EX-99.2 3 d210537dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

 

LOGO

 

 

Wi-LAN Inc.

2016 Second Quarter

Unaudited Condensed Consolidated

Financial Results

Interim Report

 

 

 

2016 Second Quarter Financial Results   


LOGO    FINANCIAL STATEMENTS

 

 

 

Wi-LAN Inc.

Condensed Consolidated Statements of Operations and Comprehensive Earnings

(Unaudited)

(in thousands of United States dollars, except share and per share amounts)

 

     Three months
ended
    Three months
ended
     Six months
ended
    Six months
ended
 
     June 30, 2016     June 30, 2015      June 30, 2016     June 30, 2015  

Revenue

   $ 15,961      $ 34,990       $ 46,121      $ 55,400   

Operating expenses

         

Cost of revenue

     16,143        16,131         34,135        35,597   

Research and development

     —          713         —          1,432   

Marketing, general and administration

     2,752        2,212         5,399        4,463   

Foreign exchange (gain) loss

     (114     8         (277     2,294   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     18,781        19,064         39,257        43,786   
  

 

 

   

 

 

    

 

 

   

 

 

 

Earnings (loss) from operations

     (2,820     15,926         6,864        11,614   

Interest income

     120        119         238        241   
  

 

 

   

 

 

    

 

 

   

 

 

 

Earnings (loss) before income taxes

     (2,700     16,045         7,102        11,855   

Provision for (recovery of) income tax expense

         

Current

     837        1,031         3,860        2,034   

Deferred

     (385     4,056         1,474        3,621   
  

 

 

   

 

 

    

 

 

   

 

 

 
     452        5,087         5,334        5,655   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net and comprehensive earnings (loss)

   $ (3,152   $ 10,958       $ 1,768      $ 6,200   
  

 

 

   

 

 

    

 

 

   

 

 

 

Earnings (loss) per share (Note 4)

         

Basic

   $ (0.03   $ 0.09       $ 0.01      $ 0.05   

Diluted

   $ (0.03   $ 0.09       $ 0.01      $ 0.05   

Weighted average number of common shares

         

Basic

     119,255,090        120,747,848         119,768,540        120,610,828   

Diluted

     119,255,090        120,749,618         119,768,540        120,647,995   
  

 

 

   

 

 

    

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

2016 Second Quarter Financial Results    1


LOGO    FINANCIAL STATEMENTS

 

 

 

Wi-LAN Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands of United States dollars)

 

     June 30, 2016     December 31, 2015  

As at

    

Current assets

    

Cash and cash equivalents

   $ 102,518      $ 93,431   

Short-term investments

     1,200        1,120   

Accounts receivable

     7,612        8,436   

Prepaid expenses and deposits

     1,467        1,607   
  

 

 

   

 

 

 
     112,797        104,594   

Loan receivable

     1,625        1,497   

Furniture and equipment, net

     1,427        1,614   

Patents and other intangibles, net

     135,901        155,213   

Deferred tax asset

     16,202        17,677   

Goodwill

     12,623        12,623   
  

 

 

   

 

 

 
   $ 280,575      $ 293,218   
  

 

 

   

 

 

 

Current liabilities

    

Accounts payable and accrued liabilities

   $ 16,727      $ 23,205   

Current portion of patent finance obligation

     7,207        8,085   
  

 

 

   

 

 

 
     23,934        31,290   

Patent finance obligation

     18,407        19,895   

Success fee obligation

     140        655   
  

 

 

   

 

 

 
     42,481        51,840   
  

 

 

   

 

 

 

Commitments and contingencies (Note 6)

    

Shareholders’ equity

    

Capital stock (Note 4)

     421,675        427,781   

Additional paid-in capital

     19,848        16,549   

Accumulated other comprehensive income

     16,225        16,225   

Deficit

     (219,654     (219,177
  

 

 

   

 

 

 
     238,094        241,378   
  

 

 

   

 

 

 
   $ 280,575      $ 293,218   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

2016 Second Quarter Financial Results    2


LOGO    FINANCIAL STATEMENTS

 

 

 

Wi-LAN Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands of United States dollars)

 

     Three months
ended
    Three months
ended
    Six months
ended
    Six months ended  
     June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015  

Cash generated from (used in)

        

Operations

        

Net earnings (loss)

   $ (3,152   $ 10,958      $ 1,768      $ 6,200   

Non-cash items

        

Stock-based compensation

     46        210        154        482   

Depreciation and amortization

     9,956        9,242        20,086        18,230   

Foreign exchange (gain) loss

     (105     (79     (390     674   

Disposal of assets

     —          —          13        —     

Deferred income tax expense (recovery)

     (385     4,056        1,474        3,621   

Accrued investment income

     (64     (55     (128     (110

Change in non-cash working capital balances

        

Accounts receivable

     3,399        (15,512     824        (14,215

Prepaid expenses and deposits

     114        (252     140        (973

Payments associated with success fee obligation

     (877     (971     (1,732     (2,145

Accounts payable and accrued liabilities

     (678     (407     853        (2,212
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash generated from operations

     8,254        7,190        23,062        9,552   
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing

        

Dividends paid

     (1,151     (5,005     (2,242     (10,188

Common shares repurchased under normal course issuer bid

     (852     —          (3,123     (329

Common shares issued for cash on the exercise of options

     11        —          11        1,269   

Common shares issued for cash from Employee Share Purchase Plan

     35        81        35        81   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash used in financing

     (1,957     (4,924     (5,319     (9,167
  

 

 

   

 

 

   

 

 

   

 

 

 

Investing

        

Purchase of furniture and equipment

     (24     (86     (39     —     

Repayment of patent finance obligations

     (1,389     (5,532     (2,777     (114

Purchase of patents

     (3,150     (1,099     (6,150     (13,164
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash used in investing

     (4,563     (6,717     (8,966     (13,278
  

 

 

   

 

 

   

 

 

   

 

 

 

Foreign exchange gain (loss) on cash held in foreign currency

     99        62        310        (579
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash and cash equivalents generated (used) in the period

     1,833        (4,389     9,087        (13,472

Cash and cash equivalents, beginning of period

     100,685        117,228        93,431        126,311   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 102,518      $ 112,839      $ 102,518      $ 112,839   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

2016 Second Quarter Financial Results    3


LOGO    FINANCIAL STATEMENTS

 

 

 

Wi-LAN Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)

(in thousands of United States dollars)

 

     Capital Stock     Additional
Paid-in
Capital
    Accumulated
Other
Comprehensive
Income
     Deficit     Total Equity  

Balance - December 31, 2014

   $ 426,037      $ 16,375      $ 16,225       $ (212,880   $ 245,757   

Comprehensive earnings:

           

Net earnings

     —          —          —           6,200        6,200   

Shares and options issued:

            .     

Stock-based compensation expense

     —          482        —           —          482   

Exercise of stock options

     2,056        (787     —           —          1,269   

Sale of shares under Employee Share Purchase Plan

     81        —          —           —          81   

Shares repurchased under normal course issuer bid (Note 4)

     (443     114        —           —          (329

Dividends declared (Note 4)

     —          —          —           (10,313     (10,313
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance - June 30, 2015

   $ 427,731      $ 16,184      $ 16,225       $ (216,993   $ 243,147   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance - December 31, 2015

   $ 427,781      $ 16,549      $ 16,225       $ (219,177   $ 241,378   

Comprehensive earnings:

           

Net earnings

     —          —          —           1,768        1,768   

Shares and options issued:

           

Stock-based compensation expense

     —          154        —           —          154   

Conversion of deferred stock units to common shares

     116        —          —           —          116   

Exercise of options

     17        (6     —           —          11   

Sale of shares under Employee Share Purchase Plan

     35        —          —           —          35   

Shares repurchased under normal course issuer bid (Note 4)

     (6,274     3,151        —           —          (3,123

Dividends declared (Note 4)

     —          —          —           (2,245     (2,245
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance - June 30, 2016

   $ 421,675      $ 19,848      $ 16,225       $ (219,654   $ 238,094   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

2016 Second Quarter Financial Results    4


LOGO    NOTES

 

 

Wi-LAN Inc.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and six months ended June 30, 2016 and 2015

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

 

 

 

1. NATURE OF BUSINESS

Wi-LAN Inc. (“WiLAN” or the “Company”) is an intellectual property licensing company which develops, acquires, licenses and otherwise enforces a range of patented technologies which are utilized in products in a wide array of markets including communications and consumer electronics, medical, industrial, semiconductor, automotive and aerospace. The Company generates revenue by licensing its patents to companies that sell products utilizing technologies including: Wi-Fi, WiMAX, LTE, CDMA, DSL, DOCSIS, Bluetooth, V-Chip, 3D television, automotive headlight assemblies, semiconductor manufacturing and packaging, medical stent, video streaming, CMOS image sensors, building automation, computer gaming, smart meter monitoring and LED lighting. The Company also generates revenue by licensing patent portfolios on behalf of its partners and, if necessary, the enforcement of their patented technologies.

 

2. BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of WiLAN include the accounts of WiLAN and its subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information, including all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position, operations and cash flows for the interim periods. As the interim financial statements do not contain all the disclosures required in annual financial statements, they should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2015 and the accompanying notes. All inter-company transactions and balances have been eliminated.

 

3. SIGNIFICANT ACCOUNTING POLICIES

These unaudited condensed consolidated financial statements have been prepared following the same accounting policies disclosed in Note 2 of the Company’s audited consolidated financial statements and notes for the year ended December 31, 2015.

In May 2014, the Financial Accounting Standards Board issued ASU 2014-9, “Revenue from Contracts with Customers”. The amendments in this Update create Topic 606, Revenue from Contracts with Customers, and supersede the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, the amendments supersede the cost guidance in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts, and create new Subtopic 340-40, Other Assets and Deferred Costs-Contracts with Customers. In August 2015, the Financial Accounting Standards Board issued ASU No. 2015-14, “Revenue from Contracts with Customers” which reflects decisions reached by the Financial Accounting Standards Board at its meeting earlier in the year to defer the effective date to fiscal years beginning after December 15, 2017, with early adoption permitted. In March 2016, the Financial Accounting Standards Board issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, updating the implementation guidance on principal versus agent considerations in the new revenue recognition standard. This standard clarifies that an entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. The standard also includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customer. This standard has the same effective date as ASU 2014-9. In April 2016, the Financial Accounting Standards Board issued ASU No. 2016-10, which finalized amendments to the guidance in the new revenue standard on identifying performance obligations and accounting for licenses of intellectual property. The amendments address implementation issues that were raised by stakeholders and discussed by the Revenue Recognition Transition Resource Group (“TRG”). The updates are not intended to change the core principles of the standard, however, they attempt to clarify important aspects of the guidance and improve its operability. In May 2016, the Financial Accounting Standards Board issued ASU No. 2016-12, which address certain issues identified by the TRG in the guidance on assessing collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition, the Financial Accounting Standards Board decided to add a project to its technical agenda to improve Topic 606, Revenue from Contracts with Customers, by reducing 1) The potential for diversity in practice at initial application and, 2) The cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The Company is currently assessing the impact Topic 606 and related amendments will have on the Company’s consolidated financial statements.

 

 

 

2016 Second Quarter Financial Results    5


LOGO    NOTES

 

 

Wi-LAN Inc.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and six months ended June 30, 2016 and 2015

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

 

 

 

In February 2016, the Financial Accounting Standards Board issued ASU2016-2, “Leases”. The amendments in this update would require companies and other organizations to include lease obligations in their balance sheets, including a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the ROU asset, and for operating leases, the lessee would recognize a straight-line total lease expense. The guidance is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the impact of this new standard.

In March 2016, the Financial Accounting Standards Board issued ASU 2016-09, “Improvements to Employee Share-Based Payments Accounting”. The amendments in this update address the simplification of several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2016. The Company is currently assessing the impact of this new standard.

 

4. SHARE CAPITAL

The Company paid quarterly cash dividends as follows:

 

     2016      2015  
          Per Share           Total           Per Share           Total  

1st Quarter

   Cdn    $ 0.0125       US    $ 1,091       Cdn    $ 0.0500       US    $ 5,183   

2nd Quarter

        0.0125            1,151            0.0525            5,005   
     

 

 

       

 

 

       

 

 

       

 

 

 
   Cdn    $ 0.0250       US    $ 2,242       Cdn    $ 0.1025       US    $ 10,188   
     

 

 

       

 

 

       

 

 

       

 

 

 

The Company declared quarterly dividends as follows:

 

     2016      2015  

1st Quarter

   Cdn    $ 0.0125       Cdn    $ 0.0525   

2nd Quarter

        0.0125            0.0525   

On February 10, 2016, the Company received regulatory approval to make a normal course issuer bid (“2016 NCIB”) through the facilities of the Toronto Stock Exchange. Under the 2016 NCIB, the Company is permitted to purchase up to 11,762,446 common shares. The NCIB commenced on February 12, 2016 and will expire on February 11, 2017. The Company repurchased 1,770,300 common shares under the NCIB during the six months ended June 30, 2016 for a total of $3,123.

The weighted average number of common shares outstanding used in the basic and diluted earnings per share (“EPS”) computation was:

 

     Three months
ended June 30,
2016
     Three months
ended June 30,
2015
     Six months
ended June 30,
2016
     Six months
ended June 30,
2015
 

Basic weighted average common shares outstanding

     119,255,090         120,747,848         119,768,540         120,610,828   

Effect of options

     —           1,770         —           37,167   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted average common shares outstanding

     119,255,090         120,749,618         119,768,540         120,647,995   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the three and six months ended June 30, 2016, the effect of stock options totaling 6,937,321 were anti-dilutive (three and six months ended June 30, 2015 – 8,425,570 and 8,424,570, respectively).

 

 

 

2016 Second Quarter Financial Results    6


LOGO    NOTES

 

 

Wi-LAN Inc.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and six months ended June 30, 2016 and 2015

(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

 

 

 

5. FINANCIAL INSTRUMENTS

The Company’s loan receivable is a term loan facility which is collateralized by a general security agreement. Management does not expect the borrower to fail to meet its obligations.

Cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities are short-term financial instruments whose carrying value approximates their fair value. The Company minimizes credit risk on cash and cash equivalents and short-term financial instruments by transacting with only reputable financial institutions.

The Company considers the rates used to determine the carrying value of the patent finance obligations and loan receivable to be reflective of current rates and therefore their carrying value approximates their fair value.

 

6. COMMITMENTS AND CONTINGENCIES

In connection with the acquisition of certain patents and patent rights, the Company has agreed to future additional payments to the former owners of the respective patents or patent rights and contingent legal fee arrangements with certain law firms based on future revenues (as defined in the respective agreements) generated as a result of licensing the respective patents or patent portfolios. For the three and six months ended June 30, 2016 partner royalties and contingent legal fees totaled $797 and $2,725, respectively (three and six months ended June 30, 2015 – $121 and $776, respectively). As at June 30, 2016, the amount outstanding for partner royalties and contingent legal fees is $2,563.

 

7. RELATED-PARTY TRANSACTION

Dr. Michel Fattouche, a member of the Company’s Board of Directors, has provided consulting services to the Company. For the three and six months ended June 30, 2016, consulting services were Nil and $8, respectively (three and six months ended June 30, 2015 – $50 and $100, respectively) of which Nil remains outstanding as at June 30, 2016.

 

 

 

2016 Second Quarter Financial Results    7


Wi-LAN Inc.

303 Terry Fox Drive Suite 300

Ottawa, ON Canada

K2K 3J1

 

Tel:   1.613.688.4900
Fax:   1.613.688.4894
  www.wilan.com

 

 

 

2016 Second Quarter Financial Results