<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 September 25, 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 executive offices) (Postal Code)
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 November 2, 1998 was
116,672,556.
1
<PAGE>
MITEL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION (Unaudited)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
September 25, 1998 and March 27, 1998 . . . . . . . . . . . . . 3
Consolidated Statements of Retained Earnings -
Three months ended September 25, 1998 and September 26, 1997
Six months ended September 25, 1998 and September 26, 1997 . . .4
Consolidated Statements of Income -
Three months ended September 25, 1998 and September 26, 1997
Six months ended September 25, 1998 and September 26, 1997. . . 5
Consolidated Statements of Cash Flows -
Six months ended September 25, 1998 and September 26, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . .27
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>
Sept. 25, March 27,
1998 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 91.3 $ 151.7
Accounts receivable 349.5 288.0
Inventories (Note 3) 199.0 162.2
Prepaid expenses 17.8 19.8
Investment tax credits recoverable (Note 6) 7.7 7.5
------- -------
665.3 629.2
Capital assets:
Fixed assets (Note 4) 555.1 549.3
Other assets (Notes 5 & 6) 111.6 59.2
------- -------
$1,332.0 $1,237.7
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 257.9 $ 290.7
Income and other taxes payable 12.5 19.6
Deferred revenue 32.7 32.7
Current portion of long-term debt (Note 7) 32.7 40.3
------- -------
335.8 383.3
Long-term debt (Note 7) 268.7 379.6
Pension liability 13.6 12.2
Deferred income taxes 40.8 27.1
------- -------
658.9 802.2
------- -------
Shareholders' equity:
Capital stock (Note 7)
Preferred shares 37.2 37.2
Common shares 331.0 157.3
Contributed surplus 32.3 32.3
Retained earnings 221.2 202.9
Translation account (Note 8) 51.4 5.8
------- -------
673.1 435.5
------- -------
$1,332.0 $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 Six Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Retained earnings, beginning
of period $ 216.7 $ 131.6 $ 202.9 $ 114.2
Net income for the period 12.8 23.3 27.4 41.5
------- ------- ------- -------
229.5 154.9 230.3 155.7
Cost of common share issue (7.5) - (7.5) -
Dividends on preferred
shares (Note 9) (0.8) (0.8) (1.6) (1.6)
------- ------- ------- -------
Retained earnings, end of period $ 221.2 $ 154.1 $ 221.2 $ 154.1
======= ======= ======= =======
</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 Six Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Products $ 338.7 $ 185.3 $ 627.1 $ 347.8
Service 25.4 19.7 47.6 39.2
------- ------- ------- -------
364.1 205.0 674.7 387.0
------- ------- ------- -------
Cost of sales (excluding amortization):
Products 168.8 89.9 311.7 170.5
Service 16.1 12.3 31.2 23.7
------- ------- ------- -------
184.9 102.2 342.9 194.2
------- ------- ------- -------
Gross margin 179.2 102.8 331.8 192.8
------- ------- ------- -------
Expenses:
Selling and administrative 81.6 55.8 144.7 105.0
Research and development (net) 41.4 17.7 81.6 33.5
Investment tax credits related to prior years' research
and development (Note 6) (7.4) (9.5) (13.5) (16.9)
Amortization 30.0 9.3 58.9 18.5
------- ------- ------- -------
145.6 73.3 271.7 140.1
------- ------- ------- -------
Operating income 33.6 29.5 60.1 52.7
Other income and expenses:
Interest income 1.1 1.3 2.7 2.5
Interest expense (7.0) (1.0) (15.5) (1.9)
Debt issue and other costs (8.8) - (8.8) -
------- ------- ------- -------
Income before income taxes 18.9 29.8 38.5 53.3
Income tax expense 6.1 6.5 11.1 11.8
------- ------- ------- -------
Net income for the period $ 12.8 $ 23.3 $ 27.4 $ 41.5
======= ======= ======= =======
Net income for the period attributable to common shareholders
after preferred share dividends $ 12.0 $ 22.5 $ 25.8 $ 39.9
======= ======= ======= =======
Net income per common share (Note 7)
Basic $ 0.10 $ 0.21 $ 0.23 $ 0.37
======= ======= ======= =======
Fully diluted $ 0.10 $ 0.20 $ 0.23 $ 0.36
======= ======= ======= =======
</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>
Six Months Ended
Sept. 25, Sept. 26,
1998 1997
------- -------
<S> <C> <C>
CASH PROVIDED BY (USED IN)
Operating activities:
Net income for the period $ 27.4 $ 41.5
Amortization 64.5 18.5
Investment tax credits (7.0) (8.6)
Debt issue and other costs expensed 8.8 -
Gain on sale of capital assets (0.5) (0.8)
Deferred income taxes 10.2 0.7
Other non-cash operating items 0.6 0.5
Increase in working capital (Note 13) (120.5) (34.1)
------- -------
Total (16.5) 17.7
------- -------
Investing activities:
Additions to capital assets (35.7) (22.7)
Proceeds from disposal of capital assets 1.9 6.8
Acquisitions (Note 10) (46.6) (21.6)
Net change in non-cash balances related to
investing activities (6.0) (6.6)
------- -------
Total (86.4) (44.1)
------- -------
Financing activities:
Increase in long-term debt 9.7 15.9
Repayment of long-term debt (135.2) (12.1)
Debt issue costs (1.9) -
Dividends on preferred shares (Note 9) (1.6) (1.6)
Issue of common shares - net (Note 7) 166.2 -
Net change in non-cash balances related to
financing activities 0.8 0.7
------- -------
Total 38.0 2.9
------- -------
Effect of currency translation on cash 4.5 0.1
------- -------
Decrease in cash and short-term investments (60.4) (23.4)
Cash and short-term investments, beginning of period 151.7 143.3
------- -------
Cash and short-term investments, end of period $ 91.3 $ 119.9
======= =======
</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
September 25, 1998 and the results of operations and the changes in financial
position for the three and six month periods ended September 25, 1998 and
September 26, 1997, in accordance with accounting principles generally
accepted in Canada. (See also Note 12).
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>
Sept. 25, March 27,
1998 1998
------- -------
<S> <C> <C>
Raw materials $ 54.2 $ 53.4
Work-in-process 81.3 60.3
Finished goods 63.5 48.5
------- -------
$ 199.0 $ 162.2
======= =======
</TABLE>
4. Fixed assets:
<TABLE>
<CAPTION>
Sept. 25, March 27,
1998 1998
------- -------
<S> <C> <C>
Cost $ 895.2 $ 831.2
Accumulated amortization (340.1) (281.9)
------- -------
$ 555.1 $ 549.3
======= =======
</TABLE>
7
<PAGE>
5. Other assets:
<TABLE>
<CAPTION>
Sept. 25, March 27,
1998 1998
------- -------
<S> <C> <C>
Cost:
Patents, trademarks, and other $ 22.7 $ 21.3
Other intangible assets 80.4 27.6
Investment tax credits recoverable 17.3 10.5
Promissory note 10.8 10.3
------- -------
131.2 69.7
------- -------
Less accumulated amortization:
Patents, trademarks, and other 7.6 7.2
Other intangible assets 12.0 3.3
------- -------
19.6 10.5
------- -------
$ 111.6 $ 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 operated as the Advanced Messaging business unit under the name Baypoint
Innovations. 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 September 25, 1998, the Company recognized a net Canadian investment
tax credit ("ITC") asset of $25.0 (March 27, 1998 - $18.0) related to prior
years' research and development expenses.
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
2000 to 2008. In addition, the Company had timing differences of
approximately $30.0 for which no accounting benefit was recognized.
8
<PAGE>
7. Capital stock:
a)
<TABLE>
<CAPTION>
Sept. 25, March 27,
1998 1998
------- -------
<S> <C> <C>
Shares outstanding:
Preferred shares - R&D Series 1,616,500 1,616,500
Common shares 116,670,181 108,394,631
</TABLE>
There were no preferred shares repurchased during the six months ended
September 25, 1998.
On July 23, 1998, the Company, through a syndicate of underwriters, issued 8
million common shares at a price of $21.50 per share and for total proceeds
of $172.0. Net proceeds of $164.1 were received by the Company, of which
$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 were
retained for general corporate purposes.
b) A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
Six Months Ended
Sept. 25, Sept. 26,
1998 1997
--------- ---------
<S> <C> <C>
Outstanding options:
Balance, beginning of period 6,251,888 3,238,638
Granted 333,250 1,070,500
Exercised (275,550) (180,325)
Cancelled (131,625) (30,875)
--------- ---------
Balance, end of period 6,177,963 4,097,938
========= =========
</TABLE>
Available for grant at September 25, 1998 were 10,241,900 (March 27, 1998 -
243,525) common shares. The exercise prices on stock options issued range
from $1.10 to $30.00 per share with exercise periods extending to August,
2008.
At the 1998 Annual General and Special Meeting of Shareholders on July 23,
1998, shareholders approved a resolution which established the maximum number
of 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, an increase of 10,200,000 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:
9
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding (millions) 115.3 107.5 111.9 107.5
======= ======= ======= =======
</TABLE>
8. The following table summarizes changes in the translation account:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, beginning of period $ 25.2 $ 4.5 $ 5.8 $ 2.5
Increase (decrease):
Movements in exchange rates -
United Kingdom Pound Sterling 17.6 (2.5) 23.7 (0.4)
United States Dollar 7.5 0.1 17.5 0.2
Swedish Krona 1.2 0.7 3.2 0.4
Other currencies (0.1) - 1.2 0.1
------- ------- ------- -------
Balance, end of period $ 51.4 $ 2.8 $ 51.4 $ 2.8
======= ======= ======= =======
</TABLE>
9. The Company has not declared or paid any dividends on its common shares.
During the second 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
operated as the Advanced Messaging business unit under the name Baypoint
Innovations, 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,
10
<PAGE>
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:
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:
11
<PAGE>
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.
11. Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
12. 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:
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income for the period in
accordance with Canadian GAAP $ 12.8 $ 23.3 $ 27.4 $ 41.5
Translation of foreign currency
denominated debt (3.9) - (15.6) -
Effect of deferral accounting related
to foreign exchange contracts (9.3) 0.3 (18.8) (0.3)
Write-off of acquired in-process R&D - (2.7) (5.2) (2.7)
Amortization of acquired
in-process R&D 0.2 - 0.3 -
Adjustment to deferred income taxes (3.5) (5.0) (7.0) (1.3)
------- ------- ------- -------
U.S. GAAP and SEC requirements:
Net income (loss) for the period (3.7) 15.9 (18.9) 37.2
Dividends on cumulative preferred
shares (0.8) (0.8) (1.6) (1.6)
------- ------- ------- -------
Adjusted net income (loss)
for the period $ (4.5) $ 15.1 $ (20.5) $ 35.6
======= ======= ======= =======
Net income (loss) per common share:
Basic $ (0.04) $ 0.14 $ (0.18) $ 0.33
======= ======= ======= =======
Diluted $ (0.04) $ 0.14 $ (0.18) $ 0.33
======= ======= ======= =======
Weighted average shares for
basic EPS (millions) 115.3 107.5 111.9 107.5
Weighted average shares on
conversion of stock options (millions) - 1.3 - 1.1
------- ------- ------- -------
Adjusted weighted average shares and
share equivalents (millions) 115.3 108.8 111.9 108.6
======= ======= ======= =======
</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 September 25, 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 September 26, 1997 to
purchase 905,500 shares of common stock at an average exercise price of $9.37
per share.
13
<PAGE>
iii) Options outstanding for the six months ended September 26, 1997 to
purchase 984,000 shares of common stock at an average exercise price of $9.31
per share.
The Company will adopt Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130") for the fiscal year ended March
26, 1999. 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 and six months ended
September 25, 1998 and September 26, 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Comprehensive income for the period:
Net income (loss) for the period $ (4.5) $ 15.1 $ (20.5) $ 35.6
Other comprehensive income -
Foreign currency adjustment 26.2 (1.7) 45.6 0.3
------- ------- ------- -------
Comprehensive income for the
period $ 21.7 $ 13.4 $ 25.1 $ 35.9
======= ======= ======= =======
</TABLE>
The Company will adopt Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131") for the fiscal year ended March 26, 1999. 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 of
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.
14
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
Sept. 25, Sept. 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 $ (16.5) $ 17.7
Deferred income taxes (7.0) (1.3)
Change in deferred tax asset 7.0 1.3
------- -------
Operating activities - U.S. GAAP (16.5) 17.7
------- -------
Investing activities - Canadian GAAP (86.4) (44.1)
Change in short-term investments 34.5 51.9
Additions to capital assets under capital lease 10.4 13.2
------- -------
Investing activities - U.S. GAAP (41.5) 21.0
------- -------
Financing activities - Canadian GAAP 38.0 2.9
Increase in capital leases (10.4) (13.2)
------- -------
Financing activities - U.S. GAAP 27.6 (10.3)
------- -------
Increase (decrease) in cash (30.4) 28.4
Effect of currency translation on cash flows 4.5 0.1
Cash position, beginning of period 117.2 55.5
------- -------
Cash position, end of period $ 91.3 $ 84.0
======= =======
</TABLE>
Balance sheet items in conformity with U.S. GAAP and SEC requirements:
<TABLE>
<CAPTION>
Sept. 25, March 27,
1998 1998
------- -------
<S> <C> <C>
Cash $ 91.3 $ 117.2
Short-term investments - 34.5
Deferred tax asset 11.6 11.8
Fixed assets 530.9 525.1
Other assets 110.3 69.6
Accounts payable and accrued liabilities 286.1 284.5
Redeemable preferred shares 34.4 34.4
Common shares 769.4 603.2
Contributed surplus 2.5 2.5
Deficit (226.7) (206.2)
</TABLE>
15
<PAGE>
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.
13. Net change in non-cash working capital balances related to operating
activities:
<TABLE>
<CAPTION>
Six Months Ended
Sept. 25, Sept. 26,
1998 1997
------- -------
<S> <C> <C>
Accounts receivable $ (36.6) $ (16.3)
Inventories (23.3) (6.9)
Accounts payable and accrued liabilities (57.0) (9.8)
Deferred revenue (2.0) (1.5)
Other (1.6) 0.4
------- -------
$(120.5) $ (34.1)
======= =======
</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 second quarter revenue grew by 78 percent to $364.1 from $205.0 in the
same quarter of last year. Mitel's revenue growth was driven by incremental
revenue from recently acquired businesses and by strong Business
Communications Systems (BCS) sales in North America and Europe. By business
unit and compared to the previous year's second quarter, Semiconductor
revenue grew by 123 percent and BCS revenue was up 53 percent. 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. During the first half
of Fiscal 1999, revenue grew by 74 percent to $674.7 from $387.0 last year.
The year-to-date growth rates were 134 percent for Semiconductor and 42
percent for BCS when compared to the first six months of Fiscal 1998.
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 operating as the Advanced Messaging business
unit under the name Baypoint Innovations. The Advanced Messaging acquisition
complements 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 second quarter net income of $12.8, or $0.10 per share,
compared to $23.3, or $0.21 per share, in the same quarter of last year. The
Fiscal 1999 quarterly earnings were reduced by $0.08 per share due to
deferred debt issue and other costs expensed. The earnings reduction was
connected to the partial repayment of the U.S. term loans on July 23, 1998.
In addition, second quarter earnings were adversely affected by $0.03 per
share, after interest and tax, due to the consolidation of Plessey. Fiscal
1998 quarterly earnings benefited by $0.02 per share relative to Fiscal 1999
in respect of investment tax credit (ITCs) recorded. For the six months
ended September 25, 1998, net income was $27.4, or $0.23 per share, compared
to $41.5, or $0.37 per share, in the first half of Fiscal 1998.
Net income and cash flows for each period, as determined by United States
accounting principles, are detailed in Note 12 to the consolidated statements
included elsewhere in this Form 10-Q.
17
<PAGE>
The following discussion and analysis explains trends in the Company's
financial condition and results of operations for the three and six months
ended September 25, 1998 compared with the same periods 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, application-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.
REVENUE
Revenue, based on the geographic location of Mitel's customers, was
distributed as follows:
18
<PAGE>
<TABLE>
<CAPTION>
Six Months Six Months
Ended % of Ended % of
Sept. 25, 1998 Total Sept. 26, 1997 Total
------- ----- ------- -----
<S> <C> <C> <C> <C>
United States $ 301.5 45% $ 191.8 50%
Europe 226.9 33 109.8 28
Other Regions 112.9 17 59.6 15
Canada 33.4 5 25.8 7
------- ----- ------- -----
$ 674.7 100% $ 387.0 100%
======= ===== ======= =====
</TABLE>
For the six month period ended September 25, 1998, the net movement in
exchange rates from Fiscal 1998 favorably impacted total revenue by 6 percent
($22.7) 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>
Six Months Six Months
Ended % of Ended % of
Sept. 25, 1998 Total Sept. 26, 1997 Total
------- ----- ------- -----
<S> <C> <C> <C> <C>
Semiconductors $ 316.8 47 % $ 135.6 35%
Business Communications Systems 357.9 53 251.4 65
------- ----- ------- -----
$ 674.7 100% $ 387.0 100%
======= ===== ======= =====
</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 134 percent from the first six months of
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 half of Fiscal 1999, the Plessey
operations were re-organized and integrated into Mitel's semiconductor
business lines. The growth in Mitel's semiconductor business, particularly in
wired communication components and ASICs, is being driven by technological
advances and increasingly complex end user requirements affecting telecom and
datacom networks. However, management believes that Semiconductor sales
growth will be lower in the second half of Fiscal 1999, principally due to
the competitive market conditions and expected delays in ramping up sales of
certain new products.
19
<PAGE>
Management believes the Plessey acquisition has significantly enhanced the
Company's operations, technologies and product portfolio. The Plessey
acquisition also provided Mitel with enhanced market penetration in Europe,
resulting in an increase in the proportion of total revenues generated in
Europe to 33 percent of total revenue in the first six months of Fiscal 1999
as against 28 percent in the same period last year. This acquisition also
had the effect of reducing the proportion of total generated recorded in the
United States from 50 percent in the first half of 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.
BCS product revenue increased by 42 percent over the first half of last year
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 increased demand by the small to
medium sized business segment for Mitel's SX-200 ML and SX-200 EL switches.
In addition, Mitel launched a new line of telephone sets in early Fiscal 1999
which also produced 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 half of Fiscal 1999 due
to new system sales, system upgrades sold to the installed base and continued
demand for Mitel's alternate network access products.
Service revenue grew mainly due to the managed service business in the United
Kingdom where telecom product-related services are channeled through
outsourcing companies.
GROSS MARGIN
As a percentage of total revenue, total gross margin was 49 percent for both
the three and six months ended September 25, 1998, 1 percentage point lower
than the respective periods in Fiscal 1998. The product gross margin was 50
percent in the second quarter and first six months of Fiscal 1999, 1
percentage point below that recorded in the comparative periods of Fiscal
1998. The product gross margin was negatively impacted by reduced gross
margins in Semiconductors, partially offset by the positive impact of higher
sales volumes of BCS products. The service gross margin was 37 percent and 34
percent for the respective three and six months ended September 25, 1998,
representing a decrease of 1 and 6 percentage points from the respective
periods in Fiscal 1998. The service gross margin declined due to the mix of
large, competitively-priced service contracts entered into during the second
half of Fiscal 1998.
20
<PAGE>
OPERATING EXPENSES
Selling and Administrative
Selling and administrative (S&A) expenses in the second quarter of Fiscal
1999 were $81.6, or 22 percent of revenue, compared with $55.8, and 27
percent of revenue, for the comparable period in Fiscal 1998. Year-to-date
S&A expenses were $144.7, or 21 percent of revenue, 6 percentage points lower
than the first six months of the last fiscal year. S&A expenses decreased as
a percentage of sales primarily due to revenue growth and 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 $41.4, or 11 percent of revenue, for the quarter
ended September 25, 1998. This compares to $17.7, or 9 percent of revenue,
in the corresponding period of Fiscal 1998. Year-to-date, R&D spending was
$81.6, or 12 percent of revenue, compared to $33.5, or 9 percent of revenue,
in the first half 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 recognized 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 $7.4 and $13.5 in the second quarter and first half of Fiscal
1999, respectively. In the corresponding periods of Fiscal 1998, the Company
recorded Canadian ITCs of $9.5 and $16.9, respectively.
Amortization
Amortization increased in the second quarter to $30.0 from $9.3 in the same
quarter of Fiscal 1998. Year-to-date, amortization expense was $58.9
compared to $18.5 in the six months ended September 26, 1997. 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 embarked on a major capital program at its other
semiconductor plants, resulting in higher amortization charges.
21
<PAGE>
OTHER INCOME AND EXPENSES
Interest income was $1.1 for the quarter ended September 25, 1998, down
slightly from the $1.3 recorded in the corresponding quarter of Fiscal 1998.
Year-to-date, investment and interest income was $2.7 compared to $2.5 in the
first half of last year.
Interest expense, before the write-off of deferred debt issue and other
costs, was $7.0 for the second quarter of Fiscal 1999 compared to $1.0 in the
respective period of Fiscal 1998. Year-to-date, interest expense, before the
write-off, was $15.5 compared to $1.9 in the first six months of Fiscal 1998.
The increase in interest expense resulted from the 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.
On July 23, 1998, the Company repaid $123.1 against the U.S. dollar term
loans. Accordingly, a proportionate amount of the related deferred debt
issue costs and deferred foreign exchange losses were expensed. This non-
cash expense amounted to $8.8, or $0.08 per share, in the second quarter of
Fiscal 1999.
INCOME TAXES
Income tax expense for the three and six months ended September 25, 1998 was
$6.1 and $11.1 compared to $6.5 and $11.8 for the comparable periods in
Fiscal 1998. The effective income tax rate as a percentage of pre-tax income
was 32 percent and 22 percent in the respective second quarter periods of
Fiscal 1999 and Fiscal 1998. Year-to-date, the effective income tax rate, as
a percentage of pre-tax income, was 29 percent as compared to 22 percent in
the first half of last year. The higher effective tax rate in Fiscal 1999
was due to higher income taxes in Europe.
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
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 $25.0 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,
among other things, a temporary inability to process transactions, send
22
<PAGE>
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 six months ended September 25,
1998 and 12 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 2.4 percent of the
Company's total assets as at September 25, 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.
23
<PAGE>
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
September 25, 1998, order backlog was $283.7 compared to $300.1 at June 26,
1998 and $279.5 at March 27, 1998. The decrease in backlog from the end of
the first quarter was attributable to lower Semiconductor orders. 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 $91.3 at September
25, 1998 compared to $151.7 at March 27, 1998. The decrease of $60.4 was
mainly due to the Advanced Messaging and ISDN PBX first quarter acquisitions
which, together, amounted to $46.6; to reductions of year-end payables; and
to integration costs for the Plessey operations which were offset, in part,
by net proceeds retained from an equity offering completed in the second
quarter of Fiscal 1999.
The Company has two term loans, respectively the AXELsSM* Series B loan and
the Tranche A Term Loan, which 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 in 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, the Company, through a syndicate of underwriters, issued 8
million common shares, at a price of $21.50 per share, for total proceeds of
$172.0. Net proceeds to the Company were of $164.1, of which $123.1 was
applied to repay a portion of the term loans. The balance of the proceeds
was retained for general corporate purposes.
24
<PAGE>
Cash flow from operations before working capital changes amounted to $104.0
during the first half of Fiscal 1999, up $52.2 from $51.8 during the first
six months of Fiscal 1998. Since March 27, 1998, the Company's working
capital, as reflected in the consolidated statements of cash flows, increased
by $120.5 primarily due to reductions in year-end payables associated with
the record Fiscal 1998 sales volumes and to higher receivable and inventory
levels related to 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 $35.7 during the six months ended September 25,
1998 compared with $22.7 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 during the first six months of
Fiscal 1999 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 periods
ranging from 7 to 10 years.
Before scheduled repayments of $12.1 and a prepayment of $123.1 against the
term loans (described above), total long-term debt increased by $9.7 from the
end of Fiscal 1998 due primarily to fixed asset additions financed through
capital leases.
The pension liability of $13.6 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 September 25, 1998, the Company's capitalization was comprised of 31
percent debt, 4 percent preferred equity, and 65 percent common equity. This
compares to 49 percent debt, 4 percent preferred equity, and 47 percent
common equity at the end of Fiscal 1998.
In addition to cash and short-term investment balances of $91.3 as at
September 25, 1998, the Company has an unused revolving credit facility of
approximately $109.7 (U.S.$72.7). 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.
25
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on July 23, 1998 at the Chateau
Laurier Hotel in Ottawa, Ontario, Canada. At the Annual Meeting, the
following matters were presented to shareholders for approval:
Motion 1: In respect of electing seven directors to the Board;
Motion 2: In respect of appointing Ernst & Young as the Company's auditors;
Motion 3: In respect of amending the Company's 1991 Stock Option Plan for
Key Employees and Non-Employee Directors;
The results of matters submitted to a vote of shareholders were as follows:
Motion 1: Shares
For 72,872,782
Withheld 139,841
Motion 2: Shares
For 72,977,833
Withheld 49,492
The following nine directors were elected at the 1998 Annual Meeting: Dr.
John B. Millard, Dr. Henry Simon, Mr. Jonathan I. Wener, Mr. Hubert T.
Lacroix, Mr. Peter Van Cuylenburg, Mr. Anthony L. Craig, Mr. Donald W.
Patterson, Mr. Andre Borrel, and Mr. Donald G. McIntyre.
Motion 3: Shares
For 36,408,379
Against 34,226,304
The shareholders approved an increase in the number of common shares which
may be granted to Key Employees and Non-Employee Directors from 5,800,000 to
16,000,000.
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 September
25, 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
----------------------------
November 5, 1998 JEAN-JACQUES CARRIER
- ---------------- ----------------------------
Date Jean-Jacques Carrier
Vice President of Finance
and Chief Financial Officer
</TABLE>
27
<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 six months ended September 25, 1998 and the
Consolidated Balance Sheets as at September 25, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-26-1999
<PERIOD-END> SEP-25-1998
<EXCHANGE-RATE> 1.50846<F1>
<CASH> 35,782
<SECURITIES> 55,551
<RECEIVABLES> 321,748
<ALLOWANCES> 10,732
<INVENTORY> 198,982
<CURRENT-ASSETS> 665,290
<PP&E> 895,190
<DEPRECIATION> 340,124
<TOTAL-ASSETS> 1,332,009
<CURRENT-LIABILITIES> 335,868
<BONDS> 268,654
0
37,180
<COMMON> 331,048
<OTHER-SE> 304,882
<TOTAL-LIABILITY-AND-EQUITY> 1,332,009
<SALES> 674,683
<TOTAL-REVENUES> 674,683
<CGS> 369,324
<TOTAL-COSTS> 369,324
<OTHER-EXPENSES> 284,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,824
<INCOME-PRETAX> 3,888
<INCOME-TAX> 3,223
<INCOME-CONTINUING> 665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 665
<EPS-PRIMARY> 0.23<F2>
<EPS-DILUTED> 0.23<F3>
<FN>
<F1>The foreign exchange rate of 1.508455 should be used to translate the
balance sheet items from Canadian Dollars(figures above)to U.S. Dollars.
The six month moving average foreign exchange rate of 1.477109 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>
