-----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, R+pYQljxuck6IdiQIc6YFwuCgXk7bTfIXGTF37lwgT1kSCZKKrMOyw3Jy49+QisO Q7Tl5AeugDd38fIQICvCCw== 0000317771-99-000039.txt : 19990331 0000317771-99-000039.hdr.sgml : 19990331 ACCESSION NUMBER: 0000317771-99-000039 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990101 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELLABS INC CENTRAL INDEX KEY: 0000317771 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 363831568 STATE OF INCORPORATION: DE FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-09692 FILM NUMBER: 99578456 BUSINESS ADDRESS: STREET 1: 4951 INDIANA AVE CITY: LISLE STATE: IL ZIP: 60532 BUSINESS PHONE: 6303788800 MAIL ADDRESS: STREET 1: 4951 INDIANA AVE CITY: LISLE STATE: IL ZIP: 60532 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 1, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from N/A to N/A Commission file number 0-9692 TELLABS, INC. (Exact name of registrant as specified in its charter) Delaware 36-3831568 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4951 Indiana Avenue, Lisle, Illinois 60532-1698 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (630) 378-8800 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None N/A Securities registered pursuant to Section 12(g) of the Act: Common shares, with $.01 par value (Title of Class) 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. [X] 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 [ ] On February 22, 1999, 194,899,159 common shares of Tellabs, Inc., were outstanding, and the aggregate market value (based upon the closing sale price of the National Market System) of such shares held by nonaffiliates was approximately $15,311,765,000. Documents incorporated by reference: Portions of the registrant's Annual Report to Stockholders for the fiscal year ended January 1, 1999, are incorporated by reference into Parts I and II, and portions of the 1 registrant's Proxy Statement dated March 10, 1999 are incorporated by reference into Part III. PART I ITEM I. BUSINESS Tellabs, Inc., an Illinois corporation, began operations in 1975 and became publicly owned in 1980. During 1992, the Illinois corporation merged with and into Tellabs Operations, Inc., a wholly-owned subsidiary. As a result of the merger, Tellabs Operations, Inc., became a subsidiary of Tellabs, Inc., a Delaware corporation (with its subsidiaries, unless the context indicates otherwise, "Tellabs" or the "Company"). The Company designs, manufactures, markets and services voice, data and video transport and network access systems that are used worldwide by public telephone companies, long-distance carriers, alternate service providers, cellular and other wireless service providers, cable operators, government agencies, utilities, and business end-users. Products provided by the Company include digital cross-connect systems, managed digital networks, network access products, and fiber optic systems. Digital cross-connect systems include the Company's TITAN (a registered trademark of Tellabs Operations, Inc.) 5500/5500S and 5300 series of digital cross-connect systems. Managed digital networks include the Company's MartisDXX (a trademark of Tellabs Oy) integrated access and transport system (the MartisDXX system), statistical multiplexers, packet switches, and T1 multiplexers, and network management systems. Network access products include voice quality enhancement products such as echo cancellers; special service products (SSP) such as voice frequency products; and local access products such as the CABLESPAN (a registered trademark of Tellabs Operations, Inc.) system. Products recently introduced or to be introduced include the AN2100 Gateway Exchange System (AN2100 System), (a trademark of Tellabs Operations, Inc.), TITAN 4500GS global services delivery system (TITAN 4500GS system), and an optical networking product. The Company's products are sold in the domestic and international marketplaces (under the Tellabs name and trademarks and under private labels) through the Company's field sales force and selected distributors to a major customer base. This base includes Regional Bell Operating Companies (RBOCs), independent telephone companies (ITCs), interexchange carriers (IXCs), local telephone administrations (PTTs), local exchange carriers (LECs), competitive local exchange carriers (CLECs), original equipment manufacturers (OEMs), cellular and other wireless service companies, cable operators, alternate service providers, system integrators, government agencies, and business end-users ranging from small businesses to Fortune 500 companies. The availability of digital technology along with the use of microprocessors and other custom and standard very large-scale integrated (VLSI) circuitry continues to make it economically possible for the Company to expand its product lines to meet the changing customer demands and industry trends inherent in today's dynamic telecommunications environment. This expansion primarily involves the development of broad lines of service-provider-oriented networking systems that meet the increasing demands for efficient, multipurpose data, video, and voice communications services. 2 This same availability of technology in capital equipment makes it possible for the Company to efficiently and competitively continue to produce its own products in its world class manufacturing facilities located throughout the world. Each of the Company's manufacturing operations is registered under the ISO 9000 standard. ISO 9000 is an international set of standards developed to provide quality assurance for companies seeking to improve their quality standards and customer service. GLOBAL SYSTEMS AND TECHNOLOGIES Digital Cross-Connect Systems The TITAN product family consists of technologically-sophisticated digital cross-connect systems and network management platforms. These flagship products address the needs of RBOCs, PTTs, IXCs, alternate local exchange, wireless, cable, government and Fortune 500 companies. These complex transmission systems are designed to meet or exceed domestic and international telephone industry standards. The digital cross-connect systems operate under software control and are typically used to build and control the narrowband, wideband and broadband transmission infrastructure of telecommunication service providers. Telecommunication managers utilize the digital cross-connect systems to generate revenue or to reduce cycle time while minimizing capital and operating expense. Key applications include centralized and remote testing of transmission facilities, grooming of voice, data, and video signals, automated provisioning of new services, and restoration of failed facilities. All of the TITAN systems include a feature for monitoring facility performance which enhances "process of elimination troubleshooting" in a complex network. The user can determine the early warnings of facility degradation rather than reacting to a network outage. The digital cross-connect system also converts international to domestic transmission and signaling standards. These products augment the ability of users to provide current, emerging, and future service to business and residential customers. Advanced survivable business services also utilize the TITAN products for interconnecting fiber transmission. The TITAN systems vary in switching rate and facility interface speed. Tellabs offers the TITAN 5300 series of cross-connect systems that can interface facilities at STS-1, DS3, DS1, E1, DS0, and subrate levels, and can switch them at DS0 levels and below. The systems in this series allow modular non-service affecting growth with capacities ranging from 8 to 4,000 ports. Tellabs also offers the Company's flagship TITAN 5500 system which interfaces facilities at the DS1, DS3, STS-1 and fiber optic OC-N levels, and cross-connects them at levels of DS1/VT1.5 and above. The TITAN 5500 system is the first digital cross-connect system in the world to integrate optical (155 and 622 mb/s) equipment. A single TITAN 5500 system can carry the equivalent of 1,400,000 simultaneous phone conversations. Digital cross-connect system products accounted for approximately 60 percent of 1998 and 1997 product sales, and approximately 57 percent of 1996 product sales. 3 Managed Digital Networks Since Tellabs' entry into the data communications marketplace in 1983, the Company has developed a comprehensive family of networking products to address the requirements and flexibility demanded by the users of communications services. Products within this group include the MartisDXX system and the CROSSNET (a registered trademark of Tellabs Operations, Inc.) family of network-compatible T1/E1 time division multiplexers. The MartisDXX system is a complete managed access and transport network system designed to be used by telecommunications service operators worldwide for the delivery of both mobile and business network services. Typical business service applications include private branch exchange (PBX) networking, local area network (LAN) interconnectivity (including frame relay), leased lines, asynchronous transfer mode (ATM) -based services, and X.21 and X.25 data services. The range of mobile services includes analog and digital cellular, paging as well as other public and private voice, data and messaging services. The MartisDXX systems carry the wide variety of services that may be provided by the public telecommunications service provider. The latest enhancement to the system, synchronous digital hierarchy (SDH) and ATM transmission and switching technologies, provide the capability to deliver higher-bandwidth services. New local loop technologies allow these higher-bandwidth services to be delivered over existing copper lines. In addition, the Company is developing digital subscriber line (DSL) technology for this product portfolio. The CROSSNET 440, 441 and 442 products are a family of intelligent T1/E1 multiplexers that interface voice, data and video devices (up to 2.048 Megabits per second) and multiplex them over private time division multiplexing networks. The CROSSNET 445 system provides timeslot interchange and DS0/DS1 switching and is used to network 440, 441 and 442 nodes. This family of intelligent multiplexers can be provisioned (network-wide) from any one node. In addition, they can automatically provision many of the voice and data applications and have an integrated network management system that can adjust the bandwidth in 400 bits per second increments for highly efficient use of the DS1 or fractional DS1 facility. The CROSSNET family of multiplexers provides low bit rate voice (LBRV) compression at 8 and 16 kilobits per second in its DS0 channels and T1 trunks, enhanced analog voice capability for competing in the growing branch office multiplexer market and a variable-speed network interface (NX64) to the CROSSNET 44X system for use with international networks or satellite radio channels. These products compete in the Wide Area Network (WAN) access market. End- users buy these products through value added re-sellers, service providers and direct from the Company. The products are used to combine voice, data and video applications for transmission over T1, FT1, E1, NX56 and NX64 facilities. They provide for more efficient utilization of the bandwidth and access to dedicated services. Although the CROSSNET product line serves a maturing market that is migrating to newer technologies such as frame relay and ATM, there continue to be significant opportunities for the traditional CROSSNET multiplexers in both the domestic and international markets. 4 Managed digital networks accounted for approximately 26 percent of product sales in 1998, and approximately 28 percent of product sales in each of 1997 and 1996. Network Access Systems Network access products are primarily modular in design and can be used either individually or in complex systems and assemblies. The three areas making up network access products are voice quality enhancement products, SSP products, and local access products. The products are designed to meet telephone industry standards, and, in many applications, they directly interface with customer premises equipment. These products enhance the ability of LECs, PTTs, IXCs, CLECs, wireless service providers, private networks, alternate service providers and cable providers to provide current, emerging, and future services to their business customers through innovative products and systems that provide more cost-effective provisioning of existing basic services. In order to continue to grow this product area, state-of-the-art technology will be deployed and value-added content will be provided. In 1998, the Company created the Network Enhancing Technologies Solutions Group (NETS). NETS was formed by the combination of Coherent Communications Systems Corporation (Coherent), which was acquired in 1998, with the Network Access Systems Division of the Company. This group is focused on developing leading-edge voice quality enhancement and echo cancellation solutions. Voice quality enhancement products primarily address the needs of cellular companies, LECs, and IXCs, both domestically and internationally. Such products include the Company's echo cancellation (or control) products. The echo control products' primary function is to provide voice quality enhancements such as the removal of irritating feedback (from one's own voice) that occurs on virtually all long distance connections and many wireless connections. These voice quality enhancement products have benefited from the growth of the markets that these products address. SSP products provide transmission and signaling conversion between the central office and the customers' terminal equipment. These products include: line amplifiers that compensate for loss and distortion in voice and analog data transmission applications; terminating devices that provide conversion between four wire transmission facilities and two wire local lines; signaling equipment and systems that convert station on-hook/off-hook, dialing and ringing information to signaling formats compatible with transmission over metallic voice channels; and loop treatment equipment typically used to extend the distance from a central office at which a telephone functions satisfactorily. The Company's CABLESPAN 2300 system is a local access product developed by the Company and Advanced Fibre Communications, Inc. (AFC), designed to address the emerging cable and alternate service provider markets. The CABLESPAN 2300 Universal Telephony Distribution System is a next-generation, multiple services delivery system that allows cable television providers, alternate access carriers, and competitive access providers to build flexible communication networks that support the integrated delivery of video, voice, data and information services. The product provides maximum application flexibility through its ability to support a wide variety of network topologies, interface with various forms of transmission media and provide the modularity required to support both 5 residential and business customers. The CABLESPAN system can be managed either directly from an integral interface that provides local and remote management or from a PC-based stand-alone Element Management System that allows the management of multiple CABLESPAN systems and supports multiple network operators while interfacing with other operational support systems. Network access products accounted for approximately 13 percent, 10 percent, and 14 percent of 1998, 1997, and 1996 product sales, respectively. Wireless Systems Division In April 1996, the Company acquired all of the outstanding shares of Steinbrecher Corporation. This acquisition formed the basis of a new division within the Company, the Tellabs Wireless Systems Division. In 1998, this division became part of the Digital Systems Division to reflect a change in the primary focus of this group from the development of wideband radio technology for the local loop to optical networking and dense wave-division multiplexing. In addition to pursuing this new direction, this group will continue to provide core radio frequency (RF) competencies to the rest of the Company, to support existing customers, to expand and extend its RF capabilities and to incorporate wireless technology applications into the Company's products. Emerging Products During 1998, the Company released its AN2100 Gateway Exchange System, which is the first in a series of products designed to enable the Company's customers to cost-effectively migrate from current networks to future networks. The AN2100 system is a next-generation voice/data switch, which blends echo canceller and digital cross-connect technology with packet and cell technologies to perform multimedia adaptation and switching. In March 1999, the Company announced the TITAN 4500GS global services delivery system. The TITAN 4500GS system is an integrated system that will enable service providers to seamlessly deliver high-bandwidth, global services over synchronous optical network (SONET) and SDH access networks. As a single platform that operates in both SONET and SDH environments, the TITAN 4500GS system increases the efficiency and manageability of SONET and SDH access rings when delivering global services. In 1999, the Company expects to introduce an optical networking product. Optical networking uses dense wavelength-division multiplexing (DWDM) technology to expand the carrying capacity of fiberoptic strands. DWDM technology splits traditional fiberoptic signals into several different wavelengths that serve as a separate channel to carry information over the same fiber allowing service providers to expand bandwidth without adding more fibers. GLOBAL SALES AND MARKETING Sales are generated through the Company's direct sales organization and selected distributors. The North American sales group consists of approximately 95 direct sales personnel and an additional 72 sales support personnel located throughout the United States and Canada. The international sales group consists of approximately 62 direct sales personnel, and additional 49 sales support personnel located in Latin America, South America, Europe, the Middle East, Africa, Asia and Australia. 6 The North American sales organization conducts its activities from the the Company's corporate headquarters and six regional offices. The international sales organization conducts its activities from the the Company's corporate headquarters, twenty-four regional sales offices, and three regional headquarters. The regional sales offices are generally staffed by a regional sales manager or country manager, system sales engineers, and additional personnel as required. Direct orders through the Company's field organization accounted for approximately 87 percent of 1998 sales. The North American sales organization is structured by markets with emphasis on large customers. The international sales organization is structured to support activities on a regional basis, with "solution centers" located strategically throughout the world. The Company has arrangements with a number of distributors of telecommunications equipment, both in North America and internationally, some of whom maintain inventories of the Company's products to facilitate prompt delivery. These distributors provide information on the Company's products through their catalogs and through trade show demonstrations. The Company's field sales force also assists the distributors with regular calls to them and their customers. Distributors, as a group, accounted for approximately 13 percent of 1998 sales. No single distributor accounted for more than 10 percent of 1998 sales. GLOBAL SOLUTIONS AND SERVICES The Company maintains a worldwide service organization focused on providing its customers high quality technical and administrative product support. Early in 1999, the group was reorganized to provide greater focus on meeting the expanding needs of its global customer base and to provide a consistent suite of high-quality service offerings worldwide. The group currently offers these services through its service centers in Lisle, Illinois; Ashburn, Virginia; Shannon, Ireland; and Espoo, Finland with further expansion into Latin America, Europe and Asia planned for 1999. The Company's service organization supports its customers with a wide range of services that include application engineering and support, installation, service support, on-site training, product repair (warranty administration), on-site maintenance, third party maintenance, consultation, logistics management, and 24-hour technical support via telephone and the Internet. The Company's application engineering, support and installation group is focused on meeting the customer's needs for installation and integration of the Company's products and third party equipment into the customer's network. The group uses a combined workforce of Company and subcontracted personnel to provide teams of trained professionals that manage the job from its conceptual, engineering stage through to its successful system integration and commissioning. The Company's technical support group consists of unique and highly-trained teams that focus on customer support of the TITAN 5500/5500S and 5300 series systems, CROSSNET 44X and 33X systems, CABLESPAN system, Voice Frequency and MartisDXX product lines and will provide support for the Company's emergin product lines. All teams utilize a problem tracking system to capture, collect and report on a number of data points specific to product performance and overall customer profiles. The technical 7 support teams also utilize a call director system to track the status of customers' calls until completion. The Company's customer training group offers an expansive choice of course offerings designed to meet the existing customer needs, as well as, newly-designed course offerings that address the rapidly changing industry needs. Courses are offered at the Company's technologically- advanced training facilities and on-site at customer premises. The Company provides product warranties for periods ranging from one to five years for the repair or replacement of modules and systems found to be faulty due to defective material and additionally for other requirements as described in the customer contract. The Company has an expedited replacement service that is used to immediately provide the customer with needed module replacements in response to a time-critical service outage. CUSTOMERS Sales to customer groups as a percentage of total sales were approximately as follows: 1998 1997 1996 Regional Bell Operating Companies 31% 32% 28% Independent Telephone Companies 3% 4% 7% Interexchange Carriers 12% 17% 18% Corporate America, OEMs, Governmental Agencies, Wireless Companies, Utility and Railroad Companies, Alternate Service Providers, and System Integrators 22% 14% 14% Foreign Sales Canada 2% 2% 3% International 30% 31% 30% ---- ---- ---- TOTAL 100% 100% 100% ==== ==== ==== In 1998, sales to Bell Atlantic accounted for approximately 12.2 percent of consolidated net sales. In 1997, sales to SBC Communications Inc. accounted for approximately 11.5 percent of consolidated net sales. No other customer in 1998 or 1997 accounted for more than 10 percent of consolidated net sales. No single customer accounted for more than 10 percent of consolidated net sales in 1996. At January 1, 1999, and January 2, 1998, backlogs were approximately $164 million and $109 million, respectively. All of the January 1, 1999, backlog is expected to be shipped in 1999. The Company considers backlog to be an indicator, but not the sole predictor, of future sales. COMPETITION The Company's products are sold in global markets and compete on the following key factors: responsiveness to customer needs, product features, customer-oriented planning, price, performance, reliability, breadth of product line, technical documentation, and prompt delivery. The digital cross-connect systems compete principally with Lucent Technologies and Alcatel. The major competitors of the managed access and transport systems are Newbridge Networks Corporation, Nokia Telecommunications, and Network Equipment Technologies. 8 The network access products currently compete in four product areas: special services, echo cancellers, T1 Multiplexers, and local access. The principal competitors in the special services market are Teltrend, Westell, and Charles Industries. The leading competitors in the echo canceller market are Lucent Technologies, Ericsson, Ditech, and Nortel. The principal competition for the multiplexers are Newbridge Networks Corporation, Premisys, and Ascom/Timeplex. The local access products competitors are Arris, ADC Telecommunications, Inc., and Motorola. RESEARCH AND DEVELOPMENT The telecommunications industry continues to be characterized by rapid technological change. Historically, the technology of this industry had been mainly analog, characterized by signals continuous in time with information contained in the frequency and amplitude of the signals. The industry has rapidly shifted toward digital technology in which information is coded in discrete pulses. The Company's current product development effort is directed almost entirely toward designing new products utilizing digital, SDH/SONET, wavelength division multiplexing, fiber optic and ATM technology. The Company has also focused much of its research and development efforts on large system software development and associated processes. Many products used in network access system applications are well-suited to the use of digital implementation techniques, including utilization of microprocessors and other VLSI devices. The Company's ability to combine analog, digital and photonic technologies has been an important ingredient in its product development. The Company currently manufactures a number of products using microprocessor control circuitry which make extensive use of microprocessors and complex system software. The Company is also actively developing products which utilize high speed fiber optic technologies to provide higher performance transmission characteristics in today's telecommunication networks. The Company is continually updating its research and development capabilities through the addition of new computer-aided design and computer-aided software engineering tools, which assist in electronic, mechanical, and software design. Use of such tools is imperative as the Company seeks to respond to industry and customer demands for intelligent digital systems and networking products with capabilities for automated remote maintenance and provisioning. In 1998, the Company acquired Coherent, a developer, manufacturer and marketer of voice-quality enhancement products for wireless (including digital cellular and personal communication systems), satellite-based, cable communication, and wireline telecommunications systems throughout the world. This acquistion has allowed the Company to combine technologies and resources with Coherent to provide the greatest number of options in sophisticated echo canceller and speech processing technology. In 1998, the Company also acquired Switched Network Technologies, Inc., a developer, manufacturer and marketer of ATM-based switches, and consolidated it into the Company's Digital Systems Division. In early 1997, the Company acquired wave-length division multiplexing and optical networking technology from IBM's Thomas J. Watson Research Center which included rights to or ownership of several patents and patent applications and will compliment the Company's transport and access product portfolio. Under the terms of the agreement, the Research Center's optical network development team joined the Company. Only weeks later, the 9 Company's Finnish Subsidiary, Tellabs Oy, announced the acquisition of Trelcom Oy of Finland, a company specializing in digital subscriber line technology. In addition to securing the Company's access to this technology, the acquisition was designed to accelerate the development of future enhancements to the Company's access product portfolio. During 1996, the Company made two research and development-oriented acquisitions designed at advancing and expanding the Company's existing product performance capabilities. In the first, the acquisition of Steinbrecher Corporation in April 1996, the Company acquired certain wireless communications technology for incorporation into the Company's products. In the second acquisition, the Company acquired the broadband access product line of TRANSYS Networks, Inc. in June 1996. The move was designed to provide the Company with broadband access and transport technology that would complement the technology that already exists in its TITAN line of digital cross-connect systems. The Company is also involved in product-oriented alliances. In December 1996, the Company and AFC, a Petaluma, California-based provider of next-generation digital loop carrier equipment, terminated the joint venture agreement signed in April 1994, and entered into a licensing agreement for the development, manufacturing, and marketing of the CABLESPAN product. That agreement was modified in early 1998 to expand certain of the licenses and market rights. These acquisitions and alliances allow the Company access to technology that is important to the future of its products. In addition, to ensure that the technologies the Company uses reflect the most recent industry developments and to increase the Company's ability to develop new technologies, the Company conducts research at its laboratories in Lisle and Bolingbrook, Illinois; Mishawaka, Indiana; Hawthorn, New York; Burlington and Cambridge, Massachusetts; Ashburn, Virginia; Montreal and Ottawa, Canada; Espoo, Oulu and Tampere, Finland; and Shannon, Ireland. Research and development expenses were $202.6 million in 1998, $158.1 million in 1997, and $107.3 million in 1996. (The 1996 research and development expense does not reflect the $74.7 million one-time charge for acquired research and development taken in conjunction with the Steinbrecher acquisition.) The Company plans to spend approximately $250 million to $290 million on research and development in 1999. These expenditures reflect the Company's commitment to the enhancement of existing products and development of new products designed to satisfy the needs of communications service providers worldwide. MANUFACTURING AND EMPLOYEES The Company assembles its products from standard components and from fabricated parts which are manufactured by others to the Company's specifications. Such purchased items represented approximately 77 percent of cost of sales in 1998. Most purchased items are standard commercial components available from a number of suppliers with only a few items procured from a single-source vendor. Management believes that alternate sources could be developed for those parts and components of proprietary design and those available only from single or limited sources. However, future shortages could result in production delays that could adversely affect the Company's business. 10 As part of the manufacturing process, hazardous waste materials that are present are handled and disposed of in compliance with all Federal, State and local provisions. These waste materials and their disposal have no significant impact on either the Company's production process or its earnings or capital expenditures. At January 1, 1999, the Company had 4,980 employees, of which 1,145 were employed in the sales, sales support and marketing area, 1,588 in product development, 1,796 in manufacturing, and 451 in administration. The Company considers its employee relations to be good. It is not a party to any collective bargaining agreement. INTELLECTUAL PROPERTY The Company has various trade and service marks, both registered and unregistered, in the U.S. and in numerous foreign countries (collectively, "Marks"). All of these Marks are important in that they differentiate the Company's products and services within the industry through brand name recognition. The Company is not aware of any factor which would affect its ability to utilize any of its major Marks. The Company currently holds numerous United States and foreign patents. The Company has also developed certain proprietary hardware designs, software programs, and other works in which the Company owns various intellectual property rights, including rights under copyright and trade secret laws. The Company believes that its patents and other intellectual property rights are important to its business. Through various licensing arrangements the Company grants certain rights to its intellectual property and receives certain rights to intellectual property of others. The Company expects to maintain current licensing arrangements and in the future secure licensing arrangements, as needed and to the extent available on reasonable terms and conditions, to support continued development and marketing of the Company's products. Some of such licensing arrangements require or may require the payment of royalties, and the amount of such payments may depend upon various factors, including but not limited to: the structure of royalty payments; offsetting considerations, if any; and the degree of use of the licensed technology in any products of the Company or otherwise. BUSINESS SEGMENT AND GEOGRAPHICAL INFORMATION The Company manages its business in one business segment. Information with respect to the Company's net sales by product group, net sales by country, and net long-lived assets by country for the fiscal years ended January 1, 1999, and January 2, 1998, is set forth in Note 9 on page 40 of the registrant's Annual Report to Stockholders and is incorporated herein by reference. ITEM 2. PROPERTIES The Company's corporate headquarters is located on 19.1 acres of Company-owned land approximately 30 miles west of Chicago in Lisle, Illinois. Located on this property are three buildings. The first is a 57,200-square foot building that functions as the Company's headquarters and houses a portion of the Digital Systems Division's marketing and engineering personnel. The second is a 107,800-square foot building which houses customer service, research and development and administrative 11 functions. The third building is a 55,000-square foot building utilized by the majority of the Digital Systems division's engineering operations. The Company also owns 50 acres of land in Bolingbrook, Illinois (near Lisle) where a 236,300-square foot manufacturing, engineering and office building was completed and occupied in July 1993. During 1996, the Company began construction of a new 308,000-square foot addition to this facility. Construction of the addition was completed by August 1997 at a cost of approximately $33,000,000. The additional space allowed the Company to more than double its manufacturing capacity while allowing for the expansion of the engineering, sales and administrative areas. The Company also owns approximately 75 acres of land in Round Rock, Texas. The Texas property includes a 127,000-square foot manufacturing facility. The Company also owns three office facilities in Espoo, Finland totaling 127,000 square feet used for administrative offices and research and development. In addition, the Company owns a 154,000-square foot production and engineering facility in Espoo. During 1998, the Company finished construction of a 135,000-square foot manufacturing facility in Shannon, Ireland. This facility was built on land obtained through a long-term lease entered into during 1997. Construction of the Shannon facility was completed at a cost of approximately $15,000,000. The Company leases additional facilities at the following locations: two locations in Bolingbrook, Illinois (157,000 square feet, total) used for administrative and engineering; two locations in Lisle, Illinois (86,000 square feet, total) used for research and development; Naperville, Illinois (sales); Mishawaka, Indiana (research); Santa Ana, California (sales); Littleton, Colorado (sales); Atlanta, Georgia (sales); Rockville, Maryland (sales); Irving, Texas (sales); Ft. Lauderdale, Florida (administrative); Hauppauge, New York (manufacturing); Hawthorn, New York (research and development); Boston, Massachusetts (research and development); and two buildings (90,000 square feet) in Burlington, Massachusetts for sales, research and administration; Ashburn, Virginia (72,000 square feet) used for research and development; Gloucester, Ontario (research and development); Mississauga, Ontario (sales); St. Laurent, Quebec (research and development); two locations in Espoo, Finland (60,000 square feet, total) used for administrative and engineering; Oulu, Finland (research and development); and Tampere, Finland (research and development). The Company also has small leased sales offices in eighteen foreign countries. The Company owns substantially all the equipment used in its business. The Company believes that its facilities are adequate for the level of production anticipated in 1999, and that suitable additional space and equipment will be available to accommodate expansion as needed. ITEM 3. LEGAL PROCEEDINGS The Company is not involved in any material litigation. The Company has been named in a lawsuit recently filed by the Lemelson Medical, Education and Research Foundation, Limited Partnership (Lemelson) in the United States District Court for the District of Arizona against eighty-eight electronics industry companies. The lawsuit alleges patent infringement, and the patents at issue are characterized by Lemelson as relating to manufacturing methods and semiconductor structures. The relief sought by Lemelson includes a judgment against the defendants of willful infringement, injunctive relief, trebled actual damages and attorneys' fees. Lemelson has contacted the Company and offered to license the 12 patents at issue. The Company is in the process of reviewing its defenses to Lemelson's claims and Lemelson's offers, and while no assurances regarding the eventual resolution of this matter can be made at this time, the Company does not believe that it will have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. FORWARD LOOKING STATEMENTS Except for historical information, the matters discussed or incorporated by reference in Part I of this report may include forward-looking statements that involve risks and uncertainties that may affect the Company's actual results and cause actual results to differ materially from those in the forward-looking statements. The foregoing discussion should be read in conjunction with the financial statements and related notes and management's discussion and analysis included in the Company's Annual Report and incorporated in this report by reference in Part II, Items 7 and 8 herein. 13 EXECUTIVE OFFICERS OF THE REGISTRANT NAMES AND BUSINESS EXPERIENCE YEAR OF CURRENT BIRTH POSITION Michael J. Birck 1938 President, Chief President, Chief Executive Officer Executive Officer and and Director, Tellabs, Inc. since 1975. Director, Tellabs, Inc. Peter A. Guglielmi 1942 Executive Vice President, Executive Vice President, Chief Chief Financial Officer and Financial Officer, Tellabs, Inc. Treasurer, Tellabs, Inc., and since 1990; Treasurer, Tellabs, Inc. Tellabs Operations, Inc.; since 1988; Director, Tellabs, Inc. Director, Tellabs, Inc. since 1993; President, Tellabs International, Inc. 1993 to 1997. Brian J. Jackman 1941 President, Global Systems President, Global Systems and and Technologies; Technologies since 1998; Director, Executive Vice President Tellabs, Inc. since 1993; Executive and Director, Tellabs, Inc. Vice President, Tellabs, Inc. since 1990; President, Tellabs Operations, Inc. 1993 to 1998. John E. Vaughan 1947 President, Tellabs President, Tellabs Global Sales Global Sales and Services; and Services since 1998; Executive Executive Vice President, Vice President, Tellabs, Inc. since Tellabs, Inc. 1997; President, Tellabs International, Inc. 1997 to 1998; Vice President of Business Unit Development and Strategy, Ameritech 1995 to 1997. Richard T. Taylor 1948 Sr. Vice President and General Sr. Vice President, Digital Systems Manager, Digital Systems Division, Tellabs Operations, Inc. Division, Tellabs since 1997; General Manager, Operations, Inc. Digital Systems Division, Tellabs Operations, Inc. since 1993; Vice President, Digital Systems Division, Tellabs Operations, Inc. 1993 to 1997. Charles C. Cooney 1941 Vice President, North America Vice President, North America Sales, Tellabs Operations, Sales, Tellabs Operations, Inc. Inc. since 1998; Vice President, Sales and Service, Tellabs Operations, Inc. 1992 to 1998. 14 Carol Coghlan Gavin 1956 Vice President, General Vice President and General Counsel, Counsel and Secretary, Tellabs Operations, Inc. and Secretary, Tellabs Operations, Inc.; Tellabs, Inc., since 1999; Counsel, Secretary, Tellabs, Inc. Tellabs Operations, Inc. 1998 to 1999; Vice President and General Counsel, Tellabs Operations, Inc. 1992 to 1998; Secretary, Tellabs, Inc., 1993 to 1998. J. Thomas Gruenwald 1948 Vice President and General Vice President and General Manager, Broadband Media Manager, Broadband Media Group Group and Network Solutions and Network Solutions Group, Tellabs Group, Tellabs Operations, Inc. since 1998; Vice Operations, Inc. President, Strategic Resources, Tellabs Operations, Inc. 1995 to 1998; Director, Engineering, Tellabs Operations, Inc. 1992 to 1995. Jukka Harju 1956 Vice President and General Vice President and General Manager, Manager, Tellabs Oy; Vice Tellabs Oy and Vice President, President, Tellabs Tellabs International, Inc. since International, Inc. 1996; Managing Director, Martis Oy 1994 to 1996. John C. Kohler 1952 Vice President, Global Vice President, Global Manufacturing Manufacturing, Tellabs Tellabs Operations, Inc. since 1998; Operations, Inc. Vice President, Manufacturing, Tellabs Operations, Inc. 1993 to 1998. Stephen M. McCarthy 1954 Vice President, Global Vice President, Global Solutions Solutions and Service, and Service, Tellabs Operations, Inc. Tellabs Operations, Inc. since 1999; Senior Vice President, Major Accounts Central Division, ADP 1997 to 1999; Vice President, Sales, Ameritech 1994 to 1997; Vice President, Marketing, Ameritech 1993 to 1994. David Powell 1951 Vice President and General Vice President and General Manager, Manager, Network Network Enhancing Technologies Enhancing Technologies Solutions Group, Tellabs Operations, Solutions Group, Tellabs Inc. since 1999; Vice President and Operations, Inc. General Manager, Coherent OEM Division, Tellabs Operations, Inc. 1998 to 1999; President and Chief Operating Officer, Coherent Communications Systems Corporation 1994 to 1998. 15 Harvey R. Scull 1949 Vice President, Global Vice President, Global Strategy Strategy and Business and Business Development, Development, Tellabs Tellabs Operations, Inc. since Operations, Inc. 1998; Vice President, Advanced Business Development, Tellabs Operations, Inc. 1993 to 1998. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The sections entitled "Common Stock Market Data" on pages 1 and 44 of the Company's Annual Report to Stockholders for the year ended January 1, 1999 (the "Annual Report") are incorporated herein by reference. They are also included in Exhibit 13, as filed with the SEC. See discussion referred to in Item 7 below for dividend information. ITEM 6. SELECTED FINANCIAL DATA The section entitled "Five-Year Summary of Selected Financial Data" on page 1 of the Annual Report is incorporated herein by reference. It is also included in Exhibit 13, as filed with the SEC. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The section entitled "Management's Discussion and Analysis" on Pages 22 to 25 of the Annual Report is incorporated herein by reference. It is also included in Exhibit 13, as filed with the SEC. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company conducts business on a global basis in several major international currencies. Foreign currency risk is managed through the use of forward exchange contracts to hedge nonfunctional-currency receivables and payables that are expected to settle in less than one year. The Company does not enter into forward exchange contracts for trading purposes and all foreign exchange contract activity is carried out under a program authorized by the Company's Board of Directors. Under the program, the Company enters into contracts to hedge between 50 and 90 percent of the aggregate currency exposure for any single currency. The Company assesses its outstanding currency exposure on a monthly basis. Foreign currency transaction gains and losses resulting from changes in the exchange rates are recognized in "Other Income (Expense)". The foreign currency forward exchange contracts are used to manage exposure to changes in currency exchange rates, principally Finnish markka and Irish punts. The table that follows presents a summary of the notional value and the fair value of forward exchange rate contracts for each currency in which the Company has hedged exposure at January 1, 1999, and January 2, 1998. The notional amounts shown are the US dollar value of the agreed upon amounts in each foreign currency that will be delivered to a third party on the agreed upon date. 16 Notional Value Average Maturing Contract Fair Value Currency in 1999 Rate at 1/1/99 - -------------------------- ---------- -------- ---------- Forward Contracts to Sell Foreign Currencies for Finnish Markka: (In Thousands) (In Thousands) United States Dollar $63,770 5.0660 $63,770 Irish Punt 15,950 7.5448 17,285 European Currency Unit 15,442 5.9640 15,386 Spanish Peseta 8,878 0.0357 9,442 Austrian Schilling 3,829 0.4319 3,814 Swedish Krone 3,563 0.6277 3,530 Deutsche Marks 1,889 3.0403 1,889 Danish Krone 1,774 0.7981 1,769 Norwegian Krone 1,689 0.6626 1,676 British Pound 1,576 8.4557 1,573 All Others 858 - 864 ------------ ------------ $119,218 $120,998 Forward Contracts to Sell Foreign Currencies for Irish Punts: United States Dollar $4,960 1.1254 $4,960 Netherlands Guilder 1,988 2.7995 1,985 French Franc 1,021 8.3297 1,019 All Others 366 - 361 ------------ ------------ $8,335 $8,325 ------------ ------------ Total Contracts Outstanding at January 1, 1999: $127,553 $129,323 ============ ============ Notional Value Average Maturing Contract Fair Value Currency in 1998 Rate at 1/2/98 - -------------------------- ---------- -------- ---------- Forward Contracts to Sell Foreign Currencies for Finnish Markka: (In Thousands) (In Thousands) United States Dollar $33,240 5.3220 $32,986 Austrian Schilling 4,720 0.4291 4,712 Spanish Peseta 3,494 0.0355 3,476 Deutsche Marks 3,327 3.0246 3,330 Norwegian Krone 3,090 0.7369 3,077 Swedish Krone 3,057 0.6870 3,044 Danish Krone 2,870 0.7939 2,873 Irish Punt 1,622 7.7801 1,617 All Others 389 - 389 ------------ ------------ $55,809 $55,504 17 Forward Contracts to Sell Foreign Currencies for Irish Punts: Netherlands Guilder $4,833 2.8992 $4,868 United States Dollar 4,200 1.4611 4,184 ------------ ------------ $9,033 $9,052 ------------ ------------ Total Contracts Outstanding at January 2, 1998: $64,842 $64,556 ============ ============ ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Report of Independent Auditors and the Consolidated Financial Statements and Notes thereto on pages 26 through 41 of the Annual Report are incorporated herein by reference. They are also included in Exhibit 13, as filed with the SEC. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required, except for information relating to the executive officers of the registrant which appears at the end of Part I above, is incorporated herein by reference to the section entitled "Election of Directors" in the registrant's Proxy Statement (the "Proxy Statement") dated March 10, 1999. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Security Ownership of Management and Certain Other Beneficial Owners" in the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Executive Compensation" in the Proxy Statement is incorporated herein by reference. 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements: The following Consolidated Financial Statements of Tellabs, Inc., and Subsidiaries, included in registrant's Annual Report to Stockholders for the year ended January 1, 1999, were previously incorporated by reference in Item 8: Report of Independent Auditors Consolidated Balance Sheets: January 1, 1999 and January 2, 1998 Consolidated Statements of Earnings: Years ended January 1, 1999, January 2, 1998 and December 27, 1996 Consolidated Statements of Stockholders' Equity: Years ended January 1, 1999, January 2, 1998, and December 27, 1996 Consolidated Statements of Cash Flows: Years ended January 1, 1999, January 2, 1998 and December 27, 1996 Notes to Consolidated Financial Statements 2. Financial Statement Schedules: The following Consolidated Financial Statement Schedules of Tellabs, Inc., and Subsidiaries are included herein pursuant to Item 14(d): Report of Independent Auditors on Financial Statement Schedule Schedule II Valuation and Qualifying Accounts and Reserves Schedules not included have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto. (b) The Registrant filed a report on Form 8-K on December 14, 1998, with respect to the agreement to supply Sprint Corporation with the Registrant's AN2100 Gateway Exchange system. (c) Exhibits: 2.1 Agreement and Plan of Merger Among Tellabs, Inc., Cardinal Merger Co. and Coherent Communications Systems Corporation 11/ 3.1 Restated Certificate of Incorporation 5/ 3.2 Amended and Restated By-Laws, as amended 3/ 3.3 Certificate of Amendment to Restated Certificate of Incorporation 9/ 4. Upon request of the Securities and Exchange Commission, registrant hereby agrees to furnish to the Commission copies of instruments (not filed) defining the rights of holders of long-term debt of the Company. (This undertaking is in lieu of a separate exhibit.) 19 Exhibits: (Continued) 10.1 Tellabs, Inc. Deferred Compensation Plan, as amended and its related trust, as amended (amendment filed herewith) 6/ 10.2 1981 Incentive Stock Option Plan, as amended and restated 1/ 10.3 1984 Incentive Stock Option Plan, as amended and restated 1/ 10.4 1986 Non-Qualified Stock Option Plan, as amended and restated 1/ 10.5 1987 Stock Option Plan for Non-Employee Corporate Directors, as amended and restated 1/ 10.6 1989 Stock Option Plan, as amended and restated 1/ 10.7 Employee Quality Stock Award Program 2/ 10.8 Form of Employment Agreement 3/ 10.9 1991 Stock Option Plan, as amended and restated 1/ 10.10 Description of Split-Dollar Insurance Arrangement with the Michael J. Birck Irrevocable Trust 3/ 10.11 1994 Stock Option Plan 4/ 10.12 Tellabs, Inc. Stock Bonus Plan for Former Employees of Steinbrecher Corporation 8/ 10.13 Tellabs, Inc. Stock Bonus Plan for Former Employees of TRANSYS Networks Inc. 10/ 10.14 Tellabs, Inc. Stock Bonus Plan for Former Employees of International Business Machines Corporation 10/ 10.15 Severance Arrangement for John E. Vaughan 9/ 10.16 Restricted Stock Award for John E. Vaughan 9/ 10.17 1998 Stock Option Plan 12/ 10.18 Tellabs, Inc. Stock Bonus Plan for Former Employess of Switched Network Technologies, Inc. 13. Annual Report to Stockholders 16. Letter Re: Change in Certifying Accountant 7/ 21. Subsidiaries of the Registrant 23. Consent of Independent Auditors - Ernst & Young LLP 23.1 Consent of Independent Auditors - Grant Thornton LLP 27. Financial Data Schedule Exhibits 10.1 through 10.18 are management contracts or compensatory plans or arrangements required to be filed as an Exhibit to this Form 10-K pursuant to Item 14(c) hereof. (d) Schedules: See Item 14(a)2 above. 1/ Incorporated by reference from Tellabs, Inc. Post-effective Amendment No. 1 on Form S-8 to Form S-4 filed on or about June 29, 1992 (File No. 33-45788). 2/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended April 1, 1988 (File No. 0-9692). 3/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended January 1, 1993 (File No. 0-9692). 4/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 31, 1993 (File No. 0-9692). 5/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 30, 1995 (File No. 0-9692). 6/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 29, 1995 and Form 10-Q Quarterly Report for the quarter ended September 26, 1997. 7/ Incorporated by reference from Tellabs, Inc. Form 8-K Current Report filed on or about August 21, 1996 (File No. 0-9692). 20 (d) Schedules: (Continued) 8/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 28, 1996 (File No. 0-9692). 9/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 27, 1997 (File No. 0-9692). 10/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 27, 1996 (File No. 0-9692). 11/ Incorporated by reference from Tellabs, Inc. Form 8-K Current Report filed on or about February 20, 1998 (File No. 0-9692). 12/ Incorporated by reference from Tellabs, Inc. Definitive Proxy Statement filed on or about March 16, 1998 (File No. 0-9692). 21 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. TELLABS, INC. March 29, 1999 By /s Michael J. Birck Date President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s Michael J. Birck President and Director March 29, 1999 (Principal Executive Officer) /s Peter A. Guglielmi Executive Vice President March 29, 1999 (Principal Financial Officer) and Director /s Robert E. Swininoga Vice President (Principal March 29, 1999 Accounting Officer) /s Brian J. Jackman Director March 29, 1999 /s John D. Foulkes Director March 29, 1999 /s Frederick A. Krehbiel Director March 29, 1999 /s Stephanie Pace Marshall Director March 29, 1999 /s William F. Souders Director March 29, 1999 /s Jan H. Suwinski Director March 29, 1999 22 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of Tellabs, Inc. We have audited the consolidated financial statements of Tellabs, Inc. and Subsidiaries as of January 1, 1999, and January 2, 1998, and for the years then ended, and have issued our report thereon dated January 20, 1999. Our audit also included the financial statement schedule listed in the Index at Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. The consolidated financial statements and financial statement schedule of Tellabs, Inc. and Subsidiaries for the year ended December 27, 1996, were audited by other auditors whose report dated January 15, 1997, expressed an unqualified opinion on those statements and schedule. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s Ernst & Young LLP Ernst & Young LLP Chicago, Illinois January 20, 1999 23
TELLABS, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Three Years Ended January 1, 1999, January 2, 1998, and December 27, 1996 (In Thousands) Additions Balance at charged to Balance beginning costs and Deduc- at end of year expenses tions (A) of year --------- --------- --------- ------- 1998 Allowance for doubtful receivables $3,440 $7,572 $303 $10,709 ====== ====== 1997 Allowance for doubtful receivables $3,682 $1,494 $1,736 $3,440 ====== ====== 1996 Allowance for doubtful receivables $2,317 $2,157 $792 $3,682 ====== ====== NOTE: (A) - Uncollectible accounts charged off, net of recoveries.
24 EXHIBIT INDEX Exhibit 10.1 Amendment to Tellabs, Inc. Deferred Compensation Plan Exhibit 10.18 Tellabs, Inc. Stock Bonus Plan for Former Employees of Switched Network Technologies, Inc. Exhibit 13 Annual Report to Stockholders Exhibit 21 Subsidiaries of the Registrant Exhibit 23 Consent of Independent Auditors - Ernst & Young LLP Exhibit 23.1 Consent of Independent Auditors - Grant Thornton LLP Exhibit 27 Financial Data Schedule 25 EX-10.1 2 Exhibit 10.1 TELLABS OPERATIONS, INC. (formerly Tellabs, Inc., an Illinois corporation) Deferred Income Plan Amendment Effective January 1, 1999 and pursuant to Article XII, paragraph 35 of the Tellabs Operations, Inc. Deferred income Plan dated April 1, 1992, as previously amended, the Plan is hereby further amended as follows: Article XIII, Paragraph 43: A new Paragraph 43 shall be added to Article XIII to read as follows: 43. The Company, in its discretion, may make additional contributions to the Plan as determined by the Company or the Committee. The Company has determined to make additional contributions commencing after January 1, 1999 for those participants having "Vacation Rollover Amounts", as defined below. For purposes of this Plan, "Vacation Rollover Amount(s)" shall mean an amount calculated for any participant equal to the number of vacation days or portions thereof (calculated on the participant's employment anniversary date based on 8-hour days) in excess of the annual vacation days allocated for the participant (to a maximum of 15 vacation days per calendar year with any excess days being forfeited) multiplied by the "hourly salary rate", as defined below, of the participant. (e.g. A participant eligible to take 20 vacation days has 40 vacation days remaining on the participant's employment anniversary date in 1999. For such participant, 20 vacation days shall remain available to be utilized prior to the participant's employment anniversary date in 2000, an amount equal to 15 vacation days multiplied by the participant's 1999 hourly salary rate shall be contributed on behalf of the participant to the Plan and 5 vacation days shall be forfeited). The "hourly salary rate" shall be determined by dividing the bi-weekly salary of the participant on the participant's employment anniversary date (including any salary increases, effective as of such anniversary date) by 80. In the event a participant becomes entitled to payments or benefits, as provided in Article V, prior to the contribution by the Company of any Vacation Rollover Amounts designated for contribution to such participant's Account, such contribution shall not be made by the Company. The initial contributions shall be calculated during the 1999 calendar year and made during the first quarter of 2000, provided that for vacation days forfeited during the 1998 calendar year (to a maximum of 15 vacation days) a contribution shall be made during the first quarter of 1999 on behalf of a participant based on the above formula. Thereafter, contributions of Vacation Rollover 44. Amounts shall be made for each qualifying participant in subsequent years during the first quarter of the year following the Vacation Rollover Amount determination, but only if the Company has adopted this Plan during such year, as provided in Article XII, Paragraph 36. Effective as of January 1, 1999 and signed this 1st day of November 1998, with the approval and authorization of the Board of Directors. Tellabs Operations, Inc. (Tellabs, Inc., formerly) By: /s Brian J. Jackman ---------------- Brian J. Jackman Title: President EX-10.18 3 Exhibit 10.18 TELLABS, INC. STOCK BONUS PLAN 1. INTRODUCTION 1.1 The purpose of the Tellabs, Inc. Stock Bonus Plan (the "Plan") is (i) to align the interests of the stockholders of Tellabs, Inc. ("Tellabs"), and its subsidiaries from time to time (individually, a "Subsidiary" and collectively, the "Subsidiaries") and recipients of awards under this Plan by increasing the proprietary interests of such recipients in the growth and success of Tellabs and (ii) to advance the interests of Tellabs and its Subsidiaries by retaining key employees of Switched Network Technologies, Inc. , a Minnesota corporation, as employees of Tellabs Operations, Inc. ("Tellabs Operations"). 1.2 Certain Definitions "Board" shall mean the Board of Directors of Tellabs. "Bonus Stock" shall mean shares of Common Stock awarded under the Plan. "Bonus Stock Award" shall mean an award to an eligible employee of a right to receive Bonus Stock under the Plan. "Cause" shall mean any act of dishonesty, commission of an indictable criminal offense, activities harmful to the reputation of Tellabs or a Subsidiary, the refusal to perform or the substantial disregard of duties properly assigned or a significant violation of any legal duty of loyalty to Tellabs or a Subsidiary, as determined by the Committee in its sole discretion. "Closing Date" means September 22, 1998. "Committee" shall mean the Compensation Committee of the Board of Tellabs or any successor Committee thereto. "Common Stock" means the common stock of Tellabs, Inc. "Disability" shall mean the inability of the holder of an award to perform substantially such holder's duties and responsibilities for a continuous period of at least six months, as determined by the Committee in its sole discretion. "Fair Market Value" shall mean the average of the high and low transaction prices of a share of Common Stock as reported in the National Association of Securities Dealers Automated Quotation National Market System ("NASDAQNMS") on the date as of which such value is being determined, or, if the Common Stock is not listed on the NASDAQNMS, the average of the high and low transaction prices of a share of Common Stock on the principal national stock exchange on which the Common Stock is traded on the date as of which such value is being determined, or, if there shall be no reported transactions for such date, on the next preceding date for which transactions were reported; provided, however, that if Fair Market Value for any date cannot be so determined, Fair Market Value shall be determined by the Committee by whatever means or method as the Committee, in the good faith exercise of its discretion, shall at such time deem appropriate. 1.3 Administration This Plan shall be administered by the Committee. The Committee shall, subject to the terms of this Plan, interpret this Plan and the application thereof, establish rules and regulations it deems necessary or desirable for the administration of this Plan. All such interpretations, rules and regulations shall be conclusive and binding on all parties. The Committee may delegate some or all of its power and authority hereunder to the President and Chief Executive Officer or other executive officer of Tellabs or a Subsidiary as the Committee deems appropriate. 1.4 Eligibility Participants eligible to participate in this Plan shall consist of the full-time employees of Tellabs whose names appear on Schedule A, attached hereto. No other persons shall be eligible to participate in this Plan. 1.5 Shares Available Subject to adjustment as provided in Section 3.3, 12,000 shares of Common Stock shall be available under this Plan. 2. BONUS STOCK AWARDS 2.1 Bonus Stock Awards Effective on the Closing Date, Tellabs shall grant Bonus Stock Awards to employees of Tellabs Operations from time to time as determined by Tellabs' Board or the Committee. Each such grant shall be evidenced by a notice sent by Tellabs to each such employee to whom Bonus Stock Awards are made. 2.2 Terms of Bonus Stock Awards Bonus Stock Awards shall be subject to the following terms and conditions. a. Number of Shares and Other Terms The number of shares of Common Stock subject to a Bonus Stock Award granted pursuant to this Plan shall be the number of such shares set forth opposite the name of such employee on Schedule A hereto. b. Vesting and Forfeiture One-half of the number of shares of Common Stock subject to a Bonus Stock Award shall vest and be payable on the first anniversary of the Closing Date and the other half of such number shall vest and be payable on the second anniversary of the Closing Date, in each case, subject to Section 2.3(b), if the holder of such award remains continuously in the employment of Tellabs or a Subsidiary until such anniversary date of the Closing Date. Such holder shall forfeit the unvested portion of any such shares if such holder does not remain continuously in the employment of Tellabs or a Subsidiary as specified above, except as otherwise provided in Section 2.3(b) hereof. c. Shares Certificates Upon the vesting of a portion of a Bonus Stock Award pursuant to Section 2.2(b) or 2.3(b), in each case subject to Tellabs or a Subsidiary rights to require payment of any taxes in accordance with Section 3.2, a certificate or certificates evidencing ownership of the number of shares of Common Stock so vested shall be delivered to and in the name of the holder of such award. Notwithstanding the foregoing, in lieu of the delivery of shares representing all or a portion of the vested portion of a Bonus Stock Award, the Committee may, in its sole discretion, deliver to the holder cash in an amount equal to the Fair Market Value on the date such shares become vested equal to the vested portion of such award, less any applicable withholding, as required by Section 3.2, as the case may be. 2.3 Termination of Employment a. Termination Resulting in Forfeiture If (i) employment with Tellabs or a Subsidiary of the holder of a Bonus Stock Award is terminated by Tellabs or a Subsidiary for Cause, (ii) such employment terminates by reason of the holder's Disability or death, or (iii) a holder voluntarily terminates his employment with Tellabs or a Subsidiary for any reason, the portion of such award which is not vested pursuant to Section 2.2(b) shall be forfeited by such holder and such portion shall be canceled by Tellabs. b. Other Termination If Tellabs or a Subsidiary terminates the employment of the holder of a Bonus Stock Award for any reason other than as provided in Section 2.3(a), the portion of such award which is not otherwise vested shall vest pursuant to Section 2.2(b) without regard to such termination and be payable within thirty (30) days of such termination, in accordance with Section 2.2(c). 3. GENERAL 3.1 Amendments The Board or the Committee may amend this Plan as it shall deem advisable, provided, however, that no amendment shall be made if such amendment would increase the maximum number of shares of Common Stock available under this Plan (subject to Section 3.3). No amendment may impair the rights of a holder of an outstanding award without the consent of such holder. 3.2 Tax Withholding Tellabs shall have the right to require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash pursuant to an award made hereunder, payment by the holder of such award of any federal, provincial, local or other taxes which may be required to be withheld or paid in connection with such award. The Committee may allow shares of Common Stock to be delivered or withheld having an aggregate Fair Market Value not in excess of the minimum amount required to be withheld and in such event, any fraction of a share of Common Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the holder. 3.3 Adjustment In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a regular cash dividend, the number and class of securities available under this Plan, the number and class of securities subject to each outstanding Bonus Stock Award shall be adjusted or modified accordingly, as determined by the Committee, which adjustment may include providing for payment of an asset not constituting a security upon the vesting of an outstanding Bonus Stock Award. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. If any such adjustment would result in a fractional security being (i) available under this Plan, such fractional security shall be disregarded, or (ii) subject to an award under this Plan, Tellabs shall pay the holder of such award, in connection with the first vesting of such award, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (a) the fraction of such security (rounded to the nearest hundredth) by (b) the excess, if any, of the Fair Market Value on the vesting date. 3.4 No Assignment It is a condition of this Plan, and the rights of all holders of Bonus Stock Awards shall be subject thereto, that no right or interest of any such holder shall be assignable or transferable in whole or in part, either directly or by operation of law or otherwise, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge or bankruptcy, and no right or interest of any such holder under this Plan shall be liable for, or subject to, any obligation of any such holder, including claims for alimony or the support of any spouse. 3.5 No Right of Employment Neither this Plan nor any award made hereunder shall confer upon any person any right to continued employment by Tellabs, Tellabs Operations or any Subsidiary or affiliate thereof or affect in any manner the right of Tellabs, Tellabs Operations or any Subsidiary or affiliate thereof to terminate the employment of any person at any time without liability hereunder. 3.6 Right as Stockholder No person shall have any right as a stockholder of Tellabs with respect to any shares of Common Stock or other equity security of Tellabs which is subject to an award hereunder unless and until such person becomes a stockholder of record with respect to such shares of Common Stock or equity security. Tellabs' obligation to deliver shares of Common Stock pursuant to this Plan shall be unfunded, and Tellabs shall not be obligated to set aside any of its assets for the purpose of satisfying its obligations hereunder. The claims of holders of Bonus Stock Awards shall be solely those of an unsecured creditor of Tellabs. 3.7 Governing Law The corporate law of the State of Delaware shall govern all issues concerning the relative rights of Tellabs and the holders of Bonus Stock Awards with respect to this Plan. The law of the State of Illinois, except its law with respect to choice of law, shall be controlling in all other matters relating to the Plan. 3.8 Effective Date This Plan shall become effective on the Closing Date. EX-13 4 EXHIBIT 13
Five-Year Summary of Selected Financial Data (In Thousands, Except Per-Share Data) 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Net sales $1,660,102 $1,203,546 $868,975 $635,229 $494,153 Gross profit $1,081,238 $758,003 $519,243 $363,835 $270,003 Earnings before income taxes $590,115 $399,529 $175,282 $162,825 $97,824 Net earnings $398,328 $263,689 $117,965 $115,606 $72,389 Earnings per share $2.13 $1.46 $0.66 $0.66 $0.42 Earnings per share, assuming dilution $2.07 $1.42 $0.64 $0.63 $0.40 Stockholders' equity $1,376,597 $933,109 $591,276 $433,233 $292,790 Total assets $1,627,591 $1,183,379 $743,823 $552,051 $390,067 Net working capital $1,034,564 $637,114 $343,840 $267,806 $138,317 Long-term debt $2,850 $2,850 $2,850 $2,850 $2,850 No cash dividends per common share were paid. Per-share amounts are restated to reflect stock splits in 1996, 1995 and 1994. Common Stock Market Data 1998 1997 High Low High Low First Quarter 69 1/2 44 1/2 46 1/8 32 Second Quarter 74 5/8 60 5/8 58 5/8 33 Third Quarter 93 1/8 36 65 50 1/2 Fourth Quarter 72 11/16 31 3/8 59 13/16 42 5/8 The Company's common stock is traded over-the-counter under the symbol TLAB. The shares are included in the NASDAQ National Market System, which reports sales prices for actual transactions. At February 15, 1999, there were approximately 4,371 stockholders of record. MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations, 1998 vs. 1997 Sales recorded during 1998 increased 37.9 percent to $1,660,102,000 from 1997's then-record sales of $1,203,546,000. Significant sales growth during 1998 was realized worldwide. Sales within the United States grew by 40.5 percent, primarily as the result of the continued strong sales of the TITAN (a registered trademark of Tellabs Operations, Inc.) 5500/5500S digital cross-connect system. Sales outside the United States grew by 32.7 percent, driven by the MartisDXX (a trademark of Tellabs Oy) managed access and transport system and digital echo cancellers. Digital cross-connect sales for 1998 totaled $949,057,000, up from 1997 sales of $692,507,000. Sales of the TITAN 5500/5500S systems continued to lead this product group, growing 38.2 percent from 1997 sales levels. The balance of this product group, consisting of the narrowband members of the TITAN family, experienced sales of approximately $96,000,000 during 1998, up 27.8 percent from 1997 sales, making it a more significant contributor to the digital cross-connect product group. The increased sales of the other members of the TITAN family were attributable to the demand from a growing base of emerging telecommunications service providers requiring such systems. Sales of managed digital networks products during 1998 were $415,665,000, an increase of 29.1 percent from 1997 sales. MartisDXX system sales in 1998 made up 97.2 percent of the sales of this group. One significant driver in the growth of MartisDXX system sales in 1998 was a focus on sales to countries with emerging telecommunications infrastructures. In line with the Company's expectations, the more mature products in this group, such as the CROSSNET (a registered trademark of Tellabs Operations, Inc.) data multiplexer and 33X packet switch products, continued their decline in sales over the previous year. Sales of network access products in 1998 increased $70,276,000, to $188,213,000. The increase was mostly attributable to the addition of sales from Tellabs Virginia (formerly Coherent Communications Systems Corporation ("Coherent"), which was acquired in the third quarter of 1998). However, sales of network access products, excluding Tellabs Virginia sales, increased 17 percent from 1997 levels. Contributing to this increase were sales of the CABLESPAN (a registered trademark of Tellabs Operations, Inc.) 2300 universal telephony distribution system of $23,862,000 in 1998, a 53.3 percent increase over 1997 sales levels. During 1998, customer service revenue became a more significant source of the Company's sales than in the past. Customer service revenues resulted primarily from activities involving the installation and testing of large systems, generally the TITAN family of products. Revenues during 1998 were $74,409,000, an increase of 124 percent over 1997 revenues of $33,227,000. Net earnings for 1998 were a record $398,328,000, up 51.1 percent from 1997 earnings of $263,689,000. The 1998 earnings included a pre-tax gain on the sale of stock held as an investment and the settlement of related hedge contracts of $73,374,000, a pre-tax charge for impaired assets at the Company's Wireless System Division of $24,793,000, and a pre-tax charge of $12,991,000 for costs related to the Coherent merger and the unsuccessful merger attempt with CIENA Corporation. Net earnings for 1997 included a pre-tax gain on the sale of stock held as an investment in the amount of $20,803,000. Excluding the effects of these items, net earnings for the year increased $124,470,000, primarily as the result of the record sales. Diluted earnings per share were $2.07 in 1998 ($1.95 excluding the effect of the stock sale, the asset impairment charge, and the merger costs), compared with $1.42 in 1997 ($1.35 excluding the effect of the stock sale). Fourth-quarter sales in 1998 were a record $521,333,000, an increase of 47.1 percent over the then-record sales in the fourth quarter of 1997 of $354,314,000. Sales of the TITAN 5500 system, MartisDXX system, and the addition of Tellabs Virginia sales drove the increase over sales in the fourth quarter of 1997. Net earnings for the quarter were $123,279,000, a 59.0 percent increase over 1997 earnings of $77,534,000. Diluted earnings per share were 62 cents for the fourth quarter of 1998 and 42 cents for the fourth quarter of 1997, due largely to the record sales in 1998. The gross profit margin for 1998 improved again to a new record level of 65.1 percent versus the previous record of 63.0 percent achieved in 1997. This improvement reflects both a product mix skewed toward higher-margin products, including customer service revenue, and increased efficiencies by the Company's manufacturing operations. As a percentage of sales, operating expenses remained at 32.8 percent when compared with 1997, excluding the aforementioned asset impairment charge and merger costs. Overall, operating expenses in 1998 (excluding the asset impairment charge and merger costs) increased 38 percent when compared with 1997. Contributing to the overall increase were the expenses incurred for the installation of TITAN systems; the inclusion of expenses of Tellabs Virginia; and the continued worldwide research and development of products and the expansion of service and support capabilities. Other income was $68,901,000 in 1998, compared with $24,002,000 in 1997. Included in the results of both 1998 and 1997 were gains on the sale of stock held as an investment. The gain in 1997 was $20,803,000, while the gain on the stock sale, along with the settlement of related hedge contracts, was $73,374,000 in 1998. Other income in 1998 also included foreign exchange losses of $4,057,000, compared with foreign exchange gains of $1,933,000 during 1997. The strength of the U.S. dollar and Swedish krona versus the Finnish markka, the strength of the U.S. dollar versus the Irish punt during 1997, and the subsequent weakening of the same currencies in 1998 caused the swing in foreign exchange income. Interest income in 1998 contributed $22,404,000 to income, a 79.6 percent increase, compared with $12,476,000 in 1997. This increase was primarily due to higher average cash balances throughout the year. The effective tax rate was 32.5 percent for 1998 and 34.0 percent for 1997. The decrease in the 1998 effective tax rate is primarily due to the tax benefits associated with contributions to the Tellabs Foundation, as well as the asset impairment charge at the Company's Wireless Systems Division. The Company's 1998 and 1997 effective tax rates reflect the benefits of lower foreign tax rates as compared with the U.S. federal statutory rate. Results of Operations, 1997 vs. 1996 Sales during 1997 hit a then all-time record high as they exceeded the $1-billion mark to reach $1,203,546,000, surpassing 1996's previous record sales of $868,975,000. The 1997 sales growth of 38.5 percent was driven by increased sales worldwide. Sales within the United States grew by 41.1 percent, primarily as the result of the continued strong sales of the TITAN 5500 digital cross-connect system. Sales outside the United States, which grew by 33.1 percent, were driven by the MartisDXX managed access and transport system. Digital cross-connect sales for 1997 of $692,507,000 represented an increase of $213,333,000 over those of the previous year. Sales of the Titan 5500 digital cross-connect system grew by almost 54 percent and continued to drive this product group in response to the continued demand for transport of increasing quantities of voice, data and multimedia information across telecommunications networks worldwide. The digital cross-connect group accounted for approximately 60 percent of total product sales. The managed digital networks area exceeded 1996 sales by 39 percent, reaching $321,980,000. The continued expansion of MartisDXX system sales, fueled by the addition of 53 new customers in 1997, helped drive the $96,960,000 increase in sales to reach a then-record $298,158,000. As was expected, the remaining products in this group, such as the CROSSNET data multiplexer and 33X packet switch products, experienced decreases in their sales over those of the previous year. Sales of network access products rebounded in 1997 to exceed 1996 sales by $16,710,000. The increase was again driven by then-record digital echo canceller sales, combined with late-1997 sales for the CABLESPAN 2300 universal telephony distribution system. With the exception of the continued strength of echo canceller sales and the emergence of the CAPLESPAN system, this product group continued to decrease as a percent of total product sales. Net earnings for 1997 were a then-record $263,689,000, up 123.5 percent from 1996 earnings of $117,965,000. The 1997 earnings included the gain on the sale of stock held as an investment in the amount of $20,803,000 ($13,855,000 after tax), while the 1996 earnings included a one-time, net-of-tax charge of $54,100,000 for acquired in-process research and development related to the acquisition of the Wireless Systems Division (see Note 3). Excluding the effects of these items, net earnings for the year increased $77,769,000, primarily as the result of the record sales being only partially offset by increased operating expenses and income taxes. Diluted earnings per share were $1.42 in 1997, compared with 64 cents in 1996. Sales during the fourth quarter of 1997 were a then-record $354,314,000, continuing the Company's typically strong fourth-quarter sales trend. Sales of the TITAN 5500 system and MartisDXX system led the 29.8 percent sales increase over the 1996 fourth quarter. Net earnings for the quarter were $77,534,000, a 30.5 percent increase over 1996 earnings of $59,399,000. Diluted earnings per share were 42 cents for the fourth quarter of 1997 and 32 cents for the fourth quarter of 1996. The gross profit margin for 1997 increased again to a then-record level of 63 percent versus the previous record of 59.8 percent achieved in 1996. This improvement reflected both the sales of higher-margin products, including software sales and hardware expansions, and the benefits provided by the Company's highly productive and efficient manufacturing operations. Operating expenses increased 43.1 percent during 1997, excluding the one-time charge to earnings for the acquired in-process research and development. Contributing to the overall increase were the higher full-year expenses of the Tellabs Wireless Systems Division and Tellabs Transport Group; the expenses of the Tellabs Optical Networking Group; the continuing worldwide research and development of products; the expansion of service and support capabilities; and the expenses incurred as part of the implementation of the Company's new globally integrated information system. As a percentage of sales, total 1997 operating expenses increased to 32.8 percent as compared with 31.7 percent in 1996 (excluding the one-time charge). Interest income increased to $12,476,000 in 1997, a 69.3 percent increase, compared with $7,371,000 in 1996. This increase was primarily due to higher average cash balances throughout the year. Interest expense for 1997 of $413,000 decreased by $760,000 from 1996 expense of $1,173,000. The expense incurred in 1996 was primarily related to the bank debt used to partially finance the Wireless Systems Division acquisition. The debt was entirely repaid by the fourth quarter of 1996. Other income was $24,002,000 for 1997, compared with $141,000 during 1996. The majority of the increase represented the gain of $20,803,000 on the sale of the stock held as an investment. In addition, foreign exchange gains of $1,933,000 were recorded during 1997 versus losses of $273,000 during 1996. The 1997 foreign exchange gains were the result of the strengthened U.S. dollar and Swedish krona versus the Finnish markka and the strength of the U.S. dollar versus the Irish punt. The losses in 1996 were the result of a weakened U.S. dollar against the Finnish markka and Irish punt. The effective tax rate was 34.0 percent for 1997 and 32.7 percent for 1996. The increase in the effective tax rate for 1997 was primarily due to the increase in domestic taxable income and the reduction of foreign tax rate benefits. The 1997 effective rate reflected adjustments from the federal statutory rate attributable to the benefits of foreign tax rates, the merger of Finnish subsidiaries, and tax credits offset by state taxes. Liquidity The Company has never paid a cash dividend, and current policy is to retain earnings to provide funds for the operation and expansion of the business. The Company does not anticipate paying cash dividends in the foreseeable future. Net working capital at January 1, 1999, was $1,034,564,000, compared with net working capital of $637,114,000 at January 2, 1998. The Company's current ratio at January 1, 1999, was 5.7 to 1. The increase in net working capital is primarily due to the Company's record earnings. Management believes this level of working capital will be adequate to meet the Company's liquidity needs related to normal operations both currently and in the foreseeable future. Sufficient resources exist to support the Company's growth either through currently available cash, through cash generated from future operations, or through additional short-term or long-term financing. Cash flows from operating activities during 1998 provided the Company with approximately $209,000,000. Accounts receivable, net of allowance, at the end of 1998 increased $196,536,000 from the balance of the previous year, due primarily to high sales volume in the fourth quarter of 1998. Total inventory levels increased by $32,810,000 from 1997 but decreased as a percentage of total current assets. During the second quarter of 1998, the Company determined that the value of the assets acquired as part of the 1996 acquisition of the Company's Wireless System Division was impaired, resulting in the write-down of assets totaling $24,793,000, including goodwill and intangible assets. The Company's holdings in marketable securities increased by $29,941,000 during 1998 despite the significant decrease in the balance of a certain investment due to the partial sale of this investment, as well as a decrease in the market value of the remaining portion of the investment. The Company also invested approximately $75,870,000 during 1998 in property, plant and equipment (exclusive of acquisitions). These additions primarily consisted of the Company's continued expansion of manufacturing and research and development capacity worldwide. Current liabilities decreased during 1998 to $218,127,000 from $225,820,000 at the end of 1997. Increases in accounts payable, accrued compensation, and income taxes payable were offset by a decrease in the Company's deferred income tax liability due to the partial sale and devaluation of a certain investment. Common stock outstanding increased by approximately 12,824,000 shares, primarily due to shares issued in the acquisition of Coherent. OUTLOOK Sales in 1999 are expected to surpass $2 billion, a year ahead of the Company's goal of "$2B by 2K." Sales growth within the United States will continue to be led by the strength of digital cross-connect system sales, while sales growth outside the United States will be driven by sales of the MartisDXX system, as well as a full year of Tellabs Virginia sales of digital echo cancellers. At January 1, 1999, backlog increased significantly to approximately $164,000,000 from $109,000,000 at the end of the prior year. All of the backlog at the end of 1998 is expected to be shipped in 1999. The Company considers backlog to be an indicator, but not the sole predictor, of future sales. During 1999, the Company will continue to focus on providing the resources to support revenue growth in the most cost-effective method possible. Total operating expenses for 1999 are expected to average approximately 30 percent of planned revenues. Research and development expenses are expected to be between 12 percent and 13 percent of sales. Marketing and general and administrative expenses are expected to approximate 17 percent of sales. Management believes these levels can be attained while supporting the sales and product growth slated for 1999 and beyond as the Company continues to invest in its future. The 1999 capital expenditure plan totals approximately $125,000,000. It is anticipated that 1999 working capital requirements and capital expenditures will be met with funds currently on hand and funds generated by future earnings. Earnings for 1999 are expected to be taxed at 34 percent. The Company believes that the formation of business relationships with compatible organizations is important to future growth in that it allows the Company the opportunity to share in the development of new markets, products and technologies. Equally as important, strategic business relationships can shorten the time it takes to bring new products and solutions to market. It is for these reasons that the Company will continue to pursue the establishment of such relationships. YEAR 2000 READINESS The Company continues to address its readiness for Year 2000 issues. At the end of 1998, the Company believes, based on our test plans, all products available for sale were Year 2000 compliant. The Company's information technology (IT) systems and non-IT systems were not fully compliant but are expected to be compliant by the second quarter of 1999. Potentially non-compliant systems consist only of non-critical systems. The extent of the impact of any non-compliance will be limited to minor personnel productivity inefficiencies caused by the need for alternative processes and procedures. Costs incurred to date and projected future costs to remedy the Company's Year 2000 issues are expected to be immaterial to the Company's financial results. In addition, the Company believes that no material Year 2000 issues exist with a third party. Actual outcomes and results could be affected by other factors, including, but not limited to, the continued availability of skilled personnel, cost control, the ability to locate and remedy software code problems, critical suppliers and subcontractors meeting their commitments to be Year 2000 ready, and timely actions by customers. The most current information about Year 2000 readiness for Tellabs' products is available on our web site at www.tellabs.com. FORWARD-LOOKING STATEMENTS Except for historical information, the matters discussed or incorporated by reference in this report are forward-looking statements that involve risks and uncertainties. Such risks and uncertainties include but are not limited to, economic conditions; product demand and industry capacity; competitive products and pricing; manufacturing efficiencies; research and new product development; protection of and access to intellectual property, patents and technology; ability to attract and retain highly qualified personnel; availability of components and critical manufacturing equipment; Year 2000 readiness; facility construction and start-ups; the regulatory and trade environment; availability and terms of future acquisitions; uncertainties relating to the synergies, charges and expenses associated with business combinations and other transactions; and other risks that may be detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company's actual future results could differ materially from those discussed here. The Company undertakes no obligation to revise or update these forward-looking statements. Management Statement of Financial Responsibility The financial statements of Tellabs, Inc., and Subsidiaries have been prepared under the direction of management in conformity with generally accepted accounting principles. In the opinion of management, the financial statements set forth a fair presentation of the consolidated financial condition of Tellabs, Inc., and Subsidiaries at January 1, 1999 and January 2, 1998, and the consolidated results of its operations for the years ended January 1, 1999, January 2, 1998, and December 27, 1996. The Company maintains accounting systems and related internal controls which, in the opinion of management, provide reasonable assurances that transactions are executed in accordance with management's authorization, that financial statements are prepared in accordance with generally accepted accounting principles, and that assets are properly accounted for and safeguarded. Ethical decision-making is fundamental to the Company's management philosophy. Management recognizes its responsibility for fostering a strong ethical climate so that the Company's affairs are conducted to the highest standards of personal and corporate conduct. Employee awareness of these objectives is achieved through key written policy statements and training. The Board of Directors has appointed two of its non-employee members as an Audit Committee. This committee meets periodically with management and the independent auditors, who have free access to this committee without management present, to discuss the results of their audit work and their evaluation of the internal control structure and the quality of financial reporting. /s Michael J. Birck /s Peter A. Guglielmi Michael J. Birck Peter A. Guglielmi President and Executive Vice President, Chief Executive Officer, Chief Financial Officer and Treasurer, Tellabs, Inc. Tellabs, Inc. January 20, 1999 January 20, 1999 Report of Independent Auditors We have audited the accompanying consolidated balance sheet of Tellabs, Inc., and Subsidiaries as of January 1, 1999, and January 2, 1998, and the related consolidated statements of earnings, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Tellabs, Inc., and Subsidiaries for the year ended December 27, 1996, were audited by other auditors whose report dated January 15, 1997, expressed an unqualified opinion on those statements. 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 1998 and 1997 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tellabs, Inc., and Subsidiaries at January 1, 1999, and at January 2, 1998, and the consolidated results of its operations and its consolidated cash flows for the years then ended in conformity with generally accepted accounting principles. /s Ernst & Young LLP Ernst & Young LLP Chicago, Illinois January 20, 1999
CONSOLIDATED STATEMENTS OF EARNINGS (In Thousands, Except Per-Share Data) Year Year Year Ended Ended Ended 01/01/99 01/02/98 12/27/96 -------- -------- -------- Net Sales $1,660,102 $1,203,546 $868,975 Cost of sales 578,864 445,543 349,732 ------- ------- ------- Gross Profit 1,081,238 758,003 519,243 Operating expenses Marketing 251,598 156,701 112,206 Research and development 202,639 158,129 107,258 Acquired in-process research and development --- --- 74,658 General and administrative 84,399 73,717 52,495 Asset impairment 24,793 --- --- Merger costs 12,991 --- --- Goodwill amortization 5,713 5,992 3,683 ------- ------- ------- 582,133 394,539 350,300 ------- ------- ------- Operating Profit 499,105 363,464 168,943 Other income (expense) Interest income 22,404 12,476 7,371 Interest expense (295) (413) (1,173) Other 68,901 24,002 141 ------- ------- ------- 91,010 36,065 6,339 Earnings Before Income Taxes 590,115 399,529 175,282 Income taxes 191,787 135,840 57,317 ------- ------- ------- Net Earnings $398,328 $263,689 $117,965 ======= ======= ======= Earnings per Share $2.13 $1.46 $0.66 Earnings per Share, Assuming Dilution $2.07 $1.42 $0.64 Average number of common shares outstanding 187,251 180,925 178,509 Average number of common shares outstanding, assuming dilution 192,215 186,221 183,030 The accompanying notes are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS (In Thousand, Except Share Amounts) ASSETS 01/01/99 01/02/98 -------- -------- Current Assets Cash and cash equivalents $234,718 $109,048 Investments in marketable securities 407,927 377,986 Accounts receivable, net of allowance of $10,709 and $3,440 480,620 284,084 Inventories Raw materials 48,774 28,335 Work in process 23,276 15,664 Finished goods 50,374 45,615 ------- ------- 122,424 89,614 Other current assets 7,002 2,202 ------- ------- Total Current Assets 1,252,691 862,934 Property, Plant and Equipment Buildings and improvements 129,822 108,905 Equipment 275,004 220,251 ------- ------- 404,826 329,156 Less: accumulated depreciation 159,100 128,967 ------- ------- 245,726 200,189 Land 9,065 9,140 ------- ------- 254,791 209,329 Goodwill, Net 55,559 61,453 Other Assets 64,550 49,663 -------- -------- Total Assets $1,627,591 $1,183,379 ========== ==========
(In Thousands, Except Share Amounts) 01/01/99 01/02/98 LIABILITIES AND STOCKHOLDERS' EQUITY -------- -------- Current Liabilities Accounts payable $63,083 $50,422 Accrued liabilities Compensation 49,093 38,168 Payroll and other taxes 15,943 7,788 Other 16,891 19,712 ------ ------ Total accrued liabilities 81,927 65,668 Deferred income taxes --- 50,249 Income taxes 73,117 59,481 ------ ------ Total Current Liabilities 218,127 225,820 Long-Term Debt 2,850 2,850 Other Long-Term Liabilities 18,164 14,870 Deferred Income Taxes 11,853 6,730 Stockholders' Equity Preferred stock: authorized 5,000,000 shares of $.01 par value; no shares issued and outstanding --- --- Common stock: authorized 500,000,000 shares of $.01 par value; 194,451,133 and 181,626,660 shares issued and outstanding 1,945 1,816 Additional paid-in capital 192,612 130,378 Accumulated other comprehensive income Cumulative translation adjustment (9,207) (27,901) Unrealized net gains on available-for-sale securities 20,423 95,990 ------- ------- Total accumulated other comprehensive income 11,216 68,089 Retained earnings 1,170,824 732,826 ------- ------- Total Stockholders' Equity 1,376,597 933,109 ------- ------- Total Liabilities and Stockholders' Equity $1,627,591 $1,183,379 ======== ======== The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Accumulated Additional Other Comp- Common Paid-In rehensive Retained (In Thousands) Stock Capital Income Earnings Total ------- ------- ------- ------- ------- Balance at December 29, 1995 $888 $72,385 $7,890 $352,070 $433,233 Comprehensive income: Net earnings --- --- --- 117,965 117,965 Other comprehensive income, net of tax: Unrealized holding gains on marketable securities arising during period (net of deferred income taxes of $14,384) --- --- 21,551 --- 21,551 Less: reclassification adjustment for gains included in net earnings (net of deferred income taxes of $32) --- --- (48) --- (48) ------- ------- ------- ------- ------- Net unrealized holding gains on marketable securities --- --- 21,503 --- 21,503 Foreign currency translation adjustment --- --- (3,905) --- (3,905) ------- ------- ------- ------- ------- Comprehensive income 135,563 Stock options exercised 11 22,393 --- --- 22,404 Employee stock awards --- 76 --- --- 76 Stock split 898 --- --- (898) --- Balance at ------ ------ ------ ------- ------- December 27, 1996 1,797 94,854 25,488 469,137 591,276 ====== ======= ====== ======== ======== Comprehensive income: Net earnings --- --- --- 263,689 263,689 Other comprehensive income, net of tax: Unrealized holding gains on marketable securities arising during period (net of deferred income taxes of $58,492) --- --- 87,787 --- 87,787 Less: reclassification adjustment for gains included in net earnings (net of deferred income taxes of $8,916) --- --- (13,348) --- (13,348) ------- ------- ------- ------- ------- Net unrealized holding gains on marketable securities --- --- 74,439 --- 74,439 Foreign currency translation adjustment --- --- (31,838) --- (31,838) ------- ------- ------- ------- ------- Comprehensive income 306,290 Stock options exercised 19 34,739 --- --- 34,758 Stock retention programs --- 427 --- --- 427 Employee stock awards --- 358 --- --- 358 Balance at ------ ------ ------ ------- ------- January 2, 1998 1,816 130,378 68,089 732,826 933,109 ====== ======= ====== ======== ======== Consolidated Statements of Stockholders' Equity (continued) Comprehensive income: Net earnings --- --- --- 398,328 398,328 Other comprehensive income, net of tax: Unrealized holding gains on marketable securities arising during period (net of deferred income taxes of $22,508) --- --- (33,566) --- (33,566) Less: reclassification adjustment for gains included in net earnings (net of deferred income taxes of $27,968) --- --- (42,001) --- (42,001) ------- ------- ------- ------- ------- Net unrealized holding gains on marketable securities --- --- (75,567) --- (75,567) Foreign currency translation adjustment --- --- 18,694 --- 18,694 ------- Comprehensive income 341,455 Stock options exercised 16 47,890 --- --- 47,906 Stock retention programs --- 348 --- --- 348 Employee stock awards --- 414 --- --- 414 Issuance of common stock for acquisitions 113 13,582 --- --- 13,695 Acquired retained earnings --- --- --- 39,670 39,670 Balance at ------ ------ ------ ------- ------- January 1, 1999 $1,945 $192,612 $11,216 $1,170,824 $1,376,597 ====== ======= ====== ======== ======== The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOW Year Year Year Ended Ended Ended (In Thousands) 01/01/99 01/02/98 12/27/96 -------- -------- -------- Operating Activities Net earnings $398,328 $263,689 $117,965 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 56,085 46,892 32,648 Provision for doubtful receivables 7,572 1,494 2,157 Deferred income taxes 3,344 (3,260) (23,486) Gain on the sale of investments (74,398) (21,098) (289) Asset impairment charge 24,793 --- --- Merger costs 12,991 --- --- Acquired in-process research and development --- --- 74,658 Net changes in assets and liabilities, net of effects from acquisitions: Accounts receivable (188,670) (126,835) (43,535) Inventories (25,877) (14,129) (7,434) Other current assets 1,289 (117) (1,206) Long-term assets (38,975) (24,513) (10,272) Accounts payable 9,937 14,518 6,348 Accrued liabilities 7,918 7,468 14,801 Income taxes 11,790 38,351 (2,221) Long-term liabilities 3,018 2,836 (120) ------ ------ ------ Net Cash Provided by Operating Activities 209,145 185,296 160,014 Investing Activities Acquisition of property, plant and equipment, net (75,870) (84,717) (64,831) Payments for purchases of marketable securities (682,458) (315,947) (122,679) Proceeds from sales and maturities of 616,119 212,274 99,931 marketable securities Payments for acquisitions, net of cash acquired 8,778 (7,821) (91,732) Origination of loan receivable --- --- (5,822) ------- ------- ------- Net Cash Used for Investing Activities (133,431) (196,211) (185,133) Consolidated Statements of Cash Flows (continued) (In thousands) Financing Activities Common stock sold through stock option plans* 47,906 34,759 22,480 Proceeds from notes payable --- --- 40,000 Payments of notes payable --- --- (40,000) ------ ------ ------ Net Cash Provided by Financing Activities 47,906 34,759 22,480 Effect of Exchange Rate Changes on Cash 2,050 (5,242) 600 Net Increase (Decrease) in Cash And Cash Equivalents 125,670 18,602 (2,039) Cash and Cash Equivalents At Beginning of Year 109,048 90,446 92,485 ------- ------- ------- Cash and Cash Equivalents At End of Year $234,718 $109,048 $90,446 ======= ======= ======= Other Information Interest paid $187 $326 $1,165 Income taxes paid $148,188 $78,717 $67,887 * "Common stock sold through stock option plans" contains non-cash deferred tax benefits of $32,848, $24,298, and $15,878 in 1998, 1997, and 1996, respectively. The accompanying notes are an integral part of these statements.
Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Nature of Business Operating in one business segment, the Company and its Subsidiaries design, assemble, market and service a diverse line of electronic communications equipment used in public and private communications networks worldwide. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its Subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain reclassifications have been made in the 1996 and 1997 consolidated financial statements to conform to the 1998 presentation. The preparation of the 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. Cash Equivalents The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Fair Value of Financial Instruments The Company's financial instruments include cash and cash equivalents, marketable securities, cost-basis investments, and long-term debt. The carrying value of the cash and cash equivalents and long-term debt approximates their estimated fair values based upon quoted market prices. The fair value of investments in marketable securities is estimated based on quotes from brokers or current rates offered for instruments with similar characteristics. Inventories Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. Property, Plant and Equipment Property, plant and equipment is recorded at cost. Depreciation is computed using both the declining-balance and straight-line methods. Buildings are depreciated over 25 to 40 years, improvements over 7 years, and equipment over 3 to 10 years. Stock Options Under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company continues to apply Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and its related interpretations in accounting for its stock-based compensation plans. Accordingly, no compensation cost has been recognized for its fixed stock option plan grants. 1. Summary of Significant Accounting Policies (continued) Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases at enacted tax rates when such amounts are expected to be realized or settled. Goodwill On an ongoing basis, management reviews the valuation and amortization of goodwill. As part of this review, the Company estimates the value and future benefits of the net earnings generated by the related assets to determine that no impairment has occurred. Goodwill is amortized over terms ranging from 7 to 20 years using the straight-line method. The accumulated amortization of goodwill is approximately $19,677,000 and $14,919,000 at January 1, 1999, and January 2, 1998, respectively. Revenue Recognition The Company recognizes revenue at the date of shipment or when services are performed. Earnings Per Share In accordance with SFAS No. 128, "Earnings per Share," earnings per share are based both on the weighted-average number of shares and the weighted-average shares adjusted for assumed conversions of stock options. (See Note 12.) On October 24, 1996, the Company declared a 2-for-1 stock split, payable in the form of a 100 percent stock dividend. All references to the number of common shares and per-share amounts have been retroactively restated to give effect to the stock dividends and SFAS No. 128 accounting treatment. Foreign Currency Translation The financial statements of the Company's subsidiaries are generally measured using the local currency as the functional currency. Accordingly, the effect of translating a subsidiary's stockholders' equity into U.S. dollars is recorded as a cumulative translation adjustment in the Consolidated Balance Sheets. Foreign Exchange Foreign currency transaction gains and losses resulting from changes in exchange rates are recognized in "Other income (expense)." Net gains (losses) of ($4,057,000), $1,933,000, and ($273,000) were recorded in 1998, 1997, and 1996, respectively. Fiscal Year The Company operates on a 52-53 week fiscal year. The year ended January 2, 1998, contains 53 weeks, while all other years presented contain 52 weeks. The financial statement effect is not significant. 2. New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in the financial statements. The Company has adopted SFAS No. 130 and has incorporated its requirements into this annual report. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company has adopted SFAS No. 131 and has provided the disclosures needed to conform with its requirements. (See Note 9.) In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on the accounting treatment of costs related to software obtained or developed for internal use. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company has evaluated the requirements of SOP 98-1 and believes it will have no material impact on the Company's reported consolidated results of operations, financial position, or cash flows. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to be recorded on the balance sheet at fair value. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The Company is in the process of evaluating the impact of the reporting requirements of SFAS No. 133. 3. Business Combinations In August 1998, the Company acquired all of the outstanding shares of Coherent Communications Systems Corporation ("Coherent"), a developer, manufacturer and marketer of voice-quality enhancement products for wireless (including digital cellular and personal communications systems), satellite-based, cable communication, and wireline telecommunications systems throughout the world. The Company issued approximately 11,212,000 shares of its common stock to Coherent shareholders in exchange for all outstanding Coherent shares. The transaction has been recorded using the pooling-of-interests accounting method. The results of operations of Coherent have been included in the Company's consolidated results of operations for periods subsequent to the combination. The Company's consolidated financial statements prior to the combination have not been restated to reflect the financial results of Coherent as these results were not material to the Company. In 1998, the Company recognized a pre-tax charge of $12,991,000 for costs related to the Coherent merger and an unsuccessful merger attempt with CIENA Corporation. In April 1996, the Company acquired all of the outstanding shares of Steinbrecher Corporation (the Tellabs Wireless Systems Division), a developer, manufacturer and marketer of wideband wireless communications systems. The Tellabs Wireless Systems Division was acquired to provide the Company entry into the wireless local loop market. This acquisition has been recorded using the purchase method of accounting, and accordingly, the accompanying financial statements include the results of its operations since the acquisition date. The allocation of the purchase price was as follows: (In Thousands) Fair value of assets acquired $103,944 Costs in excess of fair value 6,865 Liabilities assumed (33,555) ------- Cash paid for acquisitions $77,254 ======= During 1998, the Company decided not to pursue the wireless local loop market. Accordingly, the assets of the Tellabs Wireless Systems Division were determined to be impaired. This determination resulted in a $24,793,000 write-down of these assets and the related goodwill to fair market value. During the three years ended January 1, 1999, the Company made a number of purchase acquisitions. Pro forma results of operations have not been presented because the effects of these acquisitions were not material on either an individual or aggregated basis.
4. Investments Available-for-sale marketable securities are accounted for at market prices with the unrealized gain or loss, net of deferred income taxes, shown as a separate component of stockholders' equity. At January 1, 1999, and January 2, 1998, they consisted of the following: Amortized Unrealized Market (In Thousands) Cost Gain (Loss) Value 1998 ------- ------- ------- State and municipal securities $72,174 $1,084 $73,258 Preferred and common stocks 49,312 31,324 80,636 U.S. government and agency debt obligations 76,802 (21) 76,781 Corporate debt obligations 32,956 (247) 32,709 Foreign government debt obligations 143,882 661 144,543 ------- ------- ------- $375,126 $32,801 $407,927 ======= ======= ======= Amortized Unrealized Market Cost Gain (Loss) Value 1997 ------- ------- ------- State and municipal securities $36,863 $363 $37,226 Preferred and common stocks 21,257 158,727 179,984 U.S. government and agency debt obligations 29,611 424 30,035 Corporate debt obligations 24,271 268 24,539 Foreign government debt obligations 106,031 169 106,200 ------- ------- ------- $218,033 $159,951 $377,984 ======= ======= ======= In 1998, the Company sold stock of a certain investment and related hedge contracts for a pre-tax gain of $73,374,000. The Company also sold stock of the same investment in 1997 for a pre-tax gain of $20,803,000. During 1998 and 1997, the Company contributed $13,100,000 and $8,500,000, respectively, in the form of stock from a certain investment to the Tellabs Foundation.
5. Financial Instruments The Company conducts business on a global basis in several major currencies. Foreign currency risk is managed through the use of forward exchange contracts to hedge nonfunctional currency receivables and payables that are expected to be settled in less than one year. The Company does not enter into forward exchange contracts for trading purposes. The foreign currency forward exchange contracts are primarily used to manage exposure to changes in the Finnish markka and Irish punt exchange rates. Gains and losses on the contracts are accounted for under the accrual method, with market value gains and losses on the contracts being recognized and combined with offsetting foreign exchange gains or losses on the net foreign accounts receivable and payable. Net losses on forward exchange contracts were $339,000, $3,794,000, and $1,971,000 for 1998, 1997, and 1996, respectively. The table below presents a summary of the notional and fair values of forward contracts by currency at January 1, 1999. The notional amounts are the U.S. dollar values of the agreed-upon amounts in each foreign currency that will be delivered to a third party on the agreed-upon date. Notional Fair (In Thousands) Amount Value ------- ------- Forward contracts at January 1, 1999: Related forward contracts to sell foreign currencies for Finnish markka $119,218 $120,998 Related forward contracts to sell foreign currencies for Irish punts 8,336 8,325 ------- ------- Total $127,554 $129,323 ======= ======= 6. Employee Benefit and Retirement Plans The Company maintains a defined contribution 401(k) savings plan ("401(k) plan") for the benefit of eligible employees. Under the 401(k) plan, a participant may elect to defer a portion of annual compensation. Matching contributions equal to the first 3 percent of annual compensation were made by the Company for all eligible participants. The Company's Board of Directors may authorize discretionary contributions to the 401(k) plan, for which no amounts were authorized in 1998, 1997 or 1996. Contributions to the 401(k) plan are immediately vested in plan participants' accounts. The Company maintains similar plans for the benefit of eligible employees at its subsidiaries in Finland and Ireland. The Company maintains defined contribution retirement and profit-sharing plans for the benefit of eligible employees. Under both plans, the Company's contributions totaled 5 percent of eligible annual compensation for each eligible participant in 1998 and 1997 and 4 percent in 1996. No part of the contributions is vested until after a service period of five years, at which time the participant is fully vested. The Company's contributions to the profit sharing plan, which were 0.5 percent of eligible annual compensation in 1998 and 1997 and 0.4 percent in 1996, are maintained as part of the 401(k) plan. Company contributions to the 401(k) savings and profit-sharing plan were $9,515,000, $8,697,000 and $6,426,000 for 1998, 1997 and 1996, respectively. Company contributions to the retirement plan were $6,166,000, $5,559,000 and $3,665,000 for 1998, 1997 and 1996, respectively. The Company provides a deferred compensation plan that permits certain officers and management employees to defer portions of their compensation. Unless the plan is amended by the Company, the deferred amounts earn an annual interest rate of 12 percent during the term of the plan. The liabilities for the deferred salaries plus interest are included in "Other Long-Term Liabilities." The Company maintains an employee stock purchase plan. Under the plan, employees elect to withhold a portion of their compensation to purchase the Company's common stock at fair market value. The Company matches 15 percent of each employee's withholdings. Compensation expense is recognized for the amount that the Company contributes to the plan through its matching of participant withholdings. The Company has a program to award shares of the Company's common stock to employees in recognition of their past service. Each full-time employee who has worked for a continuous 5-, 15- or 20-year period is awarded 10, 25 or 50 shares, respectively. When an employee stock award is granted, compensation expense is charged for the fair market value of the shares issued. The Company has a number of employee retention programs under which certain employees, primarily as a result of the Company's acquisitions, are entitled to a specific number of shares of the Company's stock over a two-year vesting period. 7. Stock Options At January 1, 1999, the Company had nine stock-based compensation plans, which are described below. The Company applies APB Opinion No. 25 and its related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plan grants. Had compensation cost for the Company's stock-based compensation plans been determined using the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated in the following chart:
Year Ended Year Ended Year Ended (In Thousands, Except Per-Share Data) 1998 1997 1996 -------- ------- ------- Net Earnings As reported $398,328 $263,689 $117,965 Pro forma $375,721 $250,506 $110,990 Earnings per As reported $2.13 $1.46 $0.66 common share Pro forma $2.01 $1.38 $0.62 Earnings per common As reported $2.07 $1.42 $0.64 share, assuming dilution Pro forma $1.95 $1.35 $0.61
These pro forma amounts may not be representative of future disclosures because the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1998, 1997 and 1996: 1998 1997 1996 --------- --------- ----------- Expected volatility 64.6% 52.1% 51.2% Risk-free interest rate 4.9% 6.2% 6.0% Expected life 4.3 yrs. 4.3 yrs. 4.0 yrs. Expected dividend yield 0.0% 0.0% 0.0% The Company's 1984 Incentive Stock Option Plan is a tax-qualified plan that provides for 4,800,000 shares of common stock to be reserved for options that may be issued under the plan. The plan also provides that the option price shall be the market value of the Company's shares as of the date of grant, except for options granted to holders of 10 percent or more of the outstanding shares, in which case the option price shall be 110 percent of the market value of the Company's shares as of the date of grant. All options under the plan have been granted. The Company's 1986 Non-Qualified Stock Option Plan provides for 12,000,000 shares of common stock to be reserved for options that may be issued under the plan. The plan provides that the option price shall be the market value of the Company's shares as of the date of grant. All options under the plan have been granted. The Company's 1987 Stock Option Plan for Non-Employee Corporate Directors provides for the non-discretionary grant of options to non-employee directors of the Company to purchase a combined maximum of 1,200,000 shares of common stock at a per-share price not less than the market value of the Company's shares on the date of grant. The plan provides that each non-employee director, on the date such person becomes a non-employee director, will be granted options to purchase 10,000 shares of common stock and, provided such person is still serving as a non-employee director, will automatically be granted options to purchase 6,000 additional shares of common stock each year thereafter on the anniversary of the last day of the month in which the initial options were granted. Options granted under the 1987 plan expire five years from the grant date. The Company's 1989 Stock Option Plan provides for 12,000,000 shares of common stock to be reserved for options that may be issued under the plan. The plan allows grants to employees of incentive or non-qualified options for up to 12,000,000 shares and up to 12,000,000 stock appreciation rights ("SARs"). The SARs may be granted in conjunction with, or independently of, the options under the plan. The plan provides that the option price and the SAR price shall be the market value of the Company's shares as of the date of grant. At January 1, 1999, 1,524,000 SARs with grant prices ranging from $0.75 to $1.08 and 5-year terms and 804,520 SARs with grant prices of $1.52 to $71.50 and 10-year terms had been granted. As of that date, a total of 2,216,748 SARs had been exercised and 16,350 had been canceled, leaving 95,422 outstanding. The Company's 1991 Stock Option Plan provides for 6,000,000 shares of common stock to be reserved for options that may be issued under the plan. The plan allows grants to employees of incentive or non-qualified options for up to 6,000,000 shares. The plan provides that the option price shall be the market value of the Company's shares as of the date of grant. The Company's 1994 Stock Option Plan provides for 8,000,000 shares of common stock to be reserved for options that may be issued under the plan. The plan allows grants to employees of incentive or non-qualified options. The plan provides that the option price shall be the market value of the Company's shares as of the date of grant. The Company's 1998 Stock Option Plan provides for 8,000,000 shares of common stock to be reserved for options that may be issued under the plan, allowing grants to employees of incentive or non-qualified options for up to 8,000,000 shares and up to 8,000,000 SARs. The SARs may be granted in conjunction with, or independently of, the options under the plan. The plan provides that the option price shall be the market value of the Company's shares as of the date of grant. The Company's 1982 and 1993 Stock Option Plans provide for 633,173 shares of common stock to be reserved for options that may be issued under the plans. The plans were acquired in 1998 through the merger with Coherent. No further awards may be made under the plans. In July 1996, the Company began a Global Option Program ("the Program") under which all full-time employees below the director level as of July 8, 1996, were granted non-qualified options or SARs to purchase 400 shares plus 20 shares for each year of service. The grants were dated July 22, 1996, with a price of $28.63. The options were granted from the 1994 Plan and the SARs from the 1989 Plan. In 1997, the Company continued the 7. Stock Options (continued) Program by granting 200 non-qualified options or SARs to all full-time employees below director level hired from July 9, 1996, through October 24, 1997. All such grants were dated October 24, 1997, with a price of $50.50. On an ongoing basis, the Program allows that any employee below director level hired after October 24, 1997, will receive a grant of 200 non-qualified options or SARs dated the last trading day of the fiscal quarter in which the employee is hired. In October 1998, the Company continued the Program by granting non-qualified options or SARs to purchase 200 shares to all full-time employees below the management level. The grants were dated October 8, 1998, with a price of $34.25. The options were granted from various plans and the SARs from the 1989 Plan. Unless the option agreements provide otherwise, options or SARs granted under the 1982, 1984, 1986, 1989, 1991, 1993, 1994, and 1998 plans become exercisable on a cumulative basis at a rate of 25 percent on each of the first through fourth anniversaries of the grant date. Unless the option agreements provide otherwise, options under the 1986 plan terminate at the end of 5 years after the grant; options under the 1982 and 1993 plans terminate at the end of seven years after the grant; and options or SARs granted under the 1984, 1989, 1991, 1994 and 1998 plans terminate at the end of 10 years after the grant.
A summary of the status of the Company's option plans as of January 1, 1999, January 2, 1998, and December 27, 1996, and of changes during the years ending on these dates is presented in the following chart: 1998 1997 1996 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------- --------- ------- --------- ------- --------- Outstanding - beginning of year 10,903,494 $18.86 11,285,747 $11.59 10,331,146 $4.53 Granted 3,415,832 35.41 1,846,295 49.43 3,266,420 28.61 Exercised (1,741,439) 8.78 (1,949,028) 5.41 (2,053,399) 3.18 Forfeited (351,136) 34.91 (279,520) 21.09 (258,420) 11.19 Outstanding - end of year ---------- ---------- ---------- 12,226,751 $24.46 10,903,494 $18.86 11,285,747 $11.59 ========== ========== ========== Exercisable at end of year 6,343,469 5,958,723 5,878,597 Available for grant 8,056,132 2,511,661 4,078,436 Weighted-average fair value of options granted during the year $20.45 $23.71 $13.22 7. Stock Options (continued) Options Outstanding and Exercisable as of January 1, 1999, by Price Range: Outstanding Exercisable --------------------------------- ------------------- Wtd. Avg. Remaining Wtd. Avg. Wtd. Avg. Range of Exercise Prices: Contractual Exercise Exercise Shares Life Price Shares Price $0.77 - $1.53 2,075,935 2.89 $1.38 2,075,935 $1.38 $1.54 - $16.75 2,795,746 5.17 $7.88 2,594,960 $7.41 $17.00 - $28.63 2,522,676 7.20 $28.32 1,158,731 $28.19 $28.65 - $34.25 2,470,262 9.56 $34.19 7,653 $32.11 $34.38 - $89.00 2,362,132 8.28 $49.87 506,190 $49.03 ----------- --------- $0.77 - $89.00 12,226,751 6.69 $24.46 6,343,469 $12.59 =========== =========
8. Income Taxes (In Thousands) Year Ended Year Ended Year Ended 01/01/99 01/02/98 12/27/96 Components of the Company's -------- -------- -------- earnings before income taxes are as follows: Domestic source $377,038 $230,088 $70,835 Foreign source 213,077 169,441 104,447 ------- ------- ------- Total $590,115 $399,529 $175,282 ======= ======= ======= The provisions for income tax expense (benefit) consists of the following: Current: Federal $113,400 $79,516 $47,371 State 17,662 15,467 9,751 Foreign 57,381 44,117 23,681 ------ ------ ------ 188,443 139,100 80,803 Deferred: Federal 2,899 (3,622) (23,615) State and Foreign 445 362 129 ------ ------ ------ 3,344 (3,260) (23,486) ------ ------ ------ Total $191,787 $135,840 $57,317 ====== ====== ====== (In Thousands) Deferred tax assets (liabilities) for 1998 Ending Ending and 1997 consist of the following: Balance Balance 01/01/99 01/02/98 Deferred tax assets -------- -------- Inventory reserves $7,399 $5,456 Deferred employee benefit expenses 4,049 5,264 Deferred compensation plan 4,500 3,547 Accrued liabilities 5,595 3,452 NOL and research and development credit carryforwards --- 21,100 Other 2,417 1,291 ------ ------ Gross deferred tax assets 23,960 40,110 ------ ------ Deferred tax liabilities Unrealized gain on marketable securities (13,299) (63,914) Depreciation (16,352) (14,588) Amortizable intangibles --- (4,026) Other (2,382) (1,260) ------ ------ Gross deferred tax liabilities (32,033) (83,788) Valuation allowance --- (13,300) ------ ------ Net Deferred Tax Liability ($8,073) ($56,978) ====== ======
8. Income Taxes (continued) Year Ended Year Ended Year Ended 01/01/99 01/02/98 12/27/96 (In Percentages) --------- --------- --------- Federal income taxes at the statutory rate are reconciled with the Company's income tax provision as follows: Statutory U.S. income tax rate 35.0% 35.0% 35.0% Foreign income taxes (2.0) (2.4) (4.6) Research and development credit (0.7) (0.9) (1.2) Tax benefits associated with merger of Finland subsidiaries (0.5) (0.7) (2.0) Benefit attributable to foreign sales corporation (0.2) (0.1) (0.3) State income tax, net of federal benefits 1.8 2.5 3.6 Charitable contribution (0.8) -- (1.7) Acquired in-process research and development charge -- -- 3.2 Other - net (0.1) 0.6 0.7 ---- ---- ---- Effective Income Tax Rate 32.5% 34.0% 32.7% ==== ==== ====
The net deferred tax liability decreased to $8,073,000 at January 1, 1999, from $56,978,000 at January 2, 1998. The decrease in the deferred tax balance is primarily attributable to deferred taxes required for the mark-to-market adjustment in investments in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company recorded deferred tax assets for research and development credits and net operating loss carryforwards associated with the 1996 acquisition of the Tellabs Wireless Systems Division in the amount of approximately $21,100,000. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The Company had established a valuation allowance of $13,300,000 associated with the net operating losses and research and credit carryforwards of the acquisition. In 1998, the Company determined that the assets of the Tellabs Wireless Systems Division were impaired, resulting in the write-down of the assets including all related deferred tax items. Deferred U.S. income taxes are not provided on the undistributed cumulative earnings of foreign subsidiaries because such earnings are considered to be permanently invested in those operations. The cumulative earnings of foreign subsidiaries were approximately $448,397,000 at January 1, 1999. The amount of unrecognized deferred tax liability for undistributed cumulative earnings of foreign subsidiaries at January 1, 1999, was approximately $61,601,000. 9. Segment and Geographical Information The Company manages its business in one operating segment. Consolidated net sales by product group are as follows: (In Thousands) 1998 1997 ------ ------ Digital Cross-Connect Systems $949,057 $692,507 Managed Digital Networks 415,665 321,980 Network Access Systems 188,213 117,937 Other 107,167 71,122 -------- -------- Total $1,660,102 $1,203,546 ========== ========== Consolidated net sales by country, based on the location of the customers, are as follows: (In Thousands) 1998 1997 ------ ------ United States $1,129,302 $803,641 Other Geographical Areas 530,800 399,905 -------- -------- Total $1,660,102 $1,203,546 ========== ========== Long-lived assets by country are as follows: (In Thousands) 1998 1997 ------ ------ United States $237,900 $212,516 Finland 103,342 89,301 Other Geographical Areas 33,658 18,628 -------- -------- Total $374,900 $320,445 ======== ======== In 1998 a single customer accounted for approximately 12.2 percent of consolidated net sales; in 1997 another single customer accounted for approximately 11.5 percent of consolidated net sales. No single customer accounted for more than 10 percent of consolidated net sales in 1996. 10. Commitments The Company and its Subsidiaries have a number of operating lease agreements primarily involving office space, buildings and office equipment. These leases are non-cancellable and expire on various dates through 2012. As of January 1, 1999, future minimum lease commitments under non-cancellable operating leases are as follows: (In Thousands) 1999 $15,849 2000 12,992 2001 9,783 2002 7,759 2003 3,198 2004 and thereafter 12,452 ------ Total Minimum Lease Payments $62,033 ====== Rental expense for the years ended January 1, 1999, January 2, 1998, and December 27, 1996, was approximately $15,647,000, $8,146,000, and $5,734,000, respectively. 11. Long-Term Debt The long-term debt of $2,850,000 comprises industrial revenue bonds that were issued on December 20, 1991, with the principal payable in October 2014. Interest is payable quarterly based on a variable interest rate set weekly based on market conditions for similar instruments. The effective rates for 1998, 1997 and 1996 were 3.47 percent, 3.71 percent and 3.51 percent, respectively. The debt is unsecured. The provisions of the loan agreement contain restrictive covenants, including a minimum net worth and debt-to-equity ratio.
12. Earnings Per Share (In Thousands, Except Per-Share Data) The following chart sets forth the computation of earnings per share: 1998 1997 1996 Numerator: Net earnings $398,328 $263,689 $117,965 Denominator: Denominator for basic earnings per share - weighted average shares 187,251 180,925 178,509 Effect of dilutive securities: Employee stock options and awards 4,964 5,296 4,521 -------- -------- -------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 192,215 186,221 183,030 Earnings per share $2.13 $1.46 $0.66 Earnings per share, assuming dilution $2.07 $1.42 $0.64
13. Quarterly Financial Data (unaudited) Selected quarterly financial data for 1998 and 1997 is as follows: (In Thousands, Except Per-Share Data) First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ------- 1998 Net sales $327,502 $387,719 $423,548 $521,333 $1,660,102 Gross profit $207,283 $248,834 $277,308 $347,813 $1,081,238 Net earnings $68,244 $119,042 (1) $87,763 (2)$123,279 $398,328 Earnings per share $0.38 $0.65 $0.46 $0.63 $2.13 * Earnings per share, assuming dilution $0.37 $0.63 (1) $0.45 (2) $0.62 $2.07 First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ------- 1997 Net sales $247,123 $292,701 $309,408 $354,314 $1,203,546 Gross profit $151,703 $181,256 $193,579 $231,465 $758,003 Net earnings $63,087 (3) $58,761 $64,306 $77,535 $263,689 Earnings per share $0.35 $0.33 $0.35 $0.43 $1.46 Earnings per share, assuming dilution $0.34 (3) $0.32 $0.34 $0.42 $1.42 * The earnings-per-share computation for the year is a separate, annual calculation. Accordingly, the sum of the quarterly earnings-per-share amounts do not necessarily equal the earnings per share for the year. (1) Net earnings and earnings per share include a $24,793 pre-tax asset impairment charge at the Company's Wireless Systems Division and a $73,374 pre-tax gain on the sale of stock held as an investment and the settlement of related hedge contracts. Pro forma net earnings and earnings per share, assuming dilution, excluding these items, net of tax, would have been $86,250 and $0.46, respectively. (2) Net earnings and earnings per share include a $12,991 pre-tax charge for merger costs related to the merger with Coherent and the unsuccessful merger attempt with CIENA Corporation. Pro forma net earnings and earnings per share, assuming dilution, excluding these items, net of tax, would have been $96,532 and $0.49, respectively. (3) Net earnings and earnings per share include a $20,803 pre-tax gain on the sale of stock held as an investment. Pro forma net earnings and earnings per share, assuming dilution, excluding this item, net of tax, would have been $49,233 and $0.27, respectively.
EX-21 5 EXHIBIT 21 TELLABS, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT AS OF FEBRUARY 24, 1999 State or Other Jurisdiction of Name Incorporation Tellabs Operations, Inc. Delaware CCSC International Corp. Virgin Islands E. Coherent Communications Systems Ltd. United Kingdom Telecommunications Laboratories, Inc. Illinois Telecon Acquisition Corp. Delaware Tellabs Export, Inc. Delaware Tellabs Japan, Inc. Delaware Tellabs Manufacturing, Inc. Delaware Tellabs International, Inc. Illinois Tellabs Communications Canada Ltd. Canada Tellabs do Brasil Ltda. Brazil Tellabs H.K. Ltd. Hong Kong Tellabs International de Mexico Mexico Tellabs Italia S.r.l. Italy Tellabs Korea, Inc. Korea Tellabs Netherlands B. V. Netherlands Tellabs N.Z. Limited New Zealand Tellabs Pty. Limited Australia Tellabs Singapore Private Limited Singapore Tellabs (Thailand) Co., Ltd. Thailand Tellabs (V.I.), Inc. U.S. Virgin Islands Tellabs Holding B.V. Netherlands Tellabs Enterprises B.V. Netherlands Tellabs Oy Finland Kiinteisto Oy Mestarinkaare Finland Trelcom Oy Finland Tellabs (S. A.) (Proprietary) Limited South Africa Kiinteisto Oy Sinimaientie 6 Finland Tellabs AB Sweden Tellabs SAS France Tellabs Holdings Ltd. Ireland Tellabs (Ireland) Ltd. Ireland Tellabs Ltd. Ireland Tellabs Southern Europe, S.A. Spain Tellabs GmbH Germany Tellabs Research Ltd. Ireland Tellabs U.K. Ltd. United Kingdom Tellabs Mexico, Inc. Delaware Tellabs de Mexico, S.A. de C.V. Mexico Tellabs TG, Inc. Delaware Tellabs Transport Group Inc. Quebec White Oak Merger Corp. Delaware EX-23 6 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-48972, 33-45788 and 33-55487) of Tellabs, Inc. of our report dated January 20, 1999, with respect to the consolidated financial statements and schedule of Tellabs, Inc. included and incorporated by reference in the Annual Report (Form 10-K) for the year ended January 1, 1999. /s Ernst & Young LLP Ernst & Young LLP Chicago, Illinois March 26, 1999 EX-23.1 7 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACOUNTANTS We have issued our reports dated January 15, 1997, accompanying the consolidated financial statements and schedule incorporated by reference or included in the Annual Report of Tellabs, Inc. and Subsidiaries on Form 10-K (Exhibit 13) for the year ended December 27, 1996. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Tellabs, Inc. on Form S-8 (File Nos. 33-48972, 33-45788 and 33-55487). /s Grant Thornton LLP GRANT THORNTON LLP Chicago, Illinois March 29, 1999 EX-27 8
5 This schedule contains summary financial information extracted from the January 1, 1999, Income Statement and Balance Sheet and is qualified in its entirety by reference to such 10-K. 12-MOS JAN-01-1999 JAN-01-1999 234718000 407927000 491329000 10709000 122424000 1252691000 413891000 159100000 1627591000 218127000 2850000 0 0 1945000 1374652000 1627591000 1660102000 1660102000 571292000 571292000 582133000 7572000 (91010000) 590115000 191787000 398328000 0 0 0 398328000 2.13 2.07
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