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 JUNE 30, 1995
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, 1995 there were 11,407,819 shares of the registrant's
common stock, without par value, outstanding.
2
TEKELEC
FORM 10-Q
INDEX
PART I -- FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 1995
and December 31, 1994 3
Consolidated Income Statements for the three
and six months ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flow for the
six months ended June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
3
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
TEKELEC
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1995 1994
---------- ------------
(thousands, except share data)
ASSETS (unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . $41,574 $ 6,653
Restricted cash . . . . . . . . . . . . . . . . . ---- 1,000
Accounts and notes receivable, less
allowances of $337 and $318, respectively . . . 17,682 14,215
Inventories . . . . . . . . . . . . . . . . . . . 5,757 4,391
Amounts due from related parties . . . . . . . . . 3,027 1,538
Prepaid expenses . . . . . . . . . . . . . . . . . 707 704
------- -------
Total current assets . . . . . . . . . . . . . 68,747 28,501
Property and equipment, net . . . . . . . . . . . . . . 5,271 4,794
Technology, net . . . . . . . . . . . . . . . . . . . . 29 423
Other assets . . . . . . . . . . . . . . . . . . . . . 737 691
------- -------
Total assets . . . . . . . . . . . . . . . . . $74,784 $34,409
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion
of long-term debt . . . . . . . . . . . . . . . . $ 678 $ 1,366
Trade accounts payable . . . . . . . . . . . . . . 2,602 4,005
Accrued expenses . . . . . . . . . . . . . . . . . 3,964 3,213
Accrued payroll and related expenses . . . . . . . 2,517 4,132
Deferred revenues . . . . . . . . . . . . . . . . 1,563 1,412
Current portion of other obligations . . . . . . . 133 312
Income taxes payable . . . . . . . . . . . . . . . 1,211 595
------- -------
Total current liabilities . . . . . . . . . . 12,668 15,035
Long-term debt . . . . . . . . . . . . . . . . . . . . 500 620
Long-term portion of other obligations . . . . . . . . 3 34
------- -------
Total liabilities . . . . . . . . . . . . . . 13,171 15,689
------- -------
SHAREHOLDERS' EQUITY:
Common stock, without par value,
50,000,000 shares authorized; 11,402,663 and
9,022,612 shares issued and outstanding,
respectively . . . . . . . . . . . . . . . . . . 53,878 15,940
Retained earnings . . . . . . . . . . . . . . . . 3,597 79
Cumulative translation adjustment . . . . . . . . 4,138 2,701
------- -------
Total shareholders' equity . . . . . . . . . . 61,613 18,720
------- -------
Total liabilities and shareholders' equity . . $74,784 $34,409
======= =======
See notes to consolidated financial statements.
3
4
TEKELEC
CONSOLIDATED INCOME STATEMENTS
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
(thousands, except per share data)
REVENUES:
Sales to third parties . . . . . . . . . $18,073 $13,028 $34,868 $25,087
Sales to related parties . . . . . . . . 1,427 782 3,262 1,709
------- ------- ------- -------
Total revenues . . . . . . . . . . . 19,500 13,810 38,130 26,796
COSTS AND EXPENSES:
Cost of goods sold . . . . . . . . . . . 6,657 4,316 12,864 9,056
Research and development . . . . . . . . 3,477 2,742 6,834 5,514
Selling, general and administrative . . 6,599 5,336 13,375 10,279
------- ------- ------- -------
Total costs and expenses . . . . . . 16,733 12,394 33,073 24,849
------- ------- ------- -------
Income from operations . . . . . . . . . . . 2,767 1,416 5,057 1,947
Other income (expense):
Interest, net . . . . . . . . . . . . . 102 (95) 106 (186)
Other, net . . . . . . . . . . . . . . . (49) (105) (223) (302)
------- ------- ------- -------
Total other income (expense) . . . . 53 (200) (117) (488)
------- ------- ------- -------
Income before provision for income taxes . . 2,820 1,216 4,940 1,459
Provision for income taxes . . . . . . . 770 339 1,422 456
------- ------- ------- -------
NET INCOME . . . . . . . . . . . . . . . $ 2,050 $ 877 $ 3,518 $ 1,003
======= ======= ======= =======
EARNINGS PER SHARE:
Primary . . . . . . . . . . . . . . . . $ 0.18 $ 0.10 $ 0.32 $ 0.12
Fully diluted . . . . . . . . . . . . . 0.18 0.10 0.31 0.11
WEIGHTED AVERAGE NUMBER OF SHARES:
Primary . . . . . . . . . . . . . . . . 11,497 9,064 11,153 8,924
Fully diluted . . . . . . . . . . . . . 11,620 9,066 11,311 8,980
See notes to consolidated financial statements.
4
5
TEKELEC
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
Six Months Ended
June 30,
-----------------------------
1995 1994
---- ----
(thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 3,518 $ 1,003
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 2,038 2,290
Changes in current assets and liabilities:
Accounts and notes receivable . . . . . . . . . . . . (3,005) (742)
Inventories . . . . . . . . . . . . . . . . . . . . . (1,177) 1,116
Amounts due from related parties . . . . . . . . . . . (1,489) 91
Prepaid expenses . . . . . . . . . . . . . . . . . . . 18 578
Trade accounts payable . . . . . . . . . . . . . . . . (1,586) (986)
Accrued expenses . . . . . . . . . . . . . . . . . . . 697 (735)
Accrued payroll and related expenses . . . . . . . . . (1,667) (1,536)
Deferred revenues . . . . . . . . . . . . . . . . . . 151 308
Income taxes payable . . . . . . . . . . . . . . . . . 515 (155)
------- -------
Total adjustments . . . . . . . . . . . . . . . . . . (5,505) 229
------- -------
Net cash provided by (used in) operating activities . (1,987) 1,232
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . . . . . . (1,895) (443)
Decrease in other assets . . . . . . . . . . . . . . . . . 19 226
------- -------
Net cash (used in) investing activities . . . . . . . (1,876) (217)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Decrease (Increase) in restricted cash . . . . . . . . . . 1,000 (1,000)
Payments of short-term borrowings . . . . . . . . . . . . (688) (2,021)
Proceeds from long-term debt . . . . . . . . . . . . . . . --- 1,000
Repayment of long-term debt . . . . . . . . . . . . . . . (120) (20)
Repayment of other obligations . . . . . . . . . . . . . . (219) (218)
Proceeds from issuance of common stock . . . . . . . . . . 37,938 334
------- -------
Net cash provided by (used in) financing activities . 37,911 (1,925)
------- -------
Effect of exchange rate changes on cash . . . . . . . . . . . . 873 517
------- -------
Net increase in cash and cash equivalents . . . . . . . . 34,921 (393)
Cash and cash equivalents at beginning of period . . . . . . . 6,653 3,669
------- -------
Cash and cash equivalents at end of period . . . . . . . . . . $41,574 $ 3,276
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 162 $ 179
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 914 549
See notes to consolidated financial statements.
5
6
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, 1994, 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 and operating results for the interim periods.
The results of operations for the current interim periods 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 three and six months ended June 30, 1995 and 1994
are for the thirteen and twenty-six weeks ended June 30, 1995 and July 1, 1994,
respectively.
The Company has adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
which requires that, except for debt securities classified as
"held-to-maturity," investments in debt and equity securities be reported at
fair value. The adoption of this statement had no material effect on the
Company's financial statements. See Note B.
Earnings per share are computed using the weighted average number of
shares outstanding and dilutive common stock equivalents (options and
warrants).
On March 17, 1995, the Company effected a two-for-one split of its
common stock. All references to numbers of shares and per share amounts have
been restated to reflect the stock split.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements for the year ended December 31, 1994
and the notes thereto in the Company's Annual Report to Shareholders for the
year ended December 31, 1994.
B. FAIR VALUE OF INVESTMENTS
The Company has short-term investments whose carrying amounts
approximate their fair values because of their short maturity. At June 30,
1995, the Company had investments of $29.9 million classified as
held-to-maturity securities included in cash and cash equivalents, all of which
were invested in corporate debt securities with maturities of 30 days or less.
The Company had no investments in debt or equity securities at December 31,
1994.
6
7
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
C. CERTAIN BALANCE SHEET ITEMS
The components of inventories are:
June 30, December 31,
1995 1994
----------- ------------
(thousands)
Raw materials . . . . . . . . . . . . . . . . . . . $ 3,031 $ 2,197
Work in process . . . . . . . . . . . . . . . . . . 1,359 1,246
Finished goods . . . . . . . . . . . . . . . . . . . 1,367 948
-------- --------
$ 5,757 $ 4,391
======== ========
Property and equipment consist of the following:
Manufacturing and development equipment . . . . . . $ 9,212 $ 8,567
Furniture and office equipment . . . . . . . . . . . 5,321 5,022
Demonstration equipment . . . . . . . . . . . . . . 3,850 3,249
Leasehold improvements . . . . . . . . . . . . . . . 1,454 1,257
-------- --------
19,837 18,095
Less, accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . (14,566) (13,301)
-------- --------
$ 5,271 $ 4,794
======== ========
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 a foreign
affiliate controlled by the Company's Chairman of the Board.
E. INCOME TAXES
For the three-month and six-month periods ended June 30, 1995, the
Company had effective tax rates of 27% and 29%, respectively, compared to 28%
and 31%, respectively, for the three-month and six-month periods ended June 30,
1994. The provisions for both periods were principally foreign taxes on the
income of the Company's Japanese subsidiary. In both periods,
7
8
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
F. BORROWINGS
The Company has a $7.5 million line of credit with a U.S. bank and
lines of credit aggregating $4.1 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 (9.0% at June 30, 1995) plus 2.5% per annum and expires on September 30,
1995, if not renewed. Maximum borrowings available under the line of credit
are based on eligible accounts receivable and amounted to $6.8 million at June
30, 1995, of which $438,000 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 and 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, 1995, $740,000 was outstanding under this
long-term facility, of which $500,000 was included under long-term debt.
In February 1994, the Company established a $2.0 million line of
credit with a U.S. bank, collateralized by restricted cash deposits in Japan,
with interest at the U.S. prime rate plus 0.375% per annum. Upon expiration of
this facility in May 1995, the outstanding loan balance of $1.0 million was
paid in full and the line of credit was not renewed.
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 $4.1 million with interest at the Japanese prime
rate (2.375% at June 30, 1995) plus 0.125% per annum which expire between May
29, 1996, and July 29, 1996, if not renewed. There have been no borrowings
under these lines of credit.
G. MAJOR CUSTOMERS
Sales to Nippon Telegraph & Telephone amounted to 19% and 10% of
revenues for the second quarter of 1995 and 1994, respectively. Sales to AT&T
including sales under the Company's distribution agreement with AT&T amounted
to 13% of revenues for the second quarter of 1995.
8
9
TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Sales to Nippon Telegraph & Telephone amounted to 18% and 12% of
revenues for the first six months of 1995 and 1994, respectively. Sales to
AT&T including sales under the Company's distribution agreement with AT&T
amounted to 13% for the first six months of 1995.
H. COMMON STOCK
Pursuant to a public offering in June 1995, the Company issued
2,012,500 shares of Common Stock at $19.50 per share. The net proceeds to the
Company, after underwriting discounts and commissions and offering expenses,
amounted to approximately $36.5 million.
9
10
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 to Shareholders for the year ended December 31, 1994.
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 income statement items bear to total revenues:
PERCENTAGE OF REVENUES
----------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
Revenues . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . . . . . 34.1 31.3 33.7 33.8
----- ----- ----- -----
Gross profit . . . . . . . . . . . . . . 65.9 68.7 66.3 66.2
Research and development . . . . . . . . 17.8 19.9 17.9 20.6
Selling, general and administrative . . . 33.8 38.6 35.1 38.4
----- ----- ----- -----
Total operating expenses . . . . . . . . 51.7 58.5 53.0 59.0
----- ----- ----- -----
Income from operations . . . . . . . . . 14.2 10.3 13.3 7.2
Interest and other income (expense), net 0.3 (1.5) (0.4) (1.8)
----- ----- ----- -----
Income before provision for income taxes 14.5 8.8 12.9 5.4
Provision for income taxes . . . . . . . 4.0 2.5 3.7 1.7
----- ----- ----- -----
Net income . . . . . . . . . . . . . . . 10.5% 6.3% 9.2% 3.7%
===== ===== ===== =====
10
11
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,
---------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
Network diagnostic products . . . . . . 73% 74% 74% 74%
Network switching products . . . . . . 27 26 26 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,
---------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
North America . . . . . . . . . . . . . 57% 60% 58% 56%
Japan . . . . . . . . . . . . . . . . . 23 21 22 21
Europe . . . . . . . . . . . . . . . . 9 10 10 10
Rest of the World . . . . . . . . . . . 11 9 10 13
---- ---- ---- ----
Total . . . . . . . . . . . . 100% 100% 100% 100%
==== ==== ==== ====
THREE MONTHS ENDED JUNE 30, 1995 COMPARED WITH THE
THREE MONTHS ENDED JUNE 30, 1994
Revenues. The Company's revenues increased by $5.7 million or 41%
during the second quarter of 1995 due to higher sales of both diagnostic and
switching products.
Revenues from diagnostic products increased by $4.0 million or 39%
primarily attributable to higher worldwide Chameleon Open sales, particularly
in Japan, and higher signalling/wireless product sales in North America.
Sales of the Chameleon Open represented 30% of total diagnostic product sales
in the second quarter of 1995 compared with 16% in the second quarter of 1994.
The Company expects that 1995 sales of its Chameleon Open will represent a
higher percentage of diagnostic product revenues when compared with 1994.
Revenues from switching products increased by $1.7 million or 47% in the second
quarter of 1995 primarily due to increased EAGLE STP sales in North America.
11
12
Revenues in North America increased by $3.0 million or 36% primarily
as a result of higher switching and signalling/wireless diagnostic product
sales. Sales in Japan increased by $1.5 million or 50% primarily due to
exchange rate fluctuations on currency translations amounting to approximately
$800,000 and higher Chameleon Open sales. Other international revenues
increased by $1.3 million or 48% primarily due to higher diagnostic product
sales.
The impact of exchange rate fluctuations on currency translations
increased revenues by approximately $800,000 or 4% and increased net income by
$84,000 or 4% in the second quarter of 1995.
Gross Profit. Gross profit as a percentage of revenues decreased from
69% in the second quarter of 1994 to 66% in the second quarter of 1995,
primarily due to a shift in the Company's sales to a higher proportion of
Chameleon Open products which carried lower margins due to marketing strategies
to increase market acceptance of this product. Changes in the following
factors, among others, may affect gross profit: product and distribution
channel mix, competition, customer discounts, supply and demand conditions in
the electronic components industry, internal manufacturing capabilities and
efficiencies, foreign currency fluctuations and general economic conditions.
Research and Development. Research and development expenses increased
by $735,000 or 27% in the second quarter of 1995 but decreased as a
percentage of revenues from 20% in the second quarter of 1994 to 18% in the
second quarter of 1995. The increase in expenses was primarily attributable to
the hiring of additional personnel and contractors.
Selling, General and Administrative. Selling, general and
administrative expenses increased by $1.3 million or 24% in the second quarter
of 1995 principally as a result of the hiring of additional personnel and
higher commissions due to higher sales. Such expenses, however, decreased as
a percentage of revenues from 39% in the second quarter of 1994 to 34% in the
second quarter of 1995.
Income Taxes. For the three months ended June 30, 1995, the Company
had an effective tax rate of 27%, compared to 28% in the second quarter of
1994. The provisions for both periods were principally foreign taxes on the
income of the Company's Japanese subsidiary. In both periods, 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.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED WITH THE
SIX MONTHS ENDED JUNE 30, 1994
Revenues. The Company's revenues increased by $11.3 million or 42%
during the first half of 1995 due to higher sales of both diagnostic and
switching products.
12
13
Revenues from diagnostic products increased by $8.3 million or 42%
primarily attributable to higher worldwide sales of signalling/wireless and
Chameleon Open products. Sales of the Chameleon Open represented 24% of total
diagnostic product sales in the first half of 1995 compared with 21% in the
first half of 1994. Revenues from switching products increased by $3.0 million
or 44% in the first half of 1995 due to increased EAGLE STP sales in North
America.
Revenues in North America increased by $7.0 million or 46% as a result
of higher sales of both diagnostic and switching products. Sales in Japan
increased by $2.7 million or 48% due to exchange rate fluctuations on currency
translations amounting to approximately $1.3 million and higher sales of
diagnostic products. Other international revenues increased by $1.6 million or
27% primarily due to higher diagnostic product sales, partially offset by lower
switching product sales.
The impact of exchange rate fluctuations on currency translations
increased revenues by $1.3 million or 3% and increased net income by $116,000
or 3% in the first half of 1995.
Gross Profit. Gross profit as a percentage of revenues remained
essentially the same at 66% for both periods. In the first half of 1995,
higher margins on sales of switching products were offset by lower diagnostic
product margins, particularly on Chameleon Open sales due to marketing
strategies to increase market acceptance of this product.
Research and Development. Research and development expenses increased
by $1.3 million or 24% in the first half of 1995 but decreased as a percentage
of revenues from 21% in the first half of 1994 to 18% in the first half of
1995. The increase in expenses was primarily attributable to the hiring of
additional personnel and contractors.
Selling, General and Administrative. Selling, general and
administrative expenses increased by $3.1 million or 30% in the first half of
1995 principally as a result of the hiring of additional personnel, higher
commissions due to higher sales and increased tradeshow and travel expenses.
Such expenses, however, decreased as a percentage of revenues from 38% in
first half of 1994 to 35% in the first half of 1995.
Income Taxes. For the first half of 1995, the Company had an
effective tax rate of 29%, compared to 31% in the first half of 1994. The
provisions for both periods were principally foreign taxes on the income of the
Company's Japanese subsidiary. In both periods, 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-month period ended June 30, 1995, cash and cash
equivalents increased by $34.9 million to $41.6 million, primarily due to net
proceeds of $36.5 million raised in the Company's public offering of Common
Stock which was completed in June 1995. Other
13
14
financing activities provided $1.4 million, while operating activities and
capital expenditures, net of the effect of exchange rate changes on cash, used
$3.0 million.
Accounts receivable, including amounts due from related parties,
increased by 31% during the first six months of 1995 due primarily to extended
payment terms granted to certain customers, large balances from certain EAGLE
customers which were paid in July 1995, and higher concentration of sales in
the last month of the second quarter of 1995 compared to the fourth quarter of
1994. Inventories increased by 31% during the first half of 1995 primarily due
to the need to maintain additional inventory to meet anticipated demand for
EAGLE and Chameleon Open products. Accrued payroll and related expenses
decreased by 39% principally due to the payment of 1994 employee bonuses in the
first quarter of 1995. Accounts payable decreased by 35% due principally to
the timing of inventory purchases.
Capital expenditures amounted to $1.9 million during the first six
months of 1995 and represented the planned replacement and addition of
equipment principally for research and development, sales demonstration, and
the expansion of facilities in North Carolina.
The net cash provided by financing activities in the first half of
1995 was $37.9 million which principally represented net proceeds from the
issuance of Common Stock pursuant to the Company's public offering and upon the
exercise of options and warrants.
The Company has a $7.5 million line of credit with a U.S. bank and
lines of credit aggregating $4.1 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 (9.0% at June 30, 1995) plus 2.5% per annum and expires on September 30,
1995, if not renewed. Maximum borrowings available under the line of credit
are based on eligible accounts receivable and amounted to $6.8 million at June
30, 1995, of which $438,000 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 and 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, 1995, $740,000 was outstanding under this
long-term facility, of which $500,000 was included under long-term debt.
In February 1994, the Company established a $2.0 million line of
credit with a U.S. bank, collateralized by restricted cash deposits in Japan,
with interest at the U.S. prime rate plus 0.375% per annum. Upon expiration of
this facility in May 1995, the outstanding loan balance of $1.0 million was
paid in full and the line of credit was not renewed.
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 $4.1 million with interest at the Japanese prime
rate (2.375% at June 30, 1995) plus 0.125% per annum which expire between May
29, 1996, and July 29, 1996, if not renewed. There have been no borrowings
under these lines of credit.
14
15
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 that those described above.
The Company believes that existing working capital, including the net
proceeds from its public offering, funds generated from operations, and its
current bank lines of credit should be sufficient to satisfy anticipated
operating requirements at least through 1995.
15
16
PART II --OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 12, 1995, the Company held its 1995 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 7,865,371 428,400
Philip J. Alford 7,864,889 428,882
Jean-Claude Asscher 7,865,371 428,400
Philip Black 7,865,371 428,400
Daniel L. Brenner 7,865,371 428,400
Howard Oringer 7,862,259 431,512
Jon F. Rager 7,865,371 428,400
(c) At the Annual Meeting, the shareholders approved, with
5,141,558 votes cast in favor and 610,624 votes cast against,
amendments to the Company's 1994 Stock Option Plan increasing
the aggregate number of shares of Common Stock authorized for
issuance thereunder from 800,000 to 1,400,000. There were
15,375 abstentions and 2,526,214 broker nonvotes with respect
to this matter.
(d) At the Annual Meeting, the shareholders approved, with
5,733,419 votes cast in favor and 46,721 votes cast against,
an amendment to the Company's Employee Stock Purchase Plan
increasing the aggregate number of shares of Common Stock
authorized for issuance thereunder from 450,000 to 600,000.
There were 15,925 abstentions and 2,497,706 broker nonvotes
with respect to this matter.
(e) At the Annual Meeting, the shareholders approved, with
5,425,752 votes cast in favor and 305,214 votes cast against,
an amendment to the Company's Bylaws authorizing the Board of
Directors to approve loans to, and guarantees of the
obligations of, the Company's officers. There were 21,700
abstentions and 2,541,105 broker nonvotes with respect to this
matter.
(f) At the Annual Meeting, with 5,775,945 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, 1995. 29,607 votes were cast against such
ratification, and there were 2,488,219 abstentions with
respect to this matter.
16
17
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, 1995 and 1994
27.1 Financial Data Schedule
(b) Reports
No reports on Form 8-K were filed by the company during the
three months ended June 30, 1995
17
18
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, 1995 /s/ Philip J. Alford
-------------------------------------------
Philip J. Alford
Chief Executive Officer and President
(Duly authorized officer)
/s/ Gilles C. Godin
-------------------------------------------
Gilles C. Godin
Chief Financial Officer and Vice President,
Finance (Principal financial and chief
accounting officer)
18
19
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,
1995 and 1994
27.1 Financial Data Schedule
19