-----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, FcsU8a7D0axX8wv0qfZUzJKPMl8+ASPiJAM8U/AWpLosiuOR0Qu/cNZxZ2PjH1eg BxuSesNjc3a9Bpo2goW3qw== 0000317771-96-000018.txt : 19960809 0000317771-96-000018.hdr.sgml : 19960809 ACCESSION NUMBER: 0000317771-96-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960628 FILED AS OF DATE: 19960808 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: 96605420 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 June 28, 1996 [ ] 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 June 28, 1996, 89,063,591 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 7 Item 2. Management's Discussion and Analysis 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURE 13 -2- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE BALANCE SHEETS (Unaudited) June 28, Dec. 29 1996 1995 Assets --------- --------- Current assets (In thousands) Cash and cash equivalents $88,934 $92,485 Investments in marketable securities 53,268 69,751 Accounts receivable, less allowance 121,266 127,565 Inventories Raw materials 33,699 31,302 Work in process 13,298 11,694 Finished goods 27,325 24,719 --------- --------- 74,322 67,715 Other current assets 10,249 8,854 --------- --------- Total Current Assets 348,039 366,370 Property, plant, and equipment 229,822 201,441 Less accumulated depreciation 95,785 84,419 --------- --------- 134,037 117,022 Goodwill 64,035 44,958 Intangible and other assets 41,238 23,701 --------- --------- $587,349 $552,051 Liabilities ========= ========= Current Liabilities Notes payable $34,996 $ - Accounts payable 29,295 30,097 Accrued liabilities 38,750 42,183 Income taxes 17,085 26,284 --------- --------- Total Current Liabilities 120,126 98,564 Long-term debt 2,850 2,850 Other long-term liabilities 12,708 6,179 Deferred income taxes 8,285 11,225 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 89,063,591 shares issued and outstanding at June 28, 1996 and 88,798,372 at December 29, 1995 891 888 Additional paid-in capital 76,403 72,385 Cumulative foreign currency translation adjustment 2,511 7,842 Unrealized net holding (losses) gains on available-for-sale securities (944) 48 Retained earnings 364,519 352,070 --------- --------- Total Stockholders' Equity 443,380 433,233 --------- --------- $587,349 $552,051 ========= ========= The accompanying notes are an integral part of these statements. -3- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF EARNINGS (Unaudited) Three Months Ended Six Months Ended June 28, June 30, June 28, June 30, 1996 1995 1996 1995 --------- --------- --------- --------- (In thousands, except per share data) Net sales $189,473 $159,939 $361,729 $302,151 Cost of sales 77,158 68,983 151,640 131,926 --------- --------- --------- --------- Gross Profit 112,315 90,956 210,089 170,225 Marketing, general & admin expense 39,264 33,456 72,877 61,126 Research and development expense 24,890 19,236 46,492 39,024 Acquired in-process research and development 74,658 --- 74,658 --- Goodwill amortization 706 602 1,317 1,267 --------- --------- --------- --------- Total Operating Expense 139,518 53,294 195,344 101,417 Operating (Loss) Profit (27,203) 37,662 14,745 68,808 Interest income 1,887 1,340 3,862 2,466 Interest expense (501) (37) (529) (68) Other (expense) income, net (152) (770) 420 (700) --------- --------- --------- --------- (Loss) Earnings before income taxes (25,969) 38,195 18,498 70,506 Income taxes (benefit) (7,291) 11,077 6,049 20,447 --------- --------- --------- --------- Net (Loss) Earnings ($18,678) $27,118 $12,449 $50,059 ========= ========= ========= ========= (Loss) Earnings per share ($0.20) $0.30 $0.14 $0.55 ========= ========= ========= ========= Average number of shares of common stock outstanding 92,142 91,835 92,081 91,568 -4- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW (Unaudited - In thousands) For The Six Months Ended June 28, June 30, 1996 1995 Cash Flows from Operating Activities: --------- --------- Net earnings $12,449 $50,059 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 14,445 11,017 Provision for doubtful receivables 955 985 Deferred income taxes (21,056) 2,719 Acquired in-process research and development 74,658 --- Gain on sale of long-term investment --- (929) Net (increase) decrease in current assets, net of effects from acquisitions: Accounts receivable 3,913 (2,496) Inventories (3,549) (12,011) Other current assets (392) 398 Net increase (decrease) in current liabilities, net of effects from acquisitions: Accounts payable (1,248) (2,052) Accrued liabilities (7,722) (3,239) Income taxes (8,494) 3,055 Net increase in other assets (2,259) (4,469) Net increase (decrease) in other liabilities 1,643 (3,661) --------- --------- Net Cash Provided by Operating Activities 63,343 39,376 Cash Flows from Investing Activities: Acquisition of property, plant and equipment, net (23,797) (15,417) Payments for purchases of marketable securities (54,247) (48,231) Proceeds from sales of marketable securities 69,738 13,546 Payments for acquisitions, net of cash acquired (91,732) --- Origination of loan receivable (5,822) --- Payments for purchases of long-term investments --- (1,215) Proceeds from sale of long-term investment --- 3,429 --------- --------- Net Cash Used by Investing Activities (105,860) (47,888) Cash Flows from Financing Activities: Proceeds from notes payable 40,000 --- Payments of notes payable (5,000) --- Common stock sold through stock-option plans 4,020 12,362 --------- --------- Net Cash Provided (Used) by Financing Activities 39,020 12,362 Effect of exchange rate changes on cash (54) 3,221 --------- --------- Net increase in cash and cash equivalents (3,551) 7,071 Beginning of period cash and cash equivalents 92,485 51,460 --------- --------- End of period cash and cash equivalents $88,934 $58,531 ========= ========= -5- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW (continued) (Unaudited - In thousands) For The Six Months Ended June 28, June 30, 1996 1995 Supplemental Disclosures: --------- --------- Interest paid $482 $52 Income taxes paid $34,790 $11,080 Supplemental Schedule of Non-Cash Investing and Financing Activities: In acquiring all of the outstanding shares of Steinbrecher Corporation and TRANSYS Network's SONET product line, the Company paid direct costs totaling $94,261,000. In conjunction with the acquisitions, liabilities were assumed as follows: (in thousands) Fair value of assets acquired $104,944 Cost in excess of fair value 22,977 Direct costs paid (94,261) --------- Liabilities assumed $33,660 ========= The accompanying notes are an integral part of these statements. -6- 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 1995 financial statements to conform to the 1996 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 29, 1995. -7- MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES During the first half of 1996, the Company's cash, cash equivalents and marketable securities portfolio decreased by $20,034,000 to $142,202,000. The primary contributor to the decrease was the use of cash and cash equivalents to fund two acquisitions made during the second quarter of 1996. In April 1996, the Company acquired all of the outstanding shares of Steinbrecher Corporation (Tellabs Wireless) for approximately $77,000,000 in cash, of which $37,000,000 was cash on hand, and the remaining $40,000,000 was newly acquired bank debt. In June 1996, the Company through the Tellabs Transport Group (Tellabs TG) acquired TRANSYS Network's SONET product line for approximately $17,000,000 in cash. Operating activities provided the Company with $63,343,000 in cash as a result of the net earnings of $12,449,000, along with noncash items of depreciation and amortization and the one-time charge for acquired in-process research and development. Accounts receivable also provided cash by decreasing $6,299,000 from the year-end balance primarily due to strong sales at the end of the fourth quarter. Inventories increased $6,607,000 to a second quarter balance of $74,322,000 representing the inventories purchased in the Tellabs Wireless acquisition and also inventories held internationally. Accrued liabilities decreased from the year-end balance by $3,434,000, primarily due to payments made during the first quarter for year-end obligations related to employee compensation programs. Goodwill increased $19,077,000 due to the Tellabs TG and Tellabs Wireless acquisitions. Intangible assets increased $17,537,000 due primarily to the developed research and development acquired in the Tellabs Wireless acquisition. Both the goodwill and intangible assets acquired in these acquisitions will be amortized over 10 years. Other long-term liabilities increased by $6,530,000 since year end, primarily due to warranty and capital lease obligations of Tellabs Wireless. The Company decreased its investment in marketable securities by $16,483,000 as cash balances were utilized to fund the second quarter acquisitions. The Company invested approximately $24,000,000 in property, plant and equipment during the first half of the year (exclusive of the acquisitions). This investment was primarily to increase manufacturing capacity and expand research and development efforts worldwide. The Company currently expects total capital expenditures for 1996 to approximate $55,000,000. The remaining 1996 expenditures are expected to be for manufacturing capacity and research and development equipment in Illinois, Texas and Finland. The Company utilized $40,000,000 of bank debt to finance the acquisition of Tellabs Wireless. During the second quarter $5,000,000 of this loan was paid and the remainder is expected to be paid during the second half of the year. Finally, additional cash of $4,020,000 was provided to the Company through the exercise of stock options under the Company's stock-option plans. Net working capital at June 28, 1996 was $227,913,000, compared with working capital of $267,806,000 at December 29, 1995. The Company's current ratio at the end of the second quarter was 2.9 to 1. The decrease in working capital was primarily due to the use of cash and -8- cash equivalents and additional debt (as previously described) to finance the Company's second quarter acquisitions. 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 financial 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 second quarter of 1996 were a record $189,473,000, up 18 percent from the previous second quarter record of $159,939,000 set in 1995. The growth in sales was primarily due to continued strong domestic sales of TITAN (a registered trademark of Tellabs Operations, Inc.) 5500 digital cross-connect systems, which increased 58 percent over the same period last year. While international sales were slightly higher than the same quarter last year, Martis DXX (a trademark of Martis Oy) system sales increased 29 percent. Expected softness in the echo control, CROSSNET (a registered trademark of Tellabs Operations, Inc.) and voice frequency markets continued, as these products experienced quarter-to-quarter decreases. Earnings were down over the prior year's second quarter principally as a result of a one-time research and development charge of $74,658,000 ($54,100,000 net of tax) related to the acquisition of Tellabs Wireless. The loss for the second quarter of 1996 was $18,678,000, compared to earnings of $27,118,000 for the second quarter of 1995. The loss per share for the current quarter was 20 cents compared with earnings per share of 30 cents for the second quarter of 1995. The gross profit margin for the second quarter of 1996 improved significantly to a record level 59.3 percent versus 56.9 percent in the second quarter of 1995. This improvement reflects the sales of higher-margin products. Excluding the one-time charge to earnings for the acquired in-process research and development, operating expenses increased by 22 percent over the second quarter of 1995. Contributing to the increase are the expenses of Tellabs Wireless, which were included for the first time, along with the expenses associated with the continued development of products and marketing efforts both domestically and internationally. Total operating expenses for the second quarter of 1996, net of the one-time charge, were 34.2 percent of sales compared to 33.3 percent for the same period in 1995. Interest income contributed $1,887,000 to pretax income in the second quarter of 1996, up 40.8 percent from $1,340,000 in the second quarter of 1995. This increase was due to higher average cash balances, offset by lower market interest rates. Interest expense was $501,000 for the second quarter of 1996 compared to $37,000 for the second quarter of 1995. The increase in 1996 interest expense was related to the bank debt used to finance the Tellabs Wireless acquisition. Other expense of $152,000 for the second quarter of 1996 was primarily related to foreign exchange losses which were the result of the -9- weakness of the U.S. dollar against the Irish punt and Finnish markka. The other expense of $770,000 in the second quarter of 1995 was generated by foreign exchange losses of $431,000 and losses associated with the joint venture between the Company and Advanced Fibre Communications, Inc. (AFC). The effective tax rate was approximately a benefit of 28.1 percent for the second quarter of 1996 and 29 percent for the second quarter of 1995. The decrease in the effective tax rate for 1996 is primarily due to the effects of the in-process research and development one-time charge taken in conjunction with the Tellabs Wireless acquisition. The 1996 effective tax rate reflects adjustments from the Federal statutory rate primarily attributable to foreign tax rate benefits. Sales for the first six months of 1996 were $361,729,000, an increase of 19.7 percent from sales of $302,151,000 for the same period in 1995. The domestic sales increase of 34 percent was primarily generated by a 61.8 percent increase in TITAN 5500 system sales with softer sales in CROSSNET, echo and voice frequency, as expected. Although international sales decreased in total by 2.5 percent from record sales for the first half of 1995, Martis DXX system sales increased 19 percent. Net earnings for the first six months of 1996 were $12,449,000 compared to $50,059,000 in 1995. Primary and fully diluted earnings per share were 14 cents for the first six months of the year compared to 55 cents for the same time period in 1995. The decrease in earnings was primarily the result of the one-time charge of $74,658,000 for acquired in-process research and development relating to the Tellabs Wireless acquisition. The gross profit margin for the first six months of 1996 improved to 58.1 percent versus 56.4 percent for the first six months of 1995. This improvement reflects both the sales of higher-margin products and the continuation of highly productive and efficient manufacturing operations. Excluding the one-time charge to earnings for the acquired in-process research and development, operating expenses for the first six months of 1996 were $120,686,000, an increase of 19 percent over the same period in 1995. Contributing to the increase are the expenses of Tellabs Wireless, along with continuing international and domestic development and marketing efforts. Total operating expenses during the first six months of 1996, net of the one-time charge, were 33.4 percent of sales compared to 33.6 percent for the same period in 1995. Interest income contributed $3,862,000 to pretax income during the first six months of 1996, an increase of 56.6 percent from $2,466,000 in 1995. This increase was due to higher average cash balances, offset by lower market interest rates in 1996. Interest expense was $529,000 during the first six months of 1996 compared to $68,000 during the same period in 1995. The 1996 interest expense was related to the bank debt used to finance the Tellabs Wireless acquisition. Other income of $420,000 for the first half of 1996 represents foreign exchange gains of $236,000 that were a result of the strength of the U.S. dollar versus the Finnish markka, and the weakness of the Finnish -10- markka versus other European currencies along with other investment gains. The other expense for the first half of 1995 of $700,000 represented foreign exchange losses of $817,000 and joint venture losses offset by a gain on the sale of a long-term investment. The effective tax rate was approximately 32.7 percent for the first six months of 1996 compared to 29 percent for the same period in 1995. The increase in the effective tax rate for 1996 is due to the increase in domestic taxable income, and to the tax effects of the in-process research and development one-time charge taken in conjunction with the Tellabs Wireless acquisition. The 1996 effective tax rate reflects adjustments from the Federal statutory rate primarily attributable to foreign tax rate benefits. -11- PART II. OTHER INFORMATION ITEM 1. Legal Proceedings Pursuant to a Settlement Agreement and Mutual Release dated as of June 24, 1996 ("Settlement Agreement") among DSC Technologies Corporation and DSC Communications Corporation (collectively, "DSC"), AFC and certain related parties, DSC dismissed with prejudice the lawsuit (as previously reported in the Company's Annual Report on Form 10-K for the year ended December 29, 1995) filed against Tellabs Operations, Inc., a wholly-owned subsidiary of the Company, effective as of July 3, 1996. The Settlement Agreement also releases any claims of DSC against the Company and provides that AFC maintains all rights to the technology platform that forms the basis for the Company's CableSpan (a trademark of Tellabs Operations, Inc.) system. As previously reported, the Company tendered the lawsuit to AFC to defend and indemnify the Company and AFC has indemnified the Company against all costs, including attorney's fees, relating to the lawsuit. ITEM 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Tellabs, Inc. Stockholders was held on April 25, 1996. At this meeting, Brian J. Jackman and William F. Souders were re-elected as directors and Stephanie Pace Marshall was elected to her first term as a director. Robert P. Reuss chose not to run for re-election. These directors were elected for a term of office expiring at the Company's Annual Meeting of Stockholders in 1999. In addition, the following directors are continuing in office for the terms indicated: John D. Foulkes, Peter A. Guglielmi, and Thomas H. ("Tommy") Thompson for terms expiring at the Company's Annual Meeting of Stockholders in 1997, and Michael J. Birck and Frederick A. Krehbiel for terms expiring at the Company's Annual Meeting of Stockholders in 1998. Set forth below is a separate tabulation of the votes cast for and votes withheld with respect to each nominee for director. Votes For Votes Withheld Brian J. Jackman 79,597,449 772,390 William F. Souders 79,605,936 763,903 Stephanie Pace Marshall 79,601,580 768,259 ITEM 6. Exhibits and Reports on Form 8-K (A) Exhibits: Exhibit 27 - Financial Data Schedule. (B) Reports on Form 8-K The Registrant filed a report on Form 8-K on July 3, 1996, prior to the filing of this quarterly report of Form 10-Q, with respect to the acquisition of the SONET product line from TRANSYS Networks, Inc. -12- 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 August 7, 1996 - ---------------- (Date) -13- EX-27 2
5 This schedule contains summary financial information extracted from the June 28, 1996 Income Statement and Balance Sheet and is qualified in its entirety by reference to such 10Q. 6-MOS DEC-27-1996 JUN-28-1996 88934000 53268000 124536000 3270000 74322000 348039000 229822000 95785000 587349000 120126000 2850000 0 0 891000 442489000 587349000 361729000 361729000 151640000 151640000 0 955000 (3333000) 18498000 6049000 12449000 0 0 0 12449000 .14 .14
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