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Tellabs Second-Quarter Revenue Grows 30% to $304 Million, Driving
Profits to $50 Million
NAPERVILLE, Ill., July 21 /PRNewswire-FirstCall/ -- Tellabs (NASDAQ:TLAB)
today reported second-quarter 2004 revenue of $304 million, up 30% from $234
million in the second quarter of 2003. On a GAAP basis, Tellabs earned 12 cents
per share or $50 million in the second quarter of 2004. Excluding net
restructuring and other charges of one cent per share or $3.5 million, Tellabs'
earnings were 13 cents per share or $53 million.
"Continuing strong demand for our products, combined with the benefits of
restructuring and expense control, are driving growth and profitability at
Tellabs," said Krish A. Prabhu, Tellabs president and chief executive officer.
"We are making solid progress in new product development and customer
fulfillment, which will strengthen Tellabs' position as a strategic, global
supplier leading the industry shift to broadband."
Transport -- Revenue from transport systems, the company's core products,
totaled $161 million, up 74% from $93 million in the second quarter of 2003,
primarily driven by strong wireless demand.
Managed Access -- Revenue from managed access systems was $76 million, down 10%
from $85 million in the second quarter of 2003, primarily a result of lower
sales of circuit-based cable telephony.
Broadband Data -- Revenue of broadband data products was $2 million. The
company recently introduced the Tellabs(R) 8600 managed edge system, which
shipped to its first customer this month.
Voice Quality Enhancement -- Revenue from voice-quality enhancement and other
systems amounted to $24 million, up 36% from $18 million in the second quarter
of 2003.
Services and Solutions -- Services and solutions revenue was $41 million, up 4%
from $39 million in the second quarter of 2003.
On a GAAP basis, operating expenses were $120 million in the quarter, including
a restructuring credit of $2 million.
Tellabs' proposed acquisition of AFC (NASDAQ:AFCI) continues to progress, as
the Federal Trade Commission has granted early termination of its Hart-
Scott-Rodino review. On June 23, 2004, Tellabs filed a Registration Statement
on Form S-4 with the Securities and Exchange Commission (SEC), which is
available on the SEC's web site. This document is currently under review by the
SEC. The SEC may have comments and suggested revisions to the document before
it is finalized. When the comment and response process has concluded, the
finalized joint proxy statement/prospectus contained in the Form S-4 will be
sent to both companies' stockholders in connection with the stockholder
meetings that will be held to approve the transaction. It is anticipated that
the closing would occur promptly after these meetings, assuming both companies'
stockholders approve the merger. The companies currently anticipate closing the
merger before the end of October 2004.
Simultaneous Webcast and Teleconference Replay -- Tellabs will host an investor
teleconference at 7 a.m. Central time today to discuss its second- quarter 2004
results. Internet users can hear a simultaneous webcast of the teleconference
at tellabs.com; click on the webcast icon. A taped replay of the call will be
available beginning at approximately 9 a.m. Central time today, until 9 a.m.
Central time on Friday, July 23 at 800-633-8284. (Outside the United States,
call 402-977-9140.) When prompted, enter the Tellabs reservation number:
21201826.
Tellabs (NASDAQ:TLAB) delivers technology that transforms the way the world
communicates(TM). Tellabs experts design, develop, deploy and support our
solutions for telecom service providers in more than 100 countries. More than
two-thirds of telephone calls and Internet sessions in several countries,
including the United States, flow through Tellabs equipment. Our product
portfolio provides solutions in next-generation optical networking, managed
access, carrier-class data, voice quality enhancement and cable telephony. For
details, see http://www.tellabs.com/ .
Forward-Looking Statements- Additional Information and Where to Find It
This communication is not a solicitation of a proxy from any security holder of
Tellabs, Inc. or Advanced Fibre Communications, Inc. Tellabs, Inc. has filed
with the Securities and Exchange Commission a Registration Statement on Form
S-4 (File No. 333-116794) which contains a Preliminary Joint Proxy
Statement/Prospectus. Tellabs, Inc. and Advanced Fibre Communications, Inc.
expect to mail a Definitive Joint Proxy Statement/Prospectus to their
respective stockholders concerning the proposed merger of Advanced Fibre
Communications, Inc. with a subsidiary of Tellabs, Inc. WE URGE INVESTORS AND
SECURITY HOLDERS TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND
ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SEC, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION. Investors and security holders will be able to
obtain the documents free of charge at the SEC's website, http://www.sec.gov/.
In addition, documents filed with the SEC by Tellabs, Inc. will be available
free of charge from Tellabs Investor Relations, 1415 West Diehl Road,
Naperville, IL 60563, 630-798-8800. Documents filed with the SEC by Advanced
Fibre Communications, Inc. will be available free of charge from Advanced Fibre
Communications Investor Relations, 1465 North McDowell Blvd., Petaluma, CA, USA
94954, 707-792-3500.
Interest of Certain Persons in the Merger.
Tellabs, Inc. and Advanced Fibre Communications, Inc., and their respective
directors and executive officers and other members of their management and
employees, may be deemed to be participants in the solicitation of proxies from
the stockholders of Tellabs, Inc. and Advanced Fibre Communications, Inc. in
connection with the merger. The directors and executive officers of Tellabs,
Inc. and Advanced Fibre Communications, Inc. have interests in the merger, some
of which may differ from, or may be in addition to, those of the respective
stockholders of Tellabs, Inc. and Advanced Fibre Communications, Inc.
generally. Those interests will be described in greater detail in the
Definitive Joint Proxy Statement/Prospectus with respect to the merger, which
may include potential membership on the Tellabs, Inc. Board of Directors,
option and stock holdings and indemnification. Information about the directors
and executive officers of Tellabs, Inc. and their ownership of Tellabs, Inc.
stock is set forth in the proxy statement for Tellabs, Inc.'s 2004 annual
meeting of stockholders. Information about the directors and executive officers
of Advanced Fibre Communications, Inc. and their ownership of Advanced Fibre
Communications, Inc. stock is set forth in the proxy statement for Advanced
Fibre Communications, Inc.'s 2004 annual meeting of stockholders. Investors may
obtain additional information regarding the interests of the participants by
reading the joint proxy statement/prospectus.
NOTICE TO INVESTORS, PROSPECTIVE INVESTORS AND THE INVESTMENT COMMUNITY--
CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Statements in this press release regarding the proposed merger of Tellabs, Inc.
and Advanced Fibre Communications, Inc. which are not historical facts,
including the anticipated timing of the merger, are "forward-looking
statements." Forward-looking statements are not guarantees of future events or
performance and involve risks, uncertainties and other factors that may cause
actual events and either company's actual performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by those statements. Actual events and either company's
actual future results could differ materially from those predicted in such
forward-looking statements. Investors and security holders are cautioned not
to place undue reliance on these forward-looking statement and any such
forward-looking statements are qualified in their entirety by reference to the
following cautionary statements.
Important factors upon which the forward-looking statements presented in this
release are premised include: (a) receipt of regulatory and stockholder
approvals without unexpected delays or conditions and fulfillment of all other
contractual conditions to the closing of the merger; (b) timely implementations
and execution of merger integration plans; (c) retention of customers and
critical employees; (d) economic changes impacting the telecommunications
industry; (e) successfully leveraging Tellabs/Advanced Fibre Communications'
comprehensive product offering to the combined customer base; (f) the financial
condition of telecommunication service providers and equipment vendors,
including any impact of bankruptcies; (g) the impact of customer and vendor
consolidation; (h) successfully introducing new technologies and products ahead
of competitors; (i) successful management of any impact from slowing economic
conditions or customer demand; and (j) protection and access to intellectual
property, patents and technology. In addition, the ability of Tellabs/Advanced
Fibre Communications to achieve the expected revenues, accretion and synergy
savings also will be affected by the effects of competition (in particular the
response to the proposed transaction in the marketplace), the effects of
general economic and other factors beyond the control of Tellabs/Advanced Fibre
Communications, and other risks and uncertainties described from time to time
in Tellabs/Advanced Fibre Communications' public filings with the Securities
and Exchange Commission. Tellabs and Advanced Fibre Communications disclaim any
intention or obligation to update or revise any forward-looking statements.
Tellabs(R), Tellabs logo(R) and Technology that Transforms the Way the World
Communicates(TM) are trademarks of Tellabs or its affiliates in the United
States and/or other countries. Any other company or product names mentioned
herein may be trademarks of their respective companies.
TELLABS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
(In millions, except per-share data) 7/2/04 6/27/03 7/2/04 6/27/03
Revenue
Product and other $263.5 $195.1 $495.6 $381.8
Services 40.8 39.0 72.5 74.8
304.3 234.1 568.1 456.6
Cost of Revenue
Product and other 102.1 160.9 190.0 259.6
Services 27.4 28.7 52.8 59.0
129.5 189.6 242.8 318.6
Gross Profit 174.8 44.5 325.3 138.0
Gross profit as a percentage of
revenue 57.4% 19.0% 57.3% 30.2%
Operating Expenses
Selling, general and administrative 57.2 58.7 114.9 123.4
Research and development 61.1 74.6 123.0 151.5
Restructuring & other charges (2.0) 26.1 14.2 26.1
Intangible asset amortization 3.9 2.5 7.8 4.9
120.2 161.9 259.9 305.9
Operating Earnings/(Loss) 54.6 (117.4) 65.4 (167.9)
Other Income/(Expense)
Interest income 6.4 9.2 12.4 17.9
Interest expense (0.1) (0.2) (0.2) (0.2)
Other (1.0) (1.9) (2.0) (3.5)
5.3 7.1 10.2 14.2
Earnings/(Loss) Before Income Tax 59.9 (110.3) 75.6 (153.7)
Income tax (expense)/benefit (10.3) (0.4) (12.6) 0.1
Net Earnings/(Loss) $49.6 ($110.7) $63.0 ($153.6)
Net Earnings/(Loss) Per Share
Basic $0.12 ($0.27) $0.15 ($0.37)
Diluted $0.12 ($0.27) $0.15 ($0.37)
Average number of common shares
outstanding - Basic 416.1 412.5 415.7 412.4
Average number of common shares
outstanding - Diluted 420.3 412.5 419.9 412.4
TELLABS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
7/2/04 1/2/04
(In millions, except share amounts) (Unaudited)
Assets
Current Assets
Cash and cash equivalents $273.6 $245.9
Investments in marketable securities 968.0 877.1
1,241.6 1,123.0
Accounts receivable, net 180.8 196.7
Inventories
Raw materials 13.2 12.5
Work in process 4.2 4.1
Finished goods 38.5 25.2
55.9 41.8
Income taxes 14.7 22.7
Miscellaneous receivables and other
current assets 77.2 114.6
Total Current Assets 1,570.2 1,498.8
Property, Plant and Equipment 548.9 643.6
Less: accumulated depreciation (269.5) (327.8)
279.4 315.8
Goodwill 551.6 552.3
Intangible assets, net 98.2 107.8
Other assets 125.9 132.8
Total Assets $2,625.3 $2,607.5
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $52.1 $47.8
Accrued liabilities 104.7 95.2
Accrued restructuring and other
liabilities 25.8 64.8
Total Current Liabilities 182.6 207.8
Long-term restructuring and other
liabilities 37.3 44.8
Income taxes 101.8 100.1
Other long-term liabilities 36.1 35.5
Stockholders' Equity
Preferred stock: authorized
5,000,000 shares of $.01 par
value; no shares issued and outstanding - -
Common stock: authorized
1,000,000,000 shares of $.01 par
value; 419,463,149 and 417,859,719 shares
issued, including treasury stock 4.2 4.2
Additional paid-in capital 562.5 556.8
Deferred compensation expense (7.4) (9.5)
Treasury stock, at cost: 3,250,000
shares (129.6) (129.6)
Accumulated other comprehensive income
Cumulative translation adjustment 75.5 94.1
Unrealized net gains on available-
for-sale securities (2.6) 1.4
Total accumulated other
comprehensive income 72.9 95.5
Retained earnings 1,764.9 1,701.9
Total Stockholders' Equity 2,267.5 2,219.3
Total Liabilities and Stockholders'
Equity $2,625.3 $2,607.5
TELLABS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Six Months Ended
(In millions) 7/2/04 6/27/03
Operating Activities
Net Earnings/(Loss) $63.0 ($153.6)
Adjustments to reconcile net
earnings/(loss) to net cash
provided by operating activities:
Restructuring and other charges 10.7 80.4
Depreciation and amortization 40.0 60.6
Gain on investments and other (4.6) 3.7
Net change in assets and
liabilities, net of effects
from acquisitions:
Accounts receivable 14.0 60.7
Inventories (14.8) 23.9
Income tax receivable 15.4 -
Miscellaneous receivables and
other current assets 35.9 (26.2)
Long-term assets (8.4) 8.1
Accounts payable 4.9 (31.0)
Accrued liabilities 21.5 (5.9)
Accrued restructuring and other
charges (40.2) (45.5)
Income taxes payable (3.3) 149.1
Long-term liabilities (3.9) (0.1)
Net Cash Provided by/(Used for)
Operating Activities 130.2 124.2
Investing Activities
Capital expenditures (18.4) (11.3)
Disposals of property, plant and
equipment 14.2 3.8
Payments for purchases of
investments, net (98.2) (222.9)
Payments for acquisitions, net of
cash acquired - (136.6)
Net Cash Used for Investing
Activities (102.4) (367.0)
Financing Activities
Proceeds from issuance of common stock 3.8 1.2
Net Cash Provided by Financing
Activities 3.8 1.2
Effect of Exchange Rate Changes on Cash (3.9) 35.4
Net Increase/(Decrease) in Cash and
Cash Equivalents 27.7 (206.2)
Cash and Cash Equivalents at
Beginning of Year 245.9 453.5
Cash and Cash Equivalents at End of
Period $273.6 $247.3
RESULTS OF OPERATIONS
(In millions of dollars except for percentages and per share amounts)
In May 2004, we entered into a definitive agreement under which we will
acquire Advanced Fibre Communications, Inc. ("AFC"), a leader in access,
for $1,900.0 in cash and stock. Under the terms of the transaction, which
was approved by both companies' boards of directors, AFC stockholders will
receive 1.55 shares of our common stock and $7.00 in cash for each AFC
share. Based on our closing stock price of $9.19 per share on May 19,
2004, the date we entered into the merger agreement, this represents
$21.24 in value per AFC share, or a total value of $1,900.0. An estimated
136.3 million common shares of our stock will be issued for the
acquisition with the cash portion financed with cash on hand. Upon
completion of the transaction, our stockholders will own approximately 75%
of the company and AFC stockholders will own 25%. This transaction is
expected to close during the 4th quarter of 2004 following the required
shareholder and regulatory approvals. The merger has been approved by the
Federal Trade Commission. See further discussion of this transaction in
our Form S-4 filing with the Securities and Exchange Commission dated
June 23, 2004.
During the second quarter, we saw a continuation of our first quarter
momentum which led to higher second quarter and year-to-date net earnings
compared to the same periods in 2003. This increase in net earnings for
both the quarter and year-to-date period was due to higher revenue,
improved margins and lower operating expenses.
The following is a comparison of selected financial information for the
quarter and year-to-date periods ended July 2, 2004 and June 27, 2003:
Periods Ended Periods Ended
July 2, 2004 June 27, 2003 Change
Year-to- Year-to- Year-to-
Quarter Date Quarter Date Quarter Date
Revenue $304.3 $568.1 $234.1 $456.6 $70.2 or $111.5 or
30% 24%
Gross profit 174.8 325.3 44.5 138.0 $130.3 $187.3
Margin 57.4% 57.3% 19.0% 30.2% 38 ppts. 27 ppts.
Operating expenses,
before restructuring
and other
charges $122.2 $245.7 $135.8 $279.8 $(13.6) or $(34.1) or
(10)% (12)%
Restructuring and
other charges/
credits (2.0) 14.2 26.1 26.1 $(28.1) or $(11.9) or
(108)% (46)%
Total operating
expenses 120.2 259.9 161.9 305.9 $(41.7) or $(46.0) or
(26)% (15)%
Other income/
(expense) 5.3 10.2 7.1 14.2 $(1.8) or $(4.0) or
(25)% (28)%
Income tax
(expense)/benefit (10.3) (12.6) (0.4) 0.1 N/M N/M
Net earnings/
(loss) $49.6 $63.0 $(110.7) $(153.6) $160.3 or $216.6 or
145% 141%
Diluted earnings/
(loss) per share $0.12 $0.15 $(0.27) $(0.37) $0.39 or $0.52 or
144% 141%
Effective tax
expense/(benefit)
rate 17% 17% N/M N/M 17 ppts. 17 ppts.
Note: The term "N/M" means not meaningful and the term "N/A" means not
applicable.
The following is a comparison of product-group revenue by quarter and
year-to-date periods ended July 2, 2004 and June 27, 2003:
Periods Ended Periods Ended
July 2, 2004 June 27, 2003 Change
Year-to- Year-to- Year-to-
Quarter Date Quarter Date Quarter Date
Transport $161.3 $295.2 $92.7 $197.2 $68.6 or $98.0 or
74% 50%
Managed Access 76.4 145.8 84.7 158.2 $(8.3) or $(12.4) or
(10)% (8)%
Broadband Data 1.8 5.7 - - N/A N/A
Voice Quality
Enhancement 24.1 48.9 17.7 26.4 $6.4 or $22.5 or
36% 85%
Services and
Solutions 40.7 72.5 39.0 74.8 $1.7 or $(2.3) or
4% (3)%
Total $304.3 $568.1 $234.1 $456.6 $70.2 or $111.5 or
30% 24%
Percentage of
Revenue from
North America 70% 68% 61% 63% 9 ppts. 5 ppts.
Revenue
During the quarter we continued to experience growing demand from our wireless
customers in North America as they build out their infrastructure in response
to increasing demand from end-users. This is reflected in sales of our
Transport products, particularly our Tellabs (R) 5500 systems, which increased
85% over the year-ago quarter and year-to-date increased 63% over the same
period last year. Wireless customers in North America made up approximately
65% of our Tellabs(R) 5500 revenue in the quarter, up from approximately 38% in
the year ago quarter and 53% in the first quarter of 2004. Sales to wireless
carriers, both in North America and International, also drove the growth in our
voice quality enhancement products. We do not have sufficient visibility to
either end-user growth trends for wireless services and/or capital spending
plans by our wireless customers to estimate the longevity of this growth.
Revenue from Managed Access products decreased $8.3 and $12.4 in the second
quarter and first half of 2004, respectively, compared with the same periods in
2003. The decrease in revenue from these products was due to lower sales of
circuit-switched cable telephony products.
Revenue from Broadband Data products, Tellabs (R) 8800 systems, was $1.8 and
$5.7 in the second quarter and first half of 2004. These products were not
offered in the first half of 2003.
Revenue from Services and Solutions increased $1.7 and decreased $2.3 in the
second quarter and first half of 2004, respectively, compared with the same
periods in 2003. The historical relationship between our Services and
Solutions revenue and product revenue has been changing as a result of changes
in product mix. For example, Tellabs(R) 5500 sales of new product systems and
of electrical port bays, which require more installation time than individual
port cards and optical port bays, have become a smaller percentage of product
revenue. We expect this trend to continue into the foreseeable future.
Gross Profit
Margins increased 38 percentage points and 27 percentage points in the second
quarter and first half of 2004, respectively, compared with the same periods in
2003. The increase was primarily due to a decrease in charges for excess and
obsolete inventories and excess purchase commitments (charges were $54.3
million in the second quarter and year-to-date periods of 2003, $5.7 in the
second quarter of 2004 and a credit of $3.5 year-to-date in 2004) and the
benefits of outsourcing our manufacturing operations.
Operating Expenses
Total operating expenses decreased $41.7 and $46.0 in the second quarter and
first half of 2004, respectively, compared with the same periods in 2003. The
decrease was due to a decline in restructuring and other charges of $28.1 and
$11.9 for the second quarter and first half of 2004, respectively, compared to
that in the same periods of 2003, reduced expenses due to prior restructuring
activities and continued focus on cost control.
Other Income/Expense
Interest income decreased $2.8 and $5.5 in the second quarter and first half of
2004, respectively, compared with the same periods in 2003, as the impact of
lower prevailing interest rates offset higher levels of cash and cash
equivalents and marketable securities during the second quarter and first half
of 2004.
Effective Tax Rate
The effective tax rate for both the second quarter and first half of 2004 was
17%, compared with a minimal provision and benefit in the comparable periods of
2003. The increase in the tax rate for the second quarter and first half of
2004 reflects a tax benefit from the utilization of domestic net operating loss
carry-forwards and an increase in the tax provision from our international
operations. The tax rate for the second quarter and first half of 2003
reflected the absence of a tax benefit for operating losses incurred primarily
in the United States and a small tax benefit from our international operations.
Financial Condition, Liquidity and Capital Resources
Our principal source of liquidity remained our cash and cash equivalents and
investments in marketable securities, which increased by $118.6 since the end
of fiscal 2003. The increase was primarily due to cash generated by operating
activities.
We believe that the current level of working capital, particularly cash and
short-term investments, is sufficient to meet our normal operating requirements
for the foreseeable future. Further, we believe that sufficient resources
exist to support our future growth and strategic needs. Future sources of
working capital may be from cash-on-hand, cash generated from future
operations, short-term or long-term financing, equity offerings or any
combination of these alternatives.
Our current policy is to retain our earnings to provide funds for operating and
expanding our business. We do not anticipate paying a cash dividend in the
foreseeable future.
TELLABS, INC.
NON-GAAP RESULTS OF OPERATIONS (A)
(Unaudited)
Three Months Ended Six Months Ended
(In millions, except per-
share data) 7/2/04 6/27/03 Change 7/2/04 6/27/03 Change
Revenue
Product and other $263.5 $195.1 $495.6 $381.8
Services 40.8 39.0 72.5 74.8
304.3 234.1 30.0% 568.1 456.6 24.4%
Cost of Revenue
Product and other 96.4 106.6 193.5 205.3
Services 27.4 28.7 52.8 59.0
123.8 135.3 246.3 264.3
Gross Profit 180.5 98.8 82.7% 321.8 192.3 67.3%
Gross profit as a percentage
of revenue 59.3% 42.2% 17.1% 56.6% 42.1% 14.5%
Operating Expenses
Selling, general and
administrative 57.2 58.7 114.9 123.4
Research and development 61.1 74.6 123.0 151.5
Restructuring & other
charges 0.0 0.0 0.0 0.0
Intangible asset
amortization 3.9 2.5 7.8 4.9
122.2 135.8 245.7 279.8
Operating Earnings/(Loss) 58.3 (37.0) 76.1 (87.5)
Other Income/(Expense)
Interest income 6.4 9.2 12.4 17.9
Interest expense (0.1) (0.2) (0.2) (0.2)
Other (1.0) (1.9) (2.0) (3.5)
5.3 7.1 10.2 14.2
Earnings/(Loss) Before Income
Tax 63.6 (29.9) 86.3 (73.3)
Income tax
(expense)/benefit (10.5) (1.4) (13.5) (0.9)
Net Earnings/(Loss) $53.1 ($31.3) $72.8 ($74.2)
Net Earnings/(Loss) Per Share
Basic $0.13 ($0.08) $0.18 ($0.18)
Diluted $0.13 ($0.08) $0.17 ($0.18)
Average number of common
shares outstanding - Basic 416.1 412.5 415.7 412.4
Average number of common
shares outstanding - Diluted 420.3 412.5 419.9 412.4
(A) In addition to reporting financial results in accordance with
generally accepted accounting principles, or GAAP, Tellabs, Inc.
provides non-GAAP results of operations as additional information
for its operating results. These measures are not in accordance with,
or an alternative for, GAAP and may be different from measures used by
other companies. The non-GAAP results of operations eliminate certain
items of expenses and losses from cost of goods sold, operating
expenses and other income and expenses. The Company's management
believes that this presentation allows investors to evaluate the
current operational and financial performance of the Company's core
business as an indicator of future operational and financial
performance. The Company's management uses these measures for
reviewing its financial results and for business planning and
performance. Tellabs, Inc.'s management discloses this information
externally along with a complete reconciliation of their comparable
GAAP amounts, to provide access to the detail and general nature of
adjustments made to GAAP financial results. Furthermore, while some
of these items have been periodically reported in Tellabs, Inc.'s
results of operations, including significant restructuring and other
charges, their occurrence in future periods is dependent upon
future business and economic factors, among other evaluation criteria,
and may frequently be beyond the control of management.
See the attached schedule disclosing the adjustments made to the above
non-GAAP results of operations.
Tellabs, Inc.
Reconciliation of Non-GAAP Adjustments
(Amounts in millions, except per-share data)
(Unaudited)
Three Months Ended Six Months Ended
07/02/04(a) 07/02/04(b)
As Adjust- Non- As Adjust- Non-
Reported ments GAAP Reported ments GAAP
Cost of Goods Sold 129.5 (5.7) 123.8 242.8 3.5 246.3
Gross Profit 174.8 5.7 180.5 325.3 (3.5) 321.8
Total Operating Expenses 120.2 2.0 122.2 259.9 (14.2) 245.7
Income Tax (Expense)/Benefit (10.3) (0.2) (10.5) (12.6) (0.9) (13.5)
Net Earnings/(Loss) 49.6 3.5 53.1 63.0 9.8 72.8
Earnings/(Loss) Per Share -
Basic $0.12 $0.01 $0.13 $0.15 $0.03 $0.18
Earnings/(Loss) Per Share -
Diluted $0.12 $0.01 $0.13 $0.15 $0.02 $0.17
Three Months Ended Six Months Ended
06/27/03 (c) 06/27/03 (c)
As Adjust- Non- As Adjust- Non-
Reported ments GAAP Reported ments GAAP
Cost of Goods Sold 189.6 (54.3) 135.3 318.6 (54.3) 264.3
Gross Profit 44.5 54.3 98.8 138.0 54.3 192.3
Total Operating Expenses 161.9 (26.1) 135.8 305.9 (26.1) 279.8
Income Taxes/(Benefit) (0.4) (1.0) (1.4) 0.1 (1.0) (0.9)
Net Earnings/(Loss) (110.7) 79.4 (31.3) (153.6) 79.4 (74.2)
Earnings/(Loss) Per Share -
Basic ($0.27) $0.19 ($0.08) ($0.37) $0.19 ($0.18)
Earnings/(Loss) Per Share -
Diluted ($0.27) $0.19 ($0.08) ($0.37) $0.19 ($0.18)
(a) The $5.7 million charge to Cost of Goods Sold reflects costs
associated with the outsourcing of both US and Finland manufacturing
operations: $4.5 million charge for loss on the sale of the North
American manufacturing facilities, and $1.2 million charge for
manufacturing transition costs for Finland manufacturing outsourcing.
The $2.0 million credit within Operating Expenses reflects $0.9
million charge for severance and related charges, $0.6 million charge
for the write-down of assets disposed of or held for sale, and $0.3
million charge for costs related to excess facilities; offset by $1.9
million reversal of excess facilities reserves that are no longer
required, $1.2 million reversal of severance reserves recorded in
prior periods that are no longer required, and $0.7 million reversal
for proceeds received on sales of fixed assets in excess of original
estimates.
(b) The $3.5 million credit to Cost of Goods Sold reflects $4.5 million
charge for loss on the sale of the North American manufacturing
facilities, and $4.0 million charge in costs associated with the
outsourcing of Finland manufacturing operations; offset by a $12.0
million reversal of a prior accrual for excess purchase commitments
due to a favorable settlement. Charges for Finland manufacturing
outsourcing were $2.3 million for inventory adjustments and $1.7
million for transition costs.
The $14.2 million charge within Operating Expenses represents $5.0
million charge for severance and related payments, $13.2 million
charge for the write-down of assets disposed of or held for sale, $1.7
million charge for facilities consolidation expenses, and $2.4 million
charge for other obligations; partially offset by a $5.0 million
reversal of previously recorded expense relating to estimated salvage
value on fixed asset disposals, $1.9 million reversal of excess
facilities reserves that are no longer required, and $1.2 million
reversal of severance reserves recorded in prior periods that are no
longer required.
(c) The $54.3 million charge to Cost of Goods Sold reflects accruals of
$33.4 million for excess & obsolete inventories and $20.9 million for
excess purchase commitments.
The $26.1 million charge to Operating Expenses represents accruals of
$15.0 million for severance payments; $14.7 million for the write-down
of assets held for sale or to be disposed of; and $2.8 million for
facilities closures and miscellaneous software licenses; partially
offset by a $6.4 million reversal of previously recorded restructuring
costs relating to severance and estimated salvage value on asset
disposals.
DATASOURCE: Tellabs
CONTACT: Media Contact, Ariana Nikitas, +1-630-798-2532,
, or Investor Contact, Tom Scottino,
+1-630-798-3602, , both of Tellabs
Web site: http://www.tellabs.com/