<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1994
OR
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission file number 0-1424
ADC Telecommunications, Inc.
----------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0743912
------------------------------- -------------------
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4900 West 78th Street, Minneapolis, MN 55435
---------------------------------------------------
(Address of principal executive offices) (zip code)
(612) 938-8080
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
----------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject so
such filing requirements for the past 90 days.
YES X NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.20 par value: 27,774,147 shares as of February 28, 1994
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1994 1993
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 26,873 $ 16,324
Accounts receivable 56,189 66,830
Inventories 52,842 48,278
Prepaid income taxes and other 9,832 11,099
-------- --------
Total current assets 145,736 142,531
PROPERTY AND EQUIPMENT, net 61,606 62,876
OTHER ASSETS, principally goodwill 73,105 74,647
-------- --------
$280,447 $280,054
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1994 1993
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 300 $ 300
Accounts payable 13,578 21,194
Accrued liabilities 36,541 33,407
-------- --------
Total current liabilities 50,419 54,901
DEFERRED INCOME TAXES 2,731 3,949
LONG-TERM DEBT, less current
maturities above 810 810
-------- --------
Total liabilities 53,960 59,660
STOCKHOLDERS' INVESTMENT
(27,774 and 27,697 shares outstanding,
respectively) 226,487 220,394
-------- --------
$280,447 $280,054
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE STATISTICS)
'
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
JANUARY 31,
----------------------
1994 1993
-------- --------
<S> <C> <C>
NET SALES $ 91,176 $ 78,648
COST OF PRODUCT SOLD 45,247 38,510
-------- --------
GROSS PROFIT 45,929 40,138
Gross profit percentage 50.4% 51.0%
EXPENSES:
Selling 17,539 15,850
Development and product engineering 11,003 9,537
Administration 6,340 5,578
-------- --------
Total expenses 34,882 30,965
-------- --------
OPERATING INCOME 11,047 9,173
OTHER INCOME (EXPENSE), NET:
Interest 133 21
Other (554) (844)
-------- --------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 10,626 8,350
PROVISION FOR INCOME TAXES 3,931 3,090
-------- --------
NET INCOME BEFORE EXTRAORDINARY ITEM 6,695 5,260
EXTRAORDINARY ITEM, NET OF TAXES 1,450 0
-------- --------
NET INCOME $ 5,245 $ 5,260
======== ========
AVERAGE COMMON SHARES
OUTSTANDING 27,735 27,324
======== ========
EARNINGS PER SHARE BEFORE
EXTRAORDINARY ITEM $ 0.24 $ 0.19
======== ========
EARNINGS PER SHARE $ 0.19 $ 0.19
======== ========
ORDERS $ 97,206 $ 78,363
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31 - UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,245 $ 5,260
Adjustments to reconcile net income to net cash
from operating activities --
Depreciation and amortization 5,619 4,984
Reduction in deferred compensation 288 206
Decrease in deferred income taxes (1,218) (117)
Changes in assets and liabilities
Accounts receivable 10,641 1,580
Inventories (4,564) (232)
Prepaid income taxes and other assets 1,222 (273)
Accounts payable (117) (3,005)
Accrued liabilities 3,135 1,162
-------- --------
Total cash provided from operating activities 20,251 9,565
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Contingent acquisition payment (7,087) 0
Property and equipment additions (3,174) (3,386)
-------- --------
Total cash used for investment activities (10,261) (3,386)
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Decrease in long-term debt 0 (9,014)
Common stock issued 559 3,229
-------- --------
Total cash used for financing activities 559 (5,785)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,549 394
CASH AND EQUIVALENTS, beginning of period 16,324 20,484
-------- --------
CASH AND EQUIVALENTS, end of period $ 26,873 $ 20,878
======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 19 $ 76
Income taxes paid $ 976 $ 1,506
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
LAST FOUR FISCAL QUARTERS - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE STATISTICS)
<TABLE>
<CAPTION>
1ST 4TH 3RD 2ND
QUARTER QUARTER QUARTER QUARTER
1994 1993 1993 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 91,176 $ 105,125 $ 93,346 $ 88,999
COST OF PRODUCT SOLD 45,247 51,646 44,708 43,708
--------- --------- --------- ---------
GROSS PROFIT 45,929 53,479 48,638 45,291
Gross profit percentage 50.4% 50.9% 52.1% 50.9%
EXPENSES:
Selling 17,539 19,110 17,647 17,825
Development and product engineering 11,003 11,089 10,080 10,282
Administration 6,340 6,302 5,788 5,211
--------- --------- --------- ---------
Total expenses 34,882 36,501 33,515 33,318
--------- --------- --------- ---------
OPERATING INCOME 11,047 16,978 15,123 11,973
OTHER INCOME (EXPENSE), NET:
Interest 133 52 42 68
Other (554) (1,200) (820) (829)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 10,626 15,830 14,345 11,212
PROVISION FOR INCOME TAXES 3,931 5,699 5,164 4,148
--------- --------- --------- ---------
NET INCOME BEFORE EXTRAORDINARY ITEM 6,695 10,131 9,181 7,064
EXTRAORDINARY ITEM, NET OF TAXES 1,450 0 0 0
--------- --------- --------- ---------
NET INCOME $ 5,245 $ 10,131 $ 9,181 $ 7,064
========= ========= ========= =========
AVERAGE COMMON SHARES OUTSTANDING 27,735 27,641 27,544 27,484
========= ========= ========= =========
EARNINGS PER SHARE
BEFORE EXTRAORDINARY ITEM $ 0.24 $ 0.37 $ 0.33 $ 0.26
========= ========= ========= =========
EARNINGS PER SHARE $ 0.19 $ 0.37 $ 0.33 $ 0.26
========= ========= ========= =========
ORDERS $ 97,206 $ 109,040 $ 95,020 $ 93,214
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 ACCOUNTING POLICIES: The information furnished in this report is
unaudited but reflects all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the
interim periods. The operating results for the three months ended
January 31, 1994 are not necessarily indicative of the operating
results to be expected for the full fiscal year. These statements
should be read in conjunction with the Company's most recent Annual
Report on Form 10-K.
Note 2 STOCK DIVIDEND: On May 26, 1993 the Company declared a two-for-one
stock split in the form of a 100% stock dividend, payable June 28, 1993
to shareholders of record June 15, 1993. The share and per share
information in this report have been adjusted to reflect the effect of
the dividend.
Note 3 ACCOUNTING FOR INCOME TAXES: Effective November 1, 1993, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets
and liabilities relating to differences between the financial statement
and tax basis of assets and liabilities are determined using tax rates
currently in effect for the periods in which the differences are
expected to reverse.
The adoption of SFAS No. 109 had no effect on net income for the
quarter ended January 31, 1994, and there was no material cumulative
effect of the accounting change on years prior to November 1, 1993.
Deferred tax assets and liabilities on November 1, 1993 determined
under SFAS No. 109 consist of the following:
<TABLE>
<CAPTION>
November 1,
1993
----------
<S> <C>
Current deferred tax assets (liabilities):
Inventories $ 2,784
Warranty reserves 465
Deferred compensation accrual 1,496
Allowance for doubtful accounts 533
Vacation accrual 1,142
Insurance reserves 193
Pension accrual 910
Other 218
----------
Total $ 7,741
==========
Non-current deferred tax assets (liabilities):
Depreciation $ (3,005)
Other 166
----------
Total $ (2,839)
==========
</TABLE>
6
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 EXTRAORDINARY ITEM: The building that serves as headquarters for
Fibermux Corporation, a wholly owned subsidiary of the Company,
suffered damage as a result of the earthquake that struck Los Angeles
on January 17, 1994. The Company recorded estimated damages of
$2,300,000 (net of the related $850,000 tax benefit). The facility
repairs have been completed and all operations resumed by
February 8, 1994.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The percentage relationships to net sales of certain income and
expense items for the quarters ended January 31, 1994 and 1993 and the
percentage changes in these income and expense items between periods are
contained in the following table:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES PERCENTAGE
FOR THE QUARTERS ENDED INCREASE
JANUARY 31, (DECREASE)
----------------------- BETWEEN
1994 1993 PERIODS
---------- ---------- ---------
<S> <C> <C> <C>
NET SALES 100.0% 100.0% 15.9%
COST OF PRODUCTS SOLD (49.6) (49.0) 17.5
----- -----
GROSS PROFIT 50.4 51.0 14.4
EXPENSES:
Selling (19.2) (20.1) 10.7
Development and product engineering (12.1) (12.1) 15.4
General and administrative (7.0) (7.1) 13.7
----- -----
OPERATING INCOME 12.1 11.7 20.4
OTHER INCOME (EXPENSE), NET:
Interest .1 -- --
Other (.6) (1.1) (34.4)
----- -----
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 11.6 10.6 27.3
PROVISION FOR INCOME TAXES (4.3) (3.9) 27.2
----- -----
NET INCOME BEFORE EXTRAORDINARY ITEM 7.3 6.7 27.3
EXTRAORDINARY ITEM, NET OF TAXES (1.5) -- --
----- -----
NET INCOME 5.8% 6.7% (.3)
===== =====
</TABLE>
8
<PAGE>
RESULTS OF OPERATIONS
NET SALES: Net sales for the quarter ended January 31, 1994 by product
group, compared to the quarter ended January 31, 1993, are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED JANUARY 31, ($ IN THOUSANDS)
------------------------------------------
1994 1993
---- ----
NET NET
PRODUCT GROUP SALES % SALES %
- ------------- -------- ----- -------- -----
<S> <C> <C> <C> <C>
Transmission $ 20,525 22.5% $ 14,110 18.0%
Networking 23,035 25.3 19,693 25.0
Broadband Connectivity 47,616 52.2 44,845 57.0
-------- ----- -------- -----
Total $ 91,176 100.0% $ 78,648 100.0%
======== ===== ======== =====
</TABLE>
The 1994 net sales amounts reflect sales strength from all ADC entities
except Fibermux Corporation (Fibermux), which experienced earthquake damage in
mid-January. Management believes, based on confirmed purchase orders, that net
sales for the networking product group would have been approximately $4 million
higher had the Company not had to shut down its Fibermux manufacturing facility
to clean up and repair the damage from the earthquake that struck Los Angeles on
January 17, 1994. As of February 8, 1994, Fibermux personnel have completely
returned to their facility and Company management expects to ship the $4 million
of product delayed by the earthquake during its second quarter.
Net sales of fiber optic products represented 32.4% and 33.0% of total
net sales for the quarters ended January 31, 1994 and 1993, respectively. The
lower 1994 percentage reflects the fiber optic products within the $4 million of
shipments delayed during the earthquake shutdown at Fibermux.
GROSS PROFIT: The gross profit percentage for first quarter 1994,
50.4% of sales, was lower than the 51.0% gross profit percentage for first
quarter 1993 primarily due to a less favorable product sales mix.
OPERATING EXPENSES: Although selling expenses were down as a
percentage of net sales in the quarter ended January 31, 1994, selling expenses
increased 10.7% over first quarter 1993 primarily due to selling activities
associated with new product introductions. The Company was able to maintain its
development and product engineering
9
<PAGE>
expenses as a constant percentage of net sales during the quarters ended
January 31, 1994 and 1993, but increased the actual dollars spent in this
expense category by 15.4%, primarily reflecting the Company's new product
development efforts. General and administrative expenses were down slightly as
a percentage of net sales in the quarter ended January 31, 1994.
Company management continues its efforts to balance the cost of product
development with expense control and remains committed to minimizing the rate of
increase of such expenses, while addressing the major technological changes
underway in the telecommunications industry.
OTHER INCOME (EXPENSE), NET: For the quarters ended January 31, 1994
and 1993, the net interest income (expense) category represented net interest
income on cash balances. (See Liquidity and Capital Resources below for a
discussion of borrowings.)
Other expense primarily represents amortization of the goodwill
portions of the Fibermux, Kentrox Industries, Inc. and American Lightwave
Systems, Inc. (ALS) acquisition prices.
INCOME TAXES: The effective income tax rate was 37.0% for the quarters
ended January 31, 1994 and 1993. In addition to the non-deductible goodwill
amortization amounts discussed above, the 37% rate reflects the beneficial
impact of tax credits.
Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under SFAS
No. 109, deferred tax assets and liabilities relating to differences between
the financial statement and tax basis of assets and liabilities are determined
using tax rates currently in effect for the periods in which the differences are
expected to reverse.
The adoption of SFAS No. 109 had no effect on net income for the
quarter ended January 31, 1994, and there was no material cumulative effect of
the accounting change on years prior to November 1, 1993. See Note 3 to the
Unaudited Consolidated Financial Statements included in Part I, Item 1 of this
report for an analysis of deferred tax assets and liabilities on November 1,
1993, determined under SFAS No. 109.
EXTRAORDINARY ITEM: The extraordinary charge of $1,450,000, net of
income taxes, or $.05 per share, recorded in the quarter ended January 31,
1994 represents the charge to clean up and repair the damage from the
earthquake at the Fibermux facility.
10
<PAGE>
NET INCOME: Net income of $5,245,000, or $.19 per share, was
recorded in the quarter ended January 31, 1994. Due to the extraordinary charge
discussed above, these results were relatively constant with the results for the
quarter ended January 31, 1993, $5,260,000, or $.19 per share.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, primarily short-term investments in
commercial paper with maturities of less than 90 days, increased $10,549,000
and $394,000 during the quarters ended January 31, 1994 and 1993, respectively.
The significant 1994 increase primarily reflects increased cash provided from
operating activities and the absence of debt repayments, offset by the
$7,087,000 contingent acquisition payment for ALS which was accrued at
October 31, 1993 and paid during the quarter ended January 31, 1994. ADC
currently has no contingent acquisition purchase price arrangements outstanding.
The Company may borrow up to $40 million under revolving credit
agreements. Borrowings under these agreements bear interest at floating
short-term market rates, can be repaid any time without penalty and can be
converted to term loans bearing interest principally at the prime rate, payable
in annual installments through December 2000. In May 1991, the Company's
acquisition of Fibermux was partially financed by borrowing the total
$40 million. The full $40 million was outstanding until April 1992, when the
Company began repaying the debt. All debt had been repaid by April 1993. At
January 31, 1994, $40 million of borrowings under these agreements remained
available to the Company, and its long-term debt to total capitalization ratio
was .4%. The Company's long-term debt to total capitalization ratio was also
.4% at October 31, 1993.
Management expects that cash generated from operating activities plus
borrowings available under revolving credit agreements will be adequate to fund
operating requirements and property and equipment expenditures in 1994.
However, management recognizes the dynamic nature of the telecommunications
industry, and the possibility that one or more of the Company's product
initiatives may achieve strong market acceptance during the year. In such
event, the Company would consider appropriate financing alternatives. Total
property and equipment additions for 1994 are expected to be approximately
$25 million.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. An annual meeting of shareholders was held on February 22, 1994.
b. Proxies for the meeting were solicited pursuant to Regulation 14
under the Securities and Exchange Act of 1934, there was no
solicitation in opposition to the management's nominees for
director as listed in the proxy statement and all such nominees
were elected.
c-1. An amendment to the Company's Restated Articles of Incorporation
to increase the number of authorized shares of Common Stock from
50,000,000 to 100,000,000 was approved (23,115,016 affirmative
votes; 2,196,119 negative votes; 126,472 abstentions and 0 broker
non-votes).
c-2. The ADC Telecommunications, Inc. 1994 Employee Stock Purchase Plan
was approved (25,171,606 affirmative votes; 93,701 negative votes;
126,508 abstentions and 45,792 broker non-votes).
c-3 The following table shows the vote totals with respect to the
election of the three directors:
NAME VOTES AUTHORITY
FOR WITHHELD
----------------------------------------------------------------
William J. Cadogan 25,358,185 79,422
B. Kristine Johnson 25,347,219 90,388
Jean-Pierre Rosso 25,342,949 94,658
12
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
4-a Specimen certificate for shares of Common Stock of ADC
Telecommunications, Inc. (Incorporated by reference to
Exhibit 4-a to the Company's Quarterly Report on Form 10-Q for
the quarter ended July 31, 1989).
4-b Restated Articles of Incorporation of ADC Telecommunications,
Inc., as amended to date (Incorporated by reference to
Exhibit 4(b) of the Company's Registration Statement on Form S-8
dated March 11, 1994, for the Company's 1994 Employee Stock
Purchase Plan).
4-c Composite Restated Bylaws of ADC Telecommunications, Inc., as
amended to date (Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31,
1989).
4-d Amended and Restated Rights Agreement, amended and restated as of
August 16, 1989 between ADC Telecommunications, Inc. and Norwest
Bank Minnesota, N.A., as Rights Agent (Incorporated by reference
to Exhibit 1 to Amendment No. 1 on Form 8 dated August 16, 1989,
to the Company's Registration Statement on Form 8-A dated
September 23, 1986).
b. Reports on Form 8-K
None.
13
<PAGE>
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, thereunto duly authorized.
ADC TELECOMMUNICATIONS, INC.
BY: /s/ Robert E. Switz
------------------------
Robert E. Switz
Vice President, Chief Financial Officer
(Principal Financial Officer,
Duly Authorized Officer)
Dated: March 14, 1994
14
<PAGE>
ADC TELECOMMUNICATIONS, INC.
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JANUARY 31, 1994
Exhibit
Number Description Page
- ------- ----------- ----
4-a Specimen certificate for shares of Common Stock of ADC N/A
Telecommunications, Inc. (Incorporated by reference to
Exhibit 4-a to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1989).
4-b Restated Articles of Incorporation of ADC N/A
Telecommunications, Inc., as amended to date
(Incorporated by reference to Exhibit 4(b) of the
Registration Statement on Form S-8 dated March 11, 1994,
for the Company's Employee Stock Purchase Plan).
4-c Composite Restated Bylaws of ADC Telecommunications, N/A
Inc., as amended to date (Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1989).
4-d Amended and Restated Rights Agreement, amended and N/A
restated as of August 16, 1989 between ADC
Telecommunications, Inc. and Norwest Bank Minnesota,
N.A., as Rights Agent (Incorporated by reference to
Exhibit 1 to Amendment No. 1 on Form 8 dated August 16,
1989, to the Company's Registration Statement on
Form 8-A dated September 23, 1986).
15
