Sponsored Links
Sigma Designs Incorporated
News and Blogs
Total : 206 View more »
Sigma Designs Named a "Fastest Growing" Company Two Years in a Row (Business Wire)
biz.yahoo.com | 5 hours 18 minutes ago
FORTUNE 100 Fastest-Growing Corporate American Companies and Deloitte & Touche's Silicon Valley Fast 50 for 2008 Programs Recognize and Award Sigma's Growth
The Nokia 5800 XpressMusic
www.engadget.com | Oct 2, 2008
Filed under: Cellphones, Handhelds<img hspace="4" border="0" vspace="4"
http://www.engadget.com/2008/10/02/the-nokia-5800-xpressmusic/
Sigma Designs Makes Wireless Home Theater a Reality
www.wireless-usb.eu | Oct 1, 2008
Demonstrations at CEATEC showcase new Windeo-powered UWB Wireless Home Theater Audio Development Kit as well as CoAir-powered Ethernet-over-Coax and Wireless HDAV Kits(via Press Release from Sigma Designs - September 30, 2008) Milpitas, California - Sigma Designs, a leader in digital media
Samsung Sway, Motorola Rapture get dates and prices on Verizon
www.engadgetmobile.com | Oct 1, 2008
Filed under: Handsets, Motorola, Samsung, <a
Web Sites
Total : 94 View more »
Sigma Designs and Microsoft Collaborate on Advanced IPTV System-on-a-Chip for Microsoft Mediaroom
www.streamingmedia.com
StreamingMedia.com is the #1 online destination for professionals seeking industry news, information, articles, directories and services. The site features thousands of original articles, hundreds of hours of audio/video content, weekly newsletters read by over 100,000 subscribers and a wide range
Sigma Designs, Inc. - Powering the Digital Media Generation
November 28, 2006 Sigma Designs, Inc. Reports Third Quarter Results November 21, 2006 Sigma Designs, Inc. to Hold Third Quarter Conference Call November 6, 2006 Sigma Demonstrates IPTV Leadership at TELCOTV 2006; Company Powers Leading Set-top Boxes Across the Show Floor view more news >>
数¦r®a®x¥Í¬¡
www.ednchina.com
数¦r®a®x¥Í¬¡ Digital Set Top Box product Roadmap STB4000C •Intel 830 w/ ULV 733MHz •Sigma Designs 8620 Media Decoder •High Definition MPEG1/2/4, DivX and WMV9/WMV HD Video(up to 720p) •Linux, Windows CE 5.0 2005 2005 2005 2005 2005 2005 STB4000C •Intel 830 w/ ULV 733MHz •Sigma Designs 8622 Media
http://www.ednchina.com/campaign/digitalhome/download/WPG.files/slide0060.htm
SIGM: To Present At Deutsche Bank 2008 Technology Conference @ 11:35 ET [delayed] - Zibb.com
www.zibb.com
Company representatives of Sigma Designs, Incorporated (NasdaqNM: SIGM) will be presenting at the Deutsche Bank 2008 Technology Conference today. The Company's presentation is scheduled to begin at 11:35 ET. Expected Speaker(s): Thomas Gay, CFO Misc Releated Info:** Original Confirmation**
News from Zibb.com
Total : 20 View more »
Sigma Designs (SIGM) NewsBite - Sigma Designs Revenue Misses Estimates - Zibb.com
Aug 29, 2008 (Fresh Brewed Media via COMTEX) --
Sigma Designs (NGM: SIGM) opened at $16.01. So far today, the stock has hit a low of $15.85 and a high of $16.69. SIGM is now trading at $16.63, down $1.16 (-6.52%). The stock hit its 52-Week high of $73.00 in December and set its 52-Week low of $13.57 in July. Sigma Designs announced yesterday evening its second-quarter profit rose 12 percent to $9.6 million, boosted by its gain in the IPTV market. The company posted earnings of 47 cents per share on sales of $58.2 million, while analysts were expecting a profit of 40 cents per share on revenue of $58.7 million. Technical indicators for the stock are bullish and S&P does not currently have a STARS rating for SIGM. If you are looking for a hedged play on SIGM the stock seems like it could be a candidate for an October out-of-the-money bear-call credit spread above the 20 range.
ABR-Seven Summits Strategic Investments NewsBite Goto www.iotogo.com/18w1 for our free report titled, The 18 Ways To Know When It's Time To Dump A Stock
Tags: earnings market profit revenue S&P sales
Companies: Sigma Designs, Inc. (SIGM)
Gennum Reports 2008 Third Quarter Results - Zibb.com
BURLINGTON, ON, Sep. 24, 2008 (Canada NewsWire via COMTEX) --
<<
31% Quarterly Revenue Growth Drives 20% Increase in Earnings Per Share
from Continuing Operations
>>
Gennum Corporation (TSX: GND) today announced its unaudited financial results for the third fiscal quarter which ended August 31, 2008.
<<
(in millions of U.S. dollars except per share amounts)
% of % of
2008 Revenue 2007 Revenue
---- ------- ---- -------
Third quarter
Revenue 33.5 25.5
Gross margin 25.6 76.3% 18.7 73.4%
Net earnings - continuing 6.4 19.0% 5.3 21.0%
Net earnings per share -
continuing *0.18 0.15
* basic and diluted
>>
"Our third quarter performance underscores a consistent strengthening in our business as we delivered a sixth consecutive quarter of growth and improved profitability," said Dr. Franz Fink, President and CEO of Gennum. "We continue to receive positive customer response to our new, refreshed portfolio and this is resulting in continued healthy demand for our products. We are successfully expanding our customer base and securing new product and IP opportunities in Europe, Japan, Asia and North America. To maintain and build upon our market momentum, we remain focused on balancing the investment in new product development and core business activities with overall company profitability to deliver further growth and shareholder value."
Revenue of $33.5 million is up $8.0 million or 31% from $25.5 million in the third quarter of 2007 and up 2% from $33.0 million in the second quarter of 2008. Gross margin as a percentage of revenue remained in the industry's top tier as lower average selling prices were offset by lower production costs and a higher mix of IP revenue. Earnings per share from continuing operations grew 20% from the third quarter of 2007 and 6% over the second quarter of 2008.
New product introductions and developments
Since the commencement of the third quarter of 2008, we introduced a series of new products, participated in a new technology demonstration with an industry partner, completed the acquisition of ASIC Architect, Inc. and concluded a sale leaseback transaction involving our corporate headquarters.
<<
- Test and Validation Equipment from Tektronix Leverages the Gennum
3Gb/s SDI Solutions - Tektronix, Inc., a leading supplier of test,
measurement, and monitoring instrumentation, has implemented Gennum's
3Gb/s equalizer solutions in its award-winning WFM7120 waveform
monitor. The advanced monitoring equipment provides customers in the
equipment design, manufacturing and broadcast industries with 3Gb/s
SDI test and analysis capabilities helping ensure compliance to the
standard and propelling the 3Gb/s market forward.
- Gennum 3Gb/s Solutions Selected for Ensemble's Next-generation
Broadcast Signal Generator - Ensemble Designs has selected the Gennum
3Gb/s transmit solution for its next-generation test signal generator
(TSG), a critical piece of equipment used to distribute test signals
in broadcast studios. The integrated, single-chip transmit solution
from Gennum enabled Ensemble to deliver 3G design in less than three
months.
- Expanded PCI Express(R) Portfolio with New Bridge for High Data Rate
Embedded Applications - Industry's first highly-integrated, four-lane
PCIe bridge enables broadcast video designers to leverage the full
potential of the PCIe standard with a low cost, turnkey solution and
speed time-to-market by up to 80 percent.
- Gennum and IDT (Integrated Device Technology) Jointly Demonstrate
High-Performance Embedded PCI Express(R) - Systems designers struggle
to ensure signal integrity across PCIe Gen2 cables and backplanes.
The joint demonstration by Gennum and IDT showcased the PCIe I/O
expansion system using off the shelf components, one of the popular
IDT PCIe Gen2 switching solutions and Gennum's advanced repeater
solution.
- New ActiveConnect(TM) Products Enable Industry's Thinnest, Longest
Reach HDMI Cables - The ActiveConnect GV8502 product is targeted at
consumer cabling applications providing cable manufacturers with a
cost-effective, high-quality semiconductor solution for the design of
their thin HDMI consumer cables.
- ActiveConnect Adopted by Tributaries(R) for Long-Reach HDMI Extender
- Tributaries(R) Cable, a leading supplier of high-value, high-
performance cabling and accessories for custom home audio and home-
theater installation, has deployed a new extender based on the
ActiveConnect solution. Fully compatible with the latest HDMI 1.3
standard, the Tributaries HXMini5 extender can reliably transport
high-definition multimedia interface (HDMI) video with audio more
than 300 feet with no loss of video or AV quality.
- Acquisition of ASIC Architect, Inc. Accelerates Product Development
and Broadens IP Offering - The combination of ASIC Architect
controller and bridge IP cores and the Snowbush Microelectronics IP
PHY cores provides a complete high-speed interconnect solution.
Additionally, with added controller IP and embedded system expertise,
Gennum can more quickly deliver new, highly-integrated products to
capitalize on high-growth consumer connectivity markets, while
further securing market leadership in its traditional video and data
communication segments.
- Completed Sale and Leaseback of Burlington, Canada Headquarters -
Corporate headquarters sold for $13.5 million (CDN) cash to LPF
Realty Office Inc. This transaction enables Gennum to better optimize
its investments and fund more strategic projects that accelerate
company growth and new product development.
Dividend
Gennum's Board of Directors has declared a regular cash dividend of
3.5 cents per share Canadian to be paid on October 22, 2008 to shareholders of
record on October 8, 2008. The dividend is considered an "eligible dividend"
for tax purposes.
-------------------------------------------------------------------------
Management will hold a conference call to discuss third quarter results
on Wednesday, September 24, 2008 at 5:30 p.m. (ET). To access the call,
participants should dial 1-800-732-9307. The conference call will also be
Webcast live at www.gennum.com or www.newswire.ca/en/webcast and
subsequently archived on the Gennum site. A rebroadcast of the call will
be available until midnight on October 24, 2008. To access the
rebroadcast, dial 416-640-1917 and enter the passcode 21281566 followed
by the number sign.
-------------------------------------------------------------------------
About Gennum Corporation
>>
Gennum Corporation (TSX: GND) designs innovative semiconductor solutions and intellectual property (IP) cores for the world's most advanced consumer connectivity, enterprise, video broadcast and data communications products. Leveraging the company's proven optical, analog and mixed-signal products and IP, Gennum enables multimedia and data communications products to send and receive information without compromising the signal integrity. Recognized as an award winner for advances in high definition (HD) broadcasting, Gennum is headquartered in Burlington, Canada, and has global design, research and development and sales offices in Canada, Mexico, Japan, Korea, Germany, United States, Taiwan, India and the United Kingdom. www.gennum.com
Caution Regarding Forward-Looking Information
This document contains statements which constitute forward-looking statements. These forward-looking statements are not descriptive of historical matters and may refer to management's expectations or plans. These statements include but are not limited to statements concerning: Gennum's business objectives and plans including Gennum's corporate strategy and strategic priorities; Gennum's future financial performance and prospects including revenues, gross margins and earnings; future trends in the semiconductor and intellectual property licensing industries and, in particular, market trends for analog and mixed signal products, optical products and intellectual property products and licensing; Gennum's expectations for sales and licensing of its products in these markets including anticipated costs, sales, size, duration, growth or decline of market opportunities and competitive and pricing pressures in these markets; Gennum's product roadmap and the speed at which Gennum is able to introduce new products; the adoption of new standards in the markets in which Gennum competes and the ability of Gennum to anticipate these changes and successfully address new opportunities; sales and capital spending plans and estimates, shipment levels and operating expenses; exchange rate fluctuations in, and the relative values of, the Canadian dollar, the U.S. dollar and the Japanese yen; Gennum's ability to finance its growth plans and make necessary investment; and litigation in which Gennum is involved.
Inherent in forward-looking statements are risks and uncertainties beyond Gennum's ability to predict or control including but not limited to risks associated with: competitive and pricing pressures in the increasingly competitive environment in which Gennum operates; economic cycles in the semiconductor industry including downturns which can result from adverse general economic conditions; our ability to anticipate needs for future products and successfully execute our product roadmap; including the possibility of the emergence of disruptive technologies which negatively impact our positioning in the marketplace; fluctuations in foreign exchange rates and their potential adverse impact upon our financial results; our reliance on external foundries and suppliers and the potential adverse effects of disruptions in any of these arrangements; the successful integration of acquisitions; our ability to attract and retain key personnel necessary for our business; our ability to successfully protect our intellectual property rights; and the initiation and outcome of legal proceedings. Readers should also refer to the sections entitled "Risks and Uncertainties" in our 2007 annual report and "Risk Factors" in our annual information form dated February 13, 2008.
Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this document. Such statements are based on a number of assumptions which may prove to be incorrect including but not limited to the following assumptions: there is no material deterioration in the business and economic conditions in the marketplace for Gennum's products; Gennum's expectations regarding market trends for analog and mixed signal products, optical products and intellectual property products and licensing are not materially incorrect; Gennum's is able to execute its product roadmap without delays or disruptions having a material impact on Gennum; Gennum's expectations relating to the needs and direction of the marketplace for its products are within reasonable bounds of accuracy and Gennum is able to introduce products and capitalize on new opportunities generally as expected; material disruptions in the manufacture and supply of products and services to Gennum by foundries and suppliers will not materialize; Gennum's expectations relating to competitive pressures, including pricing pressures, are not materially incorrect; significant fluctuations in foreign exchange rates which materially adversely affect Gennum's financial results do not arise; customer demand for Gennum's products remains generally as anticipated; Gennum is able successfully integrate acquisitions; and Gennum is able to continue to retain and attract technical and other key employees.
Readers are cautioned that the foregoing list of important factors and assumptions is not exhaustive. Forward-looking statements are not guarantees of future performance. Events or circumstances could cause Gennum's actual results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. Consequently, readers should not place any undue reliance on these forward-looking statements. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. In addition, these forward-looking statements relate to the date on which they are made. We disclaim any intention or obligation to update or revise any forward-looking statements or the foregoing list of factors, whether as a result of new information, future events or otherwise, except to the extent required by law.
All financial results referenced are unaudited, in United States currency and, unless otherwise indicated, are determined in accordance with Canadian Generally Accepted Accounting Principles (GAAP).
<<
2008 THIRD QUARTER MANAGEMENT'S DISCUSSION AND ANALYSIS
All amounts are in U.S. dollars, unless otherwise stated
Caution regarding forward-looking statements
>>
This document contains statements which constitute forward-looking statements. These forward-looking statements are not descriptive of historical matters and may refer to management's expectations or plans. These statements include but are not limited to statements concerning: Gennum's business objectives and plans including Gennum's corporate strategy and strategic priorities; Gennum's future financial performance and prospects including revenues, gross margins and earnings; future trends in the semiconductor and intellectual property licensing industries and, in particular, market trends for analog and mixed signal products, optical products and intellectual property products and licensing; Gennum's expectations for sales and licensing of its products in these markets including anticipated costs, sales, size, duration, growth or decline of market opportunities and competitive and pricing pressures in these markets; Gennum's product roadmap and the speed at which Gennum is able to introduce new products; the adoption of new standards in the markets in which Gennum competes and the ability of Gennum to anticipate these changes and successfully address new opportunities; sales and capital spending plans and estimates, shipment levels and operating expenses; exchange rate fluctuations in, and the relative values of, the Canadian dollar, the U.S. dollar and the Japanese yen; Gennum's ability to finance its growth plans and make necessary investment; and litigation in which Gennum is involved.
Inherent in forward-looking statements are risks and uncertainties beyond Gennum's ability to predict or control including but not limited to risks associated with: competitive and pricing pressures in the increasingly competitive environment in which Gennum operates; economic cycles in the semiconductor industry including downturns which can result from adverse general economic conditions; our ability to anticipate needs for future products and successfully execute our product roadmap, including the possibility of the emergence of disruptive technologies which negatively impact our positioning in the marketplace; fluctuations in foreign exchange rates and their potential adverse impact upon our financial results; our reliance on external foundries and suppliers and the potential adverse effects of disruptions in any of these arrangements; the successful integration of acquisitions; our ability to attract and retain key personnel necessary for our business; our ability to successfully protect our intellectual property rights; and the initiation and outcome of legal proceedings. Readers should also refer to the sections entitled "Risks and Uncertainties" in our 2007 annual report and "Risk Factors" in our annual information form dated February 13, 2008.
Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this document. Such statements are based on a number of assumptions which may prove to be incorrect including but not limited to the following assumptions: there is no material deterioration in the business and economic conditions in the marketplace for Gennum's products; Gennum's expectations regarding market trends for analog and mixed signal products, optical products and intellectual property products and licensing are not materially incorrect; Gennum's is able to execute its product roadmap without delays or disruptions having a material impact on Gennum; Gennum's expectations relating to the needs and direction of the marketplace for its products are within reasonable bounds of accuracy and Gennum is able to introduce products and capitalize on new opportunities generally as expected; material disruptions in the manufacture and supply of products and services to Gennum by foundries and suppliers will not materialize; Gennum's expectations relating to competitive pressures, including pricing pressures, are not materially incorrect; significant fluctuations in foreign exchange rates which materially adversely affect Gennum's financial results do not arise; customer demand for Gennum's products remains generally as anticipated; Gennum is able successfully integrate acquisitions; and Gennum is able to continue to retain and attract technical and other key employees.
Readers are cautioned that the foregoing list of important factors and assumptions is not exhaustive. Forward-looking statements are not guarantees of future performance. Events or circumstances could cause Gennum's actual results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. Consequently, readers should not place any undue reliance on these forward-looking statements. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. In addition, these forward-looking statements relate to the date on which they are made. We disclaim any intention or obligation to update or revise any forward-looking statements or the foregoing list of factors, whether as a result of new information, future events or otherwise, except to the extent required by law.
The following discussion and analysis is intended to provide readers with an assessment of our performance for the third quarter of 2008 together with the comparable period in the prior year, as well as our financial position and future prospects. It should be read in conjunction with the Company's unaudited consolidated financial statements for the first and second quarters of fiscal 2008 and 2007, and the fiscal 2007 and 2006 audited consolidated financial statements and accompanying notes and MD&A contained in our 2007 annual report, which have been prepared in accordance with Canadian generally accepted accounting principles. Our public disclosure documents, including our historical financial statements and our annual information form, can be viewed on SEDAR at www.sedar.com.
In this discussion and analysis, "Gennum", the "Company", "we", "our" and similar references include Gennum Corporation and its subsidiaries. All amounts are in U.S. dollars, unless otherwise stated.
CORPORATE OVERVIEW AND BUSINESS STRATEGY
Today, there is an expectation by those seeking information, whether it is data, video or multimedia content, to access it instantaneously anywhere in the world at any time. The digitization of content puts significant demand on high-speed audio and video streaming products. That is where our expertise plays a critical role. At Gennum (TSX: GND), we design semiconductor solutions and intellectual property (IP) cores for some of the world's most advanced consumer connectivity, enterprise, video broadcast and data communications applications. Our optical, analog and mixed-signal products and IP ensure the highest signal integrity enabling our customers to move more information across longer distances at faster speeds.
Our corporate strategy is to leverage core technological capabilities into selected, high-growth markets that provide a competitive advantage for both the Company and our customers. Our strategic priorities for 2008 include generating revenue growth greater than the industry average, maintaining industry top tier gross margins and delivering healthy operating returns. To achieve these priorities we are executing to our plan that doubles the number of new product and IP introductions in 2008 compared to 2007, strengthens our global team, drives increased operational efficiencies and leverages a strong cash position to complement our existing portfolio of optical, analog and mixed-signal and IP products.
New product introductions and developments
In the third quarter of 2008, we introduced a series of new products, participated in a new technology demonstration with an industry partner, completed the acquisition of ASIC Architect, Inc. and concluded a sale leaseback transaction involving our corporate headquarters.
<<
- Test and Validation Equipment from Tektronix Leverages the Gennum
3Gb/s SDI Solutions - Tektronix, Inc., a leading supplier of test,
measurement, and monitoring instrumentation, has implemented Gennum's
3Gb/s equalizer solutions in its award-winning WFM7120 waveform
monitor. The advanced monitoring equipment provides customers in the
equipment design, manufacturing and broadcast industries with 3Gb/s
SDI test and analysis capabilities helping ensure compliance to the
standard and propelling the 3Gb/s market forward.
- Gennum 3Gb/s Solutions Selected for Ensemble's Next-generation
Broadcast Signal Generator - Ensemble Designs has selected the Gennum
3Gb/s transmit solution for its next-generation test signal generator
(TSG), a critical piece of equipment used to distribute test signals
in broadcast studios. The integrated, single-chip transmit solution
from Gennum enabled Ensemble to deliver 3G design in less than three
months.
- Expanded PCI Express(R) Portfolio with New Bridge for High Data Rate
Embedded Applications - Industry's first highly-integrated, four-lane
PCIe bridge enables broadcast video designers to leverage the full
potential of the PCIe standard with a low cost, turnkey solution, and
speed time-to-market by up to 80 percent.
- Gennum and IDT (Integrated Device Technology) Jointly Demonstrate
High-Performance Embedded PCI Express(R) - Systems designers struggle
to ensure signal integrity across PCIe Gen2 cables and backplanes.
The joint demonstration by Gennum and IDT showcased the PCIe I/O
expansion system using off the shelf components, one of the popular
IDT PCIe Gen2 switching solutions and Gennum's advanced repeater
solution.
- New ActiveConnect(TM) Products Enable Industry's Thinnest, Longest
Reach HDMI Cables - The ActiveConnect GV8502 product is targeted at
consumer cabling applications providing cable manufacturers with a
cost-effective, high-quality semiconductor solution for the design of
their thin HDMI consumer cables.
- ActiveConnect Adopted by Tributaries(R) for Long-Reach HDMI Extender
- Tributaries(R) Cable, a leading supplier of high-value, high-
performance cabling and accessories for custom home audio and home-
theater installation, has deployed a new extender based on the
ActiveConnect solution. Fully compatible with the latest HDMI 1.3
standard, the Tributaries HXMini5 extender can reliably transport
high-definition multimedia interface (HDMI) video with audio more
than 300 feet with no loss of video or AV quality.
- Acquisition of ASIC Architect, Inc. Accelerates Product Development
and Broadens IP Offering - The combination of ASIC Architect
controller and bridge IP cores and the Snowbush Microelectronics IP
PHY cores provides a complete high-speed interconnect solution.
Additionally, with added controller IP and embedded system expertise,
Gennum can more quickly deliver new, highly-integrated products to
capitalize on high-growth consumer connectivity markets, while
further securing market leadership in its traditional video and data
communication segments.
- Completed Sale and Leaseback of Burlington, Canada Headquarters -
Corporate headquarters sold for $13.5 million (CDN) cash to LPF
Realty Office Inc. This transaction enables Gennum to better optimize
its investments and fund more strategic projects that accelerate
company growth and new product development.
RESULTS FROM OPERATIONS
(in millions of U.S. dollars, except earnings per share)
Three Months Ended August 31 Nine Months Ended August 31
2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Revenue 33.5 25.5 31.4 96.6 71.9 34.3
Gross margin 25.6 18.7 36.7 73.3 54.9 33.6
Earnings from
continuing
operations
before income
taxes 9.4 8.8 7.4 26.1 25.3 3.3
As a % of
revenue 28.1 34.4 27.1 35.2
Net earnings
before
discontinued
operations 6.4 5.3 19.2 16.9 15.9 6.0
Net earnings
(loss) from
discontinued
operations - (6.8) n/a 7.6 (19.9) n/a
Net earnings
(loss) 6.4 (1.5) n/a 24.5 (3.9) n/a
Earnings (loss)
per share:
Continuing
operations 0.18 0.15 20.0 0.48 0.45 6.7
Discontinued
operations 0.00 (0.19) n/a 0.21 (0.55) n/a
Net earnings
(loss) per
share* 0.18 (0.04) n/a 0.69 (0.10) n/a
Cash & cash
equivalents 55.1 (1)34.1 61.5 55.1 (1)34.1 61.5
-------------------------------------------------------------------------
* basic and diluted
(1) as of November 30, 2007
Fully diluted earnings per share from continuing operations grew 20%
compared to the third quarter of 2007, driven by strong revenue growth and
gross margins.
Revenue
(in millions of U.S. dollars)
Three Months Ended August 31 Nine Months Ended August 31
2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Analog and
Mixed Signal 26.7 22.8 17.1 75.4 64.3 17.1
Optical 3.5 2.7 31.0 12.8 7.6 68.9
IP Licensing 3.3 - n/a 8.4 - n/a
-------------------------------------------------------------------------
Total Revenue 33.5 25.5 31.4 96.6 71.9 34.3
-------------------------------------------------------------------------
>>
Total revenue for the third quarter of 2008 increased by more than 31% compared to the same period in 2007. For the first nine months of the year, revenue increased by more than 34%, as a result of higher revenue in each of the Analog and Mixed Signal (AMS) and Optical product groups and revenue generated from the acquisition of Snowbush Microelectronics. Compared to the second quarter of 2008, total revenue grew about 2%. This represents the sixth consecutive quarter of sequential revenue growth for the continuing business.
We believe that expansion of our global sales force combined with new product introductions has enabled us to grow in all major geographic regions on a year-over-year basis as revenue in North America, Europe and the Pacific Rim grew by 35%, 40% and 22%, respectively.
Analog & Mixed Signal (AMS) products
Revenue generated from our AMS product group rose 17% to $26.7 million in the third quarter of 2008 compared to the same quarter in the prior year.
Global AMS products revenue from high-definition (HD) products increased by 15% compared to the same quarter in 2007, partly attributable to the continued ramp of our 3 Gigabit per second products. Geographically, total AMS revenue grew by 13%, 39% and 10% in North America, Europe and Japan, respectively, compared to the third quarter of 2007.
On a global basis, sales for standard-definition (SD) products increased slightly in the third quarter of 2008 compared to the same quarter in 2007. Sales are expected to decline over the longer term as studios continue to focus on upgrading their equipment to support HD and multi-standard capabilities. Sales of SD products declined from 18% to 15% of total AMS products revenue in the third quarter of 2008 compared to the same period in 2007.
Clock and data recovery (CDR) sales have generated a 61% increase in revenue compared to the third quarter of 2007 as the market for the XFP optical transceiver continues to grow.
AMS products revenue represented 80% of the total consolidated revenue in the third quarter of 2008 (2007 - 89%). Revenue generated from the HD-SDI (serial digital interface) market represented 64% of the total AMS products revenue in the third quarter of 2008 (2007 - 65%).
On a year-to-date basis, AMS revenue has increased 17% over the prior year. Revenue from HD products is up 19%, while revenue from SD products declined about 10%. Revenue from CDR products is up 70% over the same period in 2007.
Optical products
Revenue generated from the Optical product group was $3.5 million in the third quarter of 2008 compared to $2.7 million in the same quarter in 2007, an increase of 31%. Revenue from optical products fell 14% compared to the second quarter of 2008 due to the completion of a customer project which augmented shipments in the last quarter of 2007 and the first half of 2008. This project leveraged the new SFP+ form factor which has not been broadly deployed yet to the global market, but is expected to gain deeper market traction in 2009. Excluding this special project, the optical products group achieved another quarter of growth and through our early work with lead customers on SFP+ we are well positioned to capitalize on the future growth potential of this technology.
Optical products revenue represented 10% of the total consolidated revenue in the third quarter of 2008 (2007 - 10%). On a year-to-date basis, Optical products revenue increased 69% over the prior year.
The optical component semiconductor supplier environment is experiencing increased competitive pressures, but Gennum continues to see market demand for its TIA, ROSA, and limiting amplifier products.
IP licensing
IP licensing is mainly attributable to revenue associated with the acquisition of Snowbush Microelectronics in October 2007. Revenue of $3.3 million in the third quarter of 2008 represented an increase of 14% from revenue of $2.8 million in the second quarter of 2008. IP revenue is on track to exceed our previously stated expectations of $10 million for 2008, assuming no significant change in the competitive landscape or the related economic environment.
<<
Gross margin
(in millions of U.S. dollars)
Three Months Ended August 31 Nine Months Ended August 31
2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Gross margin 25.6 18.7 36.7 73.3 54.9 33.6
Percentage of
revenue 76.3 73.4 75.9 76.3
-------------------------------------------------------------------------
>>
Gross margin as a percentage of revenue in the third quarter of 2008 was 76.3%, compared to the 2007 third quarter gross margin of 73.4%. For the first nine months of the year, gross margin as a percentage of revenue was 75.9% compared to 76.3% in 2007. We continue to remain in the industry's top tier for gross margin percentage. The cost reduction programs we have in place and an increased mix of IP licensing revenue are expected to help maintain our gross margins and offset market price pressures.
<<
Sales, marketing and administration expenditures
(in millions of U.S. dollars)
Three Months Ended August 31 Nine Months Ended August 31
2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Sales,
marketing and
administration
expense 9.5 5.7 67.1 26.3 16.9 56.1
Percentage of
revenue 28.2 22.2 27.3 23.5
-------------------------------------------------------------------------
>>
Sales, marketing and administration expenditures for the third quarter of 2008 increased by 67.1% compared to the third quarter of 2007. The $3.8 million increase was caused by higher accruals for variable compensation of approximately $1.5 million, the acquisition of Snowbush Microelectronics of $0.3 million and $0.5 million related to the translation of Canadian dollars to U.S. dollars, our reporting currency. The remaining increase represents investments in fundamental activities such as broadening our sales presence, accelerating new product introductions and building capabilities in corporate business development, offset by savings in other areas. The figure for the third quarter of 2008 represents a $0.8 million increase from the second quarter of 2008, mainly due to higher accruals for variable compensation.
On a year-to-date basis, sales, marketing and administration expenditures are up $9.4 million or approximately 56%. The $9.4 million increase was caused by higher accruals for variable and sales compensation of approximately $2.3 million, the acquisition of Snowbush Microelectronics of $0.9 million and $2.7 million related to the translation of Canadian dollars to U.S. dollars. Targeted investments in the development of a broader global sales presence, corporate branding and product collaterals account for the rest of the increase.
<<
Research and development (R&D) expenditures
(in millions of U.S. dollars)
Three Months Ended August 31 Nine Months Ended August 31
2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
R&D expense
(gross) 9.4 5.7 64.6 27.4 15.8 73.3
Percentage of
revenue 28.1 22.4 28.4 22.0
-------------------------------------------------------------------------
>>
R&D spending in the third quarter of 2008 was higher compared to the same period in 2007 as we increased our focus around a core portfolio of optical, analog and mixed-signal solutions and increased the R&D spending on new product development. Of the 64.6% increase in R&D expenses, the acquisition of Snowbush Microelectronics, which occurred in October 2007, added $2.3 million to our gross R&D expenditures for the third quarter of 2008 compared to the third quarter of 2007, which reflected no Snowbush Microelectronics expenditures. Higher accruals for variable compensation of approximately $1.3 million compared to the same period last year also contributed to the increase in R&D expenditures and $0.6 million is related to the translation of Canadian dollars to U.S. dollars. During the period, $1.3 million of development cost was capitalized to intangible assets.
In the first nine months of 2008, R&D spending has increased $11.6 million or 73.3%. Of the increase, $6.4 million relates to the acquisition of Snowbush Microelectronics, approximately $1.3 million relates to higher variable compensation accruals, $2.5 million relates to the impact of a stronger Canadian currency and the remainder represents the investment required to support a significant increase in new product introductions in 2008 versus 2007. Year to date, $2.1 million of development costs were capitalized to intangible assets.
<<
Amortization of intangible assets
(in millions of U.S. dollars)
Three Months Ended August 31 Nine Months Ended August 31
2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Amortization
expense 0.5 0.1 n/a 1.3 0.2 n/a
Percentage of
revenue 1.4 0.3 1.4 0.3
-------------------------------------------------------------------------
Amortization expenses in the third quarter and for the first nine months
of 2008 were higher compared to the same periods in 2007 mainly due to the
amortization of intangible assets that were acquired through the Snowbush
Microelectronics acquisition in the fourth quarter of 2007.
Other income (expense)
(in millions of U.S. dollars)
Three Months Ended August 31 Nine Months Ended August 31
2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Other income
(expense) 1.7 0.1 n/a 2.7 (0.7) n/a
Percentage of
revenue 5.0 0.6 2.8 n/a
-------------------------------------------------------------------------
>>
Other income in the third quarter of 2008 was primarily related to a $1.7 million foreign exchange gain (2007 - $0.2 million foreign exchange gain). This gain is mainly due to a $0.1 million loss on foreign exchange contracts and a $1.8 million gain on translation (2007 - $0.5 million gain on foreign exchange contracts and $0.2 million loss on translation). For the first nine months of the year, other income was primarily related to a $2.9 million foreign exchange gain (2007 - $0.5 million foreign exchange loss). The gain is primarily due to a $0.7 million gain on foreign exchange contracts and a $2.2 million gain on translation (2007 - $0.1 million loss on foreign exchange contracts and a $0.6 million loss on translation).
<<
Income taxes
(in millions of U.S. dollars)
Three Months Ended August 31 Nine Months Ended August 31
2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Income taxes 3.0 3.4 (11.1) 9.3 9.4 (1.2)
-------------------------------------------------------------------------
>>
Income taxes for the third quarter of 2008 represented 32.3% of earnings from continuing operations before taxes, compared to 39.0% for the same period in 2007. The reduced percentage in 2008 was mainly due to a tax refund received by our United Kingdom subsidiary and lower statutory tax rates in Canada and the United Kingdom. For the first nine months of the year, income taxes were 35.4% of earnings from continuing operations before taxes, compared to 37.0% for the same period in 2007. The effective tax rate in the first nine months of 2008 was above the statutory tax rate of 33.5% due primarily to the reduction in the Canadian federal corporate income tax rate for the calendar year 2008 from 20.5% to 19.5%, which resulted in a reduction in net future income tax assets and an increase in income tax expense.
<<
Net earnings from continuing operations
(in millions of U.S. dollars, except earnings per share)
Three Months Ended August 31 Nine Months Ended August 31
2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Net earnings
from continuing
operations 6.4 5.3 19.2 16.9 15.9 6.0
Net earnings
from continuing
operations as
% of revenue 19.0 21.0 17.5 22.2
Basic earnings
per share from
continuing
operations 0.18 0.15 20.0 0.48 0.45 6.7
-------------------------------------------------------------------------
In the third quarter of 2008, net earnings from continuing operations was
$6.4 million or $0.18 per share compared with $5.3 million or $0.15 per share
in the third quarter of 2007. The increase in net earnings versus last year
was attributable to strong revenue growth and favourable foreign currency
translation gains.
For the first nine months ended August 31, 2008, net earnings from
continuing operations was $16.9 million or 6% higher than the comparable
period in the prior year.
Discontinued operations, net of tax
(in millions of U.S. dollars, except per share data)
Three Months Ended August 31 Nine Months Ended August 31
2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Falcon(TM) - (0.4) n/a - (1.6) n/a
Headset - (0.6) n/a - (3.1) n/a
Hearing/Mfg. - (4.4) n/a (1.1) (10.7) n/a
VXP(R),
including gain
on sale - (1.4) n/a 8.7 (4.5) n/a
-------------------------------------------------------------------------
Total earnings
(loss) on
discontinued
operations, net
of taxes - (6.8) n/a 7.6 (19.9) n/a
Basic earnings
per share from
discontinued
operations - (0.19) n/a 0.21 (0.55) n/a
-------------------------------------------------------------------------
On February 8, 2008, the Company completed the sale of its VXP(R) Image
Processing business to Sigma Designs for $18.2 million, which resulted in a
pre-tax gain on the sale of $13.8 million. The sale also resulted in the
termination of approximately 30 employees in January 2008. The cost of
severing these employees was approximately $1.3 million and was reflected in
discontinued operations in the first quarter of 2008.
For comparative purposes, the third quarter and year-to-date 2008 and 2007
results from operations, net of tax, for Falcon(TM), Headset, Hearing
Instrument and Manufacturing Operations and VXP(R) Image Processing have been
reclassified to discontinued operations.
Net earnings
(in millions of U.S. dollars except earnings per share)
Three Months Ended August 31 Nine Months Ended August 31
2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Net earnings
(loss) 6.4 (1.5) n/a 24.5 (3.9) n/a
Net earnings
as % of
revenue 19.0 n/a 25.4 n/a
Net earnings
(loss) per
share* 0.18 (0.04) n/a 0.69 (0.10) n/a
-------------------------------------------------------------------------
* basic and diluted
>>
In the third quarter of 2008, net earnings were $6.4 million, or $0.18 per share, compared with a net loss of $1.5 million, or $0.04 per share in the third quarter of 2007. The loss in 2007 was mainly due to the loss on sale of the Hearing Instrument and Manufacturing Operations. Net earnings in the first nine months of the year were significantly higher compared to the same period in 2007 mainly due to improved 2008 results from continuing operations, the gain on the sale of the VXP(R) Image Processing business in the first quarter of 2008 and losses related mainly to the Hearing and Manufacturing operations in 2007.
Quarterly results
The following analysis uses the average historical Canadian to U.S. exchange rate for each quarter to produce revenue, earnings and earnings per share for our continuing and discontinued operations by quarter:
<<
(in millions of U.S. dollars except earnings per share)
Third Quarter Second Quarter First Quarter Fourth Quarter
2008 2007 2008 2007 2008 2007 2007 2006
-------------------------------------------------------------------------
Revenue 33.5 25.5 33.0 23.6 30.1 22.8 29.9 23.5
Net
earnings
from
continuing
operations 6.4 5.3 5.9 4.4 4.6 6.2 4.4 4.6
Net
earnings
per share
from
continuing
operations
basic and
diluted 0.18 0.15 0.17 0.12 0.13 0.17 0.12 0.13
Net
earnings
(loss) per
share on
discontinued
operations
basic and
diluted 0.00 (0.19) (0.03) (0.29) 0.24 (0.07) (0.13) (0.06)
Net
earnings
(loss) per
share
basic and
diluted 0.18 (0.04) 0.14 (0.17) 0.37 0.10 (0.01) 0.07
-------------------------------------------------------------------------
Our revenue and net earnings performance fluctuate on a quarterly basis
due to a wide variety of factors.
Changes in reporting - supplemental information
This is the first fiscal year that we have reported as a single segment
and using the U.S. dollar as our reporting currency. The functional currencies
of the Company have not changed. The following information is being provided
to assist in the understanding of these changes.
i) U.S. Dollar Revenue by Product Line (in thousands)
AMS Optical IP Total
-------------------------------------------------------------------------
2006 Q1 19,843 928 - 20,771
Q2 22,412 1,384 - 23,796
Q3 22,023 1,774 - 23,797
Q4 21,867 1,669 - 23,536
2007 Q1 20,896 1,935 - 22,831
Q2 20,621 2,984 - 23,605
Q3 22,818 2,672 - 25,490
Q4 24,941 4,315 654 29,910
-------------------------------------------------------------------------
ii) Year-Over-Year Operating Expenses by Currency
>>
The average rate of exchange for Canadian to U.S. dollar has shown significant strengthening over the past year. The average rate has moved from 0.8919 in the first nine months of 2007 to 0.9952 in the first nine months of 2008, a change of 11.6%. While our revenue is primarily in U.S. dollars and Japanese yen, operating expenses are primarily in the Canadian dollar local currency. As a result, the change to U.S. dollar reporting can have a significant impact when we report our operating expenses in U.S. dollars:
<<
(in millions of U.S. dollars)
Nine Months ended
August 31, 2008
Cdn. $ U.S. $(1) U.S. $(2) $ Change(3)
-------------------------------------------------------------------------
R&D, net 24.5 24.4 21.9 2.5
Sales, Marketing & Admin 26.5 26.3 23.6 2.7
-------------------------------------------------------------------------
51.0 50.7 45.5 5.2
-------------------------------------------------------------------------
(1) U.S. dollar equivalent using 2008 U.S. dollar exchange rates
(2) U.S. dollar equivalent using 2007 U.S. dollar exchange rates
(3) 2008 versus 2007 Canadian to U.S. dollar currency translation impact
>>
EBITDA
We believe that financial analysts, current investors and potential investors use EBITDA to understand our financial results and to compare us with our industry peers. The term "EBITDA" refers to a non-GAAP financial measure that we define as earnings before interest, taxes, depreciation and amortization (related to intangible assets and stock-based compensation). Since EBITDA is not a measure defined under GAAP, it may not be comparable to definitions of EBITDA reported by other companies. EBITDA is presented here over the last six quarters to provide readers with a historical perspective regarding our operational performance. We believe this allows us to compare our operating performance on a more consistent basis. The most comparable Canadian GAAP financial measure is operating income from continuing operations. The table below reconciles EBITDA to operating income (from continuing operations) reported for the last six fiscal quarters.
<<
-------------------------------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2
2008 2008 2008 2007 2007 2007
-------------------------------------------------------------------------
Revenue 33.5 33.0 30.1 29.9 25.5 23.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating
Income from
Continuing
Operations 7.5 8.6 6.5 6.8 8.2 7.8
Adjustments to
reconcile to
EBITDA:
Depreciation
expense 1.4 1.3 1.4 1.5 1.1 1.7
Amortization of:
Intangibles 0.5 0.4 0.5 0.3 0.2 0.1
Stock based
compensation 1.0 1.0 0.7 0.6 0.5 0.4
-------------------------------------------------------------------------
EBITDA 10.4 11.3 9.1 9.2 10.0 10.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA as a % of
revenue 31% 34% 30% 31% 39% 43%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents
>>
The cash and cash equivalents balance at August 31, 2008 was $55.1 million, an increase of $21.0 million from the end of the 2007 fiscal year and $12.0 million from the quarter. The impact of a weaker Canadian dollar reduced this figure by $3.5 million in the quarter and $3.7 million year to date. Cash provided by continuing operations of $10.2 million in the quarter represented an increase of 40% over the prior year fueled by solid earnings and improved working capital management. On a year-to-date basis, cash provided by continuing operations was $17.4 million, an increase of 300% over the prior year. Net proceeds from divestitures (VXP(R), Manufacturing and the Harvester Road land and building) of $35.9 million have more than offset our investment in a new Enterprise Resource Planning (ERP) system of $4.2 million, our new test operations of $3.0 million, the acquisition of ASIC Architect for $1.6 million and the payment of $4.1 million of deferred equity related to the acquisition of Snowbush Microelectronics.
Management believes that the current balance of cash and cash equivalents, plus future cash flow from operations, will be sufficient to finance organic growth and related investment and financing activities in the foreseeable future.
Accounts receivable
At August 31, 2008, the accounts receivable balance was $21.6 million, which was an increase of $0.6 million compared to the balance at the end of the 2007 fiscal year. This is excellent performance given the year-to-date increase in revenue of $24.7 million. There were no material write-offs during the quarter or for the first nine months of the year.
Inventories
Inventories of $15.0 million at August 31, 2008 were higher by $2.9 million compared to the end of the 2007 fiscal year. The increase was caused by a planned investment in finished goods related to legacy products approaching the end-of-life stage.
Instruments held for trading and long-term investments
On August 24, 2007, the Company received a 9% interest, or $1.9 million, in shares of CellPoint Connect (2.3 million shares), as partial consideration for the sale of the Company's Consumer Headset product line. The agreement with CellPoint required it to repurchase $0.9 million of the shares based on the price at which the shares were issued in two installments of $0.5 million each, translated at historical rates to U.S. dollars. The first such repurchase occurred in February 2008, and the second repurchase is expected to occur in the fourth quarter of 2008. The shares related to the second repurchase have been classified as held for trading and are recorded on the balance sheet at $0.5 million, their market price at the time of issuance translated to U.S. dollars at current rates.
The portion of shares which are not designated for repurchase by CellPoint are recorded on the balance sheet at their market value of $1.0 million and are classified as available for sale under long-term investments. In the third quarter of 2008, an unrealized increase in market value of $0.1 million was recorded in Other Comprehensive Income; on a year-to-date basis, an unrealized increase of $0.5 million was recorded in Other Comprehensive Income.
In November 2005, we received a 6% interest, or $2.7 million, in shares of Nanoscience Inc. (11.1 million shares) as consideration for the sale of our investment in Toumaz Technology Limited to Nanoscience. The shares of Nanoscience are traded on the AIM exchange in London, England and have a market value of $1.4 million as at August 31, 2008 (November 30, 2007 - $2.6 million). This investment was classified as available for sale and therefore was recorded on the balance sheet at its fair value with the decrease in the fair value in the third quarter of 2008 of $0.3 million recorded in Other Comprehensive Income; the year-to-date decrease in fair value of $1.1 million was recorded in Other Comprehensive Income. Fair value is based on the trading price of the shares and the impact on converting to U.S. dollars.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities at August 31, 2008 were $14.8 million, which represented a decrease of 16% or $2.9 million compared to the end of fiscal 2007. The November 30, 2007 balance excludes payables related to the liabilities held for sale. The reduction resulted primarily from the payment of $4.1 million of the deferred equity component of the Snowbush Microelectronics acquisition, the payment for a second LTX high speed tester for our prototyping operations and a one-time vacation pay out to employees in December, offset by increases in accruals for variable compensation.
Total assets
Total assets at August 31, 2008 were $173.6 million, an increase of $9.7 million from the 2007 year end, resulting primarily from the proceeds received on the sale of the Harvester Road land and building, the sale of the VXP(R) Image Processing business and the sale of the manufacturing land and building, partially offset by the disposal of assets held for sale and payment of the deferred equity component related to the Snowbush Microelectronics acquisition.
Capital expenditures
Capital additions were $11.1 million in the first nine months of 2008 compared to $2.4 million in the same period in 2007. The majority of the capital additions consisted of $4.4 million for the new ERP system, $3.2 million for the new Burlington test operations facility, and $1.2 million for several key pieces of Optical R&D equipment. Year-to-date capital additions in 2008 related to R&D items (21%), test equipment and facilities (37%), and corporate (42%).
Dividends
Total dividends of $1.2 million, or Cdn. $0.035 per share, were paid in the third quarter of 2008 (third quarter of 2007 - $1.1 million, or Cdn. $0.035 per share).
Derivative financial instruments
Effective December 1, 2007, we adopted new accounting policies that required additional disclosures on financial instruments. See below under "Changes in Significant Accounting Policies" and note 1 to the unaudited consolidated financial statements for the third quarter of 2008 for a discussion regarding these changes.
At August 31, 2008, we had entered into foreign exchange forward contracts to sell an aggregate amount of U.S. $18,700 and Japanese yen 964,000. These contracts mature at the latest on August 26, 2009 at exchange rates varying between Canadian $0.9833 and Canadian $1.0484 against the U.S. dollar, and between Canadian $0.0090 and Canadian $0.00984 against the Japanese yen. Management estimates that a loss of $1,271 would be realized if the contracts were terminated on August 31, 2008. The fair values of the foreign exchange forward contracts are based on market information from major financial institutions. These forward contracts are considered cash flow hedges and therefore the loss of $850, net of future income tax assets, has been included in Other Comprehensive Income. This loss is expected to be re-classified to net income over the next twelve months as the forward contracts mature. During the third quarter and for the first nine months of the year, there were no firm commitments that no longer qualified as hedges and no forecasted transactions that failed to occur.
Realized losses on foreign exchange forward and spot contracts were $0.1 million during the 2008 third quarter ( 2007 third quarter - realized gains of $0.5 million).
<<
CONTRACTUAL OBLIGATIONS
(in millions of U.S. dollars)
-------------------------------------------------------------------------
Payments Due by Period
----------------------
Total Less than 1 year 1-3 years 4+ years
Operating leases 28.2 3.4 6.0 18.8
Purchase obligations(1) 9.9 0.2 9.7 ---
License fee obligations
and other 0.1 0.1 --- ---
-------------------------------------------------------------------------
Total contractual
obligations 38.2 3.7 15.7 18.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Agreements to purchase goods or services that are enforceable and
legally binding and that specify all significant terms, including
fixed or minimum quantities to be purchased, fixed or variable price
provisions and the approximate timing of the transactions. The
purchase obligations relate primarily to inventory, product
development and general operating costs. Authorized capital projects
in addition to the purchase obligations totalled $1.0 million.
>>
OTHER DEVELOPMENTS
Litigation
As previously disclosed, Gennum was the subject of a patent infringement claim in the United States District Court relating to a limited number of non-core Gennum products. In June 2007, the Court rendered its judgment which ruled that the Gennum devices which were the subject matter of the claim did not infringe most of the asserted claims and that the rest of the other asserted claims were not valid. The judgement was appealed by the plaintiff, and we cross-appealed. The Federal Circuit Court heard the appeal and cross appeal in May 2008, but has not yet rendered its decision.
In the ordinary course of business activities, we may become involved in litigation or claims with customers, suppliers, former employees and third parties.
NEW ACCOUNTING POLICIES AND CRITICAL ESTIMATES
A summary of significant accounting policies is presented in note 1 to our audited November 30, 2007 consolidated financial statements. Certain of our accounting policies are critical to understanding the results of operations and financial condition of Gennum. These critical accounting policies require us to make certain judgements and estimates, some of which may relate to matters that are uncertain. For a description of the judgements and estimates involved in the application of critical accounting policies and assumptions made, refer to our 2007 annual report. The accounting policies used in the preparation of these consolidated financial statements are consistent with those used in the Company's November 30, 2007 audited consolidated financial statements, except as described below.
Effective December 1, 2007, we adopted new standards under the following sections of the Canadian Institute of Chartered Accountants (CICA) Handbook: Section 3862, Financial Instruments - Disclosures; Section 3863, Financial Instruments - Presentation; and Section 1535, Capital Disclosures. The adoption of the new standards resulted in additional note disclosure requirements. For a description of the principal changes due to the adoption of the accounting standards and for further details on changes in significant accounting policies, see note 1 to the unaudited consolidated financial statements for the quarter ended August 31, 2008.
The CICA released the following new accounting standards that are effective for our fiscal year commencing December 1, 2008: Section 3031, Inventories; Section 3064, Goodwill and Intangible Assets; Section 1400, General Standards of Financial Statement Presentation; and Section 1000, Financial Statement Concepts:
Section 3031, Inventories will replace the existing Section 3030, Inventories. This standard provides more guidance on the measurement and disclosure requirements for inventories. We are currently evaluating the effects of these new standards.
Section 1400, General Standards of Financial Statement Presentation was amended to include requirements to assess and disclose an entity's ability to continue as a going concern.
Section 3064, Goodwill and Intangible Assets will replace the existing Section 3062, Goodwill and Other Intangible Assets, and results in the withdrawal of Section 3450, Research and Development Costs, and amendments to Accounting Guidelines 11, Enterprises in the Development Stage, and Section 1000, Financial Statement Concepts. This new standard clarifies that costs can be deferred only when they relate to an item that meets the definition of an asset, and as a result, start-up costs must be expensed as incurred. Section 1000, Financial Statement Concepts, was also amended to provide consistency with this new standard. We are currently evaluating the effects of these new standards.
CONTROLS AND PROCEDURES
There have been no changes in our internal controls over financial reporting during the third quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
COMMON SHARES OUTSTANDING
At August 31, 2008, there were 35,607,186 common shares of Gennum outstanding, compared with 35,775,086 shares at November 30, 2007. On June 28, 2007, we announced a normal course issuer bid to acquire for cancellation up to 3,458,782 of our common shares (approximately 10% of the public float). The bid commenced on July 3, 2007 and expired on July 2, 2008. Under this bid, we repurchased 36,100 common shares in the first nine months of 2008 (an additional 131,800 common shares were repurchased in the fourth quarter of 2007 but not cancelled until the first quarter of 2008). The bid announced on June 28, 2007 replaced our previous normal course issuer bid, which expired on June 29, 2007. Under that bid, we purchased a total of 212,300 of our common shares. The bid announced on June 28, 2007 was not renewed by the Company.
At the end of the third quarter of 2008, there were 2,229,577 outstanding options, each entitling the holder to purchase one common share of Gennum. Of these outstanding options, 563,987 were exercisable as at August 31, 2008.
RISKS AND UNCERTAINTIES
We are subject to a number of risks and uncertainties that could significantly affect our financial condition and performance. As we grow, continue our commitment to R&D, and enter into new markets, these risks increase. For a discussion of these risks, please refer to our annual information form dated February 13, 2008, our 2007 annual report and our other public filings.
OUTLOOK
Our third quarter performance, representing a sixth consecutive quarter of growth, is reflective of another quarter in which we saw robust demand for our core portfolio of products. Looking forward to the fourth quarter, we continue to be optimistic based on the belief that our broad portfolio of high-speed mixed signal and optical products and IP is enabling us to benefit from a unique, high-growth segment within the semiconductor market. While we can not predict the precise effects of macroeconomic events on our industry, we do expect positive market trends to continue, resulting in healthy demand for our products. Our efforts to optimize operational productivity and efficiencies remain a primary focus for our team to drive continued strong operating results. We remain optimistic for our continued strength in revenue and earnings.
On a product line basis, AMS products revenue in the third quarter was up approximately 17% year over year. The majority of AMS sales go into the video broadcast market. The International Association of Broadcast Manufacturers expects industry growth of about 13% in 2008 fuelled in part by the continuing build-out of global HD infrastructure. As a semiconductor supplier to this market we expect to benefit from new products introduced by our video broadcast customers and as a result believe that we are positioned to grow faster than the overall video broadcast industry in 2008.
Optical products revenue in the third quarter was up about 31% year over year despite being down on a sequential basis. Ovum RHK has stated that it expects industry sales growth for optical components to be almost 14% in 2008. The semiconductor supplier environment for optical components continues to experience increased competitive pressures. However, through the fourth quarter, we expect to continue our design-win momentum specifically in the Japan, Asia Pacific and North America regions, which we believe will position us to continue to grow faster than the optical component industry.
IP revenue remains on track and, assuming no significant changes in the competitive landscape or the related economic environment, we expect to exceed our previously stated 2008 expectation of $10 million in revenue. Revenue in the third quarter grew 15% sequentially. Gartner Dataquest expects the market for semiconductor IP and design services to grow about 18% in 2008. Due to the timing of the Snowbush Microelectronics IP acquisition, a normalized year-over-year comparison is not available for our IP revenue. That said, on the basis of the foregoing assumptions and with the acquisition of Snowbush Microelectronics, Inc. and ASIC Architect, Inc., we expect our IP revenue to grow on a par with industry expectations.
Our near-term gross margins are expected to remain strong. Continued focus on driving operational efficiencies, growing IP revenue and increasing productivity is expected to help offset market price pressures.
As we enter into the fourth quarter of 2008, we remain focused on investing in new products to drive increased design wins, defend our position in our core markets and capitalize on new opportunities in adjacent markets. We intend to continue actively managing our overall sales, marketing and administration expenditures, at the same time assuring that adequate funding is allocated to programs such as sales incentives, new product collaterals and business development activities that are essential for our future growth and profitability.
We continue to remain optimistic for our future growth opportunities in all of our product groups. It is our primary objective to continue to capitalize on the healthy market environments in which our products are sold and focus on balancing our R&D and sales, marketing and administration investments to deliver strong financial performance and enhanced shareholder value.
September 24, 2008
<<
GENNUM CORPORATION
Unaudited Consolidated Financial Statements
For the Nine Months ended August 31, 2008
(Amounts in U.S. Dollars)
The attached consolidated financial statements have been prepared by
management of Gennum Corporation and have not
been reviewed by an auditor.
Gennum Corporation
CONSOLIDATED BALANCE SHEETS
(U.S. dollars, amounts in thousands)
August November
31, 2008 30, 2007
As at (unaudited) (audited)
-------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 55,139 34,141
Instruments held for trading (note 11) 494 1,000
Accounts receivable, net 21,581 20,951
Inventories 15,003 12,131
Prepaid expenses and other assets 5,491 4,371
Promissory notes receivable (note 13) 1,233 1,051
Loan receivable (note 13) 1,271 -
Income taxes receivable 1,317 3,054
Future income taxes 16,079 20,372
Assets held for sale (note 4) - 6,576
-------------------------------------------------------------------------
Total current assets 117,608 103,647
-------------------------------------------------------------------------
Capital assets, net (note 3) 22,417 26,037
Long-term investments (note 12) 2,363 3,079
Intangible assets, net (note 14) 8,966 7,467
Loan receivable (note 13) - 658
Promissory note receivable (note 13) 941 1,749
Goodwill (note 14) 20,053 19,393
Future income taxes 1,242 893
Assets held for sale (note 4) - 922
-------------------------------------------------------------------------
173,590 163,845
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 14,817 17,678
Deferred revenue (note 16) 427 733
Income taxes payable 621 214
Future income taxes 1,295 2,129
Liabilities related to assets held for sale (note 4) 280 1,740
-------------------------------------------------------------------------
Total current liabilities 17,440 22,494
-------------------------------------------------------------------------
Long-term payable (note 9) 2,359 2,504
Deferred revenue (note 16) 4,168 -
Future income taxes 2,288 2,491
-------------------------------------------------------------------------
Shareholders' equity
Capital stock (note 17) 8,627 8,680
Deferred compensation (3,358) (3,404)
Retained earnings 113,677 93,200
Contributed surplus 2,141 1,078
Accumulated other comprehensive income 26,248 36,802
-------------------------------------------------------------------------
Total shareholders' equity 147,335 136,356
-------------------------------------------------------------------------
173,590 163,845
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Commitments and contingencies (note 23)
Gennum Corporation
CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)
(U.S. dollars, amounts in thousands except per share data)
Three Months Ended Nine Months Ended
August 31 August 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue (note 19) 33,496 25,490 96,583 71,926
Cost of goods sold 7,931 6,787 23,269 17,038
-------------------------------------------------------------------------
Gross margin 25,565 18,703 73,314 54,888
-------------------------------------------------------------------------
Sales, marketing and
administration expense 9,454 5,657 26,333 16,873
Research and development expense 9,401 5,712 27,428 15,828
Amortization of intangible assets 454 79 1,348 220
Less government assistance (1,206) (948) (4,387) (2,795)
-------------------------------------------------------------------------
18,103 10,500 50,722 30,126
-------------------------------------------------------------------------
Operating income 7,462 8,203 22,592 24,762
Investment income 259 412 881 1,198
Other income (expense) (note 20) 1,687 147 2,667 (660)
-------------------------------------------------------------------------
Earnings from continuing
operations before income taxes 9,408 8,762 26,140 25,300
Provision for income taxes
(note 21) 3,037 3,418 9,250 9,362
-------------------------------------------------------------------------
Net earnings for the period from
continuing operations 6,371 5,344 16,890 15,938
Net earnings (loss) on
discontinued operations,
net of tax (note 4) (18) (6,835) 7,626 (19,879)
-------------------------------------------------------------------------
Net earnings (loss) for the
period 6,353 (1,491) 24,516 (3,941)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share
Continuing operations
- basic and diluted 0.18 0.15 0.48 0.45
Discontinued operations
- basic and diluted 0.00 (0.19) 0.21 (0.55)
-------------------------------------------------------------------------
Net earnings (loss)
- basic and diluted 0.18 (0.04) 0.69 (0.10)
-------------------------------------------------------------------------
Dividends declared per share $0.035 $0.035 $0.105 $0.105
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(Dividends declared per share - Cdn. $0.035 in both the third quarter of
2008 and 2007).
Gennum Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
(U.S. dollars, amounts in thousands)
Three Months Ended Nine Months Ended
August 31 August 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Capital stock
Balance at beginning of the
period 8,627 8,690 8,680 8,431
Proceeds from shares issued on
exercise of options - - - 259
Shares repurchased under normal
course issuer bid - (11) (53) (11)
-------------------------------------------------------------------------
Balance at end of the period 8,627 8,679 8,627 8,679
-------------------------------------------------------------------------
Deferred compensation
Balance at beginning of the
period (3,902) (1,241) (3,404) (1,782)
New awards - - (1,680) (29)
Forfeitures 59 92 413 260
Amortization 485 166 1,313 568
-------------------------------------------------------------------------
Balance at end of the period (3,358) (983) (3,358) (983)
-------------------------------------------------------------------------
Retained earnings
Balance at beginning of the
period 108,555 99,308 93,200 103,936
Net earnings (loss) 6,353 (1,491) 24,516 (3,941)
Dividends (1,231) (1,175) (3,723) (3,353)
Repurchase of common shares - (351) (316) (351)
-------------------------------------------------------------------------
Balance at end of the period 113,677 96,291 113,677 96,291
-------------------------------------------------------------------------
Contributed surplus
Balance at beginning of the
period 1,729 505 1,078 83
Stock option amortization 412 307 1,063 729
-------------------------------------------------------------------------
Balance at end of the period 2,141 812 2,141 812
-------------------------------------------------------------------------
Accumulated other comprehensive
income (loss), net of income
taxes
Balance at beginning of the
period 37,055 27,597 36,802 20,089
Transition adjustment on
adoption of financial
instruments standards - - - (675)
Other comprehensive (loss)
income for the period (10,807) 912 (10,554) 9,095
-------------------------------------------------------------------------
Balance at end of the period 26,248 28,509 26,248 28,509
-------------------------------------------------------------------------
Total shareholders' equity at
end of the period 147,335 133,308 147,335 133,308
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gennum Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(U.S. dollars, amounts in thousands)
Three Months Ended Nine Months Ended
August 31 August 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Net earnings (losses) for
the period 6,353 (1,491) 24,516 (3,941)
Other comprehensive
income (loss), net of income
taxes
Change in unrealized gains
(losses) on translating
financial statements to
U.S. dollar reporting (9,820) 2,027 (9,142) 9,350
Change in gains (losses) on
derivative instruments
designated as cash flow
hedges(1) (806) (25) (1,242) 622
Reclassification to earnings
of gains (losses) on cash
flow hedges(2) 25 (341) 402 (182)
Change in unrealized (losses)
gains on available for sale
financial assets (206) (749) (572) (695)
-------------------------------------------------------------------------
Comprehensive income (loss) for
the period (4,454) (579) 13,962 5,154
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) - Net of income taxes of $399 and $618 for the quarter and year to
date respectively (2007 - $19 and $354)
(2) - Net of income taxes of $$12 and $203 for the quarter and year to
date respectively (2007 - $189 and $95)
Gennum Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(U.S. dollars, amounts in thousands)
Three Months Ended Nine Months Ended
August 31 August 31
2008 2007 2008 2007
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings from continuing
operations for the period 6,371 5,344 16,890 15,938
Items not affecting cash
Depreciation and amortization 1,798 1,511 5,428 4,487
Deferred compensation and
stock option amortization 864 568 2,320 1,302
Future income taxes 2,054 (1,437) 2,045 (6,519)
Other (57) (59) (177) (59)
-------------------------------------------------------------------------
11,030 5,927 26,506 15,149
Net change in non-cash working
capital balances related to
continuing operations (821) 1,432 (9,103) (10,792)
-------------------------------------------------------------------------
Cash provided by operating
activities of continuing
operations 10,209 7,359 17,403 4,357
Cash (used in) provided by
operating activities of
discontinued operations 25 (917) (7,786) 1,184
-------------------------------------------------------------------------
Cash provided by operating
activities 10,234 6,442 9,617 5,541
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (3,890) (804) (11,070) (2,416)
Payment of license fees and
deferred development charges (1,407) (281) (2,184) (281)
Loans advanced - (615) - (615)
Acquisition, cash acquired 123 - 123 -
Acquisition, other than cash
acquired (1,716) - (2,639) -
Proceeds from sale of VXP - - 18,302 -
Proceeds from sale of land and
building 13,285 - 17,575 -
Sale of CellPoint investment - - 502 -
Promissory note receivable - (270) - (270)
-------------------------------------------------------------------------
Cash provided by (used in)
investing activities of
continued operations 6,395 (1,970) 20,609 (3,582)
Cash provided by (used in)
investing activities of
discontinued operations - 549 105 (190)
-------------------------------------------------------------------------
Cash provided by (used in)
investing activities 6,395 (1,421) 20,714 (3,772)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Stock options exercised - - - 259
Deferred compensation awarded,
net of forfeitures 66 93 (1,509) 232
Shares repurchased under normal
course issuer bid - (362) (370) (362)
Dividends paid (1,231) (1,175) (3,723) (3,353)
-------------------------------------------------------------------------
Cash used in financing
activities (1,165) (1,444) (5,602) (3,224)
-------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents (3,471) 663 (3,731) 2,474
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents during
the period 11,993 4,240 20,998 1,019
Cash and cash equivalents,
beginning of the period 43,146 38,320 34,141 41,541
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents,
end of the period 55,139 42,560 55,139 42,560
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the third quarter of 2008, interest expense paid was nil
(2007 - nil) and income taxes paid was $540 (2007 - $1,215). For the
first nine months of the year, interest expense paid was nil (2007 - nil)
and income taxes paid were $895 (2007 - $2,466). Cash and cash
equivalents is comprised of $8,461 in cash and $46,678 in cash
equivalents (November 30, 2007 - Cash - $9,612 and cash equivalents -
$24,529).
GENNUM CORPORATION
Notes to Consolidated Financial Statements
(U.S. dollars, amounts in thousands except share and per share data)
1. ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared by Gennum Corporation ("Gennum" or the "Company") in accordance
with Canadian Generally Accepted Accounting Principles (GAAP) on a basis
consistent with those followed in the most recent audited financial
statements, except as noted below. These unaudited consolidated financial
statements do not include all the information and footnotes required by
GAAP for annual financial statements and therefore should be read in
conjunction with the audited consolidated financial statements and notes
included in the Company's Annual Report for the year ended November 30,
2007.
(a) Asset impairment
The Company follows the guidance in the CICA Handbook Section 3063,
"Impairment of Long-Lived Assets". When events or circumstances
warrant a review, the Company evaluates the carrying value of long-
lived and intangible assets for potential impairment. The carrying
value of such assets is considered impaired when the anticipated net
recoverable amount of the asset is less than its carrying value. In
that event, the carrying value of the asset is adjusted to fair value
and an impairment loss is recorded.
(b) Held for sale and discontinued operations
The Company follows the guidance in the CICA Handbook Section 3475,
"Disposal of Long-Lived Assets and Discontinued Operations" in
classifying certain of its operations as held for sale and
discontinued operations. Assets classified as held for sale other
than long-lived assets were reviewed for impairment in accordance
with their specific CICA Handbook Sections. Long-lived assets were
then recorded at the lower of carrying amount or fair value less cost
to sell.
(c) Research and development costs
The Company follows the guidance in the CICA Handbook Section 3450,
"Research and Development Costs". Up until February 29, 2008,
expenditures such as research and development costs were expensed as
incurred since the criteria for deferment of such costs were not met.
However, effective March 1, 2008, the criteria for deferment of
eligible costs were met. These criteria include whether the product
and cost are clearly defined, the technical feasibility has been
established, management has indicated its intention to produce and
market the product, the future market is clearly defined and adequate
resources are expected to be available to complete the product. Upon
commercial launch of the product, these costs are amortized over the
number of expected product life unit sales. Expenditures such as
research costs continue to be expensed as incurred.
(d) Leases
The Company follows the guidance in the CICA Handbook Section 3065,
"Leases". Leases are classified as capital or operating leases. A
lease that transfers substantially all the benefits and risks
incident to the ownership of property is classified as a capital
lease. All other leases are accounted for as operating leases whereby
lease payments are expensed.
(e) Deferred gain
Deferred gain represents the unamortized portion of the gain arising
on the sale of property, which is amortized over the life of the
property lease and included in deferred revenue.
Changes in accounting policies
Effective December 1, 2007, the Company adopted the following Canadian
Institute of Chartered Accountants (CICA) Handbook Sections:
CICA Handbook Section 3862, "Financial Instruments - Disclosures", and
Section 3863, "Financial Instruments - Presentation", which together
modify the disclosure and presentation requirements for CICA Handbook
Section 3861. These sections have been applied in accordance with the
related transitional provisions, which do not require restatement of
prior periods. CICA Handbook Section 3861 required disclosure that
enables a user of the financial statements to evaluate the significance
of the Company's financial instruments and the nature and extent of risks
arising from those financial instruments. CICA Handbook Section 3863
carries forward the presentation requirements of CICA Handbook Section
3861. The new disclosures are included in note 18.
CICA Handbook Section 1535, "Capital Disclosures" requires the Company to
make new disclosures to enable users of the financial statements to
evaluate the Company's objectives, policies and procedures for managing
capital. These new disclosures are shown in note 22.
2. CHANGE OF REPORTING CURRENCY
Effective December 1, 2007, the Company adopted the U.S. dollar as its
reporting currency, but has retained the Canadian dollar as its
functional currency. Management believes that reporting in U.S. dollars
improves the comparability of the Company's financial position and
results of operations to others in its industry.
As a result of adopting the U.S. dollar as its reporting currency for
both the current and prior periods, the cumulative translation adjustment
effects of prior periods have been reflected in the opening balance for
the fiscal year in accumulated other comprehensive income.
In accordance with Canadian GAAP, the Company uses the current rate
method to translate all amounts presented to U.S. dollars. Under the
current rate method, all assets and liabilities of the Company's
operations are translated from their Canadian dollar functional currency
into U.S. dollars using exchange rates in effect at the end of the
reporting period; revenue, expenses and cash flows are translated at the
average rates during the reporting period; and any associated translation
gains or losses are recorded as a separate component of shareholders'
equity in accumulated other comprehensive income. All comparative figures
presented have been translated using the same method.
For the third quarter ended August 31, 2008 and for the first nine months
of the year, revenue and expenses have been translated from Canadian
dollars to U.S. dollars at the monthly average rates, and cash flows at
the quarterly average rates. Assets and liabilities have been translated
at the period end rate of $0.9411 (November 30, 2007 - $0.9992) Canadian
dollars per one U.S. dollar. References to fiscal year 2007 figures in
the notes to the consolidated financial statements have been translated
using the respective quarterly average historical rates, except for
balance sheet figures, which have been translated using the respective
ending balance sheet rates.
3. CAPITAL ASSETS
August 31, 2008 November 30, 2007
-------------------------------------------------------------------------
Land 1,320 2,062
Buildings 60 7,995
Equipment and furniture 20,582 13,511
Computer software and hardware 455 2,469
-------------------------------------------------------------------------
22,417 26,037
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The depreciation expense for buildings, equipment and furniture and
computer software and hardware in the third quarter of 2008 was $73,
$961 and $246, respectively (2007 - $84, $868 and $269). For the first
nine months of 2008, depreciation expense was $321, $3,002 and $759,
respectively (2007 - $307, $2,585 and $825).
The 2007 carrying values of capital assets associated with the Company's
divestiture activities have been reclassified to assets held for sale
(see note 4).
4. RECONCILIATION OF ASSETS AND LIABILITIES HELD FOR SALE AND
DISCONTINUED OPERATIONS
As part of the Company's 2007 and future strategic initiatives to focus
and deliver on innovative optical and analog and mixed-signal solutions
to the world, management conducted a detailed assessment and
prioritization of the entire portfolio of businesses and technologies. As
a result of the assessment, key strategic activities included the
divestiture activities of our non-core businesses that included Consumer
Headsets (see note 5), Hearing and Manufacturing Operations (see note 6),
VXP(R) Image Processing (see note 7) and Falcon(TM) wireless technology
(see note 8).
As a result of the aforementioned divestitures, certain figures for 2007
and 2008 for assets and liabilities and operating results have been re-
classified to assets and liabilities held for sale, and operating results
to discontinued operations in accordance with CICA Handbook Section 3475,
"Disposal of Long-Lived Assets and Discontinued Operations". Net loss of
$18 from discontinued operations in the third quarter of 2008 was
attributable to the Hearing and VXP(R) components. The following table
summarizes the reclassifications for the nine months ended August 31,
2008:
-------------------------------------------------------------------------
Nine months ended August 31, 2008
-------------------------------------------------------------------------
Falcon(TM) Headset Hearing VXP(R) TOTAL
/Mfg(2) 1,2
-------------------------------------------------------------------------
Revenue --- --- --- 1,290 1,290
Operating loss,
before tax --- --- (423) (3,258) (3,681)
Gain (loss) on sale --- --- (1,173) 12,825 11,652
-------------------------------------------------------------------------
--- --- (1,596) 9,567 7,971
Income tax (expense)
recovery --- --- 525 (870) (345)
-------------------------------------------------------------------------
Net earnings (loss)
from discontinued
operations, net of tax --- --- (1,071) 8,697 7,626
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The gain on sale is considered a capital gain and is therefore only
50% taxable. In addition, the use of loss carryforwards also reduced
the income tax expense.
(2) The liabilities of $280 associated with assets held for sale as at
August 31, 2008 is related to VXP(R) and Hearing severance costs that
will be paid out over the remaining months in 2008 as part of certain
employees' severance agreements.
Assets and Liabilities Held for Sale
-------------------------------------------------------------------------
As at November 30, 2007
-------------------------------------------------------------------------
Headset Hearing VXP(R) TOTAL
/Mfg
-------------------------------------------------------------------------
ASSETS
Current
Accounts receivable, net - - 673 673
Inventories - - 804 804
Prepaid expenses - - 153 153
Capital assets, net - 4,946 - 4,946
Intangible assets, net - - - -
-------------------------------------------------------------------------
Total current assets held for sale - 4,946 1,630 6,576
-------------------------------------------------------------------------
Long-Term
Capital assets, net - - 540 540
Intangible assets, net - - 382 382
-------------------------------------------------------------------------
Total long-term assets held for sale - - 922 922
-------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued
liabilities - 675 1,065 1,740
-------------------------------------------------------------------------
Total current liabilities held
for sale - 675 1,065 1,740
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Discontinued Operations
-------------------------------------------------------------------------
Three months ended August 31, 2007
-------------------------------------------------------------------------
Falcon Headset Hearing VXP(R) TOTAL
(TM) /Mfg
-------------------------------------------------------------------------
Revenue - 536 5,366 1,287 7,189
Operating loss,
before tax (644) (559) (40) (2,194) (3,437)
Loss on sale - (314) (6,624) - (6,938)
-------------------------------------------------------------------------
(644) (873) (6,664) (2,194) (10,375)
Income tax recovery 220 298 2,274 748 3,540
-------------------------------------------------------------------------
Net loss on discontinued
operations, net of tax (424) (575) (4,390) (1,446) (6,835)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine Months Ended August 31, 2007
-------------------------------------------------------------------------
Falcon Headset Hearing VXP(R) TOTAL
(TM) /Mfg
-------------------------------------------------------------------------
Revenue - 1,146 16,566 4,351 22,063
Operating loss,
before tax (2,424) (4,344) (9,579) (6,890) (23,237)
Loss on sale - (314) (6,624) - (6,938)
-------------------------------------------------------------------------
(2,424) (4,658) (16,203) (6,890) (30,175)
Income tax recovery 827 1,589 5,529 2,351 10,296
-------------------------------------------------------------------------
Net loss on discontinued
operations, net of tax (1,597) (3,069) (10,674) (4,539) (19,879)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
5. SALE OF CONSUMER HEADSET BUSINESS
On August 24, 2007, the Company sold its Consumer Headset product line to
CellPoint Connect (Canada) Inc. ("CellPoint") in exchange for $1,877 in
shares of CellPoint's parent company, CellPoint Connect AB ("CellPoint
Connect"), a publicly traded company on the Aktie Torget stock exchange
in Sweden, (see note 11) and a $281 promissory note, due September 30,
2008. The promissory note was discounted to $270 using the effective
interest method, resulting in interest income of $11 that will be
recognized as income from continuing operations over the term of the note
(see note 13). The Company is also entitled to performance-based payments
of up to $938 payable on or before March 15, 2009. No accrual has been
made for this amount as management does not believe it is likely this
will materialize. The Company has extended a loan to CellPoint in two
separate advances of $610. The advances are non-revolving and interest
bearing at a fixed interest rate of 5%, compounded quarterly. The initial
repurchase of CellPoint Connect shares occurred in February 2008, and the
second repurchase is expected to occur in the fourth quarter of 2008. The
advances, including accrued interest, were originally due February 26,
2009, but have been amended such that the due date is now October 31,
2008.
The sale of the Consumer Headset product line resulted in a loss of $367,
net of transaction costs, and was part of the Company's Audio & Wireless
business unit. The loss was calculated as follows:
Accounts receivable 451
Inventories 1,775
Capital assets, net 141
Transaction costs 235
Accounts payable and accrued liabilities (88)
-------------------------------------------------------------------------
2,514
-------------------------------------------------------------------------
Proceeds:
Promissory note 270
CellPoint shares 1,877
-------------------------------------------------------------------------
Loss on sale 367
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The third quarter and year to date August 31, 2007 operating results
related to the Company's Consumer Headset product line have been re-
classified as discontinued operations in accordance with the CICA
Handbook Section 3475, "Disposal of Long-Lived Assets and Discontinued
Operations" (see note 4).
6. SALE OF HEARING INSTRUMENT AND MANUFACTURING OPERATIONS
On October 19, 2007, the Company completed the sale of its Hearing
Instrument and Manufacturing Operations, excluding the manufacturing land
and building, to Sound Design Technologies Ltd ("Sound Design"), a Gores
Equity, LLC portfolio company for $5,055 in cash and a $2,503 interest
bearing promissory note. The promissory note bears a fixed interest rate
of 5% per annum with scheduled quarterly principal payments of $250
beginning in April 2008, and the remaining balance plus accrued interest
due in April 2010. An advance of $676 was also made by Sound Design on
the manufacturing land and building that were sold subsequent to year-end