ECI Telecom Q2 1999 Results - ECI Telecom's 2nd qtr 1999 - Company Financial Information

Cambridge Telcom Report, August 16, 1999

ECI Telecom Ltd. (Nasdaq: ECIL) announced consolidated (unaudited) results of operations for the second quarter and six months ended June 30, 1999.

Revenues for the second quarter increased by 47.3% to $290,210,000 compared with $197,068,000 for the second quarter of 1998. Gross profits rose 34.4% from $112,728,000 to $151,442,000 in the second quarter of 1999. Operating income increased by 21.8% from $43,484,000 to $52,943,000 in the second quarter of 1999. Net income for the second quarter rose 30.5% to $53,579,000 or $0.57 per share (fully diluted) compared to $41,026,000 or $0.52 per share (fully diluted) for the comparable period in 1998.

Revenues for the six months ended June 30, 1999, increased by 50.8% to $574,691,000 compared with $381,209,000 for the comparable period in 1998. Gross profits rose 39.6% from $217,217,000 to $303,300,000 in the first half of 1999. The operating loss for the first half of 1999 was ($10,976,000) compared to operating profit of $84,539,000 for the first half of 1998. Including one-time merger-related expenses totaling $112,709,000 and consisting of restructuring charges and in-process R&D, the net loss for the first half of 1999 was ($8,514,000) or ($0.07) per share (fully diluted) compared to net profit of $79,411,000 or $1.00 per share (fully diluted) for the comparable period in 1998.

These results refer to ECI Telecom after the merger with Tadiran Telecommunications which occurred in 1999. They do not include Tadiran Telecommunications for the parallel periods in 1998.

For the second quarter of 1999, Infrastructure, which currently includes primarily DCME, SDH, and cross connects, recorded revenues of $167 million. Access, which is primarily pair gain, xDSL, HFC and wireless local loop, had revenues of $105 million. Networks, which currently includes primarily data network internet, IP telephony, and Hi-TV, recorded $18 million in revenues.

Commenting on the results, David Rubner, President and CEO of the Company said, "The second quarter was very productive. We made excellent progress in both the consolidation of Tadiran and in the development of important new products. The integration of Tadiran Telecommunications is proceeding very well. Functions have been consolidated and facilities rationalized. We have realized cost savings and are making good progress in achieving revenue synergies. We already see the pull through of the Cross Connects through ECI sales channels and significant new opportunities for our wireless local loop. During the quarter, we purchased a US agent/distributor of Tadiran's business systems and consolidated Tadiran Newbridge Networks into our financial statements.

"Infrastructure equipment experienced modest growth in the quarter. DCME sales have flattened. However, we are making good progress in the development and field trials of our new generation DTX-600, DTX-60, ATX-600 and ITX-1000 which we believe will fuel the re-acceleration of DCME. We have already received initial orders for the new generation systems. ECtel recorded good growth reflecting strong market acceptance of its quality monitoring and fraud prevention solutions. Cross Connect had a strong quarter with breakthrough sales achieved at important US carriers.

"Access grew over last year. The pipeline for our wireless local loop is very rich. We had important wins for the Hi-FOCuS in Europe and are establishing it as the primary future platform for the new access network subscriber approach.

"Within Networks, the microSDH and HFC posted strong growth. After the close of the quarter, we announced major orders for Bogota's Metropolitan Telecommunications Network and the Israel Defense Forces."

Mr. Rubner concluded, "Looking ahead, we are optimistic about the outlook for our ADSL, Cross Connects, wireless local loop, SDH and DCME products. We are particularly pleased that, in spite of the flatness of DCME, our gross margins nevertheless remained strong. This is a reflection of the strong gross margins of other product lines and our decreasing dependence on any one product family."

Further to the Board of Directors' decision, an interim quarterly cash dividend of $0.05 per share, to be paid out of the second quarter profits, will be paid on or about August 26, 1999. The dividend, net of taxes to be withheld at source and in compliance with Israel's foreign currency law, will be paid to shareholders of record as of close of business on August 12, 1999.

A provider of integrated network solutions, ECI Telecom designs, develops, manufacturers and markets digital telecommunications and data transmission systems, enabling network operators to deliver cost-effective services. ECI Telecom's systems provide capacity expansion, flexibility and management functions to better utilize existing and new telecommunications, data and integrated networks.

FMI: http//www.ecitele.com.

                          TABLE - 1
                       ECI TELECOM LTD.
                       AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF INCOME
                          Unaudited

       (In thousands, except per share figures)

                      Six Months Ended         Three Months Ended
                          June 30,                  June 30,

                     1999         1998          1999        1998
Revenues          $574,691      $381,209     $290,210     $197,068
Cost of revenues   271,391       163,992      138,768       84,340
Gross profit       303,300       217,217      151,442      112,728
Research and
 development costs  85,035        58,511       38,936       30,251
Less - grant
 participations   (15,856)      (11,306)      (6,704)      (5,936)
Net                 69,179        47,205       32,232       24,315
Selling and
 marketing expenses 92,106        65,154       46,213       34,519
General and
administrative
 expenses           32,117        19,573       15,928       10,037
Amortization of
 acquisition-related
 intangible assets   8,165           746        4,126          373
Restructuring
 expenses           25,382           ---          ---          ---
Purchase of in-process
 research and
 development        87,327           ---          ---          ---
Operating income
 (loss)           (10,976)        84,539       52,943       43,484
Financial
 income - net            8,589     4,861        3,083        2,811
Other income
 (expenses) - net    (661)           419        (670)          852
Income (loss) before
 taxes on income   (3,048)        89,819       55,356       47,147
Taxes on income      3,267         6,375        1,548        2,809
Income (loss)
 after taxes on
  income           (6,315)        83,444       53,808       44,338
Company's equity in
 results of investee
 companies - net   (1,517)       (1,528)        (978)        (807)
Minority interest
 in results of
 subsidiaries - net  (682)       (2,505)          749      (2,505)
Net income (loss)  (8,514)        79,411       53,579       41,026

Basic earnings
 (loss) per share  ($0.09)         $1.04        $0.58        $0.53

Weighted average number
 of shares outstanding
 used to compute basic
 earnings per share -
 in thousands       91,463        76,701       91,598       76,743

Diluted earnings
 (loss) per share  ($0.07)         $1.00        $0.57        $0.52

Weighted average number
 of shares outstanding
 used to compute diluted
 earnings per share -
 in thousands       96,337        81,440       96,153       81,613

                          TABLE - 2
                       ECI TELECOM LTD.
                       AND SUBSIDIARIES
                 CONSOLIDATED BALANCE SHEETS
                        (In thousands)

                                           June 30,   December 31,
                                               1999           1998
                                        (Unaudited)      (Audited)
Assets
Current Assets
Cash and cash equivalents                  $216,104       $141,848
Short-term investments                      151,517        299,679
Trade Receivables                           431,274        251,303
Other receivables and prepaid expenses       49,956         30,495
Recoverable costs and estimated
earnings, not yet billed                     19,684          9,843
Inventories                                 213,877        162,664
Total current assets                      1,082,412        895,832
Investments, long-term bank deposits
and receivables - net of current maturities 105,147         89,571
Property, plant and equipment - net         189,574        130,891
Software development costs - net             16,379         23,374
Other assets                                154,992         11,265

Total assets                              1,548,504      1,150,933

Liabilities and Shareholders' Equity

Current Liabilities
Short-term credits and current
maturities of long-term debt                     67        121,140
Trade payables                               78,104         53,788
Other payables and accrued liabilities      181,295         94,553
Proposed dividend                             4,590          3,848
Total current liabilities                   264,056        273,329
Long-term liabilities,
 net of current maturities                   93,910        105,559
Liability for employee
 severance benefits - net                    24,695          2,511
Minority Interest                             7,652          6,442

Shareholders' equity
Share capital                                 5,759          5,317
Capital surplus                             584,907        156,559
Net unrealized gain
on available for sale securities                ---            648
Retained earnings                           589,175        606,890
                                          1,179,841        769,414
Company's stock held by
 a consolidated subsidiary                 (21,650)        (6,322)
Total shareholders' equity                1,158,191        763,092

Total Liabilities and shareholders' equity1,548,504      1,150,933