EXFO Reports Fourth-Quarter and Year-End Results for Fiscal 2009


    
    - Annual sales decrease 5.9% in the current economic environment
    - Record cash flows from operations attain US$22.6 million
    - Gross margin improves for a seventh consecutive year to reach 61.3%
    - Cash position of US$69.7 million and no debt
    
</pre>
<p/>
<p><location>QUEBEC</location> CITY, <chron>Oct. 13</chron> /CNW Telbec/ - EXFO Electro-Optical Engineering Inc. (NASDAQ:   EXFO, TSX: EXF) reported today fourth-quarter and year-end financial results for the fiscal year ended <chron>August 31, 2009</chron>.</p>
<p>Annual sales decreased 5.9% to US$172.9 million in fiscal 2009 from US$183.8 million in 2008. In the fourth quarter of 2009, sales reached US$36.5 million compared to US$43.6 million in the previous quarter and US$50.9 million in the fourth quarter of 2008. Overall for fiscal 2009, net bookings decreased 2.2% to US$180.5 million from US$184.6 million in 2008 for an annual book-to-bill ratio of 1.04. In the fourth quarter of 2009, net bookings totaled US$40.7 million for a book-to-bill ratio of 1.11 compared to US$40.2 million in the third quarter of 2009 and US$45.7 million in the fourth quarter of 2008.</p>
<p>Gross margin improved for a seventh consecutive year to reach 61.3% of sales in fiscal 2009. In the fourth quarter of 2009, gross margin amounted to 60.0% compared to 62.3% in the previous quarter and 59.9% in the fourth quarter of 2008.</p>
<p>In fiscal 2009, GAAP net loss totaled US$16.6 million, or US$0.27 per share, including US$21.7 million for impairment of goodwill, US$5.1 million in amortization of intangible assets, US$1.4 million in stock-based compensation costs and US$1.2 million in restructuring charges. These items were partially offset by US$1.9 million for the recognition of previously unrecognized R&D tax credits and US$0.9 million for the net recovery of income taxes. These items resulted in a net income tax recovery of US$2.6 million.</p>
<p>In fiscal 2008, GAAP net earnings reached US$18.4 million, or US$0.27 per diluted share, including US$6.5 million for the net recovery of income taxes and an extraordinary gain of US$3.0 million related to the negative goodwill on the acquisition of Navtel Communications. These items were partially offset by US$3.9 million in amortization of intangible assets and US$1.3 million in stock-based compensation costs. These items resulted in a net income tax recovery of US$0.9 million.</p>
<p>In the fourth quarter of 2009, GAAP net loss amounted to US$1.2 million, or US$0.02 per share, including US$1.2 million in restructuring charges, US$1.1 million in amortization of intangible assets, and US$0.4 million in stock-based compensation costs. These items were offset by US$1.9 million for the recognition of previously unrecognized R&D tax credits and US$0.9 million for the net recovery of income taxes. These items resulted in a net income tax expense of US$0.1 million.</p>
<p>In the third quarter of fiscal 2009, GAAP net loss totaled US$23.3 million, or US$0.39 per share. EXFO recorded a non-cash charge of US$21.7 million for impairment of goodwill and a foreign exchange loss of US$4.7 million in the third quarter of 2009. GAAP net loss in the third quarter of 2009 also included US$1.4 million in amortization of intangible assets and US$0.4 million in stock-based compensation costs. These items resulted in a net income tax recovery of US$2.3 million.</p>
<p>In the fourth quarter of 2008, GAAP net earnings amounted to US$3.3 million, or US$0.05 per diluted share, including US$1.4 million in amortization of intangible assets and US$0.4 million in stock-based compensation costs. These items resulted in a net income tax recovery of US$0.2 million.</p>
<p>"EXFO made significant progress navigating through the severe global economic recession in fiscal 2009 and I believe we continued to gain market share from a reduced telecom test and service assurance pie," said Germain Lamonde, EXFO's Chairman, President and CEO. "I'm particularly pleased with our Protocol business which grew 63.1% on full-year revenue contributions from the Brix and Navtel acquisitions and on our focus on IP convergence - both in fixed and mobile communication networks - to account for more than one-third of Telecom revenues. We also continued building for the future in key telecom growth sectors with 26 new product introductions, including several game-changing solutions."</p>
<p>"It was more challenging on the EBITDA side, given lower sales volume caused by the recession, but actions were taken to align our operating expenses to market conditions through a US$6 million annualized cost-reduction plan in the fourth quarter," <person>Mr. Lamonde</person> added. "I'm pleased we still raised our gross margin for a seventh consecutive year to reach 61.3%, generated record cash flows from operations of US$22.6 million, and maintained a healthy balance sheet. Now that the worst of the economic recession seems to be behind us, I'm excited about EXFO's strong strategic position to take advantage of key market opportunities and return to our profitable growth path, as reflected in our new corporate performance metrics for the next three years."</p>
<p/>
<pre>
    
    Selected Financial Information
    (In thousands of US dollars)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Segmented       Q4 2009     Q3 2009     Q4 2008     FY 2009      FY 2008
     results:    ----------- ----------- ----------- ----------- ------------
                 (unaudited) (unaudited) (unaudited) (unaudited)
      Sales:
      Telecom
       Division   $  31,509   $  39,047   $  45,338   $ 153,082    $ 160,981
      Life
       Sciences
       & Indus-
       trial
       Division       4,998       4,589       5,605      19,796       22,809
                 ----------- ----------- ----------- ----------- ------------
      Total       $  36,507   $  43,636   $  50,943   $ 172,878    $ 183,790
                 ----------- ----------- ----------- ----------- ------------
                 ----------- ----------- ----------- ----------- ------------

    Earnings
     (loss) from
     operations:
      Telecom
       Division   $  (3,238)  $ (21,990)  $   2,867   $ (21,954)   $   9,524
      Life
       Sciences
       & Indus-
       trial
       Division       2,020         438         721       3,876        2,459
                 ----------- ----------- ----------- ----------- ------------
      Total       $  (1,218)  $ (21,552)  $   3,588   $ (18,078)   $  11,983
                 ----------- ----------- ----------- ----------- ------------
                 ----------- ----------- ----------- ----------- ------------

    Other
     selected
     information:
      GAAP net
       earnings
       (loss)     $  (1,181)  $ (23,346)  $   3,314   $ (16,585)   $  18,424
      Recognition
       of pre-
       viously
       unrecognized
       R&D tax
       credits    $  (1,902)  $       -   $       -   $  (1,902)   $       -
      Amortiza-
       tion of
       intangible
       assets     $   1,147   $   1,355   $   1,402   $   5,067    $   3,871
      Restruc-
       turing
       charges    $   1,171   $       -   $       -   $   1,171    $       -
      Impairment
       of
       goodwill   $       -   $  21,713   $       -   $  21,713    $       -
      Stock-
       based
       compensa-
       tion costs $     379   $     383   $     368   $   1,409    $   1,272
      Net
       recovery
       of income
       tax        $    (943)  $       -   $       -   $    (943)   $  (6,515)
      Extraor-
       dinary
       gain
       (negative
       goodwill)  $       -   $       -   $       -   $       -    $  (3,036)
      Net income
       tax effect
       of the
       above
       items      $      93   $  (2,273)  $    (225)  $  (2,613)   $    (915)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    
</pre>
<p/>
<p>Operating Expenses</p>
<p/>
<p>Selling and administrative expenses amounted to US$63.8 million, or 36.9% of sales, in fiscal 2009 compared to US$61.2 million, or 33.3% of sales, in 2008. In the fourth quarter of 2009, selling and administrative expenses totaled US$14.2 million, or 38.9% of sales, compared to US$16.7 million, or 38.3% of sales, in the third quarter of 2009 and US$17.0 million, or 33.4% of sales, in the fourth quarter of 2008.</p>
<p>Gross research and development (R&D) expenses reached US$35.8 million, or 20.7% of sales, in fiscal 2009 compared to US$32.5 million, or 17.7% of sales, in 2008. In the fourth quarter of 2009, gross R&D expenses attained US$9.0 million, or 24.7% of sales, compared to US$9.3 million, or 21.4% of sales, in the previous quarter and US$8.6 million, or 16.8% of sales, in the fourth quarter of 2008.</p>
<p>Net R&D expenses totaled US$27.7 million, or 16.0% of sales in fiscal 2009, compared to US$26.9 million, or 14.6% of sales, in 2008. In the fourth quarter of 2009, net R&D expenses amounted to US$5.4 million, or 14.7% of sales, compared to US$7.8 million, or 17.8% of sales, in the third quarter of 2009 and US$7.3 million, or 14.3% of sales, in the fourth quarter of 2008.</p>
<p/>
<p>Fiscal 2009 Business Highlights</p>
<p/>
<p>- Market expansion - EXFO's annual sales decreased 5.9%, or 13.5% on an</p>
<p>  organic basis (excluding acquisitions and gains or losses from forward</p>
<p>  exchange contracts recorded in sales), largely due to the global</p>
<p>  economic recession in 2009. Protocol sales, benefiting from full-year</p>
<p>  revenue contributions from the Brix Networks and Navtel Communications</p>
<p>  acquisitions, IP convergence and network capacity upgrades on wireline</p>
<p>  and wireless networks, increased 63.1% year-over-year. The company's</p>
<p>  Optical (-17.5%) and Copper Access (-21.8%) businesses were more</p>
<p>  affected by challenging market conditions, since many network operators</p>
<p>  deferred capital-intensive deployment decisions. Likewise, the Life</p>
<p>  Sciences and Industrial Division (-13.2%) was affected by difficult</p>
<p>  market conditions. In terms of geographic diversification, the Americas</p>
<p>  accounted for 57.4% of sales in 2009 (vs. 55.8% in 2008), <location>Europe</location>,</p>
<p>  <location>Middle East</location> and <location>Africa</location> (EMEA) 26.9% (vs. 28.4% in 2008), and Asia-</p>
<p>  Pacific 15.7% (vs. 15.8% in 2008). EXFO's largest customer accounted</p>
<p>  for 11.6% of total sales, while the company's top three customers</p>
<p>  represented 17.8%.</p>
<p/>
<p>- Profitability -EXFO raised its gross margin for a seventh consecutive</p>
<p>  year to reach 61.3%, generated a record of US$22.6 million in cash</p>
<p>  flows from operations, and closed fiscal 2009 with a cash position of</p>
<p>  US$69.7 million and no debt. EBITDA dropped to US$14.5 million, or 8.4%</p>
<p>  of sales, mainly due to the global economic recession. The company</p>
<p>  implemented a restructuring plan in the fourth quarter that incurred a</p>
<p>  charge of US$1.2 million but will provide US$6 million in annualized</p>
<p>  cost savings.</p>
<p/>
<p>- Innovation - EXFO launched 26 new products in fiscal 2009, including</p>
<p>  three in the fourth quarter, compared to 27 in 2008. Key product</p>
<p>  introductions in 2009 included laboratory and portable test solutions</p>
<p>  for characterizing 100 Gbit/s Ethernet and 40/43 Gbit/s SONET/OTN</p>
<p>  networks; a distributed PMD analyzer that allows network operators to</p>
<p>  cost-effectively upgrade their networks to 40 Gbit/s and 100 Gbit/s;</p>
<p>  new software releases for the IMS InterWatch platform and Packet Blazer</p>
<p>  product lines that support the migration of voice and video</p>
<p>  applications to the IPv6 (Internet Protocol, version 6) addressing</p>
<p>  scheme; and the next-generation FTB-500 multi-layer platform for high-</p>
<p>  end test applications in the field and central office. Following the</p>
<p>  year-end, the company released the industry's first turnkey optical</p>
<p>  modulation analyzer for complete characterization of signals up to 100</p>
<p>  Gbaud/s. Sales from products on the market two years or less accounted</p>
<p>  for 38.4% of total sales in fiscal 2009, including 38.8% in the fourth</p>
<p>  quarter, compared to 34.6% in fiscal 2008.</p>
<p/>
<p>Business Outlook</p>
<p/>
<p>EXFO forecasted sales between US$40 million and US$45 million and a GAAP net loss between US$0.06 and US$0.02 per share for the first quarter of 2010. GAAP net loss includes US$0.02 per share in after-tax amortization of intangible assets and stock-based compensation costs and assumes a pre-tax foreign exchange loss of US$0.03 per share to account for the significant decrease of the US dollar compared to the Canadian dollars since the end of the fourth quarter of fiscal 2009.</p>
<p>This guidance was established by management based on existing backlog as of the date of this press release, seasonality and expected bookings for the remaining of the quarter.</p>
<p/>
<p>Corporate Performance Objectives for Fiscal 2010-2012</p>
<p/>
<p>Given the global economic recession in fiscal 2009, EXFO has adjusted its corporate performance metrics over a new three-year period extending from fiscal 2010 to 2012. The company has maintained its 20% sales CAGR objective, proposed to double EBITDA in dollars, and raised its gross margin target to 64% for the newly defined three-year period.</p>
<p/>
<pre>
    
            ------------------------------------------------------
              Corporate Performance Objectives for FY 2010-2012
            ------------------------------------------------------
                   Increase sales by a CAGR of 20% or more
            ------------------------------------------------------
                          Raise gross margin to 64%
            ------------------------------------------------------
                          Double EBITDA* in dollars
            ------------------------------------------------------

    * EBITDA is defined as net earnings (loss) before interest, income
        taxes, amortization of property, plant and equipment, amortization of
        intangible assets, impairment of goodwill and extraordinary gain. See
        the following page on EXFO's Website, www.EXFO.com/investors, for a
        reconciliation with GAAP net earnings (loss) in previous fiscal
        years.
    
</pre>
<p/>
<p>Conference Call and Webcast</p>
<p/>
<p>EXFO will host a conference call today at <chron>5 p.m. (Eastern time</chron>) to review its fourth-quarter and year-end financial results for fiscal 2009. To listen to the conference call and participate in the question period via telephone, dial 1-416-641-6654. Germain Lamonde, Chairman, President and CEO, and <person>Pierre Plamondon</person>, CA, Vice-President of Finance and Chief Financial Officer, will participate in the call. An audio replay will be available one hour after the end of the conference call until <chron>7 p.m.</chron> on <chron>October 20, 2009</chron>. The replay number is 1-402-977-9141 and the reservation number is 21434695. The live audio Webcast and replay of the conference call will also be available on EXFO's Website at <a href="http://www.EXFO.com/investors">www.EXFO.com/investors</a>.</p>
<p/>
<p>About EXFO</p>
<p/>
<p>EXFO is a leading provider of test and service assurance solutions for network service providers and equipment manufacturers in the global telecommunications industry. The Telecom Division offers a wide range of innovative solutions extending across the full technology lifecycle ? from design to technology deployment and onto service assurance ? and covering all layers on a network infrastructure to enable triple-play services and next-generation, converged IP networking. The Life Sciences and Industrial Division offers solutions in medical device and opto-electronics assembly, fluorescence microscopy and other life science sectors. For more information, visit <a href="http://www.EXFO.com">www.EXFO.com</a>.</p>
<p/>
<p>Forward-Looking Statements</p>
<p/>
<p>This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, and we intend that such forward-looking statements be subject to the safe harbors created thereby. Forward-looking statements are statements other than historical information or statements of current condition. Words such as may, will, expect, believe, anticipate, intend, could, estimate, continue, or the negative or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events and circumstances are considered forward-looking statements. They are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in forward-looking statements due to various factors including the effect of the worldwide recession and the timing of the expected recovery on the telecom market for our customers and suppliers; fluctuating exchange rates and our ability to execute in these uncertain conditions; consolidation in the global telecommunications test, measurement and service assurance industry; capital spending levels in the telecommunications, life sciences and high-precision assembly sectors; concentration of sales; the effects of the additional actions we have taken in response to such economic uncertainty (including our ability to quickly adapt cost structures with anticipated levels of business, ability to manage inventory levels with market demand); market acceptance of our new products and other upcoming products; limited visibility with regards to customer orders and the timing of such orders; our ability to successfully integrate our acquired and to-be-acquired businesses; our ability to successfully expand international operations; the retention of key technical and management personnel; and future economic, competitive, financial and market condition .Assumptions relating to the foregoing involve judgments and risks, all of which are difficult or impossible to predict and many of which are beyond our control. Other risk factors that may affect our future performance and operations are detailed in our Annual Report, on Form 20-F, and our other filings with the U.S. Securities and Exchange Commission and the Canadian securities commissions. We believe that the expectations reflected in the forward-looking statements are reasonable based on information currently available to us, but we cannot assure you that the expectations will prove to have been correct. Accordingly, you should not place undue reliance on these forward-looking statements. These statements speak only as of the date of this document. Unless required by law or applicable regulations, we undertake no obligation to revise or update any of them to reflect events or circumstances that occur after the date of this document.</p>
<p/>
<pre>
    
                    EXFO Electro-Optical Engineering Inc.
                     Interim Consolidated Balance Sheet

                         (in thousands of US dollars)

                                                             As at August 31,
                                                     ------------------------
                                                           2009         2008
                                                     -----------  -----------
    Assets                                           (unaudited)

    Current assets
    Cash                                             $   10,611   $    5,914
    Short-term investments                               59,105       81,626
    Accounts receivable
      Trade                                              22,946       31,473
      Other                                               2,752        4,753
    Income taxes and tax credits recoverable              2,353        4,836
    Inventories                                          30,863       34,880
    Prepaid expenses                                      2,043        1,774
    Future income taxes                                   5,538        9,140
                                                     -----------  -----------

                                                        136,211      174,396

    Tax credits recoverable                              26,762       20,657

    Forward exchange contracts                              428            -

    Property, plant and equipment                        19,100       19,875

    Intangible assets                                    16,859       19,945

    Goodwill                                             22,478       42,653

    Future income taxes                                  18,533       15,540
                                                     -----------  -----------

                                                     $  240,371   $  293,066
                                                     -----------  -----------
                                                     -----------  -----------
    Liabilities

    Current liabilities
    Accounts payable and accrued liabilities         $   21,650   $   24,713
    Deferred revenue                                      6,481        5,079
                                                     -----------  -----------

                                                         28,131       29,792

    Deferred revenue                                      4,195        3,759
                                                     -----------  -----------

                                                         32,326       33,551
                                                     -----------  -----------

    Shareholders' equity

    Share capital                                       104,846      142,786
    Contributed surplus                                  17,758        5,226
    Retained earnings                                    43,909       60,494
    Accumulated other comprehensive income               41,532       51,009
                                                     -----------  -----------

                                                        208,045      259,515
                                                     -----------  -----------

                                                     $  240,371   $  293,066
                                                     -----------  -----------
                                                     -----------  -----------



                    EXFO Electro-Optical Engineering Inc.
            Interim Unaudited Consolidated Statements of Earnings

        (in thousands of US dollars, except share and per share data)


                                Three       Twelve        Three       Twelve
                               months       months       months       months
                                ended        ended        ended        ended
                            August 31,   August 31,   August 31,   August 31,
                                 2009         2009         2008         2008
                           -----------  -----------  -----------  -----------

    Sales                  $   36,507   $  172,878   $   50,943   $  183,790

    Cost of sales(1),(2)       14,618       66,892       20,416       75,624
                           -----------  -----------  -----------  -----------

    Gross margin               21,889      105,986       30,527      108,166
                           -----------  -----------  -----------  -----------

    Operating expenses
    Selling and
     administrative(1)         14,185       63,808       16,993       61,153
    Net research and
     development(1),(3)         5,371       27,698        7,297       26,867
    Amortization of
     property, plant
     and equipment              1,233        4,607        1,247        4,292
    Amortization of
     intangible assets          1,147        5,067        1,402        3,871
    Restructuring charges       1,171        1,171            -            -
    Impairment of goodwill          -       21,713            -            -
                           -----------  -----------  -----------  -----------
    Total operating
     expenses                  23,107      124,064       26,939       96,183
                           -----------  -----------  -----------  -----------

    Earnings (loss) from
     operations                (1,218)     (18,078)       3,588       11,983

    Interest income
     (expense)                    (86)         597          576        4,639
    Foreign exchange gain         186        1,157        1,349          442
                           -----------  -----------  -----------  -----------

    Earnings (loss) before
     income taxes and
     extraordinary gain        (1,118)     (16,324)       5,513       17,064
    Income taxes
    Current                       413          561          (14)      (7,094)
    Future                         22           72        2,213       14,094
    Recognition of previously
     unrecognized future
     income tax assets           (372)        (372)           -       (5,324)
                           -----------  -----------  -----------  -----------

                                   63          261        2,199        1,676
                           -----------  -----------  -----------  -----------

    Earnings (loss) before
     extraordinary gain        (1,181)     (16,585)       3,314       15,388

    Extraordinary gain              -            -            -        3,036
                           -----------  -----------  -----------  -----------

    Net earnings (loss)
     for the period        $   (1,181)  $  (16,585)  $    3,314   $   18,424
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------

    Basic and diluted
     earnings (loss)
     before extraordinary
     gain per share        $    (0.02)  $    (0.27)  $     0.05   $     0.22
    Basic and diluted net
     earnings (loss) per
     share                 $    (0.02)  $    (0.27)  $     0.05   $     0.27
    Basic weighted average
     number of shares
     outstanding (000's)       59,553       61,845       68,082       68,767
    Diluted weighted
     average number of
     shares outstanding
     (000's)                   59,553       61,845       68,550       69,318

    (1) Stock-based
         compensation costs
         included in:
        Cost of sales      $       40   $      137   $       36   $      148
         Selling and
         administrative           221          858          232          830
        Net research and
         development              118          414          100          294
                           -----------  -----------  -----------  -----------

                           $      379   $    1,409   $      368   $    1,272
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------

    (2) The cost of sales is exclusive of amortization, shown separately.

    (3) Net research and development expenses for the three and twelve months
        ended August 31, 2009 include recognition of previously unrecognized
        research and development tax credits of $1,902.


                    EXFO Electro-Optical Engineering Inc.
        Interim Unaudited Consolidated Statements of Comprehensive
                                Income (Loss)
                 And Accumulated Other Comprehensive Income

                         (in thousands of US dollars)


    Comprehensive income (loss)

                                Three       Twelve        Three       Twelve
                               months       months       months       months
                                ended        ended        ended        ended
                            August 31,   August 31,   August 31,   August 31,
                                 2009         2009         2008         2008
                           -----------  -----------  -----------  -----------
    Net earnings (loss)
     for the period        $   (1,181)  $  (16,585)  $    3,314   $   18,424
    Foreign currency
     translation
     adjustment                (1,078)     (10,671)     (18,511)      (2,289)
    Changes in unrealized
     gains (losses) on
     short-term
     investments                    -           22           (9)          31
    Unrealized gains
     (losses) on forward
     exchange contracts          (229)      (1,467)      (1,882)         962
    Reclassification of
     realized gains
     (losses) on forward
     exchange contracts
     in net earnings
     (loss)                        84        3,167         (770)      (3,915)
    Future income taxes
     effect of the above
     items                         44         (528)         822          909
                           -----------  -----------  -----------  -----------

    Comprehensive
     income (loss)         $   (2,360)  $  (26,062)  $  (17,036)  $   14,122
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------


    Accumulated other comprehensive income

                                                              Twelve
                                                      months ended August 31,
                                                     ------------------------

                                                           2009         2008
                                                     -----------  -----------

    Foreign currency translation adjustment
      Cumulative effect of prior periods             $   51,129   $   53,418
      Current period                                    (10,671)      (2,289)
                                                     -----------  -----------

                                                         40,458       51,129
                                                     -----------  -----------
    Unrealized gains (losses) on forward exchange
     contracts
      Cumulative effect of prior periods                    (96)       1,948
      Current period, net of realized gains and
       future income taxes                                1,172       (2,044)
                                                     -----------  -----------

                                                          1,076          (96)
                                                     -----------  -----------

    Unrealized gains (losses) on short-term
     investments
      Cumulative effect of prior periods                    (24)         (55)
      Current period, net of future income taxes             22           31
                                                     -----------  -----------

                                                             (2)         (24)
                                                     -----------  -----------

    Accumulated other comprehensive income           $   41,532   $   51,009
                                                     -----------  -----------
                                                     -----------  -----------


                    EXFO Electro-Optical Engineering Inc.
       Interim Unaudited Consolidated Statements of Retained Earnings
                           and Contributed Surplus

                         (in thousands of US dollars)


    Retained earnings

                                                               Twelve
                                                      months ended August 31,
                                                     ------------------------

                                                           2009         2008
                                                     -----------  -----------

    Balance - Beginning of period                    $   60,494   $   42,330

    Add (deduct)
    Net earnings (loss) for the period                  (16,585)      18,424
    Premium on redemption of share capital                    -         (260)
                                                     -----------  -----------

    Balance - End of period                          $   43,909   $   60,494
                                                     -----------  -----------
                                                     -----------  -----------


    Contributed surplus

                                                               Twelve
                                                      months ended August 31,
                                                     ------------------------
                                                           2009         2008
                                                     -----------  -----------

    Balance - Beginning of  period                   $    5,226   $    4,453

    Add (deduct)
    Stock-based compensation costs                        1,407        1,287
    Reclassification of stock-based compensation
     costs to share capital upon exercise of
     stock awards                                          (540)        (514)
    Discount on redemption of share capital              11,665            -
                                                     -----------  -----------

    Balance - End of period                          $   17,758   $    5,226
                                                     -----------  -----------
                                                     -----------  -----------


                    EXFO Electro-Optical Engineering Inc.
           Interim Unaudited Consolidated Statements of Cash Flows

                         (in thousands of US dollars)

                                Three       Twelve        Three       Twelve
                               months       months       months       months
                                ended        ended        ended        ended
                            August 31,   August 31,   August 31,   August 31,
                                 2009         2009         2008         2008
                           -----------  -----------  -----------  -----------

    Cash flows from
     operating activities
    Net earnings (loss)
     for the period        $   (1,181)  $  (16,585)  $    3,314   $   18,424
    Add (deduct) items not
     affecting cash
      Change in discount
       on short-term
       investments                 24          597         (486)       1,035
      Stock-based
       compensation
       costs                      379        1,409          368        1,272
      Amortization              2,380        9,674        2,649        8,163
      Deferred revenue         (1,539)       1,706          482           47
      Loss on disposal of
       capital assets               -          237            -            -
      Impairment of
       goodwill                     -       21,713            -            -
      Future income taxes        (350)        (300)       2,213        8,770
      Extraordinary gain            -            -            -       (3,036)
      Change in unrealized
       foreign exchange
       loss (gain)               (414)      (1,955)      (1,619)      (1,093)
                           -----------  -----------  -----------  -----------

                                 (701)      16,496        6,921       33,582

    Change in non-cash
     operating items
      Accounts receivable       9,015        9,654       (4,193)      (4,338)
      Income taxes and tax
       credits                 (1,202)      (3,391)      (1,396)     (12,833)
      Inventories               1,935        2,624          712       (2,166)
      Prepaid expenses            (12)        (350)         379         (127)
      Accounts payable and
       accrued liabilities     (1,870)      (2,409)       1,659       (1,416)
                           -----------  -----------  -----------  -----------

                                7,165       22,624        4,082       12,702
                           -----------  -----------  -----------  -----------
    Cash flows from
     investing activities
    Additions to short-term
     investments              (88,561)    (438,460)     (72,800)    (717,020)
    Proceeds from disposal
     and maturity of
     short-term investments    82,570      456,612       73,939      760,310
    Additions to capital
     assets                      (978)      (6,945)      (1,452)      (6,508)
    Business combinations,
     net of cash acquired           -       (2,414)         (78)     (41,016)
                           -----------  -----------  -----------  -----------

                               (6,969)       8,793         (391)      (4,234)
                           -----------  -----------  -----------  -----------
    Cash flows from
     financing activities
    Change in bank loan             -            -       (1,485)           -
    Redemption of share
     capital                     (793)     (26,871)      (4,675)      (8,068)
    Exercise of stock
     options                       15           56            -           61
                           -----------  -----------  -----------  -----------

                                 (778)     (26,815)      (6,160)      (8,007)
                           -----------  -----------  -----------  -----------

    Effect of foreign
     exchange rate changes
     on cash                      110           95         (199)         (88)

    Change in cash               (472)       4,697       (2,668)         373

    Cash - Beginning of
     period                    11,083        5,914        8,582        5,541
                           -----------  -----------  -----------  -----------

    Cash - End of period   $   10,611  $    10,611   $    5,914   $    5,914
                           -----------  -----------  -----------  -----------
                           -----------  -----------  -----------  -----------
    

For further information: For further information: Vance Oliver, Manager, Investor Relations, (418) 683-0913, Ext. 3733, vance.oliver@exfo.com

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EXFO Inc.

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