UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-9692
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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 (630) 378-8800
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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 May 2, 1997, 180,652,994 common shares of Tellabs, Inc. were
outstanding.
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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 7
Item 2. Management's Discussion and Analysis 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
-2-
TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE BALANCE SHEETS
(Unaudited)
Mar. 28, Dec. 27,
1997 1996
Assets --------- ---------
Current assets (In thousands)
Cash and cash equivalents $110,796 $90,446
Investments in marketable securities 218,656 136,421
Accounts receivable, less allowance 161,870 167,928
Inventories
Raw materials 32,263 30,961
Work in process 12,699 12,046
Finished goods 35,964 35,512
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80,926 78,519
Other current assets 1,003 2,150
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Total Current Assets 573,251 475,464
Property, plant, and equipment 277,033 267,014
Less accumulated depreciation 109,069 104,254
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167,964 162,760
Goodwill 68,206 64,785
Other assets 36,079 40,814
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$845,500 $743,823
Liabilities ========= =========
Current Liabilities
Accounts payable $37,947 $36,931
Accrued liabilities 70,783 71,258
Income taxes 34,190 23,435
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Total Current Liabilities 142,920 131,624
Long-term debt 4,115 2,850
Other long-term liabilities 12,676 10,964
Deferred income taxes 6,334 7,109
Stockholders' Equity
Preferred stock, with $.01 par value-
5,000,000 shares authorized, no shares issued - -
Common stock, with $.01 par value -
200,000,000 shares authorized 180,431,712
shares issued and outstanding at March 28, 1997
and 179,652,633 at December 27, 1996 1,804 1,797
Additional paid-in capital 106,043 94,854
Cumulative foreign currency translation adjustment (11,912) 3,937
Unrealized net holding gains on
available-for-sale securities 51,296 21,551
Retained earnings 532,224 469,137
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Total Stockholders' Equity 679,455 591,276
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$845,500 $743,823
========= =========
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 28, March 29,
1997 1996
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(In thousands, except
per share data)
Net sales $247,123 $172,256
Cost of sales 95,420 74,482
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Gross Profit 151,703 97,774
Marketing, general & administrative expense 45,574 33,613
Research and development expense 33,236 21,602
Goodwill amortization 1,506 611
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Total Operating Expense 80,316 55,826
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Operating Profit 71,387 41,948
Interest income (2,383) (1,975)
Interest expense 116 28
Other income, net (21,071) (572)
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Earnings before income taxes 94,725 44,467
Income taxes 31,638 13,340
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Net Earnings $63,087 $31,127
========= =========
Earnings per share * $0.34 $0.17
========= =========
Average number of shares of
common stock outstanding * 185,655 184,039
* 1996 share amounts are restated to give effect to the two-for-one
stock split effective November 15, 1996.
The accompanying notes are an integral part of these statements.
-4-
TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW
(Unaudited)
For The Three Months Ended
March 28, March 29,
1997 1996
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(In thousands)
Cash Flows from Operating Activities:
Net earnings $63,087 $31,127
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 10,478 6,461
Provision for doubtful receivables 1,167 390
Deferred income taxes (1,004) (457)
Gain on sale of stock held as an investment (20,803) ----
Net (increase) decrease in current assets,
net of effects from acquisitions:
Accounts receivable 1,130 (467)
Inventories (4,047) 536
Other current assets 1,118 36
Net increase (decrease) in current liabilities,
net of effects from acquisitions:
Accounts payable 1,529 (1,527)
Accrued liabilities (18,211) (10,945)
Income taxes 11,730 (3,527)
Net increase in other assets (2,931) (325)
Net increase in other liabilities 1,810 1,125
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Net Cash Provided by Operating Activities 45,053 22,427
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment, net (15,360) (9,371)
Payments for purchases of marketable securities (61,323) (39,622)
Proceeds from sales of marketable securities 52,103 33,005
Payments for acquisitions, net of cash acquired (7,821) ----
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Net Cash Used by Investing Activities (32,401) (15,988)
Cash Flows from Financing Activities:
Common stock sold through stock-option plans 11,196 1,450
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Net Cash Provided by Financing Activities 11,196 1,450
Effect of exchange rate changes on cash (3,498) (562)
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Net increase in cash and cash equivalents 20,350 7,327
Beginning of period cash and cash equivalents 90,446 92,485
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End of period cash and cash equivalents $110,796 $99,812
========= =========
-5-
TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW
(Unaudited)
For The Three Months Ended
March 28, March 29,
1997 1996
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Supplemental Disclosures: (In thousands)
Interest paid $82 $32
Income taxes paid $10,427 $17,550
Supplemental Schedule of Non-Cash Investing and Financing Activities:
In acquiring all of the outstanding shares of Trelcom Oy and certain
wavelength-division multiplexing and optical networking technology and
related assets from IBM, the Company paid cash totaling $8,434,000,
currently allocated as follows:
(In thousands)
Fair value of assets acquired $1,777
Cost in excess of fair value 8,098
Liabilities assumed (1,441)
---------
Cash paid for acquisitions $8,434
=========
The accompanying notes are an integral part of these statements.
-6-
TELLABS, INC. NOTES TO CONDENSED CONSOLIDATED
COMPARATIVE FINANCIAL STATEMENTS
1. Financial Information:
The unaudited financial information reflects all adjustments (consisting
only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the statements
contained herein. Certain reclassifications have been made in the 1996
financial statements to conform to the 1997 presentation.
2. Basis of Presentation:
These financial statements are presented in accordance with the
requirements of Form 10-Q and consequently may not include all
disclosures normally required by generally accepted accounting
principles or those normally reflected in the Company's Annual Report on
Form 10-K. Accordingly, the financial statements and notes herein
should be read in conjunction with the financial statements and related
notes in the Company's Form 10-K for the year ended December 27, 1996.
-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1997, the Company's cash, cash equivalents
and marketable securities portfolio increased $102,585,000 to an
all-time high of $329,452,000. The Company's marketable securities
portfolio increase of $82,235,000 was primarily due to a mark-to-market
adjustment of $54,148,000 for a certain investment. The Company's
record earnings, combined with the $21,396,000 received from the sale
of a stock held as an investment, drove the increase in cash during the
period. Offsetting these additions, cash payments of approximately
$8,434,000 were made for the acquisition of certain wavelength-division
multiplexing and optical networking technology and related assets from
IBM's Thomas J. Watson Research Center (Tellabs Optical Networking
Group), and the acquisition of Trelcom Oy, a Finnish company
specializing in digital subscriber line technology.
The Company invested approximately $15,360,000 in property, plant, and
equipment during the first quarter of 1997. These expenditures were
part of the Company's on-going expansion of the manufacturing and
research and development capacity at its Bolingbrook, Illinois and
Espoo, Finland facilities. Construction at the Illinois facility is
expected to be completed during the second quarter of 1997, while the
Company anticipates the expansion in Finland to be complete in the
fourth quarter of 1997. The Company currently expects total capital
expenditures for 1997 to approximate $95,000,000, the majority of which
is planned for the aforementioned expansions and the purchase of
equipment and other tangible assets to be installed in the
newly-expanded facilities.
Goodwill increased $3,421,000 during the first quarter of 1997 as the
net result of the goodwill created as part of the aforementioned
acquisitions being offset by the effect of exchange rate fluctuations on
the goodwill balances. Other long-term assets decreased by $4,735,000
primarily due to the reclassification of an investment to short-term.
Accrued liabilities, which remained virtually unchanged when compared to
the balance at December 27, 1996, reflect an increase in deferred taxes,
most of which was related to the mark-to-market adjustment of the
marketable securities, offset by payments made by the Company for
year-end obligations related to employee compensation programs.
Net working capital at March 28, 1997 was $430,331,000, compared with
working capital of $343,840,000 at December 27, 1996. The Company's
current ratio at the end of the first quarter was 4.0 to 1. This
increase in working capital was primarily due to the increase in the
value of marketable securities held as investments and the cash
generated by operating activities. Management believes that the
existing level of working capital will be adequate for the Company's
liquidity needs related to normal operations both currently and in the
foreseeable future. Sufficient resources exist to support the Company's
growth and capital expenditures either through currently available cash,
through cash generated from future operations, or through additional
short-term or long-term financing.
-8-
RESULTS OF OPERATIONS
Sales for the first quarter of 1997 were a record $247,123,000, up 43.5
percent from the previous first quarter record of $172,256,000 set in
1996. Sales growth during the first quarter of 1997 as compared to the
first quarter of 1996 was driven primarily by a 61.4 percent increase in
sales of the SONET-based TITAN (a registered trademark of Tellabs
Operations, Inc.) 5500 digital cross-connect system (TITAN 5500 system).
Expansion of the customer base and increased demand by the Company's
existing customers in response to optical interface enhancements to the
TITAN 5500 system were the primary drivers for the increased sales.
International sales, which grew by 49.1 percent from the same quarter
of the prior year, were led by the 64.8 percent increase in sales of the
MartisDXX (a trademark of Tellabs Oy) integrated access and transport
system (the MartisDXX system). MartisDXX system sales growth was
principally due to continued expansion outside the Scandinavian market.
Also adding to the record first quarter sales in 1997 was a 33.2 percent
or $4,756,000 increase in sales of digital echo cancellers over the same
period in 1996.
Record net earnings were also posted in the first quarter of 1997.
Earnings for the first quarter of 1997 were $63,087,000, up 102.7
percent from $31,127,000 a year earlier. Earnings per share for the
current quarter were 34 cents. First quarter 1997 earnings included a
gain on the sale of stock held as an investment of $13,855,000 (net of
taxes). Excluding the effect of this gain, earnings per share for the
first quarter of 1997 were 27 cents compared with 17 cents for the first
quarter of 1996. The 1996 earnings per share amount has been restated
to give effect to the two-for-one stock split effective November 15,
1996. The increase in earnings for the first quarter of 1997 was
primarily the result of the aforementioned sales growth, an increase in
the gross profit margin as a percentage of sales, and the previously
described gain on the sale of the stock.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," (FAS No. 128) which is
required to be adopted for the 1997 fiscal year end. At that time, the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive
effect of stock options will be excluded. The impact is expected to
result in an increase in basic earnings per share for the first quarter
ended March 28, 1997 and March 29, 1996 of one cent per share for both
periods.
The gross profit margin for the first quarter 1997 improved to 61.4
percent from 56.8 percent for the same period in 1996. This
improvement reflects a favorable sales mix of higher-margin products
and also the continuation of efficient manufacturing operations.
-9-
Operating expenses for the first quarter of 1997 were $80,316,000, an
increase of 43.9 percent over the operating expenses incurred in the
first quarter of 1996. This increase was due to the inclusion of new
items such as the expenses of the Tellabs Wireless Systems Division and
the Tellabs Transport Group, along with the continued investment in a
sophisticated, globally-integrated information system. Despite the
increase of operating expenses in total, operating expenses remained
almost unchanged as a percentage of sales, 32.5 percent for the first
quarter of 1997 as compared to 32.4 percent for the same period in 1996.
Other income was $21,071,000 for the first quarter of 1997 compared to
$572,000 for the first quarter of 1996. The gain on the sale of stock
held as an investment of $20,803,000 was the primary reason for the
large increase. Interest income increased to $2,383,000 in the first
quarter of 1997, up 20.7 percent from $1,975,000 in the first quarter of
1996, as a result of significantly higher cash balances, offset by lower
market interest rates. Interest expense increased to $116,000 in the
first quarter of 1997, from $28,000 in the first quarter of 1996. The
increase is primarily attributable to capital lease expense at the
Tellabs Wireless Systems Division.
The effective tax rate was approximately 33.4 percent for the first
quarter of 1997 compared to 30.0 percent for the first quarter of 1996.
The increase in the effective tax rate for 1997 reflects the tax
effect of the gain on the stock sale and the sales increase at domestic
facilities, where the tax rate is significantly higher than at the
Company's subsidiaries in Ireland and Finland. The 1997 effective tax
rate reflects adjustments from the Federal statutory rate primarily
attributable to foreign tax rate benefits.
The Company cautions that except for historical information, the matters
discussed or incorporated by reference in this Quarterly Report on Form
10-Q are forward-looking statements that involve risks and uncertainties
that may affect the Company's actual results and cause results to
differ materially from such forward-looking statements. Such risks and
uncertainties include but are not limited to, economic conditions,
product demand and industry capacity, competitive products and pricing,
manufacturing efficiencies, research and new product development,
protection of intellectual property, patents and technology, ability to
attract and retain highly qualified personnel, availability of
components and critical manufacturing equipment, facility construction
and startups, the regulatory and trade environment, and other factors
indicated from time to time in the Company's filings with the Securities
and Exchange Commission. Such forward-looking statements reflect only
information available at the time this report is being filed, as a
result the Company undertakes no obligation to update the statements to
reflect subsequent circumstances or events.
-10-
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
Exhibit 27 - Financial Data Schedule.
(B) Reports on Form 8-K
The Registrant filed a report on Form 8-K/A on
March 24, 1997, prior to the filing of this quarterly
report on Form 10-Q, with respect to the completion of
the Registrant's change in certifying accountant.
-11-
TELLABS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELLABS, INC.
----------------
(Registrant)
s\ J. Peter Johnson
-------------------
J. Peter Johnson
Vice President/Controller
& Chief Accounting Officer
May 7, 1997
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(Date)
-12-
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