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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 SEPTEMBER 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 November 1, 1995 there were 11,560,638 shares of the
registrant's common stock, without par value, outstanding.
Total number of pages in this report: 20
Index to Exhibits is on Page: 18
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TEKELEC
FORM 10-Q
INDEX
PART I -- FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 1995
and December 31, 1994 3
Consolidated Income Statements for the three
and nine months ended September 30, 1995 and 1994 4
Consolidated Statements of Cash Flow for the
nine months ended September 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 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
SEPTEMBER 30, DECEMBER 31,
1995 1994
---------------- ------------
(thousands, except share data)
ASSETS (unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . $ 44,946 $ 6,653
Restricted cash . . . . . . . . . . . . . . . . . ---- 1,000
Accounts and notes receivable, less
allowances of $332 and $318, respectively . . . 18,259 14,215
Inventories . . . . . . . . . . . . . . . . . . . 6,720 4,391
Amounts due from related parties . . . . . . . . . 2,598 1,538
Prepaid expenses and other current assets . . . . 964 704
--------- ---------
Total current assets . . . . . . . . . . . . . 73,487 28,501
Property and equipment, net . . . . . . . . . . . . . . 5,573 4,794
Technology, net . . . . . . . . . . . . . . . . . . . . --- 423
Other assets . . . . . . . . . . . . . . . . . . . . . 650 691
--------- ----------
Total assets . . . . . . . . . . . . . . . . . $ 79,710 $ 34,409
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion
of long-term debt . . . . . . . . . . . . . . . . $ 569 $ 1,366
Trade accounts payable . . . . . . . . . . . . . . 4,430 4,005
Accrued expenses . . . . . . . . . . . . . . . . . 4,337 3,213
Accrued payroll and related expenses . . . . . . . 2,719 4,132
Deferred revenues . . . . . . . . . . . . . . . . 2,488 1,412
Current portion of other obligations . . . . . . . 62 312
Income taxes payable . . . . . . . . . . . . . . . 1,337 595
--------- ----------
Total current liabilities . . . . . . . . . . 15,942 15,035
Long-term debt . . . . . . . . . . . . . . . . . . . . 440 620
Long-term portion of other obligations . . . . . . . . 2 34
--------- ----------
Total liabilities . . . . . . . . . . . . . . 16,384 15,689
--------- ----------
SHAREHOLDERS' EQUITY:
Common stock, without par value,
50,000,000 shares authorized; 11,548,338 and
9,022,612 shares issued and outstanding,
respectively . . . . . . . . . . . . . . . . . . 54,537 15,940
Retained earnings . . . . . . . . . . . . . . . . 6,159 79
Cumulative translation adjustment . . . . . . . . 2,630 2,701
--------- ----------
Total shareholders' equity . . . . . . . . . . 63,326 18,720
--------- ----------
Total liabilities and shareholders' equity . . $ 79,710 $ 34,409
========= ==========
See notes to consolidated financial statements.
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TEKELEC
CONSOLIDATED INCOME STATEMENTS
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
(thousands, except per share data)
REVENUES:
Sales to third parties . . . . . . . . . $ 18,967 $ 14,811 $ 53,834 $ 39,898
Sales to related parties . . . . . . . 980 827 4,243 2,536
-------- -------- ---------- --------
Total revenues . . . . . . . . . . . 19,947 15,638 58,077 42,434
COSTS AND EXPENSES:
Cost of goods sold . . . . . . . . . . . 6,151 5,032 19,015 14,088
Research and development . . . . . . . . 3,892 3,066 10,726 8,580
Selling, general and administrative . . 7,160 5,568 20,535 15,847
-------- -------- -------- -------
Total costs and expenses . . . . . . 17,203 13,666 50,276 38,515
-------- -------- -------- -------
Income from operations . . . . . . . . . . . 2,744 1,972 7,801 3,919
Other income (expense):
Interest, net . . . . . . . . . . . . . 511 (81) 617 (267)
Other, net . . . . . . . . . . . . . . . (3) (11) (226) (313)
-------- --------- -------- -------
Total other income (expense) . . . . 508 (92) 391 (580)
-------- --------- -------- -------
Income before provision for income taxes . . 3,252 1,880 8,192 3,339
Provision for income taxes . . . . . . . 692 523 2,114 979
-------- -------- -------- -------
NET INCOME . . . . . . . . . . . . . . . $ 2,560 $ 1,357 $ 6,078 $ 2,360
======== ======== ======= =======
EARNINGS PER SHARE:
Primary . . . . . . . . . . . . . . . . $ 0.20 $ 0.15 $ 0.52 $ 0.27
Fully diluted . . . . . . . . . . . . . 0.20 0.14 0.51 0.25
WEIGHTED AVERAGE NUMBER OF SHARES:
Primary . . . . . . . . . . . . . . . . 13,053 9,262 11,799 9,034
Fully diluted . . . . . . . . . . . . . 13,054 9,740 11,855 9,584
See notes to consolidated financial statements.
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TEKELEC
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
Nine Months Ended
September 30,
-----------------------------
1995 1994
---- ----
(thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 6,078 $ 2,360
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 2,826 3,327
Changes in current assets and liabilities:
Accounts and notes receivable . . . . . . . . . . . . (4,115) (4,873)
Inventories . . . . . . . . . . . . . . . . . . . . . (2,364) 512
Amounts due from related parties . . . . . . . . . . . (1,060) (194)
Prepaid expenses and other current assets . . . . . . (286) 517
Trade accounts payable . . . . . . . . . . . . . . . . 404 (955)
Accrued expenses . . . . . . . . . . . . . . . . . . . 1,158 653
Accrued payroll and related expenses . . . . . . . . . (1,428) (2,001)
Deferred revenues . . . . . . . . . . . . . . . . . . 1,076 494
Income taxes payable . . . . . . . . . . . . . . . . . 788 (200)
---------- --------
Total adjustments . . . . . . . . . . . . . . . . . . (3,001) (2,720)
---------- -------
Net cash provided by (used in) operating activities . 3,077 (360)
---------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . . . . . . (3,150) (924)
Decrease in other assets . . . . . . . . . . . . . . . . . 36 240
---------- -------
Net cash (used in) investing activities . . . . . . . (3,114) (684)
---------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Decrease (Increase) in restricted cash . . . . . . . . . . 1,000 (1,000)
Payments of short-term borrowings . . . . . . . . . . . . (797) (881)
Proceeds from long-term debt . . . . . . . . . . . . . . . -- 1,000
Repayment of long-term debt . . . . . . . . . . . . . . . (180) (80)
Repayment of other obligations . . . . . . . . . . . . . . (292) (291)
Proceeds from issuance of common stock . . . . . . . . . . 38,597 381
---------- -------
Net cash provided by (used in) financing activities . 38,328 (871)
---------- -------
Effect of exchange rate changes on cash . . . . . . . . . . . . 2 521
---------- -------
Net increase (decrease) in cash and cash equivalents . . . 38,293 (1,394)
Cash and cash equivalents at beginning of period . . . . . . . 6,653 3,669
---------- -------
Cash and cash equivalents at end of period . . . . . . . . . . $ 44,946 $ 2,275
========== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 201 $ 261
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,426 1,108
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, 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 nine months ended September
30, 1995 and 1994 are for the thirteen and thirty-nine weeks ended September
29, 1995 and September 30, 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 September
30, 1995, the Company had investments of $32.9 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 90 days or less.
The Company had no investments in debt or equity securities at December 31,
1994.
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TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
C. CERTAIN BALANCE SHEET ITEMS
The components of inventories are:
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------ -----------
(thousands)
Raw materials . . . . . . . . . . . . . . . . . . . $ 3,117 $ 2,197
Work in process . . . . . . . . . . . . . . . . . . 1,750 1,246
Finished goods . . . . . . . . . . . . . . . . . . . 1,853 948
----------- ---------
$ 6,720 $ 4,391
=========== ========
Property and equipment consist of the following:
Manufacturing and development equipment . . . . . . $ 9,937 $ 8,567
Furniture and office equipment . . . . . . . . . . . 5,387 5,022
Demonstration equipment . . . . . . . . . . . . . . 3,703 3,249
Leasehold improvements . . . . . . . . . . . . . . . 1,386 1,257
----------- -------
20,413 18,095
Less, accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . (14,840) (13,301)
----------- ----------
$ 5,573 $ 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 foreign
affiliates controlled by the Company's Chairman of the Board.
E. INCOME TAXES
For the three-month and nine-month periods ended September 30, 1995,
the Company had effective tax rates of 21% and 26%, respectively, compared to
28% and 29%, respectively, for the three-month and nine-month periods ended
September 30, 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.
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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 $3.5 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 (8.75% at September 30, 1995) plus 2.5% per annum and expires on September
30, 1996, if not renewed. Maximum borrowings available under the line of
credit are based on eligible accounts receivable and amounted to $6.8 million
at September 30, 1995, of which $329,000 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 September 30, 1995, $680,000 was
outstanding under this long-term facility, of which $440,000 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 $3.5 million with interest at the Japanese prime
rate (1.625% at September 30, 1995) plus 0.125% per annum which expire between
March 31, 1996, and August 5, 1996, if not renewed. There have been no
borrowings under these lines of credit.
G. MAJOR CUSTOMERS
Sales to Nippon Telegraph & Telephone amounted to 13% and 17% of
revenues for the third quarter of 1995 and 1994, respectively. Sales to
Telstra Corporation Limited amounted to 10% of revenues for the third quarter
of 1994.
Sales to Nippon Telegraph & Telephone amounted to 16% and 14% of
revenues for the first nine months of 1995 and 1994, respectively. Sales to
AT&T including sales under the Company's distribution agreement with AT&T
amounted to 10% of revenues for the first nine months of 1995.
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TEKELEC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
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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 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 Nine Months Ended
September 30, September 30,
--------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
Revenues . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . . . . . 30.8 32.2 32.7 33.2
----- ----- ----- -----
Gross profit . . . . . . . . . . . . . . 69.2 67.8 67.3 66.8
Research and development . . . . . . . . 19.5 19.6 18.5 20.2
Selling, general and administrative . . . 35.9 35.6 35.4 37.3
----- ----- ----- -----
Total operating expenses . . . . . . . . 55.4 55.2 53.9 57.5
----- ----- ----- -----
Income from operations . . . . . . . . . 13.8 12.6 13.4 9.3
Interest and other income (expense), net 2.6 (0.6) 0.7 (1.4)
----- ----- ----- -----
Income before provision for income taxes 16.4 12.0 14.1 7.9
Provision for income taxes . . . . . . . 3.5 3.3 3.6 2.3
----- ----- ----- -----
Net income . . . . . . . . . . . . . . . 12.9% 8.7% 10.5% 5.6%
===== ===== ===== =====
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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 Nine Months Ended
September 30, September 30,
--------------------- --------------------
1995 1994 1995 1994
---- ---- ---- ----
Network diagnostic products . . . . . . 68% 71% 72% 73%
Network switching products . . . . . . 32 29 28 27
--- --- --- ---
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 Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
North America . . . . . . . . . . . . . 59% 52% 58% 56%
Japan . . . . . . . . . . . . . . . . . 27 22 24 22
Europe . . . . . . . . . . . . . . . . 7 8 9 9
Rest of the World . . . . . . . . . . . 7 18 9 13
--- --- --- ---
Total . . . . . . . . . . . . 100% 100% 100% 100%
=== === === ===
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH THE
THREE MONTHS ENDED SEPTEMBER 30, 1994
Revenues. The Company's revenues increased by $4.3 million or 28%
during the third quarter of 1995 due to higher sales of both diagnostic and
switching products.
Revenues from diagnostic products increased by $2.5 million or 23%
primarily attributable to higher worldwide signalling/wireless sales,
particularly in North America, and higher Chameleon Open sales primarily in
Japan, partially offset by lower sales of the Company's older diagnostic
products. Sales of the Chameleon Open represented 30% of total diagnostic
product sales in the third quarter of 1995 compared with 25% in the third
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
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$1.8 million or 39% in the third quarter of 1995 primarily due to increased
EAGLE STP sales in North America.
Revenues in North America increased by $3.6 million or 45% primarily
as a result of higher switching product sales. Diagnostic product sales in
North America increased by 6% due primarily to a large signalling/wireless
product sale in Mexico, partially offset by lower sales in the U.S.,
particularly for Chameleon products, due primarily to reduced spending by
communications carriers and communications equipment manufacturers. Sales in
Japan increased by $1.9 million or 55% primarily due to higher sales of both
Chameleon Open and third-party diagnostic products. Other international
revenues decreased by $1.1 million or 28% primarily due to a large EAGLE sale
that occurred in the third quarter of 1994.
The impact of exchange rate fluctuations on currency translations
increased revenues by approximately $260,000 or 1% and increased net income by
$32,000 or 1% in the third quarter of 1995.
Gross Profit. Gross profit as a percentage of revenues increased from
68% in the third quarter of 1994 to 69% in the third quarter of 1995, primarily
due to lower technology amortization and lower per-unit manufacturing overhead
costs. 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 $826,000 or 27% in the third quarter of 1995 and were stable as a percentage
of revenues at 20% for both periods. 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 $1.6 million or 29% in the third quarter
of 1995 principally as a result of the hiring of additional personnel and higher
commissions due to higher sales.
Income Taxes. For the three months ended September 30, 1995, the
Company had an effective tax rate of 21%, compared to 28% in the third 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.
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NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH THE
NINE MONTHS ENDED SEPTEMBER 30, 1994
Revenues. The Company's revenues increased by $15.6 million or 37%
during the first nine months of 1995 due to higher sales of both diagnostic and
switching products.
Revenues from diagnostic products increased by $10.8 million or 35%
primarily attributable to higher sales of signalling/wireless products
worldwide and of Chameleon Open products primarily in Japan. Sales of the
Chameleon Open represented 28% of total diagnostic product sales in the first
nine months of 1995 compared with 22% in the first nine months of 1994.
Revenues from switching products increased by $4.8 million or 42% in the first
nine months of 1995 due to increased EAGLE STP sales in North America.
Revenues in North America increased by $10.2 million or 43% as a
result of higher sales of both switching and diagnostic products. Sales in
Japan increased by $4.6 million or 51% due to higher sales of diagnostic
products and exchange rate fluctuations on currency translations amounting to
approximately $1.5 million. Other international revenues increased by $832,000
or 9% 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 $1.5 million or 3% and increased net income by $141,000
or 2% in the first nine months of 1995.
Gross Profit. Gross profit as a percentage of revenues remained
essentially the same at approximately 67% for both periods. In the first nine
months of 1995, lower per-unit manufacturing overhead costs 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 $2.1 million or 25% in the first nine months of 1995 but decreased as a
percentage of revenues from 20% in the first nine months of 1994 to 18% in the
first nine months of 1995. The dollar increase in such expenses was primarily
attributable to the hiring of additional personnel and contractors.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $4.7 million or 30% in the first nine
months 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
37% in the first nine months of 1994 to 35% in the first nine months of 1995.
Income Taxes. For the first nine months of 1995, the Company had an
effective tax rate of 26%, compared to 29% in the first nine months 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
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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 nine-month period ended September 30, 1995, cash and cash
equivalents increased by $38.3 million to $44.9 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. In addition, other financing
activities provided $1.8 million, operating activities provided $3.1 million,
and investing activities used $3.1 million.
Accounts receivable, including amounts due from related parties,
increased by 32% during the first nine months of 1995 due primarily to extended
payment terms granted to certain customers, large balances from certain EAGLE
customers which were paid in October 1995, and higher concentration of sales in
the last month of the third quarter of 1995 compared to the fourth quarter of
1994. Inventories increased by 53% during the first nine months of 1995
primarily due to maintaining additional inventory to meet anticipated demand
for EAGLE and Chameleon Open products. Accrued payroll and related expenses
decreased by 34% principally due to the payment of 1994 employee bonuses in the
first quarter of 1995. Accrued expenses increased by 35% due principally to
sales volume related accruals including commissions and warranty reserve.
Capital expenditures amounted to $3.2 million during the first nine
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 nine months
of 1995 was $38.3 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 $3.5 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 (8.75% at September 30, 1995) plus 2.5% per annum and expires on September
30, 1996, if not renewed. Maximum borrowings available under the line of
credit are based on eligible accounts receivable and amounted to $6.8 million
at September 30, 1995, of which $329,000 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 September 30, 1995, $680,000 was
outstanding under this long-term facility, of which $440,000 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%
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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 $3.5 million with interest at the Japanese prime
rate (1.625% at September 30, 1995) plus 0.125% per annum which expire between
March 31, 1996, and August 5, 1996, if not renewed. There have been no
borrowings under these lines of credit.
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, 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 1996.
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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 Nine Months Ended September 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 September 30, 1995
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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
November 8, 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)
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INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- -------------
11.1 Statement of Computation of Earnings Per Share
for the Three and Nine Months Ended September 30,
1995 and 1994
27.1 Financial Data Schedule
18