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UTStarcom Reports Third Quarter 2005 Financial Results

ALAMEDA, Calif., Nov. 3 /PRNewswire-FirstCall/ -- UTStarcom, Inc.
(Nasdaq: UTSI), a global leader in IP-based, end-to-end networking solutions
and services, today reported financial results for the third quarter of 2005
ended on September 30, 2005.

UTStarcom Reports Third Quarter 2005 Financial Results
UTStarcom Reports Third Quarter 2005 Financial Results

(Logo: )

Net sales for the third quarter of 2005 were $635.3 million. GAAP net loss
for the quarter was $402.7 million, or ($3.40) loss per share, which includes
charges of approximately $341.4 million, or ($2.89) loss per share associated
with long-lived asset impairment, the tax effect of the impairment and
deferred tax asset valuation allowance.

'UTStarcom continues to focus on meeting the opportunities and challenges
we face as the company evolves,' said
Hong Lu, president and chief executive
officer of UTStarcom, Inc. 'The challenges include narrowing our strategic
product focus, expanding our worldwide sales, completing our corporate
restructuring and improving our operational execution.'

The Company collected just over $1 billion in cash during the quarter with
which it generated approximately $223 million in cash flow from operations and
paid-down approximately $90 million in long-term and $39 million in short-term

'We are pleased with the continued improvements we are making to the
balance sheet, including reductions in inventory, receivables and debt,' added

Fran Barton, executive vice president and chief financial officer of
UTStarcom. 'We are also focused on cutting operating expenses and believe
that, with additional work, we may be able to exceed our initial expense
reduction targets by the first quarter of 2006.'

Impairment Charges

As discussed during the call on October 6th, management held a series of
planning meetings in the third quarter with the aim of narrowing the strategic
focus of the Company's diversification efforts on a go-forward basis. During
these strategic planning meetings, management determined that certain
circumstances have changed sufficiently to indicate that the fair value of
certain of the Company's reporting units may be below their book values. As a
result, management conducted an evaluation of our long-lived assets including
goodwill, intangible assets, and property plant and equipment for impairment.

The preliminary results of management's analysis determined that the fair
values of the majority of the Company's operating units are below their book
values. As such, the Company expects to record non-cash impairment charges of:

    -- $193 million for goodwill,
    -- $2 million for intangible assets,
    -- $23 million property, plant and equipment

In addition to the impairment charges, the Company has determined that it
is required to record a non-cash tax charge of $123 million related to the

The Company expects to conclude the evaluation as to the amounts of the
impairments and reflect the non-cash charges in its quarterly report to be
filed with the SEC by November 10, 2005.

Restructuring Plan Updates

On its first quarter earnings conference call held on May 5, the Company
provided a detailed outline of its restructuring program. The key
deliverables under the restructuring program included reductions in working
capital of $200 million and a reduction in operating expenses of $40 million
per quarter, to approximately $140 million per quarter. The target for
delivery of these reductions was the end of the fourth quarter of 2005. To
date, the Company has reduced its working capital by $271.4 million, exceeding
its initial goals. In addition, the Company believes that it will approach
the projected operating expense savings by the end of the fourth quarter.
Excluding the impairment and restructuring charges, third quarter operating
expenses were approximately $160 million and are expected to be approximately
$140 million in the fourth quarter, not including restructuring costs the
Company expects to incur during the quarter. In addition, the Company has
identified new areas of targeted savings to be executed in the fourth quarter
of 2005. The Company is targeting to bring its total operating expenses
closer to $130 million per quarter beginning in the first quarter of 2006.
As such the Company expects to incur restructuring charges of approximately
$20-$25 million in the fourth quarter.

    Consolidated Fourth Quarter 2005 Guidance
    Total Revenues:        Approximately $650-$680 million*
    Gross Profit Margin:   Total Company:  12-15%
    GAAP EPS:              Loss of approximately ($0.45) to ($0.55), inclusive
                           of approximately $20-$25 million of anticipated
                           restructuring charges and an anticipated gain on
                           disposal of assets

*Included in revenue guidance for the fourth quarter is approximately $40
in revenue related to the Softbank BB mVision IPTV product deployment,
for which recognition is dependent on the completion of all elements of the
contract prior to the close of the fourth quarter.

Conference Call

The Company will conduct a conference call, which is open to the public,
to discuss these results. The call will take place at 1:30 p.m. (PST). The
conference call dial-in numbers are as follows: United States -- 888-398-3046;
International -- 706-634-2492.

A replay of the call will be available from approximately 5:30 p.m. (PST)
on November 3, 2005 to 11:59 p.m. (PST) on November 9, 2005. The conference
call replay numbers are as follows: United States -- 800-642-1687;
International -- 706-645-9291. The Access Code is 1887911.

Investors will also have the opportunity to listen to the conference call
and the replay over the Internet through UTStarcom's Web site at:

To listen to the live call, please go to the Web site at least 15 minutes
early to register and to download and install any necessary audio software.
For those who cannot listen to the live broadcast, a replay will also be
available on this site.

About UTStarcom, Inc.

UTStarcom is a global leader in IP-based, end-to-end networking solutions
and international service and support. The company sells its broadband,
wireless, and handset solutions to operators in both emerging and established
telecommunications markets around the world. UTStarcom enables its customers
to rapidly deploy revenue-generating access services using their existing
infrastructure, while providing a migration path to cost-efficient, end-to-end
IP networks. Founded in 1991 and headquartered in Alameda, California, the
company has research and design operations in the United States, China, Korea
and India. UTStarcom is a FORTUNE 1000 company.

For more information about UTStarcom, visit the company's Web site at

Forward-Looking Statements

This release includes forward-looking statements, including the foregoing
statements regarding the anticipated evolution of the Company to narrow its
strategic product focus, expand world wide sales, complete corporate
restructuring and improve operational execution, anticipated continuing
efforts to reduce inventory, receivables, debt and operational costs,
anticipated ability to exceed the Company's initial expense reduction targets
by the first quarter of 2006, anticipated non-cash accounting charges to be
taken during the quarter ended September 30, 2005 and the timing for the
completion of the Company's review of such charges, anticipated timing and
magnitude of operating expense savings, anticipated new areas of targeted
savings, anticipated operating expenses for the fourth quarter of 2005 and the
first quarter of 2006, anticipated restructuring charges for the fourth
quarter of 2005 and the guidance given for anticipated total revenues, gross
profit margin and earnings (loss) per share for the fourth quarter of 2005,
including anticipated recognition of revenue relating to certain contracts
during the quarter. These statements are forward-looking in nature and subject
to risks and uncertainties that may cause actual results to differ materially.
These risk factors include possible accounting entries and adjustments that
may be made to the Company's financial statements as part of the close of the
books for the quarter ended September 30, 2005. These risk factors also
include rapidly changing technology, the changing nature of global
telecommunications markets, both in China and globally, the termination of
significant contracts, the direction and results of future research and
development efforts, evolving product and applications standards, reduction or
delays in system deployments, product transitions, potential non-realization
of backlog, changes in demand for and acceptance of the Company's products,
general adverse economic conditions, and trends and uncertainties such as
changes in government regulation and licensing requirements, both in China and
globally. The Company also refers readers to the risk factors identified in
its latest Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, and filed with the Securities and Exchange

                               UTStarcom, Inc.
                    Condensed Consolidated Balance Sheets
                                (in thousands)

                                                September 30,     December 31,
                                                    2005              2004
     Current assets:
      Cash, cash equivalents and short-
       term investments                           $511,217          $698,815
      Accounts receivable, net                     579,455           806,613
      Notes receivable                              22,934            26,982
      Inventories, net                             474,485           590,832
      Deferred costs/Inventories at
       customer sites under contracts              201,241           198,155
      Prepaids                                      54,107           112,525
      Current deferred taxes                             -           143,123
      Restricted cash and short-term
       investments                                  36,922            33,347
      Other current assets                          29,040            42,058
     Total current assets                        1,909,401         2,652,450
     Property, plant and equipment, net            251,009           268,759
     Long-term investments                          37,427            35,590
     Goodwill                                        3,063           180,627
     Intangible assets, net                         80,775            98,211
     Other long-term assets                         31,932            80,368
      Total assets                              $2,313,607        $3,316,005

     Current liabilities:
      Accounts payable                            $291,466          $407,536
      Short-term debt                              226,400           351,183
      Income taxes payable                          25,244           143,778
      Customer advances                            159,123           323,938
      Deferred revenue                              98,719            66,941
      Other current liabilities                    250,260           241,577
     Total current liabilities                   1,051,212         1,534,953

     Convertible subordinated notes                274,900           410,655
      Total liabilities                          1,326,112         1,945,608

     Minority interest in consolidated
      subsidiaries                                   5,287             5,025
     Stockholders' equity:
      Common stock: $0.00125 par value;
       authorized: 750,000,000 shares; issued
       and outstanding: 120,013,339 and
       114,486,632 at September 30, 2005 and
       December 31, 2004, respectively                 151               144
      Additional paid-in capital                 1,165,227         1,123,065
      Deferred stock compensation                   (4,052)           (6,102)
      Retained earnings (accumulated deficit)     (195,915)          243,452
      Accumulated other comprehensive income        16,797             4,813
     Total stockholders' equity                    982,208         1,365,372
      Total liabilities, minority
       interest and stockholders' equity        $2,313,607        $3,316,005

                               UTStarcom, Inc.
                Condensed Consolidated Statement of Operations
                   (in thousands, except per share amounts)

                                   Three months ended   Nine months ended
                                      September 30,        September 30,
                                    2005       2004       2005        2004

    Net sales                      $635,307  $645,016  $2,260,063  $1,956,935
    Cost of sales                   581,361   507,882   1,858,481   1,467,496
      Gross profit                   53,946   137,134     401,582     489,439

    Operating expenses:
      Selling, general and
       administrative                88,708    74,916     299,728     209,689
      Research and development       60,797    56,026     193,078     154,276
      In-process research and
       development                        -         -         660       1,400
      Amortization of intangible
       assets                         6,643     3,639      20,391       9,946
      Restructuring                   3,378         -      18,505           -
      Long-lived asset impairment   218,094         -     218,094           -
    Total operating expenses        377,620   134,581     750,456     375,311

    Operating income (loss)        (323,674)    2,553    (348,874)    114,128

    Interest income (expense), net   (2,203)      133      (8,390)      1,102
    Gain on debt extinguishment      20,297         -      31,392           -
    Other income (expense), net       7,352     1,162      (1,723)     14,211
    Income (loss) before income
     taxes, minority interest and
     equity in loss of affiliated
     companies                     (298,228)    3,848    (327,595)    129,441
      Income tax expense (benefit)  103,650    (1,906)    110,048      22,773
      Minority interest in
       (earnings) losses of
       consolidated subsidiaries          3       (40)         94        (127)
      Equity in loss of
       affiliated companies            (786)     (727)     (1,818)     (2,925)
    Net income (loss)             $(402,661)   $4,987   $(439,367)   $103,616

    Basic earnings (loss) per
     share                           $(3.40)    $0.04      $(3.79)      $0.91
    Diluted earnings (loss) per
     share                           $(3.40)    $0.04      $(3.79)      $0.78

    Weighted average shares used
     in per-share calculation:
    - Basic                         118,262   113,945     115,902     114,110
    - Diluted                       118,262   133,226     115,902     136,214

    Non-GAAP Disclosure of EPS
     Effect of Non-cash Charges:
      Goodwill Impairment         $(192,929)
      Intangible Assets
       Impairment                    (1,679)
      Property, Plant and
       Equipment Impairment         (23,486)
        Impairment charges         (218,094)
        Tax effect                 (123,316)

      Basic earnings (loss) per
       share                         $(2.89)

      Weighted average shares
       used in per-share
       calculation:                 118,262

SOURCE UTStarcom, Inc.