2009-11-26 22:06:04 -
OTTAWA, ONTARIO -- (Marketwire) -- 11/26/09 -- MOSAID Technologies Incorporated (TSX: MSD) today announced financial results for the second quarter of fiscal 2010, ended October 31, 2009.
-- Q2 revenues of $17.3 million exceeded guidance and were up 26% from
$13.8 million in Q2 fiscal 2009
-- Q2 pro forma net income of $8.0 million exceeded guidance and was up 95%
from $4.1 million in Q2 fiscal 2009. Q2 pro forma earnings per share
(EPS) of $0.78 per diluted share, up 95% from $0.40 in Q2 fiscal 2009
-- Q2 GAAP net income was $5.0 million or $0.49 per diluted share, compared
with a loss of $3.4 million or $0.33 per diluted share in Q2 fiscal 2009
"The Company's strong financial performance in the second quarter - and through the first half of fiscal 2010 - demonstrates that our diversified patent licensing business is delivering revenue growth, profits and consistent dividends for shareholders, even in an uncertain economic environment," said John Lindgren, President and CEO, MOSAID. "With the three wireless agreements we are announcing today, and the wireless deal signed with Samsung earlier this month, we have now signed 11 wireless patent licensing agreements, showing the continued momentum of this important licensing program. MOSAID has now licensed its wireless patents into the Wi-Fi enabled handset, notebook and wireless networking equipment markets."
MOSAID had cash and marketable securities of $55.2 million at the end of the second quarter of fiscal 2010, compared to $52.4 million at the end of the first quarter of fiscal 2010. In Q2 fiscal 2010, MOSAID returned $2.6 million to shareholders in quarterly dividend payments.
On November 26, 2009, MOSAID declared a quarterly dividend of $0.25 per share. The dividend, which is an eligible dividend, is payable on January 21, 2010 to shareholders of record as of January 7, 2010.
A reconciliation of pro forma net income to Canadian generally accepted accounting principles (GAAP) net income is included in the Notes to the Financial Statements accompanying this press release.
Second Quarter Operational Highlights
Wireless patent licensing: During the quarter, MOSAID signed three wireless patent license agreements with U.S.-based providers of Wi-Fi enabled business and consumer products. MOSAID entered into a five-year, royalty bearing wireless patent license agreement with Grace Digital, Inc. Based in California, Grace Digital provides audio communications products, including high-reliability wireless Internet radios, for the business and consumer markets. MOSAID also signed California's Xirrus, Inc. to a five-year, royalty bearing wireless patent license agreement. Xirrus specializes in wireless networking equipment for enterprise applications. In addition, MOSAID entered into a five-year term license with an unnamed wireless networking equipment company. All other details of the licenses are confidential.
Subsequent to quarter end, MOSAID signed a worldwide non-exclusive wireless patent license agreement with Samsung Electronics Co., Ltd. The fixed-payment term license agreement covers products sold globally by Samsung's Digital Media and Communications Business, including Wi-Fi enabled mobile handsets, notebook and netbook computers, and other system-level communications products.
Patent litigation: On July 13, 2009, MOSAID initiated litigation against IBM Corporation of Armonk, New York, for infringement of six of MOSAID's United States patents. In a complaint filed in the United States District Court of the District of Delaware, MOSAID claims that IBM has infringed and is infringing MOSAID's patents by making and selling microprocessor and Application Specific Integrated Circuit (ASIC) products which practice MOSAID's patents. On September 2, 2009, IBM filed an answer to MOSAID's complaint.
Patent portfolio development: MOSAID had 1,840 patents and applications at the end of the second quarter of fiscal 2010, up 93% from 954 patents and applications one year ago.
Q3 and Fiscal 2010 Guidance
Management offers the following guidance for the third quarter of fiscal 2010:
- Q3 revenues of $16.5 million to $17.5 million
- Q3 pro forma net income of $5.7 million to $6.4 million, or $0.55 to $0.61 per diluted share, based on 10.5 million diluted shares
The Company is maintaining its previously announced revenue guidance for fiscal 2010, and adjusting upwards its pro forma net income guidance.
- Fiscal 2010 revenues in the range of $65.0 million to $67.0 million
- Fiscal 2010 pro forma net income of $22.4 million to $23.1 million, or $2.16 to $2.22 per diluted share, based on 10.4 million diluted shares
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.
Conference Call and Webcast
Management will hold a conference call and webcast on Thursday, November 26, 2009 at 5:00 p.m. ET. The webcast will be live at www.mosaid.com :
and may also be accessed by dialing 1-800-926-9871. 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 develops semiconductor memory technology and licenses patented intellectual property in the areas of semiconductors and telecommunications systems. MOSAID counts many of the world's largest semiconductor companies among its licensees. Founded in 1975, MOSAID is based in Ottawa, Ontario.
Pro forma 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 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," "foresee," "estimate," "expect," "intend," "could," "may," "plan," "will," "would" and similar expressions. Similarly, statements in this document that describe MOSAID's business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. These forward-looking statements are not historical facts, but rather reflect MOSAID's current expectations regarding future events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results, performance or achievements to differ materially from those in such forward-looking statements. Assumptions made in preparing forward-looking statements and financial guidance include, but are not limited to, the following: MOSAID's continued expansion of its patent portfolio and of its opportunities for future patent licensing revenue as a result of MOSAID's acquisition of patents from third parties and from development of new inventions; DRAM manufacturers continuing to infringe MOSAID's patents; the timing and amount of MOSAID's litigation expenses; MOSAID's ability to sign new patent licensees; current assumptions as to the identification of products that are unlicensed to MOSAID's wireless patents; and the timing and amount of MOSAID's Research & Development expenses.
Factors that could cause actual results to differ materially from expected results include, but are not limited to, the following: 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.
MOSAID assumes no obligation to update or revise any forward-looking statements. Additional information identifying risks and uncertainties affecting MOSAID's business and other factors that could cause MOSAID's financial results to fluctuate are contained in MOSAID's Annual Information Form, under the section entitled "Risk Factors," and in MOSAID's other public filings available online at www.sedar.com :
.
MOSAID Technologies Incorporated
Unaudited Consolidated Financial Statements
For the Quarter Ended October 31, 2009
The attached consolidated financial statements have been prepared by
Management of MOSAID Technologies Incorporated and have not been reviewed
by an auditor.
MOSAID TECHNOLOGIES INCORPORATED
(Subject to the Canada Business Corporations Act)
CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
(In thousands of Canadian Dollars, except per share amounts)
(Unaudited)
Quarter Ended Six Months Ended
October 31, October 31,
2009 2008 2009 2008
--------------------------------------------------------------------------
Revenues $17,313 $13,795 $33,536 $26,447
Operating expenses
Patent portfolio management 1,822 1,203 3,533 2,326
Patent licensing and litigation 1,656 6,528 3,600 10,945
Research and development 705 508 1,516 1,075
General and administration 1,201 885 2,750 2,034
Foreign exchange loss (gain) 13 (874) 422 (935)
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5,397 8,250 11,821 15,445
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Pro forma income from operations 11,916 5,545 21,715 11,002
Net interest income 96 613 215 1,135
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Pro forma income before income tax 12,012 6,158 21,930 12,137
Income tax expense 3,963 2,032 7,236 4,005
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Pro forma net income (Note 6) $8,049 $4,126 $14,694 $8,132
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Pro forma earnings per share
Basic $0.78 $0.40 $1.43 $0.78
Diluted $0.78 $0.40 $1.43 $0.77
Weighted average number of shares
Basic 10,278,862 10,242,692 10,246,996 10,465,510
Diluted 10,339,633 10,261,537 10,299,267 10,494,342
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 amounts)
(Unaudited)
Quarter Ended Six Months Ended
October 31, October 31,
2009 2008 2009 2008
--------------------------------------------------------------------------
Revenues $17,313 $13,795 $33,536 $26,447
Operating expenses
Patent portfolio management 1,822 1,203 3,533 2,326
Patent licensing and litigation 1,656 6,528 3,600 10,945
Research and development 705 508 1,516 1,075
General and administration 1,201 885 2,750 2,034
Foreign exchange (gain) loss (39) 6,002 (2,508) 6,520
Stock-based compensation (Note 7) 220 168 458 315
Special committee 719 - 719 -
Patent amortization and imputed 7,696 6,561
interest 3,828 3,301
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10,112 18,595 17,764 29,776
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Income (loss) from operations 7,201 (4,800) 15,772 (3,329)
Net interest income 96 613 215 1,135
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Income (loss) before income tax
expense and discontinued
operations 7,297 (4,187) 15,987 (2,194)
Income tax expense (recovery) 2,474 (191) 4,946 610
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Income (loss) before discontinued
operations 4,823 (3,996) 11,041 (2,804)
Discontinued operations income
(net of tax) (Note 5) 198 569 434 737
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Net income (loss) 5,021 (3,427) 11,475 (2,067)
Dividends 2,572 2,544 5,133 5,228
Normal course issuer bid - 1,837 - 3,215
Retained earnings, beginning of 11,607 19,297
period 15,500 16,595
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Retained earnings, end of period $17,949 $8,787 $17,949 $8,787
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Earnings (loss) per share (Note 4)
Basic - before discontinued
operations $0.47 $(0.39) $1.08 $(0.27)
Diluted - before discontinued
operations $0.47 $(0.39) $1.07 $(0.27)
Basic - net earnings $0.49 $(0.33) $1.12 $(0.20)
Diluted - net earnings $0.49 $(0.33) $1.11 $(0.20)
Weighted average number of shares
Basic 10,278,862 10,242,692 10,246,996 10,465,510
Diluted 10,339,633 10,261,537 10,299,267 10,494,342
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian Dollars)
As at As at
October 31, April 30,
2009 2009
(unaudited) (audited)
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Current Assets
Cash and cash equivalents $51,491 $32,899
Marketable securities 3,712 18,888
Accounts receivable 6,865 10,434
Prepaid expenses 715 759
Other asset 483 446
Future income taxes recoverable 11,519 11,519
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74,785 74,945
Capital assets 524 563
Acquired intangibles 74,028 79,402
Future income taxes recoverable 16,122 17,549
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$165,459 $172,459
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Current Liabilities
Accounts payable and accrued liabilities $ 5,778 $ 6,341
Income tax payable 1,432 1,432
Deferred revenue 1,905 3,432
Current portion of other long-term
liabilities 9,450 20,869
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18,565 32,074
Deferred gain on sale-leaseback 933 1,039
Other long-term liabilities 27,583 28,799
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47,081 61,912
-------------------------------------------------------------------------
Shareholders' Equity
Share capital (Note 3) 96,656 94,741
Contributed surplus 3,290 3,753
Retained earnings 17,949 11,607
Accumulated other comprehensive income 483 446
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118,378 110,547
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$165,459 $172,459
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See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian Dollars)
(Unaudited)
Quarter Ended Six Months Ended
October 31, October 31,
2009 2008 2009 2008
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Operating
Income (loss) before discontinued $11,041 $(2,804)
operations $4,823 $(3,996)
Items not affecting cash
Amortization 3,034 2,473 6,048 4,930
Stock-based compensation 220 168 458 315
Unrealized foreign exchange
(gain) loss on other long-term 7,455
liabilities (52) 6,876 (2,929)
Future income tax recoverable 1,370 (832) 1,427 (2,343)
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9,395 4,689 16,045 7,553
Change in non-cash working
capital items from continuing
operations (2,427) (1,614) 2,312 4,509
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6,968 3,075 18,357 12,062
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Investing
Acquisition of capital assets
and acquired intangibles (523) (57) (635) (1,394)
Acquisition of short-term
marketable securities (3,000) (14,408) (3,316) (47,114)
Proceeds on disposal/maturity of
short-term marketable securities (4) 21,860 18,492 48,998
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(3,527) 7,395 14,541 490
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Financing
Long-term liabilities (1,343) 169 (9,699) (164)
Repurchase of shares - (4,597) - (8,415)
Dividends (2,572) (2,544) (5,133) (5,228)
Funding of RSU plan - (718) - (718)
Issue of common shares 486 24 989 167
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(3,429) (7,666) (13,843) (14,358)
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Net cash inflow (outflow) from
continuing operations 12 2,804 19,055 (1,806)
Net cash (outflow) inflow from
discontinued operations (223) 5,371 (463) 5,063
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Net cash (outflow) inflow (211) 8,175 18,592 3,257
Cash and cash equivalents,
beginning of period 51,702 17,215 32,899 22,133
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Cash and cash equivalents, end of
period $51,491 $25,390 $51,491 $25,390
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See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of Canadian Dollars)
(Unaudited)
Quarter Ended Six Months Ended
October 31, October 31,
2009 2008 2009 2008
--------------------------------------------------------------------------
Net income (loss) $5,021 $(3,427) $11,475 $(2,067)
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Other comprehensive
income, net of tax:
Gains and losses on
derivatives designated as
cash flow hedges 98 (1,212) 1,346 (1,387)
Gains and losses on
derivatives designated as
cash flow hedges in prior
periods transferred to
revenue in the current
period (923) 423 (1,309) 589
--------------------------------------------------------------------------
Other comprehensive (loss)
income (825) (789) 37 (798)
--------------------------------------------------------------------------
Comprehensive income
(loss) $4,196 $(4,216) $11,512 $(2,865)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Quarters ended October 31, 2009 and 2008
(tabular dollar amounts in thousands of Canadian Dollars, except per share amounts)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements.
In the opinion of management, all adjustments consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included. Operating results for the interim period presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the full fiscal year ending April 30, 2010.
2. Adoption of New Accounting Standards
Effective May 1, 2009 the Company adopted the following new accounting standard issued by the Canadian Institute of Chartered Accountants.
Goodwill and intangible assets
In February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets and Section 3450, Research and Development Costs. Various changes have been made to other sections of the CICA Handbook for consistency purposes. The new Section will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company adopted the new standards for its fiscal year beginning May 1, 2009. It establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented companies. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062.
As a result of adoption of the above policy, there was no material impact on the Consolidated Statement of Income.
3. Shareholders' equity and other comprehensive income
The following are the changes in shareholders' equity for the six months ended October 31, 2009 and October 31, 2008:
###PRECONTENT2### For the quarters ended October 31, 2009 and October 31, 2008, 247,731 and 269,606 options, respectively, were excluded from the calculation of diluted earnings per share, as the exercise price of these options exceeded the average market price of the Company's common stock during this period and were therefore anti-dilutive.
For the six months ended October 31, 2009 and October 31, 2008, 256,106 and 269,606 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 474,995 and 570,808 options issued and outstanding as at October 31, 2009 and October 31, 2008, respectively.
5. Discontinued operations ###PRECONTENT3### 7. 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:
###PRECONTENT4### For the quarter ended October 31, 2009, the Company issued nil 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.
The Company implemented a restricted share unit plan ("RSU Plan") for certain employees in October 2008, and has granted 72,700 RSUs under the RSU Plan. The RSUs vest over three years. Under the RSU Plan, units are settled using common shares of the Company. During fiscal year 2009, the Company funded an independent trustee to purchase the required shares and to provide custodial services. The Company recognizes compensation expense, as measured by the purchase price of the shares, over the vesting period.
8. Financial Instruments
The Company has exposure to the following risks from its use of financial instruments: credit risk, market 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 credit to some licensees in the normal course of its operations. The Company's credit risk review includes performing periodic credit evaluations of its most significant licensees. In certain circumstances, the Company may utilize letters of guarantee or credit insurance to mitigate certain credit risks. The Company's licensees are, for the most part, large national and international public companies. Due to the nature of the Company's operations, provisions for doubtful accounts are made on a licensee-by- licensee basis, based upon on-going review of licensee financial status.
Many of the Company's current licensees' operations are focused in the semiconductor industry. The semiconductor industry, particularly the DRAM memory segment, tends to be cyclical and, from time to time, suffer 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:
###PRECONTENT5### Carrying values of bonds and debentures and discount notes include accrued interest and approximate market value. Investments in bonds and debentures and discount notes represent holdings in corporate and government short-term marketable securities as at October 31, 2009 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.
###PRECONTENT6### A one cent strengthening (weakening) of the U.S. dollar against the Canadian dollar would have decreased (increased) other comprehensive income by approximately $194,000; pro forma income would have increased (decreased) by approximately $27,000 for the quarter ended October 31, 2009.
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 nil decrease (increase) in the fair value of the investments held as at the reporting date.
The Company is also exposed to interest rate risk due to its imputed interest on other long-term liabilities.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet liabilities when due. At October 31, 2009, the Company had $55.2 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 17 to the fiscal 2009 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 dollars) ###PRECONTENT7### Fair Value
The fair values of cash, marketable securities, accounts receivable, accounts payable and accrued liabilities approximates their carrying values due to their short-term maturity. The recorded amounts of long-term monetary liabilities approximate fair value, estimated by discounting expected cash flows at rates currently offered to the Company for debts of the same remaining maturities and conditions.
Fair value of the forward exchange contracts reflects the cash flow due to or from the Company if settlement had taken place on the reporting date.
The fair value of employee and director deferred stock units is determined using the market price of the Company's common stock on the reporting date.
9. Capital Management
The Company's objective is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management defines capital as the Company's 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.
10. Business Segment Information
The Company operates in one business segment as a developer and licensor of semiconductor and telecommunications technologies.
11. International Financial Reporting Standards
The Accounting Standards Board of Canada ("AcSB") plans to converge Canadian GAAP for publicly accountable enterprises with International Financial Reporting Standards ("IFRS") over a transition period that will end effective January 1, 2011 with the adoption of IFRS. The AcSB announced on February 13, 2008 that IFRS will be required in 2011 for publicly accountable profit-oriented enterprises. The changeover date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company will convert to these new standards according to the timetable set with these new rules. The Company is currently in the process of developing a conversion implementation plan and assessing the impacts of the conversion on the consolidated financial statements and disclosures of the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
This discussion and analysis is dated November 25, 2009. It should be read in conjunction with the unaudited Consolidated Financial Statements of MOSAID Technologies Incorporated ("MOSAID" or "the Company") for the quarter ended October 31, 2009. It should also be read in conjunction with the audited Consolidated Financial Statements and notes thereto for MOSAID for the year ended April 30, 2009, as well as with -Management's Discussion and Analysis (MD&A) included in the Company's most recent Annual Report for the fiscal year ended April 30, 2009. Unless otherwise stated, all amounts are in Canadian dollars.
Management is responsible for establishing appropriate information systems, procedures and controls to ensure that all financial information disclosed externally, including this MD&A, and used internally by management, is complete and reliable. These procedures include the review and approval of the financial statements and associated information, including this MD&A, first by the Disclosure Committee, a committee of the management team, the Audit Committee of the Board of Directors and subsequently by the Board.
Forward-looking Information Statements in MD&A
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," "intend," "may," "plan," "will," "would" and similar expressions. 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 current expectations. Assumptions made in preparing forward-looking statements and financial guidance include, but are not limited to, the following:
###PRECONTENT8### Factors that could cause actual results to differ materially from expected results include, but are not limited to, the following:
###PRECONTENT9### In this current volatile and uncertain economic environment, the Company has maintained or instituted practices to assist it in mitigating financial risk. These practices include, but are not limited to, the following:
The Company licenses its patents worldwide, providing geographic diversification for its revenue sources.
The Company has added patent portfolios that address more segments in the semiconductor and telecommunications industries. The addition of these portfolios has provided the Company with a many-fold increase in potential licensees operating in multi-billion dollar markets.
The Company utilizes a variety of payment structures in its licensing program. Fixed payment term agreements provide the Company with a relatively predictable base of regular cash flows, while running royalty agreements allow for upside revenue potential as market conditions improve. As well, on occasion, the Company will utilize a single payment model.
The Company typically utilizes term-based multi-year arrangements, which provide the Company with known licensing terms and conditions for the duration of its agreements, as well as an opportunity to adjust these terms and conditions as agreements expire and come due for renewal.
While many of the Company's existing and potential licensees are large multinational companies, the Company, nevertheless, monitors their financial position and operational results both prior to and during the term of the licensing agreements.
The Company utilizes credit insurance to protect certain of its assets when deemed appropriate by the Company and when available.
Due to the long-term nature of many of the Company's licensing arrangements and the prolonged downturn in the semiconductor and telecommunications industries, 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 major licensees could have a materially adverse impact on the Company's future revenues, earnings, cash flow and financial position.
The Company cautiously invests its surplus cash with the primary objective of protecting the capital. The Company does not invest in asset-based commercial paper and only invests in highly rated investment grade securities with maturities of 12 months or less, in order to reduce credit and interest rate risk.
When the Company acquires large dollar assets, primarily acquired intangibles, it attempts to negotiate payment terms spanning several years in order to better match the assets' expected cash inflows with the payments.
In some instances, the Company will not acquire the actual ownership of the intangible asset but will acquire most of the benefits of ownership through an exclusive licensing arrangement. Often, these arrangements require relatively little cash outflow by the Company at the time of entering the arrangement. Further, the cost of sharing revenues with the owner of the patents occurs only at the time of monetization by the Company. This allows the Company to better match the inflows and outflows and reduces the Company's need for financing.
As many of the Company's revenues and expenses are denominated in currencies other than its reporting currency, for both economic and reporting purposes, the Company utilizes forward exchange contracts with highly credit worthy counter-parties, to help mitigate its foreign exchange risk. The Company does not use such instruments for speculative purposes.
Management believes the Company is sufficiently capitalized and that, if required, could obtain access to additional financing.
MOSAID assumes no obligation to update or revise any forward-looking statements. Additional information identifying risks and uncertainties affecting MOSAID's business and other factors that could cause MOSAID's financial results to fluctuate are contained in MOSAID's Annual Information Form, under the section entitled "Risk Factors," and in MOSAID's other public filings available online at www.sedar.com :
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Pro forma net income, which is not a generally accepted accounting principle (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 other non-recurring items. The Company uses pro forma measures internally to evaluate and manage operating performance as well as to forecast and plan. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers.
It should also be noted that the Certification by MOSAID's CEO and CFO of Interim Filings, as prescribed by Form 52-109F2, is required in conjunction with the reporting of these annual results and is filed accordingly with SEDAR.
Results of Operations
The following table shows the percentage of revenues represented by certain items in the Company's GAAP consolidated statement of income for the fiscal quarters indicated.
###PRECONTENT10### The following table shows the percentage of revenues represented by certain items in the Company's pro forma consolidated statement of income for the fiscal quarters indicated.
Quarter Ended Six Months Ended
October 31, October 31,
2009 2008 2009 2008
% %
