<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 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 Identification No.)
incorporation or organization)
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: 130,636,335 shares as of March 12, 1997
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(IN THOUSANDS)
ASSETS
JANUARY 31, OCTOBER 31,
1997 1996
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 149,393 $ 183,221
Accounts receivable 170,641 163,219
Inventories 137,823 130,582
Prepaid income taxes and other assets 22,502 22,479
----------- -----------
Total current assets 480,359 499,501
PROPERTY AND EQUIPMENT, net 145,509 131,080
OTHER ASSETS, principally goodwill 156,263 138,184
----------- -----------
$ 782,131 $ 768,765
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,379 $ 2,247
Accounts payable 53,596 49,459
Accrued liabilities 88,397 90,373
----------- -----------
Total current liabilities 143,372 142,079
DEFERRED INCOME TAXES 2,255 2,303
LONG TERM DEBT, less current maturities 6,564 6,913
----------- -----------
Total liabilities 152,191 151,295
STOCKHOLDERS' INVESTMENT
(130,606 and 65,177 shares outstanding) 629,940 617,470
----------- -----------
$ 782,131 $ 768,765
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
2
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ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE QUARTERS ENDED
JANUARY 31,
------------------------------
1997 1996
----------- -----------
NET SALES $ 256,777 $ 162,591
COST OF PRODUCT SOLD 139,108 84,681
----------- -----------
GROSS PROFIT 117,669 77,910
----------- -----------
Gross profit percentage 45.8% 47.9%
----------- -----------
EXPENSES:
Development and product engineering 28,119 19,943
Selling and administration 49,444 34,907
Goodwill amortization 2,522 784
Non-recurring charges 22,700 --
----------- -----------
Total expenses 102,785 55,634
----------- -----------
OPERATING INCOME 14,884 22,276
OTHER INCOME (EXPENSE), NET:
Interest 1,786 3,552
Other (427) (341)
----------- -----------
INCOME BEFORE INCOME TAXES 16,243 25,487
PROVISION FOR INCOME TAXES 5,848 9,174
----------- -----------
NET INCOME $ 10,395 $ 16,313
----------- -----------
----------- -----------
AVERAGE COMMON SHARES OUTSTANDING 130,445 125,516
----------- -----------
----------- -----------
EARNINGS PER SHARE $ 0.08 $ 0.13
----------- -----------
----------- -----------
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 QUARTERS ENDED
-------------------------
JANUARY 31,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 10,395 $ 16,313
Adjustments to reconcile net income to net cash from
operating activities -
Non-recurring charges 22,700 --
Depreciation and amortization 11,727 7,209
Reduction in deferred compensation 337 72
Decrease in deferred income taxes (48) --
Other 668 26
Changes in assets and liabilities
Accounts receivable (6,336) 124
Inventories (4,643) (18,506)
Prepaid income taxes and other assets 208 391
Accounts payable 1,085 (4,369)
Accrued liabilities (11,870) 3,614
----------- -----------
Total cash from operating activities 24,223 4,874
----------- -----------
INVESTMENT ACTIVITIES:
Acquisitions (30,700) --
Property and equipment additions, net (21,227) (13,942)
Long-term investments (8,099) (4,528)
----------- -----------
Total cash used for investment activities (60,026) (18,470)
----------- -----------
FINANCING ACTIVITIES:
Decrease in long term debt (473) --
Common stock issued 2,414 639
----------- -----------
Total cash from financing activities 1,941 639
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 34 (77)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (33,828) (13,034)
CASH AND CASH EQUIVALENTS, beginning of period 183,221 238,491
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 149,393 $ 225,457
----------- -----------
----------- -----------
</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>
1ST 4TH 3RD 2ND
QUARTER QUARTER QUARTER QUARTER
1997 1996 1996 1996
----------- --------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 256,777 $ 255,052 $ 217,313 $ 193,053
COST OF PRODUCT SOLD 139,108 134,963 115,567 103,636
----------- --------- ---------- ----------
GROSS PROFIT 117,669 120,089 101,746 89,417
----------- --------- ---------- ----------
Gross profit percentage 45.8% 47.1% 46.8% 46.3%
----------- --------- ---------- ----------
EXPENSES:
Development and product engineering 28,119 25,887 22,579 21,629
Selling and administration 49,444 46,675 41,607 37,516
Goodwill amortization 2,522 2,094 1,474 883
Non-recurring charges 22,700 -- -- --
----------- --------- ---------- ----------
Total expenses 102,785 74,656 65,660 60,028
----------- --------- ---------- ----------
OPERATING INCOME 14,884 45,433 36,086 29,389
OTHER INCOME(EXPENSE), NET:
Interest 1,786 2,014 2,341 2,597
Other (427) (3,571) (2,221) (892)
----------- --------- ---------- ----------
INCOME BEFORE INCOME TAXES 16,243 43,876 36,206 31,094
PROVISION FOR INCOME TAXES 5,848 15,797 13,034 11,195
----------- --------- ---------- ----------
NET INCOME $ 10,395 $ 28,079 $ 23,172 $ 19,899
----------- --------- ---------- ----------
----------- --------- ---------- ----------
AVERAGE COMMON SHARES
OUTSTANDING 130,445 130,098 129,704 128,048
----------- --------- ---------- ----------
----------- --------- ---------- ----------
EARNINGS PER SHARE $ 0.08 $ 0.22 $ 0.18 $ 0. 15
----------- --------- ---------- ----------
----------- --------- ---------- ----------
</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 three months ended
January 31, 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 January 31, 1997, and October 31, 1996, consisted of
(in thousands):
1997 1996
---------- ----------
Purchased materials and
manufactured products $ 122,795 $ 119,006
Work-in-process 15,028 11,576
---------- ----------
$ 137,823 $ 130,582
---------- ----------
---------- ----------
Note 3 NON-RECURRING CHARGES: The non-recurring charges of $22.7 million
primarily represent the write-off of purchased research and
development resulting 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.
6
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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 sold profitably.
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 report 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.
7
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RESULTS OF OPERATIONS
The percentage relationships to net sales of certain income and expense
items for the quarters ended January 31, 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
PERCENTAGE OF NET SALES (DECREASE)
FOR THE QUARTERS ENDED BETWEEN
JANUARY 31 PERIODS
------------------------ ----------
1997 1996
--------- --------
<S> <C> <C> <C>
NET SALES 100.0% 100.0% 57.9%
COST OF PRODUCT SOLD (54.2) (52.1) 64.3
--------- --------
GROSS PROFIT 45.8 47.9 51.0
EXPENSES:
Development and product engineering (10.9) (12.2) 41.0
Selling and administration (19.3) (21.5) 41.6
Goodwill amortization (1.0) (.5) -
Non-recurring charges (8.8) - -
--------- --------
OPERATING INCOME 5.8 13.7 (33.2)
OTHER INCOME (EXPENSE), NET:
Interest .7 2.2 -
Other (.2) (.2) -
--------- --------
INCOME BEFORE INCOME TAXES 6.3 15.7 (36.3)
PROVISION FOR INCOME TAXES (2.3) (5.7) (36.3)
--------- --------
NET INCOME 4.0% 10.0% (36.3)
--------- --------
--------- --------
</TABLE>
NET SALES: The following table sets forth the Company's net sales for the
quarters ended January 31, 1997 and 1996 for each of the Company's functional
product groups described above:
<TABLE>
<CAPTION>
QUARTER ENDED JANUARY 31, ($ IN THOUSANDS)
-----------------------------------------------------------------------
1997 1996
-------------------------------- -----------------------------
PRODUCT GROUP NET SALES % NET SALES %
- --------------------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
TRANSMISSION $105,312 41.0% $51,427 31.6%
ENTERPRISE NETWORKING 39,828 15.5 31,606 19.5
BROADBAND CONNECTIVITY 111,637 43.5 79,558 48.9
---------- ---------- ----------- ----------
TOTAL $256,777 100.0% $162,591 100.0%
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
Net sales for the quarter ended January 31, 1997 increased 57.9% to $256.8
million over the comparable 1996 quarter. This increase is the result of
increases in net sales for all three product groups plus revenue contributions
from companies acquired since January 31, 1996. Such revenue contributions from
acquired companies totaled $40.0 million for the quarter ended January 31, 1997.
8
<PAGE>
During the quarter ended January 31, 1997, net sales of transmission
products increased 104.8% over the comparable 1996 quarter. In addition to
revenue contributions from companies acquired since January 31, 1996, the
increase predominately reflected increased sales of transmission systems to
public telecommunications network providers.
Net sales of broadband connectivity products increased 40.3% during the
quarter ended January 31, 1997. In addition to revenue contributions from
companies acquired since January 31, 1996, the increase primarily reflected
success in selling these products into expanding global broadband market
applications during the quarter. The Company believes that future sales of
broadband connectivity products will continue to account for a substantial
portion of the Company's revenues, although these products may decline as a
percentage of total net sales primarily due to the ongoing evolution of
technologies in the telecommunications marketplace.
The 26.0% increase in net sales of enterprise networking group products
reflected strong first quarter growth in sales of access equipment which were
partially offset by decreases in 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 mid-1997, when the Fibermux manufacturing operation is transferred to
Kentrox.
GROSS PROFIT: The gross profit percentage for first quarter 1997, 45.8% of
net sales, was lower than the 47.9% gross profit percentage for first quarter
1996 primarily due to a product sales mix that was heavily weighted toward sales
of newer, lower margin products which address emerging, global 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 quarters ended
January 31, 1997 and 1996 were $102.8 million and $55.6 million, respectively.
During the quarter ended January 31, 1997, non-recurring charges of $22.7
million 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
quarters ended January 31, 1997 and 1996 were $80.1 million and $55.6 million,
representing 31.2% and 34.2% of net sales, respectively. The increase in
absolute dollars of operating expenses before non-recurring charges was due
primarily to expanded operations associated with higher revenue levels during
the quarter ended January 31, 1997. The decrease in this amount as a percentage
of net sales during the quarter reflects the Company's ability to leverage
operating expenses against revenue levels.
Development and product engineering expenses were $28.1 million for the
quarter ended January 31, 1997, representing a 41.0% increase over the quarter
ended January 31, 1996. The
9
<PAGE>
increase reflects substantial product development and introduction 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 $49.4 million for the quarter
ended January 31, 1997, representing a 41.6% increase over the quarter ended
January 31, 1996. The increase reflects selling activities associated with new
product introductions and additional personnel costs related to expanded
operations.
Several of the Company's acquisitions since January 31, 1996 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
amounts over 5 to 15 years on a straight line basis resulted in increased
goodwill amortization expense for the quarter ended January 31, 1997 to $2.5
million, from $.8 million in the quarter ended January 31, 1996.
OTHER INCOME (EXPENSE), NET: For the quarters ended January 31, 1997 and
1996, the net interest income (expense) category represented net interest income
on cash balances. (See Liquidity and Capital Resources below for a discussion
of cash levels.)
Other expense for the quarter ended January 31, 1997 primarily represented
the Company's share of net operating results of its investments in other
companies accounted for on an equity basis.
INCOME TAXES: The effective income tax rate was 36.0% for the quarters
ended January 31, 1997 and 1996. In addition to the non-deductible goodwill
amortization included in operating expenses each quarter, the rates reflect the
beneficial impact of tax credits.
NET INCOME: Net income was $10.4 million (or $.08 per share) for the
quarter ended January 31, 1997, a decrease of 36.3% over $16.3 million (or $.13
per share) for the quarter ended January 31, 1996. Before taking into account
the non-recurring charges of $22.7 million, net income was $24.9 million (or
$.19 per share) for the quarter ended January 31, 1997, an increase of 52.8%
over first quarter 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, primarily short-term investments in commercial
paper with maturities of less than 90 days, decreased $33.8 million and $13.0
million during the quarters ended January 31, 1997 and 1996, respectively. The
major elements of the 1997 decrease were
10
<PAGE>
net income before non-recurring charges, depreciation and amortization of $44.8
million offset by the $21.6 million net increase in working capital elements
(reflecting growth in business), acquisitions of $30.7 million, property and
equipment additions of $21.2 million and long-term investments of $8.1 million.
The major elements of the 1996 decrease were net income before depreciation and
amortization of $23.5 million, offset by the $18.5 million increase in inventory
levels (reflecting growth in business), property and equipment additions of
$13.9 million and long-term investments of $4.5 million.
At January 31, 1997 and October 31, 1996, the Company had approximately
$7.9 million and $9.2 million of debt outstanding. This entire amount
represents debt of companies acquired since January 31, 1996.
Management believes that current cash balances and cash generated from
operating activities will be adequate to fund working capital requirements,
capital expenditures (approximately $50.0 million committed at January 31, 1997)
and possible acquisitions or strategic alliances for 1997. 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 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.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. An annual meeting of shareholders was held on February 25, 1997.
b. Proxies for the meeting were solicited pursuant to Regulation 14
under the Securities and Exchange Act of 1934, there was no
solicitation in opposition to the management's nominees for
director as listed in the proxy statement and all such nominees
were elected.
c-1. Amendment to the Company's 1991 Stock Incentive Plan to increase
the total number of authorized shares of Common Stock available
for grant under the plan from 16,431,708 shares to 22,419,008
shares, an increase of 5,987,300 shares was approved (89,208,376
affirmative votes; 28,226,793 negative votes; 322,223 abstentions
and 0 broker non-votes).
c-2. Amendment to the Company's Noneemployee Director Stock Option
Plan to increase the total number of authorized shares of Common
Stock available for grant under the plan from 440,000 shares to
840,000 shares, an increase of 400,000 shares was approved
(106,889,680 affirmative votes; 10,491,335 negative votes;
376,377 abstentions and 0 broker non-votes).
c-3. The following table shows the vote totals with respect to the
election of the four directors:
12
<PAGE>
For terms expiring in 2000
VOTES AUTHORITY
NAME FOR WITHHELD
----------------------------------------------------------------
William J. Cadogan 117,166,710 590,682
B. Kristine Johnson 117,151,582 605,810
Irene M. Qualters 117,151,292 606,100
Jean-Pierre Rosso 117,139,753 617,639
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 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 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 Business Development Management Incentive Plan Document -
Directors and Above Fiscal Year 1997.
27-a Financial Data Schedule.
b. Reports on Form 8-K
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 14, 1997 ADC TELECOMMUNICATIONS, INC.
By: /s/ Robert E. Switz
-----------------------------------
Robert E. Switz
Vice President, Chief Financial Officer
(Principal Financial Officer,
Duly Authorized Officer)
14
<PAGE>
ADC TELECOMMUNICATIONS, INC.
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JANUARY 31, 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 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 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 Business Development Management Incentive Plan Document
- Directors and Above Fiscal Year 1997.........................
27-a Financial Data Schedule ........................................
15
<PAGE>
EXHIBIT 10-a
ADC TELECOMMUNICATIONS
BUSINESS DEVELOPMENT
MANAGEMENT INCENTIVE PLAN DOCUMENT - DIRECTORS AND ABOVE
FISCAL YEAR 1997
<PAGE>
ADC TELECOMMUNICATIONS
BUSINESS DEVELOPMENT
MANAGEMENT INCENTIVE PLAN DOCUMENT - DIRECTORS AND ABOVE
FISCAL YEAR 1997
I. PLAN NAME AND EFFECTIVE DATE
The name of this Plan is the ADC Telecommunications, Inc. ("Company"), Business
Development Management Incentive Plan - Directors and Above, Fiscal Year ("FY")
1997, effective November 1, 1996 through October 31, 1997.
II. PURPOSE
The purpose of the Plan is to provide, with full regard to the protection of
shareholder's investments, a direct financial incentive for eligible employees
to perform an effective leadership role and make a significant contribution to
the Company's established goals.
III. ADMINISTRATION
This Plan is administered by a Management Incentive Plan Committee ("Committee")
appointed and authorized by the Company's Board of Directors. Subject to the
complete and full discretion of the Board of Directors, the Committee is
authorized to make all decisions as required in administration of the Plan and
to exercise its discretion to define, interpret, construe, apply and make any
exceptions to the terms of the Plan.
IV. ELIGIBILITY
The Committee establishes rules of eligibility for participation in the Plan and
determines eligibility in accordance with those rules. For Fiscal Year 1997,
eligibility applies to all employees in Grades 17 and above, plus any Grade 16
directors. Participation is effective as of the date approved by the Committee
and is communicated to the participant by an incentive opportunity statement
("Participant Form") specifying the target incentive level for the position. No
employee will become a participant in the Plan after May 1, 1997, unless the
employee is already a participant in the Management Incentive Plan for Managers.
<PAGE>
V. PLAN GOALS
The Plan reinforces the key financial goals which support ADC's long-term
strategic plans. The FY 1997 goal categories and weights for Business
Development participants are as follows:
GOAL WEIGHT
---- ------
* Business Development EVA Improvement 50%
* Corporate EVA Improvement 30%
** Individual Contribution 20%
-----
TOTAL 100%
* EVA Improvement is the dollar amount of planned year-over-year
improvement in EVA.
EVA Improvement goals are set for each of the next 3 years.
** The Individual Contribution goal measures your performance against
pre-determined objectives. The objectives are to be documented on the
attached "Individual Objective" form and require your Supervisor's and
Division head's approval.
VI. INCENTIVE PAYOUT OPPORTUNITIES
A. The payout opportunity for meeting the Individual Contribution goal is as
follows:
PAYOUTS
-------------------------------------------
GOAL THRESHOLD TARGET MAXIMUM
---- --------- ------ -------
Individual Contribution 0% of Target 100% 200% of Target
Results between threshold-target and target-maximum are interpolated.
B. The payout opportunity for meeting the EVA Improvement goals are as
follows:
GOAL THRESHOLD TARGET MAXIMUM
---- --------- ------ --------
EVA Improvement N/A 100% N/A
(unlimited downside) (unlimited upside)
Incentive amounts are interpolated based on leverage (the slope of the
line).
There are no thresholds and maximums for the EVA Improvement goals.
However, the specific incentive payout is a function of a bonus bank
concept which is described in Section VII and Section VIII.
<PAGE>
VII. BONUS BANK DEFINITION
As mentioned earlier, the Plan offers unlimited upside and downside rewards to
participants for creating value. In order to ensure that EVA Improvements are
sustainable over a multi-year period, a bonus bank is created whereby
exceptional performance (above 200% of target) is credited to your account and
poor performance (negative amounts below 0% of the target level) is deducted
from your account.
The specific mechanics of the bonus bank are described below.
VIII. HOW THE BONUS BANK WORKS
A. A bonus bank account is created when the EVA Improvement goal achievement
is above 200% of target or below 0% of the target level.
B. Amounts achieved in excess of 200% of target are put into an EVA
Improvement bonus bank. These amounts vest at a rate of 25% per year,
beginning immediately, and then after 1 year, 2 years, and 3 years,
respectively.
C. If EVA Improvement is less than 0% of the target level for the current Plan
year, a negative amount is calculated and is handled as follows:
1. If there is a positive current year bonus bank amount, the negative
amount offsets it. After the negative has been applied, any positive
vested amount is paid. If the bonus bank is negative at the end of the
year, the negative amount is carried over to the next year.
2. If no positive bank balances have been carried forward from prior
year(s), the entire negative amount goes into the bonus bank and is carried
forward into the next plan year. Then, in that next Plan year, if EVA
Improvement is positive, the negative amount offsets amounts earned in that
year in this manner and order:
a) Up to 100% of target achieved: No reduction or offset. Amount is
paid immediately.
b) Between 100% and 200% of target. Offset applies before any payout
occurs. The remaining amount, if any, is paid immediately.
c) Over 200% of target: Offset applies before any amounts are banked
and subject to vesting. Any remaining amounts are subject to vesting
schedule described above.
D. The bonus bank is a bookkeeping account and as such, amounts allocated to a
participant's bonus bank earn no interest, are unfunded, and do not actually
vest until they are paid out in in accordance with the Plan.
<PAGE>
IX. MAXIMUM EVA IMPROVEMENT GOAL PAYOUT IN ANY PLAN YEAR
Notwithstanding the above, the maximum amount that may be paid in any one year
to a participant due to the EVA Improvement goal, including amounts achieved for
the current year and bonus bank amounts that vest in the current year, may not
exceed 400% of the EVA Improvement target incentive amount.
X. CURRENT PLAN YEAR PAYMENT
Payments which become due and payable under this Plan for the current Plan year
include:
- -- The amount achieved for the Individual Contribution goal, PROVIDED 0% OF
THE TARGET LEVEL FOR ONE OF THE EVA IMPROVEMENT GOALS ARE MET.
- -- Current year EVA Improvement goal achievement up to 200% of target (if
there are no negative offsets).
- -- Vested amount of EVA Improvement bonus bank account balance.
Payments which become due and payable under this Plan are made as soon as
administratively feasible following the close of the Company's Fiscal Year.
XI. CALCULATION OF INDIVIDUAL PAYMENTS AND BONUS BANK ACCOUNT BALANCES
A. The obligation to make payments under the Plan is determined by achievement
of goals as determined by the Board of Directors.
B. Calculations under this Plan are a function of:
1. Target incentive opportunity - expressed as a percentage of an
individual's FY 1997 earnings. The target % for each participant
is designated on the "Participant Form."
2. Participant's 1997 Fiscal Year base salary earnings.
3. Performance against the established goals.
C. Individual award calculations are shown by the following examples:
<PAGE>
Assume we have a Plan participant with the following facts:
Current Plan Year 1997
Grade 17
Base Salary Earnings $85,000
Target Incentive Opportunity 20% of base salary earnings or $17,000
GOAL WEIGHT TARGET INCENTIVE DOLLARS
- ---- ------ ------------------------
Business Development EVA Improvement 50% $8,500
Corporate EVA Improvement 30% $5,100
Individual Contribution 20% $3,400
--------
$17,000
GOAL ACHIEVEMENT (AS A % OF TARGET)
- -----------------------------------
Business Development EVA Improvement 300% x $8,500 = $25,500*
Corporate EVA Improvement 110% x $5,100 = $ 5,610*
Individual Contribution 100% x $3,400 = $ 3,400
*EVA IMPROVEMENT INCENTIVE CALCULATIONS:
- -- 1st 200% of target Business Development EVA incentive = $17,000
Adjustments: None. Pay immediately.
- -- Above 200% of Business Development EVA Improvement target = $8,500
Adjustments: Put into bonus bank. 25% vests immediately; the rest at 25%
per year.
- -- Corporate EVA Improvement incentive = $5,610
Adjustments: None. Pay immediately.
- -- Final EVA incentive payout:
$17,000 + $5,610 + ($8,500 x 25%) = 24,735
- -- EVA bonus bank balance to carry over = 75% of $8,500 or $6,375:
vests in 1998 = $2,125
vests in 1999 = $2,125
vests in 2000 = $2,125
------
$6,375
TOTAL CURRENT YEAR INCENTIVE PAYOUT: $24,735 (FINAL EVA PAYOUT) + $3,400
(INDIVIDUAL CONTRIBUTION) = $28,135.
<PAGE>
Assume the same Participant has the following facts the next year:
Current Plan Year 1998
Grade 17
Base Salary Earnings $90,000
Target Incentive Opportunity 20% of base salary earnings or $18,000
EVA Bonus Bank $2,125 vests in 1998
$2,125 vests in 1999
$2,125 vests in 2000
$6,375 Total Bonus Bank
GOAL WEIGHT TARGET INCENTIVE DOLLARS
- ---- ------ ------------------------
Business Development EVA Improvement 50% $9,000
Corporate EVA Improvement 30% $5,400
Individual Contribution 20% $3,600
-------
$18,000
GOAL ACHIEVEMENT (AS A % OF TARGET)
- -----------------------------------
Business Development EVA Improvement -50% x $9,000 = $-4,500*
Corporate EVA Improvement 110% x $5,400 = $ 5,940*
Individual Contribution 100% x $3,600 = $ 3,600
*EVA IMPROVEMENT INCENTIVE CALCULATIONS:
- --Corporate EVA incentive amount = $5,940
Adjustments: None. Pay immediately.
- --Business Development EVA incentive amount:
-- -4,500 offsets positive bonus bank
-- Apply to amount due to vest in 1998 (current Plan year)
-4,500
2,125
------
-2,375 remaining negative accrual is carried forward to 1999
- --EVA bonus bank balance to carry over:
2,125 due to vest in 1999
-2,375 negative carry over from 1998
------
-250 beginning of year 1999 bank balance
2,125 due to vest in 2000
<PAGE>
TOTAL CURRENT YEAR INCENTIVE PAYOUT: $5,940 (CORPORATE EVA IMPROVEMENT) +
$3,600 (INDIVIDUAL CONTRIBUTION) = $9,540.
XII. EFFECT OF CHANGE IN EMPLOYMENT STATUS
A. VOLUNTARY RESIGNATION AND RETIREMENT. A participant who voluntarily resigns
full-time employment or retires prior to the end of the Fiscal Year receives no
payment under the Plan for the current Plan year's performance or any EVA bonus
bank account balances being carried over. The participant does not have any
obligations with respect to any negative EVA bonus bank account balances
remaining at the end of the Plan year.
B. CHANGE BASED UPON UNSATISFACTORY JOB PERFORMANCE. A participant who is
involuntarily terminated or transferred to a position not eligible for this Plan
for reasons of unsatisfactory job performance receives no payment under the Plan
for the current Plan year's performance or any EVA bonus bank account balances
being carried over from prior Plan year(s). The participant does not have any
obligations with respect to any negative EVA bonus bank account balances
remaining at the end of the Plan year.
C. CHANGE BASED UPON JOB ELIMINATION. Subject to the approval of the Committee,
a participant who is involuntarily terminated or transferred to a position not
eligible for this Plan or another Management Incentive Plan because of a job
elimination may retain the right to a pro rata calculation under this Plan for
the current year's performance, plus a pro rata portion of any EVA bonus bank
balance that would otherwise have vested at the end of the current Plan year,
based upon the time served in the eligible position during the Fiscal Year,
provided at least three months was served in the eligible position. Rights to
any unvested EVA bonus bank account balances at the end of the Plan year are
forfeited. The participant does not have any obligations with respect to any
negative EVA bonus bank account balances that remain after the pro rata
calculation.
D. CHANGE BASED UPON PROMOTION, DEMOTION, OR TRANSFER TO ANOTHER ELIGIBLE PLAN
JOB. A current participant who is promoted, demoted, or transferred from an
eligible position under this Plan to another eligible position under this Plan
during the Fiscal Year has a pro rata calculation of the current year's
performance awards based upon the time served in each position during FY 1997,
provided at least three months were served in each position. If a participant
is in an eligible position for less than three months during the Fiscal Year,
the payment calculation is based on the incentive level of the position served
in the longest. Any positive or negative bonus bank accounts transfer with the
individual in their entirety.
E. CHANGE IN JOBS WITHIN THE COMPANY BUT NOT ELIGIBLE FOR THIS PLAN. A
participant who changes jobs within the Company but is not eligible for this
Plan, retains the right to a pro rata payout under this Plan for the current
year's performance, plus a pro rata portion of any EVA bonus balance that would
otherwise have vested at the end of the current Plan year, based upon the time
served in the eligible position during the Fiscal Year, provided at least three
months was served in the eligible position. Rights to any unvested EVA bonus
bank account balances at the end of the Plan year are forfeited. The
participant does not have any obligations with respect to any negative EVA bonus
bank account balances that remain after the pro rata calculation.
<PAGE>
F. DEATH. If a participant dies during the Fiscal Year, the participant's
heirs as determined by will or applicable laws of descent and distribution will
have a pro rata calculation of the current year's performance, plus a pro rata
portion of any EVA bonus bank balance that would otherwise have vested at the
end of the current Plan year, based upon the time served in the eligible
position during the Fiscal Year. Rights to any unvested EVA bonus bank account
balances at the end of the current Plan year are forfeited. The participant's
heirs do not have any obligations with respect to any negative EVA bonus bank
account balances that remain after the pro rata calculation.
XIII. COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986
If a current Plan year payout causes the participant's total cash compensation
to exceed one million dollars in the Fiscal Year, the participant must defer
the portion that exceeds the one million dollars in the ADC Telecommunications
Deferred Compensation Plan.
XIV. AMENDMENT OR TERMINATION OF PLAN
The Board of Directors reserves and retains the right to modify, rescind or
terminate this plan in whole or in part, at its sole discretion, and nothing in
this Plan limits this right in any way or creates any rights in any employee of
future participation in this Plan or any other plan, or constitutes any
guarantee of compensation or employment with ADC. Further, neither the Board of
Directors nor the Company has any obligation under this Plan or otherwise to
adopt this or any other plan in any future fiscal year.
<TABLE> <S> <C>
<PAGE>
<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 January 31, 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 149,393
<SECURITIES> 0
<RECEIVABLES> 170,641<F1>
<ALLOWANCES> 3,803
<INVENTORY> 137,823<F2>
<CURRENT-ASSETS> 480,359
<PP&E> 301,280
<DEPRECIATION> (155,771)
<TOTAL-ASSETS> 782,131
<CURRENT-LIABILITIES> 143,372
<BONDS> 0
0
0
<COMMON> 26,153
<OTHER-SE> 603,787
<TOTAL-LIABILITY-AND-EQUITY> 782,131
<SALES> 256,777
<TOTAL-REVENUES> 256,777
<CGS> 139,108
<TOTAL-COSTS> 139,108
<OTHER-EXPENSES> 102,785
<LOSS-PROVISION> 210
<INTEREST-EXPENSE> 119
<INCOME-PRETAX> 16,243
<INCOME-TAX> 5,848
<INCOME-CONTINUING> 10,395
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,395
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
<FN>
<F1>Amount is net of allowance for bad debts and returns and allowances.
<F2>Amount is net of obsolescence reserves.
</FN>
</TABLE>
