Evertz Technologies Limited
TSX : ET

Evertz Technologies Limited

December 12, 2006 17:22 ET

Evertz Technologies Reports Second Quarter Results

BURLINGTON, ONTARIO--(CCNMatthews - Dec. 12, 2006) -

Attention Business/Financial Editors:

Evertz Technologies Limited (TSX:ET), a leading equipment provider to the television broadcast industry, today reported results for the second quarter, ended October 31, 2006, of its fiscal 2007 year.

Second Quarter Highlights

- Sales were $46.7 million, 46% higher year-over-year for the quarter

- Gross investment in R&D increased $1.1 million, 47% year-over-year for the quarter

- Net earnings were $14.2 million in the second quarter against $9.3 million a year ago

- Diluted earnings per share were $0.19 in the second quarter against $0.14 a year ago

- Positive customer reaction to the integrated Evertz Quartz presence at IBC (International Broadcasters Convention) in Amsterdam



Selected Financial Information
Consolidated Statement of Earnings Data (in '000 except share data)

Q2'07 Q2'06
-------- --------
Sales $ 46,695 $ 31,945
Gross Margin 28,401 19,669
Operating Income 19,937 13,617
Net Income 14,204 9,308
Fully-diluted earnings per share $ 0.19 $ 0.14


Selected Financial Information
Consolidated Balance Sheet Data

Q2'07 Q4'06
-------- --------
Cash and Cash Equivalents $ 10,276 $ (20,397)
Working Capital 62,546 (807)
Total Assets 94,978 61,706
Shareholder's Equity $ 78,694 $ 7,979


In the second quarter of fiscal 2007 sales were $46.7 million, an increase of 46% or $14.8 million as compared to sales of $31.9 million for the second quarter of fiscal 2006. The Canada/US region grew by $9.2 million or 38% and the international region grew by $5.6 million or 70% when compared to the second quarter of fiscal 2006.

Gross margin was $28.4 million in the second quarter compared to $19.7 million in the corresponding period last year. Gross margin percentage was approximately 61% which is within what the Company believes to be an appropriate range.

Net earnings were $14.2 million in the second quarter compared to $9.3 million in the corresponding period last year, an increase of 53%.

Earnings per share on a fully diluted basis were $0.19 in the second quarter of fiscal 2007 compared to $0.14 in the same period in 2006.

Selling and Administrative expenses increased by $2.1 million in the second quarter of fiscal 2007 compared to the second quarter of fiscal 2006. The increase was attributable to increased selling expenses as well as general administrative overhead increases as a result of operating as a public company. Selling and Administrative expenses represented approximately 11.9% of sales in the second quarter of fiscal 2007.

Research and Development expenses rose by 47% to $3.4 million during the second quarter of fiscal 2007 as compared to the corresponding period during fiscal 2006. Research and Development expenses represented approximately 7.3% of sales. The Company intends to continue to increase its Research and Development expenses in the balance of fiscal 2007.

The Company's working capital as at October 31, 2006 was $62.5 million as compared to $0.8 million deficit on April 30, 2006.

Cash and Cash Equivalents improved to $10.3 million as at October 31, 2006 as compared to a bank indebtedness of $20.4 million as at April 30, 2006.

Cash provided by operations was $3.3 million in the second quarter of fiscal 2007 as compared to cash provided by operations of $6.8 million in the second quarter of fiscal 2006. Before taking into account changes in non-cash working capital, the Company generated $15.8 million from operations in the second quarter fiscal 2007 as compared to $10.2 million in second quarter fiscal 2006. During the second quarter of fiscal 2007, there was a $12.4 million change in non-cash working capital as a result of increases in accounts receivable and inventory of $6.8 million and a reduction in accounts payable of $1.0 million and a reduction in tax payable of $4.6 million.

Cash used in investing activities was $2.2 million in the second quarter of fiscal 2007 resulting from the acquisition of capital assets.

Purchase order backlog at the end of November was in excess of $16 million and shipments during the month of November exceeded $15 million.

Forward-Looking Statements

The report contains forward-looking statements reflecting Evertz's objectives, estimates and expectations. Such forward looking statements use words such as "may", "will", "expect", "believe", "anticipate", "plan", "intend", "project", "continue" and other similar terminology of a forward-looking nature or negatives of those terms.

Although management of the Company believes that the expectations reflected in such forward-looking statements are reasonable, all forward-looking statements address matters that involve known and unknown risks, uncertainties and other factors. Accordingly, there are or will be a number of significant factors which could cause the Company's actual results, performance or achievements, or industry results to be materially different from any future results performance or achievements expressed or implied by such forward-looking statements.

Conference Call

The Company will hold a conference call with financial analysts to discuss the results on Tuesday, December 12, 2006 at 5:00 p.m. (EST). Media and other interested parties are invited to join the conference call in listen-only mode. The conference call may be accessed by dialing (416) 849-6166 or Toll-Free (North America) 1-866-250-6267.

For those unable to listen to the live call, a rebroadcast can be accessed at (416) 915-1035 or Toll-Free 1-866-245-6755. The pass code for the rebroadcast is 678174.

About Evertz

Evertz Technologies Limited (TSX:ET) designs, manufactures and markets video and audio infrastructure equipment for the production, post production, broadcast and internet protocol television ("IPTV") industry. The Company's solutions are purchased by content creators, broadcasters, specialty channels and television service providers to support their increasingly complex multi-channel digital and high definition television ("HDTV") broadcast environments and by telecommunications companies to roll-out IPTV. The Company's products allow its customers to generate additional revenue while reducing costs through the more efficient signal routing, distribution, monitoring and management of content as well as the automation of previously manual processes.



EVERTZ TECHNOLOGIES LIMITED
Consolidated Balance Sheet
(In thousands of dollars)

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October 31, April 30,
2006 2006
-------------------------
(Unaudited) (Audited)
Assets

Current assets:
Cash and cash equivalents $ 10,276 $ -
Accounts receivable 27,507 23,531
Inventories 32,714 22,829
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$ 70,497 $ 46,360

Equipment $ 12,862 $ 11,500
Future income taxes 8,788 649
Intangibles 2,192 2,558
Goodwill 639 639
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$ 94,978 $ 61,706
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Liabilities

Current liabilities:
Bank indebtedness $ - $ 20,397
Accounts payable and accrued liabilities 6,290 9,503
Future income taxes 354 1,382
Income taxes payable 1,307 15,621
Current portion of long-term debt - 264
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$ 7,951 $ 47,167

Long-term debt - 4,873
Deferred credit (note 2) 6,266 -
Future income taxes 1,604 1,687
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$ 15,821 $ 53,727

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Non-controlling interest 463 -
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Shareholders' Equity

Capital stock (note 3) $ 45,649 $ 2,996
Contributed surplus 504 127
Retained earnings 32,541 4,856
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78,694 7,979
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$ 94,978 $ 61,706
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See accompanying notes to the financial statements.



EVERTZ TECHNOLOGIES LIMITED
Consolidated Statement of Retained Earnings
(Unaudited)

Three-month and six-month periods ended October 31, 2006 and 2005
(In thousands of dollars)

--------------------------------------------------------------------------
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Three-month periods Six-month periods
ended October 31, ended October 31,
---------------------------------------------------
2006 2005 2006 2005
--------------------------------------------------------------------------
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Balance, beginning of
period $ 18,268 $ 14,099 $ 4,856 $ 4,853
Net earnings 14,204 9,308 27,451 18,554
Cumulative translation
adjustment 69 - 234 -
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Balance, end of period $ 32,541 $ 23,407 $ 32,541 $ 23,407
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See accompanying notes to the financial statements.



EVERTZ TECHNOLOGIES LIMITED
Consolidated Statement of Earnings
(Unaudited)

Three-month and six-month periods ended October 31, 2006 and 2005
(In thousands of dollars, except per share amounts)

--------------------------------------------------------------------------
--------------------------------------------------------------------------
Three-month periods Six-month periods
ended October 31, ended October 31,
---------------------------------------------------
2006 2005 2006 2005
--------------------------------------------------------------------------
Sales $ 46,695 $ 31,945 $ 91,290 $ 62,234
Cost of goods sold 18,294 12,276 35,784 24,239
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Gross margin 28,401 19,669 55,506 37,995
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Expenses:
Administrative and
selling 5,580 3,451 10,384 5,870
Research and development 3,423 2,334 6,488 4,431
Investment tax credits
and government grants (800) (415) (1,600) (804)
Foreign exchange (gain)
loss (200) 603 (251) 851
Amortization of
intangibles 183 - 366 -
Stock-based compensation
(note 5) 188 - 377 -
Interest on long-term
debt 127 79 219 161
Non-controlling Interest (37) - (37) -
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8,464 6,052 15,946 10,509
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Earnings from operations 19,937 13,617 39,560 27,486

Interest and other
income 208 503 106 660
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Earnings before income
taxes 20,145 14,120 39,666 28,146

Provision for income
taxes:
Current 4,612 4,812 11,934 9,592
Future 1,329 - 281 -
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5,941 4,812 12,215 9,592
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Net earnings for the
period $ 14,204 $ 9,308 $ 27,451 $ 18,554
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Earnings per share
(note 7)
Basic $ 0.20 $ 0.14 $ 0.39 $ 0.29
Diluted $ 0.19 $ 0.14 $ 0.38 $ 0.28
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See accompanying notes to the financial statements.



EVERTZ TECHNOLOGIES LIMITED
Consolidated Statement of Cash Flows
(Unaudited)

Three-month and six-month periods ended October 31, 2006 and 2005
(In thousands of dollars)

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Three-month periods Six-month periods
ended October 31, ended October 31,
----------------------------------------------
2006 2005 2006 2005
--------------------------------------------------------------------------
Operating activities:
Net earnings for the period $ 14,204 $ 9,308 $ 27,451 $ 18,554
Add: Items not involving
cash:
Amortization of equipment 780 889 1,537 1,831
Amortization of intangibles 183 - 366 -
Amortization of deferred
credit (923) - (1,076) -
Non-controlling interest (37) - (37) -
Stock based compensation 188 - 377 -
Cumulative translation
adjustment 69 - 234 -
Foreign exchange gain (14) (30) (26) (51)
Future income taxes 1,329 - 281 -
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15,779 10,167 29,107 20,334
Changes in non-cash working
capital items (note 4) (12,435) (3,321) (30,888) (8,456)
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Cash provided by (used in)
operating activities 3,344 6,846 (1,781) 11,878

Investing activities:
Acquisition of equipment (2,223) - (2,857) (27)
Business acquisitions net
of cash - (8,531) (2,158) (8,531)
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Cash used in investing
activities (2,223) (8,531) (5,015) (8,558)

Financing activities:
Capital stock issued 13 - 42,653 -
Repayment of long-term debt (5,119) (324) (5,184) (582)
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Cash provided by (used in)
financing activities (5,106) (324) 37,469 (582)
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Increase (decrease) in cash
and cash equivalents (3,985) (2,009) 30,673 2,738
Cash and cash equivalents,
beginning of period 14,261 21,881 (20,397) 17,134
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Cash and cash equivalents,
end of period $ 10,276 $ 19,872 $ 10,276 $ 19,872
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See accompanying notes to the financial statements.


EVERTZ TECHNOLOGIES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the Three-Month and Six-Month periods ended October 31, 2006 and 2005

(In thousands of dollars, except for "number of common shares" and "number of options")

Evertz Technologies Limited ("Evertz" or the "Company") is incorporated under the Canada Business Corporations Act. The Company is a leading equipment provider to the television broadcast industry. The Company designs, manufactures and distributes video and audio infrastructure equipment for the production, post-production, broadcast and Telco markets.

1. BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles on a basis consistent with those followed in the most recent audited annual consolidated financial statements. These unaudited interim consolidated financial statements do not include all information and note disclosures required by Canadian generally accepted accounting principles for annual financial statements, and therefore, should be read in conjunction with the April 30, 2006 audited consolidated financial statements and notes thereto.

The financial statements include the results and financial position of the Company and its wholly-owned subsidiaries, Evertz Microsystems Ltd., Evertz USA, Evertz Europe Limited and Quartz Electronics Limited as well as a 75% interest in a newly incorporated subsidiary. Intercompany transactions and balances are eliminated on consolidation.

2. ACQUISITIONS AND AMALGAMATION

On May 18, 2006, the Company acquired 100% of the outstanding shares of two companies for total cash consideration of $2.2 million. The principal assets acquired were both technology and tax assets. The tax assets had fair value of $9.5 million. As the benefit of the tax losses exceeded the purchase price after allocating estimated fair values to the assets acquired, the Company recorded a future income tax asset of $9.5 million and a deferred credit of $7.3 million in respect of these acquisitions. As the losses are utilized, the future income tax asset and deferred credit will decrease proportionately and the Company will recognize the net benefit of the losses in its income tax expense for the period. On July 1, 2006, the Company amalgamated the two purchased companies with Evertz Microsystems Ltd.



3. CAPITAL STOCK

---------------------------------------------------------------------------
---------------------------------------------------------------------------
Issued October 31, 2006
---------------------------------------------------------------------------
Number of
Common Shares Amount
---------------------------------------------------------------------------
Balance, beginning of the year 66,034,000 $ 2,996
Changes during the period:
Issued for cash 4,487,806 42,531
Issued on exercise of stock options 1,666,000 122
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Balance October 31, 2006 72,187,806 $ 45,649
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4. STATEMENT OF CASH FLOWS

(a) Changes in non-cash working capital items


---------------------------------------------------------------------------
---------------------------------------------------------------------------
Three-month periods Six-month periods
ended October 31, ended October 31,
---------------------- ----------------------
2006 2005 2006 2005
---------------------------------------------------------------------------

Accounts receivable $ (1,570) $ 4,248 $ (3,476) $ (4,817)
Inventories (5,268) (637) (9,885) 820
Income taxes
receivable/payable (4,551) 6,835 (14,314) 11,159
Accounts payable and accrued
liabilities (1,046) (13,767) (3,213) (15,618)
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$ (12,435) $ (3,321) $ (30,888) $ (8,456)
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(b) Supplemental cash flow information


---------------------------------------------------------------------------
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Three-month periods Six-month periods
ended October 31, ended October 31,
---------------------- ----------------------
2006 2005 2006 2005
---------------------------------------------------------------------------
Interest paid $ 69 $ 79 $ 263 $ 161
Income taxes paid 9,510 - 25,910 109
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5. STOCK OPTIONS

The Company has established a stock option plan to encourage ownership in the Company's common shares by employees and directors of the Company.



The changes in the number of outstanding share options are as follows:

---------------------------------------------------------------------------
---------------------------------------------------------------------------
October 31, 2006
-----------------------------------
Weighted
Number of Average
Options Exercise Price
---------------------------------------------------------------------------
Balance, beginning of year 3,594,000 $ 1.19
Granted 1,153,000 8.66
Redeemed (1,666,000) 0.07
Cancelled (87,000) 5.74
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Balance, end of period 2,994,000 $ 4.55
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Stock options exercisable as at October 31 are 304,000.

The stock options outstanding as at October 31, 2006 as follows:

---------------------------------------------------------------------------
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Exercise Price Number of Outstanding Options Residual Life
---------------------------------------------------------------------------
0.28 132,000 0.8
0.75 172,000 3.0
2.00 168,000 2.9
2.50 1,416,000 4.2
8.50 1,053,000 4.7
10.25 28,000 4.8
14.03 25,000 5.0
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The stock-based compensation that has been charged against income is $188 (2005-$0) and $377 (2005-$0) for the three months ended and six months ended October 31. Compensation cost was calculated using the Black-Scholes option pricing model with the following assumptions: risk free interest rate 4.30%; dividend yield of zero and expected life of five years. For options issued prior to June 30, 2006, the volatility used was 0% and after June 28, 2006, a volatility factor of 30% was used.

The weighted average fair value of the options granted was $1.72 per share for the six months ended October 31, 2006.

6. SEGMENTED INFORMATION

The Company reviewed its operations and determined that it operates a single reportable segment, the television broadcast equipment market. The single reportable operating segment derives its revenues from the sales of hardware and software solutions including related services, training and commissions.



---------------------------------------------------------------------------
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Three-month periods Six-month periods
Sales ended October 31, ended October 31,
---------------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------------
United States $ 29,777 $ 21,498 $ 58,088 $ 44,143
International 13,493 7,941 26,483 13,710
Canada 3,425 2,506 6,719 4,381
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$ 46,695 $ 31,945 $ 91,290 $ 62,234
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October 31, 2006 April 30, 2006
----------------------------------------------------------------
Intellectual Intellectual
Equipment Goodwill Property Equipment Goodwill Property
---------------------------------------------------------------------------
United States $ 4,049 $ - $ - $ 4,832 $ - $ -
International 624 639 2,192 583 639 2,558
Canada 8,189 - - 6,085 - -
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$12,862 $ 639 $ 2,192 $11,500 $ 639 $ 2,558
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7. EARNINGS PER SHARE

---------------------------------------------------------------------------
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Three-month periods Six-month periods
ended October 31, ended October 31,
---------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------------
Weighted average common shares
outstanding 72,157,472 64,820,000 70,408,643 64,820,000
Dilutive effect of stock
options 2,087,733 1,754,241 2,123,947 1,732,908
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Diluted weighted average
common shares outstanding 74,245,205 66,574,241 72,532,590 66,552,908
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Contact Information

  • Evertz Technologies Limited
    Brian Campbell
    Executive Vice-President, Business Development
    (905) 335-7580
    Email: ir@evertz.com
    Website: www.evertz.com