-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bfwk+NiiNPpROYJZCFHQpbWrS+ixDNF1N/pG9lKxXz3wacMPD0Horx3x7IKlsnjj aXeNlKuqquWIVZHPOYT9rg== 0001157523-07-003762.txt : 20070418 0001157523-07-003762.hdr.sgml : 20070418 20070418171518 ACCESSION NUMBER: 0001157523-07-003762 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070418 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070418 DATE AS OF CHANGE: 20070418 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVOCENT CORP CENTRAL INDEX KEY: 0001109808 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 912032368 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-30575 FILM NUMBER: 07774172 BUSINESS ADDRESS: STREET 1: 4991 CORPORATE DRIVE CITY: HUNTSVILLIE STATE: AL ZIP: 35805 BUSINESS PHONE: 2564304000 MAIL ADDRESS: STREET 1: 4991 CORPORATE DRIVE CITY: HMTSVILLE STATE: AL ZIP: 35805 FORMER COMPANY: FORMER CONFORMED NAME: AEGEAN SEA INC DATE OF NAME CHANGE: 20000323 8-K 1 a5380903.txt AVOCENT CORPORATION 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 18, 2007 -------------------------------- AVOCENT CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 000-30575 91-2032368 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 4991 CORPORATE DRIVE HUNTSVILLE, AL 35805 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (256) 430-4000 ------------------------------ n/a - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 2.02 Results of Operations and Financial Condition. On April 18, 2007, Avocent Corporation publicly disseminated a press release announcing its financial results for its first quarter ended March 30, 2007. The information contained in the press release is incorporated herein by reference and furnished as Exhibit 99.7 hereto. Avocent is also providing additional commentary regarding the financial results for its first quarter ended March 30, 2007. The information contained in the commentary is incorporated herein by reference and is furnished as Exhibit 99.8 hereto. Item 9.01 Financial Statements and Exhibits. (d) Exhibits. Exhibit Number Description of Exhibit -------------- ---------------------- 99.7 Press Release issued April 18, 2007 99.8 Commentary regarding the First Quarter 2007 Results SIGNATURES ---------- 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 hereunto duly authorized. AVOCENT CORPORATION Date: April 18, 2007 By: /s/ Edward H. Blankenship ------------------------------------ Edward H. Blankenship Senior Vice President of Finance and Chief Financial Officer EXHIBIT INDEX ------------- Exhibit Description - ------- ----------- 99.7 Press Release dated April 18, 2007 99.8 Commentary regarding the First Quarter 2007 Results EX-99.7 2 a5380903ex997.txt EXHIBIT 99.7 Exhibit 99.7 Avocent Reports First Quarter Results HUNTSVILLE, Ala.--(BUSINESS WIRE)--April 18, 2007--Avocent Corporation (NASDAQ:AVCT) today reported financial results for the first quarter ended March 30, 2007. Net sales for the first quarter increased 41.7% to $134 million, consistent with the expected range provided on April 9, 2007, compared with $94.5 million reported for the first quarter of 2006. "As we detailed on April 9, 2007, Avocent's first quarter sales were below our expectations due to softness in IT spending, project delays by some customers and a lower level of economic activity than we had forecast," stated John R. Cooper, chairman and chief executive officer of Avocent Corporation. "As a result, our growth in sales from the first quarter of 2006 was due primarily to the contributions from our acquisitions of Cyclades and LANDesk last year." "Our product suites are very competitive, and we remain positive about the outlook for Avocent. The addition of Cyclades extended our markets for serial-based management products and the LANDesk acquisition adds a new market for Avocent with a suite of IT management software products and strength in desktop management. We expect to leverage our combined products lines to expand future growth opportunities," continued Mr. Cooper. First Quarter Results First quarter 2007 operational income, which is income prior to intangible amortization, stock compensation and acquired in-process research and development expenses, was $12.7 million, or $0.25 per diluted share, compared with $17.4 million, or $0.35 per diluted share, in the first quarter of 2006. (See "Use of Non-GAAP Financial Measures" discussion below.) GAAP net income for the first quarter of 2007 was $746,000, or $0.01 per diluted share. This compares with GAAP net income of $12.9 million, or $0.26 per diluted share, in the first quarter of 2006. Net adjustments to reconcile operational income to GAAP net income were $12.0 million in the first quarter of 2007, including $11.6 million in intangible amortization, $3.7 million in stock compensation expenses and $4.1 million in related income tax benefits. Net adjustments to reconcile to GAAP net income were $4.5 million in the first quarter of 2006, including $2.4 million in intangible amortization, $2.1 million in acquired in-process research and development, $0.8 million in stock compensation expenses and $1.0 million in related income tax benefits. Branded sales increased 79% from the first quarter of 2006 and accounted for 64.1% of total first quarter 2007 sales. Growth in branded sales was due largely to the acquisitions of Cyclades and LANDesk. OEM sales increased 3.3% from the first quarter of 2006 and accounted for 35.9% of total first quarter 2007 sales. U.S. sales increased 42% to $74.2 million and international sales rose 42% to $59.7 million compared with the first quarter of 2006. Gross profit for the first quarter of 2007 increased 51.2% to $84.7 million with a gross margin of 63.2%. This compared with gross profit of $56.0 million and a gross margin of 59.3% in the first quarter of 2006. The increase in gross margin was due to higher sales and improved product mix, including increased sales of digital products and the addition of LANDesk's software revenues. Research and development expenses increased 53.1% to $19.8 million ($20.9 million on a GAAP basis, which includes stock-based compensation of $1.1 million), or 14.8% of sales, compared with $12.9 million, or 13.7% of sales, in the first quarter of 2006. "Our R&D spending increased from last year due primarily from the addition of LANDesk and Cyclades teams," continued Mr. Cooper. "Our focus remains on integrating the Avocent and LANDesk software platforms and bringing new technologies to market while improving the performance and cost of existing products and services." Selling, general and administrative expenses increased to $46.3 million ($48.7 million on a GAAP basis, which includes stock-based compensation of $2.4 million) compared with $22.7 million in the first quarter of 2006. The increase in SG&A expenses was due primarily to the addition of Cyclades and LANDesk and additional marketing expenditures for recently introduced products. Total employee count increased to approximately 1,800 primarily as a result of the Cyclades and LANDesk acquisitions. Avocent's cash flow from operations was approximately $18.8 million for the first quarter of 2007. At the end of the first quarter, Avocent's cash, cash equivalents and investments totaled approximately $109 million. Avocent repurchased approximately 486,000 shares during the first quarter at a total cost of approximately $15.4 million. First Quarter Division Results Revenues from the Management Systems Division advanced to $105.1 million in the first quarter of 2007 from $90.5 million in the first quarter of 2006, primarily as a result of the Cyclades acquisition, while operating income from this division increased to $25.9 million in the first quarter of 2007. The LANDesk Division produced revenues of $23.9 million in the first quarter of 2007 with an operating loss of $0.5 million. LANDesk was acquired by Avocent effective August 31, 2006. Revenues from the two emerging businesses increased to $4.2 million in the first quarter of 2007 from $3.0 million in the first quarter of 2006, while operating losses from these divisions increased to $3.1 million in the first quarter of 2007 from $2.7 million in the first quarter of 2006. Use of Non-GAAP Financial Measures Income prior to intangible amortization, stock compensation and acquired in-process research and development expenses, or operational income as used in the attached financial statement schedules, is not a measure of financial performance under generally accepted accounting principles (GAAP) and should not be considered a substitute for or superior to GAAP. Avocent's management uses operational income as a financial measure to evaluate performance and allocate resources within the Company. Management believes this measure presents the Company's results on a more comparable operational basis by excluding non-cash amortization expenses, non-operational expenses associated with acquisitions, and non-cash stock-based compensation expense. Avocent believes that operational income is a measure of performance used by some investment banks, analysts, investors and others to make informed investment decisions. Other companies may calculate operational income in a different manner so this measure may not be comparable to similar measures presented by other companies. A reconciliation of Avocent's results using operational measures and GAAP is set forth in the condensed consolidated statements of operations included in this press release. Conference Call and Additional Information Avocent will provide an on-line, real-time webcast and rebroadcast of its first quarter results conference call to be held April 19, 2007. The live broadcast will be available on-line at www.avocent.com as well as www.investorcalendar.com beginning at 10:00 a.m. Central time. The on-line replay will follow immediately and continue for 30 days. Avocent has also furnished additional commentary on the first quarter results simultaneously with this release on a Form 8-K filed with the SEC and on its website. About Avocent Corporation Avocent delivers IT operations and infrastructure management solutions for enterprises worldwide, helping customers to reduce costs and simplify complex IT environments via integrated, centralized in-band and out-of-band hardware and software. Through LANDesk, Avocent also is a leading provider of systems, security, and process management solutions. Additional information is available at: www.avocent.com. Forward-Looking Statements This press release contains statements that are forward-looking statements as defined within the Private Securities Litigation Reform Act of 1995. These include statements regarding the outlook for future sales, the expanded markets and growth opportunities resulting from the integration of Cyclades serial-based management products and LANDesk's management suite into Avocent products, and our continued focus on integrating software platforms and bringing new technologies to market while improving the performance and cost of our existing products and services. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made, including the risks associated with general economic conditions, risks attributable to future product demand, sales, and expenses, risks associated with reliance on a limited number of customers, component suppliers, and single source components, risks associated with acquisitions and acquisition integration, risks associated with product design efforts and the introduction of new products and technologies, and risks associated with obtaining and protecting intellectual property rights. Other factors that could cause operating and financial results to differ are described in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2007. Other risks may be detailed from time to time in reports to be filed with the SEC. Avocent does not undertake any obligation to publicly update its forward-looking statements based on events or circumstances after the date hereof. AVOCENT CORPORATION Condensed Consolidated Statements of Income (Unaudited, in thousands, except per share data) For the Quarter Ended March 30, 2007 Stock Operational Compensation(1) Adjustments(2) GAAP ----------- ---------------- -------------- --------- Net sales $133,932 $(781) $133,151 Cost of sales 49,274 $179 2,683 52,136 ----------- ---------------- -------------- --------- Gross profit 84,658 (179) (3,464) 81,015 Research and development expenses 19,765 $1,116 20,881 Selling, general and administrative expenses 46,282 2,366 12 48,660 Amortization of intangible assets - - 8,962 8,962 ----------- ---------------- -------------- --------- Operating income 18,611 (3,661) (12,438) 2,512 Other income (expense), net (1,672) - - (1,672) ----------- ---------------- -------------- --------- Income before provision for income taxes 16,939 (3,661) (12,438) 840 Provision for income taxes 4,226 (1,005) (3,127) 94 ----------- ---------------- -------------- --------- Net income $12,713 $(2,656) $(9,311) $746 =========== ================ ============== ========= Earnings per share: Basic $0.25 $0.01 Diluted $0.25 $0.01 Weighted average shares and common equivalents outstanding: Basic 50,733 - - 50,733 Diluted 51,886 - - 51,886 For the Quarter Ended March 31, 2006 Stock Operational Compensation(1) Adjustments(2) GAAP ----------- ---------------- -------------- --------- Net sales $94,512 $94,512 Cost of sales 38,505 $50 38,555 ----------- ---------------- -------------- --------- Gross profit 56,007 (50) 55,957 Research and development expenses 12,908 $301 13,209 Acquired in- process research and development expenses - - $2,100 2,100 Selling, general and administrative expenses 22,743 490 151 23,384 Amortization of intangible assets - 2,351 2,351 ----------- ---------------- -------------- --------- Operating income 20,356 (841) (4,602) 14,913 Other income (expense), net 3,016 - - 3,016 ----------- ---------------- -------------- --------- Income before provision for income taxes 23,372 (841) (4,602) 17,929 Provision for income taxes 5,952 (262) (694) 4,996 ----------- ---------------- -------------- --------- Net income $17,420 $(579) $(3,908) $12,933 =========== ================ ============== ========= Earnings per share: Basic $0.35 $0.26 Diluted $0.35 $0.26 Weighted average shares and common equivalents outstanding: Basic 49,095 - - 49,095 Diluted 50,109 - - 50,109 (1) Stock Compensation relates to expensing of stock options, restricted stock units, and performance shares. Avocent adopted SFAS 123R effective January 1, 2006 and began recording expense related to outstanding unvested stock options on that date as well as on subsequent equity compensation grants. (2) Adjustments related to acquired in-process research and development expense from the Cyclades acquisition, depreciation and amortization of the purchase accounting adjustment to deferred revenue and intangibles recorded as the result of acquisitions. AVOCENT CORPORATION Condensed Consolidated Balance Sheets (Unaudited, in thousands) March 30, December 31, 2007 2006 ------------- ------------- Cash, cash equivalents and short-term investments $108,939 $107,165 Accounts receivable, net 109,192 126,471 Inventories, net 40,137 41,765 Other current assets 17,900 17,269 Deferred income tax 8,705 7,355 ------------- ------------- Total current assets 284,873 300,025 Investments - 987 Property and equipment, net 38,087 38,004 Goodwill 606,787 607,488 Intangible assets, net 199,235 209,674 Other assets 2,370 2,676 ------------- ------------- Total assets $1,131,352 $1,158,854 ============= ============= Accounts payable and other accrued expenses $31,381 $41,771 Income tax payable 20,340 17,364 Deferred revenue 45,144 44,453 Other current liabilities 24,756 29,754 ------------- ------------- Total current liabilities 121,621 133,342 Line of credit obligation 150,000 150,000 Deferred income taxes 28,137 30,377 Deferred revenue, net of current portion 9,593 10,070 Other non-current liabilities 872 1,222 ------------- ------------- Total liabilities 310,223 325,011 Total stockholders' equity 821,129 833,843 ------------- ------------- Total liabilities and stockholders' equity $1,131,352 $1,158,854 ============= ============= AVOCENT CORPORATION Additional Financial Information (Unaudited, in thousands) Quarter Ended ------------------------------------ March 30, March 31, March 31, 2007 2006 2006 As if Actual Combined ----------- ----------- ------------ Revenue by Distribution Channel - ---------------------------------- Branded $85,825 $47,955 $81,643 OEM 48,107 46,557 49,265 ----------- ----------- ------------ Total $133,932 $94,512 $130,908 =========== =========== ============ Revenue by Division - ---------------------------------- Management Systems $105,104 $90,498 $104,453 LANDesk 23,854 - 22,441 Other business units 4,224 3,021 3,021 Corporate and unallocated 750 993 993 ----------- ----------- ------------ Total $133,932 $94,512 $130,908 =========== =========== ============ Management Systems Division Revenue by Product Line - ---------------------------------- KVM $80,688 $77,975 $78,680 Serial Management 11,286 993 11,921 Embedded Software and Solutions 7,577 6,133 6,133 Other 5,553 5,397 7,719 ----------- ----------- ------------ Total $105,104 $90,498 $104,453 =========== =========== ============ LANDesk Division Revenues by Type - ---------------------------------- Licenses and royalties $13,371 $- $13,748 Maintenance and services 10,483 - 8,693 ----------- ----------- ------------ Total $23,854 $- $22,441 =========== =========== ============ Operating Profit (Loss) by Division - ---------------------------------- Management Systems $25,911 $25,783 LANDesk (536) - Other business units (3,149) (2,698) Corporate and unallocated (3,615) (2,729) ----------- ----------- Total $18,611 $20,356 =========== =========== Cash Flow Highlights - ---------------------------------- Cash provided by operations $18,804 $16,564 Depreciation expense 2,354 1,774 Capital expenditures 2,651 1,689 Purchase of treasury shares 15,437 26,952 CONTACT: Avocent Corporation Edward H. Blankenship Senior Vice President of Finance and Chief Financial Officer 256-217-1301 EX-99.8 3 a5380903ex998.txt EXHIBIT 99.8 Exhibit 99.8 AVOCENT CORPORATION COMMENTS BY MANAGEMENT ON FINANCIAL RESULTS FOR THE QUARTER ENDED MARCH 30, 2007 Concurrently with the filing of these comments, Avocent Corporation has issued a press release containing financial information for the quarter ended March 30, 2007. The following commentary should be read in conjunction with that press release including its financial tables. Overview for the First Quarter 2007 - ----------------------------------- Operational revenue of $133.9 million for the first quarter represents an increase of 42% from the first quarter of 2006. The year over year increase is due primarily to the inclusion of LANDesk and Cyclades in 2007 (which were acquired on August 31, 2006 and March 30, 2006, respectively). Q1 2007 revenue decreased 19% from the fourth quarter of 2006. We typically experience a sequential decline in revenue from the fourth quarter of one year to the first quarter of the following year. However, as discussed in our press release dated April 6, 2007, our first quarter 2007 revenue fell short of our expectations. We believe revenue fell below our expectations for several reasons including softness in overall enterprise capital spending, specifically spending in the IT sector and the related slowing of channel activity, project delays by some customers and a lower level of economic activity than we had expected. Divisional Revenue for the First Quarter - ---------------------------------------- The Management Systems Division recorded revenue of $105.1 million, up 16.1% from the first quarter of last year but down 21.4% from the fourth quarter of last year. For the first quarter of 2007, revenue from the sale of KVM products was approximately $80.7 million, revenue from serial products was approximately $11.3 million and revenue from our embedded software and solutions (formerly our AESS Division) was approximately $7.6 million. LANDesk revenue increased to $23.9 million in the first quarter of 2007 from $22.4 million in the first quarter of 2006. From the first quarter of 2006, revenue benefited from increases in new license sales of the LANDesk Management Suite and new subscriptions of the LANDesk Security Suite. The security products were 23.5% of LANDesk revenue this quarter versus 15.5% in the first quarter of 2006. The change in mix has an impact on revenue recognized as license sales typically are recognized upon delivery of the license keys whereas subscription revenue is deferred and amortized to revenue over the subscription term. 1 As mentioned previously, we will begin limited cross-selling efforts between our LANDesk and Management Systems Divisions during the second quarter of 2007. We have begun the process of coordinating our product roadmaps, and we expect to integrate the software platforms over the next year. Our other, smaller entrepreneurial divisions continue to make progress. Revenue for the first quarter of 2007 grew to $4.2 million from $3.0 million in the first quarter of 2006. As discussed previously, we integrated the Mobile Solutions Division into LANDesk (effective on January 1, 2007) and this division's first quarter results are included with LANDesk for the first quarter of 2007. LANDesk incorporated this technology into the LANDesk Management Suite in the fourth quarter of 2006. These entrepreneurial business units and our continued focus on emerging technologies provide Avocent the potential to diversify our revenue and find new areas for growth. Sales of new products that were introduced or significantly refreshed during the past 12 months contributed approximately $27.4 million to revenue in the first quarter of 2007. GAAP basis revenue was $133.2 million for the first quarter 2007. Operational revenue includes $781,000 for the first quarter's amortization of LANDesk deferred revenue, which was not recognized on a GAAP basis as it was reduced in the application of purchase accounting. Had we not acquired LANDesk, the $781,000 represents the portion of deferred revenue existing at the acquisition date (August 31, 2006) which LANDesk would have recognized as earned during the first quarter. Gross Margin - ------------ Total gross profit was $84.7 million for the quarter compared to $56.0 million for the same quarter last year, representing an increase of 51%. The increase in gross profit was disproportionately higher than the 42% increase in operational revenue due to the impact of LANDesk software and maintenance revenue. LANDesk software and maintenance revenue increases our overall gross profit as the gross margin on this division was 88% for the quarter. Legacy Avocent (excluding LANDesk) produced $63.7 million in gross profit on $110.0 million in sales, or 57.9%, down 3.4% compared to the 61.3% experienced in Q4 2006. Traditionally, Q1 of each year generates our lowest quarterly revenue of the year with Q4 generating our highest. This seasonal trend is even more evident as Q4 of 2006 set a revenue record for us of $166.1 million. Consistent with this quarterly trend, the decrease in gross margin was primarily driven by lower revenue than that of Q4 2006 combined with increases to our excess and obsolete reserves associated with the end of life for certain products. Operating Expenses - ------------------ R&D costs during the first quarter of 2007 were $19.8 million and represented 14.8% of sales. This compares to $18.2 million for Q4 of 2006, with the increase primarily attributable to the impact of headcount additions in key product development areas and the annual pay increase granted at the beginning of 2007. Compared to Q1 of 2006, R&D expenses increased $6.9 million due primarily to the addition of LANDesk and Cyclades R&D teams. 2 Selling, General and Administrative expenses were $46.3 million, or 34.6% of sales. This compares to $50.0 million for Q4 2006 and represents a decrease of $3.7 million, primarily related to the decline in revenue and the related impact on incentive and commission compensation expense. Our Q1 2007 operating profit decreased $1.7 million and $22.7 million compared to the first and fourth quarters of 2006, respectively, to $18.6 million, resulting in an operating margin of 13.9% for the first quarter of 2007. Other Income (Expense) Statement Items - -------------------------------------- Other income and expense netted to an expense of $1.7 million for Q1, up $0.4 million compared to that of Q4 2006. This also compares to $3.0 million in net other income generated in Q1 2006, primarily through investment activities. The increase in net other expense is a result of reduced cash available for investment combined with interest expense on our line of credit as we funded the acquisition of Cyclades at the end of the first quarter of 2006 and LANDesk at the end of August 2006. We used approximately $30.7 and $15.4 million of cash during the fourth quarter of 2006 and first quarter of 2007, respectively, for our share repurchase program. Our effective tax rate for the quarter was 25.0% compared to 23.5% and 25.5% for the fourth and first quarters of 2006, respectively. The mix of pretax profit among our U.S. and foreign based companies affects the rate. We are currently integrating our tax planning strategies and reviewing recent legislative changes to the US R&D tax credits that may have an impact on our future effective tax rates. Operational net income (before the effects of intangible asset amortization and stock-based compensation) was $12.7 mi1lion or 9.5% of sales. This compares to $30.6 and $17.4 million for the fourth and first quarters of 2006, respectively. Operational earnings per share (before the effects of intangible amortization, and stock-based compensation) amounted to 25 cents per diluted share for the quarter versus 35 cents for the first quarter of 2006. Our weighted average diluted shares outstanding increased year over year by approximately 1.8 million to 51.9 million this quarter related to the net new shares issued in the LANDesk acquisition (offset by shares we repurchased). Cash Flow and Balance Sheet Items - --------------------------------- At the end of the first quarter we had approximately $109 million in cash and investments. Cash flow from operations was approximately $19 million for the first quarter of 2007. 3 Our accounts receivable balance decreased over $17 million from December 31, 2006 as a direct result of the slower sales in our first quarter, and was helped by improved cash collections during the quarter, specifically at LANDesk. However, our DSO increased during the quarter (to 74 from 70 at the end of 2006) as a result of a higher concentration of sales in the third month of the quarter than we typically experience. In addition, adding LANDesk customer balances to our receivables, which tend to have longer payment terms than legacy Avocent balances have, increased our DSO's. Excluding LANDesk, our DSO was 67 for the quarter, still outside our target of 60 for legacy Avocent. However, our aging remains strong and has shown improvement from the fourth quarter of 2006. Our operations group worked to reduce our inventories in the first quarter, which declined slightly by $1.6 million, despite planning and stocking for higher sales volume in the quarter. However our inventory turns decreased to 4.9, primarily as a result of our lower sales volume. Had revenue met our expectation, the inventory levels would have been lower at quarter end. We remain focused on our balance sheet. Our management team feels strongly that we should manage our balance sheet to ensure our investment in assets is focused on providing the products our customers need, ensuring that our employees have the tools they need to serve customers and paying our vendors in a timely manner. During the quarter, we invested approximately $2.7 million for capital expenditures while depreciation was approximately $2.4 million for the quarter. The balance outstanding on our line of credit remains unchanged from December 31, 2006, approximately $150 million. During the first quarter, we purchased 486,000 shares of Avocent stock at a cost of $15.4 million. These shares combined with the shares of Avocent stock bought back in prior quarters total 10.3 million shares out of the 12 million shares authorized for repurchase under our repurchase programs. The shares repurchased during the first quarter were used to offset options exercised during the quarter and a portion of the restricted stock units vesting during the quarter. Proceeds from option exercises totaled $2.8 million in the first quarter of 2007. 4 Forward-Looking Statements - -------------------------- This commentary contains statements that are forward-looking statements as defined within the Private Securities Litigation Reform Act of 1995. These include statements regarding the integration and operation of LANDesk and its operations, product roadmap, and software platforms, our focus on the emerging technologies in our entrepreneurial business units and our efforts to diversify our revenue and find new areas for growth, the size and growth of the current and future markets for our products and technologies, and our effective tax rate in the future. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made, including the risks associated with general economic conditions, risks attributable to future product demand, sales, and expenses, risks associated with reliance on a limited number of customers, component suppliers, and single source components, risks associated with acquisitions and acquisition integration, risks associated with product design efforts and the introduction of new products and technologies, and risks associated with obtaining and protecting intellectual property rights. Other factors that could cause operating and financial results to differ are described in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2007. Other risks may be detailed from time to time in reports to be filed with the SEC. Avocent does not undertake any obligation to publicly update its forward-looking statements based on events or circumstances after the date hereof. 5 -----END PRIVACY-ENHANCED MESSAGE-----