-----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, U1fz9E813HZSpmBTtZuKZeQe0ayroAO/M6ofL50GVPOQYhd2VueNmghLtbX+xsWx Ge4JS2g8K/NvmMWWIgSXRQ== 0000317771-96-000022.txt : 19961106 0000317771-96-000022.hdr.sgml : 19961106 ACCESSION NUMBER: 0000317771-96-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960927 FILED AS OF DATE: 19961104 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: 96653966 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 27, 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 (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 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 27, 1996, 179,271,568 common shares of Tellabs, Inc. were outstanding, including the effect of the two-for-one stock split payable in the form of a stock dividend to be distributed on November 15, 1996 to stockholders of record as of October 31, 1996. -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 6. Exhibits and Reports on Form 8-K 12 SIGNATURE 13 -2- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE BALANCE SHEETS (Unaudited) Sept. 27, Dec. 29 1996 1995 Assets --------- --------- Current assets (In thousands) Cash and cash equivalents $82,173 $92,485 Investments in marketable securities 60,115 69,751 Accounts receivable, less allowance 157,582 127,565 Inventories Raw materials 39,897 31,302 Work in process 14,288 11,694 Finished goods 30,715 24,719 --------- --------- 84,900 67,715 Other current assets 9,851 8,854 --------- --------- Total Current Assets 394,621 366,370 Property, plant, and equipment 248,885 201,441 Less accumulated depreciation 98,680 84,419 --------- --------- 150,205 117,022 Goodwill 63,769 44,958 Intangibles and other assets 41,045 23,701 --------- --------- $649,640 $552,051 ========= ========= Liabilities Current Liabilities Notes payable $9,996 $ - Accounts payable 39,941 30,097 Accrued liabilities 54,887 42,183 Income taxes 17,594 26,284 --------- --------- Total Current Liabilities 122,418 98,564 Long-term debt 2,850 2,850 Other long-term liabilities 10,652 6,179 Deferred income taxes 8,653 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 179,271,568 shares issued and outstanding at September 27, 1996 and 177,596,744 at December 29, 1995 1,793 888 Additional paid-in capital 88,640 72,385 Cumulative foreign currency translation adjustment 5,619 7,842 Unrealized net holding (losses) gains on available-for-sale securities (724) 48 Retained earnings 409,739 352,070 --------- --------- Total Stockholders' Equity 505,067 433,233 --------- --------- $649,640 $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 Nine Months Ended Sept. 27, Sept. 29, Sept. 27, Sept. 29, 1996 1995 1996 1995 --------- --------- --------- --------- (In thousands, except per share data) Net sales $234,340 $151,754 $596,069 $453,905 Cost of sales 94,811 67,339 246,451 199,265 --------- --------- --------- --------- Gross Profit 139,529 84,415 349,618 254,640 Marketing, general & admin expense 42,479 26,619 115,356 87,745 Research and development expense 28,137 20,251 74,629 59,275 Acquired in-process research and development - - 74,658 - Goodwill amortization 1,196 654 2,513 1,921 --------- --------- --------- --------- Total Operating Expense 71,812 47,524 267,156 148,941 Operating Profit 67,717 36,891 82,462 105,699 Interest income 1,746 1,636 5,608 4,102 Interest expense (488) (28) (1,017) (96) Other (expense) income, net (451) 150 (31) (550) --------- --------- --------- --------- Earnings before income taxes 68,524 38,649 87,022 109,155 Income taxes 22,407 11,208 28,456 31,655 --------- --------- --------- --------- Net Earnings $46,117 $27,441 $58,566 $77,500 ========= ========= ========= ========= Earnings per share $0.25 $0.15 $0.32 $0.42 ========= ========= ========= ========= Average number of shares of common stock and common stock equivalents outstanding * 184,876 183,852 184,400 183,375 * Restated to give effect to the two-for-one stock split payable in the form of a stock dividend. The accompanying notes are an integral part of these statements. -4- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW (Unaudited) For The Nine Months Ended Sept. 27, Sept. 29, 1996 1995 --------- --------- (In thousands) Cash Flows from Operating Activities: Net earnings $58,566 $77,500 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 23,375 16,928 Provision for doubtful receivables 1,937 854 Deferred income taxes (20,004) 3,649 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 (32,423) (12,241) Inventories (13,657) (14,907) Other current assets (764) 402 Net increase (decrease) in current liabilities, net of effects from acquisitions: Accounts payable 9,273 (590) Accrued liabilities 8,181 (3,497) Income taxes (8,302) 8,007 Net increase in other assets (3,778) (4,712) Net decrease in other liabilities (433) (2,994) --------- --------- Net Cash Provided by Operating Activities 96,629 67,470 Cash Flows from Investing Activities: Acquisition of property, plant and equipment, net (45,060) (21,975) Payments for purchases of marketable securities (72,929) (77,731) Proceeds from sales of marketable securities 81,792 31,575 Payments for acquisitions, net of cash acquired (91,732) --- Origination of loan receivable (5,822) --- Payments for purchases of long-term investment --- (1,215) Proceeds from sale of long-term investment --- 3,429 --------- --------- Net Cash Used by Investing Activities (133,751) (65,917) Cash Flows from Financing Activities: Proceeds from notes payable 40,000 --- Payments of notes payable (30,000) --- Common stock sold through stock-option plans 16,263 13,581 --------- --------- Net Cash Provided by Financing Activities 26,263 13,581 Effect of exchange rate changes on cash 547 3,452 --------- --------- Net (decrease) increase in cash and cash equivalents (10,312) 18,586 Beginning of period cash and cash equivalents 92,485 51,460 --------- --------- End of period cash and cash equivalents $82,173 $70,046 ========= ========= -5- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW (continued) (Unaudited - In thousands) For The Nine Months Ended Sept. 27, Sept. 29, 1996 1995 --------- --------- Supplemental Disclosures: Interest paid $1,004 $82 Income taxes paid $46,540 $12,186 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. 3. Subsequent Event - Stock Split: On October 24, 1996, the Board of Directors declared a two-for-one stock split of the Company's common stock, payable in the form of a 100 percent stock dividend. This dividend will be distributed on November 15, 1996, to stockholders of record as of October 31, 1996. All references to the number of common shares and per share amounts have been retroactively restated to give effect to the stock dividend. -7- MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES During the first nine months of 1996, the Company's cash, cash equivalents and marketable securities portfolio decreased by $19,948,000 to $142,288,000. This decrease was primarily the net result of the Company's earnings of $58,566,000 being offset by the use of cash and cash equivalents to fund the Company's second quarter acquisitions of Steinbrecher Corporation (Tellabs Wireless) and, through the Tellabs Transport Group (Tellabs TG), TRANSYS Network's SONET product line. Operating activities provided the Company with $96,629,000 in cash as a result of the net earnings of $58,566,000, along with non-cash items of depreciation and amortization and the one-time charge for acquired in-process research and development. Accounts receivable increased $30,017,000 from the year-end balance primarily due to third quarter sales which were higher than fourth quarter 1995 sales. Inventories increased $17,185,000 to a third quarter balance of $84,900,000 representing the inventories necessary to support fourth quarter domestic and international sales and those acquired in the Tellabs Wireless acquisition. Goodwill increased $18,811,000 due to the Tellabs TG and Tellabs Wireless acquisitions. Intangible assets increased $17,344,000 due primarily to the developed research and development acquired in the Tellabs Wireless acquisition. Both the goodwill and intangible assets acquired in these acquisitions are being amortized over 10 years. Accrued liabilities increased from the year-end balance by $12,704,000, primarily due to liabilities assumed as part of the acquisitions. Other long-term liabilities increased by $4,473,000 since year end, primarily due to deferred compensation plan deferrals and the capital lease obligations of Tellabs Wireless. The Company decreased its investment in marketable securities by $9,636,000 as cash balances were utilized to pay down the short term debt used to fund the second quarter acquisitions. The Company invested approximately $45,000,000 in property, plant and equipment during the first nine months of the year (exclusive of 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 $60,000,000. Fourth quarter 1996 expenditures will be used primarily for the 308,000 square foot addition to the Bolingbrook, Illinois facility, which is expected to be completed in mid-1997, along with additions in Finland. The Company utilized $40,000,000 of bank debt to finance the acquisition of Tellabs Wireless. By the end of the third quarter of 1996, $30,000,000 of this loan was repaid. The remaining $10,000,000 balance has been repaid during October. Finally, additional cash of $16,263,000 was provided to the Company through the exercise of stock options under the Company's stock-option plans. Net working capital at September 27, 1996 was $272,203,000, compared with working capital of $267,806,000 at December 29, 1995. The Company's current ratio at the end of the third quarter was 3.2 to 1. Management believes that this level of working capital will be -8- 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 1996 were $234,340,000, up 54.4 percent from third quarter sales of $151,754,000 in 1995. Domestic sales increased 62.6 percent due to a 101.1 percent increase in TITAN (a registered trademark of Tellabs Operations, Inc.) 5500 digital cross-connect systems offset by expected decreases in voice frequency and CROSSNET (a registered trademark of Tellabs Operations, Inc.) products. International sales increased 46.1 percent due primarily to a 106.1 percent increase in Martis DXX (a trademark of Martis Oy) integrated access and transport system sales offset by expected decreases in echo, t-coder and CROSSNET products. Net earnings for the third quarter of 1996 were a record $46,117,000, up 68.1 percent from $27,441,000 a year earlier. Earnings per share for the current quarter were 25 cents compared with 15 cents for the third quarter of 1995. Earnings per share amounts have been restated to give effect to the two-for-one stock split effective November 15, 1996. The increase in earnings for the third quarter of 1996 was primarily the result of the significant sales growth during the quarter. The gross profit margin for the third quarter of 1996 improved to 59.5 percent from 55.6 percent for the same time period in 1995. This improvement reflects the sales of higher-margin products and also the continuation of highly productive and efficient manufacturing operations. Operating expenses of $71,812,000 for the third quarter of 1996 increased 51.1 percent over operating expenses of $47,524,000 for the third quarter of 1995. The increase in operating expenses is reflective of the Company's growth. During the third quarter of 1996, new items such as the expenses of Tellabs Wireless, Tellabs TG and the enterprise wide business system conversion were included in operating expenses. Headcount and related expenses grew to support and service international and domestic products while additional expenses were incurred related to employee compensation programs. Total operating expenses for the third quarter of 1996 were 30.6 percent of sales compared to 31.3 percent for the same period in 1995. Interest income contributed $1,746,000 to pre-tax income in the third quarter of 1996, up 6.7 percent from $1,636,000 in the third quarter of 1995. This increase was due to an increase in average cash balances, offset by lower investment yields. Interest expense was $488,000 for the third quarter of 1996 compared to $28,000 for the third quarter of 1995. The increase in interest expense for the quarter was primarily due to the interest expense resulting from the short term borrowings used for the Tellabs Wireless acquisition. Other expense of $451,000 for the third quarter of 1996 was primarily related to foreign exchange losses which were the result of the weakened U.S. dollar against the Finnish markka and Irish punt, as well as the strength of the Finnish markka versus other European currencies. Other -9- income of $150,000 for the third quarter of 1995 was primarily the result of foreign exchange gains which 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 effective tax rate was approximately 32.7 percent for the third quarter of 1996 and 29 percent for the third quarter of 1995. The increase in the effective tax rate for 1996 is primarily due to the increase in domestic taxable income and the decreasing effect of the research and development tax credit as a percentage of the total. The 1996 effective tax rate reflects adjustments from the Federal statutory rate primarily attributable to foreign tax rate benefits. Sales for the first nine months of 1996 were $596,069,000, an increase of 31.3 percent from sales of $453,905,000 for the same period in 1995. Domestic sales increased 44.4 percent due primarily to TITAN 5500 system sales. International sales increased 12.7 percent due to a 44.2 percent increase in Martis DXX sales offset by expected decreases in the sales of echo canceller and CROSSNET products. Net earnings for the first nine months of 1996 were $58,566,000 compared to $77,500,000 in 1995. Earnings per share were 32 cents for the first nine months of the year compared to 42 cents for the same time period in 1995. Earnings per share amounts have been restated to give effect to the two-for-one stock split effective November 15, 1996. The decrease in earnings for the first nine months of 1996 was primarily the result of the one-time, net of tax charge of $54,100,000 for acquired in-process research and development relating to the Tellabs Wireless acquisition. The gross profit margin for the first nine months of 1996 improved to 58.7 percent from 56.1 percent for the same time period in 1995. This improvement reflects both the sales of higher-margin products and the continuation of highly productive and efficient manufacturing operations. The gross profit margin for all of 1996 is expected to be approximately 59 percent. Excluding the one-time charge to earnings for the acquired in-process research and development, operating expenses for the first nine months of 1996 were $192,498,000, a 29.2 percent increase from the same period in 1995. The increase in operating expenses is reflective of the Company's growth. During the first nine months of 1996, new items such as the expenses of Tellabs Wireless, Tellabs TG and the enterprise wide, business system conversion were included in operating expenses. Headcount and related expenses grew to support and service international and domestic products while additional expenses were incurred related to employee compensation programs. Total operating expenses, as a percent of sales, decreased from 32.8 percent during the first nine months of 1995 to 32.3 percent for the same period in 1996 exclusive of the one-time charge. Operating expenses for all of 1996 are expected to approximate 31 percent of sales, exclusive of the one-time charge. Interest income contributed $5,608,000 to pretax income during the first nine months of 1996, an increase of 36.7 percent from $4,102,000 in 1995. This increase was due to higher average cash balances throughout the year, as well as a shift in investment options from federally tax free municipal bonds to fully taxable investments. -10- Interest expense was $1,017,000 during the first nine months of 1996 compared to $96,000 during the same period in 1995. The 1996 interest expense was related to the bank debt that was used to finance the Tellabs Wireless acquisition. Other expense of $31,000 for the first nine months of 1996 was primarily the result of foreign exchange losses of $252,000, resulting from the weakened U.S. dollar against the Finnish markka and the Irish punt, offset by other income of $221,000. Other expense for the first nine months of 1995 was $550,000. This resulted from foreign exchange losses of $713,000, also resulting from the weakened U.S. dollar against the Finnish markka and the Irish punt, being partially offset by other income of $163,000. The effective tax rate was approximately 32.7 percent for the first nine months of 1996 compared to 29 percent for the same period in 1995. The increase in the effective tax rate for 1996 is primarily due to the increase in domestic taxable income, the tax effects of the in-process research and development one-time charge taken in conjunction with the Tellabs Wireless acquisition and the decreasing effect of the research and development tax credit as a percentage of the total. The 1996 effective tax rate reflects adjustments from the Federal statutory rate primarily attributable to foreign tax rate benefits. Except for historical information, the matters discussed or incorporated by reference in this Quarterly Report on Form 10-Q are forward-looking statements that involve risks and uncertainties including, but not limited to, economic conditions, product demand and industry capacity, competitive products and pricing, manufacturing efficiencies, research and new product development, protection of intellectual property, patents and technology, ability to attract and retain highly qualified personnel, availability of components and critical manufacturing equipment, facility construction and startups, the regulatory and trade environment, and other factors indicated from time to time in the Company's filings with the Securities and Exchange Commission. -11- PART II. OTHER INFORMATION 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 August 22, 1996, prior to the filing of this quarterly report of Form 10-Q, with respect to the change in the registrant's certifying accountant. The Registrant filed a report on Form 8-K on October 31, 1996, prior to the filing of this quarterly report of Form 10-Q, with respect to declaration of a two-for-one stock split payable in the form of a 100 percent dividend on November 15, 1996, to stockholders of record on October 31, 1996. -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 November 1, 1996 - ----------------- (Date) -13- EX-27 2
5 This schedule contains summary financial information extracted from the September 27, 1996 Income Statement and Balance Sheet and is qualified in its entirety by reference to such 10Q. 9-MOS DEC-27-1996 SEP-27-1996 82173000 60115000 161844000 4262000 84900000 394621000 248885000 98680000 649640000 122418000 2850000 0 0 1793 503274000 649640000 596069000 596069000 246451000 246451000 0 1937000 (4591000) 87022000 28456000 58566000 0 0 0 58566000 .32 .32
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