Three and Six Months Ended June 30, 2011 Q2 Unaudited Consolidated Financial Statements · Q2...

MacDonald, Dettwiler and Associates Ltd.

Second Quarter Report 2011

Three and Six Months Ended June 30, 2011

Management’s Discussion and Analysis and Unaudited Consolidated Financial Statements

Q2

MANAGEMENT’S DISCUSSION AND ANALYSIS For the three and six months ended June 30, 2011 For purposes of this discussion, MDA and the Company refer to MacDonald, Dettwiler and Associates Ltd. and its subsidiaries. The quarter and this quarter mean the three months ended June 30, 2011. Year to date means the six months ended June 30, 2011. ADVISORY This management’s discussion and analysis (“MD&A”), dated July 28, 2011, should be read in conjunction with the cautionary statement regarding forward-looking statements below and the Company’s consolidated financial statements and notes thereto for the six months ended June 30, 2011 (the “interim financial statements”) and the year ended December 31, 2010, as well with the Company’s MD&A for the year ended December 31, 2010. Unless otherwise noted, the results reported herein have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and are presented in Canadian dollars. An additional advisory with respect to the use of non-IFRS financial measures is set out in section “Non-IFRS Financial Measures” of this MD&A. Unless otherwise noted, the Company’s contractual obligations, commitments, and business risks and uncertainties, as described in its MD&A for the year ended December 31, 2010, are substantially unchanged. FORWARD-LOOKING STATEMENTS This MD&A contains forward-looking statements that reflect the Company’s current view of future events and financial performance. The forward-looking statements in this MD&A include, but are not limited to, statements regarding: the Company’s assessment of the impact of the transition to IFRS under section “International Financial Reporting Standards”; the objectives and anticipated effects on the Company and its shareholders of the proposed substantial issuer bid, including the Company’s continuing ability to raise capital, under sections “Overview – Substantial issuer bid” and “Liquidity – Substantial issuer bid”; the future of the Company’s Space Infrastructure Servicing (“SIS”) initiative under section “Overview – SIS initiative”; the expected value of customer contracts under sections “Results of Continuing Operations – Revenues” and “Results of Continuing Operations – Order backlog”; the impact of government funding trends on the RADARSAT Constellation Mission under section “Results of Continuing Operations – Revenues”; and the Company’s liquidity and financial resources under section “Liquidity”. The forward-looking statements in this MD&A are based on the Company’s current expectations, estimates, projections and assumptions made in light of its experience and perception of historical trends. The Company has made the following assumptions with respect to the forward-looking statements: the Company’s assessment of the impact of the transition to IFRS was based on standards adopted by the International Accounting Standards Board to date and the Company’s interpretation of differences between Canadian GAAP and IFRS; the objectives and anticipated effects on the Company and its shareholders of the proposed substantial issuer bid were based on the Company’s assumptions of future market conditions and its ability to complete the substantial issuer bid; the future of the Company’s SIS initiative was based on its ability to participate in the on-orbit servicing market; the expected value of customer contracts was based on the Company’s continuing ability to fulfill the requirements of the contracts and there being no adverse changes to government priorities and funding levels; the impact of government funding trends on the RADARSAT Constellation Mission was based on the frequency and amount of funding received to date and the Company’s ability to effectively execute the program under such conditions; and the Company’s liquidity and financial resources were based on stable market conditions and the Company’s current budgets and forecasts.

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Any such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from current expectations. MDA cautions readers that should certain risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary significantly from those expected. The risks that could cause actual results to differ from current expectations include: changes in government priorities, funding levels, contracts and regulations; failure of third parties and subcontractors to complete contracts for which the Company is the prime contractor; risks of performance on firm fixed price construction contracts; changes in estimates of total revenues and costs on contracts; potential for product liability, loss of the Company’s reputation; failure of systems to meet performance requirements; failure of the Company to manage its acquisitions and indemnities and related risks on divestitures; satellite failure; dependency on electronic systems including data corruption; detrimental reliance on third parties for data; failure to recruit required management and employees and potential for work stoppages; failure to anticipate changes in technology, technical standards and offerings or comply with the requisite standards; failure to maintain technological advances and market positions; significant competition; infringement of the intellectual property rights of others through licensed software or otherwise; inadequate protection of the Company’s intellectual property rights; exposure to foreign currency fluctuations; changes in economic and political conditions; inability of suppliers or subcontractors to effect technology transfer; failure to maintain business alliances; uncertainty in financing arrangements; failure of counterparties in financing arrangements and financial derivative contracts; wrongful call on letters of credit and performance bonds; and insufficient insurance against material claims or losses. For additional information with respect to certain of these risks or factors, reference should be made to section “Business Risks and Uncertainties” of the MD&A and notes to the consolidated financial statements for the year ended December 31, 2010, as well with the Company’s continuous disclosure materials filed from time to time with Canadian securities regulatory authorities, which are available online at www.sedar.com or on the Company’s website at www.mdacorporation.com. The forward-looking information contained in this MD&A is expressly qualified by this cautionary statement. MDA disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by law, rule or regulation. You should not place undue reliance on forward-looking statements. COMPANY PROFILE MDA’s solutions capture and process large amounts of data, produce essential information, and improve the decision making and operational performance of business and government organizations worldwide. MDA’s business is focused on information solutions for market sectors which offer strong repeat business potential, principally the Surveillance and Intelligence sector and the Communications sector. In addition, the Company conducts a broad range of customer funded Advanced Technology development for various other market sectors.

MDA serves its worldwide customer base from more than 15 offices located throughout the United States, Canada, and internationally.

The Company's common shares trade on the Toronto Stock Exchange under the symbol "MDA".

Information solutions MDA provides ground-based and space-based information solutions that support the operational needs of government, both military and civilian, and commercial customers worldwide. MDA’s information solutions include Earth observation ground systems, defence information systems,

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http://www.sedar.com/

http://www.mdacorporation.com/

airborne surveillance systems, transportation management systems, geospatial services, space-based platforms for Earth observation and advanced solutions for space exploration missions, as well as various mission sub-systems and support services. The Company’s comprehensive capabilities in business and program management, systems engineering, systems integration, testing, and support services address complex customer requirements through the full information solutions life cycle. Customers that procure MDA’s infrastructure and sustaining engineering services represent some of the world’s leading commercial and government enterprises. Through its Geospatial Services operations, the Company provides geospatial information and decision support solutions that are derived using both satellite and aerial Earth observation sources. These solutions are used by organizations worldwide that monitor and manage changes and activities on the Earth, such as defence, intelligence and surveillance, resource management and environmental agencies. INTERNATIONAL FINANCIAL REPORTING STANDARDS The Canadian Accounting Standards Board requires Canadian publicly accountable enterprises to adopt IFRS in 2011 to replace Canadian Generally Accepted Accounting Principles (“GAAP”). Accordingly, the interim financial statements have been prepared in accordance with IFRS, with a transition date of January 1, 2010 to allow for comparative financial information. Financial information disclosed in this MD&A for periods ending prior to January 1, 2010 has not been restated. The Company’s IFRS conversion plan was comprehensive and addressed matters including staff training, changes in accounting policies, restatement of comparative periods, internal controls and procedures, disclosure controls, and business activities in general. The changeover to IFRS did not result in a material impact to the Company’s business functions and activities. Although IFRS employs a conceptual framework that is similar to Canadian GAAP, there are differences in recognition, measurement and disclosure. Refer to the consolidated financial statements and MD&A for the three months ended March 31, 2011 for a summary of the transitional exemptions and elections taken by the Company and relevant differences in accounting policies between Canadian GAAP and IFRS, as well as the Company’s significant accounting policies and critical accounting estimates used in preparing its consolidated financial statements under IFRS. The information provided in this MD&A and in the interim financial statements with respect to the transition to IFRS reflects current views, assumptions and expectations. Circumstances may arise such as changes in IFRS standards or interpretation of existing IFRS standards before the consolidated financial statements as at December 31, 2011 are prepared. Consequently, final accounting policy decisions for all standards and exemptions in effect at the date of transition will be made during the preparation of the consolidated financial statements as at December 31, 2011. NON-IFRS FINANCIAL MEASURES In addition to results reported in accordance with IFRS, the Company uses certain non-IFRS financial measures as supplemental indicators of its financial and operating performance. These non-IFRS financial measures include operating earnings, operating earnings per share and operating EBITDA. The Company has historically reported on such supplementary financial measures as the Company believes their use provides more insight into its performance. Operating earnings is defined as net earnings adjusted for specified items affecting comparability, including share-based compensation, fair value adjustments on financial instruments not subject to hedge accounting, write-downs and other gains or losses. The Company uses operating earnings

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and operating earnings per share as a more meaningful way to compare financial results from one period to another. Operating earnings per share is calculated using diluted weighted average shares outstanding and does not represent actual earnings per share attributable to shareholders. Operating EBITDA is defined as earnings before corporate expense, net finance costs, income tax expense, depreciation and amortization, and items affecting comparability as specified in the calculation of operating earnings. Operating EBITDA is presented on a basis consistent with the Company’s internal management reporting. The Company discloses operating EBITDA to capture the profitability of its business before the impact of non-operational items. Operating earnings and operating EBITDA do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. The Company cautions readers to consider these non-IFRS financial measures in addition to, and not as an alternative for, measures calculated in accordance with IFRS. The adoption of IFRS did not have a significant impact on operating EBITDA and operating earnings as previously reported under Canadian GAAP. OVERVIEW The following table provides selected financial information for the periods indicated.

Three months ended June 30, Six months ended June 30, Results of Operations

2011 2010 2011 2010 ($ millions, except per common share amounts) From continuing operations Revenues 194.9 160.8 401.4 313.1 Operating EBITDA1 49.2 40.8 94.9 80.6 Operating earnings1 28.8 22.5 55.6 45.5 Operating earnings per share1, diluted 0.70 0.55 1.35 1.11

Net earnings Continuing operations 31.6 14.9 59.9 34.0 Gain (loss) on sale of discontinued operations (2.0) - 54.2 - Discontinued operations - 10.1 - 19.0 Total 29.6 25.0 114.1 53.0

Net earnings per share, diluted Continuing operations 0.77 0.36 1.45 0.83 Gain (loss) on sale of discontinued operations (0.05) - 1.32 - Discontinued operations - 0.25 - 0.46 Total 0.72 0.61 2.77 1.29

Weighted average number of common shares outstanding: (millions) Basic 41.2 40.9 41.1 40.8 Diluted 41.2 41.0 41.2 41.0

Financial Position June 30, 2011 December 31, 2010 ($ millions) From continuing operations Total assets 1,257.8 692.1 Cash and cash equivalents 747.6 189.5 Long-term debt 100.3 203.8 Shareholders’ equity 705.2 602.5

1 Non-IFRS financial measure. Refer to sections “Results of Continuing Operations” for reconciliation to the nearest IFRS measure.

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Sale of the property information business On January 4, 2011, the Company completed the sale of all its property information business to a third party buyer. The Company received net cash proceeds of US$815 million from the sale after related taxes, which included a US$4.3 million reduction in the quarter related to final working capital adjustments. The Company is entitled to additional consideration of up to US$30 million based on a portion of the property information business achieving specified performance targets through to December 2014. The sale of the property information business resulted in an after-tax gain of $54 million, or $1.32 per diluted share, in 2011. The Company has reported the results of the property information business as discontinued operations for all periods presented for comparative purposes. The financial information and discussions presented in the MD&A refer to the Company’s continuing operations, unless otherwise noted. Substantial issuer bid The Company plans to return up to $500 million of its surplus cash pursuant to a substantial issuer bid (the “Offer”). The Company believes that the repurchase for cancellation of outstanding common shares from shareholders represents an appropriate use of its surplus cash. The Company is making the Offer as an equitable and efficient means to distribute up to $500 million in cash to shareholders. After the completion of the Offer, the Company will still have significant cash balances and borrowing capacity, as well as access to financial markets, to continually pursue strategic acquisitions and other growth initiatives. Also, the Offer is not expected to materially impact the Company’s public market profile or trading liquidity going forward. Refer to section “Liquidity – Substantial issuer bid” for more information. SIS initiative In June 2011, the Company and Intelsat agreed to extend the requirements definition phase of their satellite servicing agreement. The U.S. government is increasingly interested in funding the domestic development of on-orbit servicing technology. NASA has issued its first request for proposals to advance the state of technology in areas related to on-orbit servicing, to which MDA and Intelsat have submitted a bid. The extension with Intelsat gives the Company more time to (1) advance dialogue with various parties, including customers, regulators and suppliers; (2) understand whether MDA can participate in the U.S. development program; and (3) investigate other markets as the preliminary conclusion is that the U.S. government market for refueling and repositioning is smaller and more complex to service than expected.

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RESULTS OF CONTINUING OPERATIONS The following table provides selected financial information of the continuing operations for the periods indicated, including a reconciliation of operating EBITDA and operating earnings to net earnings from continuing operations.

Three months ended June 30, Six months ended June 30,

2011 2010 2011 2010 ($ millions, except per common share amounts) Revenues from continuing operations 194.9 160.8 401.4 313.1

Operating EBITDA from continuing operations 49.2 40.8 94.9 80.6 Operating EBITDA as a percentage of revenues1 25% 25% 24% 26%

Corporate expense (3.3) (3.7) (5.8) (6.2) Finance costs, net (0.8) (0.9) (2.4) (1.9) Depreciation and amortization (2.9) (2.9) (5.7) (5.9) Income tax expense, excluding tax on items affecting comparability (13.4) (10.8) (25.4) (21.1)

Operating earnings from continuing operations 28.8 22.5 55.6 45.5 Operating earnings per diluted share 0.70 0.55 1.35 1.11

Items affecting comparability: Share-based compensation (1.5) (12.3) (5.3) (9.3) Fair value adjustments on equity forward contracts 1.8 8.2 6.4 0.3 Foreign exchange timing differences on certain project-related foreign exchange forward contracts not subject to hedge accounting (0.8) (6.8) (1.3) (6.8) Foreign exchange gain on translation of intercompany balances 1.1 - 2.5 - Foreign exchange gain on conversion and translation of foreign cash balances 1.8 - 1.8 - Tax on items affecting comparability 0.4 3.3 0.2 4.3

Net earnings from continuing operations 31.6 14.9 59.9 34.0

1 Operating EBITDA as a percentage of revenues (margins) will fluctuate from period to period with the timing of booking large dollar value contracts, changes in their contract life cycle and the level of subcontractor effort. The margins are also impacted by the ratio of MDA value-added components to flowthrough costs. For contracts that include significant components of flowthrough costs with little added value, the main MDA components (e.g. satellite system) generally attract normal margins while the flowthrough costs (e.g. standard launch service) attract lower margins. Additionally, the Company revises cost and revenue estimates on contracts in the ordinary course of business. Changes in estimates are included in the determination of estimated cumulative revenues in the period the changes are determined. Furthermore, any gains on contracts are recognized only when such amounts can be reliably determined and are reasonably assured of being realized.

Revenues Revenues this quarter were $195 million, up from $161 million for the second quarter of 2010. For the year to date, revenues increased to $401 million from $313 million for the same period of last year. The increase compared to the same periods in the prior year reflected higher levels of activity, primarily on the Express AM5/AM6 and Ukraine satellite solution programs. The Express AM5/AM6 program has passed the midpoint in construction and is now in the assembly and integration stage. Progress on the Ukraine satellite solution program remains slower than originally planned as the customer continues to resolve frequency licensing issues. The Company ceased its UAV surveillance services for the Canadian armed forces in July 2011 as a result of Canada’s withdrawal from Afghanistan. Also in July 2011, the UAV surveillance service contract with the Australian Defence Force was extended for a third year to December 2012.

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During the quarter, the Company received additional funding amounting to $53 million in value for the RADARSAT constellation mission. Due to the continuing incremental funding approach and to anticipated additional delays in future funding, the Company has had to slow the design phase of the program and has been unable to timely initiate the procurement of long-lead parts and equipment necessary for the build phase. There remains a possibility of a gap in continuity for the program in 2012, which may impact the Company’s workforce. Operating EBITDA Operating EBITDA, which measures the Company’s profitability before the impact of non-operational items and corporate expense, increased to $49 million this quarter from $41 million for the same period of last year. For the year to date, operating EBITDA increased to $95 million compared to $81 million for the first six months of 2010. The increase compared to the same periods in the prior year reflected higher revenues and the mix of commercial and service contracts. Corporate expense Corporate expense this quarter was $3.3 million compared to $3.7 million for the same period of last year. Corporate expense included such items as corporate head office costs, regulatory costs, executive and director compensation, strategic business development expenditures, and fees for audit, legal and consulting services. Corporate expense for the year to date was $5.8 million compared to $6.2 million for the first six months of 2010. Net finance costs Finance expense this quarter was $2.0 million compared to $0.9 million for the second quarter of 2010. Finance expense included interest on long-term debt, interest expense on forward points, and imputed interest on long-term financial liabilities. Finance expense for the year to date was $4.5 million compared to $2.0 million for the same period of last year. Finance expense was lower last year as a significant portion of interest on long-term debt was allocated to discontinued operations. Finance income was $1.1 million for the quarter and $2.1 million for the year to date. For the comparative periods of last year, finance income was minimal. Finance income consisted primarily of investment income earned on cash balances. Depreciation and amortization The following table shows depreciation and amortization expense, allocated between property, plant and equipment and intangible assets, for the periods indicated. Depreciation and amortization expense for the quarter and the year to date was consistent with the same periods of last year.


2011 2010 2011 2010 ($ millions) Property, plant and equipment 1.9 2.0 3.7 4.2 Intangible assets 1.0 0.9 2.0 1.7

Depreciation and amortization 2.9 2.9 5.7 5.9

Income tax expense Income tax expense for the year to date was $25 million, representing an effective tax rate for accounting purposes of 30%. This is compared to the Company’s statutory income tax rate of 27%. The difference was mainly due to higher income tax rates applicable to subsidiaries operating in different jurisdictions and certain non-deductible expenses. The effective accounting tax rate for the first six months of 2010 was 33%. The decrease compared to the prior year period was due to declining corporate income tax rates.

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Operating earnings Operating earnings, or net earnings adjusted for items affecting comparability, this quarter increased to $29 million ($0.70 per diluted share) compared to $23 million ($0.55 per diluted share) for the same period of last year. For the year to date, operating earnings per diluted share were $1.35, up from $1.11 for the first six months of 2010. The increase compared to the same periods in the prior year reflected higher levels of operating activity.

Net earnings Net earnings this quarter were $32 million ($0.77 per diluted share) compared to $15 million ($0.36 per diluted share) for the second quarter of 2010. For the year to date, net earnings were $60 million ($1.45 per diluted share) compared to $34 million ($0.83 per diluted share) for the first six months of last year. The comparison of results to other periods under IFRS is hindered by the variability of a number of items that are not indicative of performance. These items include:

Items affecting comparability Explanation

Share-based compensation and related equity forward contracts

Although share-based compensation is an important aspect of compensation for management and key employees, the accounting expense or recovery based on fair valuation can result in significant variability in net earnings. Fair values of share-based compensation are estimated using complex option pricing models which incorporate factors, such as expected option lives and market volatility, that are beyond the Company’s control. Further, share-based compensation expense is not reflective of actual cash outlays by the Company. The cash outlay on share-based compensation was approximately $17 million per year over the last three fiscal years. The Company believes that it is useful to exclude share-based compensation to facilitate the comparison of operating results across periods.

The Company uses equity forward contracts to hedge the economic risk of fluctuations in its share price on the share-based compensation plans. However, gains and losses on fair valuation of equity forward contracts can result in significant variability in net earnings and have no relationship to the Company’s operating results.

Foreign exchange timing differences on certain project-related foreign exchange forward contracts not subject to hedge accounting

Certain foreign exchange derivative contracts entered into by the Company relating to the Russian and Ukraine projects did not qualify for hedge accounting as the timing of the anticipated cash flows and/or the contract currency for certain subcontracts could not be predicted with sufficient certainty. Accordingly, the fair value adjustments on these derivative contracts were recognized in net earnings immediately, resulting in foreign exchange timing differences with the recognition of revenues and costs, which were recognized on the percentage of completion basis using spot rates. The foreign exchange timing differences can result in significant variability in net earnings but have little bearing, other than timing, on the performance of the related projects.

Foreign exchange gain on translation of intercompany balances

As part of its cash management efforts, the Company frequently advances funds between group entities that have differing functional currencies. The foreign currency exposure on these intercompany loans is not hedged. As a result, currency fluctuations, particularly between the Canadian and US dollar, can result in significant unrealized foreign exchange gains or losses on the translation of these balances that impact the comparability of net earnings.

Foreign exchange gain on conversion and translation of foreign cash balances

The Company received a significant amount of US dollars from the sale of its property information business. Although some of the funds have been converted to Canadian dollars, the Company has retained a significant amount in US dollars. The foreign exchange gains and losses resulting from the conversion and translation of US dollars can result in significant variability in net earnings but have little bearing on operating performance.

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Order backlog Order backlog at June 30, 2011 was $833 million compared to $998 million at December 31, 2010. New contract awards in value of $238 million were added to backlog during the first six months of 2011. The overall decrease reflected the depletion of backlog on the Express AM5/AM6 and Ukraine contracts. Also, backlog related to the Company’s advanced robotics operations has declined due to ongoing reductions in Canada’s space exploration budgets. Financial position The Company employed $1.3 billion of assets at June 30, 2011 compared to $692 million at December 31, 2010. The increase was primarily due to the cash proceeds received from the sale of the property information business. The balance of construction contract liabilities (payments received from customers in excess of revenue recognized) at June 30, 2011 was $182 million, a decrease of $57 million compared to the balance at December 31, 2010. The Company had received a number of large advance payments from customers on the Express AM5/AM6 and Ukraine contracts, which it is now drawing down to fund the progress on these contracts. The following table shows the changes to long-term debt for the six months ended June 30, 2011. ($ millions) Balance at December 31, 2010 203.8 Repayment of long-term debt (100.6) Foreign exchange and other items (2.9)

Balance at June 30, 2011 100.3

At the close of the sale of the property information business, the Company repaid $100 million of long-term debt with proceeds from the sale. QUARTERLY INFORMATION The following table summarizes selected financial information (unaudited) for the eight most recently completed quarters.

IFRS Q2

IFRS Q1

IFRS Q4

IFRS Q3

IFRS Q2

IFRS Q1

Cdn GAAP

Q4

Cdn GAAP

Q3 2011 2011 2010 2010 2010 2010 2009 2009 ($ millions, except per common share amounts)

Revenues from continuing operations 194.9 206.5 208.4 166.5 160.8 152.3 129.1 130.2 Operating EBITDA from continuing operations1 49.2 45.7 50.8 43.8 40.8 39.7 29.7 35.0 Operating earnings from continuing operations1 28.8 26.8 31.7 22.7 22.5 23.0 19.1 14.9 Per share, diluted 0.70 0.65 0.77 0.55 0.55 0.56 0.47 0.37

Net earnings from continuing operations 31.6 28.2 8.0 22.0 14.9 19.1 21.5 15.5 Per share, basic 0.77 0.69 0.20 0.54 0.36 0.47 0.53 0.38 Per share, diluted 0.77 0.69 0.20 0.54 0.36 0.47 0.53 0.38

Total net earnings2 29.6 84.4 37.1 40.6 25.0 28.1 30.2 28.5 Per share, basic 0.72 2.05 0.90 0.99 0.61 0.69 0.74 0.70 Per share, diluted 0.72 2.05 0.90 0.99 0.61 0.69 0.74 0.70

Weighted average number of common shares outstanding: (millions) Basic 41.2 41.1 41.0 41.0 40.9 40.7 40.5 40.5 Diluted 41.2 41.2 41.1 41.1 41.0 40.9 40.8 40.7

1 Refer to section “Reconciliations” for reconciliation to net earnings from continuing operations for the last eight quarters. 2 Total net earnings consist of the results of continuing operations and discontinued operations.

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Continuing operations The volume of activity expanded during 2010 as a number of new projects got underway, including the start of work on the Russian and Ukrainian satellite solution contracts and the commencement of UAV surveillance services to the Australian Defence Force. Operating EBITDA margins may vary from quarter to quarter due to changes in the mix of contracts, contract life cycle and level of subcontractor effort. The changes in net earnings on a quarter over quarter basis were primarily due to significant variability in share-based compensation, fair value adjustments on forward contracts not subject to hedge accounting, and other gains and losses. Net earnings for the fourth quarter of 2010 included $13 million of foregone tax deductions following the enactment of Canadian income tax laws in December 2010 that changed the tax treatment of share-based compensation. While the Company reports quarterly, its results should be viewed from a long-term perspective. For this reason and the reasons cited above, the Company cautions readers that quarter to quarter comparisons of the Company’s financial results may not necessarily be meaningful and should not be relied upon as an indication of future performance. LIQUIDITY The Company’s principal sources of liquidity are cash provided by operations, including advance payments from customers related to long-term construction contracts, and access to credit facilities and equity capital resources. As well, the Company received cash proceeds from the sale of its property information business in January 2011. Other sources of liquidity include the issuance of common shares related to certain aspects of acquisitions and employee compensation. The Company’s primary short term cash requirements are to fund working capital and to repurchase its common shares for cancellation pursuant to a substantial issuer bid that will be made in August 2011. The Company’s medium term cash requirements are to service and repay debt and to invest in the construction or acquisition of facilities, equipment and intangible assets for growth initiatives. Cash is also used to pay dividends and to finance acquisitions and other long-term strategic business initiatives. To date, the Company has not operated capital intensive businesses. The Company believes that its cash balances, ability to generate liquidity and access to credit facilities and equity capital resources will sufficiently enable the Company to maintain its capacity, complete the substantial issuer bid, pursue acquisitions and other growth initiatives, pay dividends, and meet all other expected financial requirements in the near term. Cash flow highlights The following table provides selected cash flow information for the periods indicated.


2011 2010 2011 2010 ($ millions) Cash inflow (outflow) from operating activities (29.6) 65.6 (73.1) 92.8 Cash inflow (outflow) from investing activities (8.2) (6.4) 743.6 (9.9) Cash outflow from financing activities (4.8) (44.5) (130.6) (81.8) Effect of foreign currency on cash and cash equivalents (3.1) - (14.8) (0.2) Cash inflow (outflow) from discontinued operations - 26.8 (7.0) 43.2 Cash and cash equivalents, beginning of period 793.3 17.4 229.5 14.8

Cash and cash equivalents, end of period 747.6 58.9 747.6 58.9

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Operating activities The variability in cash flow from operating activities compared to the prior year periods reflected changes in non-cash operating assets and liabilities. The changes included lower balances of construction contract liabilities as advance payments received in prior periods on the Express AM5/AM6 and Ukraine contracts were used to fund ongoing program expenditures and payments to suppliers. The variability in cash flow from operations was also attributed to higher net payment of cash income taxes in 2011. Investing activities The net cash inflow from investing activities in 2011 was primarily due to the receipt of proceeds on the sale of the property information business, net of transaction costs and cash of disposed operations. Capital expenditures for the year to date were $10 million compared to $2.7 million for the same period of last year. The increase was primarily due to higher expenditures relating to the expansion at the Montreal facility. Financing activities For the year to date, the Company made net repayments of $101 million on long-term debt compared to $82 million for the same period of last year and used $9.3 million of cash to fund the acquisition of its common shares in the open market to settle certain share-based compensation plan obligations (six months ended June 30, 2010 - $6.0 million). The Company also paid a semi-annual dividend of $21 million ($0.50 per common share) at March 31, 2011. Credit facilities The Company terminated its syndicated credit agreement in the first quarter of 2011, after repaying the $100 million outstanding balance with proceeds from the sale of the property information business. The Company then entered into a bilateral credit agreement with a major bank, which provides a $100 million revolving line of credit that expires in January 2012. Debt is available under the bilateral credit agreement subject to financial covenants, including the ability to borrow up to 3.5 times (with the ability to go to 4.0 times under certain circumstances) earnings before interest, income taxes, depreciation, amortization and other specified items. The Company has granted the bank a security interest over an investment account maintained at the bank to secure any letters of credit and borrowings from the bank. As of June 30, 2011, there were no outstanding borrowings under the bilateral credit agreement. The Company also has an unsecured long-term debt agreement with a private lender. The unsecured facility consists of US$100 million in seven-year term loan notes bearing interest at a rate of 5.3% and a shelf facility allowing the Company to issue an additional US$50 million in loan notes at any time prior to February 2013. Amounts borrowed under the shelf facility will have a maturity of up to ten years and bear interest at the rates reflecting the market at the time of issue. The long-term debt agreement has covenants similar to those contained in the bilateral credit agreement. The Company has an unsecured $60 million revolving letter of credit facility in place with a major bank, which can be used to issue letters of credit that are backed by a Performance Security Guarantee from Export Development Canada. As of June 30, 2011, the Company had not received any funding under the contribution agreements with Investissement Québec relating to the expansion of the plant at its Sainte-Anne-de-Bellevue subsidiary. As of June 30, 2011, the Company was in compliance with all covenants under its various borrowing facilities.

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Substantial issuer bid Subsequent to June 30, 2011, the Board of Directors of MDA (“Board”) approved the Company’s intention to make a substantial issuer bid, pursuant to which the Company will offer to repurchase for cancellation up to $500 million in value of its outstanding common shares (“Shares”) from shareholders. The Offer will proceed by way of a modified “Dutch Auction” and the range of Offer price will be $53.00 to $60.00 per Share. The modified Dutch Auction tender process allows shareholders to individually select the price, within the specified range, at which they are willing to sell all or a portion of their Shares. When the Offer expires, MDA will select the purchase price (“Purchase Price”) which will be the lowest tendered price within the range of prices allowing it to buy up to $500 million of the Shares validly tendered to the Offer, or such lower aggregate purchase price as the Board, in its discretion, determines to be in the best interests of the Company. All Shares tendered at or below the selected price level will be bought at the Purchase Price, subject to pro-ration in the event that the aggregate cost to purchase all the Shares exceeds $500 million. All Shares tendered at prices higher than the Purchase Price will be returned to shareholders. The Company will fund any purchase of Shares pursuant to the Offer from available cash on hand. Further information, including the factors considered by the Company and the Board in making its decisions to authorize making the Offer, along with the terms and conditions of the Offer and instructions for tendering Shares, will be contained in the formal offer to purchase, issuer bid circular and other related documents that will be mailed to shareholders and available on SEDAR when the Offer is formally commenced. The Offer will remain open for acceptance for at least 35 days after the date of commencement, unless withdrawn or extended by the Company. FINANCIAL INSTRUMENTS The Company considers the management of financial risks to be an important part of its overall corporate risk management. Foreign exchange forward contracts are used to hedge the Company’s exposure to currency risk on sales, purchases, cash and loans denominated in a currency other than the functional currency of the Company’s domestic and foreign operations. Forward contracts on the Company’s common shares (“equity forward contracts”) are used to reduce the cash exposure to settle obligations under certain long-term incentive plans. Interest rate swap contracts have been used to reduce the Company’s exposure to floating interest rates on long-term debt. The Company uses derivative financial instruments to manage existing exposures, irrespective of whether the Company formally documents such relationships as hedges in accordance with hedge accounting requirements. At June 30, 2011, the Company had foreign exchange forward purchase contracts for $447 million (December 31, 2010 - $474 million) and foreign exchange forward sale contracts for $541 million (December 31, 2010 - $442 million). In addition, the Company had equity forward contracts to fund the purchase of 337,200 of its common shares maturing in January 2014 and 134,800 of its common shares maturing in January 2012. The fair values of the Company’s derivative financial instruments are determined with reference to quoted bid or ask prices where available. In the absence of an active market or direct quote, the Company determines fair value based on internal valuation models, such as discounted cash flow analysis, using management estimates and observable market-based inputs, as applicable. Management estimates include assumptions concerning the amount and timing of estimated future cash flows and application of appropriate discount rates. Observable market-based inputs are sourced from third parties and include interest rates and yield curves, currency spot and forward rates, and credit spreads, as applicable. At June 30, 2011, the Company’s foreign exchange forward contracts had a cumulative gain on fair valuation of $9.0 million (December 31, 2010 - cumulative gain on fair valuation of $3.2 million) and

12

the equity forward contracts had a cumulative loss on fair valuation of $2.0 million (December 31, 2010 - cumulative loss on fair valuation of $11 million). Gains and losses on fair valuation of derivative financial instruments that are subject to hedge accounting are deferred and accumulated in other comprehensive income. The gains and losses arising from these derivative financial instruments are recognized in income in the same period that the hedged item affects income. The Company only has foreign exchange forward contracts that are subject to hedge accounting, which had a cumulative net gain on fair valuation of $15 million at June 30, 2011 (December 31, 2010 - cumulative net gain of $13 million). Gains and losses on the fair values of derivative financial instruments that are not subject to hedge accounting and the ineffective portion of any foreign currency hedging relationships are recorded in foreign exchange loss (gain) for foreign exchange forward contracts, and in fair value loss (gain) on equity forward contracts for equity forward contracts. The Company enters into foreign exchange derivative contracts to hedge its exposure to non-Canadian dollar denominated anticipated cash inflows and outflows in certain construction contracts. Certain derivative contracts entered into by the Company did not qualify for hedge accounting as the timing of the anticipated cash flows and/or the contract currency for certain subcontracts could not be predicted with sufficient certainty. Accordingly, the fair value adjustments on these derivative contracts were recognized in net earnings immediately. This resulted in timing differences between the recognition of fair value adjustments in earnings versus revenues and costs, which were recognized on the percentage of completion basis using spot rates. Had these derivative contracts qualified for hedge accounting, the fair value adjustments would have been deferred and accumulated in other comprehensive income until the hedged revenues or costs were recognized, eliminating the timing differences. Management’s estimate of the foreign exchange timing differences on these derivative contracts not subject to hedge accounting was a loss of $1.3 million for the year to date compared to a loss of $6.8 million for the first six months of 2010. The equity forward contracts do not qualify for hedge accounting. For the year to date, the Company recorded a fair value gain of $6.3 million (six months ended June 30, 2010 – gain of $280,000) relating to the equity forward contracts. Fair valuation adjustments are affected by a number of factors, including the movement of the Company’s share price during the period and the market credit risk of the Company, and will result in a gain or loss as the Company’s share price changes. As at June 30, 2011, a 100 basis point change in the market credit risk of the Company will have a $537,000 impact on earnings before income taxes. ADDITIONAL INFORMATION Internal Controls over Financial Reporting There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Outstanding share data As at July 28, 2011: Common shares with no par value outstanding 41,182,592Options outstanding 25,500 Dividend Subsequent to June 30, 2011, the Board declared a semi-annual dividend of $0.50 per common share payable on September 30, 2011 to shareholders of record at the close of business on September 15, 2011.

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Public securities filings Additional information related to MDA, including its most recent Annual Information Form, is available online at the Company’s website at www.mdacorporation.com and on the Canadian Securities Administrators’ website at www.sedar.com. RECONCILIATIONS The following table reconciles operating EBITDA and operating earnings from continuing operations to net earnings from continuing operations for the last eight quarters. IFRS

Q2 IFRS Q1

IFRS Q4

IFRS Q3

IFRS Q2

IFRS Q1

Cdn GAAP

Q4

Cdn GAAP

Q3 2011 2011 2010 2010 2010 2010 2009 2009 ($ millions) Operating EBITDA from continuing operations 49.2 45.7 50.8 43.8 40.8 39.7 29.7 35.0

Corporate expense (3.3) (2.4) (4.2) (5.3) (3.7) (2.5) (5.2) (5.8) Finance costs, net (0.8) (1.6) (1.4) (0.7) (0.9) (1.0) (0.9) (0.7) Depreciation and amortization (2.9) (2.8) (4.0) (2.6) (2.9) (3.0) (3.2) (5.0) Income tax expense, excluding tax on items affecting comparability (13.4) (12.1) (9.5) (12.5) (10.8) (10.2) (1.3) (8.6)

Operating earnings from continuing operations 28.8 26.8 31.7 22.7 22.5 23.0 19.1 14.9

Items affecting comparability: Share-based compensation (1.5) (3.8) (14.6) (6.9) (12.3) 3.0 (11.6) (3.8) Fair value adjustments on equity forward contracts 1.8 4.5 6.0 2.7 8.2 (7.9) 14.7 4.5 Foreign exchange timing differences on certain project-related foreign exchange forward contracts not subject to hedge accounting (0.8) (0.6) (6.4) 3.3 (6.8) - - - Foreign exchange gain on translation of intercompany balances 1.1 1.4 - - - - - - Foreign exchange gain on conversion and translation of foreign cash balances 1.8 - - - - - - - Fair value adjustments on interest rate swap contracts not subject to hedge accounting - - - - - - 0.1 - Tax on items affecting comparability 0.4 (0.1) 4.3 0.2 3.3 1.0 (0.8) (0.1) Foregone tax deductions on share-based compensation - - (13.0) - - - - -

Net earnings from continuing operations 31.6 28.2 8.0 22.0 14.9 19.1 21.5 15.5

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http://www.sedar.com/

Consolidated Financial Statements of

MACDONALD, DETTWILER AND ASSOCIATES LTD.

Three and six months ended June 30, 2011 and 2010 (Unaudited)

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MACDONALD, DETTWILER AND ASSOCIATES LTD. Consolidated Statements of Earnings (Unaudited) (In thousands of Canadian dollars, except per share amounts) Three months ended Six months ended June 30, June 30, Note 2011 2010 2011 2010 Revenue 3 $ 194,935 $ 160,806 $ 401,421 $ 313,058 Direct costs, selling, general

and administration 4 149,178 121,092 310,614 235,466 45,757 39,714 90,807 77,592 Depreciation and amortization 2,910 2,887 5,728 5,931 Foreign exchange loss (gain) (2,278) 9,315 (1,356) 9,965 Share-based compensation

expense 8 1,501 12,340 5,287 9,304 Fair value gain on equity

forward contracts (1,779) (8,216) (6,347) (280) Finance income (1,138) (7) (2,105) (50) Finance expense 1,963 935 4,537 1,996

Earnings from continuing operations,

before income taxes 44,578 22,460 85,063 50,726 Income tax expense 12,953 7,555 25,202 16,752

Net earnings from continuing operations 31,625 14,905 59,861 33,974 Net earnings from discontinued

operations, net of income taxes 10 - 10,057 - 19,045 Gain (loss) on sale of discontinued

operations, net of income taxes 10 (2,020) - 54,217 -

Net earnings from discontinued operations (2,020) 10,057 54,217 19,045

Net earnings $ 29,605 $ 24,962 $ 114,078 $ 53,019

Net earnings per common share: 7

Basic: Continuing operations $ 0.77 $ 0.36 $ 1.46 $ 0.83 Discontinued operations (0.05) 0.25 1.32 0.47 Net earnings 0.72 0.61 2.77 1.30

Diluted: Continuing operations 0.77 0.36 1.45 0.83 Discontinued operations (0.05) 0.25 1.32 0.46 Net earnings 0.72 0.61 2.77 1.29

See accompanying notes to consolidated financial statements.

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MACDONALD, DETTWILER AND ASSOCIATES LTD. Consolidated Statements of Comprehensive Income (Unaudited) (In thousands of Canadian dollars) Three months ended Six months ended June 30, June 30, 2011 2010 2011 2010 Net earnings $ 29,605 $ 24,962 $ 114,078 $ 53,019 Other comprehensive income (loss):

Foreign currency translation adjustment (4,895) 30,874 (21,944) 3,090 Foreign currency translation adjustment

reclassified to earnings on disposition of foreign operations (net of income tax expense of nil) - - 36,347 -

Net change in fair value of derivatives designated as cash flow hedges transferred to earnings (net of income tax recovery of $971 and $332 for the three months ended June 30, 2011 and 2010, respectively; and net of income tax recovery of $1,084 and $786 for the six months ended June 30, 2011 and 2010, respectively) (2,764) (905) (3,097) (2,143)

Effective portion of changes in fair value of derivatives designated as cash flow hedges (net of income tax expense of $705 and income tax recovery of $1,497 for the three months ended June 30, 2011 and 2010, respectively; and income tax expense of $1,774 and $1,161 for the six months ended June 30, 2011 and 2010, respectively) 129 (4,081) 3,375 3,234

Net change in fair value of available-for-sale financial assets (net of income tax expense of $351 and income tax recovery of $1 for the three months ended June 30, 2011 and 2010, respectively; and net of income tax expense of $349 and income tax recovery of $30 for the six months ended June 30, 2011 and 2010, respectively) (19) 53 234 26

Other comprehensive income (loss), net of income taxes (7,549) 25,941 14,915 4,207

Comprehensive income $ 22,056 $ 50,903 $ 128,993 $ 57,226


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MACDONALD, DETTWILER AND ASSOCIATES LTD. Consolidated Balance Sheets (Unaudited) (In thousands of Canadian dollars) June 30, December 31, Note 2011 2010

Assets Current assets:

Cash and cash equivalents $ 747,552 $ 189,527 Trade and other receivables 104,926 80,676 Financial assets, other 40,160 41,469 Construction contract assets 62,625 58,944 Inventories 2,266 3,060 Non-financial assets 62,696 77,682 Current tax assets 3,226 7,859 Assets classified as held for sale - 800,476

1,023,451 1,259,693

Non-current assets: Financial assets, other 5,442 5,119 Non-financial assets 180 181 Deferred tax assets 5,206 6,202 Property, plant and equipment 33,258 27,183 Intangible assets 15,386 17,231 Goodwill 174,842 176,919

234,314 232,835 $ 1,257,765 $ 1,492,528

Liabilities and Shareholders' Equity Current liabilities:

Trade and other payables $ 94,501 $ 118,483 Current tax liabilities 18,074 14,975 Financial liabilities, other 15,554 16,599 Provisions 506 1,024 Employee benefits 64,367 63,699 Non-financial liabilities 16,266 24,111 Construction contract liabilities 181,648 238,950 Current portion of long-term debt 5 1,735 1,580 Liabilities classified as held for sale - 136,482

392,651 615,903 Non-current liabilities:

Financial liabilities, other 13,576 9,845 Provisions 2,349 2,442 Employee benefits 36,322 51,006 Non-financial liabilities 7,300 4,839 Deferred tax liabilities 1,812 3,747 Long-term debt 5 98,546 202,198

552,556 889,980

Shareholders’ equity:

Share capital 6 270,345 266,811 Contributed surplus 5,491 9,694 Retained earnings 449,984 361,569 Accumulated other comprehensive loss (20,611) (35,526)

705,209 602,548 $ 1,257,765 $ 1,492,528


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MACDONALD, DETTWILER AND ASSOCIATES LTD. Consolidated Statements of Change in Shareholders’ Equity (Unaudited) (In thousands of Canadian dollars) Six months ended June 30, 2011 Fair value gains on Actuarial Total Fair value available- Foreign losses accumulated gains for-sale currency on defined other Total Share Contributed Retained on cash flow financial translation benefits comprehensive Shareholders’ capital surplus earnings hedges assets adjustment pension plans loss equity

Balance as at January 1, 2011 $ 266,811 $ 9,694 $ 361,569 $ 9,857 $ 840 $ (42,360) $ (3,863) $ (35,526) $ 602,548 Common shares issued on

exercise of share options 2,078 (35) - - - - - - 2,043 Common shares issued in

conjunction with employee share purchase plan 1,456 - - - - - - - 1,456

Settlement of share-based compensation - (4,168) (5,107) - - - - - (9,275)

Dividend - - (20,556) - - - - - (20,556) Comprehensive income - - 114,078 278 234 14,403 - 14,915 128,993 Balance as at June 30, 2011 $ 270,345 $ 5,491 $ 449,984 $ 10,135 $ 1,074 $ (27,957) $ (3,863) $ (20,611) $ 705,209

Six months ended June 30, 2010 Fair value gains on Actuarial Total Fair value available- Foreign gain (losses) accumulated gains for-sale currency on defined other Total Share Contributed Retained on cash flow financial translation benefits comprehensive Shareholders’ capital surplus earnings hedges assets adjustment pension plans income equity

Balance as at January 1, 2010 $ 255,162 $ 15,402 $ 239,192 $ 799 $ 676 $ - $ - $ 1,475 $ 511,231 Common shares issued on

exercise of share options 7,165 (263) - - - - - - 6,902 Common shares issued in

conjunction with employee share purchase plan 1,557 - - - - - - - 1,557

Settlement of share-based compensation - (3,542) (4,832) - - - - - (8,374)

Comprehensive income - - 53,019 1,091 26 3,090 - 4,207 57,226 Balance as at June 30, 2010 $ 263,884 $ 11,597 $ 287,379 $ 1,890 $ 702 $ 3,090 $ - $ 5,682 $ 568,542


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MACDONALD, DETTWILER AND ASSOCIATES LTD. Consolidated Statements of Cash Flows (Unaudited) (In thousands of Canadian dollars)

Three months ended Six months ended June 30, June 30, Note 2011 2010 2011 2010 Cash flows provided by (used in): Operating activities:

Earnings from continuing operations, before income taxes $ 44,578 $ 22,460 $ 85,063 $ 50,726

Items not affecting cash: Depreciation of property, plant and equipment 1,952 2,034 3,785 4,287 Amortization of intangible assets 958 853 1,943 1,644 Share-based compensation expense 8 1,501 12,340 5,287 9,304 Fair value gain on equity forward contracts (1,779) (8,216) (6,347) (280) Foreign exchange (2,396) 2,714 (1,474) 3,364

Changes in operating assets and liabilities, net of businesses acquired 9 (73,440) 21,233 (145,091) 9,854

Finance income (1,138) (7) (2,105) (50) Finance expense 1,963 935 4,537 1,996 Income taxes paid (2,450) (587) (19,477) (2,506) Income taxes recovered 570 11,816 699 14,473

Cash provided by (used in) operating activities of continuing operations (29,681) 65,575 (73,180) 92,812

Investing activities:

Purchase of property, plant and equipment (4,396) (940) (9,089) (1,866) Purchase/development of intangible assets (327) (356) (865) (875) Disposal (purchase) of short-term investments 72 (5,083) 2,011 (7,246) Interest received on short-term investments

and others 907 19 1,825 39 Net proceeds from sale of Property

Information business 10 (4,430) - 749,758 - Cash provided by (used in) investing

activities of continuing operations (8,174) (6,360) 743,640 (9,948) Financing activities:

Issuance of long-term debt related to acquisitions - 1,360 - 1,646 Proceeds from long-term debt - - - 105,680 Repayment of long-term debt (478) (47,049) (100,637) (189,386) Interest paid on long-term debt (1,362) (968) (3,372) (1,680) Proceeds from issuance of common

shares relating to share-based compensation plans 1,174 4,680 3,282 8,024

Purchase of common shares for settlement of share-based compensation plans (4,122) (2,531) (9,275) (6,038)

Payment of dividend - - (20,556) - Cash used in financing activities of

continuing operations (4,788) (44,508) (130,558) (81,754) Cash and cash equivalents provided by (used in)

continuing operations (42,643) 14,707 539,902 1,110 Cash and cash equivalents provided by (used in)

discontinued operations 10 - 26,753 (6,992) 43,229 Effect of foreign currency on cash and

cash equivalents on continuing operations (3,073) 29 (14,816) (192) Cash and cash equivalents, beginning of period 793,268 17,424 229,458 14,766

Cash and cash equivalents, end of period $ 747,552 $ 58,913 $ 747,552 $ 58,913

Supplementary cash flow information (note 9) See accompanying notes to consolidated financial statements.

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MACDONALD, DETTWILER AND ASSOCIATES LTD. Notes to Consolidated Financial Statements (Unaudited) (Tabular amounts in thousands of Canadian dollars) Three and six months ended June 30, 2011 and 2010

1. Basis of preparation:

These interim condensed consolidated financial statements have been prepared in accordance

with IAS 34 - Interim Financial Reporting and IFRS 1 - First-Time Adoption of International Financial Reporting Standards and were prepared using the same accounting policies as described in the Company’s interim consolidated financial statements for the three months ended

March 31, 2011. Accordingly, certain disclosures normally included in annual financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) have been omitted or condensed.

In 2010 and prior periods, the Company's consolidated financial statements were previously prepared in accordance with Canadian Generally Accepted Accounting Principles (“Previous GAAP”). The comparative figures for 2010 have been restated to reflect significant differences

between Previous GAAP and IFRS. Reconciliations and descriptions on the transition from Previous GAAP to IFRS and the impact on the consolidated statements of earnings, consolidated statements of comprehensive income, consolidated balance sheets and consolidated statements

of change in shareholders’ equity are provided in note 11.

2. New standards and interpretations not yet adopted:

IFRS 9 - Financial Instruments

In November 2009, the IASB issued IFRS 9 - Financial Instruments, which is the first step in its project to replace IAS 39 - Financial Instruments: Recognition and Measurement. IFRS 9 establishes the measurement and classification of financial assets. Under IFRS 9, financial

assets are measured either at fair value through earnings or at amortized cost if certain conditions are met. The effective date of this standard is January 1, 2013, but early adoption is permitted. The Company will apply this standard to its financial statements beginning on

January 1, 2013. The Company is currently evaluating the impact of IFRS 9 on its financial statements.

IFRS 10 – Consolidated Financial Statements

In May 2011, the IASB issued IFRS 10 – Consolidated Financial Statements. The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. The effective date of this standard

is January 1, 2013, but early adoption is permitted. The Company will apply this standard to its financial statements beginning on January 1, 2013. The adoption of IFRS 10 is not expected to have a significant impact on the Company’s consolidated financial statements.

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2. New standards and interpretations not yet adopted (continued):

IFRS 12 – Disclosure of Interests in Other Entities

In May 2011, the IASB issued IFRS 12 – Disclosure of Interests in Other Entities. The objective of IFRS 12 is to require the disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities and the effects of

those interests on its financial position, financial performance and cash flows. The effective date of this standard is January 1, 2013, but early adoption is permitted. The Company will apply this standard to its financial statements beginning on January 1, 2013. The adoption of IFRS 12 is

not expected to have a significant impact on the Company’s consolidated financial statements.

IFRS 13 – Fair Value Measurement

In May 2011, the IASB issued IFRS 13 - Fair Value Measurement. The objective of IFRS 13 is to

define fair value, set out in a single IFRS the framework for measuring fair value, and establish disclosure requirements regarding fair value measurements. The effective date of this standard is January 1, 2013, but early adoption is permitted. The Company will apply this standard to its

financial statements beginning on January 1, 2013. The Company is currently evaluating the impact of IFRS 13 on its financial statements.

3. Revenue and segmented information:

The Company’s business of providing advanced information solutions to business and government organizations worldwide is reported as one operating segment.

The Company’s primary sources of revenue from continuing operations are as follows: Three months ended Six months ended June 30, June 30, 2011 2010 2011 2010 Construction contracts $ 133,206 $ 101,136 $ 276,941 $ 190,678 Services 61,729 59,670 124,480 122,380

$ 194,935 $ 160,806 $ 401,421 $ 313,058

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3. Revenue and segmented information (continued):

The approximate revenue based on geographic location of customers is as follows: Three months ended Six months ended June 30, June 30, 2011 2010 2011 2010 Revenue:

Canada $ 63,141 $ 65,748 $ 135,185 $ 132,551 United States 44,857 36,435 91,875 74,471 Europe 63,416 37,401 130,376 59,891 Other 23,521 21,222 43,985 46,145

$ 194,935 $ 160,806 $ 401,421 $ 313,058

Revenue from significant customers is as follows: Three months ended Six months ended June 30, June 30, 2011 2010 2011 2010 Canadian Federal Government and

agencies $ 57,844 $ 54,949 $ 122,291 $ 109,308 Radio Research and Development

Institute 36,109 24,409 74,753 33,194 U.S. Federal Government and agencies 19,435 16,834 39,390 34,319

The Company’s non-current non-financial assets, property, plant and equipment, intangible assets and goodwill are geographically located as follows: June 30, December 31 2011 2010

Canada $ 120,799 $ 117,441 United States 102,145 103,349 Europe 722 724 $ 223,666 $ 221,514

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4. Operating costs:

Three months ended Six months ended June 30, June 30, 2011 2010 2011 2010 Employee salaries and benefits $ 58,522 $ 53,966 $ 120,077 $ 106,431 Costs related to defined benefit plans (282) 818 939 2,087 Subcontractor costs relating to

construction and service contracts 58,760 33,584 122,282 76,600 Other 32,178 32,724 67,316 50,348

Direct costs, selling, general and

administration 149,178 121,092 310,614 235,466

Depreciation and amortization 2,910 2,887 5,728 5,931 Share-based compensation

expense 1,501 12,340 5,287 9,304

$ 153,589 $ 136,319 $ 321,629 $ 250,701

5. Long-term debt: June 30, December 31, 2011 2010 Term loan note payable:

Term loan payable in U.S. dollars (June 30, 2011 - U.S.$100,000,000; December 31, 2010 - U.S.$100,000,000), interest at fixed rate of 5.30%, repayable at maturity on February 22, 2017 $ 96,430 $ 99,460

Syndicated credit facility:

Term loan payable in Canadian dollars, interest at bankers acceptance rates plus 0.85% - 1.50%, terminated on January 4, 2011 - 100,000

Prepaid facility fees (123) (41)

Obligations under finance leases 3,974 4,359

Total long-term debt 100,281 203,778 Current portion (1,735) (1,580)

Non-current portion $ 98,546 $ 202,198

At December 31, 2010, the Company had a syndicated credit facility that provided a five-year

revolving facility of $500,000,000 expiring September 2011 and a seven-year term facility of $100,000,000 expiring September 2013. At December 31, 2010, the Company had no outstanding advances under the revolving facility and was fully drawn on the term facility.

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5. Long-term debt (continued):

In the first quarter of 2011, the Company repaid the term loan, terminated the syndicated credit

facility and entered into a bilateral credit agreement that provides a $100,000,000 revolving line of credit that expires in January 2012. At June 30, 2011, there were no outstanding borrowings under the bilateral credit agreement.

6. Shareholders’ equity:

Share capital:

Common shares issued and fully paid: Number of shares Amount

Balance as at December 31, 2010 41,054,927 $ 266,811

Common shares issued upon exercise of employee share options 89,873 2,078

Common shares issued in conjunction with employee share purchase plan 27,959 1,456

Balance as at June 30, 2011 41,172,759 $ 270,345

7. Earnings per common share: Three months ended June 30, 2011 2010 Weighted Weighted average average number of number of common common Net shares Per share Net shares Per share earnings outstanding amount earnings outstanding amount

Continuing operations: Earnings per common share:

Basic $ 31,625 41,161,681 $ 0.77 $ 14,905 40,889,175 $ 0.36 Share options - 25,890 - - 135,349 -

Diluted $ 31,625 41,187,571 $ 0.77 $ 14,905 41,024,524 $ 0.36 Discontinued operations: Earnings per common share:

Basic $ (2,020) 41,161,681 $ (0.05) $ 10,057 40,889,175 $ 0.25 Share options - 25,890 - - 135,349 -

Diluted $ (2,020) 41,187,571 $ (0.05) $ 10,057 41,024,524 $ 0.25

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7. Earnings per common share (continued): Three months ended June 30, 2011 2010 Weighted Weighted average average number of number of common common Net shares Per share Net shares Per share earnings outstanding amount earnings outstanding amount

Net earnings: Earnings per common share:


Diluted $ 29,605 41,187,571 $ 0.72 $ 24,962 41,024,524 $ 0.61 Six months ended June 30, 2011 2010 Weighted Weighted average average number of number of common common Net shares Per share Net shares Per share earnings outstanding amount earnings outstanding amount

Continuing operations: Earnings per common share:


Diluted $ 59,861 41,175,567 $ 1.45 $ 33,974 40,970,518 $ 0.83 Discontinued operations: Earnings per common share:


Diluted $ 54,217 41,175,567 $ 1.32 $ 19,045 40,970,518 $ 0.46 Net earnings: Earnings per common share:


Diluted $ 114,078 41,175,567 $ 2.77 $ 53,019 40,970,518 $ 1.29

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8. Share-based payment plans:

Total share-based compensation expense, excluding the impact of equity forward contracts, from

all forms of share-based compensation for the three and six months ended June 30, 2011 was an expense of $1,501,000 and $5,287,000, respectively (2010 - expense of $12,340,000 and $9,304,000). The details are as follows: Three months ended Six months ended June 30, June 30, 2011 2010 2011 2010 Employee share purchase plan $ 99 $ 98 $ 218 $ 207 Share appreciation rights 1,407 11,705 4,614 8,443 Share matching program 5 127 98 93 Deferred share units (10) 410 357 561

$ 1,501 $ 12,340 $ 5,287 $ 9,304

The intrinsic value is the positive difference between the market price of the Company’s share and the exercise price of the share appreciation rights. The intrinsic value for vested share-based

payment plans at June 30, 2011 is $18,644,000 (December 31, 2010 - $30,819,000).

The Company has entered into equity forward purchase agreements for 472,000 common shares of the Company in order to manage the risk associated with fluctuations in the share price of the

Company relating to share-based compensation plans. For the three and six months ended June 30, 2011 the Company has recorded a fair value gain of $1,779,000 and $6,347,000, respectively (2010 - gain of $8,216,000 and $280,000) relating to the equity forward purchase agreements.

9. Supplemental cash flow information:

Three months ended Six months ended June 30, June 30, 2011 2010 2011 2010 Change in operating assets and liabilities: Trade and other receivables $ (8,895) $ 7,469 $ (23,510) $ 1,879 Construction contract assets 1,470 443 (2,929) 4,836 Financial assets, other (33) (187) (1,547) (24,012) Inventories 2,009 (495) 772 (839) Current tax assets (3,276) (3,547) (5,329) (3,563) Non-financial assets (21,460) 4,521 (8,103) (7,161) Trade and other payables (574) (14,126) (9,029) (5,168) Current tax liabilities - - (966) 1,337 Financial liabilities, other (9,712) (496) (7,777) 28,410 Provisions (214) (343) (362) (1,076) Construction contract liabilities (18,553) 29,490 (57,219) 20,800 Employee benefits (11,118) 580 (23,302) (969) Non-financial liabilities (3,084) (2,076) (5,790) (4,620)

$ (73,440) $ 21,233 $ (145,091) $ 9,854

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10. Discontinued operations and assets held for sale:

On January 4, 2011, the Company completed the sale of its Property Information business to a

third party buyer for initial cash consideration of U.S.$819,300,000 consisting of a purchase price of U.S.$820,000,000 less a preliminary working capital adjustment of U.S.$700,000. In the second quarter of 2011, the Company paid a final working capital adjustment of U.S.$4,305,000

and recorded a loss of $2,020,000 for the amount in excess of the amount previously accrued.

The operations of the Property Information business were classified as discontinued operations in the fourth quarter of 2010. Accordingly, operating results have been reported separately on the

consolidated statements of earnings for both the current and comparative period. Assets and liabilities of the Property Information business were classified as held for sale at December 31, 2010.

Net earnings from discontinued operations is comprised of the following:

Three months ended Six months ended June 30, June 30, 2011 2010 2011 2010 Revenue $ - $ 90,467 $ - $ 178,612 Direct costs, selling, general and administrative - 69,744 - 139,122

- 20,723 - 39,490 Depreciation and amortization - 5,121 - 10,777 Foreign exchange loss - (2,152) - (2,127) Share-based compensation recovery - 2,960 - 1,914 Fair value loss on equity forward

contracts - (2,125) - (178) Finance expense - 2,267 - 5,101 Other items - 3,005 - 3,005

Earnings before income taxes - 11,647 - 20,998 Income tax expense - 1,590 - 1,953 - 10,057 - 19,045 Gain (loss) on sale of discontinued

operations (2,020) - 52,920 - Income tax recovery on gain on sale of discontinued operations - - (1,297) -

Net earnings (loss) from discontinued operations $ (2,020) $ 10,057 $ 54,217 $ 19,045

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10. Discontinued operations and assets held for sale (continued):

Effect of disposal on the financial position of the Company as of January 4, 2011: Cash and cash equivalents $ (39,718) Trade and other receivables (23,349) Property, plant and equipment (9,951) Intangible assets (176,406) Goodwill (515,174) Other assets (12,178) Trade and other payables 37,464 Deferred revenue 29,999 Deferred tax liabilities 16,757 Other liabilities 4,894 Net assets disposed $ (687,662) Consideration received, satisfied in cash net of working capital

adjustments $ 813,981 Cash and cash equivalents disposed of (39,718) Transaction costs (24,505) Net cash inflow $ 749,758

Net cash flows from discontinued operations is as follows: Three months ended Six months ended June 30, June 30, 2011 2010 2011 2010 Cash provided by (used in)

operating activities $ - $ 35,032 $ (6,992) $ 58,304 Cash used in investing activities - (5,173) - (8,723) Cash used in financing activities - (3,332) - (6,145) Effect of foreign currency on cash and

cash equivalents - 226 - (207)

Cash and cash equivalents provided by

(used in) discontinued operations $ - $ 26,753 $ (6,992) $ 43,229

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11. Transition to IFRS:

The Company transitioned to IFRS as at January 1, 2010. These consolidated financial

statements have been prepared in accordance with the accounting policies as described in note 3 of the Company’s interim consolidated financial statements for the three months ended March 31, 2011.

In accordance with IFRS 1, the Company has applied certain optional exemptions available for first time adopters and certain mandatory exceptions as outlined in note 23 of the Company’s interim consolidated financial statements for the three months ended March 31, 2011. The

Company also identified certain accounting differences and presentation reclassifications between Previous GAAP and IFRS.

The tables below provide a comparison of Previous GAAP and IFRS.

(a) Reconciliation of shareholders’ equity at June 30, 2010: Shareholders' equity under Previous GAAP $ 594,215 Accounting differences resulting in increases (decreases)

to previously reported amounts: Business combinations (6,687) Share-based payments (24,834) Leases 155 Revenue (262) Employee benefits (6,725) Provisions 2,092 Income taxes on the above 10,588

Shareholders' equity under IFRS $ 568,542

(b) Reconciliation of net earnings: For the three months ended Continuing Discontinued June 30, 2010 operations operations Total

Net earnings under Previous GAAP $ 16,876 $ 10,618 $ 27,494 Accounting differences resulting in increases (decreases)

to previously reported amounts: Business combinations (191) (121) (312) Share-based payments (2,912) (674) (3,586) Leases 25 - 25 Revenue (137) - (137) Employee benefits 411 - 411 Provisions - 37 37 Income taxes on the above 833 197 1,030

Net earnings under IFRS $ 14,905 $ 10,057 $ 24,962

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11. Transition to IFRS (continued):

Financial statements presentation reclassification (continued):

(b) Reconciliation of net earnings (continued): For the six months ended Continuing Discontinued June 30, 2010 operations operations Total

Net earnings under Previous GAAP $ 36,757 $ 19,818 $ 56,575 Accounting differences resulting in increases (decreases)

to previously reported amounts: Business combinations (258) (121) (379) Share-based payments (4,409) (782) (5,191) Leases 41 - 41 Revenue (131) - (131) Employee benefits 822 - 822 Provisions - (267) (267) Income taxes on the above 1,152 397 1,549

Net earnings under IFRS $ 33,974 $ 19,045 $ 53,019

(c) Reconciliation of comprehensive income: For the three For the six months ended months ended June 30, June 30, 2010 2010

Comprehensive income under previous GAAP $ 53,387 $ 60,607 Changes in accounting policies resulting in increases

(decreases) to previously reported amounts: Net earnings (2,532) (3,556) Foreign currency translation on foreign subsidiaries 48 175

Comprehensive income under IFRS $ 50,903 $ 57,226

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(d) Reconciliation of consolidated balance sheet:

June 30, 2010

Previous GAAP Presentation IFRS IFRS PresentationCurrent assets: Cash and cash equivalents 58,913$ -$ -$ -$ 58,913$ Cash and cash equivalents Short-term investments 23,879 - - (23,879) - Trade accounts receivable 82,327 - - 17,732 100,059 Trade and other receivables

- - - 37,693 37,693 Financial assets, other Unbilled accounts receivable 115,174 - (152) (46,050) 68,972 Construction contract assets

- - - 1,313 1,313 Inventories Other recievables 42,626 - - (42,626) - Prepaid expenses 15,245 - - 35,190 50,435 Non-financial assets

- - - 28,812 28,812 Current tax assets Future income tax assets 8,525 - - (8,525) -

346,689 - (152) (340) 346,197

Long-term assets:

Other long-term assets 19,442 - - (19,442) - - - - 2,197 2,197 Financial assets, other- (11,151) 2,397 8,754 - - - - 306 306 Non-financial assets

Future income tax assets 207 - 7,283 8,525 16,015 Deferred tax assets Capital assets 34,442 - 2,641 - 37,083 Property, plant and equipment Intangible assets 200,442 - - - 200,442 Intangible assets Goodwill 724,493 - (713) - 723,780 Goodwill

979,026 (11,151) 11,608 340 979,823

1,325,715$ (11,151)$ 11,456$ -$ 1,326,020$

Liabilities and Shareholders' EquityCurrent liabilities:

Accounts payable and accrued liabilities 212,146$ -$ (1,730)$ (93,184)$ 117,232$ Trade and other payables

- - - 15,387 15,387 Current tax liabilities- - - 22,989 22,989 Financial liabilities, other- - (427) 2,612 2,185 Provisions- - 17,381 48,980 66,361 Employee benefits- - - 65,761 65,761 Non-financial liabilities

Deferred revenues 134,232 - 345 (52,623) 81,954 Construction contract liabilities Current portion of long-term debt 38 - 1,178 - 1,216 Current portion of long-term debt Future income taxes 2,162 - - (2,162) -

348,578 - 16,747 7,760 373,085 Long-term liabilities:

- - 5,680 16,371 22,051 Financial liabilities, other Other long-term liabilities 56,044 - - (56,044) -

- - - 5,091 5,091 Provisions- (1,655) 7,079 29,149 34,573 Employee benefits- - - 4,834 4,834 Non-financial liabilities

Deferred revenues 9,323 - - (9,323) - Deferred income tax 56,307 - (3,180) 2,162 55,289 Deferred tax liabilities Long-term debt 261,248 - 1,307 - 262,555 Long-term debt

731,500 (1,655) 27,633 - 757,478 Shareholders' equity: Capital stock 263,884 - - - 263,884 Share capital Contributed surplus 11,597 - - - 11,597 Contributed surplus Retained earnings 512,163 (208,432) (16,352) - 287,379 Retained earnings Accumulated other comprehensive income (193,429) 198,936 175 - 5,682

Accumulated other comprehensive income

594,215 (9,496) (16,177) - 568,542

1,325,715$ (11,151)$ 11,456$ -$ 1,326,020$

Previous GAAP

Presentation Reclassification

IFRS 1 Exemptions

Accounting Differences

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(e) Reconciliation of consolidated statements of earnings:

For the three months ended June 30, 2010

Previous GAAP Presentation IFRS Presentation

Revenue 160,596$ 210$ -$ 160,806$ Revenue

Direct costs, selling, general and administration 131,306 (369) (9,845) 121,092 Direct costs, selling, general and administration

Amortization of capital and intangible assets 7,696 - (7,696) - 139,002 (369) (17,541) 121,092

Earnings before other items 21,594 579 17,541 39,714

(5,121) 312 7,696 2,887 Depreciation and amortization- - 9,315 9,315 Foreign exchange loss

Stock-based compensation expense 8,891 2,912 537 12,340 Stock-based compensation expense Fair value gain on equity forward contracts (8,216) - - (8,216)

Fair value gain on equity forward contracts

Fair value gain on interest rate swap contracts not subject to hedge accounting (50) - 50 -

- - (7) (7) Finance incomeInterest expense 826 159 (50) 935 Finance expenseEarnings from continuing operations, before income taxes 25,264 (2,804) - 22,460

Earnings from continuing operations, before income taxes

Income tax expense 8,388 (833) - 7,555 Income tax expenseEarnings from continuing operations 16,876 (1,971) - 14,905 Earnings from continuing operations

Net income from discontinued operations, net of income taxes 10,618 (561) - 10,057

Net income from discontinued operations, net of income taxes

Net earnings 27,494$ (2,532)$ -$ 24,962$ Net earnings

Net earnings per common share: Net earnings per common share: Basic: Basic: Continuing operations 0.41$ (0.05)$ 0.36$ Continuing operations Discontinued operations 0.26$ (0.01)$ 0.25$ Discontinued operations Net earnings 0.67$ (0.06)$ 0.61$ Net earnings Diluted: Diluted: Continuing operations 0.41$ (0.05)$ 0.36$ Continuing operations Discontinued operations 0.26$ (0.01)$ 0.25$ Discontinued operations Net earnings 0.67$ (0.06)$ 0.61$ Net earnings

Presentation Reclassification IFRS

Previous GAAP


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(e) Reconciliation of consolidated statements of earnings (continued):

For the six months ended June 30, 2010

Previous GAAP Presentation IFRS Presentation

Revenue 312,956$ 145$ (43)$ 313,058$ Revenue

Direct costs, selling, general and administration 247,823 (1,236) (11,121) 235,466

Direct costs, selling, general and administration

Amortization of capital and intangible assets 10,456 284 (10,740) - 258,279 (952) (21,861) 235,466

Earnings before other items 54,677 1,097 21,818 77,592

(5,121) 312 10,740 5,931 Depreciation and amortization- - 9,965 9,965 Foreign exchange loss

Stock-based compensation expense 4,241 4,409 654 9,304 Stock-based compensation expenseFair value gain on equity forward contracts (280) - - (280)

Fair value gain on equity forward contracts

Fair value loss on interest rate swap contracts not subject to hedge accounting 89 - (89) -

- - (50) (50) Finance incomeInterest expense 1,086 312 598 1,996 Finance expenseEarnings from continuing operations, before income taxes 54,662 (3,936) - 50,726

Earnings from continuing operations, before income taxes

Income tax expense 17,905 (1,153) - 16,752 Income tax expenseEarnings from continuing operations 36,757 (2,783) - 33,974 Earnings from continuing operations

Net income from discontinued operations, net of income taxes 19,818 (773) - 19,045

Net income from discontinued operations, net of income taxes

Net earnings 56,575$ (3,556)$ -$ 53,019$ Net earnings

Net earnings per common share: Net earnings per common share: Basic: Basic: Continuing operations 0.90$ (0.07)$ 0.83$ Continuing operations Discontinued operations 0.48$ (0.01)$ 0.47$ Discontinued operations Net earnings 1.38$ (0.08)$ 1.30$ Net earnings Diluted: Diluted: Continuing operations 0.90$ (0.07)$ 0.83$ Continuing operations Discontinued operations 0.48$ (0.02)$ 0.46$ Discontinued operations Net earnings 1.38$ (0.09)$ 1.29$ Net earnings

Presentation Reclassification IFRS

Previous GAAP


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(f) Reconciliation of consolidated statements of comprehensive income:

For the three months ended June 30, 2010

Previous GAAP Presentation IFRS IFRS Presentation

Net earnings 27,494$ (2,532)$ 24,962$ Net earnings

Other comprehensive income: Other comprehensive income: Unrealized gains on translation of foreign operations 30,826 48 30,874 Foreign currency translation adjustment

Reclassification to income of fair value losses on derivatives designed as cash flow hedges (net of income tax recovery of $332) (905) - (905)

Net change in fair value of derivatives designated as cash flow hedges transferred to earnings (net of income tax recovery of $332)

Fair value losses on derivatives designated as cash flow hedges (net of income tax recovery of $1,497) (4,081) - (4,081)

Effective portion of changes in fair value of derivatives designated as cash flow hedges (net of income tax recovery of $1,497)

Change in fair value gains on available-for- sale financial assets (net of income tax recovery of $1) 53 - 53

Net change in fair value of available-for-sale financial assets (net of income tax recovery of $1)

Other comprehensive income 25,893 48 25,941 Other comprehensive income, net of income taxes

Comprehensive income 53,387$ (2,484)$ 50,903$ Comprehensive income


Previous GAAP

For the six months ended June 30, 2010

Previous GAAP Presentation IFRS IFRS Presentation

Net earnings 56,575$ (3,556)$ 53,019$ Net earnings

Other comprehensive income: Other comprehensive income: Unrealized gains on translation of foreign operations 2,915 175 3,090 Foreign currency translation adjustment

Reclassification to income of fair value losses on derivatives designed as cash flow hedges (net of income tax recovery of $786) (2,143) - (2,143)

Net change in fair value of derivatives designated as cash flow hedges transferred to earnings (net of income tax recovery of $786)

Fair value gains on derivatives designated as cash flow hedges (net of income tax expense of $1,161) 3,234 - 3,234

Effective portion of changes in fair value of derivatives designated as cash flow hedges (net of income tax expense of $1,161)

Change in fair value gains on available-for- sale financial assets (net of income tax recovery of $30) 26 - 26

Net change in fair value of available-for-sale financial assets (net of income tax recovery of $30)

Other comprehensive income 4,032 175 4,207 Other comprehensive income, net of income taxes

Comprehensive income 60,607$ (3,381)$ 57,226$ Comprehensive income


Previous GAAP

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12. Approval of financial statements:

These interim consolidated financial statements were approved for issuance by the Board of

Directors on July 28, 2011.

13. Subsequent events:

(a) Subsequent to June 30, 2011, the Board of Directors approved the Company’s intention to

make a substantial issuer bid, pursuant to which the Company will offer to repurchase for cancellation up to $500,000,000 in value of its outstanding common shares from shareholders.

(b) Subsequent to June 30, 2011, the Company declared a semi-annual dividend of $0.50 per common share payable at September 30, 2011 to shareholders of record at the close of business on September 15, 2011.

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