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ADC Reports Results for Third Fiscal Quarter 2008; Share Repurchase Program Expected to Begin in September
MINNEAPOLIS-(Business Wire)-September 4, 2008 - ADC (NASDAQ: ADCT) (www.adc.com) today announced unaudited results for its third quarter ended August 1, 2008.
“Since 2003, we have been building ADC as a leading global fiber and wireless growth company. For the five-year period ending with fiscal 2008, we expect our compound annual growth rate to be in excess of 20% in sales and over 30% in cash flow from operating activities,†said Robert E. Switz, chairman, president and CEO of ADC. “These results demonstrate the successful execution of our strategy to position ADC in the high-growth segments of fiber-based and wireless communications networks. This is where our customers worldwide are investing in the infrastructure that delivers broadband services to business, residential and mobile subscribers. Our share repurchase program of up to $150 million reflects our ongoing confidence in the long-term potential of our business to continue our strong financial growth.â€
“We are also committed to taking near-term measures that maintain our strong, long-term growth rate and increase shareholder value going forward,†said Switz. “Our gross margin decreased in the quarter, due to unfavorable product mix, higher costs associated with commodities and other raw materials, and higher transportation costs, net of cost savings from our competitive transformation initiatives. As a result, ADC is broadening its actions to address the significant commodity cost inflation experienced within our industry and the macroeconomy that is influencing our current financial performance. The costs of primary raw material commodities, as well as transportation costs, have increased significantly to ADC throughout the past year. While our multi-year competitive transformation initiatives have lessened the impact of these material cost increases, we are seeing the effect of these higher costs in our earnings. We will continue to explore ways to minimize the impact of material cost increases and will also be taking additional pricing actions, where possible, similar to actions we have seen in the market from our competitors.â€
GAAP Results (dollars in millions, except per share amounts), Continuing Operations
| Â | 2008 | Â | 2008 | Â | 2007 | |||||
| ADC Results | Third Quarter | Second Quarter | Third Quarter | |||||||
| Net sales | $ | 390.2 | 403.4 | 346.1 | ||||||
| Percent outside U.S. | 44.4 | % | 41.6 | % | 37.8 | % | ||||
| Gross margin | 33.6 | % | 35.5 | % | 32.8 | % | ||||
| Operating income | $ | 26.4 | 34.3 | 14.4 | ||||||
| Impairment of available-for-sale securities | $ | (6.0 | ) | (18.0 | ) | - | ||||
| Income (loss) before income taxes | $ | 16.9 | 18.4 | 19.4 | ||||||
| Income (loss) from continuing operations | $ | 14.0 | 16.5 | 17.4 | ||||||
| Earnings (loss) per share from continuing operations – diluted 1 | $ | 0.12 | 0.14 | 0.15 | ||||||
| Weighted average common shares outstanding – diluted (millions) | 118.3 | 118.2 | 117.8 |
1 The dollars and related EPS impact of certain expenses (benefits) included in the above GAAP results are listed in the Supplementary Information section of this release.
Share Buyback Up to $150 Million
In August 2008, ADC announced that its board of directors authorized a share repurchase program for up to $150 million. This program provides that stock repurchases may commence beginning in September 2008 and may continue until the earlier of the completion of $150 million in share repurchases or July 31, 2009. The final number of shares that the company repurchases, along with the timing of any share repurchases, will depend on prevailing market conditions as well as the specific transaction programs and arrangements selected to buyback shares.
GAAP Segment Results, Continuing Operations
The results from continuing operations are summarized below for ADC’s three reportable business segments: Global Connectivity Solutions, Network Solutions and Professional Services. Network Solutions is a reportable segment that was created in the first quarter of fiscal 2008 by combining ADC’s legacy wireline and wireless businesses with the acquired LGC Wireless business.
| Â | 2008 | Â | Â | 2008 | Â | Â | 2007 | Â | |||||
| Sales by Segment | Third | Second | Third | ||||||||||
| (dollars in millions) | Quarter | Quarter | Quarter | ||||||||||
| Global Connectivity Solutions | $ | 292.5 | 298.4 | 267.6 | |||||||||
| Network Solutions | $ | 43.9 | 47.2 | 24.2 | |||||||||
| Professional Services | $ | 53.8 | 57.8 | 54.3 | |||||||||
| Total ADC | $ | 390.2 | 403.4 | 346.1 | |||||||||
| Â | |||||||||||||
| 2008 | 2008 | 2007 | |||||||||||
| Product Sales By Segment | Third | Second | Third | ||||||||||
| Percent of Total ADC Sales | Quarter | Quarter | Quarter | ||||||||||
| Global Connectivity Solutions: | |||||||||||||
| Global Copper Connectivity | Â | 32 | % | 29 | % | 31 | % | ||||||
| Global Fiber Connectivity | Â | 28 | 32 | 30 | |||||||||
| Global Enterprise Connectivity | Â | 15 | 13 | 16 | |||||||||
| Total GCS | Â | 75 | 74 | 77 | |||||||||
| Network Solutions: | |||||||||||||
| Wireless | Â | 8 | 9 | 3 | |||||||||
| Wireline | Â | 3 | 3 | 4 | |||||||||
| Total Network Solutions | Â | 11 | 12 | 7 | |||||||||
| Professional Services | Â | 14 | 14 | 16 | |||||||||
| Total ADC | Â | 100 | % | 100 | % | 100 | % | ||||||
| Â | |||||||||||||
| 2008 | 2008 | 2007 | |||||||||||
| Operating Income (Loss) By Segment | Third | Second | Third | ||||||||||
| (dollars in millions) | Quarter | Quarter | Quarter | ||||||||||
| Global Connectivity Solutions | $ | 34.0 | 42.3 | 27.6 | |||||||||
| Network Solutions | $ | (8.7) | (7.9) | (1.1) | |||||||||
| Professional Services | $ | 0.3 | 0.9 | (0.1) | |||||||||
| Restructuring and operating impairments | $ | 0.8 | (1.0) | (12.0) | |||||||||
| Total ADC | $ | 26.4 | 34.3 | 14.4 |
Total ADC Sales
ADC’s sales for the third quarter of 2008 were $390 million, up 13% from the third quarter of 2007 and down 3% from the second quarter of 2008. Excluding sales from the LGC Wireless and Century Man Communication acquisitions of $36 million and $35 million in the third and second quarters of 2008, respectively, adjusted sales in the third quarter of 2008 were up 3% from the third quarter of 2007 and down 4% from the second quarter of 2008.
Sales outside the United States of $173 million increased 32% from the third quarter of 2007 and 3% from the second quarter of 2008. These sales were 44% of total ADC sales in the third quarter of 2008, an increase from 42% and 38% in the second quarter of 2008 and the third quarter of 2007, respectively. Comparing the third quarters of 2008 and 2007, Europe/Middle East/Africa sales of $91 million were up 28%, Asia Pacific sales of $54 million were up 52% and Latin America sales of $18 million were up 53%. Comparing the third quarter of 2008 to the second quarter of 2008, Europe/Middle East/Africa sales were approximately flat, Asia Pacific sales were up 8% and Latin America sales were up 11%. The remaining sales outside the United States were in Canada.
Global Connectivity Solutions (GCS)
GCS sales of $293 million in the third quarter of 2008 increased 9% from $268 million in the same quarter in 2007. GCS generated a 7% increase in sales of global fiber connectivity solutions due to growth in central office, data center and outside plant deployments. Customers worldwide are building and deploying fiber network solutions to increase network speed and capacity. The increase in fiber sales was accompanied by a 15% increase in global copper connectivity shipments and a 4% increase in sales of global enterprise connectivity products. Global copper connectivity sales in the third quarter of 2008 and the nine months ended August 1, 2008 included $10 million and $20 million, respectively, as a result of the Century Man acquisition that closed during January 2008. Excluding the Century Man acquisition, the increase in global copper connectivity sales was primarily in other emerging world markets. Global enterprise connectivity sales grew primarily in the Asia/Pacific region.
GCS sales in the third quarter of 2008 decreased 2% from $298 million in the second quarter of 2008. Sales of global fiber connectivity products decreased 14% primarily due to lower sales of central office and data center products and to a smaller degree from lower sales of outside plant products. Sequentially, third quarter 2008 sales of global copper connectivity products increased 6%, while enterprise connectivity product sales increased 8%. Global copper connectivity sales in the third and second quarters of 2008 included sales of $10 million and $8 million, respectively, as a result of the Century Man acquisition. Excluding the Century Man acquisition, global copper connectivity sales increased primarily in other emerging world markets. Global enterprise connectivity sales grew primarily in the Asia/Pacific and Americas regions.
Network Solutions
Network Solutions’ wireless sales of $32 million in the third quarter of 2008 nearly tripled from $11 million in the same quarter in 2007, but declined 8% compared to the second quarter of 2008. Wireless sales in the third quarter of 2008, the second quarter of 2008 and the nine months ended August 1, 2008 included $25 million, $27 million and $75 million, respectively, as a result of the LGC Wireless acquisition that closed in December 2007.
Network Solutions’ wireline sales of $12 million in the third quarter of 2008 compared to $13 million in the same quarter in 2007 and $12 million in the second quarter of 2008. Wireline product sales are impacted by a long-term, industry-wide product substitution trend resulting in a decline in market demand for high-bit-rate digital subscriber line products as carriers deliver fiber and Internet Protocol services closer to end-user premises.
Professional Services
Professional Services’ third quarter 2008 sales of $54 million were approximately flat compared to the same quarter in 2007. Third quarter 2008 sales were 7% lower than the second quarter of 2008 due largely to project timing and a decision not to renew unprofitable business in Europe.
2008 Guidance
On a continuing operations basis, ADC currently expects its 2008 sales to be in the range of $1.500-$1.520 billion, an increase of 13%-15% compared to 2007 and a 22-23% five-year compound annual growth rate since 2003. This guidance includes the results of the LGC Wireless and Century Man acquisitions that closed in the first quarter of 2008.
Based on our 2008 third quarter sales, ADC now expects fourth quarter 2008 sales to be lower than third quarter 2008 as customers’ capital spending nears the end of the calendar year. For full year 2008, gross margins are expected to be around 35%; however, they are expected to rise and decline with sales volume levels and mix from quarter to quarter. Looking ahead and generally consistent with its historical seasonality, ADC anticipates that sales in the first quarter of 2009 will be lower than the fourth quarter of 2008. Sequential sales declines from the prior-year fourth quarter were 7% and 3% and in the first quarters of 2006 and 2007, respectively. Excluding the Century Man and LGC Wireless acquisitions that closed in the first quarter of 2008, sales in the first quarter of 2008 decreased 5% from the fourth quarter of 2007. ADC will provide annual financial guidance for 2009 when it reports in December 2008 its fourth quarter results for the period ending October 31, 2008.
ADC previously announced a fiscal year-end change from October 31 to September 30 scheduled to commence with the company's 2009 fiscal year beginning November 1, 2008 and ending September 30, 2009. Accordingly, we will continue on our present quarterly reporting cycle that corresponds to an October 31st fis
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