OTTAWA, CANADA (NYSE: ZL) today issued unaudited fourth quarter
and Fiscal 2008 results for the year ended March 28, 2008, prepared
in accordance with U.S. Generally Accepted Accounting Principles
(GAAP). The Company expects to file its 20-F and audited financial
statements by June 5, 2008.
In line with guidance, fourth quarter revenue was US$54.8
million, an increase of 13 percent compared with revenue of US$48.6
million in the third quarter, and US$32.0 million in the fourth
quarter of Fiscal 2007. In line with guidance, Zarlink recorded a
fourth quarter net loss of US$19.1 million or US$0.16 per share. In
the third quarter Zarlink recorded a net loss of US$8.4 million or
US$0.07 per share, and a net loss of US$0.9 million or US$0.01 per
share in the fourth quarter of Fiscal 2007.
Fourth quarter results included a loss of US$18.2 million on the
sale of the Swindon Foundry, which occurred in February 2008, and a
gain of US$5.5 million as part of the insurance settlement related
to the flooding of the Swindon Foundry in July 2007. The net impact
of these two items is a loss of US$12.7 million or US$0.10 per
share. Severance and other integration costs related to the
Legerity acquisition, which occurred in August 2007, in the quarter
totaled US$4.6 million or US$0.04 per share (US$1.4 million in cost
of goods sold, US$0.5 million in R&D, US$1.1 million in
S&A, US$1.6 million in contract impairment).
At the end of the fourth quarter, cash and short-term
investments were US$42.6 million and restricted cash was US$17.3
million. This compares to cash and short-term investments of
US$43.7 million and restricted cash of US$15.5 million at the end
of the third quarter.
For Fiscal 2008, Zarlink recorded a net loss of US$48.4 million,
or US$0.41 per share, on revenue of US$183.6 million. In Fiscal
2007, Zarlink recorded net income of US$15.8 million, or US$0.11
per share, on revenue of US$142.6 million. The year over year
increase in revenue was due to the Legerity acquisition. During
Fiscal 2008, Zarlink recorded a number of significant items.
Legerity acquisition related:
- Severance and other integration costs related to the Legerity
acquisition totaling US$12.5 million (US$2.2 million in cost of
goods sold, US$1.4 million in R&D, US$5.2 million in S&A,
US$3.7 million in contract impairment);
- A one-time, non-cash expense of US$20.3 million related to the
value of In-Process Research and Development (IP R&D), in line
with business combination accounting under GAAP;
- A non-cash foreign exchange loss of US$1.5 million related
primarily to the convertible debenture used to fund in part the
acquisition of Legerity. As a result of the convertible debentures
being denominated in Canadian dollars, while the Company's
functional currency is in the U.S. dollar, the Company is required
to revalue these debentures in U.S. dollars at the month-end market
rate. As a result of this revaluation, the Company incurs non-cash
foreign currency gains or losses;
Swindon Foundry related:
- As noted in fourth quarter results, a loss of US$18.2 million
related to the sale of the Swindon Foundry;
- A gain of US$5.5 million following the settlement of an
insurance claim in relation to flooding of the Swindon Foundry;
Other:
- A gain of US$12.9 million related to the sale of its
investment in Mitel Networks Corporation;
- A gain of US$2.4 million on the sale of surplus land in
Jarfalla, Sweden.
"This has been a year of change for Zarlink as we build a
stronger, more focused company that is positioned for long-term
growth," said Kirk K. Mandy, President and Chief Executive Officer,
Zarlink Semiconductor. "The acquisition of Legerity has
successfully expanded our portfolio for the fast-growing
voice-over-Internet and voice-over-cable markets and helped drive
year-on-year revenue growth. We have aggressively improved our cost
structure, through the integration of Legerity and the sale of the
Swindon Foundry. The majority of these integration activities are
now behind us. A healthy opening backlog entering Fiscal 2009 is a
strong indicator that we are investing in the right markets and
revenue from new products is increasing."
Business review
Revenue from Zarlink's Wired Communications products was US$35.8
million for the fourth quarter, compared with US$31.2 million in
the third quarter. The acquisition of Legerity Holdings, Inc.
accounted for US$19.9 million in revenue in the fourth quarter,
compared to US$18.5 million in the third quarter. The fourth
quarter saw increasing business for the Company's voice telephony
and timing products, including design-ins in passive optical
network (PON) access equipment supporting converged voice, video
and data services.
Medical Communications revenue in the fourth quarter of Fiscal
2008 was US$7.5 million, compared with US$7.6 million in the
previous quarter. Zarlink is working closely with medical
manufacturers in the design of new devices incorporating the
company's new wireless telemetry products.
Optical Communications revenue increased in the fourth quarter
of Fiscal 2008 to US$4.9 million, compared with US$3.9 million in
the third quarter, driven primarily by increasing bookings for
ZLynx active optical cables for data center interconnect. In the
quarter, Zarlink announced it is the first vendor supporting volume
manufacturing of active optical cables. As of February 2008,
Zarlink had shipped over 10,000 ZL60615 ZLynx cables to a range of
customers, including data center operators as well as InfiniBand
and Ethernet switch vendors and system integrators.
Custom and Foundry revenue in the fourth quarter of Fiscal 2008,
which included nine weeks of revenue from the Swindon Foundry, was
US$6.6 million. In the third quarter, Custom and Foundry revenue
was US$5.9 million.
The Company made several important corporate and technology
announcements in the fourth quarter, including:
- The sale of its Swindon Foundry and all assets related to the
business to MHS Electronics UK Ltd.;
- The demonstration of its video IP surveillance (VIPS) camera
and control room optical modules at the International Security
Conference and Exposition (ISC West);
- New telephone interface devices that improve the performance,
simplify the design and slash power requirements for residential
and enterprise gateways delivering voice-over-broadband
services;
- Following the fourth quarter, Zarlink launched a redesigned
web site, www.zarlink.com. The redesigned web site improves the
ways customers can find product information and contact the
company's sales teams, distributors and representatives.
On May 20th, 2008, Zarlink declared a quarterly dividend of
CDN$0.50 per share on its preferred shares (TSX: ZL.PR.A) payable
on June 27th, 2008 to preferred shareholders of record as of June
6th, 2008. This dividend is fully eligible for Canadian tax
purposes.
Review of Operations
Gross margin in the fourth quarter was 45%, which included
integration costs of US$1.4 million. This compares with 47% in the
previous quarter, which included a recovery of US$2.0 million
related to an insurance settlement and US$0.8 million of
integration costs.
R&D expenses in the fourth quarter were US$13.8 million or
25% of revenue, which included integration costs of US$0.5 million.
This compares with R&D expenses in the previous quarter of
US$13.1 million or 27% of revenue, which included US$0.1 million in
integration costs.
S&A expenses in the fourth quarter were US$15.5 million or
28% of revenue, which included severance and integration costs of
US$1.1 million. This compares with third quarter S&A expenses
of US$16.8 million or 35% of revenue, which included severance and
integration costs of US$2.8 million.
In addition, fourth quarter earnings include a US$2.9 million of
non-cash foreign exchange gain related mainly to Zarlink's Canadian
dollar denominated debenture, based on an exchange rate of CDN$1.00
to US$0.98 at March 28, 2008.
First Quarter Fiscal 2009 Guidance
The opening backlog at the start of the Fiscal 2009 first
quarter was approximately US$53 million, compared with a US$47
million opening backlog in the fourth quarter of Fiscal 2008.
Zarlink is forecasting Fiscal 2009 first quarter revenue will be
between US$59 million and US$61 million. Severance and other
integration costs are expected to be US$1 million to US$1.5
million. Excluding integration-related costs, gross margins are
expected to be 46% to 48% and operating expenses are expected to be
approximately US$25 million to US$26 million excluding amortization
of intangibles. Excluding any potential impact of foreign exchange
gains/losses related to the Company's denominated debentures,
Zarlink expects net earnings to be approximately break-even.
Board of Directors approves share buyback program
The Company's Board of Directors has approved a share buyback
program authorizing the Company to repurchase up to 12,272,384
common shares, representing approximately 10 percent of its public
float of common shares as of May 2, 2008. As at May 2, 2008,
Zarlink had 127,345,682 issued and outstanding common shares.
Zarlink plans to repurchase up to 10 percent of its public float
of common shares using available cash during a 12-month period from
May 26, 2008 to May 25, 2009, upon approval of the Toronto Stock
Exchange (TSX) of its notice of intention to conduct a normal
course issuer bid. The timing and exact number of common shares
purchased under the bid will be at Zarlink's discretion, will
depend on market conditions, and may be suspended or discontinued
at any time. All shares purchased by Zarlink under the bid will be
cancelled.
Purchases under the bid will be made at the prevailing market
price through the facilities of the TSX. The average daily trading
volume of Zarlink over the last six complete calendar months was
411,976 common shares (the "ADTV"). Under TSX rules, Zarlink may
purchase up to 25 percent of the ADTV (or 102,994 common shares)
per trading day. Once a week, in excess of the daily repurchase
limit, Zarlink may purchase a block of common shares not owned by
an insider (i) having a purchase price of $200,000 or more, (ii) of
at least 5,000 common shares with a purchase price of at least
$50,000, or (iii) of at least 20 board lots of common shares which
total 150 percent or more of the ADTV. To the knowledge of Zarlink,
after reasonable inquiry, no director, senior officer or any of
their associates, or any person acting jointly or in concert with
Zarlink, currently intends to sell common shares under the issuer
bid.
"We believe that the stock repurchase program emphasizes our
belief in the long-term value of Zarlink and our commitment to
unlock shareholder value," said Dr. Henry Simon, Chairman of the
Board, Zarlink Semiconductor. "At its current trading levels the
Zarlink stock represents an adequate use of funds for the Company,
and an opportunity to use our cash reserves to enhance shareholder
value."
About Zarlink Semiconductor
For over 30 years, Zarlink Semiconductor has delivered
semiconductor solutions that drive the capabilities of voice,
enterprise, broadband and wireless communications. The Company's
success is built on its technology strengths including voice and
data networks, optoelectronics and ultra low-power communications.
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 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 dependence on revenue generation from our legacy products in
order to fund development of our new products; our ability to
successfully integrate Legerity and any businesses acquired in the
future; any potential undisclosed liabilities associated with the
Legerity acquisition; our ability to operate profitably and
generate positive cash flows in the future; our dependence on our
foundry suppliers and third-party subcontractors; order
cancellations and deferrals by our customers; 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.
An open conference call for analysts will be held today
beginning at 5:00 p.m. EDT. Investors, media and other parties are
listen-only. Please dial 1-800-732-9307 or 416-644-3417. The replay
number is 1-877-289-8525 (passcode 21271481#) or 416-640-1917
(passcode 21271481#.). The replay is available until midnight, June
4th, 2008. A live audio webcast will be available through
www.marketwire.com (Marketwire) or from the Company's website at
www.zarlink.com.
Zarlink Semiconductor Inc.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) DATA
(in millions of U.S dollars, except per share amounts, U.S. GAAP)
(Unaudited)
Three months ended Year Ended
------------------------------- -------------------
March 28, Dec. 28, March 30, March 28, March 30,
2008 2007 2007 2008 2007
------------------------------- -------------------
Revenue $54.8 $48.6 $32.0 $183.6 $142.6
Cost of revenue 30.3 25.8 17.3 100.5 68.2
------------------------------- -------------------
Gross margin 24.5 22.8 14.7 83.1 74.4
------------------------------- -------------------
Expenses:
Research and
development 13.8 13.1 7.8 47.7 32.7
Selling and
administrative 15.5 16.8 9.3 55.8 37.3
Amortization of
intangible assets 1.8 1.8 0.2 5.0 0.3
Contract
impairment
and other 1.5 1.4 0.1 4.1 1.1
Acquired in
process R&D - - - 20.3 -
Loss (Gain) on
sale of business 18.2 (0.7) - 17.5 (4.1)
------------------------------- -------------------
50.8 32.4 17.4 150.4 67.3
------------------------------- -------------------
Operating
income (loss) (26.3) (9.6) (2.7) (67.3) 7.1
Gain on sale of
Mitel investment - - - 12.9 -
Gain on insurance
settlement 5.5 - - 5.5 -
Gain on sale
of assets (0.1) 2.4 - 2.3 -
Interest income 0.5 0.6 1.5 3.5 5.4
Interest expense (1.2) (1.2) - (3.1) -
Amortization of
debt issue costs (0.2) (0.2) - (0.5) -
Foreign exchange
gain (loss) 2.9 (0.6) - (1.5) 0.1
------------------------------- -------------------
Income (loss) before
income taxes (18.9) (8.6) (1.2) (48.2) 12.6
Income tax (expense)
recovery (0.2) 0.2 0.3 (0.2) 3.2
------------------------------- -------------------
Net income (loss) $(19.1) $(8.4) $(0.9) $(48.4) $15.8
------------------------------- -------------------
------------------------------- -------------------
Net income (loss)
attributable to
common
shareholders $(20.0) $(9.2) $(1.4) $(52.0) $13.5
------------------------------- -------------------
------------------------------- -------------------
Net Income (loss)
per common share
Basic and
diluted $(0.16) $(0.07) $(0.01) $(0.41) $0.11
------------------------------- -------------------
------------------------------- -------------------
Income (loss)
per common share
from discontinued
operations:
Basic and
diluted $- $- $- $- $-
------------------------------- -------------------
------------------------------- -------------------
Net income (loss)
per common share:
Basic and
diluted $(0.16) $(0. 07) $(0.01) $(0.41) $0.11
------------------------------- -------------------
------------------------------- -------------------
Weighted average
number of common
shares outstanding
(millions):
Basic 127.3 127.3 127.3 127.3 127.3
------------------------------- -------------------
------------------------------- -------------------
Diluted 127.3 127.3 127.3 127.3 127.4
------------------------------- -------------------
------------------------------- -------------------
Percentage of
revenue:
Gross margin 45% 47% 46% 45% 52%
Research and
development 25% 27% 24% 26% 23%
Selling and
administrative 28% 35% 30% 30% 26%
Zarlink Semiconductor Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS DATA
(in millions of U.S. dollars, U.S. GAAP)
(Unaudited)
Three months ended Year Ended
------------------------------- -------------------
March 28, Dec. 28, March 30, March 28, March 30,
2008 2007 2007 2008 2007
------------------------------- -------------------
CASH PROVIDED BY
(USED IN)
Operating activities:
Net Income (loss) $(19.1) $(8.4) $(0.9) $(48.4) $15.8
Depreciation of
fixed assets 1.5 1.5 1.1 5.7 5.0
Amortization of
other assets 2.4 1.8 0.1 5.6 0.3
Stock
compensation
expense 0.6 0.4 0.5 2.0 1.4
Deferred income
taxes 0.1 1.9 (0.4) 3.4 (1.4)
Other non-cash
changes in
operating
activities 15.0 (1.0) (0.1) 24.7 (4.5)
Gain on insurance
settlement (5.5) - - (5.5) -
Proceeds from
insurance 14.1 - - 14.1 -
Flood related
expenditures (10.9) - - (10.9) -
Decrease
(increase) in
working capital: 6.3 (1.6) 2.3 (2.8) (11.8)
------------------------------- -------------------
Total 4.5 (5.4) 2.6 (12.1) 4.8
------------------------------- -------------------
Investing activities:
Acquisition of
business - (0.1) - (136.0) (7.1)
Purchased
short-term
investments - - (3.3) - (3.3)
Matured
short-term
investments - - - 3.3 24.6
Expenditures for
fixed assets (1.7) (3.5) (0.3) (7.6) (2.1)
Proceeds from
insurance for
fixed assets 1.1 3.4 - 4.5 -
Proceeds from
disposal of
fixed assets - 2.7 - 2.7 0.1
Proceeds from
sale of investment - - - 12.9 -
Proceeds (Payment)
from sale of
business - net (3.0) - - (3.0) 4.7
------------------------------- -------------------
Total (3.6) 2.5 (3.6) (123.2) 16.9
------------------------------- -------------------
Financing activities:
Payment of
dividends on
preferred shares (0.7) (0.5) (1.0) (2.4) (2.2)
Repurchase of
preferred shares (0.5) (0.5) - (2.6) (0.1)
Decrease
(increase) in
restricted cash (0.5) - (0.3) (0.3) 0.7
Issuance of
long-term debt - - - 74.5 -
Repayment of
long-term debt - - - - (0.1)
------------------------------- -------------------
Debt issue cost - (0.2) - (3.7) -
------------------------------- -------------------
Total (1.7) (1.2) (1.3) 65.5 (1.7)
------------------------------- -------------------
Effect of currency
translation on cash (0.5) 0.2 0.1 0.9 0.6
------------------------------- -------------------
Increase (decrease)
in cash and cash
equivalents (1.3) (3.9) (2.2) (68.9) 20.6
Cash and cash
equivalents,
beginning of period 43.7 47.6 113.5 111.3 90.7
------------------------------- -------------------
Cash and cash
equivalents, end
of period $42.4 $43.7 $111.3 $42.4 $111.3
------------------------------- -------------------
------------------------------- -------------------
Zarlink Semiconductor Inc.
CONSOLIDATED BALANCE SHEET DATA
(in millions of U.S. dollars, U.S. GAAP)
(Unaudited)
March 28, Dec. 28, March 30,
2008 2007 2007
--------- -------- ---------
ASSETS
Current assets:
Cash and cash equivalents $42.4 $43.7 $111.3
Short-term investments 0.2 - 3.3
Restricted cash 17.3 15.5 14.6
Trade accounts receivable - net 23.4 24.1 16.3
Other accounts receivable - net 10.0 10.4 6.6
Inventories 28.8 30.3 19.1
Prepaid expenses and other 8.2 5.6 5.4
Deferred tax assets 1.3 1.4 -
Current assets held for sale 3.1 3.1 3.1
--------- -------- ---------
134.7 134.1 179.7
Fixed assets - net 14.7 27.3 21.0
Deferred income tax assets - net 7.5 7.6 4.9
Goodwill 46.9 46.9 3.8
Intangible assets - net 56.5 58.3 1.6
Other assets 3.6 3.6 -
--------- -------- ---------
$263.9 $277.8 $211.0
--------- -------- ---------
--------- -------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $13.3 $12.1 $6.5
Employee-related accruals 12.7 9.7 11.5
Income and other taxes payable 0.4 0.5 4.7
Current portion of provisions for
exit activities 3.5 2.3 0.8
Other accrued liabilities 9.6 7.1 3.2
Deferred credits 0.6 1.3 0.6
Deferred income tax liabilities -
current portion 0.1 0.1 0.1
--------- -------- ---------
40.2 33.1 27.4
Long-term debt - Convertible debentures 77.4 80.6 -
Long-term portion of provisions for
exit activities 0.4 0.5 0.5
Pension liabilities 19.9 16.8 15.9
Deferred income tax liabilities -
long-term portion 0.2 0.3 0.2
Long-term accrued income taxes 10.9 10.4 -
Other long-term liabilities 0.8 0.8 -
--------- -------- ---------
149.8 142.5 44.0
--------- -------- ---------
Redeemable preferred shares, unlimited
shares authorized;
1,148,800 shares issued and
outstanding as at March 28, 2008 14.7 15.0 16.1
--------- -------- ---------
Shareholders' equity:
Common shares, unlimited shares
authorized; no par value;
127,345,682 shares issued and
outstanding as at March 28, 2008 768.5 768.5 768.5
Additional paid-in capital 5.1 4.7 4.3
Deficit (638.4) (618.6) (587.6)
Accumulated other comprehensive loss (35.8) (34.3) (34.3)
--------- -------- ---------
99.4 120.3 150.9
--------- -------- ---------
$263.9 $277.8 $211.0
--------- -------- ---------
--------- -------- ---------
Zarlink Semiconductor Inc.
SUPPLEMENTARY SCHEDULES
(in millions 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
March 28, % of Dec. 28, % of March 30, % of
2008 Total 2007 Total 2007 Total
--------- ----- -------- ----- --------- -----
Europe $15.1 27% $13.9 29% $11.3 35%
Asia - Pacific 26.7 49 21.3 44 9.2 29
Americas 13.0 24 13.4 27 11.5 36
--------- ----- -------- ----- --------- -----
$54.8 100% $48.6 100% $32.0 100%
--------- ----- -------- ----- --------- -----
--------- ----- -------- ----- --------- -----
Year Ended Year Ended
March 28, % of March 30, % of
2008 Total 2007 Total
--------- ----- --------- -----
Europe $53.4 29% $56.0 40%
Asia - Pacific 84.9 46 40.5 28
Americas 45.3 25 46.1 32
--------- ----- --------- -----
$183.6 100% $142.6 100%
--------- ----- --------- -----
--------- ----- --------- -----
Product Group Information:
Revenue, based on product group, was distributed as follows:
Three Months Three Months Three Months
Ended Ended Ended
March 28, % of Dec. 28, % of March 30, % of
2008 Total 2007 Total 2007 Total
--------- ----- -------- ----- --------- -----
Wired Communications $35.8 65% $31.2 64% $14.0 44%
Medical 7.5 14 7.6 16 6.9 22
Optical 4.9 9 3.9 8 3.4 11
Custom & Foundry 6.6 12 5.9 12 7.7 24
--------- ----- -------- ----- --------- -----
$54.8 100% $48.6 100% $32.0 100%
--------- ----- -------- ----- --------- -----
--------- ----- -------- ----- --------- -----
Nine Months Nine Months
Ended Ended
March 28, % of March 30, % of
2008 Total 2007 Total
--------- ----- --------- -----
Wired Communications $115.4 63% $64.5 45%
Medical 28.0 15 28.2 20
Optical 16.0 9 15.3 11
Custom & Foundry 24.2 13 34.6 24
--------- ----- --------- -----
$183.6 100% $142.6 100%
--------- ----- --------- -----
--------- ----- --------- -----
Contacts: Zarlink Semiconductor Inc. Ed Goffin Media Relations
613-270-7112 edward.goffin@zarlink.com Zarlink Semiconductor Inc.
Mike McGinn Investor Relations 613-270-7210 mike.mcginn@zarlink.com
www.zarlink.com
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