1
FORM 10-Q
UNITED STATES
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 JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15135
TEKELEC
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2746131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26580 W. AGOURA ROAD, CALABASAS, CALIFORNIA 91302
(Address and zip code of principal executive offices)
(818) 880-5656
(Registrant's telephone number, including area code)
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 [ ]
As of August 1, 1996, there were 11,837,134 shares of the registrant's
common stock, without par value, outstanding.
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TEKELEC
FORM 10-Q
INDEX
PART I -- FINANCIAL INFORMATION PAGE
- ------------------------------- ----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the three
and six months ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flow for the six
months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II -- OTHER INFORMATION
- ----------------------------
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
- ----------
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
TEKELEC
CONSOLIDATED BALANCE SHEETS
JUNE 30, December 31,
1996 1995
---- ----
(thousands, except share data)
ASSETS (unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . $ 23,526 $ 43,609
Short-term investments, at fair value . . . . . . . 5,924 ---
Accounts and notes receivable, less
allowances of $251 and $391, respectively . . . 12,393 19,167
Inventories . . . . . . . . . . . . . . . . . . . 8,800 6,423
Amounts due from related parties . . . . . . . . . 1,627 3,053
Prepaid expenses . . . . . . . . . . . . . . . . . 1,393 1,232
-------- --------
Total current assets . . . . . . . . . . . . . 53,663 73,484
Long-term investments, at fair value . . . . . . . . . 12,165 ---
Property and equipment, net . . . . . . . . . . . . . . 7,366 6,107
Other assets . . . . . . . . . . . . . . . . . . . . . 659 897
-------- --------
Total assets . . . . . . . . . . . . . . . . . $ 73,853 $ 80,488
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion
of long-term debt . . . . . . . . . . . . . . $ 815 $ 570
Trade accounts payable . . . . . . . . . . . . . . 3,702 3,960
Accrued expenses . . . . . . . . . . . . . . . . . 2,835 4,404
Accrued payroll and related expenses . . . . . . . 3,123 3,294
Deferred revenues . . . . . . . . . . . . . . . . 3,715 2,908
Current portion of other obligations . . . . . . . 6 31
Income taxes payable . . . . . . . . . . . . . . . 894 1,334
-------- --------
Total current liabilities . . . . . . . . . . 15,090 16,501
Long-term debt . . . . . . . . . . . . . . . . . . . . 260 380
-------- --------
Total liabilities . . . . . . . . . . . . . . 15,350 16,881
-------- --------
SHAREHOLDERS' EQUITY:
Common stock, without par value,
50,000,000 shares authorized; 11,820,184 and
11,599,073 shares issued and outstanding,
respectively . . . . . . . . . . . . . . . . . . 55,936 54,936
Retained earnings . . . . . . . . . . . . . . . . 1,010 6,390
Cumulative translation adjustment . . . . . . . . 1,557 2,281
-------- --------
Total shareholders' equity . . . . . . . . . . 58,503 63,607
-------- --------
Total liabilities and shareholders' equity . . $ 73,853 $ 80,488
======== ========
See notes to consolidated financial statements.
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TEKELEC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
(thousands, except per share data)
REVENUES
Sales to third parties . . . . . . . . . $15,898 $18,073 $27,033 $34,868
Sales to related parties . . . . . . . . 966 1,427 1,691 3,262
------- ------- ------- -------
Total revenues . . . . . . . . . . . 16,864 19,500 28,724 38,130
------- ------- ------- -------
COSTS AND EXPENSES:
Cost of goods sold . . . . . . . . . . . 6,741 6,657 11,336 12,864
Research and development . . . . . . . . 4,372 3,477 8,687 6,834
Selling, general and administrative . . 7,302 6,599 14,170 13,375
------- ------- ------- -------
Total costs and expenses . . . . . . 18,415 16,733 34,193 33,073
------- ------- ------- -------
Income (Loss) from operations . . . . . . . . (1,551) 2,767 (5,469) 5,057
Other income (expense):
Interest, net . . . . . . . . . . . . . 417 102 840 106
Other, net . . . . . . . . . . . . . . . (17) (49) (62) (223)
------- ------- ------- -------
Total other income (expense) . . . . 400 53 778 (117)
------- ------- ------- -------
Income (Loss) before provision for income taxes (1,151) 2,820 (4,691) 4,940
Provision for income taxes . . . . . . . 261 770 689 1,422
------- ------- ------- -------
NET INCOME (LOSS)........................ $(1,412) $ 2,050 $(5,380) $ 3,518
======= ======= ======= =======
EARNINGS (LOSS) PER SHARE:
Primary . . . . . . . . . . . . . . . . $ (0.12) $ 0.18 $ (0.46) $ 0.32
Fully diluted . . . . . . . . . . . . . (0.12) 0.18 (0.46) 0.31
WEIGHTED AVERAGE NUMBER OF SHARES:
Primary . . . . . . . . . . . . . . . . 11,717 11,497 11,677 11,153
Fully diluted . . . . . . . . . . . . . 11,717 11,620 11,677 11,311
See notes to consolidated financial statements.
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TEKELEC
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
Six Months Ended
June 30,
------------------------
1996 1995
---- ----
(thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $ (5,380) $ 3,518
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 1,801 2,038
Changes in current assets and liabilities:
Accounts and notes receivable . . . . . . . . . . . . . 6,654 (3,005)
Inventories . . . . . . . . . . . . . . . . . . . . . . (2,436) (1,177)
Amounts due from related parties . . . . . . . . . . . . 1,426 (1,489)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . (187) 18
Trade accounts payable . . . . . . . . . . . . . . . . . (227) (1,586)
Accrued expenses . . . . . . . . . . . . . . . . . . . . (1,547) 697
Accrued payroll and related expenses . . . . . . . . . . (158) (1,667)
Deferred revenues . . . . . . . . . . . . . . . . . . . 807 151
Income taxes payable . . . . . . . . . . . . . . . . . . (391) 515
-------- -------
Total adjustments . . . . . . . . . . . . . . . . . . 5,742 (5,505)
-------- -------
Net cash provided by (used in) operating activities . 362 (1,987)
-------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities . . . . . . . . . (18,089) --
Purchase of property and equipment . . . . . . . . . . . . (3,113) (1,895)
Decrease in other assets . . . . . . . . . . . . . . . . . 195 19
-------- -------
Net cash (used in) investing activities . . . . . . . (21,007) (1,876)
-------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Decrease in restricted cash . . . . . . . . . . . . . . . -- 1,000
Proceeds from (Payments of) short-term borrowings . . . . 245 (688)
Repayment of long-term debt . . . . . . . . . . . . . . . (120) (120)
Repayment of other obligations . . . . . . . . . . . . . . (25) (219)
Proceeds from issuance of common stock . . . . . . . . . . 1,000 37,938
-------- -------
Net cash provided by financing activities . . . . . . 1,100 37,911
-------- -------
Effect of exchange rate changes on cash . . . . . . . . . . . . (538) 873
-------- -------
Net change in cash and cash equivalents . . . . . . . . . (20,083) 34,921
Cash and cash equivalents at beginning of period . . . . . . . 43,609 6,653
-------- -------
Cash and cash equivalents at end of period . . . . . . . . . . $ 23,526 $41,574
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 70 $ 162
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,107 914
See notes to consolidated financial statements.
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TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. BASIS OF PRESENTATION
The consolidated financial statements are unaudited, other than the
consolidated balance sheet at December 31, 1995, and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
Management, necessary for a fair presentation of the Company's financial
condition, operating results and cash flows for the interim periods.
The results of operations for the current interim period are not
necessarily indicative of results to be expected for the current year. Certain
items shown in the prior financial statements have been reclassified to conform
with the presentation of the current period.
The Company operates under a thirteen-week calendar quarter. However,
for financial statement presentation purposes, the reporting periods are
referred to as ended on the last calendar day of the quarter. The accompanying
financial statements for the six months ended June 30, 1996 and 1995 are for
the thirteen weeks ended June 28, 1996 and June 30, 1995, respectively.
Earnings per share are computed using the weighted average number of
shares outstanding and dilutive common stock equivalents (options and
warrants).
These consolidated financial statements should be read in conjunction
with the consolidated financial statements for the year ended December 31, 1995
and the notes thereto in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
B. FAIR VALUE OF INVESTMENTS
The Company has short-term investments in corporate debt securities
with maturities of less than 90 days whose carrying amounts approximate their
fair values because of their short maturities. These short-term investments
are included in cash and cash equivalents, are classified as held-to-maturity
securities and amounted to $11.9 million and $35.9 million at June 30, 1996 and
December 31, 1995, respectively. At June 30, 1996, the Company also had
investments classified as available-for-sale securities included in short-term
and long-term investments, consisting of $15.2 million of United States
Treasury Notes with maturities of between one and two years, and $2.9 million
of corporate debt securities with maturities of less than one year. These
available-for-sale securities are accounted for at their fair value, and
unrealized gains and losses on these securities are reported as a separate
component of shareholders' equity. At June 30, 1996 there were no unrealized
gains or losses recognized on available-for-sale securities.
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TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
C. CERTAIN BALANCE SHEET ITEMS
The components of inventories are:
JUNE 30, December 31,
1996 1995
---- ----
(thousands)
Raw materials . . . . . . . . . . . . . . . . . $ 2,835 $ 3,109
Work in process . . . . . . . . . . . . . . . . 1,665 1,653
Finished goods . . . . . . . . . . . . . . . . . 4,300 1,661
-------- --------
$ 8,800 $ 6,423
======== ========
Property and equipment consist of the following:
Manufacturing and development equipment . . . . $ 12,233 $ 10,823
Furniture and office equipment . . . . . . . . . 6,692 5,651
Demonstration equipment . . . . . . . . . . . . 3,701 3,406
Leasehold improvements . . . . . . . . . . . . . 1,124 1,232
-------- --------
23,750 21,112
Less, accumulated depreciation and amortization (16,384) (15,005)
Property and equipment, net . . . . . . . . . . $ 7,366 $ 6,107
======== ========
D. RELATED PARTY TRANSACTIONS
Sales to related parties consist of, and amounts due from related
parties are, the result of transactions between the Company and foreign
affiliates controlled by the Company's Chairman of the Board.
E. INCOME TAXES
Although the Company's pre-tax results showed a loss for the
three-month and six-month periods ended June 30, 1996, the Company had tax
provisions of $261,000 and $689,000, respectively, compared to $770,000, or an
effective tax rate of 27%, and $1.4 million, or an effective tax rate of 29%,
for the comparable periods in 1995. The provisions for all periods were
principally foreign taxes on the income of the Company's Japanese subsidiary.
The provisions for the three-month and six-month periods ended June 30, 1996
were impacted by the Company's inability to currently recognize a benefit for
its U.S. loss and credits carryforwards, which remain available to reduce
future U.S. taxes. In 1995, the Company was able to utilize a portion of its
prior years' U.S. loss carryforwards, and consequently provided for taxes on
its U.S. taxable income at the federal alternative minimum tax rate and
applicable state tax rates.
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TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
F. BORROWINGS
The Company has a $7.5 million line of credit with a U.S. bank and
lines of credit aggregating $3.2 million available to the Company's Japanese
subsidiary from various Japan-based banks.
The Company's $7.5 million line of credit is collateralized by
substantially all of the Company's assets, bears interest at the U.S. prime
rate (8.25% at June 30, 1996) plus 2.5% per annum, and expires September 30,
1996, if not renewed. Maximum borrowings available under the line of credit
are based on eligible accounts receivable and amounted to $6.4 million at June
30, 1996, of which $575,000 was then outstanding. This line of credit includes
a $1.0 million long-term credit facility payable in 47 monthly installments of
$20,000 each which began in June 1994 with a final installment of $60,000 due
in May 1998, or upon the expiration of the underlying $7.5 million line of
credit, if not renewed. At June 30, 1996, $500,000 was outstanding under this
long-term facility, of which $260,000 was included under long-term debt.
The Company's Japanese subsidiary has collateralized yen-denominated
lines of credit with Japan-based banks, primarily available for use in Japan,
amounting to the equivalent of $3.2 million with interest at the Japanese prime
rate (1.625% at June 30, 1996) plus 0.125% per annum which expire between March
29, 1997 and July 29, 1997, if not renewed. There have been no borrowings
under these lines of credit.
G. MAJOR CUSTOMERS
Sales to Nippon Telegraph & Telephone amounted to 10% and 19% of
revenues for the second quarter of 1996 and 1995, respectively. Sales to GTE
amounted to 21% of revenues for the second quarter of 1996, and sales to AT&T
amounted to 13% of revenues for the second quarter of 1995.
Sales to Nippon Telegraph & Telephone amounted to 12% and 18% of
revenues for the first six months of 1996 and 1995, respectively. Sales to GTE
amounted to 13% of revenues for the first six months of 1996, and sales to AT&T
amounted to 13% of revenues for the first six months of 1995.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Consolidated Financial Statements and the
Notes thereto included in Item 1 of this Quarterly Report and by the
Consolidated Financial Statements and Notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Historical results and percentage relationships among any amounts in the
financial statements are not necessarily indicative of trends in operating
results for any future periods.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages that statement of operations items bear to total revenues:
PERCENTAGE OF REVENUES
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . . . . . 40.0 34.1 39.5 33.7
------- ------ ------ ------
Gross profit . . . . . . . . . . . . . . 60.0 65.9 60.5 66.3
------- ------ ------- ------
Research and development . . . . . . . . 25.9 17.8 30.2 17.9
Selling, general and administrative . . . 43.3 33.9 49.3 35.1
------- ------ ------- ------
Total operating expenses . . . . . . . . 69.2 51.7 79.5 53.0
------- ------ ------- ------
Income (Loss) from operations . . . . . . (9.2) 14.2 (19.0) 13.3
Interest and other income (expense), net 2.4 0.3 2.7 (0.4)
------- ------ ------- ------
Income(Loss) before provision for
income taxes . . . . . . . . . . . . . (6.8) 14.5 (16.3) 12.9
Provision for income taxes . . . . . . . 1.6 4.0 2.4 3.7
------- ------ ------- ------
Net income (loss) . . . . . . . . . . . . (8.4)% 10.5% (18.7)% 9.2%
======= ====== ======= ======
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The following table sets forth, for the periods indicated, the
revenues by principal product line as a percentage of total revenues:
PERCENTAGE OF REVENUES
----------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
Network diagnostic products . . . . . . 58% 73% 66% 74%
Network switching products . . . . . . 42 27 34 26
--- --- --- ---
Total . . . . . . . . . . . . 100% 100% 100% 100%
=== === === ===
The following table sets forth, for the periods indicated, the
revenues by geographic territories as a percentage of total revenues:
PERCENTAGE OF REVENUES
----------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
North America . . . . . . . . . . . . . 64% 60% 60% 59%
Japan . . . . . . . . . . . . . . . . . 18 23 22 22
Europe . . . . . . . . . . . . . . . . 8 9 9 10
Rest of the World . . . . . . . . . . . 10 8 9 9
--- --- --- ---
Total . . . . . . . . . . . . 100% 100% 100% 100%
=== === === ===
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE
THREE MONTHS ENDED JUNE 30, 1995
Revenues. The Company's revenues decreased by $2.6 million or 14%
during the second quarter of 1996 due to lower sales of the Company's
diagnostic products, partially offset by higher sales of the Company's
switching products.
Revenues from switching products increased by $1.9 million or 37% in
the second quarter of 1996 primarily due to shipments under the Company's
contract with GTE. Revenues from diagnostic products decreased by $4.5 million
or 32% primarily due to softness in all markets for the Company's Chameleon
Open and older diagnostic products.
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Revenues in North America decreased by $1.0 million or 9% primarily as
a result of lower diagnostic product sales, partially offset by higher EAGLE
sales. Sales in Japan decreased by $1.4 million or 32%, of which $800,000 was
the result of exchange rate fluctuations on foreign currency translations.
Other international revenues decreased by $200,000 or 6%.
The impact of exchange rate fluctuations on foreign currency
translations decreased revenues by approximately $800,000 or 5% and increased
net loss by $57,000 or 4% in the second quarter of 1996.
Gross Profit. Gross profit as a percentage of revenues decreased from
66% in the second quarter of 1995 to 60% in the second quarter of 1996,
primarily due to the lower proportion of diagnostic product sales, which
typically carry higher margins than switching products, and lower margins on
the Company's initial EAGLE sales to GTE primarily due to non-recurring costs
associated with GTE's standardization process.
Research and Development. Research and development expenses increased
by $900,000 or 26% in the second quarter of 1996 and increased as a percentage
of revenues from 18% in the second quarter of 1995 to 26% in the second quarter
of 1996. The dollar increase in such expenses was primarily attributable to
the hiring of additional personnel and continuing expenses incurred in
connection with the Bellcore technical audit of the Company's EAGLE product.
The increase in such expenses as a percentage of revenues was also due to lower
revenues.
Selling, General and Administrative. Selling, general and
administrative expenses increased by $700,000 or 11% in the second quarter of
1996 and increased as a percentage of revenues from 34% in the second quarter
of 1995 to 43% in the second quarter of 1996. The dollar increase was due
primarily to higher tradeshow and advertising expenses and higher customer
service expenses to support the increased EAGLE installed base. The increase
in such expenses as a percentage of revenues was also due to lower revenues.
Income Taxes. Although the Company's pre-tax results showed a loss
for the three months ended June 30, 1996, the Company had a tax provision of
$261,000, compared to $770,000, or an effective tax rate of 27%, in 1995. The
provisions for both periods were principally foreign taxes on the income of
the Company's Japanese subsidiary. The provision for the three months ended
June 30, 1996 was impacted by the Company's inability to currently recognize
a benefit for its U.S. loss and credits carryforwards, which remain available
to reduce future U.S. taxes. In 1995, the Company was able to utilize a
portion of its prior years' U.S. loss carryforwards, and consequently provided
for taxes on its U.S. taxable income at the federal alternative minimum tax
rate and applicable state tax rates.
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SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE
SIX MONTHS ENDED JUNE 30, 1995
Revenues. The Company's revenues decreased by $9.4 million or 25%
during the first six months of 1996 due primarily to lower sales of diagnostic
products.
In the first six months of 1996, revenues from diagnostic products
decreased by $9.3 million or 33% due to lower sales of all diagnostic products
worldwide, while revenues from switching products decreased by $100,000 or 1%
in the first six months of 1996.
Revenues in North America decreased by $5.5 million or 24% primarily
as a result of lower sales of diagnostic products. Sales in Japan decreased by
$2.2 million or 26% of which $1.3 million was the result of exchange rate
fluctuations on foreign currency translations. Other international revenues
decreased by $1.7 million or 24% primarily due to lower sales of the Company's
older diagnostic products in Europe.
The impact of exchange rate fluctuations on foreign currency
translations decreased revenues by $1.3 million or 4% and increased the
Company's net loss by $100,000 or 2% in the first six months of 1996.
Gross Profit. Gross profit as a percentage of revenues decreased from
66% in the first half of 1995 to 61% in the first half of 1996, primarily due
to lower sales of the Company's higher margin diagnostic products and certain
non-recurring costs associated with the Company's EAGLE product.
Research and Development. Research and development expenses increased
by $1.9 million or 27% in the first six months of 1996 and increased as a
percentage of revenues from 18% in the first six months of 1995 to 30% in the
first six months of 1996. The dollar increase in such expenses was primarily
attributable to the hiring of additional personnel and contractors and to
expenses incurred in connection with the Bellcore technical audit of the
Company's EAGLE product.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $800,000 or 6% in the first six months of
1996 and increased as a percentage of revenues from 35% in the first six months
of 1995 to 49% in the first six months of 1996. The dollar increase in such
expenses was primarily due to the hiring of additional personnel and other
employment related expenses.
Income Taxes. Although the Company's pre-tax results showed a loss
for the six months ended June 30, 1996, the Company had a tax provision of
$689,000, compared to $1.4 million, or an effective tax rate of 29%, in 1995.
The provisions for both periods were principally foreign taxes on the income of
the Company's Japanese subsidiary. The provision for the six months ended June
30, 1996 was impacted by the Company's inability to currently recognize a
benefit for
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its U.S. loss and credits carryforwards, which remain available to reduce
future U.S. taxes. In 1995, the Company was able to utilize a portion of its
prior years' U.S. loss carryforwards, and consequently provided for taxes on
its U.S. taxable income at the federal alternative minimum tax rate and
applicable state tax rates.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, cash and cash equivalents
decreased by $20.1 million to $23.5 million, primarily due to short-term and
long-term investments of approximately $18.1 million during the period. In
addition, other investing activities used $2.9 million primarily for capital
expenditures, while operating activities provided $362,000, and financing
activities provided $1.1 million.
Accounts receivable, including amounts due from related parties,
decreased by 37% during the first six months of 1996 due primarily to lower
sales levels and strong accounts receivable collections, including the
collection of certain 1995 receivables which carried extended payment terms.
Inventories increased by 37% during the first six months of 1996 primarily to
meet anticipated higher sales levels than were achieved.
Capital expenditures amounted to $3.1 million during the first six
months of 1996 and represented the planned replacement and addition of
equipment principally for research and development, the Company's new facility
in North Carolina and sales demonstration.
The net cash provided by financing activities in the first six months
of 1996 was $1.1 million which principally represented net proceeds from the
issuance of Common Stock upon the exercise of stock options.
The Company has a $7.5 million line of credit with a U.S. bank and
lines of credit aggregating $3.2 million available to the Company's Japanese
subsidiary from various Japan-based banks.
The Company's $7.5 million line of credit is collateralized by
substantially all of the Company's assets, bears interest at the U.S. prime
rate (8.25% at June 30, 1996) plus 2.5% per annum, and expires September 30,
1996, if not renewed. Maximum borrowings available under the line of credit
are based on eligible accounts receivable and amounted to $6.4 million at June
30, 1996, of which $575,000 was then outstanding. This line of credit includes
a $1.0 million long-term credit facility payable in 47 monthly installments of
$20,000 each which began in June 1994 with a final installment of $60,000 due
in May 1998, or upon the expiration of the underlying $7.5 million line of
credit, if not renewed. At June 30, 1996, $500,000 was outstanding under this
long-term facility, of which $260,000 was included under long-term debt.
The Company's Japanese subsidiary has collateralized yen-denominated
lines of credit with Japan-based banks, primarily available for use in Japan,
amounting to the equivalent of $3.2 million with interest at the Japanese prime
rate (1.625% at June 30, 1996) plus 0.125% per annum which expire between March
29, 1997 and July 29, 1997, if not renewed. There have been no borrowings
under these lines of credit.
13
14
Upon the expiration of the above-described credit facilities, the
Company believes that, if necessary, it would be able to arrange for credit
facilities on terms generally no less favorable than those described above.
The Company believes that existing working capital, funds generated
from operations, and its current bank lines of credit should be sufficient to
satisfy anticipated operating requirements at least through 1996.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
The statements which are not historical facts contained in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking statements that involve certain risks and
uncertainties including, but not limited to, competition in the network
diagnostic and network switching markets, capital spending patterns of the
Company's customers, foreign currency fluctuations, general economic and
political conditions, announcements of new products by Tekelec or its
competitors, and other risks described in the Company's Annual Report on Form
10-K and in the Company's other Securities and Exchange Commission filings.
14
15
PART II --OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 10, 1996, the Company held its 1996 Annual Meeting of
Shareholders (the "Annual Meeting").
(b) At the Annual Meeting, the following persons were elected as
directors of the Company. The number of votes cast for each
director, as well as the number of votes withheld, are listed
opposite each director's name.
NAME OF DIRECTOR VOTES CAST FOR DIRECTOR VOTES WITHHELD
---------------- ----------------------- --------------
Robert V. Adams 10,138,839 22,050
Philip J. Alford 9,880,739 280,150
Jean-Claude Asscher 9,880,239 280,650
Daniel L. Brenner 10,142,339 18,550
Howard Oringer 10,142,339 18,550
Jon F. Rager 9,880,239 280,650
(c) At the Annual Meeting, the shareholders approved, with
7,484,014 votes cast in favor and 865,874 votes cast against,
an amendment to the Company's 1994 Stock Option Plan
increasing the aggregate number of shares of Common Stock
authorized for issuance thereunder from 1,400,000 to
2,000,000. There were 26,232 abstentions and 1,784,769 broker
nonvotes with respect to this matter.
(d) At the Annual Meeting, the shareholders approved, with
7,818,655 votes cast in favor and 540,132 votes cast against,
an amendment to the Company's Amended and Restated
Non-Employee Director Equity Incentive Plan increasing the
aggregate number of shares of Common Stock authorized for
issuance thereunder from 250,000 to 425,000. There were
17,333 abstentions and 1,784,769 broker nonvotes with respect
to this matter.
(e) At the Annual Meeting, the shareholders approved, with
8,208,012 votes cast in favor and 157,468 votes cast against,
the Company's Employee Stock Purchase Plan authorizing the
issuance of 200,000 shares of Common Stock. There were 10,640
abstentions and 1,784,769 broker nonvotes with respect to this
matter.
(f) At the Annual Meeting, with 10,076,689 votes cast in favor,
the shareholders ratified the appointment of Coopers & Lybrand
L.L.P. as independent accountants of the Company for the year
ending December 31, 1996. 75,050 votes were cast against such
ratification, and there were 9,150 abstentions with respect to
this matter.
15
16
PART II --OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement of Computation of Earnings Per Share for the Three
and Six Months Ended June 30, 1996 and 1995
27.1 Financial Data Schedule
(b) Reports
No reports on Form 8-K were filed by the Company during the
six months ended June 30, 1996.
16
17
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.
TEKELEC
August 14, 1996 /s/ Philip J. Alford
--------------------------------------
Philip J. Alford
President and Chief Executive Officer
(Duly authorized officer)
/s/ Gilles C. Godin
--------------------------------------
Gilles C. Godin
Chief Financial Officer and
Vice President, Finance
(Principal financial and chief
accounting officer)
17
18
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
11.1 Statement of Computation of Earnings Per Share for the
Three and Six Months Ended June 30, 1996 and 1995 19
27.1 Financial Data Schedule 20
19
TEKELEC
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED SIX MONTHS ENDED
PRIMARY JUNE 30, JUNE 30,
-------------------- -----------------
(THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995 1996 1995
---- ---- ---- ----
Net income (loss) . . . . . . . . . . . $(1,412) $ 2,050 $(5,380) $ 3,518
======= ======= ======= =======
Basis for computation of primary earnings
per common and common equivalent share:
Weighted average number of shares
outstanding during period . . . . . . . 11,717 9,902 11,677 9,530
Weighted average (incremental) common
share equivalent after considering the
effects of options exercised and canceled
during the period and after assumed
repurchase of treasury shares--treasury
stock method . . . . . . . . . . . . . . -- 1,595 -- 1,623
------- ------- ------- -------
11,717 11,497 11,677 11,153
======= ======= ======= =======
Earnings (Loss) per share . . . . . . . $ (0.12) $ 0.18 $ (0.46) $ 0.32
======= ======= ======= =======
THREE MONTHS ENDED SIX MONTHS ENDED
FULLY DILUTED JUNE 30, JUNE 30,
-------------------- -----------------
(thousands, except per share data)
1996 1995 1996 1995
---- ---- ---- ----
Net income (loss) . . . . . . . . . . . $(1,412) $ 2,050 $(5,380) $ 3,518
======= ======= ======= =======
Basis for computation of fully diluted earnings
per common and common equivalent share:
Weighted average number of shares
outstanding during period . . . . . . . 11,717 9,902 11,677 9,530
Weighted average (incremental) common
share equivalent after considering the
effects of options exercised and canceled
during the period and after assumed
repurchase of treasury shares -- treasury
stock method . . . . . . . . . . . . . . -- 1,718 -- 1,781
------- ------- ------- -------
11,717 11,620 11,677 11,311
======= ====== ======= =======
Earnings (Loss) per share . . . . . . . $ (0.12) $ 0.18 $ (0.46) $ 0.31
======= ======= ======= =======
TEKELEC EXHIBIT 11.1