-----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, FZ9Seh+mAqCtwasGsxuTSljQPG5tIZ2U5G7LKD0VSG3v8XRRiEGE7j+NUj40U3LH 5P62dkbM+0tB0BO1HJQphg== 0001012870-98-001458.txt : 19980601 0001012870-98-001458.hdr.sgml : 19980601 ACCESSION NUMBER: 0001012870-98-001458 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980529 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASCEND COMMUNICATIONS INC CENTRAL INDEX KEY: 0000921146 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 943092033 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-23774 FILM NUMBER: 98634672 BUSINESS ADDRESS: STREET 1: 1701 HARBOR BAY PKWY CITY: ALAMEDA STATE: CA ZIP: 94502 BUSINESS PHONE: 5107696001 MAIL ADDRESS: STREET 1: 1275 HARBOR BAY PARKWAY CITY: ALAMEDA STATE: CA ZIP: 94502 10-K/A 1 FORM 10-K/A AMENDMENT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ Commission File Number: 000-23774 ASCEND COMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) Delaware 94-3092033 - ------------------------------------ -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1701 Harbor Bay Parkway, Alameda, CA 94502 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (510) 769-6001 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of December 31, 1997 the approximate aggregate market value of voting stock held by non-affiliates of the Registrant was $4,320,434,003 (based upon the closing price for shares of the Registrant's Common Stock as reported by the Nasdaq National Market on that date). Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily a conclusive determination for other purposes. As of February 28, 1998, 191,906,397 shares of the Registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the annual stockholders meeting to be held on May 21, 1998 are incorporated by reference into Part III of this Report on Form 10-K. PART IV The undersigned registrant hereby amends the following item of its Annual Report on Form 10-K for the fiscal year ended December 31, 1997, as set forth in the pages attached hereto. ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: 1. Consolidated Financial Statements The following consolidated financial statements of Ascend Communications, Inc. are filed as part of this Report:
Page ---- Report of Independent Auditors F-1 Consolidated Balance Sheets at December 31, 1997 and 1996 F-2 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 F-3 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 F-5 Notes to Consolidated Financial Statements F-6
2. Consolidated Financial Statement Schedule The following consolidated financial statement schedule of Ascend Communications, Inc. is filed as part of this Report and should be read in conjunction with the consolidated financial statements of Ascend Communications, Inc.
Schedule Page - -------- ---- II Valuation and Qualifying Accounts S-1
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 2 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Ascend Communications, Inc. We have audited the accompanying consolidated balance sheets of Ascend Communications, Inc. as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statment schedule based on our audits. We did not audit the financial statements of Cascade Communications Corp. ("Cascade") which statements reflect total assets constituting 29% in 1996 and total revenues constituting 38% in 1996 and 47% in 1995 of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for Cascade, is based solely on the report of the other auditors. 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 and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ascend Communications, Inc. at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. ERNST & YOUNG LLP Walnut Creek, California January 22, 1998 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Cascade Communications Corp.: We have audited the accompanying consolidated balance sheet of Cascade Communications Corp. as of December 31, 1996 and the related consolidated statements of income, cash flows and stockholders' equity (deficit) (none of which are presented herein) for the years ended December 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cascade Communications Corp. as of December 31, 1996 and the consolidated results of its operations and its cash flows for the years ended December 31, 1996 and 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts January 22, 1997, except for Note M as to which the date is March 30, 1997 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Cascade Communications Corp.: Our report on the consolidated financial statements of Cascade Communications Corp. (none of which are presented herein) is included in this Annual Report on Form 10-K/A of Ascend Communications, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule included in the 1996 Annual Report on Form 10-K of Cascade Communications Corp. (not separately presented herein). In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Boston, Massachusetts January 22, 1997 ASCEND COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share data)
December 31, ------------------------------ 1997 1996 ------------ ---------- ASSETS Current assets: Cash and cash equivalents ....................................... $ 240,817 $ 312,369 Short-term investments .......................................... 234,610 173,101 Accounts receivable, less allowance for uncollectible accounts of $11,300 and $2,632 at December 31, 1997 and 1996, respectively 234,183 185,094 Inventories ..................................................... 99,637 68,544 Deferred income taxes ........................................... 85,057 42,862 Other current assets ............................................ 20,283 25,371 ----------- ----------- Total current assets ...................................... 914,587 807,341 Investments ........................................................ 101,212 35,771 Furniture, fixtures and equipment, net ............................. 114,351 73,046 Other assets ....................................................... 7,744 5,969 ----------- ----------- Total assets .............................................. $ 1,137,894 $ 922,127 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ................................................ $ 54,414 $ 60,823 Accrued compensation and related liabilities .................... 25,315 29,426 Accrued liabilities ............................................. 88,909 64,645 ----------- ----------- Total current liabilities ................................. 168,638 154,894 Commitments and contingencies (Notes 7 and 9) Stockholders' equity: Preferred stock, $.001 par value: Authorized shares - 2,000 No shares issued or outstanding ........................... -- -- Common stock, $.001 par value: Authorized shares - 400,000 191,216 shares issued and outstanding (182,525 - 1996) .......................................... 191 182 Additional paid-in capital ...................................... 878,749 534,063 Retained earnings ............................................... 90,610 233,536 Notes receivable from stockholders .............................. (294) (548) ----------- ----------- Total stockholders' equity ................................ 969,256 767,233 ----------- ----------- Total liabilities and stockholders' equity ................ $ 1,137,894 $ 922,127 =========== ===========
See accompanying notes F-2 ASCEND COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Year Ended December 31, -------------------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Net sales ........................... $ 1,167,352 $ 890,273 $ 287,438 Cost of sales ....................... 413,570 311,745 101,859 ----------- ----------- ----------- Gross profit ..................... 753,782 578,528 185,579 Operating expenses: Research and development ......... 155,996 93,669 36,083 Sales and marketing .............. 249,129 156,286 56,034 General and administrative ....... 35,267 29,855 16,084 Purchased research and development 231,100 -- -- Costs of mergers ................. 150,271 13,900 -- ----------- ----------- ----------- Total operating expenses ...... 821,763 293,710 108,201 ----------- ----------- ----------- Operating income (loss) ............. (67,981) 284,818 77,378 Interest income ..................... 23,029 17,186 8,360 ----------- ----------- ----------- Income (loss) before income taxes ... (44,952) 302,004 85,738 Provision for income taxes .......... 79,422 118,114 32,793 ----------- ----------- ----------- Net income (loss) ................... $ (124,374) $ 183,890 $ 52,945 =========== =========== =========== Net income (loss) per share - diluted $ (0.66) $ 0.94 $ 0.30 =========== =========== =========== Number of shares used in per share calculation - diluted ............ 189,129 196,246 175,216 =========== =========== =========== Net income (loss) per share - basic . $ (0.66) $ 1.03 $ 0.33 =========== =========== =========== Number of shares used in per share calculation - basic .............. 189,129 178,630 162,181 =========== =========== ===========
See accompanying notes F-3 ASCEND COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
Retained Notes Common Stock Additional Earnings Receivable ----------------- Paid-in (Accumulated From Shares Amount Capital Deficit) Stockholders Total ------ ------ ---------- ------------ ------------- ----- Balance at December 31, 1994 ................................. 154,532 $155 $105,601 $ (1,808) $(794) $ 103,154 Tax benefit related to stock options ............................ -- -- 13,946 -- -- 13,946 Payments from stockholders ............................. -- -- -- -- 246 246 Issuance of warrants to purchase shares of common stock, NetStar .................... -- -- 134 -- -- 134 Issuance of common stock under employee stock option and stock purchase plans ................. 3,329 3 4,407 -- -- 4,410 Issuance of common stock in initial public offering, net of issuance costs, NetStar ............... 1,347 1 24,715 -- -- 24,716 Issuance of common stock in public offering, net of issuance costs ........................... 12,650 13 211,730 -- -- 211,743 Net income .................................. -- -- -- 52,945 -- 52,945 ------- ---- -------- --------- ----- --------- Balance at December 31, 1995 ................................. 171,858 172 360,533 51,137 (548) 411,294 Tax benefit related to stock options ............................ -- -- 104,823 -- -- 104,823 Effect of poolings .......................... 3,129 3 12,122 (1,491) -- 10,634 Exercise of warrants, NetStar ............... 399 -- 7,904 -- -- 7,904 Issuance of common stock under employee stock option and stock purchase plans ................. 6,695 7 42,373 -- -- 42,380 Issuance of common stock .................... 444 -- 6,308 -- -- 6,308 Net income .................................. -- -- -- 183,890 -- 183,890 ------- ---- -------- --------- ----- --------- Balance at December 31, 1996 ................................. 182,525 182 534,063 233,536 (548) 767,233 Tax benefit related to stock options ............................ -- -- 59,294 -- -- 59,294 Effect of poolings .......................... 1,350 1 22,510 (18,552) -- 3,959 Purchase of Sahara .......................... 2,386 3 213,097 -- -- 213,100 Issuance of common stock under employee stock option and stock purchase plans ................. 4,955 5 49,785 -- -- 49,790 Payments from stockholders .................. -- -- -- -- 254 254 Net loss .................................... -- -- -- (124,374) -- (124,374) ------- ---- -------- --------- ----- --------- Balance at December 31, 1997 ................................. 191,216 $191 $878,749 $ 90,610 $(294) $ 969,256 ======= ==== ======== ========= ===== =========
See accompanying notes F-4 ASCEND COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended December 31, ------------------------------------- 1997 1996 1995 --------- ---------- --------- Operating activities: Net income (loss) ........................................................................ $(124,374) $ 183,890 $ 52,945 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation ........................................................................ 45,733 22,463 8,586 Costs of mergers .................................................................... 150,271 13,900 -- Purchased research and development .................................................. 231,100 -- -- Deferred income taxes ............................................................... (29,778) (27,529) (9,440) Changes in operating assets and liabilities: Accounts receivable .............................................................. (58,418) (133,946) (35,043) Inventories ...................................................................... (42,797) (37,331) (20,175) Other current assets ............................................................. 6,337 (20,869) (1,773) Other assets ..................................................................... (2,905) (2,366) (4,346) Accounts payable and accrued liabilities ......................................... (105,951) 76,901 34,576 Accrued compensation and related liabilities ..................................... (4,111) 1,839 8,362 --------- --------- --------- Net cash provided by operating activities ..................................... 65,107 76,952 33,692 --------- --------- --------- Investing activities: Purchases of investments ............................................................ (483,122) (272,631) (197,148) Maturities and sales of investments ................................................. 356,172 211,237 93,339 Purchases of furniture, fixtures and equipment, net ................................. (105,343) (72,121) (23,815) Effect of business combinations ..................................................... (13,704) 9,169 -- --------- --------- ---------- Net cash used in investing activities ............................................ (245,997) (124,346) (127,624) --------- -------- --------- Financing activities: Proceeds from issuance of common stock, net ......................................... 49,790 54,524 241,003 Tax benefit related to options ...................................................... 59,294 104,823 13,946 Proceeds from notes receivable from stockholders .................................... 254 -- 246 Proceeds from (repayment of) notes payable .......................................... -- (2,108) 3,729 --------- --------- --------- Net cash provided by financing activities ........................................ 109,338 157,239 258,924 --------- --------- --------- Net increase (decrease) in cash and cash equivalents ..................................... (71,552) 109,845 164,992 Cash and cash equivalents, beginning of year ............................................. 312,369 202,524 37,532 --------- --------- --------- Cash and cash equivalents, end of year ................................................... $ 240,817 $ 312,369 $ 202,524 Supplemental disclosure of cash flow information: ========= ========= ========= Income tax payments ................................................................. $ 45,395 $ 54,270 $ 17,980 ========= ========= ========= Supplemental schedule of noncash investing and financing activities information: Exercise of warrants in exchange for retirement of notes payable .................................................................... $ -- $ 2,068 $ -- ========= ========= =========
See accompanying notes F-5 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Accounting Policies The Company - Ascend Communications, Inc. ("Ascend" of the "Company") develops, manufactures and sells wide area networking solutions for telecommunications carriers, Internet service providers and corporate customers worldwide that enable them to build: (i) Internet access systems consisting of point-of-presence termination ("POP") equipment for Internet service providers ("ISPs") and remote site Internet access equipment for Internet subscribers; (ii) telecommunications carriers and ISP backbone networks utilizing high speed Frame Relay, Asynchronous Transfer Mode ("ATM") and Internet Protocol ("IP") switches for application; (iii) extensions and enhancements to corporate backbone networks that facilitate access to these networks by remote offices, telecommuters and mobile computer users; and (iv) videoconferencing and multimedia access facilities. The Company's products support existing digital and analog networks. Basis of Presentation - The consolidated financial statements include the accounts of Ascend and its subsidiaries. All significant intercompany transactions and balances have been eliminated. As more fully described in Note 8, the Company merged with Cascade Communications Corp. ("Cascade") in June 1997. The Company merged with NetStar, Inc. ("Netstar") in August 1996. These mergers have been accounted for as poolings of interests, and the historical consolidated financial statements of the Company for all periods prior to these mergers have been restated to include the financial positions, results of operations and cash flows of Cascade and NetStar. Cash and Cash Equivalents - Cash and cash equivalents consist of demand deposits and commercial paper in highly liquid short-term instruments with original maturities of three months or less from the date of purchase and are stated at cost, which approximates market. Substantially all of the Company's cash and cash equivalents are maintained by five major financial institutions. Short-Term Investments and Investments - The Company places its investments with high credit, quality financial institutions. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Available-for-sale securities are carried at acquired costs which approximate fair value, with unrealized gains and losses, net of tax, recorded in stockholders' equity until disposition. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale debt and equity securities are included in interest and other income. At December 31, 1997 and 1996, the Company's investments are all classified as available-for-sale and consisted primarily of obligations of the U.S. government ($22,386,000 - 1997 and $32,327,000 - 1996), states and political subdivisions ($277,251,000 - 1997 and $156,948,000 - 1996), U.S. corporate securities ($36,185,000 - 1997 and $14,494,000 - 1996) and foreign debt securities ($0 - 1997 and $5,103,000 - 1996). As of December 31, 1997, $77,612,000 of the Company's investments are due between one and five years and $23,600,000 of these securities are due between five and ten years. Unrealized gains and losses for 1997, 1996 and 1995 were not material. Accounts Receivable - The Company sells and distributes a substantial percentage of its products to Internet service providers, value-added resellers and distributors, and local and long-distance telecommunications carriers, throughout North America, Europe and Asia and the Pacific Basin. Accounts receivable are principally from these customers. The Company conducts ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts. The Company does not require collateral and has historically not experienced significant losses on trade receivables. Inventories - Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. The Company provides for obsolete inventories in the period when obsolescence is determined to have occurred. F-6 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 1. Accounting Policies (continued) Furniture, Fixtures and Equipment - Furniture, fixtures and equipment are recorded at cost. Depreciation is provided using the straight-line method over estimated useful lives of three to four years. Major Customers and Revenues by Geographic Area - One customer accounted for 14% of net sales in 1997. No customer accounted for more than 10% of net sales in 1996 or 1995. Net sales were derived from customers based in the following geographic areas (in thousands):
Year Ended December 31, --------------------------------------------- 1997 1996 1995 ------------- ------------ ----------- North America .................. $ 805,012 $ 576,996 $ 221,982 Europe ......................... 157,960 129,126 31,531 Asia and Pacific Basin ......... 189,675 170,747 32,499 Latin and South America ........ 14,705 13,404 1,426 ------------- ------------ ----------- $1,167,352 $ 890,273 $ 287,438 ============= ============ ===========
Revenue Recognition - The Company recognizes revenue from product sales upon shipment provided that no significant customer and post-contract support obligations remain and collection of the related receivable is deemed probable. The Company defers recognition of revenue on initial shipments of certain new products until such products have been tested in the marketplace. The Company accounts for all costs relating to customer and post- contract support obligations, which are not significant in amount, at the time of shipment by accruing such costs. In addition, the Company provides for potential product returns and estimated warranty costs in the period of the sale. Key Suppliers - The Company is dependent on single or limited source suppliers for certain components used in its products. The Company has generally been able to obtain adequate supplies of these components. In addition, the Company believes that there are alternative suppliers for the components used in its products. However, an extended interruption in the supply of the components currently obtained from single or limited source suppliers could adversely affect the Company's business and results of operations. Research and Development - Costs to develop the Company's products are expensed as incurred in accordance with Statement of Financial Accounting Standards No. 2, Accounting for Research and Development Costs, which establishes accounting and reporting standards for research and development. F-7 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 1. Accounting Policies (continued) Stock-Based Compensation. In accordance with Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("FAS 123"), the Company applies Accounting Principles Bulletin ("APB") Opinion No. 25 and related Interpretations in accounting for its stock option and purchase plans and, accordingly, has not recognized compensation cost in connection with such plans. Note 5 to the consolidated financial statements contains a summary of the pro forma effects to reported net income (loss) and net income (loss) per share for 1997, 1996 and 1995 as if the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by FAS 123. Net Income (Loss) Per Share - In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share ("FAS 128"). FAS 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options and warrants. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Net income (loss) per share - diluted, as reported, includes the effect of dilutive employee stock options and warrants (using the treasury stock method). For 1997, the effect of options and warrants has been excluded as their effect would be anti-dilutive. All net income (loss) per share amounts presented have been restated to conform to FAS128 requirements, where appropriate. Recent Accounting Pronouncements - In June 1997, the Financial Accounting Standards Board issued Statement No. 130, Reporting Comprehensive Income ("FAS 130"), and Statement No. 131, Disclosure about Segments of an Enterprise and Related Information ("FAS 131"). The Company is required to adopt these statements in fiscal year 1998. FAS 130 establishes new standards for reporting and displaying comprehensive income and its components. FAS 131 requires disclosure of certain information regarding operating segments, products and services, geographic areas of operation and major customers. Adoption of these statements is expected to have no impact on the Company's consolidated financial position, results of operations or cash flows. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications - Certain 1995 and 1996 balances have been reclassified to conform to the 1997 presentation. 2. Balance Sheet Details (in thousands) Inventories consist of:
December 31, --------------------- 1997 1996 ------- ------- Finished goods ............................... $18,053 $10,778 Products in process .......................... 15,579 7,544 Raw materials and supplies ................... 66,005 50,222 ------- ------- $99,637 $68,544 ======= =======
F-8 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2. Balance Sheet Details (continued) Furniture, Fixtures and Equipment consist of:
December 31, ---------------------- 1997 1996 -------- -------- Computer equipment .................................... $ 87,640 $ 61,001 Laboratory equipment .................................. 47,779 22,284 Furniture and fixtures ................................ 38,009 22,524 -------- -------- 173,428 105,809 Less accumulated depreciation ......................... (59,077) (32,763) -------- -------- $114,351 $ 73,046 ======== ========
Accrued Liabilities consist of:
December 31, --------------------- 1997 1996 ------- ------- Income taxes payable .................................. $ 9,432 $ 6,298 Other accrued liabilities ............................. 57,421 35,940 Customer deposits ..................................... 22,056 22,407 ------- ------- $88,909 $64,645 ======= =======
3. Notes Payable In June 1995, NetStar issued $4,200,000 of convertible notes payable ("Bridge Notes") in a private placement. In connection with this financing, NetStar also issued warrants to the holders of the Bridge Notes to purchase 297,343 shares of common stock. During 1996, $2,068,000 of principal outstanding under the Bridge Notes was exchanged for 130,713 shares of the Company's common stock. The remaining $2,132,000 was repaid during 1996. 4. Income Taxes The Company accounts for income taxes pursuant to Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, under which the liability method is used to calculate deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between financial reporting and income tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The realization of deferred tax assets is based on historical tax positions and expectations about future taxable income. F-9 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 4. Income Taxes (continued) The following is a geographical breakdown of consolidated income (loss) before income taxes (including intercompany revenue and expenses) by income tax jurisdiction (in thousands):
Year Ended December 31, -------------------------------- 1997 1996 1995 --------- -------- -------- United States .............. $(50,392) $299,355 $ 85,293 Foreign .................... 5,440 2,649 445 -------- -------- -------- Total ...................... $(44,952) $302,004 $ 85,738 ======== ======== ========
Significant components of the provision for income taxes attributable to operations are as follows (in thousands):
Year Ended December 31, ----------------------------------- 1997 1996 1995 -------- -------- ------- Current: Federal ................ $ 89,899 $121,975 $34,523 State .................. 17,338 22,728 7,532 Foreign ................ 1,963 940 178 -------- -------- ------- Total current ............... 109,200 145,643 42,233 Deferred: Federal ................ (25,381) (23,985) (8,266) State .................. (4,397) (3,544) (1,174) -------- -------- ------- Total deferred .............. (29,778) (27,529) (9,440) -------- -------- ------- Total provision ............. $ 79,422 $118,114 $32,793 ======== ======== =======
F-10 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 4. Income Taxes (continued) A reconciliation of income taxes at the statutory federal income tax rate to net income taxes included in the accompanying statements of operations is as follows (in thousands):
Year Ended December 31, -------------------------------------- 1997 1996 1995 --------- --------- --------- US federal taxes (benefit) at statutory rate $ (15,733) $ 105,701 $ 30,009 State taxes, net of federal benefit ........ 12,941 16,545 4,476 Tax-exempt interest ........................ (4,552) (3,168) (1,097) Foreign Sales Corporation .................. (3,465) (5,304) (714) Costs of mergers ........................... 15,682 2,625 -- Purchased research and development ......... 74,585 -- -- Other ...................................... (36) 1,715 119 --------- --------- --------- Total tax provision ........................ $ 79,422 $ 118,114 $ 32,793 ========= ========= ========= Effective tax rate ......................... -- 39.1% 38.2% ========= ========= =========
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 assets are as follows (in thousands):
December 31, --------------------- 1997 1996 -------- -------- Deferred tax assets: Reserve for uncollectible accounts ............... $ 11,147 $ 2,548 Reserve for warranties and inventories ........... 33,992 14,534 Purchased research and development ............... 7,691 673 Customer deposits ................................ 8,736 12,238 Net operating loss and tax credit carryovers of acquired companies ......................... 12,799 8,272 Accrued expenses ................................. 6,934 2,331 Depreciation ..................................... 711 359 Other ............................................ 3,047 2,672 -------- -------- Total deferred tax assets ........................... 85,057 43,627 Valuation allowance .............................. -- (765) -------- -------- Total net deferred tax assets ....................... $ 85,057 $ 42,862 ======== ========
The valuation allowance decreased by $765,000 in 1997. F-11 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 5. Stockholders' Equity Public Offering - In August 1995, the Company completed a public offering of its common stock consisting of 12,650,000 shares at $17.625 per share, with proceeds, net of issuance costs, of approximately $211,743,000 (issuance costs were approximately $11,213,000). Stock Splits - In May, October and December of 1995, the Company's Board of Directors approved two-for-one stock splits, payable in the form of a stock dividend to all stockholders of record. All shares and per share data in the accompanying consolidated financial statements have been retroactively adjusted to reflect these stock splits. Preferred Stock - The Company's Board of Directors has the authority to issue these shares in one or more series and to fix the rights, preferences, privileges and restrictions of ownership. At December 31, 1997 and 1996, there were no outstanding shares of preferred stock. Notes Receivable - Notes receivable from stockholders resulted from the purchase of common stock from the Company pursuant to the exercise of stock options. Such notes are due on demand, bear interest at 5.4% and are secured by certain common shares. 1994 Employee Stock Purchase Plan - In March 1994, the Board of Directors approved an Employee Stock Purchase Plan under which eligible employees may purchase common stock at a price equal to 85% of the lower of the fair market value of the common stock at the beginning or end of each offering period. Participation in the offering is limited to 10% of an employee's compensation (not to exceed amounts allowed by the Internal Revenue Code), may be terminated at any time by the employee and automatically ends on termination of employment with the Company. A total of 2,800,000 shares of common stock have been reserved for issuance under this plan and the first offering commenced on the effective date of the Company's initial public offering of shares of its common stock and continued through January 31, 1995. Subsequent six-month offering periods commenced on each February 1 and August 1 thereafter. During 1997, 1996 and 1995, 96,242, 86,870 and 252,120 shares of common stock were issued under this plan, respectively. 1989 Stock Option Plan - The Company has a Stock Option Plan under which a total of 45,000,000 shares of common stock have been reserved for issuance to employees, officers, directors and consultants of the Company. Options granted to date are immediately exercisable and unvested shares are subject to repurchase by the Company. Options and unvested shares typically vest ratably over four years from the date of grant. In the event option holders cease to be employed by the Company, all unvested options are forfeited and all vested options may be exercised within a 30-day period after termination; the Company also has the right to repurchase any unvested (but issued) shares if the holder is no longer employed by the Company. As of December 31, 1997, options to purchase approximately 3,660,658 shares of common stock were available for grant under this plan. Stock options are granted at not less than the fair market value of common stock on the date of grant. All options expire no later than ten years from the date of grant, except options granted to 10% stockholders, which have a maximum term of five years. The exercise price of stock options granted to a stockholder possessing 10% or more of the total combined voting power of all classes of stock may not be less than 110% of the fair market value of common stock on the date of grant. As of December 31, 1997, no options had been granted to 10% stockholders. F-12 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 5. Stockholders' Equity (continued) In October and November 1997, the Board of Directors approved stock option repricing programs pursuant to which all employees of the Company (excluding certain executive officers) could elect to exchange or amend their then outstanding employee stock options for new employee stock options having exercise prices of $34.94 per share and $24.44 per share, respectively (equal to the then fair market values), with excercisability generally prohibited until January 19, 1998 and February 27, 1998, respectively. A total 13,962,994 and 15,513,687 options with exercise prices ranging from $35.13 to $113.04 per share and $24.75 to $104.46 per share, respectively, were exchanged or amended under these programs. 1994 Outside Directors Stock Option Plan - In March 1994, the Board of Directors approved an Outside Directors Stock Option Plan under which directors of the Company who are not officers or employees of the Company may receive nonstatutory options to purchase shares of common stock of the Company. A total of 2,000,000 shares of common stock have been reserved for issuance under this plan. As of December 31, 1997, options to purchase 416,000 shares were available for grant under this plan. 1996 Restricted Stock Plan - In October 1996, the Board of Directors approved a Restricted Stock Plan under which employees and consultants of the Company who are not officers or directors of the Company may receive shares of common stock of the Company. A total of 200,000 shares of common stock have been reserved for issuance under this plan. As of December 31, 1997, 60,000 shares of common stock were available for grant under this plan. The Company recorded $434,000 of compensation during 1997 relating to this plan. The Company has adopted FAS 123, which was issued in October 1995. In accordance with the provisions of FAS 123, the Company applies APB Opinion 25 and related Interpretations in accounting for its stock option plans and, accordingly, does not recognize compensation cost. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by FAS 123, net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated in the table below (in thousands except per share amounts):
Year ended December 31, --------------------------------- 1997 1996 1995 --------- -------- ------- Net income (loss) - as reported ................... $(124,374) $183,890 $52,945 Net income (loss) - pro forma ..................... $(275,758) $118,136 $41,445 Net income (loss) per share (diluted) - as reported $ (0.66) $ 0.94 $ 0.30 Net income (loss) per share (diluted) - pro forma . $ (1.46) $ 0.60 $ 0.24 Net income (loss) per share (basic) - as reported . $ (0.66) $ 1.03 $ 0.33 Net income (loss) per share (basic) - pro forma ... $ (1.46) $ 0.66 $ 0.26
The effect on net income (loss) and net income (loss) per share is not expected to be indicative of the effects in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option- pricing model with the following assumptions:
Year ended December 31, --------------------------------- 1997 1996 1995 --------- -------- ------- Expected volatility ............. 0.657 0.610 0.610 Risk-free interest rate ......... 6.24% 6.20% 6.05% Expected life of options in years 3.5 3.5 3.5 Expected dividend yield ......... 0.00% 0.00% 0.00%
F-13 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 5. Stockholders' Equity (continued) The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in these subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not provide a reliable single measure of the fair value of its employee stock options. The following table summarizes activity under the Company's Stock Option Plans from December 31, 1994 through December 31, 1997 (all repricing activity is reflected as cancellations and subsequent grants):
Weighted Average Number of Exercise Options Price ----------- -------- Balance at December 31, 1994 ......................... 13,491,994 $ 1.52 Granted ........................................... 15,452,002 18.19 Exercised ......................................... (2,906,739) 0.98 Cancelled ......................................... (845,872) 5.99 ----------- Balance at December 31, 1995 ......................... 25,191,385 11.66 Granted ........................................... 10,353,380 58.52 Exercised ......................................... (6,528,853) 5.71 Cancelled ......................................... (456,636) 30.85 ----------- Balance at December 31, 1996 ......................... 28,559,276 29.76 Granted ........................................... 44,654,323 33.33 Exercised ......................................... (4,775,087) 8.80 Cancelled ......................................... (35,994,523) 42.53 ----------- Balance at December 31, 1997 ......................... 32,443,989 $23.60 =========== Outstanding options exercisable at December 31, 1997 . 28,607,600 $23.47 =========== Options available for grant at December 31, 1997 ..... 4,136,658 ===========
The weighted average fair value of options granted during 1997, 1996 and 1995 is $33.42, $29.06 and $9.34 per share, respectively. F-14 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 5. Stockholders' Equity (continued) The following table summarizes information concerning currently outstanding and exercisable options:
Options Outstanding Options Exercisable ------------------------------------ --------------------------- Weighted Average Weighted Weighted Remaining Average Average Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price - -------------------------------- ------------ ----------- --------- -------------- --------- $ 0.01 -- $ 5.81 4,683,766 5.61 $ 2.56 4,004,780 $ 2.76 7.07 -- 18.81 4,580,008 6.97 13.16 3,737,772 13.05 19.00 -- 23.63 2,107,076 9.29 22.87 1,941,397 22.97 23.69 -- 24.44 15,541,785 8.88 24.44 14,254,876 24.44 24.50 -- 61.88 4,860,079 8.91 45.04 4,204,500 44.52 62.32 -- 89.46 671,275 8.53 69.30 464,275 67.55 ---------- ---------- 32,443,989 28,607,600 ========== ==========
Reserved for Future Issuance - As of December 31, 1997, the Company has reserved the following shares of its common stock for future issuance: Stock Option Plans.......................................................... 36,580,647 Employee Stock Purchase Plan................................................ 2,364,768 ---------- Total shares reserved....................................................... 38,945,415 ==========
6. Retirement Plan In July 1993, the Company established a profit sharing plan, which has been qualified under Section 401(k) of the Internal Revenue Code, covering substantially all employees who meet certain minimum eligibility requirements. Company contributions to the plan were $2,479,000 in 1997 (no contributions were made in 1996 or 1995). Eligible employees can contribute amounts to the plan via payroll withholdings, subject to certain limitations. F-15 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 7. Commitments Leases - The Company leases office and warehouse space under noncancelable operating leases. Rent expense on these operating leases was approximately $9,165,000, $6,449,000 and $2,351,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Future minimum payments under noncancelable operating leases with initial terms of one year or more consist of the following at December 31, 1997 (in thousands):
Operating Leases ------- 1998.................................. $ 9,359 1999.................................. 7,732 2000.................................. 6,829 2001.................................. 6,199 2002.................................. 3,354 2003 and beyond....................... 15,215 ------- Total minimum lease payments.......... $48,688 =======
In March 1996, the Company entered into an agreement to lease 13 acres of land located in Alameda, California. Certain buildings currently being used for the Company's headquarters have been constructed on the land. The lessor has funded approximately $24.9 million for the land and construction of the buildings. The lease has an initial term of five years and an option to renew for two years, subject to the lessor's consent. The rent obligation for the lease commenced in December 1996. At any time during the term of the lease, the Company may purchase the land and buildings. If the Company does not exercise its purchase option at the end of the lease or if the Company does not maintain certain financial and other covenants, the Company has guaranteed a residual value relating to the land and buildings of approximately $22.4 million. Line of Credit - The Company has a bank line of credit to borrow up to $25,000,000 which expires in June 1999. Interest is computed at the bank's prime rate or 0.5% over LIBOR, at the option of the Company. The line of credit requires the Company to maintain certain financial ratios, minimum net worth and profitability on a quarterly basis. There were no borrowings under the line of credit agreement during 1997. F-16 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 8. Business Combinations On June 30, 1997, the Company acquired Cascade, a developer and manufacturer of wide area network switches, in a transaction that was accounted for as a pooling of interests. The Company issued approximately 66.3 million shares of its common stock to Cascade stockholders in exchange for all outstanding Cascade shares. Outstanding options to purchase Cascade common stock were converted to options to purchase approximately 8.5 million shares of Ascend common stock. The historical consolidated financial results of Ascend for prior periods have been restated to include the financial position and results of operations of Cascade. The following table shows the historical results of Ascend and Cascade for the periods prior to the consummation of the merger of the two entities:
Three Months Ended March 31, Year Ended December 31, --------- ------------------------ Revenue: 1997 1996 1995 --------- -------- -------- Ascend.................. $ 202,412 $549,297 $152,604 Cascade................. 90,328 340,976 134,834 --------- -------- -------- Total................. $ 292,740 $890,273 $287,438 ========= ======== ======== - --------------------------------------------------------------------- Net Income (loss): Ascend.................. $ 35,093 $113,111 $ 27,535 Cascade................. (198,334) 70,779 25,410 --------- -------- -------- Total................. $(163,241) $183,890 $ 52,945 ========= ======== ========
In February 1997, the Company acquired all of the outstanding stock of InterCon Systems Corporation, a developer of remote access client software products for both corporate and ISP markets, in a transaction that was accounted for as a purchase. The purchase price consisted of a cash payment of $12.0 million, the assumption of approximately $9.0 million of liabilities and transaction costs of approximately $600,000. The total purchase price of $21.6 million was allocated to the net assets acquired based upon their estimated fair market value. The estimated fair value of tangible net assets acquired was $600,000. In addition, $18.0 million of the purchase price was allocated to purchased research and development that had not reached technological feasibility and that had no alternative future use, and $3.0 million was allocated to purchased software. On April 1, 1997, the Company acquired Whitetree, Inc. ("Whitetree"), a developer and manufacturer of high speed ATM switching products, in a transaction that was accounted for as a pooling of interests. The Company issued approximately 1.3 million shares of its common stock to Whitetree shareholders in exchange for all outstanding Whitetree shares. In addition, the Company assumed all outstanding Whitetree stock options to purchase approximately 99,000 shares of the Company's stock. The results of operations of Whitetree, which have not been material in relation to those of the Company, are included in the consolidated results of operations for periods subsequent to the acquisition. The Company's historical consolidated financial statements prior to the combination have not been restated to reflect the financial results of Whitetree as these results were not material to the Company. F-17 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 8. Business Combinations (continued) On January 28, 1997, Cascade completed its acquisition of Sahara Networks, Inc. ("Sahara"), a privately held developer of scaleable high-speed broadband access products, in a transaction that was accounted for as a purchase. Cascade issued approximately 3.4 million shares of Cascade common stock (or 2.4 million equivalent shares of the Company's common stock after exchange ratio) in exchange for all the outstanding shares of Sahara. In addition, Cascade assumed all outstanding Sahara stock options to purchase approximately 400,000 shares of Cascade common stock. The acquisition was accounted for under the purchase method of accounting. Accordingly, the purchase price of approximately $219.0 million was allocated to the net assets acquired based upon their estimated fair market value. The estimated fair value of the tangible net assets acquired was approximately $6.0 million. In addition, approximately $213.0 million of the purchase price was allocated to in-process research and development that had not reached technological feasibility and that had no alternative future use. In August 1996, the Company acquired NetStar, a developer and manufacturer of high performance, high speed IP network routers, in a transaction that was accounted for as a pooling of interests. The Company issued approximately 3.9 million shares of its common stock to NetStar shareholders in exchange for all outstanding NetStar shares. The Company`s historical consolidated financial statements for prior periods have been restated to reflect the financial position and results of operations of NetStar. 9. Litigation The Company and various of its current and former officers and directors are parties to a number of related lawsuits which purport to be class actions filed on behalf of all persons who purchased or acquired the Company's stock (excluding the defendants and parties related to them) for the period November 5, 1996 to September 30, 1997. The lawsuits, which are substantially identical, allege that the defendants violated the federal securities laws by engaging in a scheme to artificially inflate and maintain the Company's stock price by disseminating materially false and misleading information concerning its business and earnings and the development, efficiency, introduction and deployment of its digital modems based on 56K-bps technology. All of these actions are in the early stages of proceedings and the Company is currently investigating the allegations. Based on its current information, the Company believes the suits to be without merit and intends to defend itself and its officers and directors vigorously. Although it is reasonably possible the Company may incur a loss upon the conclusion of these claims, an estimate of any loss or range of loss cannot be made. No provision for any liability that may result upon adjudication has been made in the Company's consolidated financial statements. In the opinion of management, resolution of this matter is not expected to have a material adverse effect on the financial position of the Company. However, depending on the amount and timing, an unfavorable resolution of this matter could materially affect the Company's future results or cash flows in a particular period. In connection with these legal proceedings, the Company expects to incur substantial legal and other expenses. Shareholder suits of this kind are highly complex and can extend for a protracted period of time, which can substantially increase the cost of such litigation and divert the attention of the Company's management. F-18 ASCEND COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) On April 16, 1997, a civil action was filed against Sahara, its three founders and ten employees of Sahara by General Datacomm Industries, Inc. in the Superior Court for the State of Connecticut. The complaint alleges several causes of action, including: breach of contract; tortious interference with contractual relations; misappropriation of trade secrets; unfair competition and violation of the Connecticut Unfair Trade Practices Act. The plaintiff seeks relief of unspecified monetary damages, costs and injunctive relief. The Company has not yet engaged in substantive discovery and the ultimate outcome of this matter cannot yet be determined. The Company plans to vigorously defend this lawsuit. No provision for any liability that may result from the action has been recognized in the consolidated financial statements. In the opinion of management, resolution of this litigation is not expected to have a material adverse effect on the financial position of the Company. However, depending on the amount and timing, an unfavorable resolution of this matter could materially affect the Company's future results or cash flows in a particular period. On April 18, 1997, the Company received a claim and request for royalties alleging patent infringement on four separate patents. Subsequently, the claim and request for royalties was amended to include four additional patents. The Company is currently investigating the claims of such infringement and thus the ultimate outcome of this claim cannot yet be determined. No provision for any liability that may result from the claim has been recognized in the consolidated financial statements. In the opinion of management, resolution of this matter is not expected to have a material adverse effect on the financial position of the Company. However, depending on the amount and timing, an unfavorable resolution of this matter could materially affect the Company's future results or cash flows in a particular period. The Company is a party as a defendant in various other lawsuits, contractual disputes and other legal claims, the results of which are not presently determinable. However, in the opinion of management, after consultation with legal counsel, the amount of losses that might be sustained, if any, from these lawsuits would not materially affect the Company's financial position. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect the Company's future results of operations or cash flows in a particular period 10. Quarterly Information (unaudited) The following table presents unaudited quarterly operating results for each of the Company's eight quarters in the two-year period ended December 31, 1997 (in thousands, except per share amounts):
Quarter Ended ------------------------------------------------------------------ March 31, June 30, Sept. 30, Dec. 31, ------------------------------------------------------------------ 1997 Net sales ............................................ $ 292,740 $ 311,693 $ 270,372 $ 292,547 Gross profit ......................................... 190,353 203,016 173,191 187,222 Operating income (loss) .............................. (137,745) (56,807) 57,511 69,060 Net income (loss) .................................... (163,241) (48,837) 40,128 47,576 Net income (loss) per share - diluted ................ (0.88) (0.26) 0.20 0.24 Net income (loss) per share - basic .................. (0.88) (0.26) 0.21 0.25 1996 Net sales ............................................ $ 148,065 $ 205,581 $ 248,836 $ 287,791 Gross profit ......................................... 95,717 132,722 161,907 188,182 Operating income ..................................... 44,780 67,903 72,851 99,284 Net income ........................................... 29,821 44,424 45,157 64,488 Net income per share - diluted ....................... 0.15 0.23 0.23 0.32 Net income per share - basic ......................... 0.17 0.25 0.25 0.35
The net income (loss) per share amounts have been restated to comply with FAS128. F-19 ASCEND COMMUNICATIONS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balances at Charged to Balances at Beginning Costs and End of of Period Expenses Deductions Period ----------- ---------- ---------- ----------- Year Ended December 31, 1997 $ 2,632 $ 9,300 $ (632) $11,300 ======= ======= ======= ======= Year Ended December 31, 1996 $ 1,202 $ 1,435 $ (5) $ 2,632 ======= ======= ======= ======= Year Ended December 31, 1995 $ 775 $ 538 $ (111) $ 1,202 ======= ======= ======= =======
S-1 3. Exhibits No. Description -------- ------------------------------------------------------- /(6)/ 3.1 Certificate of Incorporation. /(1)/ 3.2 By-Laws. /(1)/ 10.1 First-Amended and Restated 1989 Stock Option Plan and forms of stock option agreements used thereunder. /(1)/ 10.2 Ascend Communications, Inc. 1994 Employee Stock Purchase Plan. /(1)/ 10.3 Ascend Communications, Inc. 1994 Outside Directors Stock Option Plan. /(1)/ 10.4 Loan Agreement and related agreements, dated October 21, 1993, by and between the Registrant and First Interstate Bank of California /(1)/ 10.5 Lease dated August 8, 1991, by and between the Registrant and Harbor Bay Isle Associates, the First Addendum thereto, dated August 8, 1991, and the Second Addendum thereto, dated February 25, 1994. /(1)/ 10.8 Form of Idenmnity Agreement for directors and officers. /(2)/ 10.9 Loan Agreement and related agreements, dated July 29, 1994, by and between the Registrant and First Interstate Bank of California /(3)/ 10.10 Lease Agreement, Lease Rider and Second Lease Rider, dated May 17, 1995 by and between the Registrant and Resurgence Properties, Inc. /(4)/ 10.11 Loan Agreement and related agreements, dated November 30, 1995, by and between the Registrant and Wells Fargo Bank of California. /(5)/ 10.12 Lease agreement dated March 27, 1996, by and between the Registrant and Sumitomo Bank Leasing and Financing, Inc. /(6)/ 10.13 Ascend Communications, Inc. 1996 Restricted Stock Plan. /(8)/ 10.14 Cascade Communications Corp. Amended and Restated 1991 Stock Plan. 3. Exhibits (continued) No. Description ----------- ---------------------------------------------------- /(9)/ 10.15 Cascade Communications Corp. 1994 Employee Stock Purchase Plan. /(9)/ 10.16 Cascade Communications Corp. 1994 Non-Employee Director Stock Plan. /(9)/ 10.17 Letter of Employment dated March 12, 1992 between the Registrant and Daniel E. Smith. /(9)(10)(11)/ 10.18 Lease dated July 27, 1993 between Glenborough Corporation and the Registrant; as amended by the first amendment thereto dated February 24, 1994; as amended by the second amendment thereto dated July 24, 1994; as amended by the third amendment thereto dated November 10, 1994; as amended by the fourth amendment thereto dated December 1, 1995. /(12)/ 10.19 Lease dated November 14, 1996 between the Registrant and Nashoba View Associated, LLC. *10.20 Loan Agreement and related agreements, dated November 30, 1995, by and between the Registrant and Wells Fargo Bank of California, as ammended by the first ammendment thereto, date October 15, 1997. *11.1 Statement regarding computation of earnings (loss) per share *21.1 List of Subsidiaries of Ascend Communication *23.1 Consent of Independent Auditors 23.2 Consent of Independent Accountants *27.0 Financial Data Schedule. /(1)/ Incorporated by reference from the Company's Registration Statement (No.33-77146), effective May 12, 1994. /(2)/ Incorporated by reference from the Company's Form 10-Q for the quarter ended September 30, 1994. /(3)/ Incorporated by reference from the Company's Form 10-Q for the quarter ended June 30, 1995. /(4)/ Incorporated by reference from the Company's 10-K for the year ended December 31, 1995. /(5)/ Incorporated by reference from the Company's Form 10-Q for the quarter ended March 31, 1996. 3. Exhibits (continued) No. Description ------- -------------------------------------------------------- /(6)/ Incorporated by reference from the Company's Form 10-Q for the quarter ended June 30, 1996. /(7)/ Incorporated by reference from the Company's Form 10-K for the year ended December 31, 1996. /(8)/ Incorporated by reference from Cascade Communications Corp.'s Registration Statement on Form S-8 (File No. 33-93152) filed with the Securities Commission and Exchange Commission (the "Commission") on June 6, 1995. /(9)/ Incorporated by reference from Cascade Communications Corp.'s Registration Statement on Form S-1 (File No. 33-79330) filed with the Commission on May 26, 1994, as amended, which Registration Statement became effective on July 28, 1994. /(10)/ Incorporated by references to the corresponding exhibit previously filed as an exhibit to Cascade Communications Corp.'s Form 10-K filed for the fiscal year ended December 31, 1994 on March 29, 1995. /(11)/ Incorporated by reference to the corresponding exhibit previously filed as an exhibit to Cascade Communications Corp.'s Form 10_K filed for the fiscal year ended December 31, 1995, on March 1, 1996. /(12)/ Incorporated by reference to the corresponding exhibit previously filed as an exhibit to Cascade Communications Corp.'s Form 10-K filed for the fiscal year ended December 31, 1996 on March 14, 1997. * Previously Filed. (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter ended December 31, 1997. (c) Exhibits See Item 14(a) 3 above. (d) Financial Statement Schedule See Item 14(a) 1 and 2 above. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ASCEND COMMUNICATIONS, INC. DATE May 29, 1998 by /s/ Mory Ejabat -------------- --------------------------------------- Mory Ejabat, President, Chief Executive Officer and Director ASCEND COMMUNICATIONS, INC. INDEX TO EXHIBITS No. Description ----------- -------------------------------------------------------- /(6)/ 3.1 Certificate of Incorporation. /(1)/ 3.2 By-Laws. /(1)/ 10.1 First Amended and Restated 1989 Stock Option Plan and forms of stock option agreements used thereunder. /(1)/ 10.2 Ascend Communications, Inc. 1994 Employee Stock Purchase Plan. /(1)/ 10.3 Ascend Communications, Inc. 1994 Outside Directors Stock Option Plan. /(1)/ 10.4 Loan Agreement and related agreements, dated October 21, 1993, by and between the Registrant and First Interstate Bank of California. /(1)/ 10.5 Lease dated August 8, 1991, by and between the Registrant and Harbor Bay Isle Associates, the First Addendum thereto, dated August 8, 1991, and the Second Addendum thereto, dated February 25, 1994. /(1)/ 10.8 Form of Indemnity Agreement for directors and officers. /(2)/ 10.9 Loan Agreement and related agreements, dated July 29, 1994, by and between the Registrant and First Interstate Bank of California. /(3)/ 10.10 Lease Agreement, Lease Rider and Second Lease Rider, dated May 17, 1995 by and between the Registrant and Resurgence Properties, Inc. /(4)/ 10.11 Loan Agreement and related agreements, dated November 30, 1995, by and between the Registrant and Wells Fargo Bank of California. /(5)/ 10.12 Lease Agreement dated March 27, 1996, by and between the Registrant and Sumitomo Bank Leasing and Financing, Inc. /(7)/ 10.13 Ascend Communications, Inc. 1996 Restricted Stock Plan. /(8)/ 10.14 Cascade Communications Corp. Amended and Restated 1991 Stock Plan. ASCEND COMMUNICATIONS, INC. INDEX TO EXHIBITS (continued) No. Description ----------- -------------------------------------------------------- /(9)/ 10.15 Cascade Communications Corp. 1994 Employee Stock Purchase Plan. /(9)/ 10.16 Cascade Communications Corp. 1994 Non-Employee Director Stock Plan . /(9)/ 10.17 Letter of Employment dated March 12, 1992 between the Registrant and Daniel E. Smith . /(9)(10)(11)/ 10.18 Lease dated July 27, 1993 between Glenborough Corporation and the Registrant; as amended by the first amendment thereto dated February 24, 1994; as amended by the second amendment thereto dated July 24, 1994; as amended by the third amendment thereto dated November 10, 1994; as amended by the fourth amendment thereto dated December 1, 1995. /(12)/ 10.19 Lease dated November 14, 1996 between the Registrant and Nashoba View Associated, LLC. *10.20 Loan Agreement and related agreements, dated November 30, 1995, by and between the Registrant and Wells Fargo Bank of California, as ammended by the first ammendment thereto, dated October 15, 1997. *11.1 Statement regarding computation of earnings (loss) per share. *21.1 List of Subsidiaries of Ascend Communication *23.1 Consent of Independent Auditors 23.2 Consent of Independent Accountants *27.0 Financial Data Schedule. /(1)/ Incorporated by reference from the Company's Registration Statement (No. 33-77146), effective May 12, 1994. /(2)/ Incorporated by reference from the Company's Form 10-Q for the quarter ended September 30, 1994. /(3)/ Incorporated by reference from the Company's Form 10-Q for the quarter ended June 30, 1995. /(4)/ Incorporated by reference from the Company's Form 10-K for the year ended December 31, 1995. /(5)/ Incorporated by reference from the Company's Form 10-Q for the quarter ended March 31, 1996. ASCEND COMMUNICATIONS, INC. INDEX TO EXHIBITS (continued) No. Description ----------- ------------------------------------------------------- /(6)/ Incorporated by reference from the Company's Form 10-Q for the quarter ended June 30, 1996. /(7)/ Incorporated by reference from the Company's Form 10-K for the year ended December 31, 1996. /(8)/ Incorporated by reference from Cascade Communications Corp.'s Registration Statement on Form S-8 (File No. 33-93152) filed with the Securities Commission and Exchange Commission (the "Commission") on June 6, 1995. /(9)/ Incorporated by reference from Cascade Communications Corp.'s Registration Statement on Form S-1 (File No. 33-79330) filed with the Commission on May 26, 1994, as amended, which Registration Statement became effective on July 28, 1994. /(10)/ Incorporated by reference to the corresponding exhibit previously filed as an exhibit to Cascade Communications Corp.'s Form 10-K filed for the fiscal year ended December 31, 1994 on March 29, 1995. /(11)/ Incorporated by reference to the corresponding exhibit previously filed as an exhibit to Cascade Communications Corp.'s Form 10-K filed for the fiscal year ended December 31, 1995 on March 1, 1996. /(12)/ Incorporated by reference to the corresponding exhibit previously filed as an exhibit to Cascade Communications Corp.'s Form 10-K filed for the fiscal year ended December 31, 1996 on March 14, 1997. * Previously Filed. EX-23.2 2 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements on Form S-8 (File Nos. 33-82550, 33-94886, 333-00442, 333-03686, 333-10879, 333-15697, and 333-30823) and on Form S-3 (File Nos. 333-13377, 333-11091, 333-21751 and 333-32781) of Ascend Communications, Inc. of our report dated January 22, 1997, except for Note M as to which the date is March 30, 1997, on our audits of the consolidated financial statements and our report dated January 22, 1997 on our audits of the consolidated financial statement schedule of Cascade Communications Corp. as of December 31, 1996, and for the years ended December 31, 1996 and 1995, which reports are included in this Annual Report on Form 10-K/A of Ascend Communications, Inc. COOPERS & LYBRAND L.L.P. Boston Massachusetts May 27, 1998 -----END PRIVACY-ENHANCED MESSAGE-----