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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1994, or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 0-16588
OCTEL COMMUNICATIONS CORPORATION
___________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 77-0029449
------------------------- -------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
1001 Murphy Ranch Road
Milpitas, California 95035-7912
(Address of principal executive offices)
Registrant's telephone number, including area code, is (408) 321-
2000
____________________
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 shares outstanding of the registrant's Common
Stock on January 31, 1995 was 23,488,355.
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This document consists of 16 pages of which this is Page 1.
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OCTEL COMMUNICATIONS CORPORATION
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets - December 31, 1994 and
June 30, 1994 3
Condensed Consolidated Statements
of Income - three and six months ended
December 31, 1994 and 1993 4
Condensed Consolidated Statements
of Cash Flows - six months ended
December 31, 1994 and 1993 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Matters Submitted to Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OCTEL COMMUNICATIONS CORPORATION
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share data, unaudited)
Dec. 31, June 30,
1994 1994
-------- --------
ASSETS
Current assets:
Cash and equivalents $ 13,264 $ 17,889
Short-term investments 29,882 68,463
Accounts receivable net of allowance for
doubtful accounts of $3,016 at
December 31, 1994 and $2,665 at
June 30, 1994 94,079 90,013
Accounts receivable from related
parties 2,745 2,159
Inventories 34,219 28,920
Prepaid expenses and other 16,745 13,865
-------- --------
Total current assets 190,934 221,309
Property, plant and equipment, net of
accumulated depreciation and
amortization of $71,484 at December 31, 1994
and $64,304 at June 30, 1994 112,260 95,076
Deposits and other assets 29,342 29,743
-------- --------
Total $332,536 $346,128
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 13,008 $ 16,250
Accrued compensation and employee
benefits 19,574 25,010
Income taxes payable 6,058 2,616
Accrued and other liabilities 44,121 44,660
-------- --------
Total current liabilities 82,761 88,536
Long-term obligations 782 1,400
Stockholders' equity:
Preferred stock, $.001 par value - authorized,
5,000,000 shares; none outstanding -- --
Common stock, $.001 par value - authorized,
50,000,000 shares; outstanding:
December 31, 1994, 23,421,319 shares,
and June 30, 1994, 24,170,344 shares 173,685 174,356
Notes receivable from sale of stock (1,019) --
Retained earnings 78,065 82,736
Unrealized loss on marketable securities
(net of deferred taxes of $349 at
December 31, 1994 and $330 at June 30, 1994) (616) (540)
Accumulated translation adjustments (1,122) (360)
-------- --------
Total stockholders' equity 248,993 256,192
-------- --------
Total $332,536 $346,128
======== ========
See notes to condensed consolidated financial statements.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Condensed Consolidated Statements of Income
(In thousands, except per share amounts - unaudited)
Three Months Ended Six Months Ended
-------------------- -------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1994 1993 1994 1993
-------- -------- -------- --------
Net revenues:
Systems $ 78,542 $ 73,330 $148,443 $139,632
Service and license 37,698 27,549 73,542 52,870
--------- -------- -------- --------
Total net revenues 116,240 100,879 221,985 192,502
Costs and expenses:
Cost of systems 25,970 23,575 47,507 44,994
Cost of service 21,742 16,203 42,333 31,566
Research and development 18,018 13,951 35,556 27,688
Selling, general and
administrative 38,136 36,388 74,717 71,130
Non-recurring charge for
acquired in-process research
and development -- -- 4,725 --
-------- -------- --------- --------
Total costs and expenses 103,866 90,117 204,838 175,378
-------- -------- --------- --------
Operating income 12,374 10,762 17,147 17,124
Interest and other income, net 685 626 1,526 1,474
-------- -------- --------- --------
Income before income taxes 13,059 11,388 18,673 18,598
Provision for income taxes 4,300 2,921 6,100 4,171
-------- -------- --------- --------
Net income $ 8,759 $ 8,467 $ 12,573 $ 14,427
======== ======== ========= ========
Net income per common
and equivalent share $ 0.36 $ 0.34 $ 0.51 $ 0.58
======== ======== ========= ========
Weighted average number of
common shares and equivalents
used in computation 24,428 24,947 24,892 24,749
======== ======== ========= ========
See notes to condensed consolidated financial statements.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands - unaudited)
Six Months Ended
----------------
Dec. 31, Dec. 31,
1994 1993
-------- --------
INCREASE (DECREASE) IN CASH AND
EQUIVALENTS:
Cash flows from operating activities:
Net income $ 12,573 $ 14,427
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 15,277 14,961
Amortization of premium on marketable
securities 197 --
Deferred income taxes (1,986) (4,232)
Deferred compensation -- 55
Purchased in-process research and
development 4,725 --
Changes in assets and liabilities:
Accounts receivable (4,699) (7,278)
Inventories (5,167) (749)
Prepaid expenses and other (1,866) (3,261)
Trade payables (3,124) 1,517
Accrued compensation and
employee benefits (5,303) (2,352)
Accrued and other liabilities 2,315 648
-------- -------
Net cash provided by operating activities 12,942 13,736
Cash flows from financing activities:
Sales of common stock, net 4,631 4,665
Repurchases of common stock (25,260) (5,748)
Proceeds from sale of financial instruments -
put warrants 1,144 --
Repayments of long-term obligations (653) (108)
------- ------
Net cash used by financing activities (20,138) (1,191)
Cash flows from investing activities:
Purchases of short-term investments (22,292) (80,914)
Sales and maturities of short-term investments 60,571 92,284
Property, plant and equipment additions (27,756) (21,820)
Changes in deposits and other assets (2,593) (10,779)
Acquisition of intellectual and personal
property (4,764) --
------- -------
Net cash provided by (used for) investing
activities 3,166 (21,229)
------- -------
Effect of exchange rate changes on cash (595) 139
------- -------
Net decrease in cash and equivalents (4,625) (8,545)
------- -------
Cash and equivalents:
Beginning of period 17,889 26,576
------- -------
End of period $13,264 $ 18,031
======= ========
See notes to condensed consolidated financial statements.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Notes to Condensed Consolidated Financial Statements
(December 31, 1994 and 1993 - Unaudited)
1. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position as of
December 31, 1994, the results of operations for the three
and six months ended December 31, 1994 and 1993 and cash
flows for the six months ended December 31, 1994 and 1993.
The financial statements and notes are presented as permitted
by Form 10-Q and do not contain certain information included
in the Company's annual financial statements and notes.
Certain fiscal 1994 costs previously reported as selling,
general and administrative expenses have been reclassified to
cost of service to conform to the fiscal 1995 presentation.
2. Short-term Investments
At December 31, 1994 and June 30, 1994, all short-term
investments were classified as "available-for-sale" and
consisted of the following (in thousands):
Unrealized Unrealized Accrued Estimated
Cost Gains Losses Interest Fair Value
At December 31, 1994:
U.S. Government $ 6,077 $ -- $ (520) $ (83) $ 5,474
securities
Municipal notes/bonds 24,787 53 (498) (348) 23,994
-------- ----- ------- ----- -------
$30,864 $ 53 $(1,018) $(431) $29,468
======== ===== ======= ===== =======
At June 30, 1994:
U.S. Government $ 9,803 $ 9 $ (455) $(103) $ 9,256
securities
Municipal notes/bonds 60,598 17 (441) (891) 59,281
------- ----- ------- ----- -------
$70,401 $ 26 $ (896) $(994) $68,537
======= ===== ======= ===== =======
These securities were classified on the balance sheet as
follows (in thousands):
Dec. 31, 1994 June 30, 1994
------------- -------------
Cash equivalents $ 17 $ 1,068
Short-term investments 29,882 68,463
------- -------
$29,899 $69,531
======= =======
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OCTEL COMMUNICATIONS CORPORATION
Notes to Condensed Consolidated Financial Statements
(December 31, 1994 and 1993 - Unaudited)
The cost and estimated fair value of available-for-sale debt
securities by contractual maturity, consisted of the
following (in thousands):
December 31, 1994 June 30, 1994
----------------- -------------------
Estimated Estimated
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
Due in less than one year $ 17 $ 17 $30,991 $30,525
Due in one to three years 17,645 17,142 24,087 23,436
Due thereafter 13,202 12,309 15,323 14,576
------- ------- ------- -------
$30,864 $29,468 $70,401 $68,537
======= ======= ======= =======
For the three and six months ended December 31, 1994, the
Company had $43,407,000 and $129,094,000 in proceeds from
sales of available-for-sale investments, $263,000 and
$324,000 of gross realized gains and $295,000 and $343,000 of
gross realized losses on those sales and a change in net
unrealized holding loss of $143,000 and $76,000,
respectively, included as a separate component of
stockholders' equity.
3. Inventories consist of (in thousands):
Dec. 31, June 30,
1994 1994
-------- --------
Finished goods $ 9,912 $ 5,864
Work-in-process 11,741 12,248
Raw materials 12,566 10,808
-------- --------
Total inventories $ 34,219 $ 28,920
======== ========
4. Net income per common and equivalent share is computed using
the weighted average number of common and dilutive common
equivalent shares from stock options (using the treasury
stock method) and shares subscribed under the Employee Stock
Purchase Plan.
5. Line of credit and letters of credit
Effective June 1994, the Company obtained a $30.0 million
bank revolving line of credit which also allows the Company
to obtain stand-by letters of credit. Borrowings under the
line are unsecured and bear interest at either an adjusted
LIBOR rate plus one and one-quarter percent or the greater of
the Bank's base rate or the Federal Funds Effective Rate plus
one half of one percent, at the Company's discretion upon
borrowing the funds. Borrowings under the line are subject
to certain financial covenants and restrictions on
indebtedness, financial guarantees, business combinations and
other related items. The Company was in compliance with
these covenants and had no borrowings under this line as of
December 31, 1994. The line expires in June 1996.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Notes to Condensed Consolidated Financial Statements
(December 31, 1994 and 1993 - Unaudited)
At December 31, 1994, the Company had $1.6 million of stand-
by letters of credit outstanding. The letters of credit are
primarily to guarantee payments for inventory purchases and
facility lease payments. The majority of the letters of
credit are denominated in Japanese yen and U.S. dollars and
expire on various dates ranging from April 1995 through
November 1995.
6. Interest and other income, net consists of the following (in
thousands):
Three Months Ended Six Months Ended
------------------ ----------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1994 1993 1994 1993
-------- -------- -------- -------
Interest and investment income $370 $ 863 $1,121 $ 1,808
Gain (loss) on sale of
short-term investments, net (32) (31) (19) 112
Foreign exchange gains
(losses), net 401 (50) 548 (95)
Other expense (54) (156) (124) (351)
---- ----- ------ ------
Total Interest and other
income, net $685 $ 626 $1,526 $ 1,474
==== ===== ====== =======
7. Integration costs
In connection with the VMX merger, the Company recorded
integration costs in fiscal 1994 of $18.3 million related to
costs associated with consolidating facilities and personnel.
The balance in the related reserves of $9.9 million is
included in Accrued and other liabilities on the balance
sheet at December 31, 1994.
8. Acquired in-process research and development
In August 1994, the Company purchased certain intellectual
and personal property from another company for $5.1 million.
Of the total purchase price, $4.7 million was allocated to
in-process technology and $0.4 million was allocated to
property and equipment. The in-process technology was
expensed in the first quarter of fiscal 1995.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
NET REVENUES
Total net revenues increased to $116.2 million in the second
quarter of fiscal 1995, a 15 percent increase from net revenues of
$100.9 million in the second quarter of fiscal 1994. In the first
six months of fiscal 1995 net revenues increased to $222.0 million
as compared to $192.5 million in the corresponding period of
fiscal 1994, representing growth of 15 percent. Systems revenues
in the second quarter of fiscal 1995 were $78.5 million, an
increase of 7 percent from $73.3 million in the same quarter of
fiscal 1994, and for the first six months of fiscal 1995 systems
revenues were $148.4 million, an increase of 6 percent compared to
$139.6 million in the first six months of fiscal 1994. The growth
in systems revenues was attributable to the sale of systems to new
and existing customers and the sale of upgrades, expansions and
new features to existing customers in the Global Business
Solutions ("GBS") sector (formerly referred to as "Customer
Premise Equipment" sector). GBS revenues for both the second
quarter and first six months of fiscal 1995 increased over the
same periods in fiscal 1994 in the domestic market while
international GBS revenues decreased in the second quarter of
fiscal 1995 and remained flat in the first six months of fiscal
1995 compared to the same periods in fiscal 1994. Total Voice
Information Service (VIS) revenues for the second quarter of
fiscal 1995 decreased slightly from the second quarter of fiscal
1994 which was caused by a decrease in the domestic market,
partially offset by an increase in the international market.
Total VIS revenues in the first six months of fiscal 1995
increased slightly over the same period in fiscal 1994 due to an
increase in sales to the international market, which was partially
offset by decreases in the domestic market. Revenue in future
quarters could be affected by the extent and timing of new orders
from VIS providers and such orders are typically significant in
size and, therefore, could impact the revenue volume and mix in
any given quarter.
Service and license revenues in the second quarter of fiscal
1995 increased to $37.7 million, a 37 percent increase from $27.5
million in the same quarter of fiscal 1994, and for the first six
months of fiscal 1995 service and license revenues increased to
$73.5 million, a 39 percent increase compared to $52.9 million in
the first six months of fiscal 1994. In addition, service and
license revenues continue to grow as a percentage of total net
revenues and accounted for 32 percent and 33 percent of total net
revenues for the second quarter and first six months of fiscal
1995, respectively, as compared to 27 percent for the second
quarter and first six months of fiscal 1994. Service and license
revenues grew in the second quarter and first six months of fiscal
1995 as compared to the same periods in the prior year as a result
of the increase in Octel Network Services (ONS) revenues, as well
as revenues from the Company's larger installed base of customers.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
COST OF SALES
As a percentage of total net revenues, total cost of sales
increased to 41 percent in the second quarter of fiscal 1995
compared to 39 percent in fiscal 1994 and remained flat at 40
percent in the first six months of fiscal 1995 compared to the
same period in fiscal 1994. The majority of the increase in the
second quarter of fiscal 1995 as compared to the same quarter in
fiscal 1994 is a result of continued faster growth of service and
license revenues, as a percentage of total net revenues, which
have a higher cost of sales structure than system sales. Cost of
systems sales were 33 and 32 percent of total net systems revenues
in the second quarter and first six months of fiscal 1995,
respectively. Cost of systems were 32 percent in the second
quarter and first six months of fiscal 1994, respectively. The
increases as a percentage of total net systems revenues in the
second quarter of fiscal 1995 compared to the same period in the
prior year were due to a change in product mix. Cost of service
was 58 percent of net service and license revenues in the second
quarter and first six months of fiscal 1995, respectively. Cost
of service was 59 percent and 60 percent of net service and
license revenues in the second quarter and first six months of
fiscal 1994, respectively. The decreases in the second quarter
and the first six months of fiscal 1995 compared to fiscal 1994
were primarily due to the increase in ONS revenue, which has a
higher gross margin structure as a percentage of service and
license revenue. On a quarter-to-quarter basis, the channel and
product mix of sales can fluctuate significantly. Such
fluctuations can have a positive or negative impact on operating
margins. These fluctuations are difficult to predict.
RESEARCH AND DEVELOPMENT
Research and development expenses were $18.0 million in the
second quarter of fiscal 1995, an increase of 29 percent over the
$14.0 million expended in the second quarter of fiscal 1994. For
the first six months of fiscal 1995 and 1994, research and
development expenses were $35.6 million and $27.7 million,
respectively, representing an increase of 28 percent in fiscal
1995. As a percentage of net revenues, research and development
expenses were 16 percent in the second quarter and first six
months of fiscal 1995 and 14 percent in the same periods of fiscal
1994. The increase in research and development expenses is due to
the Company's increased spending on projects to meet customer
commitments, the adaptation of existing products and technology
for international markets, the continued commitment to development
of new products and enhancements to existing products. The
Company believes that additional research and development expenses
will be required to maintain market position and expects that
these expenses will increase in absolute terms and could increase
as a percentage of total net revenues.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $38.1
million in the second quarter of fiscal 1995, a 5 percent increase
over the second quarter of fiscal 1994 of $36.4 million. For the
first six months of fiscal 1995, these expenses were $74.7
million, an increase of 5 percent over the $71.1 million expended
in the same period of fiscal 1994. Selling, general and
administrative expenses decreased as a percentage of total net
revenues from 36 percent and 37 percent in the second quarter and
first six months of fiscal 1994, respectively, to 33 percent and
34 percent in the corresponding periods of fiscal 1995. The
increase in absolute dollars resulted from the Company's
continuing efforts to develop and manage its organization, train
new and existing personnel and the commitment of resources to
support international opportunities, which were partially offset
by the absence of costs related to the departure of the prior CEO
which were incurred in the second quarter of fiscal 1994 and
reduced occupancy costs due to the consolidation of certain office
facilities in fiscal 1995. The Company believes that additional
selling, general and administrative expenses will be required to
maintain its competitive position, including expanded
international sales activities, and expects that these expenses
will increase in absolute terms and could increase as a percentage
of net revenues.
NON-RECURRING CHARGE FOR ACQUIRED IN-PROCESS RESEARCH AND
DEVELOPMENT
In August 1994, the Company purchased certain intellectual
property and fixed assets from another company for $5.1 million.
Of the total purchase price, $4.7 million was allocated to in-
process technology and $0.4 million was allocated to property and
equipment. The in-process technology was expensed in the first
quarter of fiscal 1995.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, for the second quarter and
first six months of fiscal 1995 of $0.7 million and $1.5 million,
respectively, remained flat compared with the same periods of
fiscal 1994; however, the factors affecting interest and other
income, net, varied in several ways between the two quarters and
the two six-month periods. Interest and investment income was
lower due to lower cash and equivalent and short-term investment
balances in fiscal 1995 compared to the same periods in the prior
year. The Company had net foreign exchange gains in the first
quarter and first six months of fiscal 1995 as compared to net
losses in the same periods in fiscal 1994. In the first six
months of fiscal 1995 there was a net loss on the sale of short-
term investments as compared to a net gain in the same period last
year. Other expense declined in the first quarter and six months
of fiscal 1995 over the first quarter and six months of fiscal
1994.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations (Continued)
INCOME TAXES
The Company's effective tax rate was 33 percent in the second
quarter and first six months of fiscal 1995 as compared to 26
percent and 22 percent in the corresponding periods of fiscal
1994. The effective rate was lower in fiscal 1994 due to a
combination of factors. First, various tax assets of VMX that had
been fully reserved were recognized as a tax benefit.
Additionally, the retroactive reinstatement of the federal
research and development credit for the fiscal year ended June 30,
1993, had a favorable impact on the effective tax rate in fiscal
1994.
FACTORS THAT MAY EFFECT FUTURE RESULTS OF OPERATIONS
The Company believes that in the future its results of
operations could be affected by factors such as market acceptance
of new products and upgrades, growth in the worldwide voice
processing market, competition, expansion of services by its VIS
customers, the outcome of litigation and changes in general
economic conditions in any of the countries in which the Company
does business.
The Company believes that the successful introduction of new
and enhanced products and services will be essential for it to
maintain its competitive position. The Company believes that its
backlog on a quarterly basis will not generally be large enough to
assure that the Company will meet its revenue targets for a
particular quarter. Furthermore, a large percentage of any
quarter's shipments have traditionally been booked in the last
month of the quarter. Consequently, quarterly revenues and
operating results will depend on the volume and timing of new
orders received during a quarter, which is difficult to forecast.
The integration of certain operations as a result of the merger
with VMX, Inc. continues to require the dedication of management
resources which may temporarily distract attention from the day-
to-day business of the Company. The Company intends to reduce
certain expenses by consolidating operations and eliminating
duplicate facilities, employees, marketing programs and other
expenses. There can be no assurance that Octel will be able to
reduce certain expenses in this fashion, that there will not be
high costs associated with such activities, that such reductions
will not result in a decrease in revenues or that there will not
be other material adverse effects of such activities. Although it
believes there are opportunities to gain from synergies resulting
from the VMX merger, the Company cannot determine the ultimate
effect that new products and services and the integration of Octel
and VMX will have on revenues, earnings or stock price.
Due to the factors noted above, the Company's future earnings
and stock price may be subject to significant volatility,
particularly on a quarterly basis. Past financial performance
should not be considered a reliable indicator of future
performance and investors should not use historical trends to
anticipate results or trends in future periods. Any shortfall in
revenue or earnings from the levels anticipated by securities
analysts could have an immediate and significant effect on the
trading price of the Company's Common Stock in any given period.
Additionally, the Company may not learn of such shortfalls until
late in a fiscal quarter, which could result in an even more
immediate and adverse effect on the trading price of the Company's
Common Stock. Finally, the Company participates in a highly
dynamic industry which often results in volatility of the
Company's Common Stock price.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The Company has been and may in the future continue to be required
to litigate enforcement of its intellectual property or commercial
rights or to defend itself in litigation arising out of claims by
third parties. Such litigation, even if the Company is ultimately
victorious, can be extremely expensive and may have a material
adverse effect on the Company's results of operations in any
particular period. Litigation may also occupy management
resources that would otherwise be available to address other
aspects of the Company's business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and equivalents and short-term investments
in the first six months of fiscal 1995 decreased $43.2 million
from June 30, 1994. The primary uses of cash during the first six
months of fiscal 1995 were the investment in property, plant and
equipment of $27.8 million, the repurchase of common stock for
$25.3 million and the payment of $4.8 million for the August 1994
purchase of certain intellectual property and fixed assets. Cash
flows from operations resulted in a net source of cash of $12.9
million in the first six months of fiscal 1995.
As of December 31, 1994, the Company had invested $46.3
million in the purchase of land and the development of the
Company's new corporate offices on that land. The Company now
occupies those facilities. The Company expects to spend
additional amounts during the remainder of fiscal 1995 in
connection with the final phases of construction of the Company's
new corporate offices. The Company also expects to purchase
additional equipment and make certain leasehold improvements
during the remainder of fiscal 1995. The Company anticipates that
its property, plant and equipment investments will eventually
result in reduced operating expenses, greater efficiencies and
increased flexibility for the Company.
In connection with the VMX merger, the Company recorded $18.3
million of integration costs in fiscal 1994. As of December 31,
1994, there was a balance of $9.9 million of expected future cash
expenditures. The majority of this amount will be spent in the
remainder of fiscal 1995.
In addition to the integration costs recorded in fiscal 1994,
the Company may incur additional merger-related integration costs,
which will be charged to operations over the next several
quarters. Such integration charges are expected to be in the form
of cash expenditures estimated at approximately $3.3 million
primarily for consolidating processes and computer systems of the
merged Company and literature design for name change and other
modifications to literature for the merged Company.
In July 1994, the Company's Board of Directors approved the
repurchase of up to 3.5 million shares of its Common Stock over a
period of approximately two years. As of December 31, 1994, the
Company had repurchased 1,165,600 shares of its Common Stock at an
average per share price of $22.
In August 1994, the Company purchased certain intellectual
property and fixed assets from another company for $5.1 million.
Of the total purchase price, $4.7 million was allocated to in-
process technology and $0.4 million was allocated to property and
equipment. As of December 31, 1994, $4.8 million in cash had been
paid and another $.3 million will be paid during the remainder of
fiscal 1995.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The Company anticipates that cash flow from operations and
existing cash and equivalents and short-term investment balances,
together with its existing bank line, will be adequate to meet the
Company's cash requirements through the end of fiscal 1995.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company and Northern Telecom were engaged in a jury trial
versus Theis Research, Inc. ("Theis") in the Northern District of
California during the first quarter of fiscal 1995. The trial
centered on Theis' allegation that Octel and Northern Telecom were
infringing three patents held by Theis. In October 1994, the jury
returned a verdict finding, among other things, that Octel and
Northern Telecom were correct in their claim that the three
patents at issue were invalid. Post-trial motions are pending,
and, if no settlement between the parties is reached, it is
anticipated that Theis will appeal the verdict.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
Item 4. Matters Submitted to Vote of Security Holders
Octel Communications Corporation held its regular Annual
Meeting of Stockholders on November 17, 1994.
The following individuals were elected to serve on the
Company's Board of Directors:
Number of Number of
affirmative votes votes withheld
----------------- --------------
Robert Cohn 21,156,028 214,957
Anson M. Beard, Jr. 21,145,854 225,131
Leo J. Chamberlain 21,143,302 227,683
Deborah A. Coleman 21,143,824 227,161
John Freidenrich 21,145,376 225,609
Robert C. Hawk 21,141,572 229,413
Nathaniel de Rothschild 21,142,174 228,811
Dag Tellefsen 21,141,823 229,162
The following matters were voted upon at the meeting:
1. Approval of proposal regarding the 1985 Incentive Stock
Plan to limit the number of shares granted to any individual in
any fiscal year.
2. Approval of proposal regarding the 1987 Employee Stock
Purchase Plan to increase shares reserved
3. Approval of proposal regarding the 1988 Directors' Stock Option Plan
to increase the number of shares reserved
4. Appointment of KPMG Peat Marwick LLP as independent auditors
The votes of the stockholders on these proposals were as follows:
Proposal Number of Number of Number of Number of
Number affirmative votes negative votes abstentions broker non-votes
-------- ----------------- -------------- ----------- ----------------
1. 20,763,282 499,598 108,105 --
2. 17,893,851 3,149,068 102,734 225,332
3. 16,811,222 4,209,630 124,801 225,332
4. 21,265,187 48,893 56,905 --
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) Report on Form 8-K
No report on Form 8-K was filed by the Company during
its fiscal quarter ended December 31, 1994.
<PAGE>
OCTEL COMMUNICATIONS CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
OCTEL COMMUNICATIONS CORPORATION
Dated: February 13, 1995
/s/ ROBERT COHN
----------------------------------
Robert Cohn, President and Chief
Executive Officer
/s/ HERZEL ASHKENAZI
----------------------------------
Herzel Ashkenazi, Controller
(Chief Accounting Officer)
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<PERIOD-END> DEC-31-1994
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<RECEIVABLES> 99840
<ALLOWANCES> (3016)
<INVENTORY> 34219
<CURRENT-ASSETS> 190934
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<DEPRECIATION> (71484)
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0
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