EX-99.1 3 f93725exv99w1.htm EXHIBIT 99.1 exv99w1
 

Exhibit 99.1

CONTACT
Jeff Finn
Director of Investor Relations
Advanced Fibre Communications, Inc.
(707) 794-7555
(888) 875-7555
investor.relations@afc.com
www.afc.com

FOR IMMEDIATE RELEASE

Advanced Fibre Communications Reports
Third Quarter 2003 Financial Results

PETALUMA, Calif., October 21, 2003—Advanced Fibre Communications®, Inc. (AFC®) (Nasdaq: AFCI) today reported financial results for the third quarter ended September 30, 2003.

Revenues for the third quarter of 2003 were $85.2 million on a generally accepted accounting principles (GAAP) basis, compared with $83.0 million in the second quarter of 2003. Revenues for the third quarter of 2002 were $91.8 million. Net income for the third quarter of 2003 was $9.3 million, or $0.11 per share, compared with $3.3 million, or $0.04 per share, in the second quarter of 2003. Net income for the third quarter of 2002 was $9.6 million, or $0.11 per share.

Revenues for the first nine months of 2003 were $248.7 million, compared with $258.3 million in the first nine months of 2002. Net income for the first nine months of 2003 was $21.0 million, or $0.24 per share, compared with $14.3 million, or $0.17 per share, in the first nine months of 2002.

Net income for the core business, which excludes certain items, was $9.6 million, or $0.11 per share, in the third quarter of 2003, and $7.9 million, or $0.09 per share, in the second quarter of 2003. Core business net income for the third quarter of 2002 was $7.8 million, or $0.09 per share. Core business net income for the first nine months of 2003 was $25.4 million, or $0.29 per share, compared with $16.4 million, or $0.19 per share, in the first nine months of 2002.

Reconciliations between GAAP results 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 by highlighting the core financial performance of our 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.

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“During the quarter we experienced a strengthening of business in North America across our customer base,” said John Schofield, chairman, president and chief executive officer at AFC. “However, in the international arena, we saw some softening during the quarter as some of the overseas carriers cut capital spending.

“Also during the quarter, we continued to experience a shift in network deployments to broadband,” continued Schofield. “Once again, we had record DSL shipments during the quarter, with some 50,000 ports shipped. I believe the access network will be a key focus for carrier investment in the future as carriers continue to roll out DSL and begin the migration to Fiber-to-the-Premises (FTTP). Our engagement with carriers around FTTP-based services has only solidified my thinking in this area. Our FTTP solution, FiberDirectSM, has a number of key advantages that make it a compelling solution for standards-based FTTP services, and I expect that AFC will play an important role in the burgeoning FTTP market opportunity.”

Today’s Earnings Conference Call and Webcast

AFC will discuss its third quarter 2003 results on a conference call and audio Webcast scheduled today, October 21st, at 1:30 p.m. PT. U.S. callers can access the conference call at (800) 211-3767 and international callers may dial 1 (312) 461-1932. The audio Webcast will be simultaneously available online at www.afc.com/investors.

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 passcode 5860179. International callers may dial 1 (402) 220-2306 and enter passcode 5860179.

# # #

About AFC

Headquartered in Petaluma, Calif., Advanced Fibre Communications, Inc. 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. FiberDirect is a service mark of Advanced Fibre Communications, Inc. Copyright 2003. All rights reserved. Any other trademarks are the property of their respective owners. For more information, visit AFC online at 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 expected FTTP deployment and the expected benefits to operators of the Company’s FiberDirect solution. 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 whether FTTP is widely deployed by operators, the actual timing and quantity of orders for our FiberDirect solution, growth in demand for broadband services, and our ability to gain market share and experience growth. 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

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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.

3

 

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,
       
 
        2003   2002   2003   2002
       
 
 
 
Revenues
   $ 85,214     $ 91,767     $ 248,704     $ 258,317  
Cost of revenues
     44,600       46,603       127,367       136,601  
 
    
     
     
     
 
   
Gross profit
     40,614       45,164       121,337       121,716  
 
    
     
     
     
 
Operating expenses:
                                
 
Research and development
     14,831       17,058       50,167       46,124  
 
Sales and marketing
     9,355       12,264       30,196       36,628  
 
General and administrative
     6,498       6,701       21,313       20,067  
 
Amortization of acquired intangibles
     349       1,280       1,793       2,363  
 
In-process research and development
     —       —       —       12,396  
 
Securities litigation settlement costs
     —       —       —       2,943  
 
    
     
     
     
 
   
Total operating expenses
     31,033       37,303       103,469       120,521  
 
    
     
     
     
 
Operating income
     9,581       7,861       17,868       1,195  
Other income (expense):
                                
 
Interest income, net
     2,850       1,716       8,712       5,893  
 
Unrealized gains on Cisco investment
     —       4,392       1,386       15,004  
 
Equity in losses of investee
     —       —       —       (1,079 )
 
Other
     —       147       4       (23 )
 
    
     
     
     
 
   
Total other income, net
     2,850       6,255       10,102       19,795  
 
    
     
     
     
 
Income before income taxes
     12,431       14,116       27,970       20,990  
Income taxes
     3,108       4,517       6,993       6,717  
 
    
     
     
     
 
Net income
   $ 9,323     $ 9,599     $ 20,977     $ 14,273  
 
    
     
     
     
 
Basic net income per share
   $ 0.11     $ 0.11     $ 0.25     $ 0.17  
 
    
     
     
     
 
Shares used in basic per share computations
     86,246       83,836       85,478       83,104  
 
    
     
     
     
 
Diluted net income per share
   $ 0.11     $ 0.11     $ 0.24     $ 0.17  
 
    
     
     
     
 
Shares used in diluted per share computations
     87,906       85,754       86,832       85,554  
 
    
     
     
     
 

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ADVANCED FIBRE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

                       
          September 30,    
          2003   December 31,
          (unaudited)   2002
         
 
Assets
                
 
Current assets:
                
   
Cash and cash equivalents
   $ 305,577     $ 94,754  
   
Cisco marketable securities and related hedge contracts
     210,766       688,840  
   
Other marketable securities
     558,469       213,030  
   
Accounts receivable, net
     62,101       41,381  
   
Inventories, net
     21,721       30,553  
   
Other current assets
     31,588       26,667  
   
 
    
     
 
     
Total current assets
     1,190,222       1,095,225  
 
Property and equipment, net
     44,495       51,076  
 
Goodwill
     55,883       56,119  
 
Other acquired intangible assets, net
     4,654       5,675  
 
Other assets
     25,486       25,555  
   
 
    
     
 
     
Total assets
   $ 1,320,740     $ 1,233,650  
   
 
    
     
 
Liabilities & stockholders’ equity
                
 
Current liabilities:
                
   
Accounts payable
   $ 13,704     $ 7,503  
   
Accrued liabilities
     37,267       47,384  
   
Cisco securities loans payable
     210,766       —  
   
Current taxes payable
     80,841       33,875  
   
Deferred tax liabilities
     —       221,673  
   
 
    
     
 
     
Total current liabilities
     342,578       310,435  
 
Long-term liabilities
     4,014       4,426  
 
Commitments and contingencies
                
 
Stockholders’ equity:
                
   
Preferred stock, $0.01 par
     —       —  
   
Common stock, $0.01 par
     868       844  
   
Additional paid-in capital
     370,745       336,542  
   
Deferred compensation
     (62 )     (833 )
   
Accumulated other comprehensive income
     1,965       1,880  
   
Retained earnings
     601,472       580,495  
   
Treasury stock
     (840 )     (139 )
   
 
    
     
 
     
Total stockholders’ equity
     974,148       918,789  
   
 
    
     
 
     
Total liabilities and stockholders’ equity
   $ 1,320,740     $ 1,233,650  
   
 
    
     
 

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ADVANCED FIBRE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

                         
            Nine Months Ended
            September 30,
           
            2003   2002
           
 
Cash flows from operating activities:
                
 
Net income
   $ 20,977     $ 14,273  
 
Adjustments to reconcile net income to net cash provided by operating activities:
                
   
Cash proceeds from settlement of Cisco hedge contracts
     690,226       —  
   
Deferred income taxes
     (243,228 )     2,417  
   
Current income taxes
     46,966       (3,845 )
   
Depreciation and amortization
     14,238       15,072  
   
Tax benefit from option exercises
     6,730       7,947  
   
Loss on disposal of fixed assets
     2,955       878  
   
Unrealized gains on Cisco investment
     (1,386 )     (15,004 )
   
Allowance for doubtful accounts
     507       650  
   
In-process research and development
     —       12,396  
   
Equity in losses of investee, net of tax
     —       734  
   
Changes in operating assets and liabilities:
                
     
Accounts receivable
     (20,991 )     10,985  
     
Inventories
     8,832       (332 )
     
Other current assets
     16,634       14,977  
     
Other assets
     194       1,524  
     
Accounts payable
     6,201       (3,533 )
     
Accrued and other liabilities
     (10,529 )     (7,946 )
 
 
    
     
 
       
Net cash provided by operating activities
     538,326       51,193  
 
 
    
     
 
Cash flows from investing activities:
                
 
Purchases of other marketable securities
     (4,459,794 )     (430,759 )
 
Sales of other marketable securities
     3,872,418       325,141  
 
Maturities of other marketable securities
     241,870       138,811  
 
Purchases of property and equipment, net of disposals
     (8,793 )     (7,577 )
 
Acquisition, net of cash acquired
     —       (42,978 )
 
Restricted investment
     —       (20,063 )
 
 
    
     
 
       
Net cash used in investing activities
     (354,299 )     (37,425 )
 
 
    
     
 
Cash flows from financing activities:
                
 
Proceeds from common stock issuances
     27,497       13,342  
 
Purchase of treasury stock
     (701 )     —  
 
 
    
     
 
       
Net cash provided by financing activities
     26,796       13,342  
 
 
    
     
 
Increase in cash and cash equivalents
     210,823       27,110  
Cash and cash equivalents, beginning of period
     94,754       39,528  
 
 
    
     
 
Cash and cash equivalents, end of period
   $ 305,577     $ 66,638  
 
 
    
     
 

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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 Business
        GAAP Results   to Core 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  
 
    
             
 

Notes:

1) Adjustment arises from the acquisition of AccessLan Communications, Inc. in Q2 2002.

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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 June 30, 2003
       
                Adjustments              
                from GAAP       Core Business  
        GAAP Results   to Core Results       Results  
       
 
     
 
Revenues
   $ 83,038                 $ 83,038    
Cost of revenues
     41,914       (778 ) 1       41,136    
 
 
    
     
         
   
   
Gross profit
     41,124       778           41,902    
 
 
    
     
         
   
Operating expenses:
                              
 
Research and development
     19,392       (1,887 ) 1       17,505    
 
Sales and marketing
     11,065       (471 ) 1       10,594    
 
General and administrative
     8,875       (2,338 ) 1       6,537    
 
Amortization of acquired intangibles
     651       (651 ) 2       —    
 
 
    
     
         
   
   
Total operating expenses
     39,983       (5,347 )         34,636    
 
 
    
     
         
   
Operating income
     1,141       6,125           7,266    
Other income (expense):
                              
 
Interest income, net
     3,311                   3,311    
 
Unrealized gains on Cisco investment
     30       (30 ) 3       —    
 
Other
     (36 )                 (36 )  
 
 
    
     
         
   
   
Total other income, net
     3,305       (30 )         3,275    
 
 
    
     
         
   
Income before income taxes
     4,446       6,095           10,541    
Income taxes
     1,112       1,524           2,636    
 
 
    
     
         
   
Net income
   $ 3,334     $ 4,571         $ 7,905    
 
 
    
     
         
   
Basic net income per share
   $ 0.04                 $ 0.09    
 
 
    
                 
   
Shares used in basic per share computations
     85,287                   85,287    
 
 
    
                 
   
Diluted net income per share
   $ 0.04                 $ 0.09    
 
 
    
                 
   
Shares used in diluted per share computations
     86,388                   86,388    
 
 
    
                 
   

Notes:

1)   Adjustment reflects severence and facility closures resulting from a workforce reduction initiated in Q2 2003.
 
2)   Adjustment arises from the acquisition of AccessLan Communications, Inc. in Q2 2002.
 
3)   Adjustment arises from income generated by Cisco securities holdings and related hedge contract.

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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, 2002
       
                Adjustments            
                from GAAP       Core Business
        GAAP Results   to Core Results       Results
       
 
     
Revenues
   $ 91,767                 $ 91,767  
Cost of revenues
     46,603                   46,603  
 
    
     
         
 
   
Gross profit
     45,164                   45,164  
 
    
     
         
 
Operating expenses:
                            
 
Research and development
     17,058       (439 ) 1       16,619  
 
Sales and marketing
     12,264                   12,264  
 
General and administrative
     6,701                   6,701  
 
Amortization of acquired intangibles
     1,280       (1,280 ) 2       —  
 
    
     
         
 
   
Total operating expenses
     37,303       (1,719 )         35,584  
 
    
     
         
 
Operating income
     7,861       1,719           9,580  
Other income:
                            
 
Interest income, net
     1,716                   1,716  
 
Unrealized gains on Cisco investment
     4,392       (4,392 ) 3       —  
 
Other
     147                   147  
 
    
     
         
 
   
Total other income
     6,255       (4,392 )         1,863  
 
    
     
         
 
Income before income taxes
     14,116       (2,673 )         11,443  
Income taxes
    4,517       (855 )         3,662  
 
    
     
         
 
Net income
   $ 9,599     $ (1,818 )       $ 7,781  
 
    
     
         
 
Basic net income per share
   $ 0.11                 $ 0.09  
 
    
                 
 
Shares used in basic per share computations
     83,836                   83,836  
 
    
                 
 
Diluted net income per share
   $ 0.11                 $ 0.09  
 
    
                 
 
Shares used in diluted per share computations
     85,754                   85,754  
 
    
                 
 

Notes:

1)   Adjustment arises from the closure of a research and development office in Q3 2002.
 
2)   Adjustment arises from the acquisition of AccessLan Communications, Inc. in Q2 2002.
 
3)   Adjustment arises from income generated by Cisco securities holdings and related hedge contracts.

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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, 2003
       
                Adjustments        
                from GAAP   Core Business
        GAAP Results   to Core 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     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 ) 2     —  
 
    
     
     
 
   
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 ) 3     —  
 
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)   Adjustment reflects severence and facility closures resulting from a workforce reduction initiated in Q2 2003.
 
2)   Adjustment arises from the acquisition of AccessLan Communications, Inc. in Q2 2002.
 
3)   Adjustment arises from income generated by Cisco securities holdings and related hedge contracts.

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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, 2002
       
                Adjustments        
                from GAAP   Core Business
        GAAP Results   to Core Results   Results
       
 
 
Revenues
   $ 258,317             $ 258,317  
Cost of revenues
     136,601               136,601  
 
    
     
     
 
   
Gross profit
     121,716               121,716  
 
    
     
     
 
Operating expenses:
                        
 
Research and development
     46,124       (439 ) 1     45,685  
 
Sales and marketing
     36,628               36,628  
 
General and administrative
     20,067               20,067  
 
Amortization of acquired intangibles
     2,363       (2,363 ) 2     —  
 
In-process research and development
     12,396       (12,396 ) 2     —  
 
Securities litigation settlement costs
     2,943       (2,943 ) 3     —  
 
    
     
     
 
   
Total operating expenses
     120,521       (18,141 )     102,380  
 
    
     
     
 
Operating income
     1,195       18,141       19,336  
Other income (expense):
                        
 
Interest income, net
     5,893               5,893  
 
Unrealized gains on Cisco investment
     15,004       (15,004 ) 4     —  
 
Equity in losses of investee
     (1,079 )             (1,079 )
 
Other
     (23 )             (23 )
 
    
     
     
 
   
Total other income, net
     19,795       (15,004 )     4,791  
 
    
     
     
 
Income before income taxes
     20,990       3,137       24,127  
Income taxes
     6,717       1,004       7,721  
 
    
     
     
 
Net income
   $ 14,273     $ 2,133     $ 16,406  
 
    
     
     
 
Basic net income per share
   $ 0.17             $ 0.20  
 
    
             
 
Shares used in basic per share computations
     83,104               83,104  
 
    
             
 
Diluted net income per share
   $ 0.17             $ 0.19  
 
    
             
 
Shares used in diluted per share computations
     85,554               85,554  
 
    
             
 

Notes:
 
1)   Adjustment arises from the closure of a research and development office in Q3 2002.
 
2)   Adjustment arises from the acquisition of AccessLan Communications, Inc. in Q2 2002.
 
3)   Adjustment arises from the securities litigation settlement in Q2 2002.
 
4)   Adjustment arises from income generated by Cisco securities holdings and related hedge contracts.

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