<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8139
MITEL CORPORATION
(Exact name of registrant as specified in its charter)
CANADA NONE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 Legget Drive
P.O. Box 13089
Kanata, Ontario, Canada K2K 1X3
(Address of principal (Postal Code)
executive offices)
Registrant's telephone number, including area code: (613) 592-2122
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No ( )
The number of common shares outstanding as at June 28, 1996 was 107,194,644.
1
<PAGE> 2
MITEL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION (Unaudited)
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheets -
June 28, 1996 and March 29, 1996 . .. . . . . . . . . . . . . 3
Consolidated Statements of Income and Retained Earnings -
Three Months Ended June 28, 1996 and June 30, 1995. . . . . . 4
Consolidated Statements of Cash Flows -
Three Months Ended June 28, 1996 and June 30, 1995. . . . . . 5
Notes to the Consolidated Financial Statements. . . . . . . . .6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . .11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . 17
2
<PAGE> 3
Mitel Corporation
(incorporated under the laws of Canada)
CONSOLIDATED BALANCE SHEETS
(in millions of Canadian dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 28, March 29,
1996 1996
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments at cost,
which approximates market $ 128.4 $ 137.3
Accounts receivable 131.7 145.7
Inventories (Note 3) 80.4 72.5
Prepaid expenses 7.4 6.7
------- -------
347.9 362.2
Capital assets:
Fixed assets (Note 4) 151.6 143.7
Other assets 11.2 11.2
------- -------
$ 510.7 $ 517.1
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 88.7 $ 103.6
Income and other taxes 9.9 14.9
Deferred revenue 20.2 22.2
Current portion of long-term debt 11.8 11.2
------- -------
130.6 151.9
Long-term debt 40.9 39.6
Pension liability 12.3 12.1
Deferred income taxes 10.7 10.7
------- -------
194.5 214.3
------- -------
Shareholders' equity:
Capital Stock (Note 5)
Preferred shares 37.2 37.2
Common shares 152.6 150.6
Contributed surplus 32.3 32.3
Retained earnings 89.3 79.4
Translation account (Note 6) 4.8 3.3
------- -------
316.2 302.8
------- -------
$ 510.7 $ 517.1
======= =======
</TABLE>
3
<PAGE> 4
Mitel Corporation
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in millions of Canadian dollars, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 28, June 30,
1996 1995
-------- --------
<S> <C> <C>
Revenue:
Products $ 141.2 $ 117.3
Service 16.9 18.9
------- -------
158.1 136.2
------- -------
Cost of sales (excluding amortization):
Products 66.1 59.7
Service 10.4 12.7
------- -------
76.5 72.4
------- -------
Gross margin 81.6 63.8
------- -------
Expenses:
Selling and administrative 47.7 40.3
Research and development (net) 16.4 10.4
Investment tax credits related
to prior years research and development (2.3) -
Amortization 7.4 4.5
------- -------
69.2 55.2
------- -------
Operating income 12.4 8.6
Interest:
Income 1.8 2.7
Expense (0.6) (0.4)
------- -------
Income before income taxes 13.6 10.9
Income tax expense 2.9 1.3
------- -------
Net income for the period 10.7 9.6
Retained earnings, beginning of period 79.4 31.7
------- -------
90.1 41.3
Dividends on preferred shares (Note 7) 0.8 0.9
------- -------
Retained earnings, end of period $ 89.3 $ 40.4
======= =======
Net income attributable to common shareholders
after preferred share dividends $ 9.9 $ 8.7
======= =======
Net income per common share $ 0.09 $ 0.08
======= =======
</TABLE>
4
<PAGE> 5
Mitel Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of Canadian dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 28, June 30,
1996 1995
-------- -------
<S> <C> <C>
CASH PROVIDED BY (USED IN)
Operating activities:
Net income for the period $ 10.7 $ 9.6
Amortization 7.4 4.5
Other non-cash operating items (0.1) (0.2)
Increase in working capital (Note 8) (16.9) (6.9)
------- -------
1.1 7.0
------- -------
Investing activities:
Additions to capital assets (14.4) (6.2)
Proceeds from disposal of capital assets 0.1 -
Net change in non-cash balances related
to investing activities 0.7 (0.4)
------- -------
Total (13.6) (6.6)
------- -------
Financing activities:
Increase in long-term debt 4.2 5.5
Repayment of long-term debt (2.2) (1.2)
Repurchase and redemption of preferred shares (Note 5) - (0.5)
Dividends on preferred shares (0.8) (0.9)
Issue of common shares (Note 5) 2.0 0.1
------- -------
Total 3.2 3.0
------- -------
Effect of currency translation on cash 0.4 (0.8)
------- -------
Increase (decrease) in cash and short-term investments (8.9) 2.6
Cash and short-term investments, beginning of period 137.3 141.6
------- -------
Cash and short-term investments, end of period $ 128.4 $ 144.2
======= =======
</TABLE>
5
<PAGE> 6
Mitel Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Canadian dollars)
(Unaudited)
1. In the opinion of Management, the unaudited consolidated financial
statements reflect all adjustments, which consist only of normal and
recurring adjustments, necessary to present fairly the financial
position at June 28, 1996 and the results of operations and the
changes in financial position for the respective three month periods
ended June 28, 1996 and June 30, 1995, in accordance with accounting
principles generally accepted in Canada. (See also Note 9).
These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the year ended March 29, 1996. The
Company's fiscal year-end is the last Friday in March.
2. Due to the cyclical nature of the business, the results of operations
for the periods presented are not necessarily indicative of the
results to be expected for the full year.
3. The components of inventory are:
<TABLE>
<CAPTION>
June 28, March 29,
1996 1996
------- --------
<S> <C> <C>
Raw materials $ 25.6 $ 21.9
Work-in-process 22.9 22.6
Finished goods 31.9 28.0
------- -------
$ 80.4 $ 72.5
======= =======
</TABLE>
4. Fixed assets:
<TABLE>
<CAPTION>
June 28, March 29,
1996 1996
------- --------
<S> <C> <C>
Cost $ 365.0 $ 350.3
Accumulated amortization 213.4 206.6
------- -------
$ 151.6 $ 143.7
======= =======
</TABLE>
6
<PAGE> 7
5. During the quarter ended June 28, 1996, there were 110,150 common
shares issued on stock options exercised and 1,000,000 common shares
issued on warrants exercised, representing all of the warrants then
outstanding. In addition, 627,500 stock options were granted during the
first quarter. Available for grant at June 28, 1996 were 1,176,275
(March 29, 1996 - 1,779,775) common shares. The total number of options
outstanding at June 28, 1996 was 3,395,875 (March 29, 1996 - 2,902,525) with
exercise prices ranging from $1.10 to $9.32 per share and exercise periods
extending to May, 2006. No preferred shares were required to be repurchased
during the three months ended June 28, 1996.
<TABLE>
<CAPTION>
June 28, March 29,
1996 1996
------- -------
<S> <C> <C>
Shares outstanding:
Preferred Shares - R&D Series 1,618,900 1,618,900
Common Shares 107,194,644 106,084,494
</TABLE>
6. The following table summarizes changes in the translation account:
<TABLE>
<CAPTION>
Three Months Ended
June 28, June 30,
1996 1995
------- -------
<S> <C> <C>
Balance, beginning of period $ 3.3 $ 10.6
Increase (decrease):
Movements in exchange rates -
United States dollar - (0.8)
United Kingdom pound sterling 1.1 (2.1)
Other currencies 0.4 -
------- -------
Balance, end of period $ 4.8 $ 7.7
======= =======
</TABLE>
7. The Company has not declared or paid any dividends on its common
stock. During the first quarter, a $0.50 per share dividend was
declared and paid on the preferred shares.
8. On March 29, 1996, the Company acquired ABB Hafo AB (subsequently
renamed Mitel Semiconductor AB), a designer, manufacturer and marketer of
custom and application specific integrated circuits and semiconductor
components with operations based in Sweden and the United States.
7
<PAGE> 8
Pro forma financial information for the three months ended June 30, 1995,
as if the business had been acquired at the beginning of Fiscal 1996, is
presented as follows:
Revenue $ 147.1
Gross Margin $ 69.9
Net income for the period $ 7.1
Net income per common share $ 0.06
This information has been prepared on a basis consistent with Note 15 to
the financial statements contained in the Company's Annual Report on Form
10-K for the year ended March 29, 1996.
9. The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada (Canadian GAAP),
which, in the case of the Company, conform in all material respects with
those in the United States (U.S. GAAP) and with the requirements of the
Securities and Exchange Commission (SEC), except as fully described in note
18 to the consolidated financial statements as at March 29, 1996.
The following table reconciles the net income as reported on the consolidated
statements of income to the net income that would have been reported had the
financial statements been prepared in accordance with U.S. GAAP and the
requirements of the SEC.
<TABLE>
<CAPTION>
Three Months Ended
June 28, June 30,
1996 1995
------- -------
<S> <C> <C>
Net income for the period
in accordance with Canadian GAAP $ 10.7 $ 9.6
Effect of deferral accounting
related to foreign exchange contracts 0.5 4.4
------- -------
U.S. GAAP and SEC requirements:
Net income for the period $ 11.2 $ 14.0
======= =======
Net income for the period attributable
to common shareholders after preferred
share dividends $ 10.4 $ 13.1
======= =======
Net income per common share $ 0.10 $ 0.12
======= =======
</TABLE>
8
<PAGE> 9
Cash flow information presented in conformity
in all material respects with U.S. GAAP:
Cash provided by (used in)
<TABLE>
<CAPTION>
Three Months Ended
June 28, June 30,
1996 1995
------- -------
<S> <C> <C>
Operating activities - Canadian and U.S. GAAP $ 1.1 $ 7.0
------- -------
Investing activities - Canadian GAAP (13.6) (6.6)
Change in short-term investments 79.6 21.9
Additions to capital assets under capital lease 6.8 4.4
------- -------
Investing activities - U.S. GAAP 72.8 19.7
------- -------
Financing activities - Canadian GAAP 3.2 3.0
Increase in capital leases (6.8) (4.4)
------- -------
Financing activities - U.S. GAAP (3.6) (1.4)
------- -------
Increase in cash 70.3 25.3
Effect of currency translation on cash flows 0.4 (0.8)
Cash position, beginning of period 52.4 63.0
------- -------
Cash position, end of period $ 123.1 $ 87.5
======= =======
</TABLE>
Net change in non-cash balances related to operating activities:
<TABLE>
<CAPTION>
Three Months Ended
June 28, June 30,
1996 1995
------- -------
<S> <C> <C>
Accounts receivable $ 14.7 $ 14.2
Inventories (8.0) (1.6)
Accounts payable and accrued liabilities (21.3) (15.9)
Deferred revenue (2.2) (2.7)
Other (0.1) (0.9)
------ ------
$ (16.9) $ (6.9)
======= ======
</TABLE>
9
<PAGE> 10
Balance sheet items in conformity with U.S. GAAP and SEC requirements:
<TABLE>
<CAPTION>
June 28, March 29,
1996 1996
------- --------
<S> <C> <C>
Cash $ 123.1 $ 52.4
Short-term investments 5.3 84.9
Accounts payable and accrued liabilities 85.0 100.4
Redeemable preferred shares 34.4 34.4
Common shares 598.5 596.5
Contributed surplus 2.5 2.5
Deficit (320.3) (330.7)
</TABLE>
10. Certain of the Fiscal 1996 comparative figures have been reclassified
so as to conform to the presentation adopted in Fiscal 1997.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(in millions of Canadian dollars, except per share amounts)
The Company reported net income of $10.7, or $0.09 per share for the first
quarter ended June 28, 1996, an improvement of $1.1 over the first quarter of
Fiscal 1996. Higher margins driven by both volume and product mix
improvements, but offset by an increase in research and development and
amortization expenses, helped to improve net income in the first quarter of
Fiscal 1997 over the corresponding period last year.
Revenue in the first quarter of Fiscal 1997 was $158.1 compared with $136.2 in
the same quarter of Fiscal 1996. The revenue growth of 16 percent was mostly
attributable to the inclusion of Mitel Semiconductor AB, Mitel's Swedish
semiconductor plant, which was acquired at the end of Fiscal 1996, and to
significant growth in the Company's original semiconductor business. However,
lower volumes of business communication systems sold, primarily in Europe,
partially offset the semiconductor performance.
As a percentage of total revenue, the total gross margin for the quarter ended
June 28, 1996 was 52 percent, 5 percentage points higher than the same quarter
in Fiscal 1996. The improvement was primarily due to an increased proportion
of higher margin products in the sales mix, particularly in semiconductors.
Net income and cash flows for each period as determined by United States
accounting principles are detailed in Note 8 to the consolidated financial
statements.
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto, and with the Company's
audited consolidated financial statements and notes thereto for the year ended
March 29, 1996. Certain statements in this management's discussion and
analysis constitute forward-looking statements. Such forward-looking
statements included elsewhere in this quarterly report on Form 10-Q involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions, demographic changes, import protection and regulation, major
technology changes, timing of product introductions, industry competition,
industry capacity and other industry trends, and the ability of the Company
to attract and retain key employees.
RESULTS OF OPERATIONS
Mitel's business is global and comprises the design, manufacture and sale of
systems, subsystems and microelectronic components to world markets in the
telephony, computer telephony integration (CTI) and communications industries.
These products and related services include voice communications systems;
public switching systems; network enhancement and gateway products; CTI
systems and applications; client server telecom products; custom silicon
wafers, integrated and hybrid circuits, optoelectronic components, and thermal
print heads.
11
<PAGE> 12
The Company sells its products through both direct and indirect channels of
distribution. Factors affecting the choice of distribution, among others,
include: end-customer type, the level of product complexity and integration
requirements, the stage of product introduction, geographic presence and
location of markets, and volume levels.
REVENUE
Revenue, based on the geographic location of Mitel's customers, was
distributed as follows:
<TABLE>
<CAPTION>
Three months Three months
Ended % of Ended % of
June 28, 1996 Total June 30, 1995 Total
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
United States $ 75.0 47 % $ 66.8 49 %
Europe 48.7 31 38.0 28
Other Regions 20.0 13 20.9 15
Canada 14.4 9 10.5 8
------- ----- ------- -----
$ 158.1 100 % $ 136.2 100 %
======= ===== ======= =====
</TABLE>
For the quarter ended June 28, 1996 the net movement in exchange rates from
Fiscal 1996 negatively impacted total revenue by 2 percent ($2.4) as a result
of unfavourable changes in the United Kingdom pound sterling exchange rate.
Revenue, by product group, was distributed as follows:
<TABLE>
<CAPTION>
Three months Three months
Ended % of Ended % of
June 28, 1996 Total June 30, 1995 Total
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
Business Communication
Systems $ 102.1 65 % $ 109.5 80 %
Semiconductors 56.0 35 26.7 20
------- ----- ------- -----
$ 158.1 100 % $ 136.2 100 %
======= ===== ======= =====
</TABLE>
Business Communication Systems
Business Communication Systems (BCS) comprise PBX equipment and peripherals,
CTI products and applications, client server telecom products, RADICALL, call
controller products, and the GX5000. All of the Company's service revenue
relates to business communication systems, primarily PBX. As a percentage of
total revenue, BCS revenue decreased to 65 percent in Fiscal 1997 from 80
percent in the corresponding period in Fiscal 1996. The business mix changed
as a result of the rapid growth of the Company's semiconductor business,
including the recent acquisition of Mitel Semiconductor AB. As expected,
service revenue decreased as a percentage of total revenue as the Company
sold all of its North American non-Mitel PBX and key system customer base and
certain U.K. maintenance contracts to other service providers mid-way through
Fiscal 1996.
12
<PAGE>13
BCS revenue, in total, decreased by 7 percent compared to the same three month
period last year. The reduced revenue stream was due to lower levels of new
PBX installations in the U.S., Europe and in the Asia Pacific regions. System
sales in the Canadian market improved compared to the same period last year.
Sales into the U.S. BCS market were lower in the first quarter of Fiscal 1997
compared to the same quarter last year as a result of the sale of Mitel's
non-core base and a lower level of new installations.
Mitel's BCS revenue in Europe in the first quarter of Fiscal 1997 was lower
compared to the same quarter in Fiscal 1996 due to lower demand from Mitel's
established customer base for PBX upgrades and expansions.
During the first quarter of Fiscal 1997, Mitel's primary focus in Asia
Pacific continued to be its joint venture located in Tianjin, China. BCS
revenue during such quarter decreased in this region compared to the same
period last year due to the effects of tight monetary policies and intense
price competition in China and to the uncertainties regarding the transfer of
Hong Kong to China in July 1997.
Semiconductors
In the first quarter of Fiscal 1997, the Semiconductor Division more than
doubled the revenue figure from the corresponding period last year
principally as a result of the additional revenue from the newly acquired
company, Mitel Semiconductor AB, and increased demand for the Company's
integrated circuits and thick film hybrid products in all regions. Sales
into Europe and into the U.S. grew significantly over the same period last
year largely due to sales by Mitel Semiconductor AB which operates primarily
in these markets. The increase in Mitel's semiconductor business reflects
the growth in the semiconductor industry in general, as high technology
product manufacturing continues to expand. Mitel is experiencing the most
significant growth supporting customers in developing economies where there
is a high demand for telecommunications infrastructure. Additionally, Mitel
is experiencing growth in economies where there is a need for Mitel's line of
communications components for manufacturers of advanced voice, data and
multimedia equipment in North America, Asia and Europe. Increased sales of
other equipment manufacturers' (OEM) products incorporating existing Mitel
Semiconductor components, along with the introduction of new components,
including those intended for CTI applications, led to increased sales volumes
compared to the same quarter last year.
The Company took major steps in Fiscal 1996 to expand its production capacity
through both the acquisition of Mitel Semiconductor AB, which has a
semiconductor plant in Sweden, and a major capital expansion program at its
fabrication plant in Bromont, Quebec, Canada to meet the growing demand for
its integrated circuits. The Company expects the first phase of the Bromont
expansion program to be completed during the third quarter of Fiscal 1997,
which will improve volume capacity of the existing 100 mm wafer production
and introduce new 0.8 micron technology. The second phase, intended to
double the plant's production capacity by converting to 150 mm wafer
production, is scheduled to be completed in the fall of calendar 1997.
13
<PAGE> 14
GROSS MARGIN
As a percentage of total revenue, total gross margin for the quarter ended
June 28, 1996 was 52 percent, 5 percentage points higher than the same quarter
in Fiscal 1996. The product gross margin was 53 percent for the quarter ended
June 28,1996, 4 percentage points higher than in the same period in Fiscal
1996. Product gross margins strengthened due to an improved mix of higher
margin products sold and increased semiconductor volumes. The Fiscal 1997
first quarter service gross margin improved to 38 percent from 33 percent
primarily due to higher margins in both the U.K. and U.S. direct service
business.
OPERATING EXPENSES
Selling and Administrative
Selling and administrative (S&A) expenses increased in the first quarter of
Fiscal 1997 to $47.7, or 30 percent of sales, from $40.3, and also 30 percent
of sales, for the comparable period in Fiscal 1996.
S&A expenses were higher compared to last year primarily as a result of
including the results of operations of Mitel Semiconductor AB and higher costs
associated with new marketing initiatives and product launches (with respect
to CTI applications, work group solutions, PC telephony and in support of the
NeVaDa product). During the first quarter of Fiscal 1997, the Company
promoted its new products through first time appearances at IT trade shows
including Networld + Interop in the U.S. and Networks 96 in the U.K.
Research and Development
R&D expenses amounted to $16.4, and 10 percent of revenue, for the three month
period ended June 28, 1996. This compares to $10.4, and 8 percent of revenue,
in the first quarter of Fiscal 1996. These amounts are exclusive of related
R&D capital asset amortization and net of Canadian provincial government R&D
incentives earned. The Company accrued separately $2.3 of Canadian federal
investment tax credits not previously recognized but relating to prior years'
R&D. R&D increased as a percentage of revenue mainly due to the inclusion of
Mitel Semiconductor AB which currently has a significant program for new
integrated circuits and optoelectronic components.
Mitel's R&D program integrates its support for existing products with
development work in emerging technologies including, among other, the
following: CTI; multimedia components and applications; networked voice and
data; client server telecom; Centrex service enhancements; new ISDN
applications; and real-time application specific microelectronic components.
Amortization
Amortization increased in the first quarter of Fiscal 1997 to $7.4 from $4.5
for the comparable period in Fiscal 1996. The increase is due primarily to
the semiconductor capacity expansion program, replacements and upgrades to the
Company's other manufacturing plants, as well as the inclusion of Mitel
Semiconductor AB's results of operations.
14
<PAGE> 15
INTEREST INCOME AND EXPENSE
Interest income, net of interest expense, was $1.2 in the three month period
ended June 28, 1996 compared to $2.3 for the corresponding period in Fiscal
1996. The decrease in net interest income resulted from lower Canadian
interest rates and from lower average cash balances available for investment.
Cash balances available for investment were reduced due to the acquisition of
Mitel Semiconductor AB for $44.0 on the last day of Fiscal 1996. This
acquisition was financed in its entirety from the Company's cash resources.
INCOME TAXES
In the first quarter of Fiscal 1997, the Company deferred recognition of
certain discretionary tax deductions, increasing tax expense by $2.3 to permit
the realization of Canadian federal investment tax credits that otherwise
would have expired. Income tax expense for the first quarter of Fiscal 1997
was $2.9 and compares to $1.3 for the same period in Fiscal 1996. Before
accounting for the investment tax credits, income tax expense for the first
quarter of Fiscal 1997 was $0.6, a decrease of $0.7 compared to the first
quarter in Fiscal 1996 due to lower taxable earnings in the U.K.
BACKLOG
As orders are frequently booked and shipped within the same fiscal month,
order backlog is not necessarily indicative of a sales outlook for the month,
quarter, or year. This is most true for the Company's business communication
systems although manufacturing lead times for semiconductor products are
generally longer because of the nature of the production process. At June 28,
1996, order backlog was $146.9 as compared to $138.8 at March 29, 1996. The
increase in backlog was mainly attributable to higher U.S. business
communication systems orders and to strong worldwide demand for the Company's
semiconductors. Most of the backlog is scheduled for delivery in the next
twelve months.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and short-term investment balances of $128.4 as at June
28, 1996 compared to $137.3 as at March 29, 1996. The decrease of $8.9 from
the end of Fiscal 1996 was due to increased working capital requirements and
fixed asset additions offset by improved operating results.
Cash flow provided by operations amounted to $1.1 during the first quarter
ended June 28, 1996. This compares to the first quarter of Fiscal 1996 when
cash provided by operations was $7.0. Operating cash flow during the first
quarter of Fiscal 1997 decreased relative to the corresponding period last
year primarily due to greater reductions in payables and larger increases in
inventories.
Since March 29, 1996, the Company's working capital increased by $7.0 to
$217.3 primarily due to payments on year-end accounts payable and an increase
in inventories offset by reduced accounts receivable levels. Inventories
were built-up mainly in anticipation of routine plant maintenance shutdowns.
The reduction in accounts payable included payments for incentives related to
the Fiscal 1996 performance. Accounts receivable decreased by $14.0 as a
result of collections on the typically higher year-end balances.
15
<PAGE> 16
On March 29, 1996, the company recorded a liability of $2.0 in respect of
costs to integrate the operations of the acquired company, Mitel
Semiconductor AB, with the Semiconductor Division. During the first quarter
of Fiscal 1997, integration costs of $0.1 were charged against the provision.
These costs consist primarily of information systems integration costs. The
Company expects that the program to integrate the acquired company with the
Semiconductor Division will be completed by the end of Fiscal 1997.
Fixed asset additions amounted to $14.1 during the first quarter of Fiscal
1997, and were primarily for the increase in semiconductor manufacturing
capacity and technology enhancements as well as upgrades to the Company's
information technology resources. Management expects that Fiscal 1997 capital
expenditures will be significantly higher than in Fiscal 1996 as a result of
the semiconductor capital program. As previously discussed, the semiconductor
capital program will be conducted in two phases. Phase one, which commenced
in the fourth quarter of Fiscal 1996, is expected to cost approximately $10.0
and phase two is expected to cost approximately $34.0.
Total long-term debt increased by $1.9 from the end of Fiscal 1996 due to
capital assets acquired under capital leases.
As at June 28, 1996, the Company's capitalization was comprised of 17 percent
debt, 10 percent preferred equity, and 73 percent common equity, the same
profile as at the end of Fiscal 1996.
In addition to cash and short-term investment balances of $128.4 as at June
28, 1996, the Company has unused lines of credit in North America and the U.K.
of approximately $32.1.
Management believes the Company is in a position to meet all foreseeable
business cash requirements and debt service from its cash balances on hand,
existing financing facilities and cash flow from operations.
16
<PAGE> 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 11(a) Computation of earnings per share under Canadian
accounting principles.
Exhibit 11(b) Computation of earnings per share under United
States accounting principles.
b) Reports on Form 8-K
During the quarter ended June 28, 1996, the company filed Forms 8-K and 8-K/A
reporting the acquisition on March 29, 1996 of 100 percent of the voting
shares of ABB Hafo AB, of Jarfalla, Sweden from Asea Brown Boveri AB. The
Form 8-K/A included the audited financial statements of the business acquired
for the year ended December 31, 1995, and unaudited pro forma condensed
consolidated financial statements as at March 29, 1996.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
MITEL CORPORATION (Registrant)
<TABLE>
<S> <C>
July 26, 1996 JEAN-JACQUES CARRIER
Date Jean-Jacques Carrier
Vice President of Finance
and Chief Financial Officer
July 26, 1996 JOHN B. MILLARD
Date John B. Millard
President and
Chief Executive Officer
</TABLE>
17
<PAGE> 18
EXHIBIT INDEX
Exhibit Number Description
11(a) Computation of earnings per share under
Canadian accounting principles.
11(b) Computation of earnings per share under
United States accounting principles.
18
<PAGE> 19
MITEL CORPORATION Exhibit 11a
COMPUTATION OF EARNINGS PER SHARE
(CANADIAN ACCOUNTING PRINCIPLES)
(in millions of Canadian dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 28, June 30,
1996 1995
------- -------
<S> <C> <C>
BASIC EPS
Net income $ 10.7 $ 9.6
Less: dividends on cumulative preferred shares (0.8) (0.9)
------- -------
Adjusted net income $ 9.9 $ 8.7
======= =======
Weighted average shares outstanding (millions) 107.2 105.8
======= =======
Basic EPS $ 0.09 $ 0.08
======= =======
FULLY DILUTED EPS (1)
Adjusted net income as
determined under basic EPS $ 9.9 $ 8.7
Imputed interest on stock options
and warrants 0.1 0.1
------- -------
Adjusted net income $ 10.0 $ 8.8
======= =======
Weighted average shares outstanding
as determined under basic EPS (millions) 107.2 105.8
Add weighted average shares on conversion of:
- stock options 3.4 2.7
- warrants - 1.0
------- -------
Adjusted weighted average shares
outstanding (millions) 110.6 109.5
------- -------
Fully diluted EPS $ 0.09 $ 0.08
======= =======
</TABLE>
(1) This calculation is submitted in accordance with Release No. 33-5133
under the Securities Act of 1933, as amended, even though the amounts of per
share earnings on the fully dilutive basis are not required under the
provisions of section 3500 of the Canadian Institute of Chartered Accountants
Handbook.
19
<PAGE> 20
MITEL CORPORATION Exhibit 11b
COMPUTATION OF EARNINGS PER SHARE
(UNITED STATES ACCOUNTING PRINCIPLES)
(in millions of Canadian dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 28, June 30,
1996 1995
------- -------
<S> <C> <C>
PRIMARY EPS
Net income $ 11.2 $ 14.0
Less: dividends on cumulative preferred shares (0.8) (0.9)
------- -------
Adjusted net income $ 10.4 $ 13.1
======= =======
Weighted average shares and
share equivalents (millions) 108.5 107.7
======= =======
Primary EPS $ 0.10 $ 0.12
======= =======
FULLY DILUTED EPS (1)
Adjusted net income as
determined under primary EPS $ 10.4 $ 13.1
======= =======
Weighted average shares and
share equivalents (millions) 108.5 107.7
Weighted average shares on conversion
of stock options - 0.1
------- -------
Adjusted weighted average shares
outstanding (millions) 108.5 107.8
======= =======
Fully diluted EPS $ 0.10 $ 0.12
======= =======
</TABLE>
(1) This calculation is submitted in accordance with Release No. 33-5133
under the Securities Act of 1933, as amended, even though the amounts of per
share earnings on the fully dilutive basis are not required to be stated
under the provisions of APB Opinion No. 15.
20
