UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission file number 0-9692
TELLABS, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3831568
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4951 Indiana Avenue, Lisle, Illinois 60532-1698
(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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
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 February 28, 1997, 180,419,637 common shares of Tellabs, Inc., were
outstanding, and the aggregate market value (based upon the closing sale
price of the National Market System) of such shares held by nonaffiliates
was approximately $6,326,636,000.
Documents incorporated by reference: Portions of the registrant's Annual
Report to Stockholders for the fiscal year ended December 27, 1996, are
incorporated by reference into Parts I and II, and portions of the
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registrant's Proxy Statement dated March 14, 1997 are incorporated by
reference into Part III.
PART I
ITEM I. BUSINESS
Tellabs, Inc., an Illinois corporation, began operations in 1975 and became
publicly owned in 1980. During 1992, the Illinois corporation merged with
and into Tellabs Operations, Inc., a wholly owned subsidiary. As a result
of the merger, Tellabs Operations, Inc., became a subsidiary of Tellabs,
Inc., a Delaware corporation (with its subsidiaries, unless the context
indicates otherwise, "Tellabs" or the "Company"). The Company designs,
manufactures, markets and services voice and data transport and network
access systems that are used worldwide by public telephone companies,
long-distance carriers, alternate service providers, cellular and other
wireless service providers, cable operators, government agencies,
utilities, and business end-users.
Products provided by the Company include digital cross-connect systems,
managed digital networks, network access and wireless system products.
Digital cross-connect systems include the Company's TITAN (a registered
trademark of Tellabs Operations, Inc.) 5500 and 5300 series of digital
cross-connect systems. Managed digital networks include the Company's
Martis (a registered Finnish trademark of Tellabs Oy) DXX (a registered
Finnish trademark of Tellabs Oy) integrated access and transport system
(the Martis DXX system), statistical multiplexers, packet switches, and T1
multiplexers, and network management systems. Network access products
include digital signal processing (DSP) products such as echo cancellers
and T-coders; special service products (SSP) such as voice frequency
products; and local access products such as the CABLESPAN (a registered
trademark of Tellabs Operations, Inc.) system. The Company, through the
acquisition of the outstanding shares of the Steinbrecher Corporation
(presently known as the Tellabs Wireless Systems Division), acquired
technology that will form the basis of a new wireless local loop product
which is expected to be introduced during 1997 as well as the existing
DataCell (a trademark of Tellabs Operations, Inc.) Mobile Data Base Station
product.
The Company's products are sold in both the domestic and international
marketplaces (under the Tellabs name and trademarks and under private
labels) through the Company's field sales force and selected distributors
to a major customer base. This base includes Regional Bell Operating
Companies (RBOCs), independent telephone companies (ITCs), interexchange
carriers (IXCs), local telephone administrations (PTTs), local exchange
carriers (LECs), original equipment manufacturers (OEMs), cellular and
other wireless service companies, cable operators, alternate service
providers, system integrators, government agencies, and business end-users
ranging from small businesses to Fortune 500 companies.
The availability of digital technology along with the use of
microprocessors and other custom and standard very large-scale integrated
(VLSI) circuitry continues to make it economically possible for the Company
to expand its product lines to meet the changing customer demands and
industry trends inherent in today's dynamic telecommunications environment.
This expansion primarily involves the development of broad lines of
service-provider-oriented networking systems that meet the ever increasing
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demands for efficient, multipurpose data, video, and voice communications
services.
This same availability of technology in capital equipment makes it possible
for the Company to efficiently and competitively continue to produce its
own products in its world class manufacturing facilities located throughout
the world.
Each of the Company's manufacturing operations is registered under the ISO
9000 standard. ISO 9000 is an international set of standards developed to
provide quality assurance for companies seeking to improve their quality
standards and customer service.
Digital Cross-Connect Systems
The TITAN product family consists of software intensive digital
cross-connect systems and network management platforms. These flagship
products address the needs of RBOCs, PTTs, IXCs, alternate local exchange,
cellular, cable, government and Fortune 500 companies. These complex
transmission systems are designed to meet or exceed domestic and
international telephone industry standards.
The SONET (synchronous optical network) digital cross-connect systems
operate under software control and are typically used to build and control
the wideband and broadband transmission infrastructure of telecommunication
service providers. Telecommunication managers utilize the digital
cross-connect systems to reduce cycle time while minimizing capital and
operating expense. Key applications include centralized and remote testing
of transmission facilities, grooming of voice, data, and video signals,
automated provisioning of new services, and restoration of failed
facilities. All of the TITAN systems include a feature for monitoring
facility performance which enhances "process of elimination
troubleshooting" in a complex network. The user can determine the early
warnings of facility degradation rather than reacting to a network outage.
The digital cross-connect system also converts international to domestic
transmission and signaling standards. These products augment the ability
of users to provide current, emerging, and future service to business and
residential customers. Advanced survivable business services also utilize
the TITAN products for interconnecting fiber transmission.
The TITAN systems vary in switching rate and facility interface speed.
Tellabs offers the SONET TITAN 5300 series of cross-connect systems that
can interface facilities at STS-1, DS3, DS1, E1, DS0, and subrate levels,
and can switch them at DS0 levels and below. The systems in this series
allow modular non-service affecting growth with capacities ranging from 8
to 4,000 ports.
Tellabs also offers the Company's flagship SONET TITAN 5500 system which
interfaces facilities at the DS1, DS3, STS-1 and/or fiber optic OC-N
levels, and cross-connects them at levels of DS1/VT1.5 and above. The
TITAN 5500 is the first digital cross-connect system in the world to
integrate optical (N=3,12) equipment. A single TITAN 5500 system can
carry the equivalent of 700,000 simultaneous phone conversations.
In 1997, the Company plans to introduce the TITAN 5200 Broadband Node,
which will extend the benefits of the wideband digital cross-connect
system, such as the TITAN 5500, to small end office, point-of-presence,
outside plant, and customer premise locations. This product, which is
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based on technology acquired from TRANSYS Networks, Inc. in June of 1996,
will interoperate with TITAN 5500 nodes on OC-3 and OC-12 rings and provide
flexible bandwidth management for DS1, DS3, and other customer facilities.
Digital cross-connect system products accounted for approximately 57
percent, 49 percent, and 46 percent of 1996, 1995, and 1994 sales,
respectively.
Managed Digital Networks
Since Tellabs' entry into the data communications marketplace in 1983, the
Company has developed a comprehensive family of networking products to
address the requirements and flexibility demanded by the users of
communications services. Products within this group include the Martis DXX
system and the CROSSNET ( a registered trademark of Tellabs Operations,
Inc.) family of network-compatible T1/E1 time division multiplexers.
The Martis DXX system is a complete managed access and transport network
system designed to be used by telecommunications service providers
worldwide for the delivery of business services, digital leased lines and
integrated customer access. Typical business service applications include
PABX networking, high speed data access, value added data services such as
frame relay and X.25, and voice telephony. An additional application of
the Martis DXX system is the provision of the transport infrastructure for
mobile networks such as digital and analog cellular, paging, trunked mobile
radio and mobile data. The Martis DXX systems are also used as general
purpose backbone networks carrying the wide variety of services that may be
provided by the public telecommunications service provider.
Recent enhancements to the DXX system have focused on extending the
current product portfolio with new features and functions including a wider
variety of access configurations and speeds as well as significant
enhancements to the DXX network management system to provide advanced
management options to the public telecommunications service provider. The
DXX system has also been enhanced to provide high speed optical synchronous
digital hierarchy (SDH) interfaces and to support cell and packet-based
technologies such as frame relay and ATM planned for the future.
The CROSSNET 440, 441 and 442 products are a family of intelligent T1/E1
multiplexers that interface voice, data and video devices (up to 2.048Mbps)
and multiplex them over private time division multiplexing networks. The
CROSSNET 445 provides timeslot interchange and DS0/DS1 switching and is
used to network 440, 441 and 442 nodes. This family of intelligent
multiplexers can be provisioned (network-wide) from any one node. In
addition, they can automatically provision many of the voice and data
applications and have an integrated network management system that can
adjust the bandwidth in 400bps increments for highly efficient use of the
DS1 or fractional DS1 facility. The CROSSNET family of multiplexers
provides low bit rate voice (LBRV) compression at 8 and 16 kbps in its DS0
channels and T1 trunks, enhanced analog voice capability for competing in
the growing branch office multiplexer market and a variable-speed network
interface (NX64) to the CROSSNET 44X for use with international networks or
satellite radio channels.
These products compete in the Wide Area Network (WAN) access market. End-
users buy these products through value added re-sellers, service providers
and direct from the Company. The products are used to combine voice, data
and video applications for transmission over T1, FT1, E1, NX56 and NX64
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facilities. They provide for more efficient utilization of the bandwidth
and access to dedicated services.
Although the CROSSNET product line serves a maturing market that is
migrating to newer technologies such as frame relay and ATM, there
continue to be significant opportunities for the traditional CROSSNET
multiplexers in both the domestic and international markets.
Managed digital networks accounted for approximately 28 percent, 28
percent, and 27 percent, of 1996, 1995, and 1994 sales, respectively.
Network Access Systems
Network access products are primarily modular in design and can be used
either individually or in complex systems and assemblies. The three areas
making up network access products are DSP products, SSP products, and local
access products. The products are designed to meet telephone industry
standards, and, in many applications, they directly interface with customer
premises equipment. These products enhance the ability of LECs, PTTs,
IXCs, wireless, private networks, alternate service providers and cable
providers to provide current, emerging, and future services to their
business customers through innovative products and systems that provide
more cost-effective provisioning of existing basic services. In order to
continue to grow this product area, state-of-the-art technology will be
deployed and value-added content will be provided.
DSP products primarily address the needs of cellular companies, LECs, and
IXCs, both domestically and internationally. Such products include the
Company's echo cancellation (or control) and voice compression products.
The echo control products primary function is to provide voice quality
enhancements such as the removal of irritating feedback (from one's own
voice) that occurs on virtually all long distance connections and many
wireless connections. The voice compression product (T-Coder) doubles the
capacity of digital transmission facilities used for voice and data
services. This product has great economic appeal to cellular companies,
IXCs, and end-users who want to double T1 or E1 capacity without incurring
the cost of a new facility. These DSP products have benefited from the
growth of the markets that these products address.
SSP products provide transmission and signaling conversion between the
central office and the customers' terminal equipment. These products
include: line amplifiers that compensate for loss and distortion in voice
and analog data transmission applications; terminating devices that provide
conversion between 4 wire transmission facilities and 2 wire local lines;
signaling equipment and systems that convert station on-hook/off-hook,
dialing and ringing information to signaling formats compatible with
transmission over metallic voice channels; and loop treatment equipment
typically used to extend the distance from a central office at which a
telephone functions satisfactorily. The Company also designs, manufactures
and sells a line of voice conferencing and alerting systems and a series of
products with remote alignment and diagnostic maintenance capabilities.
The Company's CABLESPAN 2300 system is a local access product developed
between the Company and Advanced Fibre Communications, Inc. (AFC),
designed to address the emerging cable and alternate service provider
markets. The CABLESPAN 2300 "Universal Telephony Distribution System" is a
next-generation, multiple services delivery system that allows cable
television (CATV) providers, alternate access carriers (ALTs), and
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competitive access providers (CAPs) to build flexible communication
networks that support the integrated delivery of video, voice, data and
information services. The product provides maximum application flexibility
through its ability to support a wide variety of network topologies,
interface with various forms of transmission media and provide the
modularity required to support both residential and business customers.
The CABLESPAN system can be managed either directly from an integral
interface that provides local and remote management or from a PC-based
stand-alone Element Management System (EMS) that allows the management of
multiple CABLESPAN systems and supports multiple network operators while
interfacing with other operational support systems.
Network access products accounted for approximately 15 percent, 21
percent, and 26 percent of 1996, 1995, and 1994 sales, respectively.
Wireless Systems Division
In April 1996, the Company acquired all of the outstanding shares of
Steinbrecher Corporation. This acquisition formed the basis of a new
division within the Company, the Tellabs Wireless Systems Division
(Wireless Systems Division).
Steinbrecher, through over 20 years of performing subcontractor activities,
primarily in military projects, had gained unique insights in the
development of sophisticated radio frequency (RF) designs. The new
Wireless Systems Division is engaged in the completion of a software
programmable wideband digital base station (base station) which was
initiated prior to the Company's acquisition of Steinbrecher. This base
station product will be used in conjunction with the Company's other
products such as the TITAN digital cross-connects, Martis DXX system and
echo cancellers to expand the product portfolio offered to the wireless
marketplace as well as to allow the Company to provide more comprehensive
wireless solutions.
The Company's intention is for the Wireless Systems Division to pursue
two markets. The first target market is wireless local loop - a new market
for wireless technology which uses radio technology to provide residential
and small business with telephony services. This type of sophisticated
radio is proving to be a very economical alternative to the traditional
method of installing buried copper wires to provide these same services.
The Company believes that the primary addressable markets for this wideband
wireless local loop technology will be in the Asia/Pacific and Latin
America regions.
The second marketplace for this technology lies in providing microcell
solutions using this same wideband base station. The market for this
technology is primarily in developed areas of the world (including the
United States) where cellular or PCS wireless networks are being built out.
The systems' small form factor and lower initial price allow it to be a
very effective tool to provide RF coverage in harder to cover areas such
as indoor and underlay applications or interleaving larger macrocells
where focused RF coverage is required. In addition, the system can also be
used to provide targeted increased capacity for higher congestion areas
such as busy airports or downtown areas where not enough simultaneous users
can be supported within the current macrocellular approach.
The Company expects to begin field trials of both the wireless local loop
and base station products during 1997.
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The DataCell Mobile Data Base Station, Steinbrecher's commercially
available product acquired in the acquisition, is used by 800 MHz AMPs
cellular companies to provide wireless packet services. The market for
this product is primarily in the United States and Latin America.
MARKETING
Sales are generated through the Company's direct sales organization and
selected distributors. The United States sales group consists of
approximately 77 direct sales personnel, and additional sales agents and
sales support personnel located throughout the United States. The
International sales group consists of approximately 50 direct sales
personnel, and additional sales agents and sales support personnel in
Canada, Latin America, South America, Europe, the Middle East, Africa, Asia
and Australia.
The United States sales organization conducts its activities from the
corporate headquarters and six regional or district offices. The
International sales organization conducts its activities from the corporate
headquarters and twenty-five regional offices. The regional offices are
generally staffed by a regional sales manager, system sales engineers, and
additional personnel as required.
Direct orders through the Company's field sales organization accounted for
approximately 89 percent of 1996 sales.
The Company has national account managers to coordinate sales activities
for its major customer groups, and product managers to coordinate the
marketing activities for each major product area.
The United States sales organization uses a vertical markets approach for
the sales of its products. As a result, large accounts such as RBOCs,
IXCs, Wireless, Alternate Service Providers, and General Market Customers
are serviced by teams to better represent both product and service
offerings. The International sales organization is structured to support
activities on a regional basis.
The Company has arrangements with a number of distributors of
telecommunications equipment, both in the United States and
internationally, some of whom maintain inventories of the Company's
products to facilitate prompt delivery. These distributors provide
information on the Company's products through their catalogs and through
trade show demonstrations. The Company's field sales force also assists
these distributors with regular calls to them and their customers.
Distributors, as a group, accounted for approximately 11 percent of 1996
sales. No single distributor accounted for more than 10 percent of 1996
sales.
CUSTOMER SERVICE
The Company maintains a worldwide customer service organization focused
on providing its customers high quality technical and administrative
product support. To ensure global support, Tellabs has five worldwide
logistic centers (Lisle, Illinois; Shannon, Ireland; Mississauga, Canada;
Espoo, Finland; and Hong Kong).
The Company's customer service organization supports its customers with a
wide range of services that include application engineering and support,
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installation, service agreements, on-site training, product repair
(warranty administration), on-site maintenance, third party maintenance,
consultation, logistics management, and 24-hour technical support via
telephone and the Internet.
The Company's technical support organization consists of unique and
highly-trained teams that focus on customer support of the TITAN 5500 and
5300 series, CROSSNET 44X and 33X, CABLESPAN, Voice Frequency and Martis
DXX product lines. All teams utilize a problem tracking system to capture,
collect and report on a number of data points specific to product
performance and overall customer profiles. The technical support teams
also utilize a call director system to track the status of customers'
calls until completion.
The Company provides product warranties for periods ranging from one to
five years for the repair or replacement of customer premises-located
modules and systems found to be faulty due to defective material. Tellabs
has an expedited replacement service that is used to immediately provide
the customer with needed module replacements in response to a time-critical
service outage.
CUSTOMERS
Sales to customer groups as a percentage of total sales were approximately
as follows:
1996 1995 1994
Bell Operating Companies 28% 28% 26%
Independent Telephone Companies 7% 5% 7%
Interexchange Carriers 18% 16% 16%
Corporate America, OEMs, Governmental
Agencies, Cellular Companies, Utility
and Railroad Companies, Alternate Service
Providers, and System Integrators 14% 14% 17%
Foreign Sales
Canada 3% 4% 4%
International 30% 33% 30%
---- ---- ----
TOTAL 100% 100% 100%
==== ==== ====
At December 27, 1996, and December 29, 1995, backlogs were approximately
$118 million and $84 million, respectively. All of the December 27, 1996,
backlog is expected to be shipped in 1997. The Company considers backlog
to be an indicator, but not the sole predictor, of future sales.
COMPETITION
The Company's products are sold in global markets and compete on the
following key factors: responsiveness to customer needs, product features,
customer-oriented planning, price, performance, reliability, breadth of
product line, technical documentation, and prompt delivery.
The digital cross-connect systems compete principally with Lucent
Technologies, Alcatel and DSC Communications Corporation (DSC). The
managed digital network products compete in two areas. The principal
competition for the multiplexers are Newbridge Networks Corporation,
General DataComm Industries Inc., Premisys, and Timeplex, Inc. The major
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competitors of the managed access and transport systems are Newbridge
Networks Corporation, Nokia Telecommunications, and Network Equipment
Technologies.
The network access products currently compete in four product areas:
special services, echo cancellers, transcoders, and local access products.
The principal competitors in the special services market are Teltrend and
Westell. The leading competitors in the echo canceller market are Coherent
Communications, DSC and Ditech. The major competitors in the transcoder
market are DSC and Aydin. The local access competitors are Nortel,
Motorola, Scientific Atlanta and ADC Telecommunications, Inc.
The Company's wireless local loop systems compete against products
manufactured by Ericsson, Hughes, Lucent Technologies, Motorola, Nortel
and Qualcomm, while competition for the microcellular systems is
principally from Allen Telecom, Ericsson, Lucent Technologies, Motorola,
Nortel and Panasonic.
RESEARCH AND DEVELOPMENT
The telecommunications industry continues to be characterized by rapid
technological change. Historically, the technology of this industry had
been mainly analog, characterized by signals continuous in time with
information contained in the frequency and amplitude of the signals. The
industry has rapidly shifted toward digital technology in which information
is coded in discrete pulses. The Company's current product development
effort is directed almost entirely toward designing new products utilizing
digital, fiber optic and ATM technology. The Company has also focused much
of its research and development efforts on large system software
development and associated processes.
Many products used in network access system applications are well-suited to
the use of digital implementation techniques, including utilization of
microprocessors and other VLSI devices. The Company's ability to combine
analog and digital technologies has been an important ingredient in its
product development. The Company currently manufactures a number of
products using microprocessor control circuitry which make extensive use of
microprocessors and complex system software. The Company is also
actively developing products which utilize high speed fiber optic
technologies to provide higher performance transmission characteristics in
today's telecommunication networks. The Company is continually updating
its research and development capabilities through the addition of new
computer-aided design (CAD) and computer-aided software engineering (CASE)
tools, which assist in electronic, mechanical, and software design. Use of
such tools is imperative as the Company seeks to respond to industry and
customer demands for intelligent digital systems and networking products
with capabilities for automated remote maintenance and provisioning.
During 1996, the Company made two research and development-oriented
acquisitions designed at advancing and expanding the Company's existing
product portfolios and performance capabilities. In the first, the
acquisition of Steinbrecher Corporation in April 1996, the Company expanded
its product offerings to include wireless communications infrastructure
products and systems for use in cellular and other wireless networks in
order to create a comprehensive wireless network offering from the
Company. In the second acquisition, the Company acquired the broadband
access product line of TRANSYS Networks Inc in June 1996. The move was
designed to provide the Company with broadband access and transport
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technology that would complement the technology that already exists in its
TITAN line of SONET-based digital cross-connect systems.
In early January, 1997, the Company acquired wave-length division
multiplexing and optical networking technology from IBM's Thomas J. Watson
Research Center which included rights to or ownership of several patents
and patent applications and will compliment the Company's transport and
access product portfolio. Under the terms of the agreement, the Research
Center's optical network development team joined the Company.
The Company is also involved in product-oriented alliances. In December
1996, the Company and AFC, a Petaluma, California-based provider of
next-generation digital loop carrier equipment, terminated the joint
venture agreement signed in April 1994, and entered into a licensing
agreement for the development, manufacturing, and marketing of the
CABLESPAN product.
These acquisitions and alliances allow the Company access to technology
that is important to the future of its products. In addition, to ensure
that the technologies the Company uses reflect the most recent industry
developments and to increase the Company's ability to develop new
technologies, the Company conducts research at its laboratories in
Mishawaka, Indiana; Burlington, Massachusetts; Espoo and Oulu, Finland; and
Shannon, Ireland.
Research and development expenses were $107.3 million in 1996, $81.9
million in 1995, and $64.8 million in 1994. (The 1996 research and
development expense does not reflect the $74.7 million one-time charge
for acquired research and development taken in conjunction with the
Steinbrecher acquisition.) The Company plans to spend approximately $150
million on research and development in 1997. These expenditures reflect
the Company's commitment to the enhancement of existing products and
development of new products designed to satisfy the needs of communications
service providers worldwide.
MANUFACTURING AND EMPLOYEES
The Company assembles its products from standard components and from
fabricated parts which are manufactured by others to the Company's
specifications. Such purchased items represented approximately 74 percent
of cost of sales in 1996.
Most purchased items are standard commercial components available from a
number of suppliers with only a few items procured from a single-source
vendor. Management believes that alternate sources could be developed for
those parts and components of proprietary design and those available only
from single or limited sources. However, future shortages could result in
production delays that could adversely affect the Company's business.
As part of the manufacturing process, hazardous waste materials that are
present are handled and disposed of in compliance with all Federal, State
and local provisions. These waste materials and their disposal have no
significant impact on either the Company's production process or its
earnings or capital expenditures.
At December 27, 1996, the Company had 3,418 employees, of which 732 were
employed in the sales, sales support and marketing area, 997 in product
development, 1,385 in manufacturing, and 304 in administration. The
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Company considers its employee relations to be good. It is not a party to
any collective bargaining agreement.
TRADEMARKS, PATENTS AND COPYRIGHTS
The Company has various trade and service marks, both registered and
unregistered, in the U.S. and in numerous foreign countries (collectively,
Marks). All of these Marks are important in that they differentiate the
Company's products and services within the industry through brand name
recognition. Current Marks of the Company include TELLABS, MARTIS, 310
Datavoice System, ACSYS, ALTA, AN2100, ASC, ATM to the Core, CABLESPAN,
CLEARCALL, CROSSNET, DATACELL, DATAPLEXER, DXX, DYNAMIC SIGNAL TRANSFER,
ESQ, EXPRESSPAN, FLASHLOAD, FLEXWARE, MINICELL, NAVIGATING CHANGE, NMCS
2500, PARAMIXER, PORTSPAN, RADAR, RA SERIES, SELECT SOLUTIONS, SONET TO THE
CORE, T-CODER, TELEMARK, TITAN, TURNING YOUR COPPER INTO GOLD, UNLOCK THE
GOLD IN YOUR NETWORK, VANTAGE POINT, WE PUT THE WIRE IN WIRELESS, YOUR
NETWORKING PARTNER, 331 XPLEXER, and the Company's logos. The Company is
not aware of any factor which would affect its ability to utilize any of
its major trademarks.
The Company currently holds 25 U.S. and 3 Canadian patents. The Company
has also developed certain proprietary, confidential hardware designs and
software programs. The Company owns various rights, which are protectable
under copyright and trade secret laws, in such designs and programs.
The Company believes that trademarks, patents, copyrights and trade secrets
are important to its business.
BUSINESS SEGMENT AND GEOGRAPHICAL INFORMATION
The Company operates in one business segment. Information with respect to
the Company's operations in its two geographical areas for the fiscal
years ended December 27, 1996, December 29, 1995 and December 30, 1994,
is set forth in Note I on page 32 of the registrant's Annual Report to
Stockholders and is incorporated herein by reference.
ITEM 2. PROPERTIES
The Company's corporate headquarters is located on 18-1/2 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
65,000 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 103,000 square foot building which
houses customer service, research and development and administrative
functions. The third building is a 54,000 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 230,000 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 is expected to be completed by mid-1997 at a
cost of approximately $33,000,000. The new addition will provide for
necessary manufacturing capacity expansion as well as allowing additional
space for expansion of the sales and administrative functions.
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The Company also owns approximately 75 acres of land in Round Rock, Texas,
and approximately 2.6 acres of land in Mississauga, Ontario, Canada. The
Texas property includes a recently expanded 125,000-square foot
manufacturing facility. The Canadian property includes a 20,000-square
foot office/warehousing building. The Company also owns three
office/manufacturing facilities in Espoo, Finland used as follows: a
52,000-square foot building which is currently being used for engineering,
marketing, and administrative offices; a 42,000-square foot production
facility; and a 35,000-square foot office building, which is currently used
for engineering offices. In addition, approximately 12 acres of land were
purchased in April, 1996 in Espoo for the construction of a new
150,000-square foot production and engineering facility scheduled for
completion in December 1997. Also existing on this property is a
100,000-square foot building (currently leased to a third party).
The Company leases additional facilities at the following locations: Lisle,
Illinois (training); Naperville, Illinois (sales); Mishawaka, Indiana
(research); Costa Mesa, California (sales); Littleton, Colorado (sales);
Atlanta, Georgia (sales); Rockville, Maryland (sales); St. Louis, Missouri
(sales); Irving, Texas (sales); White Plains, New York (customer service);
and two buildings (90,000 square feet) in Burlington, Massachusetts for
sales, research, production and administration. Some of the Company's
international subsidiaries also lease space for their operations,
including: a 56,000-square foot sales, research and production facility and
a 5,000-square foot administrative facility in County Clare, Ireland;
40,000 square feet in Espoo, Finland for administration and engineering,
and 15,000 square feet for production; and 12,000 square feet in Oulu,
Finland for research and development.
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 1997, and that suitable additional space and
equipment will be available to accommodate expansion as needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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.
12
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 President, Tellabs
President, Tellabs International, International, Inc.,
Inc. and Director, Tellabs, Inc. Executive Vice President,
since 1993; Executive Vice President, Chief Financial Officer,
Chief Financial Officer and Treasurer and Director,
Treasurer, Tellabs, Inc. since Tellabs, Inc., and Tellabs
1990; Secretary, Tellabs, Inc. Operations, Inc.
1988 to 1993.
Brian J. Jackman 1941 President, Tellabs
President, Tellabs Operations, Inc. Operations, Inc,
and Director, Tellabs, Inc. since 1993; Executive Vice President
Executive Vice President, Tellabs, Inc. and Director, Tellabs, Inc.
since 1990.
Charles C. Cooney 1941 Vice President, Sales and
Vice President, Sales and Service, Service, Tellabs Operations,
Tellabs Operations, Inc. since 1992; Inc.
Vice President, Sales, Tellabs, Inc.,
1979 to 1992.
Carol Coghlan Gavin 1956 Vice President, General
Vice President and General Counsel, Counsel and Secretary,
Tellabs Operations, Inc. since Tellabs Operations, Inc.,
1992; Secretary, Tellabs, Inc., since Secretary, Tellabs, Inc.
1993; General Counsel, Tellabs, Inc.,
1988 to 1992.
Jon C. Grimes 1947 Vice President and General
Vice President and General Manager, Manager, Network Access
Network Access Systems Division, Systems Division,
Tellabs Operations, Inc. since 1992; Tellabs Operations, Inc.
Vice President and General Manager,
Network Products Division, Tellabs
Inc., 1989 to 1992.
J. Thomas Gruenwald 1948 Vice President, Strategic
Vice President, Strategic Resources, Resources, Tellabs
Tellabs Operations, Inc. since 1995; Operations, Inc.
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.
13
J. Peter Johnson 1949 Vice President, Finance and
Vice President, Finance and Treasury, Treasury, Assistant Secretary
Assistant Secretary and Controller, and Controller, Tellabs, Inc.,
Tellabs Operations, Inc. since 1992; and Tellabs Operations, Inc.
Vice President, Finance and Treasury,
Assistant Secretary and Controller,
Tellabs, Inc., 1990 to 1992.
John C. Kohler 1952 Vice President, Manufacturing,
Vice President, Manufacturing, Tellabs Tellabs Operations, Inc.
Operations, Inc. since 1993; Vice
President, Product Support Services,
Tellabs, Inc., 1989 to 1993.
Harvey R. Scull 1949 Vice President, Advanced
Vice President, Advanced Business Development, Tellabs
Business Development, Tellabs Operations, Inc.
Operations, Inc. since 1993;
Director, New Business Development,
Tellabs, Inc., 1989 to 1993.
Richard T. Taylor 1948 Vice President and General
Vice President and General Manager, Manager, Digital Systems
Digital Systems Division, Tellabs Division, Tellabs
Operations, Inc. since 1993; Director Operations, Inc.
of Marketing and Product Development,
Digital Systems Division, Tellabs
Inc., 1989 to 1993.
Nicholas J. Williams 1947 Vice President and General
Vice President and General Manager, Manager, The Americas,
The Americas, Tellabs International, Tellabs International, Inc.
Inc. since 1993; Vice President and
General Manager, Advanced Technology
Products, AT&T Paradyne Corporation,
1992 to 1993.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The sections entitled "Common Stock Market Data" on pages 1 and 38 of the
Company's Annual Report to Stockholders for the year ended December 27,
1996 (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. SELECTED FINANCIAL DATA
The section entitled "Five-Year Summary of Selected Financial Data" on the
page preceeding 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The section entitled "Management's Discussion and Analysis" on Pages 34
to 36 of the Annual Report is incorporated herein by reference. It is
also included in Exhibit 13, as filed with the SEC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Certified Public Accountants and the Consolidated
Financial Statements and Notes thereto on pages 19 through 33 of the
Annual Report are incorporated herein by reference. They are also included
in Exhibit 13, as filed with the SEC.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required is incorporated herein by reference to the section
entitled "Selection of Auditors" in the registrant's Proxy Statement (the
"Proxy Statement") dated March 14, 1997 and the Company's Current Report
on Form 8-K filed on or about August 21, 1996.
15
PART III
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 14, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
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. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
16
PART IV
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 December 27, 1996, were previously incorporated by
reference in Item 8:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets: December 27, 1996 and December 29, 1995
Consolidated Statements of Earnings: Years ended December 27, 1996,
December 29, 1995 and December 30, 1994
Consolidated Statements of Stockholders' Equity: Years ended
December 27, 1996, December 29, 1995, and December 30, 1994
Consolidated Statements of Cash Flows: Years ended December 27,
1996, December 29, 1995 and December 30, 1994
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 Certified Public Accountants on Schedules
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 October 31, 1996, with
respect to the declaration of a two-for-one stock split payable in the
form of a 100 percent dividend on November 15, 1996, to stockholders
of record on October 31, 1996.
(c) Exhibits:
3.1 Restated Certificate of Incorporation 5/
3.2 Amended and Restated By-Laws, as amended 3/
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.)
10.1 Tellabs, Inc. Deferred Compensation Plan, as amended and its
related trust 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/
17
Exhibits: (Continued)
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.
10.14 Tellabs, Inc. Stock Bonus Plan for Former Employees of
International Business Machines Corporation
13. Annual Report to Stockholders
16. Letter Re: Change in Certifying Accountant 7/
21. Subsidiaries of the Registrant
23. Consent of Independent Certified Public Accountants
27. Financial Data Schedule
Exhibits 10.1 through 10.14 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 (File No. 0-9692).
7/ Incorporated by reference from Tellabs, Inc. Form 8-K Current Report
filed on or about August 21, 1996 (File No. 0-9692).
8/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly
Report for the quarter ended June 28, 1996 (File No. 0-9692).
18
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 21, 1997 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 21, 1997
(Principal Executive
Officer)
/s Peter A. Guglielmi Executive Vice President March 21, 1997
(Principal Financial
Officer) and Director
/s J. Peter Johnson Controller (Principal March 21, 1997
Accounting Officer)
/s Brian J. Jackman Director March 21, 1997
/s John D. Foulkes Director March 21, 1997
/s Frederick A. Krehbiel Director March 21, 1997
/s Stephanie Pace Marshall Director March 21, 1997
/s William F. Souders Director March 21, 1997
/s Thomas H. Thompson Director March 21, 1997
19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES
Board of Directors
Tellabs, Inc.
In connection with our audit of the consolidated financial statements of
Tellabs, Inc., and Subsidiaries, referred to in our report dated January
15, 1997, which is included in the annual report to shareholders and
incorporated by reference in Part II of this form, we have also audited
Schedule II for each of the three years in the period ended December 27,
1996. In our opinion, this schedule presents fairly in all material
respects the information required to be set forth therein.
Grant Thornton LLP
Chicago, Illinois
January 15, 1997
20
TELLABS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Three Years Ended December 27, 1996, December 29, 1995 and December 30, 1994
($ in thousands)
Additions
Balance at charged to Balance
beginning costs and Deduc- at end
of year expenses tions (A) of year
--------- --------- --------- -------
1996
Allowance for
doubtful receivables $2,317 $2,157 $792 $3,682
====== ======
1995
Allowance for
doubtful receivables $992 $1,407 $82 $2,317
====== ======
1994
Allowance for
doubtful receivables $844 $259 $111 $992
====== ======
<FN>
NOTE:
(A) - Uncollectible accounts charged off, net of recoveries.
21