6-K 1 doc1.txt FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Report of Foreign Issuer Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934 For the Month of February, 2003 ECI TELECOM LTD. (Translation of Registrant's Name into English) 30 Hasivim Street o Petah Tikva 49133 o ISRAEL (Address of Principal Corporate Offices) Attached hereto and incorporated herein by reference are the following documents: 1. Registrant's Press Release dated January 15, 2003, entitled " ECI Telecom's NGTS Subsidiary and NexVerse Networks Complete Merger to Form Veraz Networks, a Global Provider of Next-Generation Telephony Solutions" attached as Exhibit 1 hereto. 2. Registrant's Press Release dated February 11, 2003, entitled "ECI Telecom Announces Fourth Quarter and Full Year 2002 Results" attached as Exhibit 2 hereto. 3. Registrant's Press Release dated February 19, 2003, entitled "ECI Telecom Announces Agreement to Sell InnoWave" attached as Exhibit 3 hereto. 2 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ECI TELECOM LTD. (Registrant) By: /s/Martin Ossad ------------------------------ Name: Martin Ossad Title: Corporate Vice President & General Counsel Dated: Friday, February 28, 2003 3 ------------------------------------------------------------------------------- EXHIBIT 1 [ECI TELECOM] ------------------------------------------------------------------------------- ECI Telecom's NGTS Subsidiary and NexVerse Networks Complete Merger to Form Veraz Networks, a Global Provider of Next-Generation Telephony Solutions New Investor Joins $30 Million Financing Round ------------------------------------------------------------------------------- Petah Tikva, Israel, January 15, 2003, ECI Telecom (NASDAQ: ECIL) announced today that the merger between its subsidiary, ECI Telecom - NGTS Ltd. and NexVerse(TM) Networks to establish Veraz Networks (previously introduced as Chorale Networks), has been completed. Additionally, Veraz has closed the planned $30 million financing round. Argonaut Private Equity has invested $5.5 million in the new company and joins ECI Telecom, which invested $10 million, and NexVerse's original investors - Norwest Venture Partners, Battery Ventures, Levensohn Venture Partners and Kleiner Perkins Caulfield & Byers, who invested $14.5 million. Following the completion of the planned $30 million financing round, ECI owns 43.2% on a non-fully diluted basis and 36.2% on a fully diluted basis of Veraz Networks. The transaction is an important step in ECI's strategy of focusing its internal resources on its core transport and access businesses, while maintaining a significant foothold in the emerging markets for VoIP and next generation telephony solutions. Veraz inherits from NexVerse a growing base of large softswitch network deployments. Coupled with the proven success of ECI-NGTS in building a customer base of over 700 carriers, and ECI Telecom's global presence, the new company has powerful leverage for securing new customers and offering a more compelling set of options, providing carriers true freedom of choice in next generation deployments. Veraz solutions are currently deployed in live networks and are also in trials with carriers, addressing diverse applications including Internet Call Diversion, Domestic and International Long Distance services, IP Centrex, enterprise integrated voice-data services, TDM switch replacement and DCME-based static IP trunking. About ECI Telecom: ECI is a provider of advanced, telecommunications solutions. With its leading-edge access, transport and bandwidth management platforms, ECI enables major service providers and carriers worldwide to maximize their capital investment and reduce operating expenses while providing voice, data, video and multimedia services to their customers. ECI maintains a global sales and customers support network. Its solutions are an integral part of more than 700 telecommunications networks in over 145 countries. Safe Harbor Statement: Certain statements contained in this release may contain forward-looking information with respect to plans, projections or future performance of the Company. By their nature, forward-looking statements involve certain risks and uncertainties including, but not limited to, the ability to effectively combine the operations of NexVerse and NGTS, the ability to complete transactions with additional investors, product and market acceptance risks, the impact of competitive pricing, product development, commercialization and technological difficulties and other risks detailed in the Company's filings with the Securities and Exchange Commission. Contact: Daniel Chertoff: Phone: +972-3-926-6255, email: Daniel.chertoff@ecitele.com --------------------------- Kim Kelly: Phone:+972-3-926-6092, email: kim.Kelly@ecitele.com --------------------- ------------------------------------------------------------------------------- EXHIBIT 2 [ECI TELECOM] ------------------------------------------------------------------------------- ECI TELECOM ANNOUNCES FOURTH QUARTER AND FULL YEAR 2002 RESULTS ------------------------------------------------------------------------------- PETAH TIKVA, ISRAEL, February 11, 2003, ECI Telecom Ltd. (Nasdaq: ECIL) today announced consolidated results of operations for the fourth quarter and full year ended December 31, 2002. Fourth Quarter Results ---------------------- Revenues for the fourth quarter of 2002 were $149 million compared to $147 million in the third quarter of 2002 and $210 million in the fourth quarter of 2001. On a GAAP basis Gross profit for the fourth quarter of 2002 was $67.0 million or 44.9%, compared to $52.4 million, or 35.6% in the third quarter of 2002 and $58.7 million, or 27.9%, in the fourth quarter of last year. The operating loss for the fourth quarter of 2002 was $2.9 million compared to $42.0 million in the third quarter and $35.9 million in the fourth quarter of 2001. The net loss for the fourth quarter was $7.0 million or $0.06 per share compared to $89.1 million or $0.83 per share in the third quarter of 2002 and $43.1 million, or $0.46 per share, in the fourth quarter of last year. Applicable adjustments for pro forma results in the fourth quarter, 2002 In the fourth quarter of 2002 the Company took a $1.5 million provision for impairment of assets and incurred a $2.3 million loss from discontinued operations. In the fourth quarter of 2001, the Company wrote off $10.4 million of inventory and recorded an $8.4 million royalties settlement with the Government of Israel, a $0.9 million impairment of assets, $7.5 million in restructuring and spin-off expenses and a $5.7 million loss from discontinued operations. Pro forma presentation of fourth quarter, 2002 results, following application of adjustments: The pro forma operating loss for the fourth quarter of 2002 was $1.4 million compared to $0.5 million in the third quarter and $7.7 million in the fourth quarter of 2001. The pro forma net loss for the fourth quarter of 2002 was $3.2 million or $0.03 per share compared to $4.9 million, or $0.05 per share, in the third quarter and $9.4 million, or $0.10 per share for the fourth quarter of 2001. Cash Flow and Balance Sheet --------------------------- During the quarter, ECI continued to generate positive cash flow from operations. Net cash (cash, cash equivalents and short term investments minus bank debt), increased to $133 million, compared to $111 million at the end of the third quarter, in spite of investing $10 million of cash in Veraz Networks. ECI also paid back another $13 million of bank debt. During the quarter, inventories declined by $18 million and trade receivables also declined. For the full year of 2002, ECI had strong positive cash flow from operations. The company ended 2002 with $133 million of net cash compared to net debt of $87 million at the end of 2001, a net change of $220 million. It reduced inventories by $125 million and trade receivables by $94 million. The company also paid back a total of $90 million of bank debt. Results for full year, 2002 --------------------------- Revenues for 2002 were $646 million compared to $891 million in 2001. Revenues in 2001 included $45.5 million from ECI's Business Systems unit, which was sold during the fourth quarter of 2001. On a GAAP basis Gross profit for 2002 was $251 million, or 38.9% compared to $156 million or 17.5% for 2001. The operating loss was $53 million compared to an operating loss of $320 million for 2001. The net loss for 2002 was $156 million, or $1.48 per share, compared to a net loss of $412 million, or $4.44 per share, for 2001. Applicable adjustments for pro forma results for the full year During 2002, the Company wrote off $7.4 million of inventory, took a $34 million provision for a specific doubtful account, recorded an $18 million provision for an investment, and $1.5 million impairment of assets. It included, in other expenses, $2.2 million associated with the spin-off of NGTS, offset by income of $11.5 million associated with the sale of a portion of the Company's holdings in ECtel. The Company reversed $2.6 million in taxes and recorded a loss from discontinuing operations of $77 million, including impairment of assets associated with InnoWave. In 2001, the Company had written off $99 million of inventory, recorded impairment of assets, restructuring, and spin-off expenses totaling $116 million, and other expenses of $30 million associated primarily with capital losses and impairment of investments. The Company also took an exceptional provision for doubtful accounts of $5.9 million and recorded a royalty settlement with the Government of Israel of $8.4 million. Pro forma presentation of the annual results, following application of adjustments: The pro forma gross profit for 2002 was $258 million, or 40.0%, compared to pro forma gross profit of $255 million, or 28.6%, for 2001. The pro forma operating loss for 2002 was $9.7 million compared to a pro forma operating loss of $89.6 million in 2001. The pro forma net loss for 2002 was $23.5 million or $0.22 per share compared to $89.7 million or $0.97 per share for 2001. Commenting on the results, Doron Inbar, President and CEO said, "During 2002, ECI accomplished its strategic and operating goals of focusing on its core businesses, exiting non-core activities, streamlining the Company and strengthening its financial position. "Last month we announced that the merger of NGTS and NexVerse, to form Veraz Networks, had closed. By combining NGTS' industry leading media gateway with NexVerse's outstanding softswitches, ECI maintains a significant foothold in the emerging VoIP market, a market with considerable growth potential. Similarly, last quarter we announced our intention to sell InnoWave and reflected the impending sale in our third quarter 2002 results. We expect to sign a definitive agreement for the sale, shortly." During the fourth quarter, ECI increased its focus on its core businesses by reorganizing the Company into 2 divisions: the Lightscape Optical Networks Division and the Inovia Broadband Access Division. The Lightscape Optical Networks Division includes the XDM hybrid optical platform and the T::DAX and T::CORE bandwidth management platforms. ECI is now approaching the market as one integrated company to benefit from the synergies of its complementary product lines. In order to facilitate this integration and to streamline the sales process and extend its sales footprint, ECI named Ruben Markus, former CEO of Enavis Networks, as its new Executive VP Sales, Marketing, Strategy and Business Development. Markus joins Executive Vice Presidents Eran Dariel, General Manager of the Lightscape Optical Networks Division, Pinny Chaviv, General Manager of the Inovia Broadband Access Division, and Giora Bitan, Chief Financial Officer, as part of the executive management of the Company. Doron Inbar continued, "We believe that combining the activities of Enavis and Lightscape, and reorganizing the Company into two divisions, will increase our focus, allow us to leverage the synergies of our product platforms and reduce costs. "On a product basis, we are pleased with the progress of the XDM metropolitan optical multi-service platform which was introduced to the market in 2001 and recorded almost $100 million in sales in 2002. We believe the Lightscape Optical Networks Division gained market share in 2002. We are also pleased with the progress of the T::CORE optical bandwidth management platform. As previously reported, our Inovia Broadband Access Division suffered from a decline in demand from a major customer, but increased its gross margins and continues to leverage its excellent technology to gain new customers and increase its market share. "During 2002 we worked hard to improve our financial position. As detailed above, we substantially improved our balance sheet and ended the year with over $130 million of net cash, an increase of over $200 million since the end of 2001. The company generated positive EBITDA and positive cash flow in every quarter of 2002. We believe our strong net cash position and positive EBITDA will allow us to sustain a relatively high level of R&D and marketing expenses in order to maintain our market leadership in our chosen focus areas. "ECI enters 2003 as a more streamlined company with a lower cost structure and a strong balance sheet, firmly focused on its core businesses. We believe we are well positioned for when industry conditions improve." Highlights of the Quarter ------------------------- (See attached tables for additional information about segments. The tables are provided for the convenience of the reader and are not prepared in accordance with GAAP.) Inovia Telecoms' revenues were $52 million compared to $49.6 million in the third quarter. Gross margins rose to 33.6% from 29.8% in the third quarter. Operating income was $1.8 million compared to $0.64 million in the third quarter of 2002. Lightscape Network's revenues were $41 million, compared to $45.3 million in the third quarter. Pro forma gross margins were 37.7% compared to 34.6% in the third quarter due primarily to the geographical revenue mix. Lightscape was particularly active in the US, installing networks for 3 new customers using the SONET version of the XDM. Enavis's fourth quarter revenues were $10.6 million compared to $12.2 million in the third quarter. Gross margins were 35.0% compared to 34.8% in the third quarter. During the quarter Israeli cellular operator, Pelephone, selected the T::DAX to help smooth its migration to 3G cellular networks. Next Generation Telephony Solutions (NGTS). NGTS experienced strong sales of DCME equipment in the quarter. Revenues were $19.9 million compared to $14.7 million in the third quarter. Pro forma gross margins were 64.5% compared to 60.2% in the third quarter. The previously announced merger of NGTS with NexVerse Networks to form Veraz Networks closed on December 31, 2002. Veraz is a provider of carrier-class next generation network (NGN) solutions for global carriers and is focused on the emerging global packet telephony market. ECI invested $10 million in Veraz and NexVerse's current shareholders, as well as a new investor, invested $20 million. ECI Telecom now owns 43.2 % of Veraz on a non-fully diluted basis and 36.2% on a fully diluted basis. Beginning in the first quarter of 2003, ECI will include Veraz's results in its financial statements on an equity basis. ECtel (NASDAQ: ECTX). As of December 31, 2002, ECI held a 59% stake in ECtel. ECtel's results for the fourth quarter were reported on January 23, and are reflected in the attached consolidated tables. ECtel reported net income of $4.4 million for the fourth quarter of 2002 and $2.4 million for the same period a year ago. Guidance ECI believes the market will remain challenging in 2003 with further declines in carrier capital spending likely. The Company expects revenues in its core businesses (the two divisions), to decline approximately 10% in the first quarter of 2003 compared to the fourth quarter of 2002. In addition, beginning in the first quarter of 2003, ECI's NGTS subsidiary has been spun off to Veraz Networks and ECI will begin supplying DCME to Veraz Networks for resale. The Company expects the decline in revenues to be substantially offset by a decline in expenses. ECI expects to continue to generate positive EBITDA and positive cash flow throughout 2003. A conference call to discuss ECI Telecom's results will take place on Wednesday, February 12th at 8:30am EST (15:30 Israel time). To access the conference call, please dial one of the following numbers: US:(888) 428-4479, International: (612) 332-0228, Israel: 1800 260 789 or 03-9255910. A replay option will be available after the conference call, from 1:45 pm EST on February 12th, 2003, through February 19, 2003, at 11:59pm EST. Replay numbers: US: (800)-475-6701, Int. +320-365-3844. Access code for both: 673846. Israel: 03-925-5951. A webcast of the conference call can be accessed on the ECI Telecom web site at www.ecitele.com. ---------------- About ECI Telecom ECI is a provider of advanced telecommunications solutions. With its leading edge access transport and bandwidth management platforms, ECI enables leading service providers and carriers world-wide to maximize their capital investment and reduce operating expenses while providing voice, data, video and multimedia services to its customers. ECI maintains a global sales and customer support network. Its solutions are an integral part of more than 500 telecommunications networks in over 145 countries. Certain statements contained in this release may contain forward-looking information with respect to plans, projections, or future performance (including guidance on future financial performance) of the Company. By their nature, forward-looking statements involve certain risks and uncertainties including, but not limited to, the ability to return to profitability, product and market acceptance risks, the impact of competitive pricing, product development, commercialization and technological difficulties, and other risks detailed in the Company's filings with the Securities and Exchange Commission. Contact: Investor Relations, ECI Telecom: ----------------------------------------- Israel: Daniel Chertoff +(972)-3-926-6255 email: daniel.chertoff@ecitele.com Kim Kelly: +(972)-3-926-6092 email: kim.kelly@ecitele.com TABLE - 1 ECI TELECOM LTD. AND SUBSIDIARIES GAAP REPORTED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share figures)
Year Ended Three Months Ended December 31, December 31, ------------------------ ------------------------- 2002 2001 2002 2001 ---------- ---------- ----------- ----------- Revenues $646,211 $891,395 $149,203 $210,251 Cost of revenues 377,513 621,582 79,850 137,842 Royalties to the government of Israel (A) 10,272 14,523 2,334 3,334 Inventory write-off 7,446 99,163 - 10,376 ---------- ---------- ----------- ----------- Gross profit 250,980 156,127 67,019 58,699 Research and development costs, net 93,097 123,467 23,582 24,985 Selling and marketing expenses (A) 115,241 138,990 29,739 27,786 General and administrative expenses (*) 92,056 78,204 14,625 23,250 Amortization of acquisition-related intangible assets 1,760 10,187 440 795 Impairment of assets 1,525 96,526 1,525 896 Inovia royalties settlement with the government of Israel - 8,394 - 8,394 Restructuring and spin-off expenses - 19,381 - 7,532 Purchase of in-process research and development - 916 - 916 ---------- ---------- ----------- ----------- Operating loss (52,699) (319,938) (2,892) (35,855) Financial income (expenses), net 6,189 5,366 1,010 524 Other income (expenses), net (13,297) (32,201) (692) (195) ---------- ---------- ----------- ----------- Loss from continuing operations before taxes on income (59,807) (346,773) (2,574) (35,526) Taxes on income (8,812) 315 (153) (612) ---------- ---------- ----------- ----------- Loss from continuing operations after taxes on income (68,619) (346,458) (2,727) (36,138) Company's equity in results of investee companies - net (3,055) (983) (1,129) (679) Minority interest in results of subsidiaries - net (6,045) (2,621) (841) (655) ---------- ---------- ----------- ----------- Loss from continuing operations (77,719) (350,062) (4,697) (37,472) Income (loss) on discontinuing operations, including impairment of related goodwill, net of tax (77,416) (64,017) (2,318) (5,675) Cumulative effect of an accounting change, net (550) 1,703 - - ---------- ---------- ----------- ----------- Net Loss (155,685) (412,376) (7,015) (43,147) ========== ========== =========== =========== (*) Including in 2002 - provision for a specific doubtful account $34,000 thousand Basic earnings (loss) per share Continuing operations $(0.74) $(3.77) $(0.04) $(0.40) Discontinuing operations $(0.73) $(0.69) $(0.02) $(0.06) Cumulative effect of an accounting change $(0.01) $0.02 - - ---------- ---------- ----------- ----------- $(1.48) $(4.44) $(0.06) $(0.46) ========== ========== =========== =========== Weighted average number of shares outstanding used to compute basic earnings per share - in thousands 105,512 92,896 107,372 93,413 ========== ========== =========== =========== Diluted earnings (loss) per share Continuing operations $(0.74) $(3.77) $(0.04) $(0.40) Discontinuing operations $(0.73) $(0.69) $(0.02) $(0.06) Cumulative effect of an accounting change $(0.01) $0.02 - - ---------- ---------- ----------- ----------- $(1.48) $(4.44) $(0.06) $(0.46) ========== ========== =========== =========== Weighted average number of shares outstanding used to compute diluted earnings per share - in thousands 105,512 92,896 107,372 93,413 ========== ========== =========== =========== (A) The company reclassified the royalties to the Government of Israel relating to research and development from selling expenses to the cost of revenues.
TABLE - 2 (A) ECI TELECOM LTD. AND SUBSIDIARIES PROFORMA CONSOLIDATED STATEMENTS OF INCOME This schedule is to assist the reader in reconciling from the GAAP reported results to the Proforma results (In thousands, except per share figures)
Year Ended December 31, Year Ended December 31, 2002 2001 ------------------------------------ ---------------------------------- U.S. GAAP Proforma U.S. GAAP Proforma Reported Adjustments(B)Proforma Reported Adjustments(C) Proforma ----------- ------------- -------- --------- ------------- -------- Revenues 646,211 - 646,211 891,395 - 891,395 Cost of revenues 377,513 - 377,513 621,582 - 621,582 Royalties to the government of Israel (A) 10,272 - 10,272 14,523 - 14,523 Inventory write-off 7,446 (7,446) - 99,163 (99,163) - ----------- ------------- -------- --------- ------------- -------- Gross profit 250,980 7,446 258,426 156,127 99,163 255,290 Research and development costs 93,097 93,097 123,467 123,467 Selling and marketing expenses (A) 115,241 - 115,241 138,990 - 138,990 General and administrative expenses (*) 92,056 (34,000) 58,056 78,204 (5,931) 72,273 Amortization of acquisition-related intangible assets 1,760 - 1,760 10,187 - 10,187 Impairment of assets 1,525 (1,525) - 96,526 (96,526) - Inovia royalties settlement with the government of Israel - - - 8,394 (8,394) - Restructuring and spin-off expenses - - - 19,381 (19,381) - Purchase of in-process research and development - - - 916 (916) - ----------- ------------- -------- --------- ------------- -------- Operating loss (52,699) 42,971 (9,728) (319,938) 230,311 (89,627) Financial income ,net 6,189 - 6,189 5,366 - 5,366 Other income (expenses), net (13,297) 8,665 (4,632) (32,201) 30,004 (2,197) ----------- ------------- -------- --------- ------------- -------- Loss from continuing operations before taxes on income (59,807) 51,636 (8,171) (346,773) 260,315 (86,458) Taxes on income (8,812) 2,600 (6,212) 315 - 315 ----------- ------------- -------- --------- ------------- -------- Loss from continuing operations after taxes on income (68,619) 54,236 (14,383) (346,458) 260,315 (86,143) Company's equity in results of investee companies - net (3,055) - (3,055) (983) - (983) Minority interest in results of subsidiaries - net (6,045) - (6,045) (2,621) - (2,621) ----------- ------------- -------- --------- ------------- -------- Loss from continuing operations (77,719) 54,236 (23,483) (350,062) 260,315 (89,747) Income (loss) on discontinuing operations, including impairment of related goodwill, net of tax (77,416) (77,416) - (64,017) 64,017 - Cumulative effect of an accounting change, net(see note 4) (550) 550 - 1,703 (1,703) - ----------- ------------- -------- --------- ------------- -------- Net loss (155,685) 132,202 (23,483) (412,376) 322,629 (89,747) =========== ============= ======== ========= ============= ======== (*) Including in 2002 - provision for a specific doubtful account $34,000 thosands. Basic earnings (loss) per share Continuing operations (0.74) (0.22) (3.77) (0.97) =========== ======== ========= ======== Weighted average number of shares outstanding used to compute basic earnings per share - in thousands 105,512 105,512 92,896 92,896 =========== ======== ========= ======== Diluted earnings (loss) per share Continuing operations (0.74) (0.22) (3.77) (0.97) =========== ======== ========= ======== Weighted average number of shares outstanding used to compute diluted earnings per share - in thousands 105,512 105,512 92,896 92,896 =========== ======== ========= ========
(A) The company reclassified the royalties to the Government of Israel relating to research and development from selling expenses to the cost of revenues. (B) "one-time items" consist of: inventory write-off, provision for a specific doubtful account, impairment of assets, capital gain of sale portion of ECTEL shares (included in other income and taxes on income), expenses related to NGTS spin-off, loss from discontinuing operations and cumulative effect of an accounting change (initial application of FASB 142). (C) "one-time items" consist of: inventory write-off, allowance for doubtful receivables , restructuring expenses, impairment of assets, in process R&D, Inovia royalties settlement with the government of Israel, net capital losses,net loss from discontinuing operation and cumulative effect of an accounting change (initial application of FASB 133). TABLE - 2 (B) ECI TELECOM LTD. AND SUBSIDIARIES PROFORMA CONSOLIDATED STATEMENTS OF INCOME This schedule is to assist the reader in reconciling from the GAAP reported results to the Proforma results (In thousands, except per share figures)
Three Months Ended December 31, Three Months Ended December 31, 2002 2001 ------------------------------- ----------------------------------- U.S. GAAP Proforma U.S. GAAP Proforma Reported Adjustments(B)Proforma Reported Adjustments(C) Proforma --------- --------- --------- -------- ------------- --------- Revenues 149,203 - 149,203 210,251 - 210,251 Cost of revenues 79,850 - 79,850 137,842 - 137,842 Royalties to the government of Isarel (A) 2,334 - 2,334 3,334 - 3,334 Inventory write-off - - - 10,376 (10,376) - --------- --------- --------- -------- ------------- --------- Gross profit 67,019 - 67,019 58,699 10,376 69,075 Research and development costs 23,582 23,582 24,985 24,985 Selling and marketing expenses (A) 29,739 - 29,739 27,786 - 27,786 General and administrative expenses 14,625 - 14,625 23,250 - 23,250 Amortization of acquisition-related intangible assets 440 - 440 795 - 795 Impairment of assets 1,525 (1,525) - 896 (896) - Inovia royalties settlement with the government of Israel - - - 8,394 (8,394) - Restructuring and spin-off expenses - - - 7,532 (7,532) - Purchase of in-process - research and development - - - 916 (916) - --------- --------- --------- -------- ------------- --------- Operating loss (2,892) 1,525 (1,367) (35,855) 28,114 (7,741) Financial income (expenses),net 1,010 - 1,010 524 - 524 Other expenses,net (692) (692) (195) - (195) --------- --------- --------- -------- ------------- --------- Loss from continuing operations before taxes on income (2,574) 1,525 (1,049) (35,526) 28,114 (7,412) Taxes on income (153) - (153) (612) - (612) --------- --------- --------- -------- ------------- --------- Loss from continuing operations after taxes on income (2,727) 1,525 (1,202) (36,138) 28,114 (8,024) Company's equity in results of investee companies - net (1,129) - (1,129) (679) - (679) Minority interest in results of subsidiaries - net (841) - (841) (655) - (655) --------- --------- --------- -------- ------------- --------- Loss from continuing operations (4,697) 1,525 (3,172) (37,472) 28,114 (9,358) Income (loss) on discontinuing operations, including impairment of related goodwill, net of tax (2,318) 2,318 - (5,675) 5,675 - Cumulative effect of an accounting change, net(see note 4) - - - - - - --------- --------- --------- -------- ------------- --------- Net loss (7,015) 3,843 (3,172) (43,147) 33,789 (9,358) ========= ========= ========= ======== ============= ========= Basic earnings (loss) per share Continuing operations (0.04) (0.03) (0.40) (0.10) ========= ========= ======== ========= Weighted average number of shares outstanding used to compute basic earnings per share - in thousands 107,372 107,372 93,413 93,413 ========= ========= ======== ========= Diluted earnings (loss) per share Continuing operations (0.04) (0.03) (0.40) (0.10) ========= ========= ======== ========= Weighted average number of shares outstanding used to compute diluted earnings per share - in thousands 107,372 107,372 93,413 93,413 ========= ========= ======== =========
(A) The company reclassified the royalties to the Government of Israel relating to research and development from selling expenses to the cost of revenues. (B) "one-time items" consist of: impairment of assets and loss from discontinuing operations. (C) "one-time items" consist of: inventory write-off, restructuring expenses, impairment of assets, in process R&D, Inovia royalties settlement with the government of Israel and net loss from discontinuing operation. TABLE - 3 (A) ------------- ECI TELECOM LTD. ---------------- OPERATING INCOME ANALYSIS ------------------------- BY SEGMENT ---------- (Dollars In thousands) ---------------------- Three months ended ------------------ December 31 ----------- 2002 ----
---------------------------------------------------------------------------------- Lightscape Inovia Enavis networks Telecoms NGTS Networks Ectel OTHER TOTAL --------- -------- -------- -------- -------- ---------- ---------- Revenues 41,004 52,049 19,857 10,649 24,141 1,503 149,203 Cost of revenues 25,565 34,574 7,057 6,917 9,308 (1,237) 82,184 Inventory write-off - - - - - - - --------- -------- -------- -------- -------- ---------- ---------- Gross profit (loss) 15,439 17,475 12,800 3,732 14,833 2,740 67,019 Research and development costs 6,194 7,114 3,173 3,885 3,006 210 23,582 Selling and marketing expenses 11,453 6,168 3,692 2,405 4,152 1,869 29,739 General and administrative expenses 2,240 2,079 2,711 1,589 3,370 2,636 14,625 Amortization of acquisition-related intangible assets - 270 170 - - - 440 Impairment of assets - - - - - 1,525 1,525 --------- -------- -------- -------- -------- ---------- ---------- Operating income (loss) (4,448) 1,844 3,054 (4,147) 4,305 (3,500) (2,892) excluding "one-time items"(B) (4,448) 1,844 3,054 (4,147) 4,305 (1,975) (1,367) ========= ======== ======== ======== ======== ========== ==========
Three months ended ------------------ September 30 ------------ 2002 ---- ---------------------------------------------------------------------------------- Lightscape Inovia Enavis networks Telecoms NGTS Networks Ectel OTHER TOTAL --------- -------- -------- -------- -------- ---------- ---------- Revenues 45,252 49,617 14,735 12,205 24,312 1,339 147,460 Cost of revenues 29,585 34,829 5,858 7,957 9,613 (277) 87,566 Inventory write-off 5,646 - 1,800 - - - 7,446 --------- -------- -------- -------- -------- ---------- ---------- Gross profit (loss) 10,021 14,787 7,077 4,248 14,699 1,616 52,448 Research and development costs 5,753 6,014 1,232 3,763 3,176 79 20,017 Selling and marketing expenses 9,987 5,838 3,847 2,087 4,757 325 26,841 General and administrative expenses (*) 4,241 2,027 1,573 1,660 2,169 35,454 47,124 Amortization of acquisition-related intangible assets - 270 170 - - - 440 --------- -------- -------- -------- -------- ---------- ---------- Operating income (loss) (9,960) 639 255 (3,262) 4,597 (34,243) (41,974) operating income (loss) from continuing operations excluding "one-time items"(B) (4,314) 639 2,055 (3,262) 4,597 (243) (528) ========= ======== ======== ======== ======== ========== ==========
(*) Including in 2002 - provision for a specific doubtful account $34,000 thousands
Three months ended ------------------ December 31 ----------- 2001 ---- ---------------------------------------------------------------------------------- Lightscape Inovia Enavis networks Telecoms NGTS Networks Ectel OTHER TOTAL --------- -------- -------- -------- -------- ---------- ---------- Revenues 48,012 99,548 19,621 17,412 22,276 3,382 210,251 Cost of revenues 29,190 83,418 5,684 10,280 9,162 3,442 141,176 Inventory write-off 6,755 (2,105) 564 5,061 - 101 10,376 --------- -------- -------- -------- -------- ---------- ---------- Gross profit (loss) 12,067 18,235 13,373 2,071 13,114 (161) 58,699 Research and development costs 5,734 7,906 4,263 4,636 3,510 (1,064) 24,985 Selling and marketing expenses (A) 9,849 4,740 5,638 3,358 4,328 (127) 27,786 General and administrative expenses 5,195 4,934 2,271 2,815 2,389 5,646 23,250 Amortization of acquisition-related intangible assets - 626 169 - - - 795 Impairment of assets - - 1,329 341 - (774) 896 Inovia royalties settlement with the government of Israel - 8,394 - - - - 8,394 Restructuring and spin-off expenses 265 155 147 3,418 - 3,547 7,532 Purchase of in-process research and development - - - - 916 - 916 --------- -------- -------- -------- -------- ---------- ---------- Operating income (loss) (8,976) (8,520) (444) (12,497) 1,971 (7,389) (35,855) operating income (loss) from continuing operations excluding "one-time items"(B) (1,956) (2,076) 1,596 (3,677) 2,887 (4,515) (7,741) ========= ======== ======== ======== ======== ========== ==========
TABLE - 3 (A) ------------- ECI TELECOM LTD. ---------------- OPERATING INCOME ANALYSIS ------------------------- BY SEGMENT ---------- (Dollars In thousands) ---------------------- Year ended ---------- December 31 ----------- 2002 ---- ------------------------------------------------------------------------------- Lightscape Inovia Enavis networks Telecoms NGTS Networks Ectel OTHER TOTAL --------- -------- -------- -------- -------- ---------- ---------- Revenues 179,419 241,807 66,054 53,799 95,777 9,355 646,211 Cost of revenues 111,617 174,120 23,809 31,601 38,103 8,535 387,785 Inventory write-off 5,646 - 1,800 - - - 7,446 --------- -------- -------- -------- -------- ---------- ---------- Gross profit (loss) 62,156 67,687 40,445 22,198 57,674 820 250,980 Research and development costs 25,943 27,450 11,248 15,357 12,874 225 93,097 Selling and marketing expenses 42,897 24,533 16,412 10,645 17,902 2,852 115,241 General and administrative expenses (*) 12,605 9,971 7,697 6,443 9,690 45,650 92,056 Amortization of acquisition-related intangible assets - 1,080 680 - - - 1,760 Impairment of assets - - - - - 1,525 1,525 --------- -------- -------- -------- -------- ---------- ---------- Operating income (loss) (19,289) 4,653 4,408 (10,247) 17,208 (49,432) (52,699) operating income (loss) from continuing operations excluding "one-time items"(B) (13,643) 4,653 6,208 (10,247) 17,208 (13,907) (9,728) ========= ======== ======== ======== ======== ========== ==========
(*) Including in 2002 - provision for a specific doubtful account $34,000 thousands
Year ended ---------- December 31 ----------- 2001 ---- ---------------------------------------------------------------------------------- Lightscape Inovia Enavis networks Telecoms NGTS Networks Ectel OTHER TOTAL --------- -------- -------- -------- -------- ---------- ---------- Revenues 210,089 332,338 83,204 101,667 80,598 83,499 891,395 Cost of revenues 132,088 318,338 28,613 58,080 33,815 65,171 636,105 Inventory write-off 35,255 41,595 16,285 5,661 - 367 99,163 --------- -------- -------- -------- -------- ---------- ---------- Gross profit (loss) 42,746 (27,595) 38,306 37,926 46,783 17,961 156,127 Research and development costs 27,601 34,447 21,428 23,489 10,986 5,516 123,467 Selling and marketing expenses (A) 44,831 25,498 25,334 15,751 15,098 12,478 138,990 General and administrative expenses 17,927 14,020 11,142 13,226 8,903 12,986 78,204 Amortization of acquisition-related intangible assets - 4,711 880 4,596 - - 10,187 Impairment of assets - 39,806 8,898 44,766 - 3,056 96,526 Inovia royalties settlement with the government of Israel - 8,394 - - - - 8,394 Restructuring and spin-off expenses 1,778 4,364 842 6,131 - 6,266 19,381 Purchase of in-process research and development - - - - 916 - 916 --------- -------- -------- -------- -------- ---------- ---------- Operating income (loss) (49,391) (158,835) (30,218) (70,033) 10,880 (22,341) (319,938) operating income (loss) from continuing operations excluding "one-time items"(C) (10,297) (64,676) (3,623) (10,175) 11,796 (12,652) (89,627) ========= ======== ======== ======== ======== ========== ==========
(A) The company reclassified the royalties to the Government of Israel relating to research and development from selling expenses to the cost of revenues. (B) "one-time items" consist of: inventory write-off, impairment of assets and provision for a specific doubtful account. (C) "one-time items" consist of: inventory write-off, allowance for doubtful receivables , restructuring expenses, impairment of assets and in process R&D. TABLE - 4 ECI TELECOM LTD. AND SUBSIDIARIES GAAP REPORTED CONSOLIDATED BALANCE SHEETS S (In thousands)
December 31, September 30, December 31, 2002 2002 2001 ---------------- --------------- ---------------- Assets Current Assets Cash and cash equivalents 356,649 326,195 226,192 Short-term investments 6,840 28,535 7,126 Trade Receivables 207,315 225,769 301,524 Other receivables and prepaid expenses 28,543 22,516 71,494 Assets of discontinuing operations 20,648 25,900 - Recoverable costs and estimated earnings, not yet billed 13,690 10,890 30,368 Inventories 149,747 167,730 274,640 ---------------- --------------- ---------------- Total current assets 783,432 807,535 911,344 ---------------- --------------- ---------------- Long-term receivables, investments and long-term deposits -net of current maturities 175,158 154,078 203,231 ---------------- --------------- ---------------- Property, plant and equipment - net 138,587 151,838 182,348 ---------------- --------------- ---------------- Software development costs, net 20,082 22,404 27,086 ---------------- --------------- ---------------- Other assets 37,840 51,625 92,918 ---------------- --------------- ---------------- ---------------- --------------- ---------------- Total assets 1,155,099 1,187,480 1,416,927 ================ =============== ================ Liabilities and shareholders' equity Current liabilities Short-term credits 230,012 243,355 120,030 Trade payables 41,221 37,506 79,776 Other payables and accrued liabilities 133,827 141,639 180,780 Liabilities of discontinuing operations 12,148 17,400 - ---------------- --------------- ---------------- Total current liabilities 417,208 439,900 380,586 ---------------- --------------- ---------------- Long-term liabilities Loans from banks - - 200,000 Other liabilities 8,379 10,842 11,573 Liability for employee severance benefits - net 26,357 26,589 28,338 ---------------- --------------- ---------------- Total long-term liabilities 34,736 37,431 239,911 ---------------- --------------- ---------------- Minority Interest 56,756 55,813 41,574 ---------------- --------------- ---------------- Shareholders' equity Share capital 6,152 6,148 5,873 Capital surplus 658,423 658,046 656,614 Accumulated other comprehensive income (1,832) (529) 1,800 Retained earnings/(defecit) (16,344) (9,329) 173,567 ---------------- --------------- ---------------- 646,399 654,336 837,854 Treasury stock - - (82,998) ---------------- --------------- ---------------- Total shareholders' equity 646,399 654,336 754,856 ---------------- --------------- ---------------- ---------------- --------------- ---------------- Total Liabilities and shareholders' equity 1,155,099 1,187,480 1,416,927 ================ =============== ================
------------------------------------------------------------------------------- EXHIBIT 3 [ECI TELECOM] ------------------------------------------------------------------------------- ECI TELECOM ANNOUNCES AGREEMENT TO SELL INNOWAVE ------------------------------------------------------------------------------- Petah Tikva, Israel, February 19, 2003, ECI Telecom (Nasdaq: ECIL) announced today that it has signed a definitive agreement to sell the business of its wholly owned subsidiary, InnoWave ECI Wireless Systems Ltd., to Alvarion Ltd. (NASDAQ: ALVR). The value of the transaction, structured as a purchase of assets and liabilities, is approximately $20 million, consisting of a cash consideration paid by Alvarion and the cash balances of InnoWave at the date of closing to be withdrawn by ECI. In addition, Alvarion will grant warrants to purchase 200,000 of Alvarion's shares over a period of 5 years at an exercise price of $3 per share. The terms of the agreement are consistent with the provisions ECI reflected in its third quarter 2002 results and will therefore have no further material impact on ECI's financial statements. The receivable associated with the sale of fixed wireless equipment to GVT, Brazil (Global Village Telecom), will remain with ECI. With the closing of the agreement, a majority of InnoWave's employees will join Alvarion. The agreement is subject to certain closing conditions and is expected to close by the end of the first quarter of 2003. Commenting, Doron Inbar, President and CEO, ECI Telecom, said: "InnoWave has been recognized worldwide as a leading provider of fixed wireless access solutions. Given the consolidation currently occurring in this market, we believe the combination of InnoWave and Alvarion will create a particularly strong company, leveraging Alvarion's broadband wireless leadership and InnoWave's well-established global customer base and leadership in the wideband wireless voice and data segment. The transaction will enable Innowave`s existing and potential customers to benefit from a broader portfolio of comprehensive fixed wireless access solutions. ECI will continue to focus its resources on its broadband access, core optical transport and bandwidth management businesses. We thank InnoWave's employees for their important contribution to ECI and wish them success in their new environment". About ECI Telecom ECI is a provider of advanced, telecommunications solutions. Focused mainly on the metropolitan optical and access markets, ECI enables leading service providers and carriers world-wide to maximize their capital investment and reduce operating expenses while providing voice, data, video and multimedia services to their customers. ECI maintains a global sales and customer support network. Its solutions are an integral part of more than 500 telecommunications networks in over 145 countries. Certain statements contained in this release may contain forward-looking information with respect to plans, projections or future performance of the Company. By their nature, forward-looking statements involve certain risks and uncertainties including, but not limited to, the ability to complete transactions with investors, product and market acceptance risks, the impact of competitive pricing, product development, commercialization and technological difficulties and other risks detailed in the Company's filings with the Securities and Exchange Commission. Contact: Daniel Chertoff: +972-3-926-6255, e-mail: Daniel.chertoff@ecitele.com --------------------------- Kim Kelly: +972-3-926-6092, e-mail: kim.Kelly@ecitele.com ---------------------