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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
(AMENDMENT NO. 2)
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JULY 25, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ________
COMMISSION FILE NUMBER 0-26114
TELTREND INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-3476859
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
620 STETSON AVENUE
ST. CHARLES, ILLINOIS 60174
(Address of Principal Executive Offices)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 377-1700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE PER SHARE
PREFERRED SHARE PURCHASE RIGHTS
(Title of Class)
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 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. |X|
As of October 16, 1998, there were outstanding 5,948,990 shares of the
registrant's Common Stock, $.01 par value per share ("Common Stock"), and
no shares of the registrant's Class A Common Stock, $.01 par value per
share. On that date, the aggregate market value of voting and non-voting
common equity (based upon the last sale price of the registrant's Common
Stock on October 16, 1998) held by non-affiliates of the registrant was
$76,519,902 (5,775,087 shares at $13.25 per share).
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL
YEAR ENDED JULY 25, 1998 ARE INCORPORATED BY REFERENCE INTO PART II OF THIS
ANNUAL REPORT ON FORM 10-K.
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD DECEMBER 10, 1998 ARE TO BE INCORPORATED
BY REFERENCE INTO PART III OF THIS ANNUAL REPORT ON FORM 10-K.
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Teltrend Inc. (the "Registrant") hereby amends Items 7, 8 and 14 of its Annual
Report on Form 10-K for the fiscal year ended July 25, 1998, as previously
amended, as follows:
ITEM 7. 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 Annual
Report, contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 concerning, among other thing: (i) the
Company's prospects, developments and business strategies for its operations,
including the development and sale of certain new and established products; (ii)
the Company's expectations regarding product pricing and the impact of product
pricing on gross profit margins; and (iii) 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 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 Annual 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 Item 1.
Business -- "Factors That May Affect Future Results."
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 includes 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 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 ("T1/HDSL"), 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 ("HDSL") 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; and (iii)
ISDN/DDS products, which include ISDN and Digital Data System ("DDS") line
repeaters, ISDN and DDS D4 channel units, an ISDN mini-bank, circuit-switched
products (network interfacing and conversion products) and packet-switched
products (a line of routers).
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data as
a percentage of net sales for fiscal 1998, 1997 and 1996. The Company's fiscal
year ends on the last Saturday of July each year and references herein to fiscal
years are to the fiscal years ending in the calendar year indicated (e.g.,
fiscal 1998 refers to the fiscal year ended July 25, 1998). The Company's fiscal
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year typically consists of 52 weeks (four 13 week quarters). Each of fiscal
1998, 1997 and 1996 consisted of 52 weeks. Fiscal 1999 will consist of 53 weeks,
with the first quarter of fiscal 1999 consisting of 14 weeks rather than 13
weeks.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY
----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 53.9 55.7 54.3
----- ----- -----
Gross profits 46.1 44.3 45.7
----- ----- -----
Operating expenses:
Sales and marketing 13.6 9.0 8.5
Research and development 14.8 11.9 9.3
Purchased in-process research and development 4.1 - -
General and administrative 7.5 5.5 4.8
----- ----- -----
Total operating expenses 40.0 26.4 22.6
----- ----- -----
Income from operations 6.1 17.9 23.1
Other income 0.6 1.7 0.9
----- ----- -----
Income before income taxes 6.7 19.6 24.0
Income tax provision 4.4 7.7 9.8
----- ----- -----
Net income 2.3% 11.9% 14.2%
===== ===== =====
</TABLE>
FISCAL 1998 COMPARED TO FISCAL 1997
Net Sales. Net sales in fiscal 1998 increased 19.1%, or approximately
$15.5 million, to approximately $96.8 million, from approximately $81.2 million
in fiscal 1997. The increase in net sales was primarily due to an increase in
unit volume sales of the Company's ISDN/DDS and T1/HDSL products of
approximately $15.8 million and $4.2 million, respectively. The increase was
partially offset by a decrease of approximately $4.5 million in unit volume
sales of DLC/VF products.
The decrease in unit volume sales of DLC/VF products was the result of
generally declining sales of VF products throughout the market and a decrease in
sales of DLC products to one large customer. The decline in sales of VF products
was a continuation of a downward trend in VF sales resulting from a decline in
the demand for analog services as demand for digital transmission services
grows. The Company believes demand for digital transmission services will
continue to grow as the cost of providing these services continues to decrease.
Sales of VF products accounted for 11.0%, 15.2% and 21.0% of the Company's total
net sales for fiscal 1998, 1997 and 1996, respectively. Sales of DLC products
are expected to rebound somewhat in fiscal 1999.
The increase in unit volume sales of ISDN/DDS products was due
primarily to the acquisition of Teltrend Limited and, to a lesser extent, due to
an increase in unit volume sales of Teltrend's other ISDN/DDS products.
The increase in sales of the Company's T1/HDSL products was caused by
an increase in unit volume sales of the Company's intelligent T1 repeater, HDSL
and CellPak(TM) products, partially offset by an decrease in T1 CPE unit volume
sales. Unit volume sales of the Company's T1 intelligent repeater products
increased largely on the sales strength of the intelligent high density
repeaters ("IHRs"), which are deployed in conjunction with fiber optic
installations. Both HDSL and CellPak(TM) unit volume sales increased as a result
of qualifying these products for use at more customers during fiscal 1998. Sales
of the Company's T1 CPE products decreased primarily due to loss of market
share. Sales of T1 products accounted for 48.7%, 55.2% and 53.9% of the
Company's total net sales for fiscal 1998, 1997 and 1996, respectively.
The Company has recently been experiencing increasing price pressure
across its product lines and has offered price concessions to certain customers.
The Company therefore believes that the average selling price of its products
will suffer a greater decline in fiscal 1999 than in fiscal 1998. See " --
Fiscal 1998 Compared to Fiscal 1997 -- Gross Profit."
Gross Profit. Gross profit in fiscal 1998 increased 24.2%, or
approximately $8.7 million, to approximately $44.6 million from approximately
$35.9 million in fiscal 1997. Gross profit margin in fiscal 1998 increased to
46.1% from 44.3% in fiscal 1997. The increase in gross profit and gross profit
margin was primarily attributable to the inclusion of Teltrend Limited's
operating results in the Company's overall operating results from the
Acquisition Date through the end 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 recently experienced increased pressure from customers
to reduce product prices. While the Company does not expect this to have a
material effect on gross profit margin for the first quarter of fiscal 1999, the
Company believes that price concessions offered to certain customers, along with
the likelihood of the need to grant further price concessions to
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customers during fiscal 1999, should result in a material reduction in fiscal
1999 in the Company's gross profit margin from the 46.1% level achieved in
fiscal 1998. See " -- Fiscal 1998 Compared to Fiscal 1997 -- Net Sales."
Sales and Marketing. Sales and marketing expenses in fiscal 1998
increased 79.5%, or approximately $5.8 million, to approximately $13.2 million
from approximately $7.3 million in fiscal 1997, and, as a percentage of net
sales, increased to 13.6% in fiscal 1998 from 9.0% in fiscal 1997. These
increases were due primarily to the inclusion of Teltrend Limited's sales and
marketing expenses since the Acquisition Date.
Research and Development. Research and development expenses in fiscal
1998 increased 47.7%, or approximately $4.6 million, to approximately $14.3
million from approximately $9.7 million in fiscal 1997. As a percentage of total
net sales, research and development expenses increased to 14.8% in fiscal 1998
from 11.9% in fiscal 1997. These increases were due primarily to the inclusion
of Teltrend 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.
In addition to this general increase in research and development
expenses, the Company recorded a charge of approximately $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. The four
significant projects acquired by the Company were: (1) the PAC+DPM API; (2) the
SS7/Q931 For Lucent Definity: Phase 3; (3) the Interchange iQ5000 PRI/BRI; and
(4) the Interchange `97/98. These projects represent approximately 88% of the
acquired purchased research and development fair value. The following table
summarizes the nature of each of these significant purchased research and
development products, as well as their respective fair values at the date of
acquisition.
<TABLE>
<CAPTION>
FAIR VALUE
PROJECT NATURE OF PROJECT (000'S)
- ------- ----------------- -------
<S> <C> <C>
PAC+DMP The Application Programming Interface (API) for the NiQ router software $440
API that enables third parties to develop and integrate, within the NiQ
router, their own special or custom communications software.
SS7/Q931 Phase 3 added an updated processor and common board for all protocol $1,329
for Lucent Definity: applications to Phase 2. For SS7 application, it provides dual board
Phase 3 resilience, added maintenance features and features for enhanced call center
solutions.
Interchange The 5000 concentrates up to 16 Basic Rate ISDN lines and converts these into a $1,098
iQ5000 single Primary Rate ISDN line. Used by service providers and campus networks
PRI/BRI to deploy Basic Rate ISDN services remote from the ISDN switch.
Interchange A combination of channel grooming, address translation and traffic $643
`97/98 concentration features added to the Interchange software.
</TABLE>
As of the acquisition date, each of these significant research and
development projects were under development. The following table summarizes the
estimated time and costs to complete each of these significant acquired
in-process research and development projects as of their acquisition date.
<TABLE>
<CAPTION>
ORIGINAL ESTIMATED
ESTIMATED COMPLETION COSTS
PROJECT COMPLETION DATE (000'S)
------- --------------- ----------------
<S> <C> <C>
PAC+DMP API June 98 $133
SS7/Q931 for Lucent Definity: Phase 3 Feb 98 $175
Interchange iQ5000 PRI/BRI Dec 97 $312
Interchange '97/98 July 98 $393
</TABLE>
As of the end of fiscal 1998, all significant projects acquired in
connection with the Teltrend Limited acquisition had reached technological
feasibility. Because the products using these significant research and
development projects were in the initial stages of commercialization as of the
end of fiscal 1998, there were risks and uncertainties about the Company's
ability to successfully commercialize these products. These risks and
uncertainties related to, among other things: (i) the ability of these products
to gain market acceptance and (ii) changes in customer requirements and evolving
technologies that could impact the demand for these products.
General and Administrative. General and administrative expenses in
fiscal 1998 increased 64.1%, or approximately $2.8 million, to approximately
$7.3 million from approximately $4.5 million in fiscal 1997. As a percentage of
total net sales, general
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and administrative expenses increased to 7.5% in fiscal 1998 from 5.5% in fiscal
1997. These increases were primarily attributable to general and administrative
expenses incurred by Teltrend Limited, and, to a lesser extent, to an increase
in Teltrend's professional services expense. The Company expects that a
replacement patent license entered into by the Company in the fourth quarter of
fiscal 1998 (which applies various royalty rates to various of the Company's
products) will cause an incremental increase in the Company's general and
administrative expenses during fiscal 1999 of approximately $400,000.
Other Income. Other income in fiscal 1998 was approximately $0.6
million compared to approximately $1.4 million in fiscal 1997. The interest
income component of other income (primarily derived from interest earned on cash
equivalents and marketable securities) declined slightly due to the cash
expended for the purchase of Teltrend Limited. In addition, the Company suffered
currency translation losses during fiscal 1998 (reflected in the "Other - net"
component of "Other income") of approximately $0.7 million on market risk
sensitive instruments related to Teltrend Limited. While the Company believes
that it has taken steps to substantially reduce the likelihood that its results
of operations will continue to be impacted by currency exchange rate
fluctuations, there can be no assurance that currency exchange rate fluctuations
will not have an adverse effect on the Company's results of operations during
fiscal 1999. See "Quantitative and Qualitative Disclosures About Market Risk."
Income Taxes. A provision for income taxes of approximately $4.3
million was recorded in fiscal 1998 compared to approximately $6.2 million in
fiscal 1997. This decrease in income tax provision is principally a function of
the change in the level of the Company's net income before taxes in fiscal 1998
compared to fiscal 1997. The fiscal 1998 provision reflects the foreign losses
which are not currently deductible for tax purposes.
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales. Net sales in fiscal 1997 decreased 5.4%, or approximately
$4.7 million, to approximately $81.2 million, from approximately $85.9 million
in fiscal 1996. The decrease in net sales was primarily due to a decrease in
unit volume sales of the Company's VF/DLC, T1/Wireless and ISDN/DDS products of
approximately $3.7 million, $1.0 million and $0.2 million, respectively. The
decrease was partially offset by an increase of approximately $0.1 million in
unit volume sales of HDSL products.
The decrease in the unit volume sales of VF/DLC products was the result
of generally declining sales of VF products throughout the market, offset
somewhat by an increase in the sale of DLC products. The decline in sales of VF
products was a continuation of a downward trend in VF sales resulting from a
decline in the demand for analog services as demand for digital transmission
services grows.
The decrease in the sales of the Company's TI/Wireless products was
caused largely by a decrease in the intelligent T1 repeater unit volume sales.
However, the losses were offset by an increase in T1 CPE and CellPak(TM) unit
volume sales. Sales of the Company's T1 intelligent line repeaters were
negatively affected by the increased installation of HDSL equipment at certain
RBOCs. However, another intelligent T1 repeater product, the IHR, increased in
unit volume sales primarily due to the deployment of this product in conjunction
with fiber optic installations. Sales of the Company's T1 CPE products,
consisting of Network Interface Units ("NIUs") and associated mountings,
increased due primarily to a sales agreement signed in late fiscal 1996 and the
approval by certain RBOCs of new product iterations.
The small decrease in ISDN/DDS sales resulted primarily from a decrease
in the price paid by certain RBOCs for ISDN/DDS products offset by an increase
in the number of RBOCs that have qualified these products since fiscal 1996.
Gross Profit. Gross profit in fiscal 1997 decreased 8.5%, or
approximately $3.3 million, to approximately $35.9 million from approximately
$39.3 million in fiscal 1996. Gross profit margin in fiscal 1997 decreased to
44.3% from 45.7% in fiscal 1996. The decrease in gross profit and gross profit
margin was primarily attributable to decreased sales volume and the resulting
smaller revenue base over which the Company could spread its fixed manufacturing
costs. Other causes included increased pressure to reduce the Company's prices,
especially for ISDN products, and the Company's sale of several relatively new
products with lower gross profit margins.
Sales and Marketing. Sales and marketing expenses in fiscal 1997 and
fiscal 1996 were approximately $7.3 million. As a percentage of net sales, sales
and marketing expenses increased to 9.0% in fiscal 1997 from 8.5% in fiscal 1996
due to the lower sales in fiscal 1997.
Research and Development. Research and development expenses in fiscal
1997 increased 21.9%, or approximately $1.7 million, to approximately $9.7
million from approximately $7.9 million in fiscal 1996. As a percentage of total
net sales, research and development expenses increased to 11.9% in fiscal 1997
from 9.3% in fiscal 1996. The increase in dollar amount was due primarily to
increases in personnel associated expenses, such as recruiting and salaries for
newly hired personnel, related support equipment and the outsourcing of certain
development costs.
General and Administrative. General and administrative expenses in
fiscal 1997 increased 7.9%, or approximately $0.3 million, to approximately $4.5
million from approximately $4.2 million in fiscal 1996. As a percentage of total
net sales, general and administrative expenses increased to 5.5% in fiscal 1997
from 4.8% in fiscal 1996. The dollar increase was largely the net result of an
increase in salaries and professional services and a reduction in bad debt
expense and accrued bonuses.
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Other Income. Other income in fiscal 1997 was approximately $1.4
million compared to approximately $0.8 million in fiscal 1996. The increase was
due to interest earned on cash equivalents and marketable securities purchased
with the proceeds from the Company's sale in the second quarter of fiscal 1996
in a registered public offering of 575,000 shares of its Common Stock and cash
flow from operations. See Note 1 of Notes to Financial Statements.
Income Taxes. A provision for income taxes of approximately $6.2
million was recorded in fiscal 1997 compared to approximately $8.5 million in
fiscal 1996. This decrease in income tax provision is principally a function of
the change in the level of the Company's net income before taxes in fiscal 1997
compared to fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
At July 25, 1998, the Company had no long-term indebtedness and had
working capital of approximately $38.4 million, which included cash and cash
equivalents of approximately $23.0 million and marketable securities of
approximately $2.0 million. The decrease in working capital from approximately
$44.1 million at the end of fiscal 1997 was due primarily to the acquisition of
Teltrend Limited. The total acquisition cost of Teltrend Limited was
approximately $14.5 million and was funded with the Company's cash on hand.
Cash used for capital expenditures was approximately $4.0 million in
fiscal 1998 compared to approximately $4.2 million in fiscal 1997. Most of the
capital expenditures in fiscal 1998 were for the purchase of manufacturing test
equipment and engineering equipment, and for the purchase of a research and
development facility in St. Charles, Illinois.
As of July 25, 1998, the Company had net trade accounts receivable of
approximately $12.9 million, compared to approximately $7.8 million as of the
end of fiscal 1997. This increase was due to the increase in sales and the
inclusion of Teltrend Limited's accounts receivable in the Company's total. For
fiscal 1998, inventories decreased by approximately $0.3 million, from
approximately $11.0 million at the end of fiscal 1997 to approximately $10.7
million at the end of fiscal 1998. The decrease in inventory was the net result
of a successful effort to reduce inventory levels and the addition of inventory
related to the Company's purchase of Teltrend Limited.
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 worth of the Company's Common Stock. Purchases
may be made form 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 July 25,
1998, the Company had purchased 101,000 shares of Common Stock at a cost of
approximately $1.7 million. As of September 25, 1998, the Company had purchased
an additional 432,000 shares of Common Stock at a cost of approximately $6.2
million.
The Company expects that existing cash and cash equivalents, marketable
securities, and cash from operations, plus available borrowings under the Bank
Facility, will be adequate to fund the Company's working capital needs for the
foreseeable future.
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.).
As of the end of fiscal 1998, the Company had 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 had determined
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that certain of its IT systems needed to be upgraded or replaced to address Year
2000 issues. With respect to the Company's U.S. operations, the Company believed
that all necessary upgrades of its IT systems had been completed or would be
completed by December 31, 1998. Such upgrades were generally covered by service
contracts previously entered into by the Company in the ordinary course of
business and thus had been or were expected to be accomplished without material
cost to the Company. The Company also believed that a portion of Teltrend
Limited's IT systems needed to be upgraded or replaced to address Year 2000
issues (including Teltrend Limited's financial accounting system and general
office software). It was anticipated that those replacements and upgrades would
be completed by June 30, 1999 at a total estimated cost of $250,000 (of which
approximately $35,000 had already been incurred). Validation testing is
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. As of
the end of fiscal 1998, the Company anticipated completing its assessment and
analysis of this equipment by December 31, 1998. Remediation and validation
testing was to be planned and scheduled as necessary based on the outcome of
this review.
In addition, the Company was 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, as of the end of fiscal 1998, had focused on
the Company's key U.S. customers and suppliers, the Company had not been made
aware of any material Year 2000 issues which would adversely affect the Company.
The Company expected to complete the survey of all such third parties by
December 31, 1998.
Based upon the Company's review of its internal systems and equipment
and the status of the Company's survey of third parties with whom it has
material business relationships, the Company had 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.
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.
NEW ACCOUNTING RULES
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Comprehensive
Income" (SFAS No. 130). SFAS 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. SFAS 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. SFAS 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.
7
<PAGE> 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
Title Page No.
- ----- --------
<S> <C>
Report of Independent
Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Consolidated Balance Sheets
at July 25, 1998 and
July 26, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Consolidated Statements of
Income for the years ended
July 25, 1998, July 26, 1997, and
July 27, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Consolidated Statements of Stockholders
Equity for the years ended
July 25, 1998, July 26, 1997, and
July 27, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Consolidated Statements of Cash Flows for the
years ended July 25, 1998, July 26, 1997,
and July 27, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
8
<PAGE> 9
REPORT OF INDEPENDENT AUDITORS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF TELTREND INC.,
We have audited the accompanying consolidated balance sheets of
Teltrend Inc. as of July 25, 1998 and July 26, 1997, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years ended July 25, 1998, July 26, 1997, and July 27, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Teltrend Inc. as of July 25, 1998, and July 26, 1997, and the results of its
operations and its cash flows for each of the years ended July 25, 1998, July
26, 1997, and July 27, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
/s/ ERNST & YOUNG LLP
Chicago, Illinois
August 28, 1998
9
<PAGE> 10
CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 25, JULY 26,
1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $22,994 $11,837
Marketable securities 1,951 20,930
Trade accounts receivable, net of allowance for
doubtful accounts of $287 and $100 12,899 7,834
Inventories 10,656 11,048
Deferred income taxes 1,474 1,871
Prepaid expenses and other current assets 4,367 964
------- -------
54,341 54,484
Land and buildings 3,422 1,949
Machinery and equipment 18,076 14,528
Leasehold improvements 1,310 935
Accumulated depreciation (12,080) (9,372)
------- -------
10,728 8,040
Deferred income taxes 1,705 134
Intangible assets, less accumulated amortization of $380 4,830 -
Other assets, less accumulated amortization of $138 and $124 166 173
------- -------
$71,770 $62,831
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,194 $ 3,443
Accrued expenses 9,099 6,904
Income taxes payable 690 49
------- -------
15,983 10,396
Deferred income taxes 2,483 -
Commitments and contingencies - -
Stockholders' equity:
Common stock, $0.01 par value, 15,000,000 shares
authorized and 6,462,046 and 6,436,321 issued and
6,361,046 and 6,436,321 outstanding, respectively 64 64
Additional paid-in capital 99,520 99,328
Treasury stock (1,733) -
Accumulated deficit (44,718) (46,957)
Foreign currency translation adjustment 171 -
------- -------
53,304 52,435
------- -------
$71,770 $62,831
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE> 11
CONSOLIDATED STATEMENTS OF INCOME (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
----------
JULY 25, JULY 26, JULY 27,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $ 96,762 $81,243 $ 85,913
Cost of sales 52,125 45,296 46,644
-------- ------- --------
Gross profit 44,637 35,947 39,269
Operating expenses:
Sales and marketing 13,166 7,333 7,309
Research and development 14,307 9,686 7,944
Purchased in-process research and development 3,995 - -
General and administrative 7,253 4,495 4,164
-------- ------- --------
38,721 21,514 19,417
-------- ------- --------
Income from operations 5,916 14,433 19,852
Other income (expense):
Interest income 1,339 1,468 827
Other - net (737) (31) (62)
-------- ------- --------
602 1,437 765
-------- ------- --------
Income before income tax provision 6,518 15,870 20,617
Provision for income taxes 4,279 6,242 8,453
Net income $ 2,239 $ 9,628 $ 12,164
======== ======= ========
Net income per share of common stock $ 0.35 $ 1.50 $ 1.94
======== ======= ========
Average common shares outstanding 6,434 6,430 6,261
======== ======= ========
Net income per share of common stock -
assuming dilution $ 0.34 $ 1.45 $ 1.86
======== ======= ========
Average common shares outstanding -
assuming dilution 6,503 6,654 6,552
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE> 12
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON ADDITIONAL TREASURY ACCUMULATED CUMULATIVE TOTAL
STOCK PAID-IN STOCK DEFICIT TRANSLATION STOCKHOLDERS'
PAR $. 01 CAPITAL ADJUSTMENT EQUITY
--------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 29, 1995 $58 $84,108 $ - ($68,749) $ - $ 15,417
Public offering 6 14,750 - - - 14,756
Options exercised - 4 - - - 4
Tax benefit from exercise of
stock options - 304 - - - 304
Net income - - - 12,164 - 12,164
--- ------- --------- -------- ----- --------
Balance, July 27, 1996 64 99,166 - (56,585) - 42,645
Options exercised - 18 - - - 18
Tax benefit from exercise of
stock options - 144 - - - 144
Net income - - - 9,628 - 9,628
--- ------- --------- -------- ----- --------
Balance, July 26, 1997 64 99,328 - (46,957) - 52,435
Options exercised - 77 - - - 77
Tax benefit from exercise of
stock options - 115 - - - 115
Change in cumulative translation
adjustment - - - - 171 171
Purchase of 101,000 shares - - (1,733) - - (1,733)
Net income - - - 2,239 - 2,239
--- ------- --------- -------- ---- -------
Balance, July 25, 1998 $64 $99,520 ($ 1,733) ($44,718) $171 $53,304
--- ------- --------- -------- ---- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
----------
JULY 25, JULY 26, JULY 27,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income $ 2,239 $ 9,628 $12,164
Adjustments to reconcile net income to net cash
provided by operating activities:
Purchased in-process research and development 3,995 - -
Depreciation 2,899 2,028 1,742
Amortization 394 - -
Loss (gain) on sale of equipment 6 (14) 7
Deferred income taxes 1,309 989 6
Changes in certain assets and liabilities:
Accounts receivable (2,926) 4,107 (3,841)
Inventories 2,589 1,301 (4,420)
Prepaid expenses and other current assets (610) 170 (437)
Accounts payable 1,115 (2,574) 603
Income taxes payable 641 49 (721)
Accrued expenses 325 (1,718) 1,712
Other assets and liabilities 54 - -
======= ======= =======
Net cash provided by operating activities 12,030 13,966 6,815
FINANCING ACTIVITIES
Exercise of common stock options
(including tax benefit) 192 162 308
Proceeds from public stock offering - - 14,756
Payment of long-term debt - - (238)
Purchase of treasury stock (1,733) - -
======= ======= =======
Net cash provided by (used for) financing activities (1,541) 162 14,826
INVESTING ACTIVITIES
Capital expenditures (4,049) (4,192) (3,204)
Acquisition of business, net of cash acquired (14,394) - -
Purchase of marketable securities (1,951) (40,745) -
Proceeds from sale of marketable securities 20,930 19,815 -
Proceeds from sale of equipment 143 32 19
Other investing activities (7) (90) 17
======= ======= =======
Net cash provided (used for) investing activities 672 (25,180) (3,168)
Effect of exchange rate changes on cash (4) - -
======= ======= =======
Net increase (decrease) in cash and
cash equivalents 11,157 (11,052) 18,473
Cash and cash equivalents, beginning of period 11,837 22,889 4,416
======= ======= =======
Cash and cash equivalents, end of period $22,994 $11,837 $22,889
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
PUBLIC OFFERING
During the second quarter of fiscal 1996, the Company sold
575,000 shares of its Common Stock pursuant to a registered public
offering ("Public Offering") of shares of Common Stock. The net
proceeds of the Public Offering received by the Company totaled
approximately $14.7 million (after deducting underwriting discounts,
commissions and expenses).
ACQUISITION OF TELTREND LIMITED
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. 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. All references in these notes to "Teltrend" or
the "Company" refer to Teltrend Inc. and its wholly owned subsidiaries,
collectively, which includes Teltrend Limited (and its wholly owned
subsidiaries) from and after the Acquisition Date.
The following table summarizes, on an unaudited pro forma
basis, the combined results of operations as if the above described
acquisition had taken place on July 28, 1996. Purchased in-process
research and development assets of approximately $4 million were
written off in the fiscal 1998 Consolidated Statement of Income, and
this is reflected in the fiscal 1997 pro forma results presented below.
PRO FORMA INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------
JULY 25, JULY 26,
1998 1997
---- ----
<S> <C> <C>
Net sales $97,975 $ 99,444
Net income (loss) $ 1,797 $ (1,593)
Net income (loss) per share - assuming dilution $ 0.28 $ (0.24)
------- --------
</TABLE>
The value of in-process research and development purchased in
the Teltrend Limited acquisition was determined by estimating the
projected net cash flows relating to products under development and
discounting such cash flows to their net present values. The four
significant projects acquired by the Company were: (1) the PAC+DPM API;
(2) the SS7/Q931 for Lucent Definity: Phase 3; (3) the Interchange
iQ5000 PRI/BRI; and (4) the Interchange `97/98. These projects
represent approximately 88% of the acquired purchased research and
development fair value. The following table summarizes the nature of
each of these significant purchased research and development projects
as well as their respective fair values at the date of acquisition.
<TABLE>
<CAPTION>
FAIR VALUE
PROJECT NATURE OF PROJECT (000'S)
------- ----------------- -------
<S> <C> <C>
PAC+DMP The Application Programming Interface (API) for the NiQ router $ 440
API software that enables third parties to develop and integrate, within the
NiQ router, their own special or custom communications software.
SS7/Q931 Phase 3 added an updated processor and common board for all protocol $1,329
for Lucent applications to Phase 2. For SS7 application, it provides dual board
Definity: resilience, added maintenance features and features for enhanced call
Phase 3 center solutions.
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
Interchange The 5000 concentrates up to 16 Basic Rate ISDN lines and converts $1,098
iQ5000 these onto a single Primary Rate ISDN line. Used by service
PRI/BRI providers and campus networks to deploy Basic Rate ISDN services remote from the
ISDN switch.
Interchange A combination of channel grooming, address translation and traffic $643
'97/98 concentration features added to the Interchange software.
</TABLE>
The most significant and uncertain assumptions that affected
the Company's valuation of the purchased in-process research and
development projects include: (i) the period of time over which
economic benefits were expected to commence; (ii) their expected income
or cash flow generating ability; and (iii) the risk adjusted discount
rate. The cash flows from the significant research and development
projects were forecast to begin upon the completion of the development
process, peak two to three years thereafter, and be followed by a
steady decline. The following table summarizes, for each significant
in-process project acquired, the original estimated completion date,
the projected peak year of sales for the related product and the
projected average after-tax cash flow decline for the related product
after its sales peak.
<TABLE>
<CAPTION>
ORIGINAL
ESTIMATED AVERAGE ANNUAL
COMPLETION PEAK YEAR AFTER-TAX CASH FLOW
PROJECT DATE OF SALES DECLINE
------- ---------- --------- -------------------
<S> <C> <C> <C>
PAC+DMP API June 98 2000 -41%
SS7/Q931 for Lucent Definity: Phase 3 Feb 98 2001 -42%
Interchange iQ5000 PRI/BRI Dec 97 2002 -39%
Interchange `97/98 July 98 2000 -38%
</TABLE>
The assumed income generating ability of the various projects
was based on the sales and profit potential of the related product, as
well as the allocation of product income to the in-process technologies
relative to existing developed and post acquisition yet-to-be-defined
technologies expected to ultimately support the product upon project
completion. Sales estimates were based on targeted market share,
historical pricing trends and expected product life cycles. Projects
PAC+DPM API, SS7/Q931 For Lucent Definity: Phase 3, Interchange iQ5000
PRI/BRI and Interchange `97/98 were projected to have gross margins of
40%, 70%, 70% and 60%, respectively. This is compared to historical
gross margins for the fully developed products acquired in the Teltrend
limited purchase that were greater than 65% on average. Other operating
expenses, which included selling and marketing and general and
administrative expenses, were estimated at approximately 30% of sales.
In addition, the discount rate utilized for all acquired in-process
technologies was estimated at 30% in consideration of Teltrend
Limited's 15% estimated Weighted Average Cost of Capital ("WACC") and
the fact that the in-process technology had not yet reached
technological feasibility as of the date of valuation. In utilizing a
discount rate greater than Teltrend Limited's WACC, management
reflected the risk premium associated with achieving the timing and
estimated cash flows associated with these projects. Management is
responsible for the integrity of the financial information utilized in
the valuation of the acquired research and development.
2. DESCRIPTION OF BUSINESS
The Company designs, manufactures and markets a broad range of
products, such as channel units, repeaters and termination units, that
are used by telephone companies to provide voice and data services over
the existing telephone network, primarily in the Local Loop, as well as
a wide range of remote local area network internetworking, ISDN remote
access and virtual private networking products. The Company's fiscal
year-end is the last Saturday in July.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and
transactions of the Company and its wholly owned subsidiaries.
Intercompany amounts and transactions have been eliminated in
consolidation. Exchange rate fluctuations from translating the
financial statements of subsidiaries located outside the United States
into U.S. dollars are recorded in a separate component of stockholders'
equity. All other foreign exchange gains and losses (approximately a
$0.7 million loss in fiscal 1998) are included on the income statement
under the caption "Other-net."
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
15
<PAGE> 16
MARKETABLE SECURITIES
The Company invests in debt instruments with a maturity of greater than
three months and less than or equal to one year. Such securities are classified
as held-to-maturity, as the Company has the intent and the ability to hold these
securities until maturity. These securities are carried at amortized cost, which
approximates fair value.
INVENTORIES
Inventories are stated at the lower of cost, as determined by the first
in, first out method, or market value.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of goods and transfer of
title to customers.
INCOME TAXES
The Company accounts for income taxes using the liability method as
required by Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
PROPERTY, PLANT, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Land, buildings, equipment and leasehold improvements are recorded at
cost. The Company uses the straight-line method of computing provisions for
depreciation and amortization of property, equipment and leasehold improvements.
Service lives for principal assets are 35 to 39 years for buildings and three to
ten years for equipment and leasehold improvements.
INTANGIBLE ASSETS
At each balance sheet date, the Company evaluates for recognition of
potential impairment its recorded intangible assets against its projected
discounted cash flows. Intangible assets are principally being amortized over 15
years.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
EARNINGS PER SHARE
In January 1998, the Company adopted SFAS 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>
YEAR ENDED
----------
JULY 25, JULY 26, JULY 27,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income $ 2,239 $ 9,628 $ 12,164
---------- ---------- ----------
Denominator:
Weighted average shares outstanding 6,434,025 6,430,286 6,260,989
Effect of dilutive stock options 68,667 224,202 291,350
---------- ---------- ----------
Weighted average shares outstanding -
assuming dilution 6,502,692 6,654,488 6,552,339
---------- ---------- ----------
Net income per share $ 0.35 $ 1.50 $ 1.94
---------- ---------- ----------
Net income per share - assuming dilution $ 0.34 $ 1.45 $ 1.86
---------- ---------- ----------
</TABLE>
16
<PAGE> 17
STOCK OPTIONS
Stock options are accounted for in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB #25"). Under APB #25, no compensation expense is
recognized when the exercise price of the option equals the fair value
of the underlying stock on the grant date.
NEW PRONOUNCEMENTS
In 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which the Company will be required to adopt in
fiscal 1999. This statement requires the components of comprehensive
income to be disclosed in the financial statements. The Company does
not expect the adoption of the SFAS to have a material impact on the
Company's financial position, results of operations or cash flow.
RECLASSIFICATION
Certain amounts in the fiscal 1997 and 1996 consolidated
financial statements have been reclassified to conform to fiscal 1998
presentations.
4. RETIREMENT INVESTMENT PLAN
The Company has a defined-contribution plan covering full and
part-time personnel in the United States, who have a minimum of
one-half year of service and have attained the age of 21. Participants
may contribute between 1% and 15% of their annual compensation. From
January 1, 1994 until July 31, 1996, the Company contributed $0.40 for
each $1.00 contributed to the plan by the participant up to a maximum
of 5% of the participant's annual compensation. On August 1, 1996, the
Company began contributing a discretionary amount on its employees'
behalf based on a formula and the Company's financial results for the
year. Since the amount of the contribution depends upon the Company's
performance, the amount of contribution may vary from year to year. The
Company also has a defined-contribution plan covering all permanent
employees in the United Kingdom who have completed three months of
service and are under the age of 65. Participants contribute 4% of
their annual compensation and the Company contribution is determined on
a scale basis, which is dependent on the age of the participant.
Company contributions to its defined-contribution plans were $620,000,
$349,000 and $184,000 for the years ended July 25, 1998, July 26, 1997
and July 27, 1996, respectively.
5. INVENTORIES
Inventories at July 25, 1998 and July 26, 1997 were as follows:
(DOLLARS IN THOUSANDS) 1998 1997
---- ----
Raw materials $ 6,052 $ 6,238
Work-in-process 1,795 1,651
Finished goods 2,809 3,159
------- -------
$10,656 $11,048
------- -------
6. ACCRUED EXPENSES
Accrued expenses at July 25, 1998 and July 26, 1997 consisted of:
(DOLLARS IN THOUSANDS) 1998 1997
---- ----
Salaries, wages, and bonuses $3,258 $2,432
Warranty 1,404 1,426
Other 4,437 3,046
------ ------
$9,099 $6,904
------ ------
7. CREDIT FACILITY
In 1995, the Company entered into a credit facility (the "Bank
Facility") which provides, subject to certain restrictions, up to $15
million on an unsecured basis for working capital financing. As
amended, the Bank Facility will expire on July 31, 2001 and, as of July
25, 1998, no amounts were outstanding. Under the Bank Facility
agreement, dividends on the Company's Common Stock are restricted so as
not to exceed 50% of the Company's net income for the immediately
preceding fiscal year.
17
<PAGE> 18
8. COMMON STOCK OPTIONS
The Company has a stock option plan (the "Plan") which
provided for the grant of both incentive stock options and nonqualified
stock options to purchase shares of the class of Class A Common Stock
of the Company existing prior to the recapitalization of the Company in
fiscal 1995 (the "Old Class A Stock"). Unless the applicable agreement
expressly provided otherwise, each option granted under the Plan was
exercisable as to 20% of the shares covered thereby immediately upon
grant and as to an additional 20% of such shares on each of the next
four anniversaries of the date of grant.
In fiscal year 1994, the Board of Directors approved a
resolution to decrease the exercise price of all options outstanding to
the then-estimated value of $.1643 per share from $4.1077 per share.
All options outstanding under the Plan to purchase Old Class A Stock
were converted into options to purchase shares of Common Stock and the
Company's Board of Directors amended the Plan to provide that no
additional options could be granted thereunder in the future. As of
July 25, 1998, there were 58,796 options outstanding under the Plan.
During June 1995 the Company adopted the Teltrend Inc. 1995
Stock Option Plan (the "1995 Stock Option Plan") which provides for the
grant of both incentive stock options in accordance with Section 422A
of the Internal Revenue Code and nonqualified stock options. A maximum
of 440,000 shares of Common Stock may be issued in the aggregate to key
employees of the Company. The Compensation Committee of the Company's
Board of Directors, which administers the 1995 Stock Option Plan, will
determine when and to whom options will be granted. Unless the
applicable agreement expressly provides otherwise, options shall become
exercisable as to 25% of the shares covered thereby on the first
anniversary of the date of grant and as to an additional 25% of such
shares on each of the next three anniversaries of the date of grant. As
of July 25, 1998, there were 324,400 options outstanding under the 1995
Stock Option Plan, all with an exercise price of $16 per share.
During September 1996, the Company adopted the Teltrend Inc.
1996 Stock Option Plan (the "1996 Stock Option Plan") which provides
for the grant of both incentive stock options in accordance with
Section 422A of the Internal Revenue Code and nonqualified stock
options. A maximum of 700,000 shares of Common Stock may be issued in
the aggregate to key employees of the Company. The Compensation
Committee of the Company's Board of Directors, which administers the
1996 Stock Option Plan, will determine when and to whom options will be
granted. Unless the applicable agreement expressly provides otherwise,
options shall become exercisable as to 25% of the shares covered
thereby on the first anniversary of the date of grant and as to an
additional 25% of such shares on each of the next three anniversaries
of the date of grant. As of July 25, 1998, there were 474,600 options
outstanding under the 1996 Stock Option Plan with a range of exercise
prices of $13.25 to $21.13 per share.
During October 1997, the Company adopted the Teltrend Inc.
1997 Non-Employee Director Stock Option Plan (the "1997 Director Option
Plan"), which provides for the grant of nonqualified stock options. A
maximum of 250,000 shares of Common Stock may be issued to non-employee
directors of the Company. The 1997 Director Option Plan was approved by
the stockholders at the Annual Meeting held on December 11, 1997.
Each individual elected as a director of the Company at the
December 11, 1997 Annual Meeting who qualified as a non-employee
director was granted an option (an "Initial Option") to purchase up to
6,000 shares of Common Stock on the date of the Annual Meeting.
Thereafter, each non-employee director who has not previously been
granted an option under the 1997 Director Option Plan will receive an
Initial Option to purchase up to 6,000 shares of Common Stock on the
date of his or her initial election to the Board. Additionally, each
continuing non-employee director will be granted an additional option
(an "Annual Option") to purchase up to 1,500 shares of Common Stock on
each anniversary of the date his or her Initial Option was granted.
Initial Options will generally vest and become exercisable as to 25% of
the shares of Common Stock subject thereto on the first anniversary of
the date of grant and as to an additional 25% of such Common Stock
subject thereto on each of the next three anniversaries of the date of
grant. All Annual Options granted under the 1997 Director Option Plan
will generally vest and become exercisable on the first anniversary of
the date of grant thereof. As of July 25, 1998, 36,000 options were
outstanding under the 1997 Director Option Plan, all at an excercise
price of $17.63 per share.
18
<PAGE> 19
Transactions involving stock options granted under the
Plan, the 1995 Stock Option Plan, the 1996 Stock Option Plan and the
1997 Director Option Plan are summarized as follows:
NUMBER OF OPTIONS EXERCISE PRICE
----------------- --------------
Outstanding, July 29, 1995 450,548 $11.76
Granted 129,000 28.75 to 47.00
Exercised (23,794) .16
Canceled - -
-------- ---------------
Outstanding, July 27, 1996 555,754 $19.10
Granted 273,600 17.50 to 46.25
Exercised (13,725) .16 to 16.00
Canceled (162,108) .16 to 47.00
--------- ---------------
Outstanding, July 26, 1997 653,521 $17.59
Granted 417,500 13.25 to 21.125
Exercised (25,725) .16 to 16.00
Canceled (151,500) 16.00 to 20.00
--------- ---------------
Outstanding, July 25, 1998 893,796 $15.89
The weighted average remaining contractual life of the options
outstanding is 8.1 years. Of the 893,796 stock options outstanding at
July 25, 1998, 329,643 are currently exercisable with a weighted
average exercise price of $14.04.
Pro forma information regarding net income and earnings per
share is required by SFAS No. 123, "Accounting for Stock-Based
Compensation," and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that
Statement. The fair value of these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for fiscal 1998, fiscal 1997 and fiscal
1996: risk-free interest rate of 6.0 percent; dividend yields of 0.0
percent; volatility factors of the expected market price of the
Company's Common stock of 0.34, 0.25 and 0.25, respectively; and a
weighted-average expected life of the option of 6 years.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's stock options
have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its stock options.
The weighted-average fair value of options was $5.06 for
options granted in fiscal 1998, $7.04 for options granted in fiscal
1997, and $12.47 for options granted in fiscal 1996.
For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options' vesting
period. The Company's pro forma information follows (in thousands,
except for earnings per share information):
FISCAL YEAR ENDED JULY
----------------------
1998 1997 1996
---- ---- ----
Net earnings - as reported $2,239 $9,628 $12,164
Net earnings - pro forma $ 836 $8,723 $11,769
Earnings per share - as reported $ 0.34 $ 1.45 $ 1.86
Earnings per share - pro forma $ 0.13 $ 1.31 $ 1.80
------ ------ -------
The pro forma effect on net income for fiscal 1998, fiscal
1997 and fiscal 1996 is not representative of the pro forma effect on
net income in future years because it does not take into consideration
pro forma compensation expense related to grants made prior to fiscal
1996 and an increased vesting period for grants made in fiscal 1997 and
fiscal 1998.
9. LEASE COMMITMENTS
The Company has operating leases in effect for vehicles,
equipment and facilities. Lease expense for the fiscal years ended July
25, 1998, July 26, 1997, and July 27, 1996 totaled $1,072,000,
$540,000, and $697,000, respectively.
Future minimum annual rental payments required under the leases are as
follows:
19
<PAGE> 20
(DOLLARS IN THOUSANDS)
Fiscal Year 1999 $1,065
Fiscal Year 2000 896
Fiscal Year 2001 167
------
$2,128
------
10. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary
differences between the amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred taxes are as follows:
(DOLLARS IN THOUSANDS) JULY 25, JULY 26,
1998 1997
---- ----
Deferred tax assets (liabilities):
Net operating loss carryforwards $ - $ 293
Product warranty accruals 496 570
Inventory reserves 316 522
Vacation accrual 437 401
Medical reserve 240 220
Unicap adjustment 132 102
Purchased in-process research and development 1,473 -
Other 44 100
------ ------
Total deferred tax assets 3,138 2,208
Prepaid asset (royalty) (191) -
Tax over book depreciation (397) (203)
Valuation allowance (1,854) -
------ ------
Net recorded deferred tax assets $ 696 $2,005
Recognized in balance sheet:
Net deferred tax assets - current $1,474 $1,871
Net deferred tax assets - noncurrent 1,705 134
Net deferred tax liabilities - noncurrent (2,483) -
------ ------
Net deferred tax assets $ 696 $2,005
------ ------
Significant components of the provision (benefit) for income taxes are as
follows:
(DOLLARS IN THOUSANDS) FISCAL YEAR ENDED JULY
----------------------
1998 1997 1996
---- ---- ----
Current provision
Federal $2,369 $4,103 $7,407
State 601 1,150 1,040
------ ------ ------
2,970 5,253 8,447
Deferred tax provision
Federal 1,044 772 5
State 265 217 1
------ ------ ------
1,309 989 6
------ ------ ------
Provision for income taxes $4,279 $6,242 $8,453
------ ------ ------
Income taxes paid in fiscal years 1998, 1997 and 1996 totaled
$3,874,000, $4,826,000 and $9,080,000, respectively.
20
<PAGE> 21
Total income tax provision for each year varied from the
amount computed by applying the statutory U.S. federal income tax rate
to income before taxes for the reasons set forth in the following
reconciliation.
FISCAL YEAR ENDED JULY
----------------------
1998 1997 1996
---- ---- ----
Income tax provision at the statutory rate $2,281 $5,555 $7,216
Increase (reduction) resulting from:
State income taxes, net of federal tax benefit 362 794 1,040
Valuation allowance for non-United States
net operating losses 1,980 - -
Research and development tax credits (533) - -
Other, net 189 (107) 197
------ ------ ------
Actual income tax provision $4,279 $6,242 $8,453
------ ------ ------
In fiscal 1998, foreign losses before income taxes of $8.1
million reduced consolidated income before income taxes to $6.5
million.
11. COMMITMENTS AND CONTINGENT LIABILITIES
The Company had commitments to purchase raw materials under
purchase contracts with various vendors totaling approximately
$8,986,000 at July 25, 1998 and $6,321,000 at July 26, 1997.
12. SIGNIFICANT CUSTOMERS
Five customers represented: 30.1%, 16.8%, 13.8%, 10.8% and
10.3% of net sales in fiscal 1998; 30.5%, 26.0%, 15.1%, 13.4% and 10.8%
in fiscal 1997; and 25.6%, 20.6%, 18.4%, 15.4% and 15.2% in fiscal
1996.
At July 25, 1998, five customers represented 21.8%, 18.6%,
8.9%, 8.1% and 6.7% of accounts receivable, and at July 26, 1997, five
customers represented 33.8%, 19.9%, 16.1%, 10.9% and 8.5% of accounts
receivable.
During fiscal 1998, there were two mergers involving
significant customers of the Company. Pacific Telesis Group merged with
SBC Communications, Inc. and NYNEX merged with Bell Atlantic Corp. The
above percentages relating to the Company's net sales and accounts
receivable were computed, for consistency, as if these mergers had been
in effect for each of the years specified.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1998 - QUARTER ENDED
---------------------------
OCTOBER 25, JANUARY 24, APRIL 25, JULY 25,
1997 1998 1998 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $21,677 $22,817 $25,271 $26,998
Gross profit 9,386 10,369 11,860 13,022
Net income (loss)(1) ($ 2,511) $ 863 $ 1,737 $ 2,149
-------- ------- ------- -------
Net income (loss) per common
share - assuming dilution ($ 0.38) $ 0.13 $ 0.27 $ 0.33
-------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997 - QUARTER ENDED
---------------------------
OCTOBER 26, JANUARY 25, APRIL 26, JULY 26,
1996 1997 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $22,591 $18,825 $21,303 $18,524
Gross profit 10,364 8,186 9,384 8,013
Net income $ 3,232 $ 1,995 $ 2,438 $ 1,964
------- ------- ------- -------
Net income per common share -
assuming dilution $ 0.48 $ 0.29 $ 0.37 $ 0.30
------- ------- ------- -------
</TABLE>
21
<PAGE> 22
(1) As required by generally accepted accounting principles, the Company
recorded a $4.0 million charge immediately after the acquisition of
Teltrend Limited to write off the portion of the purchase price allocated
to in-process research and development.
14. 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
as disclosed more fully in Note 1, "Basis of Presentation," above.
Therefore, segment disclosures are not applicable for fiscal years 1997
and 1996.
The accounting policies of the operating segments are the same as
those described in Note 3, "Summary of Significant Accounting Policies."
Intersegment sales are not significant. Revenues are attributed to
geographic areas based on the location of the areas producing the revenues.
<TABLE>
<CAPTION>
FISCAL 1998
-----------
(DOLLARS IN THOUSANDS) NET SALES INCOME (LOSS) NET INCOME INDENTIFIABLE CAPITAL DEPRECIATION
BEFORE TAXES (LOSS) ASSETS EXPENDITURES AND AMORTIZATION
------------ ------ ------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
United States $83,984 $14,636 $9,268 $63,520 $3,781 $2,198
Europe, Far East 12,778 (8,118) (7,029) 8,250 268 5,090
------- ------ ------ ------- ------ ------
Total $96,762 $6,518 $2,239 $71,770 $4,049 $7,288
------- ------ ------ ------- ------ ------
</TABLE>
Operations listed in Europe and the Far East are comprised of
operations in the United Kingdom, New Zealand and China.
15. RIGHTS PLAN
On January 16, 1997, the Board of Directors of the Company declared
a dividend of one preferred share purchase right (a "Right") for each
outstanding share of Common Stock of the Company. The dividend was payable
on January 27, 1997 to the holders of record of the Common Stock as of the
close of business on that date. Each Right entitles the registered holder
to purchase from the Company, under certain circumstances involving the
acquisition or the announcement of the intent to acquire 20% or more of
the Company's Common Stock, one one-hundredth of a share of Series A
Junior Participating Preferred Stock, par value $.01 per share, of the
Company (the"Preferred Stock") at a price of $160.00 per one one-hundredth
of a share of Preferred Stock, subject to adjustment. The description and
terms of the Rights are set forth in a Rights Agreement dated January 16,
1997, as amended on June 1, 1998, and as the same may be further amended
from time to time, between the Company and LaSalle National Bank, as
Rights Agent.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM S-K.
a. (1) Financial Statements.
The following financial statements of the Company are included in Item
8 of this Report:
Balance Sheets as of July 25, 1998 and July 26, 1997
Statements of Income for the years ended July 25, 1998, July
26, 1997 and July 27, 1996
Statements of Changes in Stockholders' Equity for the years
ended July 25, 1998, July 26, 1997 and July 27, 1996
Statements of Cash Flows for the years ended July 25, 1998,
July 26, 1997 and July 27, 1996
Notes to Financial Statements
(2) Financial Statement Schedules.
Schedules are omitted because of the absence of the
conditions under which they are required or because the
information called for is included in the consolidated
financial statements or notes thereto.
(3) Exhibits.
22
<PAGE> 23
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 (previously filed).
9 None.
*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)
*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 (previously filed).
10.17 Fourth Amendment to Lease, dated July 2, 1998, between Morgan
Guaranty Trust Company of New York and the Registrant (previously
filed).
11 None.
12 None.
13 1998 Annual Report to Stockholders (previously filed).
16 None.
18 None.
21 Subsidiaries of Teltrend Inc. (previously filed).
23 Consent of Ernst & Young LLP.
24 None.
23
<PAGE> 24
27 Financial Data Schedule (previously filed).
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.
(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).
* Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Report pursuant to Item 14(c).
Teltrend Inc. will furnish any of the above exhibits to its stockholders upon
written request addressed to the secretary at the address given on the cover
page of this Form 10-K/A. The charge for furnishing copies of the exhibits is
$.25 per page, plus postage.
b. Report on Form 8-K.
The Company filed a current report on Form 8-K dated June 1, 1998
reporting under Item 5 thereof the amendment of the Company's Rights Agreement.
This report contains the following trademarks of the Company, some of which are
registered: Teltrend, Connect iQ, Network iQ and CellPak. Any other product or
brand names are trademarks, registered trademarks or service marks of their
respective companies.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on July 28, 1999.
TELTREND INC.
By: /s/ Howard L. Kirby, Jr.
-------------------------------------
Howard L. Kirby, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
in the capacities indicated as of July 28, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ Howard L. Kirby, Jr.
- --------------------------- President and Chief Executive Officer and Chairman
Howard L. Kirby, Jr. of the Board of Directors
(Principal Executive Officer)
/s/ Douglas P. Hoffmeyer
- --------------------------- Sr. Vice President, Finance, Secretary and Treasurer
Douglas P. Hoffmeyer (Principal Financial Officer)
/s/ Theodor A. Maxeiner
- --------------------------- Assistant Vice President, Finance, Controller,
Theodor A. Maxeiner Assistant Secretary and Assistant Treasurer
(Principal Accounting Officer)
/s/ Frank T. Cary
- --------------------------- Director
Frank T. Cary
/s/ Harry Crutcher, III
- --------------------------- Director
Harry Crutcher, III
- --------------------------- Director
William R. Delk
/s/ Donald R. Hollis
- --------------------------- Director
Donald R. Hollis
/s/ Susan B. Major
- --------------------------- Director
Susan B. Major
/s/ Bernard F. Sergesketter
- --------------------------- Director
Bernard F. Sergesketter
</TABLE>
25
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-95316, 33-95314, 333-35683 and 333-47275) pertaining to stock
option plans of Teltrend Inc. of our report dated August 28, 1998, with respect
to the consolidated financial statements of Teltrend Inc. included in the
Annual Report (Form 10K/A) for the year ended July 25, 1998.
/s/ Ernst & Young LLP
Chicago, Illinois
July 29, 1999
