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EXHIBIT 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE
BAY NETWORKS REPORTS FOURTH QUARTER FISCAL 1998 RESULTS
SANTA CLARA, CALIF., JULY 20, 1998 -- Bay Networks, Inc. (NYSE: BAY) today
reported results for its fourth fiscal quarter and its fiscal year ended June
27, 1998. For its fourth fiscal quarter of 1998, the company reported revenue of
$618.3 million, an increase of 13.0% from the preceding quarter and an increase
of 13.9% for the corresponding quarter of the preceding year. Net income for the
fourth quarter was $20.6 million, or $0.09 per share; these results include a
charge of $7.0 million for in-process research and development charges related
to the acquisitions of Netwave Technologies, Inc. and Phase2 Networks, Inc.,
both of which were completed during the fourth fiscal quarter. Excluding these
charges, pro-forma net income and related pro-forma income per share in the
fourth quarter were $27.6 million and $0.12, respectively.
Bay Networks reported record revenue for fiscal year 1998 of $2,411.7 million, a
15.2% increase compared to revenue of $2,093.1 million for fiscal year 1997. Net
loss and loss per share for fiscal year 1998 were $(34.8) million and $(0.16),
respectively. Fiscal year 1998 results included charges relating to write-offs
of in-process research and development and the cumulative effect of a change in
accounting principle. Excluding these charges, net income and earnings per share
for fiscal year 1998 were $145.7 million and $0.65 respectively. For fiscal year
1997 net loss and loss per share were $(285.0) million and $(1.46),
respectively. The fiscal year 1997 results included charges relating to merger
and acquisition activities, business alignment, and restructuring and severance.
Excluding these charges, fiscal year 1997 net income and earnings per share were
$118.6 million and $0.59, respectively.
"We had a strong finish to fiscal 1998 as indicated by the 13% sequential growth
we achieved in the fourth quarter," said Dave House, chairman, CEO and president
of Bay Networks. "Revenue from North America hit record levels reflecting robust
end-user demand. At the same time, channel inventories continue to be at healthy
levels."
"New products contributed more than 55% of revenue for the third consecutive
quarter. Switching products, which grew 87% year-over-year, fueled this
performance. The Accelar(TM) family of routing switches delivered strong
sequential growth again this quarter. We introduced several key products and
initiatives, including the introduction of the Versalar(TM) 15000 and the
establishment of the Bay Networks Open Routing Division. The Versalar 15000 is a
new class of product that provides Internet Service Providers (ISPs) with
unprecedented IP Class of Service (CoS) features and an extremely high
concentration of dedicated connections. The Bay Networks Open Routing Division
will license and sell a portable version of Bay Networks Routing Services
(BayRS(TM)) technology," continued House.
"We believe that the work we accomplished over the past fiscal year -
specifically, re-energizing the product line, strengthening the product
development cycle, and
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implementing major steps in our Adaptive Networking strategy - positions the
Company for continued growth," concluded House.
ABOUT BAY NETWORKS
Bay Networks - Where Information Flows(TM), Bay Networks, Inc. (NYSE: BAY) is a
leader in the worldwide networking market, providing a complete line of products
that serve corporate enterprises, service providers and telecommunications
carriers. The company offers frame and ATM switches, routers, shared media,
remote and Internet Access solutions, IP services and network management
applications, all integrated by Bay Networks' Adaptive Networking strategy. With
headquarters in Santa Clara, California, Bay Networks markets its products and
services around the world, providing 7x24-support coverage. For additional
information visit the company's World Wide Web site at
http://www.baynetworks.com or call 800-8-BAYNET.
This release, other than historical financial information, may consist of
forward-looking statements that involve risks and uncertainties. These
statements may differ materially from actual future events or results. For
instance, factors, which could cause results to differ from future events,
include the rate of adoption of new technology, competitive pricing actions and
marketing programs, among others. Readers are referred to the documents filed by
Bay Networks with the S.E.C., including the most recent reports on Forms 10-K
and 10-Q and the preliminary proxy material filed July 2, 1998, describing the
agreement and plan of merger by and among Bay Networks, Northern
Telecommunications Limited and Nortel Sub. These documents identify important
risk factors which could cause actual results to differ from those contained in
the forward-looking statements.
Bay Networks is a registered trademark and Bay Networks - Where Information
Flows, Accelar, Versalar, and BayRS are trademarks of Bay Networks, Inc.
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For the Three Months Ended June 27, 1998
Pro Forma (w/o In-Process Research & Development)
(In thousands, except per share amounts)
Pro Forma In-Process In-Process As
Operations Phase2 Netwave Reported
----------- ----------- ---------- ----------
Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended
Jun.98 Jun. 98 Jun.98 Jun.98
------ ------- ------ ------
Revenue 618,326 100.0% -- -- 618,326 100.0%
Cost of sales 326,220 52.8% -- -- 326,220 52.8%
------- ------- ------- -------
Gross profit 292,106 47.2% -- -- 292,106 47.2%
------- ------- ------- -------
Operating expenses:
Research and development 90,032 14.6% -- -- 90,032 14.6%
Sales and marketing 148,558 24.0% -- -- 148,558 24.0%
General and administrative 25,922 4.2% -- -- 25,922 4.2%
In-process research & development 0 0.0% 710 6,264 6,974 1.1%
------- ------- ------- -------
Total operating expenses 264,512 42.8% 710 6,264 271,486 43.9%
------- ------- ------- -------
Income (loss) from operations 27,594 4.5% (710) (6,264) 20,620 3.3%
Net interest income and other 9,384 1.5% -- -- 9,384 1.5%
------- ------- ------- -------
Income (loss) before provision for
income taxes 36,978 6.0% (710) (6,264) 30,004 4.9%
Provision for income taxes 9,371 1.5% -- -- 9,371 1.5%
------- ------- ------- -------
Net income (loss) 27,607 4.5% (710) (6,264) 20,633 3.3%
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Weighted average common shares 222,452 222,452 222,452 222,452
======= ======= ======= =======
Dilutive potential common shares 228,656 228,656 228,656 228,656
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Basic earnings (loss) per share $ 0.12 ($0.00) ($0.03) $0.09
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Diluted earnings (loss) per share $ 0.12 ($0.00) ($0.03) $0.09
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For the Fiscal Year Ended June 27, 1998
Pro Forma (w/o Cumulative Effect of Change in Accounting Principle and
In-Process Research & Development)
(In thousands, except per share amounts)
Cumulative
Pro Forma Effect of Change in In-Process In-Process In-Process
Operations Accounting Principle Phase2 Netwave Netsation
---------- -------------------- ---------- ---------- ---------
Year Ended Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended
Jun. 98 Dec. 97 Jun.98 Jun. 98 Mar. 98
------- ------- ---------- ---------- ----------
Revenue 2,411,702 100.0% -- -- -- --
Cost of sales 1,225,114 50.8% -- -- -- --
---------- ----------- ---------- ---------- ----------
Gross profit 1,186,588 49.2% -- -- -- --
Operating expenses:
Research and development 350,779 14.5% -- -- -- --
Sales and marketing 556,893 23.1% -- -- -- --
General and administrative 101,046 4.2% -- -- -- --
In-process research & development -- 0.0% -- 710 6,264 7,920
---------- ----------- ---------- ---------- ----------
Total operating expenses 1,008,718 41.8% -- 710 6,264 7,920
---------- ----------- ---------- ---------- ----------
Income (loss) from operations 177,870 7.4% -- (710) (6,264) (7,920)
Net interest income and other 37,999 1.6% -- -- -- --
---------- ----------- ---------- ---------- ----------
Income (loss) before provision for
income taxes and cumulative effect
of change in accounting principle 215,869 9.0% -- (710) (6,264) (7,920)
Provision for income taxes 70,195 2.9% -- -- -- --
---------- ----------- ---------- ---------- ----------
Income (loss) before cumulative
effect of change in accounting principle 145,674 6.0% -- (710) (6,264) (7,920)
---------- ----------- ---------- ---------- ----------
Cumulative effect of change in
accounting principle -- 0.0% 12,018 -- -- --
---------- ----------- ---------- ---------- ----------
Net income (loss) 145,674 6.0% (12,018) (710) (6,264) (7,920)
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Weighted average common shares 216,025 216,025 216,025 216,025 216,025
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Dilutive potential common shares 224,746 216,025 216,025 216,025 216,025
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Basic earnings (loss) per share $0.67 $(0.06) $(0.00) $(0.03) $(0.03)
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Diluted earnings (loss) per share $0.65 $(0.06) $(0.00) $(0.03) $(0.03)
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In-Process In-Process As
New Oak NetICs Reported
----------- ------------ ----------
Qtr. Ended Qtr. Ended Year Ended
Mar. 98 Sep. 97 Jun'98
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Revenue -- -- 2,411,702 100.0%
Cost of sales -- -- 1,225,114 50.8%
---------- ---------- ----------
Gross profit -- -- 1,186,588 49.2%
Operating expenses:
Research and development -- -- 350,779 14.5%
Sales and marketing -- -- 556,893 23.1%
General and administrative -- -- 101,046 4.2%
In-process research & development 146,120 7,392 168,406 7.0%
---------- ---------- ----------
Total operating expenses 146,120 7,392 1,177,124 48.8%
---------- ---------- ----------
Income (loss) from operations (146,120) (7,392) 9,464 0.4%
Net interest income and other -- -- 37,999 1.6%
---------- ---------- ----------
Income (loss) before provision for
income taxes and cumulative effect
of change in accounting principle (146,120) (7,392) 47,463 2.0%
Provision for income taxes -- -- 70,195 2.9%
---------- ---------- ----------
Income (loss) before cumulative
effect of change in accounting principle (146,120) (7,392) (22,732) -0.9%
---------- ---------- ----------
Cumulative effect of change in
accounting principle -- -- 12,018 0.5%
---------- ---------- ----------
Net income (loss) (146,120) (7,392) (34,750) -1.4%
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Weighted average common shares 216,025 216,025 216,025
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Dilutive potential common shares 216,025 216,025 216,025
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Basic earnings (loss) per share $(0.68) $(0.03) $(0.16)
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Diluted earnings (loss) per share $(0.68) $(0.03) $(0.16)
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- -----------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Fiscal Year Ended
- -----------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) June 27, June 30, June 27, June 30,
----------- ----------- ----------- -----------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenue $ 618,326 $ 542,976 $ 2,411,702 $ 2,093,060
Cost of sales 326,220 279,864 1,225,114 1,074,886
----------- ----------- ----------- -----------
Gross profit 292,106 263,112 1,186,588 1,018,174
----------- ----------- ----------- -----------
Operating expenses:
Research and development 90,032 73,022 350,779 269,835
Sales and marketing 148,558 128,428 556,893 537,676
General and administrative 25,922 21,726 101,046 87,841
In-process research and development 6,974 148,513 168,406 356,699
Restructuring/severance charges -- -- -- 32,188
----------- ----------- ----------- -----------
Total operating expenses 271,486 371,689 1,177,124 1,284,239
----------- ----------- ----------- -----------
Income (loss) from operations 20,620 (108,577) 9,464 (266,065)
Net interest income and other 9,384 3,782 37,999 17,936
----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes and cumulative effect
of a change in accounting principle 30,004 (104,795) 47,463 (248,129)
Provision for income taxes 9,371 13,243 70,195 36,913
----------- ----------- ----------- -----------
Income (loss) from continuing operations
before cumulative effect of a change in
accounting principle 20,633 (118,038) (22,732) (285,042)
Cumulative effect of a change in accounting
principle, net of tax -- -- 12,018 --
----------- ----------- ----------- -----------
Net income (loss) $ 20,633 $ (118,038) $ (34,750) $ (285,042)
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Earnings (loss) per share amounts:
Income (loss) from continuing operations
before cumulative effect of a change in
accounting principle:
Basic earnings (loss) per share $ 0.09 $ (0.59) $ (0.10) $ (1.46)
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Diluted earnings (loss) per share $ 0.09 $ (0.59) $ (0.10) $ (1.46)
=========== =========== =========== ===========
Cumulative effect of a change in accounting
principle:
Basic earnings per share $ -- $ -- $ 0.06 $ --
=========== =========== =========== ===========
Diluted earnings per share $ -- $ -- $ 0.06 $ --
=========== =========== =========== ===========
Net income (loss):
Basic earnings (loss) per share $ 0.09 $ (0.59) $ (0.16) $ (1.46)
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Diluted earnings (loss) per share $ 0.09 $ (0.59) $ (0.16) $ (1.46)
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Weighted average common shares 222,452 200,299 216,025 194,745
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Dilutive potential common shares 228,656 200,299 216,025 194,745
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- -----------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------
(In thousands) June 27, June 30,
---------- ----------
1998 1997
---------- ----------
ASSETS
Cash and cash equivalents $ 416,753 $ 529,962
Short-term investments 342,440 105,180
Accounts receivable, net 337,656 277,860
Inventories 166,831 144,468
Deferred income taxes 130,994 121,596
Other current assets 55,383 69,351
---------- ----------
Total current assets 1,450,057 1,248,417
Investments 205,081 146,367
Property and equipment, net 255,676 241,069
Goodwill 116,568 113,811
Other assets 80,897 16,382
---------- ----------
Total assets $2,108,279 $1,766,046
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 151,141 $ 117,596
Accrued expenses 220,334 201,266
Accrued income taxes 24,554 39,269
Deferred revenue 68,699 62,678
---------- ----------
Total current liabilities 464,728 420,809
Long-term debt 91,995 109,995
Stockholders' equity 1,551,556 1,235,242
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Total liabilities and stockholders' equity $2,108,279 $1,766,046
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