- Q2 revenues of $13.8 million, compared to $11.5 million in Q2 fiscal 2008
- Q2 pro forma income of $4.1 million or $0.40 per diluted share, compared to $3.8 million or $0.34 per diluted share in Q2 fiscal 2008
- Q2 GAAP net loss of $3.4 million or $0.33 per diluted share, compared to net income of $4.7 million or $0.43 per diluted share in Q2 fiscal 2008. The loss resulted primarily from the revaluation of U.S. dollar denominated liabilities related to acquired patents, resulting in an unrealized foreign exchange loss of $6.0 million
- Fiscal 2009 revenue guidance now in the range of $61.0 million to $63.0 million, exceeding previous full year revenue guidance of $59.0 million to $61.0 million
"Based on our growing deal pipeline and the solid financial and operational performance we delivered in the first half of the year, I am confident that the Company will meet its new revenue target for fiscal 2009," said John Lindgren, President and CEO, MOSAID. "We are increasingly seeing the benefits of our business model and growth strategy, which is based on licensing patents into multiple technology markets."
"In the second quarter, we achieved a key objective for fiscal 2009 by signing Panasonic Corporation as the first licensee to a portfolio of microcomponent patents that is opening up significant new licensing opportunities," Lindgren noted. "We also made excellent progress toward signing additional license agreements based on our wireless patents. In addition, we settled our patent infringement litigation with Powerchip Semiconductor Corporation and signed a five year patent license agreement with them, recording yet another success in licensing MOSAID's semiconductor memory patents to global producers of Dynamic Random Access Memory (DRAM) chips."
MOSAID had cash and marketable securities of $59.8 million at the end of the second quarter of fiscal 2009, compared to $59.0 million at the end of the first quarter of fiscal 2009.
In Q2 fiscal 2009, MOSAID returned $2.5 million to shareholders in quarterly dividend payments. The Company also expended $4.6 million to re-purchase and cancel 296,808 shares under the normal course issuer bid (NCIB) that began on September 13, 2007 and that ended on September 12, 2008. MOSAID has now repurchased and cancelled 1,118,731 common shares, representing the full permitted 10% of the public float of common shares issued and outstanding when the NCIB was announced.
On November 20, 2008, MOSAID declared a quarterly dividend of $0.25 per share. The dividend, which is an eligible dividend, is payable on January 22, 2009 to shareholders of record as of January 5, 2009.
A reconciliation of pro forma income to Canadian generally accepted accounting principles (GAAP) net income is included in the Notes to the Financial Statements accompanying this press release.
Q2 Operational Highlights
First microcomponent patent portfolio license: MOSAID announced that Panasonic Corporation became the first company to license a valuable portfolio of microcomponent patents to which MOSAID has exclusive licensing rights. Panasonic was granted a 10-year license for all application specific and microcomponent semiconductor products sold globally under Panasonic's brand name.
Semiconductor licensing: MOSAID announced the settlement of patent infringement litigation, and the signing of a patent license agreement, with Powerchip Semiconductor Corporation. Under the terms of the license agreement, Powerchip was granted a five year, running royalty license under MOSAID's patents for all of its non-foundry DRAM and Pseudo-Static RAM (PSRAM) products. Since January 1, 2008, MOSAID has settled with three of the four companies involved in the patent infringement litigation initiated in mid-2006.
Patent portfolio: At the end of the second quarter, MOSAID's portfolio comprised 954 patents and applications, compared with 850 patents and applications one year ago.
Q3 and Fiscal 2009 Guidance
The Company offers the following guidance for the third quarter of fiscal 2009:
- Q3 revenues of $16.0 million to $17.0 million
- Q3 pro forma income of $3.8 million to $4.2 million, or $0.37 to $0.41 per diluted share
The Company is changing its annual guidance for fiscal 2009, as follows:
- Fiscal 2009 revenues are now expected to be in the range of $61.0 million to $63.0 million, up from the previous guidance of $59.0 million to $61.0 million
- For fiscal 2009, licensing and litigation expense is now expected to be in the range of $19.0 million to $20.0 million, up from the previous guidance of $15.0 million to $18.0 million
- As a result of the above, guidance for fiscal 2009 pro forma income is expected to remain in the range of $20.0 million to $21.0 million, or $1.90 to $2.00 per diluted share
MOSAID's revenues result primarily from intellectual property agreements, which by their nature may actually close on dates other than those projected. MOSAID's priority and focus is on obtaining the best terms possible under its agreements, rather than on the particular timing of agreement closure.
Conference Call and Webcast
Management will hold a conference call and webcast on Thursday, November 20, 2008 at 5:00 p.m. EDT. The webcast will be live at www.mosaid.com and may also be accessed by dialing 1-800-264-7882. The webcast will be available on MOSAID's web site for 90 days following the event.
About MOSAID
MOSAID Technologies Inc. is one of the world's leading intellectual property companies. MOSAID develops semiconductor memory technology and licenses patented intellectual property in the areas of semiconductors, and wired and wireless communications systems. MOSAID counts many of the world's largest semiconductor companies among its licensees. Founded in 1975, MOSAID is based in Ottawa, Ontario.
Pro forma income, a non-GAAP measure, is GAAP net income adjusted for stock-based compensation, patent amortization and imputed interest, foreign exchange gains and losses on "Other long-term liabilities," and any other non-recurring items. The Company uses pro forma measures internally to evaluate and manage operating performance as well as to forecast and plan. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers.
For more information, visit www.mosaid.com.
Forward Looking Information
This document and certain other public documents incorporated by reference in this document, contain forward-looking statements to the extent they relate to MOSAID or its management, including those identified by the expressions "anticipate," "believe," "foresee," "estimate," "expect," "intend," "could," "may," "plan," "will," "would" and similar expressions. Similarly, statements in this document that describe MOSAID's business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. These forward-looking statements are not historical facts, but rather reflect MOSAID's current expectations regarding future events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results, performance or achievements to differ materially from those in such forward-looking statements. Assumptions made in preparing forward-looking statements and financial guidance include, but are not limited to, the following: MOSAID's continued expansion of its patent portfolio and of its opportunities for future patent licensing revenue as a result of MOSAID's acquisition of patents from third parties and from development of new inventions; DRAM manufacturers continuing to infringe MOSAID's patents; the timing and amount of MOSAID's litigation expenses; MOSAID's ability to sign new patent licensees; current assumptions as to the identification of products that are unlicensed to MOSAID's wireless patents; and the timing and amount of MOSAID's Research & Development expenses.
Factors that could cause actual results to differ materially from expected results include, but are not limited to, the following: the extent of embedded DRAM proliferation in the System-on-a-Chip markets; legal rulings and/or regulatory investigations or complaints having an adverse impact on the validity, enforceability, potential royalty rates, and strength or breadth of coverage of MOSAID's essential and/or nonessential patents (including, but not limited to, adverse results from litigation or proceedings in patent offices and government regulatory agencies in various countries around the world); judicial, legislative or regulatory changes that impair the ability of patent holders to earn licensing revenues; economic, social, and political conditions in the countries in which MOSAID or patent licensees operate, including security risks, health conditions, possible disruptions in transportation networks and fluctuations in foreign currency exchange rates; non-payment or delays in payment by, or insolvency of, licensees or other debtors; variability in patent licensees' sales of licensed products, failure to maintain and enforce MOSAID's existing patent portfolio, or failure to obtain valuable patents as a result of research and development activities, or failure to acquire valuable patents from third parties; MOSAID's ability to recruit and retain skilled personnel; change in MOSAID's financial position; consolidation of MOSAID's licensees; natural events, such as severe weather and earthquakes in the locations in which MOSAID or patent licensees operate; and changes in the tax rate applicable to MOSAID as the result of changes in the tax law in the jurisdictions in which profits are determined to be earned and taxed, the outcome of tax audits and the ability to realize deferred tax assets.
MOSAID assumes no obligation to update or revise any forward-looking statements. Additional information identifying risks and uncertainties affecting MOSAID's business and other factors that could cause MOSAID's financial results to fluctuate are contained in MOSAID's Annual Information Form, under the section entitled "Risk Factors," and in MOSAID's other public filings available online at www.sedar.com.
MOSAID Technologies Incorporated
Unaudited Consolidated Financial Statements
For the Quarter Ended October 31, 2008
The attached consolidated financial statements have been prepared by Management of MOSAID Technologies Incorporated and have not been reviewed by an auditor.
MOSAID TECHNOLOGIES INCORPORATED
(Subject to the Canada Business Corporations Act)
CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
(In thousands of Canadian Dollars, except per share amounts)
(Unaudited)
Quarter Ended Six Months Ended
October 31, October 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Revenues $13,795 $11,526 $26,447 $24,121
Operating expenses
Patent portfolio
management 1,203 1,356 2,326 2,318
Patent licensing and
litigation 6,528 2,711 10,945 5,149
Research and development 508 599 1,075 1,091
General and
administration 885 945 2,034 2,158
Foreign exchange (gain)
loss (874) 487 (935) 675
Special committee - 101 - 112
--------------------------------------------------------------------------
8,250 6,199 15,445 11,503
--------------------------------------------------------------------------
Pro forma income from
operations 5,545 5,327 11,002 12,618
Net interest income 613 565 1,135 963
--------------------------------------------------------------------------
Pro forma income before
income tax 6,158 5,892 12,137 13,581
Income tax expense 2,032 2,096 4,005 4,875
--------------------------------------------------------------------------
Pro forma income
(Note 6) $4,126 $3,796 $8,132 $8,706
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Pro forma earnings
per share
Basic $0.40 $0.34 $0.78 $0.78
Diluted $0.40 $0.34 $0.77 $0.76
Weighted average
number of shares
Basic 10,242,692 11,125,423 10,465,510 11,118,138
Diluted 10,261,537 11,125,423 10,494,342 11,489,775
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(In thousands of Canadian Dollars, except per share amounts)
(Unaudited)
Quarter Ended Six Months Ended
October 31, October 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Revenues $13,795 $11,526 $26,447 $24,121
Operating expenses
Patent portfolio
management 1,203 1,356 2,326 2,318
Patent licensing and
litigation 6,528 2,711 10,945 5,149
Research and development 508 599 1,075 1,091
General and
administration 885 945 2,034 2,158
Foreign exchange
loss (gain) 6,002 (4,253) 6,520 (5,743)
Other 168 238 315 366
Patent amortization
and imputed interest 3,301 3,436 6,561 6,836
--------------------------------------------------------------------------
18,595 5,032 29,776 12,175
--------------------------------------------------------------------------
(Loss) income from
operations (4,800) 6,494 (3,329) 11,946
Net interest income 613 565 1,135 963
--------------------------------------------------------------------------
(Loss) income before
income tax expense
and discontinued
operations (4,187) 7,059 (2,194) 12,909
Income tax (recovery)
expense (191) 2,561 610 4,676
--------------------------------------------------------------------------
(Loss) income before
discontinued operations (3,996) 4,498 (2,804) 8,233
Discontinued operations
Income (net of tax)
(Note 5) 569 236 737 6,036
--------------------------------------------------------------------------
Net (loss) income (3,427) 4,734 (2,067) 14,269
Dividends 2,544 2,779 5,228 5,558
Normal course issuer bid 1,837 2,418 3,215 2,418
Retained earnings,
beginning of period 16,595 23,657 19,297 16,901
--------------------------------------------------------------------------
Retained earnings,
end of period $8,787 $23,194 $8,787 $23,194
--------------------------------------------------------------------------
Earnings per share
(Note 4)
Basic - before
discontinued
operations ($0.39) $0.40 ($0.27) $0.74
Diluted - before
discontinued
operations ($0.39) $0.40 ($0.27) $0.72
Basic - net earnings ($0.33) $0.43 ($0.20) $1.28
Diluted - net earnings ($0.33) $0.43 ($0.20) $1.24
Weighted average number
of shares
Basic 10,242,692 11,125,423 10,465,510 11,118,138
Diluted 10,261,537 11,125,423 10,494,342 11,489,775
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian Dollars)
As at As at
October 31, 2008 April 30, 2008
(unaudited) (audited)
--------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $25,390 $22,133
Marketable securities 34,362 36,246
Accounts receivable 4,951 12,304
Prepaid expenses 732 486
Future income taxes recoverable 11,015 11,015
--------------------------------------------------------------------------
76,540 82,184
Capital assets 852 957
Acquired intangibles 66,699 70,130
Future income taxes recoverable 19,331 16,988
--------------------------------------------------------------------------
$163,332 $170,259
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Current Liabilities
Accounts payable and accrued liabilities $9,052 $7,723
Income tax payable 1,432 356
Deferred revenue 843 1,146
Other liability 1,116 318
Current portion of other long-term liabilities 8,063 5,345
--------------------------------------------------------------------------
20,506 14,888
Deferred gain on sale-leaseback 1,393 1,797
Other long-term liabilities 35,768 31,195
--------------------------------------------------------------------------
57,667 47,880
--------------------------------------------------------------------------
Shareholders' Equity
Share capital (Note 3) 94,745 100,403
Contributed surplus 3,249 2,997
Retained earnings 8,787 19,297
Accumulated other comprehensive income (1,116) (318)
--------------------------------------------------------------------------
105,665 122,379
--------------------------------------------------------------------------
$163,332 $170,259
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands of Canadian Dollars)
(Unaudited)
Quarter Ended Six Months Ended
October 31, October 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Operating
(Loss) income before
discontinued
operations ($3,996) $4,498 ($2,804) $8,233
Items not affecting
cash Amortization 2,473 2,431 4,930 4,750
Stock-based
compensation 168 137 315 235
Unrealized foreign
exchange loss (gain)
on other long-term
liabilities 6,876 (4,740) 7,455 (6,418)
Future income tax
recoverable (832) 1,366 (2,343) 3,267
--------------------------------------------------------------------------
4,689 3,692 7,553 10,067
Change in non-cash
working capital items
from continuing
operations (1,614) (1,823) 4,509 (6,018)
--------------------------------------------------------------------------
3,075 1,869 12,062 4,049
--------------------------------------------------------------------------
Investing
Acquisition of
capital assets and
acquired
intangibles (57) (3) (1,394) (2,667)
Acquisition of
short-term marketable
securities (14,408) (34,506) (47,114) (81,407)
Proceeds on disposal/
Maturity of short-
term marketable
securities 21,860 34,108 48,998 70,555
--------------------------------------------------------------------------
7,395 (401) 490 (13,519)
--------------------------------------------------------------------------
Financing
Repayment of mortgage - (65) - (130)
Long-term liabilities 169 249 (164) 1,614
Repurchase of shares (4,597) (4,501) (8,415) (4,501)
Dividends (2,544) (2,779) (5,228) (5,558)
Funding of RSU plan (718) - (718) -
Issue of common shares 24 176 167 1,926
--------------------------------------------------------------------------
(7,666) (6,920) (14,358) (6,649)
--------------------------------------------------------------------------
Net cash inflow (outflow)
from continuing
operations 2,804 (5,452) (1,806) (16,119)
Net cash inflow (outflow)
from discontinued
operations 5,371 (662) 5,063 11,773
--------------------------------------------------------------------------
Net cash inflow (outflow) 8,175 (6,114) 3,257 (4,346)
Cash and cash
equivalents, beginning
of period 17,215 25,164 22,133 23,396
--------------------------------------------------------------------------
Cash and cash
equivalents, end of
period $25,390 $19,050 $25,390 $19,050
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of Canadian Dollars)
(Unaudited)
Quarter Ended Six Months Ended
October 31, October 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Net (loss) income ($3,427) $4,734 ($2,067) $14,269
--------------------------------------------------------------------------
Other comprehensive
income, net of tax:
Gains and losses on
derivatives designated
as cash flow hedges (1,212) 871 (1,387) 1,657
Gains and losses on
derivatives designated
as cash flow hedges
in prior periods
transferred to revenue
in the current period 423 (276) 589 (442)
--------------------------------------------------------------------------
Other comprehensive
(loss) income (789) 595 (798) 1,215
--------------------------------------------------------------------------
Comprehensive (loss)
income ($4,216) $5,329 ($2,865) $15,484
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Quarter ended October 31, 2008
(tabular dollar amounts in thousands of Canadian Dollars, except per share
amounts)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements.
In the opinion of management, all adjustments consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included. Operating results for the interim period presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the full fiscal year ending April 30, 2009.
2. Adoption of New Accounting Standards
Effective January 1, 2008 the Company adopted the following new accounting standards issued by the Canadian Institute of Chartered Accountants.
Capital Management
Section 1535, Capital disclosures, requires the Company to disclose information about the Company's objectives, policies and procedures for the management of its capital.
Financial Instruments - Disclosures and Presentation
Section 3862, Financial Instruments - Disclosures, and Section 3863, Financial Instruments - Presentation replace section 3861, Financial Instruments - Disclosure and Presentation. These sections require the disclosure of information with regards to the significance of financial instruments for the Company's financial position and performance and the nature and extent of risks arising from financial instruments to which the Company is exposed during the period and at the balance sheet date, and how the Company manages those risks.
Financial instrument classification is as follows:
Cash and marketable securities Held-for-trading Accounts receivable Loans and receivables Derivative assets and liabilities Held-for-trading Accounts payable and accrued liabilities Held-for-trading Income taxes payable Held-for-trading Long-term liabilities Other liabilitiesAs a result of adoption of the above policies, there was no material impact on the Statement of Operations.
3. Shareholders' equity and other comprehensive income
The following are the changes in shareholders' equity for the six months ended October 31, 2008:
--------------------------------------------------------------------------
Common Common Contri- Retained Accumu Total
Shares shares buted earnings lated ($)
(number) $ surplus ($) other
($) compre-
hensive
income
($)
--------------------------------------------------------------------------
Balance at
April 30, 2008 10,719,807 $100,403 $2,997 $19,297 ($318) $122,379
--------------------------------------------------------------------------
Net income (2,067) (2,067)
--------------------------------------------------------------------------
Dividends (5,228) (5,228)
--------------------------------------------------------------------------
Employee Stock
Option Program 14,250 218 (93) 125
--------------------------------------------------------------------------
Employee Share
Purchase Program 2,122 42 12 54
--------------------------------------------------------------------------
Stock-based
compensation (718) 333 (385)
--------------------------------------------------------------------------
Normal course
issuer bid (559,148) (5,200) (3,215) (8,415)
--------------------------------------------------------------------------
Unrealized
derivative gains
on cash flow
hedges - net (798) (798)
--------------------------------------------------------------------------
Balance at
October 31,
2008 10,177,031 $94,745 $3,249 $8,787 ($1,116) $105,665
--------------------------------------------------------------------------
4. Earnings per Share
The following is a reconciliation of the numerator and denominator of the
basic and diluted per share computations:
Quarter Ended Six Months Ended
October 31, October 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
(Loss) income before
discontinued
operations ($3,996) $4,498 ($2,804) $8,233
Discontinued
operations (net of
tax) 569 236 737 6,036
--------------------------------------------------------------------------
Net (loss) income ($3,427) $4,734 ($2,067) $14,269
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Weighted average
number of common
shares outstanding 10,242,692 11,125,425 10,465,510 11,118,138
Net effect of stock
options 18,845 - 28,832 371,637
--------------------------------------------------------------------------
Weighted average
diluted number of
common shares
outstanding 10,261,537 11,125,423 10,494,342 11,489,775
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings per share
Basic - before
discontinued
operations ($0.39) $0.40 ($0.27) $0.74
Diluted - before
Discontinued
operations ($0.39) $0.40 ($0.27) $0.72
Basic - net income ($0.33) $0.43 ($0.20) $1.28
Diluted - net income ($0.33) $0.43 ($0.20) $1.24
For the quarters ended October 31, 2008 and October 31, 2007, 269,606 and 289,456 options, respectively, were excluded from the calculation of diluted earnings per share, as the exercise price of these options exceeded the average market price of the Company's common stock during this period and were therefore anti-dilutive.
For the six months ended October 31, 2008 and October 31, 2007, 269,606 and 17,000 options, respectively, were excluded from the calculation of diluted earnings per share as the exercise price of these options exceeded the average market price of the Company's common stock during this period and were therefore anti-dilutive.
There were 570,808 and 503,369 options issued and outstanding as at October 31, 2008 and October 31, 2007, respectively.
5. Discontinued operations
Quarter Ended Six Months Ended
October 31, October 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Revenues $134 ($42) $156 $340
Expenses
Research and
development 8 (46) 8 1,400
Selling and marketing 5 (2) 5 1,006
Restructuring - 12 - 166
--------------------------------------------------------------------------
13 (36) 13 2,572
--------------------------------------------------------------------------
Gain (loss) from
operations 121 (6) 143 (2,232)
Gain on sale of
assets 421 (9) 623 9,295
--------------------------------------------------------------------------
Earnings before tax 542 (15) 766 7,063
Income tax (recovery)
expense (27) (251) 29 1,027
--------------------------------------------------------------------------
Discontinued operations
(net of tax) $569 $236 $737 $6,036
--------------------------------------------------------------------------
--------------------------------------------------------------------------
6. Reconciliation of pro forma income with GAAP net income
Quarter Ended Six Months Ended
October 31, October 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
GAAP net (loss) income ($3,427) $4,734 ($2,067) $14,269
Add (deduct):
Stock-based
compensation 168 137 315 235
Patent amortization
and imputed interest 3,301 3,436 6,561 6,836
Restructuring - - - 19
Foreign exchange
loss (gain) 6,876 (4,740) 7,455 (6,418)
--------------------------------------------------------------------------
Income tax expense -
for the above items (2,223) 465 (3,395) (199)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Discontinued
operations (net of
tax) (569) (236) (737) (6,036)
--------------------------------------------------------------------------
Pro forma income $4,126 $3,796 $8,132 $8,706
--------------------------------------------------------------------------
--------------------------------------------------------------------------
7. Stock-based Compensation
The Company has an employee stock purchase plan program whereby employees may elect to designate up to 5% of their annual salary to purchase shares of the Company at a 10% discount from the fair market value. The purchase price is deducted over a six month period via payroll.
Also, the Company has an Employee and Director Stock Option Plan. The exercise price is no lower than the closing market price on the trading day immediately preceding the date of grant. Options granted under the Plan expire within a period of six years of granting, with vesting periods determined by the Human Resources Committee.
The Company employs a fair value method of accounting for all options issued to employees or directors on or after April 27, 2002. The fair value of options issued in the quarter was calculated using the Black-Scholes option pricing model and the following assumptions:
Quarter Ended October 31,
2008 2007
-------------------------------------------------------------------------
Risk free interest rate 2.71% 4.25%
Expected life in years 5.5 5.5
Expected dividend yield 8.58% 4.95%
Volatility 42.90% 58.37%
For the quarter ended October 31, 2008, the Company issued 34,109 Deferred Share Units in lieu of options to directors and officers of the Company under its Deferred Share Unit Plan. Those deferred share units vest evenly over a four year period. Deferred share units do not have an exercise price and can only be settled using cash consideration.
The Company implemented a restricted share unit plan ("RSU Plan") for certain employees in October 2008, and has granted 62,700 RSUs under the RSU Plan. The RSUs vest over three years. Under the RSU Plan, units are settled using common shares of the Company. During the quarter, the Company funded an independent trustee to purchase the required shares and to provide custodial services. The Company recognizes compensation expense, as measured by the purchase price of the shares, over the vesting period.
8. Financial Instruments
The Company has exposure to the following risks from its use of financial instruments: credit risk, market and liquidity risk.
Credit Risk
Credit risk is the risk of financial loss to the Company if a licensee or counter-party to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's accounts receivable and its foreign exchange contracts.
The Company provides credit to some licensees in the normal course of its operations. The Company's credit risk review includes performing periodic credit evaluations of its most significant licensees. In certain circumstances, the Company may utilize letters of guarantee or credit insurance to mitigate certain credit risks. The Company's licensees are, for the most part, large national and international public companies. Due to the nature of the Company's operations, provisions for doubtful accounts are made on a licensee-by- licensee basis, based upon on-going review of licensee financial status. At this time, Management does not believe there is a need for significant allowance for doubtful accounts.
The Company limits its exposure to credit risk from counter-parties to derivative instruments by dealing only with major financial institutions. Management does not expect any counter-parties to fail to meet their obligations.
The Company invests its excess cash in investment grade securities with a maturity date not exceeding 12 months. The Company relies upon the credit rating of the counter-party to limit its credit risk. The Company does not invest in asset-backed commercial paper.
The carrying amount of financial assets represents the maximum credit exposure. The maximum credit exposure to credit risk at the reporting date was:
October 31, 2008 April 30, 2008
--------------------------------------------------------------------------
Cash $25,390 $22,133
Marketable securities 34,362 36,246
Accounts receivable 4,951 12,304
Other liability (1,116) (318)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
$63,587 $70,365
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The aging of accounts receivable at the reporting date was:
October 31, 2008 April 30, 2008
--------------------------------------------------------------------------
Current $4,548 $6,297
Past due (61 - 120 days) - -
Greater than 120 days 403 6,007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
$4,951 $12,304
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Based upon historical default rates, the Company believes there are minimal
requirements for an allowance for doubtful accounts.
Marketable securities comprise the following:
October 31, 2008 April 30, 2008
--------------------------------------------------------------------------
Bonds & debentures $20,671 $18,980
Greater than 90 days 13,691 17,266
--------------------------------------------------------------------------
--------------------------------------------------------------------------
$34,362 $36,246
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Carrying values of bonds and debentures and discount notes include accrued interest and approximate market value. Investments in bonds and debentures and discount notes represent holdings in corporate and government short-term marketable securities as at October 31, 2008 and have a maturity date of one year or less.
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Company's income or the value of its holding of financial instruments.
Foreign Exchange Risk
The Company's revenues are denominated primarily in U.S. dollars, giving rise to exposure to market risks from changes in foreign exchange rates. The Company is exposed to foreign currency fluctuations on its accounts receivable and future cash flows related to licensing arrangements denominated in U.S. dollars, as well as certain operating expenses and its long-term other liabilities obligations.
The Company's foreign exchange risk management includes the use of foreign exchange forward contracts to fix the exchange rates on certain foreign currency exposures. The Company's objective is to manage and control exposures and secure the Company's profitability on existing contracts and anticipated future cash flows. The Company does not utilize derivative instruments for trading or speculative purposes. The Company formally documents all relationships between derivative instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives to specific firm contractually related commitments or anticipated transactions.
The Company also formally assesses, both at the inception and on an on-going basis, whether the derivatives that are used in hedging transactions are highly effective in off-setting changes in fair values or cash flows of hedged items. Hedge ineffectiveness is insignificant.
The forward foreign exchange contracts primarily require the Company to sell U.S. dollars for Canadian dollars at contractual rates. The Company had the following forward exchange contracts.
(In thousands of dollars) Octobre 30, 2008
Type Notional Currency Maturity Equivalent Fair
to CDN Value
dollars
Sell $7,050 USD less than 3 months $7,568 ($609)
Buy - USD less than 3 months - -
Sell $3,750 USD 3-12 months $3,744 ($507)
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($1,116)
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(In thousands of dollars) April 30, 2008
Type Notional Currency Maturity Equivalent Fair
to CDN Value
dollars
Sell $6,400 USD less than 3 months $6,222 ($141)
Sell $18,700 USD 3-12 months $18,656 ($123)
Buy $4,000 USD 3-12 months $4,117 ($54)
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($318)
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A one cent strengthening (weakening) of the U.S. dollar against the Canadian dollar would have decreased (increased) other comprehensive income by approximately $220,000; Pro forma income would have increased (decreased) by approximately $21,000.
Interest Rate Risk
The Company is exposed to interest rate risk due to its holdings of interest-bearing marketable securities. It is the Company's policy to invest in securities with a maturity date of 12 months or less and Company practice to hold such securities, when possible, until maturity. A 1% increase (decrease) to the interest rate would result in an approximate $112,000 decrease (increase) in the fair value of the investments held as at the reporting date.
The Company is also exposed to interest rate risk due to its imputed interest on other long-term liabilities.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet liabilities when due. At October 31, 2008, the Company had $59.8 million of cash and marketable securities and has a secured bank credit facility of $10.0 million, less off balance sheet arrangements as described in Note 24 to the fiscal 2008 Consolidated Financial Statements to meet liabilities when due. The credit facility is collateralized by a general security agreement and contains no covenants.
All of the Company's financial liabilities, except for its "other long-term liabilities" and operating lease for its premise have contractual maturities of less than 30 days.
The following chart indicates the contractual obligations to which the Company is bound over the following five years.
Payments Due by Period
(in thousands of dollars)
Contractual Obligations Total Less than 1-3 years 4-5 years After 5
1 year years
Operation leases $2,504 $948 $729 $496 $331
Other long-term
obligations $57,784 $9,124 $17,031 $13,382 $18,247
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Total contractual
obligations $60,288 $10,072 $17,760 $13,878 $18,578
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Fair Value
The fair values of cash, marketable securities, accounts receivable, accounts payable and accrued liabilities approximates their carrying values due to their short-term maturity. The recorded amounts of long-term monetary liabilities approximate fair value, estimated by discounting expected cash flows at rates currently offered to the Company for debts of the same remaining maturities and conditions.
Fair value of the forward exchange contracts reflects the cash flow due to or from the Company if settlement had taken place on the reporting date.
The fair value of employee and director deferred stock units is determined using the market price of the Company's common stock on the reporting date.
9. Capital Management
The Company's objective is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management defines capital as the Company's shareholder's equity excluding accumulated other comprehensive income.
The Company has certain credit facilities with a Canadian chartered bank, which consist of an operating line, a foreign exchange forward contract facility and standby letters of credit. The Board of Directors does not establish quantitative return on capital criteria for management; but rather promotes year over year sustainable profitable growth. The Board of Directors also reviews on a quarterly basis the level of dividends paid to the Company's shareholders and monitors the share repurchase program activities. There were no changes in the Company's approach to capital management during the period. Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements.
10. Business Segment Information
The Company operates in one business segment as a developer and licensor of semiconductor and telecommunications technologies.
11. International Financial Reporting Standards
The Accounting Standards Board of Canada ("AcSB") plans to converge Canadian GAAP for publicly accountable enterprises with International Financial Reporting Standards ("IFRS") over a transition period that will end effective January 1, 2011 with the adoption of IFRS. The AcSB announced on February 13, 2008 that IFRS will be required in 2011 for publicly accountable profit-oriented enterprises. The changeover date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company will convert to these new standards according to the timetable set with these new rules. The Company is currently in the process of developing a conversion implementation plan and assessing the impacts of the conversion on the consolidated financial statements and disclosures of the Company.
12. Comparative Figures
Certain comparative figures have been reclassified to conform to the financial statement presentation adopted in the current year.
Contacts: Investor and Media Inquiries Michael Salter Director, Investor Relations and Corporate Communications 613-599-9539 x1205 Email Contact