AFC Reports Third Quarter 2004 Financial Results PETALUMA, Calif.,
Oct. 25 /PRNewswire-FirstCall/ -- AFC(R) (NASDAQ:AFCI), The Acronym
for Access(SM), today reported financial results for the third
quarter ended September 30, 2004. Revenues for the third quarter of
2004 were $119.6 million on a generally accepted accounting
principles (GAAP) basis, as compared with $85.2 million for the
same period last year, an increase of 40%. GAAP net income for the
third quarter of 2004 was $17.3 million, or $0.19 per share,
compared with $9.3 million, or $0.11 per share, for the same period
last year. Revenues for the first nine months of 2004 were $331
million compared with $248.7 million for the same period last year,
an increase of 33%. Net income for the first nine months of 2004
was $15.6 million, or $0.17 per share, compared with $21.0 million,
or $0.24 per share, for the same period last year. Core business
net income, which excludes certain items, was $5.9 million, or
$0.07 per share, for the third quarter of 2004, compared with $9.6
million, or $0.11 per share, for the same period last year. Core
business net income for the first nine months of 2004 was $19.7
million, or $0.22 per share, compared with $25.4 million, or $0.29
per share, for the same period last year. Reconciliations between
GAAP and core business results are provided immediately following
the condensed consolidated statements of cash flows. These core
business measures are not in accordance with, or alternatives to
GAAP, and may be different from measures used by other companies.
We believe core business results help investors better understand
the financial performance of our core business. We also believe
core business results provide a more consistent and useful basis
for comparison between periods and for making projections. AFC
management primarily uses core business results for budgeting
purposes, reviewing business performance and making investment
decisions. Cash provided by operations was $5.1 million in the
third quarter of 2004, compared to cash used in operations of $45.9
million in the third quarter of 2003. "Although our revenue was
slightly below our previous guidance, we exceeded our operating
profit goals in a challenging spending environment," said John
Schofield, chairman, president and chief executive officer at AFC.
"The third quarter was characterized by record DSL shipments,
growth in FTTP sales to both large and small carriers, and the
launch of several new initiatives designed to strengthen our
efforts in the IOC market. "For the past year, our strategy has
been to extend AFC's reach in the RBOC market, and in the third
quarter, we saw for the first time, more than half of our revenues
derived from these large carriers. We are encouraged by this
progress with the RBOCs, especially as it is coupled with AFC's
expanded focus on the IOC market. We are seeing a high level of
interest from small carriers for our FiberDirect(SM) solution and
our newly introduced ADSL2+ card. In the future, we are confident
that as carriers of all sizes upgrade their access networks, they
will continue to look to AFC solutions to meet their most advanced
fiber access needs." Today's Earnings Conference Call and Webcast
AFC will discuss its third quarter 2004 results on a conference
call and audio webcast scheduled today, October 25, at
approximately 1:30 p.m. Pacific time. U.S. callers can access the
conference call at 800-818-6592 and international callers may dial
312-461-0745. The audio webcast will be simultaneously available
online at: http://www.afc.com/investors/investors.asp . The
conference call replay will be available for approximately 72 hours
following the call. U.S. callers can access the replay by dialing
800-839-6713 and entering pass code 6679359. International callers
may dial 402-220-2306 and enter pass code 6679359. An audio webcast
replay will also be available at
http://www.afc.com/investors/investors.asp for approximately 12
months following the original call. About AFC Headquartered in
Petaluma, Calif., AFC is a leading provider of broadband access
solutions for the global telecommunications industry. With a
customer base of more than 800 service providers worldwide, AFC
continues to build and support the world's evolving broadband
access network architecture. Advanced Fibre Communications, Inc.,
AFC, and the AFC logo are registered trademarks of Advanced Fibre
Communications, Inc. The Acronym for Access and FiberDirect are
service marks of Advanced Fibre Communications, Inc. Copyright
2004. All rights reserved. Any other trademarks are the property of
their respective owners. For more information, visit AFC online at
http://www.afc.com/ or call 1-800-690-AFCI. Forward-Looking
Statements Except for historical information contained in this
press release, the foregoing contains forward-looking statements,
including statements concerning our ability to remain a leading
supplier of access equipment to large carriers and the expectation
that demand for AFC's broadband access solutions will grow. These
statements involve risks and uncertainties. Actual results may
differ materially from those indicated by such forward-looking
statements based on a variety of risks and uncertainties, including
the risks and uncertainties relating to growth in demand for
broadband services; AFC's ability to maintain or grow demand for
its broadband access solutions; the potential for business
disruption and other risks associated with AFC's pending merger
with Tellabs, Inc.; and AFC's expanded product offering and the
potential for increased competition related thereto. Information
about potential factors that could affect AFC's financial results
is included in AFC's Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q, which have been filed with the Securities and
Exchange Commission. We undertake no obligation to revise or update
these forward-looking statements to reflect events or circumstances
after today or to reflect the occurrence of unanticipated events.
ADVANCED FIBRE COMMUNICATIONS, INC. CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (In thousands, except per share data)
(Unaudited) Three Months Ended Nine Months Ended September 30,
September 30, 2004 2003 2004 2003 Revenues $119,612 $85,214
$330,987 $248,704 Cost of revenues 74,430 44,600 190,331 127,367
Gross profit 45,182 40,614 140,656 121,337 Operating expenses:
Research and development 21,176 14,831 61,573 50,167 Sales and
marketing 10,694 9,355 35,151 30,196 General and administrative
8,615 6,498 29,880 21,313 Amortization of acquired intangibles
3,955 349 10,261 1,793 Integration costs 1,081 -- 3,632 --
Securities litigation settlement costs (563) -- (6,350) --
In-process research and development -- -- 14,000 -- Total operating
expenses 44,958 31,033 148,147 103,469 Operating income (loss) 224
9,581 (7,491) 17,868 Other income: Interest income, net 2,171 2,850
6,921 8,712 Unrealized gains on Cisco investment -- -- -- 1,386
Other (10) -- 63 4 Total other income, net 2,161 2,850 6,984 10,102
Income (loss) before income taxes 2,385 12,431 (507) 27,970 Income
taxes (benefit) (14,955) 3,108 (16,083) 6,993 Net income $17,340
$9,323 $15,576 $20,977 Basic net income per share $0.20 $0.11 $0.18
$0.25 Shares used in basic per share computations 88,599 86,246
88,111 85,478 Diluted net income per share $0.19 $0.11 $0.17 $0.24
Shares used in diluted per share computations 89,275 87,906 89,528
86,832 ADVANCED FIBRE COMMUNICATIONS, INC. CONDENSED CONSOLIDATED
BALANCE SHEETS (In thousands) (Unaudited) September 30, December
31, 2004 2003 Assets Current assets: Cash and cash equivalents
$238,150 $246,552 Cisco marketable securities 194,293 250,786 Other
marketable securities 380,665 594,230 Accounts receivable, net
59,428 54,464 Income taxes receivable 218,559 -- Inventories, net
50,672 18,959 Other current assets 5,938 27,026 Total current
assets 1,147,705 1,192,017 Property and equipment, net 57,212
43,762 Goodwill 189,798 55,883 Other acquired intangible assets,
net 73,604 1,639 Other assets 29,582 24,415 Total assets $1,497,901
$1,317,716 Liabilities & stockholders' equity Current
liabilities: Accounts payable $18,112 $11,112 Accrued liabilities
50,417 39,605 Cisco securities loans payable 194,293 250,786
Current taxes payable 20,271 26,989 Deferred tax liabilities
182,553 -- Total current liabilities 465,646 328,492 Long-term
liabilities 4,748 4,068 Commitments and contingencies Stockholders'
equity: Preferred stock -- -- Common stock 888 871 Additional
paid-in capital 403,641 376,394 Deferred compensation (4) (29)
Accumulated other comprehensive income 1,046 1,560 Retained
earnings 622,776 607,200 Treasury stock (840) (840) Total
stockholders' equity 1,027,507 985,156 Total liabilities and
stockholders' equity $1,497,901 $1,317,716 ADVANCED FIBRE
COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (In thousands) (Unaudited) Nine Months Ended September 30,
2004 2003 Cash flows from operating activities: Net income $15,576
$20,977 Adjustments to reconcile net income to net cash provided by
operating activities: Current income taxes (225,277) 46,939
Deferred income taxes 204,709 (243,288) Depreciation and
amortization 25,270 14,238 In-process research and development
14,000 -- Increase in reserve for returns, rebates and credits
12,012 1,358 Tax benefit from option exercises 4,411 6,730 Increase
in reserve for write- down of inventories 3,433 2,432 Interest
receivable 2,362 (3,727) Reduction in reserve for purchase
commitments (600) (2,196) Other non-cash adjustments to operating
income 491 2,955 Allowance for doubtful accounts (159) 507 Cash
proceeds from settlement of Cisco hedge contracts -- 690,226
Unrealized gains on Cisco investment -- (1,386) Changes in
operating assets and liabilities: Accounts receivable 255 (20,992)
Inventories (22,047) 6,400 Other current assets (179) 20,361 Other
assets 34 194 Accounts payable (9,440) 6,201 Accrued and other
liabilities (3,750) (9,663) Net cash provided by operating
activities 21,101 538,266 Cash flows from investing activities:
Purchases of other marketable securities (2,335,577) (4,459,794)
Sales of other marketable securities 2,139,050 3,872,418 Maturities
of other marketable securities 406,776 241,930 Payment for purchase
of business (245,932) -- Purchases of property and equipment
(11,623) (8,793) Restricted investment (3,050) -- Investment in
privately-held company (2,000) -- Net cash used in investing
activities (52,356) (354,239) Cash flows from financing activities:
Proceeds from common stock issuances 22,853 27,497 Purchase of
treasury stock -- (701) Net cash provided by financing activities
22,853 26,796 Increase (decrease) in cash and cash equivalents
(8,402) 210,823 Cash and cash equivalents, beginning of period
246,552 94,754 Cash and cash equivalents, end of period $238,150
$305,577 Noncash investing activities Acquisition of business $225
$-- ADVANCED FIBRE COMMUNICATIONS, INC. CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS RECONCILIATION OF GAAP RESULTS TO CORE
BUSINESS RESULTS (In thousands, except per share data) (Unaudited)
For the Three Months Ended September 30, 2004 Adjustments from GAAP
Core GAAP to Core Business Results Results Results Revenues
$119,612 $119,612 Cost of revenues 74,430 74,430 Gross profit
45,182 45,182 Operating expenses: Research and development 21,176
21,176 Sales and marketing 10,694 (57) (1) 10,637 General and
administrative 8,615 (470) (1,2) 8,145 Amortization of acquired
intangibles 3,955 (3,955) (3) -- Integration costs 1,081 1,081
Securities litigation settlement costs (563) 563 (4) -- Total
operating expenses 44,958 (3,919) 41,039 Operating income 224 3,919
4,143 Other income: Interest income, net 2,171 2,171 Other (10)
(10) Total other income, net 2,161 2,161 Income before income taxes
2,385 3,919 6,304 Income taxes (benefit) (14,955) 15,395 (5) 440
Net income $17,340 (11,476) $5,864 Basic net income per share $0.20
$0.07 Shares used in basic per share computations 88,599 88,599
Diluted net income per share $0.19 $0.07 Shares used in diluted per
share computations 89,275 89,275 (1) Adjustment arose from a leased
facility write-off and revision stemming from a workforce reduction
initiated in 2003. (2) Adjustment of $502 for Tellabs
merger-related costs. (3) Adjustment arose from the amortization of
intangible assets acquired in the NAA and AccessLan acquisitions.
(4) Adjustment for an additional portion of an arbitration award
for compensatory damages and interest from a former insurer. (5)
Adjustment included a $15.9 million tax benefit relating to a tax
reserve adjustment and the difference between the GAAP 40%
effective tax rate and core business 7% effective tax rate.
ADVANCED FIBRE COMMUNICATIONS, INC. CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS RECONCILIATION OF GAAP RESULTS TO CORE
BUSINESS RESULTS (In thousands, except per share data) (Unaudited)
For the Three Months Ended September 30, 2003 Adjustments from GAAP
Core GAAP to Core Business Results Results Results Revenues $85,214
$85,214 Cost of revenues 44,600 44,600 Gross profit 40,614 40,614
Operating expenses: Research and development 14,831 14,831 Sales
and marketing 9,355 9,355 General and administrative 6,498 6,498
Amortization of acquired intangibles 349 (349) (1) -- Total
operating expenses 31,033 (349) 30,684 Operating income 9,581 349
9,930 Other income: Interest income, net 2,850 2,850 Total other
income 2,850 2,850 Income before income taxes 12,431 349 12,780
Income taxes 3,108 87 3,195 Net income $9,323 262 $9,585 Basic net
income per share $0.11 $0.11 Shares used in basic per share
computations 86,246 86,246 Diluted net income per share $0.11 $0.11
Shares used in diluted per share computations 87,906 87,906 Note:
(1) Adjustment arose from the amortization of intangible assets
acquired in the acquisition of AccessLan in 2002. ADVANCED FIBRE
COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS RECONCILIATION OF GAAP RESULTS TO CORE BUSINESS RESULTS
(In thousands, except per share data) (Unaudited) For the Nine
Months Ended September 30, 2004 Adjustments from GAAP Core GAAP to
Core Business Results Results Results Revenues $330,987 $330,987
Cost of revenues 190,331 190,331 Gross profit 140,656 140,656
Operating expenses: Research and development 61,573 (293) (1)
61,280 Sales and marketing 35,151 (99) (2) 35,052 General and
administrative 29,880 (5,387) (2,3) 24,493 Amortization of acquired
intangibles 10,261 (10,261) (4) -- Integration costs 3,632 3,632
In-process research and development 14,000 (14,000) (5) --
Securities litigation settlement costs (6,350) 6,350 (6) -- Total
operating expenses 148,147 (23,690) 124,457 Operating income (loss)
(7,491) 23,690 16,199 Other income: Interest income, net 6,921
6,921 Other 63 63 Total other income, net 6,984 6,984 Income (loss)
before income taxes (507) 23,690 23,183 Income taxes (benefit)
(16,083) 19,561 (7) 3,478 Net income $15,576 4,129 $19,705 Basic
net income per share $0.18 $0.22 Shares used in basic per share
computations 88,111 88,111 Diluted net income per share $0.17 $0.22
Shares used in diluted per share computations 89,528 89,528 Notes:
(1) Adjustment arose from a non workforce reduction-related leased
facility write-off. (2) Adjustments arose from additional leased
facility write-offs stemming from a workforce reduction initiated
in 2003. (3) Adjustment of $4,012 for Tellabs merger-related costs.
(4) Adjustment arose from the amortization of intangible assets
acquired in the NAA and AccessLan acquisitions. (5) Adjustment
arose from the write-off of in-process research and development
costs upon acquisition of NAA in February 2004. (6) Adjustment for
an arbitration award for compensatory damages and interest from a
former insurer. (7) Adjustment included a $15.9 million tax benefit
relating to a tax reserve adjustment and the difference between the
GAAP 36% tax benefit and core business 15% effective tax rate.
ADVANCED FIBRE COMMUNICATIONS, INC. CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS RECONCILIATION OF GAAP RESULTS TO CORE
BUSINESS RESULTS (In thousands, except per share data) (Unaudited)
For the Nine Months Ended September 30, 2004 Adjustments from GAAP
Core GAAP to Core Business Results Results Results Revenues
$248,704 $248,704 Cost of revenues 127,367 (778) (1) 126,589 Gross
profit 121,337 778 122,115 Operating expenses: Research and
development 50,167 (1,887) (1,2) 48,280 Sales and marketing 30,196
(471) (1) 29,725 General and administrative 21,313 (2,338) (1)
18,975 Amortization of acquired intangibles 1,793 (1,793) (3) --
Total operating expenses 103,469 (6,489) 96,980 Operating income
17,868 7,267 25,135 Other income: Interest income, net 8,712 8,712
Unrealized gains on Cisco investment 1,386 (1,386) (4) -- Other 4 4
Total other income 10,102 (1,386) 8,716 Income before income taxes
27,970 5,881 33,851 Income taxes 6,993 1,470 8,463 Net income
$20,977 $4,411 $25,388 Basic net income per share $0.25 $0.30
Shares used in basic per share computations 85,478 85,478 Diluted
net income per share $0.24 $0.29 Shares used in diluted per share
computations 86,832 86,832 Notes: (1) Adjustments related to
severance and leased facility write-offs resulting from a workforce
reduction initiated in 2003. (2) Adjustment for $292 arose from a
non workforce reduction-related leased facility write-off. (3)
Adjustment arose from the amortization of intangible assets
acquired in the acquisition of AccessLan in 2002. (4) Adjustment
arose from income generated by the Cisco securities holdings and
related hedge contracts. DATASOURCE: AFC CONTACT: Debbie McGowan of
AFC, +1-707-794-7720, or 1-888-875-7555, or http://www.afc.com/ Web
site: http://www.afc.com/
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