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/
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