SR Telecom Reports Fourth Quarter and Year-End Results MONTREAL, March 31 /PRNewswire-FirstCall/ -- SR Telecom Inc. (TSX: SRX, NASDAQ: SRXA) today reported its results for the fourth quarter and fiscal year ended December 31, 2004. "Despite the uncertainty associated with the refinancing issues we are currently dealing with, and the circumstances that caused our fourth quarter revenues to fall short of our original forecasts, we remain encouraged by the business opportunities we see with both new and longstanding customers, and by the interest being generated by our products, particularly the WiMAX-ready symmetry(TM) platform," said Pierre St-Arnaud, SR Telecom's President and Chief Executive Officer. "Further, in spite of disappointing results in the fourth quarter, we have exceeded the objectives of our restructuring initiative by reducing our operating costs by more than one-third on an annualized basis." Consolidated Fourth Quarter Results Consolidated revenues for the fourth quarter of fiscal 2004 totalled $24.8 million, compared to $41.6 million in the fourth quarter of fiscal 2003. The consolidated operating loss for the fourth quarter of fiscal 2004 was $20.9 million, compared to an operating loss of $12.8 million in the same period in 2003. The consolidated net loss for the fourth quarter of 2004 was $41.9 million, compared to a consolidated net loss of $14.2 million in the corresponding period in 2003. "As we explained in January when we revised our guidance, delays in receiving purchase orders from key customers, timing issues related to the delivery of equipment, and the effect of reduced supplier credit resulted in a decrease in overall sales volumes in the fourth quarter of fiscal 2004," said Mr. St-Arnaud. "In turn, our gross margins were also severely impacted by the decreased sales volumes, under-absorbed overhead costs related to lower manufacturing volumes, and variations in sales mix with increased lower margin product sales." Certain one-time events also had a substantial effect on the Corporation's results. Selling, general and administrative expenses in the core wireless business segment decreased to $14.1 million for the fourth quarter of 2004, compared to $18.8 million for the same period in 2003. This decrease was primarily due to the effects of the restructuring that was implemented in the second and third quarters of 2004. However, the benefits of the restructuring were partially offset by a provision of $1.9 million related to an account receivable in the Middle East, by the effect of eliminating the expected sub- lease revenue of $1.6 million on the U.S. operating lease, and by a $0.9 million provision for an offer of settlement of a litigation. Research and development expenses in the core wireless business increased from $6.6 million in the fourth quarter of 2003 to $9.2 million in the fourth quarter of 2004. The increase is solely due to a $4.2 million adjustment to the utilization of the federal investment tax credits as management has determined that there is insufficient evidence of reasonable assurance that this amount will be realized within the remaining life of the investment tax credits. "Excluding the effect of the charges associated with the U.S. operating lease, the federal investment tax credits and the litigation settlement provision, our operating costs have been reduced by approximately 35% on an annualized basis, which was the stated goal of our restructuring initiative," said David Adams, SR Telecom's Senior Vice-President, Finance and Chief Financial Officer. "Further, since the beginning of January we have taken further steps to align our costs with current levels of business activity and have temporarily laid-off a total of 156 employees. We expect that employees will be recalled as production returns to customary levels." During the fourth quarter of 2004 SR Telecom also determined that an increase in the valuation allowance for future income tax assets was appropriate, as a result of the continued losses and the significant uncertainties surrounding the future prospects of the Corporation. Consequently, consolidated income tax expense was $21.9 million in the fourth quarter of 2004 compared to an income tax expense of $1.4 million in the corresponding quarter in 2003. In the beginning of the third quarter of 2003, the Corporation ceased recognizing additional tax loss carry-forward benefits. Consolidated Fiscal 2004 Results Consolidated revenues for fiscal 2004 totalled $123.9 million, compared to $127.9 million reported in fiscal 2003. The consolidated operating loss for fiscal 2004 was $65.8 million, compared to an operating loss of $41.0 million for fiscal 2003. For fiscal 2004, the consolidated net loss totalled $86.1 million, compared to $44.8 million in the prior year. Restructuring, asset impairment and other charges of $15.9 million were recorded in fiscal 2004, compared to restructuring, asset impairment and other charges of $3.7 million in fiscal 2003. The restructuring charges were incurred in order to bring the Corporation's cost structure in line with current and projected revenue levels. Core Wireless Solutions Segment Fourth quarter revenues in SR Telecom's core wireless solutions business were $20.5 million, compared to $38.0 million reported during the same period last year. The net loss for the fourth quarter of fiscal 2004 totalled $35.1 million, compared to $12.2 million in the fourth quarter of fiscal 2003. For fiscal 2004, wireless revenues were $105.4 million, compared to $113.8 million in fiscal 2003, and the net loss in fiscal 2004 reached $77.1 million, compared to $42.3 million in fiscal 2003. Largely due to the increase in the valuation allowance for future income tax assets, the income tax expense was $13.4 million for the fourth quarter of fiscal 2004, compared to an income tax recovery of $128,000 in the corresponding quarter of fiscal 2003. CTR Segment For the fourth quarter of fiscal 2004, CTR's revenues increased to $4.3 million, compared to $3.6 million in the same period last year. For the 2004 fiscal year, revenues reached $18.6 million, compared to $14.1 million in fiscal 2003. In peso terms, net revenue increased in the fourth quarter by 372 million pesos to 2,098 million pesos. The improvement is partially attributable to the increase in access tariffs approved by the Chilean regulator, Subtel, which took effect on March 1, 2004, and to the deployment of new lines in urban areas of Chile. The operating loss for CTR totalled $120,000 in the fourth quarter of fiscal 2004, compared to an operating loss of $2.4 million in the same period last year. For the 2004 fiscal year, CTR's operating loss totalled $86,000, compared to an operating loss of $8.1 million in fiscal 2003. The net loss for the fourth quarter of 2004 from CTR was $6.8 million compared to a net loss of $2.0 million in the corresponding period in 2003. For fiscal 2004, CTR's net loss was $9.0 million, compared to $2.5 million in fiscal 2003. Largely due to the increase in the valuation allowance for future income tax assets, the income tax expense for the fourth quarter of fiscal 2004 was $8.5 million, compared to an income tax expense of $1.6 million in the fourth quarter of fiscal 2003. "We believe that CTR will be able to continue to realize positive EBITDA, and we expect it will generate approximately $7 million of EBITDA in fiscal 2005," said Mr. Adams. Financial Position SR Telecom's consolidated cash and short-term investment position, including restricted cash, decreased to $6.4 million as at December 31, 2004, compared to the $18.7 million reported at December 31, 2003. The decrease in the outstanding cash balance resulted from the repayment of outstanding debt in the amount of $15.5 million in 2004 as well as the use of cash to fund operations in excess of that generated from sales. The Corporation has $71.0 million of debentures that mature on April 22, 2005. "At present, we do not have sufficient cash and cash equivalents, short- term investments, and cash from operations going forward to satisfy our cash requirements," said Mr. Adams. "Accordingly, the Corporation will have to refinance or roll over all or part of its existing debt on or prior to April 22, 2005. SR Telecom is seeking to raise additional working capital in conjunction with its plan to refinance its existing debt. However, if the Corporation is unable to obtain additional working capital to fund operations, its ability to continue as a going concern could be significantly impacted and it may be obliged to seek protection from its creditors." Refinancing Initiative "Genuity Capital Markets and the Corporation are currently engaged in continuing discussions with a restricted group of debenture holders as well as with a possible investor with respect to the potential recapitalization of the Corporation," Mr. Adams stated. "However, there can be no assurance that an agreement can be reached with respect to the recapitalization or that such recapitalization can be concluded on terms satisfactory to the Corporation." Recent Events - On March 21, 2005, SR Telecom announced that it had received follow-on purchase orders for SR500(TM) valued at approximately $4 million from Sonatel, the national telecommunications provider in Senegal. Deliveries are scheduled to commence in the second quarter of 2005. - On February 14, 2005, SR Telecom engaged Genuity Capital Markets to act as financial advisor and investment banker to assist the Corporation in its refinancing activities. - On February 14, 2005, SR Telecom announced it had reached an agreement with the lenders of Comunicacion y Telefonia Rural S.A. (CTR), its service provider subsidiary in Chile. Pursuant to the agreement, CTR's lenders have waived compliance with certain financial and operational covenants contained in CTR's loan documents to March 31, 2005. Subsequently, on March 30, 2005, CTR's lenders agreed to extend the waiver until April 22, 2005. - On January 26, 2005, SR Telecom announced it had taken steps to reduce its costs in order to align them with the current level of business activity and laid-off 127 employees on a temporary basis. The Corporation expects to recall employees as soon as production returns to normal volumes. SR Telecom expects that its results for the first quarter of fiscal 2005 will be impacted by a reduction in the availability of supplier credit, which has slowed raw material purchases and production. - On January 26, 2005, SR Telecom announced follow-on orders for an additional 15 angel(TM) base stations from Siemens for the ongoing Telefonica TRAC project. Telefonica, a leading international telecommunications operator, selected angel over a number of competing technologies for an extensive multi-service Broadband Fixed Wireless Access (BFWA) network, which will ultimately see the deployment of approximately 100,000 lines throughout Spain. The TRAC initiative will deliver high quality voice and high-speed data to suburban and rural areas throughout the country. Deliveries of this current order were completed during the first quarter of fiscal 2005. - On January 26, 2005, SR Telecom announced that its airstar(TM) product was selected by Teleunit S.P.A, a major Italian telecommunications operator, for the deployment of its Broadband Fixed Wireless Access network in the Tuscany region. The total value of the current phase of this project, which marks the first extension of Teleunit's initial roll-out of airstar systems, is approximately $1.2 million. Further expansions of the WLL infrastructure in the Tuscany and Marche regions of Central Italy are expected to take place throughout 2005. - On January 19, 2005, SR Telecom received new orders valued at approximately $1 million from PT Aplikanusa Lintasarta, the largest data and corporate network communications provider in Indonesia. These add-on orders are for a project initiated in September 2003. Lintasarta has selected the airstar wireless broadband solution to provide ATM, frame relay and clear channel services to its customers in the Java, Kalmantan and Sulawesi regions of Indonesia. With these orders, Lintasarta will add airstar base stations and Customer Premises Equipment to its growing network of airstar systems. Deliveries have commenced. - On January 19, 2005, SR Telecom announced the receipt of purchase orders valued at approximately $10 million from a major telecommunications operator in Latin America. These orders are part of a previously announced frame contract under which the operator selected SR500 family of fixed wireless access systems. Deliveries are scheduled to take place in the first half of 2005. - On December 21, 2004, SR Telecom announced that its symmetry Broadband Fixed Wireless Access system was selected by Telecom Fiji Limited, the national service provider in Fiji, as part of a commercial initiative to bring voice and broadband access services to certain areas of the country. Deliveries have commenced. - On December 16, 2004, SR Telecom received new orders valued at approximately $7 million for its swing(TM) fixed wireless access system product from ONATEL (Office Nationale des Telecommunications), a national exchange carrier in Burkina Faso for an urban telecommunication development project. This is the third phase of a network expansion project that was initiated in 2003. Deliveries have commenced. - On December 14, 2004, SR Telecom received follow-on orders from a leading South American telecommunication service provider for its airstar Broadband Fixed Wireless Access system. The orders are part of a previously announced agreement that extends over three years and is valued at approximately US$20 million. To date, SR Telecom has received orders totaling approximately US$2.6 million. - On December 13, 2004, SR Telecom announced an agreement with Telstra, Australia's leading telecommunications and information service provider, which confirms SR Telecom's key supplier relationship with Telstra. As part of the agreement SR Telecom will provide maintenance and support services for Telstra's extensive network of swing fixed wireless access systems. The initial maintenance and support period extends until July 2007 and is valued at approximately $10 million. - On November 22, 2004, SR Telecom announced that its symmetry Broadband Fixed Wireless Access platform was selected by Telmex Argentina for a broadband data and voice network across Argentina. This is the first contract win for symmetry. Deliveries have commenced. - On November 3, 2004, SR Telecom launched the industry's first OFDMA- based WiMAX-ready platform, symmetry. An evolution of SR Telecom's proven angel product technology, symmetry encompasses the key technologies outlined in the latest draft of the 802.16e standard, including OFDMA, diversity, and space-time coding. Additionally, it can be immediately deployed to deliver carrier-class voice and broadband data services. Outlook "Given the uncertainty generated by our current financial situation, we are not in a position to provide guidance for fiscal 2005. However, we remain optimistic about our long-term opportunities in the broadband fixed wireless access marketplace, and our ability to provide WiMAX-certified solutions to that marketplace," Mr. St-Arnaud said. Detailed financial results for SR Telecom's fiscal 2004 are filed with SEDAR and EDGAR and are also available on the Company's website at http://www.srtelecom.com/ . About SR Telecom SR TELECOM (TSX: SRX, Nasdaq: SRXA) designs, manufactures and deploys versatile, Broadband Fixed Wireless Access solutions. For over two decades, carriers have used SR Telecom's products to provide field-proven data and carrier-class voice services to end-users in both urban and remote areas around the globe. SR Telecom's products have helped to connect millions of people throughout the world. A pioneer in the industry, SR Telecom works closely with carriers to ensure that its broadband wireless access solutions directly respond to evolving customer needs. Its turnkey solutions include equipment, network planning, project management, installation and maintenance. SR Telecom is a principal member of WiMAX Forum, a cooperative industry initiative which promotes the deployment of broadband wireless access networks by using a global standard and certifying interoperability of products and technologies. Conference Call SR Telecom will host a conference call on Thursday, March 31, 2005 at 10:00 AM Eastern Standard Time to discuss these results and update investors on operating progress. SR Telecom's President & CEO Pierre St-Arnaud and Senior Vice-President, Finance and CFO David Adams will host the conference call, which will include a question and answer session. Investors, analysts and media wishing to participate in this call may dial (514) 940-2795 (Montreal and overseas) or 1-800-814-4862 (elsewhere in North America) fifteen minutes prior to the start time. For those who are unable to listen to the call live, a replay will be available on Thursday, March 31, 2005 as of 12:00 PM until 11:59 PM on Thuesday, April 5, 2005 at 1 877 289 8525 (passcode 21118678). A live and archived audio webcast of the call will also be available online at: http://www.srtelecom.com/ . FORWARD-LOOKING STATEMENTS Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Company. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Company's products and services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results. SR TELECOM, SR500, ANGEL, AIRSTAR, SWING and SYMMETRY are trademarks of SR Telecom Inc. All rights reserved 2005. All other trademarks are property of their owners.