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 December 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 (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 February 2, 1999 was 116,702,956.
1
<PAGE>
MITEL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION (Unaudited)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
December 25, 1998 and March 27, 1998 . . . . . . . . . . . . . . 3
Consolidated Statements of Retained Earnings -
Three months ended December 25, 1998 and December 26, 1997
Nine months ended December 25, 1998 and December 26, 1997 . . . .4
Consolidated Statements of Income -
Three months ended December 25, 1998 and December 26, 1997
Nine months ended December 25, 1998 and December 26, 1997. . . . 5
Consolidated Statements of Cash Flows -
Nine months ended December 25, 1998 and December 26, 1997. . . . 6
Notes to the Consolidated Financial Statements . . . . . . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . .26
2
<PAGE>
Mitel Corporation
(incorporated under the laws of Canada)
CONSOLIDATED BALANCE SHEETS
(in millions of Canadian dollars)
(Unaudited)
<TABLE>
<CAPTION>
Dec. 25, March 27,
1998 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 95.0 $ 117.2
Short-term investments - 34.5
Accounts receivable 329.0 288.0
Inventories (Note 3) 217.6 162.2
Prepaid expenses and other 26.4 27.3
------- -------
668.0 629.2
Fixed assets (Note 4) 549.5 549.3
Other assets (Note 5) 116.5 59.2
------- -------
$1,334.0 $1,237.7
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 225.8 $ 290.7
Income and other taxes payable 13.2 19.6
Deferred revenue 31.4 32.7
Current portion of long-term debt 34.2 40.3
------- -------
304.6 383.3
Long-term debt 271.2 379.6
Pension liability 14.1 12.2
Deferred income taxes 37.6 27.1
------- -------
627.5 802.2
------- -------
Shareholders' equity:
Capital stock (Note 6)
Preferred shares 37.2 37.2
Common shares 331.1 157.3
Contributed surplus 32.3 32.3
Retained earnings 238.2 202.9
Translation account (Note 7) 67.7 5.8
------- -------
706.5 435.5
------- -------
$1,334.0 $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 Nine Months Ended
Dec.25, Dec.26, Dec.25, Dec.26,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Retained earnings,
beginning of period $ 221.2 $ 154.1 $ 202.9 $ 114.2
Net income for the period 17.8 25.6 45.2 67.1
------- ------- ------- -------
239.0 179.7 248.1 181.3
Cost of common share issue - - (7.5) -
Dividends on preferred
shares (Note 8) (0.8) (0.8) (2.4) (2.4)
------- ------- ------- -------
Retained earnings, end of period $ 238.2 $ 178.9 $ 238.2 $ 178.9
======= ======= ======= =======
</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 Nine Months Ended
Dec.25, Dec.26, Dec.25, Dec.26,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue (Note 9) $ 358.1 $ 215.5 $1,032.8 $ 602.5
Cost of sales (Note 9) 174.4 104.9 517.3 299.1
------- ------- ------- -------
Gross margin 183.7 110.6 515.5 303.4
------- ------- ------- -------
Expenses:
Selling and administrative 89.7 57.8 234.4 162.8
Research and development - net
(Note 10) 38.2 8.0 106.3 24.6
Amortization 30.5 10.0 89.4 28.5
------- ------- ------- -------
158.4 75.8 430.1 215.9
------- ------- ------- -------
Operating income 25.3 34.8 85.4 87.5
Other income and expenses:
Interest income 1.6 1.4 4.3 3.9
Interest expense (6.7) (1.0) (31.0) (2.9)
------- ------- ------- -------
Income before income taxes 20.2 35.2 58.7 88.5
Income tax expense 2.4 9.6 13.5 21.4
------- ------- ------- -------
Net income for the period $ 17.8 $ 25.6 $ 45.2 $ 67.1
======= ======= ======= =======
Net income for the period attributable to common shareholders after
preferred share dividends $ 17.0 $ 24.8 $ 42.8 $ 64.7
======= ======= ======= =======
Net income per common share (Note 6)
Basic $ 0.15 $ 0.23 $ 0.38 $ 0.60
======= ======= ======= =======
Fully diluted $ 0.14 $ 0.22 $ 0.37 $ 0.59
======= ======= ======= =======
Weighted average number of common
shares outstanding 116.7 107.9 113.5 107.6
======= ======= ======= =======
</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>
Nine Months Ended
Dec.25, Dec.26,
1998 1997
------- -------
<S> <C> <C>
CASH PROVIDED BY (USED IN)
Operating activities:
Net income for the period $ 45.2 $ 67.1
Amortization of capital and other assets 104.0 28.5
Investment tax credits (7.0) (14.0)
Deferred income taxes 4.6 -
Gain on sale of capital assets (0.4) (0.7)
Other non-cash operating items 0.9 0.7
Increase in working capital (Note 14) (136.9) (34.0)
------- -------
Total 10.4 47.6
------- -------
Investing activities:
Change in short-term investments 34.5 12.4
Additions to capital and other assets - net of
capital lease additions (52.0) (19.5)
Proceeds from disposal of capital assets 2.1 6.8
Acquisitions (Note 11) (46.6) (21.6)
Net change in non-cash balances related to
investing activities (3.0) (4.1)
------- -------
Total (65.0) (26.0)
------- -------
Financing activities:
Increase in long-term debt 0.2 1.8
Repayment of long-term debt (116.7) (4.3)
Repayment of capital lease liabilities (19.0) (11.1)
Debt issue costs (2.0) -
Dividends on preferred shares (Note 8) (2.4) (2.4)
Issue of common shares - net (Note 6) 166.2 1.9
Net change in non-cash balances related to
financing activities 0.8 -
------- -------
Total 27.1 (14.1)
------- -------
Effect of currency translation on cash 5.3 1.5
------- -------
Increase (decrease) in cash and short-term investments (22.2) 9.0
Cash and cash equivalents, beginning of period 117.2 55.5
------- -------
Cash and cash equivalents, end of period $ 95.0 $ 64.5
======= =======
</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
December 25, 1998 and the results of operations and the changes in financial
position for the three and nine month periods ended December 25, 1998 and
December 26, 1997, in accordance with accounting principles generally
accepted in Canada. (See also Note 13). The Company has adopted the new
recommendations of Section 1540 of the CICA Handbook "Cash Flow Statements"
and has restated the comparative period's financial information to conform to
this revised standard. Accordingly, cash and cash equivalents includes
highly liquid investments with original maturities of less than three months.
In addition, non-cash items such as assets acquired under capital lease are
excluded from the statements of cash flows.
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. Inventories:
<TABLE>
<CAPTION>
Dec. 25, March 27,
1998 1998
------- -------
<S> <C> <C>
Raw materials $ 54.4 $ 53.4
Work-in-process 86.4 60.3
Finished goods 76.8 48.5
------- -------
$ 217.6 $ 162.2
======= =======
</TABLE>
4. Fixed assets:
<TABLE>
<CAPTION>
Dec. 25, March 27,
1998 1998
------- -------
<S> <C> <C>
Cost $ 918.8 $ 831.2
Accumulated amortization (369.3) (281.9)
------- -------
$ 549.5 $ 549.3
======= =======
</TABLE>
7
<PAGE>
5. Other assets:
<TABLE>
<CAPTION>
Dec. 25, March 27,
1998 1998
------- -------
<S> <C> <C>
Cost:
Patents, trademarks, and other $ 15.7 $ 13.4
Other intangible assets 81.9 27.6
Promissory note 11.0 10.3
Long-term receivables 30.1 18.4
------- -------
138.7 69.7
------- -------
Less accumulated amortization:
Patents, trademarks, and other 7.9 7.2
Other intangible assets 14.3 3.3
------- -------
22.2 10.5
------- -------
$ 116.5 $ 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 11). 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 11). 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. Capital stock:
a)
<TABLE>
<CAPTION>
Dec. 25, March 27,
1998 1998
----------- -----------
<S> <C> <C>
Shares outstanding:
Preferred shares - R&D Series 1,616,300 1,616,500
Common shares 116,685,556 108,394,631
</TABLE>
There were 200 preferred shares repurchased during the nine months ended
December 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
8
<PAGE>
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 was
retained for general corporate purposes.
b) A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Dec.25, Dec.26,
1998 1997
--------- ---------
<S> <C> <C>
Outstanding options:
Balance, beginning of period 6,251,888 3,238,638
Granted 361,250 1,112,500
Exercised (290,925) (571,875)
Cancelled (275,750) (38,250)
--------- ---------
Balance, end of period 6,046,463 3,741,013
========= =========
</TABLE>
Available for grant at December 25, 1998 were 10,358,025 (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 November,
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.
7. The following table summarizes changes in the translation account:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec.25, Dec.26, Dec.25, Dec.26,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, beginning of period $ 51.4 $ 2.8 $ 5.8 $ 2.5
Increase:
Movements in exchange rates -
United States Dollar 10.2 1.2 27.7 1.4
United Kingdom Pound Sterling 3.8 5.5 27.5 5.1
Swedish Krona 0.5 0.2 3.7 0.6
Other currencies 1.8 - 3.0 0.1
------- ------- ------- -------
Balance, end of period $ 67.7 $ 9.7 $ 67.7 $ 9.7
======= ======= ======= =======
</TABLE>
9
<PAGE>
8. The Company has not declared or paid any dividends on its common shares.
During the third quarter, a $0.50 per share dividend was declared and paid on
the preferred shares.
9. The components of revenue were:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec.25, Dec.26, Dec.25, Dec.26,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Products $ 332.0 $ 194.3 $ 959.1 $ 542.1
Service 26.1 21.2 73.7 60.4
------- ------- ------- -------
$ 358.1 $ 215.5 $1,032.8 $ 602.5
======= ======= ======= =======
</TABLE>
The components of cost of sales were:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec.25, Dec.26, Dec.25, Dec.26,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Products $ 157.1 $ 91.6 $ 468.8 $ 262.1
Service 17.3 13.3 48.5 37.0
------- ------- ------- -------
$ 174.4 $ 104.9 $ 517.3 $ 299.1
======= ======= ======= =======
</TABLE>
10. Research and Development
The research and development expenses were net of $5.6 and $22.4 in R&D
government assistance, including ITCs, for the respective three and nine
month periods ended December 25, 1998 (three months ended December 26, 1997 -
$10.1; nine months ended December 26, 1997 - $27.1).
11. 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
10
<PAGE>
standard valuation techniques. An amount of $35.9 was allocated to
identifiable intangible assets that 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. As at December 25, 1998, the liability in
respect of acquisition and integration costs was $1.5.
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. As at December 25, 1998, the liability in respect of
acquisition and integration costs was $nil.
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.
(c) On February 12, 1998, the Company and certain of its wholly owned
subsidiaries acquired 100 percent of the capital stock of the Plessey
Semiconductors Group. As at December 25, 1998, the liability in respect of
acquisition costs was $nil (March 27, 1998 - $10.6) and $29.8 (March 27, 1998
- - $45.2) in respect of integration costs.
12. 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 which uses year 2000 dates is processed. In addition, similar
problems may arise in some systems that 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 that 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.
13. 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 Nine months Ended
Dec.25, Dec.26, Dec.25, Dec.26,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income for the period in
accordance with Canadian GAAP $ 17.8 $ 25.6 $ 45.2 $ 67.1
Effect of deferral accounting related to foreign exchange
contracts (6.6) (9.5) (25.4) (9.8)
Translation of foreign currency
denominated debt (5.2) - (20.8) -
Adjustment to deferred income taxes - 0.8 (7.0) (0.5)
Write-off of acquired in-process
R&D - - (5.2) (2.7)
Amortization of acquired in-process
R&D 0.2 0.1 0.5 0.1
Core redundancy provision for
acquisition (1.9) - (1.9) -
------- ------- ------- -------
U.S. GAAP and SEC requirements:
Net income (loss) for the period 4.3 17.0 (14.6) 54.2
Dividends on cumulative
preferred shares 0.8 0.8 2.4 2.4
------- ------- ------- -------
Adjusted net income (loss)
for the period $ 3.5 $ 16.2 $ (17.0) $ 51.8
======= ======= ======= =======
Net income (loss) per common share:
Basic $ 0.03 $ 0.15 $ (0.15) $ 0.48
======= ======= ======= =======
Diluted $ 0.03 $ 0.15 $ (0.15) $ 0.48
======= ======= ======= =======
Weighted average shares for
basic EPS (millions) 116.7 107.9 113.5 107.6
Weighted average shares on conversion of stock options
(millions) 1.2 1.6 - 1.1
------- ------- ------- -------
Adjusted weighted average
shares (millions) 117.9 109.5 113.5 108.7
======= ======= ======= =======
</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) Options outstanding for the three months ended December 25, 1998 to
purchase 3,282,000 shares of common stock at an average price of $18.08 per
share.
ii) All options outstanding for the nine months ended December 25, 1998 were
excluded because they have an antidilutive impact on the net loss per common
share.
iii) Options outstanding for the nine months ended December 26, 1997 to
purchase 328,500 shares of common stock at an average price of $9.76 per
share.
13
<PAGE>
The Company adopted 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 nine months ended
December 25, 1998 and December 26, 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
Dec. 25, Dec. 26, Dec. 25, Dec. 26,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Comprehensive income for the period:
Net income (loss) for the period $ 3.5 $ 16.2 $ (17.0) $ 51.8
Other comprehensive income -
Foreign currency adjustment 16.3 6.9 61.9 7.2
------- ------- ------- -------
Comprehensive income for the
period $ 19.8 $ 23.1 $ 44.9 $ 59.0
======= ======= ======= =======
</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.
Balance sheet items in conformity with U.S. GAAP and SEC requirements:
<TABLE>
<CAPTION>
Dec.25, March 27,
1998 1998
------- -------
<S> <C> <C>
Deferred tax asset $ 11.6 $ 11.8
Fixed assets 525.3 525.1
Other assets 117.6 69.6
Accounts payable and accrued liabilities 267.7 284.5
Redeemable preferred shares 34.4 34.4
Common shares 769.5 603.2
Contributed surplus 2.5 2.5
Deficit (228.6) (206.2)
</TABLE>
14
<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.
14. Net change in non-cash working capital balances related to operating
activities:
<TABLE>
<CAPTION>
Nine months Ended
Dec.25, Dec.26,
1998 1997
------- -------
<S> <C> <C>
Accounts receivable $ (9.9) $ (17.4)
Inventories (39.9) (6.4)
Accounts payable and accrued liabilities (86.6) (6.5)
Deferred revenue (3.7) (3.0)
Other 3.2 (0.7)
------- -------
$(136.9) $ (34.0)
======= =======
</TABLE>
15. Comparative figures
Certain of the Fiscal 1998 comparative figures were reclassified so as to
conform to the presentation adopted in Fiscal 1999.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In millions of Canadian dollars, except per share amounts)
Total third quarter revenue grew by 66 percent to $358.1 from $215.5 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 Europe and North America. By business
unit and compared to the previous year's third quarter, Semiconductor revenue
grew by 138 percent and BCS revenue was up 33 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. Higher sales volumes of PBX systems, telephone sets, and
alternate network access products and the effects of consolidating recent
acquisitions drove the BCS revenue growth. During the first nine months of
Fiscal 1999, revenue grew by 71 percent to $1,032.8 from $602.5 last year.
The year-to-date growth rates were 135 percent for Semiconductor and 39
percent for BCS when compared to the first nine months of Fiscal 1998.
The Company completed two acquisitions mid-way through the first quarter of
Fiscal 1999. 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. On May 19,
1998, the Company acquired the business of Glasgow-based Telecom Sciences
Corporation Limited, now operating 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 third quarter net income of $17.8, or $0.15 per share,
compared to $25.6, or $0.23 per share, in the same quarter of last year.
Third quarter earnings were not adversely affected, after interest and tax,
by the consolidation of Plessey. For the nine months ended December 25,
1998, net income was $45.2, or $0.38 per share, compared to $67.1, or $0.60
per share, in the same period of Fiscal 1998.
Net income and cash flows for each period, as determined by United States
accounting principles, are detailed in Note 13 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 and nine months
ended December 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
16
<PAGE>
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 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; custom
silicon wafers; optoelectronic and power devices; 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:
<TABLE>
<CAPTION>
Nine months Nine months
Ended % of Ended % of
Dec.25, 1998 Total Dec.26, 1997 Total
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
United States $ 451.6 44 % $ 288.6 48 %
Europe 364.0 35 182.9 30
Other Regions 165.5 16 91.8 15
Canada 51.7 5 39.2 7
------------ ----- ------------ -----
$1,032.8 100 % $ 602.5 100 %
======== ===== ======== =====
</TABLE>
For the nine month period ended December 25, 1998, the net movement in
exchange rates from Fiscal 1998 favorably impacted total revenue by 7 percent
($40.6) primarily as a result of changes in the UK pound sterling and US
dollar exchange rates.
17
<PAGE>
Revenue, by product group, was distributed as follows:
<TABLE>
<CAPTION>
Nine months Nine months
Ended % of Ended % of
Dec.25, 1998 Total Dec.26, 1997 Total
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
Semiconductors $ 479.3 46 % $ 203.8 34 %
Business Communications Systems 553.5 54 398.7 66
------------ ----- ------------ -----
$1,032.8 100 % $ 602.5 100 %
======== ===== ======== =====
</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. Management is focused on
targeting the semiconductor business toward certain high growth segments in
the communications industries. Technological advances and increasingly
complex end user requirements affecting telecom and datacom networks are
driving the high growth segments.
Semiconductor revenue increased by 135 percent from the first nine 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 Fiscal 1999, the Plessey operations were
reorganized and integrated into Mitel's semiconductor business lines.
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 35 percent of total revenue in the first nine months of Fiscal 1999
as against 30 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 48 percent in the first nine months of last year to 44
percent for the same period in Fiscal 1999.
Excluding the growth resulting from the Plessey acquisition, the Company has
experienced reduced demand from the Asia/Pacific region and in other emerging
regions, such as Latin America and Eastern Europe, due to the prevailing
adverse local economic conditions (see further discussion under "Other").
This recent decline and the additional manufacturing capability acquired from
Plessey combined to result in excess capacity in the Company's fabrication
facilities ("fabs"). Accordingly, management is reviewing its operations and
will take steps to consolidate the capacity levels to achieve better
utilization of the fabs. On January 22, 1999, the Company announced that it
had commenced negotiations with the relevant Swedish Trade Unions concerning
the transfer of all semiconductor CMOS manufacturing operations from Sweden
to Mitel's other more technologically advanced fabrication sites. The
proposed transfer affects approximately 200 employees in Mitel's plant in
Jarfalla, Sweden with the program expected to be completed within the next
twelve months. The Swedish operation will operate as an IC fabless facility
18
<PAGE>
focussed on the design, marketing, and sales of ASICs and as a manufacturer
and marketer of optoelectronic devices. The integration provisions
established in connection with the acquisition of Plessey included the
expected transfer costs of the proposed program.
Mitel continues to evaluate the adequacy of its integration and redundancy
provisions through the implementation process of realizing synergies and
integrating recently acquired businesses.
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 revenue increased by 39 percent over the first nine months of last year
due to higher sales volumes of SX-2000 and SX-200 systems, including the
associated pull-through of new system sets, 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
that also produced additional revenue. U.S. direct channel sales benefited
from increased installations of new systems as well as from upgrades in the
existing customer base.
With respect to Europe, sales increased in the first nine months of Fiscal
1999 due to strong growth in new system sales and system upgrades sold to the
installed base, and to continued higher 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 51 percent and 50
percent for the three and nine months ended December 25, 1998, respectively,
unchanged from the respective periods in Fiscal 1998. The positive impact of
higher sales volumes of BCS products offset the impact of reduced margins in
some semiconductor products and of certain unfavorable manufacturing
variances.
OPERATING EXPENSES
Selling and Administrative
Selling and administrative (S&A) expenses in the third quarter of Fiscal 1999
were $89.7, or 25 percent of revenue, compared with $57.8, or 27 percent of
revenue, for the comparable period in Fiscal 1998. Year-to-date S&A expenses
were $234.4, or 23 percent of revenue, 4 percentage points lower than the
first nine 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
19
<PAGE>
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 $38.2, or 11 percent of revenue, for the quarter
ended December 25, 1998. This compares to $8.0, or 4 percent of revenue, in
the corresponding period of Fiscal 1998. Year-to-date, R&D spending was
$106.3, or 10 percent of revenue, compared to $24.6, or 4 percent of revenue,
in the first nine months of Fiscal 1998. These amounts are net of $5.6 and
$22.4 in R&D government assistance, including ITCs, earned for the respective
three and nine month periods ended December 25, 1998 (three months ended
December 26, 1997 - $10.1; nine months ended December 26, 1997 - $27.1). 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.
Amortization
Amortization increased in the third quarter to $30.5 from $10.0 in the same
quarter of Fiscal 1998. Year-to-date, amortization expense was $89.4
compared to $28.5 in the nine months ended December 26, 1997. The increase
was due to the inclusion of Plessey's operations, which comprise the
amortization of manufacturing facilities in the United Kingdom, the
amortization of the completed capital program at the Bromont semiconductor
plant and the amortization of purchased intangible assets.
OTHER INCOME AND EXPENSES
Interest income was $1.6 for the quarter ended December 25, 1998, up slightly
from the $1.4 recorded in the corresponding quarter of Fiscal 1998. Year-to-
date, interest income was $4.3 compared to $3.9 in the first nine months of
last year.
Interest expense was $6.7 for the third quarter of Fiscal 1999 compared to
$1.0 in the corresponding period of Fiscal 1998. Year-to-date, interest
expense, including the write-off of deferred debt issue and other costs, was
$31.0 compared to $2.9 in the first nine 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. 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 was recorded as additional interest
expense in the second quarter of Fiscal 1999. This non-cash expense amounted
to $8.8, or $0.08 per share.
INCOME TAXES
Income tax expense for the three and nine months ended December 25, 1998 was
$2.4 and $13.5 compared to $9.6 and $21.4 for the comparable periods in
Fiscal 1998. The effective income tax rate as a percentage of pre-tax income
was 12 percent and 27 percent in the respective third quarter periods of
Fiscal 1999 and Fiscal 1998. The lower effective tax rate in the third
20
<PAGE>
quarter of Fiscal 1999 was principally due to permanent differences
associated with European operations, lower taxes in Canada arising from
higher interest costs related to the term loans, and to tax recoveries in
Sweden. Year-to-date, the effective income tax rate, as a percentage of pre-
tax income, was 23 percent as compared to 24 percent in the first nine months
of last year.
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, resulting in the possibility that 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 invoices, or engage in similar normal business activities.
The Company has been working on the Year 2000 problem since 1997. A
dedicated Year 2000 Program Management Office (PMO) was established in
February 1998 to address compliance both externally, to our customers and
suppliers and internally for the Company's business processes. These
internal processes include network and communications infrastructure,
business software applications, manufacturing, facilities management, product
development, sales, finance and human resources. Management presently
believes that with modifications to the Company's existing software and
hardware and conversions to new software, the Year 2000 problem can be
mitigated. Despite the extensive efforts dedicated to the Year 2000 Program,
there can be no assurance that all Year 2000 date compliance activities will
be completed before problems associated with the Year 2000 transition
potentially occur.
The Company has completed the evaluation of its major product offerings,
including current and discontinued business telephone systems, peripherals
and applications. The majority of products have been classified as Compliant
or having Compliant versions.
The Company has established a three-phase Year 2000 Readiness Program (the
"Year 2000 Program") that addresses the key internal business processes and
systems. Phase I was the Initial Assessment and included an overview of the
Company and an assessment of its awareness and readiness for Year 2000.
Consultants were engaged to assist with this review and with any necessary
remedial plans. Phase II included the Discovery and Strategy and involved
the collection and assessment of a comprehensive inventory of all internal
information systems equipment as well as a detailed assessment of the
suppliers deemed to be affected by the Year 2000 Problem. The third and
current phase is the Implementation and consists of conversion, testing and
deployment of identified mission critical systems as well as risk and
contingency management activities. The Company plans to have 90% of its
mission critical systems Year 2000 ready by March 31, 1999. The remaining
mission critical systems, are expected to be Year 2000 ready by the summer of
calendar 1999. The non-mission critical systems will be addressed after
March 31, 1999 and by the end of the calendar year. The integration testing
of internal systems is also planned for the spring of calendar 1999.
21
<PAGE>
Under its comprehensive Vendor Management Program, initiated during Phase II
of the Year 2000 Program, Mitel is actively working with its suppliers to
determine the extent to which their operations and the products and services
they provide are Year 2000 ready and to monitor their progress toward Year
2000 capability. The highest priority is given to suppliers that are
critical to the business. The program includes awareness letters, site
visits, questionnaires as well as compliance agreement and warranties.
Contingency plans, such as planned increased inventory levels or substitute
suppliers, are being developed to address issues related to suppliers that
are not considered to be making sufficient progress in becoming Year 2000
capable in a timely manner. The Company has also developed contingency plans
to address possible changes in customer order patterns due to Year 2000
issues. Contingency plans will be reviewed on a regular basis as Mitel
learns more about its suppliers' state of readiness. The Company's target is
to have all "high risk" suppliers' assessment of their Year 2000 readiness
completed and to have the necessary contingency plans in place by March 31,
1999.
It is currently expected that the total incremental direct costs of the Year
2000 Program will not exceed $15.0. Approximately $2.5 has been spent on
direct Year 2000 Program costs to date and was funded through operating cash
flows. The program costs are primarily attributable to the purchase of new
software and equipment and do not include estimates for potential litigation.
As the Company continues to assess the last phases of the Year 2000 Program,
estimated costs may change.
Based on currently available information, management does not believe that
the modifications and conversions discussed above, related to the Company's
internal systems or products sold to customers, will have a material adverse
impact on the Company's business, financial condition or results of
operations. 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 believes that the most reasonably likely
worst case Year 2000 scenarios would relate to third party systems rather
than the Company's internal systems or products. The Company believes the
risks are greatest with utilities (e.g. electricity supply, water),
telecommunications, transportation and critical suppliers that are outside
the Company's control.
OTHER
The Asia Pacific region encountered unstable local economies and significant
devaluation in its currencies during Fiscal 1998 and through Fiscal 1999 to
date. This region represented 12 percent of the Company's revenue for the
nine months ended December 25, 1998 and 11 percent of revenue in the
corresponding period of Fiscal 1998. The majority of the Company's Asia
Pacific sales relate to semiconductor operations. Asia Pacific receivables,
net of reserves, were approximately 2 percent of the Company's total assets
as at December 25, 1998. To the extent the Asia Pacific region grows in
importance to the Company, or 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.
22
<PAGE>
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.
On January 1, 1999, eleven of fifteen member countries of the European Union
established fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency - the Euro. The Euro will trade on
currency exchanges and may be used in business transactions. The conversion
to the Euro eliminates currency exchange rate risk between the member
countries. Beginning in January 2002, new Euro-denominated bills and coins
will be issued, and legacy currencies will be withdrawn from circulation.
Mitel's operating subsidiaries that are affected by the Euro conversion have
established plans to address the issues raised by the Euro currency
conversion. These issues include, among others, the need to adapt computer
and financial systems, competitive impacts of cross-border price
transparency, and recalculating currency risk. The Company does not expect
any required system conversion costs to be material due to the existing
ability to transact in multiple currencies. Due to significant
uncertainties, the Company cannot reasonably estimate the effects one common
currency will have on pricing and the resulting impact, if any, on the
Company's financial condition or its results of operations.
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
December 25, 1998, order backlog was $259.3 compared to $283.7 at September
25, 1998, $300.1 at June 26, 1998 and $279.5 at March 27, 1998. The decrease
in backlog from the end of the second quarter was attributable to a decrease
in semiconductor orders arising partly from a reduction in order lead times.
Most of the backlog is scheduled for delivery in the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and short-term investment balances of
$95.0 at December 25, 1998 compared to $151.7 at March 27, 1998. All of the
December 25, 1998 cash balance was held in either cash or highly liquid cash
equivalents. The decrease of $56.7 was mainly due to the first quarter
acquisitions of the Advanced Messaging and ISDN PBX business which, together,
amounted to $46.6, reductions of year-end payables, including 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.
23
<PAGE>
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
bear interest at a variable 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 term loans are subject to mandatory prepayments out of
certain insurance proceeds and defined excess cash flow received by the
Company and in the event of asset sales (other than inventory), equity
offerings or debt issuance by the Company. 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 $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.
Cash flow from operations before working capital changes amounted to $147.3
during the first nine months of Fiscal 1999, up $65.7 from $81.6 during the
first nine months of Fiscal 1998. Since March 27, 1998, the Company's
working capital, as reflected in the consolidated statements of cash flows,
increased by $136.9 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 and other additions were $52.0 during the nine months ended
December 25, 1998 compared with $19.5 in the previous year, net of capital
lease additions of $13.7 and $20.0 for the two respective periods. 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 nine 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.
24
<PAGE>
Long-term debt decreased due to scheduled repayments of $12.1 and a
prepayment of $123.1 against the term loans (described above).
As at December 25, 1998, the Company's capitalization was comprised of 30
percent debt, 4 percent preferred equity, and 66 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 cash equivalent balances of $95.0 as at December 25,
1998, the Company has an unused revolving credit facility of approximately
$113.9 (U.S. $73.5). In accordance with Company policy, cash equivalent and
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 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 December
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
February 3, 1999 /S//JEAN-JACQUES CARRIER
- ---------------- --------------------
Date Jean-Jacques Carrier
Vice President of Finance
and Chief Financial Officer
</TABLE>
26
<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 nine months ended December 25, 1998 and the
Consolidated Balance Sheets as at December 25, 1998 and is qualified in its
entirety by reference to such financial statements.
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-26-1999
<PERIOD-END> DEC-25-1998
<EXCHANGE-RATE> 1.55029<F1>
<CASH> 35,707
<SECURITIES> 59,296
<RECEIVABLES> 307,026
<ALLOWANCES> 13,450
<INVENTORY> 217,592
<CURRENT-ASSETS> 668,037
<PP&E> 918,786
<DEPRECIATION> 369,278
<TOTAL-ASSETS> 1,334,044
<CURRENT-LIABILITIES> 304,702
<BONDS> 271,178
0
37,175
<COMMON> 331,131
<OTHER-SE> 338,171
<TOTAL-LIABILITY-AND-EQUITY> 1,334,044
<SALES> 1,032,764
<TOTAL-REVENUES> 1,032,764
<CGS> 517,313
<TOTAL-COSTS> 517,313
<OTHER-EXPENSES> 430,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,942
<INCOME-PRETAX> 58,732
<INCOME-TAX> 13,531
<INCOME-CONTINUING> 45,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,201
<EPS-PRIMARY> .38<F2>
<EPS-DILUTED> .37<F3>
<FN>
<F1>The foreign exchange rate of 1.550291 should be used to translate the
balance sheet items from Canadian Dollars (figures above) to U.S. Dollars.
The nine month moving average foreign exchange rate of 1.498157 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>
