SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 17, 1996
TELLABS, INC.
(Exact name of registrant as specified in charter)
Delaware 0-9692 36-3831568
(State or other jurisdiction (Commission (IRS employer
of incorporation) file number) identification no.)
4951 Indiana Avenue, Lisle, Illinois 60532
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (708) 969-8800
N/A
(Former name or former address, if changed since last report)
1
Note: This amended Form 8-K is being refiled due to computer error with
regard to the original Form 8-K filed by Tellabs, Inc. on May 1,
1996.
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 17, 1996, Tellabs Operations, Inc., a wholly owned subsidiary
of Tellabs, Inc. (the "Company") acquired all of the outstanding shares
of Steinbrecher Corporation ("Steinbrecher"), located in Burlington,
Massachusetts from Steinbrecher's stockholders pursuant to a Merger
Agreement ("Agreement") dated as of March 11, 1996. Steinbrecher
supplies wideband base station products for digital cellular and
wireless data applications. Effective April 19, 1996, Steinbrecher's
name was changed to "Tellabs Wireless, Inc." ("Tellabs Wireless") which
will operate within the Tellabs Wireless Systems division, a division of
Tellabs International, Inc. The Company intends to continue the Tellabs
Wireless business and to coordinate the development and marketing of its
products with those of Tellabs Wireless.
The consideration paid for the purchase of all equity interests in
Steinbrecher was approximately $76 million in cash and was determined
through arms-length negotiations. The purchase price was paid with $40
million obtained through a bank loan from Bank of America and the
remainder from the Company's existing cash and cash equivalent balances.
2
Item 7. Financial Statements and Exhibits
(a) Financial Statements of the business acquired
- Report of Independent Auditors
- Balance Sheet as of December 31, 1995
- Statement of Operations for the nine months ended December 31,
1995
- Statement of Cash Flows for the nine months ended December 31,
1995
- Statement of Stockholders' Equity for the nine months ended
December 31, 1995
- Notes to Financial Statements
(b) Pro forma financial information
- Introduction to Unaudited Pro Forma Condensed Combined Balance
Sheet and Statement of Earnings
- Unaudited Pro Forma Condensed Combined Balance Sheet
- Unaudited Pro Forma Condensed Combined Statement of Earnings
- Notes to Pro Forma Condensed Combined Balance Sheet and Statement
of Earnings
(c) Exhibits
20.1 Agreement of Merger Between Tellabs, Inc., Tiger Merger Co.,
and Steinbrecher Corporation dated as of March 11, 1996 1/
1/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual
Report for the year ended December 29, 1995 (File No. 0-9692)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf
by the undersigned hereunto duly authorized.
TELLABS, INC.
Date: May 2, 1996 By: s\ J. Peter Johnson
J. Peter Johnson
Vice President, Controller
and Chief Accounting Officer
3
Report of Independent Auditors
The Board of Directors and Stockholders
Steinbrecher Corporation
We have audited the accompanying balance sheet of Steinbrecher
Corporation (the Company) as of December 31, 1995, and the related
statements of operations, cash flows, and stockholders' equity for the
nine months ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Steinbrecher
Corporation as of December 31, 1995, and the results of its operations
and its cash flows for the nine months ended December 31, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 20, 1996
4
<TABLE>
<CAPTION>
Steinbrecher Corporation
BALANCE SHEET
ASSETS December 31, 1995
<S> <C>
Current assets:
Cash and cash equivalents $5,314,453
Accounts receivable 445,234
Inventories 3,380,554
Other current assets 85,605
-------------
Total current assets 9,225,846
Property and equipment, net 4,377,161
Other assets 113,306
-------------
TOTAL ASSETS $13,716,313
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,205,295
Short-term borrowings 1,260,089
Accrued expenses and other current liabilities 3,062,885
Accrued warranty costs 2,708,181
Current capitalized lease obligations 1,070,407
Current portion of long-term debt 187,500
-------------
Total current liabilities 9,494,357
Capitalized lease obligations 2,278,110
Long-term debt 812,500
Commitments (Note I)
Stockholders' equity:
Convertible redeemable preferred stock, $1.00 par value;
authorized, 10,411,429 shares; issued and outstanding
9,147,548 shares. (liquidation preference, $48,293,492) 9,147,548
Special preferred stock, $.01 par value; authorized
1,000,000 shares; no shares issued and outstanding -
Common stock, $.01 par value; authorized, 25,000,000 shares;
issued and outstanding 1,529,235 shares 15,293
Capital in excess of par value 35,371,044
Accumulated deficit (43,402,539)
-------------
Total stockholders' equity 1,131,346
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,716,313
<FN> =============
See notes to financial statements
</TABLE>
5
Steinbrecher Corporation
STATEMENT OF OPERATIONS
Nine Months
Ended
December 31,
1995
Product revenues $9,012,056
Contract revenues 488,868
-------------
9,500,924
Cost of product revenues 7,796,053
Cost of contract revenues 324,467
-------------
8,120,520
-------------
Gross profit 1,380,404
Operating expenses:
Research and development 5,714,045
Marketing, sales and service 1,651,051
General and administrative 1,684,533
-------------
Total operating expenses 9,049,629
-------------
Loss from operations (7,669,225)
Other income (expense):
Interest and other expense (608,564)
Interest and other income 339,082
-------------
(269,482)
-------------
Net loss ($7,938,707)
=============
See notes to financial statements
6
Steinbrecher Corporation
STATEMENT OF CASH FLOWS
Nine Months
ended
December 31,
1995
OPERATING ACTIVITIES
Net loss ($7,938,707)
Adjustments to reconcile net loss
to net cash used for operations:
Depreciation 1,629,451
Changes in assets and liabilities:
Accounts receivable (170,734)
Inventories 1,595,381
Other current assets and other assets 292,337
Accounts payable 417,941
Accrued expenses and
other current liabilities (1,315,168)
Accrued warranty costs (811,154)
-------------
Net cash used for operating activities (6,300,653)
INVESTING ACTIVITIES
Capital expenditures (690,703)
FINANCING ACTIVITIES
Proceeds from long-term debt 2,500,000
Principal payments on long-term debt (2,363,245)
Exercise of stock options 3,270
Increase in short-term borrowings 1,260,089
-------------
Net cash provided by financing activities 1,400,114
-------------
Net decrease in cash (5,591,242)
Cash and cash equivalents, beginning of period 10,905,695
-------------
Cash and cash equivalents, end of period $5,314,453
=============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $322,596
Non-cash financing and investing:
Property and equipment added under capital lease $1,899,613
See notes to financial statements
7
<TABLE>
<CAPTION>
Steinbrecher Corporation
STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended December 31, 1995
Convertible
Redeemable Capital in Total
Preferred Common Excess of Accumulated Stockholders'
Stock Stock Par Value Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1995 $9,147,548 $15,193 $35,367,874 ($35,463,832) $9,066,783
Exercise of stock options 100 3,170 $3,270
Net loss (7,938,707) ($7,938,707)
------------ ------- ------------ ------------- -------------
Balance, December 31, 1995 $9,147,548 $15,293 $35,371,044 ($43,402,539) $1,131,346
============ ======= ============ ============= =============
<FN>
See notes to financial statements
</TABLE>
8
Steinbrecher Corporation
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
A. Summary of Significant Accounting Policies:
Business Operations
Steinbrecher Corporation (the "Company") operates in a single
business segment and is engaged in the design, development,
manufacture and sale of wireless communication systems and
subsystems.
Reporting Dates
The Company changed its fiscal year end for financial reporting and
tax purposes to December 31, effective for the nine month period
ended December 31, 1995.
Revenue Recognition
Revenue earned from sales of products or services is recognized as
products are shipped and services are rendered. Revenue earned
under long-term contracts is recognized under the
percentage-of-completion method of accounting. The Company's
method for determining the extent of progress toward completion is
based on the ratio of incurred contract costs to date as they
relate to estimated total contract costs after giving effect to the
most recent estimates of cost at completion and achievement of
contract milestones.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, money market accounts
and commercial paper with original maturities of 90 days or less.
The Company invests cash in conservative, highly rated investments
and monitors the amount of credit exposure to any one institution.
Inventories
Inventories are stated at the lower of aggregate cost (determined
on a first-in, first-out basis) or market.
Property and Equipment
Property and equipment is stated at cost. The Company provides for
depreciation based upon expected useful lives using principally the
straight-line method for financial reporting and accelerated
methods for income tax reporting purposes.
9
Estimated useful lives are as follows:
Production and engineering equipment 1-5 years
Computer hardware & software 3 years
Furniture & fixtures 5 years
Office equipment 5 years
Demonstration equipment 1-3 years
Leasehold improvements Lesser of the lease or
estimated useful life
Demonstration equipment represents equipment used by the Company to
facilitate the marketing and selling process.
When assets are retired or otherwise disposed of, the asset costs
and related allowances for depreciation are eliminated from the
accounts and any resulting gain or loss is reflected in income.
Product Warranty Costs
The company warrants its products for various lengths of time which
range between three and thirty months. Anticipated costs related
to the warranties are charged to cost of revenues at time of
shipment.
Income Taxes
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109. Tax provisions and
credits are recorded at statutory rates for taxable items included
in the statements of operations regardless of the period in which
such items are reported for income tax purposes. Deferred income
taxes are recognized for temporary differences between financial
statement and income tax bases of assets and liabilities and net
operating loss carryforwards and tax credits for which income tax
benefits are expected to be realized in future years.
Research and Development Costs
Company-funded research and development costs are expensed as
incurred. Customer-funded research and development costs are
included in costs of contracts.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
However, management believes any difference between actual results
10
and these estimates would not have a material effect on the
financial condition of the Company.
Accounting for Stock-based compensation
During October 1995, the Financial Accounting Standards Board
issued Statement No. 123 ("SFAS 123") which establishes a fair
value based method of accounting for stock based compensation
plans. While the Company is studying the impact of the
pronouncement, it continues to account for employee stock options
under APB Opinion No. 25, Accounting for Stock issued to
Employees. SFAS 123 will be effective for the Company for its 1996
fiscal year.
B. Significant Customers:
During the nine months ended December 31, 1995, approximately 91%
of the Company's revenues were attributable to one customer.
Approximately 91% of the total accounts receivable were due from
this customer at December 31, 1995.
C. Inventories:
Inventories consist of the following at December 31, 1995:
Raw materials $1,382,523
Work in process 1,582,618
Finished goods 741,468
-----------
3,706,609
Less reserve for obsolescence 326,055
-----------
$3,380,554
===========
D. Property and Equipment:
Property and equipment consist of the following at December 31,
1995:
Engineering equipment $1,722,417
Production equipment 1,685,637
Computer hardware & software 2,753,965
Furniture & fixtures 222,055
Office equipment 187,825
Leasehold improvements 308,538
Demonstration equipment 209,320
Construction in progress 15,015
-----------
7,104,772
Less accumulated depreciation 2,727,611
and amortization -----------
$4,377,161
===========
11
Included in production and engineering equipment and demonstration
equipment is internally produced equipment that is used by the
Company for development, production and demonstration purposes.
This equipment has an estimated useful life of one year. The net
book value of these assets is $123,500 at December 31, 1995.
In December 1995, the Company financed various assets included in
property and equipment under a sale/leaseback arrangement. The
property and equipment was sold for $2,500,000. A gain of $822,169
which was realized on the transaction is deferred and recorded as
an offset to the aggregate cost of property and equipment. The
deferred gain will be amortized against future depreciation expense
on the financed assets over the 5 year lease term. Under the lease
arrangement, the financed items are included in property and
equipment at an aggregate cost of $2,686,237, representing the
present value of the minimum lease payments using the Company's
incremental borrowing rate of 12% at the time of the financing.
Included in the cost of property and equipment at December 31, 1995
is approximately $2,894,277 of assets which are financed under
capital lease agreements. Amortization of these assets is included
in depreciation expense.
E. Accrued Expenses:
Accrued expenses and other current liabilities consist of the
following at December 31, 1995:
Compensation and related costs $859,377
Royalties 703,637
Subcontract services 578,502
Deferred revenue 45,000
Other 876,369
-----------
$3,062,885
===========
F. Accrued Warranty Costs:
The Company made certain enhancements to its DataCell product line
during the fiscal year ended March 31, 1995. Included in accrued
warranty costs at December 31, 1995 is approximately $367,000 for
the estimated costs for completion of the upgrading and
retrofitting.
Additionally, in accordance with its stated warranty policy, the
Company has warranty reserves of $1,741,027 at December 31, 1995.
12
G. Debt and Capitalized Lease Obligations:
On October 23, 1995, the Company entered into an $8,000,000
working capital line of credit agreement with a commercial bank.
The line of credit expires on November 30, 1996. Unless notice is
given by either party, the agreement will automatically and
continuously renew for successive additional terms of one year
each. The interest payable on any outstanding balance is the
greater of 9% or the highest London Interbank Offered Rate
("LIBOR") in effect throughout each calendar month, plus 5.375% per
annum (11.315% at December 31, 1995). Under the agreement, the
Company is obligated to pay a minimum interest charge of $5,000
each month, regardless of the amount of outstanding obligations.
At December 31, 1995, $1,260,089 was outstanding under this line of
credit. Borrowings are determined under a formula which includes
accounts receivable and inventory and are collateralized by all of
the Company's assets.
On October 30, 1995, the Company entered into a master lease
agreement allowing the Company to lease up to $4,000,000 in
property and equipment. In conjunction with the execution of the
master lease agreement, the Company issued to the lender a warrant
to purchase 20,000 shares of common stock at an exercise price of
$8.00 per share (See Note H). On November 30, 1995, the Company
executed sale/leaseback transactions under the master lease
agreement, whereby the Company received proceeds totaling
$2,500,000 for the sale of certain property and equipment. Under
the arrangement, the Company is required to make 48 monthly lease
payments. At the end of the 48 month term, the Company has an
option to buy the equipment at its then fair market value. In the
event that the Company elects not to exercise the buyout option,
the lease will automatically renew for an additional 12 months. In
accordance with generally accepted accounting principles, the
Company recorded the assets and lease obligations at $2,686,237,
which represents the present value of future lease payments using
an incremental borrowing rate of 12%. A gain of $822,169 realized
on the transaction is deferred and is being amortized over the
expected 60 month lease term. At December 31, 1995, $2,650,842 was
outstanding under the lease arrangement.
During the year ended March 31, 1994, the Company entered into a
master lease agreement allowing the Company to lease up to
$1,000,000 in fixed assets. During the year ended March 31, 1995,
the Company executed a lease under the master lease agreement for
$513,747, with principal and interest payable over 48 months at a
fixed interest rate of 10.20% and executed a second lease under the
master lease agreement for $339,024 with principal and interest
payable over 48 months at a fixed interest rate of 11.43%. At
December 31, 1995, $582,852 was outstanding under these agreements.
The Company was in violation of its equity, leverage, asset
coverage and other financial covenants at and for, the nine months
ended December 31, 1995. Consequently, at December 31, 1995,
13
$375,023 of the outstanding obligation under this agreement, that
otherwise would have been classified as long-term has been
classified as current.
Additionally, the Company has financed certain office and
production equipment under two separate lease agreements.
Outstanding principal and interest are payable over 60 months at
interest rates of 7.74% and 13.89%. At December 31, 1995, $114,823
was outstanding.
Future minimum lease payments for capitalized lease obligations at
December 31, 1995, are as follows:
Year Ending
December 31,
1996 $1,042,725
1997 1,042,725
1998 915,047
1999 730,615
2000 517,000
-----------
$4,248,112
===========
On March 5, 1993, the Company sold a $1,000,000 8 1/2% Subordinated
Note ("the Note") due in 16 equal quarterly installments commencing
June 30, 1996 and ending March 31, 2000. In conjunction with the
issuance of the Note, the noteholder received a warrant to purchase
238,095 shares of common stock at an exercise price of $2.10 per
share, subject to adjustment in certain circumstances. (See
Note H) The Note is subordinated in right of payment to all senior
indebtedness of the Company. The Note Agreement specifies that the
Company maintain an interest coverage ratio and certain other
covenants. The Company was in violation of its equity, leverage,
asset coverage and other financial covenants and obtained waivers
of these violations at and through the period ending December 31,
1995. Further, in February 1996, the Company and the lender agreed
to modify the covenants. The Company believes it will meet its
covenants throughout 1996.
14
Long-term debt and lease obligations consists of the following at
December 31, 1995:
Capitalized lease obligations $3,348,517
Subordinated note 1,000,000
-----------
4,348,517
Less current portion
- Scheduled repayments 882,884
- Lease obligations
subject to acceleration 375,023
-----------
$3,090,610
===========
H. Stockholders' Equity:
Stock Options
On September 19, 1994, the Board of Directors adopted and the
shareholders approved the 1994 Stock Option/Stock Issuance Plan
(the "1994 Stock Plan"). The 1994 Stock Plan, represents the
successor equity incentive program to the 1988 Incentive stock
option plan ("the 1988 plan") and the compensation contracts
pursuant to which non-qualified options had been granted. All
outstanding stock options under the prior plans are incorporated
into the 1994 Stock Plan but will continue to be governed under the
terms and conditions of the specific instruments evidencing those
options. The exercise price of an incentive stock option cannot be
less than the fair market value of the common stock on the date of
grant. The Board of Directors authorized 2,500,000 shares of
common stock to be reserved for issuance under the 1994 Stock Plan,
of which, as of December 31, 1995, 285,499 shares had already been
issued upon exercise of options granted under prior plans,
1,160,747 shares were reserved for issuance under outstanding
options and 1,053,754 shares were available for future option
grants or share issuance.
During the year ended March 31, 1994, the Company entered into
compensation contracts with certain employees pursuant to which the
Company granted these employees non-qualified stock options.
15
Information related to stock option activity under the 1994 Plan
and with respect to non-qualified options granted during the nine
months ended December 31, 1995 is as follows:
Exercise
Shares Price
---------- ---------
Outstanding at March 31, 1995 1,151,641 $.21-8.00
Granted 750,100 1.00-4.00
Exercised (10,043) .21-.80
Canceled (730,951) 4.00
---------- ---------
Outstanding at December 31, 1995 1,160,747 $.21-1.00
========== =========
At December 31, 1995, options to purchase 518,403 shares of common
stock were exercisable.
Convertible Preferred Stock
Convertible preferred stock, $1.00 par value, for which 10,411,429
shares have been authorized for all series, consists of the
following at December 31, 1995:
Shares Common
issued and shares issuable
outstanding upon conversion
------------ -------------
Series A 476,192 1,587,304
Series B 1,143,568 1,833,337
Series C 3,166,669 3,166,669
Series D 4,361,119 4,361,119
------------ -------------
9,147,548 10,948,429
============ =============
16
Convertible preferred stock activity for the period from inception
through December 31, 1995 is as follows:
Shares Aggregate
Issued Purchase Price
--------- ------------
August 1987 issuance of Series A
at $4.20 per share. 476,192 $2,000,006
May 1989 issuance of Series B
at $2.02 per share. 259,905 525,005
February 1990 issuance of Series B
at $2.02 per share. 259,900 524,995
September 1990 issuance of Series B
at $2.02 per share. 623,763 1,260,001
February 1993 issuance of Series C
at $2.10 per share. 2,214,288 4,650,004
March 1993 issuance of Series C
at $2.10 per share. 952,381 2,000,000
December 1993 issuance of Series D
at $8.00 per share. 2,500,000 20,000,000
November 1994 issuance of Series D
at $8.00 per share. 1,647,369 13,178,952
December 1994 issuance of Series D
at $8.00 per share. 213,750 1,710,000
--------- ------------
Balance at December 31, 1995 9,147,548 $45,848,963
========= ============
Dividends on each share of Series A, B, C and D preferred stock
accrue cumulatively on a daily basis at the annual rate of $.21,
$.101, $.105 and $.40, respectively, whether or not declared or
earned ("Accruing Dividends"). Accruing Dividends in arrears for
Series A, B, C and D preferred stock amounted to $5,321,473 at
December 31, 1995. Such dividends will not be payable should the
preferred shares be converted into common stock.
Each share of Series A, B, C and D convertible preferred stock may
be converted into common stock based upon a conversion formula
which would result in the issuance of a total of 10,948,429
shares of common stock. The conversion formula is subject to
adjustment upon the occurrence of certain conditions as stipulated
in the Company's Certificate of Incorporation. Conversion is at
the option of the stockholder with mandatory conversion called for
upon the closing of an initial public offering of the Company's
common stock with gross proceeds of at least $10,000,000 at a per
share sale price to the public of at least $12.00.
The holders of the Series A, B and C preferred stocks have
liquidation rights of $4.20, $2.02 and $2.10 per share,
respectively, plus unpaid Accruing Dividends (whether or not
declared) and any other dividends declared but unpaid. The holders
17
of the Series D preferred stock have liquidation rights of $8.00
per share plus all dividends declared but unpaid. At December 31,
1995, the liquidation preferences for Series A, B, C, and D
preferred stock amounted to:
Series A $2,839,256
Series B 2,968,717
Series C 7,596,567
Series D 34,888,952
------------
$48,293,492
============
In addition, after payment of certain amounts to the holders of
Common Stock, the holders of the Series A, B, and C preferred stock
are entitled to participate with the holders of Common Stock on a
converted-to-common basis as to the distribution of any remaining
assets of the Company.
In the absence of mandatory conversion on or after February 2,
1997, the Company is required to redeem from funds legally
available for redemption all preferred shares submitted for
redemption at a redemption price equal to $4.20 per share for
Series A Convertible Preferred Stock, $2.02 per share for Series B
Convertible Preferred Stock, $2.10 per share for Series C
Convertible Preferred Stock and $8.00 per share for Series D
Convertible Preferred Stock, plus unpaid Accruing Dividends
(whether or not declared) and any other dividends declared but
unpaid. Any preferred shares not redeemed because of a lack of
legally available funds will remain outstanding until additional
funds become legally available for redemption.
The preferred stockholders are entitled to elect a majority of
directors to serve on the Company's Board of Directors. In
addition, the number of directors constituting the Board of
Directors cannot be increased to a number greater then eight
without approval of two-thirds of the then outstanding preferred
stockholders. Otherwise, in general, the preferred stockholders
have voting rights substantially equal to the rights of the common
stockholders and special consent rights with respect to certain
corporate transactions.
Stock Purchase Warrant
In March 1993, the Company issued a warrant to purchase 238,095
shares of common stock to the holder of the Subordinated Note. The
warrant entitles its holder to the purchase of common stock for
$2.10 per share (subject to adjustment in certain circumstances)
and is execrable until March 31, 2000. As of December 31, 1995,
the warrant was not exercised.
18
In July 1995, the Board of Directors authorized the Company to
issue a warrant for the purchase of up to 40,000 shares of Common
Stock or the number of shares of Common Stock equal to 0.1% of the
gross value of purchase orders received prior to July 31, 1996 from
a certain entity. As of December 31, 1995, the warrant has not
been issued.
In October 1995, the Company issued a warrant to purchase 20,000
shares of Common Stock to a commercial bank in conjunction with the
execution of a master lease agreement.(See Note G) The warrant
entitles its holder to purchase Common Stock for $8.00 per share
and is exercisable until November 21, 1999. As of December 31,
1995, the warrant was not exercised.
Common Stock Reserved
Shares of authorized common stock were reserved for the following
purposes at December 31, 1995:
Issuance in connection with stock options 2,214,501
Issuance in connection with warrants 298,095
Conversion of preferred stock 10,948,429
-------------
Total shares reserved 13,461,025
=============
I. Commitments:
The Company leases a 60,000 square foot building in Burlington,
Massachusetts. The lease is non-cancelable and expires in
May 2003. The annual rent for years 1 to 5 is $275,000 and for
years 6 to 10 is $285,000. The Company is required to pay all
operating expenses for the leased premises. During 1994, the
Company executed a lease with their existing landlord for an
additional 30,000 square foot building in Burlington,
Massachusetts. The lease is non-cancelable and expires in August
1999. The annual rent during the entire term of the lease is
$126,548. The Company is required to pay all operating expenses
for the leased premises.
Rent expense for leased facilities and equipment was approximately
$477,249, during the nine months ended December 31, 1995.
19
The future minimum payments due under noncancelable operating
leases and license agreements are as follows:
Year Ending
December 31,
------------
1996 $533,000
1997 587,000
1998 570,000
1999 520,000
2000 285,000
Thereafter 665,000
-----------
$3,160,000
===========
J. Income Taxes:
Significant components of the Company's deferred tax liabilities
and assets as of December 31, 1995 are as follows:
Deferred tax assets:
Expenses not currently deductible for tax $1,516,543
Research and investment tax credits 2,195,825
Net operating loss carryforwards 14,669,993
-------------
18,382,361
Valuation allowance for deferred tax assets (18,382,361)
-------------
Net deferred taxes $0
=============
A valuation allowance has been established to reflect the
uncertainty of future taxable income to utilize available tax loss
carryforwards, credits and deductible temporary differences.
Federal net operating loss carryforwards ("NOLs") at December 31,
1995 total approximately $36,880,328 and will expire between 2003
and 2010. State NOLs at December 31, 1995 total approximately
$33,982,167 and will expire between 1996 and 2000. The
availability of the federal and state NOLs is limited under the
rules of Internal Revenue Code section 382.
Similar to the rules limiting the Company's use of its NOLs, the
Company's annual use of its investment tax credit and research and
development credit carryovers of approximately $245,400 and
$1,950,500, respectively, is also limited. These tax credit
carryovers can be used to the extent of the Company's income tax
liability on the unused NOL limitation amount. These credits will
expire between 1998 and 2009.
20
K. Salary Deferral Plan:
The Company has a salary deferral plan, qualified as a tax
deferral plan under section 401(k) of the Internal Revenue Code.
Substantially all of the employees of the Company are covered under
the plan. The Company contributes 50 cents for each dollar a
participant contributes up to a maximum of 1% of a participant's
wages, with the potential for additional discretionary
contributions of up to 3% of a participant's wages in the event
that certain Company financial objectives are met. Company
contributions approximated $42,000 for the nine months ended
December 31, 1995. Provisions of the plan include immediate
vesting in Company matching contributions. Benefits are payable
upon hardship withdrawal, retirement, total disability or death.
L. Related Party:
The Company's largest customer during the nine months ended
December 31, 1995, AT&T Wireless Services ("AT&T"), (formerly known
as McCaw Cellular Communications, Inc.), is the parent company of
McCaw Development Corporation, a shareholder of the Company. Total
revenues from AT&T were $8,661,275 in the nine months ended
December 31, 1995. Included in accrued expenses at December 31,
1995 is $603,148 in accrued royalties to AT&T. Receivables due
from AT&T at December 31, 1995 were $399,040.
21
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET AND STATEMENT OF EARNINGS
The following unaudited pro forma condensed combined statement of
earnings and balance sheet give effect to the acquisition by the
Company pursuant to the Agreement. The pro forma information is based
on the estimates and assumptions set forth below and in the notes to
such statements which include pro forma adjustments.
The acquisition is accounted for as a purchase transaction in the pro
forma financial statements. The allocation of the purchase price plus
other direct costs of acquisition are subject to final determinations.
Therefore, the eventual allocation could vary from the pro forma
adjustments.
The fiscal year end for the Company is December 29, 1995 (52/53 week
year). The fiscal year for Steinbrecher is December 31, 1995. During
1995, Steinbrecher changed its fiscal year end from March 31 to December
31 and as such, the pro forma balance sheet and statement of earnings
are presented as of and for the nine months ended December 31, 1995 for
Steinbrecher and as of and for the year ended December 29, 1995 for the
Company.
The pro forma information has been prepared utilizing the historical
financial statements of the Company and Steinbrecher as described
above. This information should be read in conjunction with the
historical financial statements and notes thereto. The pro forma
financial data has been included as required by the rules and
regulations of the Securities and Exchange Commission. The pro forma
financial data does not purport to be indicative of the results which
actually would have been obtained if the acquisition had been effected
on the date indicated or of those results which may be obtained in the
future.
22
<TABLE>
<CAPTION>
Tellabs, Inc.
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF EARNINGS
Steinbrecher
Tellabs Nine months
Year ended Ended Pro Forma
December 29, December 31, ---------------------------
1995 1995 Adjustments Combined
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Net Sales $635,229 $9,501 $ - $644,730
Cost of sales 271,394 8,121 - 279,515
------------- ------------- ------------- -----------
Gross Profit 363,835 1,380 - 365,215
Operating expenses
Marketing 85,843 1,651 - 87,494
Research and development 81,893 5,714 (2)(3) 76,368 163,975
General and administrative 36,878 1,685 (3) 57 38,620
Goodwill amortization 2,568 - - 2,568
------------- ------------- ------------- -----------
207,182 9,050 76,425 292,657
Operating profit (loss) 156,653 (7,670) (76,425) 72,558
Other income (expense)
Interest income, net 5,731 6 (3) (800) 4,937
Other income (expense), net 441 (275) - 166
------------- ------------- ------------- -----------
6,172 (269) (800) 5,103
Earnings (loss) before income taxes 162,825 (7,939) (77,225) 77,661
Income taxes 47,219 - (2)(4) (21,261) 25,958
------------- ------------- ------------- -----------
NET EARNINGS (LOSS) $115,606 ($7,939) ($55,964) $51,703
============= ============= ============= ===========
Average number of common and common
equivalent shares outstanding 91,710 91,710
Earnings per Share $1.26 $0.56
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
23
<TABLE>
<CAPTION>
Tellabs, Inc.
UNAUDITED PRO FORMA CONDENSED
BALANCE SHEET Tellabs Steinbrecher Pro Forma
December 29, December 31, ---------------------------
1995 1995 Adjustments Combined
------------- ------------- ------------- -----------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $92,485 $5,314 (1) ($36,000) $61,799
Investments in marketable securities 69,751 - - 69,751
Accounts receivable, net 127,565 445 - 128,010
Inventories 67,715 3,381 - 71,096
Other current assets 8,854 86 - 8,940
------------- ------------- ------------- -----------
Total current assets 366,370 9,226 (36,000) 339,596
Property, plant and equipment, net 117,022 4,377 - 121,399
Goodwill 44,958 - - 44,958
Other assets 23,701 113 (1)(2) 17,681 41,495
------------- ------------- ------------- -----------
TOTAL ASSETS $552,051 $13,716 ($18,319) $547,448
============= ============= ============= ===========
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings - $1,260 (1) $40,000 $41,260
Current portion of long-term obligations - 1,258 - $1,258
Accounts payable and accrued expenses 98,564 6,976 - 105,540
------------- ------------- ------------- -----------
Total current liabilities 98,564 9,494 40,000 148,058
Long-term obligations, net of current maturities 2,850 3,091 - 5,941
Other long-term liabilities 17,404 - (2)(4) (3,088) 14,316
STOCKHOLDERS' EQUITY
Common stock 888 15 (1) (15) 888
Convertible redeemable preferred stock - 9,148 (1) (9,148) -
Additional paid-in capital 72,385 35,371 (1) (35,371) 72,385
Cumulative translation adjustment 7,842 - - 7,842
Unrealized net gains on marketable securities 48 - - 48
Retained earnings (accumulated deficit) 352,070 (43,403)(1)(2) (10,697) 297,970
------------- ------------- ------------- -----------
Total stockholders' equity 433,233 1,131 (55,231) 379,133
------------- ------------- ------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $552,051 $13,716 ($18,319) $547,448
============= ============= ============= ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
24
Tellabs, Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
A. The pro forma financial statments are provided as of and for the
period ended December 29, 1995. For purposes of the pro forma
balance sheet, the purchase price of $76 million was allocated to
the fair value of the net assets acquired (including identifiable
intangible assets) and liabilities assumed as of December 29, 1995.
Identifiable intangible assets were comprised principally of
developed research and development, in-process research and
development, and the deferred tax effect of the transaction. In
connection with the Company's practice, in-process research and
development as well as its deferred tax effects (a net amount of
approximately $54 million) were written off as reflected in the pro
forma financial statements. The net pro forma increase in other
assets represents the remaining intangible assets. As of the date
of the merger (April 17, 1996), goodwill to be reflected in the
purchase accounting transaction is estimated to amount to
approximately $5.6 million. The increase in goodwill is attributed
to the net loss of Steinbrecher for the period from January 1, 1996
through April 17, 1996.
B. The pro forma condensed combined financial statements do not
purport to be indicative of the results which could have been
obtained if the acquisition had been consummated on the date
indicated or which may be obtained in the future. Pro forma
adjustments, consisting only of those deemed significant, are as
follows:
(1) To record the use of cash and short-term borrowings to acquire
the net assets of Steinbrecher Corporation and to record net
assets at fair value.
(2) To write-off the in-process research and development costs
capitalized as well as the associated deferred income tax
benefit.
(3) To amortize intangible assets over an amortization period of
10 years and to reflect the increase in interest expense and
the related income tax effect due to short-term borrowings.
(4) To reduce the deferred tax valuation allowance for net
operating loss carryforwards estimated to be utilized.
25
