Q4 Fiscal 2011 Financial Highlights
-- Q4 revenues of $21.9 million were up 10% from $19.9 million in Q4 fiscal
2010
-- Q4 pro forma net income of $7.3 million compared to $8.6 million in Q4
fiscal 2010. Pro forma diluted EPS of $0.60 compared to $0.74 per
diluted share in Q4 fiscal 2010
-- Q4 GAAP net income of $5.9 million compared to $8.0 million in Q4 fiscal
2010. GAAP diluted EPS of $0.49, compared to $0.69 per diluted share in
Q4 fiscal 2010
Fiscal Year 2011 Results
-- Fiscal year 2011 revenues of $80.5 million rose 13% from $71.1 million
in fiscal year 2010
-- Fiscal year 2011 pro forma net income of $34.6 million was up 13% from
$30.5 million in fiscal year 2010. Pro forma diluted EPS of $2.89
compared to $2.87 per diluted share in fiscal year 2010
-- Fiscal year 2011 GAAP net income of $25.0 million increased 15% from
$21.7 million in fiscal year 2010. GAAP diluted EPS of $2.09 per diluted
share, compared to $2.04 per diluted share in fiscal year 2010
"I'm very proud to report that we achieved the highest levels of revenues and pro forma net income in our 36-year history, making fiscal 2011 a banner year for our Company," said John Lindgren, President and CEO, MOSAID. "Our record financial results demonstrate the strength and sustainability of the Company's intellectual property licensing and innovation business. We delivered a third consecutive year of double-digit revenue growth and record profits, despite the headwinds of a strong Canadian dollar. Looking ahead, our goal is to achieve higher rates of revenue growth by increasing our investments in high-quality patents, establishing new licensing programs, and through the vigorous defense of our intellectual property rights."
"During fiscal 2011 we met key operational goals that drove results," said Lindgren. "Our patent portfolio - the foundation for our long-term success - grew by more than 40%. We secured significant long-term revenue streams by renewing our patent license agreements with Hynix and Nanya, and signing first-time deals with a leading Wi-Fi chip supplier, IBM, LG Electronics and other global companies. Signaling our resolve to protect our patent rights, we intensified our litigation activities."
"Conducting R&D that contributes to the development of innovative technology is integral to our identity as a world-class intellectual property company," stated Lindgren. "MOSAID's R&D activity is currently focused on our HLNAND™ Flash memory technology. In fiscal 2011, we attracted considerable attention with the introduction of an HLNAND-based prototype solid state drive, and HLNAND2, our second-generation Flash memory specification."
MOSAID had cash and marketable securities of $114.8 million at the end of the fourth quarter of fiscal 2011, compared to $118.9 million at the end of the third quarter of fiscal 2011. In Q4 fiscal 2011, MOSAID returned $3.0 million to shareholders in quarterly dividend payments.
On June 16, 2011, MOSAID declared a quarterly dividend of $0.25 per share. The dividend, which is an eligible dividend, is payable on July 21, 2011 to shareholders of record as of July 7, 2011.
A reconciliation of pro forma net income to Canadian generally accepted accounting principles (GAAP) net income is included in the pro forma financial statements accompanying this press release.
Fourth Quarter Operational Highlights
Patent licensing: MOSAID granted Hynix a six-year term license to certain semiconductor patents and a life-of-patents license to certain other semiconductor patents covering all Hynix semiconductor products. In a separate purchase agreement, MOSAID acquired a portfolio of several hundred patents and patent applications relating to semiconductor general manufacturing process and memory technologies.
During the fourth quarter, MOSAID signed microcomponents patent license agreements with LG Electronics Inc. and MediaTek Inc. The Company granted LG Electronics an eight-year, non-exclusive license to certain microcomponents patents covering all LG branded products. MOSAID granted MediaTek a five-year license under its microcomponents patents covering certain MediaTek semiconductor products.
MOSAID also signed a worldwide, non-exclusive wireless patent portfolio license agreement with HTC Corporation of Taiwan. MOSAID granted HTC a 10-year, royalty bearing license under its wireless patents covering all HTC wireless networking products that comply with the IEEE 802.11 Wi-Fi family of communications standards, and that contain Wi-Fi chips that are not already licensed. All other details of the patent license agreement are confidential.
Patent portfolio growth: MOSAID had 2,822 patents and applications at the end of Q4 fiscal 2011, up 7% from 2,647 patents and applications at the end of Q3 fiscal 2011, and up 41% from 2,001 patents and applications one year ago.
During the quarter, MOSAID purchased four separate patent portfolios, totaling 70 patents and applications. The acquired portfolios relate to wireless handsets, sensor networks, distributed processing and cloud computing, and network routing and management. There are no revenue sharing arrangements related to any of these acquisitions. The patents and patent applications acquired from Hynix will be recorded following the completion of the selection process.
Litigation update: On March 17, 2011, MOSAID initiated wireless patent infringement litigation against 17 companies - including Atheros Communications, Inc., Marvell Semiconductor, Inc., Ralink Technology Corporation, Realtek Semiconductor, CSR plc, Intel Corporation and some of their customers - which MOSAID believes are infringing six of its standards-essential Wi-Fi patents.
On April 7, 2011, MOSAID filed a patent infringement suit against NVIDIA Corporation, Freescale Semiconductor Inc. and Interphase Corporation, alleging infringement of seven patents related to power management techniques and microprocessor architectures.
Subsequent to quarter end, MOSAID initiated two further litigation actions. On May 10, 2011, the Company commenced patent infringement litigation against Elpida Memory, Inc., Buffalo Inc. and Axiontech. MOSAID believes that the defendants are infringing six patents related to Dynamic Random Access Memory (DRAM) circuit and process technology.
On May 16, 2011, MOSAID filed a complaint against Cisco Systems before the International Trade Commission (ITC). The complaint alleges that Cisco is infringing six patents relating primarily to Power-over-Ethernet technology.
Research and development: MOSAID announced HLNAND2, the next step in the development of its HLNAND (HyperLink NAND) Flash memory technology. HLNAND2 provides simultaneous read and write data at 800MB/s (megabytes per second), far exceeding the performance of any other NAND Flash memory currently available or announced.
Q1 and Fiscal 2012 Financial Guidance
Management offers the following guidance for the first quarter of fiscal 2012:
-- Q1 revenues of $17.5 million to $19.8 million
-- Q1 pro forma net income of $5.3 million to $5.9 million, or $0.43 to
$0.48 per diluted share, based on 12.2 million diluted shares
Management is providing the following guidance for fiscal 2012:
-- Fiscal 2012 revenues are expected to be in the range of $85.0 million to
$90.0 million
-- Fiscal 2012 pro forma net income is expected to be in the range of $24.6
million to $26.1 million, or $2.00 to $2.12 per diluted share, based on
12.3 million diluted shares
The above information is considered material forward-looking information. Financial guidance is provided to assist investors and other interested parties in understanding the Company's business. The reader is cautioned that using this information for any other purpose may be inappropriate.
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. MOSAID's revenues depend upon, among other items, the continued ability of its licensees to pay amounts as they become due. The Company takes steps, including monitoring the creditworthiness of its licensees, in order to manage this risk.
Due to the nature of the expense, patent licensing and litigation expense can vary significantly quarter-to-quarter.
The "Forward-Looking Information" section of this document provides information on various risks and uncertainties faced by the Company.
Conference Call and Webcast
Management will hold a conference call and webcast on Thursday, June 16, 2011 at 5:00 p.m. ET . The webcast will be live at www.mosaid.com and may also be accessed by dialing 1-800-446-1671. Please provide confirmation number 29919114. The webcast will be available on mosaid.com for 90 days following the event.
About MOSAID
MOSAID Technologies Inc. is one of the world's leading intellectual property companies. MOSAID licenses patented intellectual property in the areas of semiconductors and communications technologies and develops semiconductor memory technology. MOSAID counts many of the world's largest technology companies among its licensees. Founded in 1975, MOSAID is based in Ottawa, Ontario, Canada. Visit www.mosaid.com and InvestorChannel.mosaid.com for more information.
Pro forma net 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, and 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.
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," "could," "estimate," "expect," "foresee," "intend," "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; semiconductor and telecommunications product vendors 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: MOSAID's ability to negotiate settlements with licensees; legal rulings and/or regulatory investigations, audits or complaints having an adverse impact on the validity, enforceability, royalty rates, 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; worldwide economic conditions and demand for technology products; economic, social, and political conditions both globally and in the countries in which MOSAID or patent licensees operate, including conflict, war and, other 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 R&D 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.
Except as may be required by applicable law or stock exchange regulation, we undertake no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events. Accordingly, readers should not place undue reliance on forward-looking statements. If we do update one or more forward-looking statements, no inference should be drawn that additional updates will be made with respect to those or other 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 Pro Forma Consolidated Statements of Income
For the Quarter Ended April 30, 2011
The attached pro forma 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 INCOME
(In thousands of Canadian Dollars, except per share amount)
(Unaudited)
Quarter Ended Year Ended
April 30 April 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Revenues $21,876 $19,886 $80,537 $71,110
Operating expenses
Patent portfolio
management 3,000 2,282 9,570 7,485
Patent licensing and
litigation 5,756 2,573 13,082 9,239
Research and development 986 716 2,974 2,853
General and administration 1,289 1,613 5,798 5,978
Foreign exchange loss 807 29 1,017 423
----------------------------------------------------------------------------
11,838 7,213 32,441 25,978
----------------------------------------------------------------------------
Pro forma income from
operations 10,038 12,673 48,096 45,132
Investment income 391 128 1,345 439
----------------------------------------------------------------------------
Pro forma income before
income tax expense 10,429 12,801 49,441 45,571
Income tax expense 3,129 4,224 14,832 15,040
----------------------------------------------------------------------------
Pro forma net income $ 7,300 $ 8,577 $34,609 $30,531
----------------------------------------------------------------------------
Pro forma earnings per share
Basic $0.61 $0.74 $2.93 $2.89
Diluted $0.60 $0.74 $2.89 $2.87
Weighted average number of
shares
Basic 11,884,586 11,522,272 11,826,997 10,580,958
Diluted 12,090,772 11,611,053 11,976,458 10,651,777
See accompanying Notes to the Consolidated Financial Statements
Pro forma net income is reconciled to GAAP net income as follows:
(Dollar amounts in
thousands) Quarter Ended Year Ended
April 30 April 30
2011 2010 2011 2010
---------------------------------------------------------------------------
GAAP net income $5,883 $8,051 $25,030 $21,750
Add (deduct):
Stock-based compensation 574 400 1,989 1,189
Patent amortization and
imputed interest 4,075 3,888 16,457 15,215
Foreign exchange (gain) (2,067) (1,761) (2,467) (4,972)
Special committee - - - 719
Income tax expense - for the
above items (1,112) (992) (5,953) (4,437)
Future income tax
revaluation - (862) (200) 1,844
Discontinued operations (net
of tax) (53) (147) (247) (777)
---------------------------------------------------------------------------
Pro forma net income $7,300 $8,577 $34,609 $30,531
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Pro forma foreign exchange loss is reconciled to GAAP foreign exchange (gain) as follows:
(Dollar amounts in
thousands) Quarter Ended Year Ended
April 30 April 30
2011 2010 2011 2010
---------------------------------------------------------------------------
GAAP foreign exchange (gain) $(1,260) $(1,732) $(1,450) $(4,550)
Less: foreign exchange
(gain) on long-term debt (2,067) (1,761) (2,467) (4,972)
---------------------------------------------------------------------------
Pro forma foreign exchange
loss $ 807 $ 29 $ 1,017 $ 423
---------------------------------------------------------------------------
---------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In thousands of Canadian Dollars, except per share amount)
(Unaudited)
Quarter Ended Year Ended
April 30 April 30
2011 2010 2011 2010
---------------------------------------------------------------------------
Revenues $21,876 $19,886 $80,537 $71,110
Operating expenses
Patent portfolio
management 3,000 2,282 9,570 7,485
Patent licensing and
litigation 5,756 2,573 13,082 9,239
Research and development 986 716 2,974 2,853
General and administration 1,289 1,613 5,798 5,978
Foreign exchange (gain) (1,260) (1,732) (1,450) (4,550)
Stock-based compensation
(Note 6) 574 400 1,989 1,189
Special committee - - - 719
Patent amortization and
imputed interest 4,075 3,888 16,457 15,215
---------------------------------------------------------------------------
14,420 9,740 48,420 38,128
---------------------------------------------------------------------------
Income from operations 7,456 10,146 32,117 32,982
Investment income 391 128 1,345 439
---------------------------------------------------------------------------
Income before income tax
expense and discontinued
operations 7,847 10,274 33,462 33,421
Income tax expense 2,017 2,370 8,679 12,448
---------------------------------------------------------------------------
Income before discontinued
operations 5,830 7,904 24,783 20,973
Discontinued operations
income
(net of tax) (Note 5) 53 147 247 777
---------------------------------------------------------------------------
Net income 5,883 8,051 25,030 21,750
Dividends 2,972 2,941 11,827 10,655
Retained earnings, beginning
of period 32,994 17,592 22,702 11,607
---------------------------------------------------------------------------
Retained earnings, end of
period $35,905 $22,702 $35,905 $22,702
---------------------------------------------------------------------------
Earnings per share (Note 4)
Basic - before
discontinued operations $0.49 $0.69 $2.10 $1.98
Diluted - before
discontinued operations $0.48 $0.68 $2.07 $1.97
Basic - net earnings $0.50 $0.70 $2.12 $2.06
Diluted - net earnings $0.49 $0.69 $2.09 $2.04
Weighted average number of
shares
Basic 11,884,586 11,522,272 11,826,997 10,580,958
Diluted 12,090,772 11,611,053 11,976,458 10,651,777
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian Dollar)
As at As at
April 30, 2011 April 30, 2010
(unaudited) (audited)
----------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 97,809 $ 70,732
Marketable securities 17,021 30,096
Accounts receivable 13,301 4,880
Prepaid expenses 542 698
Other asset 1,136 2,053
Future income tax asset 7,591 10,930
----------------------------------------------------------------------------
137,400 119,389
Property and equipment 321 257
Acquired intangibles 71,292 80,685
Investment tax credits
receivable 16,118 15,748
----------------------------------------------------------------------------
$225,131 $216,079
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Current Liabilities
Accounts payable and
accrued liabilities $12,504 $ 7,734
Deferred revenue 213 4,611
Other liability - 992
Current portion of other
long-term liabilities 9,896 8,294
----------------------------------------------------------------------------
22,613 21,631
Deferred gain on sale-
leaseback 616 828
Other long-term liabilities 26,911 33,132
Future income tax liability 5,625 6,147
----------------------------------------------------------------------------
55,765 61,738
----------------------------------------------------------------------------
Shareholders' Equity
Share capital (Note 3) 129,021 126,573
Contributed surplus 3,592 3,452
Retained earnings 35,905 22,702
Accumulated other
comprehensive income 848 1,614
----------------------------------------------------------------------------
169,366 154,341
----------------------------------------------------------------------------
$225,131 $216,079
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian Dollar)
(Unaudited)
Quarter Ended Year Ended
April 30 April 30
2011 2010 2011 2010
---------------------------------------------------------------------------
Operating
Income before discontinued
operations $ 5,830 $ 7,904 $24,783 $20,973
Items not affecting cash
Amortization and imputed
interest 4,184 3,165 14,438 12,252
Stock-based compensation 574 455 1,989 1,189
Loss on disposal of assets 42 73 42 73
Unrealized foreign
exchange (gain) on other
long-term liabilities (2,067) (1,761) (2,467) (4,972)
Future income taxes and
investment tax credits (596) 2,426 1,559 8,507
---------------------------------------------------------------------------
7,967 12,262 40,344 38,022
Change in non-cash working
capital items from
continuing operations (1,556) (2,324) (7,895) 8,074
---------------------------------------------------------------------------
6,411 9,938 32,449 46,096
---------------------------------------------------------------------------
Investing
Acquisition of property
and equipment and
acquired intangibles (2,919) (494) (4,420) (1,134)
Acquisition of marketable
securities (5,000) (26,370) (43,758) (29,686)
Proceeds on
disposal/maturity of
marketable securities 17,624 (9) 56,833 18,478
---------------------------------------------------------------------------
9,705 (26,873) 8,655 (12,342)
---------------------------------------------------------------------------
Financing
(Decrease) in long-term
liabilities (5,074) (5,342) (2,838) (14,399)
Dividends paid (2,640) (2,941) (11,495) (10,655)
Funding of Restricted
Share Unit plan - - (2,085) (880)
Net proceeds from bought
deal - 29,342 - 29,342
Issuance of common shares 198 121 2,354 1,416
---------------------------------------------------------------------------
(7,516) 21,180 (14,064) 4,824
---------------------------------------------------------------------------
Net cash inflow from
continuing operations 8,600 4,245 27,040 38,578
Net cash inflow (outflow)
from discontinued
operations 4 (52) 37 (745)
---------------------------------------------------------------------------
Net cash inflow 8,604 4,193 27,077 37,833
Cash and cash equivalents,
beginning of period 89,205 66,539 70,732 32,899
---------------------------------------------------------------------------
Cash and cash equivalents,
end of period $97,809 $70,732 $97,809 $70,732
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Supplementary Information:
Cash on hand and bank
balances $97,809 $54,802 $97,809 $54,802
Short-term investments - 15,930 - 15,930
---------------------------------------------------------------------------
Total cash and cash
equivalents $97,809 $70,732 $97,809 $70,732
---------------------------------------------------------------------------
---------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of Canadian Dollar)
(Unaudited)
Quarter Ended Year Ended
April 30 April 30
2011 2010 2011 2010
---------------------------------------------------------------------------
Net income $5,883 $ 8,051 $25,030 $21,750
---------------------------------------------------------------------------
Other comprehensive income,
net of tax:
Gains and losses on
derivatives designated as
cash flow hedges 557 1,670 754 3,149
Gains and losses on
derivatives designated as
cash flow hedges in prior
periods transferred to
earnings in the current
period (224) 310 (1,520) (1,981)
---------------------------------------------------------------------------
Other comprehensive income
(loss) 333 1,980 (766) 1,168
---------------------------------------------------------------------------
Comprehensive income $6,216 $10,031 $24,264 $22,918
---------------------------------------------------------------------------
---------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Quarters ended April 30, 2011 and 2010
(tabular dollar amounts in thousands of Canadian Dollars, except per share
amount)
(unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated 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 note disclosure required by GAAP for annual financial statements. These financial statements are based upon accounting principles consistent with those used in the annual consolidated financial statements with the exception of new accounting policies described in Note 3. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto for the year ended April 30, 2010.
The preparation of these unaudited interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. In the opinion of management, these unaudited interim consolidated financial statements reflect all adjustments necessary to state fairly the results for the periods presented. Actual results could differ materially from these estimates and the operating results for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the full fiscal year ending April 30, 2011.
2. Recently Issued Accounting Standards
International Financial Reporting Standards
Canadian public companies will be required to prepare their financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), for financial years beginning on or after January 1, 2011. Effective May 1, 2011, the Company will adopt IFRS as the basis for preparing its consolidated financial statements. The Company will issue its financial results for the quarter ended July 31, 2011 prepared on an IFRS basis and provide comparative data on an IFRS basis as required.
3. Shareholders' equity and other comprehensive income
The following are the changes in shareholders' equity for the year ended April 30, 2011 and for the year ended April 30, 2010:
---------------------------------------------------------------------------
Accumu-
lated
other
Contri- compre-
Common Common buted Retained hensive
shares shares surplus earnings income Total
(number) ($) ($) ($) ($) ($)
---------------------------------------------------------------------------
Balance at April
30, 2010 11,763,626 $126,573 $3,452 $22,702 $1,614 $154,341
---------------------------------------------------------------------------
Net income - - - 25,030 - 25,030
---------------------------------------------------------------------------
Dividends - - - (11,827) - (11,827)
---------------------------------------------------------------------------
Employee and
Director Stock
Option Plan 112,203 3,186 (966) - - 2,220
---------------------------------------------------------------------------
Employee and
Director Stock
Purchase Plan 13,474 155 (23) - - 132
---------------------------------------------------------------------------
Restricted share
unit plan - (1,225) (860) - - (2,085)
---------------------------------------------------------------------------
Stock-based
compensation - - 1,989 - - 1,989
---------------------------------------------------------------------------
Dividend
reinvestment
plan 10,895 332 - - - 332
---------------------------------------------------------------------------
Other
comprehensive
income - - - - (766) (766)
---------------------------------------------------------------------------
Balance at April
30, 2011 11,900,198 $129,021 $3,592 $35,905 $ 848 $169,366
---------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumu-
lated
other
Contri- compre-
Common Common buted Retained hensive
shares shares surplus earnings income Total
(number) ($) ($) ($) ($) ($)
---------------------------------------------------------------------------
Balance at April
30, 2009 10,184,323 $ 94,741 $3,753 $11,607 $ 446 $110,547
---------------------------------------------------------------------------
Net income - - - 21,750 - 21,750
---------------------------------------------------------------------------
Dividends - - - (10,655) - (10,655)
---------------------------------------------------------------------------
Employee and
Director Stock
Option Plan 119,475 2,144 (882) - - 1,262
---------------------------------------------------------------------------
Employee and
Director Stock
Purchase Plan 22,328 496 (337) - - 159
---------------------------------------------------------------------------
Restricted share
unit plan - (601) (271) - - (872)
---------------------------------------------------------------------------
Stock-based
compensation - - 1,189 - - 1,189
---------------------------------------------------------------------------
Equity financing 1,437,500 29,793 - - - 29,793
---------------------------------------------------------------------------
Other
comprehensive
income - - - - 1,168 1,168
---------------------------------------------------------------------------
Balance at April
30, 2010 11,763,626 $126,573 $3,452 $22,702 $1,614 $154,341
---------------------------------------------------------------------------
4. Earnings per Share
The following is a reconciliation of the numerator and denominator of the basic and diluted per share computations:
Quarter Ended Year Ended
April 30 April 30
------------------------------------------------
2011 2010 2011 2010
------------------------------------------------
Income before discontinued
operations $5,830 $7,904 $24,783 $20,973
Discontinued operations (net
of tax) 53 147 247 777
------------------------------------------------
Net income $5,883 $8,051 $25,030 $21,750
------------------------------------------------
------------------------------------------------
Weighted average number of
common
shares outstanding 11,884,586 11,522,272 11,826,997 10,580,958
Net effect of stock options 206,186 88,781 149,461 70,819
------------------------------------------------
Weighted average diluted
number of common shares
outstanding 12,090,772 11,611,053 11,976,458 10,651,777
------------------------------------------------
------------------------------------------------
Earnings per share
Basic - before
discontinued operations $0.49 $0.69 $2.10 $1.98
Diluted - before
discontinued operations $0.48 $0.68 $2.07 $1.97
Basic - net income $0.50 $0.70 $2.12 $2.06
Diluted - net income $0.49 $0.69 $2.09 $2.04
For the quarters ended April 30, 2011 and April 30, 2010, 216,050 and 17,500 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 year ended April 30, 2011 and April 30, 2010, nil and 440,631 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 742,992 and 636,145 options issued and outstanding as at April 30, 2011 and April 30, 2010, respectively.
5. Discontinued operations
Quarter Ended Year Ended
April 30 April 30
------------------------------------------------
2011 2010 2011 2010
------------------------------------------------
Revenues $21 $ 15 $134 $ 33
Gain on sale of assets 53 205 210 1,125
------------------------------------------------
Earnings before tax 74 220 344 1,158
Income tax expense 21 73 97 381
------------------------------------------------
Discontinued operations (net
of tax) $53 $147 $247 $777
------------------------------------------------
------------------------------------------------
6. Stock-based Compensation
The Company has an employee stock purchase plan ("ESPP") 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. Directors are also eligible to participate in the ESPP.
Also, the Company has an Employee and Director Stock Option Plan ("ESOP"). 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 ESOP 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 and 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 Quarter Ended
April 30 April 30
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2011 2010
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Risk free interest rate 2.5% 2.4%
Expected life in years 5.0 5.5
Expected dividend yield 3.2% 4.1%
Volatility 36.96% 41.51%
For the quarter ended April 30, 2011, the Company did not issue Deferred Share Units in lieu of options to directors and officers of the Company under its Deferred Share Unit Plan. 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.
During the quarter ended April 30, 2011, the Company did not issue Restricted Share Units. The RSUs vest over three years. RSUs do not have an exercise price and are settled using common shares of the Company. The Company recognizes compensation expense equal to the stock price on the grant date, over the vesting period.
7. Financial Instruments
The Company has exposure to the following risks from its use of financial instruments: credit risk, market risk 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 extended payment terms 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. Many of the Company's licensees are 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.
Many of the Company's current licensees' operations are focused in the semiconductor industry. The semiconductor industry, particularly the DRAM and Flash memory segment, tends to be cyclical and, from time to time, suffers from economic difficulties due to pricing pressure as a result of an oversupply of memory devices.
Due to the long-term nature of many of the Company's licensing arrangements, in certain circumstances, the Company may not be able to obtain, at reasonable cost, credit insurance or other forms of credit risk mitigation instruments. A default of the remaining payments by one of the Company's licensees could have a materially adverse impact on the Company's future revenues, earnings, cash flow and financial position.
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, each 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:
April 30, 2011 April 30, 2010
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Cash and cash equivalents $ 97,809 $ 70,732
Marketable securities 17,021 30,096
Accounts receivable 13,301 4,880
Other asset 1,136 2,053
Other liability - (992)
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$129,267 $106,769
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The aging of accounts receivable at the reporting date was:
April 30, 2011 April 30, 2010
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Current $10,661 $1,367
Past due 2,640 3,513
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$13,301 $4,880
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Of the amount past due, the Company expects to collect a portion of the amount under a credit insurance policy.
Marketable securities comprise the following:
April 30, 2011 April 30, 2010
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Bonds & debentures $ 720 $27,087
Discount notes 16,301 3,009
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$17,021 $30,096
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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 April 30, 2011 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 other long-term 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) April 30, 2011
Equivalent to
Type Notional Currency Maturity CDN dollars Fair Value
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less than 3
Sell $ 8,350 USD months $ 8,626 $ 716
Sell $ 5,600 USD 3-12 months $ 5,737 $ 420
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$1,136
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(In thousands of dollars) April 30, 2010
Equivalent to
Type Notional Currency Maturity CDN dollars Fair Value
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less than 3
Sell $12,875 USD months $13,836 $ 759
Sell $21,225 USD 3-12 months $22,890 $1,294
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$2,053
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Buy $(5,000) USD 3-12 months $(6,093) $ (992)
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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 $48,000 for fiscal 2011.
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 $72,000 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 April 30, 2011, the Company had $114.8 million of cash and marketable securities and had a secured bank credit facility of $10.0 million, less off balance sheet arrangements, as described in Note 18 to the fiscal 2010 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 premises, 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 dollar)
Less than After
Contractual Obligations Total 1 year 1-3 years 4-5 years 5 years
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Operation lease $ 1,266 $ 323 $ 647 $ 296 -
Other long-term obligations 44,584 11,383 13,043 20,158 -
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Total contractual
obligations $45,850 $11,706 $13,690 $20,454 -
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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.
8. 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 shareholders' 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.
9. Business Segment Information
The Company operates in one operating segment licensing patented intellectual property in the areas of semiconductors and communications systems and developing semiconductor memory technology.
10. Commitment
On March 31, 2011 the Company entered into a binding agreement to acquire a portfolio of patents for US$9.5M. The transaction is expected to close in the first quarter of 2011. Payment is due within 30 days of the closing date.
Contacts: Michael Salter, Senior Director IR 613-599-9539 x 1205 Email Contact Joe Brown, Vice President and CFO 613-599-9539 x 1206 Email Contact