TORONTO, ONTARIO (July 27, 2006) -- Aastra Technologies Limited - (TSX: “AAH”) today announced its unaudited financial results for the second quarter ended June 30, 2006. Net earnings for the three months ended June 30, 2006 were $17.1 million or $0.94 diluted earnings per share compared to $7.0 million or $0.39 diluted earnings per share in the same period last year. Included in the results for this quarter is a gain, net of an estimated income tax effect of $11.6 million, of $17.3 million or $0.96 diluted earnings per share resulting from the sale of the Digital Video group. In addition, with the cash received from the Digital Video sale, one of our U.S. subsidiaries repurchased certain shares issued to its Canadian parent and as a result the Company recorded a foreign exchange loss of $12.9 million. Excluding the impact of the above items, as well the income tax benefit of $5.1 million realized on the foreign exchange loss, pro-forma earnings before income taxes for the second quarter would have been $9.6 million while net earnings after tax for the three months ended June 30, 2006 would have been $7.5 million or $0.41 diluted earnings per share, an increase of 7% over the second quarter of 2005.
Sales for the three months ended June 30, 2006 were $151.3 million compared to net sales of $120.6 million for the same period last year, an increase of approximately 25.5%. The results for the second quarter this year include three months of operations from the DeTeWe Telecommunications Systems business acquired on July 31, 2005. The results of operations for the second quarter of 2006 and 2005 have been adjusted to exclude sales and expenses of the Digital Video group, which are presented separately as discontinued operations in the consolidated financial statements.
Gross margin was 42.4% of sales for the three months ended June 30, 2006, a decrease from a gross margin of 43.6% in the second quarter last year. This mild decrease in gross margins is primarily a result of lower margins realized on the DeTeWe products.
Research and development expenses in the second quarter of 2006 were $14.5 million or 9.6% of sales, compared to $11.4 million or 9.5% of sales in the same quarter of 2005. Selling, general and administrative (“SG&A”) expenses were $37.5 million or 24.8% of sales in the quarter compared to $28.7 million or 23.8% of sales in the second quarter of 2005. The increase in SG&A expenses in the second quarter of 2006 over the second quarter of 2005 resulted from several factors including increased trade show and marketing expenses related to two new product launches in Europe, professional fees and certain employee terminations.
Amortization of capital and intangible assets, excluding tooling, was $3.8 million for the second quarter compared to $4.8 million in the same period last year. Amortization expense decreased in the second quarter of this year as certain capital and intangible assets acquired from Nortel in 2000 and 2001 were fully amortized in the fourth quarter of 2005 and the first quarter of 2006.
The Company recorded investment income of $0.8 million in the second quarter compared to $0.1 million for the second quarter last year as a result of higher average interest rates on larger excess cash and short-term investment cash balances this quarter. The Company recorded a foreign exchange gain from continuing operations of $0.6 million in the second quarter of 2006 compared to a foreign exchange gain of $0.4 million in the same period last year. While the Canadian dollar strengthened against the U.S. dollar during the second quarter, this was more than offset by a decrease in the Canadian dollar against the Euro during the same period.
In addition, as indicated earlier, the Company recorded a foreign exchange loss of $12.9 million as a result of one of the Company’s U.S. subsidiaries repurchasing certain shares that it had issued to the Company, using cash received from the sale of the Digital Video group. Income taxes recovered were $3.0 million in the second quarter. However, excluding the income tax benefit of $5.1 million realized on the foreign exchange loss, income tax expense was $2.1 million or 22% of pre-tax earnings in the second quarter of 2006 compared to an income tax expense of $1.5 million or 18% of pre-tax earnings in the second quarter last year.
During the quarter the Company sold its Digital Video group to Harris Corporation for gross proceeds of $38.3 million (US$34.8 million), subject to certain purchase price adjustment provisions. As previously announced, the sale of the Digital Video group was driven by the Company’s desire to focus its efforts on the Enterprise Communication market. As a result of the sale, management considers the on-going results of its remaining Network Access segment to be immaterial and such operations from this segment will now be included in the respective regional Enterprise Communications segments.
At the end of the second quarter, Aastra had cash, cash equivalent and short-term investment balances of $152 million compared to $102 million at the end of December last year. In addition to the cash inflow from the Digital Video sale, cash flow from operations continued to be solid at $27.7 million in the second quarter of 2006.
About Aastra Technologies Limited
Aastra Technologies Limited (TSX: “AAH”), headquartered in Concord, Ontario, Canada, develops and markets products and systems for accessing communication networks. Aastra’s products include a full range of residential and business telephone terminals, Enterprise Private Branch Exchanges (PBX) and network access servers. Aastra serves the majority of telephone companies and certain broadcasters in North America and Europe. For more information on Aastra, visit our Web site at http://www.aastra.com .
This press release contains forward-looking information or forward-looking statements within the meaning of applicable securities legislation (“forward-looking statements”). Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, potentials, future events or performance (often, but not always, using words or phrases such as “believes”, “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, or “intends” or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken or achieved) are not statements of historical fact, but are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Aastra, or developments in Aastra’s business or in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements may include, but are not limited to: expectations regarding Aastra’s restructuring and integration plans for the DeTeWe Telecommunications Systems business acquired on July 31, 2005. As described in detail under the heading “Risk Factors” in Aastra’s annual information form filed on www.sedar.com, the material factors that could cause our actual results to differ materially from the forward-looking statements in this press release include: integration of Aastra’s recent acquisition of DeTeWe’s telephony business; continued demand for Aastra’s recently-acquired products; Aastra’s reliance on third party manufacturers and component suppliers (in general and related to the recently-acquired business); dependence on key personnel; risks related to expansion of Aastra’s business operations-domestically and internationally; exchange rate fluctuations; risks related to future acquisitions; requirements for additional financing of Aastra’s business; longer credit terms extended to Aastra’s customers; continued implementation of an enterprise resource planning system; potential fluctuations in quarterly financial results; possible volatility to Aastra’s share price; limited range of products that Aastra sells; risks associated with product returns and product defects; Aastra’s ability to protect its intellectual property; Aastra’s potential vulnerability to computer and information systems security breaches; competition from third parties; consolidation and reorganization in the telecommunications industry; rapid technological change; risk of third party claims for infringement of intellectual property rights by others; and risks related to technical standards and the certification our products. The material factors and assumptions that were applied in making the forward-looking statements in this press include: that Aastra will be able to continue with its restructuring and integration plans for the DeTeWe Telecommunications Systems business; and that, after the implementation of the restructuring and integration plans, no further changes will be required in order to return the DeTeWe Telecommunications, to profitability based upon expected revenues.
It is important to note that: unless otherwise indicated, forward-looking statements in this press release describe Aastra’s expectations as of the date of this press release; Aastra cautions readers not to place undue reliance on the forward-looking statements in this press release as actual results may differ materially from expectations if known and unknown risks or uncertainties affect Aastra’s business, or if estimates or assumptions prove inaccurate. Therefore, Aastra cannot provide any assurance that forward-looking statements will materialize and Aastra assumes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or other reason.
For further information contact:
Allan Brett, CFO,
905-760-4160
abrett@aastra.com
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Press Contact
Aastra Technologies Ltd.
155 Snow Blvd.
Concord, Ontario
Canada
L4K 4N9
press@aastra.com
Media Contact:
press@aastra.com
Contact Investor Relations:
investors@aastra.com
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