Exhibit 20.6
Fellow Stockholders July 24, 1998
The second quarter of 1998 was one of the more eventful quarters in the
history of Tellabs, for several reasons. Certainly it is one of the
most pleasant to report upon in terms of financial results, as the
company set quarterly records for both revenue and earnings, but several
other events occurred during the period that are worth noting, too.
Revenue for the quarter amounted to nearly $388 million, an all-time
record for any quarter and 32.5 percent over revenue of $292.7 million
for the second quarter of 1997. For the first six months of 1998,
revenue amounted to $715.2 million, also 32.5 percent above the $539.8
million reported for the first half of last year and easily our best
first-half performance ever.
Net income for the second quarter was $119 million, well above the
$58.8 million the company earned in the second quarter a year ago. This
number and those that follow are a little misleading without further
explanation, however, and that explanation is forthcoming. For the
first half of 1998, net income was $187.3 million. Net income for the
first half of 1997 was $121.8 million. Diluted per-share earnings for
the second quarter and the first six months of 1998 were 63 cents and
$1.00, respectively. Second quarter diluted earnings per share last
year were 32 cents, and for the first half of this year, 66 cents,
subject to the same explanation promised earlier.
And now for the explanation: During the second quarter of this year,
Tellabs realized a sizable pre-tax gain on the sale of stock held as an
investment, pursuant to a planned program to reduce its holdings in
Advanced Fibre Communications, a company in which we had made an early
investment. The gain from the sale of the AFC stock amounted to $73.4
million. Also during the quarter, the company determined that assets
related to our purchase of the former Steinbrecher Corporation, still on
the books as our Wireless Systems Division, were no longer appropriate
and took a pre-tax write-off amounting to $24.8 million. Had these
transactions not occurred during the quarter, earnings for the quarter
would have shown an increase of nearly 47 percent over those for the
second quarter of 1997 and diluted earnings per share would have
amounted to 46 cents.
Both of those extraordinary transactions affect first-half results too,
of course. Moreover, during the first half of last year, the company
realized a gain amounting to 7 cents a share on sales during the first
quarter of AFC stock. Had none of these transactions occurred, diluted
earnings per share for the first six months this year would have
amounted to 83 cents, compared with 59 cents in 1997. (This quarter
also sets an all-time record for complexity of the earnings statement!)
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As has been the case for some time now, the robust revenue and earnings
numbers derive from two primary product lines, the TITAN (a registered
trademark of Tellabs Operations, Inc.) family of digital cross-connect
products and the MartisDXX (a trademark of Tellabs Oy) digital
multiplexer. Sales of the TITAN 5500 digital cross-connect system
during the first half of 1998 were well above our expectations and
almost 46 percent ahead of last year's first-half revenue. The primary
driver here is the need by service providers to manage increasing
amounts of traffic and a growing facilities base. While not up as
dramatically, sales of the MartisDXX digital multiplexer product were
also well above last year's levels, as were sales of echo cancellers,
though both of these products were adversely affected by the ongoing
problems in the Asia-Pacific region.
During the quarter, Tellabs announced a major strategic initiative, the
agreement to merge with CIENA Corporation, a company with leading-edge
technology and products in the dense-wave-division-multiplexing area.
Wave-division multiplexing is an increasingly popular technique for
dramatically increasing the capacity of optical fiber facilities and the
forerunner of optical networking. We believe that CIENA has
state-of-the-art technology in both products and manufacturing
resources, and we are extremely pleased that Pat Nettles and the CIENA
organization are joining us in building a truly major company in this
most exciting industry. We anticipate that the merger will close during
the current third quarter.
And finally, as a sequel to our first-quarter announcement of a
definitive agreement to acquire Coherent Communications Systems
Corporation, both we and Coherent were asked by the Department of
Justice for more information as part of its Hart-Scott-Rodino review.
Tellabs and Coherent have been advised by the U.S. Department of
Justice that the Department has completed its review of the merger and
has determined to take no further action. Consequently, we anticipate
the closing of the merger in early August.
Clearly, things are gaining momentum here. We appreciate the support
and encouragement of our customers, employees and stockholders as we
continue to address the challenges and opportunities of modern-day
telecommunications.
Sincerely,
s\ Michael J. Birck
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Michael J. Birck
Chief Executive Officer
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Second Quarter Earnings Release (website link to this information which
is attached hereto as Exhibit 20.7)
Results of Operations
Condensed Consolidated Balance Sheet
Common Stock Market Data
Tellabs' common stock is listed on The Nasdaq Stock Market under
the symbol TLAB and appears in most daily newspaper stock tables as
Tellabs. At July 20, 1998, there were approximately 3,700 stockholders
of record. Tellabs is a component of the Nasdaq-100 Index and the
Standard & Poor's 500 Index.
10-K Report
Stockholders may obtain without charge a copy of the Tellabs 1997
Form 10-K as filed with the Securities and Exchange Commission upon
request to:
Secretary
Tellabs, Inc.
4951 Indiana Avenue
Lisle, Illinois 60532 U.S.A.
Edgar Archives
For Tellabs investor relations contact:
Tom Scottino
1.630.378.7504
tom.scottino@tellabs.com
Except for historical information, the matters discussed or
incorporated by reference in this letter are forward-looking statements
that involve risks and uncertainties including, but not limited to,
economic conditions, product demand and industry capacity, competitive
products and pricing, manufacturing efficiencies, research and new
product development, protection of and access to intellectual property,
patents, and technology, ability to attract and retain highly qualified
personnel, availability of components and critical manufacturing
equipment, ability of vendors and third parties to respond to Year 2000
issues, facility construction and start-ups, the regulatory and trade
environment, the availability and terms of future acquisitions and the
uncertainties relating to the synergies, charges, and expenses
associated with the proposed mergers described in the Company's filings,
as well as other risks that may be detailed from time to time in
Tellabs' filings with the Securities and Exchange Commission. Tellabs'
actual future results could differ materially from those discussed here.
Tellabs undertakes no obligation to revise or update these
forward-looking statements.
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