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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended January 29, 2000
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to ______________
Commission file number 0-26114
TELTREND INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3476859
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
620 STETSON AVENUE
ST. CHARLES, ILLINOIS 60174
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 377-1700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
As of March 10, 2000, there were 6,120,078 shares of the Registrant's
Common Stock, $.01 par value per share (the "Common Stock"), outstanding
(exclusive of 735,000 shares of treasury stock).
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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 and the six-month periods
ended January 29, 2000 and January 30, 1999.....................................................3
Consolidated Balance Sheets as of January 29, 2000 and
July 31, 1999...................................................................................4
Consolidated Statements of Cash Flows for the six-month periods
ended January 29, 2000 and January 30, 1999.....................................................5
Notes to Consolidated Financial Statements......................................................6
Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................10
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>
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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 FOR THE SIX MONTHS ENDED
--------------------- ------------------------
JANUARY 29, JANUARY 30, JANUARY 29, JANUARY 30,
------------ ----------- ------------ -----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ................................... $ 23,477 $ 24,436 $ 49,466 $ 54,634
Cost of sales ............................... 13,528 13,234 27,456 29,505
-------- -------- -------- --------
Gross profit ................................ 9,949 11,202 22,010 25,129
Operating expenses:
Sales and marketing ...................... 2,560 3,501 5,247 7,345
Research and development ................. 3,563 3,748 7,382 7,893
General and administrative ............... 2,035 2,188 4,098 4,427
Gain on disposal of product line ......... (495) -- (495) --
-------- -------- -------- --------
Total operating expenses .................... 7,663 9,437 16,232 19,665
-------- -------- -------- --------
Income from operations ...................... 2,286 1,765 5,778 5,464
Other income (expense):
Interest income .......................... 412 277 754 626
Other - net .............................. 47 (247) (9) (199)
-------- -------- -------- --------
459 30 745 427
-------- -------- -------- --------
Income before income tax provision .......... 2,745 1,795 6,523 5,891
Provision for income taxes .................. 950 685 2,260 2,251
-------- -------- -------- --------
Net income .................................. $ 1,795 $ 1,110 $ 4,263 $ 3,640
======== ======== ======== ========
Net income per share of common stock ........ $ 0.31 $ 0.19 $ 0.74 $ 0.60
======== ======== ======== ========
Average common shares outstanding ........... 5,790 5,958 5.788 6,064
======== ======== ======== ========
Net income per share of common stock -
assuming dilution ........................... $ 0.29 $ 0.18 $ 0.71 $ 0.59
======== ======== ======== ========
Average common shares outstanding -
assuming dilution ........................... 6,125 6,160 6,030 6,143
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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TELTREND INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
JANUARY 29, JULY 31,
----------- --------
2000 1999
---- ----
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents ............................................... $ 21,054 $ 25,915
Marketable securities ................................................... 8,768 --
Trade accounts receivable, net of allowance ............................. 12,834 13,758
Inventories ............................................................. 10,871 9,466
Deferred income taxes ................................................... 2,267 2,267
Prepaid expenses and other current assets ............................... 2,056 3,301
--------- ---------
57,850 54,707
Land and buildings ......................................................... 3,362 3,310
Machinery and equipment .................................................... 20,258 19,240
Leasehold improvements ..................................................... 1,279 1,264
Accumulated depreciation ................................................... (15,309) (13,937)
--------- ---------
9,590 9,877
Deferred income taxes ...................................................... 329 329
Intangible assets, net ..................................................... 1,383 1,479
Other assets, net .......................................................... 602 591
--------- ---------
$ 69,754 $ 66,983
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable ........................................................ $ 5,002 $ 4,774
Accrued expenses ........................................................ 8,831 10,260
Income taxes payable .................................................... -- 710
--------- ---------
13,833 15,744
Commitments and contingencies .............................................. -- --
Stockholders' equity:
Common stock, $0.01 par value, 15,000,000 shares
authorized and 6,573,587 and 6,512,537 issued and
5,838,587 and 5,792,537 outstanding, respectively ....................... 66 65
Additional paid-in capital ................................................. 100,843 100,120
Treasury stock ............................................................. (11,728) (11,425)
Accumulated deficit ........................................................ (33,293) (37,556)
Accumulated other comprehensive income ..................................... 33 35
--------- ---------
55,921 51,239
--------- ---------
$ 69,754 $ 66,983
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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TELTREND INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------
JANUARY 29, JANUARY 30,
----------- -----------
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income for period ................................... $ 4,263 $ 3,640
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on disposal of product line ..................... (495) --
Depreciation and amortization ........................ 1,479 1,820
Loss on sale of equipment ............................ 1 100
Deferred income taxes ................................ -- (293)
Changes in certain assets and liabilities:
Accounts receivable and prepaid expenses ........... 2,175 2,903
Inventories ........................................ (1,406) (1,223)
Accounts payable and accrued expenses .............. (707) (1,495)
Income taxes payable ............................... (710) 48
Other assets and liabilities ....................... 37 207
-------- --------
Net cash provided by operating activities ............... 4,637 5,707
FINANCING ACTIVITIES:
Exercise of common stock options
(including tax benefit) ............................ 724 342
Purchase of treasury stock .............................. (303) (6,156)
-------- --------
Net cash provided by (used for) financing activities .... 421 (5,814)
INVESTING ACTIVITIES:
Capital expenditures .................................... (1,156) (1,773)
Purchase of marketable securities ....................... (8,768) (3,857)
Proceeds from sales of marketable securities ............ -- 1,951
Proceeds from sales of equipment ........................ 9 97
-------- --------
Net cash used for investing activities .................. (9,915) (3,582)
Effect of exchange rate changes on cash ................. (4) (4)
-------- --------
Net decrease in cash and cash equivalents ............... (4,861) (3,693)
Cash and cash equivalents, beginning of period .......... 25,915 22,994
-------- --------
Cash and cash equivalents, end of period ................ $ 21,054 $ 19,301
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
I. BASIS OF PRESENTATION
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 and six
months ended January 29, 2000 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.
II. MARKETABLE SECURITIES
At January 29, 2000, 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 January 29, 2000 approximates fair
value. Temporary unrealized gains and losses will not be recognized in the
financial statements until realized.
III. INVENTORIES (IN THOUSANDS)
January 29, 2000 July 31, 1999
---------------- -------------
Raw materials..................... $ 6,465 $ 5,124
Work-in-process................... 1,377 1,252
Finished goods.................... 3,029 3,090
------- -------
$10,871 $ 9,466
======= =======
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IV. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
income per share (amounts in thousands, except per share data).
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
--------------------- ------------------------
JANUARY 29, JANUARY 30, JANUARY 29, JANUARY 30,
----------- ----------- ----------- -----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income .......................... $1,795 $1,110 $4,263 $3,640
Denominator:
Weighted average shares outstanding . 5,790 5,958 5,788 6,064
Effect of dilutive stock options .... 335 202 242 79
------ ------ ------ ------
Weighted average shares outstanding -
assuming dilution ............... 6,125 6,160 6,030 6,143
Net income per share ................ $ 0.31 $ 0.19 $ 0.74 $ 0.60
Net income per share -
assuming dilution ............... $ 0.29 $ 0.18 $ 0.71 $ 0.59
</TABLE>
V. COMPREHENSIVE INCOME
Total comprehensive income and its components, net of related tax, for
the second quarter and six months of fiscal 2000 and fiscal 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
--------------------- ------------------------
JANUARY 29, JANUARY 30, JANUARY 29, JANUARY 30,
----------- ----------- ----------- -----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income ............................ $1,795 $1,110 $4,263 $3,640
Foreign currency translation adjustment (107) 254 (2) 256
------ ------ ------ ------
Comprehensive income .................. $1,688 $1,364 $4,261 $3,896
====== ====== ====== ======
</TABLE>
Foreign currency translation adjustment is the only component of
accumulated other comprehensive income at January 29, 2000 and January 30,
1999.
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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 QUARTER ENDED
------------- -------------
JANUARY 29, 2000 JANUARY 30, 1999
---------------- ----------------
INCOME
INCOME (LOSS) NET
NET BEFORE NET NET BEFORE INCOME
(DOLLARS IN THOUSANDS) SALES TAXES INCOME SALES TAXES (LOSS)
----- ----- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
United States................. $21,489 $2,725 $1,782 $20,375 $2,297 $1,447
Europe, Far East.............. 1,988 20 13 4,061 (502) (337)
------- ------ ------ ------- ------ ------
Total......................... $23,477 $2,745 $1,795 $24,436 $1,795 $1,110
======= ====== ====== ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
---------------- ----------------
JANUARY 29, 2000 JANUARY 30, 1999
---------------- ----------------
INCOME
INCOME (LOSS) NET
NET BEFORE NET NET BEFORE INCOME
(DOLLARS IN THOUSANDS) SALES TAXES INCOME SALES TAXES (LOSS)
----- ----- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
United States................. $42,656 $5,371 $3,515 $44,696 $5,897 $3,665
Europe, Far East.............. 6,810 1,152 748 9,938 (6) (25)
------- ------ ------ ------- ------ ------
Total......................... $49,466 $6,523 $4,263 $54,634 $5,891 $3,640
======= ====== ====== ======= ====== ======
</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. A loss of approximately $1.3 million was
recorded in fiscal 1999. This amount included the estimated value of the
intangible assets to be written off associated with the Packet Switched
business, together with an estimate of the professional fees and inventory
and other asset valuation reserves associated with the sale. In the second
quarter of fiscal 2000, it was determined that certain estimated reserves
established for the disposition would not be necessary. As such,
approximately $0.5 million of the original $1.3 million estimated loss
reversed into income in the Europe and the Far East segment.
VIII. PROPOSED ACQUISITION BY WESTELL TECHNOLOGIES
On December 13, 1999, the Company and Westell Technologies, Inc.
("Westell") announced the proposed merger of a subsidiary of Westell with
and into the Company. In the proposed merger, stockholders of the Company
will be entitled to receive 3.3 shares of Westell Class A common stock for
each share of the Company's common stock, subject to provisions regarding
payment of cash in lieu of fractional shares. The transaction is expected
to be accounted for using purchase accounting and to qualify as a tax-free
reorganization. The merger and certain related matters have been approved
by the Boards of Directors of both companies and will require the approval
of both the Company's and Westell's stockholders. Special meetings of the
stockholders of the Company and Westell have been scheduled for March 16,
1999 to
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consider these matters. The waiting period for the merger under the
Hart-Scott-Rodino Act expired on February 2, 2000. The merger is, however,
subject to other customary conditions. If the merger is consummated, the
Company will become a wholly owned subsidiary of Westell and will cease to
be a publicly traded company.
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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 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 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 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(TM) units for cellular and wireless base
station sites, High Density Subscriber Line ("HDSL") systems, which help Telcos
reduce the number of costly digital cross connect system ports required for
frame relay services, and Advanced Span Termination Systems ("ASTS") products, a
system for deployment of High Capacity services which consists of cabinetry
together with other High Capacity products including office repeaters, T1
network interface units and HDSL units; (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"), the Company sold
substantially all of the assets of its Packet Switched business (a line of
routers) to Centrecom Systems Limited of England for approximately $3.1 million.
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.
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PROPOSED ACQUISITION BY WESTELL TECHNOLOGIES
On December 13, 1999, the Company and Westell Technologies, Inc.
("Westell") announced the proposed merger of a subsidiary of Westell with and
into the Company. In the proposed merger, stockholders of the Company will be
entitled to receive 3.3 shares of Westell Class A common stock for each share of
the Company's common stock, subject to provisions regarding payment of cash in
lieu of fractional shares. The transaction is expected to be accounted for using
purchase accounting and to qualify as a tax-free reorganization. The merger and
certain related matters have been approved by the Boards of Directors of both
companies and will require the approval of both the Company's and Westell's
stockholders. Special meetings of the stockholders of the Company and Westell
have been scheduled for March 16, 1999 to consider these matters. The waiting
period for the merger under the Hart-Scott-Rodino Act expired on February 2,
2000. The merger is, however, subject to other customary conditions. If the
merger is consummated, the Company will become a wholly owned subsidiary of
Westell and will cease to be a publicly traded company.
RESULTS OF OPERATIONS
NET SALES. Net sales for the second quarter of fiscal 2000 decreased 3.9%, or
approximately $1.0 million, to approximately $23.5 million, from approximately
$24.4 million in the second quarter of fiscal 1999. For the first six months of
fiscal 2000, net sales totaled approximately $49.5 million compared to
approximately $54.6 million for the first six months of fiscal 1999,
representing a decrease of approximately $5.2 million, or 9.5%. The decrease in
net sales for both periods over the prior year periods were the result of
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 six months of
fiscal 2000 contained 26 weeks and the first six months of fiscal 1999 contained
27 weeks.
Net Sales -- United States Segment. Net sales for the United States
segment for the second quarter of fiscal 2000 increased 5.5%, or approximately
$1.1 million, to approximately $21.5 million, from approximately $20.4 million
in the second quarter of fiscal 1999. The increase in net sales for the second
quarter of fiscal 2000 over the prior year period was the result of an increase
in the unit volume sales of High Capacity products of $2.7 million, partially
offset by a decrease in the unit volume sales of Channelized products of $1.6
million. Net sales for the United States segment for the first six months of
fiscal 2000 decreased 4.6%, or approximately $2.0 million, to approximately
$42.7 million, from approximately $44.7 million in the first six months of
fiscal 1999. The decrease in net sales for the first six months of fiscal 2000
over the prior year period was the result of a decrease in the unit volume sales
of Channelized products of $5.2 million, partially offset by an increase in the
unit volume sales of High Capacity products of $3.2 million.
The increase in sales of the Company's High Capacity products for both
periods was due to increases in unit volume sales of all major High Capacity
product lines. Within T1 customer premises products, demand remained strong for
the Company's new Performance Monitoring Network Interface Units ("PM NIUs"),
and associated mountings. In addition, the Company recorded an increase for both
periods in sales of high density office repeaters (which are primarily deployed
in conjunction with fiber-optic installations). The Company believes a part of
the increase was due to increased orders from a large customer in preparation
for the Year 2000 transition. The Company expects sales for that customer to
decrease proportionately in the third quarter. This increase was partially
offset by a decrease in the sales of intelligent line repeaters due to increased
deployment of HDSL services at the RBOCs. In addition, HDSL products recorded
gains in excess of 100% for both periods due to increased sales to existing
customers and initial sales of the Company's ASTS products.
The decrease in sales of the Company's Channelized products for both
periods 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 for both periods of the Company's DLC products due to
increased sales to existing RBOC customers and an increase in the sales of ISDN
due to increased deployment of ISDN services.
Net Sales -- Europe and the Far East Segment. Net sales for the Europe
and the Far East segment for the second quarter of fiscal 2000 decreased 51.0%,
or approximately $2.1 million, to approximately $2.0 million, from approximately
$4.1 million in the second quarter of fiscal 1999. The decrease in net sales for
the second quarter of fiscal 2000 over the prior year period was due to a
decrease in the unit volume sales of Conversion products of approximately $1.2
million and to the sale of the Packet Switched business in May, 1999, which
accounted for $0.9 million in sales in the second quarter of fiscal 1999. Net
sales for the Europe and the Far East segment for the first six months of fiscal
2000 decreased 31.5%, or approximately $3.2 million, to approximately $6.8
million, from
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approximately $10.0 million in the first six months of fiscal 1999. The decrease
in net sales in the first six months of fiscal 2000 over the prior year period
was due to the sale of the Packet Switched business, which accounted for $2.1
million in sales for the first six months of fiscal 1999 and to a decrease in
the unit volume sales of Conversion products of approximately $1.1 million. The
decrease in net sales of Conversion products for both periods was due to a
significant reduction in orders from several large customers.
GROSS PROFIT. Gross profit in the second quarter of fiscal 2000 decreased 11.2%,
or approximately $1.3 million, to approximately $9.9 million from approximately
$11.2 million in the second quarter of fiscal 1999. For the first six months of
fiscal 2000, gross profit totaled approximately $22.0 million compared to
approximately $25.1 million for the first six months of fiscal 1999,
representing a decrease of approximately $3.1 million, or 12.4%. Gross profit
margins for the second quarter and first six months of fiscal 2000 were 42.4%
and 44.5%, respectively, compared to 45.8% and 46.0%, respectively, for the
corresponding fiscal 1999 periods. The decrease in gross profit for both
comparative periods was primarily attributable to lower unit volume sales and
the decrease in gross profit margin was attributable to spreading fixed
manufacturing expenses over a smaller base of sales, lower sales for the
Conversion business (which carry a higher average gross profit margin than the
Company's other businesses) and lower prices on selected products.
The Company experienced pressure from certain customers to reduce
product prices during fiscal 1999 and, to a lesser extent, in the first six
months of fiscal 2000. The Company believes that it may be asked from time to
time to grant further price concessions to customers during the remainder of
fiscal 2000, which may result in a reduction in the Company's gross profit
margin. The impact of any further price concessions on gross profit margins will
likely be at least partially mitigated by continuing product cost reduction
efforts.
SALES AND MARKETING. Sales and marketing expenses in the second quarter of
fiscal 2000 decreased 26.9%, or approximately $0.9 million, to approximately
$2.6 million, from approximately $3.5 million in the second quarter of fiscal
1999. For the first six months of fiscal 2000, sales and marketing expenses
decreased 28.6% or approximately $2.1 million, to approximately $5.2 million
from approximately $7.3 million for the first six months of fiscal 1999. As a
percentage of net sales, sales and marketing expenses decreased to 10.9% in the
second quarter of fiscal 2000 from 14.3% in the second quarter of fiscal 1999,
and for the first six months of fiscal 2000 decreased to 10.6% from 13.4% for
the first six months of fiscal 1999. The decrease in sales and marketing
expenses for both periods as a percentage of net sales over the prior year
periods was due primarily to the elimination of sales and marketing expenses
associated with the Packet Switched business, and, to a lesser extent, to a
reduction in sales and marketing salaries and travel and entertainment expenses.
RESEARCH AND DEVELOPMENT. Research and development expenses in the second
quarter of fiscal 2000 decreased 4.9%, or approximately $0.2 million, to
approximately $3.6 million, from approximately $3.7 million in the second
quarter of fiscal 1999. For the first six months of fiscal 2000, research and
development expenses decreased 6.5%, or approximately $0.5 million, to
approximately $7.4 million from approximately $7.9 million for the first six
months of fiscal 1999. The decrease in research and development expenses for
both periods 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 decreased to 15.2% in the second
quarter of fiscal 2000, from 15.3% in the second quarter of fiscal 1999, and for
the first six months of fiscal 2000 increased to 14.9% from 14.4% for the first
six months of fiscal 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses in the second
quarter of fiscal 2000 decreased 7.0%, or approximately $0.2 million, to
approximately $2.0 million, from approximately $2.2 million in the second
quarter of fiscal 1999. For the first six months of fiscal 2000, general and
administrative expenses decreased 7.4%, or approximately $0.3 million, to
approximately $4.1 million from approximately $4.4 million for the first six
months of fiscal 1999. The decrease in general and administrative expenses for
both periods 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 decreased to 8.7% in the second
quarter of fiscal 2000, from 9.0% in the second quarter of fiscal 1999, and for
the first six months of fiscal 2000 increased to 8.3% from 8.1% for the first
six months of fiscal 1999.
OTHER INCOME. Other income in the second quarter and first six months of fiscal
2000 was approximately $0.5 million and $0.7 million, respectively, compared to
approximately $30,000 and $0.4 million for the comparable periods of fiscal
1999. The increase in other income for both comparative periods was due
primarily to an increase in interest income and exchange rate gains in the
fiscal 2000 periods compared with exchange rate losses in the fiscal 1999
comparative periods.
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<PAGE> 13
INCOME TAXES. A provision for income taxes of approximately $1.0 million was
recorded in the second quarter of fiscal 2000 compared to approximately $0.7
million in the second quarter of fiscal 1999. This increase in income tax
provision is principally a function of the increase in the level of the
Company's net income before taxes for the second quarter of fiscal 2000 as
compared to the second quarter of fiscal 1999, partially offset by the use of a
lower effective tax rate in the second 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 January 29, 2000, the Company had no long-term indebtedness and had
working capital of approximately $44.0 million, which included cash and cash
equivalents of approximately $21.1 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. In addition, during the first six months of fiscal 2000,
Teltrend Limited received approximately $2.2 million in cash from deferred
proceeds from the sale of the Packet Switched business and the sale of certain
tax carry-forward items.
Cash used for capital expenditures was approximately $1.2 million in
the first six months of fiscal 2000 compared to approximately $1.5 million in
the first six months of fiscal 1999. Most of the capital expenditures for both
periods were for the purchase of manufacturing test equipment and engineering
equipment.
As of January 29, 2000, the Company had net trade accounts receivable
of approximately $12.8 million, compared to approximately $13.8 million as of
the end of fiscal 1999. This decrease was due primarily to a decrease in the
average number of days receivables outstanding. Inventories as of the end of the
second quarter of fiscal 2000 totaled approximately $10.9 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 products in the second half
of fiscal 2000.
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 January 29, 2000, 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 January 29,
2000, the Company had purchased 202,000 shares of Common Stock at a cost of
approximately $3.8 million pursuant to this authorization. The Company does not
intend to make any additional purchases pursuant to this authorization.
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
In prior years, the Company has discussed its plans regarding computer
systems, software and date-sensitive equipment which would be unable to
appropriately interpret or recognize dates beyond the calendar year 1999 (the
"Year 2000 issue"). In late 1999, the Company completed its assessment,
remediation and testing of information technology ("IT") systems and non-IT
systems in the U.S. and at its U.K. subsidiary, Teltrend Limited. The Company
also contacted third parties with whom it has material business relationships
and had not been made aware of any material Year 2000 issues. The total cost to
the Company for its Year 2000 project was $ 207,000, including $ 182,000 for
Teltrend Limited.
To date, the Company has not experienced any material problems or
disruptions due to Year 2000 issues and
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<PAGE> 14
has not been made aware of any problems experienced by third parties with whom
it has material business relationships. The Company intends to continue
monitoring its systems and key third parties to ensure that any latent Year 2000
issues are addressed promptly and effectively.
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 T1 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 provision 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 to offset in full or in
part the reduced revenue and gross profit margin effects of such selling price
reductions. See "-- Reliance on Certain Customers."
RAPID TECHNOLOGICAL CHANGES AND DEPENDENCE ON NEW PRODUCTS
The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards, changes in customer
requirements, price-competitive bidding and frequent product introductions and
enhancements. The introduction of telephone network voice and data transmission
products involving new technologies, the emergence of new industry standards or
changes in customer requirements or service offerings could adversely affect the
Company's ability to sell its existing products and products currently under
development. Most of the Company's existing products are designed to facilitate
and enhance the delivery of communications over the existing copper wireline in
the Local Loop and the Company expects that Telcos will increasingly replace the
installation of copper wireline with the installation of fiber-optic, coaxial
cable, wireless and other technologies (each of which uses a significantly
different method of delivery). The Company believes that the continued
installation of new technologies in the Local Loop will adversely affect demand
for certain of its existing products and that its future success will largely
depend upon its ability, on a cost-effective and timely basis, to continue to
enhance its existing products and develop and achieve commercial acceptance of
new products. See "-- Dependence on T1 Products." There can be no assurance that
developments by others will not render the Company's products or technologies
obsolete or unmarketable or that the Company will be able to successfully
anticipate or adapt to changing technology, industry standards or customer
requirements on a timely basis. Any failure by the Company to anticipate and
respond to technological developments or changes in industry standards or
customer requirements could have a material adverse effect on the Company.
RELIANCE ON CERTAIN CUSTOMERS
The Company has historically depended on the RBOCs for substantially
all of its net sales and, although the Company's customer base has become less
concentrated in the RBOCs as a result of the Teltrend Limited acquisition,
dependence on the RBOCs for the preponderance of the Company's net sales is
likely to continue for the foreseeable future. The Company has no supply
agreements with any of the RBOCs which establish minimum purchase commitments
and there can be no assurance that sales of the Company's products to the RBOCs
or to other customers will continue or that the Company's customer base will
become materially less concentrated. The
14
<PAGE> 15
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 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.
15
<PAGE> 16
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- 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 second quarter of fiscal 2000 involved intercompany
receivables regarding the United Kingdom. At January 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
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 5 -- OTHER INFORMATION
None.
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) Report on Form 8-K.
The Company filed a current report on Form 8-K dated December 13,
1999, reporting under Item 5 thereof the proposed merger of a
subsidiary of Westell Technologies, Inc. with and into the Company.
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: March 13, 2000
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 Amendment No. 2 to Rights Agreement, dated as of December 13, 1999,
between the Registrant and LaSalle Bank National Association, as
rights agent.
4.9 First Amendment to Credit Agreement, dated June 30, 1998, between the
Registrant and LaSalle National Bank.(11)
4.10 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)
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)
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<PAGE> 20
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 Second Amendment to Lease, dated August 9,
1985, between Morgan Guaranty Trust Company of New York and the
Registrant and Memorandum of Lease, Second Amendment to Lease and
Ratification of Second 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)
10.17 Agreement and Plan of Merger dated as of December 13, 1999, by and
among Westell Technologies, Inc., Theta Acquisition Corp. and the
Registrant. (13)
10.18 Voting Agreement, dated December 13, 1999, by and among Robert C.
Penny III and Melvin J. Simon, individually and as trustees of various
trusts, and the Registrant.(13)
11 None.
18 None.
23 None.
24 None.
27 Financial Data Schedule.
99 None.
- ---------------------------------
(1) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended April 29, 1995 (Commission File No.
0-26114).
(2) Incorporated by reference to the Registrant's Registration Statement
on Form S-1, as amended (Registration No. 33-91104), originally filed with the
Securities and Exchange Commission April 11, 1995.
(3) Incorporated by reference to the Registrant's Current Report on Form
8-K dated September 18, 1997 (Commission File No. 0-26114).
20
<PAGE> 21
(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).
(13) Incorporated by reference to the Registrant's Current Report on Form
8-K dated December 13, 1999 (Commission File No. 0-26114).
21
<PAGE> 1
EXHIBIT 4.8
AMENDMENT NO. 2 TO RIGHTS AGREEMENT
THIS AMENDMENT NO. 2 TO RIGHTS AGREEMENT (this "Amendment"), dated as of
December 13, 1999, is between Teltrend Inc., a Delaware corporation (the
"Company"), and LaSalle Bank National Association, as Rights Agent (the "Rights
Agent").
WHEREAS, the Company and the Rights Agent are parties to a Rights
Agreement, dated as of January 16, 1997, as amended by Amendment No. 1 to
Rights Agreement, dated as of June 1, 1998, between the Company and the Rights
Agent (collectively, the "Rights Agreement"); and
WHEREAS, pursuant to Section 27 of the Rights Agreement, the Company and
the Rights Agent desire to further amend the Rights Agreement as set forth
below;
NOW, THEREFORE, the Rights Agreement is hereby amended as follows:
1. Amendment of Section 1.
Section 1 of the Rights Agreement is amended by adding thereto new
subsection (ff) which shall read as follows:
"(ff) 'Merger Agreement' shall mean the Agreement and Plan
of Merger, dated as of December 13, 1999, by and among
Westell Technologies, Inc., Theta Acquisition Corp. and the
Company, as the same may be amended from time to time."
2. Amendment of Section 7.
Paragraph (a) of Section 7 of the Rights Agreement is amended by
deleting the word "or" immediately preceding clause (iii) thereof and by adding
the following new phrase immediately following clause (iii) thereof: "or (iv)
immediately prior to the Effective Time (as defined in the Merger Agreement)."
3. Addition of New Section 35.
The Rights Agreement is amended by adding a Section 35 thereof which
shall read as follows:
"Section 35. Exception For Merger Agreement. Notwithstanding
any provision of this Agreement to the contrary, neither a
Distribution Date, Flip-In Event nor a Stock Acquisition Date
shall be deemed to have occurred, none of Parent, Subsidiary
(as these terms are defined in the Merger Agreement) or any of
their Affiliates or Associates
<PAGE> 2
shall be deemed to have become an Acquiring Person, and no
holder of any Rights shall be entitled to exercise such
Rights under, or be entitled to any rights pursuant to, any
of Sections 3(a), 7(a), 11(a) or 13 of this Agreement, in
any such case by reason of (a) the approval, execution or
delivery of the Merger Agreement or any amendments thereof
approved in advance by the Board of Directors of the Company
or (b) the commencement or, prior to termination of the
Merger Agreement, the consummation of any of the
transactions contemplated by the Merger Agreement in
accordance with the provisions of the Merger Agreement,
including the Merger (as defined in the Merger Agreement)."
4. Effectiveness.
This Amendment shall be deemed effective as of December 13, 1999 as if
executed by both parties hereto on such date. Except as amended hereby, the
Rights Agreement shall remain in full force and effect and shall be otherwise
unaffected hereby.
5. Miscellaneous.
This Amendment shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such state applicable to contracts to be made and
performed entirely within such state. This Amendment may be executed in any
number of counterparts, each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument. If any term, provision, covenant or
restriction of this Amendment is held by a court of competent jurisdiction or
other authority to be invalid, illegal, or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Amendment shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
THE REMAINDER OF THIS PAGE WAS LEFT INTENTIONALLY BLANK
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date set forth above.
TELTREND INC.
By: /s/ Douglas P. Hoffmeyer
----------------------------------
Name: Douglas P. Hoffmeyer
----------------------------------
Title: Senior Vice President, Finance
----------------------------------
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ Gregory Malatia
----------------------------------
Name: Gregory Malatia
----------------------------------
Title: First Vice President
----------------------------------
-3-
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