<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 October 30, 1999
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ______________ to ______________
Commission file number 0-26114
TELTREND INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3476859
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
620 STETSON AVENUE
ST. CHARLES, ILLINOIS 60174
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 377-1700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- ------
As of December 9, 1999, there were 5,780,337 shares of the Registrant's
Common Stock, $.01 par value per share (the "Common Stock"), outstanding
(exclusive of 735,000 shares of treasury stock).
========================================================================
<PAGE> 2
TELTREND INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
<S> <C> <C>
Item 1 -- Consolidated Financial Statements:
Consolidated Statements of Income for the quarters
ended October 30, 1999 and October 31, 1998............................................3
Consolidated Balance Sheets as of October 30, 1999 and
July 31, 1999..........................................................................4
Consolidated Statements of Cash Flows for the quarters
ended October 30, 1999 and October 31, 1998............................................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.....................................................................17
Item 2 -- Changes in Securities and Use of Proceeds ............................................17
Item 3 -- Defaults Upon Senior Securities .................................................. 17
Item 4 -- Submission of Matters to a Vote of Security Holders...................................17
Item 5 -- Other Information.................................................................... 17
Item 6 -- Exhibits and Reports on Form 8-K......................................................17
SIGNATURE...............................................................................................18
EXHIBIT INDEX...........................................................................................19
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
TELTREND INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
------------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Net sales ....................................... $ 25,989 $ 30,198
Cost of sales ................................... 13,929 16,271
-------- --------
Gross profit .................................... 12,060 13,927
Operating expenses:
Sales and marketing .......................... 2,687 3,844
Research and development ..................... 3,819 4,144
General and administrative ................... 2,063 2,239
-------- --------
8,569 10,227
-------- --------
Income from operations .......................... 3,491 3,700
-------- --------
Other income (expense):
Interest ..................................... 342 349
Other - net .................................. (56) 48
-------- --------
286 397
-------- --------
Income before income tax provision .............. 3,777 4,097
Provision for income taxes ...................... 1,310 1,566
-------- --------
Net income ...................................... $ 2,467 $ 2,531
======== ========
Net income per share of common stock ............ $ 0.43 $ 0.41
======== ========
Average common shares outstanding ............... 5,786 6,162
======== ========
Net income per share of common stock -
assuming dilution ............................... $ 0.42 $ 0.41
======== ========
Average common shares outstanding -
assuming dilution ............................... 5,930 6,205
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
TELTREND INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
OCTOBER 30, 1999 JULY 31, 1999
---------------- -------------
<S> <C> <C>
ASSETS
Current assets: ...................................... $ 19,067 $ 25,915
Cash and cash equivalents ......................... 8,768 --
Marketable securities ............................. 15,568 13,758
Trade accounts receivable, net of allowance ....... 10,132 9,466
Inventories ....................................... 2,267 2,267
Deferred income taxes ............................. 1,515 3,301
--------- ---------
Prepaid expenses and other current assets ......... 57,317 54,707
Land and buildings ................................... 3,362 3,310
Machinery and equipment .............................. 19,592 19,240
Leasehold improvements ............................... 1,268 1,264
Accumulated depreciation ............................. (14,611) (13,937)
--------- ---------
9,611 9,877
Deferred income taxes ................................ 329 329
Intangible assets, net ............................... 1,431 1,479
Other assets, net .................................... 615 591
--------- ---------
$ 69,303 $ 66,983
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. $ 5,179 $ 4,774
Accrued expenses .................................. 8,567 10,260
Income taxes payable .............................. 2,034 710
--------- ---------
15,780 15,744
Commitments and contingencies ........................ -- --
Stockholders' equity:
Common stock, $0.01 par value, 15,000,000 shares
authorized and 6,514,720 and 6,512,537 issued and
5,779,720 and 5,792,537 outstanding, respectively . 65 65
Additional paid-in capital ........................... 100,135 100,120
Treasury stock ....................................... (11,728) (11,425)
Accumulated deficit .................................. (35,089) (37,556)
Accumulated other comprehensive income ............... 140 35
--------- ---------
53,523 51,239
--------- ---------
$ 69,303 $ 66,983
========= =========
</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 QUARTER ENDED
---------------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income for period ............................................... $ 2,467 $ 2,531
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................................... 857 893
Gain on sale of equipment ........................................ (5) (3)
Changes in certain assets and liabilities:
Accounts receivable and prepaid expenses ....................... (24) 1,827
Inventories .................................................... (657) (1,822)
Accounts payable and accrued expenses .......................... (1,288) (77)
Income taxes payable ........................................... 1,324 1,356
Other assets and liabilities ................................... 80 --
-------- --------
Net cash provided by operating activities ........................... 2,754 4,705
FINANCING ACTIVITIES:
Exercise of common stock options
(including tax benefit) ........................................ 15 4
Purchase of treasury stock .......................................... (303) (6,156)
-------- --------
Net cash used for financing activities .............................. (288) (6,152)
INVESTING ACTIVITIES:
Capital expenditures ................................................ (506) (965)
Purchase of marketable securities ................................... (8,768) (3,857)
Proceeds from sales of equipment .................................... 9 38
Other investing activities .......................................... (55) 10
-------- --------
Net cash used for investing activities .............................. (9,320) (4,774)
Effect of exchange rate changes on cash ............................. 6 2
-------- --------
Net decrease in cash and
cash equivalents ................................................ (6,848) (6,219)
Cash and cash equivalents, beginning of period ...................... 25,915 22,994
-------- --------
Cash and cash equivalents, end of period ............................ $ 19,067 $ 16,775
======== ========
</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
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 31, 1999. The accompanying statements do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
Teltrend's management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the quarter ended October 30, 1999 are
not necessarily indicative of the results that may be expected for the
fiscal year ending July 29, 2000. The fiscal year of Teltrend and its
consolidated subsidiary (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 1999" refers to the fiscal year ended July 31, 1999 and
"fiscal 2000" refers to the fiscal year ending July 29, 2000). Fiscal
1999 had 53 weeks and fiscal 2000 has 52 weeks. The first quarter of
fiscal 1999 had 14 weeks and the first quarter of fiscal 2000 had 13
weeks.
II. MARKETABLE SECURITIES
At October 30, 1999, the Company had marketable securities of
approximately $8.8 million. These securities consisted of debt
instruments with maturities greater than three months but less than one
year and are classified as held-to-maturity, as the Company has the
positive intent and the ability to hold these securities until
maturity. These securities are carried at amortized cost, which at
October 30, 1999 approximates fair value. Temporary unrealized gains
and losses will not be recognized in the financial statements until
realized.
III. INVENTORIES (IN THOUSANDS)
OCTOBER 30, 1999 JULY 31, 1999
---------------- -------------
Raw materials............................ $ 5,650 $5,124
Work-in-process.......................... 1,250 1,252
Finished goods........................... 3,232 3,090
------- ------
$10,132 $9,466
======= ======
IV. EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted income per share (dollars in thousands, except per share data).
6
<PAGE> 7
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-------------------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Numerator:
Net income............................................. $2,467 $2,531
Denominator:
Weighted average shares outstanding.................... 5,786 6,162
Effect of dilutive stock options....................... 144 43
------ ------
Weighted average shares outstanding -
assuming dilution.................................... 5,930 6,205
Net income per share................................... $0.43 $0.41
Net income per share -
assuming dilution.................................... $0.42 $0.41
</TABLE>
V. COMPREHENSIVE INCOME
Total comprehensive income and its components, net of
tax, for the first quarter of fiscal 2000 and the first
fiscal 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-------------------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Net income................................................ $2,467 $2,531
Foreign currency translation adjustment................... 105 2
------ ------
Comprehensive income...................................... $2,572 $2,533
====== ======
</TABLE>
Foreign currency translation adjustment is the only component of
accumulated other comprehensive income at October 30, 1999 and October
31, 1998.
7
<PAGE> 8
VI. SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about
Segments and Related Information." The Company is managed in two
operating segments: (i) the United States; and (ii) Europe and the Far
East.
<TABLE>
<CAPTION>
QUARTER ENDED OCTOBER 30, 1999 QUARTER ENDED OCTOBER 31, 1998
------------------------------ ------------------------------
INCOME INCOME
NET BEFORE NET NET BEFORE NET
SALES TAXES INCOME SALES TAXES INCOME
----- ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
United States $21,167 $2,646 $1,733 $24,321 $3,600 $2,218
Europe, Far East 4,822 1,131 734 5,877 497 313
------- ------ ------ ------- ------ ------
Total $25,989 $3,777 $2,467 $30,198 $4,097 $2,531
''''''' '''''' '''''' ''''''' '''''' ''''''
</TABLE>
Operations listed in Europe and the Far East are located in
the United Kingdom in fiscal 2000 and in the United Kingdom, New
Zealand and China in fiscal 1999. Interest income is earned principally
within the United States operating segment.
VII. DISPOSITION OF PACKET SWITCHED BUSINESS
On May 28, 1999, the Company sold substantially all of the
assets of its Packet Switched business to Centrecom Systems Limited of
England for approximately $3.1 million. The loss of approximately $1.3
million is composed largely of the write-off of intangible assets
associated with the Packet Switched business.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The following "Management's Discussion and Analysis of Financial
Condition and Results of Operations," as well as other portions of this
Quarterly Report on Form 10-Q, contain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 concerning,
among other things: (i) the Company's 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 use of such terms and phrases as "believes,"
"anticipates," "plans," "projected," "estimated," "intends," "will" 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, 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
8
<PAGE> 9
customer requirements, frequent product introduction and changing government
regulation; and (v) the timing and occurrence (or non-occurrence) of
transactions and events which may be subject to circumstances beyond the
Company's control. A reader of this Quarterly Report should understand that it
is not possible to predict or identify all such risk factors. Consequently, the
reader should not consider such a list to be a complete statement of all
potential risks or uncertainties. The Company does not assume the obligation to
update any forward-looking statements. Results actually achieved may differ
materially from expected results included in these statements. See also "Factors
That May Affect Future Results" below.
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
in September 1997 did expand the Company's markets and product lines. With the
addition of Teltrend Limited, the Company has entered the telecommunication
signaling interworking market, providing interoperability between legacy and
next generation networks. Teltrend Limited sales are targeted primarily in
Europe. As used herein, the term "Company" or "Teltrend" refers to Teltrend Inc.
and its wholly owned subsidiary, Teltrend Limited.
The Company's principal products are as follows: (i) High Capacity
products, which include T1 line and office repeaters and T1 network interface
units and associated mountings, CellPak(R) 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) Channelized products, which include Digital Loop
Carrier and Voice Frequency products ("DLC/VF") (including a small DLC system,
plug-in units for existing DLC systems and traditional voice frequency products)
and ISDN/DDS products (including ISDN and Digital Data System ("DDS") line
repeaters, and ISDN and DDS D4 channel units); and (iii) Conversion products
(network interfacing and protocol conversion products).
DISPOSITION OF PACKET SWITCHED BUSINESS
On May 28, 1999 ("Packet Switched sale date"), Teltrend sold
substantially all of the assets of its Packet Switched products business (a line
of routers) to Centrecom Systems Limited of England. The Company's Conversion
and Packet Switched product categories together constituted the Company's
"Europe and the Far East" operating segment in fiscal 1999 up to the Packet
Switched sale date. Since the Packet Switched sale date, the Company's "Europe
and the Far East" operating segment consists of only the Company's Conversion
product category.
RESULTS OF OPERATIONS
NET SALES. Net sales for the first quarter of fiscal 2000 decreased 13.9%, or
approximately $4.2 million, to approximately $26.0 million, from approximately
$30.2 million in the first quarter of fiscal 1999 due to decreases in the unit
volume sales of certain products in both the United States and the Europe and
the Far East segments as well as decreased sales due to the sale of the Packet
Switched business. In addition, the first quarter of fiscal 1999 contained 14
weeks and the first quarter of fiscal 2000 contained 13 weeks.
Net Sales -- United States Segment. Net sales for the United States
segment for the first quarter of fiscal 2000 decreased 13.0%, or approximately
$3.2 million, to approximately $21.2 million, from approximately $24.3 million
in the first quarter of fiscal 1999. The decrease in net sales for the first
quarter of fiscal 2000 over the prior year period was the result of a decrease
in the unit volume sales of Channelized products of $3.7 million partially
offset by an increase in the unit volume sales of High Capacity products of $0.5
million. The decrease in sales of the Company's
9
<PAGE> 10
Channelized products was primarily due to a loss of market share in the DDS
product line at one RBOC resulting from displacement by a new technology and, to
a lesser extent, to a decrease in the unit volume sales of VF products. VF
products employ analog technology, which is gradually being replaced by digital
products in the market place. These decreases were partially offset by an
increase in unit volume sales of the Company's DLC products due to increased
sales to existing RBOC customers. An increase in the unit volume sales of ISDN
products quarter-to-quarter was more than offset by price reductions in ISDN
products. The increase in sales of the Company's High Capacity products was due
to increases in unit volume sales of the Company's T1 customer premises
products, HDSL products and high density office repeaters, partially offset by
decreases in sales of intelligent T1 line repeater products. Within T1 customer
premises products, demand was strong for the Company's new Performance
Monitoring Network Interface Units ("PM NIUs", particularly toward the end of
the quarter. In addition, the Company recorded an increase in sales of high
density office repeaters (which are primarily deployed in conjunction with
fiber-optic installations). The decrease in the sales of intelligent line
repeaters was primarily the result of increased deployment of HDSL services at
the RBOCs.
Net Sales -- Europe and the Far East Segment. Net sales for the Europe
and the Far East segment for the first quarter of fiscal 2000 decreased 18.0%,
or approximately $1.1 million, to approximately $4.8 million, from approximately
$5.9 million in the first quarter of fiscal 1999. The decrease in net sales for
the first quarter of fiscal 2000 over the prior year period was due to the sale
of the Packet Switched business, which accounted for $1.2 million in sales in
the first quarter of fiscal 1999. This reduction in sales was partially offset
by a small increase in the unit volumes sales of Conversion products. Excluding
the sales of the discontinued Packet Switched business, net sales for the Europe
and the Far East Segment for the first quarter of fiscal 2000 increased 2.2%, or
approximately $0.1 million, to approximately $4.8 million, from approximately
$4.7 million in the first quarter of fiscal 1999.
GROSS PROFIT. Gross profit in the first quarter of fiscal 2000 decreased 13.4%,
or approximately $1.9 million, to approximately $12.1 million from approximately
$13.9 million in the first quarter of fiscal 1999. Gross profit margin in the
first quarter of fiscal 2000 increased to 46.4% from 46.1% in the first quarter
of fiscal 1999. The decrease in gross profit was primarily attributable to lower
unit volume sales and the increase in gross profit margin was primarily
attributable to the sale of the Packet Switched business, which carried a lower
average gross profit margin than the Company's other businesses, partially
offset by price concessions granted by the Company on certain products.
The Company experienced pressure from certain customers to reduce
product prices during fiscal 1999 and the first quarter of fiscal 2000. The
Company believes that it may be asked from time to time to grant further price
concessions to customers in fiscal 2000, which may result in a reduction in the
Company's gross profit margin. The impact of further price concessions on gross
profit margins may be partially mitigated by continuing product cost reduction
efforts.
SALES AND MARKETING. Sales and marketing expenses in the first quarter of fiscal
2000 decreased 30.1%, or approximately $1.2 million, to approximately $2.7
million, from approximately $3.8 million in the first quarter of fiscal 1999. As
a percentage of net sales, sales and marketing expenses decreased to 10.3% in
the first quarter of fiscal 2000 from 12.7% in the first quarter of fiscal 1999.
The decrease in sales and marketing expenses as a percentage of net sales over
the prior year period was due primarily to a reduction in sales and marketing
salaries and travel and entertainment expenses in the first quarter of fiscal
2000 compared to the prior year period, and, to a lesser extent, to the
elimination of sales and marketing expenses associated with the Packet Switched
business.
RESEARCH AND DEVELOPMENT. Research and development expenses in the first quarter
of fiscal 2000 decreased 7.8%, or approximately $0.3 million, to approximately
$3.8 million, from approximately $4.1 million in the first quarter of fiscal
1999. The decrease in research and development expenses was due primarily to the
elimination of research and development expenses associated with the Packet
Switched business. As a percentage of net sales, research and development
expenses increased to 14.7% in the first quarter of fiscal 2000, from 13.7% in
the first quarter of fiscal 1999.
10
<PAGE> 11
GENERAL AND ADMINISTRATIVE. General and administrative expenses in the first
quarter of fiscal 2000 decreased 7.9%, or approximately $0.2 million, to
approximately $2.1 million, from approximately $2.2 million in the first quarter
of fiscal 1999. The decrease in general and administrative expenses was due
primarily to the elimination of general and administrative expenses associated
with the Packet Switched business. As a percentage of net sales, general and
administrative expenses increased to 7.9% in the first quarter of fiscal 2000,
from 7.4% in the first quarter of fiscal 1999.
OTHER INCOME. Other income in the first quarter of fiscal 2000 was approximately
$0.3 million compared to approximately $0.4 million in the first quarter of
fiscal 1999. The decrease in other income was primarily attributable to an
increase in exchange rate losses. Interest income was approximately the same for
both periods.
INCOME TAXES. A provision for income taxes of approximately $1.3 million was
recorded in the first quarter of fiscal 2000 compared to approximately $1.6
million in the first quarter of fiscal 1999. This decrease in income tax
provision is principally a function of the decrease in the level of the
Company's net income before taxes for the first quarter of fiscal 2000 as
compared to the first quarter of fiscal 1999, and to the use of a lower
effective tax rate in the first quarter of fiscal 2000 than in the prior year
period. This lower effective tax rate is due to the Company's continuing tax
saving initiatives, such as research and development credits.
LIQUIDITY AND CAPITAL RESOURCES
At October 30, 1999, the Company had no long-term indebtedness and had
working capital of approximately $41.5 million, which included cash and cash
equivalents of approximately $19.1 million and marketable securities of
approximately $8.8 million. The increase in working capital from approximately
$39.0 million at the end of fiscal 1999 was due primarily to a positive cash
flow from operations.
Cash used for capital expenditures was approximately $0.5 million in
the first quarter of fiscal 2000 compared to approximately $1.0 million in the
first quarter of fiscal 1999. Most of the capital expenditures in the first
quarter of fiscal 2000 were for the purchase of manufacturing test equipment and
engineering equipment.
As of October 30, 1999, the Company had net trade accounts receivable
of approximately $15.6 million, compared to approximately $13.8 million as of
the end of fiscal 1999 as a result of an increase in the average number of days
receivables outstanding. Inventories as of the end of the first quarter of
fiscal 2000 totaled approximately $10.1 million compared to $9.5 million as of
the end of fiscal 1999. Inventory levels increased primarily as a result of the
anticipated sale of certain new and existing products to new customers.
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 a maximum of $8.0 million worth of the Company's Common Stock.
As of October 30, 1999, the Company had purchased 533,000 shares of Common Stock
at a cost of approximately $7.9 million pursuant to this authorization. The
Company does not intend to make any additional purchases pursuant to this
authorization.
On October 26, 1998, the Company's Board of Directors authorized the
purchase of up to an additional $8.0 million worth of Common Stock. Purchases
may be made from time to time in the open market, subject to the requirements of
applicable laws, and, if made, will be financed with existing cash and cash
equivalents, marketable securities and cash from operations. As of October 30,
1999, the Company had purchased 202,000 shares of Common Stock at a cost of
approximately $3.8 million pursuant to this authorization.
11
<PAGE> 12
The Company expects that existing cash and cash equivalents 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 failure 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 date sensitive products will correctly recognize dates
beyond the calendar year 1999 (and are therefore "Year 2000 compliant").
The Company's ongoing project to address internal Year 2000 issues
consists essentially of three phases: (i) 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; (ii) remediation or replacement of the
Company's non-compliant systems and equipment; and (iii) validation testing. The
Company's assessment of its internal systems and equipment has included its
information technology ("IT") systems, as well as its non-IT systems and
equipment (e.g., its facilities, manufacturing and test equipment containing
microprocessors or other similar circuitry, etc.).
The Company has completed the assessment and analysis of its internal
IT systems to determine the potential costs and scope of any Year 2000 issues.
Based on this review, the Company has upgraded or replaced certain of its IT
systems to address Year 2000 issues. With respect to the Company's U.S.
operations, the Company completed all necessary remediation and replacement of
its IT systems 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 have been accomplished without material cost to the
Company. Validation testing in the U.S. was completed by June 30, 1999. All of
Teltrend Limited's IT systems have been assessed and an upgrade program
implemented to address any Year 2000 issues. All IT systems have been remediated
or replaced, the last stage being the replacement of the Teltrend Limited
financial accounting system in October 1999. The total costs to upgrade Teltrend
Limited's IT systems were approximately $150,000. Validation testing on all
Teltrend Limited IT systems has been conducted and completed.
The Company has completed 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, the Company has
determined that certain of its test equipment will need to be updated. The test
equipment will function correctly through December 31, 2000. The Company is
replacing the equipment as it becomes obsolete and plans to replace all
equipment by October 2000. It is expected that most of the required upgrades
will be covered by existing service contracts entered into by the Company in the
ordinary course of business. The total cost to the Company is expected to be
less than $10,000. Based on the foregoing, 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.
In addition, the Company has made 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 have focused on the Company's key customers and suppliers, the Company has
not been made aware of any material Year 2000 issues which would have a material
adverse effect on the Company or its business or results of operations.
Based upon the Company's review of its internal systems and equipment
and the completion of the Company's survey of third parties with whom it has
material business relationships, the Company has not identified any material
risks or costs related to Year 2000 issues, except as set forth above. There can
be no assurance, however, that Year
12
<PAGE> 13
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 issues.
NEW ACCOUNTING RULES
In June, 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The Statement is not required to
be adopted until fiscal years beginning after June 15, 2000. Statement 133 will
require the Company to recognize all derivatives on the consolidated balance
sheet at fair value. The Company does not anticipate that the adoption of
Statement 133 will have a significant impact on its results of operations or
financial position.
FACTORS THAT MAY AFFECT FUTURE RESULTS
DEPENDENCE ON T1 PRODUCTS
The Company's High Capacity products, which include T1 line and office
repeaters and Tl network units, accounted for 51.5%, 51.7% and 56.4% of the
Company's net sales in fiscal 1999, 1998 and 1997, respectively. The Company
expects to derive a large percentage of its net sales for the foreseeable future
from the sale of these products. Consequently, the Company's inability to
maintain or increase net sales of its High Capacity products in the future, or
to offset any shortfall in sales of such products with sales of other existing
or future products, could have a material adverse effect on the Company.
The Company is facing, and expects to continue to face, increasing
competition with respect to its repeatered T1 products from suppliers of systems
based on HDSL technology as an alternate method of delivering repeatered T1
services in the Local Loop. Because HDSL is easier to provide than traditional
T1 service, the Company expects that HDSL products will continue to adversely
affect the demand for its repeatered T1 products as the cost of HDSL systems
declines. If increasing competition or other factors cause the Company to reduce
selling prices for its repeatered T1 products (as has recently occurred due to
pricing pressure from certain of the Company's customers), there can be no
assurance that the Company will be able to increase unit sales volumes of such
products or reduce its costs of sales of such products so as to offset in full
or in part the reduced revenue and gross profit margin effects of such selling
price reductions. See "-- Reliance on Certain Customers."
RAPID TECHNOLOGICAL CHANGES AND DEPENDENCE ON NEW PRODUCTS
The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards, changes in customer
requirements, price-competitive bidding and frequent product introductions and
enhancements. The introduction of telephone network voice and data transmission
products involving new technologies, the emergence of new industry standards or
changes in customer requirements or service offerings could adversely affect the
Company's ability to sell its existing products and products currently under
development. Most of the Company's existing products are designed to facilitate
and enhance the delivery of communications over the existing copper wireline in
the Local Loop and the Company expects that Telcos will increasingly replace the
installation of copper wireline with the installation of fiber-optic, coaxial
cable, wireless and other technologies (each of which uses a significantly
different method of delivery). The Company believes that the continued
installation of new technologies in the Local Loop will adversely affect demand
for certain of its existing products and that its future success will largely
depend upon its ability, on a cost-effective and timely basis, to continue to
enhance its existing products and develop and achieve commercial acceptance of
new products. See "-- Dependence on T1 Products." There can be no assurance that
developments by others will not render the Company's products or technologies
obsolete or unmarketable or that the Company will be able to successfully
anticipate or adapt to changing technology, industry standards or customer
requirements on a timely basis. Any failure by the Company to anticipate and
respond to technological developments or changes in industry standards or
customer requirements could have a material adverse effect on the Company.
13
<PAGE> 14
RELIANCE ON CERTAIN CUSTOMERS
The Company has historically depended on the RBOCs for substantially
all of its net sales and, although the Company's customer base has become less
concentrated in the RBOCs as a result of the Teltrend Limited acquisition,
dependence on the RBOCs for the preponderance of the Company's net sales is
likely to continue for the foreseeable future. The Company has no supply
agreements with any of the RBOCs which establish minimum purchase commitments
and there can be no assurance that sales of the Company's products to the RBOCs
or to other customers will continue or that the Company's customer base will
become materially less concentrated. The RBOCs and most of the Company's other
customers are significantly larger than, and are able to exert a high degree of
influence over, the Company. For example, recent negotiations with the RBOCs
have resulted in the Company offering reduced prices for selected products. The
loss of one or more of the RBOCs as a customer, a further reduction in the
number of RBOCs as a result of mergers or consolidations, or a failure or delay
in the deployment of the Company's products by the RBOCs could materially and
adversely affect the Company.
HIGHLY COMPETITIVE INDUSTRY
The markets for the Company's products are highly competitive,
especially with respect to price, product features, quality and conformance to
industry standards. The Company's competitors in the United States and elsewhere
are numerous and the Company expects its competition to increase in the future
both from existing and new competitors. Increased competition could lead to
reduced gross profit margins and may necessitate increased spending by the
Company on product development and sales and marketing in order to remain
competitive, or may otherwise adversely affect the Company. The Company has
generally been required to reduce the selling prices of its products over time
and will likely be required to do so in the future. See "-- Reliance on Certain
Customers." The Company's ability to maintain or increase net sales will depend
largely upon its ability to increase unit sales volumes of its products to
counter declines in the average sales prices of its products. Declining average
sales prices would also adversely affect gross margins on the Company's products
if not offset by corresponding reductions in product costs. Many of the
Company's competitors have significantly greater financial, technological,
manufacturing, marketing and personnel resources than the Company. In addition,
certain of the Company's competitors have long-standing relationships with
certain Telcos which may adversely affect the Company's ability to successfully
compete for business at these Telcos.
DEPENDENCE ON CERTAIN SUPPLIERS
Certain key components which are required to manufacture the
Company's products are available from only one source. Such components include
the Company's ASICs, which are built to Company specifications, and its PDICs,
which are the design and property of the manufacturer from which they are
purchased. The Company generally obtains its components on a purchase order
basis. Accordingly, there can be no assurance that the Company will be able to
continue to obtain sufficient quantities of key components as required or that
such components, if obtained, will be available to the Company on commercially
favorable terms. Further, certain components require an order lead time of up to
six months. Failure by the Company to order sufficient quantities of components
in advance could prevent the Company from meeting customer demand for its
products.
The Company has been able to adjust its order lead times and/or
promised delivery dates to avoid material delivery delays of its products.
However, there can be no assurance that the Company will be able to do so in the
future. Under certain of the Company's supply contracts, a delay in the delivery
of products would permit the customer to cancel the purchase order or, in
limited circumstances, assess a late delivery charge. In addition, late
deliveries could adversely affect the Company's ability to obtain additional
sales from a particular customer. The Company's inability to obtain sufficient
quantities of key components or products, or to develop alternative sources of
such components or alternative contract manufacturing relationships (in the case
of Teltrend Limited) on commercially favorable terms if and as required in the
future, could result in delays or reductions in product shipments or could
otherwise have a material adverse effect on the Company's customer relationships
and, consequently, on its business, results of operations and financial
condition. See "-- Reliance on Certain
14
<PAGE> 15
Customers."
INVENTORY LEVELS AND NEED TO MAKE ADVANCE PURCHASE COMMITMENTS
The Company maintains inventory levels consistent with anticipated
customer demand. In addition, at the request of several of its customers, the
Company has entered into arrangements to maintain certain of its finished goods
inventory at various locations of such customers. Although the Company believes
these arrangements facilitate sales to its customers, they result in higher
levels of inventory than are necessary in the absence of such arrangements.
Accordingly, there is a risk that the Company's profitability and results of
operations may from time to time be materially and adversely affected by
inventory obsolescence. To procure adequate supplies of certain components, the
Company must regularly make advance commitments to purchase relatively large
quantities of such components. The inability of the Company to incorporate such
components in its products could have a material adverse effect on the Company.
GOVERNMENT REGULATION
The telecommunications industry is subject to regulation in the
United States, the United Kingdom and other countries. Federal and state
regulatory agencies regulate most of the Company's domestic customers. While
such regulation does not typically affect the Company directly, the effects of
such regulation on the Company's customers may adversely impact the Company's
sales and operating results. For example, the sale of the Company's products may
be affected by the imposition upon certain of the Company's customers of common
carrier tariffs, the taxation of telecommunications services and regulatory
policies affecting terms on which common carriers conduct their business. In
addition, certain countries may have or may develop rules and regulations that
will adversely affect the Company's ability to effectively compete in some
markets. Thus, there is no assurance that markets that are now open to the
Company's products will not be limited by government regulation in the future.
PROPRIETARY RIGHTS AND RISKS OF THIRD-PARTY CLAIMS OF INFRINGEMENT
The telecommunications industry is characterized by an increasing
number of patents and frequent litigation based on allegations of patent
infringement. From time to time, third parties may assert exclusive patent,
copyright and other intellectual property rights to technologies which are
important to the Company. While the Company does not believe that its present
products and technology infringe the intellectual property rights of others,
there can be no assurance that third parties will not assert infringement claims
against the Company or that any such assertions will not result in costly
litigation. There can be no assurance that the Company would prevail against any
such claims or that licenses of any third-party intellectual property would be
available to the Company on commercially reasonable terms. In addition, a
substantial number of the Company's products are intended to plug into telephone
network equipment designed and manufactured by third parties, some of which are
competitors of the Company. The design or modification of such equipment so that
it is incompatible with the Company's products could adversely affect the
Company's ability to maintain its current level of, or achieve additional, net
sales. The inability of the Company to develop products for such equipment which
do not infringe the intellectual property rights associated with such equipment,
or to obtain the right to use such intellectual property on commercially
reasonable terms, could have a material adverse effect on the Company. In
addition, any infringement claims or litigation against the Company could have a
material adverse effect on the Company.
POTENTIAL PRODUCT RECALLS AND WARRANTY EXPENSES
The Company's products are required to meet rigorous standards
imposed by its customers, including written technical requirements and various
mechanical, electrical performance, environmental operating and storage
conditions, and to interface in a complex and changing environment with
telecommunication network equipment produced by numerous other suppliers. In the
event there are material deficiencies or defects in the design or manufacture of
the Company's products or if such products become incompatible with existing
third-
15
<PAGE> 16
party network equipment, the affected products could be subject to a recall.
Although the Company has not experienced any complete recall of a product from
the field in the past, the Company has from time to time agreed to upgrade
certain of its products in response to product design issues raised by certain
of its customers. There can be no assurance that the Company will not experience
a material product recall in the future. Any product recall and associated
negative publicity could have a material adverse effect on the Company.
POSSIBLE VOLATILITY OF STOCK PRICE
The Company believes factors such as announcements of new products or
technological innovations by the Company or third parties, as well as variations
in the Company's results of operations, gain or loss of significant customers,
legislative or regulatory changes, changes in analysts' estimates, stock market
volatility and other events or factors may cause the market price of the
Company's Common Stock to fluctuate significantly.
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, through its foreign subsidiary, manufactures and sells its
products in a number of countries. As a result, the Company is from time to time
exposed to market risk relating to the impact of movements in foreign currency
exchange rates on certain instruments. The principal foreign currency exposures
during the first quarter of fiscal 2000 involved intercompany receivables
regarding the United Kingdom. At October 30, 1999, the net fair value liability
of financial instruments with exposure to foreign currency risk was not
significant. The potential reduction in the Company's pre-tax net income from a
hypothetical 10% adverse change in quoted foreign exchange rates against the
currencies in which these instruments are denominated would also be
insignificant.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
The Company is from time to time involved in various legal proceedings
arising in the ordinary course of its business. In addition, the Company has
from time to time been notified by others who assert exclusive rights to certain
technology. The Company evaluates these claims on a case-by-case basis and
enters into licensing arrangements when it appears necessary or desirable to do
so. The Company believes the resolution of any pending matters will not
materially affect the Company's financial position or results of operations. See
"Part I. Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations - Factors That May Affect Future Results --
Proprietary Rights and Risks of Third-Party Claims of Infringement."
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS
The terms of the Bank Facility prohibit the Company from declaring and
paying any fiscal year dividends which exceed, in the aggregate, 50% of the
Company's net income for the immediately preceding fiscal year. See "Part I.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources."
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 -- OTHER INFORMATION
The Company's 1999 Annual Meeting of Stockholders was held on December
2, 1999 for the purpose of (i) electing directors; (ii) ratifying the action of
the Company's Board of Directors in appointing Ernst & Young LLP as the
Company's independent auditors for fiscal 2000; and (iii) transacting such other
business as properly brought before the meeting. The meeting proceeded and the
holders of the Company's Common Stock elected the following persons to the
Company's Board of Directors: (a) Howard L. Kirby, Jr., by a vote of 5,127,174
votes cast for and 8,301 votes withheld; (b) Susan B. Major, by a vote of
5,127,084 votes cast for and 8,391 votes withheld; (c) Frank T. Cary, by a vote
of 5,125,624 votes cast for and 9,851 votes withheld; (d) Harry Crutcher, III,
by a vote of 5,127,574 votes cast for and 7,901 votes withheld; (e) William R.
Delk, by a vote of 5,127,074 votes cast for and 8,401 votes withheld; (f) Donald
R. Hollis, by a vote of 5,127,584 votes cast for and 7,891 votes withheld; (g)
Bernard F. Sergesketter, by a vote of 5,127,610 votes case for and 7,865 votes
withheld. The holders of the Company's Common Stock also ratified the
appointment of Ernst & Young LLP as the Company's independent auditors for
fiscal 2000 by a vote of 5,133,475 votes cast for ratification, 1,700 votes case
against ratification and 300 abstentions.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The exhibits filed herewith are listed in the Exhibit Index which
follows the signature page of this Quarterly Report on Form 10-Q.
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
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: December 10, 1999
TELTREND INC.
By /s/ Theodor A. Maxeiner
----------------------------
Theodor A. Maxeiner
Authorized Officer and
Chief Accounting Officer
18
<PAGE> 19
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- --------------------
2 None.
3.1 Restated Certificate of Incorporation of Registrant, as amended.(10)
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.(10)
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.(9)
4.8 First Amendment to Credit Agreement, dated June 30, 1998, between the
Registrant and LaSalle National Bank.(11)
4.9 Second Amendment to Credit Agreement, dated as of December 1, 1998,
between the Registrant and LaSalle National Bank.(12)
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)
19
<PAGE> 20
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 Teltrend Inc. 1997 Non-Employee Director Stock Option Plan.(5)
10.8 Amended and Restated Stock Option Agreements, dated May 13, 1994,
between the Registrant and Gilbert H. Hosie.(1)
10.9 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)
10.10 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)
10.11 Second Amendment to Lease, dated September, 1995, between Morgan
Guaranty Trust Company of New York and the Registrant.(4)
10.12 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)
10.13 Teltrend Inc. 1996 Stock Option Plan.(8)
10.14 Share Purchase Agreement among Security Services PLC, Securicor
Communications Limited, 3 Net Holdings Limited, Securicor 3 Net Limited
and Teltrend Inc.(3)
10.15 Third Amendment to Lease between Morgan Guaranty Trust Company of New
York and the Registrant.(11)
10.16 Fourth Amendment to Lease, dated July 2, 1998, between Morgan Guaranty
Trust Company of New York and the Registrant.(11)
11 None.
18 None.
23 None.
24 None.
20
<PAGE> 21
27 Financial Data Schedule.
99 None.
- ---------------------------------
(1) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended April 29, 1995 (Commission File No.
0-26114).
(2) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, as amended (Registration No. 33-91104), originally filed
with the Securities and Exchange Commission April 11, 1995.
(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 April 26, 1997 (Commission File No.
0-26114).
(9) Incorporated by reference to the Registrant's Current Report on
Form 8-K dated June 1, 1998 (Commission File No. 0-26114).
(10) 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).
(11) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 25, 1998 (Commission File No. 0-26114).
(12) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1998 (Commission File No.
0-26114).
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-29-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-30-1999
<CASH> 19,067
<SECURITIES> 8,768
<RECEIVABLES> 15,761
<ALLOWANCES> 193
<INVENTORY> 10,132
<CURRENT-ASSETS> 57,317
<PP&E> 24,222
<DEPRECIATION> 14,611
<TOTAL-ASSETS> 69,303
<CURRENT-LIABILITIES> 15,780
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 53,458
<TOTAL-LIABILITY-AND-EQUITY> 69,303
<SALES> 25,989
<TOTAL-REVENUES> 25,989
<CGS> 13,929
<TOTAL-COSTS> 13,929
<OTHER-EXPENSES> 56
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,777
<INCOME-TAX> 1,310
<INCOME-CONTINUING> 2,467
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,467
<EPS-BASIC> .43
<EPS-DILUTED> .42
</TABLE>
