian.com
Systems Engineering (SED)
18 Innovation Blvd.
Saskatoon, Saskatchewan, Canada S7N 3R1
Phone: 306.931.3425
Fax: 306.933.1486
Web: www.sedsystems.ca
Primacy Management Inc.
2321 Fairview Street, Suite 100
Burlington, Ontario
L7R 2E3
Phone: 905.637.2888
Board of Directors
Kenneth J. Loeb
Chief E xecutive Officer, Loeb Packaging Ltd.
Chairman, Calian Technologies Ltd.
Chair of the Nominating Committee
David Tkachuk
Senator
Chair of the Compensation Committee
Richard Vickers, FCA
Consultant
Chair of the Audit Committee
Major General (retired) C. William Hewson
Consultant
Chair of the Governance Committee
Ray Basler
President and CEO, Calian Technologies Ltd.
George Weber
President and CEO,
Royal Ottawa Health Care Group
56 2014 Annual Report
Calian Technologies Ltd.