<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 2, 1999
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 Identification No.)
incorporation or organization)
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
Securities registered pursuant to Section 12(b) of the Act:
Common Shares, no par value New York Stock Exchange
(Title of class) (Name of each exchange on which registered)
The common shares are also listed on The Toronto Stock Exchange in Canada.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At October 1, 1999 the aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately Cdn$5,159,613,000. The number of
common shares of the registrant outstanding as at October 1, 1999 was
181,029,529.
<PAGE>
Newbridge Networks Corporation ("Newbridge" or the "Company") hereby amends
Items 6, 7, 8 and 14 of its Annual Report on Form 10-K for the fiscal year ended
May 2, 1999 (SEC File No. 1-13316) to read in their entirety as follows:
Item 6. SELECTED FINANCIAL DATA
The income statement data of the Company presented below for each of the five
fiscal years ended May 2, 1999 and the balance sheet data as at fiscal year end
dates in 1999, 1998, 1997, 1996 and 1995 have been derived from the audited
Consolidated Financial Statements of the Company that are included as part of
this Annual Report on Form 10-K and the Company's Annual Reports on Form 10-K
for the prior three fiscal years.
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------
May 2, April 30, April 30, April 30, April 30,
1999 1998 1997 1996 1995
(Canadian dollars, in thousands, except per share data)
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Sales $1,790,705 $1,620,620 $1,376,727 $ 921,244 $ 800,523
Cost of sales 751,874 625,065 507,588 319,745 260,471
---------- ---------- ---------- ---------- ---------
Gross margin 1,038,831 995,555 869,139 601,499 540,052
Expenses
Selling, general and administrative 531,308 494,429 346,106 231,060 196,073
Research and development 264,421 258,879 155,330 97,205 66,066
Restructuring costs /(1)/ 118,030 181,444 -- -- --
Purchased research and
development in process /(2)/ -- 52,762 96,940 -- --
---------- ---------- ---------- ---------- ---------
Income from operations 125,072 8,041 270,763 273,234 277,913
Interest income, net 8,121 9,761 18,605 22,607 15,952
Net gain on investments /(3)/ 188,726 50,401 (1,564) 12,715 --
Other expenses (20,802) (12,889) (8,051) (3,443) (6,512)
---------- ---------- ---------- ---------- ---------
Earnings before income taxes
and non-controlling interest 301,117 55,314 279,753 305,113 287,353
Provision for income taxes 121,303 73,001 117,718 100,779 96,944
Non-controlling interest 653 631 5,118 1,470 2,019
---------- ---------- ---------- ---------- ---------
Net earnings (loss) /(4)/ $ 179,161 $ (18,318) $ 156,917 $ 202,864 $ 188,390
========== ========== ========== ========== =========
Earnings (loss) per share
Basic $1.01 $(0.10) $0.92 $1.22 $ 1.16
Fully diluted $1.01 $(0.10) $0.91 $1.19 $ 1.11
Weighted average number of shares
Basic 177,630 174,617 170,510 165,842 162,891
Fully diluted 177,630 174,617 184,595 179,665 175,823
</TABLE>
Page 2
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------
May 2, April 30, April 30, April 30, April 30,
1999 1998 1997 1996 1995
(Canadian dollars, in thousands, except per share data)
Income Statement Data (continued):
<S> <C> <C> <C> <C> <C>
U.S. GAAP /(5)/
Net earnings (loss) $179,161 $(18,318) $156,917 $202,864 $188,390
Earnings (loss) per share
Basic $1.01 $(0.10) $0.92 $1.22 $ 1.16
Diluted $0.99 $(0.10) $0.90 $1.19 $ 1.13
Weighted average number of shares
Basic 177,630 174,617 170,510 165,842 162,891
Diluted 180,376 174,617 174,525 170,990 166,646
<CAPTION>
May 2, April 30, April 30, April 30, April 30,
1999 1998 1997 1996 1995
(Canadian dollars in thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working capital $1,243,991 $ 945,892 $ 638,392 $ 658,087 $ 491,888
Total assets 2,470,624 1,966,825 1,496,703 1,093,417 827,163
Short term debt (including current
portion of long term obligations) 2,869 4,136 7,353 2,302 2,562
Long term obligations 384,021 383,311 10,817 860 3,493
Shareholders' equity 1,529,219 1,233,620 1,126,499 902,686 674,645
</TABLE>
- --------------
(1) See Note 14 to the Consolidated Financial Statements.
(2) See Note 15 to the Consolidated Financial Statements.
(3) See Note 16 to the Consolidated Financial Statements.
(4) Pro forma net earnings, which exclude net gain on investments and non-
recurring charges, relating primarily restructuring costs and purchased
research and development, for the periods presented are disclosed in the
"Net Earnings (Loss)" section of "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
(5) Financial information in this Annual Report on Form 10-K is presented in
accordance with accounting principles generally accepted in Canada
("Canadian GAAP"), which also conform in all material respects with
accounting principles generally accepted in the United States ("U.S.
GAAP"), 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, the inclusion of certain
asset impairments in restructuring costs, as disclosed in Note 14, the
write off of purchased research and development in process, as disclosed in
Note 15, and the method of calculation of earnings per share, as disclosed
in Note 18.
Page 3
Item 7. 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".
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, the percentage
of sales represented by certain items in the Company's Consolidated Statements
of Earnings.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------
<S> <C> <C> <C>
May 2, April 30, April 30,
1999 1998 1997
Sales 100.0% 100.0% 100.0%
Cost of sales 42.0 38.6 36.9
----- ----- -----
Gross margin 58.0 61.4 63.1
Expenses
Selling, general and administrative 29.7 30.5 25.1
Research and development 14.7 16.0 11.3
Restructuring costs /(1)/ 6.6 11.2 --
Purchased research and
development in process -- 3.2 7.0
----- ----- -----
Income from operations 7.0 0.5 19.7
Interest income, net 0.5 0.6 1.3
Net gain on investments 10.5 3.0 --
Other expenses (1.2) (0.7) (0.7)
----- ----- -----
Earnings before income taxes
and non-controlling interest 16.8 3.4 20.3
Provision for income taxes 6.8 4.5 8.5
Non-controlling interest 0.0 0.0 0.4
----- ----- -----
Net earnings (loss) 10.0% (1.1)% 11.4%
===== ===== =====
- ------------
</TABLE>
(1) As disclosed in Note 14 to the Consolidated Financial Statements, certain
asset impairments included in restructuring costs in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP") would
be included in the calculation of gross margin under accounting principles
generally accepted in the United States ("U.S. GAAP"). In accordance with
U.S. GAAP, the calculation of gross margin would have included
restructuring costs of $42,290,000 or 2.4% of sales for the year ended May
2, 1999 and restructuring costs of $67,583,000 or 4.2% of sales for the
year ended April 30, 1998.
Page 4
Sales
Fiscal Year Ended
------------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
Sales $1,790,705 $1,620,620 $1,376,727
========== ========== ==========
Increase over prior year 10% 18% 49%
Sales grew in fiscal 1999 compared to fiscal 1998 due to increased sales volume
of products based on packet technologies for wide area network applications (WAN
Packet products) offset in part by a decline in revenues from products based on
packet technologies for local area network applications (LAN Packet products).
Sales grew in fiscal 1998 compared to fiscal 1997 due to increased sales volume
of both WAN Packet and LAN Packet products, offset in part by a decline in sales
of circuit switched networking products.
The following table illustrates, for the periods indicated, the percentage of
sales that comprise each of the Company's major product lines.
<PAGE>
Fiscal Year Ended
--------------------------------------
May 2, April 30, April 30,
1999 1998 1997
WAN Packet products 59% 46% 33%
Circuit switched networking products 38 41 57
LAN Packet products 3 13 10
--- --- ---
100% 100% 100%
=== === ===
The following table illustrates, for the periods indicated, the annual sales
growth rates for each of the Company's major product lines.
Fiscal Year Ended
--------------------------------
May 2, April 30, April 30,
1999 1998 1997
WAN Packet 43% 62% 98%
Circuit switched networking 2 -15 20
LAN Packet -78 56 673
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 have been and are expected to be
subject to potential declines and quarterly variability as customers throughout
the world increasingly adopt packet technologies.
LAN Packet product revenues declined in fiscal 1999 relative to fiscal 1998 as a
result of 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 restructured its activities in the LAN
business, including the former UB, in the third
Page 5
quarter of fiscal 1998 and instituted an end of life program in the second
quarter of fiscal 1999 to discontinue the sale and development of LAN Layer 2
Switching products. In fiscal 1998 and in fiscal 1997 LAN Packet product
revenues increased, mainly as a result of the purchase of UB.
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. Sales growth, however, may
be impeded due to longer sales cycles often associated with the adoption of
newer, less established technologies.
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. Deliveries to original equipment manufacturers (OEMs) for service
provider customers and deliveries under certain large contracts with service
providers contributed significantly to sales in fiscal 1999, fiscal 1998 and
fiscal 1997. Sales to Siemens AG and subsidiaries were generally under OEM
arrangements for resale to end users. Sales to service providers and enterprises
as a percentage of total sales and the proportion of sales to Siemens AG were as
follows.
Fiscal Year Ended
------------------------------
May 2, April 30, April 30,
1999 1998 1997
Service providers 75% 69% 66%
Enterprises 25 31 34
---- ---- ----
100% 100% 100%
==== ==== ====
Sales to Siemens A.G. 18% 16% 18%
==== ==== ====
The proportion of revenue derived from service providers in fiscal 1999
increased relative to fiscal 1998 due to the decline in revenues of former UB
Networks products, which largely serve enterprise customers. The proportion of
revenue derived from service providers in fiscal 1998 increased relative to
fiscal 1997 primarily as a result of increased acceptance and demand by service
providers for the Company's WAN Packet products.
<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.
Fiscal Year Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
Americas Region 51% 51% 49%
European Region 35% 31% 33%
Asia Pacific Region 14% 18% 18%
Sales increased in fiscal 1999 relative to fiscal 1998 in both the Americas
Region and the European Region, although sales decreased in the Asia Pacific
Region during the same period as a result of a downturn in economic activity in
that region. For additional geographic segment information, see Note 20 to the
Consolidated Financial Statements.
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
Page 6
subject to change based on fluctuations in the rates of exchange of those
currencies for the Canadian dollar. The decrease in exchange rates of the
Canadian dollar for the Pound Sterling and the U.S. dollar during fiscal 1999,
relative to exchange rates during fiscal 1998, resulted in a 6% or $91,248,000
positive variance in reported sales as compared to fiscal 1998. The decrease in
exchange rates of the Canadian dollar for the Pound Sterling and the U.S. dollar
during fiscal 1998, relative to exchange rates during fiscal 1997, resulted in a
7% or $95,736,000 positive variance in reported sales as compared to fiscal
1997. As substantial portions of the Company's cost of sales and other expenses
are also incurred in U.S. dollars and Pounds Sterling, the variations in rates
of exchange did not result in a material variance in net earnings for fiscal
1999, fiscal 1998 or fiscal 1997. For information related to the Company's
policies in its management of foreign exchange exposures, see "Quantitative and
Qualitative Disclosures About Market Risk" and Note 10 to the Consolidated
Financial Statements.
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 become subject to sales fluctuations toward the end of calendar
1999 as the issue of Year 2000 date compliance may influence customer buying
patterns. 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, so the Company does not anticipate significant sales fluctuations
associated with Year 2000 date compliance. The Company will have a better
indication of potential fluctuations in the second half of calendar 1999. Refer
to the "Year 2000 Date Compliance" section of this report for a summary of the
Company's program for ensuring that all of its products are Year 2000 date
compliant.
Page 7
<PAGE>
Cost of Sales and Gross Margin
Fiscal Year Ended
--------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
Gross margin $1,038,831 $995,555 $869,139
========== ======== ========
As a percentage of sales 58% 61% 63%
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 fiscal 1999 relative to fiscal 1998 due to the continuing
shift in the mix of sales from higher gross margin circuit switched networking
products to lower margin WAN Packet products. In addition, the gross margin,
expressed as a percentage of sales, was negatively impacted by lower average
selling prices as the Company experienced increased competition on product
pricing, particularly in the market for products based on packet technologies.
The decline in the gross margin as a percentage of sales in fiscal 1998 relative
to fiscal 1997 was primarily the result of the decline in revenues from circuit
switched networking products, which carried gross margins above the average
gross margins earned on the Company's other products.
The impact on product pricing of increased competition, particularly in the
market for products based on packet technologies, may constrain the Company's
ability to maintain gross margins with reductions in per unit costs. As a
result, the gross margin as a percentage of sales may deteriorate in fiscal 2000
compared to fiscal 1999.
For a discussion of the effect of U.S. GAAP on gross margins, refer to the
"Restructuring Costs" section of this report.
Selling, General and Administrative Expenses
Fiscal Year Ended
---------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
Selling, general and administrative expenses $531,308 $494,429 $346,106
======== ======== ========
As a percentage of sales 30% 31% 25%
Increase over prior year 7% 43% 50%
Selling, general and administrative expenses increased in fiscal 1999 relative
to fiscal 1998 principally as a result of increased remuneration costs
associated with salary increases and the addition of sales, marketing and
technical support personnel. Other increases in fiscal 1999 relative to fiscal
1998 included amortization costs associated with upgrading information
technology infrastructure, and increased marketing costs related to the
introduction of new products and expanded advertising programs.
The decrease in selling, general and administrative expenses as a percentage of
sales in fiscal 1999 relative to fiscal 1998 resulted from the lower percentage
increase in expenditures as
Page 8
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 continue to decline in fiscal 2000 relative to fiscal
1999.
The increase in selling, general and administrative expenses as a percentage of
sales in fiscal 1998 over fiscal 1997 reflects the higher cost structure of
companies acquired during fiscal 1997 and the impact of sequential sales
declines in the first three quarters of fiscal 1998.
<PAGE>
Research and Development
Fiscal Year Ended
---------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
Gross research and development expenditures $339,844 $305,357 $195,229
Investment tax credits 37,846 34,971 26,400
Customer, government and other funding 30,013 5,507 9,484
Net deferral (amortization) of
software development costs 7,564 6,000 4,015
-------- -------- --------
Net research and development expenses $264,421 $258,879 $155,330
======== ======== ========
Gross expenditures as a percentage of sales 19% 19% 14%
Increase in gross expenditures over prior year 11% 56% 49%
Recoveries as a percentage of gross expenditures 22% 15% 20%
Net research and development
expenses as a percentage of sales 15% 16% 11%
Increase in net expenditures over prior year 2% 67% 60%
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. The sequential increases in
gross research and development expenditures in fiscal 1999 and fiscal 1998
reflect spending on the development of higher and lower capacity ATM switches
and interfaces, development of switches, forwarding engines, interfaces and
services for IP traffic, and related network management and service software.
The majority of the increase resulted from salary increases for engineering
staff and increased amortization associated with capital deployed in research
and development.
Recoveries increased as a percentage of gross expenditures in fiscal 1999
compared to fiscal 1998 due to an increase in customer, government and other
funding. The increase in customer, government and other funding is mainly as a
result of funding secured for the Company's broadband wireless access product
initiative, as described in Note 13 to the Consolidated Financial Statements.
Management expects the level of recoveries, as a percentage of gross research
and development expenditures, in fiscal 2000 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.
Page 9
Recoveries decreased as a percentage of gross expenditures in fiscal 1998
compared to fiscal 1997 due to declines in investment tax credits and in
customer, government and other funding as a proportion of gross research and
development expenditures.
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.
Restructuring Costs
Restructuring costs are comprised of the following.
Fiscal Year Ended
--------------------------
May 2, April 30, April 30,
1999 1998 1997
Restructuring programs, April 1999 $ 73,570 $ -- $ --
Layer 2 Switching End of Life 37,928 -- --
Asia Pacific Resources Relocation 6,532 -- --
LAN business restructuring, November 1997 -- 181,444 --
-------- --------- ---------
$118,030 $181,444 $ --
======== ========= =========
<PAGE>
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 has 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 relate
primarily to asset impairment losses related to the 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 and the related costs incurred
are as follows:
<TABLE>
<CAPTION>
Sales and Product Costs Balance at
Marketing Development Total Incurred May 2, 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 -- $15,022
Reduction in facilities 6,627 -- 6,627 -- 6,627
Other restructuring costs 1,653 171 1,824 -- 1,824
------- ------- ------- -------- -----------
22,875 598 23,473 -- $23,473
------- ------- ------- ======== ===========
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
Page 10
related reserves, exceeded the estimated net realizable value of the underlying
assets. Substantially all of the net book values of the inventory and property,
plant and equipment affected by the restructuring programs have been reflected
as asset impairment losses since the Company estimates that the proceeds of
disposition of these assets will approximate the costs of disposal. These asset
impairment losses will reduce amortization expense in fiscal 2000 by
approximately $11,700,000. The Company anticipates that assets impaired as a
result of the restructuring programs will be disposed of during fiscal 2000.
The amounts included in the provision for restructuring are reflected in accrued
liabilities as at May 2, 1999.
The provision for the reduction in work force includes severance, related
medical and other benefits, and other obligations to employees. The provision
includes termination benefits for 137 employees. The work force reductions will
occur in Japan, Russia and various other countries. The Company anticipates that
these work force reductions will be substantially completed in the first half of
fiscal 2000.
The provision for the reduction in facilities comprises 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 in fiscal 2000.
The provision for other restructuring costs comprises certain consulting costs
associated with establishing termination benefits for employees in addition to
outplacement and counseling services as well as various other 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 during fiscal 1999. End of life
program costs of $37,928,000 and the related costs incurred are as follows:
Costs Balance at
Total Incurred May 2, 1999
Asset impairment losses
Accounts receivable $ 7,762
<PAGE>
Inventory 22,928
-------
30,690
Customer obligations 7,238 (7,238) $ --
------- ======== ===========
Layer 2 Switching End of Life program costs $37,928
=======
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. The net carrying amount of inventory
affected by the Layer 2 Switching End of Life program was reduced to $1,458,000
given demand for the affected products and the Company's estimated proceeds of
disposition, net of the costs of disposal. This inventory was substantially
disposed of during fiscal 1999.
Page 11
Customer obligations related to the cost to the Company of acquiring products
from third parties and providing them to customers in order to meet the
Company's commitments with respect to providing certain network functionality.
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 for relocation of $6,532,000 and the
related costs incurred are as follows:
<TABLE>
<CAPTION>
Costs Balance at
Total Incurred May 2, 1999
<S> <C> <C> <C>
Provision for Asia Pacific Resources relocation
Workforce terminations $3,407 $ (690) $2,717
Reduction in facilities 2,600 -- 2,600
Other relocation costs 525 (525) --
------ ------- ------
$6,532 $(1,215) $5,317
====== ======= ======
</TABLE>
The provision for workforce terminations reflects the accrual of involuntary
termination benefits for 27 employees. The provision for reduction in facilities
comprises lease cancellation penalties associated with relocating facilities to
Hong Kong and Malaysia. Other relocation costs consist of direct incremental
costs associated with the relocation. The balance of the provision for Asia
Pacific resources relocation is included in accrued liabilities at May 2, 1999.
Additional costs related to the transfer of personnel and equipment, the
recruitment of new staff and the expansion of facilities in Hong Kong are not
included in the Asia Pacific Resources relocation charge and are being expensed
as incurred. These additional costs are estimated at $9,000,000, with the
majority of the costs to be incurred during the first two quarters of fiscal
2000.
In November 1997, the Company decided to restructure its activities related to
its local area network ("LAN") business. The restructuring plan involved the
discontinuation of certain product lines, termination of employees,
discontinuation of development activities associated with the former UB Networks
and closure of former UB Networks facilities. The Company's restructuring plan
created impairment losses on assets associated with the LAN business and
liabilities associated with restructuring activities. Restructuring costs of
$181,444,000 and the related costs incurred were as follows:
<TABLE>
<CAPTION>
Costs Incurred Costs Incurred Balance at
Total in Fiscal 1998 in Fiscal 1999 May 2, 1999
<S> <C> <C> <C> <C>
Asset impairment losses
Accounts receivable $ 12,732
Inventory 54,851
Property, plant and equipment 11,936
Goodwill 57,125
Other current and non-current assets 5,162
--------
141,806
--------
Provision for restructuring
Reduction in work force 20,796 (19,614) (1,182) --
Reduction in facilities 4,753 (4,202) (551) --
Discontinued activities 13,577 (10,017) (3,560) --
Other restructuring costs 512 (512) -- --
-------- -------- -------------- -----------
39,638 $(34,345) $(5,293) $ --
-------- ======== ============== ===========
Restructuring costs $181,444
========
</TABLE>
Page 12
<PAGE>
Asset impairment losses were recorded to the extent the net book value,
including related reserves, exceeded the fair value of any assets associated
with the Company's restructuring plan. The fair value was based on the estimated
net realizable value of the underlying assets affected by the restructuring.
The net carrying amount of inventory affected by the restructuring activities
was reduced to $19,603,000 given demand for the affected products and the
Company's estimate of the excess of proceeds on disposition over the costs of
disposal. This inventory was substantially disposed of by the end of fiscal
1999.
Substantially all of the net book value of the property, plant and equipment
affected by the restructuring plan was reflected as an asset impairment loss
since the Company estimated the proceeds of disposition of these assets would
approximate the costs of disposal. Asset impairment losses associated with
property, plant and equipment reduced amortization expense in fiscal 1999 by
approximately $4,774,000. The property, plant and equipment impaired as a result
of the restructuring program was substantially disposed of by the end of fiscal
1999.
The acquisitions of UB Networks, acquired in January 1997, and Ouest Standard
Telematique, acquired in August 1996, related to the Company increasing its
direct presence and participation in the LAN business. The Company's decision to
restructure its activities in the LAN business impaired the value of goodwill
associated with these acquisitions. Accordingly, the Company included the full
net book value of goodwill related to the acquisitions of UB Networks
($18,775,000) and Ouest Standard Telematique ($38,350,000) as restructuring
costs.
The provision for reduction in work force included severance, related medical
and other benefits, relocation costs and other obligations to employees. The
provision included termination benefits for 400 employees. The work force
reductions were in substantially all functions and in all regions in which the
Company operates. The work force reductions were completed in fiscal 1999.
The provision for reduction in facilities comprised lease payments and fixed
costs associated with plans to close sales, support and administrative
facilities in the Americas, Europe and Asia Pacific geographic areas. Certain
facilities closures planned as part of the restructuring plan formulated upon
the acquisition of UB Networks were also part of the restructuring plan defined
in November 1997. Facilities closures were completed in fiscal 1999.
The provision for discontinued activities included costs associated with
acquiring products from third parties and providing them to customers to fulfill
prior commitments related to certain discontinued product lines and activities.
These activities were completed in fiscal 1999.
The provision for other restructuring costs comprised certain consulting costs
associated with workforce reductions including outplacement and counseling
services for employees as well as various other direct incremental costs
associated with the restructuring plan.
In accordance with Canadian GAAP, impairments to accounts receivable and
inventory attributable to restructuring activities have been included in
restructuring costs. Under U.S. GAAP, impairments to accounts receivable and
inventory attributable to restructuring activities would be included in the
calculation of gross margin. In accordance with U.S. GAAP, the calculation of
gross margin would have included restructuring costs of $42,290,000 for fiscal
1999 and restructuring costs of $67,583,000 for fiscal 1998.
Page 13
<PAGE>
Purchased Research and Development In Process
In November 1997, the Company acquired a 49.9% equity interest in RadNet Ltd.,
an Israeli developer and manufacturer of access switches for ATM networks, for
cash consideration of $53,676,000. Associated with this investment, the Company
incurred $52,762,000 in purchased research and development in process expense
("PR&DIP") in fiscal 1998. As of the investment date, the research and
development project in process was for the development of an ATM access switch
designed to aggregate various speeds of voice and data traffic. The initial
product release of the ATM access switch was approximately 65% complete as at
the investment date. The market for ATM access switches was nascent at the time
of investment.
RadNet Ltd. expected to incur approximately $30,000,000 in research and
development expenses to complete the ATM access switch project. The estimated
costs to complete the project were related to software and hardware engineering
personnel expenses, costs associated with equipment and facilities, and
subcontracted research and development costs. Approximately 70% of these
estimated costs were expected to be incurred over the 3 years following the
acquisition. The ATM access switches were expected to be shipped to initial
customers approximately nine months after the acquisition, and in volume fifteen
months after the acquisition.
The ATM access switch market is characterized by rapid technological change,
frequent product introductions and evolving methods used by service providers
and corporations in building and managing networks. For the ATM access switch
market, the key risk identified at the time of acquisition was the time taken to
introduce a fully featured product to the market relative to the competition.
Delays in introducing a fully featured ATM access switch would result in a late
introduction of the product to the market, which would result in a reduction in
planned revenue. The Company was aware of many large customer opportunities at
the time of the investment, but was also aware that delays in introducing the
product would result in these same large customers diverting purchases to
competing products.
The appraisal method used to value the PR&DIP associated with the project was a
discounted cash flow. The projected cash flow was calculated over a period of 6
years, and a risk adjusted discount factor of 19% was used. The discount factor
was based on a risk adjusted weighted average cost of capital.
Significant appraisal assumptions included growth in revenues for the ATM access
switch to approximately $300,000,000 in fiscal 2003. Gross margin, expressed as
a percentage of sales, was projected to be 77% on initial shipments, declining
to 67% by fiscal 2001 and in subsequent years due to market maturation. Selling,
general and administrative expenses were expected to be 47% of sales initially,
declining to 20% due to economies of scale associated with the increase in sales
volume. These projections were based on expense forecasts for the initial stages
of product introduction, and industry averages thereafter. Research and
development expenses were projected based on the project plan, including costs
to correct errors and evolve new versions in the later stages of the planning
horizon. The income tax rate for this Israeli-based initiative was assumed at
25%.
Under accounting principles generally accepted in Canada, the purchased research
and development in process was amortized on a straight line basis over its
estimated useful life of six months. Under U.S. GAAP, purchased research and
development in process acquired by the Company was written off at the time of
acquisition.
Page 14
During fiscal 1999, the Company decided to cease funding of RadNet's ATM access
switch project and the Company's related sales efforts.
During fiscal 1997, the Company incurred $96,940,000 in PR&DIP related to the
acquisition of UB Networks, a manufacturer of LAN equipment based in Santa
Clara, California. As of the acquisition date, the research and development
project in process was for the development of high speed interface cards for its
high capacity LAN switch called GeoLAN 500. The initial release of the interface
cards were 70% to 80% complete as at the acquisition date. The project involved
the development of interface protocols and speeds which existed in the LAN
market, with a high number of network connections per interface card.
The Company expected to incur approximately $38,000,000 in research and
development expenses to complete the high speed interface cards for the GeoLAN
500. The estimated costs to complete the project were associated with software
and hardware engineering personnel expenses, costs associated with equipment and
facilities, and subcontracted research and development costs. Approximately 75%
of these estimated costs were expected to be incurred over the 18 months
following the acquisition. The interface cards were expected to be shipped to
initial customers approximately three months after the acquisition, and in
volume nine months after the acquisition.
<PAGE>
The LAN market is characterized by rapid technological change, frequent product
introductions and evolving methods used by corporations in building and managing
networks. For the high speed interface development project, the key risk
identified at the time of acquisition was the successful and timely completion
of the development of custom ASICs (application specific integrated circuits).
This project task was identified as a critical path item. Delays associated with
the ASICs, or certain other project tasks, would result in a late introduction
of the product to the market. Any late introduction of the interface cards would
result in a reduction in planned revenue for the GeoLAN 500, and potentially for
the entire product portfolio of the former UB Networks. The large majority of
sales for the GeoLAN 500 were targeted at the installed base of customers of the
former UB Networks organization, and therefore a delay in product introduction
would result in a loss of credibility with these customers.
The appraisal method used to value the PR&DIP associated with the project was a
discounted cash flow. The projected cash flow was calculated over a period of 7
years and three months, and a risk adjusted discount factor of 26% was used. The
discount factor was based on a risk adjusted weighted average cost of capital.
Significant appraisal assumptions included growth in revenues for the GeoLAN 500
to over $300,000,000 in fiscal 2001, with declining revenues thereafter until
revenues cease in fiscal year 2004. Gross margin, expressed as a percentage of
sales, was projected to be 58% on initial shipments, improving to 65% eventually
as the Company gained economies of scale and cost reductions. Similarly,
selling, general and administrative expenses were expected to be 29% of sales
initially, declining to 23%. These assumptions were based on historical
information for major product initiatives in the LAN market. Research and
development expenses were projected based on the project plan, including costs
to correct errors and evolve new versions in the later stages of the planning
horizon.
Under U.S. GAAP, PR&DIP acquired by the Company on the acquisition of UB
Networks was written off against net earnings upon acquisition. Under accounting
principles generally accepted in Canada research and development in process
acquired by the Company on the
Page 15
acquisition of UB Networks was capitalized upon acquisition and disclosed on the
Consolidated Balance Sheet at January 26, 1997.
Upon review of the recoverability of the research and development in process,
undertaken during the fourth quarter of the fiscal year ended April 30, 1997,
the Company determined that the PR&DIP no longer met all the criteria for
deferral and accordingly the balance was written off as a charge to earnings for
the fourth fiscal quarter of fiscal 1997. The Company significantly altered
product plans associated with the research and development project and concluded
that recoverability could not be reasonably regarded as assured. In addition,
Management determined that adequate resources may not be made available to
complete the project associated with the PR&DIP, as originally defined. In
October 1998, the Company decided to fully discontinue the sale and development
of LAN products as part of the enhancement of the focus on the Company's
dominant and more profitable products.
Interest and Other Expenses
Fiscal Year Ended
-----------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
Interest income $34,248 $11,581 $19,956
Interest expense on long term obligations 26,127 1,820 1,351
Other expenses 20,802 10,448 9,615
Interest income earned in fiscal 1999 increased as compared to fiscal 1998 due
to an increase in the average cash position maintained by the Company. The
primary contributors to the increase in the cash position were proceeds received
from the sale of long term investments and proceeds from the issuance of Senior
Notes in April 1998. Interest income earned in fiscal 1998 decreased as compared
to fiscal 1997 due to declines in the cash position maintained by the Company
and due to declines in interest rates earned on investments. Interest expense on
long term obligations increased in fiscal 1999 relative to fiscal 1998 and
fiscal 1997 primarily due to the issuance of US$225,000,000 in Senior Notes in
April 1998.
<PAGE>
Other expenses increased in fiscal 1999 relative to fiscal 1998 and fiscal 1997
primarily as a result of the Company's equity share of its affiliate companies
losses.
Page 16
Net Gain on Investments
Fiscal Year Ended
-------------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
Cambrian Systems Corporation $131,748 $ -- $ --
Advanced Computer Communications 128,336 -- --
Vienna Systems Corporation 15,846 -- --
Tundra Semiconductor Corporation 11,748 -- --
Broadband Networks Inc. -- 47,960 --
Other divestitures -- 6,528 --
West End Systems Corp. (33,521) -- --
Investment impairment write downs (65,431) (4,087) (1,564)
-------- ------- -------
$188,726 $50,401 $(1,564)
======== ======= =======
In December 1998, the Company sold its minority ownership position in Cambrian
Systems Corporation ("Cambrian") to Northern Telecom Limited ("Nortel") for cash
proceeds of US$95,674,000 (Cdn$147,158,000). The proceeds include an earn-out
payment of US$1,935,000 (Cdn$2,855,000) received by the Company as a result of
certain specified financial performance targets being met by Cambrian. The
proceeds exclude future potential earn-out payments of approximately
US$21,000,000 which will be received by the Company if certain specified
financial performance targets are met by Cambrian.
In October 1998, the Company completed the sale of its majority ownership
position in Advanced Computer Communications ("ACC") to Telefonaktiebolaget LM
Ericsson for cash proceeds of US$167,319,000 (Cdn$258,308,000). ACC's results of
operations were consolidated with the Company's results for the first six months
of fiscal 1999 ended November 1, 1998. The results of operations and the
financial position of ACC were not significant relative to the Company's
consolidated results of operations and financial position for all periods
presented.
In December 1998, the Company sold its minority ownership position in Vienna
Systems Corporation to Nokia Corporation for cash proceeds of $39,716,000.
In February 1999, the Company sold a portion of its minority ownership position
in Tundra Semiconductor Corporation for cash proceeds of $19,498,000 as part of
an initial and secondary share offering by Tundra.
In January 1998, the Company sold its minority interest in Broadband Networks
Inc. to Nortel for proceeds of $66,672,000. The proceeds received included cash
of $23,775,000 and Nortel shares valued at $42,897,000.
On February 10, 1999 West End Systems Corp., a manufacturer of access and
transmission products for the communications and cable television industries,
filed an assignment in bankruptcy under the Canadian Bankruptcy and Insolvency
Act. As a result, the Company recorded losses related to the Company's minority
ownership position in West End Systems Corp. and unsecured trade accounts
outstanding.
Page 17
In fiscal 1999, the Company recorded investment impairment write downs of
$65,431,000 attributable to the financial performance of certain investee
companies as well as deteriorating economic conditions in certain geographic
regions. Investment impairment write downs in fiscal 1999 included $17,247,000
related to the carrying value of the Company's investment in a subsidiary
company that developed packet voice technology and network access products. The
Company also divested its ownership position in a Brazilian subsidiary and
recognized a loss of $14,902,000 associated with the carrying value of its
investment and related disposition costs. As a result of deteriorating economic
conditions in Russia, the Company recognized a loss of $11,449,000 attributable
to its investment in a joint venture in that country. The Company recorded
investment impairments of $21,833,000 in fiscal 1999 as a result of the
financial condition of seven investee companies.
<PAGE>
The Company evaluates, on an ongoing basis, the value of its long term
investments considering the evolution of the market segments of investee
companies, any impact of deteriorating economic conditions in various countries,
and any other specific information which indicates impairment of value in these
investments. The Company establishes fair value of its long term investments in
investee companies by referring to quoted market values or reviewing valuations
implicit in recent private financing. The Company also utilizes a variety of
valuation techniques which include assessing potential proceeds that could be
expected to be received on a disposition of the Company's investment,
discounting future cash flows expected to be received from holding the
investment and reviewing recent acquisitions and divestitures of companies in
the industry that are comparable to the investee company.
Income Taxes
Fiscal Year Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
Income tax rate 40% 132% 42%
Income tax rate excluding
non-recurring gains and charges 30% 30% 31%
The income tax rates for fiscal 1999, fiscal 1998 and fiscal 1997 differ from
the income tax rates, excluding non-recurring gains and charges, due to limits
on the deductibility of certain elements of restructuring costs recorded in
fiscal 1999 and fiscal 1998 and purchased research and development in process
recorded in fiscal 1998 and fiscal 1997. The composite rates of income tax,
excluding non-recurring gains and charges, for fiscal 1999, 1998 and 1997 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
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, excluding non-recurring gains and charges, 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. See Note 17 to
the Consolidated Financial Statements.
Page 18
Non-Controlling Interest
The non-controlling interests' share of net earnings in fiscal 1999, fiscal 1998
and fiscal 1997 represented less than 1% of the Company's sales in fiscal 1999,
fiscal 1998 and fiscal 1997. The non-controlling interests' share of net
earnings in fiscal 1997 of $5,118,000 related primarily to profits from the
operations of Transistemas S.A., an Argentine systems integrator of networking
products. As at May 2, 1999 there are non-controlling interests in three of the
Company's subsidiaries. All three of these subsidiaries are systems integrators
of networking products in Latin America.
<PAGE>
<TABLE>
<CAPTION>
Net Earnings (Loss)
Fiscal Year Ended
------------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
Net earnings (loss) $ 179,161 $(18,318) $156,917
<S> <C> <C> <C>
Non-recurring gains and charges
Restructuring costs 118,030 181,444 --
Purchased research and
development in process -- 52,762 96,940
Settlement of litigation/(1)/ -- 2,642 --
Net gain on investments (188,726) (50,401) 1,564
Provision for income taxes on
non-recurring gains and charges 53,329 767 --
--------- -------- --------
Pro forma net earnings, excluding
non-recurring gains and charges $ 161,794 $168,896 $255,421
========= ======== ========
Pro forma net earnings, excluding non-recurring
gains and charges, as a percent of sales 9% 10% 19%
Pro forma net earnings, excluding non-recurring
gains and charges, per share
Canadian GAAP
Basic $ 0.91 $ 0.97 $ 1.50
Fully diluted $ 0.91 $ 0.97 $ 1.45
U.S. GAAP
Basic $ 0.91 $ 0.97 $ 1.50
Diluted $ 0.90 $ 0.95 $ 1.46
</TABLE>
(1) Included within selling, general and administrative expenses on the
Consolidated Statement of Earnings.
Page 19
A reconciliation of the major components of the change in net earnings, as
compared to the prior fiscal year, for each of the fiscal years reported is as
follows.
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
<S> <C> <C> <C>
Gross margin from sales increase $104,484 $ 153,972 $ 297,394
(Decrease) in product gross margins
as a percentage of sales (61,208) (27,556) (29,754)
(Increase) in operating expenses (45,063) (249,230) (173,171)
(Increase) in interest and other expenses, net (11,994) (9,677) (10,174)
Decrease (increase) in income taxes on
pro forma net earnings 4,260 45,484 (21,136)
(Increase) decrease in non-controlling interest (22) 4,487 (3,648)
-------- --------- ---------
(Decrease) increase in pro forma net earnings (9,543) (82,520) 59,511
Change in non-recurring gains and charges,
net of income taxes 207,022 (92,715) (105,458)
-------- --------- ---------
Increase (decrease) in net earnings 197,479 (175,235) (45,947)
Net earnings (loss) in prior year (18,318) 156,917 202,864
-------- --------- ---------
Net earnings (loss) $179,161 $ (18,318) $ 156,917
======== ========= =========
</TABLE>
RECONCILIATION OF FINANCIAL RESULTS TO UNITED STATES ACCOUNTING PRINCIPLES
The Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). These
principles are also generally accepted in the United States ("U.S. GAAP") in all
material respects except for the disclosure of certain cash equivalents
<PAGE>
on the Consolidated Balance Sheets and investing activities on the Consolidated
Statements of Cash Flows, as disclosed in Note 2, the inclusion of certain asset
impairments in restructuring costs, as disclosed in Note 14, the write off of
purchased in process research and development, as disclosed in Note 15, and the
method of calculation of earnings per share, as disclosed in Note 18. Other than
the accounting treatment associated with any future acquisitions or mergers, the
Company expects that the differences in future years will not be significant.
Page 20
FINANCIAL CONDITION
During the fiscal year ended May 2, 1999 working capital increased from
$945,892,000 to $1,243,991,000. As at May 2, 1999 the Company had $879,694,000
of cash and cash equivalents, which represented an increase of $380,416,000
during fiscal 1999. The most significant contributing item to the increase in
cash and cash equivalents in fiscal 1999 was proceeds from the sale of long term
investments, which amounted to $456,966,000 (see Note 16 to the Consolidated
Financial Statements). A summary of the major cash flow components by activity
is as follows.
<TABLE>
<CAPTION>
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
<S> <C> <C> <C>
Net earnings (loss) $ 179,161 $ (18,318) $ 156,917
Add back items not affecting cash
Non recurring (gains) and charges (73,551) 183,805 96,940
Amortization and other non-cash charges 235,062 158,474 118,096
(Increase) decrease in working capital,
excluding cash and cash equivalents (121,688) (222,436) (148,579)
------- ------- -------
Cash flow from operating activities 218,984 101,525 223,374
------- ------- -------
Additions to property, plant and equipment (213,903) (276,778) (131,641)
Proceeds on sale of long term investments 456,966 66,672 --
Long term investments and other (184,882) (199,581) (267,960)
------- ------- -------
Cash flow from investing activities 58,181 (409,687) (399,601)
------- ------- -------
Proceeds from stock option exercises 112,293 89,430 54,096
Net increase (decrease) in long term debt 2,533 366,312 (5,218)
------- ------- -------
Cash flow from financing activities 114,826 455,742 48,878
------- ------- -------
Impact of foreign currency translation
and cash from acquisitions (11,575) 17,794 5,504
------- ------- -------
Net cash flow during the period $ 380,416 $ 165,374 $ (121,845)
======= ======= ========
</TABLE>
Principal components of the Company's working capital are accounts receivable,
inventory, and accounts payable. 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. Accounts receivable, as a proportion of revenue, remained
consistent in fiscal 1999 as compared to fiscal 1998. Inventory turns improved
during the year from 3.2 times in fiscal 1998 to 3.6 times in fiscal 1999.
In April 1998 the Company issued US$225,000,000 Senior Notes due April 2003
bearing a coupon rate of 6.51%. The Senior Notes require semi-annual payments of
interest only, with the principal due at maturity. The Company's obligation
under the Senior Notes can be satisfied at any time prior to maturity subject to
a make whole provision. The Senior Notes are unsecured.
In January 1998 the Company entered into and received $50,000,000 under a long
term loan agreement. The loan agreement includes a term loan portion and a
demand loan portion, both due January 2003. The term loan bears interest at the
fixed rate of 5.46% and the demand loan bears interest at a floating rate equal
to the one month's bankers' acceptance rate. The term loan
Page 21
requires semi-annual payments of interest only, with the principal due at
maturity. The Company's obligation under the term loan can be satisfied at any
time prior to maturity subject to a make whole provision. The term loan is
secured by 654,220 Nortel shares. The demand loan, which is unsecured, requires
monthly payments of interest only, with the principal due at maturity.
Existing short term bank credit facilities consist of operating lines of credit
with certain banks in the aggregate amount of $156,258,000, primarily with banks
in Canada, the United Kingdom, the United States and Chile. At May 2, 1999
$5,881,000 was being utilized under these credit facilities, primarily
attributed to non-wholly owned subsidiary Coasin S.A.
<PAGE>
During fiscal 1999 and fiscal 1998 the Company generated cash proceeds of
$456,966,000 and $66,672,000, respectively, on the sale of equity positions in
the following companies. Details of each transaction are described in Note 16 to
the Consolidated Financial Statements.
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
Advanced Computer Communications $258,308 $ -- $ --
Cambrian Systems Corporation 147,158 -- --
Vienna Systems Corporation 39,716 -- --
Tundra Semiconductor Corporation 19,498 -- --
Broadband Networks Inc. -- 66,672 --
Less: escrow provisions (7,714) -- --
-------- -------- -----
Proceeds on sale of long term investments $456,966 $66,672 $ --
======== ======== =====
Capital expenditures for fiscal 1999 of $213,903,000 declined as compared to
those of fiscal 1998 ($276,778,000) because there was no major facilities
expansion cost incurred during fiscal 1999. Capital expenditures for fiscal 1998
exceeded those of fiscal 1997 as the Company invested in new facilities in
Canada, in land in the metropolitan area of Washington, D.C., in research and
development and manufacturing equipment and in information systems. 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.
Management believes that inflation did not have a material effect on operations
during the fiscal year ended May 2, 1999.
Page 22
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 for US$60,000,000
(Cdn$90,511,000) and has an option to increase its equity ownership position to
50% for US$10,000,000.
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
common shares. The CVR is expected to have a value of up to US$5 per share.
<PAGE>
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 have been reviewed, with certain
offerings found to be Non-Compliant, and
Page 23
others that will not be evaluated for Year 2000 Date Compliance. All the formal
messages and Year 2000 Date Compliance Additional Notes are available on the
Company's worldwide web site at http://www.newbridge.com/year2000/.
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 Company is investigating the
various means by which technical information is 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/.
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 Date 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.
<PAGE>
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.
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
Page 24
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 40% as at
end of May, 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 which 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.
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
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, which recently included a brochure "The Year 2000 Problem and You"
attached to employee pay stubs.
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 (operating expenses as a
percentage of sales, for example). 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.
<PAGE>
Page 25
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.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are filed as part of
this Annual Report on Form 10-K:
Financial Statements
Auditors' Report to the Shareholders
Consolidated Statements of Earnings and Retained Earnings
for the years ended May 2, 1999, April 30, 1998 and 1997
Consolidated Balance Sheets as at May 2, 1999 and April 30, 1998
Consolidated Statements of Cash Flows for the
years ended May 2, 1999, April 30, 1998 and 1997
Consolidated Statements of Shareholders' Equity for the
years ended May 2, 1999, April 30, 1998 and 1997
Notes to the Consolidated Financial Statements
Selected Quarterly Financial Data (unaudited)
Page 26
<PAGE>
AUDITORS' REPORT
To the Shareholders of Newbridge Networks Corporation:
We have audited the consolidated balance sheets of Newbridge Networks
Corporation as at May 2, 1999 and April 30, 1998 and the consolidated statements
of earnings, shareholders' equity and cash flows for the years ended May 2,
1999, April 30, 1998 and April 30, 1997. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at May 2, 1999 and
April 30, 1998 and the results of its operations and the changes in its
financial position for the years ended May 2, 1999, April 30, 1998 and April 30,
1997 in accordance with accounting principles generally accepted in Canada
which, except as disclosed in Note 2, Note 14, Note 15 and Note 18 to the
consolidated financial statements, also conform in all material respects with
accounting principles generally accepted in the United States.
/s/ Deloitte and Touche LLP
Chartered Accountants
Ottawa, Canada
June 1, 1999, except Note 23
which is as of June 22, 1999
Page 27
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Canadian dollars, amounts in thousands except per share data)
<TABLE>
<CAPTION>
Years Ended
-----------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Sales $1,790,705 $1,620,620 $1,376,727
Cost of sales 751,874 625,065 507,588
---------- ---------- ----------
Gross margin 1,038,831 995,555 869,139
Expenses
Selling, general and administrative 531,308 494,429 346,106
Research and development (Note 13) 264,421 258,879 155,330
Restructuring costs (Note 14) 118,030 181,444 --
Purchased research and
development in process (Note 15) -- 52,762 96,940
---------- ---------- ----------
Income from operations 125,072 8,041 270,763
Interest income 34,248 11,581 19,956
Interest expense on long term obligations (26,127) (1,820) (1,351)
Net gain on investments (Note 16) 188,726 50,401 (1,564)
Other expenses (20,802) (12,889) (8,051)
---------- ---------- ----------
Earnings before income taxes
and non-controlling interest 301,117 55,314 279,753
Provision for income taxes (Note 17) 121,303 73,001 117,718
Non-controlling interest 653 631 5,118
---------- ---------- ----------
Net earnings (loss) $ 179,161 $ (18,318) $ 156,917
========== ========== ==========
Earnings (loss) per share (Note 18)
Basic $1.01 $(0.10) $0.92
Fully diluted $1.01 $(0.10) $0.91
Weighted average number of shares
Basic 177,630 174,617 170,510
Fully diluted 177,630 174,617 184,595
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 28
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Canadian dollars in thousands)
<TABLE>
<CAPTION>
May 2, April 30,
1999 1998
Assets
<S> <C> <C>
Cash and cash equivalents (Note 2) $ 879,694 $ 499,278
Accounts receivable, net of provision for returns and
doubtful accounts of $16,217 (April 30, 1998 - $13,067) 472,811 428,527
Inventories (Note 3) 210,286 196,285
Prepaid expenses 46,753 32,728
Other current assets 46,160 44,872
---------- ----------
1,655,704 1,201,690
Property, plant and equipment (Note 4) 455,483 450,735
Goodwill (Note 5) 40,022 72,719
Software development costs (Note 6) 35,909 28,299
Future tax benefits (Note 17) 59,999 50,443
Other assets (Note 7) 223,507 162,939
---------- ----------
$2,470,624 $1,966,825
========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 190,630 $ 127,040
Accrued liabilities 201,361 118,771
Income taxes 16,853 5,851
Current portion of long term obligations 2,869 4,136
---------- ----------
411,713 255,798
Long term obligations (Note 9) 384,021 383,311
Future tax obligations (Note 17) 123,088 71,197
Non-controlling interest 22,583 22,899
---------- ----------
941,405 733,205
---------- ----------
Share capital (Note 11)
Common shares - 180,104,582 outstanding
(April 30, 1998 - 175,686,083 outstanding) 572,990 456,510
Accumulated foreign currency translation adjustment 27,238 27,280
Retained earnings 928,991 749,830
---------- ----------
1,529,219 1,233,620
---------- ----------
$2,470,624 $1,966,825
========== ==========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 29
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------------
May 2, April 30, April 30,
1999 1998 1997
Operating activities
<S> <C> <C> <C>
Net earnings (loss) $ 179,161 $ (18,318) $ 156,917
Items not affecting cash
Amortization 182,547 125,429 82,987
Future tax benefits and obligations 46,698 27,158 22,989
Non-controlling interest 674 (1,390) 5,118
Restructuring costs 118,030 181,444 --
Purchased research and development in process -- 52,762 96,940
Net gain on investments (191,581) (50,401) 1,564
Other 5,143 7,277 5,438
Cash effect of changes in:
Accounts receivable (99,291) (32,931) (87,976)
Inventories (70,724) (86,288) (20,767)
Prepaid expenses and other current assets (16,832) (13,004) (13,668)
Accounts payable and accrued liabilities 49,893 (50,766) (34,615)
Income taxes 15,266 (39,447) 8,447
--------- --------- ---------
218,984 101,525 223,374
--------- --------- ---------
Investing activities
Additions to property, plant and equipment (213,903) (276,778) (131,641)
Proceeds on sale of long term investments (Note 16) 456,966 66,672 --
Acquisitions of subsidiaries, excluding
cash acquired -- (58,936) (220,645)
Capitalized software development costs (20,801) (16,069) (12,457)
Additions to other assets (164,081) (124,576) (34,858)
--------- --------- ---------
58,181 (409,687) (399,601)
--------- --------- ---------
Financing activities
Issue of common shares 112,293 89,430 54,096
Increase in long term obligations 44,671 378,628 1,515
Repayment of long term obligations (42,138) (12,316) (6,733)
--------- --------- ---------
114,826 455,742 48,878
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 391,991 147,580 (127,349)
Effect of foreign currency translation on cash (11,575) 15,919 (2,585)
Cash from acquisition of subsidiaries -- 1,875 8,089
--------- --------- ---------
380,416 165,374 (121,845)
Cash and cash equivalents, beginning of the year 499,278 333,904 455,749
--------- --------- ---------
Cash and cash equivalents, end of the year $ 879,694 $ 499,278 $ 333,904
========= ========= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 30
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Canadian dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Shares Foreign Retained Shareholders'
---------------------
Number Amount Currency Earnings Equity
<S> <C> <C> <C> <C> <C>
At April 30, 1996 168,676,280 290,170 1,285 611,231 902,686
Exercise of employees' and
directors' options 3,182,704 54,096 54,096
Income tax benefit related
to stock options 7,122 7,122
Effect of foreign currency translation 5,678 5,678
Net earnings 156,917 156,917
----------- -------- -------- -------- -------------
At April 30, 1997 171,858,984 351,388 6,963 768,148 1,126,499
Exercise of employees' and
directors' options 3,827,099 89,430 89,430
Income tax benefit related
to stock options 15,692 15,692
Effect of foreign currency translation 20,317 20,317
Net loss (18,318) (18,318)
----------- -------- -------- -------- -------------
At April 30, 1998 175,686,083 456,510 27,280 749,830 1,233,620
Exercise of employees' and
directors' options 4,418,499 112,293 112,293
Income tax benefit related
to stock options 4,187 4,187
Effect of foreign currency translation (42) (42)
Net earnings 179,161 179,161
----------- -------- -------- -------- -------------
At May 2, 1999 180,104,582 $572,990 $27,238 $928,991 $1,529,219
=========== ======== ======== ======== =============
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
Page 31
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
1. Significant Accounting Policies
The Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). These
principles are also generally accepted in the United States ("U.S. GAAP") 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, the inclusion of certain asset
impairments in restructuring costs, as disclosed in Note 14, the write off of
purchased in process research and development, as disclosed in Note 15, and the
method of calculation of earnings per share, as disclosed in Note 18.
Basis of Consolidation
The Consolidated Financial Statements include the accounts of the Company and
its subsidiaries. Investments in companies in which the Company has significant
influence are accounted for by the equity method. Investments in which the
Company does not control or have significant influence over the investee are
accounted for by the cost method.
Fiscal Year
In fiscal 1998 and years prior the Company's fiscal quarters were 13 weeks long
and closed on a Sunday, except the fourth quarter which closed on April 30.
Commencing in fiscal 1999 the Company adopted the policy of closing its fiscal
years on the Sunday closest to April 30. Accordingly, fiscal 1999 was 52 weeks
long with interim fiscal quarters closing on a Sunday and 13 weeks long.
Occasionally fiscal years will be 53 weeks long, the first occurrence of which
will be for the fiscal year ending May 2, 2004.
Revenue Recognition and Warranties
Revenue from product sales is generally recorded on shipment provided that no
significant obligations remain, with a provision for estimated returns recorded
at that time. In addition, a provision for potential warranty claims is provided
for at the time of sale, based on warranty terms and prior claims experience.
Service revenue is recognized when the service is performed, or, in the case of
maintenance contracts, is recognized as costs are incurred to secure and fulfill
the contract.
Government Incentives and Investment Tax Credits
Government incentives and investment tax credits are recorded as a reduction of
the expense or the cost of the asset acquired to which the incentive applies.
The benefits are recognized when the Company has complied with the terms and
conditions of the approved grant program or the applicable tax legislation.
Software Development Costs
Certain applications and systems software development costs are capitalized once
technical feasibility has been established for the product, the Company has
identified a market for the product and intends to market the developed product.
No other development costs are capitalized. Such capitalized costs are amortized
over the expected life of the related product.
Page 32
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
Inventories
Finished goods are valued at the lower of cost (first in, first out) and net
realizable value. Work in process and raw materials are valued at the lower of
cost and replacement cost.
<PAGE>
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Buildings and equipment are
generally amortized on a declining balance basis at rates calculated to amortize
the cost of the assets over their estimated useful lives. Leasehold improvements
are amortized using a straight line basis over the term of the lease.
Goodwill
Goodwill is stated at the difference between the Company's cost of the
investments less its proportionate share of the fair value of the net assets of
the subsidiaries. Goodwill is amortized on a straight line basis over the
estimated useful life of the goodwill, generally between ten and twenty years.
The recoverability of such costs is reviewed on an ongoing basis.
Foreign Currency Translation
The Consolidated Financial Statements are prepared using Canadian dollars. All
operations whose principal economic activities are undertaken in currencies
other than Canadian dollars have been determined to be self-sustaining.
The assets and liabilities of non-Canadian operations are translated at fiscal
year end exchange rates and the resulting unrealized exchange gains or losses
are accumulated as a separate component of shareholders' equity described in the
Consolidated Balance Sheets as "Accumulated foreign currency translation
adjustment". The statements of earnings of such operations are translated at
exchange rates prevailing during the fiscal year.
Other monetary assets and liabilities, which are denominated in currencies
foreign to the local currency of any one operation, are translated to the local
currency at fiscal year end exchange rates, and transactions included in
earnings are translated at rates prevailing during the fiscal year. Exchange
gains and losses resulting from the translation of these amounts are included in
the Consolidated Statements of Earnings.
Use of Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires Management to make estimates that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as at the date of the Consolidated Financial Statements and the
reported amounts of sales and expenses during the reporting periods presented.
Actual results could differ from the estimates made by Management.
Page 33
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS 130,
"Reporting Comprehensive Income". SFAS 130 establishes standards for reporting
comprehensive income and its components in the financial statements. The Company
has adopted SFAS 130.
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 will be 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, as is described in Note 2 to these
financial statements. Under this new standard, investing and financing
activities that do not require the use of cash or cash equivalents will be
excluded from the Statement of Cash Flows. However, these activities will be
disclosed elsewhere in the consolidated financial statements. The Company will
adopt this standard in the first quarter of fiscal 2000.
<PAGE>
2. Cash and Cash Equivalents
<TABLE>
<CAPTION>
Components of cash and cash equivalents are:
May 2, 1999 April 30, 1998
------------------- ------------------
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Cash $666,019 $666,019 $467,464 $467,464
Held to maturity marketable securities
Maturing within one year:
Corporate debt securities 213,675 213,683 22,447 22,447
Available for sale marketable securities
Equity securities -- -- 9,367 9,367
--------- -------- -------- --------
$879,694 $879,702 $499,278 $499,278
========= ======== ======== ========
</TABLE>
Held to maturity marketable securities are investments with original maturities
of three months or more. Available for sale securities are common shares of
publicly traded companies, which have certain resale restrictions, principally
acquired upon the Company's disposition of its minority interest in Broadband
Networks Inc. Under U.S. GAAP held to maturity and available for sale marketable
securities would be disclosed as a separate caption on the Consolidated Balance
Sheets.
Held to maturity marketable securities are carried at amortized cost. The
unrealized gains and losses are not included in the Consolidated Statements of
Earnings as these gains and losses are unlikely to be realized due to the
Company's intent to hold the underlying securities to maturity. During fiscal
1999 there were no realized gains or losses and unrealized gains of
Page 34
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
$70,000 and unrealized losses of $62,000 on held to maturity securities. During
fiscal 1998 there were no realized or unrealized gains or losses on held to
maturity securities. Available for sale securities are carried at the lower of
cost and market. During fiscal 1999 the Company incurred $707,000 of realized
losses and in fiscal 1998 the Company realized gains of $573,000 from available
for sale securities.
If the Consolidated Statements of Cash Flows were prepared under U.S. GAAP,
purchases, maturities 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.
<PAGE>
<TABLE>
<CAPTION>
Years Ended
-----------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Investing activities in short
term marketable securities:
Held to maturity securities
Maturities $ 287,723 $ 185,958 $ 508,890
Purchases (478,951) (72,126) (475,092)
--------- --------- ---------
(191,228) 113,832 33,798
Available for sale securities
Sales 9,367 569 --
Purchases -- (9,317) --
--------- --------- ---------
(181,861) 105,084 33,798
Investing activities, as reported 58,181 (409,687) (399,601)
--------- --------- ---------
Investing activities, U.S. GAAP $(123,680) $(304,603) $(365,803)
========= ========= =========
Increase (decrease) in cash and
cash equivalents, as reported $ 380,416 $ 165,374 $(121,845)
Investing activities in short
term marketable securities (181,861) 105,084 33,798
--------- --------- ---------
Increase (decrease) in cash and
cash equivalents, U.S. GAAP $ 198,555 $ 270,458 $ (88,047)
========= ========= =========
</TABLE>
3. Inventories
<TABLE>
<CAPTION>
May 2, April 30,
1999 1998
<S> <C> <C>
Finished goods $118,251 $129,850
Work in process 27,807 18,178
Raw materials 64,228 48,257
-------- --------
$210,286 $196,285
======== ========
</TABLE>
Page 35
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
4. Property, Plant and Equipment
<TABLE>
<CAPTION>
Amortization May 2, April 30,
Rate 1999 1998
<S> <C> <C> <C>
Land -- $ 16,118 $ 14,763
Buildings 2.5%--5% 92,390 88,189
Equipment 10%--50% 803,399 705,744
Furniture and fixtures 10%--33% 43,878 45,067
Leasehold improvements Lease term 27,530 27,797
--------- ---------
983,315 881,560
Accumulated amortization (527,832) (430,825)
========= =========
$455,483 $450,735
========= =========
Capital leases included above $ 2,683 $ 6,606
========= =========
<CAPTION>
Years Ended
---------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Amortization on property,
plant and equipment $163,097 $ 112,175 $ 73,364
======== ========= =========
Amortization on property, plant and
equipment under capital leases $ 1,384 $ 2,035 $ 1,523
======== ========= =========
5. Goodwill
May 2, April 30,
1999 1998
Goodwill, beginning of the year $ 72,719 $ 125,565
Additions associated with investments -- 15,377
Amortization (2,752) (5,683)
Divestitures (29,945) (1,232)
LAN business restructuring (Note 14) -- (61,308)
--------- ---------
Goodwill, end of the year $ 40,022 $ 72,719
========= =========
Accumulated goodwill amortization $ 7,131 $ 11,098
========= =========
</TABLE>
Page 36
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
6. Software Development Costs
May 2, April 30,
1999 1998
Balance, beginning of the year $ 28,299 $22,299
Amount capitalized 20,755 15,627
Amortization (13,145) (9,627)
-------- -------
Balance, end of the year $ 35,909 $28,299
======== =======
7. Other Assets
May 2, April 30,
1999 1998
Long term investments
Accounted for by the equity method $ 29,236 $ 30,163
Accounted for by the cost method 161,901 103,980
-------- --------
191,137 134,143
Other assets 32,370 28,796
-------- --------
$223,507 $162,939
======== ========
8. Bank Credit Facilities
At May 2, 1999 short term bank credit facilities consisted of operating lines of
credit in the aggregate amount of $156,258,000, primarily with banks in Canada,
the United Kingdom, the United States, and Chile. At May 2, 1999 $5,881,000 was
being utilized under these credit facilities, primarily attributed to non-wholly
owned Chilean subsidiary Coasin S.A. The Company's primary facility with a
Canadian bank in the amount of $100,000,000 is unsecured. Certain of the other
bank facilities are secured by the accounts receivable and other assets of the
borrowing subsidiary. The Company complies with all covenants and restrictions
contained in the credit facilities agreements.
Page 37
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
9. Long Term Obligations
<TABLE>
<CAPTION>
May 2, April 30,
1999 1998
<S> <C> <C>
6.51% Senior Notes, due 2003 $330,602 $322,098
Loan agreement, due 2003 50,000 50,000
Term loans 3,150 11,033
Capital lease obligations 3,138 4,316
-------- --------
386,890 387,447
Current portion of long term obligations (2,869) (4,136)
-------- --------
Long term obligations $384,021 $383,311
======== ========
</TABLE>
In April 1998 the Company issued US$225,000,000 Senior Notes due April 2003
bearing a coupon rate of 6.51%. Costs associated with the issue totaled
US$1,303,000. Prior to the closing of the Senior Notes the Company entered into
a swap transaction with a major bank under which the effective coupon rate on
US$200,000,000 of the Senior Notes was fixed at 6.678%. The Senior Notes require
semi-annual payments of interest only, with the principal due at maturity. The
Company's obligation under the Senior Notes can be satisfied at any time prior
to maturity subject to a make whole provision. The Senior Notes are unsecured.
The Company complies with all covenants and restrictions contained in the
Senior Notes. The fair value of Senior Notes at May 2, 1999 is estimated at
US$226,369,000
<PAGE>
In January 1998 the Company entered into and received $50,000,000 under a loan
agreement that includes a term loan portion and a demand loan portion, both due
January 2003. The term loan bears interest at the fixed rate of 5.46% and the
demand loan bears interest at a floating rate equal to the one month's bankers'
acceptance rate. The term loan requires semi-annual payments of interest only,
with the principal due at maturity. The Company's obligation under the term loan
can be satisfied at any time prior to maturity subject to a make whole
provision. The demand loan requires monthly payments of interest only, with the
principal due at maturity. The term loan is secured by 654,220 Northern Telecom
Limited (Nortel) shares. The demand loan is unsecured. The Company complies with
all covenants and restrictions contained in the long term loan agreement. The
fair value of the term loan at May 2, 1999 is estimated at $48,510,000.
Page 38
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
Future payments under long term obligations and operating leases at May 2, 1999
are as follows.
<TABLE>
<CAPTION>
Principal Amount Minimum
on Mortgages Capital Lease Operating
and Term Loans Payments Leases
<S> <C> <C> <C>
Fiscal 2000 $ 1,630 $1,335 $ 37,516
Fiscal 2001 433 1,663 24,869
Fiscal 2002 3,171 302 19,153
Fiscal 2003 378,144 9 15,403
Fiscal 2004 150 -- 14,079
Thereafter 224 -- 75,523
-------- ------ --------
$383,752 3,309 $186,543
======== ========
Less imputed interest (171)
------
$3,138
======
</TABLE>
Interest paid on capital leases was $456,000 (fiscal 1998 -- $401,000; fiscal
1997 -- $266,000).
10. Financial Instruments and Concentration of Credit Risk
The Company uses financial instruments, principally forward exchange contracts,
in its management of foreign currency exposures. Realized and unrealized gains
and losses on foreign exchange contracts are recognized and offset foreign
exchange gains and losses on the underlying net asset or net liability position.
These contracts primarily require the Company to purchase and sell certain
foreign currencies with or for Canadian dollars at contractual rates. At May 2,
1999 the Company had $363,028,000 in outstanding foreign exchange contracts
(April 30, 1998 - $170,084,000).
In January 1998 the Company entered into a Forward Share Price Hedge Agreement
with a major bank in order to fix the value of the Nortel shares pledged as
security against a term loan (see Note 9). In January 1999 the Company amended
the Forward Share Price Hedge Agreement in order to fix the value of a further
108,244 Nortel shares. The terms of the amended Forward Share Price Hedge
Agreement provide the Company with the option of delivering 654,220 Nortel
shares in January 2003 for proceeds of $51,613,000 or the present value of
$51,613,000 if terminated prior to January 2003, or delivering the cash
equivalent of the market value of 654,220 Nortel shares at January 2003 or at
the date of early termination.
Several major financial institutions are counterparties to the Company's
financial instruments. It is Company practice to monitor the financial standing
of the counterparties and limit the amount of exposure to any one institution.
The Company may be exposed to a credit loss in the event of nonperformance by
the counterparties to these contracts, but does not anticipate such
nonperformance.
Page 39
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
With respect to accounts receivable, concentration of credit risk is limited due
to the diverse areas covered by the Company's operations. The Company has credit
evaluation, approval and monitoring processes intended to mitigate potential
credit risks. Anticipated bad debt loss and product returns have been provided
for in the allowance for returns and doubtful accounts. Net additions to the
provision for returns and doubtful accounts (fiscal 1999 -- $3,150,000; fiscal
1998 -- $2,495,000) primarily relate to estimates for products to be returned
and have been charged to sales. The carrying amounts for cash, marketable
securities, accounts receivable, accounts payable and accrued liabilities
approximate fair value because of the short maturity of these instruments.
11. Share Capital
Authorized
An unlimited number of Common Shares.
An unlimited number of participating preferred shares, ranking in priority upon
distribution of assets over Common Shares, may be issued in series with
additional provisions as fixed by the Board of Directors.
Employee Stock Option Plans
The Company has established the Newbridge Networks Corporation Consolidated Key
Employee Stock Option Plan (the "Plan") applicable to full-time employees,
directors and consultants of the Company and its subsidiaries. The options under
the Plan are granted at the then-current fair market value of the Common Shares
of the Company and generally may be exercised in equal proportions during the
years following the first, second, third and fourth anniversary of the date of
grant, and expire on the fifth anniversary or upon termination of employment.
Options granted under the Plan prior to August 1, 1996 generally may be
exercised in equal proportions during the years following the first, second and
third anniversary of the date of grant, and expire on the fourth anniversary or
upon termination of employment. In addition to the number of options outstanding
as at May 2, 1999, the aggregate number of options which may be granted under
the Plan was 6,624,514.
Page 40
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
<TABLE>
<CAPTION>
Activity in the stock option plan is summarized below.
Option Price
----------------------------------
Weighted
Options Low High Average
<S> <C> <C> <C> <C>
Options outstanding April 30, 1996 13,123,704 $ 4.73 $43.74 $22.73
Granted during fiscal 1997 7,098,800 $30.18 $46.33 $38.89
Cancelled and expired (785,073) $ 4.76 $44.31 $25.74
Exercised (3,182,704) $ 4.73 $34.23 $17.23
----------
Options outstanding April 30, 1997 16,254,727 $19.47 $46.33 $30.72
Granted during fiscal 1998 9,817,645 $38.86 $64.96 $44.75
Cancelled and expired (1,779,070) $19.63 $64.31 $42.46
Exercised (3,827,099) $19.47 $43.74 $23.92
----------
Options outstanding April 30, 1998 20,466,203 $19.47 $64.96 $37.70
Granted during fiscal 1999 8,841,475 $24.65 $42.80 $35.21
Cancelled and expired (2,054,355) $19.63 $64.31 $40.14
Exercised (4,418,499) $19.47 $55.92 $25.79
----------
Options outstanding May 2, 1999 22,834,824 $19.47 $64.96 $38.82
==========
Options outstanding April 30, 1998
Vested 5,979,342 $19.47 $46.33 $28.26
Unvested 14,486,861 $19.47 $64.96 $41.59
----------
20,466,203 $19.47 $64.96 $37.70
==========
Options outstanding by range:
$19.47 to $30.00 4,341,730
$30.01 to $45.00 11,845,623
$45.00 to $64.96 4,278,850
----------
20,466,203
==========
Weighted average remaining
contractual life 3.32 years
==========
Options outstanding May 2, 1999
Vested 5,863,481 $19.47 $64.96 $37.89
Unvested 16,971,343 $24.65 $64.96 $39.14
----------
22,834,824 $19.47 $64.96 $38.82
==========
Options outstanding by range:
$19.47 to $30.00 2,542,777
$30.01 to $45.00 16,474,522
$45.00 to $64.96 3,817,525
----------
22,834,824
==========
Weighted average remaining
contractual life 3.48 years
==========
</TABLE>
Page 41
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
Stock Based Compensation
The Company applies APB 25 and related interpretations in accounting for its
Consolidated Key Employee Stock Option Plan. Accordingly, no compensation
expense has been recognized for its stock based compensation plan. Had
compensation costs for the Company's Consolidated Key Employee Stock Option Plan
been determined based on the fair value at the grant date for awards under the
Plan, consistent with the methodology prescribed under SFAS 123, the Company's
net earnings (loss) and earnings (loss) per share would have been decreased to
the following pro forma amounts.
<TABLE>
<CAPTION>
Years Ended
---------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Net earnings (loss), as reported $179,161 $(18,318) $156,917
Estimated stock based compensation costs (90,102) (75,164) (35,085)
-------- -------- --------
Pro forma net earnings (loss) $ 89,059 $(93,482) $121,832
======== ======== ========
Basic pro forma earnings (loss) per share $ 0.50 $ (0.54) $ 0.71
======== ======== ========
Fully diluted pro forma
earnings (loss) per share $ 0.50 $ (0.54) $ 0.71
======== ======== ========
</TABLE>
The weighted average fair value of all options granted during fiscal 1999, 1998
and 1997 was estimated as of the date of grant using the Black-Scholes option
pricing model with the following and weighted average results and assumptions.
<TABLE>
<CAPTION>
Years Ended
---------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Weighted average fair value of
of options issued $19.91 $25.32 $18.65
Expected option life, in years 4.5 4.5 4.3
Volatility 65.57% 63.98% 50.18%
Risk free interest rate 4.9% 5.9% 6.4%
Dividend yield nil nil nil
</TABLE>
The Black-Scholes model used by the Company to calculate option values, as well
as other currently accepted option valuation models, were developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require highly subjective assumptions, including future stock
price volatility and expected time until exercise, which greatly affect the
calculated values. Accordingly, Management believes that this model does not
necessarily provide a reliable single measure of the fair value of the Company's
stock option awards.
Page 42
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
Employee Share Purchase Plan
The Company's Employee Stock Purchase Plan ("ESPP"), was effective June 1, 1999
and allows eligible employees to authorize payroll deductions up to 10% of their
salary to purchase Common Shares of the Company at a price of 85% of the then
current stock price (as defined in the ESPP). Employees purchasing shares under
the ESPP must hold the shares for a minimum of one year. The Company has
reserved 500,000 Common Shares for issuance under the ESPP.
12. 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 the foreign currency translation adjustment.
<TABLE>
<CAPTION>
Years Ended
--------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Net earnings (loss) $179,161 $(18,318) $156,917
Other comprehensive income:
Foreign currency translation
adjustment (42) 20,317 5,678
-------- -------- --------
Comprehensive income $179,119 $ 1,999 $162,595
======== ======== ========
</TABLE>
13. Research and Development
During the year, the Company recorded Canadian Investment Tax Credits of
$37,846,000 (fiscal 1998 -- $34,971,000; fiscal 1997 -- $26,400,000) as a
reduction of research and development expenses.
The Company recorded government and customer funding during the year of
$29,234,000 (fiscal 1998 -- $5,507,000; fiscal 1997 -- $9,484,000) as a
reduction in research and development expenses included in the consolidated
statements of earnings. Funding from the government of the province of British
Columbia amounted to $10,000,000 during the year and is contingently repayable
over a period not to exceed ten years. Repayment of the funding is based on a
percentage of sales of products developed in British Columbia and a percentage
of sales of products sold in British Columbia. Any funding not repaid at the end
of the ten year period would be forgiven. The Company also recorded funding of
$17,540,000 during the year related to eligible research and development
expenditures of its broadband wireless program. Royalties are due to the funding
companies based on a percentage of sales of products developed under the
program. The funding companies own the intellectual property rights for products
developed under the program. The Company has an option to acquire those rights
under certain terms and conditions. As part of the arrangements, Newbridge has
provided licencing of certain technologies to the funding companies including
Asynchronous Transfer Mode ("ATM") switch software and related technology.
Page 43
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
14. Restructuring Costs
<TABLE>
<CAPTION>
Restructuring costs are comprised of the following.
Years Ended
------------------------------
<S> <C> <C> <C>
May 2, April 30, April 30,
1999 1998 1997
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Restructuring programs, April 1999 $ 73,570 $ -- $ --
Layer 2 Switching End of Life 37,928 -- --
Asia Pacific Resources Relocation 6,532 -- --
LAN business restructuring, November 1997 -- 181,444 --
-------- --------- ---------
$118,030 $181,444 $ --
======== ========= =========
</TABLE>
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 has 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 relate
primarily to asset impairment losses related to the 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 and the related costs incurred
are as follows:
<TABLE>
<CAPTION>
Sales and Product Costs Balance at
Marketing Development Total Incurred May 2, 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 -- $15,022
Reduction in facilities 6,627 -- 6,627 -- 6,627
Other restructuring costs 1,653 171 1,824 -- 1,824
------- ------- ------- -------- -----------
22,875 598 23,473 -- $23,473
------- ------- ------- ======== ===========
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. Substantially all of
the net book values of the inventory and property, plant and equipment affected
by the restructuring programs have been reflected as asset impairment losses
since the Company estimates that the proceeds of disposition of these assets
will approximate the costs
Page 44
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
of disposal. These asset impairment losses will reduce amortization expense in
fiscal 2000 by approximately $11,700,000. The Company anticipates that assets
impaired as a result of the restructuring programs will be disposed of during
fiscal 2000.
The amounts included in the provision for restructuring are reflected in accrued
liabilities as at May 2, 1999.
The provision for the reduction in work force includes severance, related
medical and other benefits, and other obligations to employees. The provision
includes termination benefits for 137 employees. The work force reductions will
occur in Japan, Russia and various other countries. The Company anticipates that
these work force reductions will be substantially completed in the first half of
fiscal 2000.
The provision for the reduction in facilities comprises 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 in fiscal 2000.
The provision for other restructuring costs comprises certain consulting costs
associated with establishing termination benefits for employees in addition to
outplacement and counseling services as well as various other 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 during fiscal 1999. End of life
program costs of $37,928,000 and the related costs incurred are as follows:
<TABLE>
<CAPTION>
Costs Balance at
Total Incurred May 2, 1999
<S> <C> <C> <C>
Asset impairment losses
Accounts receivable $ 7,762
Inventory 22,928
-------
30,690
Customer obligations 7,238 (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. The net carrying amount of inventory
affected by the Layer 2 Switching End of Life program was reduced to $1,458,000
given demand for the affected products and the Company's estimated proceeds of
disposition, net of the costs of disposal. This inventory was substantially
disposed of during fiscal 1999.
Customer obligations related to the cost to the Company of acquiring products
from third parties and providing them to customers in order to meet the
Company's commitments with respect to providing certain network functionality.
Page 45
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
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 for relocation of $6,532,000 and the
related costs incurred are as follows:
<TABLE>
<CAPTION>
Costs Balance at
Total Incurred May 2, 1999
<S> <C> <C> <C>
Provision for Asia Pacific Resources relocation
Workforce terminations $3,407 $ (690) $2,717
Reduction in facilities 2,600 -- 2,600
Other relocation costs 525 (525) --
------ ------- ------
$6,532 $(1,215) $5,317
====== ======= ======
</TABLE>
The provision for workforce terminations reflects the accrual of involuntary
termination benefits for 27 employees. The provision for reduction in facilities
comprises lease cancellation penalties associated with relocating facilities to
Hong Kong and Malaysia. Other relocation costs consist of direct incremental
costs associated with the relocation. The balance of the provision for Asia
Pacific resources relocation is included in accrued liabilities at May 2, 1999.
Additional costs related to the transfer of personnel and equipment, the
recruitment of new staff and the expansion of facilities in Hong Kong are not
included in the Asia Pacific Resources relocation charge and are being expensed
as incurred. These additional costs are estimated at $9,000,000, with the
majority of the costs to be incurred during the first two quarters of fiscal
2000.
In November 1997, the Company decided to restructure its activities related to
its local area network ("LAN") business. The restructuring plan involved the
discontinuation of certain product lines, termination of employees,
discontinuation of development activities associated with the former UB Networks
and closure of former UB Networks facilities. The Company's restructuring plan
created impairment losses on assets associated with the LAN business and
liabilities associated with restructuring activities. Restructuring costs of
$181,444,000 and the related costs incurred were as follows:
<TABLE>
<CAPTION>
Costs Incurred Costs Incurred Balance at
Total in Fiscal 1998 in Fiscal 1999 May 2, 1999
<S> <C> <C> <C> <C>
Asset impairment losses
Accounts receivable $ 12,732
Inventory 54,851
Property, plant and equipment 11,936
Goodwill 57,125
Other current and non-current assets 5,162
--------
141,806
--------
Provision for restructuring
Reduction in work force 20,796 (19,614) (1,182) --
Reduction in facilities 4,753 (4,202) (551) --
Discontinued activities 13,577 (10,017) (3,560) --
Other restructuring costs 512 (512) -- --
-------- -------- -------------- -----------
39,638 $(34,345) $(5,293) $--
-------- ======== ============== ===========
Restructuring costs $181,444
========
</TABLE>
Page 46
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
Asset impairment losses were recorded to the extent the net book value,
including related reserves, exceeded the fair value of any assets associated
with the Company's restructuring plan. The fair value was based on the estimated
net realizable value of the underlying assets affected by the restructuring.
The net carrying amount of inventory affected by the restructuring activities
was reduced to $19,603,000 given demand for the affected products and the
Company's estimate of the excess of proceeds on disposition over the costs of
disposal. This inventory was substantially disposed of by the end of fiscal
1999.
Substantially all of the net book value of the property, plant and equipment
affected by the restructuring plan was reflected as an asset impairment loss
since the Company estimated the proceeds of disposition of these assets would
approximate the costs of disposal. Asset impairment losses associated with
property, plant and equipment reduced amortization expense in fiscal 1999 by
approximately $4,774,000. The property, plant and equipment impaired as a result
of the restructuring program was substantially disposed of by the end of fiscal
1999.
The acquisitions of UB Networks, acquired in January 1997, and Ouest Standard
Telematique, acquired in August 1996, related to the Company increasing its
direct presence and participation in the LAN business. The Company's decision to
restructure its activities in the LAN business impaired the value of goodwill
associated with these acquisitions. Accordingly, the Company included the full
net book value of goodwill related to the acquisitions of UB Networks
($18,775,000) and Ouest Standard Telematique ($38,350,000) as restructuring
costs.
The provision for reduction in work force included severance, related medical
and other benefits, relocation costs and other obligations to employees. The
provision included termination benefits for 400 employees. The work force
reductions were in substantially all functions and in all regions in which the
Company operates. The work force reductions were completed in fiscal 1999.
The provision for reduction in facilities comprised lease payments and fixed
costs associated with plans to close sales, support and administrative
facilities in the Americas, Europe and Asia Pacific geographic areas. Certain
facilities closures planned as part of the restructuring plan formulated upon
the acquisition of UB Networks were also part of the restructuring plan defined
in November 1997. Facilities closures were completed in fiscal 1999.
The provision for discontinued activities included costs associated with
acquiring products from third parties and providing them to customers to fulfill
prior commitments related to certain discontinued product lines and activities.
These activities were completed in fiscal 1999.
The provision for other restructuring costs comprised certain consulting costs
associated with workforce reductions including outplacement and counseling
services for employees as well as various other direct incremental costs
associated with the restructuring plan.
In accordance with Canadian GAAP, impairments to accounts receivable and
inventory attributable to restructuring activities have been included in
restructuring costs. Under U.S. GAAP, impairments to accounts receivable and
inventory attributable to restructuring activities would be included in the
calculation of gross margin. In accordance with U.S. GAAP, the calculation of
gross margin would have included restructuring costs of $42,290,000 for fiscal
1999 and restructuring costs of $67,583,000 for fiscal 1998.
Page 47
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
15. Purchased Research and Development In Process
In November 1997, the Company acquired a 49.9% equity interest in RadNet Ltd.,
an Israeli developer and manufacturer of access switches for ATM networks, for
cash consideration of $53,676,000. Associated with this investment, the Company
incurred $52,762,000 in purchased research and development in process expense
("PR&DIP") in fiscal 1998. As of the investment date, the research and
development project in process was for the development of an ATM access switch
designed to aggregate various speeds of voice and data traffic. The initial
product release of the ATM access switch was approximately 65% complete as at
the investment date. The market for ATM access switches was nascent at the time
of investment.
RadNet Ltd. expected to incur approximately $30,000,000 in research and
development expenses to complete the ATM access switch project. The estimated
costs to complete the project were related to software and hardware engineering
personnel expenses, costs associated with equipment and facilities, and
subcontracted research and development costs. Approximately 70% of these
estimated costs were expected to be incurred over the 3 years following the
acquisition. The ATM access switches were expected to be shipped to initial
customers approximately nine months after the acquisition, and in volume fifteen
months after the acquisition.
The ATM access switch market is characterized by rapid technological change,
frequent product introductions and evolving methods used by service providers
and corporations in building and managing networks. For the ATM access switch
market, the key risk identified at the time of acquisition was the time taken to
introduce a fully featured product to the market relative to the competition.
Delays in introducing a fully featured ATM access switch would result in a late
introduction of the product to the market, which would result in a reduction in
planned revenue. The Company was aware of many large customer opportunities at
the time of the investment, but was also aware that delays in introducing the
product would result in these same large customers diverting purchases to
competing products.
The appraisal method used to value the PR&DIP associated with the project was a
discounted cash flow. The projected cash flow was calculated over a period of 6
years, and a risk adjusted discount factor of 19% was used. The discount factor
was based on a risk adjusted weighted average cost of capital.
Significant appraisal assumptions included growth in revenues for the ATM access
switch to approximately $300,000,000 in fiscal 2003. Gross margin, expressed as
a percentage of sales, was projected to be 77% on initial shipments, declining
to 67% by fiscal 2001 and in subsequent years due to market maturation. Selling,
general and administrative expenses were expected to be 47% of sales initially,
declining to 20% due to economies of scale associated with the increase in sales
volume. These projections were based on expense forecasts for the initial stages
of product introduction, and industry averages thereafter. Research and
development expenses were projected based on the project plan, including costs
to correct errors and evolve new versions in the later stages of the planning
horizon. The income tax rate for this Israeli-based initiative was assumed at
25%.
48
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
Under accounting principles generally accepted in Canada, the purchased research
and development in process was amortized on a straight line basis over its
estimated useful life of six months. Under U.S. GAAP, purchased research and
development in process acquired by the Company was written off at the time of
acquisition.
During fiscal 1999, the Company decided to cease funding of RadNet's ATM access
switch project and the Company's related sales efforts.
During fiscal 1997, the Company incurred $96,940,000 in PR&DIP related to the
acquisition of UB Networks, a manufacturer of LAN equipment based in Santa
Clara, California. As of the acquisition date, the research and development
project in process was for the development of high speed interface cards for its
high capacity LAN switch called GeoLAN 500. The initial release of the interface
cards were 70% to 80% complete as at the acquisition date. The project involved
the development of interface protocols and speeds which existed in the LAN
market, with a high number of network connections per interface card.
The Company expected to incur approximately $38,000,000 in research and
development expenses to complete the high speed interface cards for the GeoLAN
500. The estimated costs to complete the project were associated with software
and hardware engineering personnel expenses, costs associated with equipment and
facilities, and subcontracted research and development costs. Approximately 75%
of these estimated costs were expected to be incurred over the 18 months
following the acquisition. The interface cards were expected to be shipped to
initial customers approximately three months after the acquisition, and in
volume nine months after the acquisition.
The LAN market is characterized by rapid technological change, frequent product
introductions and evolving methods used by corporations in building and managing
networks. For the high speed interface development project, the key risk
identified at the time of acquisition was the successful and timely completion
of the development of custom ASICs (application specific integrated circuits).
This project task was identified as a critical path item. Delays associated with
the ASICs, or certain other project tasks, would result in a late introduction
of the product to the market. Any late introduction of the interface cards would
result in a reduction in planned revenue for the GeoLAN 500, and potentially for
the entire product portfolio of the former UB Networks. The large majority of
sales for the GeoLAN 500 were targeted at the installed base of customers of the
former UB Networks organization, and therefore a delay in product introduction
would result in a loss of credibility with these customers.
The appraisal method used to value the PR&DIP associated with the project was a
discounted cash flow. The projected cash flow was calculated over a period of 7
years and three months, and a risk adjusted discount factor of 26% was used. The
discount factor was based on a risk adjusted weighted average cost of capital.
Page 49
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
Significant appraisal assumptions included growth in revenues for the GeoLAN 500
to over $300,000,000 in fiscal 2001, with declining revenues thereafter until
revenues cease in fiscal year 2004. Gross margin, expressed as a percentage of
sales, was projected to be 58% on initial shipments, improving to 65% eventually
as the Company gained economies of scale and cost reductions. Similarly,
selling, general and administrative expenses were expected to be 29% of sales
initially, declining to 23%. These assumptions were based on historical
information for major product initiatives in the LAN market. Research and
development expenses were projected based on the project plan, including costs
to correct errors and evolve new versions in the later stages of the planning
horizon.
Under U.S. GAAP, PR&DIP acquired by the Company on the acquisition of UB
Networks was written off against net earnings upon acquisition. Under accounting
principles generally accepted in Canada research and development in process
acquired by the Company on the acquisition of UB Networks was capitalized upon
acquisition and disclosed on the Consolidated Balance Sheet at January 26, 1997.
Upon review of the recoverability of the research and development in process,
undertaken during the fourth quarter of the fiscal year ended April 30, 1997,
the Company determined that the PR&DIP no longer met all the criteria for
deferral and accordingly the balance was written off as a charge to earnings for
the fourth fiscal quarter of fiscal 1997. The Company significantly altered
product plans associated with the research and development project and concluded
that recoverability could not be reasonably regarded as assured. In addition,
Management determined that adequate resources may not be made available to
complete the project associated with the PR&DIP, as originally defined. In
October 1998, the Company decided to fully discontinue the sale and development
of LAN products as part of the enhancement of the focus on the Company's
dominant and more profitable products.
Page 50
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
16. Net Gain on Investments
Fiscal Year Ended
-----------------------------------
May 2, April 30, April 30,
1999 1998 1997
(Canadian dollars in thousands)
Cambrian Systems Corporation $131,748 $ -- $ --
Advanced Computer Communications 128,336 -- --
Vienna Systems Corporation 15,846 -- --
Tundra Semiconductor Corporation 11,748 -- --
Broadband Networks Inc. -- 47,960 --
Other divestitures -- 6,528 --
West End Systems Corp. (33,521) -- --
Investment impairment write downs (65,431) (4,087) (1,564)
-------- ------- ---------
$188,726 $50,401 $(1,564)
======== ======= =========
In December 1998, the Company sold its minority ownership position in Cambrian
Systems Corporation ("Cambrian") to Northern Telecom Limited ("Nortel") for cash
proceeds of US$95,674,000 (Cdn$147,158,000). The proceeds include an earn-out
payment of US$1,935,000 (Cdn$2,855,000) received by the Company as a result of
certain specified financial performance targets being met by Cambrian. The
proceeds exclude future potential earn-out payments of approximately
US$21,000,000 which will be received by the Company if certain specified
financial performance targets are met by Cambrian.
In October 1998, the Company completed the sale of its majority ownership
position in Advanced Computer Communications ("ACC") to Telefonaktiebolaget LM
Ericsson for cash proceeds of US$167,319,000 (Cdn$258,308,000). ACC's results of
operations were consolidated with the Company's results for the first six months
of fiscal 1999 ended November 1, 1998. The results of operations and the
financial position of ACC were not significant relative to the Company's
consolidated results of operations and financial position for all periods
presented.
In December 1998, the Company sold its minority ownership position in Vienna
Systems Corporation to Nokia Corporation for cash proceeds of $39,716,000.
In February 1999, the Company sold a portion of its minority ownership position
in Tundra Semiconductor Corporation for cash proceeds of $19,498,000 as part of
an initial and secondary share offering by Tundra.
In January 1998, the Company sold its minority interest in Broadband Networks
Inc. to Nortel for proceeds of $66,672,000. The proceeds received included cash
of $23,775,000 and Nortel shares valued at $42,897,000.
On February 10, 1999 West End Systems Corp., a manufacturer of access and
transmission products for the communications and cable television industries,
filed an assignment in bankruptcy under the Canadian Bankruptcy and Insolvency
Act. As a result, the Company recorded losses related to the Company's minority
ownership position in West End Systems Corp. and unsecured trade accounts
outstanding.
Page 51
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
In fiscal 1999, the Company recorded investment impairment write downs of
$65,431,000 attributable to the financial performance of certain investee
companies as well as deteriorating economic conditions in certain geographic
regions. Investment impairment write downs in fiscal 1999 included $17,247,000
related to the carrying value of the Company's investment in a subsidiary
company that developed packet voice technology and network access products. The
Company also divested its ownership position in a Brazilian subsidiary and
recognized a loss of $14,902,000 associated with the carrying value of its
investment and related disposition costs. As a result of deteriorating economic
conditions in Russia, the Company recognized a loss of $11,449,000 attributable
to its investment in a joint venture in that country. The Company recorded
investment impairments of $21,833,000 in fiscal 1999 as a result of the
financial condition of seven investee companies.
The Company evaluates, on an ongoing basis, the value of its long term
investments considering the evolution of the market segments of investee
companies, any impact of deteriorating economic conditions in various countries,
and any other specific information which indicates impairment of value in these
investments. The Company establishes fair value of its long term investments in
investee companies by referring to quoted market values or reviewing valuations
implicit in recent private financing. The Company also utilizes a variety of
valuation techniques which include assessing potential proceeds that could be
expected to be received on a disposition of the Company's investment,
discounting future cash flows expected to be received from holding the
investment and reviewing recent acquisitions and divestitures of companies in
the industry that are comparable to the investee company.
17. Income Taxes
The components of the provision for income taxes are as follows:
Years Ended
------------------------------
May 2, April 30, April 30,
1999 1998 1997
Current $ 78,968 $ 45,843 $ 94,729
Future 42,335 27,158 22,989
-------- ------- --------
$121,303 $73,001 $117,718
======== ======= ========
The provision for income taxes reported differs from the amount computed by
applying the Canadian statutory rate to income before income taxes for the
following reasons.
Years Ended
------------------------------
May 2, April 30, April 30,
1999 1998 1997
Earnings before income taxes
Domestic $280,968 $ 222,597 $182,745
Foreign 20,149 (167,283) 97,009
-------- --------- --------
$301,117 $ 55,314 $279,754
======== ========= ========
Statutory income tax rate (Canada) 43.5% 43.5% 43.5%
======== ========= ========
Page 52
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
<TABLE>
<CAPTION>
Years Ended
---------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Expected provision for income tax $130,986 $ 24,062 $121,693
Canadian rate adjustment for research
and development activities (4,236) (6,166) (5,062)
Canadian rate adjustment for
manufacturing and processing activities (13,075) (19,032) (15,625)
Loss carryforwards utilized -- -- (7,262)
Foreign tax differential (21,428) (13,865) (39,539)
Purchased research and
development in process -- 22,952 42,169
Recognition of goodwill devaluation -- 26,677 --
Non-deductible reserves and surtaxes 29,056 38,373 21,344
-------- -------- --------
Reported income tax provision $121,303 $ 73,001 $117,718
======== ======== ========
</TABLE>
The components of the annual temporary differences giving rise to the related
future tax provision are as follows:
<TABLE>
<CAPTION>
Years Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Tax depreciation in excess of
accounting amortization $ 1,864 $ 7,163 $ 4,530
Accounting provisions not deductible (5,715) 6,804 3,570
Research and development expenses
deducted for tax purposes in excess
of accounting (677) 677 2,530
Restructuring charges 46,443 10,909 13,127
Losses available to offset future
income taxes and other 420 1,605 (768)
------- ------- -------
Future income tax expense $42,335 $27,158 $22,989
======= ======= =======
</TABLE>
Page 53
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
The components of the future tax benefit (obligation) classified by the source
of temporary differences that gave rise to the benefit (obligation) are as
follows:
<TABLE>
<CAPTION>
Future Tax Benefit Future Tax Obligation
------------------- -----------------------
May 2, April 30, May 2, April 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Accounting depreciation in excess
of (less than) tax depreciation $ 5,064 $13,853 $ (38,636) $(45,561)
Accounting provisions not deductible 13,845 22,409 (93) (14,372)
Research and development expenses
deducted for tax purposes less
than (in excess of) accounting -- -- (11,007) (11,684)
Provisions related to restructuring
charges 41,090 21,412 -- --
Divestitures -- -- (73,352) --
Other -- -- -- 420
Valuation allowance -- (7,231) -- --
------- ------- --------- --------
$59,999 $50,443 $(123,088) $(71,197)
======= ======= ========= ========
</TABLE>
The Company recorded a future tax benefit for net operating loss carryovers
associated with certain acquisitions. These losses will expire at various dates
through the year 2012. The components of the future tax benefit (obligation)
classified by the source of timing difference that gave rise to the credit are
not materially different from the temporary differences as calculated under the
application of U.S. GAAP.
At May 2, 1999, the Company had available investment tax credits of
approximately $53,106,000 for the reduction of future years' Canadian federal
income tax liability. These credits, which are subject to customary review
procedures by Revenue Canada, expire during the years 2007 to 2009. Of this
amount $10,913,000 has been applied to reduce the future tax obligation. No
recognition has been given in these financial statements to the potential tax
benefits associated with the remaining balance of investment tax credits. Under
U.S. GAAP the remaining balance of investment tax credits would be disclosed,
offset by a valuation allowance.
Page 54
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
18. Earnings (Loss) per Share
Basic earnings (loss) per share has been calculated on the basis of net earnings
(loss) for the period divided by the daily weighted average number of Common
Shares outstanding during the fiscal year.
The calculation of fully diluted earnings per share assumes that, if a dilutive
effect is produced, all outstanding options had been exercised at the later of
the beginning of the fiscal period and the option issue date, and includes an
allowance for imputed earnings of $28,943,000 (fiscal 1998 -- $18,521,000;
fiscal 1997 -- $11,589,000) derived from the investment of funds which would
have been received at an after tax rate of 3.5% (fiscal 1998 -- 3.0%; fiscal
1997 -- 3.1%).
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 period, 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. The
calculation of earnings per share under U.S. GAAP is as follows.
<TABLE>
<CAPTION>
Years Ended
-------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Net earnings (loss) per share
Basic $ 1.01 $ (0.10) $ 0.92
Diluted $ 0.99 $ (0.10) $ 0.90
Weighted average number of shares
Basic 177,630 174,617 170,510
Net effect of dilutive stock options 2,746 -- 4,015
-------- -------- --------
Diluted 180,376 174,617 174,525
======== ======== ========
</TABLE>
Page 55
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
19. Related Party Transactions
The Company leases facilities in Canada from companies controlled by Terence H.
Matthews, Chairman of the Board of Directors, Chief Executive Officer and the
largest shareholder of the Company, under terms and conditions reflecting
prevailing market conditions at the time the leases were entered into.
Approximately 355,000 square feet has been leased for various terms expiring
between September 1999 and February 2004 at rates between $9.25 and $14.00 per
square foot (approximately $3,505,000 per year). The Company also purchased
$878,000 of services from these companies throughout fiscal 1999 (fiscal 1998 --
$1,053,000). During the fiscal year ended May 2, 1999 the Company purchased
approximately $5,287,000 (fiscal 1998 -- $2,533,000) of equipment and services
under usual terms and conditions from a corporation in which the Company has no
equity interest, but which is controlled by Terence H. Matthews.
The Company accounts for its equity interests in certain associated companies
using the equity method of accounting. The Company is represented on the Boards
of Directors of these companies. During the fiscal year ended May 2, 1999, the
Company paid $1,729,000 for research and development services from these
associated companies under usual trade terms and conditions (fiscal 1998 --
$2,448,000). The Company also purchased $18,220,000 of equipment and software
under usual trade terms and conditions, generally for resale (fiscal 1998 --
$10,126,000) and sold $21,533,000 of equipment and software to these companies
under usual trade terms and conditions, generally for resale (fiscal 1998 --
$13,846,000).
The Company accounts for its equity interests in certain associated companies
using the cost method of accounting. The Company is generally represented on the
Boards of Directors of these companies. During the fiscal year ended May 2, 1999
the Company paid $1,556,000 for research and development services from these
associated companies under usual trade terms and conditions (fiscal 1998 --
$48,000). The Company also purchased $8,294,000 of equipment and software under
usual trade terms and conditions, generally for resale (fiscal 1998 --
$7,226,000). The Company sold $10,035,000 of equipment and software to these
associated companies under usual trade terms and conditions, generally for
resale (fiscal 1998 -- $6,100,000). The Company has guaranteed $14,498,000 of
obligations of certain of these associated companies.
The Company pays a net royalty between 2% and 10%, depending on the level of
cumulative royalties paid, on all sales of products developed as a result of
subcontracted research and development previously performed under agreements
between the Company and corporations controlled by three directors of the
Company. Royalty payments under these agreements were $564,000 (fiscal 1998 --
$294,000).
Page 56
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
20. 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.
<PAGE>
<TABLE>
<CAPTION>
Years Ended
--------------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
North and South America
Sales $ 765,183 $ 649,388 $ 561,784
Cost of sales and expenses 414,240 365,494 299,408
---------- ---------- ----------
Operating contribution 350,943 283,894 262,376
---------- ---------- ----------
Europe, Middle East and Africa
Sales $ 614,842 $ 511,444 $ 444,885
Cost of sales and expenses 311,025 258,676 214,439
---------- ---------- ----------
Operating contribution 303,817 252,768 230,446
---------- ---------- ----------
Asia Pacific
Sales $ 234,424 $ 273,581 $ 231,625
Cost of sales and expenses 124,518 127,712 96,323
---------- ---------- ----------
Operating contribution 109,906 145,869 135,302
---------- ---------- ----------
Corporate
Sales $ 176,256 $ 186,207 $ 126,433
Cost of sales and expenses 697,820 626,491 386,854
---------- ---------- ----------
Operating contribution (521,564) (440,284) (260,421)
---------- ---------- ----------
Total
Sales $1,790,705 $1,620,620 $1,376,727
Cost of sales and expenses 1,547,603 1,378,373 1,009,024
---------- ---------- ----------
Operating contribution 243,102 242,247 367,703
Restructuring costs (118,030) (181,444) --
Purchased research
and development in process -- (52,762) (96,940)
---------- ---------- ----------
Income from operations 125,072 8,041 270,763
Non-operating income 176,045 47,273 8,990
Provision for income taxes (121,303) (73,001) (117,718)
Non-controlling interest (653) (631) (5,118)
---------- ---------- ----------
Net earnings (loss) $ 179,161 $ (18,318) $ 156,917
========== ========== ==========
</TABLE>
Page 57
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
The Company manages its assets by geographic region, rather than through the
operating segments. Decision making and performance assessment with regard to
assets is done on a geographic basis because the operating segments may share
assets and accountability by operating segment would be less readily
determinable.
<TABLE>
<CAPTION>
Years Ended
----------------------------------
May 2, April 30, April 30,
1999 1998 1997
<S> <C> <C> <C>
Identifiable Assets
Canada $1,290,601 $ 685,315 $ 405,126
United States 444,356 480,148 397,808
Europe 414,487 499,361 370,875
Asia Pacific 187,486 183,507 218,015
Latin America 133,694 118,494 104,879
---------- ---------- ----------
$2,470,624 $1,966,825 $1,496,703
========== ========== ==========
Years Ended
----------------------------------
May 2, April 30, April 30,
1999 1998 1997
Capital Expenditure
Canada $ 143,590 $ 176,276 $ 81,678
United States 30,903 57,877 26,723
Europe 25,494 31,579 18,115
Asia Pacific 5,875 6,861 3,081
Latin America 8,041 4,185 2,044
---------- ---------- ----------
$ 213,903 $ 276,778 $ 131,641
========== ========== ==========
Years Ended
----------------------------------
May 2, April 30, April 30,
1999 1998 1997
Amortization
Canada $ 110,863 $ 74,070 $ 54,271
United States 31,097 23,558 17,381
Europe 29,487 20,810 8,338
Asia Pacific 5,966 3,955 1,096
Latin America 5,134 3,036 1,901
---------- ---------- ----------
$ 182,547 $ 125,429 $ 82,987
========== ========== ==========
</TABLE>
Page 58
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
Export sales from operations in Canada (excluding inter-subsidiary sales) were
as follows.
Years Ended
------------------------------
May 2, April 30, April 30,
1999 1998 1997
Latin America $152,210 $171,245 $169,377
Asia Pacific 7,786 48,010 49,166
-------- -------- ---------
$159,996 $219,255 $218,543
======== ======== =========
Sales to Siemens A.G. and subsidiaries, generally under OEM arrangements for
resale to end users, were 18% of sales for fiscal 1999, 16% of total sales for
fiscal 1998 and were 18% of total sales in fiscal 1997.
The following table illustrates, for the periods indicated, the percentage of
sales that comprise each of the Company's major product lines.
Fiscal Year Ended
---------------------------------------
May 2, April 30, April 30,
1999 1998 1997
WAN Packet products 59% 46% 33%
Circuit switched networking products 38 41 57
LAN Packet products 3 13 10
---- ---- ----
100% 100% 100%
==== ==== ====
21. Litigation
In the fourth quarter of fiscal 1998 the Company reached an agreement in
principle to settle the class action lawsuit which was filed in United States
District Court in Washington, D.C. during the fiscal year ended April 30, 1995.
The lawsuit 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. The Court entered an order and
final judgement approving the settlement and dismissing the lawsuit with
prejudice in October 1998. The Company recorded the expense in connection with
the settlement of $2,642,000 in the fourth quarter of fiscal 1998, which
represents the direct costs incurred.
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
Page 59
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
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. The matter is scheduled for trial in October 1999. 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.
22. 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.
23. Subsequent Events
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 for US$60,000,000
(Cdn$90,511,000) and has an option to increase its equity ownership position to
50% for US$10,000,000.
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
common shares. The CVR is expected to have a value of up to US$5 per share.
Page 60
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999, April 30, 1998 and April 30, 1997
(Canadian dollars, tabular amounts in thousands except per share data)
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 October. 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 will be permitted to terminate the Agreement.
Page 61
<PAGE>
Selected Quarterly Financial Data
The quarterly financial data for the fiscal years ended May 2, 1999 and April
30, 1998 are derived from unaudited consolidated financial statements of the
Company which include, in the opinion of Management, all normal and recurring
adjustments considered necessary for a fair statement of results for such
periods. The selected quarterly financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Fiscal 1998 Quarters Ended Fiscal 1999 Quarters Ended
------------------------------------------ --------------------------------------
Aug 3, Nov 2, Feb 1, Apr 30, Aug 2, Nov 1, Jan 31, May 2,
1997 1997 1998 1998 1998 1998 1999 1999
---- ---- ---- ---- ---- ---- ---- ----
(Canadian dollars, amounts in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $434,738 $432,169 $ 358,520 $395,193 $426,056 $456,781 $450,753 $457,115
Gross margin 274,008 272,368 213,707 235,472 274,008 267,457 262,791 259,089
Net earnings (loss)/(1)/ 64,354 57,993 (144,283) 3,618 35,520 53,314 120,119 (29,792)
Earnings (loss) per share
Basic $ 0.37 $ 0.33 $ 0.82 $ 0.02 $ 0.20 $ 0.30 $ 0.68 $ (0.17)
Fully diluted $ 0.36 $ 0.33 $ 0.82 $ 0.02 $ 0.20 $ 0.30 $ 0.64 $ (0.17)
Weighted average number of shares
Basic 172,964 174,733 175,376 175,598 176,105 176,766 177,596 180,105
Fully diluted 189,082 174,733 175,376 175,598 176,105 176,766 199,951 180,105
U.S. GAAP
Net earnings (loss)/(1)/ $ 64,354 $ 57,993 $(170,664) $ 29,999 $ 35,520 $ 53,314 $120,119 $(29,792)
Earnings (loss) per share/(2)/
Basic $ 0.37 $ 0.33 $ (0.97) $ 0.17 $ 0.20 $ 0.30 $ 0.68 $ (0.17)
Diluted $ 0.36 $ 0.32 $ (0.97) $ 0.17 $ 0.20 $ 0.30 $ 0.66 $ (0.17)
Weighted average number of shares
Basic 172,964 174,733 175,376 175,598 176,105 176,766 177,596 180,105
Diluted 179,821 182,728 175,376 175,598 176,105 176,766 182,030 180,105
</TABLE>
- -------------------------
(1) Includes non-recurring gains and charges. See Notes 14, 15 and 16 to the
Consolidated Financial Statements.
(2) See Note 18 to the Consolidated Financial Statements.
Page 62
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The Company hereby amends section (C) of Item 14 of its Annual Report on
Form 10-K by amendment of the following exhibits:
11.1 Computation of earnings per share under accounting principles
generally accepted in Canada.
11.2 Computation of earnings per share under accounting principles
generally accepted in the United States.
The Company hereby files as an exhibit to this Annual Report on Form 10-K/A
(Amendment No.1) for fiscal year ended May 2, 1999 the following:
23 Consent of Independent Accountants.
Page 63
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment to its Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
NEWBRIDGE NETWORKS CORPORATION
Date: October 1, 1999 By: /s/ Terence H. Matthews
-----------------------------
Chairman of the Board of
Directors and Chief
Executive Officer
Date: October 1, 1999 By: /s/ Kenneth B. Wigglesworth
-----------------------------
Kenneth B. Wigglesworth,
Executive Vice President, Finance
and Chief Financial Officer
Page 64
<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)
<TABLE>
<CAPTION>
for the fiscal quarter ended for the fiscal year ended
---------------------------- -------------------------
Aug 2, Nov 1, Jan 31, May 2, May 2, Apr 30, Apr 30,
1998 1998 1999 1999 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
Basic earnings (loss) per share
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings (loss) $ 35,520 $ 53,314 $120,119 $(29,792) $179,161 $(18,318) $156,917
======== ======== ======== ======== ======== ======== ========
Common Shares outstanding
at the beginning of the period 175,686 176,558 176,877 178,579 175,686 171,859 168,676
Weighted average number of Common
Shares issued during the period 419 208 719 1,526 1,944 2,758 1,834
-------- -------- -------- -------- -------- -------- --------
Weighted average number of Common
Shares outstanding during the period 176,105 176,766 177,596 180,105 177,630 174,617 170,510
======== ======== ======== ======== ======== ======== ========
Basic earnings (loss) per share $ 0.20 $ 0.30 $ 0.68 $ (0.17) $ 1.01 $ (0.10) $ 0.92
======== ======== ======== ======== ======== -------- ========
Fully diluted earnings (loss) per share
Earnings (loss) before imputed earnings $ 35,520 $ 53,314 $120,119 $(29,792) $179,161 $(18,318) $156,917
After tax imputed earnings from the
investment of funds received
through dilution 6,817 -- 7,353 -- -- -- 11,589
-------- -------- -------- -------- -------- -------- --------
Adjusted net earnings (loss) $ 42,337 $ 53,314 $127,472 $(29,792) $179,161 $(18,318) $168,506
======== ======== ======== ======== ======== ======== ========
Weighted average number of
Common Shares outstanding
during the period 176,105 176,766 177,596 180,105 177,630 174,617 170,510
Weighted average common share
equivalents based on conversion of
outstanding stock options 20,645 -- 22,355 -- -- -- 14,085
-------- -------- -------- -------- -------- -------- --------
Weighted average number of Common
Shares and equivalents outstanding
during the period 196,750 176,766 199,951 180,105 177,630 174,617 184,595
======== ======== ======== ======== ======== ======== ========
Fully diluted earnings (loss) per share $ 0.20 $ 0.30 $ 0.64 $ (0.17) $ 1.01 $ (0.10) $ 0.91
======== ======== ======== ======== ======== ======== ========
</TABLE>
<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)
<TABLE>
<CAPTION>
for the fiscal quarter ended for the fiscal year ended
---------------------------- -------------------------
Aug 2, Nov 1, Jan 31, May 2, May 2, Apr 30, Apr 30,
1998 1998 1999 1999 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) per share (U.S. GAAP - Basic)
Net earnings (loss) $ 35,520 $ 53,314 $120,119 $(29,792) $179,161 $(18,318) $156,917
======== ======== ======== ======== ======== ======== ========
Weighted average number of Common
Shares outstanding during the period 176,105 176,766 177,596 180,105 177,630 174,617 170,510
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share (U.S. GAAP) $ 0.20 $ 0.30 $ 0.68 $ (0.17) $ 1.01 $ (0.10) $ 0.92
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share (U.S. GAAP - Diluted)
Net earnings (loss) $ 35,520 $ 53,314 $120,119 $(29,792) $179,161 $(18,318) $156,917
======== ======== ======== ======== ======== ======== ========
Weighted average number of
Common Shares outstanding
during the period 176,105 176,766 177,596 180,105 177,630 174,617 170,510
Net effect of dilutive stock options and
warrants, based on the treasury
stock method 2,314 -- 4,434 -- 2,746 -- 4,015
-------- -------- -------- -------- -------- -------- --------
Weighted average number of Common
Shares outstanding during the
Period, as adjusted 178,419 176,766 182,030 180,105 180,376 174,617 174,525
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share (U.S. GAAP) $ 0.20 $ 0.30 $ 0.66 $ (0.17) $ 0.99 $ (0.10) $ 0.90
======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Newbridge Networks Corporation (the "Company") on Form S-8 (File Nos. 33-51538,
33-55964, 33-68710, 33-78276, 33-89624, 33-97472, 333-2446, 333-30777, 333-
86669, 333-86671, and 333-86683) of our report dated June 1, 1999, except Note
23 which is as of June 22, 1999, included herein, on our audit of the
consolidated financial statements of the Company, which are included in this
Amendment dated October 1, 1999 to its Annual Report on Form 10-K, as included
in Item 8 herein.
/s/ Deloitte and Touche LLP
Deloitte & Touche
Chartered Accountants
October 1, 1999
Ottawa, Canada
