<PAGE> 1
===============================================================================
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 April 25, 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 MARCH 5, 1998, THERE WERE 6,440,921 shares of the Registrant's
Common Stock, $.01 par value per share (the "Common Stock"), outstanding.
===============================================================================
<PAGE> 2
TELTREND INC.
-------------
INDEX TO FORM 10-Q
------------------
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
<S> <C>
Item 1 -- Consolidated Financial Statements:
Consolidated Statements of Operations for the quarters
and the nine month periods ended April 25, 1998 and
April 26, 1997 ............................................ 3
Consolidated Balance Sheets as of April 25, 1998 and
July 26, 1997 ............................................. 4
Consolidated Statements of Cash Flows for the nine month
periods ended April 25, 1998 and April 26, 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 . 16
PART II. OTHER INFORMATION
- ---------------------------
Item 1 -- Legal Proceedings ......................................... 16
Item 2 -- Changes in Securities ..................................... 16
Item 6 -- Exhibits and Reports on Form 8-K .......................... 17
SIGNATURE ............................................................ 18
- ---------
EXHIBIT INDEX ........................................................ 19
OMITTED FINANCIAL STATEMENTS
- ----------------------------
None
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
TELTREND INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
--------------------- -------------------------
APRIL 25, APRIL 26, APRIL 25, APRIL 26,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.......................... $ 25,271 $ 21,303 $ 69,765 $ 62,718
Cost of sales...................... 13,411 11,919 38,150 34,784
---------- ---------- ---------- ----------
Gross profit....................... 11,860 9,384 31,615 27,934
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing................ 3,461 1,893 9,242 5,552
Research and development........... 3,680 2,535 10,419 7,252
General and administrative......... 1,960 1,320 5,397 3,490
Purchased in-process research &
development........................ -- -- 3,995 --
---------- ---------- ---------- ----------
9,101 5,748 29,053 16,294
---------- ---------- ---------- ----------
Income from operations............. 2,759 3,636 2,562 11,640
---------- ---------- ---------- ----------
Other income (expense):
Interest income.................... 312 376 1,009 1,040
Other-net.......................... (137) (15) (627) (29)
---------- ---------- ---------- ----------
175 361 382 1,011
---------- ---------- ---------- ----------
Income before income taxes......... 2,934 3,997 2,944 12,651
Provision for income taxes......... 1,197 1,559 2,856 4,987
---------- ---------- ---------- ----------
Net income......................... $ 1,737 $ 2,438 $ 88 $ 7,664
========== ========== ========== ==========
Net income per share of
common stock....................... $ 0.27 $ 0.38 $ 0.01 $ 1.19
========== ========== ========== ==========
Average common shares outstanding 6,445,226 6,432,237 6,439,862 6,428,274
========== ========== ========== ==========
Net income per share of
common stock--assuming dilution.... $ 0.27 $ 0.37 $ 0.01 $ 1.15
========== ========== ========== ==========
Average common shares outstanding-
assuming dilution.................. 6,503,536 6,559,696 6,499,763 6,673,663
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
TELTREND INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
APRIL 25, JULY 26,
1998 1997
--------- ---------
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................... $ 21,804 $ 11,837
Marketable securities........................ 4,012 20,930
Trade accounts receivable, net of allowance.. 12,265 7,834
Inventories.................................. 10,832 11,048
Deferred income taxes........................ 2,008 1,871
Prepaid expenses and other current assets.... 3,129 964
--------- ---------
54,050 54,484
Land and building.............................. 2,868 1,949
Machinery and equipment........................ 17,532 14,528
Leasehold improvements......................... 1,304 935
Accumulated depreciation....................... (11,425) (9,372)
--------- ---------
10,279 8,040
Deferred income taxes.......................... 44 135
Intangible assets, net......................... 5,572 --
Other assets, net.............................. 179 173
--------- ---------
$ 70,124 $ 62,832
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable............................. $ 5,487 $ 3,443
Accrued expenses............................. 10,049 6,904
Income taxes payable......................... 977 49
--------- ---------
16,513 10,396
Deferred income taxes.......................... 527 ----
Stockholders' Equity:
Common Stock, $0.01 par value, 15,000,000
shares authorized and 6,452,046 and
6,436,321 issued and outstanding,
respectively................................. 64 64
Treasury stock, 10,000 shares................ (147) ---
Additional paid-in capital................... 99,521 99,328
Accumulated deficit.......................... (46,868) (46,956)
Foreign currency translation adjustment........ 514 --
--------- ---------
53,084 52,436
--------- ---------
$ 70,124 $ 62,832
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
TELTREND INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
----------------------------
APRIL 25, April 26,
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income for period.......................... $ 88 $ 7,664
Adjustments to reconcile net income to net cash
provided by operating activities:
Purchased in-process research
and development............................ 3,995 --
Depreciation and amortization................ 2,436 1,508
Loss (gain) on sale of equipment............. 9 (11)
Deferred income taxes........................ 481 286
Tax benefit from exercise of common
stock options.............................. 116 92
Changes in certain assets and liabilities:
Accounts receivable and prepaid expenses... (1,779) 3,790
Inventories................................ 2,472 (607)
Income taxes payable....................... 928 856
Accounts payable and accrued expenses...... 1,627 (2,581)
Other assets and liabilities............... (151) (130)
--------- ---------
Net cash provided by operating activities...... 10,222 10,867
FINANCING ACTIVITIES:
Proceeds from exercise of common stock options. 77 18
Purchase of treasury stock..................... (147) --
--------- ---------
Net cash (used in) provided by
financing activities......................... (70) 18
INVESTING ACTIVITIES:
Capital expenditures........................... (2,819) (3,712)
Acquisition of business net of cash acquired... (14,394) --
Purchase of marketable securities.............. -- (18,969)
Proceeds from sale of marketable securities.... 16,919 --
Proceeds from sale of equipment................ 109 19
Other investing activities..................... (3) (80)
--------- ---------
Net cash used for investing activities......... (188) (22,742)
Effect of exchange rate changes on cash........ 3 --
Net increase (decrease) in cash................ 9,967 (11,857)
Cash and cash equivalents, beginning of period. 11,837 22,889
--------- ---------
Cash and cash equivalents, end of period....... $ 21,804 $ 11,032
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
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 26, 1997. 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 and nine months ended April 25, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending July 25, 1998. 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 1997" refers to the
fiscal year ended July 26, 1997 and "Fiscal 1998" refers to the fiscal year
ending July 25, 1998).
Acquisition of Limited
On September 18, 1997 (the "Acquisition Date"), Teltrend purchased the
outstanding shares of Securicor 3net Limited of Basingstoke, England and its
U.S. affiliate Securicor 3net Inc. (together "Limited") for total acquisition
costs of approximately $14.5 million. Limited is a telecommunication equipment
and software company based in the United Kingdom with operations in New
Zealand, China and the United States having annualized revenues in excess of
$17 million. The transaction was accounted for as a purchase and therefore the
results of Limited since the Acquisition Date are included with the operations
of Teltrend. All references in this report to the "Company" refer to (i)
Teltrend, individually, for all periods or portions thereof ending on or before
the Acquisition Date, and (ii) Teltrend and Limited, collectively, from and
after the Acquisition Date.
II. MARKETABLE SECURITIES
At April 25, 1998 the Company had marketable securities of $4.0 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 April
25, 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>
APRIL 25, 1998 JULY 26, 1997
-------------- -------------
<S> <C> <C>
Raw materials..................... $ 5,476 $ 6,238
Work-in-process................... 1,295 1,651
Finished goods.................... 4,061 3,159
------- -------
$10,832 $11,048
======= =======
</TABLE>
6
<PAGE> 7
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 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
per share (in thousands of dollars, except per share data).
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
--------------------- -------------------------
APRIL 25, APRIL 25, APRIL 26, APRIL 26,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Numerator:
Net income.............. $ 1,737 $ 2,438 $ 88 $ 7,664
========== ========== ========== ==========
Denominator:
Weighted average
shares outstanding.... 6,445,226 6,432,237 6,439,862 6,428,274
Effect of dilutive
stock options......... 58,310 127,459 59,901 245,389
---------- ---------- ---------- ----------
Weighted average
shares outstanding -
assuming dilution..... 6,503,536 6,559,696 6,499,763 6,673,663
========== ========== ========== ==========
Net income per share.... $ 0.27 $ 0.38 $ 0.01 $ 1.19
========== ========== ========== ==========
Net income per share -
assuming dilution..... $ 0.27 $ 0.37 $ 0.01 $ 1.15
========== ========== ========== ==========
</TABLE>
V. PRO-FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information for the Company
for the nine months ended April 25, 1998 and April 26, 1997 gives effect to the
Limited acquisition as if it occurred on July 27, 1997 and July 28, 1996,
respectively. The following unaudited pro forma financial information for the
quarter ended April 26, 1997 gives effect to the Limited acquisition as if it
occurred on July 28,1996. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the acquisition occurred on
the dates indicated, or which may result in the future. The pro forma results
(in thousands, except per share data):
<TABLE>
<CAPTION>
NINE MONTHS ENDED QUARTER ENDED
-------------------- -------------
APRIL 25, APRIL 26, APRIL 26,
1998 1997 1997
--------- --------- -------------
<S> <C> <C> <C>
Net sales............................... $ 70,977 $ 76,661 $ 28,489
Net income (loss)....................... ($6,603) ($1,376) $ 498
Net income (loss) per share
of common stock....................... ($1.03) ($0.21) $ 0.08
Net income (loss) per share of
common stock-assuming dilution........ ($1.03) ($0.21) $ 0.08
</TABLE>
7
<PAGE> 8
These unaudited pro forma results include certain adjustments, principally
the write-off of approximately $4 million of purchased in-process research and
development costs.
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 the development and sales of certain
new and established products. These forward-looking statements are identified
by their use of such terms and phrases as "believes" and "expects" and 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.
THE LIMITED ACQUISITION
This Quarterly Report on Form 10-Q for the quarter ended April 25, 1998
represents the third quarterly report of Teltrend Inc. ("Teltrend") following
its acquisition of all of the outstanding shares of stock of Securicor 3net
Limited of Basingstoke, England and its U.S. affiliate Securicor 3net Inc.
(together, "Limited"). The acquisition of Limited was consummated on September
18, 1997 (the "Acquisition Date") and 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 Limited since the Acquisition Date. As used herein, the
term "Company" refers to (i) Teltrend, individually, for all periods (and
portions thereof) ending on or before the Acquisition Date, and (ii) Teltrend
and Limited, collectively, 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 Limited, with
operations in the United Kingdom, New Zealand, China and the United States, has
expanded the Company's markets and product lines. With the addition of
Limited, the Company is now a leading developer of ISDN products for
communications equipment and service providers and also supplies LAN
Internetworking, ISDN Remote Access and secure Virtual Private Networking
solutions for business customers worldwide.
The Company's principal products are divided into three product line
categories as follows: (i) Digital Loop Carrier and Voice Frequency products
("DLC/VF"), which include small DLC systems and plug-in units for existing DLC
systems, CYBERBLOCK(R) (which is designed to solve various modem and voice
problems on long metallic loops), and traditional voice frequency products; (ii)
High Capacity Communications products ("T1/HDSL"), which include T1 line and
office repeaters and T1 network interface units, CELLPAKTM units for cellular
and wireless base station sites, and High Density Subscriber Line ("HDSL")
systems, which help Telcos reduce the number of costly digital cross connect
8
<PAGE> 9
system ports required for frame relay services; and (iii) ISDN/DDS products,
which include Integrated Services Digital Network ("ISDN") and Digital Data
System ("DDS") line repeaters, ISDN and DDS D4 channel units, an ISDN mini-bank,
and protocol conversion products and routing products, which provide connections
between LANs and WANs.
RESULTS OF OPERATIONS
NET SALES. Net sales for the third quarter of Fiscal 1998 increased
18.6%, or approximately $4.0 million, to approximately $25.3 million, from
approximately $21.3 million in the third quarter of Fiscal 1997. For the first
nine months of Fiscal 1998, net sales totaled approximately $69.8 million
compared to approximately $62.7 million for the first nine months of Fiscal
1997, representing an increase of approximately $7.1 million or 11.2%. The
increase in net sales for the third quarter of Fiscal 1998 over the third
quarter of Fiscal 1997 was primarily due to an increase of approximately $3.9
million and $1.7 million in unit volume sales of the Company's ISDN/DDS and
T1/HDSL products, respectively, which was partially offset by a decrease of
$1.6 million in unit volume sales of the Company's DLC/VF products. The
increase in net sales for the first nine months of Fiscal 1998 over the same
period in 1997 was due primarily to an increase in the unit volume sales of the
Company's ISDN/DDS and T1/HDSL products of approximately $9.7 million and $1.6
million, respectively, which was partially offset by a decrease in the unit
volume sales of DLC/VF products of $4.3 million.
The decrease in the unit volume sales of DLC/VF products for each
comparative period was primarily the result of a marked decrease of sales in
older technology DLC products together with declining sales of VF products.
The downward trend in VF sales is the result of an ongoing decline in demand
for analog services.
The Company has recently been experiencing increasing price pressure
across its product lines and believes it is likely that the average selling
price of its products will decline more rapidly in the fourth quarter of Fiscal
1998 and in Fiscal year 1999 than in the comparable prior-year periods. This
reduction in the average selling price could have an adverse effect on the
Company's net sales and gross profit. The Company will continue to attempt to
offset the effect of these price reductions, as it has successfully done in the
past, through cost savings initiatives. There can be no assurance, however,
that the Company will be able to offset all of the effect of such price
reductions.
The increase in unit volume sales of the Company's T1/HDSL products for
each comparative period was the result of an increase in the unit volume sales
of T1 repeater, CELLPAK and broadband products partially offset by a decline in
unit volume sales of the Company's T1 CPE products. The Company experienced
increased demand in both periods for repeaters and, in particular, intelligent
high density repeaters ("IHR's") due to their deployment in conjunction with an
expanding number of fiber optic installations. Increases in sales of both
CELLPAK and broadband products were the result of an increase in the number of
customers that have approved these products for use.
The increase in unit volume sales of the Company's ISDN/DDS products for
each comparative period was due primarily to the acquisition of Limited (which
had net sales of approximately $9.3 million from the Acquisition Date through
the third quarter of Fiscal 1998 and approximately $3.4 million in the third
quarter of Fiscal 1998), and to a lesser extent due to an increase in unit
volume sales of Teltrend's other ISDN products. The Company believes that this
is a result of an increase in demand for ISDN services.
GROSS PROFIT. Gross profit in the third quarter of Fiscal 1998 increased
26.4% or approximately $2.5 million, to approximately $11.9 million from
approximately $9.4 million for the third quarter of Fiscal 1997. For the first
nine months of Fiscal 1998, gross profit totaled approximately $31.6 million
compared to approximately $27.9 million for the first nine months of Fiscal
1997, representing an increase of approximately $3.7 million, or 13.2%. Gross
profit margins for the third quarter and the first nine months of Fiscal 1998
were 46.9% and 45.3%, respectively, compared to 45.3% and 44.5% respectively,
for the corresponding Fiscal 1997 periods. The increase in gross profit for
each
9
<PAGE> 10
comparative period was primarily attributable to the inclusion of
Limited's operating results in both periods in Fiscal 1998. The increase in
gross profit margin for each comparative period was also primarily attributable
to the inclusion of Limited's operating results because, on average, Limited
products carry a higher gross profit margin than the Company's other products.
The increase in gross profit margin in the third quarter was also due, to a
lesser extent, to the Company's ability to spread fixed manufacturing and
overhead costs over a larger revenue base.
SALES AND MARKETING. Sales and marketing expenses in the third quarter of
Fiscal 1998 increased 82.8%, or approximately $1.6 million, to approximately
$3.5 million from approximately $1.9 million for the third quarter of Fiscal
1997. For the first nine months of Fiscal 1998, sales and marketing expenses
totaled approximately $9.2 million, compared to approximately $5.6 million for
the first nine months of Fiscal 1997, representing an increase of approximately
$3.6 million or 66.5%. As a percentage of net sales, sales and marketing
expenses increased to 13.7% for the third quarter of Fiscal 1998 from 8.9% for
the third quarter of Fiscal 1997, and for the first nine months of Fiscal 1998
increased to 13.3% from 8.9% for the first nine months of Fiscal 1997. The
increase for each comparative period was primarily due to the inclusion of
Limited's sales and marketing expense with the Company's results of operations
since the Acquisition Date. Historically, Limited's sales and marketing
expenses as a percentage of Limited's net sales have been higher than
Teltrend's sales and marketing expenses as a percentage of Teltrend's net
sales.
RESEARCH AND DEVELOPMENT. Research and development expenses for the third
quarter of Fiscal 1998 increased 45.2%, or approximately $1.2 million, to
approximately $3.7 million from approximately $2.5 million for the third
quarter of Fiscal 1997. For the first nine months of Fiscal 1998, research and
development expenses totaled approximately $10.4 million, compared to
approximately $7.3 million for the first nine months of Fiscal 1997,
representing an increase of approximately $3.2 million, or 43.7%. In addition
to this general increase in research and development expenses for the nine
month period, the Company wrote-off approximately $4.0 million of in-process
research and development costs as a result of the acquisition of Limited in the
first quarter of Fiscal 1998. As a percentage of net sales, research and
development expenses increased to 14.6% for the third quarter of Fiscal 1998
from 11.9% for the third quarter of Fiscal 1997, and for the first nine months
of Fiscal 1998 increased to 14.9% from 11.6% for the first nine months of
Fiscal 1997. The increase for each comparative period was due primarily to the
inclusion of Limited's research and development expenses since the Acquisition
Date, increases in Teltrend's salaries for newly hired personnel and the
outsourcing of certain testing services.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
third quarter of Fiscal 1998 increased 48.5%, or approximately $0.6 million, to
approximately $2.0 million from approximately $1.3 million for the third
quarter of Fiscal 1997. For the first nine months of Fiscal 1998, general and
administrative expenses totaled approximately $5.4 million compared to
approximately $3.5 million for the first nine months of Fiscal 1997,
representing an increase of approximately $1.9 million, or 54.6%. As a
percentage of total net sales, general and administrative expenses increased to
7.8% for the third quarter of Fiscal 1998 from 6.2% for the third quarter of
Fiscal 1997, and for the first nine months of Fiscal 1998 increased to 7.7%
from 5.6% for the first nine months of Fiscal 1997. The dollar increase for
each comparative period was primarily attributable to general and
administrative expenses incurred by Limited, and, to a lesser extent, to an
increase in Teltrend's professional services.
OTHER INCOME. Other income (expense) for the third quarter and first nine
months of Fiscal 1998 were approximately $0.2 million and $0.4 million,
respectively, compared to $0.4 million and $1.0 million for the comparable
prior-year periods. Other income (primarily derived from interest earned on
cash equivalents and marketable securities) declined in both periods due to the
use of cash equivalents and marketable securities for the purchase of Limited.
In addition, the Company suffered currency translation losses during each of
the first three quarters of Fiscal 1998 and none in Fiscal 1997.
INCOME TAXES. A provision for income taxes of approximately $1.2 million
was recorded for the third quarter of Fiscal 1998 compared to approximately
$1.6 million for the comparable prior-year
10
<PAGE> 11
period. A provision for income taxes of $2.9 million was recorded for the first
nine months of Fiscal 1998 compared to $5.0 million for the comparable
prior-year period. Such provision for the first nine months of Fiscal 1998
recognizes that the write-off of purchased in-process research and development
is not deductible for tax purposes in the current year.
LIQUIDITY AND CAPITAL RESOURCES
At April 25, 1998, the Company had no long-term indebtedness and had
working capital of approximately $37.5 million, which included cash and cash
equivalents of approximately $21.8 million and marketable securities of
approximately $4.0 million. The decrease in working capital from approximately
$44.1 million at the end of Fiscal 1997 was due primarily to the acquisition of
Limited. The total acquisition cost for Limited was approximately $14.5
million and was funded with the Company's cash and cash equivalents on hand and
the proceeds from the sale of certain of the Company's investments in debt
securities.
Cash used for capital expenditures was approximately $2.8 million for the
first nine months of Fiscal 1998 compared to approximately $3.7 million for the
first nine months of Fiscal 1997. Most of the expenditures for both periods
were for the purchase of manufacturing test equipment and engineering
equipment, and also in Fiscal 1998 for the purchase of a research and
development facility in St. Charles, IL.
As of April 25, 1998, the Company had net trade accounts receivable of
approximately $12.3 million, compared to approximately $7.8 million at the end
of Fiscal 1997. This increase was due primarily to the inclusion of Limited's
accounts receivable in the Company's total.
For the first nine months of Fiscal 1998, inventories decreased by
approximately $0.2 million, from approximately $11.0 million at the end of
Fiscal 1997 to approximately $10.8 million at the end of the third quarter of
Fiscal 1998. The decrease in inventory was the net result of a successful
effort to reduce inventory, partially offset by the addition of approximately
$2.1 million of inventory acquired in conjunction with the Limited acquisition.
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. Currently, there are no amounts outstanding under
the Bank Facility. Based on the Company's accounts receivable and inventory
levels as of April 25, 1998, the Company estimates that approximately $14.5
million is available to it under the Bank Facility as of the date hereof. Any
borrowings under the Bank Facility would 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 dividends in any fiscal year which
exceed, in the aggregate, 50% of the Company's net income for the immediately
preceding fiscal year. The Company is currently engaged in discussions with
the lender under the Bank Facility for a replacement facility to become
available upon expiration of the Bank Facility. The Company expects to be able
to enter a new facility with this lender prior to June 30 on terms
substantially similar or more favorable to those of the current Bank Facility.
On March 3, 1998, the Company's Board of Directors authorized the purchase
of up to a maximum of $8.0 million worth of the Company's 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.
The Company expects that existing cash and cash equivalents, marketable
securities, 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.
11
<PAGE> 12
YEAR 2000 ISSUES.
The Company is reviewing its existing computer software programs and
operating systems to determine if it has software applications that contain
source codes that are unable to appropriately interpret the upcoming calendar
year 2000. Based on the review to date, to the extent that it will be required
to make any modifications or adjustments to address problems with software
applications, the Company does not believe that such modifications or
adjustments will affect the Company in any material respect.
NEW ACCOUNTING RULES.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SAS") No. 130, "Comprehensive
Income" (SAS No. 130). SAS No. 130 becomes effective for all fiscal years that
begin after December 15, 1997. The new standard requires reclassifications of
earlier financial statements for comparative purposes. SAS No. 130 requires
that amounts of certain items, including foreign currency translation
adjustments and unrealized gains and losses on certain securities, be included
in comprehensive income in the financial statements. SAS No. 130 does not
require a specific format for the financial statement in which comprehensive
income is reported, but does require that an amount representing total
comprehensive income be reported in that statement. Management has not yet
determined what effects, if any, SFAS No. 130 will have on the Company's
consolidated financial statements.
Also, in June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments for an Enterprise and Related Information" (SFAS No. 131). This
Statement will change the way public companies report information about
segments of their business in their annual financial statements and requires
them to report selected segment information in their quarterly reports issued
to shareholders. It also requires entity-wide disclosures about the products
and services an entity provides, the material countries in which it holds
assets and reports revenues, and its major customers. The Statement is also
effective for fiscal years beginning after December 15, 1997. The Company has
not yet determined the effect, if any, that SFAS No. 131 will have on its
consolidated financial statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
DEPENDENCE ON T1/HDSL PRODUCT LINE. The Company's T1 products, which include
T1 line and office repeaters and T1 network units, have accounted for a very
significant part of the Company's total net sales in each of the last three
fiscal years. 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 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 adversely affect the demand for its
repeatered T1 products as the cost of HDSL systems declines. If increasing
competition causes the Company to reduce selling prices for its repeatered 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
12
<PAGE> 13
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. 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 as a result of the Limited acquisition has become less
concentrated in the RBOCs, 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. See "--Factors That
May Affect Future Results -- Potential Competition from RBOCs and Lucent." 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. In addition, recent contract negotiations with
certain RBOCs have resulted in lower prices for selected products. Also, 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.
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 Lucent. See "--Factors that May Affect Future Results
- -- Potential Competition From RBOCs and Lucent." 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 or reduce its costs of
sales of 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
13
<PAGE> 14
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 or to continue
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 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 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. 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 LUCENT. 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 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 operations of Lucent
Technologies Inc. ("Lucent"), as a supplier to the Telcos, may have an adverse
effect on the Company's business because Lucent sells certain products that
directly compete with the Company's products.
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 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.
14
<PAGE> 15
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. See Part 2, Item 1 -- Legal Proceedings. 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.
The Company was a party to agreements with certain of the RBOCs pursuant
to which it licensed 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 licensing agreements
expired at varying times during Fiscal 1995, subject to a right of continuation
at an increased royalty rate with respect to specified Company products. The
Company has been evaluating its continuing obligations under each of the
remaining agreements and is discussing the possibility of new agreements with
the RBOCs. However, there can be no assurance that the Company's evaluation of
past agreements and/or subsequent negotiations 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 (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 such
consent after resolving certain issues with the Company with respect to the
license. After AT&T's spin-off of Lucent and the simultaneous transfer of
certain technology and patent rights to Lucent, the Company continued its
discussions with Lucent instead of AT&T. In the context of these discussions,
Lucent 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 has
reached a preliminary agreement with Lucent regarding the terms of a replacement
license agreement. If the Company and Lucent reach a final agreement and if the
terms of the final agreement coincide with those of the preliminary agreement,
such final agreement will not have a material adverse effect on the Company.
15
<PAGE> 16
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, legislative or regulatory changes,
general trends in the industry, market conditions, analysts' estimates, the
stock market and other events or factors may cause the market price of the
Company's Common Stock to fluctuate significantly. In addition, the stock
market has experienced extreme price and volume fluctuations which have
particularly affected 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 Company's Common Stock.
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The disclosures required pursuant to Item 305 of Regulation S-K are not yet
effective for the Company. Such disclosures will be included in the Company's
filings commencing with its Annual Report on Form 10-K for the Fiscal Year
ending July 25, 1998.
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. The Company successfully transferred the action to the United States
District Court for the Northern District of Illinois. 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
CYBERBLOCKTM model LCR4002. The case was recently dismissed with leave to
reinstate if the parties do not reach a settlement. The Company reached a
settlement with Wilcom effective April 1, 1998 and such settlement will not
have a material adverse effect on the financial condition or results of
operations of the Company.
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."
16
<PAGE> 17
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 Report on Form 10-Q.
(b) Reports on Form 8-K.
None.
17
<PAGE> 18
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: June 9, 1998 TELTREND INC.
By: /s/ Douglas P. Hoffmeyer
------------------------
Douglas P. Hoffmeyer
Vice President Finance,
Secretary, Treasurer
18
<PAGE> 19
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.(3)
3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock, filed April 23, 1997. (1)
4.1 Specimen form of Common Stock certificate.(3)
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.(2)
4.5 Rights Agreement between the Registrant and LaSalle National Bank,
as Rights Agent, dated April 16, 1997.(7)
4.6 Form of Rights Certificate (incorporated by reference to Exhibit B
to the Rights Agreement included in Exhibit 4.5 herewith).
10.1 Indemnification Agreement, dated June 8, 1995, between the
Registrant and Howard L. Kirby, Jr.(2)
10.2 Schedule of each of the directors and executive officers of the
Registrant with whom the Registrant has entered into an
Indemnification Agreement.(8)
10.3 Teltrend Inc. 1995 Stock Option Plan.(3)
10.4 Form of Nonqualified Stock Option Agreement under the Teltrend Inc.
1995 Stock Option Plan.(2)
10.5 Schedule of Nonqualified Stock Option Agreements which have been
entered into by directors or executive officers of the
Registrant. (8)
10.6 TI Investors Inc. Stock Option Plan.(3)
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.(2)
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C>
10.8 Teltrend Inc. 1997 Non-Employee Director Stock Option Plan.(6)
10.9 Share Purchase Agreement among Security Services PLC, Securicor
Communications Limited, 3 Net Holdings Limited, Securicor 3 Net
Limited and Teltrend Inc. (4)
10.10 Amended and Restated Stock Option Agreements, dated May 13, 1994,
between the Registrant and Gilbert H. Hosie.(2)
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.(2)
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.(3)
10.13 Second Amendment to Lease, dated September, 1995, between Morgan
Guaranty Trust Company of New York and the Registrant.(5)
10.14 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.(8)
10.15 Teltrend 1996 Stock Option Plan.(10)
11 None.
15 None.
18 None.
19 None.
22 None.
23 None.
24 None.
27 Financial Data Schedule.
27.1 Amended Financial Data Schedule.
99 None.
</TABLE>
_________________________________
(1) Incorporated by reference to the Registrant's Report on Form 10-K for the
Fiscal year ended July 26, 1997 (Commission File No. 0-26114).
(2) 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).
20
<PAGE> 21
(3) 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.
(4) Incorporated by reference to the Registrant's Current Report on Form
8-K dated September 18, 1997 (Commission File No. 0-26114).
(5) Incorporated by reference to Registrant's Report on Form 10-K for the
fiscal year ended July 29, 1995 (Commission File No. 0-26114).
(6) 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).
(7) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated April 16, 1997 (Commission File No. 0-26114).
(8) 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).
(9) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended April 27, 1996 (Commission File No.
0-26114).
(10) 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).
Document Number : 183214
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-25-1998
<PERIOD-START> JUL-27-1997
<PERIOD-END> APR-25-1998
<CASH> 21,804
<SECURITIES> 4,012
<RECEIVABLES> 12,553
<ALLOWANCES> 288
<INVENTORY> 10,832
<CURRENT-ASSETS> 54,050
<PP&E> 21,704
<DEPRECIATION> 11,425
<TOTAL-ASSETS> 70,124
<CURRENT-LIABILITIES> 16,513
<BONDS> 0
0
0
<COMMON> 64
<OTHER-SE> 53,020
<TOTAL-LIABILITY-AND-EQUITY> 70,124
<SALES> 69,765
<TOTAL-REVENUES> 69,765
<CGS> 38,150
<TOTAL-COSTS> 38,150
<OTHER-EXPENSES> 627
<LOSS-PROVISION> 32
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,944
<INCOME-TAX> 2,856
<INCOME-CONTINUING> 88
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<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> 1.19
<EPS-DILUTED> 1.15
</TABLE>
