ITEM 2. PROPERTIES
The Company's corporate headquarters is located on 19.1 acres of Company-owned land approximately 30 miles west of Chicago in Lisle, Illinois. Located on this property are three buildings. The first is a 57,200-square foot building that functions as the Company's headquarters and houses a portion of the Digital Systems Division's marketing and engineering personnel. The second is a 107,800-square foot building which houses customer service, research and development and administrative
functions. The third building is a 55,000-square foot building utilized by the majority of the Digital Systems division's engineering operations.
The Company also owns 50 acres of land in Bolingbrook, Illinois (near Lisle) where a 236,300-square foot manufacturing, engineering and office building was completed and occupied in July 1993. During 1996, the Company began construction of a new 308,000-square foot addition to this facility. Construction of the addition was completed by August 1997 at a cost of approximately $33,000,000. The additional space allowed the Company to more than double its manufacturing capacity while allowing for the expansion of the engineering, sales and administrative areas.
The Company also owns approximately 75 acres of land in Round Rock, Texas. The Texas property includes a 127,000-square foot manufacturing facility. The Company also owns three office facilities in Espoo, Finland totaling 127,000 square feet used for administrative offices and research and development. In addition, the Company owns a 154,000-square foot production and engineering facility in Espoo. During 1998, the Company finished construction of a 135,000-square foot manufacturing facility in Shannon, Ireland. This facility was built on land obtained through a long-term lease entered into during 1997. Construction of the Shannon facility was completed at a cost of approximately $15,000,000.
The Company leases additional facilities at the following locations: two locations in Bolingbrook, Illinois (157,000 square feet, total) used for administrative and engineering; two locations in Lisle, Illinois (86,000 square feet, total) used for research and development; Naperville, Illinois (sales); Mishawaka, Indiana (research); Santa Ana, California (sales); Littleton, Colorado (sales); Atlanta, Georgia (sales); Rockville, Maryland (sales); Irving, Texas (sales); Ft. Lauderdale, Florida (administrative); Hauppauge, New York (manufacturing); Hawthorn, New York (research and development); Boston, Massachusetts (research and development); and two buildings (90,000 square feet) in Burlington, Massachusetts for sales, research and administration; Ashburn, Virginia (72,000 square feet) used for research and development; Gloucester, Ontario (research and development); Mississauga, Ontario (sales); St. Laurent, Quebec (research and development); two locations in Espoo, Finland (60,000 square feet, total) used for administrative and engineering; Oulu, Finland (research and development); and Tampere, Finland (research and development). The Company also has small leased sales offices in eighteen foreign countries.
The Company owns substantially all the equipment used in its business. The Company believes that its facilities are adequate for the level of production anticipated in 1999, and that suitable additional space and equipment will be available to accommodate expansion as needed.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material litigation. The Company has been named in a lawsuit recently filed by the Lemelson Medical, Education and Research Foundation, Limited Partnership (Lemelson) in the United States District Court for the District of Arizona against eighty-eight electronics industry companies. The lawsuit alleges patent infringement, and the patents at issue are characterized by Lemelson as relating to manufacturing methods and semiconductor structures. The relief sought by Lemelson includes a judgment against the defendants of willful infringement, injunctive relief, trebled actual damages and attorneys' fees. Lemelson has contacted the Company and offered to license the
patents at issue. The Company is in the process of reviewing its defenses to Lemelson's claims and Lemelson's offers, and while no assurances regarding the eventual resolution of this matter can be made at this time, the Company does not believe that it will have a material adverse effect on the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
FORWARD LOOKING STATEMENTS
Except for historical information, the matters discussed or incorporated by reference in Part I of this report may include forward-looking statements that involve risks and uncertainties that may affect the Company's actual results and cause actual results to differ materially from those in the forward-looking statements. The foregoing discussion should be read in conjunction with the financial statements and related notes and management's discussion and analysis included in the Company's Annual Report and incorporated in this report by reference in Part II, Items 7 and 8 herein.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAMES AND BUSINESS EXPERIENCE YEAR OF CURRENT BIRTH POSITION
Michael J. Birck 1938 President, Chief President, Chief Executive Officer Executive Officer and and Director, Tellabs, Inc. since 1975. Director, Tellabs, Inc.
Peter A. Guglielmi 1942 Executive Vice President, Executive Vice President, Chief Chief Financial Officer and Financial Officer, Tellabs, Inc. Treasurer, Tellabs, Inc., and since 1990; Treasurer, Tellabs, Inc. Tellabs Operations, Inc.; since 1988; Director, Tellabs, Inc. Director, Tellabs, Inc. since 1993; President, Tellabs International, Inc. 1993 to 1997.
Brian J. Jackman 1941 President, Global Systems President, Global Systems and and Technologies; Technologies since 1998; Director, Executive Vice President Tellabs, Inc. since 1993; Executive and Director, Tellabs, Inc. Vice President, Tellabs, Inc. since 1990; President, Tellabs Operations, Inc. 1993 to 1998.
John E. Vaughan 1947 President, Tellabs President, Tellabs Global Sales Global Sales and Services; and Services since 1998; Executive Executive Vice President, Vice President, Tellabs, Inc. since Tellabs, Inc. 1997; President, Tellabs International, Inc. 1997 to 1998; Vice President of Business Unit Development and Strategy, Ameritech 1995 to 1997.
Richard T. Taylor 1948 Sr. Vice President and General Sr. Vice President, Digital Systems Manager, Digital Systems Division, Tellabs Operations, Inc. Division, Tellabs since 1997; General Manager, Operations, Inc. Digital Systems Division, Tellabs Operations, Inc. since 1993; Vice President, Digital Systems Division, Tellabs Operations, Inc. 1993 to 1997.
Charles C. Cooney 1941 Vice President, North America Vice President, North America Sales, Tellabs Operations, Sales, Tellabs Operations, Inc. Inc. since 1998; Vice President, Sales and Service, Tellabs Operations, Inc. 1992 to 1998.
Carol Coghlan Gavin 1956 Vice President, General Vice President and General Counsel, Counsel and Secretary, Tellabs Operations, Inc. and Secretary, Tellabs Operations, Inc.; Tellabs, Inc., since 1999; Counsel, Secretary, Tellabs, Inc. Tellabs Operations, Inc. 1998 to 1999; Vice President and General Counsel, Tellabs Operations, Inc. 1992 to 1998; Secretary, Tellabs, Inc., 1993 to 1998.
J. Thomas Gruenwald 1948 Vice President and General Vice President and General Manager, Broadband Media Manager, Broadband Media Group Group and Network Solutions and Network Solutions Group, Tellabs Group, Tellabs Operations, Inc. since 1998; Vice Operations, Inc. President, Strategic Resources, Tellabs Operations, Inc. 1995 to 1998; Director, Engineering, Tellabs Operations, Inc. 1992 to 1995.
Jukka Harju 1956 Vice President and General Vice President and General Manager, Manager, Tellabs Oy; Vice Tellabs Oy and Vice President, President, Tellabs Tellabs International, Inc. since International, Inc. 1996; Managing Director, Martis Oy 1994 to 1996.
John C. Kohler 1952 Vice President, Global Vice President, Global Manufacturing Manufacturing, Tellabs Tellabs Operations, Inc. since 1998; Operations, Inc. Vice President, Manufacturing, Tellabs Operations, Inc. 1993 to 1998.
Stephen M. McCarthy 1954 Vice President, Global Vice President, Global Solutions Solutions and Service, and Service, Tellabs Operations, Inc. Tellabs Operations, Inc. since 1999; Senior Vice President, Major Accounts Central Division, ADP 1997 to 1999; Vice President, Sales, Ameritech 1994 to 1997; Vice President, Marketing, Ameritech 1993 to 1994.
David Powell 1951 Vice President and General Vice President and General Manager, Manager, Network Network Enhancing Technologies Enhancing Technologies Solutions Group, Tellabs Operations, Solutions Group, Tellabs Inc. since 1999; Vice President and Operations, Inc. General Manager, Coherent OEM Division, Tellabs Operations, Inc. 1998 to 1999; President and Chief Operating Officer, Coherent Communications Systems Corporation 1994 to 1998.
Harvey R. Scull 1949 Vice President, Global Vice President, Global Strategy Strategy and Business and Business Development, Development, Tellabs Tellabs Operations, Inc. since Operations, Inc. 1998; Vice President, Advanced Business Development, Tellabs Operations, Inc. 1993 to 1998.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The sections entitled "Common Stock Market Data" on pages 1 and 44 of the Company's Annual Report to Stockholders for the year ended January 1, 1999 (the "Annual Report") are incorporated herein by reference. They are also included in Exhibit 13, as filed with the SEC. See discussion referred to in Item 7 below for dividend information.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The section entitled "Five-Year Summary of Selected Financial Data" on page 1 of the Annual Report is incorporated herein by reference. It is also included in Exhibit 13, as filed with the SEC.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The section entitled "Management's Discussion and Analysis" on Pages 22 to 25 of the Annual Report is incorporated herein by reference. It is also included in Exhibit 13, as filed with the SEC.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company conducts business on a global basis in several major international currencies. Foreign currency risk is managed through the use of forward exchange contracts to hedge nonfunctional-currency receivables and payables that are expected to settle in less than one year. The Company does not enter into forward exchange contracts for trading purposes and all foreign exchange contract activity is carried out under a program authorized by the Company's Board of Directors. Under the program, the Company enters into contracts to hedge between 50 and 90 percent of the aggregate currency exposure for any single currency. The Company assesses its outstanding currency exposure on a monthly basis. Foreign currency transaction gains and losses resulting from changes in the exchange rates are recognized in "Other Income (Expense)".
The foreign currency forward exchange contracts are used to manage exposure to changes in currency exchange rates, principally Finnish markka and Irish punts. The table that follows presents a summary of the notional value and the fair value of forward exchange rate contracts for each currency in which the Company has hedged exposure at January 1, 1999, and January 2, 1998. The notional amounts shown are the US dollar value of the agreed upon amounts in each foreign currency that will be delivered to a third party on the agreed upon date.
Notional Value Average Maturing Contract Fair Value Currency in 1999 Rate at 1/1/99 - -------------------------- ---------- -------- ---------- Forward Contracts to Sell Foreign Currencies for Finnish Markka: (In Thousands) (In Thousands)
United States Dollar $63,770 5.0660 $63,770 Irish Punt 15,950 7.5448 17,285 European Currency Unit 15,442 5.9640 15,386 Spanish Peseta 8,878 0.0357 9,442 Austrian Schilling 3,829 0.4319 3,814 Swedish Krone 3,563 0.6277 3,530 Deutsche Marks 1,889 3.0403 1,889 Danish Krone 1,774 0.7981 1,769 Norwegian Krone 1,689 0.6626 1,676 British Pound 1,576 8.4557 1,573 All Others 858 - 864 ------------ ------------ $119,218 $120,998
Forward Contracts to Sell Foreign Currencies for Irish Punts:
United States Dollar $4,960 1.1254 $4,960 Netherlands Guilder 1,988 2.7995 1,985 French Franc 1,021 8.3297 1,019 All Others 366 - 361 ------------ ------------ $8,335 $8,325
------------ ------------ Total Contracts Outstanding at January 1, 1999: $127,553 $129,323 ============ ============
Notional Value Average Maturing Contract Fair Value Currency in 1998 Rate at 1/2/98 - -------------------------- ---------- -------- ---------- Forward Contracts to Sell Foreign Currencies for Finnish Markka: (In Thousands) (In Thousands)
United States Dollar $33,240 5.3220 $32,986 Austrian Schilling 4,720 0.4291 4,712 Spanish Peseta 3,494 0.0355 3,476 Deutsche Marks 3,327 3.0246 3,330 Norwegian Krone 3,090 0.7369 3,077 Swedish Krone 3,057 0.6870 3,044 Danish Krone 2,870 0.7939 2,873 Irish Punt 1,622 7.7801 1,617 All Others 389 - 389 ------------ ------------ $55,809 $55,504
Forward Contracts to Sell Foreign Currencies for Irish Punts:
Netherlands Guilder $4,833 2.8992 $4,868 United States Dollar 4,200 1.4611 4,184 ------------ ------------ $9,033 $9,052
------------ ------------ Total Contracts Outstanding at January 2, 1998: $64,842 $64,556 ============ ============
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Auditors and the Consolidated Financial Statements and Notes thereto on pages 26 through 41 of the Annual Report are incorporated herein by reference. They are also included in Exhibit 13, as filed with the SEC.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required, except for information relating to the executive officers of the registrant which appears at the end of Part I above, is incorporated herein by reference to the section entitled "Election of Directors" in the registrant's Proxy Statement (the "Proxy Statement") dated March 10, 1999.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" in the Proxy Statement is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Security Ownership of Management and Certain Other Beneficial Owners" in the Proxy Statement is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Executive Compensation" in the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The following Consolidated Financial Statements of Tellabs, Inc., and Subsidiaries, included in registrant's Annual Report to Stockholders for the year ended January 1, 1999, were previously incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets: January 1, 1999 and January 2, 1998
Consolidated Statements of Earnings: Years ended January 1, 1999, January 2, 1998 and December 27, 1996
Consolidated Statements of Stockholders' Equity: Years ended January 1, 1999, January 2, 1998, and December 27, 1996
Consolidated Statements of Cash Flows: Years ended January 1, 1999, January 2, 1998 and December 27, 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
The following Consolidated Financial Statement Schedules of Tellabs, Inc., and Subsidiaries are included herein pursuant to Item 14(d):
Report of Independent Auditors on Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts and Reserves
Schedules not included have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.
(b) The Registrant filed a report on Form 8-K on December 14, 1998, with respect to the agreement to supply Sprint Corporation with the Registrant's AN2100 Gateway Exchange system.
(c) Exhibits: 2.1 Agreement and Plan of Merger Among Tellabs, Inc., Cardinal Merger Co. and Coherent Communications Systems Corporation 11/ 3.1 Restated Certificate of Incorporation 5/ 3.2 Amended and Restated By-Laws, as amended 3/ 3.3 Certificate of Amendment to Restated Certificate of Incorporation 9/ 4. Upon request of the Securities and Exchange Commission, registrant hereby agrees to furnish to the Commission copies of instruments (not filed) defining the rights of holders of long-term debt of the Company. (This undertaking is in lieu of a separate exhibit.)
Exhibits: (Continued)
10.1 Tellabs, Inc. Deferred Compensation Plan, as amended and its related trust, as amended (amendment filed herewith) 6/ 10.2 1981 Incentive Stock Option Plan, as amended and restated 1/ 10.3 1984 Incentive Stock Option Plan, as amended and restated 1/ 10.4 1986 Non-Qualified Stock Option Plan, as amended and restated 1/ 10.5 1987 Stock Option Plan for Non-Employee Corporate Directors, as amended and restated 1/ 10.6 1989 Stock Option Plan, as amended and restated 1/ 10.7 Employee Quality Stock Award Program 2/ 10.8 Form of Employment Agreement 3/ 10.9 1991 Stock Option Plan, as amended and restated 1/ 10.10 Description of Split-Dollar Insurance Arrangement with the Michael J. Birck Irrevocable Trust 3/ 10.11 1994 Stock Option Plan 4/ 10.12 Tellabs, Inc. Stock Bonus Plan for Former Employees of Steinbrecher Corporation 8/ 10.13 Tellabs, Inc. Stock Bonus Plan for Former Employees of TRANSYS Networks Inc. 10/ 10.14 Tellabs, Inc. Stock Bonus Plan for Former Employees of International Business Machines Corporation 10/ 10.15 Severance Arrangement for John E. Vaughan 9/ 10.16 Restricted Stock Award for John E. Vaughan 9/ 10.17 1998 Stock Option Plan 12/ 10.18 Tellabs, Inc. Stock Bonus Plan for Former Employess of Switched Network Technologies, Inc. 13. Annual Report to Stockholders 16. Letter Re: Change in Certifying Accountant 7/ 21. Subsidiaries of the Registrant 23. Consent of Independent Auditors - Ernst & Young LLP 23.1 Consent of Independent Auditors - Grant Thornton LLP 27. Financial Data Schedule
Exhibits 10.1 through 10.18 are management contracts or compensatory plans or arrangements required to be filed as an Exhibit to this Form 10-K pursuant to Item 14(c) hereof.
(d) Schedules: See Item 14(a)2 above.
1/ Incorporated by reference from Tellabs, Inc. Post-effective Amendment No. 1 on Form S-8 to Form S-4 filed on or about June 29, 1992 (File No. 33-45788). 2/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended April 1, 1988 (File No. 0-9692). 3/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended January 1, 1993 (File No. 0-9692). 4/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 31, 1993 (File No. 0-9692). 5/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 30, 1995 (File No. 0-9692). 6/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 29, 1995 and Form 10-Q Quarterly Report for the quarter ended September 26, 1997. 7/ Incorporated by reference from Tellabs, Inc. Form 8-K Current Report filed on or about August 21, 1996 (File No. 0-9692).
(d) Schedules: (Continued)
8/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 28, 1996 (File No. 0-9692). 9/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 27, 1997 (File No. 0-9692). 10/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 27, 1996 (File No. 0-9692). 11/ Incorporated by reference from Tellabs, Inc. Form 8-K Current Report filed on or about February 20, 1998 (File No. 0-9692). 12/ Incorporated by reference from Tellabs, Inc. Definitive Proxy Statement filed on or about March 16, 1998 (File No. 0-9692).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 29, 1999 By /s Michael J. Birck Date President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s Michael J. Birck President and Director March 29, 1999 (Principal Executive Officer)
/s Peter A. Guglielmi Executive Vice President March 29, 1999 (Principal Financial Officer) and Director
/s Robert E. Swininoga Vice President (Principal March 29, 1999 Accounting Officer)
/s Brian J. Jackman Director March 29, 1999
/s John D. Foulkes Director March 29, 1999
/s Frederick A. Krehbiel Director March 29, 1999
/s Stephanie Pace Marshall Director March 29, 1999
/s William F. Souders Director March 29, 1999
/s Jan H. Suwinski Director March 29, 1999
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Tellabs, Inc.
We have audited the consolidated financial statements of Tellabs, Inc. and Subsidiaries as of January 1, 1999, and January 2, 1998, and for the years then ended, and have issued our report thereon dated January 20, 1999. Our audit also included the financial statement schedule listed in the Index at Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. The consolidated financial statements and financial statement schedule of Tellabs, Inc. and Subsidiaries for the year ended December 27, 1996, were audited by other auditors whose report dated January 15, 1997, expressed an unqualified opinion on those statements and schedule.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s Ernst & Young LLP
Ernst & Young LLP Chicago, Illinois January 20, 1999
EXHIBIT INDEX
Exhibit 10.1 Amendment to Tellabs, Inc. Deferred Compensation Plan Exhibit 10.18 Tellabs, Inc. Stock Bonus Plan for Former Employees of Switched Network Technologies, Inc. Exhibit 13 Annual Report to Stockholders Exhibit 21 Subsidiaries of the Registrant Exhibit 23 Consent of Independent Auditors - Ernst & Young LLP Exhibit 23.1 Consent of Independent Auditors - Grant Thornton LLP Exhibit 27 Financial Data Schedule