-----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, AGGdq8NrqAcfRdmIRkwYb8rKDRy59BBOO0AMAg17k53kN+GUlcpNLN5LxRp8otD4 +XVyE+f4hHs41Jm4h2dGjg== 0000317771-97-000052.txt : 19970508 0000317771-97-000052.hdr.sgml : 19970508 ACCESSION NUMBER: 0000317771-97-000052 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970328 FILED AS OF DATE: 19970507 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: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09692 FILM NUMBER: 97597437 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 28, 1997 [ ] 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 May 2, 1997, 180,652,994 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 6. Exhibits and Reports on Form 8-K 11 SIGNATURE 12 -2- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE BALANCE SHEETS (Unaudited) Mar. 28, Dec. 27, 1997 1996 Assets --------- --------- Current assets (In thousands) Cash and cash equivalents $110,796 $90,446 Investments in marketable securities 218,656 136,421 Accounts receivable, less allowance 161,870 167,928 Inventories Raw materials 32,263 30,961 Work in process 12,699 12,046 Finished goods 35,964 35,512 --------- --------- 80,926 78,519 Other current assets 1,003 2,150 --------- --------- Total Current Assets 573,251 475,464 Property, plant, and equipment 277,033 267,014 Less accumulated depreciation 109,069 104,254 --------- --------- 167,964 162,760 Goodwill 68,206 64,785 Other assets 36,079 40,814 --------- --------- $845,500 $743,823 Liabilities ========= ========= Current Liabilities Accounts payable $37,947 $36,931 Accrued liabilities 70,783 71,258 Income taxes 34,190 23,435 --------- --------- Total Current Liabilities 142,920 131,624 Long-term debt 4,115 2,850 Other long-term liabilities 12,676 10,964 Deferred income taxes 6,334 7,109 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 180,431,712 shares issued and outstanding at March 28, 1997 and 179,652,633 at December 27, 1996 1,804 1,797 Additional paid-in capital 106,043 94,854 Cumulative foreign currency translation adjustment (11,912) 3,937 Unrealized net holding gains on available-for-sale securities 51,296 21,551 Retained earnings 532,224 469,137 --------- --------- Total Stockholders' Equity 679,455 591,276 --------- --------- $845,500 $743,823 ========= ========= The accompanying notes are an integral part of these statements. -3- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF EARNINGS (Unaudited) Three Months Ended March 28, March 29, 1997 1996 --------- --------- (In thousands, except per share data) Net sales $247,123 $172,256 Cost of sales 95,420 74,482 --------- --------- Gross Profit 151,703 97,774 Marketing, general & administrative expense 45,574 33,613 Research and development expense 33,236 21,602 Goodwill amortization 1,506 611 --------- --------- Total Operating Expense 80,316 55,826 --------- --------- Operating Profit 71,387 41,948 Interest income (2,383) (1,975) Interest expense 116 28 Other income, net (21,071) (572) --------- --------- Earnings before income taxes 94,725 44,467 Income taxes 31,638 13,340 --------- --------- Net Earnings $63,087 $31,127 ========= ========= Earnings per share * $0.34 $0.17 ========= ========= Average number of shares of common stock outstanding * 185,655 184,039 * 1996 share amounts are restated to give effect to the two-for-one stock split effective November 15, 1996. The accompanying notes are an integral part of these statements. -4- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW (Unaudited) For The Three Months Ended March 28, March 29, 1997 1996 --------- --------- (In thousands) Cash Flows from Operating Activities: Net earnings $63,087 $31,127 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 10,478 6,461 Provision for doubtful receivables 1,167 390 Deferred income taxes (1,004) (457) Gain on sale of stock held as an investment (20,803) ---- Net (increase) decrease in current assets, net of effects from acquisitions: Accounts receivable 1,130 (467) Inventories (4,047) 536 Other current assets 1,118 36 Net increase (decrease) in current liabilities, net of effects from acquisitions: Accounts payable 1,529 (1,527) Accrued liabilities (18,211) (10,945) Income taxes 11,730 (3,527) Net increase in other assets (2,931) (325) Net increase in other liabilities 1,810 1,125 --------- --------- Net Cash Provided by Operating Activities 45,053 22,427 Cash Flows from Investing Activities: Acquisition of property, plant and equipment, net (15,360) (9,371) Payments for purchases of marketable securities (61,323) (39,622) Proceeds from sales of marketable securities 52,103 33,005 Payments for acquisitions, net of cash acquired (7,821) ---- --------- --------- Net Cash Used by Investing Activities (32,401) (15,988) Cash Flows from Financing Activities: Common stock sold through stock-option plans 11,196 1,450 --------- --------- Net Cash Provided by Financing Activities 11,196 1,450 Effect of exchange rate changes on cash (3,498) (562) --------- --------- Net increase in cash and cash equivalents 20,350 7,327 Beginning of period cash and cash equivalents 90,446 92,485 --------- --------- End of period cash and cash equivalents $110,796 $99,812 ========= ========= -5- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW (Unaudited) For The Three Months Ended March 28, March 29, 1997 1996 --------- --------- Supplemental Disclosures: (In thousands) Interest paid $82 $32 Income taxes paid $10,427 $17,550 Supplemental Schedule of Non-Cash Investing and Financing Activities: In acquiring all of the outstanding shares of Trelcom Oy and certain wavelength-division multiplexing and optical networking technology and related assets from IBM, the Company paid cash totaling $8,434,000, currently allocated as follows: (In thousands) Fair value of assets acquired $1,777 Cost in excess of fair value 8,098 Liabilities assumed (1,441) --------- Cash paid for acquisitions $8,434 ========= 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 1996 financial statements to conform to the 1997 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 27, 1996. -7- MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES During the first quarter of 1997, the Company's cash, cash equivalents and marketable securities portfolio increased $102,585,000 to an all-time high of $329,452,000. The Company's marketable securities portfolio increase of $82,235,000 was primarily due to a mark-to-market adjustment of $54,148,000 for a certain investment. The Company's record earnings, combined with the $21,396,000 received from the sale of a stock held as an investment, drove the increase in cash during the period. Offsetting these additions, cash payments of approximately $8,434,000 were made for the acquisition of certain wavelength-division multiplexing and optical networking technology and related assets from IBM's Thomas J. Watson Research Center (Tellabs Optical Networking Group), and the acquisition of Trelcom Oy, a Finnish company specializing in digital subscriber line technology. The Company invested approximately $15,360,000 in property, plant, and equipment during the first quarter of 1997. These expenditures were part of the Company's on-going expansion of the manufacturing and research and development capacity at its Bolingbrook, Illinois and Espoo, Finland facilities. Construction at the Illinois facility is expected to be completed during the second quarter of 1997, while the Company anticipates the expansion in Finland to be complete in the fourth quarter of 1997. The Company currently expects total capital expenditures for 1997 to approximate $95,000,000, the majority of which is planned for the aforementioned expansions and the purchase of equipment and other tangible assets to be installed in the newly-expanded facilities. Goodwill increased $3,421,000 during the first quarter of 1997 as the net result of the goodwill created as part of the aforementioned acquisitions being offset by the effect of exchange rate fluctuations on the goodwill balances. Other long-term assets decreased by $4,735,000 primarily due to the reclassification of an investment to short-term. Accrued liabilities, which remained virtually unchanged when compared to the balance at December 27, 1996, reflect an increase in deferred taxes, most of which was related to the mark-to-market adjustment of the marketable securities, offset by payments made by the Company for year-end obligations related to employee compensation programs. Net working capital at March 28, 1997 was $430,331,000, compared with working capital of $343,840,000 at December 27, 1996. The Company's current ratio at the end of the first quarter was 4.0 to 1. This increase in working capital was primarily due to the increase in the value of marketable securities held as investments and the cash generated by operating activities. Management believes that the existing 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 and capital expenditures either through currently available cash, through cash generated from future operations, or through additional short-term or long-term financing. -8- RESULTS OF OPERATIONS Sales for the first quarter of 1997 were a record $247,123,000, up 43.5 percent from the previous first quarter record of $172,256,000 set in 1996. Sales growth during the first quarter of 1997 as compared to the first quarter of 1996 was driven primarily by a 61.4 percent increase in sales of the SONET-based TITAN (a registered trademark of Tellabs Operations, Inc.) 5500 digital cross-connect system (TITAN 5500 system). Expansion of the customer base and increased demand by the Company's existing customers in response to optical interface enhancements to the TITAN 5500 system were the primary drivers for the increased sales. International sales, which grew by 49.1 percent from the same quarter of the prior year, were led by the 64.8 percent increase in sales of the MartisDXX (a trademark of Tellabs Oy) integrated access and transport system (the MartisDXX system). MartisDXX system sales growth was principally due to continued expansion outside the Scandinavian market. Also adding to the record first quarter sales in 1997 was a 33.2 percent or $4,756,000 increase in sales of digital echo cancellers over the same period in 1996. Record net earnings were also posted in the first quarter of 1997. Earnings for the first quarter of 1997 were $63,087,000, up 102.7 percent from $31,127,000 a year earlier. Earnings per share for the current quarter were 34 cents. First quarter 1997 earnings included a gain on the sale of stock held as an investment of $13,855,000 (net of taxes). Excluding the effect of this gain, earnings per share for the first quarter of 1997 were 27 cents compared with 17 cents for the first quarter of 1996. The 1996 earnings per share amount has been restated to give effect to the two-for-one stock split effective November 15, 1996. The increase in earnings for the first quarter of 1997 was primarily the result of the aforementioned sales growth, an increase in the gross profit margin as a percentage of sales, and the previously described gain on the sale of the stock. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share," (FAS No. 128) which is required to be adopted for the 1997 fiscal year end. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options will be excluded. The impact is expected to result in an increase in basic earnings per share for the first quarter ended March 28, 1997 and March 29, 1996 of one cent per share for both periods. The gross profit margin for the first quarter 1997 improved to 61.4 percent from 56.8 percent for the same period in 1996. This improvement reflects a favorable sales mix of higher-margin products and also the continuation of efficient manufacturing operations. -9- Operating expenses for the first quarter of 1997 were $80,316,000, an increase of 43.9 percent over the operating expenses incurred in the first quarter of 1996. This increase was due to the inclusion of new items such as the expenses of the Tellabs Wireless Systems Division and the Tellabs Transport Group, along with the continued investment in a sophisticated, globally-integrated information system. Despite the increase of operating expenses in total, operating expenses remained almost unchanged as a percentage of sales, 32.5 percent for the first quarter of 1997 as compared to 32.4 percent for the same period in 1996. Other income was $21,071,000 for the first quarter of 1997 compared to $572,000 for the first quarter of 1996. The gain on the sale of stock held as an investment of $20,803,000 was the primary reason for the large increase. Interest income increased to $2,383,000 in the first quarter of 1997, up 20.7 percent from $1,975,000 in the first quarter of 1996, as a result of significantly higher cash balances, offset by lower market interest rates. Interest expense increased to $116,000 in the first quarter of 1997, from $28,000 in the first quarter of 1996. The increase is primarily attributable to capital lease expense at the Tellabs Wireless Systems Division. The effective tax rate was approximately 33.4 percent for the first quarter of 1997 compared to 30.0 percent for the first quarter of 1996. The increase in the effective tax rate for 1997 reflects the tax effect of the gain on the stock sale and the sales increase at domestic facilities, where the tax rate is significantly higher than at the Company's subsidiaries in Ireland and Finland. The 1997 effective tax rate reflects adjustments from the Federal statutory rate primarily attributable to foreign tax rate benefits. The Company cautions that 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 that may affect the Company's actual results and cause results to differ materially from such forward-looking statements. 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 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. Such forward-looking statements reflect only information available at the time this report is being filed, as a result the Company undertakes no obligation to update the statements to reflect subsequent circumstances or events. -10- 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/A on March 24, 1997, prior to the filing of this quarterly report on Form 10-Q, with respect to the completion of the Registrant's change in certifying accountant. -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 May 7, 1997 - ---------------- (Date) -12- EX-27 2
5 This schedule contains summary financial information extracted from the March 28, 1997, Income Statement and Balance Sheet and is qualified in its entirety by reference to such 10-Q. 3-MOS JAN-02-1998 MAR-28-1997 110796000 218656000 166623000 4753000 80926000 573251000 277033000 109069000 845500000 142920000 4115000 0 0 1804000 677651000 845500000 247123000 247123000 95420000 95420000 0 1167000 (2267000) 94725000 31638000 63087000 0 0 0 63087000 .34 .34
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