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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 October 31, 1998
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to ______________
Commission file number 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)
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 December 10, 1998, there were 5,959,384 shares of the
Registrant's Common Stock, $.01 par value per share (the "Common Stock"),
outstanding (exclusive of 533,000 shares of treasury stock).
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TELTREND INC.
<TABLE>
<CAPTION>
INDEX TO FORM 10-Q
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1 -- Consolidated Financial Statements:
Consolidated Statements of Operations for the quarters
ended October 31, 1998 and October 25, 1997................................................3
Consolidated Balance Sheets as of October 31, 1998 and July 25, 1998.......................4
Consolidated Statements of Cash Flows for the quarters ended
October 31, 1998 and October 25, 1997......................................................5
Notes to Consolidated Financial Statements.................................................6
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................................8
Item 3 -- Quantitative and Qualitative Disclosure About Market Risk.................................15
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings.........................................................................16
Item 2 -- Changes in Securities and Use of Proceeds ................................................16
Item 3 -- Defaults Upon Senior Securities ..........................................................16
Item 4 -- Submission of Matters to a Vote of Security Holders.......................................16
Item 5 -- Other Information ........................................................................16
Item 6 -- Exhibits and Reports on Form 8-K..........................................................16
SIGNATURE.................................................................................................17
EXHIBIT INDEX.............................................................................................18
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
TELTREND INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except earnings per share data)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
October 31, 1998 OCTOBER 25, 1997
---------------- ----------------
<S> <C> <C>
Net sales.................................................... $30,198 $ 21,677
Cost of sales................................................ 16,271 12,291
--------- ---------
Gross profit................................................. 13,927 9,386
--------- ---------
Operating expenses:
Sales and marketing........................................ 3,844 2,499
Research and development................................... 4,144 3,062
General and administrative................................. 2,239 1,649
Purchased in-process research and development.............. -- 3,995
--------- ---------
10,277 11,205
--------- ---------
Income (loss) from operations................................ 3,700 (1,819)
--------- ---------
Other income (expense):
Interest income............................................ 349 389
Other-net.................................................. 48 (61)
--------- ---------
397 328
--------- ---------
Income (loss) before income taxes............................ 4,097 (1,491)
Provision for income taxes................................... 1,566 1,020
--------- ---------
Net income (loss)............................................ $ 2,531 $ (2,511)
========= =========
Net income (loss) per share of
common stock............................................... $ 0.41 $ (0.39)
========= =========
Average common shares outstanding............................ 6,162 6,436
========= =========
Net income (loss) per share of
common stock--assuming dilution.............................. $0.41 ($0.39)
========= =========
Average common shares outstanding--assuming
dilution................................................... 6,205 6,542
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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TELTREND INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
OCTOBER 31, JULY 25,
1998 1998
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 16,775 $ 22,994
Marketable securities...................................................... 5,808 1,951
Trade accounts receivable, net of allowance................................ 11,159 12,899
Inventories................................................................ 12,472 10,656
Deferred income taxes...................................................... 1,474 1,474
Prepaid expenses and other current assets.................................. 4,270 4,367
---------- ----------
51,958 54,341
Land and buildings......................................................... 3,518 3,422
Machinery and equipment.................................................... 18,833 18,076
Leasehold improvements..................................................... 1,314 1,310
Accumulated depreciation................................................... (12,789) (12,080)
---------- ----------
10,876 10,728
Deferred income taxes..................................................... 1,705 1,705
Intangible assets, net.................................................... 4,716 4,830
Other assets, net......................................................... 163 166
---------- ----------
$ 69,418 $ 71,770
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................................... $ 6,339 $ 6,194
Accrued expenses.......................................................... 8,865 9,099
Income taxes payable...................................................... 2,046 690
---------- ----------
17,250 15,983
Deferred income taxes..................................................... 2,483 2,483
Commitments and contingencies............................................. -- --
Stockholders' Equity:
Common Stock, $0.01 par value, 15,000,000 shares
authorized and 6,481,990 and 6,462,046 issued and
5,948,990 and 6,361,046 outstanding, respectively....................... 65 64
Additional paid-in capital................................................ 99,523 99,520
Treasury stock............................................................ (7,889) (1,733)
Accumulated deficit....................................................... (42,187) (44,718)
Accumulated other comprehensive income.................................... 173 171
---------- ----------
49,685 53,304
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$ 69,418 $ 71,770
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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TELTREND INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 25,
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) for period ......................... $ 2,531 $ (2,511)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Purchased in-process research and development ..... -- 3,995
Depreciation and amortization ..................... 893 713
Loss (gain) on sale of equipment .................. (3) 7
Changes in certain assets and liabilities:
Accounts receivable and prepaid expenses ....... 1,827 (2,207)
Inventories .................................... (1,822) 507
Accounts payable and accrued expenses .......... (77) 3,488
Income taxes payable ........................... 1,356 1,185
Other assets and liabilities ................... 10 68
---------- ---------
Net cash provided by operating activities ............ 4,715 5,425
FINANCING ACTIVITIES:
Exercise of common stock options ..................... 4 --
Purchase of treasury stock ........................... (6,156) --
---------- ---------
Net cash used for financing activities................ (6,152) --
INVESTING ACTIVITIES:
Capital expenditures ................................. (965) (690)
Acquisition of business net of cash acquired ......... -- (15,673)
(Purchase) redemption of marketable securities ....... (3,857) 6,951
Proceeds from sale of equipment ...................... 38 70
---------- ---------
Net cash used for investing activities ............... (4,784) (9,342)
---------- ---------
Effect of exchange rate changes on cash .............. 2 2
Net decrease in cash and cash equivalents ............ (6,219) (3,915)
Cash and cash equivalents, beginning of period ....... 22,994 11,837
---------- ---------
Cash and cash equivalents, end of period ............. $ 16,775 $ 7,922
---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
I. Basis of Presentation
GENERAL
- --------
The unaudited consolidated financial statements included herein have been
prepared by Teltrend Inc. ("Teltrend") 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 Teltrend's financial
statements (and notes thereto) included in the Teltrend Annual Report on Form
10-K for the year ended July 25, 1998. 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
Teltrend's management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the quarter ended October 31, 1998 are not necessarily indicative of
the results that may be expected for the fiscal year ending July 31, 1999. The
fiscal year of Teltrend and each of its consolidated subsidiaries (collectively,
the "Company") 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 1998" refers to the fiscal year ended July 25, 1998 and
"fiscal 1999" refers to the fiscal year ending July 31, 1999). Fiscal 1998 had
52 weeks and fiscal 1999 has 53 weeks.
ACQUISITION OF TELTREND LIMITED
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On September 18, 1997 (the "Acquisition Date"), Teltrend purchased the
outstanding shares of Securicor 3net Limited of Basingstoke, England (with
operations in the United Kingdom, New Zealand and China) and its U.S. affiliate
Securicor 3net Inc. (together "Teltrend Limited") for total acquisition costs of
approximately $14.5 million (net of the post-closing adjustment in the second
quarter of fiscal 1998). Teltrend Limited is a telecommunication equipment and
software company having annualized revenues in excess of $15 million. The
transaction was accounted for as a purchase and therefore the results of
Teltrend Limited since the Acquisition Date are included with the results of
Teltrend. The purchase price was allocated to identifiable tangible and
intangible assets, including purchased in-process research and development, on
the basis of fair values as determined by an independent appraisal. The value of
purchased in-process research and development was determined by estimating the
projected net cash flows relating to products under development and discounting
such cash flows to their net present values. Purchased in-process research and
development assets of approximately $4 million were written off in the first
quarter of fiscal 1998.
II. Marketable Securities
At October 31, 1998, the Company had marketable securities of $5.8 million.
These securities consisted of debt instruments with maturities greater than
three months but less than one year and are classified as held-to-maturity, as
the Company has the positive intent and the ability to hold these securities
until maturity. These securities are carried at amortized cost, which at October
31, 1998 approximates fair value. Temporary unrealized gains and losses will not
be recognized in the financial statements until realized.
III. INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
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OCTOBER 31, JULY 25,
1998 1998
----------------------- --------------------
<S> <C> <C>
Raw materials . . . . . . . $ 6,416 $ 6,052
----------------------- --------------------
Work-in-process . . . . . . 1,681 1,795
----------------------- --------------------
</TABLE>
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<TABLE>
<S> <C> <C>
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Finished goods . . . . . . . $ 4,375 $ 2,809
======= =======
----------------------- --------------------
$12,472 $10,656
----------------------- --------------------
</TABLE>
IV. EARNINGS PER SHARE
In January 1998, the Company adopted FASB Statement No. 128, "Earnings Per
Share," requiring dual presentation of basic and diluted income per share
("EPS") on the face of the income statement. Basic EPS is computed by dividing
net income (loss) by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution from the exercise
or conversion of securities into common stock, such as stock options. EPS
amounts for all periods have been presented and, where necessary, restated to
conform to FASB Statement 128 requirements.
The following table sets forth the computation of basic and diluted income
(loss) per share (in thousands of dollars, except share and per share data).
<TABLE>
<CAPTION>
-------------------------------------------
FOR THE QUARTER ENDED
-------------------------------------------
OCTOBER 31, 1998 OCTOBER 25, 1997
--------------------- ---------------------
<S> <C> <C>
Numerator:
Net income ........................................... $ 2,531 $ (2,511)
--------------------- -------------------
Denominator:
Weighted average shares outstanding .................. 6,162,081 6,436,321
Effect of dilutive stock options ..................... 42,961 105,563
--------------------- -------------------
Weighted average shares outstanding
-assuming dilution .................................. 6,205,042 6,541,884
--------------------- -------------------
Net income per share ................................. $ 0.41 $ (0.39)
--------------------- -------------------
Net income per share
- - assuming dilution .................................. $ 0.41 $ (0.39)
-------------------- --------------------
</TABLE>
V. COMPREHENSIVE INCOME
As of July 26, 1998, the Company adopted FASB Statement 130, "Reporting
Comprehensive Income," (SFAS 130). SFAS 130 establishes new rules for reporting
and display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or stockholders'
equity. SFAS 130 requires foreign currency translation adjustments to be
included in other comprehensive income, which, prior to adoption, were reported
separately in stockholders' equity.
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Total comprehensive income (loss) and its components, net of related tax,
for the first quarter of fiscal 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
OCTOBER 31, OCTOBER 25,
1998 1997
---- ----
<S> <C> <C>
Net income (loss) ............................ $ 2,531 $ (2,511)
Foreign currency translation adjustment ...... 2 70
======== ========
Comprehensive income (loss) .................. $ 2,533 $ (2,441)
</TABLE>
Foreign currency translation adjustment is the only component of
accumulated other comprehensive income at October 31, 1998 and October 25, 1997,
respectively.
VI. SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments and
Related Information." The Company is managed in two operating segments: the
United States; and Europe and the Far East. Operations in Europe and the Far
East were acquired in the first quarter of fiscal 1998. The first quarter of
fiscal 1998 includes a $4 million charge to write off the portion of the
purchase price for these operations allocated to in-process research and
development.
<TABLE>
<CAPTION>
QUARTER ENDED OCTOBER 31, 1998 QUARTER ENDED OCTOBER 25, 1997
------------------------------ ------------------------------
NET SALES INCOME BEFORE NET INCOME NET SALES LOSS BEFORE NET LOSS
(Dollars in thousands) TAXES INCOME TAXES
<S> <C> <C> <C> <C> <C> <C>
United States................. $ 24,321 $ 3,600 $ 2,218 $ 20,459 $ 3,313 $ 2,054
Europe, Far East.............. 5,877 497 313 1,218 (4,804) (4,565)
========= ======== ========= ========= ========= ========
Total $ 30,198 $ 4,097 $ 2,531 $ 21,677 ($ 1,491) $(2,511)
</TABLE>
Operations listed in Europe and the Far East are comprised of operations in
the United Kingdom, New Zealand and China.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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," as well as other portions of this Quarterly Report
on Form 10-Q, contain "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 concerning, among other things:
(i) the Company's expectations regarding product pricing and the impact of
product pricing on gross profit margins; and (ii) the Company's expectations
regarding the upcoming year 2000. These forward-looking statements are
identified by their use of such terms and phrases as "believes," "anticipates,"
"planned," "will" and "expects," are subject to risks and uncertainties and
represent
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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, without limitation: (i) risks of general
market conditions, including demand for the Company's products, product mix,
competition and the Company's historical dependence on relatively few customers;
(ii) risks related to the Company's historical dependence on relatively few
product lines (such as the Company's T1 product line, which faces competition
from suppliers of alternate methods of delivering repeatered T1 services); (iii)
the extent to which the Company's principal customers continue to exert pricing
pressures on the Company; (iv) risks inherent in the telecommunications
industry, including rapidly changing technology, evolving industry standards,
changes in customer requirements, frequent product introduction and changing
government regulation; and (v) the timing and occurrence (or non-occurrence) of
transactions and events which may be subject to circumstances beyond the
Company's control. A reader of this Quarterly Report should understand that it
is not possible to predict or identify all such risk factors. Consequently, the
reader should not consider such a list to be a complete statement of all
potential risks or uncertainties. The Company does not assume the obligation to
update any forward-looking statements. Results actually achieved may differ
materially from expected results included in these statements. See also "Factors
That May Affect Future Results" below.
THE TELTREND LIMITED ACQUISITION
On September 18, 1997 (the "Acquisition Date") the Company acquired all of
the outstanding shares of stock of Securicor 3net Limited of Basingstoke,
England (with operations in the United Kingdom, New Zealand and China) and its
U.S. affiliate Securicor 3net Inc. (together, "Teltrend Limited"). The
acquisition of Teltrend Limited was accounted for as a purchase. Accordingly,
the Company's results as described in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" include the results of
Teltrend Limited since the Acquisition Date. As used herein, the term "Company"
or "Teltrend" refers to Teltrend Inc. and its wholly-owned subsidiaries,
collectively, which include Teltrend Limited (and its wholly-owned subsidiaries)
from and after the Acquisition Date.
GENERAL
Teltrend designs, manufactures and markets a broad range of transmission
products, such as channel units, repeaters and termination units, used by
telephone companies ("Telcos") to provide voice and data service over the
telephone network. Historically, substantially all of Teltrend's products have
been sold directly to the Regional Bell Operating Companies and their local
affiliates (collectively, the "RBOCs") for use with the copper wireline in the
local telephone subscriber loop (the "Local Loop"). The Company's strong
reliance on the RBOCs continues, but the Company's purchase of Teltrend Limited
has expanded the Company's markets and product lines. With the addition of
Teltrend Limited, the Company is now a leading developer of Integrated Services
Digital Network ("ISDN") products for communications equipment and service
providers and also supplies local area network ("LAN") internetworking, ISDN
remote access and secure virtual private networking solutions for business
customers worldwide.
The Company's principal products are as follows: (i) High Capacity
communications products, which include T1 line and office repeaters and T1
network interface units, CellPak(TM) units for cellular and wireless base
station sites, and High Density Subscriber Line ("HSDL") systems, which help
Telcos reduce the number of costly digital cross connect system ports required
for frame relay services; (ii) Digital Loop Carrier and Voice Frequency products
("DLC/VF"), which includes a small DLC system, plug-in units for existing DLC
systems and traditional voice frequency products; (iii) ISDN/DDS products, which
include ISDN and Digital Data System ("DDS") line repeaters, ISDN and DDS D4
channel units, an ISDN mini-bank; and (iv) Circuit Switched products (network
interfacing and conversion products) and Packet Switched products (a line of
routers).
RESULTS OF OPERATIONS
NET SALES. Net sales for the first quarter of fiscal 1999 increased 39.3%,
or approximately $8.5 million, to approximately $30.2 million, from
approximately $21.7 million in the first quarter of fiscal 1998. The increase in
net sales was the result of increases in the unit volume sales of all product
categories. Unit volume sales of Circuit Switched products, High Capacity
products, Channelized products and Packet Switched products in the first
quarter of fiscal 1998 increased by $4.1 million, $2.2 million, $1.7 million and
$0.6 million, respectively, over the prior year quarter. In addition, the first
quarter of fiscal 1999 had 14 weeks compared with the first quarter of fiscal
1998 which had 13 weeks.
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The increase in sales of the Company's High Capacity products was caused
primarily by an increase in unit volume sales of the Company's T1 CPE products
and to a lesser extent by increases in sales of CellPak(TM), HDSL and
intelligent T1 repeater products. Strong demand was exhibited for both the T1
CPE Network Interface Units ("NIUs") and associated mountings during the
quarter. For T1 repeaters, a decrease in the sales of intelligent line
repeaters was more than offset by strong demand for office repeaters (which are
primarily deployed in conjunction with fiber-optic installations).
Sales of the Company's Channelized products (which include the Company's
ISDN/DDS and DLC/VF products) increased due primarily to an increase in sales of
DDS products and, to a lesser extent, to an increase in sales of ISDN and VF
products. These increases were partially offset by a decline in DLC product
sales. The DDS sales gains were primarily the result of shipments of a DDS NIU
module introduced in the second half of fiscal 1998.
The Company's Circuit Switched products are primarily telephone protocol
conversion products and the Company's Packet Switched products are primarily
router products. These products are currently sold through Teltrend Limited,
which has offices in the United Kingdom, New Zealand and China. The Company
acquired Teltrend Limited in September 1997. Accordingly, the increase in unit
volume sales of both product categories was due to the inclusion in the
Company's total operating results of five weeks of Teltrend Limited sales for
the first quarter fiscal 1998 results compared to 14 weeks of sales for the
first quarter of fiscal 1999.
GROSS PROFIT. Gross profit in the first quarter of fiscal 1999 increased 48.4%,
or approximately $4.5 million, to approximately $13.9 million, from
approximately $9.4 million for the first quarter of fiscal 1998. Gross profit
margin for the first quarter of fiscal 1999 increased to 46.1%, from 43.3% for
the first quarter of fiscal 1998. The increase in gross profit and gross profit
margin was primarily attributable to the inclusion of 14 weeks of Teltrend
Limited operating results in the Company's total operating results for the first
quarter fiscal 1999 compared to five weeks of Teltrend Limited operating results
for the first quarter of fiscal 1998. Teltrend Limited products, on average,
carry a higher gross profit margin than the Company's other products. To a
lesser extent, the increase in gross profit and gross profit margin was also due
to the Company's ability to spread fixed manufacturing and overhead costs over a
larger revenue base.
The Company has experienced increased pressure from certain customers to
reduce product prices. The Company believes that price concessions offered to
certain customers, along with the likelihood of the need to grant further price
concessions to customers during the remainder of fiscal 1999, will result in a
material reduction in the Company's gross profit margin for the remainder of
fiscal 1999 from the level achieved in the first quarter.
SALES AND MARKETING. Sales and marketing expenses in the first quarter of fiscal
1999 increased 53.8%, or approximately $1.3 million, to approximately $3.8
million, from approximately $2.5 million for the first quarter of fiscal 1998,
and, as a percentage of net sales, increased to 12.7% in the first quarter of
fiscal 1999, from 11.5% in the first quarter of fiscal 1998. These increases
were due primarily to the inclusion of 14 weeks of Teltrend Limited sales and
marketing expenses for the first quarter of fiscal 1999 compared with five weeks
of comparable expenses for the first quarter of fiscal 1998. Historically,
Teltrend Limited's sales and marketing expenses as a percentage of Teltrend
Limited's net sales have been higher than Teltrend Inc.'s sales and marketing
expenses as a percentage of Teltrend Inc.'s net sales. In addition, commissions
and professional service expenses were higher in the first quarter of fiscal
1999 for Teltrend Inc. than in the comparable period of fiscal 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses in the first quarter
of fiscal 1999 increased 35.3%, or approximately $1.1 million, to approximately
$4.1 million, from approximately $3.1 million in the first quarter of fiscal
1998. The increase was due primarily to the inclusion of 14 weeks of Teltrend
Limited research and development expenses for the first quarter of fiscal 1999
compared with five weeks of comparable expenses for the first quarter of fiscal
1998. In addition the Company experienced increases in salaries for newly hired
personnel and increased expenses associated with certain engineering testing
services. In the first quarter of fiscal 1998, the Company also recorded a
charge of $4.0 million, immediately after the acquisition of Teltrend Limited,
to write off the portion of the purchase price allocated to in-process research
and development. As a percentage of total net sales, research and development
expenses decreased to 13.7% in the first quarter of fiscal 1999, from 14.1% in
the first quarter of fiscal 1998 due to the Company's ability to spread these
expenses across a larger revenue base.
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<PAGE> 11
GENERAL AND ADMINISTRATIVE. General and administrative expenses in the first
quarter of fiscal 1999 increased 35.8%, or approximately $0.6 million, to
approximately $2.2 million, from approximately $1.6 million in the first quarter
of fiscal 1998. The increase was due primarily to the inclusion of 14 weeks of
Teltrend Limited general and administrative expenses for the first quarter
fiscal 1999 compared with five weeks of comparable expenses for the first
quarter of fiscal 1998. As a percentage of total net sales, general and
administrative expenses decreased to 7.4% in the first quarter of fiscal 1999,
from 7.6% in the first quarter of fiscal 1998 due to the Company's ability to
spread these expenses across a larger revenue base.
OTHER INCOME. Other income for the first quarter of fiscal 1999 was
approximately $0.4 million compared to approximately $0.3 million for the first
quarter of fiscal 1998. The interest income component of other income (primarily
derived from interest earned on cash equivalents and marketable securities)
declined primarily due to cash expended for the purchase of Teltrend Limited and
treasury shares. Another component of other income, exchange rate fluctuations,
contributed to income during the first quarter of fiscal 1999 but was an expense
item for the comparable period in fiscal 1998.
INCOME TAXES. A provision for income taxes of approximately $1.6 million was
recorded for the first quarter of fiscal 1999 compared to approximately $1.0
million for the first quarter of fiscal 1998. The provision for the first
quarter of fiscal 1998 recognized that a write-off of purchased in-process
research and development made during that quarter would, for the most part, not
be deductible in that fiscal year. The increase in the income tax provision is
principally a function of the change in the level of the Company's net income
before taxes.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1998, the Company had no long-term indebtedness and had
working capital of approximately $34.7 million, which included cash and cash
equivalents of approximately $16.8 million and marketable securities of
approximately $5.8 million. The decrease in working capital from approximately
$38.4 million at the end of fiscal 1998 was due primarily to the purchase of
approximately $6.2 million of treasury stock.
Cash used for capital expenditures was approximately $1.0 million for the
first quarter of fiscal 1999 compared to approximately $0.7 million for the
first quarter of fiscal 1998. Most of the capital expenditures for both years
were for the purchase of manufacturing test equipment and engineering equipment.
As of October 31, 1998, the Company had net trade accounts receivable of
approximately $11.2 million, compared to approximately $12.9 million as of the
end of fiscal 1998. Inventories as of the end of the first quarter of fiscal
1999 totaled approximately $12.5 million compared to $10.7 million at the end of
fiscal 1998. Inventory levels increased primarily a result of the anticipated
introduction of certain new products.
The Company maintains a credit facility (the "Bank Facility"), which
provides up to $15.0 million on an unsecured basis for working capital
financing. There are no amounts presently outstanding under the Bank Facility.
Borrowings under the Bank Facility will mature on July 31, 2001 and bear
interest at a floating rate based on LIBOR or the prime rate offered by the
lender from time to time. The terms of the Bank Facility prohibit the Company
from declaring and paying dividends in any fiscal year which exceed, in the
aggregate, 50% of the Company's net income for the immediately preceding fiscal
year.
On March 3, 1998, the Company's Board of Directors authorized the purchase
of up to $8.0 million of the Company's Common Stock. As of October 31, 1998, the
Company had purchased 533,000 shares of Common Stock at a cost of approximately
$7.9 million pursuant to this authorization.
On October 26, 1998, the Company's Board of Directors authorized the
purchase of up to an additional $8.0 million of Common Stock. Purchases may be
made from time to time in the open market, subject to the requirements of
applicable laws, and if made, will be financed with existing cash and cash
equivalents, marketable securities and cash from operations. As of December 8,
1998, the Company had not purchased any shares of Common Stock under this
authorization.
The Company expects that existing cash and cash equivalents, marketable
securities, and cash from operations, plus
-11-
<PAGE> 12
available borrowings under the Bank Facility, will be adequate to fund the
Company's working capital needs for the foreseeable future.
YEAR 2000 ISSUES
Many currently installed computer systems, software and date-sensitive
equipment at companies around the world are coded to record years in a two-digit
format. Without modification, these systems and software will be unable to
appropriately interpret or recognize dates beyond the calendar year 1999 (the
"Year 2000 issue"). The Year 2000 issue could result in system failures or
miscalculations causing disruptions in business operations worldwide (including,
without limitation, disruptions in order processing, invoicing, manufacturing
and similar functions).
The Company has reviewed its current product offerings and has determined
that all such products which are date sensitive are Year 2000 compliant.
The Company's ongoing project to address internal Year 2000 issues consists
essentially of three phases: assessment of the Company's systems and equipment
in order to determine which need to be updated or replaced and analysis of how
to accomplish this; remediation or replacement of the Company's non-compliant
systems and equipment; and validation testing. The Company's assessment of its
internal systems and equipment has included its information technology ("IT")
systems, as well as its non-IT systems and equipment (e.g., its facilities,
manufacturing and test equipment containing microprocessors or other similar
circuitry, etc.).
The Company has substantially completed the assessment and analysis of its
internal IT systems to determine the potential costs and scope of any Year 2000
issues. Based on this review, the Company has determined that certain of its IT
systems need to be upgraded or replaced to address Year 2000 issues. With
respect to the Company's U.S. operations, the Company believes that all
necessary upgrades of its IT systems have been completed or will be completed by
December 31, 1998. Such upgrades are generally covered by service contracts
previously entered into by the Company in the ordinary course of business and
thus have been or are expected to be accomplished without material cost to the
Company. The Company also believes that a portion of Teltrend Limited's IT
systems will need to be upgraded or replaced to address Year 2000 issues
(including Teltrend Limited's financial accounting system and general office
software). It is presently anticipated that these replacements and upgrades will
be completed by June 30, 1999 at a total estimated cost of $250,000 (of which
approximately $35,000 has already been incurred). Validation testing is being
conducted as systems are upgraded and replaced.
The Company has completed the majority of the assessment and analysis of
its internal non-IT systems and equipment to determine the potential costs and
scope of any Year 2000 issues. Based on this assessment and analysis to date,
the Company is not aware of any Year 2000 issues which are expected to have a
material adverse effect on the Company's non-IT systems and equipment. Because,
however, the Company is still in the process of analyzing whether any Year 2000
issues exist with respect to certain key manufacturing and test equipment, there
can be no assurance that the Company will not experience a material adverse
effect due to Year 2000 issues affecting this equipment. The Company anticipates
completing its assessment and analysis of this equipment by December 31, 1998.
Remediation and validation testing will be planned and scheduled as necessary
based on the outcome of this review.
In addition, the Company is in the process of making inquiries of third
parties with whom it has material business relationships (such as customers,
suppliers and financial institutions) to determine if they have any Year 2000
issues that will materially and adversely impact the Company. In the course of
these inquiries, which to date have focused on the Company's key U.S. customers
and suppliers, the Company has not been made aware of any material Year 2000
issues which would adversely affect the Company. The Company expects to complete
a survey of all such third parties by December 31, 1998.
Based upon the Company's review of its internal systems and equipment and
the current status of the Company's survey of third parties with whom it has
material business relationships, the Company has not identified any material
risks related to or, except as set forth above, costs to address Year 2000
issues. There can be no assurance, however, that Year 2000 issues will not have
a material adverse effect on the Company if the Company and/or those with whom
it conducts business are unsuccessful in identifying or implementing timely
solutions to any Year 2000 problems.
-12-
<PAGE> 13
The Company intends to continue the review, remediation and testing of its
Year 2000 status and, to the extent necessary, it will develop Year 2000
contingency plans for critical business processes.
FACTORS THAT MAY AFFECT FUTURE RESULTS
DEPENDENCE ON T1 PRODUCTS
The Company's T1 products, which include T1 line and office repeaters and
T1 network units, accounted for 48.7%, 55.2% and 53.9% of the Company's total
net sales in fiscal 1998, 1997 and 1996, respectively. The Company expects to
derive a large percentage of its net sales for the foreseeable future from the
sale of these 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 of other existing or future products, could
have a material adverse effect on the Company.
The Company is facing, and expects to continue to face, increasing
competition with respect to its repeatered T1 products from suppliers of systems
based on HDSL technology as an alternate method of delivering repeatered T1
services in the Local Loop. Because HDSL is easier to provide than traditional
T1 service, the Company expects that HDSL products will continue to adversely
affect the demand for its repeatered T1 products as the cost of HDSL systems
declines. If increasing competition or other factors cause the Company to reduce
selling prices for its repeatered T1 products (as has recently occurred due to
pricing pressure from certain of the Company's customers), there can be no
assurance that the Company will be able to increase unit sales volumes of such
products or reduce its costs of sales of such products so as to offset in full
or in part the reduced revenue and gross profit margin effects of such selling
price reductions. See "Reliance on Certain Customers."
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. Most of the Company's existing products are designed 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 the
installation of copper wireline with the installation of fiber optic, coaxial
cable, wireless and other technologies (each of which uses a significantly
different method of delivery). 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. See "Dependence on T1 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
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 has historically depended on the RBOCs for substantially all of
its net sales and, although the Company's customer base has become less
concentrated in the RBOCs as a result of the Teltrend Limited acquisition,
dependence on the RBOCs for the preponderance of the Company's net sales is
likely to continue for the foreseeable future. The Company has no supply
agreements with any of the RBOCs which establish minimum purchase commitments
and there can be no assurance that sales of the Company's products to the RBOCs
or to other customers will continue or that the Company's customer base will
become materially less concentrated. The RBOCs and most of the Company's other
customers are significantly larger than, and are able to exert a high degree of
influence over, the Company. For example, recent negotiations with the RBOCs
have resulted in the Company offering reduced prices for selected products. The
loss of one or more of the RBOCs as a customer, a further reduction in the
number of RBOCs as a result of mergers or consolidations, or a failure or delay
in the deployment of the Company's products by the RBOCs could materially and
adversely affect the Company.
-13-
<PAGE> 14
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. Increased competition could lead to reduced
gross profit margins and may necessitate increased spending by the Company on
product development and sales and marketing in order to remain competitive, or
may otherwise adversely affect the Company. The Company has generally been
required to reduce the selling prices of its products over time and will likely
be required to do so in the future. See "Reliance on Certain Customers." 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
corresponding reductions in product costs. Many of the Company's 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 ASICs, which are built to Company specifications, and its PDICs, 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 do so 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 components or products, or to develop alternative sources of such components
or alternative contract manufacturing relationships (in the case of Teltrend
Limited) 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 "Reliance on Certain Customers."
INVENTORY LEVELS AND NEED TO MAKE ADVANCE PURCHASE COMMITMENTS
The Company maintains inventory levels consistent with anticipated customer
demand. In addition, at the request of several of its customers, the Company has
entered into arrangements to maintain certain of its finished goods inventory at
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. Accordingly,
there is a 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.
GOVERNMENT REGULATION
The telecommunications industry is subject to regulation in the United
States, the United Kingdom and other countries. Federal and state regulatory
agencies regulate most of the Company's domestic customers. While such
regulation does not typically affect the Company directly, the effects of such
regulation on the Company's customers may adversely impact the Company's sales
and operating results. For example, the sale of the Company's products
-14-
<PAGE> 15
may be affected by the imposition upon certain of the Company's customers of
common carrier tariffs, the taxation of telecommunications services and
regulatory policies affecting terms on which common carriers conduct their
business. In addition, certain countries may have or may develop rules and
regulations that will adversely affect the Company's ability to effectively
compete in some markets. Thus, there is no assurance that markets that are now
open to the Company's products will not be limited by government regulation in
the future.
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. 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.
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, gain or loss of significant customers,
legislative or regulatory changes, changes in analysts' estimates, stock market
volatility and other events or factors may cause the market price of the
Company's Common Stock to fluctuate significantly.
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
There have been no material changes to the information regarding market
risk included in the Company's Annual Report on Form 10-K for the fiscal year
ended July 25, 1998.
-15-
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
- ---------------------------
The Company is from time to time involved in various legal proceedings
arising in the ordinary course of its business. In addition, the Company has
from time to time been notified by others who assert exclusive rights to certain
technology. The Company evaluates these claims on a case-by-case basis and
enters into licensing arrangements when it appears necessary or desirable to do
so. The Company believes the resolution of any pending matters will not
materially affect the Company's financial position or results of operations. See
"Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations - Factors That May Affect Future Results -- Proprietary Rights and
Risks of Third-Party Claims of Infringement."
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS
- ----------------------------------------------------
The terms of the Bank Facility prohibit the Company from declaring and
paying any fiscal year dividends which exceed, in the aggregate, 50% of the
Company's net income for the immediately preceding fiscal year. See "Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
- -----------------------------------------
Not Applicable.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
No matter was submitted in the first quarter of fiscal 1999 to a vote of
security holders, through solicitation of proxies or otherwise.
ITEM 5 -- OTHER INFORMATION
- ----------------------------
The Company's 1998 Annual Meeting of Stockholders was held on December 10,
1998 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 1998; 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 5,694,908 votes cast for
and 8,900 votes withheld; (b) Susan B. Major, by a vote of 5,695,173 votes cast
for and 8,635 votes withheld; (c) Frank T. Cary, by a vote of 5,691,173 votes
cast for and 12,635 votes withheld; (d) Harry Crutcher III, by a vote of
5,694,908 votes cast for and 8,935 votes withheld; (e) William R. Delk, by a
vote of 5,695,573 votes cast for and 8,235 votes withheld; (f) Donald R. Hollis,
by a vote of 5,695,473 votes cast for and 8,335 votes withheld; and (g) Bernard
F. Sergesketter, by a vote of 5,695,273 votes cast for and 8,535 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 1999 by a vote of
5,698,818 votes cast for ratification, 3,165 votes cast against ratification and
1,825 abstentions.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits:
The exhibits filed herewith are listed in the Exhibit Index which
follows the signature page of this Quarterly Report on Form 10-Q.
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
-16-
<PAGE> 17
SIGNATURE
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.
Date: December 15, 1998
TELTREND INC.
By /s/ Douglas P.Hoffmeyer
-------------------------------
Douglas P. Hoffmeyer
Chief Financial Officer
-17-
<PAGE> 18
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------------------------
2 None.
3.1 Restated Certificate of Incorporation of Registrant, as amended.(11)
3.2 Amended and Restated Bylaws of the Registrant.(2)
3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock, filed January 23,1997.(11)
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
(incorporated by reference to the Restated Certificate of
Incorporation included in Exhibit 3.1 herewith).
4.3 Articles I, II (Sections 1 and 3), IV (Sections 1 through 6), V
(Section 3) and VI of the Amended and Restated Bylaws of the
Registrant (incorporated by reference to the Amended and Restated
Bylaws included in Exhibit 3.2 herewith).
4.4 Credit Agreement between the Registrant and LaSalle National Bank,
dated June 14, 1995.(1)
4.5 Rights Agreement between the Registrant and LaSalle National Bank,
as Rights Agent, dated January 16, 1997.(6)
4.6 Form of Rights Certificate (incorporated by reference to Exhibit B
to the Rights Agreement included in Exhibit 4.5 herewith).
4.7 Amendment No. 1 to Rights Agreement, dated June 1, 1998, between
the Registrant and LaSalle National Bank, as rights agent.(10)
4.8 First Amendment to Credit Agreement, dated June 30, 1998, between
the Registrant and LaSalle National Bank.(12)
4.9 Second Amendment to Credit Agreement, dated as of December 1, 1998,
between the Registrant and LaSalle National Bank.
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.(7)
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.(7)
10.6 TI Investors Inc. Stock Option Plan.(2)
-18-
<PAGE> 19
10.7 Forms of Nonqualified Stock Option Agreement under the TI Investors
Inc. Stock Option Plan, dated August 1, 1994, between 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. 1997 Non-Employee Director Stock Option Plan.(5)
10.9 Amended and Restated Stock Option Agreements, dated May 13, 1994,
between the Registrant and Gilbert H. Hosie.(1)
10.10 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)
10.11 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)
10.12 Second Amendment to Lease, dated September, 1995, between Morgan
Guaranty Trust Company of New York and the Registrant.(4)
10.13 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.(7)
10.14 Teltrend 1996 Stock Option Plan.(9)
10.15 Share Purchase Agreement among Security Services PLC,
Securicor Communications Limited, 3 Net Holdings Limited,
Securicor 3 Net Limited and Teltrend Inc.(3)
10.16 Third Amendment to Lease between Morgan Guaranty Trust Company of
New York and the Registrant.(12)
10.17 Fourth Amendment to Lease, dated July 2, 1998, between Morgan
Guaranty Trust Company of New York and the Registrant.(12)
11 None.
18 None.
23 None
24 None.
27 Financial Data Schedule.
99 None.
- ---------------------------------
(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.
-19-
<PAGE> 20
(3) Incorporated by reference to the Registrant's Current Report on Form
8-K dated September 18, 1997 (Commission File No. 0-26114).
(4) Incorporated by reference to Registrant's 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 Definitive Proxy
Statement for the Annual Meeting of Stockholders held on December 11, 1997
(Commission File No. 0-26114).
(6) Incorporated by reference to the Registrant's Current Report on Form
8-K dated January 16, 1997 (Commission File No. 0-26114).
(7) 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).
(8) 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).
(9) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended April 26, 1997 (Commission File No.
0-26114).
(10) Incorporated by reference to the Registrant's Current Report on Form
8-K dated June 1, 1998 (Commission File No. 0-26114).
(11) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended July 26, 1997 (Commission File No. 0-26114).
(12) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended July 25, 1998 (Commission File No. 0-26114).
-20-
<PAGE> 1
EXHIBIT 4.9
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT dated as of December 1, 1998 (the
"Amendment"), is entered into between TELTREND INC., a Delaware corporation
("Borrower"), and LASALLE NATIONAL RANK, a national banking association
("Lender").
R E C I T A L S:
A. Borrower and Lender entered into that certain Credit Agreement, dated as
of June 14, 1995, as amended by a First Amendment to Credit Agreement, dated as
of June 30, 1998 (the "Credit Agreement").
B. Borrower has requested that Lender enter into this Amendment in order to
make certain amendments to the Credit Agreement as provided herein.
C. Capitalized terms used herein and not otherwise defined shall have the
meanings provided for in the Credit Agreement.
D. In consideration of the mutual agreements contained herein the parties
hereto agree as follows:
1. AMENDMENT
The Credit Agreement is amended as follows:
1.1 The Credit Agreement is hereby amended, effective as of the beginning
of Borrower's 1999 Fiscal Year, to restate Section 7.14 thereof in its entirety
to read as follows:
"7.14 RESTRICTED PAYMENTS. Borrower shall not make any Restricted
Payments nor shall it permit any Subsidiary to make a Restricted Payment;
provided however, that so long as no Default or Event of Default has
occurred (which has not been waived) or would occur as a result of the
payment thereof, (i) Borrower may in any Fiscal Year declare and pay
dividends on its Stock in an aggregate amount not to exceed 50% of
Borrower's Consolidated Net Income for the immediately preceding Fiscal
Year, and (ii) Borrower may purchase shares of its common stock beginning
with the 1999 Fiscal Year and thereafter provided that the aggregate
consideration paid for such purchases during such period does not exceed
$16,000,000."
2. MISCELLANEOUS
2.1 LIMITED NATURE OF AMENDMENTS. The parties hereto acknowledge and agree
that the terms and provisions of this Amendment amend, add to and constitute a
part of the Credit Agreement. Except as expressly modified and amended by the
terms of this Amendment, all of
<PAGE> 2
the other terms and conditions of the Credit Agreement and all documents
executed in connection therewith or referred to or incorporated therein remain
in full force and effect and are hereby ratified, reaffirmed, confirmed and
approved.
2.2 CONFLICT. If there is an express conflict between the terms of this
Amendment and the terms of the Credit Agreement, or any of the other agreements
or documents executed in connection therewith or referred to or incorporated
therein, the terms of this Amendment shall govern and control.
2.3 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original.
2.4 REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender as follows: (A) Borrower has all necessary power and authority to execute
and deliver this Amendment and perform its obligations hereunder; (B) this
Amendment and the Credit Agreement, as amended hereby, constitute the legal,
valid and binding obligations of Borrower and are enforceable against Borrower
in accordance with their terms; and (C) all representations and warranties of
Borrower contained in the Credit Agreement and all other agreements, instruments
and other writings relating thereto are true and complete as of the date hereof.
2.5 GOVERNING LAW. This Amendment shall be construed in accordance with and
governed by and the internal laws of the State of Illinois, without giving
effect to choice of law principles.
IN WITNESS WHEREOF, Borrower and Lender have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
TELTREND INC.
By: /s/ Douglas P. Hoffmeyer
-----------------------------
Name: Douglas P. Hoffmeyer
----------------------------
Title: S.V.P. Finance
---------------------------
LASALLE NATIONAL BANK
By: /s/ Jason Williams
------------------------------
Name: JASON WILLIAMS
----------------------------
Title: COMMERCIAL BANKING OFFICER
---------------------------
2
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0
0
<COMMON> 65
<OTHER-SE> 49,620
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<SALES> 30,198
<TOTAL-REVENUES> 30,198
<CGS> 16,271
<TOTAL-COSTS> 16,271
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<INCOME-TAX> 1,566
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<CHANGES> 0
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<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
