ADC Reports Results for Third Fiscal Quarter 2006; Fiber Connectivity Deployments Drive Sales Higher; 2006 Annual Sales Estimate of $1.270-$1.285 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 ): --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 3Q06 Were $344 Million, Up 12% from 3Q05 (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 $35 Million from 3Q06 Results, 3Q06 Sales Up 1% from 3Q05) --Year-Over-Year Sales Growth Driven Primarily by 77% Growth in Global 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 5% Growth in Both Global Copper Connectivity Solutions and Global Enterprise Connectivity Solutions Partially Offset Primarily By Lower Wireless Sales --APS France Results Classified as a Discontinued Operation discontinued operation A segment of a business that has been abandoned or sold or for which plans for one or another of these actions have been approved. See also continuing operations. in 3Q06 and Prior Periods --Sales Outside U.S. Were 39% of Total Sales; U.S. Sales Grew 16% Over 3Q05 --$0.20 GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). Earnings Per Share from 3Q06 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 Various Charges) --Total Cash Provided by Operating Activities from Continuing Operations Was $25 Million ADC (NASDAQ:ADCT)(www.adc.com) today announced results for its third fiscal quarter ended July July: see month. 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. "We are pleased that we were able to achieve third-quarter results better than the preliminary outlook provided on July 19. While we expect our results to fluctuate from quarter to quarter, we believe carrier consolidation, 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. , 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/growth and 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 create strong 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. potential for ADC's solutions to connect our customers' next-generation wireless, broadband, video, data and voice services," 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. "Accordingly, we 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 on our goal to become the leading global supplier of network infrastructure solutions to our customers. We will seek to accomplish that goal through a combination of business development initiatives, new product developments and execution in our core business. The strategic fundamentals of our business remain solid, and we remain confident that we can deliver long-term growth and profitability." Continued Progress toward Increasing Cash Flow "In our third quarter, we generated $25 million of total cash provided by operating activities from continuing operations for a cumulative $55 million for the first nine months of fiscal 2006," said Gokul Coordinates:
APS France Services Business Classified as Discontinued Operation In the third quarter of 2006, ADC's Board of Directors approved a plan for the intended divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). of the APS France services business, previously included in the Professional Services segment. Consequently, the APS France services business is classified as a discontinued operation and its results are removed from ADC's continuing operations for all reporting periods. ADC is in active discussions regarding the divestiture of this business, subject to entry into a definitive sales agreement with a buyer, required approvals under French law and other customary conditions.
GAAP Results (dollars in millions, except per share amounts),
Continuing Operations
ADC Results 2006 2006 2005
----------- Third Second Third
Quarter Quarter Quarter
---------- ---------- ----------
Net sales $343.6 358.1 307.0
Percent outside U.S. 39.2% 38.7% 41.2%
Gross margin 32.7% 34.0% 38.3%
Amortization of purchased intangibles $6.6 6.5 2.9
FONS employee retention expense $1.3 2.1 -
Restructuring and impairment charges $3.5 1.8 0.2
Stock-option compensation expense $1.9 2.3 -
Operating margin 7.0% 7.0% 11.7%
Income from continuing operations $23.2 25.1 37.5
Earnings per share from continuing
operations - diluted $0.20 0.21 0.30
Reconciliation of Adjusted Income and EPS 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 2006 2006 2005
EPS (dollars in millions, except per Third Second Third
share amounts) Quarter Quarter Quarter
------------------------------------- ---------- ---------- ----------
GAAP income from continuing
operations $23.2 25.1 37.5
Amortization of purchased intangibles $6.6 6.5 2.9
FONS employee retention expense $1.3 2.1 -
Restructuring and impairment charges $3.5 1.8 0.2
Stock-option compensation expense $1.9 2.3 -
---------- ---------- ----------
Adjusted income from continuing
Operations $36.5 37.8 40.6
========== ========== ==========
Adjusted earnings per share from
continuing operations - diluted $0.30 0.31 0.33
========== ========== ==========
Average shares outstanding - diluted
(millions) 131.6 132.1 131.4
Convertible note interest add back in
EPS computation 3.2 3.1 2.3
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 July 28, April 28, July 29,
(dollars in millions) 2006 2006 2005
------------------------------------------ -------- --------- --------
Cash and cash equivalents - unrestricted $127.4 128.6 99.3
Short-term available for sale securities $378.0 356.9 474.3
Long-term available for sale securities $4.9 2.0 16.6
Restricted cash $16.2 22.1 16.5
-------- --------- --------
Total cash and securities $526.5 509.6 606.7
======== ========= ========
Current ratio 3.6 3.3 3.6
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 $527 million as of July 28, 2006. The increase from April 28, 2006 was primarily a result of cash provided by operating activities from continuing operations partially offset by property, equipment and patent additions. The decrease from July 29, 2005 was primarily a result of $166 million in payments for the FONS acquisition in the fourth quarter of fiscal 2005 partially offset by cash provided by operating activities from continuing operations. 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 $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) Third Second Third
Quarter Quarter Quarter
------------------------------------- ---------- ---------- ----------
Total cash provided by (used by)
operating activities from continuing
operations $24.6 42.0 30.7
Days sales outstanding 49.4 47.3 55.4
Inventory turns - annualized 5.5 6.5 5.8
Depreciation and amortization $16.5 17.0 14.4
Property, equipment and patent
additions, net of (disposals) $9.1 7.0 9.0
Employees Total employees were approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 9,100 as of July 28, 2006 compared to approximately 9,300 on April 27, 2006 and approximately 8,600 as of July 29, 2005. The decrease from April 28, 2006 was primarily the result of reducing 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. and the increase from July 29, 2005 was primarily the result of increasing the manufacturing workforce in 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) and Professional Services
(PS). For all periods, these results do not include the APS France
services business, which was classified as a discontinued operation
this quarter and previously included in the Professional Services
segment.
BIA PS Consolidated
--------- -------- ------------
2006 Third Quarter:
Net sales $293.1 50.5 343.6
Amortization of purchased intangibles $6.1 0.5 6.6
FONS employee retention expense $1.3 - 1.3
Restructuring and impairment charges $3.0 0.5 3.5
Stock-option compensation expense $1.6 0.3 1.9
Operating income (loss) $25.4 (1.4) 24.0
2006 Second Quarter:
Net sales $305.9 52.2 358.1
Amortization of purchased intangibles $6.0 0.5 6.5
FONS employee retention expense $2.1 - 2.1
Restructuring and impairment charges $1.5 0.3 1.8
Stock-option compensation expense $2.0 0.3 2.3
Operating income (loss) $28.4 (3.2) 25.2
2005 Third Quarter:
Net sales $259.4 47.6 307.0
Amortization of purchased intangibles $2.4 0.5 2.9
Restructuring and impairment charges $(0.2) 0.4 0.2
Operating income (loss) $39.3 (3.4) 35.9
Products By Segment 2006 2006 2005
Percent of Total ADC Sales Third Second Third
Quarter Quarter Quarter
------------------------------------------------ ---------- ----------
Broadband Infrastructure and Access:
Global Copper Connectivity 33% 36% 35%
Global Fiber Connectivity 29 29 18
Global Enterprise Connectivity 16 13 17
Wireless Access 2 2 8
Wireline Access 5 5 6
---------- ---------- ----------
Total BIA 85 85 84
---------- ---------- ----------
Professional Services 15 15 16
---------- ---------- ----------
Total ADC 100% 100% 100%
========== ========== ==========
Broadband Infrastructure and Access Comparing third quarters on a year-over-year basis, BIA BIA abbr. Bureau of Indian Affairs sales of $293 million were 13% higher, driven primarily by a 77% increase in global fiber connectivity sales and 5% sales increases in both global copper connectivity and global enterprise connectivity products. This growth was partially offset by lower sales in wireless access systems and, to a lesser extent, wireline access 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. Third quarter 2006 sales of global fiber connectivity solutions were boosted by $35 million in sales of FTTX products from FONS, which ADC acquired on August 26, 2005. Sales of global copper connectivity solutions grew as a result of demand for ADC's products that support the copper infrastructure in wireless, digital subscriber line See DSL. (communications, protocol) Digital Subscriber Line - (DSL, or Digital Subscriber Loop, xDSL - see below) A family of digital telecommunications protocols designed to allow high speed data communication over the existing copper telephone lines between end-users and , fiber-to-the-node and -curb networks partially offset by lower sales of copper products to support central-office infrastructure. Global enterprise connectivity sales increased as a result of improved corporate infrastructure investment. Wireless access sales, as expected, were lower by 65% due to the timing of new products and reduced customer demand for existing products. Wireline access sales were down by 8% due to a decline in market demand for high-bit rate digital subscriber line products as carriers undertake product substitution Substitution Arsinoë put her own son in place of Orestes; her son was killed and Orestes was saved. [Gk. Myth.: Zimmerman, 32] Barabbas robber freed in Christ’s stead. [N.T.: Matthew 27:15–18; Swed. Lit. by delivering fiber and Internet Protocol services closer to end-user (job) end-user - The person who uses a computer application, as opposed to those who developed or support it. The end-user may or may not know anything about computers, how they work, or what to do if something goes wrong. premises premises n. 1) in real estate, land and the improvements on it, a building, store, shop, apartment, or other designated structure. The exact premises may be important in determining if an outbuilding (shed, cabana, detached garage) is insured or whether a person . BIA sales in the third quarter of 2006 decreased by 4% from the second quarter of 2006. The sequential One after the other in some consecutive order such as by name or number. decline is primarily due to 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. impacts of both customer consolidation activity affecting current spending rates and customers' current inventory levels, which are higher than current deployment Installing, setting up, testing and running. This military term, which means the placement of troops and equipment in the field, is widely used with computers as an alternate to the word "implementation. rates. Sales of global copper connectivity solutions fell by 11% and global fiber connectivity sales declined by 6%. These declines were partially offset by the 16% growth in sales of global enterprise connectivity solutions. Global copper connectivity sales decreased as a result of merger activity among customers that reduced demand for copper products to support central-office infrastructure and access deployments. Global fiber connectivity sales decreased due to lower demand for central-office infrastructure partially offset by increased shipments of FTTX products. Global enterprise connectivity sales increased as a result of construction seasonality. Wireless access sales were approximately flat and wireline access sales decreased by 3%. Wireline access sales decreased for the reasons previously explained. Professional Services On a year-over-year basis, third quarter 2006 sales for Professional Services increased by 6% to $50 million, primarily as a result of higher sales in the 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. to a customer resuming and expanding its network build programs. 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). were lower due to
contract timing with various customers. On a quarterly sequential basis
from the second quarter of 2006, Professional Services sales in the
third quarter of 2006 decreased by 3%, primarily due to lower sales in
both the United States due to merger activity among customers and in
Europe due to contract timing with various customers.
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. "We remain committed to strategically managing our business for the long term and expect the kind of quarter-to-quarter fluctuations we experienced in 2005 and again in 2006 will continue to be an inherent part of our business," said Switz. "Given the current environment in which our larger wireline and wireless customers are consolidating and integrating operations, these short-term variations can be difficult to plan for and we do not believe they are reflective Refers to light hitting an opaque surface such as a printed page or mirror and bouncing back. See reflective media and reflective LCD. of the long-term prospects for our business. In this consolidating environment, we are not alone in the industry with the view that acquisitions to add product breadth Breadth The percentage of assets or stocks advancing relative to those unchanged or declining. Also the number of independent forecasts available per year. A stock picker forecasting returns to 100 stocks every quarter exhibits a breadth of 400, assuming each forecast is and diversity, as well as relevant scale are required to serve customers who increasingly have broader communications service offerings. We still expect to grow our business organically year-over-year and remain confident that we can deliver long-term growth and profitability in our business." ADC believes its expansion in recent periods into markets for FTTX, wireless and enterprise products, as well as changes in the seasonality of customer spending due to FTTX and other broadband initiatives, has changed the historical seasonality of ADC's business. In the past, ADC's sales of these products have fluctuated from quarter to quarter, something that may continue. ADC expects future sales in our first fiscal quarter will be lower than in other quarters. This is because of the number of holidays in that quarter and the development of annual 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 that many of ADC's customers undertake during that time frame. In addition, in fiscal 2005 ADC's sales in the fourth quarter were sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen lower than third quarter sales, a situation that we expect will also occur in fiscal 2006. In fiscal 2005, the growth of ADC's sales outpaced sales growth in our industry generally and this has been one of ADC's primary goals for fiscal 2006. ADC now believes it will grow sales in fiscal 2006 consistent with the growth experienced generally within our industry. There are two primary reasons for this shortfall Shortfall The amount by which the capital required to fulfill a financial obligation exceeds available capital. Notes: Shortfall risk is often combated with an efficient hedging strategy created by a fund, group, institution, or individual. to our goal. First, ADC believes one or more of its FTTX customers has become more efficient in their use of FTTX products in fiscal 2006 such that they need to buy less product to reach the same number of subscribers versus what was needed in fiscal 2005. Second, as customers have consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: in significant business combinations, ADC believes they have deferred certain spending decisions while they focus on integration activities. On a continuing operations basis, ADC currently expects its fiscal 2006 sales to be in the range of $1.270-$1.285 billion. Based on this 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 (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 in fiscal 2006 is estimated to be in the range of $0.51 to $0.56 (includes approximately $0.37 of estimated charges listed in the below table.)
Reconciliation of Estimated EPS and Charges Fiscal 2006
------------------------------------------- Estimate
-------------
Estimated GAAP EPS from continuing operations - diluted $0.51-0.56(1)
Andrew merger termination fee, net of merger expenses (0.04)
Restructuring/impairment charges through July 2006 0.06
Amortization of purchased intangibles 0.22
FONS employee retention expense(2) 0.05
Stock-option compensation expense 0.08
-------------
Estimated adjusted earnings per share from continuing
operations - diluted $0.88-0.93(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 were incurred through the
third fiscal quarter of 2006 and are now completed.
ADC will continue to work to execute the following plan for long-term growth: --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), the 2005 acquisitions of FONS (FTTX solutions) and OpenCell (wireless 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 ). --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 14% operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: . This goal excludes potential future 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). , 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. 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 Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. , and estimated stock-option compensation expenses. 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 5.795% for the six-month period ending December 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 July 28, 2006, ADC had a total of $943 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. This balance reflects a reduction of $89 million recorded during the quarter ended July 28, 2006, due to an adjustment of tax losses on a prior-year tax return. Approximately $227 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
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 (dollars in millions) 2006 2006 2005
------------------------------------- Third Second Third
Quarter Quarter Quarter
---------- ---------- ----------
GAAP operating expense $88.2 96.5 81.6
Amortization of purchased intangibles $6.6 6.5 2.9
FONS employee retention expense $1.3 2.1 -
Restructuring and impairment charges $3.5 1.8 0.2
Stock-option compensation expense $1.9 2.3 -
---------- ---------- ----------
Adjusted operating expense $74.9 83.8 78.5
========== ========== ==========
Adjusted operating expense as a
percent of sales 21.8% 23.4% 25.6%
========== ========== ==========
GAAP operating income $24.0 25.2 35.9
Amortization of purchased intangibles $6.6 6.5 2.9
FONS employee retention expense $1.3 2.1 -
Restructuring and impairment charges $3.5 1.8 0.2
Stock-option compensation expense $1.9 2.3 -
---------- ---------- ----------
Adjusted operating income $37.3 37.9 39.0
========== ========== ==========
Adjusted operating margin 10.9% 10.6% 12.7%
========== ========== ==========
Today's 5:00 p.m. Eastern Earnings Conference Call And Webcast ADC will discuss its third quarter 2006 results and current outlook on a conference call scheduled today, August 29, 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 7:30 p.m. Eastern time, the replay of the call can be accessed until 11:55 p.m. Eastern time on September September: see month. 5 by domestic callers at (800) 642-1687 and by international callers at (706) 645-9291 (conference ID number is 3973619) 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; 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 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 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 approximately 40% 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; 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
July 28, October 31,
2006 2005
---------------------
CURRENT ASSETS:
Cash and cash equivalents $127.4 $108.4
Available-for-sales securities 378.0 335.3
Accounts receivable, net of reserves of $6.6
and $9.4 188.6 180.6
Unbilled revenue 26.2 27.0
Inventories, net of reserves of $36.7 and
$35.6 166.8 140.4
Current assets of discontinued operations 14.0 29.6
Prepaid and other current assets 39.2 33.5
---------------------
Total current assets 940.2 854.8
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $367.8 and $347.3 210.3 220.4
RESTRICTED CASH 16.2 23.6
GOODWILL 240.2 240.5
INTANGIBLES, net of accumulated amortization
of $59.0 and $36.0 146.4 165.0
AVAILABLE-FOR-SALE SECURITIES 4.9 12.1
LONG TERM ASSETS OF DISCONTINUED OPERATIONS 0.3 1.2
OTHER ASSETS 15.7 19.6
---------------------
TOTAL ASSETS $1,574.2 $1,537.2
=====================
LIABILITIES & SHAREOWNERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $104.2 $69.6
Accrued compensation and benefits 45.6 78.9
Other accrued liabilities 60.4 74.9
Income taxes payable 17.7 15.9
Restructuring accrual 20.0 29.6
Current liabilities of discontinued
operations 15.6 19.6
Notes payable - 0.3
---------------------
Total current liabilities 263.5 288.8
PENSION OBLIGATIONS & OTHER LONG-TERM
OBLIGATIONS 82.9 74.5
LONG-TERM NOTES PAYABLE 400.0 400.0
---------------------
Total liabilities 746.4 763.3
SHAREOWNERS' INVESTMENT
(117.2 and 116.6 shares outstanding) 827.8 773.9
---------------------
TOTAL LIABILITIES AND SHAREOWNERS' INVESTMENT $1,574.2 $1,537.2
=====================
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
GAAP BASIS
(In Millions, Except Per Share Amounts)
For the Three Months Ended
---------------------------
July 28, April 28, July 29,
2006 2006 2005
-------- --------- --------
Products $307.5 $320.7 $273.6
Services 36.1 37.4 33.4
-------- --------- --------
NET SALES 343.6 358.1 307.0
Products 201.3 207.5 165.4
Services 30.1 28.9 24.1
-------- --------- --------
COST OF SALES 231.4 236.4 189.5
-------- --------- --------
GROSS PROFIT 112.2 121.7 117.5
-------- --------- --------
GROSS MARGIN 32.7% 34.0% 38.3%
OPERATING EXPENSES:
Research and development 17.3 19.0 18.4
Selling and administration 60.8 69.2 60.1
Amortization of purchased intangibles 6.6 6.5 2.9
Impairment charges 0.2 0.6 -
Restructuring charges 3.3 1.2 0.2
-------- --------- --------
Total Operating Expenses 88.2 96.5 81.6
-------- --------- --------
As a Percentage of Net Sales 25.7% 27.0% 26.6%
OPERATING INCOME 24.0 25.2 35.9
OPERATING MARGIN 7.0% 7.0% 11.7%
OTHER (EXPENSE) INCOME, NET:
Interest (0.1) 1.3 2.8
Other 2.4 1.2 0.3
-------- --------- --------
INCOME BEFORE INCOME TAXES 26.3 27.7 39.0
PROVISION FOR INCOME TAXES 3.1 2.6 1.5
-------- --------- --------
INCOME FROM CONTINUING OPERATIONS 23.2 25.1 37.5
DISCONTINUED OPERATIONS, NET OF TAX:
Loss from discontinued operations (1.3) (2.3) (6.2)
Loss on sale of subsidiary (10.6) - (7.4)
-------- --------- --------
Total Discontinued Operations (11.9) (2.3) (13.6)
-------- --------- --------
Earnings before the cumulative
effect of a change in accounting
principle 11.3 22.8 23.9
Cumulative effect of a change in
accounting principle, net of tax - - -
-------- --------- --------
NET INCOME $11.3 $22.8 $23.9
======== ========= ========
NET MARGIN 3.3% 6.4% 7.8%
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 117.2 117.1 116.0
======== ========= ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 117.4 117.9 131.4
======== ========= ========
EARNINGS PER SHARE FROM CONTINUING
OPERATIONS - BASIC $0.20 $0.21 $0.32
======== ========= ========
EARNINGS PER SHARE FROM CONTINUING
OPERATIONS - DILUTED $0.20 $0.21 $0.30
======== ========= ========
LOSS PER SHARE FROM DISCONTINUING
OPERATIONS - BASIC $(0.10) $(0.02) $(0.12)
======== ========= ========
LOSS PER SHARE FROM DISCONTINUING
OPERATIONS - DILUTED $(0.10) $(0.02) $(0.10)
======== ========= ========
EARNINGS (LOSS) PER SHARE FROM CHANGE IN
ACCOUNTING PRINCIPLE - BASIC $- $- $-
======== ========= ========
EARNINGS (LOSS) PER SHARE FROM CHANGE IN
ACCOUNTING PRINCIPLE - DILUTED $- $- $-
======== ========= ========
NET EARNINGS PER SHARE - BASIC $0.10 $0.19 $0.20
======== ========= ========
NET EARNINGS PER SHARE - DILUTED $0.10 $0.19 $0.20
======== ========= ========
For the Nine Months Ended
---------------------------
July 28, July 29,
2006 2005
------------- -------------
Products $870.3 $738.5
Services 104.2 98.3
------------- -------------
NET SALES 974.5 836.8
Products 568.6 438.2
Services 85.8 80.8
------------- -------------
COST OF SALES 654.4 519.0
------------- -------------
GROSS PROFIT 320.1 317.8
------------- -------------
GROSS MARGIN 32.8% 38.0%
OPERATING EXPENSES:
Research and development 55.3 51.8
Selling and administration 191.7 178.7
Amortization of purchased intangibles 19.6 8.1
Impairment charges 0.8 0.1
Restructuring charges 5.9 6.0
------------- -------------
Total Operating Expenses 273.3 244.7
------------- -------------
As a Percentage of Net Sales 28.0% 29.3%
OPERATING INCOME 46.8 73.1
OPERATING MARGIN 4.8% 8.7%
OTHER INCOME, NET:
Interest 2.5 5.2
Other 4.7 15.3
------------- -------------
INCOME BEFORE INCOME TAXES 54.0 93.6
PROVISION FOR INCOME TAXES 7.0 4.8
------------- -------------
INCOME FROM CONTINUING OPERATIONS 47.0 88.8
DISCONTINUED OPERATIONS, NET OF TAX:
Loss from discontinued operations (4.7) (6.8)
(Loss) gain on sale of subsidiary (10.6) 27.8
------------- -------------
Total Discontinued Operations (15.3) 21.0
------------- -------------
Earnings before the cumulative
effect of a change in accounting
principle 31.7 109.8
Cumulative effect of a change in
accounting principle, net of tax 0.6 -
------------- -------------
NET INCOME (LOSS) $32.3 $109.8
============= =============
NET MARGIN 3.3% 13.1%
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 117.0 115.8
============= =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 117.5 130.8
============= =============
EARNINGS PER SHARE FROM CONTINUING
OPERATIONS - BASIC $0.40 $0.77
============= =============
EARNINGS PER SHARE FROM CONTINUING
OPERATIONS - DILUTED $0.40 $0.73
============= =============
(LOSS) EARNINGS PER SHARE FROM
DISCONTINUING OPERATIONS - BASIC $(0.13) $0.18
============= =============
(LOSS) EARNINGS PER SHARE FROM
DISCONTINUING OPERATIONS - DILUTED $(0.13) $0.16
============= =============
EARNINGS (LOSS) PER SHARE FROM CHANGE IN
ACCOUNTING PRINCIPLE - BASIC $.01 $-
============= =============
EARNINGS (LOSS) PER SHARE FROM CHANGE IN
ACCOUNTING PRINCIPLE - DILUTED $.01 $-
============= =============
NET EARNINGS PER SHARE - BASIC $0.28 $0.95
============= =============
NET EARNINGS PER SHARE - DILUTED $0.28 $0.89
============= =============
SUPPLEMENTARY SCHEDULE
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
EARNINGS PER SHARE CALCULATION - UNAUDITED
GAAP BASIS
(In Millions, Except Per Share Amounts)
Numerator: For the Three For the Nine
Months Ended Months Ended
--------------------------- -----------------
July 28, April 28, July 29, July 28, July 29,
2006 2006 2005 2006 2005
--------------------------- -----------------
Net income from
continuing operations 23.2 25.1 37.5 47.0 88.8
Convertible note
interest - - 2.3 - 6.1
Net income from
continuing operations -
diluted $23.2 $25.1 $39.8 $47.0 $94.9
=========================== =================
Denominator:
Weighted average common
shares outstanding -
basic 117.2 117.1 116.0 117.0 115.8
Convertible bonds
converted to common
stock - - 14.2 - 14.2
Employee options and
other 0.2 0.8 1.2 0.5 0.8
--------------------------- -----------------
Weighted average common
shares outstanding -
diluted $117.4 $117.9 $131.4 $117.5 $130.8
=========================== =================
Basic income (loss) per
share from continuing
operations $0.20 $0.21 $0.32 $0.40 $0.77
=========================== =================
Diluted income (loss)
per share from
continuing operations $0.20 $0.21 $0.30 $0.40 $0.73
=========================== =================
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(in millions)
SUBJECT TO RECLASSIFICATION
Three Months Ended Nine Months Ended
--------------------------- -----------------
July 28, April 28, July 29, July 28, July 29,
2006 2006 2005 2006 2005
-------- --------- -------- -------- --------
Operating Activities:
Net income from
continuing
operations $23.2 $25.1 $37.5 $47.0 $88.8
Adjustments to
reconcile net income
from continuing
operations to net
cash provided by
(used for) operating
activities from
continuing
operations:
Fixed asset
impairments - 0.6 - 0.6 0.1
Depreciation and
amortization 16.5 17.0 14.4 50.3 41.4
Change in bad debt
reserves (0.1) (0.8) (0.9) 0.1 (2.8)
Non-cash stock
compensation 2.7 3.1 0.7 9.2 2.2
Change in deferred
income taxes - - - 1.4 -
(Gain)/Loss on
sale of property
and equipment (0.7) 0.1 (0.2) 0.1 (4.5)
Other, net 0.9 0.6 0.5 0.1 (0.5)
Changes in
operating assets
& liabilities,
net of
acquisitions and
divestitures:
Accounts
receivable and
unbilled
revenues 7.3 (23.4) (5.9) (10.1) (48.4)
Inventories (20.7) (2.8) (6.7) (25.0) (28.6)
Prepaid and
other assets 8.3 (1.7) (6.1) 1.3 (13.7)
Accounts payable 6.7 23.3 (3.0) 33.8 3.5
Accrued
liabilities (19.5) 0.9 0.4 (53.9) (18.6)
-------- --------- -------- -------- --------
Total cash
provided
by operating
activities
from
continuing
operations 24.6 42.0 30.7 54.9 18.9
Total cash used for
operating
activities from
discontinued
operations (1.4) (2.5) (3.3) (3.3) (11.0)
-------- --------- -------- -------- --------
Total cash
provided by
operating
activities 23.2 39.5 27.4 51.6 7.9
Investing Activities:
Acquisitions, net of
cash acquired (3.2) - (7.1) (3.2) (7.1)
Divestitures, net of
cash disposed - - - - 33.7
Property, equipment
and patent additions (9.6) (7.3) (9.0) (23.1) (19.4)
Proceeds from disposal
of property and
equipment 0.5 0.3 - 0.8 16.7
Proceeds from
collection of note
receivable 4.5 2.5 9.1 6.8 17.8
Change in restricted
cash 5.9 0.1 2.6 7.5 5.4
Purchases of
available-for-sale
securities (136.6) (104.9) (173.2) (377.0) (734.3)
Sale of available-for-
sale securities 112.3 96.2 149.0 341.9 704.4
Other - (0.2) - 0.1 -
-------- --------- -------- -------- --------
Total cash
(used for)
provided by
investing
activities from
continuing
operations (26.2) (13.3) (28.6) (46.2) 17.2
Total cash
provided by
investing
activities from
discontinued
operations - 0.2 0.1 0.4 0.3
-------- --------- -------- -------- --------
Total cash
(used for)
provided by
investing
activities (26.2) (13.1) (28.5) (45.8) 17.5
Financing Activities:
Common stock issued 0.1 3.7 9.0 9.7 11.4
-------- --------- -------- -------- --------
Total cash
provided by
financing
activities from
continuing
operations 0.1 3.7 9.0 9.7 11.4
Total cash
provided by
financing
activities from
discontinued
operations - - - - -
-------- --------- -------- -------- --------
Total cash
provided by
financing
activities 0.1 3.7 9.0 9.7 11.4
Effect of Exchange Rate
Changes on Cash 1.7 0.8 (3.2) 3.5 (1.3)
-------- --------- -------- -------- --------
(Decrease) increase in
cash and cash
equivalents (1.2) 30.9 4.7 19.0 35.5
Cash and cash
equivalents, beginning
of period 128.6 97.7 94.6 108.4 63.8
-------- --------- -------- -------- --------
Cash and cash
equivalents, end of
period $127.4 $128.6 $99.3 $127.4 $99.3
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