As anticipated, fourth quarter revenue was US$48.4 million, compared with US$51.2 million in the fourth quarter of Fiscal 2004. Higher revenues in the Company's Network Communications business were offset by lower sales in Ultra Low-Power Communications and seasonal weakness in Consumer Communications.
Zarlink recorded a fourth quarter net loss of US$23.9 million, or US$0.19 per share. This figure includes severance costs of US$11.9 million, of which US$2.5 million was included in cost of goods, US$2.3 million was included in Research and Development (R&D) expenses, and US$7.1 million was included in Selling and Administration (S&A) expenses. The fourth quarter loss also included asset impairment and excess space provisions of US$4.0 million, inventory provisions and other production charges of US$3.7 million, and a tax expense of US$0.4 million. Also included in the results for the quarter was a net gain resulting from installment payments of US$6.0 million on the note receivable from X-FAB Semiconductor Foundries. In the Fiscal 2004 fourth quarter, the Company reported a net loss of US$2.3 million, or US$0.02 per share.
Gross margin in the fourth quarter was 27% of revenue, compared with 44% in the third quarter. Gross margin was impacted by severance costs of US$2.5 million, as the Company continued to reduce operations costs, in addition to inventory and other production charges of US$3.7 million.
For Fiscal 2005, Zarlink recorded revenue of US$214.2 million, up eight percent from US$198.5 million in Fiscal 2004. The net loss in Fiscal 2005 was US$20.8 million, or US$0.18 per share, an improvement on the net loss of US$38.6 million, or US$0.32 per share, in Fiscal 2004.
"Despite a weaker second half, I am pleased that in Fiscal 2005 we achieved revenue growth and significantly reduced our loss," said Kirk K. Mandy, President and Chief Executive Officer, Zarlink Semiconductor. "Our focus is now on restoring profitability and positive cash flow, and repositioning the business to take advantage of high-growth opportunities in communications semiconductors. We are determined to make Zarlink successful and continue to review strategic alternatives for the company."
Review of Operations
R&D expenses in the fourth quarter were US$19.0 million or 39% of revenue, compared with US$15.7 million or 31% of revenue in the third quarter, and US$17.2 million, or 34% of revenue, in the fourth quarter of Fiscal 2004. R&D expenses in the current quarter were higher primarily due to severance costs totaling US$2.3 million, related to the Company ceasing work on its digital decoder program, and other headcount reductions within the Ultra Low- Power Communications and Network Communications segments.
Selling and Administrative (S&A) expenses were US$20.9 million in the fourth quarter, as compared to US$12.7 million or 25% of revenue in the third quarter, and US$11.0 million in the fourth quarter of Fiscal 2004. S&A expenses in the current quarter were impacted primarily by severance costs totaling US$7.1 million, related to senior management, sales, and other administrative functions in the United States, Canada, and other geographic regions.
First Quarter Fiscal 2006 Guidance
Based on a lower opening order backlog of US$31 million, reflecting weakness in certain product segments and geographic markets, Zarlink is forecasting that revenues will be between US$43.0 million and US$45.0 million in the first quarter of Fiscal 2006.
Zarlink will also record a US$1.9 million gain, relating to the receipt of the final installment on a note receivable payment from X-FAB Semiconductor Foundries.
As a result of these events, and the revenue guidance given above, Zarlink expects to record a first quarter net loss of US$0.05 to US$0.06 per share.
About Zarlink Semiconductor
For over 30 years, Zarlink Semiconductor has delivered semiconductor solutions that drive the capabilities of voice, enterprise, broadband and wireless communications. The Company's success is built on its technology strengths including voice and data networks, consumer and ultra low-power communications, and high-performance analog. For more information, visit http://www.zarlink.com/ .
Shareholders and other individuals wishing to receive, free of charge, copies of the reports filed with the U.S. Securities and Exchange Commission and Regulatory Authorities - should visit the Company's web site at http://www.zarlink.com/ or contact investor relations.
Certain statements in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and assumptions include, among others, the following: increasing price and product/service competition by foreign and domestic competitors, including new entrants; rapid technological developments and changes; the ability to ensure continuity of supply from outside fabrication services; changes in environmental and other domestic and foreign governmental regulations; protection and validity of patent and other intellectual property rights; exposure to currency exchange rate fluctuations; the ability of the Company to attract and retain key employees; demographic changes and other factors referenced in the Company's Annual Report on Form 10-K for the fiscal year ended March 26, 2004 and Form 10-Q for the quarter ended December 24, 2004. Investors are encouraged to consider the risks detailed in those filings.
Zarlink and the Zarlink Semiconductor logo are trademarks of Zarlink Semiconductor Inc.
An open conference call for analysts will be held today from 5:00-6:00 p.m. EDT. Investors, media and other interested parties are listen-only. Please dial 1-800-814-4860 or 613-287-8027. The replay number is 1-877-289-8525 (passcode 21123050(pound key)) or 416-640-1917 (passcode 21123050(pound key)). The replay is available until midnight, June 1st, 2005. The call will be webcast from http://www.newswire.ca/ (Canada NewsWire) or via the Company's website at http://www.zarlink.com/ .
Zarlink Semiconductor Inc.
CONSOLIDATED STATEMENTS OF LOSS DATA
(in millions of U.S dollars, except per share amounts, U.S. GAAP)
(Unaudited)
Three months ended Years ended
March 25, Dec. 24, March 26, March 25, March 26,
2005 2004 2004 2005 2004
-------------------------------------------------------------------------
Revenue $ 48.4 $ 51.2 $ 51.2 $ 214.2 $ 198.5
Cost of
revenue 35.3 28.8 27.8 126.7 109.1
-------------------------------------------------------------------------
Gross margin 13.1 22.4 23.4 87.5 89.4
-------------------------------------------------------------------------
Expenses:
Research and
development 19.0 15.7 17.2 65.2 75.1
Selling and
administrative 20.9 12.7 11.0 55.3 48.7
Asset
impairment
and other 4.0 - 4.1 4.0 11.1
Gain on sale
of business (6.0) - (0.2) (15.9) (0.2)
-------------------------------------------------------------------------
37.9 28.4 32.1 108.6 134.7
-------------------------------------------------------------------------
Loss from
operations (24.8) (6.0) (8.7) (21.1) (45.3)
Interest income 0.4 0.3 0.4 1.1 1.3
Gain on sale of
long-term
investment - - - - 0.6
Foreign exchange
gain (loss) 0.9 (1.8) 1.1 (1.3) (1.0)
Interest expense - - (0.4) - (0.9)
-------------------------------------------------------------------------
Loss from
operations
before income
taxes (23.5) (7.5) (7.6) (21.3) (45.3)
Income tax
(expense)
recovery (0.4) (0.1) 4.1 0.5 5.5
-------------------------------------------------------------------------
Net loss from
continuing
operations (23.9) (7.6) (3.5) (20.8) (39.8)
Discontinued
operations,
net of tax - - 1.2 - 1.2
-------------------------------------------------------------------------
Net loss for
the period $ (23.9) $ (7.6) $ (2.3) $ (20.8) $ (38.6)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net loss
attributable
to common
shareholders
after
preferred
share
dividends and
premiums on
preferred
share
repurchases $ (24.7) $ (8.2) $ (2.8) $ (23.2) $ (40.7)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net loss per
common share
from
continuing
operations:
Basic and
diluted $ (0.19) $ (0.06) $ (0.03) $ (0.18) $ (0.33)
Net loss per
common share:
Basic and
diluted $ (0.19) $ (0.06) $ (0.02) $ (0.18) $ (0.32)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted
average
number of
common shares
outstanding
(millions):
Basic and
diluted 127.3 127.3 127.3 127.3 127.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Percentage of
revenue:
Gross margin 27% 44% 46% 41% 45%
Research and
development 39% 31% 34% 30% 38%
Selling and
administrative 43% 25% 21% 26% 25%
Zarlink Semiconductor Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS DATA
(in millions of U.S. dollars, U.S. GAAP)
(Unaudited)
Three months ended Years ended
March 25, Dec. 24, March 26, March 25, March 26,
2005 2004 2004 2005 2004
-------------------------------------------------------------------------
CASH PROVIDED BY
(USED IN)
Operating
activities:
Net loss for
the period $ (23.9) $ (7.6) $ (2.3) $ (20.8) $ (38.6)
Depreciation
and
amortization 1.9 2.0 2.8 8.5 13.7
Other non cash
changes in
operating
activities (3.5) 1.2 2.4 (12.0) 10.3
Stock
compensation
expense - - 0.1 0.1 0.2
Deferred income
taxes 4.5 (0.3) 3.1 4.0 1.9
Decrease
(increase) in
working capital:
Trade accounts
and other
receivables 4.1 0.3 5.7 (0.5) (2.7)
Inventories 4.9 (3.6) 2.8 (2.4) 3.3
Prepaid
expenses
and other 0.4 0.1 0.6 (1.7) (1.6)
Payables and
accrued
liabilities (2.9) 1.2 (9.8) (4.9) (6.5)
Deferred
credits - 0.1 (0.4) 0.7 (0.3)
-------------------------------------------------------------------------
Total (14.5) (6.6) 5.0 (29.0) (20.3)
-------------------------------------------------------------------------
Investing
activities:
Purchased
short-term
investments - (39.6) (0.1) (94.2) (134.9)
Matured
short-term
investments - 47.2 5.0 109.4 169.6
Expenditures
for fixed and
other assets (0.6) (1.2) (0.8) (3.8) (5.5)
Proceeds from
disposal of
fixed and
other assets 0.1 0.2 0.3 0.7 1.1
Proceeds from
sale of
long-term
investments - - - - 0.6
Proceeds from
repayment of
note
receivable 6.0 - - 15.9 -
-------------------------------------------------------------------------
Total 5.5 6.6 4.4 28.0 30.9
-------------------------------------------------------------------------
Financing activities:
Repayment of
capital lease
liabilities and
long-term
debt - - - (0.1) (0.5)
Payment of
dividends on
preferred shares (0.5) (0.6) (0.5) (2.1) (2.1)
Repurchase of
preferred shares (0.6) - - (0.6) (1.2)
Issue of common
shares - - 0.1 - 0.1
Increase in
restricted cash - (3.9) (0.5) (3.9) (3.8)
-------------------------------------------------------------------------
Total (1.1) (4.5) (0.9) (6.7) (7.5)
-------------------------------------------------------------------------
Effect of currency
translation on
cash and cash
equivalents (0.2) 0.2 (0.1) 0.1 0.4
-------------------------------------------------------------------------
Increase (decrease)
in cash and cash
equivalents (10.3) (4.3) 8.4 (7.6) 3.5
Cash and cash
equivalents,
beginning of
period 29.7 34.0 18.6 27.0 23.5
-------------------------------------------------------------------------
Cash and cash
equivalents,
end of period $ 19.4 $ 29.7 $ 27.0 $ 19.4 $ 27.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Zarlink Semiconductor Inc.
CONSOLIDATED BALANCE SHEET DATA
(in millions of U.S. dollars, except share amounts, U.S. GAAP)
(Unaudited)
March 25, Dec. 24, March 26,
2005 2004 2004
--------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 19.4 $ 29.7 $ 27.0
Short-term investments 39.6 39.6 54.8
Restricted cash 13.9 13.9 10.0
Trade accounts receivable - net 23.2 26.4 24.1
Other receivables 4.2 5.1 2.9
Note receivable 0.1 0.1 0.1
Inventories 23.2 28.1 20.8
Prepaid expenses and other 5.9 6.8 4.5
--------------------------------------
129.5 149.7 144.2
Fixed assets - net 33.4 37.4 41.1
Deferred income tax assets - net 3.5 8.0 7.5
Other assets 4.9 5.1 4.6
--------------------------------------
$ 171.3 $ 200.2 $ 197.4
--------------------------------------
--------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 14.6 $ 18.3 $ 15.0
Employee-related accruals 9.6 9.9 11.1
Income and other taxes payable 3.5 7.7 7.9
Current portion of provisions
for exit activities 7.9 0.7 2.2
Other accrued liabilities 5.8 8.1 10.9
Deferred credits 1.4 1.3 0.7
Current portion of long-term debt - - 0.1
--------------------------------------
42.8 46.0 47.9
Long-term debt 0.1 0.1 0.1
Long-term portion of provisions
for exit activities 0.9 0.4 0.5
Pension liabilities 19.3 19.2 16.7
--------------------------------------
63.1 65.7 65.2
--------------------------------------
Redeemable preferred shares,
unlimited shares authorized;
1,347,600 shares issued and outstanding
as at March 25, 2005 17.2 17.6 17.6
--------------------------------------
Shareholders' equity:
Common shares, unlimited shares
authorized; no par value;
127,308,973 shares issued and
outstanding as at March 25, 2005 768.4 768.4 768.4
Additional paid-in capital 2.2 2.4 2.3
Deficit (646.5) (622.0) (623.5)
Accumulated other comprehensive loss (33.1) (31.9) (32.6)
--------------------------------------
91.0 116.9 114.6
--------------------------------------
$ 171.3 $ 200.2 $ 197.4
--------------------------------------
--------------------------------------
Zarlink Semiconductor Inc.
SUPPLEMENTARY SCHEDULES
(in millions of U.S. dollars, U.S. GAAP)
(Unaudited)
Cash and Cash Equivalents, Short-Term Investments, and Restricted Cash
-----------------------------------------------------------------------
As a supplementary measure to effectively manage the Company's total cash assets, management combines its cash and cash equivalents, short-term investments, and restricted cash to represent the Company's total portfolio of cash assets. Short-term investments comprise highly liquid low risk debt instruments that are held to maturity with terms of not greater than one year, but generally for much shorter periods. Restricted cash consists of cash pledged with a bank as collateral for various letters of credit. In this supplementary schedule, investing activities exclude items related to purchased short-term investments and matured short-term investments; financing activities exclude the hypothecation of cash under letters of credit; and the effect of currency translation is calculated on all cash assets. A detailed reconciliation to arrive at the supplementary measure of cash and cash equivalents, short-term investments, and restricted cash is presented below as part of this earnings press release. Readers are cautioned that cash and cash equivalents, short-term investments, and restricted cash combined together do not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures prescribed by other companies. These indicators should not be considered as a substitute or alternative for the consolidated statements of cash flows.
Three months ended Years ended
March 25, Dec. 24, March 26, March 25, March 26,
2005 2004 2004 2005 2004
------------------------------------------------------------
Cash and
cash
equivalents,
beginning
of period $ 29.7 $ 34.0 $ 18.6 $ 27.0 $ 23.5
Short-term
investments,
beginning
of period 39.6 47.2 59.7 54.8 89.5
Restricted
cash,
beginning
of period 13.9 10.0 9.5 10.0 6.2
------------------------------------------------------------
Cash and cash
equivalents,
short-term
investments,
and restricted
cash, beginning
of period 83.2 91.2 87.8 91.8 119.2
------------------------------------------------------------
Cash provided
by (used in):
Operating
activities,
before changes
in working
capital (21.0) (4.7) 6.1 (20.2) (12.5)
Changes in
working .
capital 6.5 (1.9) (1.1) (8.8) (7.8)
------------------------------------------------------------
Operating
activities (14.5) (6.6) 5.0 (29.0) (20.3)
Investing
activities 5.5 (1.0) (0.5) 12.8 (3.8)
Financing
activities (1.1) (0.6) (0.4) (2.8) (3.7)
------------------------------------------------------------
Cash inflows
(outflows)
before the
effect of
currency
translation
on cash and
cash
equivalents,
short-term
investments,
and
restricted
cash (10.1) (8.2) 4.1 (19.0) (27.8)
------------------------------------------------------------
Effect of
currency
translation
on cash and
cash
equivalents,
short-term
investments,
and restricted
cash (0.2) 0.2 (0.1) 0.1 0.4
------------------------------------------------------------
Cash and cash
equivalents,
short-term
investments,
and restricted
cash, end
of period $ 72.9 $ 83.2 $ 91.8 $ 72.9 $ 91.8
------------------------------------------------------------
------------------------------------------------------------
Represented by:
Cash and
cash
equivalents,
end of
period $ 19.4 $ 29.7 $ 27.0 $ 19.4 $ 27.0
Short-term
investments,
end of
period 39.6 39.6 54.8 39.6 54.8
Restricted
cash, end
of period 13.9 13.9 10.0 13.9 10.0
------------------------------------------------------------
$ 72.9 $ 83.2 $ 91.8 $ 72.9 $ 91.8
------------------------------------------------------------
------------------------------------------------------------
Zarlink Semiconductor Inc.
SUPPLEMENTARY SCHEDULES
(in millions of U.S. dollars, U.S. GAAP)
(Unaudited)
Product Information
-------------------
Revenue, by product, was distributed as follows:
Three Months Ended
March 25, Dec. 24, March 26,
2005 2004 2004
-------------------------------------
Network Communications $ 24.6 $ 23.8 $ 28.6
Consumer Communications 16.4 18.9 13.5
Ultra Low-Power Communications 7.4 8.5 9.1
-------------------------------------
Total $ 48.4 $ 51.2 $ 51.2
-------------------------------------
-------------------------------------
Years ended
March 25, March 26,
2005 2004
-----------------------
Network Communications $ 101.2 $ 107.1
Consumer Communications 75.1 55.6
Ultra Low-Power Communications 37.9 35.8
-------------------------------------
Total $ 214.2 $ 198.5
-------------------------------------
-------------------------------------
Geographic Information
----------------------
Revenue, based on the geographic location of Zarlink's customers, was distributed as follows:
Three Three Three
Months Months Months
Ended Ended Ended
March 25, % of Dec. 24, % of March 26, % of
2005 Total 2004 Total 2004 Total
--------- ----- ------- ----- --------- -----
Asia - Pacific $ 21.4 44 % $ 21.9 42 % $ 20.1 39 %
Europe 15.4 32 14.2 28 15.1 29
Americas 11.6 24 15.1 30 16.0 32
--------- ----- ------- ----- --------- -----
$ 48.4 100 % $ 51.2 100 % $ 51.2 100 %
--------- ----- ------- ----- --------- -----
--------- ----- ------- ----- --------- -----
Year Year
Ended Ended
March 25, % of March 26, % of
2005 Total 2004 Total
--------- ----- --------- -----
Asia - Pacific $ 91.3 43 % $ 80.7 40 %
Europe 64.0 29 59.4 30
Americas 58.9 28 58.4 30
------- ----- --------- -----
$ 214.2 100 % $ 198.5 100 %
------- ----- --------- -----
------- ----- --------- -----
Zarlink Semiconductor Inc.
SUPPLEMENTARY SCHEDULES
(in millions of U.S. dollars, U.S. GAAP)
(Unaudited)
Information on Business Segments
--------------------------------
Three Ultra
Months Ended Network Consumer Low-Power
March 25, Communi- Communi- Communi- Unallocated
2005 cations cations cations Gains Total
------------------------------------------------------------
Revenue $ 24.6 $ 16.4 $ 7.4 $ - $ 48.4
Depreciation
of buildings
and equipment 1.2 0.6 0.1 - 1.9
Asset impairment
and other 1.3 2.5 0.2 - 4.0
Gain on sale
of foundry
business - - - (6.0) (6.0)
Segment's
operating
income (loss) (10.9) (13.5) (6.4) 6.0 (24.8)
Three Ultra
Months Ended Network Consumer Low-Power
March 24, Communi- Communi- Communi- Unallocated
2004 cations cations cations Gains Total
------------------------------------------------------------
Revenue $ 23.8 $ 18.9 $ 8.5 $ - $ 51.2
Depreciation
of buildings
and equipment 1.0 0.7 0.3 - 2.0
Segment's
operating
loss (1.0) (2.0) (3.0) - (6.0)
Three Ultra
Months Ended Network Consumer Low-Power
March 26, Communi- Communi- Communi- Unallocated
2004 cations cations cations Gains Total
------------------------------------------------------------
Revenue $ 28.6 $ 13.5 $ 9.1 $ - $ 51.2
Depreciation
of buildings
and equipment 1.2 0.7 0.5 - 2.4
Asset impairment
and other 2.2 1.4 0.5 - 4.1
Gain on sale
of foundry
business - - - (0.2) (0.2)
Segment's
operating
income
(loss) (1.4) (6.5) (1.0) 0.2 (8.7)
Year Ultra
Ended Network Consumer Low-Power
March 25, Communi- Communi- Communi- Unallocated
2005 cations cations cations Gains Total
------------------------------------------------------------
Revenue $ 101.2 $ 75.1 $ 37.9 $ - $ 214.2
Depreciation
of buildings
and equipment 4.3 2.9 1.3 - 8.5
Asset impairment
and other 1.3 2.5 0.2 - 4.0
Gain on sale
of foundry
business - - - (15.9) (15.9)
Segment's
operating
income
(loss) (6.8) (19.3) (10.9) 15.9 (21.1)
Year Ultra
Ended Network Consumer Low-Power
March 26, Communi- Communi- Communi- Unallocated
2004 cations cations cations Gains Total
------------------------------------------------------------
Revenue $ 107.1 $ 55.6 $ 35.8 $ - $ 198.5
Depreciation
of buildings
and equipment 6.7 3.4 2.0 - 12.1
Asset impairment
and other 6.8 3.4 0.9 - 11.1
Gain on sale
of foundry
business - - - (0.2) (0.2)
Segment's
operating
income
(loss) (19.7) (24.1) (1.7) 0.2 (45.3)
CONTACT: Michael Salter, Corporate Communications, 613 270-7115,
Email Contact; Mike McGinn, Investor Relations,
613 270-7210,
Email Contact