TORONTO -- Aastra Technologies Limited - (Toronto:AAH.TO - News) today announced its unaudited financial results for the second quarter ended June 30, 2007. Sales for the three months ended June 30, 2007 were $157.0 million compared to sales of $151.3 million for the same period of 2006, an increase of 3.8%. Consistent with the first quarter, sales in European Enterprise Communication increased 6.9% from $125.3 million in the three months ended June 30, 2006 to $133.9 million in the same period of 2007. Sales in this geographic segment were positively impacted by foreign exchange compared with the second quarter last year, despite the significant strengthening of the Canadian dollar to the Swiss franc and Euro in the latter half of the second quarter of 2007. In addition, sales in Europe were buoyed by an increase in sales in Germany. We have seen strong momentum in that market following a year of restructuring of our German business in 2006.

Sales in the North American Enterprise Communication segment were $23.1 million in the three months ended June 30, 2007, down from $26.0 million in the same period of 2006 primarily as a result of weakness in U.S. sales of large systems during the second quarter as well as a negative impact from foreign exchange on U.S. sales.

Gross margin was 42.6% of sales for the three months ended June 30, 2007, compared with 42.4% of sales for the same period last year. Gross margins improved in Europe to approximately 43.1% of sales from 40.7% of sales in the same period of 2006, as our efforts to improve our cost of supply have started to produce results while pricing across most of Europe has remained fairly stable. Gross margins in North American Enterprise Communication were 41.0% in the second quarter of 2007, down from 50.4% in the same quarter of 2006 as a result of a shift in product sales towards lower margin IP products as well as the effect of lower volumes of service revenue experienced on large systems in the U.S.

Research and development expenses in the second quarter of 2007 were $14.4 million or 9.2% of sales, compared to $14.5 million or 9.6% of sales in the same quarter of 2006. The reduction in research and development expenses reflects the impact of restructuring efforts taken in Europe in the second half of 2006 offset partially by an increase due to the impact of foreign exchange rates. Selling, general and administrative ("SG&A") expenses were $38.0 million or 24.2% of sales in the quarter compared to $37.5 million or 24.8% of sales in the second quarter of 2006. The increase in SG&A expenses was driven mainly by the impact of foreign exchange as the labour costs have remained flat in source currencies while marketing and other general expenses increased modestly when compared to the same period last year.

Losses from foreign exchange were $0.1 million in the second quarter of 2007 compared with a gain of $0.6 million in the same period last year as the Canadian dollar strengthened significantly against the Euro, the Swiss franc and the U.S. dollar in the second half of the quarter. The Company recorded investment income of $0.4 million in the second quarter of 2007 compared to $0.8 million for the first quarter of 2006 mainly as a result of mark to market losses incurred due to the sharp increase in the yield curve on high quality fixed income securities held by the Company. Other charges were $nil compared to $12.9 million that was recorded in the second quarter last year as a result of foreign exchange losses incurred as one of the Company's U.S. subsidiaries repurchased certain shares that it had previously issued to its Canadian parent company.

Income tax expense was $3.1 million in the second quarter or 27.4% of pre-tax profits compared to a tax recovery of $3.0 million in the second quarter of 2006 as a result of the impact of the other charges recorded in that quarter. In addition, the Company recorded a gain of $17.3 million net of tax, from discontinued operations in the second quarter of 2006 as a result of closing the sale of the Digital Video business during that quarter.

Net earnings for the three months ended June 30, 2007 were $8.2 million or $0.50 diluted earnings per share compared to $17.1 million or $0.94 diluted earnings per share in the same period last year. Excluding the gain from discontinued operations and the other charges as described above, net earnings from continuing operations in the second quarter of 2006 would have been approximately $7.5 or $0.41 diluted earnings per share.

On June 30, 2007, Aastra's balance of cash and short-term investments was $113.5 million compared to $115.7 million on December 31, 2006. Cash flow used in operations for the three months ended June 30, 2007 was $4.2 million primarily as a result of an increase in accounts receivables and inventory and a decrease in accounts payable balances during the quarter. In addition, the Company repurchased 20,000 common shares for $0.7 million and repaid $0.8 million of bank indebtedness during the second quarter of 2007.

Finally, during the second quarter of 2007, the Company completed the purchase of 60% of the outstanding common shares of Solucoes de Comunicacao, Limitada. ("Elocom"), based in Lisbon, Portugal for consideration of Euro 750,000 ($1.2 million) plus contingent consideration of up to Euro 437,000 ($0.7 million) payable based on the results of operations over the two year period ending December 31, 2008. After the acquisition, the Company owns 100% of Elocom which distributes the NeXspan product line in the Portuguese market.

Aastra Technologies Ltd.