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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended April 30, 2008 | ||
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
Date of event requiring this shell company report |
| our ability to sustain profitability in the future; | |
| significant economic instability in our key markets, particularly in the U.S. and United Kingdom; | |
| the fluctuations in our quarterly and annual revenues and operating results; | |
| intense competition from our competitors, many of which have greater financial resources; | |
| the continued development of the market opportunity for IP-based and unified communications solutions and related services; | |
| technological developments and evolving industry standards; | |
| our ability to protect our intellectual property and our possible infringement of the intellectual property rights of third parties; | |
| our dependence on outside contract manufacturers to manufacture our products; | |
| our dependence on sole source and limited source suppliers for key components; | |
| delay in the delivery of, or lack of access to, software or other intellectual property licensed from our suppliers; | |
| our reliance on strategic alliances; | |
| our solutions may contain design defects, errors, failures or bugs; | |
| our reliance on our channel partners for a significant component of our sales; and | |
| uncertainties arising from our foreign operations. |
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Item 1. | Identity of Directors, Senior Management and Advisors |
Item 2. | Offer Statistics and Expected Timetable |
Item 3. | Key Information |
A. | Selected Financial Data |
Year Ended | Six Days Ended | Year Ended | ||||||||||||||||||||||
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April 30, |
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2004 | 2005 | 2005 | 2006 | 2007 | 2008 | |||||||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||||||
Consolidated Statement of Operations
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Revenues
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$ | 340.7 | $ | 342.2 | $ | 3.2 | $ | 387.1 | $ | 384.9 | $ | 692.0 | ||||||||||||
Cost of revenues
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202.9 | 213.2 | 2.4 | 225.7 | 225.1 | 367.9 | ||||||||||||||||||
Gross margin
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137.8 | 129.0 | 0.8 | 161.4 | 159.8 | 324.1 | ||||||||||||||||||
Research and development
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36.2 | 41.4 | 0.7 | 44.1 | 41.7 | 62.6 | ||||||||||||||||||
Selling, general and administrative
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111.4 | 114.9 | 1.8 | 120.7 | 123.5 | 246.6 | ||||||||||||||||||
Special charges, integration and merger-related costs(1)
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11.7 | 10.6 | | 5.7 | 9.3 | 16.0 | ||||||||||||||||||
Loss (gain) on disposal of assets
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0.6 | 3.4 | | (2.4 | ) | (1.0 | ) | 1.0 | ||||||||||||||||
Litigation settlement
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| | | | 16.3 | | ||||||||||||||||||
Initial public offering costs
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| | | | 3.3 | | ||||||||||||||||||
In-process research and development(2)
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0.2 | | | | | 5.0 | ||||||||||||||||||
Operating loss
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(22.3 | ) | (41.3 | ) | (1.7 | ) | (6.7 | ) | (33.3 | ) | (7.1 | ) | ||||||||||||
Other (income) expense, net
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8.0 | 7.5 | (0.1 | ) | 39.8 | (0.1 | ) | (8.0 | ) | |||||||||||||||
Income tax (recovery) expense
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0.3 | 0.8 | | (1.9 | ) | 1.8 | (12.3 | ) | ||||||||||||||||
Net income (loss)
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$ | (30.6 | ) | $ | (49.6 | ) | $ | (1.6 | ) | $ | (44.6 | ) | $ | (35.0 | ) | $ | 13.2 | |||||||
Net loss per common share
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Basic and diluted
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$ | (0.26 | ) | $ | (0.49 | ) | $ | (0.01 | ) | $ | (0.44 | ) | $ | (0.36 | ) | $ | (0.44 | ) | ||||||
Weighted average number of common shares outstanding (in
millions)
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127.8 | 113.8 | 117.1 | 117.2 | 117.3 | 186.1 | ||||||||||||||||||
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As at |
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April 25, |
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April 30, |
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2004 | 2005 | 2005 | 2006 | 2007 | 2008 | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Consolidated Balance Sheet Data
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Cash and cash equivalents
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$ | 26.7 | $ | 9.7 | $ | 46.6 | $ | 35.7 | $ | 33.5 | $ | 19.5 | ||||||||||||
Other current assets
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115.0 | 117.5 | 115.8 | 130.8 | 136.9 | 273.4 | ||||||||||||||||||
Property and equipment
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20.3 | 20.9 | 20.6 | 17.4 | 16.5 | 27.0 | ||||||||||||||||||
Other assets
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7.4 | 8.5 | 12.3 | 15.9 | 15.3 | 656.8 | ||||||||||||||||||
Total assets
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$ | 169.4 | $ | 156.6 | $ | 195.3 | $ | 199.8 | $ | 202.2 | $ | 976.7 | ||||||||||||
Current liabilities
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$ | 103.2 | $ | 115.8 | $ | 101.9 | $ | 126.0 | $ | 143.8 | $ | 234.0 | ||||||||||||
Long-term debt
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15.5 | 20.2 | 66.7 | 56.7 | 66.8 | 420.7 | ||||||||||||||||||
Derivative instruments(3)
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29.2 | 38.0 | 37.4 | 75.9 | 67.3 | 108.6 | ||||||||||||||||||
Other long-term liabilities
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24.8 | 25.4 | 25.1 | 45.6 | 55.4 | 246.4 | ||||||||||||||||||
Redeemable shares(4)
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51.3 | 57.2 | 57.3 | 64.2 | 71.5 | 208.5 | ||||||||||||||||||
Capital stock
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184.8 | 187.6 | 187.6 | 188.8 | 189.1 | 277.1 | ||||||||||||||||||
Other capital accounts
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7.7 | 14.7 | 23.3 | (1.9 | ) | 6.5 | (26.4 | ) | ||||||||||||||||
Accumulated deficit
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(247.1 | ) | (302.3 | ) | (304.0 | ) | (355.5 | ) | (398.2 | ) | (492.2 | ) | ||||||||||||
Total liabilities and shareholders equity
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$ | 169.4 | $ | 156.6 | $ | 195.3 | $ | 199.8 | $ | 202.2 | $ | 976.7 | ||||||||||||
(1) | Special charges related to restructuring activities, product line exit and other loss accruals undertaken to improve our operational efficiency and to realign our business. Integration and merger-related transaction expenses principally consist of legal and consulting fees incurred in connection with the acquisition of Inter-Tel in fiscal 2008, as well as other incremental non-recurring costs directly related to this acquisition (see Item 4.A. Information on Mitel History and Development of Mitel). | |
(2) | In process research and development costs represents research and development acquired as part of the Inter-Tel acquisition (see Item 4.A. Information on Mitel History and Development of Mitel). | |
(3) | Prior to fiscal 2008, the derivative instruments related to our Class A Preferred Shares, Series 1 (the Series A Preferred Shares) and the Class B Preferred Shares, Series 1 (the Series B Preferred Shares). The derivative instruments arose because a portion of the redemption price of the Series A Preferred Shares and Series B Preferred Shares was indexed to our common share price and as required by SFAS 133 had been bifurcated and accounted for separately. | |
In fiscal 2008, the derivative instrument related to the Class 1 convertible, redeemable preferred shares (the Class 1 Preferred Shares) issued on August 16, 2007. The holders of the Class 1 Preferred Shares have the ability to receive cash equal to the value of shares into which the instrument converts after 7 years and as such must also be bifurcated and accounted for separately under SFAS 133. | ||
(4) | Prior to fiscal 2008, redeemable shares included 10,000,000 Common Shares (which were redeemable by virtue of a shareholders agreement dated April 23, 2004, as amended, among certain of our shareholders and us), 20,000,000 Series A Preferred Shares and 67,789,300 Series B Preferred Shares (see Item 6.A. Directors, Senior Management and Employees Directors and Senior Management). | |
In fiscal 2008, redeemable shares included 316,755 Class 1 Preferred Shares issued in connection with the acquisition of Inter-Tel (see Item 4.A. Information on Mitel History and Development of Mitel and see Item 6.A. Directors, Senior Management and Employees Directors and Senior Management). |
B. | Capitalization and Indebtedness |
C. | Reasons for the offer and use of proceeds |
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D. | Risk Factors |
| significant economic instability in our key markets, particularly the U.S. and United Kingdom; | |
| the fact that an individual order or contract can represent a substantial amount of revenues for that period; | |
| the size, timing and shipment of individual orders; | |
| changes in pricing or discount levels by us or our competitors; | |
| foreign currency exchange rates; | |
| the mix and volume of products sold by us; and | |
| the timing of the announcement, introduction and delivery of new products and/or product enhancements by us and our competitors. |
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| the demand for IP-based and unified communications solutions, value-added applications and services will grow as fast as we anticipate; | |
| current or future competitors or new technologies will cause the market to evolve in a manner different than we expect; or | |
| other technologies will become more accepted or standard in our industry. |
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| the level of sales and the related margins on those sales; |
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| the collection of receivables; | |
| the timing and volume of sales of leases to third party funding sources; | |
| the timing and size of capital expenditures; | |
| the timing and size of purchase of inventory and related components; | |
| costs associated with potential restructuring actions; and | |
| customer financing obligations. |
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| the financial viability of the contract manufacturer; | |
| our contract manufacturers experiencing delays, disruptions or quality control problems in their manufacturing operations; | |
| lead-times for required materials and components varying significantly and being dependent on factors such as the specific supplier, contract terms and the demand for each component at a given time; | |
| overestimating our forecast requirements resulting in excess inventory and related carrying charges; | |
| underestimating our requirements, resulting in our contract manufacturers having inadequate materials and components required to produce our products, or overestimating our requirements, resulting in charges assessed by the contract manufacturers or liabilities for excess inventory, each of which could negatively affect our gross margins; and | |
| the possible absence of adequate capacity and reduced control over component availability, quality assurances, delivery schedules, manufacturing yields and costs. |
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| 316,755 Class 1 Preferred Shares. These Class 1 Preferred Shares are convertible into Common Shares at the option of the holders and upon certain triggering events. As of September 30, 2008, each Class 1 Preferred Share was convertible into 828.812 Common Shares; | |
| Stock options to acquire 29,202,509 Common Shares; and | |
| Warrants to acquire up to an additional 82,238,013 Common Shares. |
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| political or social unrest or economic instability in a specific country or region; | |
| macroeconomic conditions adversely affecting geographies where we do business; | |
| higher costs of doing business in foreign countries; | |
| infringement claims on foreign patents, copyrights, or trademark rights; |
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| difficulties in managing operations across disparate geographic areas; | |
| difficulties associated with enforcing agreements and intellectual property rights through foreign legal systems; | |
| trade protection measures and other regulatory requirements which may affect our ability to import or export our products from or to various countries; | |
| adverse tax consequences; | |
| unexpected changes in legal and regulatory requirements; | |
| military conflict, terrorist activities, natural disasters and widespread medical epidemics; and | |
| our ability to recruit and retain channel partners in foreign jurisdictions. |
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Item 4. | Information on Mitel |
A. | History and Development of Mitel |
| $330 million in a senior secured first lien facility, comprised of: |
| $130 million in a senior secured second lien facility (the Second Lien Credit Agreement). |
| reduced the stated capital of the Series A Preferred Shares and made a return of capital to the holder of the Series A Preferred Shares; | |
| amended the conversion rights attaching to the Series A Preferred Shares to provide that such Series A Preferred Shares be convertible, at the option of the holder thereof, into 0.000871 of a Class 1 Preferred Share and 0.2679946 of a Common Share; | |
| converted each existing Series A Preferred Share into 0.000871 of a Class 1 Preferred Share and 0.2679946 of a Common Share; | |
| converted each existing Series B Preferred Share into 1.682 Common Shares; | |
| deleted from the articles of the Corporation the Class Series A Preferred Shares, the Class B Preferred Shares, the Series A Preferred Shares and the Series B Preferred Shares; |
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| repaid all of the $55 million senior secured convertible notes (the Convertible Notes) issued by us on April 27, 2005; | |
| purchased for cancellation certain Common Shares upon the exercise of put rights held by Zarlink and Power Technology Investment Corporation (PTIC); | |
| terminated the put rights held by EdgeStone Capital Equity Fund II-B GP, Inc., as agent for EdgeStone Capital Equity Fund II-A, L.P. and its parallel investors, and EdgeStone Capital Equity Fund II Nominee, Inc., as nominee for EdgeStone Capital Equity Fund II-A, L.P. and its parallel investors (collectively EdgeStone); | |
| repurchased common share warrants issued to Wesley Clover on September 21, 2006 (under which we had sold 15,000 warrants to Wesley Clover for total consideration of $15 million); | |
| terminated the Series 2 Warrants held by EdgeStone (collectively, the Re-Organization Transactions); and | |
| issued Class 1 Preferred Shares and warrants to purchase Common Shares to PTIC and Dr. Matthews. |
| Effective October 15, 2007, ownership of Mitel Networks Inc. (MNI) (an indirect wholly owned subsidiary of ours) was transferred from Mitel Networks Limited (an indirect wholly owned subsidiary of ours in the United Kingdom) to Mitel U.S. Holdings, Inc. (MUSHI); | |
| Effective February 29, 2008, we changed the legal entity name of Inter-Tel Netsolutions, Inc. (a Texas corporation) to Mitel Netsolutions, Inc.; | |
| Effective April 4, 2008, ownership of MNI was further transferred from MUSHI to Inter-Tel (now Mitel (Delaware), Inc. see below); | |
| Immediately following the above transfer of ownership, effective April 4, 2008, Inter-Tel Integrated Systems, Inc. (an Arizona corporation and an indirect wholly owned subsidiary of ours) merged with and into MNI; and | |
| Effective July 18, 2008, we changed the legal names of the following indirect wholly owned subsidiaries of ours: |
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B. | Business Overview |
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| Mitel Communications Suite TMC Labs Innovation Awards Internet Telephony Magazine (2008) | |
| Mitel Communications Suite Winner Best of Interop VoIP and Collaboration (2008) | |
| Mitel Applications Suite Communications Solution Product of the Year Award (2007) | |
| Mitel Intelligent Phone Applications Suite Communications Solution Product of the Year Award (2007) | |
| Mitel Applications Suite Unified Communications Magazine Product of the Year (2007) | |
| Mitel Intelligent Phone Applications Suite Unified Communications Magazine Product of the Year (2007) | |
| Mitel Intelligent Phone Applications Suite Internet Telephony Product of the Year (2007) | |
| Inter-Tel Web Conferencing and Remote Support Customer Interaction Solutions Product of the Year (2007) | |
| Mitel Your Assistanttm INTERNET TELEPHONY Excellence Award Internet Telephony Magazine (2007) | |
| Inter-Tel 3000 CE Pro High Impact Product (CHIPs) award (2007) | |
| Mitel Customer Interaction Solutions: TMC Labs Innovation Award for Customer Interaction Solutions Magazine (2007) | |
| Mitel Applications Suite: TMC Labs Innovation Award for Internet Telephony Magazine (2007) | |
| Mitel Customer Interaction Solutions: IP Contact Center Technology Pioneer Award (2007) |
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| The Mitel 3300 ICP is the cornerstone of our IP and unified communications solutions portfolio for our SMB and enterprise customers. Available on a worldwide basis, it supports our suite of advanced call processing and related applications and desktop devices. Our call processing software supports over 500 networking and end user features and is available in multiple languages. The Mitel 3300 ICP supports analog, digital, and IP phones and trunks. The Mitel 3300 ICP has the flexibility to operate as either a single site, distributed or hosted solution and interoperates with a customers traditional solution. The Mitel 3300 ICP is scalable to serve the needs of small and medium businesses with as few as 20 users and large enterprises with as many as 65,000 users. To offer customers maximum flexibility, the Mitel 3300 ICP can be delivered in various configurations scaling from up to 150 concurrent users per controller to a maximum of 5000. Multiple Mitel 3300 ICPs can be clustered to create a single system. As the industry moves towards open standards and a software delivery model the Mitel 3300 ICP call processing software and media gateway (Mitel 3300 Communications Director) has been ported to the Linux operating system and is delivered on the highly resilient Sun Fire X4150 server from Sun Microsystems (Sun). All hardware and software variants of the Mitel 3300 ICP run the same software delivering the same features and applications to all customers independent of size. Additionally, in conjunction with Sun we have developed the Mitel Unified Client for Sun Ray to operate with Suns thin client desktop providing integrated authentication for voice and data hotdesking delivering enhanced security, flexibility and lower power consumption and other operational savings. | |
| The Mitel 3300 ICP also acts as an applications and services gateway, allowing customers access to advanced applications such as messaging, mobility and teleworking. With the Mitel Live Business Gateway attributes enabled, the applications and services gateway provides connectivity to Microsofts Office Communications Server 2007 for our solutions and the traditional infrastructure of competitors. The applications and services gateway uses open industry standards to interoperate both with our applications and devices and, through the Mitel Solutions Alliance program (MSA), third party business applications and devices. | |
| For customers with branch offices, we offer the ability to either implement a Mitel 3300 ICP at each location or allow users at a remote site to receive a hosted service from a Mitel 3300 ICP situated in a data center elsewhere in the network (or a combination of both options). Those customers using a hosted model have access to the same software applications and services as those situated at the office where the Mitel 3300 ICP physically resides. The Mitel 3300 ICP can also be implemented as a survivable gateway at a branch office such that if the network to the office from which they are being hosted becomes unavailable, then the local Mitel 3300 ICP will provide the same services seamlessly until the network connection is restored. We are able to distribute the features, software applications and services normally only available at larger corporate offices to any part of the network, addressing the communications challenges facing organizations with decentralized operations and personnel. This approach also provides alternative network configurations for customers concerned with disaster recovery and business continuity. | |
| The Mitel 3300 ICP also supports the peripheral cabinets and bays of our traditional PBX systems; the Mitel SX-2000 and the Mitel SX-200. This provides a migration path for our customers who wish to transition to IP-based and unified communications at their own pace and also allows them to maximize their existing investments |
| Contact Center Applications. A contact center is generally a dedicated function within a business that typically serves as an inside sales help desk, providing customer support, lead generation, emergency response, telephone answering service, inbound response and outbound telemarketing. In addition to |
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delivering solutions to this requirement we have developed capabilities in anticipation of trends in this sector. This includes supporting integrated customer service groups for staff in any location, including work at home agents. Also, customer service organizations need to serve their clients via any media a reality in todays consumer market. To meet these requirements we provide sophisticated routing for voice and other forms of media, such as instant messaging, email and fax, and agent capabilities as well as a suite of web-based applications for streamlining contact center management and reporting. Customers can therefore choose to implement those elements that are most relevant to their business needs. Our contact center applications provide multimedia functionality incorporating routing of an inquiry to the first available agent or the agent that has been idle for the longest period. Visibility of the presence and availability of colleagues or resources can be provided by integration with Microsofts Office Communications Server using the Mitel Live Business Gateway to facilitate first call resolution. An inquiry can be associated with an incoming call, e-mail, fax or web chat. Contact center agents are fully supported across a centralized or multi-site environment including home working. |
| Wireless Telephony Applications. We offer wireless telephony applications for in-building mobility as well as to enable the seamless convergence of in-building wired or wireless networks with mobile cellular-based networks. Our in-building wireless applications provide roaming users with the majority of the features available on a desktop device including extension-to-extension dialing, attendant functions, voice mail and messaging as well as external calling. We use wireless devices, supporting the Digitally Enhanced Cordless Telephony, or DECT, and the IEEE 802.3 Wi-Fi standards, that work with other major manufacturers wireless access points allowing customers the use of their existing access point investment for in-building mobile telephony. We also provide the functionality to pair a cellular phone with an office extension or any other telephone such that each device will ring simultaneously if the office extension is called. This pairing significantly reduces the number of calls that are missed. When a call is answered on a cellular phone it is still presented at the office extension, which means that by pressing a single key on the office telephone, the call can be moved from the cellular phone to the office extension. This process can also be achieved in reverse, so that an employee who may need to leave for a meeting, can transfer the call from the office extension to the cellular device. This feature reduces charges and enables the user to operate with one phone number and one voice mail box whether in the office, at home or traveling. | |
| Video Applications. Our video applications provide businesses access to video conferencing at the desktop. Our video applications also incorporate collaboration tools, including those from Microsoft Office, that allow users to share computer applications during conferences. Our solutions can simultaneously support eight separate locations involved in the video conference. | |
| Unified Communications Client and Server Based Collaboration Tools. We offer a client server based unified communications application, Mitel Your Assistant, that provides contact management, presence and availability, secure instant messaging, audio conferencing and video and data collaboration plus softphone capability integrated with the call control capabilities of the Mitel 3300 ICP. In addition, the unified communications client integrates with leading business productivity software like Microsoft Exchange, Microsoft Outlook and Microsoft Office and Lotus Notes. The softphone provides a number of important features of a Mitel desktop telephone on a personal computer, at the users desk or from any location around the world where there is suitable access to the Internet. Mitel Your Assistant interacts with the users contact database and offers secure instant messaging capabilities, video conferencing, knowledge management (automatic retrieval of pertinent files associated with the name and number of the caller) and enables simplified drag and drop call and conference call initiation by moving, with a computer mouse, the name of a contact from a list or directory into the communications window. Mitel Your Assistant also enables the simple sharing of presentations, documents or spreadsheets and also offers the ability to create a virtual white board on each users computer screen for the purposes of creating drawings, diagrams or for making notes. In addition, a video conference can be established with a non-user of Mitel Your Assistant by publishing the name of an Internet web page associated with the conference call. | |
| Speech Enabled Messaging, Unified Messaging and Voice Mail. Mitel NuPoint Messenger, our branded unified messaging application, provides a scalable and reliable way to relay, store, and retrieve voice messages using either a phone, fax machine, pager or personal computer. NuPoint Messenger also allows |
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users to have their calls routed to them while they are travelling, or access their voice or fax messages from their personal computer. NuPoint Messenger provides a high availability and highly scalable solution, which can be suitable as a carrier or large enterprise solution and operates with other competitive corporate environments. Our Mitel Messaging Server product allows businesses to mix and match the requirements of individual employees by supporting both unified messaging and traditional voicemail on the same platform. Speech recognition capability is integrated into the system giving users the ability to control their messaging via speech enabled commands. Messaging Server supports Microsoft Outlook, MicrosoftExchange, IBM Lotus/Domino and Novell GroupWise messaging environments. Our messaging solutions also interoperate with Microsoft Live Communications Server. |
| Teleworking. Our IP-based teleworker solution enables users to make secure and encrypted IP phone calls from their home office or any remote office by extending the features and functionality of an office telephone over the Internet. As a result, long distance charges can be significantly reduced or in some cases eliminated. As an option, our Teleworker telephone can support an integral module that allows the telephone to access the public switched telephone network for making local calls and calls to emergency services and to receive incoming calls. Customers can download reports that provide detailed usage statistics on teleworker activity. This information provides return on investment feedback as a means of itemizing savings. | |
| Collaboration Audio and Web Conferencing (AWC). Our AWC solution addresses the dynamic communications needs of our customers by providing a feature-rich, cost effective IP-based collaboration solution for conducting interactive online meetings, such as brainstorming, training sessions, and presentations. Its audio conferencing and web presentation capabilities facilitate better collaboration among internal and external employees, business partners and customers. The browser-based interface enables users to quickly and easily schedule and conduct conference calls and share documents with any participant. AWC enables businesses to quickly bring people together, wherever they may be, so that decisions can be made faster and more effectively. It also enables organizations to reduce costs, improve workgroup collaboration and increase employee productivity. | |
| Integration with Microsoft Unified Communications. We offer a range of solutions that, in conjunction with the Mitel 3300 ICP, provides telephony and presence integration with Microsoft Live Communications Server 2005 and Microsoft Office Communications Server 2007. Telephony integration solutions include the Mitel Live Business Gateway that enables a user to control their Mitel IP phone via the Microsoft Communicator client and PC-to-Phone enabling the Microsoft Communicator client to operate as a Session Initiation Protocol (SIP) soft phone connected to the Mitel 3300 ICP via SIP trunks. A wide range of our applications offer Microsoft presence integration enabling employees to work more efficiently, smarter, and more collaboratively resulting in improved productivity and communication within a customers business. | |
| Mitel Applications Suite. The Mitel Applications Suite has been developed to make IP-based communications applications easier to acquire, implement and use. The product integrates the applications into a single server or into the Mitel 3300 ICP to further reduce the total cost of ownership for our customers. A configuration wizard provides step by step configuration of both communications applications and users on the Mitel 3300 ICP resulting in lower installation costs for our partners. A system administration portal is available for day to day moves, adds and changes and an end user portal is available to allow our customers to change their personal settings. This allows these applications to be delivered cost effectively and with simplicity to the small business market and is a unique and differentiated offering consisting of applications such as: |
| Feature-rich voice mail | |
| Flexible unified messaging | |
| Speech-enabled auto-attendant | |
| Personalized auto-attendant and call routing | |
| Comprehensive audio conferencing | |
| Integrated web collaboration and desktop sharing |
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| Single identity mobile integration | |
| Secure remote worker / teleworker |
| Mitel Enterprise Manager. Our enterprise management application allows our customers to administer and control their network of Mitel 3300 ICP s and associated applications and devices. This application allows our customers to administer users, monitor and control telecommunication spending as well as network monitoring, alarm handling and troubleshooting. Our enterprise management application include the following: |
| Enterprise Manager. The Enterprise Manager provides a single management interface to monitor and manage all of the activities of the Mitel 3300 ICP and perform day-to-day management tasks helping control costs by delivering simplified PC-based administration. | |
| Remote Management. The Remote Management capabilities allow the maintainer or administrator to access network and system information and resolve issues remotely. | |
| Integrated Management Applications. Integrated Management Applications provides the ability to analyze the IP networks capability to support IP communications. Voice quality metrics and diagnostics can be used to test the network capabilities and to help troubleshoot potential issues. |
| Technology Interfaces. Recognizing that some customers may have specialized requirements beyond our standard applications, we offer a wide range of technology interfaces and APIs for specific enhancements. Open interfaces allow integration to third party management solutions, such as those from Microsoft and Hewlett Packard. |
| Designed for small- or medium-sized organizations with single or multiple sites, the family of Mitel 5000 Communications Platforms (Mitel 5000 CP) is an IP-based communications solution designed for businesses with up to 250 users. It delivers an integrated solution consisting of: call processing, IP, digital and analog endpoints, and digital and analog trunks. Software has been built on a platform that efficiently and reliably combines the best of both traditional and IP communications. The combination of both IP and traditional switching within the system provides customers the flexibility to deploy a solution that most meets the needs of their business. The Mitel 5000 CP also provides a migration path for customers currently using the traditional Inter-Tel Axxess Converged Communications System (the Axxess). The Mitel 5000 CP is currently available in the U.S. and the United Kingdom. | |
| As part of our portfolio rationalization process we have ported Mitel designed IP phones to the Mitel 5000 CP to offer our customers a greater choice among our family of handsets. | |
| During the course of fiscal 2009 we plan to enhance the Mitel 5000 CP with the introduction of the Mitel Applications Suite. |
| System Manager. System Manager software is a network management system for the Axxess Converged Communications System (Axxess) and the Mitel 5000 CP. It simplifies management of the Mitel 5000 CP communication platform, allowing administration of all network components through a single web-based interface. The following functions can all be conducted through this web-based application: communications platform, voice mail and endpoint configuration, licensing, software updates and downloads, and diagnostics and disaster recovery (backup/restore). System administrators and technicians can remotely manage and troubleshoot the supported products. |
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| Mitel Unified Communicator 5000. The Mitel Unified Communicator 5000 is a productivity tool that combines presence management and collaboration functionality designed to allow stationary and mobile users a way to more effectively manage their communications and increase efficiency while streamlining business processes. Integration of Mitel Web Conferencing and Mitel Remote Support (described below) can also be incorporated to provide specialized permission-based tools for conducting support sessions remotely over the internet. The Mitel Unified Communicator 5000s flexible interface options include text to speech and speech recognition support, the ability to access the interface via a variety of tools and applications, such as a web browser or personal digital assistant. | |
| Mitel Connection Assistant. Mitel Connection Assistant software is designed to enhance work group productivity and provide our customers with a personalized service through the use of screen pops of key information to the desktop or through a web browser. This presence application provides customers with the ability to view the status of colleagues and provides users with control of their extensions to better manage communications. Using a rules-based system, users can assign actions to specific events occurring at their extensions, such as diverting unidentified calls or those from a particular number to another extension or voice mail. | |
| Audio and Web Conferencing. Our Audio and Web Conferencing application is common to the Mitel 3300 ICP and the Mitel 5000 CP. | |
| Mitel Remote Support. Our Mitel Remote Support application is designed to help our customers improve their support and online sales environments. Remote Support also includes new features such as voice chat, user interface wizard, customized e-mail invite and a more flexible licensing scheme to provide our customers with improved support functionality and service branding opportunities. | |
| Contact Center Suite. Contact Center Suite, optimized for the informal contact center environment, is a collection of modular computer telephony software applications that help organizations optimize multi-media contact center and work group performance. Combined with a flexible infrastructure, this suite of applications consists of management tools for reporting and activity monitoring, plus agent and work group tools to aid in increasing productivity and delivering consistent customer service. | |
| Enterprise Messaging. Enterprise Messaging is a voice processing and unified messaging platform that combines e-mail, voice mail and fax into a single mail management program. Depending on the level of integration our customers choose, messages are either converted to standard file formats or integrated so that users can view, access and process messages through a variety of devices, including Microsofts Exchange messaging application, Lotus Notes, and Novells GroupWise, as well as other internet mail applications. Our interactive voice response solution provides an automated attendant feature that automatically guides callers to the person or information they need. |
| Contact Center Applications | |
| Teleworker | |
| Unified and embedded messaging |
25
| Call accounting | |
| Mitel Your Assistant |
| Wired and DECT extensions | |
| DSL modem | |
| four port router | |
| firewall | |
| wireless local area network access point | |
| up to 2 standard outside lines and 2 voice over IP channels for extra voice lines |
26
27
28
Fiscal 2006 | Fiscal 2007 | Fiscal 2008 | ||||||||||||||||||||||
% of |
% of |
% of |
||||||||||||||||||||||
Revenues | Revenues | Revenues | Revenues | Revenues | Revenues | |||||||||||||||||||
(In millions, except percentages) | ||||||||||||||||||||||||
United States
|
$ | 178.5 | 46.1 | % | $ | 161.6 | 42.0 | % | $ | 409.8 | 59.2 | % | ||||||||||||
Europe, Middle East & Asia (EMEA)
|
156.3 | 40.4 | % | 162.4 | 42.2 | % | 216.4 | 31.3 | % | |||||||||||||||
Canada and Caribbean & Latin America
|
43.6 | 11.3 | % | 49.4 | 12.8 | % | 51.8 | 7.5 | % | |||||||||||||||
Asia Pacific
|
8.7 | 2.2 | % | 11.5 | 3.0 | % | 14.0 | 2.0 | % | |||||||||||||||
$ | 387.1 | 100.0 | % | $ | 384.9 | 100.0 | % | $ | 692.0 | 100.0 | % | |||||||||||||
29
| continue to expand our market focus through our highly scalable portfolio which ranges from solutions that address the needs of the very small business to the large, multinational enterprise; | |
| continue to leverage and maximize our operating model; | |
| continue to rationalize and expand our applications portfolio to add further value to and satisfy the business needs of our customers and channel partners; | |
| increase our focus on software applications; | |
| continue to provide a migration path to IP and unified communications that enables our customers, and those of our competitors, to leverage their existing investments in information, data networking and communications | |
| expand our geographic presence and channel partner capabilities; and | |
| broaden and deepen our strategic partnerships and alliances. |
| focus on the design, development, sales and support of our products; | |
| leverage the scale and expertise of specialized contract manufacturers; | |
| reduce manufacturing and supply chain risk; and | |
| ensure competitive pricing and levels of service. |
30
| evaluating, selecting, pricing and negotiating contracts with suppliers; | |
| monitoring supplier and contract manufacturer performance against established service level agreements; | |
| maintaining the authorized vendor list of component suppliers; | |
| managing finished goods inventory; | |
| monitoring and managing material profiles; | |
| developing custom service solutions for major customers; | |
| selecting outbound freight partners, shipping methods, remote stocking strategies and shipping routes; and | |
| managing distribution services, globally. |
31
32
| the quality of our IP product portfolio and richness of our software applications; | |
| the usability of our software and its application to vertical markets; | |
| our unique TotalSolutions managed service model; | |
| the interoperability with equipment supplied by other vendors and with traditional circuit-switched network equipment; | |
| the scalability and flexibility of our solutions and our customer migration strategies; | |
| the ease of deployment in either a centrally-managed, remotely-distributed or hosted architecture; | |
| the strength of our strategic alliances; | |
| the ease of doing business for our channel partners; and | |
| our track record of customer focused innovation. |
33
C. | Organizational Structure |
D. | Property, Plant and Equipment |
Area |
Expiration |
|||||||
Location
|
Purpose
|
(In Square Feet) | Date of Lease | |||||
Ottawa, Canada
|
Corporate Head Office/Sales/Research & Development(1) |
512,000 | February 15, 2011 | |||||
Caldicot, United Kingdom
|
U.K. and EMEA Regional Headquarters |
45,000 | March 9, 2021 | |||||
Chandler, AZ
|
Office/Sales/Research & Development | 97,000 | April 30, 2009 | |||||
Tempe, AZ
|
Warehouse | 68,000 | September 30, 2009 | |||||
Reno, NV
|
Office | 74,000 | November 14, 2018 |
(1) | Sublet to: General Dynamics Canada Ltd. until August 14, 2009 (42,930 square feet); InGenius Software Inc. until August 31, 2009 (4,026 square feet); and Wesley Clover International, Corporation until November 30, 2010 (10,250 square feet). |
34
| throughout the U.S. (including Little Rock (Arkansas), Phoenix, Tucson and Tempe (Arizona), New York City and Albany (New York), Atlanta and Roswell (Georgia), Chicago and Arlington Heights (Illinois), Indianapolis and Kansas City (Kansas), Lexington and Louisville (Kentucky), Boston (Massachusetts), Eagan and Minnetonka (Minnesota), Costa Mesa, San Francisco, Glendale, Sacramento, San Diego, San Jose and Santa Ana (California), Denver (Colorado), Beltsville, (Maryland), Washington (DC), Ft. Lauderdale, Miami, Orlando and Tampa (Florida), Herndon and Richmond (Virginia), Waukesha (Wisconsin), Murray Hill, Marlton and Kenilworth (New Jersey) Columbia, Springfield and St Louis (Missouri), Charlotte and Winston-Salem (North Carolina), Albuquerque and Santa Fe (New Mexico), Las Vegas and Reno (Nevada) Akron and Columbus (Ohio), Portland (Oregon), Philadelphia and Pittsburgh (Pennsylvania), Greenville (South Carolina), Sioux Falls (South Dakota), Memphis and Nashville (Tennessee), Austin, Dallas, El Paso, Houston, Ft. Worth and San Antonio (Texas), Salt Lake City (Utah), Seattle, (Washington)); | |
| throughout Canada (including Toronto (Ontario), Montreal (Quebec), Calgary (Alberta), Winnipeg (Manitoba), Burnaby (British Columbia) and Halifax (Nova Scotia)); | |
| throughout the United Kingdom (including London, Slough, Birmingham, Kettering, Northampton (England) and Strathclyde, Glasgow (Scotland) and Dublin (Ireland)); | |
| throughout Continental Europe, the Middle East and Africa (including France, Germany, the Netherlands, Italy, Spain, Saudi Arabia, Dubai and South Africa); | |
| in Asia-Pacific (including Hong Kong and Beijing (China), Singapore and Sydney (Australia)); and | |
| in Mexico City (Mexico), Guaynabo (Puerto Rico), Rio de Janeiro (Brazil) and Barbados. |
Item 5. | Operating and Financial Review and Prospects |
35
36
| status with our key customers on a global basis; | |
| the achievement of expected milestones of our key R&D projects; and | |
| the achievement of our key strategic initiatives. |
37
38
39
Six Days |
||||||||||||||||||||||||
Year Ended | Ended | Year Ended | ||||||||||||||||||||||
April 25, |
April 24, |
April 30, |
April 30, |
April 30, |
April 30, |
|||||||||||||||||||
2004 | 2005 | 2005 | 2006 | 2007 | 2008 | |||||||||||||||||||
Revenues
|
$ | 340.7 | $ | 342.2 | $ | 3.2 | $ | 387.1 | $ | 384.9 | $ | 692.0 | ||||||||||||
Cost of revenues
|
202.9 | 213.2 | 2.4 | 225.7 | 225.1 | 367.9 | ||||||||||||||||||
Gross margin
|
137.8 | 129.0 | 0.8 | 161.4 | 159.8 | 324.1 | ||||||||||||||||||
Research and development
|
36.2 | 41.4 | 0.7 | 44.1 | 41.7 | 62.6 | ||||||||||||||||||
Selling, general and administrative
|
111.4 | 114.9 | 1.8 | 120.7 | 123.5 | 246.6 | ||||||||||||||||||
Special charges, integration and acquisition-related expenses
|
11.7 | 10.6 | | 5.7 | 9.3 | 16.0 | ||||||||||||||||||
Loss (gain) on disposal of assets
|
0.6 | 3.4 | | (2.4 | ) | (1.0 | ) | 1.0 | ||||||||||||||||
Litigation settlement
|
| | | | 16.3 | | ||||||||||||||||||
Initial public offering costs
|
| | | | 3.3 | | ||||||||||||||||||
In-process research and development
|
0.2 | | | | | 5.0 | ||||||||||||||||||
Operating loss
|
(22.3 | ) | (41.3 | ) | (1.7 | ) | (6.7 | ) | (33.3 | ) | (7.1 | ) | ||||||||||||
Other (income) expense, net
|
8.0 | 7.5 | (0.1 | ) | 39.8 | (0.1 | ) | (8.0 | ) | |||||||||||||||
Income tax (recovery) expense
|
0.3 | 0.8 | | (1.9 | ) | 1.8 | (12.3 | ) | ||||||||||||||||
Net income (loss)
|
$ | (30.6 | ) | $ | (49.6 | ) | $ | (1.6 | ) | $ | (44.6 | ) | $ | (35.0 | ) | $ | 13.2 | |||||||
Net loss per common share
|
||||||||||||||||||||||||
Basic and diluted
|
$ | (0.26 | ) | $ | (0.49 | ) | $ | (0.01 | ) | $ | (0.44 | ) | $ | (0.36 | ) | $ | (0.44 | ) | ||||||
Weighted average number of common shares outstanding (in
millions)
|
127.8 | 113.8 | 117.1 | 117.2 | 117.3 | 186.1 | ||||||||||||||||||
40
Fiscal | ||||||||||||||||||||||||
2007 | 2008 | |||||||||||||||||||||||
% of |
% of |
2008 Change | ||||||||||||||||||||||
Amounts | Revenues | Amounts | Revenues | Amount | % | |||||||||||||||||||
(In millions, except percentages) | ||||||||||||||||||||||||
Revenues
|
$ | 384.9 | 100.0 | % | $ | 692.0 | 100.0 | % | $ | 307.1 | 79.8 | % | ||||||||||||
Cost of revenues
|
225.1 | 58.5 | % | 367.9 | 53.2 | % | 142.8 | 63.4 | % | |||||||||||||||
Gross margin
|
159.8 | 41.5 | % | 324.1 | 46.8 | % | 164.3 | 102.8 | % | |||||||||||||||
Research and development
|
41.7 | 10.8 | % | 62.6 | 9.0 | % | 20.9 | 50.1 | % | |||||||||||||||
Selling, general and administrative
|
123.5 | 32.0 | % | 246.6 | 35.5 | % | 123.1 | 99.7 | % | |||||||||||||||
Special charges, integration and acquisition-related expenses(1)
|
9.3 | 2.4 | % | 16.0 | 2.3 | % | 6.7 | 72.0 | % | |||||||||||||||
Litigation settlement
|
16.3 | 4.2 | % | | 0.0 | % | (16.3 | ) | * | |||||||||||||||
Initial public offering costs
|
3.3 | 0.9 | % | | 0.0 | % | (3.3 | ) | * | |||||||||||||||
Loss (gain) on sale of manufacturing operations
|
(1.0 | ) | (0.3 | )% | 1.0 | 0.1 | % | 2.0 | * | |||||||||||||||
In-process research and development
|
| 0.0 | % | 5.0 | 0.7 | % | 5.0 | * | ||||||||||||||||
Operating loss
|
(33.3 | ) | (8.7 | )% | (7.1 | ) | (1.0 | )% | 26.2 | * | ||||||||||||||
Interest expense
|
9.1 | 2.4 | % | 34.7 | 5.0 | % | 25.6 | 281.3 | % | |||||||||||||||
Debt and warrant retirement costs
|
| 0.0 | % | 20.8 | 3.0 | % | 20.8 | * | ||||||||||||||||
Mark-to-market adjustment on derivatives
|
(8.6 | ) | (2.2 | )% | (61.9 | ) | (8.9 | )% | (53.3 | ) | * | |||||||||||||
Other (income) expense, net
|
(0.6 | ) | (0.2 | )% | (1.6 | ) | (0.2 | )% | (1.0 | ) | * | |||||||||||||
Income tax (recovery) expense
|
1.8 | 0.5 | % | (12.3 | ) | (1.8 | )% | (14.1 | ) | * | ||||||||||||||
Net income (loss)
|
$ | (35.0 | ) | (9.1 | )% | $ | 13.2 | 1.9 | % | $ | 48.2 | (137.7 | )% | |||||||||||
* | the comparison is not meaningful | |
(1) | Special charges relate to restructuring activities and other loss accruals undertaken to improve our operational efficiency and realign our business. In fiscal 2008, it also includes Inter-Tel Acquisition related integration costs. |
| the U.S.; | |
| Europe, Middle East & Africa (EMEA); | |
| Canada and Caribbean & Latin America (CALA); and | |
| Asia Pacific. |
41
Fiscal | ||||||||||||||||||||||||
2007 | 2008 | |||||||||||||||||||||||
% of |
% of |
2008 Change | ||||||||||||||||||||||
Revenues | Revenues | Revenues | Revenues | Amount | % | |||||||||||||||||||
(In millions, except percentages) | ||||||||||||||||||||||||
United States
|
$ | 161.6 | 42.0 | % | $ | 409.8 | 59.2 | % | $ | 248.2 | 153.6 | % | ||||||||||||
EMEA
|
162.4 | 42.2 | % | 216.4 | 31.3 | % | 54.0 | 33.3 | % | |||||||||||||||
Canada and CALA
|
49.4 | 12.8 | % | 51.8 | 7.5 | % | 2.4 | 4.9 | % | |||||||||||||||
Asia Pacific
|
11.5 | 3.0 | % | 14.0 | 2.0 | % | 2.5 | 21.7 | % | |||||||||||||||
$ | 384.9 | 100.0 | % | $ | 692.0 | 100.0 | % | $ | 307.1 | 79.8 | % | |||||||||||||
Fiscal | Fiscal | |||||||||||||||||||||||
2007 | 2008 | Change | 2007 | 2008 | Change | |||||||||||||||||||
Pre-Adoption of SOP 97- |
Post-Adoption of SOP 97- |
|||||||||||||||||||||||
2 on Sales Lease |
2 on Sales Lease |
|||||||||||||||||||||||
Transactions | Transactions | |||||||||||||||||||||||
Revenues U.S.
|
$ | 161.6 | $ | 373.9 | $ | 212.3 | $ | 161.6 | $ | 359.9 | $ | 198.3 |
42
Fiscal | ||||||||
2007 | 2008 | |||||||
Amount | Amount | |||||||
(In millions, except percentages) | ||||||||
Telecommunications
|
||||||||
Revenues
|
$ | 384.9 | $ | 642.1 | ||||
Gross Margin
|
159.8 | 304.7 | ||||||
Gross Margin %
|
41.5 | % | 47.5 | % | ||||
Network Services
|
||||||||
Revenues
|
$ | | $ | 49.9 | ||||
Gross Margin
|
| 19.4 | ||||||
Gross Margin %
|
| % | 38.9 | % | ||||
Total
|
||||||||
Revenues
|
$ | 384.9 | $ | 692.0 | ||||
Gross Margin
|
159.8 | 324.1 | ||||||
Gross Margin %
|
41.5 | % | 46.8 | % |
| operational synergies achieved from the Inter-Tel Acquisition, specifically freight and distribution cost savings resulting from the move of our U.S. warehousing and distribution to Tempe, Arizona, negotiated cost reductions with vendors, and lower technician costs; and | |
| improved mix of software applications revenues compared to hardware revenues, as software applications typically generate higher margins than either communication platforms and desktop appliances or other product revenues. |
43
44
45
Derivative Liability | ||||||||||||
Series A and |
Class 1 |
|||||||||||
Series B |
Preferred |
|||||||||||
Preferred Shares | Shares | Total | ||||||||||
(In millions) | ||||||||||||
Mark to market gain (loss)
|
$ | (2.7 | ) | $ | 6.0 | $ | 3.3 | |||||
Reversal of derivative liability
|
58.6 | | 58.6 | |||||||||
Mark to market adjustment on derivatives
|
$ | 55.9 | $ | 6.0 | $ | 61.9 | ||||||
| Income from operations of $5.3 million, excluding the impact of certain Acquisition-related costs in fiscal 2008 such as $7.4 of integration and merger-related costs and $5.0 million for in-process research and developments costs. This is compared to an operating loss of $17.0 million in fiscal 2007 excluding the impact of the one-time litigation settlement cost incurred in that year. | |
| Gain of $61.9 million resulting from the fair value adjustments on our embedded derivatives | |
| Deferred tax benefit of $12.3 million |
46
Fiscal | ||||||||||||||||||||||||
2006 | 2007 | |||||||||||||||||||||||
% of |
% of |
2007 Change | ||||||||||||||||||||||
Amounts | Revenues | Amounts | Revenues | Amount | % | |||||||||||||||||||
(In millions, except percentages) | ||||||||||||||||||||||||
Revenues
|
$ | 387.1 | 100.0 | % | $ | 384.9 | 100.0 | % | $ | (2.2 | ) | (0.6 | )% | |||||||||||
Cost of revenues
|
225.7 | 58.3 | % | 225.1 | 58.5 | % | (0.6 | ) | (0.3 | )% | ||||||||||||||
Gross margin
|
161.4 | 41.7 | % | 159.8 | 41.5 | % | (1.6 | ) | (1.0 | )% | ||||||||||||||
Research and development
|
44.1 | 11.4 | % | 41.7 | 10.8 | % | (2.4 | ) | (5.4 | )% | ||||||||||||||
Selling, general and administrative
|
120.7 | 31.1 | % | 123.5 | 32.0 | % | 2.8 | 2.3 | % | |||||||||||||||
Special charges(1)
|
5.7 | 1.5 | % | 9.3 | 2.4 | % | 3.6 | 63.2 | % | |||||||||||||||
Litigation settlement
|
| 0.0 | % | 16.3 | 4.2 | % | 16.3 | * | ||||||||||||||||
Initial public offering costs
|
| 0.0 | % | 3.3 | 0.9 | % | 3.3 | * | ||||||||||||||||
Loss (gain) on sale of manufacturing operations
|
(0.9 | ) | (0.2 | )% | (1.0 | ) | (0.3 | )% | (0.1 | ) | * | |||||||||||||
Gain on sale of assets
|
(1.5 | ) | (0.4 | )% | | 0.0 | % | 1.5 | * | |||||||||||||||
Operating loss
|
(6.7 | ) | (1.7 | )% | (33.3 | ) | (8.7 | )% | (26.6 | ) | * | |||||||||||||
Interest expense
|
7.6 | 2.0 | % | 9.1 | 2.4 | % | 1.5 | 19.7 | % | |||||||||||||||
Mark-to-market adjustment on derivatives
|
32.6 | 8.4 | % | (8.6 | ) | (2.2 | )% | (41.2 | ) | * | ||||||||||||||
Other (income) expense, net
|
(0.4 | ) | (0.1 | )% | (0.6 | ) | (0.2 | )% | (0.2 | ) | * | |||||||||||||
Income tax (recovery) expense
|
(1.9 | ) | (0.5 | )% | 1.8 | 0.5 | % | 3.7 | * | |||||||||||||||
Net loss
|
$ | (44.6 | ) | (11.5 | )% | $ | (35.0 | ) | (9.1 | )% | $ | 9.6 | (21.5 | )% | ||||||||||
* | the comparison is not meaningful | |
(1) | Special charges relate to restructuring activities and other loss accruals undertaken to improve our operational efficiency and realign our business. |
| the U.S.; | |
| Europe, Middle East & Africa (EMEA); | |
| Canada and Caribbean & Latin America (CALA); and | |
| Asia Pacific. |
47
Fiscal | ||||||||||||||||||||||||
2006 | 2007 | |||||||||||||||||||||||
% of |
% of |
2007 Change | ||||||||||||||||||||||
Revenues | Revenues | Revenues | Revenues | Amount | % | |||||||||||||||||||
(In millions, except percentages) | ||||||||||||||||||||||||
U.S.
|
$ | 178.5 | 46.1 | % | $ | 161.6 | 42.0 | % | $ | (16.9 | ) | (9.5 | )% | |||||||||||
EMEA
|
156.3 | 40.4 | % | 162.4 | 42.2 | % | 6.1 | 3.9 | % | |||||||||||||||
Canada and CALA
|
43.6 | 11.3 | % | 49.4 | 12.8 | % | 5.8 | 13.3 | % | |||||||||||||||
Asia Pacific
|
8.7 | 2.2 | % | 11.5 | 3.0 | % | 2.8 | 32.2 | % | |||||||||||||||
$ | 387.1 | 100.0 | % | $ | 384.9 | 100.0 | % | $ | (2.2 | ) | (0.6 | )% | ||||||||||||
| a 1.1% decline as a result of an individual project which incurred a loss due primarily to the sale of original equipment manufacturers products that were re-sold at a negative margin. | |
| a 0.8% improvement as a result of (i) an improved mix of software applications revenues as a total of product revenues as software applications typically generate higher margins than either communication platforms and desktop appliances or other product revenues; and (ii) cost reductions on communications platforms and desktop appliances resulting from product re-design efforts and improved costs from electronic contract manufacturers; and | |
| a 0.3% decline as a result of temporary pricing promotions on certain IP desktop appliances in fiscal 2007. Similar promotions were not run during fiscal 2006. | |
| Slight improvement in service margins due primarily to the change in mix of service revenues, as total service revenues contained a lower proportion of relatively lower margin installation services revenue in fiscal 2007 compared to fiscal 2006. |
48
49
50
51
52
April 24, |
April 30, |
April 30, |
||||||||||
2006 | 2007 | 2008 | ||||||||||
Balance, beginning of period
|
$ | 2.6 | $ | 2.0 | $ | 1.8 | ||||||
Warranty costs incurred
|
(1.8 | ) | (1.2 | ) | (1.7 | ) | ||||||
Warranties issued
|
1.0 | 1.1 | 1.6 | |||||||||
Other
|
0.2 | (0.1 | ) | 0.7 | ||||||||
Balance, end of period
|
$ | 2.0 | $ | 1.8 | $ | 2.4 | ||||||
53
54
April 30, |
April 30, |
|||||||
2007 | 2008 | |||||||
Discount rate
|
5.50 | % | 5.80 | % | ||||
Compensation increase rate
|
3.00 | % | 3.50 | % | ||||
Inflation rate
|
3.00 | % | 3.50 | % | ||||
Average remaining service life of employees
|
20 years | 18 years |
55
| Redemption feature on the convertible, redeemable Series A Preferred Shares and Series B Preferred Shares that is indexed to our Common Share price. | |
| Redemption rights upon a Fundamental Change on the Convertible Notes (as that term is defined in the Convertible Notes) and the Make-Whole Premium (as that term is defined in the Convertible Notes). |
56
57
B. | Liquidity and Capital Resources |
58
Fiscal | ||||||||||||
2007 | 2008 | Change | ||||||||||
(In millions) | ||||||||||||
Net cash provided by (used in)
|
||||||||||||
Operating activities
|
$ | (12.0 | ) | $ | (37.8 | ) | $ | (25.8 | ) | |||
Investing activities
|
(12.4 | ) | (544.5 | ) | (532.1 | ) | ||||||
Financing activities
|
21.5 | 568.4 | 546.9 | |||||||||
Effect of exchange rate changes on cash and cash equivalents
|
0.7 | (0.1 | ) | (0.8 | ) | |||||||
Decrease in cash and cash equivalents
|
$ | (2.2 | ) | $ | (14.0 | ) | $ | (11.8 | ) | |||
Cash and cash equivaents, end of period
|
$ | 33.5 | $ | 19.5 | $ | (14.0 | ) | |||||
59
| The sale of an office building and surrounding land in Reno, Nevada for cash proceeds of $19.7 million; | |
| Capital expenditures of $18.3 million (which includes Inter-Tel capital expenditures for 8.5 months of fiscal 2008); and | |
| Decrease in restricted cash of $1.3 million. |
| $430.0 million proceeds from debt borrowed from a syndicate of lenders, $300 million of which is under a seven-year term First Lien Credit Agreement, and $130 million of which is under an eight-year Second Lien Credit Agreement; | |
| $289.5 million net proceeds raised from the issuance Class 1 Preferred Shares; and | |
| $12.0 million increase in bank indebtedness under a five-year revolving credit facility. |
| $66.0 million paid to extinguish the Convertible Notes; | |
| $36.2 million paid in settlement of the Series A Preferred Shares and Series B Preferred Shares; | |
| $12.9 million paid in settlement of redeemable Common Shares; | |
| $20.0 million paid in settlement of the 2006 Wesley Clover Warrants issued in fiscal 2007; and | |
| $12.9 million in financing costs, of which $9.9 million related to the $430.0 million of debt borrowings, and $3.0 million related to the issuance of Class 1 Preferred Shares. |
| $11.4 million repayment of long-term debt, including capital lease obligations; and | |
| $4.5 million payment of litigation settlement obligations. |
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Fiscal | ||||||||||||
2006 | 2007 | Change | ||||||||||
(In millions) | ||||||||||||
Net cash provided by (used in)
|
||||||||||||
Operating activities
|
$ | (2.3 | ) | $ | (12.0 | ) | $ | (9.7 | ) | |||
Investing activities
|
3.7 | (12.4 | ) | (16.1 | ) | |||||||
Financing activities
|
(11.7 | ) | 21.5 | 33.2 | ||||||||
Effect of exchange rate changes on cash and cash equivalents
|
(0.6 | ) | 0.7 | 1.3 | ||||||||
Increase (decrease) in cash and cash equivalents
|
$ | (10.9 | ) | $ | (2.2 | ) | $ | 8.7 | ||||
Cash and cash equivaents, end of period
|
$ | 35.7 | $ | 33.5 | $ | (2.2 | ) | |||||
| $15.0 million proceeds received upon issuing the 2006 Wesley Clover Warrants; | |
| $10.9 million proceeds received upon transfer of receivables; and | |
| $1.6 million used to reduce bank indebtedness and to repay certain capital lease obligations. |
C. | Research and Development, Patents and Licenses, etc. |
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D. | Trend Information |
62
E. | Off-Balance Sheet Arrangements |
F. | Tabular Disclosure of Contractual Obligations |
Payments Due by Period | ||||||||||||||||||||
Less than |
After |
|||||||||||||||||||
Contractual Obligations
|
Total | 1 Year | 1-3 Years | 4-5 Years | 5 Years | |||||||||||||||
(In millions) | ||||||||||||||||||||
Long-term debt obligations(1)
|
$ | 655.8 | $ | 40.1 | $ | 83.0 | $ | 41.2 | $ | 491.5 | ||||||||||
Capital lease(2)
|
3.5 | 2.1 | 0.7 | 0.6 | 0.1 | |||||||||||||||
Operating lease obligations(3)
|
68.2 | 17.1 | 23.6 | 15.5 | 12.0 | |||||||||||||||
Defined benefit pension plan Contributions(4)
|
4.0 | 4.0 | | | | |||||||||||||||
Other
|
14.8 | 3.7 | 7.4 | 3.7 | | |||||||||||||||
Note payable
|
0.4 | 0.1 | 0.1 | 0.2 | | |||||||||||||||
Total contractual cash obligations
|
$ | 746.7 | $ | 67.1 | $ | 114.8 | $ | 61.2 | $ | 503.6 | ||||||||||
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(1) | Represents the principal balance and interest payments for the first and second lien borrowings. Interest on these liens are based on LIBOR plus 325 basis points, and LIBOR plus 700 basis points for the first and second liens respectively, as described in our consolidated financial statements. For the purposes of estimating the variable interest, LIBOR has been assumed to be 5%. | |
(2) | Represents the principal and interest payments for capital lease obligations. Interest rates on these loans range from 1.3% to 11.8%, as described in our consolidated financial statements. | |
(3) | Operating lease obligations exclude payments to be received by us under sublease arrangements. | |
(4) | Represents the estimated contribution to our defined benefit pension plan in the United Kingdom over the next twelve months. We expect our funding requirements to increase in future years. The amount of the increase will depend upon the time period in which the deficit is amortized. We expect to fund any future increase in the annual contributions out of our expected future cash flows from operations. Liabilities arising from the deficit in our defined benefit pension plan are not included in the above table. As at April 30, 2008, the projected benefit obligation of $198.8 million exceeded the fair value of the plan assets of $122.4 million, resulting in an unfunded status of $76.4 million as recorded in our consolidated balance sheet as of April 30, 2008. |
G. | Safeharbor |
Item 6. | Directors, Senior Management and Employees |
A. | Directors and Senior Management |
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Name and Place of Residence
|
Age
|
Position
|
Principal Occupation
|
|||||
Dr. Terence H. Matthews(1)
Ottawa, Ontario, Canada |
65 | Chairman of the Board | Chairman of the Board of Mitel Chairman of the Board of March Networks | |||||
Donald W. Smith
Ottawa, Ontario, Canada |
60 | Chief Executive Officer and Director | Chief Executive Officer of Mitel (CEO) | |||||
Peter D. Charbonneau(2)
Ottawa, Ontario, Canada |
55 | Lead Director | General Partner of Skypoint Capital Corporation | |||||
Benjamin H. Ball
San Francisco, CA, US |
42 | Director | Partner of Francisco Partners LLP | |||||
Thomas L. Ludwig
San Francisco, CA, US |
32 | Director | Principal of Francisco Partners LLP | |||||
Jean-Paul Cossart
Versailles, France |
61 | Director | Associate Director of Infoteria of France | |||||
Gilbert S. Palter
Toronto, Ontario, Canada |
43 | Director | Chief Investment Officer and Managing Partner of EdgeStone Capital Partners, L.P. | |||||
Norman Stout
Phoenix, Arizona, US |
50 | Director | Chairman of Hypercom Corporation | |||||
Paul A.N. Butcher
Ottawa, Ontario, Canada |
46 | President and Chief Operating Officer | President and Chief Operating Officer of Mitel | |||||
Steven E. Spooner
Ottawa, Ontario, Canada |
50 | Chief Financial Officer | Chief Financial Officer of Mitel (CFO) | |||||
Graham Bevington
Chepstow, Wales |
48 | Vice President and Managing Director, Europe, Middle East and Africa Region | Vice President and Managing Director, Europe, Middle East and Africa Region of Mitel | |||||
Richard F. Dell
Reno, Nevada, US |
48 | President, Mitel U.S. | President, Mitel U.S. | |||||
Roger K. Fung
Hong Kong, China |
56 | Vice President and Managing Director, Asia-Pacific Region | Vice President and Managing Director, Asia-Pacific Region of Mitel | |||||
Douglas W. Michaelides
Ottawa, Ontario, Canada |
47 | Vice President, Global Marketing | Vice President, Global Marketing of Mitel | |||||
Ronald G. Wellard
Ottawa, Ontario, Canada |
50 | Executive Vice President, Product Development | Vice President, Product Development of Mitel |
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(1) | Dr. Matthews routinely invests in and sits as a director on the boards of businesses that are at an early stage of development and that, as a result, involve substantial risks. Dr. Matthews was a director of Ironbridge Networks Corporation, which went into receivership in January 2001 and West End Systems Corporation, which went into receivership in February 1999. | |
(2) | Mr. Charbonneau was a director of METConnex Inc., which filed a notice of intention to file for bankruptcy protection on September 28, 2006. He resigned from the board in June 2007. |
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B. | Compensation |
Long Term Compensation |
||||||||||||||||
Securities Underlying Options |
||||||||||||||||
and Deferred Share Units | ||||||||||||||||
Annual Compensation |
All Other |
|||||||||||||||
Name and Principal Position
|
Salary | Bonus | Granted | Compensation | ||||||||||||
Donald W. Smith
|
$ | 735,000 | 279,199 | nil | $ | 11,760 | (2) | |||||||||
Chief Executive Officer(1)
|
||||||||||||||||
Paul A.N. Butcher
|
$ | 490,000 | 145,997 | nil | $ | 37,240 | (3) | |||||||||
President and Chief Operating Officer(1)
|
||||||||||||||||
Steven E. Spooner
|
$ | 328,300 | $ | 193,204 | nil | $ | 11,760 | (4) | ||||||||
Chief Financial Officer(1)
|
||||||||||||||||
Ronald G. Wellard(1)
|
$ | 256,178 | 90,058 | 75,000 | $ | 7,840 | (5) | |||||||||
Douglas W. Michaelides
|
$ | 288,120 | $ | 53,491 | nil | $ | 7,840 | (6) | ||||||||
Vice President Global Marketing(1)
|
(1) | Compensation paid in Canadian dollars, but converted to U.S. dollars at the average of the noon buying rates per Federal Reserve Bank of New York for fiscal 2008 of C$1.00 = $0.98. | |
(2) | Mr. Smiths other compensation is a car allowance of $11,760. | |
(3) | Mr. Butchers other compensation is comprised of a car allowance of $17,640 and a company contribution to our Deferred Share Unit Plan of $19,600. | |
(4) | Mr. Spooners other compensation is a car allowance of $11,760. | |
(5) | Mr. Wellards other compensation is a car allowance of $7,840. | |
(6) | Mr. Michaelides other compensation is a car allowance of $7,840. |
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Market Value |
||||||||||||||||||||
Number of |
Exercise |
of |
||||||||||||||||||
Common |
Percent of |
Price |
Common |
|||||||||||||||||
Shares |
Total Options |
per Common |
Shares |
|||||||||||||||||
Underlying |
Granted to |
Share |
Underlying |
|||||||||||||||||
Options |
Employees in |
($/Common |
Options on |
Expiration |
||||||||||||||||
Name
|
Granted(1) | Fiscal Year | Share)(2) | Date of Grant | Date | |||||||||||||||
Donald W. Smith
|
| | % | $ | | | | |||||||||||||
Paul A.N. Butcher
|
| | % | $ | | | | |||||||||||||
Steven E. Spooner
|
| | % | $ | | | | |||||||||||||
Graham Bevington
|
| | % | $ | | | | |||||||||||||
Richard F. Dell
|
300,000 | 3.44 | % | $ | 1.25 | | 23-Oct-12 | |||||||||||||
Roger K. Fung
|
| | % | $ | | | | |||||||||||||
Douglas W. Michaelides
|
| | % | $ | | | | |||||||||||||
Ronald G. Wellard
|
75,000 | 0.86 | % | $ | 1.25 | | 23-Oct-12 | |||||||||||||
Dr. Terence H. Matthews
|
20,679 | 0.24 | % | $ | 1.14 | | 26-July-12 | |||||||||||||
120,482 | 1.38 | % | $ | 1.25 | | 23-Oct-12 | ||||||||||||||
Peter D. Charbonneau
|
50,926 | 0.58 | % | $ | 1.14 | | 26-July-12 | |||||||||||||
33,132 | 0.38 | % | $ | 1.25 | | 23-Oct-12 | ||||||||||||||
Jean-Paul Cossart
|
15,060 | (3) | 0.17 | % | $ | 1.25 | | 23-Oct-12 | ||||||||||||
Benjamin H. Ball
|
| (4) | | % | | | | |||||||||||||
David T. ibnAle
|
| (4) | | | | | ||||||||||||||
Thomas L. Ludwig
|
| (4) | | | | | ||||||||||||||
Norman Stout
|
500,000 | (5) | 5.73 | % | $ | 1.25 | | 23-Oct-12 | ||||||||||||
Gilbert S. Palter
|
| (6) | | | | | ||||||||||||||
Guthrie J. Stewart
|
(6) | |||||||||||||||||||
Kirk K. Mandy
|
50,309 | (7) | 0.58 | $ | 1.14 | | 26-July-12 | |||||||||||||
20,783 | (7) | 0.24 | $ | 1.25 | 23-Oct-12 |
(1) | The options vest as to 25% on the first anniversary of the date of grant and as to an additional 25% each year thereafter. | |
(2) | Option exercise prices have been set in Canadian dollars but converted to U.S. dollars at the noon buying rate per Federal Reserve Bank of New York on April 30, 2008 of C$1.00 = $0.98. | |
(3) | Options awarded to Mr. Cossart are held in the name of Scivias s.a.r.l., a company in which Mr. Cossart is the sole shareholder. | |
(4) | Options to purchase 123,495 Common Shares have been granted to Francisco Partners Management, LLC in connection with Mr. Ball and Mr. Ludwig (and Mr. ibnAle who resigned in March 2008) acting as directors of Mitel. | |
(5) | Options granted to Mr. Stout were granted in his capacity as an Executive Officer. Mr. Stout is no longer a Named Executive Officer for the Corporation but is on the Board of Directors. | |
(6) | Options to purchase 109,069 Common Shares have been granted to EdgeStone Capital Equity Fund II Nominee, Inc. in connection with Mr. Palter and Mr. Stewart acting as directors of Mitel. Mr. Stewart ceased to be a director of Mitel in October 2007. | |
(7) | Mr. Mandy ceased to be a director of Mitel in October 2007. |
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Annual service on the board of directors (other than the Chair)
|
C | $ | 25,000 | |||
Annual service as the Chair of the board of directors
|
C | $ | 100,000 | |||
Annual service as a member of the audit committee (other than
the Chair)
|
C | $ | 10,000 | |||
Annual service as the Chair of the audit committee
|
C | $ | 15,000 | |||
Annual service as a member of other standing committees
|
C | $ | 7,500 | |||
Meeting fees (varies depending on whether in person, by
telephone and by committee)
|
C | $ | 500-2,000 |
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72
C. | Board Practices |
| the integrity of our financial statements and accounting and financial process and the audits of our financial statements; | |
| our compliance with legal and regulatory requirements; | |
| our external auditors qualifications and independence; | |
| the work and performance of our financial management, internal auditor and external auditor; and | |
| our system of disclosure controls and procedures and system of internal controls regarding finance, accounting, legal compliance, risk management and ethics established by management and our board. |
73
| compensation, development, succession and retention of the chief executive officer and key employees; | |
| the establishment of fair and competitive compensation and performance incentive plans; and | |
| the production of an annual report on executive compensation for inclusion in our public disclosure documents. |
| reviewing all forward-looking information in our continuous disclosure documents; | |
| implementation of the disclosure committee policy and the education of employees, officers and directors on matters related to the policy; | |
| approving the designation of spokespersons; | |
| ensuring that appropriate processes are in place to monitor our corporate website; | |
| ensuring that when a public disclosure requires corrections, such correction is timely and made under the supervision of the disclosure committee; | |
| monitoring the integrity and effectiveness of our disclosure controls and procedures on an ongoing basis and reporting findings to the CEO and CFO; | |
| reviewing and supervising the preparation of documentation that are required to be or are voluntarily filed with a securities commission, stock exchange or government under applicable securities or corporate law including annual certifications, annual reports filed with the SEC on Form 20-F and 6-K; and | |
| evaluating the effectiveness of our disclosure controls and procedures as of the end of each year end. |
D. | Employees |
74
E. | Share Ownership |
75
| to amend general vesting provisions; | |
| to amend the term of any option, subject to limits contained in the plan; | |
| to amend the provisions in the plan dealing with retirement, death, disability or termination of participants; | |
| to make amendments for the protection of participants in the plan, including amendments resulting from changes in law in any jurisdiction; and | |
| to make amendments to cure or correct ambiguities, defects or mistakes in the plan. |
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Item 7. | Major Shareholders and Related Party Transactions |
A. | Major Shareholders |
Beneficial Amount Owned(1) | Percentage Held(2) | |||||||||||||||||||||||
Class 1 |
Class 1 |
|||||||||||||||||||||||
Preferred |
Common |
Voting |
Preferred |
Common |
Voting |
|||||||||||||||||||
Shares | Shares | Power | Shares | Shares | Power(2) | |||||||||||||||||||
Dr. Matthews Group(8)
|
||||||||||||||||||||||||
Dr. Matthews
|
13,500 | 1,210,394 | 12,547,073 | 4.3 | % | 0.6 | % | 2.6 | % | |||||||||||||||
Celtic Tech Jet Corporation
|
0 | 4,555,169 | 4,555,169 | 0.0 | % | 2.1 | % | 1.0 | % | |||||||||||||||
Wesley Clover Corporation
|
0 | 158,790,234 | 158,790,234 | 0.0 | % | 73.9 | % | 33.3 | % | |||||||||||||||
13,500 | 164,555,797 | 175,892,476 | (3) | 4.3 | % | 76.6 | % | 36.9 | % | |||||||||||||||
Francisco Partner Group(8)
|
||||||||||||||||||||||||
Francisco Partners Management, LLC
|
30,873 | 30,873 | 0.0 | 0.0 | 0.0 | |||||||||||||||||||
Arsenal HoldCo I S.a.r.l.
|
164,463 | 12,462,570 | 150,571,032 | 51.9 | % | 5.5 | % | 30.6 | % | |||||||||||||||
Arsenal HoldCo II S.a.r.l.
|
63,359 | 4,801,209 | 58,007,185 | 20.0 | % | 2.2 | % | 12.0 | % | |||||||||||||||
227,822 | 17,294,652 | 208,609,088 | (4) | 71.9 | % | 7.7 | % | 42.6 | % | |||||||||||||||
Her Majesty the Queen in Right of Canada
|
0 | 37,174,887 | 37,174,887 | 0.0 | % | 14.8 | % | 7.2 | % | |||||||||||||||
Morgan Stanley Principal Investments, Inc.
|
44,933 | 3,404,910 | 41,137,576 | (5) | 14.2 | % | 1.6 | % | 8.5 | % | ||||||||||||||
EdgeStone
|
19,000 | 10, 538,524 | 26,389,850 | (6) | 6.0 | % | 4.8 | % | 5.5 | % | ||||||||||||||
PTIC
|
11,500 | 14,327,483 | 23,984,654 | (7) | 3.6 | % | 6.6 | % | 5.0 | % |
(1) | Beneficial ownership is determined in accordance with SEC rules, which generally attribute beneficial ownership of securities to each person or entity who possesses, either solely or shared with others, the power to vote or dispose of those securities. These rules also treat as outstanding all shares that a person would receive upon exercise of stock options or warrants, or upon conversion of convertible securities held by that person that are exercisable or convertible within 60 days of September 30, 2008 (the Determination Date). | |
(2) | All Common Shares that a person would receive upon exercise of stock options, or warrants or upon conversion of any other convertible security held by that person that are exercisable within 60 days of the Determination Date, are deemed to be outstanding for computing the percentage ownership of the person holding such securities, but are not deemed outstanding for computing the percentage ownership of any other person. For the purposes of calculating the percentage of Voting Power, the Class 1 Preferred Shares convert into our Common Shares on a 1 for 839.754 basis (after taking into consideration the 8% per annum accretion, calculated to 60 days after the Determination Date). | |
(3) | Includes the common share equivalent to 13,500 Class 1 Preferred Shares of 11,336,679 warrants to acquire 1,022,996 Common Shares that are currently exercisable, stock options to acquire 187,398 Common Shares that are currently exercisable, 158,790,234 Common Shares owned by Wesley Clover and 4,555,169 Common Shares owned by CTJL. | |
(4) | Includes the common share equivalent to 227,822 Class 1 Preferred Shares of 191,314,436 warrants to acquire 17,263,779 Common Shares that are currently exercisable and stock options to acquire 30,873 Common Shares that are currently exercisable. | |
(5) | Includes the common share equivalent to 44,933 Class 1 Preferred Shares of 37,732,666 and warrants to acquire 3,404,910 Common Shares that are currently exercisable. |
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(6) | Includes the common share equivalent to 19,000 Class 1 Preferred Shares of 15,955,326 and 5,359,893 Common Shares and stock options to acquire 178,631 Common Shares that are currently exercisable and warrants to acquire 5,000,000 Common Shares that are currently exercisable. | |
(7) | Includes the common share equivalent to 11,500 Class 1 Preferred Shares of 9,657,171 and 13,456,042 Common Shares and warrants to acquire 871,441 Common Shares that are currently exercisable. | |
(8) | The parties to the 2007 Shareholders Agreement agreed, among other matters, to act and vote from time to time so that on any election of directors by our shareholders, the Francisco Partners and Matthews nominees are elected. See Item 10.C. Additional Information Material Contracts 2007 Shareholders Agreement for a discussion of the 2007 Shareholders Agreement. |
B. | Related Party Transactions |
78
| Financing Agreement entered into with Canandia, Kanandia International Limited (Kanandia) and Petan Communications Solutions Private Limited (Petan), under which we have been granted the option to acquire beneficial ownership of all of the shares of Petan and Kanandia at any time during a five year period commencing on the effective date of the India Market Development Agreement. | |
| Product Enhancement Agreement entered into with Petan, granting to it a limited license to make modifications to our products in order to meet certain market requirements and specifications for the sale and use of those products in the Indian market; | |
| Distribution Agreement entered into with Petan, granting it a limited license to sell certain of our products in the Indian market; and | |
| Trademark License Agreement entered into with Petan and Wesley Clover Communication Solutions Private Limited (WCCSPL), licensing Petan and WCCSPL the right to use certain of our trademarks and tradenames in the Indian market. |
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| NewHeights Software/CounterPath Corporation (a corporation formerly controlled by Owen Matthews, who is related to Dr. Matthews) may be deemed to be a related party because Dr. Matthews indirectly owns approximately 26% of Counterpath Solutions, which acquired NewHeights on August 2, 2007. During fiscal 2008, we paid NewHeights $2.2 million in software royalties relating to a customized desktop communication management software application which we integrate and distribute as Your Assistant (2006 $2.6 million; 2007 $2.2 million). We also received $0.1 million of rental and other income from NewHeights during fiscal 2008 (2006 $0.1 million; the Transition Period $nil; 2007 $0.1 million). On January 31, 2008, we entered into an amendment to our existing agreement with NewHeights Software (the OEM Agreement). Under the amendment, we agreed to a minimum purchase commitment of $0.5 million in exchange for an increased discount on products purchased under the OEM Agreement. On April 30, 2008, the minimum purchase commitment was increased to $0.7 million in exchange for an additional increase in our discount on products purchased under the OEM Agreement. On April 30, 2008, we also entered into an agreement to provide a final royalty payment of $0.4 million as fulfillment of all payment obligations for the transfer to us of certain intellectual property owned by NewHeights Software. On July 31, 2008, we entered into a source code license agreement with CounterPath for $0.65 million plus certain royalty payments to be made over time. This agreement was entered into on terms and conditions which reflect conditions that reflect what management believes are prevailing market conditions. | |
| Natural Convergence may be deemed to be a related party because Dr. Matthews directly or indirectly owns approximately 28% of that company. On April 25, 2006, the Company entered into an agreement with Natural Convergence Inc (NCI), a company in which the Major Shareholder has an ownership interest, to purchase prepaid software licenses and convertible debentures for a combined total of $1.2. The secured convertible debentures were (a) repayable to debenture holders (plus a credit fee of 25% per annum of any outstanding principal) on the earlier of December 31, 2006, or on the occurrence of certain events, or (b) automatically convertible into preferred shares of NCI upon the closing of a qualifying financing of no less than $6.0. The convertible debentures were also issued with warrants to acquire a number of common shares of NCI equal to the dollar amount of the investment divided by $1.00, at an exercise price per common share of C$0.0001. Under this agreement, the Company purchased $0.3 of prepaid software licenses and $0.9 of convertible debentures during fiscal 2007. The $0.3 of prepaid licenses is included in other current assets at April 30, 2007. Since NCI had completed a qualifying financing of $10.0 in November 2006, the Companys entire $0.9 balance of debentures and $0.1 accrued interest was automatically converted into NCI Class C Preferred Shares at a 5% discount in accordance with the terms of the agreement. Following the conversion, and upon exercising its warrants, the Company received 8,467,523 Class C Preferred Shares and acquired 600,000 common shares. At April 30, 2007 and April 30, 2008, the Company had a combined ownership of 5.6% in NCI but did not exert significant influence over NCI. Accordingly, the $1.0 investment recorded on the balance sheet at April 30, 2007 and April 30, 2008 has been accounted for using the cost method. |
| a summary of the nature of the relationship with the related party and the significant commercial terms of the transaction such as price and total value; |
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| the parties to the transaction; | |
| an outline of the benefits to us of the transaction; | |
| whether terms are at market and whether they were negotiated at arms length; and | |
| for related party transactions involving our officers or directors, whether there has been any loss of a corporate opportunity. |
Item 8. | Financial Information |
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B. | Significant Changes |
Item 9. | The Offer and Listing |
A. | Offer and Listing Details |
B. | Plan of distribution |
C. | Markets |
D. | Selling shareholders |
E. | Dilution |
F. | Expenses of the issue |
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Item 10. | Additional Information |
A. | Share Capital |
B. | Memorandum and Articles of Incorporation |
| amendments to By-Law No. 1A which reflect our current corporate governance structure and enhanced practices including an increase in the quorum requirement for meetings of shareholders as well as current provisions of the CBCA; and | |
| amendments to our articles of incorporation to (a) increase the minimum number of directors from one (1) to three (3) and the maximum number of directors from ten (10) to fifteen (15) in order to support any future increases in the size of the board of directors, and (b) to change our name from Mitel Networks Corporation to Mitel Corporation. |
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84
85
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87
C. | Material Contracts |
| In order to effect a return of capital on Series A Preferred Shares, the conversion of the Series A Preferred Shares into Class 1 Preferred Shares and Common Shares and the termination of the Series 2 Warrants, each as described in Item 4.A. Information on Mitel History and Development of Mitel, we entered into a Return of Capital, Voting and Conversion Agreement with EdgeStone (the EdgeStone Return of Capital, Voting and Conversion Agreement). | |
| In order to effect the conversion of the PTIC Series B Preferred Shares and repurchase one-half of the Common Shares issued to PTIC upon such conversion, as described above, we entered into a Common Share Repurchase, Voting and Conversion Agreement with PTIC (the PTIC Common Share Repurchase, Voting and Conversion Agreement). | |
| In order to effect the repurchase of the Zarlink Common Shares, as described above, we entered into a Common Share Repurchase and Voting Agreement with Zarlink (the Zarlink Common Share Repurchase and Voting Agreement). | |
| In order to effect the conversion of the Wesley Clover Series B Preferred Shares and the repurchase for cancellation and termination of the 2006 Wesley Clover Warrants, as described above, we entered into a Warrant Repurchase, Voting, and Conversion Agreement with Dr. Matthews, Wesley Clover and CTJL (the Matthews Warrant Repurchase, Voting and Conversion Agreement). |
88
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| Issued and sold to the Investors 263,087 Class 1 Preferred Shares at a purchase price of $1,000 per share. | |
| Issued and sold to the Investors, for the aggregate price of $0.01, warrants to purchase 19,936,071 Common Shares at an exercise price set out above under the heading Warrants. |
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Y(A-B)
|
||
A
|
where
|
||||
Y
|
= | the number of warrant shares in respect of which the net issuance election is being made. | ||
A
|
= | the Fair Market Value (as defined in the warrant) of one Common Share as at the time the net issuance election is made. | ||
B
|
= | the Exercise Price (initially $1.32, as adjusted to the date of calculation) |
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D. | Exchange Controls |
| the acquisition of our Common Shares by a person in the ordinary course of that persons business as a trader or dealer in securities; |
92
| the acquisition or control of us in connection with the realization of security granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Canada Act; and | |
| the acquisition or control of us by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of us, through the ownership of voting interests, remains unchanged. |
E. | Taxation |
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95
| at least 75% of its gross income is passive income (referred to as the income test); or | |
| at least 50% of the average value of its assets is attributable to assets that produce passive income or are held for the production of passive income (referred to as the asset test). |
| dividends, royalties, rents, annuities, interest, and income equivalent to interest; and | |
| net gains from the sale or exchange of property that gives rise to dividends, interest, royalties, rents, or annuities and certain gains from the commodities transactions. |
96
97
F. | Dividends and Paying Agents |
G. | Statement by Experts |
H. | Documents on Display |
I. | Subsidiary Information |
Item 11. | Quantitative and Qualitative Disclosures about Market Risk |
98
99
Item 12. | Description of Securities Other than Equity Securities |
Item 13. | Defaults, Dividend Arrearages and Delinquencies |
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
Item 15. | Controls and Procedures |
100
Item 16. | [Reserved] |
A. | Audit Committee Financial Expert |
B. | Code of Ethics |
C. | Principal Accountant and Fees |
Fiscal 2008 | Fiscal 2007 | |||||||
Audit Fees
|
$ | 759,682 | $ | 780,840 | ||||
Audit-Related Fees
|
65,837 | 45,618 | ||||||
Tax Fees
|
146,508 | 28,921 | ||||||
Other Fees
|
838,401 | | ||||||
Total
|
$ | 1,810,681 | $ | 855,379 | ||||
101
D. | Exemptions from the Listing Standards for Audit Committees |
E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
(d) Maximum |
||||||||||||||||
Number (or |
||||||||||||||||
Approximate |
||||||||||||||||
Dollar |
||||||||||||||||
(c) Total |
Value) of |
|||||||||||||||
Number of |
Shares |
|||||||||||||||
Shares |
(or Units) |
|||||||||||||||
(or Units) |
that may |
|||||||||||||||
Purchased |
yet be |
|||||||||||||||
(a) Total |
(b) Average |
as Part |
Purchased |
|||||||||||||
Number of |
Price |
of Publicly |
Under the |
|||||||||||||
Shares (or |
Paid per |
Announced Plans |
Plans or |
|||||||||||||
Period
|
Units) Purchased | Share (or Units) | or Programs | Programs | ||||||||||||
October 31, 2007
|
13,252 | C$ | 1.00 | | | |||||||||||
April 22, 2008
|
14,277 | C$ | 1.34 | | | |||||||||||
TOTAL
|
27,529 |
Item 17. | Financial Statements |
Item 18. | Financial Statements |
Item 19. | Exhibits |
1 | . | Articles of Incorporation and bylaws as currently in effect: | ||
1 | .1 | Articles of Incorporation and amendments thereto prior to April 22, 2004(4) | ||
1 | .2 | Articles of Amendment dated April 22, 2004(4) | ||
1 | .3 | Articles of Amendment dated April 23, 2004(4) | ||
1 | .4 | Articles of Amendment dated October 12, 2006(10) | ||
1 | .5 | Articles of Amendment dated August 16, 2007(11) |
102
1 | .6 | Articles of Amendment dated August 16, 2007(16) | ||
1 | .7 | Bylaws(4), as amended on September 7, 2006(10) | ||
2 | . | Instruments defining the rights of holders of equity securities being registered: | ||
2 | .1 | See Articles of Incorporation described above in Exhibit 1.1, Articles of Amendment dated April 22, 2004 described above in Exhibit 1.2, Articles of Amendment dated April 23, 2004 described above in Exhibit 1.3 and Articles of Amendment dated October 12, 2006 described above in Exhibit 1.4, Articles of Amendment dated August 16, 2007 described above in Exhibit 1.5 and Articles of Amendment dated August 16, 2007 described above in Exhibit 1.6 | ||
2 | .2 | Specimen Common Share certificate(1) | ||
2 | .3 | Specimen Class 1 Share Certificate(16) | ||
2 | .4 | Securities Purchase Agreement between Mitel and the Noteholders, dated April 27, 2005(11)+ | ||
2 | .5 | Form of Note (See Exhibit 2.4 above) | ||
2 | .6 | Form of Warrant (10), as amended on August 16, 2007(16) | ||
2 | .7 | Class A Convertible Preferred Share Subscription Agreement between Mitel and EdgeStone dated April 23, 2004(10)+ | ||
2 | .8 | Form of Warrant (See Exhibit 2.7 above)(10) | ||
2 | .9 | Securities Purchase Agreement between Mitel and Wesley Clover Corporation dated September 21, 2006(10)+ | ||
2 | .10 | Form of Warrant (See Exhibit 2.9 above)(10) | ||
2 | .11 | Termination Agreement between Mitel, Zarlink, PTIC EdgeStone, Dr. Matthews, Wesley Clover and CTJL dated August 16, 2007(13) | ||
2 | .12 | First Lien Credit Agreement among Mitel, Mitel US Holdings Inc., certain lenders, Morgan Stanley Senior Funding, Inc., Morgan Stanley & Co, Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated dated August 16, 2007(16)+ | ||
2 | .13 | Amendment No. 1, dated September 26, 2007, to the First Lien Credit Agreement described above in Exhibit 2.12 | ||
2 | .14 | Amendment No. 2, dated December 12, 2007, to the First Lien Credit Agreement described above in Exhibit 2.12 | ||
2 | .15 | Amendment No. 3, dated July 31, 2008, to the First Lien Credit Agreement described above in Exhibit 2.12 | ||
2 | .16 | Second Lien Credit Agreement among Mitel, Mitel US Holdings Inc., certain lenders, Morgan Stanley Senior Funding, Inc., Morgan Stanley & Co, Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated dated August 16, 2007(16)+ | ||
2 | .17 | Amendment No. 1, dated September 26, 2007, to the Second Lien Credit Agreement described above in Exhibit 2.16 | ||
2 | .18 | Amendment No. 2, dated December 12, 2007, to the Second Lien Credit Agreement described above in Exhibit 2.16 | ||
2 | .19 | Amendment No. 3, dated July 31, 2008, to the Second Lien Credit Agreement described above in Exhibit 2.16 | ||
2 | .20 | Class 1 Convertible Preferred Share Subscription Agreement among Mitel, Arsenal Holdco I, S.a.r.l., Arsenal Holdco II, S.a.r.l. and Morgan Stanley Principal Investors Inc. dated August 16, 2007(16)+ | ||
2 | .21 | Form of Warrant granted to Arsenal Holdco I, S.a.r.l., Arsenal Holdco II, S.a.r.l., Morgan Stanley Principal Investors Inc., PTIC and Dr. Matthews(11) | ||
2 | .22 | Class 1 Convertible Preferred Share and Warrant Subscription Agreement among Mitel, Arsenal Holdco I, S.a.r.l, Arsenal Holco II, S.a.r.l. and Morgan Stanley Principal Investments, Inc. dated January 18, 2008 | ||
2 | .23 | Form of Warrant granted to Arsenal Holdco I, S.a.r.l, Arsenal Holco II, S.a.r.l. and Morgan Stanley Principal Investments, Inc. dated January 18, 2008 (See Exhibit A of Exhibit 2.22 above) | ||
2 | .24 | Shareholder Agreement among Mitel, PTIC, Dr. Matthews, Wesley Clover, CTJL, EdgeStone, Arsenal Holdco I, S.a.r.l., Arsenal Holdco II, S.a.r.l. and Morgan Stanley Principal Investors Inc. dated August 16, 2007(13) | ||
2 | .25 | Registration Rights Agreement among Mitel, Arsenal Holdco I, S.a.r.l., Arsenal Holdco II, S.a.r.l. and Morgan Stanley Principal Investors Inc. dated August 16, 2007(13) |
103
4 | . | Material contracts: | ||
4 | .1 | Interest Rate Swap Agreement between Mitel and Morgan Stanley Capital Services Inc. dated August 27, 2007 | ||
4 | .2 | Securities Purchase Agreement between Mitel and the Noteholders, dated April 27, 2005 (See Exhibit 2.4 above) (10)+ | ||
4 | .3 | Form of Note (See Exhibit 2.5 above) | ||
4 | .4 | Form of Warrant, as amended on August 16, 2007 (See Exhibit 2.6 above) | ||
4 | .5 | Class A Convertible Preferred Share Subscription Agreement between Mitel and EdgeStone dated April 23, 2004 (see Exhibit 2.7 above)+ | ||
4 | .6 | Shareholders Agreement between Mitel, Mitel Knowledge, PTIC, Zarlink, Mitel Systems (now Wesley Clover), WCC (now Wesley Clover), EdgeStone, and Dr. Matthews, dated April 23, 2004(2) , as amended on June 26, 2006(10) | ||
4 | .7 | Securities Purchase Agreement between Mitel and Wesley Clover Corporation dated September 21, 2006 (see Exhibit 2.9 above)+ | ||
4 | .8 | Return of Capital, Voting and Conversion Agreement between Mitel and EdgeStone dated June 22, 2007(14) | ||
4 | .9 | Common Share Repurchase, Voting and Conversion Agreement between Mitel and PTIC dated August 15, 2007(16) | ||
4 | .10 | Common Share Repurchase and Voting Agreement between Mitel and Zarlink dated May 30, 2007(16) | ||
4 | .11 | Warrant Repurchase, Voting and Conversion Agreement between Mitel, Dr. Matthews, Wesley Clover and CTJL dated August 15, 2007(13) | ||
4 | .12 | Termination Agreement between Mitel, Zarlink, PTIC EdgeStone, Dr. Matthews, Wesley Clover and CTJL dated August 16, 2007 (see Exhibit 2.11 above) | ||
4 | .13 | Class 1 Convertible Preferred Share Subscription Agreement among Mitel, Arsenal Holdco I, S.a.r.l., Arsenal Holdco II, S.a.r.l. and Morgan Stanley Principal Investors Inc. dated August 16, 2007 (see Exhibit 2.20 above)+ | ||
4 | .14 | Form of Warrant granted to Arsenal Holdco I, S.a.r.l., Arsenal Holdco II, S.a.r.l., Morgan Stanley Principal Investors Inc., PTIC and Dr. Matthews (see Exhibit 2.21 above) | ||
4 | .15 | Shareholder Agreement among Mitel, PTIC, Dr. Matthews, Wesley Clover, CTJL, EdgeStone, Arsenal Holdco I, S.a.r.l., Arsenal Holdco II, S.a.r.l. and Morgan Stanley Principal Investors Inc. dated August 16, 2007 (see Exhibit 2.24 above) | ||
4 | .16 | Registration Rights Agreement among Mitel, Arsenal Holdco I, S.a.r.l., Arsenal Holdco II, S.a.r.l. and Morgan Stanley Principal Investors Inc. dated August 16, 2007 (see Exhibit 2.25 above) | ||
4 | .17 | Class 1 Convertible Preferred Share and Warrant Subscription Agreement among Mitel, Arsenal Holdco I, S.a.r.l, Arsenal Holco II, S.a.r.l. and Morgan Stanley Principal Investments, Inc. dated January 18, 2008 (See Exhibit 2.22 above) | ||
4 | .18 | Form of Warrant granted to Arsenal Holdco I, S.a.r.l, Arsenal Holco II, S.a.r.l. and Morgan Stanley Principal Investments, Inc. dated January 18, 2008 (see Exhibit 2.23 above) | ||
4 | .19 | First Lien Credit Agreement among Mitel, Mitel US Holdings Inc., certain lenders, Morgan Stanley Senior Funding, Inc., Morgan Stanley & Co, Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated dated August 16, 2007 (see Exhibit 2.12 above)+, as amended on September 26, 2007 (see Exhibit 2.13 above), December 12, 2007 (see Exhibit 2.14 above) and July 31, 2008 (see Exhibit 2.15 above) | ||
4 | .20 | Second Lien Credit Agreement among Mitel, Mitel US Holdings Inc., certain lenders, Morgan Stanley Senior Funding, Inc., Morgan Stanley & Co, Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated dated August 16, 2007 (see Exhibit 2.16 above)+, as amended on September 26, 2007 (see Exhibit 2.17 above), December 12, 2007 (See Exhibit 2.18 above) and July 31, 2008 (see Exhibit 2.19 above) | ||
4 | .21 | Merger Agreement among Mitel, Inter-Tel (Delaware), Incorporated and Arsenal Inter-Tel Acquisition Corporation dated April 26, 2007(12) | ||
4 | .22 | Deferred Share Unit Plan (DSU Plan) for Executives effective December 9, 2004(5) | ||
4 | .23 | Employee Stock Option Plan, dated March 6, 2001, as amended(6) | ||
4 | .24 | 2004 U.S. Employee Stock Purchase Plan(8) |
104
4 | .25 | Form of Global Mitel Employment Agreement(7) | ||
4 | .26 | 2006 Equity Incentive Plan(10) | ||
4 | .27 | 2007 U.S. Employee Stock Purchase Plan(17) | ||
4 | .28 | Amended and Restated Employment Contract between Mitel and Donald Smith, dated April 17, 2001 (the Smith Employment Contract)(7) | ||
4 | .29 | Agreement Amending the Smith Employment Contract, dated May 5, 2006(7) | ||
4 | .30 | Amended and Restated Employment Contract between Mitel and Paul Butcher, dated February 16, 2001 (the Butcher Employment Contract)(7) | ||
4 | .31 | Agreement Amending the Butcher Employment Contract, dated May 5, 2006(7) | ||
4 | .32 | Employment Contract, dated January 1, 2006, between Mitel and Steven Spooner(7) | ||
4 | .33 | Employment contract between Mitel and Ron Wellard, dated December 15, 2003, as amended on December 8, 2006 | ||
4 | .34 | Letter agreement, dated March 1, 2002, between Terence H. Matthews and Paul Butcher (the Butcher Letter Agreement)(9) | ||
4 | .35 | Amendment No. 1 to the Butcher Letter Agreement, dated May 1, 2006(9) | ||
4 | .36 | Letter agreement, dated March 1, 2002, between Terence H. Matthews and Donald Smith (the Smith Letter Agreement)(9) | ||
4 | .37 | Amendment No. 1 to the Smith Letter Agreement, dated May 1, 2006(9) | ||
4 | .38 | Letter agreement, dated May 1, 2006, between Terence H. Matthews and Peter D. Charbonneau(9) | ||
4 | .39 | Integrated Communications Solutions R&D Project Agreement between Mitel, Mitel Knowledge, March Networks and Her Majesty the Queen in Right of Canada dated October 10, 2002(1)+, as amended on March 27, 2003(4), May 2, 2004(10), September 16, 2004(10), June 27, 2005(10), and October 3, 2005(10), respectively | ||
4 | .40 | Lease Agreement between Mitel and MRPC dated March 27, 2001(1) | ||
4 | .41 | Supply Agreement between Mitel and its subsidiaries and BreconRidge and its subsidiaries dated August 30, 2001(1)+, and related amendment dated February 27, 2003(3)+ | ||
4 | .42 | Amendment to the Supply Agreement between Mitel and its subsidiaries and BreconRidge and its subsidiaries dated February 27, 2003(3) | ||
4 | .43 | Tri-Party Agreement between MNOL, MNIL and MNL dated June 30, 2005(10) | ||
4 | .44 | Inter-Tel, Incorporated Tax Deferred Savings Plan and Retirement Trust(15) | ||
4 | .45 | CIBC Warrant, dated April 29, 2004(7), as amended(10) | ||
8 | .1 | Subsidiaries of Mitel Networks Corporation | ||
12 | .1 | Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
12 | .2 | Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
13 | .1 | Certification by CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
13 | .2 | Certification by CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
99 | .1 | Auditors Consent |
(1) | Filed as an exhibit to the Registration Statement on Form 20-F, as amended (File No. 0-49984) of Mitel and incorporated herein by reference. | |
(2) | Filed on May 3, 2004 as an exhibit to a Schedule 13D (Mitel as issuer) by EdgeStone Capital Equity Fund II-A, L.P.; EdgeStone Capital Equity Fund II-US, L.P.; EdgeStone Capital Equity Fund II-US-Inst., L.P.; National Bank Financial & Co. Inc.; EdgeStone Capital Equity Fund II-A GP, L.P.; EdgeStone Capital Equity Fund II US GP, L.P.; EdgeStone Capital Equity Fund II-US-Inst. GP, L.P.; EdgeStone Capital Equity Fund II-A GP, Inc.; EdgeStone Capital Equity Fund II-US Main GP, Inc.; EdgeStone Capital Equity Fund II-US-Inst. GP, Inc.; Samuel L. Duboc; Gilbert S. Palter; Bryan W. Kerdman; Sandra Cowan; and EdgeStone Capital Equity Fund II-B GP, Inc. and incorporated herein by reference. | |
(3) | Filed on August 1, 2003 as an exhibit to the annual report on Form 20-F of Mitel for the year ended April 27, 2003 and incorporated herein by reference. |
105
(4) | Filed on August 31, 2004 as an exhibit to the annual report on Form 20-F of Mitel for the year ended April 25, 2004, and incorporated herein by reference. | |
(5) | Filed on October 24, 2005 as an exhibit to the annual report on Form 20-F of Mitel for the year ended April 24, 2005 and the transition period ended April 30, 2005 and incorporated therein by reference. | |
(6) | Filed as an exhibit to the Form S-8 of the Registrant, dated March 6, 2006, filed with the Commission on March 6, 2006 and incorporated therein by reference. | |
(7) | Filed as an exhibit to the Form F-1 of the Registrant, dated May 9, 2006, filed with the Commission on May 9, 2006 and incorporated therein by reference. | |
(8) | Filed as an exhibit to the Form S-8 of the Registrant, dated November 29, 2004, filed with the Commission on November 29, 2004 and incorporated therein by reference. | |
(9) | Filed as an exhibit to Amendment No. 1 to the Schedule 13D (the Registrant as issuer) filed with the Commission on May 5, 2006 by Terence H. Matthews, Wesley Clover Corporation and Celtic Tech Jet Limited and incorporated therein by reference. | |
(10) | Filed on October 30, 2006 as an exhibit to the annual report on Form 20-F of Mitel for the year ended April 30, 2006 and incorporated therein by reference. | |
(11) | Filed as an exhibit to Amendment No. 2 to the Schedule 13D (the Registrant as issuer) filed with the Commission on August 27, 2007 by Arsenal Holdco I, S.a.r.l., Arsenal Holdco II, S.a.r.l., Francisco Partners GP II (Cayman), L.P., Francisco Partners GP II Management (Cayman) Limited, Francisco Partners Gp II, L.P., Francisco Partners II (Cayman), L.P., and Francisco Partners Parallel Fund II, L.P. and incorporated therein by reference. | |
(12) | Filed as an exhibit to the Form 8-K of Inter-Tel (Delaware), Incorporated filed with the Commission on April 26, 2007 and incorporated therein by reference. | |
(13) | Filed as an exhibit to Amendment No. 2 to the Schedule 13D (the Registrant as issuer) filed with the Commission on September 28, 2007 by Terence H. Matthews, Wesley Clover Corporation and Celtic Tech Jet Limited and incorporated therein by reference. | |
(14) | Filed on August 28, 2007 as an exhibit to Amendment No. 2 of Schedule 13D (Mitel as issuer) by EdgeStone Capital Equity Fund II-A, L.P.; EdgeStone Capital Equity Fund II-US, L.P.; EdgeStone Capital Equity Fund II-US-Inst., L.P.; National Bank Financial & Co. Inc.; EdgeStone Capital Equity Fund II-A GP, L.P.; EdgeStone Capital Equity Fund II US GP, L.P.; EdgeStone Capital Equity Fund II-US-Inst. GP, L.P.; EdgeStone Capital Equity Fund II-A GP, Inc.; EdgeStone Capital Equity Fund II-US Main GP, Inc.; EdgeStone Capital Equity Fund II-US-Inst. GP, Inc.; Samuel L. Duboc; Gilbert S. Palter; Bryan W. Kerdman; Sandra Cowan; and EdgeStone Capital Equity Fund II-B GP, Inc. and incorporated herein by reference. | |
(15) | Filed as an exhibit to the Form 10-K of Inter-Tel (Delaware), Incorporated filed with the Commission for the year ended November 30, 1984 and incorporated therein by reference. | |
(16) | Filed on October 24, 2007 as an exhibit to the annual report on Form 20-F of Mitel for the year ended April 30, 2007 and incorporated therein by reference. | |
(17) | Filed as an exhibit to the Form S-8 of the Registrant, filed with the Commissioner on November 26, 2007, and incorporated therein by reference. | |
+ | Portions of this document have been granted Confidential Treatment by the Secretary of the Securities and Exchange Commission. |
106
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-8 | ||||
F-9 | ||||
Financial Statement Schedules:
|
||||
(Note: Schedules other than that listed below are omitted as
they are not applicable or not required, or the information is
included in the consolidated financial statements or notes
thereto)
|
||||
F-45 |
107
F - 2
F - 3
April 30, 2007 | April 30, 2008 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 33.5 | $ | 19.5 | ||||
Restricted cash |
3.6 | 2.3 | ||||||
Accounts receivable (net of allowance of $2.5 and $14.0, respectively) |
81.7 | 138.3 | ||||||
Sales lease receivables (net of allowance of $nil and $1.5, respectively) |
| 23.4 | ||||||
Inventories |
19.8 | 49.1 | ||||||
Income tax receivable |
0.8 | 0.6 | ||||||
Deferred tax asset |
| 2.8 | ||||||
Other current assets |
31.0 | 56.9 | ||||||
170.4 | 292.9 | |||||||
Non-current portion of sales-lease receivables (net) |
| 34.2 | ||||||
Investments, and other assets |
5.2 | 32.9 | ||||||
Deferred tax asset |
| 0.8 | ||||||
Property and equipment |
16.5 | 27.0 | ||||||
Goodwill |
6.8 | 420.9 | ||||||
Intangibles (net) |
3.3 | 168.0 | ||||||
$ | 202.2 | $ | 976.7 | |||||
LIABILITIES, REDEEMABLE SHARES AND SHAREHOLDERS DEFICIENCY |
||||||||
Current liabilities: |
||||||||
Bank indebtedness |
$ | 0.5 | $ | 12.5 | ||||
Accounts payable and accrued liabilities |
98.8 | 153.9 | ||||||
Deferred tax liability |
| 0.8 | ||||||
Deferred revenue |
19.6 | 50.6 | ||||||
Due to related parties |
23.0 | 13.8 | ||||||
Current portion of long-term debt |
1.9 | 2.4 | ||||||
143.8 | 234.0 | |||||||
Long-term debt |
2.1 | 420.7 | ||||||
Lease recourse liability |
| 13.2 | ||||||
Long-term income taxes payable |
| 3.0 | ||||||
Deferred revenue and other liabilities |
8.6 | 45.7 | ||||||
Litigation settlement obligation |
10.8 | 8.4 | ||||||
Convertible notes |
50.2 | | ||||||
Derivative instruments |
67.3 | 108.6 | ||||||
Deferred tax liability |
| 99.7 | ||||||
Pension liability |
50.5 | 76.4 | ||||||
333.3 | 1,009.7 | |||||||
Commitments and contingencies |
||||||||
Redeemable common shares, without par value: 10,000,000 and nil shares authorized,
issued and outstanding at April 30, 2007 and April 30, 2008 |
19.0 | | ||||||
Convertible, redeemable preferred shares, without par value unlimited shares
Authorized, issued and outstanding: Series A: 20,000,000 and nil shares at April
30, 2007, and April 30, 2008; Series B: 67,789,300 and nil shares at April
30,2007 and April 30, 2008; Class 1: nil and 316,755 shares at April 30, 2007 and
April 30, 2008 |
52.5 | 208.5 | ||||||
71.5 | 208.5 | |||||||
Shareholders deficiency: |
||||||||
Common
shares, without par value unlimited shares authorized: 107,344,086, and 214,736,735 issued and outstanding at April 30, 2007, and
April 30, 2008 |
189.1 | 277.1 | ||||||
Warrants |
62.9 | 56.7 | ||||||
Deferred stock-based compensation |
(0.1 | ) | (0.1 | ) | ||||
Additional paid-in capital |
0.3 | 2.0 | ||||||
Accumulated deficit |
(398.2 | ) | (492.2 | ) | ||||
Accumulated other comprehensive loss |
(56.6 | ) | (85.0 | ) | ||||
(202.6 | ) | (241.5 | ) | |||||
$ | 202.2 | $ | 976.7 | |||||
APPROVED BY THE BOARD |
||
Director
|
Director |
F - 4
Year Ended | Year Ended | Year Ended | ||||||||||
April 30, 2006 | April 30, 2007 | April 30, 2008 | ||||||||||
Revenues: |
||||||||||||
Telecommunications |
$ | 387.1 | $ | 384.9 | $ | 642.1 | ||||||
Network services |
| | 49.9 | |||||||||
387.1 | 384.9 | 692.0 | ||||||||||
Cost of revenues: |
||||||||||||
Telecommunications |
225.7 | 225.1 | 337.4 | |||||||||
Network services |
| | 30.5 | |||||||||
225.7 | 225.1 | 367.9 | ||||||||||
Gross margin |
161.4 | 159.8 | 324.1 | |||||||||
Expenses: |
||||||||||||
Selling, general and administrative |
120.7 | 123.5 | 246.6 | |||||||||
Research and development |
44.1 | 41.7 | 62.6 | |||||||||
Special charges, integration and merger-related costs |
5.7 | 9.3 | 16.0 | |||||||||
Litigation settlement |
| 16.3 | | |||||||||
Initial public offering costs |
| 3.3 | | |||||||||
Loss (gain) on sale of manufacturing operations |
(0.9 | ) | (1.0 | ) | 1.0 | |||||||
In-process research and development |
| | 5.0 | |||||||||
Gain on sale of assets |
(1.5 | ) | | | ||||||||
168.1 | 193.1 | 331.2 | ||||||||||
Operating income (loss) |
(6.7 | ) | (33.3 | ) | (7.1 | ) | ||||||
Interest expense |
(7.6 | ) | (9.1 | ) | (34.7 | ) | ||||||
Debt and warrant retirement costs |
| | (20.8 | ) | ||||||||
Fair value adjustment on derivative instruments |
(32.6 | ) | 8.6 | 61.9 | ||||||||
Other income |
0.4 | 0.6 | 1.6 | |||||||||
Income (loss) before income taxes |
(46.5 | ) | (33.2 | ) | 0.9 | |||||||
Current income tax expense (recovery) |
0.9 | (0.2 | ) | (0.9 | ) | |||||||
Deferred income tax expense (recovery) |
(2.8 | ) | 2.0 | (11.4 | ) | |||||||
Net income (loss) |
$ | (44.6 | ) | $ | (35.0 | ) | $ | 13.2 | ||||
Net loss per common share: |
||||||||||||
Basic and diluted |
$ | (0.44 | ) | $ | (0.36 | ) | $ | (0.44 | ) | |||
Weighted-average number of common shares outstanding |
||||||||||||
Basic and diluted |
117,230,198 | 117,336,927 | 186,135,401 | |||||||||
F - 5
Additional | Deferred Stock- | Accumulated Other | Total | |||||||||||||||||||||||||||||
Common Shares | Paid-in | based | Accumulated | Comprehensive | Shareholders | |||||||||||||||||||||||||||
Shares | Amount | Warrants | Capital | Compensation | Deficit | Income (Loss) | Deficiency | |||||||||||||||||||||||||
Balances at April
30, 2005 |
107,149,933 | $ | 187.6 | $ | 47.9 | $ | | $ | (0.4 | ) | $ | (304.0 | ) | $ | (24.2 | ) | $ | (93.1 | ) | |||||||||||||
Common shares
issued: |
||||||||||||||||||||||||||||||||
Exercise of stock
options |
58,174 | 0.2 | | | | | | 0.2 | ||||||||||||||||||||||||
Professional
services received |
132,261 | 0.1 | | | | | | 0.1 | ||||||||||||||||||||||||
Fair value
adjustment relating
to stock option
plan |
| (0.3 | ) | | | 0.3 | | | | |||||||||||||||||||||||
Share purchase loan
repayments |
| 1.1 | | | | | | 1.1 | ||||||||||||||||||||||||
Shares repurchased |
(38,046 | ) | | | | | | | | |||||||||||||||||||||||
Deferred
stock-based
compensation |
| 0.1 | | | (0.1 | ) | | | | |||||||||||||||||||||||
Amortization of
deferred
stock-based
compensation |
| | | | 0.1 | | | 0.1 | ||||||||||||||||||||||||
Accretion of
interest on
redeemable common
and
preferred shares |
| | | | | (6.9 | ) | | (6.9 | ) | ||||||||||||||||||||||
107,302,322 | $ | 188.8 | $ | 47.9 | $ | | $ | (0.1 | ) | $ | (310.9 | ) | $ | (24.2 | ) | $ | (98.5 | ) | ||||||||||||||
Net loss |
| | | | | (44.6 | ) | | (44.6 | ) | ||||||||||||||||||||||
Other comprehensive
income: |
||||||||||||||||||||||||||||||||
Foreign currency
translation
adjustments |
| | | | | | (10.9 | ) | (10.9 | ) | ||||||||||||||||||||||
Minimum pension
liability
adjustments |
| | | | | | (14.6 | ) | (14.6 | ) | ||||||||||||||||||||||
Comprehensive loss |
| | | | | (44.6 | ) | (25.5 | ) | (70.1 | ) | |||||||||||||||||||||
Balance at April
30, 2006 |
107,302,322 | $ | 188.8 | $ | 47.9 | $ | | $ | (0.1 | ) | $ | (355.5 | ) | $ | (49.7 | ) | $ | (168.6 | ) | |||||||||||||
Common shares
issued: |
||||||||||||||||||||||||||||||||
Exercise of stock
options |
45,624 | 0.1 | | | | | | 0.1 | ||||||||||||||||||||||||
Professional
services received |
10,000 | | | | | | | | ||||||||||||||||||||||||
Warrants issued |
| | 15.0 | | | | | 15.0 | ||||||||||||||||||||||||
Share purchase loan
repayments |
| 0.2 | | | | | | 0.2 | ||||||||||||||||||||||||
Shares repurchased |
(13,860 | ) | | | | | | | ||||||||||||||||||||||||
Stock-based
compensation |
| | | 0.3 | | | 0.3 | |||||||||||||||||||||||||
Accretion of
interest on
redeemable common
and
preferred shares |
| | | | | (7.3 | ) | | (7.3 | ) | ||||||||||||||||||||||
107,344,086 | $ | 189.1 | $ | 62.9 | $ | 0.3 | $ | (0.1 | ) | $ | (362.8 | ) | $ | (49.7 | ) | $ | (160.3 | ) | ||||||||||||||
Net loss |
| | | | | (35.0 | ) | | (35.0 | ) | ||||||||||||||||||||||
Other comprehensive
income: |
| |||||||||||||||||||||||||||||||
Foreign currency
translation
adjustments |
| | | | | | 1.2 | 1.2 | ||||||||||||||||||||||||
Minimum pension
liability
adjustments |
| | | | | | 16.6 | 16.6 | ||||||||||||||||||||||||
Comprehensive
income (loss) |
| | | | | (35.0 | ) | 17.8 | (17.2 | ) | ||||||||||||||||||||||
Adoption of SFAS
158 pension
liability |
| | | | | (0.4 | ) | (24.7 | ) | (25.1 | ) | |||||||||||||||||||||
Balance at April
30, 2007 |
107,344,086 | $ | 189.1 | $ | 62.9 | $ | 0.3 | $ | (0.1 | ) | $ | (398.2 | ) | $ | (56.6 | ) | $ | (202.6 | ) | |||||||||||||
F - 6
Additional | Deferred Stock- | Accumulated Other | Total | |||||||||||||||||||||||||||||
Common Shares | Paid-in | based | Accumulated | Comprehensive | Shareholders | |||||||||||||||||||||||||||
Shares | Amount | Warrants | Capital | Compensation | Deficit | Income (Loss) | Deficiency | |||||||||||||||||||||||||
Balance at April
30, 2007 |
107,344,086 | $ | 189.1 | $ | 62.9 | $ | 0.3 | $ | (0.1 | ) | $ | (398.2 | ) | $ | (56.6 | ) | $ | (202.6 | ) | |||||||||||||
Common shares
issued: |
||||||||||||||||||||||||||||||||
Cash and employee
loans |
1,481,739 | 2.0 | | | | | | 2.0 | ||||||||||||||||||||||||
Exercise of stock
options |
27,625 | | | | | | | | ||||||||||||||||||||||||
Shares repurchased |
(42,529 | ) | | | | | | | | |||||||||||||||||||||||
Share purchase loans |
| (1.2 | ) | | | | | | (1.2 | ) | ||||||||||||||||||||||
Repayment of
warrants |
| | (15.0 | ) | | | (5.0 | ) | | (20.0 | ) | |||||||||||||||||||||
Induced conversion
of Series A
preferred shares |
5,359,893 | 5.4 | | | | (29.3 | ) | | (23.9 | ) | ||||||||||||||||||||||
Deemed dividend
relating to
beneficial
conversion feature
originally recorded
on Series A
preferred shares |
| | | | | (1.4 | ) | | (1.4 | ) | ||||||||||||||||||||||
Induced conversion
charge relating to
the derivative
liability on Series
A preferred shares |
| | | | | 11.4 | | 11.4 | ||||||||||||||||||||||||
Conversion of
Series B preferred
shares, net of
partial redemption |
100,565,921 | 38.1 | | | | (12.6 | ) | | 25.5 | |||||||||||||||||||||||
Beneficial
conversion feature
upon conversion of
Series B preferred
shares |
| 43.7 | | | | (43.7 | ) | | | |||||||||||||||||||||||
Redemption of
redeemable common
shares |
| | | | | 6.0 | | 6.0 | ||||||||||||||||||||||||
Warrants issued in
connection with
Class 1 preferred
shares |
| | 6.0 | | | | | 6.0 | ||||||||||||||||||||||||
Modification of
warrants issued in
connection with
convertible
debentures |
| | 2.8 | | | | 2.8 | |||||||||||||||||||||||||
Stock-based
compensation |
| | | 1.7 | | | | 1.7 | ||||||||||||||||||||||||
Accretion of
interest on
redeemable common
and
preferred A and B
shares |
| | | | | (2.1 | ) | | (2.1 | ) | ||||||||||||||||||||||
Accretion of
interest on Class 1
preferred shares |
| | | | | (24.4 | ) | | (24.4 | ) | ||||||||||||||||||||||
214,736,735 | $ | 277.1 | $ | 56.7 | $ | 2.0 | $ | (0.1 | ) | $ | (499.3 | ) | $ | (56.6 | ) | $ | (220.2 | ) | ||||||||||||||
Net income |
| | | | | 13.2 | | 13.2 | ||||||||||||||||||||||||
Other comprehensive
income (loss): |
||||||||||||||||||||||||||||||||
Unrealized
derivative gain
(loss) on cash flow
hedges |
| | | | | (6.1 | ) | | (6.1 | ) | ||||||||||||||||||||||
Change in
unamortized pension
and post-retirement
actuarial losses
and prior service
cost |
| | | | | (27.8 | ) | (27.8 | ) | |||||||||||||||||||||||
Foreign currency
translation
adjustments |
| | | | | | (0.6 | ) | (0.6 | ) | ||||||||||||||||||||||
Comprehensive
income (loss) |
| | | | | 7.1 | (28.4 | ) | (21.3 | ) | ||||||||||||||||||||||
Balance at April
30, 2008 |
214,736,735 | $ | 277.1 | $ | 56.7 | $ | 2.0 | $ | (0.1 | ) | $ | (492.2 | ) | $ | (85.0 | ) | $ | (241.5 | ) | |||||||||||||
F - 7
Year Ended | Year Ended | Year Ended | ||||||||||
April 30, 2006 | April 30, 2007 | April 30, 2008 | ||||||||||
CASH PROVIDED BY (USED IN) |
||||||||||||
Operating activities: |
||||||||||||
Net income (loss) |
$ | (44.6 | ) | $ | (35.0 | ) | $ | 13.2 | ||||
Adjustments to reconcile net loss to net cash from operating activities: |
||||||||||||
Amortization and depreciation |
10.2 | 9.8 | 32.6 | |||||||||
Amortization of deferred gain |
(0.3 | ) | (0.6 | ) | | |||||||
Fair value adjustment on derivative instruments |
32.6 | (8.6 | ) | (61.9 | ) | |||||||
Accretion of convertible notes to redemption value |
1.5 | 1.5 | 0.5 | |||||||||
Accretion of interest on litigation settlement obligation |
| | 1.5 | |||||||||
In-process research and development |
| | 5.0 | |||||||||
Stock-based compensation |
0.3 | 0.3 | 1.7 | |||||||||
Deferred income taxes |
(2.8 | ) | 2.8 | (6.0 | ) | |||||||
Loss (gain) on sale of manufacturing operations |
(0.9 | ) | (1.0 | ) | 1.0 | |||||||
Loss (gain) on sale of business and assets |
(1.5 | ) | | (0.2 | ) | |||||||
Loss on early extinguishment of convertible notes and
warrant modification |
| | 20.8 | |||||||||
Unrealized foreign exchange loss (gain) |
2.1 | (3.2 | ) | 1.3 | ||||||||
Non-cash movements in provisions |
4.2 | 4.1 | 8.7 | |||||||||
Non-cash portion of litigation settlement |
| 15.3 | | |||||||||
Change in non-cash operating assets and liabilities, net |
(3.1 | ) | 2.6 | (56.0 | ) | |||||||
Net cash used in operating activities |
(2.3 | ) | (12.0 | ) | (37.8 | ) | ||||||
Investing activities: |
||||||||||||
Additions to capital and intangible assets |
(8.8 | ) | (7.1 | ) | (18.3 | ) | ||||||
(Increase) decrease in restricted cash |
(0.5 | ) | (1.9 | ) | 1.3 | |||||||
Proceeds on sale of assets |
12.4 | | 19.7 | |||||||||
Acquisition of business |
| | (729.9 | ) | ||||||||
Acquisition costs |
| | (12.2 | ) | ||||||||
Cash and cash equivalents of acquired business |
| | 195.8 | |||||||||
Realized foreign exchange loss on hedging activities |
(8.0 | ) | (3.9 | ) | (1.2 | ) | ||||||
Realized foreign exchange gain on hedging activities |
8.6 | 0.5 | 0.3 | |||||||||
Net cash provided by (used in) investing activities |
3.7 | (12.4 | ) | (544.5 | ) | |||||||
Financing activities: |
||||||||||||
Increase (decrease) in bank indebtedness |
0.7 | (1.6 | ) | 12.0 | ||||||||
Proceeds from issuance of Class 1 preferred shares |
| | 289.5 | |||||||||
Proceeds from issuance of debt |
| | 430.0 | |||||||||
Repayment of convertible debentures |
| | (66.0 | ) | ||||||||
Settlement of convertible redeemable preferred shares |
| | (36.2 | ) | ||||||||
Repayment of redeemable common shares |
| | (12.9 | ) | ||||||||
Proceeds from issuance (repayment) of warrants |
| 15.0 | (20.0 | ) | ||||||||
Repayment of capital lease liabilities |
| | (1.8 | ) | ||||||||
Repayment of long-term debt |
(11.9 | ) | (1.0 | ) | (9.6 | ) | ||||||
Share issue costs |
| | (3.0 | ) | ||||||||
Payment of litigation settlement obligation |
| | (4.5 | ) | ||||||||
Deferred financing costs |
(1.8 | ) | (2.1 | ) | (9.9 | ) | ||||||
Proceeds from transfer of receivables |
| 10.9 | | |||||||||
Proceeds from issuance of common shares |
0.2 | 0.1 | 0.8 | |||||||||
Proceeds from repayments of employee share purchase loans |
1.1 | 0.2 | | |||||||||
Net cash provided by (used in) financing activities |
(11.7 | ) | 21.5 | 568.4 | ||||||||
Effect of exchange rate changes on cash and cash equivalents |
(0.6 | ) | 0.7 | (0.1 | ) | |||||||
Decrease in cash and cash equivalents |
(10.9 | ) | (2.2 | ) | (14.0 | ) | ||||||
Cash and cash equivalents, beginning of period |
46.6 | 35.7 | 33.5 | |||||||||
Cash and cash equivalents, end of period |
$ | 35.7 | $ | 33.5 | $ | 19.5 | ||||||
F - 8
1. | BACKGROUND AND NATURE OF OPERATIONS | |
Mitel Networks Corporation (the Company) is a leading provider of integrated communications solutions and services for business customers. Through direct and indirect channels as well as strategic technology partnerships, the Company currently serves a wide range of industry vertical markets, including education, government, healthcare, hospitality and retail in the United States (US), Europe, Middle East and Africa, Canada, Caribbean and Latin America, and Asia-Pacific regions. | ||
The Company was incorporated under the Canada Business Corporations Act on January 12, 2001. On February 16, 2001, the Company acquired the Mitel name and substantially all of the assets (other than Canadian real estate and most intellectual property assets) and subsidiaries of the Communications Systems Division of Zarlink Semiconductor Inc. (Zarlink), formerly Mitel Corporation. On August 16, 2007, the Company acquired Inter-Tel (Delaware) Incorporated (Inter-Tel), a full-service provider of business communications solutions. | ||
2. | ACCOUNTING POLICIES | |
These consolidated financial statements have been prepared by the Company in accordance with US generally accepted accounting principles (GAAP) and the rules and regulations of the U.S. Securities and Exchange Commission (the SEC) for the preparation of financial statements. | ||
Certain reclassifications have been made to the 2006 and 2007 financial statements to conform to the 2008 presentation. The most significant change was a revision in the Companys allocation of revenues and cost of revenues from a product and service group presentation, to telecommunications and network services. | ||
Amounts less than fifty thousand dollars are deemed to be insignificant in these financial statements. | ||
a) Basis of Consolidation | ||
The consolidated financial statements include the accounts of the Company and of its majority-owned subsidiary companies. Intercompany transactions and balances have been eliminated on consolidation. The financial statements include the results of operations of Inter-Tel (Delaware), Incorporated, from the date of acquisition (August 16, 2007) through April 30, 2008. | ||
b) Use of Estimates | ||
The preparation of the Companys consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. | ||
Estimates and assumptions are used for, but not limited to, the determination of the allowance for doubtful accounts, inventory allowances, special charges, contingencies, other accruals, lease recourse liability, warranty costs, sales returns, pension costs, taxes, goodwill and impairment assessments, purchase price allocation, estimated useful lives of intangible assets and equipment, asset valuations, and the valuation of stock options, warrants and derivatives. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period that they are determined to be necessary. In the opinion of management, these consolidated financial statements reflect all adjustments necessary to present fairly the results for the periods presented. Actual results and outcomes could differ from these estimates. | ||
c) Foreign Currency Translation | ||
The parent companys functional currency is the U.S. dollar and the consolidated financial statements of the Company are prepared with U.S. dollar reporting currency using the current rate method. Assets and liabilities of foreign operations are translated from foreign currencies into U.S. dollars at the exchange rates in effect at the balance sheet date while revenue and expense items are translated at the weighted-average exchange rates for the period. The resulting unrealized gains and losses have been included as part of the cumulative foreign currency translation adjustment which is reported as other comprehensive income. | ||
Monetary assets and liabilities denominated in currencies foreign to the functional currency of each entity, are translated into functional currency using exchange rates in effect at the balance sheet date. All other assets and liabilities are translated at the exchange rates prevailing at the date the assets were acquired or the liabilities incurred. Revenue and expense items are translated at the average exchange rate for the period. Foreign exchange gains and losses resulting from the translation of these accounts are included in the determination of income for the period. During fiscal 2008, the Company recorded a foreign exchange gain of $0.8 (2006 $0.4 gain; 2007 $0.3 loss). |
F - 9
d) Revenue Recognition | ||
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, title and risk of loss have been transferred to the customer, the fee is fixed or determinable, and collection is reasonably assured. | ||
Software revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred in accordance with the terms and conditions of the contract, the fee is fixed or determinable, and collection is reasonably assured. For software arrangements involving multiple elements, revenue is allocated to each element based on the relative fair value or the residual method, as applicable, and using vendor specific objective evidence of fair values, which is based on prices charged when the element is sold separately. Revenue related to post-contract support (PCS), including technical support and unspecified when-and-if available software upgrades, is recognized ratably over the PCS term for contracts that are greater than one year. For contracts where the post contract period is one year or less, the costs are deemed insignificant, and the unspecified software upgrades are expected to be and historically have been infrequent, revenue is recognized together with the initial licensing fee and the estimated costs are accrued. | ||
In a transaction containing a sales-type lease, hardware revenues are recognized at the present value of the payments allocated to the hardware lease element at the time of system sale in accordance with Financial Accounting Standards (SFAS) No. 13, Accounting for Leases. Revenues from software, including applications, upgrades, software support, and embedded software, are deferred and recognized over the period of support in accordance with American Institute of Certified Public Accountants (AICPA) Statement of Position 97-2, Software Revenue Recognition. Revenues from sales-type leases are allocated between hardware and software elements based on managements best estimate of relative fair values. | ||
Indirect channels | ||
The Company makes sales to distributors and resellers based on contracts with terms ranging from one to three years. For products sold through these distribution channels, revenue is recognized at the time the risk of loss is transferred to distributors and resellers according to contractual terms and if all contractual obligations have been satisfied. These arrangements usually involve multiple elements, including post-contract technical support and training. Costs related to insignificant technical support obligations, including second-line telephone support for certain products, are accrued. For other technical support and training obligations, revenue from product sales is allocated to each element based on vendor specific objective evidence of relative fair values, generally representing the prices charged when the element is sold separately, with any discount allocated proportionately. Revenue attributable to undelivered elements is deferred and recognized upon performance or ratably over the contract period. | ||
The Companys standard warranty period extends fifteen months from the date of sale and extended warranty periods are offered on certain products. Sales to the Companys resellers do not provide for return or price protection rights, while sales to distributors provide for such rights. Product return rights are typically limited to a percentage of sales over a maximum three-month period. A reserve for estimated product returns and price protection rights based on past experience is recorded as a reduction of sales at the time product revenue is recognized. The Company offers various cooperative marketing programs to assist its distribution channels to market the Companys products. Allowances for such programs are recorded as marketing expenses at the time of shipment based on contract terms and prior claims experience. | ||
Direct channels | ||
The Company sells products, including installation and related maintenance and support services, directly to customers. For products sold through direct channels, revenue is recognized at the time of delivery and at the time risk of loss is transferred, based on prior experience of successful compliance with customer specifications. Revenue from installation is recognized as services are rendered and when contractual obligations, including customer acceptance, have been satisfied. Revenue is also derived from professional service contracts with terms that range from two to six weeks for standard solutions and for longer periods for customized solutions. Revenue from customer support, professional services and maintenance contracts is recognized ratably over the contractual period, generally one year. Billings in advance of services are included in deferred revenue. Revenue from installation services provided in advance of billing is included in unbilled accounts receivable. | ||
Certain arrangements with direct customers provide for free customer support and maintenance services extending twelve months from the date of installation. Customer support and maintenance contracts are also sold separately. When customer support or maintenance services are provided free of charge, such amounts are unbundled from the product and installation revenue at their fair market value based on the prices charged when the element is sold separately and recognized ratably over the contract period. Consulting and training revenues are recognized upon performance. | ||
The Company provides long-term outsourcing services of communication systems. Under these arrangements, systems management services (Managed Services) and communication equipment are provided to customers for terms that typically range from one to ten years. Revenue from Managed Services is recognized ratably over the contract period. The Company retains title and risk of loss associated with the equipment utilized in the provision of the Managed Services. Accordingly, the equipment is capitalized as part of property and equipment and is amortized to cost of sales over the contract period. |
F - 10
Resale of long distance | ||
Revenue is recognized from long distance resale services as services are provided. | ||
Sales leases | ||
For sales-type lease accounting, the Company follows guidance provided by SFAS 13, Accounting for Leases and FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities A Replacement of FASB Statement No. 125. The Company records the discounted present values of minimum rental payments under sales-type leases as sales, net of provisions for continuing administration and other expenses over the lease period. The Company records the lease sales at the time of system sale and installation pursuant to SEC Staff Accounting Bulletin No. 104, for sales to end user customers, and upon receipt of the executed lease documents. The costs of systems installed under these sales-leases are recorded as costs of sales. The net rental streams are sold to funding sources on a regular basis with the income streams discounted by prevailing like-term rates at the time of sale. Gains or losses resulting from the sale of net rental payments from such leases are recorded as net sales. The Company establishes and maintains reserves against potential recourse following the resales based upon historical loss experience, past due accounts and specific account analysis. The allowance for uncollectible minimum lease payments and recourse liability at the end of the period represents reserves against the entire lease portfolio. Management reviews the adequacy of the allowance on a regular basis and adjusts the allowance as required. These reserves are either netted in the accounts receivable, current and long-term components of Sales-Lease Receivables on the balance sheet, or included in lease recourse liability on the consolidated balance sheet for the estimated recourse liability for lease streams sold. | ||
e) Cash and Cash Equivalents | ||
Cash and cash equivalents are highly liquid investments that have terms to maturity of three months or less at the time of acquisition, and generally consist of cash on hand and marketable securities. Cash equivalents are carried at cost, which approximates their fair value. | ||
f) Restricted Cash | ||
Restricted cash represents cash provided to support letters of credit outstanding and to support certain of the Companys credit facilities. | ||
g) Allowance for Doubtful Accounts | ||
The allowance for doubtful accounts represents the Companys best estimate of probable losses that may result from the inability of its customers to make required payments. Additional reserves or allowances for doubtful accounts are recorded for sales-type leases, discussed in note d) Sales Leases. Reserves are established and maintained against estimated losses based upon historical loss experience, past due accounts, and specific account analysis. The Company regularly reviews the level of allowances for doubtful accounts and adjusts the level of allowances needed. Consideration is given to accounts in excess of 60 days old as well as other risks in the more current portion of the accounts included. | ||
h) Inventories | ||
Inventories are valued at the lower of cost (calculated on a first-in, first-out basis) or net realizable value for finished goods, and current replacement cost for raw materials. The Company provides inventory allowances based on estimated excess and obsolete inventories. | ||
i) Transfer of Receivables | ||
Transfers of accounts receivable are accounted for as sales if the terms of the transfer meet the criteria for surrender of control under FASB Statement of Financial Accounting Standards (SFAS) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities A Replacement of FASB Statement No. 125. The Company entered into an agreement on April 30, 2007 under which it sold $12.8 of its non-interest bearing trade accounts receivable to an unaffiliated financial institution at a rate of 7.5% on Canadian dollar receivables and 10.25% on US dollar receivables. The Company is not considered to have ceded control over the transferred receivables, and so the transfer has not been accounted for as a sale. | ||
j) Property and Equipment | ||
Property and equipment are initially recorded at cost. Depreciation is provided on a straight-line basis over the anticipated useful lives of the assets. Estimated lives range from three to ten years for equipment and twenty-five years for buildings. Amortization of leasehold improvements is computed using the shorter of the remaining lease terms or five years. The Company performs reviews for the impairment of property and equipment in accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In assessing the impairment, the Company compares projected and undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful life against their carrying amounts. If projected undiscounted net cash flows are not sufficient to recover the carrying value of the assets, the assets are written down to their estimated fair values based on expected discounted cash flows. Changes in the estimates and assumptions used in assessing projected cash flows could materially affect the results of managements evaluation. |
F - 11
Assets leased on terms that transfer substantially all of the benefits and risks of ownership to the Company are accounted for as capital leases, as though the asset had been purchased outright and a liability incurred. All other leases are accounted for as operating leases. | ||
k) Goodwill and Intangible Assets | ||
Intangible assets include patents, trademarks, customer relationships and acquired technology. Amortization is provided on a straight-line basis over five years for patents and over a period of two to eight years for other intangible assets with finite useful lives. The Company periodically evaluates intangible assets for impairment in accordance with SFAS 144 whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is assessed based on the carrying value of the asset and its fair value, which is generally determined based on the discounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. | ||
Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and intangible assets acquired in business combinations. The Company reviews the carrying value of goodwill on an annual basis in accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142). Under SFAS 142 goodwill is not amortized, but is subject to annual impairment tests, or more frequently if circumstances indicate that it is more likely than not that the fair value of the reporting unit is below its carrying amount. In assessing the impairment, the Company compares the fair value of the reporting unit, including goodwill, with their carrying amounts. If the fair value exceeds the carrying amount of the reporting unit, no impairment charge is recorded. If the fair value is less than the carrying amount, the Company compares the implied fair value of the goodwill, determined as if a purchase had just occurred, to the carrying amount to determine the amount of impairment charge to be recorded. Changes in the estimates and assumptions used in assessing the projected cash flows could materially affect the results of managements evaluation. The Company, upon completion of its annual goodwill impairment tests, determined that no impairments existed as of the balance sheet dates. | ||
l) Derivative Financial Instruments | ||
The Company uses derivatives, including foreign currency forward and swap contracts, to minimize the short-term impact of currency fluctuations on foreign currency receivables and payables. Derivative instruments that are not designated as accounting hedges, are originally recorded at fair market value with subsequent changes in fair value recorded in other income (expense) during the period of change. For derivative instruments that qualify for hedge accounting, and are designated as a cash flow hedge, gains or losses for the effective portion of the hedge are initially reported as a separate component of other comprehensive income (loss) and subsequently recorded into earnings when the hedged transaction occurs or when the hedge is no longer deemed effective in according with FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). For a derivative designated as a fair value hedge, changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in net earnings (loss) in the period in which the changes occur. The Company does not hold or issue derivative financial instruments for speculative or trading purposes. The Company also utilizes non-derivative financial instruments including letters of credit and commitments to extend credit. In fiscal 2008, the Company entered into an interest rate swap to limit the impact of changes in LIBOR rates related to the merger financing debt. As described in Note 29, the derivative was designated as a cash flow hedge. | ||
As explained in Note 23, the Company issued convertible, redeemable preferred shares to investors in fiscal 2004. The preferred shares gave the investors the right, at any time after five years to redeem the shares for cash. The redemption amount was equal to the original issue price of $1.00 per preferred share times the number of Series A and Series B Preferred Shares outstanding, plus any declared but unpaid dividends, plus the then current fair market value of the common shares into which the Series A and Series B Preferred Shares are convertible. The requirement to redeem the shares on an as-if-converted-to-common share basis qualified as an embedded derivative under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). Accordingly, the proceeds received from the issuance of the preferred shares were allocated between the embedded derivative and the preferred shares. Throughout the period to redemption, the embedded derivative was marked to market with changes in value recorded in the Consolidated Statements of Operations. When the convertible, redeemable preferred shares were redeemed on August 16, 2007 in connection with the merger transaction described in Note 3, the derivative liability was reversed from the Companys balance sheet as further described in Note 22 and Note 23. | ||
An embedded derivative also exists within the Class 1 convertible, redeemable preferred shares issued on August 16, 2007, as described further in Note 22, since the holders of the preferred shares have the ability to receive cash equal to the value of shares into which the instrument converts after 7 years. As such, the derivative is marked to market throughout the period to redemption with changes in value recorded in the Consolidated Statements of Operations. | ||
m) Income Taxes | ||
Income taxes are accounted for using the asset and liability method. Under this approach, deferred tax assets and liabilities are determined based on differences between the carrying amounts and the tax basis of assets and liabilities, and are measured using enacted tax rates and laws. Deferred tax assets are recognized only to the extent that it is more likely than not, in the opinion of management, that the future tax assets will be realized in the future. |
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n) Research and Development | ||
Research costs are charged to expense in the periods in which they are incurred. Software development costs are deferred and amortized when technological feasibility has been established, or otherwise, are expensed as incurred. The Company has not deferred any software development costs to date. | ||
o) Defined Benefit Pension Plan | ||
Pension expense under the defined benefit pension plan is actuarially determined using the projected benefit method prorated on service, and managements best estimate assumptions. Pension plan assets are valued at fair value. The excess of any cumulative net actuarial gain (loss) over ten percent of the greater of the benefit obligation and the fair value of plan assets is amortized over the average remaining service period of active employees. The over-funded or under-funded status of the defined benefit pension plan is recognized as an asset or liability, respectively, on the balance sheet, with an offsetting adjustment made to accumulated other comprehensive income. Effective fiscal 2007, the Company measures its plan assets and obligations at the year-end balance sheet date. | ||
The discount rate assumptions used reflect prevailing rates available on high-quality, fixed-income debt instruments. The rate of compensation increase is another significant assumption used for pension accounting and is determined by the Company, based upon its long-term plans for such increases. | ||
p) Stock-Based Compensation Plan | ||
The Company has a stock-based compensation plan described in Note 25. The Company generally grants stock options for a fixed number of shares to employees and non-employees with an exercise price at least equal to fair market value of the shares at the date of grant. | ||
Prior to May 1, 2006, the Company accounted for employee stock option grants in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations. Under APB 25, options granted to employees and directors will result in the recognition of compensation expense only if the exercise price is lower than the market price of common shares on the date of grant. Under FASB Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123), the Company recognizes compensation expense in connection with grants to non-employees and former employees by applying the fair value based method of accounting and also applies variable plan accounting to such unvested grants. | ||
On May 1, 2006, the Company adopted Statement No. 123(R), Share-Based Payment (SFAS 123R), which supercedes SFAS 123 and APB 25, and also applied the provisions of SAB 107 in its adoption of SFAS 123R. SFAS 123R requires all share-based payments to employees, including grants of stock options, to be recognized in the financial statements based on their fair values. The Company has applied the provisions of this statement prospectively to new awards and to awards modified, repurchased, or cancelled after May 1, 2006 with the associated compensation expense being recognized on a straight-line basis over the requisite service period for the entire award. In accordance with the prospective method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R. | ||
Share-based compensation expense is based on a fair value estimate made on the grant-date using the Black-Scholes option-pricing model for each award, net of estimated forfeitures, and is recognized over the employees requisite service period, which is generally the vesting period. Forfeitures are estimated based on the Companys historical rates of forfeiture. In the Companys pro-forma information, required under SFAS 123 for periods prior to fiscal 2007, the Company accounted for forfeitures as they occurred. | ||
In accordance with SFAS 123(R) and SAB 107, the Company is no longer able to use the minimum value method of measuring equity share options and so has estimated the volatility of its stock using historical volatility of comparable public companies. The Company will continue to use the volatility of comparable companies until historical volatility is relevant to measure expected volatility for option grants. | ||
The assumptions used in the Black Scholes option-pricing model are summarized as follows: |
April 30, 2007 | April 30, 2008 | |||||||
Risk-free interest rate |
4.1 | % | 4.1 | % | ||||
Dividends |
0 | % | 0 | % | ||||
Expected volatility |
86.6 | % | 76.0 | % | ||||
Annual forfeiture rate |
15 | % | 10 | % | ||||
Expected life of the options |
5 years | 5 years | ||||||
Fair value per option |
$ | 0.77 | $ | 0.83 |
Based on these assumptions, share based compensation expense reduced the Companys results of operations by $1.9 for the year ended April 30, 2008 (2007 $0.3). Changes in the subjective input assumptions can, however, materially affect the fair value estimate, and therefore the model used above does not necessarily provide reliable results. |
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q) Net Loss per Common Share | ||
Basic loss per common share is computed using the weighted-average number of common shares outstanding during the period, with net loss adjusted for the impact of accreted interest on redeemable shares, as well as other charges and credits to deficit resulting from the settlement of the redeemable common and redeemable preferred A and B shares in fiscal 2008. Diluted loss per common share is computed using the treasury stock method and assumes that, if a dilutive effect is produced, all dilutive securities had been exercised at the later of the beginning of the fiscal period and the security issue date. | ||
r) Other Comprehensive Loss | ||
Other comprehensive loss is recorded directly to a separate section of shareholders deficiency in accumulated other comprehensive loss and includes unrealized gains and losses excluded from the Consolidated Statements of Operations. These unrealized gains and losses consist of foreign currency translation adjustments, which are not adjusted for income taxes since they primarily relate to indefinite investments in non-Canadian subsidiaries, changes in the unfunded status of the pension plan, and changes in the fair value of the effective portion of cash flow hedges where the hedged item has not yet been recognized in income. | ||
s) Advertising Costs | ||
The cost of advertising is expensed as incurred, except for cooperative advertising obligations, which are expensed at the time the related sales are recognized and the advertising credits are earned. Cooperative advertising obligations are classified as a revenue reduction or cost of sale in accordance with Emerging Issues Task Force 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products). Advertising costs are recorded in selling, general and administrative expenses. During fiscal 2008, the Company incurred $16.0 in advertising costs (2006 $10.3; 2007 $8.3). During fiscal 2008, the Company incurred $4.7 in cooperative advertising obligations (2006 $4.6; 2007 $3.3). | ||
t) Product Warranties | ||
The Companys product warranties are generally for periods up to fifteen months. At the time revenue is recognized, a provision for estimated warranty costs is recorded as a component of cost of sales. The warranty accrual represents the Companys best estimate of the costs necessary to settle future and existing claims on products sold as of the balance sheet date based on the terms of the warranty, which vary by customer and product, historical product return rates and estimated average repair costs. The Company periodically assesses the adequacy of its recorded warranty provisions and adjusts the amounts as necessary. | ||
u) Recent Accounting Pronouncements | ||
In June 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income tax positions and refunds. The interpretation prescribes a more-likely-than-not threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides accounting guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 was originally intended to be effective for all companies in fiscal years beginning after December 15, 2006. In February 2008, however, the FASB issued a staff position deferring the effective date for non-public companies until periods beginning after December 15, 2007. The Company meets the definition of a non-public company as defined in the FSP and is therefore not required to adopt requirements of FIN 48 until fiscal 2009. The Company is currently assessing the impact of FIN 48 on its consolidated financial statements. | ||
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (SFAS 157). This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB issued a staff position (FSP) that would defer SFAS 157s effective date for all non-financial assets and liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until years beginning after November 1, 2008. The Company is currently evaluating the requirements of SFAS 157, and has not yet fully determined the impact, if any, on the consolidated financial statements. | ||
In February 2007, the FASB issued Statement of Financial Accounting Standards No 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115 (SFAS 159), which allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item shall be reported in current earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes the Company elects for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS 159 on its financial statements. | ||
In December 2007, the FASB issued Statement of Financial Accounting Standards No 141(R), Business Combinations (SFAS 141(R)), which replaces SFAS 141 and significantly changes the accounting for business combinations. SFAS 141(R) requires assets and liabilities acquired in a business combination, contingent consideration, and certain acquired contingencies to be measured at their fair values as of the date of acquisition. SFAS 141(R) also requires that (1) acquisition-related costs and restructuring costs be recognized separately from the business combination and expensed as incurred; (2) noncontrolling interests (formerly known as minority interests) be valued at fair value at the acquisition date; (3) in-process research and development be |
F - 14
recorded at fair value as an indefinite-lived intangible asset at the acquisition date; (4) restructuring costs associated with a business combination be expensed subsequent to the acquisition date; and (5) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008, and will be effective for business combinations that are entered into after May 1, 2009. Earlier adoption is not permitted. | ||
In December 2007, the FASB issued Statement of Financial Accounting Standards No 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 (SFAS 160). SFAS 160 clarifies the accounting for noncontrolling interests and establishes accounting and reporting standards for the noncontrolling interest in a subsidiary, including classification as a component of equity. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company does not currently have any minority interests. | ||
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), Disclosures about Derivative Instruments and Hedging Activities. SFAS 161 requires companies to expand their disclosure on derivatives to include information about the fair value of derivatives, related credit risks and a companys strategies and objectives for using derivatives so that users can understand how and why a company uses derivative instruments, how derivative instruments and related hedged items affect a companys financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact, if any, that SFAS 161 will have on its consolidated financial statements. | ||
In April 2008, the FASB issued FSP SFAS 142-3, Determination of the Useful Life of Intangible Assets (FSP SFAS 142-3). FSP SFAS 142-3 provides guidance with respect to estimating the useful lives of recognized intangible assets acquired on or after the effective date and requires additional disclosure related to the renewal or extension of the terms of recognized intangible assets. FSP SFAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company does not expect this staff position to have a significant impact on its results of operations and financial condition. | ||
In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments that May be Settled in Cash Upon Conversion, which addresses the accounting for convertible debt securities that, upon conversion, may be settled by the issuer fully or partially in cash. The FSP clarifies that: (1) convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, are not considered debt instruments within the scope of APB 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, and (2) issuers of such instruments should separately account for the liability and equity components of those instruments by allocating the proceeds from issuance of the instrument between the liability component and the equity component. The FSP is effective for fiscal years beginning after December 15, 2008 and would need to be applied retrospectively to all past periods presented even if the instrument was extinguished as of the FSPs effective date. This FSP is not considered applicable to the convertible debentures that were extinguished by cash settlement in fiscal 2008 since there was no conversion prior to settlement, and is not applicable to the redeemable class A, class B or Class 1 preferred shares since all qualify as mezzanine equity and are outside the scope of SFAS 150. | ||
Effective fiscal 2008, the Company adopted FASB Statement No 155 Accounting for Certain Hybrid Financial Instruments. The adoption of this accounting pronouncement did not have a material impact on the Companys results of operations, financial condition or cash flows. | ||
3. | MERGER TRANSACTION | |
On August 16, 2007, the Company acquired all of the outstanding shares of Inter-Tel (Delaware) Incorporated (Inter-Tel), a full-service provider of business communications solutions, for US$25.60 per Inter-Tel share in cash representing a total purchase price of approximately $729.9. | ||
In order to finance the acquisition, the Company issued 307,087 new Class 1 preferred shares (Note 23), and received gross cash proceeds of $300.0 from a seven year senior secured first lien credit agreement (Note 17), and cash proceeds of $130.0 from an eight year senior secured second lien credit agreement (Note 17). The combined proceeds, along with $195.8 of Inter-Tels cash, were used to consummate the purchase of Inter-Tel, retire all existing convertible notes, fund secondary selling by certain shareholders and terminate the put rights held by the holders of the 10,000,000 redeemable common shares and the redeemable preferred shares described in Notes 21 and 23. | ||
Changes in the Companys debt and equity structure arising from the merger transaction were as follows: |
i) | each existing Series A Preferred Share, as described in Note 23, was amended and converted into 0.000871 of a Class 1 Preferred Share and 0.2679946 of a Common Share, the entire class of shares was subsequently deleted from the Companys articles of incorporation | ||
ii) | each existing Series B Preferred Share, as described in Note 23, was converted into 1.682 common shares before it was partially redeemed for cash and the entire class of shares was subsequently deleted from the Companys articles of incorporation | ||
iii) | the $55.0 of convertible notes, as described in Note 18, were repaid with $66.0 of cash plus accrued interest, and the warrants issued in connection with the convertible notes were modified as described further in Note 24 (iv) |
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iv) | each existing redeemable common share, as described in Note 21, was purchased for cancellation | ||
v) | the warrants issued for $15.0 on September 21, 2006, as described in Note 24 (v), were repurchased for $20.0 |
Purchase Price | ||||
Allocation | ||||
Tangible assets: |
||||
Current assets |
$ | 326.0 | ||
Property, plant and equipment |
35.0 | |||
Net investment in sales-leases |
33.6 | |||
Other assets |
37.9 | |||
Total tangible assets acquired |
432.5 | |||
Liabilities: |
||||
Current liabilities |
121.1 | |||
Long-term income taxes payable |
114.2 | |||
Other liabilities |
55.2 | |||
Total liabilities assumed |
290.5 | |||
Fair value of net tangible and monetary assets |
142.0 | |||
In-process research and development |
5.0 | |||
Intangible assets: |
||||
Customer relationships |
99.7 | |||
Developed technology |
78.8 | |||
Trade name |
2.3 | |||
180.8 | ||||
Goodwill |
414.3 | |||
Purchase Price, including acquisition costs |
$ | 742.1 | ||
April 30, 2007 | April 30, 2008 | |||||||
Revenue |
$ | 825.3 | $ | 825.7 | ||||
Net income (loss) |
$ | (32.3 | ) | $ | (12.3 | ) | ||
Earnings (loss) per common share basic |
$ | (0.60 | ) | $ | (0.50 | ) | ||
Earnings (loss) per common share diluted |
$ | (0.60 | ) | $ | (0.50 | ) | ||
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| Additional estimated depreciation and amortization expense as a result of identifiable intangible assets arising from the acquisition | ||
| Additional interest expense on first and second liens, bearing interest at LIBOR. The adjustment is based on the rate that was in effect on the date of acquisition and the effect on net income of a 1/8% variance in LIBOR would be $0.5 | ||
| Reduction in interest expense on convertible notes, bearing interest at LIBOR, that were paid off as a result of the acquisition. The adjustment is based on the rate that was in effect on the date of acquisition and the effect on net income of a 1/8% variance in LIBOR would be $0.1 | ||
| Elimination of fair value adjustment on derivative liability embedded in preferred A and B shares that were redeemed and converted immediately prior to the acquisition | ||
| Tax provision based on consolidated tax rate of 30% |
The pro forma results include non-recurring charges such as in-process research and development expense, and acquisition related expenses incurred by Inter-Tel including SFAS 123R and proxy costs for $4.6 and $6.3, and $1.1 and $3.5, for the years ended April 30, 2007 and April 30, 2008 respectively. | ||
The pro forma results are not necessarily indicative of the results of operations that actually would have resulted had the acquisition been in effect at the beginning of the respective periods and are not necessarily representative of future results. | ||
As part of its integration efforts, the Company implemented restructuring actions throughout the year, which resulted in the termination of employees across functional groups and around the world and the closure of certain facilities. In accordance with EITF No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination, the Company recorded liabilities of $8.1 consisting of $7.6 for employee separation costs and $0.5 to the closure of redundant facilities. Payment of the $2.8 balance remaining at April 30, 2008 is expected to be complete by the end of fiscal 2009. The liability will be subject to refinement until the end of the first quarter of fiscal 2009 and could therefore impact the purchase price allocation. Integration, merger and related costs are described further in Note 5. Other restructuring actions that have not been included in the purchase price allocation are also described further in Note 5. | ||
4. | RELATED PARTY TRANSACTIONS | |
As at April 30, 2007 and April 30, 2008, amounts receivable from related parties were $0.8 and $0.4 which are included with other current assets, and amounts payable to related parties were $23.0 and $13.8 respectively. Significant related party transactions with companies controlled by or related to Dr. Terence Matthews (a Major Shareholder), not otherwise disclosed in the financial statements, include the following: | ||
Disposal of manufacturing operations | ||
On August 31, 2001, the Company recorded a loss on the sale of its manufacturing operations, comprising plant, equipment, workforce and certain liabilities to BreconRidge Manufacturing Solutions Corporation (BreconRidge), a company in which the Major Shareholder holds a significant interest. During fiscal 2004, BreconRidge vacated premises that had been subleased from the Company pursuant to the disposal of the manufacturing operations. In fiscal 2006, a reversal of $0.9 was recorded against the loss to reflect the receipt of new information that had a favorable impact on operating cost assumptions and corresponding estimates. In fiscal 2007, Mitel successfully subleased certain areas of the vacated premises to new tenants, and accordingly, recorded a reversal of $1.0 against the loss. In fiscal 2008, it became evident that sublease income that was included in previous estimates would no longer be realized, and as a result an additional loss of $1.0 was recorded. | ||
In connection with the disposal of the manufacturing operations, the Company entered into a supply agreement dated August 31, 2001 whereby BreconRidge provided certain products and services under terms and conditions reflecting prevailing market conditions at the time the agreement was entered into. The initial term of the agreement was for six years with an extended term expiring on June 20, 2008. The Company entered into a replacement agreement with BreconRidge which became effective June 30, 2008. Under the terms of the initial supply agreement, BreconRidge is required to purchase the Companys raw material inventory, before turning to third party suppliers for raw material procurement. During fiscal 2008, the Company purchased $83.9 of products and services (2006 $101.4; 2007 $91.0) and sold $3.0 of raw material inventory (2006 $0.4; 2007 $2.1) under this agreement. As of April 30, 2008, balances payable pursuant to this agreement amounted to $14.0 (April 30, 2006 $24.0; April 30, 2007 $24.2) and balances receivable pursuant to this agreement amounted to $0.9 (April 30, 2006 $0.7; April 30, 2007 $2.8). | ||
Under the terms of the supply agreement, the Company is required to purchase from BreconRidge certain tools used in the manufacturing process. These manufacturing tools are capitalized as part of fixed assets and are depreciated over their estimated useful lives. During fiscal 2008, manufacturing tools purchased from BreconRidge amounted to $0.3 (2006 $0.9; 2007 $0.2). | ||
On August 31, 2001, the Company also entered into service agreements with BreconRidge to provide facilities management services for the period covering the term of the premise lease agreements, as well as human resource and information systems support services. Amounts charged to BreconRidge were equal to, and recorded as a reduction of, the costs incurred to provide the related services in the Consolidated Statements of Operations. During fiscal 2008, the Company provided services valued at $0.1 under these agreements (2006 $0.5; 2007 $0.2). |
F - 17
Leased properties | ||
In March 2001 the Company and Brookstreet Research Park Corporation (formerly known as Mitel Research Park Corporation), a company controlled by the Major Shareholder entered into a lease agreement for its Ottawa-based headquarter facilities, under terms and conditions reflecting prevailing market conditions at the time the lease was entered into. The lease agreement is for 10 years expiring in March 2011. | ||
On August 31, 2001, the Company entered into sublease agreements with BreconRidge for certain office and manufacturing facilities in Ottawa and in the United Kingdom (U.K.) under terms and conditions reflecting prevailing market conditions at the time the leases were entered into. The sublease agreement was amended on May 31, 2002 to increase leased space. The Ottawa sublease agreement was for a term of five years expiring on August 31, 2006. In August 2005, the building in the U.K. was sold to an unrelated third party. In August 2006, the Ottawa sublease expired and was not renewed. Accordingly, the Company no longer receives rental income from BreconRidge for either facilities in the U.K. or Ottawa. | ||
See Note 19 for disclosure of related party rental expense, sublease income, committed future minimum lease payments and future sublease income. As of April 30, 2008, balances due from the company controlled by the Major Shareholder and related to the lease agreement amounted to $0.4 (April 30, 2006 $0.4 due to; April 30, 2007 $0.6 due to). | ||
Financing | ||
During fiscal 2007, the Company borrowed funds to fund short term working capital requirements from Wesley Clover Corporation, a company controlled by the Major Shareholder. The promissory notes bore interest at three-month LIBOR plus 5% and the interest expense incurred on these related party loans during the year amounted to $0.1. The amount borrowed never exceeded $5.0 at any one time, all funding was repaid within the year and there was no balance payable at April 30, 2007 or April 30, 2008. | ||
During fiscal 2008, and as described in more detail in Note 24 (v), the warrants issued for $15.0 to Wesley Clover on September 21, 2006 were repurchased for $20.0 cash. Subsequent to this repayment, Wesley Clover received 13,500 Class 1 Preferred shares in exchange for $13.5 of cash. The terms and rights associated with these preferred shares are outlined in Note 23. | ||
Prepaid License and Investment Agreement | ||
On April 25, 2006, the Company entered into an agreement with Natural Convergence Inc (NCI), a company in which the Major Shareholder has an ownership interest, to purchase prepaid software licenses and convertible debentures for a combined total of $1.2. The secured convertible debentures were (a) repayable to debenture holders (plus a credit fee of 25% per annum of any outstanding principal) on the earlier of December 31, 2006, or on the occurrence of certain events, or (b) automatically convertible into preferred shares of NCI upon the closing of a qualifying financing of no less than $6.0. The convertible debentures were also issued with warrants to acquire a number of common shares of NCI equal to the dollar amount of the investment divided by $1.00, at an exercise price per common share of C$0.0001. | ||
Under this agreement, the Company purchased $0.3 of prepaid software licenses and $0.9 of convertible debentures during fiscal 2007. The $0.3 of prepaid licenses is included in other current assets at April 30, 2007. Since NCI had completed a qualifying financing of $10.0 in November 2006, the Companys entire $0.9 balance of debentures and $0.1 accrued interest was automatically converted into NCI Class C Preferred Shares at a 5% discount in accordance with the terms of the agreement. Following the conversion, and upon exercising its warrants, the Company received 8,467,523 Class C Preferred Shares and acquired 600,000 common shares. At April 30, 2007 and April 30, 2008, the Company had a combined ownership of 5.6% in NCI but did not exert significant influence over NCI. Accordingly, the $1.0 investment recorded on the balance sheet at April 30, 2007 and April 30, 2008 has been accounted for using the cost method. | ||
In addition to the license and financing agreement described above, the Company also purchased $0.7 of products and services from NCI for the year ended April 30, 2008 (2006 $0.3, 2007 $2.1). The related net balance payable at April 30, 2008 was $0.1 (April 30, 2006 $0.2; April 30, 2007 $0.5). | ||
Other | ||
In September 2001, the Company entered into a strategic alliance agreement and a global distribution agreement with March Networks Corporation (March Networks), a company controlled at that time by the Major Shareholder, to broaden its product portfolio and its distribution channel. The strategic alliance and global distribution agreements terminated on March 31, 2005 and October 31, 2005 respectively. During fiscal 2008, the Company therefore had no purchases of products and services (2006 $0.3; 2007 $0.1) from March Networks and had no balances payable at April 30, 2008 (April 30, 2006 $0.1; April 30, 2007 $nil). | ||
Other sales to and purchases from companies related to the Major Shareholder and arising in the normal course of the Companys business were $0.6 and $2.8 respectively for the year ended April 30, 2008 (2006 $0.4 and $3.6 respectively; 2007 $0.6 and $3.0 respectively). The net balances payable as a result of these transactions was $0.8 at April 30, 2008 (April 30, 2007 $0.8). |
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5. | SPECIAL CHARGES | |
During fiscal 2006 the Company recorded pre-tax special charges of $5.7. The components of the charge include $5.7 of employee severance and benefits incurred in the termination of 84 employees around the world, $0.8 of accreted interest related to lease termination obligation and a reversal of $0.8 related to a new sublease of a facility previously provided for in special charges. Payment of the workforce reduction liabilities was completed during fiscal 2007. The lease termination obligation incurred in prior fiscal years continues to be reduced over the remaining term of the leases. Accordingly, a balance of $3.1 representing the long-term portion of the lease obligation has been recorded under long term liabilities as of April 30, 2006. | ||
During fiscal 2007, the Company recorded pre-tax special charges of $9.3 as a result of continuing efforts to improve the Companys operational efficiency and realign its business to focus on IP-based communications solutions. The components of the charge include $8.7 of employee severance and benefits incurred in the termination of 129 employees around the world, $0.4 of accreted interest related to lease termination obligations and $0.2 related to additional lease terminations in the period. Payment of workforce reduction liabilities was completed during fiscal 2008. The lease termination obligation incurred in prior fiscal years continues to be reduced over the remaining term of the leases. Accordingly, a balance of $3.0 representing the long-term portion of the lease obligation has been recorded under long term liabilities as of April 30, 2007. | ||
During fiscal 2008, the Company recorded pre-tax special charges of $8.6 as a result of actions post acquisition of Inter-Tel in order to improve the Companys operational efficiency and realign its business segments. The components of the charge include $4.3 of employee severance and benefits incurred in the termination of 74 employees around the world, $0.9 of accreted interest related to lease termination obligations and $3.4 related to additional lease terminations in the period. Payment of workforce reduction liabilities is expected to be complete within the next twelve months. The lease termination obligation incurred in prior fiscal years continues to be reduced over the remaining term of the leases. Accordingly, a balance of $5.1 representing the long-term portion of the lease obligation has been recorded under long term liabilities. | ||
The following table summarizes details of the Companys special charges and related reserve during fiscal 2006, fiscal 2007 and fiscal 2008: |
Lease Termination | ||||||||||||
Description | Workforce Reduction | Obligation | Total | |||||||||
Balance of provision as of April 30, 2005 |
$ | 1.8 | $ | 5.6 | $ | 7.4 | ||||||
Fiscal 2006: |
||||||||||||
Charges |
5.7 | 0.8 | 6.5 | |||||||||
Adjustments |
| (0.8 | ) | (0.8 | ) | |||||||
Cash payments |
(6.0 | ) | (1.3 | ) | (7.3 | ) | ||||||
Foreign currency impact |
0.2 | (0.3 | ) | (0.1 | ) | |||||||
Balance of provision as of April 30, 2006 |
$ | 1.7 | $ | 4.0 | $ | 5.7 | ||||||
Fiscal 2007: |
||||||||||||
Charges |
8.7 | 0.6 | 9.3 | |||||||||
Cash payments |
(9.5 | ) | (1.0 | ) | (10.5 | ) | ||||||
Foreign currency impact |
0.3 | 0.4 | 0.7 | |||||||||
Balance of provision as of April 30, 2007 |
$ | 1.2 | $ | 4.0 | $ | 5.2 | ||||||
Fiscal 2008: |
||||||||||||
Charges |
4.3 | 4.3 | 8.6 | |||||||||
Cash payments |
(4.4 | ) | (2.3 | ) | (6.7 | ) | ||||||
Foreign currency impact |
| 0.2 | 0.2 | |||||||||
Balance of provision as of April 30, 2008 |
$ | 1.1 | $ | 6.2 | $ | 7.3 | ||||||
Integration costs and merger-related expenses | ||
Integration and merger-related transaction expenses for the year ended April 30, 2008 totaled $7.4 and principally consisted of legal and consulting fees incurred in the period relating to the acquisition of Inter-Tel, as well as other incremental and non-recurring internal costs directly related to the acquisition. | ||
6. | SEGMENT INFORMATION | |
General description | ||
Mitels portfolio of solutions provide advanced voice, video and data communications platforms, desktop phones and Internet appliances, applications for customer relationship management and mobility, messaging and multimedia collaboration. The |
F - 19
Companys reportable segments are represented by the four geographic areas: United States, Canada and Caribbean and Latin America (CALA), Europe, Middle East and Africa (EMEA), and Asia Pacific. These reportable segments were determined in accordance with how management views and evaluates the Companys business. | ||
The Companys Chief Executive Officer (CEO) has been identified as the chief operating decision maker as defined by SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The CEO evaluates the performance of the segments and allocates resources based on information provided by the Companys internal management system. The primary financial measure used by the CEO is the contribution margin, which includes segment revenues less the related cost of sales and direct selling costs. The Company does not allocate research and development, marketing, general and administrative expenses, amortization, stock-based compensation expense and one-time charges to its segments as management does not use this information to measure the performance of the operating segments. These unallocated expenses are included in shared and unallocated costs in the reconciliation of operating results. In addition, total asset information by segment is not presented because the CEO does not use such segmented measures to allocate resources and assess performance. Inter-segment sales are based on fair market values and are eliminated on consolidation. With the exception of contribution margin defined above, the accounting policies of reported segments are the same as those described in the summary of significant accounting policies. | ||
Business segments | ||
Financial information by geographic area for fiscal years 2006, 2007 and 2008 is summarized below. External revenues are attributed to geographic area based on sales office location. |
United | Canada and | Corporate | ||||||||||||||||||||||
States | CALA | EMEA | Asia Pacific | and Other | Total | |||||||||||||||||||
Fiscal 2006 |
||||||||||||||||||||||||
Revenue |
||||||||||||||||||||||||
Telecommunications |
$ | 178.5 | $ | 43.6 | $ | 156.3 | $ | 8.7 | $ | | $ | 387.1 | ||||||||||||
Network services |
| | | | | | ||||||||||||||||||
178.5 | 43.6 | 156.3 | 8.7 | | 387.1 | |||||||||||||||||||
Contribution margin |
73.9 | 17.1 | 52.1 | 0.6 | | 143.7 | ||||||||||||||||||
Shared and unallocated costs |
| | | | (150.4 | ) | (150.4 | ) | ||||||||||||||||
Operating income (loss) |
$ | 73.9 | $ | 17.1 | $ | 52.1 | $ | 0.6 | $ | (150.4 | ) | $ | (6.7 | ) | ||||||||||
Fiscal 2007 |
||||||||||||||||||||||||
Revenue |
||||||||||||||||||||||||
Telecommunications |
$ | 161.6 | $ | 49.4 | $ | 162.4 | $ | 11.5 | $ | | $ | 384.9 | ||||||||||||
Network services |
| | | | | | ||||||||||||||||||
161.6 | 49.4 | 162.4 | 11.5 | 384.9 | ||||||||||||||||||||
Contribution margin |
63.0 | 20.0 | 51.2 | 1.9 | | 136.1 | ||||||||||||||||||
Shared and unallocated costs |
| | | | (169.4 | ) | (169.4 | ) | ||||||||||||||||
Operating income (loss) |
$ | 63.0 | $ | 20.0 | $ | 51.2 | $ | 1.9 | $ | (169.4 | ) | $ | (33.3 | ) | ||||||||||
Fiscal 2008 |
||||||||||||||||||||||||
Revenue |
||||||||||||||||||||||||
Telecommunications |
$ | 359.9 | $ | 51.8 | $ | 216.4 | $ | 14.0 | $ | | $ | 642.1 | ||||||||||||
Network services |
49.9 | | | | | 49.9 | ||||||||||||||||||
409.8 | 51.8 | 216.4 | 14.0 | | 692.0 | |||||||||||||||||||
Contribution margin |
162.7 | 18.9 | 81.6 | 2.5 | | 265.7 | ||||||||||||||||||
Shared and unallocated costs |
| | | | (272.8 | ) | (272.8 | ) | ||||||||||||||||
Operating income (loss) |
$ | 162.7 | $ | 18.9 | $ | 81.6 | $ | 2.5 | $ | (272.8 | ) | $ | (7.1 | ) | ||||||||||
F - 20
2006 | 2007 | 2008 | ||||||||||
Canada |
$ | 30.9 | $ | 37.6 | $ | 40.5 | ||||||
United States |
178.9 | 161.9 | 409.3 | |||||||||
United Kingdom |
130.2 | 129.0 | 170.5 | |||||||||
Other foreign countries |
47.1 | 56.4 | 71.7 | |||||||||
$ | 387.1 | $ | 384.9 | $ | 692.0 | |||||||
April 30, 2007 | April 30, 2008 | |||||||||||||||||||||||
Property and | Intangible and | Property and | Intangible and | |||||||||||||||||||||
Equipment | Goodwill | Other Assets | Equipment | Goodwill | Other Assets | |||||||||||||||||||
Canada |
$ | 11.6 | $ | 4.2 | $ | 3.3 | $ | 10.8 | $ | 4.2 | $ | 4.0 | ||||||||||||
United States |
1.1 | 0.9 | | 13.1 | 415.0 | 159.0 | ||||||||||||||||||
United Kingdom |
3.6 | 1.7 | | 2.8 | 1.7 | 5.0 | ||||||||||||||||||
Other foreign countries |
0.2 | | | 0.3 | | | ||||||||||||||||||
$ | 16.5 | $ | 6.8 | $ | 3.3 | $ | 27.0 | $ | 420.9 | $ | 168.0 | |||||||||||||
Concentrations | ||
The Company sells its products and services to a broad set of enterprises ranging from large, multinational enterprises, to small and mid-sized enterprises, government agencies, health care organizations and schools. Management believes that the Company is exposed to minimal concentration risk since the majority of its business is conducted with companies within numerous industries. The Company performs periodic credit evaluations of its customers financial condition and generally does not require collateral for its accounts receivable. In some cases, the Company will require payment in advance or security in the form of letters of credit or third-party guarantees. No single customer accounted for more than 10 percent of the Companys revenue for the periods ended April 30, 2008 and April 30, 2006. For the period ended April 30, 2007, sales of $48.4 were made to one customer in the United States and accounted for more than 10 percent of the Companys revenue. | ||
As a result of the disposal of the manufacturing operations described in Note 4, BreconRidge manufactures a significant portion of the Companys products. The Company is not obligated to purchase products from BreconRidge in any specific quantity, except as the Company outlines in forecasts or orders for products required to be manufactured by BreconRidge. In addition, the Company may be obligated to purchase certain excess inventory levels from BreconRidge that could result from the Companys actual sales of product varying from forecast. As of April 30, 2008, there was excess inventory of $2.9 (2007 $4.0) for which the Company was liable, and has been recorded in the due to related parties amount. The Companys supply agreement with BreconRidge results in a concentration that, if suddenly eliminated, could have an adverse effect on the Companys operations. While the Company believes that alternative sources of supply would be available, disruption of its primary source of supply could create a temporary, adverse effect on product shipments. | ||
7. | DIVESTITURES | |
Sale of U.K. land and building | ||
On August 31, 2005, the Company sold land and building relating to its U.K. subsidiary for cash consideration of $12.4 (£7.1), resulting in a pre-tax gain of $7.3 (£4.2). The transaction included a commitment for the Company to lease back a portion of the property, which provided the Company with more than a minor part but less than substantially all of the use of the property, and thereby qualified the transaction as a sale-leaseback arrangement under SFAS 13. As a result, the Company entered into a 6-month interim lease and a 10-year long-term lease for a portion of the property sold. Accordingly, $5.8 of the gain has been deferred and will be amortized over the combined term of the leases (10 1/2 years). The remaining gain of $1.5 was recognized immediately at the time of the sale and included in gain on sale of assets. The deferred and unamortized balance at April 30, 2007 and April 30, 2008 was $4.9 and $4.3 respectively. The provision for income taxes in fiscal 2006 relating to the sale of the land and buildings was $0.9 (£0.6). |
F - 21
Sale-Leaseback of Reno Facility | ||
In the fourth quarter of fiscal 2008, the Company sold an office building and surrounding land located in Reno, Nevada. The Company also signed an agreement to lease back the building for a ten year period, with options for two five year extensions at current market rates. The sales price was $20.2, of which $19.7 was received in cash. The remaining $0.5 will only be received if certain water rights are subsequently obtained by the purchaser. The contingent portion of the purchase price has not been recognized as of April 30, 2008 due to uncertainty of collection. The carrying value of the building at the date of sale was approximately $19.5, resulting in a net gain on sale of approximately $0.2. The provision for income taxes irelating to the sale of the land and buildings was $4.5. | ||
8. | RECEIVABLES PURCHASE AGREEMENT | |
On April 30, 2007, the Company entered into an agreement under which it sold $12.8 of its non-interest bearing trade accounts receivable to an unaffiliated financial institution at a rate of 7.5% on Canadian dollar receivables and 10.25% on US dollar receivables. Under the Agreement, the Company will continue to service, administer and collect the pool of accounts receivable without a fee, on behalf of the purchaser and, in certain events of breach can be required to repurchase the receivables. The Agreement is guaranteed by the Companys Major Shareholder, for which a fee of $0.012 was paid, and $1.9 was recorded as restricted cash in connection with the agreement. The Company is not considered to have ceded control over the transferred receivables, and so the transfer has not been accounted for as a sale. The agreement does not provide the financial institution with the right to pledge or resell the transferred receivables. The Company remitted all amounts outstanding at the close of the Merger Transaction. The Company did not transfer any of its receivable balances in fiscal 2008. | ||
9. | OTHER CURRENT ASSETS | |
The following are included in other current assets as of April 30, 2007 and April 30, 2008. |
April 30, 2007 | April 30, 2008 | |||||||
Prepaid expenses and deferred charges |
$ | 11.7 | $ | 21.4 | ||||
Other receivables, including related party receivables |
12.4 | 26.2 | ||||||
Service inventory |
6.9 | 9.3 | ||||||
$ | 31.0 | $ | 56.9 | |||||
10. | INVENTORIES |
April 30, 2007 | April 30, 2008 | |||||||
Raw materials and work in process |
$ | 3.7 | $ | 6.2 | ||||
Finished goods |
20.1 | 57.8 | ||||||
Less: provision for inventory |
(4.0 | ) | (14.9 | ) | ||||
$ | 19.8 | $ | 49.1 | |||||
11. | NET INVESTMENT IN SALES TYPE LEASES | |
Net investment in sales-leases represents the value of sales-leases presently held under the TotalSolutionSM program. The Company currently sells the rental payments due to the Company from some of the sales-leases. The Company maintains reserves against its estimate of potential recourse for the balance of sales-leases and for the balance of sold rental payments remaining unbilled. The following table provides detail on the total net balances in sales-leases: |
April 30, | ||||
2008 | ||||
Lease balances included in consolidated accounts receivable, net of allocated allowances of $3.0 in 2008 |
$ | 9.5 | ||
Net investment in Sales-Leases: |
||||
Current portion, net of allowances of $1.5 in 2008 |
23.4 |
F - 22
April 30, | ||||
2008 | ||||
Long-term portion, includes residual amounts of $1.3 in 2008; net
of allowances of $1.9 in 2008 |
34.2 | |||
Total investment in Sales-Leases, net of allowances of $6.4 in 2008 |
67.1 | |||
Sold rental payments remaining unbilled (subject to limited |
234.3 | |||
recourse provisions), net of lease recourse liability reserves of
$13.3 in 2008 |
||||
Total balance of sales-leases and sold rental payments remaining
unbilled, net of allowances and reserves |
$ | 301.4 | ||
Total allowances and reserves for entire lease portfolio
(including lease recourse liabilities) |
$ | 19.7 | ||
Period Ended | ||||
April 30, 2008 | ||||
Sales of rental payments |
$ | 69.7 | ||
Sold payments remaining unbilled at end of year |
$ | 247.6 | ||
Sales of rental payments represents the gross selling price or total present value of the payment stream on the sale of the rental payments to third parties. Sold payments remaining unbilled at the end of the year represents the total balance of leases that is not included in our balance sheet. The Company does not expect to incur any significant losses in excess of reserves from the recourse provisions related to the sale of rental payments. The Company is compensated for administration and servicing of rental payments sold. | ||
At April 30, 2008, future minimum lease payments related to the sold rental streams remaining unbilled are: 2009 $87.4, 2010 $71.5, 2011 $49.5, 2012 $28.3, 2013 $10.9. | ||
At April 30, 2008, future minimum lease receipts due from customers related to the lease portfolio included in our April 30, 2008 balance sheet are: 2009 $26.0, 2010 $13.6, 2011 $9.1, 2012 $6.2, 2013 $4.8. | ||
12. | PROPERTY AND EQUIPMENT |
April 30, | April 30, | |||||||
2007 | 2008 | |||||||
Cost: |
||||||||
Equipment |
$ | 69.9 | $ | 82.5 | ||||
69.9 | 82.5 | |||||||
Less accumulated depreciation |
||||||||
Equipment |
53.4 | 55.5 | ||||||
$ | 16.5 | $ | 27.0 | |||||
As of April 30, 2008, equipment included leased assets with cost of $6.6 (2007 $6.2) and accumulated depreciation of $4.1 (2007 $2.8) and equipment utilized in the provision of Managed Services (see Note 2(d)) with cost of $7.4 (2007 $7.5) and accumulated depreciation of $6.8 (2007 $6.6). Depreciation expense recorded in fiscal 2008 amounted to $13.5 (2006 $8.6; 2007 $7.1). |
F - 23
13. | GOODWILL |
April 30, | April 30, | |||||||
2007 | 2008 | |||||||
Balance, beginning of the period |
$ | 6.0 | $ | 6.8 | ||||
Goodwill acquired Inter-Tel |
| 414.3 | ||||||
Foreign currency impact |
0.8 | (0.2 | ) | |||||
Balance, end of period |
$ | 6.8 | $ | 420.9 | ||||
Except for the year of acquisition, the Company performs its impairment tests of goodwill annually on January 31 in accordance with SFAS 142, Goodwill and Other Intangible Assets. The Company concluded that there was no impairment since the fair value determinations of the reporting units were found to exceed the carrying values in fiscal 2007 and fiscal 2008. | ||
14. | INTANGIBLE AND OTHER ASSETS |
April 30, | April 30, | |||||||
2007 | 2008 | |||||||
Cost: |
||||||||
Patents, trademarks and other |
$ | 6.9 | $ | 8.9 | ||||
Customer relationships |
| 99.7 | ||||||
Developed technology |
| 78.8 | ||||||
Trade name |
| 2.3 | ||||||
6.9 | 189.7 | |||||||
Less accumulated amortization |
||||||||
Patents, trademarks and other |
3.6 | 4.9 | ||||||
Customer relationships |
| 9.0 | ||||||
Developed technology |
| 7.0 | ||||||
Trade name |
| 0.8 | ||||||
3.6 | 21.7 | |||||||
$ | 3.3 | $ | 168.0 | |||||
During fiscal 2008, the Company recorded approximately $180.8 of intangible assets related to the acquisition of Inter-tel. The amount represents the fair value of the customer relationships, developed technology, and trade name. The intangible assets have a weighted-average useful life of 8 years, 8 years and 2 years. | ||
Amortization of intangible and other assets was $1.7, $1.9 and $18.1 each in fiscal 2006, fiscal 2007, and fiscal 2008 respectively. The estimated amortization expense related to intangible assets in existence as of April 30, 2008, over the next five years is as follows: fiscal 2009 $25.5; fiscal 2010 $24.1; fiscal 2011 $23.1; fiscal 2012 $23.1 and fiscal 2012 $22.6. The Company does not allocate intangible assets to its segments, as management does not use this information to measure the performance of the operating segments. | ||
15. | BANK INDEBTEDNESS | |
The Companys UK subsidiary has indemnity facilities totaling $1.9 (£1.0) available for letters of credit and other guarantees, $0.3 of which has been drawn at April 30, 2008 (April 30, 2007 $0.9). The indemnity and credit facilities are unsecured. | ||
On August 16, 2007, in connection with the merger transaction described in Note 3, the Company secured a five-year, $30 million revolving credit facility, $12.0 of which was drawn at April 30, 2008. Under the revolving credit facility, borrowings are available in both U.S dollars and Canadian dollars, and include letters of credit. The revolving credit facility bears interest at LIBOR plus 3 1/4% and is fully secured by the Companys assets. During fiscal 2008 LIBOR ranged from 2.9375% to 4.9375%. | ||
Amounts appearing in bank indebtedness as of April 30, 2007 and April 30, 2008 represent credit book balances resulting from an excess of outstanding cheques over funds on deposit where a right of offset does not exist. |
F - 24
16. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
April 30, | April 30, | |||||||
2007 | 2008 | |||||||
Trade payable |
$ | 40.0 | $ | 40.2 | ||||
Employee-related payables |
14.0 | 36.8 | ||||||
Restructuring, warranty and other provisions |
5.1 | 11.4 | ||||||
Receivables purchase obligation |
12.8 | | ||||||
Other accrued liabilities |
26.9 | 65.5 | ||||||
$ | 98.8 | $ | 153.9 | |||||
17. | LONG-TERM DEBT |
April 30, | April 30, | |||||||
2007 | 2008 | |||||||
First lien, interest at LIBOR plus 3 1/4%, payable quarterly, 7 year term maturing
August 16, 2014, secured by all Company assets |
$ | | $ | 289.9 | ||||
Second lien, interest at LIBOR plus 7%, payable upon maturity, 8 year term maturing
August 16, 2015, secured by all Company assets |
| 129.7 | ||||||
Capital leases, at interest rates varying from 1.3% to 11.8%, payable in monthly
installments, with maturity dates ranging from 8 to 36 months, secured by the leased
assets |
4.0 | 3.1 | ||||||
Note payable, at interest of 7.5%, payable in monthly installments, maturing May 2015 |
| 0.4 | ||||||
4.0 | 423.1 | |||||||
Less: current portion |
1.9 | 2.4 | ||||||
$ | 2.1 | $ | 420.7 | |||||
On August 16, 2007, the Company borrowed, from a syndicate of lenders, $300 million under a seven-year term First Lien Credit Agreement and $130 million under an eight-year Second Lien Credit Agreement. In addition, as part of the transaction, the Company secured a five-year, $30 million revolving credit facility, as described in Note 15. All three credit agreements bear interest based on LIBOR and are fully secured by all of the Companys assets. During fiscal 2008 LIBOR ranged from 2.9375% to 4.9375%. | ||
The term loans are repayable in full on their respective maturity dates, but 1% of the first liens original balance matures each year in equal quarterly installments until August 16, 2014. All three of the credit agreements have customary default clauses, wherein repayment of one or more of the credit agreements may be accelerated in the event of uncured default. The proceeds from the issuance of equity or debt, and proceeds from the sale of Company assets, as well as excess annual cash flows (as defined in the agreements), may also be required to be used, in whole or in part, to make mandatory prepayments under the First and Second Lien Credit Agreements. | ||
The credit agreements contain affirmative and negative covenants, including: (a) periodic financial reporting requirements, (b) maintaining a maximum ratio of consolidated debt to earnings before interest, taxes, depreciation and amortization, adjusted for certain business restructuring charges and related expenses and non-cash charges, referred to as adjusted EBITDA, that ranges from 7.10:1 and 2.00:1 depending on the fiscal quarter to which the calculation relates, (c) limitations on the incurrence of subsidiary indebtedness and also the borrowers themselves, (d) limitations on liens, (e) limitations on investments and (f) capital expenditures. | ||
As of April 30, 2008, the Company was in compliance with all of the covenants included in the credit agreements which were applicable at that time. | ||
Interest expense related to capital leases, was $0.2 in fiscal 2008 (2006 $0.5; 2007 - $0.2). Future minimum lease payments as of April 30, 2008 under capital leases total $3.5 of which $2.1, $0.7, $0.6 and $0.1 relate to fiscal years 2009 to 2012, respectively. Interest costs of $0.4 are included in the total future lease payments. | ||
18. | CONVERTIBLE NOTES | |
On April 27, 2005, the Company issued Senior Secured Convertible Notes, with attached warrants, for gross proceeds of $55.0 to a group of private investors (Holders). The notes were set to mature on April 28, 2010 and accrued interest, payable semi-annually in arrears, at LIBOR plus 5.0% for any period prior to the consummation of a Qualified IPO, LIBOR plus 2.5% for any period following the consummation of a Qualified IPO and LIBOR plus 10.0% on or after the 30 month anniversary of the issuance date of the convertible notes if a Qualified IPO has not been consummated. At any time on or after the consummation of a Qualified IPO or upon the occurrence of a Fundamental Change, the Holders of the notes were entitled to convert any portion of the outstanding |
F - 25
principal and accrued and unpaid interest into common shares of the Company with the number of common shares to be received being calculated based on a formula that considers the fair value of the common shares in the case of an IPO and, in the case of a Fundamental Change, is based on $1.50 per common share subject to adjustment for a Make-Whole Premium. The Make-Whole Premium, which was based on the effective date of the Fundamental Change, the current fair value of the Companys common shares and whether the Fundamental Change occurs Pre-IPO or Post-IPO could have been settled in cash, by delivery of common shares or a combination thereof at the option of the Company. The determination of the Make-Whole Premium was not based on interest rates or credit risk and therefore was not considered clearly and closely related to the host instrument and qualifies as an embedded derivative under SFAS 133. Accordingly, the fair value of the embedded derivative was required to be recorded at fair value separate from the debt host. As at April 30, 2007, and immediately prior to the repayment, management had determined the fair value of the derivative instrument to be nominal. | ||
At any time commencing on or after the later of (i) May 1, 2008 and (ii) the 18 month anniversary of the Lock-Up Expiration Date provided that on each of the 10 consecutive trading days, the closing sale price per share is at least 200% of the conversion price of the notes, the Company had the right to redeem all or any portion of the principal remaining under the notes at a redemption price equal to the principal plus interest accrued to the date of redemption plus the net present value of the remaining interest payments to April 28, 2010. Upon the occurrence of a Fundamental Change, the Company had the right to irrevocably offer to repurchase all or a portion of the notes at a price equal to (i) 125% of the principal of the notes (plus accrued and unpaid interest) if the Fundamental Change occurs during 18 months after issuance but prior to the consummation of a Qualified IPO, (ii) 120% of the principal of the notes (plus accrued and unpaid interest) if the Fundamental Change occurs following the 18 months after issuance but prior to the consummation of a Qualified IPO or (iii) 100% of the principal of the notes (plus accrued and unpaid interest) if the Fundamental Change occurs following the consummation of a Qualified IPO. A Fundamental Change includes a consolidation or merger, sale, transfer or assignment of all or substantially all of the Companys assets, a purchase of more than 50% of the Companys outstanding common shares, consummation of a stock purchase agreement or other business combination, or reorganization, recapitalization or reclassification of the common shares of the Company, or any event that results in the Principal Shareholder beneficially owning in aggregate less than 115 million of the issued and outstanding shares in the capital of the Company. | ||
The Holders of the notes did not have any voting rights and all payments due under the notes ranked pari passu with all additional notes and were not subordinate to any indebtedness of the Company. The notes were secured by a first priority, perfected security interest over the assets of the Company and over the assets and stock of specific subsidiaries. | ||
In conjunction with the issuance of the Senior Secured Convertible notes, the Company issued 16.5 million warrants, which are described further in Note 24. The gross proceeds from the financing were allocated between the notes and the warrants based on their relative fair values. Debt issue costs of $4.5 were incurred in connection with the financing transaction, and were recorded as a deferred charge within the Investments, and Other Assets balance in the Consolidated Balance Sheet. | ||
On August 16, 2007, in connection with the merger transaction described in Note 3 and the financing transactions described in Notes 17 and 23, the Senior Secured Convertible notes were repaid with $66.0 of cash plus accrued interest of $1.7, and the terms of the 16.5 million warrants were amended such that the exercise price decreased from $1.50 to $1.28, the expiration date was extended until August 16, 2012 and the anti-dilution rights were amended to provide the same protection as the shareholders of the Class 1 Preferred shares (described in Note 23). The retirement of the convertible notes and the modification of the warrants resulted in a combined loss of $20.8 comprised of $15.3 relating to the convertible notes carrying value, $2.7 on unamortized deferred debt issue costs and $2.8 on the modification of the warrants. | ||
The following table summarizes the movement in the carrying value of the convertible notes: |
April 30, | April 30, | |||||||
2007 | 2008 | |||||||
Balance, beginning of period |
$ | 48.7 | $ | 50.2 | ||||
Accretion of convertible notes to redemption value prior to merger |
1.5 | 0.5 | ||||||
Foreign currency impact |
| | ||||||
Settlement upon merger |
| (66.0 | ) | |||||
Loss on early extinguishment of debt |
| 15.3 | ||||||
Balance, end of period |
$ | 50.2 | $ | | ||||
F - 26
19. | COMMITMENTS AND GUARANTEES | |
Operating leases | ||
The Company leases certain equipment and facilities under 3rd party operating leases. The Company is also committed under related party leases and subleases for certain facilities (see Note 4). Rental expense and income on operating leases were as follows: |
2006 | 2007 | 2008 | ||||||||||
Rental expense |
||||||||||||
Arms-length |
$ | 8.1 | $ | 12.2 | $ | 20.1 | ||||||
Related party |
6.5 | 6.6 | 7.3 | |||||||||
Total |
$ | 14.6 | $ | 18.8 | $ | 27.4 | ||||||
Rental income |
||||||||||||
Arms-length |
$ | 0.2 | $ | 1.9 | $ | 2.2 | ||||||
Related party |
2.8 | 0.7 | 0.5 | |||||||||
Total |
$ | 3.0 | $ | 2.6 | $ | 2.7 | ||||||
Future Lease Payments | Future Lease Income | |||||||||||||||
Fiscal year | Arms-length | Related Party | Arms-length | Related Party | ||||||||||||
2009 |
$ | 17.1 | $ | 9.0 | $ | 1.9 | $ | 0.2 | ||||||||
2010 |
13.4 | 9.0 | 0.3 | 0.2 | ||||||||||||
2011 |
10.2 | 7.5 | | 0.1 | ||||||||||||
2012 |
8.3 | | | | ||||||||||||
2013 |
7.2 | | | | ||||||||||||
Thereafter |
12.0 | | | | ||||||||||||
Total |
$ | 68.2 | $ | 25.5 | $ | 2.2 | $ | 0.5 | ||||||||
April 30, | April 30, | |||||||
2007 | 2008 | |||||||
Balance, beginning of period |
$ | 2.0 | $ | 1.8 | ||||
Warranty costs incurred |
(1.2 | ) | (1.7 | ) | ||||
Warranties issued |
1.1 | 1.6 | ||||||
Other |
(0.1 | ) | 0.7 | |||||
Balance, end of period |
$ | 1.8 | $ | 2.4 | ||||
Intellectual property indemnification obligations | ||
The Company enters on a regular basis into agreements with customers and suppliers that include limited intellectual property indemnification obligations that are customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions. The nature of these intellectual property indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers and suppliers. Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the consolidated financial statements with respect to these guarantees. |
F - 27
Bid and performance related bonds | ||
The Company enters into bid and performance related bonds related to various customer contracts. Performance related bonds usually have a term of twelve months and bid bonds generally have a much shorter term. Potential payments due under these may be related to the Companys performance and/or the Companys resellers performance under the applicable contract. Under FIN 45, the Company must measure and recognize a liability equal to the fair value of bid and performance related bonds involving the performance of the Companys resellers. At April 30, 2007 and April 30, 2008 the liability recognized in accounts payable and accrued liabilities related to these bid and performance related bonds, based on past experience and managements best estimate, was insignificant. At April 30, 2008, the total maximum potential amount of future payments the Company could be required to make under bid and performance related bonds was $5.6 (2007 $3.6). | ||
20. | CONTINGENCIES | |
On June 23, 2006, one of the Companys competitors filed a complaint in the United States District Court for the Eastern District of Virginia alleging that the Company is infringing on certain of its patents and requested damages. On September 8, 2006 the Company filed a defense to the competitors complaint and a counterclaim alleging that the competitor is infringing on certain of the Companys patents and also requested damages. The competitor had also filed a complaint in the United States District Court for the District of New Jersey seeking a declaratory judgment that certain of the Companys patents are not being infringed by them or are invalid. During fiscal 2007, the Company and the competitor both expressed willingness to settle all litigation claims outside of court, and a final agreement was reached on March 19, 2007. Under the terms of the settlement agreement, the competitor agreed to release the Company from all past infringements and the parties have also entered into a covenant to not sue each other for a period of 5 years from the effective date. In accordance with SFAS No. 5, Accounting for Contingencies, a one-time litigation settlement charge of $14.8, representing the present value of $19.7 payable over a 5-year period and discounted using an interest rate of 12%, was recorded during the year ended April 30, 2007 in the consolidated statement of operations. Also included in the litigation settlement charge of $16.3 are legal costs incurred of $1.5. At April 30, 2008, $3.5 (April 30, 2007 - $5.9) had been recorded in accounts payable and accrued liabilities and $8.4 (April 30, 2007 $10.8) was recorded in the litigation settlement obligation. | ||
On June 27, 2007, the Company filed a suit against one of its competitors alleging that the competitor infringed on a number of Mitels patents. The Company is seeking unspecified monetary damages as well as a preliminary injunction. The competitor responded by filing a counterclaim against the Company alleging that the Company infringed on one of its patents, and also filed a related action in the Ontario Superior Court of Justice alleging that Mitel committed trade libel by inter alia issuing a press release that announced the filing of the infringement case in the Eastern District of Texas. Potential damages from the counterclaim and trade libel claim cannot be assessed at this time. The Company has analyzed the patent asserted by the competitor and believes that both the counterclaim and defamation claims are without merit. | ||
On February 27, 2008, the Company issued a statement of claim against one of its customers for non-payment of invoices arising from the provision of hardware, software and services. The customer responded with a counterclaim for a return of amounts paid plus other unquantified costs. The Company believes that the counterclaim is without merit and intends to defend itself vigorously, but is not able to determine the outcome at this point in time. | ||
Prior to the acquisition, certain former distributors of telephone equipment under dealer agreements with Executone, a company whose assets were acquired by Inter-Tel in January 2000, brought suit against Inter-Tel asserting that Inter-Tel was liable for Executones breaches of such dealer agreements. The plaintiffs also asserted that Inter-Tel misled them by promising to continue certain Executone lines of products when they had no intention to do so. The plaintiffs have asserted claims for breach of contract and promissory estoppel, and seek compensatory and consequential damages in an unspecified amount. At the time of the acquisition, Inter-Tel was still in the process of evaluating the complaints and was conducting discovery. As at the date of issuing these financial statements, discovery is ongoing and the Company continues to evaluate and defend the case. No amounts have been accrued at April 30, 2008. | ||
The Company is also party to a small number of other legal proceedings, claims or potential claims arising in the normal course of its business. In the opinion of the Companys management and legal counsel, any monetary liability or financial impact of such claims or potential claims to which the Company might be subject after final adjudication would not be material to the consolidated financial position of the Company, its results of operations, or its cash flows. | ||
21. | REDEEMABLE COMMON SHARES | |
Pursuant to the shareholders agreement dated April 23, 2004, upon failure to complete an initial public offering (IPO) of its common shares by September 1, 2006 (the put date), Zarlink, a shareholder of the Company, had a right to require the Company to redeem for cash all or part of its 10,000,000 common shares held in the Company at a price of C$2.85 per common share which translates to a total cash outlay of $25.8 based on April 30, 2007 foreign exchange rates. On June 26, 2006 the agreement was amended to extend the put date until May 1, 2007. On May 30, 2007, the put date was again extended until the earlier of the completion of the merger transaction described in Note 3, or November 2, 2007. | ||
On August 16, 2007, in connection with the merger transaction and the financing transactions described in Note 3, all of the Zarlink Redeemable common shares were purchased for cancellation for aggregate consideration of $12.9. The difference between the |
F - 28
redemption price and the original carrying value of $16.8 plus accreted interest of $2.1, was recorded as a reduction to the accumulated deficit. If the Company completes an acquisition or IPO within twelve months of the refinancing an additional consideration could be payable if the effective price was at least $1.75 per share. If this price was reached the additional consideration would be $3.5 and would increase by 75% of value in excess of $1.75 for each share that Zarlink owned prior to the refinancing. The Company does not expect any additional consideration to be payable. | ||
22. | DERIVATIVE LIABILITY INSTRUMENT | |
Class 1 Preferred Shares | ||
As further described in Note 23, the Company issued 307,087 and 9,668 Convertible, Redeemable Preferred Shares ((Class 1 Preferred Shares) on August 16, 2007 and January 18, 2008. The preferred shares are subject to mandatory conversion upon the closing of a qualified public offering, as defined in Note 23, or at the option of the holder. If a qualified public offering is not complete by August 16, 2014, the Class 1 Preferred Shares will be subject to mandatory redemption for an amount that is the greater of the Net Accreted Value, as defined in Note 23, or the value of the common shares into which the Class 1 Preferred Shares are convertible. | ||
Pursuant to EITF 00-19 and SFAS 133, since the holders of the preferred shares have the ability to receive cash for an amount equal to the value of the common shares into which the Class 1 Preferred Shares would convert in the event of a mandatory redemption on August 16, 2014, the entire conversion option must be separately accounted for as a derivative liability. In accordance with SFAS 133, the derivative is originally recorded at fair value, and subsequent changes in fair value are recorded in the Consolidated Statement of Operations. The fair value of the derivative was determined using the lattice-binomial model, and the following assumptions: seven year life, interest rate of 3.00%, volatility of 76.6% and no dividends. At August 16, 2007, January 18, 2008 and April 30, 2008 the fair value of the embedded derivative on a per share basis was determined to be $361.91, $356.60 and $343.27 respectively. The combined change in fair value between the issuance date of the shares and April 30, 2008 of $6.0 was recorded as a gain in the Consolidated Statement of Operations. | ||
Upon closing of a qualified public offering, where the underlying Class 1 Preferred Shares are automatically converted into common shares of the Company, the derivative liability will transfer to equity. | ||
Preferred A and B Shares | ||
As described further in Note 23, since a portion of the redemption price of the preferred A and B shares was indexed to the common share price of the Company, an embedded derivative existed which was bifurcated and accounted for separately, under SFAS 133. The derivative component relating to both the Series A and B Preferred Shares was valued at $70.0 just prior to the merger (April 30, 2007 $67.3). Upon completion of the merger transaction, the derivative liability was reversed, resulting in a gain in the Companys consolidated statement of operations of $58.6 and a credit to accumulated deficit of $11.4 for the year ended April 30, 2008. | ||
23. | CONVERTIBLE, REDEEMABLE PREFERRED SHARES | |
Class 1 Preferred Shares | ||
In connection with the merger transaction described in Note 3, the Company issued 307,087 and 9,668 Class 1 Preferred Shares on August 16, 2007 and January 18, 2008 respectively for cash consideration of $1,000 per share, together with attached common stock purchase warrants. The warrants entitle the holders of the Class 1 Preferred Shares to purchase an aggregate of 22,563,201 common shares of the Company at an exercise price of $1.32 per share. The warrants are immediately exercisable and expire 5 years from the original issuance date. The relative fair value of each warrant on the date of issuance of $0.27 was allocated from the net proceeds on issuance of the shares and is recorded as a component of shareholders deficiency. | ||
The holders of the Class 1 Preferred Shares are entitled to non-cumulative dividends if, as and when declared by the Board of Directors of the Company. The amount of any dividends declared is determined as the amount that the holders of Class 1 Preferred Shares would have received by way of dividends paid on the Common Shares had they converted their Class 1 Preferred Shares into Common Shares. No dividends had been declared as of April 30, 2008. | ||
In addition to voting as a class in respect of matters pertaining to that class, the holders of the Class 1 Preferred Shares are entitled to vote together with the Common Shares. Each Class 1 Preferred Share entitles the Class 1 Preferred Holder to the number of votes per share equal to the number of Common Shares that would be issuable on conversion of such Class 1 Preferred Share. | ||
Each Class 1 Preferred Share is convertible at any time, in whole or in part, at the holders option without payment of any additional consideration, into a number of common shares that is equivalent to the accreted value of each Class 1 Preferred Share divided by $1.3161. The accreted value of each share is equal to $1,000 per share increasing at the rate of 8% per annum. Accordingly, on the date the Class 1 Preferred Shares were issued, each Class 1 Preferred Share is convertible into 759.8207 Common Shares. On the date that is one year following the date of issuance of the Class 1 Preferred Shares, assuming no other adjustments are applicable, each Class 1 Preferred Share will be convertible into 820.6063 Common Shares. |
F - 29
The Company has the right to require the conversion of the issued and outstanding Class 1 Preferred Shares into common shares at the then-applicable conversion ratio immediately prior to, and conditional upon, the closing of a public offering in which the aggregate gross cash proceeds are not less than $100.0 and in which the Common Shares are listed on and posted for trading, traded or quoted on the Toronto Stock Exchange, the New York Stock Exchange or the Nasdaq Stock Market, provided that the value per Class 1 Preferred Share on an as-converted to Common Shares basis is equal or greater than: (a) 150% of the Net Accreted Value, which is defined as $970.35 per share increasing at the rate of 8% per annum, if the public offering is completed within one year after the issuance of the Class 1 Preferred Shares; (b) 175% of the Net Accreted Value if the public offering is completed after the first anniversary but on or before the end of the second anniversary of the issuance of the Class 1 Preferred Shares; or (c) 200% of the Net Accreted Value if the public offering is completed after the second anniversary of the issuance of the Class 1 Preferred Shares. | ||
At any date that is after 5 years and one day from the original issuance date of the Class 1 Preferred Shares, both the Company and the majority holders of the Class 1 Preferred Shares have a right to require the Company to redeem the shares for cash. The Class 1 shares are redeemable by the holders at a redemption amount equal to the Net Accreted Value ($970.35 per share increasing at the rate of 8% per annum). The Class 1 shares are redeemable by the Company at a redemption amount equal to the greater of the Net Accreted Value and value of common shares into which the Class 1 Preferred Shares are convertible. At any date after 7 years from the original issuance date, the Class 1 Preferred Shares are subject to mandatory redemption for an amount that is the greater of the Net Accreted Value or the value of common shares into which the Class 1 Preferred Shares are convertible. Payment of redemption amounts will be subject to any restrictions pursuant to the Debt Financing described in Note 17. | ||
The initial value of the Class 1 Preferred Shares of $307.7, after relative fair value allocation of proceeds between the Class 1 Preferred Shares and warrants, is classified in the mezzanine section of the Consolidated Balance Sheet net of the embedded derivative liability described in Note 22. The difference between the initial carrying amount and the redemption amount is being accreted through deficit over the five-year period to redemption using the effective interest method. At April 30, 2008, the amount of accreted interest was $24.4. | ||
The following table summarizes the allocation of the Class 1 Preferred Shares net of share issue costs, among its different elements: |
April 30, | ||||
2008 | ||||
Convertible, redeemable preferred shares |
||||
Issued for cash |
$ | 289.5 | ||
Issued in exchange for Series A Preferred shares |
18.2 | |||
Less: amount allocated to warrants |
(6.0 | ) | ||
Less: amount allocated to embedded derivative liability (Note 22) |
(114.6 | ) | ||
Less: other issuance costs |
(3.0 | ) | ||
Accreted interest |
24.4 | |||
Carrying value as of April 30, 2008 |
$ | 208.5 | ||
F - 30
F - 31
Series A | Series B | Total | ||||||||||
Carrying value as of April 30, 2006 |
$ | 8.6 | $ | 36.9 | $ | 45.5 | ||||||
Fiscal 2007 |
||||||||||||
Accreted interest |
2.1 | 4.9 | 7.0 | |||||||||
Carrying value as of April 30, 2007 |
$ | 10.7 | $ | 41.8 | $ | 52.5 | ||||||
Fiscal 2008 |
||||||||||||
Accreted interest pre-merger |
0.7 | 1.4 | 2.1 | |||||||||
Cash redemption |
(18.5 | ) | | (18.5 | ) | |||||||
Cash redemption (immediately following the exchange of redeemable preferred shares for
common shares) |
| (17.7 | ) | (17.7 | ) | |||||||
Exchange of redeemable preferred shares for common shares upon merger |
(5.4 | ) | (38.1 | ) | (43.5 | ) | ||||||
Exchange of redeemable Series A Preferred Shares for redeemable Class 1 Preferred Shares |
(18.2 | ) | | (18.2 | ) | |||||||
Deemed dividend relating to beneficial conversion feature recorded upon issuance of
Series A Preferred Shares |
1.4 | | 1.4 | |||||||||
Charge to accumulated deficit |
29.3 | 12.6 | 41.9 | |||||||||
Carrying value as of April 30, 2008 |
$ | | $ | | $ | | ||||||
24. | WARRANTS | |
The following table outlines the carrying value of warrants outstanding as of April 30, 2007 and April 30, 2008: |
April 30, | April 30, | |||||||
2007 | 2008 | |||||||
i) Warrants issued/issuable in connection with government funding |
$ | 39.1 | $ | 39.1 | ||||
ii) Warrants issued in connection with Series A Preferred Shares |
1.0 | 1.0 | ||||||
iii) Warrants issued to financing agent |
0.1 | 0.1 | ||||||
iv) Warrants issued in connection with Senior Secured Convertible Notes |
7.7 | 10.5 | ||||||
v) Warrants issued to Wesley Clover Corporation |
15.0 | | ||||||
vi) Warrants issued in connection with Class 1 Preferred Shares |
| 6.0 | ||||||
Total warrants outstanding |
$ | 62.9 | $ | 56.7 | ||||
i) During fiscal 2003, the Company, in conjunction with the Partner Company and the Funding Company, signed an agreement for funding from the Canadian Government for up to C$60.0 of the Funding Companys, the Partner Companys and the Companys research and development activities over a three-year period. Pursuant to the terms of the agreement, in exchange for funding received from the Government of Canada, the Company committed to issue warrants to Her Majesty the Queen in Right of Canada exercisable into common shares for no additional consideration. The number of warrants to be issued on September 30 in each fiscal year was determined based on the funding received and the fair market value of the common shares at the date of issuance. The warrants have no expiry date. | ||
As at April 25, 2004 the Company had issued warrants to acquire 12,986,968 common shares pursuant to the above agreement. During fiscal 2005, an additional 13,862,943 warrants were issued at the then fair value of C$1.00 per share, of which 11,481,109 warrants related to $8.7 of government funding that was receivable and received during fiscal 2004, and the remaining 2,381,834 relate to funding received during fiscal 2005. As at April 24, 2005 a total of 26,849,911 warrants had been issued pursuant to the above agreement. Warrants relating to the $7.2 of government funding received in fiscal 2005 totaled 12,887,440 and were issued in fiscal 2006 in accordance with the terms of the agreement. Since the Company had reached its maximum funding limit in fiscal 2005, no additional funding was received and no additional warrants were issued in fiscal 2006 or fiscal 2007. As of April 30, 2008 there are 37,355,518 warrants outstanding and no remaining amounts receivable (April 30, 2007 $nil). | ||
ii) In connection with the issuance of Series A Preferred Shares in fiscal 2004, the Company issued to the holders of the Series A Preferred Shares warrants to acquire 5,000,000 common shares of the Company. The warrants are exercisable at C$1.25 per common share and have a seven year life. The warrants were valued using the Black-Scholes option pricing model with the |
F - 32
following assumptions: seven year life, interest rate of 4.37 percent, volatility of forty percent and no dividends. The warrants are automatically exercisable based on a formula in connection with a Qualified IPO. | ||
iii) In connection with the issuance of Series A Preferred Shares in fiscal 2004, the Company issued warrants to the placement agent to acquire 1,000,000 common shares of the Company, as consideration for services rendered in connection with the financing transaction and accounted for them as an issue cost. The fair value of the warrants was estimated based on the fair value of services received. The warrants are exercisable at the earlier of 5 years or an IPO at C$1.00 per share. | ||
iv) As described in Note 18, in connection with the issuance of the Senior Secured Convertible Notes on April 27, 2005, the Company issued to the holders warrants to acquire 16,500,000 common shares of the Company. The warrants are exercisable at any time on or after the earliest of the date of effectiveness of a Qualified IPO as defined in the warrants, the date of effectiveness of any other public offering of the common shares or upon and following a fundamental change. The warrants are exercisable at a price per share equal to the lower of (i) USD $1.50 and (ii) the arithmetic average of the closing sales prices of the Companys shares during the first 10 trading days following the date of expiry of any lock-up restrictions entered into by the Company in connection with a Qualified IPO. The warrants expire the later of (i) the 4th anniversary of the issuance date and (ii) if a Qualified IPO occurs prior to the 4th anniversary, the 1st anniversary of the effective date of the Qualified IPO. The Holder may elect, in lieu of making the cash payment upon exercise of the warrants, to receive the net number of common shares which equates to the excess of the fair value of the common shares over its exercise price. The relative fair value of the warrants on the date of issuance of $7.7 was allocated from the proceeds on the issuance of the convertible notes and has been recorded as a component of shareholders deficiency. The warrants were valued using the Black-Scholes option pricing model with the following assumptions: five year life, interest rate of 3.83 percent, volatility of one hundred percent and no dividends. | ||
On August 16, 2007, in connection with the merger transaction described in Note 3 and the financing transactions described in Notes 17 and 23, the warrants were amended such that the exercise price per share decreased from USD $1.50 to USD $1.28, the expiration date was extended until August 16, 2012 and the anti-dilution rights were amended to provide the same protection as the shareholders of the Class 1 Preferred shares. As a result of these modifications, the fair value of the warrants was re-measured using the Black-Scholes option pricing model with the following assumptions: additional five year life, interest rate of 4.33 percent, volatility of 77%, strike price of $1.28 and no dividends. The re-measurement expense increased the loss on debt extinguishment by $2.8 and the fair value of the warrants increased accordingly. | ||
v) | On September 21, 2006, the Company issued 15,000 warrants to Wesley Clover for an aggregate purchase price of $15.0. Each of the warrants entitled the holder to purchase the Companys common shares. The warrants were automatically exercisable, without the payment of any additional consideration, at the time that is either (i) immediately prior to the completion of an initial public offering (ii) immediately prior to a sale of all or substantially all of the Companys equity to a purchaser for cash or for a mix of cash and shares or (iii) immediately prior to a Fundamental Change as defined in Note 18, but in no event later than September 21, 2008. | |
The warrants were exercisable at a price per share equal to the lesser of $1,000 divided by (i) 85% of the US dollar price per common share being offered in the initial public offering or upon the change of control event if it occurs in the first 12 months and increasing by 1 1/4% per month thereafter subject to a maximum additional discount of 15%, and (ii) $1.50. In the event of a Fundamental Change, the warrants were exercisable at a price per share equal to $1,000 divided by $1.50. The terms of the warrant do not limit the number of shares that are issuable on conversion. | ||
On August 16, 2007, as a condition to completing the merger and financing transactions described in Note 3, 17 and 23, the warrants were repurchased for $20.0. The $5.0 difference between the repurchase price and the carrying value at the date of repurchase, was recorded as an increase to deficit. | ||
vi) In connection with the issuance of Class 1 Preferred Shares on August 16, 2007 and January 18, 2008, the Company issued to the holders of the Class 1 Preferred Shares warrants to acquire 21,830,508 and 732,693 common shares, respectively, of the Company. The warrants are immediately exercisable at $1.32 and have a five-year life. The relative fair value of each warrant on the date of issuance of $0.27 was determined on a relative fair value basis using a Black-Scholes option pricing model with the following assumptions: five year life, interest rate of 4.71 percent, volatility of 22.79 per cent and no dividends. | ||
25. | SHARE CAPITAL | |
As at April 30, 2008 the Companys authorized capital stock consists of an unlimited number of common shares, and an unlimited number of Class 1 Preferred Shares and Class 2 Preferred Shares. The holders of common shares are entitled to one vote per share and are entitled to dividends when and if declared by the Board of Directors. The terms of the Class 1 preferred shares are described further in Note 23 of these financial statements. The Company had not issued any Class 2 Preferred Shares at April 30, 2008. | ||
As described in Note 23, in connection with the merger transaction, 5,359,893 common shares were issued as part of the settlement of the Series A Preferred shares, and 111,478,006 were issued in exchange for Series B Preferred shares. Immediately following the conversion of the Series B Preferred shares, 10,912,085 common shares were redeemed for cash. |
F - 33
Equity offerings and Share Purchase Loans | ||
During fiscal 2008 the Company completed an equity offering to certain employees. The Company issued 1,481,739 common shares at USD $1.32 per share, for total consideration of $2.0, of which $0.7 was received in cash and $1.3 was covered by employee interest-free loans repayable to the Company over a maximum two-year period from the date of the offering. | ||
The loans allowing eligible employees up to a maximum of 20,000 Canadian dollars to purchase common shares in the Company. Shares purchased using company loans are secured by the underlying shares, repayable by means of payroll deduction over a maximum two year period and non-interest bearing unless there is a default in payment, in which case the loan bears simple interest calculated at 10% per annum. In fiscal 2008, outstanding employee share purchase loans receivable, in the amount of $1.2 were recorded against shareholders deficiency. Minimal repayments were made against the loans during fiscal 2008, and so the entire balance of $1.2 was receivable at April 30, 2008. | ||
Stock Option Plan | ||
In March 2001, the Companys shareholders approved the Mitel Networks Corporation Employee Stock Option Plan (the 2001 Stock Option Plan) applicable to the Companys employees, directors, consultants and suppliers and authorized 25,000,000 shares for issuance thereunder. The options are granted at no less than the fair market value of the common shares of the Company on the date of grant and may generally be exercised in equal portions during the years following the first, second, third and fourth anniversaries of the date of grant, and expire on the earlier of the fifth anniversary and termination of employment. | ||
Effective September 7, 2006, shares subject to outstanding awards under the 2001 Stock Option Plan which lapse, expire or are forfeited or terminated will no longer become available for grants under this plan. Instead, new stock options and other equity grants will be made under the 2006 Equity Incentive Plan which was approved by the shareholders of Mitel and became effective on September 7, 2006. All existing options that have been previously granted under the 2001 Stock Option Plan will continue to be governed under that plan until exercised, termination or expiry. | ||
The 2006 Equity Incentive Plan permits grants of stock options, deferred share units, restricted stock units, performance share units and other share-based awards. Under the new plan, options are generally granted for a fixed number of shares with an exercise price at least equal to the fair market value of the shares at the date of grant, and vest 25% each year over a four year period on the anniversary date of the grant. The Companys Board of Directors has the discretion to amend general vesting provisions and the term of any option, subject to limits contained in the plan. The aggregate number of common shares that may be issued under the 2006 Equity Incentive Plan is 12% of the total number of common shares outstanding from time to time (calculated on an as-if-converted to common share basis less the issued options outstanding under the 2001 Stock Option Plan). Common shares subject to outstanding awards under this new plan which lapse, expire or are forfeited or terminated will, subject to plan limitations, again become available for grants under this plan. | ||
The number of common shares available for grant under the 2006 Equity Incentive Plan at April 30, 2008 was 31,987,616 options (2007-2,028,666 under the 2001 Stock Option Plan). |
F - 34
Following is a summary of the Companys stock option activity under both stock option plans and related information. The exercise price of stock options were in some cases based on prices in Canadian dollars translated at the year-end exchange rate. |
Fiscal 2006 | Fiscal 2007 | |||||||||||||||||||||||
Number of | Weighted Average | Aggregate Intrinsic | Number of | Weighted Average | Aggregate Intrinsic | |||||||||||||||||||
Shares | Exercise Price | Value | Shares | Exercise Price | Value | |||||||||||||||||||
Outstanding options: |
||||||||||||||||||||||||
Balance, beginning of period: |
18,456,249 | $ | 1.34 | $ | | 20,668,538 | $ | 1.06 | $ | | ||||||||||||||
Granted |
5,227,233 | 0.90 | | 6,123,177 | 1.13 | | ||||||||||||||||||
Exercised |
(58,174 | ) | 2.81 | | (45,624 | ) | 1.18 | |||||||||||||||||
Forfeited |
(879,766 | ) | 1.27 | | (1,356,657 | ) | 2.51 | | ||||||||||||||||
Expired |
(2,077,004 | ) | 3.07 | | (2,944,849 | ) | 0.94 | | ||||||||||||||||
Balance, end of period: |
20,668,538 | $ | 1.06 | $ | | 22,444,585 | $ | 1.02 | $ | | ||||||||||||||
Number of options exercisable |
4,947,519 | $ | 1.48 | $ | | 8,115,722 | $ | 1.04 | $ | | ||||||||||||||
Weighted average fair value
of options granted during
the period using the
Black-Scholes option pricing
model |
$ | 0.14 | $ | 0.77 | ||||||||||||||||||||
Fiscal 2008 | ||||||||||||
Number of | Weighted Average | Aggregate Intrinsic | ||||||||||
Shares | Exercise Price | Value | ||||||||||
Outstanding options: |
||||||||||||
Balance, beginning of period: |
22,444,585 | $ | 1.02 | $ | | |||||||
Granted |
8,827,719 | 1.29 | | |||||||||
Exercised |
(27,625 | ) | 1.03 | | ||||||||
Forfeited |
(985,778 | ) | 1.22 | | ||||||||
Expired |
(986,677 | ) | 1.88 | | ||||||||
Balance, end of period: |
29,272,224 | $ | 1.07 | $ | | |||||||
Number of options exercisable |
12,418,597 | $ | 1.06 | $ | | |||||||
Weighted average fair value
of options granted during
the period using the
Black-Scholes option pricing
model |
$ | 0.83 | ||||||||||
F - 35
April 30, 2007 | ||||||||||||||||||||||||
Total outstanding | Total exercisable | |||||||||||||||||||||||
Weighted- | Weighted- | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Number of | Remaining | Aggregate | Number of | Remaining | Aggregate | |||||||||||||||||||
Exercise Price | Shares | Contractual Life | Intrinsic Value | Shares | Contractual Life | Intrinsic Value | ||||||||||||||||||
$0.90 |
15,699,201 | 2.6 years | $ | 2,298,520 | 7,320,196 | 2.5 years | $ | 1,071,750 | ||||||||||||||||
$1.02 |
62,987 | 4.4 years | 1,823 | | | | ||||||||||||||||||
$1.05 |
227,633 | 3.9 years | 418 | 58,532 | 3.9 years | 4,205 | ||||||||||||||||||
$1.07 |
4,047,900 | 4.8 years | | | | | ||||||||||||||||||
$1.12 |
546,305 | 4.9 years | | | | 0 | ||||||||||||||||||
$1.40 |
1,042,247 | 4.1 years | | | | 0 | ||||||||||||||||||
$1.81 |
141,562 | 1.6 years | | 108,494 | 1.6 years | 0 | ||||||||||||||||||
$2.48 |
676,750 | 0.6 years | | 628,500 | 0.6 years | 0 | ||||||||||||||||||
22,444,585 | $ | 2,300,761 | 8,115,722 | $ | 1,075,955 | |||||||||||||||||||
April 30, 2008 | ||||||||||||||||||||||||
Total outstanding | Total exercisable | |||||||||||||||||||||||
Weighted- | Weighted- | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Number of | Remaining | Aggregate | Number of | Remaining | Aggregate | |||||||||||||||||||
Exercise Price | Shares | Contractual Life | Intrinsic Value | Shares | Contractual Life | Intrinsic Value | ||||||||||||||||||
$0.99 |
15,136,083 | 1.6 years | $ | 142,430 | 10,722,777 | 1.5 years | $ | 100,902 | ||||||||||||||||
$1.12 |
62,987 | 3.4 years | | 15,746 | 3.4 years | | ||||||||||||||||||
$1.15 |
813,454 | 4.0 years | | 88,566 | 2.9 years | | ||||||||||||||||||
$1.17 |
3,901,000 | 3.8 years | | 979,562 | 3.8 years | | ||||||||||||||||||
$1.23 |
388,055 | 3.9 years | | 97,575 | 3.91 years | | ||||||||||||||||||
$1.27 |
2,806,898 | 4.8 years | | | | | ||||||||||||||||||
$1.30 |
63,500 | 4.9 years | | | | | ||||||||||||||||||
$1.33 |
4,793,500 | 4.6 years | | | | | ||||||||||||||||||
$1.54 |
992,497 | 3.1 years | | 250,121 | 3.1 years | | ||||||||||||||||||
$1.98 |
125,250 | 0.6 years | | 125,250 | 0.6 years | | ||||||||||||||||||
$2.72 |
189,000 | 0.3 years | | 139,000 | 0.3 years | | ||||||||||||||||||
29,272,224 | $ | 142,430 | 12,418,597 | $ | 100,902 | |||||||||||||||||||
F - 36
2006 | 2007 | 2008 | ||||||||||
Net income (loss), as reported |
$ | (44.6 | ) | $ | (35.0 | ) | $ | 13.2 | ||||
Accreted interest on redeemable shares |
(6.9 | ) | (7.3 | ) | (26.5 | ) | ||||||
Deemed dividend relating to amortization of beneficial conversion
feature on Series A preferred shares |
| | (1.4 | ) | ||||||||
Gain on redemption of redeemable common shares |
| | 6.0 | |||||||||
Charges to deficit on conversion of redeemable preferred shares |
| | (74.2 | ) | ||||||||
Net loss available to common shareholders |
$ | (51.5 | ) | $ | (42.3 | ) | $ | (82.9 | ) | |||
Weighted average number of common shares outstanding during the period |
117,230,198 | 117,336,927 | 186,135,401 | |||||||||
Loss per common share basic and diluted |
$ | (0.44 | ) | $ | (0.36 | ) | $ | (0.44 | ) | |||
(number of shares) | 2006 | 2007 | 2008 | |||||||||
Stock options |
1,624,155 | 3,588,891 | 382,285 | |||||||||
Warrants |
37,695,141 | 43,527,960 | 37,501,376 | |||||||||
Convertible, redeemable preferred shares |
87,789,300 | 87,789,300 | 241,701,026 | |||||||||
127,108,596 | 134,906,151 | 279,584,687 | ||||||||||
Options that are anti-dilutive because the exercise price is greater than the average market price of the common shares, are not included in the computation of diluted earnings per share. For fiscal 2008, 28,889,939 stock options were excluded from the above table because they were anti-dilutive (2006 19,044,383; 2007 18,855,694). Additionally, warrants to acquire 16,500,000 common shares (2006 16,500,000; 2007 16,500,000), which could potentially dilute basic earnings per share in the future, were also excluded from the above table since they are contingently issuable and since the conditions for issuance had not been met by the end of the period. | ||
Stock-based Compensation | ||
During fiscal 2008, the Company granted stock options to acquire 91,590 common shares (2006 132,000; 2007 300,000) at an exercise price at least equal to the market price of the common shares on the date of grant to consultants and advisory directors, as well as employees who, subsequent to the options grants, became former employees of the Company as a result of restructuring activities. The fair market value of these stock options was determined using a Black-Scholes model based on the fair value of the common shares at the vesting date and, for the unvested shares, as of April 30, 2008. The following assumptions were used: five-year life, interest rate of 4.57 percent, volatility of 76 percent and no dividends. | ||
Performance-Based Stock Options | ||
On July 27, 2005, the shareholders of Mitel approved 2,810,000 performance-based stock option awards to selected key employees to acquire 2,810,000 common shares. The options were to vest contingent upon the achievement of certain targets, as measured on April 30, 2006, in accordance with the normal four-year vesting term. At the time of the grant, the options were considered variable plan awards as defined by APB 25 and so were subject to remeasurement for changes in the market price of the underlying stock at the end of each reporting period until the measurement date. The measurement date was defined to be April 30, 2006, since it was determined that the objectives had not been met as of that date. The options were formally cancelled in fiscal 2007 and the expense amount recorded for the year ended April 30, 2007 was $nil. The Company did not grant any performance-based awards in fiscal 2008. | ||
Deferred Share Unit Plans | ||
In December 2004, Mitel granted deferred share units (DSUs) to certain executive members of the Company. The number of DSUs that may be awarded to each participant is equal to 15% of the participants annual salary less the maximum amount of the participants eligible retirement savings plans contributions in that particular taxable year. Since the participant will receive a lump sum payment in cash upon termination of employment, the award must be classified as a liability and remeasured to reflect changes in the market price of the common shares until settlement. For the year ended April 30, 2008 there were 434,827 DSUs awarded to executives with a fair value of $0.4 recorded as a liability (2007 390,358 DSUs and $0.5 recorded as a liability). The compensation expense recorded in fiscal 2008 to reflect a change in common share fair value was negligible (2006 $0.3; 2007 $0.2). |
F - 37
26. | OTHER INCOME (EXPENSE), NET |
2006 | 2007 | 2008 | ||||||||||
Foreign exchange gains (losses), net |
$ | (0.6 | ) | $ | (0.3 | ) | $ | 0.6 | ||||
Interest income |
0.7 | 0.3 | 0.8 | |||||||||
Amortization of gain on sale of assets |
0.3 | 0.6 | 0.6 | |||||||||
Other expenses |
| | (0.4 | ) | ||||||||
$ | 0.4 | $ | 0.6 | $ | 1.6 | |||||||
27. | INCOME TAXES | |
Details of income taxes are as follows: |
2006 | 2007 | 2008 | ||||||||||
Income (loss) before income taxes: |
||||||||||||
Canadian |
$ | (35.0 | ) | $ | (24.1 | ) | $ | 28.8 | ||||
Foreign |
(11.5 | ) | (9.1 | ) | (27.9 | ) | ||||||
$ | (46.5 | ) | $ | (33.2 | ) | $ | 0.9 | |||||
Income tax (expense) recovery: |
||||||||||||
Current: |
||||||||||||
Canadian |
$ | 1.2 | $ | | $ | | ||||||
Foreign |
(2.1 | ) | 0.2 | 0.9 | ||||||||
(0.9 | ) | 0.2 | 0.9 | |||||||||
Deferred: |
||||||||||||
Canadian |
$ | | $ | | $ | | ||||||
Foreign |
2.8 | (2.0 | ) | 11.4 | ||||||||
$ | 1.9 | $ | (1.8 | ) | $ | 12.3 | ||||||
2006 | 2007 | 2008 | ||||||||||
Expected tax rate |
36.0 | % | 36.0 | % | 35.3 | % | ||||||
Expected tax benefit (expense) |
$ | 16.7 | $ | 12.0 | $ | (0.3 | ) | |||||
Foreign tax rate differences |
(7.4 | ) | (5.2 | ) | 1.8 | |||||||
Tax effect of temporary differences and losses not recognized |
(1.6 | ) | (6.4 | ) | (9.8 | ) | ||||||
Use of losses not previously recognized |
2.4 | | 5.7 | |||||||||
Recognize (write-off) deferred tax asset |
2.8 | (2.0 | ) | | ||||||||
Permanent differences |
(12.4 | ) | (2.4 | ) | 14.9 | |||||||
Tax refunds and other adjustments related to prior years |
1.4 | 2.2 | | |||||||||
Income tax (expense) recovery |
$ | 1.9 | $ | (1.8 | ) | $ | 12.3 | |||||
F - 38
April 30, | April 30, | April 30, | ||||||||||
2006 | 2007 | 2008 | ||||||||||
Assets: |
||||||||||||
Net operating loss and credit carryforwards |
$ | 55.5 | $ | 67.7 | $ | 100.5 | ||||||
Allowance for doubtful accounts |
3.0 | 0.6 | 0.9 | |||||||||
Inventory |
(0.5 | ) | 0.6 | 0.5 | ||||||||
Restructuring and other accrued liabilities |
5.1 | 11.0 | 15.9 | |||||||||
Pension |
2.7 | 3.2 | 2.1 | |||||||||
Revenue recognition |
0.0 | 0.0 | 5.4 | |||||||||
Lease obligations and long-term debt |
1.3 | 1.0 | 2.6 | |||||||||
Property and equipment |
6.8 | 6.7 | 4.7 | |||||||||
Intangible and other assets |
10.4 | 6.8 | 16.7 | |||||||||
Total deferred tax assets |
84.3 | 97.6 | 149.3 | |||||||||
Lease obligations |
| | (56.2 | ) | ||||||||
Acquisition intangibles |
| | (68.1 | ) | ||||||||
Long term debt |
| | | |||||||||
Deferred tax liabilities |
| | (124.3 | ) | ||||||||
Total gross deferred tax assets net of total deferred tax liabilities |
84.3 | 97.6 | 25.0 | |||||||||
Valuation allowance |
(81.5 | ) | (97.6 | ) | (121.9 | ) | ||||||
Total deferred tax assets (liabilities) |
$ | 2.8 | $ | | $ | (96.9 | ) | |||||
April 30, 2007 | April 30, 2008 | |||||||||||||||
Year of |
Tax | Tax | Tax | Tax | ||||||||||||
Expiry |
Losses | Credits | Losses | Credits | ||||||||||||
2008 |
$ | | $ | | $ | | $ | | ||||||||
2009 |
| | | | ||||||||||||
2010 |
31.9 | | 28.0 | | ||||||||||||
2011 |
55.6 | | 56.8 | | ||||||||||||
2012 |
43.9 | | 43.9 | | ||||||||||||
2013-2023 |
107.1 | 33.1 | 112.6 | 46.8 | ||||||||||||
Indefinite |
54.5 | | 101.6 | 0.8 | ||||||||||||
Total |
$ | 293.0 | $ | 33.1 | $ | 342.9 | $ | 47.6 | ||||||||
These tax loss carry forwards relate to operations in Canada, the US, Italy, Hong Kong and Barbados. As a result of acquisitions there are restrictions on the use of certain of these losses to offset taxable income in future periods. | ||
Tax credit carryforwards relate to the Canadian and US operations amounting to $44.8 and $2.8 respectively. These credits consist of $44.8 in investment tax credits, $2.0 in research and development credits and $0.8 in alternative minimum tax credits that can be used to offset future Federal income taxes payable. | ||
The Company does not expect the unremitted earnings of its subsidiaries will be subject to income tax or withholding taxes as it plans to reinvest the earnings of its subsidiaries indefinitely. Accordingly, no provision has been made for potential income tax or withholding taxes on repatriation of subsidiary earnings. | ||
The Company operates in multiple jurisdictions throughout the world and its returns are subject to ongoing examinations by certain taxing authorities in which it operates. The Company regularly assesses the status of these examinations and the potential for adverse outcomes to determine the adequacy of the provisions for income taxes. The Company believes that it has adequately provided for tax adjustments that are probable as a result of any ongoing or future examination. |
F - 39
28. | PENSION PLANS | |
The Company and its subsidiaries maintain defined contribution pension plans that cover substantially all employees. In addition, the Companys U.K. subsidiary maintains a defined benefit pension plan. The Company matches the contributions of participating employees to the defined contribution pension plans on the basis of the percentages specified in each plan. The costs of the defined contribution pension plans are expensed as incurred. The defined benefit plan provides pension benefits based on length of service and final average earnings. The pension costs of the defined benefit pension plan are actuarially determined using the projected benefits method pro-rated on services and managements best estimate of the effect of future events. Pension plan assets are valued at fair value. | ||
In June 2001, the defined benefit pension plan was closed to new employees and a defined contribution option was introduced to members of the defined benefit pension plan. Members were given the choice to continue in the defined benefit plan or transfer their assets to the defined contribution plan. | ||
In fiscal 2008, a change in valuation assumptions, in particular changes in discount rates and increases in expected mortality rates, produced an unfavorable impact on the Companys defined benefit pension plan assets and obligations for the year ended April 30, 2008. The pension liability increased from £87.0 to £100.2 as a result of these changes in assumptions. After the effects of foreign currency translation of British Pounds to US dollars, the overall pension liability increased by $24.9 to $198.8 (2007 increase of $9.7 to $173.9). | ||
United Kingdom Defined Benefit Pension Plan | ||
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statement No. 87, 88, 106 and 132(R), (SFAS 158). SFAS 158 requires companies to recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive income to report the funded status of defined benefit pension and other postretirement benefit plans. The standard also requires companies to measure plan assets and obligations at their year-end balance sheet date. The Company is required to initially recognize the funded status of its defined benefit pension plans and to provide the required disclosures as of April 30, 2007. The requirement to measure plan assets and benefit obligations as of the year-end date is not required until April 30, 2009, the Company chose to early adopt in fiscal 2007 and has measured its assets and liabilities at April 30 rather than March 31. | ||
The effect of the initial adoption of SFAS 158 was as follows: |
April 30, 2007 | SFAS 158 | April 30, 2007 | ||||||||||
Pre-SFAS 158 | Adjustments | Post-SFAS 158 | ||||||||||
Pension liability |
$ | 25.4 | $ | 25.1 | $ | 50.5 | ||||||
Accumulated deficit |
$ | (397.8 | ) | $ | (0.4 | ) | $ | (398.2 | ) | |||
Accumulated other comprehensive loss |
$ | (31.9 | ) | $ | (24.7 | ) | $ | (56.6 | ) |
F - 40
April 30, | April 30, | |||||||
2007 | 2008 | |||||||
Change in accrued pension benefits: |
||||||||
Benefit obligation at beginning of period |
$ | 164.1 | $ | 173.9 | ||||
Service cost |
1.5 | 1.0 | ||||||
Interest cost |
8.6 | 9.7 | ||||||
Plan participants contributions |
1.0 | 0.8 | ||||||
Actuarial (gain) loss |
(15.5 | ) | 17.1 | |||||
Benefits paid |
(1.9 | ) | (2.0 | ) | ||||
Adjustment for change in measurement date |
0.4 | | ||||||
Foreign exchange |
15.7 | (1.7 | ) | |||||
Benefit obligation at end of period |
173.9 | 198.8 | ||||||
Change in plan assets: |
||||||||
Fair value of plan assets at beginning of period |
104.2 | 123.4 | ||||||
Actual return on plan assets |
6.2 | (1.8 | ) | |||||
Employer contributions |
3.2 | 3.0 | ||||||
Employee contributions |
1.0 | 0.8 | ||||||
Benefits paid |
(1.9 | ) | (2.0 | ) | ||||
Foreign exchange |
10.7 | (1.0 | ) | |||||
Fair value of plan assets at end of period |
123.4 | 122.4 | ||||||
April 30, | April 30, | April 30, | ||||||||||
2006 | 2007 | 2008 | ||||||||||
Projected benefit obligation |
$ | 164.1 | $ | 173.9 | 198.8 | |||||||
Accumulated benefit obligation |
144.3 | 148.8 | 175.5 | |||||||||
Fair value of plan assets |
104.2 | 123.4 | 122.4 |
2006 | 2007 | 2008 | ||||||||||
Current service cost defined contribution |
$ | 1.5 | $ | 1.5 | $ | 1.7 | ||||||
Current service cost defined benefit |
1.1 | 1.5 | 1.0 | |||||||||
Interest cost |
6.2 | 8.6 | 9.7 | |||||||||
Expected return on plan assets |
(6.1 | ) | (8.0 | ) | (9.7 | ) | ||||||
Recognized actuarial loss |
1.1 | 2.1 | 1.4 | |||||||||
Net periodic benefit cost |
$ | 3.8 | $ | 5.7 | $ | 4.1 | ||||||
April 30, | April 30, | April 30, | ||||||||||
2006 | 2007 | 2008 | ||||||||||
Discount rate |
5.0 | % | 5.0 | % | 5.5 | % | ||||||
Compensation increase rate |
2.75 | % | 2.75 | % | 3.00 | % | ||||||
Investment returns assumption |
7.25 | % | 7.25 | % | 7.75 | % | ||||||
Inflation rate |
2.75 | % | 2.75 | % | 3.00 | % | ||||||
Average remaining service life of employees |
21 years | 20 years | 18 years |
F - 41
April 30, | April 30, | April 30, | ||||||||||
2006 | 2007 | 2008 | ||||||||||
Discount rate |
5.0 | % | 5.5 | % | 5.80 | % | ||||||
Compensation increase rate |
2.75 | % | 3.00 | % | 3.50 | % | ||||||
Inflation rate |
2.75 | % | 3.00 | % | 3.50 | % | ||||||
Average remaining service life of employees |
21 years | 20 years | 18 years |
Benefit | ||||
Payments | ||||
2009 |
$ | 1.6 | ||
2010 |
1.6 | |||
2011 |
1.7 | |||
2012 |
1.7 | |||
2013 |
1.8 | |||
2014-2018 |
10.0 |
2007 | 2008 | 2008 | ||||||||||
Actual | Actual | Target | ||||||||||
Equities |
81 | % | 80 | % | 80 | % | ||||||
Bonds |
19 | % | 19 | % | 20 | % | ||||||
Cash |
| 1 | % | |
The investment objectives of the pension portfolio of assets (the Fund) are designed to generate returns that will enable the Fund to meet its future obligations. The performance benchmark for the investment managers is to earn in excess of the index return in those asset categories, which are actively managed. In setting the overall expected rate of return, the various percentages of assets held in each asset class together with the investment return expected from that class are taken into account. For cash and bonds, the rate used is that derived from an appropriate index at the valuation date. For equities, a model is used which combines price inflation, dividend yield and an allowance for gross domestic product growth. | ||
29. | FINANCIAL INSTRUMENTS | |
Fair value | ||
The Companys financial instruments include cash and cash equivalents, restricted cash, bank indebtedness, accounts receivable, long-term receivables, accounts payable, amounts due to (from) related parties, net investment in sales-leases, long-term debt including convertible notes, derivative instruments, foreign exchange forward contracts and foreign exchange swaps. Due to the short-term maturity of cash and cash equivalents, restricted cash, accounts receivable, bank indebtedness, amounts due to and due from related parties, and accounts payable, the carrying value of these instruments is a reasonable estimate of their fair value. Foreign exchange contracts are carried at fair value and amounted to $0.1 classified as accounts payable and accrued liabilities and $0.3 classified as other current assets at April 30, 2008 (April 30, 2007 $0.1 classified as accounts payable and accrued liabilities and $0.2 classified as other current assets). The fair value of the foreign exchange contracts reflects the estimated amount that the Company would have been required to pay if forced to settle all outstanding contracts at year-end. This fair value represents a point-in-time estimate that may not be relevant in predicting the Companys future earnings or cash flows. The fair value of long-term receivables and long-term debt was determined by discounting future cash receipts and future payments of interest and principal, at estimated interest rates that would be available to the Company at year-end. The fair value of financial instruments approximate their carrying value, with the exception of convertible notes. The carrying value of the convertible notes was determined based on the allocation of gross proceeds received between the notes and the warrants based on their relative estimated |
F - 42
fair values. The fair value of derivative instruments is determined by management and reflects the present value of the obligation and the likelihood of contingent events occurring. | ||
The following table summarizes the financial assets and liabilities for which fair values differed from the carrying amount and fair values recorded for derivative financial instruments in accordance with FAS 133: |
April 30, 2007 | April 30, 2008 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Interest rate swap |
$ | | $ | | $ | 6.1 | $ | 6.1 | ||||||||
Net investment in sales-leases |
$ | | $ | | $ | 57.6 | $ | 57.6 | ||||||||
Convertible notes |
$ | 50.2 | $ | 55.2 | $ | | $ | |
Credit risk | ||
The Companys financial assets that are exposed to credit risk consist primarily of cash and cash equivalents, restricted cash, accounts receivable, other receivables and sales-lease receivables. Cash and cash equivalents are invested in government and commercial paper with investment grade credit rating. The Company is exposed to normal credit risk from customers. However, the Company has a large number of diverse customers to minimize concentrations of credit risk. | ||
Interest rate risk | ||
The Company is exposed to interest rate risk on its credit facilities which bear interest rates based on the prime rate, and is also exposed to risk on its long-term debt which bears interest based on the London Inter-Bank Offer Rate or LIBOR. | ||
In September 2005, the Company entered into a derivative contract to limit the impact of changes in LIBOR on interest expense related to the convertible notes for the period commencing November 1, 2005 and ending November 1, 2007. This derivative contract effectively provided a cap on LIBOR of 5.27% and a floor on LIBOR of 4.00%. | ||
On August 27, 2007, in connection with the debt financing described in Note 17, the Company entered into an interest rate swap agreement which effectively swaps the LIBOR rate for a fixed rate of 4.85% on a notional amount of $215 million for the period from October 31, 2007 to October 31, 2009. The agreement was designated a cash flow hedge in accordance with SFAS 133 since the relevant terms of the interest rate swap agreements matched the corresponding terms of the liens. Accordingly, the effective portion of the derivatives gain or loss has been recorded in other comprehensive income and will subsequently be recognized in earnings when the hedging relationship is terminated or when the hedge is no longer considered to be effective. | ||
The Company is not exposed to other significant interest rate risk due to the short-term maturity of its monetary assets and current liabilities. | ||
Foreign currency risk | ||
The Company is exposed to currency rate fluctuations related primarily to its future net cash flows from operations in Canadian dollars, British pounds and Euros. The Company uses foreign currency forward contracts and foreign currency swaps to minimize the short-term impact of currency fluctuations on foreign currency receivables, payables and intercompany balances. These contracts are not entered into for speculative purposes, and are not treated as hedges for accounting purposes. Foreign currency contracts are recorded at fair market value. Related foreign currency gains and losses are recorded in other expense, net, in the consolidated statements of operations and offset foreign exchange gains or losses from the revaluation of intercompany balances and other current assets and liabilities denominated in currencies other than the functional currency of the reporting entity. | ||
The foreign exchange contracts outstanding at April 30, 2008 are due to mature in May 2008. As of April 30, 2008, other income (expense), net included a net unrealized gain of $0.2 (2006 $3.7; 2007 $3.8) for changes in the fair value of foreign exchange contracts. As at April 30, 2008, the Company had outstanding foreign exchange contracts requiring it (i) to exchange British Pounds for US dollars with aggregate notional amounts of $16.5 (2007 $12.8), (ii) to exchange US dollars for Canadian dollars with a notional amount of $2.9 (2007 $9.0), and (iii) to exchange Euro dollars for US dollars with aggregate notional amounts of $8.7 (2007 $9.9). | ||
Non-derivative and off-balance sheet instruments | ||
Requests for providing commitments to extend credit and financial guarantees are reviewed and approved by senior management. Management regularly reviews all outstanding commitments, letters of credit and financial guarantees, and the results of these reviews are considered in assessing the adequacy of the Companys reserve for possible credit and guarantee losses. As of April 30, 2007 and April 30, 2008, there were no outstanding commitments to extend credit to third parties or financial guarantees outstanding other than letters of credit. Letters of credit amounted to $0.6 as of April 30, 2008 (April 30, 2007 $1.2). The estimated fair value of letters of credit, which is equal to the fees paid to obtain the obligations, was insignificant as of April 30, 2007 and April 30, 2008. |
F - 43
30. | SUPPLEMENTARY CASH FLOW INFORMATION |
2006 | 2007 | 2008 | ||||||||||
Change in non-cash operating assets and liabilities: |
||||||||||||
Accounts receivable |
$ | (12.4 | ) | $ | 1.6 | $ | 4.4 | |||||
Other current assets |
5.1 | (5.1 | ) | 10.1 | ||||||||
Inventories |
(8.0 | ) | 1.0 | (13.4 | ) | |||||||
Accounts payable and accrued liabilities |
8.7 | 12.9 | (55.2 | ) | ||||||||
Deferred revenue and other liabilities |
(4.8 | ) | (5.5 | ) | 7.8 | |||||||
Change in pension liability |
(1.7 | ) | 1.0 | (1.9 | ) | |||||||
Due to related parties |
9.5 | (1.8 | ) | (8.9 | ) | |||||||
Income and other taxes payable/receivable |
0.5 | (1.5 | ) | 1.1 | ||||||||
$ | (3.1 | ) | $ | 2.6 | $ | (56.0 | ) | |||||
Interest payments |
$ | 1.8 | $ | | $ | 28.0 | ||||||
Income tax payments |
$ | 3.5 | $ | | $ | 2.3 | ||||||
Disclosure of non-cash activities during the period: |
||||||||||||
Adjustment to minimum pension liability |
$ | (15.0 | ) | $ | 16.6 | $ | | |||||
SFAS 158 pension adjustment |
$ | | $ | 25.1 | $ | 27.8 | ||||||
Warrants issued in connection with financing |
$ | | $ | | $ | 6.0 | ||||||
Accretion of interest on redeemable common and preferred shares |
$ | 6.9 | $ | 7.3 | $ | 26.5 | ||||||
Charges to accumulated deficit relating to merger financing transactions |
$ | | $ | | $ | 74.6 | ||||||
Conversion of Series B Preferred Shares to common shares, net of partial redemption |
$ | | $ | | $ | (38.1 | ) | |||||
Conversion of Series A Preferred Shares to common shares |
$ | | $ | | $ | (5.4 | ) | |||||
Common shares issued in exchange for employee loans |
$ | | $ | | $ | (1.2 | ) |
F - 44
Balance, | Additions | |||||||||||||||||||
Beginning | Charged to | Balance, | ||||||||||||||||||
of | Charged to | other | End of | |||||||||||||||||
Description | Period | expenses | Accounts (1) | Deductions | Period | |||||||||||||||
Fiscal 2006 |
||||||||||||||||||||
Allowance for doubtful accounts |
$ | 3.0 | $ | 0.6 | | $ | (1.1 | ) | $ | 2.5 | ||||||||||
Fiscal 2007 |
||||||||||||||||||||
Allowance for doubtful accounts |
$ | 2.5 | $ | 0.3 | | $ | (0.3 | ) | $ | 2.5 | ||||||||||
Fiscal 2008 |
||||||||||||||||||||
Allowance for doubtful accounts |
$ | 2.5 | $ | 3.3 | $ | 8.9 | $ | (0.7 | ) | $ | 14.0 | |||||||||
Allowance for sales-leases and lease
recourse liability |
$ | 0 | $ | 3.0 | $ | 15.2 | $ | (3.5 | ) | $ | 14.7 |
(1) | Acquisition related adjustment |
Title: | Chief Executive Officer |