**EXHIBIT 1.2**

 

**MANAGEMENT’SSTATEMENT OF RESPONSIBILITIES**

 

The accompanyingconsolidated financial statements have been prepared by management and approvedby the Board of Directors of Sierra Wireless, Inc. The consolidatedfinancial statements were prepared in accordance with accounting principlesgenerally accepted in the United States and, where appropriate, reflectmanagement’s best estimates and judgments. Where alternative accounting methodsexist, management has chosen those methods deemed most appropriate in thecircumstances. Management is responsible for the accuracy, integrity andobjectivity of the consolidated financial statements within reasonable limitsof materiality, and for the consistency of financial data included in the textof the Annual Report with that contained in the consolidated financialstatements.

 

To assist management in the discharge of these responsibilities, theCompany maintains a system of internal controls over financial reporting asdescribed in “Management’s Annual Report on Internal Control Over FinancialReporting” on page 19 of Management’s Discussion and Analysis.

 

The Company’s AuditCommittee is appointed by the Board of Directors annually and is comprisedexclusively of outside, independent directors. The Audit Committee meets withmanagement as well as with the independent auditors to satisfy itself thatmanagement is properly discharging its financial reporting responsibilities andto review the consolidated financial statements and the independent auditors’report. The Audit Committee reports its findings to the Board of Directors forconsideration in approving the consolidated financial statements forpresentation to the shareholders. The Audit Committee considers, for review bythe Board of Directors and approval by the shareholders, the engagement orreappointment of the independent auditors. KPMG LLP have direct access to theAudit Committee of the Board of Directors.

 

The consolidatedfinancial statements have been independently audited by KPMG LLP, Chartered Accountants,on behalf of the shareholders, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States) with respect to theconsolidated financial statements for the year ended December 31, 2009.Their report outlines the nature of their audit and expresses their opinion onthe consolidated financial statements of the Company.

 

 
| /s/ Jason W. Cohenour                 |   | /s/ David G. McLennan   |
|---------------------------------------|--------|-------------------------|
| Jason W. Cohenour                     |   | David G. McLennan       |
| President and Chief Executive Officer |   | Chief Financial Officer |
| February 10, 2010                |   |                    |

 

1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders andBoard of Directors of Sierra Wireless, Inc.

 

We have audited theaccompanying consolidated balance sheets of Sierra Wireless, Inc. (“theCompany”) and subsidiaries as of December 31, 2009 and 2008, and therelated consolidated statements of operations, shareholders’ equity, and cashflows for each of the years in the three-year period ended December 31,2009.  These consolidated financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of the Company and subsidiaries as ofDecember 31, 2009 and 2008, and the results of their operations and theircash flows for each of the years in the three-year period ended December 31,2009, in conformity with United States generally accepted accountingprinciples.

 

We also haveaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the Company’s internal control over financialreporting as of December 31, 2009, based on criteria established inInternal Control - Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO), and our report dated February 10, 2010 expressed an unqualified opinion onthe effectiveness of the Company’s internal control over financial reporting.

 

 
| /s/ KPMG LLP           |   |
|------------------------|--------|
| Chartered Accountants  |   |
| Vancouver, Canada      |   |
| February 10, 2010 |   |

 

2

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REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders andBoard of Directors of Sierra Wireless, Inc.

 

We have audited SierraWireless, Inc.’s (“the Company”) internal control over financial reportingas of December 31, 2009, based on criteriaestablished in *Internal Control - IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO)*.*TheCompany’s management is responsible for maintaining effective internalcontrol over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying *Management’s Annual Report on Internal Control Over FinancialReporting.* Our responsibility is to express an opinion on theCompany’s internal control over financial reporting based on our audit.

 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, and testing and evaluatingthe design and operating effectiveness of internal control based on the assessedrisk. Our audit also included performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonablebasis for our opinion.

 

A company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles.  Acompany’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the company are being made only in accordancewith authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements.  Also, projectionsof any evaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.

 

The Company acquiredWavecom S.A. (“Wavecom”) during 2009, and management excluded from itsassessment of the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2009, Wavecom’s internal controlover financial reporting associated with total assets of $106,172,000 and totalrevenue of $119,607,000 included in the consolidated financial statements ofthe Company as of and for the year ended December 31, 2009.  Our audit of internal control over financialreporting also excluded an evaluation of the internal control over financialreporting of Wavecom.

 

In our opinion, theCompany maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2009, based on criteria established in *Internal Control - Integrated Framework*issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO)*.*

 

We also haveaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidatedbalance sheets of the Company and subsidiaries as of December 31, 2009 and2008, and the related consolidatedstatements of operations, shareholders’ equity and cash flows for each of theyears in the three-year period ended December 31, 2009, and our reportdated February 10, 2010 expressedan unqualified opinion on thoseconsolidated financial statements*.*

 

 
| /s/ KPMG LLP           |   |
|------------------------|--------|
| Chartered Accountants  |   |
| Vancouver, Canada      |   |
| February 10, 2010 |   |

 

3

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**SIERRA WIRELESS, INC.**

**Consolidated Statements ofOperations**

(Expressed in thousands of United States (“U.S.”)dollars, except per share amounts)

(Prepared in accordance with United Statesgenerally accepted accounting principles (“U.S. GAAP”))

 
| ** **                                                      | ** ** | **Years  ended December 31,** | ** ** |
|-----------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                      | ** ** | **2007**                           | ** ** | **2008** | ** ** | **2009** | ** ** |
| Revenue                                                         |       | $                                  | 439,903    |   | $ | 567,308 |   | $ | 526,384 |   |
| Cost of goods sold                                              |       | 316,761                            |       | 410,611 |   | 353,931 |   |
| Gross margin                                                    |       | 123,142                            |       | 156,697 |   | 172,453 |   |
|                                                            |       |                               |       |   |   |   |   |
| Expenses:                                                       |       |                               |       |   |   |   |   |
| Sales and marketing                                             |       | 22,220                             |       | 32,684 |   | 52,804 |   |
| Research and development, net  (note 18)                        |       | 43,048                             |       | 54,060 |   | 80,821 |   |
| Administration                                                  |       | 15,378                             |       | 20,567 |   | 32,990 |   |
| Acquisition costs (note 3(a))                                   |       | —                             |       | — |   | 7,785 |   |
| Restructuring (note 4)                                          |       | —                             |       | — |   | 20,605 |   |
| Integration (note 5)                                            |       | —                             |       | — |   | 3,859 |   |
| Amortization                                                    |       | 3,920                              |       | 4,814 |   | 11,313 |   |
|                                                            |       | 84,566                             |       | 112,125 |   | 210,177 |   |
| Earnings (loss) from  operations                                |       | 38,576                             |       | 44,572 |   | (37,724 | ) |
| Foreign exchange gain (loss)                                    |       | (411                               | )          | 20,583 |   | 1,261 |   |
| Other income (expense)                                          |       | 5,206                              |       | 5,579 |   | (4,399 | ) |
| Earnings (loss) before income  taxes                            |       | 43,371                             |       | 70,734 |   | (40,862 | ) |
| Income tax expense (note 17)                                    |       | 10,912                             |       | 8,151 |   | 340 |   |
| Net earnings (loss)                                             |       | 32,459                             |       | 62,583 |   | (41,202 | ) |
| Net loss attributable to the  non-controlling interest          |       | —                             |       | — |   | (1,303 | ) |
| Net earnings (loss)  attributable to Sierra Wireless, Inc. |       | $                                  | 32,459     |   | $ | 62,583 |   | $ | (39,899 | ) |
|                                                            |       |                               |       |   |   |   |   |
| Earnings (loss) per share  (note 19):                           |       |                               |       |   |   |   |   |
| Basic                                                           |       | $                                  | 1.17       |   | $ | 2.00 |   | $ | (1.29 | ) |
| Diluted                                                         |       | $                                  | 1.16       |   | $ | 2.00 |   | $ | (1.29 | ) |

 

See accompanying notes to consolidated financialstatements.

 

4

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**SIERRA WIRELESS, INC.**

**Consolidated Balance Sheets**

(Expressed in thousands of U.S. dollars, exceptnumber of shares)

(Prepared in accordance with U.S. GAAP)

 
| ** **                                                                                   | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                   | ** ** | **2008**              | ** ** | **2009** | ** ** |
| **Assets**                                                                                   |       |                  |       |   |   |
| Current assets:                                                                              |       |                  |       |   |   |
| Cash and cash equivalents                                                                    |       | $                     | 63,258     |   | $ | 107,491 |   |
| Restricted cash (note 16)                                                                    |       | 191,473               |       | — |   |
| Short-term investments (note  6)                                                             |       | 18,003                |       | 26,898 |   |
| Accounts receivable, net of  allowance for doubtful  accounts of $6,504 (2008 — $1,989) |       | 67,058                |       | 86,466 |   |
| Inventories (note 7)                                                                         |       | 33,031                |       | 24,708 |   |
| Deferred income taxes (note  17)                                                             |       | 5,565                 |       | 6,168 |   |
| Prepaid expenses and other                                                                   |       | 6,233                 |       | 14,039 |   |
|                                                                                         |       | 384,621               |       | 265,770 |   |
|                                                                                         |       |                  |       |   |   |
| Fixed assets (note 8)                                                                        |       | 22,935                |       | 27,956 |   |
| Intangible assets (note 9)                                                                   |       | 15,291                |       | 86,674 |   |
| Goodwill (note 9)                                                                            |       | 33,013                |       | 95,064 |   |
| Deferred income taxes (note  17)                                                             |       | 2,296                 |       | 1,794 |   |
| Other assets (note 10)                                                                       |       | 4,230                 |       | 7,261 |   |
|                                                                                         |       | $                     | 462,386    |   | $ | 484,519 |   |
| ** **                                                                                   |       |                  |       |   |   |
| **Liabilities and Shareholders’  Equity**                                               |       |                  |       |   |   |
| Current liabilities:                                                                         |       |                  |       |   |   |
| Accounts payable                                                                             |       | $                     | 38,631     |   | $ | 71,035 |   |
| Accrued liabilities                                                                          |       | 47,568                |       | 54,419 |   |
| Deferred revenue and credits                                                                 |       | 683                   |       | 750 |   |
| Current portion of long-term  liabilities (note 11)                                          |       | 193                   |       | 3,371 |   |
| Current portion of obligations  under capital leases (note 12)                               |       | —                |       | 293 |   |
|                                                                                         |       | 87,075                |       | 129,868 |   |
|                                                                                         |       |                  |       |   |   |
| Long-term liabilities (note  11)                                                             |       | 316                   |       | 3,197 |   |
| Obligations under capital  leases (note 12)                                                  |       | —                |       | 245 |   |
| Other long-term liabilities  (note 11)                                                       |       | 14,789                |       | 32,663 |   |
| Deferred income taxes (note  17)                                                             |       | 2,758                 |       | 1,950 |   |
|                                                                                         |       |                  |       |   |   |
| Shareholders’ equity:                                                                   |       |                  |       |   |   |
| Share capital (note 13)                                                                      |       |                  |       |   |   |
| Authorized                                                                                   |       |                  |       |   |   |
| Unlimited number of common and  preference shares with no par value                          |       |                  |       |   |   |
| Common shares, 31,048,907 (2008 — 31,031,954) issued  and outstanding                   |       | 325,893               |       | 326,043 |   |
| Treasury shares, at cost 1,086,652  (2008 — 121,022)                                    |       | (1,487                | )          | (6,442 | ) |
| Additional paid-in capital                                                                   |       | 12,518                |       | 13,133 |   |
| Retained earnings (deficit)                                                                  |       | 21,273                |       | (18,626 | ) |
| Accumulated other  comprehensive loss                                                        |       | (749                  | )          | (37 | ) |
|                                                                                         |       | 357,448               |       | 314,071 |   |
| Non-controlling interest in  Wavecom S.A.                                                    |       | —                |       | 2,525 |   |
| Total shareholders’ equity                                                              |       | 357,448               |       | 316,596 |   |
|                                                                                         |       | $                     | 462,386    |   | $ | 484,519 |   |

 

Commitmentsand contingencies (note 20)

Seeaccompanying notes to consolidated financial statements.

 
|   | /s/ Jason W. Cohenour |   | /s/ S. Jane Rowe |
|--------|-----------------------|--------|------------------|
|   | JASON W. COHENOUR     |   | S. JANE ROWE     |
|   | Director              |   | Director         |

 

5

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**SIERRA WIRELESS, INC.**

**Consolidated Statements ofShareholders’ Equity**

(Expressed in thousands of U.S. dollars, exceptnumber of shares)

(Prepared in accordance with U.S. GAAP)

 
| ** **                                                              | ** ** | **Common Shares** | ** ** | **Treasury Shares** | ** ** | **Additional  Paid-in** | ** ** | **Warrants** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income** | ** ** | **Non-   controlling** | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------------|------------|------------------------|------------|--------------------------|------------|-------------------------|------------|--------------|------------|------------------------|------------|-----------------------------------------------|------------|-----------------------------|------------|---------------|------------|
| ** **                                                              | ** ** | **Number**             | ** ** | **Amount**               | ** ** | **Number**              | ** ** | **Amount**   | ** ** | **Capital**            | ** ** | **Number**                                    | ** ** | **Amount**                  | ** ** | **(Deficit)** | ** ** | **(Loss)** | ** ** | **Interest** | ** ** | **Total** | ** ** |
| Balance December 31, 2006                                          |       | 25,708,331             |       | $                        | 221,861    | ** **              | **—** | ** **   | **—** |                   | $          | 3,240                                         |       | 138,696                     |       | $             | 1,538      |   | $ | (73,061 | ) | $ | (746 | ) | **—** |   | $ | 152,832 |   |
| Net income                                                              | ** ** | **—**             | ** ** | **—**               | ** ** | **—**              | ** ** | **—**   | ** ** | **—**             | ** ** | **—**                                    | ** ** | **—**                  |       | 32,459        | ** ** | **—** | ** ** | **—** |   | 32,459 |   |
| Net unrealized gain (loss) on short-term  investments                   | ** ** | **—**             | ** ** | **—**               | ** ** | **—**              | ** ** | **—**   | ** ** | **—**             | ** ** | **—**                                    | ** ** | **—**                  | ** ** | **—**    |       | 419 | ** ** | **—** |   | 419 |   |
| Reclassification adjustment for realized losses  (gains) on investments | ** ** | **—**             | ** ** | **—**               | ** ** | **—**              | ** ** | **—**   | ** ** | **—**             | ** ** | **—**                                    | ** ** | **—**                  | ** ** | **—**    |       | 18 | ** ** | **—** |   | 18 |   |
| Comprehensive income                                                    |       |                   |       |                     |       |                    |       |         |       |                   |       |                                          |       |                        |       |          |       |   |   |   |   | 32,896 |   |
| Issued for acquisition (note 3(b))                                      |       | 1,309,880              |       | 17,597                   | ** ** | **—**              | ** ** | **—**   | ** ** | **—**             | ** ** | **—**                                    | ** ** | **—**                  | ** ** | **—**    | ** ** | **—** | ** ** | **—** |   | 17,597 |   |
| Issued for cash (note 13)                                               |       | 3,800,000              |       | 85,120                   | ** ** | **—**              | ** ** | **—**   | ** ** | **—**             | ** ** | **—**                                    | ** ** | **—**                  | ** ** | **—**    | ** ** | **—** | ** ** | **—** |   | 85,120 |   |
| Share issue costs (note 13)                                             | ** ** | **—**             |       | (4,194                   | )          | **—**              | ** ** | **—**   | ** ** | **—**             | ** ** | **—**                                    | ** ** | **—**                  | ** ** | **—**    | ** ** | **—** | ** ** | **—** |   | (4,194 | ) |
| Stock option tax benefit related to U.S. employees                      | ** ** | **—**             | ** ** | **—**               | ** ** | **—**              | ** ** | **—**   |       | 1,292                  | ** ** | **—**                                    | ** ** | **—**                  | ** ** | **—**    | ** ** | **—** | ** ** | **—** |   | 1,292 |   |
| Stock option exercises (note 13)                                        |       | 516,406                |       | 7,939                    | ** ** | **—**              | ** ** | **—**   |       | (3,340                 | )          | **—**                                    | ** ** | **—**                  | ** ** | **—**    | ** ** | **—** | ** ** | **—** |   | 4,599 |   |
| Stock-based compensation (note 14)                                      |       | —                 |       | —                   |       | —                  |       | —       |       | 5,182                  |       | —                                        |       | —                      |       | —        |       | — |   | — |   | 5,182 |   |
| Balance December 31, 2007                                          |       | 31,334,617             |       | 328,323                  | ** ** | **—**              | ** ** | **—**   |       | 6,374                  |       | 138,696                                       |       | 1,538                       |       | (40,602       | )          | (309 | ) | **—** |   | 295,324 |   |
| Net income                                                              | ** ** | **—**             | ** ** | **—**               | ** ** | **—**              | ** ** | **—**   | ** ** | **—**             | ** ** | **—**                                    | ** ** | **—**                  |       | 62,583        | ** ** | **—** | ** ** | **—** |   | 62,583 |   |
| Net unrealized gain (loss) on short-term  investments                   | ** ** | **—**             | ** ** | **—**               | ** ** | **—**              | ** ** | **—**   | ** ** | **—**             | ** ** | **—**                                    | ** ** | **—**                  | ** ** | **—**    |       | (21 | ) | **—** |   | (21 | ) |
| Reclassification adjustment for realized losses  (gains) on investments | ** ** | **—**             | ** ** | **—**               | ** ** | **—**              | ** ** | **—**   | ** ** | **—**             | ** ** | **—**                                    | ** ** | **—**                  | ** ** | **—**    |       | (419 | ) | **—** |   | (419 | ) |
| Comprehensive income                                                    |       |                   |       |                     |       |                    |       |         |       |                   |       |                                          |       |                        |       |          |       |   |   |   |   | 62,143 |   |
| Common share cancellation (note 13)                                     |       | (407,700               | )          | (4,274                   | )          | **—**              | ** ** | **—**   | ** ** | **—**             | ** ** | **—**                                    | ** ** | **—**                  |       | (708          | )          | **—** | ** ** | **—** |   | (4,982 | ) |
| Purchase of treasury shares for RSU distribution                        | ** ** | **—**             | ** ** | **—**               |       | 174,508                 |       | (2,498       | )          | **—**             | ** ** | **—**                                    | ** ** | **—**                  | ** ** | **—**    | ** ** | **—** | ** ** | **—** |   | (2,498 | ) |
|                                                                         |            |                        |            |                          |            |                         |            |              |            |                        |            |                                               |            |                             |            |               |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

6

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| ** **                                                              | ** ** | **Common  Shares** | ** ** | **Treasury  Shares** | ** ** | **Additional  Paid-in** | ** ** | **Warrants** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other   Comprehensive  Income** | ** ** | **Non-  controlling** | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|-------------------------|------------|--------------|------------|------------------------|------------|------------------------------------------------|------------|-----------------------|------------|---------------|------------|
| ** **                                                              | ** ** | **Number**         | ** ** | **Amount**           | ** ** | **Number**              | ** ** | **Amount**   | ** ** | **Capital**            | ** ** | **Number**                                     | ** ** | **Amount**            | ** ** | **(Deficit)** | ** ** | **(Loss)** | ** ** | **Interest** | ** ** | **Total** | ** ** |
| Distribution of vested RSUs                                             | ** ** | **—**         | ** ** | **—**           |       | (53,486                 | )          | 1,011        |       | (1,011                 | )          | **—**                                     | ** ** | **—**            | ** ** | **—**    | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** |
| Expiry of warrants (note 20(b)(iv))                                     | ** ** | **—**         | ** ** | **—**           | ** ** | **—**              | ** ** | **—**   |       | 1,538                  |       | (138,696                                       | )          | (1,538                | )          | **—**    | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** |
| Stock option tax benefit related to U.S. employees                      | ** ** | **—**         | ** ** | **—**           | ** ** | **—**              | ** ** | **—**   |       | 57                     | ** ** | **—**                                     | ** ** | **—**            | ** ** | **—**    | ** ** | **—** | ** ** | **—** |   | 57 |   |
| Stock option exercises (note 13)                                        |       | 105,037            |       | 1,844                | ** ** | **—**              | ** ** | **—**   |       | (821                   | )          | **—**                                     | ** ** | **—**            | ** ** | **—**    | ** ** | **—** | ** ** | **—** |   | 1,023 |   |
| Stock-based compensation (note 14)                                      |       | —             |       | —               |       | —                  |       | —       |       | 6,381                  |       | —                                         |       | —                |       | —        |       | — |   | — |   | 6,381 |   |
|                                                                    |       |               |       |                 |       |                    |       |         |       |                   |       |                                           |       |                  |       |          |       |   |   |   |   |   |   |
| Balance December 31, 2008                                          |       | 31,031,954         |       | 325,893              |       | 121,022                 |       | (1,487       | )          | 12,518                 | ** ** | **—**                                     | ** ** | **—**            |       | 21,273        |       | (749 | ) | **—** |   | 357,448 |   |
| Acquisition of non-controlling interest (note  3(a))                    |       | —             |       | —               |       | —                  |       | —       |       | —                 |       | —                                         |       | —                | ** ** | **—**    |       | — |   | 13,357 |   | 13,357 |   |
| Exercise of Wavecom S.A. stock options                                  |       | —             |       | —               |       | —                  |       | —       |       | (2,751                 | )          | —                                         |       | —                | ** ** | **—**    |       | 166 |   | 6,733 |   | 4,148 |   |
| Subsequent tender offer and squeeze-out of Wavecom  S.A. (note 3(a))    |       | —             |       | —               |       | —                  |       | —       |       | (1,647                 | )          | —                                         |       | —                | ** ** | **—**    |       | (93 | ) | (17,829 | ) | (19,569 | ) |
| Issuance of Wavecom S.A. free shares                                    |       | —             |       | —               |       | —                  |       | —       |       | (1,568                 | )          | —                                         |       | —                | ** ** | **—**    |       | 31 |   | 1,537 |   | — |   |
| Comprehensive income (loss):                                            |       |               |       |                 |       |                    |       |         |       |                   |       |                                           |       |                  | ** ** | ** **    |       |   | ** ** | ** ** |   |   |   |
| Net loss                                                                |       | —             |       | —               |       | —                  |       | —       |       | —                 |       | —                                         |       | —                |       | (39,899       | )          | — |   | (1,303 | ) | (41,202 | ) |
| Other comprehensive income (loss):                                      | ** ** | ** **         | ** ** | ** **           | ** ** | ** **              | ** ** | ** **   | ** ** | ** **             | ** ** | ** **                                     | ** ** | ** **            | ** ** | ** **    |       |   | ** ** | ** ** |   |   |   |
| Reclassification adjustment for realized losses  (gains) on investments |       | —             |       | —               |       | —                  |       | —       |       | —                 |       | —                                         |       | —                |       | —        |       | 21 |   | — |   | 21 |   |
| Foreign currency translation                                            | ** ** | **—**         | ** ** | **—**           | ** ** | **—**              | ** ** | **—**   | ** ** | **—**             | ** ** | **—**                                     | ** ** | **—**            | ** ** | **—**    |       | 587 |   | 30 |   | 617 |   |
| Comprehensive loss                                                      |       |               |       |                 |       |                    |       |         |       |                   |       |                                           |       |                  |       |          |       |   |   |   |   | (40,564 | ) |
| Purchase of treasury shares for RSU distribution                        |       | —             |       | —               |       | 1,141,388               |       | (6,417       | )          | —                 |       | —                                         |       | —                |       | —        |       | — |   | — |   | (6,417 | ) |

 

7

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| ** **                         | ** ** | **Common  Shares** | ** ** | **Treasury  Shares** | ** ** | **Additional  Paid-in** | ** ** | **Warrants** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income** | ** ** | **Non-    controlling** | ** ** | ** **    | ** ** |
|------------------------------------|------------|--------------------|------------|----------------------|------------|-------------------------|------------|--------------|------------|------------------------|------------|-----------------------------------------------|------------|-------------------------|------------|---------------|------------|
| ** **                         | ** ** | **Number**         | ** ** | **Amount**           | ** ** | **Number**              | ** ** | **Amount**   | ** ** | **Capital**            | ** ** | **Number**                                    | ** ** | **Amount**              | ** ** | **(Deficit)** | ** ** | **(Loss)** | ** ** | **Interest** | ** ** | **Total** | ** ** |
| Distribution of vested RSUs        |       | —             |       | —               |       | (175,758                | )          | 1,462        |       | (1,462                 | )          | —                                        |       | —                  |       | —        |       | — |   | — |   | — |   |
| Stock option exercises (note 13)   |       | 16,953             |       | 150                  |       | —                  |       | —       |       | (54                    | )          | —                                        |       | —                  |       | —        |       | — |   | — |   | 96 |   |
| Stock-based compensation (note 14) |       | —             |       | —               |       | —                  |       | —       |       | 8,097                  |       | —                                        |       | —                  |       | —        |       | — |   | — |   | 8,097 |   |
|                               |       |               |       |                 |       |                    |       |         |       |                   |       |                                          |       |                    |       |          |       |   |   |   |   |   |   |
| Balance  December 31, 2009    |       | 31,048,907         |       | $                    | 326,043    |                    | 1,086,652  |         | $          | (6,442                 | )          | $                                             | 13,133     |                    | —     |          | $          | — |   | $ | (18,626 | ) | $ | (37 | ) | $ | 2,525 |   | $ | 316,596 |   |
|                                    |            |                    |            |                      |            |                         |            |              |            |                        |            |                                               |            |                         |            |               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

See accompanying notes to consolidated financialstatements.

 

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**SIERRA WIRELESS, INC.**

**ConsolidatedStatements of Cash Flows**

(Expressed in thousands of U.S. dollars)

(Prepared in accordance with U.S. GAAP)

 
| ** **                                                                                  | ** ** | **Years  ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                  | ** ** | **2007**                           | ** ** | **2008** | ** ** | **2009** | ** ** |
| Cash flows from operating  activities:                                                      |       |                               |       |   |   |   |   |
| Net earnings (loss)                                                                         |       | $                                  | 32,459     |   | $ | 62,583 |   | $ | (41,202 | ) |
| Adjustments to reconcile net  earnings (loss) to  net cash provided by operating activities |       |                               |       |   |   |   |   |
| Amortization                                                                                |       | 13,791                             |       | 16,309 |   | 32,704 |   |
| Stock-based compensation (note  14)                                                         |       | 5,182                              |       | 6,381 |   | 8,097 |   |
| Non-cash restructuring and  other                                                           |       | —                             |       | — |   | 5,911 |   |
| Tax benefit related to stock  option deduction                                              |       | 1,292                              |       | 57 |   | — |   |
| Utilization of pre-acquisition  tax losses                                                  |       | 802                                |       | — |   | — |   |
| Deferred income tax                                                                         |       | 178                                |       | (3,842 | ) | 282 |   |
| Loss (gain) on disposal                                                                     |       | (13                                | )          | 377 |   | 204 |   |
| Gain on sale of investments                                                                 |       | —                             |       | (565 | ) | — |   |
| Unrealized foreign exchange  loss (gain) on restricted cash                                 |       | —                             |       | (18,416 | ) | 15,653 |   |
| Unrealized foreign exchange  loss on term loan (note 16(c))                                 |       | —                             |       | — |   | 1,215 |   |
| Changes in operating assets  and liabilities                                                |       |                               |       |   |   |   |   |
| Accounts receivable                                                                         |       | (21,067                            | )          | 14,759 |   | 20,175 |   |
| Inventories                                                                                 |       | (2,493                             | )          | (8,043 | ) | 15,676 |   |
| Prepaid expenses and other  assets                                                          |       | (4,212                             | )          | 248 |   | 3,888 |   |
| Accounts payable                                                                            |       | 11,347                             |       | 7,468 |   | (1,301 | ) |
| Accrued liabilities                                                                         |       | 11,816                             |       | 8,668 |   | (12,793 | ) |
| Deferred revenue and credits                                                                |       | (244                               | )          | 149 |   | (810 | ) |
| Net cash provided by operating  activities                                                  |       | 48,838                             |       | 86,133 |   | 47,699 |   |
|                                                                                        |       |                               |       |   |   |   |   |
| Cash flows from investing  activities:                                                      |       |                               |       |   |   |   |   |
| Business acquisitions, net of  cash acquired of $139,785 (note 3)                           |       | (12,093                            | )          | (35 | ) | (26,493 | ) |
| Acquisition of OCEANE  convertible bonds (note 3)                                           |       | —                             |       | — |   | (104,767 | ) |
| Decrease (increase) in  restricted cash                                                     |       | —                             |       | (173,057 | ) | 175,820 |   |
| Proceeds on disposal                                                                        |       | 52                                 |       | 2 |   | 155 |   |
| Purchase of fixed assets                                                                    |       | (10,286                            | )          | (19,653 | ) | (13,296 | ) |
| Increase in intangible assets                                                               |       | (1,307                             | )          | (3,025 | ) | (6,543 | ) |
| Purchase of long-term  investments                                                          |       | (28,053                            | )          | (20,131 | ) | — |   |
| Proceeds on sale of long-term  investments                                                  |       | —                             |       | 39,797 |   | — |   |
| Purchase of short-term  investments                                                         |       | (171,182                           | )          | (237,366 | ) | (68,333 | ) |
| Proceeds on maturity of  short-term investments                                             |       | 126,826                            |       | 313,775 |   | 59,560 |   |
| Net cash provided by (used in)  investing activities                                        |       | (96,043                            | )          | (99,693 | ) | 16,103 |   |
|                                                                                        |       |                               |       |   |   |   |   |
| Cash flows from financing  activities:                                                      |       |                               |       |   |   |   |   |
| Proceeds on issuance of term  loan (note 16(c))                                             |       | —                             |       | — |   | 102,716 |   |
| Repayment of term loan (note  16(c))                                                        |       | —                             |       | — |   | (103,931 | ) |
| Financing costs                                                                             |       | —                             |       | — |   | (3,971 | ) |
| Issuance of common shares, net  of share issue costs                                        |       | 85,525                             |       | 1,023 |   | 96 |   |
| Purchase of treasury shares  for RSU distribution                                           |       | —                             |       | (2,498 | ) | (6,417 | ) |
| Repurchase of common shares                                                                 |       | —                             |       | (4,982 | ) | — |   |
| Proceeds on exercise of  Wavecom options                                                    |       | —                             |       | — |   | 4,148 |   |
| Decrease in long-term  liabilities                                                          |       | (1,134                             | )          | (349 | ) | (2,238 | ) |
| Net cash provided by (used in)  financing activities                                        |       | 84,391                             |       | (6,806 | ) | (9,597 | ) |
|                                                                                        |       |                               |       |   |   |   |   |
| Effect of foreign exchange on  cash and cash equivalents                                    |       | —                             |       | — |   | (9,972 | ) |
|                                                                                        |       |                               |       |   |   |   |   |
| Net increase (decrease) in  cash and cash equivalents                                       |       | 37,186                             |       | (20,366 | ) | 44,233 |   |
| Cash and cash equivalents,  beginning of year                                               |       | 46,438                             |       | 83,624 |   | 63,258 |   |
| Cash and cash equivalents, end  of year                                                     |       | $                                  | 83,624     |   | $ | 63,258 |   | $ | 107,491 |   |

 

Supplementary information (note 21)

See accompanying notes to consolidated financialstatements.

 

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**SIERRA WIRELESS, INC.**

**Notes to ConsolidatedFinancial Statements**

Years ended December 31,2007, 2008 and 2009

(Expressed in thousands of U.S. dollars, exceptper share amounts and number of shares)

(Prepared in accordance with U.S. GAAP)

 

**1.****             ****Nature of operations**

 

We were incorporatedunder the Canada Business Corporations Act on May 31, 1993. We provideleading edge wireless solutions for the mobile computing and machine-to-machine(“M2M”) markets. We develop and market a range of products that includewireless modems for mobile computers, embedded modules and software fororiginal equipment manufacturers (“OEMs”), intelligent wireless gatewaysolutions for industrial, commercial and public safety applications and aninnovative platform for delivering device management and end-to-end applicationservices. We also offer professional services to OEM customers during theirproduct development and launch process, leveraging our expertise in wirelessdesign, software, integration and certification to provide built-in wirelessconnectivity for mobile computing devices and M2M solutions. Our products,services and solutions connect people, their mobile computers and machines towireless voice and mobile broadband networks around the world.

 

**2.****             ****Significantaccounting policies**

 

Management has prepared theseconsolidated financial statements in accordance with U.S. GAAP.

 

*(a)  **Principles of consolidation***

 

Ourconsolidated financial statements include the accounts of Sierra Wireless, Inc.and its wholly-owned subsidiaries from their respective dates of formation oracquisition. We have eliminated all significant intercompany balances andtransactions.  The ownership of the other non-controlling interest holders ofconsolidated subsidiaries is reflected as non-controlling interest and is notsignificant.

 

*(b)  **Use of estimates***

 

In preparing these consolidated financial statements inconformity with U.S. GAAP, management makes estimates and assumptions thataffect revenue recognition and the reported amounts of assets, particularly therecoverability of accounts receivable, inventory, fixed assets, intangibleassets, goodwill and deferred income taxes, as well as royalty and warrantyaccruals, lease provisions, other liabilities, stock-based compensation, anddisclosures of contingent liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period.Actual results could differ from the estimates.

 

*(c)   **Foreign currency translation***

 

Our functional or primaryoperating currency is the U.S. dollar.

 

Forfinancial statements of operations whose functional currency is the U.S. dollarbut the transactions are in currencies other than the U.S. dollar, the monetaryassets and liabilities denominated in a currency other than the U.S. dollar aretranslated at the exchange rate in effect at the balance sheet date, and theresulting exchange rate gains and losses are recognized in net earnings(loss).  The non-monetary assetsdenominated in a currency other than the U.S. dollar are translated at thehistorical exchange rate in effect on the date of the transaction.

 

The financial statementsfor operations whose functional currency is not the U.S. dollar are translatedinto U.S. dollars at the exchange rates in effect at the balance sheet datesfor assets and liabilities, at historical rates for equity, and at averagerates for revenues and expenses.  Theaccumulated unrealized translation gains and losses in these operations arerecorded as a component of other comprehensive income (loss).

 

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*(d)  **Cash equivalents***

 

Cash equivalents includeshort-term deposits, which are all highly liquid securities having a term tomaturity of three months or less when acquired. We value our short-termdeposits at amortized cost. The carrying amounts approximate fair value due to the shortmaturities of these instruments.

 

Restricted cash is subject to certain contingentrights of third parties.

 

*(e)   **Short-term investments***

 

Short-term investments, all of which we categorize asavailable-for-sale, are carried at quoted market value. We reflect unrealizedholding gains (losses) related to available-for-sale investments, afterdeducting amounts allocable to income taxes, as part of accumulated othercomprehensive income (loss), a separate component of shareholders’ equity.These gains (losses) are removed from comprehensive income (loss) when theinvestments mature or are sold on an item-by-item basis.

 

We regularly evaluate the realizable value of short-terminvestments, and if circumstances indicate that a decline in value isother-than-temporary, we recognize an impairment charge. To determine whetherto recognize an impairment charge, we consider various factors, such as thesignificance of the decline in value, how long the investment has been belowmarket value, changes that would impact the financial condition of theinvestee, and the likelihood that the investment will recover its value beforeit matures or is disposed of.

 

*(f)    **Inventories***

 

Inventories consist of electronic components andfinished goods and are valued at the lower of cost, determined on afirst-in-first-out basis, and estimated net realizable value.

 

*(g)  **Fixed assets***

 

We initially record fixed assets at cost. Wesubsequently provide amortization on a straight-line basis over the followingperiods:

 
| Furniture and fixtures             |   | 3–5 years    |
|------------------------------------|--------|-------------------|
| Research and development equipment |   | 1–5 years    |
| Production equipment               |   | 3–5 years    |
| Tooling                            |   | 11/2–3 years |
| Computer equipment                 |   | 1–5 years    |
| Software                           |   | 1–5 years    |
| Office equipment                   |   | 3–5 years    |

 

We amortize leaseholdimprovements and leased vehicles on a straight-line basis over the shorter ofthe initial lease term or their useful lives.

 

Amortization of research anddevelopment equipment is included in research and development expense.  Amortization of tooling and productionequipment is included in cost of goods sold. All other amortization is included in amortization expense.

 

*(h)  **Intangible assets***

 

The useful life of intangible assets is the period overwhich the assets are expected to contribute to our future cash flows.  When determining the useful life, we considerthe following: (i) expected use of the asset; (ii) useful life of arelated intangible asset; (iii) any legal, regulatory or contractualprovisions that limit the useful life; (iv) any legal, regulatory, orcontractual renewal or extension provisions without substantial costs ormodifications to the existing terms and conditions; (v) the effects ofobsolescence, demand, competition and other economic factors; (vi) theexpected level of maintenance expenditures relative to the cost of the assetrequired to obtain future cash flows from the asset.

 

The amortization policies with regard to specificintangible assets are as follows:

 

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*Patents and trademarks*

 

Consideration paid for patentsand trademarks is amortized on a straight-line basis over three to five yearscommencing with the date the patents or trademarks are granted.

 

*License fees*

 

Consideration paid for licensefees is amortized on a straight-line basis over the shorter of the term of thelicense or an estimate of their useful life, ranging from three to ten years.

 

*Intellectual property, in-processresearch and development, customer relationships and databases*

 

Consideration paid forintellectual property, in-process research and development (“IPRD”), customerrelationships and databases is amortized on a straight-line basis over three tonine years.

 

*Backlog*

 

Consideration paid for backlogis amortized on a straight-line basis over one year.

 

*Non-compete covenants*

 

Consideration paid fornon-compete covenants is amortized over the term of the agreement.

 

*(i)   **Goodwill***

 

Goodwill represents the excess of the purchase price ofan acquired enterprise over the fair value assigned to assets acquired andliabilities assumed in a business combination. Goodwill is allocated as of thedate of the business combination to the reporting units that are expected tobenefit from the synergies of the business combination.

 

Goodwill has an indefinite life, is not amortized, andat least annually is subject to a two-step impairment test. The first stepcompares the fair value of the reporting unit to its carrying amount, whichincludes the goodwill. When the fair value of a reporting unit exceeds itscarrying amount, goodwill of the reporting unit is considered not to beimpaired and the second step of the impairment test is unnecessary. If thecarrying amount exceeds the fair value, the second part of the test isperformed to measure the amount of the impairment loss. The second stepcompares the implied fair value of the reporting unit goodwill with thecarrying amount of the goodwill. If the carrying amount exceeds the fair valueof the goodwill, an impairment loss is recognized equal to that excess.

 

*(j)    **Impairment of long-lived assets***

 

We monitor the recoverability of long-lived assets,which includes fixed assets and intangible assets, other than goodwill, basedon factors such as future asset utilization and the future undiscounted cashflows expected to result from the use of the related assets. Our policy is torecord an impairment loss in the period when we determine that the carryingamount of the asset will not be recoverable. At that time the carrying amountis written down to fair value. Intangible assets with indefinite lives are testedannually for impairment and in interim periods if certain events occur indicatingthat the carrying value of the intangible assets may be impaired.

 

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*(k)  **Income taxes***

 

We account for income tax uncertainties in accordancewith the asset and liability approach. Under this approach, we recognize deferred tax assets and liabilitiesfor the expected future tax consequences of temporary differences between thecarrying amounts and the tax bases of assets and liabilities. Tax law and ratechanges are reflected in income in the period such changes are enacted. Werecord a valuation allowance to reduce the deferred tax assets to the amountthat is more likely than not to be realized. We include interest and penaltiesrelated to income taxes, including unrecognized tax benefits, in income taxexpense (recovery).

 

We recognize liabilitiesfor uncertain tax positions based on a two-step process. The first step is toevaluate the tax position for recognition by determining if the weight ofavailable evidence indicates that it is more likely than not that the positionwill be sustained on audit, including resolution of related appeals orlitigation processes, if any. The second step is to measure the tax benefit asthe largest amount that is more than 50% likely of being realized upon settlement.We regularly assess the potential outcomes of examinations by tax authoritiesin determining the adequacy of our provision for income taxes. We continuallyassess the likelihood and amount of potential adjustments and adjust the incometax provision, income taxes payable and deferred taxes in the period in whichthe facts that give rise to a revision become known.

 

We recognize the windfalltax benefits associated with the exercise of stock options by U.S. employees toadditional paid-in capital (“APIC”) when realized. This tax benefit is notrecognized until the deduction reduces U.S. taxes payable and all U.S. losscarryforwards have been utilized.

 

*(l)   **Warranty costs***

 

We accrue warranty costs upon the recognition of relatedrevenue, based on our best estimates, with reference to past and expectedfuture experience.  If there is a changein these estimates, we adjust our accrual accordingly.  Warranty costs are included in accruedliabilities in our consolidated balance sheet.

 

*(m)  **Market development costs***

 

We accrue for co-operativeadvertising costs upon the later of the recognition date of the related revenueor the date at which the co-operative advertising is available. Marketdevelopment costs are recorded in sales and marketing expense.

 

*(n)  **Stock-based compensation***

 

We measure the fair value of share-based compensationat the grant date based on the estimated fair value of the award using theBlack-Scholes valuation model and recognize this cost over the employee’srequisite service period using the straight line method.  Stock-based compensation is described furtherin note 14.

 

*(o)  **Revenue recognition***

 

We recognize revenue fromsales of products and services upon the later of transfer of title or uponshipment of the product to the customer or rendering of the service, so long aspersuasive evidence of an arrangement exists, delivery has occurred, the fee isfixed or determinable, and collectibility is reasonably assured. Customersinclude resellers, original equipment manufacturers, wireless operators andend-users. We record deferred revenue when we receive cash in advance of therevenue recognition criteria being met.

 

We recognize revenue on the portion of sales to certainresellers that are subject to contract provisions allowing various rights ofreturn and stock rotation, upon the earlier of when the rights have expired orthe products have been reported as sold by the resellers.

 

Revenues from contracts with multiple-elementarrangements, such as those including technical support services, arerecognized as each element is earned based on the relative fair value of eachelement and only when there are no undelivered elements that are essential tothe functionality of the delivered elements.

 

Revenue from licensed software is recognized at the inceptionof the license term.  Revenue fromsoftware maintenance, unspecified upgrades and technical support contracts isrecognized over the period such items are

 

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delivered or services are provided. Technical supportcontracts extending beyond the current period are recorded as deferred revenue.

 

Funding from research and development agreements, otherthan government research and development arrangements, is recognized as revenuewhen certain criteria stipulated under the terms of those funding agreementshave been met, and when there is reasonable assurance the funding will bereceived. Certain research and development funding will be repayable only onthe occurrence of specified future events. If such events do not occur, norepayment would be required. We will recognize the liability to repay researchand development funding in the period in which conditions arise that wouldcause research and development funding to be repayable.

 

*(p)  **Research and development***

 

We expense research and development costs as they areincurred. Certain software development costs for costs associated with thedevelopment of computer software to be sold, leased or marketed are capitalizedonce technological feasibility is reached.

 

We follow the cost reduction method of accounting forgovernment research and development funding, whereby the benefit of the fundingis recognized as a reduction in the cost of the related expenditure whencertain criteria stipulated under the terms of those funding agreements havebeen met, and there is reasonable assurance the research and developmentfunding will be received. Certain research and development funding is repayableonly on the occurrence of specified future events. If such events do not occur,no repayment is required. We recognize the liability to repay research anddevelopment funding in the period in which conditions arise that will causeresearch and development funding to be repayable.

 

*(q)  **Financial instruments***

 

We measure certain financial instruments and otheritems at fair value.  Unrealized gainsand losses on items for which the fair value option have been elected arereported in earnings.  Upon adoption ofthis policy on January 1, 2008, we did not elect to apply the fair valueoption to any of our eligible instruments; therefore there was no impact on ourconsolidated financial statements.

 

To determine the fair value, we use the fair valuehierarchy for inputs used in measuring fair value that maximizes the use ofobservable inputs and minimizes the use of unobservable inputs by requiringthat the most observable inputs be used when available. Observable inputs areinputs market participants would use to value an asset or liability and aredeveloped based on market data obtained from independent sources. Unobservableinputs are inputs based on assumptions about the factors market participantswould use to value an asset or liability. The three levels of inputs that maybe used to measure fair value are as follows:

 

·                  Level 1 inputs are quoted market prices for identicalinstruments are available in active markets.

·                  Level 2 inputs are inputs other than quoted pricesincluded within Level 1 that are observable for the asset or liability eitherdirectly or indirectly.  If the asset orliability has a contractual term, the input must be observable forsubstantially the full term.  An exampleincludes quoted market prices for similar assets or liabilities in activemarkets.

·                  Level 3 inputs are unobservable inputs for the assetor liability and will reflect management’s assumptions about market assumptionsthat would be used to price the asset or liability.

 

Assets and liabilities are classified based on thelowest level of input that is significant to the fair value measurements.Changes in the observability of valuation inputs may result in areclassification of levels for certain securities within the fair valuehierarchy.

 

*(r)   **Derivatives***

 

We use derivatives, such as foreign currency forward andoption contracts, to hedge the foreign exchange risk on cash flows fromcommitments denominated in a foreign currency. Derivatives that are not designated as hedging instruments are measuredat fair value at each balance sheet date and any resulting gains and lossesfrom changes in the fair value are recorded in other income (expense).  Gains and losses from the effective portionof foreign currency forward and option contracts that are designated as cashflow hedges are recorded in other comprehensive income (loss).

 

14

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*(s)   **Share issue costs***

 

We reduce the value of consideration assigned to sharesissued by the direct costs, net of income tax recoveries, of issuing theshares.

 

*(t)   **Earnings (loss) per common share***

 

We calculate basic earnings (loss) per share based onthe weighted-average number of common shares outstanding for the year. If, in areporting period, we have had in-the-money outstanding dilutive stock optionsand warrants, we calculate diluted earnings (loss) per share using the treasurystock method. Under the treasury stock method, the number of dilutive shares,if any, are determined by the proceeds from the exercise price of the options,the amount of unrecognized stock-based compensation, the estimated tax benefit thatwould be recognized when the options by U.S. employees are exercised, and theaverage market price of the shares for the period, that could be used torepurchase stock during the reporting period.

 

*(u)  **Comprehensive income (loss)***

 

We report comprehensive income (loss), which includesour net earnings (loss) as well as changes in equity from other non-ownersources. In our case, the other changes in equity included in comprehensiveincome (loss) are comprised of foreign currency cumulative translation adjustmentsand unrealized gains or losses on available-for-sale investments. The reclassification adjustment forother-than-temporary losses on marketable securities included in net earnings(loss) results from the recognition of the unrealized losses in the statementsof operations when they are no longer viewed as temporary. Comprehensive income (loss) is presented in theconsolidated statements of shareholders’ equity.

 

*(v)   **Investment tax credits***

 

Investment tax credits are accounted for using theflow-through method whereby such credits are accounted for as a reduction ofincome tax expense in the period in which the credit arises.

 

*(w)  **Comparative figures***

 

We have reclassified certain of the figures presentedfor comparative purposes to conform to the financial statement presentation weadopted for the current year.

 

*(x)   **Recent accounting pronouncements***

 

In October 2009, a newaccounting policy regarding accounting for multiple-deliverable revenuearrangements was introduced.  Under thispolicy, arrangement consideration will be allocated at the inception of eacharrangement to all deliverables using the relative selling price method if thedelivered items have a value on a standalone basis and there is no generalright of return.  This policy will also applyto products containing software and non-software components where thecomponents function together to deliver the product’s overall functionality andsales of tangible product without the software are infrequent.  The selling price hierarchy to be used toseparate multiple-deliverable arrangements will be as follows: (i) vendor-specificobjective evidence if available (ii) third party evidence ifvendor-specific objective evidence is not available, or (iii) estimatedselling price if neither (i) nor (ii) is available.  In addition, disclosure ofmultiple-deliverable arrangements will be significantly expanded to include adescription of each type of multiple-deliverable arrangement, significantdeliverables of those arrangements, general timing of performance of thedeliverables, significant factors used or assumptions made to determine theselling prices and the timing of revenue recognition for each unit. This policywill be adopted prospectively for new or materially modified contracts on orafter January 1, 2011. The impact that this policy will have on ourconsolidated financial statements, if any, is not yet determinable.

 

In September 2009, weadopted a new accounting policy used to determine the fair value ofliabilities.  Under this policy, if a quotedprice in an active market for an identical liability does not exist, the fairvalue will be determined using one or more of the following techniques: (i) avaluation technique that uses the quoted price of the identical liability whentraded as an asset, (ii) a valuation technique that uses quoted prices ofsimilar liabilities when traded as assets, or (iii) another valuationtechnique such as the income approach or market approach.  The adoption of this policy did not have amaterial impact on our consolidated financial results.

 

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On July 1, 2009, theFinancial Accounting Standards Board (“FASB”) launched its Accounting StandardsCodification (“Codification”), which is now the single source of authoritativenon-governmental U.S. GAAP.  Rules andinterpretive releases of the Securities Exchange Commission (“SEC”) underfederal securities laws are also sources of authoritative GAAP for SECregistrants. The Codification is effective for interim and annual periodsending after September 15, 2009, and has been adopted in these financial statements.

 

In May 2009, we adopted anew accounting policy for subsequent events such that a subsequent eventwill be recognized if it provides additional evidence about conditions thatexisted at the balance sheet date, including estimates inherent in the processof preparing the financial statements.  If the event does not provideevidence about a condition that did not exist at the balance sheet date andarose after such date and before the statements are issued, then the event willbe disclosed accordingly. The adoption of this policy did not have a materialimpact on our consolidated financial results.

 

In April 2009, we adopted anew policy to disclose the fair value for all financial instruments that arepracticable to estimate, whether recognized or not, in both our annual andinterim financial statements. In addition, carrying values and disclosure ofthe method and significant assumptions used to derive the fair values may alsobe disclosed. These disclosure requirements have been adopted in note 16(a).

 

Effective January 1, 2009,we adopted a new policy to account for assets acquired and liabilities assumedin a business combination.  Under thispolicy, the acquisition method is used to record all identifiable assets,liabilities, non-controlling interests and goodwill acquired at fair value.Other key terms of this policy include the following: (i) acquisition-relatedexpenses and restructuring costs are recognized separately from the acquisitionand expensed as incurred; (ii) in-process research and development costsare capitalized at fair value as intangible assets; (iii) any negativegoodwill is recognized through the income statement on the date of acquisition;(iv) changes in accounting for deferred tax asset valuation allowances andacquired income tax uncertainties after the measurement period are recognizedas a component of provision for taxes; and (v) disclosure will be made toenable the evaluation of the nature and financial effects of the businesscombination. We have applied this policy to our acquisition of Wavecom, seenote 3(a).  The adoption of this policyresulted in the expensing of Wavecom acquisition-related costs of $7,785 in2009, of which $2,770 that was deferred at December 31, 2008.

 

Effective January 1, 2009,we adopted a new policy to account for and disclose non-controllinginterests.  This policy includes thefollowing: (i) presentation of non-controlling interest in the equitysection of the balance sheet, but separate from shareholders’ equity; (ii) cleardefinition of net income attributable to the parent and non-controllinginterests on the income statement; (iii) disclosure of all changes in theparent’s ownership interest; (iv) when a subsidiary is deconsolidated thegain/loss on deconsolidation is based on the fair value, not the carryingvalue, of the investment; and (v) sufficient disclosure to distinguishbetween interests of the parent and the non-controlling interests. Theseprovisions have been applied to the non-controlling interest acquired with theacquisition of Wavecom, see notes 3(a) and 15.

 

Effective January 1, 2009,we adopted a new disclosure policy for derivative instruments and hedgingactivities.   This policy requiresadditional disclosures about the objectives of using derivative instruments, themethod by which the derivative instruments and related hedged items areaccounted for, and the effects of derivative instruments and related hedgeditems on financial position, financial performance and cash flows.  These disclosure requirements have beenadopted in note 16(e).

 

Effective January 1, 2009,we adopted a new policy to determine the useful life of intangible assets,other than goodwill.  The useful life ofa recognized intangible asset is to be the period over which the asset willcontribute to our expected future cash flows. Consideration will be given tothe period of expected cash flows used to measure the fair value of therecognized intangible asset, and our historical experience with regard to therenewal of extension of terms in similar arrangements. Disclosure will be madeof the amortization period and any key terms or assumptions with regard torenewal or extension terms. These provisions have been applied to determine theuseful lives of the intangible assets acquired with the acquisition of Wavecom,see note 3(a).

 

Effective January 1, 2009,we adopted a new policy to account for pre-acquisition contingencies.  If the fair value of an acquired contingencycan be determined during the measurement period, the asset acquired or liabilityassumed is to be initially recognized and measured at fair value on theacquisition date.  If the fair value ofthe acquired contingency cannot be determined during the measurement period, itis recognized if it is probable that the asset

 

16

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existed or liability wasincurred at the acquisition date, and the amount can be reasonably estimated.Note disclosure for contingencies related to each acquisition is to include theamounts, measurement basis and nature of acquired contingencies, as well asdisclosure of unrecognized contingencies. The pre-existing legal proceedingsfrom our acquisition of Wavecom are disclosed in note 20(d).

 

**3.****             ****Acquisitions**

 

*(a)**      **Wavecom S.A.*

 

On December 2,2008, we announced an all-cash offer to purchase all of the ordinary shares andOCEANE convertible bonds (“OCEANEs”) of Wavecom, a global leader in wirelessM2M solutions headquartered in Issy-les-Moulineaux, France.  The total value of the transaction wasapproximately €218,000.  We made a cashoffer of €8.50 per share of Wavecom and €31.93 per OCEANE.  The transaction was implemented by way ofconcurrent but separate public tender offers in both France and the UnitedStates for all Wavecom shares, all American Depository Shares (“ADSs”)representing Wavecom shares and all OCEANEs issued by Wavecom.

 

On February 27,2009, we completed our acquisition of 84.32% of the outstanding shares and99.97% of the outstanding OCEANEs of Wavecom, representing 90.57% of the votingrights of Wavecom, for cash consideration of $144,859 (€113,508) and $104,767(€82,093), respectively.  During March 2009,we purchased 160,643 shares on the open market for cash consideration of $1,850(€1,365), resulting in the acquisition of 85.34% of the outstandingshares.  Following a statutory re-openingof the tender offer, we increased our ownership of the voting rights of Wavecomfrom 90.57% to 95.4% for cash consideration of $11,817 (€8,908).  On April 29, 2009, we completed ouracquisition of all of the remaining Wavecom shares, except for certain sharesheld by employees that are subject to a hold period, and OCEANEs by way of asqueeze-out for cash consideration of $7,752 (€5,851).  The Wavecom shares and OCEANEs have beendelisted from Euronext and the ADSs have been delisted from the NASDAQ Global Market (“Nasdaq”).

 

Thegoodwill of $56,911 arising from the acquisition results from the expectationthat the combination will create a global leader that will be uniquelypositioned to benefit from the anticipated growth in wireless for mobilecomputing and M2M markets.  We expect theacquisition to significantly expand our position in the global M2M market,broaden our product offerings and increase our scale and capabilities in Europeand Asia. All of the goodwill was assigned to the Wavecom segment.  Any goodwill allocated on the acquisition willnot be deductible for tax purposes.

 

Theresults of Wavecom have been included in our consolidated financial statementsfrom February 27, 2009 and include revenue of $119,607 and net lossattributable to Sierra Wireless, Inc. of $43,758.

 

Wavecomacquisition and financing costs recognized of $11,756 were expensed as follows:$7,785 in acquisition costs and $3,971 in other income (expense).

 

17

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Wehave obtained a third party review of the valuation of the assets acquired andliabilities assumed.  The following tablesummarizes the fair value of the identifiable assets acquired and liabilitiesassumed:

 
| Cash and marketable securities |   | $       | 139,785 |   |
|--------------------------------|--------|---------|---------|--------|
| Other current assets           |   | 51,753  |    |
| Property and equipment         |   | 9,916   |    |
| Intangible assets              |   | 71,354  |    |
| Goodwill                       |   | 56,911  |    |
| Other long-term assets         |   | 5,231   |    |
| Deferred income tax            |   | 1,110   |    |
| Total assets acquired          |   | 336,060 |    |
|                           |   |    |    |
| Current liabilities            |   | 52,284  |    |
| OCEANE convertible bonds       |   | 104,870 |    |
| Capital lease obligations      |   | 657     |    |
| Long-term liabilities          |   | 462     |    |
| Other long-term liabilities    |   | 17,645  |    |
| Deferred income tax            |   | 76      |    |
| Non-controlling interest       |   | 13,357  |    |
| Net assets acquired            |   | $       | 146,709 |   |

 

The fair value of the non-controlling interest at February 27, 2009 of $13,357 was based on the fair market price determined in the tender offer of $10.85 (€8.50) per ordinary share (see also note 15).

 

The following table presents details of the estimated purchased intangible assets:

 
| ** **                           | ** ** | **Estimated  Useful Life  (in years)** | ** ** | **Amount** | ** ** |
|--------------------------------------|------------|----------------------------------------|------------|------------|------------|
| Intellectual property                |       | 3-6                                    |       | 30,510     |       |
| In-process research and  development |       | 3-9                                    |       | 18,425     |       |
| Customer relationships               |       | 5                                      |       | 16,387     |       |
| Brand portfolio                      |       | 5                                      |       | 3,295      |       |
| Non-compete covenant                 |       | 2                                      |       | 2,737      |       |
| Total purchased intangible  assets   |       |                                   |       | $          | 71,354     |   |
|                                      |            |                                        |            |            |            |  |

 

***Pro forma information***

 

The following pro forma information presents our operating results by giving effect to the purchase price allocations set out above, as if the acquisition had been completed as of January 1, 2007.   The pro forma amounts are not intended to be indicative of the results that would have actually been obtained if the acquisition occurred as of January 1, 2007 or that may be obtained in the future.  If the acquisition of Wavecom had occurred as of January 1, 2007, the pro forma operating results would have been as follows:

 
| ** **                                                      | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Revenue                                                         |       | $        | 713,745    |     | $          | 757,808  |       | $ | 542,657 |   |
| Net earnings (loss) attributable to Sierra  Wireless, Inc. |       | 23,360   |       | (6,601   | )          | (56,372  | )          |
| Diluted earnings (loss) per share                               |       | $        | 0.75       |     | $          | (0.21    | )          | $ | (1.80 | ) |

 

See note 20(d) forpre-acquisition legal proceedings related to Wavecom.

 

*(b)  AirLink Communications, Inc.*

 

On May 25, 2007, weacquired 100 percent of the outstanding securities of AirLink Communications, Inc.(“AirLink”), a privately held supplier of high value fixed and mobile wirelessdata solutions for industrial and public safety applications located inHayward, California.  We subsequentlychanged the name of AirLink to Sierra Wireless AirLink Solutions, Inc. (“SWAS”),and on December 31, 2007, SWAS was merged into Sierra Wireless

 

18

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America, Inc. (“SWA”),with SWA being the surviving corporation. The results of AirLink have been included in our consolidated financialstatements since the date of acquisition.

 

The aggregate purchaseprice was $31,235, including cash consideration of $12,000, 1,309,880 commonshares valued at $17,597 and costs related to the acquisition of $1,638.  The value of the common shares issued wasdetermined based on the average market price of our common shares over thetwo-day period before and after March 6, 2007, which was the date theterms of the acquisition were agreed to and announced.

 

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:

 
| Current assets                           |   | $      | 8,978  |   |
|------------------------------------------|--------|--------|--------|--------|
| Property and equipment                   |   | 251    |   |
| Intangible assets                        |   | 11,980 |   |
| Goodwill                                 |   | 14,389 |   |
| Deferred income tax                      |   | 4,193  |   |
| Total assets acquired                    |   | 39,791 |   |
|                                     |   |   |   |
| Current liabilities                      |   | 4,363  |   |
| Long-term deferred income tax  liability |   | 4,193  |   |
| Net assets acquired                      |   | $      | 31,235 |   |

 

Any goodwill allocated on the acquisition will not be deductible for tax purposes.

 

The following table presents details of the purchased intangible assets:

 
| ** **                         | ** ** | **Estimated  Useful  Life (in years)** | ** ** | **Amount** | ** ** |
|------------------------------------|------------|----------------------------------------|------------|------------|------------|
| Backlog                            |       | 1                                      |       | $          | 450        |   |
| Intellectual property              |       | 5                                      |       | 2,550      |       |
| Customer relationships             |       | 5                                      |       | 8,980      |       |
| Total purchased intangible  assets |       |                                   |       | $          | 11,980     |   |

 

The following pro forma information presents our operating results by giving effect to the purchase price allocations set out above, as if the acquisition had been completed as of January 1, 2007.   The pro forma amounts are not intended to be indicative of the results that would have actually been obtained if the acquisition occurred as of January 1, 2007 or that may be obtained in the future.  If the acquisition of AirLink had occurred as of January 1, 2007, the pro forma operating results would have been as follows:

 
| ** **                 | ** ** | **2007** | ** ** |
|----------------------------|------------|----------|------------|
| Revenue                    |       | $        | 451,333    |   |
| Net earnings               |       | 30,978   |       |
| Diluted earnings per share |       | $        | 1.08       |   |

 

**4.****             ****Restructuringand other charges**

 

*(a)  May 2009 Restructuring*

 

On May 15, 2009, we announced further cost reduction initiativesrelated to the integration of Wavecom with Sierra Wireless that includedcombining the R&D and product operations of both organizations.  As a result, the Wavecom location in ResearchTriangle Park, North Carolina was closed in the fourth quarter of 2009.  R&D activities from this location weretransitioned primarily to the Sierra Wireless location in Carlsbad,California.  As a result, a facilitiesrestructuring charge of $1,318 was recognized in the fourth quarter of 2009,which excludes the abandoned leasehold improvements and other furniture andequipment of $240 that is recorded in amortization.  The cost reduction initiatives related to theworkforce reduction are expected to be substantially completed by the firstquarter

 

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of2010.  The current and long-term portions of the facilitiesrestructuring of $455 and $760, respectively, is expected to be substantiallypaid by 2014.

 

*(b)  January 2009Restructuring*

 

In January 2009, weimplemented an expense reduction program to reduce labor costs.  We reduced our workforce by 56 employees, allof whom were terminated in the first quarter of 2009.  The total workforce reduction charges of$1,622 include $501 for accelerated stock-based compensation and the remainderrepresents severance and benefits associated with the terminated employees. The liability related to this programwas substantially paid by the end of the third quarter of 2009.

 

*(c)   Wavecom Restructuring*

 

In October 2008,prior to our acquisition of Wavecom, Wavecom announced a cost savings programand a proposed reorganization.  The firstportion of this plan, related to its operations in the United States, began inlate 2008.  In the second quarter of2009, the staff reduction program in France related to this reorganization wasimplemented.  A total of 77 positions inFrance were impacted, with 10 of these positions remaining to be phased out inthe first quarter of 2010 and 2 positions remaining to be phased out in thesecond quarter of 2010.  Therestructuring charge includes $4,260 related to the exit of a portion of ourbuilding in France and excludes the impairment of leasehold improvements of $93that is recorded in amortization. The remaining liability related to theworkforce reduction is expected to be substantially paid by the first quarterof 2010.  The current and long-termportions of the facilities restructuring of $2,315 and $912, respectively, areexpected to be substantially paid by July 2011.

 

*(d)**      **Prior Restructurings*

 

In the second quarter of 2005, we announcedour decision to exit our Voq professional phone initiative.  In addition to the exit of the Voqinitiative, we made certain non-Voq related reductions to our operating expensesand assets.

 

Of the facilitiesrestructuring liability outstanding at December 31, 2009, $130 (2008 —$166) is from the 2005 restructuring and $267 (2008 — $343) arises from priorrestructurings.  The current andlong-term portions of the facilities restructuring are $206 and $191,respectively (2008 — $193 and $316).

 

The following tables summarize the changesto the restructuring provisions at December 31, 2009 and December 31,2008:

 
| **May 2009 Restructuring**    | ** ** | **Workforce****Reduction** | ** ** | **Facilities** | ** ** | **Total** | ** ** | **Restructuring****Charge** | ** ** | **Impairment****Charge** | ** ** |
|------------------------------------|------------|----------------------------|------------|----------------|------------|-----------|------------|-----------------------------|------------|--------------------------|------------|
| Period charges                     |       | $                          | 3,897      |           | $          | 1,318     |       | $                           | 5,215      |                     | $          | 5,215 |   | $ | 240 |   |
| Cash payments                      |       | (2,669                     | )          | (103           | )          | (2,772    | )          | —                      |       | —                   |       |
| Non-cash stock-based  compensation |       | (404                       | )          | —         |       | (404      | )          | —                      |       | —                   |       |
| Foreign exchange                   |       | 387                        |       | —         |       | 387       |       | —                      |       | —                   |       |
| Balance at December 31,  2009 |       | $                          | 1,211      |           | $          | 1,215     |       | $                           | 2,426      |                     | $          | 5,215 |   | $ | 240 |   |

 
| **January 2009 Restructuring** | ** ** | **Workforce****Reduction** | ** ** | **Facilities** | ** ** | **Total** | ** ** | **Restructuring****Charge** | ** ** | **Impairment****Charge** | ** ** |
|-------------------------------------|------------|----------------------------|------------|----------------|------------|-----------|------------|-----------------------------|------------|--------------------------|------------|
| Period charges                      |       | $                          | 1,622      |           | $          | —    |       | $                           | 1,622      |                     | $          | 1,622 |   | $ | — |   |
| Cash payments                       |       | (1,089                     | )          | —         |       | (1,089    | )          | —                      |       | —                   |       |
| Non-cash stock-based  compensation  |       | (501                       | )          | —         |       | (501      | )          | —                      |       | —                   |       |
| Balance at December 31,  2009  |       | $                          | 32         |           | $          | —    |       | $                           | 32         |                     | $          | 1,622 |   | $ | — |   |

 

20

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| **Wavecom Restructuring**          | ** ** | **Workforce****Reduction** | ** ** | **Facilities** | ** ** | **Total** | ** ** | **Restructuring****Charge** | ** ** | **Impairment****Charge** | ** ** |
|------------------------------------|------------|----------------------------|------------|----------------|------------|-----------|------------|-----------------------------|------------|--------------------------|------------|
| Balance at acquisition             |       | $                          | 595        |           | $          | —    |       | $                           | 595        |                     | $          | — |   | $ | — |   |
| Period charges                     |       | 9,555                      |       | 4,260          |       | 13,815    |       | 13,815                      |       | 93                       |       |
| Cash payments                      |       | (6,246                     | )          | (993           | )          | (7,239    | )          | —                      |       | —                   |       |
| Revisions to prior accruals        |       | (47                        | )          | —         |       | (47       | )          | (47                         | )          | —                   |       |
| Foreign exchange                   |       | 61                         |       | (40            | )          | 21        |       | —                      |       | —                   |       |
| Balance at December 31,  2009 |       | $                          | 3,918      |           | $          | 3,227     |       | $                           | 7,145      |                     | $          | 13,768 |   | $ | 93 |   |

 
| **Prior Restructurings**                                 | ** ** | **Workforce****Reduction** | ** ** | **Facilities** | ** ** | **Total** | ** ** | **Restructuring****Charge** | ** ** | **Impairment****Charge** | ** ** |
|----------------------------------------------------------|------------|----------------------------|------------|----------------|------------|-----------|------------|-----------------------------|------------|--------------------------|------------|
| Balance at December 31,  2007                       |       | $                          | —     |           | $          | 858       |       | $                           | 858        |                     | $          | — |   | $ | — |   |
| Cash payments                                            |       | —                     |       | (141           | )          | (141      | )          | —                      |       | —                   |       |
| Revisions to prior accruals                              |       | —                     |       | (208           | )          | (208      | )          | —                      |       | —                   |       |
| Balance at December 31,  2008                       |       | —                     |       | 509            |       | 509       |       | —                      |       | —                   |       |
| Cash payments                                            |       | —                     |       | (284           | )          | (284      | )          | —                      |       | —                   |       |
| Revisions to prior accruals                              |       | —                     |       | 172            |       | 172       |       | —                      |       | —                   |       |
| Balance at December 31,  2009                       |       | $                          | —     |           | $          | 397       |       | $                           | 397        |                     | $          | — |   | $ | — |   |
|                                                     |       |                       |       |           |       |      |       |                        |       |                     |       |
| Total provision balances,  December 31, 2009        |       | $                          | 5,161      |           | $          | 4,839     |       | $                           | 10,000     |                     |       |   |   |   |
| Total charges for the year  ended December 31, 2009 |       |                       |       |           |       |      |       | $                           | 20,605     |                     | $          | 333 |   |

 

**5.****             ****Integrationcosts**

 

During2009, we incurred integration costs related to the acquisition of Wavecom of$3,859 (2008 — nil; 2007 — nil), which included the cost of employees retainedfor integration activities, related travel expenses and consulting fees.

 

**6.****             ****Short-terminvestments**

 

Investments,all of which are classified as available-for-sale, were comprised of governmenttreasury bills and securities.  Our outstanding short-term investments havecontractual maturities ranging from three to eleven months from the date ofpurchase.

 

**7.****             ****Inventories**

** **
| ** **            | ** ** | **2008** | ** ** | **2009** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|
| Electronic components |       | $        | 7,942      |     | $          | 10,932 |   |
| Finished goods        |       | 25,089   |       | 13,776   |       |
|                  |       | $        | 33,031     |     | $          | 24,708 |   |

 

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**8.****             ****Fixedassets**

 
| ** **                          | ** ** | **2009** | ** ** |
|-------------------------------------|------------|----------|------------|
| ** **                          | ** ** | **Cost** | ** ** | **Accumulated****Amortization** | ** ** | **Net  Book  Value** | ** ** |
| Furniture and fixtures              |       | $        | 4,486      |   | $ | 3,226 |   | $ | 1,260 |   |
| Research and development  equipment |       | 29,785   |       | 18,833 |   | 10,952 |   |
| Tooling                             |       | 32,711   |       | 24,730 |   | 7,981 |   |
| Computer equipment                  |       | 6,444    |       | 4,409 |   | 2,035 |   |
| Software                            |       | 7,208    |       | 5,371 |   | 1,837 |   |
| Leasehold improvements              |       | 6,129    |       | 4,019 |   | 2,110 |   |
| Leased vehicles                     |       | 753      |       | 328 |   | 425 |   |
| Office equipment                    |       | 2,734    |       | 1,378 |   | 1,356 |   |
|                                |       | $        | 90,250     |   | $ | 62,294 |   | $ | 27,956 |   |

** **
| ** **                          | ** ** | **2008** | ** ** |
|-------------------------------------|------------|----------|------------|
| ** **                          | ** ** | **Cost** | ** ** | **Accumulated********Amortization** | ** ** | **Net  Book  Value** | ** ** |
| Furniture and fixtures              |       | $        | 4,102      |   | $ | 2,881 |   | $ | 1,221 |   |
| Research and development  equipment |       | 20,420   |       | 13,271 |   | 7,149 |   |
| Tooling                             |       | 27,529   |       | 17,754 |   | 9,775 |   |
| Computer equipment                  |       | 5,047    |       | 3,411 |   | 1,636 |   |
| Software                            |       | 5,679    |       | 4,665 |   | 1,014 |   |
| Leasehold improvements              |       | 4,503    |       | 2,757 |   | 1,746 |   |
| Office equipment                    |       | 1,005    |       | 611 |   | 394 |   |
|                                |       | $        | 68,285     |   | $ | 45,350 |   | $ | 22,935 |   |

 

**9.****             ****Goodwilland intangible assets**

 

Goodwillof $95,064 (2008 — $33,013) primarily relates to the February 2009acquisition of Wavecom (note 3(a)), the May 2007 acquisition of AirLink(note 3(b)) and the August 2003 acquisition of AirPrime, Inc.

 

Annual impairment tests forgoodwill have been performed, which resulted in no impairment loss.  We determined that we had two reporting unitsas of December 31, 2009.  Weassessed the realizability of goodwill related to each of the reporting unitsduring the fourth quarter of 2009 and determined that the fair value exceededthe carrying amount for each reporting unit. Therefore, the second step of the impairment test that measures theamount of an impairment loss by comparing the implied fair market value foreach reporting unit with the carrying amount of goodwill for each reportingunit was not required.  There was noimpairment of goodwill during the years ended December 31, 2009 or 2008.

 

The components of intangibleassets at December 31, 2009 and 2008 are as follows:

 
| ** **                           | ** ** | **2009** | ** ** |
|--------------------------------------|------------|----------|------------|
| ** **                           | ** ** | **Cost** | ** ** | **Accumulated****Amortization** | ** ** | **Net  Book  Value** | ** ** |
| Patents and trademarks               |       | $        | 10,494     |   | $ | 3,213 |   | $ | 7,281 |   |
| Licenses                             |       | 54,751   |       | 17,849 |   | 36,902 |   |
| Intellectual property                |       | 6,856    |       | 5,558 |   | 1,298 |   |
| Customer relationships               |       | 27,856   |       | 8,569 |   | 19,287 |   |
| Non-compete                          |       | 3,064    |       | 1,277 |   | 1,787 |   |
| In-process research and  development |       | 20,631   |       | 512 |   | 20,119 |   |
| Databases                            |       | 150      |       | 150 |   | — |   |
| Backlog                              |       | 450      |       | 450 |   | — |   |
|                                 |       | $        | 124,252    |   | $ | 37,578 |   | $ | 86,674 |   |

 

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| ** **             | ** ** | **2008** | ** ** |
|------------------------|------------|----------|------------|
| ** **             | ** ** | **Cost** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Book  Value** | ** ** |
| Patents and trademarks |       | $        | 6,214      |   | $ | 2,105 |   | $ | 4,109 |   |
| Licenses               |       | 15,195   |       | 11,977 |   | 3,218 |   |
| Intellectual property  |       | 6,856    |       | 5,029 |   | 1,827 |   |
| Customer relationships |       | 9,920    |       | 3,783 |   | 6,137 |   |
| Databases              |       | 150      |       | 150 |   | — |   |
| Backlog                |       | 450      |       | 450 |   | — |   |
|                   |       | $        | 38,785     |   | $ | 23,494 |   | $ | 15,291 |   |

 

The estimated aggregateamortization expense for each of the next five years is expected to be anaverage of $15,078  per year.

 

**10.****      ****Otherassets**

 

Other assets include a bankguarantee to secure annual lease payments on the office premises in Issy-les-Moulineaux, France of $6,311(2008 — nil).  The guarantee is to berenewed annually until the end of the lease term in July 2011.  Also included in other assets is thelong-term portion of a prepaid royalty of $950 (2008 — nil).  The 2008 balance of $4,240 related todeferred Wavecom acquisition and financing costs.

 

**11.****      ****Long-termliabilities**

** **
| ** **                                      | ** ** | **2008** | ** ** | **2009** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
| Facilities restructurings  (note 4)             |       | $        | 509        |     | $          | 4,839 |   |
| TPC liability (note 20(b)(iv))                  |       | —   |       | 1,729    |       |
| Less: current portion of  long-term liabilities |       | 193      |       | 3,371    |       |
|                                            |       | 316      |       | 3,197    |       |
| Other long-term liabilities                     |       | 14,789   |       | 32,663   |       |
|                                            |       | $        | 15,105     |     | $          | 35,860 |   |

 

Other long-term liabilitiesinclude the long-term portions of accrued royalties of $23,305 (2008 — $9,392)and marketing development funds of $9,358 (2008 — $5,397).

 

**12.****      ****Obligationsunder capital lease**

 

Future minimum lease payments under capital leases at December 31,2009 are as follows:

 
| 2010                                |   | $    | 310    |   |
|-------------------------------------|--------|------|--------|--------|
| 2011                                |   | 157  |   |
| 2012                                |   | 88   |   |
| 2013                                |   | 10   |   |
|                                |   | 565  |   |
| Less: amount representing  interest |   | (27  | )      |
|                                |   | 538  |   |
| Less: current portion               |   | (293 | )      |
| Long-term portion                   |   | $    | 245    |   |

 

**13.****      ****Sharecapital**

 

***Share repurchase program***

 

On May 21, 2008, wereceived regulatory approval allowing us to purchase up to 1,567,378 of ourcommon shares (approximately 5% of our common shares outstanding as of May 21,2008) by way of a normal course issuer bid (“the Bid”) on the Toronto Stock Exchange (“TSX”) and theNASDAQ Global Market (“Nasdaq”).

 

23

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During the year ended December 31,2008, 407,700 common shares were purchased for an aggregatepurchase price of $4,982 and subsequently cancelled.  The amount paid to acquire the shares overand above the average carrying value was charged to retained earnings.  No additional shares were purchased duringthe term of the Bid and on May 25, 2009, the Bid terminated.

 

***Public offering***

 

On October 2, 2007, weclosed our bought deal common share offering (the “Offering”) of 3,500,000common shares at a price of U.S.$22.40 per share.  Under the Offering, which included 300,000shares issuable upon the exercise by the underwriters of the over-allotmentoption, we sold 3,800,000 common shares from treasury.  Gross proceeds of this Offering were $85,120less share issue costs of $4,194, for net proceeds of $80,926.

 

***Stock option plan***

 

Under the terms of our employeeStock Option Plan (the “Plan”), our Board of Directors may grant options toemployees, officers and directors.  Themaximum number of shares available for issue under the Plan shall be the lesserof a rolling number equal to 10% of the number of issued and outstanding commonshares from time to time or 7,000,000 common shares. Based on the number ofshares outstanding as at December 31, 2009, stock options exercisable into946,803 common shares are available for future allocation under the Plan.

 

The Plan provides for grantingof options at the fair market value of our stock at the grant date. Optionsgenerally vest over four years, with the first 25% vesting at the firstanniversary date of the grant and the balance vesting in equal amounts at theend of each month thereafter. We determine the term of each option at the timeit is granted, with options having a five-year term.

 

Stock option activity since December 31, 2006 ispresented below:

 
| ** **                           | ** ** | **Number of** | ** ** | **Weighted  Average****Exercise Price** | ** ** | **Weighted  Average  Remaining** | ** ** | **Aggregate  Intrinsic** | ** ** |
|--------------------------------------|------------|---------------|------------|-----------------------------------------|------------|----------------------------------|------------|--------------------------|------------|
| ** **                           | ** ** | **Shares**    | ** ** | **Cdn.$**                               | ** ** | **U.S.$**                        | ** ** | **Contractual  Life**    | ** ** | **Value** | ** ** |
| ** **                           | ** ** | ** **    | ** ** | ** **                              | ** ** | ** **                       | ** ** | **In Years**             | ** ** | **U.S.$** | ** ** |
| Outstanding, December 31,  2006 |       | 1,971,772     |       | 16.64                                   |       | 14.22                            |       | 3.0                      |       | 5,581 |   |
| Granted                              |       | 586,650       |       | 20.72                                   |       | 19.16                            |       |                     |       |   |   |
| Exercised                            |       | (516,406      | )          | 9.53                                    |       | 8.81                             |       |                     |       | 5,871 |   |
| Forfeited                            |       | (114,696      | )          | 25.17                                   |       | 23.27                            |       |                     |       |   |   |
| Outstanding, December 31,  2007 |       | 1,927,320     |       | 18.01                                   |       | 18.19                            |       | 2.7                      |       | 2,385 |   |
| Granted                              |       | 574,674       |       | 15.73                                   |       | 14.96                            |       |                     |       |   |   |
| Exercised                            |       | (105,037      | )          | 9.94                                    |       | 9.45                             |       |                     |       | 599 |   |
| Forfeited                            |       | (165,987      | )          | 18.48                                   |       | 17.57                            |       |                     |       |   |   |
| Outstanding, December 31,  2008 |       | 2,230,970     |       | 19.68                                   |       | 16.13                            |       | 2.5                      |       | — |   |
| Granted                              |       | 502,414       |       | 4.97                                    |       | 4.05                             |       |                     |       |   |   |
| Exercised                            |       | (16,953       | )          | 6.01                                    |       | 5.57                             |       |                     |       | 54 |   |
| Forfeited                            |       | (558,343      | )          | 25.71                                   |       | 21.47                            |       |                     |       |   |   |
| Outstanding, December 31,  2009 |       | 2,158,088     |       | 13.51                                   |       | 12.83                            |       | 2.5                      |       | 3,246 |   |

 
| **December 31,** | ** ** | **Exercisable,****end of year** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|-----------------------|------------|---------------------------------|------------|---------------------------------|------------|
| 2007                  |       | 877,198                         |       | 1,372                           |       |
| 2008                  |       | 1,132,244                       |       | —                          |       |
| 2009                  |       | 1,188,034                       |       | 204                             |       |

 

The intrinsic value of outstanding and exercisable stockoptions is calculated as the quoted market price of the stock at the balancesheet date less the exercise price of the option.

 

24

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The following table summarizes the stock optionsoutstanding at December 31, 2009:

 
| ** **                                           | ** ** | **Options  Outstanding** | ** ** | **Options  Exercisable**                        | ** ** |
|------------------------------------------------------|------------|--------------------------|------------|-------------------------------------------------|------------|
| **Range of**                                         | ** ** | **Number  of**           | ** ** | **Weighted****Average  Remaining  Contractual** | ** ** | **Weighted****Average  Exercise Price** | ** ** | **Number** | ** ** | **Weighted****Average  Exercise Price** | ** ** |
| **Exercise  Prices**                                 | ** ** | **Options**              | ** ** | **Life**                                        | ** ** | **Cdn.$** | ** ** | **U.S.$** | ** ** | **Exercisable** | ** ** | **Cdn.$** | ** ** | **U.S.$** | ** ** |
| ** **                                           | ** ** | ** **               | ** ** | **In years**                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** | ** ** |
| $3.98 – $9.52 (Cdn.$4.19 –  Cdn.$10.00)    |       | 591,413                  |       | 3.4                                             |       | 5.43 |   | 5.16 |   | 107,433 |   | 9.38 |   | 8.91 |   |
| $9.53 – $14.29 (Cdn.$10.01 –  Cdn.$15.00)  |       | 536,105                  |       | 1.0                                             |       | 13.19 |   | 12.53 |   | 505,242 |   | 13.19 |   | 12.52 |   |
| $14.30 – $19.05 (Cdn.$15.01 –  Cdn.$20.00) |       | 862,570                  |       | 2.8                                             |       | 17.56 |   | 16.67 |   | 467,950 |   | 17.80 |   | 16.90 |   |
| $19.06 – $27.63 (Cdn.$20.01 –  Cdn.$29.10) |       | 168,000                  |       | 2.4                                             |       | 22.13 |   | 21.01 |   | 107,409 |   | 22.10 |   | 20.98 |   |
|                                                 |       | 2,158,088                |       | 2.5                                             |       | 13.51 |   | 12.83 |   | 1,188,034 |   | 15.47 |   | 14.68 |   |

 

The options outstanding at December 31, 2009 expirebetween January 14, 2010  and May 5, 2014.

 

***Employee stock purchase plan***

 

On March 31, 2009,we terminated our employee stock purchase plans for U.S. and Canadian and othernon-U.S employees (together, the “ESPP Plans”) that enabled eligible employees and directors to acquire commonshares over the facilities of the TSX and Nasdaq. In 2009, participantspurchased a total of 10,734 (2008 — 36,183; 2007 — 16,806) common shares at aweighted-average price of $5.51 (2008 — $12.27; 2007 — $18.00) per share.

 

***Restricted stock plans***

 

During 2007, weestablished non-vested restricted stock plans for U.S. and non-U.S. employees(together, the “RSPs”) to provide long-term incentives to certain executivesand other key employees and to support the objective of employee shareownership through the granting of restricted share units (“RSUs”).  There is no exercise price and no monetarypayment is required from the employees to the Company upon receipt of the RSUsor upon the subsequent issuance of shares to settle the award. Under the RSPs,independent trustees purchase the common shares over the facilities of the TSXand Nasdaq.  The trust funds are variableinterest entities and are included in these consolidated financial statementsas treasury stock.

 

RSUs vest over threeyears, in equal amounts on the anniversary date of the date of the grant.  Vested RSUs are settled annually upon vestingby delivery of a common share of Sierra Wireless, Inc. for each vestedunit.

 

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The following tablesummarizes the RSU activity since the inception of the RSPs:

 
| ** **                           | ** ** | **Number of** | ** ** | **Weighted  Average****Grant Date Fair Value** | ** ** | **Weighted****Average  Remaining  Contractual** | ** ** | **Aggregate  Intrinsic** | ** ** |
|--------------------------------------|------------|---------------|------------|------------------------------------------------|------------|-------------------------------------------------|------------|--------------------------|------------|
| ** **                           | ** ** | **RSUs**      | ** ** | **Cdn.$**                                      | ** ** | **U.S.$**                                       | ** ** | **Life**                 | ** ** | **Value** | ** ** |
| ** **                           | ** ** | ** **    | ** ** | ** **                                     | ** ** | ** **                                      | ** ** | **In years**             | ** ** | **U.S.$** | ** ** |
| Outstanding, December 31,  2006 |       | —        |       | —                                         |       | —                                          |       |                     |       |   |   |
| Granted                              |       | 160,500       |       | 21.07                                          |       | 19.50                                           |       |                     |       |   |   |
| Outstanding, December 31,  2007 |       | 160,500       |       | 21.07                                          |       | 19.50                                           |       | 2.4                      |       | 2,383 |   |
| Granted                              |       | 205,048       |       | 15.95                                          |       | 15.80                                           |       |                     |       |   |   |
| Vested                               |       | (53,486       | )          | 21.25                                          |       | 19.50                                           |       |                     |       | 862 |   |
| Outstanding, December 31,  2008 |       | 312,062       |       | 19.61                                          |       | 16.08                                           |       | 1.9                      |       | 1,819 |   |
| Granted                              |       | 842,131       |       | 5.08                                           |       | 4.18                                            |       |                     |       |   |   |
| Vested                               |       | (175,758      | )          | 16.54                                          |       | 14.01                                           |       |                     |       | 1,186 |   |
| Forfeited                            |       | (2,551        | )          | 17.18                                          |       | 14.43                                           |       |                     |       |   |   |
| Outstanding, December 31,  2009 |       | 975,884       |       | 6.88                                           |       | 6.53                                            |       | 1.9                      |       | 10,349 |   |

 

***Warrants***

 

OnDecember 30, 2003, warrants were issued under our agreement with theGovernment of Canada’s Technology Partnerships Canada (“TPC”) program (see note 20(b)(iv)) for the purchase of 138,696 of our common sharesat Cdn. $20.49 per share.  These warrantshad a five-year term, and on December 30, 2008 they expired unexercised.

 

**14.****      ****Stock-basedcompensation**

 

The followingtable summarizes the classification of the stock-based compensation expenserecognized in the Consolidated Statements of Operations for the non-vestedshare awards related to the stock option plan and restricted stock plans asfollows:

 
| ** **                        | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cost of goods sold                |       | $        | 488        |     | $          | 545      |       | $ | 552 |   |
| Sales and marketing               |       | 906      |       | 1,511    |       | 1,411    |       |
| Research and development          |       | 920      |       | 1,199    |       | 1,215    |       |
| Administration                    |       | 2,868    |       | 3,126    |       | 3,131    |       |
| Restructuring                     |       | —   |       | —   |       | 905      |       |
| Integration                       |       | —   |       | —   |       | 42       |       |
| Stock-based compensation  expense |       | $        | 5,182      |     | $          | 6,381    |       | $ | 7,256 |   |

 

As of December 31,2009, the unrecognized stock-based compensation costs related to non-vestedstock options and RSUs were $4,412 and $3,812, respectively (2008 — $6,314 and$3,185; 2007 — $8,688 and $2,372) which are expected to be recognized over aweighted average period of 1.9 and 1.7 years, respectively (2008 — 2.4 and 1.8years; 2007 — 1.4 and 1.3 years).

 

RSUs are valued at thegrant date market price of the underlying securities and the compensationexpense is recognized on a straight-line basis over the three-year vestingperiod based on the estimated number of awards expected to vest.  The expense recognized in our consolidatedstatement of operations for the year ended December 31, 2009 was $3,267(2008 — $1,888; 2007 — $585).

 

We calculate the fairvalue of stock options granted using the Black-Scholes valuation model. Underthis method, the weighted average fair value of stock options granted in 2009was $1.89 (2008 —$7.01; 2007 —$10.10) using the following assumptions:

 

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| ** **                      | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Expected dividend yield         |       | 0        |       | 0        |       | 0        |       |
| Expected stock price volatility |       | 63       | %          | 54       | %          | 57       | %          |
| Risk-free interest rate         |       | 4.20     | %          | 3.11     | %          | 1.84     | %          |
| Expected life of options        |       | 4 years  |       | 4 years  |       | 4 years  |       |
| Estimated forfeiture rate       |       | 3.50     | %          | 3.50     | %          | 3.50     | %          |

 

There is no dividendyield because we do not pay, and do not plan to pay, cash dividends on ourcommon shares. The expected stock price volatility is based on the historicalvolatility of our average monthly stock closing prices over a period equal tothe expected life of each option grant. The risk-free interest rate is based onyields from risk-free instruments with a term equal to the expected term of theoptions being valued. The expected life of options represents the period oftime that the options are expected to be outstanding based on historical dataof option holder exercise and termination behaviour.  We estimate forfeitures at the time of grantand, if necessary, revise that estimate if actual forfeitures differ and adjuststock-based compensation expense accordingly.

 

***Wavecomstock option, warrant plans and free shares***

 

Prior to our acquisition of Wavecom, Wavecom grantedfounders’ warrants and stock options to its employees, stock options toemployees of its subsidiaries, warrants to some members of its board ofdirectors and free shares to its employees of its subsidiaries.  Under the terms of the plans, the options andwarrants give the right to purchase one share of Wavecom per option or warrantat an exercise price based either on the stock market price of Wavecom shareson the grant date, or on the average stock market price of Wavecom shares overthe twenty trading days prior to the date of grant (in accordance with FrenchLaw).  The stock-based compensationrelated to the pre-acquisition Wavecom plans recognized in the ConsolidatedStatements of Operations is as follows:

 
| ** **               | ** ** | **2009** | ** ** |
|--------------------------|------------|----------|------------|
| Cost of goods sold       |       | $        | 11         |   |
| Sales and marketing      |       | 150      |       |
| Research and development |       | 218      |       |
| Administration           |       | 462      |       |
|                     |       | $        | 841        |   |

 

The unrecognized stock-based compensation for thegrants under the plans that existed prior to the acquisition of Wavecom is $96(€67), which is expected to be recognized by the end of 2012.

 

**15.****      ****Non-controllinginterest**

 

The non-controlling interest representsshares held by Wavecom employees under their long-term incentive plan.  The shares have vested, but are subject to ahold period for tax purposes.  We haveentered into a put/call agreement with these employees to purchase back theshares at €8.50 per share upon expiry of the tax hold period.  Until that time, the shares are consideredthe non-controlling interest.

 

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The following table summarizes the effects of changes inour ownership interest of Wavecom on our equity:

 
| ** **                                                                                              | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net income (loss) attributable  to Sierra Wireless                                                      |       | $        | 32,459     |     | $          | 62,583   |       | $ | (39,899 | ) |
| Transfer (to) from the  non-controlling interest                                                        |       |     |       |     |       |     |       |
| Decrease in paid-in capital  for issuance of Wavecom shares on exercise of stock options                |       | —   |       | —   |       | (2,751   | )          |
| Decrease in paid-in capital  for purchase of Wavecom shares in subsequent tender and squeeze-out        |       | —   |       | —   |       | (1,647   | )          |
| Increase in paid-in capital  for issuance of Wavecom shares on issuance of free shares                  |       | —   |       | —   |       | (1,568   | )          |
| Net transfers (to) from the  non-controlling interest                                                   |       | —   |       | —   |       | (5,966   | )          |
| Change from net loss  attributable to Sierra Wireless and transfers (to) from non-controlling  interest |       | $        | 32,459     |     | $          | 62,683   |       | $ | (45,865 | ) |

 

**16.****      ****Financialinstruments**

 

***(a)******        ******Fair value of financial instruments***

 

The carrying amounts of certain of our financialinstruments, including cash and cash equivalents, accounts receivable, accountspayable, accrued liabilities and current portions of long-term liabilities,approximate their fair value due to their short maturities. Short-terminvestments are carried at fair market value, their book value as at December 31,2009 was $26,898 (2008 — $18,024). Based on borrowing rates currently availableto us for loans with similar terms, the carrying value of our obligations undercapital lease and long-term liabilities approximates their fair value.

 

***(b)******        ******Concentrations of business risk***

 

We depend on a small number of customers for asignificant portion of our revenue. In 2009, two customers individuallyaccounted for more than 10% of our revenue and, in aggregate, these twocustomers represented 40% of our revenue. In fiscals 2008 and 2007, these sametwo customers individually accounted for more than 10% of our revenue and, inaggregate, represented 53% and 44% of our revenue, respectively.

 

We maintain substantially all of our cash and cashequivalents with major financial institutions or government instruments.Corporate paper, if any, is uninsured. Our deposits with banks may exceed theamount of insurance provided on such deposits.

 

We outsourcemanufacturing of our products to third parties and, accordingly, we aredependent upon the development and deployment by third parties of theirmanufacturing abilities. The inability of any supplier or manufacturer tofulfill our supply requirements could impact future results. We have supplycommitments to our contract manufacturers based on our estimates of customerand market demand. Where actual results vary from our estimates, whether due toexecution on our part or market conditions, we are at risk.

 

Financial instruments that potentially subject us toconcentrations of credit risk are primarily accounts receivable.****We perform on-going credit evaluations ofour customer’s financial condition and require letters of credit or otherguarantees whenever deemed appropriate.

 

Although substantially all of our revenues are receivedin U.S. dollars, we incur operating costs and have obligations related to ourfacilities restructuring that are denominated in Canadian dollars. Fluctuationsin the exchange rates between these currencies could have a material impact onour business, financial condition and results of operations. We mitigate thisrisk by denominating many of our payment obligations in U.S. dollars. A portionof our European revenues are paid in Euros and this rate has fluctuatedsubstantially during 2009.  We mitigatethis risk using those Euros to pay obligations denominated in Euros and byconverting to U.S. dollars on an as needed basis. During the year ended December 31,2009, we recorded an unrealized foreign exchange loss of $15,653 (2008 — gainof $18,416) on the restricted cash of €136,766 ($191,473)held for the Wavecom tender offer and an unrealized foreign exchange loss of$1,215 on the payment of the term loan related to the acquisition of Wavecom.

 

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Weare generating an increasing portion of our revenue from sales to customersoutside of North America including Europe, the Middle East and Asia.  We expect increased exposure to Eurofluctuations due to the acquisition of Wavecom. Wavecom, whose functional currency is the Euro, uses derivatives such asforeign currency forward and options contracts, to reduce the foreign exchangerisk on cash flows from firm and highly probable commitments denominated inU.S. dollars.To manage our foreign currency risks, we may enter into more such contractsshould we consider it to be advisable to reduce our exposure to future foreignexchange fluctuations.

 

We are subject to risks typical of an internationalbusiness including, but not limited to, differing economic conditions, changesin political climate, differing tax structures other regulations andrestrictions and foreign exchange rate volatility.  Accordingly, our future results could bematerially affected by changes in these or other factors.

 

***(c)******         ******Credit facilities***

 

UntilDecember 2008, we had an unsecured revolving demand facility with aCanadian chartered bank for $10,000 that bore interest at prime per annum.  No amount was drawn under that facility andit was terminated on December 1, 2008.

 

Inconnection with our acquisition of Wavecom, we signed a credit agreement on December 1,2008, with The Toronto Dominion Bank and Canadian Imperial Bank of Commerce, aslenders, that provided a one-year revolving term credit facility (“RevolvingFacility”) and a one-year non-revolving term credit facility (“Term Facility”).

 

The Term Facility, notto exceed €218,000, was used to complete the acquisition of Wavecom ordinaryshares and OCEANEs.  The Term Facilitywas secured by cash of €136,766 and  a pledgeagainst all of our assets.  On December 1,2008, as required by French regulations, we drew a letter of credit in theamount of €218,000 issued under the Term Facility.  On February 26, 2009, we borrowed€80,473 under the Term Facility to facilitate the purchase, on February 27,2009, of 99.97% of the outstanding OCEANEs. On February 27, 2009, we completed the purchase of 84.32% of theoutstanding Wavecom shares with €115,365 of our cash that secured the TermFacility and the letter of credit was reduced from €218,000 to €22,162.  The OCEANEs were subsequently redeemed byWavecom and on March 13, 2009 the loan of €80,473 under the Term Facilitywas repaid with those proceeds.  Oncompletion of the squeeze-out on April 29, 2009, the letter of credit wasreduced to nil and the Term Facility was no longer available.

 

TheRevolving Facility, not to exceed $55,000, is to be used for working capitalrequirements and is secured by a pledge against all of our assets.  On January 29, 2010, we signed anamended and restated credit agreement which renewed our Revolving Facility to January 28,2011, and amended the maximum amount from $55,000 to $10,000.  Since December 1, 2008, we have notdrawn on any amount under the Revolving Facility.

 

At December 31,2009, there were no borrowings under the Revolving Facility and we were incompliance with the covenants associated with the credit facility.

 

***(d)******        ******Letters of credit***

 

During2007, we obtained letters of credit to ensure the performance of a third partyin accordance with specified terms and conditions. Our obligations under thesefinancial instruments expired in February 2008 and were replaced by astandby irrevocable letter of credit, which was terminated on November 25,2008.

 

On December 1,2008, we drew a letter of credit in the amount of €218,000, which was issuedunder the €218,000 secured Term Facility to facilitate our acquisition ofWavecom.  As of the completion of thesqueeze-out of Wavecom shares, the letter of credit was reduced to nil and theTerm Facility was no longer available.

 

***(e)******         ******Derivatives***

 

Wavecom, whose functionalcurrency is the Euro, uses derivatives such as foreign currency forward andoptions contracts, to reduce the foreign exchange risk on cash flows from firmand highly probable commitments denominated in U.S. dollars. The fair value ofthese financial instruments is determined using published exchange rates tocalculate the price that would be received to sell the asset or paid totransfer the liability related to the contracts.  Accordingly, these foreign exchange contractsare classified in Level 2 of the fair value hierarchy. These

 

29

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instruments are recorded atfair value on the balance sheet in prepaid expenses and other.  At December 31, 2009, there were no cashflow hedges. All derivatives that were outstanding at December 31, 2009had maturity dates of less than 12 months. We believe that the counterparty risk on the foreign currency financialinstruments being used is acceptable because we deal with major banks andfinancial institutions.

 

The following table presentsthe fair value of the derivative financial instruments at December 31,2009:

 
| ** **                                                                      | ** ** | **Notional  Amount** | ** ** | **Fair********Value** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------|------------|-----------------------|------------|
| Fair value of forward and  option contracts selling U.S. dollars against Euros: |       | $                    | 11,600     |                  | €     | 53 |   |
|                                                                                 |            |                      |            |                       |            |  |  |

 

The net foreign currencyexposure related to Wavecom’s assets and liabilities as of December 31,2009, which are denominated in foreign currencies and then converted to Euros,are as follows:

 
| ** **                                                    | ** ** | **U.S.********Dollars** | ** ** | **Other  Currencies** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| Assets                                                        |       | €                  | 11,031     |                  | €     | 265 |   |
| Hedging of assets in foreign  currencies (balance sheet)      |       | 8,112                   |       | —                |       |
| Net assets after hedging                                      |       | €                  | 2,919      |                  | €     | 265 |   |
|                                                          |       |                    |       |                  |       |
| Liabilities                                                   |       | €                  | 4,124      |                  | €     | 93 |   |
| Hedging of liabilities in  foreign currencies (balance sheet) |       | —                  |       | —                |       |
| Net liabilities after hedging                                 |       | €                  | 4,124      |                  | €     | 93 |   |

 

**17.****      ****Incometaxes**

 

The composition of ourdeferred tax assets at December 31 is as follows:

 
| ** **                                    | ** ** | **2008**   | ** ** | **2009**   | ** ** |
|-----------------------------------------------|------------|------------|------------|------------|------------|
| Deferred tax assets                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fixed assets                                  |       | $          | 2,407      |       | $          | 8,052 |   |
| Loss carryforwards                            |       | 6,149      |       | 65,467     |       |
| Capital loss carryforwards                    |       | 1,251      |       | 1,826      |       |
| Scientific research and  development expenses |       | 3,782      |       | 17,265     |       |
| Share issue costs                             |       | 535        |       | 423        |       |
| Reserves and other                            |       | 9,956      |       | 29,852     |       |
| Total gross deferred tax  assets              |       | 24,080     |       | 122,885    |       |
| Deferred tax liability                        |       |       |       |       |       |
| Acquired intangibles                          |       | 2,758      |       | 23,659     |       |
| Total net deferred tax assets                 |       | 21,322     |       | 99,226     |       |
| Less valuation allowance                      |       | 16,219     |       | 93,214     |       |
| Net deferred tax assets                       |       | $          | 5,103      |       | $          | 6,012 |   |

 

Inassessing the realizability of our deferred tax assets, we considered whetherit is more likely than not that some portion or all of our deferred tax assetswill not be realized. The ultimate realization of our deferred tax assets isdependent upon the generation of future taxable income during the periods inwhich temporary differences become deductible. We considered projected futuretaxable income and tax planning strategies in making our assessment.

 

AtDecember 31, 2009, we have approximately $8,750 of capital losscarry-forwards for Canadian tax purposes that are available, indefinitely, tobe deducted against future Canadian taxable capital gains. As well, we haveapproximately $57,150 of scientific research and development expendituresavailable to be deducted against future Canadian taxable income that may becarried forward indefinitely and investment tax credits of approximately$32,289 available to offset future Canadian federal and provincial income taxespayable. The investment tax credits expire commencing in 2010 until 2029.

 

In addition, at December 31,2009, net operating loss carry-forwards for our foreign subsidiaries were$12,104 for U.S. incometax purposes that expire in various amounts commencing in 2020 through 2029,$159,900 for French

 

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incometax purposes, $13,011 for Hong Kong income tax purposes, $66 for Brazil incometax purposes and $611 for German income tax purpose.  Our foreign subsidiaries may be limited in theirability to use foreign net operating losses in any single year depending ontheir ability to generate significant taxable income.  In addition, the utilization of thesenet operating losses is also subject to ownership change limitations providedby U.S. federal and specific state income tax legislation.  Tax loss carryforwards are denominated in thecurrency of the countries in which the respective subsidiaries are located andoperate.  Fluctuations in currencyexchange rates could reduce the U.S. dollar equivalent value of these tax losscarry forwards in future years.

 

Wehave evaluated all uncertain tax positions and have determined that theunrecognized tax benefits at December 31, 2009 were $7,754 (2008 —$9,344).  Of this total, $7,617 (2008 —$9,344) represents the total amount of unrecognized tax benefits that, ifrecognized, would affect the effective tax rate.  We recognize potential interest and penaltiesrelated to income tax matters in income tax expense.  As at December 31, 2009, we have accrued$1,135 (2008 — $1,956) for interest and penalties.  Tax years ranging from 2003 to 2008 remainsubject to examination in Canada, the United States, the United Kingdom,France, Germany, Australia, China, Hong Kong, Brazil and Luxembourg.

 

***Effective tax rate***

 

Our income tax expense for the year ended December 31differs from that calculated by applying statutory rates for the following reasons:

 
| ** **                                                                                                                  | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Combined Canadian federal and  provincial income taxes at expected rate of 30.00% (2008 — 31.00%, 2007 —  34.12%) |       | $        | 14,798     |     | $          | 21,927   |       | $ | (11,989 | ) |
| Permanent and other  differences                                                                                            |       | (492     | )          | 1,063    |       | (8,969   | )          |
| Change in tax legislation                                                                                                   |       | —   |       | —   |       | (20,839  | )          |
| Change in valuation allowance                                                                                               |       | (7,526   | )          | (30,694  | )          | 42,801   |       |
| Change in statutory tax rate  and foreign tax rate                                                                          |       | 2,379    |       | 1,353    |       | (1,759   | )          |
| Stock based compensation  expense                                                                                           |       | 951      |       | 1,356    |       | 1,095    |       |
| Pre-acquisition loss not  previously recognized                                                                             |       | 802      |       | —   |       | —   |       |
| Foreign exchange gain  adjustment                                                                                           |       | —   |       | 13,146   |       | —   |       |
|                                                                                                                        |       | $        | 10,912     |     | $          | 8,151    |       | $ | 340 |   |

 

Ourprovisions for income taxes consist of the following:

 
| ** **         | ** ** | **2007**   | ** ** | **2008**   | ** ** | **2009**   | ** ** |
|--------------------|------------|------------|------------|------------|------------|------------|------------|
| Current            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Canadian           |       | $          | —     |       | $          | —     |       | $ | — |   |
| Foreign            |       | 12,096     |       | 11,993     |       | —     |       |
| Total current      |       | 12,096     |       | 11,993     |       | —     |       |
| Deferred           |       |       |       |       |       |       |       |
| Canadian           |       | —     |       | —     |       | (1,910     | )          |
| Foreign            |       | (1,184     | )          | (3,842     | )          | 2,250      |       |
| Total deferred     |       | (1,184     | )          | (3,842     | )          | 340        |       |
| Income tax expense |       | $          | 10,912     |       | $          | 8,151      |       | $ | 340 |   |

 

31

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***Reconciliation of unrecognized tax benefits***

 
| ** **                                              | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Unrecognized tax benefits,  opening balance             |       | $        | 2,240      |     | $          | 4,085    |       | $ | 9,344 |   |
| Gross increases — tax positions in prior period    |       | 1,306    |       | 3,369    |       | 237      |       |
| Gross increases — tax  positions in current period |       | 539      |       | 1,890    |       | (1,827   | )          |
| Unrecognized tax benefits,  ending balance              |       | $        | 4,085      |     | $          | 9,344    |       | $ | 7,754 |   |

 

**18.****      ****Researchand development**

** **
| ** **                                                           | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Gross research and development                                       |       | $        | 38,872     |     | $          | 48,296   |       | $ | 82,891 |   |
| Government research and  development repayments (recovery) (note 20) |       | 4,176    |       | 5,764    |       | (754     | )          |
| Government research and  development tax credits                     |       | —   |       | —   |       | (1,316   | )          |
|                                                                 |       | $        | 43,048     |     | $          | 54,060   |       | $ | 80,821 |   |

 

**19.****      ****Earnings(loss) per share**

 

The weighted-average numbers of shares outstanding (inthousands) used in the computation of earnings (loss) per share are as follows:

 
| ** **                                                                 | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|----------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Weighted-average shares used  in computation of basic earnings per share   |       | 27,696   |       | 31,254   |       | 31,035   |       |
| Weighted-average shares from  assumed conversion of dilutive options       |       | 260      |       | 69       |       | —   |       |
| Weighted-average shares used  in computation of diluted earnings per share |       | 27,956   |       | 31,323   |       | 31,035   |       |

 

In 2009, all potential dilutive options wereanti-dilutive due to the loss.

 

**20.****      ****Commitmentsand contingencies**

 

***(a)******        ******Operatingleases***

 

We lease equipment and premises with minimum futurelease payments at December 31, 2009 as follows:

 
| 2010       |   | $     | 10,933 |   |
|------------|--------|-------|--------|--------|
| 2011       |   | 6,513 |   |
| 2012       |   | 1,568 |   |
| 2013       |   | 1,485 |   |
| 2014       |   | 1,457 |   |
| Thereafter |   | 578   |   |
|       |   | $     | 22,534 |   |

 

***(b)******        ******Contingent liability on sale of products***

 

(i)                      Under license agreements, we are committedto make royalty payments based on the sales of products using certaintechnologies. We recognize royalty obligations as determinable in accordancewith agreement terms. Where agreements are not finalized, we have recognizedour current best estimate of the obligation. When the agreements are finalized,the estimate will be revised accordingly.

 

(ii)                   We are a party to a variety of agreements in theordinary course of business under which we may be obligated to indemnify athird party with respect to certain matters. Typically, these obligations ariseas a result of contracts for sale of our products to customers where we provideindemnification against losses arising from matters such as potentialintellectual property infringements and product liabilities. The impact on ourfuture financial results is not subject to reasonable estimation becauseconsiderable uncertainty exists as to whether claims will be made and the finaloutcome of potential claims. To date, we have not incurred material costsrelated to these types of indemnifications.

 

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(iii)                Under certain research and development fundingagreements, we are contingently liable to repay up to $3,167. Repayment underthese agreements is contingent upon reaching certain revenue levels forspecified products.

 

(iv)               Under an agreement with the Government of Canada’sTechnology Partnerships Canada (“TPC”) program, we have received Cdn. $9,999 to support the development of a range ofthird generation wireless technologies. Under the terms of the agreement, anamount up to a maximum of Cdn. $13,000 is to be repaid based on annual sales,in excess of certain minimum amounts, of specified products commencing in 2004.As all funds available under this program were earned prior to 2004, during theyears ended December 31, 2009 and 2008 we claimed nil. As of June 30,2008, the repayable funding had been fully expensed.  During the year ended December 31, 2009,we expensed nil (2008— $2,806; 2007 — $4,139) in research and developmentexpense. In addition, we issued warrants to TPC to purchase 138,696 commonshares on December 30, 2003, valued at Cdn. $2,000 based on theBlack-Scholes option pricing model. The warrants were exercisable at Cdn. $20.49per share for a term of five years from December 30, 2003. On December 30,2008, the warrants expired unexercised.

 

In March 2004, we entered into a second agreementwith TPC under which we were eligible to receive conditionally repayableresearch and development funding up to Cdn. $9,540 to support the developmentof a range of third generation wireless technologies. The agreement waseffective April 2003. Given the termination of the Voq professional phoneinitiative in the second quarter of 2005, no costs have been claimed under thisagreement since June 2005.  A totalof Cdn. $4,558 was funded by TPC for eligible development activity prior to thetermination of the Voq initiative.  Underthe terms of the original agreement, royalty repayments, based on a percentageof annual sales in excess of certain minimum amounts, would be calculated overthe period from April 2003 to December 2011.  If royalty repayments were less than Cdn.$16,455 by December 2011, repayments would have continued subsequent to December 2011until the earlier of when this amount was reached or December 2014.  In addition, all or part of the contributionwas repayable upon the occurrence of certain prescribed events of default,including material breach or insolvency. During the year ended December 31, 2009, we have recorded, inresearch and development expense, the repayment of nil (2008 — $2,957; 2007 —$37).  In March 2009, we signed anamended agreement under which we will pay a total of $2,155 (Cdn. $2,500), withpayments due on March 1 for each of the next five years beginning March 1,2009, in full and final satisfaction of all amounts owing, or to be owed, toTPC under this agreement.  In the yearended December 31, 2009, we repaid $394 (Cdn. $500) (2008 — nil).  We had previously accrued the royaltyrepayments and as a result of the amended agreement, in the year ended December 31,2009, we have reversed accruals in research and development expense totaling$753 (Cdn. $957).

 

(v)                   We accrue product warranty costs, when wesell the related products, to provide for the repair or replacement ofdefective products. Our accrual is based on an assessment of historicalexperience and on management’s estimates. An analysis of changes in theliability for product warranties follows:

 
| Balance, December 31, 2007     |   | $       | 4,656  |   |
|-------------------------------------|--------|---------|--------|--------|
| Provisions                          |   | 11,118  |   |
| Expenditures                        |   | (11,809 | )      |
| Balance, December 31,  2008    |   | 3,965   |   |
| Acquisition of Wavecom (note  3(a)) |   | 791     |   |
| Provisions                          |   | 6,050   |   |
| Expenditures                        |   | (6,176  | )      |
| Balance, December 31,  2009    |   | $       | 4,630  |   |

 

***(c)******         ******Other commitments***

 

We have entered into purchase commitments totallingapproximately $109,421 with certain contract manufacturers under which we havecommitted to buy a minimum amount of designated products between January 2010and March 2010.  In certain of theseagreements, we may be required to acquire and pay for such products up to theprescribed minimum or forecasted purchases.

 

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***(d)******        ******Legal proceedings***

 

In July 2009, apatent holding company, SPH America, LLC, filed a patent litigation lawsuit inthe United States District Court for the Eastern District of Virginia assertingpatent infringement by a number of device manufacturers, including us, andcomputer manufacturers, including Hewlett-Packard Co. (“HP”), PanasonicCorporation (“Panasonic”), General Dynamics Itronix Corporation (“GD”) andFujitsu America and Fujitsu Japan (“Fujitsu”). The litigation, which has been transferred to the United States DistrictCourt, Southern District of California, makes certain allegations concerningthe wireless modules sold to the computer manufacturers by us, our competitors,and some of our customers with whom we have supply agreements.  We are assessing our obligations and ourliability, if any, in respect of this litigation. Although there can be noassurance that an unfavourable outcome would not have a material adverse effecton our operating results, liquidity or financial position, we believe theclaims are without merit and will vigorously defend the lawsuit.

 

In July 2009, apatent holding company, WIAV Networks, LLC, filed a patent litigation lawsuitin the United States District Court for the Eastern District of Texas assertingpatent infringement by a number of parties, including wireless devicemanufacturers, including us.  We are currentlyassessing our potential liability, if any, in respect of this litigation.Although there can be no assurance that an unfavourable outcome would not havea material adverse effect on our operating results, liquidity or financialposition, we believe the claims are without merit and will vigorously defendthe lawsuit.

 

In July, 2009, a patentholding company, Celltrace, LLC, filed a patent litigation lawsuit in theUnited States District Court for the Eastern District of Texas asserting patentinfringement by a number of telecommunication carrier companies includingSprint Spectrum, LP and AT&T Mobility LLC. The litigation makes certain allegations concerning the wireless modemssold to the carriers by us and our competitors. We are currently assessing our obligations and our liability, if any, inrespect of this litigation. Although there can be no assurance that anunfavourable outcome would not have a material adverse effect on our operatingresults, liquidity or financial position, we believe the claims are withoutmerit and will vigorously defend the lawsuit.

 

In June 2009, apatent holding company, Saxon Innovations, LLC (“Saxon”), filed a patentlitigation lawsuit in the United States District Court for the Eastern Districtof Texas asserting patent infringement by a number of wireless devicemanufacturers, including us.  Thelitigation makes certain allegations concerning the products sold by thosemanufacturers.  We are currentlyassessing our liability, if any, in respect of this litigation. Although therecan be no assurance that an unfavourable outcome would not have a materialadverse effect on our operating results, liquidity or financial position, webelieve the claims are without merit and will vigorously defend the lawsuit.

 

In January 2009, apatent holding company, DNT LLC, filed a patent litigation lawsuit in theUnited States District Court for the Eastern District of Virginia assertingpatent infringement by a number of telecommunication carrier companiesincluding Sprint Spectrum, LP and Nextel, Verizon Wireless and T-Mobile USA, Inc.  The litigation made certain allegationsconcerning the wireless modems sold to the carriers by us and our competitors.Following a trial in December 2009, the Court entered a verdict of patentnon-infringement and invalidity.  InFebruary, 2010, DNT LLC filed a motion for a new trial or in the alternativefor an amended judgment.  While webelieve that this motion will be unsuccessful, we intend to vigorously defendthe motion.  DNT LLC has indicated its intentionto file an appeal from the Court’s verdict. While we believe that the appeal, if any, will be unsuccessful, weintend to vigorously defend against the appeal.

 

In July 2008, Saxonalso filed a patent litigation lawsuit in the United States District Court forthe Eastern District of Texas asserting patent infringement by a number ofcomputer manufacturers, including HP.  Wehave entered into a supply agreement with HP and, pursuant to that agreement,have been notified of the litigation.  Weare currently assessing our obligations and our liability, if any, in respectof this litigation. Although there can be no assurance that an unfavourableoutcome would not have a material adverse effect on our operating results,liquidity or financial position, we believe the claims are without merit andwill vigorously defend the lawsuit.

 

On February 6, 2008,Wavecom filed a civil proceeding in the Supreme Court of the State of New York(USA) against Siemens AG and two of its U.S. subsidiaries.  In that proceeding,Wavecom alleged that the

 

34

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defendants improperlytook Wavecom’s confidential internal product information, distributed itinternally and to customers of Wavecom, and utilized it to unfairly compete withWavecom.  The lawsuit claimed torts of conversion, unfair competition andmisappropriation of trade secrets, and sought damages in an amount to be provedat trial and a court order requiring the defendants to return theinformation.  On August 24, 2009, the parties reached a mutuallyagreeable settlement of the lawsuit and the case was subsequently dismissed bystipulation of the parties.

 

Since early December 2008,Wavecom and its subsidiary Wavecom, Inc. have been involved in litigationwith a contracting counterparty, Temic Automotive of North America (ContinentalGroup) which has unjustly withheld payment of approximately $2,000 for productssold by Wavecom, Inc.  This amounthas been provided for in our allowance for doubtful accounts.  Wavecom and Wavecom, Inc. filed suitagainst Continental Group in the Supreme Court of the State of New York (USA)to recover the unpaid receivables. Continental Group filed a separate suit in state court in North Carolinaagainst Wavecom, asserting eight claims for relief, alleging breach of bothtort and contracts law.  ContinentalGroup has requested damages under the main claim of $1,500 to be determined attrial.  On the other claims, Continentalhas requested damages in excess of $10 each and has also requested treble andpunitive damages.  As a result of amerger with Sierra Wireless America, Inc. (“SWA”), Wavecom, Inc. nolonger exists and the liabilities of Wavecom, Inc. are the liabilities ofSWA.  Although there can be no assurancethat an unfavourable outcome would not have a material adverse effect on ouroperating results, liquidity or financial position, we believe the claims madeby Continental Group are without merit and will vigorously defend the lawsuit.

 

We are engaged in certainother claims and legal actions in the ordinary course of business and believethat the ultimate outcome of these actions will not have a material adverseeffect on our operating results, liquidity or financial position.

 

**21.****      ****Supplementaryinformation**

 
| ** **                                            | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| ***(a)  Cash flow  information:***               |       |     |       |     |       |     |       |
| Cash received                                         |       |     |       |     |       |     |       |   |   |   |
| Interest                                              |       | $        | 5,019      |     | $          | 6,330    |       | $ | 745 |   |
| Income taxes                                          |       | 10       |       | 13       |       | 921      |       |
| Cash paid for                                         |       |     |       |     |       |     |       |
| Interest                                              |       | —   |       | —   |       | 874      |       |
| Income taxes                                          |       | 5,592    |       | 8,492    |       | 4,435    |       |
| Non-cash financing activities                         |       |     |       |     |       |     |       |
| Issuance of common shares on  acquisition (note 3(b)) |       | 17,597   |       | —   |       | —   |       |
|                                                  |       |     |       |     |       |     |       |
| ***(b)  Allowance for  doubtful accounts:***     |       |     |       |     |       |     |       |
| Opening balance                                       |       | $        | 1,867      |     | $          | 1,939    |       | $ | 1,989 |   |
| Acquisition of Wavecom (note  3(a))                   |       | —   |       | —   |       | 4,120    |       |
| Bad debt expense                                      |       | 342      |       | 269      |       | 721      |       |
| Write offs and settlements                            |       | (270     | )          | (219     | )          | (776     | )          |
| Foreign exchange                                      |       | —   |       | —   |       | 450      |       |
| Closing balance                                       |       | $        | 1,939      |     | $          | 1,989    |       | $ | 6,504 |   |
|                                                  |       |     |       |     |       |     |       |
| ***(c)  Other:***                                |       |     |       |     |       |     |       |
| Rent  expense                                         |       | $        | 2,393      |     | $          | 3,699    |       | $ | 10,705 |   |
| Foreign exchange gain (loss)                          |       | (411     | )          | 20,017   |       | 1,261    |       |

 

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**22.****      ****Segmentedinformation**

 

We operate in the wireless communications solutionsindustry and senior management makes decisions about allocating resources basedon the following reportable segments:

 

·                  Mobile computingsegment is comprised of:

 

(a)          Mobile computing — includes ourAirCard branded PC cards and USB modems that are developed and sold to wirelessoperators around the world, as well as embedded wireless solutions that areused by a wide range of original equipment manufacturers to wirelessly enabletheir products and solutions.

 

(b)         Machine-to-machine — includesour rugged mobile and M2M gateway solutions that consist of intelligent modemsthat are sold to public safety, transportation, field service, energy,industrial and financial organizations.

 

·                  Wavecom segment —includes our wireless module platforms and solutions acquired with ouracquisition of Wavecom (note 3(a)), which integrates all of the necessarysoftware and hardware on embedded devices for M2M and automotivecommunications.

 

Segment revenues and segment earnings (loss) representthe primary financial measures used by senior management to assess performanceand include the revenue, cost of goods sold, sales and operating expenses forwhich management is held accountable. Segment expenses include sales and marketing, research and development,administration, and amortization expenses that are directly related toindividual segments.  Segment earnings(loss) exclude acquisition-related costs, purchase price amortization,restructuring and integration costs, which are reviewed separately by seniormanagement.  Intersegment revenue in eachof the three years ended December 31, 2009 was nil.  As we do not evaluate the performance of ouroperating segment based on segment assets, management does not classify assetinformation on a segmented basis.  Thetable below presents revenue and earnings (loss) from operations for ourreportable segments, as well as reconciliation to our GAAP net earnings (loss)before income tax and non-controlling interest:

 
| ** **                                                          | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|---------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Revenue from external customers**                                 |       |     |       |     |       |     |       |
| Mobile computing                                                    |       | $        | 439,903    |     | $          | 567,308  |       | $ | 406,777 |   |
| Wavecom                                                             |       | —   |       | —   |       | 119,607  |       |
| Total                                                               |       | $        | 439,903    |     | $          | 567,308  |       | $ | 526,385 |   |
| ** **                                                          |       |     |       |     |       |     |       |
| **Earnings (loss) from operations**                                 |       |     |       |     |       |     |       |
| Mobile computing (1)                                                |       | $        | 41,172     |     | $          | 47,790   |       | $ | 23,691 |   |
| Wavecom (2)                                                         |       | —   |       | —   |       | (16,911  | )          |
| Total reportable segments                                           |       | 41,172   |       | 47,790   |       | 6,780    |       |
| Other                                                               |       | —   |       | —   |       | (124     | )          |
| Total                                                               |       | 41,172   |       | 47,790   |       | 6,656    |       |
| Less:                                                               |       |     |       |     |       |     |       |
| Acquisition costs                                                   |       | —   |       | —   |       | 7,785    |       |
| Purchase price amortization                                         |       | 2,596    |       | 3,218    |       | 11,798   |       |
| Restructuring and related  asset impairment charges (note 4)        |       | —   |       | —   |       | 20,938   |       |
| Integration (note 5)                                                |       | —   |       | —   |       | 3,859    |       |
| Earnings (loss) from  operations                                    |       | 38,576   |       | 44,572   |       | (37,724  | )          |
| Other income (expense)                                              |       | 5,206    |       | 5,579    |       | (4,399   | )          |
| Foreign exchange gain (loss)                                        |       | (411     | )          | 20,583   |       | 1,261    |       |
| Net earnings (loss) before  income tax and non-controlling interest |       | $        | 43,371     |     | $          | 70,734   |       | $ | (40,862 | ) |

 

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(1)          Includesstock-based compensation expense of $6,309 (2008 - $6,381;2007 - $5,182) and amortization expense, other than purchase priceamortization, of $15,135 (2008 - $13,091; 2007 - $11,195).

 

36

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(2)          Includesstock-based compensation expense of $841 (2008 - nil;2007 - nil) and amortization expense, other than purchase price amortization,of $5,159 (2008 - nil; 2007 - nil).

 

Revenue by product is as follows:

 
| ** **                                      | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| AirCard® Mobile Broadband  Devices         |       | $        | 315,906    |     | $          | 408,776  |       | $ | 294,981 |   |
| AirPrimeTM Intelligent Embedded  Modules    |       | 91,243   |       | 120,185  |       | 181,379  |       |
| AirLinkTM Intelligent Gateways  and Routers |       | 25,694   |       | 30,832   |       | 41,005   |       |
| Other                                           |       | 7,060    |       | 7,515    |       | 9,019    |       |
|                                            |       | $        | 439,903    |     | $          | 567,308  |       | $ | 526,384 |   |

 

In each of the three years ended December 31, 2009,2008 and 2007, we had two customers that each accounted for more than 10% ofour revenue.  The revenue from these twocustomers is included within the mobile computing segment as follows:

 
| ** ** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| Customer A |       | $        | 106,685    |     | $          | 183,271  |       | $ | 119,635 |   |
| Customer B |       | 87,354   |       | 114,856  |       | 92,489   |       |
|            |            |          |            |          |            |          |            |  |  |  |

 

Revenue by geographical region based on the customerlocation to which the product is shipped is as follows:

 
| ** **                                         | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Americas                                           |       | $        | 302,588    |     | $          | 397,338  |       | $ | 312,991 |   |
| Europe, Middle East and Africa  (“EMEA”) |       | 53,682   |       | 50,956   |       | 87,547   |       |
| Asia-Pacific                                       |       | 83,633   |       | 119,014  |       | 125,846  |       |
|                                               |       | $        | 439,903    |     | $          | 567,308  |       | $ | 526,384 |   |

 

Fixed assets by geographical region are as follows:

 
| ** **   | ** ** | **2008** | ** ** | **2009** | ** ** |
|--------------|------------|----------|------------|----------|------------|
| Americas     |       | $        | 13,915     |     | $          | 13,281 |   |
| EMEA         |       | 6        |       | 5,718    |       |
| Asia-Pacific |       | 9,014    |       | 8,957    |       |
|         |       | $        | 22,935     |     | $          | 27,956 |   |

 

As at December 31, 2009, 27%(2008 — 33%) of our fixed assets is in Canada.

 

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