<PAGE> 1
QUARTER 2-FY 1998
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 1, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ TO _________
Commission file number 0-12622
TELCO SYSTEMS, INC.
-------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2178777
----------------------------- -------------------
(State or other jurisdiction (I.R.S. employer
incorporation or organization) identification no.)
63 NAHATAN STREET, NORWOOD, MASSACHUSETTS 02062
-----------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 551-0300
NO CHANGE
----------------------------------------------------
(Former name, former address and former fiscal year,
if change since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
---- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Classes Outstanding at April 9, 1998
- --------------------------- ----------------------------
Common Stock, $.01 par value 11,022,699
1
<PAGE> 2
TELCO SYSTEMS, INC.
INDEX
REPORT ON FORM 10-Q
FOR QUARTER ENDED MARCH 1, 1998
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
March 1, 1998 and August 31, 1997 3
Consolidated Statements of Operations
Three and six months ended March 1, 1998 and February 23, 1997 4
Consolidated Statements of Cash Flows
Three and six months ended March 1, 1998 and February 23, 1997 5
Notes to Consolidated Financial Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 8-11
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER 12
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K 12
SIGNATURE(S) 13
2
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
TELCO SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(THOUSANDS)
<CAPTION>
March 1, 1998 August 31, 1997
------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ............................. $ 10,724 $ 5,406
Marketable securities ............................ 1,812 7,302
Accounts receivable, net ......................... 18,085 19,663
Inventories, net ................................. 26,349 28,370
Other current assets ............................. 1,381 985
-------- --------
Total current assets .......................... 58,351 61,726
Plant and equipment, at cost ......................... 47,854 46,401
Less accumulated depreciation .................... 38,751 36,712
-------- --------
Net plant and equipment ....................... 9,103 9,689
Intangible and other assets, net ..................... 7,909 7,184
-------- --------
Total assets .................................. $ 75,363 $ 78,599
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 6,233 $ 7,292
Payroll and related liabilities .................. 3,286 3,492
Other accrued liabilities ........................ 10,929 10,528
-------- --------
Total current liabilities ..................... 20,448 21,312
Restructuring and other long-term liabilities ........ 1,258 1,531
Shareholders' equity:
Series A participating cumulative preferred stock,
200 shares authorized; no shares outstanding .. -- --
Preferred stock, $.01 par value, 5,000 shares
authorized; no shares outstanding ............. -- --
Common stock, $.01 par value, 24,000 shares
authorized; shares outstanding:
11,000 at March 1, 1998
10,805 at August 31, 1997 ..................... 110 108
Capital in excess of par value ................... 78,474 76,602
Unearned compensation - restricted stock ......... -- (68)
Accumulated deficit .............................. (24,927) (20,886)
-------- --------
Total shareholders' equity .................... 53,657 55,756
-------- --------
Total liabilities and shareholders' equity .... $ 75,363 $ 78,599
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
TELCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
----------------------------- ----------------------------
March 1, 1998 Feb. 23, 1997 March 1, 1998 Feb. 23, 1997
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ........................................... $26,007 $27,295 $53,012 $59,130
Costs and expenses:
Cost of products sold ............................... 15,543 15,775 32,558 35,137
Research and development ............................ 3,828 3,857 7,281 7,738
Sales, marketing and administration ................. 6,120 7,424 12,030 14,805
Purchased research and development .................. 5,135 -- 5,135 --
(Gain) on sale of investment ........................ -- -- -- (1,070)
Amortization of intangible assets ................... 184 166 351 333
Interest (income) ................................... (170) (183) (352) (343)
------- ------- ------- -------
Total costs and expenses ............................ 30,640 27,039 57,003 56,600
------- ------- ------- -------
(Loss) income before income taxes ................... (4,633) 256 (3,991) 2,530
Provision for income taxes .......................... 50 -- 50 --
------- ------- ------- -------
Net (loss) income ................................... $(4,683) $ 256 $(4,041) $ 2,530
======= ======= ======= =======
Shares used in computing net (loss) income per share:
Basic ............................................ 10,930 10,721 10,897 10,653
Diluted .......................................... 10,930 11,076 10,897 11,060
(Loss) earnings per share:
Basic............................................. $ (0.43) $ 0.02 $ (0.37) $ 0.24
Diluted........................................... $ (0.43) $ 0.02 $ (0.37) $ 0.23
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
TELCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS)
Six Months Ended
----------------------------
March 1, 1998 Feb. 23, 1997
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
Cash flows from operating activities:
Net (loss) income ................................................ $(4,041) $ 2,530
Depreciation and amortization .................................... 2,474 2,749
Write-off of purchased research and development .................. 5,135 --
Amortization of unearned compensation ............................ (1) 15
Change in assets and liabilities:
Accounts receivable ............................................ 1,578 (1,845)
Inventories, net ............................................... 2,021 (4,136)
Other current assets ........................................... (396) (188)
Intangible and other assets .................................... -- 1,000
Accounts payable and other current liabilities ................. (1,085) (2,749)
Restructuring liabilities ...................................... (764) (1,155)
Long-term liabilities .......................................... (186) 365
------- -------
Net cash provided by (used in) operating activities .............. 4,735 (3,414)
------- -------
Cash flows from investing activities:
Additions to plant and equipment, net ............................ (1,513) (1,292)
Purchase of assets of Jupiter Technology, Inc. ................... (4,336) --
Purchase of short-term investments ............................... (1,949) (5,110)
Maturities of short-term investments ............................. 7,439 7,765
------- -------
Net cash (used in) provided by investing activities .............. (359) 1,363
------- -------
Cash flows from financing activities:
Proceeds from sale of common shares
under employee stock plans ..................................... 942 2,027
------- -------
Net cash provided by financing activities ........................... 942 2,027
------- -------
Increase (decrease) in cash and equivalents ......................... 5,318 (24)
Cash and equivalents at beginning of period ......................... 5,406 8,461
------- -------
Cash and equivalents at end of period ............................... $10,724 $ 8,437
======= =======
Supplemental schedule of non-cash investing and financing activities:
Shares issued for assets of Jupiter Technology ..................... $ 1,000 $ --
======= =======
Liabilities assumed relating to Jupiter Technology ................. $ 898 $ --
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
TELCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED MARCH 1, 1998
(UNAUDITED)
Note 1 - The consolidated financial statements of Telco Systems, Inc. (the
"Company") included in this report reflect all adjustments (consisting
of only normally recurring accruals) which, in the opinion of
management, are necessary for a fair presentation of the consolidated
financial position at March 1, 1998 and the consolidated statements of
operations and cash flows for the six months ended March 1, 1998 and
February 23, 1997. The unaudited results of operations for the interim
periods reported are not necessarily indicative of results to be
expected for the year.
Certain notes and other information have been condensed or omitted
from these interim financial statements. The statements, therefore,
should be read in conjunction with the consolidated financial
statements and related notes included in the Telco Systems, Inc.
Annual Report on Form 10-K for the year ended August 31, 1997.
<TABLE>
<CAPTION>
Note 2 - Inventories (thousands) March 1, 1998 August 31, 1997
------------- ---------------
<S> <C> <C>
Raw materials...................... $11,153 $12,803
Work-in-process.................... 5,643 5,605
Finished goods..................... 9,553 9,962
------- -------
$26,349 $28,370
======= =======
</TABLE>
Note 3 - Shares Outstanding
<TABLE>
<CAPTION>
Changes in shares outstanding: Six Months Ended
(thousands) -------------------------------------
March 1, 1998 February 23, 1997
------------- -----------------
<S> <C> <C>
Outstanding at beginning of period..................... 10,805 10,520
Shares issued for Jupiter acquisition .............. 102 --
Options exercised, net.............................. 71 197
Employee stock purchase plan........................ 22 26
------ ------
Outstanding at end of period........................... 11,000 10,743
====== ======
</TABLE>
Note 4 - On January 26, 1998, the Company acquired substantially all of the
assets of Jupiter Technology, Inc., a privately held company engaged
in the development of ATM and frame relay access equipment. The
transaction was accounted for using the purchase method at a cost of
$6.2 million, including issuance of 101,636 shares of common stock.
The purchase price included $5.1 million which represented the value
of in-process technology that had not yet reached technological
feasibility and had no alternative use. This amount was expensed
during the second quarter of fiscal 1998. In addition, the purchase
price included $1.1 million of goodwill, which will be amortized over
five years.
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<PAGE> 7
Note 5 - (LOSS) EARNINGS PER SHARE: In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, "Earnings per Share", which
the Company adopted in the second quarter of fiscal 1998. The Company
has restated all prior period per share amounts to comply with the
requirements of FAS 128. Under the new requirements, primary and
fully diluted earnings per share were replaced by basic and diluted
earnings per share. Basic earnings per common share is calculated by
dividing net income or loss by the weighted average number of common
shares outstanding during the periods. Diluted earnings per share is
calculated by dividing net income or loss by the sum of the weighted
average number of common shares outstanding plus all additional common
shares that would have been outstanding if potentially dilutive common
shares had been issued. Potentially dilutive common shares were
excluded from the diluted calculation for those periods in which the
Company reported a net loss. The following table reconciles the number
of shares utilized in the earnings per share calculations for the
periods ended March 1, 1998 and February 23, 1997.
SHARES USED IN COMPUTING EARNINGS PER SHARE (IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- --------------------------------
March 1, 1998 February 23, 1997 March 1, 1998 February 23, 1997
------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding (basic).................. 10,930 10,721 10,897 10,563
Effect of dilutive securities - stock
options.............................. 0 355 0 407
Weighted average common shares
outstanding (diluted)................ 10,930 11,076 10,897 11,060
</TABLE>
7
<PAGE> 8
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following table sets forth for the period indicated (i)
percentages which certain items reflected in the financial data bear
to sales of the Company and (ii) the percent change of such items as
compared to the indicated prior period. See Consolidated Statements of
Operations.
<TABLE>
<CAPTION>
PERCENT CHANGE
---------------------
PERCENT OF SALES SECOND SIX
SECOND QUARTER SIX MONTHS QUARTER MONTHS
---------------- ----------------- --------- ---------
1998 1997 1998 1997 98 VS. 97 98 VS. 97
---- ---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales ........................... 100.0% 100.0% 100.0% 100.0% (4.7)% (10.3)%
Costs of sales ...................... 59.8 57.8 61.4 59.4 (1.5) (7.3)
Expenses:
Research and development .......... 14.7 14.1 13.7 13.1 (.8) (5.9)
Sales, marketing and administration 23.6 27.2 22.7 25.0 (17.6) (18.7)
Purchased research and development 19.7 -- 9.7 -- -- --
Gain) on sale of investment ....... -- -- -- (1.8) -- --
Amortization of intangible assets . 0.7 0.6 0.7 0.6 10.8 5.4
Interest (income) ................. (0.7) (0.6) (0.7) (0.6) (7.1) 2.6
----- ----- ----- ----- ---- ----
Total ............................... 117.8 99.1 107.5 95.7 13.3 0.1
----- ----- ----- ----- ---- ----
Pretax (loss) income ................ (17.8) 0.9 (7.5) 4.3 -- --
Provision for taxes income .......... 0.2 -- 0.1 -- -- --
----- ----- ----- ----- ---- ----
Net income (loss) ................... (18.0)% 0.9% (7.6)% 4.3% -- --
</TABLE>
8
<PAGE> 9
NET SALES AND NET INCOME
Sales decreased 5% to $26.0 million in the second quarter of fiscal 1998
compared with $27.3 million the second quarter of last year. For the first six
months of fiscal 1998, sales decreased 10% to $53.0 million compared with $59.1
million in the same period of last year.
Sales of broadband products declined 15% and 12% in the second quarter and
first six months of fiscal 1998, respectively, compared with last year as a
result of a lower level of shipments. These decreases were partially offset by
increased shipments to Bell Atlantic, the Company's largest customer for
broadband products which increased 10% in both the second quarter and
year-to-date periods compared with last year. The Company expects that future
sales of the recently introduced EdgeLink100 product will offset the decline in
sales of older broadband products. Broadband product sales represented 50% and
54% of total sales for the second quarter and first six months of fiscal 1998,
respectively, compared with 56% and 55% in the comparable periods of last year.
Sales of access products increased 9% for the second quarter of fiscal 1998
compared with last year and decreased 9% for the six month period compared with
last year. The increased sales in the second quarter of fiscal 1998 resulted
from a higher level of shipments of Access60 multiplexers to both domestic and
international customers and was partially offset by lower shipments of older
network access products. The decrease in sales for the six month period of
fiscal 1998 compared with last year resulted from lower shipments of older
access products partially offset by higher shipments of the new Access60 and
Access45 products. Although the Company anticipated the decline in legacy
product sales, customer migration to the new products has been slower than
expected. Access products represented 45% of total sales for the second quarter
of fiscal 1998 compared with 39% in the second quarter of last year. For the six
month periods, access product sales were 41% of total sales in both years.
Bandwidth optimization product sales continue to represent approximately 5% of
sales in all periods presented.
Net loss for the second quarter and first six months of fiscal 1998 was
$4.7 million and $4.0 million, respectively, compared with net income of $.3
million and $2.5 million for the comparable periods of last year. The fiscal
1998 periods include a charge of $5.1 million for purchased research and
development in association with the acquisition of Jupiter Technology. For a
more complete discussion of this acquisition, please refer to Note 4 to the
financial statements. Net income for the year-to-date period of 1997 includes a
$1.1 million gain on the sale of an investment. Excluding the write-off of
purchased R&D, the Company recorded net income from operations of $.5 million
for the second quarter of fiscal 1998 and $1.1 million for the first six months
of fiscal 1998.
COST OF PRODUCTS SOLD
Cost of products sold was $15.5 million and represented 60% of sales in the
second quarter of fiscal 1998 compared with $15.8 million or 58% of sales for
the second quarter of last year. For the six month period, cost of products sold
was $32.6 million representing 61% of sales compared with $35.1 million or 59%
for the first six months of last year. In comparison to fiscal 1997, the mix of
product sales in fiscal 1998 shifted to include a higher proportion of access
products which carry a lower gross margin. In addition, gross margin for the
second quarter of fiscal 1998 included non-recurring benefits from product sales
relating to the Jupiter acquisition and a higher level of royalty income.
During the second quarter fiscal 1998, the Company announced a plan to
out-source it's manufacturing operations to third party subcontractors. This
move is expected to provide greater flexibility for manufacturing capacity,
improve product margins and reduce the Company's investment in inventory. The
Company believes that this strategy is necessary to offset the potential
negative impact from competitive pressure and unfavorable product mix.
RESEARCH AND DEVELOPMENT
Research and development was $3.8 million and $7.3 million for the second
quarter and first six months of fiscal 1998 respectively. Spending on research
and development for the second quarter of fiscal 1998 was even with the second
quarter of fiscal 1997 and 6% less than fiscal 1997 on a year-to-date basis.
This reflects the Company's plan for reduced spending and productivity
improvements. In fiscal 1998,
9
<PAGE> 10
research and development represented 15% of sales in the second quarter and 14%
of sales in the six month period compared with 14% and 13% in fiscal 1997,
respectively.
SALES, MARKETING AND ADMINISTRATION
Sales, marketing and administration (SG&A) was $6.1 million or 24% of sales
in the second quarter of fiscal 1998. For the first six months of fiscal 1998,
SG&A was $12.0 million or 23% of sales. For the second quarter and first six
months of last year, SG&A was $7.4 million or 27% of sales and $14.8 million or
25% of sales, respectively. These reductions in spending reflect the Company's
plan to reduce overall spending and improve productivity.
PURCHASED RESEARCH AND DEVELOPMENT
During the second quarter of fiscal 1998, the Company purchased
substantially all of the assets of Jupiter Technology, Inc., a developer of ATM
and frame relay technology. Please refer to Note 4 for a more complete
discussion of this transaction. The purchase price included $5.1 million which
represented in-process technology that had not yet reached technological
feasibility. Accordingly, this amount was charged to expense in the second
quarter of fiscal 1998. The Company intends to continue the development of a
product line that will incorporate ATM and Frame Relay technology. The Company
does not anticipate a material increase in spending to support this product
development and expects to ship product for revenue within the next twelve to
eighteen months.
GAIN ON SALE OF INVESTMENT
During the first quarter of fiscal 1997, the Company liquidated its equity
position in an international distributor of the Company's products due to
certain changes in strategic objectives. This investment, which was originally
made in fiscal 1995, yielded a one-time gain of $1.1 million.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization expense relates to the acquisition of the broadband family of
products in 1983, certain channel bank products in 1984 and the acquisition of
Magnalink Communications Corporation in 1992. Included in the acquisition of
Jupiter Technology discussed in Note 4, was $1.1 million of goodwill which will
be amortized to expense over five years. Amortization expense was $.2 million in
the second quarters of both fiscal 1998 and fiscal 1997. For the six month
periods, amortization expense was $.4 million and $.3 million in fiscal 1998 and
fiscal 1997, respectively.
INTEREST INCOME
Interest income was $.2 million in the second quarters of both fiscal 1998
and fiscal 1997. For the six month periods, interest income was $.4 million and
$.3 million in 1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1998, an increase in cash of $5.3
million was offset by a decrease in marketable securities of $5.5 million
resulting in a decrease to cash and marketable securities of $.2 million. Cash
provided by operating activities of $4.7 million and financing activities of $.9
million was used in investing activities for the purchase of Jupiter Technology,
Inc. for $4.3 million and the purchase of capital equipment of $1.5 million.
Operating activities consisted of reductions to accounts receivable and
inventory which together provided cash of $3.6 million. Net income before
non-cash expenses and the write-off of purchased R&D provided an additional $3.6
million. These increases in cash were partially offset by changes in other
assets and liabilities of $2.5 million. Financing activities consisted of sales
of the Company's common stock under employee stock plans and provided cash of
$.9 million.
Non-cash investing activities and financing activities included the
issuance of 101,636 shares of common stock for $1,000 and the assumption of $898
of liabilities, respectively, in connection with the acquisition of Jupiter
Technology, Inc. (See Note 4)
10
<PAGE> 11
The Company maintains a $20.0 million line of credit with Fleet Bank which
is available until June 1, 1998. The Company has begun discussions with the bank
to renew the line of credit upon expiration.
Management believes that cash, marketable securities and the availability
of its line of credit will be adequate to support operating cash requirements
for the foreseeable future.
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 ("the Act") provides a
"safe harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. The Company desires to
take advantage of the "safe harbor" provisions of the Act. Certain information
contained herein, particularly certain information appearing in this section is
forward-looking. Information regarding certain important factors that could
cause actual results of operations or outcomes of other events to differ
materially from any such forward-looking statement appear together with such
statement, and/or elsewhere herein. This information should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
August 31, 1997, particularly the information appearing under the heading
"Factors That May Affect Future Financial Results" in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of the report.
11
<PAGE> 12
TELCO SYSTEMS, INC.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
The company held its most recent Annual Meeting of Shareholders on
February 11, 1998. At the meeting, the stockholders elected Dean C.
Campbell, Steward S. Flaschen, Edward J. Fontenot, William B. Smith
and Sheldon Horing as directors of the corporation, to hold office
until the next annual shareholders' meeting, or until such time as
their successors are elected. At the meeting, 9,784,535 shares of
common stock representing 90% of the total outstanding shares were
voted in the following manner:
<TABLE>
<CAPTION>
Total Vote for Total Vote Withheld
Each Director from Each Director
------------- ------------------
<S> <C> <C>
Dean C. Campbell 9,082,627 701,908
Steward S. Flaschen 9,079,391 705,144
Sheldon Horing 9,083,710 700,825
Edward J. Fontenot 9,080,110 704,425
William B. Smith 9,082,627 701,908
</TABLE>
Additionally, the stockholders approved the 1990 Stock Option Plan as
amended by a vote of 7,316,119 in favor, 2,368,880 opposed, and 99,536
abstentions. The Amendment to the 1983 Employee Stock Purchase Plan
was also approved by a vote of 9,316,916 in favor, 381,074 opposed and
86,545 abstentions. The selection of Ernst and Young LLP as
independent certified accountants for the Company was ratified by a
vote of 9,709,335 in favor, 35,482 opposed, and 39,718 abstentions.
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K
None.
12
<PAGE> 13
TELCO SYSTEMS, INC.
SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TELCO SYSTEMS, INC.
By: William J. Stuart
------------------------------------
William J. Stuart
Vice President and Chief Financial
Officer Principal Accounting Officer
Dated: April 15, 1998
--------------------------------
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-30-1998
<PERIOD-END> MAR-01-1998
<CASH> 10,724
<SECURITIES> 1,812
<RECEIVABLES> 18,085
<ALLOWANCES> 844
<INVENTORY> 26,349
<CURRENT-ASSETS> 58,351
<PP&E> 47,854
<DEPRECIATION> 38,751
<TOTAL-ASSETS> 75,363
<CURRENT-LIABILITIES> 20,448
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 53,547
<TOTAL-LIABILITY-AND-EQUITY> 75,363
<SALES> 26,007
<TOTAL-REVENUES> 26,007
<CGS> 15,543
<TOTAL-COSTS> 15,543
<OTHER-EXPENSES> 15,097
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,633)
<INCOME-TAX> 50
<INCOME-CONTINUING> (4,683)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,683)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-30-1998
<PERIOD-END> NOV-30-1997
<CASH> 14,727
<SECURITIES> 658
<RECEIVABLES> 16,455
<ALLOWANCES> 849
<INVENTORY> 28,044
<CURRENT-ASSETS> 61,085
<PP&E> 46,880
<DEPRECIATION> 37,801
<TOTAL-ASSETS> 77,170
<CURRENT-LIABILITIES> 18,907
<BONDS> 0
0
0
<COMMON> 109
<OTHER-SE> 57,113
<TOTAL-LIABILITY-AND-EQUITY> 77,170
<SALES> 27,005
<TOTAL-REVENUES> 27,005
<CGS> 17,015
<TOTAL-COSTS> 17,015
<OTHER-EXPENSES> 9,348
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 642
<INCOME-TAX> 0
<INCOME-CONTINUING> 642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 642
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
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