Tellabs Financial Performance: 4th Quarter Earnings 2010

Other (Expense) Income (in millions)Fourth QuarterYear2010 2009 Change 2010 2009 ChangeInterest income, net $ 3.4 $4.5 $(1.1) $12.6 $19.3 $(6.7)Other (expense) income, net (4.5) (0.9) (3.6) 5.2 0.4 4.8Total other (expense) income $(1.1) $3.6 $(4.7) $17.8 $19.7 $(1.9)Interest income, net, declined due to lower yields during the fourth quarter and the year 2010, compared with the year-ago periods.Other (expense) income, net, decreased in the fourth quarter of 2010, compared with the fourth quarter of 2009, primarily due to the$3.8 million write-down of a long-term equity investment in the fourth quarter of 2010, compared with the $0.4 million write-down oflong-term equity investments in partnerships and start-up technology companies in the fourth quarter of 2009. For the year 2010,other (expense) income, net, was higher compared with 2009, primarily due to additional gains taken on fixed income investmentsduring 2010.Income TaxesIn the fourth quarter of 2010, income tax expense was $3.1 million, compared with a benefit of $23.4 million in the year-ago quarter.Income tax expense increased by $24.2 million due to the absence of a tax benefit recognized in the fourth quarter of 2009 from therelease of a valuation allowance recorded in accounting for the acquisition of WiChorus, Inc. (WiChorus). Tax expense also increasedby approximately $7.0 million due to the difference between our estimated and actual effective tax rate caused by changes in earningsmix, offset by a benefit of $3.0 million from the reinstatement of the U.S. research and development credit.In the year 2010, income tax expense was $35.9 million, compared with a benefit of $0.4 million in 2009. The increase in income taxresults from an increase in pretax income, and reflects the absence of a $24.2 million tax benefit recorded in the fourth quarter of 2009from the release of a valuation allowance recorded in accounting for the acquisition of WiChorus.SegmentsSegment Revenue (in millions)Fourth QuarterYear2010 2009 Change 2010 2009 ChangeBroadband $227.0 $191.4 18.6% $ 846.0 $ 785.8 7.7%Transport 123.3 133.2 (7.4)% 554.0 509.6 8.7%Services 60.2 64.7 (7.0)% 242.3 230.3 5.2%Total revenue $410.5 $389.3 5.4% $1,642.3 $1,525.7 7.6%Segment Profit* (in millions)Fourth QuarterYear2010 2009 Change 2010 2009 ChangeBroadband $33.8 $ 44.4 (23.9)% $229.4 $185.7 23.5%Transport 23.5 44.5 (47.2)% 191.8 139.4 37.6%Services 18.5 22.6 (18.1)% 81.2 81.8 (0.7)%Total segment profit $75.8 $111.5 (32.0)% $502.4 $406.9 23.5%* We define segment profit as gross profit less research and development expenses. Segment profit excludes sales and marketingexpenses, general and administrative expenses, the amortization of intangibles, restructuring and other charges, and the impact ofequity-based compensation.BroadbandRevenueRevenue from the Broadband segment was $227.0 million in the fourth quarter of 2010, up 18.6% from $191.4 million in the year-agoquarter. For the year 2010, Broadband segment revenue was $846.0 million, up 7.7% from $785.8 million in 2009. The Broadbandsegment includes data products, managed access products and access products. In the three-month period, increased revenue from dataand access products offset lower revenue from managed access products. In the full-year period, increased revenue from data productsoffset lower revenue from access and managed access products.