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ADC Reports Results for Fourth Quarter and Fiscal Year 2008

December 9, 2008 

MINNEAPOLIS, Dec 09, 2008 (BUSINESS WIRE) --

ADC (NASDAQ: ADCT) (www.adc.com) today announced unaudited results for its fourth quarter and year ended Oct. 31, 2008.

"ADC delivered good financial results in 2008 despite substantial headwinds from an increasingly challenging global macroeconomic environment. We grew revenue and cash from continuing operations, acquired and successfully integrated two strategically important companies, and reaped significant cost savings and new customer relationships from our ongoing competitive transformation initiative. These results reinforce the company's strong position in the high-growth segments of fiber-based and wireless communications networks worldwide," said Robert E. Switz, chairman, president and CEO of ADC. "Given the current economy, perhaps our most important accomplishment in 2008 was our ability to further strengthen the company's balance sheet. We generated very positive cash flows and finished the year with a strong liquidity position that will serve us well in these uncertain times.

"While ADC had a good year overall, we expect to continue experiencing challenges associated with the global economic climate as we enter 2009. As a result, we recently took measures to better align our business with our strategic areas of focus and bolster our solid financial position. We did this by further streamlining our manufacturing and operations and making important geographic and market investment decisions. At the same time, we will continue to look for strategic opportunities to invest in our business and establish an even stronger position in our industry. We remain committed to managing our business strategically for sustained, long-term financial growth with the goal of maximizing shareholder value," said Switz.

Fourth Quarter Fiscal 2008 Results

ADC ended the fourth quarter of 2008 with a cash balance of $631 million and generated cash flow from continuing operations of $62 million in the quarter.

ADC's net sales for the fourth quarter of 2008 were $352 million, up 10% from the fourth quarter of 2007 and down 8% from the third quarter of 2008. Excluding net sales of $23 million and $10 million, respectively, from our LGC Wireless and Century Man Communication businesses, fourth quarter sales were relatively flat year over year.

Fourth quarter 2008 gross margins were 27.5%. Our current quarter results included an $11 million inventory write-down associated with our announced discontinuance of certain outdoor wireless product families and a $3 million inventory charge caused by a change in our reserve estimate related to the 2007 shutdown of our ACX product line. Excluding these charges, gross margins were 31.5%, down from 35.4% in the fourth quarter of 2007 and down from 34.2% in the third quarter of 2008. The decline in gross margins on a year-over-year basis was due to cost increases in raw materials, including commodities and fuel in our Global Connectivity Solutions (GCS) business, along with an unfavorable product mix shift towards outside plant and enterprise products. The sequential decline in gross margins from the third quarter of 2008 was due to higher inventory and warranty charges, lower productivity levels across our businesses from the decrease in revenue volume and an unfavorable product mix shift towards lower margin outside plant and enterprise products and professional services.

The recent commodity and fuel price declines have not yet worked through our supply chain. However, we expect these declines, along with the cost savings from our recent restructuring activities, will improve our gross margin performance in the first half of 2009, depending on revenue levels and product mix.

Net loss from continuing operations for the fourth quarter of fiscal 2008 on a GAAP basis was $(45.4) million, or $(0.39) diluted earnings per share, as compared with a net loss of $(7.6) million, or $(0.07) per share, for the fourth quarter of fiscal 2007. Our fourth quarter 2008 GAAP net loss included $67 million, or $0.58 per share, in certain expenses, including a $26.4 million charge related to an impairment of our auction rate securities portfolio as well as severance, inventory write-downs, and other charges totaling $23.7 million related to our previously announced restructuring plan.

Fourth Quarter Non-GAAP Results

ADC believes certain non-GAAP measures help illustrate ADC's baseline performance before gains, losses or other charges that are considered by management to be outside of ongoing operating results. On a non-GAAP basis, net income for the fourth quarter of fiscal 2008 was $22 million, or $0.19 diluted earnings per share, as compared with non-GAAP net income of $36 million, or $0.30 per share, for the fourth quarter of 2007. Please refer to Reconciliation of non-GAAP and GAAP Financial Measures provided later in this news release for detailed information regarding the non-GAAP results.

First Quarter Fiscal 2009 Guidance

In recent years, ADC has provided only annual earnings guidance. Due to the extraordinary level of uncertainty in the marketplace and economy, however, we are providing guidance only for our first quarter of 2009 at this time. This guidance includes acquisition amortization charges and excludes potential unknown non-cash charges.

ADC currently expects first quarter 2009 net sales to range from $255-$290 million. Based on this sales estimate and subject to sales mix and other factors, GAAP diluted EPS from continuing operations for the quarter is estimated to range from a loss of $(0.05) to a loss of $(0.17), which includes non-cash acquisition amortization charges of $0.09. This guidance includes stock option expense of $0.02 and also reflects the reclassification of our EMEA professional service business to discontinued operations, which is therefore excluded.

As previously announced, we will be changing our fiscal year-end to September 30. Therefore, our fiscal 2009 will be eleven months beginning November 1, 2008 and ending September 30, 2009. We will continue on our present quarterly reporting cycle that corresponds to an October 31st fiscal year end through our third quarter, which will end July 31, 2009. We will then use our annual report on form 10-K for fiscal 2009 to transition to a quarterly reporting cycle that corresponds to a September 30th fiscal year end, resulting in a fourth quarter for fiscal 2009 of approximately two months.

"Our first quarter guidance reflects our expectation of moderately lower revenues based on declining industry capital spending forecasts. While the challenging macroeconomic environment is moderating our earnings outlook, we believe that our strong balance sheet and cash holdings leave us well positioned to weather a recession of varying severities," said James G. Mathews, ADC's chief financial officer. "We are beginning the new fiscal year with a strong cash position of $631 million and expect to generate positive cash flows from continuing operations in 2009. We also believe that there will be certain opportunities to further strengthen our competitive advantages in the global network infrastructure market in this environment. As such we will continue to make strategic investments in our target markets and geographies that we expect will deliver additional shareholder value over the long term."

Fiscal Year 2008 Highlights

  • ADC grew net sales to $1.46 billion in 2008, a 14% increase over 2007. This excludes sales from the EMEA Professional Services business, which is included in discontinued operations as a result of our planned divestiture. EMEA Professional services sales were $37 million in 2008 and $45 million 2007.
  • ADC's cash flow provided by continuing operations was $174 million for fiscal 2008.
  • ADC's sales outside of the United States were $594 million, representing 41% of total ADC sales for 2008 and a 26% increase over 2007. Europe/Middle East/Africa sales of $300 million were up 24%, Asia Pacific sales of $187 million were up 38% and Latin America sales of $63 million were up 39% over 2007.
  • ADC's Global Connectivity Solutions (GCS) business unit sales grew to $1.11 billion in 2008, an increase from $1.01 billion in 2007. Sales of global fiber connectivity solutions increased 15% over the same period with market share gains in the central office, data center and FTTX markets. Trials of ADC's FTTX solutions also were initiated with carriers in Europe, Latin America and Asia. These results include $30 million in revenue from our Century Man acquisition, which has given the company a significantly larger presence in the important China market, along with the strategic ability to better serve other rapidly-growing markets.
  • ADC's Network Solutions business unit's wireless sales increased to $170 million in 2008, including $98 million of sales as a result of the LGC Wireless acquisition. By acquiring and successfully integrating LGC, ADC has become a global leader in in-building wireless coverage and capacity solutions, and greatly expanded the sales channels for our IP-RAN wireless solutions portfolio.
  • ADC's Professional Services business unit's sales increased to $182 million from $164 million in 2007. The company's provision of services to key customers remains an important source of product pull-through opportunities.
  • ADC's ongoing competitive transformation initiative continued to deliver significant manufacturing and supply chain cost savings and customer relationship benefits throughout the year. These savings help offset margin issues that can be caused by pricing pressures or negative product sales mix.

Share Buyback Program Complete

In early Dec. 2008, ADC completed its previously announced $150 million share repurchase program at an average price of $7.04 per share, resulting in approximately 21.3 million shares purchased under the program. These share purchases represent an 18% reduction in our total shares outstanding as compared to the 118.3 million diluted weighted average common shares outstanding reported in our August 1, 2008 financial statements filed on Form 10-Q.

Fourth Quarter News Release and Form 8-K Filing

A copy of this news release and form 8-K with financial statements can be accessed at www.adc.com/investorrelations/. ADC's unaudited consolidated statements of operations, balance sheets and cash flows are included in the 8-K filing.

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, data, video, and voice services to residential, business and mobile subscribers. ADC (NASDAQ: ADCT) has sales into more than 130 countries. Learn more about ADC at www.adc.com.