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 April 2, 1999
[ ] 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.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3831568
------------------------- ----------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
4951 Indiana Avenue, Lisle, Illinois 60532
------------------------------------ ------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (630) 378-8800
------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
None N/A
------------------- ---------
Securities registered pursuant to Section 12 (g) of the Act:
Common shares, with $ .01 par value
---------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO[ ]
On April 2, 1999, 391,541,124 common shares of Tellabs, Inc. were
outstanding.
<PAGE>
TELLABS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Comparative
Statements of Earnings
Condensed Consolidated Comparative
Balance Sheets
Condensed Consolidated Comparative
Statements of Cash Flow
Notes to Condensed Consolidated Comparative
Financial Statements
Item 2. Management's Discussion and Analysis
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE>
TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
April 2, April 3,
1999 1998
--------- ---------
(In thousands, except per-share data)
Net Sales $469,651 $327,502
Cost of sales 194,010 138,346
--------- ---------
Gross Profit 275,641 189,156
Operating expenses
Marketing, general and administrative 66,452 48,474
Research and development 62,112 43,306
Goodwill amortization 1,473 1,476
--------- ---------
130,037 93,256
Operating Profit 145,604 95,900
Other income (expense)
Interest income 7,323 4,039
Interest expense (156) (85)
Other 886 1,248
--------- ---------
8,053 5,202
Earnings Before Income Taxes 153,657 101,102
Income taxes 49,939 32,858
--------- ---------
Net Earnings $103,718 $68,244
========= =========
Earnings per Share $ 0.27 $ 0.19
========= =========
Earnings per Share, Assuming Dilution $ 0.26 $ 0.18
========= =========
Average number of common shares outstanding 390,090 363,745
========= =========
Average number of common shares outstanding,
assuming dilution 401,365 373,894
========= =========
The accompanying notes are an integral part of these statements.
<PAGE>
TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE BALANCE SHEETS
April 2, January 1,
1999 1999
(Dollars in thousands) ----------- -----------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 300,771 $ 234,718
Investments in marketable securities 510,464 407,927
Accounts receivable, net 381,354 480,620
Inventories
Raw materials 50,297 48,774
Work in process 22,871 23,276
Finished goods 61,937 50,374
----------- -----------
135,105 122,424
Other current assets 8,939 7,002
----------- -----------
Total Current Assets 1,336,633 1,252,691
Property, plant, and equipment 410,869 413,891
Less accumulated depreciation 166,850 159,100
----------- -----------
244,019 254,791
Goodwill, net 51,446 55,559
Intangibles and other assets, net 81,645 64,550
----------- -----------
Total Assets $1,713,743 $1,627,591
=========== ===========
Liabilities
Current Liabilities
Accounts payable $59,360 $63,083
Accrued liabilities 89,223 81,927
Income taxes 57,386 73,117
----------- -----------
Total Current Liabilities 205,969 218,127
Long-term debt 2,850 2,850
Other long-term liabilities 18,856 18,164
Deferred income taxes 10,638 11,853
Stockholders' Equity
Preferred stock: authorized 5,000,000 shares of
$.01 par value; no shares issued and outstanding - -
Common stock: 500,000,000 shares of $.01 par
value; 391,541,124 and 388,902,266 shares
issued and outstanding 3,915 1,945
Additional paid-in capital 230,204 192,612
Accumulated other comprehensive income
Cumulative translation adjustment (49,248) (9,207)
Unrealized net gains on
available-for-sale securities 17,974 20,423
----------- -----------
Total accumulated other comprehensive income (31,274) 11,216
Retained earnings 1,272,585 1,170,824
----------- -----------
Total Stockholders' Equity 1,475,430 1,376,597
----------- -----------
Total Liabilities and Stockholders' Equity $1,713,743 $1,627,591
=========== ===========
The accompanying notes are an integral part of these statements.
<PAGE>
TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW
(Unaudited)
For The Three Months Ended
April 2, April 3,
1999 1998
---------- ----------
(In thousands)
Operating Activities
Net earnings $ 103,718 $ 68,244
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 16,570 12,820
Provision for doubtful receivables 1,481 288
Deferred income taxes (1,813) 496
Gain on the sale of investments (360) (476)
Net changes in assets and liabilities:
Accounts receivable 87,819 19,781
Inventories (14,495) (6,240)
Other current assets 495 780
Long-term assets (20,446) (7,259)
Accounts payable (2,854) (1,774)
Accrued liabilities 8,830 (11,731)
Income taxes 9,538 12,264
Long-term liabilities 858 747
----------- -----------
Net Cash Provided by Operating Activities 189,341 87,940
Investing Activities
Acquisition of property, plant and equipment, net (9,105) (21,078)
Payments for purchases of marketable securities (212,158) (103,602)
Proceeds from sales and maturities of
marketable securities 92,662 105,041
----------- -----------
Net Cash Used in Investing Activities (128,601) (19,639)
Financing Activities
Common stock sold through stock option plans 13,164 4,199
----------- -----------
Net Cash Provided by Financing Activities 13,164 4,199
Effect of Exchange Rate Changes on Cash (7,851) (3,519)
----------- -----------
Net Increase in Cash and Cash Equivalents 66,053 68,981
Cash and Cash Equivalents at Beginning of Year 234,718 109,048
----------- -----------
Cash and Cash Equivalents at End of Year $ 300,771 $ 178,029
=========== ===========
Other Information
Interest paid $ 86 $ 109
Income taxes paid $ 41,390 $ 19,540
The accompanying notes are an integral part of these statements.
<PAGE>
TELLABS, INC.
NOTES TO CONDENSED CONSOLIDATED COMPARATIVE FINANCIAL STATEMENTS
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial statements and the requirements of
Form 10-Q and applicable rules of Regulation S-X and accordingly do not
include all disclosures normally required by generally accepted
accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments (consisting of
normal recurring accruals) which are necessary for a fair presentation.
Operating results for interim periods are not necessarily indicative of
operating results for the full year. Accordingly, the financial
statements and notes herein should be read in conjunction with the
financial statements and related notes in the Company's Form 10-K for the
year ended January 1, 1999.
In addition, certain reclassifications have been made in the 1998
financial statements to conform to the 1999 presentation.
2. Stock Split:
On April 21, 1999, the Board of Directors of Tellabs, Inc. (the "Company")
declared a two-for-one stock split to stockholders of record on May 3, 1999,
payable on May 17, 1999. All share and per share amounts have been restated
for all periods presented to reflect the stock split.
3. Comprehensive Income:
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income". SFAS No. 130 requires the Company to report foreign currency
translation adjustments and unrealized gains and losses on
available-for-sale securities as components of other comprehensive income.
SFAS No. 130 has no effect on the Company's earnings or total
stockholders' equity. Comprehensive income for the first quarter of 1999 is
$61,228,000 and $82,629,000 for the first quarter of 1998.
4. Earnings Per Share Reconciliation:
The following table sets forth the computation of earnings per share:
(In thousands, except per-share data)
Three Months Ended
April 2, April 3,
1999 1998
Numerator: -------- --------
Net earnings $103,718 $ 68,244
Denominator:
Denominator for basic earnings per share -
weighted-average shares 390,090 363,745
Effect of dilutive securities:
Employee stock options and awards 11,275 10,149
-------- --------
Denominator for diluted earnings per share -
adjusted weighted-average shares
and assumed conversions 401,365 373,894
======== ========
Earnings per share $ 0.27 $ 0.19
======== ========
Earnings per share, assuming dilution $ 0.26 $ 0.18
======== ========
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Tellabs, Inc. started 1999 with its best first quarter in company history by
setting first quarter records for sales, earnings and earnings per diluted
share. Sales for the quarter ended April 2, 1999, were $469.7 million,
earnings were $103.7 million and earnings per diluted share were $0.26 per
share.
Sales for the quarter ended April 2, 1999, totaling $469.7 million,
represented an increase of 43.4% over the Company's then-record sales set in
the first quarter of fiscal year 1998. Sales of the Company's TITAN (a
registered trademark of Tellabs Operations, Inc.) 5500/5500S digital
cross-connect system drove the 45.9% growth in sales within the U.S. Sales of
the TITAN 5500/5500S increased 45.8% compared to the first quarter of 1998.
Sales of digital cross-connect systems overall for the first quarter of 1999
increased 48.9%. Sales outside the U.S. grew 37.3% when compared to the
first quarter of 1998 primarily as the result of an increase in sales of the
Company's MartisDXX (a trademark of Tellabs Oy) managed access and transport
system which increased 21.2% compared to the same period in 1998. Digital echo
canceller sales for the first quarter of 1999 also showed a significant
improvement, increasing 42.0% compared to the same period last fiscal year,
due in part to the addition of sales from Tellabs Virginia (formerly Coherent
Communications Systems Corporation, which was acquired in the third quarter
of 1998). Sales of the Company's CABLESPAN (a registered trademark of Tellabs
Operations, Inc.) 2300 universal telephony distribution system, grew nearly
nine times over its first quarter of 1998 sales level.
Gross margin as a percentage of sales for the first quarter of 1999 was 58.7%
compared to 57.8% for the same period last fiscal year. The increase in gross
margin percentage for the first quarter of 1999 is attributable mainly to
greater efficiencies realized by the Company's manufacturing operations.
Starting in 1999, the company has included costs related to the generation of
customer service revenue as part of "Cost of Sales". In prior years, these
expenses were reported in "Operating Expenses". For comparability purposes,
fiscal year 1998 information has been adjusted to conform with the new
treatment.
Operating expenses for the first quarter of 1999 grew $36.8 million compared
to the same period in 1998. As a percentage of sales, operating expenses
decreased to 27.7% compared to 28.5% for the first quarter of 1998. Marketing
and general and administrative costs for the first quarter of 1999 grew $18.0
million, while decreasing as a percentage of sales to 14.1% compared to 14.8%
in the first quarter of 1998. The growth in marketing and general and
administrative spending was caused by the addition of sales and support
staff and infrastructure necessary to maintain the current level of business
growth. Research and development expenses for the first quarter of 1999
increased $18.8 million and remained a consistent 13.2% of sales.
Other income for the first quarter of fiscal year 1999 was $8.1 million
compared to $5.2 million in the first quarter of 1998. Interest income for
the first quarter of 1999 totaled $7.3 million, an increase of 81.3% over last
year's first quarter. The growth in interest income was due primarily to
higher average cash balances.
The effective tax rate was approximately 32.5 percent for the first quarter of
both fiscal year 1999 and fiscal year 1998. Overall, the Company's 1999 and
1998 effective tax rates reflect the benefits of lower foreign tax rates as
compared to the U.S. Federal statutory rate.
Earnings for the first quarter of 1999 totaled $103.7 million, an increase of
52.0% over earnings in the first quarter of 1998. Earnings per diluted
share were $0.26 per share compared to $0.18 for the same period last year.
The growth in both earnings and earnings per diluted share is attributable to
the Company's ability to generate substantial sales growth while maintaining
costs at a relatively consistent percentage of sales.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's overall liquidity position continues to remain strong. Cash and
cash equivalents totaled $300.8 million at April 2, 1999, an increase of 28.1%
compared to the January 1, 1999 level. The increase in cash and cash
equivalents was primarily due to cash generated from operations of $189.3
million resulting from record first quarter 1999 earnings and strong
collections of fourth quarter 1998 sales. Strong collections of outstanding
accounts receivable balances helped drive a decrease in days sales in
receivables outstanding to 73.8 days at April 3, 1999, compared to 83.9 days
at January 1, 1999.
Net cash used in investing activities for the first quarter of fiscal year 1999
totaled $128.6 million. The majority of these funds were used to increase the
Company's investment in its short-term marketable securities portfolio raising
the balance to $510.5 million, 25.1% above the 1998 year end balance. Also,
during the first quarter of 1999, the Company invested $9.1 million in
property, plant and equipment as a result of its continued efforts to expand
its manufacturing and research and development capabilities.
The inventory balance at April 3, 1999, grew $12.7 million from the balance at
the end of 1998. Despite the growth in the inventory balance, inventory turns
improved to 6.0 times from 5.3 times at January 1, 1999. Intangibles and other
assets increased $17.1 million during the first quarter of 1998 due to
additional investments in new technologies, mostly through licensing
arrangements and software purchases.
Net working capital grew $96.1 million during the first quarter of fiscal year
1999 to its current level of $1,130.7 million. The Company's current ratio at
April 2, 1999 was 6.5 to 1 compared to 5.7 to 1 at January 1, 1999. The
increase in net working capital is due primarily to growth in cash equivalents,
short-term investments and inventories, which was partially offset by lower
accounts receivable balances. Management believes the current level of working
capital is adequate to meet the Company's normal operating needs both now 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 short-term or long-term financing.
<PAGE>
YEAR 2000 READINESS
The Company continues to address its readiness for Year 2000 issues. At the
end of the first quarter of 1999, the Company believes, based on its test
plans, all products currently available for sale are Year 2000 ready. Some
older versions of software for some products are not Year 2000 ready; however,
current software releases for such products are Year 2000 ready. Some products
still in use by customers utilize older software versions. The Company does not
believe this issue will have a material effect on the Company. The Company's
critical information technology (IT) systems and non-IT systems were not fully
compliant but are expected to be compliant by August 1999. Potentially
non-compliant systems consist only of non-critical systems. Based on its
efforts to date, the Company has not incurred any material costs and does not
expect to incur any future material costs in addressing the Year 2000 issue
related to either its products or its systems, both IT and non-IT. The Company
currently believes that the most reasonably likely worst-case scenario that
could result from its potential non-compliance will be limited to minor
personnel productivity inefficiencies caused by the need for alternative
processes and procedures rather than systematic or long-term problems
affecting its business operations as a whole.
The Company has devoted and will continue to devote the resources necessary to
ensure that all Year 2000 issues are properly addressed. However, there can
be no assurance that all Year 2000 issues are detected. The Company has been
surveying significant customers, suppliers and other third parties to
determine their year 2000 compliance status. To date, based on its results,
the Company believes that no material Year 2000 issues exist with a third
party. However, there is still uncertainty surrounding the broader effect of
the Year 2000 issue on the Company and its significant third parties. For
example, failure of public utilities, government agencies and other
providers of infrastructure services could cause disruptions in the Company's
normal operations in the areas affected. The Company is currently in the
process of developing contingency plans designed to mitigate any potential
business interruptions that could arise from Year 2000 related issues.
Actual outcomes and results could be affected by other factors,
including, but not limited to, the continued availability of skilled
personnel, cost control, the ability to locate and remedy software code
problems, critical suppliers and subcontractors meeting their
commitments to be Year 2000 ready, and timely actions by customers. The
most current information about Year 2000 readiness for Tellabs' products
is available on our web site at www.tellabs.com.
Forward-Looking Statements
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. Such risks and
uncertainties include, but not are not limited to, economic conditions;
product demand and industry capacity; competitive products and pricing;
manufacturing efficiencies; research and new product development;
protection of and access to intellectual property, patents and
technology; ability to attract and retain highly qualified personnel;
availability of components and critical manufacturing equipment; Year
2000 readiness; facility construction and start-ups; the regulatory and
trade environment; availability and terms of future acquisitions;
uncertainties relating to the synergies, charges, and expenses associated
with business combinations and other transactions; and other risks that
may be detailed from time to time in the Company's filings with the
Securities and Exchange Commission. The Company's actual future results
could differ materially from those discussed here. The Company
undertakes no obligation to revise or update these forward-looking
statements.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on
April 21, 1999. At this meeting Brian J. Jackman, Stephanie Pace
Marshall, and William F. Souders were re-elected as directors.
These directors were elected for a term of office expiring at the
Company's Annual Meeting in 2002. In addition, the following
directors are continuing in office for the terms indicated:
John A. Foulkes, Peter A. Guglielmi, and Jan H. Suwinski for terms
expiring at the Company's Annual Meeting of Stockholders in 2000,
and Michael J. Birck and Frederick A. Krehbiel for terms expiring
at the Company's Annual Meeting of Stockholders in 2001.
Set forth below is a separate tabulation of the votes cast for and
votes withheld with respect to each nominee for director elected
at this meeting:
Votes Votes
Director For Withheld
-------- ----- --------
Brian J. Jackman 171,513,645 795,166
Stephanie Pace Marshall 171,464,303 844,508
William F. Souders 171,502,994 805,817
ITEM 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
Exhibit 27 - Financial Data Schedule
Exhibit 27.1 - Restated Financial Data Schedule 04/03/98
(B) Reports on Form 8-K:
The Registrant filed a report of Form 8-K on
April 22, 1999, to announce a three-for-two stock split
to stockholders of record on May 3, 1999, along with
other matters.
The Registrant also filed its First Quarter 1999 Report
to Stockholders on Form 8-K on April 29, 1999.
<PAGE>
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 Robert E. Swininoga
-----------------------
Robert E. Swininoga
Vice President and
Principal Accounting Officer
May 14, 1999
- --------------
(Date)
<PAGE>
EXHIBIT INDEX
-------------
Item No. Description
- -------- -----------
Ex. 27 Financial Data Schedule for April 2, 1999
Ex. 27.1 Restated Financial Data Schedule for April 3, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the April 2, 1999, Income Statement and Balance Sheet and
is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> APR-02-1999
<CASH> 300,771
<SECURITIES> 510,464
<RECEIVABLES> 381,354
<ALLOWANCES> 0
<INVENTORY> 135,105
<CURRENT-ASSETS> 1,336,633
<PP&E> 410,869
<DEPRECIATION> 166,850
<TOTAL-ASSETS> 1,713,743
<CURRENT-LIABILITIES> 205,969
<BONDS> 2,850
0
0
<COMMON> 3,915
<OTHER-SE> 1,471,515
<TOTAL-LIABILITY-AND-EQUITY> 1,713,743
<SALES> 469,651
<TOTAL-REVENUES> 469,651
<CGS> 194,010
<TOTAL-COSTS> 194,010
<OTHER-EXPENSES> 130,037
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 156
<INCOME-PRETAX> 153,657
<INCOME-TAX> 49,939
<INCOME-CONTINUING> 103,718
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,718
<EPS-PRIMARY> 0.27<F1>
<EPS-DILUTED> 0.26<F2>
<FN>
<F1> Represents basic earnings per share in accordance
with FAS No. 130 "Earnings Per Share".
<F2> Represents diluted earnings per share in accordance
with FAS No. 130 "Earnings Per Share".
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the April 3, 1998, Income Statement and Balance Sheet and
is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-END> APR-03-1998
<CASH> 178,029
<SECURITIES> 422,457
<RECEIVABLES> 259,595
<ALLOWANCES> 0
<INVENTORY> 94,467
<CURRENT-ASSETS> 955,924
<PP&E> 352,108
<DEPRECIATION> 134,170
<TOTAL-ASSETS> 1,286,717
<CURRENT-LIABILITIES> 229,135
<BONDS> 2,850
0
0
<COMMON> 1,822
<OTHER-SE> 1,031,228
<TOTAL-LIABILITY-AND-EQUITY> 1,286,717
<SALES> 327,502
<TOTAL-REVENUES> 327,502
<CGS> 138,346
<TOTAL-COSTS> 138,346
<OTHER-EXPENSES> 93,256
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 101,102
<INCOME-TAX> 32,858
<INCOME-CONTINUING> 68,244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,244
<EPS-PRIMARY> 0.19<F1>
<EPS-DILUTED> 0.18<F2>
<FN>
<F1> Represents basic earnings per share in accordance
with FAS No. 130 "Earnings Per Share". Restated for
the effect of a two-for-one stock split to
stockholders of record on May 3, 1999.
<F2> Represents diluted earnings per share in accordance
with FAS No. 130 "Earnings Per Share". Restated for
the effect of a two-for-one stock split to
stockholders of record on May 3, 1999.
</FN>
</TABLE>
