##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended January 27, 2006
 OR
 o
    
    TRANSACTION REPORT PURSUANT TO SECTION 13 or
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from N/A to N/A
 Commission file number 0-1424
 ADC Telecommunications, Inc.
  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
 (952) 938-8080
 N/A
  YES þ
    
    NO o
  þ o o
  YES o
    
    NO þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 1A. RISK FACTORSITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 3. DEFAULTS UPON SENIOR SECURITIESITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 5. OTHER INFORMATIONITEM 6. EXHIBITSSIGNATURESADC TELECOMMUNICATIONS, INC. EXHIBIT INDEX TO FORM 10-Q FOR THE THREE MONTHS ENDED JANUARY 27, 2006Certification of Principal Executive OfficerCertification of Principal Financial OfficerCertifications Pursuant to Section 906    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETSUNAUDITED
 (In millions)
 January 27,
    
    
    October 31,2006
    
    
    2005ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    99.1
    
    
    $
    110.1Available-for-sale securities
    
    
    338.8
    
    
    
    335.3Accounts receivable, net of reserves of $10.1 and $9.6, respectively
    
    
    185.3
    
    
    
    195.6Unbilled revenue
    
    
    32.6
    
    
    
    38.1Inventories, net of reserves of $36.0 and $35.7, respectively
    
    
    142.8
    
    
    
    140.5Prepaid and other current assets
    
    
    44.1
    
    
    
    33.4Total current assets
    
    
    842.7
    
    
    
    853.0Property and equipment, net of accumulated depreciation of $362.0 and
$351.2, respectively
    
    
    218.1
    
    
    
    221.1Restricted cash
    
    
    22.2
    
    
    
    23.6Goodwill
    
    
    240.2
    
    
    
    240.5Intangibles, net of accumulated amortization of $43.5 and $35.5, respectively
    
    
    158.7
    
    
    
    165.0Available-for-sale securities
    
    
    11.0
    
    
    
    12.1Other assets
    
    
    21.8
    
    
    
    19.7Total assets
    
    $
    1,514.7
    
    
    $
    1,535.0LIABILITIES AND SHAREOWNERS INVESTMENTCurrent Liabilities:Accounts payable
    
    $
    81.4
    
    
    $
    77.4Accrued compensation and benefits
    
    
    50.2
    
    
    
    80.9Other accrued liabilities
    
    
    73.4
    
    
    
    78.8Income taxes payable
    
    
    16.2
    
    
    
    15.9Restructuring accrual
    
    
    29.5
    
    
    
    33.3Notes payable
    
    
    0.1
    
    
    
    0.3Total current liabilities
    
    
    250.8
    
    
    
    286.6Pension obligations and other long-term liabilities
    
    
    80.9
    
    
    
    74.5Long-term notes payable
    
    
    400.0
    
    
    
    400.0Total liabilities
    
    
    731.7
    
    
    
    761.1Shareowners Investment:(117.0 and 116.6 shares outstanding, respectively)
    
    
    783.0
    
    
    
    773.9Total liabilities and shareowners investment
    
    $
    1,514.7
    
    
    $
    1,535.0
  1




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##### Table of Contents



ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSUNAUDITED
(In millions, except per share amounts)
 Three Months EndedJanuary 27, 2006
    
    
    January 28, 2005Net Sales:Product
    
    $
    240.5
    
    
    $
    199.7Service
    
    
    39.7
    
    
    
    40.9Total net sales
    
    
    280.2
    
    
    
    240.6Cost of Sales:Product
    
    
    158.2
    
    
    
    120.4Service
    
    
    36.4
    
    
    
    38.1Total cost of sales
    
    
    194.6
    
    
    
    158.5Gross Profit
    
    
    85.6
    
    
    
    82.1Operating Expenses:Research and development
    
    
    19.0
    
    
    
    15.2Selling and administration
    
    
    69.0
    
    
    
    60.9Restructuring charges
    
    
    1.4
    
    
    
    3.1Total operating expenses
    
    
    89.4
    
    
    
    79.2Operating (Loss) Income
    
    
    (3.8
    )
    
    
    2.9Other Income, Net
    
    
    2.7
    
    
    
    12.2(Loss) income before income taxes
    
    
    (1.1
    )
    
    
    15.1Provision for income taxes
    
    
    1.3
    
    
    
    1.0(Loss) income from continuing operations
    
    
    (2.4
    )
    
    
    14.1Discontinued Operations, Net of TaxIncome from discontinued operations
    
    
    
    
    
    
    2.2Gain on sale of discontinued operations, net
    
    
    
    
    
    
    36.2Total Discontinued Operations
    
    
    
    
    
    
    38.4(Loss) earnings before the cumulative effect of a change in accounting principle
    
    
    (2.4
    )
    
    
    52.5Cumulative effect of a change in accounting principle
    
    
    0.6
    
    
    
    Net (Loss) Income
    
    $
    (1.8
    )
    
    $
    52.5Weighted Average Common Shares Outstanding (Basic)
    
    
    116.7
    
    
    
    115.6Weighted Average Common Shares Outstanding (Diluted)
    
    
    116.7
    
    
    
    115.9Basic (Loss) Earnings Per Share:Continuing operations
    
    $
    (0.02
    )
    
    $
    0.12Discontinued operations
    
    $
    
    
    
    $
    0.33Cumulative effect of a change in accounting principle
    
    $
    
    
    
    $
    Net (loss) income per share
    
    $
    (0.02
    )
    
    $
    0.45Diluted (Loss) Earnings Per Share:Continuing operations
    
    $
    (0.02
    )
    
    $
    0.12Discontinued operations
    
    $
    
    
    
    $
    0.33Cumulative effect of a change in accounting principle
    
    $
    
    
    
    $
    Net (loss) income per share
    
    $
    (0.02
    )
    
    $
    0.45
  2




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ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSUNAUDITED
(In millions)
 Three Months EndedJanuary 27, 2006
    
    
    January 28, 2005Operating Activities:Net (loss) income from continuing operations
    
    $
    (2.4
    )
    
    $
    14.1Adjustments to reconcile net (loss) income from continuing operations to net cash used by
operating activities from continuing operations:Depreciation and amortization
    
    
    16.6
    
    
    
    13.9Change in bad debt reserves
    
    
    1.0
    
    
    
    (0.4
    )Non-cash stock compensation
    
    
    3.4
    
    
    
    0.7Change in deferred income taxes
    
    
    1.4
    
    
    
    0.6Loss (Gain) on sale of property and equipment
    
    
    0.7
    
    
    
    (0.6
    )Other, net
    
    
    (2.2
    )
    
    
    (12.3
    )Changes in operating assets and liabilities, net of acquisitions and divestitures:Accounts receivable and unbilled revenues
    
    
    8.8
    
    
    
    15.9Inventories
    
    
    (1.4
    )
    
    
    (10.0
    )Prepaid and other assets
    
    
    (6.6
    )
    
    
    (4.0
    )Accounts payable
    
    
    3.4
    
    
    
    (1.2
    )Accrued liabilities
    
    
    (39.1
    )
    
    
    (34.9
    )Pension liabilities
    
    
    2.7
    
    
    
    1.2Total cash used by operating activities from continuing operations
    
    
    (13.7

    )
    
    
    (17.0
    )Total cash provided by operating activities from discontinued operations
    
    
    
    
    
    
    0.7Total cash used by operating activities
    
    
    (13.7
    )
    
    
    (16.3
    )Investing Activities:Divestitures, net of cash disposed
    
    
    
    
    
    
    33.6Property and equipment additions
    
    
    (5.1
    )
    
    
    (4.6
    )Proceeds from disposal of property and equipment
    
    
    
    
    
    
    3.1Change in restricted cash
    
    
    1.5
    
    
    
    (3.0
    )Purchases of available-for-sale securities
    
    
    (135.5
    )
    
    
    (270.9
    )Sale of available-for-sale securities
    
    
    133.4
    
    
    
    278.7Other
    
    
    0.3
    
    
    
    Total cash (used by) provided by investing activities
    
    
    (5.4
    )
    
    
    36.9Financing Activities:Common stock issued
    
    
    5.9
    
    
    
    0.9Total cash provided by financing activities
    
    
    5.9
    
    
    
    0.9Effect of Exchange Rate Changes on Cash
    
    
    2.2
    
    
    
    0.2(Decrease) Increase in Cash and Cash Equivalents
    
    
    (11.0
    )
    
    
    21.7Cash and Cash Equivalents, beginning of period
    
    
    110.1
    
    
    
    66.2Cash and Cash Equivalents, end of period
    
    $
    99.1
    
    
    $
    87.9
  3




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ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED
 Note 1  Basis of Presentation:
   Fiscal Year
  Recently Issued Accounting Pronouncements
 Share-Based Payment: An amendment of FASB
Statements No. 123 and 95
 Summary of Significant Accounting Policies
 Accounting for Stock Issued to Employees
 Reverse Stock Split
  Warranty
  4




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##### Table of Contents







Accrual
    
    
    Charged to other
    
    
    Charged to costs
    
    
    Deductions
    
    
    AccrualOctober 31, 2005
    
    
    accounts
    
    
    and expenses
    
    
    (write-offs)
    
    
    January 27, 2006(In millions)Warranty Reserve
    

    $10.8
    
    
    $
    
    
    $2.5
    
    
    $1.8
    
    
    $11.5


Note 2  Share-Based Compensation:






Accounting for Stock-Based Compensation






5




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##### Table of Contents



Three MonthsEndedJanuary 27, 2006(In millions, exceptper share amounts)Effect on Income Before Tax
    
    $
    (2.8
    )Effect on Income From Continuing Operations
    
    
    (2.8
    )Cumulative Effect of Change in Accounting Principle
    
    
    0.6Net Income
    
    $
    (2.2
    )Basic and Diluted Earnings Per Share
    
    
    (0.02
    )
   Three MonthsEndedJanuary 28, 2005(In millions, exceptper share amounts)Net income as reported
    
    $
    52.5Plus: Share-based employee compensation included in
reported income
    
    
    0.7Less: Stock compensation expense  fair value based method
    
    
    (4.6
    )Pro forma net income
    
    $
    48.6Income Per ShareAs reported  Basic and diluted
    
    $
    0.45Pro forma   Basic and diluted
    
    $
    0.42
    6




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##### Table of Contents



Stock Options
    
    RestrictedStock Option
    
    Weighted Average
    
    StockShares
    
    Exercise Price
    
    Awards/Units(In millions)
    
    
    
    (In millions)Outstanding at October 31, 2005
    
    6.8
    
    $ 28.95
    
    0.4Granted
    
    0.9
    
    23.87
    
    0.3Exercised
    
    (0.3)
    
    (16.71)
    
    Restrictions lapsed
    
    
    
    
    
    (0.1)Canceled
    
    (0.3)
    
    (33.95)
    
    Outstanding at January 27, 2006
    
    7.1
    
    28.72
    
    0.6Exercisable at October 31, 2005
    
    4.6
    
    33.70
    
    Exercisable at January 27, 2006
    
    4.6
    
    $  33.00
    
    
  Weighted AverageRange of

    
    
    
    
    Remaining
    
    
    
    
    
    
    
    
    
    WeightedExercise Prices
    Number
    
    Contractual Life
    
    Weighted Average
    
    
    
    
    
    AverageBetween
    Outstanding
    
    (In Years)
    
    Exercise Price
    
    Number Exercisable
    
    Exercise Price$8.05
    
    $
    15.68
    
    
    
    276,194
    
    
    
    7.34
    
    
    $
    13.05
    
    
    
    223,517
    
    
    $
    12.5615.75
    
    
    15.82
    
    
    
    975,044
    
    
    
    6.84
    
    
    
    15.82
    
    
    
    974,687
    
    
    
    15.8216.03
    
    
    18.62
    
    
    
    628,699
    
    
    
    7.93
    
    
    
    17.12
    
    
    
    309,798
    
    
    
    16.9918.69
    
    
    18.76
    
    
    
    905,702
    
    
    
    8.89
    
    
    
    18.76
    
    
    
    215,077
    
    
    
    18.7619.11
    
    
    19.81
    
    
    
    749,154
    
    
    
    5.17
    
    
    
    19.78
    
    
    
    718,455
    
    
    
    19.7920.02
    
    
    23.45
    
    
    
    701,695
    
    
    
    8.13
    
    
    
    20.61
    
    
    
    217,307
    
    
    
    20.7723.91
    
    
    23.91
    
    
    
    904,881
    
    
    
    9.88
    
    
    
    23.91
    
    
    
    
    
    
    
    24.01
    
    
    30.59
    
    
    
    731,409
    
    
    
    5.73
    
    
    
    29.59
    
    
    
    730,604
    
    
    
    29.6031.08
    
    
    61.25
    
    
    
    724,530
    
    
    
    3.98
    
    
    
    44.30
    
    
    
    714,132
    
    
    
    44.2361.47
    
    
    293.56
    
    
    
    486,087
    
    
    
    3.42
    
    
    
    106.92
    
    
    
    486,087
    
    
    
    106.92$8.05
    
    $
    293.56
    
    
    
    7,083,395
    
    
    
    6.92
    
    
    $
    28.72
    
    
    
    4,589,664
    
    
    $
    33.00
  Three Months EndedJanuary 27,
    
    
    January 28,2006
    
    
    2005Expected volatility
    
    
    57.83
    %
    
    
    59.31
    %Risk free interest rate
    
    
    4.30
    %
    
    
    3.67
    %Expected dividends
    
    
    
    
    
    
    Expected life (in years)
    
    
    4.92
    
    
    
    4.59
       7




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##### Table of Contents



Note 3: Acquisitions:
    Three Months EndedJanuary 28, 2005(In millions, exceptper share amounts)Net sales
    
    $
    259.1Income from continuing operations
    
    
    15.3Net income
    
    
    53.7Income from continuing operations per sharebasic and diluted
    
    
    0.13Net income per sharebasic and diluted
    
    $
    0.46
  Note 4  Discontinued Operations:
 Accounting for
the Impairment or Disposal of Long-Lived Assets.
 SIUK
  Metrica
   8




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##### Table of Contents



Singl.eView
   Three Months EndedJanuary 27,
    
    January 28,2006
    
    2005(In millions)Net sales
    
    $
             
    
    
    $     4.2Income from discontinued operations
    
    $              
    
    
    $     2.2Gain on sale of subsidiaries
    
    
    
    
    36.2Gain from discontinued operations
    
    $              
    
    
    $  38.4
 Note 5  Net Income (Loss) from Continuing Operations Per Share:
  Three Months EndedJanuary 27,
    
    
    January 28,2006
    
    
    2005(In millions, exceptper share amounts)Numerator:Net (loss) income from continuing operations
    
    $
    (2.4
    )
    
    $
    14.1Denominator:Weighted average common shares outstanding  basic
    
    
    116.7
    
    
    
    115.6Employee options and other
    
    
    
    
    
    
    0.3Weighted average common shares outstanding  diluted
    
    
    116.7
    
    
    
    115.9Basic and diluted (loss) income per share from continuing operations
    
    $
    (0.02
    )
    
    $
    0.12
    9




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##### Table of Contents



Note 6  Inventories:
  January 27,
    
    
    October 31,2006
    
    
    2005(In millions)Purchased materials
    
    $
    66.3
    
    
    $
    66.9Manufactured products
    
    
    106.0
    
    
    
    100.2Work-in-process
    
    
    6.5
    
    
    
    9.1Less: Inventory reserve
    
    
    (36.0
    )
    
    
    (35.7
    )Total inventories, net
    
    $
    142.8
    
    
    $
    140.5
 Note 7  Property & Equipment:
  January 27,
    
    
    October 31,2006
    
    
    2005(In millions)Land and buildings
    
    $
    140.7
    
    
    $
    137.2Machinery and equipment
    
    
    378.5
    
    
    
    372.8Furniture and fixtures
    
    
    41.6
    
    
    
    42.1Less: Accumulated depreciation
    
    
    (362.0
    )
    
    
    (351.2
    )Total
    
    
    198.8
    
    
    
    200.9Construction in progress
    
    
    19.3
    
    
    
    20.2Total property & equipment, net
    
    $
    218.1
    
    
    $
    221.1
 Note 8  Goodwill and Intangible Assets:
   Balance as of October 31, 2005
    
    $
    240.5Purchase accounting adjustments
    
    
    (0.3
    )Balance as of January 27, 2006
    
    $
    240.2
  Note 9  Income Taxes:
 Accounting for Income Taxes
  10




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Note 10  Comprehensive Income (Loss):
   Three Months EndedJanuary 27,
    
    
    January 28,2006
    
    
    2005(In millions)Net income (loss)
    
    $
    (1.8
    )
    
    $
    52.5Change in cumulative translation adjustment (1)
    
    
    2.2
    
    
    
    (0.2
    )Unrealized gain (loss) from securities classified as available-for-sale
    
    
    0.3
    
    
    
    (0.1
    )Total comprehensive income
    
    $
    0.7
    
    
    $
    52.2
 
 (1)
    
    The cumulative translation adjustment for the three months ended January 27, 2006
is related to a general weakening of the U.S. dollar versus other currencies. This
includes a Mexican Peso adjustment of approximately $1.1 million and a gain of
approximately $1.0 million from notes held in local currencies by ADC. Note 11  Pension Benefits
   Three Months EndedJanuary 27, 2006
    
    
    January 28, 2005(In millions)Service cost
    
    $
    0.1
    
    
    $
    0.1Interest cost
    
    
    0.7
    
    
    
    0.8Net periodic benefit cost
    
    $
    0.8
    
    
    $
    0.9
 Note 12  Segment and Geographic Information:
 Segment Information
   
    
    Connectivity systems and components that provide the infrastructure to wireline,
wireless, cable, broadcast and enterprise networks to connect high-speed Internet, data,
video and voice services to the network over copper, coaxial and fiber-optic cables, and
    
    Access systems used in the last mile/kilometer of wireline and wireless networks to
deliver high-speed Internet, data and voice services.
  11




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Three Months EndedJanuary 27,
    
    
    January 28,2006
    
    
    2005(In millions)Broadband Infrastructure and Access:Infrastructure Products (Connectivity)
    
    $
    208.1
    
    
    $
    163.8Access Products (Wireline and Wireless)
    
    
    20.4
    
    
    
    22.5Total Broadband Infrastructure and Access
    
    
    228.5
    
    
    
    186.3Professional Services
    
    
    51.7
    
    
    
    54.3Total
    
    $
    280.2
    
    
    $
    240.6
  BroadbandInfrastructure
    
    
    Professionaland Access
    
    
    Services
    
    
    Consolidated(In millions)Three Months Ended January 27, 2006External sales:Products
    
    $
    228.5
    
    
    $
    12.0
    
    
    $
    240.5Services
    
    
    
    
    
    
    39.7
    
    
    
    39.7Total external sales
    
    $
    228.5
    
    
    $
    51.7
    
    
    $
    280.2Contribution margin
    
    
    46.8
    
    
    
    2.3
    
    
    
    Depreciation and amortization
    
    $
    13.5
    
    
    $
    3.1
    
    
    $
    16.6Operating income (loss)
    
    $
    6.1
    
    
    $
    (9.9
    )
    
    $
    (3.8
    )Three Months Ended January 28, 2005External sales:Products
    
    $
    186.3
    
    
    $
    13.4
    
    
    $
    199.7Services
    
    
    
    
    
    
    40.9
    
    
    
    40.9Total external sales
    
    $
    186.3
    
    
    $
    54.3
    
    
    $
    240.6Contribution margin
    
    
    51.8
    
    
    
    4.9
    
    
    
    Depreciation and amortization
    
    $
    11.5
    
    
    $
    2.4
    
    
    $
    13.9Operating income (loss)
    
    $
    6.6
    
    

    $
    (3.7
    )
    
    $
    2.9
 12




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Regional Information
  Three Months EndedJanuary 27,
    
    
    January 28,2006
    
    
    2005(In millions)Americas (United States, Canada and
Central and South America)
    
    $
    (1.4
    )
    
    $
    3.7EMEA (Europe, Middle East and Africa)
    
    
    (2.9
    )
    
    
    1.1Asia Pacific (China, Korea, Australia,
India, Japan and Southeast Asia)
    
    
    1.9
    
    
    
    2.3Subtotal
    
    
    (2.4
    )
    
    
    7.1Intercompany elimination
    
    
    
    
    
    
    (1.1
    )Operating income before restructuring costs
    
    
    (2.4
    )
    
    
    6.0Restructuring costs
    
    
    (1.4
    )
    
    
    (3.1
    )Operating income after restructuring costs
    
    $
    (3.8
    )
    
    $
    2.9
 Geographic Information
  Three Months EndedGeographic Sales Information:
    
    January 27,
    
    
    January 28,2006
    
    
    2005(In millions)Inside the United States
    
    $
    154.9
    
    
    $
    119.1Outside the United States:Asia Pacific (China, Korea, Australia, India, Japan and
Southeast Asia)
    
    
    23.4
    
    
    
    21.7EMEA (Europe (excluding Germany), Middle East and Africa)
    
    
    46.5
    
    
    
    42.1Germany
    
    
    35.5
    
    
    
    40.6Americas (Canada, Central and South America)
    
    
    19.9
    
    
    
    17.1Total
    
    $
    280.2
    
    
    $
    240.6Property and Equipment, Net:Inside the United States
    
    $
    138.6
    
    
    $
    140.0Outside the United States
    
    
    79.5
    
    
    
    81.1Total
    
    $
    218.1
    
    
    $
    221.1
 Note 13  Restructuring Charges:
  Three Months EndedJanuary 27,
    
    
    January 28,2006
    
    
    2005(In millions)Employee severance
    
    $
    1.3
    
    
    $
    1.6Facilities consolidation and lease termination
    
    
    0.1
    
    
    
    1.5Total restructuring charges
    
    $
    1.4
    
    
    $
    3.1
 13




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##### Table of Contents



ContinuingAccrual
    
    Operations Net
    
    Cash payments
    
    AccrualType of Charge
    
    October 31, 2005
    
    Additions
    
    Charged to accrual
    
    January 27, 2006(In millions)Employee severance costs
    
    $
    8.7
    
    
    $
    1.3
    
    
    $
    1.6
    
    
    $
    8.4Facilities consolidation
    
    
    24.6
    
    
    
    0.1
    
    
    
    3.6
    
    
    
    21.1Total
    
    $
    33.3
    
    
    $
    1.4
    
    
    $
    5.2
    
    
    $
    29.5
   Note 14  Other Income, Net:
  Three months endedJanuary 27,
    
    
    January 28,2006
    
    
    2005(In millions)Interest income on short-term investments
    
    $
    4.6
    
    
    $
    3.7Interest expense
    
    
    (3.3
    )
    
    
    (2.8
    )Interest income, net
    
    
    1.3
    
    
    
    0.9Foreign exchange income
    
    
    0.7
    
    
    
    1.0Gain on sale of note receivable
    
    
    
    
    
    
    9.0Other
    
    
    0.7
    
    
    
    1.3Non-operating income, net
    
    
    1.4
    
    
    
    11.3Total other income, net
    
    $
    2.7
    
    
    $
    12.2
  Note 15  Commitments and Contingencies:
 Vendor Financing
 14




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##### Table of Contents



Legal Contingencies In Re ADC Telecommunications, Inc. ERISA
Litigation
  Income Tax Contingencies
  Other Contingencies
 Change of Control
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
   
    
    Broadband Infrastructure and Access; and
    
    Professional Services.
 15




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##### Table of Contents




    
    connectivity systems and components that provide the infrastructure to networks to
connect Internet, data, video and voice services over copper, coaxial and fiber-optic
cables; and
    
    access systems used in the last mile/kilometer of wireline and wireless networks to
deliver high-speed Internet, data and voice services.
  Marketplace Conditions
     
    
    new product offerings, such as our OmniReach(TM) FTTX solutions being deployed by several communications service providers
and the growing acceptance of our Digivance(R) wireless coverage solution and our TrueNet(R) and CopperTen(TM) enterprise
solutions;
    
    opportunities to cross-sell products among ADCs traditional customer base and the traditional customer base of KRONE; and
    
    increasing our market share in certain areas as we have done recently with respect to some of our product lines.
   16




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##### Table of Contents



Results of Operations
 Net Sales
  Three Months EndedJanuary 27, 2006
    
    
    January 28, 2005Net Sales
    
    
    %
    
    
    Net Sales
    
    
    %(In millions)
    
    
    
    
    
    
    (In millions)Broadband Infrastructure and Access
    
    $
    228.5
    
    
    
    81.5
    %
    
    $
    186.3
    
    
    
    77.4
    %Professional Services:Product
    
    
    12.0
    
    
    
    4.3
    
    
    
    13.4
    
    
    
    5.6Service
    
    
    39.7
    
    
    
    14.2
    
    
    
    40.9
    
    
    
    17.0Total Professional Services
    
    
    51.7
    
    
    
    18.5
    
    
    
    54.3
    
    
    
    22.6Total
    
    $
    280.2
    
    
    
    100.0
    %
    
    $
    240.6
    
    
    
    100.0
    %
    17




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##### Table of Contents



Gross Profit
  Operating Expenses
     18




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##### Table of Contents



Other Income, Net
  Three months endedJanuary 27,
    
    
    January 28,2006
    
    
    2005(In millions)Interest income on short-term investments
    
    $
    4.6
    
    
    $
    3.7Interest expense
    
    
    (3.3
    )
    
    
    (2.8
    )Interest income, net
    
    
    1.3
    
    
    
    0.9Foreign exchange income
    
    
    0.7
    
    
    
    1.0Gain on sale of note receivable
    
    
    
    
    
    
    9.0Other
    
    
    0.7
    
    
    
    1.3Non-operating income, net
    
    
    1.4
    
    
    
    11.3Total other income, net
    
    $
    2.7
    
    
    $
    12.2
  Income Taxes
  Acquisitions
  Discontinued Operations
 Accounting for the
Impairment or Disposal of Long-Lived Assets
 Share-Based Compensation
   19




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##### Table of Contents



Three MonthsEndedJanuary 27, 2006(In millions, exceptper share amounts)Effect on Income Before Tax
    
    $
    (3.4
    )Effect on Income From Continuing Operations
    
    $
    (3.4
    )Cumulative Effect of Change in Accounting Principle
    
    
    0.6Net Income
    
    $
    (2.8
    )Basic and Diluted Earnings Per Share
    
    $
    (0.02
    )
  Application of Critical Accounting Policies and Estimates
  Share-Based Compensation:
 Recoverability of Long-Lived Assets
  20




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Liquidity and Capital Resources
 Liquidity
   Operating Activities
   Investing Activities
   Financing Activities
  Unsecured Debt
  21




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##### Table of Contents



Financing Arrangements
  Vendor Financing
  Off-Balance-Sheet Arrangements and Contractual Obligations
  Working Capital and Liquidity Outlook
  
    
    $8.4 million for employee severance will be paid by the end of the first quarter of
fiscal 2007;
    
    $7.7 million for facilities consolidation costs, which relate principally to excess
leased facilities, will be paid through January 26, 2007; and
    
    the remainder of $13.4 million, which also relates to excess leased facilities, will be
paid over the respective lease terms ending through 2015.
    Cautionary Statement Regarding Forward Looking Information
 22
    Table of Contents    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Managements Report on Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
   23




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Legal Contingencies In Re ADC Telecommunications, Inc. ERISA
Litigation
  
 ITEM 1A. RISK FACTORS
  The regulatory environment in which we and our customers operate is changing.
    24




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##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
   25




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##### Table of Contents



SIGNATURES
  Dated:  March 2, 2006
    ADC TELECOMMUNICATIONS, INC.By:
    /s/ Gokul V. HemmadyGokul V. HemmadyVice President, Chief Financial Officer

(Principal Financial Officer and Duly Authorized Officer) 26




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##### Table of Contents



ADC TELECOMMUNICATIONS, INC.
EXHIBIT INDEX TO FORM 10-Q
FOR THE THREE MONTHS ENDED JANUARY 27, 2006
 ExhibitNo.
    
    Description3-a
    
    Restated Articles of Incorporation of ADC Telecommunications, Inc., conformed to
incorporate amendments dated January 20, 2000, June 30, 2000, August 13, 2001, March 2,
2004 and May 9, 2005. (Incorporated by reference to Exhibit 3-a to ADCs Quarterly Report
on Form 10-Q for the quarter ended July 29, 2005.)3-b
    
    Restated Bylaws of ADC Telecommunications, Inc. effective April 18, 2005. (Incorporated
by reference to Exhibit 3-f to ADCs Quarterly Report on Form 10-Q for the quarter ended
April 29, 2005.)4-a
    
    Form of certificate for shares of Common Stock of ADC Telecommunications, Inc.
(Incorporated by reference to Exhibit 4-a to ADCs Quarterly Report on Form 10-Q for the
quarter ended April 29, 2005.)4-b
    
    Rights Agreement, as amended and restated July 30, 2003, between ADC Telecommunications,
Inc. and Computershare Investor Services, LLC as Rights Agent. (Incorporated by reference
to Exhibit 4-b to ADCs Form 8-A/A filed on July 31, 2003.)4-c
    
    Indenture dated as of June 4, 2003, between ADC Telecommunications, Inc. and U.S. Bank
National Association. (Incorporated by reference to Exhibit 4-g of ADCs Quarterly Report
on Form 10-Q for the quarter ended July 31, 2003.)4-d
    
    Registration Rights Agreement dated as of June 4, 2003, between ADC Telecommunications,
Inc. and Banc of America Securities LLC, Credit Suisse First Boston LLC and Merrill Lynch
Pierce Fenner & Smith Incorporated as representations of the Initial Purchase of 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 the 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
 27