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Zarlink Releases Third Quarter Fiscal 2007 Results
OTTAWA, Jan. 25 /PRNewswire-FirstCall/ - Zarlink Semiconductor Inc.
(NYSE/TSX:ZL) today released results for the Fiscal 2007 third quarter
ended December 29, 2006, prepared in accordance with U.S. Generally
Accepted Accounting Principles (GAAP).
In line with guidance, third quarter revenue was US$34.1 million,
compared with second quarter revenue of US$38.1 million and US$37.4 million
in the third quarter of Fiscal 2006.
Zarlink earned third quarter net income of US$5.6 million or US$0.04
per share. This compares with second quarter Fiscal 2007 net income of
US$6.9 million or US$0.05 per share. In Fiscal 2006 third quarter the
Company recorded a net loss from continuing operations of US$4.8 million or
US$0.04 per share.
As previously announced in the quarter, Zarlink sold its packet
switching product line to Conexant Systems Inc. The sale resulted in a gain
of US$4.1 million, reduced by a charge of US$0.5 million related to idle
space under lease contract for this facility. These two items resulted in
US$0.03 of earnings in the third quarter.
"I am pleased to advise that we met quarterly guidance in what has
proven to be a very challenging market," said Kirk K. Mandy, President and
Chief Executive Officer, Zarlink Semiconductor. "In line with our industry
peers, we expect to see this market slowdown continue into the fourth
quarter. However, as we continue to focus on opportunities in
optoelectronics, network communications, low-power wireless telemetry, and
analog foundry, I am confident that when the semiconductor market rebounds
we are well-positioned for long-term success."
Review of Operations
Gross margin in the third quarter was 50% of revenue, compared with 53%
in the Fiscal 2007 second quarter. Lower gross margin was due primarily to
weaker product mix, as well as severance costs of US$0.3 million. Gross
margin in the third quarter last year was 52%.
R&D expenses in the third quarter were US$7.9 million or 23% of
revenue, compared with US$7.5 million or 20% of revenue in the previous
quarter. Included in the third quarter R&D expenses was severance of US$1.0
million, partially offset by lower spending. R&D expenses were US$9.1
million or 24% of revenue in the Fiscal 2006 third quarter.
S&A expenses in the third quarter were US$8.5 million or 25% of
revenue, compared with S&A expenses of US$9.6 million or 25% of revenue in
the previous quarter. Included in the third quarter S&A expenses was the
reduction of a provision for estimated loss contingencies of US$0.8
million. S&A expenses were US$10.2 million or 27% of revenue in the third
quarter of Fiscal 2006.
During the third quarter, the Company made several important technology
announcements, including:
- The industry's first QSFP (quad small form-factor pluggable) optical
transceiver module for InfiniBand architectures. Combining four ultra-
high capacity transmit/receive channels into one module, Zarlink's
product slashes board space and power demands while simplifying design;
- Analog foundry processes that improve power management performance for
integrated circuits deployed in a range of end-uses, including gaming
consoles, mobile telephones, computers and automotive applications;
- A pseudowire module, developed with Embedded Planet, targeting
low-density applications requiring TDM-over-packet capability,
including customer premise routers, integrated access devices, PON
(passive optical network) equipment, and broadband DLCs (digital loop
carriers);
- Zarlink is leading a UK-based initiative developing an implanted
microgenerator that will harvest human body energy to power implanted
medical devices.
On January 25, 2007, Zarlink Semiconductor declared a quarterly
dividend of CDN$0.50 per share on its preferred shares, payable on March
30, 2007, to preferred shareholders of record as of March 9, 2007.
Fourth quarter Fiscal 2007 guidance
The opening order backlog at the start of the Fiscal 2007 fourth
quarter was US$22 million, compared to the US$23 million opening backlog in
the third quarter. Zarlink is forecasting fourth quarter revenues will be
between US$32 million and US$34 million. As a result, Zarlink expects
fourth quarter earnings will be between a loss of US$0.01 to breakeven.
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: rapid technological developments and
changes; our ability to continue 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; increasing price and product competition; 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. EST. Investors, media and other parties are listen-only. Please
dial 1-800-733-7571 or 613-287-8027. The replay number is 1-877-289-8525
(passcode 21215572#) or 416-640-1917 (passcode 21215572#). The replay is
available until midnight, February 8th, 2007. A live audio webcast will be
available through www.newswire.ca (Canada NewsWire) 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 Nine months ended
------------------------------- --------------------
Dec. 29, Sept. 29, Dec. 23, Dec. 29, Dec. 23,
2006 2006 2005 2006 2005
------------------------------- --------------------
Revenue $ 34.1 $ 38.1 $ 37.4 $ 110.6 $ 105.7
Cost of revenue 17.0 17.8 18.0 50.9 53.9
------------------------------- --------------------
Gross margin 17.1 20.3 19.4 59.7 51.8
------------------------------- --------------------
Expenses:
Research and
development 7.9 7.5 9.1 24.9 28.0
Selling and
administrative 8.5 9.6 10.2 28.1 26.3
Gain on sale of
business (4.1) - - (4.1) (1.9)
Asset impairment
& other 0.5 0.5 5.4 1.0 5.4
------------------------------- --------------------
12.8 17.6 24.7 49.9 (57.8)
------------------------------- --------------------
Operating income
(loss) from
continuing
operations 4.3 2.7 (5.3) 9.8 (6.0)
Interest income 1.6 1.2 0.5 3.9 1.3
Foreign exchange
gain (loss) (0.2) 0.2 - 0.1 1.2
------------------------------- --------------------
Income (loss) from
continuing
operations before
income taxes 5.7 4.1 (4.8) 13.8 (3.5)
Income tax (expense)
recovery (0.1) 2.8 - 2.9 (0.4)
------------------------------- --------------------
Income (loss) from
continuing
operations 5.6 6.9 (4.8) 16.7 (3.9)
Discontinued
operations
- net of tax - - 55.8 - 49.0
------------------------------- --------------------
Net income $ 5.6 $ 6.9 $ 51.0 $ 16.7 $ 45.1
------------------------------- --------------------
Net income
attributable
to common
shareholders $ 5.1 $ 6.3 $ 50.2 $ 14.9 $ 42.9
------------------------------- --------------------
------------------------------- --------------------
Income (loss)
per common share
from continuing
operations:
Basic and diluted $ 0.04 $ 0.05 $ (0.04) $ 0.12 $ (0.05)
------------------------------- --------------------
------------------------------- --------------------
Income per common
share from
discontinued
operations:
Basic and diluted $ - $ - $ 0.43 $ - $ 0.39
------------------------------- --------------------
------------------------------- --------------------
Net income per
common share:
Basic and diluted $ 0.04 $ 0.05 $ 0.39 $ 0.12 $ 0.34
------------------------------- --------------------
------------------------------- --------------------
Weighted average
number of common
shares outstanding
(millions):
Basic 127.3 127.3 127.3 127.3 127.3
------------------------------- --------------------
------------------------------- --------------------
Diluted 127.4 127.4 127.4 127.4 127.3
------------------------------- --------------------
------------------------------- --------------------
Percentage of
revenue:
Gross margin 50% 53% 52% 54% 49%
Research and
development 23% 20% 24% 23% 26%
Selling and
administrative 25% 25% 27% 25% 25%
Zarlink Semiconductor Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS DATA
(in millions of U.S. dollars, U.S. GAAP)
(Unaudited)
Three months ended Nine months ended
------------------------------- --------------------
Dec. 29, Sept. 29, Dec. 23, Dec. 29, Dec. 23,
2006 2006 2005 2006 2005
------------------------------- --------------------
CASH PROVIDED BY (USED IN)
--------------------------
Operating activities:
Income (loss)
from continuing
operations $ 5.6 $ 6.9 $ (4.8) $ 16.7 $ (3.9)
Depreciation 1.2 1.3 1.7 3.9 4.9
Amortization 0.1 0.1 - 0.2 -
Stock compensation
expense 0.3 0.3 - 0.9 -
Other non-cash
changes in
operating
activities (4.1) - - (4.4) (2.9)
Deferred income
taxes 0.2 (1.0) 0.4 (1.0) 0.2
Decrease (increase)
in working capital:
Trade accounts
and other
receivables (3.1) (1.0) 2.2 (6.9) 3.0
Inventories 0.4 1.9 (1.3) 0.3 (0.1)
Prepaid expenses
and other 0.6 (0.1) 2.9 1.0 (2.1)
Payables and
accrued
liabilities 0.7 (0.9) 2.2 (8.2) (6.7)
Deferred credits (0.3) - - (0.3) (0.2)
------------------------------- --------------------
Total 1.6 7.5 3.3 2.2 (7.8)
------------------------------- --------------------
Investing activities:
Acquisition
of business - - - (7.1) -
Purchased
short-term
investments - - (19.6) - (47.7)
Matured
short-term
investments - - - 24.6 67.7
Expenditures for
fixed assets (0.5) (0.8) (0.3) (1.8) (1.0)
Proceeds from
disposal of
fixed assets - - 0.1 0.1 0.5
Proceeds from
repayment of
note receivable - - - - 2.0
Proceeds from
sale of
business - net 4.7 - - 4.7 -
Proceeds from sale
of discontinued
operation - net - - 66.4 - 66.4
------------------------------- --------------------
Total 4.2 (0.8) 46.6 20.5 87.9
------------------------------- --------------------
Financing activities:
Repayment of long
term debt - - - (0.1) -
Payment of
dividends on
preferred shares - (0.6) (0.5) (1.2) (1.6)
Repurchase of
preferred shares - - (0.5) (0.1) (1.3)
Decrease in
restricted cash - - 0.9 1.0 0.7
------------------------------- --------------------
Total - (0.6) (0.1) (0.4) (2.2)
------------------------------- --------------------
Effect of currency
translation on cash 0.1 0.1 (0.3) 0.5 (0.6)
Net cash used in
discontinued
operations from
operating activities - - - - (5.7)
------------------------------- --------------------
Increase in cash and
cash equivalents 5.9 6.2 49.5 22.8 71.6
Cash and cash
equivalents,
beginning of
period 107.6 101.4 41.5 90.7 19.4
------------------------------- --------------------
Cash and cash
equivalents,
end of period $ 113.5 $ 107.6 $ 91.0 $ 113.5 $ 91.0
------------------------------- --------------------
------------------------------- --------------------
Zarlink Semiconductor Inc.
CONSOLIDATED BALANCE SHEET DATA
(in millions of U.S. dollars, U.S. GAAP)
Dec. 29, Sept. 29, March 31,
2006 2006 2006
---------- ---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 113.5 $ 107.6 $ 90.7
Short-term investments - - 24.6
Restricted cash 14.7 13.8 14.0
Trade accounts receivable - net 18.3 17.3 15.6
Other receivables 8.4 6.3 4.2
Inventories 17.3 17.7 17.8
Prepaid expenses and other 6.1 6.6 5.8
Current assets held for sale 3.1 3.7 3.4
---------- ---------- ----------
181.4 173.0 176.1
Fixed assets - net 21.7 22.5 23.2
Deferred income tax assets - net 4.6 4.8 3.6
Goodwill 3.8 3.8 -
Intangible assets 1.7 1.8 -
Other assets 0.3 0.7 1.5
Long-term assets held for sale - 0.1 0.1
---------- ---------- ----------
$ 213.5 $ 206.7 $ 204.5
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 9.0 $ 8.7 $ 7.8
Employee-related accruals 9.9 8.6 9.8
Income and other taxes payable 4.9 4.5 4.3
Current portion of provisions for
exit activities 1.0 1.1 4.4
Other accrued liabilities 3.1 3.8 9.5
Deferred credits 0.4 0.7 0.7
Long-term debt - current portion - - 0.1
Deferred income tax liabilities
- current portion 0.1 0.1 0.1
---------- ---------- ----------
28.4 27.5 36.7
Long-term portion of provisions for
exit activities 0.5 0.6 0.6
Pension liabilities 16.9 16.0 15.2
Deferred income tax liabilities
- long-term portion 0.2 0.2 0.2
---------- ---------- ----------
46.0 44.3 52.7
---------- ---------- ----------
Redeemable preferred shares, unlimited
shares authorized; 1,261,200 shares
issued and outstanding as at
December 29, 2006 16.1 16.1 16.2
---------- ---------- ----------
Shareholders' equity:
Common shares, unlimited shares authorized;
no par value; 127,335,352 shares issued
and outstanding as at December 29, 2006 768.5 768.5 768.5
Additional paid-in capital 3.8 3.5 3.0
Deficit (586.2) (591.3) (601.2)
Accumulated other comprehensive loss (34.7) (34.4) (34.7)
---------- ---------- ----------
151.4 146.3 135.6
---------- ---------- ----------
$ 213.5 $ 206.7 $ 204.5
---------- ---------- ----------
---------- ---------- ----------
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 Three Three
Months Months Months
Ended Ended Ended
Dec. 29, % of Sept. 29, % of Dec. 23, % of
2006 Total 2006 Total 2005 Total
-------- ------ -------- ------ -------- ------
Europe $ 13.3 39% $ 15.9 42% $ 15.0 40%
Asia - Pacific 9.6 28 10.2 27 11.2 30
Americas 11.2 33 12.0 31 11.2 30
-------- ------ -------- ------ -------- ------
$ 34.1 100% $ 38.1 100% $ 37.4 100%
-------- ------ -------- ------ -------- ------
-------- ------ -------- ------ -------- ------
Nine Nine
Months Months
Ended Ended
Dec. 29, % of Dec. 23, % of
2006 Total 2005 Total
-------- ------ -------- ------
Europe $ 44.7 41% $ 39.7 38%
Asia - Pacific 31.3 28 32.6 31
Americas 34.6 31 33.4 31
-------- ------ -------- ------
$ 110.6 100% $ 105.7 100%
-------- ------ -------- ------
-------- ------ -------- ------
SOURCE ZARLINK SEMICONDUCTOR