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 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-9692
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TELLABS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-3831568
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(State of Incorporation) (I.R.S. Employer Identification No.)
4951 Indiana Avenue, Lisle, Illinois 60532
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (708) 969-8800
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
None N/A
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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 March 31, 1995, 87,711,496 common shares of Tellabs, Inc. were
outstanding, including the effect of the two-for-one stock split
payable in the form of a 100 percent stock dividend to be distributed
on May 19, 1995 to stockholders of record as of May 3, 1995.
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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 9
SIGNATURE 10
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TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE BALANCE SHEETS
(Unaudited)
Mar. 31, Dec. 30,
1995 1994
Assets --------- ---------
Current assets (In thousands)
Cash and cash equivalents $47,271 $51,460
Investments in marketable securities -
available for sale 48,032 23,209
Accounts receivable, less allowance 83,859 84,397
Inventories
Raw materials 25,807 20,898
Work in process 13,065 12,396
Finished goods 22,013 18,587
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60,885 51,881
Other current assets 8,815 9,609
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Total Current Assets 248,862 220,556
Property, plant, and equipment 177,063 166,931
Less accumulated depreciation 73,300 69,300
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103,763 97,631
Goodwill 47,321 44,252
Other assets 24,642 27,628
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$424,588 $390,067
Liabilities ========= =========
Current Liabilities
Accounts payable $21,741 $22,606
Accrued liabilities 35,249 38,816
Income taxes 21,631 20,817
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Total Current Liabilities 78,621 82,239
Long-term debt 2,850 2,850
Other long-term liabilities 11,107 10,416
Deferred income taxes 4,292 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 87,711,496
shares issued and outstanding at March 31, 1995
and 87,288,692 at December 30, 1994 877 436
Additional paid-in capital 58,092 54,150
Cumulative foreign currency translation adjustment 9,556 2,102
Unrealized net holding losses on
available-for-sale securities (214) (803)
Retained earnings 259,407 236,905
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Total Stockholders' Equity 327,718 292,790
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$424,588 $390,067
========= =========
The accompanying notes are an integral part of these statements.
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TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
March 31, April 1,
1995 1994
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(In thousands, except
per share data)
Net sales $142,212 $99,538
Cost of sales 62,943 46,127
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Gross Profit 79,269 53,411
Marketing, general & administrative expense 27,670 21,989
Research and development expense 19,788 15,716
Goodwill amortization 665 597
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Total Operating Expense 48,123 38,302
Operating Profit 31,146 15,109
Interest income (1,126) (726)
Interest expense 31 526
Foreign exchange loss, net 386 319
Other (income) expense, net (456) 447
--------- ---------
Earnings before income taxes 32,311 14,543
Income taxes 9,370 3,345
--------- ---------
Net Earnings $22,941 $11,198
========= =========
Earnings per share * $0.25 $0.12
========= =========
Average number of shares of
common stock outstanding * 91,302 90,059
* Restated to give effect to the two-for-one stock split effective May
19, 1995. The first quarter of 1994 is also restated to give effect to
the two-for-one stock split effective May 20, 1994. Both stock splits
are 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 Three Months Ended
March 31, April 1,
1995 1994
--------- ---------
(In thousands)
Cash Flows from Operating Activities:
Net earnings $22,941 $11,198
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 5,548 4,706
Provision for doubtful receivables 289 78
Deferred income taxes 2,632 240
Gain on sale of long-term investment (929) ---
Net (increase) decrease in current assets:
Accounts receivable 2,389 4,798
Inventories (7,488) (3,050)
Other current assets 1,185 (317)
Net increase (decrease) in current liabilities:
Accounts payable (1,336) 352
Accrued liabilities (4,114) (2,665)
Income taxes (1,452) (2,240)
Net (increase) decrease in other assets (1,784) 914
Net increase in other liabilities 623 2,445
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Net Cash Provided by Operating Activities 18,504 16,459
Cash Flows from Investing Activities:
Acquisition of property,plant and equipment,net (7,627) (1,740)
Payments for purchases of marketable securities (25,597) (7,240)
Proceeds from sales of marketable securities 1,364 2,576
Proceeds from sale of long-term investment 3,429 ---
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Net Cash Used by Investing Activities (28,431) (6,404)
Cash Flows from Financing Activities:
Payments of notes payable --- (10,000)
Common stock sold through stock-option plans 3,943 3,340
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Net Cash Provided (Used) by Financing Activities 3,943 (6,660)
Effect of exchange rate changes on cash 1,795 1,409
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Net (decrease) increase in cash and cash equivalents (4,189) 4,804
Beginning of period cash and cash equivalents 51,460 29,589
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End of period cash and cash equivalents $47,271 $34,393
========= =========
Supplemental Disclosures:
Interest paid $26 $538
Income taxes paid $4,844 $1,246
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. Subsequent Event - Stock Split:
On April 25, 1995, 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 May 19,
1995, to stockholders of record as of 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. Common
share and per share amounts for the first quarter of 1994 also reflect
the two-for-one stock split payable in the form of a 100 percent stock
dividend effective May 20, 1994.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1995, the Company's cash, cash equivalents
and marketable securities portfolio increased $20,634,000 to a new high
of $95,303,000. The Company's record first quarter earnings of
$22,941,000 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
$9,004,000 during the first quarter 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 $3,567,000 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
$7,600,000. 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
$25,000,000. 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 March 31, 1995 was $170,241,000, compared with
working capital of $138,317,000 at December 30, 1994. The Company's
current ratio at the end of the first quarter was 3.2 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 first quarter of 1995 were a record $142,212,000, up 42.9
percent from the previous first quarter record of $99,538,000 set in
1994. The growth in sales was led by the international sales channel,
highlighted by a 150 percent increase in Martis DXX system sales over
the same period last year. Sales also grew domestically, led by
strong increases in TITAN digital cross-connect systems.
Net earnings for the first quarter of 1995 were $22,941,000, up 104.9
percent from $11,198,000 a year earlier. Earnings per share for the
current quarter were 25 cents compared with 12 cents for the first
quarter of 1994. Earnings per share amounts have been restated to
give effect to the two-for-one stock effective May 19, 1995. The first
-7-
quarter of 1994 per share amounts also reflect the two-for-one stock
split that was effective May 20, 1994.
The increase in earnings for the first quarter of 1995 was primarily
based on the growth in sales and an increase in the gross margin percent
from 53.7 percent in 1994 to 55.7 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 $48,123,000 for the first quarter of 1995
increased 25.6 percent over operating expenses of $38,302,000 for the
first 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 first
quarter of 1995 were 33.8 percent of sales compared to 38.5 percent for
the same period in 1994.
Interest income contributed $1,126,000 to pre-tax income in the first
quarter of 1995, up 55.1 percent from $726,000 in the first quarter of
1994. This increase was due to greater average cash balances and higher
market interest rates.
Interest expense was $31,000 for the first quarter of 1995 compared to
$526,000 for the first quarter of 1994. The 1994 interest expense was
related to the bank debt used to finance the acquisition of Martis Oy
in October 1993. The debt was entirely repaid by the fourth quarter of
1994.
Foreign exchange losses of $386,000 incurred during the first 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 $319,000 in the first
quarter of 1994 were the result of the weakness of the U.S. dollar
versus the Irish punt and the Finnish markka along with the strength of
the U.S. dollar in Canada.
Other non-operating income of $456,000 in the first quarter of 1995 was
primarily generated by a gain on the sale of stock held as a long-term
investment. The 1994 loss of $447,000 resulted from capital losses
related to the disposal of fixed assets.
The effective tax rate was approximately 29 percent for the first
quarter of 1995 and 23 percent for the first quarter of 1994. The
increase in the effective tax rate for 1995 is due to an increase in
state income taxes, the decreasing effect of research and development
credits as a percentage of total pretax income, and a greater Martis Oy
effective tax rate. The 1995 effective tax rate reflects adjustments
from the Federal statutory rate primarily attributable to foreign tax
rate benefits.
-8-
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
Exhibit 11 - Calculation of Per Share Earnings.
Exhibit 27 - Financial Data Schedule.
(B) Reports on Form 8-K
The Registrant did file 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 stock
dividend on May 19, 1995, to stockholders of record on
May 3, 1995.
-9-
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 4, 1995
- ----------------
(Date)
-10-
EXHIBIT 11
TELLABS, INC.
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31, April 1,
1995 1994
--------- ---------
PRIMARY EARNINGS PER SHARE *
- ------------------------------------
Weighted average number of common
shares outstanding during the period 87,532 86,324
Net additional shares assuming
dilutive stock options exercised and
proceeds used to purchase treasury
shares at average fair market value 3,682 3,684
--------- ---------
Weighted average number of common
shares and common equivalent shares
outstanding 91,214 90,008
========= =========
Net earnings $22,941 $11,198
========= =========
Primary earnings per share $0.25 $0.12
========= =========
FULLY DILUTED EARNINGS PER SHARE *
- ------------------------------------
Weighted average number of common
shares outstanding during the period 87,532 86,324
Net additional shares assuming
dilutive stock options exercised and
proceeds used to purchase treasury
shares at fair market value 3,770 3,735
--------- ---------
Weighted average number of common
shares and common equivalent shares
outstanding 91,302 90,059
========= =========
Net earnings $22,941 $11,198
========= =========
Fully diluted earnings per share $0.25 $0.12
========= =========
* Restated to give effect to the two-for-one stock split effective May
19, 1995. The first quarter of 1994 is also restated to give effect to
the two-for-one stock split effective May 20, 1994. Both stock splits
are payable in the form of a stock dividend.
-11-
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This schedule contains summary financial information extracted from the
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