EX-99.1 3 f95943exv99w1.htm EXHIBIT 99.1 exv99w1
 

EXHIBIT 99.1

(AFC NEWS RELEASE LOGO)

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

AFC Reports
Fiscal Year 2003 and Fourth Quarter Financial Results

PETALUMA, Calif., January 27, 2004 — AFC® (Nasdaq: AFCI) today reported financial results for the fiscal year and fourth quarter ended December 31, 2003.

Revenues for the fourth quarter of 2003 were $84.8 million on a generally accepted accounting principles (GAAP) basis, compared with $85.2 million in the third quarter of 2003. Revenues for the fourth quarter of 2002 were $85.7 million. Net income for the fourth quarter of 2003 was $5.7 million, or $0.06 per share, compared with $9.3 million, or $0.11 per share, in the third quarter of 2003. Net income for the fourth quarter of 2002 was $17.6 million, or $0.21 per share.

Revenues for fiscal year 2003 were $333.5 million, compared with $344.1 million for fiscal year 2002. Net income for fiscal year 2003 was $26.7 million, or $0.31 per share, compared with $31.8 million, or $0.37 per share, for fiscal year 2002.

Net income for the core business, which excludes certain items, was $8.6 million, or $0.10 per share, in the fourth quarter of 2003, compared with $9.6 million, or $0.11 per share, in the third quarter of 2003. Core business net income for the fourth quarter of 2002 was $8.0 million, or $0.09 per share. Core business net income was $34.0 million, or $0.39 per

 


 

share in fiscal year 2003, compared with $24.4 million, or $0.29 per share, in fiscal year 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 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.

“In spite of the modest decline in annual revenues due to a challenging industry environment, we increased core business net income by 39% to $34.0 million in 2003 from $24.4 million in 2002,” said John Schofield, chairman, president and chief executive officer at AFC. “Over the year we experienced growing demand for our broadband solutions. Our shipments of DSL lines in the fourth quarter were the largest ever, with 105,000 lines shipped. This gives us approximately 250,000 DSL lines shipped in 2003, another record for AFC.

“Two events of major importance occurred during the last few months,” continued Schofield. “In November we announced that we signed a Letter of Agreement with Verizon, which outlined key terms of a pending contract for Fiber-to-the-Premises (FTTP) equipment. On January 5, we announced the signing of a definitive agreement to acquire North American Access (NAA), a business unit of Marconi Communications, Inc., a subsidiary of Marconi Corporation plc. This proposed transaction supports AFC’s business strategy to expand its optical access portfolio, and enhance its ability to serve the demands and requirements of large telecommunications carriers.

 


 

“I believe the progress we made in 2003 ensures that AFC will not only maintain a highly competitive position as an access vendor in our industry, but also that we have positioned ourselves to be a leader for some time to come.”

Today’s Earnings Conference Call and Webcast

AFC will discuss its fiscal year 2003 and fourth quarter results on a conference call and audio Webcast scheduled today, January 27, at 1:30 p.m. PST. U.S. callers can access the conference call at (800) 245-1683 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 passcode 6037002. International callers may dial (402) 220-2306 and enter passcode 6037002. 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. Copyright 2004. 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 the expectation that demand for AFC’s broadband 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; the risk that the closing of AFC’s pending acquisition of NAA will not occur due to failure of a closing condition; that AFC will not be able to successfully integrate NAA products and employees into AFC; that AFC’s new products will not achieve anticipated market acceptance; and that AFC will experience increased competition due to its expanded product offering.

 


 

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   Year Ended
        December 31,   December 31,
       
 
        2003   2002   2003   2002
       
 
 
 
Revenues
  $ 84,753     $ 85,746     $ 333,457     $ 344,063  
Cost of revenues
    42,001       43,356       169,368       179,957  
 
   
     
     
     
 
   
Gross profit
    42,752       42,390       164,089       164,106  
 
   
     
     
     
 
Operating expenses:
                               
 
Research and development
    15,981       15,534       66,148       61,658  
 
Sales and marketing
    10,316       10,997       40,512       47,625  
 
General and administrative
    7,443       6,303       28,756       26,370  
 
Amortization and write down of acquired intangibles
    3,047       912       4,840       3,275  
 
Securities litigation settlement costs
          1,500             4,443  
 
In-process research and development
          27             12,423  
 
   
     
     
     
 
   
Total operating expenses
    36,787       35,273       140,256       155,794  
 
   
     
     
     
 
Operating income
    5,965       7,117       23,833       8,312  
Other income (expense):
                               
 
Interest income, net
    2,649       1,756       11,361       7,649  
 
Unrealized gains on Cisco investment
          3,348       1,386       18,352  
 
Equity in losses of investee
                      (1,079 )
 
Other
    (977 )     13,604       (973 )     13,581  
 
   
     
     
     
 
   
Total other income, net
    1,672       18,708       11,774       38,503  
 
   
     
     
     
 
Income before income taxes
    7,637       25,825       35,607       46,815  
Income taxes
    1,909       8,264       8,902       14,981  
 
   
     
     
     
 
Net income
  $ 5,728     $ 17,561     $ 26,705     $ 31,834  
 
   
     
     
     
 
Basic net income per share
  $ 0.07     $ 0.21     $ 0.31     $ 0.38  
 
   
     
     
     
 
Shares used in basic per share computations
    86,963       84,211       85,849       83,380  
 
   
     
     
     
 
Diluted net income per share
  $ 0.06     $ 0.21     $ 0.31     $ 0.37  
 
   
     
     
     
 
Shares used in diluted per share computations
    89,373       85,577       87,470       85,292  
 
   
     
     
     
 

5


 

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

                       
          December 31,   December 31,
          2003   2002
         
 
Assets
               
 
Current assets:
               
   
Cash and cash equivalents
  $ 246,552     $ 94,754  
   
Cisco marketable securities and related hedge contracts
    250,786       688,840  
   
Other marketable securities
    594,230       215,624  
   
Accounts receivable, net
    54,464       40,723  
   
Inventories, net
    18,959       30,553  
   
Other current assets
    27,026       24,073  
   
 
   
     
 
     
Total current assets
    1,192,017       1,094,567  
 
Property and equipment, net
    43,762       51,076  
 
Goodwill
    55,883       56,119  
 
Other acquired intangible assets, net
    1,639       5,675  
 
Other assets
    24,415       25,555  
   
 
   
     
 
     
Total assets
  $ 1,317,716     $ 1,232,992  
   
 
   
     
 
Liabilities & stockholders’ equity
               
 
Current liabilities:
               
   
Accounts payable
  $ 11,112     $ 7,503  
   
Accrued liabilities
    39,605       46,726  
   
Cisco securities loans payable
    250,786        
   
Current taxes payable
    26,989       33,875  
   
Deferred tax liabilities
          221,673  
   
 
   
     
 
     
Total current liabilities
    328,492       309,777  
 
Long-term liabilities
    4,068       4,426  
 
Commitments and contingencies
               
 
Stockholders’ equity:
               
   
Preferred stock, $0.01 par
           
   
Common stock, $0.01 par
    871       844  
   
Additional paid-in capital
    376,394       336,542  
   
Deferred compensation
    (29 )     (833 )
   
Accumulated other comprehensive income
    1,560       1,880  
   
Retained earnings
    607,200       580,495  
   
Treasury stock
    (840 )     (139 )
   
 
   
     
 
     
Total stockholders’ equity
    985,156       918,789  
   
 
   
     
 
     
Total liabilities and stockholders’ equity
  $ 1,317,716     $ 1,232,992  
   
 
   
     
 

6


 

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

                         
            Year Ended
            December 31,
           
            2003   2002
           
 
Cash flows from operating activities:
               
 
Net income
  $ 26,705     $ 31,834  
 
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
    (243,521 )     359  
   
Depreciation and amortization
    18,376       20,266  
   
Current income taxes
    (6,886 )     10,919  
   
Tax benefit from option exercises
    7,664       9,239  
   
Interest receivable
    (4,177 )     376  
   
Other non-cash adjustments to operating income
    3,393       988  
   
Write down of impaired intangible asset
    2,800        
   
Unrealized gains on Cisco investment
    (1,386 )     (18,351 )
   
Write down of impaired investment
    1,000        
   
Allowance for doubtful accounts
    407       850  
   
In-process research and development
          12,423  
   
Equity in losses of investee, net of tax
          734  
   
Changes in operating assets and liabilities:
               
     
Accounts receivable
    (13,912 )     16,760  
     
Inventories
    11,594       (478 )
     
Other current assets
    18,895       90  
     
Other assets
    303       1,666  
     
Accounts payable
    3,609       (3,027 )
     
Accrued and other liabilities
    (7,479 )     (5,492 )
 
 
   
     
 
       
Net cash provided by operating activities
    507,611       79,156  
 
 
   
     
 
Cash flows from investing activities:
               
 
Purchases of other marketable securities
    (5,280,430 )     (566,187 )
 
Sales of other marketable securities
    4,522,500       454,474  
 
Maturities of other marketable securities
    382,965       145,230  
 
Purchases of property and equipment, net of disposals
    (12,362 )     (11,218 )
 
Acquisition, net of cash acquired
          (42,978 )
 
Restricted investment
          (20,120 )
 
 
   
     
 
       
Net cash used in investing activities
    (387,327 )     (40,799 )
 
 
   
     
 
Cash flows from financing activities:
               
 
Proceeds from common stock issuances
    32,215       17,008  
 
Purchase of treasury stock
    (701 )     (139 )
 
 
   
     
 
       
Net cash provided by financing activities
    31,514       16,869  
 
 
   
     
 
Increase in cash and cash equivalents
    151,798       55,226  
Cash and cash equivalents, beginning of period
    94,754       39,528  
 
 
   
     
 
Cash and cash equivalents, end of period
  $ 246,552     $ 94,754  
 
 
   
     
 

7


 

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 December 31, 2003
       
                Adjustments        
                from GAAP   Core Business
        GAAP Results   to Core Results   Results
       
 
 
Revenues
  $ 84,753             $ 84,753  
Cost of revenues
    42,001       1,273   1, 2     43,274  
 
   
     
     
 
   
Gross profit
    42,752       (1,273 )     41,479  
 
   
     
     
 
Operating expenses:
                       
 
Research and development
    15,981       (513 )3     15,468  
 
Sales and marketing
    10,316       (21 )3     10,295  
 
General and administrative
    7,443       (487 )3     6,956  
 
Amortization and write down of acquired intangibles
    3,047       (3,047 )4,5      
 
   
     
     
 
   
Total operating expenses
    36,787       (4,068 )     32,719  
 
   
     
     
 
Operating income
    5,965       2,795       8,760  
Other income (expense):
                       
 
Interest income, net
    2,649               2,649  
 
Other
    (977 )     1,000   6     23  
 
   
     
     
 
   
Total other income
    1,672       1,000       2,672  
 
   
     
     
 
Income before income taxes
    7,637       3,795       11,432  
Income taxes
    1,909       949       2,858  
 
   
     
     
 
Net income
  $ 5,728     $ 2,846     $ 8,574  
 
   
     
     
 
Basic net income per share
  $ 0.07             $ 0.10  
 
   
             
 
Shares used in basic per share computations
    86,963               86,963  
 
   
             
 
Diluted net income per share
  $ 0.06             $ 0.10  
 
   
             
 
Shares used in diluted per share computations
    89,373               89,373  
 
   
             
 

Notes:

1) Adjustment of $1,411 arises from change in warranty estimate methodology in 2003.

2) Adjustment of ($138) related to leased facility write-offs resulting from a workforce reduction initiated in 2003.

3) Adjustments related to leased facility write-offs resulting from a workforce reduction initiated in 2003.

4) Adjustment of $247 arises from amortization of intangible assets resulting from the acquisition of AccessLan Communications, Inc. in 2002.

5) Adjustment of $2,800 related to impairment and write down of completed technology asset in 2003.

6) Adjustment related to impairment and write down of minority interest equity investment in 2003.

8


 

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 amortization of intangible assets resulting from the acquisition of AccessLan Communications, Inc. in 2002.

9


 

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 December 31, 2002
       
                Adjustments        
                from GAAP   Core Business
        GAAP Results   to Core Results   Results
       
 
 
Revenues
  $ 85,746             $ 85,746  
Cost of revenues
    43,356               43,356  
 
   
             
 
   
Gross profit
    42,390               42,390  
 
   
             
 
Operating expenses:
                       
 
Research and development
    15,534       (492 )1     15,042  
 
Sales and marketing
    10,997               10,997  
 
General and administrative
    6,303               6,303  
 
Amortization of acquired intangibles
    912       (912 )2      
 
Securities litigation settlement costs
    1,500       (1,500 )3      
 
In-process research and development
    27       (27 )4      
 
   
     
     
 
   
Total operating expenses
    35,273       (2,931 )     32,342  
 
   
     
     
 
Operating income
    7,117       2,931       10,048  
Other income:
                       
 
Interest income, net
    1,756               1,756  
 
Unrealized gains on Cisco investment
    3,348       (3,348 )5      
 
Other
    13,604       (13,600 )6     4  
 
   
     
     
 
   
Total other income
    18,708       (16,948 )     1,760  
 
   
     
     
 
Income before income taxes
    25,825       (14,017 )     11,808  
Income taxes
    8,264       (4,486 )     3,778  
 
   
     
     
 
Net income
  $ 17,561     $ (9,531 )   $ 8,030  
 
   
     
     
 
Basic net income per share
  $ 0.21             $ 0.10  
 
   
             
 
Shares used in basic per share computations
    84,211               84,211  
 
   
             
 
Diluted net income per share
  $ 0.21             $ 0.09  
 
   
             
 
Shares used in diluted per share computations
    85,577               85,577  
 
   
             
 

Notes:

1)   Adjustment arises from the closure of a research and development office in 2002.
 
2)   Adjustment arises from the acquisition of AccessLan Communications, Inc. in 2002.
 
3)   Adjustment arises from the securities litigation settlement in 2002.
 
4)   Adjustment arises from the acquisition of AccessLan Communications, Inc. in 2002.
 
5)   Adjustment arises from income generated by Cisco securities holdings and related hedge contracts.
 
6)   Adjustment arises from a distribution payment due from Marconi Communications Inc. as a result of a litigation settlement in 2000.

10


 

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 Year Ended December 31, 2003
       
                Adjustments        
                from GAAP   Core Business
        GAAP Results   to Core Results   Results
       
 
 
Revenues
  $ 333,457             $ 333,457  
Cost of revenues
    169,368       495 1,2     169,863  
 
   
     
     
 
   
Gross profit
    164,089       (495 )     163,594  
 
   
     
     
 
Operating expenses:
                       
 
Research and development
    66,148       (2,400 )3     63,748  
 
Sales and marketing
    40,512       (492 )3     40,020  
 
General and administrative
    28,756       (2,825 )3     25,931  
 
Amortization and write down of acquired intangibles
    4,840       (4,840 )4,5      
 
   
     
     
 
   
Total operating expenses
    140,256       (10,557 )     129,699  
 
   
     
     
 
Operating income
    23,833       10,062       33,895  
Other income (expense):
                       
 
Interest income, net
    11,361               11,361  
 
Unrealized gains on Cisco investment
    1,386       (1,386 )6      
 
Other
    (973 )     1,000 7     27  
 
   
     
     
 
   
Total other income
    11,774       (386 )     11,388  
 
   
     
     
 
Income before income taxes
    35,607       9,676       45,283  
Income taxes
    8,902       2,419       11,321  
 
   
     
     
 
Net income
  $ 26,705     $ 7,257     $ 33,962  
 
   
     
     
 
Basic net income per share
  $ 0.31             $ 0.40  
 
   
             
 
Shares used in basic per share computations
    85,849               85,849  
 
   
             
 
Diluted net income per share
  $ 0.31             $ 0.39  
 
   
             
 
Shares used in diluted per share computations
    87,470               87,470  
 
   
             
 

Notes:

1)   Adjustment of $1,411 arises from change in warranty estimate methodology in 2003.
 
2)   Adjustment of ($916) related to severance and leased facility write-offs resulting from a workforce reduction initiated in 2003.
 
3)   Adjustments related to leased facility write-offs resulting from a workforce reduction initiated in 2003.
 
4)   Adjustment of $2,040 arises from amortization of intangible assets resulting from the acquisition of AccessLan Communications, Inc. in 2002.
 
5)   Adjustment of $2,800 related to impairment and write down of completed technology asset in 2003.
 
6)   Adjustment arises from income generated by Cisco securities holdings and related hedge contracts.
 
7)   Adjustment related to impairment and write down of minority interest equity investment in 2003.

11


 

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 Year Ended December 31, 2002
       
                Adjustments        
                from GAAP   Core Business
        GAAP Results   to Core Results   Results
       
 
 
Revenues
  $ 344,063             $ 344,063  
Cost of revenues
    179,957               179,957  
 
   
             
 
   
Gross profit
    164,106               164,106  
 
   
             
 
Operating expenses:
                       
 
Research and development
    61,658       (931 )1     60,727  
 
Sales and marketing
    47,625               47,625  
 
General and administrative
    26,370               26,370  
 
Amortization of acquired intangibles
    3,275       (3,275 )2      
 
Securities litigation settlement costs
    4,443       (4,443 )3      
 
In-process research and development
    12,423       (12,423 )2      
 
   
     
     
 
   
Total operating expenses
    155,794       (21,072 )     134,722  
 
   
     
     
 
Operating income
    8,312       21,072       29,384  
Other income (expense):
                       
 
Interest income, net
    7,649               7,649  
 
Unrealized gains on Cisco investment
    18,352       (18,352 )4      
 
Equity in losses of investee
    (1,079 )             (1,079 )
 
Other
    13,581       (13,600 )5     (19 )
 
   
     
     
 
   
Total other income, net
    38,503       (31,952 )     6,551  
 
   
     
     
 
Income before income taxes
    46,815       (10,880 )     35,935  
Income taxes
    14,981       (3,482 )     11,499  
 
   
     
     
 
Net income
  $ 31,834     $ (7,398 )   $ 24,436  
 
   
     
     
 
Basic net income per share
  $ 0.38             $ 0.29  
 
   
             
 
Shares used in basic per share computations
    83,380               83,380  
 
   
             
 
Diluted net income per share
  $ 0.37             $ 0.29  
 
   
             
 
Shares used in diluted per share computations
    85,292               85,292  
 
   
             
 

Notes:

1)   Adjustment arises from the closure of research and development offices in 2002.
 
2)   Adjustment arises from the acquisition of AccessLan Communications, Inc. in 2002.
 
3)   Adjustment arises from the securities litigation settlement in 2002.
 
4)   Adjustment arises from income generated by Cisco securities holdings and related hedge contracts.
 
5)   Adjustment arises from a distribution payment due from Marconi Communications Inc. as a result of a litigation settlement in 2000.

12