Aastra Technologies Limited
TSX : AAH

Aastra Technologies Limited

October 25, 2005 16:01 ET

Aastra Reports Third Quarter Financial Results

TORONTO, ONTARIO--(CCNMatthews - Oct. 25, 2005) - Aastra Technologies Limited - (TSX:AAH) today announced its unaudited financial results for the third quarter ended September 30, 2005. Net earnings for the three months ended September 30, 2005 were $3.6 million or $0.20 diluted earnings per share compared to $3.7 million or $0.21 diluted earnings per share in the same period last year. The third quarter results for this year include three months of operations from the EADS Enterprise Telephony acquisition that was completed on February 28th as well as two months operating results of the DeTeWe Telecommunication Systems business acquired on July 31s t of this year. Net income for the nine months ended September 30, 2005 was $17.1 million or $0.96 diluted earnings per share compared to $14.0 million or $0.80 diluted earnings per share for the same period last year.

Net sales for the three months ended September 30, 2005 were $144.0 million compared to net sales of $60.5 million for the same period last year, an increase of approximately 138%. Excluding the impact of the EADS and DeTeWe acquisitions as well as the change in foreign exchange, net sales would have increased by approximately 8%.

Net sales for the nine months ended September 30, 2005 were $350.7 million compared to $189.4 million for the same period in 2004, an increase of approximately 85% . In addition, excluding the impact of acquisitions as well as changes in foreign exchange, net sales would have increased by 7% in 2005 from the same nine month period in 2004.

Net sales in the Enterprise Communications segment, including sales from the EADS and DeTeWe acquisitions, were $135.7 million in the third quarter compared to $51.7million for the three months ended September 30, 2004. Net sales from the Network Access segment were $8.3 million in the third quarter compared to $8.8 million in the same period last year. While sales of the digital video products increased over the comparable period last year, revenue from the CVX product line continued to decline as expected.

Gross profit margin was 42% of sales for the nine months ended September 30, 2005 compared to 46% of sales in the same quarter last year. While the gross margin on our existing product lines continued to consistent to last year, this decrease is a result of lower gross margins experienced on the new acquired product lines as expected.

Research and development expenses in the third quarter of 2005 were $14.4 million or 10% of sales, compared to $6.2 million or 10% of sales in the comparable quarter of 2004. Selling, general and administrative expenses were $35.9 million or 25% of sales in the quarter compared to $15.7 million or 26% of sales in the third quarter of 2004.

Earnings before income taxes, amortization, foreign exchange and investment income for the quarter were $12.0 million or 8.3% of sales compared to $8.0 million or 13.2% of sales in the same period of 2004. Amortization of capital and intangible assets, excluding tooling, was $4.6 million for the third quarter compared to $2.9 million in the same period last year.

As a result of the completion of two acquisitions in 2005, the Company's excess cash and short term investment balances were significantly lower during the third quarter and as a result Aastra recorded investment income of $0.3 million in the third quarter compared to $0.7 million for the third quarter last year.

During the third quarter, in anticipation of closing the DeTeWe acquisition, the Company chose to repatriate certain excess funds from its foreign subsidiaries. Primarily as a result of bringing this excess cash back to Canadian dollars, the Company recorded a foreign currency loss of $1.9 million during the third quarter compared to $Nil in the third quarter last year. In addition, as a result of the significant appreciation of the Canadian dollar against both the Euro and the Swiss franc in the past few months, the Company has recorded a potential loss of $21 million in its cumulative translation adjustment account in the equity section of its balance sheet. This implies that, in absence of a decline in the value of the Canadian dollar, the Company would incur additional foreign exchange losses as and when it repatriates additional excess cash from its many foreign subsidiaries.

Income tax expense was $0.8 million in the third quarter or 19.2% of pre-tax profits compared to $0.4 million or 8.8% of pre-tax profits in the third quarter last year. While income tax rates have continued to be impacted by profits in lower tax jurisdictions, there was a continued shift towards more of the Company's taxable income coming from higher tax jurisdictions in Europe.

Cash and short-term investments totaled approximately $82.5 million at the end of the third quarter compared to a balance of approximately $129.0 million at the end of December 2004. On July 31s t, the Company used cash resources of $21.4 (EUR 14.4 million) to purchase the Telecommunication Systems business from DeTeWe Deutsche Telephonwerke AG while early in the 3rd quarter Aastra and EADS agreed on certain adjustments that resulted in an $11.1 million (EUR 6.8 million) reduction in the previously announced purchase price. Finally, the Company generated $32.2 million of positive cash flow from operating profits as well as significant improvements in working capital.

About Aastra Technologies Limited

Aastra Technologies Limited (TSX:AAH), headquartered in Concord, Ontario, Canada, develops and markets products and systems for accessing communication networks. Aastra's products include a full range of residential and business telephone terminals, Enterprise Private Branch Exchanges (PBX), ne twork access servers and high quality digital video gateways. Aastra serves the majority of telephone companies and certain broadcasters in North America and Europe. For more information on Aastra, visit our Web site at http://www.aastra.com.

Certain information discussed in this press release is forward-looking and is subject to important risks and uncertainties. Forward-looking statements include statements of plans, objectives, strategies and expectations. The words "anticipate", "believe", "estimate", and "expect" and similar expressions are intended to identify forward looking statements. The results or events predicted in these statements may differ materially from actual results or events. Please refer to report s filed by Aastra with securities regulatory authorities in Canada for an identification of factors which could cause results or events to differ from current expectations. Aastra disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



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AASTRA TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Stated in thousands of Canadian dollars except per share data

YEAR-TO-DATE 3rd QUARTER
Nine months Three months
ended ended
September 30TH September 30TH
2005 2004 2005 2004
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Sales $350,674 $189,402 $143,969 $60,537
Cost of goods sold 195,263 98,472 83,004 32,458
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$155,411 $90,930 $60,965 $28,079

Selling, general and administrative 86,328 49,703 35,886 15,713
Research and development 34,684 18,654 14,392 6,161
Amortization 12,745 8,622 4,598 2,862
Foreign exchange loss 1,510 202 1,934 73
Investment income (868) (1,748) (263) (735)
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Earnings before income taxes $21,012 $15,497 $4,418 $4,005

Income taxes 3,880 1,451 849 352
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Net earnings for the period $17,132 $14,046 $3,569 $3,653
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Basic earnings per share for
the period (note 4) $0.99 $0.82 $0.21 $0.21
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Diluted earnings per share for
the period (note 4) $0.96 $0.80 $0.20 $0.21
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(i) Actual common shares outstanding as at September 30, 2005 -
17,423,059 (2004 - 17,106,184)

(ii) Weighted average common shares outstanding for the nine months
and three months ended September 30, 2005 - 17,290,844 and
17,365,024 (2004 - 17,072,989 and 17,096,222)


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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Stated in thousands of Canadian dollars

YEAR-TO-DATE 3rd QUARTER
Nine months Three months
ended ended
September 30TH September 30TH
2005 2004 2005 2004
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Cash and cash equivalents
provided by (used for) operations:
Net earnings for the period $17,132 $14,046 $3,569 $3,653
Amortization of capital assets 10,643 8,098 4,230 2,641
Amortization of intangible assets 5,337 4,880 1,646 2,051
Future income taxes 610 (1,332) 502 (501)
Stock compensation expense 536 186 254 62
Pension asset amortization 68 77 17 26
Net change in non-cash operating
working capital 25,149 18,498 21,969 8,361
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59,475 44,453 32,187 16,293
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Cash and cash equivalents provided
by (used in) financing activities:
Bank indebtedness 53 (6,594) 5 (767)
Issuance of common shares 2,351 738 1,367 183
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2,404 (5,856) 1,372 (584)
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Cash and cash equivalents provided
by (used for) investing
activities:
Short-term investments 41,808 (5,030) (22,928) (34,003)
Net purchase of capital assets (4,845) (1,412) (1,447) (397)
Business acquisition (note 2) (99,253) - (12,444) -
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(62,290) (6,442) (36,819) (34,400)
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Foreign exchange on cash held in
foreign currency (4,311) (442) (1,705) (741)
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Increase (decrease) in cash and
cash equivalents (4,722) 31,713 (4,965) (19,432)
Cash and cash equivalents,
beginning of period 64,181 25,879 64,424 77,024
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Cash and cash equivalents,
end of period $59,459 $57,592 $59,459 $57,592
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The interim Consolidated Financial Statements for the nine months and
three months ended September 30, 2005 have not been reviewed by an
auditor.


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AASTRA TECHNOLOGIES LIMITED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Stated in thousands of Canadian dollars

SEPTEMBER DECEMBER SEPTEMBER
30th 2005 31st 2004 30th 2004
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Assets
Current assets:
Cash and cash equivalents $ 59,459 $ 64,181 $ 57,592
Short-term investments 23,045 64,853 61,342
Accounts receivable 157,275 50,149 45,072
Income taxes receivable - 2,039 -
Net investment in leases 746 756 398
Inventories 69,082 47,229 55,369
Deposits and prepaid expenses 5,761 2,193 1,949
Future income taxes 4,573 1,326 4,063
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$ 319,941 $ 232,726 $ 225,785

Future income taxes 10,669 9,690 5,058
Net investment in leases 1,495 1,793 1,590
Capital assets, net 42,895 16,974 17,846
Investments 66 - -
Accrued pension asset 842 1,046 1,029
Goodwill 6,353 6,353 6,353
Intangible assets 44,973 13,875 18,537
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$ 427,234 $ 282,457 $ 276,198
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Liabilities and Shareholders'
Equity
Current liabilities:
Indebtedness 1,224 - 16
Accounts payable and accrued
liabilities 164,815 44,901 50,297
Income taxes payable 11,128 8,972 5,147
Deferred revenue 8,984 2,339 4,837
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$ 186,151 $ 56,212 $ 60,297

Contingent consideration
payable 5,448 6,300 6,060
Pension liability 12,453 - -
Future income taxes 1,075 - 1,161
Long term liability 3,320 - -
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$ 208,447 $ 62,512 $ 67,518

Shareholders' equity:
Share capital 104,758 102,407 101,437
Contributed surplus 869 333 209
Cumulative translation
adjustments (20,966) 211 192
Retained earnings 134,126 116,994 106,842
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218,787 219,945 208,680
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$ 427,234 $ 282,457 $ 276,198
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The interim Consolidated Financial Statements for the nine months and
three months ended September 30, 2005 have not been reviewed by an
auditor.


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AASTRA TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Stated in thousands of Canadian dollars
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Cumu-
lative
Trans-
Contri- lation
Common Share buted Adjust- Retained
Shares Capital Surplus ment Earnings Total
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Balance,
December
31, 2004 17,206,634 $102,407 $333 $211 $116,994 $219,945

Shares issued
on exercise
of options 102,825 984 - - - 984

Stock option
compensation - - 282 - - 282

Translation
of self
sustaining
operations - - - (11,451) - (11,451)

Net income - - - - 13,563 13,563
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Balance,
June 30,
2005 17,309,459 103,391 615 (11,240) 130,557 223,323
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Shares issued
on exercise
of options 113,600 1,367 - - - 1,367

Stock option
compensation - - 254 - - 254

Translation of
self sustaining
operations - - - (9,726) - (9,726)

Net income - - - - 3,569 3,569
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Balance,
September
30, 2005 17,423,059 $104,758 $869 $(20,966) $134,126 $218,787
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Cumu-
lative
Trans-
Contri- lation
Common Share buted Adjust- Retained
Shares Capital Surplus ment Earnings Total
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Balance,
December
31, 2003 17,032,109 $100,699 $85 $1,101 $92,796 $194,681

Shares issued
on exercise
of options 54,575 555 - - - 555

Stock option
compensation - - 124 - - 124

Translation of
self sustaining
operations - - - (577) - (577)

Net income - - - - 10,393 10,393
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Balance, June
30, 2004 17,086,684 101,254 209 524 103,189 205,176
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Shares issued
on exercise of
options 19,500 183 - - - 183

Stock option
compensation - - - - - -

Translation of
self sustaining
operations - - - (332) - (332)

Net income - - - - 3,653 3,653
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Balance,
September
30, 2004 17,106,184 $101,437 $209 $192 $106,842 $208,680
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The interim Consolidated Financial Statements for the nine months and
three months ended September 30, 2005 have not been reviewed by an
auditor.


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