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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
_X_ For the fiscal year ended October 31, 1995
OR
___ For the Transition period from ____________ to _____________
Commission File No. 0-1424
ADC Telecommunications, Inc.
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(Exact name of registrant as specified in its charter)
Minnesota 41-0743912
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4900 West 78th Street
Minneapolis, Minnesota 55435
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 938-8080
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)
of the Act: Common Stock, $.20 par value
Common Stock Purchase Rights
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 to such
filing requirements for the past 90 days. _X_ Yes ___ No
The aggregate market value of voting stock held by nonaffiliates of the
registrant, as of December 22, 1995, was approximately $2,199,841,550 (based on
the last sale price of such stock as reported by the Nasdaq Stock Market
National Market).
The number of shares outstanding of the registrant's common stock, $.20
par value, as of December 22, 1995, was 62,759,877.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ___
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instruction G(3), the responses to Items 10, 11, 12
and 13 of Part III of this report are incorporated herein by reference to the
information contained in the Company's definitive proxy statement for its 1996
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission on or before February 27, 1996.
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PART I
Item 1. BUSINESS
ADC designs, manufactures and markets transmission, enterprise networking
and connectivity products for use in broadband global networks. The Company's
wide range of products employ fiber, hybrid fiber coax, wireless and
traditional copper-based technologies. The Company's customers include:
public network providers, which consist of all seven of the Regional Bell
Operating Companies (RBOCs), other telephone companies, long distance carriers,
wireless service providers, the major cable TV operators and other domestic
public network providers; private and governmental network providers (such as
various large business customers and governmental agencies); international
network operators; and major telecommunications Original Equipment
Manufacturers (OEMs). The Company's products enable these network providers to
build and upgrade their networks to support increasing user demand for voice,
data and video services.
As used in this report, the terms "Company" and "ADC" refer to ADC
Telecommunications, Inc. and its wholly owned subsidiaries, unless the context
otherwise requires; and 1993, 1994 and 1995 refer to the Company's fiscal years
ended October 31, 1993, 1994 and 1995, respectively.
INDUSTRY BACKGROUND
Since the 1970's, the telecommunications equipment industry has grown and
changed substantially, primarily as a result of continuous technological
development; increased demand for the transmission of data and video traffic
and the convergence of all network traffic into integrated multimedia services
over public and private networks; and a changing regulatory and competitive
environment. The Company believes that these trends will continue to drive
changes in the telecommunications equipment industry for the foreseeable
future.
Several important technological developments have spurred the evolution of
the telecommunications equipment industry. One important technological change
has been the deployment of fiber optic transmission systems. In a fiber optic
system, lasers transmit voice, data and video traffic in the form of analog or
digital coded light pulses through glass fibers. The increasing shift to fiber
optic transmission systems has been principally due to the ability of fiber
optics to carry large volumes of information at high speeds, its insensitivity
to electromagnetic interference and the high transmission quality made possible
by the physical properties of light.
The development of cost-effective digital technology has allowed greater
capacity (or speed) in network transmission and has resulted in an increasing
trend over the past decade to replace analog technology in copper, fiber and
wireless transmission networks. In analog technology, information is converted
to a voltage or current wave form for processing or transmission. In digital
technology, information is converted to digital bits and then processed or
transmitted using computer based components. Very high-speed digital
technology developments such as cell based Asynchronous Transfer Mode (ATM)
technologies and Synchronous Optical NETwork (SONET) technologies have enabled
network providers to transmit increasing amounts of data and video
communications.
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Another important technological change in the telecommunications
marketplace is the use of integrated circuits in both public and private
telecommunications networks, facilitating significantly more complex networks.
Network equipment utilizing integrated circuits is increasingly performing the
high speed switching, network performance monitoring, network management,
information compression, data translation and other complex functions required
to address expanding users' needs.
More recently, wireless technology developments are having an impact on
the telecommunications equipment industry. There has been substantial growth
in wireless communications such as cellular telephone services, and significant
preparations for increasing use of satellite-based services, personal
communications services (PCS) and Multichannel, Multipoint Distribution Systems
(MMDS) for wireless cable services. This growth has been spurred by the
convenience of mobility and the limits of wireline infrastructure. In
particular, in countries without reliable or extensive wireline systems,
wireless service could ultimately provide the primary service platform for both
mobile and fixed telecommunications applications, because of the potential
savings in installation time and cost. The Company believes that in future
years the continuing development of wireless communications technology could
substantially extend the reach of current communications networks.
Demands on network infrastructure have grown substantially in the past
decade. Networks increasingly are required to transmit a combination of data
and video for the purpose of communicating information, conducting business and
delivering entertainment. In addition, both public and private network
customers are requesting the convergence of their voice, data and video traffic
into integrated multimedia services transmitted over one network. Such demands
have prompted the development and use of "broadband" networks, which feature
the improved reliability and increased speed of transmission generally required
for data and video transmission over the network. Specifically, the industry
term "broadband" refers to all transmission speeds of T1 (1.544 million bits
per second) and higher. Growth in broadband network applications has fueled
increased infrastructure investment by network operators in order to expand
network capacity and provide new applications and services to meet users'
needs.
The evolution in technology and user needs has been accompanied by changes
in the domestic and international regulatory environment. Since the
divestiture of the AT&T regional operating companies in 1984, the RBOCs have
been prevented from manufacturing equipment for use in telecommunications
networks. As the RBOCs have embarked on aggressive expansion plans,
significant opportunities have been created for independent telecommunications
equipment manufacturers such as the Company. The policy of deregulation
currently being followed by the Federal Communications Commission and other
important regulatory agencies throughout the world has increased opportunities
for independent companies to supply products and services within public
telephone system markets and within private voice, data and video
communications markets. Although the ultimate impact is uncertain, current
telecommunications legislation being discussed in the U.S. Congress may result
in new competitors, including the RBOCs, entering the telecommunications
equipment market.
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Outside the United States, the telecommunications equipment market has
also expanded and changed significantly in recent years, as network users have
increasingly demanded access to voice, data and video communications
capabilities. Many countries without reliable or extensive wireline systems
are seeking to develop and enhance their telecommunications infrastructure.
This growth in demand for network services and infrastructure has been
accompanied by changes in the international regulatory environment. In many
countries, government operated telecommunications monopolies are being
converted to private network services providers, and competition among such
carriers may intensify.
The Company believes that "broadband global networking," or the emerging
series of worldwide broadband networks, represents a key enabling capability
for meeting the information needs of network users. The addition of high speed
data and video traffic has driven the need for broadband infrastructure and has
enabled the creation of a wide range of new applications, including video on
demand, distance learning, telecommuting and remote medical imaging. The
Company participates in this emerging broadband global network market by
providing a broad variety of equipment, services and integrated product
solutions.
STRATEGY
ADC's strategy is to capitalize on opportunities in the evolving global
telecommunications market by providing equipment, services and integrated
solutions for its customers' voice, data and video telecommunications networks.
ADC's broad range of products addresses key areas of the telecommunications
network infrastructure, and these products are used to connect physical
networks, access network services, transport network traffic and manage
networks. ADC's diverse product offerings address the needs of its many
customers which include the RBOCs, other telephone companies, long distance
carriers, wireless service providers, the major cable TV operators, other
public network providers, private network providers and telecommunications
OEMs. Key components of the Company's strategy include:
* Focus on Broadband Network Opportunities. In recent years, broadband
requirements for both public and private networks have grown significantly.
Accordingly, ADC is focusing its product development and marketing efforts on
opportunities in emerging broadband networks. In the public network market,
broadband deployment has been driven by telephone and cable television
providers seeking to establish the infrastructure required to offer video,
telephony, entertainment, Internet access and other interactive services to
residential customers over a single network. In the private network market,
broadband requirements have been driven by the growth of voice, data and video
applications utilizing increasing amounts of bandwidth. Examples of products
developed by ADC to target these opportunities include the Company's Homeworx-
TM- system, which has been designed to enable telephone and cable television
companies to provide a range of voice, video and data services to residential
customers; the Soneplex-Registered Trademark- product, which allows public
network providers to cost effectively deliver and manage broadband services
over the public network for their business customers; and the AAC-3-TM- ATM
access concentrator, which is being developed to allow customers to gain access
to switched voice, data and video traffic on public networks from their private
networks.
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* Provide End-to-End Network Solutions. ADC offers a broad line of
telecommunications equipment that addresses customers' key network needs from
the central office, through the local loop (the portion of a network that
connects a subscriber's equipment to a local central office), into the customer
premise and across enterprise networks. Through internal development and
acquisitions, ADC has formed its expertise in three major network areas:
transmission, enterprise networking and broadband connectivity. ADC is
currently enhancing its network management and systems integration capability
to enable it to offer customers more complete solutions to their network needs.
* Leverage Technological Capabilities Across Product Groups. ADC has developed
substantial expertise in fiber optics, broadband, video and wireless
technologies. The Company has built these core competencies through internal
development, acquisitions, joint ventures and technology licensing
arrangements. ADC's strategy is to leverage these core competencies across its
product groups in order to develop new product architectures and network
management tools for its customers' evolving voice, data and video network
needs in various market areas. An example of this effort is the continuing
development of the Company's wireless technologies for use in converging wired
and wireless applications such as potential wireless local loop products.
* Expand International Presence. ADC believes that significant growth in the
telecommunications equipment market will occur outside the United States as a
result of deregulation and the need of many foreign countries to substantially
expand or enhance their telecommunications services. ADC's strategy is to
expand its international presence by increasing its international sales and
marketing resources, leveraging its existing customer relationships, developing
additional international distribution channels and seeking strategic alliances
and acquisitions.
* Pursue Strategic Alliances and Acquisitions. ADC has sought and will
continue to seek alliances and acquisitions to: (i) add key technologies that
it can leverage across its businesses, (ii) broaden its product offerings,
(iii) enter attractive new markets and (iv) expand or enhance its distribution
channels. Recent examples of such alliances and acquisitions include: ADC's
OEM joint development efforts with Nokia Telecommunications, the infrastructure
arm of Finland-based Nokia Corporation, to develop system solutions for the
global cable TV and telecommunications markets; its partnerships with Bellcore
and Objective System Integrators (OSI) to jointly develop element manager
systems for ADC's Homeworx system; ADC's investment in and development alliance
with NetComm Limited of Sydney, Australia, in the area of cable modems; its
joint marketing relationship with Hitachi Telecom (USA) which includes ADC's
Homeworx and Soneplex broadband access products and Hitachi's SONET and ATM
equipment; ADC's technology exchanges with Fore Systems and Bay Networks in the
public network ATM access product area; its investment in and development
alliance with Optivision for MPEG-1 and MPEG-2 compression technology; and its
acquisition of Australia-based AOFR Pty. Ltd. in the fiber optic couplers area.
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PRODUCT GROUPS
The Company's products can be categorized into three general functional
groups: (i) transmission, (ii) enterprise networking and (iii) broadband
connectivity. These product groups accounted for 31%, 22% and 47%,
respectively, of the Company's net sales for the year ended October 31, 1995.
Each of these product groups is discussed below.
TRANSMISSION
ADC's transmission products provide electronic and optical signal
generation within predominantly public networks. Certain of the transmission
products also provide access to the network in order to monitor, test and
reroute circuits within telecommunications transmission systems. ADC's
transmission products are designed for use in copper-based, coax-based, fiber-
based or wireless transmission networks and are sold to telephone companies,
cable TV companies, other public network providers and to users of private
voice, data and video networks. Transmission products include fiber optic
video delivery products, other high speed voice, data and video delivery and
access platforms, wireless microcell systems, test and monitoring systems and
digital repeaters. Certain of the Company's transmission products are
described below.
DV6000-TM- and Other Fiber Video Delivery Equipment. The DV6000 system
transmits a variety of signal types using a high speed, uncompressed digital
format (2.4 billion bits per second) over fiber in the super trunking portions
of broadcast and interactive video networks. This system is used in
significant public residential broadband networks, such as Viacom Cable's San
Francisco Bay Area video backbone network and the regional headend network in
Florida of TCI Cablevision of Florida, Inc. ADC's PixlNet-TM- multipoint
videoconferencing system provides a public network switched digital video
system for user-initiated video conference management. The PixlNet system is
currently being tested in customer field trials. The Company also manufactures
various analog video transmission systems used in cable TV and broadcast
applications and interactive systems for distance learning and campus
interconnects.
Homeworx Access Transport Platform. The Company's Homeworx access transport
platform is a customer loop transmission system for small business and
residential customers utilizing hybrid fiber coax technology. The Homeworx
system has been designed for deployment on video-only, integrated video and
telephony and telephony-only broadband networks provided by telephone operating
companies, cable TV companies and other telecommunications common carriers.
The Homeworx system has been selected for video-only use in the residential
broadband networks of Ameritech Corporation, Southern New England Telephone
Corporation, MediaOne, Cox Cable Communications, Inc. and Cable Bahamas. The
enhanced telephony version of the Homeworx system has commenced test trials
with a limited number of customers. Also, Optus Vision Pty. Ltd. in Australia
has elected to use the telephony capability of the integrated video and
telephony Homeworx system in its residential broadband network, and the Company
currently plans to begin shipping this product in commercial volumes in the
third quarter of 1996. Additionally, the system is being tested by several of
the Company's public network provider customers both in the United States and
internationally.
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Soneplex Service Delivery Platform. The Company's Soneplex platform is an
intelligent loop access platform enabling public network providers to deliver
T1-based services over copper or fiber for business customers. The Company's
Soneplex family of platforms and modules employ electrical-to-optical
conversion for transport of voice, data and video over fiber facilities and
High bit-rate Digital Subscriber Line (HDSL) transmission technology for
transport of high bandwidth services over copper-based systems. Soneplex
products also integrate remote provisioning, circuit performance monitoring and
test access capabilities to help public network carriers provide reliable
service at a low operational cost. The Company has under development new
modules and capabilities for the Soneplex platform, including SONET
internetworking.
CityWide-TM- Products. The Company's family of CityWide wireless systems
products includes the CityCell- Registered Trademark- radio frequency and
wideband digital microcells for adding and extending cellular communication
coverage, primarily in large urban areas. The CityCell microcell has been
commercially deployed by six RBOC cellular network providers. The Company's
CityRad-TM- air-to-air re-radiator with traffic level monitoring is designed to
extend wireless coverage without adding microcells. Late in 1995, the Company
introduced three new advanced intelligent network wireless network solutions to
its CityWide product family, a multi-sectored digital microcell, an in-building
distributed antenna system and a mini base station and mobile switching center
product. These products are expected to enter customer field trials by second
quarter 1996 and to be commercially released later in the year.
Test and Monitoring Systems. The Company manufactures a variety of remote
digital test and performance monitoring products for copper-based and fiber-
based systems.
Digital Repeaters. The Company's copper-based digital repeaters are used
primarily in central office applications to regenerate digital signals that
have degraded because of transmission over long distances.
SONET and ATM Equipment. The Company has entered into a joint marketing
arrangement with an OEM partner under which the Company has the exclusive right
to market its partner's SONET and ATM equipment that support advanced high
speed data and video applications, primarily in public networks. The Company's
partner will market the Company's Homeworx and Soneplex broadband access
systems.
ENTERPRISE NETWORKING
ADC's enterprise networking products provide interconnection and
transmission of voice, data and video signals within a private network and also
provide access to the public network. These products are designed for use in
copper-based, fiber optic and wireless networks and are sold to users of
private voice, data and video networks, either directly or through
telecommunications common carriers or Value Added Resellers (VARs). Enterprise
Networking products include public network access equipment, internetworking
products and data network management products. Certain of the Company's
enterprise networking products are described below.
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Public Network Access Equipment. The Company manufactures a family of Channel
Service Unit (CSU) and Data Service Unit (DSU) products which are used to
interconnect digitally the public network and the private network. This
equipment monitors circuits and provides system protection and other network
management functions. Certain of these products also enable the customer to
test the performance of its voice network and allow connection of voice, data
and video circuits. These products support T1 and T3 (44.6 million bits per
second) services and a variety of data protocols, including Frame Relay,
Switched Multi-megabit Data Service (SMDS) and ATM. During 1995, the Company
began commercial shipment of its AAC-1-TM- and AAC-3 ATM access concentrators
which adapt, aggregate, multiplex and manage all voice, data and video signals
in various speeds, technologies and protocols for transport over T1 and T3
speed ATM networks, respectively. Recently, the Company has entered into
agreements with ATM equipment suppliers such as FORE Systems and Bay Networks
to integrate ADC's ATM adaptation and concentration technologies into the two
companies' ATM switching and routing products and to jointly market ADC's ATM
access concentrators. In addition, the company has made other interoperability
announcements of its ATM equipment with local service provider Ameritech and
long distance carriers Wiltel, Inc. and Sprint.
Internetworking Products. Internetworking products include fiber optic
backbones used to transport high speed multiple voice, data and video signals
simultaneously over private networks and link Local Area Networks (LAN),
mainframes, minicomputers, personal computers, telephone systems and video
equipment with diverse protocols within private networks or over the public
network; intelligent wiring hub products which interconnect workstations,
personal computers and terminals, utilizing many different LAN protocols and
types of cables; and network management systems.
Patch/Switch System and PatchMate-TM- Module. The Company's Patch/Switch
system is a data network management product which provides access to and
monitors, tests and reconfigures digital data circuits and permits local or
remote switching to alternate circuits or backup equipment. This system is
modular, permitting the user to select and combine the particular functions
desired in a system. The PatchMate module is a manually operated
electromechanical device used to gain access to the network in order to
monitor, test and reconfigure digital data circuits.
Recognizing changes in the competitive environment for LAN equipment,
during 1995 the Company realigned its Kentrox and Fibermux subsidiaries into
one business unit to better address the industry trend toward integration of
LAN and Wide Area Network (WAN) technologies and products. This group combines
LAN and WAN expertise in order to develop, manufacture and distribute advanced
network access and transport products for use in current and future broadband
enterprise networks. The Company recorded a charge of $3.9 million related to
a personnel reduction at the Fibermux facility and other expenses resulting
from the realignment. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 2 of "Notes to Consolidated
Financial Statements."
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BROADBAND CONNECTIVITY
ADC's broadband connectivity products provide the physical contact points
for connecting different telecommunications system components and gaining
access to telecommunications system circuits for the purpose of installing,
testing, monitoring or reconfiguring such circuits within global public and
private networks. These products are sold to the RBOCs, other telephone
companies, long distance carriers, other public network providers such as cable
TV companies, private network providers and telecommunications OEMs. The
Company's broadband connectivity products are designed for use in copper-based,
coax, fiber optic or wireless transmission networks. Broadband connectivity
products include various network access/connection devices for copper and coax
networks, various network access/connection devices for fiber optic networks,
modular fiber optic cable routing systems, broadband infrastructure database
management systems and outside plant cabinets and enclosures. Certain of the
Company's broadband connectivity products are described below.
Jacks, Plugs and Patch Cords. Jacks and plugs are the basic components used to
gain access to copper telecommunications circuits for testing and maintenance.
Patch cords are wires or cables with a plug on each end. ADC incorporates its
jacks, plugs and patch cords into its own products and also sells them in
component form, primarily to OEMs. These components are generally manufactured
to industry-recognized compatibility and reliability standards as off-the-shelf
items.
Jackfields and Patch Bays. A jackfield is a module containing an assembly of
jacks wired to terminal blocks or connectors and used by telecommunications
companies to gain access to copper communication circuits for testing or
patching the circuits. ADC manufactures jackfields in both longframe and
bantam formats, including prewired and connectorized models. When testing a
large number of circuits, series of jackfields are combined in specialized rack
assemblies, which often may include test modules. These are called patch bays.
ADC manufactures a range of jackfields and patch bays in various
configurations. Certain of these jackfields are specialized for use in audio
and visual transmission networks in the broadcast industry.
DSX Products. ADC manufactures digital signaling cross-connect (DSX) modules
and bays which are jackfields and patch bays designed to gain access to and
cross-connect digital copper circuits for both voice and data transmission.
Since the introduction of DSX products in 1977, the Company has continued to
expand and refine its DSX product offerings, and has become a leading
manufacturer of products for the mechanical termination and interconnection of
digital circuits used in voice and data transmission. The DS-3 Digital
Distribution Point (DDP) product family within the DSX product group are
mechanical alternatives to hard-wiring equipment used for cable management and
circuit access in software based digital cross-connect systems.
Terminal Block and Frame Products. Terminal blocks are molded plastic blocks
with contact points used to facilitate multiple wire interconnections. ADC
manufactures a wide variety of terminal blocks. The Company's cross-connect
frames are terminal block assemblies used to connect the external wiring of a
telecommunications network to the internal wiring of a
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telephone operating company central office or to interconnect various pieces of
equipment within a telephone company.
Video Signal Distribution Products. During 1995, ADC developed and began
initial shipment of a series of Video Signal Distribution (VSD) products
designed to meet the unique performance requirements of Radio Frequency (RF)
video transmission over coax cable. This product family includes a series of
splitter/combiner panels, a series of video jacks and panels which monitor,
patch and provide a test access point and an analog video interface system
panel designed for on-demand testing.
Fiber Optic Patch Cords and Cable Assemblies. Fiber optic patch cords are
functionally similar to copper patch cords and are the basic components used to
gain access to fiber telecommunications circuits for testing, maintenance,
cross-connection and configuration purposes. The Company's LightTracer-TM-
fiber optic patch cords provide immediate identification of fiber optic
connections. The Company incorporates its fiber optic patch cords and cable
assemblies into its own products and also sells them in component form.
Fiber Optic Couplers. Fiber optic couplers are passive connection devices used
in fiber optic transmission systems to conform to the stringent environmental,
reliability, performance and mechanical standards required in global broadband
network and test equipment markets. These products, which include optical
splitters and wavelength division multiplexers, were added during 1995 through
an acquisition of AOFR Pty. Ltd. in Australia and enable efficient and cost-
effective deployment of broadband networks.
Fiber Distribution Panels and Frames. Fiber distribution panels and frames are
functionally similar to copper jackfields and frames designed with special
considerations of fiber optic properties. They also provide interconnection
points between fiber optic cables entering a building and fiber optic cables
connected to fiber optic equipment within the building.
FiberGuide -Registered Trademark- System. The FiberGuide system is a modular
routing system which provides a segregated, protected method of storing and
routing fiber patch cords and cables within buildings.
Outside Plant Products. Outside plant (OSP) products consist of cabinets and
other enclosures configured to locate and integrate the functions of passive
fiber optic equipment and electronic transmission systems outside the telephone
central office/cable TV headend switching and transmission facilities. The
Company's OSP products provide flexible network management, remote transmission
capability and environmental protection for various telecommunications
topologies and architectures. OSP products designed for broadband residential
loop applications also provide power supply and coaxial splicing and tapping
functions.
Multimedia Systems Products. Multimedia systems products consist of integrated
systems from several ADC product areas designed specifically for integrated
voice, data and video applications such as distance learning, business, medical
and government networks.
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Broadband Network Management and Test Solutions. During 1995, ADC released the
first phase of its hardware and software products designed to document, manage
and test physical layer integrity and signal quality in broadband network
transmission systems. Additional phases of these systems are expected to be
released during 1996.
The Company also provides engineer, furnish and install (EF&I) services,
consisting of layout and installation of new telecommunications networks,
modification of existing networks or the addition of equipment to existing
networks. The Company sells its EF&I services primarily to telephone operating
companies, other common carriers and users of private telecommunications
networks. Building from this expertise, ADC is introducing a complete systems
integration service to its customers in 1996. ADC's systems integration
services are divided into three unique areas, technical service design and
management, operations and implementation and training and documentation
services.
SALES AND MARKETING
ADC sells its products to customers in three primary markets: (i) the
United States public telecommunications network market, which consists of all
seven of the RBOCs, other telephone companies, long distance carriers, wireless
service providers, the major cable TV operators and other domestic public
network providers; (ii) the private and governmental voice, data and video
network market in the United States, such as various large business customers
and governmental agencies that own and operate their own voice, data and video
networks for internal use; and (iii) the international public and private
network market. The public, private/governmental and international market
segments accounted for 58%, 24% and 18%, respectively of the Company's net
sales for the year ended October 31, 1995; 57%, 28% and 15%, respectively, of
the Company's net sales for the year ended October 31, 1994; and 56%, 28%, and
16%, respectively, of the Company's net sales for the year ended October 31,
1993. The Company also sells product for each of these customer groups to the
major telecommunications OEMs.
Purchases of products by public network providers and the OEMs which
supply such companies have accounted for the largest portion of the Company's
net sales in recent periods. The Company's transmission and broadband
connectivity products for public network providers are primarily located in
central transmission facilities (such as telephone company network central
offices, cable TV company network supertrunks and headend offices, and wireless
network base stations, all of which contain the equipment used in switching and
transmitting incoming and outgoing circuits). Increasingly, portions of the
Company's public network transmission systems are located in the public network
outside plant facilities (outside the central transmission buildings) and on
customers' premises. The Company's private and governmental network customers
generally purchase the Company's enterprise-wide communications systems and
public network access equipment for installation in the networks located at
their premises.
The Company also markets its products outside the United States primarily
to telephone operating companies and cable TV companies for public
telecommunications networks located in Canada, Europe, the Pacific Rim,
Australia and Central and South America.
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A majority of the Company's sales are made by a direct sales force, and
the Company maintains sales offices throughout the United States as well as in
Canada, Europe, the Pacific Rim, Australia and Central and South America. The
Company's products are sold in the United States by approximately 108 field
sales representatives located in 20 sales offices throughout the country, and
by several dealer organizations and distributors. The Company sells its
products to foreign customers through 41 employee field salespersons, eight
foreign independent sales representatives and 73 foreign distributors, as well
as through United States public and private network providers who also
distribute outside the United States.
The Company has a customer service group that supports field sales
personnel and is responsible for application engineering, customer training,
entering orders and supplying delivery status information, and a field service
engineering group that provides on-site service to customers.
RESEARCH AND DEVELOPMENT
The Company believes that its future success depends on its ability to
adapt to the rapidly changing telecommunications environment, to maintain its
significant expertise in core technologies and to continue to meet and
anticipate its customers' needs. The Company continually reviews and evaluates
technological changes affecting the telecommunications market and invests
substantially in applications-based research and development. The Company is
committed to an ongoing program of new product development that combines
internal development efforts with acquisitions, joint ventures and licensing or
marketing arrangements relating to new products and technologies from sources
outside the Company.
In recent periods, increasingly significant portions of new
telecommunications equipment purchased by public network providers and private
network customers have utilized fiber optic transmission technology and have
employed digital technology. In the future, these telecommunications network
equipment purchasing trends will include increasingly sophisticated, software
intensive, switching and network management systems. In addition, there has
been significantly increased demand for wireless communications services and
higher speed transmission technologies. As a result, the Company's internal
and external product development activities are directed at the integration of
fiber optic technology into additional products, the continuing development of
its Homeworx system for telephony, data and integrated video, telephony and
data applications, the development of network systems software, the continuing
development of wireless products, the incorporation of ATM technology into
voice, data and video products for both public and private telecommunications
networks and the addition of video compression technology to its product line.
The Company is also developing copper and fiber optic products for applications
in the local loop.
New product development often requires long-term forecasting of market
trends, development and implementation of new processes and technologies and a
substantial capital commitment. As a result of these and other factors,
development and customer acceptance of new products is inherently uncertain,
and there can be no assurance that such products will be developed on a timely
basis or achieve market acceptance.
<PAGE>
COMPETITION
Competition in the telecommunications equipment industry is intense, and
the Company believes that competition may increase substantially with the
deployment of broadband networks and potential regulatory changes. Many of the
Company's foreign and domestic competitors have more extensive engineering,
manufacturing, marketing, financial and personnel resources than those of the
Company. The Company's transmission products are competitive with products
offered by several other companies, including AT&T Network Systems, Northern
Telecom, Inc. and Motorola, Inc. The Company's enterprise networking products
are competitive with the products of a number of other companies, two of which
(Bay Networks, Inc. and Cabletron Systems Inc.) are dominant in its intelligent
wiring hub markets, and the Company's products face both strong price
competition and pressure from alternative distribution strategies utilized by
these other companies. The Company's broadband connectivity products are
competitive with the products offered by numerous other companies, including
AT&T Network Systems and Switchcraft, Inc., a subsidiary of Raytheon Company.
In addition, the Company faces increasing competition from a number of other
smaller competitors, none of which is dominant at this time.
The rapid technological developments within the telecommunications
industry have resulted in frequent changes to the Company's group of
competitors. The Company believes its success in competing with other
manufacturers of telecommunications products depends primarily on its
engineering, manufacturing and marketing skills, the price, quality and
reliability of its products and its delivery and service capabilities. While
the market for the Company's products has not historically been characterized
by significant price competition, the Company may face increasing pricing
pressures from current and future competitors in certain or all of the markets
for its products.
The Company believes that technological change, the increasing addition of
data, video and other services to integrated multimedia networks, continuing
regulatory change and industry consolidation or new entrants will continue to
cause rapid evolution in the competitive environment of the telecommunications
equipment market, the full scope and nature of which is difficult to predict at
this time. Increased competition could result in price reductions, reduced
margins and loss of market share by the Company. The Company believes industry
regulatory change may create new opportunities for suppliers of
telecommunications equipment. The Company expects, however, that such
opportunities may attract increased competition from others as well. In
addition, the Company expects that AT&T Network Systems will continue to be a
major supplier to the RBOCs, and compete more extensively outside the RBOC
market. The Company also believes that the rapid technological changes which
characterize the telecommunications industry will continue to make the markets
in which the Company competes attractive to new entrants. There can be no
assurance that the Company will be able to compete successfully with its
existing or new competitors or that competitive pressures faced by the Company
will not materially and adversely affect its business, operating results and
financial condition.
<PAGE>
MANUFACTURING AND SUPPLIES
The Company manufactures a wide variety of products which are fabricated,
assembled and tested in its own facilities or in subcontracted facilities. To
seek to reduce costs, the Company also takes advantage of off-shore assembly
and sourcing. The manufacturing process for the Company's electronic products
consists primarily of assembly and testing of electronic systems built from
fabricated parts, printed circuit boards and electronic components. The
manufacturing process for the Company's electromechanical products consists
primarily of fabrication of jacks, plugs, and other basic components from raw
materials, assembly of components and testing. The Company's sheet metal,
plastic molding, stamping and machining capabilities permit the Company to
configure components to customer specifications.
The Company purchases raw materials and component parts, consisting
primarily of copper wire, optical fiber, steel, brass, nickel-steel alloys,
gold, plastics, printed circuit boards, solid state components, discrete
electronic components and similar items, from several suppliers. Although a
few of the components used by the Company are single sourced, the Company has
experienced no significant difficulties to date in obtaining adequate
quantities of these raw materials and component parts.
PROPRIETARY RIGHTS
The Company owns a number of United States and foreign patents relating to
its products. These patents, in the aggregate, constitute a valuable asset of
the Company. The Company, however, believes that its business is not dependent
upon any single patent or any group of related patents.
The Company has registered the initials ADC alone and in conjunction with
specific designs as trademarks in the United States and various foreign
countries.
EMPLOYEES
As of October 31, 1995, there were 2,984 persons employed by the Company.
The Company considers relations with its employees to be good.
Item 2. PROPERTIES
The Company's corporate headquarters are currently located in three leased
buildings in Minnetonka, Minnesota. The Company also leases facilities in
Minnetonka for its Minnesota fiber optic operations and for the engineering,
product management, manufacturing and manufacturing support operations for
certain of its transmission products.
The Company owns two buildings in Bloomington, Minnesota, which house manu
facturing and manufacturing support operations, two facilities in LeSueur,
Minnesota, which are used for electromechanical assembly and warehouse space
and another building in Bloomington, Minnesota, which is leased to an
unaffiliated company. The Company expects to complete, by May 1, 1996, the
construction of a distribution center on approximately eight acres
<PAGE>
of undeveloped land which it owns in Shakopee, Minnesota. In addition, the
Company owns approximately 38 acres of undeveloped land in Eden Prairie,
Minnesota.
The Company owns a facility in Portland, Oregon, which serves as the
office and manufacturing facility for certain of its enterprise networking
products and leases space in Chatsworth, California, for certain other of its
enterprise networking operations. The Company leases space in Meriden,
Connecticut, Wallingford, Connecticut, and Waseca, Minnesota, as the office,
manufacturing and research and development facilities for certain of its
transmission products. The Company leases space in Fyshwick, Australian
Capital Territory, Australia, which serves as the office and manufacturing
facility for certain of its broadband connectivity operations.
The Company leases space in Richardson, Texas, for an engineering
development center and leases sales office facilities in the United States,
Canada, Mexico, Venezuela, the United Kingdom, Belgium, Germany, Australia and
Singapore. The Company leases additional warehouse space on a short term basis
from time to time to meet its needs.
Leases for the Company's headquarters, sales offices and manufacturing
facilities expire at different times through 2004 and are generally renewable
on a fixed term or a month-to-month basis. The Company believes that the
facilities used in its operations are adequate.
For information regarding encumbrances on the Company's properties, see
Note 4 to the Consolidated Financial Statements included in Part II, Item 8, of
this report.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
The executive officers of the Company are as follows:
<S> <C> <C> <C>
Name Office Officer Since Age
William J. Cadogan Chairman of the Board 1987 47
President, Chief Executive
Officer and Chief Operating
Officer
Lynn J. Davis Senior Vice President, 1984 48
President Broadband
Connectivity Group
Richard S. Gilbert Senior Vice President, 1994 43
President Enterprise
Networking Group
Frederick D. Lawrence Senior Vice President, 1994 47
President Transmission
Group
Carleton A. Brown Vice President, President 1995 53
ADC Video Systems
James C. Granger Vice President, President 1995 49
Access Platforms Systems
William L. Martin III Vice President, President 1994 48
Network Systems Division
Jack P. Reily Vice President, Business 1994 45
Development
Charles T. Roehrick Vice President, Controller 1995 41
Robert E. Switz Vice President, Chief Financial 1994 49
Officer
</TABLE>
Executive officers of the Company are elected by the Board of Directors.
The Company's executive officers were last elected as executive officers on
February 28, 1995, except Mssrs. Brown and Granger were elected to their
positions March 23, 1995. Messrs. Cadogan, Davis and Reily have served in
various capacities with the Company for more than five years. Biographical
information regarding the other named officers follows.
<PAGE>
Mr. Gilbert joined the Company in June 1992. Prior to November 1994 he
was Vice President and General Manager, Access Group for six months and Vice
President Engineering for two years. From 1991 to 1992 he was Vice President
of Research and Development at Make Systems, Inc., a manufacturer of a network
design and analysis tool. From 1990 to 1991 Mr. Gilbert was Assistant Vice
President of Software Engineering for Vitalink Communications Corporation, a
manufacturer of data communications equipment.
Mr. Lawrence joined the Company in March 1994. Prior to such time he was
employed by Sprint Corporation for twelve years, most recently as President and
CEO of United Telephone of Florida. From 1989 to 1992 he was Senior Vice
President Operations of US Sprint.
Mr. Brown joined the Company in March 1995. Prior to such time he was
President of ATx Telecom Systems Inc., a provider of enabling network
technology solutions in the fiber optic/SONET transmission systems
environments. From 1992 to 1994 he was Senior Vice President and General
Manager of Teleport Communications Group, a provider of alternate local
exchange services to commercial customers. From 1990-1991 he was President and
Chief Operating Officer of Alcatel Network Systems.
Mr. Granger joined the Company in March 1995. Prior to such time he was
employed by Sprint/United Telephone of Florida and Sprint/Centel of Florida as
Vice President of Consumer Markets. His previous positions for Sprint/United
Telephone of Florida included Vice President of Marketing from 1991 to 1993 and
Assistant Vice President of Marketing from 1989 to 1991.
Mr. Martin joined the Company in September 1994. Prior to such time he
was employed by Ascom Timeplex, a manufacturer of data and telecommunications
equipment, most recently as Vice President, Technical Marketing. His previous
positions included Vice President China Business Development and Vice President
U.S. Sales. From 1987 to 1990 he was the Chief Executive Officer of Broadband
Telesystems, until that company was acquired by Ascom Timeplex.
Mr. Roehrick joined the Company in January 1995. Prior to such time he
was employed by Cray Research, Inc., a manufacturer of large scale computers,
most recently as Controller. From 1992 to 1993 he was Assistant Controller,
and from 1989 to 1991 he was Director of Accounting.
Mr. Switz joined the Company in January 1994. Prior to such time he was
employed by Burr-Brown Corporation, a manufacturer of precision micro-
electronics, from 1988, most recently as Vice President, Chief Financial
Officer and Director, Ventures and Systems Business.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $.20 par value, is traded on the Nasdaq
National Market under the symbol "ADCT." The following table sets forth the
high and low sale prices for each quarter during the years ended October 31,
1995 and 1994, as reported on that system. All prices have been restated to
reflect a two-for-one stock split effected in the form of a 100% stock dividend
in February 1995.
<TABLE>
<CAPTION>
Low High
----- -----
<S> <C> <C>
Fiscal Year Ended October 31, 1995
First Quarter 19 3/4 25 1/2
Second Quarter 22 5/8 34 1/4
Third Quarter 27 3/4 40 1/4
Fourth Quarter 33 49 3/8
Fiscal Year Ended October 31, 1994
First Quarter 15 1/2 19 3/8
Second Quarter 16 1/8 21 3/8
Third Quarter 18 1/8 23 3/8
Fourth Quarter 18 3/4 23 7/8
</TABLE>
No cash dividends have been declared or paid during the past five years.
The Company currently anticipates that it will retain any future earnings for
use in its business and does not anticipate paying any cash dividends in the
foreseeable future. The Company's revolving credit agreements have certain
restrictions on the payment of cash dividends. As of October 31, 1995, there
were approximately 2,665 holders of record of the Common Stock.
<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of certain consolidated statement of income and
balance sheet information of ADC Telecommunications, Inc. and subsidiaries for
the five years ended October 31, 1995. This summary should be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this report. All share and per share amounts have been
restated to reflect a two-for-one stock split effected in the form of a 100%
stock dividend in June 1993 and an additional two-for-one stock split effected
in the form of a 100% stock dividend in February 1995.
<TABLE>
<CAPTION>
Years Ended October 31,
-----------------------
(In Thousands, except per share amounts)
STATEMENT OF INCOME DATA 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $586,222 $448,735 $366,118 $316,496 $293,839
Cost of product sold 302,094 221,448 178,572 155,074 148,614
-------- -------- -------- -------- --------
Gross profit 284,128 227,287 187,546 161,422 145,225
-------- -------- -------- -------- --------
Expenses:
Development and product engineering 66,460 48,974 40,988 36,063 32,315
Selling and administrative 130,297 110,799 93,311 82,966 74,369
Goodwill amortization 3,133 3,135 2,798 2,720 2,744
Personnel reduction 3,914 --- --- 3,800 ---
-------- -------- -------- -------- --------
Total expenses 203,804 162,908 137,097 125,549 109,428
-------- -------- -------- -------- --------
Operating income 80,324 64,379 50,449 35,873 35,797
Other income (expense), net:
Interest 6,803 1,158 183 (942) (108)
Other (898) (1,216) (895) (205) 716
-------- -------- -------- -------- --------
Income before income taxes and
extraordinary item 86,229 64,321 49,737 34,726 36,405
Provision for income taxes 31,043 23,800 18,101 13,700 14,380
-------- -------- -------- -------- --------
Net income before extraordinary item 55,186 40,521 31,636 21,026 22,025
Extraordinary item, net of taxes (1) --- (1,450) --- --- ---
-------- -------- -------- -------- --------
Net income $55,186 $ 39,071 $ 31,636 $ 21,026 $ 22,025
======== ======== ======== ======== ========
Average common shares outstanding 58,547 55,610 54,998 54,176 53,476
======== ======== ======== ======== ========
Earnings per share before
extraordinary item (1) $.94 $.73 $.58 $.39 $.41
======== ======== ======== ======== ========
Earnings per share $.94 $.70 $.58 $.39 $.41
======== ======== ======== ======== ========
BALANCE SHEET DATA (at period end):
Cash and cash equivalents $238,491 $ 49,512 $ 16,324 $ 20,484 $ 30,109
Working capital 358,786 132,015 87,630 75,284 79,005
Total assets 601,083 334,684 280,054 240,762 247,169
Total debt 410 810 1,110 14,434 45,046
Total stockholders' investment 510,866 264,758 220,394 182,188 158,374
======== ======== ======== ======== ========
</TABLE>
- ----------------
(1) An extraordinary charge of $1,450,000 (or $.03 per share), net of income
taxes, recorded in the quarter ended January 31, 1994, represents the charge to
clean up and repair the damage from an earthquake at the Company's facility in
California.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company offers a broad range of products to address key areas of the
telecommunications network infrastructure. To meet its customers' needs, the
Company offers equipment, services and integrated solutions within the
following general functional product groups: transmission, enterprise
networking and broadband connectivity. The Company's transmission products are
sold primarily to public network providers in the United States and
internationally. The Company's enterprise networking products are sold
primarily to private voice, data and video network providers around the world.
The Company's broadband connectivity products are sold to both public and
private network providers.
Historically, the Company's principal product offerings have generally
consisted of copper-based and fiber-based products designed to address the
needs of its customers for transmission, enterprise networking and connectivity
on traditional telephony networks. With the growth of multimedia applications
and the associated development of enhanced voice, data and video services, the
Company's more recent product offerings and research and development efforts
have increasingly focused on emerging technologies and applications relating to
the broadband telecommunications equipment market. The market for broadband
telecommunications equipment is evolving and rapidly changing. There can be no
assurance that the Company's new or enhanced products will meet with market
acceptance or be profitable.
The Company's operating results may fluctuate significantly from quarter
to quarter due to several factors. The Company's expense levels are based in
part on expectations of future revenues. If revenue levels in a particular
period do not meet expectations, operating results will be adversely affected.
In addition, the Company's results of operations are subject to seasonal
factors. The Company historically has experienced a stronger demand for its
products in the fourth fiscal quarter, primarily as a result of customer budget
cycles and Company year-end incentives, and has experienced a weaker demand for
its products in the first fiscal quarter, primarily as a result of the number
of holidays during late November, December and early January and a general
industry slowdown during that period.
<PAGE>
Results of Operations
The percentage relationships to net sales of certain income and expense
items for the three years ended October 31, 1995, and the percentage changes in
these income and expense items between years are contained in the following
table:
<TABLE>
<CAPTION>
Percentage
Percentage of Net Sales Increase Between
Years Ended Years
--------------------------- ----------------
1995 vs 1994 vs
1995 1994 1993 1994 1993
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 30.6% 22.6%
Cost of product sold (51.5) (49.3) (48.8) 36.4 24.0
------ ------ ------
Gross profit 48.5 50.7 51.2 25.0 21.2
Expenses:
Development and product
engineering (11.3) (11.0) (11.2) 35.7 19.5
Selling and administration (22.2) (24.7) (25.5) 17.6 18.7
Goodwill amortization (.6) (.7) (.7) - -
Personnel reduction (.7) - - - -
------ ------ ------
Operating income 13.7 14.3 13.8 24.8 27.6
Other income (expense), net:
Interest 1.2 .3 .1 - -
Other (.2) (.3) (.3) - -
------ ------ ------
Income before income taxes and
extraordinary item 14.7 14.3 13.6 34.1 29.3
Provision for income taxes (5.3) (5.3) (5.0) 30.4 31.5
------ ------ ------
Net income before
extraordinary item 9.4 9.0 8.6 36.2 28.1
Extraordinary item, net of taxes - (.3) - - -
------ ------ ------
Net income 9.4% 8.7% 8.6% 41.2 23.5
====== ====== ======
</TABLE>
Net Sales: The following table sets forth the Company's net sales for the
three years ended October 31, 1995, for each of the functional product groups
described above (dollars in thousands):
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
NET SALES FOR THE YEARS ENDED OCTOBER 31, BETWEEN YEARS
---------------------------------------------------------- -------------------
1995 vs. 1994 vs.
1995 1994 1993 1994 1993
------------------ ------------------ ------------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product Group Net Sales % Net Sales % Net Sales %
--------- --- --------- --- --------- ---
Transmission $184,432 31.5% $103,694 23.1% $69,386
18.9%77.9%49.4%
Enterprise Networking 127,405 21.7 123,300 27.5 95,540 26.1 3.3 29.1
Broadband Connectivity 274,385 46.8 221,741 49.4 201,192 55.0 23.7 10.2
Total $586,222 100.0% $448,735 100.0% $366,118
100.0%30.622.6
======== ====== ======== ====== ======== ======
</TABLE>
<PAGE>
Net sales were $586.2 million and $448.7 million for the years ended
October 31, 1995 and 1994, reflecting 30.6% and 22.6% annual increases,
respectively. The 1995 increase in net sales predominantly reflects the 77.9%
and 23.7% increases in sales of transmission and broadband connectivity
products, respectively. The 1994 increase over 1993 net sales of $366.1
million resulted from the above increases in all three product groups.
The Company's 77.9% and 49.4% growth in net sales of transmission products
during 1995 and 1994, respectively, predominately reflects increased sales of
fiber optic transmission systems to public telecommunications network
providers. If the Company's transmission systems introduced within the last
three years and continuing transmission product enhancements meet with
reasonable market acceptance, the Company anticipates that net sales of
transmission products will grow as a percentage of the Company's total net
sales.
Net sales of broadband connectivity products increased 23.7% and 10.2%
during 1995 and 1994, respectively, reflecting the Company's success in selling
these products into new global broadband market applications. Within the
broadband connectivity product group, net sales of ADC's digital signaling
cross-connect (DSX) modules and bays have declined as a percentage of total net
sales to 23.9% in 1995, from 27.2% in 1994 and 28.7% in 1993. The Company
believes that future sales of DSX and other copper connectivity products will
continue to account for a substantial portion of the Company's revenues,
although these products may continue to decline as a percentage of total net
sales primarily due to the ongoing evolution of technologies in the
telecommunications marketplace.
Reflecting increased sales of fiber optic products in both the
transmission and broadband connectivity product groups, net sales of fiber
optic products represented 40.6%, 34.8% and 34.2% of total net sales in 1995,
1994 and 1993, respectively.
Net sales of enterprise networking products increased 3.3% and 29.1%
during 1995 and 1994, respectively. These increases reflect significant growth
in net sales of public network access equipment, partially offset by decreases
in net sales of Local Area Network (LAN) equipment. The decline in LAN sales
was most noticeable during 1995. Recognizing changes in the competitive
environment for LAN equipment, the Company has realigned its Kentrox and
Fibermux subsidiaries into the Enterprise Networking Group to better address
the industry trend toward integration of LAN and Wide Area Network (WAN)
technologies and products.
Gross Profit. During 1995, 1994 and 1993, the gross profit percentages
were 48.5%, 50.7% and 51.2% of net sales, respectively. The 1995 and 1994
declines in gross profit percentages primarily resulted from the continuing
change in product sales mix toward sales of newer, lower margin products which
address emerging broadband applications. Future gross profit percentages will
continue to be affected by the mix of products the Company sells, the timing of
new product introductions and manufacturing volume, among other factors.
Operating Expenses: Total operating expenses for the years ended October
31, 1995, 1994 and 1993 were $203.8 million, $162.9 million and $137.1 million,
representing 34.8%, 36.4% and 37.4% of net sales, respectively. The increases
in absolute dollars of operating expenses during 1995 and 1994 were due
primarily to the expanded operations associated with
<PAGE>
higher revenue levels and, in the year ended October 31, 1995, a charge of $3.9
million related primarily to a personnel reduction at the Fibermux facility
resulting from the realignment of the Company's enterprise networking
operations. The decreases in operating expenses as a percentage of net sales
during 1995 and 1994 reflect the Company's ability to leverage operating
expenses against revenue levels.
Development and product engineering expenses were $66.5 million, $49.0
million and $41.0 million for the years ended October 31, 1995, 1994 and 1993,
respectively, reflecting increases of 35.7% during 1995 and 19.5% during 1994.
These increases resulted from substantial product development efforts in each
of the Company's three functional product groups. The Company believes that,
given the rapidly changing technology and competitive environment in the
telecommunications equipment industry, continued commitment to product
development efforts will be required for the Company to remain competitive.
Accordingly, the Company intends to continue to allocate substantial resources
to product development for each of its three functional product groups.
However, the Company recognizes the need to balance the cost of product
development with expense control and remains committed to carefully managing
the rate of increase of such expenses.
Selling and administration expenses were $130.3 million, $110.8 million
and $93.3 million for the years ended October 31, 1995, 1994 and 1993,
respectively, reflecting increases of 17.6% during 1995 and 18.7% during 1994.
These increases resulted from selling activities associated with new product
introductions and additional personnel costs related to expanded operations.
Other Income (Expense), Net: For the year ended October 31, 1995, the
significant net interest income (expense) category represented net interest
income on cash balances. (See "Liquidity and Capital Resources" below for a
discussion of cash levels.)
Income Taxes: See Note 7 to the Consolidated Financial Statements
included in Part II, Item 8 of this report for a reconciliation of the federal
statutory tax rate to effective tax rates of 36.0%, 37.0% and 36.4% in 1995,
1994 and 1993, respectively. These rates reflect $3.1 million, $3.1 million
and $2.8 million of non-deductible goodwill amortization during 1995, 1994 and
1993, respectively, included in operating expenses in each of the three years,
and the beneficial impact of tax credits.
Extraordinary Item: An extraordinary charge of $1.5 million (or $.03 per
share), net of income taxes, was recorded in 1994, representing expenses
relating to the clean up and repair of damage to the Fibermux facility
resulting from an earthquake in January 1994.
Net Income: Reflecting all of the matters discussed above, net income was
$55.2 million (or $.94 per share) for the year ended October 31, 1995, an
increase of 41.2% over $39.1 million (or $.70 per share) for the year ended
October 31, 1994. Net income for 1994 represented an increase of 23.5% over
$31.6 million (or $.58 per share) for the year ended October 31, 1993.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, primarily short-term investments in commercial
paper with maturities of less than 90 days, increased $189.0 million and $33.2
million during the years ended October 31, 1995 and 1994, respectively. The
major elements of the 1995 increase were the $181.8 million net proceeds from
the Company's June 1995 secondary public offering of 6.3 million shares of
common stock and net income before depreciation of $81.5 million, offset by
property and equipment additions of $32.5 million, acquisition and investment
payments of $12.8 million and the $52.6 million increase in inventory and
receivable levels (reflecting an acquisition completed in 1995, as well as
growth in business). In the year ended October 31, 1994, the major elements of
the increase were net income before depreciation of $62.4 million, offset by
property and equipment additions of $21.8 million, acquisition payments of $7.1
million and a $24.4 million increase in inventory and receivable levels.
The Company may borrow up to $40 million under revolving credit
agreements. Borrowings under these agreements bear interest at floating short-
term market rates, may be repaid any time without penalty and may be converted
to term loans bearing interest principally at the prime rate, payable in annual
installments through December 2000. At October 31, 1995, the entire $40
million of borrowings under these agreements was available to the Company and
it had no long-term debt outstanding.
Management believes that current cash balances, cash generated from
operating activities and borrowings available under revolving credit agreements
will be adequate to fund working capital requirements, capital expenditures
(approximately $20 million committed at October 31, 1995) and possible
acquisitions or strategic alliances for 1996. However, the Company may find it
necessary to seek additional sources of financing to support its capital needs,
for additional working capital, potential investments or acquisitions, or
otherwise.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ADC Telecommunications, Inc. and Subsidiaries
Index to Consolidated Financial Statements
(A) Statement of Registrant
No separate financial statements of the Company's subsidiaries are
included herein because the Company is primarily an operating company and its
subsidiaries are wholly-owned.
(B) Consolidated Statements
Report of Independent Public Accountants 26
Consolidated Statements of Income for the years ended
October 31, 1995, 1994 and 1993 27
Consolidated Balance Sheets as of October 31, 1995 and 1994 28
Consolidated Statements of Stockholders' Investment
for the years ended October 31, 1995, 1994 and 1993 29
Consolidated Statements of Cash Flows for the years ended
October 31, 1995, 1994 and 1993 30
Notes to Consolidated Financial Statements 31
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted as not
required, not applicable or the information required has been included
elsewhere in the financial statements and related notes.
(C) Supplemental Financial Information -- Unaudited 39
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ADC Telecommunications, Inc.:
We have audited the accompanying consolidated balance sheets of ADC
TELECOMMUNICATIONS, INC. AND SUBSIDIARIES as of October 31, 1995 and 1994, and
the related consolidated statements of income, stockholders' investment and
cash flows for each of the three years in the period ended October 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ADC Telecommunications,
Inc. and subsidiaries as of October 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
December 13, 1995
<PAGE>
<TABLE>
<CAPTION>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31
(In Thousands, Except Per Share Amounts)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net Sales $586,222 $448,735 $366,118
Cost of Product Sold 302,094 221,448 178,572
-------- -------- --------
Gross Profit 284,128 227,287 187,546
-------- -------- --------
Gross profit percentage 48.5% 50.7% 51.2%
-------- -------- --------
Expenses:
Development and product engineering 66,460 48,974 40,988
Selling and administration 130,297 110,799 93,311
Goodwill amortization 3,133 3,135 2,798
Personnel reduction 3,914 -- --
-------- -------- --------
Total expenses 203,804 162,908 137,097
-------- -------- --------
Operating Income 80,324 64,379 50,449
Other Income (Expense), Net 5,905 (58) (712)
-------- -------- --------
Income before Income Taxes and 86,229 64,321 49,737
Extraordinary Item
Provision for Income Taxes 31,043 23,800 18,101
-------- -------- --------
Net Income before Extraordinary Item 55,186 40,521 31,636
Extraordinary Item, Net of Taxes -- (1,450) --
-------- -------- --------
Net Income $55,186 $39,071 $31,636
======== ======== ========
Average Common Shares Outstanding 58,547 55,610 54,998
======== ======== =========
Earnings per Share before $0.94 $0.73 $0.58
Extraordinary Item ======== ======== =========
Earnings per Share $0.94 $0.70 $0.58
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - OCTOBER 31
(In Thousands)
1995 1994
---- ----
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $238,491 $ 49,512
Accounts receivable, net of reserves of 107,255 75,348
$4,258 and $2,494
Inventories, net of reserves of $8,103 and $5,668 86,559 64,203
Prepaid income taxes and other assets 15,442 10,305
-------- --------
Total current assets 447,747 199,368
Property and Equipment, net 78,686 66,132
Other Assets, Principally Goodwill 74,650 69,184
-------- --------
$601,083 $334,684
======== ========
Liabilities and Stockholders' Investment
Current Liabilities:
Current maturities of long-term debt $ 410 $ 400
Accounts payable 28,820 22,132
Accrued liabilities 59,731 44,821
-------- --------
Total current liabilities 88,961 67,353
Deferred Income Taxes 1,256 2,163
Long-Term Debt, Less Current Maturities Above -- 410
-------- --------
Total liabilities 90,217 69,926
-------- --------
Stockholders' Investment:
Common stock, $0.20 par value; authorized 100,000 shares;
issued 62,737 and 27,888 shares 12,547 5,577
Paid-in capital 219,266 34,851
Retained earnings 280,662 225,476
Cumulative translation adjustment (715) --
Deferred compensation (894) (1,146)
-------- --------
Total stockholders' investment 510,866 264,758
-------- --------
$601,083 $334,684
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED OCTOBER 31
(In Thousands)
Cumulative
Common Stock Paid-in Retained Translation Deferred
Shares Amount Capital Earnings Adjustment Compensation
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1992 13,610 $ 2,722 $ 25,745 $154,769 -- $ (1,048)
Stock split effected in the form of a stock dividend 13,778 2,756 (2,756) -- -- --
Stock issued for employee benefit plans 309 61 6,476 -- -- (781)
Reduction of deferred compensation -- -- -- -- -- 814
Net income -- -- -- 31,636 -- --
------ ------- -------- -------- ------ ----------
Balance, October 31, 1993 27,697 5,539 29,465 186,405 -- (1,015)
Stock issued for employee benefit plans 191 38 5,386 -- -- (1,262)
Reduction of deferred compensation -- -- -- -- -- 1,131
Net income -- -- -- 39,071 -- --
------ ------- -------- -------- ------ ----------
Balance, October 31, 1994 27,888 5,577 34,851 225,476 -- (1,146)
Stock split effected in the form of a stock dividend 28,044 5,609 (5,609) -- -- --
Stock issued for secondary public offering 6,325 1,265 180,489 -- -- --
Stock issued for employee benefit plans 480 96 9,535 -- -- (714)
Reduction of deferred compensation -- -- -- -- -- 966
Translation adjustments -- -- -- -- (715) --
Net income -- -- -- 55,186 -- --
------ ------- -------- -------- ------ ----------
Balance, October 31, 1995 62,737 $12,547 $ 219,266 $280,662 $(715) $ (894)
====== ======= ========= ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
<TABLE>
<CAPTION>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31
(In Thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net income $ 55,186 $ 39,071 $ 31,636
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 26,341 23,366 20,587
Reduction in deferred compensation 966 1,131 814
Decrease in deferred income taxes (4,652) (1,786) (444)
Other 455 -- --
Changes in assets and liabilities
Accounts receivable (31,130) (8,518) (19,416)
Inventories (21,466) (15,925) (9,215)
Prepaid income taxes and other assets (2,455) 1,010 (3,586)
Accounts payable 6,559 8,438 2,967
Accrued liabilities 14,455 11,414 6,105
-------- -------- --------
Total cash from operating activities 44,259 58,201 29,448
-------- -------- --------
Investment Activities:
Property and equipment additions, net (32,456) (21,788) (21,243)
Acquisition payments (4,676) (7,087) (2,199)
Long-term investments (8,139) -- (2,598)
-------- -------- --------
Total cash used for investment activities (45,271) (28,875) (26,040)
-------- -------- --------
Financing Activities:
Decrease in long-term debt (400) (300) (13,324)
Common stock issued 190,671 4,162 5,756
-------- -------- --------
Total cash from (used for)
financing activities 190,271 3,862 (7,568)
-------- -------- --------
Effect of exchange rate changes on cash (280) -- --
--------- -------- --------
Increase (Decrease) in Cash and
Cash Equivalents 188,979 33,188 (4,160)
Cash and Cash Equivalents, Beginning of Period 49,512 16,324 20,484
-------- -------- --------
Cash and Cash Equivalents, End of Period $238,491 $49,512 $16,324
======== ======== ========
Supplemental Disclosures:
Interest paid $ 52 $ 574 $ 308
Income taxes paid $ 27,549 $21,802 $18,206
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of ADC Telecommunications, Inc. (a Minnesota corporation) and its
wholly owned subsidiaries, referred to collectively herein as the Company. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Cash Equivalents: Cash equivalents primarily represent short-term investments
in commercial paper with maturities of three months or less. These investments
are reflected in the accompanying consolidated balance sheets at cost, which
approximates fair value.
Inventories: Inventories include material, labor and overhead and are stated
at the lower of first-in, first-out cost or market.
Property and Equipment: Property and equipment are recorded at cost and
depreciated using the straight-line method over estimated useful lives of three
to thirty years or, in the case of leasehold improvements, over the term of the
lease, if shorter. Both straight-line and accelerated methods of depreciation
are used for income tax purposes.
Goodwill: The excess of the cost of acquired businesses over the fair value of
the net assets acquired is being amortized on a straight-line basis over 25
years. Management periodically assesses the amortization period and
recoverability of the carrying amount of goodwill based upon an estimate of
future cash flows from related operations.
Research and Development Costs: The Company's policy is to expense all
research and development costs in the period incurred.
Income Taxes: The Company utilizes the liability method of accounting for
income taxes. Deferred tax liabilities or assets are recognized for the
expected future tax consequences of temporary differences between the book and
tax bases of assets and liabilities.
Earnings Per Share: Earnings per share is computed using the weighted average
number of common shares outstanding during the year, after consideration of the
dilutive effect of stock options and restricted stock awards.
Foreign Currency Translation: The Company accounts for translation of foreign
currency in accordance with the provisions of SFAS No. 52. The resulting
translation adjustments are recorded directly to a separate component of
stockholders' investment.
The functional currency for the Company's foreign operations is the applicable
local <PAGE>
currency. Prior to 1995 the Company's primary functional currency was the U.S.
dollar. The functional currency changed because of substantial changes in the
Company's foreign operations.
New Accounting Pronouncements:
SFAS No. 121 - Accounting for the Impairment of Long-lived Assets and for Long-
lived Assets to be Disposed of, requires impairment losses on long-lived assets
to be recognized when an asset's book value exceeds its expected future cash
flows (undiscounted). The Company anticipates adopting this standard on
November 1, 1996 and does not expect that adoption will have a material impact
on the financial position or results of operations of the Company.
SFAS No. 123 - Accounting for Stock-Based Compensation, encourages, but does
not require, a fair value based method of accounting for employee stock options
or similar equity instruments. As permitted under the new standard, the
Company will continue to account for employee stock options under APB No. 25.
The pro-forma disclosures required by this standard will be adopted on November
1, 1996.
(2) Consolidated Income Statement Information
Export Sales: Export sales were $106,416,000, $67,113,000 and $58,919,000
during 1995, 1994 and 1993, respectively.
Other Income (Expense), Net:
<TABLE>
<CAPTION>
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Interest income $7,078 $1,309 $ 468
Interest expense (275) (151) (285)
Other income (expense), net (898) (1,216) (895)
------ ------- ------
$5,905 $ (58) $(712)
====== ======= ======
</TABLE>
Personnel Reduction: During the quarter ended April 30, 1995, the Company
initiated a realignment of its Kentrox and Fibermux subsidiaries into one
business unit. The Company recorded a charge of $3,914,000 in conjunction with
the realignment, related primarily to a personnel reduction. The realignment
terminated approximately 100 Fibermux employees primarily in sales,
administration and engineering. Substantially all termination benefits are
expected to be paid by December 31, 1995.
Extraordinary Item: The building that serves as headquarters for Fibermux
suffered damage as a result of the earthquake that struck Los Angeles on
January 17, 1994. The facility sustained damages of $2,300,000 ($1,450,000
after the $850,000 tax benefit). All operations resumed by February 8, 1994.
<PAGE>
(3) Consolidated Balance Sheet Information
<TABLE>
<CAPTION>
1995 1994
(In Thousands)
<S> <C> <C>
Inventories:
Purchased materials and manufactured products $75,694 $57,031
Work-in-process 10,865 7,172
------- -------
$86,559 $64,203
======= =======
Property and equipment:
Land and buildings $33,362 $31,620
Machinery and equipment 139,294 114,337
Furniture and fixtures 18,881 16,232
------- -------
191,537 162,189
Less accumulated depreciation
and amortization (112,851) (96,057)
--------- --------
$78,686 $66,132
========- ========
Goodwill:
Goodwill $77,028 $77,028
Less accumulated amortization (14,921) (11,788)
-------- --------
$62,107 $65,240
======== ========
Accrued liabilities:
Accrued compensation and benefits $34,632 $30,916
Accrued income taxes 10,088 5,804
Other accrued liabilities 15,011 8,101
-------- --------
$59,731 $44,821
======== ========
</TABLE>
(4) Debt
The Company has a revolving, unsecured credit agreement with four banks which
permits borrowings up to $40,000,000 through December 31, 1996, primarily at
prevailing market rates of interest. There were no borrowings outstanding
under this agreement at October 31, 1995 and 1994.
As of October 31, 1995 and 1994, the Company had a mortgage note payable of
$410,000 and $810,000, respectively, collateralized by certain land, buildings
and equipment. The note is payable in annual installments of approximately
$400,000 through 1996 and bears interest at the rate of 7.55%.
(5) Employee Benefit Plans
Pension Plan: The Company maintains a defined benefit plan covering a majority
of its employees. The plan is funded in accordance with the requirements of
Federal laws and regulations. Plan assets consist of fixed income securities
and a managed portfolio of
<PAGE>
equity securities.
Pension expense included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Service cost for benefits
earned during the period $1,766 $1,804 $1,828
Interest cost on the projected
benefit obligation 1,682 1,522 1,348
Return on assets (3,627) (633) (2,137)
Net amortization and deferral 2,240 (700) 984
------- ------- -------
$2,061 $1,993 $2,023
======= ======= =======
Discount rate used to determine
actuarial present value of
benefits at October 31 7.5% 7.5% 7.0%
======= ======= =======
</TABLE>
The rate of compensation increase used to measure the projected benefit
obligation was 5% for all three years. The expected long-term rate of return
on plan assets was 9%.
The following table sets forth the funded status of the plan as of October 31:
<TABLE>
<CAPTION>
1995 1994
(In Thousands)
<S> <C> <C>
Accumulated benefit obligation:
Vested $(20,357) $(17,857)
Nonvested (1,509) (1,405)
--------- ---------
Total (21,866) (19,262)
Excess of projected benefit obligation
over accumulated benefit obligation (4,055) (3,164)
--------- ---------
Projected benefit obligation (25,921) (22,426)
Market value of plan assets 20,939 17,589
--------- ---------
Unfunded projected benefit obligation (4,982) (4,837)
Unrecognized net gain (3,240) (1,922)
Unrecognized prior service cost 1,842 1,967
Unrecognized transition liability 851 922
--------- ---------
Total accrued pension liability $(5,529) $(3,870)
========= =========
</TABLE>
The Company also maintains supplemental defined benefit retirement plans for
members of the Board of Directors and for certain officers. The cost of these
plans was $458,000, $352,000 and $210,000 during 1995, 1994 and 1993,
respectively.
Retirement Savings Plan: The Company maintains a Retirement Savings Plan for
employees who have completed one year of service. The Company contributes 1%
of wages and, depending on Company performance, partially matches employee
contributions to the Plan up to 6% of wages. Employees are fully vested in all
<PAGE>
contributions. The Company's contributions to the plan totaled $7,504,000,
$6,778,000 and $3,210,000 during 1995, 1994, and 1993, respectively. A portion
of the Company's cash contributions is invested in the Company's stock by the
Plan's trustee.
Stock Award Plans: The Company maintains a Stock Incentive Plan to grant
certain stock awards, including stock options at fair market value and
restricted shares, to key employees of the Company.
The Company also maintains a Nonemployee Director Stock Option Plan in order to
enhance the ability to attract and retain the services of experienced and
knowledgeable outside directors. This plan provides for granting of a maximum
of 220,000 non-qualified stock options at fair market value.
The Company issued shares of common stock to certain employees which are
restricted as to their transferability through September 27, 1998. The market
value of such stock at the date of issuance is being amortized over the
restricted period. The unamortized amount of the resulting deferred
compensation is recorded as a reduction of stockholders' investment. In
addition, the Company awarded stock retention bonuses which provide for cash
payments to offset the personal income taxes incurred upon the lapsing of stock
restriction. The compensation expense associated with this plan was $516,000,
$3,213,000, and $1,938,000 in 1995, 1994 and 1993, respectively.
The following schedule summarizes activity in the plans:
<TABLE>
<CAPTION>
Stock Restricted Grant
Options Stock Price
--------- ---------- ---------
<S> <C> <C> <C>
Outstanding at October 31, 1993 1,884,740 221,116 $ 3 - $21
Granted 448,270 68,230 $16 - $22
Exercised (324,398) -- $ 3 - $11
Restrictions Lapsed -- (172,316) $ 6 - $15
Canceled (35,806) (16,220) $ 6 - $19
---------- ----------
Outstanding at October 31, 1994, 1,972,806 100,810 $ 3 - $22
Granted 1,623,441 20,250 $20 - $43
Exercised (636,738) -- $ 3 - $27
Restrictions Lapsed -- (720) $18 - $22
Canceled (299,812) (37,770) $13 - $32
---------- ----------
Outstanding at October 31, 1995 2,659,697 82,570 $ 3 - $43
========== ========== =========
Exercisable at October 31, 1995 1,489,570 -- $ 3 - $41
========== ========== =========
</TABLE>
During 1993, options for 949,474 shares were exercised at prices ranging from
$3 to $9 per share.
<PAGE>
(6) Capital Stock
Authorized Stock: On November 28, 1995, the Board of Directors approved a
resolution to increase the authorized number of common shares from 100,000,000
to 300,000,000, subject to shareholder approval. The Company is also
authorized to issue 10,000,000 shares of no par value preferred stock. As of
October 31, 1995, none of the preferred shares were issued.
Stock Split: On January 24, 1995, the Company declared a two-for-one stock
split effected in the form of a 100% stock dividend paid February 28, 1995, to
stockholders of record as of February 15, 1995. The share and per share
information in the accompanying financial statements has been adjusted to
reflect the effect of the dividend.
Stock Offering: On June 14, 1995, the Company completed a secondary public
offering of 6,325,000 shares of its common stock at $30 per share. The net
proceeds from the offering were $181,754,000, which will be used for general
corporate purposes, including working capital, capital expenditures and
possible acquisitions or strategic alliances.
Shareholder Rights Plan: On November 28, 1995, the Board of Directors amended
and restated the Company's Shareholder Rights Plan that was originally adopted
during 1986. Under the original Plan, the Board of Directors declared a
dividend of one right for each outstanding share of the Company's common stock.
The Plan, as amended, provides that if any person or group acquires 15% or more
of the Company's common stock, each Right not owned by such person or group
will entitle its holder to purchase, at the Right's then-current purchase price
($125 for each one-half share of the Company's common stock at November 28,
1995), common stock of the Company having a value of twice the Right's purchase
price. The Rights would not be triggered, however, if the acquisition of 15%
or more of the Company's common stock is pursuant to a tender offer or exchange
for all outstanding shares of the Company's common stock which is determined by
the Board of Directors to be fair and in the best interests of the Company and
its shareholders. The Rights are redeemable at $0.01 any time prior to the
time they become exercisable. The Rights will expire on November 28, 2005, if
not previously redeemed or exercised.
(7) Income Taxes
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Current taxes payable:
Federal $30,666 $21,357 $17,820
Foreign 573 330 426
State 4,456 3,211 2,859
------- ------- -------
35,695 24,898 21,105
Deferred (4,652) (1,098) (3,004)
------- ------- -------
Total provision $31,043 $23,800 $18,101
======= ======= =======
</TABLE>
<PAGE>
The provision for foreign income taxes is based upon foreign pretax earnings of
approximately $1,547,000, $1,563,000 and $1,120,000 during 1995, 1994 and 1993,
respectively.
The Company records a reduction in income taxes payable for qualifying tax
credits in the year in which they occur. The benefit for deferred taxes is
primarily due to timing differences in the tax deductibility of employee
benefit plan costs, depreciation and certain accrued expenses and reserves
which are not yet deductible for income tax purposes.
The effective income tax rate differs from the Federal statutory rate as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate 35% 35% 35%
Research and development
tax credits (2) (2) (2)
Goodwill amortization 1 2 2
State income taxes, net 3 3 3
Other, net (1) (1) (2)
----- ----- -----
Effective income tax rate 36% 37% 36%
===== ===== =====
</TABLE>
Deferred tax assets (liabilities) of the Company as of October 31 are comprised
of the following:
<TABLE>
<CAPTION>
1995 1994
(In Thousands)
<S> <C> <C>
Current deferred tax assets:
Asset valuation reserves $4,002 $3,059
Accrued liabilities 7,067 4,339
Other 396 326
-------- -------
Total $11,465 $7,724
======== =======
Non-current deferred tax assets (liabilities):
Depreciation $(1,929) $(2,536)
Other 673 373
-------- --------
Total $(1,256) $(2,163)
======== =======
</TABLE>
The Company's Federal income tax returns for the years prior to 1994 have been
audited and completely settled. Management believes that adequate provision
for income taxes has been made for all years through 1995.
<PAGE>
(8) Commitments and Contingencies
Operating Leases: A portion of the Company's operations are conducted using
leased equipment and facilities. These leases are non-cancelable and renewable
with expiration dates ranging through the year 2004. The rental expense
included in the accompanying consolidated statements of income was $5,676,000,
$5,411,000, and $5,347,000 for 1995, 1994, and 1993 respectively.
The following is a schedule of future minimum rental payments required under
all non-cancelable operating leases as of October 31, 1995:
(In Thousands)
1996 $ 5,514
1997 4,683
1998 4,226
1999 3,598
2000 and thereafter 4,429
-------
$22,450
=======
Contingencies: There are no legal proceedings pending against or involving the
Company which, in the opinion of management, will have a material adverse
effect on the Company's financial position or results of operations.
Change of Control: The Board of Directors has approved the extension of
certain employee benefits, including salary continuation to key employees, in
the event of a change of control of the Company. The Board has retained the
flexibility to cancel such provisions under certain circumstances.
<PAGE>
<TABLE>
<CAPTION>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION - Unaudited
(In Thousands, Except Earnings Per Share)
1995
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $121,774 $140,342 $150,454 $173,652 $586,222
Gross Profit 59,372 69,039 71,712 84,005 284,128
Income Before Income Taxes 16,352 16,235 24,489 29,153 86,229
Provision for Income Taxes 5,886 5,846 8,815 10,496 31,043
Net Income 10,466 10,389 15,674 18,657 55,186
Average Common Shares
Outstanding 55,849 56,094 59,321 62,655 58,547
Earnings Per Share 0.19 0.18 0.26 0.30 0.94
</TABLE>
<TABLE>
<CAPTION>
1994
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $ 91,176 $113,573 $115,688 $128,298 $448,735
Gross Profit 45,929 57,413 58,342 65,603 227,287
Income Before Income Taxes
and Extraordinary Item 10,626 16,008 17,456 20,231 64,321
Provision for Income Taxes 3,931 5,923 6,459 7,487 23,800
Net Income Before
Extraordinary Item 6,695 10,085 10,997 12,744 40,521
Extraordinary Item, Net (1,450) -- -- -- (1,450)
Net Income 5,245 10,085 10,997 12,744 39,071
Average Common Shares
Outstanding 55,470 55,568 55,658 55,740 55,610
Earnings Per Share Before
Extraordinary Item 0.12 0.18 0.20 0.23 0.73
Earnings Per Share 0.09 0.18 0.20 0.23 0.70
</TABLE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Part I of this Report for information with respect to executive
officers of the Company. Pursuant to General Instruction G(3), reference is
made to the information contained under the captions "Election of Directors"
and "Section 16(a) Reporting" in the Company's definitive proxy statement for
its 1996 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission on or before February 27, 1996, which information is
incorporated herein.
Item 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), reference is made to the information
contained under the caption "Executive Compensation" (except for the
information set forth under the subcaption "Compensation and Organization
Committee Report on Executive Compensation," which is not incorporated herein)
in the Company's definitive proxy statement for its 1996 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission on or
before February 27, 1996, which information is incorporated herein.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Pursuant to General Instruction G(3), reference is made to the information
contained under the caption "Security Ownership of Certain Beneficial Owners
and Management" in the Company's definitive proxy statement for its 1996 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
on or before February 27, 1996, which information is incorporated herein.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), reference is made to the information
contained in the last paragraph under the caption "Election of Directors --
Compensation of Directors" in the Company's definitive proxy statement for its
1996 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission on or before February 27, 1996, which information is
incorporated herein.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company are
included in Part II, Item 8 of this Annual Report on Form 10-K:
Report of Independent Public Accountants.
Consolidated Statements of Income for the years ended October 31,
1995, 1994 and 1993.
Consolidated Balance Sheets as of October 31, 1995 and 1994.
Consolidated Statements of Changes in Stockholders' Investment for
the years ended October 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years
ended October 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
Supplemental Financial Information (Unaudited).
2. FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted as not
required or not applicable, or the information required has been included
elsewhere in the financial statements and related notes.
3. LISTING OF EXHIBITS
Exhibit
Number Description
3-a 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.)
3-b Composite Restated Bylaws of ADC Telecommunications, Inc., as amended
to date. (Incorporated by reference to Exhibit 3-b to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1989.)
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.)
<PAGE>
Exhibit
Number Description
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 Exhibit 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 Exhibit 3-b to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1989.)
4-d Second Amended and Restated Rights Agreement, amended and restated as
of November 28, 1995, between ADC Telecommunications, Inc. and Norwest Bank
Minnesota, N.A. (amending and restating the Rights Agreement dated as of
September 23, 1986, as amended and restated as of August 16, 1989), which
includes as Exhibit A thereto the form of Right Certificate. (Incorporated by
reference to Exhibit 4 to the Company's Form 8-K dated December 11, 1995.)
10-a* Stock Option and Restricted Stock Plan, restated as of January 26,
1988. (Incorporated by reference to Exhibit 10-a to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1988.)
10-b* Amendment to Stock Option and Restricted Stock Plan dated as of
September 26, 1989. (Incorporated by reference to Exhibit 10-e to the
Company's Annual Report on Form 10-K for the fiscal year ended October 31,
1989.)
10-c* The ADC Telecommunications, Inc. 1991 Stock Incentive Plan, as
amended. (Incorporated by reference to Exhibit 10-a to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1993.)
10-d* Access Platform System Management Incentive Plan for the fiscal year
ended October 31, 1994. (Incorporated by reference to Exhibit 10-a to the
Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1994.)
10-e* ALS Management Incentive Plan for the fiscal year ended October 31,
1994. (Incorporated by reference to Exhibit 10-b to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1994.)
10-f* Business Development Management Incentive Plan for the fiscal year
ended October 31, 1994. (Incorporated by reference to Exhibit 10-c to the
Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1994.)
10-g* Cable Management Management Incentive Plan for the fiscal year ended
October 31, 1994. (Incorporated by reference to Exhibit 10-d to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1994.)
<PAGE>
Exhibit
Number Description
10-h* Corporate Management Incentive Plan for the fiscal year ended October
31, 1994. (Incorporated by reference to Exhibit 10-e to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1994.)
10-i* Fibermux Management Incentive Plan for the fiscal year ended October
31, 1994. (Incorporated by reference to Exhibit 10-f to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1994.)
10-j* International Management Incentive Plan for the fiscal year ended
October 31, 1994. (Incorporated by reference to Exhibit 10-g to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1994.)
10-k* Kentrox Management Incentive Plan for the fiscal year ended October
31, 1994. (Incorporated by reference to Exhibit 10-h to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1994.)
10-l* Vice President of Sales and Customer Service Management Incentive
Plan for the fiscal year ended October 31, 1994. (Incorporated by reference to
Exhibit 10-i to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1994.)
10-m* Senior Vice President Transmission Group Management Incentive Plan
for the fiscal year ended October 31, 1994. (Incorporated by reference to
Exhibit 10-j to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1994.)
10-n* Transmission Management Incentive Plan for the fiscal year ended
October 31, 1994. (Incorporated by reference to Exhibit 10-k to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1994.)
10-o* Transmission Product and Marketing Management Management Incentive
Plan for the fiscal year ended October 31, 1994. (Incorporated by reference to
Exhibit 10-l to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1994.)
10-p* Transmission Product and Marketing Management (International)
Management Incentive Plan for the fiscal year ended October 31, 1994.
(Incorporated by reference to Exhibit 10-m to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1994.)
10-q* Access Platform Systems Incentive Plan Fiscal Year 1995.
(Incorporated by reference to Exhibit 10-b to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1995.)
<PAGE>
Exhibit
Number Description
10-r* ALS Management Incentive Plan Fiscal Year 1995. (Incorporated by
reference to Exhibit 10-c to the Company's Quarterly Report on Form 10-Q for
the quarter ended January 31, 1995.)
10-s* Broadband Connectivity Copper Management Incentive Plan Fiscal Year
1995. (Incorporated by reference to Exhibit 10-d to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1995.)
10-t* Broadband Connectivity Fiber Management Incentive Plan Fiscal Year
1995. (Incorporated by reference to Exhibit 10-e to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1995.)
10-u* Broadband Connectivity Management Incentive Plan Fiscal Year 1995.
(Incorporated by reference to Exhibit 10-f to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1995.)
10-v* Corporate Management Incentive Plan Fiscal Year 1995. (Incorporated
by reference to Exhibit 10-g to the Company's Quarterly Report on Form 10-Q for
the quarter ended January 31, 1995.)
10-w* Fibermux President Management Incentive Plan Fiscal Year 1995.
(Incorporated by reference to Exhibit 10-h to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1995.)
10-x* International Management Incentive Plan Fiscal Year 1995.
(Incorporated by reference to Exhibit 10-i to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1995.)
10-y* Kentrox Management Incentive Plan Fiscal Year 1995. (Incorporated by
reference to Exhibit 10-j to the Company's Quarterly Report on Form 10-Q for
the quarter ended January 31, 1995.)
10-z* Network Services Management Incentive Plan Fiscal Year 1995.
(Incorporated by reference to Exhibit 10-k to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1995.)
10-aa* Transmission Group Management Incentive Plan Fiscal Year 1995.
(Incorporated by reference to Exhibit 10-l to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1995.)
10-bb* Vice President of Sales and Customer Service Management Incentive
Plan Fiscal Year 1995. (Incorporated by reference to Exhibit 10-m to the
Company's Quarterly Report on Form 10-Q for the quarter ended January 31,
1995.)
<PAGE>
Exhibit
Number Description
10-cc* Wireless Management Incentive Plan Fiscal Year 1995. (Incorporated
by reference to Exhibit 10-n to the Company's Quarterly Report on Form 10-Q for
the quarter ended January 31, 1995.)
10-dd* Supplemental Executive Retirement Plan Agreement for William J.
Cadogan, dated as of November 1, 1990, between ADC Telecommunications, Inc. and
William J. Cadogan. (Incorporated by reference to Exhibit 10-ee to the
Company's Annual Report on Form 10-K for the fiscal year ended October 31,
1993.)
10-ee* ADC Telecommunications, Inc. Change in Control Severance Pay Plan
Statement and Summary Plan Description. (Incorporated by reference to Exhibit
10-q to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1989.)
10-ff* Compensation Plan for Directors of ADC Telecommunications, Inc.,
restated as of December 31, 1988. (Incorporated by reference to Exhibit 10-b
to the Company's Quarterly Report on Form 10-Q for the quarter ended January
31, 1989.)
10-gg* First Amendment of the Compensation Plan for Directors of ADC
Telecommunications, Inc. restated as of December 31, 1988. (Incorporated by
reference to Exhibit 10-s to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1989.)
10-hh* ADC Telecommunications, Inc. Directors' Supplemental Retirement Plan
dated as of January 23, 1990. (Incorporated by reference to Exhibit 10-m to
the Company's Annual Report on Form 10-K for the fiscal year ended October 31,
1990.)
10-ii* ADC Telecommunications, Inc. Nonemployee Director Stock Option Plan.
(Incorporated by reference to Exhibit 19-b of the Company's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1991.)
10-jj* ADC Telecommunications, Inc. Deferred Compensation Plan, dated as of
November 1, 1978. (Incorporated by reference to Exhibit 10-n to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1990.)
10-kk* ADC Telecommunications, Inc. Excess Benefits Plan, dated as of
January 1, 1985. (Incorporated by reference to Exhibit 10-o to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1990.)
10-ll* ADC Telecommunications, Inc. 401(k) Excess Plan, dated as of
September 1, 1990. (Incorporated by reference to Exhibit 10-p to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1990.)
<PAGE>
Exhibit
Number Description
10-mm Lease, dated March 1, 1986, between ADC Telecommunications, Inc. and
Metro International Ltd. as amended. (Incorporated by reference to Exhibit 10-
w to the Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1991.)
10-nn Renewal of Lease, dated July 9, 1990, between ADC Telecommunications,
Inc. and Metro International General Partner Canada, Inc. (Incorporated by
reference to Exhibit 10-z to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1990.)
10-oo Lease Agreement, dated August 21, 1990, between Minnetonka Corporate
Center I Limited Partnership and ADC Telecommunications, Inc. (Incorporated by
reference to Exhibit 10-x to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1990.)
10-pp Lease Agreement, dated October 26, 1990, between Lutheran Brotherhood
and ADC Telecommunications, Inc. (Incorporated by reference to Exhibit 10-w to
the Company's Annual Report on Form 10-K for the fiscal year ended October 31,
1990.)
10-qq Sublease Agreement, dated October 31, 1990, between Seagate
Technology, Inc. and ADC Telecommunications, Inc. (Incorporated by reference
to Exhibit 10-y to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1990.)
10-rr Lease, dated February 25, 1991, between American Lightwave Systems,
Inc. and 999 Research Parkway, Inc. (Incorporated by reference to Exhibit 10-t
to the Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1991.)
10-ss Lease, dated December 18, 1992, between Fibermux Corporation and
Greenville Dallas Delaware, Inc. (Incorporated by reference to Exhibit 10-dd
to the Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1993.)
10-tt Lease, dated August 2, 1993, between ADC Telecommunications, Inc. and
Engelsma Limited Partnership. (Incorporated by reference to Exhibit 10-cc to
the Company's Annual Report on Form 10-K for the fiscal year ended October 31,
1993.)
10-uu Lease, dated September 30, 1993, between American Lightwave Systems,
Inc. and 999 Research Parkway, Inc. (Incorporated by reference to Exhibit 10-
bb to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1993.)
<PAGE>
Exhibit
Number Description
10-vv Sublease, dated as of February 21, 1995, between Seagate Technology,
Inc. and ADC Telecommunications, Inc. (Incorporated by reference to Exhibit
10-a of the Company's Quarterly Report on Form 10-Q for the quarter ended April
30, 1995.)
10-ww Lease, dated July 17, 1995, between Centract VI LLC and ADC Video
Systems, Inc. (Incorporated by reference to Exhibit 10-a of the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1995.)
21-a Subsidiaries of the Company.
23-a Consent of Independent Public Accountants to the incorporation of
their report dated December 13, 1995, included in this Form 10-K, into the
Company's previously filed Registration Statements, File Nos. 2-83584,
33-22654, 33-40356, 33-40357, 33-52635, 33-52637, 33-58407, 33-58409 and
33-59445.
24-a Powers of attorney.
27-a Financial Data Schedule.
There have been excluded from the exhibits filed with this report instruments
defining the rights of holders of long-term debt of the Company where the total
amount of the securities authorized under such instruments does not exceed 10%
of the total assets of the Company. The Company hereby agrees to furnish a
copy of any such instruments to the Commission upon request.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended October 31, 1995.
(c) See Exhibit Index and Exhibits attached to this report.
(d) See Financial Statement Schedules included in Part II, Item 8 of this
report.
__________________
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to the Annual Report on Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: December 28, 1995 By: /s/ William J. Cadogan
William J. Cadogan
Chairman of the Board, President,
Chief Executive Officer and
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ William J. Cadogan Chairman of the Board, President,
William J. Cadogan Chief Executive Officer and Chief
Operating Officer (principal executive
officer)
/s/ Robert E. Switz Vice President, Chief Financial Officer
Robert E. Switz (principal financial officer)
/s/ Charles T. Roehrick Vice President and Controller
Charles T. Roehrick (principal accounting officer)
Dated: December 28, 1995
James C. Castle, Ph.D.* Director
Thomas E. Holloran* Director
B. Kristine Johnson* Director
Charles W. Oswald* Director
Alan E. Ross* Director
Jean-Pierre Rosso* Director
Donald M. Sullivan* Director
Warde F. Wheaton* Director
John D. Wunsch* Director
*By /s/ David F. Fisher
David F. Fisher
Attorney-in-fact
<PAGE>
ADC TELECOMMUNICATIONS, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended October 31, 1995
EXHIBIT INDEX
Exhibit
Number Description Page
3-a Restated Articles of Incorporation of ADC Telecommunications, N/A
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.)
3-b Composite Restated Bylaws of ADC Telecommunications, Inc., N/A
as amended to date (Incorporated by reference to Exhibit 3-b to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1989.)
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 Telecommunications, N/A
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 N/A
amended to date (Incorporated by reference to Exhibit 3-b to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1989.)
4-d Second Amended and Restated Rights Agreement, amended and N/A
restated as of November 28, 1995, between ADC Telecommunications,
Inc. and Norwest Bank Minnesota, N.A. (amending and restating the
Rights Agreement dated as of September 23, 1986, as amended and
restated as of August 16, 1989), which includes as Exhibit A thereto
the form of Right Certificate. (Incorporated by reference to
Exhibit 4 to the Company's Form 8-K dated December 11, 1995.)
10-a Stock Option and Restricted Stock Plan, restated as of N/A
January 26, 1988. (Incorporated by reference to Exhibit 19-a to
the Company's Quarterly Report on Form 10-Q for the quarter ended
April 30, 1988.)
<PAGE>
Exhibit
Number Description Page
10-b Amendment to Stock Option and Restricted Stock Plan dated as N/A
of September 26, 1989. (Incorporated by reference to Exhibit 10-e
to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1989.)
10-c The ADC Telecommunications, Inc. 1991 Stock Incentive Plan, N/A
as amended. (Incorporated by reference to Exhibit 10-a to the
Company's Quarterly Report on Form 10-Q for the quarter ended
January 31, 1993.)
10-d Access Platform System Management Incentive Plan for the N/A
fiscal year ended October 31, 1994. (Incorporated by reference to
Exhibit 10-a to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1994.)
10-e ALS Management Incentive Plan for the fiscal year ended N/A
October 31, 1994. (Incorporated by reference to Exhibit 10-b to
the Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1994.)
10-f Business Development Management Incentive Plan for the fiscal N/A
year ended October 31, 1994. (Incorporated by reference to Exhibit
10-c to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1994.)
10-g Cable Management Management Incentive Plan for the fiscal N/A
year ended October 31, 1994. (Incorporated by reference to Exhibit
10-d to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1994.)
10-h Corporate Management Incentive Plan for the fiscal year ended N/A
October 31, 1994. (Incorporated by reference to Exhibit 10-e to the
Company's Quarterly Report on Form 10-Q for the quarter ended July
31, 1994.)
10-i Fibermux Management Incentive Plan for the fiscal year ended N/A
October 31, 1994. (Incorporated by reference to Exhibit 10-f to the
Company's Quarterly Report on Form 10-Q for the quarter ended July
31, 1994.)
10-j International Management Incentive Plan for the fiscal year N/A
ended October 31, 1994. (Incorporated by reference to Exhibit 10-g
to the Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1994.)
10-k Kentrox Management Incentive Plan for the fiscal year ended N/A
October 31, 1994. (Incorporated by reference to Exhibit 10-h to
the Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1994.)
<PAGE>
Exhibit
Number Description Page
10-l Vice President of Sales and Customer Service Management N/A
Incentive Plan for the fiscal year ended October 31, 1994.
(Incorporated by reference to Exhibit 10-i to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1994.)
10-m Senior Vice President Transmission Group Management Incentive N/A
Plan for the fiscal year ended October 31, 1994. (Incorporated by
reference to Exhibit 10-j to the Company's Quarterly Report on Form
10-Q for the quarter ended July 31, 1994.)
10-n Transmission Management Incentive Plan for the fiscal year N/A
ended October 31, 1994. (Incorporated by reference to Exhibit 10-k
to the Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1994.)
10-o Transmission Product and Marketing Management Management N/A
Incentive Plan for the fiscal year ended October 31, 1994.
(Incorporated by reference to Exhibit 10-l to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1994.)
10-p Transmission Product and Marketing Management (International) N/A
Management Incentive Plan for the fiscal year ended October 31, 1994.
(Incorporated by reference to Exhibit 10-m to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1994.)
10-q Access Platform Systems Incentive Plan Fiscal Year 1995. N/A
(Incorporated by reference to Exhibit 10-b to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1995.)
10-r ALS Management Incentive Plan Fiscal Year 1995. (Incorporated N/A
by reference to Exhibit 10-c to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1995.)
10-s Broadband Connectivity Copper Management Incentive Plan Fiscal N/A
Year 1995. (Incorporated by reference to Exhibit 10-e to the Company's
Quarterly Report on Form 10-Q for the quarter ended January 31, 1995.)
10-t Broadband Connectivity Fiber Management Incentive Plan Fiscal N/A
Year 1995. (Incorporated by reference to Exhibit 10-e to the Company's
Quarterly Report on Form 10-Q for the quarter ended January 31, 1995.)
10-u Broadband Connectivity Management Incentive Plan Fiscal Year N/A
1995. (Incorporated by reference to Exhibit 10-g to the Company's
Quarterly Report on Form 10-Q for the quarter ended January 31, 1995.)
<PAGE>
Exhibit
Number Description Page
10-v Corporate Management Incentive Plan Fiscal Year 1995. N/A
(Incorporated by reference to Exhibit 10-g to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1995.)
10-w Fibermux President Management Incentive Plan Fiscal Year 1995. N/A
(Incorporated by reference to Exhibit 10-h to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1995.)
10-x International Management Incentive Plan Fiscal Year 1995. N/A
(Incorporated by reference to Exhibit 10-i to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1995.)
10-y Kentrox Management Incentive Plan Fiscal Year 1995. N/A
(Incorporated by reference to Exhibit 10-j to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1995.)
10-z Network Services Management Incentive Plan Fiscal Year 1995. N/A
(Incorporated by reference to Exhibit 10-k to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1995.)
10-aa Transmission Group Management Incentive Plan Fiscal Year 1995. N/A
(Incorporated by reference to Exhibit 10-l to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1995.)
10-bb Vice President of Sales and Customer Service Management N/A
Incentive Plan Fiscal Year 1995. (Incorporated by reference to Exhibit
10-m to the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1995.)
10-cc Wireless Management Incentive Plan Fiscal Year 1995. N/A
(Incorporated by reference to Exhibit 10-n to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1995.)
10-dd Supplemental Executive Retirement Plan Agreement for William N/A
J. Cadogan, dated as of November 1, 1990, between ADC Telecommuni-
cations, Inc. and William J. Cadogan. (Incorporated by reference to
Exhibit 10-ee to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993.)
10-ee ADC Telecommunications, Inc. Change in Control Severance Pay N/A
Plan Statement and Summary Plan Description. (Incorporated by
reference to Exhibit 10-q to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1989.)
<PAGE>
Exhibit
Number Description Page
10-ff Compensation Plan for Directors of ADC Telecommunications, N/A
Inc., restated as of December 31, 1988. (Incorporated by reference
to Exhibit 19-b to the Company's Quarterly Report on Form 10-Q for the
quarter ended January 31, 1989.)
10-gg First Amendment of the Compensation Plan for Directors of ADC N/A
Telecommunications, Inc. restated as of December 31, 1988.
(Incorporated by reference to Exhibit 10-s to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1989.)
10-hh ADC Telecommunications, Inc. Directors' Supplemental Retirement N/A
Plan dated as of January 23, 1990. (Incorporated by reference to
Exhibit 10-m to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1990.)
10-ii ADC Telecommunications, Inc. Nonemployee Director Stock Option N/A
Plan. (Incorporated by reference to Exhibit 19-b of the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30, 1991.)
10-jj ADC Telecommunications, Inc. Deferred Compensation Plan, dated N/A
as of November 1, 1978. (Incorporated by reference to Exhibit 10-n
to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1990.)
10-kk ADC Telecommunications, Inc. Excess Benefits Plan, dated as of N/A
January 1, 1985. (Incorporated by reference to Exhibit 10-o to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1990.)
10-ll ADC Telecommunications, Inc. 401(k) Excess Plan, dated as of N/A
September 1, 1990. (Incorporated by reference to Exhibit 10-p to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1990.)
10-mm Lease, dated March 1, 1986, between ADC Telecommunications, N/A
Inc. and Metro International Ltd. as amended. (Incorporated by
reference to Exhibit 10-w to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1991.)
10-nn Renewal of Lease, dated July 9, 1990, between ADC Telecom- N/A
munications, Inc. and Metro International General Partner Canada, Inc.
(Incorporated by reference to Exhibit 10-z to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1990.)
<PAGE>
Exhibit
Number Description Page
10-oo Lease Agreement, dated August 21, 1990, between Minnetonka N/A
Corporate Center I Limited Partnership and ADC Telecommunications,
Inc. (Incorporated by reference to Exhibit 10-x to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1990.)
10-pp Lease Agreement, dated October 26, 1990, between Lutheran N/A
Brotherhood and ADC Telecommunications, Inc. (Incorporated by
reference to Exhibit 10-w to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1990.)
10-qq Sublease Agreement, dated October 31, 1990, between Seagate N/A
Technology, Inc. and ADC Telecommunications, Inc. (Incorporated by
reference to Exhibit 10-y to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1990.)
10-rr Lease, dated February 25, 1991, between American Lightwave N/A
Systems, Inc. and 999 Research Parkway, Inc. (Incorporated by
reference to Exhibit 10-t to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1991.)
10-ss Lease, dated December 18, 1992, between Fibermux Corporation N/A
and Greenville Dallas Delaware, Inc. (Incorporated by reference to
Exhibit 10-dd to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993.)
10-tt Lease, dated August 2, 1993, between ADC Telecommunications, N/A
Inc. and Engelsma Limited Partnership. (Incorporated by reference
to Exhibit 10-cc to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993.)
10-uu Lease, dated September 30, 1993, between American Lightwave N/A
Systems, Inc. and 999 Research Parkway, Inc. (Incorporated by
reference to Exhibit 10-bb to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1993.)
10-vv Sublease, dated as of February 21, 1995, between Seagate N/A
Technology, Inc. and ADC Telecommunications, Inc. (Incorporated by
reference to Exhibit 10-a of the Company's Quarterly Report on Form
10-Q for the quarter ended April 30, 1995.)
10-ww Lease, dated July 17, 1995, between Centract VI LLC and N/A
ADC Video Systems, Inc. (Incorporated by reference to Exhibit 10-a
of the Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1995.)
<PAGE>
Exhibit
Number Description Page
21-a Subsidiaries of the Company xx
23-a Consent of Independent Public Accountants to the incorporation xx
of their report dated December 13, 1995, included in this Form 10-K,
into the Company's previously filed Registration Statements, File Nos.
2-83584, 33-22654, 33-40356, 33-40357, 33-52635, 33-52637, 33-58407,
33-58409 and 33-59445.
24-a Powers of attorney. xx
27-a Financial Data Schedule. xx
Exhibit 21-a
SUBSIDIARIES OF THE COMPANY
The following list of subsidiaries of the Company identifies the name of the
subsidiary, the state or other jurisdiction of incorporation or organization
and the name under which such subsidiaries do business:
ADC VIDEO SYSTEMS, INC.
formerly American Lightwave Systems, Inc.
A Delaware corporation
AVS, ADC Video Systems
FIBERMUX CORPORATION
A California corporation
Fibermux, ADC Fibermux
KENTROX INDUSTRIES, INC.
A Delaware corporation
Kentrox, ADC Kentrox
ADC EUROPE NV
Belgium
ADC, ADC Europe
ADC INTERNATIONAL LIMITED
Jamaica
ADC de MEXICO, S.A. de C.V.
Mexico
ADC TELECOM CANADA INC.
Canada
ADC TELECOMMUNICATIONS AUSTRALIA (HOLDINGS) PTY. LIMITED
Australia
ADC Telecomunications Australia Pty. Limited
Australia
AOFR Pty. Limited
Australia
ADC TELECOMMUNICATIONS SINGAPORE PTE. LIMITED
Singapore
ADC TELECOMMUNICATIONS UK LTD
United Kingdom
ADC, ADC Telecommunications
ADC TELECOMUNICACIONES VENEZUELA, S.A.
Venezuela
AOFR AMERICAS, INC.
A Delaware corporation
AOFR EUROPE GmbH
Germany
ADC, ADC Telecommunications
SHANGHAI ADC TELECOMMUNICATIONS EQUIPMENT CO. LTD. (50%)
People's Republic of China
Exhibit 23-a
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ADC Telecommunications, Inc.:
As independent public accountants, we hereby consent to the incorporation of
our report dated December 13, 1995, included in this Form 10-K, into the
Company's previously filed Registration Statements, File Nos. 2-83584,
33-22654, 33-40356, 33-40357, 33-52635, 33-52637, 33-58407, 33-58409 and
33-59445.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
January 3, 1996
POA2/10k/10123STC/dkp
Exhibit 24-a
POWER OF ATTORNEY
I, James C. Castle, Ph.D., do hereby constitute and appoint William J. Cadogan
and David F. Fisher, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as a Director of ADC Telecommunications,
Inc., the Annual Report of ADC Telecommunications, Inc. on Form 10-K for its
fiscal year ended October 31, 1995, and any and all amendments to said Annual
Report and any and all amendments thereto, as each thereof is so signed, for
filing with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
December 28, 1995
/s/ James C. Castle
James C. Castle, Ph.D.
POWER OF ATTORNEY
I, Thomas E. Holloran, do hereby constitute and appoint William J. Cadogan and
David F. Fisher, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as a Director of ADC Telecommunications,
Inc., the Annual Report of ADC Telecommunications, Inc. on Form 10-K for its
fiscal year ended October 31, 1995, and any and all amendments to said Annual
Report and any and all amendments thereto, as each thereof is so signed, for
filing with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
December 28, 1995
/s/ Thomas E. Holloran
Thomas E. Holloran
POWER OF ATTORNEY
I, B. Kristine Johnson, do hereby constitute and appoint William J. Cadogan and
David F. Fisher, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as a Director of ADC Telecommunications,
Inc., the Annual Report of ADC Telecommunications, Inc. on Form 10-K for its
fiscal year ended October 31, 1995, and any and all amendments to said Annual
Report and any and all amendments thereto, as each thereof is so signed, for
filing with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
December 28, 1995
/s/ B. Kristine Johnson
B. Kristine Johnson
POWER OF ATTORNEY
I, Charles W. Oswald, do hereby constitute and appoint William J. Cadogan and
David F. Fisher, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as a Director of ADC Telecommunications,
Inc., the Annual Report of ADC Telecommunications, Inc. on Form 10-K for its
fiscal year ended October 31, 1995, and any and all amendments to said Annual
Report and any and all amendments thereto, as each thereof is so signed, for
filing with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
December 28, 1995
/s/ Charles W. Oswald
Charles W. Oswald
POWER OF ATTORNEY
I, Alan E. Ross, do hereby constitute and appoint William J. Cadogan and David
F. Fisher, or any one of them, my Attorney-in-Fact for the purpose of signing,
in my name and on my behalf as a Director of ADC Telecommunications, Inc., the
Annual Report of ADC Telecommunications, Inc. on Form 10-K for its fiscal year
ended October 31, 1995, and any and all amendments to said Annual Report and
any and all amendments thereto, as each thereof is so signed, for filing with
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934, as amended.
December 28, 1995
/s/ Alan E. Ross
Alan E. Ross
POWER OF ATTORNEY
I, Jean-Pierre Rosso, do hereby constitute and appoint William J. Cadogan and
David F. Fisher, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as a Director of ADC Telecommunications,
Inc., the Annual Report of ADC Telecommunications, Inc. on Form 10-K for its
fiscal year ended October 31, 1995, and any and all amendments to said Annual
Report and any and all amendments thereto, as each thereof is so signed, for
filing with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
December 28, 1995
/s/ Jean-Pierre Rosso
Jean-Pierre Rosso
POWER OF ATTORNEY
I, Donald M. Sullivan, do hereby constitute and appoint William J. Cadogan and
David F. Fisher, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as a Director of ADC Telecommunications,
Inc., the Annual Report of ADC Telecommunications, Inc. on Form 10-K for its
fiscal year ended October 31, 1995, and any and all amendments to said Annual
Report and any and all amendments thereto, as each thereof is so signed, for
filing with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
December 28, 1995
/s/ Donald M. Sullivan
Donald M. Sullivan
POWER OF ATTORNEY
I, Warde F. Wheaton, do hereby constitute and appoint William J. Cadogan and
David F. Fisher, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as a Director of ADC Telecommunications,
Inc., the Annual Report of ADC Telecommunications, Inc. on Form 10-K for its
fiscal year ended October 31, 1995, and any and all amendments to said Annual
Report and any and all amendments thereto, as each thereof is so signed, for
filing with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
December 28, 1995
/s/ Warde F. Wheaton
Warde F. Wheaton
POWER OF ATTORNEY
I, John D. Wunsch, do hereby constitute and appoint William J. Cadogan and
David F. Fisher, or any one of them, my Attorney-in-Fact for the purpose of
signing, in my name and on my behalf as a Director of ADC Telecommunications,
Inc., the Annual Report of ADC Telecommunications, Inc. on Form 10-K for its
fiscal year ended October 31, 1995, and any and all amendments to said Annual
Report and any and all amendments thereto, as each thereof is so signed, for
filing with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended.
December 28, 1995
/s/ John D. Wunsch
John D. Wunsch
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for ADC Telecommunications, Inc. and Subsidiaries, for the
fiscal year ended October 31, 1995, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<CASH> 238,491
<SECURITIES> 0
<RECEIVABLES> 107,255<F1>
<ALLOWANCES> 4,258
<INVENTORY> 86,559<F2>
<CURRENT-ASSETS> 447,747
<PP&E> 191,537
<DEPRECIATION> (112,851)
<TOTAL-ASSETS> 601,083
<CURRENT-LIABILITIES> 88,961
<BONDS> 0
<COMMON> 12,547
0
0
<OTHER-SE> 498,319
<TOTAL-LIABILITY-AND-EQUITY> 601,083
<SALES> 586,222
<TOTAL-REVENUES> 586,222
<CGS> 302,094
<TOTAL-COSTS> 302,094
<OTHER-EXPENSES> 203,804
<LOSS-PROVISION> 784
<INTEREST-EXPENSE> 275
<INCOME-PRETAX> 86,229
<INCOME-TAX> 31,043
<INCOME-CONTINUING> 55,186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,186
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.94
<FN>
<F1>Amount is net of allowance for bad debts and returns and allowances.
<F2>Amount is net of obsolescence reserves.
</FN>
</TABLE>
