<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 28, 1996
Commission file number 1-13316
NEWBRIDGE NETWORKS CORPORATION
(Exact name of registrant as specified in its charter)
Canada 98-0077506
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 March Road, Kanata, Ontario, Canada K2K 2E6
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (613) 591-3600
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
--- ---
The number of Common Shares of the registrant outstanding as at September 5,
1996 was 85,025,714.
(Exhibit index located on page 17)
(Page 1 of 23)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings and Retained
Earnings--Fiscal quarters ended July 28, 1996
and July 30, 1995.......................................3
Consolidated Balance Sheets--
July 28, 1996 and April 30, 1996........................4
Consolidated Statements of Cash Flows--
Fiscal quarters ended July 28, 1996 and July 30, 1995...5
Notes to the Consolidated Financial Statements..........6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................10-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................15
Item 5. Other Information...........................................15
Item 6. Exhibits and Reports on Form 8-K............................15
SIGNATURES...............................................................16
(Page 2 of 23)
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(Canadian dollars, amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Fiscal quarter ended
-----------------------------
July 28, July 30,
1996 1995
---------- ----------
<S> <C> <C>
Sales $286,037 $195,510
Cost of sales 100,743 65,964
---------- ----------
Gross margin 185,294 129,546
Expenses
Selling, general and administrative 66,258 54,049
Research and development 30,235 22,822
---------- ----------
Income from operations 88,801 52,675
Interest income 5,472 5,772
Interest expense on long term debt (72) (152)
Other expenses (2,145) (3,848)
---------- ----------
Earnings before income taxes and non-controlling interest 92,056 54,447
Provision for income taxes 29,697 18,334
Non-controlling interest 1,558 (999)
---------- ----------
Net earnings 60,801 37,112
Retained earnings, beginning of the period 611,231 408,367
---------- ----------
Retained earnings, end of the period $672,032 $445,479
========== ==========
Earnings per share (Note 4)
Net earnings
Basic $0.72 $0.45
Fully diluted $0.70 $0.44
Weighted average number of shares
Basic 84,614 82,557
Fully diluted 90,855 89,412
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
(Page 3 of 23)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Canadian dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
July 28, April 30,
1996 1996
------------ -------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents (Note 2) $ 485,632 $ 455,749
Accounts receivable, net of provision for returns and
doubtful accounts of $7,303 (April 30, 1996 - $6,651) 269,073 244,784
Inventories (Note 3) 102,718 103,555
Prepaid expenses and other current assets 27,280 21,107
------------ -------------
884,703 825,195
Property, plant and equipment 199,991 193,796
Goodwill 28,011 26,672
Software development costs 19,114 18,285
Other assets 34,207 29,469
------------ -------------
$1,166,026 $1,093,417
============ =============
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities
Accounts payable $ 53,335 $ 64,289
Accrued liabilities 40,023 46,033
Income taxes 53,650 54,484
Current portion of long term obligations 1,255 2,302
------------ -------------
148,263 167,108
Long term obligations 702 860
Deferred income taxes 13,919 9,902
Non-controlling interest 14,430 12,861
------------ -------------
177,314 190,731
------------ -------------
Common shares - 84,877,157 outstanding
(April 30, 1996 - 84,338,140 outstanding) 311,899 290,170
Accumulated foreign currency translation adjustment 4,781 1,285
Retained earnings 672,032 611,231
------------ -------------
988,712 902,686
------------ -------------
$1,166,026 $1,093,417
============ =============
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
(Page 4 of 23)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Fiscal quarter ended
---------------------------
July 28, July 30,
1996 1995
-------- --------
<S> <C> <C>
Operating activities
Net earnings $ 60,801 $ 37,112
Items not affecting cash:
Depreciation and amortization 17,684 13,284
Deferred income taxes 4,111 (87)
Non-controlling interest 1,558 (995)
Other 1,554 528
Cash effect of changes in:
Accounts receivable (21,005) 20,809
Inventories 1,798 (18,284)
Prepaid expenses and other current assets (6,006) (3,370)
Accounts payable and accrued liabilities (17,780) (4,489)
Income taxes 1,629 (3,325)
-------- --------
44,344 41,183
-------- --------
Investing activities
Additions to property, plant and equipment (20,049) (16,180)
Acquisition of subsidiaries, excluding cash acquired (866) (1,622)
Capitalized software development costs (2,940) (2,629)
Additions to other assets (7,228) (4,481)
-------- --------
(31,083) (24,912)
-------- --------
Financing activities
Issue of common shares 17,598 7,288
Repayment of long term obligations (1,259) (1,126)
-------- --------
16,339 6,162
-------- --------
Increase in cash and cash equivalents 29,600 22,433
Effect of foreign currency translation on cash 283 918
-------- --------
29,883 23,351
Cash and cash equivalents, beginning of the period 455,749 348,157
-------- --------
Cash and cash equivalents, end of the period (Note 2) $485,632 $371,508
======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
(Page 5 of 23)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands except per share data)
(Unaudited)
1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of
Newbridge Networks Corporation (the "Company") have been prepared in accordance
with accounting principles generally accepted in Canada for interim financial
information. These accounting principles are also generally accepted in the
United States in all material respects except for the disclosure of certain cash
equivalents on the Consolidated Balance Sheets and investing activities on the
Consolidated Statements of Cash Flows, as disclosed in Note 2, and the method of
calculation of earnings per share, as disclosed in Note 4.
In the opinion of Management, the unaudited interim consolidated financial
statements reflect all normal and recurring adjustments considered necessary for
fair presentation.
The results of operations for the first fiscal quarter ended July 28, 1996 are
not necessarily indicative of the results to be expected for the fiscal year
ending April 30, 1997.
2. Cash and Cash Equivalents
Components of cash and cash equivalents are:
<TABLE>
<CAPTION>
July 28, April 30,
1996 1996
-------- ---------
<S> <C> <C>
Cash $326,304 $285,054
Held to maturity marketable securities
(at amortized cost, which
approximates fair market value) 146,243 152,280
Available for sale marketable securities
(at fair market value) 13,085 18,415
-------- --------
$485,632 $455,749
======== ========
</TABLE>
Held to maturity marketable securities are investments with original maturities
of three months or more. Available for sale marketable securities are common
shares of publicly traded companies principally acquired upon the Company's
disposition of its minority interest in a privately held company. Under
accounting principles generally accepted in the United States ("U.S. GAAP"),
marketable securities would be disclosed as a separate caption on the
Consolidated Balance Sheets.
(Page 6 of 23)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands except per share data)
(Unaudited)
If the Consolidated Statements of Cash Flows were prepared under U.S. GAAP,
maturities, purchases and sales of marketable securities would be disclosed as
an investing activity. Disclosure in the Consolidated Statements of Cash Flows
prepared under U.S. GAAP would be as follows.
<TABLE>
<CAPTION>
Fiscal quarter ended
---------------------
<S> <C> <C>
July 28, July 30,
1996 1995
-------- --------
Investing activities in short
term marketable securities:
Held to maturity securities
Maturities $ 123,883 $ 40,199
Purchases (117,846) (78,942)
Sales -- --
--------- --------
6,037 (38,743)
Available for sale securities
Sales 5,330 --
--------- --------
11,367 (38,743)
Investing activities, as reported (31,083) (24,912)
--------- --------
Investing activities, U.S. GAAP $ (19,716) $(63,655)
========= ========
Increase in cash and cash
equivalents, as reported $ 29,883 $ 23,351
Investing activities in short
term marketable securities 11,367 (38,743)
--------- --------
Increase (decrease) in cash and
cash equivalents, U.S. GAAP $ 41,250 $(15,392)
========= ========
3. Inventories
July 28, April 30,
1996 1996
-------- ---------
Finished goods $ 65,502 $ 60,824
Work in process 12,408 12,711
Raw materials 24,808 30,020
--------- --------
$ 102,718 $103,555
========= ========
</TABLE>
(Page 7 of 23)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands except per share data)
(Unaudited)
4. Earnings per Share
Under accounting principles generally accepted in Canada, basic earnings per
share is calculated as net earnings for the period divided by the daily weighted
average number of Common Shares outstanding during the period. Fully diluted
earnings per share is calculated as net earnings plus after tax imputed earnings
on the cash which would have been received on the exercise of options, divided
by the daily weighted average number of Common Shares and common share
equivalents outstanding during the period.
Under U.S. GAAP earnings per share is calculated using the treasury stock
method. The calculation of earnings per share under U.S. GAAP is as follows.
<TABLE>
<CAPTION>
Fiscal quarter ended
--------------------
<S> <C> <C>
July 28, July 30,
1996 1995
-------- --------
Net Earnings
Primary $0.70 $0.44
======== ========
Fully diluted $0.70 $0.44
======== ========
Weighted average number of shares
Primary 87,465 84,424
======== ========
Fully diluted 87,465 84,424
======== ========
</TABLE>
5. Litigation
During the fiscal year ended April 30, 1995, the Company was served with one of
several complaints filed in United States District Court in Washington, D.C. by
certain persons purporting to be purchasers of Common Shares of the Company. On
or about May 8, 1995 these complaints were combined into a single consolidated
and amended complaint (the "First Amended Complaint") which named the Company
and certain of its executive officers as defendants. The First Amended Complaint
purported to be a class action on behalf of a class of persons who purchased
securities of the Company between March 29 and August 1, 1994 and alleged that
the Company made false and misleading statements in violation of United States
securities law and common law, for which damages were sought in unspecified
amounts. On June 3, 1996, the Court issued an order granting in part and denying
in part the defendants' motion to dismiss. Among other things, the Court
dismissed with prejudice the claim alleging violation of common law. The Court
also dismissed the majority of plaintiffs' allegations of violation of United
States securities law, but granted plaintiffs leave to replead these allegations
in a Second Amended Complaint, which plaintiffs filed on July 3, 1996. The Court
further conditionally certified the action as a class action without prejudice
to the Company's right to renew its objection to class action certification upon
completion of discovery. The defendants have moved to dismiss
(Page 8 of 23)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands except per share data)
(Unaudited)
the Second Amended Complaint. The Company intends to continue to defend this
action vigorously. Based upon its present understanding of the laws in the
United States and the facts, the Company believes it has meritorious defenses to
the action. Because the outcome of the action is not certain at this time, no
provision for any liability that may result upon adjudication has been made in
these financial statements.
6. Subsequent Event
In August 1996, the Company acquired a 100% equity interest in Ouest Standard
Telematique S.A., (OST), a manufacturer of local area network equipment based in
France, by the purchase of shares in the amount of US$25,000,000. The purchase
price excludes additional contingent payments which may be made over the next
three years depending on the financial performance of OST, up to a maximum of
US$10,000,000. The acquisition will be accounted for by the purchase method of
accounting.
(Page 9 of 23)
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Sales of $286,037,000 in the first fiscal quarter of 1997 ended July 28, 1996
represented a 46% increase over the sales in the first quarter of fiscal 1996
ended July 30, 1995. The increase in sales and a decrease in operating expenses
expressed as a percentage of sales resulted in net earnings of $60,801,000 for
the first quarter of fiscal 1997, an increase of 64% over net earnings for the
first quarter of fiscal 1996.
<TABLE>
<CAPTION>
Sales
Fiscal Quarter Ended
-----------------------------------
July 28, July 30, %
1996 1995 Increase
-------- -------- --------
(Canadian dollars in thousands)
<S> <C> <C> <C>
Sales $286,037 $195,510 46%
======= =======
</TABLE>
Product line enhancements and new products introduced in fiscal 1995 and fiscal
1996 resulted in increased sales in the first quarter of fiscal 1997 relative to
the first quarter of fiscal 1996 in the public networking and private corporate
networking markets worldwide. This increase principally reflected growth in
sales in the Asia Pacific region and Europe, as well as higher sales of advanced
circuit switched networking multiplexers and products based on ATM (asynchronous
transfer mode) technology. The Company's sales in the first quarter of fiscal
1997 to telephone companies and other carriers for central office applications
for tariffed services, for use within their internal networks and for resale to
end users increased relative to the overall increase in sales compared to the
first quarter of fiscal 1996. Sales to carriers represented 68% of total sales
in the first quarter of fiscal 1997, compared to 63% of total sales in the first
quarter of fiscal 1996. Deliveries to original equipment manufacturers for
carrier customers and deliveries under certain large contracts with carriers
contributed significantly to sales in the first quarter of fiscal 1997 and the
first quarter of fiscal 1996.
The Company expects the proportion of sales derived from products based on
packet technologies to increase relative to sales derived from circuit switched
networking multiplexers in fiscal 1997 when compared to fiscal 1996. The Company
is also subject to a greater degree of variation in quarterly sales of circuit
switched networking multiplexers as an increasing proportion of sales of these
products is expected to be derived from less mature, high growth markets outside
of North America.
A significant portion of the Company's sales are derived from products shipped
against orders received in each fiscal quarter and from products shipped against
firm purchase orders released in that fiscal quarter. Unforeseen delays in
product deliveries or closing large sales, introductions of new products by the
Company or its competitors, seasonal patterns of customer capital expenditures
or other conditions affecting the networking industry in particular or the
economy generally during any fiscal quarter could cause quarterly revenue and,
to a greater degree, net earnings, to vary greatly.
Because substantial portions of the Company's sales, cost of sales and other
expenses are denominated in U.S. dollars and Pounds Sterling, the Company's
results of operations are subject to change based on fluctuations in the rates
of exchange of those currencies for the Canadian dollar. During the first
quarter of fiscal 1997, the increase in the value of the Canadian dollar against
the Pound Sterling, offset partially by a decrease in the value of
(Page 10 of 23)
<PAGE>
the Canadian dollar against the U.S. dollar, relative to exchange rates in the
first quarter of fiscal 1996, resulted in no material variance in reported
sales, gross margin or income from operations.
Cost of Sales and Gross Margin
Fiscal Quarter Ended
------------------------------
July 28, July 30,
1996 1995
--------- --------
(Canadian dollars in thousands)
Gross margin $185,294 $129,546
======= =======
As a percent of sales 65% 66%
Cost of sales consists of manufacturing costs, warranty expense and costs
associated with the provision of services. The decline in gross margin as a
percentage of sales in the first quarter of fiscal 1997 relative to the first
quarter of fiscal 1996 was principally due to reduced selling prices under
certain large contracts for circuit switched products, offset partially by
increases in gross margins on newer products based on ATM technologies. If
selling prices decline or the proportion of revenues derived from service and
lower margin products increases, the gross margin expressed as a percentage of
sales could decline further.
Selling, General and Administrative Expenses
Fiscal Quarter Ended
--------------------------------
July 28, July 30, %
1996 1995 Increase
--------- --------- --------
(Canadian dollars in thousands)
Selling, general and
administrative expenses $66,258 $54,049 23%
====== ======
Net expenses as a percent
of sales 23% 28%
Selling, general and administrative expenses increased in the first quarter of
fiscal 1997 relative to the first quarter of fiscal 1996 primarily as a result
of increases in sales and service personnel as the Company invested in programs
to strengthen its sales and support infrastructure throughout the world and to
market new products. The growth in sales and service personnel from the first
quarter of fiscal 1996 to the first quarter of fiscal 1997 was less than the
rate of growth in sales over the same period, and as a result, selling, general
and administrative expenses decreased as a percentage of sales.
(Page 11 of 23)
<PAGE>
Research and Development
<TABLE>
<CAPTION>
Fiscal Quarter Ended
--------------------------------
July 28, July 30, %
1996 1995 Increase
--------- --------- --------
(Canadian dollars in thousands)
<S> <C> <C> <C>
Gross research and development
expenditures $39,451 $29,935 32%
Investment tax credits 5,800 4,805 21%
Customer, government and other funding 2,587 1,360 90%
Net deferral of software development costs 829 948 (13%)
------ ------
Net research and development expenses $30,235 $22,822 32%
====== ======
Gross expenditures as a percent of sales 14% 15%
Recoveries as a percent of gross
expenditures 23% 24%
Net expenses as a percent of sales 11% 12%
</TABLE>
Research and development expenditures consist primarily of software and hardware
engineering personnel expenses, subcontracted research and development costs and
costs associated with equipment and facilities. The increased costs in the first
quarter of fiscal 1997 compared to the first quarter of fiscal 1996 reflect
spending on new networking products and features and product enhancements,
particularly for integral ATM and frame relay products in both wide area network
and local area network interworking applications.
Recoveries decreased slightly as a percentage of gross expenditures in the first
quarter of fiscal 1997 compared to the first quarter of fiscal 1996 due to a
decline in investment tax credits as a proportion of gross research and
development expenditures and an increase in amortization of deferred software
development costs, offset partially by an increase in customer, government and
other funding. Based on Management's estimates of the proportion of fiscal 1997
gross research and development expenditures eligible for investment tax credits,
current levels of committed funding, and estimated amortization of deferred
software development costs, Management expects the level of recoveries of gross
research and development expenditures in fiscal 1997 to decline relative to
fiscal 1996.
The markets for the Company's products are characterized by continuing
technological change. As a result, Management believes that continued
significant expenditures for research and development will be required in the
future.
Interest and Other Expenses
Interest income of $5,472,000 for the first quarter of fiscal 1997 decreased
over interest income of $5,772,000 for the first quarter of fiscal 1996 despite
the increased cash position maintained throughout the first quarter of fiscal
1997 due to a decline in interest rates earned on investments. Interest expense
on long term debt declined over the same periods due to reduced borrowings.
Other expenses represented less than 1% of sales in the first quarter of fiscal
1997. Other expenses in the first quarter of fiscal 1996 include a restructuring
charge of $1,928,000 incurred by the Company's subsidiary, Advanced Computer
Communications (ACC),
(Page 12 of 23)
<PAGE>
related to the consolidation of its two main facilities into a single facility
in Santa Barbara, California.
Income Taxes
Fiscal Quarter Ended
------------------------------
July 28, July 30,
1996 1995
--------- --------
Income tax rate 32% 34%
The composite rates of income tax for the first quarters of fiscal 1997 and
fiscal 1996 were reduced from the statutory rate primarily as a result of the
application of certain deductions related to manufacturing and processing
activities and to research and development expenditures in Canada. Future
changes in the composite rate of income tax will be primarily due to the
relative profitability of operations and the national tax policies in each of
the various countries in which the Company operates. Management believes that
the composite rate of income tax will remain lower than the statutory rate
because of the deductibility related to manufacturing and processing activities
and research and development expenditures in Canada as well as other tax
planning measures undertaken by the Company.
Non-Controlling Interest
The non-controlling interests' share of net earnings of $1,558,000 in the first
quarter of fiscal 1997 was due primarily to net earnings of Transistemas S.A.,
an Argentine systems integrator of networking products. The Company has a 51%
equity interest in Transistemas S.A. For the first quarter of fiscal 1996, the
non-controlling interests' share of net losses of $999,000 was due primarily to
the operating losses and restructuring costs incurred by ACC.
Net Earnings
Net earnings of $60,801,000 for the first quarter of fiscal 1997 increased 64%
relative to net earnings of $37,112,000 for the first quarter of fiscal 1996 due
to the increase in sales and the decrease in operating expenses expressed as a
percentage of sales over the same period.
Financial Condition
During the first quarter of fiscal 1997 ended July 28, 1996 working capital
increased from $658,087,000 to $736,440,000. As at July 28, 1996 the Company had
$485,632,000 of cash and cash equivalents, which increased by $29,883,000 during
the first quarter of fiscal 1997.
Two principal components of the Company's working capital are accounts
receivable and inventory. Management believes that the payment terms and
conditions extended to the Company's customers, arrangements with the Company's
suppliers, and the levels of inventory the Company carries relative to its
levels of sales are consistent with practices generally prevailing in the
networking industry.
Existing short term bank credit facilities consist of operating lines of credit
with certain banks in the aggregate amount of $59,924,000. At July 28, 1996
there were no outstanding borrowings under these lines of credit.
(Page 13 of 23)
<PAGE>
Management anticipates that capital expenditures for fiscal 1997 will exceed
those of fiscal 1996 as the Company invests in new facilities in Canada, in
research and development and manufacturing equipment and in information systems.
The Company intends to extinguish its existing long term obligations as they
become due, and may also increase its current investments in subsidiaries and
associated companies. The Company intends to fund the increased capital
expenditures, retirement of long term obligations and increased investments with
existing cash and cash generated from operations during fiscal 1997. In
addition, the Company may use a portion of its cash resources, supplemented as
appropriate by the issuance of shares, to extend or enhance its business and
diversify its marketing and distribution channels through acquisitions of or
investments in businesses, products or technologies or through the formation of
strategic partnerships with other companies.
In August 1996, the Company acquired a 100% equity interest in Ouest Standard
Telematique S.A. (OST), a manufacturer of local area network equipment based in
France, by the purchase of shares in the amount of approximately US$25,000,000.
The purchase price excludes additional contingent payments which may be made
over the next three years depending on the financial performance of OST, up to a
maximum of US$10,000,000. The acquisition will be accounted for by the purchase
method of accounting. The acquisition is not expected to be materially dilutive
to the Company's net earnings or earnings per share. OST sales are expected to
represent approximately 5% of the Company's sales. The consolidation of the
operating results of OST is expected to have a slight negative impact on gross
margin, operating expenses and income from operations, expressed as a percentage
of sales.
During August 1996, the Company filed a notice of intention with The Toronto
Stock Exchange to make a normal course issuer bid for common share repurchases
in open market transactions in the United States and Canada. The Company may
purchase up to 4,000,000 outstanding Common Shares in future if Management
considers such investments appropriate.
Management believes that the Company's liquidity in the form of existing cash
resources and its credit facilities, as well as cash generated from operations,
will prove adequate to meet its operating and capital expenditure requirements
through the end of fiscal 1997 and into the foreseeable future.
Certain parts of the foregoing discussion and analysis may be forward-looking
statements that involve a number of risks and uncertainties. As a consequence,
actual results might differ materially from results forecast or suggested in any
forward-looking statements. See "Market for Registrant's Common Equity and
Related Stockholder Matters--Cautionary Statement Regarding Forward-Looking
Information" in the Company's Annual Report on Form 10-K, which is incorporated
by reference herein.
(Page 14 of 23)
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During the fiscal year ended April 30, 1995, the Company was served with one of
several complaints filed in United States District Court in Washington, D.C. by
certain persons purporting to be purchasers of Common Shares of the Company. On
or about May 8, 1995 these complaints were combined into a single consolidated
and amended complaint (the "First Amended Complaint") which named the Company
and certain of its executive officers as defendants. The First Amended Complaint
purported to be a class action on behalf of a class of persons who purchased
securities of the Company between March 29 and August 1, 1994 and alleged that
the Company made false and misleading statements in violation of United States
securities law and common law, for which damages were sought in unspecified
amounts. On June 3, 1996, the Court issued an order granting in part and denying
in part the defendants' motion to dismiss. Among other things, the Court
dismissed with prejudice the claim alleging violation of common law. The Court
also dismissed the majority of plaintiffs' allegations of violation of United
States securities law, but granted plaintiffs leave to replead these allegations
in a Second Amended Complaint, which plaintiffs filed on July 3, 1996. The Court
further conditionally certified the action as a class action without prejudice
to the Company's right to renew its objection to class action certification upon
completion of discovery. The defendants have moved to dismiss the Second Amended
Complaint. The Company intends to continue to defend this action vigorously.
Based upon its present understanding of the laws in the United States and the
facts, the Company believes it has meritorious defenses to the action.
Item 5. Other Information
The "Cautionary Statement Regarding Forward-Looking Information" contained in
"Market for Registrant's Common Equity and Related Stockholder Matters" in the
Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1996 is
incorporated herein by reference and made a part hereof.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 10.2 Notice of Intention to make a normal course
issuer bid dated August 16, 1996 filed with The
Toronto Stock Exchange regarding common share
repurchases.
Exhibit 11.1 Computation of earnings per share under
accounting principles generally accepted in
Canada.
Exhibit 11.2 Computation of earnings per share under
accounting principles generally accepted in the
United States.
b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fiscal
quarter ended July 28, 1996.
(Page 15 of 23)
<PAGE>
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.
NEWBRIDGE NETWORKS CORPORATION
(Registrant)
Date: September 6, 1996 By: /s/ Terence H. Matthews
-----------------------
Terence H. Matthews,
Chairman of the Board of
Directors and Chief
Executive Officer
Date: September 6, 1996 By: /s/ Peter D. Charbonneau
------------------------
Peter D. Charbonneau,
Executive Vice President
and Chief Financial Officer
(Page 16 of 23)
<PAGE>
EXHIBIT INDEX
Page No.
--------
10.2 Notice of Intention to make a normal course issuer bid
dated August 16, 1996 filed with The Toronto Stock
Exchange regarding common share repurchases.............18
11.1 Computation of earnings per share under accounting
principles generally accepted in Canada.................22
11.2 Computation of earnings per share under accounting
principles generally accepted in the United States......23
(Page 17 of 23)
<PAGE>
EXHIBIT 10.2
(Page 18 of 23)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTICE OF INTENTION TO MAKE A NORMAL COURSE ISSUER BID
1. Name of Issuer
--------------
Newbridge Networks Corporation (the "Issuer").
2. Shares Sought
-------------
The Issuer proposes to purchase from time to time, if it is considered
advisable, up to 4,000,000 Common Shares of the Issuer (the "Shares"), being
approximately 4.7% of the 84,876,757 Shares currently issued and outstanding as
of July 27, 1996 (the "Issuer Bid").
The Issuer has not established a specific number of Shares to be acquired.
Any Shares purchased by the Issuer under the Issuer Bid will be cancelled.
3. Duration
--------
The Issuer Bid will commence on August 22, 1996 and will terminate upon the
Issuer purchasing 4,000,000 Shares or upon the Issuer providing an earlier
notice of termination. If not previously terminated, the Issuer Bid will
terminate on August 21, 1997.
4. Method of Acquisition
---------------------
All purchases will be made in the discretion of the Issuer's management and
will be made on the open market through the facilities of The Toronto Stock
Exchange and the New York Stock Exchange (the "Exchanges") from time to time
throughout the proposed purchase period. Purchase and payment for Shares will
be made by the Issuer in accordance with the by-laws and rules of the Exchanges
and the price which the Issuer will pay for Shares acquired by it will be the
prevailing market price at the time of acquisition. No purchases will be made
by the Issuer other than by means of open market transactions during the
proposed purchase period. The Issuer shall not purchase more than 2% of the
issued and outstanding Shares in any 30 day period. The Issuer will also comply
with the trading restrictions imposed by the U.S. Securities and Exchange
Commission which: (i) prohibit the Issuer from making any purchases at the
opening of trading or during the final half hour of any trading day; and (ii)
limit the Issuer's purchases on any trading day (other than block trades) to not
more than 25% of the average daily trading volume for the Shares reported on the
Exchanges during the four calendar weeks preceding the week in which the
purchases are made.
(Page 19 of 23)
<PAGE>
5. Consideration offered
---------------------
The price which the Issuer will pay for any Shares acquired by it will be a
price which is not higher than the last independent trade of a board lot of
Shares on The Toronto Stock Exchange or a round lot of Shares on the New York
Stock Exchange. The funds to purchase Shares will be provided from the Issuer's
working capital.
The Issuer and any vendor of the Shares will be required to pay commissions
to their respective brokers with respect to the purchase and sale of such Shares
at such rates as are applicable at the time of purchase.
6. Reasons for the Normal Course Issuer Bid
----------------------------------------
In view of the current price levels for the Shares, the directors of the
Issuer have concluded that the purchase of up to 4,000,000 Shares under the
Issuer Bid would be in the best interests of the Issuer and would represent a
desirable use of the Issuer's funds.
7. Valuation
---------
The directors and officers of the Issuer are not aware of any independent or
material non-independent appraisal or valuation of the Issuer, its material
assets or its securities prepared within the two year period preceding the date
hereof.
8. Previous Purchases
------------------
The Issuer has purchased 500,000 of its Common Shares during the twelve
months preceding the date hereof at an average price of $55.642. The Shares were
purchased pursuant to a normal course issuer bid which expires on August 21,
1996.
9. Acceptance of Bid by Insider, Affiliates and Associates
-------------------------------------------------------
Mr. Terence H. Matthews, the Chairman, Chief Executive Officer and a
director of the Issuer, has filed a renewal notice on Form 23 under the
Securities Act (Ontario) indicating his intention to sell up to 335,000 Shares
from his total current holdings of 20,879,454 Shares. Mr. Kent H.E. Plumley, a
director of the Corporation has stated his intention to sell up to 100,000
Shares during the period of the Issuer Bid. Except for Mr. Matthews and Mr.
Plumley, to the knowledge of the Board of Directors, none of the directors,
senior officers or other insiders of the Issuer, or any associate of any such
persons, or any associate or affiliate of the Issuer, or any person acting
jointly or in concert with the Issuer, presently intends to sell Shares during
the period of the Issuer Bid. However, certain of the Issuer's senior officers,
directors or other insiders or certain of their associates or associates or
affiliates of the Issuer may choose to dispose of some or all of their Shares by
selling such Shares in the market during the proposed purchase period. Whenever
the Issuer is making any purchases under the Issuer Bid, none of such persons
will be selling any Shares in the market.
(Page 20 of 23)
<PAGE>
10. Benefits to Insiders
--------------------
There is no arrangement whereby the Issuer will accord any preference to
any Shares sold by any insider, associate or affiliate of the Issuer nor is
there any benefit, direct or indirect, to any such person which is not equally
available to any shareholders who sell (or retain) their Shares. Except as
disclosed in this Notice and apart from arrangements to be made with the broker
on normal terms (the expense of which will be borne by the Issuer) to effect the
proposed purchases on the Issuer's behalf, the Issuer has no contracts,
arrangements or understandings, formal or informal, with any of its security
holders or any persons in relation to the proposed purchases.
11. Material Changes
----------------
At this date, there are no previously undisclosed material changes or plans
or proposals for material changes in the affairs of the Issuer.
12. Certificate
-----------
The purchase of Shares in accordance with the terms set out in this Notice
has been authorized by the Board of Directors of the Issuer. The information
contained in this Notice is complete and accurate and in compliance with Part
XXIII of The General By-law and the Policy Statement on Normal Course Issuer
Bids of The Toronto Stock Exchange and applicable securities law requirements.
This Notice contains no untrue statement of a material fact and does not omit to
state a material fact that is required to be stated or that is necessary to make
a statement not misleading in light of the circumstances in which it is made.
/s/ James C. Avis
-----------------
James C. Avis
Executive Vice President, General
Counsel and Secretary
On behalf of the Board of Directors
August 16, 1996
(Page 21 of 23)
<PAGE>
EXHIBIT 11.1
NEWBRIDGE NETWORKS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Accounting principles generally accepted in Canada)
(Canadian dollars, amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Fiscal quarter ended
--------------------
July 28, July 30,
Basic earnings per share 1996 1995
--------- --------
<S> <C> <C>
Net earnings $ 60,801 $ 37,112
========= ========
Common Shares outstanding
at the beginning of the period 84,338 82,257
Weighted average number of Common Shares
issued during the period 276 300
--------- --------
Weighted average number of Common Shares
outstanding during the period 84,614 82,557
========= ========
Basic earnings per share $ 0.72 $ 0.45
========= ========
Fully diluted earnings per share
Earnings before imputed earnings $ 60,801 $ 37,112
After tax imputed earnings from the investment
of funds received through dilution 2,883 2,365
--------- --------
Adjusted net earnings $ 63,684 $ 39,477
========= ========
Weighted average number of Common Shares
outstanding during the period 84,614 82,557
Weighted average common share
equivalents based on conversion of
outstanding stock options 6,241 6,855
--------- --------
Weighted average number of Common
Shares and equivalents outstanding
during the period 90,855 89,412
========= ========
Fully diluted earnings per share $ 0.70 $ 0.44
========= ========
Earnings per share expressed in U.S. Dollars
Daily average exchange rate of a Canadian dollar for U.S.
dollars as reported by the Federal Reserve Bank of
New York $ 0.7309 $ 0.7320
Basic earnings per share, in U.S. dollars $ 0.53 $ 0.33
========= ========
Fully diluted earnings per share, in U.S. dollars $ 0.51 $ 0.32
========= ========
</TABLE>
(Page 22 of 23)
<PAGE>
EXHIBIT 11.2
NEWBRIDGE NETWORKS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Accounting principles generally accepted in the United States)
(Canadian dollars, amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Fiscal quarter ended
--------------------
July 28, July 30,
Earnings per share (U.S. GAAP) - Primary 1996 1995
-------- --------
<S> <C> <C>
Net earnings $60,801 $37,112
====== ======
Weighted average number of Common Shares
outstanding during the period 84,614 82,557
Net effect of dilutive stock options
based on the treasury stock method 2,851 1,867
------ ------
Weighted average number of Common
Shares and equivalents outstanding
during the period 87,465 84,424
====== ======
Earnings per share (U.S. GAAP) - Primary $ 0.70 $ 0.44
====== ======
Earnings per share (U.S. GAAP) - Fully Diluted
Net earnings $60,801 $37,112
====== ======
Weighted average number of Common Shares
outstanding during the period 84,614 82,557
Net effect of dilutive stock options
based on the treasury stock method 2,851 1,867
------ ------
Weighted average number of Common
Shares and equivalents outstanding
during the period 87,465 84,424
====== ======
Earnings per share (U.S. GAAP) - Fully diluted $ 0.70 $ 0.44
====== ======
Earnings per share expressed in U.S. Dollars
Daily average exchange rate of a Canadian dollar for U.S.
dollars as reported by the Federal Reserve Bank of
New York $0.7309 $0.7320
Earnings per share (U.S. GAAP) - Primary, in U.S.
dollars $ 0.51 $ 0.32
====== ======
Earnings per share (U.S. GAAP) - Fully diluted, in U.S.
dollars $ 0.51 $ 0.32
====== ======
</TABLE>
(Page 23 of 23)
