<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 August 1, 1999
Commission file number 1-13316
Newbridge Networks Corporation
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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
</TABLE>
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 10,
1999 was 180,875,551.
(Exhibit index located on page 35)
(Page 1 of 38)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings and Retained
Earnings -- Fiscal quarters ended
August 1, 1999 and August 2, 1998................................ 3
Consolidated Balance Sheets --
August 1, 1999 and May 2, 1999................................... 4
Consolidated Statements of Cash Flows --
Fiscal quarters ended August 1, 1999
and August 2, 1998............................................... 5
Notes to the Consolidated Financial Statements................... 6-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 16-32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 33
Item 5. Other Information................................................ 33
Item 6. Exhibits and Reports on Form 8-K................................. 33
SIGNATURES............................................................................ 34
</TABLE>
(Page 2 of 38)
<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
----------------------
August 1, August 2,
1999 1998
-------- ----------
<S> <C> <C>
Sales $495,070 $426,056
Cost of sales 215,521 176,562
-------- --------
Gross margin 279,549 249,494
Expenses
Selling, general and administrative 141,037 129,039
Research and development 67,621 67,156
Amortization of acquired intangibles 2,745 927
-------- --------
Income from operations 68,146 52,372
Interest income 7,345 6,611
Interest expense on long term obligations (6,059) (6,703)
Net gain on investments (Note 8) 3,512 --
Other expenses (2,618) (1,506)
-------- --------
Earnings before income taxes
and non-controlling interest 70,326 50,774
Provision for income taxes 21,705 14,978
Non-controlling interest 1,335 276
-------- --------
Net earnings 47,286 35,520
Retained earnings, beginning of the period 928,991 749,830
-------- --------
Retained earnings, end of the period $976,277 $785,350
======== ========
Earnings per share (Note 6)
Basic $0.26 $0.20
Fully diluted $0.26 $0.20
Weighted average number of shares
Basic 180,399 176,105
Fully diluted 180,399 176,105
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
(Page 3 of 38)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Canadian dollars in thousands)
<TABLE>
<CAPTION>
August 1, May 2,
1999 1999
----------- ----------
(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 432,459 $ 666,019
Marketable securities 198,283 213,675
Accounts receivable, net of provision for returns and
doubtful accounts of $19,619 (May 2, 1999 - $16,217) 560,204 472,811
Inventories (Note 2) 271,373 210,286
Prepaid expenses 50,657 46,753
Other current assets 29,055 46,160
---------- ----------
1,542,031 1,655,704
Property, plant and equipment 463,242 455,483
Goodwill 38,939 40,022
Software development costs 37,809 35,909
Future tax benefits 52,569 59,999
Other assets (Note 4) 387,744 223,507
---------- ----------
$2,522,334 $2,470,624
========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 178,333 $ 190,630
Accrued liabilities 187,622 201,361
Income taxes 85,488 16,853
Current portion of long term obligations 2,037 2,869
---------- ----------
453,480 411,713
Long term obligations 390,583 384,021
Future tax obligations 54,277 123,088
Non-controlling interest 24,348 22,583
---------- ----------
922,688 941,405
---------- ----------
Common shares -- 180,596,954 outstanding
(May 2, 1999 -- 180,104,582 outstanding) 589,956 572,990
Accumulated foreign currency translation adjustment 33,413 27,238
Retained earnings 976,277 928,991
---------- ----------
1,599,646 1,529,219
---------- ----------
$2,522,334 $2,470,624
========== ==========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
(Page 4 of 38)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Fiscal quarter ended
-------------------------
August 1, August 2,
1999 1998
---------- ----------
<S> <C> <C>
Operating activities
Net earnings $ 47,286 $ 35,520
Adjustments for:
Amortization 43,828 38,662
Future tax benefits and obligations (60,678) 14,313
Non-controlling interest 1,359 298
Foreign currency translation (4,377) 18,638
Other 3,761 (39)
Cash effect of changes in:
Accounts receivable (87,393) (2,656)
Inventories (61,087) 7,669
Prepaid expenses and other current assets 13,201 (9,684)
Accounts payable and accrued liabilities (26,036) (17,398)
Income taxes 68,635 (15,186)
--------- --------
(61,501) 70,137
--------- --------
Investing activities
Sales (purchases) of marketable securities 15,392 (48,684)
Additions to property, plant and equipment (42,347) (70,741)
Capitalized software development costs (6,043) (5,242)
Additions to other assets (168,045) (22,410)
--------- --------
(201,043) (147,077)
--------- --------
Financing activities
Issue of common shares 16,375 18,945
Increase in long term obligations 9,978 16,765
Repayment of long term obligations (4,163) (5,462)
--------- --------
22,190 30,248
--------- --------
Decrease in cash and cash equivalents (240,354) (46,692)
Effect of foreign currency translation on cash 6,794 8,096
--------- --------
(233,560) (38,596)
Cash and cash equivalents, beginning of period 666,019 467,464
--------- --------
Cash and cash equivalents, end of period $ 432,459 $428,868
========= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
(Page 5 of 38)
<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 ("U.S. GAAP") in all material respects except for the method of
calculation of earnings per share, as disclosed in Note 6.
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 August 1, 1999 are
not necessarily indicative of the results to be expected for the fiscal year
ending April 30, 2000.
2. Inventories
<TABLE>
<CAPTION>
August 1, May 2,
1999 1999
-------- --------
<S> <C> <C>
Finished goods $171,816 $118,251
Work in process 19,112 27,807
Raw materials 80,445 64,228
-------- --------
$271,373 $210,286
======== ========
</TABLE>
3. Goodwill
<TABLE>
<CAPTION>
August 1, August 2,
1999 1998
-------- --------
<S> <C> <C>
Goodwill, beginning of the period $ 40,022 $ 72,719
Additions associated with acquisitions 275 --
Amortization (1,358) (827)
Effect of foreign currency translation -- 346
--------- --------
Goodwill, end of the period $ 38,939 $ 72,238
======== ========
Accumulated goodwill amortization $ 8,489 $ 11,925
======== ========
</TABLE>
(Page 6 of 38)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands except per share data)
(Unaudited)
4. Other Assets
<TABLE>
<CAPTION>
August 1, May 2,
1999 1999
-------- --------
<S> <C> <C>
Long term investments
Accounted for by the equity method $116,477 $ 29,236
Accounted for by the cost method 215,117 161,901
-------- --------
331,594 191,137
Other Assets 56,150 32,370
-------- --------
$387,744 $223,507
======== ========
</TABLE>
Long term investments accounted for by the equity method represent investments
in companies over which the Company has significant influence. Under the equity
method, the carrying value of the investment includes the Company's
proportionate share of earnings of the investee company since acquisition.
Investee companies which are not subject to significant influence by the Company
are accounted for by the cost method. In accordance with Canadian and U.S. GAAP,
the carrying value of long term investments in common shares that are publicly
traded or privately held are not adjusted to reflect increases in fair value but
are adjusted to reflect non-temporary impairments in fair value.
In May 1999, the Company completed its investment in TeraBridge Technologies
Corporation ("TeraBridge"), which specializes in delivering intelligent call and
service control products to service providers and is headquartered in Gurnee,
Illinois. The Company acquired a 19% equity ownership position at a total
purchase price of US$60,200,000 (Cdn$90,813,000). The majority of the purchase
price was assigned to goodwill (Cdn$30,549,000) and to the Company's option
(Cdn$51,079,000) to increase its equity ownership position to 50% within the
next year for US$10,000,000. The Company is accounting for its investment in
TeraBridge using the equity method of accounting and is amortizing the goodwill
acquired on a straight line basis over five years.
The Company's holdings of 1,763,718 common shares of Juniper Networks Inc
("Juniper") (JNPR: NASDAQ) are included in the category long term investments
accounted for by the cost method at a carrying value of $9,723,000. Juniper
completed its initial public offering in June 1999 and filed a registration
statement for a second public offering in September 1999. The Company agreed to
sell 1,525,000 of its shares in Juniper as part of the second public offering.
The Company's remaining 238,718 shares in Juniper have been included in an over
allotment option granted to the underwriters. Based on the closing price for
Juniper's common shares at September 10, 1999, the market value of the Company's
investment is approximately $505,000,000.
(Page 7 of 38)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands except per share data)
(Unaudited)
5. Comprehensive Income
The Company has adopted the United States Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income. This statement requires disclosure of Comprehensive Income which
includes reported net earnings adjusted for other comprehensive income. Other
comprehensive income includes items that cause changes in shareholders' equity
but are not related to share capital or net earnings which, for the Company,
comprises only foreign currency translation adjustment.
<TABLE>
<CAPTION>
Fiscal quarter ended
-----------------------
August 1, August 2,
1999 1998
---------- ----------
<S> <C> <C>
Comprehensive income for the period:
Net earnings $47,286 $35,520
Other comprehensive income:
Foreign currency translation
adjustment 6,175 23,981
------- -------
Comprehensive income $53,461 $59,501
======= =======
</TABLE>
6. Earnings per Share
Basic earnings per share has been calculated as net earnings for the period
divided by the daily weighted average number of Common Shares outstanding during
the fiscal quarter. Fully diluted earnings per share has been 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, basic earnings per share has been calculated as net earnings
for the period divided by the daily weighted average number of Common Shares
outstanding during the fiscal quarter, consistent with the calculation of basic
earnings per share under accounting principles generally accepted in Canada.
Diluted earnings per share is calculated using the treasury stock method.
Earnings per share in U.S. dollars is disclosed for the convenience of the
reader. The exchange rates used for translation are based on the average of the
daily noon buying rates for Canadian dollars in U.S. dollars as reported by the
Federal Reserve Bank of New York. The calculation of earnings per share under
U.S. GAAP is as follows.
<TABLE>
<CAPTION>
Fiscal quarter ended
----------------------
August 1, August 2,
1999 1998
--------- ---------
<S> <C> <C>
Earnings per share
Basic $ 0.26 $ 0.20
======== ========
Diluted $ 0.26 $ 0.20
======== ========
Earnings per share -- in U.S. dollars
Basic $ 0.18 $ 0.14
======== ========
Diluted $ 0.18 $ 0.14
======== ========
Weighted average number of shares
Basic 180,399 176,105
======== ========
Diluted 182,500 178,419
======== ========
</TABLE>
(Page 8 of 38)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands except per share data)
(Unaudited)
7. Acquisition of Stanford Telecommunications Inc.
In June 1999, the Company announced a definitive agreement to acquire Stanford
Telecommunications Inc. ("STII") (STII: NASDAQ), a leading supplier of broadband
wireless technology and products. The net purchase price of the acquisition is
estimated at US$280,000,000 (Cdn$411,740,000) which represents the gross
purchase price of approximately US$490,000,000 (Cdn$720,545,000) net of proceeds
from the divestiture of divisions of STII that are unrelated to the Company's
core business. The boards of directors of the Company and STII have approved an
agreement and plan of merger, subject to conditions including approval by STII's
stockholders, whereby the Company will acquire all of the outstanding shares of
common stock of STII in a tax-free, stock-for-stock exchange. Under the
agreement STII stockholders will receive for each share of common stock US$30 in
the Company stock plus a contingent value right (CVR) which will give them a
participation in the proceeds on the sale of other operations above a minimum
amount. This participation will also be payable in the form of the Company's
common shares. The CVR is expected to have a value of up to US$5 per share.
For the purpose of this transaction, the value of a Newbridge common share shall
equal the ten-day average closing price on the New York Stock Exchange, ending
on the fifth trading day immediately preceding STII's stockholder vote, expected
in November. If the Newbridge stock price, pursuant to this calculation, is
below US$24 and the Company does not exercise its right to adjust the exchange
ratio, STII's board of directors will be permitted to terminate the Agreement.
8. Net Gain on Investments
<TABLE>
<CAPTION>
Fiscal quarter ended
------------------------
August 1, August 2,
1999 1998
--------- --------
<S> <C> <C>
Cambrian Systems Corporation $2,834 $ --
Other divestitures 678 --
------- -------
$3,512 $ --
======= =======
</TABLE>
In December 1998, the Company sold its minority ownership position in Cambrian
Systems Corporation ("Cambrian") to Nortel for cash proceeds of US$97,609,000
(Cdn$149,992,000). The proceeds included earn-out payments of US$3,870,000
(Cdn$5,689,000) received by the Company as a result of certain specified
financial performance targets being met by Cambrian. The Company received the
second of these earn-out payments in June 1999. Additional future potential
earn-out payments of up to approximately US$19,000,000 will be received by the
Company if certain specified financial performance targets are met by Cambrian.
(Page 9 of 38)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands except per share data)
(Unaudited)
9. Restructuring Costs
In April 1999, the Company decided to streamline the operations of regional
sales and support organizations as well as its marketing and product development
organizations. The restructuring costs associated with the sales, support and
marketing organizations ("Sales and Marketing") consisted primarily of costs
related to workforce and facilities reductions, as the Company announced a
reduction in the number of locations in which it will have a physical presence
in favour of distributors in certain markets, and subcontractors for certain
functions. Restructuring costs associated with product development related
primarily to asset impairment losses attributable to the capping,
discontinuation or divestiture of the development of certain products, and the
centralization of development laboratories to make the development process more
efficient. The components of restructuring costs of $73,570,000 incurred in the
fourth quarter of fiscal 1999 and the related spending to August 1, 1999 are as
follows.
<TABLE>
<CAPTION>
Sales and Product Incurred to Balance at
Marketing Development Total Aug 1, 1999 Aug 1, 1999
------- ------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Asset impairment losses
Inventory $ 2,606 $ 8,994 $ 11,600
Property, plant and equipment 6,576 29,104 35,680
Other current and non-current assets 568 2,249 2,817
------- ------- --------
9,750 40,347 50,097
------- ------- --------
Provision for restructuring
Reduction in work force 14,595 427 15,022 (7,765) 7,257
Reduction in facilities 6,627 -- 6,627 (2,815) 3,812
Other restructuring costs 1,653 171 1,824 (658) 1,166
------- ------- -------- ------ -------
22,875 598 23,473 (11,238) 12,235
======== ======= ======== ======== =======
Restructuring costs $32,625 $40,945 $ 73,570
======= ======= ========
</TABLE>
Asset impairment losses relate to assets affected by the Company's restructuring
plan that could not be deployed within the streamlined organizations or
elsewhere within the Company. Impairment losses were recorded to the extent the
net book value of these assets, including related reserves, exceeded the
estimated net realizable value of the underlying assets.
The provision for restructuring is reflected in accrued liabilities at August 1,
1999 and May 2, 1999.
The provision for the reduction in work force included severance, related
medical and other benefits, and other obligations to employees. The provision
included termination benefits for approximately 200 employees. The work force
reductions occurred in Japan, Russia and various other countries. The Company
anticipates that these work force reductions will be substantially completed by
the end of the second quarter of fiscal 2000.
(Page 10 of 38)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands except per share data)
(Unaudited)
The provision for the reduction in facilities comprised primarily lease payments
and fixed costs associated with the closure of sales, support and administrative
facilities in Europe, Japan and the United States. The Company expects to
complete these facilities closures by the end of the second quarter of fiscal
2000.
The provision for other restructuring costs comprised various direct incremental
costs associated with the restructuring plan.
In October 1998, the Company decided to discontinue the sale and development of
local area network (LAN) Layer 2 Switching products as part of the enhancement
of the focus on the Company's dominant and more profitable products. The Layer 2
Switching End of Life program created impairment losses associated with certain
assets deployed in this business and obligations related to fulfilling previous
customer commitments. The program was completed at the end of fiscal 1999. End
of life program costs of $37,928,000 incurred in the second quarter of fiscal
1999 comprised the following.
<TABLE>
<CAPTION>
Total
-------
<S> <C>
Asset impairment losses
Accounts receivable $ 7,762
Inventory 22,928
-------
30,690
Customer obligations 7,238
-------
Layer 2 Switching End of Life program costs $37,928
=======
</TABLE>
Impairment losses related to accounts receivable and inventory were recorded to
the extent that the net book value of these assets, including related reserves,
exceeded their fair value. The fair value was based on the estimated net
realizable value of the underlying assets.
In October 1998, the Company commenced relocating certain employees and
activities that support the Asia Pacific region from Kanata, Ontario to Hong
Kong and Malaysia in order to provide more efficient and cost effective services
to customers in that region. The charge of $6,532,000 incurred in October 1998
reflected the accrual of involuntary termination benefits, lease cancellation
penalties and other direct costs associated with the transition. As at August 1,
1999, $2,831,000 of these costs had been incurred including costs of $1,616,000
incurred in the first quarter of fiscal 2000. Additional costs of approximately
$9,000,000 related to the transfer of personnel and equipment, the recruitment
of new staff and the expansion of facilities in Hong Kong are being expensed as
incurred. In the first quarter of fiscal 2000, $1,542,000 of these costs were
incurred and have been included in selling, general and administrative expenses
on the Consolidated Statement of Earnings. These additional costs were not
significant in fiscal 1999. The Asia Pacific Resources Relocation program is
expected to be substantially completed by the end of the third quarter of fiscal
2000.
(Page 11 of 38)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands except per share data)
(Unaudited)
10. Supplementary Measure of Net Earnings and Earnings Per Share
Management uses supplementary measures of net earnings and earnings per share to
evaluate the financial performance of the Company. These supplementary measures
are consistent with the net earnings and earnings per share disclosed in these
Consolidated Financial Statements except for the impact of items related to
acquisitions, divestitures and non-recurring gains and charges. The
supplementary measures of net earnings and earnings per share are as follows:
<TABLE>
<CAPTION>
Fiscal quarter ended
---------------------
August 1, August 2,
1999 1998
-------- --------
<S> <C> <C>
Net earnings $ 47,286 $ 35,520
Add back:
Amortization of acquired intangibles 2,745 927
Net gain on investments (3,512) --
Net tax impact 1,185 --
-------- --------
Supplementary measure of net earnings $ 47,704 $ 36,447
======== ========
Supplementary measure of earnings per share
Canadian GAAP
Basic $ 0.26 $ 0.20
======== ========
Fully diluted $ 0.26 $ 0.20
======== ========
Weighted average number of shares
Basic 180,399 176,105
======== ========
Fully diluted 180,399 176,105
======== ========
U.S. GAAP -- in U.S. dollars
Basic $ 0.18 $ 0.14
======== ========
Diluted $ 0.18 $ 0.14
======== ========
Weighted average number of shares
Basic 180,399 176,105
======== ========
Diluted 182,500 178,419
======== ========
</TABLE>
(Page 12 of 38)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands except per share data)
(Unaudited)
11. Business Segment Information
The Company designs, manufactures, markets and services networking solutions to
customers in more than 100 countries. Management organizes the Company into four
principal operating segments for making operating decisions and assessing
performance. The four operating segments comprise three sales and support
organizations (North and South America, Europe Middle East and Africa, and Asia
Pacific) and one Corporate resources group which develops and manufactures
products, provides marketing and operational support and makes strategic
investments. Revenues generated by the Corporate group are predominantly derived
from the consolidation of non-wholly owned subsidiaries. Cost of sales for the
three sales and support organizations is stated at the cost to manufacture and
does not include any markups.
<TABLE>
<CAPTION>
Fiscal quarter ended
-----------------------
August 1, August 2,
1999 1998
----------- ----------
<S> <C> <C>
North and South America
Sales $ 208,289 $ 180,578
Cost of sales and expenses 126,028 105,361
--------- ---------
Operating contribution 82,261 75,217
--------- ---------
Europe, Middle East and Africa
Sales $ 187,281 $ 128,195
Cost of sales and expenses 90,936 73,209
--------- ---------
Operating contribution 96,345 54,986
--------- ---------
Asia Pacific
Sales $ 52,634 $ 62,777
Cost of sales and expenses 25,528 37,597
--------- ---------
Operating contribution 27,106 25,180
--------- ---------
Corporate
Sales $ 46,866 $ 54,506
Cost of sales and expenses 181,687 156,590
--------- ---------
Operating contribution (134,821) (102,084)
--------- ---------
Total
Sales $ 495,070 $ 426,056
Cost of sales and expenses 424,179 372,757
--------- ---------
Operating contribution 70,891 53,299
Amortization of acquired intangibles 2,745 927
--------- ---------
Income from operations 68,146 52,372
Net gain on investments 3,512 --
Net interest and other expenses (1,332) (1,598)
Provision for income taxes (21,705) (14,978)
Non-controlling interest (1,335) (276)
--------- ---------
Net earnings $ 47,286 $ 35,520
========= =========
</TABLE>
(Page 13 of 38)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands except per share data)
(Unaudited)
12. Litigation
Lucent Technologies Inc. ("Lucent Technologies") filed a complaint during the
fiscal year ended April 30, 1998 in United States District Court in Delaware
against the Company and its United States subsidiary, Newbridge Networks Inc.
Lucent Technologies manufactures and sells telecommunications systems, software
and products, and is both a distributor of the Company's products and a
competitor of the Company. The Complaint alleges that the Company's manufacture
and sale, in the United States, of some of the standardized functions on the
Newbridge frame relay and ATM switch products, along with its ADPCM (adaptive
differential pulse code modulation) and card initialization implementations,
infringe certain United States patent rights claimed by Lucent Technologies.
The Complaint requests actual and trebled damages in an unspecified amount.
Based upon its present understanding of the laws in the United States and the
facts, the Company believes it has meritorious defenses to these claims. The
Company has filed an answer to the Complaint and is defending this action
vigorously. 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 Consolidated Financial Statements.
13. Uncertainty Due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information that
uses year 2000 dates is processed. In addition, similar problems may arise in
some systems that use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure that could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
(Page 14 of 38)
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands except per share data)
(Unaudited)
14. Subsequent Event
On August 25, 1999 the Company announced that it had agreed to acquire
Northchurch Communications ("Northchurch") and TimeStep Corporation ("TimeStep")
for total consideration of approximately $350,000,000. The net purchase price to
the Company, excluding incentive compensation to participating employees of
Northchurch and TimeStep, is approximately $225,000,000. The Company will
account for the acquisitions under the purchase method of accounting and will
record the incentive compensation as operating expenses in the periods earned.
Northchurch is a developer of Internet Protocol (IP) edge routers for service
providers and is headquartered in Andover, Massachusetts. Timestep provides
encryption solutions for secure virtual private networks to service providers
and large enterprises. TimeStep is headquartered in Kanata, Ontario. The Company
expects to complete the transactions in the second quarter of fiscal 2000.
15. Recent Accounting Pronouncements
In June 1998, FASB issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS 133 requires all derivatives to be recorded on the
balance sheet at fair value. SFAS 133 is effective for fiscal years beginning
after June 15, 2000. The Company is in the process of evaluating the impact of
the reporting requirements of SFAS 133.
CICA Handbook - Accounting Section 1540, Cash Flow Statements, which replaces
existing Section 1540 Statement of Changes in Financial Position was issued in
June 1998 and is effective for fiscal years beginning after July 31, 1998. The
impact of this standard is the disclosure of purchases, maturities and sales of
marketable securities as an investing activity on the Statement of Cash Flows,
in a manner consistent with U.S. GAAP. Under this new standard, investing and
financing activities that do not require the use of cash or cash equivalents are
excluded from the Statement of Cash Flows but disclosed elsewhere in the
consolidated financial statements. The Company has adopted CICA Handbook --
Accounting Section 1540 for all periods presented in these Consolidated
Financial Statements.
(Page 15 of 38)
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Certain parts of the following 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.
Recent Developments
In May 1999, the Company completed its investment in TeraBridge Technologies
Corporation ("TeraBridge"), which specializes in delivering intelligent call and
service control products to service providers and is headquartered in Gurnee,
Illinois. The Company acquired a 19% equity ownership position at a total
purchase price of US$60,200,000 (Cdn$90,813,000). The majority of the purchase
price was assigned to goodwill (Cdn$30,549,000) and to the Company's option
(Cdn$51,079,000) to increase its equity ownership position to 50% within the
next year for US$10,000,000. The Company is accounting for its investment in
TeraBridge using the equity method of accounting and is amortizing the goodwill
acquired on a straight line basis over five years.
In June 1999, the Company announced a definitive agreement to acquire Stanford
Telecommunications Inc. ("STII") (STII: NASDAQ), a leading supplier of broadband
wireless technology and products. The net purchase price of the acquisition is
estimated at US$280,000,000 (Cdn$411,740,000) which represents the gross
purchase price of approximately US$490,000,000 (Cdn$720,545,000) net of proceeds
from the divestiture of divisions of STII that are unrelated to the Company's
core business. The boards of directors of the Company and STII have approved an
agreement and plan of merger, subject to conditions including approval by STII's
stockholders, whereby the Company will acquire all of the outstanding shares of
common stock of STII in a tax-free, stock-for-stock exchange. Under the
agreement STII stockholders will receive for each share of common stock US$30 in
the Company stock plus a contingent value right (CVR) which will give them a
participation in the proceeds on the sale of other operations above a minimum
amount. This participation will also be payable in the form of the Company's
common shares. The CVR is expected to have a value of up to US$5 per share.
For the purpose of the STII transaction, the value of a Newbridge common share
shall equal the ten-day average closing price on the New York Stock Exchange,
ending on the fifth trading day immediately preceding STII's stockholder vote,
expected in November. If the Newbridge stock price, pursuant to this
calculation, is below US$24 and the Company does not exercise its right to
adjust the exchange ratio, STII's board of directors will be permitted to
terminate the Agreement.
On August 25, 1999 the Company announced that it had agreed to acquire
Northchurch Communications ("Northchurch") and TimeStep Corporation ("TimeStep")
for total consideration of approximately $350,000,000. The net purchase price to
the Company, excluding incentive compensation to participating employees of
Northchurch and TimeStep, is approximately $225,000,000. The Company will
account for the acquisitions under the purchase method of accounting and will
record the incentive compensation as operating expenses in the periods earned.
Northchurch is a developer of Internet Protocol (IP) edge routers for service
providers and is headquartered in Andover, Massachusetts. Timestep provides
encryption solutions for secure virtual private networks to service providers
and large enterprises. TimeStep is headquartered in Kanata, Ontario. The Company
expects to complete the transactions in the second quarter of fiscal 2000.
(Page 16 of 38)
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the percentage of
sales represented by certain items in the Company's Consolidated Statements of
Earnings.
<TABLE>
<CAPTION>
Fiscal quarter ended
----------------------
Aug 1, Aug 2,
1999 1998
------- -------
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 43.5 41.4
------- -------
Gross margin 56.5 58.6
Expenses
Selling, general and administrative 28.5 30.3
Research and development 13.7 15.8
Amortization of acquired intangibles 0.5 0.2
------- -------
Income from operations 13.8 12.3
Interest income, net 0.3 (0.0)
Net gain on investments 0.7 0.0
Other expenses (0.6) (0.4)
------- -------
Earnings before income taxes
and non-controlling interest 14.2 11.9
Provision for income taxes 4.4 3.5
Non-controlling interest 0.2 0.1
------- -------
Net earnings 9.6% 8.3%
======= =======
</TABLE>
Sales
<TABLE>
<CAPTION>
Fiscal quarter ended
-----------------------------
Aug 1, Aug 2, %
1999 1998 Increase
-------- -------- --------
(Canadian dollars in thousands)
<S> <C> <C> <C>
Sales $495,070 $426,056 16%
======== ========
</TABLE>
The increase in sales in the first quarter of fiscal 2000 compared to the first
quarter of fiscal 1999 was principally due to an increase in sales of products
based on packet technologies for wide area network applications (WAN Packet
products), partially offset by declines in revenues from circuit switched
networking products and products based on packet technologies for local area
network applications (LAN Packet products).
Sales for the first quarter of fiscal 2000 of $495,070,000 represented a 8%
increase compared to sales of $457,115,000 for the fourth quarter of fiscal
1999. The increase was principally the result of an increase in sales of the
Company's WAN Packet products.
(Page 17 of 38)
<PAGE>
The following table illustrates, for the periods indicated, the percentage of
sales that comprise each of the Company's major product lines.
<TABLE>
<CAPTION>
Fiscal quarter ended
---------------------
Aug 1, Aug 2,
1999 1998
------- -------
<S> <C> <C>
WAN Packet 72% 52%
Circuit switched networking 28 43
LAN Packet -- 5
------- -------
100% 100%
======= =======
</TABLE>
Sales of WAN Packet products grew approximately 61% in the first quarter of
fiscal 2000 compared to the first quarter of fiscal 1999 and approximately 14%
compared to the fourth quarter of fiscal 1999. Growth in sales of WAN Packet
products was predominantly the result of increased acceptance and demand by
service providers throughout the world for the Company's asynchronous transfer
mode (ATM) products.
Sales of circuit switched networking products in the first quarter of fiscal
2000 declined approximately 25% relative to sales in the first quarter of fiscal
1999 and were at approximately the same levels as sales in the fourth quarter of
fiscal 1999. Sales of these networking products have been and are expected to be
subject to potential declines and quarterly variability as customers throughout
the world increasingly adopt packet technologies.
The Company did not have sales of LAN Packet products in the first quarter of
fiscal 2000 because the Company instituted a program in the second quarter of
fiscal 1999 to discontinue the sale and development of LAN Layer 2 Switching
products. Throughout fiscal 1998 and fiscal 1999 the Company experienced sharp
decreases in revenue derived from products associated with the former Ungermann-
Bass Networks Inc. ("UB") organization, which the Company acquired in January
1997. The Company previously restructured its activities in the LAN business,
including the former UB, in the third quarter of fiscal 1998.
The Company expects the proportion of sales derived from WAN Packet products to
continue to increase relative to sales derived from circuit switched networking
products in fiscal 2000 when compared to fiscal 1999.
The Company sells its products to service providers for applications that
provide a range of value-added services, such as Virtual Private Networks
(VPNs), wide area network support and Internet access, and for resale to end
users. Sales to service providers and enterprises as a percentage of total
sales were as follows.
<TABLE>
<CAPTION>
Fiscal quarter ended
---------------------
Aug 1, Aug 2,
1999 1998
------- -------
<S> <C> <C>
Service providers 80% 71%
Enterprises 20 29
------- -------
100% 100%
======= =======
Sales to Siemens A.G. 17% 14%
======= =======
</TABLE>
The proportion of revenue derived from service providers in the first quarter of
fiscal 2000 increased relative to the comparable period of fiscal 1999 due to
continued declines in sales of the Company's LAN Packet products which largely
serve enterprise customers. Deliveries to original equipment manufacturers
(OEMs) for service provider customers and deliveries under certain large
contracts with service providers contributed significantly to sales in the first
quarter of fiscal 2000 and fiscal 1999. Sales to Siemens A.G. and subsidiaries
were generally under OEM arrangements for resale to end users.
(Page 18 of 38)
<PAGE>
The following table sets forth, for the periods indicated, the percentage of
consolidated sales derived by sales management in each of the principal
geographic regions in which the Company operates. For additional geographic
segment information, see Note 11 to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Fiscal quarter ended
--------------------
Aug 1, Aug 2,
1999 1998
------- -------
<S> <C> <C>
Americas Region 51% 53%
European Region 38 32
Asia Pacific Region 11 15
------- -------
100% 100%
------- -------
</TABLE>
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. The increase in
exchange rates of the Canadian dollar for the Pound Sterling and the U.S. dollar
during the first quarter of fiscal 2000, relative to exchange rates during the
first quarter of fiscal 1999, resulted in no material variance in reported
sales, gross margin or income from operations.
The Company derives a significant portion of its sales from products shipped
against orders received in each fiscal quarter and from products shipped against
firm purchase orders released in that fiscal quarter. As is prevalent in
emerging segments of the networking industry, a disproportionate amount of the
Company's shipments occur in the third month of each fiscal quarter. In
addition, customers have the ability to revise or cancel orders and change
delivery schedules without significant penalty. As a result, the Company
operates without significant backlog and schedules some production and budgets
expenses based on forecasts of sales, which are difficult to predict. 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.
Quarterly operating results are consequently difficult to predict, even towards
the end of a given fiscal quarter.
The Company may be subject to sales fluctuations toward the end of calendar 1999
as customer buying patterns may be influenced by the issue of Year 2000 date
compliance. Sales mix shifts may occur due to customers limiting their purchases
of networking equipment to products that they have already tested for Year 2000
Compliance within their networks, which would shift sales mix away from emerging
product offerings and software upgrades. Sales declines could result if
customers decide to delay expansion of their networks to after January 1, 2000.
The majority of the Company's current product offerings have Year 2000 Compliant
versions available and all emerging offerings are designed to be Year 2000
Compliant. Discussion of the Company's program for ensuring that all of its
products are Year 2000 date compliant is outlined in the "Year 2000 Date
Compliance" section of this report.
(Page 19 of 38)
<PAGE>
Cost of Sales and Gross Margin
<TABLE>
<CAPTION>
Fiscal
quarter ended
---------------------
Aug 1, Aug 2,
1999 1998
--------- --------
(Canadian dollars
in thousands)
<S> <C> <C>
Gross margin $279,549 $249,494
======== ========
As % of sales 56% 59%
</TABLE>
Cost of sales consists of manufacturing costs, warranty expense and costs
associated with the provision of services. The gross margin as a percentage of
sales declined in the first quarter of fiscal 2000 relative to the first quarter
of fiscal 1999 due to the decline in revenues from the Company's circuit
switched networking products which carry gross margins above the average gross
margins earned on the Company's other products and due to lower average selling
prices for products based on packet technologies as a result of increased
competition on product pricing and increased sales into broadband access
applications.
Selling, General and Administrative Expenses
<TABLE>
<CAPTION>
Fiscal quarter ended
--------------------------------
Aug 1, Aug 2, %
1999 1998 Increase
---------- --------- ---------
<S> <C> <C> <C>
(Canadian dollars in thousands)
Selling, general and
and administrative $141,037 $129,039 9%
======== ========
As % of sales 28% 30%
</TABLE>
Selling, general and administrative expenses increased in the first quarter of
fiscal 2000 relative to the first quarter of fiscal 1999 principally as a result
of increased remuneration costs associated with salary increases and sales
commissions, increased spending on marketing programs related to the
introduction of new products, and amortization costs associated with upgrading
the Company's information technology infrastructure. These costs were partially
offset by the impact of initiatives in the fourth quarter of fiscal 1999 to
streamline regional sales and support organizations.
The decrease in selling, general and administrative expenses as a percentage of
sales in the first quarter of fiscal 2000 over the first quarter of fiscal 1999
is a result of the lower percentage increase in expenditures as compared to the
larger percentage increase in revenues over the same period. Management
anticipates that selling, general and administrative expenses as a percentage of
sales will decline in fiscal 2000 relative to fiscal 1999.
(Page 20 of 38)
<PAGE>
Research and Development
<TABLE>
<CAPTION>
Fiscal quarter ended
------------------------------
Aug 1, Aug 2, %
1999 1998 Increase
------- ------- ---------
(Canadian dollars in thousands)
<S> <C> <C> <C>
Gross research and
development expenditures $84,140 $83,746 0%
Investment tax credits (9,029) (9,112) (1)%
Customer, government
and other funding (5,590) (5,614) (0)%
Net deferral of software
development costs (1,900) (1,864) 2%
------- -------
Net research and
development expenses $67,621 $67,156 1%
======= =======
Gross expenditures
as a % of sales 17% 20%
Recoveries as a %
of gross expenditures 20% 20%
Net expenses as a % of sales 14% 16%
</TABLE>
Research and development expenditures consist primarily of software and hardware
engineering personnel expenses, costs associated with equipment and facilities,
and subcontracted research and development costs. Gross research and development
spending was essentially flat in the first quarter of fiscal 2000 as compared to
the first quarter of fiscal 1999 as increased costs associated with salary
increases for engineering staff were offset by a reduction in amortization and
overhead costs generated through restructuring programs initiated in the fourth
quarter of fiscal 1999.
Recoveries as a percentage of gross expenditures in the first quarter of fiscal
2000 were comparable to recoveries in the first quarter fiscal 1999. Management
expects the level of recoveries in fiscal 2000, as a percentage of gross
expenditures, to approximate or exceed the level in fiscal 1999 based on current
levels of committed customer, government and other funding relative to planned
spending levels.
The markets for the Company's products are characterized by continuing
technological change. The Company plans to increase gross research and
development expenditures in fiscal 2000 relative to fiscal 1999 to address the
requirements of service providers as they invest in new infrastructures to meet
the challenges of growing demand for new communications services and increased
competition.
(Page 21 of 38)
<PAGE>
Amortization of Acquired Intangibles
<TABLE>
<CAPTION>
Fiscal quarter ended
-------------------------
Aug 1, Aug 2, %
1999 1998 Increase
------- ------- ---------
(Canadian dollars in thousands)
<S> <C> <C> <C>
Amortization of acquired intangibles $2,745 $ 927 196%
====== ======
As % of sales 1% 0%
</TABLE>
Amortization of acquired intangibles in the first quarter of fiscal 2000 and
fiscal 1999 is attributable to the amortization of capitalized goodwill related
to the Company's acquisitions of subsidiaries and equity accounted long term
investments. The increase in amortization of acquired intangibles in the first
quarter of fiscal 2000 relative to the first quarter of fiscal 1999 is a result
of the Company's investment in TeraBridge Technologies Corporation
("TeraBridge") completed in May 1999. Based on the recent acquisitions of
TeraBridge, Stanford Communications Inc., Northchurch Communications Inc. and
TimeStep Corporation completed or to be completed in fiscal 2000, Management
expects that amortization of acquired intangibles as a percentage of sales will
increase in fiscal 2000 relative to fiscal 1999.
Restructuring Costs
In April 1999, the Company decided to streamline the operations of regional
sales and support organizations as well as its marketing and product development
organizations. The restructuring costs associated with the sales, support and
marketing organizations ("Sales and Marketing") consisted primarily of costs
related to workforce and facilities reductions, as the Company announced a
reduction in the number of locations in which it will have a physical presence
in favour of distributors in certain markets, and subcontractors for certain
functions. Restructuring costs associated with product development related
primarily to asset impairment losses attributable to the capping,
discontinuation or divestiture of the development of certain products, and the
centralization of development laboratories to make the development process more
efficient. Restructuring costs of $73,570,000 incurred in the fourth quarter of
fiscal 1999 comprised the following.
<TABLE>
<CAPTION>
Sales and Product
Marketing Development Total
--------- ----------- -------
(Canadian dollars in thousands)
<S> <C> <C> <C>
Asset impairment losses
Inventory $ 2,606 $ 8,994 $11,600
Property, plant and equipment 6,576 29,104 35,680
Other current and non-current assets 568 2,249 2,817
------- ------- -------
9,750 40,347 50,097
------- ------- -------
Provision for restructuring
Reduction in work force 14,595 427 15,022
Reduction in facilities 6,627 -- 6,627
Other restructuring costs 1,653 171 1,824
------- ------- -------
22,875 598 23,473
------- ------- -------
Restructuring costs $32,625 $40,945 $73,570
======= ======= =======
</TABLE>
(Page 22 of 38)
<PAGE>
Asset impairment losses relate to assets affected by the Company's restructuring
plan that could not be deployed within the streamlined organizations or
elsewhere within the Company. Impairment losses were recorded to the extent the
net book value of these assets (including related reserves) exceeded the
estimated net realizable value of the underlying assets.
The provision for restructuring is reflected in accrued liabilities at August 1,
1999 and May 2, 1999.
The provision for the reduction in work force included severance, related
medical and other benefits, and other obligations to employees. The provision
included termination benefits for approximately 200 employees. The work force
reductions occurred in Japan, Russia and various other countries. The Company
anticipates that these work force reductions will be substantially completed by
the end of the second quarter of fiscal 2000.
The provision for the reduction in facilities comprised primarily lease payments
and fixed costs associated with the closure of sales, support and administrative
facilities in Europe, Japan and the United States. The Company expects to
complete these facilities closures by the end of the second quarter of fiscal
2000.
The provision for other restructuring costs comprised various direct incremental
costs associated with the restructuring plan.
In October 1998, the Company decided to discontinue the sale and development of
local area network (LAN) Layer 2 Switching products as part of the enhancement
of the focus on the Company's dominant and more profitable products. The Layer 2
Switching End of Life program created impairment losses associated with certain
assets deployed in this business and obligations related to fulfilling previous
customer commitments. The program was completed at the end of fiscal 1999. End
of life program costs of $37,928,000 incurred in the second quarter of fiscal
1999 comprised the following.
<TABLE>
<CAPTION>
Total
-------
<S> <C>
Asset impairment losses
Accounts receivable $ 7,762
Inventory 22,928
-------
30,690
Customer obligations 7,238
-------
Layer 2 Switching End of Life program costs $37,928
=======
</TABLE>
Impairment losses related to accounts receivable and inventory were recorded to
the extent that the net book value of these assets (including related reserves)
exceeded their fair value. The fair value was based on the estimated net
realizable value of the underlying assets.
In October 1998, the Company commenced relocating certain employees and
activities that support the Asia Pacific region from Kanata, Ontario to Hong
Kong and Malaysia in order to provide more efficient and cost effective services
to customers in that region. The charge of $6,532,000 incurred in October 1998
reflected the accrual of involuntary termination benefits, lease cancellation
penalties and other direct costs associated with the transition. As at August 1,
1999, $2,831,000 of these costs had been incurred including costs of $1,616,000
incurred in the first quarter of fiscal 2000. Additional costs of approximately
$9,000,000 related to the transfer of personnel and equipment, the recruitment
of new staff and the expansion of facilities in Hong Kong are being expensed as
incurred. In the first quarter of fiscal 2000, $1,542,000 of these costs were
incurred and have been included in selling, general and administrative expenses
on the Consolidated Statement of Earnings. These additional costs were not
significant in fiscal 1999. The Asia Pacific Resources Relocation program is
expected to be substantially completed by the end of the third quarter of fiscal
2000.
(Page 23 of 38)
<PAGE>
<TABLE>
<CAPTION>
Interest and Other Expenses
Fiscal quarter ended
-----------------------------
Aug 1, Aug 2, %
1999 1998 Increase
-------- ------- --------
(Canadian dollars in thousands)
<S> <C> <C> <C>
Interest income $ 7,345 $ 6,611 11%
Interest expense on
long term obligations (6,059) (6,703) (10)%
Other expenses (2,618) (1,506) 74%
</TABLE>
Interest income for the first quarter of fiscal 2000 exceeded interest income
for the first quarter of fiscal 1999 due to an increase in the average cash
position maintained by the Company. This increase was principally the result of
proceeds received from the sale of the Company's equity interests in certain
associated companies during the second and third quarters of fiscal 1999. Other
expenses represented less than 1% of sales in the first quarters of fiscal 2000
and fiscal 1999.
Net Gain on Investments
<TABLE>
<CAPTION>
Fiscal quarter ended
------------------------
Aug 1, Aug 2,
1999 1998
-------- --------
(Canadian dollars in thousands)
<S> <C> <C>
Cambrian Systems Corporation $ 2,834 $ --
Other divestitures 678 --
-------- --------
$ 3,512 $ --
======== ========
</TABLE>
In December 1998, the Company sold its minority ownership position in Cambrian
Systems Corporation ("Cambrian") to Nortel for cash proceeds of US$97,609,000
(Cdn$149,992,000). The proceeds included earn-out payments of US$3,870,000
(Cdn$5,689,000) received by the Company as a result of certain specified
financial performance targets being met by Cambrian. The Company received the
second of these earn-out payments in June 1999. Additional future potential
earn-out payments of up to approximately US$19,000,000 will be received by the
Company if certain specified financial performance targets are met by Cambrian.
(Page 24 of 38)
<PAGE>
Income Taxes
<TABLE>
<CAPTION>
Fiscal quarter ended
--------------------
Aug 1, Aug 2,
1999 1998
------ ------
<S> <C> <C>
Income tax rate 31% 30%
Income tax rate, excluding amortization of
acquired intangibles and net gain on investments 30% 30%
</TABLE>
The income tax rate for the first quarter of fiscal 2000 varies from the rate
for the first quarter of fiscal 1999 due to the effect of income taxes on
amortization of acquired intangibles and net gains on investments. Excluding the
impact of these items, the income tax rates reported in the first quarters of
fiscal 2000 and fiscal 1999 are consistent. The composite rates of income tax
have been reduced from the statutory rates 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 rates 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 availability of deductions 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 in the first quarters of
fiscal 2000 and fiscal 1999 represented less than 1% of the Company's sales in
those quarters. The non-controlling interests' share of net earnings in the
first quarters of fiscal 2000 and fiscal 1999 related to profits from the
operations of the Company's non-wholly owned subsidiaries in Latin America.
These subsidiaries are systems integrators of networking products.
(Page 25 of 38)
<PAGE>
Supplementary Measure of Net Earnings and Earnings Per Share
Management uses supplementary measures of net earnings and earnings per share to
evaluate the financial performance of the Company. These supplementary measures
are consistent with the net earnings and earnings per share disclosed in the
Consolidated Financial Statements except for the exclusion of the impact of the
amortization of acquired intangibles, the net gain on investments and other non-
recurring gains and charges. The supplementary measures of net earnings and
earnings per share for the first quarters of fiscal 2000 and fiscal 1999 are as
follows:
<TABLE>
<CAPTION>
Fiscal quarter ended
---------------------
Aug 1, Aug 2,
1999 1998
-------- --------
<S> <C> <C>
Net earnings $47,286 $35,520
Add back:
Amortization of acquired intangibles 2,745 927
Net gain on investments (3,512) --
Net tax impact 1,185 --
------- -------
Supplementary measure of net earnings $47,704 $36,447
======= =======
Supplementary measure of net earnings,
as a percent of sales 10% 9%
======= =======
Supplementary measure of earnings per share
Canadian GAAP
Basic $ 0.26 $ 0.20
======= =======
Fully diluted $ 0.26 $ 0.20
======= =======
U.S. GAAP
Basic $ 0.26 $ 0.20
======= =======
Diluted $ 0.26 $ 0.20
======= =======
Diluted -- in U.S. dollars US$0.18 US$0.14
======= =======
</TABLE>
(Page 26 of 38)
<PAGE>
Net Earnings
A reconciliation of the major components of the change in net earnings for the
first quarter of fiscal 2000 compared to the first quarter of fiscal 1999 and
the first quarter of fiscal 1999 compared to the first quarter of fiscal 1998 is
as follows.
<TABLE>
<CAPTION>
Fiscal quarter ended
----------------------
Aug 1, Aug 2,
1999 1998
--------- --------
<S> <C> <C>
Gross margin from sales increase (decrease) $ 40,414 $ (5,472)
(Decrease) in product gross margins
as a percentage of sales (10,359) (19,042)
(Increase) in operating expenses (12,463) (12,655)
Decrease (increase) in net interest and other expenses 266 (4,268)
(Increase) decrease in income taxes on
supplementary net earnings (5,542) 12,056
(Increase) in non-controlling interest (1,059) (643)
-------- --------
Increase (decrease) in supplementary net earnings 11,257 (30,024)
Change in amortization of intangibles and net gain
on investments, net of income taxes 509 1,190
-------- --------
Increase (decrease) in net earnings 11,766 (28,834)
Net earnings in comparable period of prior year 35,520 64,354
-------- --------
Net earnings $ 47,286 $ 35,520
======== ========
</TABLE>
(Page 27 of 38)
<PAGE>
Financial Condition
During the first quarter of fiscal 2000 ended August 1, 1999, working capital
decreased from $1,243,991,000 to $1,088,551,000. As at August 1, 1999 the
Company had $630,742,000 in cash, cash equivalents and marketable securities
which represented a decrease of $248,952,000 during the first three months of
fiscal 2000. The decrease was primarily attributable to the Company's investment
in certain associated companies (see Note 4 to the Consolidated Financial
Statements). A summary of major cash flow components by activity is as follows.
<TABLE>
<CAPTION>
Fiscal quarter ended
-----------------------
Aug 1, Aug 2,
1999 1998
--------- ---------
<S> <C> <C>
Net earnings $ 47,286 $ 35,520
Add back items not affecting cash
Amortization and other non-cash charges (16,107) 71,872
(Increase) decrease in working capital,
excluding cash and cash equivalents (92,680) (37,255)
--------- ---------
Cash flow from operating activities (61,501) 70,137
--------- ---------
Sales (purchases) of marketable securities 15,392 (48,684)
Additions to property, plant and equipment (42,347) (70,741)
Additions to long term investments and other (174,088) (27,652)
--------- ---------
Cash flow from investing activities (201,043) (147,077)
--------- ---------
Proceeds from stock option exercises 16,375 18,945
Net increase (decrease) in long term obligations 5,815 11,303
--------- ---------
Cash flow from financing activities 22,190 30,248
--------- ---------
Impact of foreign currency translation on cash 6,794 8,096
--------- ---------
Net cash flow during the period $(233,560) $ (38,596)
========= =========
</TABLE>
Principal components of the Company's working capital are accounts receivable,
inventory, and accounts payable. Accounts receivable as a proportion of revenue
increased during the first quarter of fiscal 2000 due to the increase in the
proportion of the accounts receivable balance represented by sales under
extended credit terms. Inventory levels increased by $61,087,000 in the first
quarter of fiscal 2000 as a result of efforts to improve the Company's ability
to meet customer demand for WAN packet products. 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 $162,155,000, primarily with banks
in Canada, the United Kingdom, the United States, Chile and Brazil. At August 1,
1999, $43,839,000 was being utilized under these credit facilities.
In May 1999, the Company completed its investment in TeraBridge Technologies
Corporation for a total purchase price of US$60,200,000 (Cdn$90,813,000). In
June 1999, the Company announced a definitive agreement to acquire Stanford
Telecommunications Inc. ("STII"). The Company plans to issue common shares to
finance the acquisition and will sell off STII divisions that are not related to
STII's broadband wireless operations. After completion of the STII transactions
the Company expects an increase in cash and cash equivalents of
(Page 28 of 38)
<PAGE>
approximately $350,000,000. In August 1999, the Company announced its intention
to acquire Northchurch Communications and TimeStep Corporation for total cash
consideration of approximately $350,000,000. The Company expects approximately
$150,000,000 of the total cash consideration to be disbursed in fiscal 2000. The
Company intends to divest of its shares held in Juniper Networks Inc.
("Juniper") during fiscal 2000. Based on the closing price for Juniper's common
shares at September 10, 1999 the market value of the Company's investment is
approximately $505,000,000, which would generate after tax proceeds to the
Company of approximately $330,000,000.
Management anticipates that the level of capital expenditures for fiscal 2000
will be approximately consistent with the level of capital expenditures incurred
in fiscal 1999. The Company may also increase its current investments in
associated companies. The Company intends to fund capital expenditures and
investments with existing cash and cash expected to be generated from operations
during fiscal 2000, supplemented as appropriate by divestitures or the issuance
of shares or debt. In addition, the Company may use a portion of its cash
resources 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.
Management believes that the Company's liquidity in the form of existing cash
resources, its credit facilities, as well as cash generated from operations and
financing activities, will prove adequate to meet its operating and capital
expenditure requirements through the end of fiscal 2000 and into the foreseeable
future.
Year 2000 Date Compliance
The Company acknowledges the Year 2000 transition as a serious business issue
and is committed to addressing the challenge of becoming Year 2000 date
compliant. The Company's program ("Year 2000 Date Compliance"), established in
May 1997, addresses compliance both externally, to our customers, suppliers, and
other associates, and internally for the Company's systems and procedures. The
program continues to receive sponsorship and support from the highest levels of
the Company's Management and regular progress meetings are conducted, including
formal quarterly reports to a senior management committee. Despite the extensive
efforts dedicated to the program, there can be no assurance that all Year 2000
Date Compliance activities will be completed before problems associated with the
Year 2000 transition potentially occur.
Various formal messages for conveying Year 2000 Date Compliance information to
customers and other external parties have been developed for Company products.
. Year 2000 Date Compliance Statement to Customers and Definition of Terms,
which indicates how the Company interprets Year 2000 Date Compliance;
. The Year 2000 Date Compliance Requirements Specification, which sets forth
evaluation of products for Year 2000 Date Compliance;
. Year 2000 Date Compliance Product List, which lists the Year 2000 Date
Compliance characterization for the majority of the Company's products and
releases, including many "discontinued" product offerings.
The Company has completed the evaluation of its major product offerings. The
majority of products have been classified as either Compliant, having Compliant
versions currently available or are Date Compliance Not Applicable. The majority
of older or "discontinued" product offerings (including products from the former
UB Networks, OST and Castleton
(Page 29 of 38)
<PAGE>
companies) have been reviewed, with certain offerings found to be Non-Compliant,
and others that will not be evaluated for Year 2000 Date Compliance.
Certain Year 2000 Date Compliance product Interoperability Tests have been
conducted, a report on these together with all the formal product related
messages and Year 2000 Date Compliance Additional Notes are available on the
Company's worldwide web site at
http://www.newbridge.com/year2000/product_info.html.
The Company recognizes that customers view the Year 2000 rollover as a sensitive
time for their networks and are looking for reassurance that their organizations
will continue to receive service support during this time. It is the Company's
intent to fulfill our contractual obligations to customers during this period.
Throughout the Year 2000 and the following leap year rollovers the three
regional Newbridge Technical Assistance Centers will be operating under the
normal practice of 24 hour, 365 days a year service coverage, including
readiness to address Year 2000 issues. The Company will also ensure staffing
during the rollover period of its Strategic Network Services and Network Design
groups during the rollover period as a component of the Year 2000 Date
Compliance Contingency Planning process. The Service Organization shift
schedules will operate on overlapping eight-hour cycles to ensure continuity of
event management. Specialized network restoration techniques and tools are in
development, these will be invoked under the guidance of the Third Level Support
(3LS) and design organizations.
The Company has identified and is working with a selected sample of our Asia
Pacific customers to be on-site and electronically linked into their networks
and believes that these steps will provide a clear indication of events to come
and enable the Company to observe and learn from them.
The Company continues to make plans for the various means by which technical
information is to be disseminated to customers to ensure the most effective
delivery of Year 2000 bulletins during the transition period. Formal messages
from the Company's service organizations to customers and other external parties
are available on the Company's worldwide web site at
http://www.newbridge.com/year2000/service_planning.html.
The internal compliance element of Year 2000 Date Compliance includes the
distribution of responsibility among fourteen "Program Areas" of which each of
the Company's operating groups is represented by at least one. Each group is
responsible for eight main activities that address the exposure of their Program
Areas, as follows.
i) Awareness -- Inform all employees and ensure awareness of Year
2000 Compliance issues and how they affect the employees, their
customers and their suppliers. This includes ensuring support and
dedication to the program throughout the Company.
ii) Inventory -- Take stock of all information technology (IT)
systems and equipment and non-IT systems and equipment in use by the
Company potentially affected by Year 2000 Date Compliance.
iii) Impact Analysis -- Assess the significance of each item in the
inventory in order to prioritize investigation and testing activities.
iv) Investigation and Testing -- Examine items recorded during the
inventory stage to determine their state of compliance based on the
priority set during the impact analysis stage. This step includes
requesting product information from suppliers and the formal testing
of systems and equipment under controlled conditions.
(Page 30 of 38)
<PAGE>
v) Remedial Activities -- After analyzing the compliance status
of an item, determine remedial action, if any, to be taken should an
item be found to be non-compliant. Actions include fixing errors,
following a path to make the item compliant, or complete replacement
with a compliant alternative.
vi) Implementation/Adoption -- Once compliance status has been
reached the item is made available for use.
vii) Critical Supplier Assessment -- Identify, analyze and assess
the Year 2000 readiness of critical suppliers of products and
services. Actions include judging assurances that equipment supplied
is date compliant, the supplier is also diligently undertaking a Year
2000 readiness plan with respect to its own internal systems to
minimize the risk of supply disruptions and that contingency planning
activities are active. To assist with and to standardize this task, a
formal Year 2000 Date Compliance Supplier Assessment process is being
used of which one part is the use of formal readiness questionnaires.
The Company's supplier assessment initiatives commenced in April 1998
with a mass mailing to over 11,500 vendors from which the Critical
Supplier list was originally built. Further targeted mailings and
vendor contacts have since been adopted. The Company has not yet
obtained adequate assurances from suppliers with respect to their Year
2000 readiness because a significant number (nearly 28% compared as at
end of August 1999) of questionnaires sent to critical suppliers have
not generated a response. The Company will use alternate suppliers in
the event that the supplier does not provide satisfactory answers.
(viii) Contingency Planning -- Identify, review and address methods
by which the potential of Year 2000 related risks can be further
mitigated before they occur. Identify, review and address the criteria
for invoking a contingency plan. Identify, review and address the
steps that may be necessary to cope with actual operational problems
including, as an integral part, increases in service and support
resources. To assist with and to standardize this task, a formal Year
2000 Date Compliance Contingency Planning process is being used
following a business function review and Year 2000 risk exposure
assessment. An essential part of this process is the formulation of
Crisis Communications Plans for Year 2000 scenarios. Nearly 80% of
Contingency Plans have been completed or are in the final draft stage.
Those that are completed include, but are not limited to,
Manufacturing Operations, Logistics and Finance together with the
Facilities infrastructures for the Corporate Kanata campus, the three
regional headquarters locations and Newbridge Technical Assistance
Center locations. All supplementary internal on-site and on-call
rollover staffing requirements have been numerated and competitive
compensation strategies approved.
The Company believes that PC desktop and Unix hardware environments are
substantially compliant. Repeatable automated inventory and remediation
procedures are used to monitor, install and maintain compliance. Adoption of
compliant versions of wide area network equipment is completed and compliance of
office-based local area networks and telephony is proceeding as planned in
accordance with office relocations and infrastructure reinforcement initiatives.
The Company believes that compliance of all business-critical systems has been
(Page 31 of 38)
<PAGE>
substantially completed. To meet changing business requirements the Company
continues to re-evaluate applications that are scheduled for retirement prior to
the Year 2000 rollover and, in some cases, is ensuring their compliance as a
part of ongoing risk mitigation.
The Company's efforts to ensure awareness are on-going throughout the program,
disseminated via the Company's internal web site and through various print
media.
The costs incurred for Year 2000 Date Compliance are financed internally by the
operating groups within the framework of their operating budgets have not had a
material impact on the Company's financial results. Incremental spending on the
Year 2000 Date Compliance issue is limited to specific program costs which are
outside of the normal course of business and are necessitated purely as a result
of Year 2000 date compliance. Incremental spending incurred in fiscal periods
reported to date and projected to be spent in fiscal 2000 associated with the
Year 2000 transition represent less than 1% of the Company's revenues and
expected revenues. There can be no assurance that these costs will not be
greater than anticipated, however, as the Company progresses through its program
and greater certainty regarding costs, particularly related to remediation and
contingency plans for identified risks, will be possible.
The Company is still assessing the potential impact of Year 2000 Date Compliance
on its suppliers and customers and currently cannot fully determine the effect
on its operations and financial condition if key suppliers or customers do not
adequately prepare for Year 2000 Date Compliance transition on a timely basis.
Failure of critical suppliers or customers to address the issue on a timely
basis could result in material financial risk to the Company. As a result, the
Company is actively undertaking Year 2000 Date Compliance contingency planning
as an integral part of the overall program, including service and support
requirements for its customers over the Year 2000 rollover period.
(Page 32 of 38)
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Lucent Technologies Inc. ("Lucent Technologies") filed a complaint during the
fiscal year ended April 30, 1998 in United States District Court in Delaware
against the Company and its United States subsidiary, Newbridge Networks Inc.
Lucent Technologies manufactures and sells telecommunications systems, software
and products, and is both a distributor of the Company's products and a
competitor of the Company. The complaint alleges that the Company's manufacture
and sale in the United States of Newbridge frame relay and ATM (asynchronous
transfer mode) switch products infringe certain United States patent rights
claimed by Lucent Technologies, and requests actual and trebled damages in an
unspecified amount. Based upon its present understanding of the laws in the
United States and the facts, the Company believes it has meritorious defenses to
these claims. The Company has filed an answer to the complaint, as well as a
counterclaim alleging unfair competition by Lucent Technologies, and intends to
defend this action vigorously.
From time to time, the Company receives notifications that it is or may be
infringing the intellectual property rights of third parties. There can be no
assurance that any such claims or potential claims will not require the Company
to enter into license agreements or result in protracted and costly litigation,
regardless of the merits of such claims. No assurance can be given that any
necessary licenses will be available or that, if available, such licenses can be
obtained on commercially reasonable terms.
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 May 2, 1999 is
incorporated herein by reference and made a part hereof.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
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.
Exhibit 27 Financial data schedule
(Page 33 of 38)
<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 10, 1999 By: /s/ Terence H. Matthews
------------------------
Terence H. Matthews,
Chairman of the Board of
Directors and Chief
Executive Officer
Date: September 10, 1999 By: /s/ Kenneth B. Wigglesworth
----------------------------
Kenneth B. Wigglesworth,
Executive Vice President, Finance,
Chief Financial Officer
(Page 34 of 38)
<PAGE>
EXHIBIT INDEX
Page No.
--------
<TABLE>
<CAPTION>
<S> <C> <C>
11.1 Computation of earnings per share under accounting
principles generally accepted
in Canada.......................................... 36
11.2 Computation of earnings per share under accounting
principles generally accepted
in the United States............................... 37
27 Financial data schedule.............................. 38
</TABLE>
(Page 35 of 38)
<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 quarters ended
---------------------
Aug 1, Aug 2,
1999 1998
-------- --------
<S> <C> <C>
Basic earnings per share
Net earnings $ 47,286 $ 35,520
======== ========
Common Shares outstanding
at the beginning of the period 180,105 175,686
Weighted average number of Common Shares
issued during the period 294 419
-------- --------
Weighted average number of Common Shares
outstanding during the period 180,399 176,105
======== ========
Basic earnings per share $ 0.26 $ 0.20
======== ========
Fully diluted earnings per share
Earnings before imputed earnings $ 47,286 $ 35,520
After tax imputed earnings from the investment
of funds received through dilution -- --
-------- --------
Adjusted net earnings $ 47,286 $ 35,520
======== ========
Weighted average number of Common Shares
outstanding during the period 180,399 176,105
Weighted average common share
equivalents based on conversion of
outstanding stock options -- --
-------- --------
Weighted average number of Common
Shares and equivalents outstanding
during the period 180,399 176,105
======== ========
Fully diluted earnings per share $ 0.26 $ 0.20
======== ========
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 $ 0.6787 $ 0.6817
Basic earnings per share, in U.S. dollars $ 0.18 $ 0.14
======== ========
Fully diluted earnings per share, in U.S. dollars $ 0.18 $ 0.14
======== ========
</TABLE>
(Page 36 of 38)
<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 quarters ended
---------------------
Aug 1, Aug 2,
1999 1998
-------- --------
<S> <C> <C>
Earnings per share (U.S. GAAP - Basic)
Net earnings $ 47,286 $ 35,520
======== ========
Weighted average number of Common
Shares outstanding during the period 180,399 176,105
======== ========
Earnings per share (U.S. GAAP) $ 0.26 $ 0.20
======== ========
Earnings per share (U.S. GAAP- Diluted)
Net earnings $ 47,286 $ 35,520
======== ========
Weighted average number of Common Shares
outstanding during the period 180,399 176,105
Net effect of dilutive stock options
based on the treasury stock method 2,101 2,314
-------- --------
Weighted average number of Common
Shares and equivalents outstanding
during the period 182,500 178,419
======== ========
Earnings per share (U.S. GAAP) $ 0.26 $ 0.20
======== ========
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 $ 0.6787 $ 0.6817
Earnings per share (U.S. GAAP)
- Basic, in U.S. dollars $ 0.18 $ 0.14
======== ========
Earnings per share (U.S. GAAP)
- Diluted, in U.S. dollars $ 0.18 $ 0.14
======== ========
</TABLE>
(Page 37 of 38)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of earnings, consolidated balance sheet and consolidated
statement of cash flows included in the Company's Form 10-Q for the fiscal
quarter ending August 1, 1999, and is qualified in its entirety by reference to
such financil statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> Canadian
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-03-1999
<PERIOD-END> AUG-01-1999
<EXCHANGE-RATE> 0.6787
<CASH> 432,459
<SECURITIES> 198,283
<RECEIVABLES> 579,823
<ALLOWANCES> 19,619
<INVENTORY> 271,373
<CURRENT-ASSETS> 1,542,031
<PP&E> 1,028,707
<DEPRECIATION> 565,465
<TOTAL-ASSETS> 2,522,334
<CURRENT-LIABILITIES> 453,480
<BONDS> 0
0
0
<COMMON> 589,956
<OTHER-SE> 1,009,690
<TOTAL-LIABILITY-AND-EQUITY> 2,522,334
<SALES> 495,070
<TOTAL-REVENUES> 495,070
<CGS> 215,521
<TOTAL-COSTS> 426,924
<OTHER-EXPENSES> 2,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,059
<INCOME-PRETAX> 70,326
<INCOME-TAX> 21,705
<INCOME-CONTINUING> 47,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,286
<EPS-BASIC> 0.26
<EPS-DILUTED> 0.26
</TABLE>
