During fiscal 2008 the Company entered into a sale of its corporate headquarters and then entered into an operating lease for a portion of the office space. Under previous GAAP, the gain on sale has been deferred and was being amortized over the term of the lease. Under IAS 17, "Leases," the gain is recognized immediately because it meets the criteria for immediate recognition. Therefore, the Company transferred the unamortized amount of the gain, previously included in deferred revenue, to retained earnings at the transition date (May 1, 2010). The unamortized amount at May 1, 2010 is $1,039,000 of which $211,000 is current deferred revenue, and $828,000 was long-term, resulting in a $776,000 after tax increase to retained earnings on transition.
For fiscal year end 2011, the amount of the gain transferred from discontinued operations to retained earnings was $160,000.
(b) Share-based payments
Under previous GAAP, the fair value of share-based awards with graded vesting and service conditions was treated as one grant by the Company and the expense was recognized on a straight-line basis over the vesting period. Under IFRS, each tranche of a share-based award with graded vesting is considered a separate grant for the calculation of fair value, and the related expense is recognized on a straight line basis over the vesting period of each tranche of the award.
Under previous GAAP the Company had elected to account for forfeitures as they occurred. Under IFRS, the Company is required to estimate forfeitures as of the date of grant and revise this estimate if subsequent information indicates that actual forfeitures are likely to differ from the estimate.
Under previous GAAP shares granted to employees under the DSU plan were measured using the intrinsic method. Under IFRS the obligations for cash-settled plans are accounted for using the fair value method.
The Company has elected to take the IFRS 1 exemption and not apply IFRS 2 to equity settled awards that were granted on or before November 7, 2002 or those granted after this date that had vested before the date of transition. The Company also did not apply IFRS 2 to cash settled awards that were settled before the date of transition to IFRS.
These differences resulted in a $890,000 after tax decrease in retained earnings, a $701,000 increase in contributed surplus, a $487,000 increase in the DSU liability and a $298,000 increase in deferred income tax asset on May 1, 2010, the date of transition.
For fiscal year end 2011, these differences resulted in a share-based compensation increase of $115,000. As well, DSU expense has also been reclassified from patent licensing and litigation, research and development and general and administration to share-based compensation. For fiscal year end 2011, $298,000 was transferred from patent licensing and litigation, $306,000 was transferred from research and development and $1,359,000 was transferred from general and administration to share-based compensation.
(c) Income tax
Deferred income taxes have been adjusted to reflect the tax effect arising from the differences between IFRS and previous GAAP identified in (a) and (b) above. In addition, IFRS prohibits classifying deferred tax assets and liabilities as current, whereas previous GAAP requires they are classified based on the assets or liabilities to which they relate. Accordingly, on transition to IFRS, all deferred tax assets that had been classified as current under previous GAAP were reclassified to non-current assets.
(d) Income statement reclassifications
Under previous GAAP, the Company recorded income from discontinued operations (net of tax). Under IFRS this amount has been reclassified to general and administration, $87,000 for the year ended April 30, 2011.
Imputed interest has been separated out of the patent amortization and imputed interest line on the income statement.
(e) Other exemptions
Other significant IFRS 1 exemptions taken by the Company at May 1, 2010 include the following:
-- Business combinations entered into prior to May 1, 2010 were not
retrospectively restated under IFRS.
-- Borrowing costs directly attributable to the acquisition or construction
of qualifying assets were not retrospectively restated prior to May 1,
2010.
-- Leases were assessed to determine whether an arrangement contained a
lease under IFRIC 4 based on facts and circumstances existing at the
date of transition. Contracts that were already assessed under previous
GAAP were not reassessed.
(f) Hedge effectiveness
On transition to IFRS the Company changed its method of evaluating hedge effectiveness to the hypothetical derivative method. The Company will use a simulations-based approach in order to demonstrate that reasonably possible changes to the fair value of the hedged item arising from changes in the USD/CAD forward rates will be offset by the changes in the fair value of the hedging instrument. Testing under the new method was performed as of the date of transition, and no adjustments were required.
(g) Reconciliation of cash flows as reported under Previous GAAP and IFRS
There were no significant changes to cash flows for the period ended October 31, 2010. The net earnings, share-based payments, future income tax and investment tax credit and change in non-cash working capital items were modified due to differences between previous GAAP and IFRS identified above.
16. Arrangement Agreement with Sterling Partners
On October 27, 2011, MOSAID announced that it had entered into an Arrangement Agreement with Sterling Partners pursuant to which Sterling will acquire all the outstanding common shares of MOSAID for a cash payment of $46.00 per share.
The transaction will be carried out by way of a statutory Plan of Arrangement, the implementation of which will be subject to approval by at least 66 2/3% of the votes cast at the special meeting of MOSAID shareholders to be held on December 19, 2011. This arrangement transaction also requires the approval of the Ontario Superior Court of Justice.
Pursuant to the terms of the Arrangement Agreement between Sterling and MOSAID, the transaction is also subject to applicable regulatory approvals and the satisfaction of certain closing conditions customary in transactions of this nature. On November 17, 2011, MOSAID announced that an advance ruling certificate was received from the Commissioner of Competition confirming that the Commissioner does not intend to challenge the proposed arrangement under the provisions of the Canadian Competition Act. On November 21, 2011, the Company filed its Premerger Notification and Report Form (HSR Form) with the Bureau of Competition, Federal Trade Commission in the United States.
Assuming the required shareholder and Court approvals are received and all other conditions precedent to closing the transaction are satisfied or waived at the time, MOSAID expects that the arrangement will be effected on or about December 23, 2011.
The Arrangement Agreement provides for, among other things, board support and non-solicitation covenants (subject to the fiduciary obligations of the MOSAID Board and a Sterling "right to match") as well as the payment to Sterling of a break fee equal to $22 million if the proposed transaction is not completed in certain specified circumstances. MOSAID has also agreed to suspend the payment of its quarterly dividend.
The terms and conditions of the transaction are summarized in MOSAID's management information circular, dated November 18, 2011, which is available on SEDAR at www.sedar.com.
Contacts: Michael Salter Senior Director, Investor Relations and Corporate Communications 613-599-9539 x1205 Email Contact
