-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H7TRgcXmj0AXVLddFL/sbsppm+1Uk7jW8uyYD305280dLqHy5h24TAYYKwNU0Q3Y ehrw8EoOS62TfJdlY0QoTQ== 0000950134-97-009512.txt : 19971224 0000950134-97-009512.hdr.sgml : 19971224 ACCESSION NUMBER: 0000950134-97-009512 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971204 ITEM INFORMATION: FILED AS OF DATE: 19971223 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: SEC FILE NUMBER: 000-10018 FILM NUMBER: 97743059 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 OF 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 8-K/A 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 4, 1997 DSC COMMUNICATIONS CORPORATION (Exact name of registrant as specified in its charter) Delaware 0-10018 54-1025763 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 1000 Coit Road Plano, Texas 75075 (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code: (972) 519-3000 2 The undersigned Registrant hereby amends Item 7. "Financial Statements and Exhibits" of its Current Report on Form 8-K dated December 19, 1997 as set forth in the pages attached hereto. ITEM 7. Financial Statements and Exhibits. (a) Financial Statements of Business Acquired. The following audited consolidated financial statements of Celcore, Inc. and the accompanying notes are incorporated herein by reference to Exhibit 99.2 of this Current Report on Form 8-K/A: 1. Audited Financial Statements of Celcore, Inc. as of December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994. The following unaudited interim financial statements of Celcore, Inc. are incorporated herein by reference to Exhibit 99.3 of this Current Report on Form 8-K/A: 1. Balance Sheet as of September 30, 1997. 2. Statements of Operations for the nine months ended September 30, 1997 and 1996. 3. Statements of Cash Flows for the nine months ended September 30, 1997 and 1996. 4. Notes to the Unaudited Financial Statements. (b) Pro Forma Financial Statements. The following pro forma financial statements are incorporated herein by reference to Exhibit 99.4 of this Current Report on Form 8-K/A: 1. Unaudited Pro Forma Combined Financial Statements Introduction. 2. Unaudited Pro Forma Combined Statement of Operations for the nine months ended September 30, 1997. 3. Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1996. 4. Unaudited Pro Forma Combined Balance Sheet as of September 30, 1997. 5. Notes to Unaudited Pro Forma Combined Financial Statements. (c) Exhibits. Exhibit No. Description. ----------- ------------ 2 3 *2.1 Amended and Restated Agreement and Plan of Merger among DSC Communications Corporation, CI Acquisition Company and Celcore, Inc. 23.1 Consent of KPMG Peat Marwick LLP *99.1 Press Release, dated December 4, 1997, issued by DSC Communications Corporation 99.2 Audited financial statements of Celcore, Inc. as of December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994 99.3 Unaudited interim financial statements of Celcore, Inc.: 1. Balance Sheet as of September 30, 1997 2. Statements of Operations for the nine months ended September 30, 1997 and 1996 3. Statements of Cash Flows for the nine months ended September 30, 1997 and 1996 4. Notes to the Unaudited Financial Statements 99.4 Pro forma financial statements: 1. Unaudited Pro Forma Combined Financial Statements Introduction 2. Unaudited Pro Forma Combined Statement of Operations for the nine months ended September 30, 1997 3. Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1996 4. Unaudited Pro Forma Combined Balance Sheet as of September 30, 1997 5. Notes to Unaudited Pro Forma Combined Financial Statements - ------------------ * Previously filed 3 4 SIGNATURES 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, hereunto duly authorized. DSC COMMUNICATIONS CORPORATION Date: December 23, 1997 By: /s/ KENNETH R. VINES --------------------------- Kenneth R. Vines Vice President, Finance 4 5 EXHIBIT INDEX Exhibit No. Description. - ----------- ------------ *2.1 Amended and Restated Agreement and Plan of Merger among DSC Communications Corporation, CI Acquisition Company and Celcore, Inc. 23.1 Consent of KPMG Peat Marwick LLP *99.1 Press Release, dated December 4, 1997, issued by DSC Communications Corporation 99.2 Audited financial statements of Celcore, Inc. as of December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994 99.3 Unaudited interim financial statements of Celcore, Inc.: 1. Balance Sheet as of September 30, 1997 2. Statements of Operations for the nine months ended September 30, 1997 and 1996 3. Statements of Cash Flows for the nine months ended September 30, 1997 and 1996 4. Notes to the Unaudited Financial Statements 99.4 Pro forma financial statements: 1. Unaudited Pro Forma Combined Financial Statements Introduction 2. Unaudited Pro Forma Combined Statement of Operations for the nine months ended September 30, 1997 3. Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1996 4. Unaudited Pro Forma Combined Balance Sheet as of September 30, 1997 5. Notes to Unaudited Pro Forma Combined Financial Statements - -------------------- * Previously filed. 5 EX-23.1 2 CONSENT OF KPMG PEAT MARWICK 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (No.s 2-83398, 2-95833, 33-17459, 33-22745, 33-38544, 33-65212, 33-65214, 33-64784, 33-49718, 33-61423, 33-61425, 333-31215, 333-39469, 333-41957, 333-41951, 333-41929, 333-41963) on Form S-8 and in the Registration Statement (No. 333-39917) on Form S-3 of DSC Communications Corporation of our report dated February 10, 1997, with respect to the balance sheets of Celcore, Inc. as of December 31, 1995 and 1996, and the related statements of operations, redeemable preferred stock, stockholders' equity (deficit) and partners' capital and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the Form 8-K of DSC Communications Corporation dated December 23, 1997. /s/ KPMG Peat Marwick LLP Memphis, Tennessee December 19, 1997 EX-99.2 3 AUDITED FINANCIAL STATEMENTS OF CELCORE 1 EXHIBIT 99.2 INDEPENDENT AUDITORS' REPORT The Board of Directors Celcore, Inc.: We have audited the accompanying balance sheets of Celcore, Inc., as of December 31, 1995 and 1996, and the related statements of operations, redeemable preferred stock, shareholders' equity (deficit) and partners' capital and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of Celcore'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, in all material respects, the financial position of Celcore, Inc. as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Memphis, Tennessee February 10, 1997 2 CELCORE, INC. BALANCE SHEETS DECEMBER 31, 1995 AND 1996
1995 1996 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 14,467,858 $ 12,056,065 Accounts receivable, less allowances of $100,000 and $400,000 in 1995 and 1996, respectively (note 11)...... 3,388,943 1,765,249 Inventories (note 3)...................................... 1,157,862 3,766,222 Prepaid expenses and other current assets................. 138,166 457,574 ------------ ------------ TOTAL CURRENT ASSETS.............................. 19,152,829 18,045,110 ------------ ------------ Furniture and equipment (note 4)............................ 1,993,243 5,444,866 Less accumulated depreciation and amortization.............. (317,688) (1,150,331) ------------ ------------ NET FURNITURE AND EQUIPMENT....................... 1,675,555 4,294,535 ------------ ------------ Other assets................................................ 81,587 487,282 ------------ ------------ $ 20,909,971 $ 22,826,927 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current installments of long-term debt (note 5)........... $ -- $ 331,667 Accounts payable.......................................... 1,579,531 1,113,926 Accrued expenses and other liabilities.................... 249,950 586,513 Accrued relocation and recruiting......................... 310,511 345,753 Unearned revenue.......................................... 454,338 362,758 ------------ ------------ TOTAL CURRENT LIABILITIES......................... 2,594,330 2,740,617 Long-term debt (note 5)..................................... -- 497,500 Other....................................................... 77,730 64,187 ------------ ------------ TOTAL LIABILITIES................................. 2,672,060 3,302,304 ------------ ------------ REDEEMABLE PREFERRED STOCK, cumulative and convertible, $.10 par value, aggregate liquidation and redemption value of $24,228,270 in 1995 and $40,262,086 in 1996 Shares authorized -- 7,000,000 in 1995 and 9,500,000 in 1996; shares issued and outstanding -- 6,038,045 in 1995 and 8,042,272 in 1996 (note 7)................................ 23,188,966 39,292,597 COMMITMENTS AND CONTINGENCIES (NOTE 6) SHAREHOLDERS' EQUITY (DEFICIT) (NOTES 8 AND 10): Series A preferred stock, cumulative and convertible $.10 par value, aggregate liquidation value of $2,250,000. 4,500,000 shares authorized, issued and outstanding.... 450,000 450,000 Common stock, $.10 par value; shares authorized -- 50,000,000; shares issued and outstanding -- 5,500,000 in 1995 and 5,507,500 in 1996................................................... 550,000 550,750 Accumulated deficit....................................... (5,951,055) (20,768,724) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY (DEFICIT).............. (4,951,055) (19,767,974) ------------ ------------ $ 20,909,971 $ 22,826,927 ============ ============
See accompanying Notes to Financial Statements. 3 CELCORE, INC. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1994 1995 1996 ------------ ------------ ------------ Net revenues (notes 11 and 12).................... $ 2,166,050 $ 4,907,855 $ 3,680,032 Cost of revenues.................................. 709,404 1,762,013 1,350,854 ------------ ------------ ------------ Gross profit.................................... 1,456,646 3,145,842 2,329,178 ------------ ------------ ------------ Operating expenses: Research and development........................ 1,033,315 3,261,607 6,700,300 Sales and marketing............................. 546,974 2,104,720 4,207,391 General and administrative...................... 595,571 2,288,190 6,560,377 ------------ ------------ ------------ 2,175,860 7,654,517 17,468,068 ------------ ------------ ------------ Operating loss............................... (719,214) (4,508,675) (15,138,890) Other income, net (note 13)....................... 5,098 235,576 507,451 ------------ ------------ ------------ Net loss..................................... $ (714,116) $ (4,273,099) $(14,631,439) ============ ============ ============ Net loss per common share (note 2)........... $ (0.81) $ (2.69) ============ ============ Weighted average common shares outstanding... 5,500,000 5,501,567
See accompanying Notes to Financial Statements. 4 CELCORE, INC. STATEMENTS OF REDEEMABLE PREFERRED STOCK, SHAREHOLDERS' EQUITY (DEFICIT) AND PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
SHAREHOLDERS' EQUITY (DEFICIT) PARTNERS' CAPITAL ------------------------------------------------ (NOTE 1) REDEEMABLE PREFERRED ADDITIONAL ------------------- PREFERRED STOCK COMMON PAID-IN ACCUMULATED GENERAL LIMITED STOCK SERIES A STOCK CAPITAL DEFICIT PARTNER PARTNERS ----------- --------- -------- ---------- ------------ ------- --------- Balance at December 31, 1993............. $ -- $ -- $ -- $ -- $ -- $ 2,195 $ 217,262 Net loss through November 13, 1994..... -- -- -- -- -- (4,635) (458,909) Issuance of 4,500,000 shares of Series A preferred stock.................... -- 450,000 -- -- (691,647) -- 241,647 Issuance of 5,500,000 shares of common stock................................ -- -- 550,000 -- (552,440) 2,440 -- Sale of 1,625,000 shares of Series B preferred stock...................... 3,150,446 -- -- -- -- -- -- Accretion of redeemable preferred stock................................ 12,413 -- -- -- (12,413) -- -- Net loss from inception of corporation to December 31, 1994................. -- -- -- -- (250,572) -- -- ----------- -------- -------- ------- ------------ ------- --------- Balance at December 31, 1994............. 3,162,859 450,000 550,000 -- (1,507,072) -- -- Sale of 1,375,000 shares of Series B preferred stock...................... 2,732,342 -- -- -- -- -- -- Sale of 3,038,046 shares of Series C preferred stock...................... 17,122,881 -- -- -- -- -- -- Accretion of redeemable preferred stock................................ 170,884 -- -- -- (170,884) -- -- Net loss for the year ended December 31, 1995............................. -- -- -- -- (4,273,099) -- -- ----------- -------- -------- ------- ------------ ------- --------- Balance at December 31, 1995............. 23,188,966 450,000 550,000 -- (5,951,055) -- -- Exercise of options for 7,500 shares of common stock......................... -- -- 750 7,125 -- -- -- Sale of 2,004,227 shares of Series D preferred stock...................... 15,910,276 -- -- -- -- -- -- Accretion of redeemable preferred stock................................ 193,355 -- -- (7,125) (186,230) -- -- Net loss for the year ended December 31, 1996............................. -- -- -- -- (14,631,439) -- -- ----------- -------- -------- ------- ------------ ------- --------- Balance at December 31, 1996............. $39,292,597 $450,000 $550,750 $ -- $(20,768,724) $ -- $ -- =========== ======== ======== ======= ============ ======= =========
See accompanying Notes to Financial Statements. 5 CELCORE, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1994 1995 1996 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss........................................ $ (714,116) $ (4,273,099) $(14,631,439) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization................ 51,905 272,534 853,649 Loss on sale of equipment.................... -- -- 26,812 Changes in operating assets and liabilities: Accounts receivable........................ (403,260) (2,985,683) 1,623,694 Inventories................................ (166,262) (973,335) (2,608,360) Prepaids and other assets.................. (23,934) (112,955) (319,408) Accounts payable........................... 137,604 1,425,333 (465,605) Accrued expenses and other liabilities..... 180,114 320,350 377,609 Unearned revenue........................... (16,740) 151,078 (91,580) ------------ ------------ ------------ TOTAL ADJUSTMENTS....................... (240,573) (1,902,678) (603,189) ------------ ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES... (954,689) (6,175,777) (15,234,628) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of furniture and equipment............ (269,258) (1,488,976) (3,510,578) Proceeds from disposal of equipment............. -- -- 19,974 Purchase of treasury bill....................... -- -- (414,532) Other........................................... (41,029) -- -- ------------ ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES... (310,287) (1,488,976) (3,905,136) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of stock..................... 3,150,446 19,855,223 15,918,151 Proceeds from issuance of long-term debt........ -- -- 995,000 Principal payments on long-term debt............ -- -- (165,833) Other........................................... -- (37,635) (19,347) ------------ ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES............................ 3,150,446 19,817,588 16,727,971 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents..................................... 1,885,470 12,152,835 (2,411,793) Cash and cash equivalents at beginning of year.... 429,553 2,315,023 14,467,858 ------------ ------------ ------------ Cash and cash equivalents at end of year.......... $ 2,315,023 $ 14,467,858 $ 12,056,065 ============ ============ ============ Supplemental disclosure: Interest paid for 1996 was $71,066. Capital lease obligations of $155,664 and $20,461 were incurred in 1995 and 1996, respectively
See accompanying Notes to Financial Statements. 6 CELCORE, INC. NOTES TO FINANCIAL STATEMENTS (1) DESCRIPTION OF THE BUSINESS Celcore, Inc. (the "Company" or "Celcore"), a Delaware corporation, was incorporated in September 1992, and acted as the general partner of Celcore LP until November 1994, when it succeeded to the business of Celcore LP as a result of a reorganization. The reorganization was affected by the exchange of convertible preferred stock to the Class B limited partners and common stock to the Class A limited partners and the general partner. The Partnership was liquidated, and all of the Partnership's assets were transferred to the Company and all of the liabilities of the Partnership were assumed by the Company; such assets and liabilities were recorded in the Company's financial statements at the Partnership's carrying value. The Company designs, assembles and installs cost-effective wireless telecommunications systems for cellular, PCS and wireless local loop applications in low teledensity markets. The Company's "Target Markets" are rural locations and areas in developing countries with low teledensities and where wireline or traditional wireless infrastructure is not readily available or economically feasible. Since inception of operations (March 1993), the Company has not generated revenues sufficient to cover its operating expenses. The activities of the Company continue to require significant amounts of working capital to finance its operations. During 1994, 1995, and 1996, the Company raised additional capital of $3,150,446, $19,855,223 and $15,918,151, respectively, to support operations. The Company may require additional cash infusions until such time as operations become self-sustaining. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents Cash equivalents of approximately $14,200,000 and $11,259,000 at December 31, 1995 and 1996, respectively, consisted of overnight repurchase agreements, treasury bills and securities of federal agencies with an initial term of less than 90 days. For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of 90 days or less to be cash equivalents. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Furniture and Equipment Furniture and equipment are stated at cost. Furniture under capital leases is stated at the present value of minimum lease payments. Depreciation and amortization of furniture and equipment is calculated on a straight-line basis over the estimated useful lives of the respective assets which are principally 7 years for furniture, 5 years for computer hardware, and 3 years for computer software. Fair Value of Financial Instruments The carrying values of the Company's financial instruments recorded on the accompanying balance sheets approximate fair value due to the short-term nature of the financial instruments. Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of The Company adopted the provisions of Statement of Financial Accounting Standards No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed Of, on January 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. 7 CELCORE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) If such amounts are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount of fair value less costs to sell. Adoption of this Statement did not have a material impact on the Company's financial position, results of operations, or liquidity. Income Taxes The Company is subject to income taxes under the provisions of SFAS 109, Accounting for Income Taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that the deferred tax assets will be realized through the generation of future taxable income. Revenue Recognition For contracts involving new technologies, revenues and profits or parts thereof are deferred until technological feasibility is established, the products are delivered and customer acceptance is obtained. For other product sales, revenue is recognized at the time of shipment. Revenue from system installation and training is recognized as services are provided. Unearned Revenue The Company received payments in 1994, 1995 and 1996 relating to sales commitments to customers for future shipment of the Company's products. These payments have been recorded as unearned revenue and recognized as revenue in accordance with the Company's revenue recognition policy. Research and Development Research and development costs are expensed as incurred. Loss Per Common Share The Company's net loss per share calculations are based upon the weighted average number of shares of common stock outstanding for each period. Common shares issuable upon conversion of the Company's preferred stock or common equivalent shares issuable, using the treasury stock method, upon the exercise of options to purchase common stock have not been included as the effect on net loss per common share would be antidilutive. Net loss per common share has been adjusted for the accretion of the Company's preferred stock to its redemption value, which accretion has been included in Shareholders' deficit. The Company has not paid dividends to holders of the Company's common or preferred stock since its inception. The Company operated as a limited partnership during most of 1994; therefore, net loss per common share during 1994 is not applicable. Concentrations of Risk Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company sells its products and services throughout the world to places such as Asia, Africa, Europe and South America. The Company performs an ongoing credit evaluation 8 CELCORE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) of its customers' financial condition and has established an allowance for non-collection of accounts receivable based upon the collectibility of all accounts receivable. Use of Estimates in 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 reporting period. Actual results could differ from those estimates. Stock Option Plan Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS 123 also allows entities to continue to apply the provisions of APB Opinion 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion 25 and provide the pro forma disclosure provisions of SFAS 123. (3) INVENTORIES Inventories at December 31, 1995 and 1996 consisted of the following:
1995 1996 ---------- ---------- Raw materials............................................... $1,085,128 $ 517,709 Work in process............................................. 44,797 20,850 Finished goods.............................................. 27,937 3,227,663 ---------- ---------- $1,157,862 $3,766,222 ========== ==========
(4) FURNITURE AND EQUIPMENT Furniture and equipment at December 31, 1995 and 1996 consisted of the following:
1995 1996 ---------- ---------- Furniture................................................... $ 285,779 $ 372,116 Computer hardware........................................... 1,220,417 3,885,192 Computer software........................................... 487,047 1,187,558 ---------- ---------- $1,993,243 $5,444,866 ========== ==========
(5) LONG-TERM DEBT On August 27, 1996, the Company entered into a loan and security agreement for a $3,000,000 working capital line of credit, a $3,000,000 export/import working capital line of credit and a $1,000,000 equipment line of credit. The lines of credit are secured by substantially all assets of the Company and bear interest at a rate of prime plus 1% for the working capital line of credit and prime plus 1 1/2% for the export/import working 9 CELCORE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) capital line of credit and the equipment line of credit. At December 31, 1996, the lines of credit had no outstanding balances. Long-term debt at December 31, 1996 consisted of a note payable for $829,167 due in monthly principal payments of $27,639 plus interest at prime plus 1 1/2% (9.75% at December 31, 1996), with final payment due June 1999; the note was secured by substantially all assets of the Company. The Company's loan agreements contain various debt covenants including tangible net worth, certain financial ratios and restrictions on dividends. Aggregated maturities of long-term debt as of December 31, 1996 are as follows: 1997, $331,667; 1998, $331,667 and 1999, $165,833. (6) COMMITMENTS AND CONTINGENCIES The Company has several noncancelable operating leases, primarily for office space. Total rental expense for operating leases was $40,673, $187,722 and $600,237 for the years ended December 31, 1994, 1995 and 1996, respectively. Future minimum lease payments under noncancelable operating leases as of December 31, 1996 are:
YEAR ENDED DECEMBER 31, - ------------ 1997...................................................... $ 575,080 1998...................................................... 575,385 1999...................................................... 260,625 2000...................................................... 45,393 ---------- $1,456,483 ==========
(7) REDEEMABLE PREFERRED STOCK Series B Preferred Stock The 3,000,000 issued shares of Series B preferred stock have a liquidation value of $2.00 per share and are participating and voting. Each share of Series B preferred stock is convertible into shares of common stock at a conversion rate of one share of common stock for each share of preferred stock. The Company shall redeem one-third of the outstanding preferred shares on each of December 1, 2000, 2001 and 2002. The redemption price shall be $2.00 per share plus all declared dividends (note to date) and accrued dividends up to the redemption dates. Series C Preferred Stock The 3,038,046 issued shares of Series C preferred stock have a liquidation value of $6.00 per share and are participating and voting. Each share of Series C preferred stock is convertible into shares of common stock at a conversion rate of one share of common stock for each share of preferred stock. The Company shall redeem one-third of the outstanding preferred shares on each of December 1, 2000, 2001 and 2002. The redemption price shall be $6.00 per share plus all declared dividends (none to date) and accrued dividends up to the redemption dates. Series D Preferred Stock The 2,004,227 issued shares of Series D preferred stock have a liquidation value of $8.00 per share and are participating and voting. Each share of Series D preferred stock is convertible into shares of common stock at a conversion rate of one share of common stock for each share of preferred stock. The Company shall 10 CELCORE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) redeem one-third of the outstanding preferred shares on each of December 1, 2000, 2001 and 2002. The redemption price shall be $8.00 per share plus all declared dividends (none to date) and accrued dividends up to the redemption dates. The Company is recording accretion to increase the carrying value of the redeemable preferred stock to the redemption value of $40,262,086 by December 1, 2002. (8) SHAREHOLDERS' EQUITY Common Stock Of the authorized but unissued shares as of December 31, 1996, 12,542,273 have been reserved for conversion rights of preferred stockholders. Series A Preferred Stock The 4,500,000 issued shares of Series A preferred stock have a liquidation value of $0.50 per share and are participating and voting. Each share of Series A preferred stock is convertible into shares of common stock at a conversion rate of one share of common stock for each share of preferred stock. (9) INCOME TAXES The tax effect of temporary differences at December 31, 1995 and 1996 is presented below:
1995 1996 ----------- ----------- Deferred tax assets: Net difference in capitalized start-up, organization and patent expenses...................................... $ 42,000 $ 66,000 Cash deposits recognized in taxable income.............. 173,000 138,000 Inventories, principally due to adjustment for tax purposes............................................. 21,000 24,000 Accruals, principally for warranties and moving expenses............................................. 156,000 157,000 Accounts receivable, principally for sales deductions... 38,000 152,000 Federal and state loss carryforwards.................... 1,444,000 7,041,000 ----------- ----------- Total gross deferred tax assets................. 1,874,000 7,578,000 Less valuation allowance................................ (1,808,000) (7,357,000) ----------- ----------- Net deferred tax assets......................... 66,000 221,000 Deferred tax liabilities -- furniture and equipment, principally due to depreciation......................... (66,000) (221,000) ----------- ----------- Net deferred tax assets......................... $ -- $ -- =========== ===========
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Due to the historical net operating losses, management cannot reliably predict when the deferred assets can be realized. Consequently, a valuation allowance of $195,000, $1,808,000 and $7,357,000 has been provided at December 31, 1994, 1995 and 1996, respectively. At December 31, 1996, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $18,500,000 which are available to offset future federal and state income, if any, through 2012. (10) STOCK OPTIONS The 1995 Stock Option Plan (the "1995 Plan") provides for the granting of stock options to employees, directors or consultants to the Company. Under the 1995 Plan, the Board of Directors is authorized to issue up 11 CELCORE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) to 2,000,000 shares of common stock. The Board has the authority to select the individuals to receive options and determine the number of shares and terms of the options granted. In December 1996, the 1995 Plan was frozen with the simultaneous adoption of the 1996 Stock Incentive Plan (the "1996 Plan"). The 1996 Plan provides for the granting of awards of shares of common stock, awards of derivative securities related to the value of common stock, and certain cash awards to employees, directors, and consultants of the Company. Awards under the 1996 Plan are determined by a committee of no less than two members of the Board of Directors. The Board of Directors has reserved 3,000,000 shares of Company common stock for issuance pursuant to awards that may be made under the 1996 Plan, and has adopted a policy that shares of common stock issuable pursuant to options outstanding under the 1995 Plan will be deducted from the number of shares of common stock issuable pursuant to options outstanding under the 1996 Plan. The number of shares available under the 1996 Plan will be redetermined each succeeding fiscal year to equal the greater of 3,000,000 or 15% of the issued and outstanding shares of common stock on a fully diluted basis. The term of the 1996 Plan is indefinite. Substantially all stock options under both plans have 10 year terms and shall be exercisable as to 25% of the shares covered by the options on the first, second, third and fourth anniversary of the dates of the grant. As of December 31, 1996, options for 848,250 shares were available to be awarded under the 1996 Plan. The per share weighted-average minimum value of the stock options granted during 1995 and 1996 was $.027 and $.055, respectively, on the date of grant using the minimum value method with the following weighted-average assumptions: risk free interest rate of 7% and an expected life of 2 years after vesting. The Company applies APB Opinion No. 25 in accounting for the plans. The exercise price of options at their respective grant dates is equal to the estimated fair market value, and accordingly, no compensation cost has been recognized for the stock options in the financial statements. Had the Company determined compensation cost based on the minimum value at the grant date for its stock options under SFAS 123, the Company's net loss for the years ended December 31, 1995 and 1996 would have been increased to the pro forma amounts indicated below:
NET LOSS ----------------------------- 1995 1996 ----------- ------------ As reported........................................ $(4,273,099) $(14,631,439) Pro forma.......................................... $(4,335,326) $(14,872,257) Pro forma per share................................ $ (0.82) $ (2.74)
In 1995 and 1996 the Board of Directors granted options to officers and employees at various prices which were believed to approximate the fair market value of the shares at the grant date. Activity with respect to these options during the period indicated is as follows:
WEIGHTED-AVERAGE NUMBER OF SHARES EXERCISE PRICE ---------------- ---------------- Balance at December 31, 1994................... -- -- Granted...................................... 1,099,500 $1.02 Canceled..................................... (87,000) 1.05 ---------- ------ Balance at December 31, 1995................... 1,012,500 1.02 Granted...................................... 1,245,250 2.10 Exercised.................................... (7,500) 1.05 Canceled..................................... (106,000) 1.84 ---------- ------ Balance at December 31, 1996................... 2,144,250 $1.61 ========== ======
12 CELCORE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1996, the range of exercise prices and weighted average contractual life of outstanding options was $0.50 to $2.10 and 9 years. At December 31, 1996, the number of options exercisable was 260,250 and the weighted average exercise price of those options was $1.00. (11) SIGNIFICANT CUSTOMERS The Company's sales and trade accounts receivable are concentrated among a small number of customers. For the year ended December 31, 1994, sales to two customers aggregated approximately 78% and 16%, respectively, of total net revenues. For the year ended December 31, 1995, sales to two customers represented approximately 20% and 21%, respectively, of total net revenues. For the year ended December 31, 1996, sales to five customers aggregated approximately $2,500,000 representing approximately 72% of the Company's total net revenues. Sales to these customers ranged from 10% to 17% of total net revenues. (12) GEOGRAPHIC INFORMATION Net Revenues from product sales and services provided outside the United States for the years ended December 31, 1995 and 1996 (none in 1994) were as follows:
1995 1996 -------- -------- Asia........................................................ $469,435 $ 21,583 Europe...................................................... -- 580,202 Africa...................................................... 530,035 387,576 -------- -------- $999,470 $989,361 ======== ========
(13) OTHER INCOME, NET
1994 1995 1996 ------- -------- -------- Interest Income..................................... $10,705 $255,381 $608,995 Interest Expense.................................... (5,607) (9,429) (71,066) Other, net.......................................... -- (10,376) (30,478) ------- -------- -------- $ 5,098 $235,576 $507,451 ======= ======== ========
EX-99.3 4 UNAUDITED INTERIM FINANCIAL STATEMENTS CELCORE,INC 1 EXHIBIT 99.3 CELCORE, INC. BALANCE SHEET SEPTEMBER 30, 1997 (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 619,279 Accounts receivable, less allowances of $477,336.......... 4,153,989 Finance receivables, current (note 2)..................... 614,989 Inventories (note 3)...................................... 5,629,406 Prepaid expenses and other current assets................. 817,238 ------------ TOTAL CURRENT ASSETS.............................. 11,834,901 ------------ Furniture and equipment..................................... 7,192,574 Less accumulated depreciation and amortization.............. (2,175,177) ------------ NET FURNITURE AND EQUIPMENT....................... 5,017,397 ------------ Finance receivables, long-term (note 2)..................... 638,796 Other assets................................................ 481,274 ------------ $ 17,972,368 ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Short-term debt (note 4).................................. $ 450,000 Current installments of long-term debt (note 4)........... 2,385,972 Accounts payable.......................................... 4,840,740 Accrued expenses and other liabilities.................... 2,316,945 Unearned revenue.......................................... 741,686 ------------ TOTAL CURRENT LIABILITIES......................... 10,735,343 ------------ REDEEMABLE PREFERRED STOCK, cumulative and convertible, $.10 par value, aggregate liquidation and redemption value of $40,262,086 Authorized 9,500,000 shares; 8,042,272 shares issued and outstanding....................................... 39,438,766 COMMITMENTS AND CONTINGENCIES (NOTE 8) SHAREHOLDERS' EQUITY (DEFICIT): Series A preferred stock, cumulative and convertible $.10 par value, aggregate liquidation value of $2,250,000. 4,500,000 shares authorized, issued and outstanding.... 450,000 Common stock, $.10 par value; 50,000,000 shares authorized; 5,591,250 shares issued and outstanding.... 559,125 Accumulated deficit....................................... (33,210,866) ------------ TOTAL SHAREHOLDERS' EQUITY (DEFICIT).............. (32,201,741) ------------ $ 17,972,368 ============
See accompanying Notes to Financial Statements. 2 CELCORE, INC. STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
1996 1997 ------------ ------------ Net revenues (notes 5 and 6)................................ $ 2,755,992 $ 9,485,096 Cost of revenues............................................ 918,568 5,719,315 ------------ ------------ Gross profit.............................................. 1,837,424 3,765,781 ------------ ------------ Operating expenses: Research and development.................................. 4,764,698 6,931,944 Sales and marketing....................................... 2,882,354 4,518,004 General and administrative................................ 4,560,438 4,669,148 ------------ ------------ 12,207,490 16,119,096 ------------ ------------ Operating loss............................................ (10,370,066) (12,353,315) Other income (expense), net................................. 342,102 (24,320) ------------ ------------ Net loss.................................................. $(10,027,964) $(12,377,635) ============ ============ Net loss per common share................................. $ (1.85) $ (2.26) ============ ============ Weighted average common shares outstanding................ 5,500,238 5,532,839
See accompanying Notes to Financial Statements. 3 CELCORE, INC. STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
1996 1997 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $(10,027,964) $(12,377,635) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.......................... 499,566 1,034,123 Loss on disposal of equipment.......................... 26,812 100,085 Changes in operating assets and liabilities: Accounts receivable.................................. 1,812,584 (2,388,739) Finance receivables.................................. -- (1,253,785) Inventories.......................................... (1,031,549) (1,863,183) Prepaids and other assets............................ (148,592) (375,023) Accounts payable..................................... (728,601) 3,726,811 Accrued expenses and other liabilities............... 719,887 1,320,490 Unearned revenue..................................... (326,922) 378,929 ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES............. (9,204,779) (11,697,927) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of furniture and equipment...................... (2,238,870) (1,847,795) Proceeds from disposal of equipment....................... 19,974 -- Purchase of treasury bill................................. -- (2,507,908) Proceeds from sale of treasury bill....................... -- 2,520,000 ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES............. (2,218,896) (1,835,703) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of stock............................... 15,828,351 90,038 Increase in short-term debt............................... -- 450,000 Proceeds from issuance of long-term debt.................. 995,000 2,000,000 Principal payments on long-term debt...................... (82,917) (443,194) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES......... 16,740,434 2,096,844 ------------ ------------ Net increase (decrease) in cash and cash equivalents........ 5,316,759 (11,436,786) Cash and cash equivalents at beginning of period............ 14,467,858 12,056,065 ------------ ------------ Cash and cash equivalents at end of period.................. $ 19,784,617 $ 619,279 ============ ============ Supplemental disclosure: Interest paid for 1997 and 1996 was $162,733 and $42,375, respectively. A capital lease obligation of $20,740 was incurred in 1996.
See accompanying Notes to Financial Statements. 4 CELCORE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) DESCRIPTION OF THE BUSINESS The accompanying unaudited financial statements 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 information presented not misleading. Nine month financial results may not be indicative of annual financial results. These unaudited financial statements and notes should be read in conjunction with the audited financial statements and accompanying notes. The Company designs, assembles and installs cost-effective wireless telecommunications systems for cellular, PCS and wireless local loop applications in low teledensity markets. The Company's "Target Markets" are rural locations and areas in developing countries with low teledensities and where wireline or traditional wireless infrastructure is not readily available or economically feasible. Since inception of operations (March 1993), the Company has not generated revenues from operations sufficient to cover its operating expenses. The activities of the Company continue to require significant amounts of working capital to finance its operations. The Company has not raised additional capital to support operations during 1997. The Company will require additional cash infusions until such time as operations become self-sustaining. (2) FINANCE RECEIVABLES The Company began extending long-term credit in 1997 to certain of its customers at interest rates commensurate with the credit and prepayment risks involved. At September 30, 1997, total finance receivables were $1,253,785. Aggregate maturities of finance receivables for each twelve month period subsequent to September 30, 1997, are $614,989 and $638,796 in 1998 and 1999, respectively. (3) INVENTORIES Inventories at September 30, 1997 consisted of the following: Raw materials............................................ $ 542,453 Finished goods........................................... 5,086,953 ---------- $5,629,406 ==========
(4) LONG-TERM DEBT As of September 30, 1997, the Company had outstanding borrowings of $450,000 under a working capital line and had utilized $375,000 to collateralize a standby letter of credit. Interest on the outstanding borrowings are at prime plus 1 and 1/2%. Additionally, the Company had outstanding borrowings of $2,385,972 under a term loan. This term loan bears interest at prime plus 1 and 1/2%. All of the borrowings are secured by all of the assets of the Company. As of September 30, 1997, the Company was in default of certain financial covenants contained in the term loan agreement and has not repaid the outstanding line of credit balance which expired in August 1997. As a result, all outstanding borrowings have been classified as current at September 30, 1997. (See note 7) 5 CELCORE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) In the fourth quarter of 1997, the Company entered into a $10,000,000 revolving credit agreement with DSC Communications Corporation (DSC) to fund working capital requirements. Borrowings under the Agreement will be unsecured, bear interest at 11.5% per annum and will mature on January 15, 1998. At October 31, 1997, the Company had borrowed $4,400,000 under the revolving credit agreement. (See note 7) (5) SIGNIFICANT CUSTOMERS The Company's net revenues and trade accounts receivable are concentrated among a small number of customers. For the nine months ended September 30, 1997, sales to eight customers aggregated $8,492,173 representing approximately 90% of the Company's total net revenues. For the nine months ended September 30, 1996, sales to eight customers aggregated $1,984,651 representing approximately 72% of the Company's total net revenues. For the nine months ended September 30, 1997, net revenues of approximately $5.1 million were attributable to two customers located in South America. (6) RELATED PARTY TRANSACTION During the third quarter of 1997, CELCORE recorded an approximate $250,000 special sales allowance provision related to the expected return of certain equipment with an original selling price of approximately $764,000. The equipment was sold in 1997 to a customer who is an affiliate of a 11.05% owner of the Company's Capital Stock. (7) SUBSEQUENT EVENT In October 1997, the Company entered into a merger agreement with DSC. The merger, valued at approximately $167,000,000 (including transaction costs), will be consummated with the issuance of DSC common stock in exchange for all the outstanding common and preferred shares of the Company. DSC will assume substantially all of the Company's outstanding stock options. The merger is subject to a number of items including governmental approval and should be completed prior to the end of 1997. Should the merger be consummated, the Company's short-term and long-term cash requirements would be funded by DSC. It is anticipated that DSC would advance the Company the necessary funds to repay all outstanding borrowings with its bank. However, if the merger is not consummated, it would be necessary for the Company to find alternative financing, which may include extending terms with its bank, a debt or equity offering or other lending sources. There can be no assurance that the Company would be able to raise the necessary funds to sustain future operations. (8) COMMITMENTS AND CONTINGENCIES The Company is a party to routine legal proceedings incidental to its business. The Company does not believe the ultimate resolution of these legal proceedings will have a material adverse effect on its financial position and results of operations. EX-99.4 5 PRO FORMA FINANCIAL STATEMENTS 1 EXHIBIT 99.4 DSC COMMUNICATIONS CORPORATION UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The following unaudited pro forma combined statements of operations combine DSC Communications Corporation's ("DSC") historical consolidated results of operations and Celcore, Inc.'s ("CELCORE") historical results of operations for the nine-month period ended September 30, 1997 and for the year ended December 31, 1996, giving effect to the acquisition as if it had occurred January 1, 1996. The unaudited pro forma combined balance sheet combines DSC's historical consolidated balance sheet as of September 30, 1997 with CELCORE's historical balance sheet as of September 30, 1997, giving effect to the acquisition as if it had occurred on September 30, 1997. Of the estimated total purchase price of approximately $167 million, approximately $135 million represented the value of in-process research and development. The excess of the purchase price of CELCORE (exclusive of the amount allocated to in-process research and development) over the net identifiable tangible and intangible assets and liabilities of CELCORE is reported as Acquired Technology and Costs in Excess of Net Assets of Businesses Acquired, Net. The carrying values of CELCORE's net assets are assumed to equal their fair values for purposes of these unaudited pro forma financial statements, unless indicated otherwise in the Notes to Unaudited Pro Forma Combined Financial Statements. These values are subject to revision. However, management believes that any resulting adjustments from purchase price allocation will not have a material effect on the financial position or results of operations. The historical financial information of DSC has been derived from the unaudited consolidated financial statements for the nine-month period ended September 30, 1997 and the audited consolidated financial statements for the year ended December 31, 1996 and should be read in conjunction with such financial information and the notes thereto. The historical financial information of CELCORE has been derived from the unaudited financial statements for the nine-month period ended September 30, 1997 and the audited financial statements for the year ended December 31, 1996 and should be read in conjunction with such financial information and the notes thereto. The Unaudited Pro Forma Combined Statements of Operations and Unaudited Pro Forma Combined Balance Sheet were prepared based upon the purchase method of accounting. The unaudited pro forma adjustments are described in the accompanying notes. The unaudited pro forma adjustments represent DSC's preliminary determination of the necessary adjustments and are based upon certain assumptions DSC considers reasonable under the circumstances. Final amounts may differ from those set forth in the unaudited pro forma combined financial statements. The unaudited pro forma financial information presented herein may not be indicative of the results of operations as they would have been if DSC and CELCORE had been a single entity during 1996 and the nine months ended September 30, 1997, nor is it necessarily indicative of the results of operations which may occur in the future. Anticipated efficiencies from the consolidation of DSC and CELCORE are not fully determinable and have been excluded from the amounts included in the pro forma amounts presented herein. 2 DSC COMMUNICATIONS CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) ---------------------------------------------------- DSC CELCORE ADJUSTMENTS COMBINED ---------- ---------- ----------- ---------- Revenue.................................... $1,130,374 $ 9,485 $ -- $1,139,859 Cost of revenue............................ 661,417 5,719 -- 667,136 ---------- ---------- ---------- ---------- Gross profit............................. 468,957 3,766 -- 472,723 ---------- ---------- ---------- ---------- Operating costs and expenses: Research and product development......... 181,852 6,932 -- 188,784 Selling, general and administrative...... 172,585 9,187 -- 181,772 Other operating costs.................... 7,709 -- 2,558(e) 10,267 ---------- ---------- ---------- ---------- Total operating costs and expenses.... 362,146 16,119 2,558 380,823 ---------- ---------- ---------- ---------- Operating income (loss).................. 106,811 (12,353) (2,558) 91,900 Interest income............................ 16,840 249 (5,985)(f) 11,104 Interest expense........................... (19,334) (173) -- (19,507) Other income (expense), net................ 34,014 (101) -- 33,913 ---------- ---------- ---------- ---------- Income (loss) before income taxes..... 138,331 (12,378) (8,543) 117,410 Income tax expense (benefit)............... 51,898 -- (2,214)(g) 49,684 ---------- ---------- ---------- ---------- Net income (loss)..................... $ 86,433 $ (12,378) $ (6,329) $ 67,726 ========== ========== ========== ========== Income (loss) per share............... $ 0.73 $ (2.26) $ 0.57 ========== ========== ========== Average shares used in per share computation.............................. 119,169 5,533 119,859
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements. 3 DSC COMMUNICATIONS CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) ---------------------------------------------------- DSC CELCORE ADJUSTMENTS COMBINED ---------- ---------- ----------- ---------- Revenue.................................... $1,380,891 $ 3,680 $ -- $1,384,571 Cost of revenue: Special charges related to inventories and associated assets................. 82,500 -- -- 82,500 Other.................................... 843,247 1,351 -- 844,598 ---------- ---------- ---------- ---------- Total cost of revenue ................ 925,747 1,351 -- 927,098 ---------- ---------- ---------- ---------- Gross profit............................. 455,144 2,329 -- 457,473 ---------- ---------- ---------- ---------- Operating costs and expenses: Research and product development......... 210,091 6,700 -- 216,791 Selling, general and administrative...... 233,576 10,768 -- 244,344 Special charges for excess facilities and equipment............................. 13,500 -- -- 13,500 Other operating costs.................... 10,020 -- 3,411(e) 13,431 ---------- ---------- ---------- ---------- Total operating costs and expenses.... 467,187 17,468 3,411 488,066 ---------- ---------- ---------- ---------- Operating loss........................... (12,043) (15,139) (3,411) (30,593) Interest income............................ 24,146 605 (7,980)(f) 16,771 Interest expense........................... (26,355) (71) -- (26,426) Other income (expense), net................ 2,066 (26) -- 2,040 ---------- ---------- ---------- ---------- Loss before income taxes.............. (12,186) (14,631) (11,391) (38,208) Income tax benefit......................... (4,631) -- (3,032)(g) (7,663) ---------- ---------- ---------- ---------- Net loss.............................. $ (7,555) $ (14,631) $ (8,359) $ (30,545) ========== ========== ========== ========== Loss per share........................ $ (0.06) $ (2.69) $ (0.26) ========== ========== ========== Average shares used in per share computation.............................. 116,514 5,502 116,658
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements. 4 DSC COMMUNICATIONS CORPORATION UNAUDITED PRO FORMA COMBINED BALANCE SHEET (IN THOUSANDS)
SEPTEMBER 30, 1997 (UNAUDITED) ---------------------------------------------------- DSC CELCORE ADJUSTMENTS COMBINED ---------- ---------- ----------- ---------- ASSETS CURRENT ASSETS Cash and cash equivalents......................... $ 409,341 $ 619 $ (145,096)(a) $ 262,028 (2,836)(c) Marketable securities............................. 268,768 -- -- 268,768 Receivables....................................... 406,174 4,769 -- 410,943 Inventories....................................... 370,338 5,629 -- 375,967 Deferred income taxes............................. 60,429 -- -- 60,429 Other ............................................ 72,911 818 -- 73,729 ---------- ---------- ---------- ---------- Total current assets...................... 1,587,961 11,835 (147,932) 1,451,864 ---------- ---------- ---------- ---------- PROPERTY AND EQUIPMENT, NET......................... 443,664 5,017 -- 448,681 LONG-TERM RECEIVABLES............................... 46,321 639 -- 46,960 CAPITALIZED SOFTWARE DEVELOPMENT COSTS.............. 66,900 -- -- 66,900 COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED, NET............................................... 141,906 -- 16,530(b) 158,436 OTHER .............................................. 119,404 481 12,200(b) 132,085 ---------- ---------- ---------- ---------- Total assets.............................. $2,406,156 $ 17,972 $ (119,202) $2,304,926 ========== ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Short-term debt................................... $ 126 $ 450 $ (450)(c) $ 126 Accounts payable.................................. 116,911 4,841 -- 121,752 Accrued liabilities............................... 264,449 3,058 21,071 (i) 288,578 Income taxes payable.............................. 30,558 -- -- 30,558 Current portion of long-term debt................. 32,497 2,386 (2,386)(c) 32,497 ---------- ---------- ---------- ---------- Total current liabilities................. 444,541 10,735 18,235 473,511 ---------- ---------- ---------- ---------- LONG-TERM DEBT...................................... 632,825 -- -- 632,825 NONCURRENT INCOME TAXES AND OTHER LIABILITIES....... 84,528 -- -- 84,528 REDEEMABLE PREFERRED STOCK.......................... -- 39,439 (39,439)(d) -- SHAREHOLDERS' EQUITY (DEFICIT) Preferred stock................................... -- 450 (450)(d) -- Common stock...................................... 1,229 559 (559)(d) 1,229 Additional capital................................ 748,330 -- 4,800 (h) 753,130 Unrealized gains on securities, net of income taxes.......................................... 265 -- -- 265 Accumulated translation adjustment................ 930 -- -- 930 Retained earnings (deficit)....................... 536,619 (33,211) (101,789)(d) 401,619 ---------- ---------- ---------- ---------- 1,287,373 (32,202) (97,998) 1,157,173 Treasury stock...................................... (43,111) -- -- (43,111) ---------- ---------- ---------- ---------- Total shareholders' equity (deficit)...... 1,244,262 (32,202) (97,998) 1,114,062 ---------- ---------- ---------- ---------- Total liabilities and shareholders' equity (deficit)........................ $2,406,156 $ 17,972 $ (119,202) $2,304,926 ========== ========== ========== ==========
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements. 5 DSC COMMUNICATIONS CORPORATION NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION The unaudited pro forma combined statements of operations for all periods presented and the pro forma combined balance sheet at September 30, 1997 of DSC and CELCORE have been prepared based upon the purchase method of accounting. NOTE 2: PURCHASE PRICE OF CELCORE The estimated purchase price of the acquisition is approximately $167 million, including transaction costs and other acquisition related costs of approximately $6.6 million. The preliminary purchase price includes the cash consideration paid of approximately $145.1 million and the valuation of the CELCORE options assumed by DSC and the promissory notes issued to certain individuals of $15.7 million. NOTE 3: PRO FORMA ADJUSTMENTS Adjustments included in the unaudited pro forma combined financial statements are as follows: (a) Record the acquisition of CELCORE using $145.1 million in existing cash. (b) Reflects the remaining excess of the purchase price of CELCORE over its net book value. See Note 4. (c) CELCORE and a subsidiary of DSC entered into a revolving credit agreement under which CELCORE can borrow up to $10 million for working capital purposes. For purposes of calculating the pro forma adjustments, all of CELCORE's short-term borrowings were eliminated with a corresponding reduction in cash and cash equivalents. The impact on net financing costs was minimal. (d) Reflects the elimination of CELCORE capital stock and accumulated deficit. Also reflects the write-off of in-process research and development, as discussed in Note 4. This charge has been excluded from the unaudited pro forma statements of operations as it was considered a non-recurring charge. (e) Reflects amortization expense for Acquired Technology and Costs in Excess of Net Assets of Businesses Acquired, Net. The estimated useful lives average eight years. (f) Record a reduction to interest income to reflect the cash funding of the acquisition. This was calculated based on DSC's average rate of earnings for each respective period. (g) Record the estimated income tax effect of the pro forma adjustments related to a reduction in interest income. No tax benefit was recognized for the amortization of Costs in Excess of Net Assets of Businesses Acquired, Net. (h) Reflects the vested portion of the CELCORE options assumed by DSC. (i) Reflects the unvested portion of the CELCORE options assumed by DSC as well as the promissory notes issued to certain individuals which are payable in DSC common stock. Also includes the estimated transaction costs related to the acquisition. NOTE 4: IN-PROCESS RESEARCH AND DEVELOPMENT A preliminary estimate of the intangible assets acquired aggregated approximately $163.7 million. DSC received a preliminary appraisal of the intangible assets which indicates that approximately $135 million of the acquired intangible assets consists of in-process research and development. Because there can be no assurance that DSC will be able to successfully complete the development and integration of CELCORE's products or that the acquired technology has any alternative future use, the acquired in-process research and development was charged to expense by DSC in the fourth quarter of 1997 when the acquisition was consummated. The remaining intangible assets of $28.7 million were assigned to Acquired Technology and Costs in Excess of Net Assets of Businesses Acquired, Net and will be amortized on a straight-line basis over their estimated useful lives. Management believes that the unamortized balance is recoverable through future operating results. These estimates could change as the estimates of the fair value of assets acquired and liabilities assumed are finalized and the appraisal of in-process research and development is completed. 6 NOTE 5: PRO FORMA NET INCOME (LOSS) PER SHARE The pro forma combined net income (loss) per share is based on the combined weighted average number of common and dilutive equivalent shares outstanding of DSC and shares issued and dilutive equivalent shares assumed in connection with the acquisition. Common equivalent shares are excluded from the computation when the effect is antidilutive. -----END PRIVACY-ENHANCED MESSAGE-----