<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
OR
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission file number 0-1424
ADC Telecommunications, Inc.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0743912
---------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4900 West 78th Street, Minneapolis, MN 55435
----------------------------------------------------
(Address of principal executive offices) (zip code)
(612) 938-8080
-----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
-------- --------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.20 par value: 64,856,608 shares as of June 11, 1996
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
April 30, October 31,
1996 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $191,838 $238,491
Accounts receivable 127,555 107,255
Inventories 121,875 86,559
Prepaid income taxes and other assets 16,206 15,442
---------- ----------
Total current assets 457,474 447,747
PROPERTY AND EQUIPMENT, net 104,541 78,686
OTHER ASSETS, principally goodwill 91,717 74,650
---------- ----------
$653,732 $601,083
========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $45 $410
Accounts payable 24,635 28,820
Accrued liabilities 72,844 59,731
---------- ----------
Total current liabilities 97,524 88,961
DEFERRED INCOME TAXES 1,110 1,256
LONG-TERM DEBT, less current maturities above 444 --
---------- ----------
Total liabilities 99,078 90,217
STOCKHOLDERS' INVESTMENT
(64,084 and 62,737 shares outstanding) 554,654 510,866
---------- ----------
$653,732 $601,083
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(In Thousands, Except per Share Amounts)
<TABLE>
<CAPTION>
For the Quarters Ended For the Six Months Ended
April 30, April 30,
---------------------- -----------------------
1996 1995 1996 1995
----------- --------- ---------- -----------
<S> <C> <C> <C> <C>
NET SALES $193,053 $140,342 $355,644 $262,116
COST OF PRODUCT SOLD 103,636 71,303 188,317 133,705
-------- -------- -------- --------
GROSS PROFIT 89,417 69,039 167,327 128,411
-------- -------- -------- --------
Gross profit percentage 46.3% 49.2% 47.0% 49.0%
-------- -------- -------- --------
EXPENSES:
Development and product
engineering 21,629 15,937 41,572 29,146
Selling and administration 37,516 32,638 72,423 62,401
Goodwill amortization 883 782 1,667 1,566
Personnel reduction -- 3,914 -- 3,914
-------- -------- -------- --------
Total expenses 60,028 53,271 115,662 97,027
-------- -------- -------- --------
OPERATING INCOME 29,389 15,768 51,665 31,384
OTHER INCOME (EXPENSE), NET:
Interest 2,597 547 6,149 1,203
Other (892) (80) (1,233) --
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 31,094 16,235 56,581 32,587
PROVISION FOR INCOME TAXES 11,195 5,846 20,369 11,732
-------- -------- -------- --------
NET INCOME $19,899 $10,389 $36,212 $20,855
======== ======== ======== ========
AVERAGE COMMON SHARES OUTSTANDING 64,024 56,094 63,381 55,974
======== ======== ======== ========
EARNINGS PER SHARE $0.31 $0.18 $0.57 $0.37
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In Thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
April 30,
-------------------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $36,212 $20,855
Adjustments to reconcile net income to net
cash from operating activities -
Depreciation and amortization 15,221 11,567
Reduction in deferred compensation 229 271
Decrease in deferred income taxes (146) (189)
Other 7 115
Changes in assets and liabilities
Accounts receivable (17,860) (6,516)
Inventories (28,914) (18,142)
Prepaid income taxes and other assets 9 (283)
Accounts payable (6,618) 482
Accrued liabilities 5,256 (4,855)
---------- ----------
Total cash from operating activities 3,396 3,305
---------- ----------
INVESTMENT ACTIVITIES:
Acquisition payments (9,416) (4,676)
Property and equipment additions, net (33,786) (12,108)
Long-term investments (6,803) (1,000)
---------- ----------
Total cash used for investment
activities (50,005) (17,784)
---------- ----------
FINANCING ACTIVITIES:
Decrease in long-term debt (2,472) (400)
Common stock issued 2,789 2,504
---------- ----------
Total cash from financing activities 317 2,104
EFFECT OF EXCHANGE RATE CHANGES ON CASH (361) (2)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (46,653) (12,377)
CASH AND CASH EQUIVALENTS, beginning of period 238,491 49,512
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $191,838 $37,135
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION - UNAUDITED
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
2nd 1st 4th 3rd
Quarter Quarter Quarter Quarter
1996 1996 1995 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $193,053 $162,591 $173,652 $150,454
COST OF PRODUCT SOLD 103,636 84,681 89,647 78,742
-------- -------- -------- --------
GROSS PROFIT 89,417 77,910 84,005 71,712
-------- -------- -------- --------
Gross profit percentage 46.3% 47.9% 48.4% 47.7%
-------- -------- -------- --------
EXPENSES:
Development and product engineering 21,629 19,943 21,112 16,202
Selling and administration 37,516 34,907 35,959 31,937
Goodwill amortization 883 784 783 784
-------- -------- -------- --------
Total expenses 60,028 55,634 57,854 48,923
-------- -------- -------- --------
OPERATING INCOME 29,389 22,276 26,151 22,789
OTHER INCOME(EXPENSE), NET:
Interest 2,597 3,552 3,671 1,929
Other (892) (341) (669) (229)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 31,094 25,487 29,153 24,489
PROVISION FOR INCOME TAXES 11,195 9,174 10,496 8,815
-------- -------- -------- --------
NET INCOME $19,899 $16,313 $18,657 $15,674
======== ======== ======== ========
AVERAGE COMMON SHARES OUTSTANDING 64,024 62,758 62,655 59,321
======== ======== ======== ========
EARNINGS PER SHARE $0.31 $0.26 $0.30 $0.26
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Note 1 Accounting Policies: The information furnished in this report is
unaudited but reflects all adjustments which are necessary, in the
opinion of management, for a fair statement of the results for the
interim periods. The operating results for the six months ended
April 30, 1996 are not necessarily indicative of the operating
results to be expected for the full fiscal year. These statements
should be read in conjunction with the Company's most recent Annual
Report on Form 10-K.
Note 2 Inventories: Inventories include material, labor and overhead and
are stated at the lower of first-in, first-out cost or market.
Inventories at April 30, 1996, and October 31, 1995, consisted of (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Purchased materials and
manufactured products $111,582 $75,694
Work-in-process 10,293 10,865
---------- ----------
$121,875 $86,559
========== ==========
</TABLE>
Note 3 Acquisitions: During the second quarter, the Company exchanged
1,176,950 shares of its common stock in two separate business
combinations for all the outstanding shares of Da Tel Fibernet, Inc.
("Da Tel") and Information Transmission Systems Corp. ("ITS"). Both
transactions were accounted for as poolings of interests. Da Tel
provides engineering, design and installation services for
telecommunications companies. ITS designs and manufactures wireless
television transmission products for the cable and broadcast
industries.
Financial data for periods prior to the second quarter has not been
restated for these combinations because neither the net assets or
operating results were material, individually or in the aggregate, to
the Company's consolidated financial statements.
During the second quarter, the Company purchased all of the
outstanding stock of Skyline Technology, Inc. ("Skyline") for an
initial cash payment of $12 million and an additional amount not to
exceed $20 million. The additional amounts will be payable over a
three year period beginning November 1, 1996, subject to the
achievement of certain performance goals. Skyline designs and
manufactures ISDN/Frame Relay access products.
6
<PAGE>
The Skyline acquisition was accounted for as a purchase. The
purchase price exceeded the fair value of the acquired assets by
approximately $11 million. This amount is being amortized over ten
years on a straight line basis. The inclusion of Skyline financial
data prior to the date of acquisition would not have materially
affected reported results.
Note 4 Subsequent Event: On May 31, 1996, the Company exchanged 715,431
shares of its common stock for all of the outstanding capital stock
of Metrica Systems Limited ("Metrica"). The acquisition was
accounted for as a pooling of interests. Metrica, based in London,
England, designs and manufactures network management software.
7
<PAGE>
ITEM 2. 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 is experiencing growth through
acquisition and expansion and results of operations described in this Form 10-Q
may not be indicative of results to be achieved in future periods. 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 in late
November, December and early January and a general industry slowdown during
that period. There can be no assurance that these historical seasonal trends
will continue in the future.
8
<PAGE>
RESULTS OF OPERATIONS
The percentage relationships to net sales of certain income and expense
items for the quarters and six months ended April 30, 1996 and 1995 and the
percentage changes in these income and expense items between periods are
contained in the following table:
<TABLE>
<CAPTION>
Percentage Increase
Percentage of Net Sales Between Periods
----------------------------- --------------------
Quarters Ended Six Months Ended Quarters Six Months
April 30, April 30, Ended Ended
-------------- ----------------
1996 1995 1996 1995 April 30, April 30,
------ ------ ------ ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 37.6% 35.7%
Cost of Product Sold (53.7) (50.8) (53.0) (51.0) 45.3 40.8
----- ----- ----- -----
Gross Profit 46.3 49.2 47.0 49.0 29.5 30.3
Expenses:
Development and
product
engineering (11.2) (11.3) (11.7) (11.1) 35.7 42.6
Selling and
administration (19.4) (23.3) (20.3) (23.8) 14.9 16.1
Goodwill
amortization (0.5) (0.6) (0.5) (0.6) - -
Personnel reduction - (2.8) - (1.5) - -
----- ----- ----- -----
Operating Income 15.2 11.2 14.5 12.0 86.4 64.6
Other Income (Expense), Net:
Interest 1.3 0.4 1.7 0.5 374.8 411.1
Other (0.4) - (0.3) - - -
----- ----- ----- -----
Income Before Income
Taxes 16.1 11.6 15.9 12.5 91.5 73.6
Provision for Income
Taxes (5.8) (4.2) (5.7) (4.5) 91.5 73.6
----- ----- ----- -----
Net Income 10.3% 7.4% 10.2% 8.0% 91.5 73.6
===== ===== ===== =====
</TABLE>
Net Sales: The following table sets forth the Company's net sales for the
quarters and six-month periods ended April 30, 1996 and 1995 for each of the
Company's functional product groups described above:
<TABLE>
<CAPTION>
Quarters Ended April 30, Six Months Ended April 30,
------------------------------- ----------------------------------
1996 1995 1996 1995
--------------- --------------- --------------- ----------------
Product
Group Net Sales % Net Sales % Net Sales % Net Sales %
- ------- --------- ----- --------- ----- --------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transmission$67,653 35.0% $39,334 28.0% $119,080 33.5% $74,751 28.5%
Enterprise
Networking 37,639 19.5 30,965 22.1 69,245 19.5 62,112 23.7
Broadband
Connectivity87,761 45.5 70,043 49.9 167,319 47.0 125,253 47.8
-------- ---- -------- ---- -------- ---- -------- ----
Total $193,053 100.0% $140,342 100.0% $355,644 100.0% $262,116 100.0%
======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
Net sales for the three-month and six-month periods ended April 30, 1996
were $193.1 million and $355.6 million, reflecting 37.6% and 35.7% increases,
respectively, over the comparable 1995 time periods. These increases in total
net sales are the result of increases in net sales for all three product
groups.
9
<PAGE>
During the quarter and six months ended April 30, 1996, net sales of
transmission products increased 72.0% and 59.3%, respectively, over the
comparable 1995 time periods. These increases are primarily the result of
revenue contributions of nearly $12.5 million from companies acquired during
the quarter and increased sales of transmission systems sold to public
telecommunications network providers.
Net sales of broadband connectivity products increased 25.3% and 33.6%
during the quarter and six months ended April 30, 1996, respectively, over the
comparable 1995 time periods, primarily reflecting the Company's success in
selling these products into expanding global broadband market applications.
The Company believes that future sales of broadband connectivity products will
continue to account for a substantial portion of the Company's revenues,
although net sales of 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.
During the quarter and six months ended April 30, 1996, net sales of
enterprise networking products increased 21.6% and 11.5%, respectively, over
the quarter and six months ended April 30, 1995. These increases reflect
significant growth in net sales of access equipment, which was partially offset
by a decrease in net sales of Local Area Network (LAN) equipment. Recognizing
changes in the competitive environment for LAN equipment, the Company realigned
its Kentrox and Fibermux subsidiaries into one enterprise networking group
during second quarter 1995 to better address the industry trend toward
integration of LAN and Wide Area Network (WAN) technologies and products.
Net sales of fiber optic products represented 37.1% and 38.8% of total net
sales for the quarters ended April 30, 1996 and 1995, respectively. For the
six months ended April 30, 1996 and 1995, net sales of fiber optic products
represented 39.3% and 39.7% of total net sales, respectively. These
percentages reflect more than 30% growth in net sales of fiber optic products,
as well as the $12.5 million of revenue contributions of non-fiber products
from companies acquired during the quarter.
Gross Profit: In the three-month and six-month periods ended April 30,
1996, the gross profit percentages were 46.3% and 47.0% of net sales,
respectively. These gross profit percentages compared to 49.2% and 49.0% for
the three-month and six-month periods ended April 30, 1995. The declines in
gross profit percentages during the 1996 time periods were primarily the result
of a change in product sales mix toward sales of newer, lower margin products
which address emerging broadband applications. The Company anticipates that
its future gross profit percentage will continue to be affected by product mix,
the timing of new product introductions and manufacturing volume, among other
factors.
Operating Expenses: Total operating expenses for the quarter and six
months ended April 30, 1996 were $60.0 million and $115.7 million, representing
31.1% and 32.5% of net sales, respectively. Total operating expenses for the
quarter and six months ended April 30, 1995 were $53.3 million and $97.0
million, representing 38.0% and 37.0% of net sales, respectively. The 1996
decrease in operating expenses as a percentage of net sales for both the
quarter and six-month period reflects the Company's operating leverage on
increased net sales.
10
<PAGE>
The increases in absolute dollars of operating expenses during the quarter
and six months ended April 30, 1996 of 12.7% and 19.2%, respectively, were due
primarily to the expanded operations associated with higher revenue levels in
1996. Expenses during the quarter ended April 30, 1995 included a charge of
$3.9 million related primarily to a personnel reduction at Fibermux resulting
from the realignment of the Company's Kentrox and Fibermux subsidiaries. This
charge increased operating expenses as a percentage of net sales by 2.8% and
1.5% during the quarter and six months ended April 30, 1995.
Development and product engineering expenses were $21.6 million for the
quarter ended April 30, 1996, an increase of 35.7% over $15.9 million for the
quarter ended April 30, 1995. For the six months ended April 30, 1996,
development and product engineering expenses were $41.6 million, an increase of
42.6% over $29.1 million for the six months ended April 30, 1995. These
increases reflect substantial product development efforts in each of the
Company's three functional product groups.
The Company believes that, given the rapidly changing technological 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 $37.5 million for the quarter
ended April 30, 1996, an increase of 14.9% over $32.6 million for the quarter
ended April 30, 1995. For the six months ended April 30, 1996, selling and
administration expenses were $72.4 million, an increase of 16.1% over $62.4
million for the six months ended April 30, 1995. These increases reflect
selling activities associated with new product introductions and additional
personnel costs related to expanded operations.
Other Income (Expense), Net: For the three-month and six-month periods
ended April 30, 1996, net interest income was $2.6 million and $6.1 million,
respectively. Net interest income for the three-month and six-month periods
ended April 30, 1995 was $0.5 million and $1.2 million, respectively. Net
interest income represents interest income on cash balances for all periods
presented. The significant 1996 increases in net interest income primarily
reflect $182.0 million of cash proceeds from the Company's June 1995 secondary
public offering of 6.3 million shares of common stock. See "Liquidity and
Capital Resources" below for a discussion of cash levels.
Income Taxes: The Company's effective income tax rate was 36.0% for the
three-month and six-month periods ended April 30, 1996 and 1995. These rates
reflect the approximately $.9 million of non-deductible goodwill amortization
included in operating expenses in each of the three-month periods
(approximately $1.7 million in each of the six-month periods) and the
beneficial impact of tax credits.
Net Income: Reflecting all of the matters discussed above, net income was
$19.9 million (or $.31 per share) for the three months ended April 30, 1996, an
increase of 91.5% over $10.4 million (or $.18 per share) for the three months
ended April 30, 1995, and was $36.2 million (or $.57 per share) for the six
months ended April 30, 1996, an increase of 73.6% over $20.9 million (or $.37
per share) for the six months ended April 30, 1995.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, primarily short-term investments in commercial
paper with maturities of less than 90 days, decreased $46.7 million and $12.4
million during the six months ended April 30, 1996 and 1995, respectively. The
major elements of the 1996 decrease were net income before depreciation of
$51.4 million offset by the $46.8 million increase in receivables and inventory
levels, property and equipment additions of $33.8 million and acquisition
payments and long-term investments of $16.2 million. The 1996 increases in
receivables and inventory levels and property and equipment additions reflect
growth in business as well as the acquisitions during the quarter. See Note 3
to the Consolidated Financial Statements included in this report for a
discussion of acquisitions during the quarter. The major elements of the 1995
decrease were net income before depreciation of $32.4 million, offset by
property and equipment additions of $12.1 million, acquisition payments of $4.7
million, and the $24.7 million increase in inventory and receivable levels
(reflecting an acquisition completed in 1995, as well as growth in business).
The Company may borrow up to $40.0 million under revolving credit
agreements. Borrowings under these agreements bear interest at floating short-
term market rates, may be repaid at 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 April 30, 1996 and October
31, 1995, the entire $40.0 million of revolving borrowing remained available to
the Company. At April 30, 1996, the long-term debt outstanding related to the
companies acquired during the quarter.
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 $37.0 million committed at April 30, 1996) 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.
CAUTIONARY STATEMENT
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-
looking statements represent the Company's expectations or beliefs concerning
future events, including the following: any statements regarding future sales
and gross profit percentages, any statements regarding the continuation of
historical trends, and any statements regarding the sufficiency of the
Company's cash balances and cash generated from operating and financing
activities for the Company's future liquidity and capital resource needs. The
Company cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements, including, without limitation, the factors set
forth on Exhibit 99 to this Form 10-Q.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby
filing a cautionary statement identifying important factors that
could cause the Company's actual results to differ materially from
those projected in forward-looking statements made by or on behalf of
the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
4-a Form of certificate for shares of Common Stock of ADC
Telecommunications, Inc. (Incorporated by reference to
Exhibit 4-a to the Company's Form 10-Q for the quarter
ended January 31, 1996)
4-b Restated Articles of Incorporation of ADC
Telecommunications, Inc., as amended (Incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 dated May 24, 1996)
4-c Composite Restated Bylaws of ADC Telecommunications,
Inc., as amended (Incorporated by reference 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)
13
<PAGE>
27 Financial Data Schedule
99 Cautionary Statement Regarding Forward-Looking
Statements
b. Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 14, 1996 ADC TELECOMMUNICATIONS, INC.
By: /s/ Robert E. Switz
--------------------------------------
Robert E. Switz
Vice President, Chief Financial Officer
(Principal Financial Officer,
Duly Authorized Officer)
15
<PAGE>
ADC TELECOMMUNICATIONS, INC.
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JANUARY 31, 1996
Exhibit No. Description
----------- -----------
4-a Form of certificate for shares of Common Stock of ADC
Telecommunications, Inc. (Incorporated by reference to
Exhibit 4-a to the Company's Form 10-Q for the quarter ended
January 31, 1996)
4-b Restated Articles of Incorporation of ADC
Telecommunications, Inc., as amended (Incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 dated May 24, 1996)
4-c Composite Restated Bylaws of ADC Telecommunications,
Inc., as amended (Incorporated by reference 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)
27 Financial Data Schedule .....................................
99 Cautionary Statement Regarding Forward-Looking Statements ...
16
<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
six month period ended April 30, 1996, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<CASH> 191,838
<SECURITIES> 0
<RECEIVABLES> 127,555<F1>
<ALLOWANCES> 2,414
<INVENTORY> 121,875<F2>
<CURRENT-ASSETS> 457,474
<PP&E> 231,967
<DEPRECIATION> (127,426)
<TOTAL-ASSETS> 653,732
<CURRENT-LIABILITIES> 97,524
<BONDS> 0
0
0
<COMMON> 12,817
<OTHER-SE> 541,837
<TOTAL-LIABILITY-AND-EQUITY> 653,732
<SALES> 355,644
<TOTAL-REVENUES> 355,644
<CGS> 188,317
<TOTAL-COSTS> 188,317
<OTHER-EXPENSES> 115,662
<LOSS-PROVISION> 277
<INTEREST-EXPENSE> 143
<INCOME-PRETAX> 56,581
<INCOME-TAX> 20,369
<INCOME-CONTINUING> 36,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,212
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
<FN>
<F1>Amount is net of allowance for bad debts and returns and allowances.
<F2>Amount is net of obsolescence reserves.
</FN>
</TABLE>
<PAGE>
Exhibit 99
----------
Cautionary Statement Regarding Forward-Looking Statements
The Company desires to take advantage of the new "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 and is filing this
cautionary statement in connection with such safe harbor legislation. The
Company's Form 10-K, the Company's Annual Report to Shareholders, this or any
other Form 10-Q or any Form 8-K of the Company or any other written or oral
statements made by or on behalf of the Company may include forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. The words "believe," "expect," "anticipate,"
"intends," "estimate," "forecast," "project" and similar expressions identify
forward-looking statements.
The Company wishes to caution investors that any forward-looking
statements made by or on behalf of the Company are subject to uncertainties and
other factors that could cause actual results to differ materially from such
statements. These uncertainties and other factors include, but are not limited
to the Risk Factors listed below (many of which have been discussed in prior
SEC filings by the Company). Though the Company has attempted to list
comprehensively these important factors, the Company wishes to caution
investors that other factors may in the future prove to be important in
affecting the Company's results of operations. New factors emerge from time to
time and it is not possible for management to predict all of such factors, nor
can it assess the impact of each such factor on the business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
Investors are further cautioned not to place undue reliance on such
forward-looking statements as they speak only of the Company's views as of the
date the statement was made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Risk Factors
------------
RAPID TECHNOLOGICAL CHANGE AND IMPORTANCE OF NEW PRODUCTS. The
telecommunications equipment industry is characterized by rapid technological
change, evolving industry standards, changing market conditions and frequent
new product introductions and enhancements. The introduction of products
embodying new technologies or the emergence of new industry standards can
render existing products or products under development obsolete or
unmarketable. ADC's ability to anticipate changes in technology and industry
standards and successfully to develop and introduce new products on a timely
basis will be a significant factor in ADC's ability to grow and remain
competitive. New product development often requires long-term forecasting of
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<PAGE>
market trends, development and implementation of new technologies and processes
and a substantial capital commitment. In particular, ADC has recently invested
substantial resources toward the development of new products such as its
Homeworx -TM- product utilizing hybrid fiber coax technology. ADC is engaging
in extensive field testing and evaluation of its Homeworx -TM- system for video
and telephony applications, and has shipped the Homeworx -TM- system for video
applications to a limited number of customers for initial deployment.
Development and customer acceptance of new products is inherently uncertain,
and there can be no assurance that ADC will successfully complete the
development of the Homeworx -TM- system for telephony applications or other new
products on a timely basis or that such products will be commercially
successful. Any failure by ADC to anticipate or respond on a cost-effective
and timely basis to technological developments, changes in industry standards
or customer requirements, or any significant delays in product development or
introduction, could have a material adverse effect on ADC's business, operating
results and financial condition.
UNCERTAIN MARKET FOR BROADBAND NETWORK PRODUCTS. Over the past several
years, ADC's principal product offerings have generally consisted of copper-
based and fiber-based products designed to address the needs of its customers
for connectivity, transmission and networking applications on traditional
telephony networks. However, with the growth of multimedia and the associated
development of enhanced voice, video and data transmission technologies, ADC's
recent product offerings and research and development efforts have been
increasingly focused on addressing the broadband telecommunications equipment
market through the use of new or different technologies. The market for
broadband telecommunications products is emerging and rapidly changing. ADC's
future growth is dependent in part on its ability to successfully develop and
commercially introduce new products in each of its product groups addressing
this market, as well as the growth in this market. The growth in the market
for such broadband telecommunications products is dependent on a number of
factors, including the amount of capital expenditures by public network
providers, regulatory and legal developments and end-user demand for integrated
voice, video, data and other network services. There can be no assurance that
the market for broadband telecommunications products will develop rapidly. In
addition, to the extent this market develops, there can be no assurance that
ADC's products will meet with market acceptance or be profitable.
COMPETITION. Competition in the telecommunications equipment industry is
intense, and ADC believes that competition may increase substantially with the
deployment of broadband networks and the recent regulatory changes. See
"Changing Regulatory Environment." Many of ADC's foreign and domestic
competitors have more extensive engineering, manufacturing, marketing,
financial and personnel resources than those of ADC. ADC 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 ADC's products has not historically been
2
<PAGE>
characterized by significant price competition, ADC anticipates increasing
pricing pressures from current and future competitors in certain of the markets
for its products. In addition, ADC believes that technological change, the
increasing addition of data, video and other services to 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 ADC. There can be no assurance that ADC
will be able to compete successfully with its existing or new competitors or
that competitive pressures faced by ADC will not materially and adversely
affect its business, operating results and financial condition.
FLUCTUATIONS IN OPERATING RESULTS. ADC's operating results may fluctuate
significantly from quarter to quarter due to several factors, including,
without limitation, the volume and timing of orders from, and shipments to,
major customers, the timing of new product announcements and the availability
of product by ADC or its competitors, overall level of capital expenditures by
public network providers, market acceptance of new and enhanced versions of
ADC's products, variations in the mix of products ADC sells or its sales
channels, and the availability and cost of key components. In addition, the
Company is experiencing growth through acquisition and expansion and its recent
results of operations may not be indicative of results to be achieved in future
periods. ADC'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, ADC's results of
operations are subject to seasonal factors. ADC historically has experienced a
stronger demand for its products in the fourth fiscal quarter, primarily as a
result of ADC year-end incentives and customer budget cycles, and has
experienced a weaker demand for its products in the first fiscal quarter,
primarily as a result of the number of holidays in late November, December and
early January and a general industry slowdown during that period. There can be
no assurance that these historical seasonal trends will continue in the future.
CHANGING REGULATORY ENVIRONMENT. The telecommunications industry is
subject to regulation in the United States and other countries. ADC's business
is dependent upon the continued growth of the telecommunications industry in
the United States and internationally. Federal and state regulatory agencies
regulate most of ADC's domestic customers. On January 3, 1996, the U.S.
Congress passed the Telecommunications Act of 1996 (the "Telecommunications
Act"). The President of the United States signed the Telecommunications Act
into law on February 8, 1996. The Telecommunications Act will lift certain
restrictions on the ability of companies, including Regional Bell Operating
Companies ("RBOCs") and other customers of ADC, to compete with one another and
will generally reduce the regulation of the telecommunications industry. While
ADC believes that the deregulation of the telecommunications industry may
increase ADC's opportunities to provide solutions for its customers' voice,
data and video needs, the effect on the market for ADC's products is difficult
to predict at this time, and there can be no assurance that competition in
ADC's product market will not intensify as a
3
<PAGE>
result of such deregulation. Changes in current or future laws or regulations,
in the United States or elsewhere, could materially and adversely affect ADC's
business.
INTERNATIONAL OPERATIONS. Export sales accounted for 16.1%, 15.0% and
18.2% of ADC's net sales in fiscal 1993, 1994, and 1995, respectively, and ADC
expects that export sales may increase as a percentage of net sales in the
future. In addition, ADC owns or subcontracts manufacturing operations located
in Mexico, Australia and China. Due to its export sales and its international
manufacturing operations, ADC is subject to the risks of conducting business
internationally, including unexpected changes in, or impositions of,
legislative or regulatory requirements, fluctuations in the U.S. dollar, which
could materially and adversely affect U.S. dollar revenues or operating
expenses, tariffs and other barriers and restrictions, potentially longer
payment cycles, greater difficulty in accounts receivable collection,
potentially adverse taxes, and the burdens of complying with a variety of
foreign laws and telecommunications standards. ADC also is subject to general
geopolitical risks, such as political and economic instability and changes in
diplomatic and trade relationships, in connection with its international
operations. There can be no assurance that such factors will not materially
and adversely affect ADC's operations in the future or require ADC to modify
significantly its current business practices. In addition, the laws of certain
foreign countries may not protect ADC's proprietary technology to the same
extent as do the laws of the United States.
DEPENDENCE ON PROPRIETARY TECHNOLOGY. ADC's future success depends in
part upon its proprietary technology. Although ADC attempts to protect its
proprietary technology through patents, copyrights and trade secrets, it also
believes that its future success will depend upon product development,
technological expertise and distribution channels. There can be no assurance
that ADC will be able to protect its technology, or that competitors will not
be able to develop similar technology independently. ADC has received and may
in the future receive from third parties, including some of its competitors,
notices claiming that it is infringing third-party patents or other proprietary
rights. There can be no assurance that ADC would prevail in any litigation over
third-party claims, or that it would be able to license any valid and infringed
patents on commercially reasonable terms. Furthermore, litigation, regardless
of its outcome, could result in substantial cost to and diversion of effort by
ADC. Any litigation or successful infringement claims by third parties could
materially and adversely affect ADC's business, operating results and financial
condition.
VOLATILITY OF STOCK PRICE. Based on the trading history of its stock, ADC
believes factors such as announcements of new products by ADC or its
competitors, quarterly fluctuations in ADC's financial results, customer
contract awards, developments in telecommunications regulation and general
conditions in the telecommunications equipment industry have caused and are
likely to continue to cause the market price of ADC's Common Stock to fluctuate
substantially. In addition, telecommunications equipment company stocks have
experienced significant price and volume fluctuations that often have been
unrelated to the operating performance of such companies. This market
volatility may adversely affect the market price of ADC's Common Stock.
4
