Published:
MOSAID Reports Results for First Quarter Fiscal 2009 and Dividend
Quarterly dividend of $0.25 per share payable on October 23, 2008
MOSAID Technologies Incorporated (TSX: MSD) today announced financial results for the first quarter of fiscal 2009, ended July 31, 2008.
- Q1 revenues of $12.7 million, compared to $12.6 million in Q1 fiscal 2008
- Q1 pro forma income of $4.0 million or $0.37 per diluted share, compared to $4.9 million or $0.44 per diluted share in Q1 fiscal 2008
- Q1 GAAP net income of $1.4 million or $0.13 per diluted share, compared to $9.5 million or $0.85 per diluted share in Q1 fiscal 2008. Q1 fiscal 2009 included $168,000 in profit from discontinued operations, compared to $5.8 million in Q1 fiscal 2008
"During the first quarter, we made excellent progress toward achieving key objectives for fiscal 2009. This year's objectives include signing our first patent license for Wi-Fi enabled handsets, and entering into an agreement based on sub-licensed patents," said John Lindgren, President and CEO, MOSAID. "In Q1, we signed important agreements with a U.S.-based fabless semiconductor memory company, with MOSAID receiving cash, patents and exclusive sub-licensing rights."
"The Company continues to guide for revenue growth and a substantial level of profitability in fiscal 2009," added Lindgren. "MOSAID's financial strength and profitability is enabling us, on an ongoing basis, to return significant amounts of cash to our shareholders while investing in R&D activities that are generating both patents and technology licensing opportunities."
OSAID had cash and marketable securities of $59.0 million at the end of the first quarter of fiscal 2009, compared to $58.4 million at the end of the fourth quarter of fiscal 2008.
The Company continued to return cash to shareholders through its dividend program and normal course issuer bid (NCIB). In Q1, MOSAID returned $2.7 million to shareholders in quarterly dividend payments and expended $3.8 million to re-purchase and cancel 262,340 shares. On May 30, 2008, MOSAID announced an amendment to the terms of its NCIB, to increase the number of common shares allowed to be purchased from 559,583 to 1,118,731, or 10% of the public float of common shares issued and outstanding as of September 13, 2007.
On August 27, 2008, MOSAID declared a quarterly dividend of $0.25 per share. The dividend, which is an eligible dividend, is payable on October 23, 2008 to shareholders of record as of October 2, 2008.
A reconciliation of pro forma income to Canadian generally accepted accounting principles (GAAP) net income is included in the Notes to the Financial Statements accompanying this press release.
Operational Highlights
Semiconductor licensing: During the quarter, MOSAID signed three related agreements with a U.S. fabless semiconductor memory company. The agreements consisted of a five-year patent portfolio license agreement, which included cash consideration, a patent transfer agreement, and an exclusive patent sub-licensing agreement. The patents included in the patent transfer and sub-licensing agreements are relevant to DRAM (Dynamic Random Access Memory), SRAM (Static RAM), Flash memory and other technologies.
R&D: Subsequent to quarter end, MOSAID displayed its HyperLink NAND (HLNAND(TM)) Flash architecture at the Flash Memory Summit in Santa Clara, California. MOSAID engineers demonstrated a new emulation platform for system development and benchmarking, and presented two technical papers.
Patent portfolio: At the end of the first quarter, MOSAID's portfolio comprised 912 patents and applications, compared with 819 patents and applications one year ago.
Q2 and Fiscal 2009 Guidance
anagement offers the following guidance for the second quarter of fiscal 2009:
- Q2 revenues of $13.0 million to $14.0 million
- Q2 pro forma income of $3.0 million to $3.5 million, or $0.29 to $0.33 per diluted share
anagement is maintaining its guidance for fiscal 2009, as follows:
- Fiscal 2009 revenues of $59.0 million to $61.0 million
- Fiscal 2009 pro forma income of $20.0 million to $21.0 million, or $1.90 to $2.00 per diluted share
OSAID's revenues result primarily from intellectual property agreements, which by their nature may actually close on dates other than those projected. MOSAID's priority and focus is on obtaining the best terms possible under its agreements, rather than on the particular timing of agreement closure.
Conference Call and Webcast
anagement will hold a conference call and webcast on Thursday, August 28, 2008 at 5:00 p.m. EDT. The webcast will be live at www.mosaid.com and may also be accessed by dialing 1-800-447-0521. The webcast will be available on MOSAID's web site for 90 days following the event.
About MOSAID
OSAID Technologies Inc. is one of the world's leading intellectual property companies. MOSAID develops semiconductor memory technology and licenses patented intellectual property in the areas of semiconductors, and wired and wireless communications systems.
OSAID counts many of the world's largest semiconductor companies among its licensees. Founded in 1975, MOSAID is based in Ottawa, Ontario.
Pro forma income, a non-GAAP measure, is GAAP net income adjusted for stock-based compensation, patent amortization and imputed interest, foreign exchange gains and losses on "Other long-term liabilities," and any other non-recurring items. The Company uses pro forma measures internally to evaluate and manage operating performance as well as to forecast and plan. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers.
For more information, visit www.mosaid.com.
Forward Looking Information
This document and certain other public documents incorporated by reference in this document, contain forward-looking statements to the extent they relate to MOSAID or its management, including those identified by the expressions "anticipate," "believe," "foresee," "estimate," "expect," "intend," "could," "may," "plan," "will," "would" and similar expressions. Similarly, statements in this document that describe MOSAID's business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. These forward-looking statements are not historical facts, but rather reflect MOSAID's current expectations regarding future events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results, performance or achievements to differ materially from those in such forward-looking statements. Assumptions made in preparing forward-looking statements and financial guidance include, but are not limited to, the following: MOSAID's continued expansion of its patent portfolio and of its opportunities for future patent licensing revenue as a result of MOSAID's acquisition of patents from third parties and from development of new inventions; DRAM manufacturers continuing to infringe MOSAID's patents; the timing and amount of MOSAID's litigation expenses; MOSAID's ability to sign new patent licensees; current assumptions as to the identification of products that are unlicensed to MOSAID's wireless patents; and the timing and amount of MOSAID's Research & Development expenses.
Factors that could cause actual results to differ materially from expected results include, but are not limited to, the following: the extent of embedded DRAM proliferation in the System-on-a-Chip markets; legal rulings and/or regulatory investigations or complaints having an adverse impact on the validity, enforceability, potential royalty rates, and strength or breadth of coverage of MOSAID's essential and/or nonessential patents (including, but not limited to, adverse results from litigation or proceedings in patent offices and government regulatory agencies in various countries around the world); judicial, legislative or regulatory changes that impair the ability of patent holders to earn licensing revenues; economic, social, and political conditions in the countries in which MOSAID or patent licensees operate, including security risks, health conditions, possible disruptions in transportation networks and fluctuations in foreign currency exchange rates; non-payment or delays in payment by, or insolvency of, licensees or other debtors; variability in patent licensees' sales of licensed products, failure to maintain and enforce MOSAID's existing patent portfolio, or failure to obtain valuable patents as a result of research and development activities, or failure to acquire valuable patents from third parties; MOSAID's ability to recruit and retain skilled personnel; change in MOSAID's financial position; consolidation of MOSAID's licensees; natural events, such as severe weather and earthquakes in the locations in which MOSAID or patent licensees operate; and changes in the tax rate applicable to MOSAID as the result of changes in the tax law in the jurisdictions in which profits are determined to be earned and taxed, the outcome of tax audits and the ability to realize deferred tax assets.
OSAID 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.
OSAID TECHNOLOGIES INCORPORATED
(Subject to the Canada Business Corporations Act)
CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
(In thousands of Canadian Dollars, except per share amounts)
(Unaudited)
Quarter ended Quarter ended
July 31, 2008 July 31, 2007
--------------------------------------------------------------------------
Revenues $12,652 $12,595
Operating expenses
Patent portfolio management 1,123 962
Patent licensing and litigation 4,417 2,438
Research and development 567 492
General and administration 1,149 1,213
Foreign exchange (gain) loss (61) 199
--------------------------------------------------------------------------
7,195 5,304
--------------------------------------------------------------------------
Pro forma income from operations 5,457 7,291
Net interest income 522 398
--------------------------------------------------------------------------
Pro forma income before income tax 5,979 7,689
Income tax expense 1,973 2,779
--------------------------------------------------------------------------
Pro forma income (Note 6) $4,006 $4,910
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Pro forma earnings per share
Basic $0.37 $0.44
Diluted $0.37 $0.44
Weighted average number of shares
Basic 10,688,327 11,110,854
Diluted 10,725,212 11,240,124
See accompanying Notes to the Consolidated Financial Statements
OSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(In thousands of Canadian Dollars, except per share amounts)
(Unaudited)
Quarter ended Quarter ended
July 31, 2008 July 31, 2007
--------------------------------------------------------------------------
Revenues $12,652 $12,595
Operating expenses
Patent portfolio management 1,123 962
Patent licensing and litigation 4,417 2,438
Research and development 567 492
General and administration 1,149 1,213
Foreign exchange loss (gain) 518 (1,490)
Other 147 128
Patent amortization and imputed interest 3,260 3,400
--------------------------------------------------------------------------
11,181 7,143
--------------------------------------------------------------------------
Income from operations 1,471 5,452
Net interest income 522 398
--------------------------------------------------------------------------
Income before income tax expense
and discontinued operations 1,993 5,850
Income tax expense 801 2,115
--------------------------------------------------------------------------
Income before discontinued operations 1,192 3,735
Discontinued operations income
(net of tax) (Note 5) 168 5,800
--------------------------------------------------------------------------
Net income 1,360 9,535
Dividends 2,684 2,779
Normal course issuer bid 1,378 -
Retained earnings, beginning of period 19,297 16,901
--------------------------------------------------------------------------
Retained earnings, end of period $16,595 $23,657
--------------------------------------------------------------------------
Earnings per share (Note 4)
Basic - before discontinued operations $0.11 $0.34
Diluted - before discontinued operations $0.11 $0.33
Basic - net earnings $0.13 $0.86
Diluted - net earnings $0.13 $0.85
Weighted average number of shares
Basic 10,688,327 11,110,854
Diluted 10,725,212 11,240,124
See accompanying Notes to the Consolidated Financial Statements
OSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian Dollars)
As at As at
July 31, 2008 April 30, 2008
(unaudited) (audited)
--------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $17,215 $22,133
Marketable securities 41,814 36,246
Accounts receivable 7,032 12,304
Prepaid expenses 810 486
Future income taxes recoverable 11,015 11,015
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77,886 82,184
Capital assets 900 957
Acquired intangibles 69,067 70,130
Future income taxes recoverable 18,499 16,988
--------------------------------------------------------------------------
$166,352 $170,259
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Current Liabilities
Accounts payable and
accrued liabilities $7,401 $7,723
Income tax payable 1,564 356
Deferred revenue 1,146 1,146
Other liability 327 318
Current portion of
other long-term liabilities 6,062 5,345
--------------------------------------------------------------------------
16,500 14,888
Deferred gain on sale-leaseback 1,595 1,797
Other long-term liabilities 30,724 31,195
--------------------------------------------------------------------------
48,819 47,880
--------------------------------------------------------------------------
Shareholders' Equity
Share capital (Note 3) 98,199 100,403
Contributed surplus 3,066 2,997
Retained earnings 16,595 19,297
Accumulated other comprehensive income (327) (318)
--------------------------------------------------------------------------
117,533 122,379
--------------------------------------------------------------------------
$166,352 $170,259
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
OSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian Dollars)
(Unaudited)
Quarter ended Quarter ended
July 31, 2008 July 31, 2007
--------------------------------------------------------------------------
Operating
Income before discontinued operations $1,192 $3,735
Items not affecting cash
Amortization 2,457 2,319
Stock-based compensation 147 98
Unrealized foreign exchange gain
on other long-term liabilities 579 -
Future income tax recoverable (1,511) 1,901
--------------------------------------------------------------------------
2,864 8,053
Change in non-cash working capital
items from continuing operations 6,123 (4,195)
--------------------------------------------------------------------------
8,987 3,858
--------------------------------------------------------------------------
Investing
Acquisition of capital assets
and acquired intangibles (1,337) (2,664)
Acquisition of short-term
marketable securities (32,706) (46,901)
Proceeds on disposal/maturity of
short-term marketable securities 27,138 36,447
--------------------------------------------------------------------------
(6,905) (13,118)
--------------------------------------------------------------------------
Financing
Repayment of mortgage - (65)
Long-term liabilities (333) (313)
Repurchase of shares (3,818) -
Dividends (2,684) (2,779)
Issue of common shares 143 1,750
--------------------------------------------------------------------------
(6,692) (1,407)
--------------------------------------------------------------------------
Net cash (outflow) from
continuing operations (4,610) (10,667)
Net cash (outflow) inflow from
discontinued operations (308) 12,435
--------------------------------------------------------------------------
Net cash (outflow) inflow (4,918) 1,768
Cash and cash equivalents,
beginning of period 22,133 23,396
--------------------------------------------------------------------------
Cash and cash equivalents, end of period $17,215 $25,164
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
OSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of Canadian Dollars)
(Unaudited)
Quarter ended Quarter ended
July 31, 2008 July 31, 2007
--------------------------------------------------------------------------
Net income $1,360 $9,535
--------------------------------------------------------------------------
Other comprehensive income, net of tax:
Gains and losses on derivatives
designated as cash flow hedges (175) -
Gains and losses on derivatives
designated as cash flow hedges in
prior periods transferred to revenue
in the current period 166 -
--------------------------------------------------------------------------
Other comprehensive loss (9) -
--------------------------------------------------------------------------
Comprehensive income $1,351 $9,535
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying Notes to the Consolidated Financial Statements
OSAID TECHNOLOGIES INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Quarter ended July 31, 2008
(tabular dollar amounts in thousands of Canadian Dollars,
except per share amounts)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements.
In the opinion of management, all adjustments consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included. Operating results for the interim period presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the full fiscal year ending April 30, 2009.
2. Adoption of New Accounting Standards
Effective January 1, 2008 the Company adopted the following new accounting standards issued by the Canadian Institute of Chartered Accountants.
Capital Management
Section 1535, Capital disclosures, requires the Company to disclose information about the Company's objectives, policies and procedures for the management of its capital.
Financial Instruments - Disclosures and Presentation
Section 3862, Financial Instruments - Disclosures, and Section 3863, Financial Instruments - Presentation replace section 3861, Financial Instruments - Disclosure and Presentation. These sections require the disclosure of information with regards to the significance of financial instruments for the Company's financial position and performance and the nature and extent of risks arising from financial instruments to which the Company is exposed during the period and at the balance sheet date, and how the Company manages those risks.
Financial instrument classification is as follows:
Cash and marketable securities Held-for-trading
Accounts receivable Loans and receivables
Derivative assets and liabilities Held-for-trading
Accounts payable and accrued liabilities Held-for-trading
Income taxes payable Held-for-trading
Long-term liabilities Other liabilities
As a result of adoption of the above policies, there was no material impact
on the Statement of Operations.
3. Shareholders' equity and other comprehensive income
The following are the changes in shareholders' equity for the quarter ended
July 31, 2008:
--------------------------------------------------------------------------
Common Common Contri- Retained Accumu- Total
shares shares buted earnings lated ($)
(number) ($) sur- ($) other
plus compre-
($) hensive
income
($)
--------------------------------------------------------------------------
Balance at
April 30, 2008 10,719,807 $100,403 $2,997 $19,297 ($318) $122,379
--------------------------------------------------------------------------
Net income 1,360 1,360
--------------------------------------------------------------------------
Dividends (2,684) (2,684)
--------------------------------------------------------------------------
Employee Stock
Option Program 14,250 208 (93) 115
--------------------------------------------------------------------------
Employee Share
PurchaseProgram 2,122 28 4 32
--------------------------------------------------------------------------
Stock-based
compensation 158 158
--------------------------------------------------------------------------
Normal course
issuer bid (262,340) (2,440) (1,378) (3,818)
--------------------------------------------------------------------------
Unrealized
derivative
gains on cash
flow hedges
- net (9) (9)
--------------------------------------------------------------------------
Balance at
July 31,
2008 10,473,839 $98,199 $3,066 $16,595 ($327) $117,533
--------------------------------------------------------------------------
4. Earnings per Share
The following is a reconciliation of the numerator and denominator of the
basic and diluted per share computations:
Quarter Ended July 31,
2008 2007
--------------------------------------------------------------------------
(Loss) income before
discontinued operations $1,192 $3,735
Discontinued operations (net of tax) 168 5,800
--------------------------------------------------------------------------
Net (loss) income $1,360 $9,535
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Weighted average number of common
shares outstanding 10,688,327 11,110,854
Net effect of stock options 36,885 129,270
--------------------------------------------------------------------------
Weighted average diluted number of
common shares outstanding 10,725,212 11,240,124
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings per share
Basic - before discontinued operations $0.11 $0.34
Diluted - before discontinued operations $0.11 $0.33
Basic - net income $0.13 $0.86
Diluted - net income $0.13 $0.85
For the quarter ended July 31, 2008 and July 31, 2007, 266,106 and 15,500 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.
There were 385,169 and 406,541 options issued and outstanding as at July 31, 2008 and July 31, 2007 respectively.
5. Discontinued operations
Quarter Ended July 31,
2008 2007
--------------------------------------------------------------------------
Revenues $22 $382
Expenses
Labour and materials - 1446
Research and development - 1008
Bad debts - 154
--------------------------------------------------------------------------
- 2,608
--------------------------------------------------------------------------
Gain (loss) from operations 22 (2,226)
Gain on sale of assets 202 9,304
--------------------------------------------------------------------------
Earnings before tax 224 7,078
Income tax expense 56 1,278
--------------------------------------------------------------------------
Discontinued operations (net of tax) $168 $5,800
--------------------------------------------------------------------------
--------------------------------------------------------------------------
6. Reconciliation of pro forma income with GAAP net income
Quarter Ended July 31,
2008 2007
--------------------------------------------------------------------------
GAAP net (loss) income $1,360 $9,535
Add (deduct):
Stock-based compensation 147 98
Patent amortization and imputed interest 3,260 3,400
Restructuring - 19
Foreign exchange loss (gain) 579 (1,678)
Income tax expense - for the above items (1,172) (664)
Discontinued operations (net of tax) (168) (5,800)
--------------------------------------------------------------------------
Pro forma income $4,006 $4,910
--------------------------------------------------------------------------
--------------------------------------------------------------------------
7. Stock-based Compensation
The Company has an employee stock purchase plan program whereby employees may elect to designate up to 5% of their annual salary to purchase shares of the Company at a 10% discount from the fair market value. The purchase price is deducted over a six month period via payroll.
Also, the Company has an Employee and Director Stock Option Plan. The exercise price is no lower than the closing market price on the trading day immediately preceding the date of grant. Options granted under the Plan expire within a period of six years of granting, with vesting periods determined by the Human Resources Committee.
The Company employs a fair value method of accounting for all options issued to employees or directors on or after April 27, 2002. The fair value of options issued in the quarter was calculated using the Black-Scholes option pricing model and the following assumptions:
Quarter Ended July 31,
2008 2007
--------------------------------------------------------------------------
Risk free interest rate 3.17% 4.26%
Expected life in years 5.5 5.5
Expected dividend yield 6.72% 3.7%
Volatility 53.64% 56.33%
8. Financial Instruments
The Company has exposure to the following risks from its use of financial instruments: credit risk, market and liquidity risk.
Credit Risk
Credit risk is the risk of financial loss to the Company if a licensee or counter-party to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's accounts receivable and its foreign exchange contracts.
The Company provides credit to some licensees in the normal course of its operations. The Company's credit risk review includes performing periodic credit evaluations of its most significant licensees. In certain circumstances, the Company may utilize letters of guarantee or credit insurance to mitigate certain credit risks. The Company's licensees are for, the most part, large national and international public companies. Due to the nature of the Company's operations, provisions for doubtful accounts are made on a licensee-by-licensee basis, based upon on-going review of licensee financial status. At this time, Management does not believe there is a need for significant allowance for doubtful accounts.
The Company limits its exposure to credit risk from counter-parties to derivative instruments by dealing only with major financial institutions. Management does not expect any counter-parties to fail to meet their obligations.
The Company invests its excess cash in investment grade securities with a maturity date not exceeding 12 months. The Company relies upon the credit rating of the counter-party to limit its credit risk. The Company does not invest in asset-backed commercial paper.
The carrying amount of financial assets represents the maximum credit exposure. The maximum credit exposure to credit risk at the reporting date was:
July 31 April 30
2008 2008
--------------------------------------------------------------------------
Cash $17,215 $22,133
arketable securities 41,814 36,246
Accounts receivable 7,032 12,304
Other liability (327) (318)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
$65,734 $70,365
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The aging of accounts receivable at the reporting date was:
July 31 April 30
2008 2008
--------------------------------------------------------------------------
Current $ 954 $ 6,297
Past due (61 - 120 days) - -
Greater than 120 days 6,078 6,007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
$7,032 $12,304
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Based upon historical default rates, the Company believes there are minimal
requirements for an allowance for doubtful accounts.
arketable securities comprise the following:
July 31 April 30
2008 2008
--------------------------------------------------------------------------
Bonds & debentures $25,175 $18,980
Greater than 90 days 16,639 17,266
--------------------------------------------------------------------------
--------------------------------------------------------------------------
$41,814 $36,246
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Carrying values of bonds and debentures and discount notes include accrued interest and approximate market value. Investments in bonds and debentures and discount notes represent holdings in corporate and government short-term marketable securities as at July 31, 2008 and have a maturity date of one year or less.
arket Risk
arket risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Company's income or the value of its holding of financial instruments.
Foreign Exchange Risk
The Company's revenues are denominated primarily in U.S. dollars, giving rise to exposure to market risks from changes in foreign exchange rates. The Company is exposed to foreign currency fluctuations on its accounts receivable and future cash flows related to licensing arrangements denominated in U.S. dollars, as well as certain operating expenses and its long-term other liabilities obligations.
The Company's foreign exchange risk management includes the use of foreign exchange forward contracts to fix the exchange rates on certain foreign currency exposures. The Company's objective is to manage and control exposures and secure the Company's profitability on existing contracts and anticipated future cash flows. The Company does not utilize derivative instruments for trading or speculative purposes. The Company formally documents all relationships between derivative instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives to specific firm contractually related commitments or anticipated transactions.
The Company also formally assesses, both at the inception and on an on-going basis, whether the derivatives that are used in hedging transactions are highly effective in off setting changes in fair values or cash flows of hedged items. Hedge ineffectiveness is insignificant.
The forward foreign exchange contracts primarily require the Company to sell U.S. dollars for Canadian dollars at contractual rates. The Company had the following forward exchange contracts.
(In thousands of dollars) July 31, 2008
Equivalent to
Type Notional Currency Maturity CDN dollars Fair Value
Sell $10,600 USD less than 3 months $10,577 $(176)
Buy $4,000 USD less than 3 months $4,117 (13)
Sell $8,100 USD 3-12 months $8,079 (138)
--------------------------------------------------------------------------
$(327)
--------------------------------------------------------------------------
(In thousands of dollars) April 30, 2008
Equivalent to
Type Notional Currency Maturity CDN dollars Fair Value
Sell $6,400 USD less than 3 months $6,222 $(141)
Sell $18,700 USD 3-12 months $18,656 123)
Buy $4,000 USD 3-12 months $4,117 (54)
--------------------------------------------------------------------------
$(318)
--------------------------------------------------------------------------
A one cent strengthening (weakening) of the U.S. dollar against the Canadian dollar would have decreased (increased) other comprehensive income by approximately $219,000; Proforma income would have increased (decreased) by approximately $22,000.
Interest Rate Risk
The Company is exposed to interest rate risk due to its holdings of interest-bearing marketable securities. It is the Company's policy to invest in securities with a maturity date of 12 months or less and Company practice to hold such securities, when possible, until maturity. A 1% increase (decrease) to the interest rate would result in approximately a $113,000 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 July 31, 2008, the Company had $59.0 million of cash and marketable securities and has a secured bank credit facility of $10.0 million, less off balance sheet arrangements as described in Note 24 to the fiscal 2008 Consolidated Financial Statements to meet liabilities when due. The credit facility is collateralized by a general security agreement and contains no covenants.
All of the Company's financial liabilities, except for its "other long-term liabilities" and operating lease for its premise have contractual maturities of less than 30 days.
The following chart indicates the contractual obligations to which the Company is bound over the following five years.
Payments Due by Period
(in thousands of dollars)
Less than After 5
Contractual Obligations Total 1year 1-3 years 4-5 years years
Operation leases $2,741 $948 $904 $496 $393
Other long-term
obligations $49,234 $7,693 $14,360 $11,796 $15,385
---------------------------------------------------------------------------
Total contractual
obligations $51,975 $8,641 $15,264 $12,292 $15,778
---------------------------------------------------------------------------
Fair Value
The fair values of cash, marketable securities, accounts receivable, accounts payable and accrued liabilities approximates their carrying values due to their short-term maturity. The recorded amounts of long-term monetary liabilities approximate fair value, estimated by discounting expected cash flows at rates currently offered to the Company for debts of the same remaining maturities and conditions.
Fair value of the forward exchange contracts reflects the cash flow due to or from the Company if settlement had taken place on the reporting date.
The fair value of employee and director deferred stock units is determined using the market price of the Company's common stock on the reporting date.
9. Capital Management
The Company's objective is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management defines capital as the Company's shareholder's equity excluding accumulated other comprehensive income.
The Company has certain credit facilities with a Canadian chartered bank, which consist of an operating line, a foreign exchange forward contract facility and standby letters of credit. The Board of Directors does not establish quantitative return on capital criteria for management; but rather promotes year over year sustainable profitable growth. The Board of Directors also reviews on a quarterly basis the level of dividends paid to the Company's shareholders and monitors the share repurchase program activities. There were no changes in the Company's approach to capital management during the period. Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements.
10. Business Segment Information
The Company operates in one business segment as a developer and licensor of semiconductor and communications technologies.
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