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 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-9692
---------
TELLABS, INC.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3831568
--------------------------- --------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
4951 Indiana Avenue, Lisle, Illinois 60532
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (708) 969-8800
----------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
None N/A
--------------------------- ---------
Securities registered pursuant to Section 12 (g) of the Act:
Common shares, with $ .01 par value
-----------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO[ ]
On June 30, 1995, 88,420,010 common shares of Tellabs, Inc. were
outstanding.
-1-
TELLABS, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Comparative
Balance Sheets 3
Condensed Consolidated Comparative
Statements of Earnings 4
Condensed Consolidated Comparative
Statements of Cash Flow 5
Notes to Condensed Consolidated Comparative
Financial Statements 6
Item 2. Management's Discussion and Analysis 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
-2-
TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE BALANCE SHEETS
(Unaudited)
June 30, Dec. 30
1995 1994
Assets --------- ---------
Current assets (In thousands)
Cash and cash equivalents $58,531 $51,460
Investments in marketable securities -
available for sale 58,746 23,209
Accounts receivable, less allowance 88,280 84,397
Inventories
Raw materials 31,204 20,898
Work in process 11,591 12,396
Finished goods 22,835 18,587
--------- ---------
65,630 51,881
Other current assets 9,767 9,609
--------- ---------
Total Current Assets 280,954 220,556
Property, plant, and equipment 185,395 166,931
Less accumulated depreciation 76,755 69,300
--------- ---------
108,640 97,631
Goodwill 47,168 44,252
Other assets 25,951 27,628
--------- ---------
$462,713 $390,067
Liabilities ========= =========
Current Liabilities
Accounts payable $21,031 $22,606
Accrued liabilities 36,240 38,816
Income taxes 25,795 20,817
--------- ---------
Total Current Liabilities 83,066 82,239
Long-term debt 2,850 2,850
Other long-term liabilities 6,848 10,416
Deferred income taxes 5,055 1,772
Stockholders' Equity
Preferred stock, with $.01 par value-
5,000,000 shares authorized, no shares issued - -
Common stock, with $.01 par value -
200,000,000 shares authorized 88,420,010
shares issued and outstanding at June 30, 1995
and 87,288,692 at December 30, 1994 884 436
Additional paid-in capital 66,506 54,150
Cumulative foreign currency translation adjustment 10,932 2,102
Unrealized net holding gains (losses)
on available-for-sale securities 49 (803)
Retained earnings 286,523 236,905
--------- ---------
Total Stockholders' Equity 364,894 292,790
--------- ---------
$462,713 $390,067
========= =========
The accompanying notes are an integral part of these statements.
-3-
TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
June 30, July 1, June 30, July 1,
1995 1994 1995 1994
--------- --------- --------- ---------
(In thousands, except per share data)
Net sales $159,939 $123,029 $302,151 $222,567
Cost of sales 68,983 56,397 131,926 102,524
--------- --------- --------- ---------
Gross Profit 90,956 66,632 170,225 120,043
Marketing, general & admin expense 33,456 26,012 61,126 48,001
Research and development expense 19,236 16,175 39,024 31,891
Goodwill amortization 602 597 1,267 1,194
--------- --------- --------- ---------
Total Operating Expense 53,294 42,784 101,417 81,086
Operating Profit 37,662 23,848 68,808 38,957
Interest income (1,340) (789) (2,466) (1,515)
Interest expense 37 709 68 1,235
Foreign exchange loss, net 431 196 817 515
Other (income) expense, net 339 145 (117) 592
--------- --------- --------- ---------
Earnings before income taxes 38,195 23,587 70,506 38,130
Income taxes 11,077 6,569 20,447 9,914
--------- --------- --------- ---------
Net Earnings $27,118 $17,018 $50,059 $28,216
========= ========= ========= =========
Earnings per share * $0.30 $0.19 $0.55 $0.31
========= ========= ========= =========
Average number of shares of
common stock outstanding * 91,835 90,305 91,568 90,182
* 1994 share amounts are restated to give effect to the two-for-one
stock split effective May 19, 1995.
-4-
TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW
(Unaudited)
For The Six Months Ended
June 30, July 1,
1995 1994
--------- ---------
(In thousands)
Cash Flows from Operating Activities:
Net earnings $50,059 $28,216
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 11,017 9,508
Provision for doubtful receivables 985 288
Deferred income taxes 2,719 (1,815)
Gain on sale of long-term investment (929) ---
Net (increase) decrease in current assets:
Accounts receivable (2,496) (242)
Inventories (12,011) (6,826)
Other current assets 398 (185)
Net increase (decrease) in current liabilities:
Accounts payable (2,052) 2,682
Accrued liabilities (3,239) 1,144
Income taxes 3,055 (109)
Net (increase) decrease in other assets (4,469) 126
Net (decrease) increase in other liabilities (3,661) 5,272
--------- ---------
Net Cash Provided by Operating Activities 39,376 38,059
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment, net (15,417) (7,136)
Payments for purchases of marketable securities (48,231) (9,283)
Proceeds from sales of marketable securities 13,546 4,435
Payments for purchases of long-term investments (1,215) (2,000)
Proceeds from sale of long-term investment 3,429 ---
--------- ---------
Net Cash Used by Investing Activities (47,888) (13,984)
Cash Flows from Financing Activities:
Payments of notes payable --- (20,000)
Common stock sold through stock-option plans 12,362 4,488
--------- ---------
Net Cash Provided (Used) by Financing Activities 12,362 (15,512)
Effect of exchange rate changes on cash 3,221 2,265
--------- ---------
Net increase in cash and cash equivalents 7,071 10,828
Beginning of period cash and cash equivalents 51,460 29,589
--------- ---------
End of period cash and cash equivalents $58,531 $40,417
========= =========
Supplemental Disclosures:
Interest paid $52 $1,213
Income taxes paid $11,080 $4,981
The accompanying notes are an integral part of these statements.
-5-
TELLABS, INC.
NOTES TO CONDENSED CONSOLIDATED COMPARATIVE FINANCIAL STATEMENTS
1. Financial Information:
The unaudited financial information reflects all adjustments (consisting
only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the statements
contained herein. Certain reclassifications have been made in the 1994
financial statements to conform to the 1995 presentation.
2. Basis of Presentation:
These financial statements are presented in accordance with the
requirements of Form 10-Q and consequently may not include all
disclosures normally required by generally accepted accounting
principles or those normally reflected in the Company's Annual Report on
Form 10-K. Accordingly, the financial statements and notes herein
should be read in conjunction with the financial statements and related
notes in the Company's Form 10-K for the year ended December 30, 1994.
3. Stock Split:
On April 25, 1995, the Board of Directors declared a two-for-one stock
split of the Company's common stock, paid in the form of a 100 percent
stock dividend. This dividend was distributed on May 19, 1995, to
stockholders of record May 3, 1995. All references to the number of
common shares and per share amounts have been retroactively restated to
give effect to the stock dividend.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
During the first half of 1995, the Company's cash, cash equivalents and
marketable securities portfolio increased $42,608,000 to a new high of
$117,277,000. The Company's record first half earnings of $50,059,000
were the primary contributor.
Operating activities provided cash through the aforementioned net
earnings. This was partially offset by increases in inventories and
reductions in accrued liabilities. Total inventories increased
$13,749,000 during the first half of 1995, in order to support the
growth in sales of the Martis DXX (a trademark of Martis Oy) multiplexer
and the Company's SONET-based TITAN (a registered trademark of Tellabs
Operations, Inc.) 5500 digital cross-connect system. Accrued
liabilities decreased $3,239,000 from the December 30, 1994 balance due
to payments made during the first quarter for year-end obligations
related to employee compensation programs.
The Company invested the cash provided by operating activities in higher
yielding marketable securities and in property, plant, and equipment.
Net investments in property, plant, and equipment totalled approximately
$15,417,000. Additions were made primarily at the Company's Finnish
subsidiary in order to increase manufacturing capacity. The Company
currently expects total capital expenditures in 1995 to approximate
$34,000,000. The majority of the remaining expenditures made in 1995
will be to increase manufacturing capacity both domestically and
internationally. Additional cash of $3,429,000 was provided by the sale
of stock previously held as a long-term investment.
Net working capital at June 30, 1995 was $197,888,000, compared with
working capital of $138,317,000 at December 30, 1994. The Company's
current ratio at the end of the second quarter was 3.4 to 1. This
increase in working capital was primarily due to operating activities.
Management believes that this level of working capital will be adequate
for the Company's liquidity needs related to normal operations both
currently and in the foreseeable future. Sufficient resources exist to
support the Company's growth either through currently available cash,
through cash generated from future operations, or through additional
short-term or long-term financing.
RESULTS OF OPERATIONS
Sales for the second quarter of 1995 were a record $159,939,000, up 30
percent from the previous second quarter record of $123,029,000 set in
1994. The growth in sales was led by the international sales channel,
highlighted by an almost 120 percent increase in Martis DXX system sales
over the same period last year. Sales also grew domestically, led again
by strong increases in TITAN digital cross-connect systems.
Net earnings for the second quarter of 1995 were $27,118,000, up 59.3
percent from $17,018,000 a year earlier. Earnings per share for the
current quarter were 30 cents compared with 19 cents for the second
quarter of 1994. (The second quarter of 1994 per share amounts were
restated to reflect the two-for-one stock split effective May 19, 1995.)
-7-
The increase in earnings for the second quarter of 1995 was primarily
based on the growth in sales and an increase in the gross margin percent
from 54.2 percent in 1994 to 56.9 percent in 1995. This improvement in
the gross margin percent was realized through continued efficiencies in
manufacturing operations and in product mix, as volume increased.
Operating expenses of $53,294,000 for the second quarter of 1995
increased 24.6 percent over operating expenses of $42,784,000 for the
second quarter of 1994. Increased headcount and the related expenses
necessary to support and service domestic and international products,
particularly the Martis DXX system, were the primary reasons for this
increase in operating expenses. Total operating expenses for the second
quarter of 1995 were 33.3 percent of sales compared to 34.8 percent for
the same period in 1994.
Interest income contributed $1,340,000 to pretax income in the second
quarter of 1995, up 69.8 percent from $789,000 in the second quarter of
1994. This increase was due to greater average cash balances and higher
market interest rates.
Interest expense was $37,000 for the second quarter of 1995 compared to
$709,000 for the second quarter of 1994. The 1994 interest expense was
related to the bank debt used to finance the acquisition of Martis Oy.
The debt was entirely repaid by the fourth quarter of 1994.
Foreign exchange losses of $431,000 incurred during the second quarter
of 1995 were the result of the continued weakness of the U.S. dollar
along with the strength of the Finnish markka versus other European
currencies. The foreign exchange losses of $196,000 for the second
quarter of 1994 were the result of the weakened U.S. dollar against the
Irish punt.
Other non-operating expense of $339,000 in the second quarter of 1995
was primarily generated by the losses incurred on the joint venture
between the Company and AFC. The 1994 loss of $145,000 also primarily
resulted from losses associated with the joint venture.
The effective tax rate was approximately 29 percent for the second
quarter of 1995 and 27.9 percent for the second quarter of 1994. The
increase in the effective tax rate for 1995 is due to the changes in
foreign taxable income and to the decreasing effect of research and
development tax credits as a percentage of the total. The 1995
effective tax rate reflects adjustments from the Federal statutory rate
primarily attributable to foreign tax rate benefits.
Sales for the first six months of 1995 were $302,151,000, an increase of
35.8 percent from sales of $222,567,000 for the same period in 1994.
International sales increased 65 percent led by sales of the Martis DXX
multiplexer. The domestic sales increase of 21 percent was primarily
generated by the Company's SONET-based TITAN 5500 digital cross-connect
system.
Net earnings for the first six months of 1995 were $50,059,000 compared
to $28,216,000 in 1994. Primary and fully diluted earnings per share
were 55 cents for the first six months of the year compared to 31 cents
-8-
for the same time period in 1994. (The 1994 per share amounts were
restated to reflect the two-for-one stock split effective May 19, 1995.)
The growth in earnings for the first six months of 1995 was due to the
increase in revenues and an increase in gross margin to 56.3 percent
from 53.9 percent for the same time period in 1994. The increase in
gross margin was realized through continued efficiencies in
manufacturing operations and in product mix as volume increased. The
gross margin percent for the total year 1995 is expected to remain at
approximately 56 percent.
Operating expenses for the first six months of 1995 were $101,417,000, a
25.1 percent increase over the same period in 1994. Increased headcount
and the related expenses necessary to support and service domestic and
international products, particularly the Martis DXX system, were the
primary reasons for this increase in operating expenses. Total
operating expenses during the first six months of 1995 were 33.6
percent of sales compared to 36.4 percent of sales during the same
period in 1994. Operating expenses for all of 1995 are expected to
approximate 33 percent of sales.
Interest income contributed $2,466,000 to pretax income during the first
six months of 1995, an increase of 62.8 percent from $1,515,000 in 1994.
This increase was due to higher average cash balances and higher market
interest rates in 1995.
The foreign exchange losses of $817,000 that were incurred during the
first six months of 1995 were a result of the strength of the Finnish
markka versus other European currencies and the weakening of the U.S.
dollar against the Irish punt. The foreign exchange losses of $515,000
that were reported during the first six months of 1994 primarily
resulted from the weakness of the U.S. dollar against the Irish punt
and the Finnish markka.
Interest expense was $68,000 during the first six months of 1995
compared to $1,235,000 during the same period in 1994. The 1994
interest expense was related to the bank debt used to finance the
acquisition of Martis Oy. The debt was entirely repaid by the fourth
quarter of 1994. Other non-operating expense in 1994 of $592,000
primarily included capital losses on fixed assets. Other non-operating
income of $117,000 in 1995 was the gain on the sale of a long-term
investment in the first quarter partially offset by the losses of the
joint venture.
The effective tax rate was approximately 29 percent for the first six
months of 1995 compared to 26 percent for the same period in 1994. The
increase in the effective tax rate for 1995 is due to the changes in
foreign taxable income and to the decreasing effect of research and
development tax credits as a percentage of the total. The 1995
effective tax rate reflects adjustments from the Federal statutory rate
primarily attributable to foreign tax rate benefits.
Recent Developments
One area of expanding interest for the Company concerns the local
exchange loop. As telecommunications service providers and cable system
operators seek to expand the services they offer to their customers, the
-9-
local loop becomes an increasingly competitive portion of the
marketplace. Recently, legislation directed toward expanding
competition in the local loop environment (The Communication Act of
1995) was approved in both the U.S. Senate and House of Representatives
and forwarded to the president for signature. Present indications are,
however, that a veto of this legislation is more likely than passage.
One of the products expected to address this local loop market is the
CABLESPAN system currently being developed by the Company in a joint
venture arrangement with Advanced Fibre Communication (AFC). The
technology platform that forms the basis for this product was provided
to the venture by AFC. AFC is in litigation with DSC Technologies
Corporation (DSC) relating to the intellectual property comprising that
platform, as has previously been reported in trade publications and by
DSC. DSC is seeking, among other things, a permanent injunction
prohibiting AFC's sale or other use of the property. AFC has denied
DSC's allegations and has filed counterclaims. If AFC were to lose its
rights to the intellectual property, the Company's ability to continue
to promote its CABLESPAN system as currently configured could be
adversely affected. While there can be no assurance that AFC will
prevail in this litigation, it has represented to the Company that it
believes DSC's claims to be without merit.
-10-
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Tellabs, Inc. Stockholders was held on April 25,
1995. At this meeting, Michael J. Birck and Frederick A. Krehbiel were
re-elected as directors with a term of office expiring at the Company's
Annual Meeting of Stockholders in 1998. In addition, the following
directors are continuing in office for the terms indicated: Brian J.
Jackman, Robert P. Reuss and William J. Souders, for terms expiring at
the Company Annual Meeting of Stockholders in 1996, and John D. Foulkes,
Peter A. Guglielmi, and Thomas H. ("Tommy") Thompson for terms
expiring at the Company's Annual Meeting of Stockholders in 1997.
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
Michael J. Birck 40,324,573 71,439
Frederick A. Krehbiel 40,328,984 67,028
Stockholders approved the amendment to the Restated Certificate of
Incorporation which increased the authorized shares of common stock from
100,000,000 to 200,000,000, by a vote of for 37,521,286, opposed
2,684,342, and withheld 40,508.
ITEM 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
Exhibit 3.1 - Amendment of Certificate of Incorporation
dated April 25, 1995.
Exhibit 11 - Calculation of Per Share Earnings.
Exhibit 27 - Financial Data Schedule.
(B) Reports on Form 8-K
The Registrant filed a report on Form 8-K on May 1,
1995, with respect to the declaration of a two-for-one
stock split payable in the form of a 100 percent
dividend on May 19, 1995, to stockholders of record on
May 3, 1995.
-11-
TELLABS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELLABS, INC.
----------------
(Registrant)
s/ J. Peter Johnson
-------------------
J. Peter Johnson
Vice President/Controller
& Chief Accounting Officer
August 9, 1995
---------------- (Date)
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the June 30,
1995, income statement and balance sheet and is qualified in its entirety by
reference to such 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> JUN-30-1995
<CASH> 58531000
<SECURITIES> 58746000
<RECEIVABLES> 90218000
<ALLOWANCES> 1938000
<INVENTORY> 65630000
<CURRENT-ASSETS> 280954000
<PP&E> 185395000
<DEPRECIATION> 76755000
<TOTAL-ASSETS> 462713000
<CURRENT-LIABILITIES> 83066000
<BONDS> 2850000
<COMMON> 884000
0
0
<OTHER-SE> 364010000
<TOTAL-LIABILITY-AND-EQUITY> 462713000
<SALES> 302151000
<TOTAL-REVENUES> 302151000
<CGS> 131926000
<TOTAL-COSTS> 131926000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 985000
<INTEREST-EXPENSE> (2398000)
<INCOME-PRETAX> 70506000
<INCOME-TAX> 20447000
<INCOME-CONTINUING> 50059000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50059000
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
EXHIBIT 11
TELLABS, INC.
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, July 1, June 30, July 1,
1995 1994 * 1995 1994 *
--------- --------- --------- ---------
PRIMARY EARNINGS PER SHARE
------------------------------------
Weighted average number of common
shares outstanding during the period 88,159 86,769 87,845 86,547
Net additional shares assuming
dilutive stock options exercised and
proceeds used to purchase treasury
shares at average fair market value 3,436 3,536 3,560 3,610
--------- --------- --------- ---------
Weighted average number of common
shares and common equivalent shares
outstanding 91,595 90,305 91,405 90,157
========= ========= ========= =========
Net earnings $27,118 $17,018 $50,059 $28,216
========= ========= ========= =========
Primary earnings per share $0.30 $0.19 $0.55 $0.31
========= ========= ========= =========
FULLY DILUTED EARNINGS PER SHARE
------------------------------------
Weighted average number of common
shares outstanding during the period 88,159 86,769 87,845 86,547
Net additional shares assuming
dilutive stock options exercised and
proceeds used to purchase treasury
shares at fair market value 3,676 3,536 3,723 3,635
--------- --------- --------- ---------
Weighted average number of common
shares and common equivalent shares
outstanding 91,835 90,305 91,568 90,182
========= ========= ========= =========
Net earnings $27,118 $17,018 $50,059 $28,216
========= ========= ========= =========
Fully diluted earnings per share $0.30 $0.19 $0.55 $0.31
========= ========= ========= =========
* 1994 share amounts are restated to give effect to the two-for-one
stock split effective May 19, 1995.
-12-
CERTIFICATE OF AMENDMENT
TO RESTATED CERTIFICATE OF INCORPORATION
OF
TELLABS, INC.
-----------------------------------
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
-----------------------------------
We, Michael J. Birck, President and Carol Coghlan Gavin, Secretary of
Tellabs, Inc., a corporation existing under the laws of the State of
Delaware (the "Corporation"), do hereby certify on behalf of the
Corporation as follows:
FIRST: That the name of the Corporation is Tellabs, Inc.
SECOND: That the Restated Certificate of Incorporation of the
Corporation was filed by the Secretary of State of Delaware on June 24,
1992, a Certificate of Correction thereto was filed by the Secretary of
State of Delaware on March 24, 1993, and a Certificate of Amendment
thereto was filed by the Secretary of State of Delaware on April 21,
1994.
THIRD: That the Restated Certificate of Incorporation of said
Corporation has been amended as follows:
The first paragraph of Article Fourth of the Restated Certificate of
Incorporation is amended to read as follows:
1. Authorized Capital Stock. The aggregate number of
shares of stock which the Corporation has authority to
issue is 205,000,000 shares, of which 200,000,000 shall
be shares of common stock, $.01 par value per share
(hereinafter "Common Stock"), and of which 5,000,000
shares shall be shares of preferred stock, $.01 par
value per share (hereinafter "Preferred Stock").
FOURTH: That the aforesaid amendment has been duly adopted in
accordance with the provisions of Section 242 of the General Corporation
Law of the State of Delaware by the affirmative vote of the holders of a
majority of all outstanding stock entitled to vote at the annual meeting
of stockholders on April 25, 1995, which meeting was called and held
upon notice in accordance with Section 222 of said Law.
IN WITNESS WHEREOF, we have signed this Certificate of Amendment this
25th day of April, 1995.
TELLABS, INC.
By: Michael J. Birck, President
--------------------------------------------
Michael J. Birck, President
Attest:
----------------------------------------
Carol Coghlan Gavin, Secretary
