Revenues for the third quarter of fiscal year 2006 were $16,541,000, compared to revenues of $16,897,000 in the third quarter of fiscal year 2005. Net income for the quarter was $3,623,000 or $0.31 per diluted share, compared to net income of $34,106,000 or $2.96 per diluted share a year ago, when the Company posted a one-time income tax recovery of $28,300,000.
Revenues for the year-to-date were $47,027,000, compared to revenues of $33,201,000 reported for the same period last year. Net income for the first nine months of fiscal 2006 was $12,348,000 or $1.07 per diluted share, compared to net income of $33,039,000 or $3.05 per diluted share reported in the first nine months of fiscal 2005.
The Company's cash balance and short-term marketable securities at the end of the third quarter were $66.1 million, compared to $64.5 million at the end of the second quarter of fiscal 2006.
"In Q3 we delivered our fifth consecutive quarter with over 20% profitability. Further, for the year-to-date our pre-tax income from operations was almost triple that of last year, growing from $6.7 million to $18.5 million," said George Cwynar, President and Chief Executive Officer. "MOSAID was very active in the quarter developing opportunities to further grow the business. We rolled out and delivered new Semiconductor IP and tester products; our advanced research initiative continued to make significant progress on the development of future Flash memory technology; and we are assessing a variety of patent acquisition opportunities."
"Furthermore, in keeping with our ongoing commitment to balance strategic business investments and profitable growth with actions that provide direct returns to shareholders, our $0.20 per share dividend payment in Q3 reflected a 60% increase over the dividend paid in Q2. In addition, during the third quarter, we began buying MOSAID shares under our normal course issuer bid. We purchased and cancelled 214,000 shares at a cost of approximately $5 million," said Cwynar.
Operating Highlights
--------------------
Semiconductor IP Products Available in 90nm Technologies
MOSAID's Semiconductor IP products, including the DDR2 memory controller solution, MOSAID Mobilize low power standard cell library, and fractional Phase Locked Loop (PLL) are now available in 90nm technologies. Early testing of 90nm silicon for all three product lines is yielding encouraging results in MOSAID's Sunnyvale and Kanata labs. During the quarter, MOSAID licensed the DDR2 controller solution to its first customer and licensed additional PLL customers. 90nm versions of all three product lines have now been licensed to early customers.
The integration of Virtual Silicon Technology's operations with MOSAID's Semiconductor IP business has been proceeding as expected since the acquisition last quarter. The sales force has been merged and is now cross-selling MOSAID's memory controller, MOSAID Mobilize low power library and PLL product lines.
Appeal in Lawsuit Against Infineon Advances
On November 25, 2005, MOSAID filed a Notice of Appeal in its patent infringement lawsuit with Infineon Technologies in California. This Notice effectively began the appeal process of the New Jersey summary judgment ruling in the Infineon litigation. MOSAID believes the appeal is a positive development, and will ultimately provide a faster overall resolution of this case.
In the Infineon Texas case, a Court ordered mediation was held on February 16, 2006. The Markman hearing is currently scheduled for April 6, 2006 and a jury trial is scheduled to begin on October 10, 2006. A further recent development in the case was the addition of patent number 6,992,950 and the withdrawal of patent number 6,057,676 from the suit.
Systems Division Ships New Tester
During the third quarter, the Systems Division began shipping its new test system, the MS5205. The MS5205 is MOSAID's sixth generation of automatic test equipment targeted at engineering test, analysis and bitmapping applications for semiconductor memories. With double the available pins of previous systems and expanded logic test capability, the MS5205 addresses not only commodity Flash and DRAM memories, but also embedded memory and mixed memory/logic devices of many types.
Last month, the Systems Division successfully achieved re-certification of its quality management system to the ISO9001:2000 standard. Registration under ISO9000 confirms that the quality management system complies with the highest internationally accepted quality standard and demonstrates MOSAID's commitment to continuous improvement in the quality of its operations and products.
Guidance
--------
Guidance for the Company's Q4 of fiscal year 2006 revenues is $16.5 to $17.5 million and for net earnings is $2.5 to $3.0 million. Revenues for fiscal year 2006 are forecast to range between $63.5 to $64.5 million. Guidance for the Company's net earnings for fiscal year 2006 is $14.8 to $15.3 million. It is expected that approximately two thirds of the fiscal 2006 revenues will stem from the Intellectual Property Division. The Company is also tabling its initial guidance for fiscal 2007, where it is expected that revenues will range between $70 to $75 million and net earnings between $15 to $17 million.
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Conference Call and Webcast
Management will hold a conference call and webcast on Thursday,
February 23, 2006 at 5:00 p.m. (EST). Participants wishing to access the
conference call should dial 1-800-814-4941. The conference call will also
be webcast live at
www.mosaid.com and
www.newswire.ca, and subsequently
archived on MOSAID's web site. A rebroadcast of the conference call will
be available until midnight on Thursday, March 2, 2006. To access the
rebroadcast, please dial 1-877-289-8525 and enter the passcode
21175428(pound key).
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About MOSAID
------------
MOSAID Technologies Incorporated makes semiconductors better through the development and licensing of intellectual property and the supply of memory test and analysis systems. MOSAID counts many of the world's largest semiconductor companies among its customers. Founded in 1975, MOSAID is based in Ottawa, Ontario, with offices in Sunnyvale and Santa Clara, California; Newcastle upon Tyne, U.K; and Tokyo, Japan. For more information, visit www.mosaid.com.
Forward Looking Information
This document may contain forward-looking statements relating to the Company's operations or to the environment in which the Company operates. Such statements are based on current expectations that are subject to a variety of risks and uncertainties that are difficult to predict and/or beyond MOSAID's control. Actual results may differ materially from those expressed in any forward-looking statements, due to factors such as customer demand and timing of purchasing decisions, product and business mix, competitive products, pricing pressures as well as general economic and industry conditions. MOSAID assumes no obligation to update these forward-looking statements, or to update the reasons why actual results could differ from those reflected in any forward-looking statements. Additional information identifying risks and uncertainties is contained in other public filings with the Ontario Securities Commission.
<<
FINANCIAL STATEMENTS AND NOTES TO FOLLOW
MOSAID TECHNOLOGIES INCORPORATED
(Subject to the Canadian Business Corporations Act)
CONSOLIDATED BALANCE SHEET
(In thousands)
As at As at
January 31, April 30,
2006 2005
(unaudited) (audited)
-------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 6,917 $ 7,083
Marketable securities 59,218 58,781
Accounts receivable 4,710 5,636
Income taxes receivable 380 455
Inventories 1,939 2,203
Prepaid expenses 1,498 518
Future income taxes recoverable 8,228 8,228
-------------------------------------------------------------------------
82,890 82,904
Capital Assets 9,264 9,418
Acquired Intangibles 5,667 -
Goodwill 1,791 -
Future Income Taxes 29,851 31,885
-------------------------------------------------------------------------
$129,463 $124,207
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Current Liabilities
Accounts payable and accrued liabilities $ 5,889 $ 5,304
Deferred revenue 2,071 1,405
Mortgage payable 239 225
Other current liabilities - 343
-------------------------------------------------------------------------
8,199 7,277
Mortgage Payable 4,408 4,590
-------------------------------------------------------------------------
12,607 11,867
-------------------------------------------------------------------------
Shareholders' Equity
Share capital 102,269 102,820
Contributed surplus 2,200 1,357
Retained earnings 12,387 8,163
-------------------------------------------------------------------------
116,856 112,340
-------------------------------------------------------------------------
$129,463 $124,207
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(In thousands, except per share amounts)
(unaudited)
Quarter Quarter Nine months Nine months
ended ended ended ended
January 31, January 21, January 31, January 21,
2006 2005 2006 2005
-------------------------------------------------------------------------
Revenues $ 16,541 $ 16,897 $ 47,027 $ 33,201
Expenses
Labour and materials 2,026 1,328 5,608 4,902
Research and development 4,822 1,817 9,718 5,479
Selling and marketing 3,482 4,200 8,865 12,425
General and
administration 1,542 1,501 4,694 3,724
Bad debts (446) - (386) -
-------------------------------------------------------------------------
11,426 8,846 28,499 26,530
-------------------------------------------------------------------------
Income from operations 5,115 8,051 18,528 6,671
Net interest income
(Note 2) 397 170 1,001 432
-------------------------------------------------------------------------
Income before income tax
expense and discontinued
operations 5,512 8,221 19,529 7,103
Income tax expense
(recovery) 1,889 (25,885) 7,181 (25,709)
-------------------------------------------------------------------------
Income before discontinued
operations 3,623 34,106 12,348 32,812
Discontinued operations
(net of tax) - - - 227
-------------------------------------------------------------------------
Net income 3,623 34,106 12,348 33,039
Dividends 2,309 - 5,183 -
Normal course issuer bid 2,941 - 2,941 -
Retained earnings (deficit),
beginning of period 14,014 (30,489) 8,163 (29,422)
-------------------------------------------------------------------------
Retained earnings,
end of period $ 12,387 $ 3,617 $ 12,387 $ 3,617
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per share (Note 3)
Basic -
before discontinued
operations $ 0.32 $ 3.05 $ 1.08 $ 3.09
Diluted -
before discontinued
operations $ 0.31 $ 2.96 $ 1.07 $ 3.03
Basic - net earnings $ 0.32 $ 3.05 $ 1.08 $ 3.11
Diluted - net earnings $ 0.31 $ 2.96 $ 1.07 $ 3.05
Weighted average number
of shares
Basic 11,461,391 11,176,358 11,482,501 10,629,793
Diluted 11,593,845 11,538,937 11,573,864 10,826,268
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Quarter Quarter Nine months Nine months
ended ended ended ended
January 31, January 21, January 31, January 21,
2006 2005 2006 2005
-------------------------------------------------------------------------
Operating
Income before
discontinued
operations $ 3,623 $ 34,106 $ 12,348 $ 32,812
Items not affecting cash
Amortization 696 444 1,654 1,378
Stock option expense 340 227 951 568
Loss on disposal 24 - 24 -
Future income tax
recoverable 187 (28,537) 2,034 (28,537)
-------------------------------------------------------------------------
4,870 6,240 17,011 6,221
Change in non-cash
working capital items
from continuing
operations 3,454 (11,544) (180) (10,396)
-------------------------------------------------------------------------
8,324 (5,304) 16,831 (4,175)
-------------------------------------------------------------------------
Investing
Acquisition of capital
assets - net -
continuing
operations (468) (395) (1,159) (1,046)
Acquisition of
short-term marketable
securities (58,197) (38,852) (172,414) (49,809)
Acquisition of shares
in Virtual Silicon
Technology Inc. (24) - (6,388) -
Proceeds on
disposal/maturity
of short-term
marketable
securities 57,764 14,283 171,977 37,406
-------------------------------------------------------------------------
(925) (24,964) (7,984) (13,449)
-------------------------------------------------------------------------
Financing
Repayment of mortgage (57) (52) (168) (154)
Repurchase of shares (4,966) - (4,966) (230)
Dividends (2,309) - (5,183) -
Issue of common shares 1,112 14,513 1,366 16,105
-------------------------------------------------------------------------
(6,220) 14,461 (8,951) 15,721
-------------------------------------------------------------------------
Net cash (outflow) inflow
- continuing operations 1,179 (15,807) (104) (1,903)
Net cash (outflow) inflow
- discontinued operations - (25) (62) (228)
-------------------------------------------------------------------------
Net cash (outflow) inflow 1,179 (15,832) (166) (2,131)
Cash and cash equivalents,
beginning of period 5,738 22,722 7,083 9,021
Cash and cash equivalents,
end of period $ 6,917 $ 6,890 $ 6,917 $ 6,890
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Quarter ended January 31, 2006
(tabular dollar amounts in thousands, except per share amounts)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with Canadian generally accounting principles for interim financial information. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles 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, 2006.
The accounting policies used in preparing these interim financial statements are consistent with those used in preparing the annual financial statements, except as follows:
Business combinations, goodwill and intangible assets
The Company adopted the guidance in the Canadian Institute of Chartered Accountants (CICA) Handbook Section 1581, "Business Combinations", which requires all business combinations to be accounted for using the purchase method. In addition, any goodwill and intangible assets acquired in a business combination are accounted for under CICA Handbook Section 3062, "Goodwill and Other Intangible Assets". This section requires that goodwill and intangible assets with indefinite useful lives are not amortized, while those identified intangible assets with finite useful lives are amortized over their useful lives.
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that goodwill might be impaired. The impairment test is carried out in two steps. In the first step, the identification of a potential impairment is determined by comparing the fair value of the reporting unit to its carrying value. Fair value is based on estimates of discounted future cash flows or other valuation methods. When the fair value of the reporting unit is less than its carrying value, the fair value is allocated to all its assets and liabilities based on their fair values. The amount that the fair value of the reporting unit exceeds the amounts assigned to its assets and liabilities is the fair value of goodwill. In the second step, impairment is determined by comparing the fair value of goodwill to its carrying value. Any excess is charged to earnings.
Intangible assets with finite useful lives acquired through business combinations are recorded at their fair value at the date of acquisition. An impairment loss on intangible assets with finite useful lives is recognized when its carrying value exceeds the total undiscounted cash flows expected from its use and disposition. The amount of loss is determined by deducting its fair value based on discounted cash flows from its use and disposition from its carrying values.
2. Net Interest Income
Net interest income comprises the following:
Quarter Quarter Nine months Nine months
ended ended ended ended
January 31, January 21, January 31, January 21,
2006 2005 2006 2005
---------------------------------------------------
Interest income $ 492 $ 269 $ 1,289 $ 733
Interest expense 95 99 288 301
---------------------------------------------------
$ 397 $ 170 $ 1,001 $ 432
---------------------------------------------------
---------------------------------------------------
3. Earnings per Share
The following is a reconciliation of the numerator and denominator of the basic and diluted per share computations:
Quarter Quarter Nine months Nine months
ended ended ended ended
January 31, January 21, January 31, January 21,
2006 2005 2006 2005
---------------------------------------------------
Income before
discontinued
operations $ 3,623 $ 34,106 $ 12,348 $ 32,812
Discontinued
operations
(net of tax) - - - 227
---------------------------------------------------
Net income $ 3,623 $ 34,106 $ 12,348 $ 33,039
---------------------------------------------------
---------------------------------------------------
Weighted average
number of common
shares outstanding 11,461,391 11,176,358 11,482,501 10,629,793
Net effect of stock
options 132,454 362,579 91,363 196,475
---------------------------------------------------
Weighted average
diluted number of
common shares
outstanding 11,593,845 11,538,937 11,573,864 10,826,268
---------------------------------------------------
---------------------------------------------------
Earnings per share
Basic - before
discontinued
operations $ 0.32 $ 3.05 $ 1.08 $ 3.09
Diluted - before
discontinued
operations $ 0.31 $ 2.96 $ 1.07 $ 3.03
Basic - net income $ 0.32 $ 3.05 $ 1.08 $ 3.11
Diluted - net income $ 0.31 $ 2.96 $ 1.07 $ 3.05
For the quarter and nine months ended January 31, 2006, 76,400 and 211,324 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 the period and were therefore anti-dilutive.
For the quarter and nine months ended January 21, 2005, 9,000 and 261,391 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 the period and were therefore anti-dilutive.
There were 810,091 and 815,317 options issued and outstanding as at January 31, 2006 and January 21, 2005 respectively.
4. 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 market price on 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 Quarter
ended ended
January 31, January 21,
2006 2005
-------------------------
Risk free interest rate 3.41% 4.1%
Expected life in years 5.5 4.6
Expected dividend yield 3.4% -
Volatility 76.05% 91.06%
5. Business Segment Information
Based upon the Company's internal reporting structure, the following operating segments have been assigned:
Intellectual Property (IP): A developer and licensor of semiconductor
intellectual property.
Systems: A supplier of engineering memory test and
analysis systems.
The significant accounting policies of the above segments are the same as those described in Note 1. Intersegment sales are recorded at cost. General and administrative costs are allocated to the operating segments based upon estimates of usage. The Company has not included net interest income, foreign exchange gains or losses, unusual items, gains or losses of long-term assets or income tax expense in the determination of operating segment profit.
Segment information
(in thousands of dollars)
Before
Nine months discon- Discon-
ended Unal- tinued tinued
January 31, IP Systems located opera- opera-
2006 Division Division amounts tions tions Totals
-------------------------------------------------------------------------
Revenues from
external
customers $ 30,678 $ 16,349 $ - $ 47,027 $ - $ 47,027
Segment
profit
(loss) $ 16,834 $ 1,966 $ (6,452) $ 12,348 $ - $ 12,348
Segment
assets (x) $ 6,029 $ 1,951 $ 6,951 $ 14,931 $ - $ 14,931
Expenditure
on segment
assets (x) $ 6,157 $ 863 $ 171 $ 7,191 $ - $ 7,191
Amortization
and write-
down of
segment
assets (x) $ 569 $ 663 $ 422 $ 1,654 $ - $ 1,654
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Before
Nine months discon- Discon-
ended Unal- tinued tinued
January 21, IP Systems located opera- opera-
2005 Division Division amounts tions tions Totals
-------------------------------------------------------------------------
Revenues from
external
customers $ 17,130 $ 16,071 $ - $ 33,201 $ 42 $ 33,243
Segment
profit
(loss) $ 4,078 $ 2,644 $ 26,090 $ 32,812 $ 227 $ 33,039
Segment
assets (x) $ 133 $ 1,232 $ 7,411 $ 8,776 $ - $ 8,776
Expenditure
on segment
assets (x) $ 147 $ 830 $ 69 $ 1,046 $ - $ 1,046
Amortization
and write-
down of
segment
assets (x) $ 252 $ 673 $ 453 $ 1,378 $ - $ 1,378
-------------------------------------------------------------------------
Before
Quarter discon- Discon-
ended Unal- tinued tinued
January 31, IP Systems located opera- opera-
2006 Division Division amounts tions tions Totals
-------------------------------------------------------------------------
Revenues from
external
customers $ 10,991 $ 5,550 $ - $ 16,541 $ - $ 16,541
Segment
profit
(loss) $ 4,842 $ 328 $ (1,547) $ 3,623 $ - $ 3,623
Segment
assets (x) $ 6,029 $ 1,951 $ 6,951 $ 14,931 $ - $ 14,931
Expenditure
on segment
assets (x) $ 72 $ 363 $ 133 $ 568 $ - $ 568
Amortization
and write-
down of
segment
assets (x) $ 347 $ 204 $ 145 $ 696 $ - $ 696
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Before
Quarter discon- Discon-
ended Unal- tinued tinued
January 21, IP Systems located opera- opera-
2005 Division Division amounts tions tions Totals
-------------------------------------------------------------------------
Revenues from
external
customers $ 12,834 $ 4,063 $ - $ 16,897 $ - $ 16,897
Segment
profit
(loss) $ 8,198 $ (87) $ 25,995 $ 34,106 $ - $ 34,106
Segment
assets (x) $ 133 $ 1,232 $ 7,411 $ 8,776 $ - $ 8,776
Expenditure
on segment
assets (x) $ 4 $ 344 $ 47 $ 395 $ - $ 395
Amortization
and write-
down of
segment
assets (x) $ 77 $ 215 $ 151 $ 443 $ - $ 443
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(x) Assets include capital assets and acquired intangibles but not
goodwill.
6. Comparative Amounts
Certain of the comparative amounts have been reclassified to conform to the presentation adopted in the current year.
>>
CONTACT: Investor Inquiries: Heidi Vincent, Director, Investor Relations &
Communications, (613) 599-9539 x1205,
Email Contact; Media Inquiries:
Sara Haskill, Communications Specialist, (613) 599-9539 x1228,
Email Contact