UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
----------------------
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): February 27, 1998
MITEL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CANADA 1-8139 NONE
- ------------------------------- --------------------- -------------------
(State or other jurisdiction of (Commission File No.) (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
------------------------------------------------------------------
Page 1 of 40
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
(1) Combined Balance Sheets for the four affiliated entities
acquired which, together with their respective subsidiaries,
comprise the Plessey Semiconductors Group ("Plessey") as of
March 31, 1997 and 1996 and the related Combined Statements of
Profit and Loss Accounts and Cash Flows for each of the three
years in the period ended March 31, 1997 and Report of
Independent Accountants. See page 4.
(2) Unaudited Combined Balance Sheet for Plessey as of
December 31, 1997, and the related unaudited Combined
Statements of Profit and Loss Accounts and Cash Flows for
the nine months ended December 31, 1997 and 1996. See page 29.
(b) Pro Forma Financial Information.
The following unaudited Pro Forma Condensed Financial
Statements, prepared in accordance with Canadian generally
accepted accounting principles, are filed with this report:
(1) Mitel Corporation Pro Forma Condensed Consolidated Balance
Sheet (unaudited) as at December 26, 1997. See page 34.
(2) Mitel Corporation Pro Forma Condensed Consolidated
Statement of Income (unaudited) for the nine months ended
December 26, 1997. See page 35.
(3) Mitel Corporation Pro Forma Condensed Consolidated
Statement of Income (unaudited) for the year ended March 28,
1997. See page 36.
(4) Notes to Pro Forma Condensed Consolidated Financial
Statements (unaudited). See pages 37 through 40.
The unaudited Pro Forma Condensed Consolidated Balance Sheet
as at December 26, 1997 is based upon the consolidated
financial statements of Mitel Corporation as at December 26,
1997, and the combined financial statements of Plessey as at
December 31, 1997, adjusted to give effect to Mitel
Corporation's acquisition of 100 percent of the outstanding
share capital of Plessey as if it had occurred on December 26,
1997.
The unaudited Pro Forma Condensed Consolidated Statements of
Income for the nine months ended December 26, 1997 and for the
year ended March 28, 1997 are based upon the consolidated
financial statements of Mitel Corporation for the nine months
ended December 26, 1997 and for the year ended March 28, 1997,
respectively, and the combined financial statements of Plessey
for the nine months ended December 31, 1997 and for the year
ended March 31, 1997, adjusted to give effect to Mitel
Corporation's acquisition of 100 percent of the outstanding
share capital of Plessey as if it had occurred on March 30,
1996.
The Pro Forma Condensed Consolidated financial statements
should be read in conjunction with the consolidated financial
statements contained in the Annual Report on Form 10-K for the
year ended March 28, 1997, including the notes thereto, of
Mitel Corporation and with the combined financial statements
of Plessey for the year ended March 31, 1997. The combined
financial statements of Plessey are included in this Current
Report on Form 8-K/A.
2
<PAGE>
SIGNATURE
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 hereunto duly authorized.
MITEL CORPORATION
(Registrant)
April 22, 1998 /s/ Jean-Jacques Carrier
-------------- ---------------------------
Date Jean-Jacques Carrier
Vice President of Finance
and Chief Financial Officer
3
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
COMBINED FINANCIAL STATEMENTS
31 MARCH 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Plessey Semiconductors Limited
We have audited the accompanying combined balance sheets of Plessey
Semiconductors Group comprising certain subsidiaries of The General Electric
Company p.l.c. (GEC), as of March 31, 1997 and 1996 and the related combined
profit and loss accounts, statements of total recognised gains and losses and
statements of cash flows for each of the years in the three year period ended
March 31, 1997 all expressed in British pounds sterling. These combined
financial statements are the responsibility of the Plessey Semiconductors Group
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United Kingdom, which do not differ in any significant respect from
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements audited by us present fairly,
in all material respects, the financial position of Plessey Semiconductors Group
at March 31, 1997 and 1996, and the results of its operations and cash flows for
each of the three years in the period ended March 31, 1997 in conformity with
accounting principles generally accepted in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
results of operations expressed in British pounds sterling for each of the two
years in the period ended March 31, 1997 and the determination of combined
invested equity and combined financial position also expressed in British pounds
sterling at March 31, 1997 and 1996 to the extent summarised in Note 26 to the
combined financial statements.
Plessey Semiconductors Group was formerly owned by GEC and, as disclosed in Note
21 to the combined financial statements, had significant transactions and
relationships with GEC and its affiliates.
Price Waterhouse
Bristol, England
22 April 1998
4
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
COMBINED PROFIT AND LOSS ACCOUNTS
FOR THE YEARS ENDED 31 MARCH 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
NOTES (pound)000 (pound)000 (pound)000
----- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Turnover - Continuing operations 1 & 2 215,693 241,085 204,174
Change in stocks of finished goods and
work-in-progress (1,518) (3,175) (1,218)
Raw materials and consumables (43,605) (49,720) (37,364)
Staff costs 5 (75,344) (78,841) (70,509)
Depreciation (24,590) (20,476) (20,644)
Hire of plant and machinery (1,396) (884) (882)
Other operating charges (62,658) (67,984) (61,614)
-----------------------------------------------------
Operating profit - continuing operations 2 & 3 6,582 20,005 11,943
Net interest receivable 4 743 573 482
-----------------------------------------------------
Profit on ordinary activities before taxation 7,325 20,578 12,425
Taxation 7 (1,696) (7,669) (4,831)
-----------------------------------------------------
Profit for the year 15 5,629 12,909 7,594
Dividends paid -- -- (1,926)
-----------------------------------------------------
Retained profit for the year 5,629 12,909 5,668
-----------------------------------------------------
COMBINED STATEMENT OF TOTAL
RECOGNISED GAINS AND LOSSES
Profit for the year attributable to shareholders 5,629 12,909 7,594
Exchange differences on translation of net
assets (3,235) 850 (418)
-----------------------------------------------------
Total gains recognised 2,394 13,759 7,176
-----------------------------------------------------
</TABLE>
5
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
COMBINED BALANCE SHEETS
AS AT 31 MARCH 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
NOTES (pound)000 (pound)000
----- ---------- ----------
<S> <C> <C> <C>
Tangible Fixed Assets 8 182,343 176,205
Current Assets
Stocks 10 34,928 34,536
Debtors 11 56,912 71,734
Cash at bank and in hand 22,061 14,082
-------------------------
113,901 120,352
-------------------------
Current Liabilities
Creditors: amounts falling due within one year 12 (130,803) (134,456)
-------------------------
Net Current Liabilities (16,902) (14,104)
-------------------------
Total Assets Less Current Liabilities 165,441 162,101
Creditors: amounts falling due after more than one year 13 (11,093) (12,689)
Provisions for liabilities and charges 14 (20,471) (17,929)
-------------------------
133,877 131,483
=========================
Invested equity 15 133,877 131,483
=========================
</TABLE>
6
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED 31 MARCH 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
NOTES (pound)000 (pound)000 (pound)000
----- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net cash inflow from operating activities 22 32,298 38,818 34,706
Returns on investments and servicing
of finance
Interest received 1,389 1,411 1,212
Interest paid -- (13) --
Interest element of finance lease rental payments (656) (828) (769)
----------------------------------------------------
Net cash inflow from returns on investment
and servicing of finance 733 570 443
Taxation 375 (2,218) (2,369)
Capital expenditure and financial investment
Purchase of tangible fixed assets (40,820) (89,530) (39,231)
Sale of tangible fixed assets 1,292 5,512 287
----------------------------------------------------
Net cash (outflow) from capital expenditure
and financial investment (39,528) (84,018) (38,944)
Equity dividends paid -- -- (1,926)
Financing
Capital element of finance lease rental payments (1,467) (1,359) (1,219)
Parent company transactions, net 16 (9,523) 50,782 6,110
----------------------------------------------------
Net cash (outflow)/inflow from financing (10,990) 49,423 4,891
----------------------------------------------------
(Decrease)/increase in cash in the year 23 & 24 (17,112) 2,575 (3,199)
====================================================
</TABLE>
7
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ACCOUNTING POLICIES
The accounting policies adopted by the Plessey Semiconductors Group are set out
below and have been consistently applied throughout the period.
(a) ACCOUNTING CONVENTION
The financial statements are prepared under the going concern concept and
the historical cost convention and in accordance with applicable
accounting standards generally accepted in the United Kingdom.
(b) BASIS OF PREPARATION
For the period covered by these combined financial statements, Plessey
Semiconductors Group ("PSL Group") was part of The General Electric
Company p.l.c. ("GEC" or "GEC Group"). PSL Group comprises Plessey
Semiconductors Limited, its direct subsidiaries and other GEC Group
subsidiaries developing, manufacturing and marketing semiconductor
products. Each of the companies is a legal entity and, where required to
do so, prepares single company statutory accounts according to the
legislation requirements of its country of registration or incorporation.
The operations of PSL Group were previously reported as part of the
financial statements of GEC. Under the terms of the acquisition of PSL
Group (see Note 25), Mitel Corporation has acquired the whole of GEC
Group's holdings of the issued share capital of the companies comprising
the PSL Group.
These combined financial statements present information about the PSL
Group on a combined basis. All material intercompany accounts and
transactions have been eliminated in arriving at the combined financial
statements.
The combined cash flow statement presented above has been drawn up for the
purposes of these combined financial statements under Financial Reporting
Standard No. 1 (Revised 1996).
Subsidiary Undertakings
An undertaking is considered to be a subsidiary where the PSL Group
exercises dominant influence over the operations of the undertaking. The
accounts of subsidiary undertakings acquired are included in Group figures
from the dates of acquisition.
Purchased Goodwill
Goodwill incurred and written off on the original formation of PSL in 1990
is included within these combined financial statements (see Note 15).
Goodwill arising on consolidation
Goodwill arising on consolidation is eliminated against reserves.
8
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(c) RELATED PARTY TRANSACTIONS
As part of GEC, PSL Group received tax, treasury and other administrative
and support services from GEC Group and also participated in "The GEC 1972
Plan" pension scheme and employee share option schemes.
Further information about such relationships and transactions is given in
Note 21.
(d) FOREIGN CURRENCY RISK MANAGEMENT
PSL Group has utilised the central treasury functions of the GEC Group in
managing its cash and borrowings and in hedging its asset and transaction
foreign exchange exposures as part of the GEC Group's overall treasury
management strategy.
For the purpose of these combined financial statements, where this hedging
strategy has generated profits or losses within the records of GEC Group
which relate to PSL Group, these have been included in the results of PSL
Group on a specific transaction basis.
(e) RESEARCH AND DEVELOPMENT
All expenditure associated with research, engineering, product design and
product development is charged against income as incurred, except where it
is chargeable to and recoverable from the customer under agreed contract
terms.
(f) TANGIBLE FIXED ASSETS
Tangible fixed assets are shown at cost at 1 October 1989, being the date
from which the business, as later transferred to PSL Group, was acquired
by GEC, with additions at cost and depreciation arising after that date.
Depreciation is provided mainly on the straight line method over the
estimated useful lives of the fixed assets. Items in capital
work-in-progress are not depreciated until they are brought into use.
The annual depreciation rates used for the major categories of asset are
as follows:
Buildings - Freehold 2% - 4%
Buildings - Leasehold 4%
Plant and machinery 10% - 20%
Fixtures and fittings 20%
Motor vehicles 25%
9
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(g) GOVERNMENT GRANTS
Capital grants receivable are recorded separately from the cost of the
asset as deferred credits. Amounts are released to the profit and loss
account in line with the depreciation charge. Revenue grants are taken to
the profit and loss account in line with costs incurred.
(h) OBLIGATIONS UNDER LEASE AGREEMENTS
Where assets are financed by leasing agreements that give rights
approximating to ownership ('finance leases'), the assets are treated as
if they had been purchased outright. The amount capitalised is the present
value of the minimum lease payments payable during the lease term. The
corresponding leasing commitments are shown as obligations to the lessor.
Depreciation on the relevant assets is charged to the profit and loss
account.
Lease payments are treated as consisting of capital and interest elements,
and the interest is charged to the profit and loss account using the
annuity method.
All other leases are 'operating leases' and the annual rentals are charged
to the profit and loss account as incurred.
(i) STOCKS
Stocks are stated at the lower of cost and net realisable value, where
cost is determined on the principle of first in first out. The cost of
products manufactured by the PSL Group consists of direct material and
labour costs, together with the relevant production overheads.
(j) TAXATION
These financial statements present PSL Group's UK corporation tax charge
on a basis which reflects the benefit of Advance Corporation Tax
surrendered from GEC p.l.c. and amounts receivable from GEC Group
companies for Group relief in respect of the surrender of tax losses.
Provision is made for deferred tax timing differences between the
treatment of certain items for taxation and accounting purposes to the
extent that it is probable that a liability will crystallise in the
foreseeable future.
(k) FOREIGN CURRENCIES
The trading results of foreign operations are translated into sterling at
average rates of exchange ruling through the relevant period. The net
assets of foreign operations are expressed in sterling at the rates of
exchange ruling at the balance sheet date.
10
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Differences on exchange arising from the translation of both the opening
net assets of foreign operations and of the trading results of foreign
operations to closing rates of exchange are taken to reserves.
Other assets and liabilities denominated in foreign currencies are
expressed at the rates of exchange ruling at the balance sheet date.
Profits or losses due to currency fluctuations, including those arising on
the settlement of day to day transactions, are dealt with through the
profit and loss account.
Key rates used are as follows:
<TABLE>
<CAPTION>
Average Year end
------- --------
(pound)1.00 = 1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
US Dollar 1.586 1.568 1.558 1.63 1.53 1.629
French Franc 8.309 7.72 8.34 9.21 7.67 7.81
German Marks 2.455 2.228 2.424 2.73 2.25 2.23
Italian Lira 2471 2532 2497 2728 2394 2764
</TABLE>
(l) PENSIONS
Certain PSL Group employees are members of "The GEC 1972 Plan" pension
scheme (a defined benefit plan), contributions to which are assessed by a
qualified actuary based on the cost of providing pensions across all
participating GEC Group companies (see Note 19). Pension costs for these
schemes have been charged to the profit and loss account based on the cash
contributions payable in the period.
(m) TURNOVER
Turnover comprises net sales to customers, including other GEC Group
companies, exclusive of Value Added Tax.
11
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Turnover
Analysis of territorial turnover by destination:
1997 1996 1995
---- ---- ----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
UK 41,199 45,569 43,517
Continental Europe 57,928 89,586 65,025
The Americas 66,146 54,271 45,131
Asia 49,103 49,810 48,690
Rest of World 1,317 1,849 1,811
--------------------------------------------
215,693 241,085 204,174
============================================
The Group operates in a single class of business, the manufacture of
semiconductors.
2. Segmental Analysis
Analysis of operating profit, turnover and net assets by territory of
origin:
<TABLE>
<CAPTION>
Operating Net assets at
--------- -------------
Profit Turnover 31 March
------ -------- --------
1997 1996 1995 1997 1996 1995 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UK (4,530) 16,535 6,296 181,345 207,684 174,535 105,813 106,987
Continental
Europe 3,233 2,884 2,606 32,593 33,666 31,865 12,279 14,091
The Americas 7,761 427 2,920 70,359 60,115 53,427 15,285 9,909
Asia 117 159 121 -- -- -- 500 496
Intracompany -- -- -- (68,604) (60,380) (55,653) -- --
---------------------------------------------------------------------------------------------------------
6,582 20,005 11,943 215,693 241,085 204,174 133,877 131,483
=========================================================================================================
</TABLE>
12
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. Profit on ordinary activities before taxation
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
<S> <C> <C> <C>
Profit on ordinary activities before taxation is
stated after charging:
Depreciation on owned assets 23,917 21,598 19,578
Depreciation on assets held under finance leases 883 946 1,105
Profit on sale of fixed assets (210) (2,068) (39)
Auditors' remuneration
- Audit work 172 174 177
- Non audit work (PSL auditors) 3 14 --
Operating leases:
- Plant and machinery 702 715 848
- Other (land and buildings) 2,203 1,983 1,994
Research & development (see Note 6) 51,632 46,610 38,004
And after crediting:
- Government grants 129 129 129
===========================================
</TABLE>
4. Net interest receivable/(payable)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
<S> <C> <C> <C>
Interest receivable from deposits/loans 1,399 1,414 1,251
Interest payable on finance leases (656) (828) (764)
Other interest payable -- (13) (5)
----------------------------------------
743 573 482
========================================
</TABLE>
The above interest figures are not necessarily reflective of what the
interest costs would have been, or will be in the future, on a stand-alone
basis outside GEC.
5. Employees and Directors
1997 1996 1995
---- ---- ----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
Employees Staff costs comprise:
Wages and salaries 67,561 71,090 64,835
Social security costs 6,156 6,220 5,586
Pension Costs - UK (Note 19) 1,613 1,702 --
- Overseas 14 (171) 88
------------------------------------------
75,344 78,841 70,509
==========================================
13
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The average weekly number of persons 1997 1996 1995
(including directors) employed by the group was ---- ---- ----
as follows:
<S> <C> <C> <C>
Employed in the UK 2,549 2,813 2,775
Employed outside the UK 291 329 320
-------------------------------
2,840 3,142 3,095
===============================
</TABLE>
Directors
One of PSL's two directors is paid by GEC and his details have been excluded as
it is impracticable to allocate his remuneration between that earned as a
director of PSL and that earned in other capacities.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
The remuneration paid to the other director of PSL was :
<S> <C> <C> <C>
Emoluments 96 93 77
Pension Contribution 5 5 --
----------------------------------
101 98 77
==================================
</TABLE>
Share Options
Employees of the Company with more than two years' service may participate in
the GEC Employee Savings-Related Share Option Schemes and certain managers are
included in the GEC Managers' 1984 Share Option Scheme.
Under the terms of the GEC Managers' 1984 Share Option Scheme the Directors of
PSL had the following options outstanding in respect of ordinary shares of 5p
each in GEC:
31 March 1997 31 March 1996 31 March 1995
------------- ------------- -------------
T Urwin 80,000 80,000 80,000
A P Gallagher 34,000 34,000 34,000
No options were granted to or exercised by the Directors during the above years
under the GEC Managers' 1984 Share Option Scheme.
The options are exercisable normally during the years 1997 to 2004 at a
subscription price of 328p per share. The options were exercised in March 1998
and December 1997, respectively.
14
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. Research and Development
The operating profit for the year is stated after charging the net of the
following research and development expenditure and associated income:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
<S> <C> <C> <C>
Research and development expenditure 58,887 56,896 48,695
Grants receivable (3,504) (3,766) (6,051)
Private Sector funding (3,751) (6,520) (4,640)
------------------------------------------
51,632 46,610 38,004
==========================================
</TABLE>
7. Taxation
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
<S> <C> <C> <C>
UK taxation:
Corporation tax credit/(charge) at 33% 5,274 1,124 (2,018)
Relief for overseas taxation 1,170 -- --
Deferred taxation (4,915) (6,847) (847)
Over/(under) provision in previous years
- Corporation tax 714 641 252
- Deferred tax (142) (160) 1,059
-----------------------------------------
2,101 (5,242) (1,554)
Overseas taxation (charge)/credit (3,797) (2,427) (3,277)
-----------------------------------------
(1,696) (7,669) (4,831)
=========================================
</TABLE>
The above tax charges are not necessarily reflective of what the tax
charges would have been, or will be in the future, on a stand-alone basis
outside GEC.
15
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. Tangible fixed assets
<TABLE>
<CAPTION>
Freehold Leasehold Leasehold Plant Fixtures
Land & Land & Land & & &
Buildings Buildings Buildings Machinery Fittings Total
>50 years <50 years
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cost to the GEC Group
At 1 April 1996 12,917 37 19,040 250,920 50,176 333,090
Additions 824 -- -- 23,160 8,271 32,255
Disposals (59) -- (103) (2,501) (2,265) (4,928)
Reclassifications 1,149 (37) (416) (7,876) 7,212 32
GEC Group Transfers (63) -- -- (8,337) (2,097) (10,497)
Exchange adj -- -- (17) (219) (771) (1,007)
-----------------------------------------------------------------------------------------------
At 31 March 1997 14,768 -- 18,504 255,147 60,526 348,945
===============================================================================================
Depreciation
At 1 April 1996 1,928 5 5,883 115,403 33,666 156,885
Charge for the year 288 -- 863 16,535 7,114 24,800
Disposals (34) -- (45) (2,450) (2,177) (4,706)
Reclassifications 833 (5) (324) (6,549) 6,077 32
GEC Group Transfers (23) -- -- (7,856) (1,757) (9,636)
Exchange adj -- -- (8) (443) (322) (773)
-----------------------------------------------------------------------------------------------
At 31 March 1997 2,992 -- 6,369 114,640 42,601 166,602
===============================================================================================
Net Book Amount
At 31 March 1997 11,776 -- 12,135 140,507 17,925 182,343
===============================================================================================
At 1 April 1996 10,989 32 13,157 135,517 16,510 176,205
===============================================================================================
Of which leased assets are:
At 31 March 1997 -- -- 12,080 44 -- 12,124
===============================================================================================
At 1 April 1996 -- -- 12,997 73 -- 13,070
===============================================================================================
</TABLE>
16
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Freehold Leasehold Leasehold Plant Fixtures
Land & Land & Land & & &
Buildings Buildings Buildings Machinery Fittings Total
>50 years <50 years
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cost to the GEC Group
At 1 April 1995 14,223 1,842 18,998 172,313 43,261 250,637
Additions 49 -- 27 88,435 8,306 96,817
Disposals (1,355) (1,805) -- (10,115) (1,525) (14,800)
Exchange adj -- -- 15 287 134 436
-----------------------------------------------------------------------------------------------
At 31 March 1996 12,917 37 19,040 250,920 50,176 333,090
===============================================================================================
Depreciation
At 1 April 1995 2,307 264 4,983 109,393 28,400 145,347
Charge for the year 275 -- 895 14,845 6,529 22,544
Disposals (654) (259) -- (9,080) (1,363) (11,356)
Exchange adj -- -- 5 245 100 350
-----------------------------------------------------------------------------------------------
At 31 March 1996 1,928 5 5,883 115,403 33,666 156,885
===============================================================================================
Net Book Amount
At 31 March 1996 10,989 32 13,157 135,517 16,510 176,205
===============================================================================================
At 1 April 1995 11,916 1,578 14,015 62,920 14,861 105,290
===============================================================================================
Of which leased assets are:
At 31 March 1996 -- -- 12,997 73 -- 13,070
===============================================================================================
At 1 April 1995 -- -- 13,751 138 22 13,911
===============================================================================================
</TABLE>
17
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. PSL Group Undertakings
The following undertakings are included in the combined financial
statements throughout the three years presented; all companies are owned
by GEC p.l.c. and those asterisked (*) are 100% subsidiaries of PSL:
<TABLE>
<CAPTION>
Nature of Country of
--------- ----------
Name Business % Incorporation
---- -------- - -------------
<S> <C> <C> <C>
Plessey Semiconductors Limited Electronics 100 Great Britain
Plessey France S.A * Electronics 100 France
Plessey GmbH * Electronics 100 Germany
Plessey Semiconductors SpA * Electronics 100 Italy
Plessey Semiconductors Singapore Pte Ltd * Electronics 100 Singapore
GEC Plessey Semiconductors Japan Ltd * Electronics 100 Japan
UK Cablevision Limited * Dormant 100 Great Britain
GEC Plessey Semiconductors Overseas Limited * Electronics 100 Great Britain
GEC Plessey Semiconductors Inc Electronics 100 USA
MED SA Electronics 100 France
Marconi Electronic Devices Limited Dormant 100 Great Britain
AEI Semiconductors Limited Dormant 100 Great Britain
PSSY Semiconductors Svenska AB * Dormant 100 Sweden
</TABLE>
10. Stocks
1997 1996
---- ----
(pound)000 (pound)000
---------- ----------
Raw materials and consumables 9,896 7,985
Work in progress 20,801 22,888
Finished goods 4,231 3,662
--------------------------
34,928 34,536
==========================
The carrying value is not materially different from current replacement
cost.
11. Debtors
<TABLE>
<CAPTION>
1997 1996
---- ----
(pound)000 (pound)000
---------- ----------
<S> <C> <C>
Trade debtors 30,636 42,150
Amounts owed by GEC associated companies 790 3,284
Amounts owed by parent and fellow GEC subsidiaries 1,498 4,805
Other debtors 6,070 7,628
Prepayments and accrued income 9,367 7,977
Corporation tax recoverable 8,215 5,828
Overseas tax 336 62
------------------------------
56,912 71,734
==============================
</TABLE>
18
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Amounts falling due after more than one year included above are:
1997 1996
---- ----
(pound)000 (pound)000
---------- ----------
Other debtors 4,662 5,145
Prepayments 218 136
-----------------------------
4,880 5,281
=============================
12. Creditors: amounts falling due within one year
1997 1996
---- ----
(pound)000 (pound)000
---------- ----------
Bank overdraft 30,066 3,438
Payments received on account 78 503
Trade creditors 17,232 34,822
Amounts owed to GEC associated subsidiaries -- --
Amounts owed to parent 67,828 77,351
Amounts owed to fellow GEC subsidiaries 883 839
Other taxation and social security 2,174 2,359
Accruals and deferred income 8,641 10,916
Obligations under finance leases 2,385 2,388
Government grants deferred 129 129
Overseas tax 1,387 1,712
---------------------------
130,803 134,456
===========================
13. Creditors: amounts falling due after more than one year
<TABLE>
<CAPTION>
1997 1996
---- ----
(pound)000 (pound)000
---------- ----------
<S> <C> <C>
Government grants deferred 1,775 1,904
Obligations under finance leases:
Repayable in the 2nd to 5th years inclusive 7,137 6,596
Repayable after 5 years 2,181 4,189
------------------------
11,093 12,689
========================
</TABLE>
19
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. Provisions for liabilities and charges
Other Deferred
----- --------
Provisions Taxation Total
---------- -------- -----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
At 1 April 1996 7,264 10,665 17,929
Utilised during the year (2,426) -- (2,426)
Arising during the year 172 5,057 5,229
Exchange rate adjustment (262) -- (262)
---------------------------------------
At 31 March 1997 4,749 15,722 20,471
=======================================
Other Deferred
----- --------
Provisions Taxation Total
---------- -------- -----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
At 1 April 1995 5,851 3,658 9,509
Utilised during the year (1,528) -- (1,528)
Arising during the year 2,747 7,007 9,754
Exchange rate adjustment 193 193
---------------------------------------
At 31 March 1996 7,264 10,665 17,929
=======================================
Other Provisions primarily comprise redundancy, product liability and
property costs.
Deferred tax has been fully provided in the financial statements and
comprises:
1997 1996
---- ----
(pound)000 (pound)000
---------- ----------
Accelerated capital allowances 16,241 13,031
Other timing differences (519) (2,366)
--------------------------
15,722 10,665
==========================
20
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. Reconciliation of movements in invested equity
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
<S> <C> <C> <C>
Profit for the financial year 5,629 12,909 5,668
Exchange difference on translation of net assets (3,235) 850 (418)
----------------------------------------
Net increase in invested equity 2,394 13,759 5,250
Opening invested equity 131,483 117,724 112,474
----------------------------------------
Closing invested equity 133,877 131,483 117,724
========================================
</TABLE>
Included within opening invested equity above is a write off of goodwill
amounting to (pound)7,696,000 which arose in PSL upon its formation in
1990.
16. Reconciliation of movements in parent company funding
GEC has provided interest free funding to PSL Group, the movements on this
funding comprise:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
<S> <C> <C> <C>
Capital/Fixed assets -- 51,500 6,000
Taxation amounts paid/(received) (4,771) 2,018 110
Other trading amounts advanced/(repaid) (4,752) (2,736) --
-----------------------------------------
Net transactions for the year (9,523) 50,782 6,110
Opening balance 77,351 26,569 20,459
-----------------------------------------
Closing balance 67,828 77,351 26,569
=========================================
</TABLE>
17. Capital commitments
1997 1996
---- ----
(pound)000 (pound)000
---------- ----------
Future capital expenditure contracted for, but
not provided for in the financial statements 5,562 17,947
========================
18. Contingent liabilities
1997 1996
---- ----
(pound)000 (pound)000
---------- ----------
Letters of credit 98 759
=======================
21
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
19. Pensions
Pension plan assets are held in trustee-administered funds independent of
the Group's finances. The principal pension scheme, The GEC 1972 Plan
("the Plan"), is of the 'defined' benefit type. GEC reported in its 31
March 1997 Group accounts as follows:
"The plan was last valued by a qualified independent actuary as at 5 April
1994, using the 'attained age' method. The main financial assumptions for
the future were that the return on new investments would be 10 per cent
per annum, that equity dividends would increase in the long-term by 5.5
per cent per annum, that increases in pensionable earnings due to
inflation would average 7.5 per cent per annum, that present and future
pensions would increase at the rate of 5 per cent per annum and State
pensions by 6.5 per cent per annum.
The accumulated assets of the Plan were sufficient to finance 107.5 per
cent of the past service liabilities including provision for future
inflation. The market value of the assets was(pound)3,799 million at the
valuation date. On the advice of the actuary, for the four years ended 31
March 1995, no Company contributions were paid to the Plan. The actuary
advised that Company contributions should recommence from 5 April 1995 and
that the residual surplus at that date could be used to reduce the
Company's contribution from the long-term annual rate of 253 per cent of
members' contributions to 200 per cent."
Subsequent to the issue of the GEC accounts, the Actuary has since
reported that as at 5 April 1997 the assets of the scheme continued to
exceed its liabilities.
No amounts are included in the combined balance sheets in respect of
either surpluses or deficits relating to pension schemes.
20. Operating lease commitments
<TABLE>
<CAPTION>
Land & Buildings Other
---------------- -----
1997 1996 1997 1996
---- ---- ---- ----
(pound)000 (pound)000 (pound)000 (pound)000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Leases expiring:
Within one year 79 120 55 48
In two to five years 1,286 1,405 38 76
Over five years 625 393 612 672
-----------------------------------------------------------------------
1,990 1,918 705 796
=======================================================================
</TABLE>
22
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
21. Related party transactions
PSL Group made sales to other subsidiaries of the GEC Group amounting to
(pound)9,202,000 in the year to March 1997 ((pound)12,637,000 year to
March 1996, (pound)13,782,000 year to March 1995). These sales are made on
an arms length basis.
The Group has also purchased goods and services from GEC group companies
covering, amongst others, sub-contracted research and development
activity, property rental and patent maintenance. GEC Head Office support
on tax, legal and treasury matters has been provided without charge.
22. Reconciliation of operating profit to net cash inflow/(outflow) from
operating activities
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
<S> <C> <C> <C>
Operating profit 6,582 20,005 11,943
Depreciation charges 24,800 22,544 20,683
(Profit) on sale of tangible fixed assets (210) (2,068) (39)
(Increase)/decrease in stocks (392) 1,601 (27)
(Increase)/decrease in debtors 15,150 (11,952) (2,774)
Increase/(decrease) in creditors (11,317) 7,475 4,042
Increase/(decrease) in provisions (2,315) 1,213 878
------------------------------------------
Net cash inflow/(outflow) from operating activities 32,298 38,818 34,706
==========================================
</TABLE>
23. Reconciliation of net cash flow to movement in net debt
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
<S> <C> <C> <C>
Increase/(decrease) in cash in the period (17,112) 2,575 (3,199)
Cash inflow/(outflow) from (increase)/
decrease in debt and lease financing 1,467 1,359 1,219
--------------------------------------------------
Change in net debt resulting from cash flows (15,645) 3,934 (1,980)
Translation differences (1,534) 350 20
--------------------------------------------------
Movement in net debt in the year (17,179) 4,284 (1,960)
Net debt at 1 April (2,529) (6,813) (4,853)
--------------------------------------------------
Net debt at 31 March (19,708) (2,529) (6,813)
==================================================
</TABLE>
23
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
24. Analysis of changes in net debt
<TABLE>
<CAPTION>
At 1 Apr Cash Exchange At 31 Mar
-------- ---- -------- ---------
1996 Flow Adjustment 1997
---- ---- ---------- ----
(pound)000 (pound)000 (pound)000 (pound)000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash in hand and at bank 14,082 9,516 (1,537) 22,061
Overdrafts (3,438) (26,628) -- (30,066)
Finance debts due within one year (2,388) -- 3 (2,385)
Finance debts due after more than
one year (10,785) 1,467 -- (9,318)
-----------------------------------------------------------
(2,529) (15,645) (1,534) (19,708)
===========================================================
<CAPTION>
At 1 Apr Cash Exchange At 31 Mar
-------- ---- -------- ---------
1995 Flow Adjustment 1996
---- ---- ---------- ----
(pound)000 (pound)000 (pound)000 (pound)000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash in hand and at bank 13,164 550 368 14,082
Overdrafts (5,445) 2,025 (18) (3,438)
Finance debts due within one year (2,388) -- -- (2,388)
Finance debts due after more than one year
(12,144) 1,359 -- (10,785)
-----------------------------------------------------------
(6,813) 3,934 350 (2,529)
===========================================================
<CAPTION>
At 1 Apr Cash Exchange At 31 Mar
-------- ---- -------- ---------
1994 Flow Adjustment 1995
---- ---- ---------- ----
(pound)000 (pound)000 (pound)000 (pound)000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash in hand and at bank 12,865 289 10 13,164
Overdrafts (1,971) (3,488) 14 (5,445)
Finance debts due within one year (2,384) -- (4) (2,388)
Finance debts due after more than one year
(13,363) 1,219 -- (12,144)
-----------------------------------------------------------
(4,853) (1,980) 20 (6,813)
===========================================================
</TABLE>
25. Subsequent event
On 12 February 1998 The General Electric Company p.l.c. completed an
agreement with Mitel Corporation for the sale of the PSL Group.
24
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
26. Differences between UK and US generally accepted accounting principles
PSL Group's combined financial statements have been prepared in accordance
with generally accepted accounting principles in the United Kingdom ("UK
GAAP") which differ in certain respects from generally accepted accounting
principles in the United States ("US GAAP"). The material differences as
they apply to the Group are summarised below:
(a) Deferred Taxation
Under UK GAAP, deferred taxation is only accounted for to the extent
that it is probable that a liability or asset will arise in the
foreseeable future. Under US GAAP, deferred taxation is accounted
for on all temporary differences and a valuation allowance is
established in respect of those deferred taxation assets where it is
more likely than not that some portion will not be realised. In
practice, PSL Group has booked full provision for deferred tax and
no US GAAP difference arises. The tax adjustments on the tables
below therefore relate solely to tax on the US GAAP adjustment.
(b) Pensions
Significant differences exist between SSAP 24 pensions accounting
for UK GAAP purposes and FAS 87 for US GAAP. Under SSAP 24, PSL
Group's charge is based on the cash contributions required by GEC,
based on actuarial advice; this is consistent with the treatment
under FAS 87 for multi-employer schemes, hence no UK/US GAAP
difference arises.
(c) Current assets and liabilities
Current assets under UK GAAP include certain amounts which fall due
after more than one year. Under US GAAP such assets would be
classified separately as non-current assets.
(d) Goodwill
Under UK GAAP, goodwill arising on the purchase of a business can be
eliminated against reserves in the period of acquisition. Under US
GAAP goodwill is capitalised and amortised over its estimated useful
life not exceeding 40 years.
The goodwill arising on the purchase of PSL Group by GEC in October
1989, which under US GAAP would be reflected in these financial
statements, as well as goodwill on subsequent acquisitions of
semiconductor businesses by PSL Group, has been capitalised and
amortised for US GAAP purposes over 5 years, representing the
estimated useful life of goodwill in this high technology industry.
Due to the fact that all of the acquisitions which gave rise to
goodwill in the PSL Group occurred prior to fiscal 1991, all such
goodwill has been fully amortised prior to 1 April 1995 and
therefore no difference exists between US and UK GAAP for the
periods presented.
25
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(e) Lease space
Under UK GAAP, costs associated with excess space are generally
charged as incurred. Under US GAAP, provision is made for the
present value of future costs of excess lease space net of probable
sublease income.
(f) Stock compensation plans
GEC operates a number of stock based compensation plans. Under UK
GAAP PSL Group has not recognised any cost in respect of these plans
since the costs have not been recharged by GEC.
Under US GAAP the application of Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issued to Employees" results in a
charge in respect of PSL Group employees.
(g) Effect on net income of differences between UK GAAP and US GAAP
<TABLE>
<CAPTION>
31 Mar 1997 31 Mar 1996
----------- -----------
(pound)000 (pound)000
---------- ----------
<S> <C> <C>
Profit for the financial year in accordance
with UK GAAP 5,629 12,909
US GAAP adjustments:
Lease space cost -- (680)
Share option scheme cost (270) (270)
Deferred tax @ 33% 90 314
--------------------------
Net income in accordance with US GAAP 5,449 12,473
==========================
</TABLE>
(h) Effect on invested equity of differences between UK GAAP and US GAAP
<TABLE>
<CAPTION>
31 Mar 1997 31 Mar 1996
----------- -----------
(pound)000 (pound)000
---------- ----------
<S> <C> <C>
Invested equity in accordance with UK GAAP 133,877 131,483
US GAAP adjustments:
Lease space provision (680) (680)
Share option scheme provision (1,870) (1,600)
Deferred tax @ 33% 842 752
--------------------------
Invested equity in accordance with US GAAP 132,169 129,955
==========================
</TABLE>
26
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1997
----
(pound)000
----------
Changes in US GAAP invested equity for the
year ended 31 March 1997 are as follows:
Invested equity at 1 April 1996 129,955
Net income for the period 5,449
Dividends --
Exchange rate differences (3,235)
----------
Invested equity at 31 March 1997 132,169
==========
(i) Cost of sales
Under US GAAP presentation, the figure for cost of goods sold
applicable to revenues in the combined profit and loss accounts
would be:
1997 1996 1995
---- ---- ----
(pound)000 (pound)000 (pound)000
---------- ---------- ----------
Cost of sales 108,839 129,980 106,857
(j) Combined statement of cash flows
The Group's consolidated statement of cash flows is prepared in
accordance with Financial Reporting Standard No. 1 (Revised) (FRS 1)
and presents substantially the same information as that required
under US GAAP. However, there are certain differences in
classification of items within the cash flow statement and with
regard to the definition of cash and cash equivalents between UK and
US GAAP.
Cash flows from (i) operating activities; (ii) returns on
investments and servicing of finance; (iii) taxation; (iv) capital
expenditure and financial investment; (v) acquisitions and
disposals; (vi) management of liquid resources; and (vii) financing
activities are presented separately under UK GAAP. However, US GAAP
only requires presentation of cash flows from three activities; (i)
operating, (ii) investing and (iii) financing.
Cash flows from taxation on investments and servicing of finance
are, with the exception of dividends paid and interest paid but
capitalised, included as operating activities under US GAAP. The
payment of dividends is included under financing activities and
capitalised interest is included under investing activities for US
GAAP purposes.
Cash flows from taxation are included as operating activities under
US GAAP.
27
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Cash flows from capital expenditure and financial investment as well
as cash flows from acquisitions and disposals are included as
investing activities under US GAAP.
Cash flows from the management of liquid resources are included in
the overall cash movement since liquid resources are considered cash
equivalents under US GAAP.
Cash, for purposes of cash flow under UK GAAP, includes bank
overdrafts but excludes liquid resources. Under US GAAP bank
overdrafts are considered loans and the movements thereon are
included in financing activities; liquid resources are considered
cash equivalents and the movements thereon are included in the
overall cash movement.
The following table summarises the statement of cash flows for the
Group as if they had been presented in accordance with US GAAP and
include the adjustments which reconcile cash and cash equivalents
under US GAAP to cash and cash equivalents under UK GAAP.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net cash flow from operating activities 33,406 37,170 32,780
Net cash used in investing activities (39,528) (84,018) (38,944)
Net cash provided by financing activities 15,635 47,416 6,443
-----------------------------
Net increase in cash and cash equivalents
under US GAAP 9,513 568 279
Effects of exchange rates on cash and cash
equivalents (1,534) 350 20
Cash and cash equivalents under US GAAP at
beginning of year 14,082 13,164 12,865
-----------------------------
Cash and cash equivalents under US GAAP
at end of year 22,061 14,082 13,164
=============================
</TABLE>
27. Companies Act 1985
These combined financial statements do not constitute "statutory accounts"
within the meaning of the Companies Act 1985 for any of the periods
presented. Separate single company statutory accounts for each of the
individual companies included within PSL Group have been prepared in
accordance with local legal requirements where required to be prepared.
These combined financial statements exclude certain parent company
statements and other information required by the Companies Act 1985.
However, they include all material disclosures required by generally
accepted accounting principles in the United Kingdom including those
Companies Act 1985 disclosures relating to the profit and loss account and
balance sheet items.
28
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
COMBINED PROFIT AND LOSS ACCOUNTS
FOR THE 9 MONTHS ENDED 31 DECEMBER 1997 AND 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
9 months ended
--------------
31 December
-----------
1997 1996
---- ----
(pound)000 (pound)000
---------- ----------
<S> <C> <C>
Turnover - Continuing operations 133,539 163,695
Change in stocks of finished goods and in work-in-progress 2,451 (247)
Raw materials and consumables (25,936) (31,070)
Staff costs (52,031) (56,517)
Depreciation (24,671) (18,223)
Hire of plant and machinery (891) (1,047)
Other operating charges (46,045) (50,577)
----------------------------
Operating profit - continuing operations (13,584) 6,014
Net interest receivable 473 409
Profit/(loss) on ordinary activities before taxation (13,111) 6,423
Taxation 4,415 (2,091)
----------------------------
Profit for the period (8,696) 4,332
Dividends paid (141) --
----------------------------
Retained profit/(loss) (8,837) 4,332
----------------------------
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Profit for the period attributable to shareholders (8,837) 4,332
Exchange differences on translation of net assets (1,356) (2,980)
----------------------------
Total gains/(losses) recognised (10,193) 1,352
============================
</TABLE>
29
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
COMBINED BALANCE SHEET
AS AT 31 DECEMBER 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
31 December 31 March
----------- --------
1997 1997
---- ----
(pound)000 (pound)000
---------- ----------
<S> <C> <C>
Fixed Assets 169,856 182,343
Current Assets
Stocks 39,313 34,928
Debtors 56,469 56,912
Cash at bank and in hand 17,258 22,061
---------------------------
113,040 113,901
---------------------------
Current Liabilities
Creditors: amounts falling due within one year (128,523) (130,803)
---------------------------
Net Current Liabilities (15,483) (16,902)
---------------------------
Total Assets Less Current Liabilities 154,373 165,441
Creditors: amounts falling due after more than one year (9,325) (11,093)
Provisions for liabilities and charges (21,364) (20,471)
---------------------------
123,684 133,877
===========================
Invested equity 123,684 133,877
===========================
</TABLE>
30
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
COMBINED STATEMENT OF CASH FLOWS
FOR THE 9 MONTH PERIOD ENDED 31 DECEMBER 1997 AND 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
9 months ended
--------------
31 December
-----------
1997 1996
---- ----
(pound)000 (pound)000
---------- ----------
<S> <C> <C>
Net cash inflow from operating activities 10,461 7,355
Returns on investments and servicing
of finance
Interest received 927 899
Interest element of finance lease rental payments (454) (490)
-----------------------
Net cash inflow for returns on investment
and servicing of finance 473 409
-----------------------
Taxation (554) (2,406)
Capital expenditure and financial investment
Purchase of tangible fixed assets (12,947) (27,627)
Sale of tangible fixed assets 400 856
-----------------------
Net cash outflow from capital expenditure (12,547) (26,771)
and financial investment
-----------------------
Equity dividends paid (141) --
Financing
Capital element of finance lease rental payments (1,768) (1,724)
Parent company transactions, net (838) 889
-----------------------
Net cash outflow from financing (2,606) (835)
-----------------------
Decrease in cash in the year (4,914) (22,248)
=======================
</TABLE>
31
<PAGE>
PLESSEY SEMICONDUCTORS GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
1. In the opinion of Management, the unaudited combined financial statements
reflect all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial position at
December 31, 1997 and the results of operations and the changes in
financial position for the nine month period ended December 31, 1997 in
accordance with accounting principles generally accepted in the United
Kingdom.
These financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended March 31, 1997.
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. Accounting Principles
PSL Group's combined financial statements have been prepared in accordance
with UK GAAP. Material differences to US GAAP have been fully explained in
Note 26 to the three years combined financial statements.
No major changes to accounting policies or procedures resulting in any
material changes have been effected in the nine month period to December
31, 1997.
4. Subsequent Events
On 12 February 1998 The General Electric Company p.l.c. completed an
agreement with Mitel Corporation for the sale of the PSL Group.
5. Effect on net income of differences between UK GAAP and US GAAP
<TABLE>
<CAPTION>
9 months ended
--------------
31 Dec 1997 31 Dec 1996
----------- -----------
(pound)000 (pound)000
---------- ----------
<S> <C> <C>
Profit (loss) for the financial year in
accordance with UK GAAP (8,696) 4,332
US GAAP adjustments:
Share option scheme cost (203) (203)
Deferred tax @ 33% 67 67
--------------------------
Net income in accordance with US GAAP (8,832) 4,196
==========================
</TABLE>
32
<PAGE>
Effect on invested equity of differences between UK GAAP and US GAAP
<TABLE>
<CAPTION>
31 Dec 1997 31 Mar 1996
----------- -----------
(pound)000 (pound)000
---------- ----------
<S> <C> <C>
Invested equity in accordance with UK GAAP 123,684 133,877
US GAAP adjustments:
Lease space provision (680) (680)
Share option scheme provision (2,073) (1,870)
Deferred tax @ 33% 909 842
-------------------------
Invested equity in accordance with US GAAP 121,840 132,169
==========================
1997
----
(pound)000
----------
Changes in US GAAP invested equity for the 9
months ended 31 December 1997 are as follows:
Invested equity at 1 April 1997 132,169
Net income (loss) for the period (8,832)
Dividends (141)
Exchange rate differences (1,356)
----------
Invested equity at 31 December 1997 121,840
==========
</TABLE>
Cost of sales
Under US GAAP presentation, the figure for cost of goods sold
applicable to revenues in the combined profit and loss accounts
would be:
<TABLE>
<CAPTION>
9 months ended
--------------
31 Dec 1997 31 Dec 1996
----------- -----------
(pound)000 (pound)000
----------- -----------
<S> <C> <C>
Cost of sales 68,870 82,759
============================
</TABLE>
33
<PAGE>
Mitel Corporation
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 26, 1997
(in millions of Canadian dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Plessey Pro Forma
Mitel Semiconductors Adjustments - Pro Forma
Corporation Group Net Note 3 Combined
----------- -------------- ------------ ------ ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 139.9 $ 41.2 $ (41.2) b $ 139.9
Accounts receivable 182.5 68.9 (0.2) b 251.2
Inventories 96.3 94.0 (25.0) b,d 165.3
Prepaid expenses and other 11.2 20.6 (7.1) d 24.7
-------- -------- ------- ----------
429.9 224.7 (73.5) 581.1
Capital and other assets 227.5 417.0 (60.8) c,d 583.7
-------- -------- ------- ----------
$ 657.4 $ 641.7 $(134.3) $ 1,164.8
======== ======== ======= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 175.2 $ 138.1 $ 2.7 a,b,e $ 316.0
Long-term debt 58.8 180.9 161.5 a, b 401.2
Deferred income taxes 10.1 37.6 (13.4) d 34.3
-------- -------- ------- ----------
244.1 356.6 150.8 751.5
-------- -------- ------- ----------
Shareholders' equity:
Capital stock
Preferred shares 37.2 -- -- 37.2
Common shares 155.2 -- -- 155.2
Contributed surplus 32.3 -- -- 32.3
Retained earnings 178.9 -- -- 178.9
Invested equity -- 285.1 (285.1) b --
Translation account 9.7 -- -- 9.7
-------- -------- ------- ----------
413.3 285.1 (285.1) 413.3
-------- -------- ------- ----------
$ 657.4 $ 641.7 $(134.3) $ 1,164.8
======== ======== ======= ==========
</TABLE>
These Pro Forma Condensed Consolidated Financial Statements are prepared on the
basis set out in the accompanying notes.
34
<PAGE>
Mitel Corporation
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended December 26, 1997
(in millions of Canadian dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Plessey
Mitel Semiconductors Pro Forma Pro Forma
Corporation Group Adjustments Note 3 Combined
----------- -------------- ----------- ------ ---------
<S> <C> <C> <C> <C> <C>
Revenue
Products $ 542.1 $ 304.9 $ (4.4) b $ 842.6
Service 60.4 -- -- 60.4
--------- --------- --------- ---------
602.5 304.9 (4.4) 903.0
--------- --------- --------- ---------
Cost of sales (excluding amortization):
Products 262.1 157.3 -- 419.4
Service 37.0 -- -- 37.0
--------- --------- --------- ---------
299.1 157.3 -- 456.4
--------- --------- --------- ---------
Gross margin 303.4 147.6 (4.4) 446.6
Expenses:
Selling and administrative 162.8 42.0 -- 204.8
Research and development 51.4 80.3 (4.4) b 127.3
Investment tax credits related to prior
years' research and development (26.8) -- -- (26.8)
Amortization 28.5 56.3 (6.8) c,d 78.0
--------- --------- --------- ---------
215.9 178.6 (11.2) 383.3
--------- --------- --------- ---------
Operating income (loss) 87.5 (31.0) 6.8 63.3
Interest income 3.9 1.1 -- 5.0
Interest expense (2.9) -- (20.3) e (23.2)
--------- --------- --------- ---------
Income (loss) before income taxes 88.5 (29.9) (13.5) 45.1
Income tax recovery (expense) (21.4) 10.1 2.1 f (9.2)
--------- --------- --------- ---------
Net income (loss) for the period $ 67.1 $ (19.8) $ (11.4) $ 35.9
========= ========= ========= =========
Net income (loss) for the period
attributable to common shareholders
after preferred share dividends $ 64.7 $ (19.8) $ (11.4) $ 33.5
========= ========= ========= =========
Net income per common share:
Basic $ 0.60 $ (0.18) $ (0.11) $ 0.31
========= ========= ========= =========
Fully diluted $ 0.59 $ (0.18) $ (0.10) $ 0.31
========= ========= ========= =========
</TABLE>
These Pro Forma Condensed Consolidated Financial Statements are prepared on the
basis set out in the accompanying notes.
35
<PAGE>
Mitel Corporation
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended March 28, 1997
(in millions of Canadian dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Plessey
Mitel Semiconductors Pro Forma Pro Forma
Corporation Group Adjustments Note 3 Combined
----------- ----- ----------- ------ --------
<S> <C> <C> <C> <C>
Revenue
Products $ 625.0 $ 465.5 $ (8.1) b $ 1,082.4
Service 70.5 -- -- 70.5
--------- --------- ----------- -----------
695.5 465.5 (8.1) 1,152.9
--------- --------- ----------- -----------
Cost of sales (excluding amortization):
Products 297.4 234.7 -- 532.1
Service 47.0 -- -- 47.0
--------- --------- ----------- -----------
344.4 234.7 -- 579.1
--------- --------- ----------- -----------
Gross margin 351.1 230.8 (8.1) 573.8
Expenses:
Selling and administrative 208.4 64.2 -- 272.6
Research and development 56.5 99.4 (8.1) b 147.8
Investment tax credits related to prior
years' research and development (11.7) -- -- (11.7)
Restructuring and other charges 13.0 -- -- 13.0
Amortization 33.5 53.0 (8.5) c,d 78.0
--------- --------- ----------- -----------
299.7 216.6 (16.6) 499.7
--------- --------- ----------- -----------
Operating income 51.4 14.2 8.5 74.1
Investment and interest income 9.6 1.6 -- 11.2
Interest expense (2.4) -- (27.6) e (30.0)
--------- --------- ----------- -----------
Income (loss) before income taxes 58.6 15.8 (19.1) 55.3
Income tax recovery (expense) (20.6) (3.7) 3.0 f (21.3)
--------- --------- ----------- -----------
Net income (loss) for the year $ 38.0 $ 12.1 $ (16.1) $ 34.0
========= ========= =========== ===========
Net income (loss) for the year
attributable to common shareholders
after preferred share dividends $ 34.8 $ 12.1 $ (16.1) $ 30.8
========= ========= =========== ===========
Net income per common share:
Basic $ 0.32 $ 0.12 $ (0.15) $ 0.29
========= ========= =========== ===========
Fully diluted $ 0.32 $ 0.11 $ (0.15) $ 0.28
========= ========= =========== ===========
</TABLE>
These Pro Forma Condensed Consolidated Financial Statements are prepared on the
basis set out in the accompanying notes.
36
<PAGE>
Mitel Corporation
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 26, 1997
(in millions of Canadian dollars, unless otherwise noted)
(UNAUDITED)
1. Basis of Presentation
On February 12, 1998, Mitel Corporation (the "Company") and certain of its
wholly owned subsidiaries acquired 100 percent of the capital stock of
four affiliated entities which, together with their respective
subsidiaries, comprise the Plessey Semiconductors Group ("Plessey") from
The General Electric Company, p.l.c. ("GEC"), for a total consideration of
US $225.0 in cash. The acquisition was financed with US $310.0 of senior
secured credit facilities consisting of: (i) a 5 year Tranche A term loan
amounting to US $85.0 with an interest rate of LIBOR (London Inter Bank
Offer Rate) plus 2 percent; (ii) a 6 year Amortization Extended Term Loan
(AXEL(SM)*) Series B amounting to US $150.0 with an interest rate of LIBOR
plus 2.25 percent; and (iii) a 5 year revolving credit facility amounting
to US $75.0 with an interest rate of LIBOR plus 2 percent that was unused
at closing and was available for general corporate purposes.
The Pro Forma Condensed Consolidated Balance Sheet reflects the
acquisition using the purchase method as at December 26, 1997. The net
assets acquired on February 12, 1998, the date of acquisition, at
approximate fair value, are as follows:
Current assets $ 135.7
Capital assets 354.3
Other assets 10.9
-------
Total assets 500.9
-------
Current liabilities 139.9
Long term debt 23.5
Deferred income taxes 13.9
-------
Total liabilities 177.3
-------
Total net assets $ 323.6
=======
Cash consideration $ 323.6
=======
* AXEL is a registered service mark of Goldman, Sachs & Co.
37
<PAGE>
In the opinion of Management, the unaudited Pro Forma Condensed
Consolidated Financial Statements reflect all adjustments, which consist
only of normal and recurring adjustments, and adjustments giving effect
to the acquisition based on the assumptions described in Note 3, necessary
to present fairly the financial position at December 26, 1997 and the
results of operations for the nine month period ended December 26, 1997,
in accordance with accounting principles generally accepted in Canada.
(See also Note 4).
The Pro Forma Condensed Consolidated Statement of Income for the nine
months ended December 26, 1997 has been prepared from the unaudited
consolidated statement of income of the Company for the nine months ended
December 26, 1997 and the unaudited combined statement of profit and loss
accounts of Plessey for the nine months ended December 31, 1997, giving
effect to the acquisition based on the assumptions described in Note 3
below.
The Pro Forma Condensed Consolidated Statement of Income for the year
ended March 28, 1997 has been prepared from the consolidated statement of
income of the Company for the year ended March 28, 1997 and the combined
statement of profit and loss accounts of Plessey for the year ended March
31, 1997, giving effect to the acquisition based on the assumptions
described in Note 3.
The Pro Forma Condensed Consolidated Financial Statements are not
necessarily indicative of the results of operations which would have been
attained had the acquisition taken place on March 30, 1996 or which may be
attained in the future. The Pro Forma Condensed Consolidated Financial
Statements should be read in conjunction with the consolidated financial
statements of the Company contained in the Company's Annual Report on Form
10-K for the year ended March 28, 1997, and the combined financial
statements of Plessey for the year ended March 31, 1997.
The financial information presented under the Plessey Semiconductors Group
column of the Pro Forma Condensed Consolidated Financial Statements was
classified in conformance with the presentation adopted by the Company.
The Plessey Pro Forma financial information was translated using the
current rate method of foreign currency translation. In addition, the Pro
Forma adjustments have given effect to significant differences between
Canadian and UK generally accepted accounting principles.
2. Significant Accounting Policies
The accounting policies followed in preparing the Pro Forma Condensed
Consolidated Financial Statements are those used by the Company and
Plessey as set out in the consolidated financial statements of the Company
contained in the Company's Annual Report on Form 10-K as at and for the
year ended March 28, 1997, the Company's unaudited interim financial
statements as at and for the nine months ended December 26, 1997 and the
combined financial statements of Plessey as at and for the year ended
March 31, 1997.
3. Pro Forma Assumptions
Balance Sheet:
(a) The acquisition and associated financing occurred on December
26, 1997.
(b) Adjustments to eliminate shareholders' equity of Plessey
including the elimination of inter-company balances with GEC
which were settled immediately prior to the acquisition and
for an operating facility which was excluded as part of the
acquisition and retained by the seller.
(c) Debt issue costs of $10.8 associated with the acquisition's
financing were capitalized as a deferred charge.
(d) Adjustments pertaining to the allocation of fair values and
negative goodwill.
(e) Adjustments pertaining to the estimated transaction and
integration costs amounting to $57.6. The allocation of the
purchase price and the Company's estimate of the integration
and transaction costs is not complete. Accordingly, this
allocation and the Company's estimate may be adjusted
subsequently.
Income Statements:
(a) The acquisition and associated financing occurred on March 30,
1996.
(b) Adjustment to reclassify certain revenue and expenses to
conform with Company practice.
(c) Adjustment for depreciation associated with a facility which
was excluded as part of the acquisition and retained by the
seller.
(d) Adjustment to proportionately amortize negative goodwill
arising on the acquisition over the life of the assets to
which it was allocated.
(e) Adjustments related to amortization of debt issue costs over
the life of the debt and to interest expense incurred on the
debt.
(f) Adjustment to income tax expense of the pro forma combined
group based on the Company's historical effective income tax
rate.
(g) The pro forma combined information does not include the
operating savings or synergies anticipated as a result of the
combined operations.
38
<PAGE>
4. United States Accounting Principles
The Pro Forma Condensed 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 the notes to the Company's consolidated financial
statements contained in the Company's Annual Report on Form 10-K as at and
for the year ended March 28, 1997 and the unaudited interim financial
statements as at and for the nine months ended December 26, 1997.
The following table reconciles net income as reported on the Pro Forma
Condensed Consolidated Statement of Income to the net income that would
have been reported had the financial statements been prepared in
accordance with US GAAP and the requirements of the SEC:
<TABLE>
<CAPTION>
Nine Months Year
Ended Ended
Dec. 26, March 28,
1997 1997
--------- ---------
<S> <C> <C>
Net income in accordance with Canadian GAAP $ 35.9 $ 34.0
Write off of in-process R&D (2.7) --
Amortization of acquired in-process R&D 0.1 --
Effect of deferral accounting related to foreign exchange contracts (9.8) (7.2)
Adjustment to deferred income taxes (0.5) 10.2
--------- ---------
U.S. GAAP and SEC requirements:
Net income for the period $ 23.0 $ 37.0
Less: dividends on cumulative preferred shares 2.4 3.2
--------- ---------
Adjusted net income $ 20.6 $ 33.8
========= =========
Net income per common share
Basic $ 0.19 $ 0.32
========= =========
Diluted $ 0.19 $ 0.31
========= =========
Weighted average shares (millions) 107.6 107.3
Weighted average shares on conversion of stock options 1.1 1.2
--------- ---------
Adjusted weighted average shares and share equivalents (millions) 108.7 108.5
========= =========
</TABLE>
Pro Forma Condensed Consolidated Balance Sheet, as at December 26, 1997,
in conformity in all material respects with U.S. GAAP and SEC requirements
would be as follows:
Cash $ 64.5
Short-term investments 75.4
Prepaid expenses and other 29.5
Capital assets 586.0
Current liabilities 329.8
Redeemable preferred shares 34.4
Common shares 601.1
Contributed surplus 2.5
Deficit (241.1)
39
<PAGE>
5. Subsequent Event
On April 16, 1998, the Company announced that it entered into an agreement
to acquire certain assets of the Customer Premises Equipment (CPE)
Business Unit of Centigram Communications Corporation for cash
consideration of US$22.0. The Company will also purchase receivables and
inventories related to that business for approximately US$4.0 in cash. The
acquisition is expected to close in the second quarter of the calendar
year 1998. The purchase will be accounted for by application of the
purchase method, in which the results of operations of the CPE Business
Unit are included in the Company's accounts from the date of acquisition.
Centigram's CPE Business Unit, based in San Jose, California, provides
productivity-enhancing, enterprise-wide messaging solutions to
organizations around the world through a broad network of distributors and
agents.
40
