Tellabs Reports Second-Quarter Revenue of $535 Million
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NAPERVILLE, Ill., July 24 /PRNewswire-FirstCall/ -- Tellabs today
reported second-quarter 2007 revenue of $535 million, down 3% from $549
million in the second quarter of 2006.
Tellabs earned $30 million or 7 cents per share in the second quarter
of 2007 on a GAAP basis, down 45% from $54 million or 12 cents per share in
the second quarter of 2006. On a non-GAAP basis, Tellabs earned $38 million
or 9 cents per share, down 48% from $73 million or 16 cents per share in
the second quarter of 2006. Non-GAAP results for second-quarter 2007
exclude pretax charges of $14 million for special items, including $8
million or 1.2 cents per share in equity-based compensation expense.
"As the telecom industry transforms, Tellabs' new technologies are
taking root in our customers' networks," said Krish A. Prabhu, Tellabs
president and chief executive officer. "We continue to focus on improving
gross profit margins related to those products and technologies."
Broadband -- Second-quarter 2007 revenue from the broadband segment
totaled $246 million, down 17% from $298 million in the second quarter of
2006. Within the broadband segment, second-quarter access revenue was $135
million, down 29% from $190 million in the second quarter of 2006.
Second-quarter managed access revenue was $77 million, down 11% from $86
million in the second quarter of 2006. Second-quarter data revenue was a
record $35 million, up 56% from $22 million in the year-ago quarter.
Transport -- Second-quarter 2007 transport revenue totaled $223
million, including deferred revenue from two prior quarters, up 10% from
$202 million in the second quarter of 2006.
Services -- Second-quarter 2007 services revenue was $66 million,
including deferred revenue from two prior quarters, up 34% from $49 million
in the second quarter of 2006.
Third-Quarter 2007 Guidance -- The following statements are
forward-looking statements that are based on current expectations and
involve risks and uncertainties, some of which are set forth below. Tellabs
expects third-quarter revenue to be about $500 million, plus or minus.
Tellabs expects non-GAAP gross margin to be about 36%, plus or minus,
depending on product mix; non-GAAP gross margin excludes about $1.5 million
in equity-based compensation expense. Tellabs expects non-GAAP operating
expense to be flat to slightly down compared with the second quarter of
2007; non-GAAP operating expense excludes about $6.5 million in
equity-based compensation expense.
Share Repurchase -- Under a previously announced share repurchase
program, Tellabs repurchased 0.9 million shares at a cost of $10 million
during the second quarter of 2007. Since 2005, Tellabs has repurchased 49.7
million shares at a cost of $500 million (about 11% of shares outstanding).
Simultaneous Webcast and Teleconference Replay -- Tellabs will host an
investor teleconference at 7:30 a.m. Central Daylight Time today to discuss
its second-quarter 2007 results and provide its outlook for the third
quarter of 2007. 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 10:30 p.m. Central Daylight Time on
Thursday, July 26, at 800-642-1687. (Outside the United States, call
706-645-9291.) When prompted, enter the Tellabs conference ID number:
5440421. A podcast of the call will be available at
http://www.tellabs.com/news/feeds/ later today.
Tellabs advances telecommunications networks to meet the evolving needs
of users. Solutions from Tellabs enable service providers to deliver
high-quality voice, video and data services over wireline and wireless
networks around the world. Ranked among the BusinessWeek InfoTech 100,
Tellabs (Nasdaq: TLAB) is part of the NASDAQ-100 Index, NASDAQ Global
Select Market, Ocean Tomo 300(TM) Patent Index and the S&P 500.
http://www.tellabs.com
Forward-Looking Statements -- This news release contains
forward-looking statements, including but not limited to the guidance
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, and the economic
changes generally impacting the telecommunications industry. 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. For a more detailed description of the
risk factors, please refer to the company's SEC filings.
Tellabs(R) and Tellabs logo are trademarks 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 INCOME
(Unaudited)
Second Quarter Six Months
In millions, except per-share data 6/29/07 6/30/06 6/29/07 6/30/06
Revenue
Products $469.0 $500.6 $879.0 $974.7
Services 65.5 48.7 107.4 89.3
534.5 549.3 986.4 1,064.0
Cost of Revenue
Products 307.1 264.5 540.1 506.7
Services 39.8 30.6 72.8 60.8
346.9 295.1 612.9 567.5
Gross Profit 187.6 254.2 373.5 496.5
Gross profit as a percentage of revenue 35.1% 46.3% 37.9% 46.7%
Gross profit as a percentage of
revenue - products 34.5% 47.2% 38.6% 48.0%
Gross profit as a percentage of
revenue - services 39.2% 37.2% 32.2% 31.9%
Operating Expenses
Research and development 85.3 91.7 169.8 184.6
Sales and marketing 44.4 45.0 90.2 90.0
General and administrative 24.7 28.5 51.3 56.6
Intangible asset amortization 5.7 7.1 11.3 14.1
Restructuring and other charges -- 2.0 -- 2.0
160.1 174.3 322.6 347.3
Operating Earnings 27.5 79.9 50.9 149.2
Other Income
Interest income, net 13.4 11.4 25.2 21.9
Other income (expense), net 0.3 (7.4) 0.6 (6.0)
13.7 4.0 25.8 15.9
Earnings Before Income Tax 41.2 83.9 76.7 165.1
Income tax expense (11.6) (30.4) (21.6) (59.2)
Net Earnings $29.6 $53.5 $55.1 $105.9
Net Earnings Per Share
Basic $0.07 $0.12 $0.13 $0.24
Diluted $0.07 $0.12 $0.12 $0.23
Weighted Average Shares Outstanding
Basic 438.1 447.7 438.1 448.8
Diluted 443.3 458.5 443.2 459.6
TELLABS, INC.
CONSOLIDATED BALANCE SHEETS
6/29/07 12/29/06
In millions, except share data Unaudited
Assets
Current Assets
Cash and cash equivalents $262.7 $153.6
Investments in marketable securities 1,056.3 1,146.5
1,319.0 1,300.1
Other marketable securities 294.1 288.6
Accounts receivable, net of allowances of
$3.8 and $3.8 386.7 411.0
Inventories
Raw materials 38.7 34.5
Work in process 17.5 19.7
Finished goods (includes costs of $12.6
and $28.6 related to deferred revenue) 118.9 112.8
175.1 167.0
Income taxes 19.2 10.7
Miscellaneous receivables and other current
assets 52.9 55.2
Total Current Assets 2,247.0 2,232.6
Property, Plant and Equipment
Land 20.9 20.8
Buildings and improvements 205.3 205.5
Equipment 430.3 411.2
656.5 637.5
Accumulated depreciation (356.9) (329.6)
299.6 307.9
Goodwill 1,108.6 1,107.4
Intangible Assets, net of amortization 78.3 89.6
Other Assets 168.2 184.9
Total Assets $3,901.7 $3,922.4
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $87.5 $119.5
Accrued compensation 55.0 70.7
Restructuring and other charges 7.5 7.8
Income taxes 79.7 97.9
Stock loan 294.1 288.6
Deferred revenue 45.9 55.4
Other accrued liabilities 113.4 122.3
Total Current Liabilities 683.1 762.2
Long-Term Restructuring Liabilities 18.6 22.3
Income Taxes 115.7 128.2
Other Long-Term Liabilities 80.8 71.4
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; 491,577,911 and
489,034,812 shares issued 4.9 4.9
Additional paid-in capital 1,430.1 1,395.3
Treasury stock, at cost: 53,284,655 and
49,919,908 shares (634.5) (598.7)
Retained earnings 2,103.4 2,042.0
Accumulated other comprehensive income 99.6 94.8
Total Stockholders' Equity 3,003.5 2,938.3
Total Liabilities and Stockholders' Equity $3,901.7 $3,922.4
TELLABS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Six Months
6/29/07 6/30/06
In millions
Operating Activities
Net earnings $55.1 $105.9
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 46.6 51.6
Stock-based compensation 17.1 33.8
Deferred income taxes 7.6 22.5
Excess tax benefits from stock-based
compensation (2.1) (15.2)
Restructuring and other charges -- 2.0
Net changes in assets and liabilities:
Accounts receivable 27.6 (58.8)
Inventories (5.9) (33.5)
Miscellaneous receivables and other current
assets (3.8) 13.9
Other assets 3.0 18.7
Accounts payable (34.0) 7.2
Restructuring and other charges (4.0) (4.8)
Deferred revenue (9.5) 22.7
Other accrued liabilities (25.7) (41.0)
Income taxes (15.1) (8.7)
Other long-term liabilities 2.9 0.6
Net Cash Provided by Operating Activities 59.8 116.9
Investing Activities
Capital expenditures (25.7) (34.4)
Disposals of property, plant and equipment 1.3 0.5
Payments for purchases of investments (594.4) (961.7)
Proceeds from sales and maturities of investments 685.7 345.2
Net Cash Provided by (Used for) Investing Activities 66.9 (650.4)
Financing Activities
Proceeds from issuance of common stock under stock
plans 14.7 81.1
Repurchase of common stock (35.8) (156.8)
Excess tax benefits from stock-based compensation 2.1 15.2
Net Cash Used for Financing Activities (19.0) (60.5)
Effect of Exchange Rate Changes on Cash 1.4 8.4
Net Increase (Decrease) in Cash and Cash Equivalents 109.1 (585.6)
Cash and Cash Equivalents - Beginning of Year 153.6 880.8
Cash and Cash Equivalents - End of Period $262.7 $295.2
Forward-Looking Statements
This presentation contains forward-looking statements made pursuant to
the safe harbor provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements reflect management's expectations, estimates and
assumptions, based on the information available at the time the document
was prepared. These forward-looking statements include, but are not limited
to, statements regarding future events, plans, goals, objectives and
expectations. The words "anticipate," "believe," "foreseeable," "estimate,"
"target," "expect," "predict," "plan," "project," "intend," "likely,"
"possible," "will," "would," "should," "could," "may," "continue" and
similar expressions are intended to identify forward-looking statements.
RESULTS OF OPERATIONS
For the second quarter of 2007, our revenue was $534.5 million, down
2.7% from $549.3 million in the second quarter of 2006. Year-to-date,
revenue was $986.4 million, down 7.3% from $1,064.0 million in 2006.
Consolidated gross margin decreased by 11.2 percentage points to 35.1% in
the second quarter compared with 46.3% in the second quarter of 2006. On a
six-month basis, consolidated gross margin was down 8.8 percentage points
to 37.9% from 46.7% in 2006. Operating expenses were $160.1 million in the
second quarter of 2007, compared with $174.3 million in the second quarter
of 2006. For the first half of 2007, operating expenses were $322.6
million, down from $347.3 million in 2006. Net earnings for the second
quarter of 2007 were $29.6 million or $0.07 per share (basic and diluted)
compared with $53.5 million or $0.12 per share (basic and diluted) in the
same period of 2006. Net earnings for the six-month period in 2007 were
$55.1 million or $0.13 per basic share and $0.12 per diluted share compared
with $105.9 million or $0.24 per basic share and $0.23 per diluted share
for the first six months in 2006.
Revenue (in millions)
Second Quarter Six Months
2007 2006 Change 2007 2006 Change
Products $469.0 $500.6 (6.3%) $879.0 $974.7 (9.8%)
Services 65.5 48.7 34.5% 107.4 89.3 20.3%
Total revenue $534.5 $549.3 (2.7%) $986.4 $1,064.0 (7.3%)
In 2007, product revenue declined 6.3% in the second quarter and 9.8%
on a six-month basis compared with 2006. The decrease was primarily due to
reduced product revenue from a major customer and from copper-based access
platforms, which was partially offset by revenue from the rollout of our
Tellabs(R) 7100 OTS with ROADM product in our Transport segment.
In 2007, services revenue increased by 34.5% in the second quarter and
by 20.3% on a six-month basis compared with the same periods in 2006. The
increase was primarily due to higher revenue from deployment services and
product-support services.
On a geographic basis, revenue from customers in North America was
$413.2 million in the second quarter of 2007, down 2.8% from a year ago.
Revenue from customers outside North America was $121.3 million in the
second quarter of 2007, down 2.4% from a year ago. On a six-month basis,
North America revenue was $754.6 million, down 9.8% from a year ago.
Revenue from customers outside North America was $231.8 million, down 2.0%
from a year ago.
Gross Margin
Second Quarter Six Months
% Point % Point
2007 2006 Change 2007 2006 Change
Products 34.5% 47.2% (12.7%) 38.6% 48.0% (9.4%)
Services 39.2% 37.2% 2.0% 32.2% 31.9% 20.3%
Consolidated 35.1% 46.3% (11.2%) 37.9% 46.7% (8.8%)
In 2007, our products margin decreased in the second quarter and for
the first six months compared with the same periods in 2006. The decrease
was due to a product mix shift toward products such as our Tellabs(R) 7100
OTS with ROADM and ONT products, as well as lower prices on our ONTs.
Our services margin increased in the second quarter and first six
months of 2007 compared with 2006, due to an increase in higher margin
support services revenue.
Operating Expenses (in millions)
Second Quarter Percent of Revenue
2007 2006 Change 2007 2006
Research and development $85.3 $91.7 ($6.4) 16.0% 16.7%
Sales and marketing 44.4 45.0 (0.6) 8.3% 8.2%
General and administrative 24.7 28.5 (3.8) 4.6% 5.2%
Subtotal 154.4 165.2 (10.8) 28.9% 30.1%
Intangible asset amortization 5.7 7.1 (1.4)
Restructuring and other charges -- 2.0 (2.0)
Total Operating Expenses $160.1 $174.3 ($14.2)
Six Months Percent of Revenue
2007 2006 Change 2007 2006
Research and development $169.8 $184.6 ($14.8) 17.2% 17.3%
Sales and marketing 90.2 90.0 0.2 9.1% 8.5%
General and administrative 51.3 56.6 (5.3) 5.2% 5.3%
Subtotal 311.3 331.2 (19.9) 31.6% 31.1%
Intangible asset amortization 11.3 14.1 (2.8)
Restructuring and other charges -- 2.0 (2.0)
Total Operating Expenses $322.6 $347.3 ($24.7)
Operating expenses decreased by $14.2 million to $160.1 million in the
second quarter of 2007, compared with $174.3 million in the second quarter
of 2006. For the first six months of 2007, operating expenses decreased by
$24.7 million to $322.6 million compared with the same period in 2006. The
reduction in our operating expenses for the quarter and six months is
primarily due to actively controlling expenses and reduced accruals for
incentive compensation plans.
Other Income (in millions)
Second Quarter Six Months
2007 2006 Change 2007 2006 Change
Interest income, net $13.4 $11.4 $2.0 $25.2 $21.9 $3.3
Other income (expense),
net 0.3 (7.4) 7.7 0.6 (6.0) 6.6
Total $13.7 $4.0 $9.7 $25.8 $15.9 $9.9
Interest income, net, was higher in the second quarter and the first
six months of 2007, compared with 2006 due to larger invested balances.
Other income (expense), net, improved in the second quarter and for the
first six months of 2007 compared with the same periods in 2006 due to more
favorable results from foreign exchange and investments. In the second
quarter of 2006, we incurred a loss of $3.3 million for foreign exchange
activities and a loss of $4.6 million for an other-than-temporary
impairment to long-term investments.
Income Taxes
Our effective tax rate was 28.1% for the second quarter of 2007 and for
the first half of 2007, compared with a rate of 36.3% in the second quarter
of 2006 and 35.9% for the first six months of 2006. The rate change was
primarily attributable to the inclusion of a benefit for U.S. research and
development credits in the current year, and a benefit related to earning a
greater percentage of our overall pretax income from foreign jurisdictions
that are taxed at lower rates.
We adopted the provisions of FIN 48, Accounting for Uncertainty in
Income Taxes, on December 30, 2006. The liability for unrecognized tax
benefits as of December 30, 2006, as determined under FIN 48, was $76.5
million. Although we cannot estimate with reasonable reliability the
periods of cash settlement, we expect that resolution of tax issues related
to $12 million to $14 million of unrecognized tax benefits could be reached
in the next 12 months; resolution of tax issues with respect to
approximately $48 million could be reached in the next 18 to 24 months. We
are not able to estimate with reasonable reliability the period of cash
settlement with respect to the remaining balance of $14.5 million to $16.5
million of unrecognized tax benefits, as such settlement will depend on
examination of returns by various jurisdictions, the precise amounts and
timing of which are uncertain.
Segments
Revenue (in millions)
Second Quarter Six Months
2007 2006 Change 2007 2006 Change
Broadband $246.4 $298.4 (17.4%) $465.1 $558.1 (16.7%)
Transport 222.6 202.2 10.1% 413.9 416.6 (0.6%)
Services 65.5 48.7 34.5% 107.4 89.3 20.3%
Total
revenue $534.5 $549.3 (2.7%) $986.4 $1,064.0 (7.3%)
Segment Profit (Loss)* (in millions)
Second Quarter Six Months
2007 2006 Change 2007 2006 Change
Broadband ($0.8) $38.1 (102.1%) ($15.6) $59.5 (126.2%)
Transport 81.0 112.1 (27.7%) 191.9 234.9 (18.3%)
Services 26.4 19.3 36.8% 36.3 30.6 18.6%
Total segment
profit $106.6 $169.5 (37.1%) $212.6 $325.0 (34.6%)
*We define segment profit (loss) as gross profit less research and
development expenses. Segment profit (loss) excludes sales and marketing
expenses, general and administrative expenses, the amortization of
purchased deferred stock compensation and intangibles, and the impact of
equity-based compensation (which includes restricted stock and performance
stock units granted after June 30, 2006, and stock options).
Broadband
Revenue
Revenue from our Broadband segment was $246.4 million in the second
quarter of 2007, down $52.0 million from the prior-year quarter. For the
first six months, revenue from our Broadband segment was $465.1 million,
down $93.0 million from the first six months of 2006. While our access and
managed access revenue decreased for both time-period comparisons, our data
product revenue increased.
Second quarter access revenue decreased to $134.6 million in 2007 from
$189.8 million in 2006. On a six-month basis, access revenue decreased to
$255.8 million in 2007 from $353.9 million in 2006. Revenue was lower in
both time periods due to lower revenue from independent operating companies
for copper-based platforms, lower prices on single-family ONTs and lower
revenue from Fiber-to-the-Curb platforms. Revenue from ONTs was lower due
to price reductions despite increased unit volume. Approximately 68% of
access revenue came from fiber-based platforms, with the balance coming
from copper-based platforms.
Managed access revenue declined to $77.1 million in the second quarter
of 2007 from $86.3 million in the same quarter of 2006. For the first six
months of 2007, managed access revenue declined to $145.8 million from
$160.0 million in the first six months of 2006. An increase in revenue from
the Tellabs 8100 system was offset by reduced SDH-transport and cable
telephony product revenue.
Data product revenue was $34.7 million in the second quarter of 2007,
up 55.6% from the year-ago quarter. Data product revenue was $63.5 million
for the first six months of 2007, up 43.7% compared with the first six
months of 2006. Revenue from existing customers and new customers drove our
data products revenue growth.
Segment Profit (Loss)
Our Broadband segment produced a loss of $0.8 million in the second
quarter of 2007 compared with a profit of $38.1 million in the second
quarter of 2006. The decrease in the quarter resulted from lower revenue,
lower prices on our single-family ONTs and a shift in our product mix
toward lower-margin products. For the first six months of 2007, our
Broadband segment produced a loss of $15.6 million, down $75.1 million from
a profit of $59.5 million in the comparable period of 2006. The decrease
for the first six months was primarily due to higher volumes on our
single-family ONTs and lower overall revenue.
Transport
Revenue
Revenue from our Transport segment was $222.6 million in the second
quarter of 2007, up $20.4 million from the second quarter of 2006. The
increase in revenue was due to a rollout of our Tellabs(R) 7100 OTS with
ROADM product to a major customer, which was partially offset by a decline
in revenue from another major customer. On a six-month basis, transport
revenue was $413.9 million, down by $2.7 million from the same period in
2006. The decrease was due to a decline in revenue from a major customer,
which was offset by revenue from a rollout of our Tellabs(R) 7100 OTS with
ROADM product.
During the second quarter of 2007, approximately 36% of the Tellabs(R)
5500 wideband cross-connect product revenue came from new systems, system
expansions and system upgrades. The balance of these percentages consisted
of port-card growth on the installed base. We shipped approximately 1.9
million T-1 equivalents during the second quarter of 2007 and approximately
4.3 million in the first six months of 2007, continuing to build our
position in the North American transport market.
Segment Profit
Our Transport segment profit was $81.0 million in the second quarter of
2007, down $31.1 million from the second quarter of 2006. Our segment
profit for the first six months was $191.9 million, down from $234.9
million for the first six months of 2006. The decreases for the quarter and
the first six months were due to a shift in the mix of transport revenue,
which includes greater revenue from our Tellabs(R) 7100 OTS with ROADM
product at essentially a breakeven level and lower revenue from our
Tellabs(R) 5500 wideband cross- connect.
Services
Revenue
Revenue from our Services segment grew by $16.8 million to $65.5
million for the second quarter of 2007, compared with $48.7 million in the
second quarter of 2006. On a six-month basis, revenue from our Services
segment was $107.4 million in 2007, up $18.1 million from the first six
months of 2006. During both time periods, our revenue increased primarily
from deployment services and product-support services.
Segment Profit
Our Services segment profit was $26.4 million for the second quarter of
2007, up $7.1 million from the second quarter of 2006. For the first six
months, Services segment profit was $36.3 million in 2007, compared with
$30.6 million in 2006. While our service margins slightly improved, revenue
growth drove segment profitability for the quarter and six-month periods.
Financial Condition, Liquidity & Capital Resources
Our principal source of liquidity remained our cash, cash equivalents
and marketable securities of $1,319.0 million as of the end of the second
quarter of 2007, which increased by $17.3 million during the quarter and
$18.9 million since year-end 2006. The increase in the second quarter was
driven by cash from operating activities of $32.3 million, partially offset
by cash used for purchasing capital equipment. The year-to-date increase
reflects an increase of cash from operating activities of $59.8 million.
During the second quarter of 2007, we repurchased 0.9 million shares of
our common stock at a cost of $10.0 million. On a year-to-date basis, we
repurchased 3.3 million shares of our common stock at a cost of $35.2
million.
Tellabs' Board of Directors and management are assessing our stock
repurchase programs. We provide no assurance that we will continue or
change our repurchase activity, and we cannot estimate the timing of any
such change or the impact on our cash, cash equivalents and marketable
securities.
We believe that the current level of working capital, particularly cash
and marketable securities, 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 available sources of working capital include cash-on-hand,
cash generated from future operations, short-term or long-term financing,
equity offerings or any combination of these sources. Our current policy is
to retain our earnings to provide funds to enhance stockholder value by
continuing to expand our business and support our operating activities. We
may also utilize our funds for the repurchase of our common stock. We do
not anticipate paying a cash dividend in the foreseeable future.
TELLABS, INC.
CONSOLIDATED NON-GAAP STATEMENTS OF INCOME (1)
(Unaudited)
Second Quarter Six Months
In millions, except per-
share data 6/29/07 6/30/06 Change 6/29/07 6/30/06 Change
Revenue
Products $469.0 $500.6 $879.0 $974.7
Services 65.5 48.7 107.4 89.3
534.5 549.3 -2.7% 986.4 1,064.0 -7.3%
Cost of Revenue
Products 306.3 264.1 538.8 505.8
Services 39.2 29.4 71.2 58.7
345.5 293.5 610.0 564.5
Gross Profit 189.0 255.8 -26.1% 376.4 499.5 -24.6%
Gross profit as a
percentage of revenue 35.4% 46.6% -24.1% 38.2% 46.9% -18.7%
Gross profit as a
percentage of revenue -
products 34.7% 47.2% -26.6% 38.7% 48.1% -19.5%
Gross profit as a
percentage of revenue -
services 40.2% 39.6% 1.3% 33.7% 34.3% -1.6%
Operating Expenses
Research and development 82.4 86.3 163.8 174.5
Sales and marketing 42.8 42.7 87.0 85.6
General and
administrative 22.8 24.3 47.4 47.8
148.0 153.3 298.2 307.9
Operating Earnings 41.0 102.5 78.2 191.6
Other Income
Interest income, net 13.4 11.4 25.2 21.9
Other income (expense),
net 0.3 (2.8) 0.6 (1.4)
13.7 8.6 25.8 20.5
Earnings Before Income Tax 54.7 111.1 104.0 212.1
Income tax expense (16.4) (38.0) (31.2) (73.8)
Net Earnings $38.3 $73.1 $72.8 $138.3
Net Earnings Per Share
Basic $0.09 $0.16 $0.17 $0.31
Diluted $0.09 $0.16 $0.16 $0.30
Weighted Average Shares
Outstanding
Basic 438.1 447.7 438.1 448.8
Diluted 443.3 458.5 443.2 459.6
(1) In addition to reporting financial results in accordance with
generally accepted accounting principles, or GAAP, Tellabs, Inc.
provides non-GAAP statements of income 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 statements of income eliminate certain
items of expenses and losses from cost of revenue, operating expenses
and other income. 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 statements of income,
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 following schedule disclosing the adjustments made to the above
non-GAAP statements of income.
Tellabs, Inc.
Reconciliation of Non-GAAP Adjustments
(Unaudited)
Second Quarter 2007(a) Six Months 2007(b)
In millions, except As Adjust- As Adjust-
per-share data Reported ments Non-GAAP Reported ments Non-GAAP
Cost of Revenue $346.9 ($1.4) $345.5 $612.9 ($2.9) $610.0
Gross Profit 187.6 1.4 $189.0 373.5 2.9 376.4
Operating Expenses 160.1 (12.1) $148.0 322.6 (24.4) 298.2
Income Tax Expense (11.6) (4.8) ($16.4) (21.6) (9.6) (31.2)
Net Earnings $29.6 $8.7 $38.3 $55.1 $17.7 $72.8
Earnings Per Share -
Basic $0.07 $0.02 $0.09 $0.13 $0.04 $0.17
Earnings Per Share -
Diluted $0.07 $0.02 $0.09 $0.12 $0.04 $0.16
Second Quarter 2006(c) Six Months 2006(d)
As Adjust- As Adjust-
Reported ments Non-GAAP Reported ments Non-GAAP
Cost of Revenue $295.1 ($1.6) $293.5 $567.5 ($3.0) $564.5
Gross Profit 254.2 1.6 255.8 496.5 3.0 499.5
Operating Expenses 174.3 (21.0) 153.3 347.3 (39.4) 307.9
Other Income 4.0 4.6 8.6 15.9 4.6 20.5
Income Tax Expense (30.4) (7.6) (38.0) (59.2) (14.6) (73.8)
Net Earnings $53.5 $19.6 $73.1 $105.9 $32.4 $138.3
Earnings Per Share -
Basic $0.12 $0.04 $0.16 $0.24 $0.08 $0.31
Earnings Per Share -
Diluted $0.12 $0.04 $0.16 $0.23 $0.07 $0.30
Note: Equity-based compensation expense includes restricted stock and
performance stock units granted after June 30, 2006
and stock options.
(a) The $1.4 million charge to Cost of Revenue reflects equity-based
compensation.
The $12.1 million charge to Operating Expenses reflects $6.4
million for equity-based compensation and $5.7 million for
amortization of purchased intangible assets.
(b) The $2.9 million charge to Cost of Revenue reflects equity-based
compensation.
The $24.4 million charge to Operating Expenses reflects $13.1
million for equity-based compensation and $11.3 million for
amortization of purchased intangible assets.
(c) The $1.6 million charge to Cost of Revenue reflects equity-based
compensation.
The $21.0 million charge to Operating Expenses reflects $9.9 million
for equity-based compensation, $7.1 million for amortization of
purchased intangible assets, $2.0 million for amortization of
deferred compensation related to acquisitions and $2.0 million for a
restructuring plan to reduce our U.S. workforce to better align our
resources with our current financial operating model.
The $4.6 million charge to Other Income reflects losses on the
writedown of a long-term equity investment.
(d) The $3.0 million charge to Cost of Revenue reflects equity-based
compensation.
The $39.4 million charge to Operating Expenses reflects $19.2 million
for equity-based compensation, $14.1 million for amortization of
purchased intangible assets, $4.1 million for amortization of
deferred compensation related to acquisitions and $2.0 million for a
restructuring plan to reduce our U.S. workforce to better align our
resources with our current financial operating model.
The $4.6 million charge to Other Income reflects losses on the
writedown of a long-term equity investment.
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