Exhibit 99.1
| PRESS RELEASE |  |
Leitch Investor Contact: David Toews
Chief Financial Officer
Tel: +1 416-445-9640
Investors@leitch.com
Press Contact: Laura Whitaker
Vice President of Marketing Communications
Leitch Incorporated
Tel: +1 416-445-9640
Laura.Whitaker@leitch.com
www.leitch.com
| February 22, 2005 | FOR IMMEDIATE RELEASE |
LEITCH TECHNOLOGY ANNOUNCES THIRD QUARTER RESULTS
Reports 50% Gross Margin and $0.07 Net Operating Income per Share
TORONTO - Leitch Technology Corporation (TSX: LTV) today announced its financial results for the third quarter ended January 31, 2005. Revenue for the third quarter was $49.7 million, representing a 28% increase from $38.8 million during the same period last year. Revenue for the first nine months of fiscal 2005 was $160.7 million, representing a 43% increase from $112.7 million during the same period last year. Revenue is up in all geographic regions and all product lines in the current quarter compared to the prior year quarter. Key factors in the growth are the continued success of the NEXIOTM server line and the acquisitions of Videotek Inc. and Inscriber Technology Corporation during the first quarter and third quarter respectively. Revenue growth has been adversely impacted by fluctuations in foreign currency exchange rates primarily as a result of the weakening U.S. dollar in relation to the Canadian dollar. Foreign currency fluctuations negatively impacted revenue by $2.1 million, or 5%, in the current quarter compared to the prior year quarter. Year-to-date revenue was negatively impacted by approximately $3.7 million, or 3%, compared to the prior year.
Earnings (loss) before amortization, equity interests adjusted for income taxes and restructuring charges ("Net Operating Income (Loss)" * see definition section below) for the quarter were $2.8 million, or $0.07 per share, compared to a loss of $(4.1) million, or ($0.12) per share, during the same period last year. This is the third consecutive profitable quarter for the Company. The net earnings for the third quarter were $2.2 million, or $0.06 per share, compared to a net loss of $(4.1) million, or $(0.12) per share, during the same period last year. For the nine months ended January 31, 2005, the Net Operating Income (Loss)* was $6.7 million, or $0.18 per share, compared to a loss of $(12.6) million, or ($0.39) per share, during the same period last year. Net earnings for the nine months ending January 31, 2005, were $0.6 million, or $0.02 per share, compared to a net loss of $(15.6) million, or $(0.48) per share, during the same period last year.
Leitch Technology Announces Third Quarter Results - 2
“In the first quarter of this year we reported our first operating profit in two years and last quarter we reported our first net earnings in four years.This quarter we achieved our target of 50% gross margins and are showing positive year-to-date net earnings for the first time since 2001. During this quarter we completed another strategic acquisition and generated solid earnings,” said Tim Thorsteinson, president and CEO of Leitch. “Our year-over-year growth in revenue shows we are gaining market acceptance of our product portfolio. We continue to execute on the strategy we outlined last year and have passed another milestone in that strategy with the 50% gross margins in the current quarter.”
Gross margin for the quarter was $24.8 million or 50% of revenue, compared to $17.4 million or 45% of revenue in the same period of fiscal 2004. This improvement is the result of increased volume over which to spread the fixed manufacturing costs; variations in product mix; the acquisitions of Videotek and Inscriber, both of which have gross margins over 50%; and the result of improved efficiencies from its manufacturing operations, resulting in improved overhead absorption.
“We have focused on improving our gross margins, and are very pleased with the progress made this quarter. Last quarter we reduced our factory costs and added more flexible equipment to help in our strategy, and this quarter we improved margins through a number of initiatives, as well as through the shift in revenues to newer products, which generally have higher gross margins. We continue to be focused on targeting component pricing and low-cost designs,” said Thorsteinson. “We have just added Bob Schonbeck as vice president, worldwide supply chain management. Bob’s mandate will be to continue our cost reduction efforts, as well as to lead any outsourcing initiatives. Bob comes with over 20 years of manufacturing experience, seven of them in our industry.”
Summary highlights from the quarter include:
l | Completing the acquisition of Inscriber, adding software design capabilities and broadcast graphics, content branding and logo generation products to Leitch’s product offering. Inscriber contributed approximately $1.3 million in revenue during the quarter. |
l | Generating $2.8 million of Net Operating Income (as defined) during the quarter, the third consecutive quarter of positive Operating Income, up $6.9 million from the loss of ($4.1) million reported in the prior year period. |
l | Generating net earnings of $2.2 million during the quarter, bringing year-to-date net income to $0.6 million, the first time the Company has shown positive year-to-date net earnings since its fiscal 2001 year. |
l | Achieving gross margins of 50% a quarter ahead of plan |
l | Announcing the high-definition X75TMHD, the next generation, high definition version of the Company’s DPS-575TM frame synchronizer product. |
Leitch Technology Announces Third Quarter Results - 3
* Definitions
It is important to note that Net Operating Income (Loss) is not a measure of performance under Canadian or U.S. GAAP. Net Operating Income (Loss) should not be considered in isolation or as a substitute for net earnings (loss) prepared in accordance with Canadian or U.S. GAAP nor as a measure of operating performance or profitability. Net Operating Income does not have a standardized meaning prescribed by GAAP and is not necessarily comparable to similar measures presented by other companies. The Company uses Net Operating Income (Loss) to remove acquisition and investment in partly owned business-related charges, and restructuring charges, as well as discontinued operations, which the Company views as outside its core operating results. The following table reconciles net earnings (loss) to Net Operating Income (Loss):
Three months ended January 31, | Nine months ended January 31, | ||||||||||||
2005 | 2004 | 2005 | 2004 | ||||||||||
| Net earnings (loss) under Canadian GAAP | 2,223 | (4,114 | ) | 551 | (15,562 | ) | |||||||
| Restructuring / accretion charges | 97 | - | 7,015 | 2,918 | |||||||||
| Amortization of acquired technology | 465 | - | 1,081 | - | |||||||||
| Gain on disposal of partly owned business | - | - | (2,057 | ) | - | ||||||||
| Equity interest in (earnings) losses of partly owned businesses | (17 | ) | (8 | ) | 123 | 1 | |||||||
| Net Operating Income (Loss) | 2,768 | (4,122 | ) | 6,713 | (12,643 | ) | |||||||
Forward Looking Statements
This news release contains forward-looking statements that involve risk and uncertainties. These statements can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “plans,” “continue,” or the negative thereof or other variations thereon or comparable terminology referring to future events or results. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of numerous factors including, without limitation, the timing of acquisitions, restructuring and expansion opportunities, technological change which may impact the Company’s capital expenditures and results of operations, and competitive factors which may alter the timing and amount of the Company’s capital expenditures, any of which could cause actual results to vary materially from current results or the Company’s currently anticipated future results. Additional information concerning factors that could cause actual results to materially differ from those in such forward-looking statements is contained in the Company’s filings with Canadian and United States securities regulatory authorities. The Company wishes to caution readers not to place undue reliance upon such forward-looking statements that speak only as of the date made. The Company assumes no obligation to update the information contained in this press release.
About Leitch Technology
Leitch Technology is a 34-year global leader in the design and distribution of high-performance video systems for the professional television industry. Leitch offers products and systems that enable operations of any size to streamline workflow, achieving a truly Integrated Content Environment for content production, processing, transmission, management and test and measurement. With a sole focus on and commitment to the television industry, Leitch provides premier customer support.
Leitch Technology Announces Third Quarter Results - 4
Supplemental Information:
The chart below shows revenue by product line and geography for the three and nine months ended January 31, 2005, and 2004, as well as the three months ended October 31, 2004:
By Product Line | Three months ended January 31 | Three months ended October 31 | ||||||||||||||||||||
($000s) | 2005 | 2004 | Change | % | 2004 | Change | % | |||||||||||||||
| VP&D | 35,921 | 27,840 | 8,081 | 29 | % | 37,550 | (1,629 | ) | -4 | % | ||||||||||||
| Servers | 8,890 | 6,242 | 2,648 | 42 | % | 14,191 | (5,301 | ) | -37 | % | ||||||||||||
| Digital Media | 4,882 | 4,710 | 172 | 4 | % | 4,064 | 818 | 20 | % | |||||||||||||
Total Revenue | 49,693 | 38,792 | 10,901 | 28 | % | 55,805 | (6,112 | ) | -11 | % | ||||||||||||
By Geography | Three months ended January 31 | Three months ended October 31 | ||||||||||||||||||||
($000s) | 2005 | 2004 | Change | % | 2004 | Change | % | |||||||||||||||
| United States | 20,832 | 15,334 | 5,498 | 36 | % | 21,234 | (402 | ) | -2 | % | ||||||||||||
| Non-US Americas | 5,946 | 5,391 | 555 | 10 | % | 5,997 | (51 | ) | -1 | % | ||||||||||||
| Europe | 12,722 | 8,908 | 3,814 | 43 | % | 16,745 | (4,023 | ) | -24 | % | ||||||||||||
| Pacific Rim | 10,193 | 9,159 | 1,034 | 11 | % | 11,829 | (1,636 | ) | -14 | % | ||||||||||||
Total Revenue | 49,693 | 38,792 | 10,901 | 28 | % | 55,805 | (6,112 | ) | -11 | % | ||||||||||||
By Product Line | Nine months ended January 31 | ||||||||||||
($000s) | 2005 | 2004 | Change | % | |||||||||
| VP&D | 117,122 | 81,460 | 35,662 | 44 | % | ||||||||
| Servers | 31,634 | 18,946 | 12,688 | 67 | % | ||||||||
| Digital Media | 11,984 | 12,322 | (338 | ) | -3 | % | |||||||
Total Revenue | 160,740 | 112,728 | 48,012 | 43 | % | ||||||||
By Geography | Nine months ended January 31 | ||||||||||||
($000s) | 2005 | 2004 | Change | % | |||||||||
| United States | 65,943 | 47,097 | 18,846 | 40 | % | ||||||||
| Non-US Americas | 18,006 | 15,623 | 2,383 | 15 | % | ||||||||
| Europe | 42,053 | 26,215 | 15,838 | 60 | % | ||||||||
| Pacific Rim | 34,738 | 23,793 | 10,945 | 46 | % | ||||||||
Total Revenue | 160,740 | 112,728 | 48,012 | 43 | % | ||||||||
The Company has introduced the new Digital Media segment as a result of combining its previously separately reported post production operation and its graphics business, which was added during the third quarter of fiscal 2005 through the acquisition of Inscriber Technology Corporation. The Company expects its product segments to evolve further in the fourth quarter of 2005, as the synergy between graphics and editing within the Digital Media and Servers segments is realized.
###
Leitch Technology Corporation | ||||||||||
| Consolidated Statements of Earnings | ||||||||||
| (In thousands of Canadian dollars, except share and per share amounts - Unaudited) | ||||||||||
Three months ended | Nine months ended | ||||||||||||
January 31 | January 31 | ||||||||||||
2005 | 2004 | 2005 | 2004 | ||||||||||
| Revenue | $ | 49,693 | $ | 38,792 | $ | 160,740 | $ | 112,728 | |||||
| Cost of goods sold | 24,868 | 21,417 | 85,008 | 62,416 | |||||||||
| Gross margin | 24,825 | 17,375 | 75,732 | 50,312 | |||||||||
| Expenses (income) | |||||||||||||
Selling and administrative expenses | 14,465 | 14,773 | 46,273 | 43,444 | |||||||||
Gross research and development | 8,581 | 7,492 | 25,627 | 24,266 | |||||||||
Investment tax credits | (473 | ) | (703 | ) | (1,556 | ) | (2,251 | ) | |||||
Other charges (note 4) | 97 | - | 7,015 | 2,918 | |||||||||
Investment income, net | (516 | ) | (65 | ) | (1,325 | ) | (261 | ) | |||||
22,154 | 21,497 | 76,034 | 68,116 | ||||||||||
| Earnings (loss) before amortization, equity interest and income taxes | 2,671 | (4,122 | ) | (302 | ) | (17,804 | ) | ||||||
| Amortization of intangible assets | 465 | - | 1,081 | - | |||||||||
| Gain on disposal of partly owned business (note 11) | - | - | (2,057 | ) | - | ||||||||
| Equity interest in losses (earnings) of partly owned businesses | (17 | ) | (8 | ) | 123 | 1 | |||||||
| Earnings (loss) before income taxes | 2,223 | (4,114 | ) | 551 | (17,805 | ) | |||||||
| Income taxes (recovery) | - | - | - | (2,243 | ) | ||||||||
| Net earnings (loss) | $ | 2,223 | $ | (4,114 | ) | $ | 551 | $ | (15,562 | ) | |||
| Earnings (loss) per share: | |||||||||||||
Basic | $ | 0.06 | $ | (0.12 | ) | $ | 0.02 | $ | (0.48 | ) | |||
Diluted | $ | 0.06 | $ | (0.12 | ) | $ | 0.01 | $ | (0.48 | ) | |||
| Weighted average number of shares outstanding (thousands): | |||||||||||||
Basic | 39,223 | 34,570 | 36,322 | 32,438 | |||||||||
Diluted | 40,270 | 34,570 | 37,329 | 32,438 | |||||||||
| % of Revenue | |||||||||||||
| Gross margin | 50 | % | 45 | % | 47 | % | 45 | % | |||||
| Sales and administrative | 29 | % | 38 | % | 29 | % | 39 | % | |||||
| Gross research and development | 17 | % | 19 | % | 16 | % | 22 | % | |||||
| Net earnings (loss) | 4 | % | -11 | % | 0 | % | -14 | % | |||||
| The accompanying notes form an integral part of these consolidated financial statements. |
Leitch Technology Corporation | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| (In thousands of Canadian dollars - Unaudited) |
| Three months | Three months | Nine months | Nine months | ||||||||||
| ended | ended | ended | ended | ||||||||||
| January 31, | January 31, | January 31, | January 31, | ||||||||||
| 2005 | 2004 | 2005 | 2004 | ||||||||||
| Cash flows provided by (used in): | |||||||||||||
| Operating activities: | |||||||||||||
Net earnings (loss) | $ | 2,223 | $ | (4,114 | ) | $ | 551 | $ | (15,562 | ) | |||
Items not involving cash: | |||||||||||||
Depreciation | 2,787 | 3,008 | 8,810 | 8,901 | |||||||||
Future income taxes | 172 | (869 | ) | 851 | (3,701 | ) | |||||||
Stock-based compensation | 377 | - | 963 | - | |||||||||
Amortization of intangible assets | 465 | - | 1,081 | - | |||||||||
Equity interest in (earnings) losses of partly owned businesses | (17 | ) | (8 | ) | 123 | 1 | |||||||
Gain on disposal of partly owned businesses | - | - | (2,057 | ) | - | ||||||||
Loss (gain) on disposal of capital assets | - | (74 | ) | 1,662 | (3 | ) | |||||||
Net change in non-cash balancesrelated to operations (note 10) | (3,192 | ) | (6,304 | ) | (503 | ) | (2,762 | ) | |||||
Cash flows provided by (used in) operating activities | 2,815 | (8,361 | ) | 11,481 | (13,126 | ) | |||||||
| Financing activities: | |||||||||||||
Issuance of capital stock | - | - | 42,714 | 21,546 | |||||||||
Share issue costs | (29 | ) | - | (2,252 | ) | (1,067 | ) | ||||||
Proceeds from exercise of stock options | 229 | - | 540 | - | |||||||||
Repayment of mortgage payable | - | - | (1,692 | ) | - | ||||||||
Other long-term liabilities | (524 | ) | - | 68 | - | ||||||||
Cash flows provided by (used in) financing activities | (324 | ) | - | 39,378 | 20,479 | ||||||||
| Investing activities: | |||||||||||||
Investment in capital assets | (515 | ) | (839 | ) | (2,314 | ) | (1,906 | ) | |||||
Business acquisitions and investments, net of cash acquired | (18,829 | ) | - | (37,599 | ) | - | |||||||
Increase in marketable securities | (19,760 | ) | - | (19,760 | ) | - | |||||||
Proceeds from disposal of shares in partly owned business | - | - | 2,057 | - | |||||||||
Proceeds from disposal of capital assets | 15 | 3,219 | 608 | 3,219 | |||||||||
Cash flows provided by (used in) investing activities | (39,089 | ) | 2,380 | (57,008 | ) | 1,313 | |||||||
| Change in cash balances due to foreign exchange | 250 | 797 | (3,001 | ) | (1,763 | ) | |||||||
| Increase (decrease) in cash and cash equivalents | (36,348 | ) | (5,184 | ) | (9,150 | ) | 6,903 | ||||||
| Cash and cash equivalents, beginning of period | 58,801 | 30,647 | 31,603 | 18,560 | |||||||||
| Cash and cash equivalents, end of period | $ | 22,453 | $ | 25,463 | $ | 22,453 | $ | 25,463 | |||||
| Supplementary cash flow information: | |||||||||||||
Income taxes paid | $ | - | $ | 396 | $ | - | $ | 396 | |||||
Interest paid | 36 | 1 | 66 | 4 | |||||||||
Common shares issued for acquisition | 330 | - | 330 | - |
| The accompanying notes form an integral part of these consolidated financial statements. |
Leitch Technology Corporation | ||||
| Consolidated Balance Sheets | ||||
| (In thousands of Canadian dollars - Unaudited) |
January 31, 2005 | April 30, 2004 | ||||||
| Assets | |||||||
| Current assets: | |||||||
Cash and cash equivalents (note 2) | $ | 22,453 | $ | 31,603 | |||
Marketable securities (note 2) | 19,760 | - | |||||
Accounts receivable | 33,131 | 26,347 | |||||
Inventory | 43,276 | 44,605 | |||||
Future income taxes | 3,074 | 3,085 | |||||
Income taxes recoverable | 1,284 | 481 | |||||
Prepaid expenses and other assets | 6,226 | 6,383 | |||||
129,204 | 112,504 | ||||||
| Capital assets | 36,071 | 34,656 | |||||
| Future income taxes | 24,638 | 27,473 | |||||
| Investments in partly owned businesses | 1,640 | 1,763 | |||||
| Goodwill and intangible assets (note 3) | 30,486 | - | |||||
$ | 222,039 | $ | 176,396 | ||||
| Liabilities and Shareholders' Equity | |||||||
| Current liabilities: | |||||||
Accounts payable and accrued liabilities (note 5) | $ | 33,716 | $ | 26,296 | |||
Income taxes payable | 37 | 19 | |||||
33,753 | 26,315 | ||||||
| Future income taxes | 4,785 | 6,650 | |||||
| Long term liabilities (note 6) | 8,102 | 5,880 | |||||
| Shareholders' equity: | |||||||
Capital stock (note 7) | 276,135 | 234,637 | |||||
Contributed surplus | 911 | 114 | |||||
Cumulative translation account | (7,175 | ) | (2,177 | ) | |||
Deficit | (94,472 | ) | (95,023 | ) | |||
175,399 | 137,551 | ||||||
| $ | 222,039 | $ | 176,396 | ||||
| Key Ratios: | |||||||
| Days sales outstanding | 60 | 57 | |||||
| Inventory turns | 2.30 | 1.90 | |||||
| The accompanying notes form an integral part of these consolidated financial statements. |
Leitch Technology Corporation
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars, except share and per share amounts - Unaudited)
| 1. | SIGNIFICANT ACCOUNTING POLICIES |
| These consolidated financial statements have been prepared in accordance with The Canadian Institute of Chartered Accountants (“CICA”) Standards for interim financial statements. These consolidated financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements except as disclosed herein, however, they do not include all of the disclosure requirements for annual financial statements. For a full description of accounting policies, refer to Leitch Technology Corporation’s (“Leitch” or the “Company”) 2004 Audited Consolidated Annual Financial Statements. | |
| 2. | CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES |
| Cash and cash equivalents are defined as highly liquid investments with original maturities of 90 days or less when purchased. | |
| Included in cash and cash equivalents is $1,650 of cash held in escrow pending the release of seller representations and warranties included in the Inscriber acquisition. These funds are restricted from use for general corporate purposes. | |
| Marketable securities consist of investment-grade, fixed income securities, such as government notes, the maturities of which are more than 90 days from the date of purchase. Marketable securities are recorded at lower of cost and market value. | |
| January 31, 2005 | April 30, 2004 | ||||||||||||
Market value | Carrying value | Market value | Carrying value | ||||||||||
| Government and Crown Corporation Bonds | 17,918 | 17,752 | - | - | |||||||||
| Corporate Certificate of Deposit | 2,035 | 2,008 | - | - | |||||||||
| $ | 19,953 | $ | 19,760 | $ | - | $ | - | ||||||
| 3. | ACQUISITIONS |
| (a) Inscriber Technology Corporation | |
| In January 2005, the Company acquired all the shares of Inscriber Technology Corporation (“Inscriber”). Inscriber provides broadcast graphics, content branding and logo generation software and turnkey systems to the professional video and television broadcast markets. The consideration for the acquisition consisted of $16,170 in cash and 42,581 common shares of Leitch valued at $330, or $7.75 per share. The value of the shares was determined based on the average market price of the shares over the five day period before and five days after the date the terms of the acquisition were agreed to and announced. Acquisition costs of $520 are also included in the cost of the acquisition. The cash consideration is payable as follows: (i) $11,849 on the closing date of January 6, 2005, (ii) $2,985 one year after the closing date (the “One Year Payment”), and (iii) $1,335 two years after the closing date (the “Two Year Payment”). Of the One Year Payment, $1,650 is held in escrow pending the release of seller representations and warranties. The remaining $1,335 One Year Payment and the Two Year Payment are held in escrow with a third party, with no conditions for release. The excess of the purchase price over the fair value of net tangible assets acquired is $15,564, and has been recorded as Goodwill and intangible assets. The preliminary estimate of intangible assets is being amortized over four years, its estimated useful life. |
Leitch Technology Corporation
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars, except share and per share amounts - Unaudited)
| 3. | ACQUISITIONS (Continued) |
| The acquisition has been accounted for using the purchase method and, accordingly, the results of operations are included in the consolidated financial statements from the date of acquisition.The preliminary allocation of the purchase price, based on management’s estimates, is as follows: |
| Net working capital | $ | 189 | ||
| Capital assets | 1,225 | |||
| Other assets | 42 | |||
| Goodwill and intangible assets | 15,564 | |||
| $ | 17,020 | |||
| Consideration comprises: | ||||
| Cash | $ | 14,520 | ||
| Future cash payments | 1,650 | |||
| Issuance of shares (42,581 common shares) | 330 | |||
| Acquisition costs | 520 | |||
| $ | 17,020 |
| (b) Videotek, Inc. | |
| In May, 2004, the Company acquired all the shares of Videotek, Inc. (“Videotek”). Videotek designs, manufactures and distributes innovative hardware and software products that focus on test and measurement equipment, video demodulators, routing switchers, colour correctors and processors and related equipment for the professional video and television broadcast markets. The purchase consideration for the acquisition consisted of cash of $22,478, assumption of debt of $2,056 and acquisition costs of $1,028. The cash consideration is payable as follows: (i) $18,366 on the closing date of May 14, 2004, (ii) $2,741 six months after the closing date and, (iii) $1,371 twelve months after the closing date. Consideration also included a payment of US$2,000 that was to become payable upon the achievement of certain revenue and margin targets as specified in the agreement. During the third quarter of fiscal 2005, the Company waived the condition on the US$2,000 payment, and the payment will be made in May, 2005. Accordingly, goodwill has been increased by $2,484 The excess of the purchase price over the fair value of net tangible assets acquired is $16,003, and has been allocated $5,376 to acquired technology, and $10,627 to goodwill. The acquired technology is being amortized over four years, its estimated useful life. | |
| During fiscal 2005, the Company paid down Videotek’s mortgages by $2,056. | |
| The acquisition has been accounted for using the purchase method and, accordingly, the results of operations are included in the consolidated financial statements from the date of acquisition. |
Leitch Technology Corporation
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars, except share and per share amounts - Unaudited)
| 3. | ACQUISITIONS (Continued) |
| The preliminary allocation of the purchase price, based on management’s estimates, is as follows: |
| Net working capital | $ | 4,367 | ||
| Capital assets | 6,991 | |||
| Other assets | 685 | |||
| Goodwill and intangible assets | 16,003 | |||
| $ | 28,046 | |||
| Consideration comprises: | ||||
| Cash | $ | 21,107 | ||
| Future cash payments | 3,855 | |||
| Assumption of debt | 2,056 | |||
| Acquisition costs | 1,028 | |||
| $ | 28,046 |
| 4. | RESTRUCTURING AND OTHER CHARGES: |
| During the first quarter of fiscal 2005, the Company vacated two floors of the facilities in Toronto and accrued the lease rental costs for the remaining lease term and related asset impairment charges, totalling $5,368. The Company also announced an additional headcount reduction of 34 employees in its Toronto manufacturing operation. Costs associated with this reduction were $1,373. These costs have been recorded in the consolidated statements of earnings as Other charges. | |
| The following table details the activity through the accrued restructuring liability and the non-cash charge: |
| Amounts | |||||||||||||||||||
| Outstanding | Additions to | Accretion to | paid to | Outstanding | Long | ||||||||||||||
| April 30, | January 31, | January 31, | January 31, | January 31, | Term | ||||||||||||||
| 2004 | 2005 | 2005 | 2005 | 2005 | Portion | ||||||||||||||
| Severance | $ | 2,974 | $ | 1,276 | $ | -- | $ | 3,274 | $ | 976 | $ | -- | |||||||
| Lease exit costs | 6,045 | 3,168 | 274 | 1,743 | 7,745 | 5,840 | |||||||||||||
| Other | 148 | 97 | -- | 245 | -- | -- | |||||||||||||
| $ | 9,167 | $ | 4,541 | $ | 274 | $ | 5,261 | $ | 8,721 | $ | 5,840 | ||||||||
| Additions to restructuring liability | $ | 4,541 | |||||||||||||||||
| Non-cash component: | |||||||||||||||||||
Asset write-down | 2,200 | ||||||||||||||||||
Accretion charge | 274 | ||||||||||||||||||
Total other charges | $ | 7,015 | |||||||||||||||||
Leitch Technology Corporation
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars, except share and per share amounts - Unaudited)
| 5. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES: |
| Accounts payable and accrued liabilities are comprised of: |
| January 31, 2005 | April 30, 2004 | ||||||
| Current portion of lease exit costs | $ | 1,905 | $ | 1,010 | |||
| Severance costs from restructuring activities | 976 | 2,974 | |||||
| Deferred gain on sale of building | 175 | 175 | |||||
| Videotek purchase price payable | 3,855 | - | |||||
| Inscriber purchase price payable | 1,650 | ||||||
| Current portion of capital lease | 463 | - | |||||
| Trade accounts payable and accrued liabilities | 24,692 | 22,137 | |||||
$ | 33,716 | $ | 26,296 |
| 6. | LONG TERM LIABILITIES: |
| Long term liabilities are comprised of: |
| January 31, 2005 | April 30, 2004 | ||||||
| Lease exit costs - Bracknell, UK | $ | 4,144 | $ | 5,055 | |||
| Lease exit costs - Ferrand, Toronto, Canada | 1,696 | - | |||||
| Deferred gain on sale of building | 694 | 825 | |||||
| Long term portion of capital lease | 1,568 | - | |||||
$ | 8,102 | $ | 5,880 |
| The capital lease is repayable in monthly instalments of $48 over the first two years, with a balloon payment due after two years equal to $858 and twelve monthly payments of $44 thereafter. The lease is secured by the equipment under lease, and a $636 letter of credit. The effective interest rate of the capital lease is approximately 5.8%. | |
| These long-term liabilities are expected to be relieved as follows: |
| Fiscal year ending April 30 | Lease exit costs | Deferred gain | Capital lease | Total | |||||||||
| 2006 | 1,970 | 175 | 579 | 2,724 | |||||||||
| 2007 | 1,635 | 175 | 1,348 | 3,158 | |||||||||
| 2008 | 1,635 | 175 | 131 | 1,941 | |||||||||
| 2009 | 1,648 | 128 | - | 1,776 | |||||||||
| 2010 | 1,668 | 37 | - | 1,705 | |||||||||
| Thereafter | 1,172 | 135 | - | 1,307 | |||||||||
| 9,728 | 825 | 2,058 | 12,611 | ||||||||||
| Present value adjustment | (2,543 | ) | - | (134 | ) | (2,677 | ) | ||||||
| Total | 7,185 | 825 | 1,924 | 9,934 | |||||||||
Less current portion | (1,832 | ) | |||||||||||
Long-term liabilities | $ | 8,102 | |||||||||||
Leitch Technology Corporation
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars, except share and per share amounts - Unaudited)
| 7. | CAPITAL STOCK: |
| Pursuant to a short form prospectus filed on October 15, 2004, the Company issued 4,250,000 common shares and a further 270,000 common shares through an over allotment option. The price per share for the offering was $9.45, and the net proceeds from the issue was $40,462 (net of share issue costs of $2,252, net of taxes of $nil.) | |
| During the third quarter of fiscal 2005 the Company issued 42,581 common shares as part of the consideration for the acquisition of Inscriber (Note 2). | |
| 8. | STOCK-BASED COMPENSATION: |
| The Company has established a stock option plan to encourage ownership in the Company's shares by directors, officers and employees of the Company and its subsidiaries. Options are granted with an exercise price equal to or greater than the market price of the common shares of the Company at the date of grant, for a term of five years, vesting at 5% per three-month period. | |
| Activity under the Company's stock option plan is summarized as follows: |
| Weighted | ||||||||
| average | ||||||||
| exercise | ||||||||
| price | ||||||||
| Options | per option | |||||||
| Outstanding, April 30, 2004 | 2,007,725 | 13.68 | ||||||
| Granted | 934,500 | 7.15 | ||||||
| Exercised | (24,750 | ) | 6.50 | |||||
| Cancelled | (223,750 | ) | 15.78 | |||||
| Outstanding, July 31, 2004 | 2,693,725 | 11.31 | ||||||
| Granted | 71,000 | 9.44 | ||||||
| Exercised | (20,975 | ) | 7.04 | |||||
| Cancelled | (257,975 | ) | 20.20 | |||||
| Outstanding, October 31, 2004 | 2,485,775 | 10.37 | ||||||
| Granted | 617,500 | 7.81 | ||||||
| Exercised | (25,475 | ) | 9.02 | |||||
| Cancelled | (122,400 | ) | 17.83 | |||||
| Outstanding, January 31, 2005 | 2,955,400 | 9.54 | ||||||
| Exercisable, January 31, 2005 | 1,013,487 | $ | 12.99 |
| The Company applies the fair value method of accounting for stock option awards granted after May 1, 2003 and, accordingly, has recorded compensation expense of $322 in the third quarter of fiscal 2005, and $797 for the nine months ending January 31, 2005. |
Leitch Technology Corporation
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars, except share and per share amounts - Unaudited)
| 8. | STOCK-BASED COMPENSATION (Continued): |
| Prior to May 1, 2003, the Company accounted for its employee stock options using the intrinsic value method and no compensation expense was recorded. CICA Handbook Section 3870, provides that companies also disclose, on a pro forma basis, the net earnings (loss) for the period and earnings (loss) per share had the Company adopted the fair value method for accounting for stock options granted from May 1, 2001 to April 30, 2003. Had compensation expense been determined based on the fair value at the grant dates for these stock options, the Company's results would have been as follows: |
| Three months ended January 31, | Nine months ended January 31, | ||||||||||||
| 2004 | 2005 | 2004 | 2005 | ||||||||||
| Net earnings (loss) as reported | $ | 2,223 | $ | (4,114 | ) | $ | 551 | $ | (15,562 | ) | |||
| Pro forma | 2,108 | (4,359 | ) | (40 | ) | (16,310 | ) | ||||||
| Earnings (loss) per share as reported | |||||||||||||
| Basic | $ | 0.06 | $ | (0.13 | ) | $ | 0.02 | $ | (0.48 | ) | |||
| Diluted | 0.06 | (0.13 | ) | 0.01 | (0.48 | ) | |||||||
| Earnings (loss) per share pro forma | |||||||||||||
| Basic | $ | 0.05 | $ | (0.13 | ) | $ | 0.00 | $ | (0.50 | ) | |||
| Diluted | 0.05 | (0.13 | ) | 0.00 | (0.50 | ) | |||||||
| The fair value of each stock option grant was determined on the date of grant and the estimated fair value of the options is amortized over the vesting period on a straight-line basis. The fair value of the stock options was determined using the Black-Scholes option pricing model, based on the following weighted average assumptions: |
| Three months ended January 31, | Nine months ended January 31, | ||||||||||||
2005 | 2004 | 2005 | 2004 | ||||||||||
| Risk-free interest rate | 3.6 | % | 4.1 | % | 3.5 | % | 4.0 | % | |||||
| Dividend yield | - | - | - | - | |||||||||
| Expected life | 5 years | 5 years | 5 years | 5 years | |||||||||
| Expected volatility | 51.7 | % | 51.6 | % | 49.8 | % | 51.6 | % | |||||
Weighted average grant date fairvalues of options issued: | |||||||||||||
Options granted at estimated marketprice | $ | 3.80 | $ | 2.13 | $ | 3.54 | $ | 2.13 | |||||
Options granted at greater thanestimated market price | - | 2.07 | - | 1.87 | |||||||||
| Because additional stock options are expected to be granted each year, the above pro forma disclosure is not representative of pro forma effects on reported financial results for future periods. |
Leitch Technology Corporation
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars, except share and per share amounts - Unaudited)
| 9. | SEGMENTED INFORMATION |
| For a full description of the Company’s operating segments, reference should be made to Leitch’s 2004 Audited Consolidated Annual Financial Statements. During the current period, the Company realigned its industry segments, creating Digital Media from the combination of the Company’s previous Post Production segment and the recently acquired Inscriber operation. | |
| a) Industry Segments |
Video | ||||||||||||||||
Three months | Processing | |||||||||||||||
ended January 31, 2005 | and Distribution | Servers | Digital Media | Other | Total | |||||||||||
| Revenue | $ | 35,921 | $ | 8,890 | $ | 4,882 | $ | - | $ | 49,693 | ||||||
| Contribution margin | 13,003 | 2,094 | 1,620 | - | 16,717 | |||||||||||
| Selling and administrative | 14,465 | |||||||||||||||
| Other charges | 97 | |||||||||||||||
| Investment income | (516 | ) | ||||||||||||||
| Earnings before amortization, equity interest and income taxes | $ | 2,671 | ||||||||||||||
| Total assets | $ | 134,395 | $ | 23,736 | $ | 25,827 | $ | 38,801 | $ | 222,039 | ||||||
| Capital asset expenditures | 372 | 92 | 51 | - | 515 | |||||||||||
| Goodwill and acquired technology | 15,051 | - | 15,435 | - | 30,486 |
Video | ||||||||||||||||
Three months | Processing | |||||||||||||||
ended January 31, 2005 | and Distribution | Servers | Digital Media | Other | Total | |||||||||||
| Revenue: | $ | 27,840 | $ | 6,242 | $ | 4,710 | $ | - | $ | 38,792 | ||||||
| Contribution margin | 7,109 | 1,382 | 2,095 | - | 10,586 | |||||||||||
| Selling and administrative | 14,773 | |||||||||||||||
| Other charges | - | |||||||||||||||
| Investment income | (65 | ) | ||||||||||||||
| Loss before amortization, equity interest and income taxes | ($4,122 | ) | ||||||||||||||
| Total assets | $ | 87,861 | $ | 39,217 | $ | 37,363 | $ | 21,706 | $ | 186,147 | ||||||
| Capital asset expenditures | 448 | 200 | 191 | - | 839 |
Leitch Technology Corporation
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars, except share and per share amounts - Unaudited)
| 9. | SEGMENTED INFORMATION (Continued) |
| a) Industry Segments (continued) |
Video | ||||||||||||||||
Three months | Processing | |||||||||||||||
ended January 31, 2005 | and Distribution | Servers | Digital Media | Other | Total | |||||||||||
| Revenue | $ | 117,122 | $ | 31,634 | $ | 11,984 | $ | - | $ | 160,740 | ||||||
| Contribution margin | 39,494 | 8,699 | 3,468 | - | 51,661 | |||||||||||
| Selling and administrative | 46,273 | |||||||||||||||
| Other charges | 7,015 | |||||||||||||||
| Investment income | (1,325 | ) | ||||||||||||||
| Loss before amortization, equity interest and income taxes | ($302 | ) | ||||||||||||||
| Total assets | $ | 134,395 | $ | 23,736 | $ | 25,827 | $ | 38,801 | $ | 222,039 | ||||||
| Capital asset expenditures | 3,037 | 1,085 | 346 | - | 4,468 | |||||||||||
| Goodwill and acquired technology | 15,051 | - | 15,435 | - | 30,486 |
Video | ||||||||||||||||
Three months | Processing | |||||||||||||||
ended January 31, 2005 | and Distribution | Servers | Digital Media | Other | Total | |||||||||||
| Revenue: | $ | 81,460 | $ | 18,946 | $ | 12,322 | $ | - | $ | 112,728 | ||||||
| Contribution margin | 20,824 | 3,513 | 3,960 | - | 28,297 | |||||||||||
| Selling and administrative | 43,444 | |||||||||||||||
| Other charges | 2,918 | |||||||||||||||
| Interest income | (261 | ) | ||||||||||||||
| Loss before amortization, equity interest and income taxes | ($17,804 | ) | ||||||||||||||
| Total assets | $ | 87,861 | $ | 39,217 | $ | 37,363 | $ | 21,706 | $ | 186,147 | ||||||
| Capital asset expenditures | 1,232 | 382 | 292 | - | 1,906 |
| b) Geographic Segments |
Nine months ended January 31, 2004 | United States | Europe | Non-U.S. Americas | Pacific Rim | Total | |||||||||||
| Revenue | $ | 20,832 | $ | 12,722 | $ | 5,946 | $ | 10,193 | $ | 49,693 | ||||||
| Identifiable assets | 76,844 | 20,867 | 117,605 | 6,723 | 222,039 | |||||||||||
| Goodwill and acquired technology | 15,051 | - | 15,435 | - | 30,486 |
Nine months ended January 31, 2004 | United States | Europe | Non-U.S. Americas | Pacific Rim | Total | |||||||||||
| Revenue | $ | 15,334 | $ | 8,908 | $ | 5,391 | $ | 9,159 | $ | 38,792 | ||||||
| Identifiable assets | 53,185 | 30,664 | 93,036 | 9,262 | 186,147 | |||||||||||
| Goodwill and acquired technology | - | - | - | - | - |
Leitch Technology Corporation
Notes to the Consolidated Financial Statements
(In thousands of Canadian dollars, except share and per share amounts - Unaudited)
| 9. | SEGMENTED INFORMATION (Continued) |
| b) Geographic Segments (continued) |
Nine months ended January 31, 2004 | United States | Europe | Non-U.S. Americas | Pacific Rim | Total | |||||||||||
| Revenue | $ | 65,943 | $ | 42,053 | $ | 18,006 | $ | 34,738 | $ | 160,740 | ||||||
| Identifiable assets | 76,844 | 20,867 | 117,605 | 6,723 | 222,039 | |||||||||||
| Goodwill and acquired technology | 15,051 | - | 15,435 | - | 30,486 |
Nine months ended January 31, 2004 | United States | Europe | Non-U.S. Americas | Pacific Rim | Total | |||||||||||
| Revenue | $ | 47,097 | $ | 26,215 | $ | 15,623 | $ | 23,793 | $ | 112,728 | ||||||
| Identifiable assets | 53,185 | 30,664 | 93,036 | 9,262 | 186,147 | |||||||||||
| Goodwill and acquired technology | - | - | - | - | - |
| 10. | NET CHANGE IN NON-CASH BALANCES RELATED TO OPERATIONS |
| The net change in non-cash balances related to continuing operations is as follows: |
| Three months ended January 31, | Nine months ended January 31, | ||||||||||||
2005 | 2004 | 2005 | 2004 | ||||||||||
| Accounts receivable | $ | 2,011 | $ | (2,579 | ) | $ | (3,667 | ) | $ | 830 | |||
| Inventory | (1,246 | ) | 1,894 | 6,879 | 262 | ||||||||
| Income taxes | (547 | ) | (123 | ) | (1,125 | ) | 772 | ||||||
| Prepaid expenses and other assets | (574 | ) | (1,314 | ) | 1,137 | (436 | ) | ||||||
| Accounts payable and accrued liabilities | (2,836 | ) | (4,182 | ) | (3,727 | ) | (4,190 | ) | |||||
$ | (3,192 | ) | $ | (6,304 | ) | $ | (503 | ) | $ | (2,762 | ) | ||
| 11. | SALE OF PARTLY OWNED BUSINESS |
| During the first quarter, the Company sold its investment in Path 1 Network Technologies Inc. for net proceeds of $2,057 cash. This investment had been written down to a carrying value of nil during fiscal 2002, therefore the entire proceeds have been recorded as a gain on sale of partly owned business. | |
| 12. | COMPARATIVE FIGURES |
| Certain comparative figures have been reclassified to conform to the current period’s presentation. |