UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ________ to ________
Commission File Number: 000-23774
ASCEND COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3092033
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE ASCEND PLAZA
1701 HARBOR BAY PARKWAY
ALAMEDA, CALIFORNIA 94502
(510) 769-6001
(Address of principal executive offices, zip code and telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the Registrant's Common Stock, $0.001
par value, was 222,655,604 as of March 31, 1999.
PORTIONS AMENDED
The Registrant hereby amends (i) the Footnotes to the Condensed
Consolidated Financial Statements of the Registrant included in this Report
on Form 10-Q by adding a Footnote titled "Segment Disclosures" immediately
prior to Item 2, and (ii) Item 2 to this Report on Form 10-Q by replacing
the category "Net Sales", in each case as set forth below.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEGMENT DISCLOSURES
The Company operates in three business segments, within the global
communications networking industry. For management purposes, the Company is
divided into three primary business segments: Core Systems, Access
Switching and Enterprise Access. Each of these groups has a vice president
who reports directly to the Chief Executive Officer ("CEO"), who is the
Chief Operating Decision Maker as defined by SFAS 131. The measures of
profitability reviewed by the CEO for these segments consist of sales,
gross profit and contribution margin, which includes only certain
identifiable operating expenses. The majority of the Company's operating
expenses are not allocated to the business units, but are treated as
corporate expenses (unallocated). Fiscal quarter ended March 31, 1998 and
1999 sales and expenses attributable to each business segment are described
in the tables below. In addition, there is no allocation, direct or
indirect, of the assets and liabilities to these business segments. The
Company had no inter-segment sales in 1999 and 1998. The following is a
summary of the Company's business segments:
Core Systems - Offers frame relay switches, the CBX 500 family of ATM
switches, and the GRF family of IP switches used to improve the speed,
performance and reliability of backbone carrier networks as well as the
intelligent networking fault tolerance product.
Access Switching - Produces the MAX family of products which provide
band-width-on-demand for wide area network (WAN), internet and multimedia
access over a common set of digital access lines. The MAX TNT is a carrier
class WAN access switch.
Enterprise Access - Offers the Pipeline family of remote access equipment
as well as the Multiband family of inverse multiplexing equipment. The
Pipeline product family provides access equipment for remote office,
telecommuting and small office/home office and Internet access. The Ascend
Multiband family of controllers is used for video-conferencing and
multimedia networks.
Unallocated - Representing "All Other," Unallocated is primarily sales from
customer service, maintenance, and professional services. Related cost of
sales is primarily labor and parts for the respective sales.
The table below provides a breakdown of selected financial data by
business segments for the quarter ended March, 31 1999.
<TABLE>
<CAPTION>
Core % Access % Enterprise %
Systems Switching Access Unallocated Consolidated
------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 236,447 $ 204,804 $ 26,853 $ 41,291 $ 509,395
Cost of sales
83,442 35% 81,350 40% 10,792 40% 16,442 192,026
------------ ------------ ----------- ----------- -------------
GROSS PROFIT 153,005 65% 123,454 60% 16,061 60% 24,849 317,369
OPERATING EXPENSES:
Research and development 49,265 21% 25,169 12% 3,929 15% 5,541 83,904
Sales and marketing 5,759 2% 1,179 1% 1,777 7% 91,815 100,530
General and administrative 3,304 1% 109 0.1% 341 1% 13,381 17,135
Costs of Mergers (23,919) (23,919)
------------ ------------ ----------- ----------- ------------
TOTAL OPERATING EXPENSES 58,328 25% 26,457 13% 6,047 23% 86,818 177,650
------------ ------------ ----------- ----------- ------------
OPERATING INCOME (LOSS) (1) $ 94,677 40% $ 96,997 47% $ 10,014 37% $ (61,969) 139,719
------------ ------------ ------------ ----------- ----------
Interest income 10,862 10,862
Income before income taxes 150,581 150,581
Provision for income taxes 41,798 41,798
NET INCOME $108,783
===========
</TABLE>
(1) Contribution margin is identified as operating income for Core Systems,
Access Switching and Enterprise Access segments in this schedule.
The table below provides a breakdown of selected financial data by
business segments for the quarter ended March, 31 1998.
<TABLE>
<CAPTION>
Core % Access % Enterprise %
Systems Switching Access Unallocated Consolidated
------------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 140,194 $ 134,743 $ 30,094 $ 84 $ 305,114
Cost of sales 49,264 35% 48,473 36% 12,073 40% - 109,810
------------ ---------- ----------- ----------- -------------
GROSS PROFIT 90,930 65% 86,270 64% 18,021 60% 84 195,304
OPERATING EXPENSES:
Research and development 21,248 15% 16,541 12% 1,409 5% 1,790 40,988
Sales and marketing 13,711 10% 619 0.5% 751 2% 52,258 67,340
General and administrative 1,732 1% 290 1% 8,022 10,044
Costs of Mergers
------------ ---------- ----------- ----------- -------------
TOTAL OPERATING EXPENSES 36,691 26% 17,161 13% 2,450 8% 62,071 118,372
------------ ---------- ----------- ----------- -------------
OPERATING INCOME (LOSS) (1) $ 54,239 39% $ 69,109 51% $ 15,571 52% $ (61,987) 76,932
------------ ---------- ----------- ----------- -------------
Interest income 4,964 4,964
Income before income taxes 81,897 81,897
Provision for income taxes 29,525 29,525
--------------
NET INCOME $ 52,372
==============
</TABLE>
(1) Contribution margin is identified as operating income for Core Systems,
Access Switching and Enterprise Access segments in this schedule.
NET SALES
Net sales for the quarter ended March 31, 1999 were $509.4 million, an
increase of 67% over net sales of $305.1 million for the first quarter of
1998. The net sales for the quarter ended March 31, 1999 include
incremental revenues resulting from the acquisition of Stratus.
International sales accounted for approximately 27% of net sales for the
quarter ended March 31, 1999 compared to 26% of net sales for the same
period in 1998. Substantially all of the increase in net sales was
attributable to increases in unit shipments of the Company's products.
CORE SYSTEMS - The Core Systems business unit consists of the B-STDX family
of Frame Relay switches, the CBX500 and GX 550 ATM switches, the SA family
of broadband access products, the Intelligent Networking products acquired
from Stratus and the GRF family of IP switches. Core Systems products
accounted for 47% and 41% of total Company net sales for the quarters ended
March 31, 1999 and 1998, respectively. The increase in Core Systems sales
as a percentage of net sales was primarily attributable to significant
growth in sales of ATM switches. Incremental revenues from the acquisition
of Stratus also contributed to the increase, to a lesser extent.
ACCESS SWITCHING - The Access Switching business unit offers the MAX family
of products. Access Switching products accounted for 40% and 44% of total
Company net sales for the quarters ended March 31, 1999 and 1998,
respectively. Access Switching revenues increased by approximately 50%
compared to the previous year, but declined as a percentage of total sales
due to the significant increase in Core Systems revenues.
ENTERPRISE ACCESS - The Enterprise Access business unit offers the Pipeline
family of remote access equipment as well as the Multiband MAX family of
inverse multiplexing equipment. Enterprise Access products accounted for 5%
and 10% of total Company net sales for the quarters ended March 31, 1999
and 1998, respectively. Enterprise Access revenues declined by
approximately 10% compared to the previous year, and declined to 5% of
total sales due to the significant increase in total revenues.
UNALLOCATED - Representing "All Other," Unallocated is primarily sales from
customer service, maintenance, and professional services. Related cost of
sales is primarily labor and parts for the respective sales.
The table below provides a breakdown of selected financial data by
business segments for the quarter ended March, 31 1999.
<TABLE>
<CAPTION>
Core % Access % Enterprise %
Systems Switching Access Unallocated Consolidated
---------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 236,447 $ 204,804 $ 26,853 $ 41,291 $ 509,395
Cost of sales 83,442 35% 81,350 40% 10,792 40% 16,442 192,026
------------ ---------- ----------- ----------- -------------
GROSS PROFIT 153,005 65% 123,454 60% 16,061 60% 24,849 317,369
OPERATING EXPENSES:
Research and development 49,265 21% 25,169 12% 3,929 15% 5,541 83,904
Sales and marketing 5,759 2% 1,179 1% 1,777 7% 91,815 100,530
General and administrative 3,304 1% 109 0.1% 341 1% 13,381 17,135
Costs of Mergers (23,919) (23,919)
------------ ---------- ----------- ----------- -------------
TOTAL OPERATING EXPENSES 58,328 25% 26,457 13% 6,047 23% 86,818 177,650
------------ ---------- ----------- ----------- -------------
OPERATING INCOME (LOSS) (1) $ 94,677 40% $ 96,997 47% $ 10,014 37% $ (61,969) $ 139,719
------------ ---------- ----------- ----------- -------------
Interest income 10,862 10,862
Income before income taxes 150,581 150,581
Provision for income taxes 41,798 41,798
--------------
NET INCOME $ 108,783
==============
</TABLE>
(1) Contribution margin is identified as operating income for Core Systems,
Access Switching and Enterprise Access segments in this schedule.
The table below provides a breakdown of selected financial data by
business segments for the quarter ended March, 31 1998.
<TABLE>
<CAPTION>
Core % Access % Enterprise %
Systems Switching Access Unallocated Consolidated
------------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 140,194 $ 134,743 $ 30,094 $ 84 $ 305,114
Cost of sales 49,264 35% 48,473 36% 12,073 40% - 109,810
------------ ---------- ----------- ----------- -------------
GROSS PROFIT 90,930 65% 86,270 64% 18,021 60% 84 195,304
OPERATING EXPENSES:
Research and development 21,248 15% 16,541 12% 1,409 5% 1,790 40,988
Sales and marketing 13,711 10% 619 0.5% 751 2% 52,258 67,340
General and administrative 1,732 1% 290 1% 8,022 10,044
Costs of Mergers
------------ ---------- ----------- ----------- -------------
TOTAL OPERATING EXPENSES 36,691 26% 17,161 13% 2,450 8% 62,071 118,372
------------ ---------- ----------- ----------- -------------
OPERATING INCOME (LOSS) (1) $ 54,239 39% $ 69,109 51% $ 15,571 52% $ (61,987) 76,932
------------ ---------- ----------- ----------- -------------
Interest income 4,964 4,964
Income before income taxes 81,897 81,897
Provision for income taxes 29,525 29,525
-------------
NET INCOME $ 52,372
=============
</TABLE>
(1) Contribution margin is identified as operating income for Core Systems,
Access Switching and Enterprise Access segments in this schedule.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASCEND COMMUNICATIONS, INC.
DATE May 21, 1999 by /s/ Michael F.G. Ashby
- --------------------- --------------------------------------------
Michael F.G. Ashby, Vice President,
Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
