<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, 1997
OR
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission file number 0-1424
ADC Telecommunications, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0743912
--------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12501 Whitewater Drive, Minnetonka, MN 55343
------------------------------------------------------
(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: 131,772,011 shares as of June 6, 1997
<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,
1997 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $134,374 $183,221
Accounts receivable 185,354 163,219
Inventories 143,925 130,582
Prepaid income taxes and other assets 23,376 22,479
---------- ----------
Total current assets 487,029 499,501
PROPERTY AND EQUIPMENT, net 165,481 131,080
OTHER ASSETS, principally goodwill 155,484 138,184
---------- ----------
$807,994 $768,765
========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $1,158 $2,247
Accounts payable 45,422 49,459
Accrued liabilities 96,756 90,373
---------- ----------
Total current liabilities 143,336 142,079
DEFERRED INCOME TAXES 347 2,303
LONG-TERM DEBT, less current maturities 3,521 6,913
---------- ----------
Total liabilities 147,204 151,295
STOCKHOLDERS' INVESTMENT
(131,712 and 65,177 shares outstanding) 660,790 617,470
---------- ----------
$807,994 $768,765
========== ==========
</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,
---------------------- ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $279,199 $193,053 $535,976 $355,644
COST OF PRODUCT SOLD 149,876 103,636 288,984 188,317
--------- --------- --------- ---------
GROSS PROFIT 129,323 89,417 246,992 167,327
--------- --------- --------- ---------
Gross profit percentage 46.3% 46.3% 46.1% 47.0%
--------- --------- --------- ---------
EXPENSES:
Development and product
engineering 30,406 21,629 58,525 41,572
Selling and administration 52,840 37,516 102,284 72,423
Goodwill amortization 2,351 883 4,873 1,667
Non-recurring charges -- -- 22,700 --
-------- --------- --------- ---------
Total expenses 85,597 60,028 188,382 115,662
--------- --------- --------- ---------
OPERATING INCOME 43,726 29,389 58,610 51,665
OTHER INCOME (EXPENSE), NET:
Interest 1,795 2,597 3,581 6,149
Other (425) (892) (852) (1,233)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 45,096 31,094 61,339 56,581
PROVISION FOR INCOME TAXES 16,235 11,195 22,083 20,369
--------- --------- --------- ---------
NET INCOME $28,861 $19,899 $39,256 $36,212
========= ========= ========= =========
AVERAGE COMMON SHARES
OUTSTANDING 131,009 128,048 130,724 126,762
========= ========= ========= =========
EARNINGS PER SHARE $0.22 $0.15 $0.30 $0.28
========= ========= ========= =========
</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,
------------------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $39,256 $36,212
Adjustments to reconcile net income to
net cash from operating activities -
Non-recurring charges 22,700 --
Depreciation and amortization 23,226 15,221
Reduction in deferred compensation 552 229
Decrease in deferred income taxes (1,956) (146)
Other (680) 7
Changes in assets and liabilities
Accounts receivable (15,194) (17,860)
Inventories (9,736) (28,914)
Prepaid income taxes and other assets (5,554) 9
Accounts payable (10,324) (6,618)
Accrued liabilities (3,710) 5,256
--------- ---------
Total cash from operating activities 38,580 3,396
--------- ---------
INVESTMENT ACTIVITIES:
Acquisitions (33,713) (9,416)
Property and equipment additions, net (47,905) (33,786)
Long-term investments (3,728) (6,803)
--------- ---------
Total cash used for investment
activities (85,346) (50,005)
--------- ---------
FINANCING ACTIVITIES:
Decrease in long-term debt (4,951) (2,472)
Common stock issued 3,860 2,789
--------- ---------
Total cash from (used for) financing
activities (1,091) 317
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (990) (361)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (48,847) (46,653)
CASH AND CASH EQUIVALENTS, beginning of period 183,221 238,491
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $134,374 $191,838
========= =========
</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
1997 1997 1996 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $279,199 $256,777 $255,052 $217,313
COST OF PRODUCT SOLD 149,876 139,108 134,963 115,567
-------- -------- -------- --------
GROSS PROFIT 129,323 117,669 120,089 101,746
-------- -------- -------- --------
Gross profit percentage 46.3% 45.8% 47.1% 46.8%
-------- -------- -------- --------
EXPENSES:
Development and product engineering 30,406 28,119 25,887 22,579
Selling and administration 52,840 49,444 46,675 41,607
Goodwill amortization 2,351 2,522 2,094 1,474
Non-recurring charges -- 22,700 -- --
-------- -------- -------- --------
Total expenses 85,597 102,785 74,656 65,660
-------- -------- -------- --------
OPERATING INCOME 43,726 14,884 45,433 36,086
OTHER INCOME (EXPENSE), NET:
Interest 1,795 1,786 2,014 2,341
Other (425) (427) (3,571) (2,221)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 45,096 16,243 43,876 36,206
PROVISION FOR INCOME TAXES 16,235 5,848 15,797 13,034
-------- -------- -------- --------
NET INCOME $28,861 $10,395 $28,079 $23,172
======== ======== ======== ========
AVERAGE COMMON SHARES
OUTSTANDING 131,009 130,445 130,098 129,704
======== ======== ======== ========
EARNINGS PER SHARE $0.22 $0.08 $0.22 $0.18
======== ======== ======== ========
</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, 1997, 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, 1997, and October 31, 1996, consisted of (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Purchased materials and
manufactured products $124,527 $119,006
Work-in-process 19,398 11,576
---------- ----------
$143,925 $130,582
========== ==========
</TABLE>
Note 3 Non-recurring Charges: During the first quarter of 1997, the Company
recorded a non-recurring charge of $22.7 million. This charge
primarily represents the write-off of purchased research and
development from the acquisition of the Wireless Infrastructure Group
of Pacific Communication Sciences, Inc. ("PCSI"), as well as expenses
related to the consolidation of the Company's West Coast operations.
Note 4 Acquisitions: During the first quarter of 1997, the Company acquired
substantially all of the assets and liabilities of the Wireless
Infrastructure Group of PCSI, a wholly-owned subsidiary of Cirrus
Logic, Inc., for $23 million in cash. The Wireless Infrastructure
Group designs and manufactures equipment for wireless data and
advanced paging communications.
The acquisition was accounted for as a purchase, and resulted in the
non-recurring charge for the write-off of purchased research and
development described in Note 3. The inclusion of the Wireless
Infrastructure Group operating results for periods prior to the date
of acquisition would not have materially affected reported results.
During the second quarter of 1997, the Company exchanged 925,508
shares of its common stock for all of the outstanding shares of
common stock of The Apex Group, Inc. ("Apex"), a provider of
information management and consulting services. The acquisition was
accounted for as a pooling of interests.
6
<PAGE>
Financial information for periods prior to the closing of this
pooling transaction has not been restated because neither the net
assets nor operating results of Apex were material to the Company's
consolidated financial statements.
Note 5 New Accounting Pronouncement: SFAS No. 128 - Earnings Per Share, was
issued during February, 1997 and simplifies the standards for
calculating and presenting earnings per share. This pronouncement is
effective for fiscal years beginning after December 15, 1997; earlier
application is not permitted. The adoption of SFAS No. 128 will not
have a material impact on the calculation of earnings per share given
the Company's present capital structure.
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 globally 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 sold profitably.
The Company's operating results may fluctuate significantly from quarter
to quarter due to several factors. The Company is growing 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, 1997 and 1996 and the
percentage changes in these income and expense items between periods are
contained in the following table:
<TABLE>
<CAPTION>
Percentage
Increase (Decrease)
Percentage of Net Sales Between Periods
---------------------------------- ---------------------
Quarters Ended Six Months Ended Quarters Six Months
April 30, April 30, Ended Ended
--------------- --------------
1997 1996 1997 1996 April 30, April 30,
------ ------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 44.6% 50.7%
Cost of Product Sold (53.7) (53.7) (53.9) (53.0) 44.6 53.5
------ ------ ------ ------
Gross Profit 46.3 46.3 46.1 47.0 44.6 47.6
Expenses:
Development and
product
engineering (10.9) (11.2) (10.9) (11.7) 40.6 40.8
Selling and
administration (18.9) (19.4) (19.1) (20.3) 40.8 41.2
Goodwill
amortization (0.8) (0.5) (0.9) (0.5) 166.3 192.3
Non-recurring charges - - (4.3) - - -
------ ------ ------ ------
Operating Income 15.7 15.2 10.9 14.5 48.8 13.4
Other Income (Expense),
Net:
Interest 0.7 1.3 0.7 1.7 (30.9) (41.8)
Other (0.2) (0.4) (0.2) (0.3) (52.4) (30.9)
------ ------ ------ ------
Income Before Income
Taxes 16.2 16.1 11.4 15.9 45.0 8.4
Provision for Income
Taxes (5.9) (5.8) (4.1) (5.7) 45.0 8.4
------ ------ ------ ------
Net Income 10.3% 10.3% 7.3% 10.2% 45.0 8.4
====== ====== ====== ======
</TABLE>
Net Sales: The following table sets forth the Company's net sales for the
quarters and six-month periods ended April 30, 1997 and 1996 for each of the
Company's functional product groups described above (dollars in thousands):
<TABLE>
<CAPTION>
Quarters Ended April 30, Six Months Ended April 30,
------------------------------ ------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
Product Group Net Sales % Net Sales % Net Sales % Net Sales %
- ------------- --------- --- --------- --- --------- --- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transmission $115,833 41.5% $67,653 35.0% $221,145 41.3% $119,080 33.5%
Enterprise
Networking 39,763 14.2 37,639 19.5 79,591 14.8 69,245 19.5
Broadband
Connectivity 123,603 44.3 87,761 45.5 235,240 43.9 167,319 47.0
-------- ------ -------- ------ -------- ------ -------- ------
Total $279,199 100.0% $193,053 100.0% $535,976 100.0% $355,644 100.0%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
Net sales for the three-month and six-month periods ended April 30, 1997
were $279.2 million and $536.0 million, reflecting 44.6% and 50.7% increases,
respectively, over the comparable 1996 time periods. These increases in total
net sales are the result of increases in net sales for all three product
groups plus revenue contributions from acquired companies. Revenue
9
<PAGE>
contributions from acquired companies totaled $31.0 million for the quarter
ended April 30, 1997 and $71.0 million for the six months ended April 30, 1997.
During the quarter and six months ended April 30, 1997, net sales of
transmission products increased 71.2% and 85.7%, respectively, over the
comparable 1996 time periods. In addition to revenue contributions from
companies acquired since April 30, 1996, the increases predominantly reflect
increased sales of transmission systems sold to public telecommunications
network providers.
Net sales of broadband connectivity products increased 40.8% and 40.6%
during the quarter and six months ended April 30, 1997, respectively, over the
comparable 1996 time periods. In addition to revenue contributions from
companies acquired since April 30, 1996, the increases primarily reflect 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, 1997, net sales of
enterprise networking products increased 5.6% and 14.9%, respectively, over the
quarter and six months ended April 30, 1996. These increases reflect 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 the enterprise networking group during 1995 to
better address the industry trend toward integration of LAN and Wide Area
Network (WAN) technologies and products. The final integration of the
operations of these two subsidiaries is expected to occur during July 1997,
when the Fibermux manufacturing operation is transferred to Kentrox.
Gross Profit: During the three-month periods ended April 30, 1997 and
1996, the gross profit percentages were 46.3%. During the six-month periods
ended April 30, 1997 and 1996, the gross profit percentages were 46.1% and
47.0%, respectively. The decline in gross profit percentage during the six-
month period ended April 30, 1997 was 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 quarters ended April
30, 1997 and 1996 were $85.6 million and $60.0 million, representing 30.7% and
31.1% of net sales, respectively. The decrease in operating expenses as a
percentage of net sales during the three months ended April 30, 1997 reflects
the Company's ability to leverage operating expenses against increased net
sales.
10
<PAGE>
Total operating expenses for the six months ended April 30, 1997 and 1996
were $188.4 million and $115.7 million, representing 35.1% and 32.5% of net
sales, respectively. The increase in operating expenses as a percentage of net
sales during the six months ended April 30, 1997 reflects the $22.7 million of
non-recurring charges recorded during the quarter ended January 31, 1997. Such
charges primarily represent the write-off of purchased research and development
resulting from the acquisition of the wireless infrastructure group from PCSI,
as well as expenses related to a consolidation and streamlining of the
Company's West Coast operations. Operating expenses before non-recurring
charges for the six months ended April 30, 1997 were $165.7 million,
representing 30.9% of net sales and the ability to leverage recurring operating
expenses against revenue levels.
The dollar increases in operating expenses before non-recurring charges
during the three-month and six-month periods ended April 30, 1997 were due
primarily to expanded operations associated with higher revenue levels.
Development and product engineering expenses were $30.4 million for the
quarter ended April 30, 1997, an increase of 40.6% over $21.6 million for the
quarter ended April 30, 1996. For the six months ended April 30, 1997,
development and product engineering expenses were $58.5 million, an increase of
40.8% over $41.6 million for the six months ended April 30, 1996. These
increases reflect substantial product development and introduction 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 $52.8 million for the quarter
ended April 30, 1997, an increase of 40.8% over $37.5 million for the quarter
ended April 30, 1996. For the six months ended April 30, 1997, selling and
administration expenses were $102.3 million, an increase of 41.2% over $72.4
million for the six months ended April 30, 1996. These increases reflect
selling activities associated with new product introductions and additional
personnel costs related to expanded operations.
Several of the Company's acquisitions have been accounted for as purchase
transactions in which the initial purchase prices exceeded the fair value of
the acquired assets. The amortization of these "goodwill" amounts over five to
15 years on a straight line basis resulted in goodwill amortization expense for
the quarter ended April 30, 1997 of $2.4 million, an increase of 166.3% over
the $.9 million recorded during the quarter ended April 30, 1996. For the six
months ended April 30, 1997, goodwill amortization of $4.9 million represented
an increase of 192.3% over the $1.7 million recorded in the six months ended
April 30, 1996. These increases reflect acquisitions subsequent to April 30,
1996.
11
<PAGE>
Other Income (Expense), Net: For the three-month and six-month periods
ended April 30, 1997, net interest income was $1.8 million and $3.6 million,
respectively, representing net interest income on cash balances. Net interest
income for the three-month and six-month periods ended April 30, 1996 was $2.6
million and $6.1 million, respectively, reflecting net interest income on
higher 1996 cash balances. 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, 1997 and 1996. In addition
to the non-deductible goodwill amortization included in operating expenses each
period, these rates reflect the beneficial impact of tax credits.
Net Income: Net income was $28.9 million (or $.22 per share) for the
quarter ended April 30, 1997, an increase of 45.0% over $19.9 million (or $.15
per share) for the quarter ended April 30, 1996. Net income was $39.3 million
(or $.30 per share) for the six months ended April 31, 1997, an increase of
8.4% over $36.2 million (or $.28 per share) for the six months ended April 30,
1996. Before taking into account the non-recurring charges of $22.7 million,
net income was $53.8 million (or $.41 per share) for the six months ended April
30, 1997, an increase of 48.6% over the first half of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, primarily short-term investments in commercial
paper with maturities of less than 90 days, decreased $48.8 million and $46.7
million during the six months ended April 30, 1997 and 1996, respectively. The
major elements of the 1997 decrease were net income before non-recurring
charges, depreciation and amortization of $85.2 million, offset by the $44.5
million increase in working capital elements (reflecting growth in business),
acquisition payments of $33.7 million and property and equipment additions of
$47.9 million. The major elements of the 1996 decrease were net income before
depreciation and amortization of $51.4 million offset by the $48.1 million net
increase in working capital elements (reflecting growth in business), property
and equipment additions of $33.8 million and acquisition payments and long-term
investments of $16.2 million. See Note 4 to the Consolidated Financial
Statements included in this report for a discussion of acquisitions completed
during the six month period ended April 30, 1997.
At April 30, 1997 and October 31, 1996, the Company had approximately $4.7
million and $9.2 million of debt outstanding, respectively. All such debt
represents debt of companies acquired during 1996 and 1997.
Management believes that current cash balances and cash generated from
operating activities will be adequate to fund working capital requirements,
capital expenditures (approximately $48.0 million committed at April 30, 1997)
and possible acquisitions or strategic alliances for 1997. However, the
Company may find it necessary to seek additional sources of
12
<PAGE>
financing to support its capital needs, for additional working capital,
potential investments or acquisitions, or otherwise.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
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 any forward-looking statements made by the Company in
this Form 10-Q or in other announcements made by the Company are further
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements, including, without
limitations, the factors set forth on Exhibit 99 to the Company's Report on
Form 10-K for the year ended October 31, 1996.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
None.
ITEM 2.CHANGES IN SECURITIES
(c) On May 31, 1997, the Company issued 925,508 shares (the "Shares")
of its Common Stock, par value $0.20 per share, in a transaction
that was not registered under the Securities Act of 1933, as
amended (the "Securities Act"). The Shares were issued to the
former shareholders of The Apex Group, Inc. ("Apex") pursuant to a
Stock Purchase Agreement dated May 24, 1997, providing for the
acquisition of all of the issued and outstanding shares of capital
stock of Apex by the Company. The Shares were issued to the former
Apex shareholders in a transaction exempt pursuant to Section 4(2)
of the Securities Act. No underwriter or placement agent was
involved in the issuance of the Shares, and the Company did not
receive any cash consideration for the Shares (which comprised the
purchase price paid by the Company for the shares of Apex).
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.OTHER INFORMATION
None.
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 the Company, as
amended to date. (Incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-3, dated April
15, 1997.)
14
<PAGE>
4-c Restated Bylaws of the Company, as amended to date.
(Incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-3, dated April 15, 1997.)
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 Second Amendment of ADC Telecommunications, Inc.
Pension Excess Plan, dated effective March 12, 1996 and approved
on April 1, 1997.
10-b Second Amendment of ADC Telecommunications, Inc.
Deferred Compensation Plan, dated effective March 12, 1996 and
approved on April 1, 1997.
10-c Third Amendment of ADC Telecommunications, Inc.
401(k) Excess Plan, dated effective March 12, 1996 and approved
on April 1, 1997.
10-d Amendment to ADC Telecommunications, Inc. Nonemployee
Director Stock Option Plan, dated effective April 1, 1997.
27-a Financial Data Schedule.
b. Reports on Form 8-K
None.
15
<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 11, 1997 ADC TELECOMMUNICATIONS, INC.
By: /s/ Robert E. Switz
-----------------------------------
Robert E. Switz
Senior Vice President, Chief Financial Officer
(Principal Financial Officer,
Duly Authorized Officer)
16
<PAGE>
ADC TELECOMMUNICATIONS, INC.
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1997
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 the
Company, as amended to date. (Incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement
on Form S-3, dated April 15, 1997.)
4-c Restated Bylaws of the Company, as amended
to date. (Incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement on Form S-3, dated
April 15, 1997.)
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 Second Amendment of ADC Telecommunications,
Inc. Pension Excess Plan, dated effective March 12,
1996 and approved on April 1, 1997 ....................
10-b Second Amendment of ADC Telecommunications,
Inc. Deferred Compensation Plan, dated effective March
12, 1996 and approved on April 1, 1997 ................
10-c Third Amendment of ADC Telecommunications,
Inc. 401(k) Excess Plan, dated effective March 12, 1996
and approved on April 1, 1997 .........................
10-d Amendment to ADC Telecommunications, Inc.
Nonemployee Director Stock Option Plan, dated effective
April 1, 1997 .........................................
27-a Financial Data Schedule ...............................
17
<PAGE>
Exhibit 10-a
- ------------
SECOND AMENDMENT
OF
ADC TELECOMMUNICATIONS, INC.
PENSION EXCESS PLAN
(1989 Restatement)
The "ADC TELECOMMUNICATIONS, INC. PENSION EXCESS PLAN (1989 Restatement)"
adopted by the Board of Directors of ADC TELECOMMUNICATIONS, INC., a Minnesota
corporation, on May 26, 1992, but effective November 1, 1989, as amended by a
First Amendment on March 12, 1996 (hereinafter referred to as the "Plan
Statement"), is hereby amended in the following respects:
1. BOARD OF DIRECTORS. Effective March 12, 1996, Section 14.3 of the Plan
Statement is amended to read in full as follows:
14.3 Board of Directors. Notwithstanding the foregoing, the Board of
Directors of the Employer shall have the exclusive authority, which may not be
delegated, to act for the Employer to terminate this Plan.
2. AMENDMENT. Effective March 12, 1996, Section 14.7 shall be added to the
Plan Statement to read in full as follows:
14.7 Amendment. The Employer reserves the power to amend this Plan
Statement in any respect and either prospectively or retroactively or both:
(a) in any respect by resolution of its Board of Directors; and
(b) in any respect that does not materially increase the cost of the Plan
by action of the Committee.
3. SAVINGS CLAUSE. Save and except as herein expressly amended, the Plan
Statement shall continue in full force and effect.
IN WITNESS WHEREOF, ADC TELECOMMUNICATIONS, INC. has caused this Second
Amendment to be executed by a duly authorized officer.
May 29, 1997 ADC TELECOMMUNICATIONS, INC.
By /s/ David F. Fisher
Its Vice President, General Counsel
and Corporate Secretary
<PAGE>
Exhibit 10-b
- ------------
SECOND AMENDMENT
OF
ADC TELECOMMUNICATIONS, INC.
DEFERRED COMPENSATION PLAN
(1989 Restatement)
The "ADC TELECOMMUNICATIONS, INC. DEFERRED COMPENSATION PLAN (1989
Restatement)" adopted by the Board of Directors of ADC TELECOMMUNICATIONS,
INC., a Minnesota corporation, on September 24, 1989, but effective November 1,
1989, as amended by a First Amendment on March 12, 1996 (hereinafter referred
to as the "Plan Statement"), is hereby amended in the following respects:
1. BOARD OF DIRECTORS. Effective March 12, 1996, Section 11.1.3 of the Plan
Statement is amended to read in full as follows:
11.1.3 Board of Directors. Notwithstanding the foregoing, the Board of
Directors of the Employer shall have the exclusive authority, which may not be
delegated, to act for the Employer to terminate this Plan.
2. AMENDMENT. Effective March 12, 1996, a new Section 11.1.4 shall be added
to Section 11 of the Plan Statement to read in full as follows:
11.1.4 Amendment. The Employer reserves the power to amend this Plan
Statement in any respect and either prospectively or retroactively or both:
(a) in any respect by resolution of its Board of Directors; and
(b) in any respect that does not materially increase the cost of the Plan
by action of the Committee.
3. SAVINGS CLAUSE. Save and except as herein expressly amended, the Plan
Statement shall continue in full force and effect.
IN WITNESS WHEREOF, ADC TELECOMMUNICATIONS, INC. has caused this Second
Amendment to be executed by a duly authorized officer.
May 29, 1997 ADC TELECOMMUNICATIONS, INC.
By /s/ David F. Fisher
Its Vice President, General Counsel
and Corporate Secretary
<PAGE>
Exhibit 10-c
- ------------
THIRD AMENDMENT
OF
ADC TELECOMMUNICATIONS, INC.
401(k) EXCESS PLAN
(1990 Restatement)
The "ADC TELECOMMUNICATIONS, INC. 401(K) EXCESS PLAN (1990 Restatement)"
adopted by the Board of Directors of ADC TELECOMMUNICATIONS, INC., a Minnesota
corporation, on September 7, 1990, but effective September 1, 1990, as amended
by a First Amendment on September 15, 1994 and by a Second Amendment on March
12, 1996 (hereinafter referred to as the "Plan Statement"), is hereby further
amended in the following respects:
1. BOARD OF DIRECTORS. Effective March 12, 1996, Section 11.1.3 of the Plan
Statement is amended to read in full as follows:
11.1.3 Board of Directors. Notwithstanding the foregoing, the Board of
Directors of the Employer shall have the exclusive authority, which may not be
delegated, to act for the Employer to terminate this Plan.
2. AMENDMENT. Effective March 12, 1996, a new Section 11.1.4 shall be added
to Section 11 of the Plan Statement to read in full as follows:
11.1.4 Amendment. The Employer reserves the power to amend this Plan
Statement in any respect and either prospectively or retroactively or both:
(a) in any respect by resolution of its Board of Directors; and
(b) in any respect that does not materially increase the cost of the Plan
by action of the Committee.
3. SAVINGS CLAUSE. Save and except as herein expressly amended, the Plan
Statement shall continue in full force and effect.
IN WITNESS WHEREOF, ADC TELECOMMUNICATIONS, INC. has caused this Third
Amendment to be executed by a duly authorized officer.
May 29, 1997 ADC TELECOMMUNICATIONS, INC.
By /s/ David F. Fisher
Its Vice President, General Counsel
and Corporate Secretary
<PAGE>
Exhibit 10-d
- ------------
ADC Telecommunications, Inc.
Nonemployee Director Stock Option Plan
Amendment Effective as of April 1, 1997
The Nonemployee Director Stock Option Plan is hereby amended to provide
for a one-time grant of stock options to the Company's board of directors, such
that the benefits accrued pursuant to the Directors' Supplemental Retirement
Plan prior to its termination shall be converted to options for the purchase of
the Company's Common Stock to be issued pursuant to the Company's Nonemployee
Director Stock Option Plan, in accordance with the following schedule:
<TABLE>
<CAPTION>
Length of Service 12/96 ADC Stock Option
----------------------- ----------------
<S> <C>
< 1 year 900
2 to 3 years 2,750
3 to 4 years 3,650
5 to 6 years 5,450
6 to 7 years 6,350
10 + years 9,100
</TABLE>
Each such option shall have an exercise price equal to the market price of
a share of the Company's stock as of the close of trading on April 1, 1997, and
each such option shall be exercisable on the earlier of the date on which a
Director no longer is a member of the Board of Directors of the Company or 9.5
years from April 1, 1997, and each unexercised option shall expire ten
years from April 1, 1997.
<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 quarter ended April 30, 1997, 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-31-1997
<PERIOD-END> APR-30-1997
<CASH> 134,374
<SECURITIES> 0
<RECEIVABLES> 185,354<F1>
<ALLOWANCES> 3,391
<INVENTORY> 143,925<F2>
<CURRENT-ASSETS> 487,029
<PP&E> 332,383
<DEPRECIATION> (166,902)
<TOTAL-ASSETS> 807,994
<CURRENT-LIABILITIES> 143,336
<BONDS> 0
0
0
<COMMON> 26,342
<OTHER-SE> 634,448
<TOTAL-LIABILITY-AND-EQUITY> 807,994
<SALES> 279,199
<TOTAL-REVENUES> 279,199
<CGS> 149,876
<TOTAL-COSTS> 149,876
<OTHER-EXPENSES> 85,597
<LOSS-PROVISION> 269
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 45,096
<INCOME-TAX> 16,235
<INCOME-CONTINUING> 28,861
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,861
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
<FN>
<F1>Amount is net of allowance for bad debts and returns and allowances.
<F2>Amount is net of obsolescence reserves.
</FN>
</TABLE>
