UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of January 2001
EXFO ELECTRO-OPTICAL ENGINEERING INC.
(Translation of registrant's name into English)
465 GODIN AVENUE, VANIER, QUEBEC, CANADA G1M 3G7
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F
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Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
------- -------
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-______.
On January 17, 2001, EXFO Electro-Optical Engineering Inc., a Canadian
corporation, reported its results of operations for the fiscal quarter ended
November 30, 2000. This report on Form 6-K sets forth the news release relating
to EXFO's announcement and certain information relating to EXFO's financial
condition and results of operations for the first fiscal quarter of the 2001
fiscal year.
EXFO ELECTRO-OPTICAL ENGINEERING INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
AS AT AS AT
AUGUST 31, NOVEMBER 30,
2000 2000
---------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 729 $ 284
Short-term investments 162,659 161,568
Accounts receivable
Trade 18,272 23,156
Other 2,790 3,320
Income taxes receivable 284 --
Inventories 18,868 24,992
Prepaid expenses and deposits 1,023 960
Future income taxes 995 199
-------- ---------
205,620 214,479
CAPITAL ASSETS 8,694 9,925
GOODWILL AND OTHER ASSETS 2,320 1,828
FUTURE INCOME TAXES 3,089 2,762
-------- ---------
$219,723 $ 228,994
-------- ---------
-------- ---------
LIABILITIES
CURRENT LIABILITIES
Bank advances $ 10 $ 165
Accounts payable and accrued liabilities 10,353 19,062
Income taxes payable -- 1,173
Mandatorily redeemable preferred shares 543 --
Deferred revenue 395 473
Current portion of long-term debt 152 15
-------- ---------
11,453 20,888
DEFERRED REVENUE 151 83
DEFERRED GRANTS 1,109 1,073
LONG-TERM DEBT 16 15
-------- ---------
12,729 22,059
-------- ---------
SHAREHOLDERS' EQUITY
SHARE CAPITAL 198,459 198,440
CONTRIBUTED SURPLUS -- 997
CUMULATIVE TRANSLATION ADJUSTMENT 1,555 (6,987)
RETAINED EARNINGS 6,980 14,485
-------- ---------
206,994 206,935
-------- ---------
$219,723 $ 228,994
-------- ---------
-------- ---------
EXFO ELECTRO-OPTICAL ENGINEERING INC.
INTERIM CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of U.S. dollars, except share and per share data)
THREE MONTHS ENDED
NOVEMBER 30,
-------------------------
1999 2000
-------- --------
(UNAUDITED) (UNAUDITED)
SALES $ 11,688 $ 28,519
COST OF SALES 3,733 10,308
-------- --------
GROSS MARGIN 7,955 18,211
-------- --------
OPERATING EXPENSES
Selling and administrative 4,119 8,920
Net research and development 1,462 1,972
Amortization of capital and other assets 282 528
-------- --------
TOTAL OPERATING EXPENSES 5,863 11,420
-------- --------
EARNINGS FROM OPERATIONS 2,092 6,791
Interest income, net (22) (2,631)
Foreign exchange loss (gain) 236 (2,359)
-------- --------
EARNINGS BEFORE INCOME TAXES AND AMORTIZATION OF GOODWILL 1,878 11,781
-------- --------
INCOME TAXES
Current 572 3,520
Future 6 632
-------- --------
578 4,152
-------- --------
EARNINGS BEFORE AMORTIZATION OF GOODWILL 1,300 7,629
AMORTIZATION OF GOODWILL -- 124
-------- --------
NET EARNINGS FOR THE PERIOD $ 1,300 $ 7,505
-------- --------
-------- --------
BASIC AND FULLY DILUTED EARNINGS PER SHARE
Earnings before amortization of goodwill $ 0.03 $ 0.16
Net earnings $ 0.03 $ 0.16
BASIC WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (000'S) 38,204 46,757
EXFO ELECTRO-OPTICAL ENGINEERING INC.
INTERIM CONSOLIDATED STATEMENTS OF RETAINED EARNINGS AND CONTRIBUTED SURPLUS
(in thousands of U.S. dollars)
RETAINED EARNINGS
THREE MONTHS ENDED
NOVEMBER 30,
--------------------------
1999 2000
---- ----
(UNAUDITED) (UNAUDITED)
BALANCE - BEGINNING OF PERIOD $14,592 $ 6,980
ADD
Net earnings for the period 1,300 7,505
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BALANCE - END OF PERIOD $15,892 $14,485
------- -------
------- -------
CONTRIBUTED SURPLUS
THREE MONTHS ENDED
NOVEMBER 30,
---------------------
1999 2000
---- ----
(UNAUDITED) (UNAUDITED)
BALANCE - BEGINNING OF PERIOD $ -- $--
ADD
Premium on resale of share capital -- 997
------- ----
BALANCE - END OF PERIOD $ -- $997
------- ----
------- ----
EXFO ELECTRO-OPTICAL ENGINEERING INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
THREE MONTHS ENDED
NOVEMBER 30,
---------------------------
1999 2000
---- ----
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings for the period $ 1,300 $ 7,505
Add (deduct) items not affecting cash and cash equivalents
Amortization of discount on short-term investments -- (2,607)
Amortization of capital assets 272 514
Amortization of goodwill and other assets 10 138
Future income taxes 6 632
Foreign exchange gain on short-investments -- (2,310)
Change in non-cash operating working capital items
Accounts receivable (1,423) (6,258)
Income taxes receivable (558) 276
Inventories (1,768) (6,993)
Prepaid expenses and deposits (178) 22
Accounts payable and accrued liabilities (15) 6,400
Income taxes payable -- 1,536
Deferred revenue 38 32
Deferred grants (26) 10
------- --------
(2,342) (1,103)
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CASH FLOWS FROM FINANCING ACTIVITIES
Bank advances 2,880 158
Repayment of mandatorily redeemable preferred shares -- (354)
Repayment of long-term debt -- (130)
Resale of share capital 18 1,016
Share issue expenses -- (23)
Redemption of share capital -- (19)
------- --------
2,898 648
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to short-term investments -- (16,465)
Proceeds from disposal of short-term investments -- 18,332
Additions to capital and other assets (700) (2,181)
------- --------
(700) (314)
------- --------
CHANGE IN CASH AND CASH EQUIVALENTS (144) (769)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 6 324
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 423 729
------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 285 $ 284
------- --------
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SUPPLEMENTARY INFORMATION
Interest paid $ 63 $ 32
Interest received $ -- $ 666
Income taxes paid $ 2,559 $ 945
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars,
except share and per share data and as otherwise noted)
1 INTERIM FINANCIAL INFORMATION
The financial information as at November 30, 2000 and for the periods
ended November 30, 1999 and 2000 is unaudited; however, in the opinion of
management, all adjustments necessary to present fairly the results of
these periods have been included. The adjustments made were of a normal
recurring nature. Interim results may not necessarily be indicative of
results anticipated for the year.
These interim consolidated financial statements are prepared in accordance
with generally accepted accounting principles in Canada and use the same
accounting policies and methods used in the preparation of the company's
most recent annual consolidated financial statements. All disclosures
required for annual financial statements have not been included in these
financial statements. These interim consolidated financial statements
should be read in conjunction with the company's most recent annual
consolidated financial statements.
2 NEW ACCOUNTING STANDARDS
During the period ended November 30, 2000, the company retroactively
adopted the new standard regarding accounting for employee future
benefits. The adoption of this new standard did not result in any changes
to prior year earnings, shareholders' equity or cash flows.
In December 2000, the Accounting Standards Board of the Canadian Institute
of Chartered Accountants issued a revised standard for earnings per share
(CICA 3500, Earnings per share) which is effective for fiscal years
beginning on or after January 1, 2001. The new standard will require
presentation of basic and diluted earnings per share. The principles for
calculating basic earnings per share are consistent with current practice,
however, diluted earnings per share will be calculated using the treasury
method which differs from the current imputed interest method used. The
company does not expect the new standard to have a material effect on the
computation of its earnings per share.
In 2000, a new accounting standard for the preparation of interim
financial statements (CICA 1751, Interim Financial Statements) was issued
which sets out minimum presentation and disclosure requirements as well as
guidance on recognition and measurement of items for interim periods. The
recognition and measurement guidance requires that items be recognized and
measured on the same basis as used for annual financial statements. The
new standard is effective for fiscal years beginning on or after January
1, 2001. The company believes that these interim financial statements
comply in all material respects with the recommendation in the new
standard.
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars,
except share and per share data and as otherwise noted)
3 OTHER RECEIVABLES
AS AT AS AT
AUGUST 31, NOVEMBER 30,
2000 2000
---------- ------------
(UNAUDITED)
Grants receivable $2,046 $1,900
Other 744 1,420
------ ------
$2,790 $3,320
------ ------
------ ------
4 INVENTORIES
AS AT AS AT
AUGUST 31, NOVEMBER 30,
2000 2000
---------- ------------
(UNAUDITED)
Raw materials $12,057 $16,552
Work in progress 2,910 4,204
Finished goods 3,901 4,236
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$18,868 $24,992
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------- -------
5 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
AS AT AS AT
AUGUST 31, NOVEMBER 30,
2000 2000
---------- ------------
(UNAUDITED)
Trade $ 6,473 $ 9,856
Salaries and social benefits 1,698 2,435
Outstanding cheques in excess of bank balances 374 1,977
Commissions 966 982
Forward exchange contracts -- 2,823
Other 842 989
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$10,353 $19,062
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EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars,
except share and per share data and as otherwise noted)
6 SHARE CAPITAL
During the period, certain restricted shares issued to employees under the
company's stock purchase plan were reacquired by the company at the prices
originally paid by the employees. These shares were subsequently resold by
the company at the fair value. The proceeds received by the company in
excess of the cost of the shares have been included in contributed
surplus.
STOCK OPTION PLAN
During the period, the company granted 511,743 options at exercise prices
ranging from Cdn$51.25 (US$34.07) to Cdn$83.66 (US$56.75). Furthermore,
until November 30, 2000, 33,078 options with a weighted average exercise
price of Cdn$56.49 (US$38.19) were forfeited due to employee departures.
As at November 30, 2000, there were 1,088,399 options outstanding and
none of them were exercisable.
On October 10, 2000, the Board of Directors of the company amended the
vesting terms for options granted pursuant to the option plan to remove
the financial performance criterium. Accordingly, the 1,088,399
outstanding options granted will vest over the four-year period.
On October 10, 2000, the Board of Directors of the company passed a
resolution to re-price all options granted by the company on September 1,
2000 and on September 13, 2000 to Cdn$51.25 (US$34.07), subject to
obtaining regulatory and shareholder approval. In addition, on December 6,
2000, the Board of Directors of the company passed a resolution to
re-price all options granted by the company on June 29, 2000, September 1,
2000, September 13, 2000 and October 11, 2000, with the exception of the
options granted to Mr. Germain Lamonde, president and chief executive
officer of the company, to a price of Cdn$33.00 (US$21.54), subject to
obtaining regulatory and shareholder approval.
7 NET RESEARCH AND DEVELOPMENT EXPENSES
THREE MONTHS ENDED
NOVEMBER 30,
--------------------------
1999 2000
------- -------
(UNAUDITED) (UNAUDITED)
Gross research and development expenses $ 2,182 $ 2,848
Research and development tax credits (521) (700)
Government grants (199) (176)
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$ 1,462 $ 1,972
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EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars,
except share and per share data and as otherwise noted)
8 COMMITMENT
As at November 30, 2000, the company is committed to purchase a land for a
gross amount of Cdn$825,000 (US$537,600).
9 FORWARD EXCHANGE CONTRACTS
The company is exposed to currency risks as a result of its investments
and its export sales, substantially all of which are denominated in U.S
dollars, of products manufactured in Canada. These risks are partially
hedged by forward exchange contracts and certain operating expenses. As at
November 30, 2000, the company held contracts to sell U.S. dollars at
various forward rates, which are summarized as follows:
WEIGHTED
AVERAGE
CONTRACTUAL CONTRACTUAL
AMOUNTS FORWARD RATE
----------- ------------
(UNAUDITED) (UNAUDITED)
December 2000 to November 2001 $119,500 1.4962
December 2001 to April 2002 1,300 1.4991
As at November 30, 2000, these contracts resulted in an unrealized loss of
Cdn$4,601,700 (US$2,998,600) of which an amount of Cdn$4,331,600
(US$2,822,600) has been reflected in the statement of earnings for the
period. However, the short-term investments denominated in U.S. dollars
hedged by some of those forward exchange contracts have been measured at
period-end exchange rate, resulting in an unrealized gain of Cdn$4,331,600
(US$2,822,600) which has been reflected in the statement of earnings for
the period.
As at November 30, 2000, the company held forward exchange contracts to
buy U.S. dollars at various forward rates which are summarized as follows:
WEIGHTED
AVERAGE
CONTRACTUAL CONTRACTUAL
AMOUNTS FORWARD RATE
----------- --------------
(UNAUDITED) (UNAUDITED)
Maturing between December 2000 and January 2001 $28,900 1.4770
As at November 30, 2000, these contracts resulted in a unrealized loss of
US$122,000 which has been reflected in the statement of earnings for the
period.
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars,
except share and per share data and as otherwise noted)
10 DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP
These interim consolidated financial statements are prepared in
accordance with Canadian GAAP which differ in certain respects from U.S.
GAAP. Note 20 to the company's most recent annual consolidated financial
statements describes the material differences between Canadian and U.S.
GAAP. This note describes additional changes occurring since the most
recent annual financial statements and provides a quantitative analysis
of the material differences. All disclosures required in annual financial
statements under U.S. GAAP have not been provided in these interim
consolidated financial statements.
ACCOUNTING FOR STOCK-BASED COMPENSATION
As a result of the amendment to the stock option plan described in note 6
the performance criterion was removed and the number of shares to be
issued under the plan was fixed. Aggregate compensation cost for the
period from the date of grant to November 30, 2000 amounts to $997,000.
Accordingly, the current period reflects a net reduction of the
compensation expense previously recognized of $467,000.
FORWARD EXCHANGE CONTRACTS
Under Canadian GAAP, unrealized exchange gains and losses on short-term
investments are included in net earnings, whereas under U.S. GAAP,
unrealized exchange gains and losses on short-term investments classified
as available for sale securities are included in other comprehensive
income until the investments are realized.
On September 1, 2000, the company adopted Financial Accounting Standard
No. 133, Accounting for Derivative Instruments and Hedging Activities and
its amendments (FAS 138), which requires all derivatives to be carried on
the balance sheet at fair value. The forward exchange contracts used by
the company have not qualified for hedging accounting treatment during the
period ended November 30, 2000, accordingly changes in the fair value of
the derivatives have been charged to earnings during the period. Under
Canadian GAAP, certain forward exchange contracts have been designated as
hedges of anticipated sales and the related accounts receivable and
unrealized gains and losses are not reflected in the financial statements
until the sale occur. For all other forward exchange contracts, the
unrealized gains and losses are charged to earnings under Canadian GAAP
with an offsetting asset or liability for the unrealized amount. Under
Canadian GAAP, the unrealized gains and losses are computed using the
period-end spot rate as opposed to the period-end forward rate.
SHARE CAPITAL
Under Canadian GAAP, restricted shares reacquired from employees under the
stock purchase plan are treated as arm's length repurchases of shares
whereas under U.S. GAAP, the reacquisition of shares would be accounted
for as a forfeiture by the employee, resulting in any difference between
the amount originally credited to share capital and the remaining deferred
compensation cost being credited to compensation expense in the current
period. The subsequent resale of the shares would be treated as an
issuance of shares for the proceeds received.
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars,
except share and per share data and as otherwise noted)
RECONCILIATION OF NET EARNINGS TO CONFORM WITH U.S. GAAP
THREE MONTHS ENDED
NOVEMBER 30,
---------------------------
1999 2000
----- ----
(UNAUDITED) (UNAUDITED)
Net earnings for the period in accordance with Canadian GAAP $ 1,300 $ 7,505
Non-cash stock-based compensation costs related to stock option plan -- 467
Non-cash stock-based compensation costs related to stock purchase plan (147) (121)
Unrealized losses on forward exchange contracts -- (899)
Future income taxes on forward exchange contracts -- 405
Unrealized foreign exchange gains on available-for-sale securities -- (4,300)
Future income taxes on available-for-sale securities -- 1,935
------- -------
Net earnings available to common shareholders for the period in
accordance with U.S. GAAP 1,153 4,992
Other comprehensive income (loss)
Foreign currency translation adjustments 268 (8,542)
Unrealized holding gains on available-for-sale securities, net of
related future income taxes (36) (37)
Unrealized foreign exchange gains on available-for-sale securities,
net of related future income taxes -- 2,365
------- -------
Comprehensive income (loss) $ 1,385 $(1,222)
------- -------
Basic and diluted net earnings per share in accordance with U.S. GAAP $ 0.03 $ 0.11
The diluted weighted average number of common shares outstanding
calculated according to U.S. GAAP is as follows:
THREE MONTHS ENDED
NOVEMBER 30,
---------------------------
1999 2000
----- ----
(UNAUDITED) (UNAUDITED)
Weighted average number of common shares outstanding - Basic (000's) 38,204 46,757
Exercise of stock options -- 89
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Weighted average number of common shares outstanding -Diluted (000's) 38,204 46,846
------- -------
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EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars,
except share and per share data and as otherwise noted)
SHARE CAPITAL
AS AT AS AT
AUGUST 31, NOVEMBER 30,
2000 2000
---------- ------------
(UNAUDITED)
Share capital in accordance with Canadian GAAP $198,459 $198,440
Stock-based compensation costs related to stock purchase plan 2,692 2,640
-------- --------
Share capital in accordance with U.S. GAAP $201,151 $201,080
-------- --------
DEFERRED STOCK-BASED COMPENSATION COSTS
AS AT AS AT
AUGUST 31, NOVEMBER 30,
2000 2000
---------- ------------
(UNAUDITED)
Balance - Beginning of period $ -- $ 2,144
Issuance of share capital 2,692 --
Amortization for the period (548) (173)
------- -------
Balance - End of period $ 2,144 $ 1,971
------- -------
OTHER CAPITAL
AS AT AS AT
AUGUST 31 NOVEMBER 30,
2000 2000
---------- ------------
(UNAUDITED)
Other capital in accordance with Canadian GAAP $ -- $ --
Stock-based compensation costs related to stock option plan
Current period 1,464 (467)
Cumulative effect of prior periods -- 1,464
------ -------
Other capital in accordance with U.S. GAAP $1,464 $ 997
------ -------
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars,
except share and per share data and as otherwise noted)
RETAINED EARNINGS
AS AT AS AT
AUGUST 31, NOVEMBER 30,
2000 2000
---------- ------------
(UNAUDITED)
Retained earnings in accordance with Canadian GAAP $ 6,980 $ 14,485
Stock-based compensation costs
Current period (2,002) 346
Cumulative effect of prior periods (10) (2,012)
Unrealized losses on forward exchange contracts, net of related future
income taxes of $405,000
Current period -- (494)
Unrealized foreign exchange gains on available-for-sale securities, net
of related future income taxes of $1,935,000 -- (2,365)
Change in reporting currency
Cumulative effect of prior periods 1,016 1,016
------- --------
Retained earnings in accordance with U.S. GAAP $ 5,984 $ 10,976
------- --------
------- --------
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars,
except share and per share data and as otherwise noted)
ACCUMULATED OTHER COMPREHENSIVE LOSS
THREE MONTHS ENDED
NOVEMBER 30,
------------------
1999 2000
---- ----
(UNAUDITED) (UNAUDITED)
Foreign currency translation adjustments
Balance - Beginning of period $(1,016) $ 539
Change during the period 268 (8,542)
------- -------
Balance - End of period (748) (8,003)
------- -------
Unrealized holding gains on available-for-sale securities, net of future
income taxes
Balance - Beginning of period 36 37
Reclassification adjustment for amounts included in net earnings,
net of related future income taxes of $23,000 (36) (37)
------- -------
Balance - End of period -- --
------- -------
Unrealized foreign exchange gains on available-for-sale securities, net
of future income taxes
Balance - Beginning of period -- --
Unrealized gains arising during the period -- 2,365
------- -------
Balance - End of period -- 2,365
------- -------
Accumulated other comprehensive loss $ (748) $(5,638)
------- -------
------- -------
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars,
except share and per share data and as otherwise noted)
BALANCE SHEETS
AS AT AS AT
AUGUST 31, NOVEMBER 30,
2000 2000
----------- ------------
(UNAUDITED)
Current assets
Cash and cash equivalents $ 729 $ 284
Available-for-sale securities 162,719 161,568
Accounts receivable 21,062 26,476
Inventories 18,868 24,992
Other current assets 1,307 960
Future income taxes 972 604
--------- ---------
205,657 214,884
Capital assets 8,694 9,925
Goodwill and other assets 2,320 1,828
Future income taxes 3,089 2,762
--------- ---------
$ 219,760 $ 229,399
--------- ---------
--------- ---------
Current liabilities
Bank advances $ 10 $ 165
Accounts payable and accrued liabilities 10,353 19,961
Other current liabilities 1,090 1,661
--------- ---------
11,453 21,787
Long-term liabilities 1,276 1,171
--------- ---------
12,729 22,958
--------- ---------
Shareholders' Equity
Share capital 201,151 201,080
Deferred stock-based compensation costs (2,144) (1,971)
Other capital 1,464 997
Paid-in capital -- 997
Retained earnings 5,984 10,976
Accumulated other comprehensive income (loss) 576 (5,638)
--------- ---------
207,031 206,441
--------- ---------
$ 219,760 $ 229,399
--------- ---------
--------- ---------
STATEMENTS OF CASH FLOWS
For the three months ended November 30, 1999 and 2000, there are no
material differences between the statement of cash flows under Canadian
GAAP as compared to U.S. GAAP.
EXFO ELECTRO-OPTICAL ENGINEERING INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of U.S. dollars,
except share and per share data and as otherwise noted)
11 SUBSEQUENT EVENTS
On December 20, 2000, the company acquired a 100% interest in Burleigh
Instruments, Inc., ("Burleigh"), a manufacturer of precision scientific
instruments used in basic and applied research, engineering and production
test applications in a variety of fields, in exchange for a total
consideration valued at US$186,809,000. The consideration paid consisted
of US$40 million in cash and the issuance of 6,488,816 subordinate voting
shares for an amount of US$146,809,000. This acquisition will be accounted
for using the purchase method.
Under U.S. GAAP, the value of shares issued upon a business combination
should be determined based on the market price of the shares over a
reasonable period of time before and after the companies have reached an
agreement on the purchase price, the significant terms of the agreement
are known and the proposed transaction is announced.
In view of this standard, the measurement date occurred on December 14,
2000, the date on which all significant terms of the agreement were known.
The average market price of the shares a few days before and after that
date was US$31.09. Considering the number of shares to be issued, the
total consideration for U.S. GAAP purposes amounts to US$241,737,000.
Furthermore, the company established a restricted stock award plan for
employees of Burleigh. A total of 360,000 subordinate voting shares will
be granted under that plan with an exercise price of nil. Shares granted
under the plan will vest over a four-year period, with 25% vesting on an
annual basis commencing on the first anniversary of the date of grant.
Under U.S. GAAP, compensation costs related to the restricted stock award
plan will be measured as the difference between the fair value of the
awarded stock and the exercise price which is nil. As at December 20,
2000, the balance of deferred stock-based compensation amounted to
US$8,145,000 and will be recognized over the vesting period.
Under Canadian GAAP, no compensation cost will be recognized for this
stock-based compensation plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS DISCUSSION MAY CONTAIN STATEMENTS THAT CONSTITUTE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE U.S. PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS ARE STATEMENTS OTHER THAN
HISTORICAL INFORMATION OR STATEMENTS OF CURRENT CONDITION. THESE
STATEMENTS MAY APPEAR IN A NUMBER OF PLACES IN THIS DISCUSSION AND
INCLUDE STATEMENTS CONCERNING OUR INTENT, BELIEF, OR CURRENT EXPECTATIONS
REGARDING FUTURE EVENTS. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS WHICH ARE BEYOND THE CONTROL OF EXFO, INCLUDING
RETENTION OF QUALIFIED PERSONNEL, REVENUE SYNERGIES, DEMAND FOR TESTING
AND MEASUREMENT INSTRUMENTS AND PRECISION POSITIONING INSTRUMENTS.
ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING
STATEMENTS ARE REASONABLE BASED ON INFORMATION CURRENTLY AVAILABLE TO US,
WE CANNOT ASSURE YOU THAT THE EXPECTATIONS WILL PROVE TO HAVE BEEN
CORRECT. ACCORDINGLY, YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS. IN ANY EVENT, THESE STATEMENTS SPEAK ONLY AS
OF THE DATE OF THIS DISCUSSION. WE UNDERTAKE NO OBLIGATION TO REVISE OR
UPDATE ANY OF THEM TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF
THIS DISCUSSION, OR TO REFLECT NEW INFORMATION OR THE OCCURRENCE OF
UNANTICIPATED EVENTS. READERS ARE REFERRED TO OUR REGISTRATION STATEMENT
ON FORM F-1 AND OUR OTHER FILINGS WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION AND THE CANADIAN SECURITIES COMMISSIONS FOR A DISCUSSION OF THE
OTHER FACTORS THAT MAY AFFECT OUR FUTURE PERFORMANCE AND OTHER IMPORTANT
RISK FACTORS CONCERNING US AND OUR OPERATIONS.
RECENT EVENTS
On December 20, 2000, EXFO acquired Burleigh Instruments by issuing
approximately 6.5 million subordinate voting shares and paying
approximately US$40 million in cash, including acquisition costs. The
closing price of EXFO's stock on December 20, 2000 was US$22.625 per
share, giving the transaction an approximate value of US$187 million.
Burleigh, a privately held company in Fishers, upstate New York, is a
leading supplier of DWDM wavelength measurement instruments and precision
positioning equipment.
On December 13, 2000, EXFO announced that it plans to invest US$20 million
to triple its manufacturing capacity of fiber-optic test, measurement and
monitoring instruments.
RESULTS OF OPERATIONS
The following discussion and analysis of our results of operations and
liquidity and capital resources should be read in conjunction with our
interim consolidated financial statements and the related notes thereto.
All figures are expressed in United States dollars unless otherwise noted.
The interim consolidated financial statements have been prepared in
accordance with Canadian GAAP, Generally Accepted Accounting Principles
("GAAP"), in Canada which conform in all material respects with U.S. GAAP
except as disclosed in note 10 of the interim consolidated financial
statements.
The following tables summarize the consolidated statements of earnings in
dollar amounts and as a percentage of sales to facilitate the discussion
that follows.
(in thousands of US dollars) Three months ended Three months ended
---------------------- ----------------------
Nov. 30 Nov. 30 Nov. 30 Nov. 30
1999 2000 1999 2000
------- ------- ------- -------
Sales $11,688 $28,519 100.0% 100.0%
Cost of sales 3,733 10,308 31.9 36.1
------- ------- ------ -----
Gross margin 7,955 18,211 68.1 63.9
------- ------- ------ -----
Operating expenses
Selling and administrative 4,119 8,920 35.3 31.3
Net research and development 1,462 1,972 12.5 6.9
Amortization of capital assets and other assets 282 528 2.4 1.9
------- ------- ------ -----
------- ------- ------ -----
Total operating expenses 5,863 11,420 50.2 40.1
Earnings from operations 2,092 6,791 17.9 23.8
Interest income, net (22) (2,631) (0.2) (9.2)
Foreign exchange loss (gain) 236 (2,359) 2.0 (8.3)
------- ------- ------ -----
Earnings before income taxes and amortization of 1,878 11,781 16.1 41.3
goodwill
Income taxes 578 4,152 5.0 14.6
------- ------- ------ -----
Earnings before amortization of goodwill 1,300 7,629 11.1 26.7
Amortization of goodwill -- 124 0.0 0.4
------- ------- ------ -----
Net earnings for the period $ 1,300 $ 7,505 11.1% 26.3%
------- ------- ------ -----
Research and development data
Gross research and development $ 2,182 $ 2,848 18.7% 10.0%
------- ------- ------ -----
Net research and development $ 1,462 $ 1,972 12.5% 6.9%
------- ------- ------ -----
------- ------- ------ -----
SALES
For the quarter ended November 30, 2000, sales increased 144% to $28.5
million from $11.7 million for the same period last year. The growth is
due to the increased demand for our Industrial and Scientific products and
our Portable and Monitoring Products which include the successful launch
of new products in fiscal 2000.
GROSS MARGIN
Gross margin amounted to 63.9% of sales for the quarter ended November 30,
2000 compared to 68.1% of sales for the quarter ended November 30, 1999.
The percentage decline in gross margin is primarily due to investments in
manufacturing operations, namely the ramp up of production to meet
customer demand and the training required for a significant number of new
employees.
SELLING AND ADMINISTRATION
Selling and administrative expenses for the quarter ended November 30,
2000 were $8.9 million, or 31.3% of sales, compared to $4.1 million, or
35.3% of sales, for the quarter ended November 30, 1999.
The dollar increase for the quarter is directly related to higher
commissions resulting from increased sales activity, increased promotional
and product marketing expenses as well as expenses related to running a
public company.
The percentage decrease is mainly due to the fact that sales are
increasing at a faster rate than selling and administrative expenses.
RESEARCH AND DEVELOPMENT
Gross research and development expenses were $2.8 million, or 10.0% of
sales, for the quarter ended November 30, 2000 compared to $2.2 million,
or 18.7% of sales, in the same period last year.
The dollar increase for the quarter is primarily due to development
efforts centered on our new products within the Industrial and Scientific
product lines. In addition, we added 34 employees to our R&D Department,
which reflects our continued focus on R&D.
Tax credits and grants from the federal and provincial governments for R&D
activities were $0.9 million for the quarter ended November 30, 2000
compared to $0.7 million for the quarter ended November 30 1999. This
increase in tax credits and grants is directly related to the hiring of
additional research and development personnel.
NET INTEREST INCOME
Interest income amounted to $2.6 million and nil for the quarters ended
November 30, 2000 and 1999, respectively.
The increase results from the interest income derived from investment of
the remaining net proceeds of the Initial Public Offering on June 29,
2000.
FOREIGN EXCHANGE GAIN
A foreign exchange gain of $2.4 million for the quarter ended November 30,
2000 is mainly due to the conversion of short-term investments in U.S.
dollars between August 31, 2000 and November 30, 2000 for which the
closing exchanges rate were 1.4722 and 1.5346, respectively.
Progressively, we will transfer the majority of our short-term investments
in Canadian dollars to avoid significant fluctuations in foreign exchange
gains or losses on short-term investments.
INCOME TAX
Our effective income tax rates were 35.2% and 30.8% for the quarters ended
November 30, 2000 and 1999, respectively. The higher rate in 2000 compared
to 1999 was the result of the higher effective income tax rate on
interest provided by short-term investments and due to non-taxable items
in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our Initial Public Offering, we had financed operations and met
our capital expenditures requirements mainly through cash flows from our
operations, research and development tax credits and government grants. On
June 29, 2000, we closed our Initial Public Offering of 8,050,000
subordinate voting shares at a price of US$26.00 per share in the United
States and at C$38.55 per share in Canada. Total proceeds to EXFO,
including the over-allotment option exercised by the underwriters, were
approximately US$209 million.
Cash flows used in operating activities were $1.1 million for the
three-month period ended November 30, 2000 and $2.3 million for the same
period last year. Cash flows used in operating activities for the
three-month period ended November 30, 2000 were mainly due to an increase
in accounts receivable of $6.3 million, which is related to a higher
volume of sales, and an increase in inventories of $7.0 million, which is
required to ensure minimal manufacturing and delivery lead times. The
increase in accounts payable and accrued liabilities totaling $6.4
million, which is related to the Company's growth, provided cash flows for
operating activities.
As at November 30, 2000, we had cash and cash equivalents of $284,000,
short-term investments of $161.6 million and working capital of $193.6
million.
Cash flows provided by financing activities amounted to $0.6 million for
the three-month period ended November 30, 2000 and $2.9 million for the
same period last year. Cash flows provided by financing activities in the
three-month period ended November 30, 2000 were primarily due to net
proceeds of $1.0 million from the redemption and the resale of restricted
employee shares. For the period ended November 30, 1999, cash flows
provided by financing activities were mainly due to the use of bank
advances.
Cash flows used for investing activities for the three-month period ended
November 30, 2000 amounted to $0.3 million compared to $0.7 million for
the same period last year. Cash flows were mainly used for capital
expenditures. During the quarter ended November 30, 2000, cash flows were
provided by sales of short-term investments and mainly used to reinvest in
short-term investments.
We believe that our existing cash balances and short-term investments,
together with cash flows from operations and available lines of credit,
will be sufficient to meet our liquidity and capital spending requirements
through the end of fiscal 2001. However, possible investments in or
acquisitions of complementary businesses, products or technologies may
require additional financing prior to such time. There can be no assurance
that additional debt or equity financing will be available when required
or, if available, can be secured on terms satisfactory to us.
[EXFO LOGO] FOR IMMEDIATE RELEASE
EXFO REPORTS RECORD FIRST-QUARTER RESULTS FOR 2001, RAISES GUIDANCE
- SALES UP 144% TO US$28.5 MILLION - NET EARNINGS FROM OPERATIONS UP
477% TO US$7.5 MILLION
QUEBEC CITY, CANADA, January 17, 2001--EXFO Electro-Optical Engineering Inc.
(NASDAQ: EXFO, TSE: EXF) today reported record sales and operating results
for the first quarter of fiscal 2001.
Sales increased 144% to US$28.5 million in the first quarter from US$11.7
million for the same period in fiscal 2000, and 23% sequentially from US$23.1
million in the fourth quarter of 2000.
Net earnings from operations increased 477% to US$7.5 million, or $0.16 per
share, for the first quarter from US$1.3 million, or $0.03 per share, for the
same period in fiscal 2000, and 117% sequentially from US$3.5 million, or
$0.08 per share, for the fourth quarter in 2000. Net earnings from operations
in the first quarter of 2001 included a gain in foreign exchange of $0.03 per
share.
"EXFO's outstanding first-quarter results reflect the inroads we're making in
the optical component and system manufacturer market as well as our
leadership position in the carrier market," said Germain Lamonde, Chairman,
CEO and President of EXFO. "The true measure of a company's success is
whether it can outperform the market and, according to our numbers, we're
outperforming it in both sectors."
Sales cycles for products that had been released in 2000 began reaching
maturity in the first quarter of 2001. The DWDM Passive Component Test
System, which enables optical component manufacturers to reduce testing time
from hours to mere seconds on the production floor, the second-generation
Optical Spectrum Analyzer for DWDM fiber deployment in the field, and the new
C+L-band tunable laser have received wide acceptance from customers.
As a result of the increased demand for its products, EXFO has decided to raise
its guidance for fiscal 2001.
"Sales should be in the range of US$140 million and US$150 million for fiscal
2001," Lamonde said. "We expect the bottom line to increase as well."
"Our cash earnings per share from operations should be in the range of
US$0.40 and US$0.45 for fiscal 2001. Cash earnings do not include
amortization of goodwill."
Selling and administrative expenses amounted to US$8.9 million, or 31.3% of
sales, for the first quarter compared to US$4.1 million, or 35.3% of sales, for
the same period in fiscal 2000 and US$7.8 million, or 33.8% of sales, for the
fourth quarter of fiscal 2000.
Gross research and development expenses were US$2.8 million, or 10.0% of sales,
in the first quarter compared to US$2.2 million, or 18.7% of sales, for the
same period in fiscal 2000 and US$2.4 million, or 10.5% of sales, for the fourth
quarter of 2000.
The audio Web cast of EXFO's Annual and Special Meeting and first-quarter
results for 2001 can be accessed live on its Web site, under Investors, at 10:30
a.m. (Eastern time) today. Guests are invited to click on the Web cast link and
enter 17302327 as a password. A replay of the Web cast will be available for 30
days.
The replay of the Annual and Special Meeting and first-quarter results for 2001
can also be accessed via telephone after 12:30 p.m. (Eastern time) today until
midnight (Eastern time) January 24, 2001. The replay number is (416) 626-4100.
ABOUT EXFO
EXFO, which derives its name from EXPERTISE IN FIBER OPTICS, is a leading
designer, manufacturer and marketer of fiber-optic test, measurement and
monitoring instruments for the telecommunications industry.
EXFO develops products mainly for two markets. Its Portable and Monitoring
Division provides solutions primarily to telecommunications carriers, cable
television companies, public utilities, private network operators as well as
third-party installers and equipment rental companies. Its Industrial and
Scientific Division designs an extensive line of high-performance instruments
and automated test systems for manufacturers of optical components, value-added
optical modules and optical networking systems as well as for research and
development markets.
This news release may contain statements that constitute forward-looking
statements within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. Forward-looking statements are statements other than historical
information or statements of current condition. These statements may appear in a
number of places in this news release and include statements concerning our
intent, belief, or current expectations regarding future events. Forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and actual results may differ materially from those in the
forward-looking statements as a result of various factors which are beyond the
control of EXFO, including retention of qualified personnel, revenue synergies,
demand for testing and measurement instruments and precision positioning
instruments. Although we believe that the expectations reflected in the
forward-looking statements are reasonable based on information currently
available to us, we cannot assure you that the expectations will prove to have
been correct. Accordingly, you should not place undue reliance on these
forward-looking statements. In any event, these statements speak only as of the
date of this news release. We undertake no obligation to revise or update any of
them to reflect events or circumstances after the date of this news release, or
to reflect new information or the occurrence of unanticipated events. Readers
are referred to our Registration Statement on Form F-1 and our other filings
with the U.S. Securities and Exchange Commission and the Canadian securities
commissions for a discussion of the other factors that may affect our future
performance and other important risk factors concerning us and our operations.
-30-
FOR MORE INFORMATION:
Mike Lamanna Maryse Imbeault
Manager, Investor Relations Director, Communications
(418) 683-0211 (418) 683-0211
MICHAEL.LAMANNA@EXFO.COM MARYSE.IMBEAULT@EXFO.COM
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EXFO ELECTRO-OPTICAL ENGINEERING INC.
By: /s/ GERMAIN LAMONDE
--------------------------------
Name: Germain Lamonde
Title: President and Chief Executive Officer
Date: January 16, 2001