Gross profit margins rise to 41.7% as operations generate $66
million in cash NAPERVILLE, Ill., Oct. 26 /PRNewswire-FirstCall/ --
Tellabs' third-quarter 2009 revenue totaled $389 million, compared
with $424 million in the third quarter of 2008. Almost half of
overall revenue came from growth products, including the Tellabs®
6300, 7100, 7300, 8600 and 8800 systems and professional services.
Tellabs earned $29 million or 7 cents per share on a GAAP (U.S.
generally accepted accounting principles) basis, compared with a
loss of $999 million or $2.51 per share in the year-ago quarter,
which included a non-cash goodwill charge of $988 million. On a
non-GAAP basis, Tellabs earned $28 million or 7 cents per share, up
51% from $19 million or 5 cents per share in the year-ago quarter.
The current quarter's non-GAAP results exclude pretax charges of
$11 million, which includes $4.5 million or 0.8 cents per share for
equity-based compensation. GAAP gross profit margin was 41.7% in
the third quarter of 2009, compared with 38.2% in the year-ago
quarter. The company generated $66 million in cash from operations
and added $12 million to its cash, cash equivalents and marketable
securities, which rose to more than $1.25 billion. During the
quarter, Tellabs repurchased approximately 9.5 million shares at a
cost of $62 million under previously announced share repurchase
programs. "As we innovate to help our customers and company
succeed, Tellabs continues to increase gross profit margins and
generate cash," said Rob Pullen, Tellabs president and chief
executive officer. "Tellabs' recently announced acquisition of
WiChorus will bring customers breakthrough technology for the
mobile Internet, logically extend our mobile business into an
adjacent high-growth market and help ensure Tellabs' future
growth." For the third quarter of 2009, Broadband segment revenue
was $206 million, Transport segment revenue was $128 million and
Services segment revenue was $55 million. More detailed
information, including non-GAAP reconciliation tables and
year-over-year segment comparisons, can be found in the Results of
Operations section of this news release. The full text of the news
release is available at http://www.tellabs.com/news/2009/3q09.pdf
Fourth-Quarter 2009 Guidance -- The following statements are based
on current expectations and involve risks and uncertainties, some
of which are set forth below. Compared with the third quarter of
2009, Tellabs expects fourth-quarter revenue to be flat, plus or
minus three percent. Non-GAAP gross margin is expected to be 43%,
plus or minus one or two points, depending on product mix. Non-GAAP
operating expense is expected to be flat to slightly down. Non-GAAP
gross margin excludes about $1 million, and non-GAAP operating
expense excludes about $4 million, in equity-based compensation
expense. Simultaneous Webcast and Teleconference Replay -- Tellabs
will host an investor teleconference at 7:30 a.m. Central Daylight
Time today to discuss its third-quarter 2009 results and provide
its outlook for the fourth quarter of 2009. Internet users can hear
a simultaneous webcast of the teleconference at
http://www.tellabs.com/; click on the webcast icon. A taped replay
of the call will be available beginning at approximately 10:30 a.m.
Central Daylight Time today, until midnight Central Daylight Time
on Wednesday, Oct. 28, at 800-642-1687. (Outside the United States,
call 706-645-9291.) When prompted, enter the Tellabs conference ID
number: 34936537. A podcast of the call will be available at
http://www.tellabs.com/news/feeds/ later today. About Tellabs --
Tellabs helps customers succeed through innovation. That's why 43
of the top 50 global telecom service providers choose our mobile,
optical and business solutions. We help telecom service providers,
independent operating companies, MSO/cable TV companies,
enterprises and government agencies get ahead by adding revenue,
reducing expenses and optimizing networks. With wireless and
wireline networks in more than 90 countries, we enrich people's
lives by innovating the way the world connects(TM). Tellabs
(NASDAQ:TLAB) is part of the NASDAQ Global Select Market, Ocean
Tomo 300(TM) Patent Index, the S&P 500 and several corporate
responsibility indexes including FTSE4Good and eight KLD indexes.
http://www.tellabs.com/ Forward-Looking Statements -- This news
release, which includes the Results of Operations discussion that
follows, contains forward-looking statements, including but not
limited to the next-quarter 2009 guidance and cost savings
information contained in this release, that involve risks and
uncertainties. Actual results may differ from the results discussed
in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, risks associated with:
the competitive landscape, including pricing and margin pressures,
the response of customers and competitors, industry consolidation,
the introduction of new products, the entrance into new markets,
the ability to secure necessary resources, the ability to realize
anticipated savings under our cost-reduction initiatives, and
overall negative economic conditions generally and disruptions in
credit and capital markets, including specific impacts of these
conditions on the telecommunications industry. In light of these
factors investors are advised not to rely on forward-looking
statements in deciding whether to buy, sell or hold the company's
securities. The company undertakes no obligation to revise or
update these forward-looking statements to reflect events or
circumstances after today or to reflect the occurrence of
unanticipated events. Tellabs® and Tellabs logo® 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.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Third Quarter
Nine Months In millions, except ------------- ----------- per-share
data 10/2/09 9/26/08 10/2/09 9/26/08 ------- ------- -------
------- Revenue Products $333.8 $368.8 $970.8 $1,149.0 Services
55.5 55.3 165.6 171.7 ---- ---- ----- ----- Total revenue 389.3
424.1 1,136.4 1,320.7 ----- ----- ------- ------- Cost of Revenue
Products 191.1 226.7 538.7 712.5 Services 35.9 35.2 108.1 117.9
---- ---- ----- ----- Total cost of revenue 227.0 261.9 646.8 830.4
----- ----- ----- ----- Gross Profit 162.3 162.2 489.6 490.3 Gross
profit as a percentage of revenue 41.7% 38.2% 43.1% 37.1% Gross
profit as a percentage of revenue - products 42.8% 38.5% 44.5%
38.0% Gross profit as a percentage of revenue - services 35.3%
36.3% 34.7% 31.3% Operating Expenses Research and development 65.8
74.0 201.6 233.3 Sales and marketing 40.6 42.9 123.9 129.5 General
and administrative 24.5 23.7 76.6 75.0 Intangible asset
amortization 6.0 6.2 18.0 17.4 Restructuring and other charges 0.3
9.1 11.1 23.2 Goodwill impairment - 988.3 - 988.3 --- ----- ---
----- Total operating expenses 137.2 1,144.2 431.2 1,466.7 -----
------- ----- ------- Operating Earnings (Loss) 25.1 (982.0) 58.4
(976.4) Operating earnings (loss) as a percentage of revenue 6.4%
-231.5% 5.1% -73.9% Other Income Interest income, net 3.9 8.3 14.8
28.7 Other income (expense), net 1.3 (7.3) 1.3 (5.0) --- ---- ---
---- Total other income 5.2 1.0 16.1 23.7 --- --- ---- ----
Earnings (Loss) Before Income Tax 30.3 (981.0) 74.5 (952.7) Income
tax (expense) benefit (1.0) (17.5) (23.0) 9.8 ---- ----- ----- ---
Net Earnings (Loss) $29.3 $(998.5) $51.5 $(942.9) ===== =======
===== ======= Net Earnings (Loss) Per Share Basic $0.07 $(2.51)
$0.13 $(2.35) ===== ====== ===== ====== Diluted $0.07 $(2.51) $0.13
$(2.35) ===== ====== ===== ====== Weighted Average Shares
Outstanding Basic 392.3 398.0 394.8 401.1 ===== ===== ===== =====
Diluted 394.2 398.0 396.1 401.1 ===== ===== ===== ===== TELLABS,
INC. CONSOLIDATED BALANCE SHEETS 10/2/09 1/2/09 ------- ------ In
millions, except share data Unaudited --------- Assets Current
Assets Cash and cash equivalents $322.7 $376.1 Investments in
marketable securities 932.0 776.0 ----- ----- Total cash, cash
equivalents and marketable securities 1,254.7 1,152.1 Other
marketable securities 239.4 179.1 Accounts receivable, net of
allowances of $1.7 and $1.4 324.0 332.7 Inventories Raw materials
22.8 34.2 Work in process 4.2 13.9 Finished goods 100.3 128.8 -----
----- Total inventories 127.3 176.9 Income taxes 35.4 38.7
Miscellaneous receivables and other current assets 52.6 56.3 ----
---- Total Current Assets 2,033.4 1,935.8 Property, Plant and
Equipment Land 21.3 21.1 Buildings and improvements 201.4 201.6
Equipment 417.9 420.0 ----- ----- Total property, plant and
equipment 640.6 642.7 Accumulated depreciation (377.4) (364.4)
------ ------ Property, plant and equipment, net 263.2 278.3
Goodwill 122.6 122.4 Intangible Assets, Net of Amortization 26.3
44.2 Other Assets 127.3 127.5 ----- ----- Total Assets $2,572.8
$2,508.2 ======== ======== Liabilities and Stockholders' Equity
Current Liabilities Accounts payable $62.5 $84.1 Accrued
compensation 73.9 60.7 Restructuring and other charges 12.7 17.7
Income taxes 78.6 73.0 Stock loan 239.4 179.1 Deferred revenue 42.3
34.6 Other accrued liabilities 84.7 91.4 ---- ---- Total Current
Liabilities 594.1 540.6 Long-Term Restructuring Liabilities 7.5
13.3 Income Taxes 46.7 59.7 Other Long-Term Liabilities 48.8 48.1
Stockholders' Equity Preferred stock: authorized 5,000,000 shares
of $0.01 par value; no shares issued and outstanding - - Common
stock: authorized 1,000,000,000 shares of $0.01 par value;
497,236,832 and 495,757,314 shares issued 5.0 5.0 Additional
paid-in capital 1,503.7 1,485.9 Treasury stock, at cost:
109,877,033 and 100,088,341 shares (1,015.9) (952.4) Retained
earnings 1,234.7 1,183.2 Accumulated other comprehensive income
148.2 124.8 ----- ----- Total Stockholders' Equity 1,875.7 1,846.5
------- ------- Total Liabilities and Stockholders' Equity $2,572.8
$2,508.2 ======== ======== TELLABS, INC. CONSOLIDATED STATEMENTS OF
CASH FLOWS (Unaudited) Nine Months ----------- 10/2/09 9/26/08
------- ------- In millions Operating Activities Net earnings
(loss) $51.5 $(942.9) Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities: Depreciation and
amortization 55.6 63.7 Loss on disposal of property, plant and
equipment 0.5 1.6 Goodwill impairment - 988.3 Equity-based
compensation 15.8 20.9 Deferred income taxes 13.7 (19.9)
Restructuring and other charges 11.1 23.2 Other-than-temporary
impairment charges on investments - 1.4 Net changes in assets and
liabilities: Accounts receivable 18.1 39.1 Inventories 56.3 8.2
Miscellaneous receivables and other current assets 5.1 1.1 Other
assets 1.5 15.0 Accounts payable (29.3) (24.2) Restructuring and
other charges (17.5) (14.8) Deferred revenue 7.9 (3.1) Other
accrued liabilities (3.9) (7.4) Income taxes (12.8) (16.0) Other
long-term liabilities 0.4 (4.5) --- ---- Net Cash Provided by
Operating Activities 174.0 129.7 ----- ----- Investing Activities
Capital expenditures (24.9) (33.1) Proceeds on disposals of
property, plant and equipment 0.5 0.2 Payments for purchases of
investments (947.8) (1,034.9) Proceeds from sales and maturities of
investments 798.0 1,476.1 ----- ------- Net Cash (Used for)
Provided by Investing Activities (174.2) 408.3 ------ -----
Financing Activities Proceeds from issuance of common stock under
stock plans 1.5 0.8 Repurchase of common stock (63.5) (144.9) -----
------ Net Cash Used for Financing Activities (62.0) (144.1) -----
------ Effect of Exchange Rate Changes on Cash 8.8 - --- --- Net
(Decrease) Increase in Cash and Cash Equivalents (53.4) 393.9 Cash
and Cash Equivalents - Beginning of Year 376.1 213.0 ----- -----
Cash and Cash Equivalents - End of Period $322.7 $606.9 ======
====== RESULTS OF OPERATIONS For the third quarter of 2009, revenue
was $389.3 million, compared with $424.1 million in the third
quarter of 2008 as growth in Transport and Services segment revenue
was offset by lower Broadband segment revenue. Revenue for the
first nine months of 2009 was $1,136.4 million, compared with
$1,320.7 million in the comparable period of 2008. On a nine-month
basis, revenue declined in all segments. Consolidated gross profit
margin in the third quarter of 2009 was 41.7%, up 3.5 percentage
points from 38.2% in the third quarter of 2008. On a nine-month
basis, consolidated gross margin was 43.1%, up 6.0 percentage
points from 37.1% in 2008. The increase in gross margin across both
time periods is primarily the result of profitability improvements
on access products and increased data product revenue. Operating
expenses in the third quarter of 2009 were $137.2 million, compared
with $1,144.2 million in the third quarter of 2008 when the company
recorded a goodwill impairment charge of $988.3 million. Excluding
the goodwill impairment, intangible asset amortization and
restructuring and other charges from each period, our operating
expenses decreased by $9.7 million, compared with the year-ago
quarter. For the first nine months of 2009, operating expenses were
$431.2 million, down $1,035.5 million, compared with the first nine
months of 2008. Excluding the goodwill impairment, intangible asset
amortization and restructuring and other charges from each period,
our operating expenses decreased by $35.7 million, compared with
the first nine months of 2008. The reduction in operating expenses
across both periods, excluding the goodwill impairment, intangible
asset amortization and restructuring and other charges came
primarily in research and development costs and represents the
company's continuing efforts to improve profitability by aligning
our costs with market conditions. Revenue (in millions) Third
Quarter Nine Months ------------- ----------- 2009 2008 Change 2009
2008 Change ---- ---- ------ ---- ---- ------ Products $333.8
$368.8 (9.5)% $970.8 $1,149.0 (15.5)% Services 55.5 55.3 0.4% 165.6
171.7 (3.6)% ------ ------ ----- -------- -------- ----- Total
revenue $389.3 $424.1 (8.2)% $1,136.4 $1,320.7 (14.0)% ======
====== ===== ======== ======== ===== Overall product revenue
decreased in the three-month period as increased revenue from data
products and Transport segment products was offset by lower managed
access and access product revenue. In the nine-month period,
increased revenue from data products was offset by lower managed
access, access and Transport segment product revenue. In the
Services segment, the revenue decline for the nine-month period is
primarily due to a lower level of deployment services revenue,
partially offset by an increase in professional services revenue.
On a geographic basis, revenue from customers in North America
(United States and Canada) was $273.4 million in the third quarter
of 2009, up 3.6% from the year-ago quarter. This increase is
primarily due to increased revenue from North American wireless
carriers, partially offset by lower revenue from North American
wireline customers. On a nine-month basis, North America revenue
totaled $749.9 million, down 16.7% from the comparable period in
2008. This decrease is primarily due to increased revenue from
North American wireless carriers, offset by lower revenue from
North American wireline carriers. Revenue from customers outside
North America was $115.9 million in the third quarter of 2009, down
27.7% from the year-ago quarter. For the first nine months of 2009,
revenue from customers outside North America was $386.5 million,
down 8.0% from a year ago. The decrease in both periods results
lower revenue in the Europe, Middle East and Africa region and the
Latin American region (Mexico, Central and South America and the
Caribbean), partially offset by increased revenue in the Asia
Pacific region. Gross Margin Third Quarter Nine Months
------------- ----------- % Point % Point 2009 2008 Change 2009
2008 Change ---- ---- ------ ---- ---- ------ Products 42.8% 38.5%
4.3 44.5% 38.0% 6.5 Services 35.3% 36.3% (1.0) 34.7% 31.3% 3.4
Consolidated 41.7% 38.2% 3.5 43.1% 37.1% 6.0 The improvement in
products gross margin for the third quarter and first nine months
of 2009 and the year ago-periods is the result of profitability
improvements on access products and increased revenue from data
products, which carry gross margins better than the corporate
average. The increase in services gross margin between the first
nine months of 2009 and the comparable period in 2008 is the result
of increased network consulting, support and network design revenue
and lower deployment services revenue. Operating Expenses (in
millions) Percent of Third Quarter Revenue -------------
------------- 2009 2008 Change 2009 2008 ---- ---- ------ ---- ----
Research and development $65.8 $74.0 $(8.2) 16.9% 17.4% Sales and
marketing 40.6 42.9 (2.3) 10.4% 10.1% General and administrative
24.5 23.7 0.8 6.3% 5.6% ---- ---- --- Subtotal 130.9 140.6 (9.7)
33.6% 33.2% Intangible asset amortization 6.0 6.2 (0.2)
Restructuring and other charges 0.3 9.1 (8.8) Goodwill impairment -
988.3 (988.3) --- ----- ------ Total operating expenses $137.2
$1,144.2 $(1,007.0) ====== ======== ========= Percent of Nine
Months Revenue ----------- ------------ 2009 2008 Change 2009 2008
---- ---- ------ ---- ---- Research and development $201.6 $233.3
$(31.7) 17.7% 17.7% Sales and marketing 123.9 129.5 (5.6) 10.9%
9.8% General and administrative 76.6 75.0 1.6 6.7% 5.7% ---- ----
--- Subtotal 402.1 437.8 (35.7) 35.4% 33.1% Intangible asset
amortization 18.0 17.4 0.6 Restructuring and other charges 11.1
23.2 (12.1) Goodwill impairment - 988.3 (988.3) ----- ----- ------
Total operating expenses $431.2 $1,466.7 $(1,035.5) ====== ========
========= Decreased operating expenses in the third quarter and the
first nine months of 2009 were due to the absence of the $988.3
million goodwill impairment and savings, primarily reduced research
and development costs, from previously announced cost-reduction
programs. Restructuring and other charges of $0.3 million for the
third quarter of 2009 and $11.1 million for the first nine months
of 2009 are primarily due to severance, facility- and asset-related
charges. Other Income (in millions) Third Quarter Nine Months
------------- ----------- 2009 2008 Change 2009 2008 Change ----
---- ------ ---- ---- ------ Interest income, net $3.9 $8.3 $(4.4)
$14.8 $28.7 $(13.9) Other income (expense), net 1.3 (7.3) 8.6 1.3
(5.0) 6.3 ---- --- ---- ---- ---- ---- Total other Income $5.2 $1.0
$4.2 $16.1 $23.7 $(7.6) ===== ==== ===== ===== ===== ======
Interest income, net, declined due to lower interest rates during
the third quarter and the first nine months of 2009, compared with
the year-ago periods. Other income (expense), net, improved in the
third quarter and first nine months of 2009 compared with the same
year-ago periods as a result of gains on sales of investments in
marketable securities in 2009 compared with losses in 2008. Income
Taxes For the third quarter of 2009 we recorded an income tax
expense of $1.0 million, compared with an income tax expense of
$17.5 million for the third quarter of 2008. For the first nine
months of 2009 we recorded an income tax expense of $23.0 million,
compared with an income tax benefit of $9.8 million for the first
nine months of 2008. Income tax expense for the third quarter 2009
decreased compared to the prior year due to a benefit of $6.8
million related to the release of tax reserves that were no longer
required due to an expiration of a statute of limitation. In
addition, tax expense for the quarter was reduced due to the
absence of a provision recorded in the prior year to establish a
valuation allowance against domestic deferred tax assets. Income
tax expense for the first nine months of 2009 increased compared to
the prior year primarily due to the absence of a benefit of $34.8
million recorded in the second quarter of 2008 for the favorable
resolution of income tax audits. In addition, this increase
includes additional tax expense on higher foreign pretax income.
Segments Segment Revenue (in millions) Third Quarter Nine Months
------------- ----------- 2009 2008 Change 2009 2008 Change ----
---- ------ ---- ---- ------ Broadband $205.9 $259.3 (20.6)% $594.4
$692.9 (14.2)% Transport 127.9 109.5 16.8% 376.4 456.1 (17.5)%
Services 55.5 55.3 0.4% 165.6 171.7 (3.6)% ----- ----- -------
------- Total revenue $389.3 $424.1 (8.2)% $1,136.4 $1,320.7
(14.0)% ====== ====== ======= ======= Segment Profit* (in millions)
Third Quarter Nine Months ------------- ----------- 2009 2008
Change 2009 2008 Change ---- ---- ------ ---- ---- ------ Broadband
$49.6 $48.5 2.3% $141.3 $80.3 76.0% Transport 28.8 21.7 32.7% 94.9
131.7 (27.9)% Services 20.0 20.8 (3.8)% 59.2 56.5 4.8% ---- ----
----- ----- Total segment Profit $98.4 $91.0 8.1% $295.4 $268.5
10.0% ==== ==== ===== ===== *We define segment profit as gross
profit less research and development expenses. Segment profit
excludes sales and marketing expenses, general and administrative
expenses, the amortization of intangibles, restructuring and other
charges, and the impact of equity-based compensation (which
contains restricted stock and performance stock units granted after
June 30, 2006, and stock options), and the goodwill impairment
charge. Broadband Revenue Revenue from the Broadband segment was
$205.9 million in the third quarter of 2009, compared with $259.3
million in the prior-year quarter. For the first nine months of
2009, Broadband segment revenue was $594.4 million, compared with
$692.9 million in the first nine months of 2008. In both periods,
increased revenue from data products was offset by lower managed
access and access revenue. Data product revenue was $81.9 million
in the third quarter of 2009, up 21.2% from $67.6 million in the
third quarter of 2008. On a nine-month basis, data revenue was
$251.5 million, up 61.7% from $155.5 million in the comparable
period of 2008. In both periods, revenue benefited from the
continuing rollout of our next-generation wireless backhaul
solutions in multiple geographies. Managed access revenue was $37.9
million in the third quarter of 2009, compared with $78.5 million
in the third quarter of 2008. For the first nine months of 2009,
managed access revenue totaled $124.2 million, compared with $220.7
million in the comparable period of 2008. Revenue from both the
Tellabs® 8100 managed access system and the Tellabs® 6300 SDH
transport system declined in both periods as we saw weakness in
Europe and Latin America and customers continued to migrate to our
data products. Access revenue was $86.1 million in the third
quarter of 2009, compared with $113.2 million in the third quarter
of 2008. For the first nine months of 2009, access revenue totaled
$218.7 million, compared with $316.7 million in the comparable
period of 2008. Access revenue declined year-over-year, as several
key customers transitioned to alternate network architectures, and
will likely continue to decline. Segment Profit Broadband segment
profit was $49.6 million in the third quarter of 2009, up 2.3% from
$48.5 million in the third quarter of 2008. For the first nine
months of 2009, Broadband segment profit was $141.3 million, up
76.0% from $80.3 million in the comparable period of 2008. The
increase in segment profit in the nine month period was driven by
higher data revenue, profitability improvements on access products
and lower research and development costs. Transport Revenue Revenue
from the Transport segment was $127.9 million in the third quarter
of 2009, up 16.8% from $109.5 million in the third quarter of 2008.
For the first nine months of 2009, Transport revenue was $376.4
million, compared with $456.1 million in the comparable period of
2008. The increase in revenue for the three-month period was driven
by increased sales of optical networking systems, compared with
year-ago period. The decrease in revenue for the nine-month period
was primarily related to lower sales across the segment. Segment
Profit Transport segment profit was $28.8 million in the third
quarter of 2009, compared with $21.7 million in the third quarter
of 2008. Segment profit for the first nine months of 2009 was $94.9
million, compared with $131.7 million for the first nine months of
2008. The increase in segment profit for the three-month period was
driven by higher sales of optical networking systems. In the
nine-month period, segment profit declined as a result of lower
digital cross-connect revenue. Services Revenue Revenue from the
Services segment was $55.5 million for the third quarter of 2009,
compared with $55.3 million in the third quarter of 2008. On a
nine-month basis, revenue from the Services segment was $165.6
million in 2009, compared with $171.7 million in 2008. The decline
in the nine-month period is primarily due to a lower level of
deployment services revenue, resulting from lower product revenue,
partially offset by an increase in professional services revenue.
Segment Profit Services segment profit was $20.0 million for the
third quarter of 2009, compared with $20.8 million in the third
quarter of 2008. For the first nine months of 2009, Services
segment profit was $59.2 million, compared with $56.5 million in
the comparable period of 2008. In the nine-month period, services
segment profit declined primarily due to the lower level of
deployment services revenue. Financial Condition, Liquidity &
Capital Resources Our principal source of liquidity remained our
cash, cash equivalents and marketable securities of $1,254.7
million as of October 2, 2009, which increased by $12.0 million
during the quarter and $102.6 million since year-end 2008. Cash
generated from operating activities during the quarter amounted to
$66.0 million. The increase in cash, cash equivalents and
marketable securities for the first nine months of 2009 is the
result of $174.0 million in cash generated from operating
activities, partially offset by cash used to repurchase our common
stock and for normal capital expenditures. On August 6, 2009, our
Board of Directors directed management to actively repurchase up to
$200 million of our common stock over the following four quarters
under the November 2007 authorized program. During the third
quarter and first nine months of 2009, we repurchased a total of
9.5 million shares of our common stock at a cost of approximately
$62 million. We provide no assurance as to the amount of
repurchases to be made or the actual purchase prices. The majority
of our investments are backed by governments or government
agencies. We believe that all our investments are highly liquid
instruments. We may rebalance our portfolio from time to time,
which may affect the duration, credit structure and future income
of our investments. Based on historical performance and current
forecasts, we believe the company's cash, cash equivalents and
marketable securities will satisfy working capital needs, capital
expenditures and other liquidity requirements related to existing
operations for the next 12 months. Future available sources of
working capital, including cash, cash equivalents, and marketable
securities, cash generated from future operations, short-term or
long-term financing, equity offerings or any combination of these
sources, should allow us to meet our long-term liquidity needs. Our
current policy is to use our cash, cash equivalents and marketable
securities to fund business operations, to expand business,
potentially through acquisitions, or to repurchase our common
stock. TELLABS, INC. RECONCILIATION OF NON-GAAP ADJUSTMENTS (1)
(Unaudited) Third Quarter 2009 Third Quarter 2008
------------------ ------------------ In millions, except As
Adjust- Non- As Adjust- Non- per-share data Reported ments GAAP
Reported ments GAAP -------- ------- ---- -------- ------- ----
Revenue Products $333.8 $- $333.8 $368.8 $- $368.8 Services 55.5 -
55.5 55.3 - 55.3 ---- --- ---- ---- --- ---- Total revenue 389.3 -
389.3 424.1 - 424.1 ----- --- ----- ----- --- ----- Cost of Revenue
Products (a) 191.1 (0.3) 190.8 226.7 (0.6) 226.1 Services (a) 35.9
(0.5) 35.4 35.2 (0.6) 34.6 ---- ---- ---- ---- ---- ---- Total cost
of revenue 227.0 (0.8) 226.2 261.9 (1.2) 260.7 ----- ---- -----
----- ---- ----- Gross Profit 162.3 0.8 163.1 162.2 1.2 163.4 Gross
profit as a percentage of revenue 41.7% 0.2% 41.9% 38.2% 0.3% 38.5%
Gross profit as a percentage of revenue - products 42.8% 0.0% 42.8%
38.5% 0.2% 38.7% Gross profit as a percentage of revenue - services
35.3% 0.9% 36.2% 36.3% 1.1% 37.4% Operating Expenses Research and
development (a) 65.8 (1.1) 64.7 74.0 (1.6) 72.4 Sales and marketing
(a) 40.6 (0.9) 39.7 42.9 (1.0) 41.9 General and administrative (a)
24.5 (1.7) 22.8 23.7 (1.3) 22.4 Intangible asset amortization (b)
6.0 (6.0) - 6.2 (6.2) - Restructuring and other charges (c) 0.3
(0.3) - 9.1 (9.1) - Goodwill impairment (d) - - - 988.3 (988.3) -
--- --- --- ----- ------ --- Total operating expenses 137.2 (10.0)
127.2 1,144.2 (1,007.5) 136.7 ----- ----- ----- ------- --------
----- Operating Earnings (Loss) 25.1 10.8 35.9 (982.0) 1,008.7 26.7
Operating earnings (loss) as a percentage of revenue 6.4% 2.8% 9.2%
-231.5% 237.8% 6.3% Other Income Interest income, net 3.9 - 3.9 8.3
- 8.3 Other income (expense), net 1.3 - 1.3 (7.3) - (7.3) --- ---
--- ---- --- ---- Total other income 5.2 - 5.2 1.0 - 1.0 --- ---
--- --- --- --- Earnings (Loss) Before Income Tax 30.3 10.8 41.1
(981.0) 1,008.7 27.7 Income tax (expense) benefit (f) (1.0) (11.9)
(12.9) (17.5) 8.5 (9.0) ---- ----- ----- ----- --- ---- Net
Earnings (Loss) $29.3 $(1.1) $28.2 $(998.5) $1,017.2 $18.7 =====
===== ===== ======= ======== ===== Net Earnings (Loss) Per Share
Basic $0.07 $- $0.07 $(2.51) $2.56 $0.05 ===== == ===== ======
===== ===== Diluted $0.07 $- $0.07 $(2.51) $2.56 $0.05 ===== ==
===== ====== ===== ===== Weighted Average Shares Outstanding Basic
392.3 392.3 398.0 398.0 ===== ===== ===== ===== Diluted 394.2 394.2
398.0 398.6 ===== ===== ===== ===== (1) Reconciliation of non-GAAP
Adjustments In addition to reporting financial results in
accordance with U.S. generally accepted accounting principles
(GAAP), Tellabs, Inc. has provided non-GAAP financial measures as
additional information for its operating results. These measures
have not been prepared in accordance with GAAP and may be different
from measures used by other companies. Whenever we use non-GAAP
financial measures, we designate these measures, which exclude the
effect of certain charges, as "adjusted" and provide a
reconciliation of non-GAAP financial measures to the most closely
applicable GAAP financial measure. The non-GAAP financial measures
eliminate certain items of expenses and losses from cost of
revenue, operating expenses, other income and expenses, and income
taxes. Management believes that this presentation allows investors
to better evaluate the current operational and financial
performance of our business and facilitate comparisons to
historical results of operations. Management uses these measures
for reviewing our financial results and for business planning and
performance. Management discloses this information publicly along
with a reconciliation of the comparable GAAP amounts, to provide
access to the detail and general nature of adjustments made to GAAP
financial results. While some of these excluded items have been
periodically reported in our statements of operations, including
significant restructuring and other charges, their occurrence in
future periods depends on future business and economic factors,
among other evaluation criteria, and the occurrence of such events
and factors may frequently be beyond the control of management.
TELLABS, INC. RECONCILIATION OF NON-GAAP ADJUSTMENTS (1)
(Unaudited) Nine Months 2009 Nine Months 2008 ----------------
---------------- In millions, except As Adjust- Non- As Adjust-
Non- per-share data Reported ments GAAP Reported ments GAAP
-------- ------- ---- -------- ------- ---- Revenue Products $970.8
$- $970.8 $1,149.0 $- $1,149.0 Services 165.6 - 165.6 171.7 - 171.7
----- --- ----- ----- --- ----- Total revenue 1,136.4 - 1,136.4
1,320.7 - 1,320.7 ------- --- ------- ------- - ------- Cost of
Revenue Products (a) 538.7 (1.3) 537.4 712.5 (1.9) 710.6 Services
(a) 108.1 (1.7) 106.4 117.9 (2.6) 115.3 ----- ---- ----- ----- ----
----- Total cost of revenue 646.8 (3.0) 643.8 830.4 (4.5) 825.9
----- ---- ----- ----- ---- ----- Gross Profit 489.6 3.0 492.6
490.3 4.5 494.8 Gross profit as a percentage of revenue 43.1% 0.3%
43.3% 37.1% 0.3% 37.5% Gross profit as a percentage of revenue -
products 44.5% 0.2% 44.6% 38.0% 0.2% 38.2% Gross profit as a
percentage of revenue - services 34.7% 1.0% 35.7% 31.3% 1.5% 32.8%
Operating Expenses Research and development (a) 201.6 (4.4) 197.2
233.3 (7.0) 226.3 Sales and marketing (a) 123.9 (3.2) 120.7 129.5
(4.1) 125.4 General and administrative (a) 76.6 (5.0) 71.6 75.0
(5.4) 69.6 Intangible asset amortization (b) 18.0 (18.0) - 17.4
(17.4) - Restructuring and other charges (c) 11.1 (11.1) - 23.2
(23.2) - Goodwill impairment (d) - - - 988.3 (988.3) - --- --- ---
----- ------ - Total operating expenses 431.2 (41.7) 389.5 1,466.7
(1,045.4) 421.3 ----- ----- ----- ------- -------- ----- Operating
Earnings (Loss) 58.4 44.7 103.1 (976.4) 1,049.9 73.5 Operating
earnings (loss) as a percentage of revenue 5.1% 3.9% 9.1% -73.9%
79.5% 5.6% Other Income Interest income, net 14.8 - 14.8 28.7 -
28.7 Other income (expense), net (e) 1.3 - 1.3 (5.0) 0.3 (4.7) ---
--- --- ---- --- ---- Total other income 16.1 - 16.1 23.7 0.3 24.0
---- --- ---- ---- --- ---- Earnings (Loss) Before Income Tax 74.5
44.7 119.2 (952.7) 1,050.2 97.5 Income tax (expense) benefit (f)
(23.0) (13.0) (36.0) 9.8 (40.2) (30.4) ----- ----- ----- --- -----
----- Net Earnings (Loss) $51.5 $31.7 $83.2 $(942.9) $1,010.0 $67.1
===== ===== ===== ======= ======== ===== Net Earnings (Loss) Per
Share Basic $0.13 $0.08 $0.21 $(2.35) $2.52 $0.17 ===== ===== =====
====== ===== ===== Diluted $0.13 $0.08 $0.21 $(2.35) $2.52 $0.17
===== ===== ===== ====== ===== ===== Weighted Average Shares
Outstanding Basic 394.8 394.8 401.1 401.1 ===== ===== ===== =====
Diluted 396.1 396.1 401.1 402.0 ===== ===== ===== ===== (1)
Reconciliation of non-GAAP Adjustments In addition to reporting
financial results in accordance with U.S. generally accepted
accounting principles (GAAP), Tellabs, Inc. has provided non-GAAP
financial measures as additional information for its operating
results. These measures have not been prepared in accordance with
GAAP and may be different from measures used by other companies.
Whenever we use non-GAAP financial measures, we designate these
measures, which exclude the effect of certain charges, as
"adjusted" and provide a reconciliation of non-GAAP financial
measures to the most closely applicable GAAP financial measure. The
non-GAAP financial measures eliminate certain items of expenses and
losses from cost of revenue, operating expenses, other income and
expenses, and income taxes. Management believes that this
presentation allows investors to better evaluate the current
operational and financial performance of our business and
facilitate comparisons to historical results of operations.
Management uses these measures for reviewing our financial results
and for business planning and performance. Management discloses
this information publicly along with a reconciliation of the
comparable GAAP amounts, to provide access to the detail and
general nature of adjustments made to GAAP financial results. While
some of these excluded items have been periodically reported in our
statements of operations, including significant restructuring and
other charges, their occurrence in future periods depends on future
business and economic factors, among other evaluation criteria, and
the occurrence of such events and factors may frequently be beyond
the control of management. (a) The adjustments to cost of revenue,
research and development, sales and marketing, and general and
administrative expenses reflect equity- based compensation expense.
We began to include equity-based compensation expense in our GAAP
operating results in accordance with Statement of Financial
Accounting Standards (SFAS) 123(R), Share-Based Payment in January
2006. Because of varying available valuation methodologies,
subjective assumptions, and the variety of award types, which
affect the calculations of equity-based compensation, we believe
that the exclusion of equity-based compensation expense allows for
more accurate comparisons of our operating results to our peer
companies. In addition, we believe this non-cash GAAP measure is
not indicative of our core operating performance. (b) We exclude
amortization of intangible assets resulting from acquisitions to
evaluate our continuing operational performance. The amortization
of purchased intangible assets associated with acquisitions results
in our recording expense in our GAAP financial statements that were
already expensed by the acquired company before the acquisition and
for which we have not expended cash. We believe this non-cash GAAP
measure is not indicative of our core operating performance.
Accordingly, we analyze the performance of our operations without
regard to such expenses. (c) We exclude restructuring and other
charges because we believe that they are not related directly to
the underlying performance of our core business operations.
Restructuring and other charges result from events that often occur
outside of the ordinary course of continuing operations. Although
these events are reflected in our GAAP financials, these unique
transactions may limit the comparability of our on-going operations
with prior and future periods. (d) We recorded a $988.3 million
goodwill impairment charge in the third quarter of 2008, of which
$594.2 million related to the Broadband segment and $394.1 million
related to the Transport segment. We believe this non- cash GAAP
measure is not indicative of our core operating performance. (e)
The $0.3 million adjustment to Other income, net in 2008 reflects a
$0.6 million write-down of a long-term equity investment in a
start-up technology company offset by a $0.3 million gain on a sale
of a long-term equity investment in a start-up technology company.
We exclude write- downs and gains on sales of long-term equity
investments in partnerships and start-up technology companies
because we believe that they are not related directly to the
underlying performance of our working capital assets. (f) We
calculate a separate tax expense and effective tax rate for GAAP
and for non-GAAP purposes. The tax adjustment reflects the
difference between these computations, and takes into account the
impact of (i) the effect on our global effective tax rate of
adjusting pretax earnings in multiple jurisdictions at differing
tax rates; and (ii) the valuation allowance maintained against our
domestic deferred tax assets, which is included in our GAAP expense
but excluded from our non-GAAP expense. In addition, non-GAAP tax
expense for 2008 has been restated to exclude a benefit of $34.8
million related to favorable audit settlements. DATASOURCE: Tellabs
CONTACT: MEDIA, George Stenitzer, +1-630-798-3800, , or INVESTORS,
Tom Scottino, +1-630-798-3602, Web Site: http://www.tellabs.com/
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