-----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, LcbZqvHe6vkgjD2rjLgaCUKTv7DHwsRPTGOBVoSsh7gFoWxBimA0MU5QZTHWikRl Gc31l8PNaVd3Z6NnhjxZwA== 0000317771-95-000021.txt : 19951101 0000317771-95-000021.hdr.sgml : 19951101 ACCESSION NUMBER: 0000317771-95-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950929 FILED AS OF DATE: 19951031 SROS: NASD 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: 0101 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09692 FILM NUMBER: 95586007 BUSINESS ADDRESS: STREET 1: 4951 INDIANA AVE CITY: LISLE STATE: IL ZIP: 60532 BUSINESS PHONE: 7089698800 MAIL ADDRESS: STREET 1: 4951 INDIANA AVE CITY: LISLE STATE: IL ZIP: 60532 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 29, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-9692 --------- TELLABS, INC. --------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 36-3831568 --------------------------- -------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 4951 Indiana Avenue, Lisle, Illinois 60532 ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (708) 969-8800 ---------------- 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 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 September 29, 1995, 88,547,802 common shares of Tellabs, Inc. were outstanding. -1- TELLABS, INC. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Comparative Balance Sheets 3 Condensed Consolidated Comparative Statements of Earnings 4 Condensed Consolidated Comparative Statements of Cash Flow 5 Notes to Condensed Consolidated Comparative Financial Statements 6 Item 2. Management's Discussion and Analysis 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURE 12 -2- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE BALANCE SHEETS (Unaudited) Sept. 29, Dec. 30 1995 1994 Assets --------- --------- Current assets (In thousands) Cash and cash equivalents $70,046 $51,460 Investments in marketable securities - available for sale 69,807 23,209 Accounts receivable, less allowance 98,814 84,397 Inventories Raw materials 35,339 20,898 Work in process 12,894 12,396 Finished goods 20,357 18,587 --------- --------- 68,590 51,881 Other current assets 9,714 9,609 --------- --------- Total Current Assets 316,971 220,556 Property, plant, and equipment 190,333 166,931 Less accumulated depreciation 80,095 69,300 --------- --------- 110,238 97,631 Goodwill 46,802 44,252 Other assets 25,344 27,628 --------- --------- $499,355 $390,067 Liabilities ========= ========= Current Liabilities Accounts payable $22,487 $22,606 Accrued liabilities 36,067 38,816 Income taxes 31,132 20,817 --------- --------- Total Current Liabilities 89,686 82,239 Long-term debt 2,850 2,850 Other long-term liabilities 7,521 10,416 Deferred income taxes 5,672 1,772 Stockholders' Equity Preferred stock, with $.01 par value- 5,000,000 shares authorized, no shares issued - - Common stock, with $.01 par value - 200,000,000 shares authorized 88,547,802 shares issued and outstanding at September 29, 1995 and 87,288,692 at December 30, 1994 885 436 Additional paid-in capital 67,724 54,150 Cumulative foreign currency translation adjustment 11,415 2,102 Unrealized net holding losses on available-for-sale securities (362) (803) Retained earnings 313,964 236,905 --------- --------- Total Stockholders' Equity 393,626 292,790 --------- --------- $499,355 $390,067 ========= ========= The accompanying notes are an integral part of these statements. -3- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF EARNINGS (Unaudited) Three Months Ended Nine Months Ended Sept. 29, Sept. 30, Sept. 29, Sept. 30, 1995 1994 1995 1994 --------- --------- --------- --------- (In thousands, except per share data) Net sales $151,754 $123,015 $453,905 $345,582 Cost of sales 67,339 56,350 199,265 158,874 --------- --------- --------- --------- Gross Profit 84,415 66,665 254,640 186,708 Marketing, general & admin expense 26,619 25,210 87,745 73,211 Research and development expense 20,251 16,293 59,275 48,184 Goodwill amortization 654 598 1,921 1,792 --------- --------- --------- --------- Total Operating Expense 47,524 42,101 148,941 123,187 Operating Profit 36,891 24,564 105,699 63,521 Interest income (1,636) (898) (4,102) (2,413) Interest expense 28 399 96 1,634 Foreign exchange (gain) loss, net (104) 302 713 817 Other (income) expense, net (46) 304 (163) 896 --------- --------- --------- --------- Earnings before income taxes 38,649 24,457 109,155 62,587 Income taxes 11,208 6,359 31,655 16,273 --------- --------- --------- --------- Net Earnings $27,441 $18,098 $77,500 $46,314 ========= ========= ========= ========= Earnings per share * $0.30 $0.20 $0.85 $0.51 ========= ========= ========= ========= Average number of shares of common stock and common stock equivalents outstanding * 91,926 90,947 91,688 90,437 * 1994 share amounts are restated to give effect to the two-for-one stock split effective May 19, 1995. -4- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW (Unaudited) For The Nine Months Ended Sept. 29, Sept. 30, 1995 1994 --------- --------- (In thousands) Cash Flows from Operating Activities: Net earnings $77,500 $46,314 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 16,928 14,018 Provision for doubtful receivables 854 296 Deferred income taxes 3,649 423 Gain on sale of long-term investment (929) --- Net (increase) decrease in current assets: Accounts receivable (12,241) (1,989) Inventories (14,907) (1,316) Other current assets 402 (128) Net increase (decrease) in current liabilities: Accounts payable (590) (704) Accrued liabilities (3,497) 6,127 Income taxes 8,007 (2,388) Net increase in other assets (4,712) (3,638) Net (decrease) increase in other liabilities (2,994) 8,989 --------- --------- Net Cash Provided by Operating Activities 67,470 66,004 Cash Flows from Investing Activities: Acquisition of property,plant and equipment,net (21,975) (14,384) Payments for purchases of marketable securities (77,731) (10,618) Proceeds from sales of marketable securities 31,575 4,749 Payments for purchases of long-term investment (1,215) (2,000) Proceeds from sale of long-term investment 3,429 --- --------- --------- Net Cash Used by Investing Activities (65,917) (22,253) Cash Flows from Financing Activities: Payments of notes payable --- (45,000) Common stock sold through stock-option plans 13,581 6,102 --------- --------- Net Cash Provided (Used) by Financing Activities 13,581 (38,898) Effect of exchange rate changes on cash 3,452 3,507 --------- --------- Net increase in cash and cash equivalents 18,586 8,360 Beginning of period cash and cash equivalents 51,460 29,589 --------- --------- End of period cash and cash equivalents $70,046 $37,949 ========= ========= Supplemental Disclosures: Interest paid $82 $1,657 Income taxes paid $12,186 $7,503 The accompanying notes are an integral part of these statements. -5- TELLABS, INC. NOTES TO CONDENSED CONSOLIDATED COMPARATIVE FINANCIAL STATEMENTS 1. Financial Information: The unaudited financial information reflects all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the statements contained herein. Certain reclassifications have been made in the 1994 financial statements to conform to the 1995 presentation. 2. Basis of Presentation: These financial statements are presented in accordance with the requirements of Form 10-Q and consequently may not include all disclosures normally required by generally accepted accounting principles or those normally reflected in the Company's Annual Report on Form 10-K. Accordingly, the financial statements and notes herein should be read in conjunction with the financial statements and related notes in the Company's Form 10-K for the year ended December 30, 1994. -6- MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES During the first nine months of 1995, the Company's cash, cash equivalents and marketable securities portfolio increased $65,184,000 to a new high of $139,853,000. The Company's record earnings of $77,500,000 were the primary contributor. Operating activities provided cash through the aforementioned net earnings. This was partially offset by increases in inventories and accounts receivable, and reductions in accrued liabilities. Total inventories increased $16,709,000 during the first nine months of 1995. This increase supported the growth in sales of both the Martis DXX (a trademark of Martis Oy) multiplexer and the Company's SONET-based TITAN (a registered trademark of Tellabs Operations, Inc.) 5500 digital cross-connect system, as well as, anticipated future sales of the CABLESPAN (a trademark of Tellabs Operations, Inc.) products recently developed through a joint venture arrangement with Advanced Fibre Communications (AFC). Accounts receivable increased $14,417,000 due to the growth of the business since year-end. Accrued liabilities decreased $2,749,000 from the December 30, 1994 balance due to payments made during the first quarter for year-end obligations related to employee compensation programs. The Company invested the cash provided by operating activities in higher yielding marketable securities and in property, plant, and equipment. Net investments in property, plant, and equipment totalled approximately $21,975,000. Additions were made primarily at the Company's Finnish subsidiary in order to increase manufacturing capacity. The Company currently expects total capital expenditures in 1995 to approximate $32,000,000. The majority of the remaining 1995 expenditures made in will be to increase manufacturing capacity both domestically and internationally. Additionally, cash of $3,429,000 was provided by the sale of stock previously held as a long-term investment. Net working capital at September 29, 1995 was $227,285,000, compared with working capital of $138,317,000 at December 30, 1994. The Company's current ratio at the end of the third quarter was 3.5 to 1. This increase in working capital was primarily due to operating activities. Management believes that this level of working capital will be adequate for 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. RESULTS OF OPERATIONS Sales for the third quarter of 1995 were $151,754,000, up 23 percent from the previous third quarter sales of $123,015,000 in 1994. The growth in the domestic sales channel was highlighted by a 54.9 percent increase in the TITAN digital cross-connect systems. Sales also grew internationally, led by a 58.5 percent increase in the Martis DXX multiplexer. -7- Net earnings for the third quarter of 1995 were a record $27,441,000, up 51.6 percent from $18,098,000 a year earlier. Earnings per share for the current quarter were 30 cents compared with 20 cents for the third quarter of 1994. (The third quarter of 1994 per share amounts are restated to reflect the two-for-one stock split effective May 19, 1995.) The increase in earnings for the third quarter of 1995 was primarily based on the growth in sales and an increase in the gross margin percent from 54.2 percent in 1994 to 55.6 percent in 1995. This improvement in the gross margin percent was realized through continued efficiencies in manufacturing operations and in product mix, as volume increased. Operating expenses of $47,524,000 for the third quarter of 1995 increased 12.9 percent over operating expenses of $42,101,000 for the third quarter of 1994. Increased headcount and the related expenses necessary to support and service domestic and international products, particularly the Martis DXX system, were the primary reasons for this increase in operating expenses. Total operating expenses for the third quarter of 1995 were 31.3 percent of sales compared to 34.2 percent for the same period in 1994. Interest income contributed $1,636,000 to pre-tax income in the third quarter of 1995, up 82.2 percent from $898,000 in the third quarter of 1994. This increase was due to a significant increase in average cash balances. Interest expense was $28,000 for the third quarter of 1995 compared to $399,000 for the third quarter of 1994. The 1994 interest expense was related to the bank debt used to finance the acquisition of Martis Oy. The debt was entirely repaid by the fourth quarter of 1994. Foreign exchange gains of $104,000 incurred during the third quarter of 1995 were the result of the strengthened Canadian dollar against the U.S. dollar and the overall strength of the U.S. dollar against the Finnish markka. The foreign exchange losses of $302,000 for the third quarter of 1994 were the result of the weakened U.S. dollar versus the Irish punt and the strength of the Finnish markka against all other Scandinavian currencies and the German deutschemark. The effective tax rate was approximately 29 percent for the third quarter of 1995 and 26 percent for the third quarter of 1994. The increase in the effective tax rate for 1995 is primarily due to the increase in the domestic taxable income and to the decreasing effect of the research and development tax credit as a percentage of the total. The research and development tax credit expired effective June 30, 1995. The 1995 effective tax rate reflects adjustments from the Federal statutory rate primarily attributable to foreign tax rate benefits. Sales for the first nine months of 1995 were $453,905,000, an increase of 31.3 percent from sales of $345,582,000 for the same period in 1994. All major product areas experienced growth for the first nine months of 1995 versus the same period in 1994. The growth in sales was led by the international sales channel as the Martis DXX system sales increased 104 percent over the same period last year. The domestic sales increase of 20.8 percent was primarily generated by the Company's SONET-based TITAN 5500 digital cross-connect system. Net earnings for the first nine months of 1995 were $77,500,000 compared to $46,314,000 in 1994. Primary and fully diluted earnings per share -8- were 85 cents for the first nine months of the year compared to 51 cents for the same time period in 1994. (The 1994 per share amounts are restated to reflect the two-for-one stock split effective May 19, 1995.) The growth in earnings for the first nine months of 1995 was due to the increase in revenues and an increase in gross margin to 56.1 percent from 54.0 percent for the same time period in 1994. The increase in gross margin was realized through continued efficiencies in manufacturing operations and in product mix as volume increased. The gross margin percent for the total year 1995 is expected to remain at approximately 56 percent. Operating expenses for the first nine months of 1995 were $148,941,000, a 20.9 percent increase over the same period in 1994. Increased headcount and the related expenses necessary to support and service domestic and international products, particularly the Martis DXX system, were the primary reasons for this increase in operating expenses. Total operating expenses, as a percent of sales, decreased from 35.6 percent during the first nine months of 1994 to 32.8 percent for the same period in 1995. This 2.8 percent decrease resulted from a greater percentage increase in sales as compared to operating expenses. Operating expenses for all of 1995 are expected to approximate 33 percent of sales. Interest income contributed $4,102,000 to pretax income during the first nine months of 1995, an increase of 70 percent from $2,413,000 in 1994. This increase was due to significantly higher average cash balances and higher market interest rates in 1995. The foreign exchange losses of $713,000 incurred during the first nine months of 1995 were a result of the weakened U.S. dollar against the Finnish markka and the Irish punt. The foreign exchange losses of $817,000 that were reported during the first nine months of 1994 primarily resulted from the weakened U.S. dollar against the Irish punt, the weakened Canadian dollar against the U.S. dollar, and the strength of the Finnish markka against all Scandinavian currencies and the German deutschemark. Interest expense was $96,000 during the first nine months of 1995 compared to $1,634,000 during the same period in 1994. The 1994 interest expense was related to the bank debt used to finance the acquisition of Martis Oy. The debt was entirely repaid by the fourth quarter of 1994. Other non-operating income for 1995 was $163,000. This resulted from a gain on the sale of a long-term investment being partially offset by losses of a joint venture. Other non-operating expense in 1994 of $896,000 was primarily due to capital losses on fixed assets combined with joint venture losses. The effective tax rate was approximately 29 percent for the first nine months of 1995 compared to 26 percent for the same period in 1994. The increase in the effective tax rate for 1995 is primarily due to the increase in the domestic taxable income and to the decreasing effect of the research and development tax credit as a percentage of the total. The research and development tax credit expired effective June 30, 1995. The 1995 effective tax rate reflects adjustments from the Federal statutory rate primarily attributable to foreign tax rate benefits. -9- Ongoing Developments One area of expanding interest for the Company is the local exchange loop. As telecommunications service providers and cable system operators seek to expand the services offered to their customers, the local loop becomes an increasingly competitive portion of the marketplace. Legislation directed toward expanding competition in the local loop environment (The Communication Act of 1995) was recently approved in both the U.S. Senate and House of Representatives and the two bills will soon be reviewed by a joint committee to resolve differences between the bills before forwarding the joint bill to the Administration. Present indications are, however, that a veto of this legislation is as likely as passage. One of the products expected to address this local loop market is the CABLESPAN system currently being developed by the Company in a joint venture arrangement with AFC. The technology platform that forms the basis for this product was provided to the venture by AFC. AFC is in litigation with DSC Technologies Corporation and DSC Communications Corporation (collectively, DSC) relating to the intellectual property comprising that platform, as has previously been reported in trade publications and by DSC. DSC is seeking, among other things, a permanent injunction prohibiting AFC's sale or other use of the property. AFC has denied DSC's allegations and has filed counterclaims. If AFC were to lose its rights to the intellectual property, the Company's ability to continue to promote its CABLESPAN system as currently configured could be adversely affected. While there can be no assurance that AFC will prevail in this litigation, it has represented to the Company that it believes DSC's claims to be without merit. In October, 1995, the Company was served with a complaint by DSC in litigation related to DSC's claims against AFC (see Part II, Item I, "Legal Proceedings"). -10- PART II. OTHER INFORMATION ITEM 1. Legal Proceedings On October 13, 1995, Tellabs Operations, Inc., a wholly-owned subsidiary of the Company, was served with a complaint filed by DSC in The Circuit Court of Cook County, Illinois, alleging misappropriation of DSC's trade secrets. The complaint seeks a permanent injunction on the use, disclosure or dissemination of DSC's trade secret information, actual and exemplary damages, disgorgement of any unjust enrichment, a constructive trust for the benefit of DSC holding all profits generated by the alleged misappropriation of DSC's trade secrets and costs in connection with the complaint. Pursuant to the terms of the joint venture agreement between the Company and AFC, AFC is obligated to defend and indemnify the Company against any and all damages and costs, including attorney's fees, arising out of these claims. The Company has tendered the complaint to AFC pursuant to the joint venture agreement. The Company believes that it has meritorious defenses to the complaint and intends to pursue them vigorously. ITEM 6. Exhibits and Reports on Form 8-K (A) Exhibits: Exhibit 11 - Calculation of Per Share Earnings. Exhibit 27 - Financial Data Schedule. (B) Reports on Form 8-K: There were no reports on Form 8-K filed during the quarter ended September 29, 1995. -11- TELLABS, INC. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TELLABS, INC. ---------------- (Registrant) s/ J. Peter Johnson ------------------- J. Peter Johnson Vice President/Controller & Chief Accounting Officer October 31, 1995 - ----------------- (Date) -12- EX-11 2 EXHIBIT 11 TELLABS, INC. COMPUTATION OF EARNINGS PER SHARE (Unaudited) (In thousands, except per share data) Three Months Ended Nine Months Ended Sept. 29, Sept. 30, Sept. 29, Sept. 30, 1995 1994 * 1995 1994 * --------- --------- --------- --------- PRIMARY EARNINGS PER SHARE - ------------------------------------ Weighted average number of common shares outstanding during the period 88,455 86,965 88,049 86,686 Net additional shares assuming dilutive stock options exercised and proceeds used to purchase treasury shares at average fair market value 3,471 3,791 3,530 3,671 --------- --------- --------- --------- Weighted average number of common shares and common equivalent shares outstanding 91,926 90,756 91,579 90,357 ========= ========= ========= ========= Net earnings $27,441 $18,098 $77,500 $46,314 ========= ========= ========= ========= Primary earnings per share $0.30 $0.20 $0.85 $0.51 ========= ========= ========= ========= FULLY DILUTED EARNINGS PER SHARE - ------------------------------------ Weighted average number of common shares outstanding during the period 88,455 86,965 88,049 86,686 Net additional shares assuming dilutive stock options exercised and proceeds used to purchase treasury shares at average fair market value 3,471 3,982 3,639 3,751 --------- --------- --------- --------- Weighted average number of common shares and common equivalent shares outstanding 91,926 90,947 91,688 90,437 ========= ========= ========= ========= Net earnings $27,441 $18,098 $77,500 $46,314 ========= ========= ========= ========= Fully diluted earnings per share $0.30 $0.20 $0.85 $0.51 ========= ========= ========= ========= * 1994 share amounts are restated to give effect to the two-for-one stock split effective May 19, 1995. -13- EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATIONEXTRACTED FROM THE SEPTEMBER 29, 1995, INCOME STATEMENT AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10Q. 9-MOS DEC-29-1995 SEP-29-1995 70046000 69807000 100614000 1800000 68590000 316971000 190333000 80095000 499355000 89686000 2850000 885000 0 0 392741000 499355000 453905000 453905000 199265000 199265000 0 854000 (1608000) 109155000 31655000 77500000 0 0 0 77500000 .85 .85
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