<PAGE> 1
- - --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- - --- Act of 1934
For the quarterly period ended March 31, 1996, 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
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(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
April 30, 1996 was 50,758,668. (See Note 4 to notes to condensed consolidated
financial statements.)
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This document consists of 19 pages of which this is Page 1.
<PAGE> 2
OCTEL COMMUNICATIONS CORPORATION
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets - March 31, 1996 and
June 30, 1995.................................... 3
Condensed Consolidated Statements
of Operations - three and nine months ended
March 31, 1996 and 1995.......................... 4
Condensed Consolidated Statements
of Cash Flows - nine months ended
March 31, 1996 and 1995.......................... 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................................ 17
Item 6. Exhibits and Reports on Form 8-K................. 18
SIGNATURES .......................................................... 19
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCTEL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA - UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,933 $ 24,521
Short-term investments 22,653 28,054
Accounts receivable net of allowance for doubtful accounts
of $3,593 at March 31, 1996 and $2,938 at June 30, 1995 133,985 110,679
Accounts receivable from related parties -- 6,270
Inventories 57,317 31,151
Prepaid expenses and other 18,860 15,448
--------- ---------
Total current assets 261,748 216,123
Property, plant and equipment, net of accumulated
depreciation and amortization of $81,635 at
March 31, 1996 and $76,974 at June 30, 1995 132,578 128,753
Deposits and other assets 22,958 23,400
--------- ---------
Total $ 417,284 $ 368,276
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 21,722 $ 21,157
Accrued compensation and employee benefits 28,880 28,188
Income taxes payable 2,985 7,921
Accrued and other liabilities 37,206 35,465
--------- ---------
Total current liabilities 90,793 92,731
Long-term obligations 325 602
Stockholders' equity:
Preferred stock, $.001 par value - authorized,
5.0 million shares; none outstanding -- --
Common stock, $.001 par value - Mar. 31, 1996 - authorized,
100.0 million shares; outstanding, 50.1 million shares, June 30, 1995 -
authorized, 50.0 million shares;
outstanding, 47.7 million shares (Note 4) 214,098 183,193
Notes receivable from employees (4,500) (1,347)
Retained earnings 117,999 96,039
Treasury stock at cost: 0.2 million shares at June 30, 1995 -- (2,347)
Other (1,431) (595)
--------- ---------
Total stockholders' equity 326,166 274,943
--------- ---------
Total $ 417,284 $ 368,276
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 4
OCTEL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ---------------------
March 31, March 31, March 31, March 31,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES:
Systems $ 93,752 $ 74,653 $259,408 $223,096
Services and license 46,097 40,389 130,868 113,931
-------- -------- -------- --------
Total net revenues 139,849 115,042 390,276 337,027
COSTS AND EXPENSES:
Cost of systems 29,276 25,981 79,761 73,488
Cost of services 28,953 23,391 82,267 65,713
Research and development 19,208 18,313 56,521 53,438
Selling, general and administrative 43,936 38,197 125,692 112,347
Non-recurring charge for acquired
in-process research and
development -- -- -- 4,725
Integration costs -- 1,252 -- 2,261
-------- -------- -------- --------
Total costs and expenses 121,373 107,134 344,241 311,972
-------- -------- -------- --------
Operating income 18,476 7,908 46,035 25,055
Interest and other income, net 670 683 1,742 2,209
-------- -------- -------- --------
Income before income taxes 19,146 8,591 47,777 27,264
Provision for income taxes 6,900 2,500 17,200 8,600
-------- -------- -------- --------
NET INCOME $ 12,246 $ 6,091 $ 30,577 $ 18,664
======== ======== ======== ========
NET INCOME PER COMMON
AND EQUIVALENT SHARE (Note 4) $ 0.23 $ 0.12 $ 0.58 $ 0.38
======== ======== ======== ========
Weighted average number of
common shares and equivalents
used in computation (Note 4) 53,514 49,458 53,012 49,648
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
OCTEL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------
March 31, March 31,
1996 1995
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,577 $ 18,664
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 25,040 23,164
Amortization of premium on marketable securities 43 195
Deferred income taxes 5,183 (504)
Non-recurring charge for acquired in-process
research and development -- 4,725
Changes in working capital:
Accounts receivable (17,014) (4,237)
Inventories (23,390) (4,607)
Prepaid expenses and other (5,622) (2,552)
Trade payables 552 2,126
Accrued compensation and employee benefits 504 (3,402)
Income taxes payable and accrued and other liabilities 5,104 (755)
-------- --------
Net cash provided by operating activities 20,977 32,817
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock, net 20,166 5,953
Repurchases of common stock (8,903) (25,320)
Proceeds from payment of employees' notes receivable 50 --
Proceeds from sale of financial instruments - put warrants 1,762 1,408
Repayments of long-term obligations (271) (741)
-------- --------
Net cash provided by/(used for) financing activities 12,804 (18,700)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (24,182) (29,967)
Sales and maturities of short-term investments 29,595 65,979
Property, plant and equipment additions (26,445) (42,196)
Changes in deposits and other assets (7,977) (1,885)
Acquisition of intellectual and personal property -- (5,054)
-------- --------
Net cash used for investing activities (29,009) (13,123)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (360) (493)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,412 501
-------- --------
CASH AND CASH EQUIVALENTS:
Beginning of period 24,521 17,889
-------- --------
End of period $ 28,933 $ 18,390
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 6
OCTEL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(MARCH 31, 1996 AND 1995 - 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 of the Company as of March 31, 1996, the results of
operations for the three and nine months ended March 31, 1996 and 1995
and cash flows for the nine months ended March 31, 1996 and 1995.
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 related notes.
Certain fiscal 1995 costs previously reported as research and
development expenses have been reclassified to selling, general and
administrative expenses to conform to the fiscal 1996 presentation.
2. Short-term investments
At March 31, 1996 and June 30, 1995, all cash equivalents and
short-term investments were classified as "available-for-sale" and
consisted of the following (in thousands):
<TABLE>
<CAPTION>
Unrealized Unrealized Accrued Estimated
Cost Gains Losses Interest Fair Value
---- ----- ------ -------- ----------
<S> <C> <C> <C> <C> <C>
At March 31, 1996:
U.S. Government
securities $11,448 $ 2 $(159) $ (70) $11,221
Municipal notes/bonds 24,481 44 (12) (250) 24,263
------- ----- ----- -------- -------
$35,929 $ 46 $(171) $ (320) $35,484
======= ===== ===== ======== =======
At June 30, 1995:
U.S. Government
securities $12,117 $ -- $(180) $ (82) $11,855
Municipal notes/bonds 22,200 41 (41) (376) 21,824
------- ----- ----- -------- -------
$34,317 $ 41 $(221) $ (458) $33,679
======= ===== ===== ======== =======
</TABLE>
These securities were classified on the balance sheet as follows (in
thousands):
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
<S> <C> <C>
Cash equivalents $13,151 $ 6,083
Short-term investments 22,653 28,054
------- -------
$35,804 $34,137
======= =======
</TABLE>
The cost and estimated fair value of available-for-sale debt securities
by contractual maturity, consisted of the following (in thousands):
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<PAGE> 7
OCTEL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(MARCH 31, 1996 AND 1995 - UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
---------------------- ----------------------
Estimated Estimated
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Due in less than one year $23,478 $23,325 $15,573 $15,457
Due in one to three years 5,627 5,543 14,778 14,476
Due thereafter 6,824 6,616 3,966 3,746
------- ------- ------- -------
$35,929 $35,484 $34,317 $33,679
======= ======= ======= =======
</TABLE>
For the three and nine months ended March 31, 1996, the Company had
$54.0 million and $149.8 million in proceeds from sales of
available-for-sale investments, respectively. Gross realized gains and
gross realized losses on those sales were not material. For the three
and nine months ended March 31, 1995, the Company had $25.7 million and
$154.8 million in proceeds from sales of available-for-sale
investments, respectively. Gross realized gains and gross realized
losses on those sales were not material.
3. Inventories consist of (in thousands):
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
--------- --------
<S> <C> <C>
Finished goods $ 8,649 $ 5,009
Work-in-process 14,981 8,586
Raw materials 33,687 17,556
------- -------
Total $57,317 $31,151
======= =======
</TABLE>
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.
On March 25, 1996, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a 100% stock dividend
distributed on May 10, 1996 to stockholders of record on April 5, 1996.
All references to number of shares (except authorized shares) and per
share amounts have been restated.
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 London interbank offering rate
("LIBOR") 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
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<PAGE> 8
OCTEL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(MARCH 31, 1996 AND 1995 - UNAUDITED)
related items. The Company was in compliance with these covenants and
had no borrowings under this line as of March 31, 1996. The Company
expects to renew its existing line which expires in June 1996.
On March 31, 1996, the Company had $1.2 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,
Pounds Sterling and French Francs and expire on various dates through
December 25, 1999.
6. Lease commitment
On July 6, 1995, the Company entered into a one-year operating lease
for a parcel of undeveloped land adjacent to its current campus in
Milpitas, California on which additional offices may be constructed
over the next three years. This lease provides for monthly payments
which vary based on the LIBOR and requires the Company to maintain
certain financial covenants similar to its credit facilities. In
addition, this lease provides the Company with the option at the end of
the lease term of either renewing the lease, acquiring the property at
its original cost or arranging for the property to be acquired. The
Company is contingently liable to the lessor for a maximum of $9.9
million.
7. Interest and other income, net consists of the following (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, March 31, March 31, March 31,
1996 1995 1996 1995
----- ----- ------- -------
<S> <C> <C> <C> <C>
Interest and investment income $ 512 $ 682 $ 1,781 $ 1,803
Loss on sale of short-term
investments, net -- -- (7) (19)
Foreign exchange gains, net 262 116 87 664
Other income (expense), net (104) (115) (119) (239)
----- ----- ------- -------
Total $ 670 $ 683 $ 1,742 $ 2,209
===== ===== ======= =======
</TABLE>
8. 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 $0.4 million is included in Accrued and other liabilities
on the balance sheet at March 31, 1996. Additional expenses of
approximately $2.3 million were incurred during the first nine months
of fiscal 1995, relating primarily to literature design for name change
and other modifications to literature for the merged Company and the
consolidation of processes and computer systems of the merged Company.
Additional integration costs of approximately $0.7 million were
incurred during the first quarter of fiscal 1996 as the consolidation
of the two companies was substantially completed. These costs were
entirely offset by excess integration reserves which were identified
and reversed during the first quarter. No additional integration costs
were incurred since the first quarter of fiscal 1996.
-8-
<PAGE> 9
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NET REVENUES
The Company derives revenues from the sale of systems, performance of
services and generation of license fees from its three strategic business units,
Global Business Solutions ("GBS"), Voice Information Services ("VIS") and
Services (comprised of Octel Network Services and OcteLink). GBS consists of
system sales, services and maintenance contracts to corporations and
institutions including universities and governments. VIS consists of system
sales and maintenance contracts to service providers like telephone companies
and wireless providers.
Total net revenues for GBS for the third quarter of fiscal 1996 were
$64.3 million compared to $63.9 million in the same period last year. For the
first nine months of fiscal 1996, total net GBS revenues decreased from $200.5
million in fiscal 1995 to $193.9 million in fiscal 1996. Total net revenues for
VIS increased from $35.2 million in the third quarter of fiscal 1995 to $57.9
million in the third quarter of fiscal 1996. For the first nine months of the
year, total net VIS revenues increased from $91.6 million in fiscal 1995 to
$144.4 million in fiscal 1996. Services sector revenue, which is primarily
related to Octel Network Services ("ONS"), was $17.6 million for the third
quarter of fiscal 1996 compared to $16.0 million in the third quarter of fiscal
1995. For the first nine months of fiscal 1996, ONS revenue increased to $51.9
million from $44.9 million in the same period last year.
Systems revenues consist of software, hardware, upgrades and expansions
sold to corporations and other institutions, including telephone and cellular
companies. Service revenues, as presented below, include a range of voice
processing and network management services provided by ONS to customers in the
GBS and VIS markets as well as the residential market through a Regional Bell
Operating Company. Services and license revenues also include service contracts,
applications development, spares sales and hardware repair and maintenance
provided by the GBS and VIS business units.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- ----------------------------------
March 31, March 31, Increase/ March 31, March 31, Increase/
1996 1995 (Decrease) 1996 1995 (Decrease)
--------- --------- --------- --------- --------- ---------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Systems $ 93.7 $ 74.6 26% $259.4 $223.1 16%
Services and license 46.1 40.4 14% 130.9 113.9 15%
------ ------ ------ ------
Total net revenues $139.8 $115.0 22% $390.3 $337.0 16%
====== ====== ====== ======
Percentage of Total Net Revenues
Systems 67% 65% 2% 66% 66% --
Services and license 33% 35% (2)% 34% 34% --
</TABLE>
Systems
The growth in systems revenues for the third quarter of fiscal 1996
over the third quarter of fiscal 1995 was attributable to revenue increases in
the VIS business, offset by a slight decrease in the systems portion of the GBS
business. The VIS increase was due primarily to an increase in
-9-
<PAGE> 10
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
international sales (primarily in Europe, Canada and Asia-Pacific), and, to a
lesser extent, an increase in domestic sales. For the GBS business, higher
domestic sales were more than offset by lower international sales. The GBS
domestic increase was positively affected by increases in revenues by the
Company's PC division and Rhetorex subsidiary. However, these increases were
partially offset by a decrease in new system sales volume. The lower
international GBS revenue resulted primarily from decreases in Europe and
Canada, partially offset by an increase in the Asia-Pacific market. Lower than
expected Overture 250 sales, which replaced the Aspen family, contributed to the
decrease in domestic GBS system sales. Although the Company is committed to
improving the results of GBS system sales, there can be no assurance that such
improvements will not be slower to materialize than expected, or that such
improvements will occur.
The systems revenue increase in the first nine months of fiscal 1996 is
due primarily to increased VIS systems revenues attributable to the sale of
systems expansions and software upgrades, partially offset by a decrease in GBS
systems revenues. VIS revenues were higher for both domestic and international
markets for the first nine months of fiscal 1996 compared to the same period for
fiscal 1995 whereas GBS experienced decreases in each of these markets for the
same period. Revenue in future quarters could be affected by the extent and
timing of new orders from VIS providers. Such orders are typically significant
in size and, therefore, either a single order or a small number of orders can
have a significant impact on the amount and source of revenue in any given
quarter.
Services and license
Services and license revenues grew in the third quarter and first nine
months of fiscal 1996 as compared to the same periods in the prior year
primarily as a result of the Company's larger installed base of customers.
Additionally, ONS revenues increased, reflecting both subscriber growth and
increased usage. The Company is continuing to focus resources on increasing
revenue from its services and license business and anticipates that services and
license revenue as a percentage of net revenues will continue to fluctuate based
on system sales.
COST OF SALES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- ----------------------------------
March 31, March 31, Increase/ March 31, March 31, Increase/
1996 1995 (Decrease) 1996 1995 (Decrease)
--------- --------- --------- --------- --------- ---------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Cost of systems $ 29.3 $ 26.0 13% $ 79.8 $ 73.5 9%
Cost of services 28.9 23.4 24% 82.2 65.7 25%
------ ------ ------ ------
Total cost of sales $ 58.2 $ 49.4 18% $162.0 $139.2 16%
====== ====== ====== ======
Percentage of Net Revenues
Cost of systems 31% 35% (4%) 31% 33% (2%)
Cost of services 63% 58% 5% 63% 58% 5%
Total cost of sales 42% 43% (1%) 42% 41% 1%
</TABLE>
-10-
<PAGE> 11
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Total cost of sales, as a percentage of total net revenues, decreased
for the third quarter and increased for the first nine months of fiscal 1996 as
compared to the same periods in fiscal 1995. The changes are due primarily to a
reduction in cost of systems offset by increases in cost of services.
Systems
The decreases in cost of systems as a percentage of total systems
revenues in the third quarter and first nine months of fiscal 1996 compared to
the same periods in the prior year were due primarily to product mix changes.
VIS revenues, which generally carry lower cost of sales as a percentage of total
net revenues than GBS revenues, increased as a percentage of total systems
revenues from the third quarter and first nine months of fiscal 1995 compared to
the same periods of fiscal 1996.
Services and license
The increase in cost of services as a percentage of total services and
license revenues in the third quarter and first nine months of fiscal 1996
compared to the same periods of fiscal 1995 was due primarily to higher
employee-related costs associated with service contracts and hardware repair and
maintenance activities. ONS cost of services as a percentage of total services
and license revenues also increased, but to a lesser extent, from the third
quarter and first nine months of fiscal 1995 to the same periods of fiscal 1996.
ONS cost of services for the third quarter of fiscal 1996 was affected by
upfront costs incurred to build an infrastructure to serve new customers. The
change for the first nine months of fiscal 1996 compared to the same period of
fiscal 1995 was partially affected by the inclusion of revenue for a significant
one-time customer conversion to ONS services which had little associated cost of
services in fiscal 1995.
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
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- ----------------------------------
March 31, March 31, Increase/ March 31, March 31, Increase/
1996 1995 (Decrease) 1996 1995 (Decrease)
--------- --------- --------- --------- --------- ---------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Expenses $19.2 $18.3 5% $56.5 $53.4 6%
Percentage of revenues 14% 16% (2%) 14% 16% (2%)
</TABLE>
The increase in absolute dollars spent on research and development for
both the third quarter and first nine months of fiscal 1996 is primarily due to
the Company's increased spending on employee-related costs for new product
development, including OcteLink. In addition, in the third quarter of fiscal
1995, the Company incurred a one-time charge of approximately $1.2 million
related to a cancelled contract for software development. There were no such
charges during fiscal
-11-
<PAGE> 12
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
1996. Because of the Company's commitment to the development and implementation
of technology and products that help maintain market share and position Octel
for industry leadership, the Company believes that continued investments in
research and development expenses are likely to increase in absolute terms and,
depending on revenue in any given period, could increase as a percentage of
total net revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- ----------------------------------
March 31, March 31, Increase/ March 31, March 31, Increase/
1996 1995 (Decrease) 1996 1995 (Decrease)
--------- --------- --------- --------- --------- ---------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Expenses $ 43.9 $ 38.2 15% $ 125.7 $ 112.3 12%
Percentage of revenues 31% 33% (2%) 32% 33% (1%)
</TABLE>
The increase for both the third quarter and first nine months of fiscal
1996 in selling, general and administrative expenses in absolute dollars
resulted primarily from payroll-related expenses for employees hired to support
the growth of the Company's services business and international operations. 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, depending on revenue in any given period, could increase as
a percentage of net revenues. Additionally, the Company is currently involved in
litigation that may cause an increase in legal expenses in the future. (See Item
1 "Legal Proceedings" in Part II.)
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.
INTEGRATION COSTS
In connection with the VMX merger in fiscal 1994, the Company recorded
additional integration costs of $2.3 million in the first nine months of fiscal
1995. The integration costs related primarily to literature design for name
change and other modifications to literature for the merged company and the
consolidation of processes and computer systems of the merged company.
Additional integration costs of approximately $0.7 million were incurred during
the first quarter of fiscal 1996 as the consolidation of the two companies was
substantially completed. These costs were entirely offset by excess integration
reserves which were identified and reversed during the first quarter of fiscal
1996. No additional integration costs were incurred since the first quarter of
fiscal 1996.
-12-
<PAGE> 13
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INTEREST AND OTHER INCOME, NET
Interest and other income, net for the third quarter of fiscal 1996
decreased slightly compared to the third quarter of fiscal 1995. For the first
nine months of fiscal 1996, interest and other income, net decreased $0.5
million from the same period of fiscal 1995. Interest and investment income for
the third quarter of fiscal 1996 decreased compared to the third quarter of
fiscal 1995 primarily due to lower average cash and investment balances. This
decrease was partially offset by an increase in net foreign exchange gains
during the comparable periods. The decrease for the first nine months of fiscal
1996 compared to the same period of fiscal 1995 was due primarily to a decrease
in net foreign exchange gains.
INCOME TAXES
The Company's effective tax rate was 36 percent in the third quarter
and first nine months of fiscal 1996, respectively, as compared to 29 percent
and 32 percent in the corresponding periods of fiscal 1995. The effective rate
was higher in fiscal 1996 due to the expiration of the U.S. federal research and
development credit and the smaller impact that certain tax benefits have on the
effective tax rate. The Company expects its effective tax rate for fiscal 1996
to decrease slightly if the proposed legislation which extends the research and
development tax credit is enacted prior to the end of the fiscal year.
FACTORS THAT MAY EFFECT FUTURE RESULTS OF OPERATIONS
Various paragraphs of this Item 2 (Management's Discussion and Analysis
of Financial Condition and Results of Operations) contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the factors set forth below and
elsewhere in this document.
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 or improve
its competitive position. The Company's 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.
In July 1995, the Company introduced OcteLink - a global "messaging
post office" that could eventually allow the interconnection of virtually any
voice messaging system with networking
-13-
<PAGE> 14
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
capability, regardless of protocol, system size or geographic location. Revenues
from OcteLink commenced during the second quarter of fiscal 1996 but have not
been material to-date and are not expected to be material for the fiscal year.
The Company has incurred additional research and development and selling,
general and administrative expenditures to launch OcteLink and expects to incur
additional costs in future quarters. Although the Company believes OcteLink is a
viable global messaging network, there is currently no reliable data regarding
the demand for such services. Furthermore, demand for a global messaging network
may be slow to materialize, may not materialize or competitors may successfully
introduce alternative solutions to OcteLink that achieve better market
acceptance.
The Company introduced the Overture Family of message servers in July
1995. The Overture 250, which replaced the Aspen family, is a mid-level system
within the GBS product line designed for medium-sized businesses and large
branch offices. To date, sales of the Overture 250 have been slightly below
management expectations. Additionally, the Company has issued credits under its
trade-in program, which extends through the end of fiscal 1996, to replace
installed systems with the Overture 250. These trade-in costs could negatively
affect gross margins.
The Company is currently engaged in various new projects and product
development which are necessary to help maintain market share and Octel's
leadership position in the industry. Two of the more significant projects are
"unified messaging" products for voice, fax and electronic mail messaging and
the Company's next-generation client/server architecture for its Sierra
platform, Intelligent Messaging Architecture ("IMA"). Unified messaging
essentially unites voice, fax and e-mail together in a client/server
architecture that uses standard PC and LAN technology. This integration brings
together several discrete technologies into a single mailbox that provides user
access from a telephone or a PC. In May 1995, Octel announced the first
component of its unified messaging technology that will be available on
Microsoft Exchange, a LAN-based, enterprise-wide messaging architecture. Current
expectations are for revenue to commence in fiscal 1997. IMA was originally
scheduled for first-phase release during the latter part of the fourth quarter
of fiscal 1996; however, shipment of this product has been delayed until the
beginning of the third quarter of fiscal 1997 in order to allow for the release
of a more feature-rich product. The successful introduction of these and other
new products is dependent on a number of factors, some of which are beyond the
Company's control, including product acceptance in the marketplace, introduction
of competitive products by existing or new competitors, changes in technology,
price competition and other factors. Any delay in introducing new products or
failure of such products to achieve substantial market share could significantly
reduce future expected revenues and/or result in the need for additional
expenses to bring the product to market. Furthermore, there can be no assurance
that the Company will be successful in introducing new products or that such
products will generate significant revenues or profits.
During the latter half of fiscal 1995, the Company adopted a new,
capacity-based pricing approach for its largest GBS system, the XC-1000. This
pricing approach was also adopted for the Overture and Sierra systems during
fiscal 1996. This approach allows customers to purchase systems with only part
of the equipment's capacity enabled and then have additional capacity enabled in
the future upon payment of additional fees. The Company has adopted contract
accounting (based upon percentage-of-completion) to recognize revenue in
connection with capacity on demand transactions when firm commitments to
purchase additional capacity exist. Under this method, revenues are recognized
as a function of the capacity provided to the customer
-14-
<PAGE> 15
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
and costs are recognized proportionally to revenue recognized. Costs in excess
of billings are deferred in the Balance Sheet. The adoption of contract
accounting did not have a material impact on results for the third quarter or
first nine months of fiscal 1996. The Company believes that delays in expected
revenue in fiscal 1996 have occurred as a result of renegotiating contracts with
certain customers and distributors to accommodate this pricing approach. While
the Company believes that this approach will make it more competitive,
difficulties in implementing this approach, delays or adverse results due to
renegotiation of sales and distribution agreements to accommodate capacity-based
pricing or the failure to generate additional sales could have an adverse effect
on the Company's results of operations.
Due to the factors noted above and elsewhere in Management's Discussion
and Analysis of financial condition and results of operations, the Company's
future earnings and Common 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 adverse 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. The Company's Common Stock and technology stocks
in general have been at or near historic highs in recent weeks and there can be
no assurance that such valuations will continue or increase. Finally, the
Company participates in a highly dynamic industry which often results in
volatility of the Company's Common Stock price.
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 cash equivalents and short-term investments in
the first nine months of fiscal 1996 decreased $1.0 million from June 30, 1995.
Cash flows from operations resulted in a net source of cash of $21.0 million in
the first nine months of fiscal 1996 and $32.8 million in the first nine months
of fiscal 1995. The decrease from the prior year was due primarily to increases
in inventory and accounts receivable offset by higher net income and the timing
of payment of certain liabilities. The increase in inventory resulted primarily
from the Company's preparation for fourth quarter sales, which have historically
been higher than other preceding quarters, a change in vendors during the second
quarter of fiscal 1996 and continued product transitions. The Company is taking
action to reduce inventory to a more acceptable level over the next six months.
In the event that fourth quarter sales do not meet planned levels, inventory
will be higher than target levels which could potentially result in excess
inventory.
The primary sources of cash during the first nine months of fiscal 1996
resulted from net income of $30.6 million, which included $25.0 million of
non-cash expenses for depreciation and
-15-
<PAGE> 16
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
amortization, and cash provided by the sale of Common Stock, resulting from the
exercise of stock options, of $20.2 million. The primary uses of cash during the
first nine months of fiscal 1996 were investment in property, plant and
equipment of $26.4 million, increases in inventory of $23.4 million and the
repurchase of Common Stock for $7.1 million, net of put warrant proceeds of $1.8
million. The Company expects to purchase additional equipment and make certain
leasehold improvements during the remainder of fiscal 1996. The Company
anticipates that its property, plant and equipment investments will result in
greater efficiencies and increased flexibility for the Company.
On March 25, 1996, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a 100% stock dividend
distributed on May 10, 1996 to stockholders of record on April 5, 1996.
In July 1994, the Company's Board of Directors approved the repurchase
of up to 3.5 million shares (pre-split) of its Common Stock over a period of
approximately two years. As of March 31, 1996, the Company had repurchased
approximately 3.2 million shares (post-split) of its Common Stock under this
program at an average per share price of approximately $11 (post-split),
including the impact of put warrant proceeds. The Company expects to continue to
repurchase its Common Stock under this program.
Effective July 6, 1995, the Company entered into a one-year operating
lease agreement to lease undeveloped land on which additional offices may be
constructed adjacent to the existing corporate offices over the next three years
under a similar leasing arrangement. Under the terms of the operating lease, the
Company is contingently liable for up to $9.9 million. Cash payments under the
operating lease totaled $0.5 million during the first nine months of fiscal
1996.
In connection with the VMX merger, the Company recorded $18.3 million
of integration reserves in fiscal 1994. Expenditures charged against the reserve
totaled approximately $4.1 million for the first six months of fiscal 1996 as
the consolidation of the Company's manufacturing facilities was completed. The
balance of the integration reserves was $0.4 million at March 31, 1996.
The Company anticipates that cash flows from operations, its existing
cash and cash equivalents balance, its short-term investment balance and its
existing $30 million bank revolving line of credit (which expires in June 1996
but is expected to be renewed), will be adequate to meet the Company's cash
requirements through the end of fiscal 1997.
-16-
<PAGE> 17
OCTEL COMMUNICATIONS CORPORATION
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Theis Research, Inc.
In April 1992, the Company filed suit, in California, against Theis
Research, Inc. ("Theis") for declaratory judgment that the Company's products do
not infringe three patents of Theis and that those patents are invalid. In
November 1992, Theis filed a counterclaim against the Company alleging
infringement of seven of Theis' patents. Subsequently, Theis dismissed with
prejudice the claims as to all but four of the patents, and its claims as to one
of the remaining four patents were dismissed on summary judgment. During the
first quarter of fiscal 1995, the Company engaged in a jury trial regarding
infringement of the three remaining patents and the defense of patent
invalidity. In October 1994, the jury returned a verdict finding, among other
things, that Octel was correct in its claim that the three patents at issue were
invalid. The Court entered judgment on the jury verdict in January 1996,
declaring Octel a "prevailing party" entitled to recover its substantial costs
in connection with the lawsuit. It is anticipated that Theis will appeal the
verdict.
Gilbarco Inc.
In January 1994, Gilbarco Inc. ("Gilbarco") filed suit in the U.S.
District Court for the District of Colorado against the Company and one of the
Company's telephone company customers, U.S. West, alleging infringement of a
Gilbarco patent and seeking unspecified damages. The Company filed an answer to
the complaint denying any infringement of the patent and raising several
affirmative defenses, including an assertion that the patent is invalid and
unenforceable. In September 1994, the claims asserted against the Company were
transferred to the U.S. District Court for the Northern District of California
and those claims asserted against U.S. West were stayed and administratively
closed pending the outcome of the California action. Both parties filed motions
for summary judgment on a variety of issues, including a motion by Octel for
summary judgment declaring the Gilbarco patent unenforceable due to inequitable
conduct during the procurement of the patent. On February 12, 1996, the Court
granted Octel's motion for summary judgment (and denied Gilbarco's
counter-motion) and declared the patent unenforceable as a matter of law. The
Court subsequently entered judgment in favor of Octel and against Gilbarco in
the underlying action and awarded Octel its costs in connection with the
lawsuit. Gilbarco's subsequent challenge of the Court's ruling was denied and it
is now expected that Gilbarco will appeal the final judgment invalidating their
patent.
The Company believes, based on information currently available, that
the Company is not infringing any valid patents of Theis or Gilbarco. The
Company will vigorously defend the patent infringement claims and any related
claims for compensatory damages. While litigation is inherently uncertain, the
Company believes that the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial position.
-17-
<PAGE> 18
OCTEL COMMUNICATIONS CORPORATION
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
3.0 Certificate of Incorporation of the Company
11.0 Statement re computation of earnings per share
27.0 Financial Data Schedule
(b) Report on Form 8-K
No report on Form 8-K was filed by the Company during its
fiscal quarter ended March 31, 1996.
-18-
<PAGE> 19
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: May 15, 1996
/s/ JEAN-YVES DEXMIER
----------------------------------------
Jean-Yves Dexmier, Senior Vice President
and Chief Financial Officer
-19-
<PAGE> 20
OCTEL COMMUNICATIONS CORPORATION
EXHIBIT INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- - ------ ----------- ------
<S> <C> <C>
3.0 Certificate of Incorporation of the Company 2
11.0 Statement re computation of earnings per share 5
27.0 Financial Data Schedule 6
</TABLE>
1
<PAGE> 1
EXHIBIT 3.0
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
OCTEL COMMUNICATIONS CORPORATION
Octel Communications Corporation, a Delaware corporation, hereby
certifies as follows:
The Certificate of Incorporation for Octel Communications Corporation
(the "Corporation") was filed in the office of the Secretary of State of the
State of Delaware on June 22, 1987. The Certificate of Incorporation was amended
and restated on December 15, 1989 and is hereby amended and restated pursuant to
Section 242 and Section 245 of the Delaware General Corporation Law. All
amendments to the Certificate of Incorporation reflected herein have been duly
authorized and adopted by the Corporation's Board of Directors and stockholders
in accordance with the provisions of Sections 242 and 245.
This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation of the
Corporation. The text of the Certificate of Incorporation is amended hereby to
read in its entirety as set forth on Exhibit A attached hereto:
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by Robert Cohn, the Chief Executive Officer of the Corporation, and
attested by Derek S. Daley, the Secretary of the Corporation. The signatures
below shall constitute the affirmation or acknowledgment, under penalties of
perjury, that the facts herein stated are true.
Dated: March 21, 1996
/s/ ROBERT COHN
---------------
Robert Cohn
Chief Executive Officer
ATTEST:
/s/ DEREK S. DALEY
- - --------------------
Derek S. Daley
Secretary
2
<PAGE> 2
EXHIBIT 3.0
(CONTINUED)
EXHIBIT A
FIRST: The name of the Corporation is Octel Communications Corporation (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 15 East North Street, Dover, Kent County, Delaware
19901. The name of its registered agent at such address is Paracorp
Incorporated.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: Section 1. The total number of shares which the Corporation shall
have authority to issue is 105,000,000 shares of capital stock.
Section 2. Of such authorized shares, one hundred million
(100,000,000) shares shall be designated "Common Stock," and have a
par value of $.001.
Section 3. Of such authorized shares, five million (5,000,000)
shares shall be designated "Preferred Stock," and have a par value
of $.001. The Preferred Stock may be issued from time to time in one
or more series. The Board of Directors of the Corporation is
authorized to determine or alter the powers, preferences, and rights
and the qualifications, limitations or restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock, and
within the limitations or restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number
of shares constituting any series, to increase or decrease (but not
below the number of shares of any such series then outstanding) the
number of shares of any such series subsequent to the issue of
shares of that series, to determine the designation of any series,
and to fix the number of shares of any series. In case the number of
shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of
such series.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and
before voting begins or unless the Bylaws of the Corporation shall
so provide.
SEVENTH: The number of directors which constitute the whole Board of
Directors of the Corporation shall be designated in the Bylaws of
the Corporation.
3
<PAGE> 3
EXHIBIT 3.0
(CONTINUED)
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make,
alter, amend or repeal the Bylaws of the Corporation.
NINTH: To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as it may hereafter be amended, no
director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
TENTH: At the election of directors of the Corporation, each holder of
stock of any class or series shall be entitled to as many votes as
shall equal the number of votes which (except for such provision as
to cumulative voting) he would be entitled to cast for the election
of directors with respect to his shares of stock multiplied by the
number of directors to be elected by him, and he may cast all of
such votes for a single director or may distribute them among the
number to be voted for, or for any two or more of them as he may see
fit, so long as the name of the candidate for director shall have
been placed in nomination prior to the voting and the stockholder,
or any other holder of the same class or series of stock, has given
notice at the meeting prior to the voting of the intention to
cumulate votes.
ELEVENTH: Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation
may be kept (subject to any provision contained in the statutes)
outside of the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
TWELFTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute,
and all rights conferred upon stockholders herein are granted
subject to this reservation.
4
<PAGE> 1
EXHIBIT 11.0
OCTEL COMMUNICATIONS CORPORATION
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
March 31, March 31, March 31, March 31,
1996 1995(1) 1996 1995(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER SHARE
Net income ................................ $ 12,246 $ 6,091 $ 30,577 $ 18,664
======== ======== ======== ========
Weighted average shares
outstanding ............................. 49,565 47,550 48,994 47,699
Dilutive effect of outstanding stock
options (as determined by the
application of the treasury stock
method) ................................. 3,963 2,020 4,036 2,005
Other ..................................... (14) (112) (18) (56)
-------- -------- -------- --------
53,514 49,458 53,012 49,648
======== ======== ======== ========
Primary net income per share .............. $ 0.23 $ 0.12 $ 0.58 $ 0.38
======== ======== ======== ========
FULLY DILUTED NET INCOME PER SHARE*
Net income ................................ $ 12,246 $ 6,091 $ 30,577 $ 18,664
======== ======== ======== ========
Weighted average shares
outstanding ............................. 49,565 47,550 48,994 47,699
Dilutive effect of outstanding stock
options (as determined by the
application of the treasury stock
method) ................................. 5,199 2,020 5,519 2,005
Other ..................................... 75 (112) 66 (56)
-------- -------- -------- --------
54,839 49,458 54,579 49,648
======== ======== ======== ========
Fully diluted net income per
share ................................... $ 0.22 $ 0.12 $ 0.56 $ 0.38
======== ======== ======== ========
</TABLE>
* This computation is submitted in accordance with Securities Exchange Act of
1934 Release No. 9083 although not required for all periods under APB Opinion
No. 15 because it results in dilution of less than three percent.
(1) The computation has been restated to reflect a two-for-one stock split
effected in the form of a 100% stock dividend distributed on May 10, 1996 to
stockholders of record on April 5, 1996.
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 28,933
<SECURITIES> 22,653
<RECEIVABLES> 137,578
<ALLOWANCES> 3,593
<INVENTORY> 57,317
<CURRENT-ASSETS> 261,748
<PP&E> 214,213
<DEPRECIATION> 81,635
<TOTAL-ASSETS> 417,284
<CURRENT-LIABILITIES> 90,793
<BONDS> 0
0
0
<COMMON> 214,098
<OTHER-SE> 112,068
<TOTAL-LIABILITY-AND-EQUITY> 417,284
<SALES> 93,752
<TOTAL-REVENUES> 139,849
<CGS> 29,276
<TOTAL-COSTS> 58,229
<OTHER-EXPENSES> 63,144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,146
<INCOME-TAX> 6,900
<INCOME-CONTINUING> 12,246
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,246
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.22
</TABLE>
