ADC Telecommunications Reports Record Second Quarter 1998 Results
MINNEAPOLIS--(BUSINESS WIRE)--May 20, 1998--
Sales of $335 Million and Operating Income of $52 Million, Both Up 20%; Basic EPS of $0.26 and Diluted EPS of $0.25
ADC Telecommunications, Inc. (NASDAQ: ADCT; www.adc.com) today reported sales of $335 million for the second fiscal quarter ended April 30, 1998, an increase of 20% over the $279 million in the comparable quarter of 1997. The increase in sales reflects strength in the broadband connectivity and transmission systems product groups.
Operating income in the second quarter of 1998 increased 20% to $52 million compared to $44 million in the prior-year second quarter. Operating income increased as a result of higher sales volumes and improved gross margins partially offset by the increased investment in development, sales and service expenses to support new product deployments and growth in international markets.
Net income was $34 million ($0.26 per basic share and $0.25 per diluted share) in this year's second quarter compared to $29 million
($0.22 per both basic and diluted share) in the second quarter of 1997.
"We are pleased to achieve record second quarter results as sales to the telephone companies recovered from the first quarter of 1998," said William J. Cadogan, chairman and chief executive officer of ADC Telecommunications. "ADC is strongly positioned for further growth with our core voice, video and Internet/data systems, as well as our next-generation product deployments underway now and in the second half of 1998 for telephone, cable TV and wireless service providers."
REVIEW OF PRODUCT GROUPS
A review of ADC's three product groups - Broadband Connectivity, Enterprise Networks and Transmission Systems - for the second quarter ended April 30, 1998 follows.
Broadband Connectivity
Broadband connectivity sales in the second quarter of 1998 increased 21% to $150 million from $124 million in the year-ago quarter. Sequentially, sales were up 26% recovering from the depressed first quarter of 1998. The strong increase in sales reflects the resumption of telephone company spending that was deferred in the first quarter of 1998 as a result of the consolidation of various telephone customers during 1997. During the quarter, the broadband connectivity product group continued to serve a broad range of ADC's worldwide customers with its connectivity systems for telephone, cable television, Internet, broadcast, wireless and private communications networks.
Enterprise Networks
Enterprise networks sales were $36 million in the second quarter of 1998 compared to $40 million in the prior-year second quarter. This group is focused on upgrading the functionality of its current products and building on the competitive position of its industry-leading installed base of channel service units/data service units and ATM access concentrators. During the quarter, ADC's AAC-3 ATM access concentrator was selected for the Editor's Choice award by Network Computing magazine after being tested against other competing equipment at the MCI Developer's Lab. The AAC-3 is among the first products to feature the inverse multiplexing over ATM (IMA) standard recently ratified by the ATM Forum. IMA enables high-speed aggregations of voice, video and Internet/data traffic to be transported across wide area networks (WAN) utilizing cost-effective T1 circuits instead of expensive T3 circuits.
Transmission Systems
Transmission systems sales increased 29% to $149 million in the quarter compared to $116 million in the prior-year second quarter. Sales increased across in all product lines--cable TV, telephone and wireless systems, as well as systems integration.
Working alongside telephone and cable TV service providers, ADC is building the infrastructure that brings Internet access, high-speed data, video and telephony services to homes and small businesses. During the quarter, ADC's DV6000(TM) - the most widely used uncompressed digital video transport system in the world - was enhanced with the introduction of its Fast EtherRing Switch(TM), the Switch and Synchronizer (SAS) system and several new international video interfaces. ADC's DV6000 and Fast EtherRing Switch offer dense wavelength division multiplexing (DWDM), a broad range of voice, video, data and Internet protocol interfaces, as well as digital transport throughput of up to 16 Gigabits a second over fiber backbones. The DV6000 and Fast EtherRing Switch architecture is expected to save service providers up to 50% in equipment costs over equivalent ATM/SONET-based systems by eliminating the costly protocol conversion process and replacing expensive, complex routers and ATM switches with the less expensive Fast EtherRing Switch. The DV6000 SAS system offers a nonblocking 128 channel video switch that enables operators to configure their backbone video distribution system with greater flexibility at lower overall system cost. The new international interfaces enable European operators to take full advantage of the DV6000 in their digital video distribution networks.
ADC also began the North American roll out of its Homeworx(TM) cable telephony system with commercial deployments by MediaOne in Atlanta and Los Angeles and field trials by Cogeco Cable Canada. MediaOne is one of America's largest broadband communications companies and Cogeco Cable is the fourth largest cable TV service provider in Canada. Prior to the second quarter, ADC's Homeworx cable telephony system was selected for deployment by SNET in Connecticut in the U.S., NetCom's Tele2 subsidiary in Sweden, Binariang in Malaysia and Optus in Australia, as well as field trials at several locations around the world.
Sales of ADC's Soneplex(R) system increased in the second quarter of 1998 compared to the prior year comparable quarter. Telephone companies are deploying Soneplex as a low total-cost platform to deliver T1-based voice and Internet/data services over copper (using HDSL) and fiber facilities. ADC's new Cellworx(TM) Service Transport Node (STN) is anticipated to enter beta trials in the third quarter of 1998. Cellworx is expected to reduce broadband service delivery costs up to 50% compared to current generation SONET and ATM equipment by substantially reducing transport costs as well as the number of ATM switches deployed in the network. Cellworx uses ATM technology to efficiently deliver and aggregate voice, video and Internet/data traffic over SONET fiber ring architectures. Like Soneplex, Cellworx extends telecommunications services over fiber and copper (using HDSL and ADSL) facilities. In the second quarter of 1998, ADC strategically positioned its Enterprise Networks, Soneplex and Cellworx product lines to provide the transport and access systems that telephone companies need to deliver cost-efficient voice, video, Internet/data services to their business customers.
ADC's telephone customer base, in the second quarter of 1998, continued to expand beyond the incumbent local exchange telephone companies to include competitive local exchange telephone companies. During the quarter, MCI selected ADC's Integrated Communications Access (ICX(TM)) server to provide local voice and data services to businesses.
In the second quarter of 1998, ADC's wireless systems sales increased as a result of internal growth and the October 1997 acquisition of NewNet, a developer of intelligent network telecommunications software. On April 30, 1998, ADC signed an agreement with Topper Electric Corporation for the marketing and sale of ADC's global system for mobile communications (GSM) products to wireless telecommunications operators in China. ADC expects to supply $40 million of its GSM systems to Topper over two years. Topper Electric Corporation is one of the fastest growing telecommunications infrastructure suppliers in China.
Also during the quarter, ADC Metrica, a United Kingdom based company, received the Queen's Award for Export Achievement as a world leader in performance management software. ADC Metrica's software is used by over 100 operators of wireless and wireline telephone networks. From 1995 to 1997, ADC Metrica's export sales more than tripled.
Since the first quarter of 1998, ADC NewNet signed agreements with (1) Compaq to offer the first Signal System 7 (SS7) software to run natively on Windows NT-based servers, (2) IBM, Glenayre and Qualcomm to supply ADC NewNet's SMserver that manages the transmission of alphanumeric messages between mobile subscribers and paging, e-mail and voice-mail systems and (3) Bay Networks to provide SS7 software that interworks with Bay Networks' Versalar(TM) remote access products. SS7 software is used in the public telephone network for control of circuit-switched connections and value added services such as 800/888 number translation, calling card validation and intelligent network services. ADC NewNet also announced the development of a lawfully authorized electronic surveillance application that is expected to be a key tool used by service providers to comply with the Communications Assistance to Law Enforcement Act (CALEA).
ADC's systems integration services recorded increased sales driven by internal growth and the acquisition of W.E. Tech in December 1997. Year-over-year, the customer base for ADC's systems integration services has expanded in the second quarter of 1998 to serve incumbent local exchange telephone companies, competitive local exchange telephone companies, long distance telephone companies and cable TV companies compared to being comprised almost entirely of incumbent local exchange telephone companies in the comparable prior-year quarter.
SIX-MONTH RESULTS
Sales for six months ended April 30, 1998 increased 16% to $621 million compared to $536 million in the first half of 1997. Operating income was $90 million for the six months of 1998 compared to a comparable prior-year result of $81 million, before the non-recurring pre-tax charges of $23 million related to acquisition and restructuring expenses in the first quarter of 1997. Net income was $60 million ($0.45 per basic share and $0.44 per diluted share) in this year's first half compared to $54 million ($0.41 per both basic and diluted share) in the comparable period of 1997, before the non-recurring after-tax charges of $15 million ($0.11 per both basic and diluted share) in the first quarter of 1997.
ADC Telecommunications, Inc. is a leading global supplier of voice, video and data systems for telephone, cable television, Internet, broadcast, wireless and private communications networks. ADC's systems enable local access and high-speed transmission of communications services from providers to consumers and businesses over fiber optic, copper, coaxial and wireless media. Headquartered in Minneapolis, Minnesota, ADC has approximately 6,000 employees around the world and annual sales of $1.2 billion.
For more information on ADC, visit our web site at adc.com or call (888) 329-9823 to receive ADC Telecommunications' press releases by fax on demand.
"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995
Any forward-looking statements contained herein reflect management's current expectations or beliefs. ADC Telecommunications cautions readers that future actual results could differ materially from those in forward-looking statements depending on the outcome of certain factors including the risks and uncertainties identified in Exhibit 99 to ADC's Report on Form 10-K for the fiscal year ended October 31, 1997. -0- ADC Telecommunications supports the National Association of Investors Corporation's "Own Your Share of America" campaign, which encourages individuals to invest in stocks. -0- *T
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In Thousands, Except Per Share Amounts)
For the Quarter Ended For the Six Months ended
April 30, April 30, --------------------- ---------------------- 1998 1997 1998 1997
NET SALES $334,635 $279,199 $621,031 $535,976
COST OF PRODUCTS SOLD 177,668 149,876 330,514 288,984
GROSS PROFIT 156,967 129,323 290,517 246,992
Gross profit percentage 46.9% 46.3% 46.8% 46.1% --------------------- ----------------------
EXPENSES: Research and
development 37,097 30,406 68,036 58,525 Selling and
administration 64,409 52,840 126,501 102,284 Goodwill amortization 2,968 2,351 5,506 4,873 Non-recurring charges -- -- -- 22,700
Total Expenses 104,474 85,597 200,043 188,382
OPERATING INCOME 52,493 43,726 90,474 58,610
OTHER INCOME (EXPENSE), NET: Interest 1,115 1,795 2,559 3,581 Other (780) (425) (1,114) (852) ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 52,828 45,096 91,919 61,339
PROVISION FOR INCOME TAXES 18,489 16,235 32,172 22,083
NET INCOME $ 34,339 $ 28,861 $ 59,747 $ 39,256
AVERAGE COMMON SHARES OUTSTANDING (BASIC) 134,275 131,009 133,997 130,724
EARNINGS PER SHARE (BASIC) $ 0.26 $ 0.22 $ 0.45 $ 0.30
AVERAGE COMMON SHARES OUTSTANDING
(DILUTED) 136,283 133,827 136,005 133,542
EARNINGS PER SHARE (DILUTED) $ 0.25 $ 0.22 $ 0.44 $ 0.29
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In Thousands)
April 30, October 31, 1998 1997
ASSETS
CURRENT ASSETS Cash and cash equivalents $101,771 $109,794 Accounts receivable 266,135 246,241 Inventories 175,903 168,379 Prepaid income taxes and other assets 27,557 25,053
Total current assets 571,366 549,467
PROPERTY AND EQUIPMENT, NET 240,213 215,677
OTHER ASSETS, PRINCIPALLY GOODWILL 180,413 171,159
$991,992 $936,303
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES: Current maturities of long-term debt $ 451 $ 650 Accounts payable 51,200 62,879 Accrued liabilities 117,030 118,870
Total current liabilities 168,681 182,399
LONG-TERM DEBT, less current maturities 2,930 3,109
Total liabilities 171,611 185,508
STOCKHOLDERS' INVESTMENT (134,374 AND 133,508 shares outstanding) 820,381 750,795
$991,992 $936,303
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CONTACT:
ADC Telecommunications, Inc., Minneapolis
Mark Borman, (612) 946-3338 |
