<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (date of earliest event reported):
November 15, 1994
DSC COMMUNICATIONS CORPORATION
--------------------------------------------------------
(Exact name of registrant as specified in its character)
DELAWARE 0-10018 54-1025763
- ----------------- --------------------- -------------------
(State or other (Commission File No.) (IRS Employer
jurisdiction Identification No.)
of incorporation)
1000 Coit Road
Plano, Texas 75075
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
(214)519-3000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE> 2
The undersigned Registrant hereby amends Item 7. "Financial Statements and
Exhibits" of its Current Report on Form 8-K dated November 15, 1994 as set
forth in the pages attached hereto.
ITEM 7. FINANCIALS STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
1. Audited financial statements of NKT Elektronik A/S as of and for
the year ended December 31, 1993.
2. Unaudited interim financial statements of NKT Elektronik A/S
a. Condensed Consolidated Balance Sheet as of September 30, 1994.
b. Condensed Consolidated Statements of Operations for the nine
months ended September 30, 1994 and 1993.
c. Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1994 and 1993.
d. Notes to Condensed Consolidated Financial Statements.
(b) Pro Forma Financial Information
1. Pro Forma Financial Information Introduction.
2. Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1994.
3. Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the nine months ended September 30, 1994.
4. Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1993.
5. Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
(c) Exhibits
*2.0 Stock Purchase Agreement By and Among DSC Communications
Corporation, NKT Holding A/S, and NKT Elektronik A/S dated as of
October 20, 1994 incorporated herein by reference from the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1994
*2.1 Amendment No. 1 to Exhibit 2.0
*10.0 Noncompetition Agreement
*10.1 Escrow Agreement
23. Consent of Deloitte & Touche
- -------------------
* Previously filed.
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this amendment to be signed on its behalf
by the undersigned hereunto duly authorized.
DSC COMMUNICATIONS CORPORATION
Date: January 30, 1995 By: /s/ KENNETH R. VINES
--------------------------
Kenneth R. Vines
Vice President, Finance
<PAGE> 4
ITEM 7. (a) 1.
Audited financial statements of NKT Elektronik A/S
December 31, 1993
<PAGE> 5
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of DSC Communications Corporation
We have audited the accompanying consolidated balance sheet of NKT Elektronik
A/S and subsidiaries (the "Company") as of December 31, 1993, and the related
consolidated statements of income, retained earnings and cash flows for the
year ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1993, and the consolidated results of its operations and its cash
flows for the year ended December 31, 1993 in conformity with generally
accepted accounting principles in the United States of America.
Copenhagen, April 12, 1994, except for the Subsequent Event footnote, as to
which the date is December 30, 1994.
D E L O I T T E & T O U C H E
Statsautoriseret Revisionsaktieselskab
Carsten Vaarby
State Authorized Public Accountant
(Denmark)
<PAGE> 6
NKT Elektronik A/S and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
For the year ended December 31
<TABLE>
<CAPTION>
1993
DKK 1,000
---------
<S> <C>
Revenue ....................................................... 704,681
Cost of revenue ............................................... (480,451)
--------
Gross profit .................................................. 224,230
Operating costs and expenses:
Research and product development .............................. (76,672)
Selling, general and administrative ........................... (105,402)
--------
Total operating costs and expenses ............................ (182,074)
--------
Operating income .............................................. 42,156
Interest expense .............................................. (17,312)
Interest income ............................................... 10,903
Minority interests in net losses of subsidiaries .............. 7,214
--------
Income before income taxes .................................... 42,961
Income taxes .................................................. (9,862)
--------
Net income .................................................... 33,099
Retained earnings as of January 1, 1993 ....................... 37
-------
Retained earnings as of December 31, 1993 ..................... 33,136
=======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE> 7
NKT Elektronik A/S and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31
<TABLE>
<CAPTION>
1993
DKK 1,000
---------
<S> <C>
Assets
CURRENT ASSETS
Cash ............................................................ 79,913
Receivables, less allowances for doubtful accounts of
DKK 720,000 ................................................... 228,656
Inventories ..................................................... 210,689
Intercompany receivables ........................................ 15,543
Other current assets ............................................ 50,146
-------
Total current assets ............................................ 584,947
-------
PROPERTY AND EQUIPMENT, NET ....................................... 99,486
-------
Total assets ................................................. 684,433
=======
Liabilities and Shareholder's Equity
CURRENT LIABILITIES
Short-term bank debt ............................................ 152,410
Accounts payable ................................................ 133,332
Intercompany payables ........................................... 19,388
Accrued liabilities ............................................. 27,854
Customer advances ............................................... 8,605
Income taxes payable ............................................ 5,483
Current portion of long-term debt ............................... 3,098
-------
Total current liabilities ....................................... 350,170
-------
LONG-TERM DEBT, NET OF CURRENT PORTION ............................ 17,974
NONCURRENT INCOME TAXES AND OTHER LIABILITIES ..................... 28,959
MINORITY INTERESTS ................................................ 4,594
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY
Common stock, DKK 1,000 par value, authorized,
issued and outstanding-100,000 ................................ 100,000
Additional capital .............................................. 149,600
Retained earnings ............................................... 33,136
-------
Total shareholder's equity ...................................... 282,736
-------
Total liabilities and shareholder's equity ................... 684,433
=======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE> 8
NKT Elektronik A/S and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31,
<TABLE>
<CAPTION>
1993
DKK 1,000
---------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................................... 33,099
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization .................................... 29,410
Minority interests ............................................... (7,214)
Changes in operating assets and liabilities:
Increase in receivables .......................................... (14,637)
Increase in inventories .......................................... (61,894)
Increase in intercompany receivables ............................. (8,400)
Increase in other current assets ................................. (36,341)
Decrease in current payables and accruals ........................ (36,436)
Increase in intercompany payables ................................ 2,695
Increase in customer advances .................................... 5,789
Increase in noncurrent income taxes and other liabilities ........ 6,460
--------
NET CASH USED FOR OPERATING ACTIVITIES ........................... (87,469)
--------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment .............................. (27,938)
--------
NET CASH USED FOR INVESTING ACTIVITIES ........................... (27,938)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under debt arrangements ................................ 111,927
Payments of short-term and long-term debt ........................ (1,676)
Contribution from minority shareholders in subsidiaries .......... 8,500
--------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................ 118,751
--------
NET INCREASE IN CASH ............................................. 3,344
CASH AT BEGINNING OF PERIOD ...................................... 76,569
--------
CASH AT END OF PERIOD ............................................ 79,913
========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid .................................................... 16,303
========
Income taxes paid ................................................ 12,526
========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE> 9
NKT Elektronik A/S and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Business
NKT Elektronik A/S (the "Company") is a designer, developer, manufacturer and
marketer of telephone cables and high-speed transmission equipment for the
worldwide telecommunications marketplace.
The Company is a wholly-owned subsidiary of NKT Holding A/S, Denmark.
Principles of Consolidation
These Financial Statements have been prepared using Generally Accepted
Accounting Principles in the United States of America.
The consolidated financial statements of the Company include the accounts of
the Company and all of its subsidiaries owned 50% or more over which the
Company exercises management control. All significant intercompany
transactions and balances are eliminated.
Revenue Recognition
Revenue is generally recognized when the Company has completed substantially
all manufacturing and/or software development to customer specifications,
factory testing has been completed and the product has been shipped.
Additionally, for systems where installation requirements are the
responsibility of the Company and payment terms are related to installation
completion, revenue is generally recognized when the system has been
installed.
Revenue under contracts with customers for development and customization of
software or cable projects is accounted for using the percentage-of-completion
method as certain contracted milestones are completed. Revenue from
technical assistance service contracts is recognized ratably over the period
the services are performed.
Research and Development Costs
All research and development expenditures are charged to research and
development expense in the period incurred.
The Company performs certain research and development activities under cost
sharing contracts with various partners, primarily the European Economic
Community and the Danish government, who want to promote employment and
technology development. These contracts are effected in the form of research
grants and are accounted for as reductions to research and development expense
as the related development costs are incurred. Certain of these grants provide
for repayments in the form of royalties at rates ranging from 2-5% of revenue
from product sales incorporating the specific technology developed. Royalty
payments are generally limited to the amount of the grant plus interest and
are only required when revenue, as described above, is recognized. Grants
credited to research and development expense during 1993 were DKK 29,914,000,
and royalty fees charged to expense during the year were DKK 10,378,000. At
December 31, 1993, up to approximately DKK 10,350,000 of royalty payments
may be required in future years if additional revenue is recognized from
products developed under certain grants.
<PAGE> 10
Inventories
Inventories are valued at the lower of cost or market on a first-in first-out
basis. Inventories consisted of the following at December 31, 1993:
<TABLE>
<CAPTION>
DKK 1,000
---------
<S> <C>
Raw material ............................................. 67,698
Work in Process .......................................... 73,709
Finished Goods ........................................... 64,697
Construction contracts ................................... 4,585
-------
210,689
=======
</TABLE>
Property and Equipment
Property and equipment are recorded at cost and depreciated on a straight-line
basis over their estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings .................................................... 8-25 Years
Leasehold improvements ....................................... 1-5 Years
Manufacturing, development and test equipment ................ 4-8 Years
Office furniture, equipment and other ........................ 4-8 Years
</TABLE>
<PAGE> 11
Income taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and the tax bases of assets and
liabilities and are measured using the current tax rates and laws that will be
in effect when the differences are expected to reverse.
PROPERTY AND EQUIPMENT
The Company's property and equipment consisted of the following at December
31, 1993:
<TABLE>
<CAPTION>
DKK 1,000
---------
<S> <C>
Buildings and leasehold improvements .......................... 18,297
Manufacturing, development and test equipment ................. 220,939
Office furniture, equipment and other ......................... 68,492
Fixed assets under construction ............................... 4,712
--------
312,440
Less: Accumulated depreciation and amortization ............... (212,954)
--------
99,486
========
</TABLE>
Capital leases
The Company leases certain data processing equipment which is capitalized as
part of Property and Equipment. The capital lease amounts included in Property
and Equipment at December 31, 1993 were as follows:
<TABLE>
<CAPTION>
DKK 1,000
---------
<S> <C>
Office furniture, equipment and other ....................... 11,261
-------
11,261
Less: Accumulated amortization .............................. (2,634)
-------
8,627
=======
</TABLE>
<PAGE> 12
The following is a schedule by years of future minimum lease payments under
capital lease together with the present value of net minimum lease payments as
of December 31, 1993:
<TABLE>
<CAPTION>
DKK 1,000
---------
<S> <C>
Year ending December 31:
1994........................................................... 3,554
1995........................................................... 3,469
1996........................................................... 2,992
-------
10,015
Less: Amount representing interest ............................ (1,388)
-------
Present value of net minimum lease payments ................... 8,627
=======
</TABLE>
Credit agreement
The Company has a revolving credit facility as part of a consolidated
arrangement established by NKT Holdings A/S. The agreement provides for
borrowings up to DKK 230,000,000, of which DKK 77,600,000 is available at
December 31, 1993. The credit facility expires on December 31, 1994, and
borrowings under the facility bear interest at variable interest rates which
ranged from 8.75% to 13.75% during 1993. The interest rate on borrowings under
the facility at December 31, 1993 was 8.75%.
LONG-TERM DEBT
Total long-term debt consisted of the following at December 31, 1993:
<TABLE>
<CAPTION>
DKK 1,000
---------
<S> <C>
Secured 8% installment note, due 1994-2013 .................... 12,445
Capital lease obligations ..................................... 8,627
-------
21,072
Current portion ............................................... (3,098)
-------
Total long-term debt .......................................... 17,974
=======
</TABLE>
<PAGE> 13
The installment note is collateralized by a Company building with a carrying
value of DKK 11,246,000.
The aggregate maturities of long-term debt for the next five years, excluding
capital lease obligations, are as follows: 1994 - DKK 280,000; 1995 - DKK
303,000; 1996 - DKK 328,000; 1997 - DKK 355,000; 1998 - DKK 385,000.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's net deferred tax asset as of December 31, 1993 were as
follows:
<TABLE>
<CAPTION>
DKK 1,000
---------
<S> <C>
Deferred Tax Assets
Asset valuation reserves not yet deductible for tax ............. 5,921
Other ........................................................... 1,931
-------
Deferred assets ................................................. 7,852
-------
Deferred Tax Liabilities
Deferred revenue ................................................ (22,394)
Depreciation .................................................... (5,153)
-------
Deferred liability .............................................. (27,547)
-------
Net deferred tax ................................................ (19,695)
=======
</TABLE>
Income tax expense was composed of the following for 1993:
<TABLE>
<CAPTION>
DKK 1,000
---------
<S> <C>
Current:
Danish corporate tax ...................................... 5,909
Foreign tax ............................................... 1,673
-----
Total current ............................................. 7,582
-----
Deferred:
Danish corporate tax ...................................... 2,280
-----
Total deferred tax ........................................ 2,280
-----
Total tax expense ......................................... 9,862
=====
</TABLE>
<PAGE> 14
The effective income tax rate on pretax income differed from the Danish income
tax statutory rate for the following reasons for 1993:
<TABLE>
<CAPTION>
DKK 1,000
--------
<S> <C>
Income tax charge (credit):
At statutory rate ........................................... 14,607
Foreign tax rate differential ............................... (673)
Research and development tax credit ......................... (4,370)
Other ....................................................... 298
-------
9,862
=======
</TABLE>
RELATED PARTY TRANSACTIONS
The Company purchases and sells certain fiber optical and copper cable
products and provides certain services for NKT Holdings and its affiliates as
part of its operations. The total of these transactions for 1993 and the
related payable and receivable account balances at December 31, 1993 were as
follows:
<TABLE>
<CAPTION>
DKK 1,000
---------
<S> <C>
Revenue ................................................... 28,880
Purchases ................................................. 90,474
Intercompany receivable ................................... 15,543
Intercompany payable ...................................... 19,388
</TABLE>
Interest income of DKK 108,000 and interest expense of DKK 1,404,000 has also
been recorded related to the intercompany balances. In addition, a management
fee of DKK 3,518,000 to NKT Holding A/S and rent expense of DKK 16,552,000 to
an affiliate of NKT Holdings were included in operating expenses in 1993.
COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company leases certain facilities and equipment which require future
rental payments. Certain of these leases have renewal and purchase options
generally at the fair value at the renewal or purchase option date.
Future minimum rental commitments under operating leases with noncancellable
lease terms in excess of one year were as follows at December 31, 1993:
<TABLE>
<CAPTION>
DKK 1,000
---------
<S> <C>
1994 ................................................... 809
1995 ................................................... 754
1996 ................................................... 743
1997 ................................................... 619
1998 ................................................... 0
Thereafter ............................................. 0
-----
2,925
=====
</TABLE>
Operating lease rental expense was DKK 16,836,000 for the year ended December
31, 1993.
<PAGE> 15
Contingent Liabilities
The Company has guarantees to customers of approximately DKK 67,000,000 which
are collateralized by letters of credit.
The Company enters into forward foreign exchange contracts to hedge both firm
commitments and anticipated transactions which are denominated in foreign
currencies. At December 31, 1993, the Company had forward foreign exchange
contracts of DKK 695,100,000. Gains and losses on these contracts are
recognized as part of the cost of the underlying transaction being hedged,
with the exception of realized gains and losses on contracts designed to hedge
anticipated foreign currency transactions which are recognized in net income
currently. Forward foreign exchange contracts generally have maturities of one
year or less and contain an element of risk the counterparty may be unable to
meet the terms of the agreement. However, the Company minimizes such risk by
limiting the counterparty to major financial institutions. Management believes
the risk of incurring such losses is remote, and any losses therefrom would be
immaterial.
Litigation
The Company is a party to legal proceedings which, in the opinion of
management, are not expected to have a material adverse effect on the
Company's consolidated financial position.
INTERNATIONAL OPERATIONS AND MAJOR CUSTOMERS
Export Sales
Revenue generated from export sales in 1993 was DKK 570,000,000 or 81% of
total revenue.
Major Customers
Deutsche Bundespost accounted for 35% of consolidated revenue in 1993. No
other customers accounted for 10% or more of consolidated revenue in 1993.
SUBSEQUENT EVENT
On November 15, 1994 all of the outstanding stock of the Company was acquired
by DSC Communications Corporation for approximately $147 million. The
Company's name was subsequently changed to DSC Communications A/S.
<PAGE> 16
ITEM 7. (a) 2.
Unaudited interim financial statements of NKT Elektronik A/S
<PAGE> 17
NKT Elektronik A/S and Subsidiaries
Condensed Consolidated Balance Sheet
(DKK in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30,
1994
-------------
<S> <C>
Assets
- ---------------------------------------------------------------------------
CURRENT ASSETS
Cash .................................................................... 91,911
Receivables.............................................................. 192,966
Intercompany receivables................................................. 2,667
Inventories.............................................................. 225,020
Other current assets..................................................... 55,311
-------------
Total current assets................................................ 567,875
-------------
PROPERTY AND EQUIPMENT, Net................................................ 81,289
-------------
Total assets.................................................... 649,164
=============
Liabilities and Shareholder's Equity
- ---------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term bank debt..................................................... 19,990
Accounts payable......................................................... 108,330
Intercompany payables.................................................... 46,584
Accrued liabilities...................................................... 81,366
Customer advances........................................................ 36,550
Income taxes payable..................................................... 5,309
Current portion of long-term debt........................................ 3,500
-------------
Total current liabilities........................................... 301,629
-------------
LONG-TERM DEBT, net of current portion..................................... 5,703
NONCURRENT INCOME TAXES AND OTHER LIABILITIES.............................. 27,441
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY
Common stock............................................................. 101,100
Additional capital....................................................... 214,191
Retained earnings (deficit) ............................................. (900)
-------------
Total shareholder's equity............................................ 314,391
-------------
Total liabilities and
shareholder's equity.......................................... 649,164
=============
</TABLE>
See accompanying Notes to Condensed Consolidated Interim Financial Statements.
<PAGE> 18
NKT Elektronik A/S and Subsidiaries
Condensed Consolidated Statements of Operations
(DKK in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Revenue........................................ 505,964 440,254
Cost of revenue................................ (359,921) (295,116)
----------- -----------
Gross profit................................. 146,043 145,138
----------- -----------
Operating costs and expenses:
Research and product development............. (88,457) (52,486)
Selling, general and administrative.......... (99,993) (78,993)
----------- -----------
Total operating costs and expenses......... (188,450) (131,479)
----------- -----------
Operating income (loss) ..................... (42,407) 13,659
Interest expense............................... (8,998) (14,684)
Interest income................................ 6,412 12,020
Other income (expense), net.................... 11,641 4,050
----------- -----------
Income (loss) before income taxes.......... (33,352) 15,045
Income tax (expense) benefit................... 13,609 (4,387)
----------- -----------
Net income (loss) ......................... (19,743) 10,658
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Interim Financial Statements.
<PAGE> 19
NKT Elektronik A/S and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(DKK in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1994 1993
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................. (19,743) 10,658
Adjustments to reconcile net income to
net cash provided by (used for) operating
activities:
Depreciation and amortization.................. 21,840 23,948
Minority interests............................. (7,641) (4,050)
Decrease in receivables............................ 48,566 54,802
Increase in inventories............................ (14,331) (90,350)
Increase in other current assets................... (5,165) (44,839)
Increase in customer advances...................... 27,945 3,282
Increase (decrease) in current payables and
accruals......................................... 62,963 (22,128)
Decrease in noncurrent income taxes
and other liabilities............................ (15,252) (5,104)
----------- ----------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES....................... 99,182 (73,781)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment................ (20,195) (29,086)
Sales of property and equipment.................... 16,552 --
----------- ----------
NET CASH USED FOR
INVESTING ACTIVITIES....................... (3,643) (29,086)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings.............................. -- 151,496
Payments of short-term and long-term borrowings.... (144,289) --
Contributions to capital........................... 65,691 --
Contributions by minority shareholders............. 9,350 --
Dividend payment................................... (14,293) --
----------- ----------
NET CASH (USED FOR) PROVIDED BY
FINANCING ACTIVITIES....................... (83,541) 151,496
----------- ----------
NET INCREASE IN CASH................................. 11,998 48,629
CASH AT BEGINNING OF PERIOD.......................... 79,913 76,569
----------- ----------
CASH AT END OF PERIOD................................ 91,911 125,198
=========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid...................................... 7,918 12,256
=========== ==========
Income taxes paid.................................. 5,483 12,100
=========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Interim Financial Statements.
<PAGE> 20
NKT ELECTRONIK A/S AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 1994 and 1993
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Interim Financial State-
ments reflect, in the opinion of management, all adjustments necessary to
present fairly the Company's financial position, results of operations and
cash flows. Such adjustments are of a recurring nature unless otherwise
disclosed herein. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to rules and
regulations promulgated by the Securities and Exchange Commission. However,
the Company believes that the disclosures contained herein are adequate to make
the information presented not misleading. Interim consolidated financial
results may not be indicative of annual consolidated financial results. These
unaudited financial statements should be read in conjunction with the audited
financial statements and accompanying notes of NKT Electronik A/S ("NKTE") for
the year ended December 31, 1993.
These financial statements have been prepared using generally accepted
accounting principles as applied in the United States of America. The
statement amounts are presented in Danish Kroner (DKK).
INCOME TAX EXPENSE
The Company's effective tax rate for the nine months ended September 30, 1994
and 1993 was 41% and 29%, respectively. The differences between the effective
tax rates and the statutory rate of 34% were primarily the result of available
research and development tax credits.
ACQUISITION BY DSC COMMUNICATIONS CORPORATION
On November 15, 1994 DSC Communications Corporation ("DSC") acquired
all the outstanding stock of NKTE for approximately U.S. $147,000,000 in cash.
As a part of the acquisition by DSC, two divisions (a fiber optics cable
division and a copper cable division) were sold to NKT Holding A/S at
approximately net book value, prior to the effective date of the acquisition.
The two divisions had sales of DKK 83,407,000 and a net loss of DKK 9,720,000
for the nine months ended September 30, 1994. See the unaudited pro forma
financial statements contained elsewhere herein for additional information on
the acquisition.
<PAGE> 21
ITEM 7. (b)
Pro Forma Financial Information
<PAGE> 22
DSC COMMUNICATIONS CORPORATION
Pro Forma Financial Information
On November 15, 1994, DSC Communications Corporation (the "Company" or "DSC")
acquired all of the outstanding stock of NKT Elektronik A/S ("NKTE"), a
Copenhagen, Denmark-based manufacturer of optical transmission equipment, from
NKT Holding A/S for approximately $147 million in cash. This initial
acquisition cost was funded with approximately $85 million in existing cash and
approximately $62 million in short-term debt. Additional costs incurred
pursuant to the transaction resulted in a total acquisition cost of
approximately $149 million. The accompanying unaudited pro forma condensed
consolidated balance sheet as of September 30, 1994 has been prepared as if the
acquisition had been consummated on the balance sheet date. The accompanying
unaudited pro forma condensed consolidated statements of operations for the
nine months ended September 30, 1994 and for the year ended December 31, 1993
have been prepared as if the acquisition had been consummated as of the
beginning of the respective periods.
The following unaudited pro forma condensed consolidated financial statements
reflect the acquisition using the purchase method of accounting. Accordingly,
a portion of the purchase price has been preliminarily allocated to the assets
and liabilities of NKTE based on their estimated fair values and the balance of
the purchase price has been preliminarily included in Costs in excess of net
assets of businesses acquired, net on the Company's unaudited pro forma
condensed consolidated balance sheet. These allocations and the related Costs
in excess of net assets of businesses acquired, net could change during 1995 as
the Company completes its review of the fair value of NKTE's net assets.
These pro forma statements are presented for informational purposes only and
have been prepared based on the estimates and assumptions outlined in the
accompanying notes to the unaudited pro forma financial statements which are
deemed by the Company to be appropriate. These pro forma statements may not be
indicative of the financial position or results of operations as they would
have been if the Company and NKTE had actually been a single entity at the
dates presented or during such periods, nor is it necessarily indicative of the
financial position or results which may be obtained in the future. Anticipated
efficiencies from the consolidation of NKTE and the Company are not fully
determinable and therefore have been excluded from these pro forma results of
operations. These pro forma financial statements should be read in conjunction
with the audited financial statements of NKTE for the year ended December 31,
1993 and the unaudited interim financial statements of NKTE for the nine months
ended September 30, 1994, both included elsewhere herein, as well as the
financial statements of the Company included in its Annual Report on Form 10-K
for the year ended December 31, 1993 and its Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1994.
<PAGE> 23
DSC COMMUNICATIONS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1994
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------- PRO FORMA PRO FORMA
DSC NKTE ADJUSTMENTS CONSOLIDATED
--------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 109,240 $ 15,101 $ (7)(A) $ 39,334
(85,000)(B)
Marketable securities 211,635 -- -- 211,635
Receivables 165,760 32,143 (5,044)(A) 192,859
Inventories 152,709 36,971 (4,794)(A) 182,062
(2,824)(C)
Other current assets 42,126 9,087 (2,015)(A) 49,198
--------------- --------------- ---------------- ------------
Total current assets 681,470 93,302 (99,684) 675,088
Property and equipment, net 243,851 13,356 (3,992)(A) 253,215
Cost in excess of net assets of
businesses acquired, net 47,974 -- 102,213 (C) 150,187
--
Investment in NKT Elektronik A/S -- -- 149,374 (B) --
(149,374)(C)
Other 88,109 -- -- 88,109
--------------- --------------- ---------------- ------------
Total Assets $ 1,061,404 $ 106,658 $ (1,463) $ 1,166,599
=============== =============== ================ ============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
<PAGE> 24
DSC COMMUNICATIONS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
SEPTEMBER 30, 1994
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------- PRO FORMA PRO FORMA
DSC NKTE ADJUSTMENTS CONSOLIDATED
--------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt $ -- $ 3,284 $ 62,000 (B) $ 65,284
Accounts payable 56,475 25,452 (7,654)(A) 74,273
Accrued liabilities 126,563 13,369 (8,198)(A) 135,778
2,374 (B)
1,670 (C)
Customer advances 10,308 6,005 -- 16,313
Income taxes payable 16,042 872 -- 16,914
Current portion of long-term debt 12,252 575 -- 12,827
--------------- --------------- ---------------- ------------
Total current liabilities 221,640 49,557 50,192 321,389
Long-term debt, net of current portion 11,944 937 -- 12,881
Noncurrent income taxes and other
liabilities 55,124 4,509 -- 59,633
--------------- --------------- ---------------- ------------
Total liabilities 288,708 55,003 50,192 393,903
--------------- --------------- ---------------- ------------
Common stock 1,183 16,611 (16,611)(C) 1,183
Additional capital 605,625 35,192 (35,192)(C) 605,625
Unrealized losses on securities,
net of income taxes (2,517) -- -- (2,517)
Retained earnings 211,516 (148) 148 (C) 211,516
Treasury stock, at cost (43,111) -- -- (43,111)
--------------- --------------- ---------------- ------------
Total shareholders' equity 772,696 51,655 (51,655) 772,696
--------------- --------------- ---------------- ------------
Total liabilities and
shareholders' equity $ 1,061,404 $ 106,658 $ (1,463) $ 1,166,599
=============== =============== ================ ============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
<PAGE> 25
DSC COMMUNICATIONS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------- PRO FORMA PRO FORMA
DSC NKTE ADJUSTMENTS CONSOLIDATED
---------------- ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
Revenue $ 691,049 $ 79,032 $ (13,029)(A) $ 757,052
Cost of revenue 354,706 56,220 (10,540)(A) 400,274
(112)(G)
---------------- ----------------- ----------------- -----------
Gross profit 336,343 22,812 (2,377) 356,778
Operating costs and expenses:
Research and product development 87,175 13,817 (630)(A) 100,362
Selling, general and administrative 100,087 15,619 (3,743)(A) 111,788
(175)(G)
Other operating costs 5,827 -- 3,833 (F) 9,660
---------------- ----------------- ----------------- -----------
Total operating costs and expenses 193,089 29,436 (715) 221,810
---------------- ----------------- ----------------- -----------
Operating income (loss) 143,254 (6,624) (1,662) 134,968
Interest expense 1,313 1,405 (937)(A) 4,339
2,558 (D)
Interest income (12,037) (1,002) 78 (A) (10,549)
2,412 (D)
Other (income) expense, net 3,922 (1,818) 625 (A) 2,729
---------------- ----------------- ----------------- -----------
Income (loss) before income taxes 150,056 (5,209) (6,398) 138,449
Income taxes (benefit) 40,975 (2,126) 601 (A) 37,144
(2,306)(H)
---------------- ----------------- ----------------- -----------
Net income (loss) $ 109,081 $ (3,083) $ (4,693) $ 101,305
================ ================= ================= ===========
Income per share $ 0.94 $ 0.87
================ ===========
Average shares used in computation 116,614 116,614
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
<PAGE> 26
DSC COMMUNICATIONS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------- PRO FORMA PRO FORMA
DSC NKTE ADJUSTMENTS CONSOLIDATED
---------------- ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
Revenue $ 730,774 $ 108,662 $ (11,585)(A) $ 827,851
Cost of revenue 412,805 74,086 (15,926)(A) 470,818
(147)(G)
---------------- ----------------- ----------------- -----------
Gross profit 317,969 34,576 4,488 357,033
Operating costs and expenses:
Research and product development 86,620 11,823 -- 98,443
Selling, general and administrative 112,723 16,253 (20)(A) 128,725
(231)(G)
Other operating costs 8,450 -- 5,111 (F) 13,561
---------------- ----------------- ----------------- -----------
Total operating costs and expenses 207,793 28,076 4,860 240,729
---------------- ----------------- ----------------- -----------
Operating income 110,176 6,500 (372) 116,304
Interest expense 6,256 2,670 (1,259)(A) 17,957
10,290 (E)
Interest income (5,691) (1,681) (80)(A) (7,452)
Other (income) expense, net 155 (1,112) -- (957)
---------------- ----------------- ----------------- -----------
Income before income taxes 109,456 6,623 (9,323) 106,756
Income taxes 27,796 1,521 1,885 (A) 27,419
(3,783)(H)
---------------- ----------------- ----------------- -----------
Net income $ 81,660 $ 5,102 $ (7,425) $ 79,337
================ ================= ================= ===========
Income per share (1) $ 0.77 $ 0.74
================ ===========
Average shares used in computation (1) 106,650 106,650
</TABLE>
(1) On April 27, 1994, the Board of Directors declared a two-for-one stock
split, effected in the form of a 100% stock dividend, to shareholders of
record on May 11, 1994. All average shares and income per share data pre-
sented for 1993 have been restated to retroactively reflect the stock split.
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
<PAGE> 27
DSC COMMUNICATIONS CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited pro forma condensed consolidated financial
statements reflect the following adjustments to reflect the acquisition of NKT
Elektronik A/S ("NKTE"):
(A) Record adjustments to NKTE's 1993 and 1994 historical net assets and
operations to remove certain divisions and/or subsidiaries which were sold
to NKT Holding A/S prior to the acquisition date. Additionally, record
adjustments to NKTE's 1993 historical operations to include certain
subsidiaries which were acquired by NKTE during 1994 and which were
included in NKTE's net assets acquired by the Company.
(B) Record the acquisition of NKTE using $85 million in existing cash and $62
million in short-term debt. The additional acquisition costs are shown as
accrued liabilities.
(C) Eliminate the shareholder's equity of NKTE and the related DSC investment
in NKTE and record the cost in excess of net assets of business
acquired. The cost in excess of net assets of business acquired was
determined after adjustments to reflect NKTE's net assets at their fair
values and after conforming NKTE's accounting policies with those of DSC.
The cost in excess of net assets of business acquired related to NKTE was
determined as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
1994
-----------------
<S> <C>
Purchase price and other acquisition costs $ 149,374
NKTE's net assets 51,655
-----------------
97,719
Fair value and conforming policy adjustments 4,494
-----------------
Cost in excess of net assets of business acquired $ 102,213
=================
</TABLE>
(D) Record additional interest expense and a reduction to interest income to
reflect the funding of the acquisition. The additional interest expense
was calculated based upon an approximation of the Company's short-term
borrowing rate at the acquisition date of 5.5%. The reduction to interest
income was calculated based on the Company's actual rate of earnings during
the first nine months of 1994.
(E) Record additional interest expense using a rate of 7% to reflect the
funding of the acquisition with long-term debt.
(F) Record amortization expense for the cost in excess of net assets of
business acquired associated with the NKTE acquisition. The amortization
period is 20 years.
(G) Record a reduction to rent expense charged by an affiliate of NKT Holdings
A/S based upon a new lease agreement entered into subsequent to the
acquisition.
(H) Record the estimated income tax effect of the pro forma adjustments.
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
- --------------- ----------------------
<S> <C>
*2.0 Stock Purchase Agreement By and Among DSC Communications Corporation, NKT Holding A/S, and NKT Elektronik A/S
dated as of October 20, 1994 incorporated herein by reference from the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1994
*2.1 Amendment No. 1 to Exhibit 2.0
*10.0 Noncompetition Agreement
*10.1 Escrow Agreement
23. Consent of Deloitte & Touche
</TABLE>
- -----------------------------
* Previously filed.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
File No. 2-83398 (Amendment No. 2), 2-95833, 33-17459, 33-22745, 33-38544,
33-49718, 33-65212, 33-65214, and 33-64784 of DSC Communications Corporation,
and in the related Prospectus of our report, dated April 12, 1994, except for
the Subsequent Event footnote, as to which the date is December 30, 1994, with
respect to the financial statements of NKT Elektronik A/S included in the Form
8-K as of and for the year ended December 31, 1993.
Deloitte & Touche
January 27, 1995
