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-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: [email protected]
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<IMS-DOCUMENT>0000912057-94-004277.txt : 19941223
<IMS-HEADER>0000912057-94-004277.hdr.sgml : 19941223
ACCESSION NUMBER: 0000912057-94-004277
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 19941031
FILED AS OF DATE: 19941222
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ADC TELECOMMUNICATIONS INC
CENTRAL INDEX KEY: 0000061478
STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661]
IRS NUMBER: 410743912
STATE OF INCORPORATION: MN
FISCAL YEAR END: 1031
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-01424
FILM NUMBER: 94565833
BUSINESS ADDRESS:
STREET 1: 4900 WEST 78TH ST.
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55435
BUSINESS PHONE: 6129388080
FORMER COMPANY:
FORMER CONFORMED NAME: MAGNETIC CONTROLS CO
DATE OF NAME CHANGE: 19850605
</IMS-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
-----------------------------
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from _______to _______
Commission File No. 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.)
4900 West 78th Street
Minneapolis, Minnesota 55435
- ---------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 938-8080
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.20 par value
Common Stock Purchase Rights
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.
/X/ Yes / / No
The aggregate market value of voting stock held by nonaffiliates of the
registrant, as of December 15, 1994, was approximately $1,071,516,000 (based on
the last sale price of such stock as reported by the NASDAQ National Market
System).
The number of shares outstanding of the registrant's common stock, $.20 par
value, as of December 15, 1995, was 27,901,035.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instruction G(3), the responses to Items 10, 11, 12 and
13 of Part III of this report are incorporated herein by reference to the
information contained in the Company's definitive proxy statement for its 1995
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission on or before February 28, 1995.
<PAGE>
PART I
ITEM 1. BUSINESS
ADC Telecommunications, Inc. designs, manufactures and markets a broad
range of transmission and networking systems and physical connectivity products
for broadband telecommunications networks utilizing copper, coax, fiber optic
and wireless transmission methods. The Company markets its products worldwide
through its own direct sales force, as well as through distributors and original
equipment manufacturers (OEMs). The Company's products are designed for use in
the public telecommunications networks maintained by telephone operating
companies, interexchange carriers, other telecommunications common carriers and
broadcast and cable TV network providers, and for use in private
telecommunications networks maintained by large businesses, government agencies,
and educational and other non-profit institutions.
The Company was incorporated in 1953 as a Minnesota corporation under the
name Magnetic Controls Company. In 1961, Magnetic Controls Company was merged
with ADC Incorporated, a Minnesota corporation incorporated in 1935. In 1984,
the Company sold substantially all of the assets of its magnetics operations. In
1985, Magnetic Controls Company changed its corporate name to ADC
Telecommunications, Inc. in order to better reflect the Company's commitment to
the telecommunications market and to identify the Company more closely with its
ADC trademark.
In July 1989, ADC acquired Kentrox Industries, Inc. (Kentrox), located in
Portland, Oregon. Kentrox designs, manufactures and markets public network
access equipment for private telecommunications networks and wireless
transmission products for public network providers. In July 1990, ADC acquired
American Lightwave Systems, Inc. (ALS). ALS, located in Meriden, Connecticut,
designs, manufactures and markets fiber optic video transmission equipment for
the telephone, cable TV, broadcast and government markets. In May 1991, ADC
acquired Fibermux Corporation (Fibermux), located in Chatsworth, California.
Fibermux designs, manufactures, markets and installs enterprise-wide
communication systems for the interconnection and transport
<PAGE>
of Local Area Network (LAN) and other voice, data and video traffic, primarily
in private telecommunications networks. As used in this report, the terms
"Company" and "ADC" refer to ADC Telecommunications, Inc. and its wholly-owned
subsidiaries unless the context requires otherwise, and 1994, 1993 and 1992
refer to the Company's fiscal years ended October 31, 1994, 1993 and 1992,
respectively.
THE TELECOMMUNICATIONS MARKET
The largest market for the Company's broad range of telecommunications
products consists of companies providing service in the public
telecommunications networks and the OEMs which supply such companies. The
Company's transmission and physical connectivity products for the public network
market are primarily located in central transmission facilities (i.e., telephone
company network central offices, cable TV company network supertrunks and
headend offices, and wireless network base stations, all of which contain the
equipment used in switching and transmitting incoming and outgoing circuits).
Increasingly, portions of the Company's public network transmission systems are
located in the public network outside plant facilities (outside the central
transmission buildings) and on customers' premises.
Another market for the Company's products consists of rapidly growing
private voice, data and video telecommunications networks maintained by
businesses, government agencies, and educational and other non-profit
institutions. The Company's customers in this market primarily include large
businesses and government agencies with their own communications networks and
the OEMs and Value Added Resellers (VARs) which supply such networks. The
Company's products for private networks are located on the private network
customers' premises and consist of enterprise-wide communication systems and
public network access equipment.
The market for the Company's products has grown in large part due to the
effects of three ongoing developments in the telecommunications industry. First,
rapid technological change has created a demand for new products employing
advanced technologies. Second, the shift to data and video network traffic has
resulted in increasing demand for broadband, multimedia networking capabilities
in both public and private networks. Third, the policy of deregulation
2
<PAGE>
being followed by the Federal Communications Commission and similar regulatory
agencies throughout the world has increased opportunities for independent
companies to supply products and services within public telephone system markets
and within private voice, data and video communications markets.
The Company believes that for the foreseeable future technological change
will be the most important development in the continuing evolution of the
telecommunications market. One important technological change in transmission
technology has been the introduction of fiber optic cable and electronics. In a
fiber optic system, lasers transmit voice, data and video traffic in the form of
analog or digital coded light pulses through a glass fiber approximately the
size of a human hair. Fiber optic systems are increasingly replacing existing
copper based transmission systems because of their capacity to carry large
volumes of information at high speeds, their insensitivity to electromagnetic
interference and the high transmission quality made possible by the physical
properties of light .
A second important technological change in the telecommunications
marketplace is the use of integrated circuits and miniaturization, which has
facilitated the transfer of certain telecommunications functions from central
switching and transmission locations to locations closer to the business or
residential end-user. In addition, because of the increased use of integrated
circuits in both public and private telecommunications, networks have become
significantly more complex. Increasingly, high speed switching, network
performance monitoring, network management, information compression and data
translation functions are being performed by network equipment.
A third important technological change over the past 10 to 15 years has
been the accelerating replacement of analog technology with digital technology
in transmission networks. In analog technology, information is converted to a
voltage or current wave form for processing or transmission. In digital
technology, information is converted to digital bits and then processed or
transmitted using computer based components.
The Company believes that, over the long term, a significant portion of new
equipment purchased by public network providers and private network customers
will utilize fiber optic transmission technology. The majority of such
equipment will employ digital technology and will
3
<PAGE>
require increasingly sophisticated (i.e., software intensive) switching and
network management systems.
PRODUCTS
The Company categorizes its products into the following groups:
TRANSMISSION PRODUCTS: Transmission products provide electronic and
optical signal generation over a telecommunications circuit. Certain of the
transmission products also provide access in order to monitor, test and reroute
circuits within telecommunications transmission systems. ADC's transmission
products are designed for use in copper-based, coax-based, fiber optic or
wireless transmission networks.
NETWORKING PRODUCTS: Networking products provide interconnection and
transportation of voice, data and video signals within a single customer
building or campus as well as network access to the public network. The
Company's networking products are designed for use in copper-based and fiber
optic networks.
BROADBAND CONNECTIVITY PRODUCTS: Broadband connectivity products provide
the physical contact points for connecting different telecommunications system
components and gaining access to telecommunications system circuits for the
purpose of installing, testing, monitoring or reconfiguring such circuits. A
majority of the Company's broadband connectivity products are designed for use
in copper based transmission networks, with the remainder designed for use in
coax, fiber optic and wireless transmission networks.
Historically, most of the Company's products have been used in connection
with copper-based telecommunications networks, reflecting the historical
installed base of equipment utilizing copper cable in domestic and international
telecommunications networks. As a direct result of this large installed base,
the Company expects that, for the foreseeable future, a substantial portion of
its existing and new broadband connectivity products will be sold to maintain
and improve the functionality of copper-based telecommunications systems.
Although the Company expects to continue to allocate considerable resources to
improving existing products and developing new products for these systems, it
will also devote significant resources to the development of coax,
4
<PAGE>
fiber optic and wireless products because the Company believes that such
products represent an increasing source of future growth of broadband
connectivity product revenues.
The percentages of total consolidated net sales attributable to each of the
Company's product groups and to fiber optic products in total for the past three
fiscal years are set forth in Part II, Item 7 hereof.
TRANSMISSION PRODUCTS
DIGITAL REPEATERS: The Company's copper based digital repeaters regenerate
digital signals that have degraded because of transmission over long distances,
primarily in central office applications. Digital repeaters are sold primarily
to telephone operating companies and other telecommunications common carriers.
TEST AND MONITORING SYSTEMS: The Company manufactures three remote digital
test and performance monitoring products. The T-Sentry[REGISTERED TRADEMARK]
system and SENTRY 45-TM- system provide non-intrusive remote network performance
monitoring and alarm surveillance on DS1 and DS3 signals. The Company's
NetStar[REGISTERED TRADEMARK] system, a remotely operable, intrusive T1 test and
monitoring system, is designed for high capacity T1 telephone central office
testing and private network facility management.
The Company has begun marketing its open systems-based FiberWatch-TM-
remote fiber test and surveillance system. The FiberWatch system provides a
database of installed fibers, performs scheduled and on-demand testing, and
provides mapping and graphing capability for location of faults in networks.
ADC also manufactures and sells the Logix operational support system, a
software system which enables the user to collect and report performance
monitoring data from a variety of ADC and other network and performance
monitoring equipment. The Logix system has an open system architecture that
supports various standards. It provides for the centralized management of ADC
test and monitoring systems and transport equipment, and is designed to
interface with higher level operational support systems used by public network
providers.
5
<PAGE>
The Company's test and monitoring systems are sold to telephone operating
companies, other telecommunications common carriers, OEMs, distributors, and
users of private voice and data communication networks.
FIBER VIDEO DELIVERY EQUIPMENT: Through its ALS subsidiary, the Company
manufacturers fiber optic based video transmission systems. The LiteAMp-TM-,
FN6000-TM-, LC6000-TM-, LX6000-TM- and SM6000-TM- systems transmit a variety of
analog signals over fiber in cable TV company applications, broadcast
applications and interactive systems for distance learning and campus
interconnects. The DV6000-TM- system transmits a variety of signal types using
a high speed, uncompressed digital format (2.4 billion bits per second) over
fiber in the supertrunking portions of broadcast and interactive video networks
operated by telephone companies, cable TV companies, other public network
providers and private network applications. The PixlNet-TM- H.320 PX64
compressed digital video system is currently being tested in customer field
trials for video teleconferencing and distance learning applications.
The Company's fiber video delivery systems are sold directly to cable TV
companies, telephone operating companies, other telecommunications common
carriers and users of private data and video communication networks. ALS also
provides fiber optic subsystems for the Homeworx-TM- product described below.
SONEPLEX[REGISTERED TRADEMARK] SERVICE DELIVERY PRODUCT PLATFORM: The
Company's Soneplex platform is an integrated loop transmission system that
enables public network providers to deliver T1, T3 and other high rate services
from their networks to customer premises over copper or fiber facilities. The
Soneplex platform enables end user customers to transmit voice, data and video
traffic across their private network and/or to access various switched and
dedicated services provided by public networks.
The Company's Soneplex family of platforms and modules employ electrical to
optical conversion for transport over fiber facilities and High bit-rate Digital
Subscriber Line (HDSL) transmission technology for transport over copper
facilities. Soneplex products also integrate circuit performance monitoring and
test access capabilities to enable public network carriers to provide reliable
service at a low operational cost. The Company is continuing to develop new
modules and capabilities for the Soneplex platform, including Synchronous
Optical NETwork
6
<PAGE>
(SONET) internetworking. The 1994 additions to the Soneplex platform included
extended range copper transport as well as a channelized network access
device/bandwidth manager located on the customer premises, that was obtained
through a technology partnership arrangement.
The Company's Soneplex product family of equipment can be located in public
network central transmission buildings, outside plant facilities or on
customers' premises and are sold to telephone operating companies, cable TV
companies, other telecommunications common carriers and users of private voice
and data communications networks.
HOMEWORX-TM- ACCESS TRANSPORT PLATFORM: The Company also has a customer
loop transmission system under development for the small business and
residential customer called the Homeworx access transport platform. During 1994
the Company commercially released two versions of this system. Additional
customer field trials and releases of the Homeworx system are planned for 1995
and 1996. Homeworx access transport systems are sold to telephone operating
companies, cable TV companies and other telecommunications common carriers.
ATM SWITCH: Under an exclusive marketing arrangement, the Company markets
an Asynchronous Transfer Mode (ATM) switching system that supports advanced
high-speed data and video applications primarily in the public
telecommunications networks. The Company is currently performing customer field
trials for this product and intends to begin shipping the product to customers
in 1995. The ATM switching system will primarily be sold to telephone operating
companies, interexchange carriers and other telecommunications common carriers.
CITYCELL-TM- SYSTEM: The Kentrox CityCell Digital Microcell System is a
fiber-fed, radio frequency digital transmission microcell that adds and extends
cellular communication coverage, primarily in large urban areas. During 1994,
several major product line enhancements and additions, including a 25 watt
version of the CityCell product, CityRad-TM- (which is an air-to-air re-radiator
with traffic level monitoring), remote alarm and control and enhanced network
management tools were released. Effective November 1, 1994, the Kentrox
wireless systems products have been collectively named the CityWide-TM- product
family. These products are sold primarily to public cellular communications
network providers and users of private voice and data communications networks.
7
<PAGE>
NETWORKING PRODUCTS
PUBLIC NETWORK ACCESS EQUIPMENT: Through its Kentrox subsidiary, the
Company manufactures public network access equipment. These products, known
as the T-SERV[REGISTERED TRADEMARK] CSU (Channel Service Unit),
T-SMART[REGISTERED TRADEMARK] Intelligent CSU, the DataSMART[REGISTERED
TRADEMARK] DSU(Data Service Unit)/CSU, the D-Serv-TM- DSU/CSU, the
DataSMART E1 SMDSU[REGISTERED TRADEMARK] (Switched Multi-megabit Data Service)
DSU, the DataSMART T3/E3 SMDSU[REGISTERED TRADEMARK] DSU and the DataSMART T3/E3
IDSU-TM- Intelligent DSU/CSU are used to interconnect digitally the common
carrier public network and the customer premises network. This equipment
monitors circuits and provides system protection and other network management
functions. The T-SMART product also enables the customer to test the
performance of its voice network. The D-Serv and DataSMART product lines allow
connection of voice, data and video circuits.
During 1994, Kentrox developed, introduced and tested in customer field
trials its DataSMART T1/E1 ADSU-TM- products and DataSMART T3 ADSU-TM-
products, ATM DSUs which operate at both DS1 and DS3 transmission speeds. The
Kentrox AAC-1-TM- T1/E1 ATM access concentrator that transports voice, data and
video signals was also introduced and underwent customer trials during 1994.
Its most recent addition to the Company's ATM product line, the AAC-3-TM- T3/E3
ATM access concentrator, is expected to enter customer field trials and be
commercially released in 1995.
The Company's public network access equipment is sold through telephone
operating companies, interexchange carriers, other telecommunications common
carriers, OEMs and distributors, or directly to users of private voice and data
communication networks.
INTERNETWORKING PRODUCTS: Through its Fibermux subsidiary, the Company
manufactures internetworking products. The Crossbow-TM- multi-LAN hub family of
products interconnects workstations, personal computers and terminals, utilizing
many different LAN protocols and types of cables. During 1994, Fibermux
commercially released its SnapLAN-TM- hub system, a "snappable" wiring hub
system for work groups. The LightWatch[REGISTERED TRADEMARK] network management
system controls networks based on Crossbow hubs, from a single location using
the Simple Network Management Protocol (SNMP). The Magnum 100[REGISTERED
TRADEMARK] family of products transports multiple voice, data and video signals
simultaneously over a fiber optic backbone operating at 100-megabit
8
<PAGE>
(one hundred million bits per second) speed. The Magnum 100 backbones link
LANs, mainframes, minicomputers, personal computers, telephone systems and video
equipment with diverse protocols using time-division multiplexing technology,
within the enterprise network or over the public common carrier network.
LightWatch network management software also controls Magnum 100 networks. In
addition, Fibermux sells LAN backbone products using other technologies such as
fiber distributed data interface (FDDI) and internetworking components such as
routers, some of which have been acquired through licensing and product
development arrangements.
In 1994, Fibermux introduced its ATMosphere-TM- ATM backbone wiring hub.
The ATMosphere product, in its first phase, provides a high speed, ATM-based
backbone between Crossbow hubs and virtual networking management for users
attached to Crossbow hubs.
Fibermux sells internetworking products principally to users of private
data communication networks, either directly or through telephone operating
companies and other telecommunications common carriers.
PATCH/SWITCH SYSTEM AND PATCHMATE-TM- MODULE: The Company's Patch/Switch
system is a data network management product that provides access to, monitors,
tests and reconfigures digital data circuits and permits local or remote
switching to alternate circuits or backup equipment. This system is fully
modular, permitting the user to select and combine the particular functions
desired in a system. The PatchMate Module is a manually operated
electromechanical device used to gain access in order to monitor, test, and
reconfigure digital data circuits. The Patch/Switch System and PatchMate Module
are sold principally to users of private data communication networks.
BROADBAND CONNECTIVITY PRODUCTS
JACKS, PLUGS AND PATCH CORDS: Jacks and plugs are the basic components
used to gain access to copper telecommunications circuits for testing and
maintenance. A jack is a connecting device to which the wires of a circuit are
attached and through which access to that circuit is obtained by the insertion
of the plug. This access permits the circuit to be monitored, tested or re-
routed (patched). Patch cords are wires or cables with a plug on each end. ADC
offers a complete
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<PAGE>
line of jacks and plugs in the longframe and smaller bantam formats. The bantam
products are approximately half the size of the longframe products. The Company
also manufactures a line of jacks in both of these formats which are designed to
be mounted on printed circuit boards wherever access points are required, as
well as a line of coaxial jacks and plugs used for gaining access to high
frequency circuits.
ADC incorporates its jacks, plugs and patch cords into its own products and
also sells them in component form primarily to OEMs, whose products are used by
telephone operating companies and other companies providing communication
services. These components are generally manufactured to industry-recognized
compatibility and reliability standards as off-the-shelf items.
JACKFIELDS AND PATCH BAYS: A jackfield is a module containing an assembly
of jacks wired to terminal blocks or connectors and used by telecommunications
companies to gain access to copper communication circuits for testing or
patching the circuits. ADC manufactures jackfields in both longframe and bantam
formats, including prewired and connectorized models. When testing a large
number of circuits, series of jackfields are combined in specialized rack
assemblies, which often may include test modules. These assemblies are called
patch bays. ADC manufactures a range of jackfields and patch bays in various
configurations. The Company's analog jackfields and analog and digital patch
bays are sold primarily to OEMs, telephone operating companies and other
telecommunications common carriers. The Company also manufactures and sells
specialized jackfields for use in audio and video transmission networks in the
broadcast industry.
DSX PRODUCTS: ADC manufactures digital signaling cross-connect (DSX)
modules and bays which are jackfields and patch bays designed to gain access to
and cross-connect digital copper circuits for both voice and data transmission.
Since introduction of DSX products in 1977, the Company has continued to expand
and refine its DSX product offerings, and has become a leading manufacturer of
products for the mechanical termination and interconnection of digital circuits
used in voice and data transmission. During 1994, ADC added DS-3 Digital
Distribution Point (DDP) products to its line of DSX products. DDP products are
mechanical alternatives to hard-wiring equipment used for cable management and
circuit access in software based digital cross-connect systems. The Company's
DSX products are sold primarily to telephone operating companies and other
telecommunications common carriers.
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<PAGE>
TERMINAL BLOCKS AND FRAME PRODUCTS: Terminal blocks are molded plastic
blocks with contact points used to facilitate multiple wire interconnections.
ADC manufactures a wide variety of terminal blocks. The Company's cross-connect
frames are terminal block assemblies used to connect the external wiring of a
telecommunications network to the internal wiring of a telephone operating
company central office or to interconnect various pieces of equipment within a
telephone company. ADC sells its terminal blocks and cross-connect frames
primarily to OEMs and telephone operating companies.
FIBER OPTIC PATCH CORDS: Fiber optic patch cords are functionally similar
to copper patch cords and are the basic components used to gain access to fiber
telecommunications circuits for testing, maintenance, cross-connection and
configuration purposes. ADC manufactures its own FC, SC and ST[REGISTERED
TRADEMARK]* connectors for use in the fiber optic patch cords. The Company's
LightTracer-TM- fiber optic patch cord provides immediate identification of
fiber optic connections. The Company incorporates its fiber optic patch cords
into its own products and sells them in component form principally to OEMs,
whose products are used by telephone operating companies, cable TV companies,
other telecommunications common carriers and users of private voice and data
communications networks.
FIBER DISTRIBUTION PANELS AND FRAMES: Fiber distribution panels and frames
are functionally similar to copper jackfields and frames with the added feature
of additional bend protection, and provide interconnection points between fiber
optic cables entering a building and fiber optic cables connected to fiber optic
equipment within the building. The Company sells fiber distribution products
primarily to telephone operating companies, cable TV companies, other
telecommunications common carriers and users of private voice and data
communications networks.
FIBERGUIDE[REGISTERED TRADEMARK] SYSTEMS: The FiberGuide system is a
modular routing system which provides a segregated, protected method of storing
and routing fiber patch cords and cables within buildings. ADC sells its
FiberGuide systems primarily to telephone operating companies, cable TV
companies, other telecommunications common carriers and users of private voice
and data communications networks.
- ----------------------------------------
* ST is a registered trademark of American Telephone & Telegraph Co.
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<PAGE>
OUTSIDE PLANT PRODUCTS: Outside Plant (OSP) products consist of cabinets
and other enclosures configured to locate and integrate the functions of passive
fiber optic equipment and electronic transmission systems outside the telephone
central office/cable TV headend switching and transmission facilities as well as
the equipment located therein. The Company's OSP products provide flexible
network management, remote transmission capability and environmental protection
for various telecommunications topologies and architectures. OSP products
designed for broadband residential loop applications also provide power supply
and coaxial splicing and tapping functions. ADC sells OSP products to telephone
operating companies, cable TV companies and other telecommunications common
carriers.
ENGINEER, FURNISH AND INSTALL SERVICES: Engineer, furnish and install
(EF&I) services consist of layout and installation of new telecommunications
networks, modification of existing networks or the addition of equipment to
existing networks. The Company sells its EF&I services primarily to telephone
operating companies, other common carriers and users of private
telecommunications networks.
PRODUCT DEVELOPMENT
The Company is committed to an ongoing program of new product development
which combines internal development efforts with acquisition, joint venture,
licensing or marketing arrangements relating to new products and technologies
from sources outside the Company. Development and product engineering expenses
for fiscal 1994, 1993 and 1992 were $48,974,000, $40,988,000 and $36,063,000,
respectively (approximately 10.9%, 11.2% and 11.4%, respectively, of
consolidated net sales).
The Company's product development program emphasizes the innovative
application of existing technology in the design of new products rather than the
research and development of new technology. The Company's product development
group works closely with marketing personnel in an effort to determine emerging
user needs in the telecommunications market and continually reviews and
evaluates technological changes affecting this market.
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<PAGE>
The Company is currently conducting development efforts with respect to
technologies and products in each of its three product groups. Among other
projects, the Company's development activities are directed at the integration
of fiber optic technology into additional products, the continuing development
of wireless microcell products and the incorporation of ATM technology into
voice, data and video products for both public and private telecommunications
networks. The Company is also developing copper and fiber optic products for
applications in the local loop.
MARKETING AND DISTRIBUTION
ADC sells its products to customers in three primary markets: (1) the
United States public telecommunications network market, (2) the private and
governmental voice, data and video network market in the United States, and (3)
the international public and private network market.
Major providers of networks utilizing copper, coax, fiber optic and
wireless transmission methods in the public telecommunications market in the
United States include the Bell Operating Companies, other telephone companies
(such as GTE Corporation, Sprint/United Telephone Co. and Southern New England
Telecommunications Corporation), long-distance telephone companies (such as
American Telephone & Telegraph Co., MCI Telecommunications Corp., Sprint
Corporation and Wiltel, Inc.), cable TV companies (such as Cox Enterprises,
Inc., Continental Cablevision and Tele-Communications, Inc.), other emerging
telecommunication common carriers (such as MFS Communications Company and
Teleport Communications Group, Inc.), and major OEMs which service these same
customers (such as AT&T Technologies, Inc., Northern Telecom, Inc., Alcatel
Alsthom Compagnie Generale D'Electricite, NEC America, Inc., Fujitsu Limited and
Tellabs, Inc.). The Company sells its products to most of the major providers
and OEMs.
The private network market includes predominantly large businesses and
state and federal government agencies which own and operate their own voice and
data networks for internal use. Major OEMs in this market include International
Business Machines Corporation (IBM), AT&T Paradyne Corporation, Digital
Equipment Corporation, Northern Telecom, Inc., Motorola Codex and The Racal
Corporation.
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The Company's products are sold in the United States by approximately 119
field sales representatives located in 26 sales offices throughout the country,
and by several dealer organizations and distributors. The Company also has a
customer service group, which supports field sales personnel and is responsible
for application engineering, customer training, entering orders and supplying
delivery status information, and a field service engineering group, which
provides on-site service to customers.
The Company also markets its products outside the U.S. primarily to
telephone operating companies and cable TV companies in the public
telecommunications networks of Canada, Mexico, South America, Europe, Australia,
New Zealand, Russia and the Asian region. The Company sells its products to
foreign customers through 23 Company-employed field salespersons, eight foreign
independent sales representatives and 77 foreign distributors, as well as
through U.S. public and private network providers who also distribute outside
the U.S. On October 31, 1994, the Company's foreign distribution network was
selling products in 60 nations throughout the world. To date, the principal
foreign market for the Company's products has been Canada. The Company has
wholly-owned subsidiaries in Canada, Mexico, Venezuela, the United Kingdom,
Belgium, Australia and Singapore. The Company's foreign sales offices are
located in Montreal, Ottawa, Toronto, Vancouver, Mexico City, Caracas, London,
Brussels, Sydney and Singapore.
Consolidated export sales to unaffiliated customers for fiscal years 1994,
1993 and 1992 were $67,113,000, $58,919,000, and $49,347,000, respectively
(approximately 15.0%, 16.1% and 15.6%, respectively, of consolidated net sales).
The Company warrants most of its products against defects in materials and
workmanship under normal use and service for periods of up to 15 years. To
date, the Company's warranty experience has been favorable, with a low rate of
product return.
COMPETITION
Competition in the telecommunications products market is intense. The
Company manufactures, markets and sells products similar to those manufactured
by numerous other
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<PAGE>
companies, some of which, such as AT&T Technologies, Inc. and Switchcraft, Inc.,
a subsidiary of Raytheon Company, have greater resources than those available to
the Company. The Company also faces increasing competition from a number of
other smaller competitors. The Company believes its success in competing with
other manufacturers of telecommunications products depends primarily on its
engineering, manufacturing and marketing skills, the price, quality and
reliability of its products, and its delivery and service capabilities.
The Company's Fibermux subsidiary competes with a number of other
companies, two of which are dominant in its intelligent wiring hub markets, and
faces both strong price competition and pressure from alternative distribution
strategies utilized by these other companies. The Company's Kentrox and ALS
subsidiaries compete with a number of companies, none of which is dominant.
The Company believes that technological change, the shift in network
traffic to data and video and continuing industry deregulation will continue to
cause rapid evolution in the competitive environment of the telecommunications
market, the full scope and nature of which is impossible to predict at this
time. The Company believes the most significant competitive effect of
continuing industry deregulation has been, and will continue for the immediate
future to be, the creation of new opportunities for suppliers of
telecommunications products like the Company. The Company expects, however,
that such opportunities will attract increased competition from others as well.
In addition, the Company expects that AT&T Technologies, Inc. will continue to
be a major supplier to the Bell Operating Companies, and is competing more
extensively outside the Bell system. The Company also believes that the rapid
technological changes which characterize the telecommunications industry will
continue to make the markets in which the Company competes attractive to new
entrants.
MANUFACTURING AND SUPPLIES
The manufacturing process for the Company's electronic products consists
primarily of assembly and test of electronic systems built from fabricated
parts, printed circuit boards and electronic components. The manufacturing
process for the Company's electromechanical products
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consists primarily of fabrication of jacks, plugs, and other basic components
from raw materials, assembly of components and testing. The Company's sheet
metal, plastic molding, stamping and machining capabilities permit the Company
to configure components to customer demand.
The Company purchases raw materials and component parts, consisting
primarily of copper wire, optical fiber, steel, brass, nickel-steel alloys,
gold, plastics, printed circuit boards, solid state components, discrete
electronic components and similar items, from several suppliers. Although a
number of components used by the Company are single-sourced, the Company has
experienced no significant difficulties to date in obtaining adequate quantities
of these raw materials and component parts. The Company believes that
alternative sources of supply exist, or can be developed without causing
significant delays, for all of its raw materials and component parts.
PROPRIETARY RIGHTS
The Company owns a number of United States and foreign patents relating to
its products. These patents, in the aggregate, constitute a valuable asset of
the Company. The Company, however, believes that its business is not dependent
upon any single patent or any group of related patents.
The Company has registered the initials ADC alone and in conjunction with
specific designs as trademarks in the United States and various foreign
countries.
EMPLOYEES
As of October 31, 1994, there were 2,644 persons employed by the Company.
The Company considers relations with its employees to be good.
ITEM 2. PROPERTIES
The Company's corporate headquarters are currently located in two leased
buildings in Minnetonka, Minnesota, comprising 144,700 square feet. A 57,000
square foot facility, also
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leased in Minnetonka, is occupied by the Company's Minnesota fiber optic
operations. The Company also leases a 119,000 square foot facility in
Minnetonka, Minnesota, in which the engineering, product management,
manufacturing and manufacturing support operations for the Company's
transmission products are located. The Company also owns two buildings
comprising 132,800 square feet in Bloomington, Minnesota, which house
manufacturing and manufacturing support operations.
The Company owns a 76,000 square foot facility and a 20,000 square foot
facility in LeSueur, Minnesota, which are used for electromechanical assembly
and warehouse space. The Company leases additional warehouse space on a short
term basis from time to time to meet its needs. The Company owns an 11,700
square foot facility in Bloomington, Minnesota, which is leased to an
unaffiliated company. In addition, the Company owns approximately 38 acres of
undeveloped land in Eden Prairie, Minnesota.
Approximately 15,000 square feet of space in Richardson, Texas is leased by
the Company for an engineering development center. The Company also leases
sales office facilities in the United States, Canada, Mexico, Venezuela, the
United Kingdom, Belgium, Australia and Singapore.
The Company's Kentrox subsidiary owns a 105,000 square foot facility in
Portland, Oregon, which serves as its office and manufacturing facility and
leases approximately 4,000 square feet of space in Waseca, Minnesota, which
serves as a research and development center. The Company's ALS subsidiary
leases approximately 79,000 square feet of space in Meriden, Connecticut as its
office and manufacturing facility. The Company's Fibermux subsidiary leases
approximately 97,000 square feet of space in Chatsworth, California as its
office and manufacturing facility.
Leases for the Company's headquarters, sales offices and manufacturing
facilities expire at different times through 2000 and are generally renewable on
a fixed term or a month-to-month basis. The Company believes that the
facilities used in its operations are very well maintained and in excellent
condition.
For information regarding encumbrances on the Company's properties, see
Note 3 to the Consolidated Financial Statements included in Part II, Item 8, of
this report.
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ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Office Officer Since Age
- ---- ------ ------------- ---
<S> <C> <C> <C>
William J. Cadogan Chairman of the Board, 1987 46
President, Chief Executive
Officer and Chief Operating
Officer
Lynn J. Davis Senior Vice President, 1984 47
General Manager, Broadband
Connectivity Division
Frederick D. Lawrence Senior Vice President, 1994 46
Transmission Group
Lawrence D. Asten Vice President Sales, 1992 47
Customer Services and
Marketing
Bruce W. Brown Vice President, and 1993 44
President of Fibermux
Richard S. Gilbert Vice President, and 1994 42
President of Kentrox
William L. Martin III Vice President, General 1994 47
Manager, Network Services
Division
Jack Reily Vice President, General 1994 44
Manager, Access Platforms
John A. Schofield Vice President International 1994 46
Sales
Robert E. Switz Vice President, Chief Financial 1994 48
Officer
</TABLE>
Executive officers of the Company are elected by the Board of Directors.
The Company's executive officers were last elected to their positions on
February 22, 1994, except Mr. Lawrence was elected to his position on March 14,
Mr. Martin was elected to his position September 27, and Mssrs. Gilbert and
Schofield were elected to their positions December 12. Messrs. Cadogan, Davis
and Reily have served in various capacities with the Company for more than five
years. Biographical information regarding the other named officers follows.
Mr. Lawrence joined the Company in March 1994. Prior to such time he was
employed by Sprint Corporation for twelve years, most recently as President and
Chief Executive Officer of United Telephone of Florida. From 1989 to 1992 he
was Senior Vice President Operations of US Sprint.
Mr. Asten joined the Company in February 1992. Prior to such time he was
employed by Telco Systems, Inc., a manufacturer of fiber optic transmission
products and customer premises network access equipment, where he served as Vice
President, Worldwide Sales, from 1987.
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Mr. Brown joined the Company in July 1993. Prior to such time he was
employed by Ungermann-Bass, a manufacturer of enterprise-wide networking
solutions, as Executive Vice President, Customer Operations. From 1988 to 1990
Mr. Brown was Senior Vice President, Marketing, Sales and Service for McData
Corporation, a Colorado-based networking company.
Mr. Gilbert joined the Company in June 1992. Prior to November 1994 he was
Vice President and General Manager, Access Group for six months and Vice
President, Engineering for two years. From 1991 to 1992 he was Vice President
of Research and Development at Make Systems, Inc., a manufacturer of a network
design and analysis tool. From 1990 to 1991 Mr. Gilbert was Assistant Vice
President, Software Engineering for Vitalink Communications Corporation, a
manufacturer of data communications equipment. Prior to that he was employed
for 14 years by IBM Corporation, most recently as Senior Manager, Workstation
Development at the Santa Teresa Laboratory.
Mr. Martin joined the Company in September 1994. Prior to such time he was
employed by Ascom Timeplex, a manufacturer of data and telecommunications
equipment, most recently as Vice President, Technical Marketing. His previous
positions included Vice President China Business Development and Vice President
U.S. Sales. From 1987 to 1990 he was the Chief Executive Officer of Broadband
Telesystems, at which time that company was acquired by Ascom Timeplex.
Mr. Schofield joined the Company in October 1992. Prior to October 1994 he
was Managing Director for Asia Pacific/Latin America. He was Senior Vice
President, Sales and Marketing at Telex Communications, Inc., a manufacturer and
marketer of electronic audio communication devices, from 1990 to 1992. He held
several Vice President positions at Memorex Telex Corporation, a manufacturer
and marketer of computer terminal and peripheral equipment, most recently Vice
President and General Manager, Airline and Systems Business Group.
Mr. Switz joined the Company in January 1994. Prior to such time he was
employed at Burr-Brown Corporation, a manufacturer of precision micro-
electronics, from 1988, most recently as Vice President, Chief Financial Officer
and Director, Ventures and Systems Business.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $.20 par value, trades on the Nasdaq Stock
Market National Market under the symbol "ADCT". The following table sets forth
the high and low daily sale prices for each quarter during the years ended
October 31, 1994 and 1993, as reported on that system.
<TABLE>
<CAPTION>
1994 Low High
---- --- ----
<S> <C> <C>
Fourth Quarter $37.50 $47.75
Third Quarter 36.25 46.75
Second Quarter 32.25 42.75
First Quarter 31.00 38.75
1993
----
Fourth Quarter $29.25 $44.00
Third Quarter 20.13 31.25
Second Quarter 18.63 23.50
First Quarter 18.13 24.75
</TABLE>
No cash dividends have been declared or paid during the past two years and
the Company has no present intention of declaring a cash dividend. The
Company's revolving credit agreements permit cash dividends only to the extent
of 25% of net income for the preceding four quarters.
As of December 15, 1994, there were approximately 2,175 holders of record
of the Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of certain consolidated statement of income and
balance sheet information of ADC Telecommunications, Inc. and Subsidiaries for
the five years ended October 31, 1994. This summary should be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this report. All share and per share amounts have been
restated for a two-for-one stock split effected in the form of a 100% stock
dividend in June 1993, and all amounts except per share amounts are presented in
thousands. No cash dividends have been declared or paid in any of the years
presented.