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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 27, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-25684
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PREMISYS COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its chapter)
Delaware 94-3153847
-------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
48664 Milmont Drive, Fremont, California 94538
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(Address of principal executive offices)
(Zip Code)
(510) 353-7600
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(Registrant's telephone number, including area code)
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 issuer's common stock, par value $0.01,
as of January 31, 1997 was 24,721,946 shares.
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PREMISYS COMMUNICATIONS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheet -
June 30, 1996 and December 31, 1996 3
Condensed Consolidated Statement of Operations -
Three and Six Month Periods ended
December 31, 1995 and December 31, 1996 4
Condensed Consolidated Statement of Cash Flows -
Six Months ended December 31, 1995 and
December 31, 1996 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PREMISYS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET - (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
June 30, December 31,
1996 1996
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 22,058 $ 12,214
Short-term investments 38,803 55,263
Accounts receivable, net 16,267 21,918
Inventory 4,221 5,355
Deferred tax assets 2,915 2,915
Prepaid expenses and other assets 440 995
-------- --------
Total current assets 84,704 98,660
Property and equipment, net 2,700 5,897
Other assets 118 119
-------- --------
$ 87,522 $104,676
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,250 $ 6,293
Accrued and other current liabilities 5,897 6,189
Income taxes payable 580 ----
Current portion of long-term debt 124 94
-------- --------
Total current liabilities 9,851 12,576
-------- --------
Long-term debt 91 49
-------- --------
Stockholders' equity:
Common Stock, $0.01 par value, 100,000,000 shares
authorized; 24,398,519 and 24,666,303 shares
issued and outstanding 244 247
Additional paid-in capital 66,656 69,303
Retained earnings 10,680 22,501
-------- --------
Total stockholders' equity 77,580 92,051
-------- --------
$ 87,522 $104,676
-------- --------
-------- --------
See notes to condensed consolidated financial statements
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PREMISYS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1995 1996 1995 1996
---- ---- ---- ----
Revenues $17,684 $26,356 $31,759 $50,650
Cost of revenues 6,807 8,768 11,882 17,299
------- ------- ------- -------
Gross profit 10,877 17,588 19,877 33,351
------- ------- ------- -------
Operating expenses:
Research and development 1,682 2,510 3,226 4,838
Selling, general and administrative 3,473 5,743 6,294 10,390
------- ------- ------- -------
Total operating expenses 5,155 8,253 9,520 15,228
------- ------- ------- -------
Income from operations 5,722 9,335 10,357 18,123
Interest and other income, net 484 661 858 1,255
------- ------- ------- -------
Income before income taxes 6,206 9,996 11,215 19,378
Provision for income taxes 2,335 3,898 4,038 7,557
------- ------- ------- -------
Net income $ 3,871 $ 6,098 $ 7,177 $11,821
------- ------- ------- -------
------- ------- ------- -------
Net income per share $ 0.15 $ 0.23 $ 0.27 $ 0.44
------- ------- ------- -------
------- ------- ------- -------
Weighted average common shares
and equivalents 26,393 26,721 26,342 26,600
------- ------- ------- -------
------- ------- ------- -------
See notes to condensed consolidated financial statements
4
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PREMISYS COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - (UNAUDITED)
(IN THOUSANDS)
Six Months Ended December 31,
-----------------------------
1995 1996
---- ----
Cash flows from operating activities:
Net income $ 7,177 $11,821
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 387 564
Changes in assets and liabilities:
Accounts receivable (4,944) (5,651)
Inventory (1,848) (1,134)
Prepaid expenses and other assets (721) (556)
Accounts payable 2,198 3,043
Income taxes payable 1,493 (580)
Accrued and other current liabilities 3,814 292
------- -------
Net cash provided by operating activities 7,556 7,799
------- -------
Cash flows from investing activities:
Purchase of property and equipment (883) (3,761)
Purchase of short-term investments (5,183) (16,365)
------- -------
Net cash used in investing activities (6,066) (20,126)
------- -------
Cash flows from financing activities:
Proceeds from issuance of Common Stock, net 717 2,555
Notes receivable from shareholders 138 ---
Principal payments on long-term debt (16) ---
Proceeds of capital lease financing 110 ---
Repayment of capital lease obligations (50) (72)
------- -------
Net cash provided by financing activities 899 2,483
------- -------
Net increase (decrease) in cash 2,389 (9,844)
Cash and cash equivalents at beginning of period 12,273 22,058
------- -------
Cash and cash equivalents at end of period $14,462 $12,214
------- -------
------- -------
Supplemental disclosures:
Cash paid for interest $ 22 $ 6
Cash paid for income taxes 223 8,421
Unrealized gain on investments 126 95
See notes to condensed consolidated financial statements
5
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PREMISYS COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not contain all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements and
include all adjustments, consisting only of normal recurring adjustments,
necessary for the fair statement of the Company's financial condition as of
December 31, 1996, the results of its operations for the three and six month
periods ended December 31, 1995 and 1996, and its cash flows for the six month
periods ended December 31, 1995 and 1996. These financial statements should be
read in conjunction with the Company's audited financial statements as of June
30, 1995 and 1996 and for each of the three years in the period ended June 30,
1996, including notes thereto, included in the Company's Form 10-K. Operating
results for the six month period ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1997.
The Company has a 52/53 week fiscal accounting year that ends on the Friday
closest to June 30. Accordingly, fiscal periods shown herein as ending on June
30, 1996 and December 31, 1995 and 1996 for financial statement presentation
purposes actually reflect amounts for the fiscal periods ended on June 28, 1996,
December 29, 1995 and December 27, 1996.
NOTE 2 - INVENTORIES (IN THOUSANDS)
June 30, December 31,
1996 1996
-------- (unaudited)
------------
Raw materials $ 1,587 $ 1,214
Work-in-process 1,175 1,687
Finished goods 2,236 3,844
------- -------
4,998 6,745
Less: Reserves (777) (1,390)
------- -------
$ 4,221 $ 5,355
------- -------
------- -------
NOTE 3 - SUBSEQUENT EVENTS
On January 7, 1997, the Company announced the execution of a technology
license agreement with Positron Fiber Systems Corporation ("Positron"). The
Company will license certain SONET and SDH based technology from Positron for
use within its future products.
The purchased technology includes the right to modify and manufacture
products which are based on Positron's OSIRIS-155Mb/s SONET/SDH products. The
technology information is in the form of circuit pack schematics, Field
Programmable Gate Array (FPGA) designs and documentation, shelf backplane and
bus designs, and system software source code. The licensed technology also
includes the right to use and manufacture Positron proprietary application
specific integrated circuits
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(ASICs), and training and integration assistance on all design materials.
The delivery of the technology will begin in January 1997 and will continue in
phased releases through October 1997.
The Company will pay Positron $4 million of license fees over the next
three years. Positron will also be paid a royalty on the Company's products
utilizing the licensed technology up to maximum of $4 million. Thus, total
payments to Positron will be between $4 million and $8 million. The Company
will expense the $4 million of license fees in the quarter ending March 31,
1997, which is expected to reduce its earnings per share for such quarter by
approximately $0.09.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. These forward-looking statements involve a
number of risks and uncertainties which are described throughout this Form 10-Q,
including demand from and the Company's relationships with its strategic
partners and major customers, including Paradyne Corporation ("Paradyne"); new
product development and introductions by the Company and its competitors,
including products based on the technology recently licensed by the Company from
Positron; deregulation of, and legislation regarding the domestic and
international telecommunications industry; rapidly changing technologies and the
Company's ability to respond thereto; the growth of demand for telecommunication
services such as wireless, cellular and the Internet; competition; changes in
the mix of product or customers or in the level of operating expenses; and other
factors described throughout this Form 10-Q, including under "Revenues" and
"Other Factors That May Affect Future Operating Results," and in the Company's
Annual Report on Form 10-K for the year ended June 30, 1996. The actual results
that the Company achieves may differ materially from any forward-looking
statements due to such risks and uncertainties. The Company has identified
using an asterisk ("*") various sentences within this Form 10-Q which contain
such forward-looking statements, and words such as "believes", "anticipates",
"expects", "intends" and similar expressions are intended to identify forward-
looking statements, but are not the exclusive means of identifying such
statements. In addition, the section labeled "Other Factors That May Affect
Future Operating Results", which does not include asterisks for improved
readability, consists primarily of forward-looking statements. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may arise after the date of this report.
Readers are urged to carefully review and consider the various disclosures made
by the Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission, including its Form 10-K, that attempt to
advise interested parties of the risks and factors that may affect the Company's
business.
REVENUES
Three Months Ended December 31,
-----------------------------------------
1995 % Change 1996
---- -------- ----
Revenues $17,684,000 49% $26,356,000
Six Months Ended December 31,
-----------------------------------------
1995 % Change 1996
---- -------- ----
Revenues $31,759,000 59% $50,650,000
Revenues consist primarily of gross sales of products, less discounts and
sales returns and allowances. A majority of the revenue increase from the three
and six month periods ended December 31, 1995 to the comparable periods in
fiscal 1997 was attributable to growth in unit volumes of platforms and modules
sold. The Company's list prices for its products and average
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selling prices for individual products did not change significantly between the
three and six month periods ended December 31, 1995 and the comparable periods
in fiscal 1997. Recently, the Company has experienced a lower rate of revenue
growth between the second and third quarters of its fiscal year, due in part to
significant calendar year end purchases by some of the Company's largest
strategic customers. The Company believes that the level of calendar year end
purchases is related in part to such customers' budgetary processes, and these
levels have not in certain circumstances been sustained in the Company's third
fiscal quarter. *The Company anticipates that it will experience similar
purchasing patterns in fiscal 1997 from certain of its strategic customers, in
particular Paradyne, from whom the Company expects to derive revenues in the
quarter ended March 31, 1997 that will be significantly reduced from the levels
experienced during the quarter ended December 31, 1996. *Due in part to these
purchasing patterns, the Company anticipates that it will have minimal, if any,
growth in its revenues from the quarter ended December 31, 1996 to the quarter
ended March 31, 1997.
The following table sets forth, for the periods indicated, the revenues
generated from the Company's largest customers in calendar 1996, other domestic
customers as a group and international customers as a group, in absolute dollars
and as a percentage of total revenues.
SOURCE OF REVENUES
Three Months Ended December 31,
------------------------------------------------
1995 % 1996 %
-------------------- --------------------
Paradyne $ 6,842,000 39% $11,317,000 43%
ADC Telecommunications, Inc. 3,497,000 20% 3,001,000 11%
Motorola, Inc. 1,135,000 6% 2,397,000 9%
DSC Communications, Corp. 985,000 6% 522,000 2%
Other Domestic Customers 1,924,000 11% 6,968,000 26%
International Customers 3,301,000 18% 2,151,000 9%
------------------------------------------------
Total Revenues $17,684,000 100% $26,356,000 100%
------------------------------------------------
------------------------------------------------
Six Months Ended December 31,
------------------------------------------------
1995 % 1996 %
-------------------- --------------------
Paradyne $11,477,000 36% $18,491,000 37%
ADC Telecommunications, Inc. 5,803,000 18% 5,559,000 11%
Motorola, Inc. 3,537,000 11% 5,612,000 11%
DSC Communications, Corp. 2,395,000 8% 4,508,000 9%
Other Domestic Customers 3,722,000 12% 13,321,000 26%
International Customers 4,825,000 15% 3,159,000 6%
-------------------- --------------------
Total Revenues $31,759,000 100% $50,650,000 100%
-------------------- --------------------
-------------------- --------------------
As shown in the table above, the Company sells a substantial majority of
its products to a limited number of customers, which generally resell the
Company's products to public carriers and end users. *The loss of any one or
more of the Company's major customers would have a material adverse effect on
the Company's business and operating results. *Any of the telecommunications
equipment suppliers that market and sell the Company's products could elect to
cease marketing and selling the Company's products, and there can be no
assurance that these telecommunications equipment suppliers will continue to
place orders with the Company or that the Company will be able to obtain orders
from new telecommunications equipment suppliers or end users. *These
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telecommunications equipment suppliers could develop products that could be sold
for selected applications for which the Company's products are currently
provided, which could reduce the level of demand from these telecommunications
equipment suppliers for the Company's products.
The Company typically operates with limited order backlog, and a majority
of its revenues in each quarter result from orders booked in that quarter.
Also, the Company has from time-to-time, including in the three most recently
completed quarters, recognized a substantial portion of its revenues from sales
booked and shipped in the last month of a quarter. *The Company expects a
similar shipment pattern for the next several quarters. The Company's
agreements with its customers typically allow customers to cancel orders without
penalty until a relatively short period of time before shipment. *The Company
has experienced cancellation of orders from time to time, and expects to receive
order cancellations from time to time in the future, which could adversely
affect the Company's revenue for a quarter or series of quarters.
The Company has a strategic relationship with Paradyne, formerly a wholly-
owned subsidiary of AT&T, that involves the joint development, marketing and
sale of the Company's products by Paradyne to Lucent Technologies, AT&T, public
carriers and operators of private networks. The Company's agreement with
Paradyne provides Paradyne exclusive distribution rights with respect to the
products covered by such agreement to AT&T entities. Shipments to Paradyne have
generated a substantial portion of the Company's revenues to date. *Paradyne is
not subject to any minimum purchase requirements, and there can be no assurance
that Paradyne will continue to place orders with the Company. The Company is
discussing with Paradyne the changes associated with the purchase of Paradyne by
the Texas Pacific Group, and their effect on the Company's strategic
relationship with Paradyne. *There can be no assurance that possible changes in
the Company's relationship with Paradyne will not have a material adverse effect
on the Company's business and operating results.
Among recent changes, in January 1997, Paradyne implemented an
organizational change that assigns all sales and support activities for products
purchased from Premisys (the Paradyne ACCULINK-TM- Access Controller (AAC)
product line) to a group dedicated to marketing and servicing these products to
Lucent Technologies and AT&T. *Premisys believes that this dedicated group,
together with the sales and support staff that the Company has added during the
December 31, 1997 quarter, will provide adequate sales and support coverage of
Lucent and AT&T. In addition, Paradyne also recently informed the Company of
its intent to announce a new product which is an extension of its existing line
of CSU/DSU products. *Based on information currently available to the Company,
Premisys does not believe that this product will have a significant impact on
the sales of the Company's current products to Paradyne. *However, there can be
no assurance of the foregoing, and reductions in shipments to Paradyne would
have a material adverse effect on the Company's business and operating results.
The sales cycle for the Company's products is relatively long and is often
dependent on factors such as the size and timing of a carrier's equipment
deployment project. *The Company's planned product shipments for a single
carrier's equipment deployment project can be a significant portion of a
quarter's revenues, and delays in the timing of such a project (which have
occurred in the past) could have a material adverse effect on the Company's
business and operating results. *Suppliers of the Company's products have in
the past and may in the future build significant inventory in order to
facilitate more rapid deployment of anticipated major projects or for other
reasons. *Decisions by such suppliers to sell from their inventory could lead
to reductions in purchases from the Company. *These reductions, in turn, could
cause fluctuations in the
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Company's operating results and have an adverse effect on the Company's business
and operating results in the periods in which the inventory is utilized.
During the three and six month periods ended December 31, 1996, direct
international revenues accounted for 9% and 6% of the Company's revenues,
respectively. Direct international revenues decreased from 18% to 9% of the
Company's revenues during the three months ended December 31, 1995 and 1996,
respectively, and decreased from 15% to 6% of the Company's revenues during the
six months ended December 31, 1995 and 1996, respectively. This decrease in
direct international revenues as a percentage of the Company's revenues is
attributed to a combination of increased revenues derived from a single customer
in Asia during the quarters ended September 30 and December 31, 1995 which were
not sustained in the comparable periods in fiscal 1997 and the growth of
domestic revenues during the three and six month periods ended September 30 and
December 31, 1996. Certain of the Company's domestic customers also sell
Premisys products into international markets. *While international revenue
growth did not meet the Company's expectations for the three and six month
periods ended December 31, 1996, the Company intends to continue its attempts to
expand its operations outside the United States and anticipates that
international sales will increase in the future both in absolute dollars and as
a percentage of revenues. In order to sell its products internationally, the
Company must meet standards established by international telecommunications
committees and authorities in various countries. *Conducting business outside
of the United States is subject to certain risks, including longer payment
cycles, unexpected changes in regulatory requirements and tariffs, currency
conversion risks, difficulties in staffing and managing foreign operations,
greater difficulty in accounts receivable collection and potentially adverse tax
consequences.
GROSS PROFIT
Three Months Ended December 31,
-----------------------------------------
1995 % Change 1996
---- -------- ----
Gross Profit $10,877,000 62% $17,588,000
As a percentage of revenues 62% 67%
Six Months Ended December 31,
-----------------------------------------
1995 % Change 1996
---- -------- ----
Gross Profit $19,877,000 68% $33,351,000
As a percentage of revenues 63% 66%
Cost of revenues consists of component costs, compensation costs and
overhead related to the Company's manufacturing operations and warranty
expenses. Gross profit increased from the three and six month periods ended
December 31, 1995 to the comparable periods in fiscal 1997 primarily as a result
of increased unit volumes. The percentage gross margin increased from the three
and six month periods ended December 31, 1995 to the comparable periods in
fiscal 1997 primarily due to lower costs of goods sold, resulting in part from
the combination of both volume increases and manufacturing efficiencies and, to
a lesser extent, a rebate and an elimination of duty on materials imported from
Malaysia. These increases in percentage gross margin were offset in part by a
shift in product mix toward modules with less favorable product margins and
higher customer discounts. The Company does not expect further benefits from
the elimination of the duty on materials imported from Malaysia, as such duty
was reinstated as of January 1, 1997. *The Company expects its gross margins
for the remainder of fiscal 1997 to decline slightly from the
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67% realized in the quarter ended December 31, 1996. *However, achievement of
the Company's expectations is subject to a number of risks, including customer
mix, in particular the level of revenues generated by Paradyne, the mix of
products sold and the Company's ability to realize expected revenue levels.
RESEARCH AND DEVELOPMENT EXPENSES
Three Months Ended December 31,
----------------------------------------
1995 % Change 1996
---- -------- ----
Research and development
expenses $1,682,000 49% $2,510,000
As a percentage of revenues 10% 10%
Six Months Ended December 31,
----------------------------------------
1995 % Change 1996
---- -------- ----
Research and development
expenses $3,226,000 50% $4,838,000
As a percentage of revenues 10% 10%
Research and development expenses consist of personnel costs, consulting,
testing, supplies and depreciation expenses. All software development costs
have been expensed in the period in which they were incurred. Research and
development expenses increased $828,000, or 49%, from the three months ended
December 31, 1995 to the comparable period in fiscal 1997 and increased
$1,612,000, or 50%, from the six months ended December 31, 1995, to the
comparable period in fiscal 1997. The increase in expenses from the three and
six month periods ended December 31, 1995 to the comparable periods in fiscal
1997 was primarily due to increased personnel for the purposes of expanding the
Company's product line and to a lesser extent from increased expenses for
materials used in product development. The expansion of the Company's product
line during the comparison periods included the development of new modules and
the integration and testing of expanded system software. There was no change in
research and development expenses as a percentage of the Company's revenues from
the three and six month periods ended December 31, 1995 to the comparable
periods in fiscal 1997. The Company will expense, in the quarter ended March
31, 1997, the $4.0 million of license fees it will pay to Positron over the next
three years. (See Note 3 - "Subsequent Events" of the notes to the condensed
consolidated financial statements included in this Form 10-Q.) *The Company
expects that the ongoing expenses will increase in absolute dollars and as a
percentage of revenues during the remainder of fiscal 1997. *However, the
expected increase in research and development expenses as a percentage of
revenues is subject to, among other things, the Company's level of revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Three Months Ended December 31,
----------------------------------------
1995 % Change 1996
---- -------- ----
Selling, general and
administrative expenses $3,473,000 65% $5,743,000
As a percentage of revenues 20% 22%
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Six Months Ended December 31,
------------------------------------------
1995 % Change 1996
---- -------- ----
Selling, general and
administrative expenses $6,294,000 65% $10,390,000
As a percentage of revenues 20% 21%
Selling expenses consist principally of compensation costs for sales and
marketing personnel (including sales commissions and bonuses), travel expenses,
customer support expenses, trade show expenses and advertising expenses.
General and administrative expenses consist primarily of compensation expenses
for administration, finance, and general management personnel, as well as legal
and audit fees. Selling, general and administrative expenses increased
$2,270,000, or 65%, from the three months ended December 31, 1995, to the
comparable period in fiscal 1997 and increased $4,096,000, or 65% from the six
months ended December 31, 1995, to the comparable period in fiscal 1997. The
increase in expenses from the three and six month periods ended December 31,
1995, to the comparable periods in fiscal 1997 was primarily the result of
increased compensation expenses resulting from staffing increases.
Additionally, travel, customer support and occupancy expenses increased during
the three and six month periods ended December 31, 1996, over the comparable
periods in fiscal 1996. *The Company expects that these expenses will increase
in absolute dollars during the remainder of fiscal 1997.
INTEREST AND OTHER INCOME, NET
Three Months Ended December 31,
----------------------------------------
1995 % Change 1996
---- -------- ----
Interest and other income,
net $ 484,000 37% $ 661,000
As a percentage of revenues 3% 3%
Six Months Ended December 31,
----------------------------------------
1995 % Change 1996
---- -------- ----
Interest and other income,
net $ 858,000 46% $1,255,000
As a percentage of revenues 3% 3%
Interest and other income, net consists of interest income, net of interest
expense, and, to a much lesser extent, foreign currency gains and losses. The
increase in interest and other income, net, for the three and six month periods
ended December 31, 1996 as compared to the same period in fiscal 1996 was due to
increased interest income from higher cash balances.
PROVISION FOR INCOME TAXES
Three Months Ended December 31,
----------------------------------------
1995 % Change 1996
---- -------- ----
Provision for income taxes $2,335,000 67% $3,898,000
As a percentage of pre-tax
income 38% 39%
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Six Months Ended December 31,
----------------------------------------
1995 % Change 1996
---- -------- ----
Provision for income taxes $4,038,000 87% $7,557,000
As a percentage of pre-tax
income 36% 39%
The Company's provision for income taxes represents estimated federal,
state and foreign income taxes. The effective tax rate for the three and six
month periods ended December 30, 1995 was less than the combined federal and
state statutory rate primarily as a result of the utilization of net operating
loss carryforwards. The effective tax rate for the three and six month periods
ended December 31, 1996 was less than the combined federal and state statutory
rate primarily as a result of tax-exempt interest income from the Company's
municipal securities portfolio and anticipated utilization of R&D tax credits
for fiscal year 1997. The provision for income taxes increased from the three
and six month periods ended December 31, 1995 to the comparable periods in
fiscal 1997 due both to higher pretax income and a higher effective tax rate.
The higher effective tax rate as between fiscal 1996 and fiscal 1997 is due
to the release of the remaining valuation allowance on deferred tax assets in
fiscal 1996.
NET INCOME PER SHARE
Three Months Ended December 31,
----------------------------------------
1995 % Change 1996
---- -------- ----
Net income $3,871,000 58% $6,098,000
Net income per share $0.15 53% $0.23
Weighted average common shares 26,393,000 1% 26,721,000
Six Months Ended December 31,
---------------------------------------
1995 % Change 1996
---- -------- ----
Net income $7,177,000 65% $11,821,000
Net income per share $0.27 63% $0.44
Weighted average common shares 26,342,000 1% 26,600,000
Net income per share increased 53% from $0.15 in the quarter ended December
31, 1995, to $0.23 in the quarter ended December 31, 1996, and increased 63%
from $0.27 in the six month period ended December 31, 1995, to $0.44 in the six
month period ended December 31, 1996. The increase in net income per share for
the three and six month periods ended December 31, 1996 as compared to the same
period in fiscal 1996 was due to an increase of 58% in net income between the
three month periods ended December 31, 1995 and 1996, and an increase of 65% in
net income between the six month periods ended December 31, 1995 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
December 31, December 31,
------------ ------------
1995 % Change 1996
---- -------- ----
Net cash provided by operating
activities in the period $ 7,556,000 3% $ 7,799,000
Period end cash, cash equivalents
and short-term investments $50,661,000 33% $67,477,000
Period end working capital $53,152,000 62% $86,084,000
14
<PAGE>
At December 31, 1996, the Company had approximately $67.5 million of cash,
cash equivalents and short-term investments.
Net cash totaling $7.8 million was provided by operating activities during
the six months ended December 31, 1996 primarily due to net income of $11.8
million and an increase in accounts payable of $3.0 million, which were
partially offset by increases in accounts receivable and inventory aggregating
$6.8 million. The increase in accounts receivable reflects in part the
significant level of shipments of products made by the Company in the last month
of the quarter ended December 31, 1996.
Cash used in investing activities during the six months ended December 31,
1996 consisted principally of purchases of short-term securities totaling $16.4
million and, to a lesser extent, investment of $3.8 million in leasehold
improvements and equipment primarily related to the additional 52,000 square
feet of leased space first occupied by the Company in November 1996 .
Cash flows from financing activities during the six months ended December
31, 1996 consisted principally of the exercise of employee stock options and the
issuance of stock under the Company's employee stock purchase plan.
As of December 31, 1996, the Company's working capital was approximately
$86.1 million. Except for the Positron agreement discussed in Note 3 to the
Condensed Consolidated Financial Statements in this 10-Q, the Company has no
significant capital spending or purchase commitments other than normal purchase
commitments and commitments under facilities and capital leases. *The Company
believes that its available funds and anticipated cash flows from operations
will satisfy the Company's projected working capital and capital expenditure
requirements for at least the next 12 months.
OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
As referenced in the first paragraph of Part 1, Item 2, this section
consists primarily of forward-looking statements but does not include asterisks
for improved readability.
The Company's revenues are subject to quarterly and annual fluctuations due
to a number of factors. Substantially all of the sales of the Company's products
are through indirect channels of distribution. Thus, the Company's ability to
affect and judge the timing of individual user orders is more limited than for
manufacturers selling directly to the end users of their products. In addition,
the Company's revenues for a given quarter may depend to a significant degree
upon planned product shipments for a single carrier's equipment deployment
project. Revenues derived from such projects are often difficult to forecast due
to a relatively long sales cycle and delays in the timing of such projects.
Delays can be caused by late deliveries by other vendors, changes in
implementation priorities, slower than anticipated growth in demand for the
services that the equipment supports and delays in obtaining regulatory
approvals for new tariffs. Revenues can also be affected by delays in initial
shipments of new products and new software releases. In developing countries,
delays and reductions in the planned deployment of the Company's products can
also be caused by sudden declines in the local economy or capital availability
and by new import controls. Such delays have occurred in the past and may occur
in the future. These delays could materially adversely affect the Company's
business and operating results. In addition, the Company has in the past
experienced delays as a result of the need to modify its products to comply with
unique customer specifications. While such delays have not to date had a
material adverse effect on the Company's
15
<PAGE>
business or operating results, there can be no assurance that any future delays
would not have such an adverse effect.
The Company's operating results may fluctuate due to factors such as the
timing of new product announcements and introductions by the Company, its major
customers and its competitors, market acceptance of new or enhanced versions of
the Company's products, changes in the product or customer mix of revenues,
changes in the level of operating expenses, competitive pricing pressures, the
gain or loss of significant customers, increased research and development
expense associated with new product introductions, component shortages and
general economic conditions. All of the above factors are difficult for the
Company to forecast, and these or other factors can materially adversely affect
the Company's business and operating results for one quarter or a series of
quarters. The Company's expense levels are based in part on its expectations
regarding future revenues and in the short term are fixed to a large extent.
Therefore, the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
decline in demand relative to the Company's expectations or any material delay
of customer orders would have a material adverse effect on the Company's
business and operating results. The Company's operating results may also be
affected by seasonal trends. Such trends may include lower revenues in the
summer months during the Company's first fiscal quarter when many businesses
experience lower sales and lower revenues derived from certain of the Company's
strategic customers in the Company's third fiscal quarter as compared to its
second fiscal quarter, as a result of strong calendar year end purchasing
patterns from such strategic customers.
The market for telecommunications products is highly competitive. The
Company's principal competition to date has been from major telecommunications
equipment suppliers, such as Newbridge Networks Corporation, Tellabs, Inc.
Nokia, Inc. and NEC Corporation, which offer a broad line of products including
access devices for business applications. The Company expects substantial
additional competition from existing competitors as they develop products to
compete with the functionality and flexibility of the Company's products. In
addition, Premisys expects to compete with other new entrants, including both
start-ups and existing data communications companies, to the telecommunications
access equipment marketplace, including those targeting low-end channel bank and
DSU/CSU products and broadband integrated access products. The Company also
anticipates that certain of the telecommunications equipment suppliers that
market and distribute the Company's products may develop products that could be
sold for selected applications for which the Company's products are currently
provided. See "Sources of Revenues" within Item 2 - "Management's Discussion
and Analysis of Financial Condition and Results of Operations" of this Form 10-
Q. Successful, timely development of such products could reduce the level of
demand from these telecommunications equipment suppliers for the Company's
products.
The telecommunications equipment market is also affected by rapidly
changing technologies and frequent new product introductions, which include ATM
and high speed digital subscriber lines (HDSL). The Company's success will
depend to a substantial degree upon its ability to respond to changes in
technology and customer requirements. This will require the timely selection,
development and marketing of new products and enhancements on a cost-effective
basis. For example, the Company has recently licensed certain technology from
Positron for inclusion in certain of the Company's products under development,
the first of which the Company expects to announce in conjunction with the
Supercomm exhibition in New Orleans in June 1997. However, there can be no
assurance that the Company will be able to successfully integrate such
technology
16
<PAGE>
into a new product within such time frame, or at all. The introduction of new
and enhanced products also requires that the Company manage transitions from
older products in order to minimize disruptions in customer orders, avoid excess
inventory of old products and ensure that adequate supplies of new products can
be delivered to meet customer orders. Recently, certain of the Company's newly
introduced products have contained undetected errors and incompatibilities with
installed products, which has resulted in losses and delays in market acceptance
of such products. As the functionality and complexity of the Company's products
continue to grow, the Company may experience an increased incidence of such
errors or failures as well as delays in introducing its products.
The market for the Company's products is also characterized by the need to
meet a significant number of voice and data communications regulations and
standards, including those defined by the Federal Communications Commission,
Underwriters Laboratories, Bell Communications Research ("Bellcore") and,
internationally, various countries and international standards committees. Some
of these new standards are evolving as new technologies, such as ATM and frame
relay, are deployed. As existing and new standards evolve, the Company will be
required to modify its products or develop and support new versions of its
products. It is also important that the Company's products are easily integrated
with carriers' network management systems. The failure of the Company's products
to comply, or delays in compliance, with the various existing and evolving
industry standards could delay introduction of the Company's products, which
could have a material adverse effect on the Company's business and operating
results. In addition, government regulatory policies are likely to continue to
have a major impact on the pricing of existing as well as new public network
services and therefore are expected to affect demand for such services and the
telecommunications products that support such services.
The Company's success to date has been significantly dependent on the
contributions of its senior officers and other key employees. The loss of the
services of any one of these officers or key employees could have a material
adverse effect on the Company's business and operating results. The Company's
success also depends to a significant extent on its ability to attract and
retain additional highly-skilled technical, managerial, sales and marketing
personnel, the competition for whom is intense.
The Company relies upon a combination of patent, trade secret, copyright
and trademark laws and contractual restrictions to establish and protect
proprietary rights in its products. There can be no assurance that these
statutory and contractual arrangements will prove sufficient to deter
misappropriation of the Company's technologies or independent third-party
development of similar technologies. The telecommunications industry is
characterized by the existence of a large number of patents and frequent
litigation based on allegations of patent infringement. In the event of
litigation to determine the validity of any third-party claims asserting that
the Company's products infringe or may infringe the proprietary rights of such
third parties, such litigation, whether or not determined in favor of the
Company, could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel from productive
tasks. In the event of an adverse ruling in such litigation, the Company might
be required to discontinue the use and sale of infringing products, expend
significant resources to develop non-infringing technology or obtain licenses
from third parties.
Certain components used in the Company's products are currently available
from only one supplier. In addition, the Company relies on contract
manufacturers, primarily Eltech Electronics Technology (M) SDN BHD, to produce
its printed circuit board assemblies. Shortages or delays in
17
<PAGE>
the delivery of the components used in the Company's products (which have
occurred in the past) or extended delays in deliveries of printed circuit board
assemblies could result in delays in the shipment of the Company's products
and/or increase component costs. Certain components are currently in short
supply within the Company's industry, and the Company must therefore compete for
these components with larger companies that often have long-established
relationships with these suppliers. Failure of the Company to order sufficient
quantities of any required component in advance could prevent the Company from
increasing production of products in response to customer orders in excess of
amounts projected by the Company. Although the Company typically maintains some
reserve inventory of components and printed circuit board assemblies, this
inventory would not cover a significant delay in the delivery of such items.
All of the above factors are difficult for the Company to forecast, and
these or other factors, such as changes in earnings estimates by securities
analysts, can materially affect the Company's operating results and stock price
for one quarter or a series of quarters. Further, in recent years, the stock
market has experienced extreme price and volume fluctuations that have
particularly affected the market prices of securities of many high technology
companies, for reasons frequently unrelated to the performance of the specific
companies. These fluctuations, as well as general economic, political and
market conditions, may materially adversely affect the market price of the
Company's Common Stock. There can be no assurance that the trading price of the
Company's Common Stock will remain at or near its current level.
18
<PAGE>
II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on December 18, 1996
(the "Annual Meeting"), the following individuals were elected to the Company's
Board of Directors:
FOR WITHHELD
Boris J. Auerbuch 21,057,034 3,975
Robert C. Hawk 16,273,621 4,787,388
Edward A. Keible, Jr. 21,056,996 4,013
Raymond C. Lin 21,057,034 3,975
Gary J. Morgenthaler 21,056,834 4,175
Marino R. Polestra 21,056,746 4,263
Lip-Bu Tan 21,056,584 4,425
Instructions on proxies received for use at the Annual Meeting to vote for
Kaling Lim were disregarded as inapplicable as referenced in the supplemental
proxy materials dated December 1996 that were distributed to the Company's
stockholders in connection with the withdrawal of Kaling Lim's nomination to the
Company's Board of Directors and the associated reduction in the size of the
Company's Board of Directors to seven.
In addition, the appointment of Price Waterhouse LLP as auditors for the
fiscal year ended June 30, 1997 was ratified by the following vote:
For 21,056,662
Against 1,425
Abstain 2,922
Broker Non-vote 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
11.01 Computation of Net Income per Share.
10.33* Amendment Number 7 and 8 to OEM Agreement by and
between Premisys Communications, Inc., a Delaware
Corporation, and Paradyne Corporation, dated as of
December 2, 1996.
27.01 Financial Data Schedule
*Confidential treatment has been requested with respect to certain portions
of this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
B. Reports on Form 8-K
None
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREMISYS COMMUNICATIONS, INC.
February 9, 1996 /S/Robert W. Dilfer
- ------------------------------ ----------------------------------
Date Robert W. Dilfer
Vice President and Controller
(Duly Authorized Officer and Chief
Accounting Officer)
20
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
11.01 Computation of Net Income per Share
10.33* Amendment Number 7 and 8 to OEM
Agreement by and between Premisys
Communications, Inc., a Delaware
Corporation, and Paradyne Corporation,
dated as of December 2, 1996.
27.01 Financial Data Schedule
*Confidential treatment has been requested with respect to certain portions
of this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
21
<PAGE>
Exhibit 11.01
PREMISYS COMMUNICATIONS, INC.
COMPUTATION OF NET INCOME PER SHARE - (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended December 31,
-------------------------------
1995 1996
---- ----
Weighted average shares outstanding:
Common Stock 23,777 24,616
Common stock equivalents related to options using
the treasury stock method 2,616 2,105
-------- --------
Weighted-average common shares and equivalents 26,393 26,721
-------- --------
-------- --------
Net income $ 3,871 $ 6,098
-------- --------
-------- --------
Net income per share $ 0.15 $ 0.23
-------- --------
-------- --------
Six Months Ended December 31,
----------------------------
1995 1995
---- ----
Weighted average shares outstanding:
Common Stock 23,619 24,524
Common stock equivalents related to options using
the treasury stock method 2,723 2,076
-------- --------
Weighted-average common shares and equivalents 26,342 26,600
-------- --------
-------- --------
Net income $ 7,177 $11,821
-------- --------
-------- --------
Net income per share $ 0.27 $ 0.44
-------- --------
-------- --------
22
<PAGE>
PARADYNE
AGREEMENT NUMBER GSC103DS
AMENDMENT NUMBER 7
PAGE 1 OF 1
DATE 12/02/96
PREMISYS COMMUNICATIONS, INC.
48664 MILMONT DRIVE
FREMONT, CALIFORNIA 94538
Agreement number LGSC103DS dated and signed December 4, 1992, by and between
Premisys Communications Inc. and Paradyne Corporation will be amended as
follows:
1.0 Exhibit A, IMACS PRICING LIST, dated 03/08/95, is hereby deleted in
its entirety and replaced by a new IMACS PRICING List, Exhibit A,
dated 11/14/96, attached hereto and made a part hereof.
2.0 This IMACS PRICING LIST, with stated Paradyne Corporation Pricing,
will be the basis for which all dollar volume discounts, as
referenced and detailed in Amendment #4, will be applied against
to calculate new Paradyne pricing as said discounts go into effect.
3.0 The Price of all packages are the sum of the parts unless noted
otherwise in the attached Pricing List.
4.0 All other terms and conditions of the above stated Agreement remain
unchanged.
This amendment for new pricing shall be effective as of January 1, 1996 for
all orders current as of that date.
PARADYNE CORPORATION PREMISYS COMMUNICATIONS INC.
By: /S/Andrew Shay By: /S/Robert W. Dilfer
-------------------------------- --------------------------------
Title: Pres. & COO Title: V.P. Controller
----------------------------- -----------------------------
Date: 1/3/97 Date: 1/17/97
------------------------------ ----------------------------
Paradyne Corporation - PROPRIETARY
Use Pursuant to Company Instructions
Amendment Number 7 - LGSC103DS
1 - 12/02/96
23
<PAGE>
Premisys Communications, Inc.
IMACS Pricing
For Paradyne
Prod
number Description ATT Price
- ----------- ----------- ----------
8901 AC power supply [ ** ]x
8902 -48V DC power supply [ ** ]x
890220 -48V DC power supply - support OOS @ 39V [ ** ]x
8903 -48V DC converter (115 VAC input) [ ** ]x
8905 -48V DC Converter (115 - 240 VAC input) [ ** ]x
8904 -48V Ringing generator [ ** ]x
8906 -48V RINGING GENERATOR [ ** ]x
8907 24V DC power supply [ ** ]x
8916 IMACS/600 universal enclosure [ ** ]x
891620 IMACS/600 UNIVERSAL ENCLOSURE [ ** ]x
8918 IMACS/800 universal enclosure [ ** ]x
891820 IMACS/800 universal enclosure w/ instal
kit, dual feed pwr supply [ ** ]x
8919 IMACS/900 UNIVERSAL ENCLOSURE **(2) [ ** ]x
8920 8 T1/E1 interface card with 2,400 baud
modem - 32 Kb NVRAM [ ** ]x
8923### 8 T1/E1 interface card with 2,400 baud
modem - 128 Kb NVRAM (4) [ ** ]x
892320### 8 T1/E1 interface card with 2,400 baud
modem - 128 Kb NVRAM (4) [ ** ]x
8921 8 T1/E1 interface card w/out modem -
32 Kb NVRAM [ ** ]x
892120 8 T1/E1 interface card without modem -
32 Kb NVRAM [ ** ]x
892220 8 T1/E1 interface card without modem -
128Kb NVRAM with ext sync module for
framed T1/E1 (2) [ ** ]x
892221 8 T1/E1 interface card without modem -
128Kb NVRAM with ext sync module for
unframed T1/E1**(2) [ ** ]x
8925 2 T1 interface card without modem [ ** ]x
8926 2 T1 interface card with modem (1) [ ** ]x
8927 2 E1 interface card without modem(1) [ ** ]x
1183 E1 Distribution Panel (8 E1s) [ ** ]x
1184 Distribution Panel [ ** ]
x indicates agreement on the price
NOTE: items in red italic are New products.
** Confidential treatment has been requested with respect to the
information contained within the "[ ** ]" markings. Such marked potions have
been omitted from this filing and have been filed separately with the Securities
and Exchange Commission.
24
<PAGE>
8800 CPU control card with 2 T1/E1 bus-connect
(non-redundant) - 256K [ ** ]x
880020 CPU control card with 2 T1/E1 bus-connect
(non-redundant) - 256K [ ** ]x
8801 CPU control card with 8 T1/E1
cross-connect (redundant-capable) - 256K [ ** ]x
880120 CPU control card with 8 T1/E1
cross-connect (redundant-capable) - 256 K [ ** ]x
8802# CPU control card with 8 T1/E1
cross-connect (redundant-capable) -
512 K (4) [ ** ]x
880220# CPU control card with 8 T1/E1
cross-connect (redundant-capable)-
512 K (4) [ ** ]x
8804 CPU control card with 4 T1/E1
bus-connect (redundant-capable) - 256 K [ ** ]x
880420 CPU control card with 4 T1/E1 bus-connect
(redundant-capable) - 256 K [ ** ]x
60342 Version 3.4.2 host firmware [ ** ]x
60343 Version 3.4.3 host firmware [ ** ]x
60344 Version 3.44 host firmware [ ** ]x
60400 Version 4.0.0 host firmware (5) [ ** ]x
60410 Version 4.1.0 host firmware (5) [ ** ]x
60420 Version 4.2.0 host firmware (5) [ ** ]x
60430 Version 4.3.0 host firmware (5) [ ** ]x
60440 Version 4.4.0 host firmware (5) [ ** ]x
60450 Version 4.5.0 host firmware (5) [ ** ]x
60101 TCP/IP/SNMP host code option [ ** ]x
60102 TR08 host code option [ ** ]x
8000 Single T1/E1 WAN [ ** ]x
800020 Single T1/E1 WAN [ ** ]x
8010 Dual T1/E1 WAN [ ** ]x
801020 Dual T1/E1 WAN [ ** ]x
801120 Universal Dual T1/E1 WAN** [ ** ]x
8014 Dual T1/E1WAN with 1 x 3 relays [ ** ]x
801420 Dual T1/E1WAN with 1 x 3 relays [ ** ]x
811 DSX/CEPT plug-in module [ ** ]x
81120 DSX/CEPT plug-in module [ ** ]x
812 CSU plug-in module [ ** ]x
81220 CSU plug-in module [ ** ]x
82020 1168 kbps HDSL plug-in mod for Uni
WAN 8011 [ ** ]x
8108 8-port, 2-wire E&M [ ** ]x
8115 4-port, 4-wire E&M - Extended
** Confidential treatment has been requested with respect to the
information contained within the "[ ** ]" markings. Such marked potions have
been omitted from this filing and have been filed separately with the Securities
and Exchange Commission.
25
<PAGE>
Range (6) [ ** ]x
8119 8-port, 4-wire E&M - Extended Range [ ** ]x
8124 4-port, 2-wire FXS - 900 Ohm (1) [ ** ]x
8125 4-port, 2-wire FXS - 600 Ohm (1) [ ** ]x
8128 8-port, 2-wire FXS - 900 Ohm [ ** ]x
8129 8-port, 2-wire FXS - 600 Ohm [ ** ]x
8134 4-port, 2-wire FXO - 900 Ohm (1) [ ** ]x
8135 4-port, 2-wire FXO - 600 Ohm (1) [ ** ]x
8138 8-port, 2-wire FXO - 900 Ohm [ ** ]x
8139 8-port, 2-wire FXO - 600 Ohm [ ** ]x
8149 6 Port 16 KHz FXS Coin Card - 600 Ohm (2) [ ** ]x
8159 6 Port 16 KHz FXO Coin Card - 600 Ohm (2) [ ** ]x
8202 2-port HSU w/ RS-530/V.35 i/f [ ** ]x
8212 2-port HSU w/ V.35 i/f [ ** ]x
8213 2-port HSU w/ RS-530/RS-366/V.25bis i/f [ ** ]x
8215 4-port HSU w/ RS-530/V.35 i/f [ ** ]x
821520 4-port HSU w/ RS-530/V.35 i/f [ ** ]x
8220 10-port SRU w/ RS-232C/V.24 i/f [ ** ]x
8228 8-port sub-rate B7R IP concentrato
card (1) [ ** ]x
8230 8-port subrate FRAD card [ ** ]x
8231 8-port subrate FRAD card (HDLC only) [ ** ]x
8247 5-port OCU-DP (expandable) (6) [ ** ]x
845 5-port OCU-DP child card (6) [ ** ]x
8249 2-port OCU-DP with error correction [ ** ]x
8254 4-port DSO-DP/G.703 co/contra directional [ ** ]x
8260 8-port BRI U i/f card (1) [ ** ]x
826020 8-PORT BRI U I/F CARD (1) [ ** ]x
8261 8-port BRI U i/f card, with sealin
current (1) [ ** ]x
826120 8-PORT BRI U I/F CARD, WITH SEALING
CURRENT (1) [ ** ]x
8811 ACS-68 server (3) [ ** ]x
881120 ACS-68 server (3) [ ** ]x
8813 ACS-68 SERVER WITH EXP-64 MODULE (3) [ ** ]x
881320 ACS-68 server with Exp-64 module (3) [ ** ]x
8871 ADPCM Server [ ** ]x
887120 ADPCM Server [ ** ]x
8880 4 channel inverse mux server with
BONDING modes 0 and 1 software (1) [ ** ]x
8840A ISDN PRI server card - 1 D
** Confidential treatment has been requested with respect to the
information contained within the "[ ** ]" markings. Such marked potions have
been omitted from this filing and have been filed separately with the Securities
and Exchange Commission.
26
<PAGE>
channel [ ** ]x
8840B ISDN PRI server card - 2 D channels [ ** ]x
8840C ISDN PRI server card - 8 D channels [ ** ]x
62100 Frame relay server software for AC
card (3) [ ** ]x
8401 External alarm card [ ** ]x
840120 External alarm card [ ** ]x
8402 External alarm card - 3 ports and powe
fail alarm [ ** ]x
840220 External alarm card - 3 ports and
power fail alarm [ ** ]x
1500 External Sync Panel [ ** ]x
2001 Blank Card Filler Panel [ ** ]x
Notes
-----
** Consult factory for delivery lead times
# formerly 8801b
## formerly 8805
### formerly 8920b
(1) Requires version 3.2 or higher
(2) Requires version 4.0 or higher
(3) Requires version 4.1 or higher
(4) Required for Host 4.0 of higher
(5) Requires 8923 or 8922 and 8802
(6) Requires Host 3.4.1 or higher
(7) 8811 or higher ACS
Front panel types
Std = standard molded face plate
M/E = metal face plate with ejec
1106 RJ48 to 2 BNC Adapter (for E1) [ ** ]x
1114F 5-ft RJ48M to DB25F Straight-Thru
Cable (for SRU) [ ** ]x
1114M 5-ft RJ48M to DB25M Straight-Thru
Cable (for SRU) [ ** ]x
1114X 5-ft RJ48M to DB25M Cross-Over Cable
(for SRU) [ ** ]x
1114CX 5-ft RJ48M to DB25M External Clock Cable
(for SRU) [ ** ]x
1118 25-ft RJ48M to RJ48M Silver-Satin Cable
(for OCU-DP) [ ** ]x
1121 50-Pin to 2 RJ48 Adapter with Test Jacks
(for T1) [ ** ]x
1181 50-Pin to 8 RJ48 Adapter (for T1) [ ** ]x
1201F 15-ft DB9M to DB25F Straight Thru (for
Interface) [ ** ]x
1201M 15-ft DB9M to DB25M Straight Thru (for
Interface) [ ** ]x
1202F 15-ft DB9F to DB25F Straight Thru
(for Interface) [ ** ]x
1202M 15-ft DB9F to DB25M Straight
** Confidential treatment has been requested with respect to the
information contained within the "[ ** ]" markings. Such marked potions have
been omitted from this filing and have been filed separately with the Securities
and Exchange Commission.
27
<PAGE>
Thru (for Interface) [ ** ]x
1203F 5-ft DB25M to V.35F Straight-Thru Cable
(for V.35 HSU) [ ** ]x
1203M 5-ft DB25M to V.35M Straight-Thru Cable
(for V.35 HSU) [ ** ]x
1203X 5-ft DB25M to V.35M Cross-Over Cable
(for V.35 HSU) [ ** ]x
1204F 5-ft DB25M to RS530F Straight-Thru Cable
(for RS530 HSU) [ ** ]x
1204M 5-ft DB25M to RS530M Straight-Thru Cable
(for RS530 HSU) [ ** ]x
1204X 5-ft DB25M to RS530M Cross-Over Cable
(for RS530 HSU) [ ** ]x
1206F 5-ft DB15M to DB25F Straight-Thru Cable
(for RS366 HSU Ports) [ ** ]x
1207 6-ft 3-to-4 50-Pin E&M Cable (All Male
Connectors) [ ** ]x
1208 6-ft 3-to-1 50-Pin FXS Cable (All Male
Connectors) [ ** ]x
1209 6-ft 3-to-1 50-Pin TO Cable (All Male
Connectors) [ ** ]x
1210 5-ft 50-Pin Male to Male Amphenol Cable
(for Multiple Uses) [ ** ]x
1212F 5-ft DB25M to RS449F Straight-Thru Cable
(for RS449 HSU) [ ** ]x
1212M 5-ft DB25M to RS449M Straight-Thru Cable
(for RS449 HSU) [ ** ]x
1212X 5-ft DB25M to RS449M Cross-Over Cable
(for RS449 HSU) [ ** ]x
1213 5-ft 50-Pin Male Amphenol Cable to 2
RJ-48F Cable (for 8 T1 Interface Card) [ ** ]x
1215M 5-ft RJ48M to DB15M Straight-Thru Cable
(for CSU) [ ** ]x
1215X 5-ft RJ48M to DB15F Cross-Over Cable
(for PBX) [ ** ]x
1216F 15-ft RJ48M to DB25F Straight-Thru Cable
(for VT100) [ ** ]x
1216M 15-ft RJ48M to DB25M Straight-Thru
Cable (for VT100) [ ** ]x
1217 25-ft RJ11M to RJ11M Cable (for Modem) [ ** ]x
1220 25-ft 50-Pin Male to Female Amp/Champ
Extension Cable [ ** ]x
1221 25-ft DB25M to DB25F Extension Cable
(for RS232 operation) [ ** ]x
1222 25-ft DB25M to DB25F Extension Cable
(for RS530 operation) [ ** ]x
1224 25-ft DB25M to DB25F Extension Cable
(for V.35 operation) [ ** ]x
1230 1-ft RJ48M to RJ48M Shielded Cable
(for T1) [ ** ]x
** Confidential treatment has been requested with respect to the
information contained within the "[ ** ]" markings. Such marked potions have
been omitted from this filing and have been filed separately with the Securities
and Exchange Commission.
28
<PAGE>
1231 25-ft RJ48M to RJ48M Shielded
Cable (for T1) [ ** ]x
1232 50-ft RJ48M to RJ48M Shielded Cable
(for T1) [ ** ]x
1233 100-ft RJ48M to RJ48M Shielded Cable
(for T1) [ ** ]x
1239 Y Adapter for WAN Card Redundancy (Bus
Connect Systems) [ ** ]x
1240 5-inch DB26M to DB25F RS530 Adapter Cables[ ** ]x
1251 RS-530 to V.35 Personality Module [ ** ]x
1252 RS-530 to RS-232 Personality Module [ ** ]x
1255 RS232/RS530 DB25 Female-to-Female Gender
Changer [ ** ]x
1257 V.35 M34 Female-to-Female Gender Changer [ ** ]x
1258 RS449 DB37 Female-to-Female Gender
Changer [ ** ]x
1263F 5-ft DB26M to V.35F (M34) Straight-Thru
Cable (for DB26 HSUs) [ ** ]x
1263M 5-ft DB26M to V.35M (M34) Straight-Thru
Cable (for DB26 HSUs) [ ** ]x
1263X 5-ft DB26M to V.35M (M34) Cross-Over
Cable (for DB26 HSUs) [ ** ]x
1264F 5-ft DB26M to RS530F (DB25) Straight-Thru
Cable (for DB26 HSUs) [ ** ]
1264M 5-ft DB26M to RS530M (DB25) Straight-Thru
Cable (for DB26 HSUs) [ ** ]x
1264X 5-ft DB26M to RS530M (DB25) Cross-Over
Cable (for DB26 HSUs) [ ** ]x
1265F 5-ft DB26M to RS449M (DB37) Straight-Thru
Cable (for DB26 HSUs) [ ** ]x
1265M 5-ft DB26M to RS449M (DB37) Straight-Thru
Cable (for DB26 HSUs) [ ** ]x
1265X 5-ft DB26M to RS449M (DB37) Cross-Over
Cable (for DB26 HSUs) [ ** ]x
1268 25-ft DB26M to DB26F Extension Cable
(for V.35 operation) [ ** ]x
1269 25-ft DB26M to DB26F Extension Cable
(for RS530/RS449 operation) [ ** ]x
1504 M66 Block with 2 Female 50-Pin Amp/Champ
Connectors [ ** ]x
** Confidential treatment has been requested with respect to the
information contained within the "[ ** ]" markings. Such marked potions have
been omitted from this filing and have been filed separately with the Securities
and Exchange Commission.
29
<PAGE>
<TABLE>
<S> <C> <C>
1901 IMACS Reference Guide [ ** ]x
1902 EMS Reference Guide [ ** ]x
1903 Cable and Equipment Guide [ ** ]x
1904 TCP/IP Manual [ ** ]x
3001AR Model 8800 CPU to Model 8804 [ ** ]x [**] *Price if old part is not
CPU returned to Premisys
3002AR Model 8800 CPU to Model 8801 [ ** ]x [**] *Price if old part is not
CPU returned to Premisys
3003AR Model 8804 CPU to Model 8801 [ ** ]x [**] *Price if old part is not
CPU returned to Premisys
3100AR Add TCP/IP/SNMP firmware to any CPU card [ ** ]x
3010AR Firmware enhancement to any card [ ** ]x
3020AR Any other enhancement to any module [ ** ]x
</TABLE>
Terms and conditions on advance replacements:
User must order advanced replacement product from Premisys
Advanced replacement board will be sent with return label for old
board
Old board must be returned freight pre-paid to Premisys within 21
days of receipt of replacement board
If old board is not received within 21 days, the user will be
billed for the list price of the board
Replaced board retains the warranty period of the original board
<TABLE>
<S> <C> <C>
3001FG Model 8800 CPU to Model 8804 [ ** ]x [**] *Price if old part is not
CPU returned to Premisys
3002FG Model 8800 CPU to Model 8801 [ ** ]x [**] *Price if old part is not
CPU returned to Premisys
3003FG Model 8804 CPU to Model 8801 [ ** ]x [**] *Price if old part is not
CPU returned to Premisys
3100FG Add TCP/IP/SNMP firmware to any CPU card [ ** ]x
3010FG Firmware enhancement to any card [ ** ]x
3020FG Any other enhancement to any module [ ** ]x
</TABLE>
Terms and conditions on return-to-factory enhancements and
upgrades:
User must obtain an RA number from Premisys before returning board
for upgrade.
Board must be sent freight pre-paid to Premisys.
Premisys will return the upgraded board via 2nd day air freight
within 21 days of receipt.
Upgraded boards retain the warranty period of the original board.
Advanced replacement is not included in upgrade price.
3010EP Firmware upgrade to any CPU card [ ** ]x
3020EP Firmware upgrade to any other card [ ** ]x
Terms and conditions on EPROM upgrades:
** Confidential treatment has been requested with respect to the
information contained within the "[ ** ]" markings. Such marked potions have
been omitted from this filing and have been filed separately with the Securities
and Exchange Commission.
30
<PAGE>
User is responsible for proper handling of EPROM's and circuit
boards.
Improper handling by user may result in voiding of warranty.
1920 Corporate Brochure [ ** ]x
1921 Corporate Cover Folder [ ** ]x
1922 IMACS Data Sheet [ ** ]x
1923 ATM Data Sheet [ ** ]x
1924 Frame Relay Data Sheet [ ** ]x
1925 ISDN BRX Data Sheet [ ** ]x
1926 Assembly of collateral into folder [ ** ]x
1927 Complete set of collateral (1920, 1921,
1922, 1923, 1924, 1925, 1926) [ ** ]xx
PACKAGE PRICING
The packages listed below are not a sum of the parts and are being included
in this agreement.
All other packages are a sum of the parts and will not be listed
individually on this agreement.
UN 2525-TW1 1 LOW COST TIME WARNER PACKAGE [ ** ]x
GA 8916 1 AAC FRONT LOADING ENCLOSURE [ ** ]
GA 8800 1 BUS CONNECT CPU-NON REDUNDANT [ ** ]
GA 8000 1 SINGLE T1/E1 (WAN) [ ** ]
GA 811 1 DSX/CEPT PLUG IN MODULE [ ** ]
GA 8925 1 2 T1 Interface Card w/o modem [ ** ]
UN 2525-TWA 1 AC POWER PACKAGE FOR TIME WARNER [ ** ]x
GA 8901 1 AC POWER SUPPLY (110/220) [ ** ]
GA 8903 1 INTERNAL AC-DC CONVERTER [ ** ]
GA 8904 1 48V RINGING GENERATOR [ ** ]
UN 2525-TWD 1 DC POWER PACKAGE FOR TIME WARNER [ ** ]x
GA 8902 1 DC POWER SUPPLY (-48) [ ** ]
GA 8904 1 48V RINGING GENERATOR [ ** ]
UN 2525-41U 1 RELEASE 4.1 UPGRADE PACKAGE [ ** ]x
NR 880220/ 1 CPU Xcon 512K RAM w/4.1 FW-Metal [ ** ]
60410
NR 892320 1 128K NV RAM Interface
w/Modem-Metal [ ** ]
GA 61000 1 TCP/IP SNMP SW OPTION [ ** ]
UN 2525-FRU 1 FRAME RELAY UPGRADE PACKAGE [ ** ]x
NR 880220/ 1 CPU Xcon 512K RAM w/4.1 FW-Metal [ ** ]
60410
NR 892320 1 128K NV RAM Interface
w/Modem-Metal [ ** ]
UN 881120/ 1 Frame Relay Server/ACS-68
62100 Server [ ** ]
UN 60101 1 Frame Relay Software [ ** ]
** Confidential treatment has been requested with respect to the
information contained within the "[ ** ]" markings. Such marked potions have
been omitted from this filing and have been filed separately with the Securities
and Exchange Commission.
31
<PAGE>
PARADYNE
AGREEMENT NUMBER GSC103DS
AMENDMENT NUMBER 8
PAGE I OF 1
DATE 12/02/96
PREMISYS COMMUNICATIONS, INC.
48664 MILMONT DRIVE
FREMONT, CALIFORNIA 94538
Agreement number LGSC103DS dated and signed December 4, 1992, by and between
Premisys Communications Inc. and Paradyne Corporation will be amended as
follows:
1.0 Notwithstanding the provisions of Paragraph 4.1 of Amendment Number
4 of this Agreement, it is agreed that Premisys will be allowed to
accept orders from BCS Division of Lucent Technologies (BCS) for
the purpose of repair and upgrade of Field returns alone and for no
other purpose(s). Premisys may accept such orders directly from BCS
and shall bill BCS directly for services provided pursuant to those
orders.
2.0 It is further agreed that the pricing charged BCS for such repair
and upgrades shall be the same as that charged to Paradyne under
Amendment Number 5 of this Agreement.
3.0 All other terms and conditions of the above stated Agreement remain
unchanged.
PARADYNE CORPORATION PREMISYS COMMUNICATIONS INC.
By: /S/Andrew Shay By: /S/Robert W. Dilfer
--------------------------------- -----------------------------
Title: Pres. & C.O.O. Title: V.P. Controller
------------------------------ -----------------------------
Date: 1/3/97 Date: 1/17/97
------------------------------ -----------------------------
Paradyne Corporation - PROPRIETARY
Use Pursuant to Company Instructions
Amendment Number 8 - LGSC103DS
I - 12/02/96
32
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS AND
CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE
PERIOD ENDED DECEMBER 27, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-27-1997
<PERIOD-START> JUN-29-1996
<PERIOD-END> DEC-27-1996
<CASH> 12,214
<SECURITIES> 55,263
<RECEIVABLES> 21,918
<ALLOWANCES> 0
<INVENTORY> 5,355
<CURRENT-ASSETS> 98,660
<PP&E> 8,260
<DEPRECIATION> 2,363
<TOTAL-ASSETS> 104,676
<CURRENT-LIABILITIES> 12,576
<BONDS> 49
0
0
<COMMON> 247
<OTHER-SE> 91,804
<TOTAL-LIABILITY-AND-EQUITY> 104,676
<SALES> 50,650
<TOTAL-REVENUES> 50,650
<CGS> 17,299
<TOTAL-COSTS> 32,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,378
<INCOME-TAX> 7,557
<INCOME-CONTINUING> 11,821
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,821
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
