<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 July 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.)
incor poration or organization)
12501 Whitewater Drive, Minnetonka, MN 55343
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(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: 132,045,857 shares as of September 9, 1997
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(IN THOUSANDS)
ASSETS
JULY 31, OCTOBER 31,
1997 1996
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 122,940 $ 183,221
Accounts receivable 201,197 163,219
Inventories 155,154 130,582
Prepaid income taxes and other assets 23,471 22,479
---------- ----------
Total current assets 502,762 499,501
PROPERTY AND EQUIPMENT, net 193,357 131,080
OTHER ASSETS, principally goodwill 156,626 138,184
---------- ----------
$ 852,745 $ 768,765
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 338 $ 2,247
Accounts payable 54,950 49,459
Accrued liabilities 99,876 90,373
---------- ----------
Total current liabilities 155,164 142,079
DEFERRED INCOME TAXES 331 2,303
LONG-TERM DEBT, less current maturities 3,256 6,913
---------- ----------
Total liabilities 158,751 151,295
STOCKHOLDERS' INVESTMENT
(132,033 and 65,177 shares outstanding) 693,994 617,470
---------- ----------
$ 852,745 $ 768,765
---------- ----------
---------- ----------
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 NINE MONTHS ENDED
JULY 31, JULY 31,
------------------------ --------------------------
1997 1996 1997 1996
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 293,312 $ 217,313 $ 829,288 $ 572,957
COST OF PRODUCT SOLD 156,266 115,567 445,250 303,884
---------- ---------- ---------- ----------
GROSS PROFIT 137,046 101,746 384,038 269,073
---------- ---------- ---------- ----------
Gross profit percentage 46.7% 46.8% 46.3% 47.0%
---------- ---------- ---------- ----------
EXPENSES:
Development and product engineering 29,339 22,579 87,864 64,151
Selling and administration 54,619 41,607 156,903 114,030
Goodwill amortization 2,543 1,474 7,416 3,141
Non-recurring charges -- -- 22,700 --
---------- ---------- ---------- ----------
Total expenses 86,501 65,660 274,883 181,322
---------- ---------- ---------- ----------
OPERATING INCOME 50,545 36,086 109,155 87,751
OTHER INCOME (EXPENSE), NET:
Interest 1,571 2,341 5,152 8,490
Other (934) (2,221) (1,786) (3,454)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 51,182 36,206 112,521 92,787
PROVISION FOR INCOME TAXES 18,425 13,034 40,508 33,403
---------- ---------- ---------- ----------
NET INCOME $ 32,757 $ 23,172 $ 72,013 $ 59,384
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
AVERAGE COMMON SHARES OUTSTANDING 131,820 129,704 131,090 127,732
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER SHARE $ 0.25 $ 0.18 $ 0.55 $ 0.46
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED
JULY 31,
-------------------------
1997 1996
--------- ---------
OPERATING ACTIVITIES:
Net income $ 72,013 $ 59,384
Adjustments to reconcile net income
to net cash from
operating activities -
Non-recurring charges 22,700 --
Depreciation and amortization 36,184 23,007
Reduction in deferred compensation 742 388
Decrease in deferred income taxes (1,937) (66)
Other 584 426
Changes in assets and liabilities
Accounts receivable (33,002) (28,645)
Inventories (22,054) (31,002)
Prepaid income taxes and other assets (10,052) 417
Accounts payable 111 1,646
Accrued liabilities 1,045 1,174
--------- ---------
Total cash from operating activities 66,334 26,729
--------- ---------
INVESTMENT ACTIVITIES:
Acquisitions (33,713) (46,715)
Property and equipment additions, net (88,596) (47,969)
Long-term investments (2,646) (10,579)
--------- ---------
Total cash used for investment
activities (124,955) (105,263)
--------- ---------
FINANCING ACTIVITIES:
Decrease in long-term debt (4,390) (5,292)
Common stock issued 6,608 4,184
--------- ---------
Total cash from (used for)
financing activities 2,218 (1,108)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,878) 870
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (60,281) (78,772)
CASH AND CASH EQUIVALENTS, beginning of period 183,221 238,491
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 122,940 $ 159,719
--------- ---------
--------- ---------
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>
3RD 2ND 1ST 4TH
QUARTER QUARTER QUARTER QUARTER
1997 1997 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 293,312 $ 279,199 $ 256,777 $ 255,052
COST OF PRODUCT SOLD 156,266 149,876 139,108 134,963
---------- ---------- ---------- ----------
GROSS PROFIT 137,046 129,323 117,669 120,089
---------- ---------- ---------- ----------
Gross profit percentage 46.7% 46.3% 45.8% 47.1%
---------- ---------- ---------- ----------
EXPENSES:
Development and product engineering 29,339 30,406 28,119 25,887
Selling and administration 54,619 52,840 49,444 46,675
Goodwill amortization 2,543 2,351 2,522 2,094
Non-recurring charges -- -- 22,700 --
---------- ---------- ---------- ----------
Total expenses 86,501 85,597 102,785 74,656
---------- ---------- ---------- ----------
OPERATING INCOME 50,545 43,726 14,884 45,433
OTHER INCOME (EXPENSE), NET:
Interest 1,571 1,795 1,786 2,014
Other (934) (425) (427) (3,571)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 51,182 45,096 16,243 43,876
PROVISION FOR INCOME TAXES 18,425 16,235 5,848 15,797
---------- ---------- ---------- ----------
NET INCOME $ 32,757 $ 28,861 $ 10,395 $ 28,079
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
AVERAGE COMMON SHARES
OUTSTANDING 131,820 131,009 130,445 130,098
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER SHARE $ 0.25 $ 0.22 $ 0.08 $ 0.22
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</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 nine months ended July
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 July 31, 1997, and October 31, 1996, consisted of (in
thousands):
1997 1996
---------- ----------
Purchased materials and
manufactured products $ 141,735 $ 119,006
Work-in-process 13,419 11,576
---------- ----------
$ 155,154 $ 130,582
---------- ----------
---------- ----------
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 to both public and private, global 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 nine months ended July 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 (Decrease)
Percentage of Net Sales Between Periods
----------------------------------- -----------------------
Quarters Ended Nine Months Ended
July 31, July 31, Quarters Nine Months
---------------- ------------------ Ended Ended
1997 1996 1997 1996 July 31, July 31,
------ ------- ------ ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET SALES 100.0% 100.0% 100.0% 100.0% 35.0% 44.7%
COST OF PRODUCT SOLD (53.3) (53.2) (53.7) (53.0) 35.2 46.5
----- ----- ----- -----
GROSS PROFIT 46.7 46.8 46.3 47.0 34.7 42.7
EXPENSES:
Development and
product engineering (10.0) (10.4) (10.6) (11.2) 29.9 37.0
Selling and administration (18.6) (19.1) (18.9) (19.9) 31.3 37.6
Goodwill amortization (0.9) (0.7) (0.9) (0.6) 72.5 136.1
Non-recurring charges - - (2.7) - - -
----- ----- ----- -----
OPERATING INCOME 17.2 16.6 13.2 15.3 40.1 24.4
OTHER INCOME (EXPENSE), NET:
Interest 0.5 1.1 0.6 1.5 (32.9) (39.3)
Other (0.3) (1.0) (0.2) (0.6) (57.9) (48.3)
----- ----- ----- -----
INCOME BEFORE INCOME TAXES 17.4 16.7 13.6 16.2 41.4 21.3
PROVISION FOR INCOME TAXES (6.2) (6.0) (4.9) (5.8) 41.4 21.3
----- ----- ----- -----
NET INCOME 11.2% 10.7% 8.7% 10.4% 41.4 21.3
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
NET SALES: The following table sets forth the Company's net sales for the
quarters and nine-month periods ended July 31, 1997 and 1996 for each of the
Company's functional product groups described above:
<TABLE>
<CAPTION>
Quarters Ended July 31, Nine Months Ended July 31,
------------------------------------------ ---------------------------------------------
1997 1996 1997 1996
----------------- ------------------ -------------------- -------------------
Product Group Net Sales % Net Sales % Net Sales % Net Sales %
- ------------- --------- ----- ---------- ----- ----------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRANSMISSION $ 127,199 43.4% $ 84,127 38.7% $ 348,344 42.0% $ 203,207 35.5%
ENTERPRISE
NETWORKING 37,126 12.6 37,394 17.2 116,717 14.1 106,638 18.6
BROADBAND
CONNECTIVITY 128,987 44.0 95,792 44.1 364,227 43.9 263,112 45.9
--------- ------ --------- ------ --------- ------ --------- ------
TOTAL $ 293,312 100.0% $ 217,313 100.0% $ 829,288 100.0% $ 572,957 100.0%
--------- ------ --------- ------ --------- ------ --------- ------
--------- ------ --------- ------ --------- ------ --------- ------
</TABLE>
Net sales for the three-month and nine-month periods ended July 31, 1997
increased 35.0% and 44.7% to $293.3 million and $829.3 million, respectively,
over the comparable 1996 time periods. These increases resulted from third
quarter increases in net sales for the transmission and broadband connectivity
groups, year-to-date increases in net sales for all three product groups, plus
revenue contributions from acquired companies during the three-month and
nine-month periods ended July 31, 1997. Revenue contributions from acquired
companies
9
<PAGE>
totaled $19.0 million for the quarter and $90.0 million for the nine months
ended July 31, 1997, respectively.
During the quarter and nine months ended July 31, 1997, net sales of
transmission products increased 51.2% and 71.4%, respectively, over the
comparable 1996 time periods. In addition to revenue contributions from
acquired companies, these increases primarily resulted from increased sales of
transmission systems sold to public telecommunications network providers.
Net sales of broadband connectivity products increased 34.7% and 38.4%
during the quarter and nine months ended July 31, 1997, respectively, over the
comparable 1996 time periods. These increases primarily reflect the Company's
success in selling these products into expanding global broadband market
applications and revenue contributions from acquired companies. 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 ended July 31, 1997, net sales of enterprise networking
products declined .7% over the comparable 1996 quarter. This decline reflects
growth in net sales of access equipment, offset by a decrease in net sales of
Local Area Network (LAN) equipment. During the nine months ended July 31, 1997,
net sales of enterprise networking products increased 9.5% over the nine months
ended July 31, 1996. This increase reflects growth in net sales of access
equipment, which was partially offset by a decrease in net sales of LAN
equipment. Recognizing changes in the competitive environment for LAN equipment
and the industry trend toward integration of LAN and Wide Area Network (WAN)
technologies and products, the Company combined its Kentrox and Fibermux
subsidiaries into one enterprise networking group and (during July 1997)
transferred the Fibermux manufacturing operation to Kentrox.
GROSS PROFIT: Gross profit percentages were 46.7% and 46.3% of net sales
in the three-month and nine-month periods ended July 31, 1997, respectively.
These gross profit percentages compared to 46.8% and 47.0% for the three-month
and nine-month periods ended July 31, 1996. The declines in gross profit
percentages during the 1997 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 quarters ended July
31, 1997 and 1996 were $86.5 million and $65.7 million, representing 29.5% and
30.2% of net sales, respectively. The decrease in operating expenses as a
percentage of net sales during the three months ended July 31, 1997 reflects the
Company's ability to leverage operating expenses against increased net sales.
10
<PAGE>
Total operating expenses for the nine months ended July 31, 1997 and 1996
were $274.9 million and $181.3 million, representing 33.1% and 31.6% of net
sales, respectively. The increase in operating expenses as a percentage of net
sales during the nine months ended July 31, 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
nine months ended July 31, 1997 were $252.2 million, representing 30.4% of net
sales. The decrease of 1.2% of net sales compared to the nine-month period
ended July 31, 1996 reflects the Company's ability to leverage recurring
operating expenses against revenue levels.
The dollar increases in operating expenses before non-recurring charges
during the three-month and nine-month periods ended July 31, 1997 were due
primarily to the expanded operations associated with higher revenue levels in
1997.
Development and product engineering expenses were $29.3 million for the
quarter ended July 31, 1997, an increase of 29.9% over $22.6 million for the
quarter ended July 31, 1996. For the nine months ended July 31, 1997,
development and product engineering expenses were $87.9 million, an increase of
37.0% over $64.2 million for the nine months ended July 31, 1996. 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 $54.6 million for the quarter
ended July 31, 1997, an increase of 31.3% over $41.6 million for the quarter
ended July 31, 1996. For the nine months ended July 31, 1997, selling and
administration expenses were $156.9 million, an increase of 37.6% over $114.0
million for the nine months ended July 31, 1996. The increases in each of these
periods 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 25
years on a straight-line basis resulted in goodwill amortization expense for the
quarter ended July 31, 1997 of $2.5 million, an increase of 72.5% over the $1.5
million recorded during the quarter ended July 31, 1996. For the nine months
ended July 31, 1997, goodwill amortization of $7.4 million represented an
increase of 136.1% over the $3.1 million recorded in the nine months ended July
31, 1996. These increases primarily reflect acquisitions subsequent to July 31,
1996. See Note 4 to the Consolidated
11
<PAGE>
Financial Statements included in this report for a discussion of certain
acquisitions made in the 1997 fiscal year.
OTHER INCOME (EXPENSE), NET: For the three-month and nine-month periods
ended July 31, 1997, net interest income was $1.6 million and $5.2 million,
respectively, reflecting net interest income on cash balances. Net interest
income for the three-month and nine-month periods ended July 31, 1996 was $2.3
million and $8.5 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 nine-month periods ended July 31, 1997 and 1996. In addition to
the non-deductible goodwill amortization included in operating expenses in each
of the time periods, these rates reflect the beneficial impact of tax credits.
NET INCOME: Net income was $32.8 million (or $.25 per share) for the three
months ended July 31, 1997, an increase of 41.4% over $23.2 million (or $.18 per
share) for the three months ended July 31, 1996. Net income was $72.0 million
(or $.55 per share) for the nine months ended July 31, 1997, an increase of
21.3% over $59.4 million (or $.46 per share) for the nine months ended July 31,
1996. Before taking into account the non-recurring charges of $22.7 million,
net income was $86.5 million (or $.66 per share) for the nine months ended July
31, 1997, an increase of 45.6% over the nine months ended July 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, primarily short-term investments in commercial
paper with maturities of less than 90 days, decreased $60.3 million and $78.8
million during the nine months ended July 31, 1997 and 1996, respectively. The
major elements of the 1997 decrease were net income before non-recurring
charges, depreciation and amortization of $130.9 million offset by the $64.0
million increase in working capital elements (reflecting growth in business),
acquisition payments of $33.7 million and property and equipment additions of
$88.6 million. The higher level of property and equipment additions in 1997
reflects the continuation of certain major facilities and systems upgrades begun
in 1996. The major elements of the 1996 decrease were net income before
depreciation and amortization of $82.4 million offset by the $56.4 million
increase in working capital elements (reflecting growth in business),
acquisition payments and long-term investments of $57.3 million and property and
equipment additions of $48.0 million. See Note 4 to the Consolidated Financial
Statements included in this report for a discussion of acquisitions completed
during the nine months ended July 31, 1997.
At July 31, 1997 and October 31, 1996, the Company had approximately $3.6
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
12
<PAGE>
(approximately $32.0 million committed at July 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.
13
<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
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.)
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.)
14
<PAGE>
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: September 12, 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 JULY 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 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.)
27-a Financial Data Schedule . . . . . . . . . . . . . . . . . . .
17
<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 JULY 31, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 122,940
<SECURITIES> 0
<RECEIVABLES> 201,197<F1>
<ALLOWANCES> 3,487
<INVENTORY> 155,154<F2>
<CURRENT-ASSETS> 502,762
<PP&E> 367,224
<DEPRECIATION> (173,867)
<TOTAL-ASSETS> 852,745
<CURRENT-LIABILITIES> 155,164
<BONDS> 0
0
0
<COMMON> 26,407
<OTHER-SE> 667,587
<TOTAL-LIABILITY-AND-EQUITY> 852,745
<SALES> 293,312
<TOTAL-REVENUES> 293,312
<CGS> 156,266
<TOTAL-COSTS> 156,266
<OTHER-EXPENSES> 86,501
<LOSS-PROVISION> 275
<INTEREST-EXPENSE> 102
<INCOME-PRETAX> 51,182
<INCOME-TAX> 18,425
<INCOME-CONTINUING> 32,757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,757
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
<FN>
<F1>Amount is net of allowance for bad debts and returns and allowances.
<F2>Amount is net of obsolescence reserves.
</FN>
</TABLE>
