<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 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
incorporation or organization) Identification No.)
12501 Whitewater Drive, Minnetonka, MN 55343
------------------------------------------------------
(Address of principal executive offices)(zip code)
(612) 938-8080
------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.20 par value: 134,808,118 shares as of March 12, 1999
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 187,412 $ 287,700
Accounts receivable 338,207 365,989
Inventories 204,060 175,763
Prepaid income taxes and other assets 47,111 33,418
------------ ------------
Total current assets 776,790 862,870
PROPERTY AND EQUIPMENT, net 270,847 256,961
OTHER ASSETS, principally goodwill 297,092 180,756
------------ ------------
$ 1,344,729 $ 1,300,587
------------ ------------
------------ ------------
<CAPTION>
LIABILITIES AND SHAREOWNERS' INVESTMENT
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 69,837 $ 67,150
Accrued liabilities 148,797 115,559
Note payable 200,000 200,000
Current maturities of long-term debt 513 735
------------ ------------
Total current liabilities 419,147 383,444
LONG TERM DEBT, less current maturities 4,844 2,769
------------ ------------
Total liabilities 423,991 386,213
SHAREOWNERS' INVESTMENT
(135,408 and 134,897 shares outstanding) 920,738 914,374
------------ ------------
$ 1,344,729 $ 1,300,587
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
JANUARY 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
NET SALES $ 367,205 $ 286,396
COST OF PRODUCT SOLD 192,371 152,846
------------ ------------
GROSS PROFIT 174,834 133,550
------------ ------------
Gross profit percentage 47.6% 46.6%
------------ ------------
EXPENSES:
Research and development 38,987 30,938
Selling and administration 77,727 62,094
Goodwill amortization 4,776 2,538
Non-recurring charges 60,327 --
------------ ------------
Total expenses 181,817 95,570
------------ ------------
OPERATING INCOME (LOSS) (6,983) 37,980
OTHER INCOME (EXPENSES), NET:
Interest (838) 1,444
Other (878) (333)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (8,699) 39,091
PROVISION FOR INCOME TAXES 4,526 13,682
------------ ------------
NET INCOME (LOSS) $ (13,225) $ 25,409
------------ ------------
------------ ------------
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.10) $ 0.19
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
JANUARY 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (13,225) $ 25,409
Adjustments to reconcile net income to net
cash from operating activities -
Non-recurring charges 60,327 --
Depreciation and amortization 21,512 15,220
Reduction in deferred compensation 177 140
Other 1,488 1,444
Changes in assets and liabilities
Accounts receivable 47,509 14,073
Inventories (5,766) (13,370)
Prepaid income taxes and other (701) (7,295)
assets
Accounts payable (4,783) (5,764)
Accrued liabilities (2,061) (6,310)
------------ ------------
Total cash from operating
activities 104,477 23,547
------------ ------------
INVESTMENT ACTIVITIES:
Acquisitions (192,422) (16,000)
Property and equipment additions, net (19,345) (24,339)
Long-term investments (4,944) 627
------------ ------------
Total cash used for
investment activities (216,711) (39,712)
------------ ------------
FINANCING ACTIVITIES:
Increase (decrease) in long term debt 1,121 (471)
Common stock issued, net 11,534 4,509
------------ ------------
Total cash from financing
activities 12,655 4,038
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (709) (357)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (100,288) (12,484)
CASH AND CASH EQUIVALENTS, beginning of period 287,700 109,794
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 187,412 $ 97,310
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1ST 4TH 3RD 2ND
QUARTER QUARTER QUARTER QUARTER
1999 1998 1998 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 367,205 $ 396,151 $ 362,496 $ 334,635
COST OF PRODUCT SOLD 192,371 212,382 193,641 177,668
----------- ----------- ----------- -----------
GROSS PROFIT 174,834 183,769 168,855 156,967
----------- ----------- ----------- -----------
Gross profit percentage 47.6% 46.4% 46.6% 46.9%
----------- ----------- ----------- -----------
EXPENSES:
Research and development 38,987 34,101 35,775 37,097
Selling and administration 77,727 73,029 68,476 64,409
Goodwill amortization 4,776 3,196 2,954 2,968
Non-recurring charges 60,327 -- -- --
----------- ----------- ----------- -----------
Total expenses 181,817 110,326 107,205 104,474
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (6,983) 73,443 61,650 52,493
OTHER INCOME (EXPENSE), NET:
Interest (838) 1,012 1,109 1,115
Other (878) (3,114) (285) (780)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (8,699) 71,341 62,474 52,828
PROVISION FOR INCOME TAXES 4,526 24,968 21,867 18,489
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (13,225) $ 46,373 $ 40,607 $ 34,339
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
EARNINGS (LOSS) PER SHARE (BASIC) $ (0.10) $ 0.34 $ 0.30 $ 0.26
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
EARNINGS (LOSS) PER SHARE (DILUTED) $ (0.10) $ 0.34 $ 0.30 $ 0.25
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (BASIC) 135,206 134,784 134,525 134,275
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (DILUTED) 135,206 136,649 136,826 136,283
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Note 1 ACCOUNTING POLICIES: The information furnished in this report is
unaudited but reflects all adjustments which are necessary, in the
opinion of management, for a fair statement of the results for the
interim periods. The operating results for the three months ended
January 31, 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 the Company's most recent Annual
Report on Form 10-K.
Note 2 INVENTORIES: Inventories include material, labor and overhead and
are stated at the lower of first-in, first-out cost or market.
Inventories at January 31, 1999, and October 31, 1998, consisted of
(in thousands):
<TABLE>
<CAPTION>
January 31 October 31,
1999 1998
------------- -------------
<S> <C> <C>
Purchased materials and $ 184,416 $ 156,006
manufactured products
Work-in-process 19,644 19,757
------------- -------------
$ 204,060 $ 175,763
------------- -------------
------------- -------------
</TABLE>
Note 3 NON-RECURRING CHARGES: The non-recurring charges of $60.3 million
during the quarter ended January 31, 1999 represent restructuring
charges of $30.0 million and the write-off of purchased in-process
research and development charges of $30.3 million from the
acquisitions of Teledata Communications Ltd., Hadax Electronics,
Inc. and Phasor Electronics, GmbH. Purchased in-process research
and development charges are described in Note 4 below.
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.
Note 4 ACQUISITIONS: ADC completed three acquisitions during the first
quarter of fiscal 1999 as follows:
<TABLE>
<CAPTION>
TRANSACTION VALUE
ACQUISITION (IN THOUSANDS)
------------------------------------------ -----------------
<S> <C>
Teledata Communications, Ltd.
(acquired November 1998) $ 209,000
Hadax Electronics, Inc.
(acquired November 1998) 25,000
Phasor Electronics, GmbH
(acquired January 1998) 9,300
---------------
$ 243,300
---------------
---------------
</TABLE>
-6-
<PAGE>
The aggregate purchase price of $243.3 million consisted of cash
plus stock options valued at approximately $8.3 million and the
assumption of existing debt (offset by the inclusion of cash in the
acquired companies). The cash component of the purchase price was
paid primarily through the use of funds previously obtained under
the Company's available revolving credit facility. The results of
operations and the estimated fair value of the assets acquired and
liabilities assumed are included in ADC's financial statements from
the date of acquisition.
The purchase price was allocated to the assets acquired and
liabilities assumed based on ADC's estimates of fair value. The
fair value of approximately $96 million assigned to intangible
assets acquired consists of existing technology, assembled work
force, non-competition agreements, agency relationships, customer
accounts and other less significant intangible assets. The
application of purchase accounting to the acquisitions described
above was based on independent third-party appraisals using
preferred valuation techniques to attribute fair value to acquired
assets. Estimation of the fair value of in-process research and
development included consideration of factors specific to the
products, such as stage of completion, complexity of the work
completed to date, the difficulty of completing development within
a reasonable period of time, technological uncertainties, costs
already incurred and the projected costs to complete. Based on
these factors, management determined that it was appropriate to
record a write-off of purchased in-process research and development
charges of $30.3 million for the quarter ended January 31, 1999.
The appraisals incorporated management's best estimates for future
revenue and profitability from products in the process of
development at the time of acquisition. As is the case with all
projections of future events, actual results could differ.
The financial statements include results from acquisitions for
periods subsequent to acquisition dates. Inclusion of financial
data prior to the acquisition dates would not have a material
effect on reported results.
Note 5 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 the Company includes net income and the effect of translation
which is charged or credited to the cumulative translation
adjustments account within shareowners' equity. Comprehensive
income for the three months ended January 31, 1999 and 1998 is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED JANUARY 31,
----------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Net income (loss) $ (13,225) $ 25,409
Changes in cumulative
translation adjustments 1,394 (3,255)
-------------- --------------
Comprehensive income (loss) $ (11,831) $ 22,154
-------------- --------------
-------------- --------------
</TABLE>
-7-
<PAGE>
Note 6 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 quarters ended January 31, 1999 and 1998.
<TABLE>
<CAPTION>
QUARTERS ENDED JANUARY 31,
---------------------------------
(IN THOUSANDS EXCEPT EARNINGS 1999 1998
PER SHARE) --------------- ---------------
<S> <C> <C>
Net income (loss) $ (13,225) $ 25,409
Net income (loss) per common
share (basic) (0.10) 0.19
Net income (loss) per common
share (diluted) (0.10) 0.19
Weighted average common shares
outstanding (basic) 135,206 133,719
Effect of diluted securities -
stock options* -- 3,195
Weighted average common shares
outstanding (diluted) 135,206 136,914
</TABLE>
*Stock options were antidilutive in the quarter ended January 31,
1999 due to a net loss for the period. As a result, there is no
effect to the weighted average shares outstanding.
Note 7 STOCK REPURCHASE PROGRAM: In April 1998, the Company announced a
stock repurchase program under which the Company may purchase up to
6.7 million shares of common stock in open market transactions as
market and business conditions warrant. The Company may also
utilize forward repurchase agreements, "equity collar" arrangements
using call and put options, or other arrangements as part of this
stock repurchase program.
In connection with the stock repurchase program, the Company sold
put options to independent third parties that entitle holders of
the options to sell shares of Company common stock to the Company.
In addition, the Company purchased call options from the same
parties that entitled the Company to buy shares of its common
stock. In January 1999, ADC received 188,100 shares of its common
stock in partial settlement of outstanding options. The remaining
options were settled in February 1999. As a result of the February
settlement of outstanding options, ADC received an additional
849,522 shares. Shares received in settlement of the "equity
collar" arrangements were retired and remain available for
re-issuance at a later date. These settlements had an
insignificant effect on ADC's financial statements for the quarter
ended January 31, 1999 and will not significantly affect ADC's
future results of operations or financial condition.
-8-
<PAGE>
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 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 four product groups: Broadband Connectivity Group, Business
Broadband Group, Residential Broadband Group and Integrated Solutions Group.
Each of these groups is described below.
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
communications 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 services
providers), international network operators, private network providers and
original equipment manufacturers (OEM). 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.
BUSINESS BROADBAND products enable carriers to deliver voice, Internet/data
and video services to their business customers. Products include Interoffice
and Loop Transport Platforms (including Soneplex(R) and Cellworx-TM-products) as
well as a broad family of access devices often sold with these platforms to
provide complete service delivery solutions. Soneplex is a carrier-class,
intelligent loop access platform enabling Incumbent Local Exchange Carriers and
Competitive Local Exchange Carriers to deliver T1/E1-based services over copper
or fiber facilities. Soneplex integrates functions and capabilities that reduce
a carrier's total cost of delivering T1/E1-based services. Cellworx is a
next-generation OC-12/48 SONET/SDH transport element integrating ATM and
SONET/SDH technologies. While Soneplex is centered on T1/E1-based
-9-
<PAGE>
service delivery, Cellworx 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. Business Broadband products also include access
devices, consisting of 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
Soneplex or Cellworx products or with other vendors' transport systems. They
include DSU/CSUs, T1/E1 multiplexers (offering a variety of voice, data and
video interfaces), T3/E3 multiplexers, integrated access devices and ATM access
concentrators.
During the quarter ended January 31, 1999, the Business Broadband Group
introduced its new ServicePoint and Opera access products, recorded its first
revenues for Cellworx and shipped its new Soneplex HDSL2 capability (i.e.,
single pair HDSL) to a key customer beta trial. ServicePoint is designed to be
the industry's next generation DSU/CSU product, and Opera is designed to be the
industry's next generation Integrated Access Device. ADC believes that
ServicePoint is the first to integrate, terminate, and monitor traffic control
capabilities and that Opera is the first protocol independent service platform
enabling multiple services to be delivered flexibility and cost effectively from
the same platform.
RESIDENTIAL BROADBAND products offer digital transport systems that enable
cable TV operators to economically transport high-speed digital signals for
two-way voice, video and Internet/data services to residences and businesses,
primarily through ADC's Homeworx-TM- access transport platform and DV6000-TM-
system. ADC's Homeworx access transport platform utilizes Hybrid Fiber/Coaxial
(HFC) technology. The Homeworx system has been designed for deployment on
video-only, telephony-only and integrated video, telephony and data broadband
networks provided by telephone operating companies, cable TV operators and other
communications common carriers. ADC's DV6000 system transmits a variety of
signal types using a high-speed, uncompressed digital format over fiber in the
super trunking portions of cable TV, broadcast and interactive video networks.
The DV6000 system and related MPEG-based products are also used to provide a
wide range of video transport and interactive distance learning services for
government, campus and other broadcast markets. ADC also provides a line of
analog fiber-optics transmitter and node products for the cable TV industry.
These products are deployed in the United States and internationally by cable TV
operators that are upgrading their equipment to carry two-way service over HFC
systems, including digital interactive video, Internet/data and voice services.
Teledata Communications, Ltd. was acquired on November 5, 1998. Teledata's
product portfolio consists of a family of digital loop carriers and wireless
local loop access solutions. Digital loop carriers (DLC's) include the
BroadAccess-TM- family of compact and flexible future generation DLCs, which
provide voice and data services. Teledata's wireline and wireless solutions
address a wide variety of access requirements both in situations where new
networks are being deployed and in established networks. Its products are
modular and scalable making them easily configurable for differing subscriber
cluster sizes, and are suitable for indoor or outdoor installations in a variety
of environmental conditions and network configurations. Teledata's products
also offer advanced monitoring, testing, maintenance and management features and
incorporate a number of core technologies, including fiber optics and high speed
digital transmissions, digital radio and software for telecommunications network
management and protocol conversion.
-10-
<PAGE>
The purchase of Phasor Electronics, an Austrian-based manufacturer of radio
frequency amplifiers, provides the Residential Broadband Group with 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.
INTEGRATED SOLUTIONS products 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. Software is provided through ADC's subsidiaries, ADC
NewNet, ADC Metrica and ADC Apex. ADC NewNet 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 Metrica designs and sells communications network performance
management software to wireline and wireless service providers. ADC Apex
provides SoftXchange-TM- network management software and operations and business
support system services.
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 these markets 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
-11-
<PAGE>
industry slowdown during that period. There can be no assurance that these
historical seasonal trends will continue in the future.
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 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
are being 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 finishing the second and beginning the third phase of this program for
its corporate-level IT systems and finishing the first and beginning the second
phase for other 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 products will be Year 2000 ready prior to October 31, 1999.
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. However, ADC may be required
to modify some of its existing hardware and software.
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.
-12-
<PAGE>
ADC retained the same consulting firm to assess ADC's engineering design
systems readiness for Year 2000. The firm concluded that 80% of ADC's
engineering application software is or is in the process of becoming Year 2000
ready and 75% of the engineering hardware is or is in the process of becoming
Year 2000 ready. ADC has addressed the remaining 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 engineering
design systems by October 31, 1999.
In addition, ADC is requesting assurances from its major suppliers that
they are addressing the Year 2000 issue and that products and services purchased
by ADC from such suppliers will function properly in the year 2000. Also,
contacts are being made with ADC's major customers. 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 $1.7 million has been spent
through January 31, 1999. The total cost estimate includes the cost of
replacing systems in cases where ADC has accelerated plans to replace such
systems, which 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 on its assessments to date, ADC believes it 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. ADC is developing a contingency plan (in the
event of a Year 2000 disruption) to provide for continuity of processing based
on the outcome of testing its Year 2000 readiness program and the results of
surveying its major suppliers and customers. Preliminary contingency plans are
expected to be completed in April 1999 and final plans by June 1999. 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 total
Year 2000 transition without any material effect on ADC's results of operations
or financial condition.
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 potentially also delay the timing of
payments to ADC.
-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 currency coins 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 insure that ADC remains competitive in a broader European
market. ADC is also modifying its information technology systems to allow for
transactions to take place in both the legacy currencies and the Euro and 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 effect on its results of operations or financial condition.
RISK MANAGEMENT
In the past, the Company has sold put options and purchased call options on
shares of the Company's common stock in connection with its stock repurchase
program. See Note 7 to the Unaudited Consolidated Financial Statements. The
Company is not currently a party to any such put option and call option program,
but the Company may elect to enter into such a program in the future. In the
event it does so, the Company would have exposure to adverse market changes in
the value of its common stock.
ADC is exposed to market risk from changes in foreign currency exchange
rates, which could impact ADC's results of operations and financial condition.
To a limited extent, ADC manages its exposure to these market risks through the
use of short-term foreign currency forward contracts. ADC has historically
hedged accounts receivable in foreign currencies, but may in the future hedge
anticipated transactions with vendors and customers to further manage risk of
fluctuations in currency exchange rates. ADC uses forward contracts as risk
management tools and not for speculative purposes. While ADC manages exposure
to foreign currency fluctuations relating to customer transactions, the decline
in value of currencies may adversely affect future product sales because ADC's
products may become more expensive for customers to purchase in their local
currency.
RESULTS OF OPERATIONS
The percentage relationships to net sales of certain income and expense
items for the quarters ended January 31, 1999 and 1998 and the percentage
changes in these income and expense items between periods are contained in the
following table:
-14-
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE
PERCENTAGE OF NET SALES (DECREASE)
FOR THE QUARTERS ENDED BETWEEN
JANUARY 31 PERIODS
------------------------------- --------------
1999 1998
-------------- --------------
<S> <C> <C> <C>
NET SALES 100.0% 100.0% 28.2%
COST OF PRODUCT SOLD (52.4) (53.4) 25.9
-------------- --------------
GROSS PROFIT 47.6 46.6 30.9
EXPENSES:
Research and Development (10.6) (10.7) 26.0
Selling and administration (21.2) (21.7) 25.2
Goodwill amortization (1.3) (0.9) 88.2
Non-recurring charges (16.4) -- --
-------------- -------------- --------------
OPERATING INCOME (LOSS) (1.9) 13.3 (118.4)
OTHER INCOME (EXPENSE), NET:
Interest (0.2) 0.5 (158.0)
Other (0.3) (0.1) (163.7)
-------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES (2.4) 13.7 (122.3)
PROVISION FOR INCOME TAXES (1.2) (4.8) (66.9)
-------------- --------------
NET INCOME (LOSS) (3.6)% 8.9% (152.0)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
NET SALES: The following table sets forth the Company's net sales for the
quarters ended January 31, 1999 and 1998 for each of the Company's functional
product groups described above:
<TABLE>
<CAPTION>
QUARTER ENDED JANUARY 31, ($ IN THOUSANDS)
-------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
PRODUCT GROUP NET SALES % NET SALES %
- ----------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BROADBAND CONNECTIVITY $ 175,196 47.7% $ 126,127 44.0%
BUSINESS BROADBAND 73,283 19.9 80,483 28.1
RESIDENTIAL BROADBAND 66,369 18.1 43,236 15.1
INTEGRATED SOLUTIONS 52,357 14.3 36,550 12.8
------------- ------------- ------------- -------------
TOTAL $ 367,205 100.0% $ 286,396 100.0%
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Net sales for the quarter ended January 31, 1999 were $367.2 million, an
$80.8 million or 28.2% increase over the comparable 1998 quarter. This net
increase is the result of increases in net sales for the broadband
connectivity products plus revenue contributions from companies acquired
since January 31, 1998. Such revenue contributions from acquired companies
totaled $25.9 million for the quarter ended January 31, 1999. Consistent
with prior years, ADC's first quarter sales were adversely impacted by the
seasonal buying patterns of its customers. As such, first quarter revenues
were $28.9 million less than fourth quarter 1998 revenues.
Net sales of Broadband Connectivity products represent 47.7% of total
revenues and increased 38.9% during the quarter ended January 31, 1999. The
growth in this product group is primarily attributable to strong global
demand for ADC's DSX products, optical components, and fiber frames. The
Company expects that future sales of Broadband Connectivity products will
continue to account for a substantial portion of the Company's revenues,
although these products may decline as a
-15-
<PAGE>
percentage of total net sales primarily due to the ongoing evolution of
technologies in the telecommunications marketplace.
During the quarter ended January 31, 1999, net sales of Business Broadband
products decreased $7.2 million or 8.9% over the comparable 1998 quarter. The
decrease was the result of lower shipments of Loop Transport and CSU/DSU access
products due to temporary changes in customer buying patterns by certain large
customers.
The $23.1 million or 53.5% increase in net sales of Residential Broadband
products is primarily the result of the additional shipments from Teledata which
was acquired in November 1998 and the continued roll out of Homeworx-TM- cable
telephony systems.
During the quarter ended January 31, 1999, net sales of Integrated
Solutions Group increased $15.8 million or 43.2% over the comparable 1998
quarter as record first quarter sales were recorded for both system integration
services and software products. Strong demand continues as telecommunication
service providers aggressively build and upgrade networks that offer integrated
voice, video and Internet/data services.
GROSS PROFIT: The gross profit percentage for first quarter 1999, 47.6% of
net sales, improved over the 46.6% gross profit percentage for first quarter
1998 primarily due to a product sales mix that was weighted toward sales of
higher margin products. Future gross profit percentages will continue to be
affected by the mix of products, the timing of new product introductions and
manufacturing volume, among other factors.
OPERATING EXPENSES: Operating expenses for the quarters ended January 31,
1999 and 1998 were $181.8 million (including non-recurring charges of $60.3
million in the first quarter of 1999), and $95.6 million, respectively. The
1999 non-recurring charges represent the write-off of purchased in-process
research and development costs resulting from the acquisitions of Teledata
Communications, Hadax Electronics, and Phasor Electronics along with costs for
strategic restructuring of the product line previously referred to as Wireless
Systems Group. See Notes 3 and 4 to the Consolidated Financial Statements
concerning restructuring costs and the write-off of purchased in-process
research and development costs. Operating expenses before non-recurring charges
for the quarters ended January 31, 1999 and 1998 were $121.5 million and $95.6
million, representing 33.1% and 33.4% of net sales, respectively. The increase
in absolute dollars of operating expenses before non-recurring charges was due
primarily to costs associated with acquired companies and expanded operations
necessary to support higher revenue levels.
Research and development expenses were $39.0 million for the quarter ended
January 31, 1999, representing a 26.0% increase over $30.9 million for the
quarter ended January 31, 1998. The increase reflects the activities from
acquired companies plus substantial product development and introduction efforts
in all functional product groups. ADC believes that, given the rapidly changing
technology and competitive environment in the telecommunications equipment
industry, continued commitment to product development efforts will be required
for ADC to remain competitive. Accordingly, ADC intends to continue to allocate
substantial resources to product development for each functional 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.
-16-
<PAGE>
Selling and administration expenses were $77.7 million for the quarter
ended January 31, 1999, representing a 25.2% increase over the quarter ended
January 31, 1998. The increase reflects selling activities of acquired
companies, new product introductions and additional personnel costs 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. The amortization of goodwill from new acquisitions resulted in
increased goodwill amortization expense of $4.8 million for the quarter ended
January 31, 1999, compared to $2.5 million in the quarter ended January 31,
1998.
OTHER INCOME (EXPENSE), NET: For the quarters ended January 31, 1999 and
1998, the net interest income (expense) category represented net interest income
on cash and cash equivalents. See "Liquidity and Capital Resources" below for
a discussion of cash levels.
Other expense primarily represented the gain or loss on foreign exchange
transactions, the sale of fixed assets and the ADC's share of net operating
results of its investments in other companies accounted for on an equity basis.
INCOME TAXES: The effective income tax rate for the 1999 quarter was
significantly affected by non-tax deductible purchased in-process research and
development charges. These expenses are associated with the acquisitions made
during the quarter. 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 quarters ended January 31,
1999 and 1998, respectively. In addition to the non-deductible goodwill
amortization included in operating expenses each quarter, the rates reflect the
beneficial impact of foreign and domestic tax incentives.
NET INCOME: ADC reported a net loss of $13.2 million (or $0.10 per
share) for the quarter ended January 31, 1999, compared to net income of
$25.4 million (or $0.19 per share) for the quarter ended January 31, 1998.
See Note 3 to the Unaudited Consolidated Financial Statements. Before the
non-recurring charges of $47.3 million, net of tax, net income for the
quarter ended January 31, 1999 was $34.1 million (or $0.25 per share).
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, primarily short-term investments in commercial
paper with maturities of less than 90 days, decreased $100.3 million and $12.5
million during the quarters ended January 31, 1999 and 1998, respectively. The
major elements of the 1999 decrease were the use of cash for acquisitions offset
by $104.5 million provided by operations plus approximately $40 million cash
that was obtained in the Teledata acquisition. The major elements of the 1998
change were cash provided by operations of $23.5 million offset by cash used in
the acquisition of W.E.Tech, Inc. ($16 million) and the purchase of property and
equipment ($24.3 million).
At January 31, 1999 and October 31, 1998, the Company had approximately
$204.8 million and $202.8 million of debt outstanding, respectively. This
represents $200 million outstanding on a revolving credit facility plus debt of
acquired companies.
-17-
<PAGE>
Management believes that current cash balances, cash generated from
operating activities, and available credit facilities will be adequate to fund
working capital requirements and capital expenditures during the remainder 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 January 31, 1999, ADC has a $340 million five-year credit facility for
general corporate purposes. During fiscal 1998 ADC drew $200 million under the
facility in connection with its pending acquisition of Teledata. This amount
remains outstanding at January 31, 1999 at an interest rate equal to commercial
paper interest rate plus 25 basis points (5.25% at January 31, 1999).
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 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 the Company 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-a to the Company's Report on
Form 10-K for the year ended October 31, 1998.
-18-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. An annual meeting of shareholders was held on February 23,
1999. Proxies for the meeting were solicited pursuant to
Regulation 14 under the Securities and Exchange Act of 1934,
there was no solicitation in opposition to the management's
nominees for director as listed in the proxy statement and all
such nominees were elected.
b. At the annual meeting, James C. Castle, Donald M. Sullivan and
John D. Wunsch were elected as directors, and William J.
Cadogan, Thomas E. Holloran, B. Kristine Johnson, Alan E. Ross,
Jean-Pierre Rosso and Warde F. Wheaton continued as directors
after the annual meeting.
The following table shows the vote totals with respect to the
election of the three directors:
For terms expiring in 2002
VOTES AUTHORITY
NAME FOR WITHHELD
-------------------------------------------------------------
James C. Castle 119,511,932 358,170
Donald M. Sullivan 119,516,486 353,616
John D. Wunsch 119,513,477 356,625
c. In addition to the election of directors, shareholders also
approved amendments to ADC's 1991 Stock Incentive Plan to (i)
increase the number of shares available for issuance pursuant
to awards thereunder, (ii) extend the term of the 1991 Stock
Incentive Plan until February 26, 2006 and (iii) limit the
number of shares of ADC Common Stock that can be issued as
restricted stock awards under the 1991 Stock Incentive Plan.
-19-
<PAGE>
The following table shows the vote totals with respect to the
amendments to the 1991 Stock Incentive Plan:
Votes For: 85,619,838
Votes Against: 33,802,985
Abstentions: 446,079
Broker non-votes: 1,200
d. 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 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 ADC Telecommunications, Inc. 1991 Stock Incentive
Plan (as amended and restated through February 23, 1999).
27-a Financial Data Schedule.
b. Reports on Form 8-K
-20-
<PAGE>
None
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 16, 1999 ADC TELECOMMUNICATIONS, INC.
By: /s/ Robert E. Switz
----------------------------------
Robert E. Switz
Senior Vice President, Chief
Financial Officer
(Principal Financial Officer,
Duly Authorized Officer)
-22-
<PAGE>
ADC TELECOMMUNICATIONS, INC.
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JANUARY 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 ADC Telecommunications, Inc. 1991 Stock Incentive Plan
(as amended and restated through February 23, 1999) . . . .
27-a Financial Data Schedule . . . . . . . . . . . . . . . . . .
<PAGE>
ADC TELECOMMUNICATIONS, INC.
1991 STOCK INCENTIVE PLAN
(as amended and restated through February 23, 1999)
SECTION 1. PURPOSE; EFFECT ON PRIOR PLAN.
(a) PURPOSE. The purpose of the ADC Telecommunications, Inc. 1991 Stock
Incentive Plan (the "Plan") is to aid in maintaining and developing management
personnel capable of assuring the future success of ADC Telecommunications, Inc.
(the "Company"), to offer such personnel incentives to put forth maximum efforts
for the success of the Company's business and to afford such personnel an
opportunity to acquire a proprietary interest in the Company.
(b) EFFECT ON PRIOR PLAN. From and after the effective date of the Plan,
no stock options or restricted stock awards shall be granted under the Company's
Stock Option and Restricted Stock Plan. All outstanding stock options and
restricted stock awards previously granted under the Stock Option and Restricted
Stock Plan shall remain outstanding in accordance with the terms thereof.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company and (ii)
any entity in which the Company has a significant equity interest, as
determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Unit, Performance Award or Dividend Equivalent
granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the Board of Directors of the
Company designated by such Board to administer the Plan and composed of not
less than three directors, each of whom is a "disinterested person" within
the meaning of Rule 16b-3.
(f) "Dividend Equivalent" shall mean any right granted under Section 6(e)
of the Plan.
1
<PAGE>
(g) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair
market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee. Notwithstanding
the foregoing, for purposes of the Plan, the Fair Market Value of Shares on
a given date shall be (i) the last sale price of the Shares as reported on
the NASDAQ National Market System on such date, if the Shares are then
quoted on the NASDAQ National Market System or (ii) the closing price of
the Shares on such date on a national securities exchange, if the Shares
are then being traded on a national securities exchange.
(h) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422
of the Code or any successor provision thereto.
(i) "Key Employee" shall mean any employee of the Company or any Affiliate
who the Committee determines to be a key employee.
(j) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock
Option.
(k) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
(l) "Participant" shall mean a Key Employee designated to be granted an
Award under the Plan.
(m) "Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
(n) "Person" shall mean any individual, corporation, partnership,
association or trust.
(o) "Restricted Stock" shall mean any Share granted under Section 6(c) of
the Plan.
(p) "Restricted Stock Unit" shall mean any unit granted under Section 6(c)
of the Plan evidencing the right to receive a Share (or a cash payment
equal to the Fair Market Value of a Share) at some future date.
(q) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation thereto.
(r) "Shares" shall mean shares of Common Stock, $.20 par value, of the
Company or such other securities or property as may become subject to
Awards pursuant to an adjustment made under Section 4(c) of the Plan.
(s) "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
2
<PAGE>
SECTION 3. ADMINISTRATION.
(a) POWER AND AUTHORITY OF THE COMMITTEE. The Plan shall be administered
by the Committee. Subject to the terms of the Plan and applicable law, the
Committee shall have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to each Participant
under the Plan; (iii) determine the number of Shares to be covered by (or with
respect to which payments are to be calculated in connection with) Awards; (iv)
determine the terms and conditions of any Award or Award Agreement; (v) amend
the terms and conditions of any Award or Award Agreement and accelerate the
exercisability of Options or the lapse of restrictions relating to Restricted
Stock or Restricted Stock Units; (vi) determine whether, to what extent and
under what circumstances Awards may be exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited or suspended;
(vii) determine whether, to what extent and under what circumstances cash or
Shares payable with respect to an Award under the Plan shall be deferred either
automatically or at the election of the holder thereof or the Committee;
(viii) interpret and administer the Plan and any instrument or agreement
relating to, or Award made under, the Plan; (ix) establish, amend, suspend or
waive such rules and regulations and appoint such agents as it shall deem
appropriate for the proper administration of the Plan; and (x) make any other
determination and take any other action that the Committee deems necessary or
desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive and binding upon any Participant, any holder or beneficiary of
any Award and any employee of the Company or any Affiliate.
(b) MEETINGS OF THE COMMITTEE. The Committee shall select one of its
members as its chairman and shall hold its meetings at such times and places as
the Committee may determine. A majority of the Committee's members shall
constitute a quorum. All determinations of the Committee shall be made by not
less than a majority of its members. Any decision or determination reduced to
writing and signed by all of the members of the Committee shall be fully
effective as if it had been made by a majority vote at a meeting duly called and
held. The Committee may appoint a secretary and may make such rules and
regulations for the conduct of its business as it shall deem advisable.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section 4(c),
the number of Shares available for granting Awards under the Plan shall be
29,019,008. If any Shares covered by an Award or to which an Award relates are
not purchased or are forfeited, or if an Award otherwise terminates without
delivery of any Shares or cash payments to be received thereunder, then the
number of Shares counted against the aggregate number of Shares available under
the Plan with respect to such Award, to the extent of any such forfeiture or
termination, shall again be available for granting Awards under the Plan. In
addition, any Shares that are used by a Participant as full or partial payment
to the Company of the purchase price of Shares acquired upon exercise of an
Option shall again be available for granting Awards.
3
<PAGE>
(b) ACCOUNTING FOR AWARDS. For purposes of this Section 4,
(i) if an Award entitles the holder thereof to receive or purchase
Shares, the number of Shares covered by such Award or to which such Award
relates shall be counted on the date of grant of such Award against the
aggregate number of Shares available for granting Awards under the Plan;
and
(ii) if an Award entitles the holder to receive cash payments but the
amount of such payments are denominated in or based on a number of Shares,
such number of Shares shall be counted on the date of grant of such Award
against the aggregate number of Shares available for granting Awards under
the Plan;
provided, however, that Awards that operate in tandem with (whether granted
simultaneously with or at a different time from), or that are substituted for,
other Awards may be counted or not counted under procedures adopted by the
Committee in order to avoid double counting.
(c) ADJUSTMENTS. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number and type of Shares (or
securities or other property) which thereafter may be made the subject of
Awards, (ii) the number and type of Shares (or securities or other property)
subject to outstanding Awards and (iii) the exercise price with respect to any
Award; provided, however, that the number of Shares covered by any Award or to
which such Award relates shall always be a whole number.
(d) INCENTIVE STOCK OPTIONS. Notwithstanding the foregoing, the number of
Shares available for granting Incentive Stock Options under the Plan shall not
exceed 29,019,008, subject to adjustment as provided in the Plan and Section 422
or 424 of the Code.
SECTION 5. ELIGIBILITY.
Any Key Employee, including any Key Employee who is an officer or director
of the Company or any Affiliate, shall be eligible to be designated a
Participant; provided, however, that an Incentive Stock Option shall not be
granted to an employee of an Affiliate unless such Affiliate is also a
"subsidiary corporation" of the Company within the meaning of Section 424(f) of
the Code.
SECTION 6. AWARDS.
(a) OPTIONS. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
4
<PAGE>
(i) EXERCISE PRICE. The purchase price per Share purchasable under
an Option shall be determined by the Committee; provided, however, that
such purchase price shall not be less than the Fair Market Value of a Share
on the date of grant of such Option.
(ii) OPTION TERM. The term of each Option shall be fixed by the
Committee.
(iii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part and
the method or methods by which, and the form or forms (including, without
limitation, cash, Shares, other securities, other Awards or other property,
or any combination thereof, having a Fair Market Value on the exercise date
equal to the relevant exercise price) in which, payment of the exercise
price with respect thereto may be made or deemed to have been made.
(b) STOCK APPRECIATION RIGHTS. The Committee is hereby authorized to
grant Stock Appreciation Rights to Participants subject to the terms of the Plan
and any applicable Award Agreement. A Stock Appreciation Right granted under
the Plan shall confer on the holder thereof a right to receive upon exercise
thereof the excess of (i) the Fair Market Value of one Share on the date of
exercise (or, if the Committee shall so determine, at any time during a
specified period before or after the date of exercise) over (ii) the grant price
of the Stock Appreciation Right as specified by the Committee, which price shall
not be less than the Fair Market Value of one Share on the date of grant of the
Stock Appreciation Right. Subject to the terms of the Plan and any applicable
Award Agreement, the grant price, term, methods of exercise, dates of exercise,
methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.
(c) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee is hereby
authorized to grant Awards of Restricted Stock and Restricted Stock Units to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) RESTRICTIONS. Shares of Restricted Stock and Restricted Stock
Units shall be subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a Share
of Restricted Stock or the right to receive any dividend or other right or
property with respect thereto), which restrictions may lapse separately or
in combination at such time or times, in such installments or otherwise as
the Committee may deem appropriate.
(ii) STOCK CERTIFICATES. Any Restricted Stock granted under the Plan
shall be evidenced by issuance of a stock certificate or certificates.
Such certificate or certificates shall be registered in the name of the
Participant and shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Stock. In the
case of Restricted Stock Units, no Shares shall be issued at the time such
Awards are granted.
5
<PAGE>
(iii) FORFEITURE; DELIVERY OF SHARES. Except as otherwise determined
by the Committee, upon termination of employment (as determined under
criteria established by the Committee) during the applicable restriction
period, all Shares of Restricted Stock and all Restricted Stock Units at
such time subject to restriction shall be forfeited and reacquired by the
Company; provided, however, that the Committee may, when it finds that a
waiver would be in the best interest of the Company, waive in whole or in
part any or all remaining restrictions with respect to Shares of Restricted
Stock or Restricted Stock Units. Shares representing Restricted Stock that
is no longer subject to restrictions shall be delivered to the holder
thereof promptly after the applicable restrictions lapse or are waived.
Upon the lapse or waiver of restrictions and the restricted period relating
to Restricted Stock Units evidencing the right to receive Shares, such
Shares shall be issued and delivered to the holders of the Restricted Stock
Units.
(iv) LIMIT ON RESTRICTED STOCK AWARDS. Effective February 23, 1999,
the maximum number of Shares under the Plan available for grants of
Restricted Stock made after such date shall be 235,046 Shares.
(d) PERFORMANCE AWARDS. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash or Shares (including, without limitation,
Restricted Stock) and (ii) shall confer on the holder thereof the right to
receive payments, in whole or in part, upon the achievement of such performance
goals during such performance periods as the Committee shall establish. Subject
to the terms of the Plan and any applicable Award Agreement, the performance
goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award granted and the amount
of any payment to be made pursuant to any Performance Award shall be determined
by the Committee.
(e) DIVIDEND EQUIVALENTS. The Committee is hereby authorized to grant to
Participants Dividend Equivalents under which such Participants shall be
entitled to receive payments (in cash or Shares, as determined in the discretion
of the Committee) equivalent to the amount of cash dividends paid by the Company
to holders of Shares with respect to a number of Shares determined by the
Committee. Subject to the terms of the Plan and any applicable Award Agreement,
such Dividend Equivalents may have such terms and conditions as the Committee
shall determine.
(f) GENERAL.
(i) NO CASH CONSIDERATION FOR AWARDS. Awards shall be granted for no
cash consideration or for such minimal cash consideration as may be
required by applicable law.
(ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with or in substitution for any other Award or any award granted
under any plan of the Company or any Affiliate other than the Plan. Awards
granted in addition to or in tandem with other Awards or in addition to or
in tandem with awards granted under any such other plan of the Company or
any Affiliate may be granted either at the same time as or at a different
time from the grant of such other Awards or awards.
6
<PAGE>
(iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan
and of any applicable Award Agreement, payments to be made by the Company
or an Affiliate upon the grant, exercise or payment of an Award may be made
in Shares, cash or a combination thereof as the Committee shall determine,
and may be made in a single payment, in installments or on a deferred
basis, in each case in accordance with rules and procedures established by
the Committee. Such rules and procedures may include, without limitation,
provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents with respect to installment or deferred payments.
(iv) LIMITS ON TRANSFER OF AWARDS. No Award and no right under any
such Award shall be assignable, alienable, salable or transferable by a
Participant otherwise than by will or by the laws of descent and
distribution; PROVIDED, HOWEVER, that a Participant may, in the manner
established by the Committee,
(A) designate a beneficiary or beneficiaries to exercise the
rights of the Participant and receive any property distributable with
respect to any Award upon the death of the Participant, or
(B) transfer a Non-Qualified Stock Option to any member of such
Participant's immediate family (which, for purposes of this clause (B)
shall mean such Participant's children, grandchildren, or current
spouse) or to one or more trusts established for the exclusive benefit
of one or more such immediate family members or partnerships in which
the Participant or such immediate family members are the only partners,
PROVIDED that (1) there is no consideration for such transfer, and
(2) the Non-Qualified Options held by such transferees continue to be
subject to the same terms and conditions (including restrictions on
subsequent transfers) as were applicable to such Non-Qualified Options
immediately prior to their transfer.
Each Award or right under any Award shall be exercisable during the
Participant's lifetime only by the Participant, by a transferee pursuant
to a transfer permitted by clause (B) of this Section 6(f)(iv), or, if
permissible under applicable law, by the Participant's or such
transferee's guardian or legal representative. No Award or right under
any such Award may be pledged, alienated, attached or otherwise encumbered,
and any purported pledge, alienation, attachment or encumbrance thereof
shall be void and unenforceable against the Company or any Affiliate.
(v) TERM OF AWARDS. The term of each Award shall be for such period
as may be determined by the Committee.
(vi) RULE 16B-3 SIX-MONTH LIMITATIONS. To the extent required in
order to comply with Rule 16b-3 only, any equity security offered pursuant
to the Plan may not be sold for at least six months after acquisition,
except in the case of death or disability, and any derivative security
issued pursuant to the Plan shall not be exercisable for at least six
months, except in case of death or disability. Terms used in the preceding
sentence shall, for the purposes of such sentence only, have the meanings,
if any, assigned or attributed to them under Rule 16b-3.
(vii) RESTRICTIONS; SECURITIES EXCHANGE LISTING. All certificates for
Shares delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the
rules, regulations and other requirements of the Securities and Exchange
Commission and any applicable federal or state securities laws, and the
Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. If the
Shares are traded on a securities exchange, the Company shall not be
required to deliver any Shares covered by an Award unless and until such
Shares have been admitted for trading on such securities exchange.
(viii) AWARD LIMITATIONS UNDER THE PLAN. No Participant may be granted
any Award or Awards under the Plan, the value of which Award or Awards are
based solely on an increase in the value of Shares after the date of grant
of such Award or Awards, for more
7
<PAGE>
than 1,000,000 Shares, in the aggregate, in any one calendar year period
beginning with the 1994 calendar year. The foregoing annual limitation
specifically includes the grant of any Awards representing "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code.
SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) AMENDMENTS TO THE PLAN. The Board of Directors of the Company may
amend, alter, suspend, discontinue or terminate the Plan; provided, however,
that, notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the shareholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that:
(i) absent such approval, would cause Rule 16b-3 to become unavailable
with respect to the Plan;
(ii) requires the approval of the Company's shareholders under any
rules or regulations of the National Association of Securities Dealers,
Inc. or any securities exchange that are applicable to the Company; or
(iii) requires the approval of the Company's shareholders under the Code
in order to permit Incentive Stock Options to be granted under the Plan.
(b) AMENDMENTS TO AWARDS. The Committee may waive any conditions of or
rights of the Company under any outstanding Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Award, prospectively or retroactively, without the
consent of the Participant or holder or beneficiary thereof.
(c) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The Committee
may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.
SECTION 8. INCOME TAX WITHHOLDING; TAX BONUSES.
(a) WITHHOLDING. In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll, withholding,
income or other taxes, which are the sole and absolute responsibility of a
Participant, are withheld or collected from such Participant. In order to
assist a Participant in paying all federal and state taxes to be withheld or
collected upon exercise or receipt of (or the lapse of restrictions relating to)
an Award, the Committee, in its discretion and subject to such additional terms
and conditions as it may adopt, may permit the Participant to satisfy such tax
obligation by (i) electing to have the Company withhold a portion of the Shares
otherwise to be delivered upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes or
8
<PAGE>
(ii) delivering to the Company Shares other than Shares issuable upon exercise
or receipt of (or the lapse of restrictions relating to) such Award with a Fair
Market Value equal to the amount of such taxes. The election, if any, must be
made on or before the date that the amount of tax to be withheld is determined.
(b) TAX BONUSES. The Committee, in its discretion, shall have the
authority, at the time of grant of any Award under this Plan or at any time
thereafter, to approve bonuses to designated Participants to be paid upon their
exercise or receipt of (or the lapse of restrictions relating to) Awards in
order to provide funds to pay all or a portion of federal and state taxes due as
a result of such exercise or receipt (or the lapse of such restrictions). The
Committee shall have full authority in its discretion to determine the amount of
any such tax bonus.
SECTION 9. GENERAL PROVISIONS.
(a) NO RIGHTS TO AWARDS. No Key Employee, Participant or other Person
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Key Employees, Participants or holders
or beneficiaries of Awards under the Plan. The terms and conditions of Awards
need not be the same with respect to different Participants.
(b) DELEGATION. The Committee may delegate to one or more officers of the
Company or any Affiliate or a committee of such officers the authority, subject
to such terms and limitations as the Committee shall determine, to grant Awards
to Key Employees who are not officers or directors of the Company for purposes
of Section 16 of the Securities Exchange Act of 1934, as amended.
(c) GRANTING OF AWARDS. The granting of an Award pursuant to the Plan
shall take place only when an Award Agreement shall have been duly executed on
behalf of the Company.
(d) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(e) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the Company or
any Affiliate. In addition, the Company or an Affiliate may at any time dismiss
a Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(f) GOVERNING LAW. The validity, construction and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Minnesota.
(g) SEVERABILITY. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or
would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended
9
<PAGE>
without, in the determination of the Committee, materially altering the purpose
or intent of the Plan or the Award, such provision shall be stricken as to such
jurisdiction or Award, and the remainder of the Plan or any such Award shall
remain in full force and effect.
(h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(i) NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash shall be paid in lieu of any fractional Shares or whether such
fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(j) HEADINGS. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or interpretation
of the Plan or any provision thereof.
SECTION 10. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of the date of its approval by the
shareholders of the Company.
SECTION 11. TERM OF THE PLAN.
Awards shall be granted under the Plan during a period commencing
February 26, 1991, the date the Plan was approved by the shareholders of the
Company, through February 26, 2006, the date to which the shareholders of the
Company extended the expiration date of the Plan. However, unless otherwise
expressly provided in the Plan or in an applicable Award Agreement, any Award
theretofore granted may extend beyond the ending date of the period stated
above, and the authority of the Committee provided for hereunder with respect
to the Plan and any Awards, and the authority of the Board of Directors of
the Company to amend the Plan, shall extend beyond the end of such period.
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR ADC TELECOMMUNICATIONS, INC., AND SUBSIDIARIES FOR
THE FISCAL QUARTER ENDED JANUARY 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 187,412
<SECURITIES> 0
<RECEIVABLES> 338,207<F1>
<ALLOWANCES> 2,786
<INVENTORY> 204,060<F2>
<CURRENT-ASSETS> 776,790
<PP&E> 514,646
<DEPRECIATION> 243,799
<TOTAL-ASSETS> 1,344,729
<CURRENT-LIABILITIES> 419,147
<BONDS> 0
0
0
<COMMON> 28,296
<OTHER-SE> 892,442
<TOTAL-LIABILITY-AND-EQUITY> 1,344,729
<SALES> 367,205
<TOTAL-REVENUES> 367,205
<CGS> 192,371
<TOTAL-COSTS> 192,371
<OTHER-EXPENSES> 181,817
<LOSS-PROVISION> 614
<INTEREST-EXPENSE> 3,065
<INCOME-PRETAX> (8,699)
<INCOME-TAX> 4,526
<INCOME-CONTINUING> (13,225)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,225)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
<FN>
<F1>AMOUNT IS NET OF ALLOWANCE FOR BAD DEBTS AND RETURNS.
<F2>AMOUNT IS NET OF OBSOLESCENCE RESERVES.
</FN>
</TABLE>
