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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 April 26, 1997
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 0-26114
TELTREND INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3476859
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
620 STETSON AVENUE
ST. CHARLES, ILLINOIS 60174
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (630) 377-1700
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
----- -----
As of May 30, 1997, there were 6,436,321 shares of the Registrant's Common
Stock, $.01 par value per share (the "Common Stock"), outstanding.
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TELTREND INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
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<S> <C>
Item 1 -- Financial Statements:
Statements of Income for the quarters and nine month periods ended
April 27, 1996 and April 26, 1997......................................... 3
Balance Sheets as of July 27, 1996 and April 26, 1997..................... 4
Statements of Cash Flows for the nine month periods ended
April 27, 1996 and April 26, 1997......................................... 5
Notes to Financial Statements............................................. 6
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations............................. 8
PART II. OTHER INFORMATION
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Item 1 -- Legal Proceedings......................................................... 15
Item 2 -- Changes in Securities..................................................... 15
Item 4 -- Submission of Matters to a Vote of Security Holders....................... 15
Item 6 -- Exhibits and Reports on Form 8-K.......................................... 15
SIGNATURE........................................................................... 19
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EXHIBIT INDEX....................................................................... 20
OMITTED FINANCIAL STATEMENTS
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None
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
TELTREND INC.
STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except earnings per share data)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
-------------------------------- --------------------------------
APRIL 27, APRIL 26, APRIL 27, APRIL 26,
1996 1997 1996 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales........................ $ 20,764 $ 21,303 $ 62,147 $ 62,718
Cost of sales.................... 11,030 11,919 33,874 34,784
--------------- --------------- --------------- ---------------
Gross profit..................... 9,734 9,384 28,273 27,934
--------------- --------------- --------------- ---------------
Operating expenses:
Sales and marketing............ 1,774 1,893 5,493 5,552
Research and development....... 1,992 2,535 5,658 7,252
General and administrative..... 900 1,320 2,908 3,490
--------------- --------------- --------------- ---------------
4,666 5,748 14,059 16,294
--------------- --------------- --------------- ---------------
Income from operations........... 5,068 3,636 14,214 11,640
--------------- --------------- --------------- ---------------
Other income (expense):
Interest income................ 242 376 555 1,040
Other-net...................... (14) (15) (32) (29)
--------------- --------------- --------------- ---------------
228 361 523 1,011
--------------- --------------- --------------- ---------------
Income before income taxes....... 5,296 3,997 14,737 12,651
Provision for income taxes....... 2,170 1,559 6,066 4,987
--------------- --------------- --------------- ---------------
Net income....................... $ 3,126 $ 2,438 $ 8,671 $ 7,664
=============== =============== =============== ===============
Net income per share of
common stock..................... $ 0.46 $ 0.37 $ 1.33 $ 1.15
=============== =============== =============== ===============
Average common shares outstanding 6,738,635 6,559,696 6,500,661 6,673,663
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TELTREND INC.
BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
JULY 27, APRIL 26,
1996 1997
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ASSETS (Unaudited)
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<S> <C> <C>
Current Assets:
Cash and cash equivalents........................ $ 22,889 $ 11,032
Marketable securities............................ -- 18,969
Trade accounts receivable, net of allowance...... 11,941 8,386
Inventories...................................... 12,349 12,956
Deferred income taxes............................ 2,227 2,474
Prepaid expenses and other current assets........ 1,134 899
-------- --------
50,540 54,716
Land and building................................. -- 1,946
Machinery and equipment........................... 12,554 14,098
Leasehold improvements............................ 896 929
Accumulated depreciation.......................... (7,580) (8,889)
-------- --------
5,870 8,084
Deferred income taxes............................. 767 234
Other assets, net................................. 107 299
-------- --------
$ 57,284 $ 63,333
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable................................. $ 6,017 $ 4,317
Accrued expenses................................. 8,622 7,741
Income taxes payable............................. -- 856
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14,639 12,914
Stockholders' equity:
Common stock:
Common Stock, $0.01 par value, 15,000,000 shares
authorized and 6,422,596 and 6,436,321 issued
and outstanding, respectively................... 64 64
Additional paid-in capital....................... 99,165 99,275
Accumulated deficit.............................. (56,584) (48,920)
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42,645 50,419
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$ 57,284 $ 63,333
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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TELTREND INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
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APRIL 27, APRIL 26,
1996 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income for period............................... $ 8,671 $ 7,664
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 1,268 1,508
Loss (gain) on sale of equipment.................. 2 (11)
Deferred income taxes............................. (24) 286
Tax benefit from exercise of common stock options. -- 92
Changes in certain assets and liabilities:
Accounts receivable and prepaid expenses........ (718) 3,790
Inventories..................................... (4,540) (607)
Income taxes payable............................ (49) 856
Accounts payable and accrued expenses........... 977 (2,581)
Other assets and liabilities.................... -- (130)
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Net cash provided by operating activities........... 5,587 10,867
FINANCING ACTIVITIES:
Proceeds from exercise of common stock options...... 3 18
Second public offering.............................. 14,754 --
Payment of long-term debt........................... (237) --
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Net cash provided by financing activities........... 14,520 18
INVESTING ACTIVITIES:
Capital expenditures................................ (2,650) (3,712)
Purchase of marketable securities................... -- (18,969)
Proceeds from sale of equipment..................... 12 19
Other investing activities.......................... (75) (80)
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Net cash used for investing activities.............. (2,713) (22,742)
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Net increase (decrease) in cash..................... 17,394 (11,857)
Cash and cash equivalents, beginning of period...... 4,416 22,889
----------- -----------
Cash and cash equivalents, end of period............ $ 21,810 $ 11,032
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
General
The unaudited financial statements included herein have been prepared by
Teltrend Inc. (the "Company") in accordance with generally accepted accounting
principles for interim financial information and Article 10 of Regulation S-X,
and should be read in conjunction with the Company's financial statements (and
notes thereto) included in the Company's Annual Report on Form 10-K for the
year ended July 27, 1996. Accordingly, the accompanying statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the quarter ended April 26, 1997 are not necessarily indicative of
the results that may be expected for the fiscal year ending July 26, 1997. The
Company's fiscal year ends on the last Saturday of July each year. All
references to fiscal years in this report refer to fiscal years ending in the
calendar year indicated (e.g., Fiscal 1996 refers to the fiscal year ended July
27, 1996 and Fiscal 1997 refers to the fiscal year ending July 26, 1997).
2. MARKETABLE SECURITIES
At April 26, 1997 the Company had marketable securities of $19.0 million.
These securities consisted of debt instruments with maturities of less than one
year and are classified as held-to-maturity, as the Company has the intent and
the ability to hold these securities until maturity. These securities are
carried at amortized cost, which at April 26, 1997 approximates fair value.
Temporary unrealized gains and losses will not be recognized in the financial
statements until realized.
3. INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 27, APRIL 26,
1996 1997
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<S> <C> <C>
Raw materials.......... $ 7,904 $ 6,905
Work-in-process........ 1,795 2,061
Finished goods......... 2,650 3,990
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$12,349 $12,956
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</TABLE>
4. SECOND PUBLIC OFFERING
In the second quarter of Fiscal 1996, the Company sold 575,000 shares of
its Common Stock pursuant to a registered public offering (the "Second Public
Offering"). These shares were offered by the Company and certain stockholders
of the Company at a price of $28.00 per share (less underwriting discounts and
commissions of $1.50 per share).
5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements
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for calculating basic earnings per share, the dilutive effect of stock options
will be excluded. The impact is expected to result in an increase in basic
earnings per share for each of the three month periods ending April 26, 1997
and April 27, 1996 of $.01 and $.03 per share, respectively. The increase for
each of the nine month periods ended April 26, 1997 and April 27, 1996 is
expected to be $.04 and $.07 per share, respectively. The impact of Statement
No. 128 on the calculation of diluted earnings per share for these three and
nine month periods is not expected to be material.
6. LAND ACQUISITION
In August 1996, the Company entered into an agreement to purchase land for
approximately $1.7 million. The purchase of the land was consummated in March
1997. The Company presently plans to commence the construction of a new
office, research and manufacturing facility in late Fiscal 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
ITEM 2 - FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
The following "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 concerning,
among other things, the Company's prospects, developments and business
strategies for its operations, including (i) the Company's belief (as stated
below in "- Results of Operations - Gross Profit") that gross profit margin may
be difficult to maintain in future periods, and (ii) the development and sales
of certain new and established products. These forward-looking statements (i)
are identified by their use of such terms and phrases as "believes," "expects,"
"continuation of a downward trend," and "anticipated," and (ii) are subject to
risks and uncertainties and represent the Company's present expectations or
beliefs concerning future events. The Company cautions that the
forward-looking statements are qualified by important factors that could cause
actual results to differ materially from those in the forward-looking
statements, including the factors described below under "Factors That May
Affect Future Results." Results actually achieved thus may differ materially
from expected results included in these statements.
GENERAL
The Company designs, manufactures and markets a broad range of
transmission products, such as channel units, repeaters and termination units
that are used by telephone companies ("Telcos") to provide voice and data
services over the existing telephone network, primarily in the local telephone
loop (the "Local Loop"). In recent years, the demand for high speed digital
transmission over the telephone network has increased rapidly as a result of
the demand for high capacity voice lines, the growing communication
requirements of local area network interconnections, wide area networks,
on-line data networks (which typically connect point of sale credit card
authorization terminals, automatic teller machines, lottery terminals and
reservation stations to a central computer), the Internet, other on-line data
services and, to a lesser extent, video conferencing. The Company's current
products enhance the transmission of voice and data over the copper network and
permit the Telcos to maximize use of the existing infrastructure of copper
wireline.
The Company's principal customers are the Regional Bell Operating
Companies and their local affiliates (collectively, the "RBOCs"), but the
Company also sells its products to certain independent Telcos and other
companies. The Company's principal products are divided into four product line
categories as follows: (i) Voice Frequency and Digital Loop Carrier products
("VF/DLC"), which includes small DLC systems and plug-in units for existing DLC
systems, CYBERBLOCK(TM), which solves various modem and voice problems on long
metallic loops, and traditional voice frequency products; (ii) T1/Wireless
products, which includes T1 line and office repeaters and T1 network interface
units, and CELLPAK(TM) units for cellular and wireless base station sites;
(iii) ISDN/DDS products, which includes Integrated Services Digital Network
("ISDN") and Digital Data System ("DDS") line repeaters, ISDN and DDS D4
channel units and an ISDN mini-bank; and (iv) Broadband Products, which
includes NetZap(TM) and NetZap Plus(TM) and other High Density Subscriber Line
("HDSL") systems, which help Telcos reduce the number of costly digital cross
connect system ports required for frame relay services.
RESULTS OF OPERATIONS
NET SALES. Net sales for the third quarter of Fiscal 1997 increased 2.6%,
or approximately $0.5 million, to approximately $21.3 million from approximately
$20.8 million in the third quarter of Fiscal 1996. For the first nine months of
Fiscal 1997, net sales totaled approximately $62.7 million compared to
approximately $62.1 million for the first nine months of Fiscal 1996,
representing an increase of approximately $0.6 million, or 1.0%. The increase
in net sales for the third quarter of Fiscal 1997 over the prior year period was
primarily the result of an increase in unit volume sales of the Company's
T1/Wireless products of approximately $1.1 million, which was partially offset
by a decrease in unit volume sales of the Company's VF/DLC products of
approximately $0.6 million. The Company
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experienced essentially no change in unit volume sales of its ISDN/DDS
products for the third quarter of Fiscal 1997 over the prior year period. For
the first nine months of Fiscal 1997, the increase in net sales over the prior
year period was largely the result of an increase in unit volume sales of
ISDN/DDS and T1/Wireless products of approximately $1.5 million and $0.2
million, respectively, which was partially offset by a decrease in unit volume
sales of VF/DLC products of approximately $1.2 million. Sales of the Company's
fourth product line, Broadband Products, were minimal for both the third quarter
and first nine months of Fiscal 1997 and Fiscal 1996.
The decrease in unit volume sales of VF/DLC products during each
comparative period was the result of generally declining sales of VF products,
offset slightly by an increase in the sales of new DLC products. The decline
in sales for VF products was a continuation of a downward trend in VF sales
resulting from a decline in the demand for analog services. The Company
believes that, although there may be international opportunities, the domestic
market for its VF products is decreasing as digital data transmission services
within the Local Loop become less costly and more widely deployed. The Company
presently expects that this decrease will be at least partially offset by
continued growth in its DLC business.
The increase in sales of the Company's T1/Wireless products during each
comparative period was the net effect of a decrease in intelligent T1 repeater
unit volume sales and an increase in T1 CPE and CELLPAK unit volume sales. The
sales of the Company's T1 intelligent line repeaters ("ILRs") were negatively
affected during the quarter by the increased installation of HDSL equipment at
certain RBOCs. The sales of the Company's T1 CPE products, consisting of
Network Interface Units ("NIUs") and associated mountings, increased somewhat
during each comparative period, due primarily to new sales agreements and the
approval by certain RBOCs of new product iterations.
While sales of ISDN/DDS products during the third quarter of Fiscal 1997
were relatively flat compared to the same period in Fiscal 1996, the increase
in ISDN/DDS sales during the first nine months of Fiscal 1997 compared to the
same period in Fiscal 1996 resulted primarily from an increase in the number of
RBOCs that have qualified these products from the first quarter of Fiscal 1996
to the current quarter. In addition, the Company believes that the overall
demand for ISDN services and, to a lesser extent, DDS services is growing. See
" -- Dependence on T1 Product Line," " -- Rapid Technological Changes and
Dependence on New Products" and " -- Reliance on Certain Customers" under
"Factors That May Affect Future Results" below.
GROSS PROFIT. Gross profit in the third quarter of Fiscal 1997 decreased
3.6%, or approximately $0.3 million, to approximately $9.4 million from
approximately $9.7 million for the third quarter of Fiscal 1996. For the first
nine months of Fiscal 1997, gross profit totaled approximately $27.9 million
compared to approximately $28.3 million for the first nine months of Fiscal
1996, representing a decrease of approximately $0.3 million, or 1.2%. Gross
profit margins for the third quarter and the first nine months of Fiscal 1997
were 44.1% and 44.5%, respectively, compared to 46.9% and 45.5%, respectively,
for the corresponding Fiscal 1996 periods. The decrease in gross profit and
gross profit margin for each period was primarily attributable to increased
price pressure at most RBOCs, especially for ISDN products. Another
contributing factor was the sale of several relatively new products with lower
gross profit margins, which outweighed management's ongoing activities to
reduce manufacturing costs for many of the Company's established products. The
Company presently believes that the existing gross profit margin may be
difficult to maintain in future periods because of continued price pressure on
the Company's established product lines. See " -- Factors That May Affect
Future Results -- Highly Competitive Industry."
SALES AND MARKETING. Sales and marketing expenses in the third quarter of
Fiscal 1997 increased 6.7%, or approximately $0.1 million, to approximately
$1.9 million from approximately $1.8 million in the third quarter of Fiscal
1996. For the first nine months of Fiscal 1997, sales and marketing expenses
totaled approximately $5.6 million, compared to approximately $5.5 million for
the first nine months of Fiscal 1996, representing an increase of approximately
$0.1 million, or 1.1%. As a percentage of net sales, sales and marketing
expenses increased to 8.9% for the third quarter of Fiscal 1997 from 8.5% for
the third quarter of Fiscal 1996, and for the first nine months of Fiscal 1997
increased to 8.9% from 8.8% for the first nine months of Fiscal 1996. The
increase in the dollar amount of sales and marketing expenses was primarily due
to increased salaries and travel and entertainment expenses.
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RESEARCH AND DEVELOPMENT. Research and development expenses in the third
quarter of Fiscal 1997 increased 27.3%, or approximately $0.5 million, to
approximately $2.5 million from approximately $2.0 million in the third quarter
of Fiscal 1996. For the first nine months of Fiscal 1997, research and
development expenses totaled approximately $7.3 million compared to
approximately $5.7 million for the first nine months of Fiscal 1996,
representing an increase of approximately $1.6 million, or 28.2%. As a
percentage of total net sales, research and development expenses increased to
11.9% in the third quarter of Fiscal 1997 from 9.6% in the third quarter of
Fiscal 1996, and for the first nine months of Fiscal 1997 increased to 11.6%
from 9.1% for the first nine months of Fiscal 1996. The increase in the dollar
amount of this expense for each comparative period was due primarily to
increases in personnel associated expenses, such as recruiting and salaries for
newly-hired personnel, related support equipment and the outsourcing of certain
development costs. The Company's goal has been to increase expenditures for
research and development at a rate greater than its rate of sales growth with a
view towards having its research and development expenses total 11% to 12% of
net annual sales.
GENERAL AND ADMINISTRATIVE. General and administrative expenses in the
third quarter of Fiscal 1997 increased 46.7%, or approximately $0.4 million, to
approximately $1.3 million from approximately $0.9 million in the third quarter
of Fiscal 1996. For the first nine months of Fiscal 1997, general and
administrative expenses totaled approximately $3.5 million compared to
approximately $2.9 million for the first nine months of Fiscal 1996,
representing an increase of approximately $0.6 million or 20.0%. General and
administrative expenses as a percentage of total net sales increased to 6.2% in
the third quarter of Fiscal 1997 from 4.3% in the third quarter of Fiscal 1996,
and for the first nine months of Fiscal 1997 increased to 5.6% from 4.7% for
the first nine months of Fiscal 1996. The increase in the expense for each
comparative period was largely the net result of an increase in salaries,
professional services and license fees and a decrease in the amount the Company
accrued for bonuses.
OTHER INCOME. Other income for the third quarter and the first nine
months of Fiscal 1997 increased by $0.1 million and $0.5 million, respectively,
from the corresponding Fiscal 1996 periods. For both periods, the Company used
the proceeds from the Second Public Offering and cash flow from operations to
invest in certain cash equivalents and short-term marketable securities to earn
interest income.
INCOME TAXES. A provision for income taxes of $1.6 million was recorded
for the third quarter of Fiscal 1997 compared to $2.2 million for the
comparable prior year period. A provision for income taxes of $5.0 million was
recorded for the first nine months of Fiscal 1997 compared to $6.1 million for
the comparable prior year period. These decreases in income tax provisions are
a function of the changes in the levels of the Company's net income before
taxes in the third quarter and first nine months of Fiscal 1997 from the
comparable Fiscal 1996 periods.
LIQUIDITY AND CAPITAL RESOURCES
At April 26, 1997, the Company had no long-term indebtedness and had
working capital of approximately $41.8 million, which included cash and cash
equivalents of approximately $11.0 million and marketable securities of
approximately $19.0 million. The increase in working capital from
approximately $35.9 million at the end of Fiscal 1996 was due primarily to cash
flow from operations.
Cash used for capital expenditures was approximately $3.7 million in the
first nine months of Fiscal 1997 compared to approximately $2.7 million for the
first nine months of Fiscal 1996. Most of the expenditures were for the
purchase of engineering equipment and manufacturing equipment such as surface
technology ("SMT") equipment and test equipment.
As of April 26, 1997, the Company had net trade accounts receivable of
approximately $8.4 million, compared to approximately $11.9 million as of the
end of Fiscal 1996. This decrease was due primarily to (i) a decrease in net
sales for the current quarter as compared to the Company's net sales for the
fourth quarter of Fiscal 1996, and (ii) the collection of certain past-due
receivables, resulting in a decrease in the average number of days receivables
outstanding.
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For the first nine months of Fiscal 1997, inventories increased by
approximately $0.6 million, from approximately $12.3 million at the end of
Fiscal 1996 to approximately $13.0 million as of April 26, 1997. This increase
in inventory was primarily a result of higher forecasted sales for certain of
the Company's new products than were actually sold by the end of the third
quarter. See " -- Factors That May Affect Future Results -- Increased
Inventory Levels and Need to Make Advance Purchase Commitments."
The Company maintains a credit facility (the "Bank Facility"), which
provides, subject to certain restrictions and based on the Company's accounts
receivable and inventory levels, up to $15.0 million on an unsecured basis for
working capital financing. There are no amounts presently outstanding under
the Bank Facility. Based on the Company's accounts receivable and inventory
levels as of April 26, 1997, the Company estimates that approximately $12.3
million is available under the Bank Facility as of the date hereof. Borrowings
under the Bank Facility will mature on June 30, 1998 and bear interest at a
floating rate based on (i) LIBOR or the prime rate offered by the lender from
time to time, and (ii) the Company's debt-to-equity ratio, determined quarterly
by the Company. The terms of the Bank Facility prohibit the Company from
declaring and paying in any fiscal year dividends which exceed, in the
aggregate, 50% of the Company's net income for the immediately preceding fiscal
year.
The Company expects that existing cash and cash equivalents, marketable
securities, and cash from operations, plus available borrowings under the Bank
Facility, will be adequate to fund the Company's working capital needs for the
foreseeable future.
FACTORS THAT MAY AFFECT FUTURE RESULTS
DEPENDENCE ON T1 PRODUCT LINE. The Company's T1 products accounted for
approximately 48.0%, 55.6% and 53.9% of the Company's total net sales in Fiscal
1994, 1995 and 1996, respectively. The Company expects to derive the majority
of its net sales for the foreseeable future from the sale of its T1 products.
Consequently, the Company's inability to maintain or increase net sales of its
T1 products in the future, or to offset any shortfall in sales of such products
with sales within its other existing or future product lines, could have a
material adverse effect on the Company. The Company is facing increasing
competition with respect to its T1 products from suppliers of systems based on
HDSL technology as an alternate method of delivering T1 services in the Local
Loop. Because HDSL is often easier to provision than traditional T1 service,
the Company expects that HDSL products will adversely affect the demand for its
T1 products as the costs of HDSL systems decline. Consequently, while net
sales of the Company's T1 products have increased from year to year since
Fiscal 1991, there can be no assurance that the Company will be able to sustain
or improve this trend. If increasing competition causes the Company to reduce
selling prices for its T1 products, there can be no assurance that the Company
will be able to increase unit sales volumes of such products, reduce its costs
of sales of such products or maintain or increase revenues or gross margins
attributable to such products to offset in full or in part the reduced revenue
effects of such selling price reductions.
RAPID TECHNOLOGICAL CHANGES AND DEPENDENCE ON NEW PRODUCTS. The market
for the Company's products is characterized by rapidly changing technology,
evolving industry standards, changes in customer requirements,
price-competitive bidding and frequent product introductions and enhancements.
The introduction of telephone network voice and data transmission products
involving new technologies, the emergence of new industry standards or changes
in customer requirements or service offerings could adversely affect the
Company's ability to sell its existing products and products currently under
development. All of the Company's existing products are designed primarily to
facilitate and enhance the delivery of communications over the existing copper
wireline in the Local Loop and the Company expects that Telcos will
increasingly replace this copper wireline with fiber optic, coaxial cable,
wireless and other technologies (each of which uses a significantly different
method of delivery). Furthermore, the Company faces increasing competition
with respect to its T1 products from suppliers of HDSL systems as an alternate
method of delivering conventional T1 services. The Company believes that the
continued installation of new technologies in the Local Loop will adversely
affect demand for certain of its existing products and that its future success
will largely depend upon its ability, on a cost-effective and timely basis, to
continue to enhance its existing products and develop and achieve commercial
acceptance of new products. There can be no assurance that developments by
others will not render the Company's products or technologies obsolete or
unmarketable or that the Company will be able to successfully anticipate or
adapt to changing technology, industry standards or customer
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<PAGE> 12
requirements on a timely basis. Any failure by the Company to anticipate and
respond to technological developments or changes in industry standards or
customer requirements could have a material adverse effect on the Company.
RELIANCE ON CERTAIN CUSTOMERS. The Company depends, and is likely to
continue to depend, on the RBOCs for substantially all of its net sales. Sales
to the RBOCs accounted for approximately 96.5%, 96.3% and 95.2% of the
Company's total net sales in Fiscal 1994, 1995 and 1996, respectively. Among
the RBOCs, sales to BellSouth, US WEST, SBC Communications, Ameritech and NYNEX
accounted for approximately 20.6%, 18.4%, 18.2%, 15.2% and 10.7%, respectively,
of the Company's net sales in Fiscal 1996. During this same period, one of
these customers purchased T1 products which accounted for approximately 15.6%
of the Company's total net sales. The Company has no supply agreements with
any of the RBOCs or its other customers which establish minimum purchase
commitments and there can be no assurance that sales of the Company's products
to the RBOCs or other customers will continue or that the Company's customer
base will become less concentrated. See " -- Factors That May Affect Future
Results -- Potential Competition from RBOCs and AT&T." The loss of one or more
of the RBOCs as a customer, the reduction of orders for the Company's products,
or a failure or delay in the deployment of the Company's products by one or
more of the RBOCs, could materially and adversely affect the Company. In
addition, recent contract negotiations with certain RBOCs have resulted in
lower prices for selected products. In addition, the RBOCs and the Company's
other customers are significantly larger than, and are able to exert a high
degree of influence over, the Company.
HIGHLY COMPETITIVE INDUSTRY. The markets for the Company's products
are highly competitive, especially with respect to price, product features,
quality and conformance to industry standards. The Company's competitors in
the United States and elsewhere are numerous and the Company expects its
competition to increase in the future both from existing and new competitors,
including possibly the RBOCs and AT&T Corp. ("AT&T," formerly known as American
Telephone and Telegraph Company). See " -- Factors That May Affect Future
Results -- Potential Competition From RBOCs and AT&T." Increased competition
could reduce gross profit margins and may require increased spending by the
Company on product development and sales and marketing, or may otherwise
adversely affect the Company. The Company has generally been required to
reduce the selling prices of its products over time to meet increasing
competition and will likely be required to do so in the future. The Company's
ability to maintain or increase net sales will depend largely upon its ability
to increase unit sales volumes of its products to counter declines in the
average sales prices of its products. Declining average sales prices would
also adversely affect gross margins on the Company's products if not offset by
reductions in the Company's cost of sales. There can be no assurance that the
Company will be able to increase unit sales volumes of its products, reduce its
costs of sales of such products or maintain or increase revenues or gross
margins attributable to such products. Most of the Company's competitors and
potential competitors have significantly greater financial, technological,
manufacturing, marketing and personnel resources than the Company. In
addition, certain of the Company's competitors have long-standing relationships
with certain Telcos which may adversely affect the Company's ability to
successfully compete for business at these Telcos.
DEPENDENCE ON CERTAIN SUPPLIERS. Certain key components which are
required to manufacture the Company's products are available from only one
source. Such components include the Company's application specific integrated
circuits, which are built to Company specifications, and its proprietary design
integrated circuits, which are the design and property of the manufacturer from
which they are purchased. The Company generally obtains its components on a
purchase order basis. Accordingly, there can be no assurance that the Company
will be able to continue to obtain sufficient quantities of key components as
required or that such components, if obtained, will be available to the Company
on commercially favorable terms. Further, certain components require an order
lead time of up to six months. Failure by the Company to order sufficient
quantities of components in advance could prevent the Company from meeting
customer demand for its products. The Company has been able to adjust its
order lead times and/or promised delivery dates to avoid material delivery
delays of its products. However, there can be no assurance that the Company
will be able to continue to adjust its order lead times and/or promised
delivery dates to avoid material delivery delays of its products in the future.
Under certain of the Company's supply contracts, a delay in the delivery of
products would permit the customer to cancel the purchase order or, in limited
circumstances, assess a late delivery charge. In addition, late deliveries
could adversely affect the Company's ability to obtain additional sales from a
particular customer. The Company's inability to obtain sufficient quantities of
key
-12-
<PAGE> 13
components as required, or to develop alternative sources of such components
on commercially favorable terms, if and as required in the future, could result
in delays or reductions in product shipments or could otherwise have a material
adverse effect on the Company's customer relationships and, consequently, on its
business, results of operations and financial condition. See " -- Factors That
May Affect Future Results -- Reliance on Certain Customers."
INCREASED INVENTORY LEVELS AND NEED TO MAKE ADVANCE PURCHASE COMMITMENTS.
To respond to anticipated customer demand, the Company maintains high inventory
levels. In addition, at the request of four of its customers, the Company has
entered into arrangements to maintain certain of its finished goods inventory
at the various locations of such customers. Although the Company believes
these arrangements facilitate sales to its customers, they result in higher
levels of inventory than are necessary in the absence of such arrangements.
Maintaining high inventory levels substantially increases the risk that the
Company's profitability and results of operations may from time to time be
materially and adversely affected by inventory obsolescence. To procure
adequate supplies of certain components, the Company must regularly make
advance commitments to purchase relatively large quantities of such components.
The inability of the Company to incorporate such components in its products
could have a material adverse effect on the Company.
POTENTIAL COMPETITION FROM RBOCS AND AT&T. The Telecommunications Act of
1996 has generally eliminated the restrictions which had previously prohibited
the RBOCs from manufacturing telecommunications equipment (subject to first
satisfying certain conditions designed to facilitate local exchange competition
and receipt of prior approval by the Federal Communications Commission). These
restrictions had been imposed under the Modification of Final Judgment, which
governed the structure of the 1984 divestiture by AT&T of its local operating
telephone company subsidiaries. The passage of the Telecommunications Act may
have an adverse effect on the Company because the RBOCs, which are presently
the Company's principal customers, may now become manufacturers of some or all
of the products currently manufactured and sold by the Company and,
consequently, may no longer purchase telecommunications equipment produced by
the Company at the levels historically experienced. In addition, the
operation, as an independent entity, of Lucent Technologies Inc. ("Lucent")
after its spin-off from AT&T may have an adverse effect on the business of the
Company.
GOVERNMENT REGULATION. The telecommunications industry is subject to
regulation. While such regulation does not typically apply directly to the
Company, federal and state regulatory agencies and commissions regulate most of
the Company's domestic customers. The effects of such regulations, which are
under continuous review and subject to change, on the Company's customers may
adversely affect the Company.
PROPRIETARY RIGHTS AND RISKS OF THIRD PARTY CLAIMS OF INFRINGEMENT. The
telecommunications industry is characterized by an increasing number of patents
and frequent litigation based on allegations of patent infringement. From time
to time, third parties may assert exclusive patent, copyright and other
intellectual property rights to technologies which are important to the
Company. While the Company does not believe that its present products and
technology infringe the intellectual property rights of others, there can be no
assurance that third parties will not assert infringement claims against the
Company or that any such assertions will not result in costly litigation.
Further, there can be no assurance that the Company would prevail against any
such claims or that licenses of any third-party intellectual property would be
available to the Company on commercially reasonable terms. In addition, a
substantial number of the Company's products are intended to plug into
telephone network equipment designed and manufactured by third parties, some of
which are competitors of the Company. The design or modification of such
equipment so that it is incompatible with the Company's products could
adversely affect the Company's ability to maintain its current level of, or
achieve additional, net sales. The inability of the Company to develop
products for such equipment which do not infringe the intellectual property
rights associated with such equipment, or to obtain the right to use such
intellectual property on commercially reasonable terms, could have a material
adverse effect on the Company. In addition, any infringement claims or
litigation against the Company could have a material adverse effect on the
Company.
The Company is a party to agreements with certain of the RBOCs pursuant to
which it licenses certain telecommunications technology, including digital
channel banks and signal decoding systems, in connection with the manufacture of
its products. The terms of virtually all of these license agreements expired at
varying times
-13-
<PAGE> 14
during Fiscal 1995, subject to a right of continuation at an increased royalty
rate with respect to specified Company products. The Company is currently
evaluating its continuing obligations under these agreements and the extent to
which its current products employ technology covered by the unexpired patents
licensed thereunder. There can be no assurance that the results of the
Company's evaluation of these agreements and/or subsequent negotiations with the
RBOCs will not result in the Company's payment of royalties at increased rates
with respect to all or a substantial number of the Company's products. Any
substantial increase in royalty rates could have a material adverse effect on
the Company.
Prior to the Company's initial public offering in 1995 (the "IPO"), the
Company's operating subsidiary also licensed certain technology from AT&T.
This technology has since been transferred to Lucent. The term of this license
continued through July 1995, subject to a right of continuation under certain
circumstances at substantially higher royalty rates. In connection with the
IPO and the Company's recapitalization in connection therewith, the Company
sought AT&T's consent to assignment of this license from the operating
subsidiary to the Company. At that time, AT&T indicated it would give consent
after resolving certain issues with the Company with respect to the license.
However, the term of the license agreement expired before the parties had the
opportunity to resolve these issues and the parties have since discussed a
replacement license agreement. In the context of these discussions, Lucent has
indicated that the Company's initial ISDN product may make use of certain of
Lucent's patented technology and has expressed a willingness to include this
technology in the context of a replacement license agreement. The Company is
currently evaluating Lucent's claim. The resolution of this matter is
uncertain at this time, and there can be no assurance that the Company will be
able to obtain a replacement license agreement with Lucent at royalty rates
which would not have a material adverse effect on the Company. See " --
Factors That May Affect Future Results -- Potential Competition from RBOCs and
AT&T." See also "Item 1 - Legal Proceedings" under "Part II - Other
Information."
POTENTIAL PRODUCT RECALLS AND WARRANTY EXPENSES. The Company's products
are required to meet rigorous standards imposed by its customers, including
written technical requirements and various mechanical, electrical performance,
environmental operating and storage conditions, and to interface in a complex
and changing environment with telecommunication network equipment produced by
numerous other suppliers. In the event there are material deficiencies or
defects in the design or manufacture of the Company's products or if such
products become incompatible with existing third-party network equipment, the
affected products could be subject to a recall. Although the Company has not
experienced any complete recall of a product from the field in the past, the
Company has from time to time agreed to upgrade certain of its products in
response to product design issues raised by certain of its customers. There
can be no assurance that the Company will not experience a material product
recall in the future. Any product recall and associated negative publicity
could have a material adverse effect on the Company.
POSSIBLE VOLATILITY OF STOCK PRICE. The Company believes factors such as
announcements of new products or technological innovations by the Company or
third parties, as well as variations in the Company's results of operations,
the gain or loss of significant customers or of business at existing customers,
legislative or regulatory changes, general trends in the industry, market
conditions, analysts' estimates and other events or factors may cause the
market price of the Common Stock to fluctuate significantly. In addition, the
stock market periodically experiences extreme price and volume fluctuations
which affect the market price for many high technology companies and which have
little apparent correlation with the operating performance of these companies.
Such broad market fluctuations may adversely affect the market price of the
Common Stock.
FLUCTUATIONS IN OPERATING RESULTS. The Company's operating results have
fluctuated and may continue to fluctuate as a result of various factors
affecting the Company and its competitors including, but not limited to, the
timing of significant orders and shipments, competition, new product
introductions by the Company or its competitors, production or quality
problems, availability and cost of components and changes in general economic
conditions.
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<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 25, 1997, Wilcom, Inc. ("Wilcom") instituted a patent
infringement action against the Company in the United States District Court for
the Eastern District of New York (Wilcom, Inc. v. Teltrend Inc., Civil Action
No. 97-0918) seeking injunctive relief, damages, interest, costs and attorney's
fees. Wilcom alleges that certain of the Company's products infringe U.S.
Patent Nos. 4,961,218 and 5,504,811, which relate to enhanced line powered
amplifiers. The only Company product specifically identified as allegedly
infringing the patents is the CYBERBLOCK(TM) model LCR4002. The Company
believes that the CYBERBLOCK(TM) model LCR4002 does not infringe either of the
patents identified in the suit, and accordingly, that it has the meritorious and
complete defense of non-infringement. Nonetheless, in the event that Wilcom
prevails in the action, the Company does not believe that the suit is likely to
have a material adverse effect on the financial condition or results of
operations of the Company. Although sales of the CYBERBLOCK(TM) model LCR4002
could increase in the future, sales of this product to date have not been
significant.
ITEM 2 - CHANGES IN SECURITIES
The terms of the Bank Facility prohibit the Company from declaring and
paying in any fiscal year dividends which exceed, in the aggregate, 50% of the
Company's net income for the immediately preceding fiscal year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" under "Part I - Financial
Information."
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1997 Annual Meeting of Stockholders was held on February 7,
1997 for the purpose of (i) electing directors, (ii) ratifying the action of
the Company's Board of Directors in appointing Ernst & Young LLP as the
Company's independent auditors for Fiscal 1997, and (iii) transacting such
other business properly brought before the meeting. The meeting proceeded and
the holders of the Company's Common Stock elected the following persons to the
Company's Board of Directors: (a) Howard L. Kirby, Jr., by a vote of 4,780,143
votes cast for and 23,680 votes withheld; (b) Carl M. Mueller, by a vote of
4,778,958 votes cast for and 24,865 votes withheld; (c) Frank T. Cary, by a
vote of 4,776,348 votes cast for and 27,475 votes withheld; (d) Harry Crutcher,
III, by a vote of 4,778,603 votes cast for and 25,220 votes withheld; (e)
William R. Delk, by a vote of 4,778,803 votes cast for and 25,020 votes
withheld; (f) Donald R. Hollis, by a vote of 4,778,503 votes cast for and
25,320 votes withheld; and (g) Bernard F. Sergesketter, by a vote of 4,778,603
votes cast for and 25,220 votes withheld. The holders of the Company's Common
Stock also ratified the appointment of Ernst & Young LLP as the Company's
independent auditors for Fiscal 1997 by a vote of 4,789,263 votes cast for
ratification, 2,650 votes cast against ratification and 11,910 abstentions.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------
<S> <C>
2 None.
3.1 Restated Certificate of Incorporation of Registrant, as amended.(1)
3.2 Amended and Restated Bylaws of the Registrant.(2)
</TABLE>
-15-
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------
<S> <C>
4.1 Specimen form of Common Stock certificate.(2)
4.2 Articles Fourth, Seventh, Eighth, Tenth and Twelfth of the
Restated Certificate of Incorporation of the Registrant, as
amended.(4)
4.3 Articles I, II (Section 1 and 3), IV (Sections 1 through 6), V
(Section 3) and VI of the Amended and Restated Bylaws of the
Registrant.(4)
4.4 Credit Agreement between the Registrant and LaSalle National
Bank, dated June 14, 1995.(1)
4.5 Rights Agreement, dated January 16, 1997, between the
Registrant and LaSalle National Bank, as Rights Agent.(7)
4.6 Form of Rights Certificate (incorporated by reference to
Exhibit B to the Rights Agreement included as Exhibit 4.5
herewith).
10.1 Indemnification Agreement, dated June 8, 1995, between the
Registrant and Howard L. Kirby, Jr.(1)
10.2 Schedule of each of the directors and executive
officers of the Registrant with whom the Registrant has
entered into an Indemnification Agreement.(6)
10.3 Teltrend Inc. 1995 Stock Option Plan.(2)
10.4 Form of Nonqualified Stock Option Agreement under the Teltrend
Inc. 1995 Stock Option Plan.(1)
10.5 Schedule of Nonqualified Stock Option Agreements which have
been entered into by directors or executive officers of the
Registrant.(6)
10.6 TI Investors Inc. Stock Option Plan.(2)
10.7 Forms of Nonqualified Stock Option Agreement under the TI
Investors Inc. Stock Option Plan, dated August 1, 1994,
between the Registrant and Donald G. Bozeman, together with
Amended and Restated Nonqualified Stock Option Agreement under
the TI Investors Inc. Stock Option Plan, dated
May 13, 1994, between the Registrant and Donald G. Bozeman.(1)
10.8 Teltrend Inc. 1996 Non-Employee Director Stock Option Plan.(5)
10.9 Schedule of Nonqualified Stock Option Agreements which have
been entered into by directors of the Registrant.(6)
10.10 Amended and Restated Stock Option Agreements, dated May 13,
1994, between the Registrant and Gilbert H. Hosie.(1)
10.11 Registration Rights and Lock-Up Agreement between the
Registrant, The Prudential Insurance Company of America,
Pruco Life Insurance Company, AEA Investors Inc. and
Stockholders of the Registrant prior to consummation of the
Registrant's initial public offering.(1)
10.12 Lease dated April 22, 1983, between CMD Corporation and the
Registrant, together with First Amendment to Lease, dated
August 9, 1985, between Morgan
</TABLE>
-16-
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -------------------------------------------------------------------
<S> <C>
Guaranty Trust Company of New York and the Registrant and
memorandum of Lease, First Amendment to Lease and
Ratification of First Amendment to Lease, dated August 29,
1988.(2)
10.13 Second Amendment to Lease, dated September, 1995, between
Morgan Guaranty Trust Company of New York and the Registrant.
(4)
10.14 Form of Custody Agreement and Power of Attorney, dated as of
October 2, 1995, by and among the Registrant, LaSalle
National Trust, N.A., as Depositary, Henry F. Skelsey and
Prescott C. Romeyn, as attorneys-in-fact, and the Selling
Stockholders named therein.(3)
10.15 Real Estate Sale Agreement, dated August 20, 1996, between the
Registrant and Itasca Bank & Trust Co., as Trustee under Trust
Agreement dated June 29, 1992 and known as Trust No. 11038
and The Kautz Road Business Park Joint Venture.(6)
10.16 Teltrend Inc. 1996 Stock Option Plan.
11 None.
15 None.
18 None.
19 None.
22 None.
23 None.
24 None.
27 Financial Data Schedule.
99 None.
</TABLE>
- ---------------------
(1) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended April 29, 1995 (Commission File No.
0-26114).
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1, as amended (Registration No. 33-91104), originally filed with
the Securities and Exchange Commission April 11, 1995.
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-1, as amended (Registration No. 33-97796), originally filed with
the Securities and Exchange Commission October 4, 1995.
(4) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 29, 1995 (Commission File No. 0-26114).
(5) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended January 27, 1996 (Commission File No.
0-26114).
-17-
<PAGE> 18
(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 27, 1996 (Commission File No. 0-26114).
(7) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated January 16, 1997 (Commission File No. 0-26114).
(b) Reports on Form 8-K: On January 27, 1997, the Company filed a Current
Report on Form 8-K dated January 16, 1997 (the "January Form 8-K"). The
January Form 8-K reported, pursuant to Item 5 thereof, the adoption by the
Company of its stockholder rights plan and the declaration of a dividend in
connection therewith of one preferred share purchase right per share of
outstanding Common Stock payable on January 27, 1997 to holders of record
of the Common Stock as of the close of business on such date. In
addition, on April 28, 1997 the Company filed a Current Report on Form 8-K
dated April 18, 1997 which reported, pursuant to Item 5 thereof, the
election of Susan Major to the Company's Board of Directors.
-18-
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 10, 1997 TELTREND INC.
By: /s/ Douglas P. Hoffmeyer
--------------------------------------------------
Douglas P. Hoffmeyer
Vice President, Finance
(Authorized Officer and Principal Financial Officer)
-19-
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2 None.
3.1 Restated Certificate of Incorporation of Registrant, as amended.(1)
3.2 Amended and Restated Bylaws of the Registrant.(2)
4.1 Specimen form of Common Stock certificate.(2)
4.2 Articles Fourth, Seventh, Eighth, Tenth and Twelfth of the
Restated Certificate of Incorporation of the Registrant, as
amended.(4)
4.3 Articles I, II (Section 1 and 3), IV (Sections 1 through 6), V
(Section 3) and VI of the Amended and Restated Bylaws of the
Registrant.(4)
4.4 Credit Agreement between the Registrant and LaSalle National
Bank, dated June 14, 1995.(1)
4.5 Rights Agreement, dated January 16, 1997, between the
Registrant and LaSalle National Bank, as Rights Agent.(7)
4.6 Form of Rights Certificate (incorporated by reference to
Exhibit B to the Rights Agreement included as Exhibit 4.5
herewith).
10.1 Indemnification Agreement, dated June 8, 1995, between the
Registrant and Howard L. Kirby, Jr.(1)
10.2 Schedule of each of the directors and executive officers of the
Registrant with whom the Registrant has entered into an
Indemnification Agreement.(6)
10.3 Teltrend Inc. 1995 Stock Option Plan.(2)
10.4 Form of Nonqualified Stock Option Agreement under the Teltrend
Inc. 1995 Stock Option Plan.(1)
10.5 Schedule of Nonqualified Stock Option Agreements which have
been entered into by directors or executive officers of the
Registrant.(6)
10.6 TI Investors Inc. Stock Option Plan.(2)
10.7 Forms of Nonqualified Stock Option Agreement under the TI
Investors Inc. Stock Option Plan, dated August 1, 1994,
between the Registrant and Donald G. Bozeman, together with
Amended and Restated Nonqualified Stock Option Agreement under
the TI Investors Inc. Stock Option Plan, dated May 13, 1994,
between the Registrant and Donald G. Bozeman.(1)
10.8 Teltrend Inc. 1996 Non-Employee Director Stock Option Plan.(5)
10.9 Schedule of Nonqualified Stock Option Agreements which have
been entered into by directors of the Registrant.(6)
</TABLE>
-20-
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- --------------------------------------------------------------------
<S> <C>
10.10 Amended and Restated Stock Option Agreements, dated May 13,
1994, between the Registrant and Gilbert H. Hosie.(1)
10.11 Registration Rights and Lock-Up Agreement between the
Registrant, The Prudential Insurance Company of America, Pruco
Life Insurance Company, AEA Investors Inc. and Stockholders of
the Registrant prior to consummation of the Registrant's
initial public offering.(1)
10.12 Lease dated April 22, 1983, between CMD Corporation and the
Registrant, together with First Amendment to Lease, dated
August 9, 1985, between Morgan Guaranty Trust Company of New
York and the Registrant and Memorandum of Lease, First
Amendment to Lease and Ratification of First Amendment to
Lease, dated August 29, 1988.(2)
10.13 Second Amendment to Lease, dated September, 1995, between
Morgan Guaranty Trust Company of New York and the Registrant.(4)
10.14 Form of Custody Agreement and Power of Attorney, dated as of
October 2, 1995, by and among the Registrant, LaSalle National
Trust, N.A., as Depositary, Henry F. Skelsey and Prescott C.
Romeyn, as attorneys-in-fact, and the Selling Stockholders
named therein.(3)
10.15 Real Estate Sale Agreement, dated August 20, 1996, between the
Registrant and Itasca Bank & Trust Co., as Trustee under Trust
Agreement dated June 29, 1992 and known as Trust No. 11038 and
The Kautz Road Business Park Joint Venture.(6)
10.16 Teltrend Inc. 1996 Stock Option Plan.
11 None.
15 None.
18 None.
19 None.
22 None.
23 None.
24 None.
27 Financial Data Schedule.
99 None.
</TABLE>
- -------------------
(1) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended April 29, 1995 (Commission File No.
0-26114).
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1, as amended (Registration No. 33-91104), originally filed with
the Securities and Exchange Commission April 11, 1995.
-21-
<PAGE> 22
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-1, as amended (Registration No. 33-97796), originally filed with
the Securities and Exchange Commission October 4, 1995.
(4) Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended July 29, 1995 (Commission File No. 0-26114).
(5) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended January 27, 1996 (Commission File No.
0-26114).
(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 27, 1996 (Commission File No. 0-26114).
(7) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated January 16, 1997 (Commission File No. 0-26114).
-22-
<PAGE> 1
Exhibit 10.16
TELTREND INC.
1996 STOCK OPTION PLAN
ARTICLE 1
GENERAL
1.1 Purpose. The purpose of this Teltrend Inc. 1996 Stock Option Plan (the
"Plan") is to provide certain key employees and/or directors of Teltrend Inc.,
a Delaware corporation, its successors and assigns and its subsidiaries and
affiliates (collectively, the "Company"), an incentive (i) to join and/or
remain in the service of the Company, (ii) to maintain and enhance the
long-term performance and profitability of the Company and (iii) to acquire a
proprietary interest in the success of the Company. The Plan is intended to
meet the requirements of Rule 16b-3 of the 1934 Act (as hereinafter defined) at
all times during which Insiders (as hereinafter defined) are subject to the
requirements of Section 16 of the 1934 Act (as hereinafter defined).
1.2 Definition of Certain Terms.
(a) "Agreement" means an agreement between the Company and an Optionee
issued pursuant to Section 2.1.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the committee of the Board appointed to
administer the Plan in accordance with Section 1.3.
(e) "Common Stock" means the shares of Common Stock, par value $.01
per share, of the Company, and any other shares into which such common stock
shall thereafter be exchanged by reason of a recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like.
<PAGE> 2
(f) "Company" means Teltrend Inc., a Delaware corporation, its
successors and assigns and its subsidiaries and affiliates.
(g) "Date of Grant" means the date as of which an Option is granted by
the Committee under an Agreement.
(h) "Fair Market Value" per share as of a particular date means (i)
the closing sales price per share of Common Stock on such date on the national
securities exchange on which the Common Stock is principally traded or on the
NASDAQ National Market, or if there was not a sale on such date, the closing
sales price for the last preceding date on which there was a sale of such
Common Stock on such exchange or on the NASDAQ National Market, or (ii) if the
shares of Common Stock are not then traded on a national securities exchange or
on the NASDAQ National Market, the average of the closing bid and asked prices
for the shares of Common Stock in the over-the-counter market on which the
Common Stock is principally traded for the last date, including the Date of
Grant, on which there was a sale of such Common Stock in such market, or (iii)
if the shares of Common Stock are not then listed on a national securities
exchange, the NASDAQ National Market or traded in an over-the counter market,
such value as the Committee, in its sole discretion, shall determine.
(i) "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
(j) "Insider" means a person subject to potential liability with
respect to equity securities of the Company under Section 16 of the 1934 Act.
-2-
<PAGE> 3
(k) "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option or other type of statutory stock option under the Code.
(l) "Optionee" means an employee of the Company who has been awarded
any Option under this Plan.
(m) "Option" means a right to purchase Common Stock granted under the
Plan.
(n) The terms "parent corporation" and "subsidiary corporation" as
used herein shall have the meaning given those terms in Code section 424(e) and
(f), respectively. A corporation shall be deemed a parent corporation or a
subsidiary corporation only for such periods during which the requisite
ownership relationship is maintained.
(o) "Plan" means this Teltrend Inc. 1996 Stock Option Plan.
(p) "Termination With Cause," with respect to any Optionee, means
termination by the Company of such Optionee's employment with the Company for:
(i) misappropriation of corporate funds, (ii) conviction of a felony or a crime
involving moral turpitude, (iii) willful violation of directions of the Chief
Executive Officer or the Board of Directors of the Company, (iv) gross
negligence, or (v) willful misconduct.
(q) "1934 Act" means the Securities Exchange Act of 1934, as amended.
1.3 Administration.
(a) Subject to Section 1.3(e), the Plan shall be administered by the
Committee, which shall consist of at least two directors and which shall have
the power of the Board to authorize awards under the Plan. At all times during
which Insiders are subject to the requirements of Section 16 of the 1934 Act,
all members of the Committee
-3-
<PAGE> 4
shall be comprised of two or more members of the Board of Directors, all of
whom shall be "non-employee directors," as defined in Rule 16b-3 of the 1934
Act and "outside directors" as that term is used in Section 162 of the Code and
the regulations promulgated thereunder. The members of the Committee shall be
appointed by, and may be changed from time to time in the discretion of, the
Board.
(b) The Committee shall have the authority (i) to exercise all of the
powers granted to it under the Plan, (ii) to construe, interpret and implement
the Plan and any Agreement executed pursuant to Section 2.1, (iii) to
prescribe, amend and rescind rules and regulations relating to the Plan, (iv)
to make all determinations necessary or advisable in administering the Plan,
and (v) to correct any defect, supply any omission and reconcile any
inconsistency in the Plan.
(c) The determination of the Committee on all matters relating to the
Plan or any agreement shall be final, binding and conclusive.
(d) No member of the Committee shall be liable for any action, failure
to act, determination or interpretation made in good faith with respect to this
Plan or any transaction hereunder, except for liability arising from his or her
willful misfeasance, gross negligence or reckless disregard of his or her
duties. The Company hereby agrees to indemnify each member of the Committee, to
the extent permitted by applicable law, for all costs and expenses and any
liability incurred in connection with defending against, responding to,
negotiation for the settlement of or otherwise dealing with any claim, cause of
action or dispute of any kind arising in connection with any actions in
administering this Plan or the authorizing or denying authorization to any
transaction hereunder, other than
-4-
<PAGE> 5
actions involving willful misfeasance, gross negligence or reckless disregard
of the member's duties.
(e) Notwithstanding anything to the contrary contained herein, the
Board may, in its sole discretion, at any time and from time to time, resolve
to administer the Plan, with only the members of the Board who are
"non-employee directors," as defined in Rule 16b-3 of the 1934 Act and "outside
directors" as that term is used in Section 162 of the Code and the regulations
promulgated thereunder participating in decisions relating to the Plan, in
which event, the term "Committee" as used herein shall be deemed to mean those
members of the Board.
1.4 Persons Eligible for Awards. Awards under the Plan may be made from
time to time to such key employees of the Company as the Committee shall in its
sole discretion select; provided, however, that, subject to Section 3.4
(relating to adjustments upon changes in capitalization), the Committee may not
award Options to any such employee with respect to more than 200,000 shares of
Common Stock in any fiscal year during the term of the Plan.
1.5 Types of Awards Under the Plan. Awards may be made under the Plan in
the form of Options, which shall be Incentive Stock Options or Nonqualified
Stock Options.
1.6 Shares Available for Awards.
(a) Subject to Section 3.4 (relating to adjustments upon changes in
capitalization), the maximum number of shares of Common Stock with respect to
which Options may be awarded under the Plan shall be equal to 700,000 shares.
Subject to the requirements of Rule 16b-3 of the 1934 Act, if applicable,
shares of Common Stock covered
-5-
<PAGE> 6
by Options granted under the Plan which expire or terminate for any reason
shall again become available for award under the Plan.
(b) Shares that are issued upon the exercise of Options awarded under
the Plan may be issued out of either the Company's authorized and unissued or
treasury shares of Common Stock.
(c) Without limiting the generality of the preceding provisions of
this Section 1.6, the Committee may, but solely with the Optionee's consent,
agree to cancel any award of Options under the Plan and issue new Options in
substitution therefor, provided that the Options as so substituted shall
satisfy all of the requirements of the Plan as of the date such new Options
are awarded.
1.7 Option Price. The exercise price of each Option shall not be less
than 100% of the Fair Market Value of the shares of Common Stock covered by the
Option as of the Date of Grant.
ARTICLE 2
STOCK OPTIONS
2.1 Agreements Evidencing Stock Options
(a) Options awarded under the Plan shall be evidenced by Agreements
which shall not be inconsistent with the terms and provisions of the Plan, and
which shall contain such provisions as the Committee may in its sole discretion
deem necessary or desirable. Without limiting the generality of the foregoing,
the Committee may in any Agreement impose such restrictions or conditions upon
the exercise of such Option or upon the sale or other disposition of the shares
of Common Stock issuable upon exercise of such Option as the Committee may in
its sole discretion determine. By accepting an
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<PAGE> 7
award pursuant to the Plan each Optionee shall thereby agree that each such
award shall be subject to all of the terms and provisions of the Plan,
including, but not limited to, the provisions of Section 1.3(d).
(b) Each Agreement shall set forth the number of shares of Common Stock
subject to the Option granted thereby.
(c) Each Agreement relating to Options shall set forth the amount
payable by the Optionee to the Company upon exercise of the Option evidenced
thereby, subject to adjustment by the Committee to reflect changes in
capitalization as contemplated by Section 3.4.
(d) Each Agreement shall set forth the period during which the Option
shall be exercisable and any vesting provisions applicable to the Option, which
shall be determined by the Committee in its discretion; provided, however, that
no Option shall be exercisable after the expiration of ten years from the Date
of Grant.
(e) Each Agreement shall specify whether the Option is a Nonqualified
Stock Option or an Incentive Stock Option.
(f) Each Agreement shall set forth such other terms and conditions of
the Option, not inconsistent with the terms of the Plan, as the Committee shall
deem appropriate.
2.2 Incentive Stock Options.
Incentive Stock Options granted under the Plan shall be subject to the
following special terms and conditions, in addition to the general terms and
conditions specified in the Plan.
-7-
<PAGE> 8
(a) Value of Shares. The aggregate Fair Market Value (determined as of
the date the Incentive Stock Option is granted) of the shares of Common Stock
with respect to which Incentive Stock Options granted under this Plan and all
other option plans of the Company or any subsidiary corporation or parent
corporation become exercisable for the first time by each Optionee during any
calendar year shall not exceed $100,000.
(b) Ten Percent Stockholder. In the case of an Incentive Stock Option
granted to a "ten percent stockholder" (as provided in Section 422 of the
Code), (i) the Option Price shall not be less than one hundred ten percent
(110%) of the Fair Market Value of the shares of Common Stock on the date of
grant of such Incentive Stock Option, and (ii) the exercise period shall not
exceed five years from the date of grant of such Incentive Stock Option.
2.3 Exercise of Options. Subject to the provisions of this Article 2, each
Option granted under the Plan shall be exercisable as follows:
(a) An Option shall become exercisable at such times and subject to
such conditions as the applicable Agreement may provide.
(b) Unless the applicable Agreement otherwise provides, an Option
granted under the Plan may be exercised from time to time as to all or part of
the shares as to which such Options shall then be exercisable.
(c) An Option shall be exercisable by the filing of a written notice
of exercise with the Company, on such form and in such manner as the Committee
shall in its sole discretion prescribe.
(d) Any written notice of exercise of an Option shall be accompanied
by payment of the exercise price for the shares being purchased. Except as
-8-
<PAGE> 9
described below, such payment shall be made by certified or official bank
check payable to the Company (or the equivalent thereof acceptable to the
Committee). As soon as practicable after receipt of such payment, the Company
shall deliver to the Optionee a certificate or certificates for the shares of
Common Stock so purchased.
2.4 Termination of Options.
(a) Notwithstanding anything to the contrary in this Plan, except as
the Agreement may otherwise provide and as set forth in this Section 2.4, an
Optionee may not exercise his vested Options after (and his Options shall
terminate on) the first to occur of (i) the date which is 45 days after
termination of his employment with the Company for any reason other than death
or disability; and (ii) 90 days following the Optionee's termination of
employment by reason of death or disability.
(b) Notwithstanding anything to the contrary in this Plan, all Options
granted to an Optionee shall immediately expire and cease to be exercisable and
all rights granted to an Optionee under this Plan and such Optionee's Agreement
shall immediately expire in the event of a Termination With Cause of the
Optionee by the Company at any time.
(c) Unless the applicable Agreement expressly provides otherwise,
Options awarded to Optionees under the terms of the Plan will be exercisable
only in accordance with the following vesting schedule:
<TABLE>
<CAPTION>
Cumulative Percentage
Applicable Date of Total Shares
- --------------- ---------------------
<S> <C>
On the first anniversary of the Date of Grant 25%
On the second anniversary of the Date of Grant 50%
On the third anniversary of the Date of Grant 75%
On the fourth anniversary of the Date of Grant 100%
</TABLE>
-9-
<PAGE> 10
provided, however, that if an Optionee's employment with the Company is
terminated by reason of such Optionee's death or disability, the portion of
such Optionee's Option that is not yet vested shall immediately and
automatically vest and become exercisable. The Committee may modify this
vesting schedule in any manner that it deems appropriate in any Agreement, and
may provide different vesting schedules in different Agreements in its sole
discretion.
(d) Except as otherwise provided in the Plan or in an Agreement, the
portion of an Option that is not vested under Section 2.4(c) above will
automatically lapse upon the Optionee's termination of employment with the
Company for any reason.
2.5 Rule 16b-3. Notwithstanding anything in the Plan to the contrary, the
Plan shall be administered, and Options shall be granted and exercised, in
accordance with the 1934 Act and, specifically, Rule 16b-3 promulgated under
the Act.
ARTICLE 3
MISCELLANEOUS
3.1 Amendment of the Plan;
Modification of Awards.
(a) The Board may, without stockholder approval, from time to time
suspend or discontinue the Plan or revise or amend it in any respect
whatsoever, except that no such amendment shall alter or impair any rights or
obligations under any award theretofore made under the Plan without the consent
of the person to whom such award was made; provided, further, that an amendment
which requires stockholder approval in order for the Plan to continue to comply
with Rule 16b-3 promulgated under the 1934 Act or any
-10-
<PAGE> 11
other law, regulation or stock exchange or market requirement shall not be
effective unless approved by the requisite vote of stockholders.
(b) With the consent of the Optionee and subject to the terms and
conditions of the Plan (including Section 3.1(a)), the Committee may amend
oustanding Agreements with such Optionee, for example, to (i) accelerate the
time or times at which an Option may be exercised, or (ii) extend the scheduled
expiration date of the Option.
3.2 Nonassignability. No right granted to any Optionee under the Plan or
under any Agreement shall be assignable or transferable other than by will or
by the laws of descent and distribution. During the life of the Optionee, all
rights granted to the Optionee under the Plan or under any Agreement shall be
exercisable only by him.
3.3 Withholding of Taxes.
(a) Upon exercise of an Option, the Company shall be entitled to
require as a condition to delivery of shares of Common Stock that the Optionee
remit an amount sufficient to satisfy all federal, state and other governmental
tax withholding requirements related to such exercise. The Company shall be
entitled to withhold from any payments to an Optionee an amount sufficient to
satisfy any federal, state and other governmental tax requirements related to
exercise of an Option which have not previously been paid by the Optionee to
the Company or to an appropriate governmental authority.
(b) An Optionee may elect to have the Company retain that number of
shares of Common Stock that would satisfy all or a specified portion of the
federal, state and local withholding tax liabilities of the Optionee arising as
a result of the exercise of the Option. The Committee shall have sole
discretion to approve or disapprove any such
-11-
<PAGE> 12
election. If the Optionee is an Insider, any such withholding shall be made
only in a manner so as to be exempt under Section 16(b) of the 1934 Act.
3.4 Adjustments Upon Certain Changes.
(a) If and to the extent specified by the Committee, the number of
shares of Common Stock issuable upon exercise of Options, the exercise price
for Options, and the number of shares available under the Plan may be
appropriately adjusted by the Committee for any increase or decrease in the
number of issued shares of Common Stock resulting from the subdivision or
combination of shares of Common Stock or other capital adjustments, or the
payment of a stock dividend after the effective date of this Plan, or other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company, or in the event of any
recapitalization, merger, consolidation or other similar transaction; provided,
however, that any Options to purchase fractional shares of Common Stock
resulting from any such adjustment shall be eliminated. The Committee's
determination as to what adjustments shall be made under this Section, and the
extent thereof, shall be final, binding and conclusive.
(b) Unless otherwise determined by the Committee, in the event of a
Transaction (as hereinafter defined), each Optionee shall be entitled to
receive in respect of each share of Common Stock subject to the Option, upon
exercise of such Option, the same amount and kind of stock, securities, cash,
property or other consideration that each holder of a share of Common Stock was
entitled to receive in the Transaction in respect of a share. Unless otherwise
determined by the Committee, in the event of a Transaction which does not also
constitute a Non-Control Transaction (as hereinafter defined), all Options
-12-
<PAGE> 13
outstanding on the effective date of such transaction shall become fully vested
and exercisable.
"Transaction" means (i) the liquidation or dissolution of the Company,
(ii) a sale or other disposition of 80% or more of the outstanding voting stock
or all or substantially all the assets of the Company, or (iii) the merger or
consolidation of the Company with or into any entity. "Non-Control Transaction"
means (i) a merger or consolidation in which the Company is the surviving
corporation and the shares of its outstanding Common Stock are not changed into
other securities or property pursuant to such merger or consolidation, (ii) a
merger or consolidation with an affiliate of the Company following which those
persons who owned directly or indirectly a majority of the outstanding shares
of voting stock immediately prior to such merger or consolidation will own a
majority of the outstanding shares of voting stock of the surviving
corporation, or (iii) a sale or other disposition of capital stock of the
Company following which those persons who owned directly or indirectly a
majority of the outstanding shares of voting stock immediately prior to such
sale will own a majority of the outstanding shares of voting stock of the
purchasing entity.
3.5 Right of Discharge Reserved. Nothing in this Plan or in any Agreement
shall confer upon any employee, Optionee or other person the right to continue
in the employment or service of the Company or affect any right which the
Company may have to terminate the employment or service of such employee or
other person.
3.6 No Rights as a Stockholder. No Optionee or other person holding an
Option shall have any of the rights of a stockholder of the Company with
respect to shares subject to an Option until the issuance of a stock
certificate to him for such shares.
-13-
<PAGE> 14
Except as otherwise provided in Section 3.4, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or extraordinary,
and whether in cash, securities or other property) for which the record date is
prior to the date such stock certificate is issued.
3.7 Nature of Payments.
(a) Any and all payments of shares of Common Stock or cash hereunder
shall be granted, transferred or paid in consideration of services performed by
the Optionee for the Company.
(b) All such grants, issuances and payments shall constitute a special
incentive payment to the Optionee and shall not, unless otherwise determined by
the Committee, be taken into account in computing the amount of salary or
compensation of the Optionee for the purposes of determining any pension,
retirement, death or other benefits under (i) any pension, retirement, life
insurance or other benefit plan of the Company, or (ii) any agreement between
the Company and the Optionee.
3.8 Non-Uniform Determinations.
The Committee's determinations under the Plan need not be uniform and
may be made by it selectively among persons who receive, or are eligible
to receive, awards under the Plan (whether or not such persons are similarly
situated). Without limiting the generality of the foregoing, the Committee
shall be entitled, among other things, to make non-uniform and selective
determinations, and to enter into non-uniform and selective Agreements, as to
(i) the persons to receive awards under the Plan and (ii) the terms and
provisions of awards under the Plan.
-14-
<PAGE> 15
3.9 Other Payments or Awards. Nothing contained in the Plan shall be
deemed in any way to limit or restrict the Company, any subsidiary or the
Committee from making any award or payment to any person under any other plan,
arrangement or understanding, whether now existing or hereafter in effect.
3.10 Restrictions.
(a) If the Committee shall at any time determine that any Consent (as
hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any award under the Plan, the issuance or
purchase of shares or other rights thereunder or the taking of any other action
thereunder (each such action being hereinafter referred to as a "Plan Action"),
then such Plan Action shall not be taken, in whole or in part, unless and until
such Consent shall have been effected or obtained to the full satisfaction of
the Committee.
(b) The term "Consent" as used herein with respect to any Plan Action
means (i) any and all listing, registrations or qualifications in respect
thereof upon any securities exchange or under any federal, state or local law,
rule or regulation, (ii) any and all written agreements and representations by
the Optionee or any other party with respect to the disposition of shares, or
with respect to any other matter, which the Committee shall deem necessary or
desirable to comply with the terms of any such listing, registration or
qualification or to obtain an exemption from the requirement that any such
listing, qualification or registration be made and (iii) any and all consents,
clearances and approvals in respect of a Plan Action by any governmental or
other regulatory bodies.
-15-
<PAGE> 16
3.11 Section Headings. The section headings contained herein are for the
purposes of convenience only and are not intended to define or limit the
contents of said sections.
3.12 Effective Date and Term of Plan.
(a) The Plan is effective as of September 24, 1996.
(b) The Plan shall terminate ten years after the earlier of the date
on which it becomes effective or the date on which it is approved by the
stockholders of the Company, and no Options shall be granted after its
termination. Notwithstanding the foregoing, all Options granted before the date
the Plan terminates shall remain in effect until such Options have been
exercised or terminated in accordance with the terms of the Plan and the
Agreements.
3.13 Disposition of Incentive Stock Options. If an Optionee makes a
disposition, within the meaning of Section 424(c) of the Code and regulations
promulgated thereunder, of any share or shares of Common Stock issued to such
Optionee pursuant to the exercise of an Option granted as an Incentive Stock
Option within the two-year period commencing on the day after the Date of Grant
or within the one-year period commencing on the date afer the date of transfer
of such share or shares of Common Stock to the Optionee pursuant to such
exercise, the Optionee shall, within ten days of such disposition, notify the
Company thereof, by delivery of written notice to the Company at its principal
executive office.
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>This schedule contains summary financial information extracted from the
Teltrend Inc. Statement of Income for the Nine Months Ended April 26, 1997 and
the Teltrend Inc. Balance Sheet as of April 26, 1997 included elsewhere in this
Form 10-Q report and is qualified in its entirety by reference to such
financial information.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-26-1997
<PERIOD-START> JUL-28-1996
<PERIOD-END> APR-26-1997
<CASH> 11,032
<SECURITIES> 18,969
<RECEIVABLES> 8,766
<ALLOWANCES> 380
<INVENTORY> 12,956
<CURRENT-ASSETS> 54,716
<PP&E> 16,973
<DEPRECIATION> 8,889
<TOTAL-ASSETS> 63,333
<CURRENT-LIABILITIES> 12,914
<BONDS> 0
0
0
<COMMON> 64
<OTHER-SE> 50,355
<TOTAL-LIABILITY-AND-EQUITY> 63,333
<SALES> 62,718
<TOTAL-REVENUES> 62,718
<CGS> 34,784
<TOTAL-COSTS> 34,784
<OTHER-EXPENSES> 28
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 12,651
<INCOME-TAX> 4,987
<INCOME-CONTINUING> 7,664
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,664
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
