<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16
Under the Securities Exchange Act of 1934
For the month of July, 2000
EXFO Electro-Optical Engineering Inc.
(Translation of registrant's name into English)
465 Godin Avenue, Vanier, Quebec, Canada G1M 3G7
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F ___X___ Form 40-F ______
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes _______ No ___X___
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-______.
<PAGE>
On July 11, 2000, EXFO Electro-Optical Engineering Inc., a Canadian corporation,
reported its results of operations for the fiscal quarter ended May 31, 2000.
This Report on Form 6-K sets forth the news release relating to EXFO's
announcement and certain information relating to EXFO's financial condition and
results of operations for that fiscal quarter.
<PAGE>
FOR IMMEDIATE RELEASE
[LOGO]
EXFO POSTS RECORDS FOR SALES AND NET INCOME IN THIRD QUARTER
QUEBEC CITY, CANADA, July 11, 2000--EXFO Electro-Optical Engineering Inc.
(NASDAQ: EXFO, TSE: EXF) announced today records for sales and net income for
the third quarter ended May 31, 2000.
Sales increased 78% to US$19.4 million for the third quarter of 2000 from
US$10.9 for the same period in fiscal 1999, and 11% from US$17.4 million in the
second quarter of 2000.
Net income increased 69% to US$2.75 million, or $0.07 per share, for the third
quarter of 2000 from US$1.62 million, or $0.04 per share, for the same period in
fiscal 1999, and 14% from US$2.41 million, or $0.06 per share, in the previous
quarter of 2000.
"We are pleased to announce that this quarter marks another period of records
for sales and net income for EXFO," said Germain Lamonde, chairman, president,
and chief executive officer of EXFO. "As we enter our life as a public company,
we will strive to increase shareholder value by focusing our development
activities on dense wavelength division multiplexing (DWDM) test and
measurement solutions, by increasing our production capacity to meet customer
demand, and by pursuing strategic opportunities that complement our product
offering."
EXFO introduced several new products during the third quarter including a
single-slot optical time domain reflectometer platform and related test
modules, an optical spectrum analyzer for the FTB-300 Universal Test System
and IQ-200 Optical Test System platforms, a second-generation remote fiber
test system for network monitoring, a DWDM passive component test system for
optical components and value-added optical modules, and a tunable laser source
for DWDM testing.
"New products are the lifeblood of our company," Lamonde added. "Our goal is to
support the latest technological developments in the fiber-optic industry with
high-performance and reliable test, measurement, and monitoring solutions."
Selling and administrative expenses amounted to US$6.5 million, or 33.7% of
revenues, for the third quarter compared to US$5.8 million, or 33.4% of
revenues, in the previous quarter and US$3.5 million, or 31.7% of revenues, in
the third quarter of fiscal 1999. The increase is mainly due to the increase in
personnel and commissions on higher sales volume.
Gross research and development expenses for the third quarter amounted to
US$2.2 million compared to US$1.6 million in the third quarter of fiscal
1999. This increase in gross R&D expenses is mainly due to the hiring of
research engineers. However, as a percentage of revenues, gross R&D expenses
dropped from 15.3% in the second quarter of fiscal 2000 to 11.6% in the
third quarter. This temporary decrease is primarily due to a lower
consumption of materials and less outsourcing and consulting directly related
to the nature of projects and to their development phase.
The replay of EXFO's third quarter conference call can be accessed after 7:30
p.m. (Eastern time) July 11, 2000 until midnight (Eastern time) July 18. The
replay numbers are (800) 408-3053 or (416) 695-5800. The password for both
numbers is 514995.
<PAGE>
ABOUT EXFO
EXFO is a leading designer, manufacturer, and marketer of fiber-optic test,
measurement, and monitoring instruments for the telecommunications industry.
EXFO develops products mainly for two markets. Its Portable and Monitoring
Division provides solutions primarily to telecommunications carriers, cable
television companies, public utilities, private network operators, as well as
third-party installers and equipment rental companies. Its Scientific Division
designs an extensive line of more sophisticated and higher performance
instruments for manufacturers of optical components, value-added optical
modules, and optical networking systems, as well as for research and development
markets.
This news release may contain statements that constitute forward-looking
statements within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. Forward-looking statements are statements other than historical
information or statements of current condition. These statements may appear in a
number of places in this news release and include statements concerning our
intent, belief, or current expectations regarding future events. Forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and actual results may differ materially from those in the
forward-looking statements as a result of various factors. Although we believe
that the expectations reflected in the forward-looking statements are reasonable
based on information currently available to us, we cannot assure you that the
expectations will prove to have been correct. Accordingly, you should not place
undue reliance on these forward-looking statements. In any event, these
statements speak only as of the date of this news release. We undertake no
obligation to revise or update any of them to reflect events or circumstances
after the date of this news release, or to reflect new information or the
occurrence of unanticipated events. Readers are referred to our Registration
Statement on Form F-1 and our other filings with the U.S. Securities and
Exchange Commission and the Canadian securities commissions for a discussion of
the various factors that may affect our future performance and other important
risk factors concerning us and our operations.
-30-
For more information:
Mike Lamanna Maryse Imbeault
Manager, Investor Relations Director, Communications
(418) 683-0211 (418) 683-0211
[email protected] [email protected]
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's results of operations and
liquidity and capital resources should be read in conjunction with our
consolidated financial statements and the related notes thereto. The
consolidated financial statements have been prepared in accordance with Canadian
GAAP, Generally Accepted Accounting Principles ("GAAP") in Canada, which conform
in all material respects with U.S. GAAP except as disclosed
in Note 9 to the consolidated financial statements.
Nine months ended May 31, 2000 compared to nine months ended May 31, 1999
SALES
Sales increased 63.7% from $29.6 million for the nine months ended May 31,1999
to $48.5 million for the nine months ended May 31, 2000. This growth was due to
higher demand for all products, especially in our scientific products.
GROSS MARGIN
Gross margin increased from 63.7% of sales for the nine months ended May 31,
1999 to 65.1% of sales for the nine months ended May 31, 2000. The improvement
of the gross margin resulted primarily from a mix of higher margin product
sales.
SELLING AND ADMINISTRATIVE
Selling and administrative expenses increased to $16.5 million during the nine
months ended May 31, 2000 compared to $9.4 million for the corresponding period
in 1999, an increase of 74.9%. As a percentage of sales, selling and
administrative expenses amounted to 34.0% for the nine months ended May 31, 2000
compared to 31.8% for the nine months ended May 31, 1999. The $7.1 million
increase in selling and administrative expenses reflects the hiring of
additional sales, marketing and administrative personnel, commissions on
higher sales volume and the structuring as a public company.
RESEARCH AND DEVELOPMENT
Gross research and development expenses were $6.9 million for the nine months
ended May 31, 2000 compared to $4.4 million for the corresponding period in
1999, an increase of 57.6 %. As a percentage of sales, gross research and
development expenses amounted to 14.3 % for the nine months ended May 31, 2000
compared to 14.9 % for the corresponding period in 1999. This $2.5 million
increase in gross research and development expenses reflects the hiring of
additional research and development personnel and the outsourcing of
non-critical sections of research and development projects.
<PAGE>
Tax credits and grants earned from Federal and Provincial governments for our
research and development activities increased 57,8% to $2.5 million for the nine
months ended May 31, 2000 compared to $1.6 million for the corresponding period
in 1999. A major part of this last increase is due to the hiring of additional
research and development personnel. Research and development tax credits and
grants as a percentage of gross research and development expenses amounted to
35.4% for the nine months ended May 31, 2000 compared to 35.3% for the
corresponding period in 1999.
Consequently, net research and development expenses increased 57.5%, from $2.8
million for the nine months ended May 31, 1999 to $4.5 million for the
corresponding period in 2000. As a percentage of sales, net research and
development expenses amounted to 9.2 % for the nine months ended May 31, 2000
compared to 9.6 % for the nine months ended May 31, 1999.
THREE MONTHS ENDED MAY 31, 2000 COMPARED TO THREE MONTHS ENDED MAY 31, 1999
SALES
Sales for the third quarter increased 77.8% from $10.9 million for the three
months ended May 31,1999 to $19.4 million for the three months ended May 31,
2000. This growth was due to higher demand for all products, especially in our
scientific products.
GROSS MARGIN
For the quarter ended May 31, 2000, the gross margin represents 62.2% of sales,
compared to 65.6% for the corresponding period in 1999. This decrease is mainly
due to the lower margins on the variety of products sold in the last quarter,
volume discounts on large orders and higher raw material costs. Furthermore,
certain fixed production costs have increased to expand our production capacity
and to meet the demand for our products.
SELLING AND ADMINISTRATIVE
Selling and administrative expenses increased from $3.5 million for the quarter
ended May 31 1999, to $6.5 million for the quarter ended May 31,2000, an
increase of 89.0 %. As a percentage of sales, selling and administrative
expenses amounted to 33.7% for the three months ended May 31, 2000 compared to
31.7% for the three months ended May 31, 1999. The $3.0 million increase for the
third quarter of 2000 is mainly due to the increase in personnel and commissions
on higher sales volume.
RESEARCH AND DEVELOPMENT
For the three months ended May 31, 2000, gross research and development expenses
amounted to $2.2 million compared to $1.6 million for the corresponding quarter
in 1999, an increase of 41.3%. As a percentage of sales, gross research and
development expenses amounted to 11.6 %
<PAGE>
for the quarter ended May 31, 2000 compared to 14.5 % for the corresponding
period in 1999. This decrease is mainly due to a lower consumption of materials,
outsourcing, and consulting directly related to the nature of our projects and
to their development phase.
Tax credits and grants earned from Federal and Provincial governments for our
research and development activities increased 84,7% from $0.5 million for the
quarter ended May 31, 1999 to $1.0 million for the quarter ended May 31, 2000.
Research and development tax credits and grants as a percentage of gross
research and development expenses amounted to 43.6% for the quarter ended May
31, 2000 compared to 33.4% for the corresponding period in 1999. This ratio is
mainly influenced by the eligibility of our research and development activities
or projects for government aid.
Consequently, net research and development expenses increased 19.6 %, from $1.1
million for the three months ended May 31, 1999 to $1.3 million for the
corresponding period in 2000. As a percentage of sales, net research and
development expenses have decreased from 9.7 % for the quarter ended May 31,
1999 to 6.5 % for the corresponding quarter in 2000.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Since our inception, we have financed operations and met our capital expenditure
requirements primarily through cash flows from our operations, bank advances,
research and development tax credits and government grants. Cash consumed by
operating activities during the first nine months of 2000 was $2,513,000,
reflecting the large increase in accounts receivables and inventories. The
increase in accounts receivable reflect higher volume of sales. Increased levels
of inventories were required to service this growth in sales as well as expected
growth in future sales.
FINANCING ACTIVITIES
For the nine months ended May 31, 2000 cash from financing activities was
$5,994,000 from $133,000 in the comparable period of 1999. This is primarily due
to an increase in bank advances, which increased, from $484,000 in 1999 to
$6,548,000 in 2000. This substantial increase is due in part to the acquisition
of Nortech Fibronic Inc., for which we used approximately $2.1 million under our
operating loan facility. The balance of the increase results form advances drawn
under our available lines of credit in order to finance working capital
requirements, namely inventories and accounts receivable.
On May 15, 2000, 483,196 Class F shares were issued under outstanding
subscription agreements for a cash consideration of Cdn$537,000 (US$373,000).
<PAGE>
INVESTING ACTIVITIES
The acquisition of Nortech Fibronic Inc. and the capital asset expansion for the
company's production and research facilities increased the cash used in
investing activities to $3,394,000 for the nine months ended May 31, 2000 from
$843,000 for the comparable period in 1999. On February 4, 2000, we acquired
Nortech Fibronic Inc., for a total consideration of approximately C$4.1 million
of which approximately C$3.0 million was paid in cash, C$800,000 of which was
paid by the issuance of Class "G" shares of EXFO, which will be converted into
preferred shares series 1 prior to the closing of this offering and of which
C$200,000 was paid by a non-interest-bearing debenture payable in November 2000.
CASH POSITION
For the nine months ended May 31, 2000, funds used in operations were $348,000.
SUBSEQUENT EVENTS
On June 1, 2000, the company acquired the 85% interest held by its parent
company in Gap-Optique S.A. for a consideration equal to its carrying value of
$Cdn23, 000. This acquisition has been accounted for in a manner similar to
pooling of interests since it occurred been entities under common control.
On June 7, 2000, the company acquired a building for a gross amount of
Cdn$4,900,000 (US$3,305,000).
On June 8, 2000, the company filed articles of amendment to eliminate the
private-company restrictions.
On June 27, 2000, a dividend of Cdn$26,000,000 (US$17,500,000) was declared to
the holders of Class A and Class F shares. The holders of the Class F shares
received a cash payment of Cdn$475,000 (US$320,000). Non-interest bearing
promissory notes to the holders of Class A shares were issued for an aggregate
principal amount of Cdn$25,523,000 (US$17,216,000).
As at June 29, 2000, the company filed articles of amendment pursuant to which:
X The 38,000,000 Class A shares were converted into 38,000,000 multiple voting
shares;
X The 707,264 Class F shares were converted into 707,264 subordinate voting
shares;
X The 800,000 Class G shares were converted into 800,000 preferred shares,
Series 1.
STOCK-OPTION PLAN
On May 25, 2000 the company established a stock option plan for directors,
executive officers, employees and consultants and those of the company's
subsidiaries, as determined by the Board of Directors.
<PAGE>
As of June 27, 2000 the company had granted options to purchase a total of
609,734 subordinate voting shares at the initial public offering price with a
vesting period of up to five years following the date of the grant. Following
this grant, there will be 3,861,227 options available for future grants under
the plan.
INITIAL PUBLIC OFFERING
Under the terms of a purchase agreement dated June 29, 2000, the company agreed
to issue 7,000,000 subordinate voting shares for a total of US$182,000,000. The
net proceeds of this issue are estimated at US$168,260,000, net of the
underwriting commission and the estimated issue expenses amounting to
US$13,740,000.
On July 6, 2000, under the terms of the purchase agreement, the company issued
upon the request of the underwriters 1,050,000 subordinate voting shares
totalling US $27,300,000 less the underwriting commission of US $1,911,000.
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
INTERIM CONSOLIDATED BALANCE SHEET
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
AS AT AS AT
AUGUST 31, 1999 MAY 31, 2000
--------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 423 $ 75
Short-term investments 1,371 --
Accounts receivable (note 4) 9,895 18,027
Income taxes receivable 381 1,252
Inventories (note 5) 7,591 15,069
Prepaid expenses and deposits 475 542
-------- --------
20,136 34,965
DEFERRED SHARE ISSUE EXPENSES (note 10) -- 792
CAPITAL ASSETS 2,639 4,638
GOODWILL AND OTHER ASSETS 65 2,410
-------- --------
$ 22,840 $ 42,805
-------- --------
-------- --------
LIABILITIES
CURRENT LIABILITIES
Bank advances $ -- $ 6,756
Accounts payable and accrued liabilities 5,523 10,656
Dividend payable 51 --
Mandatorily redeemable preferred shares -- 532
Loan from a company under common control 1,337 1,330
Deferred revenue 218 362
Current portion of long-term debt -- 335
Future income taxes 262 126
-------- --------
7,391 20,097
DEFERRED REVENUE 109 103
DEFERRED GRANTS 533 813
LONG-TERM DEBT -- 224
FUTURE INCOME TAXES 128 279
-------- --------
8,161 21,516
-------- --------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (note 6) 87 479
CUMULATIVE TRANSLATION ADJUSTMENT -- (242)
RETAINED EARNINGS 14,592 21,052
-------- --------
14,679 21,289
-------- --------
$ 22,840 $ 42,805
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-1
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of U.S. dollars, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MAY 31, 1999 MAY 31, 1999 MAY 31, 2000 MAY 31, 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES $ 10,916 $ 29,644 $ 19,411 $ 48,522
COST OF SALES 3,753 10,774 7,347 16,956
-------- -------- -------- --------
GROSS MARGIN 7,163 18,870 12,064 31,566
-------- -------- -------- --------
OPERATING EXPENSES
Selling and administrative 3,465 9,429 6,549 16,487
Net research and development (note 7) 1,058 2,849 1,265 4,486
Amortization of capital assets 212 614 391 981
Amortization of other assets 11 31 12 33
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 4,746 12,923 8,217 21,987
-------- -------- -------- --------
EARNINGS FROM OPERATIONS 2,417 5,947 3,847 9,579
Interest expense (income) - net (33) (79) 170 145
Foreign exchange loss (gain) 102 500 (505) (389)
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES AND
AMORTIZATION OF GOODWILL 2,348 5,526 4,182 9,823
INCOME TAXES 725 1,683 1,305 3,192
-------- -------- -------- --------
EARNINGS BEFORE AMORTIZATION OF GOODWILL 1,623 3,843 2,877 6,631
AMORTIZATION OF GOODWILL -- -- 129 171
-------- -------- -------- --------
-------- -------- -------- --------
NET EARNINGS FOR THE PERIOD $ 1,623 $ 3,843 $ 2,748 $ 6,460
-------- -------- -------- --------
BASIC AND FULLY DILUTED EARNINGS PER SHARE
Earnings before amortization of
goodwill $ 0.04 $ 0.09 $ 0.07 $ 0.17
Net earnings $ 0.04 $ 0.09 $ 0.07 $ 0.17
BASIC WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (000'S) 38,000 38,000 38,707 38,514
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in thousands of U.S. dollars, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MAY 31, 1999 MAY 31, 1999 MAY 31, 2000 MAY 31, 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE - BEGINNING OF PERIOD $13,924 $12,044 $18,304 $14,592
ADD
Net earnings for the period 1,623 3,843 2,748 6,460
------- ------- ------- -------
15,547 15,887 21,052 21,052
DEDUCT
Dividend on Class C share -- 340 -- --
------- ------- ------- -------
BALANCE - END OF PERIOD $15,547 $15,547 $21,052 $21,052
------- ------- ------- -------
------- ------- ------- -------
DIVIDEND PER CLASS C SHARE $ -- $ 340 $ -- $ --
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
INTERIM UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31,
--------------------------
1999 2000
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings for the period $ 3,843 $ 6,460
Add (deduct) items not affecting cash and cash equivalents
Amortization of capital assets 614 981
Amortization of goodwill and other assets 31 204
Foreign exchange loss -- 9
Future income taxes (66) 108
Change in non-cash operating working capital items
Accounts receivable (1,671) (7,846)
Income taxes receivable (571) (16)
Inventories (842) (7,275)
Prepaid expenses and deposits (8) (33)
Accounts payable and accrued liabilities (592) 4,462
Income taxes payable (115) --
Deferred revenue 251 143
Deferred grants 377 290
------- -------
1,251 (2,513)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank advances 484 6,548
Repayment of long-term debt (10) (64)
Issuance of share capital (1) 373
Dividend paid (340) (52)
Deferred share issue expenses -- (811)
------- -------
133 5,994
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Short-term investments (35) 1,400
Additions to capital and other assets (808) (2,683)
Business combination, net of cash and cash equivalents acquired (note 3) -- (2,111)
------- -------
(843) (3,394)
------- -------
CHANGE IN CASH AND CASH EQUIVALENTS 541 87
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS -- (435)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 1,262 423
------- -------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,803 $ 75
------- -------
------- -------
SUPPLEMENTARY INFORMATION
Interest paid $ 199 $ 342
Income taxes paid $ 1,366 $ 2,877
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars, except share and per share data
as otherwise noted)
1 INTERIM FINANCIAL INFORMATION
The financial information as at May 31, 2000 and for the periods ended May
31, 1999 and 2000 is unaudited; however, in the opinion of management, all
adjustments necessary to present fairly the results of these periods have
been included. The adjustments made were of a normal recurring nature.
Interim results may not necessarily be indicative of results anticipated
for the year.
2 CHANGE IN REPORTING CURRENCY
The consolidated financial statements of the company were presented in
Canadian dollars up to August 31, 1999. Effective September 1, 1999, the
U.S. dollar has been adopted as the reporting currency. The functional
currency continues to be the Canadian dollar. The financial statements for
the periods ended May 31, 1999 are presented in U.S. dollars in accordance
with a translation of convenience method using the representative exchange
rate as at August 31, 1999 of US$1.00 = Cdn$1.4958. The translated amount
for monetary and non-monetary items as at August 31, 1999 becomes the
historical basis for those items in subsequent periods.
The financial statements as at May 31, 2000 and for the periods then ended
have been translated using the current rate method. Under this method, the
financial statements are translated into the reporting currency as
follows: assets and liabilities are translated at the exchange rate in
effect at the date of the balance sheet and revenue and expenses are
translated at the average exchange rate for the period. All gains and
losses from the translation of the financial statements into the reporting
currency are included in the cumulative translation adjustment in
shareholders' equity. Changes in the cumulative translation adjustment
during each period result solely from the application of this translation
method.
3 BUSINESS COMBINATION
NORTECH ACQUISITION
On February 4, 2000, the company acquired a 100% interest in Nortech
Fibronic Inc. ("Nortech"), a company specializing in fiber-optic testing
and temperature sensing, in exchange for total consideration valued at
Cdn$4,055,000 (US$2,802,000). The consideration paid consisted of
Cdn$3,055,000 (US$2,111,000) in cash, the issuance of 800,000 Class G
shares which are mandatorily redeemable, for cash or Class A shares at the
option of the company, on November 30, 2000 for an amount of Cdn$800,000
(US$553,000), and a non-interest-bearing debenture in the amount of
Cdn$200,000 (US$138,000) due November 30, 2000.
This acquisition, which has been accounted for using the purchase method,
resulted in goodwill amounting to Cdn$3,764,000 (US$2,601,000) based on
the following allocation of the purchase price to the identifiable assets
acquired and liabilities assumed.
F-5
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars, except share and per share data
as otherwise noted)
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 1,882
Capital assets 409
Future income taxes 124
------------------
2,415
------------------
Current liabilities 1,916
Long-term debt 298
------------------
2,214
------------------
Net identifiable assets acquired 201
Goodwill 2,601
------------------
Purchase price 2,802
Less: Class G shares issued 553
Less: Non-interest-bearing debenture 138
Less: Cash and cash equivalents acquired -
------------------
Cash paid net of cash and cash equivalents acquired $ 2,111
------------------
</TABLE>
The net earnings of Nortech have been included in the consolidated
statement of earnings of the company from the date of acquisition,
February 4, 2000.
4 ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
AS AT AS AT
AUGUST 31, 1999 MAY 31, 2000
--------------- ------------
<S> <C> <C>
Trade, net of an allowance for doubtful account of $30,000 and $73,000
respectively $ 8,869 $15,353
Grants receivable 479 881
Related parties
Non-interest-bearing advances to parent company -- 787
Companies under common control 27 50
Other 520 956
------- -------
$ 9,895 $18,027
------- -------
</TABLE>
F-6
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars, except share and per share data
as otherwise noted)
5 INVENTORIES
<TABLE>
<CAPTION>
AS AT AS AT
AUGUST 31, 1999 MAY 31, 2000
--------------- ------------
<S> <C> <C>
Raw materials $ 4,005 $ 9,776
Work in progress 1,177 2,065
Finished goods 2,409 3,228
------- -------
$ 7,591 $15,069
------- -------
</TABLE>
6 SHARE CAPITAL
On May 15, 2000, 483,196 Class F shares were issued under outstanding
subscription agreements for a cash consideration of Cdn$537,000
(US$373,000).
7 NET RESEARCH AND DEVELOPMENT EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MAY 31, 1999 MAY 31, 1999 MAY 31, 2000 MAY 31, 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross research and development expenses $1,588 $4,404 $2,244 $6,940
Research and development tax credits 413 1,456 820 2,036
Government grants 117 99 159 418
------ ------ ------ ------
$1,058 $2,849 $1,265 $4,486
------ ------ ------ ------
</TABLE>
F-7
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars, except share and per share data
as otherwise noted)
8 FORWARD EXCHANGE CONTRACTS
The company is exposed to currency risks as a result of its export sales,
substantially all of which are denominated in U.S dollars, of products
manufactured in Canada. These risks are partially hedged by forward
exchange contracts and certain operating expenses. As at May 31, 2000, the
company held contracts to sell U.S. dollars at various forward rates,
which are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
CONTRACTUAL CONTRACTUAL
AMOUNTS FORWARD RATE
------------------ -------------------
<S> <C> <C>
June 2000 to May 2001 $ 6,300 1.4915
June 2001 to April 2002 2,100 1.4664
</TABLE>
As at May 31, 2000, these contracts resulted in a deferred unrealized loss
amounting to US$105,000.
9 ADDITIONAL DISCLOSURES REQUIRED BY U.S. GAAP AND DIFFERENCES BETWEEN
CANADIAN GAAP AND U.S. GAAP
CHANGE IN REPORTING CURRENCY
On September 1, 1999, the company adopted the U.S. dollar as its reporting
currency. Under U.S. GAAP, the financial statements, including prior
years, are translated according to the current rate method. Under Canadian
GAAP, at the time of change in reporting currency, the historical
financial statements are presented using a translation of convenience.
Under Canadian GAAP, the statements of earnings for the periods ended May
31, 1999 were translated into U.S. dollar using and exchange rate of
US$1.00 = Cdn$1.4958. Under U.S. GAAP, revenue and expenses would be
translated at exchange rates prevailing at the respective transaction
dates. Average exchange rates for the three months and the nine months
ended May 31, 1999 were US$1.00 = Cdn$1.4687 and Cdn$1.4199 respectively.
F-8
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars, except share and per share data
as otherwise noted)
RECONCILIATION OF NET EARNINGS TO CONFORM WITH U.S. GAAP
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MAY 31, 1999 MAY 31, 1999 MAY 31, 2000 MAY 31, 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net earnings for the period in
accordance with Canadian GAAP $ 1,623 $ 3,843 $ 2,748 $ 6,460
Stock-based compensation costs (3) (7) (144) (437)
Change in reporting currency 74 (205) -- --
Unrealized gains (losses) on forward
exchange contracts -- 208 87 (71)
Future income taxes on forward
exchange contracts -- (67) (33) 27
------- ------- ------- -------
Net earnings for the period in
accordance with U.S. GAAP 1,694 3,772 2,658 5,979
Other comprehensive income (loss)
Foreign currency translation
adjustments 315 1,021 (838) (242)
Unrealized holding gains (losses)
on short-term investments,
net of related income taxes
of $23,000 -- -- -- (36)
------- ------- ------- -------
Comprehensive income $ 2,009 $ 4,793 $ 1,820 $ 5,701
------- ------- ------- -------
Basic and diluted net earnings per
share in accordance with U.S. GAAP $ 0.04 $ 0.09 $ 0.07 $ 0.16
</TABLE>
F-9
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars, except share and per share data
as otherwise noted)
Earnings available to common shareholders is reconciled as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MAY 31, 1999 MAY 31, 1999 MAY 31, 2000 MAY 31, 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net earnings for the period $ 1,694 $ 3,772 $ 2,658 $ 5,979
Dividend on Class C share -- (333) -- --
------- ------- ------- -------
Earnings available to common
shareholders $ 1,694 $ 3,439 $ 2,658 $ 5,979
------- ------- ------- -------
</TABLE>
The diluted weighted average number of common shares outstanding
calculated according to U.S. GAAP is as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MAY 31, 1999 MAY 31, 1999 MAY 31, 2000 MAY 31, 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding - Basic
(000's) 38,000 38,000 38,707 38,514
Conversion of Class G shares -- -- 45 4
------ ------ ------ ------
Weighted average number of common
shares outstanding -Diluted
(000's) 38,000 38,000 38,752 38,518
------ ------ ------ ------
</TABLE>
The number of common shares issuable upon the assumed conversion of the
Class G shares has been determined by dividing the paid-in value of the
Class G shares by the estimated fair value of the Class A shares as at
February 4, 2000 (the date the Class G shares were issued), or $18.00 per
Class A share, weighted from the date of issuance of the Class G shares to
the end of the period.
F-10
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars, except share and per share data
as otherwise noted)
SHARE CAPITAL
<TABLE>
<CAPTION>
AS AT AS AT
AUGUST 31, 1999 MAY 31, 2000
--------------- ------------
<S> <C> <C>
Share capital in accordance with Canadian GAAP $ 87 $479
Stock-based compensation costs 10 447
---- ----
Share capital in accordance with U.S. GAAP $ 97 $926
---- ----
</TABLE>
RETAINED EARNINGS
<TABLE>
<CAPTION>
AS AT AS AT
AUGUST 31, 1999 MAY 31, 2000
--------------- ------------
<S> <C> <C>
Retained earnings in accordance with Canadian GAAP $ 14,592 $ 21,052
Forward exchange contracts -- (44)
Stock-based compensation costs (10) (447)
Change in reporting currency
Current period
Net earnings (44) --
Dividends 24 --
Cumulative effect of prior periods 1,036 1,016
-------- --------
Retained earnings in accordance with U.S. GAAP $ 15,598 $ 21,577
-------- --------
</TABLE>
F-11
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars, except share and per share data
as otherwise noted)
ACCUMULATED OTHER COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
AUGUST 31, 1999 MAY 31, 2000
--------------- ------------
<S> <C> <C>
Foreign currency translation adjustments
Balance - Beginning of period $(1,622) $(1,016)
Change during the period 606 (242)
------- -------
Balance - End of period (1,016) (1,258)
------- -------
Unrealized holding gains (losses) on short-term investments, net of
income taxes
Balance - Beginning of period -- 36
Unrealized gains arising during the period 36 --
Reclassification adjustment for amounts included in net earnings -- (36)
------- -------
Balance - End of period 36 --
------- -------
Accumulated other comprehensive loss $ (980) $(1,258)
------- -------
</TABLE>
F-12
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars, except share and per share data
as otherwise noted)
BALANCE SHEET
<TABLE>
<CAPTION>
AS AT AS AT
AUGUST 31, 1999 MAY 31, 2000
--------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 423 $ 75
Accounts receivable 9,895 17,956
Inventories 7,591 15,069
Other current assets 2,286 1,794
-------- --------
20,195 34,894
DEFERRED SHARE ISSUE EXPENSES -- 792
CAPITAL ASSETS 2,639 4,638
GOODWILL AND OTHER ASSETS 65 2,410
-------- --------
$ 22,899 $ 42,734
-------- --------
LIABILITIES
CURRENT LIABILITIES
Bank advances $ -- $ 6,756
Accounts payable and accrued liabilities 5,523 10,656
Other current liabilities 1,891 2,658
-------- --------
7,414 20,070
LONG-TERM LIABILITIES 770 1,419
-------- --------
8,184 21,489
-------- --------
SHAREHOLDERS' EQUITY
SHARE CAPITAL 97 926
ACCUMULATED OTHER COMPREHENSIVE LOSS (980) (1,258)
RETAINED EARNINGS 15,598 21,577
--------
14,715 21,245
-------- --------
$ 22,899 $ 42,734
-------- --------
</TABLE>
F-13
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars, except share and per share data
as otherwise noted)
STATEMENTS OF CASH FLOWS
For the nine months ended May 31, 1999 and 2000, there are no material
differences between the statement of cash flows under Canadian GAAP as
compared to U.S. GAAP.
10 SUBSEQUENT EVENTS
REORGANIZATION
On June 1, 2000, the company acquired the 85% interest held by its parent
company in Gap-Optique S.A. for a consideration equal to its carrying
value of Cdn$23,000. This acquisition has been accounted for in a manner
similar to a pooling of interests since it occurred between entities under
common control.
On June 7, 2000, the company acquired a building for a gross amount of
Cdn$4,900,000 (US$3,305,000).
On June 8, 2000, the company filed articles of amendment to eliminate the
private-company restrictions.
On June 27, 2000, a dividend of Cdn$26,000,000 (US$17,500,000) was
declared to the holders of Class A and Class F shares. The holders of
Class F shares received a cash payment of Cdn$475,000 (US$320,000).
Non-interest bearing promissory notes to the holders of Class A shares
were issued for an aggregate principal amount of Cdn$25,523,000
(US$17,216,000).
On June 29, 2000, the company filed articles of amendment pursuant to
which:
- the 38,000,000 Class A shares were converted into 38,000,000
multiple voting shares;
- the 707,264 Class F shares were converted into 707,264 subordinate
voting shares;
- the 800,000 Class G shares were converted into 800,000 preferred
shares, Series 1.
STOCK OPTION PLAN
On May 25, 2000, the company established a stock option plan for
directors, executive officers, employees and consultants and those of the
company's subsidiaries, as determined by the Board of Directors.
All options granted under the plan may be exercised within a maximum
period of ten years following the grant date of the options. The Board of
Directors will designate the recipients of options and determine the
number of subordinate voting shares covered by each of these options, the
date of vesting of each option, the exercise price of each option, the
expiry date and any other conditions relating to these options, in each
case in accordance with the applicable legislation of the securities
regulatory authorities. The price at which the subordinate voting shares
may be purchased under the plan will not be lower than the highest of the
closing prices of the subordinate voting shares on the stock exchanges
where the subordinate voting shares are listed at the date of grant.
F-14
<PAGE>
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars, except share and per share data
as otherwise noted)
The maximum number of subordinate voting shares that is issuable under the
plan may not exceed 4,470,961 shares. The maximum number of subordinate
voting shares that may be granted to any individual may not exceed 5% of
the outstanding subordinate voting shares. The Board of Directors may
accelerate the vesting of any or all outstanding options of any or all
optionees upon the occurrence of a change of control.
As of June 27, 2000, the company had granted options to purchase a total
of 609,734 subordinate voting shares at the initial public offering price
with a vesting period of up to five years following the date of the grant.
Following this grant, there will be 3,861,227 options available for future
grants under the plan.
INITIAL PUBLIC OFFERING
Under the terms of a purchase agreement dated June 29, 2000, the company
agreed to issue 7,000,000 subordinate voting shares for a total of
US$182,000,000. The net proceeds of this issue are estimated at
US$168,260,000, net of the underwriting commission and the estimated issue
expenses amounting to US$13,740,000.
On July 6, 2000, under the terms of the purchase agreement, the company
issued upon the request of the underwriters, 1,050,000 subordinate voting
shares totalling US$27,300,000 less the underwriting commission of
US$1,911,000.
F-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EXFO ELECTRO-OPTICAL ENGINEERING INC.
By: "/s/ [Pierre Plamondon]"
Name: Pierre Plamondon
Title: Vice President Finances
and Chief Financial Officer
Date: July 11, 2000
