Zarlink Semiconductor Inc.
TSX : ZL
OTC Bulletin Board : ZARLF

Zarlink Semiconductor Inc.

January 27, 2011 16:31 ET

Zarlink Delivers Revenue at High End of Guidance and Gross Margin Improvements in Third Quarter

- Company delivers sixth consecutive quarter of profitability, with third quarter revenue of $56.9 million and gross margin improvement to 52%

- Cash position doubles year-on-year to $124.2 million

OTTAWA, CANADA--(Marketwire - Jan. 27, 2011) - Zarlink Semiconductor (TSX:ZL) today issued third quarter Fiscal 2011 results for the three-month period ended December 24, 2010. All figures are in U.S. dollars unless otherwise noted.

Third Quarter Highlights

  • Q3 Fiscal 2011 revenue of $56.9 million, at high end of $54 million to $58 million guidance range;

  • Revenue for Zarlink's communications products of $45.4 million, up $11.6 million or 34% from the same period last year;

  • Gross margin increased to 52%, due to product mix and improving yield on new line circuit products; 

  • Cash increased by $14.6 million driven by operations and the sale of real estate in Sweden to reach $124.2 million; 

  • Net income of $34.6 million or basic earnings per share of $0.28 and $0.23 per diluted share are driven primarily by a reduction in the valuation allowance of $17.5 million related to deferred tax assets in Canada and a gain of $14.1 million related to the previously announced sale of real estate in Sweden;

  • Excluding the reduction in the valuation allowance, the gain on real estate sale, a one-time provision for sales tax liability, and the effects of foreign exchange, third quarter earnings are at the midpoint of Company guidance of $0.03 to $0.05 per share. 

"I am pleased with our progress, with very strong year-on-year revenue growth from our communications products and a growing cash position that's allowing us to pursue opportunities to augment our fast-growing timing business," said Kirk Mandy, President and CEO, Zarlink Semiconductor. "Strong customer design activity for our new timing, line circuit and medical products is supporting our long-term growth objectives and offsetting the expected declines in our legacy business. In the coming quarters, we anticipate that our design wins, market share gains and new growth opportunities will translate into clear top-line improvements."

Third Quarter Fiscal 2011 Financial Results

Third quarter revenue was $56.9 million, compared with Q2 Fiscal 2011 revenue of $59.9 million, and Q3 Fiscal 2010 revenue of $50.0 million.

Gross margin in Q3 Fiscal 2011 improved to 52% of revenue due to product mix and improving yield for new line circuit products, compared with Q2 Fiscal 2011 gross margin of 51% of revenue. Gross margin in Q3 Fiscal 2010 was 52% of revenue, which included $0.6 million in supply chain harmonization costs. 

R&D expenses in Q3 Fiscal 2011 were $9.9 million, or 17% of revenue, compared with Q2 Fiscal 2011 R&D expenses of $10.7 million, or 18% of revenue. S&A expenses in Q3 Fiscal 2011 were $12.4 million, or 22% of revenue, compared with Q2 Fiscal 2011 S&A expenses of $9.6 million, or 16% of revenue. The increase in S&A costs was due primarily to a historical one-time provision of $1.6 million related to a sales tax liability. 

Operating income in Q3 Fiscal 2011 was $19.3 million, which includes a gain of $14.1 million related to the previously announced sale of the Jarfalla, Sweden campus, compared with operating income of $8.7 million in Q2 Fiscal 2011 and $4.5 million in Q3 Fiscal 2010. 

Net income in Q3 Fiscal 2011 was $34.6 million or $0.28 per basic share and $0.23 per diluted share. Net income in the quarter includes:

  • A reduction in valuation allowance of $17.5 million related to deferred tax assets in Canada. This deferred tax asset represents the benefit of tax loss carry forwards and other tax credits in Canada, and results in a non-cash income tax recovery in the Consolidated Statement of Income (Loss) of $17.3 million for the three months ended December 24, 2010; 

  • A gain of $14.1 million related to the sale of the Jarfalla, Sweden campus;

  • A foreign exchange loss of $0.9 million.

In Q2 Fiscal 2011, Zarlink recorded net income of $7.2 million or $0.06 per basic share and $0.05 per diluted share. Net income in Q2 Fiscal 2011 included a foreign exchange loss of $0.1 million. In Q3 Fiscal 2010, Zarlink recorded net income of $0.6 million, or breakeven per share, which included a non-cash foreign exchange loss of $2.7 million. 

As a supplement to Zarlink's consolidated financial statements presented in accordance with U.S. Generally Accepted Accounting Principles (GAAP), the Company provides additional non-GAAP measures for operating income, net income (loss), and basic and diluted net earnings (loss) per share all from continuing operations. For full reconciliation of GAAP to non-GAAP measures, refer to the schedule included with this press release.

Non-GAAP operating income for Q3 Fiscal 2011 was $8.9 million, compared with Q2 Fiscal 2011 non-GAAP operating income of $10.5 million and Q3 Fiscal 2010 non-GAAP operating income of $7.2 million. Non-GAAP net income in Q3 Fiscal 2011 was $7.4 million, or $0.06 per basic share and $0.05 per diluted share. For Q2 Fiscal 2011, non-GAAP net income was $9.4 million, or $0.07 per basic share and $0.06 per diluted share. For Q3 Fiscal 2010, non-GAAP net income was $6.1 million, or $0.05 per basic share and $0.04 per diluted share.

Cash and cash equivalents increased to $124.2 million at the end of Q3 Fiscal 2011, from $109.7 million at the end of Q2 Fiscal 2011. Cash flow in the quarter included proceeds on the sale of real estate in Sweden of $13.5 million, partially offset by an investment in Multigig of $5 million, and the repurchase of common shares of $1.7 million. 

On January 26th, 2011 Zarlink declared a quarterly dividend of CDN$0.50 per share on its preferred shares (TSX:ZL.PR.A) payable on March 30th, 2011 to preferred shareholders of record as of March 4th, 2011. Dividends paid by Zarlink to Canadian residents are eligible dividends for Canadian income tax purposes.

Third Quarter Fiscal 2011 Business Summary

Third quarter revenue from Zarlink's Communication Products Group was $45.4 million, compared with revenue of $46.8 million in Q2 Fiscal 2011 and $33.8 million in Q3 Fiscal 2010.

The Company continues to see strong customer design activity for its packet timing products, as global equipment manufacturers employ Zarlink's IEEE 1588 Timing over Packet (ToP) and Synchronous Ethernet products in new wireless network equipment required to support higher bandwidth mobile Internet applications. The Company is also seeing strong design activity for its new ClockCenter timing products targeting optical transport network (OTN) applications. 

Q3 Fiscal 2011 revenue for the Company's Medical Products Group was $7.2 million, compared with revenue of $7.0 million in Q2 Fiscal 2011 and $7.9 million in Q3 Fiscal 2010. Customers are designing Zarlink's wireless radio products into pacemakers and implantable cardiac defibrillators, and a widening range of new devices such as cardiac monitors and neuromodulators.

Custom and Other revenue in Q3 Fiscal 2011 was $4.3 million, compared with $6.1 million in Q2 Fiscal 2011 and $8.2 million in Q3 Fiscal 2010. The Company expects the decline in Custom and Other revenue to continue in the fourth quarter of Fiscal 2011, and beyond.

Fourth Quarter Fiscal 2011 Guidance

Mr. Mandy added: "As anticipated, in the third quarter the semiconductor industry experienced some slowdown as customers managed inventory. In line with many of our peers in the semiconductor industry, we expect this inventory management across the supply chain to continue in the fourth quarter. This short-term inventory rebalancing on the part of some customers should not impact our long-term growth strategy, as we continue to see strong design activity for our new communications and medical wireless products. As customer order patterns and product lead times stabilize, opening backlog is beginning to return to traditional levels and we anticipate our turns business for orders shipped and received in the quarter will increase." 

The opening backlog at the start of the Fiscal 2011 fourth quarter was approximately $45 million, compared with a $54 million opening backlog at the start of the third quarter. Based on this backlog and anticipated turns business, for Q4 Fiscal 2011 Zarlink is forecasting:

  • Revenue between $51 million and $55 million;

  • Gross margins between 50% and 52%;

  • Operating expenses between $20 million and $21 million, excluding amortization of intangibles;

  • Excluding any potential impact of foreign exchange, Zarlink expects Q4 earnings of $0.01 to $0.03 per share. 

Analyst Conference Call

An open conference call for analysts will be held on January 27th, 2011 beginning at 5:30 p.m. EDT. Access the call by dialing 1-877-974-0445 or 416-644-3415. Investors, media and other parties are listen-only. For a replay, call 1-877-289-8525, Access Code 4400518# or 416-640-1917, access Code 4400518#. The replay is available until midnight February 10, 2011. A live audio webcast will be available through www.gowebcasting.com/2167 (Marketwire) and through the company's web site at http://www.zarlink.com/

About Zarlink Semiconductor

Zarlink Semiconductor delivers world-leading, mixed-signal chip technologies for a broad range of communication and medical applications. The Company's core capabilities include network timing solutions that manage time-sensitive communication applications over wireless and wired networks, line circuits supporting high-quality voice services over cable and broadband connections, and ultra low-power radios enabling new wireless medical devices and therapies. Serving the world's largest original equipment manufacturers, Zarlink's highly integrated chip solutions help customers simplify design, lower costs and reach market quickly. For more information, visit www.zarlink.com.

Shareholders and other individuals wishing to receive, free of charge, copies of the reports filed with the U.S. Securities and Exchange Commission and Canadian Securities Regulatory Authorities, should visit the Company's web site at www.zarlink.com or contact Investor Relations.

Certain statements in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and assumptions include, among others, the following: our dependence on the successful development and market introduction of new products; our ability to integrate any business, technologies, product lines or services that we have or will acquire; our dependence on revenue generation from our legacy products in order to fund development of our new products; current market and economic conditions, which may increase our operating costs or reduce our revenue, thereby negatively impacting our operating results; our ability to operate profitably and generate positive cash flows in the future; customer inventory management in some end-markets; our dependence on our foundry suppliers and third-party subcontractors; order cancellations and deferrals by our customers; our substantial indebtedness could adversely affect our financial position; the cost and accounting implications of compliance with new accounting standards; and other factors referenced in our Annual Report on Form 20-F. Investors are encouraged to consider the risks detailed in this filing.

Zarlink and the Zarlink Semiconductor logo are trademarks of Zarlink Semiconductor Inc.

Zarlink Semiconductor Inc.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) DATA
(in thousands of U.S dollars, except per share amounts, U.S. GAAP)
(Unaudited)
 
  Three months ended   Nine months ended  
  Dec. 24,   Sept. 24,   Dec. 25,   Dec. 24,   Dec. 25,  
  2010   2010   2009   2010   2009  
Revenue $ 56,904   $ 59,892   $ 49,962   $ 175,460   $ 149,383  
Cost of revenue   27,598     29,491     23,802     85,904     73,520  
Gross margin   29,306     30,401     26,160     89,556     75,863  
                               
Expenses:                              
  Research and development   9,877     10,682     9,549     31,124     27,145  
  Selling and administrative   12,439     9,575     10,473     32,147     29,575  
  Amortization of intangible assets   1,736     1,735     1,736     5,207     5,207  
  Loss on pension settlement   -     -     -     1,880     -  
  Contract impairment (recovery)   -     -     (94 )   -     715  
  Recovery of current asset   -     (282 )   -     (282 )   (768 )
  Gain on sale of fixed assets   (14,083 )   -     -     (14,083 )   -  
    9,969     21,710     21,664     55,993     61,874  
Operating income   19,337     8,691     4,496     33,563     13,989  
                               
Loss on repurchase of convertible debentures   -     -     -     -     (316 )
Interest income   161     72     69     263     157  
Interest expense   (1,038 )   (1,020 )   (985 )   (3,082 )   (2,861 )
Amortization of debt issue costs   (160 )   (161 )   (161 )   (481 )   (481 )
Foreign exchange loss   (948 )   (68 )   (2,719 )   (535 )   (9,598 )
Income from continuing operations before income taxes   17,352     7,514     700     29,728     890  
Income tax recovery (expense)   17,297     (295 )   (66 )   16,528     (130 )
Income from continuing operations $ 34,649   $ 7,219   $ 634   $ 46,256   $ 760  
Discontinued operations, net of tax   -     -     (3 )   5,868     75  
Net income $ 34,649   $ 7,219   $ 631   $ 52,124   $ 835  
                               
Net income (loss) attributable to common shareholders $ 34,175   $ 6,758   $ 112   $ 50,345   $ (758 )
                               
Net income (loss) per common share from continuing operations:                              
  Basic $ 0.28   $ 0.06   $ 0.00   $ 0.37   $ (0.01 )
  Diluted $ 0.23   $ 0.05   $ 0.00   $ 0.31   $ (0.01 )
                               
Income (loss) per common share from discontinued operations:                              
  Basic $ -   $ -   $ (0.00 ) $ 0.05   $ 0.00  
  Diluted $ -   $ -   $ (0.00 ) $ 0.04   $ 0.00  
                               
Net income (loss) per common share:                              
  Basic $ 0.28   $ 0.06   $ 0.00   $ 0.42   $ (0.01 )
  Diluted $ 0.23   $ 0.05   $ 0.00   $ 0.35   $ (0.01 )
                               
Weighted average number of common shares outstanding (thousands):                              
  Basic   120,757     121,132     122,293     120,937     122,381  
  Diluted   152,552     153,642     123,652     152,879     122,381  
                               
Percentage of revenue:                              
  Gross margin   52 %   51 %   52 %   51 %   51 %
  Research and development   17 %   18 %   19 %   18 %   18 %
  Selling and administrative   22 %   16 %   21 %   18 %   20 %
 
 
 
 
Zarlink Semiconductor Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS DATA
(in thousands of U.S. dollars, U.S. GAAP)
(Unaudited)
         
  Three months ended   Nine months ended  
  Dec. 24,   Sept. 24,   Dec. 25,   Dec. 24,   Dec. 25,  
  2010   2010   2009   2010   2009  
CASH PROVIDED BY (USED IN)                              
Operating activities:                              
  Net income $ 34,649   $ 7,219   $ 631   $ 52,124   $ 835  
  Depreciation of fixed assets   702     751     939     2,251     2,864  
  Amortization of other assets   1,897     1,896     1,964     5,689     5,912  
  Stock compensation expense   291     380     475     1,011     1,163  
  Other non-cash changes in operating activities   (13,304 )   (921 )   2,802     (17,661 )   9,857  
  Deferred income taxes   (17,371 )   295     162     (15,147 )   245  
  Payment on settlement of pension   -     (14,586 )   -     (14,586 )   -  
  Decrease (increase) in working capital:                              
    Trade accounts and other receivables   821     3,270     (6,615 )   11,289     (5,536 )
    Inventories   951     (1,518 )   3,809     (1,543 )   1,286  
    Prepaid expenses and other   411     (335 )   951     208     634  
    Payables and other accrued liabilities   661     (434 )   1,671     (3,796 )   (208 )
    Deferred revenue   (119 )   (77 )   1,770     (425 )   3,685  
Total   9,589     (4,060 )   8,559     19,414     20,737  
                               
Investing activities:                              
  Purchase of long-term investments   (5,001 )   -     -     (5,001 )   -  
  Expenditures for fixed assets   (1,694 )   (643 )   (998 )   (3,211 )   (1,984 )
  Proceeds from disposal of fixed assets - net   13,507     736     -     14,243     -  
  Proceeds from sale of business - net   -     -     -     13,509     -  
  Decrease in restricted cash on settlement of pension   -     14,723     -     14,723     -  
Total   6,812     14,816     (998 )   34,263     (1,984 )
                               
Financing activities:                              
  Repurchase of long-term debt   -     -     -     -     (13 )
  Payment of dividends on preferred shares   (932 )   (460 )   (474 )   (1,868 )   (1,417 )
  Repurchase of preferred shares   -     (6 )   (144 )   (802 )   (849 )
  Repurchase of common shares   (1,672 )   (715 )   (642 )   (2,387 )   (642 )
  Exercise of stock options   171     405     -     649     -  
Total   (2,433 )   (776 )   (1,260 )   (4,408 )   (2,921 )
Effect of currency translation on cash   604     781     (102 )   588     1,067  
                               
Increase in cash and cash equivalents   14,572     10,761     6,199     49,857     16,899  
                               
Cash and cash equivalents, beginning of period   109,654     98,893     55,706     74,369     45,006  
                               
Cash and cash equivalents, end of period $ 124,226   $ 109,654   $ 61,905   $ 124,226   $ 61,905  
 
 
 
 
Zarlink Semiconductor Inc.
CONSOLIDATED BALANCE SHEETS DATA
(in thousands of U.S. dollars, U.S. GAAP)
(Unaudited)
             
  Dec. 24,   Sept. 24,   March 26,  
  2010   2010   2010  
ASSETS                  
                   
Current assets:                  
  Cash and cash equivalents $ 124,226   $ 109,654   $ 74,369  
  Restricted cash and cash equivalents   -     -     15,720  
  Trade accounts receivable – net   17,936     17,328     27,038  
  Other accounts receivable – net   2,647     3,491     4,248  
  Inventories – net   24,793     25,744     26,225  
  Prepaid expenses and other   2,003     2,414     2,305  
  Current assets held for sale   -     -     750  
  Deferred income tax assets – current portion   873     5     2,000  
    172,478     158,636     152,655  
                   
Fixed assets – net   8,058     8,875     10,992  
Deferred income tax assets long-term portion – net   23,858     7,586     7,584  
Long-term investments   5,001     -     -  
Intangible assets – net   36,285     38,020     41,871  
Other assets   2,872     1,282     1,603  
  $ 248,552   $ 214,399   $ 214,705  
                   
LIABILITIES AND SHAREHOLDERS' EQUITY                  
                   
Current liabilities:                  
  Trade accounts payable $ 13,837   $ 16,977   $ 15,178  
  Employee-related payables   10,279     8,603     13,452  
  Income and other taxes payable   1,343     1,210     1,006  
  Current portion of provisions for exit activities   213     270     379  
  Other accrued liabilities   7,169     7,025     7,123  
  Deferred revenue   4,068     4,187     4,493  
  Deferred income tax liabilities – current portion   30     261     29  
    36,939     38,533     41,660  
                   
Long-term debt – convertible debentures   70,413     69,048     68,900  
Long-term portion of provisions for exit activities   105     124     246  
Pension liabilities   459     439     16,636  
Long-term accrued income taxes   2,045     2,211     2,208  
Other long-term liabilities   2,425     758     569  
    112,386     111,113     130,219  
                   
Redeemable preferred shares, unlimited shares authorized; 966,600 shares issued and outstanding as at December 24, 2010   12,372     12,372     12,787  
                   
Shareholders' equity:                  
Common shares, unlimited shares authorized; no par value; 121,109,295 shares issued and 120,409,295 outstanding as at December 24, 2010   726,804     731,799     733,357  
Treasury shares, at cost, 700,000 shares   (1,289 )   (1,289 )   (1,289 )
Additional paid-in capital   44,939     41,223     39,838  
Deficit   (613,378 )   (647,553 )   (664,110 )
Accumulated other comprehensive loss   (33,282 )   (33,266 )   (36,097 )
    123,794     90,914     71,699  
  $ 248,552   $ 214,399   $ 214,705  
 
 
 
 
Zarlink Semiconductor Inc.
SUPPLEMENTARY SCHEDULES
(in thousands of U.S. dollars, U.S. GAAP)
(Unaudited)
 
Geographic Information:  
   
Revenue, based on the geographic location of Zarlink's customers, was distributed as follows:  
                   
  Three Months     Three Months     Three Months    
  Ended     Ended     Ended    
  Dec. 24,
2010
% of
Total
  Sep 24,
2010
% of
Total
  Dec. 25,
2009
% of
Total
 
                         
Asia – Pacific $ 37,672 67 % $ 36,946 62 % $ 24,147 48 %
Europe   9,615 17     13,554 22     15,498 31  
Americas   9,617 16     9,392 16     10,317 21  
  $ 56,904 100 % $ 59,892 100 % $ 49,962 100 %
                     
          Nine Months     Nine Months    
          Ended     Ended    
          Dec. 24,
2010
% of
Total
  Dec. 25,
2009
% of
Total
 
                         
Asia – Pacific         $ 110,058 63 % $ 78,570 53 %
Europe           36,884 21     41,026 27  
Americas           28,518 16     29,787 20  
          $ 175,460 100 % $ 149,383 100 %
   
   
Product Group Information:  
   
Revenue, based on product group, was distributed as follows:  
   
  Three Months     Three Months     Three Months    
  Ended     Ended     Ended    
  Dec. 24,
2010
% of
Total
  Sept. 24,
2010
% of
Total
  Dec. 25,
2009
% of
Total
 
                         
Communication Products $ 45,426 80 % $ 46,821 78 % $ 33,818 68 %
Medical Products   7,201 13     6,967 12     7,937 16  
Custom & Other   4,277 7     6,104 10     8,207 16  
  $ 56,904 100 % $ 59,892 100 % $ 49,962 100 %
                         
            Nine Months       Nine Months    
            Ended       Ended    
            Dec. 24, 2010 % of
Total
    Dec. 25, 2009 % of
Total
 
                         
Communication Products         $ 136,892 78 % $ 100,662 67 %
Medical Products           20,748 12     24,720 17  
Custom & Other           17,820 10     24,001 16  
          $ 175,460 100 % $ 149,383 100 %

Non-GAAP Measures

As a supplement to Zarlink's consolidated financial statements presented in accordance with generally accepted accounting principles ("GAAP"), the Company provides additional non-GAAP measures for operating income, net income (loss) from continuing operations, and basic and diluted net income (loss) per share from continuing operations.

A non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The Company believes that the additional non-GAAP measures are useful to investors for the purpose of financial analysis. Management uses these measures internally to evaluate the Company's in-period operating performance before gains, losses and other charges that are considered by management to be outside of the Company's core operating results. These non-GAAP financial measures should assist investors in understanding how management views our core results of operations on an on-going basis, as well as enhance comparisons of our core results of operations with historical periods. In addition, the measures are used for planning and forecasting of the Company's future periods. Investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures do not reflect all costs associated with our operations as determined in accordance with GAAP. Other companies may exclude or include different items in a particular non-GAAP financial measure, or provide different non-GAAP financial measures to those provided by Zarlink. Therefore, our non-GAAP financial measures are unlikely to be comparable to those presented by other companies.

During Fiscal 2011 the Company updated the calculation of three of its non-GAAP measures, net income (loss), basic and diluted net income (loss) per share, to include those items from continuing operations only, as a result of the sale of its Optical Products group. This product group disposal is one time, and is accounted for as a discontinued operation thus it has been eliminated from the Company's core operating results. The Company has also updated the non-GAAP calculations to exclude a one time loss on pension settlement in Sweden, a one time gain on sale of Järfälla, Sweden campus, a historical sales tax provision adjustment, and the recognition of deferred tax asset, where a valuation allowance had previously been recognized.

Zarlink Semiconductor Inc.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share amounts)
(Unaudited)
  Three months ended   Nine months ended  
  Dec. 24,   Sept. 24,   Dec. 25,   Dec. 24,   Dec. 25,  
  2010   2010   2009   2010   2009  
                               
GAAP net income from continuing operations $ 34,649   $ 7,219   $ 634   $ 46,256   $ 760  
  Amortization of intangible assets   1,736     1,735     1,736     5,207     5,207  
  Loss on pension settlement   -     -     -     1,880     -  
  Contract impairment (recovery)   -     -     (94 )   -     715  
  Foreign exchange loss   948     68     2,719     535     9,598  
  Restructuring and supply chain harmonization   -     -     592     281     2,573  
  Recovery of current asset   -     (282 )   -     (282 )   (768 )
  Stock compensation expense   291     380     475     1,011     1,163  
  Gain on sale of fixed asset   (14,083 )   -     -     (14,083 )   -  
  Loss on repurchase of convertible debentures   -     -     -     -     316  
  Adjustment to historical sales tax provision   1,600     -     -     1,600     -  
  Expense (recovery) for income tax matters   (17,700 )   307     -     (16,938 )   -  
Non-GAAP net income from continuing operations $ 7,441   $ 9,427   $ 6,062   $ 25,467   $ 19,654  
                               
GAAP operating income $ 19,337   $ 8,691   $ 4,496   $ 33,563   $ 13,989  
  Amortization of intangible assets   1,736     1,735     1,736     5,207     5,207  
  Loss on pension settlement   -     -     -     1,880     -  
  Contract impairment (recovery)   -     -     (94 )   -     715  
  Restructuring and supply chain harmonization   -     -     592     281     2,573  
  Recovery of current asset   -     (282 )   -     (282 )   (768 )
  Stock compensation expense   291     380     475     1,011     1,163  
  Gain on sale of fixed asset   (14,083 )   -     -     (14,083 )   -  
  Adjustment to historical sales tax provision   1,600     -     -     1,600     -  
Non-GAAP operating income $ 8,881   $ 10,524   $ 7,205   $ 29,177   $ 22,879  
                               
GAAP net income (loss) from continuing operations per common share - basic $ 0.28   $ 0.06   $ 0.00   $ 0.37   $ (0.01 )
  Amortization of intangible assets   0.01     0.01     0.01     0.04     0.04  
  Loss on pension settlement   -     -     -     0.02     -  
  Contract impairment (recovery)   -     -     (0.00 )   -     0.01  
  Foreign exchange loss   0.01     0.00     0.02     0.00     0.08  
  Restructuring and supply chain harmonization   -     -     0.00     0.00     0.02  
  Recovery of current asset   -     (0.00 )   -     (0.00 )   (0.01 )
  Stock compensation expense   0.00     0.00     0.00     0.01     0.01  
  Gain on sale of fixed asset   (0.12 )   -     -     (0.12 )   -  
  Loss on repurchase of convertible debentures   -     -     -     -     0.00  
  Adjustment to historical sales tax provision   0.01     -     -     0.01     -  
  Expense (recovery) for income tax matters   (0.15 )   0.00     -     (0.14 )   -  
Non-GAAP net income from continuing operations per common share – basic* $ 0.06   $ 0.07   $ 0.05   $ 0.20   $ 0.15  
                               
GAAP net income (loss) from continuing operations per common share - diluted $ 0.23   $ 0.05   $ 0.00   $ 0.31   $ (0.01 )
  Amortization of intangible assets   0.01     0.01     0.01     0.03     0.03  
  Loss on pension settlement   -     -     -     0.01     -  
  Contract impairment (recovery)   -     -     (0.00 )   -     0.00  
  Foreign exchange loss   0.01     0.00     0.02     0.00     0.06  
  Restructuring and supply chain harmonization   -     -     0.00     0.00     0.02  
  Recovery of current asset   -     (0.00 )   -     (0.00 )   (0.01 )
  Stock compensation expense   0.00     0.00     0.00     0.01     0.01  
  Gain on sale of fixed asset   (0.09 )   -     -     (0.09 )   -  
  Loss on repurchase of convertible debentures   -     -     -     -     0.00  
  Adjustment to historical sales tax provision   0.01     -     -     0.01     -  
  Expense (recovery) for income tax matters   (0.12 )   0.00     -     (0.11 )   -  
  Effect of dilutive potential common shares   -     -     0.00     -     0.02  
Non-GAAP net income from continuing operations per common share – diluted* $ 0.05   $ 0.06   $ 0.04   $ 0.17   $ 0.13  
                               
Shares used to calculate non-GAAP net income from continuing operations per common share – basic   120,757     121,132     122,293     120,937     122,381  
Shares used to calculate non-GAAP net income from continuing operations per common share – diluted   152,552     153,642     152,576     152,879     152,321  
* Amounts may not add due to rounding.

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