<PAGE>
http://www.mitel.com
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 26, 1998
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 July 31, 1998 was 116,536,681.
1
<PAGE>
MITEL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION (Unaudited)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
June 26, 1998 and March 27, 1998 . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Retained Earnings -
Three months ended June 26, 1998 and June 27, 1997 . . . . . . . . 4
Consolidated Statements of Income -
Three months ended June 26, 1998 and June 27, 1997. . . . . . . . .5
Consolidated Statements of Cash Flows -
Three months ended June 26, 1998 and June 27, 1997. . . . . . . . .6
Notes to the Consolidated Financial Statements . . . . . . . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . 17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . .27
2
<PAGE>
Mitel Corporation
(incorporated under the laws of Canada)
CONSOLIDATED BALANCE SHEETS
(in millions of Canadian dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 26, March 27,
1998 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 60.8 $ 151.7
Accounts receivable 302.0 288.0
Inventories (Note 3) 185.3 162.2
Prepaid expenses 18.9 19.8
Investment tax credits recoverable (Note 6) 7.7 7.5
-------- --------
574.7 629.2
Capital assets:
Fixed assets (Note 4) 550.1 549.3
Other assets (Notes 5 & 6) 107.6 59.2
-------- --------
$1,232.4 $1,237.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 256.5 $ 290.7
Income and other taxes payable 10.2 19.6
Deferred revenue 32.0 32.7
Current portion of long-term debt (Note 7) 39.5 40.3
-------- --------
338.2 383.3
Long-term debt (Note 7) 383.6 379.6
Pension liability 12.9 12.2
Deferred income taxes 28.4 27.1
-------- --------
763.1 802.2
-------- --------
Shareholders' equity:
Capital stock (Note 7)
Preferred shares 37.2 37.2
Common shares 157.9 157.3
Contributed surplus 32.3 32.3
Retained earnings 216.7 202.9
Translation account (Note 8) 25.2 5.8
-------- --------
469.3 435.5
-------- --------
$1,232.4 $1,237.7
======== ========
</TABLE>
(See accompanying notes to the consolidated financial statements)
3
<PAGE>
Mitel Corporation
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in millions of Canadian dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 26, June 27,
1998 1997
------- -------
<S> <C> <C>
Retained earnings, beginning of period $ 202.9 $ 114.2
Net income for the period 14.6 18.2
------- -------
217.5 132.4
Dividends on preferred shares (Note 9) (0.8) (0.8)
------- -------
Retained earnings, end of period $ 216.7 $ 131.6
======= =======
</TABLE>
(See accompanying notes to the consolidated financial statements)
4
<PAGE>
Mitel Corporation
CONSOLIDATED STATEMENTS OF INCOME
(in millions of Canadian dollars, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 26, June 27,
1998 1997
------- -------
<S> <C> <C>
Revenue:
Products $ 288.4 $ 162.5
Service 22.2 19.5
------- -------
310.6 182.0
------- -------
Cost of sales (excluding amortization):
Products 142.9 80.6
Service 15.1 11.4
------- -------
158.0 92.0
------- -------
Gross margin 152.6 90.0
------- -------
Expenses:
Selling and administrative 63.1 49.2
Research and development (net) 40.2 15.8
Investment tax credits related to prior years'
research and development (Note 6) (6.1) (7.4)
Amortization 28.9 9.2
------- -------
126.1 66.8
------- -------
Operating income 26.5 23.2
Interest:
Income 1.6 1.2
Expense (8.5) (0.9)
------- -------
Income before income taxes 19.6 23.5
Income tax expense 5.0 5.3
------- -------
Net income for the period $ 14.6 $ 18.2
======= =======
Net income for the period attributable to common
shareholders after preferred share dividends $ 13.8 $ 17.4
======= =======
Net income per common share (Note 7) $ 0.13 $ 0.16
======= =======
</TABLE>
(See accompanying notes to the consolidated financial statements)
5
<PAGE>
Mitel Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of Canadian dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 26, June 27,
1998 1997
------- -------
<S> <C> <C>
CASH PROVIDED BY (USED IN)
Operating activities:
Net income for the period $ 14.6 $ 18.2
Amortization 29.4 9.2
Investment tax credits (3.5) (3.6)
Gain on sale of capital assets (0.4) (0.8)
Other non-cash operating items 0.3 0.2
Increase in working capital (69.4) (18.8)
------- -------
Total (29.0) 4.4
------- -------
Investing activities:
Additions to capital assets (13.3) (9.8)
Proceeds from disposal of capital assets 0.8 6.8
Acquisitions (Note 10) (46.6) -
Net change in non-cash balances related to
investing activities (5.0) (12.2)
------- -------
Total (64.1) (15.2)
------- -------
Financing activities:
Increase in long-term debt 5.5 8.2
Repayment of long-term debt (3.2) (3.9)
Debt issue costs (1.9) -
Dividends on preferred shares (Note 9) (0.8) (0.8)
Issue of common shares (Note 7) 0.6 0.1
------- -------
Total 0.2 3.6
------- -------
Effect of currency translation on cash 2.0 0.7
------- -------
Decrease in cash and short-term investments (90.9) (6.5)
Cash and short-term investments, beginning of period 151.7 143.3
------- -------
Cash and short-term investments, end of period $ 60.8 $ 136.8
======= =======
</TABLE>
(See accompanying notes to the consolidated financial statements)
6
<PAGE>
MITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions of Canadian dollars, except per share amounts)
(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 26, 1998 and the results of operations and the changes in financial
position for the three month periods ended June 26, 1998 and June 27, 1997,
in accordance with accounting principles generally accepted in Canada. (See
also Note 11).
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 27, 1998. 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 26, March 27,
1998 1998
------- -------
<S> <C> <C>
Raw materials $ 54.5 $ 53.4
Work-in-process 75.1 60.3
Finished goods 55.7 48.5
------- -------
$ 185.3 $ 162.2
======= =======
</TABLE>
4. Fixed assets:
<TABLE>
<CAPTION>
June 26, March 27,
1998 1998
------- -------
<S> <C> <C>
Cost $ 860.3 $ 831.2
Accumulated amortization (310.2) (281.9)
------- -------
$ 550.1 $ 549.3
======= =======
</TABLE>
7
<PAGE>
5. Other assets:
<TABLE>
<CAPTION>
June 26, March 27,
1998 1998
------- -------
<S> <C> <C>
Cost:
Patents, trademarks, and other $ 21.5 $ 21.3
Other intangible assets 74.1 27.6
Investment tax credits recoverable 13.8 10.5
Promissory note 10.6 10.3
------- -------
120.0 69.7
------- -------
Less accumulated amortization:
Patents, trademarks, and other 7.3 7.2
Other intangible assets 5.1 3.3
------- -------
12.4 10.5
------- -------
$ 107.6 $ 59.2
======= =======
</TABLE>
On May 8, 1998, the Company acquired completed and in-process research and
development ("R&D") and other intangible assets in connection with the
acquisition of certain assets of the Customer Premise Equipment Business Unit
of Centigram Communications Corporation (See also Note 10). The business is
now defined as Advanced Messaging. The acquired intangible assets will be
amortized over a period of ten years, the expected useful life of the assets.
On May 19, 1998, the Company acquired completed R&D and other intangible
assets in connection with the acquisition of certain assets of Telecom
Sciences Corporation Limited ("TSc") (See also Note 10). The business is now
defined as ISDN PBX. The acquired intangible assets will be amortized over a
period of seven years, the expected useful life of the assets.
6. Income taxes
As at June 26, 1998, the Company recognized a net Canadian investment tax
credit ("ITC") asset of $21.5 (March 27, 1998 - $18.0) related to prior
years' research and development expenses.
The ITCs recognized in first quarter earnings were comprised of two
components:
1) the recognition of ITCs in the first quarter of Fiscal 1999 for which
management believes there is sufficient evidence of expected profitability
from operations in the foreseeable future to provide reasonable assurance for
accruing a future benefit related to ITCs, amounting to $3.5, or $0.03 per
share, (1998 - $3.6, or $0.03 per share); and,
2) ITCs realized for tax purposes in the first quarter of Fiscal 1999,
amounting to $2.6 (1998 - $3.8). The benefit of recording these ITCs
contributed to reducing the impact of a higher effective income tax rate in
Canada, combining to result in an insignificant impact to net earnings.
8
<PAGE>
As at March 27, 1998, the Company had tax loss carryforwards of approximately
$100.0 for which no accounting benefit was recognized and which are available
to reduce future years' income for tax purposes. These tax loss
carryforwards expire as follows: 2002 - $2.8; 2003 - $16.5; 2004 - $7.1; 2005
to 2013 - $73.6. The tax loss carryforwards relate to operations in the
United States, Germany and Hong Kong. As at March 27, 1998, the Company had
Canadian investment tax credit carryforwards of approximately $45.5 for which
no accounting benefit was recognized and which are available to reduce future
years' income taxes. These investment tax credits expire during the years
from 2000 to 2008. In addition, the Company had timing differences of
approximately $30.0 for which no accounting benefit was recognized.
7. Capital stock:
a)
<TABLE>
<CAPTION>
June 26, March 27,
1998 1998
----------- -----------
<S> <C> <C>
Shares outstanding:
Preferred shares - R&D Series 1,616,500 1,616,500
Common shares 108,519,256 108,394,631
</TABLE>
There were no preferred shares repurchased during the three months ended June
26, 1998.
Subsequent to the quarter ended June 26, 1998, the Company entered into an
agreement with a syndicate of underwriters to issue 8 million common shares
of the Company at an agreed price of $21.50 per share for total proceeds of
$172.0. The transaction concluded on July 23, 1998. Net proceeds of
approximately $164.1 were received by the Company, of which approximately
$123.1 was applied to repay a portion of the term loans entered into in
connection with the Plessey acquisition. The balance of the proceeds will be
used for general corporate purposes. (See also part c.)
b) A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 26, June 27,
1998 1997
--------- -------
<S> <C> <C>
Outstanding options:
Balance, beginning of period 6,251,888 3,238,638
Granted 169,250 1,044,000
Exercised (124,625) (29,225)
Cancelled (28,500) (10,875)
--------- ---------
Balance, end of period 6,268,013 4,242,538
========= =========
</TABLE>
9
<PAGE>
Available for grant at June 26, 1998 were 102,775 (March 27, 1998 - 243,525)
common shares. The exercise prices on stock options issued range from $1.10
to $21.09 per share with exercise periods extending to June, 2008.
At the 1998 Annual General Meeting on July 23, 1998, shareholders approved a
resolution which established the maximum number or common shares in respect
of which options may be granted under the 1991 Stock Option Plan for Key
Employees and Non-Employee Directors at 16,000,000 common shares.
c) The net income per common share figures were calculated based on net
income after the deduction of preferred share dividends and using the
weighted monthly average number of shares outstanding during the respective
periods as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 26, June 27,
1998 1997
------- -------
<S> <C> <C>
Weighted average shares outstanding (millions) 108.5 107.4
======= =======
</TABLE>
d) The pro forma net income per common share giving effect to the common
share issue described in Note 7 a) as if the issue had taken place at the
beginning of Fiscal 1999 is presented as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 26, June 27,
1998 1997
------- -------
<S> <C> <C>
Pro forma net income per common share, after
giving effect to the issuance of additional shares $ 0.06 $ 0.16
======= =======
Weighted average shares outstanding (millions) 116.5 107.4
======= =======
</TABLE>
10
<PAGE>
8. The following table summarizes changes in the translation account:
<TABLE>
<CAPTION>
Three Months Ended
June 26, June 27,
1998 1997
------- -------
<S> <C> <C>
Balance, beginning of period $ 5.8 $ 2.5
Increase (decrease):
Movements in exchange rates -
United States Dollar 10.0 0.2
United Kingdom Pound Sterling 6.1 2.1
Swedish Krona 2.0 (0.3)
Other currencies 1.3 -
------- -------
Balance, end of period $ 25.2 $ 4.5
======= =======
</TABLE>
9. The Company has not declared or paid any dividends on its common shares.
During the first quarter, a $0.50 per share dividend was declared and paid on
the preferred shares.
10. Acquisitions
(A) On May 8, 1998, the Company acquired certain assets of the Customer
Premises Equipment Business Unit of Centigram Communications Corporation, now
defined as Advanced Messaging, for cash consideration of U.S.$22.0. The
Company also purchased receivables and inventories related to that business
for approximately U.S.$4.8 in cash. The Advanced Messaging business, 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. The acquisition was accounted for by the
purchase accounting method. The purchase price allocation was based on fair
values assigned to net assets as determined by an independent valuation firm
using standard valuation techniques. An amount of $35.9 was allocated to
identifiable intangible assets which include completed and in-process
research and development and other intangible assets. The difference between
the purchase price and the fair value of the net assets amounted to $0.6,
which was recorded as goodwill. The identifiable intangible assets and the
goodwill are being amortized over ten years. The allocation to net assets
included $2.9 in respect of acquisition costs and costs to integrate the
operations of the acquired company. The purchase transaction is summarized
as follows:
11
<PAGE>
Net assets acquired, at approximate fair value:
<TABLE>
<S> <C>
Current assets $ 6.6
Capital assets 39.2
-------
Total assets 45.8
Current liabilities 7.2
-------
Total net assets $ 38.6
=======
Cash consideration $ 38.6
=======
</TABLE>
Pro forma financial information for the acquisition as if the business had
been acquired at the beginning of Fiscal 1999 is not presented due to the
insignificant impact on the Company's results of operations.
(B) On May 19, 1998, the Company acquired the products, technology, research
and development facilities and sales and marketing organization of Glasgow-
based TSc for cash consideration of $8.0. TSc, now defined as ISDN PBX,
provides ISDN business products for the small-to-medium enterprise market.
The acquisition was accounted for by application of the purchase accounting
method in which the results of operations were included in the Company's
accounts from the date of acquisition. An amount of $4.5 was allocated to
identifiable intangible assets relating to completed R&D. The difference
between the purchase price and the fair value of the net assets amounted to
$2.0, which was recorded as goodwill. The completed R&D and goodwill are
being amortized over seven years. The allocation to net assets included $2.0
in respect of acquisition costs and costs to integrate the operations of the
acquired company. The purchase transaction is summarized as follows:
Net assets acquired, at approximate fair value:
<TABLE>
<S> <C>
Current assets $ 2.4
Capital assets 7.6
-------
Total assets 10.0
Current liabilities 2.0
-------
Total net assets $ 8.0
=======
Cash consideration $ 8.0
=======
</TABLE>
Pro forma financial information for the acquisition as if the business had
been acquired at the beginning of Fiscal 1999 is not presented due to the
insignificant impact on the Company's results of operations.
12
<PAGE>
11. United States accounting principles
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 22 to the
consolidated financial statements as at March 27, 1998.
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 26, June 27,
1998 1997
------- -------
<S> <C> <C>
Net income for the period in accordance with
Canadian GAAP $ 14.6 $ 18.2
Translation of foreign currency denominated debt (11.7) -
Effect of deferral accounting related to foreign
exchange contracts (9.5) (0.6)
Write-off of acquired in-process R&D (5.2) -
Amortization of acquired in-process R&D 0.1 -
Adjustment to deferred income taxes (3.5) 3.7
------- -------
U.S. GAAP and SEC requirements:
Net income (loss) for the period (15.2) 21.3
Dividends on cumulative preferred shares (0.8) (0.8)
------- -------
Adjusted net income (loss) for the period $ (16.0) $ 20.5
======= =======
Net income (loss) per common share:
Basic $ (0.15) $ 0.19
======= =======
Diluted $ (0.15) $ 0.19
======= =======
Weighted average shares for basic EPS (millions) 108.5 107.4
Weighted average shares on conversion of stock
options (millions) - 0.9
------- -------
Adjusted weighted average shares and
share equivalents (millions) 108.5 108.3
======= =======
</TABLE>
Supplemental net income per common share giving effect to the common share
issue described in Note 7 a) as if the issue had taken place at the beginning
of Fiscal 1999 is presented as follows:
Supplemental net income (loss) per common share (see Note 7):
13
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
June 26, June 27,
1998 1997
------- -------
<S> <C> <C>
Basic $ (0.16) $ 0.19
======= =======
Diluted $ (0.16) $ 0.19
======= =======
Weighted average shares for basic EPS (millions)
giving effect to the issue of 8.0 common shares
as if it occurred on March 28, 1998 (See Note 7): 116.5 107.4
Weighted average shares on conversion of stock
options (millions) - 0.9
------- -------
Adjusted weighted average shares and share
equivalents giving effect to the issue of 8.0
common shares as if it occurred on March 28,
1998 (millions): 116.5 108.3
======= =======
</TABLE>
The following options were excluded in the computation of diluted earnings
per share because the options' exercise price exceeded the average market
price of the common shares and, therefore, the effect would be antidilutive:
i) All options outstanding at June 26, 1998 were excluded because they have
an antidilutive impact on the basic net loss per common share.
ii) Options outstanding for the three months ended June 27, 1997 to purchase
1,395,000 shares of common stock at an average exercise price of $8.88 per
share.
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130") effective March 28, 1998.
SFAS No. 130 requires that items defined as other comprehensive income, such
as foreign currency translation adjustments, be separately classified in the
financial statements and that the accumulated balance of other comprehensive
income be reported separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. The components of
comprehensive income for the three months ended June 27, 1998 and June 26,
1997 are as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 27, June 26,
1998 1997
------- -------
<S> <C> <C>
Comprehensive income for the period:
Net income (loss) for the period $ (16.0) $ 20.5
Other comprehensive income -
Foreign currency adjustment 19.4 2.0
------- -------
Comprehensive income for the period $ 3.4 $ 22.5
======= =======
</TABLE>
14
<PAGE>
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131") effective March 28, 1998. SFAS No. 131 requires public companies to
report certain information about operating segments in their financial
statements, and establishes related disclosures about products and services
geographic areas and major customers. SFAS No. 131 does not need to be applied
to interim financial statements in the initial year or application; however,
comparative information for interim periods in the initial year of
application will be reported in the financial statements for interim periods
in Fiscal 2000.
<TABLE>
<CAPTION>
Three Months Ended
June 27, June 26,
1998 1997
------- -------
<S> <C> <C>
Cash flow information presented in conformity in all
material respects with U.S. GAAP:
Cash provided by (used in)
Operating activities - Canadian GAAP $ (29.0) $ 4.4
Deferred income taxes (3.5) 3.7
Change in deferred tax asset 3.5 (3.7)
------- -------
Operating activities - U.S. GAAP (29.0) 4.4
------- -------
Investing activities - Canadian GAAP (64.1) (15.2)
Change in short-term investments 24.2 48.2
Additions to capital assets under capital lease 3.6 7.4
------- -------
Investing activities - U.S. GAAP (36.3) 40.4
------- -------
Financing activities - Canadian GAAP 0.2 3.6
Increase in capital leases (3.6) (7.4)
------- -------
Financing activities - U.S. GAAP (3.4) (3.8)
------- -------
Increase (decrease) in cash (68.7) 41.0
Effect of currency translation on cash flows 2.0 0.7
Cash position, beginning of period 117.2 55.5
------- -------
Cash position, end of period $ 50.5 $ 97.2
======= =======
</TABLE>
15
<PAGE>
Balance sheet items in conformity with U.S. GAAP and SEC requirements:
<TABLE>
<CAPTION>
June 26, March 27,
1998 1998
------- -------
<S> <C> <C>
Cash $ 50.5 $ 117.2
Short-term investments 10.3 34.5
Deferred tax asset 11.6 11.8
Fixed assets 525.9 525.1
Other assets 109.6 69.6
Accounts payable and accrued liabilities 271.5 284.5
Redeemable preferred shares 34.4 34.4
Common shares 603.8 603.2
Contributed surplus 2.5 2.5
Deficit (222.2) (206.2)
</TABLE>
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133 Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133"). SFAS No. 133 will be effective for the
Company's Fiscal 2001 year end. The Company has not determined the impact of
this pronouncement on its consolidated financial statements.
12. Net change in non-cash working capital balances related to operating
activities:
<TABLE>
<CAPTION>
Three Months Ended
June 26, June 27,
1998 1997
------- -------
<S> <C> <C>
Accounts receivable $ (0.5) $ 9.0
Inventories (15.7) (7.6)
Accounts payable and accrued liabilities (52.9) (20.0)
Deferred revenue (1.5) (0.9)
Other 1.2 0.7
------- -------
$ (69.4) $ (18.8)
======= =======
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(in millions of Canadian dollars, except per share amounts)
Total revenue grew by 71 percent to $310.6 in the first quarter of Fiscal
1999 from $182.0 in the same quarter of last year. Mitel's revenue growth in
the three months ended June 26, 1998 was driven by incremental revenue from
recently acquired businesses and by strong Business Communications Systems
(BCS) sales in North America and Europe. By business group, Semiconductor
revenue grew by 146 percent and BCS revenue was up 31 percent from the
previous year. The Semiconductor growth was mainly attributable to the
consolidation of the Plessey Semiconductors Group ("Plessey") which was
acquired in the fourth quarter of Fiscal 1998. The BCS revenue growth was
driven by higher sales volumes of PBX systems, telephone sets, and alternate
network access products and the effects of consolidating recent acquisitions.
The Company completed two acquisitions during Fiscal 1998 as well as two
others mid-way through the first quarter of Fiscal 1999. The most
significant acquisition occurred on February 12, 1998 when the Company
acquired Plessey, an international semiconductor company focused primarily on
telecommunications and media applications. The other three acquisitions
related to the BCS business unit. The BCS portfolio was strengthened on
August 8, 1997 with the acquisition of the remote access technology business
of Gandalf Technologies Inc. In addition, on May 8, 1998, the Company
acquired the Customer Premises Equipment Business Unit of Centigram
Communications Corporation, now defined as Advanced Messaging. The Advanced
Messaging acquisition will complement Mitel's BCS communications portfolio
with voice messaging solutions to meet increasing customer demand for
voicemail and unified messaging solutions. Finally, on May 19, 1998, the
Company acquired the business of Glasgow-based Telecom Sciences Corporation
Limited, now defined as ISDN PBX. The ISDN PBX acquisition enhances Mitel's
product portfolio with ISDN business products for the small-to-medium
enterprise market.
The Company reported net income of $14.6, or $0.13 per share, for the first
quarter ended June 26, 1998 compared to $18.2, or $0.16 per share, in Fiscal
1998's first quarter. The Fiscal 1999 first quarter earnings were reduced by
$0.05 per share, after interest and tax, due to the consolidation of Plessey.
In addition, the prior year's first quarter net income benefited by $0.02 per
share from a gain and other income related to the sale of the Boca Raton
facility.
Subsequent to the quarter ended June 26, 1998, the Company entered into an
agreement with a syndicate of underwriters to issue 8 million common shares
of the Company at an agreed price of $21.50 per share for total proceeds of
$172.0. The transaction was completed on July 23, 1998. Net proceeds of
approximately $164.1 were received by the Company, of which approximately
$123 was applied to repay a portion of the term loans incurred in connection
with the Plessey acquisition. The balance of the proceeds will be used for
general corporate purposes. All of the per share amounts referred to in this
management's discussion and analysis and in the consolidated financial
statements contained elsewhere in this Form 10-Q are exclusive of this common
share issue.
17
<PAGE>
Net income and cash flows for each period as determined by United States
accounting principles are detailed in Note 11 to the consolidated statements
included elsewhere in this Form 10-Q.
The following discussion and analysis explains trends in the Company's
financial condition and results of operations for the three months ended June
26, 1998 compared with the same period in the previous year, and is intended
to help shareholders and other readers understand the dynamics of the
Company's business and the key factors underlying its financial results.
This discussion should be read in conjunction with the consolidated financial
statements and notes included elsewhere in this Form 10-Q, and with the
Company's audited consolidated financial statements and notes thereto for the
year ended March 27, 1998. Certain statements in this management's
discussion and analysis constitute forward-looking statements within the
meaning of the U.S. Private Securities Litigation Reform Act of 1995 that are
based on current expectations, estimates and projections about the industries
in which the Company operates, management's beliefs and assumptions made by
management. Such forward-looking statements 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 risks,
uncertainties and assumptions include, among others, the following: general
economic and business conditions; demographic changes; import protection and
regulation; rapid technology development and changes; timing of product
introductions; the mix of products/services; 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
semiconductors, subsystems and systems to world markets in the communications
industries. These products and related services include integrated circuits
for wired and wireless applications, applications-specific integrated
circuits, optoelectronic devices and custom silicon wafers; voice
communications systems; networked voice and data systems, CTI systems and
applications; telephony-enabled servers; public switching systems; and
alternate network and remote access products.
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,
location of markets and volume levels.
18
<PAGE>
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 26, 1998 Total June 27, 1997 Total
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
United States $ 138.7 45% $ 91.7 51%
Europe 105.7 34 51.2 28
Other Regions 50.7 16 26.0 14
Canada 15.5 5 13.1 7
------- ----- ------- -----
$ 310.6 100% $ 182.0 100%
======= ===== ======= =====
</TABLE>
For the quarter ended June 26, 1998, the net movement in exchange rates from
Fiscal 1998 favorably impacted total revenue by 4 percent ($6.7) primarily as
a result of changes in the UK pound sterling and US dollar exchange rates.
Revenue, by product group, was distributed as follows:
<TABLE>
<CAPTION>
Three Months Three Months
Ended % of Ended % of
June 26, 1998 Total June 27, 1997 Total
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
Semiconductors $ 154.7 50% $ 63.0 35%
Business Communications
Systems 155.9 50 119.0 65
------- ----- ------- -----
$ 310.6 100% $ 182.0 100%
======= ===== ======= =====
</TABLE>
Semiconductors
Mitel manufactures and sells semiconductor products in the following
categories: wired communication components, wireless communication
components, application-specific integrated circuit systems, optoelectronic
components, and power and automotive. The Company also provides foundry
services to third parties on a contract basis.
Semiconductor revenue increased by 146 percent from last year principally due
to the effects of consolidating the operations of Plessey which was acquired
in the fourth quarter of Fiscal 1998. Following the acquisition and during
the first quarter of Fiscal 1999, the Plessey operations were re-organized
and are being integrated into Mitel's semiconductor business lines. Overall,
Mitel continues to benefit from the world-wide growth in the communications
19
<PAGE>
segment of the semiconductor industry and growth in the market for ASICs,
particularly for medical applications. Technological advances and
increasingly complex end user requirements affecting telecom and datacom
networks have stimulated the demand for Mitel's wired and wireless
communication components and ASICs.
Management believes the Plessey acquisition significantly enhances the
Company's operations, technologies and product portfolio. At the time of the
acquisition, the Plessey group was incurring losses. It is anticipated that
Plessey will have a dilutive effect on the Company's earnings in the first
half of Fiscal 1999.
The Plessey acquisition also provided Mitel with enhanced market coverage in
Europe, resulting in 34 percent of total revenue in the first quarter being
generated in Europe as against 28 percent in the same period last year. This
acquisition also had the effect of reducing the proportion of total revenue
recorded in the United States from 51 percent in the first quarter last year
to 45 percent for the same period in Fiscal 1999.
Business Communications Systems
Business Communications Systems (BCS) comprise PBX and peripheral products,
open communications systems, applications, systems integration, the GX5000
public switching system, and alternate network and remote access products.
All of the Company's service revenue relates to BCS, primarily PBX.
Compared to the first quarter of Fiscal 1998, BCS product revenue in Fiscal
1999 increased by 34 percent, from $99.5 to $133.7, due to higher sales
volumes of SX-2000 and SX-200 systems, including the associated pull-through
of new system sets; incremental sales of remote access products; increased
shipments of alternate network access products; and additional revenues from
the recently acquired Advanced Messaging and ISDN PBX businesses.
U.S. indirect channel sales benefited from a strong North American economy
and from increased demand from the small to medium sized business segment for
Mitel's SX-200 ML and SX-200 EL switches. In addition, Mitel's new line of
telephone sets was launched during the first quarter of Fiscal 1999 to drive
additional revenue. U.S. direct channel sales benefited from strong growth in
the installation of new systems as well as from upgrades in the existing
customer base.
With respect to Europe, sales increased in the first quarter of Fiscal 1999
due to system upgrades sold to the installed base and to continued demand for
Mitel's alternate network access products.
BCS sales into the Asia Pacific region continue to be adversely affected by
the ongoing effects of weakened economies and intense price competition in
that region. Management believes this trend will continue for the
foreseeable future without a significant impact on the Company's consolidated
results of operations.
Service revenue grew mainly due to the managed service business in the U.K.
where telecom product-related services are channeled through outsourcing
companies.
20
<PAGE>
GROSS MARGIN
As a percentage of total revenue, total gross margin was 49 percent for the
three months ended June 26, 1998, the same percentage as in the corresponding
period of Fiscal 1998. The quarter's product gross margin was 50 percent in
Fiscal 1999, equal to the margin posted in the first quarter of Fiscal 1998.
The product gross margin remained unchanged due to the positive impact of
higher sales volumes of BCS products partially offset by the effect of
reduced gross margins in the Plessey operations. The service gross margin was
32 percent for the quarter ended June 26, 1998, a decrease of 10 percentage
points from the respective period in Fiscal 1998, but in line, overall, with
the margin posted in Fiscal 1998. The service gross margin declined due to
the mix of large, competitively-priced service contracts entered into during
Fiscal 1998.
OPERATING EXPENSES
Selling and Administrative
Selling and administrative (S&A) expenses in the first quarter of Fiscal 1999
were $63.1, or 20 percent of sales, compared with $49.2, and 27 percent of
sales, for the comparable period in Fiscal 1998. S&A expenses decreased as a
percentage of sales primarily due to the revenue growth and to the
consolidation of the Plessey operations where S&A expenses as a percentage of
sales were lower than the Company's average. The improvement was partially
offset by the effects of consolidating the recently-acquired Advanced
Messaging and ISDN PBX businesses, described elsewhere in this management's
discussion and analysis.
Research and Development
R&D expenses amounted to $40.2, or 13 percent of revenue, for the quarter
ended June 26, 1998. This compares to $15.8, or 9 percent of revenue, in the
corresponding period of Fiscal 1998. These amounts are exclusive of related
R&D amortization and net of Canadian federal government R&D incentives
earned. R&D increased due to the inclusion of Plessey's results of
operations where R&D as a percentage of sales was higher than the Company's
historical average and to other increases in Mitel Semiconductor.
Investment Tax Credits
The Company earns ITCs in its Canadian operations. ITCs are credits related
to specific qualifying expenditures that are prescribed by Canadian tax
legislation. In Mitel's case, these ITCs relate primarily to research and
development expenses. The ITCs are recorded only when the enterprise has
made the qualifying expenditures, provided there is reasonable assurance that
the benefits will be realized. When the ITCs are not accrued in the year in
which the qualifying expenditures are made because there is no reasonable
assurance that the credits will be realized, such credits are accrued in a
subsequent year when reasonable assurance of realization is first obtained.
The Company separately recorded Canadian ITCs related to prior years' R&D
amounting to $6.1 in the first quarter of Fiscal 1999 and $7.4 in the
corresponding period of Fiscal 1998. The ITC accrual was comprised of two
components in both periods. Fiscal 1999's first component amounted to $2.6
21
<PAGE>
which relates to ITCs that are expected to be realized for tax purposes in
that year. The Company recorded $3.8 under the same circumstances in the
first quarter of Fiscal 1998. The benefit of recording these ITCs was offset
by a corresponding increase in tax expense to result in no impact to net
earnings for both periods. The second component of the Fiscal 1999 first
quarter accrual amounted to $3.5, or $0.03 per share, which was approximately
the same amount recorded in the corresponding period of Fiscal 1998. The
second component related to management's assessment that reasonable assurance
exists for accruing the benefit of ITCs expected to be realized for tax
purposes in the foreseeable future. The reasonable assurance is derived from
management's assessment that there is sufficient evidence of profitability in
the near future from operations in which these carryforwards arose.
Amortization
Amortization increased in the first quarter of Fiscal 1999 to $28.9 from $9.2
in the respective quarter of Fiscal 1998. The increase was due to the
inclusion of Plessey's operations which principally comprise manufacturing
facilities in the United Kingdom. In addition, the Company has in recent
years entered in a major capital program at its other semiconductor plants,
resulting in higher amortization charges.
INVESTMENT AND INTEREST INCOME
Investment and interest income was $1.6 for the quarter ended June 26, 1998,
up from the $1.2 recorded in the corresponding quarter of Fiscal 1998.
INTEREST EXPENSE
Interest expense was $8.5 for the first quarter of Fiscal 1999 compared to
$0.9 in the respective period of Fiscal 1998. The increase in interest
expense over last year's first quarter resulted from the new term loans
incurred by the Company on February 12, 1998 in connection with the Plessey
acquisition. Interest expense also includes the proportionate amortization
of capitalized debt issue costs associated with the term loans. The
quarterly interest expense is expected to decrease in future quarters after
applying the proceeds from the July 1998 common share issue against the term
loans.
INCOME TAXES
Income tax expense for the three months ended June 26, 1998 was $5.0 compared
to $5.3 for the same quarter in Fiscal 1998. Before accounting for the ITCs,
income tax expense for Fiscal 1999's first quarter was $2.4 compared to $1.5
in the respective period of Fiscal 1998. The effective income tax rate,
before accounting for the ITCs and as a percentage of pre-tax income, was 4
percent and 8 percent in the respective first quarter periods of Fiscal 1999
and Fiscal 1998. The higher effective tax rate in Fiscal 1999 was due to
higher provincial income taxes in Canada offset by expected tax recoveries
for European operations.
Management periodically reviews the virtual certainty or reasonable
assurance, as applicable, of realizing the loss and ITC carryforward and
timing difference benefits in the determination of their accounting
recognition. Such review may result in the recording of the accounting
22
<PAGE>
benefit for these timing differences and investment tax credit carryforwards,
as the circumstances warrant, and the recognition of loss carryforwards, as
realized. Management believes there is sufficient evidence of expected
profitability from the Company's Canadian operations in the foreseeable
future to provide reasonable assurance for recording a future benefit on the
balance sheet of $21.5 related to ITCs, $18.0 of which was recorded in Fiscal
1998. The accounting for the ITCs is more fully described in the investment
tax credit section of this management's discussion and analysis.
YEAR 2000
What is referred to as the Year 2000 problem ("Year 2000 problem") is the
result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's computer systems and
products that have date-sensitive software may recognize a date using "00" as
the Year 1900 rather than the Year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including,
amount other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities. Management has
formed a Year 2000 Compliance Project and Program Office to establish and
ensure Mitel's compliance with what is commonly known as the "Year 2000
problem". In addition, consultants were engaged to assist with a
comprehensive review of the Company's state of readiness and to assist with
any necessary remedial plans for the Year 2000 date change. This review
encompassed supporting information technology systems, product lines, and
business supply chain systems and infrastructure. Management presently
believes that with modifications to the Company's existing software and
conversions to new software, the Year 2000 problem can be mitigated.
However, if such modifications and conversions are not made, or are not
completed on a timely basis, the Year 2000 problem could have a material
adverse effect on the Company's business, financial condition and results of
operations. Management further believes that the cost of either repairing or
replacing certain business systems to ensure business continuance beyond Year
2000 should not have a significant impact on the results of operations. The
cost of the Year 2000 project is estimated at approximately $15.0 and is
being funded through operating cash flows. These costs are primarily
attributable to the purchase of new software and equipment which will be
expensed or capitalized on a basis consistent with the Company's accounting
policies for capital assets. Other than seeking representations and
assurances, the Company has not made an assessment as to whether any of its
customers, suppliers or service providers will be affected by the date
change. The Company's business, financial condition and results of
operations may be adversely impacted should the efforts of customers,
suppliers or service providers for the Company to address the Year 2000 issue
prove to be inadequate.
OTHER
The Asia Pacific region encountered unstable local economies and significant
devaluation in its currencies during Fiscal 1998. This region represented 13
percent of the Company's revenue for the quarter ended June 26, 1998 and 10
percent of revenue in the respective period of Fiscal 1998. The majority of
the Asia Pacific sales relate to semiconductor operations. Asia Pacific
receivables, net of reserves, were approximately 1 percent of the Company's
23
<PAGE>
total assets as at June 26, 1998. To the extent the Asia Pacific region
grows in importance to the Company, or that the factors affecting the region
begin to adversely affect customers in other geographic locations, the
Company's business, operating results and financial condition could be
adversely affected.
Management periodically evaluates the financial and operational independence
of its foreign operations and the resulting accounting classification of the
foreign subsidiaries as self-sustaining enterprises. Should a foreign
subsidiary cease to be classified as self-sustaining, then translation gains
or losses on consolidating the foreign subsidiary's financial statements
would be charged to operating income instead of a separate component of
shareholders' equity.
The Company manages foreign currency risk by protecting the estimated future
currency cash flows of each operating division, and certain significant
transactions, from adverse foreign exchange fluctuations. The Company does
not engage in a trading or speculative hedging program. Interest rate risk
is managed by entering into interest rate swap contracts.
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
communications systems since manufacturing lead times for semiconductor
products are generally longer because of the nature of the production
process. At June 26, 1998, order backlog was $300.1 compared to $279.5 at
March 27, 1998. The increase in backlog was mostly attributable to stronger
bookings by both of the Semiconductor and BCS divisions. 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 $60.8 at June 26,
1998 compared to $151.7 at March 27, 1998. The decrease of $90.9 was mainly
due to the Advanced Messaging and ISDN PBX acquisitions which together
amounted to $46.6, to reductions of year-end payables and to integration
costs for the Plessey operations.
Cash flow from operations before working capital changes amounted to $40.4
during the first quarter of Fiscal 1999, up 74 percent from $23.2 in the
first quarter of Fiscal 1998. Since March 27, 1998, the Company's working
capital, as reflected in the consolidated statements of cash flows, increased
by $69.4 primarily due to reductions in year-end payables associated with the
record Fiscal 1998 sales volumes and to higher inventory levels necessary to
support the growth in the business. The Company maintains a minimum of
critical inventory to ensure continuity of supply for its manufacturing
requirements. Most of the security supply inventory is carried at the
Company's semiconductor plants.
Fixed asset additions were $13.1 during the quarter ended June 26, 1998
compared with $9.8 in the previous year. The additions were primarily
related to semiconductor manufacturing capacity and technology enhancements
as well as continuing improvements to the Company's information technology
resources. Other capital assets increased in the first quarter of Fiscal
24
<PAGE>
1999 from the end of Fiscal 1998 primarily due to the acquisition of the
Advanced Messaging and ISDN PBX businesses in May of 1998. Purchased R&D and
other intangible assets totaling $42.9 were recorded for the excess of the
purchase price over the fair value of the tangible assets acquired, based
primarily on allocations by an independent valuation firm using standard
valuation techniques. The purchased intangible assets will be amortized over
a period ranging from 7 to 10 years.
Total long-term debt, net of repayments, increased by $3.2 from the end of
Fiscal 1998 due to fixed asset additions financed through capital leases.
Shortly after the end of the first quarter, the Company made its first
regularly scheduled repayment on the term loans, described below, which
amounted to $3.8 in principal and $6.6 in interest.
The two term loans, respectively the AXELsSM* Series B loan and the Tranche A
Term Loan, were entered into on February 12, 1998 with a syndicate of banks
led by Goldman, Sachs Credit Partners L.P. as the syndication agent and the
Canadian Imperial Bank of Commerce as the administrative agent. The AXELs
Series B loan will be repaid quarterly on a nominal basis with 95 percent of
the original amount of U.S.$150.0 due on December 2003. The Tranche A Term
Loan will be repaid quarterly on a graduated basis over five years and
matures on February 2003. The term loans are at a variable interest rate
based on the lower of a defined base rate or the London Inter Bank Offer Rate
(LIBOR) plus a premium. The Company entered into an interest rate swap prior
to the Fiscal 1998 year-end to fix the base interest rate on a portion of
each of the term loans. The interest rate swap is considered to be an
effective hedge of the variable interest rates on the term loans. The
Company is subject to certain restrictive covenants and commitments and is
required to maintain certain financial ratios for the purpose of ensuring the
Company's ability to meet its obligations under the credit agreement. The
Company is subject to certain mandatory prepayments in the event of asset
sales (other than inventory), equity offerings and debt issuance, certain
insurance proceeds, and defined excess cash flow. Mandatory prepayments
range from 75 percent to 100 percent of the net cash proceeds and would be
paid on a defined pro-rata basis subject to certain constraints toward the
senior secured term loans. Management believes the Company is in compliance
with the obligations and restrictive covenants under the credit agreement.
On July 23, 1998, and in connection with the common share issue described
elsewhere in this management's discussion and analysis, approximately $123.0
was repaid against the term loans, of which approximately $44.0 was against
the AXELs Series B loan and approximately $79.0 was against the Tranche A
Term Loan.
The pension liability of $12.9 relates to the unfunded pension obligation in
Mitel Semiconductor AB. Under applicable Swedish law, companies are not
required to fund the pension obligation, but instead operate on a "pay as you
go" basis. The pension obligation is actuarially determined in accordance
with applicable laws and regulations in Sweden and is fully insured by a
Swedish regulatory agency.
As at June 26, 1998, the Company's capitalization was comprised of 47 percent
debt, 4 percent preferred equity, and 49 percent common equity. This
compares to 49 percent debt, 4 percent preferred equity, and 47 percent
common equity at the end of Fiscal 1998. After giving effect to the July
1998 common share issue, the Company's capitalization as at June 26, 1998
would have been comprised of 32 percent debt, 4 percent preferred equity, and
64 percent common equity.
25
<PAGE>
In addition to cash and short-term investment balances of $60.8 as at June
26, 1998, the Company has an unused revolving credit facility of
approximately $104.1 (U.S.$71.0). In accordance with Company policy, short-
term investment balances are primarily comprised of high-grade money market
instruments with original maturity dates of less than one year.
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.
_________
SM* AXEL is a registered service mark of Goldman, Sachs & Co.
M Mitel (design) Mitel, SX-200, SX-2000 and GX5000 are registered.
26
<PAGE>
PART II - OTHER INFORMATION
Item 6. Reports on Form 8-K
a) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
June 26, 1998.
SIGNATURE
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.
<TABLE>
<S> <C>
MITEL CORPORATION
July 24, 1998 /S// JEAN-JACQUES CARRIER
- ------------- ----------------------------
Date Jean-Jacques Carrier
Vice President of Finance
and Chief Financial Officer
</TABLE>
27
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information (prepared in accordance
with accounting principles generally accepted in Canada) extracted from the
accounting records of Mitel Corporation and included in the Consolidated
Statements of Income for the three months ended June 26, 1998 and the
Consolidated Balance Sheets as at June 26, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-26-1999
<PERIOD-END> JUN-26-1998
<EXCHANGE-RATE> 1.46565<F1>
<CASH> 31,176
<SECURITIES> 29,598
<RECEIVABLES> 289,470
<ALLOWANCES> 11,055
<INVENTORY> 185,257
<CURRENT-ASSETS> 574,636
<PP&E> 860,339
<DEPRECIATION> 310,207
<TOTAL-ASSETS> 1,232,375
<CURRENT-LIABILITIES> 338,114
<BONDS> 383,642
0
37,180
<COMMON> 157,938
<OTHER-SE> 274,193
<TOTAL-LIABILITY-AND-EQUITY> 1,232,375
<SALES> 310,644
<TOTAL-REVENUES> 310,644
<CGS> 157,982
<TOTAL-COSTS> 157,982
<OTHER-EXPENSES> 126,177
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,497
<INCOME-PRETAX> 19,608
<INCOME-TAX> 5,005
<INCOME-CONTINUING> 14,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,603
<EPS-PRIMARY> 0.13<F2>
<EPS-DILUTED> 0.13<F3>
<FN>
<F1>The foreign exchange rate of 1.46565 should be used to translate the
balance sheet items from Canadian Dollars (figures above) to U.S. Dollars.
The three month moving average foreign exchange rate of 1.443816 should be
used to translate the income statement items from Canadian Dollars (figures
above) to U.S. Dollars.
<F2>The figure quoted is EPS-Basic under Canadian Generally Accepted Accounting
Principles.
<F3>The figure quoted is EPS-Fully Diluted under Canadian Generally Accepted
Accounting Principles.
</FN>
</TABLE>
