Results from Operations
Third quarter 2004 revenues increased to $198.7 million compared to $166.9 million for the third quarter 2003. Information Products revenues were $120.3 million, an increase of 37% compared to $88.1 million for the third quarter a year ago. Information Systems revenues were $78.4 million, consistent with $78.8 million for the third quarter last year. Included in Information Products revenues is a full quarter of activity from Marshall & Swift / Boeckh, which was acquired at the end of the second quarter 2004. Net earnings in the third quarter increased 32% to $13.9 million, resulting in diluted net earnings per common share of $0.35 ($0.27 for the same period a year ago). For the third quarter of 2004, earnings before income taxes, amortization and interest expense ("EBITDA") increased 32% to $32.4 million, compared to $24.6 million for the same period prior year. For the nine months ended September 30, 2004, revenues increased to $551.3 million, compared to $467.2 million for the same period in 2003. Information Products revenues increased 35% to $325.9 million. Information Systems revenues were $225.4 million, unchanged from prior year. Net earnings increased 24% to $38.5 million for the nine months ended September 30, 2004, resulting in diluted net earnings per common share of $0.98 ($0.80 for the nine months ended September 30, 2003). As at September 30, 2004, MDA's order backlog was $860 million. The Company's businesses are conducted primarily in the Canadian dollar, the U.S. dollar and the pound sterling. Exchange rate movements between these currencies will impact the translation of the financial results. In particular, the continued strengthening of the Canadian dollar relative to the U.S. dollar throughout the year has had a negative impact on the translation of reported financial results. For the nine months ended September 30, 2004, the Company recorded a provision of $3.5 million for long-term compensation plan expenses which reduced diluted net earnings per common share by $0.08. During the quarter, the Company booked a cash tax benefit of $3.2 million related to deductible goodwill on the acquisition of Marshall & Swift / Boeckh, thus significantly reducing the Company's current cash taxes payable. This cash benefit is recorded on the balance sheet as a deferred gain in the future income taxes balance. In order to minimize the potential impact of changes in interest rates, MDA has entered into a series of interest rate swaps on its core debt. The Company has adopted hedge accounting for these interest rate swaps.
Since the last report, MDA has achieved several key milestones in its strategy to be a leading information solutions provider: MDA's work with NASA continued at a strong pace. The Company is providing the Inspection Boom, an extension to the Canadarm that is designed to provide a solution to enable astronauts to survey the Space Shuttle's thermal protection system. The first boom is expected to be delivered to NASA in a few weeks. MDA was authorized by NASA to begin work on a solution to rescue the Hubble Space Telescope. MDA's solution is based on unique flight-ready technologies previously developed for NASA and the Canadian Space Agency. MDA continued to make progress in the small satellite-based information mission market. The Company received further funding for a small satellite mission that will collect highly detailed information about the Earth for applications such as agriculture and forestry management. The concept definition phase of this hyperspectral mission has just concluded and MDA is now proceeding towards a preliminary requirements review scheduled for year-end. In addition, the Company has been retained to develop concepts for a follow-on to RADARSAT-2 using small satellite technology. The follow-on mission would preserve Canada and MDA's position as a leader in the monitoring and surveillance markets. RADARSAT-1 and -2 information sales continued to grow. The government of Finland is extending its use of RADARSAT-1 information and has signed a pre-launch commitment for RADARSAT-2 information. A Japanese company has signed a prepaid, pre-launch agreement to distribute RADARSAT-2 information to the commercial Japanese market. MDA also saw continued RADARSAT-1 defence business from three customers including a U.S. agency. The U.S. National Geospatial-Intelligence Agency awarded its second NextView information mission to ORBIMAGE. MDA is a key ground segment partner with ORBIMAGE on this award. NextView missions will assure the access and priority of commercial imagery to U.S. government customers. MDA is also a program partner in the first NextView mission announced last year. In the defence area, MDA was retained by the Canadian Department of National Defence to perform a substantial upgrade to a Naval Operator information solution. The solution, developed by MDA, mimics control rooms by collating tactical information for training in procedures and decision making. MDA successfully secured participation in multiple research and development programs with several U.S. agencies and a Canadian agency. These wins are strategic and will help MDA's technology advancement and position the Company for further growth. The programs cover all areas of the information life cycle, from space technology to information collection and extraction, to applications in new markets. In the U.S. mortgage sector, home purchase volumes remain stable, but refinancing volumes have decreased significantly since last report. This decline has impacted MDA's growth in this sector. In the U.S. property insurance sector, the integration of Marshall & Swift / Boeckh continued to progress. The Company is focusing on closing new business with U.S. property and casualty insurance companies. Strategic accounts have been won in both the underwriting decisions and claims groups. In addition, the Company's claims products are being used extensively by claims adjustors in the southern United States to assess the damage caused by recent hurricanes. In the U.K. property information market, the first Local Authority being modernized by MDA to expedite the processing of land information requests from the National Land Information Service (NLIS) went operational. Five more are in the process of being completed and another Local Authority has just signed up. The number of Local Authorities electronically connected to NLIS continued to increase, and now account for approximately 80% of all property-related searches. A series of interest rate increases over the past year have caused a significant drop in U.K. housing sales over the summer. At last report, NLIS transactions remained steady, with growth in new customers offsetting the drop in the market. However, over the past three months, transaction volumes have dropped as a result of the sustained market slowdown. Strategically, the Company took an important step forward by signing a top-ten U.K. legal firm to use the Company's Channel to conduct online commercial property searches. In British Columbia, information transactions continued at record levels. In addition, revenues from electronic filing services increased about 20% over last quarter. This report contains forward-looking statements and information, which reflect the current view of MacDonald, Dettwiler and Associates Ltd. with respect to future events and financial performance. Any such forward-looking statements are subject to risks and uncertainties and MDA's actual results of operations could differ materially from historical results or current expectations. MDA assumes no obligation to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein do not materialize.
MDA's Third Quarter 2004 unaudited Consolidated Financials are available at:
Investor/Analyst Conference Call Today
MDA President and CEO Daniel Friedmann and Executive Vice President and CFO Anil Wirasekara will be available on a Conference Call today, October 20, 2004 at 1:30PM Pacific (4:30PM Eastern) to explain the financial results of the Company and to answer questions.
To participate, dial 1-800-387-6216 in Canada or the United States.
In Toronto, dial 416-405-9328.
The Conference Call will also be Webcast live at: http://www.mdacorporation.com/corporate/investor/events