Sierra Systems Announces First Quarter Results.VANCOUVER Vancouver, city, Canada Vancouver, city (1991 pop. 471,844), SW British Columbia, Canada, on Burrard Inlet of the Strait of Georgia, opposite Vancouver Island and just N of the Wash. border. , British Columbia British Columbia, province (2001 pop. 3,907,738), 366,255 sq mi (948,600 sq km), including 6,976 sq mi (18,068 sq km) of water surface, W Canada. Geography -- Sierra Systems Sierra Systems Group Inc. ("Sierra Systems") is a private information technology and business consulting corporation headquartered in Vancouver, BC, Canada. The company provides services to both the public and private sectors. Group Inc. (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :SSG SSG abbr. staff sergeant ) today reported financial results for the first quarter ended December December: see month. 31, 2005. Material observations for the first quarter compared to the same quarter a year ago were as follows: - Services revenue decreased 2% to $33.3 million - Earnings from operations decreased 39% to $1.6 million - Diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of decreased 35% to $0.11 per share. Iraj Iraj (Persian: ایرج) is a Sinhalese and Persian male given name. Iraj may refer to:
We see 2006 as the foundation year of our strategic plan, and we are making a significant investment in our growth strategies this year. We have a strong leadership team in place to ensure our investments will build a solid foundation for greater market expansion in the coming years. Looking forward, we are very optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op . Despite considerable investment in our growth strategies, we anticipate a material improvement in sequential earnings next quarter and we expect this trend to continue in the second half of the year."
Amounts in tables are in thousands of Canadian dollars except
earnings per share.
3 months Ended
December 31
(unaudited)
--------------
Fiscal 2006 2005 2004
(in thousands, except earnings
per share amounts)
Services Revenue 33,281 34,068
Earnings from operations before
restructuring charge n/a 3,810
Earnings from Operations 1,567 2,561
Net earnings for the period 1,033 1,675
Earnings per share - basic & diluted 0.11 0.17
MANAGEMENT'S DISCUSSION AND ANALYSIS Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial OF FIRST QUARTER FISCAL 2006 RESULTS Services revenue, the Company's primary business line, decreased by $0.8 million or 2% from the same quarter of fiscal 2005 to $33.3 million. The decrease was due primarily to $1.0 million lower revenues reported in our Canadian operations. As noted last quarter, we are experiencing short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. performance issues in one Canadian Branch. This location had two significant projects complete in 2005, and the branch is working hard to replace that revenue. The loss of revenue associated with these two projects was the main reason for the decrease in Canadian Operations revenue in the quarter. Our U.S. operations reported a 5% increase in US$ denominated revenue in the quarter as compared to the same period last year, although the strengthening Canadian dollar Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents reduced this increase in Canadian dollar terms to 2% or $0.2 million. Compensation costs include salaries, incentive compensation and benefits related to our billable and operations support headcount head count or head·count n. 1. The act of counting people in a particular group. 2. The number of people counted in this way. Noun 1. . These costs also include the expense associated with our use of subcontractors. Our compensation costs are our most significant expense, and on average comprise about 75% - 80% of the Company's operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. . In quarter one, compensation costs were $24.5 million. This represents a $1.6 million or 7% increase from the same period last year. The increase was mainly due to a higher usage of subcontractors to fulfill ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. project deliverables. Subcontractor One who takes a portion of a contract from the principal contractor or from another subcontractor. When an individual or a company is involved in a large-scale project, a contractor is often hired to see that the work is done. costs increased $1.2 million to $6.0 million this quarter. This represents a 24% increase as compared to the same period last year. Consistent with this increase, subcontractor costs were 25% of total compensation costs in quarter one of fiscal 2006 as compared to 21% in the same period last year. Salary costs increased by $0.4 million as compared to quarter one of 2005. The increase was mainly attributable to higher variable compensation costs, as the cost of general salary increases was largely offset by a lower headcount in the quarter. Additional variances as compared to the same period last year include an increase in benefits costs of $0.3 million, and a decrease in profit sharing profit sharing, arrangement by which employees receive, in addition to their wages, a share of the net profits of a business. The purpose is to give them an incentive to increase their output through enhanced morale, less wasteful use of materials, better care of costs of $0.2 million. Compensation costs as a percentage of services revenue is a key performance indicator for our business. This indicator was weaker this quarter at 74% as compared to 67% in quarter one of fiscal 2005. Utilization in the quarter continued to remain strong at 79%. Other Costs include non-recoverable travel, promotion, education, and recruitment costs. In quarter one, these costs increased by 5% or $0.1 million to $2.0 million as compared to the same period last year. Higher promotion and travel costs were the significant contributors to the increase. General and Administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. include administrative salaries, indirect overhead, rent and communication costs. G&A costs decreased 4% or $0.2 million to $4.4 million as compared to quarter one of fiscal 2005. Savings in rent costs due to rationalization rationalization, in psychology: see defense mechanism. of lease space in 2005 contributed to the positive variance The discrepancy between what a party to a lawsuit alleges will be proved in pleadings and what the party actually proves at trial. In Zoning law, an official permit to use property in a manner that departs from the way in which other property in the same locality . Additionally, lower administrative headcount resulted in reduced salary costs in the quarter. Resulting from the above noted factors, operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. decreased by $1.0 million to $1.6 million in the current quarter from $2.6 million last year. The effective tax rate of 34.9% in the current quarter reflects a $0.1 million benefit of taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. generated from the Company's U.S. operations not exposed to a current tax provision. Note 3 of the unaudited interim consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge provides a detailed analysis of the difference from the statutory rate of 34.1%. On a sequential quarterly basis, services revenue decreased by 9% or $3.3 million. The decrease resulted from a $2.1 million reduction in revenue from our Canadian operations and a $1.2 million reduction in revenue from our U.S. operations. Compensation costs decreased 5% or $1.4 million from last quarter. Subcontractor costs decreased by $1.1 million, and salary costs decreased by $0.7 million largely due to lower severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when and bonus costs in the current quarter. These reductions were offset by higher vacation costs in the quarter. Other costs decreased 18% or $0.4 million as compared to the fourth quarter of 2005. Reduced spending on recruitment and education were the main contributors to the positive variance. General and Administrative costs increased 4% or $0.2 million from last quarter. Legal and regulatory costs were the most significant contributor to the increase. Financial Capability On December 31, 2005 the Company had cash on hand of $4.6 million, a $2.4 million decrease from the previous quarter. Several factors contributed to the decrease. The company reported a $0.8 million use of cash from operations. There were two significant factors impacting this use of cash. First, variable compensation costs are accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. throughout the year, but are paid annually. This payment was made in the first quarter and consistent with increased profitability in fiscal 2005, was higher than in previous years. Additionally, in line with increased profitability in fiscal 2005, corporate income tax payments were higher in the quarter. As noted in note 4(d) of the unaudited interim consolidated financial statements, on December 6, 2005 the Company amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. the terms of its ongoing normal course issuer bid to permit additional shares in Sierra Systems' stock to be purchased for cancellation by the Company. During the quarter the Company acquired 69,147 shares for cancellation at an average cost of $9.41. This represented a $0.7 million use of cash in the quarter. Additionally, as noted in note 4(e) of the unaudited interim consolidated financial statements, the Company made the first quarterly payment of the annual dividend announced last quarter. This represented a $0.7 million use of cash in the quarter. A key performance measure of accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying is days sales in trade accounts receivable. This measure weakened weak·en tr. & intr.v. weak·ened, weak·en·ing, weak·ens To make or become weak or weaker. weak  en·er n. this quarter to 78
days as compared to 70 days last quarter, and 61 days in the same
quarter last year. This increase was due mainly to the transfer of
work-in-progress work-in-progress n (COMM) → trabajo en cursowork-in-progress n (Comm) → en-cours m inv: (= value); valeur f to accounts receivable through the billing process late in the quarter as opposed to a weakening weak·en tr. & intr.v. weak·ened, weak·en·ing, weak·ens To make or become weak or weaker. weak en·er n. of our accounts
receivable.Accounts receivable aging continued to remain strong in the quarter, with over 91% of accounts receivable less than 60 days old as at December 31, 2005. Recent Accounting Changes During the three months ended December 31, 2005, we did not adopt any new accounting policies or make changes to existing accounting policies that have a material impact on our consolidated financial statements. Critical Accounting Estimates The critical accounting estimates described in the Management's Discussion and Analysis presented in the 2005 Annual Report have not materially altered. Business Risks The business risks described in the Management's Discussion and Analysis presented in the 2005 Annual Report have not materially altered. Disclosure Controls and Procedures We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed in filings made pursuant to Multilateral mul·ti·lat·er·al adj. 1. Having many sides. 2. Involving more than two nations or parties: multilateral trade agreements. Instrument 52-109 is recorded, processed, summarized and reported within the time periods specified in the Canadian Securities Administrators' rules and forms. Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of December 31, 2005 and concluded that our current disclosure controls and procedures are effective. Normal Course Issuer Bid The Company intends to seek regulatory approval to renew the normal course issuer bid, which is due to expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. on February February: see month. 7, 2006. Additional Information Additional information relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the Company, including the Company's most recently filed quarterly Management's Discussion and Analysis, can be found on SEDAR SEDAR System for Electronic Document Analysis and Retrieval SEDAR Southeast Data, Assessment, and Review at www.sedar.com. Caveat [Latin, Let him beware.] A warning; admonition. A formal notice or warning given by an interested party to a court, judge, or ministerial officer in opposition to certain acts within his or her power and jurisdiction. The statements that are not historical facts contained in this release are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. that involve risks and uncertainties. Sierra Systems' actual results could differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, technological shifts, employee retention, fixed price contract delivery, competition, general economic conditions, foreign exchange and other risks detailed in the Company's Annual Report and other filings with Canadian securities regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities . Notice of no auditor auditor n. an accountant who conducts an audit to verify the accuracy of the financial records and accounting practices of a business or government. A proper audit will point out deficiencies in accounting and other financial operations. review of interim consolidated financial statements Under National Instrument 51-102, Part 4, subsection subsection Noun any of the smaller parts into which a section may be divided Noun 1. subsection - a section of a section; a part of a part; i.e. 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The accompanying unaudited, interim consolidated financial statements of the Company, as at and for the three months ended December 31, 2005 and December 31, 2004 have been prepared by and are the responsibility of the Company's management. The Company's independent auditor Independent Auditor An external auditor with a certified public accounting designation that qualifies him or her to provide an auditor's report. Notes: These auditors aren't affiliated with the company being audited. has not performed a review of these financial statements in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with standards established by the Canadian Institute of Chartered Accountants The Canadian Institute of Chartered Accountants (CICA) is the umbrella body for the Chartered Accountant profession in Canada and Bermuda. Membership of the CICA totals 70,000 Chartered Accountants and 8,500 students. for a review of interim financial statements by an entity's auditor. Conference Call Details Date: February 3, 2006 Start time: 1:30 p.m. Pacific (4:30 p.m. Eastern) Dial-in number: 1-866-321-6651 Live Web cast: www.SierraSystems.com Presentation: A presentation to be viewed in conjunction with the conference call will be posted on the Company's website with a link on the home page to the presentation. If you are unable to attend the conference call live, please call 800-374-1796 or 402-220-0876 through to Friday Friday: see Sabbath; week. Friday young Indian rescued by Crusoe and kept as servant and companion. [Br. Lit.: Robinson Crusoe] See : Servant , February 17, 2006 to hear a digital playback Playback could mean:
The process by which the corporation communicates with its investors. section of our Web site at www.SierraSystems.com approximately 24 hours after the call. About Sierra Systems Since 1966, Sierra Systems Group Inc. (TSX:SSG) has been improving the operational performance of our clients by delivering superior information technology and business consulting services Noun 1. consulting service - service provided by a professional advisor (e.g., a lawyer or doctor or CPA etc.) service - work done by one person or group that benefits another; "budget separately for goods and services" . Through our extensive experience in Business Consulting, Solutions Delivery, and Managed Services An umbrella term for third-party monitoring and maintaining of computers, networks and software. The actual equipment may be inhouse or at the third-party's facilities, but the "managed" implies an ongoing effort; for example, making sure the equipment is running at a certain quality , Sierra Systems has emerged as a trusted advisor to many leading private and public sector organizations across North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. . With offices in Austin Austin. 1 City (1990 pop. 21,907), seat of Mower co., SE Minn., on the Cedar River, near the Iowa line; inc. 1868. The commercial and industrial center of a rich farm region, it is noted as home to the Hormel meatpacking company, whose Spam Town museum , Calgary Calgary (kăl`gərē), city (1991 pop. 710,677), S Alta., Canada, at the confluence of the Bow and Elbow rivers. The largest city in Alberta and the fastest-growing major city in Canada, Calgary is a corporate, transportation, and financial , Dallas Dallas, city (1990 pop. 1,006,877), seat of Dallas co., N Tex., on the Trinity River near the junction of its three forks; inc. 1871. The second largest Texas city, after Houston, and the eighth largest U.S. , Edmonton Edmonton (ĕd`məntən), city (1991 pop. 616,741), provincial capital, central Alta., Canada, on the North Saskatchewan River. The center of the largest metropolitan area in Alberta, Edmonton, known as the "Gateway to the North," is located , Fredericton Fredericton, city (1991 pop. 46,466), provincial capital, S central N.B., Canada, on the St. John River. It is a commercial, administrative, and academic center with some light manufactures. , Halifax Halifax, city, Canada Halifax, city (1991 pop. 114,455), provincial capital, S central N.S., Canada, on the Atlantic Ocean. It is the largest city in the Maritime Provinces and is one of Canada's principal ice-free Atlantic ports. , Hartford Hartford, city (1990 pop. 139,739), state capital, Hartford co., central Conn., on the west bank of the Connecticut River; settled as Newtown 1635–36 on the site of a Dutch trading post (1633; abandoned 1654), inc. 1784. , Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. , Olympia Olympia, city, ancient Greece Olympia, ancient city, important center of the worship of Zeus in ancient Greece, in Elis near the Alpheus (now Alfiós) R. It was the scene of the Olympic games. , Ottawa Ottawa, city, Canada Ottawa (ŏt`əwə), city (1991 pop. 313,987), capital of Canada, SE Ont., at the confluence of the Ottawa and Rideau rivers. Hull, Que. , Seattle Seattle (sēăt`əl), city (1990 pop. 516,259), seat of King co., W Wash., built on seven hills, between Elliott Bay of Puget Sound and Lake Washington; inc. 1869. , Toronto Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing , Vancouver, Victoria, and Winnipeg Winnipeg, city, Canada Winnipeg (wĭn`ĭpĕg), city (1991 pop. 616,790), provincial capital, SE Man., Canada, at the confluence of the Red and Assiniboine rivers. , our consultants are never far from our clients. In Justice, Health, Government, and various other industries, Sierra Systems continues to win exciting engagements in the face of stiff competition. Visit us at www.SierraSystems.com.
SIERRA SYSTEMS GROUP INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars)
December 31 September 30
2005 2005
(unaudited)
----------- ------------
Assets
Current assets
Cash and cash equivalents $ 4,882 $ 7,017
Accounts receivable 28,340 28,470
Work-in-progress 6,815 8,078
Prepaid expenses 1,751 2,463
----------- ------------
41,788 46,028
Intangible assets (note 5) 412 514
Property and equipment 8,167 8,666
Goodwill 23,997 23,997
----------- ------------
$ 74,364 $ 79,205
----------- ------------
----------- ------------
Liabilities
Current liabilities
Bank indebtedness $ 260 $ -
Accounts payable and accrued
liabilities 11,327 15,110
Deferred revenue 1,371 1,706
Income taxes payable - 892
Dividend payable (note 4(e)) 1,975 -
----------- ------------
14,933 17,708
Future income taxes (note 3) 190 205
----------- ------------
15,123 17,913
Shareholders' Equity
Capital stock (note 4(a)) 42,597 43,192
Contributed surplus 1,353 1,224
Retained earnings 18,102 19,711
Cumulative translation adjustment (2,811) (2,835)
----------- ------------
59,241 61,292
----------- ------------
$ 74,364 $ 79,205
----------- ------------
----------- ------------
SIERRA SYSTEMS GROUP INC.
CONSOLIDATED STATEMENTS of RETAINED EARNINGS
(in thousands of Canadian dollars)
Three months ended
December 31
(unaudited)
2005 2004
----------- ------------
Retained earnings - Beginning of period $ 19,711 $ 14,544
Net earnings for the period 1,033 1,675
Dividend (note 4(e)) (2,642) -
Stock-based compensation
adjustment (note 4(b)) - (691)
----------- ------------
Retained earnings - End of period $ 18,102 $ 15,528
----------- ------------
----------- ------------
SIERRA SYSTEMS GROUP INC.
CONSOLIDATED STATEMENTS of EARNINGS
(in thousands of Canadian dollars except per share and share figures)
Three months ended
December 31
(unaudited)
2005 2004
----------- ------------
Revenue
Services $ 33,281 $ 34,068
Product sales 141 164
Reimbursements 1,724 1,037
----------- ------------
35,146 35,269
----------- ------------
Expenses
Compensation costs 24,480 22,894
Other costs 1,984 1,889
Product costs 126 137
Reimbursable expenses 1,724 1,037
----------- ------------
28,314 25,957
----------- ------------
Gross profit 6,832 9,312
General and administration 4,355 4,554
Amortization (note 6) 910 948
Restructuring charge (note 2) - 1,249
----------- ------------
Earnings from operations 1,567 2,561
----------- ------------
Foreign exchange gain (loss) 1 (88)
Other income 20 1
----------- ------------
Earnings before income taxes 1,588 2,474
Provision for (recovery of)
income taxes (note 3)
Current 570 761
Future (15) 59
----------- ------------
555 820
Earnings before equity accounted investee 1,033 1,654
Equity earnings of Donna Cona Inc. - 21
----------- ------------
Net earnings for the period $ 1,033 $ 1,675
----------- ------------
----------- ------------
Earnings per share $ 0.11 $ 0.17
----------- ------------
----------- ------------
Diluted earnings per share $ 0.11 $ 0.17
----------- ------------
----------- ------------
Weighted average number of common
shares outstanding - basic 9,443,883 9,749,101
----------- ------------
----------- ------------
Weighted average number of common
shares outstanding - diluted 9,681,556 9,887,387
----------- ------------
----------- ------------
SIERRA SYSTEMS GROUP INC.
CONSOLIDATED STATEMENTS of CASH FLOWS
(in thousands of Canadian dollars)
Three months ended
December 31
(unaudited)
2005 2004
----------- ------------
Cash flows provided by (used in)
Operating activities
Net earnings for the period $ 1,033 $ 1,675
Items not affecting cash
Amortization 910 948
Future income taxes (15) 59
Stock-based compensation
charge (note 4(b)) 129 75
Net change in non-cash working capital
items relating to operations (2,874) 891
----------- ------------
(817) 3,648
Financing activities
Shares issued 50 52
Shares purchased and cancelled
(note 4(d)) (651) -
Shares purchased for Long-Term
Incentive Plan (17) (116)
Repayment of capital lease obligation - (6)
Dividend (note 4(e)) (667) -
----------- ------------
(1,285) (70)
Investing activities
Purchase of property and equipment (304) (430)
----------- ------------
(304) (430)
Effect of foreign exchange on translation 11 (75)
(Decrease) increase in cash and
cash equivalents (2,395) 3,073
Cash and cash equivalents -
Beginning of period 7,017 833
----------- ------------
Cash and cash equivalents -
End of period $ 4,622 $ 3,906
----------- ------------
----------- ------------
Represented by
Cash and cash equivalents $ 4,882 $ 3,906
Bank indebtedness (260) -
----------- ------------
$ 4,622 $ 3,906
Supplementary cash flow information (note 8)
Notes to Interim Consolidated Financial Statements (unaudited) (Amounts in tables are in thousands of Canadian dollars except per share figures) 1. Basis of presentation These unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting , using the same accounting policies as outlined in Note 2 to the most recent audited consolidated financial statements for the year ended September September: see month. 30, 2005, except as noted below. These unaudited interim consolidated financial statements do not include all the disclosures required for annual financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended September 30, 2005. Certain comparative figures in the unaudited interim consolidated financial statements have been reclassified to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" the current period presentation. In the opinion of management, all adjustments (which include reclassifications and normal recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. adjustments) necessary to present fairly the consolidated financial position, consolidated earnings, and consolidated cash flows as at December 31, 2005 and for all periods presented, have been made. All amounts herein are expressed in Canadian dollars unless otherwise noted.
2. Restructuring charge
Charged during the
three months ended
December 31, Payable at December 31,
2005 2004 2005 2004
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------- ----------------------
Workforce
reduction $ - $ 1,249 $ - $ 488
Lease
termination - - - 441
Other - - - -
---------------------- ----------------------
$ - $ 1,249 $ - $ 929
---------------------- ----------------------
On November November: see month. 15, 2004, the Chief Executive Officer ("CEO") left the Company. A charge of $960,000 was incurred in connection with the termination of his employment. An interim CEO was appointed, who undertook further changes in the executive team.No further terminations in connection with this restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). occurred, and all amounts were paid as at September 30, 2005. In the fourth quarter of fiscal 2004, the Company gave notice to terminate Terminate (terminat.exe) was a shareware modem terminal and host program for MS-DOS and compatible operating systems developed from the early to the late 1990s by the Dane Bo Bendtsen. The last release (5. its Los Angeles lease space and incurred a termination fee termination fee The one-time charge for terminating or transferring an individual retirement account. If a financial institution charges a termination fee, the fee must be spelled out in the original agreement that is signed when the account is opened. of US$733,678 (CA$973,003) of which 50%, or US$366,839 (CA$486,502), was paid upon notice to the landlord. The termination fee was fully expensed in fiscal 2004, and the balance was paid during the third quarter of fiscal 2005.
3. Income taxes
Three months ended Three months ended
December 31, 2005 December 31, 2004
(unaudited) (unaudited)
--------------------------------------
Earnings before income taxes $ 1,588 $ 2,474
Expected provision based on
a tax rate of 34.1%
(2004 - 35.6%) 542 881
Increase (decrease)
resulting from
Non-deductible expenses 128 129
Foreign tax differential 7 49
Canadian statutory rate
differential 22 16
Change in valuation allowance
for net operating loss
carry-forwards (144) (337)
Other - 82
--------------------------------------
Income tax provision $ 555 $ 820
--------------------------------------
The Company's future tax assets and liabilities are as follows:
December 31, 2005 September 30, 2005
U.S. Canadian U.S. Canadian
companies companies companies companies
(unaudited)
-------------------- --------------------
Differences in
working capital
deductions for tax
and accounting
purposes $ (1,825) $ 149 $ (2,444) $ 164
Property and equipment (12) (272) (12) (309)
Goodwill - (67) - (60)
Loss carry-forwards 7,742 - 7,838 -
Valuation allowance (5,905) - (5,382) -
-------------------- --------------------
Total net future tax
liabilities $ - $(190) $ - $(205)
-------------------- --------------------
Comprising
Non-current
liability $(190) $(205)
-------- ---------
$(190) $(205)
-------- ---------
The following table provides details of net operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. carry-forwards of Sierra Systems Inc.: Loss carry-forwards Expiry date US$ 2020 1,879 2021 681 2022 3,988 2023 5,009 2024 4,889 2025 439 4. Capital stock and stock options a) Capital stock
Authorized
100,000,000 common shares without par value
50,000,000 preferred shares without par value
Issued
Three months ended Twelve months ended
December 31, 2005 September 30, 2005
(unaudited)
--------------------- ----------------------
Common Amount Common Amount
shares $ shares $
Balance - Beginning
of period 9,449,787 43,192 9,746,842 44,191
Issued pursuant to
the ESOP 4,380 49 26,118 182
Exercise of options 250 1 161,300 1,101
Shares purchased for
Long-Term Incentive
Plan (1,545) (17) (40,053) (345)
Long-Term Incentive
Plan shares vested 3,000 23 28,140 211
Shares purchased for
cancellation (69,147) (651)
Shares purchased and
cancelled - - (472,560) (2,148)
--------------------- ----------------------
Balance - End of
period 9,386,725 44,192 9,449,787 43,192
b) Options The Company has a stock option plan that grants to directors and certain employees of the Company the option to purchase up to 1,312,900 common shares of the Company. The exercise price of each option is determined by the market price of the Company's stock on the date of the grant and an option's maximum term is 10 years. Options generally vest over three to five years. For the three months ended December 31, 2005, the total stock-based compensation charge was $129,000, which has been included in compensation cost on the consolidated statement of earnings. All of this cost relates to the amortization of previous stock option awards granted prior to October October: see month. 1, 2005. Assumptions used in the Black-Scholes option-pricing model Black-Scholes option-pricing model A model for pricing call options based on arbitrage arguments. Uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the expected standard deviation of the stock return. :
Three months ended
December 31,
2005 2004
(unaudited) (unaudited)
-----------------------
Dividend yield 0.7% 0.0%
Expected volatility 32% - 33% 35% - 36%
Risk free interest rate 3.6% 2.7% - 2.9%
Expected life (years) 3 4
Weighted average grant date fair value $ - $ 1.81
The following table summarizes the movement in options under this Plan:
Three months ended Twelve months ended
December 31, 2005 September 30, 2005
(unaudited)
----------------------------------------
Balance - beginning of
period 826,000 897,500
Options granted in period 0 60,000
Options exercised in period (250) (80,500)
Options expired in period (30,000) (13,000)
Options cancelled in period (4,000) (38,000)
----------------------------------------
Balance - end of period 791,750 826,000
c) Employee share ownership plan (ESOP ESOP See: Employee Stock Ownership Plan ESOP See Employee Stock Ownership Plan (ESOP). ) The ESOP permits all full-time full-time adj. Employed for or involving a standard number of hours of working time: a full-time administrative assistant. full employees of the Company to purchase common shares through payroll deductions. Shares are purchased quarterly at prevailing market prices with a 15% subsidy subsidy, financial assistance granted by a government or philanthropic foundation to a person or association for the purpose of promoting an enterprise considered beneficial to the public welfare. from the Company via funds paid into a trust account. During the three months ended December 31, 2005, the Company contributed $15,000 (2004 - $17,000) and issued 4,380 shares (2004 - 10,725) pursuant to this plan. The contributed amount has been included in compensation expense in the consolidated statement of earnings. d) Shares purchased and cancelled On December 6, 2005, the Company amended the terms of its ongoing normal course issuer bid, which was initiated on February 8, 2005 and is scheduled to terminate on February 7, 2006. Prior to the amendment, the Company was permitted to purchase up to 491,707 common shares of the Company, representing approximately 5% of the issued and outstanding common shares at the time of the commencement of the bid. With the amendment, the Company is now permitted to purchase up to 657,999 common shares of the Company representing approximately 10% of the public float of the Company at the time of the commencement of the bid. Sierra Systems has received approval from the TSX to amend this bid. Purchases will continue to be made on the TSX at the market price at the time of acquisition. During the quarter the Company acquired 69,147 shares for cancellation, at an average cost of $9.41.These shares were not yet cancelled as at December 31, 2005. e) Dividend On November 20, 2005, the Company declared an annual dividend of $0.28 on each outstanding common share, payable at $0.07 quarterly. On this date, the Company recorded a "Dividend payable" on the consolidated balance sheet consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. and made a corresponding adjustment to retained earnings Retained Earnings The percentage of net earnings not paid out in dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. for the total dividend liability of $2,642,000. The first quarter's payment of $667,000 was made on December 12, 2005, to all shareholders of record as at the close of business on December 1, 2005. 5. Intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets.
Accumulated Net book value at
Cost amortization December 31, 2005
-----------------------------------------
Customer relationships
with an economic life of
44 months at inception $ 683 $ 368 $ 315
Sub-contracting agreement
from Donna Cona Inc. 856 759 97
-----------------------------------------
$ 1,539 $ 1,127 $ 412
Accumulated Net book value at
Cost amortization September 30, 2005
-----------------------------------------
Customer relationships
with an economic life of
44 months at inception $ 683 $ 322 $ 361
Sub-contracting agreement
from Donna Cona Inc. 856 703 153
-----------------------------------------
$ 1,539 $ 1,025 $ 514
6. Amortization
Three months ended
December 31,
2005 2004
(unaudited) (unaudited)
----------------------
Amortization of property and equipment $ 808 $ 853
Amortization of customer relationships 46 46
Amortization of sub-contracting agreement
from Donna Cona Inc. 56 49
----------------------
$ 910 $ 948
7. Business segment information The Company has twelve branches that operate in two geographical regions, Canada and the United States The United States and Canada share a unique legal relationship. U.S. law looks northward with a mixture of optimism and cooperation, viewing Canada as an integral part of U.S. economic and environmental policy. . Each branch engages in business activities and generates its own discrete financial information. As all branches operate in one segment, the provision of IT services, they qualify for aggregation into one operating segment. Geographical information is based upon the country in which the Company's operations are located.
Canada U.S. Total
(unaudited)
-----------------------------
Revenue:
For the three months ended
December 31, 2005 $ 26,260 $ 8,886 $ 35,146
For the three months ended
December 31, 2004 $ 26,909 $ 8,360 $ 35,269
Property, equipment, and goodwill:
As at December 31, 2005 $ 30,524 $ 1,640 $ 32,164
As at September 30, 2005 $ 30,884 $ 1,779 $ 32,663
8. Supplementary cash flow information
Three months ended
December 31,
2005 2004
(unaudited) (unaudited)
----------------------
Interest and income taxes:
Interest paid $ 4 $ 2
Interest received $ 24 $ 3
Income taxes paid $1,470 $ 965
Sierra Systems Group Inc. (TSX:SSG) |
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