Tellabs Financial Performance: 4th Quarter Earnings 2010

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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.
Data product revenue grew to $119.9 million in the fourth quarter of 2010, up 32.5% from $90.5 million in the year-ago quarter. Forthe year 2010, data revenue grew to $520.4 million, up 52.2% from $342.0 million in 2009. We are participating in large networkbuilds in North America and internationally. The increase in data revenue for the three-month period was driven primarily by multiplecarriers in the Europe, Middle East and Africa region, which offset lower data revenue in North America. The increase in data revenuefor the year 2010 was driven primarily by a major North American customer.Access revenue was $69.6 million in the fourth quarter of 2010, up 25.0% from $55.7 million in the year-ago quarter. For the year2010, access revenue was $198.1 million, compared with $274.4 million in 2009. In the three-month period, increased revenue fromsingle-family optical network terminal (ONT) units offset decreased revenue from other access products. Access revenue declined inthe year 2010 as several key customers continued to transition to alternate network architectures.Managed access revenue was $37.5 million in the fourth quarter of 2010, compared with $45.2 million in the year-ago quarter. For theyear 2010, managed access revenue was $127.5 million, compared with $169.4 million in 2009. In the three-month period, higherrevenue from SDH transport systems was offset by lower revenue from managed access systems. For the year 2010, revenue fromboth managed access systems and SDH transport systems declined as customers around the world continued to migrate to InternetProtocol (IP) and Ethernet data products.Segment ProfitBroadband segment profit was $33.8 million in the fourth quarter of 2010, compared with $44.4 million in the year-ago quarter. Forthe year of 2010, Broadband segment profit grew to $229.4 million, up 23.5% from $185.7 million in 2009. The decline in Broadbandsegment profit for the three-month period was driven by the $16.5 million charge for excess purchase commitments. The level ofmanaged access and access product revenue and higher research and development expenses for data products.TransportRevenueRevenue from the Transport segment was $123.3 million in the fourth quarter of 2010, compared with $133.2 million in the year-agoquarter. For the year 2010, Transport segment revenue grew to $554.0 million, up 8.7% from $509.6 million in 2009. In the threemonthperiod, increased revenue from optical transport systems was offset by lower revenue from digital cross-connect systems. Forthe year 2010, revenue from both optical transport and digital cross-connect systems increased.Segment ProfitTransport segment profit was $23.5 million in the fourth quarter of 2010, compared with $44.5 million in the year-ago quarter. Forthe year 2010, Transport segment profit grew to $191.8 million, up 37.6% from $139.4 million in 2009. The decrease in segmentprofit in the three-month period was driven primarily by lower revenue from higher-margin digital cross-connect systems and higherrevenue from lower margin optical transport systems. The increase in segment profit for the year 2010 was driven primarily by thehigher level of revenue from both digital cross-connect and optical transport systems.ServicesRevenueRevenue from the Services segment was $60.2 million in the fourth quarter of 2010, compared with $64.7 million in the year-agoquarter. For the year 2010, Services segment revenue grew to $242.3 million, up 5.2% from $230.3 million in 2009. The decrease insegment revenue in the three-month period was driven primarily by lower deployment, professional services and training revenueglobally. The increase in segment revenue for the year 2010 was driven primarily by increased deployment revenue on a global basis.Segment ProfitServices segment profit was $18.5 million in the fourth quarter of 2010, compared with $22.6 million in the year-ago quarter. For theyear 2010, Services segment profit was $81.2 million, compared with $81.8 million in 2009. The decrease in segment profit for bothperiods was driven by higher costs.Financial Condition, Liquidity & Capital ResourcesOur principal source of liquidity remained cash, cash equivalents and marketable securities of $1,134.5 million as of December 31,2010, which decreased by $35.4 million during the quarter and increased by $29.7 million since year-end 2009. The increase in cash,cash equivalents and marketable securities for the full year 2010 reflects $288.8 million in cash generated from operating activities,partially offset by cash used to repurchase our common stock, distributions of cash dividends and normal capital expenditures.During the fourth quarter of 2010, we distributed $7.4 million to our stockholders through our quarterly cash dividend andrepurchased 7.6 million shares of common stock at a cost of $50.9 million. During the year 2010, we distributed $30.3 millionthrough quarterly cash dividends and repurchased 25.1 million shares of common stock at a cost of $178.8 million. We provide noassurances as to future repurchases of common stock or declarations or payments of cash dividends.
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Tellabs Financial Performance: 4th Quarter Earnings 2010

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