<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, 1999
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: 135,956,916 shares as of September 8, 1999
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1999 1998
----------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 82,863 $ 287,700
Accounts receivable 349,235 365,989
Inventories 233,439 175,763
Prepaid income taxes and other assets 47,642 33,418
----------------- ------------------
Total current assets 713,179 862,870
PROPERTY AND EQUIPMENT, net 294,762 256,961
OTHER ASSETS, principally goodwill 367,370 180,756
----------------- ------------------
$ 1,375,311 $ 1,300,587
----------------- ------------------
----------------- ------------------
LIABILITIES AND SHAREOWNERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 88,811 $ 67,150
Accrued liabilities 151,242 115,559
Note payable 45,000 200,000
Current maturities of long-term debt 8,590 735
----------------- ------------------
Total current liabilities 293,643 383,444
LONG-TERM DEBT, less current maturities 12,339 2,769
----------------- ------------------
Total liabilities 305,982 386,213
SHAREOWNERS' INVESTMENT
(135,891 and 134,897 shares outstanding, respectively) 1,069,329 914,374
----------------- ------------------
$ 1,375,311 $ 1,300,587
----------------- ------------------
----------------- ------------------
</TABLE>
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
------------------------------- --------------------------------
1999 1998 1999 1998
------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 444,129 $ 362,496 $ 1,231,463 $ 983,527
COST OF PRODUCT SOLD 230,882 193,641 641,798 524,155
------------- -------------- -------------- ---------------
GROSS PROFIT 213,247 168,855 589,665 459,372
------------- -------------- -------------- ---------------
Gross profit percentage 48.0% 46.6% 47.9% 46.7%
------------- -------------- -------------- ---------------
EXPENSES:
Research and development 38,496 35,775 117,676 103,811
Selling and administration 90,321 68,476 255,211 194,978
Goodwill amortization 5,220 2,954 15,092 8,460
Non-recurring charges 58,250 -- 118,577 --
------------- -------------- -------------- ---------------
Total expenses 192,287 107,205 506,556 307,249
------------- -------------- -------------- ---------------
OPERATING INCOME 20,960 61,650 83,109 152,123
OTHER INCOME (EXPENSE), NET:
Interest 636 1,109 (628) 3,668
Other (1,150) (285) (2,732) (1,398)
------------- -------------- -------------- ---------------
INCOME BEFORE INCOME TAXES 20,446 62,474 79,749 154,393
PROVISION FOR INCOME TAXES 9,675 21,867 37,321 54,039
------------- -------------- -------------- ---------------
NET INCOME $ 10,771 $ 40,607 $ 42,428 $ 100,354
------------- -------------- -------------- ---------------
------------- -------------- -------------- ---------------
AVERAGE COMMON SHARES OUTSTANDING
(BASIC) 135,629 134,525 135,337 134,173
------------- -------------- -------------- ---------------
------------- -------------- -------------- ---------------
EARNINGS PER SHARE (BASIC) $ 0.08 $ 0.30 $ 0.31 $ 0.75
------------- -------------- -------------- ---------------
------------- -------------- -------------- ---------------
AVERAGE COMMON SHARES OUTSTANDING
(DILUTED) 139,508 136,826 138,824 136,456
------------- -------------- -------------- ---------------
------------- -------------- -------------- ---------------
EARNINGS PER SHARE (DILUTED) $ 0.08 $ 0.30 $ 0.31 $ 0.74
------------- -------------- -------------- ---------------
------------- -------------- -------------- ---------------
</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>
NINE MONTHS ENDED
JULY 31,
------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 42,428 $ 100,354
Adjustments to reconcile net income to net cash from
operating activities -
Non-recurring charges 118,577 --
Depreciation and amortization 65,718 48,078
Reduction in deferred compensation 547 495
Other 3,268 565
Changes in assets and liabilities
Accounts receivable 34,404 (67,111)
Inventories (35,666) (10,003)
Prepaid income taxes and other assets 1,827 (3,555)
Accounts payable 14,350 (3,265)
Accrued liabilities 5,065 (12,018)
---------------- ----------------
Total cash from operating activities 250,518 53,540
---------------- ----------------
INVESTMENT ACTIVITIES:
Acquisitions (258,752) (17,210)
Property and equipment additions, net (73,307) (72,102)
Long-term investments (13,146) (820)
---------------- ----------------
Total cash used for investment activities (345,205) (90,132)
---------------- ----------------
FINANCING ACTIVITIES:
Decrease in debt (153,004) (440)
Common stock issued 41,805 15,224
---------------- ----------------
Total cash from/(used for) financing activities (111,199) 14,784
---------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,049 (936)
---------------- ----------------
DECREASE IN CASH AND CASH EQUIVALENTS (204,837) (22,744)
CASH AND CASH EQUIVALENTS, beginning of period 287,700 109,794
---------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 82,863 $ 87,050
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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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
1999 1999 1999 1998
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 444,129 $ 420,129 $ 367,205 $ 396,151
COST OF PRODUCT SOLD 230,882 218,545 192,371 212,382
------------- ------------- -------------- -------------
GROSS PROFIT 213,247 201,584 174,834 183,769
------------- ------------- -------------- -------------
Gross profit percentage 48.0% 48.0% 47.6% 46.4%
------------- ------------- -------------- -------------
EXPENSES:
Research and development 38,496 40,193 38,987 34,101
Selling and administration 90,321 87,163 77,727 73,029
Goodwill amortization 5,220 5,096 4,776 3,196
Non-recurring charges 58,250 -- 60,327 --
------------- ------------- -------------- -------------
Total expenses 192,287 132,452 181,817 110,326
------------- ------------- -------------- -------------
OPERATING INCOME (LOSS) 20,960 69,132 (6,983) 73,443
OTHER INCOME (EXPENSE), NET:
Interest 636 (426) (838) 1,012
Other (1,150) (704) (878) (3,114)
------------- ------------- -------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 20,446 68,002 (8,699) 71,341
PROVISION FOR INCOME TAXES 9,675 23,120 4,526 24,968
------------- ------------- -------------- -------------
NET INCOME (LOSS) $ 10,771 $ 44,882 $ (13,225) $ 46,373
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
AVERAGE COMMON SHARES OUTSTANDING (BASIC) 135,629 135,173 135,206 134,784
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
EARNINGS (LOSS) PER SHARE (BASIC) $ 0.08 $ 0.33 $ (0.10) $ 0.34
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
AVERAGE COMMON SHARES
OUTSTANDING (DILUTED) 139,508 139,042 135,206 136,649
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
EARNINGS (LOSS) PER SHARE (DILUTED) $ 0.08 $ 0.32 $ (0.10) $ 0.34
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
</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 interim 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, 1999 are not necessarily
indicative of the operating results to be expected for the
full fiscal year. These statements should be read in
conjunction with ADC'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, 1999, and October 31, 1998,
consisted of (in thousands):
<TABLE>
<CAPTION>
July 31, October 31,
1999 1998
------------------- -------------------
<S> <C> <C>
Purchased materials and
manufactured products $ 215,374 $ 156,006
Work-in-process 18,065 19,757
------------------- -------------------
$ 233,439 $ 175,763
------------------- -------------------
------------------- -------------------
</TABLE>
Note 3 NON-RECURRING CHARGES: The non-recurring charges of $58.3
million during the quarter ended July 31, 1999 represent
purchased in-process research and development from
acquisitions. Non-recurring charges of $118.6 million for the
nine months ended July 31, 1999 include purchased in-process
research and development charges of $30.3 million from
acquisitions in prior quarters and restructuring charges of
$30.0 million.
In November 1998, ADC's management approved a restructuring
plan, which included initiatives to integrate the software
operations of the former Wireless Systems Group with the newly
formed Integrated Solutions Group, consolidate unproductive
and duplicative facilities, reposition certain products and
dispose of product lines that no longer fit ADC's current
focus and growth strategy. Total accrued restructuring costs
of $30.0 million were charged to operations in the first
quarter related to these initiatives. These restructuring
charges included employee termination costs and other
incremental costs incurred as a direct result of the
restructuring plan. The restructuring plan was substantially
complete at July 31, 1999.
6
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Note 4 COMPREHENSIVE INCOME: On November 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130,
"Reporting of Comprehensive Income". The standard requires the
display and reporting of comprehensive income, which includes
all changes in shareowners' equity with the exception of
additional investments by shareowners or distributions to
shareowners. Comprehensive income for ADC includes net income,
the effect of translations and unrealized holding gains and
losses from securities classified as available for sale.
During the quarter ended July 31, 1999, a company in which ADC
has an investment completed an initial public offering.
Comprehensive income includes the unrealized gain from
reporting this investment at fair value. Comprehensive income
for the periods ended July 31, 1999 and 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
--------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 10,771 $ 40,607 $ 42,428 $ 100,354
Changes in cumulative translation
adjustments 1,981 (1,825) 1,123 (3,808)
Unrealized gain from securities classified
as available for sale 58,000 -- 58,000 --
--------- --------- --------- ---------
Comprehensive income $ 70,752 $ 38,782 $ 101,551 $ 96,546
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Note 5 EARNINGS PER SHARE: Basic earnings per common share was
calculated by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted
earnings per share was calculated by dividing net income by
the sum of the weighted average number of common shares
outstanding plus all additional common shares that would have
been outstanding if potentially dilutive common shares had
been issued. The following table reconciles the number of
shares utilized in the earnings per share calculations for the
periods ended July 31, 1999 and 1998 (in thousands, except
earnings per share).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 10,771 $ 40,607 $ 42,428 $100,354
Earnings per common share (basic) $ 0.08 $ 0.30 $ 0.31 $ 0.75
Earnings per common share (diluted) $ 0.08 $ 0.30 $ 0.31 $ 0.74
Weighted average common shares
outstanding (basic) 135,629 134,525 135,337 134,173
Effect of dilutive securities - stock
options 3,879 2,301 3,487 2,283
Weighted average common shares
outstanding (diluted) 139,508 136,826 138,824 136,456
</TABLE>
7
<PAGE>
Note 6 ACQUISITIONS: In June 1999, ADC completed the acquisition of
Pathway, Inc., a manufacturer of ATM access products for
high-speed voice, video and data communications, for
approximately $19 million. The acquisition was treated as a
purchase and resulted in a non-recurring charge of $10.8
million for purchased in-process research and development
expense.
In May 1999, ADC completed the acquisition of Spectracom,
Inc., a developer of high-powered pump laser chips and modules
for use in fiber-optic networks. The acquisition is valued at
up to $105 million, with $60 million cash paid at closing and
a possible, additional $45 million payable based on future
technology developments. The acquisition was treated as a
purchase and resulted in a non-recurring charge of $47.5
million with the initial cash payment. Additional
non-recurring charges may result for the future contingent
cash payments.
The acquisitions of Pathway, Inc. and Spectracom, Inc.
resulted in the recognition of goodwill and other intangible
assets of $14.5 million which are being amortized on a
straight-line basis over their estimated useful lives. The
results of operations of Pathway, Inc. and Spectracom, Inc.
have been included with those of ADC for periods subsequent to
the respective acquisition dates. The inclusion of financial
data for Pathway, Inc. and Spectracom, Inc. prior to the
acquisition dates would not have materially affected reported
results.
In June 1999, ADC announced the pending acquisition of Saville
Systems, PLC (Saville), a developer and integrator of
convergent billing and customer care solutions. The proposed
transaction is expected to be accounted for as a
pooling-of-interests and is expected to be completed during
ADC's fourth fiscal quarter, which ends October 31, 1999. The
completion of the Saville acquisition is contingent upon the
approval of the Irish High Court, and the actual closing date
will depend on when such approval is received, if at all. A
hearing date before the Irish High Court has been set for
October 4, 1999. Under terms of the agreement each ordinary
share of Saville will be exchanged for 0.358 of an ADC share.
Saville has approximately 41 million ordinary shares and
ordinary share equivalents outstanding.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
ADC Telecommunications, Inc. ("ADC") offers a broad range of
systems and solutions that enable its customers to create and upgrade their
communications networks to support increasing user demand for voice,
Internet/data and video services. Telephone companies, cable TV operators,
wireless service providers and other communications service
8
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providers are building the infrastructure required to offer high-speed Internet
access, data, video, telephony and other interactive multimedia services to
residential and business customers. Broader network bandwidths are required for
these services, and ADC's development efforts and product offerings are focused
on "unlocking the capacity of the local loop" by eliminating bottlenecks and
increasing the speed and efficiency of communications networks. The local loop
is the last mile of the communications network from the local service providers'
offices through the network equipment that connects to the end-user's residence
or business.
ADC offers hardware and software systems, and integrated solutions
within the following three product groups: Broadband Connectivity, Broadband
Access and Transport, and Integrated Solutions.
BROADBAND CONNECTIVITY products are designed for use in
twisted-pair, coaxial, fiber-optic or wireless transmission networks and are
sold to both public and private global service providers. ADC's broadband
connectivity products provide the physical contact points for connecting
different telecommunications system components and gaining access to
communications system circuits for the purpose of installing, testing,
monitoring, accessing, managing, reconfiguring, splitting and multiplexing such
circuits within the local loop portion and central office of global public and
private networks. ADC's Broadband Connectivity products are sold to the Regional
Bell Operating Companies, other telephone companies, long distance carriers,
other public network providers (including cable TV operators and wireless
service providers), international network operators, private network providers
and original equipment manufacturers. Broadband Connectivity products include
network access/connection devices for twisted-pair and coaxial networks, network
access/connection devices for fiber-optic networks, modular fiber-optic cable
routing systems, outside plant cabinets and other enclosures, and wireless
infrastructure equipment. Broadband Connectivity products also include ADC's
family of CityWide-TM- wireless systems products, which consist of wideband
digital microcells and repeaters for extending cellular communication coverage,
both in buildings and outdoors. Spectracom, a developer of high-powered pump
laser chips and modules for use in fiber-optic networks, was acquired in the
third quarter. The acquisition is expected by management to position ADC as a
significant supplier of optical components and modules to original equipment
manufacturers.
BROADBAND ACCESS AND TRANSPORT products enable incumbent local
exchange carriers (ILEC), competitive local exchange carriers (CLEC),
inter-exchange carriers (IXC), community antenna television (CATV) and wireless
service providers to transport and/or provide access to the services they sell
to their business and residential customers. These products are best categorized
as "Service Delivery Infrastructure", and the services being delivered include
voice, Internet/data, and video. Generally, these products are aimed at
upgrading a service provider's network to broadband capabilities while also
introducing new service delivery functionality and cost effectiveness into the
network.
Broadband Access and Transport products operate in the Interoffice
and/or Loop Transport portion of the service provider's network and include
Soneplex-Registered Trademark-, Cellworx-Registered Trademark-, Homeworx-TM-,
DV6000-TM- and BroadAccess-TM-. Soneplex-Registered Trademark- delivers T1-based
services over
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copper or fiber facilities. Approximately 25% of all T1 access circuits in North
America are currently delivered over Soneplex-Registered Trademark-.
Cellworx-Registered Trademark-, which is a next-generation OC-12/48 SONET/SDH
transport element integrating ATM, SONET/SDH and xDSL technologies, is a
broad-based service delivery infrastructure product aimed at reducing a
carrier's capital and operating costs of delivering a full range of high-speed
and low-speed services over copper (HDSL, ADSL and others) or fiber facilities.
Homeworx-TM- utilizes Hybrid Fiber/Coax (HFC) technology to deliver video-only,
telephony-only, or integrated video, telephony and data services over coax loop
facilities (which are predominantly owned by CATV operators). ADC also provides
a family of analog fiber-optic transmitter and node products that CATV operators
use to upgrade their networks for HFC readiness. DV6000-TM- transmits a variety
of signal types using a high-speed, uncompressed digital format over fiber
facilities, and is used in the super trunking portions of the cable TV,
broadcast and a range of interactive video networks, including distance learning
government and campus networks. BroadAccess is a family of compact and flexible
Digital Loop Carrier systems which are generally used to deliver voice and data
services.
Broadband Access and Transport products include both Customer
Located Devices (which are part of the carrier's network) as well as Customer
Premise Devices (which are owned by the carrier's business customer). These
products can work alone or in conjunction with one of ADC's transport systems or
with other vendors' transport systems. These devices include DSU/CSUs, T1/E1
multiplexers and Integrated Access Devices (offering a wide variety of voice,
data and video interfaces), T3/E3 multiplexers and ATM access concentrators.
Through its subsidiary Phasor Electronics, an Austrian-based
manufacturer of radio frequency amplifiers, ADC has an established international
customer base as well as the critical local engineering and support services
required to compete in the rapidly growing European market for cable TV
amplifiers. Phasor's customer base includes major European cable television
operators and original equipment manufacturers.
In June 1999, ADC completed the acquisition of Pathway, Inc.
Pathway manufactures the AccessPoint-TM- Universal Media Access system.
AccessPoint interfaces with several existing ADC products and is an ATM access
product that transports voice, video and Internet/data communications over
high-speed, switched broadband networks.
INTEGRATED SOLUTIONS products and services consist of project
management, technical consulting and design, implementation, reliability,
performance and training services, and software systems, which support
multi-division and multi-vendor solutions. ADC provides services and software
primarily to telephone operating companies, cable TV operators, other common
carriers and users of private communications networks. ADC is a developer of
intelligent network communications software, including Signaling Systems 7 (SS7)
technology, wireless intelligent network products (such as short messaging
servers) and products compliant with the Communications Assistance to Law
Enforcement Act (CALEA). ADC designs and sells communications network
performance management software to wireline and wireless service providers.
Integrated Solutions also provides ADC SoftXchange-TM- network management
software and operations and business support system services.
10
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Historically, ADC's principal product offerings generally
consisted of copper-based and fiber-optic-based products designed to address the
needs of its customers for transmission and connectivity on traditional
telephony networks. With the growth of multimedia applications and the related
development of enhanced voice, Internet/data and video services, ADC's more
recent product offerings and research and development efforts have increasingly
focused on emerging technologies and hardware, software and service offerings
for broadband communications applications. The market for broadband
communications hardware and software systems and integrated solutions is
evolving and rapidly changing. ADC's growth is dependent in part on its ability
to successfully develop and commercially introduce new products in each of its
product groups addressing this market and also dependent on the growth of the
market. The growth in the market for such broadband communications products is
dependent on a number of factors, including the amount of capital expenditures
by communications service providers, regulatory and legal developments, changes
to capital expenditure rates by communications service providers (which could
result from the ongoing consolidation of customers in the market as well as the
addition of new customer entrants to the market) and end-user demands for
integrated voice, Internet/data, video and other communications services. There
can be no assurance that ADC's new or enhanced products and services will meet
with market acceptance or be profitable.
ADC's operating results may fluctuate significantly from quarter
to quarter due to several factors. ADC is growing through acquisition and
expansion, and results of operations described in this report may not be
indicative of results to be achieved in future periods. ADC's expense levels are
based in part on management's expectations of future revenues. Although
management has and will continue to take measures to adjust expense levels, if
revenue levels in a particular period fluctuate, operating results may be
adversely affected. In addition, ADC's results of operations are subject to
seasonal factors. ADC historically has experienced a stronger demand for its
products in the fourth fiscal quarter, primarily as a result of customer budget
cycles and ADC 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. In addition, it is possible that
some of ADC's customers may reduce their level of expenditures for ADC's
products, particularly software products, in the last half of calendar year 1999
as a precautionary measure relating to the Year 2000 issue with computer systems
generally.
YEAR 2000 MATTERS
Many currently installed computer systems and software are coded
to accept only two-digit entries in the date code fields. These date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. This problem could result in system failures or
miscalculations causing disruptions of business operations (including, among
other things, a temporary inability to process transactions, send invoices or
engage in other similar business activities). As a result, many companies'
computer systems and software will need to be upgraded or replaced in order to
comply with Year 2000 requirements. The potential global
11
<PAGE>
impact of the Year 2000 problem is not known, and, if not corrected in a timely
manner, could affect ADC and the U.S. and world economy generally.
ADC's project team (consisting of representatives from its
information technology, finance, business development, manufacturing, product
development, sales, marketing and legal departments) is addressing internal and
external Year 2000 issues. ADC's internal financial, manufacturing and other
computer systems have been reviewed to assess and minimize Year 2000 issues.
ADC's assessment of internal systems includes its information technology ("IT")
as well as non-IT systems (which systems may contain embedded technology in
manufacturing or process control equipment containing microprocessors or other
similar circuitry). ADC's Year 2000 readiness program includes the following
phases: identifying systems that may be modified or replaced; carrying out
modifications to existing systems or convert to new systems; and conducting
validation testing of various systems and applications to determine their
readiness. ADC is currently completing the third phase of this program for both
corporate-level IT and non-IT systems.
ADC's product development processes currently contain steps to
include year 2000 readiness verification for all current and future products.
Most of ADC's existing products are currently Year 2000 ready, and ADC believes
that all of its active products will either be Year 2000 ready or have an
upgrade path identified on the ADC Year 2000 Internet web page prior to October
31, 1999. Several obsolete or ADC discontinued products will not be upgraded and
are so listed on ADC's web page.
The amount of work required to address Year 2000 issues is not
expected to be extensive. ADC has replaced certain of its financial and
operational systems in the last several years, and management believes that the
new equipment and software substantially address Year 2000 issues. Existing
hardware and software has been assessed and required modifications have been
identified and/or are in the process of being identified.
ADC retained a consulting firm to assess ADC's corporate-level IT
system readiness for Year 2000. The firm concluded that more than 75% of these
hardware and software systems are Year 2000 ready. ADC has addressed the
remaining 25% and is assessing the other hardware and software used by ADC and
its business units for Year 2000 readiness. ADC estimates that it will complete
its Year 2000 readiness program for all of its significant internal systems by
October 31, 1999.
ADC retained the same consulting firm to assess ADC's engineering
design systems readiness for Year 2000. The firm concluded that more than 75% of
these hardware and software systems are Year 2000 ready. ADC has addressed the
remaining 25% and the other hardware and software used by ADC and its business
units for Year 2000 readiness. ADC estimates that it will complete its Year 2000
readiness program for all of its significant internal systems by October 31,
1999.
In addition, ADC has requested assurances from its major suppliers
that they are addressing the Year 2000 issue and that products and services
purchased by ADC from such
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suppliers will function properly in the Year 2000. Also, ADC has requested
similar assurances from its major customers that they have adequately addressed
the Year 2000 issue. These actions are intended to help mitigate the possible
external impact of the year 2000 problem. However, it is impossible to fully
assess the potential consequences in the event that service interruptions from
suppliers occur or in the event that there are disruptions in such
infrastructure areas as utilities, communications, transportation, banking and
government.
The total estimated cost for resolving ADC's year 2000 issues is
approximately $3.5 million, of which approximately $2.8 million has been spent
through July 31, 1999. The total cost estimate includes the cost of replacing
systems in cases where ADC has accelerated plans to replace such systems that
are not Year 2000 ready. Estimates of year 2000 costs are based on numerous
assumptions, and there can be no assurance that the estimates are correct or
that actual costs will not be materially greater than anticipated.
Based upon assessments to date, ADC believes it will complete all
major activities for Year 2000 Readiness by October 31, 1999 and will not
experience any material disruption as a result of Year 2000 issues in internal
manufacturing processes, information processing, or interfacing with major
customers, or with processing orders and billing. However, if certain critical
third-party providers, such as those providers supplying electricity, water, or
telephone service, experience difficulties resulting in disruption of service to
ADC, a shutdown of certain of ADC's operations at individual facilities could
occur for the duration of the disruption.
The most reasonably likely worst-case scenario of failure by ADC
or its suppliers or customers to resolve Year 2000 issues could potentially be a
temporary slowdown or cessation of manufacturing operations at one or more of
ADC's facilities, and/or a temporary inability on the part of ADC to timely
process orders and to deliver finished products to customers. Delays in meeting
customers' orders could potentially affect the timing of billings to and
payments received from customers and could result in complaints, charges or
claims. Customers' year 2000 issues could delay the timing of customers'
payments to ADC, or result in a change in spending patterns by customers which
could affect orders and shipments of ADC's products during the remainder of
1999.
ADC has a number of contingency plans (in the event of a Year 2000
disruption) for its headquarters and major business unit sites, ranging from
primary business systems, to manufacturing processes and facilities, to customer
support procedures. Areas addressed in the plans include: an early warning
strategy to gather information from ADC sites around the world; arranging
additional customer and technical support staff to maintain customer service
levels with 24 hour x 7 day a week coverage during the Year 2000 transition
period; and contingency planning coordination with key suppliers and carriers.
Year 2000 readiness and business continuity plans will continue to be reviewed
by ADC's Year 2000 Program Team. Assuming no major disruption in service from
utility companies or other critical third-party providers, ADC believes that it
will be able to manage its Year 2000 transition without any material adverse
effect on ADC's business, results of operations or financial condition.
13
<PAGE>
EURO CONVERSION
On January 1, 1999, several member countries of the European Union
established fixed conversion rates and adopted the Euro as their new common
legal currency. Beginning on such date, the Euro began trading on currency
exchanges while the legacy currencies remain legal tender in the participating
countries for a transition period between January 1, 1999 and January 1, 2002.
During the transition period, parties can elect to pay for goods and services
and transact business using either the Euro or a legacy currency. Between
January 1, 2002 and July 1, 2002 the participating countries will introduce Euro
hard currency and withdraw all legacy currencies.
The Euro conversion may affect cross-border competition by
creating cross-border price transparency. ADC is assessing its pricing and
marketing strategy in order to ensure that ADC remains competitive in a broader
European market. ADC is also modifying its information technology systems to
permit transactions to take place in both the legacy currencies and the Euro and
provide for the eventual elimination of the legacy currencies. In addition, ADC
is reviewing whether certain existing contracts will need to be modified. ADC's
currency risk and risk management for operations in participating countries may
be reduced as the legacy currencies are converted to the Euro. ADC will continue
to evaluate issues involving introduction of the Euro. Based on current
information and assessments, ADC does not expect that the Euro conversion will
have a material adverse effect on its business, results of operations or
financial condition.
14
<PAGE>
RESULTS OF OPERATIONS
The percentage relationships to net sales of certain income and expense
items for the three and nine months ended July 31, 1999 and 1998 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
--------------------------------------------------------- ------------------------------
Three Months Ended Nine Months Ended Three Months Nine Months
July 31, July 31, Ended Ended
---------------------------- ---------------------------
1999 1998 1999 1998 July 31 July 31
------------ ------------ ------------ ------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES 100% 100.0% 100% 100.0% 22.5% 25.2%
COST OF PRODUCT SOLD (52.0) (53.4) (52.1) (53.3) 19.2 22.4
------------ ------------ ------------ ------------ --------------- -------------
GROSS PROFIT 48.0 46.6 47.9 46.7 26.3 28.4
EXPENSES:
Research and development (8.7) (9.9) (9.6) (10.5) 7.6 13.4
Selling and administration (20.3) (18.9) (20.7) (19.8) 31.9 30.9
Goodwill amortization (1.2) (0.8) (1.2) (0.9) 76.7 78.3
Non-recurring charges (13.1) -- (9.7) -- -- --
------------ ------------ ------------ ------------ --------------- -------------
OPERATING INCOME 4.7 17.0 6.7 15.5 (66.0) (45.4)
OTHER INCOME (EXPENSE), NET:
Interest 0.1 0.3 -- 0.4 (42.7) --
Other (0.2) (0.1) (0.2) (0.2) -- (95.4)
------------ ------------ ------------ ------------ --------------- -------------
INCOME BEFORE INCOME TAXES 4.6 17.2 6.5 15.7 (62.3) (48.3)
PROVISION FOR INCOME TAXES (2.2) (6.0) (3.1) (5.5) (55.8) (30.9)
------------ ------------ ------------ ------------ --------------- -------------
NET INCOME 2.4 11.2% 3.4 10.2% (73.5)% (57.7)%
------------ ------------ ------------ ------------ --------------- -------------
------------ ------------ ------------ ------------ --------------- -------------
</TABLE>
NET SALES: The following table sets forth ADC's net sales for the three
and nine month periods ended July 31, 1999 and 1998 for each of ADC's functional
product groups described above (dollars in millions):
<TABLE>
<CAPTION>
Three Months Ended July 31, Nine Months Ended July 31,
--------------------------------------------- ----------------------------------------------
1999 1998 1999 1998
-------------------- -------------------- --------------------- --------------------
Net % Net % Net % Net %
Product Group Sales Sales Sales Sales
- ------------------- --------- --------- -------- --------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BROADBAND
CONNECTIVITY $ 238.1 53.6% $ 177.0 48.8% $ 629.6 51.1% $ 459.0 46.7%
BROADBAND
ACCESS AND
TRANSPORT 153.6 34.6 137.7 38.0 446.7 36.3 399.1 40.6
INTEGRATED
SOLUTIONS 52.3 11.8 47.8 13.2 155.2 12.6 125.4 12.7
----------- --------- ----------- --------- ------------ ---------- ----------- ---------
TOTAL $ 444.1 100.0% $ 362.5 100.0% $ 1,231.5 100.0% $ 983.5 100.0%
----------- --------- ----------- --------- ------------ ---------- ----------- ---------
----------- --------- ----------- --------- ------------ ---------- ----------- ---------
</TABLE>
Net sales for the three and nine month periods ended July 31, 1999 were
$444.1 million and $1,231.5 million, reflecting 22.5% and 25.2% increases,
respectively, over the comparable 1998 time periods. These increases reflected
growth in all product groups. Revenue contributions from acquired companies were
$17.0 million and $64.3 million for the three and nine month periods ended July
31, 1999, respectively. International revenues continue to comprise
approximately 20% of ADC's sales.
15
<PAGE>
During the three and nine months ended July 31, 1999, net sales of
Broadband Connectivity products rose by 34.5% and 37.2%, respectively. This
growth reflects continued strong global demand for ADC's copper-based DSX
products and fiber-connectivity optical components, and fiber frames. The demand
is the result of growth in Internet/data traffic and digital services. Wireless
products sales have declined as a result of a restructuring which was
substantially completed during the third quarter. Broadband Connectivity's sales
have grown to represent approximately half of ADC's net sales. ADC expects that
future sales of Broadband Connectivity products will continue to account for a
substantial portion of its net sales, although these products may decline as a
percentage of total revenues due to the ongoing evolution of technologies in the
marketplace.
During the three and nine months ended July 31, 1999, net sales of
Broadband Access and Transport products rose by 11.5% and 11.9%, respectively.
The growth is primarily the result of business acquisitions and ATM
transport/access product volume, partially offset by lower demand for service
access products from original equipment manufacturers. In addition,
international demand has been lower, particularly in Asia. Cellworx-Registered
Trademark-, introduced in the first quarter, has also begun to produce revenue.
During the three and nine months ended July 31, 1999, Integrated
Solutions net sales increased 9.4% and 23.8%, respectively. The increase
continues to be generated by system integration services, partially offset by
lower sales of software products and consulting services. The growth is coming
from a broad range of service providers that are building, or upgrading,
networks that offer integrated voice, video and Internet/data services.
GROSS PROFIT: During the three months ended July 31, 1999 and 1998,
gross profit percentages were 48.0% and 46.6%, respectively. During the nine
month periods ended July 31, 1999 and 1998, gross profit percentages were 47.9%
and 46.7%, respectively. The increase was the result of increased sales volume
and changes in product mix within Broadband Connectivity. ADC anticipates that
its future gross profit percentage will continue to be affected by many factors,
including product mix, the timing of new product introductions and manufacturing
volume.
OPERATING EXPENSES: Total operating expenses for the three months ended
July 31, 1999 and 1998 were $192.3 million and $107.2 million, respectively,
representing 43.3% and 29.6% of net sales, respectively. Included in the three
months ended July 31, 1999, was a non-recurring charge of $58.3 million. This
charge was for the write-off of purchased in-process research and development
costs resulting from the acquisitions of Spectracom and Pathway. Excluding the
non-recurring charge, operating expenses would have represented 30.2% of net
sales. Total operating expenses for the nine months ended July 31, 1999 and 1998
were $506.6 million and $307.2 million, respectively, representing 41.1% and
31.2% of net sales, respectively. Included in the nine month operating expenses
in 1999 are non-recurring charges of $118.6 million. This charge was for the
write-off of purchased in-process research and development costs resulting from
the acquisitions of Teledata Communications, Hadax Electronics, Phasor
Electronics, Spectracom and Pathway along with costs for strategic restructuring
of the Wireless Systems
16
<PAGE>
Group product line. Without non-recurring charges, the operating expenses would
have represented 31.5% of net sales. The increase in absolute dollars was also
driven by costs associated with acquired companies, and expanded operations
necessary to support higher business volume.
Research and development expenses were $38.5 million for the three
months ended July 31, 1999 compared to $35.8 million for the three months
ended July 31, 1998. For the nine months ended July 31, 1999, research and
development expenses were $117.7 million compared to $103.8 million for the
nine months ended July 31, 1998. The increase is due to business acquisitions
and business volume in Broadband Connectivity. This was somewhat offset by
reduced spending as a result of the restructuring of the Wireless product
group and in other areas as new products have recently come on line. ADC
believes that, given the competitive environment and rapidly changing
technology in the telecommunications equipment industry, continued commitment
to product development efforts will be required for ADC to remain
competitive. Accordingly, ADC intends to continue to allocate substantial
resources to product development for each of the product groups. However, ADC
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 $90.3 million for the three
months ended July 31, 1999 compared to $68.5 million for the three months ended
July 31, 1998. For the nine months ended July 31, 1999, selling and
administration expenses were $255.2 million compared to $195.0 million for the
nine months ended July 31, 1998. These increases primarily reflect the
activities of acquired companies, incentives associated with selling activities
and additional personnel related to expanded operations.
Several of ADC's acquisitions have been accounted for as purchase
transactions in which the initial purchase prices exceeded the fair value of the
acquired assets. As a result of ADC's acquisition activity, goodwill
amortization increased to $5.2 million in the three months ended July 31, 1999
compared to $3.0 million in the three months ended July 31, 1998. Goodwill
amortization for the nine months ended July 31, 1999 has increased to $15.1
million from $8.5 million for the nine months ended July 31, 1998.
OTHER INCOME (EXPENSE), NET: For the three month and nine month periods
ended July 31, 1999, net interest income was $0.6 million and net interest
expense was $0.6 million, respectively. Net interest income for the three month
and nine month periods ended July 31, 1998 was $1.1 million and $3.7 million,
respectively. The year-over-year changes reflect the use of debt to finance
acquisitions.
Other expense primarily represents the gain or loss on foreign exchange
transactions, the sale of fixed assets and activity associated with investments.
INCOME TAXES: The effective income tax rate for the nine months ended
July 31, 1999 was significantly affected by non-tax deductible purchased
in-process research and development charges. These expenses are associated with
the acquisitions made during the first nine months
17
<PAGE>
of the current fiscal year. In addition, a higher marginal rate of 37% was
applied to restructuring expenses. Excluding the impact of purchased in-process
research and development and the higher rate used for restructuring charges, the
effective income tax rate was 34% and 35% for the three month and nine month
periods ended July 31, 1999 and 1998, respectively. The rate reduction primarily
reflects the utilization of tax incentives in foreign jurisdictions.
NET INCOME: Net income was $10.8 million (or $0.08 per diluted share)
for the three months ended July 31, 1999 compared to $40.6 million (or $0.30 per
diluted share) for the three months ended July 31, 1998. Net income was $42.4
million (or $0.31 per diluted share) for the nine months ended July 31, 1999
compared to $100.4 million (or $0.74 per diluted share) for the nine months
ended April 30, 1998. Excluding $41 million and $88 million, net of tax,
non-recurring charges in the three months and nine months ended July 31, 1999,
respectively, net income would have been $52 million and $131 million,
respectively, and diluted earnings per common share would have been $0.37 and
$0.94, respectively. Non-recurring charges are discussed in Note 3 to the
Unaudited Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, primarily short-term investments in
commercial paper with maturities of less than 90 days, decreased $204.8 million
and $22.7 million during the nine month periods ended July 31, 1999 and 1998,
respectively. The major cause of the 1999 decrease was the use of cash for
acquisitions. To prepare for the acquisition of Teledata, ADC borrowed $200.0
million late in fiscal 1998, resulting in a $287.7 million temporary cash
balance at year-end. During fiscal 1999, $250.5 million of cash generated from
operations has allowed ADC to reduce its note payable from $200.0 million to
$45.0 million. Compared to fiscal 1998, ADC is generating substantially greater
cash from operations in fiscal 1999 as a result of improved profitability,
discussed in "Results of Operations" earlier, and better collections of accounts
receivable.
ADC believes that current cash on hand, cash generated from operating
activities, and available credit facilities will be adequate to fund its working
capital requirements and planned capital expenditures for the duration of the
fiscal year. However, ADC 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.
At July 31, 1999, ADC has a $340 million five-year credit facility
which is available for general corporate purposes, of which $45 million was
outstanding at July 31, 1999 at an interest rate equal to the commercial paper
interest rate plus 25 basis points.
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 ADC's expectations or beliefs concerning
future
18
<PAGE>
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 ADC's cash balances and
cash generated from operating and financing activities for ADC's future
liquidity and capital resource needs. ADC cautions that any forward-looking
statements made by ADC in this Form 10-Q or in other announcements made by ADC
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 ADC's Form 10-Q for
the quarter ended April 30, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ADC is exposed to market risk from changes in foreign exchange
rates. To mitigate the risk from these exposures, ADC has instituted a balance
sheet hedging program. The objective of the program is to protect the net
monetary assets and liabilities of ADC from fluctuations due to movements in
foreign exchange rates. This program operates in markets where hedging costs are
beneficial. Exposures to currencies in which hedging instruments are
unavailable, or the costs prohibitive, are minimized through managing operating
activities and net asset positions. The majority of hedging instruments utilized
are forward contracts with maturities of less than one year. Foreign exchange
contracts reduce ADC's overall exposure to exchange rate movements, since gains
and losses on these contracts offset losses and gains on the underlying
exposure. ADC's policy prohibits the use of derivative financial instruments for
trading and other speculative purposes.
ADC owns approximately 2.1 million shares of Efficient
Networks, Inc. (ENI) common stock. With ENI's recent public offering in
July, 1999 and subsequent changes to the fair value of ENI's stock, ADC has
recorded an $88 million unrealized gain, $58 million net of income tax
effects, in shareowners' investment as of July 31, 1999. Assuming an
immediate decrease of 20% in ENI's stock price, the hypothetical reduction
in shareowners' investment related to these holdings is estimated to be
$11.6 million (net of income tax effects), or 1.1% of total
shareowners' investment at July 31, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
In connection with ADC's acquisition of Spectracom, Inc. on June
10, 1999, ADC issued an aggregate of 16,236 shares of restricted
common stock to two employees of Spectracom in exchange for shares
of restricted stock of Spectracom, Inc. held by such employees.
The restrictions will lapse and the shares will become vested upon
the achievement of certain technology development milestones. The
shares of ADC restricted common stock were issued pursuant to the
exemption from registration provided by section 4(2) of the
Securities Act of 1933, in that the transaction did not involve a
public offering by ADC.
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.)
19
<PAGE>
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-3 dated April 15,
1997.)
4-c Restated Bylaws of ADC Telecommunications, Inc., as
amended. (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 First Amendment to the Agreement dated as of June 30,
1999 between ADC Telecommunications, Inc. and Saville
Systems PLC
27-a Financial Data Schedule.
b. Reports on Form 8-K
The following reports on form 8-K were filed during the
quarter ended July 31, 1999, or from July 31, 1999 until the
date of this Form 10-Q:
August 18, 1999 (filed August 18, 1999) - Item 5 and
Item 7. Other Events and Financial Statements and
Exhibits Re: Press release announcing three new
directors of ADC, to take office as of the first Board
of Directors meeting following ADC's acquisition of
Saville Systems PLC.
June 19, 1999 (filed June 23, 1999) - Item 5 and Item
7. Other Events and Financial Statements and Exhibits
Re: Disclosure of the signing of a definitive
agreement between ADC and Saville Systems PLC for the
acquisition of Saville Systems PLC by ADC.
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.
20
<PAGE>
Dated: September 13, 1999 ADC TELECOMMUNICATIONS, INC.
By: /s/ Robert E. Switz
--------------------------------------
Robert E. Switz
Senior Vice President, Chief Financial Officer
(Principal Financial Officer,
Duly Authorized Officer)
21
<PAGE>
ADC TELECOMMUNICATIONS, INC.
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JULY 31, 1999
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-3 dated April 15, 1997.)
4-c Restated Bylaws of ADC Telecommunications, Inc., as
amended. (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 First Amendment to the Agreement dated as of June 30,
1999 between ADC Telecommunications, Inc. and Saville
Systems PLC.
27-a Financial Data Schedule................................
<PAGE>
EXHIBIT 10-a
FIRST AMENDMENT
TO
AGREEMENT
This First Amendment (this "First Amendment"), dated as of
this 30th day of June, 1999, amends that certain Agreement dated as of June 19,
1999, by and among ADC Telecommunications, Inc. ("ADC") and Saville Systems PLC
("Saville") (the "Agreement"), which Agreement provides for the acquisition of
Saville by ADC in accordance with the terms and conditions set forth therein.
WHEREAS, for the avoidance of doubt, the parties desire to
amend the Agreement to clarify an agreed condition thereof and to confirm the
parties' understandings with respect to the matter set forth in this First
Amendment; and
WHEREAS, this First Amendment is being made by the parties in
furtherance of their mutual desire to consummate the transactions contemplated
by the Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Section 7.2(g) of the Agreement is hereby amended in
its entirety to read as follows:
"(g) POOLING LETTERS. Buyer and the Company shall have
received the letters described in the third Recital
to this Agreement from Pricewaterhouse Coopers LLP
and Arthur Andersen LLP and such letters shall not
have been withdrawn, modified or qualified in any
material respect as of the Effective Time, as
certified by Pricewaterhouse Coopers LLP and Arthur
Andersen LLP, respectively, in a writing addressed to
their respective addressees and dated as of the
Effective Date, and Buyer shall have received the
letter of Arthur Andersen LLP, addressed to Buyer and
dated as of the Effective Date, stating that, in
reliance on the letter and the certification of
Pricewaterhouse Coopers LLP described in this
paragraph (g) and based on its familiarity with
Buyer, the Acquisition will qualify as a
pooling-of-interests transaction under Opinion 16."
2. Any capitalized term used herein and not otherwise
defined herein shall have the meaning given to such term in the Agreement.
3. This First Amendment constitutes an amendment of the
Agreement in conformity with and pursuant to the terms of Section 9.6 of the
Agreement. Except as expressly amended herein, all terms set forth in the
Agreement shall continue in full force and effect.
4. The operative terms of this First Amendment may be
inserted into a First Amended and Restated Agreement by the parties and shall
have a date as of the day and year first set forth herein.
5. The internal law, and not the law of conflicts, of
the State of Minnesota will govern all questions concerning the construction,
validity and interpretation of this First Amendment and the performance of the
obligations imposed by this First Amendment.
IN WITNESS WHEREOF, the parties have executed this First
Amendment as of the day and year first above written.
ADC TELECOMMUNICATIONS, INC. SAVILLE SYSTEMS PLC
- 1 -
<PAGE>
By /s/ Robert E. Switz By /s/ John J. Boyle, III
-------------------------------- -------------------------
Robert E. Switz John J. Boyle, III
Senior Vice President and Chairman of the Board and
Chief Financial Officer Chief Executive Officer
- 2 -
<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 NINE-MONTH PERIOD ENDED JULY 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 82,863
<SECURITIES> 0
<RECEIVABLES> 349,235<F1>
<ALLOWANCES> 4,196
<INVENTORY> 233,439<F2>
<CURRENT-ASSETS> 713,179
<PP&E> 570,667
<DEPRECIATION> 275,905
<TOTAL-ASSETS> 1,375,311
<CURRENT-LIABILITIES> 293,643
<BONDS> 0
0
0
<COMMON> 27,182
<OTHER-SE> 1,042,197
<TOTAL-LIABILITY-AND-EQUITY> 1,375,311
<SALES> 1,231,463
<TOTAL-REVENUES> 1,231,463
<CGS> 641,798
<TOTAL-COSTS> 641,798
<OTHER-EXPENSES> 506,556
<LOSS-PROVISION> 587
<INTEREST-EXPENSE> 628
<INCOME-PRETAX> 79,749
<INCOME-TAX> 37,321
<INCOME-CONTINUING> 42,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,428
<EPS-BASIC> .31
<EPS-DILUTED> .31
<FN>
<F1>AMOUNT IS NET OF ALLOWANCE FOR BAD DEBTS AND RETURNS
<F2>AMOUNT IS NET OF OBSOLESCENCE RESERVES
</FN>
</TABLE>
