-----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, T1mGahBRulItcAkbrUtLw3dfqArb46YoEy3d4VNzkH/xtZ4KnmX9hdZKfH60LpHM 0nGiNkhR8XBAE1Bk5GQtfQ== 0000317771-98-000035.txt : 19980507 0000317771-98-000035.hdr.sgml : 19980507 ACCESSION NUMBER: 0000317771-98-000035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980403 FILED AS OF DATE: 19980506 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: SEC FILE NUMBER: 000-09692 FILM NUMBER: 98610983 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 April 3, 1998 [ ] 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 April 3, 1998, 182,206,783 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) April 3, Jan. 2, 1998 1998 Assets ----------- ----------- Current assets (In thousands) Cash and cash equivalents $178,029 $109,048 Investments in marketable securities 422,457 377,986 Accounts receivable, less allowance 259,595 284,084 Inventories Raw materials 38,670 28,335 Work in process 19,006 15,664 Finished goods 36,791 45,615 ----------- ----------- 94,467 89,614 Other current assets 1,376 2,202 ----------- ----------- Total Current Assets 955,924 862,934 Property, plant, and equipment 352,108 338,296 Less accumulated depreciation 134,170 128,967 ----------- ----------- 217,938 209,329 Goodwill 58,482 61,453 Other assets 54,373 49,663 ----------- ----------- $1,286,717 $1,183,379 =========== =========== Liabilities Current Liabilities Accounts payable $48,098 $50,422 Accrued liabilities 123,620 115,917 Income taxes 57,417 59,481 ----------- ----------- Total Current Liabilities 229,135 225,820 Long-term debt 2,850 2,850 Other long-term liabilities 15,494 14,870 Deferred income taxes 6,188 6,730 Stockholders' Equity Preferred stock, with $.01 par value- 5,000,000 shares authorized, no shares issued - - Common stock, with $.01 par value - 500,000,000 shares authorized 182,206,783 shares issued and outstanding at April 3, 1998 and 181,626,660 at January 2, 1998 1,822 1,816 Additional paid-in capital 147,684 130,378 Cumulative foreign currency translation adjustment (43,150) (27,901) Unrealized net holding gains on available-for-sale securities 125,624 95,990 Retained earnings 801,070 732,826 ----------- ----------- Total Stockholders' Equity 1,033,050 933,109 ----------- ----------- $1,286,717 $1,183,379 =========== =========== The accompanying notes are an integral part of these statements. -3- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF EARNINGS (Unaudited) Three Months Ended April 3, March 28, 1998 1997 ----------- ----------- (In thousands, except per share data) Net sales $327,502 $247,123 Cost of sales 120,219 95,420 ----------- ----------- Gross Profit 207,283 151,703 Marketing, general & administrative expense 66,601 45,574 Research and development expense 43,306 33,236 Goodwill amortization 1,476 1,506 ----------- ----------- Total Operating Expense 111,383 80,316 ----------- ----------- Operating Profit 95,900 71,387 Interest income (4,039) (2,383) Interest expense 85 116 Other income, net (1,248) (21,071) ----------- ----------- Earnings before income taxes 101,102 94,725 Income taxes 32,858 31,638 ----------- ----------- Net Earnings $68,244 $63,087 =========== =========== Earnings per share - Basic $0.38 $0.35 - Diluted $0.37 $0.34 Average number of shares of common stock outstanding - Basic 181,873 180,125 - Diluted 186,947 185,711 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 April 3, March 28, 1998 1997 --------- --------- (In thousands) Cash Flows from Operating Activities: Net earnings $68,244 $63,087 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 12,820 10,478 Provision for doubtful receivables 288 1,167 Deferred income taxes 496 (1,004) Gain on sale of marketable securities (476) (20,878) Net changes in assets and liabilities, net of effects from acquisitions: Accounts receivable 19,781 1,130 Inventories (6,240) (4,047) Other current assets 780 1,118 Long term assets (7,259) (2,931) Accounts payable (1,774) 1,529 Accrued liabilities (11,731) (18,211) Income taxes (556) 11,730 Long term liabilities 747 1,810 ----------- ----------- Net Cash Provided by Operating Activities 75,120 44,978 Cash Flows from Investing Activities: Acquisition of property, plant and equipment, net (21,078) (15,360) Payments for purchases of marketable securities (103,602) (61,323) Proceeds from sales and maturities of marketable securities 105,041 52,178 Payments for acquisitions, net of cash acquired 0 (7,821) ----------- ----------- Net Cash Used for Investing Activities (19,639) (32,326) Cash Flows from Financing Activities: Common stock sold through stock-option plans * 17,019 11,196 ----------- ----------- Net Cash Provided by Financing Activities 17,019 11,196 Effect of exchange rate changes on cash (3,519) (3,498) ----------- ----------- Net increase in cash and cash equivalents 68,981 20,350 Beginning of period cash and cash equivalents 109,048 90,446 ----------- ----------- End of period cash and cash equivalents $178,029 $110,796 =========== =========== -5- TELLABS, INC. CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW (Unaudited) For The Three Months Ended April 3, March 28, 1998 1997 --------- --------- Supplemental Disclosures: (In thousands) Interest paid $109 $82 Income taxes paid $19,540 $10,427 Supplemental Schedule of Non-Cash Investing and Financing Activities: During 1997, 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 direct costs totaling $8,434,000. In conjunction with the acquisitions, the purchase prices are 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 ========= * "Common stock sold through stock option plans" contains non-cash deferred tax benefits of $12,820,000 and $8,466,000 during the first quarter of 1998 and 1997, respectively. 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 1997 financial statements to conform to the 1998 presentation. In accordance with Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", total comprehensive income for the three months ended April 3, 1998 and March 28, 1997 was approximately $82,629,000 and $76,983,000, respectively. 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 January 2, 1998. 3. Earnings Per Share Reconciliation The following table sets forth the computation of basic and diluted earnings per share: (In thousands, except per-share data) Three months ended 04/03/98 03/28/97 Numerator: --------- ----------- Net Income $68,244 $63,087 Denominator: Denominator for basic earnings per share - weighted-average shares 181,873 180,125 Effect of Dilutive Securities: employee stock options and awards 5,074 5,586 --------- ----------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 186,947 185,711 ========= =========== Basic earnings per share $0.38 $0.35 ========= =========== Diluted earnings per share $0.37 $0.34 ========= =========== -7- MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES During the first quarter of 1998, the Company's cash, cash equivalents and marketable securities portfolio increased $113,452,000 to an all-time high of $600,486,000. This increase was primarily the result of the Company's record first quarter earnings of $68,244,000 combined with the mark-to-market adjustment of $49,510,000 for a single investment. The Company invested approximately $21,078,000 in property, plant, and equipment during the first quarter of 1998. These expenditures were part of the Company's on-going expansion of its manufacturing and research and development capacity world-wide. Construction at the Finland facility was completed during the quarter, while the Company anticipates the expansion in Ireland to be completed during the second half of 1998. The Company currently expects total capital expenditures for 1998 to approximate $100,000,000, the majority of which is planned for the aforementioned expansions and the purchase of equipment and other tangible assets to be installed in all of the newly-expanded facilities. In conjunction with the Company's decision to change the primary focus of the Wireless Systems Division, the value of the assets (intangibles and others) resulting from the acquisition are being reevaluated. Accrued liabilities increased by $7,703,000 as a result of an increase in deferred taxes, primarily related to the mark-to-market adjustment of the marketable securities, partially offset by payments made by the Company for year-end obligations related to employee compensation programs. Net working capital at April 3, 1998 was $726,789,000, compared with working capital of $637,114,000 at January 2, 1998. The Company's current ratio at the end of the first quarter was 4.2 to 1. This increase in working capital was primarily due to the cash generated by operating activities and the increase in the value of marketable securities held as investments. 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. RESULTS OF OPERATIONS Sales for the first quarter of 1998 were a record $327,502,000, up 32.5 percent from the first quarter record of $247,123,000 set in 1997. Sales growth during the first quarter of 1998, as compared to the first quarter of 1997, was driven primarily by a 39.6 percent increase in sales of the SONET-based TITAN (a registered trademark of Tellabs Operations, Inc.) 5500 digital cross-connect system (TITAN 5500 system). -8- 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 21.7 percent from the same quarter of the prior year, were led by the 26.1 percent increase in sales of the MartisDXX (a trademark of Tellabs Oy) integrated access and transport system (the MartisDXX system). MartisDXX system sales growth, principally due to expansion of the customer base, was dampened by adverse exchange rate effects during the quarter. The first quarter sales growth was further fueled by all-time record echo canceller sales during the first quarter of 1998. This echo canceller sales growth represented a 66 percent increase over the first quarter of 1997 and a 20.5 percent increase over the previous record high, achieved during the fourth quarter of 1997. Record net earnings were also posted during the first quarter of 1998. Earnings for the first quarter of 1998 were $68,244,000, up 8.2 percent from the then-record earnings of $63,087,000 a year earlier. Last year's earnings included a gain on the sale of stock held as an investment of $13,855,000 (net of taxes). Diluted earnings per share for the current quarter were 37 cents as compared to 27 cents for the first quarter of 1997, excluding the effect of the gain on the sale of the stock. The increase in earnings for the first quarter of 1998 was primarily the result of the aforementioned sales growth and an increase in the gross profit margin as a percentage of sales. The gross profit margin for the first quarter 1998 improved to 63.3 percent from 61.4 percent for the same period in 1997. This improvement reflects the continued shift in product mix toward higher-margin TITAN, MartisDXX and echo canceller products and revenues recognized from customer service installation activities. Operating expenses for the first quarter of 1998 were $111,383,000, an increase of 38.7 percent over the operating expenses incurred during the first quarter of 1997. The marketing and general and administrative expense increase of $21,027,000 was primarily the result of expenses incurred to support and install TITAN products. The remaining increase in these expenses represents investment aimed at expanding world-wide presence through the addition of staff, opening of new offices and installation of infrastructure commensurate with business growth. Research and development expenses, which increased by $10,070,000, remained relatively consistent at 13.2 percent of sales as compared with 13.4 percent of sales during the first quarter of 1997. Operating expenses increased as a percentage of sales to 34.0 percent for the first quarter of 1998 as compared to 32.5 percent for the same period in 1997. Other income was $1,248,000 for the first quarter of 1998 compared to $21,071,000 for the first quarter of 1997. The gain on the sale of stock held as an investment during the first quarter of 1997 of $20,803,000 was the primary reason for the large decrease in comparison to 1997. Interest income increased to $4,039,000 in the first quarter of 1998, up 69.5 percent from $2,383,000 in the first quarter of 1997, mainly as a result of interest earned on the significantly higher cash balances. -9- The effective tax rate was approximately 32.5 percent for the first quarter of 1998 compared to 33.4 percent for the first quarter of 1997. The reduction reflects increased income being generated outside of the U.S. in those countries with lower tax rates and a donation to the Tellabs Foundation, which was established during 1995 to make charitable contributions. The 1998 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 and access to intellectual property, patents and technology, ability to attract and retain highly qualified personnel, availability of components and critical manufacturing equipment, ability of vendors and third parties to respond to Year 2000 issues, facility construction and start-ups, 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 19.1 - Letter to Stockholders for First Quarter (including graphs depicting comparisons of the Company's gross profit margin, book value per share, and return on equity for fiscal years 1994 - 1997 and year-to-date results for 1998 which have been omitted from this filing.) The Company issued this letter to stockholders through the Company's website at www.tellabs.com. Exhibit 19.2 - 1998 First Quarter News Release (incorporated into Exhibit 19.1) Exhibit 27 - Financial Data Schedule. (B) Reports on Form 8-K The Registrant filed a report on Form 8-K on February 20, 1998, to announce that the Company had entered into an Agreement and Plan of Merger with Coherent Communications Systems Corporation ("Coherent") whereby Coherent would become a wholly-owned subsidiary the Company. The Registrant filed a report on Form 8-K on April 20, 1998, prior to the filing of this report on Form 10-Q, with respect to the Company's announcement that (1) Coherent had called a special meeting of its stockholders to approve the merger agreement and (2) the companies have received a request for additional information about the merger from the Antitrust Division of the U.S. Department of Justice. -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 6, 1998 - ---------------- (Date) -12- EX-19.1 2 Exhibit 19.1 Fellow Stockholders: "The Adventure Continues" was the theme of Tellabs' January sales meeting and of our recently published 1997 annual report. That theme was certainly appropriate for the first quarter of 1998, as the company continued the trends of revenue and earnings growth that have typified its performance over the past several years. Revenue in the quarter amounted to $327.5 million, a record high for first quarter sales and a 32.5 percent increase over revenue of $247.1 million in the first quarter a year ago. As usual, sales of the TITAN (a registered trademarks of Tellabs Operations, Inc.) 5500 digital cross-connect system led the way, increasing by 40 percent over sales in the first quarter of 1997. Echo canceller sales were particularly robust during the quarter, and sales of the MartisDXX (a registered Finnish trademark of Tellabs Oy) system were up too, despite a persistently difficult market. Net earnings for the quarter amounted to $68.2 million, just over 8 percent above earnings in the first quarter a year ago. First-quarter earnings a year ago, however, benefited from a sale during the quarter of stock held by the company as an investment that added $13.9 million to the bottom line. Excluding that income, earnings this quarter were up 38.6 percent over those a year ago. Earnings per share on a diluted basis - a phrase you will have to become accustomed to, says the FASB - were 37 cents this quarter and 34 cents last year including the stock sale and 27 cents without it. As noted, TITAN 5500 system sales were strong throughout the quarter, both for new installations and for upgrades. The announcement during the quarter by Bell Atlantic that Tellabs had been selected as its supplier for wideband digital cross-connect systems for the next five years reinforces the attractiveness of the TITAN product as a primary service-provisioning vehicle in backbone telecommunications networks. SONET-based system architectures continue to be the choice of service providers for high-traffic-density networks in North America, though the nature of the traffic traversing those networks is changing from primarily voice to primarily data traffic, and from mostly time-division to packet- and cell-based protocols. Sales of the MartisDXX digital networking multiplexer increased over those a year ago by 26 percent, an increase lower than we have been accustomed to in recent quarters. This is primarily a consequence of adverse exchange rates during the quarter and of moderately diminished demand from several Asian customers experiencing currency problems in their home countries. (This current Asian situation illustrates the value to a company of having global market reach. We know that the world economy is simply not uniform and homogeneous. Differing factors will influence regional markets in often unpredictable ways and at unpredictable times. Without the leveling influence of significant 1 diversity in market scope, a company is inevitably susceptible to these vagaries from time to time. And even with a broad market scope, some susceptibility will always exist. This is an uncertain world!) One other item of significance should be noted here. In February, Tellabs announced the pending acquisition of Coherent Communications Systems Corporation. Coherent possesses considerable know-how and an enviable presence, especially in markets outside North America, in the area of echo cancellers, a product area of long-standing interest to Tellabs. We are delighted at the prospect of welcoming Dan McGinnis and the folks at Coherent to the Tellabs family. We are currently in the process of securing the necessary stockholder and government approvals for the transaction. We hope to consummate the merger during the second quarter. As we look forward to the rest of 1998 and to the future, we find ourselves increasingly involved in strategic analysis and planning. Planning and analysis are fine, but implementation is the crucial issue and a key for Tellabs. This industry continues to grow, though not necessarily evenly around the globe, and to play an increasingly prominent role in the daily lives of most businesses and individuals. Both factors are likely to persist. Industry consolidation, so visible of late in the financial services industry, will likely continue to characterize our environment as well in the months ahead. Telecommunications is an industry of scale, like it or not, and this reality has a tendency to drive industry dynamics. So does technology. Much has been written of late about innovation and new communication services based upon emerging technologies, most related to optical networking. Tellabs intends to stay abreast of the trends and technologies affecting telecommunications. This company has, we believe, a significant role to play in the future of this very exciting industry. We'll keep you informed along the way. Sincerely, /s/ Michael J. Birck - ----------------------- Michael J. Birck Chief Executive Officer First Quarter Earnings Release (website link to this information which is attached hereto as Exhibit 19.2) Results of Operations Condensed Consolidated Balance Sheet 2 Common Stock Market Data Tellabs' common stock is listed on The Nasdaq Stock Market under the symbol TLAB and appears in most daily newspaper stock tables as Telabs. At February 16, 1998, there were approximately 3,725 stockholders of record. Tellabs is a component of the Nasdaq-100 Index and the Standard & Poor's 500 Index. 10-K Report Stockholders may obtain without charge a copy of the Tellabs 1997 Form 10-K as filed with the Securities and Exchange Commission upon request to: Secretary Tellabs, Inc. 4951 Indiana Avenue Lisle, Illinois 60532 U.S.A. Edgar Archives For Tellabs investor relations contact: Tom Scottino 1.630.378.7504 Tom_Scottino@pcmail.tellabs.com Except for historical information, the matters discussed or incorporated by reference in this letter are forward-looking statements that involve risks and uncertainties associated with competition, market growth, customer acceptance and timely availability of products and features, as well as other risks that may be detailed from time to time in the company's filings with the Securities and Exchange Commission. Tellabs' actual future results could differ materially from those discussed here. The company undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances or to reflect the occurrence of unanticipated events. 3 EX-19.2 3 NEWS RELEASE EXHIBIT 19.2 FOR IMMEDIATE RELEASE CONTACT: Peter A. Guglielmi 04/20/98 (630) 378-6111 TELLABS BEGINS 24th YEAR WITH BEST FIRST QUARTER IN HISTORY Lisle, Ill. - Telecommunications-equipment manufacturer Tellabs, Inc., announced Monday that it began its 24th year of operation with the highest sales and earnings for any first quarter in company history. It was the company's second-best quarter, exceeded only by the all-time record sales and earnings reported in the fourth quarter of 1997. Sales for the first quarter, ended April 3, were $327,502,000, up 32.5 percent from $247,123,000 a year earlier. Net income for the first quarter was $68,244,000, up 8.2 percent from $63,087,000 a year earlier when operating results included a pre-tax gain of $20,803,000 ($13,855,000 or 7 cents per diluted share, after tax) on the sale of stock held as an investment. Excluding the effect of the stock-sale gain, net income for the first quarter of 1998 was 38.6 percent greater than the level recorded in the first quarter of 1997. Earnings per share of common stock on a diluted basis for the first quarter were 37 cents, compared with 34 cents (or 27 cents excluding the stock-sale gain) for the first quarter of 1997. "1998 began with continued strong performance across Tellabs' three major product lines," said Tellabs President and CEO Michael J. Birck. "Sales of our SONET-based TITAN (a registered trademark of Tellabs Operations, Inc.) 5500 digital cross-connect system exceeded last year's first-quarter level by 40 percent. MartisDXX (a registered Finnish trademark of Tellabs Oy) system sales were up 26 percent, and echo canceller sales were up 66 percent. "Tellabs has an aggressive schedule in 1998 for launching new products, including major enhancements to its TITAN 5500 and MartisDXX systems," Birck continued. "In addition, we continue to make good progress in the development of new ATM-based products that will be introduced in the latter half of this year." In February, Tellabs and Coherent Communications Systems Corporation announced a definitive merger agreement under which Coherent would become a wholly owned subsidiary of Tellabs. In March, Tellabs announced that it will supply its SONET-based TITAN 5500 digital cross-connect systems to Bell Atlantic under the terms of a new five-year agreement under which Tellabs was selected as the sole supplier of wideband digital cross-connects to Bell Atlantic. Tellabs also announced during the quarter that Telefonos de Mexico (Telmex) 1 selected the MartisDXX system for a new digital leased line network and that Datakom Austria will use the MartisDXX system in a nationwide voice and data network. Tellabs designs, manufactures, markets and services voice and data transport and access systems. The company's products are used worldwide by the providers of communications services. Tellabs, Inc., stock is listed on the Nasdaq Stock Market (TLAB). 2 TELLABS, INC. RESULTS OF OPERATIONS (Dollars in thousands, except per-share data) (Unaudited) Three Months Ended 04/03/98 03/28/97 --------- ----------- Net Sales $327,502 $247,123 Cost of Goods Sold 120,219 95,420 --------- ----------- Gross Profit 207,283 151,703 Operating Exp. Mktg. & G.A. 66,601 45,574 Research & Dev. 43,306 33,236 Goodwill Amort. 1,476 1,506 --------- ----------- Total Oper. Exp. 111,383 80,316 Oper. Profit 95,900 71,387 Other Income(Expense) - Net 5,202 23,338 --------- ----------- Profit Before Tax 101,102 94,725 Income Taxes 32,858 31,638 --------- ----------- Net Profit $68,244 $63,087 ========= =========== Earnings per Share - Basic $0.38 $0.35 ========= =========== - Diluted $0.37 $0.34 ========= =========== Average Number of Shares of Common Stock Outstanding - Basic 181,873 180,125 - Diluted 186,947 185,711 3 TELLABS, INC. CONDENSED CONSOLIDATED BALANCE SHEET (Dollars in thousands) (Unaudited) 1998 1997 1st Qtr. Year End Assets ----------- ----------- Current Assets Cash and investments $600,486 $487,034 Accounts receivable, less allowance 259,595 284,084 Inventories 94,467 89,614 Other current assets 1,376 2,202 ----------- ----------- Total Current Assets 955,924 862,934 Property, Plant, and Equipment 352,108 338,296 Less accumulated depreciation (134,170) (128,967) ----------- ----------- 217,938 209,329 Goodwill 58,482 61,453 Other Assets 54,373 49,663 ----------- ----------- Total Assets $1,286,717 $1,183,379 =========== =========== Liabilities Current Liabilities Accounts payable $48,098 $50,422 Accrued liabilities 123,620 115,917 Income taxes 57,417 59,481 ----------- ----------- Total Current Liabilities 229,135 225,820 Long-Term Debt 2,850 2,850 Other Long-Term Liabilities 15,494 14,870 Deferred Income Taxes 6,188 6,730 ----------- ----------- Total Liabilities 253,667 250,270 Stockholders' Equity Common Stock, $.01 Par Value 1,822 1,816 Additional Paid-In Capital 147,684 130,378 Cumulative Translation Adjustment (43,150) (27,901) Unrealized Holding Gains on Securities 125,624 95,990 Retained Earnings 801,070 732,826 ----------- ----------- Total Stockholders' Equity 1,033,050 933,109 ----------- ----------- Total Liabilities & Stockholders' Equity $1,286,717 $1,183,379 =========== =========== 4 EX-27 4
5 This scehdule contains summary financial information extracted from the April 3, 1998, Income Statement and Balance Sheet and is qualified in its entirety by reference to such 10-Q. 3-MOS JAN-01-1999 APR-03-1998 178029000 422457000 263247000 3652000 94467000 955924000 352108000 134170000 1286717000 229135000 2850000 0 0 1822000 1031228000 1286717000 327502000 327502000 120219000 120219000 111383000 288000 (3954000) 101102000 32858000 68244000 0 0 0 68244000 0.38 0.37
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