The Company is exposed to interest rate risk due to its holdings of interest-bearing marketable securities. It is the Company's policy to invest in securities with a maturity date of 12 months or less and Company practice to hold such securities, when possible, until maturity. A 1% increase (decrease) to the interest rate would result in an approximate $113,000 decrease (increase) in the fair value of the investments held as at the reporting date.
The Company is also exposed to interest rate risk due to its imputed interest on other long-term liabilities.
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet liabilities when due. At January 31, 2009, the Company had $62.2 million of cash and marketable securities and has a secured bank credit facility of $10.0 million, less off balance sheet arrangements as described in Note 24 to the fiscal 2008 Consolidated Financial Statements to meet liabilities when due. The credit facility is collateralized by a general security agreement and contains no covenants.
All of the Company's financial liabilities, except for its "other long-term liabilities" and operating lease for its premises, have contractual maturities of less than 30 days.
The following chart indicates the contractual obligations to which the Company is bound over the following five years.
Payments Due by Period (in thousands of dollars) Less than 1-3 4-5 After 5 Contractual Obligations Total 1 year years years years Operation leases $2,267 $948 $554 $496 $269 Other long-term obligations $65,684 $16,228 $17,310 $13,600 $18,546 ---------------------------------------------------------------------- Total contractual obligations $67,951 $17,176 $17,864 $14,096 $18,815 ----------------------------------------------------------------------Fair Value
The fair values of cash, marketable securities, accounts receivable, accounts payable and accrued liabilities approximates their carrying values due to their short-term maturity. The recorded amounts of long-term monetary liabilities approximate fair value, estimated by discounting expected cash flows at rates currently offered to the Company for debts of the same remaining maturities and conditions.
Fair value of the forward exchange contracts reflects the cash flow due to or from the Company if settlement had taken place on the reporting date.
The fair value of employee and director deferred stock units is determined using the market price of the Company's common stock on the reporting date.
9. Capital Management
The Company's objective is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management defines capital as the Company's shareholder's equity excluding accumulated other comprehensive income.
The Company has certain credit facilities with a Canadian chartered bank, which consist of an operating line, a foreign exchange forward contract facility and standby letters of credit. The Board of Directors does not establish quantitative return on capital criteria for management, but rather promotes year over year sustainable profitable growth. The Board of Directors also reviews on a quarterly basis the level of dividends paid to the Company's shareholders and monitors the share repurchase program activities. There were no changes in the Company's approach to capital management during the period. Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements.
10. Business Segment Information
The Company operates in one business segment as a developer and licensor of semiconductor and telecommunications technologies.
11. International Financial Reporting Standards
The Accounting Standards Board of Canada ("AcSB") plans to converge Canadian GAAP for publicly accountable enterprises with International Financial Reporting Standards ("IFRS") over a transition period that will end effective January 1, 2011 with the adoption of IFRS. The AcSB announced on February 13, 2008 that IFRS will be required in 2011 for publicly accountable profit-oriented enterprises. The changeover date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company will convert to these new standards according to the timetable set with these new rules. The Company is currently in the process of developing a conversion implementation plan and assessing the impacts of the conversion on the consolidated financial statements and disclosures of the Company.
12. Subsequent Event
Subsequent to the quarter-end, the Company entered into a transaction whereby the Company purchased 300 patents related to wired and wireless communications from SercoNet Ltd. for an undisclosed amount. The amount will be paid over the next four months. The Company will also pay SercoNet Ltd. a percentage of net royalties earned from licensing these patents to third parties.
13. Comparative Figures
Certain comparative figures have been reclassified to conform to the financial statement presentation adopted in the current year.
Contacts: MOSAID Technologies Incorporated Investor and Media Inquiries - Michael Salter Director, Investor Relations and Corporate Communications 613-599-9539 x1205 Email Contact