lucent definity
TELTREND INC Annual Report (Regulation S-K, item 405) (10-K405) NOTES TO FINANCIAL STATEMENTS.lnkGreySmall{font-family: Arial, Sans-Serif;font-weight: bold;font-size: 9px;}a.lnkGreySmall{background-color: transparent;text-decoration: none;}a.lnkGreySmall:active{background-color: transparent; }a.lnkGreySmall:hover{color: #000;}table.welcomeNavColor{background-color: white;border-color: #f1f1e9;border-style: solid;border-width: 2px;width: 25px;padding:2px 2px 2px 2px;padding-right: 2px;padding-left: 2px;padding-bottom: 2px;padding-top: 2px;}.txtGreySmall{font-family: Arial, Sans-Serif;font-weight: bold;color: #696969;font-size: 9px;}About EDGAR Online|LoginDashboardTodayCompanyIndustrySearchScreenerAnalyticsThe following is an excerpt from a 10-K405 SEC Filing, filed by TELTREND INC on 10/22/1999.Jump to : 1 && this[this.selectedIndex].value != "Section0" && this[this.selectedIndex].value != "Section1" ) { document.open(this[this.selectedIndex].value+".asp","_top","",false); } else { document.open("https://signup.edgar-online.com/default.aspx?offerid=secedgarProFreeTrial","_top","",false);}' ID="Select2">-- Use Sections To Navigate Through The Document --10-K405FORM 10-K405ITEM 1. BUSINESS.ITEM 2. PROPERTIES.ITEM 3. LEGAL PROCEEDINGS.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER ...ITEM 6. SELECTED FINANCIAL DATA.ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ...ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET ...ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ...ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.ITEM 11. EXECUTIVE COMPENSATION.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND ...ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ...Notes to Financial StatementsEXHIBIT INDEXSIGNATURESEXHIBIT 13REPORT OF INDEPENDENT AUDITORSBALANCE SHEETINCOME STATEMENTSTOCKHOLDERS EQUITYCASH FLOWNOTES TO FINANCIAL STATEMENTSEXHIBIT 21SUBSIDIARIESEXHIBIT 23CONSENT OF INDEPENDENT AUDITORSEXHIBIT 27 NOTES TO FINANCIAL STATEMENTS1 BASIS OF PRESENTATIONACQUISITION OF TELTREND LIMITEDOn September 18, 1997 (the "Acquisition Date"), Teltrend purchased theoutstanding shares of Securicor 3net Limited of Basingstoke, England (withoperations in the United Kingdom, New Zealand and China) and its U.S.affiliate Securicor 3net Inc. (together "Teltrend Limited") for totalacquisition costs of approximately $14.5 million. Teltrend Limited is atelecommunication equipment and software company having annualized revenues inexcess of $15 million. The transaction was accounted for as a purchase andtherefore the results of Teltrend Limited since the Acquisition Date are,included with the results of Teltrend. The purchase price was allocated toidentifiable tangible and intangible assets, including purchased in-processresearch and development, on the basis of fair values as determined by anindependent appraisal. All references in these notes to "Teltrend" or the"Company" refer to Teltrend Inc. and its wholly owned subsidiaries,collectively, which includes Teltrend Limited (and its wholly ownedsubsidiaries) from and after the Acquisition Date.The following table summarizes, on an unaudited pro forma basis, thecombined results of operations as if the above described acquisition had takenplace on July 28, 1996. Purchased in-process research and development assetsof approximately $4 million were written off in the fiscal 1998 ConsolidatedStatement of Income, and this is reflected in the fiscal 1997 pro formaresults presented below.PRO FORMA INFORMATION(in thousands, except per share data) FOR THE FISCAL YEAR ENDED-------------------------JULY 25, JULY 26,1998 1997Net sales $97,975 $ 99,444Net income (loss) $ 1,797 $ (1,593)Net income (loss) per share - assuming dilution $ 0.28 $ (0.24)42TELTREND INC. 1999 ANNUAL REPORT22NOTES TO FINANCIAL STATEMENTS (continued)The value of in-process research and development purchased in the TeltrendLimited acquisition was determined by estimating the projected net cash flowsrelating to products under development and discounting such cash flows totheir net present values. The four significant projects acquired by theCompany were: (1) the PAC+DPM API; (2) the SS7/Q931 for Lucent Definity: Phase3; (3) the Interchange iQ5OOO PRI/BRI; and (4) the Interchange '97/98. Theseprojects represent approximately 88% of the acquired purchased research anddevelopment fair value. The following table summarizes the nature of each ofthese significant research and development projects as well as theirrespective fair values at the Acquisition Date.FAIR VALUEPROJECT NATURE OF PROJECT (000'S)PAC+DMP The Application Programming Interface (API) for the NiQ router $ 440API software that enables third parties to develop and integrate,within the NiQ router, their own special or customcommunications software.SS7/Q931 Phase 3 added an updated processor and common board for $1,329for Lucent all protocol applications to Phase 2. For SS7 application, itDefinity: provides dual board resilience, added maintenance features andPhase 3 features for enhanced call center solutions.Interchange The 5000 concentrates up to 16 Basic Rate ISDN lines and $1,098iQ5000 converts these onto a single Primary Rate ISDN line. Used byPRI/BRI service providers and campus networks to deploy Basic RateISDN services remote from the ISDN switch.Interchange A combination of channel grooming, address translation and $ 643'97/98 traffic concentration features added to the Interchange software.The most significant and uncertain assumptions that affected the Company'svaluation of the purchased in-process research and development projectsinclude: (i) the period of time over which economic benefits were expected tocommence; (ii) their expected income or cash flow generating ability; and(iii) the risk adjusted discount rate. The cash flows from the significantresearch and development projects were forecast to begin upon the completionof the development process, peak two to three years thereafter, and befollowed by a steady decline. The following table summarizes, for eachsignificant in-process project acquired, the original estimated completiondate, the projected peak year of sales for the related product and theprojected average after-tax cash flow decline for the related product afterits sales peak.ORIG. EST. PEAK YEAR AVERAGE ANNUALCOMPLETION OF SALES AFTER-TAX CASHPROJECT DATE FLOW DECLINEPAC+DMP API June 98 2000 -41%SS7/Q931 for Lucent Definity: Phase 3 Feb 98 2001 -42%Interchange iQ5000 PRI/BRI Dec 97 2002 -39%Interchange '97/98 July 98 2000 -38%The assumed income generating ability of the various projects was based onthe sales and profit potential of the related product, as well as theallocation of product income to the in-process technologies relative toexisting developed and post acquisition yet-to-be-defined43TELTREND INC. 1999 ANNUAL REPORT23NOTES TO FINANCIAL STATEMENTS (continued)technologies expected to ultimately support the product upon projectcompletion. Sales estimates were based on targeted market share, historicalpricing trends and expected product life cycles. Projects PAC+DPM API,SS7/Q931 for Lucent Definity: Phase 3, Interchange iQ5000 PRI/BRI andInterchange '97/98 were projected to have gross margins of 40%, 70%, 70% and60%, respectively. This is compared to historical gross margins for the fullydeveloped products acquired in the Teltrend Limited purchase that were greaterthan 65% on average. Other operating expenses, which included selling andmarketing and general and administrative expenses, were estimated atapproximately 30% of sales. In addition, the discount rate utilized for allacquired in-process technologies was estimated at 30% in consideration ofTeltrend Limited's 15% estimated Weighted Average Cost of Capital ("WACC") andthe fact that the in-process technology had not yet reached technologicalfeasibility as of the date of valuation. In utilizing a discount rate greaterthan Teltrend Limited's WACC, management reflected the risk premium associatedwith achieving the timing and estimated cash flows associated with theseprojects. Management is responsible for the integrity of the financialinformation utilized in the valuation of the acquired research anddevelopment.2 DISPOSITION OF PRODUCT LINEOn May 28, 1999, the Company sold substantially all of the assets of itsPacket Switched product line to Centrecorn Systems Limited of England forapproximately $3.1 million. The loss is composed largely of the write-off ofintangible assets associated with the Packet Switched product line.3 DESCRIPTION OF BUSINESSThe Company designs, manufactures and markets a broad range of products, suchas channel units, repeaters and termination units, that are used by telephonecompanies to provide voice and data services over the existing telephonenetwork, primarily in the Local Loop, as well as a range of products whichprovide ISDN and protocol interworking solutions. The Company's fiscalyear-end is the last Saturday in July.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPRINCIPLES OF CONSOLIDATIONThe consolidated financial statements include the accounts and transactionsof the Company and its wholly owned subsidiaries. Intercompany amounts andtransactions have been eliminated in consolidation. Exchange rate fluctuationsfrom translating the financial statements of subsidiaries located outside theUnited States into U.S. dollars are recorded in a separate component ofstockholders' equity. All other foreign exchange gains and losses(approximately a $0.1 million loss and a $0.7 million loss in fiscal 1999 andfiscal 1998, respectively) are included on the income statement under thecaption "Other-net."CASH AND CASH EQUIVALENTSThe Company considers all highly liquid investments with a maturity of threemonths or less when purchased to be cash equivalents.44TELTREND INC. 1999 ANNUAL REPORT24NOTES TO FINANCIAL STATEMENTS (continued)MARKETABLE SECURITIESThe Company invests in debt instruments from time to time with a maturity ofgreater than three months and less than or equal to one year. Such securitiesare classified as held-to-maturity, as the Company has the intent and theability to hold these securities until maturity. These securities are carriedat amortized cost, which approximates fair value.INVENTORIESInventories are stated at the lower of cost, as determined by the first in,first out method, or market value.REVENUE RECOGNITIONThe Company recognizes revenue upon shipment of goods and transfer of title tocustomers.INCOME TAXESThe Company accounts for income taxes using the liability method as requiredby Financial Accounting Standards Board ("FASB"), Statement of FinancialAccounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".PROPERTY, PLANT, EQUIPMENT AND LEASEHOLD IMPROVEMENTSLand, buildings, equipment and leasehold improvements are recorded at cost.The Company uses the straightline method of computing provisions fordepreciation and amortization of property, equipment and leaseholdimprovements. Service lives for principal assets are 35 to 39 years forbuildings and three to ten years for equipment and leasehold improvements.INTANGIBLE ASSETSIntangible assets represent the excess of purchase price over net assetsacquired in acquisitions accounted for as a purchase. At each balance sheetdate, the Company evaluates for recognition of potential impairment itsrecorded intangible assets against its projected undiscounted cash flows. Ifthe evaluation would indicate such an impairment, the Company would measurethe impairment loss using discounted cash flows. Intangible assets areprincipally being amortized over 15 years.Intangible assets reflect the fiscal 1999 disposition of those intangibleassets related to the Packet Switched product line. In addition, the valuationallowance related to net deferred tax assets acquired in the acquisition ofTeltrend Limited were reversed in fiscal 1999 with the offset representing areduction of recorded intangibles.RESEARCH AND DEVELOPMENTResearch and development costs are expensed when incurred. Purchasedin-process research and development is recognized in purchase businesscombinations for the portion of the purchase price allocated to the appraisedvalue of in-process technologies. The portion assigned to in-processtechnologies excludes the value of core and developed technologies, which arerecognized as intangible assets.ADVERTISINGAll costs associated with advertising and promoting products are expensed inthe period incurred. Total advertising expenses were approximately $253,000,$260,000 and $116,000 in fiscal 1999, fiscal 1998 and fiscal 1997,respectively.45TELTREND INC. 1999 ANNUAL REPORT25NOTES TO FINANCIAL STATEMENTS (CONTINUED)USE OF ESTIMATESThe preparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the amounts reported in the financial statements and accompanyingnotes. Actual results could differ from these estimates.EARNINGS PER SHAREIn January 1998, the Company adopted SFAS No. 128, "Earnings Per Share,"requiring dual presentation of basic and diluted income per share ("EPS") onthe face of the income statement. Basic EPS is computed by dividing net incomeby the weighted average number of common shares outstanding during the period.Diluted EPS reflects the potential dilution from the exercise or conversion ofsecurities, such as stock options into common stock. EPS amounts for allperiods have been presented, and where necessary, restated to conform to SFASNo. 128 requirements.The following table sets forth the computation of basic and diluted incomeper share (in thousands of dollars, except per share data).Year Ended----------------------------------------July 31, July 25, July 26,1999 1998 1997Numerator:Net income $ 7,162 $ 2,239 $ 9,628Denominator:Weighted average shares outstanding 5,965 6,434 6,430Effect of dilutive stock options 106 69 224Weighted average shares outstanding -assuming dilution 6,071 6,503 6,654Net income per share $ 1.20 $ 0.35 $ 1.50Net income per share - assuming dilution $ 1.18 $ 0.34 $ 1.45STOCK OPTIONSStock options are accounted for in accordance with Accounting Principles BoardOpinion No. 25, "Accounting for Stock Issued to Employees" ("APB #25"). UnderAPB #25, no compensation expense is recognized when the exercise price of theoption equals the fair value of the underlying stock on the grant date.COMPREHENSIVE INCOMEIn fiscal 1999, the Company adopted FASB Statement No. 130, "ReportingComprehensive Income." Statement 130 establishes new rules for the reportingand displaying of comprehensive income and its components; however, theadoption of this Statement had no impact on the Company's net income orequity. Statement 130 requires foreign currency translation adjustments to beincluded in accumulated other comprehensive income, which prior to adoptionwere reported separately in stockholders' equity. Prior year financialstatements have been reclassified to conform to the requirements of Statement130.46TELTREND INC. 1999 ANNUAL REPORT26NOTES TO FINANCIAL STATEMENTS (continued)NEW PRONOUNCEMENTSIn June 1998, the FASB issued Statement No. 133, "Accounting for DerivativeInstruments and Hedging Activities." The Statement is not required to beadopted until fiscal years beginning after June 15, 2000. Statement 133 willrequire the Company to recognize all derivatives on the consolidated balancesheet at fair value. The Company does not anticipate that the adoption ofStatement 133 will have a significant impact on its results of operations orfinancial position.RECLASSIFICATIONCertain amounts in the fiscal 1998 and 1997 consolidated financial statementshave been reclassified to conform to fiscal 1999 presentations.5 RETIREMENT INVESTMENT PLANThe Company has a defined-contribution plan covering full- and part-timepersonnel in the United States, who have a minimum of one-half year of serviceand have attained the age of 21. Participants may contribute between 1% and15% of their annual compensation. The Company also has a defined-contributionplan covering all permanent employees in the United Kingdom who have completedthree months of service and are under the age of 65. Participants contribute4% of their annual compensation, and the Company contribution is determined ona scale basis, which is dependent on the age of the participant. Companycontributions to its defined-contribution plans were $789,000; $620,000; and$349,000 for the years ended July 31, 1999, July 25, 1998, and July 26, 1997,respectively.6 INVENTORIESInventories at July 31, 1999 and July 25, 1998 were as follows:(Dollars in thousands) 1999 1998Raw materials $ 5,124 $ 6,052Work-in-process 1,252 1,795Finished goods 3,090 2,809$ 9,466 $10,6567 ACCRUED EXPENSESAccrued expenses at July 31, 1999 and July 25, 1998 consisted of(Dollars in thousands) 1999 1998Salaries, wages, and bonuses $ 4,594 $ 3,258Warranty 1,254 1,404Other 4,412 4,437$10,260 $ 9,09947TELTREND INC. 1999 ANNUAL REPORT27NOTES TO FINANCIAL STATEMENTS (continued)8 CREDIT FACILITYIn 1995, the Company entered into a credit facility (the "Bank Facility")which provides, subject to certain restrictions, up to $15 million on anunsecured basis for working capital financing. As amended, the Bank Facilitywill expire on July 31, 2001 and, as of July 31, 1999, no amounts wereoutstanding. Under the Bank Facility agreement, dividends on the Company'sCommon Stock are restricted so as not to exceed 50% of the Company's netincome for the immediately preceding fiscal year.9 COMMON STOCK OPTIONSThe Company has a stock option plan (the "Plan") which provided for the grantof both incentive stock options and nonqualified stock options to purchaseshares of the class of Class A Common Stock of the Company existing prior tothe recapitalization of the Company in fiscal 1995 (the "Old Class A Stock").Unless the applicable agreement expressly provided otherwise, each optiongranted under the Plan was exercisable as to 20% of the shares covered therebyimmediately upon grant and as to an additional 20% of such shares on each ofthe next four anniversaries of the date of grant.In fiscal 1994, the Board of Directors approved a resolution to decreasethe exercise price of all options outstanding to the then-estimated value of$.1643 per share from $4.1077 per share. All options outstanding under thePlan to purchase Old Class A Stock were converted into options to purchaseshares of Common Stock, and the Company's Board of Directors amended the Planto provide that no additional options could be granted thereunder in thefuture. As of July 31, 1999, there were 30,816 options outstanding under thePlan.During June 1995, the Company adopted the Teltrend Inc. 1995 Stock OptionPlan (the "1995 Stock Option Plan") which provides for the grant of bothincentive stock options in accordance with Section 422A of the InternalRevenue Code and nonqualified stock options. A maximum of 440,000 shares ofCommon Stock may be issued in the aggregate to key employees of the Company.The Compensation Committee of the Company's Board of Directors, whichadministers the 1995 Stock Option Plan, will determine when and to whomoptions will be granted. Unless the applicable agreement expressly providesotherwise, options shall become exercisable as to 25% of the shares coveredthereby on the first anniversary of the date of grant and as to an additional25% of such shares on each of the next three anniversaries of the date ofgrant. As of July 31, 1999, there were 310,600 options outstanding under the1995 Stock Option Plan, all with an exercise price of $16 per share.During September 1996, the Company adopted the Teltrend Inc. 1996 StockOption Plan (the "1996 Stock Option Plan") which provides for the grant ofboth incentive stock options in accordance with Section 422A of the InternalRevenue Code and nonqualified stock options. A maximum of 700,000 shares ofCommon Stock may be issued in the aggregate to key employees of the Company.The Compensation Committee of the Company's Board of Directors, whichadministers the 1996 Stock Option Plan, will determine when and to whomoptions will be granted. Unless the applicable agreement expressly providesotherwise, options shall become exercisable as to 25% of the shares coveredthereby on the first anniversary of the date of grant and as to an additional25% of such shares on each of the next three anniversaries of the date ofgrant. As of July 31, 1999, there were 420,671 options outstanding under the1996 Stock Option Plan with a range of exercise prices of $12.25 to $26.25 pershare.48TELTREND INC. 1999 ANNUAL REPORT28NOTES TO FINANCIAL STATEMENTS (CONTINUED)During October 1997, the Company adopted the Teltrend Inc. 1997Non-Employee Director Stock Option Plan (the "1997 Director Option Plan"),which provides for the grant of nonqualified stock options. A maximum of250,000 shares of Common Stock may be issued to nonemployee directors of theCompany.Each individual elected as a director of the Company at the December 11,1997 Annual Meeting who qualified as a non-employee director was granted anoption (an "Initial Option") to purchase UP TO 6,000 shares of Common Stock onthe date of the Annual Meeting. Thereafter, each non-employee director who hasnot previously been granted an option under the 1997 Director Option Plan willreceive an Initial Option to purchase up to 6,000 shares of Common Stock onthe date of his or her initial election to the Board. Additionally, eachcontinuing non-employee director will be granted an additional option (an"Annual Option") to purchase up to 1,500 shares of Common Stock on eachanniversary of the date his or her Initial Option was granted. Initial Optionswill generally vest and become exercisable as to 25% of the shares of CommonStock subject thereto on the first anniversary of the date of grant and as toan additional 25% of such Common Stock subject thereto on each of the nextthree anniversaries of the date of grant. All Annual Options granted under the1997 Director Option Plan will generally vest and become exercisable on thefirst anniversary of the date of grant thereof. As of July 31, 1999, 45,000options were outstanding under the 1997 Director Option Plan, with a range ofexercise prices of $17.62 to $21.75.Transactions involving stock options granted under the Plan, the 1995Stock Option Plan, the 1996 Stock Option Plan and the 1997 Director OptionPlan are summarized as follows:NUMBER OF OPTIONS EXERCISE PRICEOutstanding, July 27, 1996 555,754 $19.10Granted 273,600 17.50 to 46.25Exercised (13,725) .16 to 16.00Canceled (162,108) .16 to 47.00Outstanding, July 26, 1997 653,521 $17.59Granted 417,500 13.25 to 21.125Exercised (25,725) .16 to 16.00Canceled (151,500) 16.00 to 20.00Outstanding, July 25, 1998 893,796 $15.89Granted 187,371 12.25 to 26.25Exercised (50,491) .16 to 20.00Canceled (223,589) .16 to 21.125Outstanding July 31, 1999 807,087 $16.60The weighted average remaining contractual life of the options outstandingis 7.3 years. Of the 807,087 stock options outstanding at July 31, 1999,449,941 are currently exercisable with a weighted average exercise price of$15.45.Pro forma information regarding net income and earnings per share isrequired by SFAS No. 123, "Accounting for Stock-Based Compensation," and hasbeen determined as if the Company had accounted for its employee stock optionsunder the fair value method of that Statement. The fair value of these optionswas estimated at the date of grant using a BlackScholes option pricing modelwith the following weighted-average assumptions for fiscal 1999,49TELTREND INC. 1999 ANNUAL REPORT29NOTES TO FINANCIAL STATEMENTS (continued)fiscal 1998 and fiscal 1997: risk-free interest rate of 6.0 percent; dividendyields of 0.0 percent; volatility factors of the expected market price of theCompany's Common stock of 0.59, 0.34, and 0.25, respectively; and aweighted-average expected life of the option of 6 years.The Black-Scholes option valuation model was developed for use inestimating the fair value of traded options which have no vesting restrictionsand are fully transferable. In addition, option valuation models require theinput of highly subjective assumptions including the expected stock pricevolatility. Because the Company's stock options have characteristicssignificantly different from those of traded options, and because changes in thesubjective input assumptions can materially affect the fair value estimate, inmanagement's opinion, the existing models do not necessarily provide areliable single measure of the fair value of its stock options.The weighted-average fair value of options was $11.08 for options grantedin fiscal 1999, $5.06 for options granted in fiscal 1998 and $7.04 for optionsgranted in fiscal 1997.For purposes of pro forma disclosures, the estimated fair value of theoptions is amortized to expense over the options' vesting period. The Company'spro forma information follows (in thousands except for earnings per shareinformation):FISCAL YEAR ENDED JULY------------------------------1999 1998 1997Net earnings - as reported $ 7,162 $ 2,239 $ 9,628Net earnings - pro forma $ 6,221 $ 836 $ 8,723Diluted earnings per share - as reported $ 1.18 $ 0.34 $ 1.45Diluted earnings per share - pro forma $ 1.02 $ 0.13 $ 1.31The pro forma effect on net income for fiscal 1999, fiscal 1998 and fiscal1997 is not representative of the pro forma effect on net income in future yearsbecause it does not take into consideration pro forma compensation expenserelated to grants made prior to fiscal 1997.10 LEASE COMMITMENTSThe Company has operating leases in effect for vehicles, equipment andfacilities. Lease expense for the fiscal years ended July 31, 1999, July 25,1998, and July 26, 1997 totaled $1,332,000; $1,072,000; and $540,000respectively.The Company's current lease agreement for its domestic main facilitycontinues through September 30, 2000. As of July 31, 1999, the Company isnegotiating to extend this lease through September 30, 2002. The expectedfinancial impact of the lease extension upon the future minimum annual leasepayments shown below would be $0, $456,000 and $565,000 for fiscal years 2000,2001 and 2002 respectively.Future minimum annual rental payments required under the leases are$1,637,000 as follows:(Dollars in thousands)Fiscal Year 2000 $ 932Fiscal Year 2001 433Fiscal Year 2002 272$ 1,63750TELTREND INC. 1999 ANNUAL REPORT30NOTES TO FINANCIAL STATEMENTS (continued)11 INCOME TAXESDeferred income taxes reflect the net tax effect of temporary differencesbetween the amount of assets and liabilities for financial reporting purposesand the amounts used for income tax purposes. Significant components of theCompany's deferred taxes are as follows:FISCAL YEAR ENDED-------------------JULY 31, JULY 25,(Dollars in thousands) 1999 1998Deferred tax assets (liabilities):Product warranty accruals $ 483 $ 496Inventory reserves 588 316Vacation accrual 506 437Medical reserve 271 240Purchased in-process research and development 1,406 1,473Accrued license fee 286 -Other 133 (15)Intangible Packet Switched assets disposed 774 -Capital loss 3,814 -Tax over book depreciation 76 (397)Total deferred tax assets 8,337 2,550Valuation allowance (5,741) (1,854)Net recorded deferred tax assets 2,596 $ 696Recognized in balance sheet:Net deferred tax assets - current 2,267 $ 1,325Net deferred tax assets - noncurrent 329 -Net deferred tax liabilities - noncurrent - (629)Net deferred tax assets $ 2,596 $ 696The capital loss was generated on the disposition of the Company's PacketSwitched product line. The carryforward will expire in fiscal 2004. Due to theuncertainty of the Company's ability to utilize the capital loss within thecarryforward period, a valuation allowance has been provided.Significant components of the provision (benefit) for income taxes are asfollows:FISCAL YEAR ENDED JULY-------------------------------(Dollars in thousands) 1999 1998 1997Current provisionFederal $ 5,544 $ 2,369 $ 4,103State 733 601 1,1506,277 2,970 5,253Deferred provisionFederal (1,683) 1,044 772State (217) 265 217(1,900) 1,309 989Provision for income taxes $ 4,377 $ 4,279 $ 6,242Income taxes paid in fiscal years 1999, 1998 and 1997 totaled $3,884,000;$3,874,000 AND $4,826,000, respectively.51TELTREND INC. 1999 ANNUAL REPORT31NOTES TO FINANCIAL STATEMENTS (continued)Total income tax provision for each year varied from the amount computed byapplying the statutory U.S. federal income tax rate to income before taxes forthe reasons set forth in the following reconciliation.FISCAL YEAR ENDED JULY-------------------------------(Dollars in thousands) 1999 1998 1997Income tax provision at the statutory rate $ 4,039 $ 2,281 $ 5,555Increase (reduction) resulting from:State income taxes, net of federal tax benefit 516 362 794Valuation allowance for non-United Statesnet operating losses 152 1,980 -Research and development tax credits (450) (533) -Other, net 120 189 (107)Actual income tax provision $ 4,377 $ 4,279 $ 6,242In fiscal 1999, foreign losses before income taxes of $1.0 million reducedconsolidated income before income taxes to $11.5 million. In fiscal 1998,foreign losses before income taxes of $8.1 million reduced consolidated incomebefore income taxes to $6.5 million.12 COMMITMENTS AND CONTINGENT LIABILITIESUnder purchase contracts with various vendors the Company has commitments topurchase raw materials totaling approximately $5,530,000 at July 31, 1999 and$8,986,000 at July 25, 1998.13 SIGNIFICANT CUSTOMERSFive customers represented: 23.7%, 19.2%, 14.9%, 10.7% and 7.1% of consolidatednet sales in 1999; 30.1%, 16.8%, 13.8%, 10.8% and 10.3% in fiscal 1998; and30.5%, 26.0%, 15.1%, 13.4% and 10.8% in fiscal 1997.At July 31, 1999, five customers represented 16.3%, 13.5%, 8.3%, 8.2% and6.9% of consolidated accounts receivable, and at July 25, 1998, five customersrepresented 21.8%, 18.6%, 8.9%, 8.1 % and 6.7% of consolidated accountsreceivable.During fiscal 1998 there were two mergers involving significant customersof the Company. Pacific Telesis Group merged with SBC Communications, Inc. andNYNEX merged with Bell Atlantic Corp. The above percentages relating to theCompany's net sales and accounts receivable were computed, for consistency, asif these mergers had been in effect for each of the years specified.52TELTREND INC. 1999 ANNUAL REPORT32NOTES TO FINANCIAL STATEMENTS (continued)14 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)FISCAL 1999 - QUARTER ENDED--------------------------------------------------------OCTOBER 31, JANUARY 30, May 1, JULY 31,1998 1999 1999(1) 1999Net sales $ 30,198 $ 24,436 $ 26,403 $ 25,994Gross profit 13,927 11,202 11,599 11,966Net income $ 2,531 $ 1,110 $ 1,000 $ 2,521Net income per common share -assuming dilution $ 0.41 $ 0.18 $ 0.17 $ 0.42FISCAL 1998 - QUARTER ENDED--------------------------------------------------------OCTOBER 25, JANUARY 24, APRIL 25, JULY 25,1997(2) 1998 1998 1998Net sales $ 21,677 $ 22,817 $ 25,271 $ 26,998Gross profit 9,386 10,369 11,860 13,022Net income (loss) $ (2,511) $ 863 $ 1,737 $ 2,149Net income (loss) per commonshare - assuming dilution $ (0.38) $ 0.13 $ 0.27 $ 0.33(1) In the third quarter of fiscal 1999 the Company recorded a $1.3 millioncharge to recognize the impairment of the Packet Switched product lineassets acquired in the acquisition of Teltrend Limited. This charge reducedthe carrying value of the assets to be disposed of to fair value less costto sell.(2) As required by generally accepted accounting principles, the Companyrecorded a $4.0 million charge immediately after the acquisition ofTeltrend Limited to write off the portion of the purchase price allocatedto in-process research and development.15 SEGMENT INFORMATIONThe Company has adopted SFAS No. 131, "Disclosures about Segments and RelatedInformation." The Company is managed in two operating segments: (i) the UnitedStates; and (ii) Europe and the Far East. Operations in Europe and the Far Eastwere acquired in the first quarter of fiscal 1998 as disclosed more fully inNote 1, "Basis of Presentation." Therefore, segment disclosures are notapplicable for fiscal year 1997.The accounting policies of the operating segments are the same as thosedescribed in Note 3, "Summary of Significant Accounting Policies." Intersegmentsales are not significant. Revenues are attributed to geographic areas basedupon the location of the areas producing the revenues.FISCAL 1999---------------------------------------------------------------------NET SALES INCOME NET IDENTI- CAPITAL DEPRE-(LOSS) INCOME FIABLE EXPEND- CIATIONBEFORE (LOSS) ASSETS ITURES ANDTAXES AMORTI-(Dollars in thousands) ZATIONUnited States $ 89,962 $12,569 $ 8,132 $57,816 $ 2,610 $ 2,516Europe, Far East 17,069 (1,030) (970) 9,167 351 936Total $ 107,031 $11,539 $ 7,162 $66,983 $ 2,961 $ 3,45253TELTREND INC. 1999 ANNUAL REPORT33NOTES TO FINANCIAL STATEMENTS (continued)FISCAL 1998---------------------------------------------------------------------NET SALES INCOME NET IDENTI- CAPITAL DEPRE-(LOSS) INCOME FIABLE EXPEND- CIATIONBEFORE (LOSS) ASSETS ITURES ANDTAXES AMORTI-(Dollars in thousands) ZATIONUnited States $ 83,984 $14,636 $ 9,268 $63,520 $ 3,781 $ 2,198Europe, Far East 12,778 (8,118) (7,029) 8,250 268 5,090Total $ 96,762 $ 6,518 $ 2,239 $71,770 $ 4,049 $ 7,288Operations listed in Europe, and the Far East are comprised of operationsin the United Kingdom, New Zealand and China. Included in income (loss) beforetaxes in the Europe and the Far East segment for fiscal 1999 is a $1.3 millioncharge for the loss on the disposition of the Company's Packet Switched productline. See Note 2, "Disposition of Product Line." In fiscal 1998, income (loss)before income taxes and amortization and depreciation for the Europe and FarEast segment includes a $4 million charge for the write-off of acquiredin-process research and development costs. Interest income is earned principallywithin the United States operating segment.16 RIGHTS PLANOn January 16, 1997, the Board of Directors of the Company declared a dividendof one preferred share purchase right (a "Right") for each outstanding share ofCommon Stock of the Company. The dividend was payable on January 27, 1997 to theholders of record of the Common Stock as of the close of business on that date.Each Right entitles the registered holder to purchase from the Company, undercertain circumstances involving the acquisition or the announcement of theintent to acquire 20% or more of the Company's Common Stock, one one-hundredthof a share of Series A Junior Participating Preferred Stock, par value $.01 pershare, of the Company (the "Preferred Stock") at a price of $160.00 per oneone-hundredth of a share of Preferred Stock, subject to adjustment. Thedescription and terms of the Rights are set forth in a Rights Agreement datedJanuary 16, 1997, as amended on June 1, 1998, and as the same may be furtheramended from time to time, between the Company and LaSalle National Bank, asRights Agent.54TELTREND INC. 1999 ANNUAL REPORT34NOTES TO FINANCIAL STATEMENTS (continued)MARKET FOR COMPANY'S SECURITIES AND RELATED MATTERSThe Common Stock, $.01 par value per share (the "Common Stock"), of the Companyis quoted on the Nasdaq National Market under the symbol "TLTN." There are noshares of the Company's Class A Common Stock, $.01 par value per share,outstanding (and hence no established public trading market therefor). Thefollowing table sets forth the high and low closing sale prices for the CommonStock for the periods indicated as reported on the Nasdaq National Market:PRICE RANGEOF COMMON STOCK----------------------FISCAL 1998 High LowFirst Quarter (from July 27, 1997 through October 25, 1997) $ 21 1/4 $14 7/8Second Quarter (from October 26, 1997 throughJanuary 24, 1998) $ 18 13/16 $14 1/8Third Quarter (from January 25, 1998 through April 25, 1998) $ 16 7/8 $12 1/4Fourth Quarter (from April 26, 1998 through July 25, 1998) $ 18 5/8 $14 3/4FISCAL 1999First Quarter (from July 26, 1998 through October 31, 1998) $ 16 1/2 $11 7/8Second Quarter (from November 1, 1998 throughJanuary 30, 1999) $ 25 1/16 $13 1/8Third Quarter (from January 31, 1999 through May 1, 1999) $ 26 1/4 $14 5/8Fourth Quarter (from May 2, 1999 through July 31, 1999) $ 22 3/8 $17 1/2FISCAL 2000First Quarter (partial)(from August 1, 1999 through September 24, 1999) $ 23 3/4 $16 13/16On September 24, 1999, the last reported sale price of the Common Stock asreported on the Nasdaq National Market was $18-5/8 per share. On that same date,there were 95 registered holders of record of the Common Stock.The Company has not paid any cash dividends since 1988. The terms of theBank Facility prohibit the Company from declaring and paying in any fiscal yeardividends which exceed, in the aggregate, 50% of the Company's net income forthe immediately preceding fiscal year. Otherwise, the declaration and payment ofdividends will be at the sole discretion of the Board of Directors of theCompany and subject to certain limitations under the General Corporation Law ofthe State of Delaware. The timing, amount and form of dividends, if any, willdepend, among other things, on the Company's results of operations, financialcondition, cash requirements, plans for expansion and other factors deemedrelevant by the Board of Directors. The Company does not anticipate paying anycash dividends in the foreseeable future.55TELTREND INC. 1999 ANNUAL REPORT35CORPORATE OFFICERSHOWARD L. KIRBY, JR. JACK C. PARKER THEODOR A. MAXEINERChairman of the Board, Senior Vice President Assistant Vice PresidentPresident and Chief Engineering and Marketing Finance, Controller andExecutive Officer Assistant SecretarySTEVEN R. SNOWDOUGLAS P. HOFFMEYER Senior Vice President Sales MICHAEL A. SAMOCKISenior Vice President Finance, and Strategic Marketing Assistant Vice President QualitySecretary and TreasurerGILBERT H. HOSIE JANICE LOLLINILAURENCE L. SHEETS Vice President Sales Assistant Vice PresidentVice President Business Human ResourcesDevelopment/Chief MICHAEL S. GRZESKOWIAKTechnical Officer Vice President Operations MICHAEL BURGESSManaging Directorof Teltrend LimitedBOARD OF DIRECTORSHOWARD L. KIRBY, JR.(3),(5) BERNARD F. SERGESKETTER(2) DONALD R. HOLLIS(4)Chairman of the Board, Former Vice President of AT&T; President, DRH StrategicPresident and Chief President of Sergesketter & Consulting Inc.; formerExecutive Officer Associates Inc., a private Executive Vice President, Firstconsulting firm; also a director Chicago Corporation; also aFRANK T. CARY (1), (4) of the Illinois Institute of director of Deluxe Corporation,Former Chairman and Chief Technology, the Cradle and Open Port Technology andExecutive Officer of the Mather Foundation Edify CorporationInternational BusinessMachines Corporation HARRY CRUTCHER, III(3),(4) SUSAN B. MAJOR(1),(2)and current director of President, Resorts Financial Vice President and ManagingCelgene Corporation, Cygnus Services Co. (consulting firm); Director, A.T. Kearney, Inc.;Therapeutic Systems, ICOS Managing Partner, Grouse former Director of Paging andCorporation, Lincare, Inc., Mountain Associates, Ltd. Wireless Data for AmeritechLexmark Intl. Inc. and (hotel owner and operator); Cellular Services, Inc.Vion Pharmaceuticals, Inc. and President, Crutcher (1) Member of Compensation CommitteeEnterprises, Inc. (financial (2) Member of Audit CommitteeWILLIAM R. DELK (1),(2) strategic planning firm) (3) Member of Nominating CommitteeRetired Vice President, (4) Member of Executive CommitteeBellSouth Corporation, Inc. (5) Ex-officio Member of Executive CommitteeCORPORATE INFORMATIONCORPORATE OFFICES ANNUAL MEETING COMMON STOCKPrincipal Executive Offices The Annual Meeting of Stock- The Common Stock ofTe1trend Inc. holders of Teltrend Inc. will be Teltrend Inc. is traded on620 Stetson Avenue held at 9:00 a.m. on Thursday, the Nasdaq National MarketSt. Charles, Illinois 60174 December 2, 1999 at the under the symbol "TLTN."630-377-1700 Company's principal executiveoffices in St. Charles, Illinois. COUNSELUnited Kingdom Jenner & BlockTeltrend Limited ANNUAL REPORT ON FORM 10-K Chicago, IllinoisRingway House, Bell Road Single copies of the Company'sDaneshill, Basingstoke Annual Report on Securities and AUDITORSHants, RG24 8FB, Exchange Commission Form 10-K Ernst & Young LLPUnited Kingdom (without exhibits) will be provided Chicago, Illinoiswithout charge to stockholdersupon written request directed to TRANSFER AGENTDouglas P. Hoffmeyer, Secretary, AND REGISTRARat the principal executive offices. LaSalle National BankChicago, Illinois56TELTREND INC. 1999 ANNUAL REPORT.copyright{font-family: arial, helvetica, sans-serif;font-size: 9pt;}© 1995-2008EDGAR Online, Inc. All rights reserved • NASDAQ:EDGR • Solutions for Corporations •Terms of Use • Privacy Statement разделы
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