<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 19, 1998
----------------------------
ASCEND COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-23774 94-3092033
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer)
incorporation or organization) Identification No.)
ONE ASCEND PLAZA
1701 HARBOR BAY PARKWAY 94502
ALAMEDA, CALIFORNIA
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 769-6001
Not applicable.
----------------------------
(Former name or former address, if changed since last report)
<PAGE>
The undersigned Registrant hereby amends the following item of its Current
Report on Form 8-K filed October 23, 1998 for the event of October 19, 1998:
ITEM 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
(i) The following Stratus Computer, Inc. ("Stratus") documents
filed with the Securities and Exchange Commission by
Stratus are incorporated by reference in this Form 8-K/A:
1. Stratus' Annual Report on Form 10-K for the fiscal
year ended December 28, 1997; and
2. Stratus' Quarterly Reports on Form 10-Q for the
quarters ended March 29, 1998 and June 28, 1998.
(b) Pro forma financial information.
(i) The following documents appear as Exhibit 99.1 to this
Current Report on Form 8-K/A and are incorporated herein
by reference:
1. Unaudited Pro Forma Condensed Combined Balance Sheet
as of June 30, 1998;
2. Unaudited Pro Forma Condensed Combined Statements of
Operations for the Year Ended December 31, 1997;
3. Unaudited Pro Forma Condensed Combined Statements of
Operations for the Six Months Ended June 30, 1998; and
4. Notes to the Unaudited Pro Forma Condensed Combined
Financial Information.
(c) Exhibits.
23.1 Consent of Ernst & Young LLP, Independent Auditors
(Boston).
99.1 Unaudited Pro Forma Condensed Combined Financial
Information.
______________
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
ASCEND COMMUNICATIONS, INC.
/s/ Michael F.G. Ashby
Date: November 3, 1998 By:________________________________________
Michael F.G. Ashby
Executive Vice President, Chief Financial
Officer and Secretary
(Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
23.1 Consent of Ernst & Young LLP, Independent Auditors
(Boston).
99.1 Unaudited Pro Forma Condensed Combined Financial
Information.
______________
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Current Report on Form
8-K/A of Ascend Communications, Inc. dated November 3, 1998 and in the
Registration Statements (Form S-8) pertaining to the Options Granted Under the
Stratus Computer, Inc. 1983 Stock Option Plan, as amended, Non-Qualified Common
Stock Option Plan and 1997 Non-Qualified Common Stock Option Plan and Assumed By
Ascend Communications, Inc.; 1998 Supplemental Stock Incentive Plan; 1998 Stock
Incentive Plan; 1996 Restricted Stock Plan and 1994 Outside Directors Stock
Option Plan; First Amended and Restated 1989 Stock Option Plan and 1994 Outside
Directors Stock Option Plan; 1994 Employee Stock Purchase Plan; Individual
Option Agreements Issued by Morning Star Technologies, Inc. and Assumed by
Ascend Communications, Inc.; 401(k) Savings Plan; 1996 Restricted Stock Plan;
1989 Stock Option Plan and Individual Option Agreements Issued by NetStar, Inc.
and Assumed by Ascend Communications, Inc.; and Options Granted under the
Whitetree, Inc. 1993 Incentive Stock Plan, Cascade Communications Corp. Amended
and Restated 1991 Stock Plan, Cascade Communications Corp. 1994 Non-Employee
Director Stock Option Plan, Arris Networks, Inc. 1995 Stock Option Plan and
Sahara Networks, Inc. 1995 Stock Plan and Assumed by Ascend Communications, Inc.
and in the Registration Statements (Form S-3) No. 333-13377, No. 333-11091, No.
333-21751, and No. 333-32781 and in the related Prospectuses, of Ascend
Communications, Inc. of our report dated January 21, 1998, with respect to the
consolidated financial statements of Stratus Computer, Inc. incorporated by
reference in its Annual Report (Form 10-K) for the year ended December 28, 1997
and the related financial statement schedule included therein.
ERNST & YOUNG LLP
Boston, Massachusetts
October 29, 1998
<PAGE>
EXHIBIT 99.1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information for Ascend
set forth below gives effect to the acquisition of Stratus. The historical
financial information set forth below has been derived from, and is qualified by
reference to, the consolidated financial statements of Ascend and Stratus, and
should be read in conjunction with those financial statements and the notes
thereto incorporated by reference herein. The unaudited pro forma condensed
combined statement of operations data for the year ended December 31, 1997 and
the six months ended June 30, 1998 set forth below give effect to the
acquisition as if it occurred on January 1, 1997. The unaudited pro forma
condensed combined balance sheet as of June 30, 1998 set forth below gives
effect to the acquisition of Stratus as if it occurred on June 30, 1998. The
unaudited pro forma condensed combined financial information set forth below
reflects certain adjustments, including among others, adjustments to reflect the
amortization of the excess purchase price. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes to the financial statements of Ascend and Stratus which are incorporated
by reference herein from Ascend's and Stratus' Annual Reports on Form 10-K for
the years ended December 31, 1997 and December 28, 1997, respectively, and the
Quarterly Reports on Form 10-Q from the quarterly periods ended June 30, 1998
and June 28, 1998, respectively. The unaudited pro forma condensed combined
financial information set forth below does not purport to represent what the
consolidated results of operations or financial condition of Ascend would
actually have been if the Stratus acquisition and related transaction had in
fact occurred on such date or to project the future consolidated results of
operations or financial condition of Ascend. Ascend plans to divest certain
lines of business of Stratus. As of the date of this filing, Ascend was in the
early stages of determining the impact of divesting such operations and
accordingly, the above pro forma information does not include any adjustments
relating to the planned sale of the lines of business.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
BUSINESS PRO FORMA
ASCEND AS OF STRATUS AS OF COMBINATION AS OF
JUNE 30, 1998 JUNE 28, 1998 COMBINED ADJUSTMENTS JUNE 30, 1998
------------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equiva-
lents................. $ 164,772 $ 219,785 $ 384,557 $ -- $ 384,557
Short-term
investments........... 198,357 57,960 256,317 -- 256,317
Accounts receivable,
net................... 268,954 99,823 368,777 -- 368,777
Inventories............ 131,902 75,135 207,037 -- 207,037
Deferred income taxes.. 107,229 19,857 127,086 -- 127,086
Other current assets... 18,352 14,243 32,595 -- 32,595
---------- --------- ---------- --------- ----------
Total current assets.... 889,566 486,803 1,376,369 -- 1,376,369
Investments............. 340,701 -- 340,701 -- 340,701
Furniture, fixtures and
equipment, net......... 139,759 141,939 281,698 -- 281,698
Other assets............ 20,203 68,638 88,841 (1)(3) 37,029 125,870
---------- --------- ---------- --------- ----------
Total assets............ $1,390,229 $ 697,380 $2,087,609 $ 37,029 $2,124,638
========== ========= ========== ========= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 68,788 $ 22,016 $ 90,804 $ -- $ 90,804
Accrued compensation
and related
liabilities........... 21,596 21,570 43,166 -- 43,166
Accrued liabilities.... 112,254 15,283 127,537 (3) 116,000 281,293
(6) 37,756 --
Deferred revenue....... -- 17,856 17,856 (6) (17,856) --
Income taxes payable... -- 19,900 19,900 (6) (19,900) --
---------- --------- ---------- --------- ----------
Total current
liabilities............ 202,638 96,625 299,263 116,000 415,263
Long-term obligations... -- 1,163 1,163 -- 1,163
Commitments and
contingencies..........
Stockholders' equity:
Common stock........... 196 282 478 (3) 18 214
(3) (282) --
Additional paid-in
capital............... 985,328 269,249 1,254,577 (3) 825,603 1,810,931
(3) (269,249) --
Retained earnings...... 202,067 472,832 674,899 (1)(3) (305,000) (102,933)
(3) (472,832) --
Cumulative translation
adjustment............ -- (6,116) (6,116)(3) 6,116 --
---------- --------- ---------- --------- ----------
Subtotal................ 1,187,591 736,247 1,923,838 (215,626) 1,708,212
Less: Shares in
treasury, at cost...... -- (136,655) (136,655)(3) 136,655 --
---------- --------- ---------- --------- ----------
Total stockholders'
equity................. 1,187,591 599,592 1,787,183 (78,971) 1,708,212
---------- --------- ---------- --------- ----------
Total liabilities and
stockholders' equity... $1,390,229 $ 697,380 $2,087,609 $ 37,029 $2,124,638
========== ========= ========== ========= ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Information.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASCEND STRATUS PRO FORMA
FOR THE FOR THE PRO FORMA FOR THE YEAR
YEAR ENDED YEAR ENDED BUSINESS ENDED
DECEMBER 31, DECEMBER 28, COMBINATION DECEMBER 31,
1997 1997 COMBINED ADJUSTMENTS 1997
------------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net product sales..... $1,167,352 $489,214 $1,656,566 $ -- $1,656,566
Services.............. -- 199,061 199,061 -- 199,061
---------- -------- ---------- ------- ----------
Total revenues.......... 1,167,352 688,275 1,855,627 -- 1,855,627
Cost of sales:
Product cost of
sales................ 413,570 252,487 666,057 -- 666,057
Services.............. -- 125,103 125,103 -- 125,103
---------- -------- ---------- ------- ----------
Total cost of sales..... 413,570 377,590 791,160 -- 791,160
---------- -------- ---------- ------- ----------
Gross profit............ 753,782 310,685 1,064,467 -- 1,064,467
Operating expenses:
Research and
development.......... 155,996 90,647 246,643 -- 246,643
Sales and marketing... 249,129 110,460 359,589 -- 359,589
General and
administrative....... 35,267 27,438 62,705 (1) 5,286 67,991
Purchased research and
development.......... 231,100 -- 231,100 (2) -- 231,100
Costs of mergers...... 150,271 -- 150,271 -- 150,271
---------- -------- ---------- ------- ----------
Total operating
expenses............... 821,763 228,545 1,050,308 5,286 1,055,594
---------- -------- ---------- ------- ----------
Operating income
(loss)................. (67,981) 82,140 14,159 (5,286) 8,873
Interest and other
income, net............ 23,029 12,877 35,906 -- 35,906
---------- -------- ---------- ------- ----------
Income (loss) before
income taxes........... (44,952) 95,017 50,065 (5,286) 44,779
Provision for income
taxes.................. 79,422 20,903 100,325 -- 100,325
---------- -------- ---------- ------- ----------
Net income (loss)....... $ (124,374) $ 74,114 $ (50,260) $(5,286) $ (55,546)
========== ======== ========== ======= ==========
Pro forma net income
(loss) per share--Basic
(4) ................... $ (0.66) $ 3.15 $ (0.27)
========== ======== ==========
Pro forma net income
(loss) per share--
Diluted (4) ........... $ (0.66) $ 3.01 $ (0.27)
========== ======== ==========
Number of shares used in
pro forma per share
calculation--Basic
(4).................... 189,129 23,522 206,771
========== ======== ==========
Number of shares used in
pro forma per share
calculation--Diluted
(4).................... 189,129 24,635 206,771
========== ======== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Information.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASCEND STRATUS PRO FORMA
FOR THE SIX FOR THE SIX PRO FORMA FOR THE SIX
MONTHS ENDED MONTHS ENDED BUSINESS MONTHS ENDED
JUNE 30, JUNE 28, COMBINATION JUNE 30,
1998 1998 COMBINED ADJUSTMENTS 1998
------------ ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net product sales..... $632,469 $195,508 $827,977 $ -- $827,977
Services.............. -- 102,842 102,842 102,842
-------- -------- -------- ------- --------
Total revenues.......... 632,469 298,350 930,819 930,819
Cost of sales:
Product cost of
sales................ 226,929 117,273 344,202 -- 344,202
Services.............. -- 66,289 66,289 -- 66,289
-------- -------- -------- ------- --------
Total cost of sales..... 226,929 183,562 410,491 -- 410,491
-------- -------- -------- ------- --------
Gross profit............ 405,540 114,788 520,328 -- 520,328
Operating expenses:
Research and
development.......... 87,431 45,593 133,024 -- 133,024
Sales and marketing... 135,063 50,403 185,466 -- 185,466
General and
administrative....... 19,761 13,225 32,986(1) 2,643 35,629
-------- -------- -------- ------- --------
Total operating
expenses............... 242,255 109,221 351,476 2,643 354,119
-------- -------- -------- ------- --------
Operating income
(loss)................. 163,285 5,567 168,852 (2,643) 166,209
Interest and other
income, net............ 10,887 8,097 18,984 -- 18,984
-------- -------- -------- ------- --------
Income (loss) before
income taxes........... 174,172 13,664 187,836 (2,643) 185,193
Provision for income
taxes.................. 62,715 6,370 69,085 -- 69,085
-------- -------- -------- ------- --------
Net income (loss)....... $111,457 $ 7,294 $118,751 $(2,643) $116,108
======== ======== ======== ======= ========
Pro forma net income per
share--Basic (4)....... $ 0.58 $ 0.30 $ 0.55
======== ======== ========
Pro forma net income per
share--Diluted (4) .... $ 0.55 $ 0.29 $ 0.52
======== ======== ========
Number of shares used in
pro forma per share
calculation--Basic
(4).................... 193,802 23,928 211,748
======== ======== ========
Number of shares used in
pro forma per share
calculation--Diluted
(4).................... 203,886 24,824 222,504
======== ======== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Information.
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
Pro forma adjustments for the unaudited pro forma condensed combined balance
sheet as of June 30, 1998 and statements of operations for the six months
ended June 30, 1998 and for the year ended December 31, 1997 are as follows:
(1) Reflects the preliminary allocation of the purchase price and the
amortization of the cost over the fair value of net assets acquired for the
Stratus acquisition. The preliminary allocation has resulted in a charge for
purchased in-process research and development estimated to be $305 million and
estimated goodwill of $37 million which is being amortized over an average
period of seven years.
The total estimated purchase price for the Stratus acquisition has been
allocated on a preliminary basis to assets and liabilities based on
management's best estimates of their fair value with the excess costs over the
net assets acquired allocated to goodwill. This allocation is subject to
change pending a final analysis of the value of the assets acquired and,
liabilities assumed and divestiture of Stratus' non-telecommunications
businesses. The impact of such changes could be material (see note 5 below).
(2) The pro forma condensed combined statements of operations for the year
ended December 31, 1997 and the six months ended June 30, 1998 do not include
the purchased research and development related charge of $305 million since it
is considered a non-recurring charge.
(3) To reflect the purchase of all of the outstanding stock of Stratus for a
total purchase price of approximately $1.0 billion. The purchase price
consisted of approximately $826 million of stock to be issued and the fair
value assigned to assumed stock options, and the assumption of approximately
$214 million of liabilities consisting of liabilities acquired from Stratus
and acquisition and other related costs.
(4) Pro forma net income (loss) reflects the impact of the adjustments
above. Pro forma basic net income (loss) per share is computed using the
weighted-average number of shares of common stock outstanding after the
issuance of Ascend Common Stock to acquire the outstanding shares of Stratus
Common Stock. Pro forma diluted net income per share is computed as described
above and also gives effect to any dilutive options and warrants. Dilutive
options and warrants are excluded from the computation during loss periods as
their effect is antidilutive.
(5) Upon consummation of the Merger between Ascend and Stratus, Ascend plans
to divest certain lines of business of Stratus. As of the date of this filing,
Ascend was in the early stages of determining the impact of divesting such
operations and accordingly, the above pro forma information does not include
any adjustments relating to the planned sale of the lines of business. The
preliminary purchase price allocation does not assume any synergies associated
with the combination of operations of the two companies nor any benefits from
the actions expected to be taken by Ascend upon consummation of the Merger.
(6) Pro forma reclassifications are made to conform the Stratus presentation
to the Ascend presentation.
