10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2003
OR
o	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 incorporation or organization)	(I.R.S. Employer Identification No.)
13625 Technology Drive, Eden Prairie, MN 55344-2252
(Address of principal executive offices) (Zip code)
(952) 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  ý NO  o

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:  804,130,856shares as of June 9, 2003

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS—UNAUDITED

(In millions)

	April 30, 2003		October 31, 2002
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents	$	374.5	$	278.9
Available-for-sale securities	3.1		0.5
Accounts receivable, net	110.1		114.6
Unbilled revenue	29.1		25.8
Inventories, net	83.7		94.9
Prepaid income taxes	23.3		126.6
Prepaid and other current assets	30.9		44.5
Total current assets	654.7		685.8
PROPERTY AND EQUIPMENT, net	170.9		206.8
ASSETS HELD FOR SALE	24.5		20.0
RESTRICTED CASH	67.8		177.0
OTHER ASSETS	33.9		54.6
Total assets	$	951.8	$	1,144.2
LIABILITIES AND SHAREOWNERS’ INVESTMENT:
CURRENT LIABILITIES:
Accounts payable	$	49.2	$	73.0
Accrued compensation and benefits	61.8		74.1
Restructuring accrual	40.1		124.2
Other accrued liabilities	122.3		110.8
Notes payable	8.6		15.7
Total current liabilities	282.0		397.8
LONG-TERM NOTES PAYABLE	—		10.8
OTHER LONG-TERM LIABILITIES	3.4		3.4
Total liabilities	285.4		412.0
SHAREOWNERS’ INVESTMENT (804.1 and 799.6 shares outstanding, respectively)	666.4		732.2
Total liabilities and shareowners’ investment	$	951.8	$	1,144.2

See accompanying notes to condensed consolidated financial statements.

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ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS—UNAUDITED

(In millions, except per share amounts)

	Three months Ended April 30,						Six Months Ended April 30,
	2003			2002			2003			2002
NET SALES:
Product	$	142.1		$	235.1			293.9			463.8
Service	49.8			63.2			97.9			128.0
TOTAL NET SALES	191.9			298.3			391.8			591.8
COST OF SALES:
Product	78.3			170.9			162.4			311.9
Service	40.2			53.7			85.3			111.4
TOTAL COST OF SALES	118.5			224.6			247.7			423.3
GROSS PROFIT	73.4			73.7			144.1			168.5
EXPENSES:
Research and development	27.4			51.4			59.7			95.6
Selling and administration	61.0			108.1			124.9			219.2
Impairment charges	4.3			16.8			14.6			18.7
Restructuring charges	12.1			47.4			20.2			50.4
In process research and development	—			10.5			—			10.5
Total Expenses	104.8			234.2			219.4			394.4
OPERATING LOSS	(31.4		)	(160.5		)	(75.3		)	(225.9		)
OTHER INCOME, NET	2.0			27.5			4.4			23.0
LOSS BEFORE INCOME TAXES	(29.4		)	(133.0		)	(70.9		)	(202.9		)
BENEFIT FOR INCOME TAXES	—			(43.8		)	—			(68.9		)
NET LOSS	$	(29.4	)	$	(89.2	)	$	(70.9	)	$	(134.0	)
AVERAGE COMMON SHARES OUTSTANDING (BASIC AND DILUTED)	802.7			794.9			801.9			794.2
LOSS PER SHARE (BASIC AND DILUTED)	$	(0.04	)	$	(0.11	)	$	(0.09	)	$	(0.17	)

See accompanying notes to condensed consolidated financial statements.

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ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—UNAUDITED

(In millions)

	Six Months Ended April 30,
	2003			2002
OPERATING ACTIVITIES:
Net loss	$	(70.9	)	$	(134.0	)
Adjustments to reconcile net loss to net cash from operating activities:
Purchased in process research and development	—			10.5
Inventory and fixed asset impairments	15.9			19.4
Depreciation and amortization	33.5			58.0
Provision for losses on receivables	1.4			2.1
Inventory reserves	(0.8		)	8.3
Non-cash stock compensation	2.1			5.4
Change in deferred income taxes	—			(1.5		)
Loss on write-down of investments	—			22.3
Gain on sale of investments	(2.0		)	(31.2		)
Loss on sale of business	2.8			—
Loss on sale of fixed assets and sale leasebacks	1.0			2.3
Other	2.1			1.5
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts and unbilled receivables	8.7			117.6
Inventories	9.3			52.0
Prepaid and other assets	143.0			152.5
Accounts payable	(30.8		)	(57.1		)
Accrued liabilities	(101.3		)	(13.6		)
Total cash provided by operating activities	14.0			214.5
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired	—			(4.3		)
Divestitures, net of cash disposed	0.5			—
Property and equipment additions, net of disposals	(16.1		)	(21.8		)
Change in restricted cash	109.1			(260.1		)
Sale of available-for-sale securities, net	—			32.2
Sale (purchase) of long-term investments, net	4.0			(1.8		)
Total cash provided by (used) for investing activities	97.5			(255.8		)
FINANCING ACTIVITIES:
Repayments of debt	(18.4		)	(3.9		)
Common stock issued	2.8			6.3
Total cash provided by (used for) financing activities	(15.6		)	2.4
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(0.3		)	(0.2		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	95.6			(39.1		)
CASH AND CASH EQUIVALENTS, beginning of period	278.9			348.6
CASH AND CASH EQUIVALENTS, end of period	$	374.5		$	309.5

See accompanying notes to condensed consolidated financial statements.

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ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—UNAUDITED

Note 1 Basis of Presentation:

The interim information furnished in this report is unaudited but reflects all normal recurring adjustments which are necessary, in the opinion of our management, for a fair statement of the results for the interim periods.  The operating results for the quarter ended April 30, 2003 are not necessarily indicative of the operating results to be expected for the full fiscal year. These statements should be read in conjunction with our most recent Annual Report filed on Form 10-K.

Reclassifications.  Certain prior year amounts have been reclassified to conform to the current year presentation.

Recently Issued Accounting Pronouncements.  In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  SFAS No. 146 superseded Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).”  The principal difference between SFAS. No. 146 and EITF No. 94-3 relates to when an entity can recognize a liability related to exit or disposal activities.  SFAS No. 146 requires that a liability be recognized for a cost associated with an exit or disposal activity when the liability is incurred.  EITF No. 94-3 allowed a liability related to an exit or disposal activity to be recognized on the date an entity commits to an exit plan.  We adopted this standard on January 1, 2003, which was the standard’s effective date.  The standard did not materially impact our consolidated financial results or financial position upon adoption.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of the Indebtedness of Others,” which requires a guarantor to recognize and measure certain types of guarantees at fair value.  In addition, Interpretation No. 45 requires the guarantor to make new disclosures for these guarantees and other types of guarantees that are not subject to the initial recognition and initial measurement provisions.  The disclosure requirements are effective for financial statements with interim or annual periods ended after December 15, 2002, while the recognition and measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002.  We adopted the initial recognition and measurement provision as well as the disclosure provision of Interpretation No. 45 during the first quarter of fiscal 2003.  The initial recognition and measurement provisions did not have a material impact on our consolidated financial results or financial position.  See Note 10 for guarantee disclosure information.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.”  The provisions of SFAS No. 148 amend SFAS No. 123, “Accounting for Stock Based Compensation,” to provide alternative methods of transitioning to a fair value-based method of accounting for stock-based employee compensation.  In addition, SFAS No. 148 also expands the disclosure requirements of SFAS No. 123 by requiring more detailed disclosure in both annual and interim financial statements.  The transition provisions of SFAS No. 148 will not have a material impact on our financial results, as we do not plan to adopt the fair value-based accounting provisions of SFAS No. 123, which is commonly referred to as expensing of stock options.  The disclosure provisions of SFAS No. 148 are effective for interim periods beginning after December 15, 2002.  Accordingly, we adopted the disclosure provisions of this standard during the second quarter of fiscal 2003.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51,” which requires companies to consolidate certain types of variable interest entities.  A variable interest entity is an entity that has inadequate invested equity at risk to meet expected future losses, or whose holders of the equity investments lack any of the following three characteristics:  (i) the ability to make decisions about the entity’s activities; (ii) the obligation to absorb the entity’s losses if they occur; or (iii) the right to receive the entity’s future returns if they occur.  Interpretation No. 46 is applicable immediately for all variable interests created after January 31, 2003.  For all variable interest entities created before February 1, 2003, the provisions of this interpretation are effective in the first fiscal year or interim period beginning after June 15, 2003 (our fourth quarter of fiscal 2003).  In accordance with Interpretation No. 46, we will be required to consolidate an operating lease related to our world headquarters facility, generally known as a “synthetic lease,” beginning in the fourth quarter of fiscal 2003. Interpretation No. 46 is not expected to have a material impact on our consolidated financial position or results of operations as we intend to purchase this property from the lessor during the third quarter of fiscal 2003.

Summary of Significant Accounting Policies.  A detailed description of our significant accounting policies can be found in our most recent Annual Report filed on Form 10-K.  As noted above, we recently adopted the disclosure provisions of SFAS No. 148,  but we did not adopt the transition provisions of SFAS No. 148.  As a result of adopting the disclosure provisions of SFAS No. 148, we

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are required to disclose the method we use to account for stock based compensation on a quarterly basis.  Stock compensation is awarded to certain key employees in the form of stock options and restricted stock.  We account for our stock compensation in accordance with APB Opinion 25, “Accounting for Stock Issued to Employees,” and related interpretations. All stock options are issued at fair market value on the date of grant.  Accordingly, we did not recognize stock compensation expense for stock options granted during the periods presented.  The following table summarizes what our operating results would have been if we had utilized the fair value method of accounting for stock options (in millions):

	Three months Ended April 30,						Six Months Ended April 30,
	2003			2002			2003			2002
Net Loss
As reported	$	(29.4	)	$	(89.2	)	$	(70.9	)	$	(134.0	)
Stock compensation expense – fair value based method	(19.0		)	(35.3		)	(37.5		)	(69.4		)
Pro Forma Net Loss	$	(48.4	)	$	(124.5	)	$	(108.4	)	$	(203.4	)
Loss Per Share – Basic and Diluted
As reported	$	(0.04	)	$	(0.11	)	$	(0.09	)	$	(0.17	)
Pro forma	$	(0.06	)	$	(0.16	)	$	(0.14	)	$	(0.26	)

We have issued restricted stock as part of employee incentive plans as well as in conjunction with our fiscal year 2000 purchase of Broadband Access Systems, Inc.  The fair market value of the restricted stock is amortized over the projected remaining vesting period.  During the three and six months ended April 30, 2003, we incurred $1.2 million and $4.6 million, respectively, of non-cash stock compensation expense related to restricted stock issuances.  Non-cash stock compensation expense for the three and six months ended April 30, 2002, was $3.7 million and $7.5 million, respectively.

Note 2 Inventories:

Inventories include material, labor and overhead and are stated at the lower of first-in, first-out cost or market. Inventories consisted of (in millions):

	April 30, 2003		October 31, 2002
Purchased materials and manufactured products	$	73.2	$	82.5
Work-in-process	10.5		12.4
	$	83.7	$	94.9

Note 3 Other Assets:

Deferred tax assets. A deferred tax asset generally represents future tax benefits to be received when certain expenses previously recognized in our U.S. GAAP-based income statement become deductible expenses under applicable income tax laws.  Thus, realization of a deferred tax asset is dependent on future taxable income against which these deductions can be applied.  SFAS No. 109, “Accounting for Income Taxes,” requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.  In fiscal 2002 and for the three and six months ended April 30, 2003, we recorded a full valuation allowance against all our deferred tax assets. We expect to provide a full valuation allowance on any future tax benefits until we can sustain a level of profitability that demonstrates our ability to utilize these assets. We will not record tax benefits or significant provisions for pre-tax income (loss) until either our deferred tax assets are fully utilized to reduce future income tax liabilities or the value of our deferred tax assets are restored on the balance sheet.  As of April 30, 2003 we had $735.4 million of deferred tax assets that have a full valuation allowance against them and thus are not reflected on the condensed consolidated balance sheet.  Our deferred tax assets expire through October 31, 2022.

Note 4 Comprehensive Loss:

The following table presents the calculation of comprehensive loss as required by SFAS No. 130. Comprehensive loss has no impact on our net loss, balance sheet or shareowners’ investment. The components of comprehensive loss are as follows (in millions):

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	Three months Ended April 30,						Six Months Ended April 30,
	2003			2002			2003			2002
Net loss	$	(29.4	)	$	(89.2	)	$	(70.9	)	$	(134.0	)
Change in cumulative translation adjustments	(1.8		)	2.0			(5.6		)	(6.4		)
Reclassification adjustment for realized (gains) losses on securities classified as available for sale, net-of-tax	—			(15.2		)	—			(19.6		)
Unrealized gain (loss) from securities classified as available for sale, net-of-tax	0.4			(1.5		)	2.6			(2.4		)
Comprehensive loss	$	(30.8	)	$	(103.9	)	$	(73.9	)	$	(162.4	)

Note 5 Divestitures:

During fiscal 2002 and for the six months ended April 30, 2003, we sold or shut down non-strategic product lines.  The net sales and operating income (loss) of the divested product lines are as follows (in millions):

	Three months Ended April 30,					Six Months Ended April 30,
	2003		2002			2003		2002
Net sales	$	0.3	$	4.5		$	1.3	$	11.4
Operating income (loss)	0.2		(41.1		)	0.8		(69.8		)

Note 6 Segment Reporting:

The “management approach” required by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires us to disclose selected financial data by operating segment. This approach is based on the way we organize segments within an enterprise for making operating decisions and assessing performance. We have identified two reportable segments based on our internal organizational structure, management of operations and performance evaluation. These segments are Broadband Infrastructure and Access, and Integrated Solutions. Segment detail is summarized as follows (in millions):

	Broadband Infrastructure and Access			Integrated Solutions			Unallocated Items			Consolidated
Three Months Ended April 30, 2003
External sales:
Product	$	119.7		$	22.4		$	—		$	142.1
Service	—			49.8			—			49.8
Total external sales	119.7			72.2			—			191.9
Impairment, restructuring and other disposal charges(1)	—			—			(17.7		)	(17.7		)
Operating loss	(8.8		)	(0.6		)	(22.0		)	(31.4		)
Other income, net	—			—			2.0			2.0
Pre-tax loss	(8.8		)	(0.6		)	(20.0		)	(29.4		)
Assets	320.6			268.6			362.6			951.8
Three Months Ended April 30, 2002
External sales:
Product	$	205.4		$	29.7		$	—		$	235.1
Service	—			63.2			—			63.2
Total external sales	205.4			92.9			—			298.3
Impairment, restructuring and other disposal charges(2)	—			—			(63.6		)	(63.6		)
In-process research and development	—			—			(10.5		)	(10.5		)
Operating loss	(78.6		)	(6.1		)	(75.8		)	(160.5		)
Other income, net	—			—			27.5			27.5
Pre-tax loss	(78.6		)	(6.1		)	(48.3		)	(133.0		)
Assets	616.3			220.5			1,453.2			2,290.0
Six Months Ended April 30, 2003
External sales:
Product	$	252.2		$	41.7		$	—		$	293.9
Service	—			97.9			—			97.9
Total external Sales	252.2			139.6			—			391.8
Impairment, restructuring and other disposal charges(1)	—			—			(36.2		)	(36.2		)
Operating loss	(19.5		)	(9.3		)	(46.5		)	(75.3		)
Other income, net	—			—			4.4			4.4
Pre-tax loss	(19.5		)	(9.3		)	(42.1		)	(70.9		)
Assets	320.6			268.6			362.6			951.8
Six Months Ended April 30, 2002
External sales:
Product	$	402.5		$	61.3		$	—		$	463.8
Service	—			128.0			—			128.0
Total external sales	402.5			189.3			—			591.8
Impairment, restructuring and other disposal charges(2)	—			—			(68.5		)	(68.5		)
In-process research and development	—			—			(10.5		)	(10.5		)
Operating loss	(140.0		)	(11.7		)	(74.2		)	(225.9		)
Other income, net	—			—			23.0			23.0
Pre-tax loss	(140.0		)	(11.7		)	(51.2		)	(202.9		)
Assets	616.3			220.5			1,453.2			2,290.0

(1)Includes $1.3 million and $1.4 million of inventory write-offs associated with discontinued product lines; $4.3 million and $14.6 of million impairment charges; and $12.1 million and $20.2 million of employee termination, facility consolidation and other charges not allocated to a specific segment for the three and six months ended April 30, 2003, respectively.

(2)Includes $0.7 million and $0.7 million of inventory write-offs associated with discontinued product lines; $16.8 million and $18.7 of million impairment charges; and $46.1 million and $49.1 million of employee termination, facility consolidation and other charges not allocated to a specific segment for the three and six months ended April 30, 2002, respectively.

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Note 7 Impairment, Restructuring and Other Disposal Charges:

During the three and six months ended April 30, 2003 and 2002, we continued our plan to improve operating performance by restructuring and streamlining our operations.  As a result, we incurred impairment charges resulting from the disposal of excess equipment, restructuring charges associated with workforce reductions as well as the consolidation of excess facilities, and other disposal charges associated with inventory write-offs and certain administrative charges related to product line divestitures or shutdowns. The impairment, restructuring and other disposal charges resulting from our actions, by category of expenditures, are as follows for the three and six months ended April 30, 2003 and 2002, respectively (in millions):

Three Months Ended April 30, 2003	Impairment Charges		Restructuring Charges		Selling and Administrative Charges		Cost of Product Sold		Total
Employee severance costs	$	—	$	9.8	$	—	$	—	$	9.8
Fixed asset write-downs	4.3		—		—		—		4.3
Facility consolidation and lease termination	—		2.1		—		—		2.1
Inventory write-offs	—		—		—		1.3		1.3
Other	—		0.2		—		—		0.2
Total	$	4.3	$	12.1	$	—	$	1.3	$	17.7

Three Months Ended April 30, 2002	Impairment Charges		Restructuring Charges		Selling and Administrative Charges			Cost of Product Sold		Total
Employee severance costs	$	—	$	10.4	$	—		$	—	$	10.4
Fixed asset write-downs	16.8		—		—			—		16.8
Facility consolidation and lease termination	—		35.8		—			—		35.8
Inventory write-offs	—		—		—			0.7		0.7
Committed sales contracts – administrative	—		—		(1.3		)	—		(1.3		)
Other	—		1.2		—			—		1.2
Total	$	16.8	$	47.4	$	(1.3	)	$	0.7	$	63.6

Six Months Ended April 30, 2003	Impairment Charges		Restructuring Charges			Selling and Administrative Charges		Cost of Product Sold		Total
Employee severance costs	$	—	$	21.5		$	—	$	—	$	21.5
Fixed asset write-downs	14.6		—			—		—		14.6
Facility consolidation and lease termination	—		(1.4		)	—		—		(1.4		)
Inventory write-offs	—		—			—		1.4		1.4
Other	—		0.1			—		—		0.1
Total	$	14.6	$	20.2		$	—	$	1.4	$	36.2

Six Months Ended April 30, 2002	Impairment Charges		Restructuring Charges		Selling and Administrative Charges			Cost of Product Sold		Total
Employee severance costs	$	—	$	11.9	$	—		$	—	$	11.9
Fixed asset write-downs	18.7		—		—			—		18.7
Facility consolidation and lease termination	—		35.9		—			—		35.9
Inventory write-offs	—		—		—			0.7		0.7
Committed sales contracts – administrative	—		—		(1.3		)	—		(1.3		)
Other	—		2.6		—			—		2.6
Total	$	18.7	$	50.4	$	(1.3	)	$	0.7	$	68.5

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Restructuring Charges:  Employee severance costs relate to workforce reductions resulting from the closure of facilities and other workforce reductions attributable to our efforts to reduce costs.  During the three and six months ended April 30, 2003, approximately 350 and 1,020 employees, respectively, were impacted by reductions in force.  The costs of these reductions will be funded through cash from operations. These reductions have impacted both business segments and were widespread across all employee groups.

Facility consolidation costs represent lease termination costs and other costs associated with our decision to consolidate and close duplicative or excess manufacturing and office facilities.  During the six months ended April 30, 2003, we negotiated a favorable lease termination settlement with a landlord of a leased facility and accordingly reversed $4.2 million of our previous restructuring accrual for this lease settlement.

Other Disposal Charges:  Inventory write-offs represent losses incurred to write down the carrying value of inventory for product lines that have been discontinued.  Revenues and gross margins from these product lines are not material to our consolidated results of operations.

Committed sales contracts – administrative represents the administrative expenses necessary to complete or negotiate settlements with respect to certain committed sales contracts, which costs would normally be classified as selling and administration expenses.  These costs are a direct result of our decision to exit certain product lines.

Impairment Charges: As a result of our intention to sell, scale-back or exit non-strategic businesses, we evaluated our property and equipment assets for impairment. For the three and six months ended April 30, 2003, we recognized $4.3 million and $14.6 million, respectively, of impairment charges in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” For the three and six months ended April 30, 2002, we recognized $16.8 million and $18.7 million, respectively, of impairment charge in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets.”

Effect of Restructuring Charges on Future Cash Flows: The following table provides detail on the activity and our remaining restructuring accrual balance by category as of April 30, 2003 (in millions):

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Type of Charge	Accrual October 31, 2002		Net Additions			Cash Charges		Accrual April 30, 2003
Employee severance costs	$	17.0	$	21.5		$	28.1	$	10.4
Facilities consolidation	105.6		(1.4		)	75.8		28.4
Other	1.6		0.1			0.4		1.3
Total	$	124.2	$	20.2		$	104.3	$	40.1

The total adjustment made to the restructuring accrual balance for changes in assumptions was a $1.0 million increase and $3.2 million reduction during the three and six months ended April 30, 2003, respectively.  The adjustment was primarily related to the termination of a lease for a manufacturing facility used in our optical components business.  We were able to terminate this lease much earlier than our original estimate and at a lower settlement cost than the original estimate.  This adjustment was recorded as an offset to the additions to the accrual, and thus is reflected in the “Net Additions” column in the table above.

We expect that substantially all of the remaining $10.4 million accrual relating to employee severance costs as of April 30, 2003, will be paid from unrestricted cash by the end of fiscal 2003. Of the $28.4 million to be paid for the consolidation of facilities, we expect that approximately $19.1 million will be paid from unrestricted cash through April 30, 2004, and the balance will be paid over the respective lease terms of the facilities through 2008 from unrestricted cash. The remaining balance of $1.3 million will be paid through fiscal 2003 from unrestricted cash as certain committed sales contracts are completed. Based on our intention to continue to reduce our cost structure, we may incur additional restructuring charges (both cash and non-cash) in future periods, which may have a material effect on our operating results.

In addition to the restructuring accrual described above, we have $24.5 million of assets held for sale (of which $4.8 million relates to our Broadband Infrastructure and Access segment and $19.7 million was not allocated to either of our segments). We classified these assets as “Held for Sale” pursuant to our decision to exit non-strategic product lines and to reduce the size of our operations.  We expect to sell or dispose of these assets before April 30, 2004.

Note 8 Joint Ventures:

In January 2001 and December 2001, we entered into a total of three joint ventures with Competence Research and Development Ltd., an independent company.  The joint ventures were established to share development risk and capital resources associated with the ongoing development of technology used in our iAN™, BroadAccess™, and Small Subscriber product lines.  The joint ventures were successful in advancing the development of technology related to these product lines.  When the joint ventures were established we held 34%, 20%, and 49% interests, respectively, in the three joint venture entities.  Because we did not have majority control over the joint ventures, these investments were accounted for using the equity method.  Therefore, a pro rata portion of the joint ventures’ profits or losses is reflected in our condensed consolidated income statement as Other Income (Expense).  During the six months ended April 30, 2002, we incurred $2.6 in equity losses related to these joint ventures. There have been no losses incurred since January 31, 2002.

In December 2001, we purchased Competence’s 66% interest in one of the joint ventures for $3.9 million in cash and the assumption of $16.5 million in debt owed by that joint venture, the proceeds of which were being used to fund the development of technology.  In February 2002, we purchased Competence’s remaining interests in the other joint ventures for a total of approximately $350,000 in cash and the assumption of approximately $4.2 million in debt, the proceeds of which were used to fund the development of the technology.  The debt related to the February 2002 purchases was paid off immediately following the purchases.  We recorded expenses of $10.5 million for in-process research and development projects associated with the purchase of Competence’s interests in these ventures in the second quarter of fiscal 2002.  In addition, $10.3 million was allocated to developed technology, of which $5.3 was written off prior to fiscal 2003.  The remainder is being amortized over a period of seven years.  Appraisals for purchased in-process and developed technology were determined using the income approach, discounted based on the estimated likelihood that the project ultimately would succeed.

Note 9 Variable Interest Entities:

We are a party to an operating lease agreement related to our world headquarters facility in Eden Prairie, Minnesota. This lease expires in October of fiscal 2006. This operating lease, which is sometimes referred to as a “synthetic lease,” contains a minimum residual value guarantee by us at the end of the lease term, and also gives us a purchase option at the end of the lease term. If we choose to retain the property at the end of the lease term, or if the lease is terminated prematurely, we must pay the purchase option price. If we dispose of the property at the end of the lease term, we must pay any shortfall of the sales proceeds as compared to the purchase option price, not to exceed the residual value guarantee to the lessor. The aggregate purchase option price and minimum residual value guarantee from this lease are approximately $47.0 million and $41.3 million, respectively.  Under this lease, we have pledged cash collateral in the aggregate

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amount of $47.0 million, which is part of the restricted cash balance on our condensed consolidated balance sheet.  We currently intend to purchase this property from the lessor during the third quarter of fiscal 2003 for the purchase option price of $47.0 million.

During the three months ended April 30, 2003 we purchased two properties that were subject to synthetic leases from the lessor for $55.9 million.  The properties were purchased using the restricted cash we had previously pledged to secure our lease obligations.  We recorded these assets at their fair market value of $15.7 million, which resulted in a $5.2 million impairment charge and a $35.0 million reduction in our restructuring accrual as we had previously recognized this loss in a prior period. Both purchased properties are classified as assets held for sale on our condensed consolidated balance sheet because we intend to sell them within one year from the date of purchase.  In addition to the assets purchased during the three months ended April 30, 2003, we also purchased two other properties that were subject to synthetic leases during the three months ended January 31, 2003 from the lessor for a total of $45.5 million, using restricted cash pledged for these leases to pay for the purchase price, and immediately sold the facilities for a total of $15.3 million.  The majority of the difference between the purchase price we paid to the lessor and the sales price we received was accrued as part of our restructuring accrual.  The $15.3 million sales proceeds became available to us as unrestricted cash.

Note 10 Guarantees:

In connection with the sale of a participation interest in a customer note receivable for $14.3 million, we guaranteed the payment obligation of the customer to the purchaser of the participation interest.  During the three months ended April 30, 2003 the underlying customer defaulted on the note receivable.  Therefore, we were required to pay the purchaser of the participation interest $14.5 million, which was the outstanding principal and interest on the note receivable at the time the customer defaulted.  Of the $14.5 million payment, we used $14.3 million from our restricted cash that was previously pledged to secure our guarantee with the remainder being paid from unrestricted cash.  This note receivable has been fully reserved for as part of our allowance for doubtful accounts reserve. As of April 30, 2003, we did not have any outstanding guarantees.

We have entered into a variety of agreements with third parties that include indemnification clauses, both in the ordinary course of business and in connection with our divestitures of certain product lines.  These clauses require us to compensate these third parties for certain liabilities and damages incurred by them.  We have not made any significant indemnification payments as a result of these clauses, and in accordance with FASB Interpretation No. 45 “Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” have not accrued any amounts in relation to these indemnification clauses.

Note 11 Subsequent Events:

On June 4, 2003, we issued $400 million of convertible unsecured subordinated notes in two separate transactions pursuant to Rule 144A under the Securities Act of 1933.  This issuance was made through an initial offering of $350 million of convertible notes made on May 29, 2003, and the subsequent exercise in full by the underwriters of such offering of their option to purchase an additional $50 million of convertible notes.  The net proceeds to us from this offering were $355.5 million after underwriting discounts of $10 million and the net payment for the purchased call options and warrant transactions described below.  In the first transaction, we issued $200 million of 1% fixed rate convertible unsecured subordinated notes that mature on June 15, 2008.  In the second transaction, we issued $200 million of convertible unsecured subordinated notes that have a variable interest rate and mature on June 15, 2013.  The interest rate for the variable rate notes is equal to 6-month LIBOR plus 0.375%.  The interest rate for the variable rate notes will be reset on each interest payment date.  Interest on both the fixed and variable rate notes will be paid semiannually on June 15 and December 15 of each year beginning on December 15, 2003.  The holders of both the fixed and variable rate notes may convert all or some of their notes into shares of our common stock at any time prior to maturity at a conversion price of $4.013 per share.  We may not redeem the fixed rate notes prior to their maturity date.  We may redeem any or all of the variable rate notes at any time on or after June 23, 2008.

Concurrent with the issuance of the fixed and variable rate notes, we purchased five and ten-year call options on our common stock to reduce the potential dilution from conversion of the notes.  Under the terms of these call options, which become exercisable upon conversion of the notes, we have the right to purchase from the counterparty at a purchase price of $4.013 per share the aggregate number of shares that we are obligated to issue upon conversion of the fixed and variable notes, which is a maximum of 99.7 million shares.  We also have the option to settle the call options with the counterparty through a net share settlement or cash settlement, either of which would be based on the extent to which the then-current market price of our common stock exceeds $4.013 per share.  The total cost of the call options was $137.3 million, which was recognized in shareowners’ investment.  The cost of the call options was partially offset by the sale of warrants with terms of five and ten years to acquire shares of our common stock to the same counterparty with whom we entered into the call options.  The warrants are exercisable for an aggregate of 99.7 million shares at an exercise price of $5.28 per share.  The warrants become exercisable upon conversion of the notes, and may be settled, at our option, either through a net share settlement or a net cash settlement, either of which would be based on the extent to which the then-current market price of our common stock exceeds $5.28 per share.  The gross proceeds from the sale of the warrants were $102.8 million, which was recognized in shareowners’ investment.  The call options and the warrants are subject to early expiration upon conversion of the notes.  The net effect of the call options and the warrants is to either reduce the potential dilution from the conversion of the

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notes (if we elect net share settlement) or to increase the net cash proceeds of the offering (if we elect net cash settlement) if the notes are converted at a time when the current market price of our common stock is greater than $4.013 per share.

We plan to use the cash proceeds from this offering for general corporate purposes and strategic opportunities, including financing for possible acquisitions or investments in complementary businesses, technologies or products.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business

We are a leading global supplier of broadband network equipment, software and systems integration services that enable communications service providers to deliver high-speed Internet, data, video and voice services to consumers and businesses worldwide. Telephone companies, cable television operators, Internet and data service providers, wireless service providers and other communications service providers are building and upgrading the broadband network infrastructure required to offer high-speed Internet access as well as data, video, telephony and other interactive multimedia services. Our product offerings and development efforts are focused on increasing the speed and efficiency of the last mile/kilometer portion of broadband communications networks, and our product and service offerings help connect communications service providers’ offices to businesses and end users’ homes as well as to wireless communications devices.

Our customers include local and long-distance telephone companies, cable television operators, wireless service providers, new competitive service providers, broadcasters, governments, businesses, system integrators and communications equipment manufacturers and distributors. We offer broadband connectivity components and systems, broadband access and network equipment, software and systems integration services to our customers through the following two segments of product and service offerings:

•Broadband Infrastructure and Access; and

•Integrated Solutions.

Broadband Infrastructure and Access focuses on Internet Protocol (IP)-based offerings for the cable industry, Digital Subscriber Line (DSL) offerings for the telecommunications industry, and broadband connectivity products for wireline, cable and wireless communications network applications.  These products consist of:

•connectivity systems and components that provide the infrastructure to wireline, cable and wireless service providers to connect Internet, data, video and voice services to the network over copper, coaxial and fiber-optic cables, and

•access systems used by wireline, cable and wireless service providers to deliver high-speed Internet, data and voice services to consumers and businesses in the last mile/kilometer of communication networks.

Integrated Solutions products and services consist of systems integration services and operations support systems (OSS) software for broadband, multiservice communications over wireline, and wireless networks. Systems integration services are used to design, equip and build communications networks that deliver Internet, data, video and voice services to consumers and businesses. OSS software includes communications billing, customer management, network performance and service-level assurance software used by service providers to operate communications networks.

Marketplace Conditions

Our operating results during the three and six months ended April 30, 2003, continued to be adversely affected by the downturn in general economic conditions, and adverse conditions in the communications equipment industry in particular. The current geopolitical situation has caused additional uncertainty with respect to the prospects for economic growth generally. In this economic environment, many of our communications service provider customers have deferred capital spending, reduced their communications equipment purchases, and announced plans to further reduce capital expenditures. We have also experienced and expect to continue to experience increased pricing pressure from many of our customers.  A majority of our revenues continue to be derived from telecommunications service providers.  These companies in particular have greatly reduced their spending on communications equipment, resulting in significant reductions in our revenues.  We have also been impacted by reduced or deferred capital spending by our cable industry customers as these customers focus on the profitable deployment of broadband services, which has caused uncertainty with respect to the timing of their plans to expand their networks to offer voice-over Internet Protocol services.  Moreover, some of our customers, both in the telecommunications service industry and the cable industry, have experienced serious financial

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difficulties, which in some cases have resulted in bankruptcy filings or cessation of operations.  We believe that all of the conditions described above are impacting the communications equipment industry generally, and are not unique to us.

As the downturn in the communications service industry continues, we expect there to be some consolidation among our customers in order for them to increase market share, diversify product portfolios and/or achieve greater economies of scale.  This activity is likely to have an impact on our results of operations during the time the consolidating companies focus on integrating their operations and choose their equipment vendors.  There can be no assurance that we will be a supplier to the surviving service provider.  An example of this trend became evident during the six month period ended April 30, 2003, with the acquisition of AT&T Broadband by Comcast Corporation, which has caused uncertainty with respect to our future IP Cable revenues as Comcast integrates AT&T Broadband’s operations.

In addition to the consolidation we expect from our customers, we expect there to be several forms of structural correction in the communications equipment industry.  Over the next twelve to eighteen months we expect some competitors to drop out of the market place due to bankruptcy or shareholder liquidation.  We also believe that companies in the communications equipment industry will form more strategic alliances or consolidate to diversify product portfolios or obtain greater economics of scale. Finally, we expect there to be continuing product line rationalization as companies divest unprofitable product lines in an effort to focus on profitable business opportunities.  We intend to pursue opportunities to acquire additional product lines or businesses that are complimentary to our strategic focus as well as divest non-strategic product lines as we focus on growing our business profitably.  Although we are still reviewing our product portfolio for strategic additions or divestitures, we are considering certain product lines for disposition.  However, no final decisions have been made in this regard.

When the downturn in communications equipment spending first became evident in fiscal 2001, we implemented a cost restructuring plan through which we took steps to reduce operating expenses and capital spending.  As it became evident in 2002 and 2003 that our industry was experiencing a more pronounced and prolonged economic downturn, we took additional cost restructuring measures to realize further cost savings. Our actions to date have included:

•the sale of non-strategic product lines;

•significant reductions in discretionary spending;

•the disposition of surplus equipment; and

•substantial reductions in our workforce.

Demand for communications equipment remains at low levels compared to pre-2001 levels, and as a result of the significant slowdown in capital spending in our target markets, it is difficult to predict the level of future demand in these markets, even in the very short term.  Despite the above-mentioned restructuring actions, we may be unable to meet our anticipated revenue levels in any particular quarter, in which case our operating results could be materially adversely affected for that period if we are unable to further reduce our expenses in time to counteract such a decline in revenue.

On February 20, 2003, the Federal Communications Commission (FCC) adopted rules concerning incumbent local exchange carriers’ network unbundling obligations.  The FCC released their new rules concerning two main areas relating to a carrier’s unbundling obligations - UNE-P and Broadband.  The FCC essentially kept in place the carriers’ current UNE-P obligations, with state interpretations and decisions, and ruled not to require the unbundling of certain network elements in next generation hybrid and fiber networks.  Overall, we do not anticipate that this aspect of the decision will result in increased capital spending by the incumbent carriers in the near term.  With respect to the Broadband portion of the ruling, although we believe that it may encourage long-term investment and commitment to the deployment of broadband networks by incumbent carriers, it is too early to determine what the impact of this ruling may be.

Our results of operations have historically been subject to seasonal factors, with stronger demand for our products during the fourth fiscal quarter ending October 31 (primarily as a result of customer budget cycles and our fiscal year-end incentives) and weaker demand for our products during the first fiscal quarter ending January 31 (primarily as a result of the number of holidays in late November, December and early January, the development of annual capital budgets by our customers during that period, and a general industry slowdown during that period). There can be no assurance that these historical seasonal trends will continue in the future. For instance, due to the economic downturn in the communications equipment and services market during fiscal 2002 and 2001, the trend was not evident in either fiscal year. This trend was also not evident during the first six months of fiscal 2003. A more detailed description of the risks to our business related to seasonality, along with other risk factors associated with our business, can be found in Exhibit 99-a to this Form 10-Q.

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Impairment, Restructuring and Other Disposal Charges

We recorded additional impairment, restructuring, and other disposal charges during the three and six months ended April 30, 2003 and 2002. Impairment charges represent a write-down of the carrying value of property and equipment assets to their estimated fair market value. Restructuring charges represent the direct costs of employee terminations and facility consolidations as a result of downsizing our business. Other disposal charges represent the direct costs of exiting certain product lines. A brief explanation of these charges follows, and a more thorough summary is contained in Note 7 to the Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.

Three Months Ended April 30, 2003 and 2002

During the three months ended April 30, 2003 and 2002, we incurred the following charges (in millions):

		Three Months Ended April 30,
		2003		2002
•	Impairment Charges	$	4.3	$	16.8
•	Restructuring Charges	12.1		47.4
•	Other Disposal Charges	1.3		(0.6		)
		$	17.7	$	63.6

Impairment Charges.  The impairment charges consisted solely of property and equipment impairments, which impacted both the Broadband Infrastructure and Access and Integrated Solutions segments.  The impairment charges were the result of our plan to dispose of excess equipment that resulted from our decision to streamline and reduce the size of our operations.  The fair market value was determined using external sources, primarily proceeds received from previous equipment sales.

Restructuring Charges.  The $12.1 million of restructuring charges incurred during the three months ended April 30, 2003 consist principally of $9.8 million for employee severance costs related to workforce reductions and $2.1 million for facility consolidation and lease termination costs.  The employee terminations affected both the Broadband Infrastructure and Access and Integrated Solutions segments. Approximately 350 employees were impacted by reductions in force during the quarter.  The $2.1 million of facility consolidation costs primarily relates to the consolidation of two facilities associated with our Integrated Solutions segment and a $1.0 million facility consolidation charge as a result of a revised lease termination estimate on a previously vacated facility. The $47.4 million of restructuring charges incurred during the three months ended April 30, 2002 consists principally of $10.4 million for employee severance costs, $35.8 million for facility consolidation and lease termination costs, and $1.2 million of other costs associated with our restructuring activities.

Other Disposal Charges. For the three months ended April 30, 2003 the $1.3 million of other disposal charges represent additional inventory write-offs related to product lines that have been discontinued.  This charge was reported in cost of sales on our condensed consolidated statement of operations.  For the three months ended April 30, 2002 the $(0.6) of other disposal charges represent $0.7 million of inventory write offs that were reported in cost of sales, which were offset by $(1.3) of committed sales contracts – administrative costs that were reported in selling and administrative expenses on our condensed consolidated statement of operations.

Six Months Ended April 30, 2003 and 2002

During the six months ended April 30, 2003 and 2002, we incurred the following charges (in millions):

		Six Months Ended April 30,
		2003		2002
•	Impairment charges	$	14.6	$	18.7
•	Restructuring charges	20.2		50.4
•	Other Disposal charges	1.4		(0.6		)
		$	36.2	$	68.5

Impairment Charges.  The impairment charges consisted solely of property and equipment impairments, which impacted both the Broadband Infrastructure and Access and Integrated Solutions segments.  The impairment charges were the result of our plan to

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dispose of excess equipment that resulted from our decision to streamline and reduce the size of our operations.  The fair market value was determined using external sources, primarily proceeds received from previous equipment sales or estimates of discounted cash flows.

Restructuring Charges.  The $20.2 million of restructuring charges incurred during the six months ended April 30, 2003 consist principally of $21.5 million for employee severance costs related to workforce reduction and $(1.4) million of facility consolidation charges.  The employee terminations affected both the Broadband Infrastructure and Access and Integrated Solutions segments. Approximately 1,020 employees were impacted by reductions in force during the six months ended April 30, 2003.  The $(1.4) million of facility consolidation charges reflects a $(4.2) million reversal of a previous accrual related to a manufacturing facility used in our optical components business.  The $2.1 million of additional facility consolidation charges incurred in the three months ended April 30, 2003, partially offsets this reversal. The $50.4 million of restructuring charges incurred during the six months ended April 30, 2002 consist principally of $11.9 million of employee severance costs, $35.9 million of facility consolidation and lease termination costs and $2.6 million of other costs associated with our restructuring plans.

Other Disposal Charges. For the six months ended April 30, 2003 the $1.4 million of other disposal charges represent additional inventory write-offs related to product lines that have been discontinued.  This charge was reported in cost of sales on our condensed consolidated statement of operations.  For the six months ended April 30, 2002 the $(0.6) of other disposal charges represent $0.7 million of inventory write offs as well as $(1.3) of committed sales contracts — administrative costs that are reported in selling and administrative expenses on our condensed consolidated statement of operations.

Effect of Restructuring Charges on Future Cash Flow

The following table provides detail on the remaining restructuring accrual by category as of April 30, 2003 and October 31, 2002 (in millions):

Type of Charge	Accrual October 31, 2002		Accrual April 30, 2003
Employee severance costs	$	17.0	$	10.4
Facilities consolidation	105.6		28.4
Other	1.6		1.3
Total	$	124.2	$	40.1

We believe that our entire restructuring accrual of $40.1 million as of April 30, 2003, will have to be paid from unrestricted cash as follows:

•Substantially all of the $10.4 million of employee severance costs will be paid through the remainder of fiscal 2003;

•The facility consolidation accrual relates principally to excess leased facilities.  Of the $28.4 million facility consolidation accrual, we estimate $19.1 million will be paid through April 30, 2004, with the remainder being paid over the respective lease terms ending through fiscal 2008; and

•The other $1.3 million accrual primarily relates to certain committed sales contracts–administrative costs and will be paid during the remainder of fiscal 2003.

The restructuring accrual was established based on our assumptions of the relevant costs at the time the restructuring decisions were made.  The accrual is periodically adjusted based on new information and actual costs incurred.  The ultimate resolution of the accrual may result in further adjustments, which may have a material effect on our operating results.  Although most of our restructuring plan initiatives have been implemented, we do not expect to complete our restructuring plan until the end of fiscal 2003.  Accordingly, we expect to continue to incur restructuring charges throughout the current fiscal year and may incur such charges in later fiscal years.

Results of Operations

The following table contains information regarding the percentage to net sales of certain income and expense items for the three and six months ended April 30, 2003 and 2002, and the percentage changes in these income and expense items between periods:

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	Percentage of Net Sales								Percentage Increase or (Decrease) Between Periods
	Three Months Ended April 30,				Six Months Ended April 30,				Three Months Ended April 30,		Six Months Ended April 30,
	2003		2002		2003		2002		2003		2002
Net Sales:
Product	74.0	%	78.8	%	75.0	%	78.4	%	(39.6	)%	(36.6	)%
Service	26.0		21.2		25.0		21.6		(21.2	)	(23.5	)
Total Net Sales	100.0		100.0		100.0		100.0		(35.7	)	(33.8	)
Cost of Sales:
Product	55.1		72.7		55.3		67.2		(54.2	)	(47.9	)
Service	80.7		85.0		87.1		87.0		(25.1	)	(23.4	)
Total Cost of Sales	61.8		75.3		63.2		71.5		(47.2	)	(41.5	)
Gross Profit	38.2		24.7		36.8		28.5		(0.4	)	(14.5	)
Expenses:
Research and development	14.3		17.3		15.2		16.2		(46.7	)	(37.6	)
Selling and administration	31.8		36.2		31.9		37.0		(43.6	)	(43.0	)
Impairment charges	2.2		5.6		3.7		3.2		(74.4	)	(21.9	)
Restructuring charges	6.3		15.9		5.2		8.5		(74.5	)	(59.9	)
In process research and development	—		3.5		—		1.8		(100.0	)	(100.0	)
Total Expenses	54.6		78.5		56.0		66.6		(55.3	)	(44.4	)
Operating Loss	(16.4	)	(53.8	)	(19.2	)	(38.2	)	80.4		66.7
Other Income, Net	1.0		9.2		1.1		3.9		(92.7	)	(80.9	)
Loss Before Income Taxes	(15.3	)	(44.6	)	(18.1	)	(34.3	)	77.9		65.1
Benefit for Income Taxes	—		14.7		—		11.7		(100.0	)	(100.0	)
Net Loss	(15.3	)	(29.9	)	(18.1	)	(22.6	)	67.0		47.1

Net Sales

The following table sets forth our net sales for the three and six months ended April 30, 2003 and 2002, respectively, for each of our functional product and service segments described above (in millions):

	Three Months Ended April 30,								Six Months Ended April 30,
	2003				2002				2003				2002
Product Group	Net Sales		%		Net Sales		%		Net Sales		%		Net Sales		%
Broadband Infrastructure and Access	$	119.7	62.4	%	$	205.4	68.9	%	$	252.2	64.4	%	$	402.5	68.0	%
Integrated Solutions:
Product	22.4		11.7		29.7		9.9		41.7		10.6		61.3		10.4
Service	49.8		25.9		63.2		21.2		97.9		25.0		128.0		21.6
Total Integrated Solutions	72.2		37.6		92.9		31.1		139.6		35.6		189.3		32.0
Total	$	191.9	100.0	%	$	298.3	100.0	%	$	391.8	100.0	%	$	591.8	100.0	%

Net sales were $191.9 million and $391.8 million for the three and six months ended April 30, 2003, respectively, reflecting a 35.7% and 33.8% decrease over the comparable 2002 time periods.  Prior year amounts for the three and six months periods included $3.9 million and $9.5 million of net sales from product lines divested prior to fiscal 2003.  International sales comprised 34.9% and 37.6% of our net sales for the three and six months ended April 30, 2003, respectively, and 27.2% and 27.4% for the three and six months ended April 30, 2002, respectively.

During the three and six months ended April 30, 2003, net sales of Broadband Infrastructure and Access products declined by 41.7% and 37.3%, respectively, over the comparable 2002 time periods.  Net sales in all of our Broadband Infrastructure and Access product lines decreased as a result of lower volumes of products sold due to significant reductions in communications service provider capital budgets, as well as the lack of new network build-outs or significant expansions of existing networks.  In addition, sales of our IP Cable product line decreased as a result of a significant customer being acquired by Comcast Corporation.  Our wireline product line continues to face intense competition which is putting pressure on our market share positions for these products.  In response, we intend to aggressively compete for market share by delivering high quality products and superior customer service at competitive prices.

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During the three and six months ended April 30, 2003, net sales of our Integrated Solutions products declined by 22.3% and 26.3%, respectively, over the comparable 2002 time periods.  Net sales in all of our Integrated Solutions product lines decreased as a result of continued reductions in our customers’ capital spending budgets.  Our software product line experienced declining sales of both service orders and new license orders.  We anticipate that our future revenue in our Integrated Solutions segment will be subject to increased variability due to the timing of customer acceptance and associated revenue recognition for large-scale software installations.

For the six months ended April 30, 2003, the increase in international sales as a percentage of total sales over the comparable fiscal 2002 period was largely attributable to the recognition of $16.0 million of deferred revenue from a European customer during the three months ended January 31, 2003.  In addition, during the three months ended April 30, 2003, we recognized $8.1 million of revenue from a software installation at a large European customer, the majority of which related to license fees, as a result of meeting customer acceptance criteria.  As a percentage of total sales, international sales increased across many regions during the six months ended April 30, 2003 compared to the same 2002 period including Canada, Europe, Japan and the Middle East/Africa region.  We attribute these increases to more pronounced capital spending reductions in the United States than in these other regions.

Gross Profit

During the three and six months ended April 30, 2003, gross profit percentages were 38.2% and 36.8%, respectively, and 24.7% and 28.5% for the three and six months ended April 30, 2002, respectively.  The increase in gross profit percentage was primarily due to a reduction in our fixed costs of sales as a result of our restructuring activities aimed at downsizing our operations in response to the continued downturn in the telecommunications industry. We also benefited from a more favorable sales mix toward our higher margin product lines as well as from production efficiencies and reduced production costs as a result of our decision to outsource portions of our manufacturing operations.   We anticipate that our future gross profit percentage will vary based on many factors, including sales mix, competitive pricing, timing of new product introductions, timing of customer acceptance and collectibility of large-scale sales transactions and manufacturing volume.

Operating Expenses

Total operating expenses for the three and six months ended April 30, 2003, were $104.8 million and $219.4 million, respectively, representing 54.6% and 56.0% of net sales, respectively. Included in these operating expenses were restructuring charges of $12.1 million and $20.2 million and impairment charges of $4.3 million and $14.6 million for the three and six months ended April 30, 2003, respectively, which are discussed above.  Total operating expenses for the three and six months ended April 30, 2002, were $234.2 million and $394.4 million, respectively, representing 78.5% and 66.6% of net sales, respectively.  Included in these operating expenses were restructuring and in process research and development charges of $56.6 million and $59.6 million, respectively, and impairment charges of $16.8 million and $18.7 million, respectively.  The decrease in absolute dollars and as a percentage of revenue of our operating expenses was primarily due to a significant reduction in the dollar amount of our restructuring and impairment charges, the ongoing cost savings from our restructuring efforts as well as the divestiture of certain business units and product lines. We will continue to monitor our operating expenses for opportunities to further reduce our operating costs.

Research and development expenses were $27.4 million and $59.7 million for the three and six months ended April 30, 2003, respectively, compared to $51.4 million and $95.6 million during the three and six months ended April 30, 2002, respectively.  This represents a decrease of 46.7% and 37.6% during the three and six months ended April 30, 2003 over the comparable 2002 time periods.  Research and development expenses decreased by $10.6 million and $20.8 million from the comparable 2002 three and six-month periods due to the divestiture or discontinuance of certain business units and product lines in fiscal 2002. We believe that, given the rapidly changing technological and competitive environment in the communications equipment industry, continued commitment to product development efforts will be required for us to remain competitive. Accordingly, we intend to continue to allocate substantial resources, as a percentage of our net sales, to product development in each of our operating segments.

Selling and administration expenses were $61.0 million and $124.9 million for the three and six months ended April 30, 2003, respectively, which was a decrease of 43.6% and 43.0% from $108.1 million and $219.2 million for the three and six months ended April 30, 2002, respectively. This decrease reflected the effects of our restructuring efforts.  In addition, selling and administrative expenses decreased by $18.6 million and $27.4 million from the comparable 2002 three and six month periods due to the divestiture or discontinuance of certain business units and product lines in fiscal 2002.

Other Income (Expense), Net

The following table provides a breakdown of other income and expenses for the three and six months ended April 30, 2003 and 2002 (in millions):

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	Three months ended April 30,						Six months ended April 30,
	2003			2002			2003			2002
Interest income	$	1.6		$	2.2		$	2.7		$	3.0
Loss on sale of product lines	—			—			(2.8		)	—
Gain on write-down or sale of investments	—			4.3			2.0			8.9
Gain (loss) on sale of fixed assets	(1.5		)	1.4			(1.0		)	(2.3		)
Loss on equity investment	—			(0.1		)	—			(3.5		)
Gain on patent infringement settlement	—			26.2			—			26.2
Other	1.9			(6.5		)	3.5			(9.3		)
Total Other Income	$	2.0		$	27.5		$	4.4		$	23.0

Income Taxes

As a result of our cumulative losses over the past two fiscal years and the full utilization of our loss carryback potential, we are not recognizing a tax benefit on our pretax losses until we can sustain a level of profitability that demonstrates our ability to utilize our deferred tax assets. Therefore, the effective income tax rate for the three and six months ended April 30, 2003 was zero. The effective income tax rate for the three and six months ended April 30, 2002 was 32.9% and 34.0%, which resulted in part from lower effective tax rates applied to restructuring charges as well as certain non-deductible impairment charges.

Net Loss

Net loss was $29.4 million (or $0.04 per diluted share) and $70.9 million (or $0.09 per diluted share) for the three and six months ended April 30, 2003, respectively, compared to net loss of $89.2 million (or $0.11 per diluted share) and $134.0 million (or $0.17 per diluted share) for the three and six months ended April 30, 2002, respectively.

Application of Critical Accounting Policies and Estimates

There were no significant changes to our critical accounting policies during the three and six months ended April 30, 2003.  See our Annual Report on Form 10-K for fiscal 2002 for a discussion of our critical accounting policies.

Liquidity and Capital Resources

Cash

Cash and cash equivalents, primarily short-term investments in commercial paper with maturities of less than 90 days and other short-term investments had a balance of $374.5 million at April 30, 2003, which is an increase of $95.6 million compared to October 31, 2002.  The major sources of cash during the six months ended April 30, 2003, were $125.6 million in income tax refunds and a $109.1 million reduction in restricted cash.  Of the $109.1 million reduction in restricted cash, $101.4 million was used to purchase four properties subject to operating leases.  In addition, $14.3 million of previously restricted cash was used to pay a guarantee of a customer note receivable.  Other cash outflows included $13.2 million used to fund investing and financing activities such as net property plant and equipment additions and the repayment of long-term debt and $10.2 million of cash outflows associated with working capital management and net cash losses from operations.

As of April 30, 2003, we had restricted cash of $67.8 million.  Restricted cash represents cash pledged to various financial institutions to secure certain of our obligations, and thus is not available to us for working capital.  Of this restricted cash, $47.0 million relates to a long-term operating lease obligation for our world headquarters facility, with the remainder representing cash collateral for letters of credit and foreign currency hedging activities.  We expect that $47.0 million of our restricted cash will be used to settle the long-term lease obligation it secures, and accordingly, will never become available to us for general working capital purposes.  The remainder of the restricted cash is expected to become available to us upon satisfaction of the obligations pursuant to which the letters of credit and currency hedging arrangements were issued.  We are entitled to the interest earnings on our restricted cash balances.

During the six months ended April 30, 2002, cash decreased $39.1 million compared to October 31, 2001.  In addition, as of April 30, 2002, we held approximately $37.3 million in marketable securities.  The major elements of the 2002 change included $232.4 million in positive cash flow from improved working capital management in addition to income tax refunds and a patent infringement settlement, which were offset by a $260.1 increase in restricted cash.

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Finance-related Transactions

During the three months ended April 30, 2003, we cancelled our accounts receivable securitization arrangement because we did not plan to utilize this arrangement.  We entered into this arrangement with a financial institution in December 2001, and the arrangement was intended to function much like a revolving line of credit, but with a lower cost of funds than a traditional revolving line of credit.  Pursuant to this arrangement, we were able to sell certain of our U.S.-sourced accounts receivable to the financial institution without recourse to us.  The accounts receivable securitization agreement was never utilized.

Vendor Financing

We have worked with customers and third-party financiers to find a means of funding customer equipment purchases from us  by negotiating financing arrangements. As of April 30, 2003 and 2002, we had commitments to extend credit of approximately $57.8 million and $56.0 million, respectively, under such arrangements. The total amount drawn and outstanding under the commitments was approximately $21.6 million and $45.0 million as of April 30, 2003 and 2002, respectively. The commitments to extend credit are conditional agreements generally having fixed expiration or termination dates and specific interest rates, conditions and purposes. These commitments may expire without being drawn.   Some of these commitments enable the customer to draw on the commitment after the customer has made payment to us for the products we sold, up to the amount the customer previously paid to us.  Accordingly, amounts committed may affect future cash flows. We regularly review all outstanding commitments, and the results of these reviews are considered in assessing the overall risk for possible credit losses. At April 30, 2003, we have recorded approximately $19.0 million in loss reserves in the event of non-performance under these financing arrangements.

In connection with the sale of a participation interest in a customer note receivable for $14.3 million, we guaranteed the payment obligation of the customer to the purchaser of the participation interest.  During the three months ended April 30, 2003 the customer defaulted on the note receivable.  Therefore, we were required to pay the purchaser of the participation interest $14.5 million, which was the outstanding principal and interest amount on the note receivable at the time the customer defaulted.  Of the $14.5 million payment, we used $14.3 million from our restricted cash that was previously pledged to secure our guarantee with the remainder being paid from unrestricted cash. This note receivable has been fully reserved for as part of our allowance for doubtful accounts reserve.

Working Capital Outlook

Our main source of liquidity continues to be our unrestricted cash on hand.  We expect to receive a federal income tax refund of approximately $10 million during the third fiscal quarter of 2003.  In addition, On June 4, 2003, we issued $400 million of convertible unsecured subordinated notes in two separate transactions pursuant to Rule 144A under the Securities Act of 1933, pursuant to which we realized net proceeds of $355.5 million.  See Note 11 to the Condensed Consolidated Financial Statements for a description of this transaction.

We expect to continue to use our unrestricted cash to fund operating losses in the near term and to pay our $40.1 million restructuring accrual.  We believe that our current unrestricted cash on hand, cash from the expected federal income tax refund, and cash proceeds from the recent convertible note financing transaction should be adequate to fund our working capital requirements, planned capital expenditures, and restructuring costs through fiscal 2003 and beyond.

We believe that the additional liquidity provided by our recent convertible note financing transaction will also enable us to pursue strategic opportunities, including possible product line or business acquisitions.  However, if one or more acquisition opportunities exceeds our existing capital resources, additional sources of capital may be required.  Given the current state of the communications equipment industry, there are few alternatives available as sources of financing.  Commercial bank financing is not available at this time to us or to many companies in our industry.  Accordingly, any plan to raise additional capital would likely involve an equity-based or equity-linked financing, such as another issuance of convertible debt or the issuance of common stock or preferred stock, which would be dilutive to existing shareholders.  Following the completion of our recent convertible note financing transaction, we have only approximately 10 million shares of common stock available for issuance under our articles of incorporation after taking into account our share reserves for our stock option plans and employee stock purchase plan.  Accordingly, any plan to raise capital through the issuance of shares of common stock or securities convertible into common stock may require an amendment to our articles of incorporation, which would require the approval of shareowners.

Off-balance Sheet Arrangements

We are a party to an operating lease agreement related to our world headquarters facility in Eden Prairie, Minnesota.  This lease expires in October of fiscal 2006. This operating lease, which is sometimes referred to as a “synthetic lease,” contains a minimum residual value guarantee by us at the end of the lease term and also grants us a purchase option at the end of the lease term. If we choose to retain the property at the end of the lease term, or if the lease is terminated prematurely, we must pay the purchase option price. If we dispose of

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the property at the end of the lease term, we must pay any shortfall of the sales proceeds as compared to the purchase option price, not to exceed the amount of the residual value guarantee to the lessor. The aggregate purchase option price and minimum residual value guarantee from this lease is approximately $47.0 million and $41.3 million, respectively. Our obligations under the lease is secured by $47.0 million in cash collateral, which is classified as part of the restricted cash on our condensed consolidated balance sheet.

This lease arrangement was originally entered into as an economical means of financing the construction of our world headquarters facility.  Subsequently, the purchase option price for this facility was fully cash collateralized.  As a result, we do not currently receive any financing benefits from this arrangement.  During the three and six months ended April 30, 2003, we incurred rent expense under this lease in the amount of $0.4 million and $0.6 million, respectively.  During the three and six months ended April 30, 2002, we incurred rent expense under this lease in the amount of $1.3 million and $2.8 million, respectively.  During the three and six months ended April 30, 2003 and 2002, we incurred cash outlays from our unrestricted cash (for payment of rent) of like amounts.  We intend to purchase this facility prior to July 31, 2003, and intend to use the existing restricted cash of $47.0 million to pay the purchase option price.

During the three months ended April 30, 2003, we purchased two properties that were subject to synthetic leases for $55.9 million.  The properties were purchased using the restricted cash that was previously pledged to secure our lease obligations. We recorded these assets at their fair market value of $15.7 million, which resulted in a $5.2 million impairment charge and a $35.0 million reduction in our restructuring accrual because we had previously recognized this loss in a prior period. Both purchased properties are classified as assets held for sale on our condensed consolidated balance sheet as we intend to sell them within one year from the date of purchase.  The net sales proceeds obtained from a buyer of these facilities would be available to us as unrestricted cash.  During the three months ended January 31, 2003, we purchased two other leased properties (which had similar lease financing arrangements) for a total of $45.5 million, and used the restricted cash pledged for these leases to pay the purchase price.  The majority of the difference between the purchase price we paid to the lessor and the sales price we received was accrued as part of our restructuring accrual.  We immediately sold the facilities for a total of $15.3 million, which became available to us as unrestricted cash.

In connection with our investment activity, we invested in two independent venture capital funds in fiscal 2000.  Our investments in these funds are recorded as long-term assets on our condensed consolidated balance sheet.  We committed to invest an aggregate of $15.0 million in these funds as the fund managers made capital calls.  During the three and six months ended April 30, 2003, we contributed $0.0 million and $0.7 million, respectively, to these funds.  During the three and six months ended April 30, 2002 we contributed $0.1 and $0.2 million, respectively to these funds.  As of April 30, 2003, our outstanding unfunded commitment totaled $8.7 million.  We expect that our remaining commitment will be funded through the use of unrestricted cash on hand over the course of the next three years.

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, as well as the Notes to the Condensed Consolidated Financial Statements, contain 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 our expectations or beliefs concerning future events, including but not limited to the following: any statements regarding future sales, profit percentages, earnings per share and other results of operations, our estimates of probable liabilities relating to pending litigation, the continuation of historical trends, the sufficiency of our cash balances and cash generated from operating and financing activities for our future liquidity and capital resource needs and the effect of regulatory changes.  We caution that any forward-looking statements made by us in this report or in other announcements made by us are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements.  These include, without limitation:    the magnitude and duration of the significant downturn in the communications equipment industry which began in 2001, particularly with respect to the demand for equipment by telecommunication service providers, from which a majority of our revenues are derived; our ability to restructure our business to achieve operating profitability; macroeconomic factors that influence the demand for telecommunications services and the consequent demand for communications equipment; possible consolidation among our customers, which could cause disruption in our customer relationships or displacement of us as an equipment vendor to the surviving entity; our ability to keep pace with rapid technological change in our industry; our ability to make the proper strategic choices with respect to product line acquisitions or divestitures; increased competition within our industry and increased pricing pressure from our customers; our dependence on relatively few customers for a majority of our revenues; fluctuations in our operating results from quarter-to-quarter, which are influenced by many factors outside of our control, including variations in demand for particular products in our portfolio which have varying profit margins; the impact of regulatory changes on our customers’ willingness to make capital expenditures for our equipment, software and services; financial problems, work interruptions in operations or other difficulties faced by some of our customers, which can influence future sales to these customers as well as our ability to collect amounts due us; economic and regulatory conditions outside of the United States, as approximately 25-35% of our sales come from non-U.S. jurisdictions; our ability to protect our intellectual property rights and defend against infringement claims made by third parties; possible limitations on our ability to raise additional capital if required, either due to unfavorable market conditions, lack of investor demand or the current corporate charter limitation on our ability to issue additional shares of common stock; our ability to attract and retain qualified employees; potential liabilities that could arise if there are design or manufacturing defects with respect to any of our products;

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our ability to obtain raw materials and components, and our increased dependence on contract manufacturers to make certain of our products; changes in interest rates, foreign currency exchange rates and equity securities prices, all of which will impact our operating results; our ability to successfully defend or satisfactorily settle our pending litigation; and other risks and uncertainties, including those identified in Exhibit 99-a to this Form 10-Q.  We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in security prices, foreign exchange rates and interest rates. Market fluctuations could affect our results of operations and financial condition adversely. We, at times, reduce this risk through the use of derivative financial instruments. We do not enter into derivative financial instruments for the purpose of speculation.

We are exposed to interest rate risk as a result of issuing $200 million of convertible unsecured subordinated notes that have a variable interest rate on June 4, 2003.  The interest rate on these notes is equal to 6-month LIBOR plus 0.375%.  The interest rate on these notes will reset semiannually on each interest payment date, which is June 15 and December 15 of each year until their maturity in fiscal 2013.  Assuming interest rates rise 1%, 5% and 10%, our annual interest expense would increase by $2.0 million, $10.0 million and $20.0 million, respectively.

We offer a non-qualified 401(k) excess plan to allow certain executives to defer earnings in excess of the annual individual contribution and compensation limits on 401(k) plans imposed by the U.S. Internal Revenue Code.  Under this plan, the salary deferrals and our matching contributions are not placed in a separate fund or trust account. Rather, the deferrals represent an unsecured general obligation of ADC to pay the balance owing to the executives upon termination of their employment.  In addition, the executives are able to elect to have their account balances indexed to a variety of diversified mutual funds (stock, bond and balanced), as well as to ADC common stock.  Accordingly, our outstanding deferred compensation obligation under this plan is subject to market risk.  As of April 30, 2003, our outstanding deferred compensation obligation related to the 401(k) excess plan was $6.6 million, of which approximately $1.4 million was indexed to ADC common stock.  Assuming a 20%, 50% and 100% aggregate increase in the value of the investment alternatives to which the account balances may be indexed, our outstanding deferred compensation obligation would increase by $1.3 million, $3.3 million and $6.6 million, respectively, and we would incur an expense of a like amount.

We are exposed to market risk from changes in foreign exchange rates. To mitigate the risk from these exposures, we have instituted a balance sheet hedging program. The objective of this program is to protect our net monetary assets and liabilities in non-functional currencies from fluctuations due to movements in foreign exchange rates. The program operates in markets where hedging costs are beneficial. We attempt to minimize exposure to currencies in which hedging instruments are unavailable or prohibitively expensive by managing our operating activities and net asset positions. The majority of hedging instruments utilized are forward contracts with maturities of less than one year.  Foreign exchange contracts reduce our overall exposure to exchange rate movements, since gains and losses on these contracts offset losses and gains on the underlying exposure.

ITEM 4.  DISCLOSURE CONTROLS AND PROCEDURES

Within the 90-day period prior to the filing of this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures.  Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are effective to satisfy the objectives for which they are intended.  Subsequent to the date of our management’s evaluation, there were no significant changes in our internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On March 5, 2003, we were served with a shareowner lawsuit brought by Wanda Kinermon that has been filed in the United States District Court for the District of Minnesota.  The complaint names ADC, William J. Cadogan, our former Chairman and Chief Executive Officer, and Robert E. Switz, our Executive Vice President and Chief Financial Officer, as defendants.  This lawsuit purports to bring suit on behalf of a class of purchasers of our publicly traded securities from November 2000 to March 28, 2001.  Since this lawsuit was served, we have been named as a defendant in 11 other substantially similar lawsuits.  The complaints allege

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that we violated the securities laws and our fiduciary duties by making false and misleading statements about our financial performance and business prospects.  We anticipate that these shareowner class actions will be consolidated in the near future.

On May 19, 2003, we were served with a lawsuit brought by Lorraine Osborne that has been filed in the United States District Court for the District of Minnesota.  The complaint names ADC, the third party we utilize to administer and serve as trustee of our Retirement Savings Plan and several of our current and former officers and directors as defendants.  On May 21, 2003, we were served with a substantially similar lawsuit.  These lawsuits have been brought by individuals who seek to represent a class of participants in our Retirement Savings Plan who purchased our common stock as one of the investment alternatives under the plan.  The lawsuits allege a breach of fiduciary duties under the Employee Retirement Income Security Act.  We anticipate that these two lawsuits will be consolidated in the near future.

We believe that all of the above lawsuits are without merit and intend to defend these actions vigorously.  However, litigation is by its nature uncertain and unfavorable resolutions of these lawsuits could materially adversely affect our business, results of operations or financial condition.

We are a party to various other lawsuits, proceedings and claims arising in the ordinary course of business or otherwise.  The amount of monetary liability resulting from an adverse result in many of such lawsuits, proceedings or claims cannot be determined at this time.  As of April 30, 2003, we had recorded approximately $17.4 million in loss reserves in the event of such adverse outcomes in these matters.  Litigation by its nature is uncertain.  Therefore, it is possible that unfavorable resolutions of these lawsuits, proceedings and claims could exceed the amount currently reserved and could have a material adverse affect on our business, results of operations or financial condition.

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.Our annual meeting of shareowners was held on March 4, 2003.

b and c.At the annual meeting, John A. Blanchard III, B. Kristine Johnson and Jean-Pierre Rosso were elected as directors for terms expiring at the annual meeting of our shareowners in 2006 and Mickey P. Foret was elected as a director for a term expiring at the annual meeting of our shareowners in 2005.  The following table shows the vote totals with respect to the election of these directors:

Name	Votes For	Authority Withheld
John A. Blanchard III	670,238,226	34,842,615
B. Kristine Johnson	677,056,036	28,024,805
Jean-Pierre Rosso	677,084,712	27,996,129
Mickey P. Foret	690,952,435	14,128,406

James C. Castle, Richard R. Roscitt, and John D. Wunsch continued as directors for terms expiring at the annual meeting of shareowners in 2005, and Robert Annunziata, John J. Boyle III, Larry W. Wangberg and Charles D. Yost continued as directors for terms expiring at the annual meeting of shareowners in 2004.

At the annual meeting, our shareowners also approved an amendment to our Global Stock Incentive Plan to permit a one-time exchange of certain outstanding stock options for a smaller number of stock options with a new exercise price and vesting schedule.  The following table shows the vote totals with respect to the amendment to our Global Stock Incentive Plan:

Votes For	Votes Against	Abstentions
600,832,899	97,116,785	7,131,155

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ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a.Exhibits

See Exhibit Index on page 26 for a description of the documents that are filed as exhibits to this Quarterly Report on Form 10-Q or incorporated by reference herein.  Any document incorporated by reference is identified by a parenthetical referencing the SEC filing which included the document.  We will furnish to a securityholder upon request a copy of any Exhibit at cost.

b.Reports on Form 8-K

We filed the following Current Report on Form 8-K during the quarter ended April 30, 2003:

Date	Item Reported
February 19, 2003	Item 9 and Item 12 – February 19, 2003 news release announcing our first quarter earnings.

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:  June 13, 2003	ADC TELECOMMUNICATIONS, INC.
	By:	/s/ Robert E. Switz
		Robert E. Switz
		Executive Vice President and Chief Financial Officer, Principal Financial Officer and Duly Authorized Officer

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CERTIFICATIONS

I, Richard R. Roscitt, the Chief Executive Officer of ADC Telecommunications, Inc., certify that:

1.I have reviewed this quarterly report on Form 10-Q of ADC Telecommunications, Inc.;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function);

a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  June 13, 2003
	/s/ Richard R. Roscitt
	Richard R. Roscitt
	Chief Executive Officer

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I, Robert E. Switz, the Chief Financial Officer of ADC Telecommunications, Inc., certify that:

1.I have reviewed this quarterly report on Form 10-Q of ADC Telecommunications, Inc.;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)designed such disclosure controls and procedures to ensure that material information related to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function);

a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  June 13, 2003
	/s/ Robert E. Switz
	Robert E. Switz
	Chief Financial Officer

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ADC TELECOMMUNICATIONS, INC.

EXHIBIT INDEX TO FORM 10-Q
FOR THE THREE MONTHS ENDED APRIL 30, 2003

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 ADC’s Form 10-Q for the quarter ended April 30, 1996.)
4-b	Restated Articles of Incorporation of ADC Telecommunications, Inc., as amended prior to January 20, 2000. (Incorporated by reference to Exhibit 4.1 to ADC’s Registration Statement on Form S-3 dated April 15, 1997.)
4-c	Articles of Amendment to Restated Articles of Incorporation of ADC Telecommunications, Inc. dated January 20, 2000. (Incorporated by reference to Exhibit 4.6 to ADC’s Registration Statement on Form S-8 dated March 14, 2000.)
4-d	Articles of Amendment to Restated Articles of Incorporation of ADC Telecommunications, Inc., dated June 30, 2000. (Incorporated by reference to Exhibit 4-g to ADC’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2000.)
4-e	Restated Bylaws of ADC Telecommunications, Inc., as amended effective July 30, 2002.  (Incorporated by reference to exhibit 4-e ADC’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2002)
4-f	Second Amended and Restated Rights Agreement, amended and restated as of November 28, 1995, between ADC Telecommunications, Inc. and Wells Fargo Bank Minnesota, N.A. (formerly 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 ADC’s Form 8-K dated December 11, 1995.)
4-g	Amendment to Second Amended and Restated Rights Agreement dated as of October 6, 1999. (Incorporated by reference to Exhibit 4-c to ADC’s Form 10-K for the fiscal year ended October 31, 1999.)
4-h	Amendment No. 2, dated as of November 15, 2000, to Second Amended and Restated Rights Agreement among ADC Telecommunications, Inc., Wells Fargo Bank Minnesota, N.A. (formerly Norwest Bank Minnesota, N.A.) and Computershare Investment Services, LLC. (Incorporated by reference to Exhibit 4.8 to ADC’s Registration Statement on Form S-8 dated February 28, 2001.)
4-i	Letter Agreement dated May 28, 2003, between ADC Telecommunications, Inc., and Computershare Investor Services, LLC regarding Second Amended and Restated Rights Agreement dated as of November 28, 1995, as amended.
10-a	ADC Telecommunications, Inc., Global Stock Incentive Plan (as amended and restated through March 4, 2003).
10-b	Letter dated April 18, 2003 to Asset Funding Corporation regarding Termination of Receivables Purchase Agreement dated December 12, 2001, among ADC Receivables Corp. I, ADC Telecommunications, Inc., Blue Ridge Asset Funding Corporation and Wachovia Bank, N.A.
99-a	Cautionary Statement Regarding Forward-Looking Statements
99-b	Certifications pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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EX-4.I

Exhibit 4-i

May 28, 2003

ADC Telecommunications, Inc.

13625 Technology Drive

Eden Prairie, Minnesota 55440

Re:Second Amended and Restated Rights Agreement, dated as of November 28, 1995, as amended by the Amendment to Rights Agreement dated as of October 6, 1999, and the Amendment No. 2 to Rights Agreement dated November 15, 2000 (as amended, the “Rights Agreement”) between ADC Telecommunications, Inc., a Minnesota corporation (the “Company”) and Computershare Investor Services, LLC, a Delaware limited liability company, as Rights Agent (the “Rights Agent”)

Gentlemen:

Pursuant to your request, we hereby waive compliance with the requirements of Section 9(a) of the Rights Agreement that the Company use its best efforts to cause to be reserved and keep available, out of its authorized and unissued shares of Common Stock (as defined in the Rights Agreement), the number of shares of Common Stock that, except as provided in Section 11(a)(iv) of the Rights Agreement, will be sufficient to permit the exercise in full of all outstanding Rights (as defined in the Rights Agreement).  The Rights Agent shall be entitled to resign as Rights Agent pursuant to Section 21 of the Rights Agreement, if one of the following events does not occur on or prior to December 31, 2003:  (a) the Company is in compliance with the provisions of Section 9(a) of the Rights Agreement; (b) the Company and the Rights Agent amend the Rights Agreement in a manner such that the provisions of Section 9(a) are no longer applicable or the Company is in compliance with the provisions of Section 9(a); or (c) the Company adopts a new rights agreement, or otherwise terminates the Rights Agreement.  Except as set forth in this letter agreement, all other provisions of the Rights Agreement remain in full force and effect.

Very truly yours,
Computershare Investor Services, LLC
By:	/s/ Peter Mocklen
	Peter Mocklen
	Executive Vice President

Accepted and agreed to as of the date written above:

ADC Telecommunications, Inc.
By:	/s/ Robert E. Switz
	Robert E. Switz
	Executive Vice President, Chief Financial Officer

EX-10.A

Exhibit 10-a

ADC TELECOMMUNICATIONS, INC.

GLOBAL STOCK INCENTIVE PLAN

(as amended and restated through March 4, 2003)

Section 1.  Purpose.

The purposes of the ADC Telecommunications, Inc. Global Stock Incentive Plan (the “Plan”) are to:  (i) aid in maintaining and developing key employees capable of assuring the future success of ADC Telecommunications, Inc. (the “Company”), and to offer such personnel incentives to put forth maximum efforts for the success of the Company’s business; (ii) to enhance the Company’s ability to attract and retain the services of experienced and knowledgeable outside directors; and (iii) to afford such key employees and outside directors an opportunity to acquire a proprietary interest in the Company, thereby aligning their interests with the interests of the Company’s shareholders.

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, Dividend Equivalent or Performance Award 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 “Non-Employee Director” within the meaning of Rule 16b-3.

(f)“Dividend Equivalent” shall mean any right granted under Section 6(f) of the Plan.

(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)“Outside Director” shall mean each member of the Board of Directors of the Company that is not also an employee of the Company or any Affiliate of the Company.

(m)“Participant” shall mean either a Key Employee or an Outside Director designated to be granted an Award under the Plan.

(n)“Performance Award” shall mean any right granted under Section 6(d) of the Plan.

(o)“Person” shall mean any individual, corporation, partnership, association or trust.

(p)“Restricted Stock” shall mean any Share granted under Section 6(c) of the Plan.

(q)“Restricted Stock Unit” shall mean any unit granted under Section 6(f) of the Plan evidencing the right to receive a Share at some future date.

(r)“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.

(s)“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.

(t)“Stock Appreciation Right” shall mean any right granted under Section 6(b) of the Plan.

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

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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), as of November 1, 2001, the number of Shares available for the issuance of shares under outstanding Awards and the granting of future Awards under the Plan shall be 149,308,431.  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.

(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.  The aggregate number of Shares available as of November 1, 2001 for outstanding Incentive Stock Options and for granting Incentive Stock Options under the Plan shall not exceed 149,308,431, 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, and any Outside Director shall be eligible to be designated a Participant; provided, however, that an Incentive Stock Option shall not be granted to an Outside Director or 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.

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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:

(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 average of the high and low daily trading prices (rounded down to the nearest whole cent) of a Share as reported on the Nasdaq National Market System, if the Shares are then quoted on the Nasdaq National Market System or (ii) the average of the high and low daily trading prices (rounded down to the nearest whole cent) of a Share on a national securities exchange, if the shares are then being traded an a national securities exchange on the date of grant of such Option.

(ii)Option Term.  The term of each Option shall be fixed by the Committee, but such term shall not exceed 10 years from the date on which such Option is granted.

(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 exercise price for an Option as described in Section 6(a)(i) hereof 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.  The Committee is hereby authorized to grant Awards of Restricted Stock 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 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.

(iii)Forfeiture; Delivery of Shares.  Except as otherwise determined by the Committee, upon termination of employment or upon resignation or removal as an Outside Director (as determined under criteria established by the Committee) during the applicable restriction period, all Shares of Restricted Stock at such time subject to restriction shall be forfeited and reacquired by the Company; provided,

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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.  Shares representing Restricted Stock that are no longer subject to restrictions shall be delivered to the holder thereof promptly after the applicable restrictions lapse or are waived.

(iv)Limit on Restricted Stock Awards.  Grants of Restricted Stock shall be subject to the limitations set forth in Section 6(e) hereof.

(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) shall be granted and payable in Shares (including, without limitation, Restricted Stock) and (ii) shall confer on the holder thereof the right to receive Shares 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 number of shares to be issued pursuant to any Performance Award shall be determined by the Committee.  Grants of Performance Awards shall be subject to the limitations set forth in Section 6(e) hereof.

(e)Limit on Restricted Stock and Performance Awards.  The maximum number of Shares under the Plan available for grants of Restricted Stock and Performance Awards made from and after February 27, 2001, in the aggregate, shall be 4,000,000 Shares.

(f)Restricted Stock Units and Dividend Equivalents.  The Committee is hereby authorized to grant Awards of Restricted Stock Units solely in connection with an arrangement whereby Outside Directors can elect to exchange all or a portion of their cash retainer (whether for board service or service on a committee of the Board) for such Restricted Stock Units.  No Shares shall be issued at the time such Awards are granted, and the Restricted Stock Units shall be subject to such restrictions and other terms and conditions as the Committee may impose.  In addition, the Committee is hereby authorized to grant Dividend Equivalents to the holders of Restricted Stock Units, which Dividend Equivalents entitle such holders to receive payments (in cash or Shares and either currently or on a deferred basis, as determined by the Committee) equivalent to the amount of cash dividends paid by the Company to holders of Shares.  Such Dividend Equivalents may have other terms and conditions consistent with the terms of the Plan, as determined by the Committee.

(g)General.

(i)No Cash Consideration for Awards.  Except with respect to Awards authorized by Section 6(f), 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.

(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 installments or deferred payments.

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(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 “family member” (as such term is used in Form S-8 under the Securities Act of 1933) of such Participant, provided that (1) there is no consideration for such transfer or such transfer is effected pursuant to a domestic relations order in settlement of marital property rights, and (2) the Non-Qualified Stock Options held by such transferees continue to be subject to the same terms and conditions (including restrictions or subsequent transfers) as were applicable to such Non-Qualified Stock 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(g)(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.  Subject to the terms of the Plan, 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 than 4,000,000 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.

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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, subject to Section 7(c) of the Plan.  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)Prohibition on Option Repricing.  The Committee shall not reduce the exercise price of any outstanding Option, whether through amendment, cancellation or replacement grants, or any other means, without shareholder approval.  In accordance with shareholder approval granted on March 4, 2003, the Company may offer to exchange certain outstanding Options in accordance with the provisions set forth on Exhibit A attached hereto and made a part hereof.

(d)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 (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

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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)Terms of Awards.  The specific terms of an Award pursuant to the Plan shall be set forth in an Award Agreement duly executed (by manual, facsimile or electronic signature) 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 or Directorship.  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 or any right to remain as a member of the Board of Directors, as the case may be.  In addition, the Company or an Affiliate may at any time dismiss a Participant from employment (or remove an Outside Director), 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 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.

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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.

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EXHIBIT A

The Company may offer, on a one-time basis, to exchange outstanding Options with an exercise price per share equal to or greater than $4.00 and an expiration date on or after January 1, 2004, whether or not such options were granted under the Plan (the “Eligible Options”), other than Options granted to the Company’s five most highly compensated executive officers named in the proxy statement for the Company’s 2003 Annual Meeting of Shareholders, members of the Board of Directors, former employees, retirees and such employees in countries outside the United States as may be deemed ineligible for the exchange program, for replacement Options (“Replacement Options”) to be granted under the Plan on a date that is at least six months and one day from the latest date on which an Eligible Option is validly surrendered.  The Replacement Options will have an exercise price as described in Section 6(a)(i) of the Plan.

The exchange ratios for shares covered by Eligible Options surrendered in exchange for shares covered by Replacement Options shall be as follows, assuming a fair market value of the Company’s Common Stock on the date of commencement of the stock option exchange program of $1.00, $2.00, $3.00, $4.00, $5.00 or $7.50 per share.  For purposes of calculating the exchange ratios, the fair market value of the Common Stock will be the average of the closing prices of the Common Stock over a period of 20 consecutive trading days ending no earlier than 45 days and no later than 25 days prior to the commencement of the exchange program (the “Current Stock Price”).

Tier	Current Exercise Price	$1.00/share	$2.00/share	$3.00/share	$4.00/share	$5.00/share	$7.50/share
		Exchange Ratio	Exchange Ratio	Exchange Ratio	Exchange Ratio	Exchange Ratio	Exchange Ratio
1	$4.00 – 5.49	2.00 to 1	1.50 to 1	N/A	N/A	N/A	N/A
2	$5.50 – 7.99	3.00 to 1	2.00 to 1	1.75 to 1	N/A	N/A	N/A
3	$8.00 – 14.99	6.00 to 1	3.25 to 1	2.25 to 1	2.00 to 1	1.75 to 1	N/A
4	$15.00 or higher	11.25 to 1	5.50 to 1	3.75 to 1	3.00 to 1	2.75 to 1	2.00 to 1

If the Current Stock Price is between the Current Stock Prices listed in the table above, the final exchange ratios will be determined by interpolating between these prices and rounding to the nearest .25 of a share.  If the actual Current Stock Price is below $1.00 per share, the exchange ratios will be increased appropriately.  The exchange program will be cancelled in its entirety if the Current Stock Price is equal to or greater than $7.50 per share.

To participate in the stock option exchange program, an employee must surrender all of the Eligible Options issued to such employee with an exercise price at or above the lowest tier exercise price of Eligible Options the employee chooses to surrender.

Each Replacement Option shall be a Non-Qualified Stock Option; shall vest 25% on the six-month anniversary of the date of grant, with an additional 25% vesting at the end of each subsequent six-month period; and shall have a term of seven years from the date of grant.  All other terms of the Replacement Options shall be consistent with the Company’s standard terms for Non-Qualified Stock Options granted under the Plan.

All other terms and conditions of the stock option exchange program shall be determined in the sole discretion of the Board of Directors or the Compensation Committee.

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EX-10.B

Exhibit 10-b

April 18, 2003

VIA FACSIMILE

Asset Funding Corporation

c/o Wachovia Bank, N.A.

100 North Main Street

Winston-Salem, NC 27150

Attn. Douglas K. Johnson

Facsimile (704) 365-1362

Re:Termination of Receivables Purchase Agreement dated December 12, 2001 (the “Receivables Purchase Agreement”) among ADC Receivables Corp. I, ADC Telecommunications, Inc. Blue Ridge Asset Funding Corporation and Wachovia Bank, N.A.

Reference is hereby made to the Receivables Purchase Agreement.  Capitalized terms used herein and not defined shall have the meaning assigned to such terms in the Receivables Purchase Agreement.

ADC Receivables Corp. I hereby provides notice and elects pursuant to Section 1.1(b) of the Receivables Purchase Agreement to immediately and irrevocably reduce the Purchase Limit to $0.00 from its present level.  To the extent necessary or otherwise required, ADC Receivables Corp. I also hereby provides notice and elects to immediately and irrevocably terminate the facility evidenced by the Receivables Purchase Agreement thereby triggering an Amortization Date and the Facility Termination Date.

Sincerely,

/s/ Gokul V. Hemmady

Gokul V. Hemmady

Vice President and Treasurer of
ADC Receivables Corp. I

EX-99.A

Exhibit 99-a

RISK FACTORS

Our business faces many risks.  The risks described below may not be the only risks we face.  Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations.  If any of the events or circumstances described in the following risks actually occur, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline.

Risks Related to Our Business

Our operating results have been, and will continue to be, adversely affected by the significant downturn in the communications equipment industry and the slowdown in the United States economy.

Our operating results during fiscal 2002 and 2001 and the first half of fiscal 2003 have been significantly impacted by the substantial downturn in the telecommunications equipment industry.  In this market environment, many of our customers have deferred capital spending, reduced their equipment purchases and announced plans to further reduce capital expenditures in 2003.  As a result, our revenues have decreased each quarter compared to the prior year and prior quarter since the first quarter of fiscal 2001 and have decreased materially from levels prior to 2001.  We expect revenues to decline in the third quarter and cannot assure you that they will not continue to do so.

A majority of our revenues are derived from telecommunication service providers.  These customers have greatly reduced their spending on communications equipment.  Our business has also been negatively impacted by reduced or deferred capital spending by our cable industry customers.  Some of our customers have experienced serious financial difficulties, which in certain cases has resulted in bankruptcy filings or cessation of operations.  Demand for products in the telecommunications equipment market remains at low levels compared to pre-2001 levels.

If capital spending levels by service providers continue to decline, or if the telecommunications market does not improve, our revenues and profitability will continue to be adversely affected.  As a result of the significant slowdown in capital spending in our target market, it is difficult to predict the level of future demand in those markets, even in the very short term.  In addition, the level of demand can change quickly and vary over short periods of time, making accurate forecasts of revenues, operating results and cash flow increasingly difficult.  For example, we experienced a sequential increase in revenue in our broadband connectivity products in the second quarter of 2003, but currently anticipate no further growth, or a slight decline in revenue from those products in the third quarter of 2003.

The general slowdown in the United States economy has also negatively impacted, and may continue to adversely affect, our business and operating results.  We expect any recovery in the communications market to lag behind a general economic recovery.  Terrorists attacks in the United States, the war with Iraq and other worldwide events have increased uncertainty in the United States economy.  If general economic conditions in the United States and globally do not improve, or if there is a worsening of the United States or global economy, we may continue to experience material adverse effects on our business, financial condition and results of operations.

We incurred significant net losses in fiscal 2001 and 2002, and we have continued to incur net losses during the first half of fiscal 2003.  No assurance can be given that we will achieve operating profitability in the future.

We incurred net losses of approximately $1.29 billion and $1.15 billion in fiscal 2001 and 2002, respectively.  During the six months ended April 30, 2003, we had a net loss of $70.9 million, and we expect to incur a net loss for the full fiscal year 2003. Depending upon conditions in the telecommunications equipment market and the United States and global economy generally, such net losses may continue for the foreseeable future.

When the significant reduction in communications equipment spending became evident in fiscal 2001, we began implementing a restructuring plan to reduce operating expenses and capital expenditures and to narrow the strategic focus of our business.  As a result in large part of this structuring plan, ADC incurred impairment and special charges of $697.1 million and $567.9 million in fiscal 2001 and 2002, respectively.  Although most of the restructuring plan initiatives have been implemented, we do not expect to complete the restructuring plan until the end of fiscal 2003.  Accordingly, we expect to continue to incur special charges throughout the current fiscal year, and may incur such charges in later fiscal years.

As a result of the restructuring plan, ADC has significantly reduced expenses and lowered its quarterly revenue break-even point.  However, we may not be able to achieve anticipated revenue levels in future quarters or

further reduce our expenses if revenue shortfalls occur.  As a result, no assurance can be given that ADC will achieve operating profitability.

The future of the market for communications equipment products is uncertain.

We cannot predict whether the market for communications equipment products and services will improve and grow in the foreseeable future.  The slowdown in the United States and global economy over the past two years, changes and consolidation in the communications service provider market, and the constraints on capital availability have had a material adverse effect on many of our customers.

In addition, as the downturn in the communications services industry continues, we expect increased consolidation among our customers in order for them to increase market share, diversify product portfolios and achieve greater economies of scale.  Consolidation is likely to impact our business as our customers focus on integrating their operations and choosing their equipment vendors.  After a consolidation occurs, there can be no assurance that we will continue to supply equipment to the surviving communications service provider.  For example, the acquisition of AT&T Broadband by Comcast Corporation, as well as declining performance by cable providers, has caused a marked reduction in our IP cable sales.

In the past, our principal product offerings have been copper-based and fiber-optic-based products designed to connect and transmit information on traditional telephony networks.  With the growth of multimedia applications and the development of enhanced Internet, data, video and voice services, our recent product and service offerings and research and development efforts have been and are focused on emerging technologies and network equipment, software and systems integration services for communications service providers.  The market for communications network equipment, software and integration services is rapidly changing, and we may not be able to compete successfully.

Our market is subject to rapid technological change, and to compete effectively, we must continually introduce new products that achieve market acceptance.

The communications equipment industry is characterized by rapid technological change.  In our industry, we also face evolving industry standards, changing market conditions and frequent new product and service introductions and enhancements by our competitors.  The introduction of products using new technologies or the adoption of new industry standards can make our existing products or products under development obsolete or unmarketable.  In order to grow and remain competitive, we will need to adapt to these rapidly changing technologies, to enhance our existing solutions and to introduce new solutions to address our customers’ changing demands.

We cannot predict technological trends or new products in the telecommunications equipment market.  In addition, we do not know whether our products and services will meet with market acceptance or be profitable or how their sales may be impacted by possible consolidation of communications service provider customers.  We may not be able to compete successfully, and competitive pressures may have a material adverse effect on our business, operating results and financial condition.

New product development often requires long-term forecasting of market trends, development and implementation of new technologies and processes, and a substantial capital commitment.  We have invested, and we will continue to invest, substantial resources for the development of new products.  We may experience difficulties that could delay or prevent the successful design, development, introduction or marketing of new solutions.  In addition, these new solutions and enhancements must meet the requirements of our current and prospective customers and must achieve significant market acceptance.  If we fail to anticipate or respond in a cost-effective and timely manner to technological developments, changes in industry standards or customer requirements, or if we have any significant delays in product development or introduction, our business, operating results and financial condition could be materially adversely affected.

We may need to make additional strategic changes to our product portfolio but our strategic changes and restructuring programs may not yield the benefits that we expect.

In 2001, we announced an initiative to focus our business on core operations and products and improve our operating performance by restructuring and streamlining operations.  As part of this initiative, the Company sold or closed a number of non-strategic businesses and product lines, disposed of certain facilities, significantly reduced our workforce and outsourced some manufacturing and other functions in fiscal 2001, 2002 and 2003.  These activities may not yield the benefits we expect and may give rise to unforeseen costs.  As a result of these activities, we have recorded substantial impairment and special charges during those periods, which adversely affect the comparability of our reported financial results during those periods.

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We recently announced a new product portfolio review initiative to focus on other opportunities to enhance shareowner value in the difficult and changing communications equipment industry.  We intend to focus on product markets in which we are, or believe we can become, one of the leading suppliers.  As part of the current product portfolio review, ADC may make strategic additions and subtractions to its product line.  Accordingly, we may acquire businesses and product lines in our areas of focus and de-emphasize other businesses and product lines.  We may also divest, eliminate or scale back existing businesses and product lines.

The extent of this additional restructuring effort, and its effects on our business, operating results and financial condition, are unknown at this time.  If we determine to acquire complementary businesses in our areas of strategic focus, we may have difficulty assimilating these businesses and their products, services, technologies and personnel into our operations.  These difficulties could disrupt our ongoing business, distract our management and workforce, increase our expenses and adversely affect our operating results and financial condition.  Divestitures or elimination of existing businesses or product lines could also have disruptive effects and may cause us to incur material expenses.  In addition, if we acquire new businesses, we may not realize all of the anticipated benefits of these acquisitions, and we may not be able to retain key management, technical and sales personnel after an acquisition.

Our industry is highly competitive and subject to pricing pressure.

Competition in the communications equipment industry is intense.  We believe that competition may increase substantially with the increased use of broadband networks.  We believe our success in competing with other manufacturers of communications equipment products and services will depend primarily on our engineering, manufacturing and marketing skills, the price, quality and reliability of our products, our delivery and service capabilities and our control of operating expenses.  We have experienced and anticipate experiencing increasing pricing pressures from current and future competitors as well as general pricing pressure from our customers as part of their cost reduction efforts.  Many of our competitors have more extensive engineering, manufacturing, marketing, financial and personnel resources than we do.  Competition may also be affected by consolidation among communications equipment providers, which may increase their resources.  As a result, other competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements.

We cannot predict whether we will be able to compete successfully with our existing and new products and services or with current and future competitors.  In addition, we believe that technological change, the convergence of Internet, data, video and voice on a single broadband network, the possibility of regulatory changes and industry consolidation or new entrants will continue to cause rapid evolution in the competitive environment.  The full scope and nature of these changes are difficult to predict at this time.  Increased competition could lead to price cuts, reduced profit margins and loss of market share, which may seriously harm our business, operating results and financial condition.

Our sales could be negatively impacted if one or more of our key customers substantially reduce orders for our products.

Our customer base is relatively concentrated with our top ten customers accounting for 55% of net sales for the first six months of fiscal 2003, and Verizon Communications accounting for more than 10% of consolidated sales in the first six months of fiscal 2003.  If we lose a significant customer, our sales and gross margins would be negatively impacted.  In addition, the loss of sales may require us to record additional impairment charges or exit a particular business or product line.

Over recent periods, most of our major customers have reduced their capital spending and purchases of our products and have expressed uncertainty as to their future requirements.  As a result, our sales have declined and it is difficult to predict future sales accurately.  The conditions contributing to this difficulty include:

•the prolonged downturn in the telecommunications industry, resulting in increased pricing pressure and competition by equipment providers for the remaining spending by the surviving industry participants;

•uncertainty regarding the capital spending plans of the major telecommunications carriers, upon which we depend for sales;

•consolidation in the industry;

•the telecommunications carriers’ current limited access to the capital required for expansion; and

•general market and economic uncertainty.

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While we have responded to the depressed market by reducing excess capacity and cutting costs, we cannot assure you that our plans will be successful in mitigating the adverse effects of a prolonged downturn.  The current downturn in the telecommunications industry may be more severe and prolonged than expected.  If our net sales continue to decline, our ability to meet financial expectations for future periods may be impaired.

Our operating results fluctuate significantly, and if we miss quarterly financial expectations, our stock price could decline.

Our operating results are difficult to predict, and fluctuate significantly from quarter to quarter.  It is likely that our operating results in some periods will be below investor expectations.  If this happens, the market price of our common stock is likely to decline.  Fluctuations in our future quarterly earnings results may be caused by many factors, including:

•the volume and timing of orders from and shipments to our customers;

•work stoppages and other developments affecting the operations of our customers;

•the timing of and our ability to obtain new customer contracts;

•the timing of new product and service announcements;

•the availability of products and services;

•the overall level of capital expenditures by our customers;

•the market acceptance of new and enhanced versions of our products and services or variations in the mix of products and services we sell;

•the utilization of our production capacity and employees; and

•the availability and cost of key components.

Our expense levels are based in part on expectations of future revenues.  If revenue levels in a particular period are lower than expected, our operating results will be affected adversely.

In addition, our operating results are subject to seasonal factors.  We historically have had stronger demand for our products and services in the fourth fiscal quarter ending October 31, primarily as a result of our year-end incentives and customer budget cycles.  We typically have experienced weaker demand for our products and services in the first fiscal quarter ending January 31, primarily as a result of the number of holidays in late November, December and early January, the development of annual capital budgets by our customers during that period, and a general industry slowdown during that period.

We cannot predict if these historical seasonal trends will continue or worsen in the future, particularly in light of the economic downturn of the past two years.  For instance, due to the economic downturn in the communications equipment and services market during fiscal 2001 and 2002, this historical trend of seasonality was not evident during these two fiscal years.

The regulatory environment in which we operate is changing.

The communications equipment industry is subject to regulation in the United States and other countries.  Our business is dependent upon the continued growth of the telecommunications industry in the United States and globally.  Federal and state regulatory agencies regulate most of our United States customers.  In early 1996, the United States Telecommunications Act of 1996 was enacted.  The Telecommunications Act lifted certain restrictions on the ability of companies, including the Regional Bell Operating Companies and other ADC customers, to compete with one another.  The Telecommunications Act also made other significant changes in the regulation of the telecommunications industry.  These changes generally have increased our opportunities to provide solutions for our customers’ Internet, data, video and voice needs.

However, the established telecommunications providers have stated that some of these changes have diminished the profitability of additional investments made by them in their business, which reduces their demand for our products.  During the quarter ended January 31, 2003, the Federal Communications Commission released their adoption of a Report and Order concerning incumbent local exchange carriers’ network unbundling obligations.  The

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FCC essentially kept in place the carriers’ current UNE-P obligations, with state interpretations and decisions, and ruled not to require the unbundling of certain network elements in next generation hybrid and fiber networks.  Overall, we do not anticipate that this decision will result in increased capital spending by the incumbent carriers in the near term.  With respect to the broadband portion of the ruling, it is too early to determine what the impact of this ruling may be.  Moreover, the FCC has yet to release specific details of its ruling, which could alter our views as to the effect of this ruling on our business.

Future regulatory changes affecting the communications industry are anticipated both in the United States and internationally.  These changes could negatively affect our customers and reduce demand for our products.  In addition, competition in our markets could intensify as the result of changes to existing regulations or new regulations.  Accordingly, changes in the regulatory environment could adversely affect our business and results of operations.

Customer payment defaults could have an adverse effect on our financial condition and results of operations.

As a result of adverse conditions in the telecommunications market, some of our customers have and may continue to experience serious financial difficulties, which in some cases have resulted or may result in bankruptcy filings or cessation of operations.  In the future, if customers experiencing financial problems default and fail to pay amounts owed to us, we may not be able to collect these amounts and recognize expected revenue.  In the current environment in the telecommunications equipment industry and the United States and global economy, it is possible that customers from whom we expect to derive substantial revenue will default or that the level of defaults will increase.  Any material payment defaults by our customers would have an adverse effect on our results of operations and financial condition.

We also have provided financing to some of our customers for purchases of our equipment.  As of April 30, 2003, we had commitments to extend credit of approximately $57.8 million, of which approximately $21.6 million was outstanding on this date.  At such date, we had recorded approximately $19.0 million in loss reserves in the event of non-performance related to these financing arrangements.

Many of our competitors engage in similar financing transactions in order to obtain customer orders.  To remain competitive, we believe that it may be necessary for us to continue to offer financing arrangements in the future.  We intend under certain circumstances to sell all or a portion of these commitments and outstanding receivables to third parties.  In the past, we have sold some receivables with recourse and have had to compensate the purchaser for the loss.

Our ability to collect on these financing arrangements is contingent on the financial health of the companies to which we extend credit.  The condition of these companies is affected by many factors, including, among others, general conditions in the communications equipment and services industry, general economic conditions and changes in telecommunications regulations.  We may experience credit losses that could adversely affect our operating results and financial condition.

Conditions in global markets could affect our operations.

Our non-United States sales accounted for approximately 37.6% of our net sales for the first six months in fiscal 2003, 27% of our net sales in fiscal 2002 and 29% of our net sales in fiscal 2001.  We expect non-United States sales to increase as a percentage of net sales in the future.  In addition to sales and distribution in numerous countries, we own or lease operations located in Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, Hungary, India, Ireland, Israel, Italy, Japan, Malaysia, Mexico, Puerto Rico, Russia, Singapore, South Africa, South Korea, Spain, the United Arab Emirates, the United Kingdom and Venezuela.  Due to our non-United States sales and our non-United States operations, we are subject to the risks of conducting business globally.  These risks include:

•local economic and market conditions;

•political and economic instability;

•unexpected changes in or impositions of legislative or regulatory requirements;

•fluctuations in the exchange rate of the United States dollar;

•tariffs and other barriers and restrictions;

•longer payment cycles;

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•difficulties in enforcing intellectual property and contract rights;

•greater difficulty in accounts receivable collection;

•potentially adverse taxes; and

•the burdens of complying with a variety of non-United States laws and telecommunications standards.

We also are subject to general geopolitical risks, such as terrorism, political and economic instability and changes in diplomatic and trade relationships.  We maintain business operations and have sales in many non-United States markets.  Economic conditions in many of these markets represent significant risks to us.  We cannot predict whether our sales and business operations in these markets will be affected adversely by these conditions.

Instability in non-United States markets, particularly in the Middle East, Asia and Latin America, could have a negative impact on our business, financial condition and operating results.  The aftermath of the war in Iraq and other turmoil in the Middle East also may have negative effects on the operating results of some of our businesses, especially those located in Israel.  Also, the effect of Severe Acute Respiratory Syndrome, or SARS, could adversely affect our business in Asia.  In addition to the effect of global economic instability on non-United States sales, sales to United States customers having significant non-United States operations could be impacted negatively by these conditions.

Our intellectual property rights may not be adequate to protect our business.

Our future success depends in part upon our proprietary technology.  Although we attempt to protect our proprietary technology through patents, trademarks, copyrights and trade secrets, these protections are limited.  Accordingly, we cannot predict whether such protection will be adequate, or whether our competitors can develop similar technology independently without violating our proprietary rights.

Also, rights that may be granted under any patent application in the future may not provide competitive advantages to us.  Intellectual property protection in foreign jurisdictions may be limited or unavailable.  In addition, many of our competitors have substantially larger patent portfolios than we do.

We face intellectual property litigation and infringement claims that could be costly to defend and result in our loss of significant rights.

As the competition in the communications equipment industry increases and the functionality of the products in this industry further overlaps, we believe that companies in the communications equipment industry are becoming increasingly subject to infringement claims. We have received and may continue to receive notices from third parties, including some of our competitors, claiming that we are infringing third-party patents or other proprietary rights.  We cannot predict whether we will prevail in any litigation over third-party claims, or whether we will be able to license any valid and infringed patents on commercially reasonable terms.  It is possible that unfavorable resolution of such litigation could have a material adverse effect on our business, results of operations or financial condition.  Any of these claims, whether with or without merit, could result in costly litigation, divert our management’s time, attention and resources, delay our product shipments or require us to enter into royalty or licensing agreements, which could be expensive.  A third party may not be willing to enter into a royalty or licensing agreement on acceptable terms, if at all.  If a claim of product infringement against us is successful and we fail to obtain a license or develop or license non-infringing technology, our business, financial condition and operating results could be affected adversely.

If we seek to secure additional financing, we may not be able to obtain it.  Also, if we are able to secure additional financing, our shareowners may experience dilution of their ownership interest or we may be subject to limitations on our operations.

We currently anticipate that our available cash resources, which include existing cash and cash equivalents, will be sufficient to meet our anticipated needs for working capital and capital expenditure for the foreseeable future.  If our estimates are incorrect and we are unable to generate sufficient cash flows from operations to meet our anticipated needs for working capital and capital expenditures, we may need to raise additional funds to develop new or enhanced products, respond to competitive pressures, take advantage of acquisition opportunities or raise capital for strategic purposes.  Commercial bank financing is not available at this time to us or to many companies in our industry and currently have no sources of committed capital.  If we raise additional funds through the issuance of equity or equity-related securities, our shareowners may experience dilution of their ownership interests, and the newly issued securities may have rights superior to those of common stock.  See “Risk Factors—Risk Related to our Common Stock”  If we raise additional funds by issuing debt, we may be subject to restrictive covenants that could limit our operating flexibility.

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We are dependent upon key personnel.

Like all technology companies, our success is dependent on the efforts and abilities of our employees.  Our ability to attract, retain and motivate skilled employees is critical to our success.  In addition, because we may acquire one or more businesses in the future, our success will depend, in part, upon our ability to retain and integrate our own personnel with personnel from acquired entities who are necessary to the continued success or the successful integration of the acquired businesses.

Our recent initiatives to focus our business on core operations and products by restructuring and streamlining operations, including substantial reductions in our workforce, have created uncertainty on the part of our employees regarding future employment with ADC.  In addition, our workforce reductions have generally resulted in broader responsibilities for certain individual employees and managers, often without commensurate increases in base compensation.  These factors, together with our operating losses and lower stock price, may have an adverse effect on our ability to retain and attract key personnel.

Shifts in our product mix may result in declines in gross profit, as a percentage of net sales.

Our gross profit, as a percentage of net sales, varies among our product groups.  Our overall gross profit, as a percentage of net sales, has fluctuated from quarter to quarter as a result of shifts in product mix, the introduction of new products, decreases in average selling prices and our ability to reduce manufacturing costs.  We expect such fluctuation in gross profit to continue in the future.

Product defects could cause us to lose customers and revenue or to incur unexpected expenses.

If our products do not meet our customers’ performance requirements, our customer relationships may suffer.  Also, our products may contain defects in design or manufacture.  Any failure or poor performance of our products could result in:

•delayed market acceptance of our products;

•delays in product shipments;

•unexpected expenses and diversion of resources to replace defective products or identify the source of errors and to correct them;

•damage to our reputation;

•delayed or lost revenue; and

•product liability claims.

Our products are often critical to the performance of communication systems.  Many of our supply agreements contain limited warranty provisions.  If these contractual limitations are unenforceable in a particular jurisdiction or if we are exposed to product liability claims that are not covered by insurance, a successful claim could harm our business.

We may encounter difficulties obtaining raw materials and supplies needed to make our products.

Our ability to produce our products is dependent upon the availability of certain raw materials and supplies.  The availability of these raw materials and supplies is subject to market forces beyond our control.  From time to time there may not be sufficient quantities of raw materials and supplies in the marketplace to meet the customer demand for our products.  In addition, the costs to obtain these raw materials and supplies are subject to price fluctuations because of market demand.  Many companies utilize the same raw materials and supplies in the production of their products as we use in our products.  Companies with more resources than our own may have a competitive advantage in obtaining raw materials and supplies due to greater buying power.  Reduced supply and higher prices of raw materials and supplies may affect our business, operating results and financial condition adversely.

In addition, we have increased our reliance on the use of contract manufacturers to make our products on our behalf.  We estimate that products made by contract manufacturers accounted for approximately 33% of our net sales in fiscal 2002.  If these contract manufacturers do not fulfill their obligations to us, or if we do not properly manage these relationships, our existing customer relationships may suffer.  We intend to outsource additional functions in the future.

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We are subject to risks associated with changes in security prices, interest rates and foreign exchange rates.

We face market risks from changes in security prices and interest rates.  Market fluctuations could affect our results of operations and financial condition adversely.  At times, we reduce this risk through the use of derivative financial instruments.  However, we do not enter into derivative instruments for the purpose of speculation.

Also, we are exposed to market risks from changes in foreign exchange rates.  To mitigate this risk, we have instituted a balance sheet hedging program.  The objective of this program is to protect our net monetary assets and liabilities in non-functional currencies from fluctuations due to movements in foreign exchange rates.  We attempt to minimize exposure to currencies in which hedging instruments are unavailable or prohibitively expensive by managing our operating activities and net assets position.

We have been named as a defendant in securities and other litigation.

We are the defendant in several shareowner class action lawsuits.  The complaints allege that we violated the securities laws and our fiduciary duties by making false and misleading statements about our financial performance and business prospects.  We anticipate that the shareowner class actions will be consolidated in the near future.

We have recently been named as a defendant in two lawsuits alleging breach of fiduciary duties under ERISA.  These claims have been brought by individuals who seek to represent a class of participants in our Retirement Savings Plan who purchased our common stock as one of the investment alternatives under the plan.

We believe that all of the above lawsuits are without merit and intend to defend these actions vigorously.  However, litigation is by its nature uncertain and unfavorable resolutions of these lawsuits could materially adversely affect our business, results of operations or financial condition.

We are a party to various other lawsuits, proceedings and claims arising in the ordinary course of business or otherwise.  The amount of monetary liability resulting from an adverse result in many of such lawsuits, proceedings or claims cannot be determined at this time.  As of April 30, 2003, we had recorded approximately $17.4 million in loss reserves in the event of such adverse outcomes in these matters.  Litigation by its nature is uncertain.  Therefore, it is possible that unfavorable resolutions of these lawsuits, proceedings and claims could exceed the amount currently reserved and could have a material adverse affect on our business, results of operations or financial condition.

Risks Related to Our Common Stock

Our stock price is volatile.

Based on the trading history of our common stock and the nature of the market for publicly traded securities of companies in our industry, we believe that some factors have caused and are likely to continue to cause the market price of our common stock to fluctuate substantially.  The fluctuations could occur from day-to-day or over a longer period of time.  The factors that may cause such fluctuations include:

•announcements of new products and services by us or our competitors;

•quarterly fluctuations in our financial results or the financial results of our competitors or our customers;

•customer contract awards to us or our competitors;

•increased competition with our competitors or among our customers;

•consolidation among our competitors or customers;

•disputes concerning intellectual property rights;

•the financial health of ADC, our competitors or our customers;

•developments in telecommunications regulations;

•general conditions in the communications equipment industry; and

•general economic conditions.

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In addition, communications equipment company stocks in the past have experienced significant price and volume fluctuations that are often unrelated to the operating performance of such companies.  This market volatility may adversely affect the market price of our common stock.

We have not in the past and do not intend in the foreseeable future to pay cash dividends on our common stock.

We currently do not pay any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future.  We intend to retain future earnings, if any, to finance our operations and for general corporate purposes.

We have few shares of common stock available for new issuances in connection with future transactions.

A substantial number of shares of our common stock have been reserved for issuance upon conversion of our outstanding convertible unsecured subordinated notes, the exercise of the warrants issued in a hedging transaction relating to the notes, and under our stock option plans and employee stock purchase plan.  After taking into account these share reservations, we have approximately 10 million shares available for future issuances.  In order to issue more than this number of shares, we would need to obtain approval by our shareowners of an amendment to our articles of incorporation increasing the number of authorized shares.  The limitation on new share issuances could adversely affect our ability to engage in future equity financing transactions or acquisition transactions using our common stock as consideration.

Anti-takeover provisions in our charter documents, our shareowner rights plan and Minnesota law could prevent or delay a change in control of our company.

Provisions of our articles of incorporation and bylaws, our shareowner rights plan (also known as a “poison pill”) and Minnesota law may discourage, delay or prevent a merger or acquisition that a shareowner may consider favorable and may limit the market price for our common stock.  These provisions include the following:

•advance notice requirements for shareowner proposals;

•authorization for our Board of Directors to issue preferred stock without shareowner approval;

•authorization for our Board of Directors to issue common stock purchase rights upon a third party’s acquisition of 15% or more of our outstanding shares of common stock; and

•the limitation of business combinations with interested shareowners.

Some of these provisions may discourage a future acquisition of ADC even though our shareowners would receive an attractive value for their shares or a significant number of our shareowners believed such a proposed transaction would be in their best interest.

9

EX-99.B

Exhibit 99-b

Certifications Pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002

I, Richard R. Roscitt, the Chief Executive Officer of ADC Telecommunications, Inc., hereby certify that:

1.The quarterly report on form 10-Q of ADC Telecommunications, Inc. for the period ended April 30, 2003, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of sections 13(a) and 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the above-mentioned report fairly presents, in all material respects, the financial condition and results of operations of ADC Telecommunications, Inc.

/s/ Richard R. Roscitt

Richard R. Roscitt

June 13, 2003

A signed original of this written statement required by Section 906 has been provided to ADC Telecommunications, Inc. and will be retained by ADC Telecommunications, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

I, Robert E. Switz, the Chief Financial Officer of ADC Telecommunications, Inc., hereby certify that:

1.The quarterly report on Form 10-Q of ADC Telecommunications, Inc. for the period ended April 30, 2003, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of sections 13(a) and 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the above-mentioned report fairly presents, in all material respects, the financial condition and results of operations of ADC Telecommunications, Inc.

/s/ Robert E. Switz

Robert E. Switz

June 13, 2003

A signed original of this written statement required by Section 906 has been provided to ADC Telecommunications, Inc. and will be retained by ADC Telecommunications, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.