SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 8-K/A
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AMENDMENT No. 1
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 24, 1997
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TEXAS INSTRUMENTS INCORPORATED
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(Exact name of Registrant as specified in its charter)
Delaware 1-3761
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(State of Incorporation) (Commission File No.)
75-0289970
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(I.R.S. Employer Identification No.)
13500 North Central Expressway
P. O. Box 655474, Dallas, Texas 75265-5474
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 972-995-3773
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This amendment to Texas Instruments Incorporated (the "Registrant") Form 8-K
dated December 24, 1997 is being filed to provide the information required by
Item 7, Financial Statements and Pro Forma Financial Information, which
pursuant to Item 7(a)(4) of Form 8-K permits the Registrant to file the
required financial statements of the business acquired and pro forma
financial information within 60 days of the due date of the original Form 8-K.
ITEM 2. Acquisition or Disposition of Assets.
As previously announced, an Agreement and Plan of Merger (the "Merger
Agreement") by and among Texas Instruments Incorporated, a Delaware corporation
(the "Company"), DSL Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of the Company (the "Sub"), and Amati Communications
Corporation, a Delaware corporation ("Amati"), was entered into on November 19,
1997. Pursuant to the Merger Agreement, Sub commenced on November 25, 1997 a
tender offer (the "Offer") for all outstanding shares of Common Stock of Amati
(the "Shares") at a price of $20.00 per share, net to the seller in cash,
without interest. The Offer expired at 12:00 midnight, New York City time,
on December 23, 1997. Following the expiration of the Offer, Sub accepted
for payment 15,290,381 Shares (approximately 77.0% of the issued and
outstanding Shares) validly tendered and not withdrawn pursuant to the
Offer, which number gives effect to the failure of a number of Shares of
Common Stock to be delivered in accordance with guaranteed delivery
procedures.
On February 27, 1998, pursuant to the terms and conditions of the
Merger Agreement, Sub was merged with and into Amati such that Amati became
a wholly-owned subsidiary of the Company, and Sub ceased to exist as an
independent entity (the "Merger"). Each Share issued and outstanding
immediately prior to the Effective Time (as defined in the Merger Agreement)
(other than Shares owned by the Company, Sub or any wholly-owned subsidiary
of the Company, or Shares held by dissenting stockholders who properly
exercised and perfected their appraisal rights under Section 262 of the
General Corporation Law of the State of Delaware) was, by virtue of the
Merger, converted into the right to receive $20.00 in cash. Each Share held
by the Company, Sub or any wholly-owned subsidiary of the Company immediately
prior to the Effective Time was, by virtue of the merger, cancelled and
retired and ceased to exist. Simultaneously, each share of the common stock,
par value $.01 per share, of Sub was, by virtue of the Merger, converted into
one share of the common stock of Amati. Accordingly, the Company owns 1,000
shares of the common stock of Amati, which is 100% of the outstanding common
stock thereof. A press release relating to the foregoing is filed as Exhibit
99.2 hereto and is incorporated by reference herein.
ITEM 7. Financial Statements and Pro Forma Financial Information
(a) Statement of Operations of Business Acquired.
(1) Audited Financial Information
Amati Communications Corporation Consolidated Balance
Sheets as of August 2, 1997 and July 27, 1996, and
Consolidated Statements of Operations, Stockholders'
Equity and Cash Flows for the three years ended August
2, 1997, July 27, 1996, and July 29, 1995.
(2) Unaudited Financial Information
Amati Communications Corporation Unaudited Consolidated
Condensed Balance Sheet as of November 1, 1997 and
Statements of Operations and Cash Flows for the three
months ended November 1, 1997 and November 2, 1996.
(b) Pro Forma Financial Information.
(1) Texas Instruments Incorporated Pro Forma Condensed Combined
Statement of Operations (unaudited) for the year ended
December 31, 1997.
The pro forma condensed combined statement of operations (unaudited) for the
year ended December 31, 1997 gives effect to the acquisition of Amati
Communications Corporation by the Company as if the acquisition had occurred
on January 1, 1997.
The pro forma information is based upon the historical financial information
of the companies. This pro forma statement may not be indicative of the
results that actually would have occurred if the combination had occurred
on the date indicated or which may be obtained in the future.
The pro forma financial statement should be read in conjunction with the
financial statements and notes thereto of Texas Instruments Incorporated and
Amati Communications Corporation.
(c) Exhibits
Designation of
Exhibit in
this Report Description of Exhibit
--------------- ----------------------
99.2 Press release dated February 27,
1998.
SIGNATURE
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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.
TEXAS INSTRUMENTS INCORPORATED
By /s/ WILLIAM A. AYLESWORTH
------------------------------
William A. Aylesworth
Senior Vice President, Treasurer
and Chief Financial Officer
Date: March 9, 1998
Audited Financial Information
Amati Communications Corporation Consolidated Balance
Sheets as of August 2, 1997 and July 27, 1996, and
Consolidated Statements of Operations, Stockholders'
Equity and Cash Flows for the three years ended August
2, 1997, July 27, 1996, and July 29, 1995.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Amati Communications Corporation:
We have audited the accompanying consolidated balance sheets of Amati
Communications Corporation (a Delaware corporation) and subsidiaries as of
August 2, 1997 and July 27, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
ended August 2, 1997, July 27, 1996, and July 29, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
on all material respects, the financial position of Amati Communications
Corporation and subsidiaries as of August 2, 1997 and July 27, 1996, and the
results of their operations and their cash flows for each of the three years
ended August 2, 1997, July 27, 1996, and July 29, 1995 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
September 30, 1997
<PAGE>
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 27, AUGUST 2,
1996 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 886 $ 791
Short-term investments.................................. -- 709
Accounts receivable, less allowance of $30 in 1996 and
1997.................................................. 1,524 1,369
Stock subscriptions receivable.......................... -- 2,500
Inventories:
Finished goods........................................ 1 448
Work in process....................................... 890 1,783
Purchased parts....................................... 725 824
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1,616 3,055
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Other current assets.................................... 1,156 858
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Total current assets.................................. 5,182 9,282
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Equipment and leasehold improvements, at cost:
Machinery and equipment............................... 3,436 7,366
Furniture and fixtures................................ 187 161
Leasehold improvements................................ 532 1,862
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4,155 9,389
Less: Accumulated depreciation and amortization........... (3,096) (3,588 )
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Equipment and leasehold improvements, net............... 1,059 5,801
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TOTAL ASSETS.......................................... $ 6,241 $ 15,083
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized lease obligations..... $ -- $ 728
Trade accounts payable.................................. 486 2,499
Accrued expenses........................................ 1,429 1,714
Deferred revenue........................................ 157 148
Notes payable--bank..................................... -- 428
Notes payable--other.................................... 395 --
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Total current liabilities............................. 2,467 5,517
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Long-term liabilities:
Long term portion of deferred revenue................... 1,800 2,000
Capitalized lease obligations, less current
maturities............................................ -- 2,086
Obligations under lease commitments..................... 294 454
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Total long-term liabilities........................... 2,094 4,540
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Commitments (Note 9)
Stockholders' equity:
Preferred stock--par value $100 per share
Authorized--5,000 shares
Outstanding--none..................................... -- --
Common stock--par value $.20 per share
Authorized--45,000,000 shares
Outstanding--17,692,802 shares in 1996 and 19,692,895
shares in 1997....................................... 3,539 3,939
Additional paid-in capital.............................. 57,631 72,820
Accumulated deficit..................................... (59,490) (71,733 )
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Total Stockholders' equity............................ 1,680 5,026
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $ 6,241 $ 15,083
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</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------
JULY 29, JULY 27, AUGUST 2,
1995 1996 1997
--------- ---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales...................................................................... $ 12,040 $ 12,085 $ 13,200
Cost of sales.................................................................. 6,716 7,404 9,554
--------- ---------- ----------
Gross margin................................................................. 5,324 4,681 3,646
--------- ---------- ----------
Operating expenses:
Research and development..................................................... 1,595 3,837 8,335
Marketing and sales.......................................................... 861 953 2,868
General and administrative................................................... 1,229 2,519 4,479
Write off of acquired in-process research and development.................... -- 31,554 --
--------- ---------- ----------
Total operating expenses................................................... 3,685 38,863 15,682
--------- ---------- ----------
Income (loss) from operations................................................ 1,639 (34,182) (12,036)
--------- ---------- ----------
Other income (expense):
Interest income.............................................................. 301 168 116
Interest expense............................................................. (7) (21) (323)
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Total other income (expense)............................................... 294 147 (207)
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Income (loss) before provision for income taxes................................ 1,933 (34,035) (12,243)
Provision for income taxes................................................... 97 43 --
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NET INCOME (LOSS).............................................................. $ 1,836 $ (34,078) $ (12,243)
--------- ---------- ----------
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NET INCOME (LOSS) PER SHARE.................................................... $ .16 $ (2.21) $ (.66)
--------- ---------- ----------
--------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE EQUIVALENTS.......... 11,491 15,448 18,641
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 2, 1997
---------------------------------------------------------
COMMON STOCK
-------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- --------- --------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, July 30, 1994................................... 11,956 $ 2,391 $ 33,649 $ (27,248) $ 8,792
Exercise of employee stock options..................... 150 30 132 -- 162
Stock repurchase....................................... (537) (107) (457) -- (564)
Net income............................................. -- -- -- 1,836 1,836
--------- --------- --------- ------------ ----------
Balance, July 29, 1995................................... 11,569 $ 2,314 $ 33,324 $ (25,412) $ 10,226
Exercise of employee stock options..................... 1,238 248 1,327 -- 1,575
Exercise of warrants from merger....................... 231 46 (46) -- --
Issuance of shares from merger......................... 4,655 931 23,026 -- 23,957
Net loss............................................... -- -- -- (34,078) (34,078)
--------- --------- --------- ------------ ----------
Balance, July 27, 1996................................... 17,693 $ 3,539 $ 57,631 $ (59,490 ) $ 1,680
Exercise of employee stock options..................... 596 119 725 -- 844
Exercise of warrants from merger....................... 161 32 (7) -- 25
Equity financing, net of offering costs of $280........ 1,243 249 14,471 -- 14,720
Net loss............................................... -- -- -- (12,243 ) (12,243)
--------- --------- --------- ------------ ----------
--------- --------- --------- ------------ ----------
BALANCE, AUGUST 2, 1997.................................. 19,693 $ 3,939 $ 72,820 $ (71,733 ) $ 5,026
--------- --------- --------- ------------ ----------
--------- --------- --------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------
JULY 29, JULY 27, AUGUST 2,
1995 1996 1997
--------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)............................................................... $ 1,836 $ (34,078) $ (12,243)
Adjustments to reconcile net income (loss) to net cash provided by (used for)
operating activities:
Depreciation and amortization............................................... 678 846 1,422
Provision for bad debts..................................................... -- 20 --
Loss on retirement of capital equipment..................................... 41 153 63
Write off of in-process research and development............................ -- 31,554 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable.................................. (528) 1,340 155
Increase in inventories..................................................... (33) (189) (1,439)
Decrease (increase) in other assets......................................... (316) (194) 62
Increase (decrease) in accounts payable & accrued expenses.................. (315) (599) 2,288
Decrease in other liabilities............................................... (124) -- (235)
--------- ---------- ----------
Total adjustments......................................................... (597) 32,931 2,316
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NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES............................ 1,239 (1,147) (9,927)
--------- ---------- ----------
Cash Flows from Investing Activities:
Advances to Old Amati and acquisition costs................................... (3,240) (2,266) --
Capital expenditures.......................................................... (61) (757) (2,469)
Purchase of short-term investments............................................ (5,862) -- (3,893)
Proceeds from sale of investments............................................. 8,829 2,425 3,184
--------- ---------- ----------
NET CASH USED FOR INVESTING ACTIVITIES.......................................... (334) (598) (3,178)
--------- ---------- ----------
Cash Flows from Financing Activities:
Equity financing, net of offering costs of $280............................... -- -- 12,220
Proceeds from the exercise of stock options................................... 162 1,575 844
Proceeds from the exercise of treasury warrants............................... -- -- 25
Borrowings--bank line of credit............................................... -- -- 428
Payments on capital lease obligation.......................................... (82) (10) (507)
Stock repurchase.............................................................. (564) -- --
--------- ---------- ----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES............................ (484) 1,565 13,010
--------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ 421 (180) (95)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................ 645 1,066 886
--------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 1,066 $ 886 $ 791
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 2, 1997
NOTE 1 OPERATIONS, LIQUIDITY AND PROPOSED MERGER OF THE COMPANY
OPERATIONS
Amati Communications Corporation ("Amati" or the "Company") is a leading
developer of advanced transmission equipment utilizing Discrete Multi-tone
("DMT") technology for the Asymmetrical Digital Subscriber Line ("ADSL"), Very
high-speed Digital Subscriber Line ("VDSL") and cable modem markets. The Company
is the holder of the ADSL/DMT patents and has licensed the technology to
companies such as Motorola, NEC, Nortel and Analog Devices, Inc. The Company is
also a provider of network connectivity systems for the internetworking and OEM
marketplaces, which include local area network gateways, client-based
workstation software and network data communications interfaces. The Company is
subject to a number of risks, including dependence on key employees for
technology development and support, dependence on a few significant customers,
potential competition from larger more established companies, and its ability to
obtain adequate financing to support its growth.
On November 28, 1995, the Company and Amati Communications Corporation ("Old
Amati"), a privately held Mountain View, California based company completed a
merger (the "Merger") by which Old Amati became a wholly-owned subsidiary of the
Company. Effective as of the Merger, the Company's name was changed to Amati
Communications Corporation and its common stock began trading on the Nasdaq
National Market under the symbol "AMTX".
LIQUIDITY
In October 1996, the Company entered into an Investment Agreement (the
"Investment Agreement") with Quantum Industrial Partners LDC, S-C Phoenix
Holdings, L.L.C., Winston Partners, L.P., Winston Partners II LDC and Winston
Partners II L.L.C. (collectively, the "Investors") which provided to the Company
$15 million in equity financing in exchange for the issuance of Company's Common
Stock and warrants (the "Warrants") to purchase up to 600,000 shares of
Company's Common Stock. The Warrants were issued on October 3, 1996 and are
exercisable at any time between December 17, 1996 and December 17, 2001.
Warrants to purchase up to 300,000 shares are exercisable at $17.45 per share;
Warrants to purchase the other 300,000 shares are exercisable at $25 per share.
As of August 2, 1997, the Company has received $12,500,000 pursuant to this
Investment Agreement and recorded a Stock Subscription Receivable of $2,500,000.
In exchange for the $15,000,000 investment in the Company, the Investors
received an aggregate of 1,242,915 shares of the Company's Common Stock. The
Warrants and Common Stock issued in connection with the Investment Agreement
were exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to the exemption under Section 4(2) of
the Securities Act. The resale of the shares of Common Stock issued to the
Investors, and the 600,000 shares of Common Stock issuable on exercise of the
Warrants, has been registered by the Company on behalf of the Investors. On
August 7, 1997, the Company received the final $2,500,000 take down in equity
financing.
The Company's ability to meet its future capital requirements will depend on
many factors, including sales levels, progress in research and development
programs, the establishment of collaborative agreements, and costs of
manufacturing facilities and commercialization activities. While the Company
anticipates that the funding available under the line of credit, capital lease
line and a loan agreement entered into with Westell Technologies, Inc. (further
discussed) will be sufficient to meet its capital requirements through the
fiscal year, the Company may require funding in addition to that available under
these
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997
NOTE 1 OPERATIONS, LIQUIDITY AND PROPOSED MERGER OF THE COMPANY (CONTINUED)
agreements, and may seek additional funding through collaborative agreements or
through public or private sale of securities prior to the commercialization of
its ADSL products.
PROPOSED MERGER
On September 30, 1997, the Company and Westell Technologies, Inc. entered
into an Agreement and Plan of Merger whereby Amati will become a wholly owned
subsidiary of Westell Technologies, Inc., Westell Technologies, Inc.,
headquartered in Aurora, Illinois, is a holding company for Westell, Inc., a
world-wide manufacturer of XDSL systems, Conference Plus, Inc., a multi-point
telecommunications service bureau specializing in conferencing, and Westell
World Wide Services, Inc., a service provider of engineering, installation and
network management. Pursuant to the Agreement and Plan of Merger, and subject to
the approval of the transaction by the respective stockholders of both
companies, holders of outstanding Amati Common Stock will receive in exchange
for each share of Amati Common Stock, 0.9 shares of Westell Class A Common
Stock.
Pursuant to the Agreement and Plan of Merger with Westell Technologies, Inc.
dated September 30, 1997 and under the provisions of a Loan and Security
Agreement, Westell Technologies, Inc. can extend financing to the Company of up
to $5,000,000 secured by a promissory note due on or before September 30, 1999
with interest payable at the following rates: prime plus 2% for the first $1
million and prime plus 2 1/2% for all borrowings in excess of $1 million.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market,
and include materials, labor and manufacturing overhead. Inventory is valued at
currently adjusted standards which approximate actual costs on a first-in,
first-out basis.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the related assets. Machinery and equipment
and furniture and fixtures generally have lives ranging from 3 to 5 years.
Leasehold improvements are depreciated over the shorter of the lease term or the
useful life.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards No. 86 ("SFAS 86"). The
capitalization of these costs begins when technological feasibility of the
related product has been achieved, which has been defined as the point in time
that the Company has developed a beta version of the software product.
Capitalization ends when the product is
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
available for general release to customers. Amortization is computed on an
individual product basis and is the greater of (a) the ratio of current gross
revenues for a product to the total current and anticipated future gross
revenues for that product or (b) the straight-line method over the estimated
economic life of the product. Currently the Company is using an estimated
economic life of three years for all capitalized software costs.
In fiscal 1995, 1996 and 1997, there was no capitalization of software
development costs as the criteria for capitalization had not been met.
Amortization of capitalized software development costs charged to cost of sales
was $310,000 in fiscal 1995 and $246,000 in fiscal 1996 and 1997.
ACCRUED EXPENSES
Accrued expenses include the following:
<TABLE>
<CAPTION>
JULY 27, AUGUST 2,
1996 1997
--------- -----------
<S> <C> <C>
Accrued employee compensation............................................ $ 793 $ 1,035
Other.................................................................... 636 679
--------- -----------
$ 1,429 $ 1,714
--------- -----------
--------- -----------
</TABLE>
REVENUE RECOGNITION
The Company generally recognizes revenue from product sales upon shipment to
the customer. Revenues from software and engineering development services are
recognized as the Company performs the services in accordance with contract
terms. Revenues from maintenance and extended warranty agreements are recognized
ratably over the term of the agreement. The Company also licenses products to
OEMs and recognizes royalties as specified in the license agreement when
shipment of the licensed product by the OEM is reported to the Company. Service
maintenance, warranty and support revenues accounted for less than 1% of the
Company's total revenues.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For purposes of the Statements of Cash Flows, cash and cash equivalents are
defined as cash in banks and highly liquid investments with original maturity
dates of three months or less.
Capital lease obligations of $3,307,000 were incurred in fiscal 1997 when
the Company entered into equipment and furniture capital leases. Cash paid for
interest was $7,000, $56,000 and $317,000 for the fiscal years 1995, 1996 and
1997, respectively. Cash paid for income taxes were $20,000, $73,000 and $46,000
for fiscal years 1995, 1996 and 1997, respectively.
SHORT TERM INVESTMENTS
In accordance with SFAS No. 115, the Company has classified all of its
marketable debt securities as held-to-maturity, and has accounted for these
investments at amortized cost. Accordingly, no adjustment for unrealized holding
gains or losses has been reflected in the Company's financial statements. At
August 2, 1997, the Company's held-to-maturity securities of $709,000 consisted
of certificates of deposits
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with contractual maturities of less than twelve months and the carrying amount
of these investments approximated market value. These funds, in the form of
standby letters of credit, are restricted as a compensating balance for capital
lease not under the lease line.
FUNDED DEVELOPMENT AGREEMENTS
The Company has entered into certain funded development arrangements with
IBM. These arrangement typically provide funding to the Company to develop on a
best efforts basis certain products or product enhancements which IBM is
interested in reselling to its customers. Under these arrangements, the Company
retains the rights to manufacture the developed products and IBM purchases the
manufactured products from the Company for distribution to IBM's customers. The
arrangements typically include a minimum purchase commitment by IBM if the
development is successful. Costs under these agreements are deferred until the
related development revenues are recognized. Revenues under these agreements are
generally recognized when certain contractual milestones are met. Total revenues
recognized under these agreements were $276,000, $419,000 and $341,000 in fiscal
1995, 1996 and 1997, respectively.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
LONG-LIVED ASSETS
Effective July 28, 1996, the Company adopted Statement of financial
Accounting Standards No. 121 ("SFAS No. 121"), ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. The adoption of
SFAS No. 121 did not have a material impact on the results of operations or the
financial position of the Company.
STOCK COMPENSATION
Effective July 28, 1996, the Company adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), ACCOUNTING
FOR STOCK-BASED COMPENSATION. In accordance with the provisions of SFAS No. 123,
the Company applies APB Opinion 25 and related interpretations in accounting for
its stock option plans. Note 6 of these Consolidated Financial Statements
contains a summary of the pro forma effects on reported net income and earnings
per share for fiscal 1997 and 1996 based on the fair value of the options
granted at grant date as prescribed by SFAS No. 123.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), REPORTING
COMPREHENSIVE INCOME, which becomes effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS No. 130 is not expected to have a
material impact on the results of operations or the financial position of the
Company.
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS No. 131"), DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION, which becomes effective for fiscal years beginning
after December 15, 1997. The Company has yet to determine the impact, if any, of
adoption of this new pronouncement.
RECLASSIFICATION
Prior years' amounts in the Consolidated Financial Statements have been
reclassified where necessary to conform to the fiscal 1997 presentation.
NOTE 3 CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments which may potentially subject the Company to a
concentration of credit risk principally consist of accounts receivable. The
Company generally does not require collateral on accounts receivable as the
majority of the Company's customers are large, well established companies.
Sales of the Overture 4 and Overture 8 series of ADSL transceivers were
$999,000 and $819,000, respectively, in fiscal 1996 and $12,000 and $1,880,000,
respectively, in fiscal 1997. In the Company's VDSL technology, revenues
recognized during the current fiscal year of $3,500,000 related primarily to
contract revenues under a joint development agreement with NEC Japan.
The Company also designs, manufactures and markets data communications
equipment and provides technical support and maintenance services related
thereto. Sales to IBM as a percent of net sales were 83%, 69% and 51% in fiscal
1995, 1996 and 1997, respectively. The Company has a concentration of accounts
receivable with IBM of $600,000 as of August 2, 1997. In February 1997, the
Company signed an extended contract with IBM for the development and manufacture
of its next generation internetworking products. The Company expects that IBM
will continue to account for a substantial portion of its revenues until
development and commercialization of its ADSL products are completed.
Export sales of connectivity products, primarily to Western Europe and
Canada in fiscal 1995, 1996 and 1997, represented 1-2% of total net sales.
Shipments of the Overture series of transceivers primarily to the countries of
Germany, Netherlands, France, Finland and Canada accounted for 11% of total
revenues in fiscal 1997.
NOTE 4 LICENSE AGREEMENTS
The Company has certain license agreements (the "Original Agreements") with
Stanford University and University Ventures II, a California limited investment
partnership, whereby it was granted exclusive worldwide rights to core
technology and was required to further develop commercial applications and
licensed products in the field of use to maintain these agreements. In exchange
for the Original Agreements, the Company agreed to issue 125,000 shares of
Series A convertible preferred stock to each licensor and pay certain royalties
on revenue generated from the licensed technology. Both Original Agreements
contained anti-dilution provisions in the event the Company raised capital from
the sale of stock. The term of the Original Agreements extends to the last
expiration date of the licensed patents. The Company accounted for the license
agreements as a transfer of non-monetary assets from its founders and recorded
the license at the transferor's historical cost basis of zero. On May 1, 1994,
the Original Agreement with Stanford University was revised to include a
one-time fee of $250,000 and an annual
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997
NOTE 4 LICENSE AGREEMENTS (CONTINUED)
license maintenance fee of $25,000. The revised Original Agreements provide for
Stanford University to receive higher royalties on the Company's revenues.
Stanford University may terminate the agreement if the Company fails to remedy
any conditions causing default, breach or incorrect reporting under the terms
and conditions of the license agreement within thirty days.
NOTE 5 NOTES PAYABLE
The Company had notes payable in the amount of $395,000 at July 27, 1996.
All outstanding notes of $395,000 plus interest of $103,000 were paid on January
31, 1997.
The Company has a revolving line of credit agreement with a bank which
expires on April 25, 1998. The agreement provides for borrowings up to
$2,000,000 at the bank's prime rate plus .75% (9.25 % at August 2, 1997). The
line of credit is collateralized by the accounts receivable of the Company. As
of August 2, 1997, borrowings under this agreement were $428,000. Borrowings
under this agreement are subject to certain debt covenants. At August 2, 1997,
the Company was out of compliance with certain of these covenants relating to
quick ratios and debt to net worth ratios. Acknowledging however, that with the
$2,500,000 of cash received on August 7, 1997 from stock subscriptions
receivable shown on the balance sheet as of fiscal 1997 year-end the Company
will be in compliance, the bank waived all financial covenants in default. In
addition, the Company has a capital lease line of $1,700,000 which was fully
utilized as of August 2, 1997.
NOTE 6 STOCK OPTION PLANS
The Company has four employees' and one non-employee Directors' stock option
plans. The exercise price of options granted under any plan may not be less than
100% of the fair market value of the stock on the date of grant.
An Incentive Stock Option Plan and a Supplemental Stock Option Plan were
adopted by the Company in 1981. Total shares authorized for issuance pursuant to
the Incentive Stock Option Plan and the Supplemental Stock Option Plan were
875,000 shares and 1,025,000 shares, respectively. As of August 2, 1997, options
to purchase up to 30,000 shares have been granted pursuant to these plans and
remain exercisable, and there are no options available for future grant under
these plans. Employee stock options issued under this plan become exercisable at
the rate of 25% after six months from the date of grant and 25% per year
thereafter, unless determined otherwise by the Board of Directors at the time of
grant. Both plans expired in October 1991. The options that have been granted
under these plans expire ten years after grant.
The Board of Directors adopted the 1990 Stock Option Plan on September 14,
1990, and it was approved by the Company's stockholders on December 14, 1990.
The Company is authorized to issue options to purchase up to 900,000 shares of
Company Common Stock pursuant to the 1990 Stock Option Plan. At a special
meeting of the Company's stockholders held on November 10, 1995, the
stockholders approved an amendment to the Company's 1990 Stock Option Plan to
increase the number of shares available for issuance pursuant to this plan in
conjunction with the Agreement of Merger dated August 3, 1995. The Company may
now issue options to purchase an aggregate of up to 3,500,000 shares pursuant to
the amended 1990 Stock Option Plan. As of August 2, 1997, options to purchase up
to 2,946,686 shares have been granted pursuant to this plan, of which options to
purchase up to 1,011,057 shares were
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997
NOTE 6 STOCK OPTION PLANS (CONTINUED)
exercisable on such date and 3,664 shares were available for future grant under
this plan. Employee stock options issued pursuant to this plan become
exercisable at the rate of 25% one year from the date of the Merger and 25% per
year thereafter. The maximum term of options granted under this plan is ten
years.
The Old Amati 1992 Stock Option Plan and all outstanding and unexercised
options issued pursuant thereto were assumed by the Company upon consummation of
the merger, as approved by the stockholders of the Company on November 20, 1995.
The Company is authorized to grant options of 1,591,234 shares of Company Common
Stock pursuant to this plan. As of August 2, 1997, options to purchase up to
743,051 shares of Company Common Stock have been granted, pursuant to this plan,
including options to purchase up to 317,405 shares which were exercisable as of
such date. There are no shares available for future grants under this plan.
Employee stock options under this plan become exercisable at the rate of 25% one
year from the date of grant and with respect to 1/48 of the number of shares
subject to such option each month thereafter.
On July 12, 1996, the Company adopted the 1996 Stock Option Plan, and
authorized 1,000,000 shares of Company Common Stock. As of August 2, 1997,
options to purchase up to 950,000 shares have been granted, of which options to
purchase up to 314,125 shares were exercisable as of such date and 50,000 shares
were available for future grants under this plan.
The Company adopted a 1990 Non-Employee Directors' Stock Option Plan on
September 14, 1990, which was approved by the Company's stockholders on December
14, 1990. The Company is authorized to issue options to purchase up to an
aggregate of 395,000 shares of the Company's Common Stock pursuant to this plan.
On the date the plan was adopted, each non-employee Director then in office was
granted an option to purchase up to 25,000 shares of Common Stock of the
Company. Each person who is elected for the first time to be a non-employee
Director will automatically be granted an option to purchase 25,000 shares of
the Company's Common Stock pursuant to this plan, which options will be
immediately exercisable. On December 2, 1993, the plan was amended to reduce by
150,000 shares the number of shares available for issuance pursuant to the plan,
leaving 245,000 shares available for grant under this plan. As of August 2,
1997, options to purchase up to 102,500 shares have been granted pursuant to
this plan, of which options to purchase up to 80,000 shares were exercisable as
of such date and 25,000 shares were available for future grants under this plan.
On September 1 of each year commencing September 1, 1991, an option to purchase
10,000 shares of the Company's common stock are automatically granted to each
non-employee Director then in office. Beginning with grants made to each
continuing non-employee Director in office on September 1, 1996, each person
shall receive an option to purchase up to 20,000 shares of the Company's Common
Stock. Grants are automatically made annually under this plan. These options
become exercisable at the rate of 25% after six months from the date of grant
and 25% per year thereafter. These options expire ten years after grant.
In accordance with the disclosure requirements of SFAS No. 123, if the
Company had elected to recognize compensation cost based on the fair value of
the options granted at grant date as prescribed, income and earnings per share
would have been reduced to the pro forma amounts indicated in the table below.
The pro forma effect on net income for fiscal 1996 and 1997 is not
representative of the pro forma
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997
NOTE 6 STOCK OPTION PLANS (CONTINUED)
effect on net income in future years because it does not take into consideration
pro forma compensation expense related to grants made prior to fiscal 1996.
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
Net loss--as reported................................................... $ 34,078 $ 12,243
Net loss--pro forma..................................................... $ 37,116 $ 18,336
Loss per share--as reported............................................. $ 2.21 $ .66
Loss per share--pro forma............................................... $ 2.40 $ .98
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<S> <C>
Expected dividend yield....................................... 0.0%
Expected stock volatility..................................... 112.28%
5.62 -
Risk-free interest rate....................................... 6.52%
Expected life of options from grant date...................... 4 years
</TABLE>
The weighted average fair value of options granted during 1996 and 1997 were
$5.39 and $11.55 per share, respectively.
Stock option activity under these plans was as follows:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
----------- --------------
<S> <C> <C>
Balance, July 30, 1994.......................................... 1,095,275
Granted......................................................... 160,000 $ 1.19 - $2.03
Exercised....................................................... (150,250) $ 0.75 - $1.53
Canceled........................................................ (66,100) $ 0.75 - $1.88
-----------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
-----------------
<S> <C> <C>
Balance, July 29, 1995........................................ 1,038,925 $ 1.09
Granted....................................................... 4,876,145 $ 6.61
Exercised..................................................... (1,238,077) $ 6.64
Canceled...................................................... (28,444) $ 1.09
-----------
Balance, July 27, 1996........................................ 4,648,549 $ 5.67
Granted....................................................... 765,250 $ 15.06
Exercised..................................................... (594,836) $ 5.36
Canceled...................................................... (46,726) $ 6.57
-----------
Balance, August 2, 1997....................................... 4,772,237 $ 6.40
-----------
-----------
</TABLE>
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997
NOTE 6 STOCK OPTION PLANS (CONTINUED)
The following table summarizes information about fixed stock options
outstanding at August 2, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED -----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- - - ----------------- ----------- --------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.01 - $ 1.22 248,890 6.15 $ 0.52 161,041 $ 0.69
$ 1.28 - $ 4.19 678,912 7.20 $ 1.40 403,602 $ 1.39
$ 4.25 - $ 4.94 2,026,735 8.33 $ 4.77 587,520 $ 4.66
$ 6.63 - $10.75 1,186,325 8.62 $ 8.43 458,075 $ 7.91
$10.88 - $24.75 631,375 9.09 $ 15.54 108,813 $ 15.81
----------- --- ----------- ---------- -----------
$ 0.01 - $24.75 4,772,237 8.23 $ 6.40 1,719,051 $ 5.09
----------- --- ----------- ---------- -----------
----------- --- ----------- ---------- -----------
</TABLE>
On August 2, 1997, there were 4,772,237 shares of Company Common Stock
reserved for issuance upon the exercise of outstanding options and 78,664 shares
of Common Stock reserved for future grants under all stock option plans.
NOTE 7 INCOME TAXES
As of August 2, 1997, the Company's tax net operating loss carryforwards for
federal tax purposes were approximately $45,066,000. The United States Tax
Reform Act of 1986 contains provisions which limit the amount of net operating
loss carryforwards which may be utilized in any given fiscal year when a
significant change in ownership interest occurs. These carryforwards expire in
various amounts through fiscal 2012. The Company also has certain tax credit
carryforwards of $1,650,000 which expire in various amounts through the year
2012. The United States Tax Reform Act of 1986 contains provisions that may
limit the net operating loss carryforwards and research and development credits
available to be used in any given year should certain events occur.
The Company has an additional $2,234,000 of net operating loss carryforwards
which were acquired in connection with a fiscal 1988 acquisition. The change in
ownership of the acquired company will affect the availability and timing of the
amount of prior losses to be used to offset taxable income in future years.
These carryforwards expire in various amounts through the year 2005.
As of August 2, 1997, the Company also has net operating loss carryforwards
of approximately $10,000,000 available to offset future California state taxable
income. These carryforwards expire in various amounts through the year 2002. The
Company also has certain California tax credit carryforwards of $330,000.
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997
NOTE 7 INCOME TAXES (CONTINUED)
The provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
JULY 29, JULY 27, AUGUST 2,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Provision for income taxes:
Current federal............................................... $ 39 $ 17 $ --
Current state................................................. 58 26 --
--- --- -----------
Total provision for income taxes.............................. $ 97 $ 43 $ --
--- --- -----------
--- --- -----------
</TABLE>
The difference between the Company's effective income tax rate and the
Federal statutory rate is as follows:
<TABLE>
<CAPTION>
JULY 29, JULY 27, AUGUST 2,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal income tax rate........................... 34% (34)% (34)%
State income tax rate, net of federal benefit.............. 7 7 (6)
Change in valuation allowance.............................. (36) 32 40
--- --- -----
Income tax rate............................................ 5% 5% --
--- --- -----
--- --- -----
</TABLE>
The major components of the net deferred tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
JULY 27, AUGUST 2,
1996 1997
--------- -----------
<S> <C> <C>
Deferred tax assets:
Cumulative temporary differences...................................... $ 1,468 $ 3,056
Tax credits........................................................... 1,395 1,839
Net operating loss carryforwards...................................... 9,496 16,693
Other accruals........................................................ 118 --
--------- -----------
Total assets........................................................ 12,477 21,588
Valuation allowance................................................... (12,392) (21,427)
--------- -----------
Net deferred income tax asset......................................... 85 161
Less deferred tax liabilities:
Capitalized software expenditures..................................... 85 161
--------- -----------
Total liabilities................................................... 85 161
--------- -----------
Total net deferred tax assets........................................... $ 0 $ 0
--------- -----------
--------- -----------
</TABLE>
NOTE 8 NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of
shares outstanding of common stock and common stock equivalents (when dilutive)
using the treasury stock method. No
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997
NOTE 8 NET INCOME (LOSS) PER SHARE (CONTINUED)
common stock equivalents have been included in 1996 and 1997 because the effect
would be to decrease the loss per share.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share", which simplifies the
standards for computing earnings per share previously found in Accounting
Principles Board Opinion No. 15 ("APB No. 15"). SFAS No. 128 replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share, which excludes dilution. SFAS No. 128 also requires dual presentation
of basic and diluted earnings per share on the face of the income statement for
all entities with complex capital structures and requires a reconciliation.
Diluted earnings per share is computed similarly to fully diluted earnings per
share pursuant to APB No. 15. SFAS No. 128 must be adopted for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. SFAS No. 128 requires restatement
of all prior period earnings per share presented. The Company does not
anticipate that SFAS No. 128 will have a material impact on its earnings per
share calculation.
NOTE 9 LEASE COMMITMENTS
Future minimum lease payments under capital leases, together with the
present value of those payments and the aggregate annual rental commitments
under non-cancelable operating leases as of August 2, 1997, are shown as
follows:
<TABLE>
<CAPTION>
OPERATING LEASES
--------------------------
<S> <C> <C> <C>
RENTALS
RECEIVABLE
CAPITAL RENTAL UNDER
FISCAL YEAR LEASES PAYMENTS SUBLEASES
- - - ------------------------------------------------------------- --------- ----------- -------------
1998......................................................... $ 1,019 $ 1,027 $ 258
1999......................................................... 1,019 1,033 252
2000......................................................... 866 862 --
2001......................................................... 433 886 --
2002......................................................... 88 97 --
Thereafter................................................... -- 621 --
--------- ----------- -----
Total minimum lease payments................................. $ 3,425 $ 4,526 $ 510
----------- -----
----------- -----
Less amount representing interest............................ (611)
---------
Present value of future minimum lease payments............... $ 2,814
---------
---------
</TABLE>
Total rent expense for all operating leases amounted to approximately
$1,038,000, $971,000 and $1,623,000 in fiscal 1995, 1996 and 1997, respectively.
Rent expense in fiscal 1995, 1996 and 1997 is before sublease income of
$297,000, $137,000 and $333,000.
NOTE 10 LITIGATION
In November 1993, an action was brought against the Company for damages
related to the use of the Company's products. The plaintiff filed a suit
claiming repetitive stress injuries resulting from the use of
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997
NOTE 10 LITIGATION (CONTINUED)
the Company's product in the course of employment with American Airlines from
the period May 1981 through July 1991. The plaintiff alleges damages in the
amount of $1 million and seeks punitive damages of $10 million. The Company
believes that the claim is without merit and has tendered defense of this action
to its insurance carriers. In the opinion of management, the outcome of this
litigation will not have a material adverse effect on the Company's financial
position or its results of operations.
NOTE 11 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly information is for the years ended July 27, 1996 and August 2,
1997.
<TABLE>
<CAPTION>
FISCAL 1996 QUARTER ENDED
---------------------------------------------------
OCTOBER 28, JANUARY 27, APRIL 27, JULY 27,
1995 1996 1996 1996
------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Sales...................................................... $ 3,354 $ 2,524 $ 3,756 $ 2,451
Gross Profit................................................... $ 1,514 $ 978 $ 1,576 $ 613
Net Income (Loss).............................................. $ 816 $ (32,199) $ (498) $ (2,197)
Net Income (Loss) Per Share.................................... $ 0.07 $ (2.12) $ (0.03) $ (0.13)
<CAPTION>
FISCAL 1997 QUARTER ENDED
---------------------------------------------------
NOVEMBER 2, FEBRUARY 1, MAY 3, AUGUST 2,
1996 1997 1997 1997
------------- ------------ --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales...................................................... $ 4,513 $ 3,012 $ 3,663 $ 2,012
Gross Profit................................................... $ 2,426 $ 899 $ 1,621 $ (1,300)
Net Loss....................................................... $ (746) $ (2,786) $ (2,293) $ (6,418)
Net Loss Per Share............................................. $ (0.04) $ (0.15) $ (0.12) $ ( 0.33)
</TABLE>
NOTE 12 ACQUISITION OF OLD AMATI
On November 28, 1995, the Company acquired all of the outstanding shares of
Amati Communications Corporation ("Old Amati") for approximately $29.5 million.
The purchase price consisted of the issuance of 2.6 million shares of the
Company's Common Stock in exchange for all shares of Old Amati common stock, 1.5
million shares of the Company's Common Stock in exchange for all shares of Old
Amati Series A preferred stock, Warrants for the purchase of up to 1.1 million
shares of the Company's Common Stock in exchange for all Old Amati warrants, and
options to purchase up to 1.6 million shares of the Company's Common Stock in
exchange for all options to purchase Old Amati common stock. The purchase price
also includes registration and other acquisition costs of $0.8 million, total
cash advances to Old Amati prior to the merger of $5.6 million and is net of the
estimated proceeds from the assumed exercise of Old Amati options and warrants
of $3.3 million.
The transaction was accounted for using the purchase method of accounting.
The Company allocated the purchase price to the net assets based upon their
estimated fair values. The fair values of tangible assets acquired and
liabilities assumed were $1.2 million and $3.2 million, respectively. The
balance of the purchase price, $31.6 million, was charged to earnings to
write-off in-process research and development that had not reached
technological feasibility and had no alternative future uses.
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 2, 1997
NOTE 12 ACQUISITION OF OLD AMATI (CONTINUED)
The following table reflects unaudited pro forma combined results of
operations of the Company and Old Amati on the basis that the acquisition had
taken place and the related charge, noted above, was recorded at the beginning
of the fiscal year of the period presented:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
--------------------------
<S> <C> <C>
JULY 29, JULY 27,
1995 1996
------------ ------------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
Revenues.......................................................... $ 13,092 $ 13,512
Net Loss.......................................................... $ (35,666) $ (36,527)
Net Loss per Share................................................ $ (2.21) $ (2.15)
Number of shares used in computation.............................. 16,146 17,008
</TABLE>
In management's opinion, the unaudited pro-forma combined results of
operations are not necessarily indicative of the actual results that would have
occurred had the acquisition been consummated at the beginning of 1996 or of
future operations of the combined companies under the ownership and management
of the Company.
Unaudited Financial Information
Amati Communications Corporation Unaudited Consolidated
Condensed Balance Sheet as of November 1, 1997 and
Statements of Operations and Cash Flows for the three
months ended November 1, 1997 and November 2, 1996.
FINANCIAL STATEMENTS
--------------------
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
THREE MONTHS ENDED
-------------------------
NOVEMBER 1, NOVEMBER 2,
1997 1996
----------- -----------
Net sales $ 4,702 $ 4,513
Cost of sales 4,678 2,087
-------- --------
Gross margin 24 2,426
-------- --------
Operating expenses:
Research and development 2,323 1,751
Marketing and sales 1,043 557
General and administrative 905 720
Other 105 128
-------- --------
Total operating expenses 4,376 3,156
-------- --------
Loss from operations (4,352) (730)
-------- --------
Other income (expense):
Interest income 15 1
Interest expense (105) (17)
-------- --------
Total other income (expense) (90) (16)
-------- --------
NET LOSS $ (4,442) $ (746)
-------- --------
-------- --------
NET LOSS PER SHARE $ (0.23) $ (0.04)
-------- --------
-------- --------
Weighted Average Number of
Common Shares and Common
Share Equivalents 19,727 17,719
-------- --------
-------- --------
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE>
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
NOVEMBER 1, AUGUST 2,
1997 1997
----------- ---------
ASSETS
------
Current assets:
Cash and cash equivalents $ 1,844 $ 791
Short term investments 709 709
Accounts receivable, less allowance of
$30 in 1998 and 1997 3,166 1,369
Stock subscriptions receivable --- 2,500
Inventories 2,810 3,055
Other current assets 1,082 858
------- -------
Total current assets 9,611 9,282
Equipment and leasehold improvements - net 5,968 5,801
------- -------
TOTAL ASSETS $15,579 $15,083
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable - bank $ 428 $ 428
Accounts payable and accrued expenses 4,838 3,326
Accrued employee compensation 1,121 1,035
Bridge loan payable 3,050 ---
Current maturities of capitalized
lease obligations 769 728
------- -------
Total current liabilities 10,206 5,517
------- -------
Long-term liabilities:
Long term portion of deferred revenue 2,100 2,000
Capitalized lease obligations, net of
current maturities 2,033 2,086
Obligations under lease commitments 454 454
------- -------
Total long-term liabilities 4,587 4,540
------- -------
Stockholders' equity 786 5,026
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $15,579 $15,083
------- -------
------- -------
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE>
AMATI COMMUNICATIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
THREE MONTHS ENDED
----------------------------
NOVEMBER 1, NOVEMBER 2
1997 1996
----------- -----------
Cash flows from operating activities:
NET LOSS $(4,442) $ (746)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 425 164
Loss on retirement of capital equipment --- 51
Increase in accounts receivable (1,797) (2,683)
Decrease (increase) in inventories 245 (233)
Increase in other assets (224) (52)
Increase in accounts payable, accrued
expenses and employee compensation 1,699 2,063
------- -------
NET CASH USED FOR OPERATING ACTIVITIES (4,094) (1,436)
------- -------
Cash flows from investing activities:
Purchase of equipment and leasehold
improvements (408) (1,415)
------- -------
NET CASH USED FOR INVESTING ACTIVITIES (408) (1,415)
------- -------
Cash flows from financing activities:
Payments on capital lease obligations (197) ---
Proceeds from bridge loan 3,050 ---
Proceeds from equity financing, net of
issuance costs 2,464 5,000
Proceeds from exercise of stock
options/warrants 238 72
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,555 5,072
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,053 2,221
BEGINNING BALANCE - CASH AND CASH EQUIVALENTS 791 886
------- -------
ENDING BALANCE - CASH AND CASH EQUIVALENTS $ 1,844 $ 3,107
------- -------
------- -------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 94 $ 55
------- -------
------- -------
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOVEMBER 1, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring entries) considered necessary for a fair presentation have been
included. For further information, refer to the financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended August 2, 1997. The results for the period are not necessarily indicative
of results for the full fiscal year.
NOTE B - NET LOSS PER SHARE
Net loss per share is based on the weighted average number of shares outstanding
of common stock. No common stock equivalents have been included in fiscal years
1998 and 1997 because the effect would decrease the loss per share.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
simplifies the standards for computing earnings per share previously found in
Accounting Principles Board Opinion ("APB") No. 15. SFAS No. 128 replaces
the presentation of primary earnings per share with a presentation of basic
earnings per share, which excludes dilution. SFAS No. 128 also requires dual
presentation of basic and diluted earnings per share on the face of the
income statement for all entities with complex capital structures and
requires reconciliation. Diluted earnings per share are computed similarly
to fully diluted earnings per share pursuant to APBO No. 15. SFAS No. 128
must be adopted for financial statements issued for periods ending after
December 15, 1997, including interim periods, earlier application is not
permitted. SFAS No. 128 requires restatement of all prior period earnings
per share presented. The Company does not anticipate that SFAS No. 128 will
have a material impact on its earnings per share calculation.
NOTE C - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
are comprised of the following:
NOVEMBER 1, 1997 AUGUST 2, 1997
---------------- --------------
Finished goods $ 137 $ 448
Work in process 1,710 1,783
Purchased and service parts 963 824
------ ------
$2,810 $3,055
------ ------
------ ------
<PAGE>
AMATI COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOVEMBER 1, 1997
NOTE D - PROPOSED MERGER
On September 30, 1997, the Company and Westell Technologies, Inc. entered
into a proposed merger wherein Amati would have become a wholly owned
subsidiary of Westell Technologies, Inc.
Holders of outstanding Amati Common Stock were to receive in exchange for
each share, 0.9 shares of Westell Class A Common Stock. Under the provisions
of a Loan and Security Agreement dated September 30, 1997, Westell
Technologies, Inc. could extend financing to the Company of up to $5,000,000
secured by a promissory note due on or before September 30, 1999 with
interest payable at the following rates: prime plus 2% for the first $1
million and prime plus 21/2% for all borrowings in excess of $1 million. As
of November 1, 1997, $3,050,000 was outstanding under the Westell Loan,
subsequently increased to $3,550,000.
Following the end of the current fiscal quarter, the Company terminated the
agreement with Westell Technologies, Inc. paying a $14.8 million fee in
connection with such termination. On November 19, 1997 the Company entered
into an Agreement and Plan of Merger with Texas Instruments, Incorporated
("TI") providing for an all-cash tender offer for all outstanding shares of
the Company's Common Stock at $20 per share to commence on November 25, 1997
and ending on December 23, 1997, unless extended. Following completion of
the tender offer, and upon consummation of a merger with a wholly owned
subsidiary of TI, the Company will become a wholly owned subsidiary of TI.
Under the provisions of a Loan and Security Agreement dated November 19, 1997,
Texas Instruments agreed to grant a term loan in the amount of $14,774,000 and a
revolving loan in the amount of $5,000,000 to the Company secured by a
promissory note due September 30, 1999 with interest at the rate of prime plus
2%. As of December 5, 1997, $18,763,000 was outstanding under the TI loan.
Proceeds from these borrowings were used to repay in full all amounts owing to
Westell under the Loan and Security Agreement dated September 30, 1997, all
amounts owing to the Silicon Valley Bank under its revolving line of credit
agreement, and to pay a termination fee to Westell Technologies, Inc.
Texas Instruments Incorporated Pro Forma Condensed Combined
Statement of Operations (unaudited) for the year ended
December 31, 1997.
TEXAS INSTRUMENTS INCORPORATED
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (a)
FOR THE YEAR ENDED DECEMBER 31, 1997
(In millions of dollars, except per-share amounts)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments
Texas Amati for the
Instruments Communications Acquisition of Pro Forma
Incorporated Corporation (d) Amati Combined
-------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Net revenues $ 9,750 $ 13 $ -- $ 9,763
Operating costs and expenses:
Cost of revenues 6,067 12 (b) 6 6,085
Research and development 1,536 9 (c) (461) 1,084
Marketing, general and administrative 1,532 8 -- 1,540
---------- ---------- ---------- ----------
Total 9,135 29 455 8,709
Profit (loss) from operations 615 (16) 455 1,054
Other income (expense) net 192 -- -- 192
Interest on loans 94 -- -- 94
---------- ---------- ---------- ----------
Income (loss) from continuing
operations before provision for
income taxes and extraordinary item 713 (16) 455 1,152
Provision for income taxes 411 -- (b) (2) 409
---------- ---------- ---------- ----------
Income (loss) from continuing
operations before extraordinary item $ 302 $ (16) $ 457 $ 743
========== ========== ========== ==========
Diluted earnings per common share
from continuing operations before
extraordinary item $ 0.76 $ 1.87
======= =======
Basic earnings per common share
from continuing operations before
extraordinary item $ 0.78 $ 1.93
======= =======
</TABLE>
See accompanying notes to unaudited pro forma combined statement of operations
TEXAS INSTRUMENTS INCORPORATED
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
BASIS OF PRESENTATION
The accompanying unaudited pro forma combined statement of operations for the
year ended December 31, 1997 gives effect to the acquisition of Amati
Communications Corporation (Amati) by the Registrant as if the acquisition
had occurred on January 1, 1997.
The pro forma information is based on the audited consolidated statement of
operations of the Registrant for the year ended December 31, 1997, and the
unaudited consolidated statement of operations of Amati for the year ended
November 1, 1997.
This pro forma combined statement of operations has been prepared by
management and may not be indicative of the results of operations that
actually would have occurred if the combination had been in effect on the
dates indicated or which may be obtained in the future.
This pro forma statement should be read in conjunction with the audited
financial statements and related notes of the Registrant as of and for the
year ended December 31, 1997 and the audited financial statements and related
notes of Amati included herein.
(a) A pro forma combined balance sheet is not presented herein because the
assets and liabilities of Amati are reflected in the Registrant's consolidated
balance sheet as of December 31, 1997, included in its Form 10-K filed
February 23, 1998.
(b) To reflect the acquisition of Amati by the Registrant, the acquired
intangibles were estimated as follows (in millions of dollars):
Purchase price $ 468
Estimated acquisition costs 48
------
516
Less: Assets acquired 13
Acquired in-process R&D immediately expensed
in the period of acquisition 461
------
Acquired intangibles $ 42
The amortization of the acquired intangibles of $42 million and the related
deferred income tax effect resulting from the acquisition of Amati over the
weighted average estimated useful life of 9 years is included as a pro forma
adjustment.
(c) To eliminate the acquired in-process R&D expense of $461 million.
(d) Because Amati's year-end of August 2, 1997 was not within 93 days of the
Registrant's December 31, 1997 year-end, Amati's operating results for the
three months ended November 2, 1996 were excluded from its audited
consolidated statement of operations for the year ended August 2, 1997, and
its audited operating results for the three months ended November 1, 1997
were included, resulting in an unaudited presentation of operating results
for the year ended November 1, 1997.
Exhibit 99.2
------------
News Release
C-98011
Texas Instruments Closes Acquisition of Amati Communications Corporation
Dallas (February 27, 1998) - Texas Instruments Incorporated (NYSE: TXN)
today completed its previously announced acquisition of Amati Communications
Corporation after a special meeting of Amati stockholders. The company was
merged with TI's DSL Acquisition Corporation and is now a wholly-owned
subsidiary of Texas Instruments. TI previously acquired 77% of Amati's
outstanding shares through a tender offer consummated on December 24, 1997.
All outstanding shares not held by TI were converted in the merger into the
right to receive $20.00 per share in cash.
This acquisition strengthens TI's position for providing digital signal
processing solutions for high-speed Internet connectivity and quality video
services. Amati is a world leader in digital modem technology, also known as
Digital Subscriber Line (xDSL), which lets ordinary phone lines transmit data
more than 100 times faster than today's 56K analog voiceband modems. Using
TI's digital signal processing technology, next generation modems will
provide users with faster, more reliable access to the Internet along with
the ability to use a single phone for simultaneous functions.
Amati employees, along with TI employees currently focused on the modem
market, will combine to form the Datacom Business Unit of TI's Semiconductor
Group.
# # #
NOTE TO EDITORS: Texas Instruments Incorporated is a global semiconductor
company and the world's leading designer and supplier of digital signal
processing solutions, the engines driving the digitization of electronics.
Headquartered in Dallas, Texas, the company's products also include
calculators, controls and sensors, metallurgical materials and digital light
processing technologies. The company has manufacturing or sales operations
in more than 25 countries.
Texas Instruments is traded on the New York Stock Exchange under the symbol
TXN. More information is located on the World Wide Web at http://www.ti.com.
