**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

 

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**FORM 10-Q**

 

**(MarkOne)**

 
| **ý** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**   |
|------------|------------------------------------------------------------------------------------------------|
|       |                                                                                           |
|       | **For the quarterly period ended April 30, 2004**                                              |
|       |                                                                                           |
|       | **OR**                                                                                         |
|       |                                                                                           |
| **o**      | **TRANSACTION  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transitionperiod from N/A to N/A**

 

**Commission filenumber 0-1424**

 

| **ADC  Telecommunications, Inc.**                                              |
|-------------------------------------------------------------------------------------|
| (Exact name of registrant as specified in its charter)                              |
|                                                                                |   |   |
| **Minnesota**                                                                       |   | **41-0743912** |
| (State or other jurisdiction of incorporation or organization)                      |   | (I.R.S. Employer Identification No.) |
|                                                                                |   |   |
| **13625 Technology Drive, Eden Prairie, MN 55344-2252**                             |
| (Address of principal executive offices) (Zip code)                            |
|                                                                                |   |   |
| **(952) 938-8080**                                                             |
| (Registrant’s telephone number, including area code)                           |
|                                                                                |   |   |
| **N/A**                                                                             |
| (Former name, former address and former fiscal year, if changed since  last report) |

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 
| YES  ý |   | NO  o |
|-----------------------|--------|-----------------|

 

Indicate bycheck mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Exchange Act).

 
| YES  ý |   | NO  o |
|-----------------------|--------|-----------------|

 

**APPLICABLE ONLY TOCORPORATE ISSUERS:**

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date.

 

Common stock, $.20 par value:  808,901,236 shares as of June 10,2004

 

 

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**PART I. FINANCIALINFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS**

 

**ADCTELECOMMUNICATIONS, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS—UNAUDITED**

 

**(In millions)**

 
|                                                |   | **April 30,  2004** |    | **October 31,  2003** |   |
|-----------------------------------------------------|--------|---------------------|---------|----------------------------|--------|
| **ASSETS:**                                         |   |                |    |                       |   |
|                                                |   |                |    |                       |   |
| CURRENT ASSETS:                                     |   |                |    |                       |   |
| Cash and cash equivalents                           |   | $                   | 730.2   |                       | $      | 718.7 |   |
| Available-for-sale securities                       |   | 11.2                |    | 26.7                       |   |
| Accounts receivable, net                            |   | 106.6               |    | 99.8                       |   |
| Unbilled revenue                                    |   | 29.4                |    | 30.6                       |   |
| Inventories, net                                    |   | 76.7                |    | 66.3                       |   |
| Assets of discontinued operations                   |   | —              |    | 17.4                       |   |
| Prepaid and other current assets                    |   | 42.0                |    | 48.3                       |   |
|                                                |   |                |    |                       |   |
| Total current assets                                |   | 996.1               |    | 1,007.8                    |   |
|                                                |   |                |    |                       |   |
| PROPERTY AND EQUIPMENT, NET                         |   | 169.6               |    | 190.6                      |   |
| ASSETS HELD FOR SALE                                |   | 17.8                |    | 25.1                       |   |
| RESTRICTED CASH                                     |   | 18.0                |    | 15.6                       |   |
| AVAILABLE-FOR-SALE SECURITIES                       |   | 16.6                |    | 19.5                       |   |
| OTHER ASSETS                                        |   | 32.5                |    | 38.3                       |   |
|                                                |   |                |    |                       |   |
| Total assets                                        |   | $                   | 1,250.6 |                       | $      | 1,296.9 |   |
|                                                |   |                |    |                       |   |
| **LIABILITIES AND SHAREOWNERS’ INVESTMENT:**   |   |                |    |                       |   |
|                                                |   |                |    |                       |   |
| CURRENT LIABILITIES:                                |   |                |    |                       |   |
| Accounts payable                                    |   | $                   | 51.8    |                       | $      | 46.4 |   |
| Accrued compensation and benefits                   |   | 45.9                |    | 52.8                       |   |
| Other accrued liabilities                           |   | 109.7               |    | 111.4                      |   |
| Restructuring accrual                               |   | 32.5                |    | 29.6                       |   |
| Liabilities of discontinued operations              |   | —              |    | 18.2                       |   |
| Notes payable                                       |   | —              |    | 8.3                        |   |
|                                                |   |                |    |                       |   |
| Total current liabilities                           |   | 239.9               |    | 266.7                      |   |
|                                                |   |                |    |                       |   |
| LONG-TERM NOTES PAYABLE                             |   | 400.0               |    | 400.0                      |   |
| OTHER LONG-TERM LIABILITIES                         |   | 2.4                 |    | 2.5                        |   |
|                                                |   |                |    |                       |   |
| Total liabilities                                   |   | 642.3               |    | 669.2                      |   |
|                                                |   |                |    |                       |   |
| SHAREOWNERS’ INVESTMENT                        |   |                |    |                       |   |
| (808.8 and 806.6 shares outstanding,  respectively) |   | 608.3               |    | 627.7                      |   |
|                                                |   |                |    |                       |   |
| Total liabilities and shareowners’  investment |   | $                   | 1,250.6 |                       | $      | 1,296.9 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

2

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**ADCTELECOMMUNICATIONS, INC. AND SUBSIDIARIES**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS—UNAUDITED**

**(In millions, exceptper share amounts)**

 
|                                        |   | **Three  Months Ended  April 30,** |   | **Six Months  Ended  April 30,** |   |
|---------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|
|                                        |   | **2004**                           |   | **2003**                         |   | **2004** |   | **2003** |   |
| NET SALES:                                  |   |                               |   |                             |   |   |   |   |   |
| Product                                     |   | $                                  | 137.3  |                             | $      | 136.2 |   | $ | 261.2 |   | $ | 282.7 |   |
| Service                                     |   | 44.9                               |   | 49.8                             |   | 89.5 |   | 97.9 |   |
| TOTAL NET SALES                             |   | 182.2                              |   | 186.0                            |   | 350.7 |   | 380.6 |   |
|                                        |   |                               |   |                             |   |   |   |   |   |
| COST OF SALES:                              |   |                               |   |                             |   |   |   |   |   |
| Product                                     |   | 72.8                               |   | 73.4                             |   | 137.2 |   | 153.8 |   |
| Service                                     |   | 37.0                               |   | 40.2                             |   | 74.7 |   | 85.3 |   |
| TOTAL COST OF SALES                         |   | 109.8                              |   | 113.6                            |   | 211.9 |   | 239.1 |   |
|                                        |   |                               |   |                             |   |   |   |   |   |
| GROSS PROFIT                                |   | 72.4                               |   | 72.4                             |   | 138.8 |   | 141.5 |   |
|                                        |   |                               |   |                             |   |   |   |   |   |
| OPERATING EXPENSES:                         |   |                               |   |                             |   |   |   |   |   |
| Research and development                    |   | 24.1                               |   | 27.8                             |   | 45.8 |   | 58.2 |   |
| Selling and administration                  |   | 51.8                               |   | 58.3                             |   | 94.1 |   | 119.9 |   |
| Impairment charges                          |   | 9.2                                |   | 4.3                              |   | 9.2 |   | 14.6 |   |
| Restructuring charges                       |   | 13.7                               |   | 12.1                             |   | 20.5 |   | 20.2 |   |
|                                        |   |                               |   |                             |   |   |   |   |   |
| Total Operating Expenses                    |   | 98.8                               |   | 102.5                            |   | 169.6 |   | 212.9 |   |
|                                        |   |                               |   |                             |   |   |   |   |   |
| OPERATING LOSS                              |   | (26.4                              | )      | (30.1                            | )      | (30.8 | ) | (71.4 | ) |
|                                        |   |                               |   |                             |   |   |   |   |   |
| OTHER INCOME (EXPENSE), NET                 |   | 0.8                                |   | (0.5                             | )      | 8.7 |   | (1.1 | ) |
|                                        |   |                               |   |                             |   |   |   |   |   |
| LOSS BEFORE INCOME TAXES                    |   | (25.6                              | )      | (30.6                            | )      | (22.1 | ) | (72.5 | ) |
| PROVISION (BENEFIT) FOR INCOME TAXES        |   | —                             |   | —                           |   | — |   | — |   |
| LOSS FROM CONTINUING OPERATIONS             |   | (25.6                              | )      | (30.6                            | )      | (22.1 | ) | (72.5 | ) |
|                                        |   |                               |   |                             |   |   |   |   |   |
| DISCONTINUED OPERATIONS, NET OF TAX:        |   |                               |   |                             |   |   |   |   |   |
| (Loss) Income from discontinued operations  |   | (2.2                               | )      | 1.2                              |   | (4.4 | ) | 1.6 |   |
| Gain (Loss) on divestiture of subsidiary    |   | 1.2                                |   | —                           |   | (2.5 | ) | — |   |
|                                        |   | (1.0                               | )      | 1.2                              |   | (6.9 | ) | 1.6 |   |
|                                        |   |                               |   |                             |   |   |   |   |   |
| NET LOSS                                    |   | $                                  | (26.6  | )                                | $      | (29.4 | ) | $ | (29.0 | ) | $ | (70.9 | ) |
|                                        |   |                               |   |                             |   |   |   |   |   |
| AVERAGE COMMON SHARES OUTSTANDING (BASIC)   |   | 808.1                              |   | 802.7                            |   | 807.5 |   | 801.9 |   |
| AVERAGE COMMON SHARES OUTSTANDING (DILUTED) |   | 808.1                              |   | 804.5                            |   | 807.5 |   | 803.7 |   |
|                                        |   |                               |   |                             |   |   |   |   |   |
| BASIC AND DILUTED LOSS PER SHARE:           |   |                               |   |                             |   |   |   |   |   |
| Continuing operations                       |   | $                                  | (0.03  | )                                | $      | (0.04 | ) | $ | (0.03 | ) | $ | (0.09 | ) |
| Discontinued operations                     |   | $                                  | (0.00  | )                                | $      | 0.00 |   | $ | (0.01 | ) | $ | 0.00 |   |
| Basic and diluted loss per share            |   | $                                  | (0.03  | )                                | $      | (0.04 | ) | $ | (0.04 | ) | $ | (0.09 | ) |

 

See accompanying notes to condensed consolidated financial statements.

 

3

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**ADCTELECOMMUNICATIONS, INC. AND SUBSIDIARIES**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS—UNAUDITED**

**(In millions)**

 
|                                                                                |   | **Six Months  Ended April 30,** |   |
|-------------------------------------------------------------------------------------|--------|---------------------------------|--------|
|                                                                                |   | **2004**                        |   | **2003** |   |
| OPERATING ACTIVITIES:                                                               |   |                            |   |   |   |
| Net loss                                                                            |   | $                               | (29.0  | ) | $ | (70.9 | ) |
| Adjustments to reconcile net loss to net  cash from operating activities:           |   |                            |   |   |   |
| Inventory and fixed asset impairments                                               |   | 9.0                             |   | 15.9 |   |
| Depreciation and amortization                                                       |   | 21.8                            |   | 33.5 |   |
| Change in bad debt reserves                                                         |   | (3.7                            | )      | 1.4 |   |
| Inventory reserves                                                                  |   | 1.2                             |   | (0.8 | ) |
| Non-cash stock compensation                                                         |   | 0.7                             |   | 2.1 |   |
| Gain on sale of investments                                                         |   | (4.4                            | )      | (2.0 | ) |
| Loss on sale of business and product lines                                          |   | 1.1                             |   | 2.8 |   |
| (Gain) Loss on sale of fixed assets                                                 |   | (0.3                            | )      | 1.0 |   |
| Other, net                                                                          |   | (0.7                            | )      | 2.1 |   |
| Changes in operating assets and  liabilities, net of acquisitions and divestitures: |   |                            |   |   |   |
| Accounts and unbilled receivables                                                   |   | (3.2                            | )      | 2.6 |   |
| Inventories                                                                         |   | (11.6                           | )      | 7.0 |   |
| Prepaid and other assets                                                            |   | 9.8                             |   | 136.0 |   |
| Accounts payable                                                                    |   | 5.6                             |   | (30.0 | ) |
| Accrued liabilities                                                                 |   | 0.4                             |   | (92.4 | ) |
|                                                                                |   |                            |   |   |   |
| Total cash (used for) provided by operating  activities                             |   | (3.3                            | )      | 8.3 |   |
|                                                                                |   |                            |   |   |   |
| INVESTING ACTIVITIES:                                                               |   |                            |   |   |   |
| Divestitures, net of cash disposed                                                  |   | 3.7                             |   | 0.5 |   |
| Property and equipment additions                                                    |   | (6.6                            | )      | (16.1 | ) |
| Proceeds from sale of building                                                      |   | 5.6                             |   | — |   |
| Change in restricted cash                                                           |   | (2.4                            | )      | 114.8 |   |
| Sale of available-for-sale securities, net                                          |   | 15.3                            |   | — |   |
| Sale of long-term investments, net                                                  |   | 3.0                             |   | 4.0 |   |
|                                                                                |   |                            |   |   |   |
| Total cash provided by investing activities                                         |   | 18.6                            |   | 103.2 |   |
|                                                                                |   |                            |   |   |   |
| FINANCING ACTIVITIES:                                                               |   |                            |   |   |   |
| Repayments of debt                                                                  |   | (8.3                            | )      | (18.4 | ) |
| Common stock issued                                                                 |   | 4.6                             |   | 2.8 |   |
|                                                                                |   |                            |   |   |   |
| Total cash used for financing activities                                            |   | (3.7                            | )      | (15.6 | ) |
|                                                                                |   |                            |   |   |   |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH                                             |   | (0.1                            | )      | (0.3 | ) |
|                                                                                |   |                            |   |   |   |
| INCREASE IN CASH AND CASH EQUIVALENTS                                               |   | 11.5                            |   | 95.6 |   |
| CASH AND CASH EQUIVALENTS, beginning of  period                                     |   | 718.7                           |   | 277.7 |   |
|                                                                                |   |                            |   |   |   |
| CASH AND CASH EQUIVALENTS, end of period                                            |   | $                               | 730.2  |   | $ | 373.3 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

4

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**ADCTELECOMMUNICATIONS, INC. AND SUBSIDIARIES**

 

**NOTES TO THECONDENSED CONSOLIDATED FINANCIAL STATEMENTS—UNAUDITED**

 

**Note 1 - Basis of Presentation:**

 

The interim informationfurnished in this report is unaudited but reflects all normal recurringadjustments, which are necessary, in the opinion of our management, for a fairstatement of the results for the interim periods.  The operating results for the quarter ended April 30, 2004, arenot necessarily indicative of the operating results to be expected for the fullfiscal year. These statements should be read in conjunction with our mostrecent Annual Report filed on Form 10-K for the fiscal year ended October 31,2003.

 

*Recently Issued Accounting Pronouncements.*  In January 2003, the FASB issuedInterpretation No. 46, “Consolidation of Variable Interest Entities, anInterpretation of Accounting Research Bulletin No. 51,” which requirescompanies to consolidate certain types of variable interest entities.  A variable interest entity is an entity thathas inadequate invested equity at risk to meet expected future losses, or whoseequity holders lack any of the following three characteristics:  (i) the ability to make decisions about theentity’s activities; (ii) the obligation to absorb the entity’s losses if theyoccur; or (iii) the right to receive the entity’s future returns if theyoccur.  Interpretation No. 46 isapplicable for all variable interests created after January 31, 2003.  For all variable interest entities createdbefore February 1, 2003, the provisions of this interpretation areeffective in the first fiscal year or interim period beginning after December15, 2003 (our first quarter of fiscal 2004). We are currently a party to atransaction involving a variable interest entity because of our receipt ofcertain contingent payment rights in connection with our divestiture of ourBroadAccess40 business.  After performingan analysis, we determined we are not the primary beneficiary of the divestedbusiness.  As such, we will notconsolidate the variable interest entity.

 

*Summary of Significant AccountingPolicies. *Adetailed description of our significant accounting policies can be found in ourmost recent Annual Report filed on Form 10-K for the fiscal year endedOctober 31, 2003.

 

**Note 2 - Discontinued Operations:**

 

During thefirst quarter of fiscal 2004, we entered into an agreement to sell our BroadAccess40business, which was included in our Broadband Infrastructure and Accesssegment.  In accordance with SFAS No.144 “Accounting for the Impairment or Disposal of Long-Lived Assets”, thefinancial results of this business are reported separately as discontinuedoperations for all periods presented. This transaction closed on February 24, 2004.  We treated this business as a discontinued operation in the firstquarter of fiscal 2004.  At that time weestimated the loss on the sale of the business based on the value of thebusiness’ assets and liabilities as of January 31, 2004.  Based upon the value of the business’ assetsand liabilities at the close of the transaction, adjustments of $1.2 million tothe previous estimated loss on the transaction are included in discontinuedoperations for the three months ended April 30, 2004 and reduce theyear-to-date loss on sale of discontinued operations to $2.5 million.

 

The purchasersacquired all of the stock of our subsidiary that owns rights to BroadAccess40and as such assumed substantially all liabilities associated with thisbusiness, with the exception of a $7.5 million note payable that was paid infull by us prior to the closing of the transaction.  The purchasersissued a promissory note to us for approximately $3.8 million that ispayable within two years of the closing.

 

The financialresults of BroadAccess40 included in discontinued operations were as follows(in millions):

 
|                                                    |   | **Three  Months Ended  April 30,** |   | **Six Months  Ended  April 30,** |   |
|---------------------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|
|                                                    |   | **2004**                           |   | **2003**                         |   | **2004** |   | **2003** |   |
|                                                    |   |                               |   |                             |   |   |   |   |   |
| Revenue                                                 |   | $                                  | 0.1    |                             | $      | 5.9 |   | $ | 5.1 |   | $ | 11.2 |   |
|                                                    |   |                               |   |                             |   |   |   |   |   |
| (Loss) Income from  discontinued operations             |   | $                                  | (2.2   | )                                | $      | 1.2 |   | $ | (4.4 | ) | $ | 1.6 |   |
| Gain (Loss) on divestiture of subsidiary                |   | 1.2                                |   | —                           |   | (2.5 | ) | — |   |
| (Loss) Income from discontinued operations,  net of tax |   | $                                  | (1.0   | )                                | $      | 1.2 |   | $ | (6.9 | ) | $ | 1.6 |   |

 

5

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**Note 3 - Inventories:**

 

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

 
|                                           |   | **April 30,  2004** |   | **October 31,  2003** |   |
|------------------------------------------------|--------|---------------------|--------|----------------------------|--------|
|                                           |   |                |   |                       |   |
| Purchased materials and manufactured  products |   | $                   | 106.9  |                       | $      | 98.7 |   |
| Work-in-process                                |   | 3.3                 |   | 2.3                        |   |
| Less: Inventory reserve                        |   | (33.5               | )      | (34.7                      | )      |
| Total                                          |   | $                   | 76.7   |                       | $      | 66.3 |   |

 

**Note 4 - Income Taxes:**

 

A deferred tax asset generallyrepresents future tax benefits to be received when certain expenses previouslyrecognized in U.S. GAAP-based income statements become deductible expensesunder applicable income tax laws.  Therealization of a deferred tax asset therefore is dependent on future taxableincome against which these deductions can be applied.  SFAS No. 109, “Accounting for Income Taxes,” requires that avaluation allowance be established when it is more likely than not that all ora portion of deferred tax assets will not be realized.  In fiscal 2003 and for the three and sixmonths ended April 30, 2004, we recorded a full valuation allowance against theincrease in our deferred tax assets. We expect to provide a full valuationallowance on any future tax benefits until we can sustain a level ofprofitability that demonstrates our ability to utilize these assets. We willnot record tax benefits or significant provisions for pre-tax income (loss)until either our deferred tax assets are fully utilized to reduce future incometax liabilities or the value of our deferred tax assets are restored on thebalance sheet.  As of April 30, 2004, wehad $827.2 million of deferred tax assets that have a full valuation allowanceagainst them and, therefore, such deferred tax assets are not reflected on theCondensed Consolidated Balance Sheet. Our deferred tax assets expire through October 31, 2024.

 

**Note 5 - Property Plant & Equipment:**

 

We record ourproperty, plant and equipment, net of accumulated depreciation at theappropriate carrying value****in accordance with SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.”

 
|                           |   | **April 30,  2004** |   | **October 31,  2003** |   |
|--------------------------------|--------|---------------------|--------|----------------------------|--------|
|                           |   |                |   |                       |   |
| Land and buildings             |   | $                   | 124.0  |                       | $      | 126.7 |   |
| Machinery and equipment        |   | 335.9               |   | 367.1                      |   |
| Furniture and fixtures         |   | 36.3                |   | 37.4                       |   |
| Less: accumulated depreciation |   | (331.5              | )      | (343.7                     | )      |
| Total                          |   | 164.7               |   | 187.5                      |   |
| Construction in progress (CIP) |   | 4.9                 |   | 3.1                        |   |
| Total                          |   | $                   | 169.6  |                       | $      | 190.6 |   |

 

**Note 6 - Comprehensive Loss:**

 

The followingtable presents the calculation of comprehensive loss as required by SFASNo. 130, “Reporting Comprehensive Income.” Comprehensive loss has noimpact on our net loss but is reflected in our balance sheet throughadjustments to shareowners’ investment. The components of comprehensive loss are as follows (in millions):

 
|                                                                                                       |   | **Three  Months Ended  April 30,** |   | **Six Months  Ended  April 30,** |   |
|------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|
|                                                                                                       |   | **2004**                           |   | **2003**                         |   | **2004** |   | **2003** |   |
| Net loss                                                                                                   |   | $                                  | (26.6  | )                                | $      | (29.4 | ) | $ | (29.0 | ) | $ | (70.9 | ) |
| Change in cumulative translation  adjustments                                                              |   | (0.8                               | )      | (1.8                             | )      | 9.9 |   | (5.6 | ) |
| Reclassification adjustment for realized  gains on securities classified as available for sale, net-of-tax |   | —                             |   | —                           |   | (4.1 | ) | — |   |
| Unrealized (loss) gain from securities  classified as available for sale, net-of-tax                       |   | (0.3                               | )      | 0.4                              |   | (0.5 | ) | 2.6 |   |
| Comprehensive loss                                                                                         |   | $                                  | (27.7  | )                                | $      | (30.8 | ) | $ | (23.7 | ) | $ | (73.9 | ) |

 

6

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**Note 7 – Net Loss from Continuing OperationsPer Share:**

 

The following table presents areconciliation of the numerators and denominators of basic and diluted loss pershare from continuing operations for the three and six months ended April 30,2004 and 2003 (in millions, except for per share amounts).

 
|                                                         |   | **Three  Months Ended  April 30,** |   | **Six Months  Ended  April 30,** |   |
|--------------------------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|
|                                                         |   | **2004**                           |   | **2003**                         |   | **2004** |   | **2003** |   |
| Numerator:                                                   |   |                               |   |                             |   |   |   |   |   |
| Net loss from continuing operations                          |   | $                                  | (25.6  | )                                | $      | (30.6 | ) | $ | (22.1 | ) | $ | (72.5 | ) |
|                                                         |   |                               |   |                             |   |   |   |   |   |
| Denominator:                                                 |   |                               |   |                             |   |   |   |   |   |
| Weighted average common shares outstanding                   |   | 808.1                              |   | 802.7                            |   | 807.5 |   | 801.9 |   |
| Employee options and other                                   |   | —                             |   | —                           |   | — |   | — |   |
| Weighted average common shares outstanding                   |   | 808.1                              |   | 802.7                            |   | 807.5 |   | 801.9 |   |
|                                                         |   |                               |   |                             |   |   |   |   |   |
| Basic and diluted loss per share from  continuing operations |   | $                                  | (0.03  | )                                | $      | (0.04 | ) | $ | (0.03 | ) | $ | (0.09 | ) |

 

Excluded fromthe dilutive securities described above are employee stock options to acquire44.1 million and 92.9 million shares for the three months ended April 30, 2004and 2003, respectively, and 44.2 million and 95.4 million for the six monthsended April 30, 2004 and 2003, respectively. These exclusions were made because either the exercise prices of somethese options were greater than the average market price of the common stock orour net loss per share for the respective periods would be lowered were theseoptions included in the dilutive securities.

 

Warrants to acquire 99.7million shares that were issued in connection with our convertible notes wereexcluded from the dilutive securities described above for the three and sixmonths ended April 30, 2004, because the exercise price of these warrants wasgreater than the average market price of the common stock.  See Note 10 for a discussion of thewarrants.

 

Because of theiranti-dilutive effect, all shares reserved for issuance upon conversion of ourconvertible notes were excluded for the three and six months ended April 30,2004.  Upon achieving positive netincome in a reporting period, our convertible notes will require us to use the“if-converted” method for computing diluted earnings per share with respect tothe shares reserved for issuance upon conversion of the notes.  Under this method, we will add back thenet-of-tax interest expense on the convertible notes to net income and thendivide this amount by outstanding shares, including all 99.7 million sharesreserved for issuance upon conversion of the notes.  If this calculation results in further dilution of the earningsper share, our diluted earnings per share will include all 99.7 million sharesof common stock reserved for issuance upon conversion of our convertiblenotes.  If this calculation is anti-dilutive,the net-of-tax interest on the convertible notes will not be added back and the99.7 million shares of common stock reserved for issuance upon conversion ofour convertible notes will not be included. See Note 10 for a discussion of our convertible notes.

 

**Note 8 - Segment Reporting:**

 

The “management approach” required by SFASNo. 131, “Disclosures about Segments of an Enterprise and RelatedInformation,” requires us to disclose selected financial data by productgroups.  We have four principal productgroups, which we aggregate into two reportable segments – BroadbandInfrastructure and Access and Integrated Solutions.  Each of the product groups included in the BroadbandInfrastructure and Access and Integrated Solutions reporting segments hassimilar economic characteristics, manufacturing processes, customers,distribution, and regulatory environments. Net sales by product group are as follows (in millions):

 
|                                    |   | **Three  Months Ended  April 30,** |   | **Six Months  Ended  April 30,** |   |
|-----------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|
|                                    |   | **2004**                           |   | **2003**                         |   | **2004** |   | **2003** |   |
|                                    |   |                               |   |                             |   |   |   |   |   |
| Infrastructure Products                 |   | $                                  | 79.8   |                             | $      | 71.9 |   | $ | 148.1 |   | $ | 136.9 |   |
| Access Products                         |   | 45.1                               |   | 47.5                             |   | 86.0 |   | 112.6 |   |
| Eliminations                            |   | (4.0                               | )      | (5.5                             | )      | (7.2 | ) | (8.5 | ) |
| **Broadband Infrastructure and Access** |   | 120.9                              |   | 113.9                            |   | 226.9 |   | 241.0 |   |
| Systems Integration Services            |   | 38.1                               |   | 40.7                             |   | 75.3 |   | 77.7 |   |
| Software Solutions                      |   | 23.2                               |   | 31.4                             |   | 48.5 |   | 61.9 |   |
| **Integrated Solutions**                |   | 61.3                               |   | 72.1                             |   | 123.8 |   | 139.6 |   |
|                                         |        |                                    |        |                                  |        |  |  |  |  |  |  |  |  |

 

7

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Detail for each of our two reporting segmentsis summarized as follows (in millions):

 
|                                                          |   | **Broadband  Infrastructure  and Access** |   | **Integrated  Solutions** |   | **Unallocated  Items** |   | **Consolidated** |   |
|---------------------------------------------------------------|--------|-------------------------------------------|--------|---------------------------|--------|------------------------|--------|------------------|--------|
| **Three Months Ended April 30, 2004**                         |   |                                      |   |                      |   |                   |   |             |   |
| External sales:                                               |   |                                      |   |                      |   |                   |   |             |   |
| Product                                                       |   | $                                         | 120.9  |                      | $      | 16.4                   |   | $                | — |   | $ | 137.3 |   |
| Service                                                       |   | —                                    |   | 44.9                      |   | —                 |   | 44.9             |   |
| Total external sales                                          |   | 120.9                                     |   | 61.3                      |   | —                 |   | 182.2            |   |
|                                                          |   |                                      |   |                      |   |                   |   |             |   |
| Impairment, restructuring and other  disposal charges (1)     |   | (6.8                                      | )      | (3.6                      | )      | (12.5                  | )      | (22.9            | )      |
| Operating loss                                                |   | (0.3                                      | )      | (12.5                     | )      | (13.6                  | )      | (26.4            | )      |
| Other income (expense), net                                   |   | 0.7                                       |   | —                    |   | 0.1                    |   | 0.8              |   |
| Income (loss) from continuing operations  before income taxes |   | 0.4                                       |   | (12.5                     | )      | (13.5                  | )      | (25.6            | )      |
| Assets                                                        |   | 193.5                                     |   | 160.8                     |   | 896.3                  |   | 1,250.6          |   |
|                                                          |   |                                      |   |                      |   |                   |   |             |   |
| **Three Months Ended April 30, 2003**                         |   |                                      |   |                      |   |                   |   |             |   |
| External sales:                                               |   |                                      |   |                      |   |                   |   |             |   |
| Product                                                       |   | $                                         | 113.9  |                      | $      | 22.3                   |   | $                | — |   | $ | 136.2 |   |
| Service                                                       |   | —                                    |   | 49.8                      |   | —                 |   | 49.8             |   |
| Total external sales                                          |   | 113.9                                     |   | 72.1                      |   | —                 |   | 186.0            |   |
|                                                          |   |                                      |   |                      |   |                   |   |             |   |
| Impairment, restructuring and other  disposal charges (1)     |   | (2.3                                      | )      | (5.2                      | )      | (10.2                  | )      | (17.7            | )      |
| Operating loss                                                |   | (9.8                                      | )      | (5.8                      | )      | (14.5                  | )      | (30.1            | )      |
| Other income (expense), net                                   |   | 1.1                                       |   | (3.1                      | )      | 1.5                    |   | (0.5             | )      |
| Loss from continuing operations before  income taxes          |   | (8.7                                      | )      | (8.9                      | )      | (13.0                  | )      | (30.6            | )      |
| Assets                                                        |   | 285.8                                     |   | 268.6                     |   | 397.4                  |   | 951.8            |   |

 
|                                                          |   | **Broadband  Infrastructure  and Access** |   | **Integrated  Solutions** |   | **Unallocated  Items** |   | **Consolidated** |   |
|---------------------------------------------------------------|--------|-------------------------------------------|--------|---------------------------|--------|------------------------|--------|------------------|--------|
| **Six Months Ended April 30, 2004**                           |   |                                      |   |                      |   |                   |   |             |   |
| External sales:                                               |   |                                      |   |                      |   |                   |   |             |   |
| Product                                                       |   | $                                         | 226.9  |                      | $      | 34.3                   |   | $                | — |   | $ | 261.2 |   |
| Service                                                       |   | —                                    |   | 89.5                      |   | —                 |   | 89.5             |   |
| Total external sales                                          |   | 226.9                                     |   | 123.8                     |   | —                 |   | 350.7            |   |
|                                                          |   |                                      |   |                      |   |                   |   |             |   |
| Impairment, restructuring and other disposal  charges (1)     |   | (6.7                                      | )      | (9.1                      | )      | (13.9                  | )      | (29.7            | )      |
| Operating income (loss)                                       |   | 4.1                                       |   | (21.4                     | )      | (13.5                  | )      | (30.8            | )      |
| Other income (expense), net                                   |   | 0.7                                       |   | 0.5                       |   | 7.5                    |   | 8.7              |   |
| Income (loss) from continuing operations  before income taxes |   | 4.7                                       |   | (20.9                     | )      | (5.9                   | )      | (22.1            | )      |
| Assets                                                        |   | 193.5                                     |   | 160.8                     |   | 896.3                  |   | 1,250.6          |   |
|                                                          |   |                                      |   |                      |   |                   |   |             |   |
| **Six Months Ended April 30, 2003**                           |   |                                      |   |                      |   |                   |   |             |   |
| External sales:                                               |   |                                      |   |                      |   |                   |   |             |   |
| Product                                                       |   | $                                         | 241.0  |                      | $      | 41.7                   |   | $                | — |   | $ | 282.7 |   |
| Service                                                       |   | —                                    |   | 97.9                      |   | —                 |   | 97.9             |   |
| Total external sales                                          |   | 241.0                                     |   | 139.6                     |   | —                 |   | 380.6            |   |
|                                                          |   |                                      |   |                      |   |                   |   |             |   |
| Impairment, restructuring and other  disposal charges (1)     |   | (2.4                                      | )      | (10.4                     | )      | (23.4                  | )      | (36.2            | )      |
| Operating loss                                                |   | (18.5                                     | )      | (19.7                     | )      | (33.2                  | )      | (71.4            | )      |
| Other income (expense), net                                   |   | 4.0                                       |   | (0.9                      | )      | (4.2                   | )      | (1.1             | )      |
| Loss from continuing operations before income  taxes          |   | (14.5                                     | )      | (20.6                     | )      | (37.4                  | )      | (72.5            | )      |
| Assets                                                        |   | 285.8                                     |   | 268.6                     |   | 397.4                  |   | 951.8            |   |

 

----

(1)   See Note 9 for a discussionof these charges.

 

8

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**Note 9 - Impairment, Restructuring and OtherDisposal Charges:**

 

During thethree and six months ended April 30, 2004 and 2003, we continued our plan toimprove operating performance by restructuring and streamlining ouroperations.  As a result, we incurredimpairment charges related to the disposal of excess equipment, restructuringcharges associated with workforce reductions as well as the consolidation ofexcess facilities, and other disposal charges associated with inventorywrite-offs and certain administrative charges related to product linedivestitures. The impairment, restructuring and other disposal chargesresulting from our actions, by category of expenditures, are as follows for thethree and six months ended April 30, 2004 and 2003, respectively (in millions):

 
| **Three Months Ended April 30, 2004**         |   | **Impairment  Charges** |   | **Restructuring  Charges** |   | **Cost of  Product Sold** |   | **Total** |   |
|-----------------------------------------------|--------|-------------------------|--------|----------------------------|--------|---------------------------|--------|-----------|--------|
| Employee severance costs                      |   | $                       | — |                       | $      | 1.9                       |   | $         | — |   | $ | 1.9 |   |
| Facility consolidation and lease  termination |   | —                  |   | 11.8                       |   | —                    |   | 11.8      |   |
| Fixed asset write-downs                       |   | 9.2                     |   | —                     |   | —                    |   | 9.2       |   |
| Total                                         |   | $                       | 9.2    |                       | $      | 13.7                      |   | $         | — |   | $ | 22.9 |   |

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

 
| **Six Months Ended April 30, 2004**           |   | **Impairment  Charges** | ** ** | **Restructuring  Charges** | ** ** | **Cost of  Product Sold** | ** ** | **Total** | ** ** |
|-----------------------------------------------|--------|-------------------------|------------|----------------------------|------------|---------------------------|------------|-----------|------------|
| Employee severance costs                      |   | $                       | —     |                       | $          | 5.2                       |       | $         | —     |   | $ | 5.2 |   |
| Facility consolidation and lease  termination |   | —                  |       | 15.3                       |       | —                    |       | 15.3      |       |
| Fixed asset write-downs                       |   | 9.2                     |       | —                     |       | —                    |       | 9.2       |       |
| Total                                         |   | $                       | 9.2        |                       | $          | 20.5                      |       | $         | —     |   | $ | 29.7 |   |

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

 

***Impairment Charges:***We incurred impairment charges of $9.2 million for both the three and sixmonths ended April 30, 2004, compared with $4.3 million and $14.6 million forthe three and six months ended April 30, 2003, respectively.  The impairment charges incurred during thesecond quarter of fiscal 2004 related to our CudaTM cable modem terminationsystem business and a manufacturing facility included in assets held for sale.

 

***RestructuringCharges:*** Restructuring charges relate principally to employee severance costs andfacility consolidation costs resulting from the closure of facilities and otherworkforce reductions attributable to our efforts to reduce costs.  During the three and six months ended April30, 2004, approximately 55 and 120 employees, respectively, were impacted byreductions in force, principally in our software business and corporatefunctions.  During the three and sixmonths ended April 30, 2003, approximately 350 and 1,020 employees,respectively, were impacted by reductions in force.

 

Facilityconsolidation and lease termination costs represent lease termination and othercosts associated with our decision to consolidate and close duplicative orexcess manufacturing and office facilities. For the three months ended April 30, 2004, we incurred charges of $11.8million primarily due to continued softening of real estate markets, resultingin lower sublease income.  During thesix months ended April 30, 2003, the charge was a negative number due to ourfavorable negotiation of a lease termination settlement with the landlord of aleased facility.  As a result, wereversed $4.2 million of the restructuring accrual we had established in fiscal2002 for this lease termination.

 

9

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***Other DisposalCharges: ***Inventorywrite-offs represent losses incurred to write down the carrying value ofinventory for product lines that have been discontinued.  Revenues and gross margins from theseproduct lines are not material to our consolidated results of operations.

 

***Effect ofRestructuring Charges on Future Cash Flows:*** Thefollowing table provides detail on the activity and our remaining restructuringaccrual balance by category as of April 30, 2004 (in millions):

 
| **Type of Charge**       |   | **Accrual  October 31, 2003** |   | **Net  Additions** |   | **Cash  Charges** |   | **Accrual  April 30, 2004** |   |
|--------------------------|--------|------------------------------------|--------|--------------------|--------|-------------------|--------|-----------------------------|--------|
|                     |   |                               |   |               |   |              |   |                        |   |
| Employee severance costs |   | $                                  | 5.3    |               | $      | 5.3               |   | $                           | 5.7    |   | $ | 4.9 |   |
| Facilities consolidation |   | 24.3                               |   | 24.4               |   | 21.1              |   | 27.6                        |   |
| Total                    |   | $                                  | 29.6   |               | $      | 29.7              |   | $                           | 26.8   |   | $ | 32.5 |   |

 

We expect thatsubstantially all of the remaining $4.9 million accrual relating to employeeseverance costs as of April 30, 2004, will be paid from unrestricted cash bythe end of the second quarter of fiscal 2005. Of the $27.6 million to be paidfor the consolidation of facilities, we expect that approximately $5.0 millionwill be paid from unrestricted cash through April 30, 2005, and that thebalance will be paid from unrestricted cash over the respective lease terms ofthe facilities through 2015. Based on our intention to continue to consolidateand close duplicative or excess manufacturing operations in order to reduce ourcost structure, we may incur additional restructuring charges (both cash andnon-cash) in future periods.  Theserestructuring charges may have a material effect on our operating results.

 

In addition tothe restructuring accrual described above, we have $17.8 million of assets heldfor sale that were not allocated to either of our segments. We classified theseassets as “Held for Sale” pursuant to our decision to exit non-strategicproduct lines and to reduce the size of our operations.  We expect to sell or dispose of these assetsbefore April 30, 2005.  During the threemonths ended April 30, 2004, we reclassified $5.3 million relating to afacility in Glenrothes, Scotland to property and equipment held for use as wenow may lease such facility as opposed to selling it.** **We sold twoproperties, previously classified as held for sale, during the six months endedApril 30, 2004, for proceeds of $5.2 million and a gain of $0.2 million.

 

**Note 10 - Long-Term Debt:**

 

On June 4, 2003, we issued $400.0million of convertible unsecured subordinated notes in two separatetransactions pursuant to Rule 144A under the Securities Act of 1933. The netproceeds to us from this offering were $355.5 million after underwritingdiscounts of $10.0 million and the net payment for the purchased call optionsand warrant transactions described below. In the first transaction, we issued $200.0 million of 1.0% fixed rateconvertible unsecured subordinated notes that mature on June 15,2008.  In the second transaction, weissued $200.0 million of convertible unsecured subordinated notes that have avariable interest rate and mature on June 15, 2013.  The interest rate for the variable ratenotes is equal to the 6-month LIBOR plus 0.375%.  The interest rate for the variable rate notes will be reset oneach semi-annual interest payment date (i.e. which are June 15 andDecember 15 of each year beginning on December 15, 2003 for both thefixed and variable rate notes). The interest rate on the variable notes is1.605% for the period ending June 15, 2004. The holders of both the fixed andvariable rate notes may convert all or some of their notes into shares of ourcommon stock at any time prior to maturity at a conversion price of $4.013 pershare.  We may not redeem the fixed ratenotes anytime prior to their maturity date. We may redeem any or all of the variable rate notes at any time on orafter June 23, 2008.

 

Concurrentwith the issuance of the fixed and variable rate notes, we purchased five- andten-year call options on our common stock to reduce the potential dilution fromconversion of the notes.  These calloptions become exercisable upon conversion of the notes.  Under the call options we have the right topurchase from the counterparty at a purchase price of $4.013 per share theaggregate number of shares that we are obligated to issue upon conversion ofthe fixed and variable notes (i.e. 99.7 million shares).  We also have the option to settle the calloptions with the counterparty through a net share settlement or cashsettlement, either of which would be based on the extent to which thethen-current market price of our common stock exceeds $4.013 per share.  The total cost of the call options was$137.3 million, which was recognized in shareowners’ investment.  The cost of the call options was partiallyoffset by the sale of warrants to acquire shares of our common stock with termsof five and ten years to the same counterparty with whom we entered into thecall options.  The warrants areexercisable for an aggregate of 99.7 million shares at an exercise price of$5.28 per share.  The warrants becomeexercisable upon conversion of the notes, and may be settled, at our option,either through a net share settlement or a net cash settlement, either of whichwould be based on the extent to which the then-current market price of ourcommon stock exceeds $5.28 per share. The sale of the warrants produced gross proceeds of $102.8 million, whichwas recognized in shareowners’ investment. The call options and the warrants are subject to early expiration uponconversion of the notes.  The net effectof the call options and the warrants is either to reduce the potential dilutionfrom the conversion of the notes (if we elect net share settlement) or toincrease the net cash proceeds of the offering (if we elect net cashsettlement) if the notes are converted at a time when the current market priceof our common stock is greater than $4.013 per share.

 

10

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**Note 11 – Stock-Based Compensation:**

 

In fiscal2003, we adopted the disclosure provisions of SFAS No. 148, “Accounting forStock-Based Compensation.”  However, wedid not adopt the transition provisions of SFAS No. 148.  As a result of adopting the disclosureprovisions of SFAS No. 148, we are required to disclose the method we use toaccount for stock-based compensation on a quarterly basis.  Stock compensation is awarded to certain keyemployees in the form of stock options and restricted stock and beginning onMarch 2, 2004, in the form of restricted stock units.  We account for our stock compensation in accordance with APBOpinion 25, “Accounting for Stock Issued to Employees,” and related interpretations.All stock options are issued at fair market value on the date of grant.  Accordingly, we did not recognize stockcompensation expense for stock options granted during the periodspresented.  SFAS No. 148 also requiresdisclosure of how stock compensation expense would be computed under SFAS No.123, “Accounting for Stock-Based Compensation,” using the fair valuemethod.  Under the fair value method,compensation cost is measured at the grant date based on the value of the awardand is recognized over the service period, which is usually the vestingperiod.  Fair value is determined usingan option-pricing model, such as Black-Scholes, that takes into account thestock price at the grant date, the exercise price, the expected life of theoption, the volatility of the underlying stock, the expected dividends, and therisk-free interest rate over the expected life of the option.  The following table summarizes what ouroperating results would have been if the fair value method of accounting forstock options had been utilized (in millions, except for per share amounts):

 
|                                                                       |   | **Three  Months Ended  April 30,** |   | **Six Months  Ended  April 30,** |   |
|----------------------------------------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|
|                                                                       |   | **2004**                           |   | **2003**                         |   | **2004** |   | **2003** |   |
| Net Loss                                                                   |   |                               |   |                             |   |   |   |   |   |
| As reported                                                                |   | $                                  | (26.6  | )                                | $      | (29.4 | ) | $ | (29.0 | ) | $ | (70.9 | ) |
| Plus: Stock-based employee compensation  expense included in reported loss |   | 0.1                                |   | —                           |   | 0.7 |   | 2.1 |   |
| Less: Stock compensation expense – fair  value based method           |   | (5.4                               | )      | (13.2                            | )      | (12.1 | ) | (27.6 | ) |
| Pro Forma Net Loss                                                         |   | $                                  | (31.9  | )                                | $      | (42.6 | ) | $ | (40.4 | ) | $ | (96.4 | ) |
|                                                                       |   |                               |   |                             |   |   |   |   |   |
| Loss Per Share – Basic and Diluted                                    |   |                               |   |                             |   |   |   |   |   |
| As reported                                                                |   | $                                  | (0.03  | )                                | $      | (0.04 | ) | $ | (0.04 | ) | $ | (0.09 | ) |
| Pro forma                                                                  |   | $                                  | (0.04  | )                                | $      | (0.05 | ) | $ | (0.05 | ) | $ | (0.12 | ) |

 

During the third quarter of fiscal 2003, we offered toeligible employees the right to exchange certain of their employee stockoptions for a lesser number of new options to be granted six months and one dayfollowing the surrender of their existing options.  The new options, which were granted on December 29, 2003, have anexercise price of $2.83 per share, which is equal to the average of the high andlow trading price of our common stock on the grant date.  These options will vest over a two-yearperiod from the grant date.  Forpurposes of the above tabular disclosure of operating results under the fairvalue method of accounting stock options, the unrecognized compensation cost ofthe cancelled options and the incremental fair value of the replacement optionsis being amortized over a 30-month period, which consists of the 24 monthvesting period for the replacement options and the six month and one day periodbetween the cancellation of the surrendered options and the grant of thereplacement options.

 

We have issuedrestricted stock as part of employee incentive programs as well as inconjunction with our fiscal year 2000 purchase of Broadband Access Systems,Inc.  The fair market value of therestricted stock is amortized over the projected remaining vesting period.

 

**Note 12 –Contingencies:**

 

On March 5,2003, we were served with a shareowner lawsuit brought by Wanda Kinermon thatwas filed in the United States District Court for the District ofMinnesota.  The complaint named ADC,William J. Cadogan, our former Chairman and Chief Executive Officer, and RobertE. Switz, our current Chief Executive Officer and former Chief FinancialOfficer, as defendants.  After thislawsuit was served we were named as a defendant in 11 other substantiallysimilar lawsuits.  These shareownerlawsuits were consolidated into a single lawsuit, that was captioned In ReADC Telecommunications, Inc. Securities Litigation.  This lawsuit purported to bring suit onbehalf of a class of purchasers of our publicly traded securities from August17, 2000 to March 28, 2001.  Thecomplaint alleged that we violated the securities laws by making false andmisleading statements about our financial performance and business prospectsduring this period.  On November 24,2003, we filed a motion to dismiss this lawsuit, and on May 17, 2004, the courtgranted our motion and dismissed the case with prejudice.  We do not know if the plaintiffs will appealthis decision.

 

On May 19,2003, we were served with a lawsuit brought by Lorraine Osborne that was filedin the United States District Court for the District of Minnesota.  The complaint names ADC and several of ourcurrent and former officers, employees and directors as defendants.  After this lawsuit was served, we wereserved with two substantially similar lawsuits.  All three of these lawsuits were then consolidated into a singlelawsuit, that is captioned In Re ADC Telecommunications, Inc. ERISALitigation.  This lawsuit has beenbrought by individuals who seek to represent a class of participants in ourRetirement Savings Plan who purchased 

 

11

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our common stock as one of theinvestment alternatives under the plan from February 2000 to present.  The lawsuit alleges a breach of fiduciaryduties under the Employee Retirement Income Security Act.  On February 2, 2004 we filed a motion todismiss this lawsuit.  This motion ispending before the court.

 

On January 22, 2004, we were served with alawsuit brought by Theodore Pardo that was filed in the United States DistrictCourt for the District of Minnesota.  The complaint was structured as ashareholder derivative case and included our company as a plaintiff and as anominal defendant and names several of our current and former officers anddirectors as defendants.  This lawsuit was brought by a plaintiff whosought to represent the interests of ADC and its shareholders.  Thecomplaint alleged that the defendants breached their fiduciary duties to us andour shareholders by failing to maintain proper accounting controls and bymaking allegedly false and misleading statements about our financialperformance and business prospects that resulted in violations of thesecurities laws.  On April 22, 2004, we filed a motion to dismiss thislawsuit.  On June 3, 2004, the plaintifffiled a voluntary notice of dismissal and dismissed the case without prejudice.

 

We are a party to various other lawsuits,proceedings and claims arising in the ordinary course of business orotherwise.  The amount of monetaryliability that could result from an adverse result in many of those lawsuits,proceedings or claims cannot be determined at this time.  As of April 30, 2004, we had recorded $8.1million in loss reserves in the event of such adverse outcomes in thesematters.  Because litigation by itsnature is uncertain, the establishment of reserves involves a considerableamount of judgment.  Refer to ourdiscussion “Application of Critical Accounting Policies” in our Annual Reporton Form 10-K for a further discussion of litigation reserves.

 

**Note 13 - Subsequent Events:**

 

On May 18,2004, we acquired the KRONE Group, a global supplier of copper- and fiber-basedconnectivity solutions and cabling products used in public access andenterprise networks, from GenTek, Inc. The acquisition is valued atapproximately $350.0 million, consisting of a cash purchase price ofapproximately $294.0 million and the assumption of certain defined liabilities(including, principally, KRONE’s pension plan obligations to its Germanworkforce).

 

On May 24,2004, we entered into an agreement to sell the business related to our CudaTMcable modem termination system product line and related FastFlowÒBroadband Provisioning Manager software to BigBand Networks, Inc.  In consideration for this sale, we will beissued a non-voting minority interest in BigBand.  We also will provide BigBand with a non-revolving credit facilityof up to $12.0 million with a term of three years.  The transaction is expected to close in our third quarter offiscal 2004, and we intend to treat this business as a discontinued operationbeginning in the third quarter.  Theresults of this business are currently reflected in our BroadbandInfrastructure and Access reporting segment.

 

On June 3,2004, we entered into an agreement to sell the business related to our Singl.eViewÒproduct line to Intec Telecom Systems PLC for a cash purchase price of $74.5million, subject to purchase price adjustments.  We also agreed to provide Intec with a $6 million non-revolvingcredit facility with a term of 18 months. The transaction is expected to close in our fourth quarter of fiscal2004, subject to receipt of the approval of Intec’s shareholders and otherclosing conditions.  We expect to treatthe business as a discontinued operation beginning in the third quarter.  The results of this business are currentlyreflected in our Integrated Solutions reporting segment.

 

The aggregateassets and liabilities of our CudaTM/FastFlow® and Singl.eView® businesses thatwill be treated as discontinued operations in the third quarter of fiscal 2004were $31.0 million and $32.4 million, respectively, as of April 30, 2004.

 

***ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS***

 

## **Business**

## ** **

Our primary strategicbusiness initiative is to become a global leader in communications networkinfrastructure solutions and services. This strategy focuses on products, systems and services that provide thefoundation for every type of communications 

 

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network over copper, fiber, coaxial and wireless media.  Theseproducts and services include fiber optic, copper and coax based frames,cabinets, cables, connectors, cards and other physical components essential toenable the delivery of communications for wireline, wireless, and cable TVnetworks as well as network access devices including high-bit-rate digitalsubscriber line and wireless transport solutions. ADC also designs, equips, andbuilds networks through the provision of systems integration services.  This strategy focuses on our corestrengths.  Since our inception in 1935,we have built a core strength around our connectivity business.  Today we provide the products that are keyat the foundation of the wireline, wireless and cable networks of serviceprovider and enterprise customs.

 

In the past several months,we have taken several steps that advance this strategic initiative.  We recently completed our acquisition of theKRONE Group, a global supplier of copper- and fiber-based connectivity solutionsand cabling products used in public access and enterprise networks.  This acquisition positions us as a leader innetwork infrastructure and significantly expands our presence in theinternational marketplace. Approximately 70% of our sales are in North America, while KRONE derivesapproximately 80% of its sales from outside of North America.  In February 2004 we completed the sale ofour BroadAccess40 business. We have also recently announced transactions, whichare expected to be completed over the next few months, to divest ourSingl.eView® software and cable modem termination system businesses.  These divestitures will enable us to becomemore focused on our primary strategic goals.

 

Our business presentlyoffers products, solutions and services through the following two segments ofproduct and service offerings:

 

•              Broadband Infrastructure andAccess; and

 

•              Integrated Solutions.

 

Our *BroadbandInfrastructure and Access* business provides network infrastructureproducts for wireline, cable and wireless communications network applications;Digital Subscriber Line (DSL) offerings for the telecommunications industry;and Internet Protocol (IP)-based offerings for the cable industry.* *These products consist of:

 

•                                          connectivitysystems and components that provide the infrastructure to wireline, cable andwireless service providers to connect Internet, data, video and voice servicesto the network over copper, coaxial and fiber-optic cables; and

 

•                                          access systemsused by wireline, wireless and cable service providers to deliver high-speedInternet, data and voice services to consumers and businesses in the lastmile/kilometer of communications networks.

 

Our *Integrated Solutions*business providessystem integration services and operations support system (OSS) software forbroadband, multiservice communications over wireline and wirelessnetworks.  Systems integration servicesare used to design, equip and build communications networks that deliverInternet, data, video and voice services to consumers and businesses.  OSS software includes communicationsbilling, customer management, network performance and service-level assurancesoftware used by service providers to operate communications networks.

 

***MarketplaceConditions***

 

Our operatingresults during the three and six months ended April 30, 2004, continued tostabilize, a trend that began in fiscal 2003. However, spending on communications equipment and services remains atsignificantly lower levels compared to pre-2001 levels.  We cannot predict with certainty whetherstability in revenue levels will continue or if and when revenue growth willoccur in the future.  Although therehave been increases in spending by some of our customers in selected areas(including spending on fiber-to-the-premises initiatives by several customersand a general increase in wireless spending), we continue to see deferredcapital spending by many of our customers. For example, a significant customer of our systems integration businesshas decreased capital spending at the present time, which has negativelyimpacted the sales of this business in the first six months of this fiscalyear.  In addition, we have experiencedand expect to continue to experience increased pricing pressures from many ofour customers on a variety of products.

 

We continue tobe dependent on telecommunications service providers for a majority of ourrevenues, with the four major U.S. incumbent local exchange carriers (Verizon,SBC, Bellsouth and Qwest) accounting for approximately 28.6% and 33.6% of ourrevenues during the six months ended April 30, 2004 and 2003,respectively.  In addition, our top tencustomers accounted for approximately 45.5% and 56.8% of our revenues for thesix months ended April 30, 2004 and 2003, respectively.  Following our recent acquisition ofthe KRONE Group we expect to see greater diversification among our customerbase such that our top ten customers will account for a lower percentage of ourrevenues in the future.

 

The lack ofgrowth in the communications service industry is resulting in consolidationamong our customers and our competitors in order for them to increase marketshare, diversify product portfolios and/or achieve greater economies ofscale.  We 

 

13

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expect this activity to have an impact on ourresults of operations.   There can be noassurance that we will be a supplier to the surviving company when mergers ofservice providers occur.  In addition toconsolidation among our customers, consolidation among communications equipmentvendors is occurring.  We believe thatour competitors in the communications equipment industry will continue to seekmore strategic alliances or consolidate to diversify product portfolios orobtain greater economies of scale. Finally, we expect continuing product line rationalization as companiesdivest unprofitable product lines in an effort to focus on profitable businessoperations.

 

Our approachto the current industry condition has been to focus on our core strengths anddivest non-core or unprofitable product lines. On May 18, 2004, we completed our acquisition of the KRONE Group, aglobal supplier of copper- and fiber-based connectivity solutions and cablingproducts used in public access and enterprise networks.  The acquisition is valued at approximately$350.0 million consisting of cash paid of approximately $294.0 million and theassumption of certain defined liabilities consisting principally of the KRONEGroup’s pension obligation for its German workforce.  We expect this acquisition to result in an increase in our totalrevenues while also providing a modest decline in our overall gross margins, asseveral of the KRONE Group products have lower gross margins than our historicproducts.

 

In recentmonths we also have divested or entered into agreements to divest non-strategicproduct lines as we focus on growing our business profitably.  On February 24, 2004, we completed the saleof our BroadAccess40 business.  Thisbusiness comprised 1.5% of our net sales for the six months ended April 30, 2004and 2.9% of our net sales for fiscal 2003. On May 24, 2004, we entered into an agreement to sell the businessrelated to our CudaTM cable modem termination system product line and relatedFastFlow® Broadband Provisioning Manager to BigBand Networks, Inc., and on June3, 2004, we entered into an agreement to sell our Singl.eView® product line toIntec Telecom Systems.  These businesseshave contributed to our net losses in recent periods.  Accordingly, we expect our net income results to improve as aresult of these divestitures.

 

We intend tocontinue to explore additional product line or business acquisitions that arecomplimentary to our communications infrastructure business. We intend topursue acquisition opportunities that will enable us to expand our corebusiness of supplying communications infrastructure products and services tocommunications service providers, as well as opportunities that will bolsterour position as a supplier to private (i.e. enterprise) network customers. Weexpect to fund these potential acquisitions with all or a portion of theremaining net proceeds of our $400.0 million convertible note offering that wascompleted in June 2003, with the issuance of shares of common or preferredstock or debt or equity-linked securities or through some combination of these alternatives.We may also undertake further divestitures should we determine a business is nolonger central to our strategic goals.

 

When thedownturn in communications equipment spending first became evident in fiscal2001, we implemented a cost restructuring plan to reduce operating expenses andcapital spending. As it became evident in 2002 and 2003 that our industry wasexperiencing a more pronounced and prolonged economic downturn, we tookadditional cost restructuring measures to realize further cost savings.  Although much of our restructuring activityhas been completed we continue to look for ways to conduct our operations moreefficiently and to reduce costs. Despite the significant cost reductions we have made over the past threeyears, we may be unable to meet expected revenue levels in any particularquarter, in which case our operating results could be materially adverselyaffected if we are unable to further reduce our expenses in time to counteractsuch a decline in revenues.

 

Prior to the downturnin our business beginning in fiscal 2001, our results of operations had beensubject to seasonal factors, with stronger demand for our products during ourfourth fiscal quarter ending October 31 (primarily as a result of customerbudget cycles and our fiscal year-end initiatives) and weaker demand for ourproducts during our first fiscal quarter ending January 31 (primarily as aresult of the number of holidays in that quarter, our customers’ development ofannual capital budgets during that period and a general industry slowdownduring that period).  There can be noassurance that these historical trends will return.  A more detailed description of the risks to our business relatedto seasonality, along with other risk factors associated with our business, canbe found in our Form 10-K for the year ended October 31, 2003 in Item 1 of suchreport under the caption “Risk Factors.”

 

***Resultsof Operations***

 

The following table containsinformation regarding the percentage to net sales of certain income and expenseitems for the three and six months ended April 30, 2004 and 2003:

 

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|                                |   | **Percentage  of Net Sales**       |   | **Percentage  Increase or (Decrease)  Between Periods** |   |
|-------------------------------------|--------|------------------------------------|--------|---------------------------------------------------------|--------|
|                                |   | **Three  Months  Ended April 30,** |   | **Six Months  Ended April 30,**                         |   | **Three  Months  Ended April 30,** |   | **Six Months  Ended April 30,** |   |
|                                |   | **2004**                           |   | **2003**                                                |   | **2004** |   | **2003** |   | **2004** |   | **2004** |   |
|                                |   |                               |   |                                                    |   |   |   |   |   |   |   |   |   |
| **Net Sales:**                      |   |                               |   |                                                    |   |   |   |   |   |   |   |   |   |
| Product                             |   | 75.4                               | %      | 73.2                                                    | %      | 74.5 | % | 74.3 | % | 0.8 | % | (7.6 | )% |
| Service                             |   | 24.6                               |   | 26.8                                                    |   | 25.5 |   | 25.7 |   | (9.8 | ) | (8.6 | ) |
| **Total Net Sales**                 |   | 100.0                              |   | 100.0                                                   |   | 100.0 |   | 100.0 |   | (2.0 | ) | (7.9 | ) |
| **Cost of Sales:**                  |   |                               |   |                                                    |   |   |   |   |   |   |   |   |   |
| Product                             |   | 40.0                               |   | 39.5                                                    |   | 39.1 |   | 40.4 |   | (0.8 | ) | (10.8 | ) |
| Service                             |   | 20.3                               |   | 21.6                                                    |   | 21.3 |   | 22.4 |   | (8.0 | ) | (12.4 | ) |
| **Total Cost of Sales**             |   | 60.3                               |   | 61.1                                                    |   | 60.4 |   | 62.8 |   | (3.3 | ) | (11.4 | ) |
| **Gross Profit**                    |   | 39.7                               |   | 38.9                                                    |   | 39.6 |   | 37.2 |   | 0.0 |   | (1.9 | ) |
| **Expenses:**                       |   |                               |   |                                                    |   |   |   |   |   |   |   |   |   |
| Research and development            |   | 13.2                               |   | 15.0                                                    |   | 13.1 |   | 15.3 |   | (13.3 | ) | (21.3 | ) |
| Selling and administration          |   | 28.4                               |   | 31.3                                                    |   | 26.8 |   | 31.5 |   | (11.2 | ) | (21.5 | ) |
| Impairment charges                  |   | 5.1                                |   | 2.3                                                     |   | 2.6 |   | 3.8 |   | 114.0 |   | (37.0 | ) |
| Restructuring charges               |   | 7.5                                |   | 6.5                                                     |   | 5.8 |   | 5.3 |   | 13.2 |   | 1.5 |   |
| **Total Expenses**                  |   | 54.2                               |   | 55.1                                                    |   | 48.4 |   | 55.9 |   | (3.6 | ) | (20.3 | ) |
| **Operating Loss**                  |   | (14.5                              | )      | (16.2                                                   | )      | (8.8 | ) | (18.8 | ) | (12.3 | ) | (56.9 | ) |
| **Other Income (Expense), Net**     |   | 0.4                                |   | (0.3                                                    | )      | 2.5 |   | (0.3 | ) | 260.0 |   | 890.9 |   |
| **Loss From Continuing Operations** |   | (14.1                              | )      | (16.5                                                   | )      | (6.3 | ) | (19.0 | ) | (16.3 | ) | (69.5 | ) |
| **Net Loss**                        |   | (14.6                              | )      | (15.8                                                   | )      | (8.3 | ) | (18.6 | ) | (9.5 | ) | (59.1 | ) |

 

***NetSales***

 

The following table sets forthour net sales for the three and six months ended April 30, 2004 and 2003,respectively, for each of our segments described above (in millions):

 
|                                    |   | **Three  Months Ended April 30,** |   | **Six Months  Ended April 30,** |   |
|-----------------------------------------|--------|-----------------------------------|--------|---------------------------------|--------|
|                                    |   | **2004**                          |   | **2003**                        |   | **2004** |   | **2003** |   |
|                                    |   | **Net Sales**                     |   | **%**                           |   | **Net Sales** |   | **%** |   | **Net Sales** |   | **%** |   | **Net Sales** |   | **%** |   |
| **Broadband Infrastructure and Access** |   | $                                 | 120.9  |                            | 66.4   | % | $ | 113.9 |   | 61.2 | % | $ | 226.9 |   | 64.7 | % | $ | 241.0 |   | 63.3 | % |
| **Integrated Solutions:**               |   |                              |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Product                                 |   | 16.4                              |   | 9.0                             |   | 22.3 |   | 12.0 |   | 34.3 |   | 9.8 |   | 41.7 |   | 11.0 |   |
| Service                                 |   | 44.9                              |   | 24.6                            |   | 49.8 |   | 26.8 |   | 89.5 |   | 25.5 |   | 97.9 |   | 25.7 |   |
| **Total Integrated Solutions**          |   | 61.3                              |   | 33.6                            |   | 72.1 |   | 38.8 |   | 123.8 |   | 35.3 |   | 139.6 |   | 36.7 |   |
| **Total**                               |   | $                                 | 182.2  |                            | 100.0  | % | $ | 186.0 |   | 100.0 | % | $ | 350.7 |   | 100.0 | % | $ | 380.6 |   | 100.0 | % |

 

Net sales were $182.2 million and $350.7 million forthe three and six months ended April 30, 2004, respectively, and declined by2.0% and 7.9%, respectively, over the comparable 2003 periods. Internationalsales comprised 34.8% and 34.6% of our net sales for the three and six monthsended April 30, 2004, respectively, and 30.0% and 34.4% for the three and sixmonths ended April 30, 2003, respectively.

 

During the three and six months ended April30, 2004, net sales of Broadband Infrastructure and Access products reflected a6.2% increase and a 5.9% decrease, respectively, over the comparable 2003periods.  Our Broadband Infrastructureand Access segment includes infrastructure (i.e. Connectivity) and access (i.e.Wireless, Wireline and IP Cable) products. During the second quarter of fiscal 2004, net sales of our Connectivityand Wireless products increased 11.0% and 118.2%, respectively, over thecomparable 2003 period. For the six months ended April 30, 2004, net sales forConnectivity and Wireless products increased by 8.2% and 113.8%, respectively,compared to the six months ended April 30, 2003.  The increase in Connectivity sales was attributable primarily toincreased spending by our customers in the core central office space.  The increase in Wireless product lines saleswas a result of an increased acceptance of our products across a growingcustomer base as well as increased spending by one of our customers.

 

For the secondquarter of fiscal 2004, net sales of our IP Cable and Wireline productsdecreased by 23.1% and 20.5%, respectively, over the comparable 2003period.  For the six months ended April30, 2004, net sales for IP Cable and Wireline products decreased by 59.0% and22.6%, respectively, compared to the six months ended April 30, 2003.  The decrease in IP cable product sales wasprimarily due to a significant international sale that was recognized in thesix months ended April 30, 2003, and was not repeated in the first six monthsof 2004.  IP cable sales were alsonegatively impacted by decreased revenues from our Homeworx product as thisproduct nears the end of its life cycle. The decrease in Wireline product sales was caused primarily by decreasedvolumes and pricing concessions with several key customers.

 

During the three and six monthsended April 30, 2004, net sales of our Integrated Solutions products declinedby 15.0% and 11.3%, respectively, compared to the comparable 2003 periods.  During the three and six months ended April30, 2004, net sales of our Systems Integration services decreased by 6.4% and3.1%, respectively, over the comparable 2003 periods.  For the three and sixth months ended April 30, 2004, net sales ofour software products decreased by 26.1% and 21.6%, respectively, over the

 

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comparable2003 periods.    A significant customerof our Systems Integration business has reduced spending during fiscal2004.  In the second quarter of 2004sales of systems integration services to this customer decreased by 70.7%compared to the fiscal 2003 second quarter when this customer accounted for28.6% of our Systems Integration sales. This development is expected to continue to impact revenues negativelyfor this business in the third quarter of fiscal 2004 and possibly further intothe future.  Systems Integration salesto the wireless market have also been lower than expected.  The decrease in software sales is primarilybecause customers continue to extend sales cycles and a large sale completed inthe second quarter of fiscal 2003 was not repeated in the comparable 2004period.  We also believe thatmarketplace rumors regarding the potential sale of our Singl.eView® businesscontributed to reduced sales in the three months ended April 30, 2004.

 

***GrossProfit***

 

During the three and six months ended April 30, 2004, thegross profit percentages were 39.7 % and 39.6%, respectively, compared to 38.9%and 37.2% for the comparable 2003 periods. For the six months ended April 30, 2004, the increase in gross profitpercentage was primarily due to a more favorable sales mix toward higher marginconnectivity products, and a reduction in our fixed cost of sales as a resultof our restructuring activities.

 

In additionto a more favorable sales mix, we benefited from production efficiencies andreduced production costs resulting from more favorable supplier pricing and theoutsourcing of portions of our manufacturing operations.  We anticipate that our future gross profitpercentage will vary based on a variety factors, including sales mix,competitive pricing, timing of new product introductions, timing of customeracceptance and collectibility of large-scale sales transactions andmanufacturing volume.

 

***OperatingExpenses***

 

Total operating expenses forthe three and six months ended April 30, 2004, were $98.8 million and $169.6 million,respectively, representing 54.2% and 48.4% of net sales, respectively.  Included in these operating expenses wererestructuring charges of $13.7 million and $20.5 million for the three and sixmonths ended April 30, 2004, respectively. There were impairment charges of $9.2 million for each of the three andsix month periods ended April 30, 2004. Total operating expenses for the threeand six months ended April 30, 2003, were $102.5 million and $212.9 million,respectively, representing 55.1% and 55.9% of net sales, respectively.  These operating expenses includedrestructuring charges of $12.1 million and $20.2 million and impairment chargesof $4.3 million and $14.6 million for the three and six months ended April 30,2003, respectively.  The decrease inoperating expenses in absolute dollars and as a percentage of revenue wasprimarily due to the ongoing cost savings from our restructuring efforts, baddebt recoveries, the transition of certain manufacturing operations to sourcesoutside North America, and the divestiture of certain business units andproduct lines during previous periods.

 

Research anddevelopment expenses were $24.1 million and $45.8 million for the three and sixmonths ended April 30, 2004, respectively, compared to $27.8 million and $58.2million for the three and six months ended April 30, 2003, respectively.   This represents a decrease of 13.3% and21.3% during the three and six months ended April 30, 2004 over the comparable2003 periods.*  *This decrease waslargely due to the divestiture or discontinuance of certain business units andproduct lines as well as our ongoing cost containment efforts.  We believe that, given the rapidly changingtechnological and competitive environment in the communications equipmentindustry, continued commitment to product development efforts will be requiredfor us to remain competitive. Accordingly, we intend to continue to allocatesubstantial resources, as a percentage of our net sales, to product developmentin each of our segments.

 

Selling andadministration expenses were $51.8 million and $94.1 million for the three andsix months ended April 30, 2004, respectively, compared to $58.3 million and$119.9 million for the three and six months ended April 30, 2003, respectively.This represents a decrease of 11.2% and 21.5% during the three and six monthsended April 30, 2004 over the comparable 2003 periods.* *The decrease is attributable to the results of our priorrestructuring actions and lower costs due to the divestiture or discontinuanceof certain product lines*.*  In addition, for the six months ended April30, 2004, $4.5 million of the reduction is attributable to bad debt recoveriesmade in our first quarter of 2004 primarily through the sale of customeraccounts receivable.

 

 Impairment charges were $9.2 million for both the three and sixmonths ended April 30, 2004, respectively, compared to $4.3 million and $14.6million for the three and six months ended April 30, 2003, respectively. Forthe three and six months ended April 30, 2004, the charges primarily related toproperty and equipment impairments related to our Cuda business.  For the three and six months ended April 30,2003, the impairment charges consisted solely of property and equipmentimpairments, which impacted both the Broadband Infrastructure and Access andIntegrated Solutions segments.  Theimpairment charges were the result of our plan to dispose of excess equipmentthat resulted from our decision to streamline and reduce the size of ouroperations.  The fair market value ofthe disposed equipment was determined by obtaining the prices of comparableitems being sold in the open market by third parties.

 

Restructuring charges were $13.7 million and $20.5 million for thethree and six months ended April 30, 2004, respectively.  For the three and six months ended April 30,2004, restructuring charges primarily consisted of $1.9 million and $5.2million of severance costs, respectively, and $11.8 million and $15.3 millionfor facility consolidation and lease termination costs, respectively.

 

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For the threeand six months ended April 30, 2003, restructuring charges primarily consistedof $9.8 million and $21.5 million of severance costs, respectively, and $2.1million and $(1.4) million for facility consolidation and lease terminationcosts, respectively. Approximately 55 and 120 employees were impacted byreductions in force for the three and six months ended April 30, 2004,respectively, compared to approximately 350 and 1,020 employees impacted forthe three and six months ended April 30, 2003, respectively.  The employee terminations affected both theBroadband Infrastructure and Access and Integrated Solutions segments.

 

***OtherIncome (Expense), Net***

 

The following table provides abreakdown of other income and expenses for the three and six months ended April30, 2004 and 2003 (in millions):

 
|                                              |   | **Three  months ended  April 30,** |   | **Six months  ended  April 30,** |   |
|---------------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|
|                                              |   | **2004**                           |   | **2003**                         |   | **2004** |   | **2003** |   |
| Interest income                                   |   | $                                  | 1.6    |                             | $      | 1.7 |   | $ | 2.4 |   | $ | 2.9 |   |
| Gain (Loss) on sale of product lines              |   | —                             |   | —                           |   | 3.3 |   | (2.8 | ) |
| Gain (Loss) on write-down or sale of  investments |   | —                             |   | (2.6                             | )      | 4.4 |   | (3.7 | ) |
| Gain (Loss) on sale of fixed assets               |   | (0.1                               | )      | (1.5                             | )      | 0.3 |   | (1.0 | ) |
| Other                                             |   | (0.7                               | )      | 1.9                              |   | (1.7 | ) | 3.5 |   |
| **Total Other Income (Expense)**                  |   | $                                  | 0.8    |                             | $      | (0.5 | ) | $ | 8.7 |   | $ | (1.1 | ) |

 

***IncomeTaxes***

 

Our effective income tax rate for the three and six months ended April30, 2004 and 2003 was zero. No income tax benefit was provided on our pretaxlosses for these periods as the deferred tax assets generated by the losseshave been offset with a corresponding valuation reserve. We have provided afull valuation reserve to offset our deferred tax assets since our thirdquarter of fiscal 2002 as a result of our cumulative losses of the past three fiscalyears and the full utilization of our loss carryback potential. We willcontinue to maintain a full valuation reserve on our deferred tax assets untilwe have sustained a level of profitability that demonstrates our ability toutilize the deferred assets in the future. Until that time, we do not expect torecord significant income tax expense or benefit. During our third quarter offiscal 2004, our tax position will reflect the acquisition of the KRONE Groupcompleted in May 2004.  However, we donot expect the KRONE Group acquisition to have a significant impact on theresults of our overall tax position.  Amore detailed description of the accounting standards related to theutilization of deferred tax assets is found in Note 4 to the financial statementsincluded in this Form 10-Q.

 

***DiscontinuedOperations***

 

During thefirst quarter of fiscal 2004, we entered into an agreement to sell our BroadAccess40business unit, which was included in our Broadband Infrastructure andAccess segment.  In accordance with SFAS144 "Accounting for the Impairment or Disposal of Long-Lived Assets",the financial results of this business unit are reported separately asdiscontinued operations for all periods presented.  This transaction closed on February 24, 2004.  Adjustments of $1.2 million related to thesale are included in discontinued operations for the three months ended April30, 2004 and reduce the year-to-date loss on sale of discontinued operations to$2.5 million.  For a description of theprincipal terms of the transaction, refer to Note 2 to the financial statementsincluded in this Form 10-Q.

 

The financialresults of BroadAccess40 included in discontinued operations were as follows(in millions):

 
|                                                    |   | **Three  Months Ended  April 30,** |   | **Six Months  Ended  April 30,** |   |
|---------------------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|
|                                                    |   | **2004**                           |   | **2003**                         |   | **2004** |   | **2003** |   |
|                                                    |   |                               |   |                             |   |   |   |   |   |
| Revenue                                                 |   | $                                  | 0.1    |                             | $      | 5.9 |   | $ | 5.1 |   | $ | 11.2 |   |
|                                                    |   |                               |   |                             |   |   |   |   |   |
| Net (Loss) Income from  discontinued operations         |   | $                                  | (2.2   | )                                | $      | 1.2 |   | $ | (4.4 | ) | $ | 1.6 |   |
| Gain (Loss) on divestiture of subsidiary                |   | 1.2                                |   | —                           |   | (2.5 | ) | — |   |
| (Loss) Income from discontinued operations,  net of tax |   | $                                  | (1.0   | )                                | $      | 1.2 |   | $ | (6.9 | ) | $ | 1.6 |   |

 

***NetLoss***

 

Net loss was $26.6 million (or$0.03 per diluted share) and $29.0 million (or $0.04 per diluted share) for thethree and six months ended April 30, 2004, respectively, compared to net lossof $29.4 million (or $0.04 per diluted share) and $70.9 million (or $0.09 perdiluted share) for the three and six months ended April 30, 2003, respectively.

 

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**Application of Critical Accounting Policiesand Estimates**

 

There were nosignificant changes to our critical accounting policies during the six monthsended April 30, 2004.  See our mostrecent Annual Report filed on Form 10-K for fiscal 2003 for a discussion of ourcritical accounting policies.

 

## **Liquidity and CapitalResources**

 

**Cash**

 

Cash and cashequivalents, consisting primarily of short-term investments in commercial paperwith maturities of less than 90 days and other short-term investments, had abalance of $730.2 million at April 30, 2004. This amount was an increase of $11.5 million from cash and cashequivalents at October 31, 2003. Subsequent to the end of the second quarter, in connection with theclosing of our acquisition of the KRONE Group, we paid GenTek, Inc. $294.0million in cash on May 18, 2004.

 

As of April30, 2004, we had restricted cash of $18.0 million.  Restricted cash represents cash pledged to various financialinstitutions to secure certain of our obligations, primarily cash collateralfor letters of credit and lease obligations. As a result, restricted cash is not available to us for workingcapital.  The restricted cash isexpected to become available to us upon satisfaction of the obligationspursuant to which the letters of credit arrangements were issued.  We are entitled to the interest earnings onour restricted cash balances.

 

Cash used inoperating activities was $3.3 million for the six months ended April 30,2004.  This use of cash was primarilydue to a net loss of $29.0 million, and positive changes in operating assetsand liabilities of $1.0 million, which were partially offset by $24.7 millionof non-cash items, including primarily depreciation and amortization, thechange in bad debt and inventory reserves, and the gain on sale of investments.  The changes in other operating liabilitiesincluded net cash payments of $26.8 million for restructuring liabilities.  Also included were payment of fiscal 2003 incentivebonuses of $6.0 million to employees of two business units which met theirtargets under our management and employee incentive plans.  Overall, working capital (current assetsless current liabilities) increased by $15.1 million during the six monthsended April 30, 2004, primarily due to the payment of liabilities.  Working capital will increase or decrease,in general, with quarterly sales levels and the timing of revenue and billingsduring the quarter.

 

Cash providedby investing activities of $18.6 million was primarily due to the net sale ofinvestments of $18.3 million, proceeds of sales of assets held for sale of $5.6million and proceeds of $3.7 million from the divestiture of productlines.  These cash inflows were offsetby $6.6 million of capital expenditures and an increase of $2.4 million inrestricted cash.

 

Cash used by financing activities of $3.7 million wasdue to the repayment of debt of $8.3 million in connection with the saleof our Broadband Access40 business, partially offset by the issuance ofcommon stock of $4.6 million related to employee stock incentive plans.

 

During the sixmonths ended April 30, 2003, cash increased $95.6 million compared toOctober 31, 2002.  Our primarysources of cash for the six months ended April 30, 2003, were a $125.6 millionincome tax refund and a $114.8 reduction in restricted cash.  Of the $114.8 million reduction inrestricted cash, $101.4 million was used to purchase four properties subject tosynthetic leases.  In addition, $14.3million of previously restricted cash was used to pay a guarantee of a customernote receivable.  Other cash outflowsincluded $13.2 million used to fund investing and financing activities such asnet property and equipment additions and the repayment of long-term debt.  Cash outflows of $4.5 million wereassociated with working capital management and net cash losses from operations.

 

**Vendor Financing**

 

We have worked with customersand third-party financiers to find a means of funding customer equipmentpurchases from us.  As of April 30, 2004and 2003, we had commitments to extend credit of approximately $18.2 millionand $57.8 million, respectively, under such arrangements. The total amountdrawn and outstanding under the commitments was approximately $18.2 million and$21.6 million as of April 30, 2004 and 2003, respectively. The commitments toextend credit are conditional agreements generally having fixed expiration ortermination dates and specific interest rates, conditions and purposes. Thesecommitments may expire without being drawn.  Some of these commitments enable the customer to draw on the commitmentafter the customer has made payment to us for the products we sold, up to theamount the customer previously paid to us. Accordingly, amounts committed may affect future cash flows. Weregularly review all outstanding commitments, and the results of these reviewsare considered in assessing the overall risk for possible credit losses. AtApril 30, 2004, we have recorded approximately $13.5 million in loss reservesin the event of non-performance under these financing arrangements.

 

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**Working Capital Outlook**

 

We believethat our current unrestricted cash on hand is adequate to fund our workingcapital requirements, planned capital expenditures and restructuring coststhrough fiscal 2004 and beyond.  We also believe that ourunrestricted cash on hand will enable us to pursue strategic opportunities,including possible product line or business acquisitions.  However, if the cost of one or moreacquisition opportunities exceeds our existing capital resources, additionalsources of capital may be required.  Wedo not currently have any committed lines of credit or other available creditfacilities, and it is uncertain whether such facilities could be obtained insufficient amounts or on acceptable terms. Thus, any plan to raise additional capital may involve an equity-basedor equity-linked financing, such as another issuance of convertible debt or theissuance of common stock or preferred stock, which would be dilutive toexisting shareholders.

 

**Cautionary Statement for Purposes of the“Safe Harbor” Provisions of the Private Securities Litigation Reform Act of1995**

 

The foregoing Management’sDiscussion and Analysis of Financial Condition and Results of Operations, aswell as the Notes to the Condensed Consolidated Financial Statements, containvarious “forward-looking statements” within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. Forward-looking statements represent ourexpectations or beliefs concerning future events, including but not limited tothe following: any statements regarding future sales, profit percentages,earnings per share and other results of operations, our estimates of probableliabilities relating to pending litigation, the continuation of historicaltrends, the sufficiency of our cash balances and cash generated from operatingand financing activities for our future liquidity and capital resource needsand the effect of regulatory changes. We caution that any forward-looking statements made by us in this reportor in other announcements made by us are qualified by important factors thatcould cause actual results to differ materially from those in theforward-looking statements.  Thesefactors include, without limitation: the magnitude and duration of the significant downturn in thecommunications equipment industry which began in 2001, particularly withrespect to the demand for equipment by telecommunication service providers,from which a majority of our revenues are derived; our ability to restructureour business to achieve operating profitability; macroeconomic factors thatinfluence the demand for telecommunications services and the consequent demandfor communications equipment; possible consolidation among our customers orcompetitors, which could cause disruption in our customer relationships ordisplacement of us as an equipment vendor to the surviving entity in a customerconsolidation; our ability to keep pace with rapid technological change in ourindustry; our ability to make the proper strategic choices with respect toproduct line acquisitions or divestitures; our ability to successfullyintegrate businesses we acquire into our overall operations; increasedcompetition within our industry and increased pricing pressure from ourcustomers; our dependence on relatively few customers for a majority of ourrevenues; fluctuations in our operating results from quarter-to-quarter, whichare influenced by many factors outside of our control, including variations indemand for particular products in our portfolio which have varying profitmargins; the impact of regulatory changes on our customers’ willingness to makecapital expenditures for our equipment, software and services; financialproblems, work interruptions in operations or other difficulties faced by someof our customers, which can influence future sales to these customers as wellas our ability to collect amounts due us; economic and regulatory conditionsoutside of the United States, as approximately 35% to 45% of our salespresently come from non-U.S. jurisdictions; our ability to protect ourintellectual property rights and defend against infringement claims made bythird parties; possible limitations on our ability to raise additional capitalif required, either due to unfavorable market conditions, lack of investordemand or the current corporate charter limitation on our ability to issueadditional shares of common stock; our ability to attract and retain qualifiedemployees; our ability to maintain key competencies during a period of reducedresources and restructuring; potential liabilities that could arise if thereare design or manufacturing defects with respect to any of our products; ourability to obtain raw materials and components, and our increased dependence oncontract manufacturers to make certain of our products; changes in interestrates, foreign currency exchange rates and equity securities prices, all ofwhich will impact our operating results; our ability to successfully defend orsatisfactorily settle our pending litigation; and other risks anduncertainties, including those identified in our Form 10-K for the period endedOctober 31, 2003 in Item 1 of such report under the caption “Risk Factors.”  We disclaim any intention or obligation toupdate or revise any forward-looking statements, whether as a result of newinformation, future events or otherwise.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

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

 

We are exposed to interest raterisk as a result of issuing, on June 4, 2003, $200.0 million of convertibleunsecured subordinated notes that have a variable interest rate.  The interest rate on these notes is equal to6-month LIBOR plus 0.375%.  The interestrate on these notes will reset semiannually on each interest payment date,which is June 15 and December 15 of each year until their maturity infiscal 2013.  Assuming interest ratesrise 1%, 5% and 10%, our annual interest expense would increase by $2.0million, $10.0 million and $20.0 million, respectively.

 

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We offer anon-qualified 401(k) excess plan to allow certain executives to defer earningsin excess of the annual individual contribution and compensation limits on401(k) plans imposed by the U.S. Internal Revenue Code.  Under this plan, the salary deferrals andour matching contributions are not placed in a separate fund or trust account.Rather, the deferrals represent our unsecured general obligation to pay thebalance owing to the executives upon termination of their employment.  In addition, the executives are able toelect to have their account balances indexed to a variety of diversified mutualfunds (stock, bond and balanced), as well as to our common stock.  Accordingly, our outstanding deferredcompensation obligation under this plan is subject to market risk.  As of April 30, 2004, our outstanding deferredcompensation obligation related to the 401(k) excess plan was $6.0 million, ofwhich approximately $1.2 million was indexed to ADC common stock.  Assuming a 20%, 50% and 100% aggregateincrease in the value of the investment alternatives to which the accountbalances may be indexed, our outstanding deferred compensation obligation wouldincrease by $1.2 million, $3.0 million and $6.0 million, respectively, and wewould incur an expense of a like amount.

 

We are exposedto market risk from changes in foreign exchange rates. To mitigate the riskfrom these exposures, we have instituted a balance sheet hedging program. Theobjective of this program is to protect our net monetary assets and liabilitiesin non-functional currencies from fluctuations due to movements in foreignexchange rates. The program operates in markets where hedging costs arebeneficial. We attempt to minimize exposure to currencies in which hedginginstruments are unavailable or prohibitively expensive by managing ouroperating activities and net asset positions. The majority of hedginginstruments utilized are forward contracts with maturities of less than oneyear.  Foreign exchange contracts reduceour overall exposure to exchange rate movements, since gains and losses onthese contracts offset losses and gains on the underlying exposure.

 

**ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES**

 

Under thesupervision and with the participation of our management, including our ChiefExecutive Officer (“CEO”) and Chief Financial Officer (“CFO”), we evaluated theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of1934 (the “Exchange Act”)).  Based onthat evaluation, our CEO and CFO have concluded that, as of the end of theperiod covered by this report, our disclosure controls and procedures areadequately designed to ensure that information required to be disclosed by usin the reports we file or submit under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the applicablerules and forms.  During the periodcovered by this Quarterly Report on Form 10-Q, there was no change in ourinternal control over financial reporting (as defined in Rule 13a-15(f) underthe Exchange Act) that materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

**PARTII. OTHER INFORMATION**

 

**ITEM1. LEGAL PROCEEDINGS**

 

On March 5,2003, we were served with a shareowner lawsuit brought by Wanda Kinermon thatwas filed in the United States District Court for the District ofMinnesota.  The complaint named ADC,William J. Cadogan, our former Chairman and Chief Executive Officer, and RobertE. Switz, our Chief Executive Officer and former Chief Financial Officer, asdefendants.  After this lawsuit wasserved we were named as a defendant in 11 other substantially similarlawsuits.  These shareowner lawsuitswere consolidated into a single lawsuit, that was captioned In Re ADC Telecommunications,Inc. Securities Litigation.  Thislawsuit purported to bring suit on behalf of a class of purchasers of ourpublicly traded securities from August 17, 2000 to March 28, 2001.  The complaint alleged that we violated thesecurities laws by making false and misleading statements about our financialperformance and business prospects during this period.  On November 24, 2003, we filed a motion todismiss this lawsuit, and, on May 17, 2004, the court granted our motion anddismissed the case with prejudice.  Wedo not know if the plaintiffs will appeal this decision.

 

On May 19,2003, we were served with a lawsuit brought by Lorraine Osborne that was filedin the United States District Court for the District of Minnesota.  The complaint names ADC and several of ourcurrent and former officers, employees and directors as defendants.  After this lawsuit was served, we wereserved with two substantially similar lawsuits.  All three of these lawsuits were then consolidated into a singlelawsuit, that is captioned In Re ADC Telecommunications, Inc. ERISALitigation.  This lawsuit has beenbrought by individuals who seek to represent a class of participants in ourRetirement Savings Plan who purchased our common stock as one of the investmentalternatives under the plan from February 2000 to present.  The lawsuit alleges a breach of fiduciaryduties under the Employee Retirement Income Security Act.  On February 2, 2004, we filed a motion todismiss this lawsuit.  This motion ispending before the court.

 

On January 22, 2004, we were served with alawsuit brought by Theodore Pardo that was filed in the United States DistrictCourt for the District of Minnesota.  The complaint was structured as ashareholder derivative case and included our company as a plaintiff and as anominal defendant and names several of our current and former officers anddirectors as defendants.  This lawsuit was brought by a plaintiff whosought to represent the interests of ADC and its shareholders.  Thecomplaint alleged that the defendants breached their fiduciary duties to us andour shareholders by failing to maintain proper accounting controls and bymaking allegedly false and misleading statements about our financialperformance and business prospects that resulted in violations of the

 

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securities laws.  OnApril 22, 2004, we filed a motion to dismiss this lawsuit.  On June 3, 2004, the plaintiff filed avoluntary notice of dismissal and dismissed the case with prejudice.

 

We are a party to various other lawsuits,proceedings and claims arising in the ordinary course of business orotherwise.  The amount of monetaryliability that could result from an adverse result in many of those lawsuits,proceedings or claims cannot be determined at this time.  As of April 30, 2004, we had recorded $8.1million in loss reserves in the event of such adverse outcomes in thesematters.  Because litigation by its natureis uncertain the establishment of reserves involves a considerable amount ofjudgment.  Refer to our discussion on“Application of Critical Accounting Policies” in our Annual Report on Form 10-Kfor a further discussion of litigation reserves.

 

**ITEM 2. CHANGES IN SECURITIES**

 

None.

 

**ITEM3. DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

## **ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

## ** **

a.             Our annual meeting of shareownerswas held on March 2, 2004.

 

b and c.  At the annual meeting, Robert Annunziata, JohnJ. Boyle III, Robert E. Switz and Larry W. Wangberg were elected as directorsfor terms expiring at the annual meeting of our shareowners in 2007.  The following table shows the vote totalswith respect to the election of these directors:

 

| **Name**                    |   | **Votes For** |   | **Authority  Withheld** |   |
|-----------------------------|--------|---------------|--------|-------------------------|--------|
| Robert Annunziata           |   | 664,288,311   |   | 64,631,835              |   |
| John J. Boyle III |   | 670,391,685   |   | 58,528,461              |   |
| Robert E. Switz             |   | 671,356,058   |   | 57,564,088              |   |
| Larry W. Wangberg           |   | 671,724,768   |   | 57,195,378              |   |

 

John A.Blanchard III, B. Kristine Johnson and Jean-Pierre Rosso continued as directorsfor terms expiring at the annual meeting of shareowners in 2006 and James C.Castle, Mickey P. Foret and John D. Wunsch continued as directors forterms expiring at the annual meeting of shareowners in 2005.

 

At the annualmeeting, our shareowners also approved an amendment to our Global StockIncentive Plan to: (a) provide us with greater flexibility to grant “fullvalue” awards (such as restricted stock and restricted stock units) as part ofour long term incentive compensation program, and (b) extend the term of thePlan for three years.  This proposal did not increase the aggregate sharesauthorized under the Plan.  The following table shows the vote totals withrespect to the amendment to our Global Stock Incentive Plan:

 

| **Votes For** |   | **Votes  Against** |   | **Abstentions** |   |
|---------------|--------|--------------------|--------|-----------------|--------|
| 302,564,832   |   | 120,155,448        |   | 6,922,619       |   |

 

At the annual meeting ourshareowners also approved an amendment to our Articles of Incorporation toincrease the authorized shares of common stock that we may issue from1,200,000,000 shares to 2,400,000,000 shares.  The following table showsthe vote totals with respect to the amendment to our Articles of Incorporation:

 

| **Votes For** |   | **Votes  Against** |   | **Abstentions** |   |
|---------------|--------|--------------------|--------|-----------------|--------|
| 611,792,337   |   | 111,642,993        |   | 5,483,211       |   |

 

At the annualmeeting our shareowners also ratified the appointment of Ernst & Young LLPas our independent auditors for the fiscal year ending October 31, 2004. The following table shows the vote totals with respect to this ratification ofErnst & Young LLP as our independent auditors:

 

| **Votes For** |   | **Votes  Against** |   | **Abstentions** |   |
|---------------|--------|--------------------|--------|-----------------|--------|
| 714,587,874   |   | 9,200,900          |   | 5,131,370       |   |

 

## **ITEM 5.  OTHER INFORMATION**

 

None.

 

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## **ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K**

 

a.             Exhibits

 

See Exhibit Index on page 24 for a description of the documents thatare filed as exhibits to this Quarterly Report on Form 10-Q or incorporated byreference herein.  Any documentincorporated by reference is identified by a parenthetical referencing the SECfiling which included the document.  Wewill furnish to a securityholder upon request a copy of any Exhibit at cost.

 

b.             Reportson Form 8-K

 

We filed orfurnished the following Current Reports on Form 8-K during the quarter endedApril 30, 2004:

 
| **Date**           |   | **Item  Reported**                                                     |
|--------------------|--------|------------------------------------------------------------------------|
| February 18,  2004 |   | Items 7, 9,  and 12 –First quarter 2004 financial results.        |
| March 25,  2004    |   | Items 7 and  9 – Acquisition of the KRONE Group from GenTek, Inc. |

 

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**SIGNATURES**

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

 
| Dated:  June 14, 2004 | ADC  TELECOMMUNICATIONS, INC. |
|----------------------------|-------------------------------|
|                       |                          |   |
|                       | By:                           | /s/ Gokul V.  Hemmady |
|                       |                          | Gokul V.  Hemmady |
|                       |                          | Vice  President, Chief Financial Officer and Controller  (Principal Financial Officer and Duly Authorized Officer) |

 

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**ADCTELECOMMUNICATIONS, INC.**

**EXHIBIT INDEX TO FORM10-QFOR THE THREE MONTHS ENDED APRIL 30, 2004**

 
| **Exhibit  No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4-a              |   | Form of  certificate for shares of common stock of ADC Telecommunications, Inc.  (Incorporated by reference to Exhibit 4-a to ADC’s Form 10-Q for  the quarter ended April 30, 1996.)                                                                                                                                                                                                                                                                                                                 |
| 4-b              |   | Restated  Articles of Incorporation of ADC Telecommunications, Inc., as amended  prior to January 20, 2000. (Incorporated by reference to  Exhibit 4.1 to ADC’s Registration Statement on Form S-3 dated  April 15, 1997.)                                                                                                                                                                                                                                                                       |
| 4-c              |   | Articles of  Amendment to Restated Articles of Incorporation of ADC  Telecommunications, Inc. dated January 20, 2000. (Incorporated by  reference to Exhibit 4.6 to ADC’s Registration Statement on  Form S-8 dated March 14, 2000.)                                                                                                                                                                                                                                                             |
| 4-d              |   | Articles of  Amendment to Restated Articles of Incorporation of ADC  Telecommunications, Inc., dated June 30, 2000. (Incorporated by  reference to Exhibit 4-g to ADC’s Quarterly Report on Form 10-Q for  the quarter ended July 31, 2000.)                                                                                                                                                                                                                                                |
| 4-e              |   | Articles of  Amendment to Restated Articles of Incorporation of ADC Telecommunications,  Inc., dated March 9, 2004.   (Incorporated by reference to Exhibit 4-e to ADC’s Quarterly  Report on Form 10-Q for the quarter ended January 31, 2004.)                                                                                                                                                                                                                                                 |
| 4-f              |   | Restated  Bylaws of ADC Telecommunications, Inc., as amended effective  July 30, 2002.  (Incorporated by  reference to exhibit 4-e ADC’s Quarterly Report on Form 10-Q for the quarter  ended July 31, 2002)                                                                                                                                                                                                                                                                                          |
| 4-g              |   | 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 ADC’s Form 8-A/A filed on  July 31, 2003)                                                                                                                                                                                                                                                                |
| 4-h              |   | 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 ADC’s  Quarterly Report on Form 10-Q for the quarter ended July 31, 2003).                                                                                                                                                                                                                                                                                 |
| 4-i              |   | 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  representatives of the Initial Purchase of ADC’s 1% Convertible Subordinated  Notes due 2008 and Floating Rate Convertible Subordinated Notes due 2013  (Incorporated by reference to Exhibit 4-h to ADC’s Quarterly Report on Form  10-Q for quarter ended July 31, 2003). |
| 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.                                                                                                                                                                                                                                                                                                                                                                                              |

 

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