ADC Reports Results for First Fiscal Quarter 2006; U.S. and European Fiber-to-the-X (FTTX) Deployments Drive Global Fiber and Copper Connectivity Sales Higher; Raising 2006 Annual Sales Estimate.MINNEAPOLIS Minneapolis (mĭn'ēăp`əlĭs), city (1990 pop. 368,383), seat of Hennepin co., E Minn., at the head of navigation on the Mississippi River, at St. Anthony Falls; inc. 1856. -- ADC (1) See A/D converter. (2) (Apple Display Connector) A peripheral connector from Apple that combines digital video display, USB and power in one cable. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :ADCT ADCT Adaptive Discrete Cosine Transform ): --Net Sales from Continuing Operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the for 1Q06 Were $280 Million, Up 16% from 1Q05 (Excluding $17 Million of Fiber Optic optic /op·tic/ (op´tik) ocular (1). op·tic or op·ti·cal adj. 1. Of or relating to the eye or vision. 2. Network Solutions' (FONS FONS Fiber Optic Network Solutions FONS Foundation Of Nursing Studies FONS Fleet Operational Needs Statement (USMC) FONS Forty-One Hundred Narrative Supplement (USCG) ) Sales from 2006 Results, 1Q06 Sales Up 9% from 1Q05) --Year-Over-Year Sales Growth Driven Primarily by 75% Growth in Fiber Connectivity A generic term for connecting devices to each other in order to transfer data back and forth. It often refers to network connections, which embraces bridges, routers, switches and gateways as well as backbone networks. Solutions and 25% Growth in Global Copper Connectivity Solutions Partially Offset By Lower Sales in Other Areas --International Sales Were 45% of Total Sales; United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Sales Grew 30% Over 1Q05 --$0.02 GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. Loss Per Share from 1Q06 Continuing Operations (Includes Deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. of $0.11 for Restructuring Charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. , Amortization of Purchased Intangibles Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. , FONS Employee Retention Expense and Stock-option Compensation) --Total Cash Used By Operating Activities from Continuing Operations Was $14 Million --Total Cash and Securities (Short- and Long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. ) Were $471 Million at Quarter End ADC (NASDAQ:ADCT, www.adc.com) today announced results for its first fiscal quarter ended January January: see month. 27, 2006 prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP). The results are summarized below for ADC and its operating segments, Broadband broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). Infrastructure and Access, and Professional Services (job) professional services - A department of a supplier providing consultancy and programming manpower for the supplier's products. , on a continuing operations basis. "Our mission for fiscal 2006 is global growth and following significant sales growth in key areas during our first quarter we are raising our annual sales estimate to $1.325-$1.375 billion. In our first fiscal quarter of 2006, our global fiber and copper connectivity solutions grew significantly to support FTTX (Fiber To The X) Refers to all the "fiber-to-the-wherever" technologies. See FTTC and FTTP. See also FTX. network deployments in the United States and Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). ," said Robert Robert, Henry Martyn 1837-1923.American army engineer and parliamentary authority. He designed the defenses for Washington, D.C., during the Civil War and later wrote Robert's Rules of Order (1876). Noun 1. E. Switz, president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of ADC. "In 2006, we remain focused on four key global growth initiatives. First, we are uniquely positioned in helping our customers evolve Evolve may refer to several terms:
Continued Progress Toward Increasing Future Profitability "In our first quarter, we advanced several projects to transform our cost structure and position ADC for growth-driven operating leverage Operating Leverage A measurement of the degree to which a firm or project relies on fixed rather than variable costs. Notes: The higher the degree of operating leverage, the greater the potential danger from forecasting risk. . We believe the benefits of these projects should begin to be visible in our financial results in the second half of 2006. We are working on reducing cost of sales as well as operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. and expect the benefits of these and other cost savings measures to improve further in fiscal 2007 and beyond as we progress toward our three-year goal of 14% or better operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: ," said Gokul Coordinates:
Mexico or Mexico City, Span. Ciudad de México (Méjico), city (1990 pop. 8,236,960; 1991 met. area est. 20,899,000), central Mexico, capital and largest city of Mexico. . We also began consolidating certain labor-intensive la·bor-in·ten·sive adj. Requiring or having a large expenditure of labor in comparison to capital: "Intrigue and subversion are labor-intensive undertakings" George F. Kennan. European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. operations, formerly conducted in several locations, to a lower-cost production facility in the Czech Republic Czech Republic, Czech Česká Republika (2005 est. pop. 10,241,000), republic, 29,677 sq mi (78,864 sq km), central Europe. It is bordered by Slovakia on the east, Austria on the south, Germany on the west, and Poland on the north. . Third, we began working to move additional product lines to manufacturing operations Manufacturing operations concern the operation of a facility, as opposed to maintenance, supply and distribution, health, and safety, emergency response, human resources, security, information technology and other infrastructural support organizations. in China. Finally, we brought most of our European operations onto ADC's worldwide enterprise resource planning See ERP. (application, business) Enterprise Resource Planning - (ERP) Any software system designed to support and automate the business processes of medium and large businesses. system and expect most of our Asia-Pacific The term Asia-Pacific generally applies to littoral East Asia, Southeast Asia and Australasia near the Pacific Ocean, plus the states in the ocean itself (Oceania). operations to be on this system later this fiscal year." GAAP Results (dollars in millions, except per share amounts), Continuing Operations 2006 2005 2005 ADC Results First Quarter Fourth Quarter First Quarter ----------- -------------- -------------- -------------- Net sales $280.2 301.6 240.6 Percent outside U.S. 44.7% 45.2% 50.5% Gross margin 30.5% 35.2% 34.1% Amortization of purchased intangibles $6.5 5.4 2.6 Write-off of FONS-related acquisition charges (primarily in-process research and development) $- 4.5 - FONS employee retention expense $2.4 1.6 - Restructuring and impairment charges $1.4 7.6 3.1 Stock-option compensation expense $2.8 - - Operating margin (1.4%) 1.6% 1.2% Income (loss) from continuing operations $(2.4) 2.5 14.1 Earnings (loss) per share from Continuing operations - diluted $(0.02) 0.02 0.12 Earnings per share for all periods are calculated giving effect to our one-for-seven reverse stock split, which became effective on May 10, 2005. Reconciliation of Adjusted Income and EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. From Continuing Operations The table below shows the impact of amortization of purchased intangibles, write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of FONS-related acquisition charges, FONS employee retention expense, restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charges, non-operating gain and stock-option compensation expense included in GAAP results. In addition, the table reconciles GAAP results to adjusted income from continuing operations and related earnings per share to enable analysis of the impact of these charges, expenses and amortization.
Reconciliation of
Adjusted Income and EPS
(dollars in millions,
except per share 2006 2005 2005
amounts) First Quarter Fourth Quarter First Quarter
------------------------- -------------- -------------- --------------
GAAP income (loss) from
continuing Operations $(2.4) 2.5 14.1
Amortization of purchased
intangibles $6.5 5.4 2.6
Write-off of FONS-related
acquisition charges
(primarily in-process
research and
development) $- 4.5 -
FONS employee retention
expense $2.4 1.6 -
Restructuring and
impairment charges $1.4 7.6 3.1
Gain from note receivable
sale $- - (9.0)
Stock-option compensation
expense $2.8 - -
-------------- -------------- --------------
Adjusted income from
continuing Operations $10.7 21.6 10.8
============== ============== ==============
Adjusted earnings per
share from continuing
operations - diluted $0.09 0.18 0.09
============== ============== ==============
Average shares
outstanding - diluted
(millions) 116.7 131.9 115.9
Convertible note interest
add back in EPS
computation - 2.5 -
Other GAAP Data & Related Statistics Below are summarized certain ADC balance sheet and cash flow information on a GAAP basis and related statistics:
Balance Sheet Data and
Related Statistics January 27, October 31, January 28,
(dollars in millions) 2006 2005 2005
------------------------- -------------- -------------- --------------
Cash and cash equivalents
- unrestricted $99.1 110.1 87.9
Short-term available for
sale securities $338.8 335.3 425.0
Long-term available for
sale securities $11.0 12.1 28.7
Restricted cash $22.2 23.6 24.9
-------------- -------------- --------------
Total cash and securities $471.1 481.1 566.5
============== ============== ==============
Current ratio 3.4 3.0 3.4
Long-term notes payable $400.0 400.0 400.0
ADC's total cash, cash equivalents and available-for-sale securities (short- and long-term) were $471 million on January 27, 2006. The decrease from October October: see month. 31, 2005 was primarily a result of cash used by operating activities from continuing operations. The decrease from January 28, 2005 was primarily a result of $173 million in payments for the FONS and OpenCell acquisitions in fiscal 2005 partially offset by $61 million of cash provided by operating activities and the remainder primarily being proceeds from asset sales in fiscal 2005. ADC believes that the remaining cash and securities balance is sufficient for organic growth plans in ADC's business as the first $200 million of convertible notes outstanding do not mature until June June: see month. 15, 2008, and the other $200 million do not mature until June 15, 2013. All convertible notes have a conversion price of $28.091 per share. In addition, ADC's deferred tax assets, which are nearly fully reserved at this time, should reduce its income tax payable on taxable earnings in future years. Cash Flow Data and Related Statistics 2006 2005 2005 (dollars in millions) First Quarter Fourth Quarter First Quarter ------------------------- -------------- -------------- -------------- Total cash provided by (used by) operating activities from continuing operations $(13.7) 49.8 (17.0) Days sales outstanding 59.5 58.4 53.5 Inventory turns - annualized 5.5 5.6 5.8 Depreciation and amortization $16.6 25.7 13.9 Property and equipment additions, net of disposals $5.1 13.7 1.5 In the quarter ended January 27, 2006, total cash used by operating activities from continuing operations was primarily a result of the pay down of current liabilities Current Liabilities Usually appearing on a company's balance sheet, it represents the amount owed for interest, accounts payable, short-term loans, expenses incurred but unpaid, and other debts due within one year. partially offset by income excluding primarily depreciation and amortization expense. In the quarter ended October 31, 2005, total cash provided by operating activities from continuing operations was primarily a result of income excluding primarily depreciation and amortization expense, as well as a decrease in working capital investments. In the quarter ended January 28, 2005, total cash used by operating activities from continuing operations was primarily driven by payments of current liabilities partially offset by income excluding primarily depreciation and amortization expense. Employees Total employees were approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 8,500 as of January 27, 2006 compared to approximately 8,200 on October 31, 2005 and approximately 7,600 as of January 28, 2005. The increase from October 31, 2005 was primarily the result of increasing the manufacturing workforce in Mexico. The year-over-year increase in employees in the quarter was primarily a result of increased manufacturing capacity in Mexico to support higher sales volumes and the acquisitions of FONS on August 26, 2005 and OpenCell on May 6, 2005. GAAP Segment Results (dollars in millions), Continuing Operations Below are summarized the results for our two operating segments, Broadband Infrastructure and Access (BIA BIA abbr. Bureau of Indian Affairs ) and Professional Services (PS):
BIA PS Consolidated
-------------- -------------- --------------
2006 First Quarter:
Net sales $228.5 51.7 280.2
Amortization of purchased
intangibles $6.0 0.5 6.5
FONS employee retention
expense $2.4 - 2.4
Restructuring charges $1.4 - 1.4
Stock-option compensation
expense $2.3 0.5 2.8
Operating income (loss) $6.1 (9.9) (3.8)
2005 Fourth Quarter:
Net sales $249.5 52.1 301.6
Amortization of purchased
intangibles $4.9 0.5 5.4
Write-off of FONS-related
acquisition charges
(primarily in-process
research and
development) $4.5 - 4.5
FONS employee retention
expense $1.6 - 1.6
Restructuring and
impairment charges $4.1 3.5 7.6
Operating income (loss) $15.2 (10.5) 4.7
2005 First Quarter:
Net sales $186.3 54.3 240.6
Amortization of purchased
intangibles $2.1 0.5 2.6
Restructuring charges $2.5 0.6 3.1
Operating income (loss) $6.6 (3.7) 2.9
Products By Segment
2006 2005 2005
Percent of Total ADC First Fourth First
Sales Quarter Quarter Quarter
------------------------- -------------- -------------- --------------
Broadband Infrastructure
and Access:
Global Copper
Connectivity 37% 35% 34%
Global Fiber
Connectivity 24 20 16
Global Enterprise
Connectivity 13 16 17
Wireless Access 2 5 3
Wireline Access 6 7 7
-------------- -------------- --------------
Total BIA 82 83 77
-------------- -------------- --------------
Professional Services 18 17 23
-------------- -------------- --------------
Total ADC 100% 100% 100%
============== ============== ==============
Broadband Infrastructure and Access Comparing first quarters on a year-over-year basis, BIA sales of $229 million were 23% higher driven primarily by a 75% increase in global fiber connectivity sales and a 25% increase in global copper connectivity sales partially offset by lower sales in other areas. Global fiber connectivity sales were strong in central-office infrastructure and FTTX deployments. First quarter 2006 sales of global fiber connectivity solutions were also boosted by $17 million in sales of FTTX products from FONS, which ADC acquired on August 26, 2005. Sales of global copper connectivity solutions grew strongly as a result of demand for ADC's products that support the copper infrastructure in fiber-to-the-node and -curb networks. Global enterprise connectivity sales were down 14% primarily as a result of the timing and shipment of orders. Wireless access sales were lower by 37% due to the timing of new products and customer deployments as expected. Wireline access sales were up 2%. BIA sales in the first quarter of 2006 were lower by 8% than the previous fourth quarter due to a seasonal slowdown For articles with similar titles, see Slow Down (disambiguation). A slowdown is an industrial action in which employees perform their duties but seek to reduce productivity or efficiency in their performance of these duties. in activity among ADC's customers during this period, which has been a typical historical trend. This was the result of a 29% decrease in global enterprise connectivity sales, a 73% decrease in wireless access sales and a 27% decrease in wireline access sales partially offset by a 16% increase in global fiber connectivity sales and approximately flat sales for global copper connectivity solutions. Global fiber connectivity sales increased primarily due to the FONS acquisition. Global copper connectivity sales held steady as a result of fiber-to-the-node and -curb deployments. Wireless access sales were lower, as expected, due to the timing of new products and customer deployments. Global enterprise connectivity sales were down primarily as a result of the timing and shipment of orders. Wireline access sales were down primarily as a result of historical first-quarter seasonal slowdown. Professional Services On a year-over-year basis, first quarter 2006 sales for Professional Services of $52 million decreased by 5% primarily as a result of lower sales in Europe partially offset by increased sales in the United States. On a quarterly sequential One after the other in some consecutive order such as by name or number. basis from the fourth quarter of 2005, Professional Services sales in the first quarter of 2006 decreased 1% on lower sales in both the United States and Europe. Updated Outlook for 2006 Annual Guidance and Information on Long-term Business Direction As announced in our fourth quarter 2005 earnings release on December December: see month. 13, 2005 and in order to better align align (  līn),v to move the teeth into their proper positions to conform to the line of occlusion. our guidance with the expected business cycle and its variabilities, we are continuing to provide annual guidance that reflects our long-term business direction in fiscal 2006. We remain committed to managing our business with a longer-term strategic perspective and expect that quarter-to-quarter fluctuations will continue to be a natural part of our business. These short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. variations can be difficult to plan and we do not believe they are critical to the long-term prospects for our business. We intend to provide annual numeric numeric see numerical. numeric cluster see ten-key pad. guidance with qualitative qualitative /qual·i·ta·tive/ (kwahl´i-ta?tiv) pertaining to quality. Cf. quantitative. qualitative pertaining to observations of a categorical nature, e.g. breed, sex. information on the long-term direction of the business. ADC currently expects our fiscal 2006 sales to be in the range of $1.325-$1.375 billion, which would represent a 13% to 18% increase over fiscal 2005 sales (previous fiscal 2006 sales guidance was in the range of $1.275-$1.350 billion). Based on this increased annual sales estimate and subject to sales mix sales mix See product mix. and other factors, GAAP diluted EPS from continuing operations in fiscal 2006 is estimated to be in the range of $0.68 to $0.83 (includes approximately $0.32 of estimated charges listed in the table below.)
Reconciliation of Estimated EPS and Charges Fiscal 2006
------------------------------------------- Estimate
-------------
Estimated GAAP EPS
from continuing operations - diluted $0.68-0.83(1)
Restructuring charges in first quarter 2006 0.01
Amortization of purchased intangibles 0.19
FONS employee retention expense(2) 0.04
Stock-option compensation expense 0.08
-------------
Estimated adjusted earnings per share
from continuing operations - diluted $1.00-1.15(1)
=============
(1) Excludes potential future restructuring, impairment and
acquisition-related charges, and certain non-operating gains/losses of
which the amounts are uncertain at this time.
(2) The FONS employee retention expenses are scheduled to be incurred
through the third fiscal quarter of 2006.
"Looking ahead as a global leader in communications network The transmission channels interconnecting all client and server stations as well as all supporting hardware and software. infrastructure solutions, we believe that ADC can again grow sales in fiscal 2006 at rates faster than aggregate global communications equipment sales for wireline, wireless and enterprise networks," said Switz. "ADC's global customers are upgrading their networks for next-generation voice, data and video services. This creates many growth opportunities for ADC as new network builds are underway and expected to continue for FTTX, IPTV (Internet Protocol TV) Also called "TV over IP," IPTV delivers scheduled TV programs and video-on-demand (VOD) via the IP protocol and digital streaming techniques used to watch video on the Internet. , carrier Ethernet Ethernet Telecommunications networking protocol introduced by Xerox Corp. in 1979. It was developed as an inexpensive way of sending information quickly between office machines connected together in a single room or building, but it rapidly became a standard computer , Voice-over-IP, wireless data and distributed antenna systems As defined by PCIA - the Wireless Infrastructure Association, and it's DAS Forum, A Distributed Antenna System ,or DAS, is a network of spatially separated antenna nodes connected to a common source via a transport medium that provides wireless service within a geographic area or , and high-definition video This article is about high-definition video technology. For television systems, see High-definition television. For the tape format, see HDV. For compression and prerecorded media, see High-definition pre-recorded media and compression. services." ADC will continue to execute To run a program, which causes the computer to carry out its instructions. See executable code, instruction and EXE file. execute - execution the following long-term growth strategy: --Growing revenues through market share gains with existing products and customer deployments of new organic products. --Acquiring products to build efficiencies of scale in ADC's core network infrastructure business, as we demonstrated with the 2004 acquisition of KRONE (global connectivity solutions), and the 2005 acquisitions of OpenCell (wireless distributed antenna systems) and FONS (FTTX solutions). --Growing earnings through lower manufacturing costs and lower operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. as a percent of sales. --Minimizing income tax payments due to a large deferred tax asset. As a result, ADC is confident of achieving progress toward its long-term goal of operating margins of 14% or better in the next three years. This goal excludes potential future restructuring, impairment and acquisition-related charges, of which the amounts are uncertain at this time, as well as any items referred to in ADC's guidance for estimated amortization of purchased intangibles, estimated stock-option compensation expenses and scheduled FONS employee retention expenses. The working days by quarter in fiscal 2006 are 59 days in the first quarter, 65 days in the second quarter, 62 days in the third quarter and 66 days in the fourth quarter. Second fiscal quarter sales are expected to follow historical seasonal patterns of sequential improvement from first fiscal quarter sales as customer capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. budgets get approved and because of a 10% increase in working days. We believe that ADC's expansion into the new growth markets of FTTX, wireless and enterprise (which collectively represent about 24% of total first fiscal quarter sales in 2006 and 28% of total fiscal 2005 sales) may be changing the historical seasonal patterns for our business. In the past, because of our central office-based business, ADC experienced seasonal patterns of sequential sales growth in which our fourth quarter sales were higher than those in the third quarter. This historical seasonal pattern did not apply in fiscal 2005 primarily because of less predictable spending patterns for our FTTX and wireless products. Diluted EPS Calculation The calculation of GAAP diluted EPS from continuing operations is based on the if-converted method, which assumes that our convertible notes are converted to common stock, if such treatment is dilutive. This method results in the fully diluted EPS calculation for continuing operations using a: --Numerator equal to the sum of income from continuing operations plus the addback of after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. interest expense from the convertible notes. The convertible notes consist of $200 million in 1.0% fixed rate notes maturing on June 15, 2008 and $200 million in variable rate notes maturing on June 15, 2013, with an interest rate equal to 6-month LIBOR LIBOR See: London Interbank Offered Rate LIBOR See London interbank offered rate (LIBOR). plus 0.375%. The interest rate for the variable rate notes will be reset on each June 15 and December 15. The interest rate on the variable rate notes is 5.045% for the six-month period ending June 15, 2006. --Denominator equal to weighted average common shares outstanding for basic EPS plus employee stock options (where dilutive) plus 14.2 million shares assuming the convertible notes are converted to common stock. Income Tax Expense Starting in the third quarter of fiscal 2002, the tax benefits of ADC's pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta losses have been added to deferred tax assets with an offsetting valuation reserve. As of January 27, 2006, ADC had a total of $1,042 million in deferred tax assets (primarily for U.S. income taxes) that have been offset by a nearly full valuation reserve and as a result are presented on the balance sheet at an insignificant amount. Approximately $226 million of these deferred tax assets relate to capital loss carryovers that can be utilized only against realized capital gains through October 31, 2009. As we generate pre-tax income in future periods, ADC currently expects to record reduced income tax expense until either its deferred tax assets are fully utilized to offset future income tax liabilities or the value of our deferred tax assets are restored on the balance sheet. Excluding the deferred tax assets related to capital loss carryovers, most of the remaining deferred tax assets are not expected to expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. until after fiscal 2021. A copy of this news release, including the financial guidance it contains, can be accessed at www.adc.com/investorrelations/newsandcommunications/earningsreleases/. Reconciliations of Operating Expense and Operating Income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. The table below reconciles GAAP operating expense and income to adjusted operating expense and income to show the derivations of adjusted operating expense as a percent of sales and adjusted operating margin. These reconciliations enable analysis of the impact of the below charges, expenses and amortization on ADC's results.
Reconciliations 2006 2005 2005
(dollars in millions) First Quarter Fourth Quarter First Quarter
------------------------- -------------- -------------- --------------
GAAP operating expense $89.4 101.4 79.2
Amortization of purchased
intangibles $6.5 5.4 2.6
Write-off of FONS-related
acquisition charges
(primarily in-process
research and
development) $- 4.5 -
FONS employee retention
expense $2.4 1.6 -
Restructuring and
impairment charges $1.4 7.6 3.1
Stock-option compensation
expense $2.8 - -
-------------- -------------- --------------
Adjusted operating
expense $76.3 82.3 73.5
============== ============== ==============
Adjusted operating
expense as a percent of
sales 27.2% 27.3% 30.5%
============== ============== ==============
GAAP operating income
(loss) $(3.8) 4.7 2.9
Amortization of purchased
intangibles $6.5 5.4 2.6
Write-off of FONS-related
acquisition charges
(primarily in-process
research and
development) $- 4.5 -
FONS employee retention
expense $2.4 1.6 -
Restructuring and
impairment charges $1.4 7.6 3.1
Stock-option compensation
expense $2.8 - -
-------------- -------------- --------------
Adjusted operating income $9.3 23.8 8.6
============== ============== ==============
Adjusted operating margin 3.3% 7.9% 3.6%
============== ============== ==============
Today's Earnings Conference Call And Webcast at 5:00 p.m. Eastern ADC will discuss its first quarter 2006 results and current outlook on a conference call scheduled today, March 1, at 5:00 p.m. Eastern time. The conference call can be accessed by domestic callers at (800) 399-7506 and by international callers at (706) 634-2489 or on the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the at www.adc.com/investor, by clicking on Webcasts. Starting today at 6:30 p.m. Eastern time, the replay of the call can be accessed until 11:59 p.m. Eastern time on March 8 by domestic callers at (800) 642-1687 and by international callers at (706) 645-9291 (conference ID number is 4800101) or on the Internet at www.adc.com/investor, by clicking on Webcasts. About ADC ADC provides the connections for wireline, wireless, cable, broadcast, and enterprise networks around the world. ADC's innovative network infrastructure equipment and professional services enable high-speed Internet See broadband. , data, video, and voice services to residential, business and mobile subscribers. ADC (NASDAQ: ADCT) has sales into more than 140 countries. Learn more about ADC at www.adc.com. Cautionary Statement Regarding Forward Looking Information All forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. contained herein, particularly those pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to ADC's expectations or future operating results, reflect management's current expectations or beliefs as of the date of such statements and are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. ADC Telecommunications ADC Telecommunications (NASDAQ: ADCT) is a communications company located in Eden Prairie, Minnesota, a southwest suburb of Minneapolis. History In 1935, Ralph Allison founded ADC Telecommunications in the basement of his south Minneapolis home, inventing ADC's very cautions that any forward-looking statements made by us in this report or in other announcements made by us are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements. These factors include, without limitation: any statements regarding future sales; profit percentages; earnings per share and other results of operations; our estimates of probable PROBABLE. That which has the appearance of truth; that which appears to be founded in reason. liabilities relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc pending litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. ; the continuation continuation - continuation passing style of historical trends; expectations or beliefs regarding the marketplace in which we operate; the sufficiency of our cash balances and cash generated from operating and financing activities for our future liquidity; capital resource needs, and the effect of regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. changes. We caution that any forward-looking statements made by us in this report or in other announcements made by us are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements. These factors include, without limitation: the magnitude magnitude, in astronomy, measure of the brightness of a star or other celestial object. The stars cataloged by Ptolemy (2d cent. A.D.), all visible with the unaided eye, were ranked on a brightness scale such that the brightest stars were of 1st magnitude and the and duration of the recovery from the significant downturn Downturn The transition point between a rising, expanding economy to a falling, contracting one. downturn A decline in security prices or economic activity following a period of rising or stable prices or activity. in the communications equipment industry which was primarily during our fiscal 2001 through 2003, particularly with respect to the demand for equipment by telecommunication telecommunication Communication between parties at a distance from one another. Modern telecommunication systems—capable of transmitting telephone, fax, data, radio, or television signals—can transmit large volumes of information over long distances. service providers, from which a majority of our sales are derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. ; our ability to operate our business to achieve, maintain and grow operating profitability; macroeconomic mac·ro·ec·o·nom·ics n. (used with a sing. verb) The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors. factors that influence the demand for telecommunications services In telecommunication, the term telecommunications service has the following meanings: 1. Any service provided by a telecommunication provider. 2. and the consequent con·se·quent adj. 1. a. Following as a natural effect, result, or conclusion: tried to prevent an oil spill and the consequent damage to wildlife. b. demand for communications equipment; consolidation among our customers, competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. or vendors which could cause disruption disruption /dis·rup·tion/ (dis-rup´shun) a morphologic defect resulting from the extrinsic breakdown of, or interference with, a developmental process. in our customer relationships or displacement displacement, in psychology: see defense mechanism. Same as offset. See base/displacement. of us as an equipment vendor to the surviving entity in a customer consolidation; our ability to keep pace with rapid technological change in our industry; our ability to make the proper strategic choices with respect to product line acquisitions or divestitures; our ability to integrate the operations of any acquired businesses with our own operations; increased competition within our industry and increased pricing pressure from our customers; our dependence on relatively few customers for a majority of our sales as well as potential sales growth in market segments we presently feel have the greatest growth potential; fluctuations in our operating results from quarter-to-quarter, which are influenced by many factors outside of our control, including variations in demand for particular products in our portfolio that have varying profit margins; the impact of regulatory changes on our customers' willingness to make capital expenditures for our equipment and services; financial problems, work interruptions in operations or other difficulties faced by some of our customers, which can influence future sales to these customers as well as our ability to collect amounts due us; economic and regulatory conditions both in the United States and outside of the United States, as over 40.0% of our sales come from non-U non-U adj. Chiefly British Not characteristic of the upper class, especially in language usage. [non- + U2. .S. jurisdictions; our ability to protect our intellectual property rights and defend against infringement The encroachment, breach, or violation of a right, law, regulation, or contract. The term is most frequently used in reference to the invasion of rights secured by Copyright, patent, or trademark. claims made by third parties; possible limitations on our ability to raise additional capital if required, either due to unfavorable market conditions or lack of investor demand; our ability to attract and retain qualified employees in a competitive environment; potential liabilities that could arise if there are design or manufacturing defects with respect to any of our products; our ability to obtain raw materials and components, and our dependence on contract manufacturers to make certain of our products; changes in interest rates, foreign currency exchange rates and equity securities prices, all of which will impact our operating results; our ability to successfully defend or satisfactorily settle any pending litigation or litigation that may arise; and other risks and uncertainties, including those identified in the section captioned Risk Factors in Item 1A of ADC's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the fiscal year ended October 31, 2005. ADC disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In millions)
ASSETS
January 27, October 31,
2006 2005
-----------------------
CURRENT ASSETS:
Cash and cash equivalents $99.1 $110.1
Available-for-sales securities 338.8 335.3
Accounts receivable, net of reserves 185.3 195.6
Unbilled revenue 32.6 38.1
Inventories, net of reserves 142.8 140.5
Prepaid and other current assets 44.1 33.4
-----------------------
Total current assets 842.7 853.0
PROPERTY AND EQUIPMENT, net of accumulated
depreciation 218.1 221.1
RESTRICTED CASH 22.2 23.6
GOODWILL 240.2 240.5
INTANGIBLES, net of accumulated amortization 158.7 165.0
Available-for-sales securities 11.0 12.1
OTHER ASSETS 21.8 19.7
-----------------------
TOTAL ASSETS $1,514.7 $1,535.0
=======================
LIABILITIES & SHAREOWNERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $81.4 $77.4
Accrued compensation and benefits 50.2 80.9
Other accrued liabilities 73.4 78.8
Income taxes payable 16.2 15.9
Restructuring accrual 29.5 33.3
Notes payable 0.1 0.3
-----------------------
Total current liabilities 250.8 286.6
PENSION OBLIGATIONS & OTHER LT OBLIGATIONS 80.9 74.5
LONG-TERM NOTES PAYABLE 400.0 400.0
-----------------------
Total liabilities 731.7 761.1
SHAREOWNERS' INVESTMENT
(117.0 and 116.6 shares outstanding) 783.0 773.9
-----------------------
TOTAL LIABILITIES AND SHAREOWNERS'
INVESTMENT $1,514.7 $1,535.0
=======================
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
GAAP BASIS
(In Millions, Except Per Share Amounts)
For the Three Months Ended
--------------------------------------------
January 27, October 31, January 28,
2006 2005 2005
-------------- -------------- --------------
Products $240.5 $261.7 $199.7
Services 39.7 39.9 40.9
-------------- -------------- --------------
NET SALES 280.2 301.6 240.6
Products 158.2 156.5 120.4
Services 36.4 39.0 38.1
-------------- -------------- --------------
COST OF PRODUCT SOLD 194.6 195.5 158.5
-------------- -------------- --------------
GROSS PROFIT 85.6 106.1 82.1
-------------- -------------- --------------
GROSS MARGIN 30.5% 35.2% 34.1%
EXPENSES:
Research and
development 19.0 19.8 15.2
Selling and
administration 62.5 64.1 58.3
Amortization of
purchased intangibles 6.5 9.9 2.6
Impairment charges - 0.2 -
Restructuring charges 1.4 7.4 3.1
-------------- -------------- --------------
Total Expenses 89.4 101.4 79.2
-------------- -------------- --------------
As a Percentage of
Net Sales 31.9% 33.6% 32.9%
OPERATING INCOME (3.8) 4.7 2.9
OPERATING MARGIN (1.4%) 1.6% 1.2%
OTHER INCOME (EXPENSE),
NET:
Interest 1.3 1.9 0.9
Other 1.4 (1.7) 11.3
-------------- -------------- --------------
INCOME BEFORE INCOME
TAXES (1.1) 4.9 15.1
PROVISION (BENEFIT) FOR
INCOME TAXES 1.3 2.4 1.0
-------------- -------------- --------------
INCOME FROM CONTINUING
OPERATIONS (2.4) 2.5 14.1
DISCONTINUED OPERATIONS,
NET OF TAX:
Income (loss) from
discontinued
operations - (0.2) 2.2
Gain (loss) on sale
of discontinued
operations, net - (1.4) 36.2
-------------- -------------- --------------
Total Discontinued
Operations - (1.6) 38.4
-------------- -------------- --------------
(Loss) earnings before
the cumulative effect of
a change in accounting
principle (2.4) 0.9 52.5
Cumulative effect of a
change in accounting
principle 0.6 - -
-------------- -------------- --------------
NET INCOME (LOSS) $(1.8) $0.9 $52.5
============== ============== ==============
NET MARGIN (0.6%) 0.3% 21.8%
AVERAGE COMMON SHARES
OUTSTANDING - BASIC 116.7 116.5 115.6
============== ============== ==============
AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 116.7 117.7 115.9
============== ============== ==============
EARNINGS (LOSS) PER SHARE
FROM CONTINUING
OPERATIONS - BASIC &
DILUTED $(0.02) $0.02 $0.12
============== ============== ==============
EARNINGS (LOSS) PER SHARE
FROM DISCONTINUING
OPERATIONS - BASIC &
DILUTED $- $(0.01) $0.33
============== ============== ==============
EARNINGS (LOSS) PER SHARE
FROM CHANGE IN
ACCOUNTING PRINCIPLE -
BASIC & DILUTED $- $- $-
============== ============== ==============
NET EARNINGS (LOSS) PER
SHARE - BASIC & DILUTED $(0.02) $0.01 $0.45
============== ============== ==============
SUPPLEMENTARY SCHEDULE
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
EARNINGS PER SHARE CALCULATION - UNAUDITED
GAAP BASIS
(In Millions, Except Per Share Amounts)
Numerator: For the Three Months Ended
--------------------------------------------
January 27, October 31, January 28,
2006 2005 2005
--------------------------------------------
Net income (loss) from
continuing operations -
basic & diluted $(2.4) $2.5 $14.1
============================================
Denominator:
Weighted average common
shares outstanding -
basic 116.7 116.5 115.6
Employee options and
other - 1.2 0.3
--------------------------------------------
Weighted average common
shares outstanding -
diluted $116.7 $117.7 $115.9
============================================
Basic & Diluted income
(loss) per share from
continuing operations $(0.02) $0.02 $0.12
============================================
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(in millions)
SUBJECT TO RECLASSIFICATION
Three Months Ended
January 27, October 31, January 28,
2006 2005 2005
-------------- -------------- --------------
Operating Activities:
Net Income From
Continuing Operations $(2.4) $2.5 $14.1
Adjustments to
reconcile net (loss)
income from continuing
operations to net cash
used by operating
activities from
continuing operations:
Impairments - 0.2 -
Depreciation and
amortization 16.6 25.7 13.9
Change in bad debt
reserves 1.0 (0.2) (0.4)
Non-cash stock
compensation 3.4 0.8 0.7
Change in deferred
income taxes 1.4 2.5 0.6
Loss (Gain) on sales
of property and
equipment 0.7 0.3 (0.6)
Other, net (2.2) 2.3 (12.3)
Changes in operating
assets and
liabilities, net of
acquisitions and
divestitures:
Accounts receivable
and unbilled
revenues 8.8 21.2 15.9
Inventories (1.4) (6.3) (10.0)
Prepaid and other
assets (6.6) (6.6) (4.0)
Accounts payable 3.4 (3.6) (1.2)
Accrued liabilities (39.1) 11.3 (34.9)
Pension liabilities 2.7 (0.3) 1.2
-------------- -------------- --------------
Total cash
provided (used)
by operating
activities from
continuing
operations (13.7) 49.8 (17.0)
Total cash
provided (used)
by operating
activities from
discontinued
operations - 0.9 0.7
-------------- -------------- --------------
Total cash
provided (used)
by operating
activities (13.7) 50.7 (16.3)
Investing Activities:
Acquisitions, net of
cash acquired - (166.1) -
Divestitures, net of
cash disposed - (0.8) 33.6
Property and equipment
additions (5.1) (13.7) (4.6)
Proceeds from disposal
of property and
equipment - - 3.1
Change in restricted
cash 1.5 (7.2) (3.0)
Purchases of Available-
for-Sale Securities (135.5) (223.1) (270.9)
Sale of Available-for-
Sale Securities 133.4 366.7 278.7
Other 0.3 - -
-------------- -------------- --------------
Total cash
provided (used)
by investing
activities (5.4) (44.2) 36.9
Financing Activities:
Increase (Decrease) in
debt - 0.2 -
Common stock issued 5.9 2.2 0.9
-------------- -------------- --------------
Total cash
provided (used)
by financing
activities 5.9 2.4 0.9
Effect of exchange rate
on cash 2.2 - 0.2
-------------- -------------- --------------
(Decrease) Increase in
cash and cash
equivalents (11.0) 8.9 21.7
Cash and cash
equivalents, beginning
of period 110.1 101.2 66.2
-------------- -------------- --------------
Cash and cash
equivalents, end of
period $99.1 $110.1 $87.9
============== ============== ==============
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