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Washington, D.C. 20549 FORM 10-K (Mark One) OR Commission File No. 0-1424 ADC Telecommunications, Inc. (Exact name of registrant as specified in its charter) Registrants telephone number, including area code: (952)
938-8080 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.20 par value
SECURITIES AND EXCHANGE COMMISSION
Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act
of 1934 for the fiscal year ended October 31, 2003.
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act
of 1934 for the transition period from
to
.
incorporation or organization)
Identification No.)
Eden Prairie, Minnesota
Preferred Stock Purchase Rights
DOCUMENTS INCORPORATED BY REFERENCE
PART I
Item 1. BUSINESS
|
Broadband Infrastructure and Access; and |
|
Integrated Solutions. |
|
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 communications networks. |
Industry Background
and gaming, distance learning, telemedicine and high-speed imaging will drive even more people to use broadband communications services. We believe that the global deregulation of communications markets has the potential to transform traditional communications service providers into integrated communications providers. Traditional communications service providers offer only a limited selection of Internet, data, video or voice services, each on a separate network connection and a separate customer bill. Integrated communications providers operate broadband, multiservice networks that offer faster, more cost-effective and integrated Internet, data, video and voice services over a single high-speed network connection while sending only one bill for all of the services the customer uses. Communications service providers have the ability to compete for customers by offering bundles of different communications services over cost-effective networks. As a result of competition among communications service providers to obtain and retain customers with bundled services, we believe there is a large potential global market for broadband access and network equipment, software and systems integration services to build and upgrade broadband, multiservice networks.
Strategy
|
growing sales through market share gains, new product introductions and expansion into adjacent and related markets; |
|
continuing to develop new sales channels and market opportunities through the use of partnerships and alliances with other equipment vendors, distributors, resellers and systems integrators; |
|
keeping our cost structure low to compete effectively in a more cost conscious marketplace; and |
|
adding to our product portfolio by making strategic acquisitions and improving profitability by divesting or de-emphasizing unprofitable or low-growth products. |
2
customer needs. Our connectivity products in particular are conducive to being incorporated by other equipment vendors into a systems-level solution.
Product and Service Offering Groups
Broadband Infrastructure and Access
3
equipment within the serving office. Our fiber distribution panels and frames are designed with special consideration of fiber-optic properties.
Integrated Solutions
4
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.
Sales and Marketing
|
the U.S. public communications network market, which includes the four major U.S. incumbent local exchange carriers (Verizon, BellSouth, SBC and Qwest), other local telephone companies, long-distance carriers, wireless service providers and cable television operators; |
|
the U.S. private and governmental markets, which include business customers and governmental agencies that own and operate their own Internet, data, video and voice networks for internal use; |
|
the public and private network markets outside of the United States; and |
|
to other communications equipment vendors, who incorporate our products into products and systems that they in turn sell into the three markets listed above. |
5
accounted for approximately 36.3%, 27.1% and 28.8% of our net sales in fiscal 2003, 2002 and 2001, respectively, and are not concentrated in any one country.
Research and Development
|
developing connectivity products to enable the deployment of fiber optic lines directly from the service providers local office to or near the communication service customer (known as the FTTX initiative); |
|
developing line-powered solutions for the deployment of wireless fidelity (Wi-Fi) internet access service; |
|
connectivity products that enable the use of Ethernet protocols within the public communications network, which is used by our customers to more effectively deploy data services over their historic voice-based networks; |
|
development of software-based products for wireless networks that will enable wireless carriers to replace certain physical network elements with software solutions; and |
|
further development of our Cuda cable modem termination system to add expanded functionality and meet next-generation industry certification levels. |
Competition
6
developments within the communications industry have resulted in frequent changes among our group of competitors. Currently, our primary competitors include:
|
For Broadband Infrastructure and Access products: ADTRAN, Andrew, Arris Group, Avaya, Cisco Systems, Corning, ECI Telecom, Furukawa, Krone, Lucent Technologies, Motorola, Telect and Terayon. |
|
For Integrated Solutions products and services: Alcoa Fujikura, Agilent, Amdocs, Bechtel, Convergys, Lucent Technologies, Portal Software, SPIE and TTI. |
|
Maintaining our brand recognition and reputation as a financially sound long-term supplier to our customers; |
|
our engineering (research and development), manufacturing, sales and marketing skills; |
|
the price, quality and reliability of our products; and |
|
our delivery and service capabilities. |
Manufacturing and Suppliers
Proprietary Rights
7
Employees
Executive Officers of the Registrant
Name |
Office |
Officer Since |
Age |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Robert E.
Switz |
President and Chief Executive Officer |
1994 |
56 |
|||||||||||
Gokul V.
Hemmady |
Vice
President, Chief Financial Officer |
1997 |
42 |
|||||||||||
Michael K.
Pratt |
Vice
President, President, Wireline Business Unit |
2002 |
49 |
|||||||||||
Hilton M.
Nicholson |
Vice
President, President, IP Cable Business Unit |
2002 |
45 |
|||||||||||
Patrick D.
OBrien |
Vice
President, President, Connectivity Business Unit |
2002 |
40 |
|||||||||||
Jo Anne M.
Anderson |
Vice
President, President, Systems Integration Business Unit and Software Systems Business Unit |
2001 |
46 |
|||||||||||
Jeffrey A.
Quiram |
Vice
President, President, Wireless Business Unit |
2001 |
43 |
|||||||||||
Jeffrey D.
Pflaum |
Vice
President, General Counsel and Secretary |
1999 |
44 |
|||||||||||
Laura N.
Owen |
Vice
President, Human Resources |
1999 |
47 |
|||||||||||
Mary E.
Quay |
Vice
President, Worldwide Operations |
2002 |
51 |
8
Risk Factors
|
future sales, profit percentages, realization of deferred tax assets, earnings per share or other results of operations; |
|
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; |
|
the effect of legal and regulatory developments; and |
|
the economy in general or the future of the communications equipment and communications services industries on our business. |
9
Risks Related to Our Business
Our operating results have been adversely affected by the significant downturn in the communications equipment industry and the slowdown in the United States economy.
We incurred significant net losses in fiscal 2003, 2002 and 2001. No assurance can be given that we will achieve operating profitability in the future.
Shifts in our product mix may result in declines in gross profit, as a percentage of net sales.
Consolidation among our customers could result in our losing a customer or experiencing a slowdown as integration takes place.
10
continue to supply equipment to the surviving communications service provider. For example, the acquisition of AT&T Broadband, which was a customer of our IP Cable products, by Comcast Corporation during fiscal 2003 resulted in a substantial decline in the net sales of our IP Cable products and Comcast has informed us that we have not been approved as a continuing supplier of certain IP Cable products.
Our sales could be negatively impacted if one or more of our key customers substantially reduce orders for our products.
Our market is subject to rapid technological change, and to compete effectively, we must continually introduce new products that achieve market acceptance.
We may make additional strategic changes to our product portfolio but our strategic changes and restructuring programs may not yield the benefits that we expect.
11
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.
Our industry is highly competitive and subject to pricing pressure.
Possible consolidation among our competitors could result in a loss of sales.
Our operating results fluctuate significantly, and if we miss quarterly financial expectations, our stock price could decline.
|
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; |
12
|
the utilization of our production capacity and employees; and |
|
the availability and cost of key components. |
The regulatory environment in which our customers operate is changing.
Customer payment defaults could have an adverse effect on our financial condition and results of operations.
13
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.
Conditions in global markets could affect our operations.
|
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; |
|
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. |
14
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.
We are dependent upon key personnel.
Product defects could cause us to lose customers and revenue or to incur unexpected expenses.
|
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 and our customer relationships; |
|
delayed or lost revenue; and |
15
|
product liability claims or other claims for damages that may be caused by any product defects or performance failures. |
We may encounter difficulties obtaining raw materials and supplies needed to make our products.
We have been named as a defendant in securities and other litigation.
We are subject to risks associated with changes in security prices, interest rates and foreign exchange rates.
16
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.
Risks Related to Our Common Stock
Our stock price is volatile.
|
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. |
We have not in the past and do not intend in the foreseeable future to pay cash dividends on our common stock.
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.
|
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 preferred stock purchase rights upon a third partys acquisition of 15% or more of our outstanding shares of common stock; and |
|
limitations on 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.
17
Item 2. PROPERTIES
|
Shakopee, Minnesotaapproximately 360,000 sq. ft. owned facility; general purpose facility used for engineering, manufacturing, and general support of our connectivity products; |
|
Juarez and Delicias, Mexicoapproximately 228,000 and 139,000 sq. feet, respectively, owned facilities; manufacturing facilities used for our connectivity products; |
|
Westborough, Massachusettsapproximately 64,000 sq. ft. leased facility; general purpose facility used for engineering, testing, and general support of our IP cable products; |
|
Raleigh, North Carolinaapproximately 40,000 sq. ft leased facility; general purpose facility used for engineering, testing and general support for our wireline products; and |
|
Santa Teresa, New Mexicoapproximately 208,000 sq. ft. leased facility; global warehouse and distribution center with approximately 60,000 sq. ft. dedicated to selected finished product assembly operations. |
Item 3. LEGAL PROCEEDINGS
18
these matters is possible, and they could have a material adverse effect on our business, results of operations or financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
19
PART II
Item 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREOWNER MATTERS |
2003 |
2002 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
High |
Low |
High |
Low |
||||||||||||||||
First
Quarter |
$ | 3.15 | $ | 1.51 | $ | 5.97 | $ | 3.52 | |||||||||||
Second
Quarter |
2.73 | 2.05 | 4.90 | 3.26 | |||||||||||||||
Third
Quarter |
3.21 | 1.96 | 4.09 | 1.66 | |||||||||||||||
Fourth
Quarter |
2.90 | 2.10 | 1.83 | 1.02 |
As of January 7, 2004, there were 8,631 registered holders of record of our common stock. We do not pay cash dividends on our common stock and do not intend to pay cash dividends for the foreseeable future.
20
Item 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
Years ended October 31
(dollars in
millions, except per share data)
2003 |
2002 |
2001 |
2000 |
1999 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Income
statement data |
||||||||||||||||||||||
Net
sales |
$ | 773.2 | 1,047.7 | $ | 2,402.8 | $ | 3,287.9 | $ | 2,151.8 | |||||||||||||
International
sales |
280.7 | 283.6 | 692.2 | 708.1 | 499.3 | |||||||||||||||||
Gross
profit |
291.4 | 246.5 | 725.0 | 1,608.9 | 1,003.4 | |||||||||||||||||
Research and
development expense |
108.6 | 182.8 | 287.3 | 367.2 | 251.4 | |||||||||||||||||
Selling and
administration expense |
222.1 | 374.0 | 715.3 | 683.5 | 445.8 | |||||||||||||||||
Goodwill
amortization |
| | 56.6 | 34.3 | 22.2 | |||||||||||||||||
Operating
(loss) income |
(96.7 | ) | (878.2 | ) | (1,031.3 | ) | 365.9 | 135.0 | ||||||||||||||
(Loss) income
before income taxes |
(82.1 | ) | (882.2 | ) | (1,920.7 | ) | 1,460.4 | 134.9 | ||||||||||||||
(Benefit)
provision for income taxes |
(5.4 | ) | 262.8 | (633.0 | ) | 592.3 | 57.0 | |||||||||||||||
Net income
(loss) |
(76.7 | ) | (1,145.0 | ) | (1,287.7 | ) | 868.1 | 77.9 | ||||||||||||||
(Loss)
earnings per diluted share |
(0.10 | ) | (1.44 | ) | (1.64 | ) | 1.13 | 0.11 | ||||||||||||||
Impairment
and restructuring charges: |
||||||||||||||||||||||
Impairment
charges |
15.6 | 348.3 | 501.7 | | | |||||||||||||||||
Restructuring
charges |
41.8 | 219.6 | 195.4 | 158.0 | 149.0 | |||||||||||||||||
Other
disposal charges(1) |
| 13.2 | 80.8 | | | |||||||||||||||||
Gain (loss)
on sale or shutdown of product lines |
(1.4 | ) | (6.7 | ) | (81.9 | ) | 328.6 | | ||||||||||||||
Gain (loss)
on investments, net: Write-down or conversion of investments |
| (50.9 | ) | (862.5 | ) | 722.6 | | |||||||||||||||
Sale of
investments, net |
3.8 | 67.8 | 76.8 | 23.8 | | |||||||||||||||||
Increase in
deferred tax valuation allowance |
39.7 | 640.2 | 71.1 | | | |||||||||||||||||
Cash Flow
Data |
||||||||||||||||||||||
Total cash
provided by operating activities |
38.9 | 60.5 | 95.0 | 250.9 | 290.5 | |||||||||||||||||
Depreciation
and amortization |
59.2 | 104.7 | 197.8 | 146.2 | 114.8 | |||||||||||||||||
Capital
expenditures, net |
67.6 | 25.6 | 241.2 | 375.3 | 125.1 | |||||||||||||||||
Balance
Sheet Data |
||||||||||||||||||||||
Current
assets |
1,006.0 | 686.3 | 1,305.2 | 2,650.9 | 1,376.6 | |||||||||||||||||
Current
liabilities |
265.5 | 397.8 | 599.4 | 1,041.3 | 448.5 | |||||||||||||||||
Property and
equipment, net |
192.3 | 206.8 | 614.0 | 608.6 | 341.2 | |||||||||||||||||
Total
assets |
1,296.9 | 1,144.2 | 2,499.7 | 3,970.5 | 2,057.8 | |||||||||||||||||
Long-term
notes payable |
400.0 | 10.8 | 3.0 | 16.5 | 14.0 | |||||||||||||||||
Shareowners investment |
627.7 | 732.2 | 1,893.4 | 2,912.7 | 1,595.3 |
(1) | These charges are included in cost of sales and selling and administration expense in our consolidated statements of operations. See Note 11 to the Consolidated Financial Statements in Item 8 of this Form 10-K. |
21
Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Marketplace Conditions
|
The sale or closure of non-strategic product lines; |
|
significant reductions in discretionary spending; |
|
the disposition of surplus equipment; |
|
consolidation of facilities; and |
|
substantial reductions in our workforce. |
22
portion of the net proceeds of our $400 million convertible note offering completed in June 2003, with the issuance of shares of common or preferred stock or through some combination of cash and stock. We may also divest non-strategic product lines as we focus on growing our business profitably. In December 2003, we entered into an agreement to sell our BroadAccess40 product line. This product line accounted for approximately 3% of our net sales in fiscal 2003. This transaction is expected to close by March 1, 2004.
23
Results of Operations
Percentage of Net Sales |
Percentage Increase (Decrease) Between Periods |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
2002 |
2001 |
2003 vs. 2002 |
2002 vs. 2001 |
|||||||||||||||||||
Net sales
|
100.0 | % | 100.0 | % | 100.0 | % | (26.2 | ) | (56.4 | ) | |||||||||||||
Cost of
sales |
(62.3 | ) | (76.5 | ) | (69.8 | ) | (39.9 | ) | (52.2 | ) | |||||||||||||
Gross
profit |
37.7 | 23.5 | 30.2 | 18.2 | (66.0 | ) | |||||||||||||||||
Operating
expenses: |
|||||||||||||||||||||||
Research and
development |
(14.0 | ) | (17.4 | ) | (11.9 | ) | (40.6 | ) | (36.4 | ) | |||||||||||||
Selling and
administration |
(28.8 | ) | (35.7 | ) | (29.8 | ) | (40.6 | ) | (47.7 | ) | |||||||||||||
Goodwill
amortization |
| | (2.4 | ) | | (100.0 | ) | ||||||||||||||||
Impairment
charges |
(2.0 | ) | (33.2 | ) | (20.9 | ) | (95.5 | ) | (30.6 | ) | |||||||||||||
Restructuring
charges |
(5.4 | ) | (21.0 | ) | (8.1 | ) | (81.0 | ) | 12.4 | ||||||||||||||
Operating
loss |
(12.5 | ) | (83.8 | ) | (42.9 | ) | 89.0 | 14.8 | |||||||||||||||
Other
income (expense), net: |
|||||||||||||||||||||||
Interest
income (expense), net |
0.8 | 0.8 | (0.1 | ) | (25.0 | ) | 481.8 | ||||||||||||||||
Other,
net |
1.1 | (1.2 | ) | (36.9 | ) | 166.9 | (98.6 | ) | |||||||||||||||
Loss
before income taxes |
(10.6 | ) | (84.2 | ) | (79.9 | ) | 90.7 | 54.1 | |||||||||||||||
Provision
(benefit) for income taxes |
(0.7 | ) | 25.1 | (26.3 | ) | 102.1 | (141.5 | ) | |||||||||||||||
Net income
(loss) |
(9.9 | )% | (109.3 | )% | (53.6 | )% | 93.3 | % | 11.1 | % |
2003 |
2002 |
2001 |
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating Segment |
Net Sales |
% |
Net Sales |
% |
Net Sales |
% |
|||||||||||||||||||||
Broadband
Infrastructure and Access |
$ | 486.3 | 62.9 | % | $ | 715.1 | 68.3 | % | $ | 1,810.8 | 75.4% |
||||||||||||||||
Integrated
Solutions |
286.9 | 37.1 | 332.6 | 31.7 | 592.0 | 24.6 |
|||||||||||||||||||||
Total
|
$ | 773.2 | 100.0 | % | $ | 1,047.7 | 100.0 | % | $ | 2,402.8 | 100.0% |
Net Sales
24
Gross Profit
25
services. Also, in fiscal 2002 and 2001, $18.9 million and $52.4 million of other disposal charges for inventory write-offs and other costs to exit certain sales contracts were included in cost of product sold, respectively.
Operating Expenses
26
and $10.5 million for in-process research and development costs relating to our decision to purchase the interest of our joint venture partner in three technology development partnerships. Of the $153.8 of facilities consolidation costs, $84.3 million related to our decision to extend the lease on our headquarters facility. This charge represented the reduction in fair market value of the facility below the value we had guaranteed to the lessor. (See Liquidity and Capital ResourcesFinance Related Transactions below, for a further discussion of our headquarters lease). The balance of the facilities consolidation costs related to lease termination costs for excess facilities, as we deactivated approximately 1.8 million square feet (38% of our total space) during fiscal 2002. The employee severance costs related to our workforce reduction of approximately 4,400 employees in fiscal 2002 (37% of our total workforce), which included approximately 2,900 employees impacted by reductions in force.
27
Other Income (Expense), Net:
28
Oregon and Pennsylvania, as well as international operations in Argentina, Austria, Denmark and Finland. These product lines generated annual net sales of $368.8 million and operating losses of $79.8 million in fiscal 2001. As a result of these actions, we recorded total losses on sales or shutdowns of approximately $81.9 million in fiscal 2001.
Income Taxes
Net Loss
29
Segment Disclosures
(Dollars in millions) For the years ended October 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
2002 |
2001 |
|||||||||||||
External
sales |
$ | 486.3 | $ | 715.1 | $ | 1,810.8 | |||||||||
Operating
loss(1) |
(27.8 | ) | (208.7 | ) | (99.2 | ) | |||||||||
Depreciation
and amortization |
10.0 | 25.1 | 101.3 | ||||||||||||
Capital
expenditures |
2.4 | 8.2 | 186.4 |
At October 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
2002 |
2001 |
|||||||||||||
Assets |
$ | 290.5 | $ | 354.7 | $ | 1,517.3 |
(1) | Operating loss excludes certain charges and expenses not allocated to the segments as described in Note 14 to the Consolidated Financial Statements in Item 8 of this Form 10-K. |
30
(Dollars in millions) For the years ended October 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
2002 |
2001 |
|||||||||||||
External
sales |
$ | 286.9 | $ | 332.6 | $ | 592.0 | |||||||||
Operating
loss(1) |
(1.7 | ) | (32.0 | ) | (45.3 | ) | |||||||||
Depreciation
and amortization |
3.5 | 10.4 | 20.6 | ||||||||||||
Capital
expenditures |
3.2 | 4.4 | 13.0 |
At October 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
2002 |
2001 |
|||||||||||||
Assets |
$ | 208.5 | $ | 269.5 | $ | 403.7 |
(1) | Operating loss excludes certain charges and expenses not allocated to the segments as described in Note 14 to the Consolidated Financial Statements in Item 8 of this Form 10-K. |
Application of Critical Accounting Policies and Estimates
31
experienced significant changes in required reserves in recent periods due primarily to adverse market conditions. It is possible that significant increases in inventory reserves may be required in the future if there is a further decline in market conditions. Alternatively, if we are able to sell previously reserved inventory, we may find it necessary to reverse a portion of the reserves. Changes in inventory reserves are recorded as a component of cost of sales. As of October 31, 2003 and 2002, we had $45.6 and $93.9 million, respectively, reserved against our inventories, which represents 39.6% and 49.7%, respectively, of total inventory on-hand.
32
33
reserves. Alternatively, if we provide more reserves than we need, we may reverse a portion of such provisions in future periods. Changes in warranty reserves are recorded as a component of cost of sales. As of October 31, 2003 and 2002, we reserved $13.4 and $13.1 million, respectively, related to future estimated warranty costs.
Recently Issued Accounting Pronouncements
34
Liquidity and Capital Resources
35
$177.0 million net increase in restricted cash (which reduced the balance in cash and cash equivalents), $25.6 million in property, plant and equipment additions, and $208.9 million used to pay current liabilities as well as net cash losses from operations. These cash outflows were partially offset by $259.4 million provided from income tax refunds, and $79.6 million from more effective working capital management such as account receivable collections, lower inventory requirements and lower prepaid assets. In addition, we received $68.6 million on the sale of available-for-sale securities during fiscal 2002.
36
|
$6.8 million for employee severance will be paid in fiscal 2004; |
|
$9.8 million for facilities consolidation costs, which relate principally to excess leased facilities, will be paid in fiscal 2004; and |
|
the remainder of $16.8 million, which also relates to excess leased facilities, will be paid over the respective lease terms ending through 2015. |
37
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
38
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
Board of Directors and Shareowners
ADC Telecommunications,
Inc.
We have audited the accompanying consolidated balance sheets of ADC Telecommunications, Inc. and subsidiaries as of October 31, 2003 and 2002, and the related consolidated statements of income, shareholders equity, and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of ADC Telecommunications, Inc., and subsidiaries as of October 31, 2001, and for the year then ended, were audited by other auditors who have ceased operations and whose report dated November 21, 2001, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ADC Telecommunications, Inc. and subsidiaries at October 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.
As discussed above, the consolidated financial statements of ADC Telecommunications, Inc., and subsidiaries as of October 31, 2001, and for the year then ended were audited by other auditors who have ceased operations. As described in Note 12, these consolidated financial statements have been revised to include the transitional disclosures required by Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, which was adopted by the Company as of November 1, 2001. We have audited the disclosures in Note 12 and, in our opinion, the disclosures for fiscal 2001 in Note 12 are appropriate. However, we were not engaged to audit, review or apply any procedures to the fiscal 2001 consolidated financial statements of the Company other than with respect to such disclosures, and accordingly, we do not express an opinion or any other form of assurance on the fiscal 2001 consolidated financial statements taken as a whole.
Ernst & Young LLP
Minneapolis, Minnesota
December 1, 2003
39
Note: The following report is a copy of a report previously issued by Arthur Andersen LLP (Andersen), which report has not been reissued by Andersen. Certain financial information for the period ended October 31, 2001 was not reviewed by Andersen and includes: (i) reclassifications to conform to our fiscal 2003 financial statement presentation and (ii) additional disclosures to conform with new accounting pronouncements and SEC rules and regulations.
Report of Independent Public Accountants
To ADC Telecommunications, Inc.:
We have audited the accompanying consolidated balance sheets of ADC Telecommunications, Inc. (a Minnesota corporation) and subsidiaries as of October 31, 2001 and 2000, and the related consolidated statements of operations, shareowners investment and cash flows for each of the three years in the period ended October 31, 2001. These financial statements are the responsibility of ADCs management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to the above present fairly, in all material respects, the financial position of ADC Telecommunications, Inc., and subsidiaries as of October 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2001 in conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Minneapolis, Minnesota
November 21, 2001
40
ADC Telecommunications, Inc. and Subsidiaries
Consolidated Statements of
Operations
(in millions, except earnings per share)
For the years ended October 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
2002 |
2001 |
|||||||||||||
Net
Sales: |
|||||||||||||||
Products |
$ | 571.7 | $ | 809.3 | $ | 2,044.5 | |||||||||
Services |
201.5 | 238.4 | 358.3 | ||||||||||||
Total net
sales |
773.2 | 1,047.7 | 2,402.8 | ||||||||||||
Cost of
Sales: |
|||||||||||||||
Products |
316.6 | 593.7 | 1,358.2 | ||||||||||||
Services |
165.2 | 207.5 | 319.6 | ||||||||||||
Total cost of
sales |
481.8 | 801.2 | 1,677.8 | ||||||||||||
Gross
Profit |
291.4 | 246.5 | 725.0 | ||||||||||||
Operating
Expenses: |
|||||||||||||||
Research and
development |
108.6 | 182.8 | 287.3 | ||||||||||||
Selling and
administration |
222.1 | 374.0 | 715.3 | ||||||||||||
Goodwill
amortization |
| | 56.6 | ||||||||||||
Impairment
charges |
15.6 | 348.3 | 501.7 | ||||||||||||
Restructuring
charges |
41.8 | 219.6 | 195.4 | ||||||||||||
Total
expenses |
388.1 | 1,124.7 | 1,756.3 | ||||||||||||
Operating
Loss |
(96.7 | ) | (878.2 | ) | (1,031.3 | ) | |||||||||
Other
Income (Expense), Net: |
|||||||||||||||
Interest
income (expense), net |
6.3 | 8.4 | (2.2 | ) | |||||||||||
Loss on sale
or shutdown of product lines |
(1.4 | ) | (6.7 | ) | (81.9 | ) | |||||||||
Gain (loss)
on write-down or sale of investments, net |
3.8 | 16.9 | (785.7 | ) | |||||||||||
Loss on sale
of fixed assets |
(1.0 | ) | (11.5 | ) | (1.3 | ) | |||||||||
Gain on
patent infringement settlement |
| 26.2 | | ||||||||||||
Other,
net |
6.9 | (37.3 | ) | (18.3 | ) | ||||||||||
Loss
Before Income Taxes |
(82.1 | ) | (882.2 | ) | (1,920.7 | ) | |||||||||
Provision
(Benefit) for Income Taxes |
(5.4 | ) | 262.8 | (633.0 | ) | ||||||||||
Net Loss
|
$ | (76.7 | ) | $ | (1,145.0 | ) | $ | (1,287.7 | ) | ||||||
Average
Common Shares Outstanding (Basic and Diluted) |
803.4 | 795.6 | 787.0 | ||||||||||||
Loss Per
Share (Basic and Diluted) |
$ | (.10 | ) | $ | (1.44 | ) | $ | (1.64 | ) |
The accompanying notes are an integral part of these Consolidated Financial
Statements.
41
ADC Telecommunications, Inc. and Subsidiaries
Consolidated Balance
Sheets
(in millions)
October 31, 2003 |
October 31, 2002 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
ASSETS |
||||||||||
Current
Assets: |
||||||||||
Cash and cash
equivalents |
$ | 720.0 | $ | 278.9 | ||||||
Available-for-sale securities |
26.7 | 0.5 | ||||||||
Accounts
receivable, net of reserves of $23.5 and $33.9 |
110.6 | 115.1 | ||||||||
Unbilled
revenues |
30.6 | 25.8 | ||||||||
Inventories,
net of reserves of $45.6 and $93.9 |
69.5 | 94.9 | ||||||||
Prepaid
income taxes |
| 126.6 | ||||||||
Prepaid and
other current assets |
48.6 | 44.5 | ||||||||
Total current
assets |
1,006.0 | 686.3 | ||||||||
Property
and Equipment, Net |
192.3 | 206.8 | ||||||||
Assets
Held for Sale |
25.1 | 20.0 | ||||||||
Restricted
Cash |
20.0 | 177.0 | ||||||||
Available-for-sale securities |
19.5 | | ||||||||
Other
Assets |
34.0 | 54.1 | ||||||||
Total
assets |
$ | 1,296.9 | $ | 1,144.2 | ||||||
LIABILITIES AND SHAREOWNERS INVESTMENT |
||||||||||
Current
Liabilities: |
||||||||||
Accounts
payable |
$ | 49.3 | $ | 73.0 | ||||||
Accrued
compensation and benefits |
54.9 | 74.1 | ||||||||
Other accrued
liabilities |
119.6 | 110.8 | ||||||||
Restructuring
accrual |
33.4 | 124.2 | ||||||||
Notes
payable |
8.3 | 15.7 | ||||||||
Total current
liabilities |
265.5 | 397.8 | ||||||||
Long-Term
Notes Payable |
400.0 | 10.8 | ||||||||
Other
Long-Term Liabilities |
3.7 | 3.4 | ||||||||
Total
liabilities |
669.2 | 412.0 | ||||||||
Commitments and Contingencies |
||||||||||
Shareowners Investment: |
||||||||||
Common stock,
$0.20 par value; authorized 1,200.0 shares; issued and outstanding 806.6 and 799.6 shares |
161.3 | 159.9 | ||||||||
Paid-in
capital |
1,246.9 | 1,272.6 | ||||||||
Accumulated
deficit |
(750.0 | ) | (673.3 | ) | ||||||
Deferred
compensation |
(9.3 | ) | (12.3 | ) | ||||||
Accumulated
other comprehensive loss |
(21.2 | ) | (14.7 | ) | ||||||
Total
shareowners investment |
627.7 | 732.2 | ||||||||
Total
liabilities and shareowners investment |
$ | 1,296.9 | $ | 1,144.2 |
The accompanying notes are an integral part of these Consolidated Financial
Statements.
42
ADC Telecommunications, Inc. and Subsidiaries
Consolidated Statements of
Shareowners Investment
(in millions)
Common Stock |
||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares |
Amount |
Paid-in Capital |
Retained Earnings (Deficit) |
Deferred Compensation |
Accumulated Other Comprehensive Income (Loss) |
Total |
||||||||||||||||||||||||
Balance,
October 31, 2000 |
770.3 | $ | 154.1 | $ | 954.0 | $ | 1,759.4 | $ | (39.2 | ) | $ | 84.4 | $ | 2,912.7 | ||||||||||||||||
Net
income |
| | | (1,287.7 | ) | | | (1,287.7 | ) | |||||||||||||||||||||
Other
comprehensive income, net of tax: |
||||||||||||||||||||||||||||||
Translation
gain |
| | | | | 12.4 | 12.4 | |||||||||||||||||||||||
Unrealized
loss on securities, net of taxes of $(338.0) |
| | | | | (575.5 | ) | (575.5 | ) | |||||||||||||||||||||
Adjustment
for write-down of securities, net of taxes of $302.1 |
| | | | | 514.4 | 514.4 | |||||||||||||||||||||||
Adjustment
for sale of securities, net of taxes of $(6.9) |
| | | | | (11.8 | ) | (11.8 | ) | |||||||||||||||||||||
Total
comprehensive income |
(1,348.2 | ) | ||||||||||||||||||||||||||||
Exercise of
common stock options |
6.9 | 1.4 | 27.6 | | | | 29.0 | |||||||||||||||||||||||
Stock issued
for business acquisitions |
11.6 | 2.3 | 3.0 | | | | 5.3 | |||||||||||||||||||||||
Stock issued
for employee benefit plans |
3.2 | 0.6 | 12.8 | | | | 13.4 | |||||||||||||||||||||||
Reduction of
deferred compensation, net of forfeitures |
| | (3.8 | ) | | 22.5 | | 18.7 | ||||||||||||||||||||||
Tax benefits
from exercise of common stock options |
| | 22.5 | | | | 22.5 | |||||||||||||||||||||||
Tax benefits
related to acquisition |
| | 240.0 | | | | 240.0 | |||||||||||||||||||||||
Balance,
October 31, 2001 |
792.0 | 158.4 | 1,256.1 | 471.7 | (16.7 | ) | 23.9 | 1,893.4 | ||||||||||||||||||||||
Net
loss |
| | | (1,145.0 | ) | | | (1,145.0 | ) | |||||||||||||||||||||
Other
comprehensive income, net of tax: |
||||||||||||||||||||||||||||||
Translation
gain |
| | | | | 2.3 | 2.3 | |||||||||||||||||||||||
Unrealized
loss on securities, net of taxes of $(1.4) |
| | | | | (2.3 | ) | (2.3 | ) | |||||||||||||||||||||
Adjustment
for write-down of securities, net of taxes of $1.9 |
| | | | | 3.2 | 3.2 | |||||||||||||||||||||||
Adjustment
for sale of securities, net of taxes of $(24.5) |
| | | | | (41.8 | ) | (41.8 | ) | |||||||||||||||||||||
(1,183.6) | > | |||||||||||||||||||||||||||||
Exercise of
common stock options, net of forfeitures |
1.2 | 0.2 | 3.2 | | | | 3.4 | |||||||||||||||||||||||
Stock issued
for employee benefit plans |
6.4 | 1.3 | 13.3 | | (9.9 | ) | | 4.7 | ||||||||||||||||||||||
Reduction of
deferred compensation |
| | | | 14.3 | | 14.3 | |||||||||||||||||||||||
Balance,
October 31, 2002 |
799.6 | 159.9 | 1,272.6 | (673.3 | ) | (12.3 | ) | (14.7 | ) | 732.2 | ||||||||||||||||||||
Net
loss |
| | | (76.7 | ) | | | (76.7 | ) | |||||||||||||||||||||
Other
comprehensive income, net of tax: |
||||||||||||||||||||||||||||||
Translation
gain |
| | | | | (10.7 | ) | (10.7 | ) | |||||||||||||||||||||
Unrealized
gain on securities, net of taxes of $0.0 |
4.2 | 4.2 | ||||||||||||||||||||||||||||
Total
comprehensive income |
(83.2 | ) | ||||||||||||||||||||||||||||
Exercise of
common stock options |
2.7 | 0.5 | 3.6 | | | | 4.1 | |||||||||||||||||||||||
Stock issued
for employee benefit plans, net of forfeitures |
4.3 | 0.9 | 5.2 | | (1.4 | ) | | 4.7 | ||||||||||||||||||||||
Reduction of
deferred compensation |
| | | | 4.4 | | 4.4 | |||||||||||||||||||||||
Purchased call
option |
(137.3 | ) | (137.3 | ) | ||||||||||||||||||||||||||
Sale of
warrants |
102.8 | 102.8 | ||||||||||||||||||||||||||||
Balance,
October 31, 2003 |
806.6 | $ | 161.3 | $ | 1,246.9 | $ | (750.0 | ) | $ | (9.3 | ) | $ | (21.2 | ) | $ | 627.7 |
The accompanying notes are an integral part of these Consolidated Financial
Statements.
43
ADC Telecommunications, Inc. and Subsidiaries
Consolidated Statements of
Cash Flows
(in millions)
For the years ended October 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
2002 |
2001 |
|||||||||||||
Operating
Activities: |
|||||||||||||||
Net
loss |
$ | (76.7 | ) | $ | (1,145.0 | ) | $ | (1,287.7 | ) | ||||||
Adjustments
to reconcile net income (loss) to net cash provided by operating activities |
|||||||||||||||
Depreciation
and amortization |
59.2 | 104.7 | 197.8 | ||||||||||||
Provision for
losses on receivables |
3.7 | 26.4 | 73.8 | ||||||||||||
Inventory
reserves |
2.9 | 49.7 | 47.7 | ||||||||||||
Purchased
in-process research and development |
| 10.5 | | ||||||||||||
Write-down of
inventory, property and equipment and goodwill |
23.6 | 367.2 | 477.8 | ||||||||||||
Non-cash
stock compensation |
4.4 | 14.3 | 18.7 | ||||||||||||
Deferred
income taxes |
| 498.1 | (438.9 | ) | |||||||||||
Loss on
write-down of investments |
| 50.9 | 862.5 | ||||||||||||
Gain on sale
of investments |
(3.8 | ) | (67.8 | ) | (76.8 | ) | |||||||||
Loss on sale
of fixed assets |
1.0 | 14.8 | 6.5 | ||||||||||||
Loss on sale
or shutdown of product lines |
1.4 | 6.7 | 81.9 | ||||||||||||
Other,
net |
(1.0 | ) | (0.1 | ) | 3.4 | ||||||||||
Changes in
operating assets and liabilities, net of acquisitions and divestitures: |
|||||||||||||||
Accounts and
unbilled receivables |
6.2 | 160.8 | 339.3 | ||||||||||||
Inventories |
19.5 | 104.3 | 89.5 | ||||||||||||
Prepaid and
other assets |
149.9 | 73.9 | (185.5 | ) | |||||||||||
Accounts
payable |
(31.3 | ) | (88.1 | ) | (61.7 | ) | |||||||||
Accrued
liabilities |
(120.1 | ) | (120.8 | ) | (53.3 | ) | |||||||||
Total cash
provided by operating activities |
38.9 | 60.5 | 95.0 | ||||||||||||
Investing
Activities: |
|||||||||||||||
Acquisitions,
net of cash acquired |
| (4.2 | ) | (48.7 | ) | ||||||||||
Divestitures,
net of cash disposed |
1.9 | 2.3 | 117.5 | ||||||||||||
Property and
equipment additions |
(69.5 | ) | (39.4 | ) | (249.2 | ) | |||||||||
Property and
equipment disposals |
1.9 | 13.8 | 18.4 | ||||||||||||
Change in
restricted cash |
157.0 | (177.0 | ) | | |||||||||||
Purchase of
available-for-sale securities |
(57.0 | ) | (3.5 | ) | (29.0 | ) | |||||||||
Sale of
available-for-sale securities |
21.9 | 74.4 | 222.0 | ||||||||||||
Total cash
provided by (used for) investing activities |
56.2 | (133.6 | ) | 31.0 | |||||||||||
Financing
Activities: |
|||||||||||||||
Issuance
(Repayments) of debt |
371.5 | (5.9 | ) | (35.8 | ) | ||||||||||
Purchase of
call spread option |
(34.5 | ) | | | |||||||||||
Common stock
issued |
8.2 | 9.1 | 40.4 | ||||||||||||
Total cash
provided by financing activities |
345.2 | 3.2 | 4.6 | ||||||||||||
Effect of
Exchange Rate Changes on Cash |
0.8 | 0.2 | 0.7 | ||||||||||||
Increase
(Decrease) in Cash and Cash Equivalents |
441.1 | (69.7 | ) | 131.3 | |||||||||||
Cash and
Cash Equivalents, Beginning of Year |
278.9 | 348.6 | 217.3 | ||||||||||||
Cash and
Cash Equivalents, End of Year |
$ | 720.0 | $ | 278.9 | $ | 348.6 |
The accompanying notes are an integral part of these Consolidated Financial
Statements.
44
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
45
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
46
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
quarter of fiscal 2002 that a full valuation allowance against our net deferred tax assets was appropriate as a result of our cumulative losses to that point, and the full utilization of our loss carryback potential. In addition, 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.
47
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
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 costs. 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
standards effective date. Adoption of the standard did not materially impact our consolidated financial results or financial position.
48
Notes to Consolidated Financial Statements (Continued)
Note 2: Other Financial Statement Data (in millions)
2003 |
2002 |
2001 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest
income |
$ | 9.9 | $ | 12.4 | $ | 6.6 | ||||||||
Interest
expense |
(3.6 | ) | (4.0 | ) | (8.8 | ) | ||||||||
Interest
income (expense), net |
$ | 6.3 | $ | 8.4 | $ | (2.2 | ) | |||||||
Foreign
exchange income (loss) |
$ | 8.1 | $ | (17.7 | ) | $ | (5.3 | ) | ||||||
Equity
investment losses |
| | (8.4 | ) | ||||||||||
Loss on lease
termination |
| (8.2 | ) | | ||||||||||
Other |
(1.2 | ) | (11.4 | ) | (4.6 | ) | ||||||||
Other,
net |
$ | 6.9 | $ | (37.3 | ) | $ | (18.3 | ) |
2003 |
2002 |
2001 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Income tax
refunds received |
$ | (142.7 | ) | $ | (259.4 | ) | $ | (24.1 | ) | |||||
Interest
paid |
1.4 | $ | 5.3 | $ | 7.7 |
2003 |
2002 |
2001 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Acquisitions: |
||||||||||||||
Fair value of
assets acquired |
$ | | $ | 20.8 | $ | 78.3 | ||||||||
Less:
Liabilities assumed |
| (16.5 | ) | (24.9 | ) | |||||||||
Cash
acquired |
| (0.1 | ) | (4.7 | ) | |||||||||
Acquisitions,
net of cash acquired |
$ | | $ | 4.2 | $ | 48.7 | ||||||||
Divestitures: |
||||||||||||||
Carrying
value of assets disposed |
$ | 2.6 | $ | 22.4 | $ | 232.6 | ||||||||
Less:
Liabilities disposed |
(0.7 | ) | (20.1 | ) | (110.3 | ) | ||||||||
Cash
disposed |
| | (4.8 | ) | ||||||||||
Divestitures,
net of cash disposed |
$ | 1.9 | $ | 2.3 | $ | 117.5 |
49
Notes to Consolidated Financial Statements (Continued)
Note 2: Other Financial Statement Data (in millions)
(Continued)
2003 |
2002 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Inventories: |
||||||||||
Purchased
materials and manufactured products |
$ | 107.8 | $ | 176.4 | ||||||
Work-in-process |
7.3 | 12.4 | ||||||||
Total |
$ | 115.1 | $ | 188.8 | ||||||
Property
and Equipment: |
||||||||||
Land and
buildings |
$ | 127.5 | $ | 113.5 | ||||||
Machinery and
equipment |
391.8 | 418.8 | ||||||||
Furniture and
fixtures |
38.3 | 37.8 | ||||||||
Less
accumulated depreciation |
(368.3 | ) | (370.9 | ) | ||||||
Total |
189.3 | 199.2 | ||||||||
Construction-in-process |
3.0 | 7.6 | ||||||||
Total,
net |
$ | 192.3 | $ | 206.8 | ||||||
Other
Assets: |
||||||||||
Notes
receivable, net |
$ | 7.3 | $ | 22.8 | ||||||
Patents |
9.5 | 11.2 | ||||||||
Intangible
assetsother |
12.4 | 7.0 | ||||||||
Cost basis
investments |
| 3.9 | ||||||||
Goodwill |
4.8 | 3.8 | ||||||||
Other |
| 5.4 | ||||||||
Total |
$ | 34.0 | $ | 54.1 | ||||||
Other
Accrued Liabilities: |
||||||||||
Deferred
Revenue |
$ | 36.1 | $ | 17.3 | ||||||
Warranty
reserve |
13.4 | 13.1 | ||||||||
Accrued
taxes |
38.0 | 30.5 | ||||||||
Non-trade
payables |
24.6 | 48.1 | ||||||||
Other |
7.5 | 1.8 | ||||||||
Total |
$ | 119.6 | $ | 110.8 |
Note 3: Investments
Cost Basis(1) |
Unrealized Gain |
Fair Value |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
||||||||||||||
U.S. Treasury
and other U.S. government agencies |
$ | 35.5 | $ | | $ | 35.5 | ||||||||
Corporate
bonds |
6.0 | | 6.0 | |||||||||||
Equity
securities |
0.5 | 4.2 | 4.7 | |||||||||||
Total
available-for-sale securities |
$ | 42.0 | $ | 4.2 | $ | 46.2 | ||||||||
2002 |
||||||||||||||
Equity
securities |
$ | 0.5 | | $ | 0.5 | |||||||||
Total
Available-for-sale securities |
$ | 0.5 | $ | | $ | 0.5 |
(1) | As adjusted for the write-down of certain available-for-sale securities to a lower-of-cost-or-market basis. |
50
Notes to Consolidated Financial Statements (Continued)
Note 3: Investments (Continued)
Fair Value |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Due in one
year or less |
$ | 22.0 | ||||||||
Due in one
year through five years |
19.5 | |||||||||
Total |
$ | 41.5 |
51
Notes to Consolidated Financial Statements (Continued)
Note 3: Investments (Continued)
ONI Systems and GlobeSpan. These cashless collar arrangements were contracts entered into with third-party financial institutions whereby the financial institution guarantees a certain floor value of the securities if held to maturity while simultaneously permitting us to participate in a certain amount of appreciation above the floor value. The financial institutions, independent of us, engage in certain hedging transactions to manage their risk associated with these arrangements. These arrangements were terminated when we sold a portion of the underlying investments during fiscal 2001. We recognized a gain of $63.9 million upon the settlement of these collars.
Note 4: Notes Payable
52
Notes to Consolidated Financial Statements (Continued)
Note 4: Notes Payable (Continued)
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 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.
Note 5: Acquisitions
Note 6: Divestitures
(in millions) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2002 |
2001 |
||||||||||
Net
sales: |
|||||||||||
Broadband
Infrastructure & Access |
$ | 14.9 | $ | 300.3 | |||||||
Integrated
Solutions |
| 104.6 | |||||||||
Total |
$ | 14.9 | $ | 404.9 | |||||||
Operating
loss |
$ | (96.8 | ) | $ | (250.3 | ) |
Note 7: Joint Ventures
53
Notes to Consolidated Financial Statements (Continued)
Note 7: Joint Ventures (Continued)
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 consolidated income statement as Other Income (Expense). In fiscal 2002 and 2001, we incurred approximately $2.6 million and $9.7 million, respectively, in equity losses related to these joint ventures.
Note 8: Employee Benefit Plans
54
Notes to Consolidated Financial Statements (Continued)
Note 8: Employee Benefit Plans (Continued)
Stock Option Shares |
Stock Options Weighted Average Exercise Price |
Restricted Shares |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding at October 31, 2000 |
96.5 | $ | 13.84 | 3.3 | ||||||||||
Granted |
30.6 | 12.65 | 0.2 | |||||||||||
Exercised |
(7.5 | ) | 3.33 | | ||||||||||
Restrictions
lapsed |
| | (2.3 | ) | ||||||||||
Canceled |
(23.7 | ) | 17.24 | (0.7 | ) | |||||||||
Outstanding at October 31, 2001 |
95.9 | 12.30 | 0.5 | |||||||||||
Granted |
43.0 | 4.24 | 1.9 | |||||||||||
Exercised |
(1.2 | ) | 0.87 | | ||||||||||
Restrictions
lapsed |
| | (0.4 | ) | ||||||||||
Canceled |
(30.1 | ) | 11.09 | (0.3 | ) | |||||||||
Outstanding at October 31, 2002 |
107.6 | 9.54 | 1.7 | |||||||||||
Granted |
29.9 | 2.28 | 2.7 | |||||||||||
Exercised |
(2.6 | ) | 1.42 | | ||||||||||
Restrictions
lapsed |
| | (0.6 | ) | ||||||||||
Canceled |
(60.4 | ) | 10.29 | (1.6 | ) | |||||||||
Outstanding at October 31, 2003 |
74.5 | $ | 6.14 | 2.2 | ||||||||||
Exercisable at October 31, 2003 |
41.2 | $ | 8.50 | |
Range of Exercise Prices Between |
Number Outstanding (in millions) |
Weighted Average Remaining Contractual Life |
Weighted Average Exercise Price |
Number Exercisable (in millions) |
Weighted Average Exercise Price |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
$0.96 | $ | 2.09 | 3.6 | 8.81 | $ | 1.65 | 1.4 | $ | 1.62 | |||||||||||||||||
2.16 | 2.26 | 17.1 | 9.08 | 2.26 | .01 | 2.23 | ||||||||||||||||||||
2.29 | 2.36 | 1.6 | 7.44 | 2.35 | .2 | 2.29 | ||||||||||||||||||||
2.42 | 3.89 | 5.7 | 7.38 | 3.11 | 2.7 | 3.37 | ||||||||||||||||||||
4.02 | 4.37 | 9.9 | 7.93 | 4.36 | 7.8 | 4.36 | ||||||||||||||||||||
4.44 | 7.68 | 11.4 | 6.80 | 5.97 | 9.1 | 6.02 | ||||||||||||||||||||
7.70 | 10.76 | 9.9 | 2.31 | 9.45 | 9.4 | 9.45 | ||||||||||||||||||||
11.01 | 14.56 | 8.1 | 4.56 | 11.75 | 8.0 | 11.74 | ||||||||||||||||||||
16.48 | 40.94 | 6.9 | 6.80 | 23.13 | 2.3 | 23.14 | ||||||||||||||||||||
41.94 | 41.94 | 0.3 | 6.69 | 41.94 | .3 | 41.94 | ||||||||||||||||||||
$0.96 | $ | 41.94 | 74.5 | 6.92 | $ | 6.14 | 41.2 | $ | 8.50 |
55
Notes to Consolidated Financial Statements (Continued)
Note 8: Employee Benefit Plans (Continued)
2003 |
2002 |
2001 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Risk-free
interest rate |
2.62 | % | 2.43 | % | 3.27 | % | ||||||||
Expected
dividend |
| | | |||||||||||
Expected
volatility factor |
66.92 | % | 67.02 | % | 93.2 | % | ||||||||
Expected
option term |
3.2
years |
4.3
years |
4.4
years |
2003 |
2002 |
2001 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net
Loss |
||||||||||||||
As
reported |
$ | (76.7 | ) | $ | (1,145.0 | ) | $ | (1,287.7 | ) | |||||
Pro
forma |
(119.0 | ) | (1,259.4 | ) | (1,393.7 | ) | ||||||||
Earnings
(Loss) Per ShareBasic And Diluted |
||||||||||||||
As
reported |
$ | (0.10 | ) | $ | (1.44 | ) | $ | (1.64 | ) | |||||
Pro
forma |
(0.15 | ) | (1.58 | ) | (1.77 | ) |
56
Notes to Consolidated Financial Statements (Continued)
Note 8: Employee Benefit Plans (Continued)
compensation expense recorded in fiscal 2001 relating to the Centigram acquisition was $6.0 million. These options were cancelled shortly after the divestiture of Centigram on October 31, 2001. Further non-cash stock compensation expense of $0.9 million, $10.4 million and $12.7 million was recognized in fiscal 2003, 2002 and 2001, respectively, as a result of unvested stock options and restricted stock converted into ADC awards in connection with our fiscal 2000 acquisition of Broadband Access Systems. The exercise prices on the date of grant were deemed to be less than the estimated fair values of the awards. Expense is being recognized over the anticipated vesting period of the awards through fiscal 2005. Such amounts are reflected in research and development and selling and administration expense in the consolidated statements of operations.
Note 9: Capital Stock and Accumulated Other Comprehensive Income
2003 |
2002 |
2001 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Numerator: |
||||||||||||||
Net
loss |
$ | (76.7 | ) | $ | (1,145.0 | ) | $ | (1,287.7 | ) | |||||
Denominator: |
||||||||||||||
Weighted-average shares outstanding for basic and diluted earnings per share |
803.4 | 795.6 | 787.0 | |||||||||||
Loss per
sharebasic and diluted |
$ | (0.10 | ) | $ | (1.44 | ) | $ | (1.64 | ) |
57
Notes to Consolidated Financial Statements (Continued)
Note 9: Capital Stock and Accumulated Other Comprehensive Income
(Continued)
convertible notes will not be added back and the 99.7 million shares of common stock reserved for issuance upon conversion of our convertible notes will not be included. See Note 4 for a discussion of our convertible notes.
October 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
2002 |
2001 |
|||||||||||||
Foreign
currency translation adjustment |
$ | (25.4 | ) | $ | (14.7 | ) | $ | (17.0 | ) | ||||||
Unrealized
gain on available for sale securities, net of taxes |
4.2 | | 40.9 | ||||||||||||
$ | (21.2 | ) | $ | (14.7 | ) | $ | 23.9 |
Note 10: Income Taxes
2003 |
2002 |
2001 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current
taxes: |
||||||||||||||
Federal |
$ | (1.0 | ) | $ | (233.4 | ) | $ | (184.5 | ) | |||||
Foreign |
(0.4 | ) | (1.4 | ) | (10.6 | ) | ||||||||
State |
(4.0 | ) | (0.5 | ) | 1.0 | |||||||||
(5.4 | ) | (235.3 | ) | (194.1 | ) | |||||||||
Deferred
taxes: |
||||||||||||||
Federal |
| 430.6 | (371.3 | ) | ||||||||||
Foreign |
| 45.0 | (43.8 | ) | ||||||||||
State |
| 22.5 | (23.8 | ) | ||||||||||
| 498.1 | (438.9 | ) | |||||||||||
Total
(benefit) provision |
$ | (5.4 | ) | $ | 262.8 | $ | (633.0 | ) |
58
Notes to Consolidated Financial Statements (Continued)
Note 10: Income Taxes (Continued)
2003 |
2002 |
2001 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Federal
statutory rate |
(35 | )% | (35 | )% | (35 | )% | ||||||||
Impairment
charges |
(12 | ) | (4 | ) | 3 | |||||||||
Research and
development tax credits |
(1 | ) | (2 | ) | | |||||||||
Deferred tax
asset valuation allowance |
48 | 73 | | |||||||||||
State income
taxes, net |
(21 | ) | | (1 | ) | |||||||||
Foreign
income taxes |
19 | | | |||||||||||
Other,
net |
(5 | ) | (2 | ) | | |||||||||
Effective
income tax rate |
(7 | )% | 30 | % | (33 | )% |
2003 |
2002 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Current
deferred tax assets (liabilities): |
||||||||||
Asset
valuation reserves |
$ | 25.6 | $ | 41.5 | ||||||
Accrued
liabilities |
27.3 | 53.3 | ||||||||
Other |
(0.2 | ) | 3.5 | |||||||
Subtotal |
52.7 | 98.3 | ||||||||
Current
deferred tax asset valuation allowance |
(52.7 | ) | (98.3 | ) | ||||||
Total |
$ | | $ | | ||||||
Non-current deferred tax assets (liabilities): |
||||||||||
Intangible
assets |
$ | 321.6 | $ | 340.5 | ||||||
Depreciation |
9.4 | (15.7 | ) | |||||||
Net operating
loss and tax credit carryover |
327.4 | 152.6 | ||||||||
Restructuring
charges and other |
39.9 | 135.6 | ||||||||
Subtotal |
698.3 | 613.0 | ||||||||
Non-current
deferred tax asset valuation allowance |
(698.3 | ) | (613.0 | ) | ||||||
Total |
$ | | $ | |
59
Notes to Consolidated Financial Statements (Continued)
Note 10: Income Taxes (Continued)
and foreign income tax examinations. The U.S. Internal Revenue Service has completed its examination of our federal income tax return for all years prior to fiscal 2002.
Note 11: Impairment, Restructuring and Other Disposal Charges
Fiscal 2003 |
Impairment Charges |
Restructuring Charges |
Total |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Employee
severance costs |
$ | | $ | 30.2 | $ | 30.2 | ||||||||
Facilities
consolidation and lease termination |
| 11.6 | 11.6 | |||||||||||
Fixed asset
write-downs |
15.6 | | 15.6 | |||||||||||
Total |
$ | 15.6 | $ | 41.8 | $ | 57.4 |
Fiscal 2002 |
Impairment Charges |
Restructuring Charges |
Cost of Sales |
Selling and Administrative Charges |
Total |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Employee
severance costs |
$ | | $ | 53.1 | $ | | $ | | $ | 53.1 | ||||||||||||
Facilities
consolidation and lease termination |
| 153.8 | | | 153.8 | |||||||||||||||||
Fixed asset
write-downs |
212.0 | | | | 212.0 | |||||||||||||||||
Inventory and
committed sales contracts |
| | 18.9 | | 18.9 | |||||||||||||||||
Goodwill
write-downs |
136.3 | | | | 136.3 | |||||||||||||||||
Purchased
in-process research and development |
| 10.5 | | | 10.5 | |||||||||||||||||
Committed
sales contractsadministrative |
| | | (5.7 | ) | (5.7 | ) | |||||||||||||||
Other |
| 2.2 | | | 2.2 | |||||||||||||||||
Total |
$ | 348.3 | $ | 219.6 | $ | 18.9 | (5.7 | ) | $ | 581.1 |
60
Notes to Consolidated Financial Statements (Continued)
Note 11: Impairment, Restructuring and Other Disposal Charges
(Continued)
Fiscal 2001 |
Impairment Charges |
Restructuring Charges |
Cost of Sales |
Selling and Administrative Charges |
Total |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Employment
severance costs |
$ | | $ | 89.0 | $ | | $ | | $ | 89.0 | ||||||||||||
Facilities
consolidation |
| 96.0 | | | 96.0 | |||||||||||||||||
Fixed asset
write-downs |
207.2 | | | | 207.2 | |||||||||||||||||
Inventory and
committed sales contracts |
| | 52.4 | | 52.4 | |||||||||||||||||
Goodwill
write-downs |
294.5 | | | | 294.5 | |||||||||||||||||
Committed
sales contractsadministrative |
| | | 24.5 | 24.5 | |||||||||||||||||
Integration
and acquisition costs |
| 9.0 | | | 9.0 | |||||||||||||||||
Other |
| 1.4 | | 3.9 | 5.3 | |||||||||||||||||
Total |
$ | 501.7 | $ | 195.4 | $ | 52.4 | $ | 28.4 | $ | 777.9 |
61
Notes to Consolidated Financial Statements (Continued)
Note 11: Impairment, Restructuring and Other Disposal Charges
(Continued)
Type of Charge |
October 31, 2002 |
Net Additions (Reductions) |
Cash Charges |
October 31, 2003 |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Employee
severance costs |
$ | 17.0 | $ | 30.2 | $ | 40.4 | $ | 6.8 | ||||||||||
Facilities
consolidation |
105.6 | 11.6 | 90.6 | 26.6 | ||||||||||||||
Committed
sales contracts administrative |
1.6 | | 1.6 | | ||||||||||||||
Total |
$ | 124.2 | $ | 41.8 | $ | 132.6 | $ | 33.4 |
Type of Charge |
October 31, 2001 |
Net Additions (Reductions) |
Cash Charges |
Non-cash Charges |
October 31, 2002 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Employee
severance costs |
$ | 22.3 | $ | 53.1 | $ | 58.4 | | 17.0 | ||||||||||||||
Facilities
consolidation |
83.6 | 153.8 | 131.8 | | 105.6 | |||||||||||||||||
Inventory and
committed sales contracts |
3.8 | 18.9 | | 22.7 | | |||||||||||||||||
Committed
sales contracts administrative |
11.1 | (5.7 | ) | 3.8 | | 1.6 | ||||||||||||||||
Total |
$ | 120.8 | $ | 220.1 | $ | 194.0 | $ | 22.7 | $ | 124.2 |
Note 12: Goodwill
62
Notes to Consolidated Financial Statements (Continued)
Note 12: Goodwill (Continued)
the fair value of this business and ultimately wrote off $36.6 million of goodwill that we had recorded as a result of optical component business acquisitions in prior years. During the fourth quarter of fiscal 2002, we performed the annual goodwill impairment test and assessed the fair value of our remaining business units to determine whether goodwill carried on our books was impaired and the extent of such impairment. We used the income approach to measure the fair value of goodwill using a discount rate of 21.0%. After performing this evaluation it was evident that a significant impairment of goodwill had occurred because of a steep decline in forecasted revenues. Accordingly, an impairment charge of $85.5 million related to our Integrated Solutions segment and $14.2 million related to our Broadband Infrastructure and Access segment was recognized in addition to the optical component goodwill impairment. In fiscal 2003, no impairment was noted after performing the annual fourth quarter evaluation. At October 31, 2003 and 2002, we had $4.8 million and $3.8 million, respectively, of goodwill related solely to our Integrated Solutions segment on our consolidated balance sheet.
2003 |
2002 |
2001 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Reported net
loss |
$ | (76.7 | ) | $ | (1,145.0 | ) | $ | (1,287.7 | ) | |||||
Add back:
Goodwill amortization, net of taxes |
| | 44.9 | |||||||||||
Adjusted net
loss |
$ | (76.7 | ) | $ | (1,145.0 | ) | $ | (1,242.8 | ) | |||||
Diluted
earnings per share: |
||||||||||||||
Reported net
loss |
$ | (0.10 | ) | $ | (1.44 | ) | $ | (1.64 | ) | |||||
Goodwill
amortization |
| | 0.06 | |||||||||||
Adjusted loss
per share |
$ | (0.10 | ) | $ | (1.44 | ) | $ | (1.58 | ) |
Note 13: Commitments and Contingencies
63
Notes to Consolidated Financial Statements (Continued)
Note 13: Commitments and Contingencies (Continued)
discount to the face amount of the receivable, was with full recourse to us, and our recourse obligation is secured by a letter of credit. We accounted for this sale of a participation interest as a loan, and thus recorded a $10.5 million long-term note payable.
2004 |
$ | 23.8 | ||||||||
2005 |
20.8 | |||||||||
2006 |
17.7 | |||||||||
2007 |
9.8 | |||||||||
2008 and
thereafter |
33.8 | |||||||||
Total |
$ | 105.9 |
64
Notes to Consolidated Financial Statements (Continued)
Note 13: Commitments and Contingencies (Continued)
of such lawsuits, proceedings or claims cannot be determined at this time. As of October 31, 2003, we had recorded $9.1 million in loss reserves in the event of such adverse outcomes in these matters. Litigation by its nature is uncertain, and we cannot predict the ultimate outcome of these matters with certainty. However, other than with respect to the two purported class action suits described below, and in light of the reserves we have recorded, at this time we believe the ultimate resolution of these lawsuits, proceedings and claims will not have a material adverse impact on our business, results of operations or financial condition.
Note 14: Segment Information
|
connectivity devices that provide the physical contact points needed to connect different communications network elements and gain access to communications system channels; and |
|
access and transport systems that provide broadband, multiservice delivery capabilities within service provider networks. |
65
Notes to Consolidated Financial Statements (Continued)
Note 14: Segment Information (Continued)
are used throughout the world in telephone, cable television, Internet, and wireless communications networks to deliver internet, data, video, and voice services to businesses and consumers.
|
Restructuring and other disposal charges; |
|
Impairment charges; and |
|
Goodwill amortization resulting from acquisitions. |
66
Notes to Consolidated Financial Statements (Continued)
Note 14: Segment Information (Continued)
Segment Information (in millions) |
Broadband Infrastructure and Access |
Integrated Solutions |
Unallocated Items |
Consolidated |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
||||||||||||||||||
External
sales: |
||||||||||||||||||
Products |
$ | 486.3 | $ | 85.4 | $ | | $ | 571.7 | ||||||||||
Services |
| 201.5 | | 201.5 | ||||||||||||||
Total
external sales |
$ | 486.3 | $ | 286.9 | | $ | 773.2 | |||||||||||
Depreciation
and amortization |
$ | 10.0 | $ | 3.5 | $ | 45.7 | $ | 59.2 | ||||||||||
Impairment,
restructuring and other disposal charges |
| | 57.4 | 57.4 | ||||||||||||||
Operating
loss |
(27.8 | ) | (1.7 | ) | (67.2 | ) | (96.7 | ) | ||||||||||
Other income
(expense), net |
| | 14.6 | 14.6 | ||||||||||||||
Loss before
income taxes |
(27.8 | ) | (1.7 | ) | (52.6 | ) | (82.1 | ) | ||||||||||
Capital
expenditures |
2.4 | 3.2 | 62.0 | 67.6 | ||||||||||||||
Assets |
$ | 290.5 | $ | 208.5 | $ | 797.9 | $ | 1,296.9 | ||||||||||
2002 |
||||||||||||||||||
External
sales: |
||||||||||||||||||
Products |
$ | 715.1 | $ | 94.2 | $ | | $ | 809.3 | ||||||||||
Services |
| 238.4 | | 238.4 | ||||||||||||||
Total
external sales |
$ | 715.1 | $ | 332.6 | | $ | 1,047.7 | |||||||||||
Depreciation
and amortization |
$ | 25.1 | $ | 10.4 | $ | 69.2 | $ | 104.7 | ||||||||||
Impairment,
restructuring and other disposal charges |
| | (581.1 | ) | (581.1 | ) | ||||||||||||
Operating
loss |
(208.7 | ) | (32.0 | ) | (637.5 | ) | (878.2 | ) | ||||||||||
Other income
(expense), net |
| | (4.0 | ) | (4.0 | ) | ||||||||||||
Loss before
income taxes |
(208.7 | ) | (32.0 | ) | (641.5 | ) | (882.2 | ) | ||||||||||
Capital
expenditures |
8.2 | 4.4 | 13.0 | 25.6 | ||||||||||||||
Assets |
$ | 354.7 | $ | 269.5 | $ | 520.0 | $ | 1,144.2 | ||||||||||
2001 |
||||||||||||||||||
External
sales: |
||||||||||||||||||
Products |
$ | 1,810.8 | $ | 233.7 | $ | | $ | 2,044.5 | ||||||||||
Services |
| 358.3 | | 358.3 | ||||||||||||||
Total
external sales |
$ | 1,810.8 | $ | 592.0 | | $ | 2,402.8 | |||||||||||
Depreciation
and amortization |
$ | 101.3 | $ | 20.6 | $ | 75.9 | $ | 197.8 | ||||||||||
Impairment,
restructuring and other disposal charges |
| | (777.9 | ) | (777.9 | ) | ||||||||||||
Operating
loss |
(99.2 | ) | (45.3 | ) | (886.8 | ) | (1,031.3 | ) | ||||||||||
Other income
(expense), net |
| | (889.4 | ) | (889.4 | ) | ||||||||||||
Loss before
income taxes |
(99.2 | ) | (45.3 | ) | (1,776.2 | ) | (1,920.7 | ) | ||||||||||
Capital
expenditures |
186.4 | 13.0 | 41.8 | 241.2 | ||||||||||||||
Assets |
$ | 1,517.3 | $ | 403.7 | $ | 578.7 | $ | 2,499.7 |
67
Notes to Consolidated Financial Statements (Continued)
Note 14: Segment Information (Continued)
Geographic Information (in millions) |
2003 |
2002 |
2001 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales: |
||||||||||||||||||
Outside the
United States |
$ | 280.7 | $ | 283.6 | $ | 692.2 | ||||||||||||
Inside the
United States |
492.5 | 764.1 | 1,710.6 | |||||||||||||||
Total |
$ | 773.2 | $ | 1,047.7 | $ | 2,402.8 | ||||||||||||
Property
and Equipment, Net: |
||||||||||||||||||
Outside the
United States |
$ | 36.9 | $ | 46.6 | $ | 176.4 | ||||||||||||
Inside the
United States |
155.4 | 160.2 | 437.6 | |||||||||||||||
Total |
$ | 192.3 | $ | 206.8 | $ | 614.0 |
Note 15: Quarterly Financial Data (Unaudited in millions, except earnings per
share)
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
Total |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2003 |
||||||||||||||||||||||
Net
Sales |
$ | 199.9 | $ | 191.9 | $ | 188.5 | $ | 192.9 | $ | 773.2 | ||||||||||||
Gross
Profit |
70.8 | 73.4 | 72.5 | 74.7 | 291.4 | |||||||||||||||||
Income (Loss)
Before Income Taxes |
(41.5 | ) | (29.4 | ) | (15.1 | ) | 3.9 | (82.1 | ) | |||||||||||||
Provision
(Benefit) for Income Taxes |
| | | (5.4 | ) | (5.4 | ) | |||||||||||||||
Net (Loss)
Income |
$ | (41.5)(1 | ) | $ | (29.4)(2 | ) | $ | (15.1)(3 | ) | $ | 9.3 | (4) | $ | (76.7 | ) | |||||||
Average
Common Shares OutstandingBasic |
801.1 | 802.7 | 804.1 | 805.4 | 803.4 | |||||||||||||||||
Average
Common Shares OutstandingDiluted |
801.1 | 802.7 | 804.1 | 808.5 | 803.4 | |||||||||||||||||
Loss Per
ShareBasic |
$ | (0.05 | ) | $ | (0.04 | ) | $ | (0.02 | ) | $ | 0.01 | $ | (0.10 | ) | ||||||||
Loss Per
ShareDiluted |
$ | (0.05 | ) | $ | (0.04 | ) | $ | (0.02 | ) | $ | 0.01 | $ | (0.10 | ) | ||||||||
2002 |
||||||||||||||||||||||
Net
Sales |
$ | 293.5 | $ | 298.4 | $ | 235.1 | $ | 220.7 | $ | 1,047.7 | ||||||||||||
Gross
Profit |
94.8 | 73.7 | 33.0 | 45.0 | 246.5 | |||||||||||||||||
Loss Before
Income Taxes |
(69.9 | ) | (133.0 | ) | (297.5 | ) | (381.8 | ) | (882.2 | ) | ||||||||||||
Provision
(Benefit) for Income Taxes |
(25.1 | ) | (43.8 | ) | 331.7 | | 262.8 | |||||||||||||||
Net
Loss |
$ | (44.8)(5 | ) | $ | (89.2)(6 | ) | $ | (629.2)(7 | ) | $ | (381.8)(8 | ) | $ | (1,145.0 | ) | |||||||
Average
Common Shares OutstandingBasic & Diluted |
793.4 | 794.9 | 796.4 | 797.6 | 795.6 | |||||||||||||||||
Loss Per
ShareBasic & Diluted |
$ | (0.06 | ) | $ | (0.11 | ) | $ | (0.79 | ) | $ | (0.48 | ) | $ | (1.44 | ) |
(1) | Includes $8.2 million restructuring charges; $10.3 million impairment charges; $2.1 million net gain on sale of investments; and $2.8 million loss related to sale of divested product lines. |
(2) | Includes $12.1 million restructuring charges and $4.3 million impairment charges. |
(3) | Includes $12.0 million restructuring charges and $0.2 million impairment charges. |
(4) | Includes $9.5 million restructuring charges; $0.8 million impairment charges; $1.7 million other disposal costs; $1.7 million gain on sale of investments; and $1.4 million loss related to sale of divested product lines; and a net benefit of $14.7 million from a tax benefit and reduced legal and other accruals due to the favorable resolution of certain outstanding matters. |
(5) | Includes $3.0 million restructuring charges; $1.9 million impairment charges; $2.4 million loss related to write-down of investment portfolio, and $7.0 million gain on sale of investments. |
68
Notes to Consolidated Financial Statements (Continued)
Note 15: Quarterly Financial Data (Unaudited in millions, except earnings per
share) (Continued)
(6) | Includes $57.3 million restructuring and in-process research and development charges; $16.8 million impairment charges; non-recurring non-operating gain of $26.2 million related to a patent infringement settlement; $0.7 million loss related to the sale of a divested product lines; $19.9 million loss related to write-down of investment portfolio and $24.2 million gain on sale of investments. |
(7) | Includes $33.1 million restructuring charges; $160.1 million impairment charges; $4.8 million loss related to the sale of a divested product line; $21.6 million loss related to the write-down of investment portfolio; $35.3 million gain on sale of investments; and $438.4 million charges related to deferred tax asset reserves as well as tax benefit adjustments due to tax law changes. |
(8) | Includes $139.4 million restructuring charges; $169.5 million impairment charges; $1.2 million loss related to sale of divested product lines; $7.0 million loss related to the write-down of investment portfolio; and $1.3 million gain on sale of investments. |
Note 16: Subsequent Events (unaudited)
69
Item 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Item 9A. CONTROLS AND PROCEDURES
70
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
1. |
From our main web page, first click on Investor Relations. |
2. |
Next, click on Relevant Documents. |
3. |
Finally, click on Financial Code of Ethics. |
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
71
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) | 1. Financial Statements |
Report of Independent Auditors Report of Independent Public Accountants Consolidated Statements of Operations for the years ended October 31, 2003, 2002 and 2001 Consolidated Balance Sheets as of October 31, 2002 and 2001 Consolidated Statements of Shareowners Investment for the years ended October 31, 2003, 2002 and 2001 Consolidated Statements of Cash Flows for the years ended October 31, 2003, 2002 and 2001 Notes to Consolidated Financial Statements Five-Year Selected Consolidated Financial Data for the years ended October 31, 1999 through October 31, 2003, is located in Item 6 of this Form 10-K |
2. |
Financial Statement Schedules |
3. |
Listing of Exhibits |
(b) | There were no Reports on Form 8-K filed during the last quarter of the period covered by this report. |
(c) | See Item 15(a)(3) above. |
(d) | See Item 15(a)(2) above. |
72
SIGNATURES
ADC
TELECOMMUNICATIONS, INC. |
||||||||||
Dated: January
14, 2004 |
By: /s/ Robert E. Switz Robert E. Switz President and Chief Executive Officer |
/s/
ROBERT E. SWITZ Robert E. Switz |
President and Chief Executive Officer (principal executive officer) |
Dated: January 14, 2004 |
||||||||
/s/
GOKUL V. HEMMADY Gokul V. Hemmady |
Vice President and Chief Financial Officer (principal financial and accounting officer) |
Dated: January 14, 2004 |
Robert
Annunziata* |
Director |
|||||
John A.
Blanchard III* |
Director |
|||||
John J. Boyle
III* |
Director |
|||||
James C.
Castle* |
Director |
|||||
Mickey P.
Foret* |
Director |
|||||
B. Kristine
Johnson* |
Director |
|||||
Jean-Pierre
Rosso* |
Director |
|||||
Larry W.
Wangberg* |
Director |
|||||
John D.
Wunsch* |
Director |
|||||
Charles D.
Yost* |
Director |
*By: /s/ Gokul V. Hemmady Gokul V. Hemmady Attorney-in-Fact |
Dated: January 14, 2004 |
73
EXHIBIT INDEX
Exhibit Number |
Description |
|||||
---|---|---|---|---|---|---|
3-a |
Restated Articles of Incorporation of ADC Telecommunications, Inc., as amended. (Incorporated by reference to Exhibit 4.1 to ADCs
Registration Statement on Form S-3 dated April 15, 1997.) |
|||||
3-b |
Articles of Amendment dated January 20, 2000, to Restated Articles of Incorporation of ADC Telecommunications, Inc. (Incorporated by reference
to Exhibit 4.6 to ADCs Registration Statement on Form S-8 dated March 14, 2000.) |
|||||
3-c |
Articles of Amendment dated June 23, 2000, to Restated Articles of Incorporation of ADC Telecommunications, Inc. (Incorporated by reference to
Exhibit 4-g to ADCs Quarterly Report on Form 10-Q for the quarter ended July 31, 2000.) |
|||||
3-d |
Restated Bylaws of ADC Telecommunications, Inc. effective July 30, 2002. (Incorporated by reference to Exhibit 4-e to ADCs Quarterly
Report on Form 10-Q for the quarter ended July 31, 2002.) |
|||||
4-a |
Form
of certificate for shares of Common Stock of ADC Telecommunications, Inc. (Incorporated by reference to Exhibit 4-a to ADCs Quarterly Report on
Form 10-Q for the quarter ended January 31, 1996.) |
|||||
4-b |
Rights Agreement, as amended and restated July 30, 2003, between ADC Telecommunications, Inc. and Computershare Investor Services, LLC as
Rights Agent (Incorporated by reference to Exhibit 4-b to ADCs Form 8-A/A filed on July 31, 2003 |
|||||
4-c |
Indenture dated as of June 4, 2003, between ADC Telecommunications, Inc. and U.S. Bank National Association. (Incorporated by reference to
Exhibit 4-g of ADCs Quarterly Report on Form 10-Q for the quarter ended July 31, 2003.) |
|||||
4-d |
Registration Rights Agreement dated as of June 4, 2003, between ADC Telecommunications, Inc. and Banc of America Securities LLC, Credit Suisse
First Boston LLC and Merrill Lynch Pierce Fenner & Smith Incorporated as representations of the Initial Purchase of ADCs 1% Convertible
Subordinated Notes due 2008 and Floating Rate Convertible Subordinated Notes due 2013. (Incorporated by reference to Exhibit 4-h to ADCs
Quarterly Report on Form 10-Q for the quarter ended July 31, 2003.) |
|||||
10-a* |
ADC
Telecommunications, Inc. Global Stock Incentive Plan, as amended and restated through March 4, 2003. (Incorporated by reference to Exhibit 10-a to
ADCs Quarterly Report on Form 10-Q for the quarter ended April 30, 2003.) |
|||||
10-b* |
ADC
Telecommunications, Inc. Management Incentive Plan for Fiscal Year 2002. (Incorporated by reference to Exhibit 10-d to ADCs Annual Report on Form
10-K for the fiscal year ended October 31, 2001.) |
|||||
10-c* |
ADC
Telecommunications, Inc. Management Incentive Plan for Fiscal Year 2003. (Incorporated by reference to Exhibit 10-d to ADCs Annual Report on Form
10-K for the fiscal year ended October 31, 2002.) |
|||||
10-d* |
ADC
Telecommunications, Inc. Management Incentive Plan for Fiscal Year 2004. |
|||||
10-e* |
ADC
Telecommunications, Inc. Executive Incentive Exchange Plan, as amended and restated effective as of November 1, 2001. (Incorporated by reference to
Exhibit 10-g to ADCs Annual Report on Form 10-K for the fiscal year ended October 31, 2001.) |
74
Exhibit Number |
Description | |||||
---|---|---|---|---|---|---|
10-f* |
Amendment 1 to the ADC Telecommunications, Inc. Executive Incentive Exchange Plan, effective as of November 1, 2002. (Incorporated by
reference to Exhibit 10-g to ADCs Annual Report on Form 10-K for the fiscal year ended October 31, 2002.) |
|||||
10-g* |
ADC
Telecommunications, Inc. Executive Change in Control Severance Pay Plan (2002 Restatement), effective as of January 1, 2002. (Incorporated by reference
to Exhibit 10-i to ADCs Annual Report on Form 10-K for the fiscal year ended October 31, 2001.) |
|||||
10-h* |
ADC
Telecommunications, Inc. Change in Control Severance Pay Plan (2002 Restatement), effective as of January 1, 2002. (Incorporated by reference to
Exhibit 10-b to ADCs Quarterly Report on Form 10-Q for the quarter ended January 31, 2002.) |
|||||
10-i* |
ADC
Telecommunications, Inc. 2001 Special Stock Option Plan. (Incorporated by reference to Exhibit 10-c to ADCs Quarterly Report on Form 10-Q for the
quarter ended January 31, 2002.) |
|||||
10-j* |
ADC
Telecommunications, Inc. Special Incentive Plan, effective November 1, 2002. (Incorporated by reference to Exhibit 10-K to ADCs Annual Report on
Form 10-K for the fiscal year ended October 31, 2002.) |
|||||
10-k* |
Compensation Plan for Non-employee Directors of ADC Telecommunications, Inc., restated as of March 1, 2002. (Incorporated by reference to
Exhibit 10-d to ADCs Quarterly Report on Form 10-Q for the quarter ended January 31, 2002.) |
|||||
10-l* |
ADC
Telecommunications, Inc. Deferred Compensation Plan (1989 Restatement), as amended and restated effective as of November 1, 1989. (Incorporated by
reference to Exhibit 10-aa to ADCs Annual Report on Form 10-K for the fiscal year ended October 31, 1996.) |
|||||
10-m* |
Second Amendment to ADC Telecommunications, Inc. Deferred Compensation Plan (1989 Restatement), effective as of March 12, 1996. (Incorporated
by reference to Exhibit 10-b to ADCs Quarterly Report on Form 10-Q for the quarter ended April 30, 1997.) |
|||||
10-n* |
ADC
Telecommunications, Inc. Pension Excess Plan (1989 Restatement), as amended and restated effective as of January 1, 1989. (Incorporated by reference to
Exhibit 10-bb to ADCs Annual Report on Form 10-K for the fiscal year ended October 31, 1996.) |
|||||
10-o* |
Second Amendment to ADC Telecommunications, Inc. Pension Excess Plan (1989 Restatement), effective as of March 12, 1996. (Incorporated by
reference to Exhibit 10-a to ADCs Quarterly Report on Form 10-Q for the quarter ended April 30, 1997.) |
|||||
10-p* |
ADC
Telecommunications, Inc. 401(k) Excess Plan (2002 Restatement), as amended and restated as of effective January 1, 2002. (Incorporated by reference to
Exhibit 10-r to ADCs Annual Report on Form 10-K for the fiscal year ended October 31, 2001.) |
|||||
10-q |
First
Amendment of ADC Telecommunications, Inc. 401(K) Excess Plan (2002 Restatement) dated as of February 26, 2002. (Incorporated by reference to Exhibit
10-a to ADCs Quarterly Report on Form 10-Q for the quarter ended July 31, 2003.) |
|||||
10-r |
Second Amendment of ADC Telecommunications, Inc. 401(K) Excess Plan (2002 Restatement) dated as of April 1, 2003. (Incorporated by reference
to Exhibit 10-b to ADCs Quarterly Report on Form 10-Q for the quarter ended July 31, 2003.) |
|||||
10-s |
Third
Amendment of ADC Telecommunications, Inc. 401(K) Excess Plan (2002 Restatement) dated as of January 1, 2003. (Incorporated by reference to Exhibit 10-c
to ADCs Quarterly Report on Form 10-Q for the quarter ended July 31, 2003.) |
|||||
10-t* |
Employment Agreement dated January 28, 2001, between ADC Telecommunications, Inc. and Richard R. Roscitt. (Incorporated by reference to
Exhibit 10-d to ADCs Quarterly Report on Form 10-Q for the quarter ended January 31, 2001.) |
75
Exhibit Number |
Description | |||||
---|---|---|---|---|---|---|
10-u* |
Amendment No. 1 dated November 27, 2002, to Employment Agreement between ADC Telecommunications, Inc. and Richard R. Roscitt. (Incorporated by
reference to Exhibit 10-s to ADCs Annual Report on Form 10-K for the fiscal year ended October 31, 2002.) |
|||||
10-v |
Executive Employment Agreement dated as of August 13, 2003, between ADC Telecommunications, Inc., and Robert E. Switz. (Incorporated by
reference to Exhibit 10-e to ADCs Quarterly Report on Form 10-Q for the quarter ended July 31, 2003.) |
|||||
10-w* |
Form
of ADC Telecommunications, Inc. Nonqualified Stock Option Agreement provided to certain officers and key management employees of ADC with respect to
option grants made on November 1, 2001 (the form of incentive stock option agreement contains the same material terms). (Incorporated by reference to
Exhibit 10-f to ADCs Quarterly Report on Form 10-Q for the quarter ended January 31, 2002.) |
|||||
10-x* |
Form
of ADC Telecommunications, Inc. Restricted Stock Award Agreement utilized with respect to restricted stock grants beginning in ADCs 2002 fiscal
year. (Incorporated by reference to Exhibit 10-g to ADCs Quarterly Report on Form 10-Q for the quarter ended January 31, 2002.) |
|||||
10-y* |
Restricted Stock Award Agreement, dated as of October 31, 2002, between ADC Telecommunications, Inc. and Jay T. Hilbert. (Incorporated by
reference to Exhibit 10-w to ADCs Annual Report on Form 10-K for the fiscal year ended October 31, 2002.) |
|||||
10-z* |
Restricted Stock Award Agreement, dated as of May 31, 2001, between ADC Telecommunications, Inc. and William F. OBrien. (Incorporated by
reference to Exhibit 10-d to ADCs Quarterly Report on Form 10-Q for the quarter ended July 31, 2001.) |
|||||
10-aa* |
ADC
Telecommunications, Inc. Executive Management Incentive Plan (Incorporated by reference to Exhibit 10-jj to ADCs Annual Report on Form 10-K for
the fiscal year ended October 31, 2002.) |
|||||
10-bb* |
ADC
Executive Stock Ownership Program (January 2002). (Incorporated by reference to Exhibit 10-kk to ADCs Annual Report on Form 10-K for the fiscal
year ended October 31, 2002.) |
|||||
10-cc* |
Summary of Executive Perquisite Allowances. |
|||||
12-a |
Computation of Ratio of Earnings to Fixed Charges. |
|||||
16-a |
Arthur Andersen LLP letter dated May 22, 2002 (Incorporated by reference to Exhibit 16-1 to ADCs Form 8-K filed on May 22,
2002.) |
|||||
21-a |
Subsidiaries of ADC Telecommunications, Inc. |
|||||
23-a |
Consent of Ernst & Young LLP. |
|||||
24-a |
Power
of Attorney. |
|||||
31-a |
Certification of principal executive officer required by Exchange Act Rule 13a-14(a). |
|||||
31-b |
Certification of principal financial officer required by Exchange Act Rule 13a-14(a). |
|||||
32 |
Certifications furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||||
99-a |
Report of Ernst & Young LLP and Schedule II. |
|||||
99-b |
Report of Arthur Andersen LLP and Schedule II. |
* | Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-K. |
76
Exhibit 10-d
ADC The Broadband CompanyTM
Management Incentive Plan Document
Fiscal
Year 2004
The name of this Plan is the ADC Telecommunications, Inc. Management Incentive Plan. The plan is effective from November 1, 2003 through October 31, 2004.
The purpose of the Plan is to provide, with full regard to the protection of shareholders investments, a direct financial incentive for eligible managers and individual contributors to make a significant contribution to ADCs established goals.
Eligibility for Fiscal Year 2004 is limited to full or part-time regular employees in the U.S. and in such other countries where ADC has specifically notified employees of eligibility for participation in the Plan. Eligibility for participation in this Plan is limited to such employees who hold executive, certain management and higher-level individual contributor positions. Temporary employees and independent contractors are not eligible for participation in this plan. In order to be eligible, an employee cannot participate in any other ADC incentive plan, except as approved by the Compensation and Organization Committee of the Board of Directors or the CEO, and must be employed in an eligible position on or before October 1, 2004.
Payments that become due under this Plan are made as soon as administratively feasible following the close of ADC's fiscal year, generally in late December or early January. All payments are subject to appropriate withholdings.
The Plan reinforces the key goals
that support ADCs long-term strategic plans. The key factors in ADCs FY 04
success are net sales and pro forma operating income. Cash management is also a key
factor and will be primarily driven through these two goals.
These goals will be set at the ADC and business unit levels.
Following is a description of the two plan components:
Plan Goal | Definition |
---|---|
Net Sales | The amount ADC can recognize in accordance with GAAP for goods shipped or services provided to third party customers, net of returns received. |
Pro Forma Operating Income |
Net sales less the everyday expenses of doing business, including cost of incentive payments. It does not take into account interest income, interest expense, or other income/loss or income tax. It also excludes restructuring and other one-time expenses that are not reflective of the ongoing business. |
Page 2
Employees serving multiple business units have 100% of their incentive plan based on ADC goals and results. Employees dedicated to only one business unit have a portion of their incentive based on ADC results and a portion on business unit results. Manufacturing and support employees serving both the Connectivity and Wireless organizations, and no other organizations, will have a business unit component based on the combined financials of Connectivity and Wireless. The weightings for these situations are as follows:
Grade | ADC Wtg | BU Wtg |
---|---|---|
Grade 19+ | 50% | 50% |
Grades 15-18 | 30% | 70% |
For individual weighting, refer to the Participant Form.
The size of an incentive award is affected by individual performance in addition to business performance. To recognize this, an individual performance factor will be applied to the calculation of incentive payments for 2004. The individual multiplier will be based on the performance ratings as defined in the ADC perform performance management system and will be applied at the time of payment as follows:
Rating | Individual Performance Adjustment |
---|---|
1 (Top) | Business Performance x 1.25 or more |
2 (Middle) | Business Performance x .75 - 1.25 |
3 (Bottom) | Business Performance x .5 - .75 |
The use of the individual multipliers will not change the total amount that the business unit would have paid to all employees if no individual multipliers were used.
To ensure protection of shareholder interest, a minimum level of ADC pro forma operating income must be achieved before an incentive payment can be generated. Specific goals in this respect are contained in the Participant Form.
Prior to making any payment under this Plan, the Board of Directors must determine that the claimed business performance levels have been achieved. The Board of Directors has complete authority and discretion to determine whether performance levels have been achieved, including without limitation the authority and discretion to properly calculate pro forma operating income. The size of an incentive award will be based on four factors:
1. | Target Incentive Opportunity Determined on the basis of the ADC salary grade associated with an individuals job and country of work. It is expressed as a percentage of an individuals FY 2004 eligible base salary earnings. |
2. | FY2004 Eligible Base Salary Earnings. This is the amount actually paid to the participant during the fiscal year in Base Salary. Base Salary for purposes of this Plan includes paid time off (such as vacation, sick pay or PTO), and excludes any salary continuation pay paid through ADC payroll and any disability insurance paid by an insurer. |
Page 3
3. | Business Performance against the established goals. |
4. | Individual Performance Multiplier as explained below. |
While each goal has a threshold of 0% of target incentive opportunity, the minimum individual payment is a total payment of 10% of an employees target. If incentives earned for all goals total less than 10% of target, no payout will be made. The maximum award attributable to each ADC and business unit performance factor is 300% of its target. The maximum total award is 300% of the target payout, as calculated after the individual performance multiplier is included. At target business performance and Level 2 individual performance with a performance multiplier of 1, the total award would be 100% of the stated target percent of Base Salary Earnings. The actual individual performance multipliers will vary.
This can be expressed as follows:
Threshold | Target | Maximum |
---|---|---|
10% of Target Incentive Opportunity |
100% of Target Incentive Opportunity |
300% of Target Incentive Opportunity |
There are specific goals established for 0%, 50%, 100%, 200%, and 300% of target as indicated on the applicable Participant Form. Results between these specific points are interpolated for each goal.
Here is an example of a hypothetical award calculation. Refer to the Participant Form for the performance factors and weightings that apply.
Assume a Business Unit Plan participant with the following facts:
Target Opportunity: | 15% of base salary earnings | ||
Base Salary Earnings: | 70,000 | ||
Performance Rating: | Level 2 with a performance multiplier of .95 applied | ||
ADC Pro Forma Operating Income: | Minimum level of pro forma operating income achieved | ||
Business Performance Percentages | Hypothetical ADC and BU results shown in the following table |
Metrics | Measure Weighting | Performance | Wtd. Perf. |
---|---|---|---|
ADC Level Metrics
ADC Net Sales Pro Forma Operating Income |
50% 50% |
107% 95% |
53.5% 47.5% 101.0% |
Business Unit Level Metrics Net Sales Pro Forma Operating Income |
50% 50% |
110% 95% |
55.0% 47.5% 102.5% |
Overall Weighted Performance ADC Metrics Business Unit Metrics |
30% 70% |
101 102.5% |
30.3% 71.8% 102.1% |
Payment Calculation: 70,000 (base salary) * 15% (incentive target) * 102.1% (business performance) * .95 (individual performance factor)= 10,184 |
Page 4
Termination of Employment. If employment with ADC is terminated for any reason other than death and if the Employment Termination Date occurs prior to the end of the Fiscal Year, a participant will not receive an award under the Plan. For purposes of this Plan, the Employment Termination Date is the date that the participant ceases to be an employee of ADC (as determined by the company). In the case of termination of employment by ADC, the Employment Termination Date shall be determined without regard to whether such termination is with or without cause or with or without reasonable notice.
Transfer, Promotion or Demotion to another position with a different ADC incentive plan, target incentive opportunity or business goals. A participant, who transfers, is promoted or demoted to another position with a different plan, target incentive opportunity or business goals will receive a prorated calculation of payment based upon the number of months served in each position. The participant must be in the new position by the first of the month in order to receive credit for that month under the new plan, target or goals. For example, a participant transferring from Systems Integration to Connectivity on June 10 would receive eight months payment under the Systems Integration plan (November- end of June) and four months under Connectivity (July-October). In order to receive payment under MIP , a participant must have completed one full month of service under the plan during that plan year.
Death. If a participant dies during the fiscal year, a pro-rated payment will be made to the participants estate after the end of the fiscal year. The payment will be based upon the time the participant served in the eligible position during the fiscal year.
A Management Incentive Plan Committee (Committee), appointed and authorized by the Compensation Committee of the Companys Board of Directors, will administer this Plan. Subject to the complete and full discretion of the Compensation Committee of the Board of Directors, the Committee is authorized to make all decisions as required in administration of the Plan and to exercise its discretion to define, interpret, construe, apply, approve, administer, withdraw and make any exceptions to the terms of the Plan.
ADC reserves the right to modify or adjust the Plan at any time in its sole discretion either in whole or with respect to a particular business unit. The Participant explicitly agrees with this modification right of ADC.
The Plan is made and shall be construed in accordance with the laws of the State of Minnesota, U.S.A. without regard to conflicts of law principles thereof, or those of any other state of the U.S.A. or of any other country, province or city.
If any provision of this Plan is held invalid, illegal or unenforceable by a court or tribunal of a competent jurisdiction, this Plan shall be deemed severable and such invalidity, illegality or unenforceability shall not affect any other provision of this Plan which shall be enforced in accordance with the intent of this Plan.
Page 5
The Company shall have the right to assign this Plan to its successors and assigns and this Plan shall inure to the benefit of and be enforceable by said successors and assigns. Participant may not assign this Plan or any rights hereunder.
This Plan constitutes the entire understanding between the parties regarding the payment of incentive compensation under this Plan, and it supercedes any and all prior agreements or understandings, whether oral or written, express or implied, on such subject matter.
The Plan shall not entitle Participants to any future compensation. The Plan is not an element of the employees salary or base compensation and shall not be considered as part of such in the event of severance, redundancy, or resignation. ADC has no obligation to offer incentive plans to Participants in the future, and the plan shall be effective only for the time period specified in the plan and shall not be deemed to renew year over year. The Participant understands and accepts that the incentive payments made under the Plan are entirely at the sole discretion of ADC. Specifically, ADC assumes no obligation to the Participant under this Plan with respect to any doctrine or principle of acquired rights or similar concept. Subject to the provisions of the Plan, ADC may amend or terminate the Plan or discontinue the payment of incentives under the Plan at any time, at its sole discretion and without advance notice.
Page 6
Exhibit 10-cc
Summary of Executive Perquisite Allowances
ADC provides its executive officers with an annual perquisite allowance ranging from $10,000 to $24,000. This allowance is paid over the year in accordance with ADCs regular payroll practices.
EXHIBIT 12-a
ADC Telecommunications
Ratio of
Earnings to Fixed Charges
__________
ADC
Telecommunications, Inc.
SUBSIDIARIES
(10/31/03)
Name | State/Country of Organization |
---|---|
ADC (India) Communications & Infotech Private Limited | India |
ADC Broadband (Hong Kong) Limited | Hong Kong |
ADC Broadband Access Systems, Inc. | Delaware |
ADC Broadband Italy SRL | Italy |
ADC Broadband Wireless Group, Inc. | Pennsylvania |
ADC Connectivity Solutions LLC | Minnesota |
ADC Danmark ApS (also known as ADC Denmark ApS) | Denmark |
ADC de Delicias, S. de R.L. de C.V | Mexico |
ADC de Juarez, S. de R.L. de C.V | Mexico |
ADC de Mexico S.A. de C.V | Mexico |
ADC DSL Systems Canada Holdings Inc. | Canada |
ADC DSL Systems Canada Inc. | Canada |
ADC DSL Systems, Inc. | Delaware |
ADC Europe N.V | Belgium |
ADC Global Holdings, Inc. | Minnesota |
ADC International Finance Services | England |
ADC International Holding Company | Minnesota |
ADC International OUS, Inc. | Minnesota |
ADC International, Inc. | Barbados |
ADC Meta Telecomunicacoes S.A | Brazil |
ADC OUS Holdings, LLC | Delaware |
ADC Puerto Rico, Inc. | Puerto Rico |
Name | State/Country of Organization |
---|---|
ADC Services Fulfillment, Inc. | New Jersey |
ADC Software Holding Ltd. | Ontario, Canada |
ADC Software Systems (Ireland) Limited | Dublin, Ireland |
ADC Software Systems Australia Pty. Ltd. | Queensland, Australia |
ADC Software Systems C.I. Ltd. | Jersey, Channel Islands |
ADC Software Systems Canada, Ltd. | Ontario, Canada |
ADC Software Systems UK | England/Wales |
ADC Software Systems USA, Inc. | Delaware |
ADC Systems Integration France, S.A.S | France |
ADC Systems Integration UK Limited | England |
ADC Telecom Canada Inc. | Quebec |
ADC Telecommunicaciones Venezuela, S.A | Republic of Venezuela |
ADC Telecommunication (Investments) Israel Ltd. | Israel |
ADC Telecommunications (China) Limited | Hong Kong |
ADC Telecommunications (Holdings) Pty. Limited | Australia |
ADC Telecommunications (Nanjing) Co., Ltd. | China |
ADC Telecommunications (Scotland) Limited | Scotland |
ADC Telecommunications (Shanghai) Distribution Co., Ltd. | China |
ADC Telecommunications (Switzerland) AG | Switzerland |
ADC Telecommunications Australia Pty. Limited | Australia |
ADC Telecommunications Equipment Industry and Trade Co., Limited | Turkey |
ADC Telecommunications GmbH | Germany |
ADC Telecommunications Israel Ltd. | Israel |
Name | State/Country of Organization |
---|---|
ADC Telecommunications Netherlands B.V | Netherlands |
ADC Telecommunications Sales, Inc. | Minnesota |
ADC Telecommunications Singapore Pte. Limited | Republic of Singapore |
ADC Telecommunications UK Ltd. | England |
ADC Telecomunicacoes do Brasil Ltda | Brazil |
ADC Teledata Communications (Philippines), Inc. | Philippines |
ADC Wireless Finland OY | Finland |
ADC Wireless Solutions LLC | Minnesota |
Altitun AB | Sweden |
Altitun Finans AB | Sweden |
Codenoll Technology Corporation | Delaware |
Nanjing ADC Broadband Communications Co., Ltd. | China |
Nihon ADC K.K | Japan |
OSS Software Corporation | New Jersey |
PairGain Technologies UK Ltd. | United Kingdom |
PCS Solutions Canada, Inc. | British Columbia |
Princeton Optics, Inc. | New Jersey |
T.D.C. Holdings B.V | Netherlands |
TDC Teledata Communication GmbH | Germany |
Teledata Communication Australia Pty. Ltd. | Australia |
Teledata Communications Hellas LLC | Greece |
Teleprocessing Products, Inc. | California |
TTT S.A. - Telsul Teledata Communicacoes do Brasil | Brazil |
Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statement File Nos. 33-40356, 33-52635, 33-58409, 333-25569, 333-80945, 333-32416, 333-56806, 333-83498, 33-52637, 333-83420, 33-58407, 333-61488, 333-61490, 333-83418, 333-66169, 333-80943, 333-88669, 333-37898, 333-40354, 333-47656, 333-56356, 333-108245, 333-94977, 333-91972 and 333-108247 of our reports dated December 1, 2003, with respect to the consolidated financial statements and schedule of ADC Telecommunications, Inc. and subsidiaries for the year ended October 31, 2003 included in this Form 10-K.
/s/ Ernst & Young LLP
Minneapolis,
Minnesota,
January 14, 2004
Exhibit 24-a
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Robert E. Switz and Gokul V. Hemmady, with full power to each to act without the other, as his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of ADC Telecommunications, Inc. (the Company) for the Companys fiscal year ended October 31, 2003, and any or all amendments to said Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and to file the same with such other authorities as necessary, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed by the following persons on the dates indicated below their names.
/s/ Robert Annunziata | /s/ B. Kristine Johnson | ||
Robert Annunziata | B. Kristine Johnson | ||
Date: 1/14/04 | Date: 1/14/04 | ||
/s/ John A. Blanchard III | /s/ Jean-Pierre Rosso | ||
John A. Blanchard III | Jean-Pierre Rosso | ||
Date: 1/14/04 | Date: 1/14/04 | ||
/s/ John J. Boyle III | /s/ Larry W. Wangberg | ||
John J. Boyle III | Larry W. Wangberg | ||
Date: 1/14/04 | Date: 1/14/04 | ||
/s/ James C. Castle | /s/ John D. Wunsch | ||
James C. Castle | John D. Wunsch | ||
Date: 1/14/04 | Date: 1/14/04 | ||
/s/ Mickey P. Foret | /s/ Charles D. Yost | ||
Mickey P. Foret | Charles D. Yost | ||
Date: 1/14/04 | Date: 1/14/04 | ||
Exhibit 31-a
Certification of Principal Executive Officer Required by Exchange Act Rule 13a-14(a)
I, Robert E. Switz, the Chief Executive Officer of ADC Telecommunications, Inc., certify that:
1. | I have reviewed this annual report on Form 10-K of ADC Telecommunications, Inc.; |
2. | Based on my knowledge, this 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 report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report. |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; |
b) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
c) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: January 14, 2004
/s/ Robert E. Switz Robert E. Switz Chief Executive Officer |
Exhibit 31-b
I, Gokul V. Hemmady, the Chief Financial Officer of ADC Telecommunications, Inc., certify that:
1. | I have reviewed this annual report on Form 10-K of ADC Telecommunications, Inc.; |
2. | Based on my knowledge, this 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 report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report. |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; |
b) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
c) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: January 14, 2004
/s/ Gokul V. Hemmady Gokul V. Hemmady Chief Financial Officer |
Exhibit 32
Robert E. Switz and Gokul V. Hemmady, the Chief Executive Officer and Chief Financial Officer, respectively, of ADC Telecommunications, Inc., hereby certify that:
1. | The annual report on form 10-K of ADC Telecommunications, Inc. for the year ended October 31, 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 January 15, 2004 |
/s/ Gokul V. Hemmady Gokul V. Hemmady January 15, 2004 |
REPORT OF INDEPENDENT AUDITORS
Board of
Directors and Shareowners
ADC Telecommunications, Inc.
We have audited the consolidated financial statements of ADC Telecommunications, Inc. and subsidiaries as of October 31, 2003 and 2002, and for the years then ended, and have issued our report thereon dated December 1, 2003 (included elsewhere in this Form 10-K). Our audits also included the financial statement schedule for the years ended October 31, 2003 and 2002, listed in Item 15(a) of this Form 10-K. This schedule is the responsibility of the Companys management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Minneapolis,
Minnesota
December 1, 2003
ADC
Telecommunications, Inc.
Schedule II
For Year Ended October 31, 2003
(in millions)
Fiscal 2003 |
Balance at Beginning of Year |
Charged to Costs and Expenses |
Deductions (Reclassifications)(1) |
Balance at End of Year | |||||
---|---|---|---|---|---|---|---|---|---|
Allowance for doubtful accounts & notes receivable |
$ 39 | .7 | $ 3 | .7 | $ (8 | .2) | $ 51 | .6 | |
Inventory reserve | 93 | .9 | 2 | .9 | 51 | .2 | 45 | .6 | |
Restructuring reserve | 124 | .2 | 41 | .8 | 132 | .6 | 33 | .4 | |
Warranty accrual | 13 | .1 | 6 | .6 | 6 | .3 | 13 | .4 |
Fiscal 2002 |
Balance at Beginning of Year |
Charged to Costs and Expenses |
Deductions |
Balance at End of Year | |||||
---|---|---|---|---|---|---|---|---|---|
Allowance for doubtful accounts & notes receivable |
$ 87 | .1 | $ 26 | .4 | $ 73 | .8 | $ 39 | .7 | |
Inventory reserve | 89 | .5 | 49 | .7 | 45 | .3 | 93 | .9 | |
Restructuring reserve | 120 | .8 | 220 | .1 | 216 | .7 | 124 | .2 | |
Warranty accrual | 29 | .4 | (2 | .9) | 13 | .4 | 13 | .1 |
Fiscal 2001 |
Balance at Beginning of Year |
Charged to Costs and Expenses |
Deductions |
Balance at End of Year | |||||
---|---|---|---|---|---|---|---|---|---|
Allowance for doubtful accounts & notes receivable |
$ 18 | .9 | $ 111 | .0 | $ 42 | .8 | $ 87 | .1 | |
Inventory reserve | 47 | .3 | 165 | .3 | 123 | .1 | 89 | .5 | |
Restructuring reserve | 14 | .4 | 483 | .4 | 377 | .0 | 120 | .8 | |
Warranty accrual | 36 | .4 | 48 | .4 | 55 | .4 | 29 | .4 |
(1) Includes $15.5 million of allowance for notes receivable previously classified as current liabilities.
The following report is a copy of a report previously issued by Arthur Andersen LLP (Andersen), which report has not been reissued by Andersen.
To ADC Telecommunications, Inc.:
We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of ADC Telecommunications, Inc. and subsidiaries included in this Form 10-K and have issued our report thereon dated November 21, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. Schedule II is the responsibility of the Companys management is presented for purposes of complying with the Securities and Exchange Commissions rules and is not part of the basic financial statements. This schedule has been subject to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to set forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR
ANDERSEN LLP
Arthur Andersen
LLP
Minneapolis,
Minnesota
November 21, 2001
ADC
Telecommunications, Inc.
Schedule II
For Year Ended October 31, 2003
(in millions)
Fiscal 2003 |
Balance at Beginning of Year |
Charged to Costs and Expenses |
Deductions (Reclassifications)(1) |
Balance at End of Year | |||||
---|---|---|---|---|---|---|---|---|---|
Allowance for doubtful accounts & notes receivable |
$ 39 | .7 | $ 3 | .7 | $ (8 | .2) | $ 51 | .6 | |
Inventory reserve | 93 | .9 | 2 | .9 | 51 | .2 | 45 | .6 | |
Restructuring reserve | 124 | .2 | 41 | .8 | 132 | .6 | 33 | .4 | |
Warranty accrual | 13 | .1 | 6 | .6 | 6 | .3 | 13 | .4 |
Fiscal 2002 |
Balance at Beginning of Year |
Charged to Costs and Expenses |
Deductions |
Balance at End of Year | |||||
---|---|---|---|---|---|---|---|---|---|
Allowance for doubtful accounts & notes receivable |
$ 87 | .1 | $ 26 | .4 | $ 73 | .8 | $ 39 | .7 | |
Inventory reserve | 89 | .5 | 49 | .7 | 45 | .3 | 93 | .9 | |
Restructuring reserve | 120 | .8 | 220 | .1 | 216 | .7 | 124 | .2 | |
Warranty accrual | 29 | .4 | (2 | .9) | 13 | .4 | 13 | .1 |
Fiscal 2001 |
Balance at Beginning of Year |
Charged to Costs and Expenses |
Deductions |
Balance at End of Year | |||||
---|---|---|---|---|---|---|---|---|---|
Allowance for doubtful accounts & notes receivable |
$ 18 | .9 | $ 111 | .0 | $ 42 | .8 | $ 87 | .1 | |
Inventory reserve | 47 | .3 | 165 | .3 | 123 | .1 | 89 | .5 | |
Restructuring reserve | 14 | .4 | 483 | .4 | 377 | .0 | 120 | .8 | |
Warranty accrual | 36 | .4 | 48 | .4 | 55 | .4 | 29 | .4 |
(1) Includes $15.5 million of allowance for notes receivable previously classified as current liabilities.