ADC Reports Results for Second Fiscal Quarter 2006; Fiber-to-the-X (FTTX) Deployments Drive Global Fiber and Copper Connectivity Sales Higher; 2006 Annual Sales Estimate of $1.35-$1.39 Billion.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 ): Revised Conference Call Time to May 31 at 8:30 A.M. Eastern (Details Below) --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 2Q06 Were $366 Million, Up 30% from 1Q06 and 17% from 2Q05 (Excluding 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 of $39 Million from 2006 Results, 2Q06 Sales Up 4% from 2Q05) --Year-Over-Year Sales Growth Driven Primarily by 91% 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 16% Growth in Global Copper Connectivity Solutions Partially Offset By Lower Wireless Sales --International Sales Were 40% 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 24% Over 2Q05 --$0.19 GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). Earnings Per Share from 2Q06 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 $0.10 for 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, 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 Provided by Operating Activities from Continuing Operations Was $41 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 $513 Million at Quarter End ADC (NASDAQ:ADCT) (www.adc.com) today announced results for its second fiscal quarter ended April 28, 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 two 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. "Several market developments are driving ADC's strong growth in our communications network The transmission channels interconnecting all client and server stations as well as all supporting hardware and software. infrastructure solutions," 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. "First, our customers' subscriber subscriber, n the person, usually the employee, who represents the family unit in relation to the prepayment plan. Other family members are dependents. Also called certificate holders or enrollees. retention and growth initiatives are driving network upgrades that use our solutions to connect bundled bun·dle n. 1. A group of objects held together, as by tying or wrapping. 2. Something wrapped or tied up for carrying; a package. 3. Biology A cluster or strand of closely bound muscle or nerve fibers. voice, video, data and wireless services. Second, carrier consolidation and wireline/wireless convergence convergence Mathematical property of infinite series, integrals on unbounded regions, and certain sequences of numbers. An infinite series is convergent if the sum of its terms is finite. are creating strong demand for our solutions to interconnect (1) To attach one device to another. (2) A physical port (plug, socket) or wireless port (transmitter, receiver) used to attach one device to another. acquirer and acquiree networks and multiple voice, video, data and wireless services over local access and long-distance long-dis·tance adj. 1. Covering a long distance: a long-distance runner; operating under long-distance supervision. 2. networks. Third, the network evolution to Internet Protocol See Internet and TCP/IP. (networking) Internet Protocol - (IP) The network layer for the TCP/IP protocol suite widely used on Ethernet networks, defined in STD 5, RFC 791. IP is a connectionless, best-effort packet switching protocol. communications services is creating new growth opportunities for our connectivity solutions." Continued Progress Toward Increasing Cash Flow and Future Profitability "In our second quarter, we generated $41 million of cash provided by operating activities from continuing operations compared to a use of $11 million in the first quarter of 2006. We also made good progress in improving our adjusted operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: to 9.7% sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen from 3.3% in the first quarter of 2006," said Gokul Coordinates:
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. efficiencies are taking hold. We expect further improvement in fiscal 2006 and beyond as we progress toward our three-year goal of 14% or better operating margins." GAAP Results (dollars in millions, except per share amounts), Continuing Operations 2006 2006 2005 ADC Results Second Quarter First Quarter Second Quarter ------------------------- -------------- -------------- -------------- Net sales $365.6 281.8 313.1 Percent outside U.S. 40.4% 44.9% 43.9% Gross margin 33.0% 30.4% 37.3% Amortization of purchased intangibles $6.5 6.5 2.6 FONS employee retention expense $2.1 2.4 - Restructuring and impairment charges $2.1 1.4 3.3 Stock-option compensation expense $2.3 2.8 - Operating margin 6.2% (1.3%) 10.2% Income (loss) from continuing operations $22.8 (2.4) 34.8 Earnings (loss) per share from continuing operations - diluted $0.19 (0.02) 0.28 Earnings per share for all periods are calculated giving effect to ADC's 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, FONS employee retention expense, restructuring and impairment charges, 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 2006 2005
amounts) Second Quarter First Quarter Second Quarter
------------------------- -------------- -------------- --------------
GAAP income (loss) from
continuing operations $22.8 (2.4) 34.8
Amortization of purchased
intangibles $6.5 6.5 2.6
FONS employee retention
expense $2.1 2.4 -
Restructuring and
impairment charges $2.1 1.4 3.3
Stock-option compensation
expense $2.3 2.8 -
-------------- -------------- --------------
Adjusted income from
continuing operations $35.8 10.7 40.7
============== ============== ==============
Adjusted earnings per
share from continuing
operations - diluted $0.29 0.09 0.33
============== ============== ==============
Average shares
outstanding - diluted
(millions) 132.2 116.7 130.5
Convertible note interest
add back in EPS
computation 3.1 - 2.0
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 April 28, January 27, April 29,
(dollars in millions) 2006 2006 2005
------------------------- -------------- -------------- --------------
Cash and cash equivalents
- unrestricted $131.9 99.1 99.6
Short-term available for
sale securities $356.9 338.8 448.4
Long-term available for
sale securities $2.0 11.0 18.3
Restricted cash $22.1 22.2 19.1
-------------- -------------- --------------
Total cash and securities $512.9 471.1 585.4
============== ============== ==============
Current ratio 3.3 3.4 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 $513 million as of April 28, 2006. The increase from January January: see month. 27, 2006 was primarily a result of cash provided by operating activities from continuing operations. The decrease from April 29, 2005 was primarily a result of $173 million in payments for the FONS and OpenCell acquisitions in fiscal 2005 partially offset by $74 million of cash provided by operating activities from continuing operations. The remainder was primarily proceeds from asset sales. ADC believes that the remaining cash and securities balance is sufficient for its organic growth plans. ADC's $200 million of fixed rate convertible notes outstanding do not mature until June June: see month. 15, 2008, and the other $200 million of variable rate convertible notes 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 U.S. taxable earnings in future years. Cash Flow Data and Related Statistics 2006 2006 2005 (dollars in millions) Second Quarter First Quarter Second Quarter ------------------------- -------------- -------------- -------------- Total cash provided by (used by) operating activities from continuing operations $41.3 (11.4) 2.2 Days sales outstanding 48.8 59.2 54.3 Inventory turns - annualized 6.7 5.5 6.4 Depreciation and amortization $17.1 16.6 13.4 Property, equipment and patent additions, net of (disposals) $7.0 6.2 (8.2) For the quarter ended April 28, 2006, total cash provided by operating activities from continuing operations was primarily a result of income excluding largely depreciation and amortization expense. For 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 largely depreciation and amortization expense. For the quarter ended April 29, 2005, total cash provided by operating activities from continuing operations was primarily driven by income excluding largely depreciation and amortization expense partially offset by working capital investments. Employees Total employees were approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 9,300 as of April 28, 2006 compared to approximately 8,500 on January 27, 2006 and approximately 8,600 as of April 29, 2005. The increases from both January 27, 2006 and April 29, 2005 were primarily the result of increasing the manufacturing workforce in Mexico Mexico, city, Mexico 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. . GAAP Segment Results (dollars in millions), Continuing Operations Below are summarized the results for ADC's two operating segments, Broadband Infrastructure and Access (BIA BIA abbr. Bureau of Indian Affairs ) and Professional Services (PS):
BIA PS Consolidated
-------------- -------------- --------------
2006 Second Quarter:
Net sales $305.9 59.7 365.6
Amortization of purchased
intangibles $6.0 0.5 6.5
FONS employee retention
expense $2.1 - 2.1
Restructuring and
impairment charges $1.5 0.6 2.1
Stock-option compensation
expense $1.9 0.4 2.3
Operating income (loss) $28.8 (6.2) 22.6
2006 First Quarter:
Net sales $228.5 53.3 281.8
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 Second Quarter:
Net sales $248.7 64.4 313.1
Amortization of purchased
intangibles $2.1 0.5 2.6
Restructuring and
impairment charges $2.6 0.7 3.3
Operating income (loss) $37.1 (5.3) 31.8
Products By Segment
Percent of Total ADC 2006 2006 2005
Sales Second Quarter First Quarter Second Quarter
------------------------- -------------- -------------- --------------
Broadband Infrastructure
and Access:
Global Copper
Connectivity 35% 37% 35%
Global Fiber
Connectivity 29 24 17
Global Enterprise
Connectivity 13 12 15
Wireless Access 2 2 6
Wireline Access 5 6 6
-------------- -------------- --------------
Total BIA 84 81 79
-------------- -------------- --------------
Professional Services 16 19 21
-------------- -------------- --------------
Total ADC 100% 100% 100%
============== ============== ==============
Broadband Infrastructure and Access Comparing second quarters on a year-over-year basis, BIA sales of $306 million were 23% higher, driven primarily by a 91% increase in global fiber connectivity sales and a 16% increase in global copper connectivity sales. This strong growth was partially offset by lower sales in wireless systems. Global fiber connectivity sales were strong in central-office infrastructure and FTTX (Fiber To The X) Refers to all the "fiber-to-the-wherever" technologies. See FTTC and FTTP. See also FTX. deployments. Second quarter 2006 sales of global fiber connectivity solutions were also boosted by $39 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 increased by 3%. Wireless access sales, as expected, were lower by 56% due to the timing of new products and customer deployments. Wireline access sales were approximately flat. BIA sales in the second quarter of 2006 increased by 34% from the first quarter of 2006. All product groups contributed to this growth. This was the result of a 51% increase in global fiber connectivity sales, a 23% increase in sales of global copper connectivity solutions, a 36% increase in global enterprise connectivity sales, a 100% increase in wireless access sales and a 9% increase in wireline access sales. Global fiber connectivity sales increased primarily due to central-office infrastructure and FTTX deployments. Global copper connectivity sales increased as a result of central-office infrastructure sales and fiber-to-the-node and -curb deployments. Wireless access sales were higher primarily from shipments of Digivance systems. Global enterprise connectivity sales increased as expected as a result of the timing and shipment of orders. Wireline access sales were higher as a result of a historical second-quarter seasonal increase. Professional Services On a year-over-year basis, second quarter 2006 sales for Professional Services decreased by 7% to $60 million, primarily as a result of lower sales in 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). . Sales in the United States were
approximately flat. On a quarterly sequential One after the other in some consecutive order such as by name or number. basis from the first
quarter of 2006, Professional Services sales in the second quarter of
2006 increased by 12%, primarily due to a 27% increase in sales in the
United States partially offset by a 5% sales decease in Europe.Updated Outlook for 2006 Annual Guidance and Information on Long-term Business Direction ADC is continuing 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 its business. ADC remains committed to managing its business with a longer-term strategic perspective and expects that quarter-to-quarter fluctuations will continue to be a natural part of its 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 ADC does not believe they are critical to the long-term prospects for its business. ADC announced today that it has entered into an agreement and plan of merger with Andrew Corporation Andrew Corporation is an American multinational producer of communications devices. Andrew is a global designer, manufacturer, and supplier of communications equipment, services, and systems. . The proposed business combination is not expected to close for four to six months, subject to 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. and shareholder approval. Guidance given in this release reflects ADC as a stand-alone (jargon) stand-alone - Capable of operating without other programs, libraries, computers, hardware, networks, etc. Exactly what is absent is presumed to be obvious from context. "We only run Windows on stand-alone PCs because it's too dangerous to run it on networked ones." business and does not reflect the effects of the proposed business combination with Andrew. ADC currently expects its fiscal 2006 sales to be in the range of $1.350 -$1.390 billion, which would represent a 15% to 19% increase over fiscal 2005 sales (previous fiscal 2006 sales guidance was in the range of $1.325-$1.375 billion). Based on this increased annual sales estimate and subject to sales mix sales mix See product mix. and other factors, 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. EPS from continuing operations in fiscal 2006 is estimated to be in the range of $0.65 to $0.80 (includes approximately $0.35 of estimated charges listed in the table below).
Fiscal 2006
Reconciliation of Estimated EPS and Charges Estimate
-------------------------------------------------------- -------------
Estimated GAAP EPS
from continuing operations - diluted $0.65-0.80(1)
Convertible notes interest addback in the if-converted
method assuming conversion to common stock 0.02
Restructuring/impairment charges in first half 2006 0.03
Amortization of purchased intangibles 0.19
FONS employee retention expense(2) 0.04
Stock-option compensation expense 0.07
-------------
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 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 demonstrated with the 2004 acquisition of KRONE (global connectivity solutions), and the 2005 acquisitions of FONS (FTTX solutions) and OpenCell (wireless distributed antenna systems). --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, and estimated stock-option compensation expenses. ADC believes its expansion into new growth markets of FTTX, wireless and enterprises may have changed the historical seasonality in its business. ADC's sales of these products have fluctuated from quarter to quarter, something ADC expects to continue. The working days by quarter in fiscal 2006 is 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. Diluted EPS Calculation The calculation of GAAP diluted EPS from continuing operations includes the if-converted method, which assumes that ADC's 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 December: see month. 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 April 28, 2006, ADC had a total of $1,044 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 October: see month. 31, 2009. As it generates 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 its 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 2006 2005
(dollars in millions) Second Quarter First Quarter Second Quarter
------------------------- -------------- -------------- --------------
GAAP operating expense $97.9 89.4 85.1
Amortization of purchased
intangibles $6.5 6.5 2.6
FONS employee retention
expense $2.1 2.4 -
Restructuring and
impairment charges $2.1 1.4 3.3
Stock-option compensation
expense $2.3 2.8 -
-------------- -------------- --------------
Adjusted operating
expense $84.9 76.3 79.2
============== ============== ==============
Adjusted operating
expense as a percent of
sales 23.2% 27.1% 25.3%
============== ============== ==============
GAAP operating income
(loss) $22.6 (3.8) 31.8
Amortization of purchased
intangibles $6.5 6.5 2.6
FONS employee retention
expense $2.1 2.4 -
Restructuring and
impairment charges $2.1 1.4 3.3
Stock-option compensation
expense $2.3 2.8 -
-------------- -------------- --------------
Adjusted operating income $35.6 9.3 37.7
============== ============== ==============
Adjusted operating margin 9.7% 3.3% 12.0%
============== ============== ==============
Today's 8:30 a.m. Eastern Earnings Conference Call And Webcast ADC will discuss its second quarter 2006 results and current outlook on a conference call scheduled today, May 31, at 8:30 a.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 11:00 a.m. Eastern time, the replay of the call can be accessed until 11:59 p.m. Eastern time on June 7 by domestic callers at (800) 642-1687 and by international callers at (706) 645-9291 (conference ID number is 9984781) 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. Such statements may include, but are not limited to, statements made about the potential business combination with Andrew Corporation. 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; 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; 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 acquisitions or divestitures; our ability to integrate the operations of any acquired businesses with our own operations and to realize planned synergies from such transactions; 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 our customers or vendors, which can influence future sales to customers as well as our ability to either collect amounts due us or obtain necessary materials and components; 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 the prices of those materials and components which can be subject to volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the ; 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 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. or litigation that may arise; risks and uncertainties related to the proposed business combination with Andrew, including but not limited to the ability to consummate To carry into completion; to fulfill; to accomplish. A Common-Law Marriage is consummated when the parties live in a manner intended to bring about public recognition of their relationship as Husband and Wife. the proposed transaction; difficulties and delays in obtaining regulatory approvals for the proposed transaction; potential difficulties in meeting conditions set forth in the definitive merger agreement; fluctuations in the telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. market, 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 and as may be updated in Item 1A of ADC's subsequent Quarterly Reports on Form 10-Q Form 10-Q See 10-Q. or other filings we make with the SEC. 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
April 28, October 31,
2006 2005
-----------------------
CURRENT ASSETS:
Cash and cash equivalents $131.9 $110.1
Available-for-sale securities 356.9 335.3
Accounts receivable, net of reserves of $8.1
and $9.6 198.3 195.6
Unbilled revenue 40.0 38.1
Inventories, net of reserves of $36.9 and
$35.7 145.9 140.5
Prepaid and other current assets 47.2 35.6
-----------------------
Total current assets 920.2 855.2
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $368.0 and $351.2 211.8 221.1
RESTRICTED CASH 22.1 23.6
GOODWILL 240.2 240.5
INTANGIBLES, net of accumulated amortization
of $51.2 and $35.5 152.9 165.0
AVAILABLE-FOR-SALE SECURITIES 2.0 12.1
OTHER ASSETS 19.3 19.7
-----------------------
Total assets $1,568.5 $1,537.2
=======================
LIABILITIES & SHAREOWNERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $103.9 $77.4
Accrued compensation and benefits 52.6 80.9
Other accrued liabilities 78.4 81.0
Income taxes payable 17.5 15.9
Restructuring accrual 22.8 33.3
Notes payable 0.1 0.3
-----------------------
Total current liabilities 275.3 288.8
PENSION OBLIGATIONS & OTHER LT LIABILITIES 81.9 74.5
LONG-TERM NOTES PAYABLE 400.0 400.0
-----------------------
Total liabilities 757.2 763.3
SHAREOWNERS' INVESTMENT
(117.2 and 116.6 shares outstanding) 811.3 773.9
-----------------------
Total liabilities and shareowners'
investment $1,568.5 $1,537.2
=======================
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
GAAP BASIS
(In Millions, Except Per Share Amounts)
For the Six
For the Three Months Ended Months Ended
----------------------------- -------------------
April 28, Jan. 27, April 29, April 28, April 29,
2006 2006 2005 2006 2005
NET SALES: --------- --------- --------- --------- ---------
Product $320.7 $242.1 $264.8 $562.8 $464.9
Service 44.9 39.7 48.3 84.6 89.2
--------- --------- --------- --------- ---------
TOTAL NET SALES 365.6 281.8 313.1 647.4 554.1
COST OF SALES:
Product 207.5 159.8 151.9 367.3 272.7
Service 37.6 36.4 44.3 74.0 82.4
--------- --------- --------- --------- ---------
TOTAL COST OF SALES 245.1 196.2 196.2 441.3 355.1
--------- --------- --------- --------- ---------
GROSS PROFIT 120.5 85.6 116.9 206.1 199.0
--------- --------- --------- --------- ---------
GROSS MARGIN 33.0% 30.4% 37.3% 31.8% 35.9%
OPERATING EXPENSES:
Research and
development 19.0 19.0 18.2 38.0 33.4
Selling and
administration 70.3 62.5 61.0 132.8 119.3
Amortization of
purchased
intangibles 6.5 6.5 2.6 13.0 5.2
Impairment charges 0.6 - 0.1 0.6 0.1
Restructuring
charges 1.5 1.4 3.2 2.9 6.3
--------- --------- --------- --------- ---------
Total Operating
Expenses 97.9 89.4 85.1 187.3 164.3
--------- --------- --------- --------- ---------
As a
Percentage of
Net Sales 26.8% 31.7% 27.1% 28.9% 29.6%
OPERATING INCOME 22.6 (3.8) 31.8 18.8 34.7
OPERATING MARGIN 6.2% (1.3%) 10.2% 2.9% 6.3%
OTHER INCOME, NET:
Interest 1.3 1.3 1.5 2.6 2.4
Other 1.5 1.4 3.8 2.9 15.1
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME
TAXES 25.4 (1.1) 37.1 24.3 52.2
PROVISION FOR INCOME
TAXES 2.6 1.3 2.3 3.9 3.3
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM
CONTINUING
OPERATIONS 22.8 (2.4) 34.8 20.4 48.9
DISCONTINUED
OPERATIONS, NET OF
TAX:
Income (loss) from
discontinued
operations - - (0.5) - 1.7
Gain (loss) on
sale of
discontinued
operations, net - - (0.9) - 35.3
--------- --------- --------- --------- ---------
Total
Discontinued
Operations - - (1.4) - 37.0
--------- --------- --------- --------- ---------
Earnings (loss)
before the
cumulative effect
of a change in
accounting
principle 22.8 (2.4) 33.4 20.4 85.9
Cumulative effect of
a change in
accounting
principle - 0.6 - 0.6 -
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $22.8 $(1.8) $33.4 $21.0 $85.9
========= ========= ========= ========= =========
NET MARGIN 6.2% (0.6%) 10.7% 3.2% 15.5%
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING
- BASIC 117.1 116.7 115.7 116.9 115.7
========= ========= ========= ========= =========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING
- DILUTED 117.9 116.7 130.5 117.6 130.5
========= ========= ========= ========= =========
EARNINGS (LOSS) PER
SHARE FROM
CONTINUING
OPERATIONS - BASIC $0.19 $(0.02) $0.30 $0.18 $0.42
========= ========= ========= ========= =========
EARNINGS (LOSS) PER
SHARE FROM
CONTINUING
OPERATIONS -
DILUTED $0.19 $(0.02) $0.28 $0.18 $0.37
========= ========= ========= ========= =========
EARNINGS (LOSS) PER
SHARE FROM
DISCONTINUING
OPERATIONS - BASIC $- $- $(0.01) $- $0.32
========= ========= ========= ========= =========
EARNINGS (LOSS) PER
SHARE FROM
DISCONTINUING
OPERATIONS -
DILUTED $- $- $(0.01) $- $0.29
========= ========= ========= ========= =========
EARNINGS (LOSS) PER
SHARE FROM CHANGE
IN ACCOUNTING
PRINCIPLE - BASIC $- $- $- $- $-
========= ========= ========= ========= =========
EARNINGS (LOSS) PER
SHARE FROM CHANGE
IN ACCOUNTING
PRINCIPLE - DILUTED $- $- $- $- $-
========= ========= ========= ========= =========
NET EARNINGS (LOSS)
PER SHARE - BASIC $0.19 $(0.02) $0.29 $0.18 $0.74
========= ========= ========= ========= =========
NET EARNINGS (LOSS)
PER SHARE - DILUTED $0.19 $(0.02) $0.27 $0.18 $0.66
========= ========= ========= ========= =========
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
-----------------------------
April 28, Jan. 27, April 29,
2006 2006 2005
-----------------------------
Net income (loss) from continuing
operations 22.8 (2.4) 34.8
Convertible note interest - - 2.0
Net income (loss) from continuing
operations - diluted $22.8 $(2.4) $36.8
=============================
Denominator:
Weighted average common shares
outstanding - basic 117.1 116.7 115.7
Convertible bonds converted to common
stock
Employee options and other 0.8 - 14.8
-----------------------------
Weighted average common shares
outstanding - diluted $117.9 $116.7 $130.5
=============================
Basic income (loss) per share from
continuing operations $0.19 $(0.02) $0.30
=============================
Diluted income (loss) per share from
continuing operations $0.19 $(0.02) $0.28
=============================
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(in millions)
SUBJECT TO RECLASSIFICATION
Three Months Ended Six Months Ended
-------------------------- -----------------
April January April April April
28, 27, 29, 28, 29,
2006 2006 2005 2006 2005
-------- -------- -------- -------- --------
Operating Activities:
Net income from
continuing
operations $22.8 $(2.4) $34.8 $20.4 $48.9
Adjustments to
reconcile net income
from continuing
operations to net cash
provided by (used for)
operating activities
from continuing
operations:
Inventory and fixed
asset write-offs 0.6 - 0.1 0.6 0.1
Depreciation and
amortization 17.1 16.6 13.4 33.7 27.3
Change in bad debt
reserves (0.8) 1.0 (1.5) 0.2 (1.9)
Non-cash stock
compensation 3.1 3.4 0.8 6.5 1.5
Change in deferred
income taxes - 1.4 (0.6) 1.4 -
(Gain)/Loss on sale
of property and
equipment 0.1 0.7 (3.7) 0.8 (4.3)
Other, net 0.7 (1.0) 12.5 (0.3) (1.6)
Changes in operating
assets &
liabilities, net of
acquisitions and
divestitures:
Accounts receivable
and unbilled
revenues (18.8) 8.8 (62.6) (10.0) (46.7)
Inventories (3.0) (1.4) (12.0) (4.4) (22.0)
Prepaid and other
assets (1.7) (5.5) (4.5) (7.2) (8.0)
Accounts payable 22.6 3.4 11.7 26.0 10.5
Accrued liabilities (1.3) (39.1) 12.9 (40.4) (22.0)
Pension liabilities (0.1) 2.7 0.9 2.6 2.1
-------- -------- -------- -------- --------
Total cash
provided by
(used for)
operating
activities from
continuing
operations 41.3 (11.4) 2.2 29.9 (16.1)
Total cash
provided by
(used for)
operating
activities from
discontinued
operations - - (1.5) - (0.8)
-------- -------- -------- -------- --------
Total cash
provided by
(used for)
operating
activities 41.3 (11.4) 0.7 29.9 (16.9)
Investing Activities:
Divestitures, net of
cash disposed - - 0.1 - 33.7
Property, equipment and
patent additions (7.3) (6.2) (5.4) (13.5) (10.5)
Proceeds from disposal
of property and
equipment 0.3 - 13.6 0.3 16.7
Proceeds from
collection of note
receivable 2.7 - 9.0 2.7 9.0
Change in restricted
cash 0.1 1.5 5.8 1.6 2.8
Purchases of available-
for-sale securities (104.9) (135.5) (290.2) (240.4) (561.1)
Sale of available-for-
sale securities 96.2 133.4 276.7 229.6 555.4
Other (0.2) 0.3 - 0.1 -
-------- -------- -------- -------- --------
Total cash
(used for)
provided by
investing
activities (13.1) (6.5) 9.6 (19.6) 46.0
Financing Activities:
Common stock issued 3.7 5.9 1.5 9.6 2.4
-------- -------- -------- -------- --------
Total cash
provided by
financing
activities 3.7 5.9 1.5 9.6 2.4
Effect of Exchange Rate
Changes on Cash 0.9 1.0 (0.1) 1.9 1.9
-------- -------- -------- -------- --------
Increase (decrease) in
Cash and Cash
Equivalents 32.8 (11.0) 11.7 21.8 33.4
Cash and Cash
Equivalents, beginning
of period 99.1 110.1 87.9 110.1 66.2
-------- -------- -------- -------- --------
Cash and Cash
Equivalents, end of
period $131.9 $99.1 $99.6 $131.9 $99.6
======== ======== ======== ======== ========
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