ITEM 2. PROPERTIES
We own an 850,000-square foot corporate headquarters and research and development facility on 55 acres of land in Naperville, Illinois, approximately 35 miles west of Chicago; a 182,000-square foot facility in Bolingbrook, Illinois, used for operations; 5.2 acres of vacant land in Ashburn, Virginia, adjoining our existing leased facility; a 222,000-square foot facility on 28 acres of land in Ballerup, Denmark, which contains administrative and research and development functions; a 154,000-square foot production and research and development facility, located on approximately 12 acres of Company-owned land in Espoo, Finland. Also on this land is a 90,000-square foot operations facility. We also own two office buildings in Espoo, totaling 89,000 square feet, which contain production, research and development and administrative functions.
Additionally, we have three locations that are classified as “held for sale” as of the end of 2003. These locations include 50 acres of land in Bolingbrook, Illinois with a 545,000-square foot manufacturing and research and development facility; a 124,000-square foot manufacturing facility on approximately 76 acres of land in Round Rock, Texas; and a 45,000-square foot office facility in Espoo, Finland.
We sold a 135,000-square foot manufacturing facility in Shannon, Ireland in 2003, and as of the end of 2003, we had an executed contract for the sale of 19.1 acres of land with three buildings totaling 220,000 square feet in Lisle, Illinois. That sale transaction was completed on February 2, 2004.
Significant facilities leased by us, all for research and development, include: a 72,000-square foot facility in Ashburn, Virginia; a 53,000-square foot facility in San Jose, California; a 41,000-square foot facility in Espoo, Finland; and a 28,000-square foot facility in Oulu, Finland.
In addition to these facilities, we lease four sales offices in the United States, one sales office in Canada, and one sales office in Mexico. Internationally, we lease various sales offices in twenty-three countries outside North America.
We own substantially all of the equipment used in our business. We believe that our facilities are adequate and that suitable additional space and equipment will be available to accommodate expansion as needed.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On June 18, 2002, a class action complaint was filed in the United States District Court of the Northern District of Illinois against Tellabs, Michael Birck, and Richard Notebaert (former CEO, Director, and President of Tellabs). Thereafter, eight similar complaints were also filed in the United States District Court of the Northern District of Illinois. All nine of these actions were subsequently consolidated, and on December 3, 2002, a consolidated amended class action complaint was filed against Tellabs, Mr. Birck, Mr. Notebaert, and certain other of our current or former officers and/or directors. The consolidated amended complaint alleged that during the class period (December 11, 2000-June 19, 2001) the defendants violated the federal securities laws by making materially false and misleading statements, including, among other things, allegedly: providing revenue forecasts that were false and misleading, misrepresenting demand for our products, and reporting overstated revenues for the fourth quarter 2000 in our financial statements. Further, certain of the individual defendants were alleged to have violated the federal securities laws by trading our securities while allegedly in possession of material, non-public information about us pertaining to these matters.
On January 17, 2003, Tellabs and the other named defendants filed a motion to dismiss the consolidated amended class action complaint in its entirety. On May 19, 2003, the Court granted our motion and dismissed all counts of the consolidated amended complaint, while affording plaintiffs an opportunity to replead. On July 11, 2003, plaintiffs filed a second consolidated amended class action complaint against Tellabs, Messrs. Birck and Notebaert, and many (although not all) of the other previously named individual defendants, realleging claims similar to those contained in the previously dismissed consolidated amended class action complaint. We filed a second motion to dismiss on August 22, 2003, seeking the dismissal with prejudice of all claims alleged in the second consolidated amended class action complaint. On February 19, 2004, the Court issued an order granting that motion and dismissed the action with prejudice.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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 made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. These statements reflect management’s expectations, estimates and assumptions, based on the information available at the time the document was prepared. These forward-looking statements include, but are not limited to, statements regarding future events, plans, goals, objectives and expectations. The words “anticipate,” “believe,” “estimate,” “target,” “expect,” “predict,” “plan,” “possible,” “intend,” “likely,” “will,” “should,” “could” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause our actual performance or achievements to be materially different from any future results, performance or achievements expressed or implied by those statements. Important factors that could cause our actual results to differ materially from those in forward-looking statements include, but are not limited to: economic changes impacting the telecommunications industry; financial condition of telecommunication service providers and equipment vendors, including any impact of bankruptcies; the impact of customer and vendor consolidation; new product acceptance; product demand and industry capacity; competitive products and pricing; competitive pressures from new entrants to the telecommunications industry; manufacturing efficiencies; research and new product development; protection and access to intellectual property, patents and technology; ability to attract and retain highly qualified personnel; availability of components and critical manufacturing equipment and capacity; foreign economic conditions, including currency rate fluctuations; the regulatory and trade environment; availability and terms of future acquisitions; uncertainties relating to synergies, charges, and expenses associated with business combinations and other transactions; and other risks and future factors that may be detailed from time to time in the Company’s filings with the SEC. For a further description of such risks and future factors, see Exhibit 99.3 to Form 10-Q for the quarterly period ended March 28, 2003, filed with the SEC on May 9, 2003. Our actual future results could differ materially from those predicted in such forward-looking statements. In light of the foregoing risks, uncertainties and other factors, investors should not place undue reliance on the forward-looking statements in determining whether to buy, sell or hold any of our securities. We undertake no obligation to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to future results over time. The foregoing discussion should be read in conjunction with the financial statements and related notes and management’s discussion and analysis included in our 2003 Annual Report included herein as Exhibit 13 and incorporated in this report by reference in Part II, Items 7 and 8.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Tellabs’ common stock is listed on the Nasdaq National Market under the symbol “TLAB”. As of February 23, 2004, there were approximately 6,700 stockholders of record and 415,364,767 outstanding shares.
The section entitled “Common Stock Market Data” on page 47 of our 2003 Annual Report included herein as Exhibit 13 is incorporated herein by reference. We have never paid cash dividends and do not anticipate paying a cash dividend in the foreseeable future.
The section entitled “Equity Compensation Plan Table” in our Proxy Statement dated March 19, 2004 is incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The 11-Year Summary of Selected Financial Data on pages 42 and 43 of our 2003 Annual Report included herein as Exhibit 13 is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 14 through 18 of our 2003 Annual Report included herein as Exhibit 13 are incorporated herein by reference.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investments in Marketable Securities
During the normal course of business, we invest a portion of our cash and cash equivalents in marketable securities. For a more detailed discussion of our investments for the fiscal years ended January 2, 2004, and December 27, 2002, please refer to Note 6 on pages 31 and 32 of our 2003 Annual Report included herein as Exhibit 13 and incorporated herein by reference.
Financial Instruments
We conduct business on a global basis in several major currencies and are subject to risks associated with fluctuating foreign exchange rates. For a more detailed discussion of our foreign currency exposure management policy, please refer to Note 7 on pages 32 and 33 of our 2003 Annual Report included herein as Exhibit 13 and incorporated herein by reference.
The table that follows presents a summary of the notional value of forward exchange rate contracts for each currency in which we have hedged exposure at January 2, 2004, and December 27, 2002. The principal currencies we currently hedge are the British pound, Canadian dollar, Danish krone, Euro, Mexican peso and U.S. dollar. The notional values maturing in 2004 and 2003 are the U.S. dollar values of the agreed-upon amounts in each foreign currency that will be delivered to a third-party on the agreed-upon date.
Consistent with our policy, we entered into the above contracts immediately prior to the respective year ends. Accordingly, the fair value of such contracts at January 2, 2004, and December 27, 2002, are not material.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes and the Report of Independent Auditors on pages 21 through 43 of our 2003 Annual Report included herein as Exhibit 13 are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) carried out an evaluation under their supervision and with the participation of our management, of the effectiveness of our disclosure controls and procedures and internal control over financial reporting. Based on that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and there were no significant changes in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect such internal control over financial reporting.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required is incorporated herein by reference to the sections entitled “Election of Directors,” “Committees of the Board-Audit and Ethics Committee,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement dated March 19, 2004 and the sections entitled “Officers” and “Code of Ethics, Certificate of Incorporation and Bylaws” in our 2003 Annual Report included herein as Exhibit 13 and is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required is incorporated herein by reference to the sections entitled “Executive Compensation,” “Director Compensation,” “Employment Agreements,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report on Executive Compensation” and “Performance Graph” in our Proxy Statement dated March 19, 2004.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required is incorporated herein by reference to the sections entitled “Security Ownership of Management and Certain Other Beneficial Owners” and “Proposal to Approve the 2004 Incentive Compensation Plan” in our Proxy Statement dated March 19, 2004.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is incorporated herein by reference to the section entitled “Transactions with Executive Officers, Directors and Others” in our Proxy Statement dated March 19, 2004.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
The information required is incorporated herein by reference to the section entitled “Fees to the Company’s Auditors” in our Proxy Statement dated March 19, 2004.
ITEM 15.
ITEM 15. 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 the registrant’s 2003 Annual Report included herein as Exhibit 13, were previously incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets: January 2, 2004, and December 27, 2002
Consolidated Statements of Operations: Years ended January 2, 2004, December 27, 2002, and December 28, 2001
Consolidated Statements of Stockholders’ Equity: Years ended January 2, 2004, December 27, 2002, and December 28, 2001
Consolidated Statements of Cash Flows: Years ended January 2, 2004, December 27, 2002, and December 28, 2001
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
The following Consolidated Financial Statement Schedule of Tellabs, Inc., and Subsidiaries is included herein pursuant to Item 15(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) Reports on Form 8-K:
(c) Exhibits:
.10
1989 Stock Option Plan, as amended and restated 1/
.11
Amendment to Tellabs, Inc. 1989 Stock Option Plan (As Amended and Restated June 26, 1992) 11/
.12
Employee Quality Stock Award Program 2/
.13
1991 Stock Option Plan, as amended and restated 1/
.14
Amendment to Tellabs, Inc. 1991 Stock Option Plan (As Amended and Restated June 26, 1992) 11/
.15
Amendment to the Coherent Communications Systems Corporation Amended and Restated 1993 Equity Compensation Plan 11/
.16
1994 Stock Option Plan 3/
.17
Amendment to the Tellabs, Inc. 1994 Stock Option Plan 11/
.18
Amendment to the Tellabs, Inc. 1997 Stock Option Plan 11/
.19
1998 Stock Option Plan 7/
.20
Amendment to the Tellabs, Inc. 1998 Stock Option Plan 11/
.21
NetCore Systems, Inc. 1997 Stock Option Plan 8/
.22
1999 Tellabs, Inc., Stock Bonus Plan 10/
.23
SALIX Technologies, Inc. 1998 Omnibus Stock Plan and Option Agreement Dated as of December 1, 1997 9/
.24
Amendment to the SALIX Technologies, Inc. Omnibus Stock Plan 11/
.25
Employment Agreement - Chairman of the Board and Chief Executive Officer 18/
.26
Future Networks, Inc. Stock Incentive Plan 12/
.27
Amendment to the Coherent Communications Systems Corporation 1993 Equity Compensation Plan 13/
.28
Tellabs, Inc. 2001 Stock Option Plan 13/
.29
Form of Executive Agreement for Corporate Officers 19/
.30
Form of Executive Agreement for Senior Executives 19/
.31
Ocular Networks, Inc. Amended and Restated 2000 Stock Incentive Plan 14/
.32
Tellabs Advantage Plan, as amended and restated
.33
First Amendment to the Tellabs Advantage Plan
.34
Second Amendment to the Tellabs Advantage Plan
.35
Vivace Networks, Inc. 1999 Equity Incentive Plan, as amended 19/
Statement re: Computation of per Share Earnings
Annual Report to Stockholders
Subsidiaries of Tellabs, Inc.
Consent of Ernst & Young LLP
.1
CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
.2
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
.1
CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
.2
CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
.1
Forward-Looking Statements and Risks and Future Factors Impacting Tellabs 17/
Exhibits 10.1 through 10.35 are management contracts or compensatory plans or arrangements required to be filed as an Exhibit to this Form 10-K pursuant to Item 15(c) hereof.
(d) Schedules: See Item 15(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 December 31, 1993 (File No. 0-9692).
4/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 30, 1995 (File No. 0-9692).
5/ 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. The Deferred Income Plan Amendment is incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended January 1, 1999 (File No. 0-9692).
6/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 27, 1997 (File No 0-9692).
7/ Incorporated by reference from Tellabs, Inc. Definitive Proxy Statement filed on or about March 16, 1998 (File No. 0-9692).
8/ Incorporated by reference from Tellabs, Inc. Post-Effective Amendment No. 1on Form S-8 to Form S-4, filed on September 17, 1999 (File No. 33-83509).
9/ Incorporated by reference from Tellabs, Inc. Post-Effective Amendment No. 1 on Form S-8 to Form S-4, filed on March 13, 2000 (File No. 33-95135).
10/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 31, 1999 (File No. 0-9692).
11/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 30, 2000 (File No. 0-9692).
12/ Incorporated by reference from Tellabs, Inc. Form S-8 filed on March 5, 2001 (File No. 333-56546).
13/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended March 30, 2001 (File No. 0-9692).
14/ Incorporated by reference from Tellabs, Inc. Form S-8 filed on January 25, 2002 (File No. 333-81360).
15/ Incorporate by reference from Tellabs, Inc. Pre-Effective Amendment No. 1 to Form S-4, filed on August 5, 1999 (File No. 33-83509).
16/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended March 29, 2002 (File No. 0-9692).
17/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended June 27, 2003 (File No. 0-9692).
18/ Incorporated by reference from Tellabs, Inc. Form 10-K Annual Report for the year ended December 27, 2002 (File No. 0-9692).
19/ Incorporated by reference from Tellabs, Inc. Form 10-Q Quarterly Report for the quarter ended September 26, 2003 (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
By /s Krish A. Prabhu
March 12, 2004 Krish A. Prabhu
Date President, Chief Executive Officer
and Director
(Principal 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.
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 2, 2004, and December 27, 2002, and for each of the three years in the period ended January 2, 2004, and have issued our report thereon dated January 21, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15(a). This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s Ernst & Young LLP
Chicago, Illinois
January 21, 2004
TELLABS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Three Years Ended January 2, 2004, December 27, 2002, and December 28, 2001
NOTE:
(A)
- uncollectable accounts charged off, net
(B)
- $12.2 million allowance for current receivables (netted against Accounts Receivable) and $6.8 million allowance for long-term receivables (netted against Other Assets)
(C)
- These amounts represent reserve reversals.
Exhibit Index