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 24, 1999
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 2W7
(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 1, 2000 was
113,738,656.
1
<PAGE 2>
MITEL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION (Unaudited)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
December 24, 1999 and March 26, 1999 . . . . . . . . . . . . . 3
Consolidated Statements of Retained Earnings -
Three months ended December 24, 1999 and December 25, 1998 . . 4
Nine months ended December 24, 1999 and December 25, 1998 . . .4
Consolidated Statements of Income -
Three months ended December 24, 1999 and December 25, 1998. . .5,6
Nine months ended December 24, 1999 and December 25, 1998. . . 5,6
Consolidated Statements of Cash Flows -
Nine months ended December 24, 1999 and December 25, 1998. . . 7
Notes to the Consolidated Financial Statements. . . . . . . . .8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . .19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK. . . . . . . . . . . . . . . . . . . . . . . . . . 28
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 29
2
<PAGE 3>
<TABLE>
<CAPTION>
Mitel Corporation
(incorporated under the laws of Canada)
CONSOLIDATED BALANCE SHEETS
(in millions of Canadian dollars)
(Unaudited)
Dec. 24, March 26,
1999 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 153.6 $ 125.3
Short-term investments 10.2 -
Accounts receivable 315.3 326.3
Inventories (note 4) 191.3 198.1
Prepaid expenses and other 26.6 27.4
-------- --------
697.0 677.1
Long-term receivables (note 5) 25.8 35.4
Fixed assets (note 6) 481.5 507.7
Acquired intangible assets (note 7) 13.7 56.7
Patents, trademarks and other (note 8) 9.9 23.4
-------- --------
$1,227.9 $1,300.3
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities (note 9) $ 233.9 $ 254.1
Income and other taxes payable 20.8 11.8
Deferred revenue 36.2 36.6
Current portion of long-term debt 41.0 37.6
331.9 340.1
Long-term debt 254.1 276.5
Pension liability 13.5 13.2
Deferred income taxes 13.1 23.2
-------- --------
612.6 653.0
-------- --------
Shareholders' equity:
Capital stock (note 10)
Preferred shares 37.0 37.2
Common shares 322.7 331.2
Contributed surplus (note 10) 9.3 32.3
Retained earnings 236.7 218.4
Translation account (note 11) 9.6 28.2
-------- --------
615.3 647.3
-------- --------
$1,227.9 $1,300.3
======== ========
</TABLE>
(See accompanying notes to the consolidated financial statements)
3
<PAGE 4>
<TABLE>
<CAPTION>
Mitel Corporation
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in millions of Canadian dollars)
(Unaudited)
Three Months Ended Nine Months Ended
Dec. 24, Dec. 25, Dec. 24, Dec. 25,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Retained earnings,
beginning of period $ 222.5 $ 221.2 $ 218.4 $ 202.9
Net income for the period 16.6 17.8 24.5 45.2
------- ------- ------- -------
239.1 239.0 242.9 248.1
Cost of common share issue (note 10) - - - (7.5)
Cost of common share
repurchase (note 10) (1.6) - (3.8) -
Dividends on preferred
shares (note 10) (0.8) (0.8) (2.4) (2.4)
------- ------- ------- -------
Retained earnings, end of period $ 236.7 $ 238.2 $ 236.7 $ 238.2
======= ======= ======= =======
</TABLE>
(See accompanying notes to the consolidated financial statements)
4
<PAGE 5>
<TABLE>
<CAPTION>
Mitel Corporation
CONSOLIDATED STATEMENTS OF INCOME
(in millions of Canadian dollars, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
Dec. 24, Dec. 25, Dec. 24, Dec. 25,
1999 1998 1999 1998
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue $ 363.8 $ 344.1 $1,023.7 $ 981.3
------- ------- -------- -------
Cost of sales:
Cost of sales other than
amortization 166.6 164.3 484.5 479.3
Amortization of manufacturing
assets 16.2 18.0 51.1 51.7
------- ------- -------- -------
182.8 182.3 535.6 531.0
------- ------- -------- -------
Gross margin 181.0 161.8 488.1 450.3
------- ------- -------- -------
Expenses:
Selling and administrative 91.1 92.7 264.5 245.9
Research and development
(net) (note 13) 37.5 39.9 110.0 110.7
Amortization of acquired intangibles 11.9 2.2 44.2 5.8
------- ------- -------- -------
140.5 134.8 418.7 362.4
------- ------- -------- -------
Operating income from continuing
Operations 40.5 27.0 69.4 87.9
Interest income 1.8 1.6 5.4 4.3
Interest expense (4.9) (5.8) (15.3) (18.2)
Debt issue and other costs - - - (7.2)
------- ------- -------- -------
Income from continuing operations
before income taxes 37.4 22.8 59.5 66.8
Income tax expense (12.8) (3.0) (27.0) (15.0)
------- ------- -------- -------
Net income from continuing
operations for the period 24.6 19.8 32.5 51.8
Loss from discontinued operations
for the period (note 14) (8.0) (2.0) (8.0) (6.6)
------- ------- -------- -------
Net income for the period $ 16.6 $ 17.8 $ 24.5 $ 45.2
======= ======= ======== =======
Net income attributable to common shareholders
after preferred share dividends $ 15.8 $ 17.0 $ 22.1 $ 42.8
======= ======= ======== =======
</TABLE>
Continued on next page.
(See accompanying notes to the consolidated financial statements)
5
<PAGE 6>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net income per common share (notes 3 & 10):
Net income per common share from continuing operations:
Basic $ 0.21 $ 0.16 $ 0.26 $ 0.44
======= ======= ======== =======
Fully diluted $ 0.20 $ 0.16 $ 0.26 $ 0.43
======= ======= ======== =======
Net income per common share:
Basic $ 0.14 $ 0.15 $ 0.19 $ 0.38
======= ======= ======== =======
Fully diluted $ 0.14 $ 0.14 $ 0.19 $ 0.37
======= ======= ======== =======
Weighted average number of common shares outstanding (millions):
Basic 113.7 116.7 115.1 113.5
======= ======= ======== =======
Fully diluted 119.9 122.4 119.2 116.2
======= ======= ======== =======
</TABLE>
(See accompanying notes to the consolidated financial statements)
6
<PAGE 7>
<TABLE>
<CAPTION>
Mitel Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of Canadian dollars)
(Unaudited)
Nine Months Ended
Dec. 24, Dec. 25,
1999 1998
------- -------
<S> <C> <C>
CASH PROVIDED BY (USED IN)
Operating activities:
Net income for the period $ 24.5 $ 45.2
Amortization of capital and other assets 121.4 95.2
Debt issue and other costs expensed - 8.8
Investment tax credits 5.9 (7.0)
Gain on sale of capital assets (0.1) (0.4)
Deferred income taxes (3.5) 4.6
Change in pension liability 0.9 0.9
Decrease (increase) in working capital (note 18) 11.8 (136.9)
------- -------
Total 160.9 10.4
------- -------
Investing activities:
Change in short-term investments (10.2) 34.5
Additions to capital and other assets (46.2) (52.0)
Proceeds from disposal of capital assets 0.8 2.1
Acquisitions - (46.6)
Net change in non-cash balances related
to investing activities (6.9) (3.0)
------- -------
Total (62.5) (65.0)
------- -------
Financing activities:
Repayment of long-term debt (7.9) (116.5)
Repayment of capital lease liabilities (22.6) (19.0)
Debt issue costs - (2.0)
Dividends on preferred shares (2.4) (2.4)
Issue of common shares (note 10) 1.1 166.2
Repurchase of common shares (note 10) (36.4) -
Net change in non-cash balances related
to financing activities (0.2) 0.8
------- -------
Total (68.4) 27.1
------- -------
Effect of currency translation on cash (1.7) 5.3
------- -------
Increase (decrease) in cash and cash equivalents 28.3 (22.2)
Cash and cash equivalents, beginning of period 125.3 117.2
------- -------
Cash and cash equivalents, end of period $ 153.6 $ 95.0
======= =======
</TABLE>
(See accompanying notes to the consolidated financial statements)
7
<PAGE 8>
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 24, 1999 and the results of operations and the changes in
financial position for the three and nine month periods ended December 24,
1999 and December 25, 1998, in accordance with accounting principles
generally accepted in Canada. (See also note 17).
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 26, 1999. 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. Supplementary income information
As a supplementary measure to assess financial performance, management
utilizes Adjusted Net Income and Adjusted Net Income per common share which
exclude the impact of amortization of acquired intangibles, special charges
(net), non-cash debt issue and other costs expensed on an early partial
debt repayment and discontinued operations. The Adjusted Net Income and
Adjusted Net Income per common share are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec. 24, Dec. 25, Dec. 24, Dec. 25,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income for the period
as reported $ 16.6 $ 17.8 $ 24.5 $ 45.2
Adjusted net income, as adjusted for:
Amortization of acquired intangibles 11.9 2.2 44.2 5.8
Loss from discontinued operations 8.0 2.0 8.0 6.6
Debt issue and other costs - - - 7.2
------- ------- ------- -------
Adjusted Net Income for the period $ 36.5 $ 22.0 $ 76.7 $ 64.8
======= ======= ======= =======
Adjusted Net Income per common
share - basic $ 0.31 $ 0.18 $ 0.65 $ 0.55
======= ======= ======= =======
</TABLE>
8
<PAGE 9>
4. Inventories:
<TABLE>
<CAPTION>
Dec. 24, March 26,
1999 1999
------- -------
<S> <C> <C>
Raw materials $ 56.6 $ 47.8
Work-in-process 80.8 86.1
Finished goods 53.9 64.2
------- -------
$ 191.3 $ 198.1
======= =======
</TABLE>
5. Long-term receivables
<TABLE>
<CAPTION>
Dec. 24, March 26,
1999 1999
------- -------
<S> <C> <C>
Investment tax credits recoverable $ 11.3 $ 17.3
Promissory note, bearing interest at 8%, payable
annually, due in June 2004 and against which a first
deed on real property was pledged as security 6.2 10.5
Other long-term receivables 8.3 7.6
------- -------
$ 25.8 $ 35.4
======= =======
</TABLE>
6. Fixed assets:
<TABLE>
<CAPTION>
Dec. 24, March 26,
1999 1999
------- -------
<S> <C> <C>
Cost $ 891.6 $ 884.4
Accumulated amortization (410.1) (376.7)
------- -------
$ 481.5 $ 507.7
======= =======
</TABLE>
9
<PAGE 10>
7. Acquired intangible assets
<TABLE>
<CAPTION>
Dec. 24, March 26,
1999 1999
------- -------
<S> <C> <C>
Cost:
In-process technology $ 8.0 $ 8.1
Developed technology 33.7 34.4
Customer base and work force 11.7 11.9
Goodwill 26.1 24.8
------- -------
79.5 79.2
------- -------
Less accumulated amortization:
In-process technology 6.7 1.7
Developed technology 27.4 10.9
Customer base and work force 9.0 2.9
Goodwill 22.7 7.0
------- -------
65.8 22.5
------- -------
$ 13.7 $ 56.7
======= =======
</TABLE>
8. Patents, trademarks and other
<TABLE>
<CAPTION>
Dec. 24, March 26,
1999 1999
------- -------
<S> <C> <C>
Cost:
Patents, trademarks and other $ 17.2 $ 16.3
Deferred debt issue costs 8.5 8.5
Deferred foreign exchange loss - 10.5
------- -------
25.7 35.3
------- -------
Less accumulated amortization:
Patents and trademarks 12.6 9.8
Deferred debt issue costs 3.2 2.1
------- -------
15.8 11.9
------- -------
$ 9.9 $ 23.4
======= =======
</TABLE>
10
<PAGE 11>
9. Accounts payable and accrued liabilities
<TABLE>
<CAPTION>
Dec. 24, March 26,
1999 1999
------- -------
<S> <C> <C>
Trade payables $ 59.1 $ 79.4
Restructuring and other provisions (see also note 15) 15.0 35.3
Employee-related payables 57.6 38.4
Other accrued liabilities 79.1 75.0
Provision for estimated loss on disposal of
discontinued operations (note 14) 23.1 26.0
------- -------
$ 233.9 $ 254.1
======= =======
</TABLE>
10. Capital stock:
a)
<TABLE>
<CAPTION>
Dec. 24, March 26,
1999 1999
----------- -----------
<S> <C> <C>
Shares outstanding:
Preferred shares - R&D Series 1,610,200 1,616,300
Common shares 113,495,506 116,705,531
</TABLE>
There were 6,100 preferred shares repurchased during the nine months ended
December 24, 1999.
On June 7, 1999, the Company announced its intention to make a normal
course issuer bid for up to 5,835,645 common shares (5 percent of
116,712,906 common shares issued and outstanding at May 28, 1999) between
June 9, 1999 and June 8, 2000. All repurchased shares will be cancelled.
As at December 24, 1999, 3,383,800 shares have been purchased and cancelled
under the normal course issuer bid for cash consideration of $36.4,
including costs to acquire the shares. The amount paid to acquire the
shares over and above the average carrying value was charged pro rata to
contributed surplus that arose from common share transactions, with the
balance charged to retained earnings.
11
<PAGE 12>
b) A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Dec. 24, Dec 25,
1999 1998
----------- ---------
<S> <C> <C>
Outstanding options:
Balance, beginning of period 5,918,988 6,251,888
Granted 3,766,257 361,250
Exercised (173,775) (290,925)
Cancelled (2,296,021) (275,750)
---------- ---------
Balance, end of period 7,215,449 6,046,463
========== =========
</TABLE>
Available for grant at December 24, 1999 were 8,995,289 (March 26, 1999 -
10,465,525) common shares. The exercise prices on outstanding stock
options range from $1.10 to $30.00 per share with exercise periods
extending to January, 2008.
On July 12, 1999, the Company offered an option exchange program to option
holders (with the exception of Directors, officers and the Executive
Management Team) who received stock option grants in calendar 1998 at
$17.78 and higher. Under the terms of the program, and with the consent of
the Toronto and Montreal Stock Exchanges, 1,750,000 options were cancelled
and 1,000,657 new options were granted at an exercise price of $9.92 per
share. The reduction in number of options was directly proportional to the
decrease in the exercise price. The new grants have a term of 6 years.
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.
12
<PAGE 13>
11. The following table summarizes changes in the translation account:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec. 24, Dec. 25, Dec. 24, Dec. 25,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, beginning of period $ 18.6 $ 51.4 $ 28.2 $ 5.8
Increase (decrease):
Movements in exchange rates -
United Kingdom Pound Sterling (7.4) 3.8 (12.3) 27.5
United States Dollar (0.2) 10.2 (5.9) 27.7
Swedish Krona (0.6) 0.5 (1.3) 3.7
Other currencies (0.6) 1.8 1.4 3.0
Reduction of net investments in
Subsidiaries (0.2) - (0.5) -
------- ------- ------- -------
Balance, end of period $ 9.6 $ 67.7 $ 9.6 $ 67.7
======= ======= ======= =======
</TABLE>
12. 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.
13. Research and development
The research and development expenses were net of $3.5 and $10.8 in R&D
government assistance, including ITCs, for the three and nine month periods
ended December 24, 1999, respectively (three months ended December 25, 1998
- - $5.6; nine months ended December 25, 1998 - $22.4).
14. Discontinued operations
On March 26, 1999, the Company adopted formal plans to pursue divestiture
opportunities related to the distinct operations of the Lincoln Power and
Automotive business segment ("Lincoln") which was part of the Plessey
Semiconductors Group acquired in Fiscal 1998. Accordingly, the operations
related to this business were accounted for as discontinued operations.
On January 19, 2000, the Company completed the sale of Lincoln for total
consideration of $12.0. As a result of the sale, the Company recorded
additional provisions of $8.0, net of tax recoveries of $3.4, as a loss
from discontinued operations in the third quarter of Fiscal 2000.
Sales applicable to Lincoln for the nine month periods ended December 24,
1999 and December 25, 1998 were $31.7 and $51.4, respectively. The Lincoln
operating loss was $3.1 and $9.1 for the three and nine month periods ended
December 24, 1999, respectively.
As at December 24, 1999, total net assets related to Lincoln included
inventories of $17.1 (March 26, 1999 - $18.2) and fixed assets of $13.7
(March 26, 1999 - $13.6).
13
<PAGE 14>
15. Acquisitions
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 24, 1999, the liability in respect of
integration costs was $5.1 (March 26, 1999 - $10.6).
16. Information on business segments
The Company's reportable business segments include the Mitel Communications
Systems ("Systems") group and the Mitel Semiconductor ("Semiconductor")
group. Reportable segments are business units that offer different
products and services and are managed separately because of their different
manufacturing and distribution processes.
The Company evaluates the performance of each business segment and
allocates resources based on operating income from continuing operations,
which excludes any intersegment sales of products and services. Mitel does
not allocate amortization of intangibles, special charges, interest income
or interest expense or income taxes to its reportable segments. In
addition, total assets are not allocated to each segment; however,
depreciation of capital assets is allocated to the segments based on the
asset usage. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies.
<TABLE>
<CAPTION>
Unallocated
Three Months Ended December 24, 1999 Systems Semiconductor Costs Total
------- ------- ----- -------
<S> <C> <C> <C> <C>
Total external sales revenue $ 200.4 $ 163.4 $ - $ 363.8
Amortization of buildings and
equipment 4.3 19.2 - 23.5
Amortization of acquired intangibles - - 11.9 11.9
Special charges (net) - - - -
Segment's operating income 24.5 27.9 (11.9) 40.5
</TABLE>
<TABLE>
<CAPTION>
Unallocated
Three Months Ended December 25, 1998 Systems Semiconductor Costs Total
------- ------- ----- -------
<S> <C> <C> <C> <C>
Total external sales revenue $ 195.6 $ 148.5 $ - $ 344.1
Amortization of buildings and
equipment 5.5 22.1 - 27.6
Amortization of acquired intangibles - - 2.2 2.2
Special charges (net) - - - -
Segment's operating income 15.4 13.8 (2.2) 27.0
</TABLE>
14
<PAGE 15>
<TABLE>
<CAPTION>
Unallocated
Nine Months Ended December 24, 1999 Systems Semiconductor Costs Total
------- ------- ----- --------
<S> <C> <C> <C> <C>
Total external sales revenue $ 595.8 $ 427.9 $ - $1,023.7
Amortization of buildings and equipment 13.2 59.7 - 72.9
Amortization of acquired intangibles - - 44.2 44.2
Special charges (net) - - - -
Segment's operating income 63.9 49.7 (44.2) 69.4
</TABLE>
<TABLE>
<CAPTION>
Unallocated
Nine Months Ended December 25, 1998 Systems Semiconductor Costs Total
------- ------- ----- -------
<S> <C> <C> <C> <C>
Total external sales revenue $ 553.4 $ 427.9 $ - $ 981.3
Amortization of buildings and equipment 15.4 65.8 - 81.2
Amortization of acquired intangibles - - 5.8 5.8
Special charges (net) - - - -
Segment's operating income 48.4 45.3 (5.8) 87.9
</TABLE>
17. 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 25 to the
consolidated financial statements as at March 26, 1999.
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:
15
<PAGE 16>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec. 24, Dec. 25, Dec. 24, Dec. 25,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income from continuing operations for the period in accordance with
Canadian GAAP $ 24.6 $ 19.8 $ 32.5 $ 51.8
Write-off of acquired in-process
technology - - - (5.2)
Amortization of acquired in-process
technology 0.9 0.2 4.1 0.5
Effect of deferral accounting related
to foreign exchange contracts (3.6) (6.6) 3.3 (25.4)
Translation of foreign currency
denominated debt (0.3) (5.2) 4.5 (20.8)
Core redundancy provision for
acquisition - (1.9) - (1.9)
Adjustment to deferred income taxes - - - (7.0)
------- ------- ------- -------
U.S. GAAP and SEC requirements:
Net income (loss) from continuing
operations for the period 21.6 6.3 44.4 (8.0)
Loss from discontinued operations
for the period (8.0) (2.0) (8.0) (6.6)
------- ------- ------- -------
Net income (loss) for the period 13.6 4.3 36.4 (14.6)
Less: dividends on cumulative
preferred shares 0.8 0.8 2.4 2.4
------- ------- ------- -------
Net income (loss) attributable to
common shareholders $ 12.8 $ 3.5 $ 34.0 $ (17.0)
------- ------- ------- -------
Net income (loss) per common share
from continuing operations:
Basic $ 0.18 $ 0.05 $ 0.37 $ (0.09)
------- ------- ------- -------
Diluted $ 0.18 $ 0.05 $ 0.36 $ (0.09)
------- ------- ------- -------
Net income (loss) per common share:
Basic $ 0.11 $ 0.03 $ 0.30 $ (0.15)
------- ------- ------- -------
Diluted $ 0.11 $ 0.03 $ 0.29 $ (0.15)
------- ------- ------- -------
Weighted average shares for basic
EPS (millions) 113.7 116.7 115.1 113.5
Weighted average shares on conversion
of stock options (millions) 2.7 1.2 1.7 -
------- ------- ------- -------
Adjusted weighted average shares and share equivalents for
diluted EPS (millions) 116.4 117.9 116.8 113.5
------- ------- ------- -------
</TABLE>
16
<PAGE 17>
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 24, 1999 to
purchase 987,250 shares of common stock at an average price of $18.46 per
share.
ii) Options outstanding for the nine months ended December 24, 1999 to
purchase 1,079,000 shares of common stock at an average price of $17.88 per
share.
iii) 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.
iv) All options outstanding for the nine months ended December 25, 1998.
The components of comprehensive income were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec. 24, Dec. 25, Dec. 24, Dec. 25,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Comprehensive income for the period:
Net income (loss) for the period $ 13.6 $ 4.3 $ 36.4 $ (14.6)
Other comprehensive income -
Foreign currency adjustment (9.0) 16.3 (18.6) 61.9
------- ------- ------- -------
Comprehensive income for the period $ 4.6 $ 20.6 $ 17.8 $ 47.3
======= ======= ======= =======
</TABLE>
Balance sheet items which vary in conformity with U.S. GAAP and SEC
requirements:
<TABLE>
<CAPTION>
Dec. 24, March 26,
1999 1999
-------- --------
<S> <C> <C>
Prepaid and other assets: current deferred tax asset $ 8.6 $ 8.8
Fixed assets 463.7 487.6
Acquired intangible assets 12.2 51.1
Long-term receivables: long-term deferred tax asset 12.6 20.5
Accounts payable and accrued liabilities 236.0 261.2
Shareholders' equity:
Redeemable preferred shares 34.2 34.4
Common shares 760.2 772.4
Contributed surplus - 2.5
Accumulated other comprehensive income 9.6 28.2
Deficit (208.1) (221.6)
</TABLE>
17
<PAGE 18>
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133") which will be effective for the Company's
March 31, 2002 year end. The Company has not determined the impact of this
pronouncement on its consolidated financial statements.
18. Net change in non-cash working capital balances related to operating
activities:
<TABLE>
<CAPTION>
Nine Months Ended
Dec. 24, Dec. 25,
1999 1998
------- -------
<S> <C> <C>
Accounts receivable $ 4.0 $ (9.9)
Inventories 2.4 (39.9)
Accounts payable and accrued liabilities 3.8 (86.6)
Deferred revenue 0.5 (3.7)
Other 1.1 3.2
------- -------
$ 11.8 $(136.9)
======= =======
</TABLE>
19. Year 2000
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. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customer,
suppliers, or other third parties, have been fully resolved.
20. Comparative figures
Certain of the 1998 and 1999 comparative figures have been reclassified so
as to conform to the presentation adopted in Fiscal 2000.
18
<PAGE 19>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(in millions of Canadian dollars, except per share amounts)
Mitel is a growing global provider of converging voice and data systems and
applications, and specialty semiconductors for the communications industry.
The Company has annual revenues of more than $1,300 and employs some 6,000
people worldwide.
The following discussion and analysis explains trends in Mitel's financial
condition and results of operations for the three and nine months ended
December 24, 1999 compared with the corresponding 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 thereto included elsewhere in
this Form 10-Q, and with the Company's audited consolidated financial
statements and notes thereto for the fiscal year ended March 26, 1999.
RESULTS OF OPERATIONS
Mitel operates through two reportable business segments - Mitel
Communications Systems ("Systems") and Mitel Semiconductor
("Semiconductor"). Mitel sells its products through both direct and
indirect channels of distribution. Factors affecting the choice of
distribution, among others, include end-customer type, the level of product
complexity and integration requirements, the stage of product introduction,
geographic presence and location of markets, and volume levels.
Systems provides enterprises with voice and data communications systems,
complete private networks including remote teleworking solutions, unified
messaging and call-center applications, CTI systems and applications, and
also supplies competitive carriers with public network access products.
Semiconductor specializes in connectivity solutions principally for the
communications and medical industries with a product range which includes
components for both wired and wireless networks, microelectronics for
enabling the convergence of voice and data, optoelectronic devices for
high-speed Internet systems, and application-specific integrated circuits
("ASICs") for medical applications such as pacemakers and hearing aids.
Consolidated Summary
Revenue, based on the geographic location of Mitel's customers, was
distributed as follows:
19
<PAGE 20>
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
December 24, % of December 25, % of
(millions of Canadian dollars) 1999 Total 1998 Total
-------- ----- -------- -----
<S> <C> <C> <C> <C>
United States $ 483.4 47 % $ 451.6 46 %
Europe 319.5 31 312.5 32
Other Regions 164.9 16 165.5 17
Canada 55.9 6 51.7 5
-------- ----- -------- -----
Total $1,023.7 100 % $ 981.3 100 %
======== ===== ======== =====
</TABLE>
For the three months ended December 24, 1999, the net movement in exchange
rates from Fiscal 1999 negatively impacted total revenue by 5 percent
($19.6). For the nine months ended December 24, 1999, the net movement in
exchange rates from Fiscal 1999 negatively impacted total revenue by 3
percent ($29.0). The foreign exchange impact was primarily a result of
changes in the UK pound sterling exchange rate, partially offset by changes
in the U.S. dollar exchange rate.
Total third quarter revenue from continuing operations was $363.8 compared
to $344.1 in the same quarter of last year. Adjusted Net Income (see
below) for the third quarter of Fiscal 2000 was a record for any quarter at
$36.5, or $0.31 per share, compared to $22.0, or $0.18 per share, in Fiscal
1999. Adjusted Net Income improved in the third quarter from a year ago on
stronger margins resulting from higher production rates in both business
segments and improved manufacturing utilization in the Semiconductor
operations. The year to date Adjusted Net Income was $76.7, or $0.65 per
share, compared to last year's first nine months when Adjusted Net Income
was $64.8, or $0.55 per share.
On January 19, 2000, the Company completed the sale of its Lincoln
Automotive and Power business segment ("Lincoln") for total consideration
of $12.0. The sale concludes a formal plan announced on April 22nd, 1999
to dispose of this segment as part of the Company's efforts to focus on its
core communications business. As a result of the sale, the Company
recorded additional after-tax provisions of $8.0 as a loss from
discontinued operations in the third quarter of Fiscal 2000. The
provisions are in respect of certain accounts receivable retained by Mitel
and of higher operating losses in Lincoln than were originally estimated.
Including amortization of intangibles of $11.9, and the after-tax
discontinued operations charge of $8.0, Mitel recorded net income of $16.6
in the third quarter of Fiscal 2000, or $0.14 per share, as against net
20
<PAGE 21>
income of $17.8, or $0.15 per share, in the third quarter of Fiscal 1999.
Net income for the first nine months of Fiscal 2000 was $24.5, or $0.19 per
share, after deducting amortization of intangibles of $44.2 and the loss
from discontinued operations of $8.0. This compares to $45.2, or $0.38 per
share, for the first nine months of last year. In the third quarter and
first nine months of Fiscal 1999, amortization of acquired intangibles was
lower at $2.2 and $5.8, respectively, as revisions to the estimated useful
lives of the corresponding assets were not made until the fourth quarter of
Fiscal 1999.
Adjusted Net Income excludes the impact of amortization of acquired
intangibles, special charges (net), non-cash debt issue and other costs
expensed on an early partial debt repayment and discontinued operations.
Although Adjusted Net Income is not a substitute for net income or net
income per common share, management utilizes Adjusted Net Income and
Adjusted Net Income per common share as a supplementary measure to assess
financial performance.
Net income for each period, as determined by U.S. accounting principles,
are detailed and discussed in note 17 to the consolidated financial
statements included elsewhere in this Form 10-Q.
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
December 24, 1999 December 25, 1998
------- -------
<S> <C> <C>
(millions of Canadian dollars, except per share amounts)
Consolidated revenue $ 1,023.7 $ 981.3
Systems segment revenue $ 595.8 $ 553.4
Semiconductor segment revenue $ 427.9 $ 427.9
Operating income from continuing
Operations $ 69.3 $ 87.9
Systems segment operating income $ 63.9 $ 48.4
Semiconductor segment
operating income $ 49.6 $ 45.3
Unallocated costs - amortization
of acquired intangibles $ 44.2 $ 5.8
Net income $ 24.5 $ 45.2
Net income per common share $ 0.19 $ 0.38
Adjusted net income $ 76.7 $ 64.8
Adjusted net income per common share $ 0.65 $ 0.55
Weighted average common shares
Outstanding 115.1 113.1
</TABLE>
21
<PAGE 22>
Business Segment Review
Mitel Communications Systems
Systems revenue fell by 4 percent from the second quarter of this fiscal
year, as expected, to $200.4 in the third quarter primarily as a result of
general uncertainties surrounding the impact of possible Year 2000
problems. Compared to Fiscal 1999's first nine months, Systems revenue for
the corresponding period in Fiscal 2000 increased by 8 percent to $595.8
due to higher sales volumes of SX-2000 and SX-200 systems, particularly in
North America, growing demand for new voice messaging products and
increased demand for Mitel's network access solutions. Systems revenue
accounted for 58% of total revenue in the first nine months and represented
an increase of 2 percentage points in the sales mix from the first nine
months of last year.
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.
Year to date, European system sales were flat compared to last year as the
growth experienced in the first half of the year was mostly offset by
delayed third quarter orders in light of the market's Year 2000 concerns.
Systems sales into the Asia/Pacific region were lower due to a reduced
focus by Mitel on competing in that region for enterprise communications
systems.
Systems operating income improved to $24.4 (1999 - $15.4) and $63.9 (1999 -
$48.4) in the respective three and nine month periods ended December 24,
1999. The increase was chiefly the result of improved voice systems
margins and selling channel efficiencies.
Mitel Semiconductor
Semiconductor revenue improved by 17 percent over the second quarter of
this fiscal year to reach sales of $163.4 in the third quarter. Year to
date, Semiconductor sales returned to the levels achieved in Fiscal 1999's
first nine months mainly as a result of stronger WAN internetworking and
wireless access sales offset by lower media and medical sales. In
proportion to total revenue, total Semiconductor revenue decreased by 2
percentage points from the first nine months of last year to 42 percent for
the first nine months of Fiscal 2000.
Semiconductor's operating income increased to $27.9 (1999 - $13.8) and
$49.7 (1999 - $45.3) for the three and nine months ended December 24, 1999
as a result of a favorable product mix, improved manufacturing utilization
and reduced operating expenses.
GROSS MARGIN
As a percentage of total revenue, total gross margin was 50 percent and 48
percent in the three and nine month periods ended December 24, 1999. This
represents an improvement of 3 and 1 percentage points over the respective
periods last year. The improvement was due to higher sales volumes of
voice systems and network access solutions products, a favorable
Semiconductor product mix and improved Semiconductor manufacturing
utilization.
22
<PAGE 23>
OPERATING EXPENSES
Selling and Administrative
Selling and administrative ("S&A") expenses in the third quarter of Fiscal
2000 were 25 percent of sales, 2 percentage points lower than the
comparable period in Fiscal 1999. Year to date, S&A expenses were 26
percent of sales and 1 percentage point higher than the first nine months
of Fiscal 1999. S&A as a percentage of sales for the first nine months was
higher primarily due to first quarter investments for marketing new
advanced messaging applications as well as developing new channels in
Europe for the ISDN PBX products. The negative impact of these two factors
was partially mitigated by improved cost efficiencies in the direct systems
solutions channel and in the Semiconductor operations.
Research and Development ("R&D") R&D expenses amounted to $37.5, or 10
percent of revenue, for the third quarter ended December 24, 1999. This
compares to $39.9, or 12 percent of revenue, in the corresponding period of
Fiscal 1999. These amounts were net of $3.5 (1999 - $5.6) in R&D
government assistance, including ITCs. Year to date, R&D expenses amounted
to $110.0, or 11 percent of revenue, in Fiscal 2000. This compares to
$110.7, or 11 percent of revenue, in the corresponding period of Fiscal
1999. The year to date amounts were net of $10.8 (1999 - $22.4) in R&D
government assistance, including ITCs. Mitel's R&D spending is directed
toward investments in high-growth communications market segments.
Amortization of Acquired Intangibles
Amortization of acquired intangibles increased in the third quarter of
Fiscal 2000 to $11.9 from $2.2 for the comparable period in Fiscal 1999.
Year to date, acquired intangibles amortization amounted to $44.2 as
compared to $5.8 for the first nine months of Fiscal 1999. In the fourth
quarter of Fiscal 1999, the estimated useful life of acquired intangibles
was reduced to two years from an average of five to fifteen years to better
reflect the estimated period of advantage achieved by Mitel's recent
acquisitions, and to be in line with evolving industry practices.
INTEREST INCOME AND EXPENSE
The increase in interest income for the three and nine months ended
December 24, 1999 was due to higher average cash balances.
Interest expense decreased in the three and nine months ended December 24,
1999 due to the early partial repayment of $123.1 against the U.S. dollar
term loans on July 23, 1998 and to regularly scheduled repayments of long-
term debt. The early repayment of the term loans in Fiscal 1999 resulted
in a proportionate expense related to the associated deferred debt issue
costs and deferred foreign exchange losses. This non-cash expense to
continuing operations amounted to $7.2, or $0.06 per share, in the second
quarter of Fiscal 1999.
23
<PAGE 24>
INCOME TAXES
Income tax expense for the three and nine months ended December 24, 1999
was $12.8 and $27.0, respectively, compared to $3.0 and $15.0 for the
comparable periods in Fiscal 1999. The effective income tax rate, as a
percentage of pre-tax income from continuing operations and before the
effect of amortization of acquired intangibles, was 26 percent for the
third quarter of Fiscal 2000 as compared to 12 percent for the
corresponding period in Fiscal 1999. Year to date, the effective tax rate
was 26 percent (1999 - 19%). The higher effective tax rate in Fiscal 2000
was mainly due to higher taxable income in Canada and the favorable impact
of certain Fiscal 1999 permanent differences in the European operation.
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 Systems since manufacturing
lead times for semiconductor products are generally longer because of the
nature of the production process. At December 24, 1999, order backlog from
continuing operations was $276.6, up from $264.7 at the end of the second
quarter of Fiscal 2000 and from $179.8 at the end of Fiscal 1999. The
increase in backlog was attributable to an improved book-to-bill ratio
through higher semiconductor orders. Most of the backlog is scheduled for
delivery in the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
At December 24, 1999, cash, cash equivalents and short-term investment
balances totaled $163.8, up from $125.3 at March 26, 1999. The increase of
$38.5 was mainly due to cash provided by operating activities, offset by
capital expenditures and the cost of a common share repurchase program.
Cash flow from operations before working capital changes amounted to $149.1
during the first nine months of Fiscal 2000 compared to $147.3 during the
corresponding period of Fiscal 1999. Since March 26, 1999, Mitel's working
capital, as reflected in the consolidated statements of cash flows,
decreased by $11.8 primarily due to strong collections of trade
receivables. Mitel maintains a minimum of critical inventory to ensure
continuity of supply for its manufacturing requirements. Most of the
security supply inventory is carried at Mitel's semiconductor plants.
Fixed asset and other additions were $46.2 during the first nine months of
Fiscal 2000 compared with $52.0 in the corresponding period of Fiscal 1999,
excluding additions of $14.8 and $5.4 financed by capital leases for the
two respective periods. The additions were primarily related to continuing
improvements to Mitel's information technology resources as well as
Semiconductor manufacturing capacity and technology enhancements.
Mitel has two term loans, respectively the AXELsSM* Series B loan and the
Tranche A Term Loan, that 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 principal of the AXELs Series B loan is payable
quarterly on a graduated basis over five years and matures in December
2003. The principal of the Tranche A Term Loan is payable quarterly on a
24
<PAGE 25>
graduated basis over five years and matures in February 2003. The term
loans bear interest 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. Mitel entered into an interest rate swap 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. Mitel is subject to certain restrictive covenants and
commitments and is required to maintain certain financial ratios for the
purpose of ensuring Mitel'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
Mitel and in the event of asset sales (other than inventory), equity
offerings or debt issuance by Mitel. Mandatory prepayments range from 75
percent to 100 percent of the net cash proceeds and would be paid on a pro-
rata basis subject to certain constraints toward the senior secured term
loans. Management believes Mitel is in compliance with the obligations and
restrictive covenants under the credit agreement.
Long-term debt decreased due to scheduled repayments of $7.9 against the
syndicated term loans. As a result of the Lincoln sale described elsewhere
in this discussion, the Company was required to make a mandatory prepayment
of $11.3 (U.S. $7.8) against the syndicated term loans on January 20, 2000.
On June 7, 1999, Mitel announced its intention to make a normal course
issuer bid for up to 5,835,645 common shares (5 percent of 116,712,906
common shares issued and outstanding at May 28, 1999). These purchases
took place on the open market through the stock exchanges of New York,
London, Toronto and Montreal over the five-month period which commenced on
June 9, 1999 pursuant to the normal course issuer bid filed with the
Toronto and Montreal exchanges. As at December 24, 1999, 3,383,800 common
shares were purchased and cancelled under the normal course issuer bid for
cash consideration of $36.4, including costs to acquire the shares.
As at December 24, 1999, Mitel's capitalization was comprised of 32 percent
debt, 4 percent preferred equity, and 64 percent common equity - the same
capitalization profile as at the end of Fiscal 1999.
In addition to cash, cash equivalents and short-term investment balances of
$163.8 as at December 24, 1999, Mitel has an unused revolving credit
facility of approximately $108.2 (U.S.$73.2). Management believes Mitel 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.
YEAR 2000
The statements below constitute a 'Year 2000 readiness disclosure' as that
term is defined in the Year 2000 Information and Readiness Disclosure Act
(P.L 105-271) signed into law by President Clinton on October 19, 1998.
The Year 2000 challenge was the result of computer programs being written
using two digits rather than four digits to define the applicable year.
This practice resulted in the possibility that the Company's internal
computer systems and products that have date-sensitive software could
25
<PAGE 26>
recognize a date that uses "00" as 1900 rather than the year 2000. If the
Company's internal computer systems misread the year date, system failures
or miscalculations could cause disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices,
or engage in similar normal business operations. A dedicated Year 2000
Program Management Office (PMO) was established in February 1998 to address
compliance both externally, by our customers and suppliers, and internally,
with respect to the Company's business processes. These internal processes
include network and communication infrastructure, business software
applications, manufacturing, distribution, facilities management, product
development, sales, finance and human resources.
The Company has experienced no major Year 2000-related issues to date.
Business is continuing as usual, and internal systems will continue to be
monitored for any unlikely disruptions. The contingency plans that were
developed for use in the event of Year 2000-related failures will be
maintained and generalized for ongoing business use.
As part of the Company's Year 2000 Internal Readiness Program, compliance
of internal systems was addressed by assessing the Company's requirements
for business continuation. Through thorough inventory assessment, testing
and renovation of internal information systems equipment, the Company safe-
guarded its mission-critical systems against major internal Year 2000-
related failures. In addition, risk assessments were performed, and
contingency plans were developed for technical systems, as well as for
business processes. Year 2000 readiness drills were conducted at each
corporate location to further test and fine-tune contingency plans.
The Company also implemented a Year 2000 Vendor Management Program and a
Year 2000 Distributor Management Program, which required that all suppliers
and distributors be evaluated and ranked upon criticality to the business.
Those suppliers and distributors determined to be most critical to the
business were given highest priority, and contingency plans were developed
to be used in the event that critical supplies could not be delivered to
the Company or regular distribution channels were not available.
The Company also completed comprehensive tests on customer premises
equipment and semiconductor component products manufactured and sold to
customers, including current and certain discontinued business telephone
systems (PBX's), peripheral components and applications. The majority of
these products are classified as Year 2000-compliant or as having compliant
versions.
As the Year 2000 Internal Readiness Program progressed, the Company
developed Day Zero Plans to be used over the transition period, between
December 31, 1999 and January 10, 2000, to verify that business operations
were continuing as usual. Command Centers were established at each of the
Company's major locations to monitor key internal business processes during
the Year 2000 date transition period.
26
<PAGE 27>
It is estimated the total incremental direct costs of the Year 2000
Internal Readiness Program will not exceed $12.3. Approximately $11.9 has
been spent on direct Year 2000 Internal Readiness 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 Internal Readiness Program,
estimated costs may change.
OTHER
Asia/Pacific Economic Risk
The Asia/Pacific region encountered unstable local economies and
significant devaluation in its currencies during Fiscal 1999 and through
the first nine months of Fiscal 2000. This region represented 11 percent
of Mitel's revenue from continuing operations for the nine months ended
December 24, 1999 and 12 percent of revenue from continuing operations in
the corresponding period of Fiscal 1999. The majority of the Asia/Pacific
sales relate to Semiconductor operations. Asia/Pacific receivables, net of
reserves, were approximately 2 percent of Mitel's total assets as at
December 24, 1999 (March 26, 1999 - 2 percent). To the extent the
Asia/Pacific region grows in importance to Mitel, or the factors affecting
the region begin to adversely affect customers in other geographic
locations, Mitel's business, operating
results and financial condition could be adversely affected.
Foreign Currency Translation
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. At December 24, 1999, the
translation account balance was $9.6 as compared to $28.2 at the end of
Fiscal 1999. The decrease was due to a stronger Canadian dollar as
measured against other currencies, principally the U.K. pound sterling and
the U.S. dollar.
Forward Looking Statements
Certain statements in this management's discussion and analysis constitute
forward-looking statements. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of Mitel, 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 Mitel to attract and retain key employees.
SM* AXEL is a registered service mark of Goldman, Sachs and Co.
27
<PAGE 28>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Market risk represents the risk of loss that may impact Mitel's financial
statements due to adverse changes in financial markets. Mitel is exposed
to market risk from changes in interest rates and foreign exchange rates.
To manage these risks, Mitel uses certain derivative financial instruments
including interest rate swaps, forward contracts and other derivative
instruments from time to time, that have been authorized pursuant to board-
approved policies and procedures. Mitel does not hold or issue financial
instruments for trading or speculative purposes. As at December 24, 1999,
there were no material changes in information about market risks as
disclosed in the Company's annual report on Form 10-K for the fiscal year
ended March 26, 1999.
28
<PAGE 29>
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 for the three months ended December 24,
1999.
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.
MITEL CORPORATION
February 2, 2000 //S/ Jean-Jacques Carrier
- ---------------- ------------------------------
Date Jean-Jacques Carrier
Senior Vice President, Finance
and Chief Financial Officer
29
<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 24, 1999
and the Consolidated Balance Sheets as at December 24, 1999 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-24-1999
<EXCHANGE-RATE> 1.47760<F1>
<CASH> 27,072
<SECURITIES> 126,553
<RECEIVABLES> 325,789
<ALLOWANCES> 10,527
<INVENTORY> 191,350
<CURRENT-ASSETS> 696,934
<PP&E> 891,627
<DEPRECIATION> 410,090
<TOTAL-ASSETS> 1,227,883
<CURRENT-LIABILITIES> 331,892
<BONDS> 254,121
0
37,014
<COMMON> 322,749
<OTHER-SE> 255,520
<TOTAL-LIABILITY-AND-EQUITY> 1,227,883
<SALES> 1,023,740
<TOTAL-REVENUES> 1,023,740
<CGS> 535,661
<TOTAL-COSTS> 535,661
<OTHER-EXPENSES> 418,694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,315
<INCOME-PRETAX> 59,478
<INCOME-TAX> 26,952
<INCOME-CONTINUING> 32,526
<DISCONTINUED> 8,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,526
<EPS-BASIC> 0.19<F2>
<EPS-DILUTED> 0.19<F3>
<FN>
<F1>The foreign exchange rate of 1.477600 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 1.477795 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>
