-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, X4+7oriZATXW3LivlZ+DRpnUt52p2/JrbpuvVz+KzwGpNo0Xl3BH4ED5Crkj3v1Y NA6kM8DNS0paIgCYv6cVFA== 0000950134-95-000074.txt : 19950608 0000950134-95-000074.hdr.sgml : 19950608 ACCESSION NUMBER: 0000950134-95-000074 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941115 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950130 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DSC COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000316004 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 541025763 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-10018 FILM NUMBER: 95503843 BUSINESS ADDRESS: STREET 1: 1000 COIT RD CITY: PLANO STATE: TX ZIP: 75075 BUSINESS PHONE: 2145193000 MAIL ADDRESS: STREET 1: 1000 COIT ROAD CITY: PLANO STATE: TX ZIP: 75075-5813 FORMER COMPANY: FORMER CONFORMED NAME: DIGITAL SWITCH CORP DATE OF NAME CHANGE: 19850425 8-K/A 1 FORM 8-K/A AMENDMENT NO. 1 DATED NOVEMBER 15, 1994 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 8-K/A 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): November 15, 1994 DSC COMMUNICATIONS CORPORATION -------------------------------------------------------- (Exact name of registrant as specified in its character) DELAWARE 0-10018 54-1025763 - ----------------- --------------------- ------------------- (State or other (Commission File No.) (IRS Employer jurisdiction Identification No.) of incorporation) 1000 Coit Road Plano, Texas 75075 - -------------------------------------------------------------------------------- (Address of principal executive offices) (zip code) (214)519-3000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) 2 The undersigned Registrant hereby amends Item 7. "Financial Statements and Exhibits" of its Current Report on Form 8-K dated November 15, 1994 as set forth in the pages attached hereto. ITEM 7. FINANCIALS STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired 1. Audited financial statements of NKT Elektronik A/S as of and for the year ended December 31, 1993. 2. Unaudited interim financial statements of NKT Elektronik A/S a. Condensed Consolidated Balance Sheet as of September 30, 1994. b. Condensed Consolidated Statements of Operations for the nine months ended September 30, 1994 and 1993. c. Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1994 and 1993. d. Notes to Condensed Consolidated Financial Statements. (b) Pro Forma Financial Information 1. Pro Forma Financial Information Introduction. 2. Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1994. 3. Unaudited Pro Forma Condensed Consolidated Statement of Operations for the nine months ended September 30, 1994. 4. Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1993. 5. Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. (c) Exhibits *2.0 Stock Purchase Agreement By and Among DSC Communications Corporation, NKT Holding A/S, and NKT Elektronik A/S dated as of October 20, 1994 incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1994 *2.1 Amendment No. 1 to Exhibit 2.0 *10.0 Noncompetition Agreement *10.1 Escrow Agreement 23. Consent of Deloitte & Touche - ------------------- * Previously filed. 3 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned hereunto duly authorized. DSC COMMUNICATIONS CORPORATION Date: January 30, 1995 By: /s/ KENNETH R. VINES -------------------------- Kenneth R. Vines Vice President, Finance 4 ITEM 7. (a) 1. Audited financial statements of NKT Elektronik A/S December 31, 1993 5 REPORT OF INDEPENDENT AUDITORS The Board of Directors of DSC Communications Corporation We have audited the accompanying consolidated balance sheet of NKT Elektronik A/S and subsidiaries (the "Company") as of December 31, 1993, and the related consolidated statements of income, retained earnings and cash flows for the year ended December 31, 1993. 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 audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1993, and the consolidated results of its operations and its cash flows for the year ended December 31, 1993 in conformity with generally accepted accounting principles in the United States of America. Copenhagen, April 12, 1994, except for the Subsequent Event footnote, as to which the date is December 30, 1994. D E L O I T T E & T O U C H E Statsautoriseret Revisionsaktieselskab Carsten Vaarby State Authorized Public Accountant (Denmark) 6 NKT Elektronik A/S and Subsidiaries CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS For the year ended December 31
1993 DKK 1,000 --------- Revenue ....................................................... 704,681 Cost of revenue ............................................... (480,451) -------- Gross profit .................................................. 224,230 Operating costs and expenses: Research and product development .............................. (76,672) Selling, general and administrative ........................... (105,402) -------- Total operating costs and expenses ............................ (182,074) -------- Operating income .............................................. 42,156 Interest expense .............................................. (17,312) Interest income ............................................... 10,903 Minority interests in net losses of subsidiaries .............. 7,214 -------- Income before income taxes .................................... 42,961 Income taxes .................................................. (9,862) -------- Net income .................................................... 33,099 Retained earnings as of January 1, 1993 ....................... 37 ------- Retained earnings as of December 31, 1993 ..................... 33,136 =======
See Accompanying Notes to Consolidated Financial Statements 7 NKT Elektronik A/S and Subsidiaries CONSOLIDATED BALANCE SHEET December 31
1993 DKK 1,000 --------- Assets CURRENT ASSETS Cash ............................................................ 79,913 Receivables, less allowances for doubtful accounts of DKK 720,000 ................................................... 228,656 Inventories ..................................................... 210,689 Intercompany receivables ........................................ 15,543 Other current assets ............................................ 50,146 ------- Total current assets ............................................ 584,947 ------- PROPERTY AND EQUIPMENT, NET ....................................... 99,486 ------- Total assets ................................................. 684,433 ======= Liabilities and Shareholder's Equity CURRENT LIABILITIES Short-term bank debt ............................................ 152,410 Accounts payable ................................................ 133,332 Intercompany payables ........................................... 19,388 Accrued liabilities ............................................. 27,854 Customer advances ............................................... 8,605 Income taxes payable ............................................ 5,483 Current portion of long-term debt ............................... 3,098 ------- Total current liabilities ....................................... 350,170 ------- LONG-TERM DEBT, NET OF CURRENT PORTION ............................ 17,974 NONCURRENT INCOME TAXES AND OTHER LIABILITIES ..................... 28,959 MINORITY INTERESTS ................................................ 4,594 COMMITMENTS AND CONTINGENCIES SHAREHOLDER'S EQUITY Common stock, DKK 1,000 par value, authorized, issued and outstanding-100,000 ................................ 100,000 Additional capital .............................................. 149,600 Retained earnings ............................................... 33,136 ------- Total shareholder's equity ...................................... 282,736 ------- Total liabilities and shareholder's equity ................... 684,433 =======
See Accompanying Notes to Consolidated Financial Statements 8 NKT Elektronik A/S and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended December 31,
1993 DKK 1,000 --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ....................................................... 33,099 Adjustments to reconcile net income to net cash used for operating activities: Depreciation and amortization .................................... 29,410 Minority interests ............................................... (7,214) Changes in operating assets and liabilities: Increase in receivables .......................................... (14,637) Increase in inventories .......................................... (61,894) Increase in intercompany receivables ............................. (8,400) Increase in other current assets ................................. (36,341) Decrease in current payables and accruals ........................ (36,436) Increase in intercompany payables ................................ 2,695 Increase in customer advances .................................... 5,789 Increase in noncurrent income taxes and other liabilities ........ 6,460 -------- NET CASH USED FOR OPERATING ACTIVITIES ........................... (87,469) -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment .............................. (27,938) -------- NET CASH USED FOR INVESTING ACTIVITIES ........................... (27,938) -------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowing under debt arrangements ................................ 111,927 Payments of short-term and long-term debt ........................ (1,676) Contribution from minority shareholders in subsidiaries .......... 8,500 -------- NET CASH PROVIDED BY FINANCING ACTIVITIES ........................ 118,751 -------- NET INCREASE IN CASH ............................................. 3,344 CASH AT BEGINNING OF PERIOD ...................................... 76,569 -------- CASH AT END OF PERIOD ............................................ 79,913 ======== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid .................................................... 16,303 ======== Income taxes paid ................................................ 12,526 ========
See Accompanying Notes to Consolidated Financial Statements 9 NKT Elektronik A/S and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of the Business NKT Elektronik A/S (the "Company") is a designer, developer, manufacturer and marketer of telephone cables and high-speed transmission equipment for the worldwide telecommunications marketplace. The Company is a wholly-owned subsidiary of NKT Holding A/S, Denmark. Principles of Consolidation These Financial Statements have been prepared using Generally Accepted Accounting Principles in the United States of America. The consolidated financial statements of the Company include the accounts of the Company and all of its subsidiaries owned 50% or more over which the Company exercises management control. All significant intercompany transactions and balances are eliminated. Revenue Recognition Revenue is generally recognized when the Company has completed substantially all manufacturing and/or software development to customer specifications, factory testing has been completed and the product has been shipped. Additionally, for systems where installation requirements are the responsibility of the Company and payment terms are related to installation completion, revenue is generally recognized when the system has been installed. Revenue under contracts with customers for development and customization of software or cable projects is accounted for using the percentage-of-completion method as certain contracted milestones are completed. Revenue from technical assistance service contracts is recognized ratably over the period the services are performed. Research and Development Costs All research and development expenditures are charged to research and development expense in the period incurred. The Company performs certain research and development activities under cost sharing contracts with various partners, primarily the European Economic Community and the Danish government, who want to promote employment and technology development. These contracts are effected in the form of research grants and are accounted for as reductions to research and development expense as the related development costs are incurred. Certain of these grants provide for repayments in the form of royalties at rates ranging from 2-5% of revenue from product sales incorporating the specific technology developed. Royalty payments are generally limited to the amount of the grant plus interest and are only required when revenue, as described above, is recognized. Grants credited to research and development expense during 1993 were DKK 29,914,000, and royalty fees charged to expense during the year were DKK 10,378,000. At December 31, 1993, up to approximately DKK 10,350,000 of royalty payments may be required in future years if additional revenue is recognized from products developed under certain grants. 10 Inventories Inventories are valued at the lower of cost or market on a first-in first-out basis. Inventories consisted of the following at December 31, 1993:
DKK 1,000 --------- Raw material ............................................. 67,698 Work in Process .......................................... 73,709 Finished Goods ........................................... 64,697 Construction contracts ................................... 4,585 ------- 210,689 =======
Property and Equipment Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives as follows: Buildings .................................................... 8-25 Years Leasehold improvements ....................................... 1-5 Years Manufacturing, development and test equipment ................ 4-8 Years Office furniture, equipment and other ........................ 4-8 Years
11 Income taxes The liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and the tax bases of assets and liabilities and are measured using the current tax rates and laws that will be in effect when the differences are expected to reverse. PROPERTY AND EQUIPMENT The Company's property and equipment consisted of the following at December 31, 1993:
DKK 1,000 --------- Buildings and leasehold improvements .......................... 18,297 Manufacturing, development and test equipment ................. 220,939 Office furniture, equipment and other ......................... 68,492 Fixed assets under construction ............................... 4,712 -------- 312,440 Less: Accumulated depreciation and amortization ............... (212,954) -------- 99,486 ========
Capital leases The Company leases certain data processing equipment which is capitalized as part of Property and Equipment. The capital lease amounts included in Property and Equipment at December 31, 1993 were as follows:
DKK 1,000 --------- Office furniture, equipment and other ....................... 11,261 ------- 11,261 Less: Accumulated amortization .............................. (2,634) ------- 8,627 =======
12 The following is a schedule by years of future minimum lease payments under capital lease together with the present value of net minimum lease payments as of December 31, 1993:
DKK 1,000 --------- Year ending December 31: 1994........................................................... 3,554 1995........................................................... 3,469 1996........................................................... 2,992 ------- 10,015 Less: Amount representing interest ............................ (1,388) ------- Present value of net minimum lease payments ................... 8,627 =======
Credit agreement The Company has a revolving credit facility as part of a consolidated arrangement established by NKT Holdings A/S. The agreement provides for borrowings up to DKK 230,000,000, of which DKK 77,600,000 is available at December 31, 1993. The credit facility expires on December 31, 1994, and borrowings under the facility bear interest at variable interest rates which ranged from 8.75% to 13.75% during 1993. The interest rate on borrowings under the facility at December 31, 1993 was 8.75%. LONG-TERM DEBT Total long-term debt consisted of the following at December 31, 1993:
DKK 1,000 --------- Secured 8% installment note, due 1994-2013 .................... 12,445 Capital lease obligations ..................................... 8,627 ------- 21,072 Current portion ............................................... (3,098) ------- Total long-term debt .......................................... 17,974 =======
13 The installment note is collateralized by a Company building with a carrying value of DKK 11,246,000. The aggregate maturities of long-term debt for the next five years, excluding capital lease obligations, are as follows: 1994 - DKK 280,000; 1995 - DKK 303,000; 1996 - DKK 328,000; 1997 - DKK 355,000; 1998 - DKK 385,000. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's net deferred tax asset as of December 31, 1993 were as follows:
DKK 1,000 --------- Deferred Tax Assets Asset valuation reserves not yet deductible for tax ............. 5,921 Other ........................................................... 1,931 ------- Deferred assets ................................................. 7,852 ------- Deferred Tax Liabilities Deferred revenue ................................................ (22,394) Depreciation .................................................... (5,153) ------- Deferred liability .............................................. (27,547) ------- Net deferred tax ................................................ (19,695) =======
Income tax expense was composed of the following for 1993:
DKK 1,000 --------- Current: Danish corporate tax ...................................... 5,909 Foreign tax ............................................... 1,673 ----- Total current ............................................. 7,582 ----- Deferred: Danish corporate tax ...................................... 2,280 ----- Total deferred tax ........................................ 2,280 ----- Total tax expense ......................................... 9,862 =====
14 The effective income tax rate on pretax income differed from the Danish income tax statutory rate for the following reasons for 1993:
DKK 1,000 -------- Income tax charge (credit): At statutory rate ........................................... 14,607 Foreign tax rate differential ............................... (673) Research and development tax credit ......................... (4,370) Other ....................................................... 298 ------- 9,862 =======
RELATED PARTY TRANSACTIONS The Company purchases and sells certain fiber optical and copper cable products and provides certain services for NKT Holdings and its affiliates as part of its operations. The total of these transactions for 1993 and the related payable and receivable account balances at December 31, 1993 were as follows:
DKK 1,000 --------- Revenue ................................................... 28,880 Purchases ................................................. 90,474 Intercompany receivable ................................... 15,543 Intercompany payable ...................................... 19,388
Interest income of DKK 108,000 and interest expense of DKK 1,404,000 has also been recorded related to the intercompany balances. In addition, a management fee of DKK 3,518,000 to NKT Holding A/S and rent expense of DKK 16,552,000 to an affiliate of NKT Holdings were included in operating expenses in 1993. COMMITMENTS AND CONTINGENCIES Operating Lease Commitments The Company leases certain facilities and equipment which require future rental payments. Certain of these leases have renewal and purchase options generally at the fair value at the renewal or purchase option date. Future minimum rental commitments under operating leases with noncancellable lease terms in excess of one year were as follows at December 31, 1993:
DKK 1,000 --------- 1994 ................................................... 809 1995 ................................................... 754 1996 ................................................... 743 1997 ................................................... 619 1998 ................................................... 0 Thereafter ............................................. 0 ----- 2,925 =====
Operating lease rental expense was DKK 16,836,000 for the year ended December 31, 1993. 15 Contingent Liabilities The Company has guarantees to customers of approximately DKK 67,000,000 which are collateralized by letters of credit. The Company enters into forward foreign exchange contracts to hedge both firm commitments and anticipated transactions which are denominated in foreign currencies. At December 31, 1993, the Company had forward foreign exchange contracts of DKK 695,100,000. Gains and losses on these contracts are recognized as part of the cost of the underlying transaction being hedged, with the exception of realized gains and losses on contracts designed to hedge anticipated foreign currency transactions which are recognized in net income currently. Forward foreign exchange contracts generally have maturities of one year or less and contain an element of risk the counterparty may be unable to meet the terms of the agreement. However, the Company minimizes such risk by limiting the counterparty to major financial institutions. Management believes the risk of incurring such losses is remote, and any losses therefrom would be immaterial. Litigation The Company is a party to legal proceedings which, in the opinion of management, are not expected to have a material adverse effect on the Company's consolidated financial position. INTERNATIONAL OPERATIONS AND MAJOR CUSTOMERS Export Sales Revenue generated from export sales in 1993 was DKK 570,000,000 or 81% of total revenue. Major Customers Deutsche Bundespost accounted for 35% of consolidated revenue in 1993. No other customers accounted for 10% or more of consolidated revenue in 1993. SUBSEQUENT EVENT On November 15, 1994 all of the outstanding stock of the Company was acquired by DSC Communications Corporation for approximately $147 million. The Company's name was subsequently changed to DSC Communications A/S. 16 ITEM 7. (a) 2. Unaudited interim financial statements of NKT Elektronik A/S 17 NKT Elektronik A/S and Subsidiaries Condensed Consolidated Balance Sheet (DKK in thousands) (Unaudited)
September 30, 1994 ------------- Assets - --------------------------------------------------------------------------- CURRENT ASSETS Cash .................................................................... 91,911 Receivables.............................................................. 192,966 Intercompany receivables................................................. 2,667 Inventories.............................................................. 225,020 Other current assets..................................................... 55,311 ------------- Total current assets................................................ 567,875 ------------- PROPERTY AND EQUIPMENT, Net................................................ 81,289 ------------- Total assets.................................................... 649,164 ============= Liabilities and Shareholder's Equity - --------------------------------------------------------------------------- CURRENT LIABILITIES Short-term bank debt..................................................... 19,990 Accounts payable......................................................... 108,330 Intercompany payables.................................................... 46,584 Accrued liabilities...................................................... 81,366 Customer advances........................................................ 36,550 Income taxes payable..................................................... 5,309 Current portion of long-term debt........................................ 3,500 ------------- Total current liabilities........................................... 301,629 ------------- LONG-TERM DEBT, net of current portion..................................... 5,703 NONCURRENT INCOME TAXES AND OTHER LIABILITIES.............................. 27,441 COMMITMENTS AND CONTINGENCIES SHAREHOLDER'S EQUITY Common stock............................................................. 101,100 Additional capital....................................................... 214,191 Retained earnings (deficit) ............................................. (900) ------------- Total shareholder's equity............................................ 314,391 ------------- Total liabilities and shareholder's equity.......................................... 649,164 =============
See accompanying Notes to Condensed Consolidated Interim Financial Statements. 18 NKT Elektronik A/S and Subsidiaries Condensed Consolidated Statements of Operations (DKK in thousands) (Unaudited)
Nine Months Ended September 30, ------------------------------ 1994 1993 ----------- ----------- Revenue........................................ 505,964 440,254 Cost of revenue................................ (359,921) (295,116) ----------- ----------- Gross profit................................. 146,043 145,138 ----------- ----------- Operating costs and expenses: Research and product development............. (88,457) (52,486) Selling, general and administrative.......... (99,993) (78,993) ----------- ----------- Total operating costs and expenses......... (188,450) (131,479) ----------- ----------- Operating income (loss) ..................... (42,407) 13,659 Interest expense............................... (8,998) (14,684) Interest income................................ 6,412 12,020 Other income (expense), net.................... 11,641 4,050 ----------- ----------- Income (loss) before income taxes.......... (33,352) 15,045 Income tax (expense) benefit................... 13,609 (4,387) ----------- ----------- Net income (loss) ......................... (19,743) 10,658 =========== ===========
See accompanying Notes to Condensed Consolidated Interim Financial Statements. 19 NKT Elektronik A/S and Subsidiaries Condensed Consolidated Statements of Cash Flows (DKK in thousands) (Unaudited)
Nine Months Ended September 30, ------------------------- 1994 1993 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss).................................. (19,743) 10,658 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization.................. 21,840 23,948 Minority interests............................. (7,641) (4,050) Decrease in receivables............................ 48,566 54,802 Increase in inventories............................ (14,331) (90,350) Increase in other current assets................... (5,165) (44,839) Increase in customer advances...................... 27,945 3,282 Increase (decrease) in current payables and accruals......................................... 62,963 (22,128) Decrease in noncurrent income taxes and other liabilities............................ (15,252) (5,104) ----------- ---------- NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES....................... 99,182 (73,781) ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment................ (20,195) (29,086) Sales of property and equipment.................... 16,552 -- ----------- ---------- NET CASH USED FOR INVESTING ACTIVITIES....................... (3,643) (29,086) ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Short-term borrowings.............................. -- 151,496 Payments of short-term and long-term borrowings.... (144,289) -- Contributions to capital........................... 65,691 -- Contributions by minority shareholders............. 9,350 -- Dividend payment................................... (14,293) -- ----------- ---------- NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES....................... (83,541) 151,496 ----------- ---------- NET INCREASE IN CASH................................. 11,998 48,629 CASH AT BEGINNING OF PERIOD.......................... 79,913 76,569 ----------- ---------- CASH AT END OF PERIOD................................ 91,911 125,198 =========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid...................................... 7,918 12,256 =========== ========== Income taxes paid.................................. 5,483 12,100 =========== ==========
See accompanying Notes to Condensed Consolidated Interim Financial Statements. 20 NKT ELECTRONIK A/S AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 1994 and 1993 (Unaudited) BASIS OF PRESENTATION The accompanying unaudited Condensed Consolidated Interim Financial State- ments reflect, in the opinion of management, all adjustments necessary to present fairly the Company's financial position, results of operations and cash flows. Such adjustments are of a recurring nature unless otherwise disclosed herein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to rules and regulations promulgated by the Securities and Exchange Commission. However, the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. Interim consolidated financial results may not be indicative of annual consolidated financial results. These unaudited financial statements should be read in conjunction with the audited financial statements and accompanying notes of NKT Electronik A/S ("NKTE") for the year ended December 31, 1993. These financial statements have been prepared using generally accepted accounting principles as applied in the United States of America. The statement amounts are presented in Danish Kroner (DKK). INCOME TAX EXPENSE The Company's effective tax rate for the nine months ended September 30, 1994 and 1993 was 41% and 29%, respectively. The differences between the effective tax rates and the statutory rate of 34% were primarily the result of available research and development tax credits. ACQUISITION BY DSC COMMUNICATIONS CORPORATION On November 15, 1994 DSC Communications Corporation ("DSC") acquired all the outstanding stock of NKTE for approximately U.S. $147,000,000 in cash. As a part of the acquisition by DSC, two divisions (a fiber optics cable division and a copper cable division) were sold to NKT Holding A/S at approximately net book value, prior to the effective date of the acquisition. The two divisions had sales of DKK 83,407,000 and a net loss of DKK 9,720,000 for the nine months ended September 30, 1994. See the unaudited pro forma financial statements contained elsewhere herein for additional information on the acquisition. 21 ITEM 7. (b) Pro Forma Financial Information 22 DSC COMMUNICATIONS CORPORATION Pro Forma Financial Information On November 15, 1994, DSC Communications Corporation (the "Company" or "DSC") acquired all of the outstanding stock of NKT Elektronik A/S ("NKTE"), a Copenhagen, Denmark-based manufacturer of optical transmission equipment, from NKT Holding A/S for approximately $147 million in cash. This initial acquisition cost was funded with approximately $85 million in existing cash and approximately $62 million in short-term debt. Additional costs incurred pursuant to the transaction resulted in a total acquisition cost of approximately $149 million. The accompanying unaudited pro forma condensed consolidated balance sheet as of September 30, 1994 has been prepared as if the acquisition had been consummated on the balance sheet date. The accompanying unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 1994 and for the year ended December 31, 1993 have been prepared as if the acquisition had been consummated as of the beginning of the respective periods. The following unaudited pro forma condensed consolidated financial statements reflect the acquisition using the purchase method of accounting. Accordingly, a portion of the purchase price has been preliminarily allocated to the assets and liabilities of NKTE based on their estimated fair values and the balance of the purchase price has been preliminarily included in Costs in excess of net assets of businesses acquired, net on the Company's unaudited pro forma condensed consolidated balance sheet. These allocations and the related Costs in excess of net assets of businesses acquired, net could change during 1995 as the Company completes its review of the fair value of NKTE's net assets. These pro forma statements are presented for informational purposes only and have been prepared based on the estimates and assumptions outlined in the accompanying notes to the unaudited pro forma financial statements which are deemed by the Company to be appropriate. These pro forma statements may not be indicative of the financial position or results of operations as they would have been if the Company and NKTE had actually been a single entity at the dates presented or during such periods, nor is it necessarily indicative of the financial position or results which may be obtained in the future. Anticipated efficiencies from the consolidation of NKTE and the Company are not fully determinable and therefore have been excluded from these pro forma results of operations. These pro forma financial statements should be read in conjunction with the audited financial statements of NKTE for the year ended December 31, 1993 and the unaudited interim financial statements of NKTE for the nine months ended September 30, 1994, both included elsewhere herein, as well as the financial statements of the Company included in its Annual Report on Form 10-K for the year ended December 31, 1993 and its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1994. 23 DSC COMMUNICATIONS CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1994 (In thousands) (Unaudited)
HISTORICAL --------------------------------- PRO FORMA PRO FORMA DSC NKTE ADJUSTMENTS CONSOLIDATED --------------- --------------- ---------------- ------------ ASSETS Cash and cash equivalents $ 109,240 $ 15,101 $ (7)(A) $ 39,334 (85,000)(B) Marketable securities 211,635 -- -- 211,635 Receivables 165,760 32,143 (5,044)(A) 192,859 Inventories 152,709 36,971 (4,794)(A) 182,062 (2,824)(C) Other current assets 42,126 9,087 (2,015)(A) 49,198 --------------- --------------- ---------------- ------------ Total current assets 681,470 93,302 (99,684) 675,088 Property and equipment, net 243,851 13,356 (3,992)(A) 253,215 Cost in excess of net assets of businesses acquired, net 47,974 -- 102,213 (C) 150,187 -- Investment in NKT Elektronik A/S -- -- 149,374 (B) -- (149,374)(C) Other 88,109 -- -- 88,109 --------------- --------------- ---------------- ------------ Total Assets $ 1,061,404 $ 106,658 $ (1,463) $ 1,166,599 =============== =============== ================ ============
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. 24 DSC COMMUNICATIONS CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED) SEPTEMBER 30, 1994 (In thousands) (Unaudited)
HISTORICAL --------------------------------- PRO FORMA PRO FORMA DSC NKTE ADJUSTMENTS CONSOLIDATED --------------- --------------- ---------------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt $ -- $ 3,284 $ 62,000 (B) $ 65,284 Accounts payable 56,475 25,452 (7,654)(A) 74,273 Accrued liabilities 126,563 13,369 (8,198)(A) 135,778 2,374 (B) 1,670 (C) Customer advances 10,308 6,005 -- 16,313 Income taxes payable 16,042 872 -- 16,914 Current portion of long-term debt 12,252 575 -- 12,827 --------------- --------------- ---------------- ------------ Total current liabilities 221,640 49,557 50,192 321,389 Long-term debt, net of current portion 11,944 937 -- 12,881 Noncurrent income taxes and other liabilities 55,124 4,509 -- 59,633 --------------- --------------- ---------------- ------------ Total liabilities 288,708 55,003 50,192 393,903 --------------- --------------- ---------------- ------------ Common stock 1,183 16,611 (16,611)(C) 1,183 Additional capital 605,625 35,192 (35,192)(C) 605,625 Unrealized losses on securities, net of income taxes (2,517) -- -- (2,517) Retained earnings 211,516 (148) 148 (C) 211,516 Treasury stock, at cost (43,111) -- -- (43,111) --------------- --------------- ---------------- ------------ Total shareholders' equity 772,696 51,655 (51,655) 772,696 --------------- --------------- ---------------- ------------ Total liabilities and shareholders' equity $ 1,061,404 $ 106,658 $ (1,463) $ 1,166,599 =============== =============== ================ ============
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. 25 DSC COMMUNICATIONS CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (In thousands, except per share data) (Unaudited)
HISTORICAL ------------------------------------- PRO FORMA PRO FORMA DSC NKTE ADJUSTMENTS CONSOLIDATED ---------------- ----------------- ----------------- ------------ Revenue $ 691,049 $ 79,032 $ (13,029)(A) $ 757,052 Cost of revenue 354,706 56,220 (10,540)(A) 400,274 (112)(G) ---------------- ----------------- ----------------- ----------- Gross profit 336,343 22,812 (2,377) 356,778 Operating costs and expenses: Research and product development 87,175 13,817 (630)(A) 100,362 Selling, general and administrative 100,087 15,619 (3,743)(A) 111,788 (175)(G) Other operating costs 5,827 -- 3,833 (F) 9,660 ---------------- ----------------- ----------------- ----------- Total operating costs and expenses 193,089 29,436 (715) 221,810 ---------------- ----------------- ----------------- ----------- Operating income (loss) 143,254 (6,624) (1,662) 134,968 Interest expense 1,313 1,405 (937)(A) 4,339 2,558 (D) Interest income (12,037) (1,002) 78 (A) (10,549) 2,412 (D) Other (income) expense, net 3,922 (1,818) 625 (A) 2,729 ---------------- ----------------- ----------------- ----------- Income (loss) before income taxes 150,056 (5,209) (6,398) 138,449 Income taxes (benefit) 40,975 (2,126) 601 (A) 37,144 (2,306)(H) ---------------- ----------------- ----------------- ----------- Net income (loss) $ 109,081 $ (3,083) $ (4,693) $ 101,305 ================ ================= ================= =========== Income per share $ 0.94 $ 0.87 ================ =========== Average shares used in computation 116,614 116,614
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. 26 DSC COMMUNICATIONS CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993 (In thousands, except per share data) (Unaudited)
HISTORICAL ------------------------------------- PRO FORMA PRO FORMA DSC NKTE ADJUSTMENTS CONSOLIDATED ---------------- ----------------- ----------------- ------------ Revenue $ 730,774 $ 108,662 $ (11,585)(A) $ 827,851 Cost of revenue 412,805 74,086 (15,926)(A) 470,818 (147)(G) ---------------- ----------------- ----------------- ----------- Gross profit 317,969 34,576 4,488 357,033 Operating costs and expenses: Research and product development 86,620 11,823 -- 98,443 Selling, general and administrative 112,723 16,253 (20)(A) 128,725 (231)(G) Other operating costs 8,450 -- 5,111 (F) 13,561 ---------------- ----------------- ----------------- ----------- Total operating costs and expenses 207,793 28,076 4,860 240,729 ---------------- ----------------- ----------------- ----------- Operating income 110,176 6,500 (372) 116,304 Interest expense 6,256 2,670 (1,259)(A) 17,957 10,290 (E) Interest income (5,691) (1,681) (80)(A) (7,452) Other (income) expense, net 155 (1,112) -- (957) ---------------- ----------------- ----------------- ----------- Income before income taxes 109,456 6,623 (9,323) 106,756 Income taxes 27,796 1,521 1,885 (A) 27,419 (3,783)(H) ---------------- ----------------- ----------------- ----------- Net income $ 81,660 $ 5,102 $ (7,425) $ 79,337 ================ ================= ================= =========== Income per share (1) $ 0.77 $ 0.74 ================ =========== Average shares used in computation (1) 106,650 106,650
(1) On April 27, 1994, the Board of Directors declared a two-for-one stock split, effected in the form of a 100% stock dividend, to shareholders of record on May 11, 1994. All average shares and income per share data pre- sented for 1993 have been restated to retroactively reflect the stock split. See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements. 27 DSC COMMUNICATIONS CORPORATION NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The accompanying unaudited pro forma condensed consolidated financial statements reflect the following adjustments to reflect the acquisition of NKT Elektronik A/S ("NKTE"): (A) Record adjustments to NKTE's 1993 and 1994 historical net assets and operations to remove certain divisions and/or subsidiaries which were sold to NKT Holding A/S prior to the acquisition date. Additionally, record adjustments to NKTE's 1993 historical operations to include certain subsidiaries which were acquired by NKTE during 1994 and which were included in NKTE's net assets acquired by the Company. (B) Record the acquisition of NKTE using $85 million in existing cash and $62 million in short-term debt. The additional acquisition costs are shown as accrued liabilities. (C) Eliminate the shareholder's equity of NKTE and the related DSC investment in NKTE and record the cost in excess of net assets of business acquired. The cost in excess of net assets of business acquired was determined after adjustments to reflect NKTE's net assets at their fair values and after conforming NKTE's accounting policies with those of DSC. The cost in excess of net assets of business acquired related to NKTE was determined as follows (in thousands):
September 30, 1994 ----------------- Purchase price and other acquisition costs $ 149,374 NKTE's net assets 51,655 ----------------- 97,719 Fair value and conforming policy adjustments 4,494 ----------------- Cost in excess of net assets of business acquired $ 102,213 =================
(D) Record additional interest expense and a reduction to interest income to reflect the funding of the acquisition. The additional interest expense was calculated based upon an approximation of the Company's short-term borrowing rate at the acquisition date of 5.5%. The reduction to interest income was calculated based on the Company's actual rate of earnings during the first nine months of 1994. (E) Record additional interest expense using a rate of 7% to reflect the funding of the acquisition with long-term debt. (F) Record amortization expense for the cost in excess of net assets of business acquired associated with the NKTE acquisition. The amortization period is 20 years. (G) Record a reduction to rent expense charged by an affiliate of NKT Holdings A/S based upon a new lease agreement entered into subsequent to the acquisition. (H) Record the estimated income tax effect of the pro forma adjustments. 28
Exhibit Number Description of Exhibit - --------------- ---------------------- *2.0 Stock Purchase Agreement By and Among DSC Communications Corporation, NKT Holding A/S, and NKT Elektronik A/S dated as of October 20, 1994 incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1994 *2.1 Amendment No. 1 to Exhibit 2.0 *10.0 Noncompetition Agreement *10.1 Escrow Agreement 23. Consent of Deloitte & Touche
- ----------------------------- * Previously filed. EX-23 2 CONSENT OF DELOITTE & TOUCHE 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements File No. 2-83398 (Amendment No. 2), 2-95833, 33-17459, 33-22745, 33-38544, 33-49718, 33-65212, 33-65214, and 33-64784 of DSC Communications Corporation, and in the related Prospectus of our report, dated April 12, 1994, except for the Subsequent Event footnote, as to which the date is December 30, 1994, with respect to the financial statements of NKT Elektronik A/S included in the Form 8-K as of and for the year ended December 31, 1993. Deloitte & Touche January 27, 1995 -----END PRIVACY-ENHANCED MESSAGE-----